<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COLUMBIA/HCA HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 8062 75-2497104
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
(615) 327-9551
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN T. BRAUN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
COLUMBIA/HCA HEALTHCARE CORPORATION
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
(615) 327-9551
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
JEFFREY BAGNER, ESQ. PAUL M. FINIGAN, ESQ. MICHAEL A. SCHWARTZ,
FRIED, FRANK, HARRIS, SENIOR VICE PRESIDENT, ESQ.
SHRIVER & JACOBSON GENERAL COUNSEL AND SECRETARY WILLKIE FARR & GALLAGHER
ONE NEW YORK PLAZA VALUE HEALTH, INC. ONE CITICORP CENTER
NEW YORK, NEW YORK 10004 22 WATERVILLE ROAD 153 EAST 53RD STREET
(212) 859-8000 AVON, CT 06001 NEW YORK, NEW YORK 10022
(860) 678-3400 (212) 821-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED(1) REGISTERED(1) PER SHARE(2) PRICE(2) FEE(2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 34,866,286 Shares $37.931 $1,322,513,094 $400,762
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Also includes associated Preferred Stock Purchase Rights. See "Description
of Columbia Capital Stock."
(2) The registration fee has been computed pursuant to Rule 457(f)(1) under
the Securities Act of 1933, as amended, based on the average of the high
and low prices for shares of the Common Stock of Value Health, Inc. as
reported on the New York Stock Exchange, Inc. on January 30, 1997 ($22.00)
and the maximum number of such shares (60,114,285 shares) that may be
exchanged for the securities being registered. The proposed maximum
offering price per share has been determined by dividing the maximum
aggregate offering price by the number of shares being registered.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4 AND PROSPECTUS
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM PROSPECTUS CAPTION
---- ------------------
<S> <C> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus.......................................... Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus...... Available Information, Documents Incor-
porated By Reference, Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information................................................. Summary, Certain Considerations, The Merger
4. Terms of the Transaction..................................... The Merger, The Merger Agreement,
Description of Columbia Capital Stock,
Comparative Rights of Stockholders
5. Pro Forma Financial Information.............................. Unaudited Pro Forma Condensed Combined
Financial Statements
6. Material Contacts with the Company Being Acquired............ The Merger
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters........................... *
8. Interests of Named Experts and Counsel....................... Legal Matters, Experts
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities.................................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.................. *
11. Incorporation of Certain Information by Reference............ Documents Incorporated By Reference
12. Information with Respect to S-2 or S-3 Registrants........... *
13. Incorporation of Certain Information by Reference............ *
14. Information with Respect to Registrants Other than S-3 or
S-2 Registrants............................................. *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies.................... Documents Incorporated By Reference
16. Information with Respect to S-2 or S-3 Companies............. *
17. Information with Respect to Companies Other than S-3 or S-2
Companies................................................... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations are to be
Solicited:
1. Date, Time and Place Information........................ Summary
2. Revocability of Proxy................................... The Special Meeting
3. Dissenters' Rights of Appraisal......................... The Special Meeting
4. Persons Making the Solicitation......................... General Information, The Special Meeting
5. Interest of Certain Persons in Matters to be Acted Upon
and Voting Securities and Principal Holders Thereof.... The Merger, The Merger Agreement, The
Special Meeting, Approval of 1994
Restricted and Nonqualified Stock
Option Plan, Approval of Directors
Nonqualified Stock Option Plan,
Approval of Director Options
6. Vote Required for Approval............................... The Special Meeting
7. Directors and Executive Officers, Executive Compensation,
and Certain Relationships and Related Transactions...... Documents Incorporated By Reference,
Election of Directors, Compensation of
Executive Officers
19. Information if Proxies, Consents or Authorizations are not to be
Solicited or in an Exchange Offer............................ *
</TABLE>
- -------
*Indicates that Item is not applicable or answer is in the negative.
<PAGE>
[VALUE HEALTH LETTERHEAD]
, 1997
To the Stockholders of Value Health, Inc.:
Enclosed are a Notice of Special Meeting of Stockholders, a Proxy Statement
and Prospectus, and a Proxy for a Special Meeting of Stockholders (the
"Special Meeting") of Value Health, Inc. ("Value Health") to be held on ,
1997, at 10:00 a.m., local time, at the Avon Old Farms Hotel, Routes 10 and
44, Avon, Connecticut.
At the Special Meeting, you will be asked to consider and vote on a proposal
to approve and adopt a Merger Agreement pursuant to which a wholly owned
subsidiary of Columbia/HCA Healthcare Corporation ("Columbia") will be merged
with and into Value Health, which will thereupon become a subsidiary of
Columbia. The terms of the Merger Agreement provide that holders of Value
Health Common Stock will receive, for each share of Value Health Common Stock
owned as of the effective date of the merger, 0.58 of a share of Columbia
Common Stock. Details of the proposed transaction are set forth in the
accompanying Proxy Statement and Prospectus, which you should read carefully.
After careful consideration, the Board of Directors of Value Health has
determined that the proposed merger is fair to and in the best interests of
Value Health and its stockholders. Accordingly, the Board of Directors has
unanimously approved the Merger Agreement and recommends that all stockholders
vote for its approval and adoption. The Board of Directors of Value Health
believes that the proposed merger presents a significant opportunity for
diversification of stockholders' investment by becoming stockholders of a
larger company, which provides a broader range of health care services and is
thus more effectively able to respond to the changing health care environment.
All stockholders are invited to attend the Special Meeting in person. The
affirmative vote of a majority of the outstanding shares of Value Health
Common Stock will be necessary for approval and adoption of the Merger
Agreement.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
If you attend the Special Meeting in person you may, if you wish, vote
personally on all matters brought before the Special Meeting even if you have
previously returned your Proxy.
Sincerely,
Robert E. Patricelli
Chairman of the Board,President and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
VALUE HEALTH, INC.
22 WATERVILLE ROAD
AVON, CONNECTICUT 06001
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
---------------
To the Stockholders of Value Health, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Value Health, Inc. ("Value Health") will be held on , 1997,
at 10:00 a.m., local time, at the Avon Old Farms Hotel, Routes 10 and 44,
Avon, Connecticut, 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 January 15, 1997 (the "Merger Agreement"),
among Columbia/HCA Healthcare Corporation ("Columbia"), CVH Acquisition
Corporation ("Columbia Sub") and Value Health, pursuant to which, among
other things, (a) Columbia Sub would be merged with and into Value Health
(the "Merger"), and (b) each stockholder of Value Health would receive for
each share of Value Health Common Stock owned as of the effective date of
the Merger 0.58 of a share of Columbia Common Stock, as described in the
accompanying Proxy Statement and Prospectus; and
(2) to transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Notwithstanding stockholder approval of the foregoing Proposal (1), Value
Health reserves the right to abandon the Merger at any time prior to the
consummation of the Merger under the terms and conditions set forth in Section
8.9 of the Merger Agreement.
The Board of Directors of Value Health has fixed the close of business on
, 1997, as the record date for the determination of stockholders entitled
to notice of and to vote at the Special Meeting, and only stockholders of
record at such time will be entitled to notice of and to vote at the Special
Meeting. A list of Value Health stockholders entitled to vote at the Special
Meeting will be available for examination, during ordinary business hours, at
the principal offices of Value Health, 22 Waterville Road, Avon, Connecticut,
for ten days prior to the Special Meeting.
A form of Proxy and a Proxy Statement and Prospectus containing more
detailed information with respect to the matters to be considered at the
Special Meeting accompany this notice.
You are cordially invited and urged to attend the Special Meeting in person,
but if you are unable to do so, please complete, sign, date and promptly
return the enclosed Proxy in the enclosed, self-addressed, stamped envelope.
If you attend the Special Meeting and desire to revoke your Proxy and vote in
person you may do so. In any event, a Proxy may be revoked at any time before
it is voted.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
By Order of the Board of Directors,
Paul M. Finigan
Secretary
Avon, Connecticut
, 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 1997
COLUMBIA/HCA HEALTHCARE VALUE HEALTH, INC.
CORPORATION
-----------
PROXY STATEMENT AND PROSPECTUS
-----------
GENERAL INFORMATION
This Proxy Statement and Prospectus (the "Proxy Statement/Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of Value Health, Inc., a Delaware corporation ("Value Health"), for
use in connection with a Special Meeting of Stockholders of Value Health which
is to be held on , 1997, or any adjournment(s) or postponement(s) thereof
(the "Special Meeting"). At the Special Meeting, the stockholders of Value
Health will consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of January 15, 1997 (the "Merger Agreement"),
among Columbia/HCA Healthcare Corporation, a Delaware corporation ("Columbia"),
CVH Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Columbia ("Columbia Sub"), and Value Health, pursuant to which
Columbia Sub would be merged with and into Value Health (the "Merger"). As a
result of the Merger, each of the then outstanding shares of Common Stock, no
par value, of Value Health (the "Value Health Common Stock") would be converted
into the right to receive 0.58 of a share of Common Stock, $.01 par value, of
Columbia, including the associated Preferred Stock Purchase Rights (as
hereinafter defined) (the "Columbia Common Stock").
The stockholders of Value Health also will consider and vote upon such other
business as may properly come before the Special Meeting.
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.
SEE "RISK FACTORS," BEGINNING ON PAGE 9, FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER.
This Proxy Statement/Prospectus is first being mailed to the stockholders of
Value Health on or about , 1997.
-----------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS , 1997.
<PAGE>
AVAILABLE INFORMATION
Columbia and Value Health are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information are available for inspection and copying at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. 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. In
addition, electronic copies of such materials may be accessed on the world
wide web via the Commission's website (http://www.sec.gov). The shares of
Columbia Common Stock and Value Health Common Stock are listed on the New York
Stock Exchange and, as a result, the periodic reports, proxy statements and
other information filed by Columbia and Value Health with the Commission can
also 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 VALUE HEALTH 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, ONE PARK PLAZA, NASHVILLE, TENNESSEE
37203, ATTENTION: JOHN M. FRANCK II, SECRETARY, TELEPHONE: (615) 327-9551.
DOCUMENTS RELATING TO VALUE HEALTH (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 VALUE HEALTH, INC., 22 WATERVILLE ROAD, AVON, CONNECTICUT 06001,
ATTENTION: PAUL M. FINIGAN, SECRETARY, TELEPHONE: (860) 678-3400. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY
, 1997. 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, 1995 (the
"1995 Columbia 10-K").
2. The portions of the Proxy Statement for the Annual Meeting of
Stockholders held May 9, 1996 that have been incorporated by reference in
the 1995 Columbia 10-K.
3. Quarterly Reports on Form 10-Q for the interim periods ended March 31,
1996, June 30, 1996 and September 30, 1996.
4. Current Reports on Form 8-K dated May 15, 1996, July 2, 1996, July 3,
1996, September 12, 1996 and January 15, 1997.
5. Registration Statement on Form 8-A dated August 31, 1993.
(ii)
<PAGE>
The following Value Health documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1995 (the
"1995 Value Health 10-K").
2. The portions of the Proxy Statement for the Annual Meeting of
Stockholders held April 30, 1996 that have been incorporated by reference
in the 1995 Value Health 10-K.
3. Quarterly Reports on Form 10-Q for the interim periods ended March 31,
1996, June 30, 1996 and September 30, 1996.
4. Current Reports on Form 8-K dated October 11, 1996 and January 28,
1997.
5. Registration Statement on Form 8-A dated November 3, 1992, as amended
by Amendment No. 1 thereto dated December 9, 1992, and Registration
Statement on Form 8-A dated February 16, 1994.
All documents filed by Columbia or Value Health 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 Special Meeting shall be deemed to be
incorporated by reference herein and shall be a part hereof from the date of
filing of such documents. Any statements contained in a document incorporated
by reference herein or contained in this Proxy Statement/Prospectus shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES
OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY
FROM ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES MADE
UNDER THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COLUMBIA OR
VALUE HEALTH SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION......................................................... i
AVAILABLE INFORMATION....................................................... ii
DOCUMENTS INCORPORATED BY REFERENCE......................................... ii
SUMMARY..................................................................... 1
RISK FACTORS................................................................ 9
Health Care Reform........................................................ 9
Competition; Impact of Managed Care Organizations......................... 9
Limits on Reimbursement................................................... 10
Extensive Regulation...................................................... 10
Dependence on Key Personnel............................................... 10
Professional Liability Risks.............................................. 11
Risks Associated with Acquisition Strategy................................ 11
Certain Anti-takeover Provisions.......................................... 11
Factors Affecting Market Price of Columbia Common Stock................... 11
THE SPECIAL MEETING......................................................... 12
Matters to Be Considered at the Special Meeting........................... 12
Vote Required............................................................. 12
Voting of Proxies......................................................... 12
Revocability of Proxies................................................... 12
Record Date; Shares Entitled to Vote; Quorum.............................. 12
No Dissenters' Rights..................................................... 13
Solicitation of Proxies................................................... 13
THE MERGER.................................................................. 14
General................................................................... 14
Background of the Merger.................................................. 14
Reasons for the Merger; Recommendation of the Board of Directors.......... 16
Opinion of Financial Advisor.............................................. 17
Interests of Certain Persons in the Merger................................ 21
Accounting Treatment...................................................... 22
Certain Federal Income Tax Consequences................................... 23
Regulatory Approvals...................................................... 23
Resale Restrictions....................................................... 24
THE MERGER AGREEMENT........................................................ 25
The Merger................................................................ 25
Exchange Procedures....................................................... 25
Representations and Warranties............................................ 26
Certain Covenants......................................................... 27
No Solicitation of Transactions........................................... 27
Indemnification and Insurance............................................. 28
Conditions................................................................ 28
Termination............................................................... 29
Termination Fee........................................................... 30
Expenses.................................................................. 30
Amendment and Waiver...................................................... 30
Alternative Merger Structure.............................................. 30
DESCRIPTION OF COLUMBIA CAPITAL STOCK....................................... 31
Authorized Capital Stock.................................................. 31
Columbia Common Stock..................................................... 31
Columbia Nonvoting Common Stock........................................... 31
Columbia Preferred Stock.................................................. 31
Columbia Preferred Stock Purchase Rights.................................. 32
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
COMPARATIVE RIGHTS OF STOCKHOLDERS......................................... 35
General.................................................................. 35
Classified Board of Directors............................................ 35
Stockholder Rights Plan.................................................. 35
Number of Directors; Removal; Filling Vacancies.......................... 36
No Stockholder Action by Written Consent; Special Meetings............... 37
Fair Price Provisions.................................................... 37
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals............................................................... 39
Common Stock and Nonvoting Common Stock.................................. 40
Preferred Stock.......................................................... 40
Amendment of the Certificate of Incorporation and Bylaws................. 41
Business Combinations.................................................... 41
Special Voting Requirements.............................................. 42
Limitation of Liability of Directors..................................... 42
Indemnification of Directors and Officers................................ 42
Other Provisions......................................................... 43
LEGAL MATTERS.............................................................. 44
EXPERTS.................................................................... 44
STOCKHOLDER PROPOSALS...................................................... 44
OTHER MATTERS.............................................................. 44
APPENDIX A--AGREEMENT AND PLAN OF MERGER................................... A-1
APPENDIX B--OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED.. B-1
</TABLE>
(v)
<PAGE>
SUMMARY
The following summary of certain information contained elsewhere in this
Proxy Statement and Prospectus (the "Proxy Statement/Prospectus") does not
purport to be complete and is qualified in its entirety by reference to the
more detailed information contained in this Proxy Statement/Prospectus,
including the appendices attached hereto. As used in this Proxy
Statement/Prospectus, "Columbia" refers to Columbia/HCA Healthcare Corporation
and "Value Health" refers to Value Health, Inc., and, unless the context
otherwise requires, 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 Value Health and its affiliates has been supplied by Value
Health. Certain capitalized terms which are used but not defined in this
summary are defined elsewhere in this Proxy Statement/Prospectus. All financial
information and market data for Columbia contained in this Proxy
Statement/Prospectus have been adjusted to give effect to a 3-for-2 stock split
in the form of a stock dividend effective on October 15, 1996.
COLUMBIA
Columbia is one of the largest providers of health care services, with
facilities in 37 states and two foreign countries. As of December 31, 1996,
Columbia operated 321 general, acute care hospitals and 22 psychiatric
hospitals. In addition, as part of its comprehensive health care networks,
Columbia operates facilities that provide a broad range of outpatient and
ancillary services. For the year ended December 31, 1995, Columbia generated
operating revenues of $17.7 billion and income from continuing operations of
$1.1 billion.
Columbia's primary objective is to provide to the markets it serves a
comprehensive array of quality health care services in the most cost effective
manner possible. Columbia's general, acute care hospitals usually provide a
full range of services commonly available in hospitals to accommodate such
medical specialties as internal medicine, general surgery, cardiology,
oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and
emergency services. Outpatient and ancillary health care services are provided
by Columbia's general, acute care hospitals as well as at freestanding
facilities operated by Columbia, including rehabilitation facilities,
outpatient surgery and diagnostic centers, home health care agencies and other
facilities. In addition, Columbia operates psychiatric hospitals which
generally provide a full range of mental health care services in inpatient,
partial hospitalization and outpatient settings.
Columbia, through various predecessor entities, began operations on July 1,
1988. Columbia was incorporated in Nevada in January 1990 and reincorporated in
Delaware in September 1993. Columbia's principal executive offices are located
at One Park Plaza, Nashville, Tennessee 37203, and its telephone number at such
address is (615) 327-9551.
VALUE HEALTH
Value Health provides specialty managed health care benefit programs and
health care information services. Value Health's specialty managed health care
programs are designed to manage costs and maintain quality in selected health
care sectors that are of particular concern to employers and other benefit plan
sponsors due to their size, rapid cost escalation and potential for
overutilization. These areas include prescription drugs, mental health and
substance abuse, workers' compensation management and disease management. Value
Health's health care information services are based upon the use of clinical
and data analysis to guide health care decision-making.
Value Health was incorporated in Delaware in March 1987 for the purpose of
acquiring and developing specialty managed health care businesses meeting its
strategic objectives. From 1987 to 1996, Value Health made over 20 acquisitions
of companies in the prescription drug, mental health and substance abuse,
workers' compensation and information services fields. Value Health's principal
executive offices are located at 22 Waterville Road, Avon, Connecticut 06001,
and its telephone number at such address is (860) 678-3400.
1
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement/Prospectus relates to a Special Meeting of Stockholders
of Value Health (the "Special Meeting"). At the Special Meeting, the
stockholders of Value Health will consider and vote upon a proposal to approve
and adopt an Agreement and Plan of Merger dated as of January 15, 1997 (the
"Merger Agreement") among Columbia, CVH Acquisition Corporation ("Columbia
Sub") and Value Health, pursuant to which Columbia Sub would be merged with and
into Value Health (the "Merger").
The Special Meeting will be held on , , 1997, at 10:00 a.m., local
time, at the Avon Old Farms Hotel, Routes 10 and 44, Avon, Connecticut. The
record date for stockholders of Value Health entitled to notice of and to vote
at the Special Meeting is as of the close of business on , 1997. Voting
rights for Value Health are vested in the holders of the Common Stock, no par
value, of Value Health ("Value Health Common Stock"), with each share of Value
Health Common Stock entitled to one vote on each matter coming before the
stockholders. As of , 1997 there were shares of Value Health Common
Stock outstanding, held by approximately holders of record.
VOTE REQUIRED
The favorable vote of the holders of a majority of the outstanding shares of
Value Health Common Stock is required for the approval and adoption of the
Merger Agreement and the transactions contemplated thereby. Any Value Health
stockholder present (including broker non-votes) at the Special Meeting, but
who abstains from voting, shall be counted for purposes of determining whether
a quorum exists. With respect to the approval and adoption of the Merger
Agreement and the transactions contemplated thereby, an abstention (or broker
non-vote) has the same effect as a vote against the proposal. As of ,
1997, directors, executive officers and affiliates of Value Health were
beneficial owners of approximately % of the outstanding shares of Value Health
Common Stock (excluding shares which may be acquired upon exercise of
options or other rights which are exercisable within 60 days of , 1997).
THE MERGER
Conversion of Securities. Upon consummation of the transactions contemplated
by the Merger Agreement, (a) Columbia Sub will be merged with and into Value
Health (the "Merger") and (b) each issued and outstanding share of Value Health
Common Stock will be converted into the right to receive 0.58 of a share (the
"Exchange Ratio") of Common Stock, $.01 par value, of Columbia, including the
associated Preferred Stock Purchase Rights (the "Columbia Common Stock").
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 such fractional
part of a share of Columbia Common Stock multiplied by the average of the
closing sales prices of the Columbia Common Stock on the New York Stock
Exchange over the last ten trading days preceding the Effective Date (as
hereinafter defined).
Recommendation of the Board of Directors. The Board of Directors of Value
Health has unanimously approved the Merger Agreement and unanimously recommends
a vote FOR approval and adoption of the Merger Agreement by the stockholders of
Value Health. The Board of Directors of Value Health believes that the terms of
the Merger are fair to and in the best interests of Value Health and its
stockholders. For a discussion of the factors considered by the Board of
Directors in reaching its decision, see "The Merger--Reasons for the Merger;
Recommendation of the Board of Directors."
Opinion of Financial Advisor. Value Health retained Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") to act as its exclusive financial
advisor in connection with a possible business combination. On January 15,
1997, Merrill Lynch rendered to the Value Health Board its written opinion (the
"Merrill Lynch Opinion") that, as of such date and based upon and subject to
the factors and assumptions set forth therein, the Exchange Ratio was fair to
the holders of Value Health Common Stock (other than Columbia and its
affiliates)
2
<PAGE>
from a financial point of view. The full text of the Merrill Lynch Opinion,
which sets forth the assumptions made, matters considered, and qualifications
and limitations on the review undertaken by Merrill Lynch, is attached as
Appendix B to this Proxy Statement/Prospectus, is incorporated herein by
reference and should be read in its entirety. See "The Merger--Opinion of
Financial Advisor."
Interests of Certain Persons in the Merger. In considering the recommendation
of the Board of Directors of Value Health with respect to the Merger Agreement
and the transactions contemplated thereby, stockholders should be aware that
certain members of the management of Value Health and the Board of Directors of
Value Health have certain interests in the Merger that are in addition to the
interests of stockholders of Value Health generally (including, without
limitation, benefits obtained under change in control provisions contained in
various agreements and benefit plans, the adoption of consulting and
noncompetition agreements, severance arrangements and the acceleration of stock
options). See "The Merger--Interests of Certain Persons in the Merger" and "The
Merger Agreement--Indemnification and Insurance."
Conditions to the Merger. The obligations of Columbia and Value Health to
consummate the Merger are subject to the satisfaction of certain conditions,
including, among others, (i) obtaining Value Health stockholder approval, (ii)
the expiration or termination of the waiting period applicable to the
consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (iii) the absence of any material
adverse change in the financial condition, business, results of operations or
prospects of Value Health, (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, (vi) the receipt of accountants'
letters with respect to qualification of the Merger as a pooling of interests
and customary "cold comfort" matters and (vii) the receipt of all consents,
authorizations, orders and approvals under insurance holding company or similar
statutes regulating managed care or insurance organizations. See "The Merger--
Certain Federal Income Tax Consequences," "The Merger--Accounting Treatment"
and "The Merger Agreement--Conditions."
Effective Date 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, which certificate will be filed as promptly as practicable after
Value Health stockholder approval has been obtained and all other conditions to
the Merger have been satisfied or waived. Subject to the satisfaction (or
waiver) of the other conditions to the obligations of Columbia and Value Health
to consummate the Merger, it is currently expected that the Merger will be
consummated on , 1997 or as soon thereafter as such conditions are
satisfied. The date when the Merger will become effective is referred to in
this Proxy Statement/Prospectus as the "Effective Date."
Exchange of Value Health Stock Certificates. Upon consummation of the Merger,
each holder of a certificate or certificates representing shares of Value
Health Common Stock ("Certificates") outstanding immediately prior to the
Effective Date 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 Value Health Common Stock will have been
automatically converted as a result of the Merger. After the Effective Date,
the Exchange Agent will mail a letter of transmittal with instructions to all
holders of record of Value Health Common Stock as of the Effective Date 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 Value Health Common Stock are not entitled
to dissenters' rights in connection with the Merger.
Certain Federal Income Tax Consequences. Based upon the advice of Willkie
Farr & Gallagher, special counsel to Value Health, Value Health believes that
no gain or loss will be recognized by Value Health or by Value Health
stockholders on the exchange of shares of Value Health Common Stock for
Columbia Common
3
<PAGE>
Stock (except with respect to cash received in lieu of a fractional interest in
Columbia Common Stock). Based upon the advice of Fried, Frank, Harris, Shriver
& Jacobson, special counsel to Columbia, Columbia believes that the Merger will
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). See "The Merger--Certain Federal
Income Tax Consequences" and "The Merger Agreement--Conditions."
Accounting Treatment. Both Columbia and Value Health 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 Value Health of a letter from their respective independent
public accountants regarding those firms' concurrence with Columbia
management's and Value Health management's conclusions, respectively, that the
Merger 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 Value
Health 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 Value Health
at the time of the Special Meeting may be resold by them only in certain
permitted circumstances. See "The Merger--Resale Restrictions."
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Date, before or after the approval
by the stockholders of Value Health, in a number of circumstances, which
include, among others: (a) by the mutual consent of Value Health and Columbia
by action of their respective Boards of Directors; (b) by action of the Board
of Directors of either Value Health or Columbia if (i) the Merger shall not
have been consummated by August 31, 1997, 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 approval and adoption of the Merger
Agreement by Value Health's stockholders shall not have been obtained at a
stockholders' meeting duly convened for such purpose (or any adjournment or
postponement thereof), or (iii) 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
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 Value Health, 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 Value Health determines that such
termination is required by reason of an Alternative Proposal (hereinafter
defined) being made for Value Health, (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 the business, properties, assets, condition (financial or
otherwise), liabilities or results of operations of 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 Value Health shall have withdrawn or modified in a
manner adverse to Columbia its approval or recommendation of the Merger
Agreement or the Merger or shall have recommended an Alternative Proposal to
Value Health stockholders, (ii) there has been a breach by Value Health 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 the
business, properties, assets, condition (financial or otherwise), liabilities
or results of operations of Value Health and its subsidiaries taken as a whole,
or (iii) there has been a material breach by Value Health 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."
4
<PAGE>
Termination Fee. If (a) Value Health terminates the Merger Agreement because
its Board of Directors, in the exercise of its good faith judgment as to its
fiduciary duties to its stockholders imposed by law, determines that such
termination is required by reason of an Alternative Proposal being made for
Value Health, (b) an Alternative Proposal is made and the Merger Agreement is
terminated by either Value Health or Columbia by reason of the stockholders of
Value Health not approving the Merger Agreement at the Special Meeting,
(c) Columbia terminates the Merger Agreement because the Board of Directors of
Value Health shall have withdrawn or modified in a manner adverse to Columbia
its approval or recommendation of the Merger Agreement or the Merger or shall
have recommended an Alternative Proposal to Value Health stockholders, or (d)
any person shall have made an Alternative Proposal and thereafter the Merger
Agreement is terminated for any reason other than those set forth in clauses
(a), (b) or (c) above, and within 12 months thereafter, any Alternative
Proposal shall have been consummated, then in any of these cases Value Health
(or the successor thereto) is required to pay a fee in cash of $45,000,000 to
Columbia. See "The Merger Agreement--Termination Fee."
New York Stock Exchange Listing. The Columbia Common Stock is listed on the
New York Stock Exchange, Inc. (the "NYSE") under the symbol "COL". The
obligations of Columbia and Value Health to consummate the Merger are subject
to the condition that the Columbia Common Stock to be issued to Value Health
stockholders in connection with the Merger shall have been approved for listing
on the NYSE, subject only to official notice of issuance.
5
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected historical financial data of Columbia and Value
Health which are based upon the historical consolidated financial statements of
Columbia and Value Health. The following data should be read in conjunction
with the respective consolidated financial statements incorporated by reference
in this Proxy Statement/Prospectus.
COLUMBIA/HCA HEALTHCARE CORPORATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
--------------- ---------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues................ $14,771 $13,112 $17,695 $14,543 $12,678 $12,226 $11,722
Income from continuing
operations............. $ 1,091 $ 710 $ 1,064 $ 929 $ 720 $ 293 $ 218
Earnings per share from
continuing operations
(a).................... $ 1.61 $ 1.05 $ 1.58 $ 1.44 $ 1.16 $ 0.50 $ 0.39
Shares used in computing
earnings per share (in
thousands)............. 677,814 672,278 673,071 643,943 619,554 591,567 502,014
Cash dividends per
share.................. $ 0.06 $ 0.06 $ 0.08 $ 0.08 $ 0.04 -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Total assets............ $20,657 $19,892 $16,278 $12,685 $12,773 $13,081
Working capital......... 1,411 1,462 1,092 835 899 917
Net assets of
discontinued
operations............. -- -- -- -- 376 411
Long term debt,
including amounts due
within one year........ 7,060 7,380 5,672 4,682 4,735 6,380
Minority interests in
equity of consolidated
entities............... 820 722 278 67 51 44
Stockholders' equity.... 8,215 7,129 6,090 4,158 4,241 3,219
</TABLE>
VALUE HEALTH, INC.
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------- -----------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues................... $1,465 $1,362 $1,869 $1,621 $1,116 $ 732 $ 486
Income (loss) from
continuing operations..... $ 58 $ (18) $ (28) $ 60 $ 15 $ 27 $ 21
Earnings (loss) per share
from continuing
operations................ $ 1.05 $(0.33) $(0.51) $ 1.10 $ 0.28 $ 0.55 $ 0.53
Shares used in computing
earnings per share (in
thousands)................ 54,902 54,359 54,343 54,191 52,443 48,145 40,647
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Total assets............................. $944 $904 $792 $714 $589 $356
Long-term liabilities.................... 5 7 20 23 27 30
</TABLE>
- --------
(a) Earnings per share include the effect of preferred stock dividend
requirements totaling $18 million in 1991.
6
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are selected historical, pro forma combined and equivalent
(based on the Exchange Ratio of 0.58) pro forma per share financial data for
Columbia and Value Health, as the case may be. The historical data should be
read in conjunction with the respective consolidated financial statements
incorporated by reference in this Proxy Statement/Prospectus. The pro forma
combined amounts are presented assuming the Merger will be accounted for as a
pooling of interests and do not reflect expenses expected to be incurred by
Columbia and Value Health in connection with the Merger or the effect of cost
savings, if any, which may be realized after the consummation of the Merger.
Value Health equivalent pro forma amounts are calculated by multiplying the
respective pro forma combined per share amounts by the Exchange Ratio.
<TABLE>
<CAPTION>
VALUE HEALTH
COLUMBIA VALUE HEALTH PRO FORMA EQUIVALENT
HISTORICAL HISTORICAL COMBINED PRO FORMA
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Earnings per share from
continuing operations:
Nine months ended September
30:
1996........................ $ 1.61 $ 1.05 $ 1.62 $0.94
1995........................ 1.05 (a) (0.33)(d) 0.98 0.57
Years ended December 31:
1995........................ $ 1.58 (a) $(0.51)(e) $ 1.47 $0.85
1994........................ 1.44 (b) 1.10 (f) 1.46 0.85
1993........................ 1.16 (c) 0.28 (g) 1.13 0.66
Dividends per common share:
Nine months ended September
30, 1996................... $ 0.06 -- $ 0.06 $0.03
Years ended December 31,
1995....................... 0.08 -- 0.08 0.05
Book value per common share
as of:
September 30, 1996.......... $12.23 $11.95 $12.61 $7.31
December 31, 1995........... 10.66 10.82 11.02 6.39
</TABLE>
- --------
(a) Includes $235 million ($.35 per share) of costs primarily related to the
merger with Healthtrust, Inc.--The Hospital Company.
(b) Includes $102 million ($.16 per share) of costs primarily related to the
merger with HCA-Hospital Corporation of America.
(c) Includes $98 million ($.16 per share) of costs primarily related to the
merger with Galen Health Care, Inc.
(d) Includes $82 million ($1.51 per share) of costs related to the merger with
Diagnostek, Inc. and charges related to loss contracts.
(e) Includes $111 million ($2.04 per share) of costs related to the merger with
Diagnostek, Inc., restructuring charges and charges related to loss
contracts.
(f) Includes $12 million ($.22 per share) of costs related to litigation and
settlement expenses at Diagnostek, Inc. and costs related to the mergers
with Prescription Drug Service, Inc., Prescription Drug Service West, Inc.
and RxNet, Inc.
(g) Includes $31 million ($.59 per share) of costs related to the merger with
Preferred Health Care, Ltd. and litigation and settlement expenses at
Diagnostek, Inc.
7
<PAGE>
COMPARATIVE MARKET DATA
The table below sets forth, for the calendar quarters indicated, the high and
low sales prices per share reported on the NYSE Composite Tape for the Columbia
Common Stock and the Value Health Common Stock.
<TABLE>
<CAPTION>
COLUMBIA VALUE HEALTH
COMMON STOCK COMMON STOCK
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995:
First Quarter................................. $29.50 $23.58 $40.75 $34.00
Second Quarter................................ 30.67 25.75 40.50 31.88
Third Quarter................................. 33.25 28.33 39.38 24.63
Fourth Quarter................................ 36.00 31.08 29.00 21.25
1996:
First Quarter................................. 39.08 33.42 28.25 21.00
Second Quarter................................ 38.17 32.92 29.88 23.63
Third Quarter................................. 39.25 31.67 25.00 14.63
Fourth Quarter................................ 41.88 34.50 20.88 16.63
1997:
First Quarter (through , 1997)...........
</TABLE>
The last reported sale prices per share of Columbia Common Stock and Value
Health Common Stock on January 15, 1997, the last trading day preceding public
announcement of the Merger, were $40.25 and $20.25, respectively. Based on such
closing sale price of Columbia Common Stock, the market value of 0.58 of a
share of Columbia Common Stock was $23.35. On , 1997 the closing sale
price per share of Columbia Common Stock was $ and the closing sale price per
share of Value Health Common Stock was $ . Based on such closing sale price of
Columbia Common Stock, the market value of 0.58 of a share of Columbia Common
Stock was $ .
Because 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 Value Health 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 VALUE HEALTH COMMON STOCK.
In September 1993, Columbia initiated a regular quarterly dividend of $.02
per share of Columbia Common Stock. Prior to that time, Columbia did not pay
any cash dividends. No dividends have been declared or paid on the Value Health
Common Stock since Value Health's incorporation.
DIVIDEND POLICY
While it is the present intention of the Columbia Board of Directors to
continue paying a quarterly dividend of $.02 per share of Columbia Common
Stock, the declaration and payment of future dividends by Columbia will depend
upon many factors, including Columbia's earnings, financial condition, business
needs, capital and surplus and regulatory considerations.
RISK FACTORS
See "Risk Factors" with respect to factors which should be considered by
Value Health stockholders in evaluating the Merger.
8
<PAGE>
RISK FACTORS
When used in this Proxy Statement/Prospectus, or in press releases or other
stockholder communications of Columbia, or in oral statements made with the
approval of an authorized executive officer of Columbia, various words or
phrases are intended to identify "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements contain words or phrases such as "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions. Columbia wishes to advise persons that various factors
could affect Columbia's financial performance and could cause actual results
for future periods to differ materially from those anticipated or projected.
Such factors include, but are not limited to, (i) the highly competitive
nature of the health care business, (ii) the efforts of insurers, health care
providers and others to contain health care costs, (iii) possible changes in
the Medicare program affecting reimbursements to health care providers and
insurers, (iv) changes in federal, state or local regulation affecting the
health care industry, (v) the possible enactment of federal or state health
care reform, (vi) the departure of key executive officers from Columbia, (vii)
claims and legal actions relating to professional liability, (viii) risks
associated with Columbia's acquisition strategy, (ix) fluctuations in the
market value of the shares of Columbia Common Stock offered hereby, (x)
changes in accounting practices and (xi) other risk factors described below.
Persons are cautioned not to unduly rely on such forward looking statements
when evaluating the information presented herein.
The following factors should be considered carefully by the stockholders of
Value Health in connection with evaluating the Merger.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. Among the proposals under consideration are cost controls on
hospitals, insurance market reforms to increase the availability of group
health insurance to small businesses, requirements that all businesses offer
health insurance coverage to their employees and the creation of a single
government health insurance plan that would cover all citizens. 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 continue to be federal and state
proposals that would, and actions that do, impose more limitations on
government and private payments to health care providers such as Columbia and
proposals to increase copayments and deductibles from program and private
patients. At the federal level, both Congress and the current Administration
have continued to propose health care budgets that substantially reduce
payments under the Medicare and Medicaid programs. Indeed, a federal advisory
panel, the Prospective Payment Assessment Commission, has decided to recommend
that Congress reduce the amount of increases in Medicare payments to hospitals
for the next federal fiscal year. In addition, a number of states are
considering the enactment of managed care initiatives designed to reduce their
Medicaid expenditures, to provide universal coverage, additional care and/or
additional taxes on hospitals to help finance or expand the states' Medicaid
systems. While Columbia anticipates that payments to hospitals will be reduced
as a result of future federal and state legislation, it is uncertain at this
time what legislation on health care reform may ultimately be enacted or
whether other changes in the administration or interpretation of governmental
health care programs will occur. There can be no assurance that future health
care legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on
Columbia's business, financial condition or results of operations.
COMPETITION; IMPACT OF MANAGED CARE ORGANIZATIONS
The health care business is highly competitive and competition among
hospitals and other health care providers for patients has intensified in
recent years. During this period, U.S. hospital occupancy rates have declined
as a result of cost containment pressures, changing technology, changes in
government regulation and reimbursement and changes in physician practice
patterns from inpatient to outpatient treatment. In most geographic areas in
which Columbia operates, there are other hospitals, outpatient surgery and
diagnostic centers and other facilities that provide most of the services
offered by Columbia's hospitals. Certain of these competing
9
<PAGE>
facilities offer services, including extensive medical research and medical
education programs, which are not offered by many of Columbia's hospitals. In
addition, hospitals owned by governmental agencies or other tax-exempt
entities benefit from endowments, charitable contributions, tax-exempt
financing and exemptions from sales, property and income taxes, advantages
which are not available to Columbia's hospitals.
The competitive position of Columbia's hospitals also has been, and will
continue to be, affected by the increasing number of initiatives undertaken
during the past several years by major purchasers of health care, including
federal and state governments, insurance companies and employers, to revise
payment methodologies and monitor health care expenditures in order to contain
health care costs. As a result of these initiatives, managed care
organizations, which offer prepaid and discounted medical services packages,
represent an increasing segment of health care payors, the effect of which has
been to reduce hospital revenue growth nationwide.
LIMITS ON REIMBURSEMENT
A significant portion of Columbia's revenue is derived from the Medicare
program, which is highly regulated and subject to frequent and substantial
changes. In recent years, fundamental changes in the Medicare program
(including the implementation of a prospective payment system for inpatient
services at medical/surgical hospitals) have resulted in reduced levels of
payment for a substantial portion of hospital procedures and costs. Certain
existing payment programs are scheduled to be revised in the future which will
likely result in further reductions in payment levels. Medicare programs that
currently are on a cost reimbursement basis, such as outpatient and
psychiatric hospital services, may be changed to a prospective payment basis
in the future. Additionally, hospitals have experienced increasing pressures
from private payors attempting to control health care costs through direct
contracting with hospitals to provide services on a discounted basis,
increased utilization review, and greater enrollment in managed care programs
such as health maintenance organizations ("HMO's") and preferred provider
organizations ("PPO's"). Management of Columbia believes that hospital
operating margins have been, and may continue to be, under significant
pressure because of deterioration in inpatient volumes and payor mix, and
growth in operating expenses in excess of the increase in prospective payments
under the Medicare program.
EXTENSIVE REGULATION
The health care industry, including hospitals, is subject to extensive
federal, state and local regulation relating to licensure, conduct of
operations, ownership of facilities, addition of facilities and services and
prices for services, and there can be no assurance that future regulatory
changes will not have an adverse impact on Columbia. In particular, Medicare
and Medicaid antifraud and abuse amendments, codified under Section 1128B(b)
of the Social Security Act (the "Antifraud Amendments"), prohibit certain
business practices and relationships that might affect the provision and cost
of health care services reimbursable under Medicare and Medicaid. Sanctions
for violating the Antifraud Amendments include criminal penalties and civil
sanctions, including fines and possible exclusion from the Medicare and
Medicaid programs. Pursuant to the Medicare and Medicaid Patient and Program
Protection Act of 1987, the Department of Health and Human Services has issued
regulations which describe some of the conduct and business relationships
permissible under the Antifraud Amendments (the "Safe Harbors"). In addition,
certain provisions of Section 1877 of the Social Security Act, commonly known
as the "Stark Bill," have been amended to broaden significantly the scope of
prohibited self-referrals thereunder. Certain of Columbia's current
arrangements with physicians, including joint ventures, do not qualify for the
Safe Harbors. Although Columbia exercises care in an effort to structure its
arrangements with physicians to comply in all material respects with these
laws, there can be no assurance that (i) government officials charged with
responsibility for enforcing such laws will not assert that Columbia or
certain transactions in which it is involved are in violation thereof and (ii)
such laws will ultimately be interpreted by the courts in a manner consistent
with Columbia's interpretation.
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
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operating results could be adversely affected. In addition, Columbia's
continued growth depends on its ability to attract and retain skilled
employees, on the ability of its officers and key employees to manage growth
successfully and on Columbia's ability to attract and retain physicians at its
hospitals.
PROFESSIONAL LIABILITY RISKS
As is typical in the health care industry, Columbia is subject to claims and
legal actions by patients and others in the ordinary course of business.
Columbia, through a wholly-owned subsidiary, insures substantially all of its
professional and general liability risks. Columbia's hospitals are insured by
the insurance subsidiary for losses of up to $25 million per occurrence.
Columbia currently carries general and professional insurance from unrelated
commercial carriers for losses in excess of amounts insured by its insurance
subsidiary. 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
subsidiary exceed anticipated payments of claims, the results of operations
and cash flow of Columbia could be adversely affected.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
Columbia's ability to continue to compete successfully for managed care
contracts or to expand and enhance its integrated healthcare delivery systems
may depend upon, among other things, Columbia's ability to increase the number
of its facilities and services offered. Part of Columbia's business strategy
is to expand its healthcare delivery systems and services through the
acquisition of hospitals, groups of hospitals, other healthcare businesses,
ancillary healthcare providers, physician practices and physician practice
assets. There can be no assurance that suitable acquisitions can be
consummated on terms favorable to Columbia. Further, there is no assurance
that as Columbia continues to acquire additional facilities and related
healthcare service providers in the geographic areas in which it currently
operates that it will not face constraints on its ability to grow from federal
and state regulatory agencies. In addition, there can be no assurance that
Columbia will be able to operate profitably any hospitals, facilities,
businesses or other assets it may acquire, effectively integrate the
operations of such acquisitions or otherwise achieve the intended benefits of
such acquisitions.
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."
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 Value Health 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 Date 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 Value Health Common
Stock currently trades.
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THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Value Health Common Stock will consider
and vote upon a proposal to approve and adopt the Merger Agreement. Value
Health stockholders will also consider and vote upon such other matters as may
properly be brought before the Special Meeting.
THE VALUE HEALTH BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT VALUE HEALTH STOCKHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
VOTE REQUIRED
The favorable vote of the holders of a majority of the outstanding shares of
Value Health Common Stock is required for the approval and adoption of the
Merger Agreement.
At , 1997, Value Health's directors, executive officers and affiliates
may be deemed to be beneficial owners of shares of Value Health Common
Stock (excluding shares which may be acquired upon exercise of options
and other rights which are exercisable within 60 days of , 1997), or
approximately % of the then outstanding shares of Value Health Common Stock.
The directors and executive officers of Value Health (beneficially owning %
of the then outstanding shares of Value Health Common Stock) have indicated
that they intend to vote their shares for approval and adoption of the Merger
Agreement.
VOTING OF PROXIES
Shares of Value Health Common Stock represented by properly executed proxies
received at or prior to the Special Meeting will be voted at the Special
Meeting in the manner specified by the holders of such shares. Properly
executed proxies which do not contain voting instructions will be voted FOR
approval and adoption of the Merger Agreement. Any stockholder present in
person or by proxy (including broker non-votes) at the Special Meeting, but
who abstains from voting, shall be counted for purposes of determining whether
a quorum exists. An abstention (or broker non-vote) on the Merger Agreement
has the same effect as a vote against the proposal.
If any other matters are properly presented at the Special Meeting for
consideration, the person or persons named in the form of proxy enclosed
herewith and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment, unless the proxy indicates otherwise.
Management of Value Health has no knowledge of any matters to be presented at
the Special Meeting other than those matters referred to and described herein.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person or otherwise revoking a proxy. Attendance at
the Special Meeting will not in and of itself constitute revocation of a
proxy. A stockholder may revoke a proxy at any time prior to its exercise by
delivering to Paul M. Finigan, Secretary of Value Health, 22 Waterville Road,
Avon, Connecticut 06001, a duly executed revocation or a proxy bearing a later
date or by voting in person at the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only holders of record of Value Health Common Stock at the close of business
on , 1997 will be entitled to receive notice of and to vote at the Special
Meeting. At , 1997, Value Health had outstanding shares of Value
Health Common Stock. A majority of the outstanding shares of Value Health
Common Stock entitled to vote must be represented in person or by proxy at the
Special Meeting in order for a quorum to be present at the Special Meeting.
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NO DISSENTERS' RIGHTS
No holder of Value Health Common Stock will have any dissenters' rights in
connection with, or as a result of, the matters to be acted upon at the
Special Meeting.
SOLICITATION OF PROXIES
Value Health will bear the cost of the solicitation of proxies from its
stockholders, except that Columbia and Value Health 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 Value Health
may solicit proxies from stockholders of Value Health 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 Value Health will reimburse such persons for their reasonable out-of-
pocket expenses in connection therewith.
Georgeson & Company, Inc. will assist in the solicitation of proxies by
Value Health for a fee of approximately $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 Value Health in which a wholly owned subsidiary of Columbia would be
merged with and into Value Health and the holders of Value Health Common Stock
would be issued shares of Columbia Common Stock in a transaction treated 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
During the past three years, Value Health has evolved into a company focused
on four core businesses: pharmacy benefit management, mental health
management, workers' compensation management and disease management.
Currently, Value Health's pharmacy benefit management ("PBM") business,
conducted through its ValueRx, Inc. subsidiary ("ValueRx"), contributes a
majority of Value Health's revenues and operating profit.
Changes in the healthcare industry in recent years have resulted in
differences between the growth prospects of ValueRx and those of Value
Health's other businesses. Over the past three years, pharmaceutical companies
have completed acquisitions of three key players in the PBM industry, leaving
few significant consolidation opportunities remaining for ValueRx. In
addition, pricing pressures, in particular from these three vertically
integrated participants in the PBM industry, have compressed margins and
created investor concerns. Given the relative size of the PBM business within
Value Health, management believes these recent developments have adversely
affected the market value of the Value Health Common Stock.
To address the above and other concerns, the Board of Directors of Value
Health (the "Value Health Board") began in June 1996 to explore a range of
strategic alternatives, and in particular a plan to separate Value Health into
two companies by means of a tax-free spin-off distribution (the "Planned
Distribution") of all of the common stock of ValueRx to the holders of the
Value Health Common Stock.
Later in June 1996 and again in August 1996, Robert E. Patricelli, Chairman,
President and Chief Executive Officer of Value Health, met with Richard L.
Scott, Chairman and Chief Executive Officer of Columbia, to discuss
developments in the health care industry and various ways in which Value
Health and Columbia might work together, building on certain existing
customer-vendor relationships already in place between the two companies. Mr.
Patricelli and Mr. Scott had previously met through various health care
industry associations.
In mid-September 1996, Mr. Scott called Mr. Patricelli and expressed an
interest in exploring a possible combination of Value Health and Columbia. No
meetings or further discussions were scheduled at that time. On September 27,
1996 the Value Health Board continued its consideration of strategic options
and asked management to prepare a final recommendation with regard to the
Planned Distribution. On October 7, 1996 the Value Health Board approved a
recommendation that the company proceed with a tax-free spin-off of ValueRx,
and the company publicly announced that plan on October 9, 1996.
Under the Planned Distribution, the Value Health stockholders would have
held stock both in Value Health, which would not have had any ownership
interest in ValueRx, and in ValueRx. The Planned Distribution was intended to
enable the management teams at Value Health and ValueRx to better focus on the
profitable growth opportunities in their respective markets. The Value Health
Board believed that ValueRx would have been better positioned after the
Planned Distribution to capitalize on its clinical and financial independence
in an industry which has experienced significant vertical integration. The
Value Health Board further believed that the Planned Distribution would have
allowed investors to better evaluate the merits of ValueRx and the remaining
Value Health businesses, enhancing the likelihood that each would achieve
appropriate stock market recognition for its performance. Value Health
expected that the Planned Distribution, in part through an anticipated
expansion of
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the price/earnings multiple accorded to the non-PBM business, would enhance
its ability to acquire, through stock-for-stock transactions, and to develop,
specialty businesses based on health care provider networks and practice
management.
In late October and early November 1996, subsequent to the announcement of
the Planned Distribution, Value Health and Merrill Lynch, Value Health's
financial advisor, were contacted separately by Columbia and Columbia's
financial advisor and by a second prominent health care company (the "Other
Bidder") about the possibility of a tax-free business combination in which the
Value Health stockholders would receive the acquiror's stock in exchange for
their Value Health Common Stock. As a result of these initial contacts,
representatives of Value Health requested that Columbia and the Other Bidder
each submit by December 2, 1996 a written offer to the Value Health Board
setting forth the significant terms of a proposed transaction. Notwithstanding
these initial contacts and the subsequent discussions referred to below, Value
Health and ValueRx continued with their preparations for the Planned
Distribution.
On December 2, 1996, Value Health received letters from both Columbia and
the Other Bidder proposing stock-for-stock merger transactions. Each of
Columbia and the Other Bidder proposed an exchange ratio that would have
provided a premium over the then-current market value of the Value Health
Common Stock, based on the then-current market values of Columbia's and the
Other Bidder's common stocks. Columbia's proposal offered a range of values,
and the Other Bidder's proposal offered consideration with a market value that
was slightly less than the bottom of the range proposed by Columbia.
On December 3, 1996, the Value Health Board met to discuss, among other
things, the contacts and proposals by Columbia and the Other Bidder and the
implications of such contacts and proposals on the Planned Distribution. At
the conclusion of that meeting, Merrill Lynch was instructed to advise
Columbia that, if the Value Health Board were to decide that a sale of Value
Health were in the best interests of the Value Health stockholders, Columbia
would be the favored merger partner, but that it would have to increase the
consideration it was offering. Merrill Lynch was instructed to advise the
Other Bidder that its offer was inadequate and that Value Health was pursuing
other discussions.
As a result of further contacts between representatives of Value Health and
representatives of Columbia and the Other Bidder, each of Columbia and the
Other Bidder submitted to Value Health revised written proposals in
anticipation of a December 13, 1996 meeting of the Value Health Board. The
Other Bidder proposed a stock-for-stock merger in which each share of Value
Health Common Stock would have been exchanged for Other Bidder common stock
having a value significantly higher than that originally proposed by the Other
Bidder, based on the then current market value of the Other Bidder's common
stock. The Other Bidder's proposal, however, contained a number of
contingencies. The revised Columbia offer proposed a stock-for-stock merger
transaction that, based on the then current market value of the Columbia
Common Stock, would have provided greater value than that contained in its
previous offer, but less value than that then proposed by the Other Bidder.
Following the December 13, 1996 meeting of the Value Health Board,
representatives of Value Health and the Other Bidder scheduled due diligence
examinations of each company, which were completed during the week of December
16, 1996. Value Health also provided to the Other Bidder a form of merger
agreement that Value Health would consider signing if the Value Health Board
were to decide that a sale of Value Health were in the best interests of the
Value Health stockholders. Based on the relative valuations of the offers
submitted, Value Health advised Columbia that its offer was inadequate.
Soon thereafter, a third company contacted both Value Health and Merrill
Lynch and indicated an interest in entering into a business combination with
Value Health. This third company was given an opportunity to provide Value
Health with a specific proposal but did not pursue the matter and no proposal
was submitted.
At a meeting of the Value Health Board held on December 24, 1996, Mr.
Patricelli updated the Board on events that had transpired since the December
13 Value Health Board meeting, including indications that the Other Bidder was
continuing to raise contingencies, but that discussions were continuing.
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On January 2, 1997, Mr. Scott called Mr. Patricelli to determine whether
Columbia would be given an opportunity to recommence discussions with Value
Health concerning a business combination. Mr. Patricelli indicated that price
was still the most significant issue, and Mr. Scott indicated a willingness to
increase the Columbia offer subject to the opportunity to conduct a due
diligence examination. On January 4, 1997, representatives of Columbia were
provided with the form of merger agreement that previously had been provided
to the Other Bidder, and from January 5 though January 7, 1997, Columbia
conducted its due diligence examination of Value Health.
On January 8 and 9, 1997, Value Health received revised proposals from both
Columbia and the Other Bidder. The revised offer from the Other Bidder was
significantly lower than the offer it had previously made in anticipation of
the December 13, 1996 meeting of the Value Health Board and continued to raise
certain contingencies. The revised Columbia offer proposed a stock-for-stock
merger transaction that would provide value in excess of both its previous
offer and the then-current offer from the Other Bidder. The Columbia offer
letter was accompanied by a "markup" of the merger agreement that had been
delivered to Columbia by Value Health.
At a meeting held on January 10, 1997, the Value Health Board considered the
proposals from both Columbia and the Other Bidder as well as the Planned
Distribution. The Value Health Board discussed with legal counsel the terms
and conditions proposed by Columbia in its "markup" of Value Health's merger
agreement and discussed with Merrill Lynch both Columbia's and the Other
Bidder's offers and Merrill Lynch's preliminary assessment of the comparison
of the Planned Distribution to the two offers. In addition, management
reviewed with the Value Health Board the risks and opportunities facing the
Value Health businesses in 1997. Based on these presentations and discussions,
the general sense of the Value Health Board was that a transaction providing
consideration approximately equal to that of the then current Columbia offer
might be preferable to the Planned Distribution. The Value Health Board
instructed management and Merrill Lynch to proceed with discussions with
Columbia with a view toward strengthening the economic and legal aspects of
its proposal.
From January 11 through January 15, 1997, representatives of Value Health
and Columbia met to negotiate the terms of the Merger Agreement. At meetings
held on January 14 and 15, 1997, the Value Health Board was apprised of the
status of the negotiations and, at the Value Health Board meeting held on
January 15, 1997, the Value Health Board approved the Merger Agreement and the
transactions contemplated thereby. The Merger Agreement was executed and
delivered on the evening of January 15, 1997.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
For the reasons discussed under "--Background of the Merger," on October 7,
1996, the Value Health Board directed management of Value Health to proceed
with plans for the Planned Distribution. Subsequent to the announcement of the
Planned Distribution, as described under "--Background of the Merger, " the
Board had the opportunity to evaluate acquisition proposals from Columbia and
the Other Bidder and, without committing to a sale of Value Health, to explore
improvements in those offers and to evaluate those offers in light of the
Planned Distribution.
In arriving at its recommendation to stockholders, the Value Health Board
considered, without assigning relative weights to, a number of factors,
including: (i) the terms and conditions of the proposed Merger, including the
consideration to be received by the Value Health stockholders; (ii) the
status, terms and conditions of discussions concerning a possible business
combination with the Other Bidder; (iii) the financial condition, results of
operations, business, market position, prospects and strategic objectives of
Value Health and ValueRx, both with and without regard to the Planned
Distribution; (iv) the financial condition, results of operations, business,
market position, prospects, management strength and strategic objectives of
Columbia; (v) the relative attractiveness of the Columbia Common Stock and the
Other Bidder's common stock as merger consideration; (vi) the likelihood that,
for federal income tax purposes, no gain or loss will be recognized by Value
Health stockholders with respect to the Columbia Common Stock received in
exchange for their Value Health Common Stock; and (vii) the opinion of Merrill
Lynch as to the fairness of the Exchange Ratio, from a financial point of
view, to the holders of the Value Health Common Stock (other than Columbia and
its affiliates).
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THE BOARD OF DIRECTORS OF VALUE HEALTH UNANIMOUSLY RECOMMENDS THAT VALUE
HEALTH STOCKHOLDERS VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
On January 14, 1997, the Columbia Board of Directors approved the Merger and
authorized Columbia to enter into the Merger Agreement. The Board of Directors
of Columbia believes that the Merger is desirable for the following reasons,
among others: (i) the specialty healthcare businesses of Value Health fit
strategically into Columbia's integrated delivery systems; (ii) the
combination should enhance Columbia's relationships with managed care plans
and employers because of expanded services and broader geographic coverage;
and (iii) the Merger should provide opportunities for economies of scale and
operating efficiencies.
OPINION OF FINANCIAL ADVISOR
Value Health retained Merrill Lynch to act as its exclusive financial
advisor in connection with a possible business combination. On January 15,
1997, Merrill Lynch rendered to the Value Health Board its written opinion
(the "Merrill Lynch Opinion") that, as of such date and based upon and subject
to the factors and assumptions set forth therein, the Exchange Ratio was fair
to the holders of Value Health Common Stock (other than Columbia and its
affiliates) from a financial point of view.
The full text of the Merrill Lynch Opinion, which sets forth the assumptions
made, matters considered, and qualifications and limitations on the review
undertaken by Merrill Lynch, is attached as Appendix B to this Proxy
Statement/Prospectus and is incorporated herein by reference. 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.
Stockholders of Value Health are urged to read such opinion in its entirety.
The Merrill Lynch Opinion was provided to the Value Health Board for its
information and is directed only to the fairness from a financial point of
view of the Exchange Ratio to the holders of Value Health Common Stock (other
than Columbia and its affiliates), does not address the merits of the
underlying decision by Value Health to engage in the Merger and does not
constitute a recommendation to any Value Health stockholder as to how such
stockholder should vote on the proposed Merger or any transaction related
thereto.
The Exchange Ratio was determined through negotiations between Columbia and
Value Health and was approved by the Value Health Board. Merrill Lynch
provided advice to Value Health during the course of such negotiations.
The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Value Health Board. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to partial analysis or summary description. In
arriving at its opinion, Merrill Lynch did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its
opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, Value Health or Columbia. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at
which such businesses or securities might actually be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty. In
addition, as described above, the Merrill Lynch Opinion and Merrill Lynch's
presentation to the Value Health Board were among several factors
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taken into consideration by the Value Health Board in making its determination
to approve the Merger Agreement. Consequently, the Merrill Lynch analyses
described below should not be viewed as determinative of the decision of the
Value Health Board or Value Health's management with respect to the fairness
of the Exchange Ratio.
In arriving at its opinion, Merrill Lynch, among other things, reviewed
certain publicly available business and financial information relating to each
of Value Health and Columbia, as well as the Merger Agreement. Merrill Lynch
also reviewed certain other information, including financial forecasts, for
Value Health and Columbia, in each case provided to it by Value Health and
Columbia, and met with members of senior management and representatives of
each of Value Health and Columbia to discuss their respective businesses and
prospects, before and after giving effect to the Merger.
Merrill Lynch also considered certain financial and stock market data for
Value Health and Columbia and compared that data with similar data for other
publicly held companies that Merrill Lynch deemed to be comparable to Value
Health and Columbia. In addition, Merrill Lynch considered the financial terms
of certain other business combination transactions which Merrill Lynch deemed
relevant. Merrill Lynch reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters
as it deemed necessary, including its assessment of general economic, market
and monetary conditions.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to
Merrill Lynch by Value Health, Columbia or their respective representatives,
discussed with or reviewed by or for Merrill Lynch, or publicly available and
further relied on the assurance of management of Value Health and Columbia
that they were not aware of any facts that would make such information
inaccurate or misleading. Merrill Lynch has not assumed any responsibility for
independently verifying such information, has not undertaken an independent
appraisal of the assets or liabilities of Value Health or Columbia and has not
conducted a physical inspection of the properties or facilities of Value
Health or Columbia. With respect to the financial forecast information
furnished to or discussed with Merrill Lynch by Value Health, Columbia or
their representatives, Merrill Lynch assumed that they were reasonably
prepared and reflected the best currently available estimates and judgment of
Value Health's and Columbia's managements as to the expected future financial
performance of, or expenses or benefits to, Value Health or Columbia, as the
case may be (including after taking into account the impact of the Merger).
Merrill Lynch expressed no view as to such financial forecast information or
the assumptions on which they were based. In addition, Merrill Lynch assumed
that the Merger will qualify for pooling of interests accounting treatment in
accordance with generally accepted accounting principles and as a tax-free
reorganization for United States federal income tax purposes. For purposes of
rendering its opinion, Merrill Lynch assumed, in all respects material to its
analysis, that the representations and warranties of each party to the Merger
Agreement and all related documents and instruments (collectively, the
"Documents") contained therein are true and correct, that each party to the
Documents will perform all of the covenants and agreements required to be
performed by such party under such Documents and that all conditions to the
consummation of the Merger will be satisfied without waiver thereof. Merrill
Lynch also assumed that all material governmental, regulatory or other
consents and approvals will be obtained in connection with the Merger and that
in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either of Value Health or Columbia are party, no
restrictions will be imposed or amendments, modifications or waivers made that
would have any material adverse effect on the contemplated benefits to Value
Health of the Merger.
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Merrill Lynch was not authorized by Value Health or the Value
Health Board to solicit, nor did it solicit or take into account any prospect
of, third-party indications of interest for the acquisition of all or any part
of Value Health. In addition, Merrill Lynch was not asked to consider, and the
Merrill Lynch Opinion does not in any manner address, the price at which
shares of Columbia Common Stock will actually trade following consummation of
the Merger.
The following is a brief summary of the material analyses presented by
Merrill Lynch to the Value Health Board of Directors in connection with the
rendering of the Merrill Lynch Opinion.
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Valuation of Value Health
Discounted Cash Flow Analysis. Using a discounted cash flow methodology,
Merrill Lynch calculated a range of per share values for the Value Health
Common Stock based on projections prepared by management of Value Health, a
range of terminal earnings before interest, taxes, depreciation and
amortization ("EBITDA") multiples of 6.0x to 8.0x, a range of terminal net
income multiples of 13.0x to 15.0x and a range of discount rates of 13% to
17%. The summary reference range of per share values for the Value Health
Common Stock resulting from the analysis was $19.00 to $26.00.
Comparable Acquisition Transaction Analysis. Merrill Lynch reviewed certain
publicly available information regarding 21 selected health care related
acquisitions including selected acquisitions of pharmacy benefit management
("PBM") companies, health maintenance organizations ("HMOs"), behavioral
health care companies and workers compensation management companies and
calculated historical and forward (to the extent of available information)
EBITDA multiples, earnings before interest and taxes ("EBIT") multiples and
net income multiples for such acquisitions. Among the three PBM company
acquisitions, the analysis indicated transaction value as a multiple of (i)
forward EBITDA ranging from 8.9x to 11.9x with a mean of 10.4x, (ii) forward
EBIT ranging from 10.2x to 14.0x with a mean of 12.1x and (iii) forward net
income ranging from 9.1x to 20.8x with a mean of 15.3x. Among the eleven HMO
acquisitions, the analysis indicated offer value as a multiple of (i) last
twelve months ("LTM") earnings per share ("EPS") ranging from 13.0x to 36.6x
with a mean of 29.6x and (ii) forward EPS ranging from 10.9x to 26.0x with a
mean of 22.1x. Among the five behavioral health care company acquisitions, the
analysis indicated offer value as a multiple of LTM net income ranging from
26.5x to 45.9x with a mean of 37.0x and transaction value as a multiple of (i)
LTM EBITDA ranging from 8.5x to 19.1x with a mean of 13.9x and (ii) LTM EBIT
ranging from 9.3x to 24.5x with a mean of 17.9x. Only one of the two selected
comparable workers compensation management company acquisitions had available
information to calculate multiples; transaction value as a multiple of (i) LTM
EBITDA was 8.7x and (ii) LTM EBIT was 11.7x. Merrill Lynch placed particular
emphasis on forward EBITDA, EBIT and net income multiples of comparable PBM
companies and noted that certain acquisition transactions involving
pharmaceutical company acquisitions of PBM companies are not comparable to the
Merger. Based on its comparison of such multiples, Merrill Lynch calculated a
summary reference range of per share values of the Value Health Common Stock
of $22.00 to $28.00.
No company utilized in the comparable transaction analysis was identical to
Value Health or Columbia. Accordingly, an analysis of the results of this
comparison is not purely mathematical; rather, it involves complex
considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the comparable acquired
companies and other factors that could affect the acquisition value of such
companies and Value Health.
Break-Up Analysis. Merrill Lynch calculated ranges of estimated values for
Value Health's business segments, ValueRx, Value Behavioral Health,
CCN/Medview and Value Health Sciences, using discounted cash flow analyses,
comparable acquisition transaction analyses and comparable public trading
analyses for each business segment and assuming tax liabilities that would be
incurred upon the sale of all of the business segments other than ValueRx.
Based on such calculations, Merrill Lynch calculated a range of equity values
per share for the Value Health Common Stock of $19.70 to $24.60.
Spin-off/Restructuring Analysis. Merrill Lynch compared the hypothetical
value of Value Health after giving effect to the Planned Distribution,
including a spin-off of ValueRx and a restructuring of Value Health. Merrill
Lynch's analysis of Value Health's hypothetical value emphasized calculations
and comparisons of forward price/earnings multiples, estimated long-term
growth rates and the relationship between such multiples and growth rates.
Merrill Lynch compared ValueRx to two selected PBM companies, five selected
institutional pharmacy management companies, and two preferred provider
organizations/third party administrators ("PPO/TPAs") and compared Value
Health excluding ValueRx to three behavioral care providers, 12 HMOs and two
PPO/TPAs. Merrill Lynch calculated ranges of current and long-term
hypothetical values for the Value Health Common Stock of $15.90 to $20.70 and
$17.10 to $22.60, respectively.
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Exchange Ratio Analyses
Relative Discounted Cash Flow Analysis. Using a relative discounted cash
flow methodology, Merrill Lynch calculated ranges of implied Value
Health/Columbia exchange ratios based on projections prepared by management of
Value Health and Columbia in connection with the Merger and the following
ranges of 2001 terminal net income multiples and 2001 terminal EBITDA
multiples and ranges of relative discount rates: (i) for Value Health, a range
of 2001 terminal net income multiples from 13.0x to 15.0x, 2001 terminal
EBITDA multiples from 6x to 8x and a range of discount rates from 13% to 17%
and (ii) for Columbia, a range of 2001 terminal EBITDA multiples from 7.0x to
9.0x and a range of discount rates from 12% to 14%. The implied Value
Health/Columbia exchange ratios resulting from the relative discounted cash
flow analysis ranged from 0.42 to 0.50 based on Value Health net income
multiples and from 0.49 to 0.53 based on Value Health EBITDA multiples.
Relative Contribution Analysis. Merrill Lynch compared the pro forma equity
contribution of 4.5% of the Value Health stockholders to the pro forma percent
contributions of Value Health to the net income of Columbia from 4.2% to 4.3%
for the years 1996 through 1998. Merrill Lynch also compared the pro forma
enterprise contribution of 3.6% for the stockholders of Value Health to the
pro forma percent contributions of Value Health to the sales, EBIT and EBITDA
of Columbia after giving effect to the Merger. The calculations indicated that
Value Health's percent contributions to pro forma sales would be from 8.7% to
10.4% for the years 1996 through 1998. Value Health's percent contribution to
pro forma EBIT would be from 3.6% to 3.7% for such years and Value Health's
percent contribution to pro forma EBITDA would be from 3.6% to 3.8% for such
years.
Other Analyses
Historical Trading Data. Merrill Lynch compared (i) the Exchange Ratio to
the relative weekly closing stock prices of Value Health and Columbia from
January 1995 to January 1996, (ii) the forward price/earnings multiples of
Columbia, Value Health and the S&P 500 Index from December 1991 through
December 1996 and (iii) Columbia's weekly closing stock price to the weekly
closing price of the S&P 500 Index from January 10, 1992 through January 10,
1997. Merrill Lynch also observed that the 52-week trading high and low for
Value Health was $29.88 and $14.63, respectively.
Earnings Per Share Analysis. Merrill Lynch calculated the impact the Merger
would have on pro forma EPS accretion (dilution) of Columbia based on the
projections prepared by Value Health management and Columbia management and
assuming a range of synergies from $0 to $30 million resulting from the
Merger. With no synergies, the Merger's impact on EPS would be approximately
break-even for the years 1997 through 1999. With synergies of $10 million or
more annually, the Merger would be accretive to EPS for such years.
Merrill Lynch also analyzed the Merger's impact on projected EPS from the
perspective of the Value Health stockholders based on projections prepared by
Value Health management and Columbia management. Merrill Lynch compared Value
Health's projected EPS on a stand-alone basis to the pro forma implied
projected EPS of Columbia (adjusted by the Exchange Ratio). Merrill Lynch
calculated the pro forma EPS impact for the Value Health stockholders would be
accretive for the years 1997 through 2001.
Pursuant to a letter agreement between Value Health and Merrill Lynch, Value
Health agreed to pay Merrill Lynch (i) $500,000 upon Value Health's execution
of the Merger Agreement and (ii) an additional fee in an amount equal to 0.6%
of the aggregate purchase price paid in the Merger or certain other business
combinations involving Value Health, payable upon the closing of the Merger or
such other business combination, provided that any fee paid to Merrill Lynch
pursuant to clause (i) will be deducted from any fee to which Merrill Lynch is
entitled pursuant to clause (ii). Value Health also agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, including certain
reasonable fees and disbursements of its legal counsel. Additionally, Value
Health agreed to indemnify Merrill Lynch and certain related persons for
certain liabilities related to or arising out of its engagement, including
liabilities under the federal securities laws.
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Value Health retained Merrill Lynch based upon Merrill Lynch's experience
and expertise. Merrill Lynch is an internationally recognized investment
banking and advisory firm. Merrill Lynch, 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. Merrill Lynch has, in the past, provided financial advisory and/or
financing services to Value Health and/or Columbia and may continue to do so
and has received, and may receive, fees for the rendering of such services. In
the ordinary course of its business, Merrill Lynch and its affiliates may
actively trade the debt and equity securities of Value Health and Columbia
(and anticipate trading after the Merger in the securities of Columbia) for
their own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of Value Health
with respect to the Merger Agreement and the transactions contemplated
thereby, stockholders should be aware that certain members of the management
of Value Health and the Board of Directors of Value Health have certain
interests in the Merger that are in addition to the interests of stockholders
of Value Health generally. Described below are certain of such interests in
the Merger of the executive officers and directors of Value Health.
Employment Agreements. Value Health's executive officers have pre-existing
employment agreements that generally provide that if, within 24 months
following the closing of a "Strategic Transaction," (a) the executive officer
is terminated without cause or (b) the executive officer terminates his
employment due to either a material reduction in responsibility, authority or
compensation, or a requirement that the executive relocate, then the executive
officer is entitled to receive, depending on the executive involved, a lump-
sum payment equal to either three times or two and one-half times the sum of
the executive officer's base compensation and annual performance bonus at the
target level for the year in which such termination occurs. If his employment
is terminated within 24 months following the Merger, each of Messrs.
Patricelli (Chairman, President and Chief Executive Officer of Value Health),
Shulman (President of Value Health's Pharmacy & Disease Management Group),
Buncher (President of Value Health's Health Plans Group), Finigan (Senior Vice
President, General Counsel and Secretary of Value Health), Wurzer (Senior Vice
President, Treasurer and Chief Financial Officer of Value Health) and Goss
(Senior Vice President for Strategy and Development of Value Health) would be
entitled to receive severance payments of $4,095,000, $2,205,000, $1,837,000,
$875,000, $840,000 and $840,000, respectively. In addition, in the event of a
termination or constructive termination of employment as described above, the
executive officer is entitled to continue to receive the same health benefits
for up to one year following termination of employment. In the event any
executive officer is asked to continue employment with Value Health after the
Merger, the severance payments indicated above will be paid as a signing bonus
upon that individual's execution of a one-year employment agreement and an
appropriate noncompetition agreement reasonably satisfactory to Columbia and
such executive officer. In addition to the foregoing, Messrs. Finigan, Wurzer
and Goss are entitled, pursuant to the terms of their employment agreements,
to receive transaction bonuses of $1,500,000, $1,500,000 and $1,000,000,
respectively, upon consummation of a Strategic Transaction. These transaction
bonuses initially were approved in connection with the Planned Distribution,
and, because the Merger also would constitute a "Strategic Transaction," would
be payable upon completion of the Merger.
Stock Option Plans. Upon consummation of the Merger, all options (the "Value
Health Options") to purchase Value Health Common Stock outstanding as of the
Effective Date under any Value Health stock option plan (collectively, the
"Value Health Stock Option Plans"), whether or not then exercisable, will be
assumed by Columbia and converted into and become a right with respect to
Columbia Common Stock. See "The Merger Agreement--The Merger." If the
employment of any of the executive officers of Value Health is terminated
within 24 months following the Merger, pursuant to the terms of their
respective employment agreements, all unvested Value Health Options will
immediately become vested and exercisable. The following table sets forth,
with respect to each of the executive officers of Value Health, the number of
vested Value Health Options and
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the number of unvested Value Health Options, the vesting of which would be
accelerated if such executive officer's employment with Value Health were
terminated within 24 months following the Merger. Each of the options listed
below has an exercise price of $18.375 per share of Value Health Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF VESTED UNVESTED VALUE
NAME VALUE HEALTH OPTIONS HEALTH OPTIONS
---- -------------------- --------------
<S> <C> <C>
Robert E. Patricelli........................ 107,500 317,300
Steven J. Shulman........................... 35,250 305,500
James E. Buncher............................ -- 200,000
Paul M. Finigan............................. 5,000 136,167
David M. Wurzer............................. 4,500 126,667
William J. Goss............................. -- 155,000
</TABLE>
Consulting and Non-Competition Agreements. Value Health has entered into
Consulting and Non-Competition Agreements with Robert E. Patricelli, Chairman,
President and Chief Executive Officer of Value Health, and Steven J. Shulman,
President, Pharmacy & Disease Management Group of Value Health, effective as
of the Effective Date, pursuant to which each of Messrs. Patricelli and
Shulman have agreed to provide certain consulting services to Value Health for
a period of one year and have agreed to refrain from competing with the
business of Value Health for a period of three years after the Effective Date.
Under such agreements, Value Health has agreed to pay Messrs. Patricelli and
Shulman $4,500,000 and $3,000,000, respectively.
Tax Gross-Up. Under Sections 280G and 4999 of the Code, certain payments and
benefits provided to Value Health employees under the plans and agreements
described above may not be fully deductible by Value Health, and such payments
and benefits may be subject to a 20% excise tax payable by the recipient. The
employment agreements referred to above generally provide that if an excise
tax is imposed on a covered employee on any of these amounts, the employee
will be provided a gross-up payment to permit the employee to receive a net
amount equal to what would have been received had the excise tax not been
imposed. Should such sections of the Code apply, certain of the payments and
benefits described above may not be fully deductible by Value Health and the
gross-up payments would become payable and may also be nondeductible.
Indemnification and Insurance. As provided in the Merger Agreement, Columbia
is required to indemnify, defend and hold harmless officers, directors and
employees of Value Health and its subsidiaries (the "Indemnified Parties")
from and against all losses, expenses, claims, damages or liabilities arising
out of the transactions contemplated by the Merger Agreement to the fullest
extent permitted or required under applicable law, including without
limitation the advancement of expenses. Columbia has agreed that all rights to
indemnification existing in favor of the directors, officers or employees of
Value Health as provided in Value Health's certificate of incorporation or
bylaws, with respect to matters occurring through the Effective Date, shall
survive the Merger and continue in full force and effect for a period of not
less than six years from the Effective Date. In addition, for a period of
three years after the Effective Date and subject to certain limitations,
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 Value
Health. See "The Merger Agreement--Indemnification and Insurance."
ACCOUNTING TREATMENT
Columbia and Value Health 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 Value Health 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 the results of operations of Columbia and Value
Health 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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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain federal income tax
consequences of the Merger to holders of Value Health Common Stock, but does
not purport to be a complete analysis of all the potential tax effects of this
transaction. The discussion is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, Internal Revenue Service
("IRS") rulings and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial, or administrative action, and
any such change may be applied retroactively. No information is provided
herein with respect to foreign, state or local tax laws or estate and gift tax
considerations. This information is directed to Value Health stockholders who
hold their shares of Value Health Common Stock as "capital assets" within the
meaning of Section 1221 of the Code, and does not address the consequences to
stockholders in light of their particular circumstances (including, without
limitation, stockholders who acquired shares of Value Health Common Stock
pursuant to the exercise of employee stock options or rights or otherwise as
compensation, foreign persons, tax-exempt organizations, insurance companies,
financial institutions and dealers in stock and securities). No ruling will be
requested from the IRS with respect to the federal income tax consequences of
the Merger. Value Health stockholders are urged to consult their own tax
advisors as to specific tax consequences to them of the Merger.
Based upon the advice of Willkie Farr & Gallagher, special counsel to Value
Health, Value Health believes that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code, and
accordingly: (i) no gain or loss will be recognized by Value Health as a
result of the Merger; (ii) no gain or loss will be recognized by the Value
Health stockholders upon the receipt of Columbia Common Stock in exchange for
Value Health Common Stock in connection with the Merger (except as discussed
below with respect to cash received in lieu of fractional shares of Columbia
Common Stock); (iii) the tax basis of the Columbia Common Stock to be received
by the Value Health stockholders in connection with the Merger will be the
same as the basis in the Value Health Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest for
which cash is received); (iv) the holding period of the Columbia Common Stock
to be received by the Value Health stockholders in connection with the Merger
will include the holding period of the Value Health Common Stock surrendered
in exchange therefor and (v) Value Health stockholders who are entitled to
receive cash in lieu of fractional shares of Columbia Common Stock in
connection with the Merger will recognize capital gain (or loss) equal to the
difference between such cash amount and the stockholder's basis in the
fractional share interest. Value Health's obligation to consummate the Merger
is conditioned upon the receipt of a written opinion from Willkie Farr &
Gallagher to the effect that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code. Based upon the advice of
Fried, Frank, Harris, Shriver & Jacobson, special counsel to Columbia,
Columbia believes that the Merger will qualify as a tax-free reorganization
under Section 368(a) of the Code. Columbia's obligation to consummate the
Merger is conditioned upon the receipt of a written opinion from Fried, Frank,
Harris, Shriver & Jacobson to this effect. See "The Merger Agreement--
Conditions."
Certain Value Health stockholders may be subject to backup withholding at a
rate of 31% on payments of cash in lieu of fractional share interests of
Columbia Common Stock. In order to avoid such backup withholding, each Value
Health stockholder must provide the Exchange Agent with such Value Health
stockholder's correct taxpayer identification number and certify that such
stockholder is not subject to such backup withholding by completing the
Substitute Form W-9 included in the letter of transmittal.
REGULATORY APPROVALS
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 Value
Health each filed notification and report forms under the HSR Act with the FTC
and the Antitrust Division on January 31, 1997. The required waiting period
under the HSR Act will expire at 11:59 p.m. on March 2, 1997, unless extended
by a request from the FTC for additional information or documentary material
or unless early termination of the waiting
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<PAGE>
period is granted. At any time before or after consummation of the Merger, the
Antitrust Division or the FTC could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking
to enjoin the consummation of the Merger or seeking divestiture of substantial
assets of Columbia or Value Health. At any time before or after the Effective
Date, and notwithstanding that the HSR Act waiting period has expired, any
state could take such action under the antitrust laws as it deems necessary or
desirable. Such action could include seeking to enjoin the consummation of the
Merger or seeking divestiture of Value Health or businesses of Columbia or
Value Health by Columbia. Private parties may also seek to take legal action
under the antitrust laws under certain circumstances.
Value Health is the direct parent of Value Health Reinsurance, Inc. ("Value
Health Re"), and Value Health Re is the direct parent of Wellington Insurance
Company ("Wellington"). Both Value Health Re and Wellington are domestic
insurers domiciled in the State of Arizona. Section 20-481.02 of the Arizona
Revised Statutes (the "Arizona Code") requires approval by the director (the
"Director") of the Arizona Department of Insurance of the indirect acquisition
of Value Health Re and Wellington by Columbia pursuant to the Merger. On
February 4, 1997, Columbia made a preliminary filing of a Form A with the
Director in accordance with the Arizona Code. Columbia intends to complete its
filing as soon as practicable. Under Section 20-481.07 of the Arizona Code,
the Director is required to hold a public hearing on the Merger within thirty
days of the filing of a final Form A (but not prior to twenty days after such
filing).
RESALE RESTRICTIONS
All shares of Columbia Common Stock received by Value Health 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 Value Health at the time of the Special
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 Value Health 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 Value Health 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 Value Health may not sell (subject to certain de minimus
exceptions), or in any other way reduce said affiliate's relative risk with
respect 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 Value Health. Value Health has agreed to use all reasonable
efforts to obtain agreements from its affiliates not to engage in any such
transactions. Columbia intends to use reasonable efforts to obtain similar
agreements from its affiliates. See "--Accounting Treatment" and "The Merger
Agreement--Certain Covenants."
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<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger
Agreement.
THE MERGER
Pursuant to the Merger Agreement, subject to the terms and conditions
thereof, as of the Effective Date (as defined below), Columbia Sub will be
merged with and into Value Health. 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 Value Health 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 date the Merger becomes effective is referred to
herein as the "Effective Date."
As a result of the Merger and without any action on the part of the holders
thereof, each share of Value Health Common Stock issued and outstanding as of
the Effective Date will be converted into the right to receive 0.58 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 Value Health Common Stock will thereafter cease to have any rights
with respect to such shares of Value Health Common Stock, except the right to
receive, without interest, shares of Columbia Common Stock and cash for
fractional shares of Columbia Common Stock (as described in "--Exchange
Procedures") upon the surrender of such Certificate. Each share of Value
Health Common Stock held in Value Health's treasury as of the Effective Date
will cease to be outstanding and will be cancelled and retired without payment
of any consideration therefor.
By virtue of the Merger, all options (the "Value Health Options")
outstanding as of the Effective Date under any Value Health stock option plan
(collectively, the "Value Health Stock Option Plans"), whether or not then
exercisable, will be assumed by Columbia and converted into and become a right
with respect to Columbia Common Stock. Each Value Health Option assumed by
Columbia will be exercisable upon the same terms and conditions as under the
applicable Value Health Stock Option Plans and applicable option agreements
issued thereunder, and Columbia will assume the Value Health Stock Option
Plans for such purposes. Pursuant to the Merger Agreement, from and after the
Effective Date, (i) each Value Health Option assumed by Columbia may be
exercised solely for Columbia Common Stock, (ii) the number of shares of
Columbia Common Stock subject to each Value Health Option will be equal to the
product (rounded to the nearest whole share) of (A) the number of shares of
Value Health Common Stock subject to the original Value Health Option
immediately prior to the Effective Date, times (B) the Exchange Ratio and
(iii) the per share exercise price for each such Value Health Option will be
equal to (A) the per share exercise price for the share of Value Health Common
Stock otherwise purchasable pursuant to each Value Health Option immediately
prior to the Effective Date divided by (B) the Exchange Ratio (rounded up to
the nearest full cent). No Value Health Options will be accelerated by reason
of the Merger unless the agreement or arrangement under which it was granted
or by which it is otherwise governed specifically provides for such
acceleration.
EXCHANGE PROCEDURES
Promptly after the Effective Date, the Exchange Agent will mail to each
person who was, as of the Effective Date, a holder of record of shares of
Value Health Common Stock, a letter of transmittal to be used by such holders
in forwarding their certificates representing shares of Value Health 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
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Certificate surrendered (as described below), and the Certificate so
surrendered will be cancelled. VALUE HEALTH 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 Value Health 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 such fractional part
of a share of Columbia Common Stock multiplied by the average of the closing
sales prices of the Columbia Common Stock on the NYSE over the last ten
trading days preceding the Effective Date.
No dividends on shares of Columbia Common Stock will be paid with respect to
any shares of Value Health 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 Date 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 Date 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.
On or after the Effective Date, there will be no transfers on the transfer
books of Value Health of shares of Value Health Common Stock which were
outstanding immediately prior to the Effective Date.
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 Value Health one year after
the Effective Date will be delivered to Columbia. Any former stockholders of
Value Health who have not theretofore complied with the exchange procedures in
the Merger Agreement may thereafter look to Columbia only as general creditors
for payment of their shares of Columbia Common Stock, cash in lieu of
fractional shares, and any unpaid dividends and distributions on shares of
Columbia Common Stock, deliverable in respect of each share of Value Health
Common Stock such stockholder holds. Notwithstanding the foregoing, none of
Value Health, Columbia, the Exchange Agent or any other person will be liable
to any former holder of shares of Value Health Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
No interest will be paid or accrued on cash in lieu of fractional shares and
unpaid dividends and distributions, if any, which will be paid upon surrender
of Certificates.
In the event that any Certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Columbia, the
posting by such person of a bond in such reasonable amount as Columbia may
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Columbia Common Stock, cash in
lieu of fractional shares, and any unpaid dividends and distributions on
shares of Columbia Common Stock, as described above.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (a) the due organization, power and standing
of Value Health and Columbia and similar corporate matters; (b) the capital
structure of Value Health and Columbia; (c) subsidiaries of Value Health; (d)
the authorization, execution, delivery and enforceability of the Merger
Agreement; (e) conflicts under charters or bylaws, violations of any
instruments or law and required consents or approvals; (f) certain documents
filed by each of Value Health and Columbia with the Commission and the
accuracy of information contained therein; (g) the absence of certain
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<PAGE>
changes; (h) litigation; (i) retirement and other employee benefit plans of
Value Health; (j) labor matters involving Value Health; (k) corporate action
approving the Merger Agreement; (l) brokers' and finders' fees with respect to
the Merger; (m) compliance with applicable laws; (n) material liabilities; (o)
taxes and tax returns of Value Health; (p) material agreements; (q) absence of
material adverse changes and (r) accounting matters.
CERTAIN COVENANTS
Value Health has agreed (and has agreed to cause its subsidiaries), among
other things, prior to the consummation of the Merger, unless Columbia agrees
in writing or as otherwise required or permitted by the Merger Agreement, (i)
to conduct its operations according to its usual, regular and ordinary course
in substantially the same manner as theretofore conducted, (ii) promptly to
notify Columbia of any change or event that has had, or could reasonably be
expected to have, a material adverse effect on the business, properties,
assets, condition (financial or otherwise), liabilities or results of
operations of Value Health and its subsidiaries taken as a whole and (iii)
promptly to deliver to Columbia true and correct copies of any report,
statement or schedule filed with the Commission subsequent to January 15,
1997. In addition, Value Health has agreed that, among other things, prior to
the consummation of the Merger, unless Columbia agrees in writing or as
otherwise required or permitted by the Merger Agreement, it shall not (and
shall cause its subsidiaries not to) (i) amend its certificate of
incorporation or bylaws, (ii) except pursuant to the exercise of certain
options, warrants, conversion and certain other contractual rights, issue any
shares of capital stock, effect any stock split or otherwise change its
capitalization as it existed on January 15, 1997, (iii) grant, confer or award
any option, warrant, conversion right or other right not existing on January
15, 1997 to acquire shares of its capital stock, subject to certain
exceptions, (iv) increase any compensation or enter into or amend any
employment agreement with any of its present or future officers, directors or
employees, except in accordance with pre-existing contractual provisions and
except for normal increases consistent with past practice and the payment of
cash bonuses to officers or employees pursuant to and consistent with existing
plans or programs with respect to 1996, (v) adopt any new employee benefit
plan or amend any existing employee benefit plan in any material respect, (vi)
declare or pay any dividend to its stockholders or make any other payment on
its capital stock or (vii) sell, lease or otherwise dispose of any of its
assets, except in the ordinary course of business.
Columbia has agreed (and has agreed to cause its subsidiaries), among other
things, prior to the consummation of the Merger, unless Value Health agrees in
writing or as otherwise required or permitted by the Merger Agreement, (i) to
conduct its operations in the usual, regular and ordinary course in
substantially the same manner as theretofore conducted, (ii) promptly to
notify Value Health of any change or event that has had, or could reasonably
be expected to have, a material adverse effect on the business, properties,
assets, condition (financial or otherwise), liabilities or results of
operations of Columbia and its subsidiaries taken as a whole and (iii)
promptly to deliver to Value Health true and correct copies of any report,
statement or schedule filed with the Commission subsequent to January 15,
1997.
Each of Value Health and Columbia has agreed that, among other things,
unless the other party agrees in writing or as otherwise required or permitted
by the Merger Agreement, it shall not nor shall it permit any of its
subsidiaries to take or cause to be taken any action, whether before or after
the Effective Date, which would disqualify the Merger as a pooling of
interests for accounting purposes or as a tax-free reorganization. Both Value
Health and Columbia have agreed to cooperate in the prompt preparation and
filing of certain documents under federal and state securities laws and with
applicable government entities.
NO SOLICITATION OF TRANSACTIONS
Value Health has agreed that it will not, and will direct and use its best
efforts to cause its officers and directors, employees, agents and
representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of
the assets or any equity securities of, Value Health 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 release any third party from
any obligations
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under any existing standstill agreement or arrangement relating to any
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal. Value Health has agreed to cease
immediately 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. Value
Health has also agreed to notify Columbia immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with it,
provided that the Board of Directors of Value Health 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 Value Health
pursuant to a merger, consolidation, share exchange, business combination,
purchase of a substantial portion of its assets or other similar transaction,
if, and only to the extent that, (a) the Board of Directors of Value Health
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, Value Health 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) Value Health keeps Columbia promptly informed of the status and all
material terms and conditions of any such discussions or negotiations
(including identities of parties) and, if any such proposal or inquiry is in
writing, furnishes a copy of such proposal or inquiry to Columbia as soon as
practicable after the receipt thereof and (ii) to the extent applicable,
comply with Rule 14e-2 promulgated under the Exchange Act with regard to an
Alternative Proposal.
INDEMNIFICATION AND INSURANCE
As provided in the Merger Agreement, Columbia is required to indemnify,
defend and hold harmless the officers, directors and employees of Value Health
and its subsidiaries (the "Indemnified Parties") from and against all losses,
expenses, claims, damages or liabilities arising out of the transactions
contemplated by the Merger Agreement to the fullest extent permitted or
required under applicable law, including without limitation the advancement of
expenses. Columbia has agreed that all rights to indemnification existing in
favor of the directors, officers or employees of Value Health as provided in
Value Health's certificate of incorporation or bylaws, with respect to matters
occurring through the Effective Date, shall survive the Merger and continue in
full force and effect for a period of not less than six years from the
Effective Date.
For a period of three years after the Effective Date, Columbia is obligated
to cause the surviving corporation to maintain in effect policies of
directors' and officers' liability insurance covering certain Indemnified
Parties presently covered by Value Health insurance policies that are
substantially no less advantageous to such Indemnified Parties than the
policies presently maintained by Value Health, provided that Columbia shall
not be required in order to maintain such coverage to pay an annual premium in
excess of two times the current annual premium paid by Value Health 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.
CONDITIONS
The respective obligations of Value Health and Columbia to consummate the
Merger are subject to the fulfillment of each of the following conditions,
including, among others: (a) the Merger Agreement and the transactions
contemplated thereby shall have been approved and adopted by the requisite
vote of the holders of the issued and outstanding shares of capital stock of
Value Health 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) the Registration Statement shall have become effective under
the Securities Act and no stop order with respect thereto shall be in effect;
(d) 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; (e) Columbia and Value Health shall have received letters
from Ernst & Young LLP and Coopers and Lybrand L.L.P. regarding those firms'
concurrence with Columbia management's and Value Health management's
conclusions, respectively, that the Merger qualifies for pooling of interests
accounting treatment; (f) all consents,
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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 Value Health
(and their respective subsidiaries), taken as a whole, following the Effective
Date); (g) all consents, authorizations, orders and approvals required under
insurance holding company statutes or similar statutes regulating managed care
or insurance organizations shall have been obtained and (h) the Columbia
Common Stock to be issued to Value Health 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 Value Health and Columbia to effect the Merger
are also subject to the satisfaction or waiver by the other party prior to the
Effective Date of the following conditions, among others: (a) the other party
shall have performed in all material respects 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 Date; (b)
Value Health shall have received the opinion of Willkie Farr & Gallagher that
the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code; (c) Columbia shall have received the opinion of Fried,
Frank, Harris, Shriver & Jacobson that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and (d) Value
Health and Columbia shall have each received a "comfort" letter from the other
party's independent public accountants covering matters customarily included
in such comfort letters relating to transactions similar to the Merger. The
obligation of Columbia to effect the Merger is also subject to the condition
that, from the date of the Merger Agreement through the Effective Date, there
shall not have occurred any change, individually or together with other
changes, that has had, or would reasonably be expected to have, a material
adverse change in the financial condition, business, results of operations or
prospects of Value Health and its subsidiaries, taken as a whole.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date, before or after the approval by the
stockholders of Value Health: (a) by the mutual consent of Value Health and
Columbia by action of their respective Boards of Directors; (b) by action of
the Board of Directors of either Value Health or Columbia if (i) the Merger
shall not have been consummated by August 31, 1997, 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 Value Health's stockholders shall not have been
obtained at a meeting duly convened for such purpose (or at any adjournment or
postponement thereof), or (iii) a United States federal or state court of
competent jurisdiction or a 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 (iii) shall have used all reasonable efforts
to remove such injunction, order or decree; (c) by action of the Board of
Directors of Value Health, 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 Value Health determines that such termination is required by
reason of an Alternative Proposal being made for Value Health, (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 the business, properties, assets,
condition (financial or otherwise), liabilities or results of operations of
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 Value Health shall
have withdrawn or modified in a manner adverse to Columbia its approval or
recommendation of the Merger Agreement or the Merger, or shall have
recommended an Alternative Proposal to Value Health
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stockholders, (ii) there has been a breach by Value Health 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 the
business, properties, assets, condition (financial or otherwise), liabilities
or results of operations of Value Health and its subsidiaries taken as a whole
or (iii) there has been a material breach by Value Health 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 (b), (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) have any rights whatsoever in respect of or in
connection with the representations and warranties of Value Health, (ii)
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 (iii) assert or pursue in any manner, directly or
indirectly, any claim or cause of action against Value Health or any of its
officers or directors based in whole or in part upon its or their receipt,
consideration, recommendation or approval of an Alternative Proposal.
TERMINATION FEE
If (a) Value Health terminates the Merger Agreement because its Board of
Directors, in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders imposed by law, determines that such termination is
required by reason of an Alternative Proposal being made for Value Health, (b)
an Alternative Proposal is made and the Merger Agreement is terminated by
either Value Health or Columbia by reason of the stockholders of Value Health
not approving the Merger Agreement at the Special Meeting, (c) Columbia
terminates the Merger Agreement because the Board of Directors of Value Health
shall have withdrawn or modified in a manner adverse to Columbia its approval
or recommendation of the Merger Agreement or the Merger or shall have
recommended an Alternative Proposal to Value Health stockholders or (d) any
person shall have made an Alternative Proposal and thereafter the Merger
Agreement is terminated for any reason other than those set forth in clauses
(a), (b) or (c) above, and within 12 months thereafter, any Alternative
Proposal shall have been consummated, then Value Health (or the successor
thereto) is required to pay a fee in cash of $45,000,000 to Columbia (the
"Alternative Proposal Fee"), within two days of such termination.
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 Value Health: (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 before the Effective Date, to the extent permitted by applicable law.
The conditions to each party's obligation to consummate the Merger may be
waived by the other party in whole or in part to the extent permitted by
applicable law.
ALTERNATIVE MERGER STRUCTURE
Columbia and Value Health reserve the right to change the structure of the
Merger so that Value Health merges into Columbia Sub rather than Columbia Sub
merging into Value Health, or as a merger of Value Health into Columbia, with
Columbia being the surviving corporation. Stockholder approval of the Merger
Agreement shall be deemed to include approval of these alternative structures
of the Merger. Any such change in the structure of the Merger will not be made
unless Columbia and Value Health are satisfied that such change would not
affect the tax consequences of the Merger or the accounting treatment of the
Merger as a pooling of interests.
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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 authorized shares of
Nonvoting Common Stock, $.01 par value ("Columbia Nonvoting Common Stock") and
25,000,000 authorized shares of Preferred Stock, $.01 par value ("Columbia
Preferred Stock").
COLUMBIA COMMON STOCK
The holders of Columbia Common Stock are entitled to one vote for each share
on all matters voted on by the stockholders, including the election of
directors and, except as otherwise required by law, as provided in the
Columbia Restated Certificate of Incorporation (the "Columbia Certificate")
with respect to the Columbia Series A Preferred Stock and the Columbia Series
B Preferred Stock (as defined below), or provided in any resolution adopted by
the Columbia Board of Directors (the "Columbia Board") with respect to any
other series of Columbia Preferred Stock that may be issued in the future,
will exclusively possess all voting power. The holders of Columbia Common
Stock do not have any cumulative voting, conversion, redemption or preemptive
rights. Subject to any preferential rights of any outstanding series of
Columbia Preferred Stock designated by the Columbia Board from time to time,
the holders of Columbia Common Stock are entitled to such dividends as may be
declared from time to time by the Columbia Board from funds available
therefor, and upon liquidation, are entitled to receive pro rata all assets of
Columbia available for distribution to such holders. Any "Regulated
Stockholder" may convert shares of Columbia Common Stock into Columbia
Nonvoting Common Stock on a share-for-share basis (subject to antidilution
adjustments). 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 and which was a "Regulated Stockholder" of HCA--Hospital
Corporation of America immediately prior to its merger with a subsidiary of
Columbia, 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 of such
conversion, the holder and its affiliates, directly or indirectly, would own,
control or have the power to vote a greater number of shares of the Columbia
Common Stock or other voting capital stock of Columbia than the holder and its
affiliates would be permitted to own, control or have power to vote under any
law, regulation, rule or other requirement of any governmental authority at
the time applicable to the holder or its affiliates.
COLUMBIA PREFERRED STOCK
The Columbia Board is authorized to provide for the issuance of shares of
Columbia Preferred Stock, in one or more series, and to fix for each such
series such voting powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions as are stated in the resolution adopted by the
Columbia Board providing for the issuance of such series and as are permitted
by Delaware law. In connection with the stockholder rights plan adopted by
Columbia, the Columbia Certificate provides for the issuance of a series of
8,000,000 shares of Columbia Preferred Stock designated as the Series A
Participating Preferred Stock (the "Columbia Series A Preferred Stock"), and a
series consisting of 250,000
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shares of Columbia Preferred Stock designated as the Series B Participating
Preferred Stock (the "Columbia Series B Preferred Stock"). For a description
of the terms of the Columbia Series A Preferred Stock and Columbia Series B
Preferred Stock, see "--Columbia Preferred Stock Purchase Rights."
COLUMBIA PREFERRED STOCK PURCHASE RIGHTS
The Columbia Board has adopted a stockholders rights plan, pursuant to which
one Preferred Stock Purchase Right (a "Columbia Right") is issued with respect
to each share of Columbia Common Stock issued by Columbia. Each Columbia Right
entitles the registered holder to purchase from Columbia one one-hundredth of
a share of Columbia Series A Preferred Stock at a price of $66.67, subject to
adjustment (the "Purchase Price"). The description and terms of the Columbia
Rights are set forth in an Amended and Restated Rights Agreement dated
February 10, 1994 (the "Columbia Rights Agreement") between Columbia and Mid-
America Bank of Louisville & Trust Company, as Rights Agent (the "Columbia
Rights Agent").
The Columbia Rights are attached to all Columbia Common Stock certificates
representing shares outstanding and will be attached to all Certificates
representing Columbia Common Stock that may be issued from time to time,
including the shares of Columbia Common Stock to be issued in the Merger.
Currently, the Columbia Rights are not represented by separate Columbia Rights
certificates. Until the earlier to occur of (i) the first date (the "Stock
Acquisition Date") of a public announcement that, without the prior approval
of Columbia, a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire beneficial
ownership of securities having 15% or more of the voting power of all
outstanding voting securities of Columbia or (ii) ten days (unless such date
is extended by the Columbia Board) following the commencement of (or a public
announcement of an intention to make) a tender offer or exchange offer which
would result in any person or group of related persons becoming an Acquiring
Person (the earlier of such dates being called the "Rights Distribution
Date"), the Columbia Rights will be evidenced by the Columbia Common Stock
certificates. Until the Rights Distribution Date, the Columbia Rights will be
transferred only with Columbia Common Stock certificates. Columbia Common
Stock certificates contain a notation incorporating the Columbia Rights
Agreement by reference. Until the Rights Distribution Date (or earlier
redemption or expiration of the Columbia Rights), the surrender for transfer
of any certificates for Columbia Common Stock outstanding as of the Rights
Distribution Date will also constitute the transfer of the Columbia Rights
associated with the Columbia Common Stock represented by such certificate. As
soon as practicable following the Rights Distribution Date, separate
certificates evidencing the Columbia Rights ("Rights Certificates") will be
mailed to holders of record of the Columbia Common Stock as of the close of
business on the Rights Distribution Date, and the separate Rights Certificates
alone will evidence the Columbia Rights.
The Columbia Rights are not exercisable until the Rights Distribution Date.
The Columbia Rights expire on the earliest of (i) September 1, 2003, (ii)
consummation of a merger transaction with a person or group who acquired
Columbia Common Stock pursuant to a Permitted Offer (as defined below), and
who is offering in the merger the same form of consideration, and not less
than the price per share, paid pursuant to the Permitted Offer or (iii)
redemption of the Columbia Rights by Columbia as described below.
The Purchase Price payable, and the number of shares of Columbia Series A
Preferred Stock or other securities issuable, upon exercise of the Columbia
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Columbia Series A Preferred Stock, (ii) upon the
grant to holders of the Columbia Series A Preferred Stock of certain rights or
warrants to subscribe for Columbia Series A Preferred Stock, certain
convertible securities or securities having rights, privileges and preferences
the same as, or more favorable than, the Columbia Series A Preferred Stock at
less than the current market price of the Columbia Series A Preferred Stock or
(iii) upon the distribution to holders of the Columbia Series A Preferred
Stock of evidences of indebtedness, cash (excluding regular quarterly cash
dividends out of earnings or retained earnings), assets (other than a dividend
payable in Columbia Series A Preferred Stock) or of subscription rights or
warrants (other than those referred to above).
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
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in which the Columbia Common Stock is exchanged or changed (other than a
merger with a person or group who acquired Columbia Common Stock pursuant to a
Permitted Offer and is offering in the merger not less than the price paid
pursuant to the Permitted Offer and the same form of consideration paid in the
Permitted Offer), or 50% or more of Columbia's assets or earning power are
sold (in one transaction or a series of transactions), proper provision shall
be made so that each holder of a Columbia Right (other than such Acquiring
Person) shall thereafter have the right to receive, upon the exercise thereof
at the then current exercise price of the Columbia Right, that number of
shares of common stock of the acquiring company (or, in the event that there
is more than one acquiring company, the acquiring company receiving the
greatest portion of the assets or earning power transferred) which at the time
of such transaction would have a market value of two times the exercise price
of the Columbia Right (such right being called the "Merger Right"). "Permitted
Offer" means a tender offer or exchange offer for all outstanding shares of
Columbia Common Stock at a price and on terms determined, prior to the
purchase of shares under such tender offer or exchange offer, by at least a
majority of the members of the Board of Directors who are not officers of
Columbia, to be both adequate and otherwise in the best interest of Columbia,
its stockholders (other than the person on whose behalf the offer is being
made) and other relevant constituencies.
In the event that an Acquiring Person becomes such, proper provision shall
be made so that each holder of a Columbia Right will have, for a 60-day period
thereafter, the right to receive upon exercise that number of shares of
Columbia Common Stock having a market value of two times the exercise price of
the Columbia Right, to the extent available, and then (after all authorized
and unreserved shares of Columbia Common Stock have been issued) a common
stock equivalent (such as Columbia Series A Preferred Stock or another equity
security with at least the same economic value as the Columbia Common Stock),
or, in certain circumstances, cash, property or a reduction in the purchase
price, having a market value of two times the exercise price of the Columbia
Right (such right being called the "Subscription Right").
The holder of a Columbia Right will continue to have the Merger Right
whether or not such holder exercises the Subscription Right. Upon the
occurrence of any of the events giving rise to the right to exercise the
Merger Right or the Subscription Right, any Columbia Rights that are or were
at any time owned by an Acquiring Person shall become void insofar as they
relate to the Merger Right or the Subscription Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractions of shares will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Columbia Common Stock on the last trading date prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Columbia Rights, Columbia may
redeem the Columbia Rights in whole, but not in part, at a price of $.01 in
cash per Columbia Right (the "Redemption Price"), which redemption shall be
effective upon the action of the Columbia Board in the exercise of its sole
discretion. Additionally, Columbia may, following the Stock Acquisition Date,
redeem the then outstanding Columbia Rights in whole, but not in part, at the
Redemption Price provided that such redemption is (i) in connection with a
merger or other business combination transaction or series of transactions
involving Columbia in which all holders of Columbia Common Stock are treated
alike but not involving an Acquiring Person or any person who was an Acquiring
Person or (ii) following an event giving rise to, and the expiration of the
exercise period for, the Subscription Right if and for as long as no person
beneficially owns securities representing 15% or more of the voting power of
Columbia's voting securities. Upon the effective date of the redemption of the
Columbia Rights, the right to exercise the Columbia Rights will terminate and
the only right of the holders of Columbia Rights will be to receive the
Redemption Price.
Any of the provisions of the Columbia Rights Agreement may be amended by the
Columbia Board prior to the Rights Distribution Date. After the Rights
Distribution Date, the provisions of the Columbia Rights Agreement may be
amended by the Columbia Board to cure any ambiguity, defect or inconsistency,
or to make changes which do not adversely affect the interests of holders of
Columbia Rights (excluding the interests of any Acquiring Person).
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The Columbia Series A Preferred Stock purchasable upon exercise of the
Columbia Rights will be nonredeemable and junior to any other series of
preferred stock Columbia may issue (unless otherwise provided in the terms of
such stock). Each share of Columbia Series A Preferred Stock will have a
preferential quarterly dividend in an amount equal to 100 times the dividend
declared on each share of Columbia Common Stock, but in no event less than
$1.00. In the event of liquidation, the holders of Columbia Series A Preferred
Stock will receive a preferred liquidation payment equal to $100 per share,
plus an amount equal to accrued and unpaid dividends thereon to the date of
such payment. Each share of Columbia Series A Preferred Stock will have 100
votes, voting together with the shares of Columbia Common Stock. In the event
of any merger, consolidation or other transaction in which shares of Columbia
Common Stock are exchanged, each share of Columbia Series A Preferred Stock
will be entitled to receive 100 times the amount and type of consideration
received per share of Columbia Common Stock. The rights of Columbia Series A
Preferred Stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary anti-dilution
provisions. Fractional shares of Columbia Series A Preferred Stock will be
issuable; however, Columbia may elect to distribute depository receipts in
lieu of such fractional shares. In lieu of fractional shares other than
fractions that are multiples of one one-hundredth of a share, an adjustment in
cash will be made based on the market price of the Columbia Series A Preferred
Stock on the last trading date prior to the date of exercise. Any Regulated
Stockholder may convert shares of Columbia Series A Preferred Stock into
Columbia Series B Preferred Stock.
Until a Columbia Right is exercised, the holder thereof, as such, has no
rights as a stockholder of Columbia including, without limitation, the right
to vote or to receive dividends.
The Columbia Rights have certain anti-takeover effects. The Columbia Rights
will cause substantial dilution to a person or group that attempts to acquire
Columbia without conditioning the offer on the Columbia Rights being redeemed
or a substantial number of Columbia Rights being acquired. However, the
Columbia Rights should not interfere with any tender offer or merger approved
by Columbia because the Columbia Rights (i) do not become exercisable in the
event of a Permitted Offer and expire automatically upon the consummation of a
merger in which the form of consideration is the same as, and the price is not
less than the price paid in, the Permitted Offer and (ii) are redeemable in
connection with an approved merger in which all holders of Columbia Common
Stock are treated alike.
In addition, one Preferred Stock Purchase Right (a "Nonvoting Right") has
been issued with respect to each share of Columbia Nonvoting Common Stock.
Each Nonvoting Right entitles the registered holder thereof to purchase from
Columbia one one-hundredth of a share of Columbia Series B Preferred Stock at
a price of $66.67, subject to adjustment. The terms of the Nonvoting Rights
and the Columbia Series B Preferred Stock are substantially identical to the
terms of the Columbia Rights and the Columbia Series A Preferred Stock except
that (i) the Columbia Series B Preferred Stock will not have the right to vote
on matters upon which the Columbia Common Stock have the right to vote, (ii)
the subscription right applicable to the Nonvoting Rights differs from the
Subscription Right in that each holder of a Nonvoting Right will have, for a
60-day period after an Acquiring Person becomes such, the right to receive
upon exercise thereof Columbia Nonvoting Common Stock or a common stock
equivalent to the Columbia Nonvoting Common Stock instead of Columbia Common
Stock, which is the case with respect to the Columbia Rights and (iii) the
shares of Columbia Series B Preferred Stock are convertible into shares of
Columbia Series A Preferred Stock.
The foregoing summary of certain terms of the Columbia Rights is qualified
in its entirety by reference to the Columbia Rights Agreement, which is
incorporated herein by reference.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
As a result of the Merger, holders of Value Health Common Stock will become
stockholders of Columbia and the rights of all such former Value Health
stockholders will thereafter be governed by the Columbia Certificate,
Columbia's bylaws (the "Columbia Bylaws") and the Delaware General Corporation
Law (the "Delaware Law"). The rights of the holders of Value Health Common
Stock are currently governed by the restated certificate of incorporation of
Value Health (the "Value Health Certificate"), the amended and restated by-
laws of Value Health (the "Value Health Bylaws") and the Delaware Law. The
following summary, which does not purport to be a complete statement of the
general differences among the rights of the stockholders of Columbia and Value
Health, sets forth certain differences between the Columbia Certificate and
the Value Health Certificate and between the Columbia Bylaws and the Value
Health Bylaws. This summary is qualified in its entirety by reference to the
full text of each of such documents and the Delaware Law. For information as
to how such documents may be obtained, see "Available Information."
CLASSIFIED BOARD OF DIRECTORS
The Delaware Law provides that a corporation's board of directors may be
divided into various classes with staggered terms of office. The Columbia
Certificate provides that the Columbia Board is divided into three classes of
directors, as nearly equal in number as reasonably possible. One class of
directors is elected each year for a three-year term.
Classification of directors has the effect of making it more difficult for
stockholders to change the composition of the Columbia Board. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in the majority of the Columbia Board. Such a delay may help
ensure that the Columbia directors, if confronted by a holder attempting to
force a proxy contest, a tender or exchange offer or other extraordinary
corporate transaction, would have sufficient time to review the proposal as
well as any available alternatives to the proposal and to act in what they
believe to be the best interests of the stockholders.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of Columbia even though such a
transaction could be beneficial to Columbia and its stockholders. The
classification of the Columbia Board might also increase the likelihood that
incumbent directors will retain their positions.
The Value Health Bylaws provide that the Board of Directors of Value Health
(the "Value Health Board") will consist of not less than four nor more than
ten directors. The Value Health Board is not divided into classes.
STOCKHOLDER RIGHTS PLAN
Columbia has adopted a stockholder rights plan that is designed to protect
Columbia stockholders from coercive or unfair takeover tactics. To implement
the plan, on September 1, 1993, the Columbia Board declared a dividend
distribution of one preferred stock purchase right (a "Columbia Right") for
each share of Columbia Common Stock then outstanding and authorized the
issuance of one Columbia Right for each share of Columbia Common Stock issued
thereafter, but prior to the triggering of the plan. One Columbia Right will
be issued with respect to each share of Columbia Common Stock issued pursuant
to the Merger. Each Columbia Right entitles a registered holder to purchase,
upon the occurrence of certain specified events, one one-hundredth of a share
of the Columbia Series A Preferred Stock at a purchase price of $66.67. The
description and terms of the Columbia Rights are set forth in the Columbia
Rights Agreement. In general, pursuant to the Columbia Rights Agreement, upon
the occurrence of specified triggering events, such as the acquisition by any
person (other than Columbia or any of its subsidiaries) of the beneficial
ownership of securities representing 15% or more of the Columbia Common Stock,
Columbia stockholders (except those stockholders whose Columbia Rights have
been voided under the Columbia Rights Agreement as a result of a triggering
event) shall have the right to receive, in lieu
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of the Columbia Series A Preferred Stock, that amount of the Columbia Common
Stock (or in certain circumstances, cash, property or other securities of
Columbia or a reduction in the purchase price) having a value equal to two
times the exercise price of the Columbia Rights. The Columbia Rights Agreement
further provides that if Columbia is acquired in a merger or other business
combination which is not approved by the Columbia Board, Columbia stockholders
(except those stockholders whose Columbia Rights have been voided under the
Columbia Rights Agreement as a result of a triggering event) shall have the
right to receive common stock of the acquiring company having a value equal to
two times the exercise price of the Columbia Rights. Under certain
circumstances, Columbia may redeem the Columbia Rights, which will otherwise
expire on the tenth anniversary of the adoption of the Columbia Rights
Agreement. The Columbia Rights Agreement further provides for the issuance of
a Nonvoting Right with respect to each share of the Columbia Nonvoting Common
Stock issued. The effect of the Columbia Rights Agreement may be to render
more difficult a change in control of Columbia.
Value Health has also adopted a stockholder rights plan that is designed to
protect Value Health stockholders from coercive or unfair takeover tactics. To
implement the plan, on February 24, 1994, the Value Health Board declared a
dividend distribution of one preferred share purchase right (a "Value Health
Right") for each share of Value Health Common Stock then outstanding and
authorized the issuance of one Value Health Right for each share of Value
Health Common Stock issued thereafter but prior to the triggering of the plan.
Each Value Health Right entitles the registered holder to purchase upon the
occurrence of certain specified events one one-thousandth of a share of Value
Health Series A Junior Participating Preferred Stock, $.01 par value (the
"Value Health Series A Preferred Stock"), at a purchase price of $120, subject
to adjustment. The description and terms of the Value Health Rights are set
forth in a Rights Agreement between Value Health and Mellon Bank, as Rights
Agent, (the "Value Health Rights Agreement"). In general, pursuant to the
Value Health Rights Agreement, upon the occurrence of specified triggering
events, such as the acquisition by any person (other than Value Health or any
of its subsidiaries) of the beneficial ownership of securities representing
15% or more of the Value Health Common Stock or, in the case of Warburg,
Pincus Capital Company, more than 30% of the Value Health Common Stock, Value
Health's stockholders (except those stockholders whose Value Health Rights
have been voided under the Value Health Rights Agreement as a result of the
triggering event) shall have the right to receive, upon exercise of the Value
Health Right, that amount of the Value Health Common Stock (or in certain
circumstances, cash, property or other securities of Value Health) having a
value equal to two times the exercise price of the Value Health Right. The
Value Health Rights Agreement further provides that if Value Health is
acquired in a merger or other business combination which is not approved by
the Value Health Board, Value Health's stockholders (except those stockholders
whose Value Health Rights have been voided under the Value Health Rights
Agreement as a result of the takeover) shall have the right to receive common
stock of the acquiring company having a value equal to two times the exercise
price of the Value Health Right. Under certain specified circumstances, Value
Health may redeem the Value Health Rights, which will otherwise expire on
February 24, 2004.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Columbia Certificate provides that, subject to any rights of holders of
the Columbia Preferred Stock to elect additional directors under specified
circumstances, the number of directors will be fixed from time to time by
action of not less than a majority of the Columbia Board then in office, but
in no event shall the number of directors be less than three nor more than 18.
The Columbia Board currently consists of ten directors. The Columbia
Certificate provides that, subject to any rights of holders of the Columbia
Preferred Stock, any vacancies (including newly-created directorships) will be
filled only by the affirmative vote of a majority of the remaining directors,
though less than a quorum. Directors appointed to fill vacancies created by
the resignation or termination of a director will serve the remainder of the
term of the resigning or terminated director. Accordingly, the Columbia Board
could prevent any stockholder from enlarging the Columbia Board and filling
the new directorships with such stockholder's own nominees.
Under the Delaware Law, unless provided in the certificate of incorporation,
directors serving on a classified board may only be removed by the
stockholders for cause. The Columbia Certificate provides that directors may
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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 (the "Columbia Voting
Stock"), voting together as a single class, subject to any rights of holders
of the Columbia Preferred Stock.
The Value Health Board currently consists of nine directors. The Value
Health Bylaws provide that the number of directors of the Value Health Board
may be fixed, from time to time, by resolution of the Value Health Board or by
the stockholders of Value Health at the annual meeting or at any special
meeting of stockholders but in no event shall the number of directors be less
than four nor more than ten.
The Value Health Bylaws state that vacancies and newly created directorships
on the Value Health Board may be filled by the vote of a majority of the
directors then in office, though less than a quorum. Each director so elected
shall hold office for a term expiring at the next annual meeting of
stockholders or until his or her successor shall have been duly elected and
qualified, unless sooner displaced. In addition, the Value Health Bylaws
provide that any director may be removed with or without cause at any time by
the affirmative vote of the holders of a majority of the shares then entitled
to vote at an election of directors.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Columbia Certificate (i) provides that, subject to the rights of any
holders of the Columbia Preferred Stock to elect additional directors under
specified circumstances, stockholder action can be taken only at an annual or
special meeting of stockholders and (ii) prohibits stockholder action by
written consent in lieu of a meeting. The Columbia Certificate also provides
that, subject to the rights of holders of any series of the Columbia Preferred
Stock to elect additional directors under specified circumstances, special
meetings of stockholders can be called only by the Chairman of the Board or
the Chief Executive Officer of Columbia or the Columbia Board. Stockholders
are not permitted to call a special meeting or to require that the Columbia
Board call a special meeting of stockholders. Moreover, the business permitted
to be conducted at any special meeting of stockholders is limited to the
business brought before the meeting pursuant to the notice of meeting given by
Columbia.
The Value Health Bylaws provide that stockholder action can be taken either
(i) at an annual or special meeting of stockholders or (ii) by written consent
of the holders of not less than the minimum number of shares of Value Health
Common Stock that would have been necessary to approve such action at a
meeting at which all of the shares of Value Health Common Stock were present.
The Value Health Bylaws also provide that special meetings of the stockholders
may be called by the vote of a majority of the Value Health Board or by the
written request of the holders of 25% or more of the Value Health Common
Stock. Moreover, pursuant to the Value Health Bylaws, only such business shall
be conducted at a special meeting of Value Health's stockholders as shall have
been brought before the meeting pursuant to the notice of meeting given by
Value Health.
The provisions of the Columbia Certificate prohibiting stockholder action by
written consent may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting of stockholders. These provisions would
also prevent the holders of a majority of the voting power of the Columbia
Voting Stock from unilaterally using the written consent procedure to take
stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Chairman of the Board,
the Chief Executive Officer and the Columbia Board by calling a special
meeting of stockholders prior to the time the Chairman of the Board, the Chief
Executive Officer or the Columbia Board believes such consideration to be
appropriate.
FAIR PRICE PROVISIONS
The Columbia Certificate contains a "fair price" provision, requiring that,
in addition to any other vote required by the Columbia Certificate or the
Delaware Law, certain "Business Combination" transactions with a "Related
Person" will be subject to the affirmative vote of the holders of not less
than 85% of the outstanding Columbia Voting Stock held by stockholders other
than the Related Person.
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For the purpose of this provision, certain terms are defined as follows:
"Business Combination" means (a) any merger or consolidation of Columbia or
a subsidiary with a Related Person, (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition other than in the ordinary course of
business to or with a Related Person of any assets of Columbia or a subsidiary
having an aggregate fair market value of $25,000,000 or more, (c) the issuance
or transfer by Columbia of any shares of the Columbia Voting Stock or
securities convertible into or exercisable for such shares (other than by way
of pro rata distribution to all stockholders) to a Related Person, (d) any
recapitalization, merger or consolidation that would have the effect of
increasing the voting power of a Related Person, (e) the adoption of any plan
or proposal for the liquidation or dissolution of Columbia or a subsidiary
proposed, directly or indirectly, by or on behalf of a Related Person, (f) any
merger or consolidation of Columbia with another person proposed, directly or
indirectly, by or on behalf of a Related Person unless the entity surviving or
resulting from such merger or consolidation has a provision in its certificate
or articles of incorporation, charter or similar governing instrument which is
substantially identical to the "fair price" provisions of the Columbia
Certificate or (g) any agreement, contract or other arrangement or
understanding providing, directly or indirectly, for any of the foregoing
transactions.
"Related Person" means any individual, partnership, corporation, trust or
other person which together with its "affiliates" and "associates," as defined
in Rule 12b-2 under the Exchange Act as in effect on July 1, 1993, and
together with any other individual, partnership, corporation, trust or other
person with which it or they have any agreement, contract or other arrangement
or understanding with respect to acquiring, holding, voting or disposing of
the Columbia Voting Stock, "beneficially owns" (within the meaning of Rule
13d-3 under the Exchange Act on said date) an aggregate of 10% or more of the
outstanding Columbia Voting Stock. A Related Person, its affiliates and
associates and all such other individuals, partnerships, corporations and
other persons with whom it or they have any such agreement, contract or other
arrangement or understanding, are deemed a single Related Person for purposes
of this provision; provided, however, that the members of the Columbia Board
shall not be deemed to be associates or otherwise to constitute a Related
Person solely by reason of their board membership. A person who is a Related
Person (a) as of the time any definitive agreement relating to a Business
Combination is entered into, (b) as of the record date for the determination
of stockholders entitled to notice of and to vote on a Business Combination or
(c) immediately prior to the consummation of a Business Combination, shall be
deemed a Related Person for purposes of this provision.
"Continuing Director" means any member of the Columbia Board who is not an
"affiliate" or "associate" of the Related Person and was a member of the
Columbia Board prior to the time that such person became a Related Person, and
any successor of a Continuing Director who is unaffiliated with such Related
Person and is recommended to succeed a Continuing Director by a majority of
the Continuing Directors.
"Market Value" means the average of the high-bid and low-asked quoted sales
price on the date in question (or, if there is no reported sale on such date,
on the last preceding date on which any reported sale occurred) of a share on
the NYSE Composite Tape, or, if the shares are not listed or admitted to
trading on such exchange, on the principal United States securities exchange
registered under the Exchange Act on which the shares are listed or admitted
to trading, or, if the shares are not listed or admitted to trading on any
such exchange, the mean between the closing high-bid and the low-asked
quotations with respect to a share on such date as quoted on NASDAQ, or any
similar system then in use, or, if no such quotations are 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
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holders of capital stock of Columbia, other than the Related Person
involved in the Business Combination, will not be less than the highest of
(i) the highest per share price (including brokerage commissions,
soliciting dealers' fees, and dealer-manager compensation, and with
appropriate adjustments for recapitalizations, stock splits, stock
dividends and like transactions and distributions) paid by such Related
Person in acquiring any of its holdings of such class or series of capital
stock, (ii) the highest per share Market Value of such class or series of
capital stock within the twelve-month period immediately preceding the date
the proposal for such Business Combination was first publicly announced or
(iii) the book value per share of such class or series of capital stock,
determined in accordance with generally accepted accounting principles, as
of the last day of the month immediately preceding the date the proposal
for such Business Combination was first publicly announced;
(b) The consideration to be received in such Business Combination by
holders of capital stock other than the Related Person involved will,
except to the extent that a stockholder agrees otherwise as to all or part
of the shares which he or she owns, be in the same form and of the same
kind as the consideration paid by the Related Person in acquiring capital
stock already owned by it, provided, however, that if the Related Person
has paid for capital stock with varying forms of consideration, the form of
consideration for shares of capital stock acquired in the Business
Combination by the Related Person must either be cash or the form used to
acquire the largest number of shares of capital stock previously acquired
by it; and
(c) A proxy statement responsive to the requirements of the Exchange Act
is mailed to the stockholders of Columbia for the purpose of soliciting
stockholder approval of such Business Combination and contains (i) any
recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors may choose to state and (ii) the
opinion of a reputable investment banking firm selected by the Continuing
Directors as to the fairness of the terms of such Business Combination,
from a financial point of view, to the public stockholders (other than the
Related Person) of Columbia.
The "fair price" provision is intended to ensure that all stockholders
receive equal treatment in the event of a tender or exchange offer and to
protect stockholders against coercive or two-tiered takeover bids.
Notwithstanding the foregoing, the provision could also have the effect of
discouraging a third party from making a tender or exchange offer for
Columbia, even though such an offer might be beneficial to Columbia and its
stockholders.
The Value Health Certificate contains no "fair price" provision.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The Columbia Certificate establishes an advance notice procedure for
stockholders to make 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 the Columbia Preferred Stock, only persons who are nominated by, or
at the direction of, the Columbia Board, or by a stockholder who has given
timely written notice to the Secretary of Columbia prior to the meeting at
which directors are to be elected, will be eligible for election as directors
of Columbia. The Stockholder Notice Procedure provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Chairman of the Board, the Chief
Executive Officer, or the Columbia Board or by a stockholder who has given
timely written notice to the Secretary of Columbia of such stockholder's
intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, to be timely, notice of stockholder nominations or proposals
to be made at an annual meeting must be received by Columbia no less than 60
days nor more than 90 days prior to the scheduled date of the meeting (or, if
less than 70 days' notice or prior public disclosure of the date of the
meeting is given, the 10th day following the earlier of (i) the date such
notice was mailed or (ii) the date such public disclosure was made).
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Under the Stockholder Notice Procedure, a stockholder's notice to Columbia
proposing to nominate a person for election as a director must contain certain
information, including, without limitation, the identity and address of the
nominating stockholder, the class and number of shares of stock of Columbia
which are owned by such stockholder and all information regarding the proposed
nominee that would be required to be included in a proxy statement soliciting
proxies for the proposed nominee. Under the Stockholder Notice Procedure, a
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business
and about the proposing stockholder, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name
and address of such stockholder, the class and number of shares of stock of
Columbia beneficially owned by such stockholder, and any material interest of
such stockholder in the business so proposed. If the Chairman of the Board,
the Chief Executive Officer or other officer presiding at a meeting determines
that a person was not nominated, or other business was not brought before the
meeting, in accordance with the Stockholder Notice Procedure, such person will
not be eligible for election as a director or such business will not be
conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure affords the Columbia Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Columbia Board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure also provides a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Columbia Board, provides the Columbia Board with an
opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations
as to the Columbia Board's position regarding action to be taken with respect
to such business, so that stockholders can better decide whether to attend
such a meeting or to grant a proxy regarding the disposition of any such
business.
Although the Columbia Certificate does not give the Columbia Board any power
to approve or disapprove stockholder nominations of 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 Value Health Bylaws contain similar provisions relating to stockholder
nominations and stockholder proposals.
COMMON STOCK AND NONVOTING COMMON STOCK
The terms of the Columbia Common Stock are substantially identical to those
of the Value Health Common Stock. The Columbia Certificate authorizes the
Columbia Nonvoting Common Stock. The Value Health Certificate does not
authorize nonvoting common stock.
PREFERRED STOCK
Pursuant to the Columbia Certificate, the Columbia Board is authorized,
subject to the limitations prescribed by law, to provide for the issuance of
shares of the Columbia Preferred Stock in one or more series (including the
Columbia Series A Preferred Stock and the Columbia 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 Value Health Certificate contains substantially
similar provisions relating to the issuance of preferred stock of Value
Health.
Management of Columbia believes that the ability of the Columbia Board to
issue one or more series of the Columbia Preferred Stock provides Columbia
with flexibility in structuring possible future financings and
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acquisitions, and in meeting other corporate needs that might arise. The
authorized shares of the Columbia Preferred Stock, as well as shares of the
Columbia Common Stock, are available for issuance without further action by
the Columbia stockholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which the
Columbia securities may be listed or traded. The NYSE currently requires
stockholder approval as a prerequisite to listing shares in several instances,
including where the present or potential issuance of shares could result in an
increase of at least 20% in the number of shares of common stock or in the
amount of voting securities outstanding. If the approval of the Columbia
stockholders is not required for the issuance of shares of the Columbia
Preferred Stock or the Columbia Common Stock, the Columbia Board may not seek
stockholder approval.
Although the Columbia Board has no intention at the present time of doing
so, it could issue a series of the Columbia Preferred Stock that could,
depending on the terms of such series, impede the completion of a merger,
tender offer or other takeover attempt. The Columbia Board will make any
determination to issue such shares based on its judgment as to the best
interests of Columbia and its stockholders. The Columbia Board, in so acting,
could issue Columbia Preferred Stock having terms that discourage an
acquisition attempt through which an acquiror may be able to change the
composition of the Columbia Board, including a tender offer or other
transaction that some, or a majority, of the Columbia stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then current market price of such stock.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Columbia Certificate contains provisions requiring the affirmative vote
of the holders of a least 75% of the voting power of the Columbia Voting
Stock, after approval by the Columbia Board, to amend certain provisions of
the Columbia Certificate (including the provisions discussed above relating to
directors, action by written consent, special stockholder meetings and the
Stockholder Notice Procedure) or to amend any provision of the Columbia
Bylaws. An amendment of the "fair price" provision requires the approval of 66
2/3% of the directors of Columbia then in office and the affirmative vote of
85% of the Columbia Voting Stock held by stockholders other than any Related
Person, unless the amendment is approved by 66 2/3% of the Continuing
Directors. These provisions make it more difficult for stockholders to make
changes in the Columbia Certificate and the Columbia Bylaws, including changes
designed to facilitate the exercise of control over Columbia.
The Value Health Certificate contains no special provisions affecting the
amendment of the Value Health Certificate or the Value Health Bylaws.
BUSINESS COMBINATIONS
Section 203 of the Delaware Law provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the date
that such stockholder becomes an interested stockholder unless (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder's
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
shares held by directors who are also officers and employee stock purchase
plans in which employee participants do not have the right to determine
confidentially whether plan shares will be tendered in a tender or exchange
offer) or (iii) on or subsequent to such date, the business combination is
approved by the board of directors of the corporation and by the affirmative
vote at an annual or special meeting, and not by written consent, of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 203 of the Delaware Law, an
interested stockholder is defined to include (a) any person that is the owner
of 15% or more of the outstanding voting stock of the corporation or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and (b) the affiliates and associates
of any such person.
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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. The Value Health Certificate does not
exclude Value Health from the restrictions of Section 203 of the Delaware Law.
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's
becoming an interested stockholder.
SPECIAL VOTING REQUIREMENTS
The Columbia Certificate requires that (i) any change in the powers,
preferences or special rights of the Columbia Nonvoting Common Stock so as to
affect the holders thereof adversely will require the affirmative vote of a
majority of the directors then in office and the affirmative vote of the
holders of not less than 66 2/3% of the then outstanding shares of the
Columbia Nonvoting Common Stock and (ii) any change in the authorized number
of shares of any class of capital stock of Columbia will require the
affirmative vote of a majority of the directors then in office and the
affirmative vote of the holders of not less than a majority of the then
outstanding shares of the Columbia Common Stock and the Columbia Nonvoting
Common Stock, voting together as a single class.
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
breach of the director's fiduciary duty, subject to certain limitations. Each
of the Columbia Certificate and the Value Health Certificate includes such a
provision, as set forth below, to the maximum extent permitted by law.
Each of the Columbia Certificate and the Value Health 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 of
monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions described
above apply to an officer of the corporation only if he or she is a director
of the corporation and is acting in his or her capacity as director, and do
not apply to officers of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware Law permits a corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The Delaware Law provides that a
corporation may advance expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not
appropriate) and must reimburse a successful defendant for expenses, including
attorneys' fees, actually and reasonably incurred, and permits a corporation
to purchase and maintain liability insurance for its directors and officers.
Delaware Law provides that
42
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indemnification may not be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless
and only to the extent a court determines that the person is entitled to
indemnity for such expenses as the court deems proper.
The Columbia Certificate provides that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan,
will be indemnified by the corporation to the full extent permitted by the
Delaware Law, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
prior to such amendment) or by other applicable laws then in effect. The
indemnification rights conferred by the Columbia Certificate are not exclusive
of any other right to which a person seeking indemnification may be entitled
under any law, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. Columbia is authorized to purchase and maintain (and
Columbia maintains) insurance on behalf of its directors, officers, employees
and agents. The Value Health 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 Value Health Certificate does not contain a 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, stockholders or constituents. The Columbia Board
is specifically authorized to adopt plans or to issue securities of Columbia
(including the Columbia Common Stock or the Columbia Preferred Stock, rights
(including the Columbia Rights) or debt securities), which securities may be
exchangeable or convertible into cash or other securities on such terms as the
Columbia Board determines and may provide for different and unequal treatment
of different holders or classes of holders. The existence of this authority or
the actions which may be taken by the Columbia Board pursuant thereto are
intended to give the Columbia Board flexibility to act in the best interests
of stockholders in the event of a potential change of control transaction.
Such provisions may, however, deter potential acquirors from proposing
unsolicited transactions not approved by the Columbia Board and might enable
the Columbia Board to hinder or frustrate such a transaction if proposed,
including a transaction in which stockholders might receive a premium for
their stock over the then current market price of such stock. The Value Health
Certificate does not contain a comparable provision.
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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 December 31, 1996, Mr.
Braun owned approximately 25,641 shares and held stock options to purchase
210,000 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 (a partnership including professional
corporations), New York, New York. The federal income tax consequences in
connection with the Merger will be passed upon for Value Health by Willkie
Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of
Columbia, incorporated by reference in this Proxy Statement/Prospectus, have
been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon, which also are incorporated herein by
reference. Such financial statements and schedule have been incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements and financial statement schedule of
Value Health, incorporated by reference in this Proxy Statement/Prospectus,
have been audited by Coopers & Lybrand L.L.P., independent auditors, as set
forth in their report with respect thereto. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance on
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and financial statement schedule of
Preferred Health Care Ltd., a wholly owned subsidiary of Value Health,
incorporated by reference in this Proxy Statement/Prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as set forth in their
report with respect thereto. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance on such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Diagnostek, Inc., a wholly owned
subsidiary of Value Health, incorporated by reference in this Proxy
Statement/Prospectus, have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report with respect thereto. Such consolidated
financial statements are incorporated herein by reference in reliance on such
report given upon the authority of such firm as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
As described in Value Health's proxy statement relating to its 1996 Annual
Meeting of Stockholders, in order for proposals of stockholders to be
considered for inclusion in the proxy statement for the 1997 Annual Meeting of
Stockholders of Value Health (if the Merger is not consummated), such
proposals must have been received by the Secretary of Value Health by November
29, 1996. No such proposals were received by Value Health's Secretary by such
date.
OTHER MATTERS
The Value Health Board of Directors has no knowledge of any business to be
presented for consideration at the Special Meeting other than as described in
this Proxy Statement/Prospectus. Should any such other matters properly come
before the Special Meeting or any adjournment thereof, the persons named in
the enclosed Proxy will have discretionary authority to vote such Proxy in
accordance with their best judgment on such other matters and with respect to
matters incident to the conduct of the Special Meeting.
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JANUARY 15, 1997
AMONG
COLUMBIA/HCA HEALTHCARE CORPORATION
CVH ACQUISITION CORPORATION
AND
VALUE HEALTH, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
ARTICLE I THE MERGER...................................................... A-1
Section 1.1 The Merger............................................... A-1
Section 1.2 Effective Date of the Merger............................. A-1
ARTICLE II THE SURVIVING CORPORATION...................................... A-1
Section 2.1 Certificate of Incorporation............................. A-1
Section 2.2 By-Laws.................................................. A-1
Section 2.3 Board of Directors; Officers............................. A-1
Section 2.4 Effects of Merger........................................ A-1
ARTICLE III CONVERSION OF SHARES.......................................... A-2
Section 3.1 Exchange Ratio........................................... A-2
Section 3.2 Parent to Make Certificates Available.................... A-2
Section 3.3 Dividends; Stock Transfer Taxes.......................... A-2
Section 3.4 No Fractional Shares..................................... A-3
Section 3.5 Stock Options............................................ A-3
Section 3.6 Stockholders' Meetings................................... A-3
Section 3.7 Closing of the Company's Transfer Books.................. A-4
Section 3.8 Assistance in Consummation of the Merger................. A-4
Section 3.9 Closing.................................................. A-4
Section 3.10 Transfer Taxes........................................... A-4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT....................... A-4
Section 4.1 Organization and Qualification........................... A-4
Section 4.2 Capitalization........................................... A-4
Section 4.3 Authority Relative to this Agreement..................... A-5
Section 4.4 Reports and Financial Statements......................... A-5
Section 4.5 Absence of Certain Changes or Events..................... A-6
Section 4.6 Litigation............................................... A-6
Section 4.7 Parent Action............................................ A-6
Section 4.8 Financial Advisor........................................ A-6
Section 4.9 Compliance with Applicable Laws.......................... A-6
Section 4.10 Liabilities.............................................. A-7
Section 4.11 Certain Agreements....................................... A-7
Section 4.12 Parent Ownership of Stock................................ A-7
Section 4.13 No Material Adverse Effect............................... A-7
Section 4.14 Accounting Matters....................................... A-7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... A-8
Section 5.1 Organization and Qualification........................... A-8
Section 5.2 Capitalization........................................... A-8
Section 5.3 Subsidiaries............................................. A-8
Section 5.4 Authority Relative to this Agreement..................... A-9
Section 5.5 Reports and Financial Statements......................... A-9
Section 5.6 Absence of Certain Changes or Events..................... A-10
Section 5.7 Litigation............................................... A-10
Section 5.8 Employee Benefit Plans................................... A-10
Section 5.9 Labor Matters............................................ A-12
Section 5.10 Company Action........................................... A-12
Section 5.11 Financial Advisor........................................ A-13
Section 5.12 Compliance with Applicable Laws.......................... A-13
</TABLE>
i
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<TABLE>
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<C> <S> <C>
Section 5.13 Liabilities............................................ A-13
Section 5.14 Taxes.................................................. A-13
Section 5.15 Certain Agreements..................................... A-14
Section 5.16 Patents, Trademarks, Etc............................... A-14
Section 5.17 No Material Adverse Effect............................. A-14
Section 5.18 Accounting Matters..................................... A-14
Section 5.19 Representations Under Purchase Agreements.............. A-14
Section 5.20 Absence Of Certain Business Practices.................. A-15
Section 5.21 Payments Under CCN Agreement........................... A-15
Section 5.22 Billing Practices...................................... A-15
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SUB................. A-15
Section 6.1 Organization........................................... A-15
Section 6.2 Capitalization......................................... A-15
Section 6.3 Authority Relative to this Agreement................... A-15
ARTICLE VII CONDUCT OF BUSINESS PENDING THE MERGER...................... A-16
Section 7.1 Conduct of Business by the Company Pending the Merger.. A-16
Section 7.2 Conduct of Business by Parent Pending the Merger....... A-17
Section 7.3 Conduct of Business of Sub............................. A-17
ARTICLE VIII ADDITIONAL AGREEMENTS...................................... A-17
Section 8.1 Access and Information................................. A-17
Section 8.2 Registration Statement/Proxy Statement................. A-17
Section 8.3 Compliance with the Securities Act..................... A-18
Section 8.4 Stock Exchange Listing................................. A-18
Section 8.5 Employee Matters....................................... A-18
Section 8.6 Indemnification........................................ A-19
Section 8.7 HSR Act................................................ A-19
Section 8.8 Additional Agreements.................................. A-19
Section 8.9 Alternative Proposals.................................. A-20
Section 8.10 Advice of Changes; SEC Filings......................... A-20
Section 8.11 Restructuring of Merger................................ A-20
Section 8.12 Letter of the Company's Accountants.................... A-21
Section 8.13 Letter of Parent and Sub's Accountants................. A-21
Section 8.14 Other Matters.......................................... A-21
ARTICLE IX CONDITIONS PRECEDENT......................................... A-21
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger................................................ A-21
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger................................................ A-22
Section 9.3 Conditions to Obligations of Parent and Sub to Effect
the Merger............................................ A-22
ARTICLE X TERMINATION, AMENDMENT AND WAIVER............................. A-23
Section 10.1 Termination by Mutual Consent.......................... A-23
Section 10.2 Termination by Either Parent or the Company............ A-23
Section 10.3 Termination by the Company............................. A-23
Section 10.4 Termination by Parent.................................. A-23
Section 10.5 Effect of Termination and Abandonment.................. A-24
Section 10.6 Extension; Waiver...................................... A-24
ARTICLE XI GENERAL PROVISIONS........................................... A-25
Section 11.1 Non-Survival of Representations, Warranties and
Agreements............................................ A-25
Section 11.2 Notices................................................ A-25
Section 11.3 Fees and Expenses...................................... A-25
</TABLE>
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<TABLE>
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<C> <S> <C>
Section 11.4 Publicity............................................... A-26
Section 11.5 Specific Performance.................................... A-26
Section 11.6 Assignment; Binding Effect.............................. A-26
Section 11.7 Entire Agreement........................................ A-26
Section 11.8 Amendment............................................... A-26
Section 11.9 Governing Law........................................... A-26
Section 11.10 Counterparts............................................ A-26
Section 11.11 Headings and Table of Contents.......................... A-26
Section 11.12 Interpretation.......................................... A-26
Section 11.13 Waivers................................................. A-27
Section 11.14 Incorporation of Exhibits............................... A-27
Section 11.15 Severability............................................ A-27
Section 11.16 Subsidiaries............................................ A-27
</TABLE>
iii
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of January 15,
1997, by and among Columbia/HCA Healthcare Corporation, a Delaware corporation
("Parent"), CVH Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and Value Health, Inc., a Delaware
corporation (the "Company"):
Witnesseth:
Whereas, Parent and the Company desire to effect a business combination by
means of the merger of Sub with and into the Company (the "Merger");
Whereas, the Boards of Directors of Parent, Sub and the Company have
approved the Merger, upon the terms and subject to the conditions set forth
herein;
Whereas, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests";
Whereas, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
Now, Therefore, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof,
on the Effective Date (as defined in Section 1.2), Sub shall be merged into
the Company and the separate existence of Sub shall thereupon cease, and the
Company, as the corporation surviving the Merger (the "Surviving
Corporation"), shall by virtue of the Merger continue its corporate existence
under the laws of the State of Delaware.
Section 1.2 Effective Date of the Merger. The Merger shall become effective
at the date and time (the "Effective Date") when a properly executed
Certificate of Merger is duly filed with the Secretary of State of the State
of Delaware, which filing shall be made as soon as practicable following
fulfillment of the conditions set forth in Article IX hereof, or at such time
thereafter as is provided in such Certificate of Merger.
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. Subject to Section 8.6(a), the
Certificate of Incorporation of the Sub shall be the Certificate of
Incorporation of the Surviving Corporation after the Effective Date, and
thereafter may be amended in accordance with its terms and as provided by law
and this Agreement.
Section 2.2 By-Laws. The By-laws of the Sub as in effect on the Effective
Date shall be the By-laws of the Surviving Corporation, and thereafter may be
amended in accordance with its terms and as provided by law and this
Agreement.
Section 2.3 Board of Directors; Officers. The directors of Sub immediately
prior to the Effective Date shall be the directors of the Surviving
Corporation, and the officers of the Company immediately prior to the
Effective Date shall be the officers of the Surviving Corporation, in each
case until their respective successors are duly elected and qualified.
Section 2.4 Effects of Merger. The Merger shall have the effects set forth
in Section 259 of the Delaware General Corporation Law (the "DGCL").
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ARTICLE III
Conversion of Shares
Section 3.1 Exchange Ratio. On the Effective Date, by virtue of the Merger
and without any action on the part of any holder of any common stock, no par
value, of the Company ("Company Common Stock"):
(a) All shares of Company Common Stock which are held by the Company or any
subsidiary of the Company, and any shares of Company Common Stock owned by
Parent, Sub or any other subsidiary of Parent, shall be canceled.
(b) Subject to Section 3.4, each remaining outstanding share of Company
Common Stock shall be converted into 0.58 (the "Exchange Ratio") fully paid
and nonassessable shares of the common stock, $.01 par value, of Parent
("Parent Common Stock"). Each share of Parent Common Stock issued to holders
of Company Common Stock in the Merger shall be issued together with one
associated preferred stock purchase right (a "Parent Right") in accordance
with the Amended and Restated Rights Agreement dated as of February 10, 1994,
between Parent and Mid-America Bank of Louisville & Trust Company. References
herein to the shares of Parent Common Stock issuable in the Merger shall be
deemed to include the associated Parent Rights.
(c) In the event of any stock dividend, stock split, reclassification,
recapitalization, combination or exchange of shares with respect to, or rights
issued in respect of, Parent Common Stock or Company Common Stock after the
date hereof, the Exchange Ratio shall be adjusted accordingly.
(d) Each issued and outstanding share of capital stock of Sub shall be
converted into and become one fully paid and nonassessable share of common
stock of the Surviving Corporation.
Section 3.2 Parent to Make Certificates Available.
(a) Prior to the Effective Date, Parent shall select an Exchange Agent,
which shall be Parent's Transfer Agent or such other person or persons
reasonably satisfactory to the Company, to act as Exchange Agent for the
Merger (the "Exchange Agent"). As soon as practicable after the Effective
Date, Parent shall make available, and each holder of Company Common Stock
will be entitled to receive, upon surrender to the Exchange Agent of one or
more certificates ("Certificates") representing such stock for cancellation,
certificates representing the number of shares of Parent Common Stock into
which such shares are converted in the Merger and cash in consideration of
fractional shares as provided in Section 3.4 (the "Share Consideration").
Parent Common Stock into which Company Common Stock shall be converted in the
Merger shall be deemed to have been issued on the Effective Date.
(b) Any holder of shares of Company Common Stock who has not exchanged his
Certificates for Parent Common Stock in accordance with subsection (a) within
twelve months after the Effective Date shall have no further claim upon the
Exchange Agent and shall thereafter look only to Parent and the Surviving
Corporation for payment in respect of his shares of Company Common Stock.
Until so surrendered, Certificates shall represent solely the right to receive
the Share Consideration.
Section 3.3 Dividends; Stock Transfer Taxes. No dividends or other
distributions that are declared or made on Parent Common Stock will be paid to
persons entitled to receive certificates representing Parent Common Stock
pursuant to this Agreement until such persons surrender their Certificates
representing Company Common Stock. Upon such surrender, there shall be paid to
the person in whose name the certificates representing such Parent Common
Stock shall be issued (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Date
theretofore payable with respect to such whole shares of Parent 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 Date but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Parent Common Stock, less the amount of any withholding
taxes which may be
A-2
<PAGE>
required thereon. In no event shall the person entitled to receive such
dividends be entitled to receive interest on such dividends. In the event that
any certificates representing shares of Parent Common Stock are to be issued
in a name other than that in which the Certificates surrendered in exchange
therefor are registered, it shall be a condition of such exchange that the
Certificate or Certificates so surrendered shall be properly endorsed or be
otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Exchange Agent any transfer or other taxes required
by reason of the issuance of certificates for such shares of Parent Common
Stock in a name other than that of the registered holder of the Certificate or
Certificates surrendered, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to a holder of shares of Company Common Stock for any shares
of Parent Common Stock or dividends thereon delivered to a public official
pursuant to any applicable abandoned property, escheat or similar laws. In the
event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation,
the posting by such person of a bond in such reasonable amount as the
Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the shares of
Parent Common Stock and cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Parent Common Stock as provided in
Section 3.3, deliverable in respect thereof pursuant to this Agreement.
Section 3.4 No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates pursuant to Section 3.1(b). Notwithstanding any
other provision of this Agreement, each holder of Company Common Stock
exchanged pursuant to the Merger who would otherwise be entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash in
an amount equal to such fractional part of a share of Parent Common Stock
multiplied by the per-share value of the Parent Common Stock based on the
average sale price thereof for the 10 business days next preceding the
Effective Date, using for each such business day the composite closing sale
price on the New York Stock Exchange (the "NYSE"), as reported in each case in
the following day's edition of The Wall Street Journal.
Section 3.5 Stock Options. (a) Each of the Company's stock option plans,
each of which is set forth in Section 3.5(a) of the Company Disclosure
Schedule (as defined in Section 5.1) (the "Option Plans"), and each option to
acquire shares of Common Stock outstanding immediately prior to the Effective
Date thereunder, whether vested or unvested (each, an "Option" and
collectively, the "Options"), shall be assumed by the Parent at the Effective
Date, and each such Option shall become an option to purchase a number of
Parent Shares (a "Substitute Option") equal to the number of shares of Common
Stock subject to such Option multiplied by the Exchange Ratio (rounded to the
nearest whole share, with 0.5 shares being rounded up). The per share exercise
price for each Substitute Option shall be the current exercise price per share
of Common Stock divided by the Exchange Ratio (rounded up to the nearest full
cent), and each Substitute Option otherwise shall be subject to all of the
other terms and conditions of the original Option to which it relates
(including, without limitation, all provisions relating to acceleration of
vesting). Prior to the Effective Date, the Company shall take such additional
actions as are necessary under applicable law and the applicable agreements
and Option Plans to ensure that each outstanding Option shall, from and after
the Effective Date, represent only the right to purchase, upon exercise,
shares of Parent Common Stock. Except as set forth in Section 3.5(a) of the
Company Disclosure Schedule, no Option shall be accelerated by reason of the
Merger unless the agreement or arrangement under which it was granted or by
which it is otherwise governed specifically provides for such acceleration.
(b) As soon as practicable after the Effective Date, Parent shall cause to
be included under a registration statement on Form S-8 of Parent all Parent
Shares which are subject to Substitute Options, and shall maintain the
effectiveness of such registration statement until all Substitute Options have
been exercised, expired or forfeited.
Section 3.6 Stockholders' Meetings. The Company shall take all action
necessary, in accordance with applicable law and its Certificate of
Incorporation and By-laws, to convene a special meeting of the holders of
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<PAGE>
Company Common Stock (the "Company Meeting") as promptly as practicable for
the purpose of considering and taking action upon this Agreement. Subject to
the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, as advised by outside counsel, the Board of
Directors of the Company will recommend that holders of Company Common Stock
vote in favor of and approve the Merger and the adoption of the Agreement at
the Company Meeting. At the Company Meeting, all of the shares of Company
Common Stock then owned by Parent, Sub, or any other subsidiary of Parent, or
with respect to which Parent, Sub, or any other subsidiary of Parent holds the
power to direct the voting, will be voted in favor of approval of the Merger
and adoption of this Agreement.
Section 3.7 Closing of the Company's Transfer Books. At the Effective Date,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall be made thereafter. In the event that,
after the Effective Date, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for Parent Common Stock
and/or cash as provided in Sections 3.1(b) and 3.4.
Section 3.8 Assistance in Consummation of the Merger. Each of Parent, Sub
and the Company shall provide all reasonable assistance to, and shall
cooperate with, each other to bring about the consummation of the Merger as
soon as possible in accordance with the terms and conditions of this
Agreement. Parent shall cause Sub to perform all of its obligations in
connection with this Agreement.
Section 3.9 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place (i) at the offices of Willkie Farr
& Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York
10022, at 9:00 A.M. local time on the day which is at least one business day
after the day on which the last of the conditions set forth in Article IX
(other than those that can only be fulfilled on the Effective Date) is
fulfilled or waived or (ii) at such other time and place as Parent and the
Company shall agree in writing.
Section 3.10 Transfer Taxes. Parent and Company shall cooperate in the
preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary
or other taxes (including, without limitation, any New York State Real Estate
Transfer Tax) and any other fees and similar taxes which become payable in
connection with the Merger other than transfer or stamp taxes payable in
respect of transfers pursuant to the fourth sentence of Section 3.3
(collectively, "Transfer Taxes"). From and after the Effective Date, Parent
shall pay or cause to be paid, without deduction or withholding from any
amounts payable to the holders of Company Common Stock, all Transfer Taxes.
ARTICLE IV
Representations and Warranties of Parent
Parent represents and warrants to the Company as follows:
Section 4.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has the corporate power to carry on its business as it is now
being conducted or currently proposed to be conducted. Parent is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities make such qualification necessary,
except where the failure to be so qualified will not, individually or in the
aggregate, have a material adverse effect on the business, properties, assets,
condition (financial or otherwise), liabilities or results of operations of
Parent and its subsidiaries taken as a whole (a "Parent Material Adverse
Effect"). Complete and correct copies as of the date hereof of the Certificate
of Incorporation and By-laws of Parent have been delivered to the Company as
part of a disclosure schedule delivered by Parent to the Company in connection
with this Agreement (the "Parent Disclosure Schedule").
Section 4.2 Capitalization. The authorized capital stock of Parent consists
of 800,000,000 shares of Parent Common Stock, 25,000,000 shares of non-voting
common stock, $.01 par value, and 25,000,000 shares
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of preferred stock, $.01 par value. As of December 31, 1996, 650,498,476
shares of Parent Common Stock and 21,000,000 shares of non-voting common stock
were validly issued and outstanding, fully paid, and nonassessable, and no
shares of preferred stock were issued and outstanding and there have been no
material changes in such numbers through the date hereof. As of the date
hereof, there are no bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which the Parent's shareholders may vote
issued or outstanding. All of the shares of Parent Common Stock issuable in
accordance with this Agreement in exchange for Company Common Stock at the
Effective Date in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and shall be
delivered free and clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever, including any preemptive rights of any stockholder
of Parent created by Parent.
Section 4.3 Authority Relative to this Agreement. Parent has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Parent's Board
of Directors. The Agreement constitutes a valid and binding obligation of
Parent enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
No other corporate proceedings on the part of Parent are necessary to
authorize the Agreement and the transactions contemplated hereby. Except as
disclosed in Section 4.3 of the Parent Disclosure Schedule, Parent is not
subject to or obligated under (i) any charter, by-law, indenture or other loan
document provision or (ii) any other contract, license, franchise, permit,
order, decree, concession, lease, instrument, judgment, statute, law,
ordinance, rule or regulation applicable to Parent or any of its subsidiaries
or their respective properties or assets, which would be breached or violated,
or under which there would be a default (with or without notice or lapse of
time, or both), or under which there would arise a right of termination,
cancellation, modification or acceleration of any obligation or the loss of a
material benefit, by its executing and carrying out this Agreement other than,
in the case of clause (ii) only, (A) any breaches, violations, defaults,
terminations cancellations, modifications, accelerations or losses which,
either singly or in the aggregate, has not had, or would not reasonably be
expected to have, a Parent Material Adverse Effect or prevent the consummation
of the transactions contemplated hereby and thereby and (B) the laws and
regulations referred to in the next sentence. Except as disclosed in Section
4.3 of the Parent Disclosure Schedule, or in connection, or in compliance,
with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Parent of the Merger or the other
transactions contemplated by this Agreement other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
has not had, or would not reasonably be expected to have, a Parent Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby or thereby.
Section 4.4 Reports and Financial Statements. Parent has previously
furnished the Company with true and complete copies of its (i) Annual Report
on Form 10-K for the fiscal years ended December 31, 1994 and December 31,
1995, as filed with the Securities and Exchange Commission (the "Commission"),
(ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, as filed with the Commission, (iii)
proxy statements related to all meetings of its shareholders (whether annual
or special) since January 1, 1996, and (iv) all other reports or registration
statements filed by Parent with the Commission since December 31, 1995, except
for preliminary material (in the case of clauses (iii) and (iv) above) and
except for registration statements on Form S-8 relating to employee benefit
plans (clauses (i) through (iv) being referred to herein collectively as the
"Parent SEC Reports"). As of their respective dates, the Parent SEC Reports
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Parent SEC
Reports. As of their respective dates, the Parent SEC Reports did not contain
any untrue statement of a material
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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. The audited consolidated financial
statements and unaudited interim financial statements of Parent included in
the Parent SEC Reports comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto. The financial statements
included in the Parent SEC Reports: have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto); present fairly, in all
material respects, the financial position of Parent and its subsidiaries as at
the dates thereof and the results of their operations and cash flows for the
periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments, any other adjustments
described therein and the fact that certain information and notes have been
condensed or omitted in accordance with the Exchange Act and the rules
promulgated thereunder; and are in all material respects, in accordance with
the books of account and records of the Parent and its subsidiaries.
Section 4.5 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports or as disclosed in Section 4.6 of the Parent Disclosure
Schedule, since September 30, 1996, there has not been (i) any transaction,
commitment, dispute or other event or condition (financial or otherwise) of
any character (whether or not in the ordinary course of business) individually
or in the aggregate that has had, or would reasonably be expected to have, a
Parent Material Adverse Effect; (ii) any damage, destruction or loss, whether
or not covered by insurance, which has had, or would reasonably be expected to
have, a Parent Material Adverse Effect; (iii) any entry into any commitment or
transaction material to Parent and its subsidiaries taken as a whole
(including, without limitation, any borrowing or sale of assets) except in the
ordinary course of business consistent with past practice; (iv) any
declaration, setting aside or payment of any dividend or distribution (whether
in cash, stock or property) with respect to its capital stock; (v) any
material change in its accounting principles, practices or methods; (vi) any
split, combination or reclassification of any of Parent's capital stock or the
issuance or authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for, shares of Parent's capital stock; or
(vii) any agreement (whether or not in writing), arrangement or understanding
to do any of the foregoing.
Section 4.6 Litigation. Except as disclosed in Parent's Annual Report on
Form 10-K for the year ended December 31, 1995, or the Parent's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996 or as disclosed in Section 4.6 of the Parent Disclosure
Schedule, there is no suit, action or proceeding pending or, to the knowledge
of Parent, threatened against Parent or any of its subsidiaries having or
which, alone or in the aggregate, would reasonably be expected to have a
Parent Material Adverse Effect, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against Parent or any of its
subsidiaries having, or which would reasonably be expected to have, either
alone or in the aggregate, any such Parent Material Adverse Effect.
Section 4.7 Parent Action. The Board of Directors of Parent (at a meeting
duly called and held) has by the requisite vote of all directors present
determined that the Agreement is advisable and in the best interests of Parent
and its stockholders.
Section 4.8 Financial Advisor. Parent represents and warrants that, except
for Furman Selz LLC, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
or the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent.
Section 4.9 Compliance with Applicable Laws. Parent and its subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals of all
courts, administrative agencies or commissions or other governmental
authorities or instrumentalities, domestic or foreign (each, a "Governmental
Entity"), including, without limitation, applicable state insurance and health
commissions, except for such permits, licenses, variances, exemptions, orders
and approvals the failure of which to hold would not have a Parent Material
Adverse Effect (the "Parent Permits"). The Parent and its Subsidiaries are in
compliance with the terms of the
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Parent Permits, except for such failures to comply, which singly or in the
aggregate, has not had, or would not reasonably be expected to have, a Parent
Material Adverse Effect. Except as disclosed in the Parent SEC Reports filed
prior to the date of this Agreement, the businesses of Parent and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, including, without limitation,
applicable state insurance and health commissions, except for possible
violations which individually or in the aggregate has not had, or would not
reasonably be expected to have, a Parent Material Adverse Effect. To the
knowledge of Parent, no investigation or review by any Governmental Entity,
including, without limitation, applicable state insurance and health
commissions, with respect to Parent or any of its Subsidiaries is pending, or
threatened, nor has any Governmental Entity indicated an intention to conduct
the same, other than those the outcome of which have not had, or would not
reasonably be expected to have, a Parent Material Adverse Effect.
Section 4.10 Liabilities. As of the date hereof, except as disclosed in
Section 4.10 of the Parent Disclosure Schedule, since the date of the latest
balance sheet of Parent contained in the Parent SEC Reports neither Parent nor
any of its Subsidiaries has incurred any material liabilities or obligations
(absolute, accrued, contingent or otherwise) of the type that is required to
be disclosed in the Parent SEC Reports (including the financial statements
contained therein), other than liabilities incurred in the ordinary course of
business and liabilities which are disclosed or provided for in the most
recent Parent SEC Reports. To the best knowledge of Parent, as of September
30, 1996, there was no basis for any claim or liability of any nature against
Parent or its Subsidiaries, whether absolute, accrued, contingent or
otherwise, which has had, or would reasonably be expected to have, a Parent
Material Adverse Effect, other than as reflected in the Parent SEC Reports or
disclosed in Section 4.10 of the Parent Disclosure Schedule.
Section 4.11 Certain Agreements. Except as disclosed in the Parent SEC
Reports filed prior to the date of this Agreement or as disclosed in Section
4.11 of the Parent Disclosure Schedule, neither Parent nor any of its
Subsidiaries is a party to any oral or written contract, agreement or
commitment that is having or is reasonably likely to have a Parent Material
Adverse Effect. Neither the Parent nor any of its Subsidiaries is in default
(with or without notice or lapse of time, or both) under any indenture, note,
credit agreement, loan document, lease, license or other agreement including,
but not limited to, any Parent Benefit Plan, whether or not such default has
been waived, which default, alone or in the aggregate with other such
defaults, would have a Parent Material Adverse Effect.
Section 4.12 Parent Ownership of Stock. As of the date hereof Parent does
not beneficially own any shares of Company Common Stock.
Section 4.13 No Material Adverse Effect. Except as disclosed in the Parent
SEC Reports, Parent is not aware of any fact which, alone or together with
another fact, has had, or would reasonably be expected to have, a Parent
Material Adverse Effect.
Section 4.14 Accounting Matters. Neither Parent nor, to its best knowledge,
any of its affiliates, has through the date hereof, taken or agreed to take
any action that would prevent the Company from accounting for the business
combination to be effected by the Merger as a "pooling of interests" in
accordance with Accounting Principles Board Opinion No. 16, the interpretive
releases issued pursuant thereto and the pronouncements of the Commission. To
the actual knowledge of the executive officers of Parent, Parent has not taken
any action which would prevent the Merger from constituting a reorganization
within the meaning of Section 368(a) of the Code. Parent has received a letter
from Ernst & Young LLP, a copy of which is attached to Section 4.14 of the
Parent Disclosure Schedule, with respect to the eligibility of Parent for
"pooling of interests" accounting treatment.
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ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub as follows:
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as it
is now being conducted or currently proposed to be conducted. The Company is
duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not have a
material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities or results of operations of the Company
and its subsidiaries taken as a whole (a "Company Material Adverse Effect").
Complete and correct copies as of the date hereof of the Certificate of
Incorporation and By-laws of the Company and each of its Significant
Subsidiaries (as defined in Section 5.3) are attached to Section 5.1 of the
disclosure schedule delivered by the Company to Parent prior to execution and
delivery of this Agreement (the "Company Disclosure Schedule"). The
Certificate of Incorporation and By-laws of the Company are in full force and
effect. The Company is not in violation of any provision of its Certificate of
Incorporation or By-laws.
Section 5.2 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock, no par value, and
1,000,000 shares of preferred stock, $0.01 par value. As of January 9, 1997,
54,412,726 shares of Company Common Stock were validly issued and outstanding,
fully paid and nonassessable, and no shares of preferred stock were
outstanding and (except for issuances upon the exercise of outstanding
options) there have been no changes in such numbers of shares through the date
hereof. As of the date hereof, there are no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which the Company's
shareholders may vote issued or outstanding. As of January 9, 1997, except for
(i) options to acquire 5,116,559 shares of Company Common Stock, (ii) shares
of Company Common Stock issuable pursuant to the Company's Employee Stock
Purchase Plan, (iii) preferred stock purchase rights issued pursuant to the
Rights Agreement, dated as of February 24, 1994, between the Company and Bank
of Boston, N.A., as rights agent, as amended (the "Rights Agreement"), and
(iv) as set forth in Section 5.2 of the Company Disclosure Schedule, there are
no options, warrants, calls or other rights, agreements or commitments
presently outstanding obligating the Company to issue, deliver or sell shares
of its capital stock or debt securities, or obligating the Company to grant,
extend or enter into any such option, warrant, call or other such right,
agreement or commitment, and there have been no changes in such numbers
through the date hereof. After the Effective Date, the Surviving Corporation
will have no obligation to issue, transfer or sell any shares of capital stock
of the Company or the Surviving Corporation pursuant to any Company Employee
Benefit Plan (as defined in Section 5.8).
Section 5.3 Subsidiaries. The only Subsidiaries (as defined in Section
11.16) of the Company are disclosed in Section 5.3 of the Company Disclosure
Schedule; provided that there may be excluded from such Schedule any
Subsidiaries that are currently not actively engaged in any business and which
do not, individually and in the aggregate, have material liabilities or
obligations. Each Significant Subsidiary (as such term is defined in Rule 1-02
of Regulation S-X under the Securities Act) ("Significant Subsidiary") of the
Company has been named in the Company SEC Reports (as hereinafter defined).
Each Subsidiary of the Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation (except where the failure to be validly existing and in good
standing would not be material to the business of such Subsidiary) and has the
corporate power to carry on its business as it is now being conducted or
currently proposed to be conducted. Each Subsidiary of the Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary
except where the failure to be so qualified, when taken together with all such
failures, has not had, or would not reasonably be expected to have, a Company
Material Adverse Effect. Section 5.3 of the Company Disclosure Schedule
contains, with respect to each
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Subsidiary of the Company, its name and jurisdiction of incorporation and,
with respect to each Subsidiary that is not wholly owned, the number of issued
and outstanding shares of capital stock and the number of shares of capital
stock owned by the Company or a Subsidiary. All the outstanding shares of
capital stock of each Subsidiary of the Company are validly issued, fully paid
and nonassessable, and those owned by the Company or by a Subsidiary of the
Company are owned free and clear of any liens, claims or encumbrances. Except
as set forth in Section 5.3 of the Company Disclosure Schedule, there are no
existing options, warrants, calls or other rights, agreements or commitments
of any character relating to the issued or unissued capital stock or other
securities of any of the Subsidiaries of the Company. Except as set forth in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, or as disclosed in Section 5.3 of the Company Disclosure Schedule
and except for wholly owned subsidiaries which are formed after the date
hereof in the ordinary course of business consistent with past practice, the
Company does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or
entity.
Section 5.4 Authority Relative to this Agreement. The Company has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by the
Company's Board of Directors. This Agreement constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. Except for the approval of the holders of a majority of the shares of
Company Common Stock, no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement and the transactions
contemplated hereby. Except as set forth in Section 5.4 of the Company
Disclosure Schedule, the Company is not subject to or obligated under (i) any
charter, by-law, indenture or other loan document provision or (ii) any other
contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or their respective properties or
assets which would be breached or violated, or under which there would be a
default (with or without notice or lapse of time, or both), or under which
there would arise a right of termination, cancellation, modification or
acceleration of any obligation or the loss of a material benefit, by its
executing and carrying out this Agreement, other than, in the case of clause
(ii) only, (A) any breaches, violations, defaults, terminations,
cancellations, modifications, accelerations or losses which, either singly or
in the aggregate, have not had, or would not reasonably be expected to have, a
Company Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby and (B) the laws and regulations referred to
in the next sentence. Except as disclosed in Section 5.4 of the Company
Disclosure Schedule or, with respect to the Merger or the transactions
contemplated thereby, in connection, or in compliance, with the provisions of
the HSR Act, the Securities Act, the Exchange Act, and the corporation,
securities or blue sky laws or regulations of the various states, no filing or
registration with, or authorization, consent or approval of, any public body
or authority is necessary for the consummation by the Company of the Merger or
the other transactions contemplated hereby, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
has not had, or would not reasonably be expected to have, a Company Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby.
Section 5.5 Reports and Financial Statements. The Company has previously
furnished Parent with true and complete copies of its (i) Annual Reports on
Form 10-K for the fiscal years ended December 31, 1994 and December 31, 1995,
as filed with the Commission, (ii) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, as filed
with the Commission, (iii) proxy statements related to all meetings of its
shareholders (whether annual or special) since January 1, 1996 and (iv) all
other reports or registration statements filed by the Company with the
Commission since December 31, 1995, except for preliminary material (in the
case of clauses (iii) and (iv) above) and except for registration statements
on Form S-8 relating to employee benefit plans, which are all the documents
that the Company was required to file with the Commission since that date
(clauses (i) through (iv) being referred to herein collectively as the
"Company SEC Reports"). As of their respective dates, the Company SEC Reports
complied as to form in all
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material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the Commission
thereunder applicable to such Company SEC Reports. As of their respective
dates, the Company SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the Company included
in the Company SEC Reports comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto. The financial statements
included in the Company SEC Reports: have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto); present fairly, in all
material respects, the financial position of the Company and its Subsidiaries
as at the dates thereof and the results of their operations and cash flow for
the periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other adjustments
described therein and the fact that certain information and notes have been
condensed or omitted in accordance with the Exchange Act and the rules
promulgated thereunder; and are in all material respects, in accordance with
the books of account and records of the Company and its Subsidiaries.
Section 5.6 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports or as disclosed in Section 5.6 of the Company Disclosure
Schedule, since September 30, 1996, there has not been (i) any transaction,
commitment, dispute or other event or condition (financial or otherwise) of
any character (whether or not in the ordinary course of business) individually
or in the aggregate that has had, or would reasonably be expected to have, a
Company Material Adverse Effect; (ii) any damage, destruction or loss, whether
or not covered by insurance, which has had, or would reasonably be expected to
have, a Company Material Adverse Effect; (iii) any entry into any commitment
or transaction material to the Company and its Subsidiaries taken as a whole
(including, without limitation, any borrowing or sale of assets) except in the
ordinary course of business consistent with past practice; (iv) any
declaration, setting aside or payment of any dividend or distribution (whether
in cash, stock or property) with respect to its capital stock; (v) any
material change in its accounting principles, practices or methods; (vi) any
repurchase or redemption with respect to its capital stock; (vii) any split,
combination or reclassification of any of the Company's capital stock or the
issuance or authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for, shares of the Company's capital stock;
(viii) any grant of or any amendment of the terms of any option to purchase
shares of capital stock of the Company; (ix) any granting by the Company or
any of its Subsidiaries to any director, officer or employee of the Company or
any of its Subsidiaries of (A) any increase in compensation (other than in the
case of employees in the ordinary course of business consistent with past
practice) or (B) any increase in severance or termination pay; (x) any entry
by the Company or any of its Subsidiaries into any employment, severance,
bonus or termination agreement with any director, officer or employee of the
Company or any of its Subsidiaries; or (xi) any agreement (whether or not in
writing), arrangement or understanding to do any of the foregoing.
Section 5.7 Litigation. Except as disclosed in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, or the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996 or as disclosed in Section 5.7 of the Company Disclosure
Schedule, there is no suit, action or proceeding pending or, to the knowledge
of the Company, threatened against the Company or any of its Subsidiaries
which, either alone or in the aggregate, has had or would reasonably be
expected to have a Company Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against the
Company or any of its subsidiaries having, or which would reasonably be
expected to have, either alone or in the aggregate, any such Company Material
Adverse Effect.
Section 5.8 Employee Benefit Plans. (a) Section 5.8 of the Company
Disclosure Schedule hereto sets forth a list of all "employee benefit plans",
as defined in Section 3(3) of ERISA, and all other material employee benefit
arrangements or payroll practices, including, without limitation, any such
arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits,
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deferred compensation, bonus pay, incentive pay, stock options (including
those held by Directors, employees, and consultants), hospitalization
insurance, medical insurance, life insurance, scholarships or tuition
reimbursements, that are maintained by the Company, any Subsidiary of the
Company or any Company ERISA Affiliate (as defined below) or to which the
Company, any Subsidiary of the Company or any Company ERISA Affiliate is
obligated to contribute thereunder for current or former employees,
independent contractors, consultants and leased employees of the Company, any
Subsidiary of the Company or any Company ERISA Affiliate (the "Company
Employee Benefit Plans").
(b) None of the Company Employee Benefit Plans is a "multiemployer plan", as
defined in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and neither
the Company nor any Company ERISA Affiliate presently maintains such a plan.
None of the Company, any Subsidiary or Company ERISA Affiliate (subject to the
knowledge of the Company, in the case of any Subsidiary or Company ERISA
Affiliate acquired by the Company, for periods prior to such acquisition), has
withdrawn in a complete or partial withdrawal from any Multiemployer Plan, nor
has any of them incurred any material liability due to the termination or
reorganization of such a Multiemployer Plan.
(c) No Company Benefit Plan nor the Company has incurred any material
liability or penalty under Section 4975 of the Code or Section 502(i) of
ERISA.
(d) Except as set forth in Section 5.8 of the Company Disclosure Schedule,
the 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 the 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.
(e) Except as set forth on Section 5.8 of the Company Disclosure Schedule,
the execution of, and performance of the transactions contemplated in, this
Agreement will not, either alone or upon the occurrence of subsequent events,
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 the Company or its Subsidiaries
in the event of a change of control of the Company are the agreements and
policies specifically referred to in Section 5.8 of the Company Disclosure
Schedule (and, in the case of such agreements, the form of which is attached
to the Company Disclosure Schedule). Each executive officer of the Company (as
such term is defined in Rule 3b-7 under the Exchange Act) and each of the
individuals identified on Section 5.8(e) of the Company Disclosure Schedule is
a party to a non-competition agreement with the Company or a Significant
Subsidiary, as the case may be, and copies of the forms of such non-
competition agreements are attached to Section 5.8 of the Company Disclosure
Schedule.
(f) None of the Company Employee Benefit Plans is a "single employer plan",
as defined in Section 4001(a)(15) of ERISA, that is subject to Title IV of
ERISA, and neither the Company nor any Company ERISA Affiliate presently
maintains such a plan. None of the Company, any of its Subsidiaries or any
ERISA Affiliate has any material liability under Section 4062 of ERISA to the
Pension Benefit Guaranty Corporation or to a trustee appointed under Section
4042 of ERISA. None of the Company, any Subsidiary, or any Company ERISA
Affiliate (subject to the knowledge of the Company, in the case of any
Subsidiary or Company ERISA Affiliate acquired by the Company, for periods
prior to such acquisition) has engaged in any transaction described in Section
4069 of ERISA.
(g) Each Company Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the IRS, and, to the Company's knowledge, nothing has occurred with
respect to the operation or organization of any such Company Employee Benefit
Plan and there have been no amendments to any such Company Employee Benefit
Plan that would cause the loss of such qualification or exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
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(h) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under any of the
Company Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof and no
contributions have been made to the Company Employee Benefit Plans that would
be considered non-deductible under the Code.
(i) There has been no material violation of ERISA or the Code with respect
to the filing of applicable reports, documents and notices regarding the
Company Employee Benefit Plans with the Secretary of Labor or the Secretary of
the Treasury or the furnishing of required reports, documents or notices to
the participants or beneficiaries of the Company Employee Benefit Plans.
(j) True, correct and complete copies of the following documents, with
respect to each of the Company Benefit Plans, have been delivered or made
available to the Parent by the Company: (i) all plans and related trust
documents and any other instruments or contracts under which the Company
Employee Benefit Plans are operated, and amendments thereto; (ii) the Forms
5500 for the past three years and (iii) summary plan descriptions.
(k) There are no pending actions, claims or lawsuits which have been
asserted, instituted or, to the Company's knowledge, threatened, against the
Company Employee Benefit Plans, the assets of any of the trusts under such
plans or the plan sponsor or the plan administrator, or, to the Company's
knowledge, against any fiduciary of the Company Employee Benefit Plans with
respect to the operation of such plans (other than routine benefit claims).
(l) The Company Employee Benefit Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA and
the Code (including rules and regulations thereunder) and other applicable
federal and state laws and regulations.
For purposes of this Agreement, "Company 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.
Section 5.9 Labor Matters. Except as set forth in Section 5.9 of the Company
Disclosure Schedule, neither the 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 the Company, threatened against the
Company or its Subsidiaries relating to their business, except for any such
proceeding which has not had, or would not reasonably be expected to have, a
Company Material Adverse Effect. To the best knowledge of the Company, there
are no organizational efforts with respect to the formation of a collective
bargaining unit presently being made or threatened involving employees of the
Company or any of its Subsidiaries. There is no labor strike, material
slowdown or material work stoppage or lockout actually pending or, to the best
knowledge of the Company, threatened against or affecting the Company or its
Subsidiaries and neither the Company nor any Subsidiary has experienced any
strike, material slowdown or material work stoppage or lockout since August 1,
1995.
Section 5.10 Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors
present (a) determined that the Merger is advisable and fair and in the best
interests of the Company and its shareholders, (b) approved the Merger in
accordance with the provisions of Section 251 of the DGCL, (c) recommended the
approval of this Agreement and the Merger by the holders of the Company Common
Stock and directed that the Merger be submitted for consideration by the
Company's shareholders at the Company Meeting and (d) taken all necessary
steps to ensure that a Distribution Date (as defined in the Rights Agreement)
has not occurred and will not occur as a result of the execution and delivery
of
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the Agreement, the consummation of the Merger and the other transactions
contemplated hereby nor will the Rights Agreement otherwise be applicable or
any redemption or other fees be payable in respect thereof.
Section 5.11 Financial Advisor. The 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. The Company represents and warrants that, (i) except for Merrill Lynch &
Co. and Lazard Freres & Co. LLC, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company, and (ii) the fees and
commissions payable to the Company's financial advisors, as contemplated by
this Section, will not exceed the aggregate amount set forth in those certain
letters, dated December 4, 1996, from Merrill Lynch & Co., and dated as of
November 19, 1996, from Lazard Freres & Co. LLC, in each case to the Company,
a copy of each of which is attached to the Company Disclosure Schedule.
Section 5.12 Compliance with Applicable Laws. The Company and each of its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities material to the business of the Company
or such Subsidiary, as the case may be, including, without limitation,
applicable state insurance and health commissions, and other Governmental
Entities regulating exclusive provider organizations, preferred provider
organizations, medical utilization review organizations or third-party
administrators (the "Company Permits"). The Company and its Subsidiaries are
in compliance in all material respects with the terms of the Company Permits,
except for such failures to comply which, singly or in the aggregate, would
not be material to the business of the Company or such Subsidiary, as the case
may be. Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or in Section 5.12 of the Company Disclosure Schedule, the
Company and each of its Subsidiaries are in compliance in all material
respects with all laws, including applicable Medicare and Medicaid laws,
ordinances and regulations of any Governmental Entity, including, without
limitation, applicable state insurance and health commissions, and other
Governmental Entities regulating exclusive provider organizations, preferred
provider organizations, medical utilization review organizations or third-
party administrators, except where the failure to comply would not be material
to the business of the Company or such Subsidiary, as the case may be. Except
as disclosed in Section 5.12 of the Company Disclosure Schedule, to the
knowledge of the Company, no investigation or review by any Governmental
Entity, including, without limitation, applicable state insurance and health
commissions, with respect to the Company or any of its Subsidiaries is
pending, or threatened, nor has any Governmental Entity, including, without
limitation, applicable state insurance and health commissions, indicated an
intention to conduct the same, other than those the outcome of which would not
be material to the business of the Company or such Subsidiary, as the case may
be.
Section 5.13 Liabilities. As of the date hereof, except as disclosed in
Section 5.13 of the Company Disclosure Schedule, since the date of the latest
balance sheet of the Company contained in the Company SEC Reports neither the
Company nor any of its Subsidiaries has incurred any material liabilities or
obligations (absolute, accrued, contingent or otherwise) of the type that is
required to be disclosed in the Company SEC Reports (including the financial
statements contained therein), other than liabilities incurred in the ordinary
course of business and liabilities which are disclosed or provided for in the
most recent Company SEC Reports. To the best knowledge of the Company, as of
September 30, 1996, there was no basis for any claim or liability of any
nature against the Company or its Subsidiaries, whether absolute, accrued,
contingent or otherwise, which has had, or would reasonably be expected to
have, a Company Material Adverse Effect, other than as reflected in the
Company SEC Reports or disclosed in Section 5.13 of the Company Disclosure
Schedule.
Section 5.14 Taxes. (a) For the purposes of this Agreement, the term "Tax"
shall include all Federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties and assessments of any nature
whatsoever together with all interest, penalties and additions imposed with
respect to such amounts. Each of the Company and its subsidiaries has filed
all material Tax returns required to be filed by any of them and has paid (or
the Company has paid on its behalf), or has set up an adequate reserve for the
payment of, all Taxes required to be paid in respect of the
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periods covered by such returns. The information contained in such Tax returns
is true, complete and accurate in all material respects. Except as disclosed
in Section 5.14 of the Company Disclosure Schedule, neither the Company nor
any Subsidiary of the Company is delinquent in the payment of any material
Tax, assessment or governmental charge, except where such delinquency has not
had, or would not reasonably be expected to have, a Company Material Adverse
Effect. Except as disclosed in Section 5.14 of the Company Disclosure
Schedule, no deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its Subsidiaries that have not been
finally settled or paid in full, and no requests for waivers of the time to
assess any such Tax are pending. Except as set forth in Section 5.14 of the
Company Disclosure Schedule, none of the Company and its Subsidiaries is
obligated, or is reasonably expected to be obligated, to make any payments, or
is a party to any agreement that under certain circumstances would obligate
it, or reasonably be expected to obligate it, to make any payments that will
not be deductible under Code (S) 280G.
Section 5.15 Certain Agreements. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement or in Section 5.15 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is a party to any oral or written contract, agreement or commitment that would
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in Section 5.15 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries is in default (or would be in default with
notice or lapse of time, or both) under any indenture, note, credit agreement,
loan document, lease, license or other agreement including, but not limited
to, any Company Benefit Plan, whether or not such default has been waived,
which default, alone or in the aggregate with other such defaults, has had, or
would reasonably be expected to have, a Company Material Adverse Effect. The
Company has made available to Parent true and complete copies of all
contracts, agreements and understandings relating to those clients, the loss
of any one of which has had, or would reasonably be expected to have, a
Company Material Adverse Effect.
Section 5.16 Patents, Trademarks, Etc. Except as set forth in Section 5.16
of the Company Disclosure Schedule, the Company and its Subsidiaries owns or
has valid rights to use all patents, trademarks, trade names, service marks,
trade secrets, copyrights and licenses and other proprietary intellectual
property rights and licenses as are material to the businesses of the Company
and its subsidiaries (the "Intellectual Property"), and the Company does not
have any knowledge of any conflict with the rights of the Company and its
Subsidiaries therein or any knowledge of any conflict by them with the rights
of others therein which have had, or would reasonably be expected to have, a
Company Material Adverse Effect. Neither the Merger nor the transactions
contemplated hereby will materially adversely affect the rights of the Company
or any of its Subsidiaries in respect of any of the Intellectual Property.
Section 5.17 No Material Adverse Effect. Except as disclosed in the Company
SEC Reports or in the Company Disclosure Schedule, the Company is not aware of
any fact which, alone or together with another fact, which has had, or would
reasonably be expected to have, a Company Material Adverse Effect.
Section 5.18 Accounting Matters. Neither the Company nor, to its best
knowledge, any of its affiliates, has through the date hereof, taken or agreed
to take any action that would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling of interests" in
accordance with Accounting Principles Board Opinion No. 16, the interpretive
releases issued pursuant thereto and the pronouncements of the Commission. To
the actual knowledge of the executive officers of the Company, the Company has
not taken any action which would prevent the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code. The Company
has received a letter from Coopers & Lybrand LLP, a copy of which is attached
to Section 5.18 of the Company Disclosure Schedule, with respect to the
eligibility of the Company for "pooling of interests" accounting treatment.
Section 5.19 Representations Under Purchase Agreements. The Company has made
available to Parent copies of all purchase agreements relating to
acquisitions, including the related disclosure schedules, pursuant to which
the Company has purchased the assets and operations of any other business, in
each such case for a purchase price of in excess of $100 million, within the
three-year period immediately preceding the date hereof ("Purchase
Agreements"). Except with respect to any Purchase Agreements set forth in
Section 5.19 of the
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Company Disclosure Schedule (for which no representation or warranty is made
under this Section 5.19), to the best knowledge of the Company, such Purchase
Agreements (and the acquisitions of assets and operations of businesses
thereunder), when taken as a whole, have not had, and would not reasonably be
expected to have, a Company Material Adverse Effect.
Section 5.20 Absence Of Certain Business Practices. During the past five
years, none of the Company's officers, employees or agents, nor any other
person acting on behalf of any of them or the Company, has, directly or
indirectly, given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person that has had, or
would reasonably be expected to have, a Company Material Adverse Effect.
Section 5.21 Payments Under CCN Agreement. The maximum amount of payment
obligations of the Company under Article I of that certain Acquisition
Agreement, dated as of May 18, 1994, by and among the Company, Community Care
Network, Inc., Alliance Healthcare Foundation and the other individuals named
therein, including any payments made thereunder through the date hereof, will
not exceed $120,000,000. The Company has made payments under Article I of such
agreement through September 30, 1996 in the amount of $53,200,000.
Section 5.22 Billing Practices. The Company has timely complied with its
billing obligations under those contractual arrangements with pharmaceutical
manufacturers pursuant to which it receives payments based upon the volume of
pharmaceuticals the Company manages or purchases from such manufacturers,
except in cases where the failure to timely bill in the past has not affected
in any meaningful manner the Company's ability to collect amounts owed to it
under such contractual arrangements and except as set forth in Section 5.22 of
the Company Disclosure Schedule.
ARTICLE VI
Representations and Warranties Regarding Sub
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
Section 6.1 Organization. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Sub has
not engaged in any business since it was incorporated other than in connection
with its organization and the transactions contemplated by this Agreement.
Section 6.2 Capitalization. The authorized capital stock of Sub consists of
1,000 shares of Common Stock, par value $.01 per share, 1,000 shares of which
are validly issued and outstanding, fully paid and nonassessable and are owned
by Parent free and clear of all liens, claims and encumbrances.
Section 6.3 Authority Relative to this Agreement. Sub has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and sole shareholder, and no other corporate proceedings on the part
of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. Except as referred to herein or in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act, the
Exchange Act and the environmental, corporation, securities or blue sky laws
or regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Sub of the Merger or the transactions
contemplated by this Agreement, other than filings, registrations,
authorizations, consents or approvals the failure to make or obtain would not
prevent the consummation of the transactions contemplated hereby.
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ARTICLE VII
Conduct of Business Pending the Merger
Section 7.1 Conduct of Business by the Company Pending the Merger. Prior to
the Effective Date, unless Parent shall otherwise agree in writing:
(i) Except as set forth in Section 7.1(i) of the Company Disclosure
Schedule, the Company shall, and shall cause its Subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its Subsidiaries to, use their reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and on-going businesses shall be unimpaired at the
Effective Date. The Company shall, and shall cause its Subsidiaries to, (a)
maintain insurance coverages and its books, accounts and records in the
usual manner consistent with prior practices; (b) comply in all material
respects with all laws, ordinances and regulations of Governmental Entities
applicable to the Company and its subsidiaries; (c) maintain and keep its
properties and equipment in good repair, working order and condition,
ordinary wear and tear excepted; and (d) perform in all material respects
its obligations under all material contracts and commitments to which it is
a party or by which it is bound.
(ii) Except as set forth in Section 7.1(i) of the Company Disclosure
Schedule and except as required by this Agreement, the Company shall not
and shall not propose to (A) sell or pledge or agree to sell or pledge any
capital stock owned by it in any of its subsidiaries (subject to the
fiduciary duties of the Company's Board of Directors, as advised by outside
counsel), (B) amend its Certificate of Incorporation or By-laws, (C) split,
combine or reclassify its outstanding capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of
or in substitution for shares of capital stock of the Company, or declare,
set aside or pay any dividend or other distribution payable in cash, stock
or property, or (D) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of
Company capital stock;
(iii) the Company shall not, nor shall it permit any of its Subsidiaries
to, (A) issue, deliver or sell or agree to issue, deliver or sell any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class, any indebtedness having the right to vote on
which the Company's shareholders may vote or any option, rights or warrants
to acquire, or securities convertible into, shares of capital stock other
than issuances of Company Common Stock pursuant to employment agreements as
in effect on the date hereof, the exercise of stock options outstanding on
the date hereof or granted prior to the Effective Date under (x) automatic
grants under the Company's 1991 Non Employee Director Stock Option Plan or
(y) the Company's Employee Stock Purchase Plan; (B) acquire, lease or
dispose or agree to acquire, lease or dispose of any capital assets or any
other assets other than in the ordinary course of business; (C) incur
additional indebtedness or encumber or grant a security interest in any
asset or enter into any other material transaction other than in each case
in the ordinary course of business; (D) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, except that the Company may create new wholly owned Subsidiaries
in the ordinary course of business consistent with past practice; or (E)
enter into any contract, agreement, commitment or arrangement with respect
to any of the foregoing.
(iv) except as disclosed in Section 7.1(iv) of the Company Disclosure
Schedule, the Company shall not, nor shall it permit any of its
Subsidiaries to, except as required to comply with applicable law and
except as provided in Section 8.5 hereof, enter into any new (or amend any
existing) Company Benefit Plan or any new (or amend any existing)
employment, severance or consulting agreement, grant any general increase
in the compensation of directors, officers or employees (including any such
increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment) or grant any increase in the compensation payable or to become
payable to any director, officer or employee, except in any of the
foregoing cases in accordance with pre-existing contractual provisions or
in the ordinary course of business consistent with past practice;
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(v) the Company shall not, nor shall it permit any of its Subsidiaries
to, make any investments in non-investment grade securities exceeding
$1,000,000 in the aggregate; provided, however, that the Company will be
permitted to create new wholly owned Subsidiaries in the ordinary course of
business; and
(vi) the Company shall not, nor shall it permit any of its Subsidiaries
to, take or cause to be taken any action, whether before or after the
Effective Date, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the
meaning of Section 368(a) of the Code;
provided that the foregoing shall not prohibit the Company from (consistent
with clause (vi) above) paying cash bonuses or awards, or making other awards
to the extent set forth in Section 7.1A of the Company Disclosure Schedule, to
its employees as compensation for services rendered to the Company in 1996
under the Company Benefit Plans consistent with past practice.
Section 7.2 Conduct of Business by Parent Pending the Merger. Prior to the
Effective Date, unless the Company shall otherwise agree in writing or except
as otherwise required by this Agreement: (a) Parent shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted;
and (b) the Parent shall not, nor shall it permit any of its Subsidiaries to,
take or cause to be taken any action, whether before or after the Effective
Date, which would disqualify the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
Section 7.3 Conduct of Business of Sub. During the period from the date of
this Agreement to the Effective Date, Sub shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement.
ARTICLE VIII
Additional Agreements
Section 8.1 Access and Information. Each of the Company and Parent and their
respective subsidiaries shall afford to the other and to the other's
accountants, counsel and other representatives reasonable access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Date to all of its properties,
books, contracts, commitments, records and personnel and, during such period,
each shall furnish promptly to the other (i) a copy of each report, schedule
and other document filed or received by it pursuant to the requirements of
federal or state securities laws, and (ii) all other information concerning
its business, properties and personnel as the other may reasonably request.
Each of the Company and Parent shall hold, and shall cause their respective
employees and agents to hold, in confidence all such information in accordance
with the terms of the Confidentiality Agreements dated November 8, 1996
between Parent and the Company.
Section 8.2 Registration Statement/Proxy Statement. Parent and the Company
shall cooperate and promptly prepare, and Parent shall file with the
Commission as soon as practicable, a Registration Statement on Form S-4 (the
"Form S-4") under the Securities Act, with respect to the Parent Common Stock
issuable in the Merger, portions of which Registration Statement shall also
serve as the proxy statement with respect to the Company Meeting (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. Parent shall use all reasonable
efforts, and the Company will cooperate with Parent, to have the Form S-4
declared effective by the Commission as promptly as practicable and to keep
the Form S-4 effective as long as is necessary to consummate the Merger.
Parent shall, as promptly as practicable, provide copies of any written
comments received from the Commission with respect to the Form S-4 to the
Company and advise the Company of any oral comments with respect to the Form
S-4 received from the Commission. Parent 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
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carry out the transactions contemplated by the Merger Agreement and will pay
all expenses incident thereto. Parent agrees that none of the information
supplied or to be supplied by Parent for inclusion or incorporation by
reference in the Form S-4 or the Proxy Statement/Prospectus (i) in the case of
the Proxy Statement/Prospectus and each amendment or supplement thereto, at
the time of mailing thereof and at the time of the Company Meeting, or (ii) in
the case of the Form S-4 and each amendment or supplement thereto, at the time
it is filed or becomes effective, will contain 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. The Company agrees that none of
the information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Form S-4 or the Proxy Statement/Prospectus
(i) in the case of the Proxy Statement/Prospectus and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
Company Meeting, or, (ii) in the case of the Form S-4 or any amendment or
supplement thereto, at the time it is filed or becomes effective, will contain
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. For
purposes of the foregoing, it is understood and agreed that information
concerning or related to Parent will be deemed to have been supplied by Parent
and information concerning or related to the Company and the Company Meeting
shall be deemed to have been supplied by the Company. No amendment or
supplement to the Proxy Statement/Prospectus will be made by Parent or the
Company without the approval of the other party. Parent will advise the
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 Parent
Common Stock issuable in connection with the Merger for offering or sale in
any jurisdiction, or any request by the Commission for amendment of the Proxy
Statement/Prospectus or the Form S-4 or comments thereon and responses thereto
or requests by the Commission for additional information.
Section 8.3 Compliance with the Securities Act. At least 30 days prior to
the Effective Date, the Company shall deliver to Parent a list of names and
addresses of those persons who were, in the Company's reasonable judgment, at
the record date for the Company Meeting, "affiliates" (each such person, an
"Affiliate") of the Company within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act. The Company shall use all
reasonable efforts to deliver or cause to be delivered to Parent, prior to the
Effective Date, from each of the Affiliates of the Company identified in the
foregoing list, an Affiliate Letter in the form attached hereto as Exhibit 8.3
(an "Affiliate Letter"). Parent shall be entitled to place legends as
specified in such Affiliate Letters on the certificates evidencing any Parent
Company Common Stock to be received by such Affiliates pursuant to the terms
of the Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Company Common Stock, consistent with the terms
of such Affiliate Letters.
Section 8.4 Stock Exchange Listing. Parent shall use its best efforts to
list on the NYSE, upon official notice of issuance, the Parent Common Stock to
be issued pursuant to the Merger.
Section 8.5 Employee Matters. As of the Effective Date, the employees of the
Company and each Subsidiary shall continue employment with the Surviving
Corporation and the Subsidiaries, respectively, in the same positions and at
the same level of wages and/or salary and without having incurred a
termination of employment or separation from service; provided, however,
except as may be specifically required by applicable law or any contract, the
Surviving Corporation and the Subsidiaries shall not be obligated to continue
any employment relationship with any employee for any specific period of time.
Except with respect to the Option Plans to be assumed by the Parent as
provided by Section 3.5(a) hereto, as of the Effective Date, the Surviving
Corporation shall be the sponsor of the Company Employee Benefit Plans
sponsored by the Company immediately prior to the Effective Date, and Parent
shall cause the Surviving Corporation and the Subsidiaries to satisfy all
obligations and liabilities under such Company Employee Benefit Plans. As soon
as practicable after the Effective Date, Parent shall provide benefits to
employees of Company and its Subsidiaries which are substantially similar to
the benefits provided to similarly situated employees of Parent and its
Subsidiaries. To the extent any employee benefit plan, program or policy of
the Parent or its affiliates is made available to the
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employees of the Surviving Corporation or its Subsidiaries: (i) service with
the Company and the Subsidiaries by any employee prior to the Effective Date
shall be credited for eligibility and vesting purposes under such plan,
program or policy, but not for benefit accrual purposes, and (ii) with respect
to any welfare benefit plans to which such employees may become eligible,
Parent shall cause such plans to provide credit for any co-payments or
deductibles by such employees and waive all pre-existing condition exclusions
and waiting periods, other than limitations or waiting periods that have not
been satisfied under any welfare plans maintained by the Company and the
Subsidiaries for their employees prior to the Effective Date.
Section 8.6 Indemnification. (a) From and after the Effective Date, Parent
shall indemnify, defend and hold harmless the officers, directors and
employees of the Company and its subsidiaries who were such at any time prior
to the Effective Date (the "Indemnified Parties") from and against all losses,
expenses, claims, damages or liabilities arising out of the transactions
contemplated by this Agreement to the fullest extent permitted or required
under applicable law, including without limitation the advancement of
expenses. Parent agrees that all rights to indemnification existing in favor
of the directors, officers or employees of the Company as provided in the
Company's Certificate of Incorporation or By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Date, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Date. Parent agrees to cause the
Surviving Corporation to maintain in effect for not less than three years
after the Effective Date the current policies of directors' and officers'
liability insurance maintained by the Company with respect to matters
occurring on or prior to the Effective Date; provided, however, that the
Surviving Corporation may substitute therefor policies of at least the same
coverage (with carriers comparable to the Company's existing carriers)
containing terms and conditions which are no less advantageous to the
Indemnified Parties; and provided, further, that Parent shall not be required
in order to maintain or procure such coverage to pay an annual premium in
excess of 200% of the current annual premium paid by the 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, Parent shall only be required to obtain as much
coverage as can be obtained by paying an annual premium equal to the Cap.
(b) In the event that any action, suit, proceeding or investigation relating
hereto or to the transactions contemplated by this Agreement is commenced,
whether before or after the Effective Date, the parties hereto agree to
cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
Section 8.7 HSR Act. The Company and Parent shall use their best efforts to
file as soon as practicable notifications under the HSR Act in connection with
the Merger and the transactions contemplated hereby, and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") for additional information or documentation and to
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other governmental authority in connection with
antitrust matters.
Section 8.8 Additional Agreements. (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings (including, but not limited to, filings under the HSR Act and with all
applicable Governmental Entities) and to lift any injunction to the Merger
(and, in such case, to proceed with the Merger as expeditiously as possible).
(b) In case at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent, the Company and the Surviving Corporation
shall take all such necessary action.
(c) Following the Effective Date, Parent shall use its best efforts to
conduct the business, and shall cause the Surviving Corporation to use its
best efforts to conduct its business, except as otherwise contemplated by
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this Agreement, in a manner which would not jeopardize the characterization of
the Merger as a reorganization within the meaning of Section 368(a) of the
Code.
Section 8.9 Alternative Proposals. Prior to the Effective Date, the 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, the 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 release any third party from any obligations under
any existing standstill agreement or arrangement relating to any Alternative
Proposal, or otherwise facilitate any effort or attempt to make or implement
an Alternative Proposal; (b) that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing, and it will
take the necessary steps to inform the individuals or entities referred to
above of the obligations undertaken in this Section 8.9; and (c) that it will
notify Parent 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 8.9 shall prohibit the Board
of Directors of the 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 the 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 the 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, the Company provides written notice to Parent to the effect that it
is furnishing information to, or entering into discussions or negotiations
with, such person or entity and (C) the Company keeps Parent promptly informed
of the status and all material terms and conditions of any such discussions or
negotiations (including identities of parties) and, if any such proposal or
inquiry is in writing, furnishes a copy of such proposal or inquiry to Parent
as soon as practicable after the receipt thereof; 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 8.9 shall (x)
permit the Company to terminate this Agreement (except as specifically
provided in Article X hereof), (y) permit the 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, the 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 the
Company under this Agreement.
Section 8.10 Advice of Changes; SEC Filings. The Company shall confer on a
regular basis with Parent on operational matters. Parent and the Company shall
promptly advise each other orally and in writing of any change or event that
has had, or could reasonably be expected to have, a Company Material Adverse
Effect or a Parent Material Adverse Effect, as the case may be. The Company
and Parent shall promptly provide each other (or their respective counsel)
copies of all filings made by such party with the SEC or any other state or
federal Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
Section 8.11 Restructuring of Merger. Upon the mutual agreement of Parent
and the Company, the Merger shall be restructured in the form of a forward
subsidiary merger of the Company into Sub, with Sub being the surviving
corporation, or as a merger of the Company into Parent, with Parent being the
surviving corporation. In such event, this Agreement shall be deemed
appropriately modified to reflect such form of merger.
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Section 8.12 Letter of the Company's Accountants. The Company shall use its
reasonable efforts to cause to be delivered to Parent and Sub at the time of
mailing of the Proxy Statement Prospectus a "comfort" letter from Coopers &
Lybrand, of the kind contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants (the "AICPA Statement"), dated the date of such
mailing, in form and substance reasonably satisfactory to Parent and Sub, in
connection with the procedures undertaken by them with respect to the
financial statements of the Company 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.
Section 8.13 Letter of Parent and Sub's Accountants. Parent and Sub shall
use their respective reasonable efforts to cause to be delivered to the
Company at the time of mailing of the Proxy Statement Prospectus a "comfort"
letter from Ernst & Young LLP, of the kind contemplated by the AICPA
Statement, dated the date of such mailing, in form and substance reasonably
satisfactory to the Company, in connection with the procedures undertaken by
them with respect to the financial statements of Parent 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.
Section 8.14 Other Matters. The Company hereby agrees that its covenants,
representations and warranties (including the Company Disclosure Schedule to
the extent it relates thereto) in this Agreement, insofar as they relate to
its Subsidiaries, are made as though Value Oncology Sciences, Inc. ("VOS")
were a Subsidiary; provided that (i) this Section 8.14 shall not be deemed to
require the Company to cause VOS to take any action or to refrain from taking
any action and (ii) the representations and warranties made in this Agreement,
insofar as they would relate to VOS, shall be deemed to be made to the best
knowledge of the Company.
ARTICLE IX
Conditions Precedent
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the Company
Common Stock.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the effectiveness
of the Form S-4 shall have been issued by the Commission and remain in effect
and all necessary approvals under state securities laws relating to the
issuance or trading of the Parent Common Stock to be issued to stockholders of
the Company in connection with the Merger shall have been obtained.
(d) No preliminary or permanent injunction or other order by any federal or
state court in the United States of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect (each
party agreeing to use its reasonable efforts to have any such injunction
lifted).
(e) Parent and the Company shall have received letters from Ernst & Young
LLP and Coopers & Lybrand to the effect that the Merger qualifies for "pooling
of interests" accounting treatment if consummated in accordance with this
Agreement.
(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
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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 Date 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 Parent and the Company (and
their respective Subsidiaries), taken as a whole, following the Effective
Date.
(g) All consents, authorizations, orders and approvals required under
insurance holding company statutes or similar statutes regulating managed care
or insurance organizations required in connection with the execution, delivery
and performance of this Agreement shall have been obtained.
(h) The Parent 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.
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the additional following
conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior to
the Effective Date, and the representations and warranties of Parent and Sub
contained in this Agreement shall be true in all material respects when made
and on and as of the Effective Date as if made on and as of such date (except
to the extent they relate to a particular date), except as expressly
contemplated or permitted by this Agreement, and the Company shall have
received a certificate of the President or Chief Executive Officer or a Vice
President of Parent and Sub to that effect.
(b) The Company shall have received an opinion, dated the Effective Date,
from Willkie Farr & Gallagher, based upon certificates and letters from the
Company, Parent and Sub and certain stockholders of the Company, to the effect
that the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, such counsel may receive and
rely upon representations of fact contained in certificates and letters as
specified in the preceding sentence.
(c) The Company shall have received a "comfort" letter from Ernst & Young
LLP, of the kind contemplated by the AICPA Statement, dated the Effective
Date, in form and substance reasonably satisfactory to the Company, in
connection with the procedures undertaken by them with respect to the
financial statements of Parent 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.
Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the additional
following conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the
Effective Date, and the representations and warranties of the Company
contained in this Agreement shall be true in all material respects when made
and on and as of the Effective Date as if made on and as of such date (except
to the extent they relate to a particular date), except as expressly
contemplated or permitted by this Agreement, and Parent and Sub shall have
received a certificate of the President or Chief Executive Officer or a Vice
President of the Company to that effect; provided, however, that a
representation and warranty shall be deemed to be true and correct as of the
Effective Date if such representation and warranty would have been true and
correct as of such date but for the occurrence of an event referred to in
Section 9.3(a) of the Company Disclosure Schedule.
(b) Parent and Sub shall have received a "comfort" letter from Coopers &
Lybrand, of the kind contemplated by the AICPA Statement, dated the Effective
Date, in form and substance reasonably satisfactory to Parent, in connection
with the procedures undertaken by them with respect to the financial
statements of the
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Company 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.
(c) Parent and Sub shall have received an opinion, dated the Effective Date,
from Fried, Frank, Harris, Shriver & Jacobson, based upon certificates and
letters from the Company, Parent and Sub and certain stockholders of the
Company, to the effect that the Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code. In rendering such opinion, such
counsel may receive and rely upon representations of fact contained in
certificates and letters as specified in the preceding sentence.
(d) From the date of this Agreement through the Effective Date, there shall
not have occurred any change (other than a change resulting from events
referred to in Section 9.3(a) of the Company Disclosure Schedule),
individually or together with other changes, that has had, or would reasonably
be expected to have, a material adverse change in the financial condition,
business, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole.
ARTICLE X
Termination, Amendment and Waiver
Section 10.1 Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Date,
before or after the approval of this Agreement by the stockholders of the
Company, by the mutual consent of Parent and the Company.
Section 10.2 Termination by Either Parent or the Company. This Agreement may
be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (a) the Merger shall not have
been consummated by August 31, 1997, or (b) the approval of the Company's
stockholders required by Section 3.6 shall not have been obtained at a meeting
duly convened therefor or at any adjournment or postponement thereof, or (c) a
United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause (c) shall
have used all reasonable efforts to remove such injunction, order or decree;
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 August 31, 1997.
Section 10.3 Termination by the Company. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Date,
before or after the adoption and approval by the stockholders of the Company
referred to in Section 3.6, by action of the Board of Directors of the
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 the
Company determines that such termination is required by reason of an
Alternative Proposal being made, or (b) there has been a breach by Parent or
Sub of any representation or warranty contained in this Agreement which would
have or would be reasonably likely to have a Parent 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 Parent, which breach is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by the Company to Parent.
Section 10.4 Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Date, by action of
the Board of Directors of Parent, if (a) the Board of Directors of the Company
shall have withdrawn or modified in a manner adverse to Parent its approval or
recommendation of this Agreement or the Merger or shall have recommended an
Alternative Proposal to the Company stockholders, (b) there has been a breach
by the Company of any representation or warranty contained
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in this Agreement which has had, or would be reasonably expected to have, a
Company Material Adverse Effect, (c) there has been a material breach of any
of the covenants or agreements set forth in this Agreement on the part of the
Company, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by Parent to the Company or
(d) a change or changes having the effect specified in Section 9.3(d) shall
have occurred.
Section 10.5 Effect of Termination and Abandonment. (a) In the event that
(x) any person shall have made an Alternative Proposal and thereafter this
Agreement is terminated either by the Company pursuant to Section 10.3(a) or
by either party pursuant to Section 10.2(b), (y) the Board of Directors of the
Company shall have withdrawn or modified in a manner adverse to Parent its
approval or recommendation of this Agreement or the Merger or shall have
recommended an Alternative Proposal to the Company stockholders and Parent
shall have terminated this Agreement pursuant to Section 10.4(a) or (z) any
person shall have made an Alternative Proposal and thereafter this Agreement
is terminated for any reason other than those set forth in clauses (x) or (y)
above and within 12 months thereafter any Alternative Proposal shall have been
consummated, then the Company shall promptly, but in no event later than two
days after such termination, pay Parent a fee of $45,000,000, which amount
shall be payable by wire transfer of same day funds. The Company acknowledges
that the agreements contained in this Section 10.5(a) are an integral part of
the transactions contemplated in this Agreement, and that, without these
agreements, Parent and Sub would not enter into this Agreement; accordingly,
if the Company fails to promptly pay the amount due pursuant to this Section
10.5(a), and, in order to obtain such payment, Parent or Sub commences a suit
which results in a judgment against the Company for the fee set forth in this
Section 10.5(a), the Company shall pay to Parent 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 X, all obligations of the parties hereto shall
terminate, except the obligations of the parties pursuant to this Section 10.5
and Section 11.3 and except for the provisions of Sections 11.5, 11.6, 11.7,
11.9, 11.11, 11.12 and 11.15. Moreover, in the event of termination of this
Agreement pursuant to Section 10.2, 10.3 or 10.4, 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;
provided that following termination of this Agreement upon the occurrence of
any of the events described in clauses (x), (y) or (z) of Section 10.5, and
provided that the fee payable pursuant to Section 10.5 shall after such
termination be paid, neither Parent nor Sub shall (i) have any rights
whatsoever in respect of or in connection with the representations and
warranties of the Company, (ii) 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 Acquisition Proposal or (iii)
assert or pursue in any manner, directly or indirectly, any claim or cause of
action against the 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 Acquisition Proposal.
Section 10.6. Extension; Waiver. At any time prior to the Effective Date,
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.
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ARTICLE XI
General Provisions
Section 11.1 Non-Survival of Representations, Warranties and Agreements. All
representations and warranties set forth in this Agreement shall terminate at
the Effective Date. All covenants and agreements set forth in this Agreement
shall survive in accordance with their terms.
Section 11.2 Notices. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Value Health, Inc.
22 Waterville Road
Avon, CT 06001
Attention: General Counsel
Telecopy No.: (203) 676-8695
With a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Michael A. Schwartz, Esq.
Telecopy No.: (212) 821-8111
If to Parent or Sub:
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, TN 37203
Attention: General Counsel
Telecopy No.: (615) 320-2496
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attention: Jeffrey Bagner
Telecopy No.: (212) 859-4000
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section.
Section 11.3 Fees and Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Merger is consummated 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 Commission 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 the Company and Parent.
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Section 11.4 Publicity. So long as this Agreement is in effect, Parent, Sub
and the Company agree to consult with each other in issuing any press release
or otherwise making any public statement with respect to the transactions
contemplated by this Agreement, and none of them shall issue any press release
or make any public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing agreement with any
national securities exchange. The commencement of litigation relating to this
Agreement or the transactions contemplated hereby or any proceedings in
connection therewith shall not be deemed a violation of this Section 11.4.
Section 11.5 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were 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 court of the United States
or any state having jurisdiction, this being in addition to any other remedy
to which they are entitled at law or in equity.
Section 11.6 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, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement;
provided that the Indemnified Parties shall be third-party beneficiaries of
Parent's agreement contained in Section 8.6 hereof.
Section 11.7 Entire Agreement. This Agreement, the Exhibits, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Confidentiality
Agreement dated November 8, 1996, between the Company and Parent and any
documents delivered by the parties in connection herewith and therewith
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.
Section 11.8 Amendment. This Agreement may be amended by the parties hereto,
by action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Mergers by the
stockholders of the Company and Parent, 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.
Section 11.9 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.
Section 11.10 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.
Section 11.11 Headings and Table of Contents. Headings of the Articles and
Sections of this Agreement and the Table of Contents are for the convenience
of the parties only, and shall be given no substantive or interpretive effect
whatsoever.
Section 11.12 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.
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Section 11.13 Waivers. At any time prior to the Effective Date, the parties
hereto, by or pursuant to action taken by their respective Boards of
Directors, may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
documents delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party. 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.
Section 11.14 Incorporation of Exhibits. The Company Disclosure Schedule,
the Parent Disclosure Schedule 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.
Section 11.15 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.
Section 11.16 Subsidiaries. As used in this Agreement, the word "Subsidiary"
when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization, or any organization of
which such party is a general partner.
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<PAGE>
In Witness Whereof, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of
the date first written above.
Columbia/HCA Healthcare Corporation
/s/ Richard L. Scott
_____________________________________
By: Richard L. Scott
Title: Chairman of the Board and
Chief Executive Officer
CVH Acquisition Corporation
/s/ Richard L. Scott
_____________________________________
By: Richard L. Scott
Title: Chairman of the Board
Value Health, Inc.
/s/ Robert E. Patricelli
_____________________________________
By: Robert E. Patricelli
Title: Chairman of the Board
andChief Executive Officer
A-28
<PAGE>
APPENDIX B
Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1330
[LOGO OF MERRILL LYNCH
APPEARS HERE]
January 15, 1997
Board of Directors
Value Health, Inc.
22 Waterville Road
Avon, Connecticut 06001
Members of the Board:
You have informed us that Value Health, Inc. (the "Company"), Columbia/HCA
Healthcare Corporation (the "Acquiror"), and a newly formed wholly owned
subsidiary of the Acquiror (the "Acquisition Sub") propose to enter into an
Agreement and Plan of Merger (the "Agreement") pursuant to which the
Acquisition Sub will be merged with and into the Company in a transaction (the
"Merger") in which each outstanding share of common stock, no par value, of
the Company (the "Company Shares") not owned directly or indirectly by the
Acquiror or the Company will be converted into the right to receive 0.58 (the
"Exchange Ratio") shares of common stock, par value $.01 per share, of the
Acquiror (the "Acquiror Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair to the
holders of the Company Shares (other than the Acquiror and its affiliates)
from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
that we deemed relevant relating to the Company and the Acquiror and
the respective industries in which they operate;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and the Acquiror furnished to us by the
Company and the Acquiror;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning their
respective businesses and prospects, before and after giving effect to
the Merger;
(4) Reviewed the historical market prices and trading activity for the
Company Shares and the Acquiror Shares and compared them with those of
certain publicly traded companies that we deemed to be comparable to
the Company and the Acquiror, including after giving effect to the
Merger, respectively;
(5) Compared the historical and projected results of operations of the
Company and the Acquiror (including after giving effect to the Merger)
with those of certain companies that we deemed to be comparable to the
Company and the Acquiror, including after giving effect to the Merger,
respectively;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions that we deemed to be
relevant;
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<PAGE>
(7) Reviewed a draft of the Agreement in the form provided to us and have
assumed that the final form of such agreement will not vary in any
manner that is material to our analysis; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available and have
further relied on the assurances of management of the Company and the Acquiror
that they are not aware of any facts that would make such information
inaccurate or misleading. We have not assumed any responsibility for
independently verifying such information and we have not undertaken an
independent evaluation or appraisal of any of the assets or liabilities of the
Company or the Acquiror or been furnished with any such evaluation or
appraisal, nor have we conducted a physical inspection of the properties or
facilities of the Company or the Acquiror. With respect to the financial
forecast information furnished to or discussed with us by the Company, the
Acquiror or their representatives, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the Company's and the Acquiror's managements as to the expected
future financial performance of, or expenses or benefits to, the Company or
the Acquiror, as the case may be (including after taking into account the
impact of the Merger) and that in all material respects they will be realized
in the amounts and time indicated thereby. We express no view as to such
financial forecast information or the assumptions on which they were based. We
have further assumed that the Merger will be accounted for as a pooling-of-
interests under generally accepted accounting principles and that it will
qualify as a tax-free reorganization for United States Federal income tax
purposes.
For purposes of rendering this opinion we have assumed, in all respects
material to our analysis, that the representations and warranties of each
party to the Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and correct, that
each party to the Documents will perform all of the covenants and agreements
required to be performed by such party under such Documents and that all
conditions to the consummation of the Merger will be satisfied without waiver
thereof. We have also assumed that all material governmental, regulatory or
other consents and approvals will be obtained in connection with the Merger
and that in the course of obtaining any necessary governmental, regulatory or
other consents and approvals, or any amendments, modifications or waivers to
any documents to which either of the Company or the Acquiror are party, no
restrictions will be imposed or amendments, modifications or waivers made that
would have any material adverse effect on the contemplated benefits to the
Company or its shareholders of the Merger.
Our opinion is necessarily based upon market, economic and other conditions
as they exist on, and can be evaluated as of, the date hereof. Our opinion
does not address the merits of the underlying decision by the Company to
engage in the Merger and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed Merger or
any matter related thereto.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or
any part of the Company. In addition, we have not been asked to consider, and
this opinion does not in any manner address, the price at which the Acquiror
Shares will actually trade following the announcement or consummation of the
Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, the Company
has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory and/or financing
services to the Company and/or the Acquiror and may continue to do so and have
received, and may receive, fees for the rendering of such services. In the
ordinary course of our business, we may actively trade in the securities of
the Company and the Acquiror (and anticipate trading after
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<PAGE>
the Merger in the securities of Acquiror) for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
On the basis of and subject to the foregoing, we are of the opinion, as of
the date hereof, that the Exchange Ratio is fair from a financial point of
view to the holders of the Company Shares other than the Acquiror and its
affiliates.
This opinion is for the use and benefit of the Board of Directors of the
Company in its evaluation of the Merger and shall not be used for any other
purpose without our prior written consent.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH
INCORPORATED
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated Certificate of Incorporation provides that each
person who was or is made a party to, or is involved in, any action, suit or
proceeding by reason of the fact that he or she was a director or officer of
the Registrant (or was serving at the request of the Registrant as a director,
officer, employee or agent for another entity) will be indemnified and held
harmless by the Registrant, to the full extent authorized by the Delaware
General Corporation Law.
Under Section 145 of the Delaware General Corporation Law, a corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her if he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of an action brought by or in the right of a
corporation, the corporation may indemnify a director, officer, employee or
agent of the corporation against expenses (including attorneys' fees) actually
and reasonably incurred by him or her if he or she acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless a court finds that, in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
The Registrant's Restated Certificate of Incorporation provides that to the
fullest extent permitted by Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the Registrant shall not be
liable to the Registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director. The Delaware General Corporation Law permits
Delaware corporations to include in their certificates of incorporation a
provision eliminating or limiting director liability for monetary damages
arising from breaches of their fiduciary duty. The only limitations imposed
under the statute are that the provision may not eliminate or limit a
director's liability (i) for breaches of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or involving intentional misconduct or known violations of law, (iii) for the
payment of unlawful dividends or unlawful stock purchases or redemptions, or
(iv) for transactions in which the director received an improper personal
benefit.
The Registrant is insured against liabilities which it may incur by reason
of its indemnification of officers and directors in accordance with its
Restated Certificate of Incorporation. In addition, directors and officers are
insured, at the Registrant's expense, against certain liabilities that might
arise out of their employment and are not subject to indemnification under the
Restated Certificate of Incorporation.
The foregoing summaries are necessarily subject to the complete text of the
statutes, Restated Certificate of Incorporation and agreements referred to
above and are qualified in their entirety by reference thereto.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
2 Agreement and Plan of Merger (attached as Appendix A to the Proxy
Statement and Prospectus).
3.1 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3(a) to the Registrant's Current Report on Form 8-K dated
February 11, 1994, and incorporated herein by reference).
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
3.2(a) By-laws of the Registrant (filed as Exhibit 2.2 to the Registrant's
Registration Statement on Form 8-A dated August 31, 1993, and
incorporated herein by reference).
3.2(b) Amendment to By-laws of the Registrant (filed as Exhibit 3(b).1 to
the Registrant's Current Report on Form 8-K dated February 11,
1994, and incorporated herein by reference).
4.1 Specimen Certificate for shares of Common Stock, par value $.01 per
share, of the Registrant (filed as Exhibit 4.1 to the Registrant's
Form SE to Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
4.2 Columbia Hospital Corporation 9% Subordinated Mandatory Convertible
Note Due June 30, 1999 (filed as Exhibit 4.4 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Registrant and The 1818
Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, and incorporated herein by reference).
4.4 Securities Purchase Agreement by and between the Registrant and The
1818 Fund, L.P. dated as of March 18, 1991 (filed as Exhibit 4.6
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by reference).
4.5 Warrant to purchase shares of Common Stock, par value $.01 per
share, of the Registrant (filed as Exhibit 4.7 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, and incorporated herein by reference).
4.6 Registration Rights Agreement dated as of March 16, 1989, by and
among HCA-Hospital Corporation of America and the persons listed
on the signature pages thereto (filed as Exhibit (g)(24) to
Amendment No. 3 to the Schedule 13E-3 filed by HCA-Hospital
Corporation of America, Hospital Corporation of America and The
HCA Profit Sharing Plan on March 22, 1989, and incorporated herein
by reference).
4.7 Assignment and Assumption Agreement dated as of February 10, 1994,
between HCA-Hospital Corporation of America and the Registrant
relating to the Registration Rights Agreement, as amended (filed
as Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, and incorporated herein
by reference).
4.8 Amended and Restated Rights Agreement dated February 10, 1994
between the Registrant and Mid-America Bank of Louisville and
Trust Company (filed as Exhibit 4.8 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
4.9(a) $1 Billion Credit Agreement dated as of February 10, 1994, among
the Registrant, the Several Banks and Other Financial
Institutions, and Chemical Bank as Agent and as CAF Loan Agent
(filed as Exhibit 4.9 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, and incorporated
herein by reference).
4.9(b) Agreement and Amendment to the 364 Day Agreement dated as of
September 26, 1994 (filed as Exhibit 4.9 to the Registrant's
Registration Statement on Form S-4 (File No. 33-56803), and
incorporated herein by reference).
4.9(c) Agreement and Amendment to the 364 Day Agreement dated as of
February 28, 1996 (filed as Exhibit 4.9(c) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, and incorporated herein by reference).
4.10(a) $2 Billion Credit Agreement dated as of February 10, 1994, among
the Registrant, the Several Banks and Other Financial
Institutions, and Chemical Bank as Agent and as CAF Loan Agent
(filed as Exhibit 4.10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, and incorporated
herein by reference).
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
4.10(b) Agreement and Amendment to the Credit Facility dated as of
September 26, 1994 (filed as Exhibit 4.10 to the Registrant's
Registration Statement on Form S-4 (File No. 33-56803), and
incorporated herein by reference).
4.10(c) Agreement and Amendment to the Credit Facility dated as of
February 28, 1996 (filed as Exhibit 4.10(c) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, and incorporated herein by reference).
4.11 Indenture dated as of December 15, 1993 between the Registrant and
The First National Bank of Chicago, as Trustee (filed as Exhibit
4.11 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein by
reference).
5 Opinion of Stephen T. Braun, Senior Vice President and General
Counsel of the Registrant, regarding the issuance of the
registered securities.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Stephen T. Braun (included in Exhibit 5).
23.6 Consent of Fried, Frank, Harris, Shriver & Jacobson.
23.7 Consent of Willkie Farr & Gallagher.
23.8 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
24 Power of Attorney (see page II-5).
99 Form of Value Health Proxy.
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
II-3
<PAGE>
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by Form S-4 with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of Form S-4.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(9) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when it
became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Nashville, State of Tennessee, on the 6th day of February, 1997.
COLUMBIA/HCA HEALTHCARE CORPORATION
By: /s/ Stephen T. Braun
------------------------------------------
Stephen T. BraunSenior Vice
President and General Counsel
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen T. Braun, Kenneth C. Donahey and
Richard L. Scott, and each of them, his or her true and lawful attorneys-in-
fact and agents, with full power of substitution and re-substitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform such and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- -----
/s/ Richard L. Scott Chairman, Chief February 6, 1997
- ------------------------------------- Executive Officer
RICHARD L. SCOTT (Principal
Executive Officer)
and Director
/s/ Thomas F. Frist, Jr., M.D. Vice Chairman of the February 6, 1997
- ------------------------------------- Board
THOMAS F. FRIST, JR., M.D.
/s/ Kenneth C. Donahey Senior Vice February 6, 1997
- ------------------------------------- President and
KENNETH C. DONAHEY Controller
(Principal
Financial and
Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Magdalena Averhoff, M.D. Director January 30, 1997
- ------------------------------------
MAGDALENA AVERHOFF, M.D.
/s/ Sister Judith Ann Karam, CSA Director February 6, 1997
- ------------------------------------
SISTER JUDITH ANN KARAM, CSA
/s/ T. Michael Long Director January 31, 1997
- ------------------------------------
T. MICHAEL LONG
/s/ Donald S. MacNaughton Director February 4, 1997
- ------------------------------------
DONALD S. MACNAUGHTON
Director
- ------------------------------------
R. CLAYTON MCWHORTER
/s/ Carl E. Reichardt Director February 6, 1997
- ------------------------------------
CARL E. REICHARDT
/s/ Frank S. Royal, M.D. Director February 6, 1997
- ------------------------------------
FRANK S. ROYAL, M.D.
/s/ William T. Young Director February 6, 1997
- ------------------------------------
WILLIAM T. YOUNG
II-6
<PAGE>
[LETTERHEAD OF COLUMBIA/HCA/(SM)/ APPEARS HERE]
EXHIBIT 5
February 6, 1997
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37203
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of Columbia/HCA
Healthcare Corporation (the "Company") and have acted as such in connection with
the preparation of a Registration Statement on Form S-4 under the Securities Act
of 1933, as amended (the "Act"), covering up to 34,576,286 shares of common
stock, $.01 par value per share (the "Shares"), of the Company. The Shares also
include associated Preferred Stock Purchase Rights (the "Rights"). The Shares
and the Rights are hereinafter collectively referred to as the "Common Stock."
The Common Stock would be issued pursuant to an Agreement and Plan of Merger
dated as of January 15, 1997, among the Company, CVH Acquisition Corporation and
Value Health, Inc.
I have examined the Restated Certificate of Incorporation, By-laws and
other corporate records of the Company and such other documents as I have deemed
relevant to this opinion.
Based on the foregoing, it is my opinion that when the 34,576,286 shares
of the Common Stock, or any portion thereof, are issued as described in the
Registration Statement, such shares will be duly authorized, validly issued,
fully paid and nonassessable.
I hereby consent to the use of my name under the caption "Legal Matters"
in the Registration Statement and any prospectus which constitutes a part
thereof and to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, I do not hereby admit that I come within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Stephen T. Braun
Stephen T. Braun
Senior Vice President
and General Counsel
STB/db
<PAGE>
EXHIBIT 23.1
CONSENT OF THE INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Columbia/HCA
Healthcare Corporation pertaining to the registration of its common stock and
to the incorporation by reference therein of our report dated February 14,
1996, except for Note 11, as to which the date is March 8, 1996, with respect
to the consolidated financial statements incorporated by reference in its
Annual Report (Form 10-K) for the year ended December 31, 1995. We also
consent to the incorporation by reference therein of our report dated March
28, 1996, with respect to the financial statement schedule included in the
Annual Report (Form 10-K) of Columbia/HCA Healthcare Corporation for the year
ended December 31, 1995.
Ernst & Young LLP
Nashville, Tennessee
February 5, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-4 (File No. 333- ) of our reports dated February 21, 1996 on our
audits of the consolidated financial statements and financial statement
schedule of Value Health, Inc. and Subsidiaries, which reports are included in
the 1995 Value Health, Inc. Annual Report to Shareholders and 1995 Value
Health, Inc. Form 10-K. Our opinions on such financial statements and
financial statement schedule indicated that we did not audit the financial
statements of Diagnostek, Inc. for the years ended December 31, 1994 and 1993
or of Preferred Health Care Ltd. for the year ended December 31, 1993, which
statements reflect revenues of approximately 40% and 49% for the years ended
December 31, 1994 and 1993, respectively, and total assets of approximately
32% as of December 31, 1994, of the related consolidated totals. Those
financial statements were audited by other auditors whose reports have been
furnished to us, and our opinions, insofar as they relate to amounts included
for these wholly-owned subsidiaries of Value Health, Inc., were based solely
on the reports of such other auditors. Additionally, our opinion indicated
that the Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, as of January 1, 1994. We also consent to the reference to our
firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Hartford, Connecticut
February 5, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Proxy
Statement/Prospectus of Columbia/HCA Healthcare Corporation on Form S-4 of our
report on Preferred Health Care Ltd. dated February 24, 1994, filed as an
exhibit to the Annual Report on Form 10-K of Value Health, Inc. for the year
ended December 31, 1995 and to the reference to us under the heading "Experts"
in the Proxy Statement/Prospectus.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
February 6, 1997
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Columbia/HCA Healthcare Corporation
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
February 6, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
February 6, 1997
Board of Directors of
Columbia/HCA Healthcare Corporation
1 Park Plaza
Nashville, Tennessee 37203
Ladies and Gentlemen:
We hereby consent to the reference to our Firm under the captions "Summary--
The Merger--Certain Federal Income Tax Consequences," "The Merger--Certain
Federal Income Tax Consequences," "The Merger Agreement--Conditions" and
"Legal Matters" in the Registration Statement on Form S-4 of Columbia/HCA
Healthcare Corporation ("Columbia") relating to the shares of common stock of
Columbia to be issued in connection with the merger of a wholly owned
subsidiary of Columbia with and into Value Health, Inc. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulation of the Securities and Exchange Commission thereunder.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Jeffrey Bagner
-------------------------------------
Jeffrey Bagner
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EXHIBIT 23.7
February 6, 1997
Value Health, Inc.
22 Waterville Road
Avon, Connecticut 06001
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37203
Ladies and Gentlemen:
We hereby consent to the reference to our firm under the headings "Summary--
The Merger--Certain Federal Income Tax Consequences," "The Merger--Certain
Federal Income Tax Consequences," "The Merger Agreement--Conditions" and
"Legal Matters" in the Proxy Statement/Prospectus included in this
Registration Statement on Form S-4. We do not admit by giving this consent
that we are in the category of persons whose consent is required under Section
7 of the Securities Act of 1933, as amended.
Very truly yours,
WILLKIE FARR & GALLAGHER
<PAGE>
EXHIBIT 23.8
[LETTERHEAD OF MERRILL LYNCH APPEARS HERE]
We hereby consent to the use of our opinion letter dated January 15, 1997 to
the Board of Directors of Value Health, Inc. included as Appendix B to the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of CVH Acquisition Corporation, a
wholly owned subsidiary of Columbia/HCA Healthcare Corporation with and into
Value Health, Inc. and to the references to such opinion in such Proxy
Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Greg Digens
----------------------------------
(Vice President)
February 5, 1997
<PAGE>
EXHIBIT 99
VALUE HEALTH, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF
STOCKHOLDERS OF VALUE HEALTH, INC.
, 1997
The undersigned stockholder of Value Health, Inc. ("Value Health") hereby
appoints [Robert E. Patricelli] and [Steven J. Shulman], and each of them, the
lawful proxies of the undersigned, with full powers of substitution and
revocation, to vote on behalf of the undersigned all shares of Value Health
common stock, no par value (the "Value Health Common Stock"), which the
undersigned is entitled to vote at the special meeting of the stockholders of
Value Health to be held on , 1997 (the "Special Meeting"), at 10:00 a.m.
at the Avon Old Farms Hotel, Routes 10 and 44, Avon, Connecticut 06001, and at
any and all adjournments and postponements thereof, upon all matters presented
before the Special Meeting, and does hereby ratify and confirm all that said
proxies or their substitutes may lawfully do by virtue hereof. The undersigned
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders,
and hereby instructs said proxies to vote said shares of Value Health Common
Stock as indicated hereon.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
STOCKHOLDER. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, EXECUTED PROXIES WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF JANUARY 15,
1997 (THE "MERGER AGREEMENT"), BY AND AMONG COLUMBIA/HCA HEALTHCARE CORPORATION
("COLUMBIA"), CVH ACQUISITION CORPORATION, A WHOLLY OWNED SUBSIDIARY OF
COLUMBIA ("COLUMBIA SUB"), AND VALUE HEALTH, WHEREBY (I) COLUMBIA SUB WILL
MERGE WITH AND INTO VALUE HEALTH, WHICH WILL THEREUPON BECOME A SUBSIDIARY OF
COLUMBIA (THE "MERGER"), AND (II) EACH STOCKHOLDER OF VALUE HEALTH WILL RECEIVE
FOR EACH SHARE OF VALUE HEALTH COMMON STOCK HELD AS OF THE EFFECTIVE DATE OF
THE MERGER, 0.58 OF A SHARE OF COMMON STOCK, $.01 PAR VALUE, OF COLUMBIA.
FOR AGAINST ABSTAIN
[_] [_] [_]
THE BOARD OF DIRECTORS OF VALUE HEALTH UNANIMOUSLY RECOMMENDS A VOTE FOR THIS
PROPOSAL.
Dated , 1997
____________________________________
Signature of Stockholder
Name: ______________________________
Title: _____________________________
____________________________________
Signature of Stockholder (if held
jointly)
Name: ______________________________
Title: _____________________________
NOTE: Please sign exactly as your name appears on the stock certificate. If
joint owners, both owners should sign this Proxy. When signing as attorney,
executor, administrator, trustee, guardian or corporate officer, please give
your full title as such. If a corporation, please sign in full corporate name
by the duly authorized officer. If a partnership, please sign in partnership
name by an authorized person.
