<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Health Power, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
3,888,460 outstanding shares and 245,827 shares subject to options
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$6.98 per share. The proposed maximum aggregate value of the transacton
of $27,612,506 equals the sum of (i) the product of $6.98 and 3,888,460
(the number of outstanding shares of Common Stock of the Registrant)
and (ii) the product of $1.00 and 136,008 (the number of shares subject
to options with an exercise price greater than $6.98, which options
will be terminated) and (iii) the product of approximately $3.05 (which
equals $6.98 per share less the approximate $3.93 per share weighted
average exercise price of options with an exercise price less than
$6.98) and 109,819 ((the number of shares subject to options with an
exercise price less than $6.98, which options will be terminated). The
filing fee equals 1/50 of 1% of the aggregate value.
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$27,612,506
-------------------------------------------------------------------------
(5) Total fee paid:
$5,523
-------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
HEALTH POWER, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 8, 2000
To the Stockholders of
HEALTH POWER, INC.:
A Special Meeting of the Stockholders of Health Power, Inc., a Delaware
corporation ("Health Power"), will be held at the offices of Health Power's
subsidiary, CompManagement, Inc., located at 6377 Emerald Parkway, Dublin,
Ohio 43016, on December 8, 2000, at 9:00 a.m., local time (the "Special
Meeting"), for the following purposes, which are more fully described in the
attached Proxy Statement:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger dated as of June 8, 2000, as amended, by and among Security Capital
Corporation, a Delaware corporation ("Security Capital"), HP Acquisition
Corp., a Delaware corporation which is a subsidiary of Security Capital
("HP Acquisition"), and Health Power, pursuant to which HP Acquisition will
be merged into Health Power, with Health Power continuing as the surviving
corporation and becoming a subsidiary of Security Capital. If the merger
agreement is adopted by the stockholders of Health Power, each share of
common stock of Health Power, except shares held by stockholders who
exercise their appraisal rights under Delaware law, will be converted into
the right to receive $7.03 per share in cash, without interest, assuming
the merger closes on December 8, 2000. The total merger consideration is a
fixed amount and consists of cash payable to stockholders reduced by
certain liabilities of Health Power, including the amount of Health Power's
indebtedness as of the closing. Health Power will be permitted to reduce
its indebtedness by $6,667 per day prior to the closing. This reduction in
indebtedness will in turn increase the total cash merger consideration
payable to Health Power stockholders. Therefore, the merger consideration
payable to Health Power stockholders will increase by approximately $0.002
per share per day for each day that the closing of the merger occurs after
December 8, 2000.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only stockholders of record at the close of business on November 9, 2000,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournment thereof.
Your vote is very important. The proposed merger cannot occur unless, among
other things, the merger agreement is adopted by the affirmative vote of the
holders of a majority of the outstanding shares of common stock of Health
Power. Whether or not you plan to attend the Special Meeting, please sign,
date, and return the accompanying proxy card promptly. For your convenience, a
return addressed envelope, which requires no postage, is enclosed. Failure to
vote will have the same effect as a vote against adoption of the merger
agreement.
If your shares are held in "street name," meaning your shares are held not
in your name but in the name of a broker or other nominee, you will receive
instructions from your broker explaining what you must do in order for your
broker to be able to vote your shares. Please follow these instructions
carefully to ensure that your shares will be voted at the Special Meeting. If
you do not provide instructions, your broker will not be able to vote your
shares, which will have the same effect as a vote against adoption of the
merger agreement.
The accompanying Proxy Statement describes the merger agreement and other
aspects of the merger. If you do not vote in favor of adopting the merger
agreement and otherwise comply with the requirements of the Delaware General
Corporation Law concerning appraisal rights, you will be entitled to appraisal
rights. The accompanying Proxy Statement summarizes these requirements under
the heading "Appraisal Rights Under Delaware Law."
Please do not include your stock certificates with your proxy card. If the
merger agreement is adopted by stockholders and the merger is consummated, you
will receive instructions explaining how to surrender your stock certificates.
By Order of the Board of Directors
DR. ELLIOTT P. FELDMAN
Secretary
Dated: November 17, 2000
-------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has (1) approved or disapproved the merger, (2) passed upon the
merits or fairness of the merger, or (3) passed upon the adequacy or accuracy
of the disclosure in this Proxy Statement. Any representation to the contrary
is a criminal offense.
-------------------------------------------------------------------------------
<PAGE>
HEALTH POWER, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 8, 2000
This Proxy Statement is being furnished to you in connection with the
solicitation of proxies by the Board of Directors of Health Power. The proxies
will be used at a Special Meeting of Stockholders to be held at the offices of
Health Power's subsidiary, CompManagement, Inc., located at 6377 Emerald
Parkway, Dublin, Ohio 43016, on December 8, 2000, at 9:00 a.m., local time,
and at any adjournments of the Special Meeting. The mailing address of Health
Power's principal executive offices is 1209 Orange Street, Wilmington,
Delaware 19801 (Telephone No. 302-636-7593).
The approximate date on which this Proxy Statement and the accompanying
proxy card will be first sent to stockholders is November 17, 2000. The close
of business on November 9, 2000, has been fixed as the record date for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting. On the record date, 3,888,460 shares of common stock of Health Power
were outstanding and entitled to vote at the Special Meeting. The presence in
person or by proxy of the holders of shares representing a majority of the
outstanding shares of common stock of Health Power is necessary for a quorum
to be present at the Special Meeting.
At the Special Meeting, stockholders will be asked to consider and vote upon
a proposal to adopt an Agreement and Plan of Merger dated as of June 8, 2000,
as amended, by and among Security Capital, its subsidiary, HP Acquisition, and
Health Power, pursuant to which HP Acquisition will be merged into Health
Power, with Health Power continuing as the surviving corporation and becoming
a subsidiary of Security Capital. If the merger agreement is adopted by the
stockholders of Health Power, each share of common stock of Health Power,
except shares held by stockholders who exercise their appraisal rights under
Delaware law, will be converted into the right to receive $7.03 per share in
cash, without interest, assuming the merger closes on December 8, 2000. The
total merger consideration is a fixed amount and consists of cash payable to
stockholders reduced by certain liabilities of Health Power, including the
amount of Health Power's indebtedness as of the closing. Health Power will be
permitted to reduce its indebtedness by $6,667 per day prior to the closing.
This reduction in indebtedness will in turn increase the total cash merger
consideration payable to Health Power stockholders. Therefore, the merger
consideration payable to Health Power stockholders will increase by
approximately $0.002 per share per day for each day that the closing of the
merger occurs after December 8, 2000.
The closing price of Health Power's shares was $6.38 on November 13, 2000,
the last trading day before the printing of this Proxy Statement. The closing
price of Health Power's shares was $3.69 on June 8, 2000, the day before the
signing of the merger agreement was publicly announced.
The affirmative vote of stockholders owning a majority of the outstanding
shares of common stock of Health Power is required to adopt the merger
agreement. The affirmative vote of a majority of the outstanding shares owned
by unaffiliated stockholders is not required to adopt the merger agreement.
Certain stockholders of Health Power have entered into voting agreements with
Security Capital which, subject to certain qualifications, require them to
vote their shares of common stock of Health Power in favor of the adoption of
the merger agreement. These persons together own approximately 47.5% of the
outstanding shares of common stock of Health Power. See "Interests of Certain
Persons in the Merger--Stockholder Voting Agreements" and "Provisions of the
Merger Agreement--Conditions to the Merger."
Stockholders who do not vote in favor of adoption of the merger agreement
and who otherwise comply with the requirements of the Delaware General
Corporation Law concerning appraisal rights will be entitled to appraisal
rights. A summary of the appraisal rights and the procedures to exercise these
rights is described in this Proxy Statement under the heading "Appraisal
Rights Under Delaware Law."
The Special Committee and the Board of Directors unanimously recommend that
stockholders vote "FOR" adoption of the merger agreement. See "Reasons for the
Merger; Recommendation of the Special Committee and Board of Directors."
The executive officers and directors of Health Power have interests that are
different from, or in addition to, the interests of other stockholders. See
"Interests of Certain Persons in the Merger."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <C> <S> <C>
1. Questions and Answers About the Merger Transaction................... 1
2. Who Can Help Answer Your Questions?.................................. 3
3. Forward-Looking Statements........................................... 3
4. Summary.............................................................. 4
5. Summary of Selected Consolidated Financial Data...................... 10
6. The Special Meeting.................................................. 11
A. General......................................................... 11
B. Matters to be Voted Upon at the Special Meeting................. 11
C. Record Date and Voting.......................................... 11
D. Proxies and Revocation of Proxies............................... 12
E. Additional Solicitation of Proxies.............................. 12
F. Appraisal Rights................................................ 13
G. Stock Certificates.............................................. 13
7. Background of the Merger............................................. 14
8. Purpose and Reasons of Health Power for the Merger; Recommendation of
the Special Committee and Board of Directors......................... 20
A. Purpose and Reasons for the Merger.............................. 20
B. Recommendation of the Special Committee and Board of Directors.. 20
9. Effects of the Merger; Merger Consideration.......................... 22
10. Financing of the Merger.............................................. 23
11. Opinion of Health Power's Financial Advisor.......................... 24
A. Comparable Public Company--Trading Multiple Analysis............ 26
B. Comparable Acquisition Analysis................................. 26
C. Stock Premium Analysis.......................................... 27
D. Discounted Cash Flow Analysis................................... 28
E. Other Factors................................................... 28
E. Preparation of Fairness Opinion; Fees to RJA.................... 28
12. Purpose and Reasons of the CMI Executive Team and the Security
Capital Entities for the Merger; Position of CMI Executive Team and
the Security Capital Entities as to the Fairness of the Merger....... 29
A. Purpose and Reasons for the Merger.............................. 29
B. Position of CMI Executive Team and Security Capital Entities as
to the Fairness of the Merger................................... 30
13. Interests of Certain Persons in the Merger........................... 31
A. Equity Investment in Acquiring Corporation...................... 31
B. Employment by CMI Executive Team................................ 32
C. Termination of Change in Control Agreements..................... 32
D. Termination of Dr. Master's Employment Agreement................ 33
E. Stock Options................................................... 33
F. Indemnification and Insurance................................... 34
G. Stockholder Voting Agreements................................... 34
14. Accounting Treatment................................................. 34
15. Regulatory Matters................................................... 34
16. Federal Income Tax Consequences...................................... 35
17. Appraisal Rights Under Delaware Law.................................. 36
18. Provisions of the Merger Agreement................................... 39
A. General......................................................... 39
B. Merger Consideration............................................ 39
C. Treatment of Stock Options...................................... 40
D. Representations and Warranties.................................. 40
E. Covenants....................................................... 41
E. No Solicitation................................................. 42
F. Additional Agreements........................................... 43
</TABLE>
i
<PAGE>
<TABLE>
<C> <C> <C> <S> <C>
i. Stockholders Meeting; Proxy Materials........................ 43
ii. Other Filings................................................ 43
iii. Efforts; Cooperation......................................... 43
iv. Indemnification and Insurance................................ 43
v. Termination of Stock Options................................. 43
vi. Windup of HMO Subsidiary..................................... 43
vii. Termination of Agreements.................................... 43
G. Fees and Expenses.................................................. 43
H. Conditions to the Merger........................................... 44
I. Termination, Termination Fees, Amendment and Waiver................ 45
i. Termination of Merger Agreement.............................. 45
ii. Break-Up Fee and Expenses.................................... 46
iii. Escrow Arrangement........................................... 46
iv. Amendment.................................................... 47
v. Extension; Waiver............................................ 47
19. The Companies.......................................................... 47
A. Health Power....................................................... 47
B. Security Capital and HP Acquisition................................ 47
20. Market Prices of Common Stock.......................................... 49
21. Principal Stockholders................................................. 50
22. Purchases of Common Stock by Certain Persons........................... 51
23. Where You Can Find More Information.................................... 51
24. Stockholder Proposals for Fiscal 2001 Annual Meeting................... 53
25. Proxy Solicitation Expenses............................................ 53
26. Other Matters.......................................................... 53
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER TRANSACTION
Q: What am I being asked to vote upon at the Special Meeting?
A: The Board of Directors of Health Power is asking you to vote to approve a
merger agreement which provides for the merger of HP Acquisition, a
recently formed subsidiary of Security Capital, into Health Power, with
Health Power surviving the merger as a subsidiary of Security Capital.
Holders of about 47.5% of Health Power's common stock have already agreed
to vote in favor of this merger, subject to certain qualifications. If the
merger agreement is approved, Health Power will no longer be a publicly
held company.
Q: Who can vote at the Special Meeting?
A: Holders of common stock of Health Power at the close of business on
November 9, 2000, may vote at the Special Meeting.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. Your broker will contact you regarding the procedures necessary to
vote your shares. Please follow these procedures carefully and instruct
your broker as to how you would like your shares voted at the Special
Meeting. If you do not instruct your broker how to vote, your broker will
not be able to vote your shares. Your broker's failure to vote your shares
will have the same effect as a vote against adoption of the merger
agreement.
Q: What vote is required to approve and adopt the merger agreement?
A: The merger agreement must be adopted by the holders of a majority of the
outstanding shares of common stock of Health Power.
Q: If I fail to vote, will my failure to vote have any effect on the outcome?
A: Yes. If you do not vote (i.e., if you do not send in a proxy card, instruct
your broker on how to vote your shares, or vote in person at the Special
Meeting), or if you abstain from voting, this action will have the same
effect as a vote against approval of the merger agreement.
Q. What will I receive if the merger is completed?
A: Assuming that the merger is completed on December 8, 2000, you will receive
$7.03 in cash, without interest, for each share of common stock of Health
Power you own. For each day the merger is completed after December 8, you
will receive an additional $0.002 for each share you own.
Q: Why is Health Power proposing the merger?
A: We believe the merger presents the best opportunity to maximize stockholder
value. The merger will enable Health Power's stockholders to realize a
premium over recent market prices for Health Power's shares of common
stock. For example, on June 8, the day before the signing of the merger
agreement was publicly announced, the closing price of Health Power's
shares was $3.69, which is $3.34 less than the amount per share that
stockholders will receive if the merger is completed on December 8. In
addition, the Special Committee and the Board of Directors evaluated other
alternatives and concluded that none of these alternatives would likely
result in stockholders receiving greater value for their Health Power
shares.
Q: What will happen to the members of Health Power's management?
A: All of the present members of Health Power's executive management team,
other than Dr. Bernard F. Master, Health Power's Chairman, will continue as
officers and employees of Health Power in their present capacities. Dr.
Master's employment will be terminated in connection with the merger.
Robert J. Bossart, Randy E. Jones, Richard T. Kurth, Paul A. Miller, Daniel
R. Sullivan, and Jonathan R. Wagner, all of whom
1
<PAGE>
are presently executive officers of either CompManagement or CompManagement
Health Systems (subsidiaries of Health Power), will make a $2,000,000
investment in the acquiring corporation in exchange for a 20% equity
interest in that corporation. In connection with the merger, these persons
and Dr. Master will also receive payments in exchange for termination of
certain contracts they have with Health Power.
Q: Have any parties involved in the merger made a determination as to the
fairness of the transaction to unaffiliated stockholders?
A. Yes. The Special Committee and the Board of Directors of Health Power, as
well as Security Capital, HP Acquisition, and the executive officers of
Health Power making an investment in the acquiring corporation, have each
reviewed various factors pertaining to the transaction and, based on their
review, believe that the merger is fair to unaffiliated stockholders of
Health Power.
Q: What do I need to do now?
A: If you are a record owner of common stock of Health Power, you need only
complete, sign and mail your proxy card in the enclosed return envelope as
soon as possible so that your shares may be represented at the Special
Meeting. If your shares are held in street name, you need only complete the
instructions that your broker will send to you.
Q: What do I do if I want to change my vote after I mail my proxy card?
A: You may change your vote by revoking your proxy at any time before the
shares represented by your proxy are voted at the Special Meeting. You may
do so in one of three ways:
. By completing and delivering a new, subsequently dated proxy card to
Health Power;
. By sending Health Power (to the attention of Paul A. Miller, Esq.,
General Counsel of Health Power) a written notice stating that you would
like to revoke your proxy; or
. By attending the Special Meeting and asking to vote in person (your
presence at the Special Meeting will not by itself revoke your proxy).
Q: Will I have appraisal rights if stockholders adopt the merger agreement and
the merger is completed?
A: Yes. Under Delaware law, you will be entitled to appraisal rights. If you
do not vote in favor of the merger and meet all of the other requirements
under Delaware law regarding appraisal rights (these requirements are
summarized in this Proxy Statement under "Appraisal Rights Under Delaware
Law"; a copy of the relevant statutory provisions is set forth in Annex C),
you will receive the "fair value" of your common stock of Health Power as
determined by a court. The court may determine that the fair value is
greater than, equal to, or less than the amount stockholders will receive
if the merger is completed.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger by December 8, 2000.
Q: How will I get paid for my common stock of Health Power?
A: If the merger agreement is approved and adopted by stockholders and the
merger is completed, you will receive instructions in the mail explaining
how to exchange your stock certificates for cash.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, you will receive written instructions
explaining how to exchange your stock certificates for cash.
Q: What are the tax consequences of the merger to stockholders?
A: If the merger is completed, the payment of cash for your shares of stock
will be taxable to you. You will recognize a gain or loss in an amount
equal to the difference between the adjusted tax basis of your shares and
the amount of cash you receive in the merger. You should consult your tax
advisor for a full understanding of the tax consequences of the merger.
2
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have additional questions about the merger or would like additional
copies of the Proxy Statement or proxy card, please contact:
Paul A. Miller, Esq.
General Counsel
Health Power, Inc.
c/o CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Telephone No. 614-760-8119
FORWARD-LOOKING STATEMENTS
The statements contained in this Proxy Statement and in the documents that
have been incorporated into this Proxy Statement by reference include forward-
looking statements about Health Power. These forward-looking statements are
subject to risks and uncertainties and should be read with the cautionary
statements included in this document. Forward-looking statements include, by
way of example and without limitation, statements concerning plans,
objectives, goals, strategies, future events of performance and underlying
assumptions and other statements, which are other than statements of
historical facts, and information concerning future results of the operations
of Health Power and the surviving company after the effective time of the
merger. Forward looking statements are set forth, among other places, under
"Questions and Answers About the Merger Transaction," "Summary," "Background
of the Merger," "Reasons for the Merger; Recommendation of the Special
Committee and Board of Directors," "Financing of the Merger," and "Opinion of
Health Power's Financial Advisor." Forward-looking statements may be
identified, preceded by, followed by or otherwise include, without limitation,
words such as "believes," "expects," "anticipates," "intends," "estimates" or
similar expressions. Health Power's expectations, beliefs and projections are
expressed in good faith and are believed by Health Power to have a reasonable
basis including, without limitation, management's examination of historical
operating trends, data contained in Health Power's records and other data
available from third parties. There can be no assurance that management's
expectations, beliefs or projections will result or be achieved or
accomplished. Any forward-looking statements in this Proxy Statement are not
covered by the Private Securities Litigation Reform Act of 1995 and are not
covered by the safe harbor provisions of that Act. No part of that Act is
incorporated into nor is it applicable to this Proxy Statement.
In addition to the factors discussed elsewhere in this Proxy Statement,
factors that could cause actual results to differ materially from those
discussed in the forward-looking statements are discussed in Health Power's
filings with the Securities and Exchange Commission, including its Annual
Report on Form 10-K for the year ended December 31, 1999. See "Where You Can
Find More Information."
3
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy Statement and
may not contain all of the information that is important to you. To understand
the proposal fully and for a more complete description of the terms of the
merger, you should read this entire document carefully, including the documents
we have referred you to and the Annexes. We have included page references to
the Proxy Statement parenthetically to direct you to a more complete
description of each topic presented in this summary. The merger agreement is
attached as Annex A to this Proxy Statement. We encourage you to read the
merger agreement because it is the legal document that governs the transaction.
The Companies (page 47)
Health Power, through its subsidiaries, CompManagement, Inc.
("CompManagement") and CompManagement Health Systems, Inc. ("CompManagement
Health Systems"), is an independent provider of comprehensive cost containment
and medical management services designed to minimize the costs of workers' and
unemployment compensation benefits for employers. CompManagement serves as a
third party administrator for workers' and unemployment compensation claims.
CompManagement Health Systems provides medical management services for workers'
compensation claims.
Security Capital, a Delaware corporation, is a multi-industry holding
company. Each subsidiary company of Security Capital has a high degree of
operating autonomy, with its own chief executive officer and management.
Currently, Security Capital has three subsidiary companies, known as Primrose,
Pumpkin, and Possible Dreams. Primrose is engaged primarily in the franchising
of educational child care centers, with related activities in real estate
advisory and site selection services. Pumpkin is involved primarily in the
business of designing and distributing pumpkin carving kits and related
Halloween accessories. Possible Dreams operates as a designer and distributor
of fine quality collectible Christmas figurines and, to a lesser extent, other
specialty and seasonal giftware, primarily in the United States.
HP Acquisition is a Delaware corporation organized solely for the purpose of
effecting Security Capital's acquisition of Health Power through the merger. It
is a subsidiary of Security Capital.
Security Capital and HP Acquisition are collectively referred to as the
"Security Capital Entities."
Recommendation of the Special Committee and Board of Directors (page 20)
A Special Committee of the Board of Directors (the "Special Committee") and
the Board of Directors of Health Power have unanimously approved the merger
agreement, believe the merger is in your best interest as a stockholder,
believe the merger is fair to unaffiliated stockholders of Health Power, and
unanimously recommend that you vote "FOR" adoption of the merger agreement. The
Special Committee was composed entirely of independent directors not employed
by Health Power.
Opinion of Health Power's Financial Advisor (page 24)
In deciding to approve the merger, the Special Committee and Board of
Directors considered many factors, including the oral opinion of Health Power's
financial advisor, Raymond James & Associates, Inc. ("RJA") (formerly named
Roney & Co.). RJA has advised Health Power's Special Committee and Board of
Directors that, in its opinion, as of May 9, 2000 (the date that the merger
agreement was approved by the Special Committee and the Board of Directors),
the $36,250,000 total merger consideration and the resultant per share
consideration ($7.03 per share assuming the merger closes on December 8, 2000)
was fair from a financial point of view to stockholders of Health Power. RJA
has provided Health Power's Special Committee and Board of
4
<PAGE>
Directors with a written opinion dated as of May 9, 2000, confirming its oral
opinion. RJA's written opinion is attached as Annex B to this Proxy Statement.
We encourage you to read this opinion in its entirety. The Board of Directors
of Health Power does not plan to obtain an update to this opinion.
Reasons for the Merger (page 20)
The Special Committee and the Board of Directors believes that the merger
presents the best opportunity to maximize stockholder value. The merger will
enable Health Power's stockholders to realize a premium over recent market
prices for Health Power's shares of common stock. In addition, the Special
Committee and the Board of Directors evaluated other alternatives to the merger
and concluded that none of these alternatives would likely result in
stockholders receiving greater value for their Health Power shares.
Effects of the Merger; Merger Consideration (page 22)
Upon consummation of the merger:
. HP Acquisition will be merged into Health Power, with Health Power
continuing as the surviving corporation and a subsidiary of Security
Capital.
. Each share of common stock of Health Power issued and outstanding at the
effective time of the merger, except shares held by stockholders who
properly exercise their appraisal rights under Delaware law and shares
held by HP Acquisition (which will be cancelled), will be converted into
the right to receive $7.03 in cash, without interest, assuming the
merger closes on December 8, 2000. The total merger consideration is a
fixed amount and consists of cash payable to stockholders reduced by
certain liabilities of Health Power, including the amount of Health
Power's indebtedness as of the closing. Health Power will be permitted
to reduce its indebtedness by $6,667 per day prior to the closing. This
reduction in indebtedness will in turn increase the total cash merger
consideration payable to Health Power stockholders. Therefore, the
merger consideration payable to Health Power stockholders will increase
by approximately $0.002 per share per day for each day that the closing
of the merger occurs after December 8, 2000.
. Each share of common stock of HP Acquisition issued and outstanding at
the effective time of the merger will be converted into and exchanged
for one share of common stock of Health Power.
Financing of the Merger (page 23)
It is estimated that the total amount of funds necessary to consummate the
merger and pay related fees and expenses is approximately $35,000,000. These
funds are expected to come from the following sources
. An equity investment of $8,000,000 from Security Capital;
. An equity investment of $2,000,000 from the CMI Executive Team; and
. A term loan and revolving loan in the aggregate amount of $25,000,000.
Security Capital has received a financing commitment letter from Bank One, NA
("Bank One") for a credit facility in the amount of $25,000,000 to be used to
consummate the merger and to pay related fees and expenses. In addition,
Security Capital has received a financing commitment letter from Banc One
Mezzanine Corporation ("Banc One Mezzanine") for a credit facility in the
amount of $6,000,000 to be used to partially finance its $8,000,000 equity
investment in the acquiring corporation. These financing commitment letters are
subject to the satisfaction of certain conditions which are typical of bank
commitment letters of this nature.
The Special Meeting (page 11)
The Special Meeting will be held at the offices of Health Power's subsidiary,
CompManagement, Inc., located at 6377 Emerald Parkway, Dublin, Ohio 43016, on
December 8, 2000, at 9:00 a.m., local time. At the
5
<PAGE>
Special Meeting, stockholders will be asked to consider and vote upon a
proposal to adopt the merger agreement providing for the merger of HP
Acquisition into Health Power, with Health Power surviving the merger as a
privately held company and a subsidiary of Security Capital.
Record Date and Voting (page 11)
You are entitled to vote at the Special Meeting if you owned shares of common
stock of Health Power as of the close of business on the record date of
November 9, 2000. On the record date, 3,888,460 shares of common stock were
outstanding and entitled to vote at the Special Meeting. Stockholders will have
one vote for each share of common stock of Health Power they owned on the
record date.
The presence in person or by proxy of the holders of shares representing a
majority of the outstanding shares of common stock of Health Power is necessary
for a quorum to be present at the Special Meeting. Abstentions and broker non-
votes will be counted as shares present for the purpose of determining the
presence of a quorum at the Special Meeting.
The affirmative vote of the holders of a majority of the shares of common
stock that are outstanding as of the record date is required to adopt the
merger agreement. Each of Robert J. Bossart, Richard T. Kurth, Dr. Bernard F.
Master, and Jonathan R. Wagner (the "Supporting Stockholders") has entered into
a voting agreement with Security Capital which, subject to certain
qualifications, requires him to vote his shares of common stock of Health Power
in favor of the adoption of the merger agreement. These persons together own
approximately 47.5% of the outstanding shares of common stock of Health Power.
As a result, the merger agreement will be adopted by stockholders if the
holders of more than 2.5% of the outstanding shares of common stock not subject
to voting agreements vote in favor of the adoption of the merger agreement.
Health Power believes that its other directors, who own an aggregate of 210,741
(approximately 5.4%) of the outstanding shares of common stock of Health Power,
intend to vote their shares in favor of the adoption of the merger agreement.
Appraisal Rights (page 36)
You are entitled to appraisal rights under Delaware law. If you properly
exercise your appraisal rights, you will be entitled to a judicial
determination of the fair value of your shares of common stock of Health Power.
You will then receive from the surviving corporation payment of the fair value
in cash, together with a fair rate of interest, if any, as determined by the
court. In that case, you will not receive payment for your shares as described
in this Proxy Statement. In order to exercise your appraisal rights, you must
(i) not vote in favor of the adoption of the merger agreement, (ii) make a
written demand for appraisal to Health Power prior to the taking of the vote on
the adoption of the merger agreement, (iii) hold shares of common stock of
Health Power on the date of making the written demand for appraisal, and (iv)
otherwise comply fully with Section 262 of the Delaware General Corporation
Law. If you wish to exercise your appraisal rights, you must mail or deliver
the written demand for appraisal to Health Power at c/o CompManagement, Inc.,
6377 Emerald Parkway, Dublin, Ohio 43016, Attention: Paul A. Miller, Esq.,
General Counsel.
Interests of Certain Persons in the Merger Transaction (page 31)
The executive officers and directors of Health Power have interests that are
different from, or in addition to, your interests as a stockholder of Health
Power.
Robert J. Bossart, Randy E. Jones, Richard T. Kurth, Paul A. Miller, Daniel
R. Sullivan, and Jonathan R. Wagner are executive officers of either
CompManagement or CompManagement Health Systems. These persons are collectively
referred to as the "CMI Executive Team." The members of the CMI Executive Team
have agreed to invest $2,000,000 in the acquiring corporation in exchange for a
20% equity interest in that corporation. In
6
<PAGE>
addition, each member of the CMI Executive Team will enter into a new five-year
employment agreement with CompManagement and/or CompManagement Health Systems
and will receive options to purchase additional shares of stock of a subsidiary
of Security Capital. Finally, the members of the CMI Executive Team have agreed
to terminate their change in control agreements with Health Power and to
release Health Power from all obligations under those agreements in
consideration of payments in the aggregate amount of $4,349,477 to be made at
or prior to the effective time of the merger. If these agreements had not been
terminated, Health Power's payment obligations under these agreements would
have been triggered upon the closing of the proposed acquisition and, with
respect to a member of the CMI Executive Team, upon such member's voluntarily
termination of employment with CompManagement within six months after the
closing. In such case, Health Power's potential payment obligations under these
agreements would have been $5,249,477 upon the closing of the merger.
Dr. Bernard F. Master, Health Power's Chairman, has agreed to terminate his
employment agreement with Health Power and to release Health Power from all
severance obligations under that agreement in consideration of a payment in the
amount of $393,250 to be made at or prior to the effective time of the merger.
If this agreement had not been terminated, Health Power's payment obligation
under this agreement would have been triggered upon the closing of the proposed
acquisition and Health Power's termination of his employment. In such case,
Health Power's payment obligation under this agreement would have been $693,250
upon the closing of the merger.
The executive officers and directors of Health Power have agreed to terminate
their options to purchase common stock of Health Power in consideration of
payments in the aggregate amount of $362,419 to be made at or prior to the
effective time of the merger.
Conditions to the Merger (page 44)
The merger will be completed only if a number of conditions are either met or
(where permitted) waived by the parties, including the following:
. Stockholders holding a majority of the outstanding common stock of
Health Power have voted in favor of adopting the merger agreement;
. All necessary governmental and third party consents have been obtained;
and
. No injunction, statute, or regulation prohibits the merger.
In addition, Security Capital and HP Acquisition have the right to withdraw
from the merger unless a number of conditions are met or (where permitted)
waived by them, including the following:
. Health Power's representations and warranties are true and correct in
all material respects as of the effective time of the merger;
. Health Power has performed all of its obligations under the merger
agreement;
. No material adverse change has occurred to Health Power or any of its
subsidiaries since the date of the merger agreement; and
. Stockholders owning no more than 10% of the outstanding common stock of
Health Power have asserted their appraisal rights under Delaware law.
In addition, Health Power has the right to withdraw from the merger unless a
number of conditions are met or waived by it, including the following:
. Security Capital's and HP Acquisition's representations and warranties
are true and correct in all material respects as of the effective time
of the merger;
7
<PAGE>
. Security Capital and HP Acquisition have performed all of their
obligations under the merger agreement; and
. No material adverse change has occurred to Security Capital or HP
Acquisition since the date of the merger agreement.
Regulatory Matters (page 34)
Health Power and Security Capital have obtained all necessary approvals from
governmental authorities in connection with the proposed merger.
Termination of the Merger Agreement (page 45)
Health Power and Security Capital may mutually agree in writing to terminate
the merger agreement at any time before or after stockholder approval. In
addition, either Health Power or Security Capital may terminate the merger
agreement if:
. Health Power stockholders vote against adoption of the merger agreement;
. A nonappealable order or injunction prevents the merger; or
. The merger is not completed by December 31, 2000, without any material
breach by the terminating party.
In addition, Health Power may terminate the merger agreement if:
. Health Power enters into an agreement regarding a third party
acquisition proposal which contains terms that are more favorable to
Health Power's stockholders then the merger agreement and pays a break-
up fee and Security Capital's expenses (see "Expenses and Break-Up
Fees"); or
. Either Security Capital or HP Acquisition materially breaches its
representations, warranties, or covenants in the merger agreement and
does not cure the breach within 15 days after written notice to do so.
In addition, Security Capital may terminate the merger agreement if:
. Health Power materially breaches its representations, warranties, or
covenants in the merger agreement and does not cure the breach within 15
days after written notice to do so;
. Health Power enters into an agreement regarding a third party
acquisition proposal;
. The Board of Directors of Health Power withdraws or modifies adversely
its recommendation that Health Power stockholders vote in favor of
adoption of the merger agreement;
. At any time following 30 days after Security Capital receives notice
from Health Power that Health Power has received an acquisition proposal
from another person, unless Health Power has provided a second notice to
Security Capital that the acquisition proposal was rejected or withdrawn
or that Health Power is no longer engaged in negotiations or discussions
with the person involved in the acquisition proposal; or
. A material adverse change occurs to Health Power or its subsidiaries
subsequent to the date of the merger agreement.
Expenses and Break-up Fees (page 46)
Except as described below, whether or not the merger is completed, all fees
and expenses incurred in connection with the merger, the merger agreement and
the transactions contemplated by the merger agreement will be paid by the party
incurring those fees or expenses.
8
<PAGE>
Health Power must pay Security Capital a $1,000,000 break-up fee and up to
$500,000 of Security Capital's out-of-pocket expenses if the merger agreement
is terminated:
. By either party because Health Power enters into an agreement regarding
a third party acquisition proposal;
. By Security Capital because the Board of Directors of Health Power
withdraws or modifies adversely its recommendation that Health Power
stockholders vote in favor of adoption of the merger agreement; or
. By Security Capital because Security Capital received notice from Health
Power that Health Power had received an acquisition proposal from
another person and Health Power had not provided a second notice to
Security Capital within 30 days after the first notice which indicated
that the acquisition proposal had been rejected or withdrawn or that
Health Power was no longer engaged in discussions with the person
involved in the acquisition proposal.
Health Power must pay up to $500,000 of Security Capital's out-of-pocket
expenses if the merger agreement is terminated because Health Power
stockholders vote against approval of the merger agreement. In addition, Health
Power must pay Security Capital a $1,000,000 break-up fee if Health Power
accepts a written offer from a third party to acquire Health Power within 12
months after the merger agreement is terminated for failure to obtain the
approval of the merger agreement from the Health Power stockholders.
At the time of execution of the merger agreement, Health Power and Security
Capital entered into an escrow agreement pursuant to which Security Capital
placed $100,000 in escrow pending closing of the merger transaction or
termination of the merger agreement. The escrowed funds will be distributed as
follows if the merger agreement is terminated:
. To Health Power, if Health Power terminates the merger agreement because
Security Capital or HP Acquisition materially breaches its
representations, warranties, or covenants in the merger agreement;
. To Health Power, if (i) either Health Power or Security Capital
terminates the merger agreement because the merger did not occur on or
before December 31, 2000, (ii) at the time of such termination, Security
Capital had no right to terminate the merger agreement other than
because its financing was not available, and (iii) Security Capital's
financing was not available based primarily on the failure of one or
more conditions other than the inability to syndicate the financing or
the occurrence of a material adverse change with respect to Health Power
and its subsidiaries; and
. To Security Capital, if the merger agreement is terminated for any other
reason.
Federal Income Tax Consequences (page 35)
The receipt of cash by a stockholder of Health Power pursuant to the merger
will be a taxable transaction for federal income tax purposes and may also be
taxable under applicable state, local and foreign income and other tax laws. A
stockholder will recognize a gain or loss in an amount equal to the difference
between the adjusted tax basis of his or her common stock of Health Power and
the amount of cash received in the merger. Such gain or loss will be a capital
gain or loss if the common stock of Health Power is a capital asset in the
hands of the stockholder and will be a long-term capital gain or loss if the
holding period exceeds one year. This tax treatment may not apply to every
stockholder. Determining your actual tax consequences may be complicated, and
will depend on your specific situation and variables not within our control.
You should consult your own tax advisor for a full understanding of the tax
consequences of the merger to you. See "Federal Income Tax Consequences."
9
<PAGE>
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
Health Power and its subsidiaries as of the dates and for the periods
indicated. The consolidated financial data as of and for each of the years in
the five-year period ended December 31, 1999, are derived from Health Power's
audited consolidated financial statements. The consolidated financial data as
of and for the nine-month periods ended September 30, 2000 and September 30,
1999, respectively, are derived from unaudited consolidated financial
statements of Health Power which, in the opinion of Health Power's management,
include all adjustments (consisting only of normal recurring adjustments except
as otherwise noted) necessary for a fair presentation thereof. The results of
operations for the nine months ended September 30, 2000, are not necessarily
indicative of the results to be expected for any other interim period or for
the full year. The data set forth below is qualified in its entirety by, and
should be read in conjunction with, the consolidated financial statements of
Health Power and the related notes thereto included in Health Power's Annual
Report on Form 10-K for the year ended December 31, 1999. See "Where You Can
Find More Information." All periods in this table reflect the operations of the
health maintenance organization subsidiary of Health Power as reclassified to
discontinued operations. In addition, all periods in this table have been
restated to reflect the acquisition of CompManagement in July 1995. This
acquisition was accounted for as a pooling of interests.
Since HP Acquisition is newly formed and has no operating history, no
information is presented for it and no pro forma information giving effect to
the transaction is presented.
<TABLE>
<CAPTION>
Nine Months
Ended September
Years Ended December 31, 30,
------------------------------------------- ---------------
1999 1998 1997 1996 1995 2000 1999
------- ------- ------- ------- ------- ------- -------
In thousands of dollars, except per share data
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue $38,262 $24,861 $22,183 $ 6,672 $ 5,571 $35,407 $25,989
Expenses 35,042 21,271 16,559 6,339 5,072 30,968 22,796
------- ------- ------- ------- ------- ------- -------
Income from operations 3,220 3,590 5,624 333 499 4,439 3,193
Interest (expense)
income and other, net (224) 444 532 247 450 66 (77)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before
income tax expense 2,996 4,034 6,156 580 949 4,505 3,116
Income tax expense
(benefit) (1,539) 1,570 2,324 185 (75) 1,775 1,090
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations 4,535 2,464 3,832 395 1,024 2,730 2,026
Discontinued operations
Loss from discontinued
operations (net of tax
benefits of $-0-,
$1,030, $3,965,
$1,958, and $61,
respectively) -- (4,902) (818) (9,878) (928) -- --
Gain (loss) on disposal
of discontinued
operations; including
$114 and $607 for
operating losses
during phase-out
period in 1998 and
1999 (net of tax
(expense) of ($535)
and $0, respectively);
and including tax
(expense) of ($149)
for nine months ended
September 30, 2000,
and tax expense of $0
for all other periods) (650) (1,614) -- -- -- 181 --
Extraordinary item
Gain from
extinguishment of debt
(net of tax expense of
$783) -- -- -- -- -- 1,456 --
------- ------- ------- ------- ------- ------- -------
Net (loss) income $ 3,885 $(4,052) $ 3,014 $(9,483) $ 96 $ 4,367 $ 2,026
======= ======= ======= ======= ======= ======= =======
Earnings per share
(basic and diluted):
Income from continuing
operations $ 1.18 $ 0.64 $ 1.00 $ 0.10 $ 0.27 $ 0.70 $ 0.53
Income (loss) from
discontinued
operations ( 0.17) (1.70) (.21) (2.59) (.24) 0.05 0.00
Income from
extraordinary item -- -- -- -- -- 0.38 0.00
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 1.01 $ (1.06) $ .79 $ (2.49) $ .03 $ 1.13 $ 0.53
======= ======= ======= ======= ======= ======= =======
Common stock and common
stock equivalents
outstanding
Weighted average shares
outstanding (basic) 3,846 3,829 3,818 3,810 3,810 3,866 3,843
Weighted average shares
outstanding (diluted) 3,846 3,834 3,833 3,810 3,819 3,866 3,843
Balance Sheet Data:
Total assets $31,578 $30,669 $22,349 $21,069 $25,723 $22,784 $31,578
Long-term obligations $ 2,086 $ 2,000 $ -- $ -- $ -- $ 1,576 $ 2,086
Stockholders' equity $ 7,036 $ 3,106 $ 7,565 $ 4,519 $14,002 $11,456 $ 7,036
</TABLE>
10
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement is being furnished to the holders of common stock of
Health Power in connection with the solicitation of proxies by the Board of
Directors of Health Power for use at a Special Meeting of Stockholders to be
held at the offices of Health Power's subsidiary, CompManagement, Inc.,
located at 6377 Emerald Parkway, Dublin, Ohio 43016, on December 8, 2000, at
9:00 a.m., local time, and at any adjournments thereof. The approximate date
on which this Proxy Statement and the accompanying proxy card will be first
sent to stockholders is November 17, 2000.
Matters to be Voted Upon at the Special Meeting
At the Special Meeting, stockholders of Health Power will be asked to
consider and vote upon a proposal to adopt the merger agreement. The Board of
Directors is not aware of any other matters that may come before the Special
Meeting. If any other matters properly come before the Special Meeting, the
persons named in the accompanying proxy card intend to vote the proxy in
accordance with their judgment on such matters.
The Special Committee and the Board of Directors of Health Power have
determined that the merger is fair to and in the best interests of Health
Power and its stockholders, including unaffiliated stockholders, and have
unanimously approved the merger agreement. AS A RESULT, THE SPECIAL COMMITTEE
AND THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT STOCKHOLDERS VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT. For additional information, see "Background
of the Merger" and "Purpose and Reasons of Health Power for the Merger;
Recommendation of the Special Committee and Board of Directors."
PLEASE COMPLETE, DATE, SIGN, AND RETURN YOUR PROXY CARD TO HEALTH POWER IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
Record Date and Voting
The close of business on November 9, 2000, has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Special Meeting and any adjournment of the Special Meeting. On the record
date, 3,888,460 shares of common stock, held by 76 record owners, were
outstanding and entitled to vote. Each share of common stock of Health Power
is entitled to one vote, exercisable in person or by properly executed proxy.
Only stockholders of record at the close of business on the record date are
entitled to notice of the Special Meeting and to vote at the Special Meeting.
If your shares are held in "street name," meaning that your shares are held
not in your name but in the name of a broker (or other nominee), you will
receive instructions from your broker explaining what you must do in order for
your broker to be able to vote your shares. Please follow these instructions
carefully to ensure that your shares will be voted at the Special Meeting. If
you do not provide instructions, your broker will not be able to vote your
shares (your broker's inability to vote is referred to as a "broker non-
vote").
The presence in person or by proxy of the holders of shares representing a
majority of the outstanding shares of common stock of Health Power is
necessary for a quorum to be present at the Special Meeting. Abstentions and
broker non-votes will be counted as shares present for the purpose of
determining the presence of a quorum at the Special Meeting.
The affirmative vote of the holders of a majority of the shares of common
stock that are outstanding as of the close of business on November 9, 2000
(the record date) is required to adopt the merger agreement. Each of the
Supporting Stockholders has entered into a voting agreement with Security
Capital which, subject to certain qualifications, requires him to vote his
shares of common stock of Health Power in favor of the adoption of the merger
agreement. These persons together own approximately 47.5% of the outstanding
shares of common stock of Health Power. As a result, the merger agreement will
be adopted by stockholders if the holders of more
11
<PAGE>
than 2.5% of the outstanding shares of common stock not subject to voting
agreements vote in favor of the adoption of the merger agreement. BECAUSE A
FIXED NUMBER OF AFFIRMATIVE VOTES IS REQUIRED TO ADOPT THE MERGER AGREEMENT
(EQUAL TO A MAJORITY OF SHARES OF COMMON STOCK OUTSTANDING ON THE RECORD
DATE), THE FAILURE TO RETURN A PROXY CARD OR TO VOTE IN PERSON AT THE SPECIAL
MEETING, AS WELL AS ABSTENTIONS AND BROKER NON-VOTES, WILL HAVE THE SAME
EFFECT AS VOTES CAST AGAINST THE ADOPTION OF THE MERGER AGREEMENT.
Proxies and Revocation of Proxies
Because many stockholders will not be able to attend the Special Meeting,
the Board of Directors of Health Power is soliciting proxies to give each
stockholder an opportunity to vote on the proposal to adopt the merger
agreement. The Board of Directors urges you to:
. Read carefully the material in this Proxy Statement;
. Vote on the proposal to adopt the merger agreement by marking the
appropriate box on the accompanying proxy card or completing the
instructions sent to you by your broker or other nominee; and
. Sign, date and return the proxy card in the enclosed postage-paid
envelope.
The proxy card has separate boxes allowing you to vote for or against
adoption of the merger agreement, as well as abstaining from such vote. The
proxy card should be completed. All properly executed proxy cards received and
not properly and timely revoked will be voted in accordance with the
instructions contained in them. If you do not specify a choice and the proxy
card is properly executed and returned, the proxy holders will vote your
shares "FOR" the proposal to adopt the merger agreement.
You may revoke your proxy at any time before the shares represented by the
proxy are voted at the Special Meeting. You may do so in one of three ways:
. By completing and delivering a new, subsequently dated proxy card to
Health Power;
. By sending Health Power a written notice stating that you would like to
revoke your proxy (all such notices should be sent to Health Power,
Inc., c/o CompManagement, Inc., 6377 Emerald Parkway, Dublin, Ohio
43016, Attention: Paul A. Miller, Esq., General Counsel); or
. By attending the Special Meeting and asking to vote in person (your
presence at the Special Meeting will not by itself revoke your proxy).
If a quorum is not present at the Special Meeting, or if it appears that the
merger agreement will not be adopted by stockholders at the Special Meeting,
then a majority of the shares of common stock present in person or by proxy at
the Special Meeting may adjourn the Special Meeting in order to give the Board
of Directors time to solicit additional proxies or votes for the adoption of
the merger agreement. In such case, the proxy holders intend to vote in favor
of adjourning the Special Meeting. At any reconvening of the Special Meeting,
all proxies, except those that have been revoked or withdrawn, will be voted
in the same manner in which they would have been voted at the original
convening of the Special Meeting. However, unless otherwise agreed to by
Health Power, Security Capital, and HP Acquisition, the Special Meeting may
not be adjourned beyond December 31, 2000.
Additional Solicitation of Proxies
Health Power will bear all costs of soliciting proxies. In addition to the
use of the mails, proxies may be solicited by officers, directors, and regular
employees, personally or by telephone. Health Power will reimburse banks,
brokers, and other nominees for any out-of-pocket expenses incurred by them in
sending proxy materials
12
<PAGE>
to the beneficial owners of Health Power's common stock. If follow-up requests
for proxies are necessary, Health Power may employ other persons to make these
requests.
Appraisal Rights
Stockholders who do not vote in favor of adoption of the merger agreement
and who otherwise comply with the requirements of the Delaware General
Corporation Law concerning appraisal rights will be entitled to appraisal
rights. Stockholders who vote in favor of adoption of the merger agreement
will have waived their appraisal rights. For more information, see "Appraisal
Rights Under Delaware Law."
Stock Certificates
Please do not include your stock certificates with your proxy card. If the
merger agreement is adopted by stockholders and the merger is consummated, you
will receive instructions explaining how to surrender your stock certificates.
13
<PAGE>
BACKGROUND OF THE MERGER
Since Health Power's acquisition of CompManagement in July 1995, Health
Power's operations have focused on providing (i) third party administrative
services for workers' compensation and unemployment compensation claims, or
TPA services, through CompManagement, (ii) medical management services for
workers' compensation claims, or MCO services, through CompManagement Health
Systems, and (iii) managed care medical services through its health
maintenance organization subsidiary (the "HMO"). Although CompManagement and
CompManagement Health Systems have consistently experienced profitable
operations and revenue growth, the HMO's operating losses caused Health
Power's stock price to decline to and remain at historically low levels. After
attempts to divest the HMO's operations were unsuccessful, the Board of
Directors authorized the discontinuation of the HMO's operations in December
1998. In attempting to maximize stockholder value, the Board of Directors
believed that focusing Health Power's operations on CompManagement and
CompManagement Health Systems would assist investors in evaluating the ongoing
financial performance of Health Power which, in turn, would improve Health
Power's stock price. However, Health Power's stock price did not improve
during the first half of 1999, and the Board of Directors continued to seek
ways to enhance and maximize stockholder value.
On July 1, 1999, Health Power retained RJA (then known as Roney & Co.) to
act as Health Power's exclusive investment banking advisor to assist Health
Power in evaluating strategic alternatives to enhance stockholder value.
Health Power selected RJA on the basis of RJA's knowledge of the company, its
familiarity with the health care industry, and its qualifications and
reputation. RJA's predecessor had acted as lead underwriter in Health Power's
1994 initial public offering. RJA evaluated alternatives for Health Power in
light of Health Power's strategic goals of expanding its product offerings in
Ohio and expanding its business outside of Ohio, as well as its overall goal
of maximizing stockholder value. Alternatives reviewed by RJA included Health
Power (i) remaining as a stand-alone entity and raising funds for expansion
through a debt or equity offering, (ii) remaining as a stand-alone entity and
using only internally generated funds for expansion, and (iii) engaging in a
business combination transaction with a strategic buyer or a financial
investor. After an analysis of Health Power's financial condition and
strategic goals, RJA recommended that, as the most viable method to achieve
maximization of stockholder value, Health Power seek a strategic buyer or
financial investor in a business combination transaction through a competitive
bidding process. The Board of Directors of Health Power determined to act on
RJA's recommendation.
RJA presented a list of potential financial and strategic business
combination parties to Health Power, and during July and August 1999, RJA sent
solicitation of interest letters to approximately 115 financial investors and
28 strategic buyers. Thirty-five recipients responded to RJA's letter and
indicated an interest in obtaining additional information. Of these
respondents, 28 were financial investors and seven were strategic buyers.
Health Power entered into confidentiality agreements with these 35 respondents
and sent each of them a confidential offering memorandum.
RJA requested the 35 respondents to submit indications of interest to RJA,
and during September 1999, RJA received indications of interest from four
parties, including Capital Partners, Inc., an affiliate of Security Capital
("Capital Partners"). Three of these parties included with their indications
of interest a range of potential prices for an acquisition of Health Power.
The price range proposed by one party was $40.0-$55.0 million, and the price
range proposed by another party was $43.0-$57.4 million. The price range
submitted by Capital Partners was $21.0 to $30.0 million, which the Board of
Directors considered too low to pursue. The fourth party did not indicate a
price range and, after additional inquiry by RJA, did not pursue further
communication with RJA. In September 1999, management presentations were made
to the two remaining parties. However, in late September 1999, both of these
parties informed RJA that they were not interested in acquiring Health Power,
citing concerns with the company's concentration of business in Ohio and the
HMO's discontinued operations.
In October 1999, RJA sent solicitation of interest letters to another 48
entities participating primarily in management buy-out activities. One party
entered into a confidentiality agreement with Health Power, but ultimately
none of these entities responded with an indication of interest.
14
<PAGE>
In November 1999, the Board of Directors determined that continuing
discussions with a strategic buyer or financial investor remained Health
Power's most viable alternative, and in accordance with that determination,
RJA renewed discussions with Capital Partners. These discussions resulted in a
preliminary proposal from Capital Partners which reflected a gross purchase
price of $35.0 million with reductions for acquisition debt, severance
obligations, and transaction costs. A management presentation was made to
Capital Partners on November 18, 1999. Negotiations continued between RJA and
Capital Partners, and in late November 1999, Capital Partners submitted a term
sheet to RJA with a $1.25 million increase in the gross purchase price. The
term sheet also indicated that the proposed buyer would be Security Capital or
a Security Capital subsidiary. The terms of Security Capital's acquisition
proposal required an equity participation by, and the continued employment of,
the CMI Executive Team, but not of Dr. Master. At that time, Health Power
declined to negotiate further with Security Capital until more definitive
discussions had occurred between Security Capital and the CMI Executive Team,
and Health Power indicated it would renew discussions once that had occurred.
During December 1999 and early January 2000, the CMI Executive Team and
Security Capital negotiated the basic terms of the CMI Executive Team's
participation in the effort to acquire Health Power. In mid-January 2000, the
CMI Executive Team informed Health Power that acceptable arrangements had been
reached with Security Capital and outlined a proposed transaction for the
acquisition of Health Power. The proposal outlined by the CMI Executive Team,
which was consistent with Capital Partners' earlier term sheet, provided for
the acquisition of Health Power by a corporation owned 20% by the CMI
Executive Team and 80% by Security Capital. The proposal provided for a $2.0
million equity investment in the acquiring corporation by the CMI Executive
Team and the continuation of their current employment arrangements. Dr.
Master's employment would be terminated in connection with the acquisition.
The proposed gross purchase price was $36.25 million, with reductions for (i)
Health Power's existing debt incurred in connection with previous
acquisitions, (ii) Health Power's payment obligation for severance to Dr.
Master under his May 1999 employment agreement, (iii) Health Power's aggregate
payment obligations for benefits to the CMI Executive Team under their August
1999 change in control agreements, and (iv) Health Power's transaction costs.
Health Power's payment obligation under Dr. Master's employment would be
triggered upon the closing of the proposed acquisition and Health Power's
termination of his employment. Health Power's payment obligation under each
change in control agreement would be triggered upon the closing of the
proposed acquisition if the party to such agreement voluntarily terminated his
employment with CompManagement within six months after the closing. The
aggregate amount of these payment obligations to Dr. Master and the CMI
Executive Team would be approximately $5.78 million as of the closing. The
proposal provided for the termination of Dr. Master's employment agreement and
the CMI Executive Team's change in control agreements and the payment of the
obligations under these terminated agreements (the "contract termination
payments") at the closing.
In mid-January 2000, Dr. Master, as Chairman and Chief Executive Officer of
Health Power, engaged in discussions on behalf of Health Power with members of
the CMI Executive Team regarding the CMI Executive Team proposal, with the
objective of improving the proposal for Health Power stockholders. These
discussions centered around a reduction in the aggregate amount of the
contract termination payments to Dr. Master and Messrs. Bossart, Kurth, and
Wagner, as the remaining members of the CMI Executive Team would need to use a
significant portion of their contract termination payments to fund their
contemplated equity investment in the acquiring corporation. As a result of
these discussions, Dr. Master and Messrs. Bossart, Kurth, and Wagner each
agreed to reduce their respective contract termination payments by $250,000,
for an aggregate reduction from the initial proposal, and a corresponding
aggregate increase in the purchase price payable to Health Power stockholders,
of $1.0 million.
On January 18, 2000, a meeting was held among Dr. Elliott Feldman, Robert S.
Garek, Dr. Crystal A. Kuykendall, Frank R. Nutis, and Dr. Burt E. Schear, who
constituted all of the independent directors of Health Power. RJA and Baker &
Hostetler LLP, Health Power's legal counsel, participated in this meeting.
This meeting was held for the purpose of presenting the acquisition proposal
to Health Power's independent directors. Health Power's legal counsel
discussed the role of the independent directors and their fiduciary duties to
stockholders in transactions of this nature. The independent directors were
advised to (i) form a special independent committee
15
<PAGE>
of directors for the purpose of evaluating the acquisition proposal, as well
as evaluating and pursuing alternative strategies in order to maximize value
for Health Power's public stockholders, and (ii) retain independent legal
counsel to advise and assist the committee in carrying out its fiduciary
duties. These independent directors, who were subsequently organized formally
as a special independent committee of the Board of Directors, are hereafter
referred to as the "Special Committee." Dr. Feldman was appointed as chairman
of the Special Committee.
At the January 18 meeting, representatives of RJA orally reported to the
Special Committee regarding the alternatives explored to date and the
competitive bidding process conducted by RJA on behalf of Health Power. RJA
reported to the Special Committee that, in its view, Health Power and RJA had
performed an exhaustive search for prospective investors and buyers and had
contacted all of the financial investors and strategic buyers who could
reasonably be expected to have an interest in a business combination
transaction with Health Power. RJA outlined for the Special Committee the
proposed transaction with Security Capital, including the $36.25 million gross
purchase price and reductions to that amount for Health Power's acquisition
debt, contract termination payments, and transaction costs. These purchase
price reductions were based on Security Capital's stated conditions of not
assuming any acquisition debt and certain other obligations of Health Power.
The Special Committee discussed extensively the amount of the contract
termination payments, including the reductions theretofore agreed upon by Dr.
Master and Messrs. Bossart, Kurth, and Wagner, and whether the amount was
reasonable under the facts and circumstances of the proposed transaction.
On January 19, 2000, in response to rumors and higher than average trading
volume in Health Power stock, Health Power publicly announced that it was
engaged in preliminary acquisition discussions.
Between January 24 and February 16, 2000, the Special Committee interviewed
law firms for consideration as its legal counsel, and determined to engage
Bricker & Eckler LLP. On February 29, 2000, the Board of Directors ratified
the Special Committee's engagement of counsel. The Special Committee
immediately began discussions with its counsel to evaluate the proposed
transaction and possible alternatives.
On March 3, 2000, Health Power received a draft merger agreement from
Security Capital.
On March 9, 2000, the Special Committee and its legal counsel met and
discussed various matters related to the proposed transaction, including the
terms of Security Capital's draft merger agreement, the possibility of
retaining its own financial advisor to render an opinion to the Special
Committee regarding the fairness of the proposed transaction, and other
alternatives to enhance and maximize stockholder value.
On March 10 and March 15, 2000, members of the Special Committee and its
counsel met with members of the CMI Executive Team to discuss possible
alternatives to the proposal from Security Capital, including a management
buyout of Health Power or Health Power remaining as a stand-alone entity.
After evaluating these alternatives, the Special Committee concluded that
neither of these alternatives would likely result in stockholders receiving
greater value than they would by pursuing the proposal from Security Capital.
On March 16, 2000, the Special Committee and its counsel met with
representatives of RJA to discuss various issues concerning the terms of the
proposal by Security Capital, including the proposed amount of the contract
termination payments, transaction expenses, the financing contingency
requested by Security Capital, and breakup fees.
During the remainder of March 2000, counsel for Health Power and the Special
Committee engaged in discussions with counsel for Security Capital regarding
the terms and conditions of Security Capital's draft merger agreement. On
March 31, 2000, Health Power, based upon input from its counsel and counsel
for the Special Committee, delivered comments to Security Capital's draft
merger agreement.
During early April 2000, Health Power and the Special Committee, through
their respective legal counsel, continued negotiations with Security Capital
regarding the merger agreement. However, in mid-April 2000, Security Capital
informed Health Power that it was ceasing further due diligence until the
Special Committee
16
<PAGE>
and the Board of Directors approved the merger agreement on the terms proposed
by Security Capital. The Special Committee responded by focusing its attention
on certain critical issues presented by Security Capital's proposed terms,
including the "no solicitation" covenant, the proposed escrow arrangements,
and the existence of a financing and certain other transaction contingencies.
Discussions on these critical issues resulted in the implementation of a
$100,000 escrow arrangement payable to Health Power under specified
circumstances and the deletion of certain transaction contingencies. The
Special Committee also held discussions during this time with members of the
CMI Executive Team regarding the amount of their proposed contract termination
payments. As a result of these discussions, Dr. Master and Messrs. Bossart,
Kurth, and Wagner each agreed to reduce their respective contract termination
payments by an additional $50,000, resulting in a total reduction per
individual equal to $300,000, and a corresponding aggregate increase in the
purchase price payable to stockholders of $1.2 million.
On April 28, 2000, the Special Committee met to review the principal terms
of Security Capital's proposal, as impacted by the discussions between the
parties during the latter part of April. Legal counsel to the Special
Committee also reviewed, in depth, the applicable law and duties of the
Special Committee under the circumstances. After consultation with its
counsel, the Special Committee confirmed its willingness to proceed with a
transaction under the principal terms proposed by Security Capital, which
included the $1.2 million reduction in contract termination payments, and
instructed its legal counsel to proceed with final negotiations. Health Power,
with input from its counsel and counsel to the Special Committee, and Security
Capital then negotiated the final terms of a definitive merger agreement to be
presented to the Special Committee and the Board of Directors for approval.
However, as of that time Security Capital had not recommenced its due
diligence review of Health Power.
On May 9, 2000, the Special Committee and the Board of Directors of Health
Power, along with RJA, Health Power's counsel, and the Special Committee's
counsel, held concurrent meetings in order to evaluate the transaction, its
structure, and its fairness. RJA rendered to the Special Committee and the
Board of Directors an oral opinion to the effect that, as of May 9, 2000, and
based upon and subject to certain matters stated in a draft fairness opinion
letter reviewed by the directors, the cash merger consideration to be received
by Health Power stockholders pursuant to the merger agreement was fair to
stockholders from a financial point of view. On May 9, 2000, the estimated
cash merger consideration to stockholders was $26.84 million, or $6.88 per
share (assuming 3,900,000 shares outstanding on the merger date). This amount
was based upon a gross purchase price of $36.25 million, with reductions for
(i) Health Power's existing debt incurred in connection with previous
acquisitions, (ii) Health Power's contract termination payment to Dr. Master,
(iii) Health Power's contact termination payments to the CMI Executive Team,
(iv) Health Power's payment to terminate outstanding stock options, and (v)
Health Power's estimated transaction costs. RJA and counsel for the Special
Committee and Health Power then reviewed with the Special Committee and the
Board of Directors the proposed merger agreement and transaction documents.
Counsel for Health Power also communicated to the Special Committee and the
Board of Directors a request from Security Capital to include in the
definitive merger agreement a due diligence contingency of a limited duration.
At that point, the Board of Directors temporarily adjourned its meeting, and
the Special Committee continued with its separate meeting to review and
evaluate the transaction. During this meeting, the Special Committee reviewed
the interests of, and payments to be received by, the CMI Executive Team and
Dr. Master in connection with the transaction. After taking into consideration
these interests and payments, the Special Committee determined that the merger
agreement and the merger were fair to and in the best interest of Health Power
stockholders, including unaffiliated stockholders, and voted in favor of
recommending the approval of the merger agreement and the transactions
contemplated by the merger agreement to the Board of Directors.
The Board of Directors meeting was then reconvened, and the Special
Committee made its recommendation to the Board of Directors. At that point,
the Board of Directors considered Security Capital's request for a limited due
diligence contingency period. The Board of Directors decided to vote on the
approval of the merger agreement without a due diligence contingency and, if
approved, to then permit Security Capital a limited period of time to complete
its due diligence review, after which the merger agreement would be executed
by the parties.
17
<PAGE>
This procedure was determined to be preferable to executing a merger agreement
with a due diligence contingency, which the Board did not believe was in the
best interests of stockholders. After consideration of the terms of the
transaction and the RJA fairness opinion, the Special Committee and the Board
of Directors determined that the consideration to be paid for each share of
common stock of Health Power was fair to and in the best interest of Health
Power and its stockholders, including unaffiliated stockholders. The Special
Committee and the Board of Directors then approved the merger agreement and
the transactions contemplated by the merger agreement and resolved to
recommend that Health Power stockholders vote in favor of adoption of the
merger agreement.
The Special Committee and the Board of Directors then advised Security
Capital of the approval of the merger agreement. Thereafter, Security Capital
completed its due diligence, and on June 8, 2000, Health Power entered into
the merger agreement with Security Capital and its subsidiary, HP Acquisition
as approved by the Special Committee and the Board of Directors. Health Power
publicly announced the execution of the merger agreement prior to the
beginning of business on June 9, 2000.
Security Capital's obligations under the merger agreement were subject to a
financing contingency which provided that Security Capital would have until
July 31, 2000, to obtain financing commitments of not less than $34,500,000 to
fund the consummation of the merger. The merger agreement also gave Security
Capital the option to extend this financing commitment due date until August
14, 2000. On July 26, 2000, Security Capital exercised its option, and the
financing commitment due date was extended until August 14, 2000.
On August 10, 2000, Security Capital requested a further extension of the
financing commitment due date. On August 14, 2000, the Special Committee and
the Board of Directors of Health Power, along with counsel for Health Power
and the Special Committee, held concurrent meetings in order to evaluate the
requested extension. After reviewing the request, the Special Committee and
the Board of Directors voted in favor of granting an extension of the
financing commitment due date until August 18, 2000, and an amendment to the
merger agreement was signed that day reflecting the extension.
On August 18, 2000, Security Capital requested a further extension of the
financing commitment due date until September 15, 2000. In consideration of
the requested extension, Security Capital proposed that Health Power be
permitted to reduce its indebtedness above the amount set forth in the merger
agreement, which in turn would increase the aggregate cash merger
consideration to Health Power's stockholders under the purchase price
calculation. On August 22, 2000, the Special Committee and the Board of
Directors of Health Power, along with counsel for Health Power and the Special
Committee, held concurrent meetings in order to evaluate the requested
extension. During the course of such meetings, the Special Committee and the
Board of Directors reviewed the proposed terms of Security Capital's financing
arrangements with Bank One and Banc One Mezzanine. After reviewing the
request, the Special Committee and the Board of Directors voted in favor of
granting an extension of the financing commitment due date until September 15,
2000, provided that Security Capital agree to permit Health Power to reduce
its indebtedness by an additional $200,000 and by an additional $6,667 per day
for each day that the closing of the merger occurs after October 31, 2000.
Security Capital agreed to such terms, and an amendment to the merger
agreement was signed on August 23, 2000, reflecting the extension and
additional terms.
On September 14, 2000, Security Capital submitted to Health Power financing
letters from Bank One and Banc One Mezzanine for credit facilities in the
amount of $25,000,000 and $6,000,000, respectively, which, together with the
commitments from Security Capital and the CMI Executive Team to each invest
$2,000,000 in the acquiring corporation, provided for a total of $35,000,000
of financing to complete the merger. On September 14, 2000, Dr. Elliott P.
Feldman, as chairman of the Special Committee, and Dr. Bernard F. Master, as
chairman of Health Power, reviewed the Bank One and Banc One Mezzanine
financing commitment letters with RJA. RJA informed Drs. Feldman and Master
that, in its view, the financing commitment letters contained commercially
reasonable terms and conditions for a transaction of this nature. On behalf of
Health Power, Drs. Feldman and Master found the financing commitment letters
to be acceptable within the terms of the merger agreement, and Health Power
accepted the commitment letters on September 15, 2000.
18
<PAGE>
On September 18, 2000, the Special Committee and the Board of Directors of
Health Power, along with RJA, Health Power's counsel, and the Special
Committee's counsel, held concurrent meetings in order to review the re-
calculated cash merger consideration per share. As previously discussed, on
May 9, 2000, the estimated cash merger consideration was $6.88 per share. The
cash merger consideration per share was re-calculated because of the
modification of the debt reduction component and other changes to the
components of the purchase price calculation occurring after May 9, 2000, such
as an increase in the number of shares of Health Power common stock
outstanding. At this meeting, RJA confirmed to the Special Committee and Board
of Directors of Health Power that, at the $36,250,000 total merger
consideration and the resultant per share consideration ($7.03 per share
assuming the merger closes on December 8, 2000), its May 9, 2000 oral opinion,
which stated that the cash merger consideration to be received by Health Power
stockholders pursuant to the merger agreement was fair to stockholders from a
financial point of view, remained in effect.
19
<PAGE>
PURPOSE AND REASONS OF HEALTH POWER FOR THE MERGER;
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS
Purpose and Reasons for the Merger
The purpose of the merger is to facilitate the sale of Health Power to
Security Capital and the CMI Executive Team. The merger is being undertaken at
this time in order to complete the competitive bidding process for the sale of
Health Power which began in July 1999. The competitive bidding process was
initiated by the Board of Directors as a result of its determination that a
sale to a strategic buyer or financial investor represented the most viable
alternative to maximize stockholder value, and the Special Committee and the
Board of Directors believe that the merger presents the best opportunity to
maximize stockholder value. The transaction has been structured as a merger in
order to allow all stockholders of Health Power, including unaffiliated
stockholders, sufficient time to consider the merger. In addition, the merger
structure will allow Health Power to preserve its corporate identity and
existing contractual arrangements with third parties.
The primary benefit of the merger to unaffiliated stockholders is that they
will be able to realize the value of their investment in Health Power in cash
at a price which represents a substantial premium to the market price for the
common stock prior to the public announcement of the transaction. The primary
detriment of the merger to unaffiliated stockholders is that they will cease
to have any ownership interest in Health Power and will cease to participate
in future earnings growth, if any, of Health Power or to benefit from the
increase, if any, in the value of Health Power. In addition, each unaffiliated
stockholder of Health Power will recognize a taxable gain upon the completion
of the merger if and to the extent the amount of cash such unaffiliated
stockholder receives in the merger exceeds his or her tax basis in his or her
common stock of Health Power.
The primary benefits of the merger transaction to Health Power is that its
business operations will continue in the same manner as currently conducted,
without interruption, and its current executive management team, other than
Dr. Master, will continue as officers and employees of Health Power in their
present capacities. The primary detriment of the merger is the increased
leverage to the capital structure of Health Power. As the surviving
corporation, Health Power will be obligated to pay the Bank One credit
facility and to guaranty the Banc One Mezzanine credit facility, which credit
facilities will initially equal $31,000,000, and all of its business assets
will be encumbered as security for the payment of such credit facilities.
Recommendation of the Special Committee and Board of Directors
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF HEALTH POWER BELIEVE THE
TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF HEALTH POWER AND
ITS STOCKHOLDERS, INCLUDING UNAFFILIATED STOCKHOLDERS, HAVE UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, AND UNANIMOUSLY RECOMMEND THAT STOCKHOLDERS
VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
In reaching their decisions to approve the merger and the merger agreement,
the Special Committee and the Board of Directors consulted with their
financial and legal advisors and considered a variety of factors, including
the following:
. A review of the possible alternatives to a sale of Health Power,
including the prospects of continuing to operate Health Power as an
independent company, the value to stockholders of such alternatives, and
the timing and likelihood of achieving additional value from these
alternatives, and the possibility that Health Power's future performance
might not lead to a stock price having a higher present value than the
merger consideration.
. A review of Health Power's strategic goals of expanding its product
offerings in Ohio and expanding its business outside of Ohio, the
capital necessary to implement these expansion goals, the timing and
likelihood of obtaining the capital necessary to implement these goals,
and the possibility that such expansion might not lead to a stock price
having a higher present value than the merger consideration.
20
<PAGE>
. The extensive and thorough competitive bidding process conducted by RJA
and the indications of interest and bids of third parties, other than
Security Capital, received by Health Power in connection with such
process.
. The opinion of RJA, Health Power's financial advisor, that the cash
merger consideration to be received by Health Power stockholders was
fair to stockholders from a financial point of view, and the financial
analyses conducted by RJA in reaching its opinion, as described under
"Opinion of Health Power's Financial Advisor." The Special Committee and
the Board of Directors took notice that the cash merger consideration
per share fell below the low end of the implied per share equity
reference range for certain of the analysis performed by RJA, but they
understood that the financial analyses conducted by RJA was to be
considered as a whole and that certain other factors were taken into
consideration by RJA in reaching its opinion.
. The determination of the Special Committee of the Board of Directors,
consisting of independent directors not employed by Health Power who
were advised by separate legal counsel, that the merger consideration to
be paid for each share of common stock of Health Power is fair to the
stockholders, including unaffiliated stockholders, and that it would be
in the best interests of Health Power and its stockholders to enter into
the merger agreement and related agreements.
. The amount of consideration offered to Health Power stockholders, which,
based upon the cash merger consideration of $7.03 per share, represents
a premium of 129.7%, 95.3%, 120.4%, 142.4%, and 194.5% over the average
Health Power closing prices for the 10-day period, the 30-day period,
the 60-day period, the 90-day period and the 180-day period,
respectively, preceding May 3, 2000.
The Special Committee and the Board of Directors of Health Power also
considered certain countervailing factors in their deliberations concerning
the merger and the merger agreement, including:
. The potential disruption to Health Power's business that might result
from undertaking the merger process.
. The uncertainty regarding stockholders', customers' and employees'
perception of the merger.
. The possibility that Security Capital could not satisfy the financing
contingency in the merger agreement.
. The contractual obligations of Health Power, such as a no solicitation
covenant, and the transaction expenses to be incurred by Health Power
prior to the satisfaction of the financing contingency.
. The payments required to terminate Health Power's contract obligations
to certain officers and directors. See "Interests of Certain Persons in
the Merger."
. The possibility that the merger may not be consummated.
. The required payment by Health Power in certain circumstances of a
termination fee and expenses under the merger agreement. See "Provisions
of the Merger Agreement--Termination, Fees, Amendment and Waiver."
The Special Committee and the Board of Directors of Health Power determined
that the countervailing factors did not outweigh the positive attributes of
the merger.
The foregoing discussion of the information and factors discussed by the
Special Committee and the Board of Directors is not meant to be exhaustive but
includes all material factors considered by the Special Committee and the
Board of Directors. The Special Committee and the Board of Directors did not
quantify or attach any particular weight to the various factors that they
considered in reaching their determination that the merger agreement and the
merger are fair to and in the best interests of Health Power stockholders,
including their belief that the merger is fair to unaffiliated stockholders.
Rather, the Special Committee and the Board of Directors viewed their position
and recommendation as being based on the totality of the information presented
to and
21
<PAGE>
considered by them. As a result of their consideration of the foregoing and
other relevant considerations, the Special Committee and the Board of
Directors determined that the merger agreement and the merger are advisable to
and in the best interests of Health Power stockholders and approved the merger
agreement.
The May 9, 2000 vote by the Special Committee on the approval of the merger
agreement and its recommendation to Health Power stockholders was four in
favor and none opposed, with one abstention, and the vote on that date by the
Board of Directors on the approval of the merger agreement was seven in favor
and none opposed, with one abstention. In each case, the same director
abstained from voting. The August 14, 2000 vote by the Special Committee and
the Board of Directors was unanimous in favor of the grant of an extension to
the financing commitment due date, and the August 22, 2000 vote by the Special
Committee and the Board of Directors was unanimous in favor of the grant of an
extension to the financing commitment due date. One independent director was
absent from the August 22, 2000 meeting.
The director abstaining in the May 9, 2000 vote indicated his reasons for
abstaining were based upon the existence of Security Capital's financing
contingency and the lack of assurance that Security Capital could satisfy this
contingency. At the September 18, 2000 concurrent meetings of the Special
Committee and Board of Directors, and based upon the financing commitment
letters received by Security Capital from Bank One and Banc One Mezzanine,
this director changed his vote of abstention to a vote for the approval of the
merger agreement and in favor of recommending that Health Power stockholders
vote for the adoption of the merger agreement.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
EFFECTS OF THE MERGER; MERGER CONSIDERATION
The merger agreement provides for the merger of HP Acquisition into Health
Power, with Health Power surviving the merger as a subsidiary of Security
Capital. Each share of common stock of Health Power issued and outstanding at
the effective time of the merger, except shares held by stockholders who
properly exercise their appraisal rights under Delaware law and shares held by
HP Acquisition (which will be cancelled), will be converted into the right to
receive $7.03 in cash, without interest, assuming the merger closes on
December 8, 2000. This amount was derived by dividing the following number by
3,888,460 (the total number of shares of common stock of Health Power
outstanding on the date of this Proxy Statement): the total consideration of
$36,250,000 minus the sum of (i) $2,597,663 (Health Power's indebtedness
assuming a December 8, 2000 closing); (ii) $462,840 (the aggregate amount to
be paid to terminate Health Power's outstanding stock options); (iii)
$4,742,727 (the aggregate amount of the contract termination payments to be
made to Dr. Master and the CMI Executive Team), and (iv) $1,125,000 (Health
Power's estimated transaction expenses). Health Power will be permitted to
reduce its indebtedness by $6,667 per day for each day that the closing of the
merger occurs after December 8, 2000, which in turn will increase the total
cash merger consideration payable to Health Power stockholders. Therefore, the
merger consideration payable to Health Power stockholders will increase by
approximately $0.002 per share per day for each day that the closing of the
merger occurs after December 8, 2000.
Each share of common stock of HP Acquisition issued and outstanding at the
effective time of the merger will be converted into and exchanged for one
share of stock of Health Power.
The merger will be effective upon the filing of a Certificate of Merger with
the Delaware Secretary of State. The filing of the Certificate of Merger is
expected to occur promptly after all of the conditions to the merger set forth
in the merger agreement have been satisfied or waived. See "Provisions of the
Merger Agreement--Conditions to the Merger." The merger will have the effect
set forth under Delaware law. More specifically, at the effective time of the
merger, all of the property, rights, privileges, powers and franchises of
Health Power and HP Acquisition will be vested in the surviving corporation,
and all of the debts, liabilities and duties of Health Power and HP
Acquisition will become the debts, liabilities and duties of the surviving
corporation.
22
<PAGE>
The directors of HP Acquisition immediately prior to the effective time of
the merger will be the directors of the surviving corporation and will serve
until their respective successors are duly elected. The officers of HP
Acquisition immediately prior to the effective time of the merger will be the
officers of the surviving corporation and will serve until their respective
successors are duly elected. The certificate of incorporation and bylaws of HP
Acquisition will be the certificate of incorporation and bylaws of the
surviving corporation until duly amended in accordance with applicable law.
If the merger is consummated, Health Power will no longer be required to
file periodic reports under the Securities Exchange Act of 1934, including
annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements
and other non-periodic reports such as Forms 8-K.
FINANCING OF THE MERGER
It is estimated that the total amount of funds necessary to consummate the
merger and pay related fees and expenses is approximately $35,000,000, as
follows:
. $27,321,770 for the payment of the cash merger consideration to Health
Power stockholders;
. $4,742,727 for the contract termination payments to be made to Dr.
Master and the CMI Executive Team;
. $462,840 for payments to terminate Health Power's outstanding stock
options;
. $1,125,000 for payment of Health Power's estimated transaction expenses;
and
. $1,500,000 for payment of Security Capital's estimated transaction
expenses.
Health Power and/or its subsidiaries will continue to be obligated for an
aggregate of $2,597,663 of outstanding indebtedness following the completion
of the merger.
The funds necessary to consummate the merger and pay related fees and
expenses will be provided through a combination of equity and debt financing,
as follows:
. An equity investment of $8,000,000 from Security Capital;
. An equity investment of $2,000,000 from the CMI Executive Team; and
. A term loan and revolving loan in the aggregate amount of $25,000,000
from Bank One.
Pursuant to the terms of a binding commitment letter, Bank One has agreed to
lend $25,000,000 to HP Acquisition to be used to complete the merger and to
pay related fees and expenses (the "Bank One Credit Facility"). The Bank One
Credit Facility will consist of a $17,000,000 five-year term loan and an
$8,000,000 two-year revolving loan guaranteed by a wholly owned subsidiary of
Security Capital and secured by all of the business assets of Health Power (as
the surviving corporation of the merger). The term loan is to bear interest at
LIBOR plus 1.45% or 1.75%, depending upon the borrower's debt to cash flow
ratio, and the revolving loan is to bear interest at Bank One's prime rate
minus 0.75% or 0.50%, if the prime rate option is selected, or LIBOR plus
1.45% or 1.75%, if the LIBOR rate option is selected, and in each case
depending upon the borrower's debt to cash flow ratio. In addition, the Bank
One Credit Facility will be subject to customary covenants for this type of
financing, including restrictions on indebtedness, liens, sales and
acquisitions other than in the ordinary course of business, and affiliate
transactions.
Pursuant to the terms of a binding commitment letter, Banc One Mezzanine has
agreed to lend $6,000,000 to a wholly owned subsidiary of Security Capital to
be used to partially finance Security Capital's $8,000,000 equity investment
in the acquiring corporation (the "Banc One Mezzanine Credit Facility"). The
Banc One Mezzanine Credit Facility is to be a five-year loan guaranteed by
Health Power (as the surviving corporation of the merger) and secured by a
pledge of all stock of Health Power owned by Security Capital or its
subsidiary
23
<PAGE>
and by a second lien in all of the business asset of Health Power. The Banc
One Mezzanine Credit Facility is to bear interest at a fixed rate of 20% per
annum, with an option to pay up to 4% of such interest with in-kind
securities. Banc One Mezzanine is also to receive a performance fee equal to
1.5% of Health Power's cumulative EBITDA, payable upon the occurrence of
certain events. In addition, the Banc One Mezzanine Credit Facility will be
subject to customary covenants for this type of financing, including
restrictions on indebtedness, liens, dividends, stock redemptions, asset sales
and acquisitions, and affiliate transactions.
The commitment letters from the Bank One Credit Facility and the Banc One
Mezzanine Credit Facility are subject to certain conditions, such as the
preparation and execution of definitive loan agreements and related documents,
the absence of a material adverse change in Health Power's business, and the
confirmation of various factual matters. The Banc One Mezzanine Credit
Facility is also subject to Banc One Mezzanine's legal due diligence review,
its satisfaction with the terms of the Bank One Credit Facility, and its
satisfaction with the terms of any inter-company management fees and
distribution arrangements. In addition, the Bank One and Banc One Mezzanine
commitment letters are subject to the consummation of the merger by December
31, 2000. The commitment letters also provide that the credit facilities may
be subject to additional conditions contained in the definitive loan
agreements. These commitment letters are filed as exhibits to Health Power's
Schedule 13E-3.
OPINION OF HEALTH POWER'S FINANCIAL ADVISOR
By letter dated July 1, 1999, Health Power engaged RJA as its exclusive
financial advisor to assist Health Power in evaluating strategic alternatives,
including the possible sale or merger of Health Power. Health Power selected
RJA on the basis of RJA's knowledge of the company, its familiarity with the
health care industry, and its qualifications and reputation. RJA's predecessor
had acted as lead underwriter in Health Power's 1994 initial public offering.
On May 9, 2000, RJA delivered to the Special Committee and Board of Directors
of Health Power an oral opinion that, on and as of the date of such opinion,
and based on the assumptions made, procedures followed, matters considered,
and limits of review, as set forth in the written confirmation of the opinion,
the cash merger consideration to be received by Health Power stockholders
pursuant to the merger agreement was fair to stockholders from a financial
point of view. On May 9, 2000, the estimated cash merger consideration was
$6.88 per share. On August 23, 2000, Health Power and Security Capital amended
the merger agreement to permit Health Power to reduce its indebtedness above
the amount set forth in the merger agreement, which in turn would increase the
aggregate cash merger consideration to Health Power's stockholders under the
purchase price calculation. The cash merger consideration per share was re-
calculated because of that modification and other changes to the components of
the purchase price calculation occurring after May 9, 2000, such as an
increase in the number of shares of Health Power common stock outstanding. On
September 18, 2000, RJA confirmed to the Special Committee and Board of
Directors of Health Power that, at the $36,250,000 total merger consideration
and the resultant per share value of $6.98 (which was subsequently re-
calculated and increased from $6.98 to $7.03 based upon the reduction of
indebtedness between the time period of November 15, 2000 and December 8,
2000), its May 9, 2000 oral opinion, which stated that the cash merger
consideration to be received by Health Power stockholders pursuant to the
merger agreement was fair to stockholders from a financial point of view,
remained in effect. The oral opinion was subsequently confirmed in a written
opinion dated May 9, 2000. The Board of Directors of Health Power does not
plan to obtain an update to this opinion.
The full text of RJA's opinion is attached as Annex B to this Proxy
Statement and incorporated in this Proxy Statement by reference. The Special
Committee and Board of Directors of Health Power did not impose any
restrictions or limitations upon RJA with respect to the investigations made
or the procedures followed by it in rendering its opinion. Health Power
stockholders are urged to, and should, read RJA's opinion carefully and in its
entirety. RJA's opinion is directed to the Board of Directors and addresses
only the fairness of the cash consideration to be received by the holders of
Health Power common stock pursuant to the merger agreement from a financial
point of view to the holders. It does not address any other aspect of the
merger or constitute a recommendation to any holder of Health Power common
stock as to how to vote at the Special Meeting. The following summary of RJA's
opinion is qualified in its entirety by reference to the full text of the
opinion.
24
<PAGE>
In connection with rendering its opinion, RJA, among other things:
. Reviewed Health Power's Annual Reports to Stockholders, Annual Reports
on Form 10-K and related financial information for the fiscal years
ending December 31, 1997, 1998, and 1999, and internally generated
financial information for Health Power for the first quarter ending
March 31, 2000 as prepared by Health Power's management;
. Reviewed certain publicly available information with respect to
historical market prices and trading activities for the common stock of
Health Power and for certain publicly traded comparable companies which
RJA deemed relevant;
. Reviewed historical information and certain non-public, internally
generated financial forecasts relating to the business, earnings, cash
flow, assets and prospects for Health Power furnished to it by the
management of Health Power;
. Discussed the past and current operations and financial condition and
the prospects of Health Power with members of senior management;
. Visited Health Power's offices;
. Compared the financial terms of the transaction with the financial terms
of certain other transactions which RJA believed were generally
comparable to the merger transaction;
. Discussed with Health Power's operating executives the prospects of
Health Power relating to its current and projected financial
performance;
. Participated in discussions and negotiations among representatives of
Health Power and Security Capital;
. Performed various valuation models, including a discounted cashflow
analysis, a comparison of comparable companies, and a comparison of
other mergers and acquisitions deemed to be comparable;
. Compared certain financial characteristics of Health Power with the
financial characteristics of other publicly held companies in the
healthcare cost containment industry that RJA deemed to be relevant;
. Researched current industry conditions and trends concerning the
valuation of recent mergers and acquisitions; and
. Reviewed such other financial and industry data and performed such other
analysis and took into account such other matters as RJA deemed
necessary.
In rendering its opinion, RJA assumed and relied upon, without independent
verification, the accuracy and completeness of the information made available
to RJA by Health Power. With respect to the information relating to the
prospects of Health Power, RJA assumed that such information reflected the
best currently available estimates and judgments of management of Health Power
of the likely future financial performance of Health Power. RJA did not make
nor was it provided with any independent valuation or appraisal of the assets
or liabilities of Health Power. In connection with its engagement to provide
financial advisory services to the Board of Directors of Health Power
concerning strategic alternatives, RJA was requested to solicit, and did
solicit, interest from third parties with respect to the acquisition of Health
Power. In arriving at its opinion, RJA considered the nature, scope and
results of such solicitation. RJA's opinion was necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to RJA as of, May 9, 2000.
25
<PAGE>
The following is a brief summary of the material analyses performed and
factors considered by RJA in preparation of its opinion dated May 9, 2000.
Comparable Public Company--Trading Multiple Analysis
RJA compared certain financial and stock market information for Health Power
with similar information for nine selected publicly held companies in the
health care cost containment industry. The following companies were part of
the analysis: American Dental Partners, Inc., CorVel Corporation, First Health
Group Corp., HealthPlan Services Corporation, Health Risk Management, Inc.,
HealthStar Corp., Orthodontic Centers of America, Inc., Pediatrix Medical
Group, Inc., and Transcend Services Inc. (collectively, the "Selected
Companies"). RJA calculated market values relative to each company's earnings
per share ("EPS") for the latest 12 months and enterprise values (equity
market value, plus debt, less cash and equivalents) relative to each company's
sales, earnings before interest, taxes, depreciation and amortization
("EBITDA"), and earnings before interest and taxes ("EBIT") for the latest 12
months. All multiples for the Selected Companies were based on closing stock
prices at the close of business on April 26, 2000. This analysis resulted in
an implied per share equity reference range of $3.70 to $13.86. Health Power
multiples were based upon $36,250,000 of total consideration (the "Enterprise
Value") which, with the re-calculated deductions for the debt component,
translated into $7.03 per share of common stock of Health Power and its EPS,
sales, EBITDA, and EBIT for the year ended December 31, 1999.
<TABLE>
<CAPTION>
Stock Price as a Enterprise Value Multiples for
Multiple of Selected Companies
Earnings and Health Power
---------------- ---------------------------------
Per Share Sales EBITDA EBIT
---------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Selected Companies:
High 22.2x 4.2x 19.1x 54.2x
Mean 13.8x 1.4x 8.2x 16.5x
Median 13.9x 0.8x 7.6x 12.3x
Low 4.6x 0.2x 2.5x 3.7x
Health Power 6.0x 1.0x 7.9x 11.3x
</TABLE>
Comparable Acquisition Analysis
RJA reviewed the purchase price and transaction multiples paid in 16
selected mergers and acquisition transactions in the health care cost
containment industry where companies were similar to Health Power. The
transactions reviewed were (target/acquirer): United Payors & United Prov/BCE
Emergis Inc., Paramedical Testing/Hooper Holmes Inc., Concentra Managed Care,
Inc./Welsh, Carson, Anderson & Stowe, PeopleServe, Inc./Res-Care, Inc.,
Compdent Corporation/Golder Thoma, TA Associates & NMS, Sheridan Healthcare,
Inc./Management & Vestar Capital Partners, EMSA Government Services,
Inc./America Services Group, Inc., United Dental Care, Inc./Protective Life
Corporation, MedCath, Inc./Kohlberg, Kravis & Roberts, Welsh Carson, Preferred
Payment Systems, Inc./Concentra Managed Care, GMS Dental Group, Inc./Gentle
Dental Services Corporation, Choicecare Corporation/Humana, Talbert Medical
Mgmt Holdings/MedPartners, Inc., EmCare Holdings, Inc./Laidlaw, Inc., Value
Health, Inc./Columbia/HCA Healthcare Corporation, and InPhyNet Medical
Management/Medpartners, Inc. (the "Selected Merger and Acquisition
Transactions"). All multiples were based on publicly available information at
the time of the announcement of the transaction. This analysis indicated
multiples of total consideration to historical EBITDA and sales in the
Selected Merger and Acquisition Transactions of 3.9x to 20.9x (with a median
of 9.4x and mean of 11.5x) and 0.4x to 7.5x (with a median of 1.2x and mean of
1.7x), respectively. These multiples compare with a multiple of 7.9x EBITDA
and 1.0x sales for Health Power based upon $36,250,000 of total merger
consideration which, with the re-calculated deductions for the debt component,
translated into $7.03 per share of common stock of Health Power and its sales
and EBITDA of $38.3 million and $4.6 million, respectively for the year ended
December 31, 1999. This analysis resulted in an implied per share equity
reference range of $8.77 to $14.41.
26
<PAGE>
Stock Premium Analysis
RJA also compared the premiums paid in Selected Merger and Acquisition
Transactions, that were deemed comparable with the Health Power transaction,
with the premium payable in the Health Power transaction. The premiums paid in
the Selected Merger and Acquisition Transactions ranged from- 19.91% (i.e., a
discount of 19.91%) to 66.80% (with an average of 25.60% and median of 16.84%)
based on the target company's closing stock price 30 days prior to the public
announcement of the transaction. The premium payable to Health Power
stockholders, based upon the a price of $6.98 per share and the closing price
of Health Power common stock 30, 60, and 90 days before May 3, 2000, is 93.9%,
118.8%, and 140.7%, respectively. In addition, the premium payable to Health
Power stockholders, based upon the re-calculated price per share of $7.03 for
Health Power common stock (assuming a closing of December 8, 2000) and the
closing price of Health Power common stock 30, 60, and 90 days before May 3,
2000, is 95.3%, 120.4% and 142.4%, respectively. This analysis resulted in an
implied per share equity reference range of $2.20 to $6.00.
The following table sets forth the premiums paid in the Selected Merger and
Acquisition Transactions and the premium payable in the merger of HP
Acquisition and Health Power.
RECENT ACQUISITIONS
OFFER PRICE PREMIUM TO STOCK PRICE PRIOR TO ANNOUNCEMENT
<TABLE>
<CAPTION>
Date Offer Type of
Target Acquiror Announced Price Consideration
------ ---------------------------------------- --------- ------ -------------
<S> <C> <C> <C> <C>
United Payors & United
Providers BCE Emergis, Inc. 2/7/00 $27.00 Cash
Sheridan Healthcare Inc. Management & Vestar Capital Partners 3/25/99 $ 9.25 Cash/Debt
Concentra Management
Care, Inc. Welsh, Carson, Anderson & Stowe 3/3/99 $16.50 Stock/Debt
Compdent Corporation Goldner Thoma, TA Associates & NMS 7/28/98 $15.00 Cash
MedCath Inc. Kohlberg, Kravis & Roberts, Welsh Carson 3/13/98 $19.00 Cash
United Dental Care, Inc. Protective Life Corp 3/11/98 $ 9.31 Cash/Stock
Emcare Holdings Inc. Laidlaw Inc. 7/30/97 $38.00 Cash/Debt
Value Health Inc. Columbia/HCA Healthcare Corporation 1/15/97 $20.50 Cash
Selected Companies
Together
Health Power Security Capital Corporation 6/8/00 $ 7.03 Cash
</TABLE>
<TABLE>
<CAPTION>
Prior to Transaction Announcements
-----------------------------------------------
30 Business 60 Business 90 Business
Days Days Days
--------------- --------------- ---------------
Target Premium Price Premium Price Premium Price
------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
United Payors & United
Providers 66.80% $16.19 80.00% $15.00 57.66% $17.13
Sheridan Healthcare Inc. 15.63% $ 8.00 32.14% $ 7.00 25.42% $ 7.38
Concentra Management
Care, Inc. 50.00% $11.00 45.05% $11.38 50.00% $11.00
Compdent Corporation 17.65% $12.75 12.15% $13.38 -4.00% $15.63
MedCath Inc. 44.76% $13.13 24.59% $15.25 20.63% $15.75
United Dental Care, Inc. -19.91% $11.63 -19.91% $11.63 -31.67% $13.63
Emcare Holdings Inc. 16.03% $32.75 29.91% $29.25 37.56% $27.63
Value Health Inc. 13.89% $18.00 13.10% $18.13 35.54% $15.13
Selected Companies
Together Mean 25.60% 27.13% 23.89%
Median 16.84% 27.25% 30.48%
Low -19.91% -19.91% -31.67%
High 66.80% 80.00% 57.66%
Health Power at $7.03
per share 95.28% $ 3.60 120.38% $ 3.19 142.14% $ 2.90
</TABLE>
Note: Health Power stock prices are averages of the closing price for the
30, 60, and 90 days preceding May 3, 2000.
27
<PAGE>
Discounted Cash Flow Analysis
RJA performed a discounted cash flow analysis of Health Power to estimate
the present value of the stand-alone, unleveraged, after-tax free cash flows
that Health Power could generate over fiscal years 2000 through 2004 based on
internal estimates provided by Health Power's management. These estimates,
which are set forth below, were prepared other than for purposes of RJA's
analysis. RJA did not discount or otherwise risk-adjust management's growth
and EBITDA estimates. The stand-alone discounted cash flow analysis of Health
Power was determined by (i) adding (x) the present value at December 31, 1999,
of projected free cash flows over the five-year period 2000 through 2004 and
(y) the present value at December 31, 1999, of the estimated terminal value of
Health Power in year 2004 and (ii) subtracting the net debt of Health Power at
December 31, 1999, and the estimated contract termination payments to
management of Health Power. Health Power's weighted average cost of capital
(debt and equity) was estimated to be 17.0%. As a result, the cash flows and
the terminal values of Health Power were discounted to present values using
discount rates ranging from 15.0% to 19.0%. The terminal value multiple ranged
from 4.00x to 4.40x. This analysis resulted in an implied per share equity
reference range of $7.10 to $9.30.
Management Projections
<TABLE>
<CAPTION>
For Fiscal Years Ending December 31,
---------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- ------- -------
(in 000's)
<S> <C> <C> <C> <C> <C>
Sales $47,093 $50,564 $56,184 $59,485 $64,243
EBIT 6,650 8,357 11,035 11,923 12,668
EBITDA 8,128 9,634 12,312 13,200 13,945
Depreciation and Amortization 1,478 1,277 1,277 1,277 1,277
Capital Expenditures 850 850 850 850 850
Basic Net Income per Share $ 0.99 $ 1.25 $ 1.65 $ 1.78 $ 1.90
</TABLE>
Other Factors
In connection with its opinion, RJA also considered, among other things, the
following: (i) indications of interest and bids of third parties other than
Security Capital (including the preliminary financing commitments associated
with such bids); (ii) the historical and pro forma financial profile of Health
Power; (iii) the ownership profile of Health Power; (iv) the liquidity of the
common stock of Health Power; (v) movements of the price of the shares
relative to movements in the Dow Jones Industrial Average; and (vi) the
historical relationship between the stock's price and its trading volume. RJA
took notice of the other options available to Health Power, including
retaining the status quo or engaging in other transactions. RJA noted that
these alternatives do not in themselves address the strategic and financial
priorities of Health Power. Although the re-calculated cash merger
consideration of $7.03 per share fell below the low end of the implied per
share equity reference range for certain of the analysis described above, such
as the comparable acquisition analysis and the discounted cash flow analysis,
after taking into consideration the other factors described in this paragraph,
as well as the other analysis performed by RJA, RJA concluded that the cash
merger consideration to be received by Health Power stockholders was fair to
stockholders from a financial point of view.
Preparation of Fairness Opinion; Fees to RJA
Although the summary set forth above does not purport to be a complete
description of the analyses performed by RJA, the material analyses performed
by RJA in rendering its opinion have been summarized above. The preparation of
a fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstance
and, therefore, such an opinion is not readily susceptible to summary
description. RJA believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of the above
summary, without considering all factors and analyses, could create a
misleading or incomplete view of the processes underlying such analyses and
opinion.
28
<PAGE>
No company, transaction, or business used in such analysis as a comparison
is identical to Health Power or the proposed merger, nor is an evaluation of
the results of such analyses entirely mathematical; rather, such analyses
involve complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect the acquisition,
public trading, or other values of the companies, business segments, or
transactions being analyzed. The estimates contained in such analyses and the
range of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Such analyses were
prepared solely as part of RJA's analysis of the fairness, from a financial
point of view, of the consideration to be received. The projections are based
on numerous variables and assumptions that are inherently unpredictable and
must be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those assumed in the projections and
related analyses.
In addition, analyses relating to the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. RJA's opinion and financial
analyses were only one of many factors considered by the Special Committee and
the Board of Directors of Health Power in their evaluation of the proposed
transaction and should not be viewed as determinative of the views of the
Special Committee, the Board of Directors, or management with respect to the
transaction or the consideration payable in the transaction.
RJA is a nationally recognized investment banking firm. RJA is regularly
engaged, with respect to health care companies and other corporations, in the
valuation of businesses and their securities in connection with mergers and
acquisitions, divestitures, leveraged buyouts, negotiated underwritings,
competitive biddings, and secondary distributions of listed and unlisted
securities. Health Power selected RJA on the basis of its familiarity with the
health care industry, its qualifications, ability, previous experience and
reputation with respect to mergers and acquisitions. In the ordinary course of
business, affiliates of RJA may actively trade the securities of Health Power
for their own account and the accounts of its customers and, accordingly, may
at any time hold a long or short position in securities of Health Power. No
limitations were imposed by the Special Committee or Board of Directors of
Health Power upon RJA with respect to the investigations made or the
procedures followed by RJA in rendering its opinion.
RJA was engaged by Health Power to review strategic alternatives for Health
Power pursuant to a July 1, 1999 engagement letter that will cover the merger.
Compensation in connection with this engagement will include reimbursement of
out-of-pocket expenses, not to exceed $25,000, plus a fee of $600,000. RJA
received a nonrefundable retainer of $50,000 at the time of signing the
engagement letter, which amount will be deducted from and credited against the
$600,000 transaction fee. The balance of the fee will not be paid until the
merger is consummated. RJA also received a fee of $100,000 for the delivery of
its written fairness opinion, which amount was paid at the time the fairness
opinion was delivered.
PURPOSE AND REASONS OF THE CMI EXECUTIVE TEAM AND THE SECURITY CAPITAL
ENTITIES FOR THE MERGER; POSITION OF CMI
EXECUTIVE TEAM AND THE SECURITY CAPITAL ENTITIES AS TO THE FAIRNESS OF THE
MERGER
Purpose and Reasons for the Merger
The purpose of the merger is to enable Security Capital and the CMI
Executive Team, through HP Acquisition, to acquire the entire equity interest
in Health Power. The merger is being undertaken at this time in order to
complete the process for the acquisition of Health Power which began in
November 1999. The negotiations to acquire Health Power began in connection
with the competitive bidding process initiated by the Board of Directors of
Health Power in July 1999. The primary reason for this transaction is the
belief by the CMI Executive Team and the Security Capital Entities that Health
Power's future business prospects can be improved through their active
participation in the strategic direction and operations of Health Power. The
CMI Executive Team and the Security Capital Entities understand that the
transaction has been structured as a merger in order to allow all stockholders
of Health Power, including unaffiliated stockholders, sufficient time to
consider
29
<PAGE>
the merger. In addition, the merger structure will allow Health Power to
preserve its corporate identity and existing contractual arrangements with
third parties.
A benefit to the members of the CMI Executive Team from the transaction is
that they will realize the value of their investment in Health Power in cash
at a price which represents a substantial premium to the market price for the
common stock prior to the public announcement of the transaction. In addition,
benefits to the CMI Executive Team include (i) an equity investment in the
acquiring corporation which will enable them to participate in future earnings
growth, if any, of Health Power and to benefit from the increase, if any, in
the value of Health Power, (ii) continued employment and participation in a
management stock option plan, (iii) receipt of cash payments in exchange for
termination of their change in control agreements, and (iv) receipt of cash
payments in exchange for termination of their stock options. See "Interests of
Certain Persons in the Merger." As a detriment, each member of the CMI
Executive Team will recognize a taxable gain upon the completion of the merger
with respect to the following payments: (A) payments received in exchange for
termination of their change in control agreements and stock options, and (B)
if and to the extent the amount of cash received by such member for his Health
Power shares exceeds his tax basis in such shares. And while the CMI Executive
Team believes that opportunities will be associated with their investment and
continued employment by the acquiring corporation, a substantial risk exists
that such opportunities may not be fully realized, which serves as a detriment
to the transaction.
For the Security Capital Entities, the benefit from the transaction is that,
through their ownership and control of Health Power, they will participate in
future earnings growth, if any, of Health Power and benefit from the increase,
if any, in the value of Health Power. While the Security Capital Entities
believe that opportunities will be associated with their investment in Health
Power, a substantial risk exists that such opportunities may not be fully
realized, which serves as a detriment to the transaction.
Position of CMI Executive Team and Security Capital Entities as to the
Fairness of the Merger
The rules of the Securities and Exchange Commission require the members of
the CMI Executive Team and the Security Capital Entities to express their
belief as to the fairness of the merger to unaffiliated stockholders of Health
Power.
The members of the CMI Executive Team have considered the factors listed
above under "Reasons for the Merger; Recommendation of the Special Committee
and Board of Directors" which were taken into consideration by the Special
Committee and the Board of Directors of Health Power, based, however, only on
the more limited facts and information available to them. They have also
considered other factors, such as current market prices, historical market
prices, and the going concern value of Health Power. They did not consider
such factors as Health Power's net book value or liquidation value, as such
factors were not considered material to valuing Health Power as a going
concern. They also did not believe that purchase prices paid by certain
members of the CMI Executive Team for Health Power stock in previous purchases
were material because the last of such purchases was made over 13 months prior
to the public announcement that Health Power had entered into the merger
agreement with Security Capital. In addition, they have not been aware of
Health Power's receipt of any firm offers, other than the offer by Security
Capital, during the past two years for the acquisition of control or the
assets of Health Power. Although members of the CMI Executive Team did not
find it practicable to quantify or otherwise attach relative weights to the
factors considered by them, they did consider, in particular, the fact that
the cash merger consideration represented a significant premium over the
average Health Power closing prices during the one-year period preceding June
9, 2000 (the day of the public announcement that Health Power had entered in
the merger agreement with Security Capital). The members of the CMI Executive
Team also considered the fact that the Special Committee and Board of
Directors received the opinion of RJA, Health Power's financial advisor, that
the cash merger consideration to be received by Health Power stockholders was
fair to stockholders from a financial point of view, and the financial
analyses conducted by RJA in reaching its opinion, as described under "Opinion
of Health Power's Financial Advisor." They took notice that the cash merger
consideration per share fell below the low end of the implied per share equity
reference range for certain of the analysis performed by RJA, but they
understood that the financial analyses conducted by RJA was to be
30
<PAGE>
considered as a whole and that certain other factors were taken into
consideration by RJA in reaching its opinion. The members of the CMI Executive
Team have reviewed and adopted the conclusions reached by RJA as set forth in
this Proxy Statement with respect to the fairness of the cash consideration to
be received by the holders of Health Power's common stock pursuant to the
merger agreement based on the analyses of RJA as set forth herein and the
assumptions made, procedures followed, matters considered, and limits of
review of RJA, as set forth in RJA's opinion attached as Annex B to this Proxy
Statement. In addition, the members of the CMI Executive Team considered the
measures taken by the Board of Directors to ensure the procedural fairness of
the transaction, including the formation of the Special Committee, the
retention of legal counsel by the Special Committee, the availability of RJA
to the Special Committee, and the arm's-length nature of the negotiations. On
the basis of all of the above factors, the members of the CMI Executive Team
believe that the merger is fair, from a financial point of view, to
unaffiliated stockholders of Health Power.
The Security Capital Entities have considered the factors listed above under
"Reasons for the Merger; Recommendation of the Special Committee and Board of
Directors" which were taken into consideration by the Special Committee and
the Board of Directors of Health Power, based, however, only on the more
limited facts and information available to them. They have also considered
other factors, such as current market prices, historical market prices, and
the going concern value of Health Power, again, only on the more limited facts
and information available to them. They did not consider such factors as
Health Power's net book value or liquidation value, as such factors were not
considered material to valuing Health Power as a going concern. They also did
not believe that purchase prices paid by certain members of the CMI Executive
Team for Health Power stock in previous purchases were material because the
last of such purchases was made over 13 months prior to the public
announcement that Health Power had entered into the merger agreement with
Security Capital. In addition, they have not been aware of Health Power's
receipt of any firm offers, other than their own, during the past two years
for the acquisition of control or the assets of Health Power. Although the
Security Capital Entities did not find it practicable to quantify or otherwise
attach relative weights to the factors considered by them, they did consider,
in particular, the fact that the cash merger consideration represented a
significant premium over the average Health Power closing prices during the
one-year period preceding June 9, 2000 (the day of the public announcement
that Health Power had entered in the merger agreement with Security Capital).
The Security Capital Entities also considered the fact that the Special
Committee and Board of Directors received the opinion of RJA, Health Power's
financial advisor, that the cash merger consideration to be received by Health
Power stockholders was fair to stockholders from a financial point of view,
and the financial analyses conducted by RJA in reaching its opinion, as
described under "Opinion of Health Power's Financial Advisor." They took
notice that the cash merger consideration per share fell below the low end of
the implied per share equity reference range for certain of the analysis
performed by RJA, but they understood that the financial analyses conducted by
RJA was to be considered as a whole and that certain other factors were taken
into consideration an RJA in reaching its opinion. The Security Capital
Entities have reviewed and adopted the conclusions reached by RJA as set forth
in this Proxy Statement with respect to the fairness of the cash consideration
to be received by the holders of Health Power's common stock pursuant to the
merger agreement based on the analyses of RJA as set forth herein and the
assumptions made, procedures followed, matters considered, and limits of
review of RJA, as set forth in RJA's opinion attached as Annex B to this Proxy
Statement. In addition, the Security Capital Entities considered the measures
taken by the Board of Directors to ensure the procedural fairness of the
transaction, including the formation of the Special Committee, the retention
of legal counsel by the Special Committee, the availability of RJA to the
Special Committee, and the arm's-length nature of the negotiations. On the
basis of all of the above factors, the Security Capital Entities believe that
the merger is fair, from a financial point of view, to unaffiliated
stockholders of Health Power.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Special Committee and the Board of
Directors with respect to the merger, stockholders of Health Power should be
aware that the directors and executive officers of Health Power have certain
interests in the merger that may be different from, or in addition to, the
interests of the stockholders of Health Power. The Special Committee and the
Board of Directors were aware of these interests and have considered them,
among other factors, in approving the merger agreement. These interests are
summarized below.
31
<PAGE>
Equity Investment in Acquiring Corporation
As a condition to the obligations of Security Capital and HP Acquisition to
complete the merger, Security Capital is requiring the members of the CMI
Executive Team to invest $2,000,000 in the acquiring corporation in exchange
for a 20% equity interest in that corporation, and each member has signed an
agreement to acquire shares of the acquiring corporation, which agreement is
subject to the completion of the merger. Prior to the effective time of the
merger, members of the CMI Executive Team will make their $2,000,000
investment as follows: Robert J. Bossart--$683,333; Randy E. Jones--$100,000;
Richard T. Kurth--$683,333; Paul A. Miller--$100,000; Daniel R. Sullivan--
$100,000; and Jonathan R. Wagner--$683,333. The stock to be received in
exchange for their investment will be convertible into shares of Security
Capital's Class A common stock and will be subject to stockholders agreements
between Security Capital and the members of the CMI Executive Team.
The members of the CMI Executive Team currently own, in the aggregate,
17.75% of the outstanding common stock of Health Power. This combined
ownership percent represents $1,249,187 of the book value and $689,854 of the
net earnings of Health Power at December 31, 1999. The following table
indicates the pre- and post-transaction effect of the merger on each member's
interest in the net book value and net earnings of Health Power, in terms of
both dollar amounts and percentages, at December 31, 1999:
<TABLE>
<CAPTION>
Pre-transaction Post-transaction Pre-transaction Post-transaction
Net Book Value Net Book Value Net Earnings Net Earnings
Pre-transaction Post-transaction 12/31/99 12/31/99 12/31/99 12/31/99
Ownership % Ownership % (audited) (audited) (audited) (audited)
--------------- ---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Bossart 7.85% 6.83% $ 552,225 $ 480,567 $304,962 $265,384
Jonathan R. Wagner 7.83% 6.83% 551,120 480,557 304,352 265,384
Richard T. Kurth 1.81% 3.34% 127,595 235,002 70,463 129,778
Randy E. Jones 0.06% 1.00% 4,554 70,360 2,515 38,856
Daniel R. Sullivan 0.13% 1.00% 8,896 70,360 4,913 38,856
Paul A. Miller 0.07% 1.00% 4,798 70,360 2,649 38,856
----- ----- ---------- ---------- -------- --------
17.75% 20.00% $1,249,187 $1,407,196 $689,854 $777,114
17.75% 20.00% 17.75% 20.00%
</TABLE>
Employment of CMI Executive Team
As a condition to the obligations of Security Capital and HP Acquisition to
complete the merger, Security Capital is requiring the members of the CMI
Executive Team to continue their employment and to sign new employment
agreements with CompManagement and/or CompManagement Health Systems, and each
member has signed such an agreement, which agreement is subject to the
completion of the merger. In general, each of these employment agreements will
be for a five-year term, and each member's compensation and other employment
arrangements will be substantially on the same terms and conditions as
currently in effect, including base salary, commission and bonus arrangements,
severance and other benefits, and confidentiality and noncompetition
restrictions. In addition, each member of the CMI Executive Team will
participate in a management stock option plan under which he will receive
options to purchase shares of stock of a subsidiary of Security Capital. The
stock which may be received under this stock option plan will be convertible
into shares of Security Capital's Class A common stock and will be subject to
stockholders agreements between Security Capital and the option holder.
Termination of Change in Control Agreements
In August 1999, each member of the CMI Executive Team entered into a "change
in control" agreement with Health Power. These agreements were authorized by
Health Power's Compensation Committee, which is composed entirely of
independent directors not employed by Health Power, in connection with the
implementation of the competitive bidding process by RJA. The purposes of
these agreements were to provide a measure of job security to the executive
officer, incentivize the executive officer to continue to manage the
businesses of CompManagement
32
<PAGE>
and CompManagement Health Systems profitably and effectively and without
concern that a change in control of Health Power would adversely affect his
employment and financial security, and facilitate cooperation by the executive
officer in the context of a transition if a change in control were to occur.
Each of these agreements is identical. Each agreement provides the executive
officer with certain benefits if his employment is terminated within a six-
month period prior to, or a two-year period following, a change in control of
Health Power. Under each agreement, the executive officer is entitled to the
continuation of his monthly compensation and fringe benefits for 24 months
following the date of his termination of employment. Compensation is equal to
the monthly average of such person's base salary, cash bonus and commissions
received during the 36-month period prior to termination of his employment.
The merger will constitute a "change in control" as defined in these
agreements. Therefore, if these agreements were to remain in effect, Health
Power's payment obligations under these agreements would have been triggered
upon the closing of the merger and, with respect to a member of the CMI
Executive Team, upon such member's voluntarily termination of his employment
with CompManagement within six months after the closing. Health Power's
potential payment obligations under these agreements would have been
$5,249,477 upon the closing of the merger. Because Security Capital has
required that these agreements be terminated as a condition to its obligation
to complete the merger, Health Power and members of the CMI Executive Team
have extensively negotiated the payments for the termination of these
agreements. Based upon these negotiations, the members of the CMI Executive
Team have agreed to terminate their change in control agreements and to
release Health Power from all obligations under those agreements in
consideration of payments in the aggregate amount of $4,349,477 to be made at
the effective time of the merger, with each member of the CMI Executive Team
to receive the following amount: Robert J. Bossart--$1,009,072; Randy E.
Jones--$360,570; Richard T. Kurth--$1,130,348; Paul A. Miller--$383,199;
Daniel R. Sullivan--$420,560; and Jonathan R. Wagner--$1,045,728. See
"Background of the Merger."
Termination of Dr. Master's Employment Agreement
In May 1999, Dr. Bernard F. Master, Health Power's Chairman, entered into an
employment agreement with CompManagement, which agreement was a continuation
of Dr. Master's prior employment agreements with Health Power's subsidiaries.
Under this three year employment agreement, which ends December 31, 2002, if,
after a change in control of Health Power, either Health Power terminates Dr.
Master's employment without cause or Dr. Master terminates his employment,
then he is entitled to receive severance payments in an amount equal to the
sum of (a) two times his base salary plus (b) an amount equal to his last
annual cash bonus. Severance payments are payable over a two-year period after
termination. Severance benefits also include the continuation of fringe
benefits until the earlier of two years after the date of termination or the
date any such benefit is provided by another employer.
The merger will constitute a "change in control" as defined in the
employment agreement, and Dr. Master's employment will be terminated by Health
Power in connection with the merger. Therefore, if not otherwise modified, the
severance obligation of Health Power under this agreement would have been
$693,250 upon the closing of the merger. Because Security Capital has required
that this agreement be terminated as a condition to its obligation to complete
merger, Dr. Master's severance payment was extensively negotiated among the
parties. Based upon these negotiations, Dr. Master has agreed to terminate his
employment agreement and to release Health Power from all severance
obligations under that agreement. In consideration of Dr. Master's agreement
to terminate his employment agreement, he will receive a payment of $393,250
at the effective time of the merger. See "Background of the Merger."
Stock Options
As of the date of this Proxy Statement, executive officers and directors of
Health Power held options to purchase an aggregate of 203,552 shares of common
stock of Health Power. Each of the executive officers and directors of Health
Power has agreed to terminate his or her options in exchange for cash (subject
to any
33
<PAGE>
applicable withholding tax) equal to one of the following: (a) for options
with an exercise price per share greater than the merger consideration, $1.00
for each option terminated; and (b) for options with an exercise price per
share less than the merger consideration, the difference between the merger
consideration and the exercise price per share of each option terminated.
Based upon the merger consideration of $7.03 per share, the executive officers
and directors will receive payments in the aggregate amount of $362,419 for
the termination of their options at the effective time of the merger, with
each executive officer and director to receive the following amount: Dr.
Bernard F. Master--$156,836; Robert J. Bossart--$37,759; Randy E. Jones--
$5,672; Richard T. Kurth--$24,500; Paul A. Miller--$-0-; Daniel R. Sullivan--
$5,693; Jonathan R. Wagner--$35,654; Dr. Elliott P. Feldman--$24,979; Robert
S. Garek--$21,245; Dr. Crystal A. Kuykendall--$10,365; Frank R. Nutis--
$22,690; and Dr. Burt E. Schear--$17,028. All of Health Power's other option
holders have agreed to terminate their options to purchase shares of common
stock of Health Power on the same terms and conditions as is applicable to the
executive officers and directors.
Indemnification and Insurance
Health Power has entered into indemnification agreements with each of its
directors and officers in connection with the assumption of their duties in
those capacities. In general terms, these indemnification agreements require
Health Power to indemnify and pay the costs of defense of each of its
directors and executive officers to the maximum extent permitted by Delaware
law. The merger agreement prohibits Security Capital and HP Acquisition from
taking any action to modify or terminate these indemnification agreements,
except in accordance with their terms and applicable law. In addition, the
merger agreement requires Security Capital and Health Power, as the surviving
corporation, to use their reasonable efforts to cause Health Power to keep the
current directors' and officers' liability insurance policies in effect for
six years from the effective time of the merger to the extent that such
policies provide coverage for events occurring prior to the consummation of
the merger.
Stockholder Voting Agreements
At the time of execution of the merger agreement, each of Robert J. Bossart,
Richard T. Kurth, Dr. Bernard F. Master, and Jonathan R. Wagner entered into a
stockholder voting agreement which provides that he will vote all common stock
of Health Power owned beneficially and/or of record by him for approval of the
merger agreement and the merger and against the approval of any other
agreement providing for a merger, sale of assets, or other business
combination involving Health Power which would hinder, impede, delay or
prevent the consummation of the merger. These obligations will be suspended if
the Board of Directors of Health Power withdraws its recommendation that the
Health Power stockholders vote in favor of the merger agreement in connection
with a superior acquisition proposal that is pending at that time. In
addition, the voting agreements will terminate if the merger agreement is
terminated prior to consummation of the merger.
ACCOUNTING TREATMENT
The merger will be accounted for by HP Acquisition as a "purchase" in
accordance with generally accepted accounting principles. Consequently, the
aggregate consideration paid by HP Acquisition in connection with the merger
will be allocated to Health Power's assets and liabilities based upon their
fair values, with any excess being treated as goodwill.
REGULATORY MATTERS
The parties are not aware of any material governmental consents or approvals
that are required prior to their completion of the merger. However, if
governmental consents and approvals are required, the parties intend to seek
the consents and approvals. There can be no assurance, however, that any such
consents or approvals will be obtained.
34
<PAGE>
The obligations of Health Power, Security Capital, and HP Acquisition to
consummate the merger are subject to the condition that there be no
preliminary or permanent injunction or other order by any court or
governmental or regulatory authority of competent jurisdiction, including any
state governmental or regulatory authorities, prohibiting consummation of the
merger or limiting the ownership or operation by HP Acquisition, Security
Capital, or any of their respective subsidiaries of any material portion of
the business or assets of Health Power. Neither Health Power, HP Acquisition,
nor Security Capital are aware of any foreign governmental approvals or
actions that may be required for consummation of the merger, as none of these
entities conducts operations in any foreign countries.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the merger. The discussion is based on the Internal Revenue
Code of 1986, as amended, existing and proposed United States Treasury
regulations promulgated under the Internal Revenue Code, rulings,
administrative pronouncements and judicial decisions. Changes in any of these
areas could materially affect the tax consequences described in this Proxy
Statement and could be made on a retroactive basis.
The receipt of cash by stockholders in exchange for their common stock of
Health Power will be a taxable transaction for federal income tax purposes and
may also be a taxable transaction under applicable state, local and foreign
income and other tax laws. The tax consequences of the receipt of cash may
vary depending upon, among other things, a stockholder's particular
circumstances. In general, however, a stockholder will recognize a gain or a
loss for federal income tax purposes equal to the difference between the
adjusted tax basis of the stockholder's shares of common stock and the amount
of cash received by the stockholder in exchange for those shares. This gain or
loss generally will be:
. Calculated separately for each block of shares (i.e., shares acquired at
the same cost in a single transaction) exchanged pursuant to the merger;
. A capital gain or loss if the shares of common stock are a capital asset
in the hands of the stockholder; and
. A long-term gain or loss if the stockholder has held his or her shares
of common stock for more than one year at the effective time of the
merger.
The receipt of cash by a stockholder pursuant to the merger may be subject
to backup withholding at the rate of 31%. Backup withholding will not take
place if the stockholder provides a certified taxpayer identification number
on Form W-9 and otherwise complies with the backup withholding rules or
demonstrates that the stockholder is exempt from backup withholding. Backup
withholding is not an additional tax; any amounts withheld may be credited
against the stockholder's federal income tax liability.
The foregoing discussion does not address all aspects of federal income
taxation that may be relevant to a stockholder. The foregoing discussion may
also not apply to:
. Stockholders who acquired their common stock pursuant to the exercise of
employee stock options or other compensation arrangements with Health
Power;
. Stockholders who are not citizens or residents of the United States;
. Stockholders who perfect their appraisal rights; or
. Stockholders who are subject to special tax treatment under the Internal
Revenue Code (such as dealers in securities, insurance companies, other
financial institutions, regulated investment companies, stockholders who
hold their shares as part of a hedge, straddle, or conversion
transaction, and tax-exempt entities).
35
<PAGE>
The receipt of cash by members of the CMI Executive Team in exchange for
their common stock of Health Power will be taxed in the same manner as
described above for all other stockholders of Health Power. It is anticipated
that the receipt of cash by members of the CMI Executive Team in exchange for
the termination of their change in control agreements and stock options of
Health Power will be taxed currently as ordinary income for federal, state and
local tax purposes.
Because of the individual nature of tax consequences, stockholders are urged
to consult their personal tax advisors to determine precisely the tax
consequences of the merger to them, including the effects of state, local or
foreign income or other tax laws or federal tax laws other than those
pertaining to income tax.
APPRAISAL RIGHTS UNDER DELAWARE LAW
If the merger is consummated, Health Power stockholders who do not vote in
favor of the adoption of the merger agreement, who hold shares of common stock
of Health Power on the date of making a written demand for appraisal as
described below, and who otherwise comply fully with Section 262 of the
Delaware General Corporation Law ("Section 262") will be entitled to a
judicial determination of the fair value of their shares of common stock of
Health Power in accordance with the Section 262 and to receive from the
surviving corporation payment of such fair value in cash, together with a fair
rate of interest, if any, as determined by such court. Health Power
stockholders who properly perfect their appraisal rights will not be entitled
to surrender their shares of common stock of Health Power for payment in the
manner provided in the merger agreement and described in this Proxy Statement.
Under Section 262, when a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the Special
Meeting, not less than 20 calendar days prior to the meeting, a constituent
corporation in the merger must notify each of the holders of its stock who was
a holder on the record date for the meeting that such appraisal rights are
available and include in each such notice a copy of Section 262. This Proxy
Statement constitutes such notice to the holders of record of the common stock
of Health Power.
The following is a summary of the procedures to be followed under Section
262, the full text of which is attached as Annex C to this Proxy Statement.
The summary does not purport to be a complete statement of, and is qualified
in its entirety by reference to, Section 262 and to any applicable amendments
to such section after the date of this Proxy Statement. Failure to follow any
Section 262 procedures may result in the loss of appraisal rights under
Section 262. Stockholders should assume that the surviving corporation will
take no action to perfect any appraisal rights of any stockholder. Any
stockholder who desires to exercise his or her appraisal rights should review
carefully Section 262 and is urged to consult his or her legal advisor before
electing or attempting to exercise such rights.
Holders of record of shares of common stock of Health Power who desire to
exercise their appraisal rights must deliver a separate written demand for
appraisal of such shares to Health Power prior to the taking of the vote on
the approval of the merger agreement and must not vote in favor of the
approval of the merger agreement at the time the vote is taken. In addition, a
holder of shares of common stock of Health Power wishing to exercise appraisal
rights must hold of record such shares on the date the written demand for
appraisal is made and must continue to hold such shares through the effective
time of the merger. The demand for appraisal will be sufficient if it
reasonably informs Health Power of the identity of the Health Power
stockholder and that the Health Power stockholder intends to demand an
appraisal of the fair value of his, her or its shares of common stock of
Health Power.
If the shares of common stock of Health Power are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, the demand
must be executed by or for the record owner, and if the shares of common stock
of Health Power are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand must be made by or for all owners of
record. An authorized agent, including an agent for one or more joint owners,
may execute the demand for appraisal for a holder of record; however, such
agent must identify the record owner or owners and expressly disclose in such
demand that the agent is acting as agent for the record owner or owners of
such shares.
36
<PAGE>
A record holder, such as a broker, who holds shares of common stock of
Health Power as a nominee for beneficial owners, some or all of whom desire to
demand appraisal, must exercise appraisal rights on behalf of such beneficial
owners with respect to the shares held for such beneficial owners. In such
case, the written demand for appraisal should set forth the number of shares
covered by such demand. Unless a demand for appraisal specifies a number of
shares, the demand will be presumed to cover all shares outstanding in the
name of such record owner. If a Health Power stockholder holds shares of
common stock of Health Power through a broker who in turn holds the shares
through a central securities depository nominee, a demand for appraisal of
such shares must be made by or on behalf of the depository nominee and must
identify the depository nominee as record holder. BENEFICIAL OWNERS WHO ARE
NOT RECORD OWNERS AND WHO INTEND TO EXERCISE APPRAISAL RIGHTS SHOULD INSTRUCT
THE RECORD OWNER TO COMPLY STRICTLY WITH THE STATUTORY REQUIREMENTS WITH
RESPECT TO THE DELIVERY OF WRITTEN DEMAND FOR APPRAISAL. A DEMAND FOR
APPRAISAL SUBMITTED BY A BENEFICIAL OWNER WHO IS NOT THE RECORD OWNER WILL NOT
BE HONORED.
A proxy or vote against the merger agreement will not constitute a demand
for appraisal. Stockholders should not expect to receive any additional notice
with respect to the deadline for demanding appraisal rights.
Any Health Power stockholder who elects to exercise appraisal rights must
mail or deliver the written demand for appraisal to Health Power, Inc., c/o
CompManagement, Inc., 6377 Emerald Parkway, Dublin, Ohio 43016, Attention:
Paul A. Miller, Esq., General Counsel.
If the merger agreement is approved by Health Power stockholders, then
within ten days after the effective time of the merger, the surviving
corporation will provide notice of the effective time of the merger to all
Health Power stockholders who have complied with Section 262.
A Health Power stockholder may withdraw his or her demand for appraisal
within 60 days after the effective time of the merger and accept the terms of
the merger. Thereafter, the written approval of the surviving corporation will
be needed for such a withdrawal.
Within 120 days after the effective time of the merger (the "120-Day
Period"), in compliance with Section 262, any Health Power stockholder who has
properly demanded an appraisal and who has not withdrawn his or her demand as
provided above (such Health Power stockholders being referred to collectively
as the "Dissenting Stockholders") and the surviving corporation each has the
right to file in the Delaware Court of Chancery (the "Delaware Court") a
petition (the "Petition"), with a copy served on the surviving corporation in
the case of a Petition filed by a Dissenting Stockholder, demanding a
determination of the fair value of the shares held by all of the Dissenting
Stockholders. If, within the 120-Day Period, no Petition has been filed as
provided above, all rights to appraisal cease and all Dissenting Stockholders
who owned shares of common stock of Health Power become entitled to receive,
for each share of common stock of Health Power the merger consideration, as if
such Dissenting Stockholders had initially voted to approve and adopt the
merger. The surviving corporation is not obligated and does not currently
intend to file such a Petition.
Any Dissenting Stockholder is entitled, within the 120-Day Period and upon
written request to the surviving corporation, to receive from the surviving
corporation a statement setting forth (a) the aggregate number of shares of
common stock of Health Power which have not voted to adopt and approve the
merger and with respect to which demands for appraisal have been received and
(b) the aggregate number of Dissenting Stockholders. Such statement must be
mailed (i) within ten days after a written request therefor has been received
by the surviving corporation, or (ii) within ten days after the expiration of
the period for the delivery of demands, as described above, whichever is
later.
Upon the filing of a Petition, the Delaware Court may order a hearing and
that notice of the time and place fixed for the hearing on the Petition be
sent by registered or certified mail to the surviving corporation and all
Dissenting Stockholders. Notice will also be published at least one week
before the day of the hearing in a newspaper of general circulation published
in the City of Wilmington, Delaware, or in another publication
37
<PAGE>
deemed advisable by the Delaware Court. The costs relating to these notices
will be borne by the surviving corporation.
If a hearing on the Petition is held, the Delaware Court is empowered to
determine which Dissenting Stockholders have complied with the provisions of
Section 262 and are entitled to an appraisal of their shares. The Delaware
Court may require that Dissenting Stockholders submit their share certificates
for notation thereon of the pendency of the appraisal proceedings and the
Delaware Court may dismiss the proceedings as to any Dissenting Stockholder
who does not comply with such requirement.
The Delaware Court will appraise shares of common stock of Health Power
owned by the Dissenting Stockholders, determining the fair value of such
shares exclusive of any element of value arising from the accomplishment or
expectation of the merger. In determining the fair value, the Delaware Court
is to take into account all relevant factors. In Weinberger v. UOP, Inc., the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of
value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered and that "[f]air" price obviously requires consideration of all
relevant factors involving the value of a company. The Delaware Supreme Court
has stated that, in making this determination of fair value, the court must
consider market value, asset value, dividends, earnings prospects, the nature
of the enterprise and any other factors which could be ascertained as of the
date of the merger and which "throw any light on future prospects of the
merged corporation." The Delaware Supreme Court noted that Section 262
provides that fair value is to be determined "exclusive of any element of
value arising from the accomplishment or expectation of the merger." In Cede &
Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such
exclusion is a "narrow exclusion [that] does not encompass known elements of
value" but which rather applies only to the speculative elements of value
arising from such accomplishment or expectation. In Weinberger, the Delaware
Supreme Court held that "elements of future value, including the nature of the
enterprises, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered."
Health Power stockholders considering seeking appraisal should have in mind
that the fair value of their shares determined by the Delaware Court under
Section 262 could be more than, the same as, or less than the consideration
payable pursuant to the merger agreement. Moreover, the surviving corporation
does not anticipate offering more than the consideration payable pursuant to
the merger agreement to any Dissenting Stockholder and reserves the right to
assert in any appraisal proceedings, that, for purposes of Section 262, the
"fair value" of a share of common stock of Health Power is less than the
consideration payable pursuant to the merger agreement.
The Delaware Court may also (i) determine a fair rate of interest, if any,
to be paid to Dissenting Stockholders in addition to the fair value of the
shares, (ii) determine the costs of the proceeding and tax such costs against
the parties as the Delaware Court deems equitable (however, costs do not
include attorneys' and expert witnesses' fees) and (iii) upon application of a
Dissenting Stockholder, order all or a portion of the expenses incurred by any
Dissenting Stockholder in connection with the appraisal proceeding, including
without limitation reasonable attorneys' fees and fees and expenses of
experts, to be charged pro rata against the value of all shares entitled to
appraisal.
No appraisal proceedings in the Delaware court will be dismissed as to any
Dissenting Stockholder without the approval of the Delaware court, and this
approval may be conditioned upon terms which the Delaware Court deems just.
From and after the effective time of the merger, Dissenting Stockholders
will not be entitled to vote any shares of common stock of Health Power
subject to demand for appraisal for any purpose (or consent by written action)
and will not be entitled to receive payment of dividends or other
distributions in respect of such shares, except for dividends or other
distributions payable to Health Power stockholders of record at a date prior
to the effective time of the merger.
38
<PAGE>
Failure to take any required step in connection with appraisal rights may
result in the loss of such rights. Any Health Power stockholder who loses such
rights will only be entitled to receive the merger consideration.
PROVISIONS OF THE MERGER AGREEMENT
This section of the Proxy Statement describes material provisions of the
merger agreement. The description of the merger agreement contained in this
Proxy Statement is qualified in its entirety by reference to the complete text
of the merger agreement, a copy of which is attached as Annex A to this Proxy
Statement, and is incorporated herein by this reference. You are urged to
review the merger agreement carefully and in its entirety.
General
At the effective time of the merger, HP Acquisition will merge into Health
Power, HP Acquisition will cease to exist, and Health Power will survive the
merger as a subsidiary of Security Capital. The surviving corporation will
continue to be governed by Delaware law. The certificate of incorporation and
bylaws of HP Acquisition will be the initial certificate of incorporation and
bylaws of the surviving corporation. The directors and officers of HP
Acquisition immediately prior to the effective time of the merger will be the
initial directors and officers of the surviving corporation.
Merger Consideration
At the effective time of the merger, each share of common stock of Health
Power and all other shares of capital stock of Health Power that are owned by
Health Power or any subsidiary of Health Power or by HP Acquisition will be
canceled and retired and will cease to exist, and no consideration will be
paid for any such shares. All other issued and outstanding shares of common
stock of Health Power, except for shares held by stockholders who properly
perfect their appraisal rights under Delaware law, will be converted into the
right to receive $7.03 in cash, without interest, assuming the merger closes
on December 8, 2000. This amount was derived by dividing the following number
by 3,888,460 (the total number of shares of common stock of Health Power
outstanding on the date of this Proxy Statement): the total consideration of
$36,250,000 minus the sum of (i) $2,597,663 (Health Power's indebtedness
assuming a December 8, 2000 closing); (ii) $462,840 (the aggregate amount to
be paid to terminate Health Power's outstanding stock options); (iii)
$4,742,727 (the aggregate amount of the contract termination payments to be
made to Dr. Master and the CMI Executive Team), and (iv) $1,125,000 (Health
Power's estimated transaction expenses). Health Power will be permitted to
reduce its indebtedness by $6,667 per day for each day that the closing of the
merger occurs after December 8, 2000, which in turn will increase the total
cash merger consideration to Health Power stockholders. Therefore, the merger
consideration payable to Health Power stockholders will increase by
approximately $0.002 per share per day for each day that the closing of the
merger occurs after December 8, 2000. See also "Interests in Certain Persons
in the Merger--Termination of Change in Control Agreements" and "Interests in
Certain Persons in the Merger--Termination of Dr. Master's Employment
Agreement." See also "--Treatment of Stock Options" described below.
At the effective time of the merger, all stockholders of Health Power,
except for stockholders who properly perfect their appraisal rights under
Delaware law, will cease to have any rights with respect to their shares of
common stock other than the right to receive the merger consideration in
accordance with the terms of the merger agreement. Health Power stockholders
who properly perfect their appraisal rights will be entitled to a judicial
determination of the fair value of their shares of common stock of Health
Power and will receive from the surviving corporation payment of such fair
value in cash, together with a fair rate of interest, if any, as determined by
the court. Health Power stockholders who properly perfect their appraisal
rights will not be entitled to any portion of the merger consideration.
However, shares held by stockholders who fail to perfect, or who otherwise
effectively withdraw or lose, their appraisal rights under Delaware law will
be treated as though they had been converted as of the effective date of the
merger into the right to receive the merger consideration. See "Appraisal
Rights under Delaware Law."
39
<PAGE>
At the effective time of the merger, each share of common stock of HP
Acquisition issued and outstanding immediately prior to the effective time of
the merger will be converted into one share of common stock of the surviving
corporation.
Treatment of Stock Options
At the effective time of the merger, and subject to obtaining the agreements
described below, each holder of an outstanding option to purchase common stock
of Health Power pursuant to one of Health Power's stock option plans will be
entitled to receive, in consideration for the termination of such option, an
amount in cash, less any applicable withholding taxes, equal to one of the
following: (a) for options with an exercise price per share greater than the
merger consideration, $1.00 for each option terminated; and (b) for options
with an exercise price per share less than the merger consideration, the
difference between the merger consideration and the exercise price per share
for each option terminated. At the effective time of the merger, all Health
Power options will be canceled. On November 9, 2000, there were outstanding
options to purchase an aggregate of 245,827 shares of common stock of Health
Power under Health Power's four stock option plans. The executive officers and
directors of Health Power, as well as the holders of all other outstanding
options, have entered into agreements pursuant to which they will terminate
their options in accordance with the foregoing terms. The obtainment of these
agreements was a condition to Security Capital's obligation to complete the
merger. See also "Interests of Certain Persons in the Merger--Stock Options."
Representations and Warranties
The merger agreement contains customary representations and warranties by
Health Power, Security Capital, and HP Acquisition relating to, among other
things:
. The corporate organization, existence and standing of each;
. The authority of each to enter into the merger agreement, and the
noncontravention of certain agreements and documents upon execution of
the merger agreement;
. Pending and threatened litigation affecting each;
. The compliance by each with applicable laws;
. Health Power's and Security Capital's engagement and payment of fees to
finders, brokers, or agents in connection with the merger agreement;
. The status of Security Capital and HP Acquisition as not being
"interested stockholders" of Health Power under Section 202 of the
Delaware General Corporation Law prior to entering into the merger
agreement and the stockholder voting agreements;
. The compliance by Security Capital and Health Power with the federal
securities laws and the accuracy of the financial statements and other
information included in filings with the Securities and Exchange
Commission;
. The solvency of the surviving corporation;
. The status of HP Acquisition as a subsidiary of Security Capital formed
solely for the purpose of engaging in the merger transaction and which
has not otherwise conducted any other business;
. The capital structure of Health Power;
. The subsidiaries of Health Power;
. The absence of certain material changes or events with respect to Health
Power since December 31, 1999;
. Tax filings and tax payments by Health Power;
40
<PAGE>
. Real estate and personal property of Health Power;
. Environmental matters affecting Health Power;
. Employee benefit plans and labor matters of Health Power;
. The opinion of RJA;
. Certain material contracts and indemnity agreements of Health Power;
. Insurance of Health Power;
. Transactions between Health Power and its officers, directors and
affiliates;
. Filings by Health Power with certain regulatory authorities; and
. The final windup of the health maintenance organization subsidiary of
Health Power.
Covenants
Pursuant to the merger agreement, Health Power has agreed that, except with
Security Capital's consent, during the period from the date of the merger
agreement to the effective time of the merger, Health Power will carry on its
business in the ordinary course consistent with its past practice. During that
time Health Power will also use commercially reasonable efforts to preserve
intact its business, keep the services of its current officers and other key
employees available, and preserve its relationships with customers, suppliers
and others having business dealings with it. The merger agreement provides
that, prior to the effective time, neither Health Power nor any of its
operating subsidiaries will, among other things (with limited exceptions):
. Declare or pay dividends other than dividends paid by any of Health
Power's subsidiaries to Health Power;
. Split, combine or reclassify any of its capital stock;
. Repurchase, redeem or otherwise acquire any of its capital stock;
. Issue, sell or encumber any stock of any class of Health Power or any
other securities of Health Power;
. Make any capital expenditure more than $100,000 individually or $250,000
in the aggregate;
. Acquire any material assets other than in the ordinary course of its
business consistent with past practices;
. Sell, lease, encumber or dispose of any material assets other than in
the ordinary course of its business consistent with past practices;
. Incur any long-term or short-term indebtedness except pursuant to credit
facilities in existence on the date of the merger agreement, or make any
loans, advances or capital contributions or investments other than in
the ordinary course of business consistent with past practice;
. Pay, discharge or satisfy any claims, liabilities or obligations other
than in the ordinary course of business consistent with past practice;
. Change any accounting principles or practices used by it;
. Make any changes with respect to its employee benefit plans or any
payments not required by such a plan;
. Make any changes with respect to agreements between it or any of its
subsidiaries and any director, officer or employee whose base
compensation exceeds $100,000 or increase the compensation or fringe
benefits of any employee whose base compensation exceeds $100,000, or,
except in the ordinary course consistent with past practice, increase
the compensation or fringe benefits of any employee whose base
compensation is less than $100,000;
41
<PAGE>
. Amend its certificate of incorporation or bylaws;
. Liquidate, dissolve, merge, consolidate, restructure, recapitalize or
reorganize, or make plans to take any of the preceding steps;
. Make or change any tax election or compromise or settle any material tax
liability;
. Enter into any transaction involving payments in excess of $60,000 with
any person who is an officer, director or affiliate of Health Power or
of any of its subsidiaries, with a relative of any of the preceding
persons or entities or with any affiliate of any of the preceding
persons or entities;
. Enter into any noncompetition or other agreement which may restrict the
business activities of Health Power or of any of its subsidiaries;
. Settle or compromise any pending or threatened litigation; or
. Enter into any new indemnification agreement regarding any director,
officer, employee or agent of Health Power or of any of its subsidiaries
or make any changes to any such agreement currently in effect.
No Solicitation
The merger agreement provides that Health Power will not, through any of the
officers, directors, employees, investment bankers, attorneys, representatives
or agents of Health Power or its subsidiaries:
. Solicit, initiate, or encourage any inquiries or proposals that would
constitute an "acquisition proposal";
. Engage in negotiations or discussions concerning, or provide any
nonpublic information to anyone with respect to, an acquisition
proposal; or
. Agree to, approve or recommend an acquisition proposal, or otherwise
facilitate any attempt to implement an acquisition proposal.
However, Health Power may furnish information to a third party under a
customary confidentiality agreement and participate in discussions and
negotiations regarding an unsolicited acquisition proposal if and only to the
extent that the Board of Directors of Health Power determines in good faith,
based upon the advice of its outside legal counsel, that it is necessary to
take such action in order to comply with its fiduciary duties to Health Power
stockholders under applicable law. Health Power must promptly notify Security
Capital of the receipt of any acquisition proposal (identifying the person
making the proposal) and keep Security Capital informed of the status and
principal financial terms of the acquisition proposal. An "acquisition
proposal" refers to any offer or proposal for, or any indication of interest
in, a merger, consolidation, share exchange or other business combination
involving Health Power or any of its subsidiaries or the acquisition of any
equity interest in, or a substantial portion of the assets of, Health Power or
any of its subsidiaries, other than the transactions contemplated by the
merger agreement.
The merger agreement also provides that the Board of Directors of Health
Power is permitted to not recommend to stockholders that they vote in favor of
the adoption of the merger agreement, or to adversely withdraw or modify its
recommendation, but only if (i) Health Power has complied with its "no
solicitation" obligations under the merger agreement, (ii) a "superior
acquisition proposal" is pending at that time, and (iii) the Board of
Directors of Health Power determines in good faith, based upon the advice of
its outside legal counsel, that it is necessary to take such action in order
to comply with its fiduciary duties to Health Power stockholders under
applicable law. In addition, Health Power has agreed to provide written notice
to Security Capital of the superior acquisition proposal and identify the
party making the superior acquisition proposal. A "superior acquisition
proposal" refers to a bona fide written acquisition proposal to acquire
directly or indirectly all of the outstanding common stock of Health Power or
all or substantially all of the assets of Health Power and its subsidiaries,
which proposal is based upon definitive written financing agreements or
commitments that assure
42
<PAGE>
the availability of financing sufficient to complete the transaction and which
contains terms that the Board of Directors determines in good faith, based
upon the advice of its financial advisor, are more favorable to the
stockholders of Health Power than the merger agreement.
Additional Agreements
Stockholders Meeting; Proxy Material. Health Power has agreed to duly call,
give notice of, convene and hold a special meeting of its stockholders to
consider and take action on the merger agreement and use its reasonable
efforts to obtain the necessary approval of the merger agreement from its
stockholders. Health Power has agreed to file this Proxy Statement and include
in it a recommendation from the Special Committee and the Board of Directors
of Health Power that stockholders of Health Power vote in favor of adoption of
the merger agreement.
Other Filings. Health Power, Security Capital and HP Acquisition have agreed
to prepare and make any filings, in addition to this Proxy Statement, required
of them under federal or state law relating to the merger and the transactions
contemplated by the merger agreement, including any filing under the HSR Act,
notify the other parties of any comments or requests by a governmental entity
regarding such filings, and provide the other parties copies of any
correspondence from a governmental entity regarding such filings.
Efforts; Cooperation. Subject to the terms and conditions set forth in the
merger agreement, Health Power, Security Capital and HP Acquisition have
agreed to use their reasonable efforts and take all action necessary, proper
or advisable under applicable laws and regulations, and cooperate with the
other parties in their own efforts, to consummate and make effective as soon
as practicable the transactions contemplated by the merger agreement,
including defending any legal proceeding related to the merger, causing any
injunction or restraining order to be lifted, or executing any additional
instruments to carry out the intent of the merger agreement.
Indemnification and Insurance. The certificate of incorporation of the
surviving corporation will provide Health Power's directors and officers with
indemnification which is essentially the same as the indemnification provided
them under the current certificate of incorporation of Health Power, and these
indemnification provisions are to remain in effect for at least six years
after the effective time of the merger. The merger agreement also provides
that Security Capital and the surviving corporation will use reasonable
efforts to keep Health Power's current policies of directors' and officers'
liability insurance in effect for six years from the effective time of the
merger to the extent that such policies provide coverage for events occurring
prior to the effective time of the merger. In addition, Security Capital and
HP Acquisition cannot take any action to modify or terminate the current
indemnification agreements with Health Power's directors and officers except
in accordance with the terms of those agreements and applicable law.
Termination of Stock Options. Prior to the effective time of the merger,
Health Power is required to have terminated all of its outstanding stock
options and to have taken any other action required to ensure that no
participant in any of Health Power's stock benefits plans has any right to
acquire any capital stock of the surviving corporation.
Windup of HMO Subsidiary. Health Power is required to have caused its health
maintenance organization subsidiary to complete its final windup.
Termination of Agreements. At or prior to the effective time of the merger,
Health Power is required to make the respective payments to the members of the
CMI Executive Team to terminate their change in control agreements and to Dr.
Master to terminate his employment agreement.
Fees and Expenses
Except as described below under "Termination, Termination Fees, Amendment
and Waiver," whether or not the merger is completed, all fees and expenses
incurred in connection with the merger, the merger agreement and the
transactions contemplated by the merger agreement will be paid by the party
incurring these fees or expenses.
43
<PAGE>
Conditions to the Merger
The respective obligations of Health Power, Security Capital and HP
Acquisition to complete the merger are subject to the satisfaction or waiver
on or prior to the effective date of the merger of the following closing
conditions:
. Health Power stockholders holding a majority of the outstanding common
stock of Health Power must have voted to adopt the merger agreement;
. The waiting period, including any extensions, under the HSR Act must
have expired;
. All consents, authorizations, orders and approvals of (or filings with)
any governmental entity, all consents and approvals by third parties
required by the merger agreement, and any other consent or approval that
may be required to prevent a breach of any agreement must have been
obtained, in each case on terms reasonably satisfactory to Health Power
and Security Capital, unless the breach would not materially adversely
affect Health Power or HP Acquisition and would not delay the ability of
either Health Power or HP Acquisition to complete the merger; and
. No injunction or other order, decree or ruling by any court of competent
jurisdiction or governmental entity and no statute, rule, regulation or
executive order by any governmental entity which would make the merger
illegal or otherwise prevent the transactions related to the merger may
be in effect.
In addition, Security Capital's and HP Acquisition's respective obligations
to complete the merger are subject to the satisfaction or waiver by them of
the following conditions:
. Health Power's representations and warranties in the merger agreement
must be true and correct in all material respects as of the effective
time of the merger (or, if the merger agreement sets forth a different
time, as of the time specified in the merger agreement);
. Health Power must have performed in all material respects all
obligations required to be performed by it under the merger agreement;
. No material adverse change may have occurred to Health Power or any of
its subsidiaries between the date of the merger agreement and the
effective time of the merger;
. No injunction, law, statute, order, rule, regulation, policy, guideline,
judgment, decision or order which would materially adversely affect the
right of the surviving corporation or any Health Power operating
subsidiary to own or operate any material portion of its business,
property or assets after the merger or which would compel the surviving
corporation or any Health Power operating subsidiary to dispose or of
hold separate any material portion of its respective businesses,
properties or assets may be threatened, pending or in effect;
. As of immediately prior to the effective time of the merger, holders of
no more than 10% of the outstanding shares of common stock of Health
Power may have taken action to assert appraisal rights under Delaware
law;
. Health Power must have furnished to Security Capital, upon request,
certificates of its officers and of the officers of its subsidiaries
stating that Health Power and its subsidiaries have complied with the
conditions specified in the merger agreement;
. Security Capital must have obtained financing in an amount not less than
$34,500,000 on terms reasonably acceptable to it;
. Health Power's health maintenance organization subsidiary must have
completed its final windup (this condition has been satisfied);
. The members of the CMI Executive Team must have entered into agreements
regarding the termination of their change in control agreements (this
condition has been satisfied);
. Dr. Master must have entered into an agreement to terminate his
employment agreement (this condition has been satisfied); and
44
<PAGE>
. The members of the CMI Executive Team must have entered into investment
agreements with respect to their investment in the surviving corporation
and employment agreements with respect to their continued employment
with CompManagement (this condition has been satisfied).
In addition, Health Power's obligation to complete the merger is subject to
the satisfaction or waiver by it of the following conditions:
. The representations and warranties of Security Capital and HP
Acquisition in the merger agreement must be true and correct in all
material respects as of the effective time of the merger (or, if the
merger agreement sets forth a different time, as of the time specified
in the merger agreement);
. Security Capital and HP Acquisition must have performed in all material
respects all obligations required to be performed by them under the
merger agreement;
. No material adverse change may have occurred to Security Capital or HP
Acquisition between the date of the merger agreement and the effective
time of the merger; and
. Security Capital and HP Acquisition must have furnished to Health Power,
upon request, certificates of their respective officers regarding the
compliance by each with the conditions specified in the merger
agreement.
Termination, Termination Fees, Amendment and Waiver
Termination of Merger Agreement. Health Power and Security Capital may
mutually agree in writing to terminate the merger agreement at any time before
or after stockholder approval. In addition, either Health Power or Security
Capital may terminate the merger agreement if:
. Health Power stockholders have voted on the merger agreement and the
votes are not sufficient to adopt the merger agreement;
. Any governmental entity issued an injunction or took any other action
permanently restraining, enjoining or otherwise prohibiting the merger
which has become final and non-appealable; or
. Health Power, Security Capital and HP Acquisition have not completed the
merger by December 31, 2000, without any material breach by the
terminating party.
In addition, Health Power may terminate the merger agreement if:
. Health Power enters into a definitive agreement to effect a superior
acquisition proposal, but only after (i) paying the break-up fee and
Security Capital's expenses as set forth below under "Break-Up Fee and
Expenses," and (ii) giving Security Capital five days' prior written
notice of its decision to terminate the merger agreement, which notice
must include the terms of superior acquisition proposal, the amount and
form of the proposed consideration and whether the superior acquisition
proposal is subject to any material conditions; or
. Either Security Capital or HP Acquisition has materially breached its
representations, warranties, or covenants in the merger agreement, and
the breach is not or cannot be cured within 15 days after written notice
to Security Capital or HP Acquisition.
In addition, Security Capital may terminate the merger agreement if:
. Health Power has materially breached any of its representations,
warranties, or covenants in the merger agreement, and the breach is not
or cannot be cured within 15 days after written notice to Health Power;
. Health Power enters into a definitive agreement to effect a superior
acquisition proposal, or the Board of Directors of Health Power
withdraws or modifies adversely its recommendation that the Health Power
stockholders vote in favor of adoption of the merger agreement;
45
<PAGE>
. At any time following 30 days after Security Capital receives notice
from Health Power that Health Power has received an acquisition proposal
unless Health Power has provided notice to Security Capital that the
acquisition proposal has been rejected or withdrawn or that Health Power
is no longer engaged in negotiations or discussions with the person
involved in the acquisition proposal (the 30-day period is subsequently
reduced, but not below 10 days, with respect to any subsequent
acquisition proposal made by the same person whose acquisition proposal
was previously rejected or withdrawn);
. There occurs a material adverse change to Health Power or its
subsidiaries between the date of the merger agreement and the closing of
the merger.
Break-Up Fee and Expenses. Except as described below, whether or not the
merger is completed, all fees and expenses incurred in connection with the
merger, the merger agreement and the transactions contemplated thereby will be
paid by the party incurring those fees or expenses.
Health Power must pay Security Capital a break-up fee of $1,000,000 and up
to $500,000 of Security Capital's and HP Acquisition's out-of-pocket costs and
expenses incurred in connection with the merger agreement and the transactions
contemplated by the merger agreement (including negotiation, structure and
analysis, arranging financing and financing commitment fees) if the merger
agreement is terminated:
. By either Health Power or Security Capital because Health Power enters
into a definitive agreement to effect a superior acquisition proposal;
. By Security Capital because the Board of Directors of Health Power
withdraws or modifies adversely its recommendation that stockholders
vote in favor of the adoption of the merger agreement; or
. By Security Capital because Security Capital received notice from Health
Power that Health Power had received an acquisition proposal from
another person and Health Power had not provided a second notice to
Security Capital within 30 days after the first notice which indicated
that the acquisition proposal had been rejected or withdrawn or that
Health Power was no longer engaged in discussions with the person
involved in the acquisition proposal.
In addition, Health Power must pay up to $500,000 of Security Capital's and
HP Acquisition's out-of-pocket costs and expenses incurred in connection with
the merger agreement and the transactions if the merger agreement is
terminated for failure to obtain the approval of the merger agreement from the
Health Power stockholders. In addition, Health Power must pay Security Capital
a break-up fee of $1,000,000 if Health Power accepts a written offer from a
third party to acquire Health Power or its subsidiaries within 12 months after
the merger agreement is terminated for failure to obtain the approval of the
merger agreement from the Health Power stockholders.
Escrow Arrangement. At the time of execution of the merger agreement, Health
Power and Security Capital entered into an escrow agreement pursuant to which
Security Capital placed $100,000 in escrow pending closing of the merger
transaction or termination of the merger agreement. Under the escrow
agreement, the escrowed funds will be distributed as follows if the merger
agreement is terminated:
. To Health Power, if Health Power terminates the merger agreement because
Security Capital or HP Acquisition materially breaches its
representations, warranties, or covenants in the merger agreement;
. To Health Power, if (i) either Health Power or Security Capital
terminates the merger agreement because the merger did not occur on or
before December 31, 2000, (ii) at the time of such termination, Security
Capital had no right to terminate the merger agreement other than
because its financing was not available, and (iii) Security Capital's
financing was not available based primarily on the failure of one or
more conditions other than the inability to syndicate the financing or
the occurrence of a material adverse change with respect to Health Power
and its subsidiaries; and
. To Security Capital, if the merger agreement is terminated for any other
reason.
46
<PAGE>
Amendment. The merger agreement may be amended by the parties at any time
before or after the approval of the merger agreement by the Health Power
stockholders. After such approval, however, the parties may not make any
amendment that reduces the amount or alters the kind of consideration to be
received by the Health Power stockholders.
Extension; Waiver. At any time prior to the effective time of the merger, a
party may (i) extend the time for the performance of any of the obligations or
other acts of the other parties, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained in the merger
agreement or in any document delivered pursuant to the merger agreement, or
(iii) waive compliance by the other parties with any of the agreements or
conditions contained in the merger agreement. Any agreement on the part of a
party to any extension or waiver will be valid only if it is in writing and
signed on behalf of the party extending or waiving the condition or agreement.
THE COMPANIES
Health Power
Health Power, through its subsidiaries, CompManagement and CompManagement
Health Systems, is an independent provider of comprehensive cost containment
and medical management services designed to minimize the costs of workers' and
unemployment compensation benefits for employers. Health Power was
incorporated under Delaware law on March 6, 1985.
CompManagement serves as a third party administrator for workers' and
unemployment compensation claims. CompManagement offers claims management,
risk management, and medical cost containment services primarily to Ohio
employers, as well as to a small number of employers located in the States of
Pennsylvania, Washington, and West Virginia. CompManagement is one of the
largest workers' compensation third party administrators in Ohio, currently
serving approximately 19,000 employers located throughout Ohio.
CompManagement Health Systems provides medical management services for
workers' compensation claims primarily to Ohio employers, as well as to a
small number of employers located in the States of Indiana and Kentucky.
CompManagement Health Systems owns and operates two state-wide certified
managed care organizations under Ohio's Health Partnership Program, a managed
care workers' compensation program. CompManagement Health Systems currently
serves approximately 47,000 employers located throughout Ohio. CompManagement
Health Systems' medical management services include, among other things, a
state-wide health care provider network; treatment guidelines and utilization
review procedures; peer review and quality assurance programs; provider
sanction and termination procedures; medical and vocational case management
programs; utilization management programs; medical bill adjudication and
payment procedures; dispute resolution procedures; provider, employer, and
employee relations and education programs; and health care fraud detection and
reporting programs. Because all workers' compensation claims are reimbursed by
the Ohio Bureau of Workers' Compensation, CompManagement Health Systems does
not assume any risk for the payment of medical or disability benefits to
employees with respect to their workers' compensation claims.
Health Power's principal executive offices are located at 1209 Orange
Street, Wilmington, Delaware 19801, and its telephone number is (302) 636-
7593. CompManagement's principal corporate offices are located at 6377 Emerald
Parkway, Dublin, Ohio 43016, and its telephone number is (614) 766-5223.
For a more detailed description of the business and properties of Health
Power, see the descriptions set forth in its Annual Report on Form 10-K for
the year ended December 31, 1999, which is incorporated into this Proxy
Statement by reference. See "Where You Can Find More Information."
Security Capital and HP Acquisition
Security Capital is a multi-industry holding company. Each subsidiary
company of Security Capital has a high degree of operating autonomy, with its
own chief executive officer and management. Management of each
47
<PAGE>
company has equity and other incentives based primarily on the performance of
the subsidiary. Management of Security Capital, as the parent company, is
primarily focused on strategic, financial, and senior level managerial issues,
as well as potential new related or other acquisitions.
Currently, Security Capital has three subsidiary companies, known as
Primrose, Pumpkin, and Possible Dreams. Primrose is a 98%-owned subsidiary
engaged primarily in the franchising of educational child care centers, with
related activities in real estate advisory and site selection services.
Primrose operates primarily in the southern, central and western sections of
the United States. Pumpkin is an 80%-owned subsidiary involved primarily in
the business of designing and distributing pumpkin carving kits and related
Halloween accessories. Pumpkin's activities are centered in the United States.
Possible Dreams is a 90%-owned subsidiary that operates as a designer,
importer, and distributor of collectible Christmas figurines and, to a lesser
extent, other specialty and seasonal giftware, primarily in the United States.
Security Capital is affiliated with Capital Partners(R), a private equity
investment firm. Shares of Security Capital's Class A common stock are traded
on the American Stock Exchange under the symbol SCC. Like Health Power,
Security Capital files annual and quarterly reports, proxy statements and
other documents with the Securities and Exchange Commission, and these
documents are available to the public from the same sources described below
with respect to Health Power. See "WHERE YOU CAN FIND MORE INFORMATION." The
general description of Security Capital provided above is very brief, and you
should refer to these documents for more detailed information.
Security Capital and HP Acquisition each has its principal executive offices
at One Pickwick Plaza, Suite 310, Greenwich, Connecticut 06830. The telephone
number of both companies is (203) 625-0770.
48
<PAGE>
MARKET PRICES OF COMMON STOCK
The common stock of Health Power is traded on the OTC Bulletin Board under
the symbol "HPWR." The common stock was traded on the Nasdaq National Market
system until June 25, 1999, on which date it was delisted. The high and low
sales prices of the common stock on November 13, 2000, the last trading day
before the printing of this Proxy Statement, were $6.4063 and $6.375,
respectively. The high and low sales prices of the common stock on June 8,
2000, the last trading day before the public announcement of the merger
agreement among Health Power, Security Capital, and HP Acquisition, were
$4.125 and $3.6857, respectively. As of November 9, 2000, there were 3,888,460
shares of common stock outstanding.
The following tables sets forth, for the calendar quarters indicated, the
high and low closing prices of the common stock of Health Power:
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
For the quarter ended 2000:
September 30 $6.25 $5.63
June 30 $6.00 $2.88
March 31 $4.50 $1.63
For the quarter ended 1999:
December 31 $2.50 $0.56
September 30 $2.75 $1.63
June 30 $3.13 $1.50
March 31 $3.75 $1.50
For the quarter ended 1998:
December 31 $3.75 $2.06
September 30 $6.00 $2.50
June 30 $6.75 $4.13
March 31 $7.13 $4.00
</TABLE>
Health Power has not paid any dividends during either of the past two fiscal
years. Except for restrictions imposed by the Delaware General Corporation
Law, there are no current restrictions on Health Power's present or future
ability to pay dividends.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON
STOCK OF HEALTH POWER.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of shares of common stock of Health Power by: (a) each
person known to Health Power to be the beneficial owner of more than 5% of its
outstanding common stock; (b) the directors of Health Power; (c) the chief
executive officer of Health Power and the four most highly compensated
executive officers of Health Power (other than the chief executive officer)
for the fiscal year ended December 31, 1999; and (d) all directors and
executive officers of Health Power, as a group. Except as otherwise indicated
in the notes to this table, beneficial ownership was determined as of November
9, 2000. On that date, there were 3,888,460 shares of common stock
outstanding. Except as otherwise indicated in the notes to this table, the
persons named in this table and their spouses have sole voting and investment
power with respect to all shares of common stock of Health Power owned by
them.
<TABLE>
<CAPTION>
Amount And Nature
Name and Beneficial Owner Of Beneficial Ownership(/1/) Percent Of Class
------------------------- ---------------------------- ----------------
<S> <C> <C>
Dr. Bernard F. Master 1,280,673(/2/)(/3/) 32.3%
340 Tucker Drive
Worthington, Ohio 43085
Heartland Advisors, Inc. 776,300(/4/) 19.9%
789 North Market Street
Milwaukee, Wisconsin 53202
Robert J. Bossart 315,828(/3/) 8.1%
6377 Emerald Parkway
Dublin, Ohio 43016
Jonathan R. Wagner 314,865(/3/) 8.1%
6377 Emerald Parkway
Dublin, Ohio 43016
Dr. Elliott P. Feldman 105,649 2.7%
Robert S. Garek 24,307(/5/) *
Dr. Crystal A. Kuykendall 11,501 *
Frank R. Nutis 45,981(/6/) 1.2%
Dr. Burt E. Schear 87,785 2.3%
Richard T. Kurth 77,267(/3/) 2.0%
Daniel R. Sullivan 5,684 *
All directors and executive 2,274,672 55.6%
officers
as a group (12 persons)
</TABLE>
----------
* Less than 1%.
(1) For each of the persons named above, this table includes the following
number of shares of common stock of Health Power which may be acquired
upon the exercise of options: Dr. Master--78,337 shares; Mr. Bossart--
21,710 shares; Mr. Wagner--20,747 shares; Dr. Feldman--18,614 shares; Mr.
Garek--14,880 shares; Dr. Kuykendall--4,000 shares; Mr. Nutis--16,325
shares; Dr. Shear--10,663 shares; and Mr. Sullivan--2,800. The number of
shares of common stock of Health Power which may be acquired by all
directors and executive officers as a group includes options for 203,552
shares. All of the foregoing options will be terminated at the effective
time of the merger in exchange for payments in the aggregate amount of
362,419. See "Interests of Certain Persons in the Merger--Stock Options."
50
<PAGE>
(2) Includes 2,400 shares owned by trusts of which Dr. Master or his spouse is
the trustee.
(3) Robert J. Bossart, Richard T. Kurth, Dr. Bernard F. Master, and Jonathan
R. Wagner have each given a proxy with respect to 294,118, 63,791,
1,196,336, and 294,118 shares of common stock of Health Power,
respectively, to Security Capital in connection with the matter to be
voted on at the Special Meeting. See "Interests of Certain Persons in the
Merger--Stockholder Voting Agreements."
(4) Beneficial ownership was determined as of December 31, 1999, and is based
upon a Schedule 13G/A filed by Heartland Advisors, Inc. with the
Securities and Exchange Commission. Heartland Advisors, Inc. is an
investment adviser registered under Section 203 of the Investment Advisors
Act of 1940.
(5) Does not include any shares owned by Mr. Garek's spouse. Mr. Garek
specifically disclaims any beneficial ownership of such shares.
(6) Includes 5,000 shares owned by a trust of which Mr. Nutis is the trustee.
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS
The following table sets forth certain information with respect to the
purchase of common stock of Health Power since January 1, 1998, by Health
Power or by members of the CMI Executive Team. No information is given for any
person before such person became an affiliate of Health Power.
<TABLE>
<CAPTION>
Date of Shares of Common Price
Name Purchase Stock Purchased Per Share Where and How Purchased
---- --------------- ---------------- --------- ---------------------------
<S> <C> <C> <C> <C>
Robert J. Bossart August 19, 1998 2,537 shares $3.94 Nasdaq Open Market Purchase
Richard T. Kurth August 19, 1998 5,075 shares $3.94 Nasdaq Open Market Purchase
April 1, 1999 1,000 shares $2.88 Nasdaq Open Market Purchase
Jonathan R. Wagner August 19, 1998 2,537 shares $3.94 Nasdaq Open Market Purchase
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
Health Power files annual and quarterly reports, proxy statements, and other
documents with the Securities and Exchange Commission. These documents are
available to the public. Stockholders may read and obtain copies of any
document Health Power files from the following sources:
. the public reference facilities at the principal office of the
Securities and Exchange Commission located at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington DC 20549 (telephone 1-800-SEC-0330);
. the public reference facilities at the regional offices of the
Securities and Exchange Commission, CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center,
Suite 1300, New York, New York 10048 (telephone 1-800-SEC-0330);
. the website of the Securities and Exchange Commission:
http://www.sec.gov; or
. commercial document retrieval services, including commercial websites.
The Securities and Exchange Commission allows companies such as Health Power
to incorporate information from one document filed with the Securities and
Exchange Commission into another separately filed document, a practice known
as "incorporating by reference." As a result, Health Power is permitted to
disclose important information in this Proxy Statement by incorporating
information from other documents filed with the Securities and Exchange
Commission into the Proxy Statement and referring stockholders to these other
documents. This Proxy Statement incorporates by reference information from the
documents set forth in the table below, except for any information superceded
by information in this Proxy Statement. These documents contain important
information about Health Power and its finances; the information in these
documents is deemed to be included in this Proxy Statement.
51
<PAGE>
<TABLE>
<CAPTION>
Document filed by Health Power (File
No. 000-23220)
with the Securities and Exchange Period Covered by Document
Commission or Date Filed
------------------------------------ --------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Report on Form 10-Q Quarter ended March 31, 2000
Quarterly Report on Form 10-Q Quarter ended June 30, 2000
Quarterly Report on Form 10-Q Quarter ended September 30, 2000
Current Report on Form 8-K Dated June 15, 2000
Current Report on Form 8-K Dated August 25, 2000
Transaction Statement on Schedule September 21, 2000, Amendment No. 1
13E-3 filed November 8, 2000, Amendment No. 2
filed November 14, 2000, Amendment No. 3
filed November 17, 2000
</TABLE>
HEALTH POWER ALSO HEREBY INCORPORATES BY REFERENCE ADDITIONAL DOCUMENTS THAT
IT FILES WITH THE SECURITIES AND EXCHANGE COMMISSION BETWEEN THE DATE OF THIS
PROXY STATEMENT AND THE DATE OF THE SPECIAL MEETING.
All of the information about Security Capital and HP Acquisition contained
or incorporated by reference in this Proxy Statement has been supplied by
Security Capital and HP Acquisition, and Health Power has supplied all
information relating to Health Power.
Health Power is sending to its stockholders, together with this Proxy
Statement, its Annual Report on Form 10-K for the year ended December 31,
1999, as well as its Form 10-Q for the quarter ended September 30, 2000. These
documents are referred to above; stockholders can obtain any of them from
Health Power or the Securities and Exchange Commission. All documents
incorporated by reference are available from Health Power without charge,
excluding all exhibits unless Health Power has specifically incorporated by
reference an exhibit into this Proxy Statement. Stockholders may obtain any
document incorporated by reference into this Proxy Statement by sending a
written request to:
Paul A. Miller, Esq.
General Counsel
Health Power, Inc.
c/o CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Telephone No. 614-760-8119
If you would like to request documents from Health Power, please do so by
November 30, 2000, so that you will receive them before the Special Meeting.
Stockholders should rely only on the information contained or incorporated
by reference in this Proxy Statement in determining how to vote their shares
at the Special Meeting. Health Power has not authorized anyone to provide you
with any information that is different from the information contained in this
Proxy Statement.
This Proxy Statement is dated November 17, 2000. Stockholders should not
assume that the information contained in the Proxy Statement is accurate as of
any date other than the date of this Proxy Statement regardless of the date on
which this Proxy Statement is mailed.
52
<PAGE>
STOCKHOLDER PROPOSALS FOR FISCAL 2001 ANNUAL MEETING
Due to the date of the Special Meeting, Health Power does not intend to hold
an annual meeting of stockholders in 2000. Health Power's 2001 annual meeting
of stockholders has not been scheduled, and if the merger is consummated, the
2001 annual meeting will not be held. If the merger is not consummated, Health
Power anticipates holding the 2001 annual meeting in May 2001. Stockholder
proposals for the 2001 annual meeting must be received by Health Power on or
prior to January 31, 2001, in order to be included in the proxy statement and
form of proxy for that meeting. Stockholder proposals should be sent to Paul
A. Miller, Esq., General Counsel, Health Power, Inc., c/o CompManagement,
Inc., 6377 Emerald Parkway, Dublin, Ohio 43016. A stockholder who would like
to submit a proposal to Health Power should refer to the applicable rules and
regulations of the Securities and Exchange Commission.
PROXY SOLICITATION EXPENSES
Health Power will bear the cost of soliciting proxies for the Special
Meeting. In addition to the use of the mails, proxies may be solicited by
officers, directors, and regular employees, personally or by telephone. Health
Power will reimburse banks, brokers, and other nominees for any out-of-pocket
expenses incurred by them in sending proxy materials to the beneficial owners
of Health Power's common stock. If follow-up requests for proxies are
necessary, Health Power may employ other persons to make these requests.
OTHER MATTERS
The Board of Directors of Health Power does not know of any other matters to
come before the Special Meeting. However, if any other matters properly come
before the Special Meeting, the persons named in the accompanying proxy card
intend to vote the proxy in accordance with their judgment on such matters.
Dr. Elliott P. Feldman,
Secretary
53
<PAGE>
DETACH CARD HERE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
HEALTH POWER, INC. This Proxy is Solicited on Behalf of the Board of Directors
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 8, 2000
The undersigned hereby appoints Dr. Bernard F. Master and Robert J. Bossart,
and each of them, with full power of substitution, proxies to vote and act with
respect to all shares of common stock, $0.01 par value (the "Shares"), of
Health Power, Inc., a Delaware corporation (the "Company"), which the
undersigned is entitled to vote, at the Company's Special Meeting of
Stockholders (the "Special Meeting") to be held at the offices of the Company's
subsidiary, CompManagement, Inc., located at 6377 Emerald Parkway, Dublin, Ohio
43016, on December 8, 2000, at 9:00 a.m., local time, and at any and all
adjournments thereof, with all the powers the undersigned would possess if
present in person, on the following proposal and any other matters that may
properly come before the Special Meeting or any adjournment thereof.
1. Proposal to adopt the Agreement and Plan of Merger dated as of June 8, 2000,
as amended (the "Merger Agreement"), by and among Security Capital
Corporation, HP Acquisition Corp., and the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Special Meeting or any adjournment
thereof.
(Continued and to be signed on reverse side)
<PAGE>
DETACH CARD HERE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(Continued from other side)
The Shares represented by this Proxy will be voted upon the proposal listed
above in accordance with the instructions given by the undersigned, but if no
instructions are given, this Proxy will be voted FOR the proposal to adopt the
Merger Agreement as set forth in Item 1, above, and in the discretion of the
proxies on any other matter which properly comes before the Special Meeting.
Dated ___________________
-------------------------
(Signature of
Stockholder)
-------------------------
(Signature of
Stockholder)
(Please sign legibly
exactly as the name is
printed on the left.) If
the registration is as
attorney, executor,
administrator, trustee
or guardian, please sign
full title as such.
PLEASE DATE, SIGN AND MAIL PROXY PROMPTLY
<PAGE>
ANNEX A
MERGER AGREEMENT
AGREEMENT AND PLAN OF MERGER
AMONG
SECURITY CAPITAL CORPORATION,
HP ACQUISITION CORP.
AND
HEALTH POWER, INC.
June 8, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
AGREEMENT AND PLAN OF MERGER.............................................. A-1
Background Information................................................. A-1
Statement of Agreement................................................. A-1
ARTICLE I................................................................. A-1
THE MERGER................................................................ A-1
(S)1.1 The Merger..................................................... A-1
(S)1.2 Closing........................................................ A-2
(S)1.3 Directors and Officers......................................... A-2
ARTICLE II................................................................ A-2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS............................................................. A-2
(S)2.1 Effect on Capital Stock........................................ A-2
(a) Capital Stock of MergerCo.................................. A-2
(b) Cancellation of Treasury Stock and MergerCo-Owned Stock.... A-2
(S)2.2 Conversion of Securities....................................... A-2
(S)2.3 Company Stock Options and Related Matters...................... A-3
ARTICLE III............................................................... A-4
PAYMENT FOR SHARES; DISSENTING SHARES..................................... A-4
(S)3.1 Payment for Shares of Old Common............................... A-4
(S)3.2 Dissenting Shares.............................................. A-5
ARTICLE IV................................................................ A-6
REPRESENTATIONS AND WARRANTIES OF MERGERCO AND PARENT..................... A-6
(S)4.1 Representations and Warranties of MergerCo..................... A-6
(a) Organization............................................... A-6
(b) Authorization; Validity of Agreement; Necessary Action..... A-6
(c) Ownership.................................................. A-6
(d) Consents and Approvals; No Violations...................... A-6
(e) Takeover Laws.............................................. A-7
(f) Formation of MergerCo; No Prior Activities................. A-7
(S)4.2 Representations and Warranties of Parent....................... A-7
(a) Organization............................................... A-7
(b) Authorization; Validity of Agreement; Necessary Action..... A-7
(c) Consents and Approvals; No Violations...................... A-7
(d) Takeover Laws.............................................. A-7
(e) Litigation................................................. A-7
(f) No Brokers................................................. A-8
(g) SEC Documents; Financial Statements........................ A-8
(h) Compliance with Laws....................................... A-8
(i) Contracts; Debt Instruments................................ A-8
(j) Investment Company Act of 1940............................. A-9
(k) Solvency................................................... A-9
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE V................................................................ A-9
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ A-9
(S)5.1 Existence; Good Standing; Authority; Compliance With Law..... A-9
(S)5.2 Authorization, Validity and Effect of Agreements............. A-10
(S)5.3 Capitalization............................................... A-10
(S)5.4 Subsidiaries................................................. A-11
(S)5.5 No Violation; Consents....................................... A-11
(S)5.6 SEC Documents; Financial Statements.......................... A-12
(S)5.7 Litigation................................................... A-12
(S)5.8 Absence of Certain Changes................................... A-12
(S)5.9 Taxes........................................................ A-13
(S)5.10 Properties................................................... A-14
(S)5.11 Environmental Matters........................................ A-14
(S)5.12 Employee Benefit Plans....................................... A-15
(S)5.13 Labor Matters................................................ A-17
(S)5.14 No Brokers................................................... A-17
(S)5.15 Opinion of Financial Advisor................................. A-17
(S)5.16 Insurance.................................................... A-17
(S)5.17 Contracts and Commitments; Indemnity Agreements.............. A-17
(S)5.18 Related Party Transactions................................... A-18
(S)5.19 DOI Reports.................................................. A-18
(S)5.20 Health Power HMO............................................. A-18
(S)5.21 Definition of the Company's Knowledge........................ A-18
ARTICLE VI............................................................... A-19
CONDUCT OF BUSINESS PENDING THE MERGER................................... A-19
(S)6.1 Conduct of Business by the Company........................... A-19
(S)6.2 Financing.................................................... A-20
ARTICLE VII.............................................................. A-21
ADDITIONAL AGREEMENTS.................................................... A-21
(S)7.1 Stockholders Meeting; Proxy Materials........................ A-21
(S)7.2 Other Filings................................................ A-22
(S)7.3 Additional Agreements........................................ A-23
(S)7.4 Fees and Expenses............................................ A-23
(S)7.5 No Solicitations............................................. A-23
(S)7.6 Officers' and Directors' Indemnification and Insurance....... A-24
(S)7.7 Access to Information; Confidentiality....................... A-24
(S)7.8 Public Announcements......................................... A-24
(S)7.9 Notification of Certain Matters.............................. A-25
(S)7.10 Termination of Company Stock Plans........................... A-25
(S)7.11 Windup of Health Power HMO................................... A-25
(S)7.12 Termination of Severance Arrangements........................ A-25
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VIII............................................................ A-26
CONDITIONS TO THE MERGER................................................ A-26
Conditions to the Obligations of Each Party to Effect the
(S)8.1 Merger..................................................... A-26
(a) Stockholder Approval................................... A-26
(b) Hart-Scott-Rodino Act.................................. A-26
(c) Other Regulatory Approvals............................. A-26
(d) Other Consents......................................... A-26
(e) No Injunctions or Orders; Illegality................... A-26
(S)8.2 Conditions to Obligations of MergerCo and Parent........... A-26
(a) Representations and Warranties......................... A-26
(b) Performance and Obligations of the Company............. A-27
(c) Material Adverse Change................................ A-27
(d) No Restraints.......................................... A-27
(e) Dissenting Shares...................................... A-27
(f) Certificates........................................... A-27
(g) Financing.............................................. A-27
(h) Health Power HMO....................................... A-27
(i) Termination of Severance Agreements.................... A-27
(j) Investment and Employment Agreements with Executive
Management................................................. A-27
(S)8.3 Conditions to Obligations of the Company................... A-28
(a) Representations and Warranties......................... A-28
(b) Performance of Obligations of MergerCo and Parent...... A-28
(c) Material Adverse Change................................ A-28
(d) Certificates........................................... A-28
ARTICLE IX.............................................................. A-28
TERMINATION, AMENDMENT AND WAIVER....................................... A-28
(S)9.1 Termination................................................ A-28
(S)9.2 Effect of Termination...................................... A-29
ARTICLE X............................................................... A-31
GENERAL PROVISIONS...................................................... A-31
(S)10.1 Notices.................................................... A-31
(S)10.2 Interpretation............................................. A-32
(S)10.3 Survival................................................... A-32
(S)10.4 Miscellaneous.............................................. A-32
(S)10.5 Assignment................................................. A-32
(S)10.6 Severability............................................... A-32
(S)10.7 Choice of Law/Consent to Jurisdiction...................... A-32
(S)10.8 Extension; Waiver.......................................... A-33
(S)10.9 Amendment.................................................. A-33
(S)10.10 No Agreement Until Executed................................ A-33
(S)10.11 Parent..................................................... A-33
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
1999 Form 10-K.......................................... (S)5.10(a)
Acquisition Proposal.................................... (S)7.1(e)
Agreement............................................... Introduction
Break-Up Fee............................................ (S)9.2(b)
Bylaws.................................................. (S)1.1
Cashed Shares........................................... (S)3.1(c)
Certificate of Incorporation............................ (S)1.1
Certificate of Merger................................... (S)1.2
Certificates............................................ (S)3.1(b)
Closing................................................. (S)1.2
Closing Date............................................ (S)1.2
CMI Management Team..................................... (S)7.12
Code.................................................... (S)3.1(i)
Commitment Due Date..................................... (S)6.2(a)
Company................................................. Introduction
Company Board........................................... Background Information
Company Disclosure Schedule............................. Article V, Introduction
Company Material Adverse Effect......................... (S)5.1(a)
Company Properties...................................... (S)5.10(a)
Company SEC Reports..................................... (S)5.6
Company Stock Plans..................................... (S)2.3
Company Subsidiary...................................... (S)2.1(b)
Company Operating Subsidiaries.......................... (S)5.1(b)
Confidentiality Agreement............................... (S)7.7
CTC..................................................... (S)10.7
Debt Encumbrances....................................... (S)5.10(a)
DGCL.................................................... Background Information
Dissenting Shares....................................... (S)3.2
Dr. Master's Employment Agreement....................... (S)7.12
Effective Time.......................................... (S)1.2
ERISA................................................... (S)5.12(a)
Escrow Agent............................................ Background Information
Escrow Agreement........................................ Background Information
Exchange Act............................................ (S)4.1(d)
Exchange Agent.......................................... (S)3.1(a)
Exchange Fund........................................... (S)3.1(a)
Governmental Entity..................................... (S)4.1(d)
Health Power HMO........................................ (S)5.1(b)
HSR Act................................................. (S)4.1(d)
Indebtedness............................................ (S)2.2(a)
Indemnity Agreement..................................... (S)5.17(b)
Independent Committee................................... Background Information
Injunction.............................................. (S)8.1(e)
Laws.................................................... (S)4.2(h)
Material Contracts...................................... (S)5.17(a)
Material Deviation From Projections..................... (S)5.1(a)
Merger.................................................. Background Information
Merger Consideration.................................... (S)2.2(a)
MergerCo................................................ Introduction
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
MergerCo Board........................................... (S)4.1(b)
MergerCo Common Stock.................................... (S)2.1(a)
MergerCo Material Adverse Effect......................... (S)4.1(a)
Necessary Financing...................................... (S)6.2(a)
Delaware Courts.......................................... (S)10.7
Old Common............................................... Background Information
Options.................................................. (S)2.3
Other Filings............................................ (S)7.2
Parent................................................... Introduction
Parent Material Adverse Effect........................... (S)4.2(a)
Parent/MergerCo Collection Expenses...................... (S)9.2(b)
Parent/MergerCo Expenses................................. (S)9.2(b)
Parent SEC Reports....................................... (S)4.2(g)
Parties.................................................. Background Information
Person................................................... (S)10.2
Plan(s).................................................. (S)5.12(a)
Preferred Stock.......................................... (S)5.3
Proposed Financing Commitments........................... (S)6.2(a)
Proxy Statement.......................................... (S)7.1(a)(ii)(B)
Raymond James............................................ (S)5.14
Regulatory Approval(s)................................... (S)5.5
Reporting Tail Coverage.................................. (S)7.6(b)
SEC...................................................... (S)4.2(g)
Securities Act........................................... (S)4.2(g)
Severance Agreements..................................... (S)7.12
Stockholder Voting Agreement............................. Background Information
Subsidiary............................................... (S)10.2
Superior Proposal........................................ (S)7.1(e)
Surviving Corporation.................................... (S)1.1
Tax Returns.............................................. (S)5.9(k)
Taxes.................................................... (S)5.9(j)
Transaction Proposal..................................... (S)9.2(c)
Transactions............................................. Background Information
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made as of June 8,
2000, among Security Capital Corporation, a Delaware corporation ("Parent"),
HP Acquisition Corp., a Delaware corporation which is direct or indirect
subsidiary of Parent ("MergerCo"), and Health Power, Inc., a Delaware
corporation (the "Company").
Background Information
A. The respective Boards of Directors of Parent, MergerCo and the Company
have each approved the merger of MergerCo with and into the Company (the
"Merger") in accordance with the Delaware General Corporation Law (the
"DGCL"), and, upon the terms and subject to the conditions set forth in this
Agreement, holders of shares of Common Stock, $0.01 par value, of the Company
("Old Common") that were issued and outstanding immediately prior to the
Effective Time (as hereinafter defined) will, except as otherwise provided
herein, be entitled to the right to receive cash.
B. The Board of Directors of the Company (the "Company Board") has, in light
of and subject to the terms and conditions set forth in this Agreement,
determined that the Merger Consideration (as hereinafter defined) to be paid
for each share of Old Common in the Merger is fair to the stockholders of the
Company and that the Merger is otherwise advisable and fair to and in the best
interests of the Company and its stockholders. An independent committee of the
Company Board consisting of five members of the Company Board, none of whom is
an employee of the Company or any of its Subsidiaries (as defined below) (the
"Independent Committee"), has made the same determinations. Prior to the date
hereof, the Company Board has approved this Agreement and the transactions
contemplated or required hereby, including the Merger (collectively, the
"Transactions"), and has resolved to recommend that the holders of shares of
Old Common approve and adopt this Agreement.
C. Concurrently herewith and as a condition and inducement to Parent's and
MergerCo's willingness to enter into this Agreement with the Company, each of
those persons listed on Exhibit A-1 attached hereto, each of whom is a
stockholder of the Company, has entered into a Stockholder Voting Agreement
with Parent (collectively, the "Stockholder Voting Agreements"), substantially
in the form of Exhibit A-2 attached hereto.
D. Concurrently herewith and as a condition and inducement to the Company's
willingness to enter into this Agreement, Parent or MergerCo has delivered to
U.S. Trust Company of New York, as escrow agent (the "Escrow Agent"), $100,000
by wire transfer of immediately available funds, to be held and disbursed by
the Escrow Agent pursuant to the terms of the Escrow Agreement, by and among
Parent, MergerCo, the Company and the Escrow Agent, as same may be amended
after the date hereof (the "Escrow Agreement"), substantially in the form of
Exhibit B attached hereto.
E. MergerCo, Parent and the Company (collectively, the "parties") desire to
make certain representations, warranties, covenants and agreements in
connection with the Transactions and to prescribe various conditions to the
Transactions.
Statement of Agreement
The parties acknowledge the accuracy of the foregoing Background Information
and agree as follows:
ARTICLE I
The Merger
(S)1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company and MergerCo shall consummate the Merger
pursuant to which (a) MergerCo shall be merged with and into the Company and
the separate corporate existence of MergerCo shall thereupon cease, (b) the
Company
<PAGE>
shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to
be governed by the laws of the State of Delaware, and (c) the separate
corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger. The
certificate of incorporation of the Company (the "Certificate of
Incorporation"), as in effect immediately prior to the Effective Time, shall
be amended and restated in its entirety substantially as set forth in Exhibit
1.1A attached hereto and thereafter shall be the Certificate of Incorporation
until further amended in accordance with law and the Certificate of
Incorporation. The bylaws of the Company (the "Bylaws"), as in effect
immediately prior to the Effective Time, shall be amended and restated in
their entirety substantially as set forth in Exhibit 1.1B attached hereto and
thereafter shall be the Bylaws of the Surviving Corporation until further
amended in accordance with law, the Certificate of Incorporation and the
Bylaws. The Merger shall have the effects specified in the DGCL.
(S)1.2 Closing. The closing of the Merger (the "Closing") shall take place
at a time and on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver (by the
applicable party entitled to the benefit thereof) of all of the conditions set
forth in Article VIII hereof (other than conditions with respect to actions
the respective parties will take at the Closing itself) (the "Closing Date"),
at the offices of Baker & Hostetler LLP, Capital Square, 65 East State Street,
Columbus, Ohio, unless another time, date or place is agreed to by the
parties. MergerCo and the Company shall duly execute and file a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State
of Delaware in accordance with the DGCL on the Closing Date. The Merger shall
become effective as of the time of filing of the Certificate of Merger, or at
such later time agreed to by the parties as is specified in the Certificate of
Merger (the "Effective Time").
(S)1.3 Directors and Officers. The directors and officers of MergerCo
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation until
his respective successor has been elected and qualified.
ARTICLE II
Effect of The Merger on The Capital Stock of The Constituent Corporations
(S)2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of Old
Common or any holder of shares of capital stock of MergerCo:
(a) Capital Stock of MergerCo. Each share of the common stock of MergerCo
(the "MergerCo Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and MergerCo-Owned Stock. Each share
of Old Common and all other shares of capital stock of the Company that are
owned by the Company or any Subsidiary of the Company (as defined in
Section 10.2) (a "Company Subsidiary") and all shares of Old Common and
other shares of capital stock of the Company owned by MergerCo shall be
canceled and retired and shall cease to exist, and no consideration shall
be delivered or deliverable in exchange therefor.
(S)2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of MergerCo, the Company or the
holders of any shares of Old Common:
(a) Subject to the other provisions of this Section 2.2 and to Section
3.1(i), each share of Old Common issued and outstanding immediately prior
to the Effective Time, excluding (i) shares of Old Common owned by the
Company or any of the Company Subsidiaries or by MergerCo and (ii)
Dissenting Shares (as defined in Section 3.2), shall be converted into the
right to receive the quotient obtained by dividing:
(x) Thirty-Six Million Two Hundred Fifty Thousand Dollars
($36,250,000), minus the sum of (A) the difference between $4,850,996,
which was the amount of outstanding Indebtedness (as defined
A-2
<PAGE>
below) of the Company and the Company Subsidiaries on a consolidated
basis as at December 31, 1999, and the lesser of (I) $1,800,000 and
(II) the principal amount by which such Indebtedness is reduced by
payments made prior to the Closing (as defined below), (B) the Option
Termination Consideration (as defined below), (C) the Severance
Consideration (as defined below), and (D) the Company Expenses (as
defined below), by
(y) the total number of shares of Old Common issued and outstanding
immediately prior to the Effective Time (excluding all shares of Old
Common held in the Company's treasury) (the "Merger Consideration"),
which Parent shall pay, or cause to be paid, in cash to the holder
thereof, without any interest thereon, upon surrender and exchange of
the Certificate (as defined in Section 3.1) representing such share of
Old Common. The Merger Consideration shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse
stock split, or other change in the number of shares of Old Common
outstanding between the date hereof and the Effective Time.
The term "Company Expenses" shall mean an amount equal to all out-of-pocket
costs and expenses, including, without limitation, those which may be payable
after the Closing, incurred by the Company or any Company Subsidiary in
connection with this Agreement and the Transactions, including, without
limitation, the fees and disbursements of the Company's outside legal counsel,
accountants, consultants and other professional service providers retained by
or on behalf of the Company, together with all other out-of-pocket costs and
expenses incurred by the Company in connection with analyzing and structuring
the Transactions, negotiating the terms and conditions of this Agreement and
any other agreements or other documents relating to the Transactions,
complying with the terms of this Agreement and causing the closing conditions
set forth herein to be fulfilled. The Company and Parent shall in good faith
consult with one another and mutually determine the amount of the Company
Expenses at least three (3) business days prior to the Closing, and prior to
the Closing, the Company will keep Parent reasonably informed of the Company
Expenses as incurred to date. As used in this Agreement, the term
"indebtedness" or "Indebtedness" shall include, for any person, (A)
indebtedness created, issued or incurred for borrowed money (whether by loan
or the issuance and sale of debt securities or the sale of property to another
person subject to an understanding or agreement, contingent or otherwise, to
repurchase such property from such person), (B) obligations of such person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable arising, and accrued expenses incurred, in the
ordinary course of business, (C) indebtedness of another person secured by a
lien on the property of such person, (D) payment obligations of such person in
respect of letters of credit, banker's acceptances or similar instruments
issued or accepted by banks and other financial institutions for the account
of such person, (E) capital lease obligations of such person, and (F)
indebtedness of another person guaranteed by such person, provided, however,
that no item of "indebtedness" shall be deducted more than once as
"indebtedness" because it falls within more than one of the above categories.
(b) All such shares of Old Common, when converted as provided in Section
2.2(a), shall no longer be considered outstanding and shall automatically
be canceled and retired and shall cease to exist, and each Certificate
previously evidencing such shares shall thereafter represent only the right
to receive the Merger Consideration. The holders of Certificates previously
evidencing shares of Old Common outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to the Old
Common except as otherwise provided herein or by law and, upon the
surrender of Certificates in accordance with Section 3.1, shall only have
the right to receive for their shares of Old Common the Merger
Consideration, without any interest thereon.
(S)2.3 Company Stock Options and Related Matters. As of and subject to the
occurrence of the Effective Time, each outstanding option, warrant or similar
right (including any related stock appreciation right) (an "Option") issued,
awarded or granted pursuant to any plan, agreement or arrangement of the
Company or any Company Subsidiary and entitling the holder thereof to purchase
a share of Old Common or any other capital stock of the Company or any Company
Subsidiary (the "Company Stock Plans") shall be terminated, subject to
obtaining the consents discussed below, and each holder of a terminated Option
shall be entitled to receive, in consideration for the termination of such
Option, an amount in cash (less applicable withholding taxes) equal to
A-3
<PAGE>
one of the following: (a) for Options with an exercise price per share greater
than the Merger Consideration ("Out of the Money Options"), $1.00 for each Out
of the Money Option terminated; or (b) for Options with an exercise price per
share less than the Merger Consideration ("In the Money Options"), the excess
of the Merger Consideration over the exercise price per share for each In the
Money Option terminated. The total consideration to be paid for the
termination of all Options is hereinafter referred to as the "Option
Termination Consideration." At least five (5) business days prior to the
Closing (x) the Company shall deliver to Parent agreements (in a form
reasonably acceptable to Parent) executed by each director and officer of the
Company and any Company Subsidiary holding an Option acknowledging that the
payment made pursuant to this Section 2.3 is being made in full satisfaction
of such individual's rights under the applicable Company Stock Plans and any
option awards granted thereunder, and (y) the Company shall use commercially
reasonable efforts to obtain executed agreements of the type described in
clause (x) from each other holder of an option to purchase shares of Old
Common awarded under the Company Stock Plans. Immediately prior to the
Effective Time, Parent shall pay to the Company an amount equal to the Option
Termination Consideration, and, in turn, the Company shall immediately pay, or
cause to be paid, to each holder of a terminated Option the Option Termination
Consideration to which such holder is entitled to receive pursuant to such
holder's agreement described in clauses (x) and (y) above.
ARTICLE III
Payment for Shares; Dissenting Shares
(S)3.1 Payment for Shares of Old Common.
(a) Prior to the Effective Time, Parent or MergerCo shall appoint a bank or
trust company reasonably acceptable to the Company to act as exchange agent
(the "Exchange Agent"). At or prior to the Effective Time, Parent or MergerCo
shall deposit, or cause to be deposited, with the Exchange Agent in an account
(the "Exchange Fund") the aggregate Merger Consideration to which holders of
shares of Old Common shall be entitled at the Effective Time pursuant to
Section 2.2(a). The Merger Consideration shall be invested by the Exchange
Agent, as directed by Parent, provided such investments shall be limited to
direct obligations of the United States of America, obligations for which the
full faith and credit of the United States of America is pledged to provide
for the payment of principal and interest, commercial paper rated of the
highest quality by Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or certificates of deposit issued by a commercial bank having at
least $1,000,000,000 in assets; provided, that no loss on investments made
pursuant to this Section 3.1(a) shall relieve Parent of its obligation to pay
the Merger Consideration pursuant to Section 2.2.
(b) Promptly after the Effective Time, MergerCo shall cause the Exchange
Agent to mail to each record holder of certificates (the "Certificates") that
immediately prior to the Effective Time represented shares of Old Common a
form of letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent.
(c) In effecting the payment of the Merger Consideration with respect to
shares of Old Common represented by Certificates entitled to payment of the
Merger Consideration pursuant to Section 2.2(a) (the "Cashed Shares"), upon
the surrender of each such Certificate, Parent shall cause the Exchange Agent
to pay the holder of such Certificate the Merger Consideration multiplied by
the number of Cashed Shares, in consideration therefor. Upon such payment such
Certificate shall forthwith be canceled.
(d) From and after the Effective Time until surrendered in accordance with
paragraph (c) above, each Certificate representing shares of Old Common shall
represent solely the right to receive the Merger Consideration relating
thereto. No interest or dividends shall be paid or accrued on the Merger
Consideration. If the Merger Consideration (or any portion thereof) is to be
delivered to any person other than the person in whose name the Certificate
formerly representing shares of Old Common surrendered therefor is registered,
it shall be a
A-4
<PAGE>
condition to the right to receive such Merger Consideration that the
Certificate so surrendered be properly endorsed or otherwise be in proper form
for transfer and that the person surrendering such shares of Old Common shall
pay to the Exchange Agent any transfer or other taxes required by reason of
the payment of the Merger Consideration to a person other than the registered
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
(e) Promptly following the date which is 180 days after the Effective Time,
the Exchange Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the
Transactions, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate formerly representing a share of Old Common may
surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in
consideration therefor the Merger Consideration relating thereto without any
interest or dividends thereon.
(f) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Old Common which
were outstanding immediately prior to the Effective Time.
(g) None of Parent, MergerCo, the Company or the Exchange Agent shall be
liable to any person in respect of any cash from the Exchange Fund delivered
to a public official in good faith pursuant to any applicable abandoned
property, escheat or similar law.
(h) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation,
the provision of reasonable and customary indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration payable to such person pursuant to this Agreement.
(i) The Surviving Corporation shall be entitled to deduct and withhold from
the Merger Consideration otherwise payable pursuant to this Agreement to any
holder of shares of Old Common such amounts as the Surviving Corporation is
required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of state, local or foreign tax law. To the extent that amounts are
so withheld by the Surviving Corporation, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
of the shares of Old Common with respect to which such deduction and
withholding was made by the Surviving Corporation.
(S)3.2 Dissenting Shares. Notwithstanding any other provision of this
Agreement to the contrary, shares of Old Common which are held by stockholders
who shall have not voted in favor of the Merger or consented thereto in
writing and who shall have demanded properly in writing appraisal for such
shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders instead shall be entitled
to receive payment of the appraised value of such shares of Old Common held by
them in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares of Old Common under such Section 262 shall thereupon be deemed to have
been converted into and to have become exchangeable, as of the Effective Time,
for the right to receive, without any interest thereon, the Merger
Consideration upon surrender, in the manner provided in Section 3.1, of the
Certificate or Certificates that, immediately prior to the Effective Time,
evidenced such shares of Old Common. The Company shall give Parent prompt
notice of any demands received by the Company for appraisal of shares of Old
Common, and, prior to the Effective Time, Parent shall have the right to
participate in all negotiations and proceedings with respect to such demands.
Prior to the Effective Time, the Company shall not, except with the prior
written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands.
A-5
<PAGE>
ARTICLE IV
Representations and Warranties of Mergerco and Parent
(S)4.1 Representations and Warranties of MergerCo. MergerCo and Parent,
jointly and severally, hereby represent and warrant to the Company that the
statements contained in this Section 4.1 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 4.1).
(a) Organization. MergerCo is a corporation duly organized, validly existing
and in good standing under the laws of its state of formation and has all
requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its
business as now being and proposed to be conducted, except where the failure
to be so organized, existing and in good standing or to have such power,
authority, and governmental approvals would not reasonably be expected to have
a material adverse effect on the business, results of operations or condition
(financial or otherwise) of MergerCo (a "MergerCo Material Adverse Effect").
(b) Authorization; Validity of Agreement; Necessary Action. MergerCo has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the Transactions. The execution, delivery and performance by
MergerCo of this Agreement and the consummation of the Transactions have been
duly authorized by the Board of Directors of MergerCo (the "MergerCo Board")
and by the sole stockholder of MergerCo, and no other corporate action on the
part of MergerCo is necessary to authorize the execution and delivery by
MergerCo of this Agreement and the consummation of the Transactions. This
Agreement has been duly executed and delivered by MergerCo and, assuming the
due and valid authorization, execution and delivery hereof by the Company, is
a valid and binding obligation of MergerCo enforceable against MergerCo in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally and
to general principles of equity.
(c) Ownership. MergerCo is a direct or indirect wholly-owned Subsidiary of
Parent.
(d) Consents and Approvals; No Violations. Except for the filing of the
Certificate of Merger in accordance with the DGCL, and such filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR Act"), and applicable
state or foreign securities or state "Blue Sky" laws, none of the execution,
delivery or performance of this Agreement by MergerCo, the consummation by
MergerCo of the Transactions or compliance by MergerCo with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or bylaws of MergerCo, (ii)
require any filing with, or permit, authorization, consent or approval of, any
Governmental Entity (as hereinafter defined) with respect to MergerCo, (iii)
result in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which MergerCo is a party or by
which it or any of its properties or assets may be bound, or (iv) violate any
order, writ, injunction, decree, statute, rule, regulation or other law
applicable to MergerCo or any of its properties or assets, excluding from the
foregoing clauses (ii), (iii) and (iv) such violations, breaches or defaults
(including, for purposes hereof, the failure to make a filing or to obtain a
permit, authorization, consent or approval) which would not, individually or
in the aggregate, reasonably be expected to (A) have a MergerCo Material
Adverse Effect, (B) impair the ability of MergerCo to consummate the
Transactions, or (C) prevent or materially delay the consummation of the
Transactions. For purposes of this Agreement, "Governmental Entity" means any
governmental or quasi-governmental authority including, without limitation,
any federal, state, territorial, county, municipal or other governmental or
quasi-governmental agency, board, branch, bureau, commission, court,
department or other instrumentality or political unit or subdivision, whether
domestic or foreign.
A-6
<PAGE>
(e) Takeover Laws. MergerCo was not, immediately prior to the execution of
this Agreement and the Stockholder Voting Agreements, an "interested
stockholder" of the Company within the meaning of Section 203 of the DGCL.
(f) Formation of MergerCo; No Prior Activities. MergerCo was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement
and has not engaged in any business activities or conducted any operations
other than in connection with its incorporation or organization and the
transactions contemplated by this Agreement.
(S)4.2 Representations and Warranties of Parent. Parent hereby represents
and warrants to the Company that the statements contained in this Section 4.2
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 4.2).
(a) Organization. Parent is a corporation duly organized, validly existing
and in good standing under the laws of its state of formation and has all
requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority, and
governmental approvals would not reasonably be expected to have a material
adverse effect on the business, results of operations or condition (financial
or otherwise) of Parent (a "Parent Material Adverse Effect").
(b) Authorization; Validity of Agreement; Necessary Action. Parent has all
requisite power and authority to execute and deliver this Agreement and to
consummate the Transactions. The execution, delivery and performance by Parent
of this Agreement and the consummation of the Transactions have been duly
authorized by all necessary action on the part of Parent and no other action
on the part of Parent is necessary to authorize the execution and delivery by
Parent of this Agreement and the consummation of the Transactions. This
Agreement has been duly executed and delivered by Parent and, assuming due and
valid authorization, execution and delivery hereof by the Company, is a valid
and binding obligation of Parent enforceable against Parent in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights generally and to general principles
of equity.
(c) Consents and Approvals; No Violations. Except for such filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the HSR Act, and state or
foreign securities or state "Blue Sky" laws, none of the execution, delivery
or performance of this Agreement by Parent, the consummation by Parent of the
Transactions or compliance by Parent with any of the provisions hereof will
(i) conflict with or result in any breach of any provision of the certificate
of incorporation or bylaws of Parent, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity with respect to
Parent, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
is a party or by which it or any of its properties or assets may be bound, or
(iv) violate any order, writ, injunction, decree, statute, rule, regulation or
other law applicable to Parent or any of its properties or assets, excluding
from the foregoing clauses (ii), (iii) and (iv) such violations, breaches or
defaults (including, for purposes hereof, the failure to make a filing or to
obtain a permit, authorization, consent or approval) which would not,
individually or in the aggregate, reasonably be expected to (A) have a Parent
Material Adverse Effect, (B) impair the ability of Parent to consummate the
Transactions, or (C) prevent or materially delay the consummation of the
Transactions.
(d) Takeover Laws. Parent was not, immediately prior to the execution of
this Agreement and the Stockholder Voting Agreements, an "interested
stockholder" of the Company within the meaning of Section 203 of the DGCL.
(e) Litigation. There are no actions, suits, proceedings, investigations or
claims pending or, to the knowledge of Parent, threatened against MergerCo or
Parent, at law or in equity, or before or by any court,
A-7
<PAGE>
commission, governmental department, board, bureau, agency, administrative
officer or executive, or instrumentality, whether federal, state, local or
foreign, or before any arbitrator, that would, individually or in the
aggregate, reasonably be expected to prevent or materially delay the
consummation of the Transactions or to have a Parent Material Adverse Effect
or a MergerCo Material Adverse Effect, as the case may be.
(f) No Brokers. Neither Parent nor MergerCo has entered into any contract,
arrangement or understanding with any person which may result in the
obligation of such entity or the Company to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or consummation of the Transactions,
except that Capital Partners, Inc. (or its affiliate) will receive an
investment banking fee in connection with the consummation of the
Transactions.
(g) SEC Documents; Financial Statements. Each periodic report, registration
statement, definitive proxy statement and other document filed by Parent with
the Securities and Exchange Commission (the "SEC") since January 1, 1998 (as
such documents have since the time of their filing been amended, the "Parent
SEC Reports"), as of their respective dates, complied in all material respects
with the requirements of the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act") or the Exchange
Act, as the case may be, applicable to such Parent SEC Reports, and none of
the Parent SEC Reports when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for such
statements, if any, as have been modified by subsequent filings prior to the
date hereof. The Parent SEC Reports include all the documents (other than
preliminary material) that Parent was required to file with the SEC since
January 1, 1998. The financial statements of Parent included in the Parent SEC
Reports, as of their respective filing dates with the SEC, complied as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated
in the notes thereto or, in the case of the unaudited statements, as permitted
by Form 10-Q of the SEC) and present fairly the consolidated financial
position of Parent and its consolidated Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the
periods then ended (subject in the case of the unaudited statements, to
normal, year-end audit adjustments). Since December 31, 1999, neither Parent
nor any of its subsidiaries has incurred any liabilities or obligations,
whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise and whether due or to become due, except (i) as and to the extent
set forth on the audited balance sheet of Parent and its subsidiaries as of
December 31, 1999 (including the notes thereto) (the "Parent Balance Sheet"),
(ii) for liability under this Agreement, (iii) as incurred after December 31,
1999 in the ordinary course of business and consistent with past practices,
(iv) as described in the Parent SEC Reports filed and publicly available as of
the date hereof, or (v) as would not, individually or in the aggregate,
reasonably be expected to have a MergerCo Material Adverse Effect or a Parent
Material Adverse Effect, as the case may be.
(h) Compliance with Laws. Except as specifically disclosed in the Parent SEC
Reports filed and publicly available prior to the date hereof, MergerCo and
Parent are in compliance with all applicable laws, statutes, orders, rules,
regulations, policies or guidelines promulgated, or judgments, decisions or
orders entered, by any federal, state, local or foreign court or governmental
authority (collectively, "Laws") applicable to Parent or its Subsidiaries, or
to their respective businesses or properties, except where the failure to
comply would not, individually or in the aggregate, reasonably be expected to
have a MergerCo Material Adverse Effect or a Parent Material Adverse Effect,
as the case may be.
(i) Contracts; Debt Instruments. Neither Parent nor any of its Subsidiaries
has received a written notice that Parent or any of its Subsidiaries is in
violation of or in default under any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or
any other material contract, agreement, arrangement or understanding, to which
it is a party or by which it or any of its properties or assets is bound, nor
does any such violation or default exist, except to the extent such violation
or default would not, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect or a MergerCo Material Adverse
Effect, as the case may be.
A-8
<PAGE>
(j) Investment Company Act of 1940. Neither Parent nor any of its
Subsidiaries is, or at the Effective time will be, required to be registered
under the Investment Company Act of 1940, as amended.
(k) Solvency. Assuming that the representations and warranties of the
Company contained in this Agreement or in any instrument delivered by the
Company pursuant to this Agreement are correct and complete without giving
effect to any materiality or knowledge qualification included in any such
representation or warranty, then, immediately after giving effect to the
Transactions and the closing of the financing contemplated by this Agreement,
(i) the Surviving Corporation shall be able to pay its debts as they become
due and shall own assets having a fair salable value greater than the amounts
required to pay its debts (including the amount that is reasonably likely to
become payable in respect of all contingent liabilities), and (ii) the
Surviving Corporation shall have adequate capital to carry on its business. No
transfer of property is being made, or caused to be made, and no obligation is
being incurred, or caused to be incurred, by Parent or MergerCo in connection
with the Transactions and the closing of the financing contemplated by this
Agreement with the intent to hinder, delay or defraud either present or future
creditors of Parent, MergerCo or the Surviving Corporation.
ARTICLE V
Representations and Warranties of the Company
The Company hereby represents and warrants to Parent and MergerCo that the
statements contained in this Article V are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Article V), except as set forth in the
disclosure schedule, arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Article V, delivered at or prior to the
execution hereof to Parent and MergerCo (the "Company Disclosure Schedule").
(S)5.1 Existence; Good Standing; Authority; Compliance With Law.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which the ownership of its
property or the conduct of its business makes such qualification necessary,
except where the failure to be so licensed or qualified or in good standing
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the business, assets, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company and
the Company Subsidiaries taken as a whole (a "Company Material Adverse
Effect"). Without limiting any other events or occurrences which may
constitute a Company Material Adverse Effect, a Company Material Adverse
Effect shall be deemed to have occurred for purposes of this Agreement if, as
at the end of any calendar month during the Company's 2000 fiscal year
preceding the Closing, the actual consolidated results of operations (as
measured by EBITDA) of the Company and its consolidated Subsidiaries for the
portion of such fiscal year completed through the end of such calendar month
deviate, in terms of less favorable results, by more than ten percent (10%)
from the Company's projected consolidated results of operations (as measured
by EBITDA) through the end of such period, as delivered in writing by the
Company to Parent prior to the date hereof (a "Material Deviation from
Projections"). The Company has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now
being and proposed to be conducted.
(b) Except as set forth in Section 5.1(b) of the Company Disclosure
Schedule, each of the Company Operating Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being and proposed to be conducted, and is duly qualified to
do business and is in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so
qualified or to be in good standing would not reasonably be expected to have a
Company Material Adverse Effect. For
A-9
<PAGE>
purposes of this Agreement, the term "Company Operating Subsidiaries" shall
mean all of the Company Subsidiaries other than Health Power HMO, Inc., an
Ohio corporation and a Subsidiary of the Company ("Health Power HMO"). Health
Power HMO is a corporation duly organized under the laws of Ohio.
(c) Except as set forth in Section 5.1(c) of the Company Disclosure
Schedule, each of the Company and the Company Operating Subsidiaries possess,
and has possessed since January 1, 1998, all licenses, permits, variances,
exemptions, orders and other authorizations and approvals of all Governmental
Entities required to conduct their respective businesses as now conducted or
proposed to be conducted by them (the "Company Permits"), except where the
failure to possess such licenses, permits, variances, exemptions, orders,
authorizations or approvals has not had, or would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
The Company and each of the Company Operating Subsidiaries are, and at all
times since January 1, 1998, have been, in compliance with the terms of the
Company Permits, except where the failure so to comply has not had, or would
not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
(d) Section 5.1(d) of the Company Disclosure Schedule contains a true and
complete list of all regulatory undertakings, orders or other commitments of
any nature, which are not embodied in applicable Laws or specifically
disclosed in the Company SEC Reports (as defined below) filed and publicly
available prior to the date of this Agreement, entered into by the Company or
any of the Company Operating Subsidiaries with any regulatory entity,
including any insurance or other regulatory bodies, which undertakings, orders
or other commitments limit or purport to limit the business of the Company or
any of the Company Operating Subsidiaries as presently conducted or as the
same may be conducted in the future. Except as specifically disclosed in the
Company SEC Reports filed and publicly available prior to the date of this
Agreement, the conduct of the respective businesses of the Company and each of
the Company Operating Subsidiaries is, and at all times since January 1, 1998
has been, in compliance with all Laws applicable to the Company or to any of
the Company Operating Subsidiaries or to their respective businesses or
properties, except for noncompliance which has not had, or would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except as disclosed in Company SEC Reports filed and
publicly available after December 31, 1999 and prior to the date hereof, no
investigation or review by any Governmental Entity with respect to the Company
or any of the Company Subsidiaries (including, without limitation, Health
Power HMO) is pending or, to the knowledge of the Company, threatened, other
than those which would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(S)5.2 Authorization, Validity and Effect of Agreements. Each of the Company
and the Company Subsidiaries, as applicable, has all requisite power and
authority to enter into the Transactions and to execute and deliver this
Agreement, and (other than, with respect to the Merger, the approval and
adoption of this Agreement by the holders of a majority of the total
outstanding voting power of the shares of Old Common, as required by the DGCL)
to perform its obligations hereunder and to consummate the Transactions. The
Company Board, at a meeting duly called and held on May 9, 2000, (i)
determined that this Agreement and the Merger are advisable, and fair to and
in the best interests of the holders of shares of Old Common, (ii) approved
this Agreement and the Transactions (and, for purposes of Section 203 of the
DGCL, also specifically approved the Stockholder Voting Agreements), and (iii)
resolved to recommend that the holders of shares of Old Common approve and
adopt this Agreement. Subject only to the approval of this Agreement by the
holders of shares of Old Common, the execution by the Company of this
Agreement and the consummation of the Transactions have been duly authorized
by all requisite corporate action on the part of the Company. This Agreement
has been duly executed and delivered by the Company and, subject to approval
by the holders of shares of Old Common, and assuming due and valid
authorization, execution and delivery thereof by MergerCo and Parent,
constitutes the valid and legally binding obligation of the Company,
enforceable against the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights generally and to general principles of equity.
(S)5.3 Capitalization. The authorized capital stock of the Company consists
of 10,000,000 shares of Old Common and 5,000,000 shares of Preferred Stock,
$0.01 par value (the "Preferred Stock"). As of the date of
A-10
<PAGE>
this Agreement: (i) no shares of Preferred Stock were issued or outstanding;
and (ii) no shares of Old Common and no shares of Preferred Stock were held in
the treasury of the Company or owned by any Company Subsidiary. All such
issued and outstanding shares of Old Common are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth in Section 5.3 of the Company Disclosure Schedule: (a) there are no
outstanding bonds, debentures, notes or other securities or obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the shares of Old
Common on any matter, (b) there are no outstanding options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company to issue, transfer or sell any shares
of capital stock or any other securities of the Company or any Company
Subsidiary, (c) there are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire
any shares of capital stock, partnership interests or any other securities of
the Company or any Company Subsidiary, (d) there are no equity equivalents
(including any phantom stock or stock appreciation rights, whether cash or
other), performance shares, interests in the ownership or earnings of the
Company or any Company Subsidiary or other similar rights issued by the
Company or any Company Subsidiary, and (e) neither the Company nor any Company
Subsidiary is under any obligation, contingent or otherwise, by reason of any
agreement or understanding to register the offer and sale or resale of any of
its securities under the Securities Act. As of the date hereof, there are no
declared but unpaid dividends outstanding with respect to the Old Common.
(S)5.4 Subsidiaries. Section 5.4 of the Company Disclosure Schedule sets
forth a list of the Company Subsidiaries. Except as set forth in Section 5.4
of the Company Disclosure Schedule, the Company owns directly or indirectly
each of the outstanding shares of capital stock or other equity interests of
each of the Company Subsidiaries free and clear of all liens, pledges,
security interests, claims or other encumbrances. Each of the outstanding
shares of capital stock of each of the Company Subsidiaries that is a
corporation is duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights. Except as set forth in Section 5.4 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary
owns directly or indirectly any interest or investment (whether equity or
debt) in any corporation, partnership, limited liability company, joint
venture, business trust or other person (other than investments in short-term
investment securities and trade receivables), nor is the Company or any
Company Subsidiary subject to any obligation or requirement to provide for or
obtain or make any such interest or investment.
(S)5.5 No Violation; Consents. None of the execution, delivery or
performance of this Agreement, the consummation by the Company of the
Transactions or compliance by the Company with any of the provisions hereof
will (a) conflict with or result in a breach of any provisions of the
certificate of incorporation, bylaws, or other organizational documents of the
Company or of any Company Subsidiary, (b) except as set forth in Section
5.5(b) of the Company Disclosure Schedule, violate, or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of the
Company or the Company Subsidiaries under, or result in being declared void,
voidable or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, lease,
license, permit, contract, agreement or other obligation or instrument to
which the Company or any of the Company Subsidiaries is a party, or by which
the Company or any of the Company Subsidiaries or any of their properties is
bound, (c) except for (i) the filing of the Certificate of Merger in
accordance with the DGCL, (ii) filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Exchange Act, the HSR Act, and applicable state or foreign securities or state
"Blue Sky" laws, and (iii) permits, authorizations, consents and approvals,
and other applicable requirements (other than those covered by clause (ii)
immediately above) of state Governmental Entities with regulatory authority
over the Company or any Company Subsidiary (each, individually, a "Regulatory
Approval" and, collectively, the "Regulatory Approvals"; each such requisite
Regulatory Approval being identified in Section 5.5(c) of the Company
Disclosure Schedule), require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, or (d) assuming that the
Regulatory Approvals
A-11
<PAGE>
are obtained, violate any Law applicable to the Company or any Company
Subsidiary or any of their respective properties or assets, excluding from the
foregoing clauses (b), (c) (other than subdivision (iii) thereof) and (d)
(other than any violation that would result from the failure to obtain any
Regulatory Approval), such violations, breaches or defaults which would not,
individually or in the aggregate, reasonably be expected to (A) have a Company
Material Adverse Effect, (B) impair the ability of the Company to consummate
the Transactions, or (C) prevent or materially delay the consummation of the
Transactions. The Company has no reason to believe that any Governmental
Entity, including, without limitation, the Ohio Bureau of Worker's
Compensation, will impose, in connection with the Transactions, an open
enrollment period with respect to any of the Company's managed care
organization activities, whether based on express regulatory authority to do
so or by informal request made in accordance with standard administrative
practices or procedures.
(S)5.6 SEC Documents; Financial Statements. Each periodic report,
registration statement, definitive proxy statement and other document filed by
the Company with the SEC since January 1, 1998 (as such documents have since
the time of their filing been amended, the "Company SEC Reports"), as of their
respective dates, complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, applicable to such
Company SEC Reports, and none of the Company SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
for such statements, if any, as have been modified by subsequent filings prior
to the date hereof. The Company SEC Reports include all the documents (other
than preliminary material) that the Company was required to file with the SEC
since January 1, 1998. The financial statements of the Company included in the
Company SEC Reports, as of their respective filing dates with the SEC,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Form 10-Q of the SEC) and present
fairly the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject in the case of
the unaudited statements, to normal, year-end audit adjustments). Since
December 31, 1999, neither the Company nor any of its subsidiaries has
incurred any liabilities or obligations, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due, except (i) as and to the extent set forth on the audited balance sheet of
the Company and its subsidiaries as of December 31, 1999 (including the notes
thereto) (the "Company Balance Sheet"), (ii) for liability under this
Agreement, (iii) as incurred after December 31, 1999 in the ordinary course of
business and consistent with past practices, (iv) as described in the Company
SEC Reports filed and publicly available as of the date hereof or (v) as could
not, individually, or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.
(S)5.7 Litigation. Except as disclosed in the Company SEC Reports or as
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect, there are no actions, suits, proceedings,
investigations or claims pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of the Company
Subsidiaries, or any of their respective assets or against or involving any of
their respective officers, directors or employees in connection with the
business or affairs of the Company or any Company Subsidiary, including,
without limitation, any claims for indemnification arising under any agreement
to which the Company or any Company Subsidiary is a party, whether at law or
in equity, or before or by any court, commission, governmental department,
board, bureau, agency, administrative officer or executive, or instrumentality
(including, without limitation any actions, suits, proceedings or
investigations with respect to the Transactions), whether federal, state,
local or foreign, or before any arbitrator.
(S)5.8 Absence of Certain Changes. Except as set forth in Section 5.8 of the
Company Disclosure Schedule, since December 31, 1999, the Company and the
Company Operating Subsidiaries have conducted their businesses in the ordinary
course of business, consistent with past practice, and there have not been:
(a) any events or occurrences that have had, or would reasonably be expected
to have, individually or in the aggregate, a
A-12
<PAGE>
Company Material Adverse Effect or (b) any action taken by the Company or any
of the Company Operating Subsidiaries that would require the consent of
MergerCo under Section 6.1 if taken after the execution of this Agreement.
(S)5.9 Taxes.
(a) The Company and each Company Subsidiary (i) has filed (or the Company
has timely filed on their behalf) when due (taking into account extensions)
with the appropriate Federal, state, local, foreign and other governmental
agencies, all income and other material Tax Returns (as defined below)
required to be filed by them, and all such Tax Returns were, at the time of
filing, correct and complete in all material respects and (ii) has either paid
when due or has established adequate accruals on their books and records
(exclusive of any accrual for deferred taxes to reflect timing differences
between book and tax accounting) for all income and other material Taxes (as
defined below) of the Company and its Subsidiaries (including the Company
Balance Sheet with respect to Taxes accrued as of December 31, 1999),
including Taxes being contested in good faith. There are no Tax liens upon any
property of the Company or any Company Subsidiary except liens for current
Taxes not yet due and payable, and there are no material Taxes claimed in
writing by any Taxing authority and received by the Company or any such
Subsidiary that, in the aggregate, would result in any Tax liability in excess
of the amount of the accruals for such Taxes (exclusive of any accrual for
deferred Taxes), and the Company and each Company Subsidiary have or will
establish in accordance with their normal accounting practices and procedures
accruals and reserves that are adequate for the payment of all income and
other material Taxes not yet due and payable and attributable to any period
preceding the Closing. None of the Company nor any Company Subsidiary has
filed a consent to the application of Section 341(f)(2) of the Code.
(b) No audit, assessment or other examination relating to Taxes by any
Taxing authority is pending with respect to any material Taxes due and payable
by the Company or any Company Subsidiary.
(c) Neither the Company nor any predecessor corporation, nor any of their
respective Subsidiaries, has executed or filed with the Internal Revenue
Service or any other Governmental Entity or any other Taxing authority any
agreement or other document extending, or having the effect of extending, the
period of assessment or collection of any Taxes.
(d) Neither the Company nor any Company Subsidiary is a party to or is bound
by (or will prior to the Closing become a party to or bound by) any Tax
indemnity, Tax sharing or Tax allocation agreement or other similar
arrangement which includes a party other than the Company and the Company
Subsidiaries. Neither the Company nor any of its Subsidiaries has been a
member of an affiliated group other than one of which Company was the common
parent, or filed or been included in a combined, consolidated or unitary Tax
return other than one filed by the Company (or a return for a group consisting
solely of its Subsidiaries and predecessors).
(e) The Company has not agreed, nor is it required, to make any adjustment
under Section 481(a) of the Code by reason of a change in accounting method or
otherwise.
(f) Neither the Company nor any Company Subsidiary is or has been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code and Parent or MergerCo is not required to
withhold tax on the purchase of the stock of the Company pursuant to the
Merger by reason of Section 1445 of the Code.
(g) The Company and each Company Subsidiary has withheld and paid over all
Taxes required to have been withheld and paid over and complied with all
information reporting and backup withholding requirements (including
maintenance of required records with regard thereto) in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(h) Except as set forth in Section 5.9(i) of the Company Disclosure
Schedule, neither the Company nor the Company Subsidiary has entered into any
compensatory arrangements with respect to the performance of
A-13
<PAGE>
services which payment thereunder could result in a nondeductible expense to
the Company or the Company Subsidiary pursuant to Code Section 162(m).
(i) For purposes of this Agreement, "Tax" or "Taxes" means all federal,
state, local and foreign income, property, sales, franchise, employment,
payroll, withholding, estimated minimum, excise and other taxes, tariffs and
governmental charges of any nature whatsoever, together with any interest,
penalties, assessments, deficiencies or additions to tax with respect thereto.
(j) For purposes of this Agreement, "Tax Returns" means all reports,
returns, declarations, statements and other information required to be
supplied to a taxing authority in connection with Taxes, including any
amendments thereof.
(S)5.10 Properties.
(a) All of the real estate properties owned or leased by the Company or any
of the Company Subsidiaries are set forth in Section 5.10(a) of the Company
Disclosure Schedule. Except as set forth in Section 5.10(a) of the Company
Disclosure Schedule, the Company or a Company Subsidiary owns good and
marketable title to each of the owned real properties identified in Section
5.10(a) of the Company Disclosure Schedule (the "Company Properties") free and
clear of liens, mortgages, or deeds of trust, security interests or other
encumbrances on title or leasehold interest which secure the payment of money
(collectively, "Debt Encumbrances"), other than Debt Encumbrances which secure
indebtedness which is disclosed in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 (the "1999 Form 10-K"), or in a
Company SEC Report filed subsequent to the filing of the 1999 Form 10-K.
(b) The Company and each Company Operating Subsidiary owns or leases all
machinery, equipment and other tangible personal property and assets necessary
for the conduct of its business as presently conducted, except where the
absence of such ownership or leasehold interest would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse
Effect. The Company and each Company Operating Subsidiary owns good title,
free and clear of all Debt Encumbrances, to all of the personal property and
assets reflected in the 1999 Form 10-K or in a Company SEC Report filed
subsequent to the filing of the 1999 Form 10-K, except for (i) assets which
have been disposed of to nonaffiliated third parties in the ordinary course of
business (except as set forth in Section 5.10(b) of the Company Disclosure
Schedule) or (ii) Debt Encumbrances which secure indebtedness which is
disclosed in the 1999 Form 10-K or in a Company SEC Report filed subsequent to
the filing of the 1999 Form 10-K.
(c) Except as set forth on Section 5.10(c) of the Company Disclosure
Schedule, the computer systems of each of the Company and the Company
Subsidiaries, including all hardware and software (collectively, the "Computer
Systems"), are presently serving the needs of the Company and the Company
Subsidiaries adequately. There are no infringement suits, actions or
proceedings pending or, to the Company's knowledge, threatened, with respect
to the Computer Systems.
(d) Except as set forth in Section 5.10(d) of the Company Disclosure
Schedule, the Company or one of the Company Operating Subsidiaries is the
owner of, or a licensee under a valid license for, all items of intangible
property which are material to the business of the Company or any of the
Company Operating Subsidiaries as currently conducted, including, without
limitation, trade names, unregistered trademarks and service marks, brand
names, patents and copyrights. There are no claims pending or, to the
Company's knowledge, threatened, that the Company or any of its Subsidiaries
is in violation of any such intangible property of any third party which
would, individually or in the aggregate, have a Company Material Adverse
Effect. No material infringement of any proprietary right owned by or licensed
by or to the Company or any of its Subsidiaries is known to the Company.
(S)5.11 Environmental Matters.
(a) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been received by the Company or any
of its Subsidiaries, no complaint has been served on the Company or
A-14
<PAGE>
any of its Subsidiaries, no penalty has been assessed and, to the knowledge of
the Company, no investigation is pending or has been threatened (each, an
"Action") by any Governmental Entity or other party with respect to any (i)
alleged violation by the Company or any of its Subsidiaries of any
Environmental Law, (ii) alleged failure by the Company or any such Subsidiary
to have any environmental permit, certificate, license, approval, registration
or authorization required in connection with the conduct of its business or
(iii) Regulated Activity, in each case where such Action has had, or would
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries has any Environmental
Liabilities that has had, or could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. There has
been no release of Hazardous Substances into the environment or violation of
any Environmental Law in either case by the Company or any such Subsidiary
which in either case has had, or would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
(c) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" means any and all Federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
codes, injunctions and governmental restrictions relating to the
environment or to emissions, discharges or releases of Hazardous Substances
into the environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances or the clean-up or other remediation thereof.
"Environmental Liabilities" means all liabilities which (i) arise under
Environmental Laws and (ii) relate to Regulated Activities occurring or
conditions existing on or prior to the Effective Time.
"Hazardous Substances" means any pollutants, contaminants, toxic,
radioactive, caustic or otherwise hazardous substance or waste, including
petroleum, its derivatives, by-products and other hydrocarbons and medical
or infectious waste that is regulated under or by any applicable
Environmental Law.
"Regulated Activity" means any generation, treatment, storage, recycling,
transportation, disposal or release of any Hazardous Substances.
(S)5.12 Employee Benefit Plans.
(a) Section 5.12(a) of the Company Disclosure Schedule contains a true and
complete list of each deferred compensation and each bonus or other incentive
compensation, stock purchase, stock option and other equity compensation plan,
program, agreement or arrangement; each severance or termination pay, medical,
surgical, hospitalization, life insurance and other "welfare" plan, fund or
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); each "pension" plan, fund or
program (within the meaning of section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan,
fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the Company
or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Company would be deemed a "single
employer" within the meaning of section 4001(b) of ERISA, or to which the
Company or an ERISA Affiliate is party, whether written or oral, for the
benefit of any employee or former employee of the Company or any Subsidiary of
the Company (individually, a "Plan" and, collectively, the "Plans") or with
respect to which the Company or any ERISA Affiliate otherwise has any
liability. Neither the Company, any Subsidiary of the Company nor any ERISA
Affiliate has any legal commitment to create any additional employee benefit
plan, fund, program, agreement or arrangement, or modify or change any
existing Plan that would affect any employee (an "Employee") or former
employee of the Company or any Subsidiary of the Company.
(b) With respect to each Plan, the Company has heretofore delivered or made
available to Parent and MergerCo true and complete copies of each of the
following documents:
(i) a copy of the Plan and any amendments thereto (or if the Plan is not
a written Plan, a description thereof);
A-15
<PAGE>
(ii) a copy of the three (3) most recent annual reports and actuarial
reports, if required under ERISA, and the most recent report prepared with
respect thereto in accordance with Statement of Financial Accounting
standards No. 87;
(iii) a copy of the most recent Summary Plan Description required under
ERISA with respect thereto, and all supplements or modifications thereto;
(iv) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement and the latest
financial statements thereof; and
(v) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan intended to qualify under section
401 of the Code.
(c) No Plan in existence during the six years preceding the date of this
Agreement is or was subject to Title IV of ERISA. Neither the Company nor any
Company Subsidiary has ever contributed to, or been required to contribute to,
a "multiemployer pension plan," as defined in Section 3(37) of ERISA.
(d) All contributions required to be made with respect to any Plan on or
prior to the Closing Date have been or will be timely made on or prior to the
Closing Date and all contributions for any period ending on or before the
Effective Date which are not yet due have been accrued in accordance with the
past custom and practice of the Company and the Company Subsidiaries. All
premiums or other payments which are due and payable have been paid with
respect to each Plan which is an employee welfare benefit plan, as defined in
Section 3(1) of ERISA
(e) Neither the Company nor any Subsidiary of the Company nor, to the
knowledge of the Company, any trustee or administrator thereof, has engaged in
a transaction in connection with which the Company or any Subsidiary of the
Company or any trustee or administrator thereof would reasonably be expected
to be subject to either a material civil penalty assessed pursuant to section
409 or 502(i) of ERISA or a material tax imposed pursuant to section 4975 or
4976 of the Code.
(f) To the knowledge of the Company, each Plan has been operated and
administered in all material respects in accordance with its terms and
applicable Laws, including but not limited to ERISA and the Code.
(g) Each plan intended to be "qualified" within the meaning of section
401(a) of the Code has received a favorable determination letter to the effect
that the Plan is so qualified and that its related trust maintained thereunder
is exempt from taxation under section 501(a) of the Code.
(h) Except as set forth in Section 5.12(h) of the Company Disclosure
Schedule, no Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees of
the Company or any Subsidiary of the Company for any significant period (in no
event more than three (3) months) extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable Laws,
(ii) death benefits under any "pension plan," or (iii) benefits the full cost
of which is borne by the current or former employee (or his beneficiary).
(i) No amounts payable under the Plans will fail to be deductible for
federal income tax purposes by virtue of section 280G of the Code.
(j) Except as set forth in Section 5.12(j) of the Company Disclosure
Schedule or as expressly provided in this Agreement, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current
or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation or benefits due any such employee or officer.
A-16
<PAGE>
(k) There are no pending or, to the knowledge of the Company, threatened or
anticipated, claims by or on behalf of any Plan, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such Plan
(other than routine claims for benefits).
(S)5.13 Labor Matters. Neither the Company nor any Company Subsidiary is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization.
Except as set forth in Section 5.13 of the Company Disclosure Schedule, there
is no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the Company
Subsidiaries. Except as set forth in Section 5.13 of the Company Disclosure
Schedule, to the 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 of any of the Company
Subsidiaries.
(S)5.14 No Brokers. Neither the Company nor any of the Company Subsidiaries
has entered into any contract, arrangement or understanding with any person
which may result in the obligation of such entity or MergerCo to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that the Company has retained Raymond James &
Associates, Inc. ("Raymond James") as its financial advisor in connection with
the Transactions. The Company has furnished to MergerCo complete and correct
copies of all agreements between the Company and Raymond James pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated by this Agreement.
(S)5.15 Opinion of Financial Advisor. On May 9, 2000, Raymond James orally
delivered to the Company Board its opinion to the effect that, as of such
date, the consideration to be received by the holders of shares of Old Common
pursuant to the Merger Agreement is fair from a financial point of view to
such holders (the "Fairness Opinion"). Raymond James has assured the Company
Board that it will deliver such opinion in written form to the Company Board
at such time as the Company may request. A copy of the form of such written
opinion to be so delivered has been provided to Parent.
(S)5.16 Insurance. The Company and each of the Company Subsidiaries are
insured by financially sound and reputable insurers, unaffiliated with the
Company, with respect to their properties and the conduct of their businesses
in such amounts and against such risks as are sufficient for compliance with
law and as are, to the knowledge of the Company, in accordance with normal
industry practice.
(S)5.17 Contracts and Commitments; Indemnity Agreements.
(a) Section 5.17(a) of the Company Disclosure Schedule lists each written
and, to the knowledge of the Company, each oral contract, agreement,
instrument, arrangement or understanding, to which either the Company or any
Company Subsidiary is a party, including all amendments and supplements
thereto, which is material to the business operations, assets, properties, or
conditions (financial or otherwise) of the Company or any Company Subsidiary
(collectively, the "Material Contracts" and each a "Material Contract").
Without limiting the foregoing, any contract, agreement, instrument,
arrangement or understanding between the Company or any Company subsidiary, on
the one hand, and any insurance agent or representative, insurance agency or
other association of insurance agents or representatives, on the other hand,
shall be deemed to be a Material Contract for purposes of this Agreement if
such contract, agreement, instrument, arrangement or understanding, either
individually or in the aggregate with one or more other contracts, agreements,
instruments, arrangements or understandings that are related to the same
contractual relationship, represent more than three percent (3%) of the
Company's consolidated revenues for the Company's fiscal year ended December
31, 1999, or more than three percent (3%) of its projected annual revenues for
the fiscal year ending December 31, 2000. Except as set forth in Section
5.17(a) of the Disclosure Schedule, the Company is not in breach or default of
any Material Contract, and to the Company's knowledge, no other party thereto
is in breach or default thereof, except where such breach or default would
not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. Except as set forth in Section 5.17(a) of the
Company Disclosure Schedule, neither the
A-17
<PAGE>
Company nor any of the Company Subsidiaries is a party to, or has any
obligation under, any contract or agreement, written or oral, which contains
any covenants currently or prospectively limiting the freedom of the Company
or any of its Subsidiaries to engage in any line of business or to compete
with any person.
(b) Section 5.17(b) of the Company Disclosure Schedule lists each written
and, to the knowledge of the Company, each oral, contract, agreement,
instrument, arrangement or understanding, to which either the Company or any
Company Subsidiary is a party, including all amendments and supplements
thereto ("Indemnity Agreements"), pursuant to which the Company or any Company
Subsidiary has agreed to indemnify any director, officer, employee or agent of
the Company or any Company Subsidiary in connection with matters arising out
of the performance of their respective duties to, or services for, the Company
or any Company Subsidiary. The Company has delivered correct and complete
copies of all such Indemnity Agreements to the Company. As of the date hereof,
there is no "Proceeding" (as defined in the Indemnity Agreements) pending or,
to the knowledge of the Company, threatened, which would reasonably be likely
to give rise to a claim for indemnification pursuant to any such agreement,
the certificate of incorporation or by-laws of the Company or any Company
Subsidiary, or applicable Law.
(S)5.18 Related Party Transactions. Except as set forth in Section 5.18 of
the Company Disclosure Schedule, the Company SEC Reports set forth a list of
all arrangements, agreements and contracts entered into by the Company or any
of the Company Subsidiaries (which are or will be in effect as of or after the
date of this Agreement) involving payments in excess of $60,000 with any
person who is an officer, director or affiliate of the Company or any of the
Company Subsidiaries, any relative of any of the foregoing, or any entity of
which any of the foregoing is an affiliate.
(S)5.19 DOI Reports. The Company has made available to Parent at the
Company's offices true, correct and complete copies of all material reports
filed by the Company or any of the Company Operating Subsidiaries regarding
the activities of the Company and the Company Subsidiaries in the States of
Ohio, Kentucky, Indiana, West Virginia and Washington with, and any license
applications filed by the Company in such States with, and all material
correspondence regarding such activities and license applications sent to, or
received by the Company or any of the Company Operating Subsidiaries from,
applicable insurance and other regulatory bodies since January 1, 1998. Each
material report required to be filed by the Company or any of the Company
Operating Subsidiaries with applicable insurance and other regulatory bodies
since January 1, 1998 (as such documents have since the time of their filing
been amended, the "DOI Reports") has been filed. As of their respective dates,
the DOI Reports complied in all material respects with the requirements of the
applicable Laws applicable to such DOI Reports, and none of the DOI Reports
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof.
(S)5.20 Health Power HMO. Health Power HMO operated a health maintenance
organization (an "HMO") in Ohio until April 30, 1999. Effective May 1, 1999,
the certificate of authority of Health Power HMO was revoked by the Ohio
Department of Insurance ("ODI") for failure to meet statutory financial
requirements. Since that time, and in accordance with the ODI revocation
order, Health Power HMO has been winding-up its business under the supervision
of ODI, but without judicial involvement. The final windup is being conducted
in accordance with Health Power HMO's Plan of Final Distribution and Windup
dated March 17, 2000, as amended (the "Final Windup Plan"), a true and correct
copy of which has been furnished to Parent and MergerCo. The Final Windup Plan
has been approved by ODI. In accordance with the Final Windup Plan, Health
Power HMO distributed approximately $3.0 million to its creditors on or about
March 27, 2000, and approximately $1.025 million to its remaining creditors on
or about May 12, 2000. Health Power HMO does not have sufficient assets to pay
the claims of all of its creditors.
(S)5.21 Definition of the Company's Knowledge. As used in this Agreement,
the phrase "to the knowledge of the Company" or any similar phrase means the
knowledge of Dr. Bernard F. Master, Robert J. Bossart,
A-18
<PAGE>
Jonathan R. Wagner, Richard T. Kurth, Paul A. Miller, Daniel R. Sullivan, and
Randy E. Jones, the executive officers of the Company.
ARTICLE VI
Conduct of Business Pending the Merger
(S)6.1 Conduct of Business by the Company. During the period from the date
of this Agreement to the Effective Time, except as otherwise contemplated by
this Agreement or to the extent Parent shall otherwise consent in writing, the
Company shall, and shall cause each of the Company Operating Subsidiaries to,
carry on their respective businesses in the ordinary course consistent with
past practice, and use commercially reasonable efforts to preserve intact
their present business organizations, keep available the services of their
present officers and employees, and preserve their relationships with
customers, suppliers, and others having business dealings with them. Without
limiting the generality of the foregoing, neither the Company nor any of the
Company Operating Subsidiaries will (except as expressly required or permitted
by this Agreement or set forth in Section 6.1 of the Company Disclosure
Schedule or as contemplated by the Transactions or to the extent that Parent
shall otherwise consent in writing):
(a)(i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock, property or any combination thereof) in respect of
any of its capital stock (other than dividends or distributions by any
Company Subsidiary to the Company), (ii) split, combine or reclassify any
of its capital stock, (iii) repurchase, redeem or otherwise acquire any of
its securities, except, in the case of this clause (iii), for the
acquisition of shares of Old Common from holders of Options in full or
partial payment of the exercise price payable by such holders upon exercise
of Options outstanding on the date of this Agreement, or (iv) authorize for
issuance, issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any other securities (including indebtedness having the right
to vote) or equity equivalents (including, without limitation, stock
appreciation rights), other than the issuance of shares of Old Common upon
the exercise of Options outstanding on the date of this Agreement in
accordance with their present terms;
(b)(i) make any capital expenditure or expenditures which, individually,
is in excess of $100,000 or, in the aggregate, are in excess of $250,000,
(ii) acquire any material assets outside of the ordinary course of business
consistent with past practice, or (iii) sell, lease, encumber, transfer or
dispose of any material assets outside the ordinary course of business
consistent with past practice;
(c)(i) except pursuant to credit facilities in existence on the date
hereof in accordance with the current terms of such facilities, (A) create,
incur, issue, assume, maintain or permit to exist any long-term or short-
term Indebtedness or (B) other than in the ordinary course of business
consistent with past practice, make any loans, advances or capital
contributions to, or investments in, any other person;
(d) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than any payment, discharge or satisfaction (i) in the ordinary course of
business consistent with past practice, or (ii) as permitted or required by
this Agreement;
(e) change any of the accounting principles or practices used by it
(except as required by the SEC, applicable Laws or generally accepted
accounting principles applied on a consistent basis, in which case written
notice shall be provided to Parent prior to any such change);
(f) except as required by applicable Laws, (i) enter into, adopt, amend
or terminate any Plan, (ii) enter into, adopt, amend or terminate any
agreement, arrangement, plan or policy between the Company or any of the
Company Operating Subsidiaries on the one hand and one or more of their
directors, officers or employees who has a base compensation in excess of
$100,000 on the other hand, (iii) increase in any manner the compensation
or fringe benefits paid or provided to any such director, officer or
employee described in the preceding clause (ii) or pay to any such person
any benefit not required by any Plan or
A-19
<PAGE>
arrangement as in effect as of the date hereof, or (iv) except in the
ordinary course of business consistent with past practice, increase in any
manner the compensation or fringe benefits of any employee not described in
clause (ii) or pay to any such employee any benefit not required by any
Plan or arrangement in effect as of the date hereof;
(g) approve or adopt any amendments to its certificate of incorporation
or bylaws;
(h) adopt or propose to adopt a plan of complete or partial liquidation
or resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(i) without the prior written consent of Parent, which shall not be
unreasonably withheld, make or change any Tax election, file a consent
under Code Section 341(f) regarding collapsible corporations, or settle or
compromise any material liability for Taxes of the Company or any of the
Company Subsidiaries, except to the extent that negotiations for such
settlement or compromise are in process at the time of the execution of
this Agreement, provided that the existence of such negotiations, and the
related substantive issues, have been disclosed to Parent;
(j) enter into any transaction or arrangement which would be required to
be listed in Section 5.18 of the Company Disclosure Schedule (Related Party
Transactions) if in effect or existence as of the date of this Agreement;
(k) enter into any non-competition or other agreement which may restrict,
in any material respect, the conduct of the respective businesses of the
Company or any of the Company Subsidiaries;
(l) settle or compromise any pending or threatened suit, action, or claim
relating to the Transactions;
(m) enter into, or amend in any material respect, any agreement pursuant
to which the Company or any Company Operating Subsidiary agrees, or has
agreed, to indemnify any director, officer, employee or agent of the
Company or any Company Operating Subsidiary in connection with matters
arising out of the performance of their respective duties to, or services
for, the Company or any Company Subsidiary or obtain additional directors'
or officers' liability insurance other than that contemplated by Section
7.6(b); or
(n) enter into an agreement, or otherwise commit, to take any of the
foregoing actions.
(S)6.2 Financing.
(a) Commencing on the date hereof, Parent will proceed in good faith and use
its commercially reasonable efforts to obtain, as soon as reasonably
practicable, but in any event on or prior to July 31, 2000, or such later date
(i) not later than August 14, 2000, as specified in writing by Parent to the
Company, provided that it is still proceeding in good faith and using
commercial reasonable efforts to obtain, or (ii) which is otherwise agreed to
in writing by Parent and the Company (the "Commitment Due Date"), commitments
for financing in connection with the Transactions which, in the aggregate,
would provide financing in the amount of not less than $34,500,000 (the
"Necessary Financing"), on terms and conditions which are reasonably
satisfactory to Parent, and which, in Parent's judgment, would be Reasonably
Acceptable to the Company (as defined below) (the "Proposed Financing
Commitments"). Parent will provide the Company with true and correct copies of
the Proposed Financing Commitments, when and if obtained, promptly after
Parent's receipt thereof. Not later than three (3) business days after its
receipt from Parent of the Proposed Financing Commitments, the Company shall
either notify Parent in writing that the Proposed Financing Commitments are
Reasonably Acceptable to the Company or notify Parent in writing that, in the
Company's good faith judgment, and for the specific reasons which shall be
stated in such notice, the Proposed Financing Commitments are not Reasonably
Acceptable to the Company. In the absence of such notice, the Proposed
Financing Commitments shall be deemed Reasonably Acceptable to the Company as
at the close of business on the last day of such three (3) day period.
Proposed Financing Commitments which are confirmed by the Company as being
Reasonably Acceptable to the Company or which are deemed to be Reasonably
Acceptable to the Company in accordance with the foregoing provisions of this
Section 6.2(a) shall be deemed to be "Acceptable Financing Commitments" for
purposes of Article IX of
A-20
<PAGE>
this Agreement. Proposed Financing Commitments shall be deemed to be
"Reasonably Acceptable" to the Company if the commitment letters in respect
thereof contain commercially reasonable terms and conditions, including,
without limitation, with respect to syndication and the absence of material
adverse changes between the commitment date and Closing, for a transaction of
this nature.
(b) During the period preceding the Effective Time or the termination of
this Agreement, and subject to its obligations under applicable securities
Laws, Parent will keep the Company reasonably informed with respect to
material events outside the ordinary course of business of Parent or its
Subsidiaries that could reasonably be expected to affect adversely, in any
material respect, the financing for the Transactions or Parent's potential to
obtain such financing. During such period, Parent will not seek to combine the
financing for the Transactions with the financing for any other acquisition in
which it may be engaged either directly or through another Subsidiary.
ARTICLE VII
Additional Agreements
(S)7.1 Stockholders Meeting; Proxy Materials.
(a) Unless the Company Board shall take any action permitted by Section
7.1(e) below, the Company Board, shall, in accordance with applicable Laws:
(i) as soon as reasonably practicable after Proposed Financing
Commitments Reasonably Acceptable to the Company have been obtained, or, if
such Proposed Financing Commitments have not yet been obtained by the
Commitment Due Date, but neither party has terminated this Agreement
pursuant to Section 9.1(b)(i) hereof, then, as soon as reasonably
practicable after the right of termination set forth in Section 9.1(b)(1)
has expired, duly call, give notice of, convene and hold a special meeting
of stockholders of the Company for the purpose of considering and taking
action upon this Agreement and the Transactions;
(ii) prepare and file with the SEC a preliminary proxy statement relating
to this Agreement and the Transactions (the "Proxy Statement"), and use its
commercially reasonable efforts to (A) obtain and furnish the information
required to be included by the SEC in the Proxy Statement and, after
consultation with Parent, respond promptly to any comments made by the SEC
with respect to the preliminary Proxy Statement and cause the Proxy
Statement to be mailed to its stockholders, (B) obtain the necessary
approval of this Agreement by its stockholders, and (C) include in the
Proxy Statement the recommendation of the Company Board and the Independent
Committee that stockholders of the Company vote in favor of the approval of
this Agreement. Provided that Parent is complying with its obligations set
forth in the first sentence of Section 6.2(a), the Company shall commence
and continue preparation of the preliminary Proxy Statement promptly
following the date hereof with a view toward being in a position to file it
with the SEC as soon as reasonably practicable, but within an approximately
one (1) week period after Financing Commitments Reasonably Satisfactory to
the Company have been obtained. The Company will include the written
Fairness Opinion in the Proxy Statement.
(b) MergerCo and Parent shall furnish all information about themselves,
their business and operations and their owners and all financial information
to the Company as may be reasonably necessary in connection with the
preparation of the Proxy Statement. The Company shall give Parent and MergerCo
and their counsel, and counsel to the Independent Committee, the opportunity
to review, prior to their being filed with, or sent to the SEC, (i) the Proxy
Statement and (ii) all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments.
Each of the Company, MergerCo and Parent agrees to correct promptly any
information provided by it for use in the Proxy Statement if and to the extent
that such information shall have become false or misleading in any material
respect, and the Company further agrees to take all necessary steps to cause
the Proxy Statement as so corrected to be filed with the SEC and to be
disseminated to the stockholders of the Company, in each case, to the extent
required by applicable Laws. The Company shall notify MergerCo and Parent of
the receipt of any comments of the SEC with respect to the preliminary Proxy
Statement.
A-21
<PAGE>
(c) The Company represents and warrants that (i) none of the information
supplied by the Company specifically for inclusion or incorporation by
reference in (A) the Proxy Statement, or (B) the Other Filings (as hereinafter
defined) will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy Statement, as
of the date it or any amendment or supplement thereto is mailed to
stockholders and at the time of any meeting of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading, and (ii) the Proxy Statement, insofar as
it relates to the Company or other information supplied by the Company for
inclusion therein, will comply as to form in all material respects with the
requirements of the Exchange Act. The Company makes no representation,
warranty or covenant with respect to information concerning MergerCo or Parent
or their affiliates included in the Proxy Statement or information supplied by
MergerCo or Parent or their affiliates for inclusion in the Proxy Statement.
(d) Parent represents and warrants that none of the information supplied by
MergerCo or Parent or their affiliates specifically for inclusion or
incorporation by reference in (i) the Proxy Statement, or (ii) the Other
Filings, will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy Statement, as
of the date it or any amendment or supplement thereto is mailed to
stockholders and at the time of any meeting of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading. MergerCo and Parent make no
representations, warranties or covenants with respect to information
concerning the Company included in the Proxy Statement or information supplied
by the Company for inclusion in the Proxy Statement.
(e) The Company Board shall be permitted to (i) not recommend to the
Company's stockholders that they vote in favor of the approval of this
Agreement or (ii) withdraw or modify in a manner adverse to Parent and
MergerCo its recommendation to the Company's stockholders that they vote in
favor of this Agreement, but in each of cases (i) and (ii) only if and to the
extent that the Company has complied with Section 7.5, a Superior Proposal (as
defined below) is pending at the time the Company Board determines to take any
such action or inaction and the Company Board determines in good faith, based
upon the advice of its outside legal counsel, that such action or inaction is
necessary for the Company Board to comply with its fiduciary duties under
applicable Laws, provided that no such failure to recommend, or withdrawal or
modification shall be made unless the Company shall have delivered to Parent a
written notice advising Parent that the Company Board has received a Superior
Proposal and identifying the person making such Superior Proposal; provided,
further, that nothing contained in this Agreement shall prevent the Company
Board from complying with Rules 14d-9 and 14e-2 under the Exchange Act with
regard to an Acquisition Proposal (as defined below). For purposes of this
Agreement, "Superior Proposal" means any bona fide written Acquisition
Proposal for all of the outstanding shares of Old Common or all or
substantially all of the assets of the Company and the Company Subsidiaries,
which is based upon definitive written financing agreements, or other written
commitments reasonably satisfactory to the Board, that reasonably assure the
availability of financing sufficient to complete the transaction, and which
contains terms that the Company Board determines in good faith (based on the
advice of Raymond James or other financial advisor engaged by the Company in
connection with such transaction) are more favorable to the Company's
stockholders than this Agreement and the Merger. For purposes of this
Agreement, "Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger, consolidation, share exchange or other
business combination involving the Company or any Company Subsidiary or the
acquisition of any equity interest in, or a substantial portion of the assets
of, the Company or any Company Subsidiary, other than the transactions
contemplated by this Agreement.
(S)7.2 Other Filings. Each of the Company, Parent and MergerCo shall
properly prepare and file any other filings required of such party under the
Exchange Act or any other federal or state law relating to the Merger and the
Transactions (including filings, if any, required under the HSR Act)
(collectively, the "Other Filings"), with a view to toward being in a position
to make all Other Filings as soon as reasonably practicable, but within an
approximately three (3) week period, after the preliminary Proxy Statement is
filed. Each of the Company, Parent and MergerCo shall promptly notify the
other of the receipt of any comments on, or any request for amendments
A-22
<PAGE>
or supplements to, any of the Other Filings by the SEC or any other
Governmental Entity or official, and each of the Company, Parent and MergerCo
shall supply the other with copies of all correspondence between it and each
of its Subsidiaries and representatives, on the one hand, and the SEC or the
members of its staff or any other appropriate governmental official, on the
other hand, with respect to any of the Other Filings. Each of the Company,
Parent and MergerCo shall use its commercially reasonable efforts to obtain
and furnish the information required to be included in any of the Other
Filings.
(S)7.3 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the parties agrees to use commercially reasonable efforts
(a) to take, or cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Transactions and to cooperate with each other in
connection with the foregoing, including the taking of such actions as are
necessary to obtain any necessary consents, approvals, orders, exemptions or
authorizations by or from any public or private third party, including without
limitation any that are required to be obtained under any federal, state or
local law or regulation or any contract, agreement or instrument to which
MergerCo, the Company or any Company Subsidiary is a party or by which any of
their respective properties or assets are bound, (b) to defend all lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
Transactions, (c) to cause to be lifted or rescinded any injunction or
restraining order or other order adversely affecting the ability of the
parties to consummate the Transactions, (d) to effect all necessary
registrations and Other Filings, including without limitation filings under
the HSR Act, if any, and submissions of information requested by any
Governmental Entity and (e) to execute and deliver any additional instruments
necessary to consummate the Transactions and to carry out fully the purposes
of this Agreement. The Company will use its commercially reasonable efforts to
ensure that the conditions set forth in Sections 8.1 and 8.2 hereof are
satisfied, insofar as such matters are within the control of the Company, and
MergerCo and Parent will use their commercially reasonable efforts to ensure
that the conditions set forth in Sections 8.1 and 8.3 hereof are satisfied,
insofar as such matters are within the control of MergerCo and Parent.
(S)7.4 Fees and Expenses. Except as set forth in Section 9.2 hereof, whether
or not the Merger is consummated, all fees, costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs or expenses.
(S)7.5 No Solicitations.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, investment banker, attorney, representative or agent of
the Company or any Company Subsidiary, (i) solicit, initiate or encourage any
inquiries or proposals that constitute, or would reasonably be expected to
lead to, an Acquisition Proposal, (ii) engage in negotiations or discussions
concerning, or provide any non-public information or data to any person
relating to, any Acquisition Proposal, or (iii) agree to, approve or recommend
any Acquisition Proposal, or otherwise facilitate any effort or attempt to
make or implement an Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent the Company or the Company Board
from (A) furnishing nonpublic information or data to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
Acquisition Proposal, if and only to the extent that the Company Board
determines in good faith, based upon the advice of its outside legal counsel,
that such action is necessary for the Company Board to comply with its
fiduciary duties under applicable Laws and prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such
person, the Company or the Company Board received from such person an executed
customary confidentiality agreement, provided, that in the event that any term
of such confidentiality agreement is more favorable to such person than the
Confidentiality Agreement (as defined below), (x) the Company shall promptly
(and in no event later than 24 hours after execution thereof) notify Parent of
the more favorable provisions of such confidentiality agreement and (y) the
Confidentiality Agreement shall automatically be deemed to have been amended
to provide Parent with the benefit of the more favorable term(s); or (B)
complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal. The Company hereby represents and warrants
that, as of the date hereof, it is not engaged in any activities, discussions
or negotiations with any other person with respect to any of the foregoing.
A-23
<PAGE>
(b) The Company shall (i) promptly (and in no event later than 24 hours
after receipt of any Acquisition Proposal) notify Parent after receipt by it
(or its advisors) of an Acquisition Proposal by any person, identifying such
person, (ii) promptly notify Parent after receipt of any request for nonpublic
information relating to it or any of the Company Subsidiaries or for access to
it or any of such Subsidiaries' properties, books or records by any person,
identifying such person and the information requested by such person, that may
be considering making, or has made, an Acquisition Proposal, and promptly
provide Parent with any nonpublic information which is given to such person
pursuant to this Section 7.5(b), and (iii) keep Parent advised of the status
and principal financial terms of any such Acquisition Proposal, indication or
request. The Company shall give Parent at least 24 hours' advance notice of
any information to be supplied to any person making such Acquisition Proposal.
(c) Nothing in this Section 7.5 shall (i) permit the Company to terminate
this Agreement other than pursuant to Article IX hereof or (ii) affect any
other obligation of the Company under this Agreement.
(S)7.6 Officers' and Directors' Indemnification and Insurance.
(a) The certificate of incorporation of the Surviving Corporation shall
contain provisions for the indemnification of directors and officers of the
Company no less favorable than set forth in Exhibit 1.1A hereto, and Parent
and MergerCo agree that, for the benefit of the Company's directors and
officers in office prior to the Effective Time, such provisions shall remain
continuously in effect for a period of at least six (6) years following the
Effective Time.
(b) Parent and the Surviving Corporation shall use their commercially
reasonable efforts to cause to be maintained in effect for six (6) year from
the Effective Time the Company's current policies of directors' and officers'
liability insurance to the extent that it provides coverage for events
occurring prior to the Effective Time.
(c) Parent and the Surviving Corporation shall not take, or cause to be
taken, any action to modify or terminate the Indemnification Agreements,
except in accordance with the terms thereof and applicable Law.
(S)7.7 Access to Information; Confidentiality. From the date hereof until
the Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries and each of the Company's and Company Subsidiaries' officers,
employees and agents to, afford to Parent and MergerCo and to the officers,
employees and agents of Parent and MergerCo, respectively, complete access at
all reasonable times to all of the Company's and the Company's Subsidiaries'
respective properties, books, records and contracts, and shall furnish Parent
and MergerCo such financial, operating and other data and information as
Parent and MergerCo may reasonably request. Parent and MergerCo shall hold in
confidence all such information on the terms and subject to the conditions
contained in that certain agreement between Raymond James and Capital Partners
dated July 26, 1999 (the "Confidentiality Agreement"). Parent and MergerCo
each hereby agrees to be bound by the terms and conditions of the
Confidentiality Agreement with the same force and effect as if it had executed
the Confidentiality Agreement as Capital Partners, and the Company is an
intended third party beneficiary of the obligations of MergerCo arising
thereunder. At the Effective Time, the Confidentiality Agreement shall
terminate, except as otherwise expressly provided therein.
(S)7.8 Public Announcements. The Company and Parent shall consult with each
other before issuing any press release or otherwise making any public
statement with respect to this Agreement or any of the Transactions and shall
not issue any such press release or make any such public statement without the
prior consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of
the other party, issue such press release or make such public statement as may
be required by law if it has (a) used its reasonable best efforts to consult
with the other party and to obtain such party's consent but has been unable to
do so in a timely manner and (b) faxed a copy of such press release or public
statement to such other party at a reasonable time prior to issuing such
release or making such statement. In this regard, the parties agree that the
initial press release to be issued with respect to the Merger will be in a
form agreed to by the parties hereto prior to the execution of this Agreement.
A-24
<PAGE>
(S)7.9 Notification of Certain Matters.
(a) The Company shall, upon obtaining knowledge of any of the following,
promptly notify Parent thereof in writing: (i) any Company Material Adverse
Effect; (ii) any change which makes it likely that any representation or
warranty set forth in this Agreement regarding the Company or any Company
Subsidiary will not be true in any material respect as of the Closing or which
would be likely to cause any condition to the obligations of any party to
effect the Merger not to be satisfied; (iii) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to
cause any condition to the obligations of any party to effect the Merger not
to be satisfied; (iv) the failure of the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
pursuant to this Agreement which would be likely to cause any condition to the
obligations of any party to effect the Merger not to be satisfied; (v) any
notice or other communication from any Governmental Entity in connection with
the Merger; or (vi) any actions, suits, claims, investigations or other
proceedings (or other manifestation to the Company of an awareness of and
present intention to assert a claim in any such proceeding) commenced or
threatened against the Company or any of the Company Subsidiaries which, if
pending on the date of this Agreement, would have resulted in any of the
representations and warranties set forth in Section 5.7 being untrue or
inaccurate (if not disclosed on the Company Disclosure Schedule) or which
relate to the consummation of the Merger; provided, however, that the delivery
of any notice pursuant to this Section 7.9(a) shall not cure any breach of any
representation or warranty or otherwise limit or affect the remedies available
to Parent and MergerCo.
(b) MergerCo or Parent shall, upon obtaining knowledge of any of the
following, promptly notify the Company thereof in writing: (i) any Parent or
MergerCo Material Adverse Effect; (ii) any change which makes it likely that
any representation or warranty set forth in this Agreement regarding Parent or
MergerCo will not be true in any material respect as of the Closing or which
would be likely to cause any condition to the obligations of any party to
effect the Merger not to be satisfied; (iii) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to
cause any condition to the obligations of any party to effect the Merger not
to be satisfied; (iv) the failure of Parent or MergerCo to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it pursuant to this Agreement which would be likely to cause any condition
to the obligations of any party to effect the Merger not to be satisfied; (v)
any notice or other communication from any Governmental Entity in connection
with the Merger; or (vi) any actions, suits, claims, investigations or other
proceedings (or other manifestation to the Company of an awareness of and
present intention to assert a claim in any such proceeding) commenced or
threatened against Parent or MergerCo which, if pending on the date of this
Agreement, would have resulted in any of the representations and warranties
set forth in Section 4.2(e) being untrue or inaccurate or which relate to the
consummation of the Merger; provided, however, that the delivery of any notice
pursuant to this Section 7.9(b) shall not cure any breach of any
representation or warranty or otherwise limit or affect the remedies available
to the Company.
(S)7.10 Termination of Company Stock Plans. Prior to the Effective Time, the
Company Board (or, if appropriate, any committee thereof) shall adopt such
resolutions or take such other actions as are required to (i) effect the
transactions contemplated by Section 2.3 and (ii) with respect to any stock
option, stock appreciation or other stock benefit plan of the Company or any
of its Subsidiaries not addressed by the preceding clause (i), ensure that,
following the Effective Time, no participant therein shall have any right
thereunder to acquire any capital stock of the Surviving Corporation or any
affiliate thereof.
(S)7.11 Windup of Health Power HMO. The Company shall cause Health Power HMO
to complete its windup in accordance with the Final Windup Plan.
(S)7.12 Termination of Severance Arrangements. Each of Robert J. Bossart,
Randy E. Jones, Richard T. Kurth, Paul A. Miller, Daniel R. Sullivan, and
Jonathan R. Wagner (collectively, the "CMI Management Team") have entered into
an Executive Severance Benefits Agreement with the Company dated as of August
26, 1999, and certain of the CMI Management Team have entered into employment
agreements of varying dates which contain severance agreements (collectively,
the "Severance Agreements"). In addition, Dr. Bernard F. Master has entered
into an Employment Agreement with CompManagement, Inc. dated as of May 1,
1999, as amended
A-25
<PAGE>
as of January 1, 2000 (as so amended, "Dr. Master's Employment Agreement").
Prior to the Effective Time, each member of the CMI Management Team is to
enter into a Termination of Severance Agreement (as hereinafter defined), and
Dr. Master is to enter into a Termination of Employment Agreement (as
hereinafter defined). At or prior to the Effective Time, the Company shall pay
to each of the members of the CMI Management Team and to Dr. Master the
consideration due and payable to such person under his Termination of
Severance Agreement or Termination of Employment Agreement, as the case may
be. The total consideration to be paid by the Company under the Termination of
Severance Agreements and Termination of Employment Agreement is hereinafter
referred to the "Severance Consideration".
ARTICLE VIII
Conditions to the Merger
(S)8.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver, where permissible, at or prior to the Closing Date,
of each of the following conditions:
(a) Stockholder Approval. This Agreement, including the Merger, shall
have been approved and adopted by the affirmative vote of the stockholders
of the Company to the extent required by the DGCL and the certificate of
incorporation of the Company.
(b) Hart-Scott-Rodino Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(c) Other Regulatory Approvals. Any consent, authorization, order or
approval of (or filing or registration with) any Governmental Entity
required to be made or obtained by the Company or any of the Company
Subsidiaries or MergerCo, as the case may be, or their respective
affiliates, in connection with the execution, delivery and performance of
the Agreement shall have been obtained or made on terms and conditions
reasonably satisfactory to each of Parent and the Company, except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect
or a MergerCo Material Adverse Effect, as the case may be, or would not,
individually or in the aggregate, materially impair or significantly delay
the ability of the Company and MergerCo to consummate the Merger.
(d) Other Consents. Any consent or approval by any third party that is
required in order to prevent a breach of, a default under, or a
termination, change in the terms or conditions or modification of, any
instrument, contract, lease, license or other agreement shall have been
obtained on terms and conditions reasonably satisfactory to each of Parent
and the Company, except where such breach, default, termination or change
would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect or a MergerCo Material Adverse Effect, as
the case may be, or would not, individually or in the aggregate, materially
impair or significantly delay the ability of the Company and MergerCo to
consummate the Merger.
(e) No Injunctions or Orders; Illegality. No preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a Governmental Entity (an "Injunction"), nor any
statute, rule, regulation or executive order promulgated or enacted by any
Governmental Entity, shall be in effect which would (i) make the
consummation of the Merger illegal, or (ii) otherwise prevent or prohibit
the consummation of any of the Transactions, including the Merger.
(S)8.2 Conditions to Obligations of MergerCo and Parent. The obligations of
MergerCo and Parent to effect the Merger are further subject to the following
conditions:
(a) Representations and Warranties. Those representations and warranties
of the Company set forth in this Agreement which are qualified by
materiality or a Company Material Adverse Effect or words of
A-26
<PAGE>
similar effect shall be true and correct as of the Closing Date as though
made on and as of the Closing Date (except to the extent such
representations and warranties expressly relate to a specific date, in
which case such representations and warranties shall be true and correct as
of such date), and those representations and warranties of the Company set
forth in this Agreement which are not so qualified shall be true and
correct in all material respects as of the Closing Date as though made on
and as of the Closing Date (except to the extent such representations and
warranties expressly relate to a specific date, in which case such
representations and warranties shall be true and correct in all material
respects as of such date).
(b) Performance and Obligations of the Company. The Company shall have
performed all obligations required to be performed by it under this
Agreement on or before the Closing Date, including, without limitation, the
covenants contained in Articles 6 and 7 hereof, in all material respects.
(c) Material Adverse Change. There shall not have occurred between the
date of this Agreement and the Closing any change or changes concerning the
Company or the Company Subsidiaries which had, or would reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect, including, without limitation, a Material Deviation From
Projections.
(d) No Restraints. No Injunction or any Law promulgated or enacted by any
Governmental Entity after the date hereof, shall be pending, threatened or
in effect which would affect adversely, in any material respect, the right
of the Surviving Corporation or any Company Operating Subsidiary to own or
operate any material portion of its respective businesses, properties or
assets after the Merger or compel the Surviving Corporation or any Company
Operating Subsidiary to dispose of or hold separate any material portion of
its respective businesses, properties or assets.
(e) Dissenting Shares. The number of Dissenting Shares shall not ten
percent (10%) of the outstanding shares of Old Common.
(f) Certificates. The Company shall have furnished such certificates of
its officers or the officers of the Company Subsidiaries to evidence
compliance with the conditions applicable to the Company and the Company
Subsidiaries in Section 8.1 and this Section 8.2 as may be reasonably
requested by Parent or MergerCo.
(g) Financing. Parent shall have obtained the Necessary Financing in
accordance with the Acceptable Financing Commitments or if, Acceptable
Financing Commitments were not obtained but neither party terminated this
Agreement pursuant to Section 9.1(b)(i), Parent shall have obtained the
Necessary Financing on terms and conditions reasonably satisfactory to
Parent.
(h) Health Power HMO. Health Power HMO shall have completed its windup in
accordance with the Final Windup Plan, there shall be no actions, suits,
proceedings, investigations or claims pending, or to the knowledge of the
Company, threatened, against or affecting the Company or any of the Company
Subsidiaries (including Health Power HMO) before or by any court,
commission, governmental department, board, bureau, agency, administrative
officer or executive, or instrumentality relating to Health Power HMO, and
Health Power HMO shall have been terminated from supervision by the Ohio
Department of Insurance pursuant to an Order of the Director of the
Department of Insurance.
(i) Termination of Severance Agreements. Each member of the CMI
Management Team shall have executed and delivered a Termination of
Executive Severance Benefits Agreement substantially in the form attached
hereto as Exhibit 8.2(i)-1 (collectively, the "Termination of Severance
Agreements"), and Dr. Master shall have executed and delivered a
Termination of Employment Agreement substantially in the form attached
hereto as Exhibit 8.2(i)-2 (the "Termination of Employment Agreement").
(j) Investment and Employment Agreements with Executive Management. Each
member of the CMI Management Team shall have executed and delivered
investment and employment agreements with the Surviving Corporation,
effective as of the Effective Time, containing terms and conditions
reasonably satisfactory to Parent.
A-27
<PAGE>
(S)8.3 Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. Those representations and warranties
of MergerCo and Parent set forth in this Agreement which are qualified by
materiality or a MergerCo Material Adverse Effect or a Parent Material
Adverse Effect, as the case may be, or words of similar effect shall be
true and correct as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
expressly relate to a specific date, in which case such representations
shall be true and correct as of such date), and those representations and
warranties of MergerCo and Parent set forth in this Agreement which are not
so qualified shall be true and correct in all material respects as of the
Closing Date as though made on the Closing Date (except to the extent such
representations and warranties expressly relate to a specific date, in
which case such representations and warranties shall be true and correct in
all material respects as of such date).
(b) Performance of Obligations of MergerCo and Parent. MergerCo and
Parent shall have performed all obligations required to be performed by
them under this Agreement on or before the Closing Date, including, without
limitation, the covenants contained in Articles 6 and 7 hereof, in all
material respects.
(c) Material Adverse Change. There shall not have occurred any change or
changes concerning MergerCo and Parent between the date of this Agreement
and the Closing Date which would, individually or in the aggregate,
reasonably be expected to have a MergerCo Material Adverse Effect or a
Parent Material Adverse Effect, as the case may be.
(d) Certificates. Parent and MergerCo shall have furnished such
certificates of their respective officers to evidence compliance with the
conditions applicable to Parent and MergerCo in Section 8.1 and this
Section 8.3 as may be reasonably requested by the Company.
ARTICLE IX
Termination, Amendment and Waiver
(S)9.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after stockholder approval thereof:
(a) by the mutual written consent of Parent and the Company;
(b) by either of the Company or Parent:
(i) if Acceptable Financing Commitments are not in place by the
Commitment Due Date or, if later, the date which is three (3) business
days after the Parent has provided Proposed Financing Commitments to
the Company, provided that such right of termination shall expire if
not exercised by either party within three (3) business days after such
right of termination becomes exercisable; or
(ii) if the stockholders of the Company shall have voted on the
Merger and this Agreement and the votes shall not have been sufficient
to satisfy the condition set forth in Section 8.1(a); or
(iii) if any Governmental Entity shall have issued an Injunction or
taken any other action, which permanently restrains, enjoins or
otherwise prohibits the Merger, and such Injunction shall have become
final and non-appealable; or
(iv) if, without any material breach by the terminating party of its
obligations under this Agreement, the Merger shall not have occurred on
or before December 31, 2000; or
(c) by the Company:
(i) in connection with entering into a definitive agreement to effect
a Superior Acquisition Proposal in accordance with Section 7.5 hereof;
provided, however, that prior to terminating this Agreement pursuant to
this Section 9.1(c)(i), (A) the Company shall have paid the Break-Up
Fee and
A-28
<PAGE>
Parent/MergerCo Expenses (as those terms are hereinafter defined) as
set forth in Section 9.2(b), and (B) the Company shall have provided
Parent with five days' prior written notice of the Company's decision
so to terminate. Such notice shall indicate in reasonable detail the
terms and conditions of such Superior Acquisition Proposal, including,
without limitation, the amount and form of the proposed consideration
and whether such Superior Acquisition Proposal is subject to any
material conditions; or
(ii) if MergerCo or Parent shall have breached in any material
respect any of their respective representations, warranties, covenants
or other agreements contained in this Agreement (except where such
representations, warranties, covenants or other agreements are
qualified by materiality or MergerCo Material Adverse Effect or Parent
Material Adverse Effect, in which case MergerCo's or Parent's breach,
as the case may be, shall not be qualified as to materiality), which
breach cannot be or has not been cured within 15 days after the giving
of written notice thereof to MergerCo or Parent;
or
(d) by Parent:
(i) if the Company shall have breached in any material respect any of
its representations, warranties, covenants or other agreements
contained in this Agreement (except where such representations,
warranties, covenants or other agreements are qualified by materiality
or Company Material Adverse Effect, in which case the Company's breach
shall not be qualified as to materiality), which breach cannot be or
has not been cured within 15 days after the giving of written notice
thereof to the Company; or
(ii) if (A) in accordance with Section 9.1(c)(i) hereof, the Company
enters into a definitive agreement to effect a Superior Acquisition
Proposal, or (B) the Company Board withdraws or modifies in any manner
adverse to MergerCo or Parent its approval or recommendation of this
Agreement to the stockholders of the Company; or
(iii) at any time following the date 30 days after notice is
delivered by the Company in accordance with Section 7.5 concerning the
receipt of an Acquisition Proposal unless, prior to termination under
this Section 9.1(d)(iii), the Company provides written notice to Parent
that such Acquisition Proposal has been rejected or withdrawn or that
the Company is no longer engaged in negotiations or discussions with
the other persons involved in connection therewith, provided that the
30-day period shall be reduced with respect to any subsequent
Acquisition Proposal made by or on behalf of any such person (or its
affiliates) whose Acquisition Proposal was previously rejected or
withdrawn as provided in this Section 9.1(d)(iii) to a number of days
equal to the greater of (A) 20, minus the number of days lapsed from
the receipt of any notice of any prior Acquisition Proposal from such
person until the rejection or withdrawal of any such prior Acquisition
Proposal(s) and (B)10; or
(iv) if there shall have occurred any change or changes concerning
the Company or the Company Subsidiaries between the date of this
Agreement and the Closing which had, or would reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse
Effect.
(S)9.2 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to Section
9.1, this Agreement shall forthwith become null and void and have no effect,
without any liability on the part of any party or their respective officers or
directors, except (i) as set forth in Section 7.4, this Article 9, and Article
10, and (ii) that nothing herein shall relieve any party from liability for
(x) any willful or intentional breach of any representations or warranties
contained in this Agreement, or (y) any breach of any covenant or agreement
contained in this Agreement.
(b) If the Company terminates this Agreement pursuant to Section 9.1(c)(i),
or Parent terminates this Agreement pursuant to Sections 9.1(d)(ii) or
9.1(d)(iii), then the Company shall pay to Parent an amount in cash equal to
the Parent/MergerCo Expenses (not in excess of the sum of $500,000, plus any
costs and expenses incurred by Parent or MergerCo to enforce their rights to
receive the amounts due pursuant to this Section 9.2
A-29
<PAGE>
("Parent/MergerCo Collection Expenses")) and the Break-Up Fee. For purposes of
this Agreement, the "Break-Up Fee" shall be an amount equal to $1,000,000. For
purposes of this Agreement, "Parent/MergerCo Expenses" shall mean an amount
equal to all of Parent's and MergerCo's out-of-pocket costs and expenses
incurred in connection with this Agreement and the Transactions, including,
without limitation, reasonable fees and disbursements of its outside legal
counsel, accountants, consultants and other professional service providers
retained by or on behalf of Parent or MergerCo, together with all other out-
of-pocket costs and expenses incurred by MergerCo or Parent in connection with
analyzing and structuring the Transactions, negotiating the terms and
conditions of this Agreement and any other agreements or other documents
relating to the Transactions, arranging financing (including without
limitation commitment fees), conducting due diligence and other activities
related to this Agreement and the Transactions, plus Parent/MergerCo
Collection Expenses.
(c) If this Agreement is terminated pursuant to Section 9.1(b)(ii), the
Company shall pay to Parent an amount in cash equal to Parent/MergerCo
Expenses. In addition, if within 12 months following any such termination of
this Agreement, the Company or any Company Subsidiaries accepts a written
offer for, or otherwise enters in to an agreement to consummate or
consummates, a Transaction Proposal (as defined below) with another person,
upon the signing of a definitive agreement relating to such Transaction
Proposal, or, if no such agreement is signed, then upon consummation of such
Transaction Proposal, the Company shall pay to Parent the Break-Up Fee. As
used in this Section 9.2(c), "Transaction Proposal" shall mean a proposal or
offer (other than by another party hereto) (i) to acquire beneficial ownership
(as defined under Rule 13(d) of the Exchange Act) of 50% or more of the
outstanding capital stock of the Company or any Company Subsidiaries holding
50% or more of the assets of the Company and its Subsidiaries pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, tender offer or exchange offer or similar transaction, including,
without limitation, any single or multi-step transaction or series of related
transactions which is structured to permit such third party to acquire
beneficial ownership of 50% or more of the outstanding capital stock of the
Company or any Company Subsidiaries holding 50% or more of the assets of the
Company and its Subsidiaries, (ii) to purchase 50% or more of the business or
assets of the Company and its Subsidiaries or (iii) to otherwise effect a
business combination involving the Company or any of its Subsidiaries holding
50% or more of the assets of the Company and its Subsidiaries.
(d) The obligation to pay the Break-Up Fee and/or the Parent/MergerCo
Expenses, as the case may be, pursuant to Section 9.2 shall be in addition to
the expenses to be paid by the Company pursuant to Section 7.4. Absent fraud,
the payment of the Break-Up Fee and the Parent/MergerCo Expenses to Parent
under the circumstances described in this Section 9.2 shall be the sole and
exclusive remedy at law or in equity to which Parent and/or MergerCo, and
their respective officers, directors, representatives and affiliates, shall be
entitled in the event this Agreement is terminated under circumstances such
that the Break-Up Fee and the Parent/MergerCo Expenses are payable. The
Company shall make all such payments promptly (and in any event within two
days of receipt by the Company of written notice from Parent) by wire transfer
of immediately available funds to an account designated by Parent.
(e) The Escrow Funds (as defined in the Escrow Agreement) shall be paid as
follows:
(i) If this Agreement is terminated pursuant to Section 9.1(a), Section
9.1(c)(i), any provision of Section 9.1(d), or, except as provided in
clause (ii) of this Section 9.2(e), any provision of Section 9.1(b), then,
in any such case, all Escrow Funds shall be paid to Parent in accordance
with the terms of the Escrow Agreement.
(ii) If (A) this Agreement is terminated by the Company or Parent
pursuant to Section 9.1(b)(iv), (B) at the time of such termination, Parent
has no other right to terminate this Agreement under Section 9.1,
including, without limitation, under Section 9.1(b)(iv), other than by
reason of the failure of the Necessary Financing to be provided, and (C)
the Necessary Financing was not provided based primarily on the failure of
one or more conditions other than the inability to syndicate or the
occurrence of a material adverse change with respect to the Company and its
Subsidiaries, as such conditions were set forth in the Acceptable
A-30
<PAGE>
Financing Commitments (or other written commitments obtained by Parent
after the Commitment Due Date if neither party terminated the Agreement
pursuant to Section 9.1(b)(i)), then all Escrow Funds shall be paid to the
Company in accordance with the terms of the Escrow Agreement.
(iii) If this Agreement is terminated by the Company pursuant to Section
9.1(c)(ii), then all Escrow Funds shall be paid to the Company in
accordance with the terms of the Escrow Agreement.
ARTICLE X
General Provisions
(S)10.1 Notices. All notices, requests, demands, claims, and other
communications hereunder (collectively, a "Notice") shall be in writing and
shall be deemed given when delivered personally to that party (including
personal delivery, expedited courier, or messenger service) at the address set
forth below, telecopied (which is confirmed) to the telecopy number for that
party set forth below, or three (3) business days after sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to
that party as set forth below:
(a) if to Parent or MergerCo:
Security Capital Corporation
c/o Capital Partners Inc.
One Pickwick Plaza, Suite 310
Greenwich, Connecticut 06830
Attention: Brian D. Fitzgerald, Chairman
Facsimile: (203) 625-0423
with a copy to:
Finn Dixon & Herling LLP
One Landmark Square, Suite 1400
Stamford, Connecticut 06901
Attention: Harold B. Finn III, Esq.
Facsimile: (203) 348-5777
(b) if to the Company:
Health Power, Inc.
c/o CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attention: Robert J. Bossart, Chief Executive Officer
Facsimile: (614) 790-8208
with a copy to:
Baker & Hostetler LLP
Capitol Square, Suite 2100
65 East State Street
Columbus, Ohio 43215-4260
Attention: Alec Wightman, Esq.
Facsimile: (614) 462-2616
Any party may change the address to which Notices hereunder are to be
delivered by giving the other parties notice in the manner herein set forth.
A-31
<PAGE>
(S)10.2 Interpretation. When a reference is made in this Agreement to a
subsidiary or subsidiaries of Parent, MergerCo or the Company, the word
"Subsidiary" means any corporation more than 50% of whose outstanding voting
securities, or any partnership, joint venture or other entity more than 50% of
whose total equity interest, is directly or indirectly owned by Parent,
MergerCo or the Company, as the case may be. When a reference is made in this
Agreement to a "person", such word means any individual, partnership, firm,
corporation, association, joint venture, trust or other entity. The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
(S)10.3 Survival. The representations and warranties made herein shall not
survive the termination of this Agreement or the Effective Time. This Section
10.3 shall not limit any covenant or agreement of the parties hereto which by
its terms contemplates performance after termination of this Agreement or the
Effective Time.
(S)10.4 Miscellaneous. This Agreement (a) constitutes, together with the
Confidentiality Agreement, the Company Disclosure Schedule and the Exhibits
hereto, the entire agreement and supersedes all of the prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, (b) subject to Section 10.5, shall be
binding upon and inure to the benefits of the parties and their respective
successors and assigns and is not intended to confer upon any other person
(except as set forth below) any rights or remedies hereunder and (c) may be
executed in two or more counterparts which together shall constitute a single
agreement. Section 7.6 is intended to be for the benefit of those persons
described therein, and the covenants contained therein may be enforced by such
persons. The parties 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 Delaware Court (as hereinafter defined), this being
in addition to any other remedy to which they are entitled at law or in
equity. Any requirements for the securing or posting of any bond with respect
to such remedy are hereby waived by each of the parties.
(S)10.5 Assignment. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties without the prior written
consent of the other parties.
(S)10.6 Severability. If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
(S)10.7 Choice of Law/Consent to Jurisdiction. All disputes, claims or
controversies arising out of or relating to this Agreement or the negotiation,
validity or performance of this Agreement or the Transactions 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, except with respect to
matters of corporate law and governance, as opposed to contract law. Each of
the parties hereby irrevocably and unconditionally consents to submit to the
sole and exclusive jurisdiction of the courts of the State of Delaware and of
the United States located in the State of Delaware (the "Delaware Courts") for
any litigation arising out of or relating to this Agreement, or the
negotiation, validity or performance of this Agreement, or the Transactions
(and agrees not to commence any litigation relating thereto except in such
courts), waives any objection to the laying of venue of any such litigation in
the Delaware Courts and agrees not to plead or claim in any Delaware Court
that such litigation brought therein has been brought in any inconvenient
forum. Each of the parties hereto agrees, (a) to the extent such party is not
otherwise subject to service of process in the State of Delaware, to appoint
and maintain an agent in the State of Delaware as such party's agent for
acceptance of legal process, and (b) that service of process may also be made
on such party by prepaid certified mail with a proof of mailing receipt
validated by the United States Postal Service constituting evidence of valid
service. Service made pursuant to (a) or (b) above shall have the same legal
force and effect as if served upon such party personally within the State of
Delaware. For purposes of implementing the parties'
A-32
<PAGE>
agreement to appoint and maintain an agent for service of process in the State
of Delaware, Parent and MergerCo each do hereby appoint The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware ("CTC"), as their agent and the Company does hereby also
appoint CTC, at such address, as its agent.
(S)10.8 Extension; Waiver. At any time prior to the Effective Time, the
parties, by action taken or authorized by their respective Boards of
Directors, or committees thereof, as the case may be, 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; (b) waive any inaccuracies in
the representations and warranties of the other parties contained herein or in
any document delivered pursuant hereto; and (c) waive compliance by the other
parties 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 only if set forth in a written instrument signed on behalf of such
party. The failure of any party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
(S)10.9 Amendment. This Agreement may be amended by the parties by an
instrument in writing signed on behalf of each of the parties at any time
before the Effective Time; provided, however, that after this Agreement is
approved by the Company's stockholders, no such amendment or modification
shall reduce the amount or change the form of consideration to be delivered to
the stockholders of the Company.
(S)10.10 No Agreement Until Executed. Irrespective of negotiations among the
parties or the exchanging of drafts of this Agreement, this Agreement shall
not constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (a) the Company Board
has approved, for purposes of Section 203 of the DGCL and any applicable
provision of the Certificate of Incorporation, the terms of this Agreement,
and (b) this Agreement is executed by the parties.
(S)10.11 Parent.
(a) Subject to Section 10.11(c), Parent hereby unconditionally and
irrevocably guarantees to the Company the performance of each of the
obligations and the undertakings of MergerCo under this Agreement when and to
the extent the same are required to be performed and subject to all of the
terms and conditions hereof. If MergerCo shall fail to perform any obligation
or undertaking of MergerCo under this Agreement when and to the extent the
same is required to be performed, Parent will upon written demand from the
Company forthwith perform or cause to be performed such obligation or
undertaking, as the case may be.
(b) Subject to Sections 10.11(a) and (c), the obligations of Parent under
this guaranty are absolute and unconditional, are not subject to any
counterclaim, set off, deduction, abatement or defense based upon any claim
Parent may have against the Company (except for any of the foregoing that
MergerCo may have against the Company under the terms of this Agreement or
otherwise), and shall remain in full force and effect without regard to (i)
any insolvency, bankruptcy, dissolution, liquidation, reorganization or the
like of MergerCo at or prior to the Closing or (ii) any transfer of shares of
capital stock of MergerCo, or any assignment by MergerCo of any of its rights
or obligations under this Agreement to a wholly owned subsidiary of MergerCo
or Parent.
(c) Notwithstanding any provision of this Agreement to the contrary, Parent
shall not have any liability whatsoever under this guaranty after the
Effective Time, whether based upon events occurring prior to or after the
Effective Time.
[remainder of page intentionally left blank]
A-33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
Security Capital Corporation
/s/ Brian D. Fitzgerald
By __________________________________
(Name) Brian D. Fitzgerald
(Title) Chairman
HP Acquisition Corp.
/s/ Brian D. Fitzgerald
By __________________________________
(Name) Brian D. Fitzgerald
(Title) President
Health Power, Inc.
/s/ Bernard F. Master, D.O.
By __________________________________
(Name) Bernard F. Master, D.O.
(Title) Chairman
A-34
<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<C> <S>
Exhibit A-1 Persons Entering Into Stockholders Voting Agreements
Exhibit A-2 Form of Stockholders Voting Agreements
Exhibit B Form of Escrow Agreement
Amended and Restated Certificate of Incorporation of
Exhibit 1.1A Surviving Corporation
Exhibit 1.1B Amended and Restated Bylaws of Surviving Corporation
Exhibit 8.2(j)-1 Form of Termination of Executive Severance Benefits
Agreements for Robert J. Bossart, Randy E. Jones, Richard T.
Kurth, Paul A. Miller, Daniel R. Sullivan, and Jonathan R.
Wagner
Form of Termination of Employment Agreement for Bernard F.
Exhibit 8.2(j)-2 Master, D.O.
</TABLE>
Schedules of Health Power, Inc.
Schedule 5.3--Outstanding Securities
Schedule 5.4--Subsidiaries
Schedule 5.5(c)--Regulatory Approvals
Schedule 5.9(h)--Exceptions to Deductibility under Section 162(m)
Schedule 5.10(a)--Real Estate Properties; Ownership of Real Estate
Properties
Schedule 5.10(d)--Exceptions to Ownership or Licensure of Proprietary
Rights
Schedule 5.12(a)--Plans
Schedule 5.12(j)--Severance, Unemployment or Related Payments
Schedule 5.13--Labor Matters
Schedule 5.17(a)--Contracts and Commitments
Schedule 5.17(b)--Indemnity Agreements
A-35
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This First Amendment to Agreement and Plan of Merger (this "Amendment") is
made as of August 14, 2000, among Security Capital Corporation, a Delaware
corporation ("Parent"), HP Acquisition Corp., a Delaware corporation which is
direct or indirect subsidiary of Parent ("MergerCo"), and Health Power, Inc.,
a Delaware corporation (the "Company").
Background Information
The Parent, MergerCo, and the Company (the "Parties") are parties to the
Agreement and Plan of Merger as of June 8, 2000 (the "Merger Agreement"). The
Parties desire to amend the Merger Agreement as provided in this Amendment.
The Merger Agreement, as amended by this Amendment, is hereinafter
collectively referred to as the "Agreement."
Statement of Agreement
The Parties acknowledge the accuracy of the foregoing Background Information
and agree as follows:
(S)1. Commitment Due Date. The term "Commitment Due Date" shall mean August
18, 2000, or such later date which is otherwise agreed to in writing by Parent
and the Company.
(S)2. Definitions. All capitalized terms used in this Amendment but which
are not otherwise defined herein shall have the respective meanings given
those terms in the Merger Agreement.
(S)3. Captions. The captions of the various sections of this Amendment are
not part of the context of this Amendment, but are only labels to assist in
locating those sections, and shall be ignored in construing this Amendment.
(S)4. Construction. This document is an Amendment to the Merger Agreement.
In the event of any inconsistencies between the provisions of the Merger
Agreement and this Amendment, the provisions of this Amendment shall control.
Except as modified by this Amendment, the Merger Agreement shall continue in
full force and effect without change.
Health Power, Inc. Security Capital Corporation
/s/ Bernard F. Master, D.O., /s/ Brian D. Fitzgerald, Chairman
Chairman By___________________________________
By___________________________________ Brian D. Fitzgerald, Chairman
Bernard F. Master, D.O., Chairman HP Acquisition Corp.
/s/ Brian D. Fitzgerald, President
By___________________________________
Brian D. Fitzgerald, President
A-36
<PAGE>
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This Second Amendment to Agreement and Plan of Merger (this "Second
Amendment") is made as of August 23, 2000, among Security Capital Corporation,
a Delaware corporation ("Parent"), HP Acquisition Corp., a Delaware
corporation which is direct or indirect subsidiary of Parent ("MergerCo"), and
Health Power, Inc., a Delaware corporation (the "Company").
Background Information
The Parent, MergerCo, and the Company (the "Parties") are parties to the
Agreement and Plan of Merger as of June 8, 2000 (the "Original Merger
Agreement"), as amended by the First Amendment to Agreement and Plan of Merger
as of August 14, 2000 (collectively, the "Merger Agreement"). The Parties
desire to amend the Merger Agreement as provided in this Second Amendment. The
Merger Agreement, as amended by this Second Amendment, is hereinafter
collectively referred to as the "Agreement."
Statement of Agreement
The Parties acknowledge the accuracy of the foregoing Background Information
and agree as follows:
(S)1. Commitment Due Date. As used in the Agreement, the term "Commitment
Due Date" shall mean September 15, 2000, or such later date which is otherwise
agreed to in writing by Parent and the Company.
(S)2. Debt Reduction Amount. As used in the Agreement, the term "Debt
Reduction Amount" shall mean the difference between $4,850,996, which was the
amount of outstanding Indebtedness of the Company and the Company Subsidiaries
on a consolidated basis as at December 31, 1999, and the lesser of (a) the
principal amount by which such Indebtedness is reduced by payments made prior
to the Closing, and (b) the following applicable amount: (i) if the Closing
occurs on or prior to September 30, 2000, then $1,800,000, or (ii) if the
Closing occurs between October 1, 2000 and October 31, 2000, both dates
inclusive, then $2,000,000, or (iii) if the Closing occurs after October 31,
2000, then $2,000,000 plus $6,667 for each day that the Closing occurs after
October 31, 2000.
(S)3. Conversion of Securities. Section 2.2(x) of the Original Merger
Agreement is hereby amended in its entirety to read as follows:
(x) Thirty-Six Million Two Hundred Fifty Thousand Dollars ($36,250,000),
minus the sum of (A) the Debt Reduction Amount (as defined in the Second
Amendment), (B) the Option Termination Consideration (as defined in the
Original Merger Agreement), (C) the Severance Consideration (as defined in
the Original Merger Agreement), and (D) the Company Expenses (as defined in
the Original Merger Agreement), by
(S)4. Definitions. All capitalized terms used in this Second Amendment but
which are not otherwise defined herein shall have the respective meanings
given those terms in the Original Merger Agreement.
(S)5. Captions. The captions of the various sections of this Second
Amendment are not part of the context of this Second Amendment, but are only
labels to assist in locating those sections, and shall be ignored in
construing this Second Amendment.
A-37
<PAGE>
(S)6. Construction. This document is an amendment to the Merger Agreement.
In the event of any inconsistencies between the provisions of the Merger
Agreement and this Second Amendment, the provisions of this Second Amendment
shall control. Except as modified by this Second Amendment, the Merger
Agreement shall continue in full force and effect without change.
Health Power, Inc. Security Capital Corporation
/s/ Bernard F. Master, D.O., /s/ Brian D. Fitzgerald, Chairman
Chairman By___________________________________
By___________________________________ Brian D. Fitzgerald, Chairman
Bernard F. Master, D.O., Chairman HP Acquisition Corp.
/s/ Brian D. Fitzgerald, President
By___________________________________
Brian D. Fitzgerald, President
A-38
<PAGE>
ANNEX B
FAIRNESS OPINION
OF
RAYMOND JAMES & ASSOCIATES, INC.
May 9, 2000
The Board of Directors
Health Power, Inc.
P.O. Box 884
Dublin, OH 43017
Members of the Board of Directors:
Raymond James & Associates ("Raymond James") understands that Health Power,
Inc. ("Health Power" or the "Company") is contemplating a transaction whereby
a wholly-owned subsidiary ("MergerCo") of Security Capital Corporation ("SCC")
will be merged with and into Health Power in accordance with an Agreement and
Plan of Merger (the "Merger Agreement") and the separate corporate existence
of MergerCo will thereupon cease, with Health Power being the surviving
corporation in the merger (the "Transaction"). At the effective time of the
merger, each share of Health Power Common Stock issued and outstanding
immediately prior to the effective time of the merger will be cancelled and
extinguished and converted automatically into the right to receive cash
consideration determined in accordance with the merger agreement ("Merger
Consideration"), and Health Power will become a wholly-owned subsidiary of
SCC.
You have requested our opinion as to whether the Merger Consideration to be
received by the holders of Health Power Common Stock in the Transaction is
fair to such holders from a financial point of view.
Raymond James is an investment banking firm of recognized standing. As part
of our investment banking services, we are regularly engaged in the valuation
of corporate entities in connection with public offerings, valuations and
merger and acquisition transactions. Our research analysts publish regular
reports on healthcare companies. Our firm makes principal markets in various
healthcare stocks, and we (or our predecessor firms) have managed public
offerings for healthcare companies.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have, among other things:
I. Reviewed Health Power's Annual Reports to Shareholders, Annual Reports on
Form 10-K and related financial information for the fiscal years ending
December 31, 1997, 1998, and 1999 and internally generated financials for
Health Power for the first quarter ending March 31, 2000 as prepared by
Health Power's management.
II. Reviewed certain publicly available information with respect to
historical market prices and trading activities for Health Power's Common
Stock and for certain publicly traded comparable companies which Raymond
James deemed relevant;
III. Reviewed certain non-public, internally generated, information and
historical and financial forecasts relating to the business, earnings,
cashflow, assets and prospects for Health Power furnished to us by the
management of Health Power;
IV. Discussed the past and current operations and financial condition and the
prospects of Health Power with members of senior management;
V. Visited Health Power's facilities;
<PAGE>
VI. Compared the financial terms of the Transaction with the financial terms
of certain other transactions which we believe to be generally
comparable to the Transaction;
VII. Discussed with Health Power's operating executives the prospects of
Health Power, relating to the current and projected financial
performance;
VIII. Reviewed the proposed Merger Agreement to be entered into by Health
Power and SCC;
IX. Discussed with Health Power's management and advisors the legal,
financial and practical ramifications of the Merger Agreement;
X. Performed various valuation models including discounted cashflow,
comparable companies, and merger and acquisition comparisons;
XI. Compared certain financial characteristics of Health Power to other
publicly held companies in the healthcare cost containment industry that
we deemed to be relevant;
XII. Researched current industry conditions and trends concerning the
valuation of recent mergers and acquisitions;
XIII. Reviewed such other financial and industry data and performed such other
analysis and took into account such other matters as we deemed
necessary.
In preparing our opinion, we have relied on and assumed the accuracy and
completeness of all financial and other information supplied or otherwise made
available to Raymond James by Health Power. We have not assumed any
responsibility for independent verification of such information or any
independent appraisal of Health Power's assets or liabilities (contingent or
otherwise). With respect to the financial forecasts, estimates, projections or
other information furnished to us by Health Power, we have assumed, without
any further independent investigations and analysis, that they have been
reasonably prepared in good faith and reflect the best currently available
estimates and judgment of Health Power's management as to the expected future
financial performance of Health Power, and we have relied upon Health Power to
advise us promptly if any information previously provided became inaccurate or
was required to be updated during the period of our review. In addition, we
have assumed the Transaction will be consummated substantially in accordance
with the terms set forth in the Merger Agreement.
In our analyses, we have made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters, many of
which are beyond the control of Health Power. Any estimates contained in our
analyses are not necessarily indicative of future results or value, which may
be significantly more or less favorable than such estimates. Estimates of
values of companies do not purport to be appraisals or to necessarily reflect
the prices at which companies or their securities actually may be sold. No
company or transaction utilized in our analyses was identical to Health Power
or the Merger Agreement. Accordingly, such analyses are not based solely on
arithmetic calculations; rather, they involve complex considerations and
judgments concerning differences in financial and operating characteristics of
the relevant companies, the timing of the relevant transactions and
prospective buyer interests, as well as other factors that could affect the
public trading markets of Health Power or companies to which it is being
compared. None of the analyses performed by us was assigned a greater
significance than any other.
It should be noted that this opinion is based on economic and market
conditions and other circumstances existing on, and information made available
as of, the date hereof. In addition, our opinion is, in any event, limited to
the fairness, from a financial point of view, of the cash consideration being
offered to Health Power's shareholders pursuant to the Merger Agreement and
does not address Health Power's underlying business decision to effect the
merger, the structure or tax consequences of the Merger Agreement,, other
terms of the Merger Agreement, or the availability or advisability of any
alternatives to the Transaction.
Raymond James has been engaged to render financial advisory services to
Health Power in connection with the proposed Transaction and will receive a
fee for such services, a portion of which fee is contingent upon
B-2
<PAGE>
consummation of the Merger. Raymond James will also receive a fee upon
execution of the Merger Agreement. In addition, Health Power has agreed to
indemnify us against certain liabilities arising out of our engagement. In the
ordinary course of our business, we may actively trade securities of Health
Power for our own account and for the accounts of customers and, accordingly,
we may at any time hold a long or short position in such securities.
Our opinion is directed to the Board of Directors of Health Power and does
not constitute a recommendation to any shareholders of Health Power regarding
the proposed Merger. Furthermore, this letter should not be construed as
creating any fiduciary duty on the part of Raymond James to any such party.
This opinion is not to be quoted or referred to, in whole or in part, without
our prior written consent, which will not be unreasonably withheld. We have
consented to the inclusion of this letter in the proxy statement filed by
Health Power with the Securities and Exchange Commission.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the cash consideration to be received by holders of
Health Power Common Stock in the Transaction is fair, from a financial point
of view to such holders.
Respectfully submitted,
/s/ Raymond James & Associates, Inc.
_____________________________________
Raymond James & Associates, Inc.
B-3
<PAGE>
ANNEX C
APPRAISAL RIGHTS
Section 262 of the Delaware General Corporation Law
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
C-2
<PAGE>
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
C-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
