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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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Health Power, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] 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
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(2) Aggregate number of securities to which transaction applies:
3,888,460 outstanding shares and 245,827 shares subject to options
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(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.
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(4) Proposed maximum aggregate value of transaction:
$27,612,506
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(5) Total fee paid:
$5,523
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
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HEALTH POWER, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________________, 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 _____________________________, on
____________, 2000, at ____, 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
$6.98 per share in cash, without interest, assuming the merger closes
on November 15, 2000. The merger consideration will increase by
approximately $0.002 per share per day for each day that the closing
of the merger occurs after November 15, 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 ____________, 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.
<PAGE>
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: ______________, 2000
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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.
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HEALTH POWER, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ______________, 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
____________________________________________, on ______________, 2000, at ____,
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 ____________, 2000. The close
of business on __________, 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 $6.98 per share in cash,
without interest, assuming the merger closes on November 15, 2000. The merger
consideration will increase by approximately $0.002 per share per day for each
day that the closing of the merger occurs after November 15, 2000.
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. 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>
<S> <C>
1. Questions and Answers About the Merger Transaction.......................................... 1
2. Who Can Help Answer Your Questions?......................................................... 4
3. Forward-Looking Statements.................................................................. 4
4. Summary..................................................................................... 5
5. Summary of Selected Consolidated Financial Data............................................. 13
6. The Special Meeting......................................................................... 14
A. General............................................................................... 14
B. Matters to be Voted Upon at the Special Meeting....................................... 14
C. Record Date and Voting................................................................ 14
D. Proxies and Revocation of Proxies..................................................... 15
E. Additional Solicitation of Proxies.................................................... 16
F. Appraisal Rights...................................................................... 16
G. Stock Certificates.................................................................... 16
7. Background of the Merger.................................................................... 17
8. Reasons for the Merger; Recommendation of the Special Committee and Board of Directors...... 24
9. Effects of the Merger; Merger Consideration................................................. 26
10. Financing of the Merger..................................................................... 27
11. Opinion of Health Power's Financial Advisor................................................. 29
A. Comparable Public Company--Trading Multiple Analysis.................................. 31
B. Comparable Acquisition Analysis....................................................... 31
C. Stock Premium Analysis................................................................ 32
D. Discounted Cash Flow Analysis......................................................... 34
E. Other Factors......................................................................... 34
E. Preparation of Fairness Opinion; Fees to RJA.......................................... 34
12. Purpose of the Merger; Position of CMI Executive Team as to the Fairness of the Merger...... 36
A. Purpose of the Merger................................................................. 36
B. Position of CMI Executive Team as to the Fairness of the Merger....................... 36
13. Interests of Certain Persons in the Merger.................................................. 37
A. Equity Investment in Acquiring Corporation............................................ 37
B. Employment by CMI Executive Team...................................................... 37
C. Termination of Change in Control Agreements........................................... 38
D. Termination of Dr. Master's Employment Agreement...................................... 39
E. Stock Options......................................................................... 39
F. Indemnification and Insurance......................................................... 40
G. Stockholder Voting Agreements......................................................... 40
14. Accounting Treatment........................................................................ 40
15. Regulatory Matters.......................................................................... 40
A. HSR Act............................................................................... 41
16. Federal Income Tax Consequences............................................................. 41
17. Appraisal Rights Under Delaware Law......................................................... 43
18. Provisions of the Merger Agreement.......................................................... 46
A. General............................................................................... 47
</TABLE>
<PAGE>
<TABLE>
<S> <C>
B. Merger Consideration................................................................... 47
C. Treatment of Stock Options............................................................. 48
D. Representations and Warranties......................................................... 48
E. Covenants.............................................................................. 49
E. No Solicitation........................................................................ 51
F. Additional Agreements.................................................................. 52
i. Stockholders Meeting; Proxy Materials.......................................... 52
ii. Other Filings.................................................................. 52
iii. Efforts; Cooperation........................................................... 52
iv. Indemnification and Insurance.................................................. 53
v. Termination of Stock Options................................................... 53
vi. Windup of HMO Subsidiary....................................................... 53
vii. Termination of Agreements...................................................... 53
G. Fees and Expenses...................................................................... 53
H. Conditions to the Merger............................................................... 53
I. Termination, Termination Fees, Amendment and Waiver.................................... 56
i. Termination of Merger Agreement................................................ 56
ii. Break-Up Fee and Expenses...................................................... 57
iii. Escrow Arrangement............................................................. 57
iv. Amendment...................................................................... 58
v. Extension; Waiver.............................................................. 58
19. The Companies............................................................................... 58
A. Health Power........................................................................... 58
B. Security Capital and HP Acquisition.................................................... 59
20. Market Prices of Common Stock............................................................... 61
21. Principal Stockholders...................................................................... 62
22. Purchases of Common Stock by Certain Persons................................................ 64
23. Where You Can Find More Information......................................................... 64
24. Stockholder Proposals for Fiscal 2001 Annual Meeting........................................ 66
25. Proxy Solicitation Expenses................................................................. 66
26. Other Matters............................................................................... 66
</TABLE>
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<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
___________, 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 November 15, 2000, you will
receive $6.98 in cash, without interest, for each share of common stock of
Health Power you own. For each day the merger is completed after November
15, you will receive an additional $0.002 for each share you own.
<PAGE>
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 $3.29 less than the amount per share that
stockholders will receive if the merger is completed on November 15. 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 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: 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
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. 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 __________, 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.
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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."
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<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 __)
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 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.
Recommendation of the Special Committee and Board of Directors (page ___)
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, 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.
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Opinion of Health Power's Financial Advisor (page __)
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
cash merger consideration of $6.98 per share for the common stock of Health
Power was fair from a financial point of view to stockholders of Health Power.
RJA has provided Health Power's Special Committee and Board of 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.
Reasons for the Merger (page __)
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 __)
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 $6.98 in cash, without interest, assuming the
merger closes on November 15, 2000. The merger consideration will
increase by approximately $0.002 per share per day for each day that the
closing of the merger occurs after November 15, 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.
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Financing of the Merger (page ___)
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 ___)
The Special Meeting will be held at ________________________________, on
______________, 2000, at ____, local time. At the 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 ___)
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
______________, 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 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
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(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 __)
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 __)
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 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,
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<PAGE>
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 $372,454 to be made at or
prior to the effective time of the merger.
Conditions to the Merger (page __)
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;
. Security Capital and HP Acquisition have performed all of their
obligations under the merger agreement; and
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<PAGE>
. No material adverse change has occurred to Security Capital or HP
Acquisition since the date of the merger agreement.
Regulatory Matters (page __)
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 __)
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;
10
<PAGE>
. 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 ____)
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.
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:
11
<PAGE>
. 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 __)
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."
12
<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 six-month periods ended June 30, 2000 and June 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 six months ended
June 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>
Six Months
In thousands of dollars, except per share data Years Ended December 31, Ended June 30,
------------------------------------------------ ----------------
1999 1998 1997 1996 1995 2000 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $38,262 $24,861 $22,183 $ 6,672 $ 5,571 $23,748 $15,418
Expenses 35,042 21,271 16,559 6,339 5,072 20,650 13,041
------- ------- ------- ------- ------- ------- -------
Income from operations 3,220 3,590 5,624 333 499 3,098 2,377
Interest (expense) income and other, net (224) 444 532 247 450 75 37
------- ------- ------- ------- ------- ------- -------
Income from continuing operations before income
tax expense 2,996 4,034 6,156 580 949 3,173 2,414
Income tax expense (benefit) (1,539) 1,570 2,324 185 (75) 1,233 905
------- ------- ------- ------- ------- ------- -------
Income from continuing operations 4,535 2,464 3,832 395 1,024 1,940 1,509
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 ($152)
for six months ended June 30, 2000, and tax expense
of $0 for all other periods) (650) (1,614) -- -- -- 186 --
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 $ 3,582 $ 1,509
======= ======= ======= ======= ======= ======= =======
EARNINGS PER SHARE (Basic and Diluted):
Income from continuing operations $ 1.18 $ 0.64 $ 1.00 $ 0.10 $ 0.27 $ 0.50 $ 0.39
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 $ 0.93 $ 0.39
======= ======= ======= ======= ======= ======= =======
COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Weighted average shares outstanding (basic) 3,846 3,829 3,818 3,810 3,810 3,865 3,844
Weighted average shares outstanding (diluted) 3,846 3,834 3,833 3,810 3,819 3,865 3,844
BALANCE SHEET DATA:
Total assets $31,578 $30,669 $22,349 $21,069 $25,723 $25,815 $27,641
Long-term obligations $ 1,586 $ 2,000 $ -- $ -- $ --
Stockholders' equity $ 7,036 $ 3,106 $ 7,565 $ 4,519 $14,002 $10,654 $ 4,654
</TABLE>
13
<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 __________________________________, on _______________, 2000, at ____,
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 _______________, 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 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 "Reasons 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 ______________, 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 ____ 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,
14
<PAGE>
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 _____________, 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 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 s 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.
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<PAGE>
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 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.
16
<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
17
<PAGE>
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 pursuing further discussions regarding an acquisition of Health
Power.
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.
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
18
<PAGE>
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 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
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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.
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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 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,
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the CMI Executive Team and Dr. Master in connection with the transaction. After
taking into consideration these interests and payments, the Special Committee
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. 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. 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
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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.
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. Based upon
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,
the cash merger consideration was re-calculated and determined to be $6.98 per
share (assuming the closing of the merger on November 15, 2000). At this
meeting, RJA confirmed to the Special Committee and Board of Directors of Health
Power that, at $6.98 per share, 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.
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REASONS FOR THE MERGER; 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, 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.
. 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 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, 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 $6.98 per share, represents
a premium of 128.1%, 93.9%, 118.8%, 140.7%, and 194.5% over the average
Health Power
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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. 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 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.
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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 $6.98 in cash, without interest, assuming the merger closes on November
15, 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): $36,250,000 minus the sum of (i) $2,750,996
(Health Power's indebtedness assuming a November 15, 2000 closing); (ii)
$471,056 (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 decrease its indebtedness by $6,667 per day
for each day that the closing of the merger occurs after November 15, 2000,
which in turn will increase the aggregate merger consideration to Health Power
stockholders by a like amount, resulting in an increase of approximately $0.002
per share per day for each day that the closing of the merger occurs after
November 15, 2000.
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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.
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:
. $27,160,221 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;
. $471,056 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 $2,750,996 of outstanding indebtedness following the completion of
the merger.
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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 HP Acquisition.
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 secured by a pledge
of all stock of Health Power owned by Security Capital or its subsidiary. 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 November 30,
2000. The commitment letters also provide that the credit facilities may be
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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. Based upon
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, the cash merger consideration
was re-calculated and determined to be $6.98 per share (assuming the closing of
the merger on November 15, 2000). On September 18, 2000, RJA confirmed to the
Special Committee and Board of Directors of Health Power that, at $6.98 per
share, 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 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.
In connection with rendering its opinion, RJA, among other things:
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. 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
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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.
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. Health Power multiples were based upon a $6.98 per share of
common stock of Health Power and its EPS, sales, EBITDA, and EBIT for the year
ended December 31, 1999.
Stock Price as a Enterprise Value Multiples for
multiple of Selected Companies and Health
Earnings Power Based
Per Share Sales EBITDA EBIT
--------- ----- ------ ----
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 5.8x 1.0x 7.9x 11.3x
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. The transactions
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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 a price of $6.98 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.
Stock Premium Analysis
RJA also compared the premiums paid in Selected Merger and Acquisition
Transactions 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.
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.
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RECENT ACQUISITIONS
OFFER PRICE PREMIUM TO STOCK PRICE PRIOR TO ANNOUNCEMENT
<TABLE>
<CAPTION>
Date Type of
Target Acquiror Announced Offer 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 $ 6.98 Cash
<CAPTION>
Prior to Transaction Announcements
Target 30 Business Days 60 Business Days 90 Business Days
------ ---------------- ---------------- ----------------
Premium Price Premium Price Premium Price
-------- ------ -------- ----- -------- ------
<S> <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 93.89% $ 3.60 118.81% $ 3.19 140.69% $ 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.
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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 yielded an equity reference range of approximately $7.10 to
$9.29 per share.
Management Projections
<TABLE>
<CAPTION>
For Fiscal Years Ending December 31,
(in 000's) 2000 2001 2002 2003 2004
---- ---- ---- ---- ----
<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.
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
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<PAGE>
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.
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
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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 OF THE MERGER; POSITION OF CMI
EXECUTIVE TEAM AS TO THE FAIRNESS OF THE MERGER
Purpose of 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 and to provide the stockholders of Health Power with an opportunity
to liquidate their investment in Health Power for cash at a significant premium
to the market prices for the common stock prior to the announcement of the
transaction. Health Power and the CMI Executive Team believe that the primary
benefit of the merger to nonaffiliated stockholders is the realization of 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
nonaffiliated 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 nonaffiliated 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 nonaffiliated stockholder receives in the
merger exceeds his or her tax basis in his or her common stock of Health Power.
Position of CMI Executive Team as to the Fairness of the Merger
The rules of the Securities and Exchange Commission require the
members of the CMI Executive Team to express their belief as to the fairness of
the merger to nonaffiliated 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. Although members of the CMI Executive Team did
not find it practicable to quantify or otherwise attach relative weights to the
factors considered by the Special Committee and Board of Directors, 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
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<PAGE>
described under "Opinion of Health Power's Financial Advisor." 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
nonaffiliated 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.
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.
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
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<PAGE>
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 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."
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<PAGE>
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 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 $6.98 per share, the
executive officers and directors will receive payments in the aggregate amount
of $372,454 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--$156,017; Robert J. Bossart--$41,863; Randy E.
Jones--$5,580; Richard T. Kurth--$27,343; Paul A. Miller--$-0-; Daniel R.
Sullivan--$6,380; Jonathan R. Wagner--$39,439; Dr. Elliott P. Feldman--$24,884;
Robert S. Garek--$21,150; Dr. Crystal A. Kuykendall--$10,270; Frank R. Nutis--
$22,595; and Dr. Burt E. Schear--$16,933. 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.
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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 other than
as described below. However, if additional governmental consents and approvals
are required, the parties intend to seek the additional consents and approvals.
There can be no assurance, however, that any such additional consents or
approvals will be obtained.
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HSR Act
The consummation of the merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations under that Act (collectively, the "HSR Act"). The HSR Act
provides that certain acquisition transactions may not be consummated until
certain information has been furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission ("FTC") and certain
waiting periods have been terminated or have expired. HP Acquisition and Health
Power were required to file under the HSR Act, and the waiting period under the
HSR Act was terminated by the Department of Justice on ________________, 2000.
The expiration or termination of the HSR/ Act waiting period does not
preclude the Antitrust Division, the FTC or any state from challenging the
merger on antitrust grounds either before or after the waiting period has
expired or been terminated. Accordingly, at any time before or after the
effective time of the merger, the Antitrust Division, the FTC or any state could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest. In addition, certain other persons, including private
parties, could take action under the antitrust laws. Such action could include
seeking to enjoin the merger. Based on information available to them, HP
Acquisition and Health Power believe the merger can be effected in compliance
with federal and state antitrust laws. There can be no assurance, however, that
a challenge to the merger will not be made or that, if such a challenge is made,
HP Acquisition and Health Power will prevail.
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
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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).
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.
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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
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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.
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
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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 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
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"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.
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.
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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 $6.98 in cash, without interest, assuming the merger closes on
November 15, 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): $36,250,000 minus the sum of
(i) $2,750,996 (Health Power's indebtedness assuming a November 15, 2000
closing); (ii) $471,056 (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 decrease its indebtedness by $6,667 per day
for each day that the closing of the merger occurs after November 15, 2000,
which in turn will increase the aggregate merger consideration to Health Power
stockholders by a like amount, resulting in an increase of approximately $0.002
per share per day for each day that the closing of the merger occurs after
November 15, 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
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date of the merger into the right to receive the merger consideration. See
"Appraisal Rights under Delaware Law."
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 September 18, 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
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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;
. 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
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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;
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. 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,
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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 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.
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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.
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;
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. 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;
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. 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
. 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.
55
<PAGE>
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;
. At any time following 30 days after Security Capital receives notice
from Health Power that Health Power has received an acquisition proposal
unless Health
56
<PAGE>
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
57
<PAGE>
$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.
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
58
<PAGE>
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 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
59
<PAGE>
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.
60
<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 _____________, 2000, the last trading day
before the printing of this Proxy Statement, were $_____ and $ ____,
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 __________, 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:
High Low
----- -----
For the quarter ended 2000:
September 30 $_____ $____
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
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.
61
<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 September 20, 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 *
</TABLE>
62
<PAGE>
All directors and executive 2,274,672 55.6%
officers as a group (12
persons)
____________________________
* 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 $372,454. See
"Interests of Certain Persons in the Merger--Stock Options."
(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.
63
<PAGE>
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>
Shares of Common Price
Name Date of 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.
64
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Document filed by Health Power (File No. 000-23220) Period Covered by Document
with the Securities and Exchange 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
-----------------------------------------------------------------------------------------------
Current Reports on Form 8-K Dated June 15, 2000
-----------------------------------------------------------------------------------------------
Current Reports on Form 8-K Dated August 25, 2000
-----------------------------------------------------------------------------------------------
Transaction Statement on Schedule 13E-3 September 20, 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 June 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 __________, 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.
65
<PAGE>
This Proxy Statement is dated _______________, 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.
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
66
<PAGE>
HEALTH POWER, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____________________, 2000
This Proxy is Solicited on Behalf of the Board of Directors
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 ____________________________,
on ________________, 2000, at _____, 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.
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>
<S> <C>
AGREEMENT AND PLAN OF MERGER.................................................................................. 1
Background Information........................................................................................ 1
Statement of Agreement........................................................................................ 2
ARTICLE I..................................................................................................... 2
THE MERGER.................................................................................................... 2
----------
(S)1.1 The Merger........................................................................................ 2
----------
(S)1.2 Closing........................................................................................... 2
-------
(S)1.3 Directors and Officers............................................................................ 2
----------------------
ARTICLE II.................................................................................................... 3
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS..................................... 3
-------------------------------------------------------------------------
(S)2.1 Effect on Capital Stock........................................................................... 3
-----------------------
(a) Capital Stock of MergerCo........................................................................ 3
-------------------------
(b) Cancellation of Treasury Stock and MergerCo-Owned Stock.......................................... 3
-------------------------------------------------------
(S)2.2 Conversion of Securities.......................................................................... 3
------------------------
(S)2.3 Company Stock Options and Related Matters......................................................... 4
-----------------------------------------
ARTICLE III................................................................................................... 5
PAYMENT FOR SHARES; DISSENTING SHARES......................................................................... 5
-------------------------------------
(S)3.1 Payment for Shares of Old Common.................................................................. 5
--------------------------------
(S)3.2 Dissenting Shares................................................................................. 6
-----------------
ARTICLE IV.................................................................................................... 7
REPRESENTATIONS AND WARRANTIES OF MERGERCO AND PARENT......................................................... 7
-----------------------------------------------------
(S)4.1 Representations and Warranties of MergerCo........................................................ 7
------------------------------------------
(a) Organization..................................................................................... 7
------------
(b) Authorization; Validity of Agreement; Necessary Action........................................... 7
------------------------------------------------------
(c) Ownership........................................................................................ 7
---------
(d) Consents and Approvals; No Violations............................................................ 7
-------------------------------------
(e) Takeover Laws.................................................................................... 8
-------------
(f) Formation of MergerCo; No Prior Activities....................................................... 8
------------------------------------------
(S)4.2 Representations and Warranties of Parent.......................................................... 8
----------------------------------------
(a) Organization..................................................................................... 8
------------
(b) Authorization; Validity of Agreement; Necessary Action........................................... 8
------------------------------------------------------
(c) Consents and Approvals; No Violations............................................................ 9
-------------------------------------
(d) Takeover Laws.................................................................................... 9
-------------
(e) Litigation....................................................................................... 9
----------
(f) No Brokers....................................................................................... 9
----------
(g) SEC Documents; Financial Statements.............................................................. 9
-----------------------------------
(h) Compliance with Laws............................................................................. 10
--------------------
(i) Contracts; Debt Instruments...................................................................... 10
---------------------------
(j) Investment Company Act of 1940................................................................... 10
------------------------------
(k) Solvency......................................................................................... 10
--------
ARTICLE V..................................................................................................... 11
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................................. 11
---------------------------------------------
(S)5.1 Existence; Good Standing; Authority; Compliance With Law.......................................... 11
--------------------------------------------------------
(S)5.2 Authorization, Validity and Effect of Agreements.................................................. 12
------------------------------------------------
(S)5.3 Capitalization.................................................................................... 13
--------------
(S)5.4 Subsidiaries...................................................................................... 13
------------
(S)5.5 No Violation; Consents............................................................................ 13
----------------------
(S)5.6 SEC Documents; Financial Statements............................................................... 14
-----------------------------------
(S)5.7 Litigation........................................................................................ 15
----------
(S)5.8 Absence of Certain Changes........................................................................ 15
--------------------------
(S)5.9 Taxes............................................................................................. 15
-----
(S)5.10 Properties........................................................................................ 16
----------
(S)5.11 Environmental Matters............................................................................. 17
---------------------
(S)5.12 Employee Benefit Plans............................................................................ 18
----------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)5.13 Labor Matters.................................................................................... 20
-------------
(S)5.14 No Brokers....................................................................................... 20
----------
(S)5.15 Opinion of Financial Advisor..................................................................... 20
----------------------------
(S)5.16 Insurance........................................................................................ 20
---------
(S)5.17 Contracts and Commitments; Indemnity Agreements.................................................. 21
-----------------------------------------------
(S)5.18 Related Party Transactions....................................................................... 21
--------------------------
(S)5.19 DOI Reports...................................................................................... 21
-----------
(S)5.20 Health Power HMO................................................................................. 22
----------------
(S)5.21 Definition of the Company's Knowledge............................................................ 22
-------------------------------------
ARTICLE VI.................................................................................................... 22
CONDUCT OF BUSINESS PENDING THE MERGER........................................................................ 22
--------------------------------------
(S)6.1 Conduct of Business by the Company............................................................... 22
----------------------------------
(S)6.2 Financing........................................................................................ 24
---------
ARTICLE VII................................................................................................... 25
ADDITIONAL AGREEMENTS......................................................................................... 25
---------------------
(S)7.1 Stockholders Meeting; Proxy Materials............................................................ 25
-------------------------------------
(S)7.2 Other Filings.................................................................................... 27
-------------
(S)7.3 Additional Agreements............................................................................ 27
---------------------
(S)7.4 Fees and Expenses................................................................................ 28
-----------------
(S)7.5 No Solicitations................................................................................. 28
----------------
(S)7.6 Officers' and Directors' Indemnification and Insurance........................................... 29
------------------------------------------------------
(S)7.7 Access to Information; Confidentiality........................................................... 29
--------------------------------------
(S)7.8 Public Announcements............................................................................. 29
--------------------
(S)7.9 Notification of Certain Matters.................................................................. 29
-------------------------------
(S)7.10 Termination of Company Stock Plans............................................................... 30
----------------------------------
(S)7.11 Windup of Health Power HMO....................................................................... 30
--------------------------
(S)7.12 Termination of Severance Arrangements............................................................ 30
-------------------------------------
ARTICLE VIII.................................................................................................. 31
CONDITIONS TO THE MERGER...................................................................................... 31
------------------------
(S)8.1 Conditions to the Obligations of Each Party to Effect the Merger.................................. 31
----------------------------------------------------------------
(a) Stockholder Approval............................................................................. 31
--------------------
(b) Hart-Scott-Rodino Act............................................................................ 31
---------------------
(c) Other Regulatory Approvals....................................................................... 31
--------------------------
(d) Other Consents................................................................................... 31
--------------
(e) No Injunctions or Orders; Illegality............................................................. 32
------------------------------------
(S)8.2 Conditions to Obligations of MergerCo and Parent.................................................. 32
------------------------------------------------
(a) Representations and Warranties................................................................... 32
------------------------------
(b) Performance and Obligations of the Company....................................................... 32
------------------------------------------
(c) Material Adverse Change.......................................................................... 32
-----------------------
(d) No Restraints.................................................................................... 32
-------------
(e) Dissenting Shares................................................................................ 32
-----------------
(f) Certificates..................................................................................... 32
------------
(g) Financing........................................................................................ 33
---------
(h) Health Power HMO................................................................................. 33
----------------
(i) Termination of Severance Agreements.............................................................. 33
-----------------------------------
(j) Investment and Employment Agreements with Executive Management................................... 33
--------------------------------------------------------------
(S)8.3 Conditions to Obligations of the Company.......................................................... 33
----------------------------------------
(a) Representations and Warranties................................................................... 33
------------------------------
(b) Performance of Obligations of MergerCo and Parent................................................ 33
-------------------------------------------------
(c) Material Adverse Change.......................................................................... 33
-----------------------
(d) Certificates..................................................................................... 34
------------
ARTICLE IX.................................................................................................... 34
TERMINATION, AMENDMENT AND WAIVER............................................................................. 34
---------------------------------
(S)9.1 Termination....................................................................................... 34
-----------
(S)9.2 Effect of Termination............................................................................. 35
---------------------
ARTICLE X..................................................................................................... 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
GENERAL PROVISIONS............................................................................................ 37
------------------
(S)10.1 Notices........................................................................................ 37
-------
(S)10.2 Interpretation................................................................................. 38
--------------
(S)10.3 Survival....................................................................................... 38
--------
(S)10.4 Miscellaneous.................................................................................. 38
-------------
(S)10.5 Assignment..................................................................................... 39
----------
(S)10.6 Severability................................................................................... 39
------------
(S)10.7 Choice of Law/Consent to Jurisdiction.......................................................... 39
-------------------------------------
(S)10.8 Extension; Waiver.............................................................................. 39
-----------------
(S)10.9 Amendment...................................................................................... 39
---------
(S)10.10 No Agreement Until Executed.................................................................... 39
---------------------------
(S)10.11 Parent......................................................................................... 40
------
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
Term Section
---- -------
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)
iv
<PAGE>
Material Deviation From Projections (S)5.1(a)
Merger Background Information
Merger Consideration (S)2.2(a)
MergerCo Introduction
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
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.
<PAGE>
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
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.
2
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCKOF 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 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
3
<PAGE>
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 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)
4
<PAGE>
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 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
5
<PAGE>
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
6
<PAGE>
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.
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
7
<PAGE>
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.
(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.
8
<PAGE>
(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,
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
9
<PAGE>
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.
(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
10
<PAGE>
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
purposes of this Agreement, the term "Company Operating Subsidiaries" shall
mean all of the Company Subsidiaries other than Health Power HMO, Inc., an
11
<PAGE>
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
12
<PAGE>
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 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,
13
<PAGE>
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 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.
14
<PAGE>
(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 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.
15
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(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 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
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"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 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
17
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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:
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(i) a copy of the Plan and any amendments thereto (or if
the Plan is not a written Plan, a description thereof);
(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,
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(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.
(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.
20
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(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 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
21
<PAGE>
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, 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
22
<PAGE>
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 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;
23
<PAGE>
(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
24
<PAGE>
provisions of this Section 6.2(a) shall be deemed to be "Acceptable
Financing Commitments" for purposes of Article IX of 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.
25
<PAGE>
(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.
(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
26
<PAGE>
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 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
27
<PAGE>
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.
(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.
28
<PAGE>
(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.
(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
29
<PAGE>
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
30
<PAGE>
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 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.
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<PAGE>
(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 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.
32
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(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.
(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.
33
<PAGE>
(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 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
34
<PAGE>
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
35
<PAGE>
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 ("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:
36
<PAGE>
(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 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
37
<PAGE>
(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.
(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.
38
<PAGE>
(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' 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
39
<PAGE>
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]
40
<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
By /s/ Brian D. Fitzgerald
-------------------------------------------
(Name) Brian D. Fitzgerald
----------------------
(Title) Chairman
-----------
HP ACQUISITION CORP.
By /s/ Brian D. Fitzgerald
-------------------------------------------
(Name) Brian D. Fitzgerald
---------------------
(Title) President
----------
HEALTH POWER, INC.
By /s/ Bernard F. Master, D.O.
-------------------------------------------
(Name) Bernard F. Master, D.O.
---------------------------------------
(Title) Chairman
--------------------------------------
41
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A-1 Persons Entering Into Stockholders Voting Agreements
Exhibit A-2 Form of Stockholders Voting Agreements
Exhibit B Form of Escrow Agreement
Exhibit 1.1A Amended and Restated Certificate of Incorporation of 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
Exhibit 8.2(j)-2 Form of Termination of Employment Agreement for Bernard F.
Master, D.O.
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
42
<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
By /s/Bernard F. Master, D.O., Chairman By /s/ Brian D. Fitzgerald, Chairman
------------------------------------- ------------------------------------
Bernard F. Master, D.O., Chairman Brian D. Fitzgerald, Chairman
HP ACQUISITION CORP.
By /s/ Brian D. Fitzgerald, President
-------------------------------------
Brian D. Fitzgerald, President
43
<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.
1
<PAGE>
(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.
(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
By /s/ Bernard F. Master, D.O., Chairman By /s/ Brian D. Fitzgerald, Chairman
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Bernard F. Master, D.O., Chairman Brian D. Fitzgerald, Chairman
HP ACQUISITION CORP.
By /s/ Brian D. Fitzgerald, President
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Brian D. Fitzgerald, President
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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;
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The Board of Directors
Health Power, Inc.
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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;
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
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The Board of Directors
Health Power, Inc,
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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 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.
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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;
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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.
(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
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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
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
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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
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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.
(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.
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