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Registration No. 333-191339

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		8062		13-3893191
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

 

 

4000 Meridian Boulevard

Franklin, Tennessee 37067

(615) 465-7000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Rachel A. Seifert

Community Health Systems, Inc.

Executive Vice President, Secretary and General Counsel

4000 Meridian Boulevard

Franklin, Tennessee 37067

(615) 465-7000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Stephen Fraidin Thomas W. Christopher Michael P. Brueck Kirkland & Ellis LLP 601 Lexington Avenue New York, New York 10022		Steven E. Clifton Senior Vice President and General Counsel Health Management Associates, Inc. 5811 Pelican Bay Blvd., Suite 500 Naples, Florida 34108		Michael J. Aiello Matthew J. Gilroy Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable on or after the effective date of this registration statement after all other conditions to the completion of the merger described herein have been satisfied or waived.

If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)   ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)   ¨

 

 

 

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The information in this proxy statement/prospectus is not complete and may be changed. Community Health Systems, Inc. may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and Community Health Systems, Inc. is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY COPY—SUBJECT TO COMPLETION, DATED NOVEMBER 18, 2013

PROXY STATEMENT/PROSPECTUS

PROPOSED MERGER—YOUR VOTE IS IMPORTANT

 

 

 

Dear stockholders of Health Management Associates, Inc.:

On July 29, 2013, the boards of directors of Health Management Associates, Inc., or “HMA,” and Community Health Systems, Inc., or “CHS,” each approved an agreement and plan of merger, entered into on July 29, 2013 and amended on September 24, 2013 and, as amended, referred to as the “merger agreement,” providing for HMA to be acquired by CHS, which transaction is referred to as the “merger.” You are cordially invited to attend a special meeting of HMA stockholders to be held at the Ritz-Carlton Golf Resort Naples, 2600 Tiburón Drive, Naples, Florida 34109, at 8:00 a.m., local time, on January 8, 2014.

At the HMA special meeting, you will be asked to consider and vote upon a proposal to adopt the merger agreement, pursuant to which HMA would be acquired through a merger with a wholly owned subsidiary of CHS. If the merger contemplated by the merger agreement is completed, each share of common stock of HMA outstanding immediately prior to the effective time of the merger (other than treasury shares of HMA and any shares of HMA common stock owned by CHS or any subsidiary of CHS or HMA, and other than shares of HMA common stock as to which dissenters’ rights have been properly exercised), pursuant to the General Corporation Law of the State of Delaware, will be converted into the right to receive (1) $10.50 in cash, without interest, (2) 0.06942 shares of common stock of CHS and (3) one contingent value right issued by CHS, and is subject to any applicable withholding of taxes and the payment of cash in lieu of fractional shares. This is referred to as the “merger consideration.” CHS expects to issue approximately 18,361,256 shares of CHS common stock and approximately 264,495,187 CVRs in the merger. The implied value of the stock portion of the merger consideration will fluctuate as the market price of CHS common stock fluctuates. You should obtain current stock price quotations for CHS common stock and HMA common stock before deciding how to vote with respect to the adoption of the merger agreement. CHS common stock and HMA common stock are listed for trading on the New York Stock Exchange under the symbols “CYH” and “HMA,” respectively. In addition, the value, if any, of the CVRs is speculative.

At the HMA special meeting, you also will be asked to consider and vote upon a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger and a proposal to adjourn the HMA special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the HMA special meeting.

After careful consideration, on July 29, 2013, the HMA board of directors unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement and declared that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of HMA and its stockholders. On August 12, 2013, Glenview Capital Management, LLC, or Glenview, delivered written consents from holders of HMA common stock, or their duly authorized proxies, sufficient to replace the entire HMA board of directors with nominees of Glenview pursuant to a consent solicitation process that had previously been commenced by Glenview. As a result of Glenview’s successful consent solicitation, HMA announced on August 16, 2013, following an independent inspector of election’s certification of written consents, that all of the incumbent HMA board members were removed and replaced by the Glenview nominees. On November 12, 2013, after careful consideration, the new HMA board of directors unanimously determined to reaffirm the determination of the prior HMA board of directors that the merger agreement and the transactions contemplated by the merger agreement are advisable to and in the best interests of HMA and its stockholders. The HMA board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement; “FOR” the approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger; and “FOR” the approval of the adjournment of the HMA special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the HMA special meeting.

The accompanying document is a proxy statement of HMA and a prospectus of CHS, and provides you with information about HMA, CHS, the proposed merger and the special meeting of HMA stockholders. HMA and CHS encourage you to read the entire proxy statement/prospectus carefully.

You may also obtain more information about HMA and CHS from documents HMA and CHS have filed with the Securities and Exchange Commission.

 

 

For a discussion of risk factors you should consider in evaluating the merger agreement you are being asked to adopt, see “Risk Factors” beginning on page 30 of the accompanying proxy statement/prospectus.

Your vote is important. Adoption of the merger agreement requires the approval of the holders of at least 70% of the outstanding shares of HMA common stock entitled to vote thereon. The failure of any stockholder to vote will have the same effect as a vote against adopting the merger agreement. Accordingly, whether or not you plan to attend the HMA special meeting, you are requested to promptly vote your shares by proxy electronically via the Internet, by telephone or by sending in the appropriate paper proxy card as instructed in these materials. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” each of the proposals described in the accompanying proxy statement/prospectus.

Granting a proxy will not prevent you from voting your shares in person if you choose to attend the HMA special meeting.

We thank you for your continued support of HMA.

Sincerely,

The board of directors of Health Management Associates, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger described in the accompanying proxy statement/prospectus nor have they approved or disapproved of the issuance of the CHS common stock or the CVRs in connection with the merger, or determined if the accompanying proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated November [—], 2013 and is first being mailed to HMA stockholders on or about November [—], 2013

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HEALTH MANAGEMENT ASSOCIATES, INC.

5811 Pelican Bay Boulevard

Suite 500

Naples, Florida 34108-2710

(239) 598-3131

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 8, 2014

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Health Management Associates, Inc., or “HMA,” will be held at the Ritz-Carlton Golf Resort Naples, 2600 Tiburón Drive, Naples, Florida 34109, at 8:00 a.m., local time, on January 8, 2014. Holders of HMA common stock at the close of business on November 22, 2013 (such date and time, the “record date”) will be asked to:

 

Proposal 1.		consider and vote upon the adoption of the Agreement and Plan of Merger, dated as of July 29, 2013, as it may be amended from time to time, by and among HMA, Community Health Systems, Inc., or “CHS,” and FWCT-2 Acquisition Corporation (the “merger agreement”);
Proposal 2.		consider and vote, on a non-binding, advisory basis, to approve compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger contemplated by the merger agreement; and
Proposal 3.		consider and vote upon the approval of the adjournment of the HMA special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the HMA special meeting.

Please refer to the attached proxy statement/prospectus and the merger agreement for further information with respect to the business to be transacted at the HMA special meeting. HMA expects to transact no other business at the meeting. Holders of record of HMA common stock as of the record date will be entitled to notice of and to vote at the HMA special meeting with regard to Proposals 1–3 described above.

The HMA board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement; “FOR” the approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger; and “FOR” the approval of the adjournment of the HMA special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the HMA special meeting.

Your vote is important regardless of the number of shares that you own. Whether or not you plan on attending the HMA special meeting, we urge you to read the proxy statement/prospectus carefully and to please vote your shares as promptly as possible. You may vote your shares by proxy electronically via the Internet, by telephone, by completing and sending in the appropriate paper proxy card or in person at the HMA special meeting.

All HMA stockholders as of the record date are cordially invited to attend the HMA special meeting.

By Order of the Board of Directors

Kathleen K. Holloway

Corporate Secretary

Naples, Florida

November [—], 2013

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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about each of CHS and HMA from documents that each company has filed or will file with the Securities and Exchange Commission, or the “SEC,” but that are not being included in or delivered with this proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You may read and copy the documents incorporated by reference in this proxy statement/prospectus and other information about each of CHS and HMA that is filed with the SEC under the Securities and Exchange Act of 1934, or the “Exchange Act,” at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can also obtain such documents free of charge through the SEC’s website, www.sec.gov, or by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

For information about Community Health Systems, Inc.:				For information about Health Management Associates, Inc.:
By Mail:		Community Health Systems, Inc. 4000 Meridian Boulevard Franklin, Tennessee 37067 Attention: Investor Relations		By Mail:		Health Management Associates, Inc. 5811 Pelican Bay Boulevard, Suite 500 Naples, Florida 34108 Attention: Investor Relations
By Telephone:		(615) 465-7000		By Telephone:		(239) 598-3131

If you would like to request any documents, please do so by December 26, 2013 in order to receive them before the HMA special meeting.

For additional information on documents incorporated by reference in this proxy statement/prospectus, please see “Where You Can Find More Information” beginning on page 189. Please note that information contained on the websites of CHS or HMA is not incorporated by reference in, nor considered to be part of, this proxy statement/prospectus.

ABOUT THIS PROXY STATEMENT/PROSPECTUS

CHS has supplied all information contained in or incorporated by reference into this proxy statement/prospectus relating to CHS. HMA has supplied all information contained in or incorporated by reference into this proxy statement/prospectus relating to HMA. CHS and HMA have both contributed to information relating to the merger.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in or incorporated by reference into this proxy statement/prospectus. This proxy statement/prospectus is dated November [—], 2013, and is based on information as of November [—], 2013 or such other date as may be noted. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any other date. You should not assume that the information contained in any document incorporated or deemed to be incorporated by reference herein is accurate as of any date other than the date of such document. Any statement contained in a document incorporated or deemed to be incorporated by reference into this proxy statement/prospectus will be deemed to be modified or superseded to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference into this proxy statement/prospectus modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this proxy statement/prospectus. Neither the mailing of this proxy statement/prospectus to the stockholders of HMA nor the taking of any actions contemplated hereby by CHS or HMA at any time will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

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		Page
DEFINED TERMS			1
QUESTIONS AND ANSWERS			2
SUMMARY			10
The Companies			10
The Merger			11
The Merger Agreement			11
The CVR Agreement			12
Merger Consideration			12
Merger Consideration Value			12
The HMA Board of Directors’ Reasons for the Merger			12
Opinions of Financial Advisors to HMA			12
Treatment of HMA Stock Options, Other Equity-Based Awards and Performance Cash Awards			13
Treatment of Rights under HMA Rights Agreement			15
Interests of HMA Directors and Executive Officers in the Merger			15
Conditions to the Completion of the Merger			15
Regulatory Approvals Required to Complete the Merger			16
Financing			16
Termination of the Merger Agreement			17
Non-Solicitation of Alternative Proposals			18
Expenses and Termination Fees Relating to the Merger			19
Accounting Treatment of the Merger			19
Material U.S. Federal Income Tax Consequences			19
Legal Proceedings Related to the Merger			20
Comparison of the Rights of Holders of CHS Common Stock and HMA Common Stock			20
Appraisal Rights in Connection with the Merger			20
HMA Special Meeting			20
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA			22
Summary Historical Consolidated Financial Data of HMA			25
Unaudited Summary Pro Forma Condensed Combined Financial Information			27
Comparative Per Share Data			28
Comparative Market Value of Common Stock			29
RISK FACTORS			30
Risks Related to the Merger			30
Risks Related to the CVRs			36
Risks Related to the Combined Company Following the Merger			38
Other Risks Factors of CHS and HMA			40
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			41
INFORMATION ABOUT CHS			42
INFORMATION ABOUT HMA			42
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HMA			46
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION			48
Note 1.     Description of the Transaction			52
Note 2.     Basis of Pro Forma Presentation			53
Note 3.     Estimate of Consideration Expected to be Transferred			53
Note 4.     Contingent Value Rights			55
Note 5.     Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements			56

 

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		Page
COMPARATIVE PER SHARE DATA			61
COMPARATIVE MARKET VALUE OF COMMON STOCK			62
COMPARATIVE STOCK PRICES AND DIVIDENDS			63
Market Prices and Dividend Data			63
HMA SPECIAL MEETING			65
Proxy Statement/Prospectus			65
Date, Time and Place of the HMA Special Meeting			65
Purpose of the HMA Special Meeting			65
Record Date and Voting			65
Vote Required			65
Recommendation of the HMA Board of Directors			66
Voting Electronically or by Telephone			67
Vote of HMA’s Executive Officers			67
Revocability of Proxies			67
Inspector of Election			67
Attending the HMA Special Meeting			67
Voting Procedures			68
Proxy Solicitations			68
Householding			68
BENEFICIAL STOCK OWNERSHIP OF HMA’S DIRECTORS, EXECUTIVE OFFICERS AND PERSONS OWNING MORE THAN 5% OF THE OUTSTANDING SHARES OF HMA COMMON STOCK			69
PROPOSALS SUBMITTED TO HMA STOCKHOLDERS			71
Adoption of the Agreement and Plan of Merger			71
Non-Binding Advisory Vote on Golden Parachute Compensation			71
Adjournment Proposal			72
THE MERGER			73
Effects of the Merger			73
Financing for the Merger			75
Background of the Merger			77
Recommendation of the HMA Board of Directors and HMA’s Reasons for the Merger			88
Opinions of Financial Advisors to HMA			95
Certain Unaudited HMA Forecasts			117
Interests of Certain Persons in the Merger			120
Equity and Performance Cash Awards Held by Executive Officers and Directors			120
Payments to HMA Executive Officers Contingent Upon the Merger			122
Golden Parachute Compensation			124
Board of Directors and Management of CHS after the Merger			127
HMA Director Compensation			127
Regulatory Approvals			128
New York Stock Exchange Listing of CHS Common Stock and CVRs; Deregistration of HMA Common Stock After the Merger			129
Exchange of Shares of HMA Common Stock			129
Distributions with Respect to Unexchanged Shares of HMA Common Stock			130
Fractional Shares			130
Lost, Stolen or Destroyed Certificates			130
Appraisal Rights			130
Litigation Related to the Merger			134
Accounting Treatment of the Merger			135
Material U.S. Federal Income Tax Consequences			135

 

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		Page
THE MERGER AGREEMENT			143
The Merger			143
Effective Time; Closing			143
Marketing Period			143
Merger Consideration			144
Withholding			146
Dividends and Distributions			146
Conditions to the Completion of the Merger			147
HMA Special Meeting			149
Non-Solicitation of Alternative Proposals			150
Financing Covenant; HMA Cooperation; Actions with Respect to Existing Debt			154
Regulatory Matters			156
Termination			157
HMA Termination Fee			158
Conduct of Business Pending the Merger			159
Litigation Related to the Merger			160
Public Announcements			160
Change of Control Provisions			160
Additional Covenants			161
Governance of the Surviving Company			161
Indemnification; Directors’ and Officers’ Insurance			161
Employee Matters			162
Representations and Warranties			163
Amendment and Waiver			164
Governing Law; Jurisdiction; Waiver of Jury Trial			164
Specific Performance			165
Merger Agreement Amendment			165
DESCRIPTION OF THE CVRS			166
Contingent Value Rights Agreement			166
Characteristics of the CVRs			166
CVR Payment Amount			166
CVR Payment Date			167
Calculation of CVR Payment Amount			167
Management of Existing Litigation			167
Issuance of CVRs			167
Transferability of CVRs; Listing			168
Registration and Transfers			168
Subordination			168
Reporting Obligations			169
Breach			169
Amendment of CVR Agreement without Consent of CVR Holders			170
Amendment of CVR Agreement with Consent of CVR Holders			171
Trust Indenture Act			171
Purchases by CHS and Affiliates			171
Cancellation of CVRs			171
DESCRIPTION OF CHS CAPITAL STOCK			172
Authorized Capital Stock			172
Certain Provisions Affecting Control of CHS			172
COMPARISON OF RIGHTS OF HOLDERS OF CHS COMMON STOCK AND HMA COMMON STOCK			175

 

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LEGAL MATTERS			189
EXPERTS			189
SUBMISSIONS OF HMA STOCKHOLDER PROPOSALS			189
WHERE YOU CAN FIND MORE INFORMATION			189
ANNEXES
ANNEX A—MERGER AGREEMENT (AS AMENDED)			A-1
ANNEX B—FORM OF CVR AGREEMENT			B-1
ANNEX C—OPINION OF MORGAN STANLEY & CO. LLC			C-1
ANNEX D—OPINION OF LAZARD FRÈRES & CO. LLC			D-1
ANNEX E—OPINION OF UBS SECURITIES LLC			E-1
ANNEX F—SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW			F-1

 

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RISK FACTORS

In addition to the other information included in and incorporated by reference into this proxy statement/prospectus, you should carefully read and consider the following risk factors in evaluating the proposals to be voted on at the HMA special meeting and in determining whether to vote for adoption of the merger agreement. If the merger agreement is adopted by HMA stockholders and all of the other conditions to the completion of the merger are satisfied or waived, and the merger is completed, holders of HMA common stock will become holders of CHS common stock and CVRs and will be subject to the risks and uncertainties of holders thereof. Please also refer to the additional risk factors of each of CHS and HMA identified in the periodic reports and other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 189.

Risks Related to the Merger

Because the market price of CHS common stock will fluctuate and because of the uncertainty of the ultimate realization of the CVRs, HMA’s stockholders cannot be certain of the value of the merger consideration that they will be entitled to receive in the merger.

At the completion of the merger, each outstanding share of HMA common stock will be converted into the right to receive (1) $10.50 in cash, without interest, (2) 0.06942 shares of CHS common stock and (3) one CVR. The 0.06942 exchange ratio is fixed and will not be adjusted for changes in the market price of either HMA common stock or CHS common stock. The market value of the CHS common stock that HMA stockholders will be entitled to receive in the merger could vary significantly from the market value of CHS common stock on the date of the announcement of the merger agreement, the date that this proxy statement/prospectus was mailed to stockholders of HMA or the date of the HMA special meeting. For example, the closing sale price of CHS common stock on July 26, 2013, the last trading day prior to the execution of the merger agreement, was $44.60 per share and, therefore, if the merger had closed on that date, the value of the merger consideration that HMA stockholders would have received for each share of HMA common stock, including the $10.50 in cash consideration (but excluding any value relating to the CVR), would have been $13.60. On November 15, 2013, the last trading day before the date of this proxy statement/prospectus, the closing sale price of CHS common stock was $42.71 per share and, therefore, if the merger had closed on that date, the value of the merger consideration that HMA stockholders would have received for each share of HMA common stock, including the $10.50 in cash consideration (but excluding any value relating to the CVR), would have been $13.46. Moreover, the market value of CHS common stock will likely fluctuate after the completion of the merger. See “Comparative Per Share Data” and “Comparative Market Value of Common Stock” beginning on pages 61 and 62, respectively.

The merger agreement does not provide for any termination right by either party solely based on changes in the price or trading volume of CHS common stock or HMA common stock. Fluctuations in the market price of CHS common stock could result from changes in the business, operations or prospects of HMA or CHS prior to the completion of the merger or the combined company following the completion of the merger, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of HMA or CHS. In addition, the value of the CVRs, if any, is speculative, and the CVRs may ultimately have a value substantially less than $1.00 per CVR, or no value at all. For additional risks relating to the CVRs, see “—Risks Related to the CVRs.”

The issuance of CHS common stock in connection with the merger could decrease the market price of CHS common stock.

Upon the completion of the merger, CHS expects to issue approximately 18.4 million shares of CHS common stock, or approximately 16% of the number of shares of CHS common stock outstanding as of November 13, 2013, to HMA stockholders in the merger. The issuance of CHS common stock in the merger may result in fluctuations in the market price of CHS common stock, including a stock price decline.

 

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The shares of CHS common stock to be received by HMA stockholders as a result of the merger will have different rights from the shares of HMA common stock.

Upon completion of the merger, HMA stockholders will become CHS stockholders and their rights as stockholders will be governed by CHS’s certificate of incorporation and CHS’s by-laws. Certain of the rights associated with CHS common stock are different from, and may be viewed as less favorable than, the rights associated with HMA common stock. See “Comparison of Rights of Holders of CHS Common Stock and HMA Common Stock” beginning on page 175 for a discussion of the different rights associated with CHS common stock.

The parties may be unable to satisfy the conditions to the completion of the merger and the merger may not be completed.

Completion of the merger is conditioned on, among other things, the adoption of the merger agreement by holders of at least 70% of HMA’s outstanding common stock entitled to vote thereon, the expiration or termination of the applicable waiting period under the HSR Act, the absence of any law or judgment that prohibits the completion of the merger, the absence of certain governmental adverse events occurring with respect to HMA, the receipt of certain healthcare regulatory approvals, no acceleration of a material amount of HMA’s debt having occurred and the approval of the shares of CHS common stock to be issued in the merger for listing on the New York Stock Exchange. Each party’s obligation to close the merger is also subject to, among other conditions, the accuracy of the representations and warranties of the other party in the merger agreement (subject to certain specified standards of materiality), the compliance in all material respects with covenants of the other party in the merger agreement and the absence of a material adverse effect (as defined in the merger agreement) on the other party.

These and other conditions to the completion of the merger may fail to be satisfied. In addition, satisfying the conditions to and completion of the merger may take longer, and could cost more, than HMA and CHS expect.

HMA must obtain approval of its stockholders to consummate the merger, which, if delayed or not obtained, may jeopardize or delay the consummation of the merger.

The merger is conditioned on the adoption of the merger agreement by holders of at least 70% of HMA’s outstanding common stock entitled to vote thereon. If the HMA stockholders do not adopt the merger agreement, then HMA and CHS cannot consummate the merger. The merger agreement provides that HMA is required to pay expense reimbursement of $40 million to CHS (irrespective of any amount of expenses incurred by CHS) if the merger agreement is terminated by either HMA or CHS because the HMA stockholders have not adopted the merger agreement at a duly convened meeting of the stockholders of HMA.

Regulatory approvals that are required to complete the merger may not be received, may take longer than expected or may impose conditions which are not presently anticipated.

Under the provisions of the HSR Act, the merger may not be completed until notification and report forms have been filed with the Antitrust Division of the DOJ and the FTC and the expiration of a 30 calendar day waiting period (unless the waiting period is set to expire on a weekend or federal holiday, in which case the waiting period is automatically extended until 11:59 p.m. of the next business day), or the early termination of that waiting period, following the parties’ filing of their respective notification and report forms. If the Antitrust Division of the DOJ or the FTC issues a Request for Additional Information and Documentary Material prior to the expiration of the waiting period, the parties must observe a second 30 calendar day waiting period (unless the waiting period is set to expire on a weekend or federal holiday, in which case the waiting period is automatically extended until 11:59 p.m. of the next business day), which would begin to run only after both parties have substantially complied with the request for information, unless the waiting period is terminated earlier. On September 3, 2013, HMA and CHS filed their respective notification and report forms under the HSR Act with

 

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the Antitrust Division of the DOJ and the FTC. On September 30, 2013, the parties received a Request for Additional Information and Documentary Materials (referred to in this joint proxy statement/prospectus as a “second request”) from the FTC regarding the proposed transactions. The effect of the second request was to extend the waiting period imposed by the HSR Act until 30 days after each party has substantially complied with the second request, unless that period is terminated sooner by the FTC. The parties are continuing to work cooperatively with the FTC in connection with this review.

Private parties who may be adversely affected by the merger and individual states may bring legal actions under the antitrust laws in certain circumstances. Although the parties believe the completion of merger will not likely be prevented by antitrust law, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, what the result will be. Under the merger agreement, HMA and CHS have agreed to use their reasonable best efforts to obtain all regulatory clearances necessary to complete the merger as promptly as reasonably practicable. In addition, in order to complete the merger, CHS and HMA may be required to comply with conditions, terms, obligations or restrictions imposed by regulatory entities and such conditions, terms, obligations or restrictions may have the effect of delaying completion of the merger, imposing additional material costs on or materially limiting the revenues of CHS after the completion of the merger, or otherwise reducing the anticipated benefits to CHS of the merger. In addition, such conditions, terms, obligations or restrictions may result in the delay or abandonment of the merger.

Legal proceedings in connection with the merger, the outcomes of which are uncertain, could delay or prevent the completion of the merger.

Since the announcement on July 30, 2013 of the signing of the merger agreement, HMA, the members of the HMA board, CHS and Merger Sub have been named as defendants in several putative class action complaints challenging the proposed merger. The lawsuits generally allege, among other things, that the proposed merger fails to properly value HMA, that the individual defendants breached their fiduciary duties in approving the merger agreement and that those breaches were aided and abetted by CHS. The lawsuits seek, among other things, injunctive relief to enjoin the defendants from completing the merger on the agreed–upon terms, monetary relief and attorneys’ fees and costs.

One of the conditions to the closing of the merger is that no judgment (whether preliminary, temporary or permanent) or other order, legal restraint or prohibition by any court or other governmental entity shall be in effect that prevents, makes illegal or prohibits the consummation of the merger. Consequently, if the plaintiffs secure injunctive or other relief prohibiting, delaying, or otherwise adversely affecting the defendants’ ability to complete the merger, then such injunctive or other relief may prevent the merger from becoming effective within the expected time frame or at all. If completion of the merger is prevented or delayed, it could result in substantial costs to CHS and HMA. In addition, CHS and HMA could incur significant costs in connection with the lawsuits, including costs associated with the indemnification of HMA’s directors and officers.

Since the approval of the merger agreement by HMA’s board of directors, the entire HMA board has been replaced by nominees of Glenview Capital Management, and it is unclear what, if any, impact this change of control of the HMA board will have on the merger.

On August 12, 2013, following the date on which the HMA board of directors approved the merger agreement, Glenview Capital Management, LLC, or Glenview, delivered written consents from HMA stockholders, or their duly authorized proxies, sufficient to replace the entire HMA board of directors with nominees of Glenview pursuant to a consent solicitation process that had previously been commenced by Glenview. As a result of the Glenview consent solicitation, on August 16, 2013, all of the incumbent HMA board members were removed and replaced by the Glenview nominees.

Subject to certain exceptions, the merger agreement is a binding commitment on the part of HMA to take the actions necessary to consummate the merger, including (i) recommending that HMA stockholders adopt the

 

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merger agreement, (ii) using reasonable best efforts to obtain all regulatory consents and approvals necessary to consummate the merger, (iii) cooperating with CHS in preparing this proxy statement/prospectus, filing it with the SEC and having the SEC declare it effective as promptly as practicable, and (iv) holding a meeting of HMA stockholders to adopt the merger agreement. However, it is unclear what, if any, impact this change of control of the HMA board could have on the performance of HMA’s obligations under the merger agreement or the timely consummation of the merger.

Failure to complete the merger could have material and adverse effects on HMA, including having a negative impact on the stock price and the future business and financial results of HMA.

If the merger is not completed, the ongoing businesses of HMA may be adversely affected. HMA will be subject to a number of risks, including the following:

 

•

none of the benefits of the merger will be realized;

 

•

HMA may be required to pay CHS a termination fee of $109 million or expense reimbursement of $40 million if the merger agreement is terminated under certain circumstances, as described under “The Merger Agreement—HMA Termination Fee”;

 

•

HMA will be required to pay its costs relating to the proposed merger if the merger is not completed;

 

•

under the merger agreement, HMA is subject to certain restrictions on the conduct of its business prior to completing the merger which may affect its ability to execute certain business strategies or pursue otherwise attractive business opportunities;

 

•

uncertainty regarding the completion of the merger may foster uncertainty among employees about their future roles, which could adversely affect the ability of HMA to attract and retain key personnel;

 

•

matters relating to the merger (including integration planning) may require substantial commitments of time and resources by HMA management, which could otherwise have been devoted to other opportunities that may have been beneficial to HMA as an independent company; and

 

•

if the merger is not completed, HMA may need to grant new long-term incentive awards to employees and other service providers in order to retain and incentivize such individuals and to replace the equity and performance cash awards that vested as a result of the Glenview consent solicitation.

In addition, HMA could be subject to litigation, including an action for specific performance, related to any failure to complete the merger. If the merger is not completed, any of the foregoing risks may materialize and may adversely affect HMA’s business, financial results and the market price of HMA common stock.

Any delay in completing the merger may substantially reduce the benefits that CHS expects to obtain from the merger.

Satisfying the conditions to, and completion of, the merger may take longer than, and could cost more than, CHS and HMA expect. CHS and HMA cannot predict whether or when the conditions required to complete the merger will be satisfied, and satisfying the conditions to the merger could delay the effective time of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger or any additional conditions imposed in order to complete the merger may materially adversely affect the synergies and other benefits that CHS expects to achieve if the merger and the integration of the companies’ respective businesses are completed within the expected timeframe. In addition, each of CHS and HMA may terminate the merger agreement if the merger is not completed by April 30, 2014, except that such date may be extended by CHS with the consent of HMA (not to be unreasonably withheld, conditioned or delayed) to July 30, 2014 if the only unsatisfied conditions to the completion of the merger are those regarding receipt of required antitrust clearances and the absence of legal restraints in respect of any antitrust or competition laws.

 

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The integration of HMA may present significant challenges to CHS.

Achieving the anticipated benefits of the merger will depend in part upon whether CHS and HMA can integrate their businesses in an efficient and effective manner. The integration of HMA involves a number of risks, including, but not limited to:

 

•

failure to implement CHS’s business plan for the combined business;

 

•

costs, including legal and settlement costs, associated with HMA’s legal proceedings, including as described in the “Legal Proceedings” section of HMA’s Annual Report on Form 10-K/A and Quarterly Reports on Forms 10-Q/A and 10-Q and other costs, including legal and settlement costs, associated with HMA’s other loss contingencies, in each case whether known or unknown and whether relating to past, present or future facts, events, circumstances or occurrences, any of which could be materially adverse to the business, results of operations, assets or financial condition of HMA and, following the merger, the financial position, results of operations and liquidity of CHS and the ability of CHS to achieve expected benefits of the merger;

 

•

potential deterioration in the financial performance of HMA, including any potential deviation in results of operations from historical levels;

 

•

higher integration costs than anticipated;

 

•

difficulties in the assimilation and retention of employees;

 

•

demands on management related to the increase in the size of CHS after the acquisition;

 

•

the diversion of management’s attention from the management of daily operations to the integration of operations;

 

•

unanticipated changes in applicable laws and regulations;

 

•

difficulties and risks in the integration of departments and systems (including accounting, health information and management information systems), technologies (including software), books and records and procedures, as well as in maintaining uniform standards and controls (including internal control over financial reporting and related procedures and policies); and

 

•

other unanticipated issues, expenses, or liabilities that could impact, among other things, CHS’s ability to realize any expected synergies on a timely basis, or at all.

If CHS cannot successfully integrate HMA, CHS may experience material negative consequences to its business, financial condition or results of operations. Successful integration of HMA will depend on CHS’s ability to manage these operations, to realize opportunities for revenue growth and, to some degree, to eliminate redundant and excess costs. Because of difficulties in combining the two companies, CHS may not be able to achieve the benefits that it hopes to achieve as a result of the merger.

The merger may be completed on different terms from those contained in the merger agreement.

Prior to the completion of the merger, the parties may, by their mutual agreement, amend or alter the terms of the merger agreement, including with respect to, among other things, the merger consideration to be received by HMA stockholders, assets to be acquired, or any covenants or agreements with respect to the parties’ respective operations during the pendency thereof (certain of these changes, including those with respect to the merger consideration to be received by HMA stockholders, may be made only prior to the requisite stockholder approval). Any such amendments or alterations may have negative consequences to HMA stockholders including, among other things, reducing the cash available for CHS’s or HMA’s operations or to meet respective obligations or restricting or limiting assets or operations of either of CHS or HMA. Under certain circumstances, HMA shareholders may be permitted or required to adopt any such amendments, which could delay the closing of the merger and subject HMA and CHS to additional expense.

 

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CHS will incur significant transaction and merger-related costs in connection with the merger.

CHS expects to incur a number of non-recurring costs associated with combining the operations of the two companies. Most of these costs will be comprised of transaction costs, including fees paid to financial and legal advisors related to the merger and related financing arrangements, and employment-related costs, including change-in-control related payments made to certain HMA executives, further described in the Section entitled “Payments to HMA Executive Officers Contingent Upon the Merger” beginning on page 122. CHS will also incur transaction fees and costs related to formulating integration plans. Additional unanticipated costs may be incurred in the integration of the two companies’ businesses. Although CHS expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow CHS to offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

CHS will incur substantial additional indebtedness in connection with the merger.

In connection with the merger, CHS will enter into financing arrangements consisting of a term loan agreement and bridge loan agreement. CHS intends to use this financing from the term loan and, in certain circumstances, the bridge loan, to pay, in part, the cash portion of the merger consideration and a portion of the fees and expenses related to the merger, which may include the repayment of certain outstanding indebtedness of HMA. This additional indebtedness of CHS may limit the combined company’s operating flexibility following the merger and may otherwise strain the company’s liquidity and financial condition.

As a result of the merger, CHS’s goodwill, indefinite-lived intangible assets, and other intangible assets in its consolidated balance sheet will increase. If its goodwill, indefinite-lived intangible assets, or other intangible assets become impaired in the future, CHS would be required to record a material, non-cash charge to earnings, which would also reduce its stockholders’ equity.

Under GAAP, goodwill and indefinite-lived intangible assets are reviewed for impairment on an annual basis (or more frequently if events or circumstances indicate that their carrying value may not be recoverable) and other intangible assets if events or circumstances indicate that their carrying value may not be recoverable. If CHS’s goodwill, indefinite-lived intangible assets, or other intangible assets are determined to be impaired in the future, CHS will be required to record a material, non-cash charge to earnings during the period in which the impairment is determined.

The merger agreement contains provisions that limit HMA’s ability to pursue alternatives to the merger, which could discourage a potential acquirer of HMA from making an alternative transaction proposal or could result in a competing proposal being at a lower price than it might otherwise be and, in certain circumstances, could require HMA to pay CHS a significant termination fee.

The merger agreement contains “no shop” provisions that, subject to limited exceptions, preclude HMA from (1) soliciting, seeking, initiating or knowingly facilitating or encouraging any inquiries regarding or the making of any submission of a proposal or offer which would reasonably be expected to result in an acquisition proposal, (2) engaging in, continuing or otherwise participating in any discussions or negotiations regarding or furnishing to any person non-public information in connection with or for the purpose of encouraging or facilitating any acquisition proposal, (3) approving, endorsing or recommending any acquisition proposal, (4) entering into any letter of intent, acquisition agreement or similar agreement (other than certain acceptable confidentiality agreements, or (5) resolving or agreeing to do any of the foregoing.

The merger agreement also provides that HMA will be required to pay a termination fee of $109 million to CHS upon termination of the merger agreement under certain circumstances. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of HMA from considering or proposing an acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire HMA than it might otherwise have proposed to pay.

 

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The opinions delivered by Lazard, Morgan Stanley and UBS will not reflect changes in circumstances between the date of such opinions and the completion of the merger.

The HMA directors have not obtained updated opinions as of the date of this proxy statement/prospectus from Lazard, Morgan Stanley and UBS, its financial advisors. Changes in the operations and prospects of HMA or CHS, general market and economic conditions and other factors that may be beyond their control, and on which the opinions were based, may alter the value of HMA or CHS, the prices of the HMA common stock or CHS common stock, or the value of the CVR, by the time the merger is completed. None of the opinions speak as of the time the merger will be completed or as of any date other than the date of such opinion. Because HMA does not anticipate asking Lazard, Morgan Stanley or UBS to update its respective opinions, each of the opinions only addresses the fairness of the merger consideration, from a financial point of view, as of the date of such opinion. Morgan Stanley’s opinion is included as Annex C to this proxy statement/prospectus, Lazard’s opinion is included as Annex D to this proxy statement/prospectus and UBS’ opinion is included as Annex E to this proxy statement/prospectus. For a description of the opinions, please refer to “The Merger—Opinions of Financial Advisors to HMA” beginning on page 95.

HMA executive officers and directors have financial interests in the merger that may be different from, or in addition to, the interests of HMA stockholders.

Executive officers of HMA negotiated the terms of the merger agreement with their counterparts at CHS, and the HMA board of directors unanimously determined that the transactions contemplated by the merger agreement, including the merger, are advisable and fair to, and in the best interests of, HMA and its stockholders, approved the merger agreement and declared advisable the merger and unanimously recommended that HMA stockholders adopt the merger agreement. In considering these facts and the other information contained in this proxy statement/prospectus, you should be aware that HMA’s executive officers and directors have financial interests in the merger that may be different from, or in addition to, the interests of HMA stockholders. For a detailed discussion of the special interests that HMA’s directors and executive officers may have in the merger, please see “The Merger—Interests of Certain Persons in the Merger” beginning on page 120.

Risks Related to the CVRs

You may not receive any payment on the CVRs.

Your right to receive any future payment on the CVRs will be contingent upon the final resolution of certain existing litigation against HMA. Specifically, the amount you would receive under the CVRs following any such resolution would be reduced in the event that the losses incurred by HMA in connection with such litigation exceed a deductible specified in the CVR agreement. Accordingly, the value, if any, of the CVRs is speculative, and the CVRs may ultimately have a value substantially less than $1.00 per CVR, or no value at all. See “Description of the CVRs” beginning on page 166.

Until final resolution of certain litigation pending against HMA, you will not be entitled to receive any amount under the CVRs, and the amount of any such payment will not be determinable, which makes it difficult to value the CVRs.

If any payment is made on the CVRs, it will not be made until the final resolution of certain litigation against HMA, as further specified in the CVR agreement, and the amount of any such payment will not be determinable until the time of such final resolution. As such, it may be difficult to value the CVRs and it may be difficult or impossible for you to resell your CVRs. There is no way to predict when such litigation may conclude.

The U.S. federal income tax treatment of the CVRs is unclear.

There is no legal authority directly addressing the U.S. federal income tax treatment of the CVRs. Accordingly, the amount, timing and character of any gain, income or loss with respect to the CVRs are uncertain. For example, it is possible that payments received with respect to a CVR, up to the amount of the

 

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holder’s adjusted tax basis in the CVR, may be treated as a non-taxable return of a holder’s adjusted tax basis in the CVR, with any amount received in excess of such basis treated as gain from the disposition of the CVR, or possibly another method of basis recovery may apply. Further, it is not clear whether payments made with respect to a CVR may be treated as payments with respect to a sale or exchange of a capital asset or as giving rise to ordinary income. A holder who does not sell, exchange or otherwise dispose of a CVR may not be able to recognize a loss with respect to the CVR until the holder’s right to receive CVR payments terminates. Although not entirely clear, a portion of any payment due more than six months following the consummation of the Merger, as the case may be, with respect to a CVR may constitute imputed interest taxable as ordinary income under Section 483 of the Internal Revenue Code of 1986, as amended (the “Code”). CHS has agreed with HMA, except to the extent any portion of a CVR payment is required to be treated as interest pursuant to applicable law, to treat the CVRs as an amount paid as consideration for the shares of HMA common stock, HMA stock options, restricted stock awards, deferred stock awards and performance cash awards. The parties have also agreed to determine imputed interest, if any, in accordance with Section 483 of the Code. See “The Merger—Material U.S. Federal Income Tax Consequences” beginning on page 135.

Any payments in respect of the CVRs are subordinated to the right of payment of CHS’s other indebtedness.

The CVRs are unsecured obligations of CHS and all payments under the CVRs, all other obligations under the CVR agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all senior obligations of CHS. Senior obligations of CHS under the CVR agreement include the amount of certain specified losses arising out of or relating to certain existing litigation matters involving HMA and any existing or future obligations of CHS, including the principal of, premium (if any), interest on, and all other amounts owing thereon:

 

•

with respect to borrowed money;

 

•

evidenced by notes, debentures, bonds or other similar debt instruments;

 

•

with respect to the net obligations owed under interest rate swaps or similar agreements or currency exchange transactions;

 

•

reimbursement obligations in respect of letters of credit and similar obligations;

 

•

in respect of capital leases; and

 

•

guarantees in respect of the foregoing obligations, unless the instrument creating or evidencing the same provides otherwise.

CHS’s senior obligations under the CVR agreement do not include, among other things:

 

•

the CVR agreement and the CVRs and any rights or claims relating thereto;

 

•

trade debt incurred in the ordinary course of business;

 

•

any intercompany indebtedness between CHS and any of its subsidiaries or affiliates;

 

•

indebtedness of CHS that is subordinated in right of payment to CHS’s senior obligations;

 

•

indebtedness or other obligations of CHS that by its terms ranks equal or junior in right of payment to payments under the CVRs, all other obligations under the CVR agreement and the CVRs and any rights or claims relating thereto;

 

•

indebtedness of CHS that, by operation of applicable law, is subordinate to any general unsecured obligations of CHS;

 

•

indebtedness evidenced by any guarantee of indebtedness ranking equal or junior in right of payment to payments under the CVRs, all other obligations under the CVR agreement and the CVRs and any rights or claims relating thereto;

 

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•

indebtedness consisting of the deferred purchase price for property or services, including earn-out and milestone payments and contingent value rights; and

 

•

indebtedness that is contractually non-recourse to the general credit of CHS.

An active public market for the CVRs may not develop or the CVRs may trade at low volumes, both of which could have an adverse effect on the resale price, if any, of the CVRs.

Because there has not been any public market for the CVRs, the market price and trading volume of the CVRs may be volatile. Neither CHS nor HMA can predict the extent to which investor interest will lead to a liquid trading market in the CVRs or whether the market price of the CVRs will be volatile following the merger. The market price of the CVRs could fluctuate significantly for many reasons, including, without limitation, as a result of:

 

•

the risk factors listed in this proxy statement/prospectus;

 

•

the inability to reach final resolution of litigation matters involving HMA;

 

•

the amount of costs and expenses incurred in connection with litigation matters involving HMA;

 

•

the unfavorable resolution of litigation matters involving HMA;

 

•

market and investor perceptions, including reports by industry analysts;

 

•

legal or regulatory changes that could impact the business of HMA, or its ability to favorably resolve litigation matters involving it; and

 

•

general economic, securities markets and industry conditions.

It is a condition to the closing of the merger that the CVRs be approved for listing on either the New York Stock Exchange or NASDAQ or, if unable to be so approved, then on any other national securities exchange, the OTC Markets Group (f/k/a Pink Sheets) or the OTC Bulletin Board. Regardless of what exchange or market the CVRs may be listed or quoted, there may be little or no market demand for the CVRs, making it difficult or impossible to resell the CVRs, which would have an adverse effect on the resale price, if any, of the CVRs.

Holders of CVRs may incur brokerage charges in connection with the resale of the CVRs, which in some cases could exceed the proceeds realized by the holder from the resale of its CVRs. Neither CHS nor HMA can predict the price, if any, at which the CVRs will trade following the completion of the Merger.

CHS may repurchase the CVRs.

The CVR agreement expressly allows CHS or any of its subsidiaries or affiliates to acquire some or all of the CVRs, whether in open market transactions, private transactions or otherwise, subject to requirements that CHS must publicly disclose the amount of CVRs it has been authorized to acquire and the amount it has acquired. CHS cannot predict whether it may seek to repurchase any or all of the CVRs or the price at which CHS may seek to repurchase any or all of the CVRs.

Risks Related to the Combined Company Following the Merger

The market price of CHS common stock and CHS’s results of operations may be affected by factors different from those affecting the market price of HMA common stock and HMA’s results of operations.

HMA stockholders will be entitled to receive merger consideration that is partially comprised of CHS common stock and will thus become CHS stockholders upon the consummation of the merger. CHS’s business is different from that of HMA, and CHS’s results of operations, as well as the market price of CHS common stock, may be affected by factors different from those affecting HMA’s results of operations and the market price of HMA common stock. The market price of CHS common stock may fluctuate significantly following the merger, including as a result of factors over which CHS has no control.

 

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Failure to achieve expected benefits of the merger and to integrate HMA’s operations with CHS’s could adversely affect CHS following the completion of the merger and the market price of CHS common stock.

Although CHS expects to realize strategic, operational and financial benefits as a result of the merger, CHS cannot be certain whether, and to what extent, such benefits will be achieved in the future. In particular, the success of the merger will depend on achieving efficiencies and cost savings, and no assurances can be given that CHS will be able to do so. For example, costs associated with HMA’s legal proceedings and other loss contingencies may be greater than expected, and could exceed the amount of any reduction in payment under the CVRs. In addition, in order to obtain the benefits of the merger, CHS must integrate HMA’s operations. Such integration may be complex and the failure to do so quickly and effectively may negatively affect earnings.

In addition, the market price of CHS common stock may decline as a result of the merger if the integration of CHS and HMA is unsuccessful, takes longer than expected or fails to achieve financial benefits to the extent anticipated by financial analysts or investors, or the effect of the merger on CHS’s financial results is otherwise not consistent with the expectations of financial analysts or investors.

HMA is the subject of legal proceedings that, if resolved unfavorably, could have an adverse effect on CHS following the merger, and HMA may be subject to other loss contingencies, both known and unknown.

HMA is a party to various ongoing government investigations, legal proceedings and other related matters, including as described in the “Legal Proceedings” section of HMA’s Annual Report on Form 10-K/A and Quarterly Reports on Form 10-Q/A and Form 10-Q. Those proceedings include, among other things, government investigations. In addition, HMA is and may become subject to other loss contingencies, both known and unknown, which may relate to past, present and future facts, events, circumstances and occurrences. Should an unfavorable outcome occur in some or all of HMA’s legal proceedings or other loss contingencies, or if successful claims and other actions are brought against HMA in the future, there could be a material adverse impact on CHS’s financial position, results of operations and liquidity following the merger and the ability of CHS to achieve expected benefits of the merger.

In particular, government investigations, as well as qui tam lawsuits, may lead to material fines, penalties, damages payments or other sanctions, including exclusion from government health care programs. The costs relating to these matters could exceed the amount of any reduction in payment under the CVRs. Settlements of lawsuits involving Medicare and Medicaid issues routinely require both monetary payments and corporate integrity agreements, each of which could have a materially adverse effect on CHS’s business, financial condition, results of operations and/or cash flows following the merger.

The pro forma financial statements included in this proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger.

The pro forma financial statements contained in this proxy statement/prospectus are presented for illustrative purposes only, are based on various adjustments, assumptions and preliminary estimates and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. See “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 48. The actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these pro forma financial statements. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the merger. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of CHS following the merger.

 

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HMA stockholders will have a reduced ownership and voting interest in CHS after the merger and, as a result, will be able to exert less influence over management.

Following the merger, each HMA stockholder will become a stockholder of CHS with a percentage ownership of CHS after the merger that is smaller than the stockholder’s percentage ownership of HMA. It is expected that the former stockholders of HMA as a group will own approximately 16% of the outstanding shares of CHS common stock immediately after the completion of the merger. Because of this, HMA stockholders will have substantially less influence on the management and policies of CHS after the merger than they now have with respect to the management and policies of HMA.

CHS may be unable to hire and retain sufficient qualified personnel; the loss of any of its key executive officers could adversely affect CHS.

CHS believes that its future success will depend in large part on its ability to attract and retain highly skilled, knowledgeable, sophisticated and qualified managerial and professional personnel, including, following the merger, key employees of HMA. Key employees of CHS or HMA may depart for a variety of reasons, including because of issues relating to the difficulty of integration or accelerated retirement as a result of amounts received in connection with the merger. Accordingly, no assurance can be given that CHS will be able to retain key employees of CHS or, following the merger, HMA.

The combined company may require additional capital in the future, which may not be available to it on satisfactory terms, if at all.

The combined company will require liquidity to fund its operations and make interest and principal payments on its debt. To the extent that the funds generated by the combined company’s ongoing operations are insufficient to cover its liquidity requirements, it may need to raise additional funds through financings. If the combined company cannot obtain adequate capital or sources of credit on favorable terms, or at all, its business, operating results and financial condition could be adversely affected. Any future equity or debt financing may not be available on terms that are favorable to the combined company, if at all.

Other Risks Factors of CHS and HMA

CHS’s and HMA’s businesses are and will be subject to the risks described above. In addition, CHS and HMA are, and will continue to be, subject to the risks described in CHS’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and HMA’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012, and as updated by subsequent Quarterly Reports on Form 10-Q and any amendments thereto, and Current Reports on Form 8-K, all of which are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 189.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

A number of the statements made or incorporated by reference in this proxy statement/prospectus are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act, Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are all statements made or incorporated by reference into this proxy statement/prospectus, other than statements of historical fact. In some cases, forward-looking statements can be identified by terminology such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expressions or expressions of the negative of these terms. These statements include statements regarding the intent, belief or current expectations of each of CHS and HMA and their respective subsidiaries, their directors and their officers with respect to, among other things, future events, including the merger, the respective financial results and financial trends expected to impact each of CHS and HMA prior to the completion of the merger, or if the merger is not completed, and expected to impact CHS thereafter, assuming the merger is completed.

Forward-looking statements are based upon certain underlying assumptions, including any assumptions mentioned with the specific statements, as of the date such statements were made. Such assumptions are in turn based upon internal estimates and analyses of market conditions and trends, management plans and strategies, economic conditions and other factors. Forward-looking statements and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, those set forth under “Risk Factors” beginning on page 30, and those set forth under “Forward-Looking Statements,” “Risk Factors” or any similar heading in the documents incorporated by reference herein.

CHS and HMA caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this proxy statement/prospectus in the case of forward-looking statements contained in this proxy statement/prospectus, or the dates of the documents incorporated by reference in this proxy statement/prospectus in the case of forward-looking statements made in those incorporated documents. Except as may be required by law, neither CHS nor HMA has any obligation to update or alter these forward-looking statements, whether as a result of new information, future events or otherwise.

CHS and HMA expressly qualify in their entirety all forward-looking statements attributable to CHS or HMA or any person acting on either of their respective behalf by the cautionary statements contained or referred to in this section.

 

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INFORMATION ABOUT CHS

CHS is one of the largest publicly-traded operators of hospitals in the United States in terms of number of facilities and net operating revenues. It provides healthcare services through the hospitals that it owns and operates in non-urban and selected urban markets throughout the United States. As of September 30, 2013, CHS owned or leased 135 hospitals, comprised of 131 general acute care hospitals and four stand-alone rehabilitation or psychiatric hospitals. These hospitals are geographically diversified across 29 states, with an aggregate of approximately 20,000 licensed beds. CHS generates revenues by providing a broad range of general and specialized hospital healthcare services and other outpatient services to patients in the communities in which it is located. Services provided through its hospitals and affiliated businesses include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic, psychiatric and rehabilitation services. CHS also provides additional outpatient services at urgent care centers, occupational medicine clinics, imaging centers, cancer centers, ambulatory surgery centers and home health and hospice agencies.

CHS’s common stock is listed on the New York Stock Exchange under the symbol “CYH.” CHS was originally founded in 1986 and was reincorporated in 1996 as a Delaware corporation. CHS became public in 2000.

Additional information about CHS is included in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 189.

INFORMATION ABOUT HMA

HMA, by and through its subsidiaries, operates general acute care hospitals and other health care facilities in non-urban communities. As of September 30, 2013, HMA operated 71 hospitals with a total of approximately 10,782 licensed beds in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Washington and West Virginia. Services provided by HMA’s hospitals include general surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care and pediatric services. HMA also provides outpatient services such as one-day surgery, laboratory, x-ray, respiratory therapy, cardiology and physical therapy. Additionally, some of HMA’s hospitals provide specialty services in, among other areas, cardiology (e.g., open-heart surgery, etc.), neuro-surgery, oncology, radiation therapy, computer-assisted tomography scanning, magnetic resonance imaging, lithotripsy and full-service obstetrics. HMA’s facilities benefit from centralized resources, such as purchasing, information technology, finance and accounting systems, legal services, facilities planning, physician recruiting, administrative personnel management, marketing and public relations.

HMA’s class A common stock is listed on the New York Stock Exchange under the symbol “HMA.” HMA was incorporated in Delaware in 1979 but began operations through a subsidiary that was formed in 1977. HMA became public in 1991.

Additional information about HMA is included in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 189.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CHS

The following table presents summary historical consolidated financial and operating data for CHS as of and for the fiscal years ended December 31, 2012, 2011, 2010, 2009, and 2008 and as of and for the nine months ended September 30, 2012 and 2013. The summary historical financial information presented below for each of the five years ended December 31, 2012 has been derived from CHS’s audited consolidated financial statements. The summary historical financial information presented below for the nine months ended September 30, 2012 and 2013 has been derived from CHS’s unaudited interim condensed consolidated financial statements. In the opinion of CHS’s management, the unaudited interim financial data include all adjustments, consisting of only normal non-recurring adjustments, considered necessary for a fair presentation of this information.

The information should be read in conjunction with CHS’s consolidated financial statements and the related notes thereto and the information under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in CHS’s Annual Report on Form 10-K filed with the SEC on February 27, 2013 and the unaudited interim condensed consolidated financial statements and the related notes thereto and the information under the heading “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in CHS’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 filed with the SEC on October 31, 2013, which are incorporated by reference in this proxy statement/prospectus. For additional information on documents incorporated by reference in this proxy statement/prospectus, please see “Where You Can Find More Information” beginning on page 189.

 

		Year Ended December 31,																				Nine Months Ended September 30,
		2008				2009				2010				2011				2012				2012				2013
		(Dollars in millions)
Consolidated Statement of Income Data
Operating revenues (net of contractual allowances and discounts)		$	10,563			$	11,742			$	12,623			$	13,626			$	14,988			$	11,227			$	11,335
Provision for bad debts			1,165				1,409				1,531				1,720				1,959				1,475				1,569
Net operating revenues			9,399				10,334				11,092				11,906				13,029				9,752				9,766
Total operating costs and expenses			8,429				9,269				9,971				10,772				11,819				8,825				9,102
Income from operations			970				1,065				1,121				1,134				1,210				927				664
Income from continuing operations before income taxes			366				448				519				474				504				382				234
Income from continuing operations			238				306				355				336				346				261				165
Income (loss) from discontinued operations, net of taxes			14				1				(7	)			(58	)			—				—				—
Net income			253				306				348				278				346				261				165
Less: Net income attributable to noncontrolling interests			34				63				68				76				80				57				52
Net income attributable to Community Health Systems, Inc. stockholders		$	218			$	243			$	280			$	202			$	266			$	203			$	113

 

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		Year Ended December 31,																				Nine Months Ended September 30,
		2008				2009				2010				2011				2012				2012				2013
		(Dollars in millions)
Consolidated Statement of Cash Flow Data
Net cash provided by operating activities		$	1,057			$	1,076			$	1,189			$	1,262			$	1,280			$	778			$	441
Net cash used in investing activities			(665	)			(867	)			(1,044	)			(1,196	)			(1,383	)			(1,088	)			(685	)
Net cash (used in) provided by financing activities			(304	)			(85	)			(190	)			(235	)			361				421				(1	)
Other Financial Data
Adjusted EBITDA(1)		$	1,498			$	1,652			$	1,761			$	1,837			$	1,978			$	1,496			$	1,283
Operating Data
Number of hospitals (at end of period)			118				122				127				131				135				135				135
Licensed beds (at end of period)(2)			17,043				17,557				19,004				19,695				20,334				20,357				20,196
Beds in service (at end of period)(3)			14,836				15,539				16,264				16,832				17,265				17,274				17,370
Admissions(4)			650,701				675,902				678,284				675,050				701,837				528,445				499,800
Adjusted admissions(5)			1,174,525				1,242,647				1,277,235				1,330,988				1,418,472				1,065,547				1,032,649
Patient days(6)			2,768,024				2,874,125				2,891,699				2,970,044				3,058,931				2,302,714				2,210,028
Average length of stay (days)(7)			4.3				4.3				4.3				4.4				4.4				4.4				4.4
Occupancy rate (beds in service)(8)			52.3	%			51.3	%			50.2	%			49.1	%			48.6	%			48.9	%			46.9	%
Net operating revenues		$	9,399			$	10,334			$	11,092			$	11,906			$	13,029			$	9,752			$	9,766
Net inpatient revenues as a % of operating revenues before provision for bad debt			51.7	%			50.4	%			49.3	%			46.1	%			44.7	%			45.1	%			43.8	%
Net outpatient revenues as a % of operating revenues before provision for bad debt			48.3	%			47.3	%			48.5	%			51.9	%			53.4	%			53.1	%			54.4	%
Consolidated Balance Sheet Data (end of period)
Working Capital		$	1,096			$	1,217			$	1,229			$	935			$	1,276			$	1,226			$	1,337
Property and equipment, net			5,894				6,132				6,324				6,856				7,152				7,106				7,068
Cash and cash equivalents			221				345				299				130				388				241				144
Total assets			13,818				14,021				14,698				15,209				16,606				16,241				16,722
Long-term debt			8,938				8,845				8,808				8,783				9,451				9,473				9,368
Other long-term liabilities			889				859				1,002				950				1,039				999				1,016
Total Community Health Systems, Inc. stockholders’ equity			1,611				1,951				2,189				2,397				2,731				2,654				2,990

 

(1)

EBITDA consists of net income attributable to Community Health Systems, Inc. before interest, income taxes, depreciation and amortization. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations, gain/loss from early extinguishment of debt, impairment of long-lived assets and net income attributable to noncontrolling interests. CHS has from time to time sold noncontrolling interests in certain of its subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. CHS believes that it is useful to present adjusted EBITDA because it excludes the portion of EBITDA attributable to these third-party interests and clarifies for investors its portion of EBITDA generated by continuing operations. CHS uses adjusted EBITDA as a measure of liquidity. CHS has included this measure because CHS believes it provides investors with additional information about CHS’s ability to incur and service debt and make capital expenditures. Adjusted EBITDA is the basis for a key component in the determination of CHS’s compliance with some of the covenants under CHS’s senior secured credit facility, as well as to determine the interest rate and commitment fee payable under the senior secured credit facility (although adjusted EBITDA does not include all of the adjustments described in the senior secured credit facility).

 

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Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity. CHS’s calculation of adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

The following table reconciles Adjusted EBITDA, as defined, to CHS’s net cash provided by operating activities as derived directly from CHS’s consolidated financial statements for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 and for the nine months ended September 30, 2012 and 2013:

 

		Year Ended December 31,																				Nine Months Ended September 30,
		2008				2009				2010				2011				2012				2012				2013
		(Dollars in millions)
Adjusted EBITDA		$	1,498			$	1,652			$	1,761			$	1,837			$	1,978			$	1,496			$	1,283
Interest expense, net			(643	)			(644	)			(648	)			(644	)			(623	)			(462	)			(465	)
Provision for income taxes			(136	)			(142	)			(164	)			(138	)			(158	)			(121	)			(69	)
Deferred income taxes			160				34				97				107				53				—				—
Income (loss) from operations of entities sold			5				1				(7	)			(8	)			—				—				—
Depreciation and amortization of discontinued operations			21				16				15				5				—				—				—
Stock compensation expense			52				45				39				43				41				31				29
(Excess tax benefit) income tax payable increase relating to stock-based compensation			(1	)			3				(10	)			(5	)			(4	)			(2	)			(7	)
Other non-cash expenses, net			3				24				14				28				34				22				48
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable			(50	)			58				(27	)			(138	)			(204	)			(228	)			(231	)
Supplies, prepaid expenses and other current assets			(34	)			(35	)			(40	)			(43	)			(100	)			(68	)			(60	)
Accounts payable, accrued liabilities and income taxes			120				86				162				246				246				103				(206	)
Other			62				(22	)			(3	)			(28	)			17				7				20
Net cash provided by operating activities		$	1,057			$	1,076			$	1,189			$	1,262			$	1,280			$	778			$	441

 

(2)	Licensed beds are the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use.

(3)	Beds in service are the number of beds that are readily available for patient use.

(4)	Admissions represent the number of patients admitted for inpatient treatment.

(5)	Adjusted admissions is a general measure of combined inpatient and outpatient volume. CHS computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues.

(6)	Patient days represent the total number of days of care provided to inpatients.

(7)	Average length of stay (days) represents the average number of days inpatients stay in CHS’s hospitals.

(8)	CHS calculated occupancy rate percentages by dividing the average daily number of inpatients by the weighted-average number of beds in service.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HMA

The following table presents summary historical consolidated financial and operating data for HMA as of and for the fiscal years ended December 31, 2012, 2011, 2010, 2009, and 2008 and as of and for the nine months ended September 30, 2012 and 2013. The summary historical financial information presented below for each of the five years ended December 31, 2012 has been derived from HMA’s audited consolidated financial statements. The summary historical financial information presented below for the nine months ended September 30, 2012 and 2013 has been derived from HMA’s unaudited interim consolidated financial statements. In the opinion of HMA’s management, the unaudited interim condensed financial data include all adjustments, consisting of only normal non-recurring adjustments, considered necessary for a fair presentation of this information.

The information should be read in conjunction with HMA’s consolidated financial statements and the related notes thereto and the information under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in HMA’s Annual Report on Form 10-K/A filed with the SEC on November 13, 2013 and the unaudited interim condensed consolidated financial statements and the related notes thereto and the information under the heading “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in HMA’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 filed with the SEC on November 13, 2013, which are incorporated by reference in this proxy statement/prospectus. For additional information on documents incorporated by reference in this proxy statement/prospectus, please see “Where You Can Find More Information” beginning on page 189.

 

		Year Ended December 31,																				Nine Months Ended  September 30,
		2008				2009				2010				2011				2012				2012				2013
		(Dollars in millions)
Consolidated Statement of Income Data
Net revenue before the provision for doubtful accounts		$	4,279			$	4,535			$	5,090			$	5,803			$	6,748			$	5,034			$	5,101
Provision for doubtful accounts			479				554				625				717				882				640				730
Net revenue			3,800				3,981				4,465				5,086				5,866				4,394				4,371
Total operating costs and expenses(1)			3,476				3,744				4,182				4,781				5,592				4,185				4,460
Income (loss) from continuing operations before income taxes			324				237				283				305				274				209				(89	)
Income (loss) from continuing operations			207				159				183				201				185				142				(40	)
(Loss) income from discontinued operations, including gains/losses on disposals, net of income taxes			(26	)			3				(14	)			(2	)			(8	)			(6	)			—
Consolidated net income (loss)			181				162				169				199				177				136				(40	)
Less: Net income attributable to noncontrolling interests			16				26				22				25				27				22				13
Less: Accretion of redeemable equity securities			—				—				—				—				—				—				20
Net income (loss) attributable to Health Management Associates, Inc.		$	166			$	136			$	147			$	173			$	150			$	114			$	(73	)
Consolidated Statement of Cash Flow Data
Net cash provided by continuing operating activities		$	412			$	435			$	435			$	544			$	597			$	458			$	120
Net cash used in investing activities			(170	)			(357	)			(394	)			(976	)			(474	)			(388	)			(318	)
Net cash (used in) provided by financing activities			(199	)			(127	)			(49	)			401				(126	)			(97	)			140

 

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		Year Ended December 31,																				Nine Months Ended  September 30,
		2008				2009				2010				2011				2012				2012				2013
		(Dollars in millions)
Operating Data
Licensed beds at the end of the period, excluding inactive facilities(2)			7,821				8,220				8,839				9,868				10,562				10,527				10,782
Admissions(3)			296,233				306,184				323,917				338,431				349,508				264,548				253,677
Adjusted admissions(4)			510,647				533,101				586,060				635,547				692,767				521,459				514,397
Emergency room visits(5)			1,277,920				1,352,044				1,413,831				1,562,028				1,820,009				1,338,884				1,352,418
Surgeries(6)			260,835				281,285				314,564				342,427				394,939				297,177				293,598
Patient days(7)			1,263,420				1,281,093				1,350,697				1,424,500				1,478,632				1,120,123				1,089,642
Acute care average length of stay in days(8)			4.2				4.2				4.2				4.2				4.2				4.2				4.3
Occupancy rates(9)			45.3	%			45.3	%			43.9	%			42.6	%			36.9	%			40.5	%			38.1	%
Consolidated Balance Sheet Data (end of period)
Total assets		$	4,560			$	4,607			$	4,909			$	6,003			$	6,386			$	6,303			$	6,625
Long-term debt and capital lease obligations(10)			3,214				3,048				3,025				3,582				3,567				3,576				3,748
Redeemable equity securities			49				182				201				201				212				213				272
Stockholders’ equity, including noncontrolling interests(11)			283				359				528				774				995				942				1,008

 

(1)	Includes interest expense of approximately $251 million, $227 million, $212 million, $223 million and $311 million in 2008, 2009, 2010, 2011 and 2012, respectively, and $241 million and $212 million in the nine months ended September 30, 2012 and 2013, respectively.

(2)	Licensed beds are beds for which a hospital has obtained approval to operate from the applicable state licensing agency.

(3)	Admissions are patients admitted to HMA hospitals for inpatient treatment. This statistic is a measure of inpatient volume.

(4)

Adjusted admissions are total admissions adjusted for outpatient volume. Adjusted admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient charges and gross outpatient charges and then dividing the resulting amount by gross inpatient charges. This statistic is a measure of total inpatient and outpatient volume.

(5)	The number of emergency room visits is an operational measure that is used to gauge HMA patient volume. Much of the inpatient volume is a byproduct of a patient’s initial encounter with one of the HMA hospitals through an emergency room visit.

(6)	The number of surgeries includes both inpatient and outpatient surgeries. This statistic is indicative of overall patient volume and business trends.

(7)	Patient days are the total number of days that patients are admitted in HMA hospitals. This statistic is a measure of inpatient volume.

(8)	Acute care average length of stay in days represents the average number of days admitted patients stay in HMA hospitals. This statistic is a measure of HMA utilization of resources.

(9)

Occupancy rates are affected by many factors, including the population size and general economic conditions within individual market service areas, the degrees of variation in medical and surgical products, outpatient use of hospital services, quality and treatment availability at competing hospitals and seasonality. This statistic is a measure of inpatient volume.

(10)	The 2011 Debt Restructuring, which is discussed at Note 3 to the Consolidated Financial Statements in Item 8 of the Annual Report Form 10-K/A for the year ended December 31, 2012 and which is incorporated by reference into this proxy statement/prospectus, was completed on November 18, 2011.

(11)	HMA has not declared or paid any dividends during the years presented in the above table.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The accompanying Unaudited Pro Forma Condensed Combined Statements of Income (the “Pro Forma Income Statements”) for the nine months ended September 30, 2013 and the year ended December 31, 2012 combine the historical consolidated statements of income of CHS and HMA, giving effect to the merger as if it had been completed on January 1, 2012, the beginning of the earliest period presented. The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet (the “Pro Forma Balance Sheet”) as of September 30, 2013 combines the historical consolidated balance sheets of CHS and HMA, giving effect to the merger as if it had been completed on September 30, 2013.

The accompanying unaudited pro forma condensed combined financial statements (the “Statements”) and related notes were prepared using the acquisition method of accounting with CHS considered the acquirer of HMA. Accordingly, the merger consideration to be paid in the merger has been allocated to assets and liabilities of HMA based upon their estimated fair values as of the date of completion of the merger. Any amount of the merger consideration that is in excess of the estimated fair values of assets acquired and liabilities assumed will be recorded as goodwill in CHS’s balance sheet after the completion of the merger. As of the date of this proxy statement/prospectus, CHS has not completed the detailed valuation work necessary to arrive at the required estimates of the fair value of the HMA assets to be acquired and the liabilities to be assumed and the related allocation of purchase price, nor has it identified all adjustments necessary to conform HMA’s accounting policies to CHS’s accounting policies. A final determination of the fair value of HMA’s assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of HMA that exist as of the date of completion of the merger and, therefore, cannot be made prior to that date. Additionally, the value of a portion of the merger consideration to be paid by CHS to complete the merger will be determined based on the trading price of CHS common stock at the time of the completion of the merger. Accordingly, the accompanying unaudited pro forma purchase price allocation is preliminary and is subject to further adjustments as additional information becomes available and as additional analyses are performed. The preliminary unaudited pro forma purchase price allocation has been made solely for the purpose of preparing the accompanying Statements. The preliminary purchase price allocation was based on CHS’s historical experience, data that was available through the public domain and CHS’s due diligence review of HMA’s business. Until the merger is completed, both companies are limited in their ability to share information with the other. Upon completion of the merger, valuation work will be performed. Increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments to the balance sheet and/or statements of income until the purchase price allocation is finalized. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation included in the accompanying Statements.

The accompanying Statements and related notes are being provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated balance sheet of CHS would have been had the merger occurred on the dates assumed, nor are they necessarily indicative of CHS’s future consolidated results of operations or consolidated financial position. The Statements are based upon currently available information and estimates and assumptions that CHS management believes are reasonable as of the date hereof. Any of the factors underlying these estimates and assumptions may change or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the closing date of the merger.

The accompanying Statements have been developed from and should be read in conjunction with the unaudited interim consolidated financial statements of CHS and HMA contained in their respective Quarterly Reports on Form 10-Q for the quarterly period ended September 30, 2013 and the audited consolidated financial statements of CHS contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and of HMA contained in its Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012, filed with the SEC on November 13, 2013, each of which is incorporated by reference in this proxy statement/prospectus.

The historical consolidated financial statements of HMA presented herein have been adjusted by condensing and disaggregating certain line items in order to conform with CHS’s financial statement presentation.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the nine months ended September 30, 2013

(In millions, except share and per share data)

 

		CHS, as reported				HMA, as reported				Adjustments								Pro Forma Combined
Operating revenues (net of contractual allowances and discounts)		$	11,335			$	5,101			$								$	16,436
Provision for bad debts			1,569				730												2,299
Net operating revenues			9,766				4,371												14,137
Operating costs and expenses:
Salaries and benefits			4,675				2,014												6,689
Supplies			1,482				689												2,171
Other operating expenses			2,159				1,041												3,200
Government settlement and related costs reserve			98				—												98
Electronic health records incentive reimbursement			(110	)			(24	)											(134	)
Rent			215				126												341
Change in control and other related expense			—				112												112
Depreciation and amortization			583				290				9				(e	)			885
											3				(f	)
Interest expense							212				(212	)			(g	)			—
Total operating costs and expenses			9,102				4,460				(200	)							13,362
Income (loss) from operations			664				(89	)			200								775
Interest expense, net			465				—				212				(g	)			830
											153				(d	)
Loss from early extinguishment of debt			1				—												1
Equity in earnings of unconsolidated affiliates			(36	)			—												(36	)
Income (loss) from continuing operations before income taxes			234				(89	)			(165	)							(20	)
Provision (benefit) for income taxes			69				(49	)			(62	)			(h	)			(42	)
Income (loss) from continuing operations			165				(40	)			(103	)							22
Discontinued operations, net of taxes:
Loss from operations of entities sold			—				—												—
Impairment of hospitals sold			—				—												—
Loss on sale, net			—				—												—
Loss from discontinued operations, net of taxes			—				—				—								—
Net income (loss)			165				(40	)			(103	)							22
Less: Net income attributable to noncontrolling interests			52				13												65
Less: Accretion of redeemable equity securities			—				20												20
Net income (loss) attributable to Community Health Systems, Inc. stockholders		$	113			$	(73	)		$	(103	)						$	(63	)
Basic earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations		$	1.22			$	(0.28	)										$	(0.57	)
Discontinued operations			—				—												—
Net income		$	1.22			$	(0.28	)										$	(0.57	)
Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations		$	1.21			$	(0.28	)										$	(0.57	)
Discontinued operations			—				—												—
Net income		$	1.21			$	(0.28	)										$	(0.57	)
Weighted-average number of shares outstanding:
Basic			92,384,270				258,911,000				(240,549,744	)			(i	)			110,745,526
Diluted			93,516,158				258,911,000				(240,549,744	)			(i	)			111,877,414

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the year ended December 31, 2012

(In millions, except share and per share data)

 

		CHS, as reported				HMA, as reported				Adjustments								Pro Forma Combined
Operating revenues (net of contractual allowances and discounts)		$	14,988			$	6,748			$								$	21,736
Provision for bad debts			1,959				882												2,841
Net operating revenues			13,029				5,866				—								18,895
Operating costs and expenses:
Salaries and benefits			6,104				2,620												8,724
Supplies			1,973				904												2,877
Other operating expenses			2,870				1,310												4,180
Electronic health records incentive reimbursement			(127	)			(75	)											(202	)
Rent			273				173												446
Depreciation and amortization			726				349				13				(e	)			1,092
											4				(f	)
Interest expense							311				(311	)			(g	)			—
Total operating costs and expenses			11,819				5,592				(294	)							17,117
Income from operations			1,210				274				294								1,778
Interest expense, net			623								311				(g	)			1,103
											169				(d	)
Loss from early extinguishment of debt			115																115
Equity in earnings of unconsolidated affiliates			(42	)															(42	)
Impairment of long-lived assets			10																10
Income from continuing operations before income taxes			504				274				(186	)							592
Provision for income taxes			158				89				(69	)			(h	)			178
Income from continuing operations			346				185				(117	)							414
Discontinued operations, net of taxes:
Loss from operations of entities sold			—				(8	)											(8	)
Impairment of hospitals sold			—				—												—
Loss on sale, net			—				—												—
Loss from discontinued operations, net of taxes			—				(8	)			—								(8	)
Net income			346				177				(117	)							406
Less: Net income attributable to noncontrolling interests			80				27												107
Net income attributable to Community Health Systems, Inc. stockholders		$	266			$	150			$	(117	)						$	299
Basic earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders(1):
Continuing operations		$	2.98			$	0.62											$	2.85
Discontinued operations			(0.01	)			(0.03	)											(0.08	)
Net income		$	2.98			$	0.59											$	2.78
Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders(1):
Continuing operations		$	2.96			$	0.61											$	2.84
Discontinued operations			(0.01	)			(0.03	)											(0.07	)
Net income		$	2.96			$	0.58											$	2.76
Weighted-average number of shares outstanding:
Basic			89,242,949				254,217,000				(235,855,749	)			(i	)			107,604,205
Diluted			89,806,937				256,710,000				(238,348,744	)			(i	)			108,168,193

 

(1)	Total per share amounts may not add due to rounding.

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

September 30, 2013

(In millions, except share data)

 

		CHS, as reported				HMA, as reported				Adjustments								Pro Forma Combined
ASSETS
Current assets
Cash and cash equivalents		$	144			$	1			$	(2,965	)			(a	)		$	197
											(2,948	)			(b	)
											5,965				(b	)
Patient accounts receivable, net			2,299				970												3,269
Supplies, prepaid expenses and other assets			887				492				70				(a	)			1,449
Deferred income taxes			117				—												117
Total current assets			3,447				1,463				122								5,032
Property and equipment			10,439				5,832				(1,758	)			(a	)			14,513
Less accumulated depreciation and amortization			(3,371	)			(2,241	)			2,241				(a	)			(3,371	)
Property and equipment, net			7,068				3,591				483				(a	)			11,142
Goodwill			4,437				1,033				(1,033	)			(a	)			8,150
											3,604				(a	)
											59				(a	)
											50				(c	)
Other assets, net			1,770				538				(193	)			(a	)			2,326
											93				(a	)
											168				(b	)
											(50	)			(c	)
Total assets		$	16,722			$	6,625			$	3,303							$	26,650
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt		$	180			$	111			$	(140	)			(b	)		$	151
Accounts payable			744				161												905
Deferred income taxes			—				10												10
Accrued liabilities			1,186				571				(45	)			(b	)			1,712
Total current liabilities			2,110				853				(185	)							2,778
Long-term debt			9,368				3,637				(2,594	)			(b	)			16,376
											5,965				(b	)
Deferred income taxes			808				387				147				(a	)			1,342
Other long-term liabilities			1,016				469				264				(a	)			1,749
Total liabilities			13,302				5,346				3,597								22,245
Redeemable noncontrolling interests in equity of consolidated subsidiaries			367				272				59				(a	)			698
EQUITY
Stockholders’ equity
Preferred stock			—				—												—
Common stock			1				3				(3	)			(a	)			1
Additional paid-in capital			1,231				231				(231	)			(a	)			1,993
											762				(a	)
Treasury stock, at cost, 975,549 shares at June 30, 2013			(7	)			—												(7	)
Accumulated other comprehensive loss			(92	)			(8	)			8				(a	)			(92	)
Retained earnings			1,857				771				(771	)			(a	)			1,739
											(118	)			(b	)
Total stockholders’ equity			2,990				997				(353	)							3,634
Noncontrolling interests in equity of consolidated subsidiaries			63				10												73
Total equity			3,053				1,007				(353	)							3,707
Total liabilities and equity		$	16,722			$	6,625			$	3,303							$	26,650

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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NOTE 1.     DESCRIPTION OF THE TRANSACTION

As previously disclosed, CHS entered into the merger agreement with HMA and Merger Sub. Pursuant to the merger agreement, at the closing of the merger, Merger Sub will merge with and into HMA, with HMA surviving the merger and becoming a direct or indirect wholly owned subsidiary of CHS. At the closing of the merger, each outstanding share of HMA common stock (other than any shares of HMA common stock owned by CHS or any subsidiary of CHS or HMA, and other than shares of HMA common stock as to which dissenters’ rights have been properly exercised) will be cancelled and converted automatically into the right to receive (subject to certain limitations set forth in the merger agreement) (1) $10.50 in cash, without interest, (2) 0.06942 shares of CHS common stock, and (3) one CVR. A holder of a CVR will be entitled to receive a cash payment of up to $1.00 per CVR following and conditioned upon the final resolution of certain existing legal matters involving HMA. If the amount of certain specified losses (including attorney’s fees and expenses) arising out of or relating to such legal matters exceeds a deductible of $18,000,000, the amount payable in respect of each CVR will be reduced (but not below zero) by a pro rata portion (based on the total number of CVRs outstanding at the time of final resolution of such legal matters) of $0.90 for each dollar of losses in excess of the $18,000,000 deductible. For purposes of calculating the payment to the CVR holders, the amount of such losses will be net of any amounts actually recovered by CHS under insurance policies. After the closing of the merger, CHS will control the management and disposition of the above mentioned legal matters involving HMA, including with respect to the defense, negotiation and settlement thereof. The CVRs do not have a finite payment date.

In addition, at the effective time of the merger: (i) each option to acquire shares of HMA common stock that is then outstanding, whether or not then vested, will be cancelled and terminated in exchange for the right to receive a number of shares of HMA common stock equal to the number of shares of HMA common stock subject to such stock option minus the number of shares of HMA common stock subject to such option which, when multiplied by the per share closing price of HMA common stock as reported on the New York Stock Exchange the day before the effective time of the merger, is equal to the aggregate exercise price of such option, and any shares of HMA common stock issued in respect of HMA stock options will be cancelled and converted into the right to receive the merger consideration defined above at the effective time of the merger; (ii) each HMA restricted stock award that is then outstanding, whether or not then vested, will vest in full (assuming, in the case of any HMA restricted stock award that is subject to performance based vesting, that the performance goals are satisfied at a level of 100%) and will be treated in the merger as an outstanding share of HMA common stock; (iii) each HMA deferred stock award that is then outstanding, whether or not then vested, will vest in full (assuming, in the case of any HMA deferred stock award that is subject to performance-based vesting, that the performance goals are satisfied at a level of 100%) and will be cancelled and exchanged for a number of shares of HMA common stock underlying such HMA deferred stock award so cancelled, which shares will be treated in the merger as outstanding shares of HMA common stock; and (iv) each HMA performance cash award that is then outstanding, whether or not then vested, will vest in full and be cancelled in exchange for the right to receive a lump sum cash payment determined as if the applicable performance objectives had been achieved at a level of 100%.

Based on the estimated number of shares of HMA common stock and CHS common stock outstanding on November 13, 2013, HMA stockholders will own approximately 16% of the outstanding shares of CHS common stock upon closing of the merger.

CHS has obtained commitments from Bank of America and Credit Suisse to provide debt financing for the merger, consisting of a $750,000,000 2016 term loan facility and a $1,510,000,000 2020/2021 term loan facility. CHS also expects to issue up to $1,330,000,000 in aggregate principal amount of senior secured notes and up to $2,375,000,000 in aggregate principal amount of senior unsecured notes through a private offering under Rule 144A of the Securities Act. If CHS is not able to complete such an offering, it has available commitments of up to a $2,205,000,000 secured bridge loan facility and a $2,375,000,000 unsecured bridge loan facility (minus cash proceeds from notes issued on or prior to the closing date and other specified amounts as agreed). The obligations of Bank of America and Credit Suisse to provide this debt financing are subject to a number of

 

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customary conditions, including, without limitation, execution and delivery of certain definitive documentation. The merger agreement requires CHS to use its reasonable best efforts to obtain the financing on the terms and conditions described in the financing commitments. The obligation of CHS and Merger Sub to consummate the merger is not subject to a financing condition. The unaudited pro forma adjustments included in the Statements assume that CHS will replace the secured and unsecured bridge loan facilities on or prior to the closing date by issuing the senior secured and unsecured notes at corresponding amounts and interest rates. CHS has made no final determination with respect to the financing transactions and is continuing to review and consider all alternatives. In no event shall any disclosure contained herein be deemed indicative of the final financing that CHS will choose to adopt.

NOTE 2.     BASIS OF PRO FORMA PRESENTATION

The Statements have been derived from the historical consolidated financial statements of CHS and HMA that are incorporated by reference into this proxy statement/prospectus. Certain financial statement line items included in HMA’s historical presentation have been disaggregated or condensed to conform to corresponding financial statement line items included in CHS’s historical presentation. For the unaudited pro forma condensed combined balance sheet, other long-term assets of HMA representing the fair value of leasehold rights to operate leased hospital facilities have been presented within property and equipment. Additionally, for the unaudited pro forma condensed combined statements of income, interest expense and other operating expense have been conformed to the CHS presentation. The reclassification of these items had no impact on the historical total assets, total liabilities, or stockholders’ equity reported by CHS or HMA, respectively. The reclassifications also did not impact the historical earnings from continuing operations.

The merger is reflected in the Statements as an acquisition of HMA by CHS using the acquisition method of accounting, in accordance with business combination accounting guidance under accounting principles generally accepted in the United States (“GAAP”). Under these accounting standards, the total estimated purchase price will be calculated as described in Note 3 to the Statements, and the assets acquired and the liabilities assumed will be measured at estimated fair value. For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed, CHS has applied the accounting guidance under GAAP for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The fair value measurements utilize estimates based on key assumptions in connection with the merger, including historical and current market data. The unaudited pro forma adjustments included herein are preliminary and will be revised at the time of the merger as additional information becomes available and as valuation work is performed. The final purchase price allocation will be determined after the completion of the merger, and the final allocations may differ materially from those presented.

NOTE 3.     ESTIMATE OF CONSIDERATION EXPECTED TO BE TRANSFERRED

Based on the closing price per share of CHS common stock on the New York Stock Exchange on September 30, 2013 of $41.50 and the number of shares of HMA common stock, options to purchase HMA common stock, restricted shares of HMA common stock, and HMA deferred shares outstanding at September 30, 2013, the total merger consideration would have been approximately $3.8 billion, consisting of $2.8 billion of cash, 18.4 million shares of CHS common stock, and $264 million in the value of contingent value rights issued (assuming, solely for purposes of the Statements, full payment thereunder). Changes in the share price of CHS common stock, or the number of shares of HMA common stock, HMA restricted stock awards, HMA deferred stock awards or HMA performance cash awards, or change in the value of the CVRs at the closing of the merger could result in material differences in the merger consideration and, thus, the purchase price and related purchase price allocation in the merger. At the effective time of the merger, each outstanding share of HMA common stock (other than shares owned by HMA as treasury stock, shares owned by CHS or any subsidiary of CHS (including Merger Sub) or HMA, and shares held by holders properly exercising appraisal rights under the Delaware

 

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General Corporation Law) will be cancelled and converted automatically into the right to receive (subject to certain limitations set forth in the merger agreement) (1) $10.50 in cash, without interest, (2) 0.06942 shares of CHS common stock, and (3) one CVR.

The following is a preliminary estimate of the merger consideration to be paid by CHS in the merger, including consideration to be paid to holders of options to purchase HMA common stock, HMA restricted stock awards, HMA deferred stock awards and HMA performance cash awards, pursuant to the provisions above (in millions and assuming full payment under the CVRs solely for purposes of this estimate):

 

Cash paid for shares outstanding or issuable HMA shares			$2,777
Estimated fair value of common stock of CHS			762
Estimated fair value of contingent value rights issued			264
Total consideration			$3,803

The estimated value of the merger consideration reflected in these Statements does not purport to represent the actual value of the total merger consideration that will be received by HMA’s stockholders and other equity holders when the merger is completed. In accordance with GAAP, the fair value of equity securities issued as part of the merger consideration will be measured on the closing date of the merger at the then-current market price. This requirement will likely result in a per share value component different from the $41.50 assumed in these Statements and that difference may be material. For example, an increase or decrease by 10% in the price of CHS common stock on the closing date of the merger from the price of CHS common stock assumed in these Statements would increase or decrease the value of the merger consideration by approximately $76 million, which would be reflected in these Statements as an equivalent increase or decrease to goodwill. In addition, the actual payment under the CVRs may be substantially less than $1.00 per CVR, or no payment at all may be made to a holder of a CVR.

The allocation of the preliminary purchase price to the fair values of assets to be acquired and liabilities to be assumed in the merger includes unaudited pro forma adjustments to reflect the expected fair values of HMA’s assets and liabilities at the completion of the merger. The allocation of the preliminary purchase price is as follows (in millions):

 

Current assets		$	1,463
Property and equipment			4,074
Goodwill			3,713
Other long-term assets			375
Amortizable intangible assets			13
Current liabilities			(742	)
Other long-term liabilities			(1,003	)
Long-term debt			(3,748	)
Noncontrolling interests in consolidated subsidiaries			(342	)
Total consideration		$	3,803

Goodwill will not be amortized but will be tested for impairment on an annual basis and whenever events or circumstances occur indicating that the goodwill may be impaired. The preliminary purchase price allocation for HMA is subject to revision as more detailed analysis is completed and additional information on the fair values of HMA’s assets and liabilities become available and as preacquisition contingencies are identified, and acquisition related costs, etc. are finalized. Any change in the fair value of the assets and liabilities of HMA will change the amount of the purchase price allocable to goodwill. The final purchase price allocation may differ materially from the allocation presented here.

 

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With respect to goodwill expected to be recognized in the merger, CHS management believes that the predominant portion of the goodwill expected to result from the merger relates to HMA as a going concern and the fair value of expected synergies from combining the CHS and HMA businesses. The going concern element represents the ability to earn a higher return on the combined assembled collection of assets and businesses of HMA than if those assets and businesses were to be acquired separately. The synergies from the combination of CHS and HMA are expected to be in the form of decreased costs. Cost synergies are expected to arise primarily from reduction of corporate costs. Other relevant elements of goodwill are expected to include the assembled work force that is not recorded separately from goodwill. The accompanying Statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies, or any revenue, tax, or other synergies expected to result from the merger.

CHS has made preliminary allocation estimates based on limited access to information and will not have sufficient information to make final allocations until after completion of the merger. The final determination of the purchase price allocation is anticipated to be completed as soon as practicable after completion of the merger. CHS anticipates that the valuations of the acquired assets and liabilities will include, but not be limited to, fixed assets, Medicare licenses, certificates of need, and other potential intangible assets. The valuations will consist of physical appraisals, discounted cash flow analyses, or other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed.

The final merger consideration, and amounts allocated to assets acquired and liabilities assumed in the merger, could differ materially from the preliminary amounts presented in these Statements. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the merger from those preliminary valuations presented in these Statements would result in a dollar-for-dollar corresponding increase in the amount of goodwill that will result from the merger. In addition, if the value of the acquired assets is higher than the preliminary indication, it may result in higher amortization and depreciation expense than is presented in these Statements. See Note 6 for the effects of changes in estimated fair value of properties and amortizable intangible assets to be acquired in the merger on the calculation of pro forma depreciation and amortization expense.

NOTE 4.    CONTINGENT VALUE RIGHTS

The unaudited pro forma condensed combined balance sheet as of September 30, 2013 includes CHS’s estimate of the value of the total potential payments under the CVRs issued as part of the consideration paid to HMA shareholders, assuming full payment under the CVRs. At the completion of the merger, the liability for the CVRs will be recorded at its estimated fair value. At each reporting period subsequent to the merger, the liability related to the fair value of the CVRs will be remeasured to the then estimated fair value, with changes reflected as an adjustment to operating income. This pro forma adjustment does not represent CHS’s estimate of the probable outcome of the contingencies involving such litigation, and the estimated fair values assigned by CHS in these unaudited pro forma condensed combined financial statements may not be indicative of the actual fair value of the CVRs or the ultimate payment to be made to the holders of the CVRs or the value at which the CVRs will trade following the completion of the merger. The actual fair value of the liability associated with the CVR that is ultimately recorded at the acquisition date could differ materially from that estimated above. Any change from the estimated amount will be an adjustment of goodwill recorded at the acquisition date.

 

NOTE 5.

CHANGE IN CONTROL AND OTHER COSTS

On June 25, 2013, Glenview Capital Management, LLC and certain of its affiliated investment funds (collectively, “Glenview”) filed with the Securities and Exchange Commission (“SEC”) a preliminary consent solicitation statement which, among other things, sought consent from HMA stockholders to remove all of the members of HMA’s then existing Board of Directors and replace them with the Glenview nominees. On July 19, 2013, Glenview filed its definitive consent solicitation statement with the SEC and solicited consent from our stockholders (the “Glenview Consent Solicitation Process”). As a result of the Glenview Consent Solicitation Process, on August 16, 2013, all of the incumbent board members were removed and replaced by the Glenview

 

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Nominees. Such event constituted a change in control (the “Change in Control”) pursuant to the Health Management Associates, Inc. amended and restated 1996 Executive Incentive Compensation Plan (“EICP”) and the 2006 Outside Director Restricted Stock Award Plan (“2006 Director Plan”). As a result of such Change in Control and pursuant to the terms of the EICP and 2006 Director Plan and the applicable award agreements, all of the outstanding and unvested equity and performance cash awards held became vested. At such time an aggregate of approximately 7.3 million shares of common stock were subject to unvested restricted stock and deferred stock awards. The vesting of the stock resulted in the recognition of approximately $42 million of incremental stock compensation expense.

In addition, holders of stock options issued under the EICP were entitled to receive a cash payment due to the Change in Control and based on terms as defined in the EICP. This cash payment resulted in recognition of approximately $4 million of incremental compensation expense.

Finally, certain employees held an aggregate of approximately $39 million of unvested cash awards issued under the EICP. All such awards immediately vested upon the Change in Control.

Related to the merger agreement and the Glenview Consent Solicitation Process, HMA incurred substantial costs associated with various advisors, including bankers, attorneys and others, and HMA has also entered into certain retention and severance agreements with key personnel. Outside fees associated with these events were approximately $12 million for the nine months ended September 30, 2013. Severance and retention costs were approximately $15 million for the nine months ended September 30, 2013.

All of the above items have been recognized as “Change in control and other related expense” by HMA during the nine months ended September 30, 2013 and in the unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2013.

 

NOTE 6.

ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Pro forma adjustments are necessary to reflect the estimated purchase price, to adjust amounts related to HMA’s assets and liabilities to a preliminary estimate of their fair values, to reflect financing transactions associated with the proposed transaction, to reflect changes in depreciation and amortization expense resulting from the estimated fair value adjustments to tangible and intangible assets, to reflect other transactions directly related to the transaction, and to reflect the income tax effects related to the pro forma adjustments. There were no intercompany transactions between CHS and HMA. Certain pro forma adjustments were required to conform HMA’s accounting policies and presentation to CHS’s accounting policies and presentation.

The accompanying unaudited pro forma condensed combined financial statements have been prepared as if the proposed transaction was completed on September 30, 2013 for balance sheet purposes and January 1, 2012 for income statement purposes, and reflect the following adjustments (in millions):

 

(a)	To record the proposed transaction:

 

Estimated cash payments for:
Purchase of outstanding HMA shares			$2,777
HMA stock awards and other equity based instruments			—
Transaction costs			188
			$2,965

At September 30, 2013, there were no other outstanding stock awards or other equity based instruments that will receive consideration under the terms of the merger agreement.

Included in transaction costs are severance costs of $26 million primarily resulting from change in control provisions, direct transaction costs of $60 million, which primarily include estimated investment banker fees,

 

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attorneys’ fees and accounting fees, and expenses of $102 million related to the costs of refinancing HMA’s existing long-term debt.

 

Elimination of existing HMA stockholders’ equity:
Common stock		$	(3	)
Additional paid-in capital			(231	)
Accumulated other comprehensive loss			8
Retained earnings			(771	)
		$	(997	)

The unaudited pro forma adjustment to equity also includes the recognition of approximately 18.4 million shares of CHS common stock expected to be issued in the merger (based on the number of shares of HMA common stock and shares of underlying compensation equity awards outstanding at September 30, 2013) and $762 million of additional paid-in capital.

The adjustment to supplies, prepaid expenses and other assets reflects a $70 million increase to prepaid income taxes resulting from the tax deductibility of one-time costs and transaction fees related to the merger, based on a combined statutory federal and state tax rate of 37.4%.

The unaudited pro forma adjustment of $483 million to property and equipment, net includes the reclassification of $183 million from other assets to property and equipment related to HMA’s recorded intangible assets representing the value of leasehold interests in the hospitals acquired that are operated under a lease agreement. This adjustment conforms the presentation to the CHS policy of recording such as assets as part of the value of the leased property. Additionally, the increase in the preliminary estimated fair value of property and equipment acquired based on management’s estimates of fair value and HMA’s historical net book value of property and equipment is summarized as follows (in millions):

 

		Historical Net Book Value				Estimated Fair Value				Estimated Increase
Land		$	252			$	302			$	50
Buildings and improvements			2,500				2,750				250
Equipment			727				727				—
Construction in progress			112				112				—
		$	3,591			$	3,891			$	300

The final fair value amounts will be determined based upon management’s final best estimate of fair value. Deferred income tax liabilities will increase by an estimated $147 million to reflect the impact of the pro forma purchase price adjustments related to the increase in fair value of HMA’s property and equipment and intangible assets. Estimates of additional goodwill and identifiable intangibles as a result of the purchase price allocation are detailed in Note 3 to these unaudited pro forma condensed financial statements.

As noted above, the unaudited pro forma adjustment to property and equipment reclassifies to property and equipment $183 million of HMA’s recorded intangible assets relating to the value of leasehold interests in the hospitals acquired that are operated under a lease agreement. The remaining adjustment to intangible assets eliminates the remaining HMA balance of $10 million for a total adjustment of $193 million. The unaudited pro forma adjustment also includes a $93 million fair value adjustment to record the preliminary estimated fair value of HMA’s identifiable intangible assets. Such assets include $80 million for the estimated fair value of the Medicare licenses in place at HMA hospitals and $13 million for the estimated fair value of certificates of need in place at those hospitals in states requiring such certificates. The intangible asset related to Medicare licenses is expected to have an indefinite life, so no amortization is expected and the asset will be evaluated on an annual basis for any indicators of impairment. The intangible asset related to certificates of need is expected to have a definite life, and as such will be amortized on a straight-line basis over an estimated useful life of 3 years.

 

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The unaudited pro forma adjustment to accrued liabilities reflects the elimination of $32 million related to the termination of HMA’s interest rate swap liability.

The unaudited pro forma adjustment of $264 million to other long-term liabilities is to record the fair value of the total contingent value rights liability. See Note 4.

The unaudited pro forma adjustment of $59 million to redeemable noncontrolling interests in equity of consolidated subsidiaries is to record the estimated value of a put option available to certain shareholders of an HMA subsidiary that becomes exercisable upon change in control.

Other adjustments to the HMA balance sheet are to conform the presentation of certain assets and liabilities to the CHS presentation.

 

(b)	To record the payments to be made from the proceeds of the new indebtedness (in millions):

 

Sources
New Senior Secured Term Loan Facility due 2016		$	750
New Senior Secured Term Loan Facilities due 2020/2021			1,510
Secured Notes			1,330
Unsecured Notes			2,375
Subtotal		$	5,965
Uses
Cash payments related to HMA stock and transaction costs:
Purchase HMA outstanding shares			$(2,777	)
HMA stock options and other equity-based instruments			—
Transaction costs ($118 net of tax)			(188	)
Subtotal			$(2,965	)
Cash payments related to refinancing and debt repayment:
CHS Term Loan B		$	(60	)
HMA Revolving Credit Facilities			(223	)
HMA Term Loan A			(620	)
HMA Term Loan B			(1,344	)
HMA 6.125% Senior Notes due 2016			(399	)
HMA 3.75% Convertible Senior Subordinated Notes due 2028			(89	)
Accrued interest			(13	)
Termination of interest rate swap liability			(32	)
Financing fees(1)			(168	)
Subtotal			(2,948	)
Working Capital(2)			(52	)
Total uses		$	(5,965	)

 

(1)	Financing fees will be capitalized as deferred loan costs and amortized into interest expense.

(2)	Working capital will be used for general corporate purposes.

The table above reflects CHS’s assumption of $875 million of HMA 7.375% Senior Notes due 2020 (the “7.375% Notes”). However, CHS has availability under its secured borrowing financing commitments to incur additional indebtedness which may be used to repay all or a portion of the 7.375% Notes. CHS has made no final determination with respect to the financing transactions and is continuing to review and consider all alternatives. In no event shall the table above or any other disclosure herein be deemed indicative of the final financing that CHS will choose to adopt.

 

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The following table summarizes the impact on long-term debt from the financing transactions (in millions):

 

		Current maturities of long-term debt				Long-term debt				Total Debt Increase
Repayment of CHS Debt		$	(60	)		$	—			$	(60	)
Repayment of HMA Debt			(80	)			(2,594	)			(2,674	)
New debt expected to be incurred by CHS			—				5,965				5,965
		$	(140	)		$	3,371			$	3,231

The unaudited pro forma combined financial statements have assumed that CHS will complete an offering of debt securities based on current market conditions and, as a result, will not borrow any amounts under the secured and unsecured bridge loan agreements.

 

(c)	To reflect the non-cash write-off of deferred loan costs associated with the refinancing of existing indebtedness of both CHS and HMA in accordance with the purchase accounting guidelines in GAAP (in millions):

 

		Deferred Loan Costs
CHS Term Loan B		$	—
HMA Term Loan A and B and Revolver			34
HMA 7.375% Senior Notes due 2020			16
HMA 6.125% Senior Notes due 2016			—
HMA 3.75% Convertible Senior Subordinated Notes due 2028			—
			$50

Such amounts for CHS debt will be reflected in the results of operations as a loss from early extinguishment of debt upon completion of the refinancing. The amounts related to assumed HMA debt will be applied against the purchase price as an adjustment to goodwill.

As noted above, the unaudited pro forma combined financial statements reflect CHS’s assumption of $875 million of the 7.375% Notes. However, as GAAP requires that all outstanding debt assumed be recognized at fair value, all related deferred loan costs are required to be eliminated.

 

(d)	To record estimated interest expense based upon the assumed debt structure as follows (in millions):

 

		Year ended December 31, 2012				Nine months ended September 30, 2013
Bank Loans		$	290			$	192
Notes			598				487
Capital leases and other debt			23				21
Deferred loan costs			79				60
Revolver commitment fees			4				3
Interest rate swaps			137				77
Agent fees, Standby letters of credit and other			5				2
Total estimated interest costs			1,136				842
Less: Capitalized interest			(33	)			(12	)
Estimated interest expense, net			1,103				830
Less: Interest expense, net, as reported
CHS			(623	)			(465	)
HMA			(311	)			(212	)
Net interest expense adjustment		$	169			$	153

 

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For purposes of these unaudited pro forma condensed combined financial statements, management has assumed a weighted average interest rate of 3.6% for the year ended December 31, 2012 and 4.0% for the nine months ended September 30, 2013 on its Bank Loans, and a weighted-average interest rate of 7.1% on the Notes for the year ended December 31, 2012 and 6.9% for the nine months ended September 30, 2013. Because the new Senior Secured Term Loans, included in Bank Loans above, are subject to a LIBOR floor of 75 basis points for term loans due 2016 and 100 basis points for term loans due 2020, a fluctuation in our assumed interest rate for purposes of these pro forma financial statements of 0.125% on the new Senior Secured Term Loans would have no effect on interest expense as calculated in the pro forma adjustment.

The adjustments above also eliminate the effect of the HMA ineffective interest rate swap agreement that is recorded as a component of interest expense.

 

(e)

To adjust depreciation expense related to the write-up of HMA’s property and equipment to fair market value. Management believes the write-up will be primarily to land and buildings, of which it estimates the buildings to have a weighted-average useful life remaining of 20 years. A change in building fair value of $10 million will affect depreciation expense by approximately $0.5 million annually and a change in equipment fair value of $10 million will affect depreciation by approximately $1.3 million annually.

 

(f)	To record amortization expense related to the write-up of identifiable intangible assets. Management believes such intangible assets will principally relate to certificates of need, licenses and permits and will have a useful life of approximately 3 years.

 

(g)	The unaudited pro forma adjustment conforms the presentation of interest expense to the CHS presentation.

 

(h)	To record the income tax effects of the pro forma statement of income adjustments using a combined statutory federal and state tax rate of 37.4%.

 

(i)	To record the cancellation of all outstanding shares of HMA common stock and the issuance of approximately 18.4 million shares of CHS common stock.

 

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COMPARATIVE PER SHARE DATA

The following table shows, for the year ended December 31, 2012, and the nine months ended September 30, 2013, historical and pro forma equivalent per share data for HMA common stock and historical and pro forma combined per share data for CHS common stock. The information in the table is derived from each of HMA’s and CHS’s respective historical consolidated financial statements incorporated by reference herein, as well as the unaudited pro forma condensed combined financial information included elsewhere herein.

The pro forma equivalent information shows the effect of the merger from the perspective of an owner of HMA common stock. The information was computed by multiplying the pro forma combined income from continuing operations per share for the year ended December 31, 2012 and the nine months ended September 30, 2013, respectively, and pro forma combined book value per share as of September 30, 2013 by the exchange ratio of the stock portion of the merger consideration of 0.06942 shares of CHS common stock for each share of HMA common stock. These computations exclude any potential benefit to HMA stockholders from receiving any amount of cash as a component of the merger consideration.

The pro forma combined data below is presented for illustrative purposes only. The pro forma adjustments to the statement of income data are based on the assumption that the merger was completed on January 1, 2012, and the pro forma adjustments to the balance sheet data are based on the assumption that the merger was completed on September 30, 2013.

Either company’s actual historical financial condition and results of operations may have been different had the companies always been combined. You should not rely on this information as being indicative of the historical financial condition and results of operations that would have actually been achieved or of the future results of CHS after the completion of the merger.

You should read the information below together with the historical consolidated financial statements and related notes of each of CHS and HMA, which are incorporated by reference in this proxy statement/prospectus, and with the information under the heading “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 48.

 

		HMA Common Stock								CHS Common Stock
		Historical				Pro Forma Equivalent				Historical				Pro Forma Combined
Income (loss) from Continuing Operations Per Share
Basic
Year Ended December 31, 2012		$	0.62			$	0.20			$	2.98			$	2.85
Nine Months Ended September 30, 2013		$	(0.28	)		$	(0.04	)		$	1.22			$	(0.57	)
Diluted
Year Ended December 31, 2012		$	0.61			$	0.20			$	2.96			$	2.84
Nine Months Ended September 30, 2013		$	(0.28	)		$	(0.04	)		$	1.21			$	(0.57	)
Book Value Per Share
September 30, 2013		$	3.81			$	2.27			$	32.16			$	32.72

 

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COMPARATIVE MARKET VALUE OF COMMON STOCK

CHS common stock and HMA common stock are listed for trading on the New York Stock Exchange under the symbols “CYH” and “HMA,” respectively. The following table shows the closing prices per share of CHS common stock and HMA common stock as reported on May 24, 2013 (the final trading day prior to the public announcement of the implementation of HMA’s shareholder rights plan), June 11, 2013 (the last trading day prior to the public announcement that HMA had engaged Weil and Morgan Stanley in connection with its ongoing consideration of strategic alternatives and opportunities available) and on November 15, 2013, the latest practicable date prior to the date of this proxy statement/prospectus. This table also shows the implied value of the merger consideration for each share of HMA common stock when excluding the CVR, which was calculated by multiplying the closing price of CHS common stock on the relevant date by the exchange ratio of the stock portion of the merger consideration of 0.06942 shares of CHS common stock for each share of HMA common stock and adding the per share cash consideration of $10.50, without interest, and the implied value of the merger consideration for each share of HMA common stock when assuming the holders of each CVR receive the $1.00 nominal face value of the CVR.

 

		Closing Price of CHS Common Stock				Closing Price of HMA Common Stock				Implied Value of Merger Consideration (excluding CVR)				Implied Value of Merger Consideration (assuming $1.00 CVR)
As of May 24, 2013		$	43.24			$	11.04			$	13.50			$	14.50
As of June 11, 2013		$	48.98			$	13.93			$	13.90			$	14.90
As of November 15, 2013		$	42.71			$	13.16			$	13.46			$	14.46

The market price of CHS common stock and HMA common stock will fluctuate prior to the HMA special meeting and before the merger is completed, which will affect the implied value of the merger consideration paid to HMA stockholders. You should obtain current market quotations for the shares before making any decisions with respect to the merger. In addition, the value, if any, of the CVRs is speculative, and there can be no assurance that each CVR will have a value of $1.00, or any value at all.

 

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COMPARATIVE STOCK PRICES AND DIVIDENDS

The following table presents trading information for shares of CHS and HMA common stock on May 24, 2013 (the last trading day before the public announcement of the implementation of HMA’s shareholder rights plan), June 11, 2013 (the last trading day prior to the public announcement that HMA had engaged Weil and Morgan Stanley in connection with its ongoing consideration of strategic alternatives and opportunities available) and November 15, 2013, the latest practicable trading day before the date of this proxy statement/prospectus.

 

		HMA Common Stock												CHS Common Stock
Common Stock Date		High				Low				Close				High				Low				Close
May 24, 2013		$	11.13			$	10.79			$	11.04			$	43.53			$	42.76			$	43.24
June 11, 2013		$	14.14			$	13.83			$	13.93			$	49.63			$	48.90			$	48.98
November 15, 2013			13.27				13.15				13.16				43.63				42.50				42.71

For illustrative purposes, the following table provides HMA equivalent per share information on each of the specified dates. HMA equivalent per share information refers to the value of the merger consideration to be received per share of HMA common stock, and is calculated as the sum of $10.50 plus the value of 0.06942 of a share of CHS common stock as reported by the NYSE on such specified dates. In presenting the below information, the value of the CVR (if any) has been excluded.

 

		HMA Equivalent per Share Information
Date		High				Low				Close
May 24, 2013		$	13.52			$	13.47			$	13.50
June 11, 2013		$	13.95			$	13.89			$	13.90
November 15, 2013			13.53				13.45				13.46

Market Prices and Dividend Data

The following table sets forth the high and low closing prices of HMA’s and CHS’s common stock as reported by the NYSE, and the cash dividends declared per share in respect of the common stock of each company, for the calendar quarters indicated.

 

		HMA Common Stock												CHS Common Stock
		High				Low				Cash Dividends Declared				High				Low				Cash Dividends Declared
2011:
First Quarter		$	11.07			$	8.86				—			$	42.50			$	34.62				—
Second Quarter		$	11.74			$	9.82				—			$	41.09			$	22.33				—
Third Quarter		$	11.26			$	6.43				—			$	27.63			$	15.91				—
Fourth Quarter		$	9.26			$	6.06				—			$	21.92			$	14.61				—
2012:
First Quarter		$	7.68			$	4.81				—			$	25.74			$	16.37				—
Second Quarter		$	7.89			$	5.92				—			$	28.79			$	20.71				—
Third Quarter		$	8.69			$	6.27				—			$	29.59			$	22.51				—
Fourth Quarter		$	9.33			$	6.97				—			$	32.70			$	26.33			$	0.25
2013:
First Quarter		$	13.00			$	8.76				—			$	48.01			$	30.85				—
Second Quarter		$	16.41			$	10.20				—			$	51.29			$	40.53				—
Third Quarter		$	16.94			$	12.58				—			$	48.50			$	37.99				—
Fourth Quarter(1)		$	13.24			$	12.16				—			$	44.12			$	40.52				—

 

(1)	Fourth quarter data is presented through November 15, 2013, the last practicable trading day before the date of this proxy statement/prospectus.

 

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HMA has not declared or paid any cash dividends on its common stock in the two most recent fiscal years. HMA does not anticipate paying any cash dividends on its common stock in the foreseeable future.

CHS paid a special dividend of $0.25 per share to holders of CHS common stock at the close of business as of December 17, 2012, which totaled approximately $23.0 million. CHS does not anticipate the payment of any other cash dividends in the foreseeable future; however, any such future payments will be at the discretion of the CHS board of directors and will depend upon CHS’s results of operations, earnings, capital requirements, contractual restrictions (including covenants contained in CHS’s debt instruments) and other factors deemed relevant by the CHS board of directors.

The merger agreement restricts the ability of HMA and CHS to declare or pay dividends prior to the consummation of the merger.

 

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HMA SPECIAL MEETING

Proxy Statement/Prospectus

This proxy statement/prospectus is being furnished to HMA stockholders in connection with the solicitation of proxies by the HMA board of directors in connection with the special meeting of HMA stockholders.

This proxy statement/prospectus and the enclosed proxy card are first being sent to HMA stockholders on or about November [—], 2013.

Date, Time and Place of the HMA Special Meeting

The HMA special meeting is to be held at the Ritz-Carlton Golf Resort Naples, 2600 Tiburón Drive, Naples, Florida 34109, at 8:00 a.m., local time, on January 8, 2014.

Purpose of the HMA Special Meeting

At the HMA special meeting, holders of HMA common stock as of the record date will be asked to:

 

Proposal 1.		consider and vote upon the adoption of the merger agreement;
Proposal 2.		consider and vote, on a non-binding, advisory basis, to approve compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger; and
Proposal 3.		consider and vote upon the approval of the adjournment of the HMA special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the HMA special meeting.

Record Date and Voting

Only holders of record of HMA common stock at the close of business on November 22, 2013, which is the record date, will be entitled to notice of and to vote at the HMA special meeting with regard to Proposals 1–3 described above. On the record date, there were 264,495,187 shares of HMA common stock outstanding and entitled to vote at the HMA special meeting, held by approximately 9,000 holders of record. Each share of HMA common stock issued and outstanding on the record date is entitled to one vote on each proposal to be voted upon at the HMA special meeting.

The quorum requirement for holding the HMA special meeting and transacting business at the HMA special meeting is the presence, in person or by proxy, of a majority of the issued and outstanding shares of HMA common stock as of the record date entitled to vote at the HMA special meeting (other than with respect to Proposal 3, the proposal related to adjournments, for which a quorum is not required). The shares may be present in person or represented by proxy at the HMA special meeting.

If your proxy card is properly executed and received by HMA in time to be voted at the HMA special meeting, the shares of HMA common stock represented by your proxy (including those given electronically via the Internet or by telephone) will be voted in accordance with the instructions that you mark on your proxy card. Executed but unvoted proxies will be voted in accordance with the recommendations of the HMA board of directors.

Vote Required

Adoption of merger agreement (Proposal 1). The affirmative vote of the holders of at least 70% of the outstanding shares of HMA common stock entitled to vote thereon is required to adopt the merger agreement. The required vote of HMA stockholders on the merger agreement is based upon the number of outstanding shares of HMA common stock entitled to vote thereon and not the number of shares that are actually voted. Brokers,

 

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banks and other nominees do not have discretionary authority to vote on this proposal. The failure to submit a proxy card or to vote electronically via the Internet, by telephone or in person at the HMA special meeting of any HMA stockholder or the abstention from voting by any HMA stockholder, will have the same effect as a vote against the adoption of the merger agreement by the HMA stockholder. The failure of any HMA stockholder who holds shares in “street name” through a broker, bank or other nominee to give instructions to such broker, bank or other nominee (a “broker non-vote”) will also have the same effect as a vote against this proposal.

Advisory vote on golden parachute compensation (Proposal 2). The affirmative vote of a majority of the holders of HMA common stock present in person or represented by proxy at the HMA special meeting is required to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger. The required vote of holders of HMA common stock to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger is based on the number of shares that are present in person or represented by proxy not on the number of outstanding shares of HMA common stock. While the HMA board of directors intends to consider the vote resulting from this proposal, the vote is advisory, and therefore not binding on HMA or on CHS, or the board of directors or the compensation committees of CHS or HMA. Brokers, banks and other nominees do not have discretionary authority to vote on this proposal. The failure to submit a proxy card or to vote electronically via the Internet, by telephone or in person at the special meeting of HMA stockholders or a broker non-vote, will have no effect on this proposal. Abstentions from voting by any HMA stockholder will have the same effect as a vote against this proposal.

Approval of the adjournment of the HMA special meeting (Proposal 3). The affirmative vote of a majority of the holders of HMA common stock present in person or represented by proxy at the HMA special meeting is required to approve the proposal to adjourn the HMA special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the HMA special meeting to adopt the merger agreement. The required vote of holders of HMA common stock to approve the proposal to adjourn the special meeting of HMA stockholders, if necessary, to solicit additional proxies is based on the number of shares that are present in person or represented by proxy, not on the number of outstanding shares of HMA common stock. Brokers, banks and other nominees do not have discretionary authority to vote on this proposal. The failure to submit a proxy card or to vote electronically via the Internet, by telephone or in person at the special meeting of HMA stockholders or a broker non-vote, will have no effect on this proposal. Abstentions from voting by any HMA stockholder will have the same effect as a vote against this proposal. In accordance with the HMA By-laws, a vote to approve the proposal to adjourn the HMA special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the HMA special meeting to adopt the merger agreement may be taken in the absence of a quorum. HMA does not intend to call a vote on this proposal if Proposal 1 has been approved at the HMA special meeting.

Recommendation of the HMA Board of Directors

The HMA board of directors unanimously recommends:

 

1.

“FOR” the adoption of the merger agreement (Proposal 1);

 

2.

“FOR” the approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to HMA’s named executive officers that is based on or otherwise relates to the merger (Proposal 2); and

 

3.

“FOR” the approval of the adjournment of the HMA special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the HMA special meeting (Proposal 3).

HMA stockholders should carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement and the merger. In particular, HMA stockholders are directed to the merger agreement, which is attached as Annex A hereto.

 

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Voting Electronically or by Telephone

If your shares of HMA common stock are registered directly in your name with HMA’s transfer agent, you are considered, with respect to those shares, the “stockholder of record”, and these proxy materials are being sent to you directly by HMA. As a stockholder of record, you have the right to grant your voting proxy directly to the persons named as proxy holders, Steven Shulman and Kathleen Holloway, or to vote in person at the HMA special meeting. A proxy card has been enclosed for you to use. You may also vote on electronically via the Internet or by telephone.

If your shares of HMA common stock are held by a broker, bank or other nominee, you are considered the beneficial owner of the shares held in “street name” and these proxy materials are being forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares and are also invited to attend the HMA special meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the HMA special meeting. Your broker, bank or other nominee has enclosed a voting instruction card for you to use in directing your broker, bank or other nominee as to how to vote your shares. You may also vote electronically via the Internet or by telephone.

You can ensure your shares of HMA common stock are represented at the HMA special meeting by promptly submitting your proxy electronically via the Internet or by telephone or marking, signing, dating and returning the appropriate proxy card in the envelope provided. Each valid proxy received in time will be voted at the HMA special meeting according to the choice specified, if any. A proxy may be revoked at any time before the proxy is voted, as outlined below.

Vote of HMA’s Executive Officers

As of the record date, HMA’s executive officers and new directors, and their affiliates, as a group, owned and were entitled to vote 388,845 shares of HMA common stock, or approximately 0.15% of the total outstanding shares of HMA common stock. HMA currently expects that its executive officers and new directors will vote their shares in favor of Proposals 1, 2 and 3, but none of HMA’s executive officers or new directors have entered into any agreement obligating them to do so.

Revocability of Proxies

You may revoke a proxy or change your voting instructions at any time prior to the vote at the HMA special meeting. You may enter a new vote electronically via the Internet or by telephone or by mailing a new proxy card or new voting instruction card bearing a later date (which will automatically revoke your earlier voting instructions) or by attending the HMA special meeting and voting in person. Your attendance at the HMA special meeting in person will not cause your previously granted proxy to be revoked unless you specifically so request. You may deliver written notice of revocation of a proxy to HMA’s Corporate Secretary at any time before the HMA special meeting by sending such revocation to the Corporate Secretary, 5811 Pelican Bay Boulevard, Suite 500, Naples, Florida 34108, in time for the Corporate Secretary to receive it before the HMA special meeting.

Inspector of Election

A representative of Corporate Election Services will tabulate the vote and act as the inspector of election at the HMA special meeting.

Attending the HMA Special Meeting

You are entitled to attend the HMA special meeting only if you are a stockholder of record of HMA or you hold your shares of HMA beneficially in the name of a broker, bank or other nominee as of the record date, or you hold a valid proxy for the HMA special meeting.

 

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If you are a stockholder of record of HMA and wish to attend the HMA special meeting, please so indicate on the appropriate proxy card or as prompted by the Internet or telephone voting system. Your name will be verified against the list of stockholders of record prior to your being admitted to the HMA special meeting.

If a broker, bank or other nominee is the record owner of your shares of HMA common stock, you will need to have proof that you are the beneficial owner as of the record date to be admitted to the HMA special meeting. A recent statement or letter from your broker, bank or other nominee confirming your ownership as of the record date, or presentation of a valid proxy from a broker, bank or other nominee that is the record owner of your shares, would be acceptable proof of your beneficial ownership.

You should be prepared to present photo identification for admittance. If you do not provide photo identification or comply with the other procedures outlined above upon request, you may not be admitted to the HMA special meeting.

Voting Procedures

You may vote your shares of HMA common stock by proxy electronically via the Internet, by telephone, by completing and sending in the appropriate paper proxy card or in person at the HMA special meeting.

Whether you vote your proxy electronically via the Internet, by telephone, by mail or in person, HMA will treat your proxy the same way. The individuals appointed as proxyholders will be Steven Shulman and Kathleen Holloway. The shares of HMA common stock represented by valid proxies that are received in time for the HMA special meeting will be voted as specified in such proxies. Valid proxies include all properly executed, written paper proxy cards received pursuant to this solicitation that are not later revoked. Executed proxies submitted without direction pursuant to this solicitation will be voted “FOR” each of Proposals 1, 2 and 3.

Proxy Solicitations

HMA is soliciting proxies for the HMA special meeting from HMA stockholders. HMA will reimburse brokers, banks, institutions and others holding common stock of HMA as nominees for their expenses in sending proxy solicitation material to the beneficial owners of such common stock of HMA and obtaining their proxies.

Stockholders should not send stock certificates or other evidence of shares in book-entry form with their proxies. A letter of transmittal and instructions for the surrender of HMA stock certificates will be mailed to HMA stockholders shortly after the completion of the merger, if approved and completed.

HMA has engaged Georgeson, Inc., or “Georgeson,” to assist in the solicitation of proxies for the HMA special meeting and will pay Georgeson a fee of approximately $20,000, plus reimbursement of reasonable out-of-pocket expenses. The address of Georgeson is Georgeson Inc., 480 Washington Blvd., 26th Floor, Jersey City, NJ 07310, Attn: Christopher G. Dowd. If you need assistance in completing your proxy card or have questions regarding the HMA special meeting, please contact Georgeson at HMA@georgeson.com (e-mail) or call toll-free: 1-888-613-9817.

Householding

Some brokers, banks and other nominees may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this proxy statement/prospectus may have been sent to multiple stockholders in your household. HMA will promptly deliver a separate copy of either or both documents to you if you write or call Georgeson at the following address or phone number: Georgeson Inc., 480 Washington Blvd., 26th Floor, Jersey City, NJ 07310, Attn: Christopher G. Dowd, HMA@georgeson.com (email), 1-888-613-9817 (toll-free).

 

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BENEFICIAL STOCK OWNERSHIP OF HMA’S DIRECTORS, EXECUTIVE OFFICERS AND PERSONS OWNING MORE THAN 5% OF THE OUTSTANDING SHARES OF HMA COMMON STOCK

The table below presents certain information as of November 15, 2013 regarding shares of common stock held by: (1) each stockholder known by HMA to be the beneficial holder of more than 5% of HMA’s common stock; (2) each of HMA’s directors; (3) each of HMA’s “named executive officers” (as defined under the heading entitled “Golden Parachute Compensation”); and (4) all of HMA’s directors and executive officers as a group.

 

		Common Stock Beneficially Owned
Name and Address of Beneficial Owner(1)		Number of Shares(1)(2)				Percent of Class(1)
Steven Epstein			0			*
Mary Taylor Behrens			0			*
Kirk Gorman			0			*
Stephen Guillard			0			*
JoAnn Reed			0			*
John McCarty			0			*
Steven Shulman			0			*
Peter Urbanowicz			0			*
Kelly E. Curry (3)			141			*
Robert E. Farnham (4)			141,389			*
Kerrin E. Gillespie (5)			91,275			*
Steven E. Clifton			64,710			*
John M. Starcher, Jr.			46,653			*
Gary S. Bryant (6)			44,677			*
Gary D. Newsome			0			*
Glenview Capital Management, LLC and Lawrence M. Robbins (7) 767 Fifth Avenue, 44th Floor New York, New York 10153			37,757,583			14.3%
Wellington Management Company, LLP (8) 280 Congress Street Boston, Massachusetts 02210			19,328,750			7.3%
The Vanguard Group, Inc. (9) 100 Vanguard Blvd. Malvern, PA 19355			13,251,285			5.0%
BlackRock, Inc. (10) 40 East 52nd Street New York, New York			14,779,216			5.6%
All directors and executive officers as a group (11)			388,845			*

 

*	Less than one percent.

(1)

As reported by such persons as of November 15, 2013, with percentages based on 264,495,187 shares issued and outstanding, except where the person has the right to receive shares within the next 60 days (as indicated in the footnotes to this table), which increases the number of shares beneficially owned by such person and the number of shares outstanding. Under the rules of the SEC, “beneficial ownership” is deemed to include shares for which an individual, directly or indirectly, has or shares voting or dispositive power, whether or not they are held for the individual’s benefit, and includes shares that may be acquired within 60 days, including, but not limited to, the right to acquire shares by the exercise of options. Shares that may be acquired within 60 days are referred to in the footnotes to this table as “presently exercisable options.”

 

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Unless otherwise indicated in the footnotes to this table, each stockholder named in the table has sole voting and sole investment power with respect to all of the shares shown as owned by such stockholder. HMA has omitted percentages of less than 1% from the table.

The address for each director and named executive officer is c/o Health Management Associates, Inc., 5811 Pelican Bay Boulevard, Suite 500, Naples, Florida 34108-2710.

 

(2)

The directors appointed to the HMA board as a result of the successful Glenview consent solicitation did not receive HMA common stock in connection with their appointment to the board because pursuant to the terms of the merger agreement, until the consummation of the merger, HMA may not issue, sell, pledge, dispose of, encumber or grant any shares of its capital stock or other equity or voting interests of any class of securities.

(3)	The amount shown includes: 141 shares held in Mr. Curry’s account under the Health Management Associates, Inc. Retirement Savings Plan, as to which shares he has investment power only.

(4)	The amount shown includes: (a) 93,463 shares held by Mr. Farnham individually; and (b) 47,926 shares held in Mr. Farnham’s account under the Health Management Associates, Inc. Retirement Savings Plan, as to which shares he has investment power only.

(5)	The amount shown includes: (a) 66,275 shares held by Mr. Gillespie individually; and (b) 25,000 shares held by a limited liability company owned and managed by Mr. Gillespie and his wife.

(6)	The amount shown includes: (a) 42,660 shares held by Mr. Byrant individually and (b) 2,017 shares held in Mr. Bryant’s account under the Health Management Associates, Inc. Retirement Savings Plan, as to which shares he has investment power only.

(7)

This information as to the beneficial ownership of shares of HMA’s common stock is based on Form 13-F-HR dated November 14, 2013 filed with the SEC by Glenview Capital Management, LLC that reports sole dispositive power with respect to 37,757,583 shares of common stock as of September 30, 2013. Glenview Capital Management, LLC serves as investment manager to each of Glenview Capital Partners, L.P., Glenview Capital Master Fund, Ltd., Glenview Institutional Partners, L.P., Glenview Offshore Opportunity Master Fund, Ltd., and Glenview Capital Opportunity Fund, L.P.

(8)

This information as to the beneficial ownership of shares of HMA’s common stock is based on Form 13-F-HR dated November 14, 2013 filed with the SEC by Wellington Management Company, LLP. Wellington Management Company, LLP, in its capacity as an investment adviser, reports dispositive ownership of 19,328,750 shares of HMA’s common stock, with sole voting authority over 467,750 shares of HMA’s common stock, shared voting authority over 18,200 shares of HMA’s common stock and no voting authority over 18,842,800 shares of HMA’s common stock. These shares are owned of record by clients of Wellington Management Company, LLP, one of which is The Vanguard Group, Inc. that reports sole voting power with respect to 13,251,285 shares of HMA’s common stock.

(9)	This information as to the beneficial ownership of shares of HMA’s common stock is based on Form 13-F-HR dated November 7, 2013 filed with the SEC by The Vanguard Group, Inc. that reports sole voting power with respect to all 13,251,285 shares.

(10)

This information as to the beneficial ownership of shares of HMA’s common stock is based on Form 13-F-HRs filed with the SEC by BlackRock Fund Advisors, BlackRock Institutional Trust Co., BlackRock Investment Management, BlackRock Group Limited, BlackRock Inc. and BlackRock Advisors LLC in November 2013.

(11)	See footnotes (3) through (6) to this table.

 

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PROPOSALS SUBMITTED TO HMA STOCKHOLDERS

Adoption of the Agreement and Plan of Merger

(Item 1 on the HMA Proxy Card)

This proxy statement/prospectus is being furnished to HMA stockholders as part of the solicitation of proxies by the HMA board of directors for use at the HMA special meeting to consider and vote on the proposal to adopt the merger agreement. IF HMA STOCKHOLDERS FAIL TO ADOPT THE MERGER AGREEMENT, THE MERGER CANNOT BE COMPLETED. Holders of HMA common stock should read this proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A.

On July 29, 2013, after careful consideration, the HMA board of directors unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement and declared that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of HMA and its stockholders. On November 12, 2013, after careful consideration, the new HMA board of directors unanimously determined to reaffirm the determination of the prior HMA board of directors that the merger agreement and the transactions contemplated by the merger agreement are advisable to and in the best interests of HMA and its stockholders. The HMA board of directors has directed that the merger agreement be submitted to HMA stockholders for adoption at the HMA special meeting.

The affirmative vote of the holders of at least 70% of the outstanding shares of HMA common stock entitled to vote thereon is required to adopt the merger agreement.

The HMA board of directors unanimously recommends that HMA stockholders vote “FOR” the adoption of the merger agreement.

Non-Binding Advisory Vote on Golden Parachute Compensation

(Item 2 on the HMA Proxy Card)

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) under the Exchange Act require HMA to provide its stockholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the named executive officers of HMA that is based on or otherwise relates to the merger (also known as “golden parachute” compensation).

Accordingly, HMA is requesting that holders of HMA common stock vote on the following resolution:

“RESOLVED, that the stockholders of Health Management Associates, Inc. approve, on a non-binding advisory basis, the compensation that may be paid or become payable to its named executive officers that is based on or otherwise relates to the merger, as disclosed in the proxy statement/prospectus relating to the HMA special meeting in the table entitled “Golden Parachute Compensation,” including the related narrative discussion, and the agreements or understandings pursuant to which such compensation may be paid or become payable.”

Approval of this proposal is not a condition to completion of the merger. As this is an advisory vote, the result will not be binding on HMA or on CHS, or the board of directors or the compensation committees of CHS or HMA. Accordingly, such compensation, including amounts that HMA is contractually obligated to pay, could still be payable regardless of the outcome of this advisory vote, subject only to the conditions applicable thereto.

The HMA board of directors unanimously recommends that HMA stockholders vote “FOR” the approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to its named executive officers that is based on or otherwise relates to the merger, as disclosed pursuant to the compensation disclosure rules of the SEC.

 

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Adjournment Proposal

(Item 3 on the HMA Proxy Card)

The HMA special meeting may be adjourned to another time or place, if necessary, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the adoption of the merger agreement.

If, at the HMA special meeting, the number of shares of HMA common stock present or represented and voting in favor of the adoption of the merger agreement is insufficient to approve such proposal, HMA intends to move to adjourn the HMA special meeting in order to solicit additional proxies for the adoption of the merger agreement. In accordance with the HMA By-laws, a vote to approve the proposal to adjourn the HMA special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the HMA special meeting to adopt the merger agreement also may be taken in the absence of a quorum. HMA does not intend to call a vote on this proposal if Proposal 1 (the vote on the adoption of the merger agreement) has been approved at the HMA special meeting.

In this proposal, HMA is asking its stockholders to vote on the authorization of the holder of any proxy solicited by the HMA board of directors to vote in favor of granting discretionary authority to proxy holders, and each of them individually, to adjourn the HMA special meeting to another time and place for the purpose of soliciting additional proxies. If HMA stockholders approve this adjournment proposal, HMA could adjourn the HMA special meeting and any adjourned session of the HMA special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from HMA stockholders who have previously voted. However, the merger agreement contains certain restrictions on the ability of HMA to adjourn the HMA special meeting, as described under “The Merger Agreement—HMA Special Meeting.”

The HMA board of directors unanimously recommends that HMA stockholders vote “FOR” the approval of the adjournment of the HMA special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the HMA special meeting.

 

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THE MERGER

This section of the proxy statement/prospectus describes certain material aspects of the proposed merger. This section may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the documents incorporated herein by reference, including the full text of the merger agreement, which is attached as Annex A, for a more complete understanding of the merger. In addition, important business and financial information about each of CHS and HMA is incorporated into this proxy statement/prospectus by reference and is included in the Annexes hereto. See “Where You Can Find