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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
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Commission File Number 000-21949
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PACIFICARE HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4591529
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5995 Plaza Drive, Cypress, California 90630-5028
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code) (714) 952-1121
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
As of April 30, 1997, there were 14,780,248 shares of the Registrant's Class A
Common Stock, par value $0.01 per share, outstanding, and 26,933,507 shares of
Class B Common Stock, par value $0.01 per share, outstanding.
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Part 1: FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
PacifiCare Health Systems, Inc.
Condensed Consolidated Balance Sheets (unaudited)
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(Amounts in thousands, March 31, December 31,
except per share data) 1997 1996
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Assets
Current assets:
Cash and equivalents $ 228,915 $ 367,748
Marketable securities 776,845 594,734
Receivables, net 348,461 156,212
Talbert rights offering receivable 59,598 -
Assets held for sale 34,587 -
Prepaid expenses and other 23,382 8,876
Deferred income taxes 108,516 54,745
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Total current assets 1,580,304 1,182,315
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Property, plant and equipment, net 218,330 91,239
Marketable securities - restricted 130,121 35,399
Goodwill and other intangible assets, net 2,756,557 227,422
Other assets 43,943 25,097
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$ 4,729,255 $ 1,561,472
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Liabilities and Shareholders' Equity
Current liabilities:
Medical claims and benefits payable $ 655,700 $ 278,800
Accounts payable and accrued liabilities 555,553 162,882
Unearned premium revenue 42,786 256,416
Long-term debt due within one year 1,019 1,511
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Total current liabilities 1,255,058 699,609
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Long-term debt due after one year 1,141,497 1,370
Deferred income taxes 154,264 -
Other liabilities 75,743 -
Minority interest 375 391
Shareholders' equity:
Preferred shares, par value $0.01 per
share; 40,000 shares authorized;
10,517 shares of Series A Convertible
Preferred Stock issued and outstanding
at March 31, 1997 ($262,927 aggregate
liquidation value) 105 -
Class A common shares, par value $0.01 per
share; 100,000 shares authorized; 14,780
and 12,380 issued and outstanding
at March 31, 1997 and December 31, 1996,
respectively 148 124
Class B common shares, par value $0.01 per
share; 100,000 shares authorized;
26,920 and 18,922 issued and
outstanding at March 31, 1997 and
December 31, 1996, respectively 269 189
Additional paid-in capital 1,580,580 373,405
Unrealized (losses) gains on available-
for-sale securities, net of taxes (4,307) 3,451
Retained earnings 525,523 482,933
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Total shareholders' equity 2,102,318 860,102
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$ 4,729,255 $ 1,561,472
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See accompanying notes.
2
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PacifiCare Health Systems, Inc.
Consolidated Statements of Income (unaudited)
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Three months ended
March 31,
(Amounts in thousands, ------------------------
except per share data) 1997 1996
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Revenue:
Commercial premiums $ 756,927 $ 467,742
Government premiums (Medicare
and Medicaid) 1,074,995 678,236
Other income 11,681 11,192
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Total operating revenue 1,843,603 1,157,170
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Expenses:
Health care services:
Commercial services 629,793 385,396
Government services 917,862 579,731
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Total health care services 1,547,655 965,127
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Marketing, general and
administrative expenses 214,514 147,771
Amortization of goodwill and
intangible assets 10,319 2,307
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Operating income 71,115 41,965
Interest income 17,685 12,212
Interest expense (9,719) (829)
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Income before income taxes 79,081 53,348
Provision for income taxes 35,587 21,479
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Net income $ 43,494 $ 31,869
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Weighted average common shares and
equivalents outstanding used to calculate
earnings per share 38,981 31,758
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Earnings per share $ 1.12 $ 1.01
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See accompanying notes.
3
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PacifiCare Health Systems, Inc.
Consolidated Statements of Cash Flows (unaudited)
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Three months ended
March 31,
-------------------------
(Amounts in thousands) 1997 1996
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Operating activities:
Net income $ 43,494 $ 31,869
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of goodwill and intangible
assets 10,319 2,307
Depreciation and amortization 9,141 5,787
Loss on disposal of property, plant
and equipment 2,966 64
Provision for doubtful accounts 1,690 (63)
Deferred income taxes 911 570
Changes in assets and liabilities, net
of effects from acquisitions:
Accounts receivable (27,234) (24,969)
Prepaid expenses and other assets (6,205) (2,799)
Medical claims and benefits payable (29,000) 10,629
Accounts payable and accrued
liabilities 31,857 (3,428)
Unearned premium revenue (213,630) (184,133)
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Net cash flows used in operating
activities (175,691) (164,166)
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Investing activities:
Acquisitions, net of cash acquired (980,646) (5,695)
Sale of marketable securities 57,862 5,563
Purchase of property, plant and equipment (8,673) (5,673)
Sale (purchase) of marketable
securities - restricted 393 (140)
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Net cash flows used in investing
activities (931,064) (5,945)
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Financing activities:
Proceeds from long-term borrowing, net
of expenses 1,105,639 -
Principal payments on long-term debt (99,725) (1,776)
Capitalization of Talbert (67,000) -
Proceeds from issuance of common stock 29,912 4,804
Cash dividends paid to preferred
shareholders (904) -
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Net cash flows provided by financing
activities 967,922 3,028
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Net decrease in cash and equivalents (138,833) (167,083)
Beginning cash and equivalents 367,748 357,290
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Ending cash and equivalents $ 228,915 $ 190,207
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See accompanying notes.
4
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PacifiCare Health Systems, Inc.
Consolidated Statements of Cash Flows (unaudited)
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Three months ended
March 31,
--------------------------
(Amounts in thousands) 1997 1996
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Supplemental cash flow information
Cash paid during the period for:
Income taxes $ 45,092 $ 32,227
Interest $ 2,437 $ 554
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Supplemental schedule of noncash investing
and financing activities:
Tax benefit realized upon exercise of
stock options $ 14,858 $ 1,592
Compensation awarded in Class B
Common Stock $ 721 $ 1,161
Leases capitalized $ - $ 35
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Details of businesses acquired in
purchase transactions:
Fair value of assets acquired $ 3,384,154 $ 9,209
Liabilities assumed or created (1,194,988) (2,034)
Preferred and common consideration (1,161,893) -
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Cash paid 1,027,273 7,175
Cash acquired (46,627) (1,480)
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Net cash paid for acquisitions $ 980,646 $ 5,695
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Details of unrealized losses on
available-for-sale securities, net of
acquisition:
Decrease in marketable securities $ (7,530) $ (8,674)
Decrease in deferred taxes 2,882 3,251
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Decrease in shareholders' equity $ (4,648) $ (5,423)
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See accompanying notes.
5
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PACIFICARE HEALTH SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
PacifiCare Health Systems, Inc., formerly N-T Holdings, Inc. (the
"Company"), is one of the leading health care services companies in the United
States, serving approximately four million members in the commercial, Medicare
and Medicaid lines of business. On February 27, 1997, the Company's board of
directors approved a change in its fiscal year end from September 30 to
December 31. Accordingly, the Company's current year will end on
December 31, 1997. The Company will include audited financial statements for
the October 1, 1996 to December 31, 1996 transition period in its Annual Report
on Form 10-K for the year ended December 31, 1997.
The interim condensed consolidated financial statements included herein
have been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures, normally included in the financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such SEC rules and
regulations; nevertheless, the management of the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's September 30, 1996 Annual Report
on Form 10-K/A, filed with the SEC in January 1997, and the interim condensed
consolidated financial statements included in the Company's December 31, 1996
Transition Report on Form 10-Q/A, filed with the SEC in February 1997.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary to present fairly the consolidated financial
position of the Company with respect to the interim condensed consolidated
financial statements, and the consolidated results of its operations and its
cash flows for the interim periods then ended, have been included. The
results of operations for the interim periods are not necessarily indicative
of the results for the full year. Certain prior period amounts in the
accompanying unaudited condensed consolidated financial statements have been
reclassified to conform to the 1997 presentation.
NOTE 2- ACQUISITIONS AND DISPOSITIONS
The acquisition of FHP International Corporation ("FHP") by the Company
was consummated on February 14, 1997. As a result, PacifiCare Operations,
Inc. (formerly PacifiCare Health Systems, Inc.) and FHP are each direct,
wholly owned subsidiaries of the Company. Pursuant to the acquisition, each
outstanding share of FHP common stock (41,737,627 shares) was exchanged for
$17.50 in cash, 0.056 shares of the Company's Class A Common Stock and 0.176
shares of the Company's Class B Common Stock. Each outstanding share of
FHP's preferred stock (21,034,163 shares) was exchanged for $14.113 in cash
and one-half of one share of the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred"). Further, on April 21, 1997, the
Talbert Rights Offering commenced and Talbert rights were distributed to
former FHP common and preferred shareholders (see Note 3 - Talbert Rights
Offering). In connection with the acquisition of FHP, the Company issued
2,337,306 shares of Class A Common Stock, 7,345,822 shares of Class B Common
Stock and 10,517,081 shares of Series A Preferred (see Note 6 - Shareholders'
Equity).
6
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The acquisition has been accounted for as a purchase. Total
consideration, including transaction costs, of approximately $2.2 billion has
been preliminarily allocated to the assets acquired and liabilities assumed
based on estimates of their fair values. The purchase price allocation is
based on currently available information which may be adjusted upon
completion of the final valuation of FHP's assets and liabilities. The
preliminary fair value estimates of the assets acquired and liabilities
assumed were $0.9 billion and $1.2 billion, respectively. A total of $2.5
billion, net of related deferred taxes, representing the excess of the
purchase price over the estimated fair values of the net assets acquired, has
been preliminarily allocated to goodwill and other acquired intangible assets
and is being amortized over a four to 40-year period.
The Company sold the outstanding common stock of its Florida subsidiary
on February 21, 1997. The sales price, which approximated the net book value,
totaled $9 million. The terms of the sale agreement included a put option
requiring the Company to repurchase the subsidiary for $6 million if certain
regulatory approvals are not received from the state of Florida by
January 1998.
The Company's consolidated results of operations include FHP from
February 14, 1997 and its Florida subsidiary through February 21, 1997. The
pro forma information below presents combined results of operations as if the
acquisition, as well as the sale of the Company's Florida subsidiary, had
occurred at the beginning of 1996. The pro forma information reflects
adjustments which include interest expense related to the assumed financing
of the cash consideration paid for the acquisition; amortization of goodwill
and other acquired intangible assets; costs associated with the integration
of FHP's operations into those of the Company; the reversal of certain
contingency expenses recognized that would be adjusted for in purchase
accounting; and conformity of FHP's accounting policies with the Company's.
No adjustment has been made to give effect to any synergies which may be
realized as a result of the acquisition. The Company is performing a reveiw
of its managed care operations, cost structures and information technology
services, and has not yet fully estimated the costs associated with the
integration of FHP's operations. The Company anticipates that it will incur
costs to integrate and restructure its operations, which may result in a
restructuring charge in a future period.
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(Unaudited) Three months ended
March 31
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(In thousands, except per share amounts) 1997 1996
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Total operating revenue $2,396,482 $2,202,938
Pretax income $ 69,501 $ 69,671
Net income $ 35,243 $ 34,661
Earnings per share $ 0.77 $ 0.76
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NOTE 3 - TALBERT RIGHTS OFFERING
The terms of the FHP acquisition required FHP to contribute $67 million to
Talbert Medical Management Corporation, a wholly owned subsidiary of FHP, which
increased its net worth to approximately $60 million on February 14, 1997.
Also at that time, FHP sold its investment in Talbert Medical Management
Holdings Corporation ("Talbert") in exchange for a $60 million non-recourse
promissory note and rights to purchase shares of Talbert common stock.
On April 21, 1997, Talbert commenced its rights offering and Talbert rights
were distributed to former FHP shareholders. Per the terms of the FHP
acquisition, the former FHP shareholders were entitled to receive one Talbert
right for each 21.19154 shares of FHP common stock and one Talbert right for
each 26.27752 shares of FHP preferred stock. Holders of Talbert rights may
purchase one share of Talbert common stock for each Talbert right for the
subscription price of $21.50 per share. Holders of Talbert rights will be
entitled to subscribe for all, or any portion of, the shares of Talbert common
stock underlying their Talbert rights through May 20, 1997, as well as to
subscribe for any unallocated additional shares. Proceeds from the exercise of
the Talbert
7
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rights, to the extent subscribed, will be used to repay the note to FHP. To
the extent that the Talbert rights are not fully subscribed, the note will be
repaid by issuance of the underlying shares of Talbert common stock to FHP.
The Company expects the Talbert Rights Offering to be fully subscribed
because the trading price of the Talbert rights from April 21, 1997 to
May 9, 1997 has ranged from $13.63 to $20.50 per share. There can be no
assurance that the Talbert Rights Offering will be partially or fully
subscribed.
NOTE 4 - ASSETS HELD FOR SALE
The Company intends to sell certain acquired FHP real estate, managed
care operations and certain specialty products. For financial reporting
purposes, the assets and liabilities attributable to these pending
dispositions have been stated at the lower of cost or net realizable value,
and have been classified in the accompanying unaudited condensed consolidated
balance sheet as of March 31, 1997 as assets held for sale. Because
management presently expects the dispositions to occur within one year, such
assets have been classified as current. Net losses from February 14, 1997
through March 31, 1997 from the FHP assets held for sale totaled $4 million.
These losses have been accounted for as an adjustment to the net assets
acquired and are excluded from the unaudited consolidated statement of income
for the three months ended March 31, 1997.
NOTE 5 - LONG-TERM DEBT AND INTEREST-RATE SWAPS
The Company borrowed $1.1 billion under its credit facility in February
1997. The cash was used to pay $1.0 billion in cash consideration to former
holders of FHP common and preferred stock (see Note 2 - Acquisitions and
Dispositions), $67 million to capitalize Talbert through the Company's FHP
subsidiary and repay $19 million in outstanding debt held by FHP. During
March 1997, the Company repaid $80 million of its borrowings under the credit
facility, resulting in $1.0 billion outstanding as of March 31, 1997.
Interest under the credit facility is presently based on the London Interbank
Offering Rate ("LIBOR") plus a spread. The credit facility contains various
covenants usual for financing of this type, including a minimum net worth
requirement, a minimum fixed charge requirement and leverage ratios. At
March 31, 1997, the Company was in compliance with all such covenants.
On February 14, 1997, the Company assumed $100 million senior notes of
FHP (the "FHP Notes") by entering into a supplemental indenture with The
Chase Manhattan Bank. The FHP Notes carry an interest rate of seven percent,
are payable semiannually and mature on September 15, 2003.
The Company has entered into interest-rate swap agreements to manage
interest costs and limit exposure to changing interest rates on borrowings
under its credit facility. The swap agreements are contracts to exchange
floating rate for fixed interest payments periodically over the life of the
agreements without the exchange of the underlying notional amounts. The
notional amounts of swap agreements are used to measure interest to be paid
or received and do not represent the amount of exposure to credit loss. The
differential paid or received on swap agreements is recognized as an
adjustment of interest expense. The average fixed interest rate paid by the
Company on the existing swap agreements is approximately six percent,
covering $350 million of borrowings under the credit facility. The swap
agreements, which were implemented through seven banks, have an average
remaining life of 1.5 years. Certain of the swap agreements terminate
automatically if the floating rate or LIBOR exceeds seven percent over a
specified three-month period.
NOTE 6 - SHAREHOLDERS' EQUITY
The Company's Certificate of Incorporation provides for authorized
capital stock of 100,000,000 shares each of Class A Common Stock and Class B
Common Stock, and 40,000,000 shares of Preferred Stock, each with a par value
of $0.01 per share. The Preferred Stock authorized includes 11,000,000
authorized shares of Series A Preferred.
8
<PAGE>
On February 14, 1997, each outstanding share of PacifiCare Operations,
Inc.'s Class A and Class B Common Stock, par value $0.01 per share, was
exchanged for one share of the Company's Class A and Class B Common Stock,
respectively. Shares of the Company's Class A and Class B Common Stock and
Series A Preferred were issued in connection with the FHP acquisition as
described in Note 2 - Acquisitions and Dispositions.
Each share of Series A Preferred entitles its owner to convert it at any
time to 0.374 shares of Class B Common Stock, assuming no unpaid accrued
dividends in arrears. Series A Preferred shareholders also have a preference
of $25.00 per share over the Common Stock in the event of involuntary or
voluntary liquidation. Dividends on the Series A Preferred accrue at an
annual rate of $1.00 per share, are cumulative and payable quarterly in
arrears when, as and if declared by the board of directors. In March 1997,
the Company made a one-time special quarterly dividend payment, as required
by the Certificate of Incorporation and pursuant to the acquisition of FHP,
which included a proration of dividends payable on the Company's Series A
Preferred from February 15, 1997 through March 15, 1997 totaling $0.9 million
in the aggregate or $0.086 per share. Unpaid cumulative dividends earned
were $0.4 million on the 10,517,081 Series A Preferred shares outstanding at
March 31, 1997.
On or after June 17, 1998, Series A Preferred may be redeemed at the option
of the Company for cash plus unpaid dividends. The redemption price ranges
from 103 percent to 100 percent of the stated value of Series A Preferred, or
$25.00 per share, in one-half percent decrements for each successive
anniversary of June 17, 1998 through 2004. Series A Preferred ranks senior to
Class A and B Common Stock with respect to dividend and liquidation rights, and
holders of Series A Preferred generally have no voting rights; however, there
are certain exceptions including the right to elect two additional directors if
the equivalent of six quarterly dividends payable on the Series A Preferred are
in default.
NOTE 7 - CONTINGENCIES
The Company is involved in legal actions in the normal course of
business, some of which seek substantial monetary damages, including claims
for punitive damages which are not covered by insurance. Additionally, the
Company's programs, including services provided to government employees, are
subject to retrospective audits by the respective regulating agencies in the
normal course of business. After review, including consultation with counsel,
management believes any ultimate liability in excess of amounts accrued which
could arise from audits or legal actions would not materially affect the
Company's consolidated financial position, results of operations or cash
flows.
The Company has set aside reserves in anticipation of negotiations
relating to potential governmental claims for contracts with the United
States Office of Personnel Management ("OPM"). The Company's HMO
subsidiaries which provide managed health care services under the Federal
Employees Health Benefits Program are subject to audit, in the normal course
of business, by OPM. Currently, OPM audits for multiple periods are in
various stages of completion for several of the Company's HMO subsidiaries.
The Company intends to negotiate with OPM on all matters to attain a mutually
satisfactory result. While there is no assurance that the negotiations will
be concluded satisfactorily or that additional liability will not be
incurred, management believes that any ultimate liability in excess of
amounts accrued which could arise upon completion of the audits by OPM of the
health plans, would not materially affect the Company's consolidated
financial position, results of operations or cash flows; however, such
liability could be material to net income of a future quarter if resolved
unfavorably.
As discussed in FHP's December 31, 1996 Quarterly Report on Form 10-Q,
Memorial Health Services filed a demand for arbitration against a subsidiary of
FHP. The Company is in final discussions and expects this matter to be
negotiated satisfactorily; any amounts resulting from the settlement are not
9
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expected to be materially different from those already provided in purchase
accounting for the FHP acquisition (see Note 2 - Acquisitions and Dispositions).
NOTE 8 - EARNINGS PER SHARE
Earnings per share were computed by dividing net income by the weighted
average number of shares outstanding during the period. The weighted average
number of shares outstanding includes the dilutive effect of stock options
using the average market price and assuming the conversion of Series A
Preferred, which are considered to be common stock equivalents, to common
shares. Fully diluted earnings per share assume the maximum dilution that
would have resulted from the exercise of stock options. There is not a
material difference between primary and fully diluted earnings per share.
10
<PAGE>
Part I: FINANCIAL INFORMATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents HMO membership data by state and by consumer
type as of the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT MARCH 31, 1996
Government Government
(Medicare & (Medicare &
MEMBERSHIP DATA Commercial Medicaid) Total Commercial Medicaid) Total
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<S> <C> <C> <C> <C> <C> <C>
Arizona 101,692 88,364 190,056 - - -
California 1,693,662 633,537 2,327,199 925,858 403,661 1,329,519
Colorado 275,497 47,329 322,826 - - -
Florida - - - 50,377 4,915 55,292
Guam 42,846 - 42,846 - - -
Illinois 58,613 3,455 62,068 - - -
Nevada 40,051 22,786 62,837 - - -
New Mexico 38,170 17,855 56,025 - - -
Ohio 55,157 8,390 63,547 - - -
Oklahoma 115,050 24,908 139,958 111,766 22,352 134,118
Oregon 116,146 39,931 156,077 107,922 43,988 151,910
Texas 136,995 68,926 205,921 98,987 55,624 154,611
Utah 155,833 32,570 188,403 - - -
Washington 96,208 52,678 148,886 87,109 46,839 133,948
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Total membership 2,925,920 1,040,729 3,966,649 1,382,019 577,379 1,959,398
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</TABLE>
Three months ended
March 31,
-----------------------
OPERATING STATISTICS 1997 1996
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Medical loss ratio (health care services
as a percent of premium revenue)
Consolidated 84.5% 84.2%
Commercial 83.2% 82.4%
Government (Medicare and Medicaid) 85.4% 85.5%
Marketing, general and administrative expenses
as a percent of operating revenue 11.6% 12.8%
Operating income as a percent of operating revenue 3.9% 3.6%
Effective tax rate 45.0% 40.3%
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11
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Three Months Ended March 31, 1997
Compared to the
Three Months Ended March 31, 1996
RESULTS OF OPERATIONS
The following discussion includes FHP's results of operations from
February 14, 1997. Compared to FHP's historical financial statements,
there have been presentation changes in the consolidation with the Company
including classifying certain medical management costs as marketing, general and
administrative expenses and excluding these amounts from health care costs. In
addition, there have been conforming changes to FHP's definition of members.
FHP Medicaid membership has been reclassified from commercial to government.
Moreover, the Company has excluded self-funded members totaling approximately
33,000 members and is reporting Medicare members consistent with the Health
Care Financing Administration ("HCFA") premium payments, a difference totaling
approximately 1,800 members, which resulted in a decrease of 34,800 members
previously reported.
Total operating revenue increased 59 percent to $1.8 billion for the
three months ended March 31, 1997 from $1.2 billion for the same period in
the prior year. FHP contributed 77 percent of the increase, while enrollment
gains in the HMOs' commercial and government programs, as well as increases
in premium rates, contributed 22 percent of the increase in total operating
revenue. Primarily as a result of the FHP acquisition, total membership
increased 102 percent to approximately four million HMO members at
March 31, 1997 compared to March 31, 1996. The Company's specialty managed
care products and services contributed the remainder of the increase in
operating revenue.
FHP contributed $243 million of a $290 million increase in commercial
premiums for the three months ended March 31, 1997 as compared to the same
period in the prior year. Excluding the effects of the FHP acquisition,
commercial membership growth combined with increases in commercial premium
rates averaging two percent contributed $40 million to the increase in
commercial premiums. The Company's specialty managed care products and
services contributed the remainder of the increase.
As a result of the FHP acquisition, the Company acquired approximately
1.5 million commercial members. Net of the FHP acquisition, growth in
commercial HMO membership for the three months ended March 31, 1997 was
approximately six percent compared to 30 percent for the three months ended
March 31, 1996, reflecting the loss of the Florida commercial membership and
the Company's more disciplined product pricing.
Government premiums rose $397 million to $1.1 billion for the three
months ended March 31, 1997 from $678 million in the same period of fiscal
year 1996, with $286 million contributed by FHP. On January 1, 1997, the
Company received average premium rate increases from HCFA averaging over six
percent. Government premium rates also increased as a result of the
Company's exit of its Medicaid lines of business in Florida and Oregon,
offset slightly by reductions in member paid supplemental premiums in several
of the Company's markets. These premium rate increases contributed an
additional $76 million of premiums. Enrollment gains in the Medicare
programs, net of acquisition membership, accounted for an additional nine
percent of the increase in government premiums. At March 31, 1997, FHP
government members totaled approximately 439,000.
The increase in the commercial medical loss ratio for the three months
ended March 31, 1997 as compared to the same period in the prior year was
primarily due to the acquisition of FHP, whose provider contracts yield a higher
commercial medical loss ratio. Net of the FHP acquisition, the Company
experienced increases in out of area health care services and increased
prescription drug utilization. These increases were
12
<PAGE>
slightly offset by continued improved performance in the Company's PPO,
indemnity and other specialty managed care products and services.
The medical loss ratio in the government programs remained relatively
consistent with the same period in the prior year. This consistency largely
reflects the acquisition of FHP, which had lower medical loss ratios through
lower provider reimbursements. Lower health care costs as a result of the
FHP acquisition combined with premium rate increases, and the wind down of
the Medicaid business, were offset by enhanced prescription drug benefits
provided to enrollees and lower member paid supplemental premiums.
Marketing, general and administrative expenses increased $67 million to
$215 million for the three months ended March 31, 1997 from $148 million for
the same period in fiscal year 1996. As a percentage of operating revenue,
marketing, general and administrative expenses for the three months ended
March 31, 1997 decreased approximately one percent as compared to the same
period in the prior year. The decrease was primarily due to delays in
staffing in addition to FHP marketing and other administrative expenditures,
as well as continued administrative efficiencies allowing the Company to
control its overhead.
Net interest income declined approximately $3 million compared to the
same period in the prior year due primarily to increased borrowings under the
Company's credit facility to finance the FHP acquisition.
The goodwill established in the acquisition of FHP is not deductible for
income tax purposes. Therefore, the effective income tax rate for the quarter
ended March 31, 1997 was 45 percent, an increase from the same period in the
prior year.
Net income increased $12 million to $43 million for the quarter ended
March 31, 1997 compared to the same period in the prior fiscal year. While
net income increased 37 percent, the impact of the equity securities issued
to acquire FHP diluted the increase in earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents plus its current marketable securities
increased $43 million to $1.0 billion at March 31, 1997 from $962 million at
December 31, 1996, due primarily to the acquisition of FHP. Cash flows
provided by operations, excluding the impact of the January 1997 advance
Medicare payment from HCFA, was $38 million and is primarily attributable to
results of operations.
The Company borrowed $1.1 billion under its credit facility in February
1997. The cash was used to pay $1.0 billion in cash consideration to former
holders of FHP common and preferred stock (see Note 2 - Acquisitions and
Dispositions), to capitalize Talbert with $67 million (see Note 3 - Talbert
Rights Offering) and to repay $19 million in outstanding debt held by FHP.
In March 1997, the Company repaid $80 million of its borrowings under the
credit facility, resulting in $1.0 billion outstanding as of March 31, 1997.
In February 1997, the Company assumed the FHP Notes by entering into a
supplemental indenture with The Chase Manhattan Bank. The FHP Notes carry an
interest rate of seven percent, are payable semiannually, and mature on
September 15, 2003 (see Note 5 - Long-Term Debt).
The Company has entered into interest-rate swap agreements to manage
interest costs and limit exposure to changing interest rates on borrowings under
its credit facility. The swap agreements are contracts to exchange floating
rate for fixed interest payments periodically over the life of the agreements
without the exchange of the underlying notional amounts. The notional amounts
of swap agreements are used to measure interest to be paid or received and do
not represent the amount of exposure to credit loss. The differential paid or
received on swap agreements is recognized as an adjustment of interest expense.
The average fixed interest rate paid by the Company on the existing swap
agreements is approximately six percent, covering $350 million of borrowings
under the credit facility. The swap agreements, which were implemented through
seven banks, have an average remaining life of 1.5 years. Certain of the swap
13
<PAGE>
agreements terminate automatically if the floating rate or LIBOR exceeds seven
percent over a specified three-month period.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," ("SFAS No. 128") which is required
to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share
and to restate all prior periods. SFAS No. 128 requires the presentation of
basic earnings per share which excludes the dilutive effect of stock options.
In addition, SFAS No. 128 requires calculation and presentation of dilutive
earnings per share. The impact of SFAS No. 128 on the calculation of primary
and fully diluted earnings per share for the quarters ended March 31, 1997
and March 31, 1996 is not expected to be material.
FORWARD LOOKING INFORMATION UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements to encourage companies to provide
prospective information about themselves without fear of litigation so long
as those statements are identified as forward looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statements. The statements contained in this section, and throughout the
document, are based on current expectations. These statements are forward
looking and actual results may differ materially from those projected in the
forward looking statements, which statements involve risks and uncertainties.
In addition, past financial performance is not necessarily a reliable
indicator of future performance and investors should not use historical
performance to anticipate results or future period trends. Shareholders are
also directed to the other risks discussed in other documents filed by the
Company with the SEC including those specified below.
MEMBERSHIP GROWTH. The Company's membership growth is expected to
moderate in 1997 in both the commercial and government programs. As
competition continues to increase and the Company shifts its emphasis from
one of rapid growth to improved margin performance, it expects to see a
slow-down in membership growth or possible declines in some markets. An
unforeseen loss of profitable membership could have a material adverse effect
on the Company. Factors which could contribute to the loss of membership
include, without limitation, the integration of the Company and FHP, the exit
of the Medicaid line of business, the sale of certain acquired FHP managed
care operations, failure to obtain new customers or to retain existing
customers, reductions in workforce by existing customers, adverse publicity
and news coverage, inability to carry out marketing and sales plans, loss or
retirement of key executives or key employees or denial of accreditation by
independent quality accrediting agencies.
HEALTH CARE PROVIDER CONTRACTS. The Company's profitability depends, in
part, on its ability to maintain effective control over health care costs
while providing members with quality care. Securing cost effective contracts
with existing and new physician groups is more difficult due to increased
competition and minimal or no commercial premium rate increases. The
negotiation of provider contracts, generally as of January 1, may be impacted
by adverse state and federal legislation and regulation discussed below.
Factors which could impact the Company's ability to secure contracts with
providers include the inability to renegotiate contracts or entering into
contracts with less cost-effective rates or terms of payment and factors
affecting increased competition as discussed above.
COMMERCIAL MEDICAL LOSS RATIO. The commercial medical loss ratio is
expected to be slightly higher for the six months ended June 30, 1997 as the
Company absorbs a full three months of the higher medical loss ratio from FHP
in the second quarter. For the remainder of 1997, the Company expects the
commercial medical loss ratio to be comparable or decrease slightly from the
ratio experienced in the first three months of 1997. Health care costs
should begin to slightly decrease through the continual negotiation of
current provider
14
<PAGE>
contracts in all markets. Consolidating and renegotiating the commercial
provider network contracts of the Company is expected to improve the medical
loss ratio. The Company's strategic focus will be on improved product
performance. Higher premium rates are anticipated to be offered with
employer contract renewals, not only improving the commercial medical loss
ratio through premium rates but also because unprofitable membership will not
be pursued. While increased prescription drug costs are expected, these costs
are anticipated to be offset due to the sale of the Florida subsidiary.
GOVERNMENT MEDICAL LOSS RATIO. For the six months ended June 30, 1997,
the medical loss ratio for the government programs is expected to be slightly
lower than the three months ended March 31, 1997 as the Company realizes a
full three months of the lower government medical loss ratio from FHP in the
second quarter. For the remainder of the year the medical loss ratio is
expected to remain stable as competitive pressures in the Medicare market,
requiring enhanced benefits with lower supplemental premiums, offset HCFA
rate increases, the disposition of the high cost Medicaid members and the
lower acquired government medical loss ratio as a result of the FHP
acquisition.
The commercial and government medical loss ratio expectations discussed
above could be affected by various uncertainties, including increases in
medical and prescription drug costs, increases in utilization and costs of
medical services and the effect of actions by competitors or groups of
providers and termination of provider contracts or renegotiation thereof at
less cost-effective rates or terms of payment. In addition, price increases
in health care costs including prescription drug costs, which have been
escalating faster than premium increases in recent years, as well as price
increases for durable medical equipment and other covered items plus other
factors, as discussed below, could also affect expectations.
MARKETING, GENERAL AND ADMINISTRATIVE SUPPORT INVESTMENTS. Marketing,
general and administrative expenses as a percentage of operating revenue in
1997 are expected to be slightly lower than fiscal year 1996. The Company
expects to realize synergies, which are expected to be partially offset by
increased investments in information systems as the Company integrates the
current FHP information systems and maintains and enhances its current
competitive advantage in information technology. Although the Company
anticipates that the acquisition of FHP will yield increased operating margins
partly resulting from a combination of reductions in marketing, general and
administrative expenses, there can be no assurance that the anticipated
benefits and synergies will be obtained. The ability of the Company to realize
the anticipated benefits and synergies is subject to the following additional
uncertainties, among others: the ability to integrate the Company's and FHP's
management and information systems, on a timely basis if at all; the ability to
eliminate duplicative functions while maintaining acceptable performance
levels; and the possibility that the integration of FHP will result in the loss
of providers, employers, members or key employees of PacifiCare, FHP or their
subsidiaries. The Company is performing a reveiw of its managed care
operations, cost structure and information technology services, and has not yet
fully estimated the costs associated with the integration of FHP's operations.
The Company anticipates that it will incur costs to integrate and restructure
its operations, which may result in a restructuring charge in a future period.
OFFICE OF PERSONNEL MANAGEMENT CONTINGENCIES. The Company intends to
negotiate with the OPM on all matters to attain a mutually satisfactory
result. While there is no assurance that the negotiations will be concluded
satisfactorily or that additional liability will not be incurred, management
believes that any ultimate liability in excess of amounts accrued which could
arise upon completion of the audits by OPM of the health plans would not
materially affect the Company's consolidated financial position, results of
operations or cash flows; however, such liability could be material to net
income of a future quarter if resolved unfavorably (see Note 7 -
Contingencies).
LIQUIDITY AND CAPITAL RESOURCES. The Company believes that cash flows from
operations, its credit facility, existing cash and equivalents and marketable
securities and other financing sources will provide sufficient liquidity for
operations in the foreseeable future. However, cash flows could be adversely
affected by changes in interest rates causing an increase in interest expense
and the fact that the Company will be
15
<PAGE>
subject to greater operating leverage due to its higher levels of
indebtedness as a result of the acquisition of FHP. Additionally, should the
credit facility be fully drawn, the Company's ability to make a payment on,
or repayment of, its future obligations under the credit facility and the FHP
Notes will be significantly dependent upon the receipt of funds from the
Company's subsidiaries. These subsidiary payments represent fees for
management services rendered by the Company to the subsidiaries and cash
dividends by the subsidiaries to the Company. Nearly all of the subsidiaries
are subject to HMO regulations or insurance regulations and may be subject to
substantial supervision by one or more HMO or insurance regulators.
Subsidiaries subject to regulation must meet or exceed various fiscal
standards imposed by HMO or insurance regulations. These fiscal standards
may, from time to time, impact the amount of funds that may be paid by
subsidiaries to the Company.
LEGISLATION AND REGULATION. The Company's success is significantly
impacted by federal and state legislation and regulation. Actual results may
differ materially from expected results discussed throughout this document
because of adverse state and federal legislation and regulation. This
includes limitations on premium levels; increases in minimum capital and
reserves and other financial viability requirements; prohibition or
limitation of capitated arrangements or provider financial incentives;
benefit mandates (including mandatory length of stay and emergency room
coverage) and limitations on the ability to manage care and utilization of
any willing provider or pharmacy laws. It also includes adverse actions of
governmental payors, including unilateral reduction of Medicare premiums
payable; discontinuance of or limitation on governmentally funded programs
and recovery by governmental payors of previously paid amounts; the inability
to increase premiums or prospective or retroactive reductions to premium
rates for federal employees; adverse regulatory determinations resulting in
loss or limitations of licensure, and certification or contracts with
governmental payors; delays by regulatory agencies in approval of merger of
health plan licenses, consolidation of operations or other efforts to
integrate FHP.
Part II. OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
In connection with the acquisition of FHP, the Company issued
approximately 10.5 million shares of its Series A Preferred Stock
which has rights senior to those of the Company's Class A and Class B
Common Stock. See Note 6 and the Company's Form 8-K/A filed with the
SEC on April 11, 1997 for additional information.
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
16
<PAGE>
Part II. OTHER INFORMATION (CONTINUED)
Item 6: Exhibits and Reports
a) Exhibit Index
Exhibit 3.01 Bylaws of the Company
Exhibit 3.02 First Amendment to the Bylaws of the Company
Exhibit 4.01 First Supplemental Indenture, dated as of February 14,
1997, by and among FHP International Corporation,
PacifiCare Health Systems, Inc. and The Chase Manhattan
Bank
Exhibit 11A Computation of Net Income per Share of Common Stock -
Primary
Exhibit 11B Computation of Net Income per Share of Common Stock -
Fully Diluted
Exhibit 27 Financial Data Schedule (filed electronically)
b) Forms 8-K were filed by the Registrant and its subsidiaries during
the quarter ended March 31, 1997 as follows:
<TABLE>
<CAPTION>
Date Reporting Person Description
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
February 21, 1997 PacifiCare Operations, Inc., formerly Acquisition of FHP International Corporation
PacifiCare Health Systems, Inc.
February 21, 1997 PacifiCare Health Systems, Inc., Acquisition of FHP International Corporation
formerly N-T Holdings, Inc.
February 21, 1997 FHP International Corporation Acquisition of FHP International Corporation
March 10, 1997 PacifiCare Health Systems, Inc. Disposition of PacifiCare of Florida, Inc.
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFICARE HEALTH SYSTEMS, INC.
(Registrant)
Date: May 15, 1997 By: /s/ Alan R. Hoops
---------------------- ----------------------------
Alan R. Hoops
President,
Chief Executive Officer
and Director
Date: May 15, 1997 By: /s/ Wayne B. Lowell
--------------------- ----------------------------
Wayne B. Lowell
Executive Vice President,
Chief Administrative Officer and
Chief Financial Officer
18
<PAGE>
EXHIBIT 3.01
BY-LAWS
OF
N-T HOLDINGS, INC.
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
ARTICLE I
OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
Section 1. REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . 1.
Section 2. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . 1.
ARTICLE II
MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . 1.
Section 1. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . 1.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. . . . . . . . . . . . . . 1.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF . . . . . . 1.
Section 4. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
Section 5. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . 2.
Section 6. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . 2.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . 2.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. . . . . . 2.
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . 3.
ARTICLE III
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
Section 1. NUMBER AND QUALIFICATION OF DIRECTORS . . . . . . . . . . 3.
Section 2. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . 3.
Section 3. POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . 4.
Section 4. PLACE OF DIRECTORS' MEETINGS. . . . . . . . . . . . . . . 4.
Section 5. REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . . 4.
Section 6. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . 4.
Section 7. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . 4.
Section 8. ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . 4.
Section 9. TELEPHONIC MEETINGS . . . . . . . . . . . . . . . . . . . 5.
Section 10. COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . 5.
Section 11. MINUTES OF COMMITTEE MEETINGS. . . . . . . . . . . . . . 5.
Section 12. COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . 5.
Section 13. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 5.
ARTICLE IV
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
Section 1. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 9.
Section 2. ELECTION OF OFFICERS. . . . . . . . . . . . . . . . . . . 9.
Section 3. SUBORDINATE OFFICERS. . . . . . . . . . . . . . . . . . . 9.
i
<PAGE>
Section 4. COMPENSATION OF OFFICERS. . . . . . . . . . . . . . . . . 9.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES . . . . . . . . . . 9.
Section 6. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . 10.
Section 7. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . 10.
Section 8. VICE PRESIDENT. . . . . . . . . . . . . . . . . . . . . . 10.
Section 9. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . 10.
Section 10. ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . 10.
Section 11. TREASURER. . . . . . . . . . . . . . . . . . . . . . . . 11.
Section 12. ASSISTANT TREASURER. . . . . . . . . . . . . . . . . . . 11.
ARTICLE V
CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . 11.
Section 1. CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . 11.
Section 2. SIGNATURES ON CERTIFICATES. . . . . . . . . . . . . . . . 11.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES AND PRIVILEGES . . 12.
Section 4. LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . 12.
Section 5. TRANSFERS OF STOCK. . . . . . . . . . . . . . . . . . . . 12.
Section 6. FIXING THE RECORD DATE. . . . . . . . . . . . . . . . . . 12.
Section 7. REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . 13.
ARTICLE VI
GENERAL PROVISIONS; DIVIDENDS . . . . . . . . . . . . . . . . . . . . 13.
Section 1. DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . 13.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES . . . . . . . . . 13.
Section 3. CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . 13.
Section 4. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . 13.
Section 5. CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . 13.
Section 6. MANNER OF GIVING NOTICE . . . . . . . . . . . . . . . . . 13.
Section 7. WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . 14.
Section 8. ANNUAL STATEMENT. . . . . . . . . . . . . . . . . . . . . 14.
ARTICLE VII
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS . . . . . . . . . 14.
ii
<PAGE>
BY-LAWS
OF
N-T HOLDINGS, INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders shall
be held in the City of Cypress, State of California, at such place as may be
fixed from time to time by the Board of Directors, or at such other place
either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors and stated in the notice of the
meeting.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on the first Wednesday in March, if not
a legal holiday, and if a legal holiday, then on the next secular day
following, at 10:00 a.m. or at such other date and time as may be determined
from time to time by resolution adopted by the Board of Directors, when they
shall elect by a plurality vote of the Board of Directors, and transact such
other business as may properly be brought before the meeting. At each annual
meeting Directors shall be elected and any other proper business transacted.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority
of the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
By-Laws. A quorum, once established, shall not be broken by the withdrawal
of enough votes to leave less than a quorum and the votes present may
continue to transact business until adjournment. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, a
majority of the voting stock represented in person or by proxy may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may
1.
<PAGE>
be transacted at the meeting as originally notified. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes, or the Certificate of Incorporation, or these By-Laws, a different
vote is required in which case such express provision shall govern and
control the decision of such question.
Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize
another person or persons to act for him by proxy appointed by an instrument
in writing subscribed by such stockholder and bearing a date not more than
three years prior to said meeting, unless said instrument provides for a
longer period. All proxies must be filed with the Secretary of the
Corporation at the beginning of each meeting in order to be counted in any
vote at the meeting. Each stockholder shall have one vote for each share of
stock having voting power, registered in his name on the books of the
Corporation on the record date set by the Board of Directors as provided in
Article V, Section 6 hereof. All elections shall be had and all questions
decided by a plurality vote.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be
called by the President or the Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
Corporation issued and outstanding, and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted
at any special meeting of stockholders shall be limited to the purposes
stated in the notice.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of
the meeting shall be given which notice shall state the place, date and hour
of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. The written notice of any meeting
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of
the Corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer
who has charge of the stock ledger of the Corporation shall prepare and make,
at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each
2.
<PAGE>
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise provided in the Certificate of Incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND QUALIFICATION OF DIRECTORS. The number of Directors
which shall constitute the whole Board shall be not less than five (5) nor more
than twelve (12). The Board shall initially consist of twelve (12) members.
The Directors need not be stockholders. The Directors shall be elected at the
annual meeting of the stockholders, except as provided in Section 2 of this
Article, and each Director elected shall hold office until his successor is
elected and qualified; provided, however, that unless otherwise restricted by
the Certificate of Incorporation or By-Law, any Director or the entire Board of
Directors may be removed, either with or without cause, from the Board of
Directors at any meeting of stockholders by a majority of the stock represented
and entitled to vote thereat.
Section 2. VACANCIES. Vacancies on the Board of Directors by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created Directorships resulting from any increase in the
authorized number of Directors may be filled by a majority of the Directors then
in office, although less than a quorum, or by a sole remaining Director. The
Directors so chosen shall hold office until the next annual election of
Directors and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no Directors in office, then an election of
Directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created Directorship, the Directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number
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of the shares at the time outstanding having the right to vote for such
Directors, summarily order an election to be held to fill any such vacancies
or newly created Directorships, or to replace the Directors chosen by the
Directors then in office.
Section 3. POWERS. The property and business of the Corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
power and authorities by these By-Laws expressly conferred upon them, the Board
may exercise all such powers of the Corporation and do all lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
Section 4. PLACE OF DIRECTORS' MEETINGS. The Directors may hold their
meetings and have one or more offices, and keep the books of the Corporation
outside of the State of Delaware.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President on forty-eight hours' notice to each Director,
either personally or by mail or by telegram; special meetings shall be called by
the President or the Secretary in like manner and on like notice on the written
request of two Directors unless the Board consists of only one Director; in
which case special meetings shall be called by the President or Secretary in
like manner or on like notice on the written request of the sole Director.
Section 7. QUORUM. At all meetings of the Board of Directors a majority
of the authorized number of Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the Directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these By-Laws. If a
quorum shall not be present at any meeting of the Board of Directors the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
If only one Director is authorized, such sole Director shall constitute a
quorum.
Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any Committee thereof
may be taken without a meeting, if all members of the Board or Committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or Committee.
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Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any Committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any Committee, by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meetings can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 10. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
Committees, each such Committee to consist of one or more of the Directors of
the Corporation. The Board may designate one or more Director(s) as alternate
members of any Committee, who may replace any absent or disqualified member at
any meeting of the Committee. In the absence or disqualification of a member of
a Committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
Committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such Committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
Committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 11. MINUTES OF COMMITTEE MEETINGS. Each Committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, the Board of Directors shall have
the authority to fix the compensation of Directors. The Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as Director. No such payment shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing Committees may be allowed
like compensation for attending Committee meetings.
Section 13. INDEMNIFICATION.
(a) The Corporation shall indemnify any person who was or is a party or is
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threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a Director, officer, employee or agent of the
Corporation, or is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonable incurred by him in connection with such action, suit or
proceedings if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no such indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such Court of Chancery or such other court
shall deem proper.
(c) To the extent that a Director, officer, employee or agent of the
Corporation, shall be successful on the merits or otherwise in defense, of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the Director, officer, employee or
agent is proper in the circumstances
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because he has met the applicable standard of conduct set forth in paragraphs
(a) and (b). Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of Directors who were not parties
to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) The corporation shall advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director, officer, employee or agent in connection with such proceeding upon
receipt of an undertaking by or on behalf of such person to repay said amounts
if it should be determined ultimately that such person is not entitled to be
indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to Section
13(e), no advance shall be made by the corporation to an officer, employee or
agent of the corporation (except by reason of the fact that such person is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(f) The indemnification provided by this Section 13 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the Corporation to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability
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under the provisions of this Section 13.
(h) Without the necessity of entering into an express contract, all
rights to indemnification and advances to directors, officers, employees or
agents under this Bylaw shall deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director, officer, employee or agent. Any right to
indemnification or advances granted by this Bylaw to a director, officer,
employee or agent shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request
therefor. The claimant in such enforcement action, if successful in whole or
in part, shall be entitled to be paid also the expense of prosecuting his
claim. In connection with any claim for indemnification, the corporation
shall be entitled to raise as a defense to any such action that the claimant
has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed. In connection with any claim by an officer,
employee or agent of the Corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such executive officer is or was a director of the
corporation) for advances, the corporation shall be entitled to raise a
defense as to any such action clear and convincing evidence that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct. In any suit brought
by any person to enforce a right to indemnification or to an advancement of
expenses hereunder, the burden of proving that such person is not entitled to
be indemnified, or to such advancement of expenses, under this Section 13 or
otherwise shall be on the corporation.
(i) For the purposes of this Section 13, references to "the
Corporation" shall include, in addition to the resulting Corporation, any
constituent Corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its Directors, officers, and
employees or agents, so that any person who is or was a Director, officer,
employee or agent of such constituent Corporation, or is or was serving at
the request of such constituent Corporation as a Director, officer, employee
or agent of another Corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the
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provisions of this Section with respect to the resulting or surviving
Corporation as he would have with respect to such constituent Corporation if
its separate existence had continued.
(j) For purposes of this Section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the Corporation" shall include
service as a Director, officer, employee or agent of the Corporation which
imposes duties on or involves services by such Director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Section.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this Corporation shall be chosen
by the Board of Directors and shall include a President, a Secretary and a
Treasurer. The Corporation may also have at the discretion of the Board of
Directors such other officers as are desired, including a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 3 hereof. In the event there are
two or more Vice Presidents, then one or more may be designated as Executive
Vice President, Senior Vice President, or other similar or dissimilar title.
At the time of the election of officers, the Directors may by resolution
determine the order of their rank. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these By-Laws
otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers
of the Corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers and
agents of the Corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the
Corporation shall hold office until their successors are chosen and qualify in
their stead. Any officer elected or appointed by the Board of Directors may be
removed at any time by the
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affirmative vote of a majority of the Board of Directors. If the office of
any officer or officers becomes vacant for any reason, the vacancy shall be
filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at all meetings of the
Board of Directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the Board of Directors or
prescribed by these By-Laws. If there is no President. the Chairman of the
Board shall in addition be the Chief Executive Officer of the Corporation and
shall have the powers and duties described in Section 7 of this Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there
be such an officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of
the Corporation. He shall preside at all meetings of the stockholders and,
in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. He shall be an ex-officio member of all
Committees and shall have the general powers and duties of management usually
vested in the office of President and Chief Executive Officer of
Corporations, and shall have such other powers and duties as may be
prescribed by the Board of Directors or these By-Laws.
Section 8. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the Vice President designated by the board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to
time may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for the standing Committees when required by the
Board of Directors. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
By-Laws. He shall keep in safe custody the seal of the Corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and
when so affixed it shall be attested by his signature or by the signature of
an Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary or, if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors or, if there be no such determination, the Assistant Secretary
designated by the Board of Directors
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shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
Section 11. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, he shall give the Corporation a bond, in such sum and
with such surety or sureties as shall be satisfactory to the board of
Directors, for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the Corporation.
Section 12. ASSISTANT TREASURER. The Assistant Treasurer or, if there
shall be more than one, the Assistant Treasurers in the order determined by
the Board of Directors or, if there be no such determination, the Assistant
Treasurer designated by the Board of Directors shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the Corporation
shall be entitled to have a certificate signed by, or signed in the name of
the Corporation by, the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer of the Corporation,
certifying the number of shares represented by the certificate owned by such
stockholder in the Corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue.
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Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES AND PRIVILEGES. If
the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualification, limitations or restrictions of
such preferences and/or rights shall be set forth in full or summarized on
the face or back of the certificate which the Corporation shall issue to
represents such class or series of stock, provided that, except as otherwise
provided in Section 202 of the General Corporation Law of Delaware, in lieu
of the foregoing requirements, there may be set forth in the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board
of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the Corporation, or
the transfer agent of the Corporation, of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 6. FIXING THE RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
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Section 7. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
in fact thereof and accordingly shall not be bound to recognize any equitable
or other claim or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS; DIVIDENDS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before payment of
any dividend there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Directors from time to time,
in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the Directors
shall think conducive to the interests of the Corporation, and the Directors
may abolish any such reserve.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these By-Laws, notice is
required to be given to any Director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such Director or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to Directors may also be given by telegram.
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Section 7. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
Section 8. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
ARTICLE VII
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These By-Laws may
be altered, amended or repealed or new By-Laws may be adopted by the
stockholders or by the Board of Directors, when such power is conferred upon
the Board of Directors by the Certificate of Incorporation, at any regular
meeting of the stockholders or of the Board of Directors or at any special
meeting of the stockholders or the Board of Directors if notice of such
alternation, amendment, repeal or adoption of new By-Laws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal
By-Laws is conferred upon the Board of Directors by the Certificate of
Incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal By-Laws.
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EXHIBIT 3.02
FIRST AMENDMENT TO BYLAWS OF
PACIFICARE HEALTH SYSTEMS
This First Amendment (the "First Amendment"), effective as of February 27,
1997, to the Bylaws (the "Bylaws") of PacifiCare Health Systems, Inc., a
Delaware corporation (the "Company") has been adopted by the board of directors
of the Company (the "Board"), at a duly held meeting with reference to the
following facts:
WHEREAS, Article II, Section 2 of the Company's Bylaws currently provides
that the annual meeting of the stockholders shall be held each year on the first
Wednesday in March, if not a legal holiday, and if a legal holiday, then on the
next secular day following, at 10:00 a.m. or at such other date and time as may
be determined from time to time by resolution adopted by the Board of Directors,
when they shall elect by a plurality vote of the Board of Directors, and
transact such other business as may properly be brought before the meeting. At
each annual meeting Directors shall be elected and any other proper business
transacted;
WHEREAS, the Board deems it to be advisable and in the best interest of the
Company to amend Article II Section 2 of the Bylaws to change the date of the
annual meeting of shareholders from the first Wednesday in March to the first
Wednesday in June beginning in 1998;
WHEREAS, Section 109(a) of the Delaware General Corporation Law permits the
board of directors of a corporation to adopt, amend or repeal the bylaws of such
corporation if the certificate of incorporation confers such power on the board
of directors;
WHEREAS, Article VIII of the Company's Amended and Restated Certificate of
Incorporation, as amended, and Article VII, Section 1, of the Bylaws permits the
Board to adopt, amend or repeal the Bylaws;
RESOLVED, that the Board deems it advisable and in the best interests of
the Company that Article II, Section 2 of the Bylaws be amended and restated to
read in its entirety as follows (the "Amendment"):
Section 2. Beginning in 1998, the annual meeting of the
stockholders shall be held each year on the first Wednesday in June,
if not a legal holiday, and if a legal holiday, then on the next
secular day following, at 10:00 a.m. or at such other date and time as
may be determined from time to time by resolution adopted by the Board
of Directors, when they shall elect by a plurality vote of the Board
of Directors, and transact
1
<PAGE>
such other business as may properly be brought before the meeting. At
each annual meeting Directors shall be elected and any other proper
business transacted
RESOLVED, that the Bylaws shall not be further amended and that the Bylaws,
as hereby amended, shall remain in full force and effect and shall be enforced
in accordance with their terms, as amended.
I, Joseph Konowiecki, hereby certify that I am the duly elected and acting
secretary of PacifiCare Health Systems, Inc., a Delaware corporation (the
"Company"), and that the foregoing First Amendment to the Bylaws of PacifiCare
Health Systems, Inc., was duly adopted by the board of directors of the Company
at a meeting duly held on February 27, 1997.
---------------------------------------
Joseph S. Konowiecki
Secretary
2
<PAGE>
EXHIBIT 4.01
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, dated as of February 14, 1997, by and
among FHP International Corporation, a Delaware corporation (the "Company")
having its principal office at 9900 Talbert Avenue, Fountain Valley,
California 92708, PacifiCare Health Systems, Inc., a Delaware corporation,
formerly known as N-T Holdings, Inc. ("PacifiCare") having its principal
office at 5995 Plaza Drive, Cypress, California 90630, and The Chase
Manhattan Bank ("Trustee"), a New York banking corporation having its
Corporate Trust Office at 450 W. 33rd Street 15th Floor, New York, New York
10001 (successor in interest to The Chase Manhattan Bank, N.A.), as Trustee
under the Indenture hereinafter mentioned.
WHEREAS, by an Indenture dated as of September 22, 1993 ("Indenture")
between the Company and the Trustee, the Company provided for the issuance of
its 7% Senior Notes due 2003 (the "Notes"), in the aggregate principal amount
of one hundred million dollars ($100,000,000), within the provisions and upon
the terms stated in the Indenture; and
WHEREAS, the Notes were duly executed, authenticated and delivered in
the aggregate principal amount of one hundred million dollars ($100,000,000),
all of which are now outstanding in the full face amount thereof; and
WHEREAS, substantially contemporaneous herewith the Company has become a
wholly-owned subsidiary of PacifiCare through a merger transaction whereby a
subsidiary of PacifiCare has been merged into the Company (the "Merger"); and
WHEREAS, PacifiCare desires to assume, jointly and severally with the
Company, the obligation to make due and punctual payment of the principal of
(and premium, if any) and interest on the Notes now outstanding and of
certain covenants and obligations of the Company under the Indenture; and
WHEREAS, although certain sections of the Indenture refer to the rights
or obligations of obligors on the Notes other than the Company, the Indenture
does not contain any express provisions providing for the assumption of the
obligations under the Notes and the Indenture by a joint obligor with the
Company; and
WHEREAS, an ambiguity thus exists under the terms of the Indenture,
which ambiguity
1.
<PAGE>
the Company, PacifiCare and the Trustee desire to cure; and
WHEREAS, the structure of the Merger was not contemplated by the
Indenture and questions have arisen under the Indenture as to certain matters
related to the assumption of the Company's obligations under the Notes and
the Indenture by a joint obligor; and
WHEREAS, Section 901(8) of the Indenture permits the execution of a
supplemental indenture, without the consent of the Holders (as defined in the
Indenture), to cure any ambiguity, to correct or supplement any provision of
the Indenture which may be inconsistent with any other provision therein, or
to make any provision with respect to matters or questions arising under the
Indenture, provided that such action does not adversely affect the interests
of the Holders in any material respect; and
WHEREAS, because after the assumption by PacifiCare the Holders will be
entitled to look to both the Company and PacifiCare to satisfy the payment
obligations under the Notes, the Company and PacifiCare are of the view that
such assumption and the other terms set forth in this First Supplemental
Indenture do not adversely affect the interests of the Holders in any
material respect and that the execution of this First Supplemental Indenture
is authorized under Section 901(8) of the Indenture; and
WHEREAS, the Company and PacifiCare have been duly authorized by
resolutions of their respective Boards of Directors to enter into, execute
and deliver this First Supplemental Indenture providing for such assumption;
and
WHEREAS, all action required to make this First Supplemental Indenture a
valid and binding instrument has been duly taken and performed.
NOW, THEREFORE, the Indenture is hereby amended and supplemented as
hereinafter provided.
ARTICLE I
ASSUMPTION OF PAYMENT OBLIGATIONS BY PACIFICARE
SECTION 1.1 PacifiCare hereby expressly assumes, jointly and
severally with the Company, the due and punctual payment of the principal of
(and premium, if any) and interest on the outstanding Notes in accordance
with the terms of the Notes and the Indenture when
2.
<PAGE>
and as the same become due and payable (whether at the stated maturity
thereof or at such earlier dates, if any, as such Notes become due and
payable by reason of redemption or otherwise or acceleration upon default).
ARTICLE II
AMENDMENTS
SECTION 2.1 In Section 101 of the Indenture, the definition of
"Discharged" is amended by inserting "and PacifiCare" after "the Company" in the
first line thereof.
SECTION 2.2 Section 106 of the Indenture is amended by adding thereto
the following paragraph:
"(3) PacifiCare by the Trustee, the Company or any Holder shall be
sufficient for every purpose hereunder if in writing and mailed, first
class postage prepaid, to PacifiCare at PacifiCare Health Care Systems,
Inc., 5995 Plaza Drive, Cypress, California 90630 or at any other address
previously furnished in writing to the Trustee by PacifiCare, Attention:
Treasurer."
SECTION 2.3 Section 401(a) of the Indenture is amended by deleting "the
Company" in the first line thereof and substituting therefor "Each of the
Company and PacifiCare" and by adding "and PacifiCare's rights and obligations
under Section 404" after the reference to Section 607 in the third line thereof.
SECTION 2.4 The first paragraph of Section 401(b) of the Indenture is
amended by deleting "the Company" and "the Company's" wherever they appear
therein and substituting therefor "each of the Company and PacifiCare" or "each
of the Company's and PacifiCare's". In addition, the phrase "to the extent
applicable," shall be added in the ninth line after the reference to Section
1010. Sections 401(b)(1) through (6) are each amended by inserting "or
PacifiCare" after "Company" wherever it appears in each of those Sections.
SECTION 2.5 Section 403 of the Indenture shall be amended by inserting
"or PacifiCare" after "the Company" wherever it appears, by inserting "or
PacifiCare Request, as applicable," after "Company Request" in the third line
thereof and by adding to the end of such section the following:
3.
<PAGE>
"For purposes of this Section 403, the term PacifiCare Request' shall
have the same meaning with respect to PacifiCare as the term Company
Request' has with respect to the Company under the definition of Company
Request" in Section 101 of the Indenture."
SECTION 2.6 Section 404 of the Indenture is amended by inserting "and
PacifiCare's" after "the Company's" in the sixth line thereof and inserting "or
PacifiCare" after "Company" wherever it appears in such Section.
SECTION 2.7 Sections 501(3), (4), (5), (6) and (7) of the Indenture are
each amended by inserting "or PacifiCare" after "Company" wherever it appears in
each of those Sections.
SECTION 2.8 Section 502 of the Indenture is amended by inserting "or
PacifiCare" or "or PacifiCare's" after "Company" or "Company's", as appropriate,
wherever they appear in that Section.
SECTION 2.9 Section 509 of the Indenture is amended by inserting
"PacifiCare," after "Company," in the sixth line thereof.
SECTION 2.10 Section 515 of the Indenture is amended by deleting "The
Company" in the first line thereof and substituting therefor "Each of the
Company and PacifiCare", and by deleting "the Company" in the seventh line
thereof and substituting therefor "each of the Company and PacifiCare".
SECTION 2.11 Section 704 of the Indenture is amended by deleting the text
of such Section in its entirety and inserting in its stead the following:
"PacifiCare shall:
(1) file with the Trustee, within 15 days after PacifiCare is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which PacifiCare may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if PacifiCare is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary
4.
<PAGE>
and periodic information, documents and reports which may be required
pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations; and
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
PacifiCare with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations."
SECTION 2.12 Section 902 of the Indenture is amended by inserting
"PacifiCare, when authorized by a Board Resolution of PacifiCare," after
"Resolution".
SECTION 2.13 Section 1004 of the Indenture is amended by inserting "(a)"
after "Article Eight of this Indenture", in the first line thereof, and by
adding thereto the following paragraph:
"(b) PacifiCare will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
(charter and statutory) and franchises; PROVIDED, HOWEVER, that PacifiCare
shall not be required to preserve any such right or franchise if PacifiCare
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of PacifiCare and that the loss thereof is not
disadvantageous in any material respect to the Holders."
SECTION 2.14 Section 1005 of the Indenture is amended by inserting "(a)"
before "The" in the first line thereof, and by adding thereto the following
paragraph:
"(b) PacifiCare will cause all Property used or useful in the conduct
of its business or the business of any Subsidiary to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment
of PacifiCare may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times; PROVIDED, HOWEVER, that nothing in this Section shall prevent
PacifiCare from discontinuing the operation or maintenance of or disposing
of any of such properties if such discontinuance or disposition is, in the
judgment of PacifiCare, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect
to the Holders. For purposes of this Section 1005(b), the term
5.
<PAGE>
'Subsidiary' shall have the same meaning with respect to PacifiCare as it
has with respect to the Company under the definition of 'Subsidiary' in
Section 101 of the Indenture."
SECTION 2.15 Section 1006 of the Indenture is amended by inserting "(a)"
before "The" in the first line thereof, and by adding thereto the following
paragraph:
"(b) PacifiCare will pay or discharge or cause to be paid or
discharged, before this same shall become delinquent, (1) all taxes,
assessments and governmental charges levied or imposed upon PacifiCare or
any Subsidiary or upon the income, profits and property in its direct
custody and operating control, and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien upon
the Property of PacifiCare or any Subsidiary; PROVIDED, HOWEVER, that
PacifiCare shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings. For purposes of this Section 1006, the term 'Subsidiary'
shall have the same meaning with respect to PacifiCare as it has with
respect to the Company under the definition of 'Subsidiary' in Section 101
of the Indenture."
ARTICLE III
ENDORSEMENT AND CHANGE OF FORM OF NOTES
SECTION 3.1 Pursuant to Section 906 of the Indenture, Notes
authenticated and delivered after the date of execution hereof in exchange or
substitution for Notes then outstanding and all Notes presented or delivered to
the Trustee on and after that date for such purpose shall have stamped or
typewritten by the Trustee or have printed thereto the following notation in
addition to, and not in lieu of, any other notations set forth thereon:
PacifiCare has assumed, jointly and severally with the Company, the due and
punctual payment of the principal of (and premium, if any) and interest on
the Notes, pursuant to a First Supplemental Indenture, dated as of January
___, 1997 among the Company, PacifiCare and The Chase Manhattan Bank as
Trustee under the within mentioned Indenture.
SECTION 3.2 Notwithstanding anything to the contrary contained herein,
the Trustee shall not at any time be obligated to require or cause Notes to be
presented or delivered to it
6.
<PAGE>
for any purpose provided for in this Article III.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 This First Supplemental Indenture shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with such laws.
SECTION 4.2 This First Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original and all of which
shall constitute one and the same instrument.
SECTION 4.3 This First Supplemental Indenture is executed and shall be
construed as an indenture supplemental to the Indenture and shall form a part
thereof, and the Indenture, subject to the provisions in this First Supplemental
Indenture, is hereby confirmed.
SECTION 4.4 The recitals contained herein shall be taken as statements
of the Company and PacifiCare, as appropriate, and the Trustee assumes no
responsibility for their correctness.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto duly affixed and attested, all as of the date and year first above
written.
[SEAL] FHP INTERNATIONAL CORPORATION
Attest:
By:
-----------------------------------------
Its:
-----------------------------------------
[SEAL] PACIFICARE HEALTH SYSTEMS, INC.
Attest:
By:
-----------------------------------------
Its:
-----------------------------------------
7.
<PAGE>
[SEAL] THE CHASE MANHATTAN BANK
Attest:
By:
-----------------------------------------
Its:
-----------------------------------------
8.
<PAGE>
Exhibit 11A
PacifiCare Health Systems, Inc.
Computation of Net Income per Share of Common Stock -
Primary
(Dollars and shares in thousands, except per share data)
Three months ended
March 31,
------------------------
1997 1996
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Net income $ 43,494 $ 31,869
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Shares outstanding at the beginning of the period 31,302 30,987
Weighted average number of shares issued during the
period in connection with:
Issuance of common shares in connection
with FHP acquisition 4,842 -
Exercise of stock options 217 48
Dilutive shares issuable:
Net of shares assumed to have been purchased
(at the average market price) for treasury with
assumed proceeds from the contingent exercise of
stock options and registered equity purchase
contracts 633 723
Assumed conversion of Series A Cumulative
Convertible Preferred Stock on date of issuance 1,987 -
- - ------------------------------------------------------------------------------
Total shares - primary 38,981 31,758
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Primary earnings per share $ 1.12 $ 1.01
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<PAGE>
Exhibit 11B
PacifiCare Health Systems, Inc.
Computation of Net Income per Share of Common Stock -
Fully Diluted
(Dollars and shares in thousands, except per share data)
Three months ended
March 31,
------------------------------
1997 1996
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Net income $ 43,494 $ 31,869
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Shares outstanding at the beginning of
the period 31,302 30,987
Weighted average number of shares issued during
the period in connection with:
Issuance of common shares in connection
with FHP acquisition 4,842 -
Exercise of stock options 217 48
Dilutive shares issuable:
Net of shares assumed to have been
purchased (at the greater of ending or
average market price) for treasury with
assumed proceeds from the contingent
exercise of stock options and registered
equity purchase contracts 685 724
Assumed conversion of Series A Cumulative
Convertible Preferred Stock on date of
issuance 1,987 -
- - ------------------------------------------------------------------------------
Total shares - fully diluted 39,033 31,759
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
Fully diluted earnings per share $ 1.11 $ 1.01
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from PacifiCare
Health System Inc.'s condensed consolidated financial statements as of and for
the three months ended March 31, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 228,915
<SECURITIES> 776,845
<RECEIVABLES> 348,950
<ALLOWANCES> 489
<INVENTORY> 0
<CURRENT-ASSETS> 1,580,304
<PP&E> 319,912
<DEPRECIATION> 101,582
<TOTAL-ASSETS> 4,729,255
<CURRENT-LIABILITIES> 1,255,058
<BONDS> 0
0
105
<COMMON> 417
<OTHER-SE> 2,101,796
<TOTAL-LIABILITY-AND-EQUITY> 4,729,255
<SALES> 0
<TOTAL-REVENUES> 1,843,603
<CGS> 0
<TOTAL-COSTS> 1,547,655
<OTHER-EXPENSES> 224,833
<LOSS-PROVISION> 1,690
<INTEREST-EXPENSE> 9,719
<INCOME-PRETAX> 79,081
<INCOME-TAX> 35,587
<INCOME-CONTINUING> 43,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,494
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.11
</TABLE>
