UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5975
HUMANA INC.
(Exact name of registrant as specified in its charter)
Delaware 61-0647538
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 West Main Street, Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
(502) 580-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock May 9, 1996
$.16 2/3 par value 162,395,085 shares
1 of 15
Form 10-Q
Humana Inc.
March 31, 1996
Page of
Form 10-Q
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Income for
the quarters ended March 31, 1996 and 1995 3
Condensed Consolidated Balance Sheet at March 31, 1996
and December 31, 1995 4
Condensed Consolidated Statement of Cash Flows for the
quarters ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Part II: Other Information
Items 1 to 6 13-15
Exhibits
Exhibit 10(a) Placement Agency Agreement between Humana Inc.
and Merrill Lynch Money Markets Inc. dated
February 20, 1996
Exhibit 10(b) Placement Agency Agreement between Humana Inc.
and Chemical Securities Inc. dated March 6, 1996
Exhibit 12 Ratio of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule
Condensed Consolidated Statement of Income
Humana Inc.
For the quarters ended March 31, 1996 and 1995
Unaudited
(Dollars in millions except per share results)
<TABLE>
<S> <C> <C>
1996 1995
Revenues:
Premiums $1,560 $1,025
Interest 25 19
Other income 3 4
Total revenues 1,588 1,048
Operating expenses:
Medical costs 1,274 826
Selling, general and administrative 203 125
Depreciation and amortization 25 15
Total operating expenses 1,502 966
Income from operations 86 82
Interest expense 5 2
Income before income taxes 81 80
Provision for income taxes 28 27
Net income $ 53 $ 53
Earnings per common share $ .32 $ .32
Shares used in earnings per common
share computation (000) 162,379 162,040
</TABLE>
See accompanying notes.
Condensed Consolidated Balance Sheet
Humana Inc.
Unaudited
(Dollars in millions except per share amounts)
<TABLE>
March 31, December 31,
<S> <C> <C>
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 279 $ 182
Marketable securities 1,186 1,156
Premiums receivable, less allowance
for doubtful accounts
$40 - March 31, 1996 and
$36 - December 31, 1995 135 131
Other 162 124
Total current assets 1,762 1,593
Long-term marketable securities 158 180
Property and equipment, net 381 382
Cost in excess of net assets acquired 533 536
Other 180 187
Total assets $3,014 $2,878
Liabilities and Common Stockholders' Equity
Current liabilities:
Medical costs payable $ 936 $ 866
Trade accounts payable and accrued expenses 299 291
Income taxes payable 65 35
Total current liabilities 1,300 1,192
Long-term debt 230 250
Professional liability and other obligations 152 149
Total liabilities 1,682 1,591
Contingencies
Common stockholders' equity:
Common stock, $.16 2/3 par; authorized
300,000,000 shares; issued and outstanding
162,260,071 shares - March 31, 1996 and
162,099,403 shares - December 31, 1995 27 27
Other 1,305 1,260
Total common stockholders' equity 1,332 1,287
Total liabilities and common
stockholders' equity $3,014 $2,878
</TABLE>
See accompanying notes.
Condensed Consolidated Statement of Cash Flows
Humana Inc.
For the quarters ended March 31, 1996 and 1995
Unaudited
(Dollars in millions)
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net income $ 53 $ 53
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25 15
Changes in operating assets and liabilities 89 108
Other (5) (2)
Net cash provided by operating activities 162 174
Cash flows from investing activities:
Purchases and dispositions of property and
equipment, net (13) (12)
Change in marketable securities (33) 22
Net cash (used in) provided by
investing activities (46) 10
Cash flows from financing activities:
Repayment of long-term debt (20)
Other 1 3
Net cash (used in) provided by financing activities (19) 3
Increase in cash and cash equivalents 97 187
Cash and cash equivalents at beginning of period 182 272
Cash and cash equivalents at end of period $ 279 $ 459
Interest payments $ 4 $ 1
Income tax payments, net 2
</TABLE>
See accompanying notes.
Notes To Condensed Consolidated Financial Statements
Humana Inc.
Unaudited
(A) Basis of Presentation
The accompanying condensed consolidated financial statements are presented
in accordance with the requirements of Form 10-Q and consequently do not
include all of the disclosures normally required by generally accepted
accounting principles or those normally made in an annual report on
Form 10-K. Accordingly, for further information, the reader of this Form
10-Q may wish to refer to the Form 10-K of Humana Inc. (the "Company")
for the year ended December 31, 1995.
The preparation of the Company's condensed consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect (a) the reported
amounts of assets and liablities, (b) disclosure of contingent assets and
liabilities at the date of the financial statements and (c) reported amounts
of revenues and expenditures during the reporting period. Actual results
could differ from those estimates.
The financial information has been prepared in accordance with the Company's
customary accounting practices and has not been audited. In the opinion of
management, the information presented reflects all adjustments necessary for
a fair statement of interim results. All such adjustments are of a normal
and recurring nature.
(B) Contingencies
The Company's Medicare risk contracts with the federal government are renewed
for a one-year term each December 31 unless terminated 90 days prior thereto.
Current legislative proposals are being considered which include modification
of future reimbursement rates under the Medicare program and proposals which
encourage the use of managed health care for Medicare beneficiaries.
Management is unable to predict the outcome of these proposals or the impact
they may have on the Company's financial position, results of operations or
cash flows. The loss of these contracts or significant changes in the
Medicare risk program as a result of legislative action, including reductions
in payments or increases in benefits without corresponding increases in
payments, would have a material adverse affect on the revenues, profitability
and business prospects of the Company. Effective January 1, 1996, the
average rate of increase under these contracts approximated 8 percent, a
significant portion of which is expected to be paid to the Company's
providers. Over the last five years, annual increases have ranged from as
low as 3 percent in January 1994 to as high as 12 percent in January 1993,
with an average of approximately 7 percent.
The Company will begin providing managed health care services on July 1,
1996 pursuant to a potential five-year $3.8 billion contract (a one-year
contract renewable annually for up to four additional years at approximately
$750 million per year) with the United States Department of Defense under
the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS).
The use of managed health care under the CHAMPUS is a new program and this
is the Company's first endeavor operating under Department of Defense
guidelines. Management is unable to determine the Company's future degree
of success in managing the implementation and delivery of services under
the CHAMPUS contract, and what effect, if any, this contract may have on
the Company's results of operations, financial position or cash flows.
Resolution of various loss contingencies, including litigation pending
against the Company in the ordinary course of business, is not expected to
have a material adverse effect on the Company's results of operations,
financial position or cash flows.
(C) Subsequent Event
During April 1996, the Company implemented and began issuing debt under a
commercial paper program, which is backed by the Company's existing $600
million revolving credit agreement.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This discussion and analysis contains both historical and forward
looking information. The forward looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Forward looking statements may be significantly impacted by
certain risks and uncertainties described herein, and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
There can be no assurance that the Company can duplicate its past
performance or that expected future results will be achieved.
Introduction
The Company offers managed health care products which integrate management
with the delivery of health care services through a network of providers,
who in their delivery of quality medical services, may share financial risk
or have incentives to deliver cost-effective medical services. These
products are marketed primarily through health maintenance organizations
("HMO's") and preferred provider organizations ("PPOs") that encourage or
require the use of contracting providers. HMOs and PPOs control health care
costs by various means including the use of utilization controls such as
pre-admission approval for hospital inpatient services and pre-authorization
of outpatient surgical procedures.
The Company's HMO and PPO products are marketed primarily to employer and
other groups ("Commercial") as well as Medicare and Medicaid-eligible
individuals. The products marketed to Medicare-eligible individuals are
either HMO products that provide managed care services which include
all Medicare benefits and, in certain circumstances, additional managed
care services that are not included in Medicare benefits ("Medicare risk")
or indemnity insurance policies that supplement Medicare benefits
("Medicare supplement").
Results of Operations
The Company's premium revenues increased 52.1 percent to $1.6 billion for
the quarter ended March 31, 1996, compared to $1.0 billion for the same
period in 1995. This increase was due primarily to the fourth quarter of
1995 acquisition of EMPHESYS Financial Group, Inc. ("EMPHESYS"). EMPHESYS'
premium revenues for the quarter ended March 31, 1996 totaled approximately
$424 million. In addition to the acquisition of EMPHESYS, premium revenues
increased as a result of same-store membership growth and premium rate
increases. Commercial product same-store membership increased to
1,797,700 from 1,664,600 for the period between March 31, 1995 and March 31,
1996, while Medicare risk membership increased to 322,300 from 292,500
during the same period. The Commercial membership growth was the result of
increases during the last three quarters of 1995. The Medicare risk premium
rate increased approximately 8.0 percent but was partially offset by
Commercial premium rate reductions of 1.8 percent. The weighted average
Medicare risk premium rate increase for calendar year 1996 will approximate
8 percent. Management anticipates that the 1996 weighted average Commercial
premium rates for calendar year 1996 will decline 1 to 2 percent.
Membership in the Company's Commercial products decreased 21,000 during the
first quarter ended March 31, 1996 compared to an increase of 136,300 for
the same period in 1995. The decrease is primarily the result of the loss
of approximately 50,000 members related to one customer group as well as
the Company's plan to price its products based on costs trends. Medicare
risk members increased by 11,900 during the first quarter compared to 5,100
for the same period in 1995. The Medicare risk membership growth is primarily
the result of sales in new Medicare markets. Given the highly competitive
Commercial pricing environment and the Company's intention to price it's
Commercial products based on cost trends, management anticipates Commercial
product membership gains of approximately 4 percent for calendar year 1996.
Medicare risk membership gains are expected to approximate 12 to 14 percent.
The medical loss ratio for the quarter ended March 31, 1996 was 81.7
percent compared to 80.6 percent for the same period in 1995. The increase
was concentrated in the Company's Commercial product and was the result
of declining premium rates combined with increasing outpatient hospital
and physician services costs. Although the Company is continuing its
efforts to control medical costs, given the competitive pricing environment
and lack of improving medical cost trends, the Company's medical loss ratio
is not expected to improve during the remainder of 1996. The Company has
also experienced substantially greater than expected costs in its
Washington, D.C. market as well as markets where significant growth
occurred during 1995 (service area expansion markets). Management is
currently evaluating more stringent cost control initiatives and strategic
alternatives in its Washington, D.C. and service area expansion markets.
The administrative cost ratio was 14.7 percent and 13.7 percent for the
quarters ended March 31, 1996 and 1995, respectively. The increase was due
to higher administrative costs associated with EMPHESYS' small group
business. Management anticipates that the administrative cost ratio will be
flat to slightly down sequentially for the remainder of 1996.
Interest income totaled $25 million and $19 million for the quarters ended
March 31, 1996 and 1995, respectively. The increase is primarily
attributable to increased levels of cash, cash equivalents and marketable
securities and the addition of EMPHESYS' portfolio. The tax equivalent
yield on invested assets approximated 8 percent for each of the quarters
ended March 31, 1996 and 1995.
The Company's income before income taxes totaled $81 million for the quarter
ended March 31, 1996, compared to $80 million for the quarter ended March 31,
1995. Net income was $53 million or $.32 per share for each of the quarters
ended March 31, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Liquidity
Cash provided by the Company's operations totaled $162 million and $174
million for the quarters ended March 31, 1996 and 1995, respectively.
Net income for both periods was flat while increased depreciation and
amortization during the period ended March 31, 1996, was offset by a
reduction in cash provided by changes in operating assets and liabilities.
Changes in operating assets and liabilities relate to the timing of receipts
and disbursements for premiums receivable, medical
costs, unearned premiums and other liabilities.
During the quarter ended March 31, 1996, the Company repaid $20 million of
amounts outstanding under its revolving credit agreement using cash from
operations.
The Company's subsidiaries operate in states which require certain levels of
equity and regulate the payment of dividends to the parent company. As a
result, the Company's ability to use operating subsidiaries' cash flows is
restricted to the extent that the subsidiaries' ability to pay dividends to
their parent company requires regulatory approval.
During April 1996, the Company implemented and began issuing debt under a
commercial paper program, which is backed by the Company's existing $600
million revolving credit agreement. Management anticipates the commercial
paper program will provide additional sources of borrowing, greater
flexibility and rates possibly more favorable than those under the revolving
credit agreement.
Management believes that existing working capital, future operating cash
flows, and the availability of the Company's commercial paper program and
revolving credit agreement are sufficient to not only meet future liquidity
needs and fund capital requirements, but also should facilitate the
Company's pursuing acquisition and expansion opportunities.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Capital Resources
The Company's ongoing capital expenditures relate primarily to the addition
or expansion of medical care facilities used by either employed or affiliated
physicians as well as administrative facilities and related computer
information systems necessary for activities such as claims processing,
billing and collections, medical utilization review and customer service.
Excluding acquisitions, planned capital spending in 1996 will approximate
$65 million to $70 million compared to $54 million in 1995. Capital
spending generally relates to the expansion and improvement of medical
care facilities, administrative facilities and related computer information
systems.
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Humana Inc.
<TABLE>
<S> <C> <C>
1996 1995
Commercial members enrolled at:
March 31 2,862,900 1,664,600
June 30 1,719,300
September 30 1,780,200
December 31 2,883,900
Medicare risk members enrolled at:
March 31 322,300 292,500
June 30 296,600
September 30 304,300
December 31 310,400
Medicare supplement members enrolled at:
March 31 109,600 126,100
June 30 121,900
September 30 119,100
December 31 115,000
Administrative services members enrolled at:
March 31 444,700 228,400
June 30 264,400
September 30 262,800
December 31 495,100
Total medical members enrolled at:
March 31 3,739,500 2,311,600
June 30 2,402,200
September 30 2,466,400
December 31 3,804,400
</TABLE>
Humana Inc.
Part II: Other Information
Items 1 - 3:
None
Item 4: Submission of Matters to a Vote of Security Holders
(a) The regular annual meeting of stockholders of Humana
Inc. was held in Louisville, Kentucky on May 9, 1996
for the purpose of electing the board of directors and
voting on a new stock incentive plan for employees.
(b) Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act
of 1934 and there was no solicitation in opposition to
management's solicitations. All of management's nominees
for directors were elected and the stock
incentive plan for employees was approved.
(c) Two proposals were submitted to a vote of security
holders as follows:
(1) The stockholders approved the election of
the following persons as directors of the Company:
Name For Withheld
<TABLE>
<S> <C> <C>
K. Frank Austen, M.D. 139,055,592 653,905
Michael E. Gellert 139,030,418 679,079
John R. Hall 139,053,237 656,260
David A. Jones 139,054,350 655,147
David A. Jones, Jr. 139,038,018 671,479
Irwin Lerner 139,044,602 664,895
W. Ann Reynolds, Ph.D 139,054,316 655,181
Wayne T. Smith 139,064,558 644,939
</TABLE>
(2) The stockholders approved with 118,849,118
affirmative votes, 20,247,351 negative
votes, and 613,028 abstentions, the proposal
to adopt the Company's 1996 Stock
Incentive Plan for Employees.
Item 5:
None
Humana Inc.
Part II: Other Information, continued:
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10(a) - Placement Agency Agreement between Humana Inc.
and Merrill Lynch Money Markets Inc.
dated February 20, 1996, filed herewith.
Exhibit 10(b) - Placement Agency Agreement between Humana Inc.
and Chemical Securities Inc. dated
March 6, 1996, filed herewith.
Exhibit 12 - Statement re: Computation of Ratio of Earnings
to Fixed Charges, filed herewith.
Exhibit 27 - Financial Data Schedule, filed herewith.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
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.
HUMANA INC.
Date: May 15, 1996 /s/ James E. Murray
James E. Murray
Vice President-Finance
(Principal Accounting Officer)
Date: May 15, 1996 /s/ Arthur P. Hipwell
Arthur P. Hipwell
Senior Vice President and
General Counsel
PLACEMENT AGENCY AGREEMENT
PLACEMENT AGENCY AGREEMENT dated as of February
20, 1996 between Humana Inc., a Delaware corporation (the
"Company"), and MERRILL LYNCH MONEY MARKETS INC., a
Delaware corporation ("Merrill Lynch").
W I T N E S S E T H:
WHEREAS, the Company has requested Merrill Lynch to act as
the agent of the Company for the private placement to accredited
investors of the Company's unsecured notes with maturities of up to 270
days from date of issue (the "Notes").
WHEREAS, the Notes will be represented by either individual
note certificates ("Certificated Notes") or a master note of the Company.
Individual Notes shall be issued substantially in the form of Exhibit A-1 or
A-2 hereto, while master notes shall be issued substantially in the form of
Exhibit B-1 or Exhibit B-2 hereto. Notes represented by a master note
shall be referred to herein as "Book-Entry Notes."
WHEREAS, Merrill Lynch has indicated its willingness to act as
agent of the Company in the private placement of the Notes, subject to the
satisfactory completion of such investigation and inquiry into the
Company's business as Merrill Lynch deems appropriate under the
circumstances.
NOW THEREFORE, in consideration of the premises, the parties
agree as follows:
1. Appointment as Placement Agent. (a) The Company appoints
Merrill Lynch as one of its placement agents for the Notes and
acknowledges that Merrill Lynch shall have the right to assist the
Company in the placement of the Notes during the term of this Agreement
in conjunction with Company's other placement agents. The Company
agrees that during the period Merrill Lynch is acting as the Company's
placement agent hereunder, the Company shall not, except through its
co-placement agents, directly contact or solicit potential investors to
purchase the Notes or engage any person or party to assist in the
placement of Notes. While Merrill Lynch shall not have any obligation to
purchase, as principal, Notes from the Company under any circumstances,
Merrill Lynch may, from time to time, in its sole discretion purchase
Notes, as principal, from the Company.
(b) The Company and Merrill Lynch agree that any Notes
the placement of which Merrill Lynch arranges or which are purchased by
Merrill Lynch shall be placed or purchased by Merrill Lynch in reliance on
the representations, warranties, covenants and agreements of the
Company contained herein and on the terms and conditions and in the
manner provided herein.
(c) The Notes will be issued pursuant to an issuing and
paying agency agreement (the "Issuing and Paying Agreement ") between
Chase Manhattan Bank, as issuing and paying agent (the "Issuing and
Paying Agent") and the Company. The Company will not amend the
Issuing and Paying Agency Agreement without giving Merrill Lynch prior
notice and a copy of such amendment. The Notes will be issued in such
face or principal amounts (but not less than $250,000 each), and will bear
such interest rates (if interest-bearing), or will be sold at such discounts,
from their face amounts, as shall be mutually agreed to by the Company
and Merrill Lynch at the time of each proposed purchase or placement.
(d) Merrill Lynch shall have the right, in its discretion
reasonably exercised, to reject any proposed purchase of Notes, in whole
or in part.
(e) The Company may instruct Merrill Lynch to suspend
solicitation of purchases of Notes at any time. Upon receipt of such
instruction, Merrill Lynch will forthwith suspend solicitation until such
time as the Company has advised it that solicitation of purchases may be
resumed.
2. Offers and Sales of the Notes. The offer and sale of the Notes
by the Company is to be effected pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Act"), provided by Section 4(2) thereof and Regulation D thereunder,
which exempt transactions by an issuer not involving any public offering.
Offers and sales of the Notes by the Company will be made in accordance
with the general provisions of Rule 506 under the Act. Merrill Lynch and
the Company hereby establish the following procedures in connection with
the offer and sale or resale of the Notes:
(a) Offers and sales of the Notes will be made by the
Company only to purchasers which qualify as accredited investors (as
defined in Rule 501 (a) under the Act) (each such institutional purchaser
being hereinafter called an "accredited investor"). Resales of the Notes
will be made only to accredited investors or to institutional purchasers
which are qualified institutional buyers (as defined in Rule 144A under the
Act) (each such institutional purchaser being hereinafter called a "qualified
institutional buyer"). No Notes will be offered to natural persons.
(b) The Notes will be offered only by approaching
prospective purchasers on an individual basis. The Notes will not be
offered or sold by any means of general solicitation or general advertising.
(c) In the case of a purchaser which is acting as a fiduciary
for one or more third parties and which is not a bank as defined in Section
3(a)(2) of the Act or a savings and loan association or other institution as
described in Section 3(a)(5) of the Act (each such purchaser, a "non-bank
fiduciary"), each such third party will, in the judgment of Merrill Lynch,
after due inquiry be an accredited investor or qualified institutional buyer.
(d) No sale of the Notes to any one purchaser will be for
less than $250,000 face amount and no Note will be issued in a smaller
face amount. If the purchaser is a non-bank fiduciary acting on behalf of
others, each person for whom it is acting must purchase at least $250,000
face amount of the Notes.
(e) Each individual Note shall contain the legend set forth
on the form of such Note attached as Exhibit A-1 or A-2 hereto, stating
in effect that such Note has not been registered under the Act and that a
resale or other transfer of such Note or any interest therein shall be made
only (i) to Merrill Lynch or through Merrill Lynch to an institutional
investor approved as an accredited investor or as a qualified institutional
buyer by Merrill Lynch or (ii) to a qualified institutional buyer in a
transaction made pursuant to Rule 144A under the Act. The purpose of
this requirement is to ensure that Notes are resold or otherwise transferred
only to accredited investors or qualified institutional buyers and not in a
manner that might call into question the non-public offering character of
the offer and sale of the Notes.
(f) A Private Placement Memorandum will be made
available to each purchaser or prospective purchaser together with any
supplements to such Private Placement Memorandum which may have
been prepared by the Company. The Private Placement Memorandum will
contain a representation to the effect that the purchaser of a Note has
hadan opportunity to ask questions of, and receive answers from, the
Company concerning the offering of the Notes and to obtain copies of any
of the Company Information (as defined below) that is referred to therein
at no charge. The Private Placement Memorandum, including any
Company Information referred to therein ishereby referred to as the
"Disclosure Documents".
(g) In addition to the other requirements of this Section 2,
during any period the Company is not subject to the periodic filing
requirements of the Securities Exchange Act of 1934, the Company
agrees that, upon written request by any holder of the Notes, the
Company will provide to the holder or to a prospective purchaser
designated by the holder a copy of the Private Placement Memorandum
and(i) the Company's most recent audited balance sheet that is as of a date
less than 16 months old and audited statements of profit and loss and
retained earnings for the 12 months preceding the date of the balance
sheet, (ii) similar audited financial statements for the preceding two fiscal
years or for such shorter period as the Company has been in operation and
(iii) if the Company's most recent balance sheet is not as of a date less than
six months old, additional statements of profit and loss and retained
earnings (which may be unaudited) for the period from the date of such
balance sheet to a date as of less than six months old. The purpose of this
provision is to satisfy the conditions of paragraph (d)(4) of Rule 144A
under the Act, so that resales of the Notes may be made to qualified
institutional buyers pursuant to the exemption from registration provided
by Rule 144A. The Private Placement Memorandum and each Note shall
disclose that a holder of the Note may request, in writing, the information
specified by paragraph (d)(4) of Rule 144A in connection with an intended
sale or transfer of the Note pursuant to Rule 144A.
(h) The Company agrees to cooperate with Merrill Lynch
in the preparation of the Private Placement Memorandum and in amending
it as from time to time may be necessary. Accordingly, the Company
agrees to furnish Merrill Lynch with such information as requested to
satisfy the conditions of paragraph (d)(4) of Rule 144A under the Act.The
Company will furnish copies of its most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission (the "SEC"),
each definitive proxy statement, each report on Form 10-Q and each
report on Form 8-KAs long as any of the Notes are outstanding, the
Company will provide Merrill Lynch with copies of all annual, interim,
quarterly reports, proxy statements and registration statements which the
Company files with the SEC, copies of all reports to the rating agencies,
of all public releases or other publicly availableinformation (collectively,
"the Company Information") in such quantities as Merrill Lynch may
reasonably request.
(i) Prior to any offer or sale of Notes, Merrill Lynch shall,
with the cooperation of the Company, have the right to make such
reasonable due diligence investigation of the business of the Company as
is usual in the course of continuous offerings of debt instruments. The
Company will immediately inform Merrill Lynch in writing of any material
adverse change the condition, financial or otherwise, earnings, business
affairs, results of operations or business prospects of the Company which
(i) make or might make any statement in the Disclosure Documents false
or misleading in any material respect or (ii) are not disclosed in such
documents. In such event, Merrill Lynch shall not thereafter attempt to
offer or place any of the Notes until the Company shall have prepared and
furnished to Merrill Lynch, in such numbers as Merrill Lynch may require,
supplements to, or amendments of, the Private Placement Memorandum
reflecting any such material changes. Such supplements or amendments
shall be prepared promptly by the Company.
(j) The Company agrees to file a notice on Form D with the
Securities and Exchange Commission (the "SEC") no later than fifteen
days after the first issuance of Notes and at such other times as may be
required pursuant to Rule 503 under the Act.
(k) Merrill Lynch shall not be liable or responsible to the
Company for any losses, damages or liabilities suffered or incurred by the
Company, including any losses, damages or liabilities under the Act,
arising from or relating to any resale or transfer of a Note other than for
losses, damages or liabilities arising from Merrill Lynch's gross negligence
or willful misconduct.
3. Representations and Warranties. The Company represents and
warrants to Merrill Lynch as of the date hereof and as of each date
contemplated by Section 4 hereof that:
(a) The Disclosure Documents do not and will not include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading.
(b) The financial statements included in the Disclosure
Documents, if any, are and will be in accordance with the related books
and records of the Company and are and will be complete and correct and
fairly present in accordance with generally accepted accounting principles
the financial position of the Company and its consolidated subsidiaries as
at the dates set forth therein and the results of their operations for the
periods set forth therein. Except as set forth in the Disclosure
Documents, said financial statements have been prepared in conformity
with generally accepted accounting principles applied on a basis which is
consistent in all material respects during the periods involved. The
supporting schedules, if any, included in the financial statements present
fairly the information required to be stated therein as of the dates or for
the periods indicated.
(c) Since the respective dates as of which information is
given in the Disclosure Documents, except as may otherwise be stated or
contemplated therein or in any amendment or supplement thereto, there
has not been any material adverse change in the condition, financial or
otherwise, of the Company and its subsidiaries taken as a whole, or in the
earnings, affairs or business prospects of the Company, and its subsidiaries
taken as a whole, whether or not arising in the ordinary course of
business.
(d) The Company (i) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of corporation, and (ii) has the requisite corporate power and
authority to execute and deliver the Notes and to perform its obligations
thereunder and to own its properties and conduct its business as described
in the Disclosure Documents.
(e) The Company is not in violation of its charter or by-laws or in
default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, loan agreement or lease to which the
Company is a party or by which it may be bound. The execution and
delivery of this Agreement, the Issuing and Paying Agency Agreement and
the Notes and the incurrence of the obligations and consummation of the
transactions herein contemplated will not conflict with, or constitute a
breach of or default under, its charter or by-laws of the Company or any
material contract, indenture, mortgage, loan agreement or lease, to which
each is a party or by which the Company may be bound, or any law,
administrative regulation or court decree.
(f) Each of this Agreement and the Issuing and Paying
Agency Agreement has been duly authorized, executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company enforceable in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws
relating to or affecting generally the enforcement of creditors' rights or by
general equitable principles.
(g) The Notes have been duly authorized for issuance, offer
and sale as contemplated by the Agreement and, when issued and
delivered against payment of the purchase price therefor, will constitute
legal, valid and binding obligations of the Company enforceable in
accordance with their terms, except as enforcement thereof may be limited
by bankruptcy, insolvency or other similar laws relating to or affecting
generally the enforcement of creditors' rights or by general equitable
principles.
(h) Assuming compliance with Section 5(b) hereof, no
consent, approval, authorization, order, registration or qualification of or
with any court or any regulatory authority or other governmental agency
or body (including the SEC) is required for the issuance, offer or sale of
the Notes by the Company in accordance with the terms of this
Agreement or for the consummation of the transactions contemplated by
this Agreement, the Issuing and Paying Agency Agreement or the Notes.
(i) There are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject, other
than as set forth in the Disclosure Documents and other than legal or
governmental proceedings, which in each case will not have a material
adverse effect on the business, financial condition, shareholders' equity or
results of operations of the Company and its subsidiaries taken as a whole;
and to the best of its knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(j) The Company is not an "investment company", or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(k) The offer, issuance, sale and delivery of the Notes in
accordance with the terms of this Agreement will constitute exempt
transactions under the Act pursuant to Section 4(2) thereof, and
registration of the Notes under the Act will not be required; the Notes are
eligible pursuant to Rule 144A under the Act.
(l) The Notes rank at least pari passu with all other
unsecured and unsubordinated indebtedness of the Company.
(m) The Company agrees to maintain credit lines with
Chemical Bank, as agent bank (as agent bank, the "Bank") which can be
used to support payment on the Notes hereunder and agrees to report, and
will cause the Bank to report, to Merrill Lynch on the status and usage of
such credit lines, on a [quarterly] [monthly] basis.
4. Additional Representation and Warranty. Each acceptance by
the Company of an offer for the purchase of Notes shall be deemed an
affirmation by the Company that its representations and warranties set
forth in Section 3 hereof are true and correct at the time of such
acceptance, and an undertaking that such representations and warranties
will be true and correct at the time of delivery to the purchaser or its agent
of the Note or Notes relating to such acceptance, as though made at and
as of such time (it being understood that insofar as such representations
and warranties relate to the Private Placement Memorandum, such
representations and warranties shall relate to the Private Placement
Memorandum delivered to prospective purchasers of Notes at the time of
such acceptance and at the time of such delivery of the Note or Notes
relating to such acceptance, respectively.)
5. Covenants (a) The Company agrees that no future offer and
sale of debt securities of the Company of any class will be made if, as a
result of the doctrine of "integration" referred to in Rule 502 of
Regulation D under the Act, Securities Act Release No. 6389 (March 8,
1982), Securities Act Releases Nos. 4434 (December 6, 1961), 4552
(November 6, 1962) and 4708 (July 9, 1964), and various "no-action"
letters made available by the SEC, such offer and sale would call into
question the entitlement of the Notes to the exemption from the
registration requirements of the Act provided by Section 4(2) thereof.
(b) The Company will endeavor, in cooperation with
Merrill Lynch, to qualify the Notes for offer and sale under the applicable
securities laws of such states and other jurisdictions of the United States
as the Company and Merrill Lynch shall determine, and will maintain such
qualifications in effect for as long as may be required for the distribution
of the Notes. The Company will file such statements and reports as may
be required by the laws of each jurisdiction in which the Notes have been
qualified as above provided.
(c) No part of the proceeds of any Notes will be used in
any transaction or for any purpose which violates the provisions of
Regulations, G, T, U and X of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect. Other
than pursuant to the requirements of the following sentence, the Company
shall not use the proceeds of the Notes to finance any acquisition of
securities, within the meaning of Regulation T. The Company agrees that
if it intends to use the proceeds of the sale of its Notes for the purpose of
purchasing or carrying securities within the meaning of Regulation T and
the interpretations thereunder by the Board of Governors of the Federal
Reserve System, it will give five business days' notice to Merrill Lynch of
its intention to do so and prompt notice of the actual commencement of
such use of proceeds.
6. Conditions Precedent to Placement of the Notes. (a) Prior to
the initial placement of Notes hereunder the Company shall cause to be
delivered to Merrill Lynch (i) the written opinion of counsel to the
Company substantially in the form of Exhibit C hereto, (ii) a certificate of
the Secretary or other appropriate officer of the Company certifying true
copies of the resolutions of the Company approving this Agreement, the
Issuing and Paying Agency Agreement, the Notes and the transactions
contemplated hereby and certifying the incumbency, authority and true
signatures of the officers of the Company authorized to sign this
Agreement and the Notes, and (iii) an original executed copy, photocopy
or conformed copy of the Issuing and Paying Agency Agreement, which
shall be in form and substance reasonably acceptable to Merrill Lynch, and
(iv) if applicable, the DTC Representation Letter (as that term is defined
below) which shall be in form and substance reasonably acceptable to
Merrill Lynch. Merrill Lynch may deliver a copy of the opinion referred
to in clause (i) above to any purchaser of a Note who requests such a
copy.
7. Delivery of and Payment for the Notes. (a) On the date of a
proposed issuance of Notes, Merrill Lynch shall confer with the Company
as to the face or principal amount, maturities and denominations thereof,
the applicable interest rates or the discounts from the face amounts, at
which the Notes are to be issued.
(b) When agreement is reached on the foregoing, (i) if the
Notes are evidenced by Certificated Notes, the Company will instruct the
Issuing and Paying Agent or another issuing agent designated by the
Company in written notice to Merrill Lynch to deliver executed and
countersigned Certificated Notes to N.S.C.C. New York Window, 55
Water Street, Concourse Level, South Building, New York, New York
10041, Attention: Al Mitchell, prior to 2:15 p.m., New York City time,
on the date of issuance, and (ii) if the Notes are Book-Entry Notes, the
issuance of and payment for such Notes will be governed by a letter
agreement between the Company and The Depository Trust Company
(the "DTC Representation Letter").
(c) Following Merrill Lynch's receipt of duly and properly
completed Certificated Notes, Merrill Lynch or its agent will transfer by
the close of business on such day immediately available funds to the
Issuing and Paying Agent or to such other bank as may be designated in
writing by the Company to Merrill Lynch in an amount equal to the net
proceeds of the Certificated Notes.
(d) Merrill Lynch will mail written confirmations of each
purchase or placement to the Company, which confirmations of each
purchase or placement to the Company, which confirmations shall set
forth face or principal amounts, maturities and denominations of the Notes
purchased or placed and the applicable interest rates or discounts.
(e) In the event that a customer shall either fail to accept
delivery of or make payment for a Note on the date fixed for settlement,
Merrill Lynch shall promptly notify the Company, and if Merrill Lynch has
theretofore paid the Company for such Note, the Company will promptly
return such funds to Merrill Lynch against its return of the Note to the
Company, in the case of a Certificated Note, and upon notice from Merrill
Lynch of such failure, in the case of a Book-Entry Note. If such failure
occurred for any reason other than default by Merrill Lynch, the Company
shall reimburse Merrill Lynch on an equitable basis for Merrill Lynch's loss
of the use of such funds for the period such funds were credited to the
Company's account.
8. Indemnification. (a) The Company agrees to assume
liability for and to indemnify, protect, save and hold harmless Merrill
Lynch, each individual, corporation, partnership, trust, association or
other entity ("Person") controlling Merrill Lynch (including, without
limitation, Merrill Lynch & Co., Inc. and Merrill Lynch Government
Securities Inc.), any affiliate of any such Person or Merrill Lynch and their
respective directors, officers, incorporators, shareholders, partners,
servants, trustees, employees and agents (all of such indemnified entities
hereinafter the "Indemnitees") from and against any and all losses,
liabilities, claims, damages, penalties, causes of action, suits, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) or judgments of whatever kind and nature, imposed upon,
incurred by or asserted against the Indemnitees, which are (i) based upon
or arising under the securities laws of the United States of America or of
any state or any regulation, rule or interpretation thereunder or thereof to
the extent arising from the transactions contemplated hereby, (ii) based
upon the inaccuracy of any representation made or reaffirmed by the
Company or the breach of any agreement or covenant of the Company
contained herein, or (iii) based upon any untrue statement or alleged
untrue statement of a material fact in the Disclosure Documents, or the
omission or alleged omission from the Disclosure Documents of a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. If any action, suit or
proceeding arising from any of the foregoing is brought against any of the
Indemnitees, the Company will, at its own expense, resist and defend such
action, suit or proceeding or cause the same to be resisted and defended
by counsel designated by the Company (which counsel shall be reasonably
satisfactory to such Indemnities) and regardless of whether the Company
is a party to the same, pay all reasonable costs and expenses of such
defense as incurred (including, without limitation, reasonable attorneys'
fees and expenses).
It is agreed, however, that the obligations of the Company under
this Section 8 shall not extend to any liability of any Indemnitee arising out
of the inclusion by any Indemnitee of an untrue statement of a material
fact relating to Merrill Lynch or an omission to state a material fact
relating to Merrill Lynch necessary to make any statement, in light of the
circumstances under which it was made, not misleading.
The foregoing indemnity will also extend to any supplemental
material subsequently furnished to Merrill Lynch by the Company and
distributed to purchasers or prospective purchasers during the term of this
Agreement.
(b) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in this Section
8 is for any reason held unavailable (otherwise than in accordance with the
terms of this Section 8), the Company on the one hand, and any
Indemnitees, on the other hand, sought to be charged with any liability
shall contribute to the aggregate costs of satisfying such liability in the
proportion of their respective economic interests. For purposes of this
Section 8, the "economic interests" of the Company shall be equal to the
aggregate proceeds of the Notes issued in connection with this Agreement
received by the Company and the "economic interest" of any Indemnitee
shall be equal to the aggregate commissions and fees earned by Merrill
Lynch hereunder.
The obligations of the Company under this Section 8 shall survive
any termination of this Agreement, in whole or in part.
9. Fees and Expenses. (a) As compensation for the services of
Merrill Lynch hereunder, the Company shall pay it, on a discount basis, a
commission for the sale of each Note at such rate as shall be agreed upon
from time to time by the Company and Merrill Lynch.
(b) The Company will (i) pay all customary and reasonable
costs and expenses incident to the placement and issuance of the Notes,
(ii) reimburse Merrill Lynch for all of its out-of-pocket expenses, including
the cost of preparing and distributing the Private Placement Memorandum
and the Notes, and (iii) upon receipt of an invoice, pay directly or
reimburse Merrill Lynch for the reasonable fees and expenses of any
outside counsel utilized by Merrill Lynch in connection with this
Agreement and the transactions contemplated hereby.
10. Notices. Unless otherwise indicated, all notices required
under the terms and provisions hereof shall be in writing, either delivered
by hand, by mail (postage prepaid), or by telex, telecopier or telegram,
and any such notice shall be effective when received at the address
specified below
If to the Company:
Humana Inc.
500 West Main Street
Louisville, KY 40202
Attention: James W. Doucette, Vice President -
Investments and Treasurer
Telephone No: 502-580-1002
Facsimile No: 502-580-4089
If to Merrill Lynch:
Merrill Lynch Money Markets Inc.
Merrill Lynch World Headquarters
World Financial Center - North Tower
250 Vesey Street - 10th Floor
New York, New York 10281-1310
Attention: Product Management - CP
Telephone No: (212) 449-0276
Facsimile No: (212) 449-2234
or at such other address as such party may designate from time to time by
notice duly given in accordance with the terms of this Section 10 to the
other party hereto.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of New York.
12. Choice of Forum. The Company agrees that any suit, action
or proceeding brought by oragainst Merrill Lynch in connection with or
arising out of this Agreement, any agreement, instrument or document
entered into in connection with this Agreement or the offer and sale of the
Notes shall be brought solely in the United States Federal courts located
in the Borough of Manhattan or the courts of the State of New York
located in the Borough of Manhattan.
13. Amendment and Termination; Successors; Counterparts. (a)
The terms of this Agreement shall not be waived, altered, modified,
amended or supplemented in any manner whatsoever except by written
instrument signed by both parties hereto. Either party to this Agreement
may terminate this Agreement upon written notice to each other party
hereto, provided that such termination shall not affect the obligations of
the parties hereunder with respect to Notes outstanding at the time of
such termination and actions or events occurring prior to such termination
or with respect to Section 8 or Section 9 hereof.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
(c) This Agreement may be executed in several
counterparts, each of which shall be deemed an original hereof.
14. Captions. The captions in this Agreement are for convenience
of reference only and shall not define or limit any of the terms or
provisions hereof.
15. Effective Date. This Agreement shall be effective as of the
date and year first above written.
16. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first above written.
HUMANA INC.
By:/s/James W. Doucette
Vice President Investments & Treasurer
Authorized Signatory
MERRILL LYNCH
MONEY MARKETS INC.
By:/s/Scott G. Primrose
Authorized Signatory
PLACEMENT AGENCY AGREEMENT
PLACEMENT AGENCY AGREEMENT dated as
of March 6, 1996 between Humana Inc., a Delaware
corporation (the "Company"), and Chemical
Securities Inc., a Delaware corporation ("CSI").
W I T N E S S E T H:
WHEREAS, the Company has requested CSI
to act as the agent of the Company for the private
placement to accredited investors of the Company's
unsecured notes with maturities of up to 270 days
from date of issue (the "Notes").
WHEREAS, the Notes will be represented by
either individual note certificates ("Certificated
Notes") or a master note of the Company. Individual
Notes shall be issued substantially in the form of
Exhibit A-1 or A-2 hereto, while master notes shall be
issued substantially in the form of Exhibit B-1 or
Exhibit B-2 hereto. Notes represented by a master
note shall be referred to herein as "Book-Entry
Notes."
WHEREAS, CSI has indicated its willingness
to act as agent of the Company in the private
placement of the Notes, subject to the satisfactory
completion of such investigation and inquiry into the
Company's business as CSI deems appropriate under
the circumstances.
NOW THEREFORE, in consideration of the
premises, the parties agree as follows:
1. Appointment as Placement Agent. (a) The
Company appoints CSI as one of its placement
agents for the Notes and acknowledges that CSI shall
have the right to assist the Company in the
placement of the Notes during the term of this
Agreement in conjunction with Company's other
placement agents. The Company agrees that during
the period CSI is acting as the Company's placement
agent hereunder, the Company shall not, except
through its co-placement agents, directly contact or
solicit potential investors to purchase the Notes or
engage any person or party to assist in the placement
of Notes. While CSI shall not have any obligation to
purchase, as principal, Notes from the Company
under any circumstances, CSI may, from time to
time, in its sole discretion purchase Notes, as
principal, from the Company.
(b) The Company and CSI agree that
any Notes the placement of which CSI arranges or
which are purchased by CSI shall be placed or
purchased by CSI in reliance on the representations,
warranties, covenants and agreements of the
Company contained herein and on the terms and
conditions and in the manner provided herein.
(c) The Notes will be issued pursuant
to an issuing and paying agency agreement (the
"Issuing and Paying Agreement ") between Chase
Manhattan Bank, as issuing and paying agent (the
"Issuing and Paying Agent") and the Company. The
Company will not amend the Issuing and Paying
Agency Agreement without giving CSI prior notice
and a copy of such amendment. The Notes will be
issued in such face or principal amounts (but not less
than $250,000 each), and will bear such interest
rates (if interest-bearing), or will be sold at such
discounts, from their face amounts, as shall be
mutually agreed to by the Company and CSI at the
time of each proposed purchase or placement.
(d) CSI shall have the right, in its
discretion reasonably exercised, to reject any
proposed purchase of Notes, in whole or in part.
(e) The Company may instruct CSI to
suspend solicitation of purchases of Notes at any
time. Upon receipt of such instruction, CSI will
forthwith suspend solicitation until such time as the
Company has advised it that solicitation of purchases
may be resumed.
2. Offers and Sales of the Notes. The offer
and sale of the Notes by the Company is to be
effected pursuant to the exemption from the
registration requirements of the Securities Act of
1933, as amended (the "Act"), provided by Section
4(2) thereof and Regulation D thereunder, which
exempt transactions by an issuer not involving any
public offering. Offers and sales of the Notes by the
Company will be made in accordance with the
general provisions of Rule 506 under the Act. CSI
and the Company hereby establish the following
procedures in connection with the offer and sale or
resale of the Notes:
(a) Offers and sales of the Notes will
be made by the Company only to purchasers which
qualify as accredited investors (as defined in Rule
501 (a) under the Act) (each such institutional
purchaser being hereinafter called an "accredited
investor"). Resales of the Notes will be made only to
accredited investors or to institutional purchasers
which are qualified institutional buyers (as defined in
Rule 144A under the Act) (each such institutional
purchaser being hereinafter called a "qualified
institutional buyer"). No Notes will be offered to
natural persons.
(b) The Notes will be offered only by
approaching prospective purchasers on an individual
basis. The Notes will not be offered or sold by any
means of general solicitation or general advertising.
(c) In the case of a purchaser which
is acting as a fiduciary for one or more third parties
and which is not a bank as defined in Section 3(a)(2)
of the Act or a savings and loan association or other
institution as described in Section 3(a)(5) of the Act
(each such purchaser, a "non-bank fiduciary"), each
such third party will, in the judgment of CSI, after
due inquiry be an accredited investor or qualified
institutional buyer.
(d) No sale of the Notes to any one
purchaser will be for less than $250,000 face
amount and no Note will be issued in a smaller face
amount. If the purchaser is a non-bank fiduciary
acting on behalf of others, each person for whom it
is acting must purchase at least $250,000 face
amount of the Notes.
(e) Each individual Note shall contain
the legend set forth on the form of such Note
attached as Exhibit A-1 or A-2 hereto, stating in
effect that such Note has not been registered under
the Act and that a resale or other transfer of such
Note or any interest therein shall be made only (I) to
CSI or through CSI to an institutional investor
approved as an accredited investor or as a qualified
institutional buyer by CSI or (ii) to a qualified
institutional buyer in a transaction made pursuant to
Rule 144A under the Act. The purpose of this
requirement is to ensure that Notes are resold or
otherwise transferred only to accredited investors or
qualified institutional buyers and not in a manner that
might call into question the non-public offering
character of the offer and sale of the Notes.
(f) A Private Placement Memorandum
will be made available to each purchaser or
prospective purchaser together with any supplements
to such Private Placement Memorandum which may
have been prepared by the Company. The Private
Placement Memorandum will contain a representation
to the effect that the purchaser of a Note has had an
opportunity to ask questions of, and receive answers
from, the Company concerning the offering of the
Notes and to obtain copies of any of the Company
Information (as defined below) that is referred to
therein at no charge.. The Private Placement
Memorandum, including any Company Information
referred to therein is hereby referred to as the
"Disclosure Documents".
(g) In addition to the other
requirements of this Section 2, during any period the
Company is not subject to the periodic filing
requirements of the Securities Exchange Act of
1934, the Company agrees that, upon written
request by any holder of the Notes, the Company will
provide to the holder or to a prospective purchaser
designated by the holder a copy of the Private
Placement Memorandum and(I) the Company's most
recent audited balance sheet that is as of a date less
than 16 months old and audited statements of profit
and loss and retained earnings for the 12 months
preceding the date of the balance sheet, (ii) similar
audited financial statements for the preceding two
fiscal years or for such shorter period as the
Company has been in operation and (iii) if the
Company's most recent balance sheet is not as of a
date less than six months old, additional statements
of profit and loss and retained earnings (which may
be unaudited) for the period from the date of such
balance sheet to a date as of less than six months
old. The purpose of this provision is to satisfy the
conditions of paragraph (d)(4) of Rule 144A under the
Act, so that resales of the Notes may be made to
qualified institutional buyers pursuant to the
exemption from registration provided by Rule 144A.
The Private Placement Memorandum and each Note
shall disclose that a holder of the Note may request,
in writing, the information specified by paragraph
(d)(4) of Rule 144A in connection with an intended
sale or transfer of the Note pursuant to Rule 144A.
(h) The Company agrees to cooperate
with CSI in the preparation of the Private Placement
Memorandum and in amending it as from time to time
may be necessary. Accordingly, the Company agrees
to furnish CSI with such information as requested to
satisfy the conditions of paragraph (d)(4) of Rule
144A under the Act. The Company will furnish
copies of its most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission
(the "SEC"), each definitive proxy statement, each
report on Form 10-Q and each report on Form 8-8-K
As long as any of the Notes are outstanding, the
Company will provide CSI with copies of all annual,
interim, quarterly reports, proxy statements and
registration statements which the Company files with
the SEC, copies of all reports to the rating agencies,
of all public releases or other publicly available
information (collectively, "the Company
Information") in such quantities as CSI may
reasonably request.
(I) Prior to any offer or sale of Notes,
CSI shall, with the cooperation of the Company, have
the right to make such reasonable due diligence
investigation of the business of the Company as is
usual in the course of continuous offerings of debt
instruments. The Company will immediately inform
CSI in writing of any material adverse change the
condition, financial or otherwise, earnings, business
affairs, results of operations or business prospects of
the Company which (I) make or might make any
statement in the Disclosure Documents false or
misleading in any material respect or (ii) are not
disclosed in such documents. In such event, CSI
shall not thereafter attempt to offer or place any of
the Notes until the Company shall have prepared and
furnished to CSI, in such numbers as CSI may
require, supplements to, or amendments of, the
Private Placement Memorandum reflecting any such
material changes. Such supplements or
amendments shall be prepared promptly by the
Company.
(j) The Company agrees to file a
notice on Form D with the Securities and Exchange
Commission (the "SEC") no later than fifteen days
after the first issuance of Notes and at such other
times as may be required pursuant to Rule 503 under
the Act.
(k) CSI shall not be liable or
responsible to the Company for any losses, damages
or liabilities suffered or incurred by the Company,
including any losses, damages or liabilities under the
Act, arising from or relating to any resale or transfer
of a Note other than for losses, damages or liabilities
arising from CSI's gross negligence or willful
misconduct.
3. Representations and Warranties. The
Company represents and warrants to CSI as of the
date hereof and as of each date contemplated by
Section 4 hereof that:
(a) The Disclosure Documents do not
and will not include any untrue statement of a
material fact or omit to state a material fact
necessary in order to make the statements made, in
light of the circumstances under which they are
made, not misleading.
(b) The financial statements included
in the Disclosure Documents, if any, are and will be
in accordance with the related books and records of
the Company and are and will be complete and
correct and fairly present in accordance with
generally accepted accounting principles the financial
position of the Company and its consolidated
subsidiaries as at the dates set forth therein and the
results of their operations for the periods set forth
therein. Except as set forth in the Disclosure
Documents, said financial statements have been
prepared in conformity with generally accepted
accounting principles applied on a basis which is
consistent in all material respects during the periods
involved. The supporting schedules, if any, included
in the financial statements present fairly the
information required to be stated therein as of the
dates or for the periods indicated.
(c) Since the respective dates as of
which information is given in the Disclosure
Documents, except as may otherwise be stated or
contemplated therein or in any amendment or
supplement thereto, there has not been any material
adverse change in the condition, financial or
otherwise, of the Company and its subsidiaries taken
as a whole, or in the earnings, affairs or business
prospects of the Company, and its subsidiaries taken
as a whole, whether or not arising in the ordinary
course of business.
(d) The Company (I) has been duly
incorporated and is validly existing as a corporation
in good standing under the laws of its jurisdiction of
corporation, and (ii) has the requisite corporate power
and authority to execute and deliver the Notes and to
perform its obligations thereunder and to own its
properties and conduct its business as described in
the Disclosure Documents.
(e) The Company is not in violation of
its charter or by-laws or in default in the performance
or observance of any material obligation, agreement,
covenant or condition contained in any material
contract, indenture, mortgage, loan agreement or
lease to which the Company is a party or by which it
may be bound. The execution and delivery of this
Agreement, the Issuing and Paying Agency
Agreement and the Notes and the incurrence of the
obligations and consummation of the transactions
herein contemplated will not conflict with, or
constitute a breach of or default under, its charter or
by-laws of the Company or any material contract,
indenture, mortgage, loan agreement or lease, to
which each is a party or by which the Company may
be bound, or any law, administrative regulation or
court decree.
(f) Each of this Agreement and the
Issuing and Paying Agency Agreement has been duly
authorized, executed and delivered by the Company
and constitutes the legal, valid and binding obligation
of the Company enforceable in accordance with its
terms, except as enforcement thereof may be limited
by bankruptcy, insolvency or other similar laws
relating to or affecting generally the enforcement of
creditors' rights or by general equitable principles.
(g) The Notes have been duly
authorized for issuance, offer and sale as
contemplated by the Agreement and, when issued
and delivered against payment of the purchase price
therefor, will constitute legal, valid and binding
obligations of the Company enforceable in
accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or
other similar laws relating to or affecting generally
the enforcement of creditors' rights or by general
equitable principles.
(h) Assuming compliance with
Section 5(b) hereof, no consent, approval,
authorization, order, registration or qualification of or
with any court or any regulatory authority or other
governmental agency or body (including the SEC) is
required for the issuance, offer or sale of the Notes
by the Company in accordance with the terms of this
Agreement or for the consummation of the
transactions contemplated by this Agreement, the
Issuing and Paying Agency Agreement or the Notes.
(I) There are no legal or governmental
proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject,
other than as set forth in the Disclosure Documents
and other than legal or governmental proceedings,
which in each case will not have a material adverse
effect on the business, financial condition,
shareholders' equity or results of operations of the
Company and its subsidiaries taken as a whole; and
to the best of its knowledge, no such proceedings are
threatened or contemplated by governmental
authorities or threatened by others.
(j) The Company is not an
"investment company", or a company "controlled" by
an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(k) The offer, issuance, sale and
delivery of the Notes in accordance with the terms of
this Agreement will constitute exempt transactions
under the Act pursuant to Section 4(2) thereof, and
registration of the Notes under the Act will not be
required; the Notes are eligible pursuant to Rule 144A
under the Act.
(l) The Notes rank at least pari passu
with all other unsecured and unsubordinated
indebtedness of the Company.
(m) The Company agrees to maintain
credit lines with Chemical Bank, as agent bank (as
agent bank, the "Bank") which can be used to
support payment on the Notes hereunder and agrees
to report, and will cause the Bank to report, to CSI on
the status and usage of such credit lines, on a
[quarterly] [monthly] basis.
4. Additional Representation and Warranty.
Each acceptance by the Company of an offer for the
purchase of Notes shall be deemed an affirmation by
the Company that its representations and warranties
set forth in Section 3 hereof are true and correct at
the time of such acceptance, and an undertaking that
such representations and warranties will be true and
correct at the time of delivery to the purchaser or its
agent of the Note or Notes relating to such
acceptance, as though made at and as of such time
(it being understood that insofar as such
representations and warranties relate to the Private
Placement Memorandum, such representations and
warranties shall relate to the Private Placement
Memorandum delivered to prospective purchasers of
Notes at the time of such acceptance and at the time
of such delivery of the Note or Notes relating to such
acceptance, respectively.)
5. Covenants (a) The Company agrees that
no future offer and sale of debt securities of the
Company of any class will be made if, as a result of
the doctrine of "integration" referred to in Rule 502
of Regulation D under the Act, Securities Act Release
No. 6389 (March 8, 1982), Securities Act Releases
Nos. 4434 (December 6, 1961), 4552 (November 6,
1962) and 4708 (July 9, 1964), and various "no-action"
letters made available by the SEC, such offer
and sale would call into question the entitlement of
the Notes to the exemption from the registration
requirements of the Act provided by Section 4(2)
thereof.
(b) The Company will endeavor, in
cooperation with CSI, to qualify the Notes for offer
and sale under the applicable securities laws of such
states and other jurisdictions of the United States as
the Company and CSI shall determine, and will
maintain such qualifications in effect for as long as
may be required for the distribution of the Notes.
The Company will file such statements and reports as
may be required by the laws of each jurisdiction in
which the Notes have been qualified as above
provided.
(c) No part of the proceeds of any
Notes will be used in any transaction or for any
purpose which violates the provisions of Regulations,
G, T, U and X of the Board of Governors of the
Federal Reserve System as now and from time to
time hereafter in effect. Other than pursuant to the
requirements of the following sentence, the Company
shall not use the proceeds of the Notes to finance
any acquisition of securities, within the meaning of
Regulation T. The Company agrees that if it intends
to use the proceeds of the sale of its Notes for the
purpose of purchasing or carrying securities within
the meaning of Regulation T and the interpretations
thereunder by the Board of Governors of the Federal
Reserve System, it will give five business days'
notice to CSI of its intention to do so and prompt
notice of the actual commencement of such use of
proceeds.
6. Conditions Precedent to Placement of the
Notes. (a) Prior to the initial placement of Notes
hereunder the Company shall cause to be delivered to
CSI (I) the written opinion of counsel to the Company
substantially in the form of Exhibit C hereto, (ii) a
certificate of the Secretary or other appropriate
officer of the Company certifying true copies of the
resolutions of the Company approving this
Agreement, the Issuing and Paying Agency
Agreement, the Notes and the transactions
contemplated hereby and certifying the incumbency,
authority and true signatures of the officers of the
Company authorized to sign this Agreement and the
Notes, and (iii) an original executed copy, photocopy
or conformed copy of the Issuing and Paying Agency
Agreement, which shall be in form and substance
reasonably acceptable to CSI, and (iv) if applicable,
the DTC Representation Letter (as that term is
defined below) which shall be in form and substance
reasonably acceptable to CSI. CSI may deliver a
copy of the opinion referred to in clause (I) above to
any purchaser of a Note who requests such a copy.
7. Delivery of and Payment for the Notes.
(a) On the date of a proposed issuance of Notes, CSI
shall confer with the Company as to the face or
principal amount, maturities and denominations
thereof, the applicable interest rates or the discounts
from the face amounts, at which the Notes are to be
issued.
(b) When agreement is reached on
the foregoing, (I) if the Notes are evidenced by
Certificated Notes, the Company will instruct the
Issuing and Paying Agent or another issuing agent
designated by the Company in written notice to CSI
to deliver executed and countersigned Certificated
Notes to such location as CSI may from time to time
specify in writing, prior to 2:15 p.m., New York City
time, on the date of issuance, and (ii) if the Notes are
Book-Entry Notes, the issuance of and payment for
such Notes will be governed by a letter agreement
between the Company and The Depository Trust
Company (the "DTC Representation Letter").
(c) Following CSI's receipt of duly
and properly completed Certificated Notes, CSI or its
agent will transfer by the close of business on such
day immediately available funds to the Issuing and
Paying Agent or to such other bank as may be
designated in writing by the Company to CSI in an
amount equal to the net proceeds of the Certificated
Notes.
(d) CSI will mail written
confirmations of each purchase or placement to the
Company, which confirmations of each purchase or
placement to the Company, which confirmations shall
set forth face or principal amounts, maturities and
denominations of the Notes purchased or placed and
the applicable interest rates or discounts.
(e) In the event that a customer shall
either fail to accept delivery of or make payment for
a Note on the date fixed for settlement, CSI shall
promptly notify the Company, and if CSI has
theretofore paid the Company for such Note, the
Company will promptly return such funds to CSI
against its return of the Note to the Company, in the
case of a Certificated Note, and upon notice from CSI
of such failure, in the case of a Book-Entry Note. If
such failure occurred for any reason other than
default by CSI, the Company shall reimburse CSI on
an equitable basis for CSI's loss of the use of such
funds for the period such funds were credited to the
Company's account.
8. Indemnification. (a) The Company
agrees to assume liability for and to indemnify,
protect, save and hold harmless CSI, each individual,
corporation, partnership, trust, association or other
entity ("Person") controlling CSI (including, without
limitation, Chemical Banking Corporation.), any
affiliate of any such Person or CSI and their
respective directors, officers, incorporators,
shareholders, partners, servants, trustees, employees
and agents (all of such indemnified entities
hereinafter the "Indemnitees") from and against any
and all losses, liabilities, claims, damages, penalties,
causes of action, suits, costs and expenses
(including, without limitation, reasonable attorneys'
fees and expenses) or judgments of whatever kind
and nature, imposed upon, incurred by or asserted
against the Indemnitees, which are (I) based upon or
arising under the securities laws of the United States
of America or of any state or any regulation, rule or
interpretation thereunder or thereof to the extent
arising from the transactions contemplated hereby,
(ii) based upon the inaccuracy of any representation
made or reaffirmed by the Company or the breach of
any agreement or covenant of the Company
contained herein, or (iii) based upon any untrue
statement or alleged untrue statement of a material
fact in the Disclosure Documents, or the omission or
alleged omission from the Disclosure Documents of
a material fact necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading. If any action, suit
or proceeding arising from any of the foregoing is
brought against any of the Indemnitees, the Company
will, at its own expense, resist and defend such
action, suit or proceeding or cause the same to be
resisted and defended by counsel designated by the
Company (which counsel shall be reasonably
satisfactory to such Indemnities) and regardless of
whether the Company is a party to the same, pay all
reasonable costs and expenses of such defense as
incurred (including, without limitation, reasonable
attorneys' fees and expenses).
It is agreed, however, that the obligations of
the Company under this Section 8 shall not extend to
any liability of any Indemnitee arising out of the
inclusion by any Indemnitee of an untrue statement
of a material fact relating to CSI or an omission to
state a material fact relating to CSI necessary to
make any statement, in light of the circumstances
under which it was made, not misleading.
The foregoing indemnity will also extend to
any supplemental material subsequently furnished to
CSI by the Company and distributed to purchasers or
prospective purchasers during the term of this
Agreement.
(b) In order to provide for just and
equitable contribution in circumstances in which the
indemnification provided for in this Section 8 is for
any reason held unavailable (otherwise than in
accordance with the terms of this Section 8), the
Company on the one hand, and any Indemnitees, on
the other hand, sought to be charged with any
liability shall contribute to the aggregate costs of
satisfying such liability in the proportion of their
respective economic interests. For purposes of this
Section 8, the "economic interests" of the Company
shall be equal to the aggregate proceeds of the Notes
issued in connection with this Agreement received by
the Company and the "economic interest" of any
Indemnitee shall be equal to the aggregate
commissions and fees earned by CSI hereunder.
The obligations of the Company under this
Section 8 shall survive any termination of this
Agreement, in whole or in part.
9. Fees and Expenses. (a) As compensation
for the services of CSI hereunder, the Company shall
pay it, on a discount basis, a commission for the sale
of each Note at such rate as shall be agreed upon
from time to time by the Company and CSI.
(b) The Company will (I) pay all
customary and reasonable costs and expenses
incident to the placement and issuance of the Notes,
(ii) reimburse CSI for all of its out-of-pocket
expenses, including the cost of preparing and
distributing the Private Placement Memorandum and
the Notes, and (iii) upon receipt of an invoice, pay
directly or reimburse CSI for the reasonable fees and
expenses of any outside counsel utilized by CSI in
connection with this Agreement and the transactions
contemplated hereby.
10. Notices. Unless otherwise indicated, all
notices required under the terms and provisions
hereof shall be in writing, either delivered by hand, by
mail (postage prepaid), or by telex, telecopier or
telegram, and any such notice shall be effective
when received at the address specified below
If to the Company:
Humana Inc.
500 West Main Street
Louisville, KY 40202
Attention: James W. Doucette, Vice
President -
Investments and Treasurer
Telephone No: 502-580-1002
Facsimile No: 502-580-4089
If to CSI:
Chemical Securities Inc.
270 Park Avenue, 7th Fl
New York, New York 10017
Attention: Commercial Paper Department
Telephone No: (212) 834-5072
Facsimile No: (212) 834-6560
or at such other address as such party may designate
from time to time by notice duly given in accordance
with the terms of this Section 10 to the other party
hereto.
11. Governing Law. This Agreement shall be
governed by and construed in accordance with, the
laws of the State of New York.
12. Choice of Forum. The Company agrees
that any suit, action or proceeding brought by or
against CSI in connection with or arising out of this
Agreement, any agreement, instrument or document
entered into in connection with this Agreement or the
offer and sale of the Notes shall be brought solely in
the United States Federal courts located in the
Borough of Manhattan or the courts of the State of
New York located in the Borough of Manhattan.
13. Amendment and Termination;
Successors; Counterparts. (a) The terms of this
Agreement shall not be waived, altered, modified,
amended or supplemented in any manner whatsoever
except by written instrument signed by both parties
hereto. Either party to this Agreement may terminate
this Agreement upon written notice to each other
party hereto, provided that such termination shall not
affect the obligations of the parties hereunder with
respect to Notes outstanding at the time of such
termination and actions or events occurring prior to
such termination or with respect to Section 8 or
Section 9 hereof.
(b) This Agreement shall be binding
upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
(c) This Agreement may be executed
in several counterparts, each of which shall be
deemed an original hereof.
14. Captions. The captions in this
Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions
hereof.
15. Effective Date. This Agreement shall be
effective as of the date and year first above written.
16. Severability of Provisions. Any provision
of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating
the remaining provisions hereof or affecting the
validity or enforceability of such provision in any
other jurisdiction.
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date and year first
above written.
HUMANA INC.
By:/s/James W. Doucette
Vice President Investments & Treasurer
Authorized Signatory
CHEMICAL SECURITIES INC.
By:
/s/ Craig Shallcross
Authorized Signatory
Exhibit 12
Ratio of Earnings to Fixed Charges
Humana Inc.
For the quarters ended March 31, 1996 and 1995
Unaudited
(Dollars in millions)
<TABLE>
<S> <C> <C>
1996 1995
Earnings:
Income before income taxes $ 81 $ 80
Fixed charges 6 3
$ 87 $ 83
Fixed charges:
Interest charged to expense $ 5 $ 2
One-third of rent expense 1 1
$ 6 $ 3
Ratio of earnings to fixed charges 13.8 25.5
For the purpose of determining earnings in the calculation of the
ratio of earnings to fixed charges, earnings have been increased
by the provision for income taxes and fixed charges. Fixed charges
consist of interest expense on borrowings and one-third (the
proportion deemed representative of the interest portion) of rent expense.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM HUMANA INC.'S FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 279
<SECURITIES> 1,186
<RECEIVABLES> 175
<ALLOWANCES> 40
<INVENTORY> 0
<CURRENT-ASSETS> 1,762
<PP&E> 662
<DEPRECIATION> 281
<TOTAL-ASSETS> 3,014
<CURRENT-LIABILITIES> 1,300
<BONDS> 230
<COMMON> 27
0
0
<OTHER-SE> 1,305
<TOTAL-LIABILITY-AND-EQUITY> 3,014
<SALES> 1,560
<TOTAL-REVENUES> 1,588
<CGS> 1,274
<TOTAL-COSTS> 1,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 81
<INCOME-TAX> 28
<INCOME-CONTINUING> 53
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
