UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Humana Inc.
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(Name of Issuer)
Common Stock (par value $0.16 2/3 per share)
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(Title of Class of Securities)
444859 10 2
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(CUSIP Number)
David J. Lubben
General Counsel and Secretary
United HealthCare Corporation
300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
(612) 936-1300
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
May 27, 1998
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(Date of Event which Requires Filing of this Statement)
If a filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
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Page 2 of 13 Pages
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CUSIP NO.
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
United HealthCare Corporation
I.R.S. Identification No. 41-1321939
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
[ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Minnesota
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7. SOLE VOTING POWER
NUMBER OF 33,000,000*
SHARES -----------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 8,738,408**
EACH -----------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON 33,000,000*
WITH -----------------------------------------------------
10. SHARED DISPOSITIVE POWER
5,963,778***
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
41,738,408
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
[X]
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* The shares of common stock, par value $0.16 2/3 per share ("Humana Common
Stock"), of Humana Inc. ("Humana") covered by this item are purchasable by
United HealthCare Corporation ("United HealthCare") upon exercise of an
option granted to United HealthCare on May 27, 1998 and described in Item 4
of this Statement. Prior to the exercise of the option, United HealthCare
is not entitled to any rights as a stockholder of Humana as to the shares
of Humana Common Stock covered by the option. United HealthCare disclaims
any beneficial ownership of the shares of Humana Common Stock which are
purchasable by United HealthCare upon exercise of the option because the
option is exercisable only in the circumstances referred to in Item 4
below, none of which has occurred as of this date. If the option were
exercised, United HealthCare would have the sole right to vote or to
dispose of the shares of Humana Common Stock issued as a result of such
exercise.
** Pursuant to a stockholder voting agreement ("Voting Agreement"), dated as
of May 27, 1998, between David A. Jones and United HealthCare, Mr. Jones
has agreed to vote 5,963,778 shares of Humana Common Stock and any other
shares of Humana Common Stock over which he has voting power (as of April
30, 1998, an additional 2,774,630 shares held in trusts and family limited
partnerships) in favor of the Merger Agreement and the Merger (as described
in the response to Item 4) and, if requested by United HealthCare, to grant
to United HealthCare an irrevocable proxy with respect to such shares for
such purpose.
*** Pursuant to the Voting Agreement (but subject to certain exceptions) Mr.
Jones may not dispose of 5,963,778 shares of United HealthCare Stock that
are directly held by him (until the consummation of the Merger or the
termination of the Merger Agreement).
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
25.1%
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14. TYPE OF REPORTING PERSON
CO
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SCHEDULE 13D
RELATING TO THE COMMON STOCK OF
HUMANA INC.
Item 1. Security and Issuer.
This Statement on Schedule 13D (this "Statement") relates to the common
stock, par value $0.16 2/3 per share ("Humana Common Stock"), of Humana Inc., a
Delaware corporation ("Humana"). The principal executive offices of Humana are
located at 500 West Main Street, Louisville, Kentucky 40202.
Item 2. Identity and Background.
This Statement is being filed by United HealthCare Corporation, a
Minnesota corporation ("United HealthCare"). The principal business address of
United HealthCare is 300 Opus Center, 9900 Bren Road East, Minneapolis,
Minnesota 55343. United HealthCare is a health and well-being holding company
whose subsidiaries are engaged principally in the health and well-being
business.
(a)-(c); (f) The name, business address, present principal occupation
or employment, and the name and principal business of any corporation or other
organization in which such employment is conducted of each of the directors and
executive officers of United HealthCare is set forth in Schedule I hereto, which
is incorporated herein by reference in its entirety. Except as otherwise
indicated in Schedule I, each person listed in Schedule I hereto is a citizen of
the United States.
(d)-(e) During the last five years, neither United HealthCare nor, to
the knowledge of United HealthCare, any of the persons listed on Schedule I
hereto, (i) has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) has been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment decree or final
order enjoining future violations of, or prohibiting or mandating
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Page 6 of 17 Pages
activities subject to, federal or state securities laws, or finding any
violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
As more fully described below, pursuant to the terms of the Stock
Option Agreement (as defined below), United HealthCare will have the right, upon
the occurrence of certain events specified therein, to purchase up to 33,000,000
shares of Humana Common Stock (subject to possible adjustment as provided in the
Stock Option Agreement) at a price per share of $30.3375. If United HealthCare
purchases Humana Common Stock pursuant to the Stock Option Agreement, United
HealthCare anticipates that the funds to finance such purchase would come from
United HealthCare's working capital and funds available for investment.
As described in the response to Item 4, a certain stockholder of the
Issuer, David A. Jones, has entered into the Voting Agreement (as defined in the
response to Item 4) pursuant to which such stockholder has agreed to vote
5,963,778 shares of Humana Common Stock held directly by him and any other
shares of Humana Common Stock over which he has voting power in favor of
adoption of the Merger Agreement and approval of the Merger, and if requested by
United HealthCare, to grant to United HealthCare an irrevocable proxy with
respect to such shares for such purpose. In addition, subject to certain
exceptions, such stockholder has agreed not to dispose of the shares of Humana
Common Stock held directly by him (until the consummation of the Merger
or the termination of the Merger Agreement).
Item 4. Purpose of the Transaction.
(a)-(j) On May 27, 1998, Humana, United HealthCare and UH-1 Inc., a
Delaware corporation and a wholly-owned subsidiary of United HealthCare ("Merger
Sub"), entered into an Agreement and Plan of Merger, dated as of May 27, 1998
(the "Merger Agreement"). The Merger Agreement provides, among other things, for
the merger of Merger Sub with and into Humana (the "Merger") with Humana being
the corporation surviving the Merger.
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Page 7 of 17 Pages
Pursuant to the Merger Agreement, at the Effective Time (as defined in
the Merger Agreement), each share of Humana Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Humana Common
Stock that are owned by United HealthCare, Merger Sub or Humana or any of their
respective subsidiaries, in each case not held on behalf of third parties
("Excluded Shares")), will be converted into 0.5 of a share of common stock, par
value $0.01 per share, of United HealthCare ("United HealthCare Common Stock").
The Merger Agreement also provides that each Excluded Share will be canceled and
retired without payment of any consideration therefor. At the Effective Time,
Humana will become a wholly-owned subsidiary of United HealthCare.
Consummation of the Merger is subject to the satisfaction or waiver at
or prior to the Effective Time of certain conditions, including, but not limited
to, approval of the Merger Agreement by the holders of shares of Humana Common
Stock and various regulatory conditions.
Pursuant to the Merger Agreement, (i) the certificate of incorporation
and the by-laws of Humana as in effect immediately prior to the Effective Time
will be the certificate of incorporation (the "Certificate") and by-laws (the
"By-Laws") of Humana as the corporation surviving the Merger, (ii) the directors
of Merger Sub at the Effective Time will, from and after the Effective Time, be
the directors of Humana until their successors have been duly elected or
appointed and have qualified or until their earlier death, resignation or
removal in accordance with the Certificate and the By-Laws, and (iii) the
officers of Humana at the Effective Time will, from and after the Effective
Time, be the officers of Humana until their successors have been duly elected or
appointed and have qualified or until their earlier death, resignation or
removal in accordance with the Certificate and the By-Laws.
The Merger Agreement provides that at the Effective Time David A. Jones
will be appointed to the board of directors of United HealthCare. In addition,
the Merger Agreement contains certain customary
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Page 8 of 17 Pages
restrictions on the conduct of the business of Humana pending the Merger,
including certain customary restrictions relating to Humana Common Stock. Humana
has agreed, in the Merger Agreement, that after the date of the Merger Agreement
and prior to the Effective Time, not to declare, set aside or pay any dividend
payable in cash, stock or property in respect of any capital stock, other than
dividends from its direct or indirect wholly-owned subsidiaries.
The Merger Agreement is attached hereto as Exhibit 1 and is
incorporated herein by reference in its entirety. The foregoing summary of the
Merger Agreement does not purport to be complete and is qualified in its
entirety by reference to such exhibit.
Concurrent with the execution of the Merger Agreement, United
HealthCare and Humana entered into a Stock Option Agreement, dated as of May 27,
1998 (the "Stock Option Agreement"), a copy of which is attached hereto as
Exhibit 2 and is incorporated herein by reference in its entirety. Pursuant to
the Stock Option Agreement, Humana granted United HealthCare an irrevocable
option (the "Option") to purchase, subject to the terms thereof, up to
33,000,000 (subject to possible adjustment as provided therein) shares of Humana
Common Stock at a price per share of $30.3375 (the "Purchase Price"). The
Stock Option Agreement provides that United HealthCare may exercise the Option
in whole or in part at any time from time to time following the occurrence of an
Exercise Event (as defined below), by delivering a written notice thereof (in
accordance with the terms of the Stock Option Agreement). The Option will
terminate at the earlier of (i) the Effective Time or (ii) one year after the
date of the Exercise Event that caused the Option to become exercisable (subject
to extension due to regulatory approvals).
For purposes of the Stock Option Agreement, an "Exercise Event" will be
deemed to have occurred if the Merger Agreement is terminated (A) by either
United HealthCare or Humana pursuant to Section 8.2(ii) of the Merger Agreement
if prior to such termination an Acquisition
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Page 9 of 17 Pages
Proposal (as defined in the Merger Agreement) shall have been made to Humana or
any of its subsidiaries or any of its stockholders or any person shall have
publicly announced an intention (whether or not conditional) to make an
Acquisition Proposal; or (B) by Humana pursuant to Section 8.3(a) of the Merger
Agreement or by United HealthCare pursuant to Sections 8.4(a) or 8.4(c) of the
Merger Agreement or (ii) upon Humana's entering into an agreement, within 18
months of the termination of the Merger Agreement by either United HealthCare or
Humana pursuant to Section 8.2(i) of the Merger Agreement, concerning a
transaction of a type that would constitute an Acquisition Proposal with any
person (or any of its affiliates) that made an Acquisition Proposal prior to
termination of the Merger Agreement.
In addition, the Stock Option Agreement provides that, United
HealthCare will (i) offset against any Termination Fee or Alternative
Termination Fee, as the case may be (in each case as defined in the Merger
Agreement and each hereinafter referred to as the "Fee"), or portion thereof,
that becomes due and payable to United HealthCare an amount from the Offset
Account (as defined below) equal to the Fee, or portion thereof, against which
the offset is to be made (but only to the extent of the amount then in the
Offset Account) and (ii) with respect to a Fee, or portion thereof, that has
already been paid to United HealthCare prior to exercise of the Option and that
has not been fully offset pursuant to clause (i) above, remit to Humana an
amount from the Offset Account equal to the amount by which the Fee, or portion
thereof, that has been paid has not been offset pursuant to clause (i) above
(but only to the extent of the amount then in the Offset Account); provided,
that in no event will the sum of the amounts to be offset or remitted be greater
than the Fee. The term "Offset Account" equals (A) the aggregate Fair Market
Value of the shares with respect to which the Option has been exercised, minus
the aggregate Purchase Price of such shares, each as determined at the time of
the exercise of the Option with respect to such shares, minus (B) the sum of the
amounts, if any, that have been offset or remitted pursuant to clauses (i) or
(ii) above; and the term "Fair Market Value" means,
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Page 10 of 17 Pages
with respect to the shares being purchased, the average closing price of Humana
Common Stock on the New York Stock Exchange Composite Tape for the five
consecutive trading days immediately preceding the date on which the Option is
exercised, in whole or in part, by United HealthCare with respect to such
shares.
Humana's obligation to deliver the shares upon exercise of the Option
is subject to the following conditions: no order prohibiting the delivery of
such shares is in effect, the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 has expired or been terminated and any
approval required to be obtained under any Health Benefit Law (as defined in the
Merger Agreement) has been obtained and is in full force and effect.
The foregoing summary of the Stock Option Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of the
Stock Option agreement attached as Exhibit 2 hereto.
Concurrent with the execution of the Merger Agreement and the
Stock Option Agreement, United HealthCare also entered into a stockholders
voting agreement (the "Voting Agreement") with David A. Jones, a copy of which
is attached hereto as Exhibit 3 and is incorporated herein by reference in its
entirety. Pursuant to the Voting Agreement, David A. Jones has agreed to vote,
or if applicable, give consents with respect to, the 5,963,778 shares of Humana
Common Stock that he holds directly (the "Stockholder Shares") and any other
shares over which he has voting power (together with the Stockholder Shares, the
"Voting Shares")* in favor of the Merger Agreement and the
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* In addition to the Stockholder Shares, as of the date of the Form 4 filed
by David A. Jones for the month ended May 31, 1998, David A. Jones has
voting power over an additional 2,774,630 shares of Humana Common Stock
held in trusts and family limited partnerships, which does not include
845,047 shares of Humana Common Stock held by his wife and over which Mr.
Jones has no voting or investment power. To the extent David A. Jones
acquires additional shares (including through exercise of exercisable
options) of Humana Common Stock or the voting power thereof, such shares
will be deemed to be Voting Shares for purposes of the Voting Agreement.
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Page 11 of 17 Pages
Merger, and if requested by United HealthCare, to grant to United HealthCare an
irrevocable proxy with respect to the Voting Shares for such purpose. In
addition, subject to certain exceptions, Mr. Jones has agreed not to dispose of
the Stockholder Shares (until the consummation of the Merger or the termination
of the Merger Agreement).
The foregoing summary of the Voting Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the Voting
Agreement attached as Exhibit 3 hereto.
Except as set forth in this Statement, the Merger Agreement, the Stock
Option Agreement, or the Voting Agreement, neither United HealthCare nor, to the
best of United HealthCare's knowledge, any of the individuals named in Schedule
I hereto, has any plans or proposals which relate to or which would result in or
relate to any of the actions specified in subparagraphs (a) through (j) of Item
4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
(a) - (b) By reason of its execution of the Stock Option Agreement,
United HealthCare might be deemed to have beneficial ownership of and sole
voting and dispositive power with respect to the shares of Humana Common Stock
subject to the Option and, accordingly, might be deemed to beneficially own
33,000,000 shares of Humana Common Stock as a result of the Stock Option
Agreement. Based on the number of shares of Humana Common Stock subject to the
Option, United HealthCare may be deemed to beneficially own approximately 19.8%
of the outstanding shares of Humana Common Stock (based upon the 166,524,663
shares of Humana Common Stock outstanding on May 22, 1998, as represented to
United HealthCare by Humana in the Merger Agreement) following the exercise in
whole of the Option for 33,000,000 shares of Humana Common Stock. However,
United HealthCare expressly disclaims any beneficial ownership of the
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Page 12 of 17 Pages
33,000,000 shares of Humana Common Stock which are obtainable by United
HealthCare upon exercise of the Option, because the Option is exercisable only
in the circumstances set forth in Item 4 above, none of which has occurred as of
the date hereof and because the delivery of the shares after exercise of the
Option is subject to conditions, including the obtainment of required regulatory
approvals (as described in the response to Item 4).
In addition, pursuant to the Voting Agreement, the Voting Shares may be
deemed to be beneficially owned both by David A. Jones and by United HealthCare.
Based on the number of shares of Humana Common Stock subject to the Voting
Agreement, United HealthCare may be deemed to beneficially own approximately
5.2% of the outstanding Humana Common Stock as a result of the Voting Agreement
(based upon the 166,524,663 shares of Humana Common Stock outstanding on May 22,
1998, as represented to United HealthCare by Humana in the Merger Agreement).
Inasmuch as the Voting Agreement is limited to the vote of the Voting
Shares with respect to the Merger Agreement and the Merger, David A. Jones and
United HealthCare may be deemed to have shared power to vote or to direct the
vote with respect to the Voting Shares. The Voting Agreement also provides that,
subject to certain exceptions, David A. Jones may not dispose of the 5,963,778
shares of Humana Common Stock that constitute the Stockholder Shares and because
the covenant may be waived by United HealthCare, David A. Jones and United
HealthCare may be deemed to have shared power to dispose or direct the
disposition of the Stockholder Shares (until the consummation of the Merger or
the termination of the Merger Agreement).
Assuming that 8,738,408 shares of Humana Common Stock are subject to
the Voting Agreement (which includes the Stockholder Shares and 2,774,630 shares
held in trusts and family limited partnerships over which David A. Jones has
voting power) are deemed to be beneficially owned by United HealthCare and
assuming that, following the exercise in whole of the Option, 33,000,000 shares
of Humana Common Stock are deemed to be beneficially owned by United HealthCare,
United HealthCare may be deemed to beneficially own
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Page 13 of 17 Pages
25.1% of the outstanding Humana Common Stock (based upon the 166,524,663 shares
of Humana Common Stock outstanding on May 22, 1998, as represented to United
HealthCare by Humana in the Merger Agreement)
(c) Neither United HealthCare nor, to the best of United HealthCare's
knowledge, any of the individuals named in Schedule I hereto, has effected any
transaction in Humana Common Stock during the past 60 days.
(d) So long as United HealthCare has not purchased Humana Common Stock
subject to the Option, United HealthCare does not have the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, any shares of Humana Common Stock.
(e) Not applicable.
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Item 6 Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the
Issuer.
Except as provided in the Merger Agreement, the Stock Option Agreement,
the Voting Agreement or as set forth in this Statement, neither United
HealthCare nor, to the best of United HealthCare's knowledge, any of the
individuals named in Schedule I hereto, has any contracts, arrangements,
understandings or relationships (legal or otherwise) with any person with
respect to any securities of Humana, including, but not limited to, transfer or
voting of any of the securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or
losses, or the giving or withholding of proxies.
Item 7. Material to be filed as Exhibits.
Exhibit 1 -- Agreement and Plan of Merger, dated as of May 27, 1998,
among Humana Inc., United Health Care Corporation and
UH-1 Inc.
Exhibit 2 -- Stock Option Agreement, dated as of May 27, 1998
between Humana Inc. and United HealthCare Corporation.
Exhibit 3 -- Stockholder Voting Agreement, dated as of May 27, 1998,
between David A. Jones and United HealthCare
Corporation.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Dated: ____________, 1998
United HealthCare Corporation
By: /s/ David J. Lubben
--------------------------------
Name: David J. Lubben
Title: General Counsel & Secretary
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SCHEDULE 1
DIRECTORS AND EXECUTIVE OFFICERS OF
UNITED HEALTHCARE CORPORATION
The name, present principal occupation or employment, and the name of
any corporation or other organization in which such employment is conducted, of
each of the directors and executive officers of United HealthCare Corporation
("United HealthCare") is set forth below. [Except as set forth below each of the
directors and executive officers is a citizen of the United States.] The
business address of each director and officer is United HealthCare Corporation,
300 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota, 55343.
Name and Business Present Principal Occupation or Employment
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Directors
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William C. Ballard, Jr. Counsel, Greenbaum, Doll & McDonald
(Louisville, Kentucky, law firm)
Richard T. Burke Chief Executive Officer and Governor,
Phoenix Coyotes (National Hockey League
Team)
James A. Johnson Chairman and Chief Executive Officer, Fannie
Mae (Diversified financial services company)
Thomas H. Kean President, Drew University
Douglas W. Leatherdale Chairman and Chief Executive Officer, The
Saint Paul Companies, Inc. (Insurance and
related services)
Walter F. Mondale Partner, Dorsey & Whitney LLP (Minneapolis,
Minnesota, law firm)
William W. McGuire, M.D. President, Chairman and Chief Executive
Officer, United HealthCare Corporation
Mary O. Mundinger Dean and Professor, School of Nursing and
Associate Dean, Faculty of Medicine,
Columbia University
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Page 17 of 17 Pages
Executive Officers
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Robert L. Ryan Senior Vice President and Chief Financial
Officer, Medtronic, Inc. (Medical devices
company)
William G. Spears Chairman of the Board, Spears, Benzak,
Salomon & Farrell, Inc. (New York City-based
investment counseling and management firm)
Gail R. Wilensky Senior Fellow, Project HOPE (International
health foundation)
William W. McGuire, M.D. President, Chairman and Chief Executive
Officer, United HealthCare Corporation
Stephen J. Helmsley Senior Executive Vice President
David P. Koppe Chief Financial Officer
David J. Lubben General Counsel and Secretary
Lois Quam CEO, Retiree and Senior Services
Jeannine M. Rivet CEO, Health Plans
R. Channing Wheeler CEO, Strategic Business Services
Travers H. Wills Chief Operating Officer
AGREEMENT AND PLAN OF MERGER
Among
HUMANA INC.
UNITED HEALTHCARE CORPORATION
and
UH-1 INC.
Dated as of May 27, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger............................................................2
1.2. Closing...............................................................2
1.3. Effective Time........................................................2
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. The Certificate of Incorporation......................................3
2.2. The By-Laws...........................................................3
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Directors.............................................................3
3.2. Officers..............................................................3
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock...............................................4
(a) Merger Consideration.............................................4
(b) Cancellation of Excluded Shares..................................4
(c) Merger Subsidiary................................................4
4.2. Exchange of Certificates for Shares...................................4
(a) Exchange Agent...................................................4
(b) Exchange Procedures..............................................5
(c) Distributions with Respect to Unexchanged
Shares; Voting ..................................................5
i
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(d) Transfers........................................................6
(e) Fractional Shares................................................6
(f) Termination of Exchange Fund.....................................6
(g) Lost, Stolen or Destroyed Certificates...........................7
(h) Affiliates.......................................................7
4.3. Dissenters' Rights....................................................7
4.4. Adjustments to Prevent Dilution.......................................7
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company.........................8
(a) Organization, Good Standing and Qualification....................8
(b) Capital Structure................................................9
(c) Corporate Authority; Approval and Fairness......................10
(d) Governmental Filings; Consents and Approvals; No
Violations......................................................10
(e) Company Reports; Financial Statements...........................11
(f) Absence of Certain Changes......................................13
(g) Litigation and Liabilities......................................13
(h) Employee Benefits...............................................14
(i) Compliance with Laws; Permits...................................16
(j) Takeover Statutes...............................................17
(k) Environmental Matters...........................................17
(l) Accounting and Tax Matters......................................18
(m) Taxes...........................................................18
(n) Labor Matters...................................................19
(o) Insurance.......................................................19
(p) Intellectual Property...........................................19
(q) Year 2000 Compliance; MIS Systems...............................20
(r) Material Contracts..............................................20
(s) Rights Plan.....................................................21
(t) Reserves........................................................21
(u) Brokers and Finders.............................................22
(v) Ownership of Parent Common Stock................................22
ii
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5.2. Representations and Warranties of Parent and
Merger Subsidiary....................................................22
(a) Capitalization of Merger Subsidiary.............................22
(b) Organization, Good Standing and Qualification...................23
(c) Capital Structure...............................................23
(d) Corporate Authority.............................................24
(e) Governmental Filings; No Violations.............................24
(f) Parent Reports; Financial Statements............................25
(g) Absence of Certain Changes......................................26
(h) Litigation and Liabilities......................................27
(i) Compliance with Laws; Permits...................................27
(j) Accounting and Tax Matters......................................28
(k) Reserves........................................................28
(l) Brokers and Finders.............................................28
(m) Ownership of Company Common Stock...............................29
ARTICLE VI
Covenants
6.1. Interim Operations...................................................29
6.2. Acquisition Proposals................................................32
6.3. Information Supplied.................................................33
6.4. Stockholders Meetings................................................34
6.5. Filings; Other Actions; Notification.................................34
6.6. Taxation and Accounting..............................................36
6.7. Access...............................................................37
6.8. Affiliates...........................................................37
6.9. Stock Exchange Listing...............................................38
6.10. Publicity............................................................38
6.11. Benefits.............................................................38
(a) Stock Options...................................................38
(b) Employee Benefits...............................................39
6.12. Expenses.............................................................41
6.13. Indemnification; Directors' and Officers' Insurance..................41
6.14. Parent's Board of Directors..........................................43
6.15. Takeover Statute.....................................................43
iii
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ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger...........43
(a) Stockholder Approval............................................43
(b) NYSE Listing....................................................44
(c) Regulatory Consents.............................................44
(d) Litigation......................................................44
(e) S-4.............................................................44
(f) Blue Sky Approvals..............................................44
(g) Accountant Letters..............................................44
7.2. Conditions to Obligations of Parent and Merger Subsidiary............44
(a) Representations and Warranties..................................45
(b) Performance of Obligations of the Company.......................45
(c) Consents........................................................45
(d) Tax Opinion.....................................................45
(e) Affiliates Letters..............................................46
7.3. Conditions to Obligation of the Company..............................46
(a) Representations and Warranties..................................46
(b) Performance of Obligations of Parent and
Merger Subsidiary...............................................46
(c) Consents........................................................46
(d) Tax Opinion.....................................................46
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent........................................47
8.2. Termination by Either Parent or the Company..........................47
8.3. Termination by the Company...........................................47
8.4. Termination by Parent................................................48
8.5. Effect of Termination and Abandonment................................49
iv
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Page
----
ARTICLE IX
Miscellaneous and General
9.1. Survival.............................................................51
9.2. Modification or Amendment............................................51
9.3. Waiver of Conditions.................................................51
9.4. Counterparts.........................................................51
9.5. Governing Law and Venue; Waiver of
Jury Trial...........................................................51
9.6. Notices..............................................................52
9.7. Entire Agreement; No Other Representations...........................53
9.8. No Third Party Beneficiaries.........................................54
9.9. Obligations of Parent and of the Company.............................54
9.10. Severability.........................................................54
9.11. Interpretation.......................................................54
9.12. Assignment...........................................................55
v
<PAGE>
EXHIBITS
Exhibit A Stock Option Agreement
Exhibit B Voting Agreement
Exhibit C-1 Affiliates Letter
Exhibit C-2 Pooling Affiliates Letter
vi
<PAGE>
DEFINITIONS CROSS-REFERENCE SHEET
---------------------------------
TERM SECTION
- ---- -------
Acquisition Proposal............................................ 6.2
affiliates...................................................... 6.8(a)
Affiliates...................................................... 6.1(a)(viii)
Affiliates Letter............................................... 6.8(a)
Aggregate Value................................................. 8.5(c)
Agreement....................................................... Preamble
Alternative Termination Fee..................................... 8.5(c)
Average Price................................................... 4.2(e)
Areas........................................................... 5.1(r)
Average Price................................................... 4.2(e)
Bankruptcy and Equity Exception................................. 5.1(c)(i)
By-Laws......................................................... 2.2
Cap............................................................. 6.13(c)
Certificate..................................................... 4.1(a)
Charter......................................................... 2.1
Closing......................................................... 1.2
Closing Date.................................................... 1.2
Code............................................................ Recitals
Company......................................................... Preamble
Company Disclosure Letter....................................... 5.1
Company Material Adverse Effect................................. 5.1(a)(iii)
Company Option.................................................. 5.1(b)
Company Reports................................................. 5.1(e)(i)
Company Requisite Vote.......................................... 5.1(c)(i)
Company SAP Statements.......................................... 5.1(e)(iii)
Company Stock Plans............................................. 5.1(b)
Compensation and Benefit Plans.................................. 5.1(h)(i)
Confidentiality Agreement....................................... 9.7
Constituent Corporations........................................ Preamble
Contracts....................................................... 5.1(d)(ii)
Costs........................................................... 6.13(a)
vii
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TERM SECTION
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D&O Insurance................................................... 6.13(c)
Delaware Certificate of Merger.................................. 1.3
DGCL............................................................ 1.1
Effective Time.................................................. 1.3
Environmental Law............................................... 5.1(k)
ERISA........................................................... 5.1(h)(ii)
ERISA Affiliate................................................. 5.1(h)(iii)
Exchange Act.................................................... 5.1(d)(i)
Exchange Agent.................................................. 4.2(a)
Exchange Fund................................................... 4.2(a)
Excluded Shares................................................. 4.1(a)
Exclusivity Contracts........................................... 5.1(r)
Expenses........................................................ 8.5(b)
GAAP............................................................ 5.1(e)(i)
Governmental Consents........................................... 7.1(c)
Governmental Entity............................................. 5.1(d)(i)
Hazardous Substance............................................. 5.1(k)
Health Benefit Law.............................................. 5.1(i)(ii)
HMO............................................................. 5.1(i)(i)
HSR Act......................................................... 5.1(d)(i)
Indemnified Parties............................................. 6.13(a)
Intellectual Property........................................... 5.1(p)
IRS............................................................. 5.1(h)(ii)
knowledge of the executive officers............................. 5.1(f)
Law............................................................. 5.1(d)(ii)
Liens........................................................... 5.1(b)
Material Company Contract....................................... 5.1(r)
Material Consumer Contracts..................................... 5.1(r)
Material Customer Contracts..................................... 5.1(r)
Material Provider Contracts..................................... 5.1(r)
Medicaid........................................................ 5.1(i)(ii)
Medicare........................................................ 5.1(i)(ii)
Merger.......................................................... Recitals
Merger Consideration............................................ 4.1(a)
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TERM SECTION
- ---- -------
Merger Subsidiary............................................... Preamble
NYSE............................................................ 5.2(e)
Order........................................................... 7.1(d)
Parent.......................................................... Preamble
Parent Common Stock............................................. 4.1(a)
Parent Companies................................................ 4.1(a)
Parent Disclosure Letter........................................ 5.2
Parent Material Adverse Effect.................................. 5.2(b)
Parent Preferred Shares......................................... 5.2(c)
Parent Reports.................................................. 5.2(f)(i)
Parent Requisite Vote........................................... 5.2(d)(i)
Parent SAP Statements........................................... 5.2(f)(ii)
Parent Stock Plans.............................................. 5.2(c)
Parent Voting Debt.............................................. 5.2(c)
Passive Investments............................................. 5.1((a)(ii)
Pension Plan.................................................... 5.1(h)(ii)
Person.......................................................... 5.1(d)(i)
Pooling Letter.................................................. 6.6(b)
PPO............................................................. 5.1(i)(i)
Preferred Shares................................................ 5.1(b)
Prospectus/ Proxy Statement..................................... 6.3
Representatives................................................. 6.2
Rights Agreement................................................ 5.1(b)
S-4 Registration Statement...................................... 6.3
SEC............................................................. 5.1(e)(i)
Securities Act.................................................. 5.1(d)(i)
Share........................................................... 4.1(a)
Shares.......................................................... 4.1(a)
Stock Option Agreement.......................................... Recitals
Stockholders Meeting............................................ 6.4
Subsidiary...................................................... 5.1(a)(iii)
Superior Proposal............................................... 6.2
Surviving Corporation........................................... 1.1
Takeover Statute................................................ 5.1(j)
ix
<PAGE>
TERM SECTION
- ---- -------
Tax............................................................. 5.1(m)
Tax Return...................................................... 5.1(m)
Taxable......................................................... 5.1(m)
Taxes........................................................... 5.1(m)
Termination Date................................................ 8.2
Termination Fee................................................. 8.5(b)
Third Party Confidentiality Agreement........................... 6.2
Voting Agreement................................................ Recitals
x
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"),
dated as of May 27, 1998, among Humana Inc., a Delaware corporation (the
"Company"), United HealthCare Corporation, a Minnesota corporation ("Parent"),
and UH-1 Inc., a Delaware corporation and a wholly owned subsidiary of Parent
("Merger Subsidiary," and together with the Company, the "Constituent
Corporations").
RECITALS
WHEREAS, the respective Boards of Directors of each of Parent,
Merger Subsidiary and the Company have determined that the merger of Merger
Subsidiary with and into the Company (the "Merger") upon the terms and subject
to the conditions set forth in this Agreement is advisable and in the best
interests of their corporations and have approved the Merger; and
WHEREAS, it is intended that, for federal income tax purposes,
the Merger shall qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the
Merger shall be accounted for as a "pooling-of-interests"; and
WHEREAS, contemporaneously with the execution and delivery of
this Agreement and as a condition and inducement to Parent's willingness to
enter into this Agreement, the Company and Parent have entered into a Stock
Option Agreement, dated as of the date of this Agreement and attached hereto as
Exhibit A (the "Stock Option Agreement"), pursuant to which the Company has
granted Parent an option to purchase shares of the Company under certain
circumstances; and
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Parent's willingness to enter
into this Agreement, a certain stockholder of the Company has entered into a
Voting Agreement, dated as of the date of this Agreement and attached hereto as
Exhibit B (the "Voting Agreement"), pursuant to which such stockholder has
agreed, among other things, to vote his shares of common stock of the Company in
favor of the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as defined in Section 1.3) Merger
Subsidiary shall be merged with and into the Company and the separate corporate
existence of Merger Subsidiary shall thereupon cease. The Company shall be the
surviv ing corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"), and the separate corporate existence of the Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth in Article II. The Merger
shall have the effects specified in the Delaware General Corporation Law, as
amended (the "DGCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New
York at 9:00 A.M. on the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article VII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Parent may agree in writing (the "Closing
Date").
1.3. Effective Time. As soon as practicable following the Closing, the
Company and Parent will cause a Certificate of Merger (the "Delaware Certificate
of Merger") to be executed, acknowledged and filed with the Secretary of State
of Delaware as provided in Section 251 of the DGCL. The Merger shall become
effective at the time when the Delaware Certificate of Merger has been duly
filed with the Secretary of State of Delaware or at such later time as agreed by
the parties and established under the Delaware Certificate of Merger (the
"Effective Time").
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ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. The Certificate of Incorporation. The certificate of incorporation
of the Company as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "Charter"), until
duly amended as provided therein or by applicable law, except that Article
Fourth of the Charter shall be amended to read in its entirety as follows: "The
aggregate number of shares that the Corporation shall have the authority to
issue is 1,000 shares of Common Stock, par value $1.00 per share."
2.2. The By-Laws. The by-laws of the Company in effect at the Effective
Time shall be the by-laws of the Surviving Corporation (the "By-Laws"), until
thereafter amended as provided therein or by applicable law.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Directors. The directors of Merger Subsidiary at the Effective
Time shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
3.2. Officers. The officers of the Company at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and the By-Laws.
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<PAGE>
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Merger Consideration. Each share of the Common Stock, par value
$0.16-2/3 per share, of the Company (a "Share" or, collectively, the "Shares")
issued and outstanding immediately prior to the Effective Time (other than
Shares owned by Parent, Merger Subsidiary or any other direct or indirect
subsidiary of Parent (collectively, the "Parent Companies") and Shares that are
owned by the Company or any direct or indirect subsidiary of the Company and in
each case not held on behalf of third parties (collectively, "Excluded Shares"))
shall be converted into, and become exchangeable for 0.5 shares (the "Merger
Consideration") of Common Stock, par value $0.01 per share, of Parent ("Parent
Common Stock"). At the Effective Time, all Shares shall no longer be outstanding
and shall be canceled and retired and shall cease to exist, and each certificate
(a "Certificate") formerly representing any of such Shares (other than Excluded
Shares) shall thereafter represent only the right to the Merger Consideration
and the right, if any, to receive pursuant to Section 4.2(e) cash in lieu of
fractional shares into which such Shares have been converted pursuant to this
Section 4.1(a) and any distribution or dividend pursuant to Section 4.2(c).
(b) Cancellation of Excluded Shares. Each Excluded Share shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(c) Merger Subsidiary. At the Effective Time, each share of Common
Stock, par value $0.01 per share, of Merger Subsidiary issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation.
4.2. Exchange of Certificates for Shares.
(a) Exchange Agent. Promptly after the Effective Time, Parent shall
deposit, or shall cause to be deposited, with Norwest Corporation or such other
exchange agent selected by Parent with the Company's prior approval, which shall
not be unreasonably withheld (the "Exchange Agent"), for the benefit of the
holders of Shares, certificates representing the shares of Parent Common Stock
and, after the Effective Time, if applicable, any cash, dividends or other
distributions with respect to the Parent
-4-
<PAGE>
Common Stock to be issued or paid pursuant to the last sentence of Section
4.1(a) in exchange for Shares outstanding immediately prior to the Effective
Time upon due surrender of the Certificates (or affidavits of loss in lieu
thereof) pursuant to the provisions of this Article IV (such certificates for
shares of Parent Common Stock, together with the amount of any dividends or
other distributions payable with respect thereto, being hereinafter referred to
as the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of
record of Shares (other than holders of Excluded Shares) (i) a letter of
transmittal specifying that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates (or
affidavits of loss in lieu thereof) to the Exchange Agent, such letter of
transmittal to be in such form and have such other provisions as Parent and the
Company may reasonably agree, and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for (A) certificates representing
shares of Parent Common Stock and (B) any unpaid dividends and other
distributions and cash in lieu of fractional shares. Subject to Section 4.2(h),
upon surrender of a Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate representing
that number of whole shares of Parent Common Stock that such holder is entitled
to receive pursuant to this Article IV, (y) a check in the amount (after giving
effect to any required tax withholdings) of (A) any cash in lieu of fractional
shares plus (B) any unpaid non-stock dividends and any other dividends or other
distributions that such holder has the right to receive pursuant to the
provisions of this Article IV, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount payable
upon due surrender of the Certificates. In the event of a transfer of ownership
of Shares that is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock,
together with a check for any cash to be paid upon due surrender of the
Certificate and any other dividends or distributions in respect thereof, may be
issued and/or paid to such a transferee if the Certificate formerly representing
such Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Person (as defined below) requesting such
exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for shares of Parent Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or shall establish
to the satisfaction of Parent or the Exchange Agent that such tax has been paid
or is not applicable.
(c) Distributions with Respect to Unexchanged Shares; Voting. (i) All
shares of Parent Common Stock to be issued pursuant to the Merger shall be
deemed
-5-
<PAGE>
issued and outstanding as of the Effective Time and whenever a dividend or other
distribution is declared by Parent in respect of the Parent Common Stock, the
record date for which is at or after the Effective Time, that declaration shall
include dividends or other distributions in respect of all shares issuable
pursuant to this Agreement. No dividends or other distributions in respect of
the Parent Common Stock shall be paid to any holder of any unsurrendered
Certificate until such Certificate is surrendered for exchange in accordance
with this Article IV. Subject to the effect of applicable Laws (as defined in
Section 5.1(d)), following surrender of any such Certificate, there shall be
issued and/or paid to the holder of the certificates representing whole shares
of Parent Common Stock issued in exchange therefor, without interest, (A) at the
time of such surrender, the dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of Parent Common Stock and not paid and (B) at the appropriate payment date, the
dividends or other distributions payable with respect to such whole shares of
Parent Common Stock with a record date after the Effective Time but with a
payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates shall be entitled to vote
after the Effective Time at any meeting of Parent stockholders the number of
whole shares of Parent Common Stock represented by such Certificates, regardless
of whether such holders have exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Shares entitled to receive a fractional share of Parent Common Stock
but for this Section 4.2(e) shall be entitled to receive a cash payment in lieu
thereof equal to such fractional proportion of the "Average Price" of a share of
Parent Common Stock. The "Average Price" of a share of Parent Common Stock shall
be the average of the closing sales prices thereof as reported on the New York
Stock Exchange over the ten trading days immediately preceding the Effective
Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for one year after the
Effective Time shall be paid or returned to Parent. Any stockholders of the
Company who have not theretofore complied with this Article IV shall thereafter
look only to Parent for payment of their shares of Parent Common Stock and any
cash, dividends and other distributions in respect thereof payable and/or
issuable pursuant to Section 4.1 and Section 4.2(c) upon due surrender of their
Certificates (or affidavits of loss in lieu thereof), in each case, without any
interest thereon. Notwithstanding the foregoing, none
-6-
<PAGE>
of Parent, the Surviving Corporation, the Exchange Agent or any other Person (as
defined in Section 5.1(d)) shall be liable to any former holder of Shares for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond in customary amount as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common Stock
and any cash payable and any unpaid dividends or other distributions in respect
thereof pursuant to Section 4.2(c) upon due surrender of and deliverable in
respect of the Shares represented by such Certificate pursuant to this
Agreement.
(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as defined in Section
6.8(a)) of the Company shall not be exchanged until Parent has received a
written agreement from such Person as provided in Section 6.8 hereof.
4.3. Dissenters' Rights. In accordance with Section 262 of the DGCL, no
appraisal rights shall be available to holders of Shares in connection with the
Merger.
4.4. Adjustments to Prevent Dilution. In the event that the Company
changes the number of Shares or securities convertible or exchangeable into or
exercisable for Shares, or Parent changes the number of shares of Parent Common
Stock or securities convertible or exchangeable into or exercisable for shares
of Parent Common Stock, issued and outstanding prior to the Effective Time as a
result of a reclassification, stock split (including a reverse split), stock
dividend or distribution, recapitalization, or other similar transaction, the
Merger Consideration shall be appropriately adjusted.
-7-
<PAGE>
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company. Except as set forth
in the corresponding sections or subsections (or by appropriate cross-reference)
of the disclosure letter delivered to Parent by the Company prior to entering
into this Agreement (the "Company Disclosure Letter"), the Company hereby
represents and warrants to Parent and Merger Subsidiary that:
(a) Organization, Good Standing and Qualification. (i) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and each of its Subsidiaries (as defined below) is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization, and the
Company and each of its Subsidiaries has all requisite corporate or similar
power and authority to own and operate its properties and assets and to carry on
its business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the ownership
or operation of its properties or conduct of its business requires such
qualification, except where the failure to have such corporate or similar power
and authority or to be so qualified or in good standing, when taken together
with all other such failures, is not reasonably likely to have a Company
Material Adverse Effect (as defined below). The Company has made available to
Parent a complete and correct copy of the Company's and each of its
Subsidiaries' certificates of incorporation and by-laws or comparable governing
instruments, each as amended to date. The Company's and its Subsidiaries'
certificates of incorporation and by-laws or comparable governing instruments so
delivered are in full force and effect.
(ii) Section 5.1(a) of the Company Disclosure Letter sets forth each
Subsidiary of the Company and its jurisdiction of incorporation. Except for the
Company's or any of its Subsidiaries' interest in any of the Company's
Subsidiaries, and except for passive investments not exceeding 4.99% of the
voting interests (including securities convertible or exchangeable into voting
interests) of any Person made, or debt securities held, in the ordinary course
of business (collectively, "Passive Investments"), neither the Company nor its
Subsidiaries owns directly or indirectly any interest or investment (whether
equity or debt) in any Person.
(iii) As used in this Agreement, the term (A) "Subsidiary" means, with
respect to the Company, Parent or Merger Subsidiary, as the case may be, any
entity, whether incorporated or unincorporated, of which such party is the
general partner or managing member or of which at least a majority of the
securities or ownership interests having by their terms ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions is directly or indirectly owned or controlled
-8-
<PAGE>
by such party or by one or more of its respective Subsidiaries, or by such party
and any one or more of its respective Subsidiaries, and (B) "Company Material
Adverse Effect" means a material adverse effect on the financial condition,
properties, business or results of operations of the Company and its
Subsidiaries taken as a whole.
(b) Capital Structure. The authorized capital stock of the Company
consists of 300,000,000 Shares, of which 166,524,663 Shares were outstanding as
of the close of business on May 22, 1998, and 10,000,000 shares of Preferred
Stock, par value $1.00 per share (the "Preferred Shares"), of which no shares
were outstanding as of the close of business on May 22, 1998. All of the
outstanding Shares have been duly authorized and are validly issued, fully paid
and nonassessable. Other than 33,000,000 Shares reserved for issuance under the
Stock Option Agreement, the Company has no Shares or Preferred Shares reserved
for issuance, except that, as of May 22, 1998, there were 17,798,628 Shares
reserved for issuance pursuant to the Company's 1981 NonQualified Stock Option
Plan, the Company's 1989 Stock Option Plan for Employees, the Company's 1989
Stock Option Plan for Non-Employee Directors, the Company Stock Bonus Plan for
Employed Physicians and the Company's 1996 Stock Incentive Plan for Employees
(collectively, the "Company Stock Plans"), and 2,500,000 Preferred Shares
reserved for issuance pursuant to the Amended and Restated Rights Agreement,
dated as of February 14, 1996, between the Company and the Bank of Louisville
(formerly known as Mid-America Bank of Louisville & Trust Company), as Rights
Agent (as amended, the "Rights Agreement"). Section 5.1(b) of the Company
Disclosure Letter contains a correct and complete list of each outstanding
option to purchase or acquire Shares under each of the Company Stock Plans (each
a "Company Option") as of the close of business on May 22, 1998, including the
holder, date of grant, exercise price and number of Shares subject thereto. Each
of the outstanding shares of capital stock or other securities of each of the
Company's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and owned by the Company or a direct or indirect wholly owned
Subsidiary of the Company, free and clear of any lien, pledge, security
interest, claim, third-party right or other encumbrance ("Liens") except for
immaterial Liens imposed under local Laws that do not relate to obligations that
are past due. Except as set forth above and except for the Stock Option
Agreement, as of the date hereof there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements or commitments to
issue or sell any shares of capital stock or other securities of the Company or
any of its Subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe
for or acquire, any securities of the Company or any of its Subsidiaries, and no
securities or obligations evidencing such rights are authorized, issued or
outstanding. The Company does not have outstanding any bonds, debentures, notes
or other obligations the holders of which have the right to vote (or which are
convertible into or are exercisable for securities having the right to vote)
with the stockholders of the Company on any matter.
-9-
<PAGE>
(c) Corporate Authority; Approval and Fairness. (i) The Company has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and the Stock Option Agreement and to consummate, subject only to
approval of this Agreement by the holders of at least a majority of the
outstanding Shares (the "Company Requisite Vote"), the Merger and the other
transactions contemplated hereby and thereby. This Agreement and the Stock
Option Agreement are valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles (the "Bankruptcy and Equity Exception").
(ii) The Board of Directors of the Company (A) has unanimously approved
this Agreement and the Stock Option Agreement and the Merger and the other
transactions contemplated hereby and thereby and (B) has received the opinion,
dated the date hereof, of its financial advisors, Lehman Brothers Inc., to the
effect that the consideration to be received by the holders of the Shares in the
Merger is fair to such holders from a financial point of view. It is agreed and
understood by Parent that such opinion is for the sole benefit of the Board of
Directors of the Company and is not to be relied on by Parent or its
stockholders.
(d) Governmental Filings; Consents and Approvals; No Violations. (i)
Other than the filings, notices, consents, registrations, approvals, permits and
authorizations (A) pursuant to Section 1.3, (B) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities
Exchange of 1934, as amended (the "Exchange Act") and the Securities Act of
1933, as amended (the "Securities Act"), (C) required under any Health Benefit
Law (as defined in Section 5.1(i)) or (D) to comply with state securities or
"blue-sky" laws, no notices, reports or other filings are required to be made by
the Company or any of its Subsidiaries with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
the Company or any of its Subsidiaries from, any governmental or regula tory
authority, agency, commission, body or other governmental or regulatory entity
("Governmental Entity") or any other individual, corporation (including
not-for-profit), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, or other entity of any
kind or nature ("Person"), in connection with the execution and delivery of this
Agreement and the Stock Option Agreement by the Company and the consummation by
the Company of the Merger and the other transactions contemplated hereby and
thereby, except those the failure to make or obtain are not, individually or in
the aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement and the Stock Option
Agreement.
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(ii) The execution, delivery and performance of this Agreement and the
Stock Option Agreement by the Company do not, and the consummation by the
Company of the Merger and the other transactions contemplated hereby and thereby
will not, constitute or result in (A) a breach or violation of, or a default
under, the certificate of incorporation or by-laws or comparable governing
instruments of the Company or any of its Subsidiaries, (B) a breach or violation
of, or a default under, or the acceleration of any obligations under, or the
termination of, or the loss of a material benefit under, or the creation of a
Lien on the assets of the Company or any of its Subsidiaries (with or without
notice, lapse of time or both) pursuant to, any agreement, lease, contract,
note, mortgage, indenture, arrangement, license or other obligation
("Contracts") binding upon the Company or any of its Subsidiaries or any of
their respective assets, or (assuming, as to consummation, that the filings and
notices are made, and approvals are obtained, as referred to in Section
5.1(d)(i)) any applicable federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of, or agreement or written
understanding with, any Governmental Entity ("Law") to which the Company or any
of its Subsidiaries or any of their respective assets is subject or (C) any
change in the rights or obligations of any party under any of the Contracts,
except, in the case of clause (B) or (C) above, for any breach, violation,
default, acceleration, termination, creation or change that, individually or in
the aggregate, is not reasonably likely to have a Company Material Adverse
Effect or prevent, materially delay or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement or the
Stock Option Agreement.
(e) Company Reports; Financial Statements. (i) The Company has made
available to Parent each registration statement, report, proxy statement or
information statement prepared by it since December 31, 1996, including (i) the
Company's Annual Reports on Form 10-K for the years ended December 31, 1996 and
December 31, 1997 and (ii) the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1998, each in the form (including exhibits, annexes and
any amendments thereto) filed with the Securities and Exchange Commission (the
"SEC") (collectively, including any such reports filed subsequent to the date
hereof, the "Company Reports"). As of their respective dates, the Company
Reports did not, and any Company Reports filed with the SEC subsequent to the
date hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not mis leading. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents in all material respects, or, in the case of
Company Reports filed with the SEC subsequent to the date hereof, will fairly
present in all material respects, the consolidated financial position of the
Company and its Subsidiaries as of its date and each of the consolidated
statements of income and of changes in financial position included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) fairly presents in all material respects, or, in the case of
Company Reports filed with the SEC
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subsequent to the date hereof, will fairly present in all material respects, the
results of operations, retained earnings and changes in financial position, as
the case may be, of the Company and its Subsidiaries on a consolidated basis for
the periods set forth therein (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that will not be material in amount
or effect), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein.
(ii) The consolidated balance sheets, statements of income and changes
in financial position of the Company and its Subsidiaries that are included in
the Company Reports filed with the SEC prior to the date hereof do not include
the financial information of The Humana Foundation Inc. and Parent acknowledges
that the assets and liabilities of The Humana Foundation Inc. shall not be
transferred, and that Parent shall not have the ability to elect or appoint the
board of directors of The Humana Foundation Inc., as part of the Merger and the
other transactions contemplated hereby.
(iii) The Company has made available to Parent true and complete copies
of each annual and quarterly statutory report of any of its Subsidiaries that
was required to be filed with any applicable Governmental Entity for the years
ended December 31, 1995, 1996 and 1997 and the quarterly period ended March 31,
1998, including all exhibits, interrogatories, notes, schedules and any
actuarial or accounting opinions, affirmations or certifications or other
supporting documents filed in connection therewith (collectively, the "Company
SAP Statements"). The Company SAP Statements were in all material respects
prepared in conformity with the accounting principles and practices set forth in
applicable Laws or prescribed or permitted by the applicable regulatory
authority, consistently applied for the periods covered thereby and present
fairly in all material respects, except as expressly noted therein, the
statutory financial condition of each of such Subsidiaries as at the respective
dates thereof and the results of operations of each of such Subsidiaries for the
respective periods then ended. No material deficiency which has not been cured
has been asserted with respect to any Company SAP Statements by the applicable
Governmental Entity. The Company has made available to Parent true and complete
copies of all examination reports of any regulatory agencies since January 1,
1996 relating to its Subsidiaries and all material submissions made by the
Company and any of its Subsidiaries to such regulatory agencies.
(f) Absence of Certain Changes. Except as disclosed in the Company
Reports filed prior to the date hereof, since December 31, 1997 the Company and
each of its Subsidiaries have conducted their respective businesses only in, and
have not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses, and there has not been (i) any
change in the financial condition, properties, business or results of operations
of the Company and its Subsidiaries, or any development or combination of
developments of which the executive
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officers of the Company have knowledge, that, individually or in the aggregate,
has had or is reasonably likely to have a Company Material Adverse Effect; (ii)
any material damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or otherwise used by the Company or any
of its Subsidiaries, whether or not covered by insurance; (iii) any declaration,
setting aside or payment of any dividend or other distribution in respect of the
capital stock of the Company, except for cash dividends or other distributions
on its capital stock publicly announced prior to the date hereof; (iv) any
change by the Company in accounting principles, practices or methods; (v) any
material change in the accounting, actuarial, investment, reserving,
underwriting or claims administration or servicing policies, practices,
procedures, methods, assumptions or principles of the Company or any of its
Subsidiaries; (vi) any cancellation, termination or non-renewal of a Material
Customer Contract (as defined in Section 5.1(r)) or Material Provider Contract
(as defined in Section 5.1(r)); or (vii) any increase in the compensation
payable or that could become payable by the Company or any of its Subsidiaries
to executive officers, other than increases in the ordinary course, or, other
than as required by Law, any amendment of any of the Compensation and Benefit
Plans (as defined in Section 5.1(h)) or the adoption of any new Compensation and
Benefit Plan. For purposes of this Agreement, "knowledge of the executive
officers" or any variation thereof means, in the case of the Company, knowledge
of the executive officers of the Company (or its Subsidiaries) set forth in
Section 5.1(f) of the Company Disclosure Letter and, in the case of Parent,
knowledge of the executive officers of Parent (or its Subsidiaries) set forth in
Section 5.1(f) of the Parent Disclosure Letter, in each case after due inquiry.
(g) Litigation and Liabilities. Except as disclosed or reserved for in
the Company Reports filed prior to the date hereof, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of the executive officers of the
Company, threatened against, or otherwise adversely affecting the Company or any
of its Subsidiaries, (ii) obligations or liabilities of any nature, whether
accrued, contingent or otherwise and whether or not required to be disclosed, or
(iii) facts or circumstances of which the executive officers of the Company have
knowledge that could result in any claims against, or obligations or liabilities
of, or limitations on the conduct of the business by, or otherwise adversely
affect, the Company or any of its Subsidiaries, except for any of the foregoing
that are not, individually or in the aggregate, reasonably likely to have a
Company Material Adverse Effect or prevent or materially burden or materially
impair the ability of the Company to consummate the transactions contemplated by
this Agreement and the Stock Option Agreement.
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<PAGE>
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
change of control, compensation, medical, health or other plan, agreement,
policy or arrangement that covers employees, directors, former employees or
former directors of the Company or any of its Subsidiaries, including in each
case any amendments or supplements thereto (the "Compensation and Benefit
Plans") and any trust agreement or insurance contract forming a part of such
Compensation and Benefit Plans has been made available to Parent prior to the
date hereof. The Compensation and Benefit Plans are listed in Section 5.1(h) of
the Company Disclosure Letter and any "change of control" or similar provisions
therein are specifically identified in Section 5.1(h) of the Company Disclosure
Letter.
(ii) All Compensation and Benefit Plans are in material compliance with
all applicable Law, including the Code and the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Each Compensation and Benefit Plan
that is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA (a "Pension Plan") and that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service (the "IRS"), with respect to "TRA" (as defined in
Section 1 of Rev. Proc. 93-39) and the Company is not aware of any circumstances
likely to result in revocation of any such favorable determination letter. There
is no pending or, to the knowledge of the executive officers of the Company,
threatened material litigation relating to the Compensation and Benefit Plans.
Neither the Company nor any of its Subsidiaries has engaged in a transaction
with respect to any Compensation and Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would subject the
Company or any of its Subsidiaries to a material tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA. No entity other than an
ERISA Affiliate (as defined below) participates in any Compensation and Benefit
Plan.
(iii) As of the date hereof, no liability under Subtitle C or D of
Title IV of ERISA has been or is reasonably expected to be incurred by the
Company or any Subsidiary with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer plan of
any entity which is considered one employer with the Company under Section 4001
of ERISA or Section 414 of the Code (an "ERISA Affiliate"). The Company and its
Subsidiaries have not incurred and do not expect to incur any withdrawal
liability with respect to a multiemployer plan under Subtitle E to Title IV of
ERISA. No notice of a "reportable event", within the meaning of Section 4043 of
ERISA for which the 30-day reporting requirement has not been waived, has been
required to be filed for any Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
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<PAGE>
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof have been timely made or
have been appropriately reflected on the Company's balance sheet. Neither any
Pension Plan nor any single-employer plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an
outstanding funding waiver. Neither the Company nor its Subsidiaries has
provided, or is required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Pension Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such Pension
Plan, and there has been no material change in the financial condition of such
Pension Plan since the last day of the most recent plan year.
(vi) Neither the Company nor its Subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan. The
Company or its Subsidiaries may amend or terminate any such plan under the terms
of such plan at any time without incurring any material liability thereunder.
(vii) The consummation of the Merger and the other transactions
contemplated by this Agreement will not (x) entitle any employees of the Company
or its Subsidiaries to severance pay, (y) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under, increase the
amount payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans or (z) result in any breach or violation of, or a
default under, any of the Compensation and Benefit Plans.
(viii) All Compensation and Benefit Plans covering current or former
non-U.S. employees or former employees of the Company and its Subsidiaries
comply in all material respects with applicable local Law. The Company and its
Subsidiaries have no material unfunded liabilities with respect to any Pension
Plan that covers such non-U.S. employees and is required to be funded.
(ix) No compensation payable by the Company to any of its employees
under any existing Compensation and Benefit Plan (including by reason of the
transactions contemplated hereby) will be subject to disallowance under Section
162(m) of the Code.
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<PAGE>
(x) Any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer, director or independent contractor of
the Company who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any Compensation and
Benefit Plan would not be characterized as an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code).
(xi) Neither the Company nor any of its Subsidiaries has made or
committed to make any material increase of contributions or benefits under any
Compensation and Benefit Plan which would become effective after the date
hereof.
(i) Compliance with Laws; Permits. (i) Except as set forth in the
Company Reports filed prior to the date hereof, the businesses of each of the
Company and its Subsidiaries have been, and are being, conducted in compliance
with all Laws, including all Health Benefit Laws (as defined below), except for
any failure to comply that, individually or in the aggregate, would not be
reasonably likely to have a Company Material Adverse Effect or prevent or
materially burden or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement and the Stock Option Agreement,
and neither the Company nor any of its Subsidiaries has received any written
notice or communication of any material failure to comply with any such Laws
that has not been cured (as evidenced by a written notice to such effect, a copy
of which has been provided to Parent) as of the date hereof. Except as set forth
in the Company Reports filed prior to the date hereof, no investigation,
examination, audit or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries has occurred, is pending or, to the knowledge
of the executive officers of the Company, threatened, except for those the
outcome of which are not, individually or in the aggregate, reasonably likely to
have a Company Material Adverse Effect or prevent or materially burden or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement. The Company and each of its Subsidiaries have
all permits, licenses, trademarks, patents, trade names, copyrights, service
marks, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted, including those applicable to a health insurance
organization ("HMO"), a preferred provider organization ("PPO") or an insurance,
reinsurance or third-party administrator business except for those the absence
of which would not be reasonably likely to result in a Company Material Adverse
Effect. Since December 31, 1995, no material Subsidiary of the Company has had
any license or certificate of authority revoked nor has any State denied any of
their applications for a license or certificate of authority.
(ii) For purposes of this Agreement, the term "Health Benefit Law"
means all Laws relating to the licensure, certification, qualification or
authority to transact business relating to the provision of and/or payment for
health benefits and insurance,
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including but not limited to ERISA, the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, the Health Insurance Portability and
Accounting Act of 1996, and Laws relating to the regulation of HMOs, workers
compensation, managed care organizations, insurance, PPOs, point-of-service
plans, certificates of need, third-party administrators, utilization review,
coordination of benefits, hospital reimbursement, Medicare and Medicaid
participation, fraud and abuse and patient referrals; the term "Medicaid" means
the applicable provision of Title XIX of the Social Security Act and the
regulations promulgated thereunder and the state laws and regulations
implementing the Medicaid program; and the term "Medicare" means the applicable
provisions of Title XVIII of the Social Security Act and the regulations
promulgated thereunder.
(j) Takeover Statutes. No restrictive provision of any "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation (including Section 203 of the DGCL) (each a "Takeover Statute") or
restrictive provision of any applicable anti-takeover provision in the Company's
certificate of incorporation (including Article Eleventh thereof) and by-laws
is, or at the Effective Time will be, applicable to the Company, Parent, Merger
Subsidiary, the Shares, the Merger or any other transactions contemplated by
this Agreement, the Stock Option Agreement or the Voting Agreement.
(k) Environmental Matters. Except as disclosed in the Company Reports
filed prior to the date hereof and except for such matters that, individually or
in the aggregate, are not reasonably likely to have a Company Material Adverse
Effect: (i) the Company and its Subsidiaries are and have been in compliance
with all applicable Environmental Laws; (ii) neither the Company nor any of its
Subsidiaries is subject to any liability under any Environmental Law (as defined
below); (iii) neither the Company nor any of its Subsidiaries has received any
written notice, demand, letter, claim or request for information alleging that
the Company or any of its Subsidiaries may be in violation of or liable under
any Environmental Law; (iv) neither the Company nor any of its Subsidiaries is
subject to any orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law or relating to
Hazardous Substances; and (v) there are no circumstances or conditions involving
the Company or any of its Subsidiaries that could reasonably be expected to
result in any claims, liability, investigations, costs or restrictions on the
ownership, use, or transfer of any property of the Company pursuant to any
Environmental Law. For purposes of this Agreement, the term "Environmental Law"
means any Law relating to: (A) the protection, investigation or restoration of
the environment, health and safety, or natural resources, (B) the handling, use,
presence, disposal, release or threatened release of any Hazardous Substance or
(C) noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property; and the term "Hazardous Substance" means any
substance that is: (A) listed, classified or regulated pursuant to any
Environmental Law; (B) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or
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plumbing, polychlorinated biphenyls, radioactive materials or radon; or (C) any
other substance which may be the subject of regulatory action by any
Governmental Entity pursuant to any Environmental Law.
(l) Accounting and Tax Matters. As of the date hereof, neither the
Company nor any of its affiliates has taken or agreed to take any action, nor
does the Chief Financial Officer of the Company have any knowledge of any fact
or circumstance relating to the Company or any of its Subsidiaries, that would
prevent Parent from accounting for the business combination to be effected by
the Merger as a "pooling-of-interests" or prevent the Merger and the other
transactions contemplated by this Agreement, the Stock Option Agreement or the
Voting Agreement from qualifying as a "reorganization" within the meaning of
Section 368(a) of the Code.
(m) Taxes. The Company and each of its Subsidiaries (i) have prepared
in good faith and duly and timely filed (taking into account any extension of
time within which to file) all material Tax Returns (as defined below) required
to be filed by any of them and all such filed Tax Returns are complete and
accurate in all material respects; (ii) have paid all material Taxes (as defined
below) that are required to be paid or that the Company or any of its
Subsidiaries are obligated to withhold from amounts owing to any employee,
creditor or third party, except with respect to matters contested in good faith;
and (iii) have not waived any statute of limitations with respect to Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
As of the date hereof, there are not pending or, to the knowledge of the
executive officers of the Company threatened in writing, any audits,
examinations, investigations or other proceedings in respect of Taxes or Tax
matters. There are not any unresolved questions or claims concerning the
Company's or any of its Subsidiaries' Tax liability that (A) were raised by any
Taxing authority in a communication to the Company or any Subsidiary and (B) are
reasonably likely to have a Company Material Adverse Effect. The Company has
made available to Purchaser true and correct copies of the United States federal
income Tax Returns filed by the Company and its Subsidiaries for each of the
years ended December 31, 1994, 1995 and 1996. Neither the Company nor any of its
Subsidiaries has any material liability with respect to income, franchise or
similar Taxes that accrued on or before December 31, 1997 in excess of the
amounts accrued with respect thereto that are reflected in the financial
statements included in the Company Reports filed on or prior to the date hereof.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") includes all federal,
state, local and foreign income, profits, franchise, gross receipts, premium,
environmental, customs duty, capital stock, severances, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or governmental
assessments of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts and any interest in respect
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of such penalties and additions, and (ii) the term "Tax Return" includes all
returns and reports (including elections, declarations, disclosures, schedules,
estimates and information returns) required to be supplied to a Tax authority
relating to Taxes.
(n) Labor Matters. Except as set forth in the Company Reports, neither
the Company nor any of its Subsidiaries is a party to or otherwise bound by any
collective bargaining agreement, contract or other agreement or written
understanding with a labor union or labor organization involving employees of
the Company or its Subsidiaries.
(o) Insurance. All material fire and casualty, general liability,
business interruption, product liability, directors' and officers', and
sprinkler and water damage insurance policies maintained by the Company or any
of its Subsidiaries are with reputable insurance carriers and are customary and
reasonable in amount and scope for the business in which the Company and its
Subsidiaries are engaged, except for any such failures to maintain insurance
policies that, individually or in the aggregate, are not reasonably likely to
have a Company Material Adverse Effect. The level of reinsurance with respect to
professional liability risk retained by the Company and its Subsidiaries is
adequate in light of the Company's reserves and of historical claims made.
(p) Intellectual Property. The Company and/or each of its Subsidiaries
owns, or is licensed or otherwise possesses legally enforceable rights to use,
all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how, computer software programs or
applications, and tangible or intangible proprietary information or materials
("Intellectual Property") that are used in the business of the Company and its
Subsidiaries as currently conducted, except for any such failures to own, be
licensed or possess that, individually or in the aggregate, are not reasonably
likely to have a Company Material Adverse Effect and to the knowledge of the
executive officers of the Company all material patents, trademarks, trade names,
service marks and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting. Except as disclosed in the Company Reports filed prior to
the date hereof or as is not reasonably likely to have a Company Material
Adverse Effect, (A) no claims are pending or, to the knowledge of the executive
officers of the Company threatened, with respect to any Intellectual Property
owned by the Company or any its Subsidiaries, (B) the conduct of the business of
the Company and its Subsidiaries does not infringe upon the rights of any other
Person and (C) there is no unauthorized use, infringement or misappropriation of
any of the Company's Intellectual Property by any third party, including any
employee or former employee of the Company or any of its Subsidiaries.
(q) Year 2000 Compliance; MIS Systems. The software and hardware
operated by the Company and its Subsidiaries are capable of providing or are
being adapted to provide uninterrupted millennium functionality to record,
store, process
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and present calendar dates falling on or after January 1, 2000 and
date-dependent data in substantially the same manner and with the same
functionality as such software records, stores, processes and presents such
calendar dates and date-dependent data as of the date hereof, except as would
not have a Company Material Adverse Effect. To the knowledge of the executive
officers of the Company, the ability of the Company's significant suppliers,
customers and others with which it conducts business to identify and resolve
their own Year 2000 issues will not have a Company Material Adverse Effect.
Prior to the date hereof, the Company has discussed with Parent and its advisors
the material steps that it and its Subsidiaries have taken to become Year 2000
compliant and the costs the Company expects to incur in connection therewith.
There are no existing circumstances or contemplated changes in the management
information systems of the Company or any of its Subsidiaries that would be
reasonably likely to have a Company Material Adverse Effect.
(r) Material Contracts. Section 5.1(r) of the Company Disclosure Letter
sets forth a list of all Material Company Contracts. The Company has made
available to Parent true and complete copies of all the Material Company
Contracts. The Material Company Contracts are in full force and effect and are
enforceable against the Company or its Subsidiaries that are parties thereto
and, to the knowledge of the executive officers of the Company, against the
other parties thereto in accordance with their respective terms. Except to the
extent reflected in the financial statements of the Company Reports, neither the
Company nor any of its Subsidiaries nor, to the knowledge of the executive
officers of the Company, any other party is in breach of or in default under any
such Material Company Contract, other than any immaterial breaches or defaults.
There is no pending or, to the knowledge of the executive officers of the
Company, threatened, cancellation of any Material Company Contract. There are no
Material Company Contracts that guarantee over a period of greater than twelve
months the rates charged by the Company or any of its Subsidiaries to any of
their customers. For purposes of this Agreement, the term "Material Company
Contract" means any Contract to which the Company or any of its Subsidiaries is
a party (i) concerning a partnership or joint venture with another Person; (ii)
limiting in any material respect in a specific market the ability of the Company
or any of its Subsidiaries or, assuming the consummation of the transactions
contemplated by this Agreement, Parent or any of its Subsidiaries (A) to sell
any products or services of or to any other Person, (B) to engage in any line of
business (including geographical limitations) or (C) to compete with or to
obtain products or services from any Person, or limiting the ability of any
Person to provide products or services to the Company or any of its Subsidiaries
prior to the Effective Time, or Parent or any of its Subsidiaries at or after
the Effective Time; (iii) which Contract is with a provider that generated one
of the twenty-five (25) highest totals of claims paid to a provider during the
one year period ended December 31, 1997 (the "Material Provider Contracts");
(iv) which Contract is a provider agreement and (A) contains either any form of
patient volume guarantee or an exclusivity provision restricting the
geographical area in which, or the method by which, any business may be
conducted by the Company or any
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of its Subsidiaries or Affiliates prior to the Effective Time, or by Parent or
any of its Subsidiaries or Affiliates after the Effective Time (all such
agreements in clause (A), the "Exclusivity Contracts"); and (B) relates to
services in the markets listed in Section 5.1(r) of the Company Disclosure
Letter (the "Areas"); and (C) is (x) with a capitated provider that services
twenty-five percent (25%) or more of the members in any Area during the one year
period ended December 31, 1997; or (y) with one of the top three (3) hospitals
by claims paid in any Area during the one year period ended December 31, 1997;
or (z) an agreement covering multiple sites; (v) which Contract is with a
customer that generated one of the twenty-five (25) highest totals of premium
revenue during the one year period ended December 31, 1997 (the "Material
Customer Contracts"); (vi) involving an aggregate payment or commitment per
Contract on the part of the other party of $10,000,000 in each case during the
one year period ended December 31, 1997 (other than the types of contracts
described in clauses (iii), (iv) and (v) above); (vii) between the Company or
one of its Subsidiaries, on the one hand, and one of its or their affiliates
(other than the Company or any of its Subsidiaries) on the other hand; or (viii)
which is material to the Company pursuant to Item 601(b)(10) of Regulation S-K
under the Securities Act.
(s) Rights Plan. The Company has amended the Rights Agreement to
provide that Parent shall not be deemed an Acquiring Person, the Distribution
Date and the Shares Acquisition Date (each as defined in the Rights Agreement)
shall each not be deemed to occur and the rights issuable pursuant to the Rights
Agreement will not separate from the Shares or otherwise become exercisable, as
a result of entering into this Agreement, the Stock Option Agreement or the
Voting Agreement or consummating the Merger and/or the other transactions
contemplated hereby and thereby.
(t) Reserves. The reserves established by the Company and its
Subsidiaries as reflected in the Company Reports or in any financial statement
or balance sheet contained in any document filed with any Governmental Entity
for insurance, medical and other benefits, losses and claims for the periods
covered by the Company Reports (A) are in all material respects computed in
accordance with presently accepted prudent industry standards consistently
applied and as required by applicable Law, (B) are fairly stated in all material
respects in accordance with sound actuarial and statutory accounting principles,
and (C) are computed on the basis of assumptions consistent in all material
respects with those used in computing the corresponding reserve in the prior
fiscal year. As of the date hereof, the Chief Financial Officer of the Company
is not aware of any fact or circumstance which would necessitate, in the good
faith application of prudent reserving practices and policies, any material
adverse change in reserves for such benefits, losses or claims above that
reflected in the most recent balance sheet included in the Company Reports
(other than increases consistent with past experience resulting from increases
in enrollment with respect to the Company's services).
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(u) Brokers and Finders. Neither the Company nor its Subsidiaries nor
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any brokerage fees, commissions or
finders fees in connection with the Merger or the other transactions
contemplated by this Agreement, except that the Company has employed Lehman
Brothers, Inc. as its financial advisor, the arrangements with which have been
disclosed in writing to Parent prior to the date hereof.
(v) Ownership of Parent Common Stock. As of the date hereof, neither
the Company nor any of its Subsidiaries owns any shares of Parent Common Stock
or other securities convertible into shares of Parent Common Stock.
5.2. Representations and Warranties of Parent and Merger Subsidiary.
Except as set forth in the corresponding sections or subsections (or by
appropriate cross-reference) of the disclosure letter delivered to the Company
by Parent prior to entering into this Agreement (the "Parent Disclosure
Letter"), Parent and Merger Subsidiary each hereby represent and warrant to the
Company that:
(a) Capitalization of Merger Subsidiary. The authorized capital stock
of Merger Subsidiary consists of 1000 shares of Common Stock, par value $ $0.01
per share, all of which are validly issued and outstanding. All of the issued
and outstanding capital stock of Merger Subsidiary is, and at the Effective Time
will be, owned by Parent, and there are (i) no other shares of capital stock or
voting securities of Merger Subsidiary, (ii) no securities of Merger Subsidiary
convertible into or exchangeable for shares of capital stock or voting
securities of Merger Subsidiary and (iii) no options or other rights to acquire
from Merger Subsidiary, and no obligations of Merger Subsidiary to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Merger Subsidiary. Merger Subsidiary
has not conducted any business prior to the date hereof and has no, and prior to
the Effective Time will have no, assets, liabilities or obligations of any
nature other than those incident to its formation and pursuant to this Agreement
and the Merger and the other transactions contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota and each of its Subsidiaries is a corporation or other
entity duly organized, validly existing and in good standing under the laws of
its respective jurisdiction of organization and Parent and each of its
Subsidiaries has all requisite corporate or similar power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership or operation of its
properties or conduct of its business requires such qualification, except where
the failure to have such corporate power or authority or to be so qualified or
in good standing, when taken together with all other such failures, is not
reasonably likely to
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have a Parent Material Adverse Effect (as defined below). Parent has made
available to the Company a complete and correct copy of Parent's and each of its
Subsidiaries' certificates of incorporation and by-laws or comparable governing
instruments, each as amended to date. Parent's and its Subsidiaries'
certificates of incorporation and by-laws or comparable governing instruments so
delivered are in full force and effect. As used in this Agreement, the term
"Parent Material Adverse Effect" means a material adverse effect on the
financial condition, properties, business or results of operations of Parent and
its Subsidiaries taken as a whole.
(c) Capital Structure. As of the date hereof, the authorized capital
stock of Parent consists of 500,000,000 shares of Parent Common Stock, of which
192,778,481 shares were outstanding as of the close of business on May 22, 1998,
and 10,000,000 shares of Preferred Stock, par value $.001 per share (the "Parent
Preferred Shares"), of which 500,000 shares were outstanding as of the close of
business on May 22, 1998. All of the outstanding Parent Common Stock and Parent
Preferred Shares have been duly authorized and are validly issued, fully paid
and nonassessable. Parent has no Parent Common Stock or Parent Preferred Shares
reserved for issuance, except that, as of March 31, 1998, there were 20,676,281
shares of Parent Common Stock reserved for issuance pursuant to the Parent 1987
Supplemental Stock Option Plan, the Parent 1991 Stock and Incentive Plan, the
Parent 1995 Nonemployee Director Plan and the Parent Employer Stock Purchase
Plan; and 2,012,095 shares of Parent Common Stock are reserved for issuance
pursuant to stock plans of Parent which are no longer active and stock plans
assumed by Parent in connection with a number of previous business combinations;
and that at the May 13, 1998 meeting of the Parent Board of Directors, the Board
approved the Parent 1998 Broad-Based Stock Incentive Plan, pursuant to which
5,767,159 shares are reserved for issuance (collectively, the "Parent Stock
Plans"). Each of the outstanding shares of capital stock or other securities of
Parent's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and owned by a direct or indirect wholly owned subsidiary of
Parent, free and clear of any Liens. Except as set forth above, as of the date
hereof there are no preemptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements or commitments to issue or to sell any shares
of capital stock or other securities of Parent or any of its Subsidiaries or any
securities or obligations convertible or exchangeable into or exercisable for,
or giving any Person a right to subscribe for or acquire, any securities of
Parent or any of its Subsidiaries, and no securities or obligations evidencing
such rights are authorized, issued or outstanding. Parent does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or convertible into or exercisable for securities
having the right to vote) with the stockholders of Parent on any matter ("Parent
Voting Debt").
(d) Corporate Authority. (i) Each of Parent and Merger Subsidiary has
all requisite corporate power and authority and has taken all corporate action
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necessary in order to execute, deliver and perform its obligations under this
Agreement and to consummate, subject only to any shareholder approval necessary
to permit the issuance of the shares of Parent Common Stock required to be
issued pursuant to Article IV (the "Parent Requisite Vote"). This Agreement is a
valid and binding agreement of Parent and Merger Subsidiary, enforceable against
each of Parent and Merger Subsidiary in accordance with its terms, subject to
the Bankruptcy and Equity Exception.
(ii) The Board of Directors of Parent (A) has unanimously approved this
Agreement and the Merger and the other transactions contemplated hereby and (B)
has received the opinion, dated the date hereof, of its financial advisors,
Goldman, Sachs & Co., to the effect that the Merger Consideration to be paid by
Parent in the Merger is fair from a financial point of view to Parent. It is
agreed and understood by the Company that such opinion is for the sole benefit
of the Board of Directors of Parent and is not to be relied on by the Company or
its stockholders. Subject to obtaining the Parent Requisite Vote, Parent has
taken all necessary action to permit it to issue the number of shares of Parent
Common Stock required to be issued pursuant to Article IV. The Parent Common
Stock, when issued, will be validly issued, fully paid and nonassessable, and no
shareholder of Parent will have any preemptive right of subscription or purchase
in respect thereof. The Parent Common Stock, when issued, will be registered
under the Securities Act and Exchange Act and registered or exempt from
registration under any applicable state securities or "blue sky" laws.
(e) Governmental Filings; No Violations. (i) Other than the filings,
notices, consents, registrations, approvals, permits and authorizations (A)
pursuant to Section 1.3, (B) under the HSR Act, the Exchange Act and the
Securities Act, (C) required under any Health Benefit Law, (D) to comply with
state securities or "blue-sky" laws, or (E) required to be made with the New
York Stock Exchange, Inc. ("NYSE"), no notices, reports or other filings are
required to be made by Parent or Merger Subsidiary with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
Parent or Merger Subsidiary from, any Governmental Entity or any other Person,
in connection with the execution and delivery of this Agreement by Parent and
Merger Subsidiary and the consummation by Parent and Merger Subsidiary of the
Merger and the other transactions contemplated hereby, except those the failure
to make or obtain are not, individually or in the aggregate, reasonably likely
to have a Parent Material Adverse Effect or prevent, materially delay or
materially impair the ability of Parent or Merger Subsidiary to consummate the
transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by
Parent and Merger Subsidiary do not, and the consummation by Parent and Merger
Subsidiary of the Merger and the other transactions contemplated hereby will
not, constitute or result in (A) a breach or violation of, or a default under,
the articles of incorporation or by-laws of Parent and Merger Subsidiary or the
comparable governing instruments of any of its Subsidiaries, (B) a breach or
violation of, or a default under, or
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acceleration of any obligations under, or the termination of, or the loss of a
material benefit under, or the creation of a Lien on the assets of Parent or any
of its Subsidiaries (with or without notice, lapse of time or both) pursuant to,
any Contracts binding upon Parent or any of its Subsidiaries or any of their
respective assets, or (assuming, as to consummation, the filings and notices are
made, and approvals are obtained, as referred to in Section 5.2(e)(i)) or any
applicable Law to which Parent or any of its Subsidiaries or any of their
respective assets is subject or (C) any change in the rights or obligations of
any party under any of the Contracts, except, in the case of clause (B) or (C)
above, for any breach, violation, default, acceleration, termination, creation
or change that, individually or in the aggregate, is not reasonably likely to
have a Parent Material Adverse Effect or prevent, materially delay or materially
impair the ability of Parent or Merger Subsidiary to consummate the transactions
contemplated by this Agreement.
(f) Parent Reports; Financial Statements. (i) Parent has made available
to the Company each registration statement, report, proxy statement or informa-
tion statement prepared by it since December 31, 1996, including (i) Parent's
Annual Report on Form 10-K for the years ended December 31, 1996 and December
31, 1997 and (ii) Parent's Quarterly Report on Form 10-Q for the period ended
March 31, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the SEC (collectively, including any such reports filed
subsequent to the date hereof, the "Parent Reports"). As of their respective
dates, the Parent Reports did not, and any Parent Reports filed with the SEC
subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Parent Reports (including the
related notes and schedules) fairly presents in all material respects, or, in
the case of Parent Reports filed with the SEC subsequent to the date hereof,
will fairly present in all material respects, the consolidated financial
position of Parent and its Subsidiaries as of its date and each of the
consolidated statements of income and of changes in financial position included
in or incorporated by reference into the Parent Reports (including any related
notes and schedules) fairly presents in all material respects, or, in the case
of Parent Reports filed with the SEC subsequent to the date hereof, will fairly
present in all material respects, the results of operations, retained earnings
and changes in financial position, as the case may be, of Parent and its
Subsidiaries on a consolidated basis for the periods set forth therein (subject,
in the case of unaudited statements, to notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein.
(ii) Parent has made available to the Company true and complete copies
of each annual and quarterly statutory report of any of its Subsidiaries that
was required to be filed with any applicable Governmental Entity for the years
ended December 31, 1995, 1996 and 1997 and the quarterly period ended March 31,
1998,
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including all exhibits, interrogatories, notes, schedules and any actuarial or
accounting opinions, affirmations or certifications or other supporting
documents filed in connection therewith (collectively, the "Parent SAP
Statements"). The Parent SAP Statements were in all material respects prepared
in conformity with the accounting principles and practices set forth in
applicable Laws or prescribed or permitted by the applicable regulatory
authority, consistently applied for the periods covered thereby and present
fairly in all material respects, except as expressly noted therein, the
statutory financial condition of each of such Subsidiaries as at the respective
dates thereof and the results of operations of each of such Subsidiaries for the
respective periods then ended. No material deficiency which has not been cured
has been asserted with respect to any Company SAP Statements by the applicable
Governmental Entity. Parent has made available to the Company true and complete
copies of all examination reports of any regulatory agencies since January 1,
1996 relating to its Subsidiaries and all material submissions made by Parent
and any of its Subsidiaries to such regulatory agencies.
(g) Absence of Certain Changes. Except as disclosed in the Parent
Reports filed prior to the date hereof, since December 31, 1997 Parent and each
of its Subsidiaries have conducted their respective businesses only in, and have
not engaged in any material transaction other than according to, the ordinary
and usual course of such businesses and there has not been (i) any change in the
financial condition, properties, business or results of operations of Parent and
its Subsidiaries or any development or combination of developments of which the
executive officers of Parent have knowledge that, individually or in the
aggregate, has had or is reasonably likely to have a Parent Material Adverse
Effect; (ii) any material damage, destruction or other casualty loss with
respect to any material asset or property owned, leased or otherwise used by
Parent or any of its Subsidiaries, whether or not covered by insurance; (iii)
any declaration, setting aside or payment of any dividend or other distribution
in respect of the capital stock of Parent, except for cash dividends or other
distributions on its capital stock publicly announced prior to the date hereof
or declared and paid consistent with past practice (including customary
increases); (iv) any change by Parent in accounting principles, practices and
methods; or (v) any material change in the accounting, actuarial, investment,
reserving, underwriting or claims administration or servicing policies,
practices, procedures, methods, assumptions or principles of Parent or any of
its Subsidiaries.
(h) Litigation and Liabilities. Except as disclosed in the Parent
Reports filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the executive officers of Parent, threatened
against, or otherwise adversely affecting Parent or any of its Subsidiaries,
(ii) obligations or liabilities of any nature, whether accrued, contingent or
otherwise and whether or not required to be disclosed, including those relating
to matters involving any Environmental Law, or (iii) facts or circumstances of
which the executive officers of Parent have knowledge that could result
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in any claims against, or obligations or liabilities of, or limitations on the
conduct of business by, or otherwise adversely affect, Parent or any of its
Subsidiaries, except for any of the foregoing that are not, individually or in
the aggregate, reasonably likely to have a Parent Material Adverse Effect or
prevent or materially burden or materially impair the ability of Parent or
Merger Subsidiary to consummate the transactions contemplated by this Agreement.
(i) Compliance with Laws; Permits. Except as set forth in the Parent
Reports filed prior to the date hereof, the businesses of each of Parent and its
Subsidiaries have been, and are being, conducted in compliance with all Laws,
including all Health Benefit Laws, except for any failure to comply that,
individually or in the aggregate, would not be reasonably likely to have a
Parent Material Adverse Effect or prevent or materially burden or materially
impair the ability of Parent to consummate the transactions contemplated by this
Agreement and the Stock Option Agreement, and neither Parent nor any of its
Subsidiaries has received any written notice or communication of any material
failure to comply with any such Laws that has not been cured (as evidenced by a
written notice to such effect, a copy of which has been provided to Company) as
of the date hereof. Except as set forth in the Parent Reports filed prior to the
date hereof, no investigation, examination, audit or review by any Governmental
Entity with respect to Parent or any of its Subsidiaries has occurred, is
pending or, to the knowledge of the executive officers of Parent, threatened,
except for those the outcome of which are not, individually or in the aggregate,
reasonably likely to have a Parent Material Adverse Effect or prevent or
materially burden or materially impair the ability of Parent to consummate the
transactions contemplated by this Agreement. Parent and each of its Subsidiaries
have all permits, licenses, trademarks, patents, trade names, copyrights,
service marks, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted, including those applicable to each HMO, PPO or insurance,
reinsurance or third-party administrator business except for those the absence
of which would not be reasonably likely to result in a Parent Material Adverse
Effect. Since December 31, 1995, no material Subsidiary of Parent has had any
material license or material certificate of authority revoked nor has any State
denied any of their applications for a license or certificate of authority.
(j) Accounting and Tax Matters. As of the date hereof, neither Parent
nor any of its affiliates has taken or agreed to take any action, nor does the
Chief Financial Officer of Parent have any knowledge of any fact or
circumstance, that would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling-of-interests" or prevent
the Merger and the other transactions contemplated by this Agreement, the Stock
Option Agreement or the Voting Agreement from qualifying as a "reorganization"
within the meaning of Section 368(a) of the Code.
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(k) Reserves. The reserves established by Parent and its Subsidiaries
as reflected in the Parent Reports or in any financial statement or balance
sheet contained in any document filed with any Governmental Entity for
insurance, medical and other benefits, losses and claims for the periods covered
by the Parent Reports (A) are in all material respects computed in accordance
with presently accepted prudent industry standards consistently applied and as
required by applicable Law, (B) are fairly stated in all material respects in
accordance with sound actuarial and statutory accounting principles, and (C) are
computed on the basis of assumptions consistent in all material respects with
those used in computing the corresponding reserve in the prior fiscal year. As
of the date hereof, the Chief Financial Officer of Parent is not aware of any
fact or circumstance which would necessitate, in the good faith application of
prudent reserving practices and policies, any material adverse change in
reserves for such benefits, losses or claims above that reflected in the most
recent balance sheet included in the Parent Reports (other than increases
consistent with past experience resulting from increases in enrollment with
respect to Parent's services).
(l) Brokers and Finders. Neither Parent nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the Merger or the other transactions contemplated by this Agreement, except that
Parent has employed Goldman, Sachs & Co. as its financial advisor.
(m) Ownership of Company Common Stock. As of the date hereof, neither
Parent nor any of its Subsidiaries owns any shares of Company Common Stock or
other securities convertible into shares of Company Common Stock.
ARTICLE VI
Covenants
6.1. Interim Operations. (a) Except as set forth in Section 6.1 of the
Company Disclosure Schedule, the Company covenants and agrees as to itself and
its Subsidiaries that, after the date hereof and prior to the Effective Time
(unless Parent shall otherwise approve in writing, which approval shall not be
unreasonably withheld, and except as otherwise expressly contemplated by this
Agreement or the Stock Option Agreement):
(i) it and its Subsidiaries' businesses shall be conducted in the
ordinary and usual course; it being understood and agreed that nothing contained
herein shall permit the Company to enter into or engage in (through acquisition,
product extension or otherwise) the business of selling any products or services
materially
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different from existing products or services of the Company and its Subsidiaries
or entering into or engaging in new lines of business;
(ii) it and its Subsidiaries shall use their respective reasonable best
efforts to preserve their business organizations intact and maintain their
existing relations and goodwill with customers, suppliers, reinsurers, agents,
creditors, lessors, providers and regulators, employees and business associates;
(iii) it shall not (A) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Subsidiaries; (B) amend its certificate
of incorporation or by-laws or amend the Rights Agreement or adopt any new
rights agreement or similar agreement; (C) split, combine or reclassify its
outstanding shares of capital stock; (D) authorize, declare, set aside or pay
any dividend or other distribution payable in cash, stock or property in respect
of any capital stock other than dividends from its direct or indirect wholly
owned Subsidiaries; or (E) repurchase, redeem or otherwise acquire, except in
connection with any of the Company Stock Plans, or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of its stock or any
securities convertible into or exchangeable or exercisable for any shares of its
stock;
(iv) neither it nor any of its Subsidiaries shall (A) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class or
any other property or assets (other than Shares issuable pursuant to options or
pursuant to stock bonus plans outstanding on the date hereof under any of the
Company Stock Plans and options on up to 100,000 Shares granted under the
Company Stock Plans after the date hereof to non-executive officers and
consistent with prior practice); (B) other than in the ordinary and usual course
of business, transfer, lease, license, guarantee, sell, mortgage, pledge,
dispose of or encumber any other property or assets (including capital stock of
any of its Subsidiaries) or incur or modify any material indebtedness or other
liability, except for immaterial Liens arising by operation of law; (C) make or
authorize or commit to any capital expenditures other than in accordance with or
pursuant to the summary of the calendar year 1998 capital
appropriations/spending budgets in Section 6.1(a)(iv)(C) of the Company
Disclosure Letter, and, during calendar year 1999, shall not make or authorize
or commit to any capital expenditures in excess of the 1998 capital expenditure
limit set forth in Section 6.1(a)(iv)(C) of the Company Disclosure Letter; or
(D) make any acquisition of, or investment in, assets or stock of any other
Person or entity in excess of $3 million other than Passive Investments;
(v) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans except as required by Law or increase
the salary, wage, bonus or other compensation of any employees except increases
for employees who are
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not elected officers of the Company occurring in the ordinary and usual course
of business (which shall include normal periodic performance reviews and related
compensation and benefit increases), and if the Merger is not consummated on or
prior to December 31, 1998 and this Agreement is not terminated in accordance
with its terms, increases in compensation for elected officers of the Company
occurring in the ordinary and usual course of business;
(vi) neither it nor any of its Subsidiaries shall pay, discharge,
settle or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction of claims, liabilities or obligations in the ordinary
and usual course of business;
(vii) neither it nor any of its Subsidiaries shall make or change any
material Tax election, settle any audit, file any amended Tax Returns or permit
any insurance policy naming it as a beneficiary or loss-payable payee to be
canceled or terminated except in the ordinary and usual course of business;
(viii) neither it nor any of its Subsidiaries shall enter into any
Contract containing any provision or covenant limiting in any respect the
ability of the Company or any of its Subsidiaries or any of their "Affiliates"
(as defined in Rule 12b-2 under the Exchange Act) to (A) sell any products or
services of or to any other Person, (B) engage in any line of business
(including geographic limitations) or (C) compete with or obtain products or
services from any Person, or limiting the ability of any Person to provide
products or services to the Company or any of its Subsidiaries or their
Affiliates;
(ix) enter into any new reinsurance arrangements;
(x) neither it nor any of its Subsidiaries will terminate, or amend, or
modify in any material respect, any Material Company Contract, other than
provider Contracts that are terminated or amended or modified in the ordinary
and usual course of business and other than renewal of customer Contracts in the
ordinary and usual course of business; it being understood that the Company
shall use its reasonable best efforts to keep Parent advised of any anticipated
termination of or material amendment or modification of any Material Customer
Contract or Material Provider Contract and to make available to Parent the
Exclusivity Contracts;
(xi) neither it nor any of its Subsidiaries shall take any action or
omit to take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(xii) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
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(b) During the period from the date of this Agreement through the
Effective Time, (i) as requested by Parent, the Company shall confer on a
regular basis with one or more representatives of Parent with respect to
material operational matters (including the general status of provider and
customer contracts), (ii) upon the knowledge of the executive officers of the
Company of any event or occurrence that is reasonably likely to result in a
Company Material Adverse Effect, any material litigation or material
governmental complaints, investigation or hearings (or communications indicating
that the same may be contemplated), the breach in any material respect of any
representation, warranty or covenant contained herein, or the failure of any
condition precedent to the Merger, the Company shall promptly notify Parent
thereof and (iii) upon the knowledge of the executive officers of Parent of any
event or occurrence that is reasonably likely to result in a Parent Material
Adverse Effect or the failure of any condition precedent to the Merger, Parent
shall promptly notify the Company thereof.
(c) Except as disclosed in the Parent Reports filed prior to the date
hereof, Parent covenants and agrees as to itself and its Subsidiaries that,
after the date hereof and prior to the Effective Time (unless the Company shall
otherwise approve in writing, which approval shall not be unreasonably withheld,
and except as otherwise expressly contemplated by this Agreement) that (i)
except as set forth in Section 6.1(c) of the Parent Disclosure Schedule, Parent
and its Subsidiaries' businesses shall be conducted in the ordinary and usual
course; and (ii) Parent shall not authorize, declare, set aside or pay any
dividend or other distribution in respect of any capital stock of Parent, other
than dividends from its direct or indirect wholly owned Subsidiaries and regular
annual dividends of $0.03 per share of the Parent Common Stock.
6.2. Acquisition Proposals. The Company agrees that neither it nor any
of its Subsidiaries nor any of its or their respective officers and directors
shall, and that the Company shall direct and use its best efforts to cause its
and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) (such officers, directors, employees, agents and representatives
sometimes collectively referred to herein as "Representatives") not to, directly
or indirectly, initiate, solicit, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer or entering into any agreement
with respect to a merger, reorganization, share exchange, consolidation or
similar transaction involving, or any purchase of 15% or more of the assets or
any equity securities of, the Company or any of its Subsidiaries (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal").
The Company further agrees that neither it nor any of its Subsidiaries nor any
of their respective officers and directors shall, and that the Company shall
direct and cause its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to, an Acquisition Proposal, whether made
before or after the
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date of this Agreement, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; provided, however, that nothing contained in
this Agreement shall prevent the Company or its Board of Directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal; (B) providing information in response to a request
therefor by a Person who has made an unsolicited bona fide written Acquisition
Proposal if the Board of Directors receives from the Person so requesting such
information an executed confidentiality agreement ("Third Party Confidentiality
Agreement") on terms equivalent to those contained in the Confidentiality
Agreement (as defined in Section 9.7); (C) engaging in any negotiations or
discussions with any Person who has made an unsolicited bona fide written
Acquisition Proposal; or (D) recommending an unsolicited bona fide written
Acquisition Proposal to the stockholders of the Company, if and only to the
extent that, prior to taking any such action (i) in each such case referred to
in clause (B), (C) or (D) above, the Board of Directors of the Company
determines in good faith after receipt of an opinion from its outside legal
counsel experienced in such matters that such action is necessary in order for
its directors to comply with their respective fiduciary duties under applicable
Law and (ii) in each case referred to in clause (C) or (D) above, the Board of
Directors of the Company determines in good faith (after consultation with its
financial advisor) that such Acquisition Proposal, if accepted, is reasonably
likely to be consummated, taking into account all legal, financial and
regulatory aspects of the proposal and the Person making the proposal and would,
if consummated, result in a transaction superior to the transaction contemplated
by this Agreement, taking into account, among other things, the long-term
prospects and interests of the Company and its stockholders (any such superior
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal"). The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The Company agrees that it will
take the necessary steps to promptly inform its Representatives of the
obligations undertaken in this Section 6.2 and in the Confidentiality Agreement.
The Company will notify Parent immediately (but, in any event, no less than 48
hours thereafter) if any Acquisition Proposal or inquiry related thereto is
received by, any information is requested from, or any discussions or
negotiations are sought to be initiated or continued with, the Company or any of
its Representatives relating to an Acquisition Proposal, indicating the name of
such Person and the material terms and conditions of any Acquisition Proposal
and thereafter shall keep Parent informed, on a current basis, of the status and
terms of any such Acquisition Proposal and the status of any such negotiations
or discussions. The Company also will promptly request each Person that has
heretofore executed a confidentiality agreement in connection with its
consideration of an Acquisition Proposal to return all confidential information
heretofore furnished to such Person by or on behalf of it or any of its
Subsidiaries.
6.3. Information Supplied. The Company and Parent each agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it
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or its Subsidiaries for inclusion or incorporation by reference in (i) the
Registration Statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger
(including the joint proxy statement and prospectus (the "Prospectus/ Proxy
Statement") constituting a part thereof) (the "S-4 Registration Statement")
will, at the time the S-4 Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (ii) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the times
of the meetings of stockholders of the Company and Parent to be held in
connection with this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading and (iii) any filing with a Governmental Entity
in connection with this Agreement under any Health Benefit Law, will be untrue
or incorrect in any material respect.
6.4. Stockholders Meetings. The Company will take all action necessary
to convene a meeting of holders of Shares (the "Stockholders Meeting") as
promptly as practicable after the S-4 Registration Statement is declared
effective (and, in any event, within 45 days thereafter unless otherwise
mutually agreed by the Company and Parent) to consider and vote upon the
approval of this Agreement. Parent will take all action necessary to convene a
meeting of holders of Parent Common Stock as promptly as practicable after the
S-4 Registration Statement is declared effective (and, in any event, within 45
days thereafter unless otherwise mutually agreed by the Company and Parent) to
consider and vote upon the approval of the issuance of Parent Common Stock in
the Merger. Parent and the Company shall coordinate and cooperate with respect
to the timing of such meetings and shall use their reasonable best efforts to
hold such meetings on the same day. Except to the extent the Board of Directors
of the Company or of the Parent determines in good faith, after receipt of an
opinion from its outside legal counsel experienced in such matters, that such
action is necessary in order for its directors to comply with their respective
fiduciary duties under applicable Law, each of the Company's and Parent's Board
of Directors shall recommend such approval, shall not withdraw or modify such
recommendation and shall take all lawful action to solicit such approval.
6.5. Filings; Other Actions; Notification. (a) Parent and the Company
shall promptly prepare and file with the SEC the Prospectus/Proxy Statement, and
Parent shall prepare and file with the SEC the S-4 Registration Statement as
promptly as practicable. Parent shall use its reasonable best efforts to have
the S-4 Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing (and the Company shall cooperate with
Parent in connection therewith), and promptly thereafter mail the
Prospectus/Proxy Statement to the respective stockholders of
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each of the Company and Parent. Parent shall also use its reasonable best
efforts to obtain prior to the effective date of the S-4 Registration Statement
all necessary state securities law or "blue sky" permits and approvals required
in connection with the Merger and to consummate the other transactions
contemplated by this Agreement and will pay all expenses incident thereto.
(b) The Company and Parent each shall cooperate with the other and use
(and shall cause their respective Subsidiaries to use) its reasonable best
efforts to take or cause to be taken all actions, and do or cause to be done all
things, necessary, proper or advisable on its part under this Agreement and
applicable Laws to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as practicable, including
preparing and filing as promptly as practicable all documentation to effect all
necessary notices, reports and other filings (including as required by Health
Benefit Laws) and to obtain as promptly as practicable all consents, waivers,
registrations, approvals, permits and authorizations necessary or advisable to
be obtained from any third party and/or any Governmental Entity in order to
consummate the Merger or any of the other transactions contemplated by this
Agreement (including as required by Health Benefit Laws); provided, however,
that in connection with obtaining consents required under any Contracts, the
Company shall not agree to any material modifications or amendments of any
Contracts or incur any additional material obligations or liabilities to any
party to such Contracts; provided, further, that nothing in this Section 6.5
shall require, or be construed to require, Parent, in connection with the
receipt of any regulatory approval, to proffer to, or agree to (i) sell or hold
separate and agree to sell or to discontinue to or limit, before or after the
Effective Time, any assets, businesses, or interest in any assets or businesses
of Parent, the Company or any of their respective Affiliates (or to consent to
any sale, or agreement to sell, or discontinuance or limitation by the Company
of any of its assets or businesses) or (ii) agree to any material conditions
relating to, or material changes or restriction in, the operations of any such
assets or businesses; provided, however, that it is agreed that routine
conditions sought to be imposed by a state Governmental Entity that Parent has
customarily agreed to in the past in connection with obtaining regulatory
consents from such Governmental Entity shall not be considered "material
conditions" for purposes of clause (ii) above. Subject to applicable Laws
relating to the exchange of information, Parent and the Company shall have the
right to review in advance, and to the extent practicable each will consult the
other on, all the information relating to Parent or the Company, as the case may
be, and any of their respective Subsidiaries, that appear in any filing made
with, or written materials submitted to, any third party and/or any Governmental
Entity in connection with the Merger and the other transactions contemplated by
this Agreement. In exercising the foregoing right, each of the Company and
Parent shall act reasonably and as promptly as practicable.
(c) The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers
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and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Prospectus/Proxy Statement, the S-4
Registration Statement or any other statement, filing, notice or application
made by or on behalf of Parent, the Company or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in connection
with the Merger and the transactions contemplated by this Agreement and the
Stock Option Agreement.
(d) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this Agreement.
6.6. Taxation and Accounting. (a) Neither Parent nor the Company shall
take or cause to be taken, and each of Parent and the Company shall use its
reasonable best efforts to prevent any of its affiliates from taking, any
action, whether before or after the Effective Time, that would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code. Each of
Parent and the Company agrees to use all reasonable best efforts to cure any
impediment to the qualification of the Merger as a "reorganization" within the
meaning of Section 368(a) of the Code.
(b) Each of the Company and Parent have delivered to the other a copy
of a letter, dated on or prior to the date hereof, from their respective
independent accountants stating that accounting for the Merger as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations is appropriate if the transactions contemplated by this
Agreement, the Stock Option Agreement and the Voting Agreement are consummated
in accordance with their terms (each a "Pooling Letter"). The Company and Parent
each shall use its reasonable best efforts to cause to be delivered to the other
party and its independent accountants two letters from its independent
accountants, one dated the effective date of the S-4 Registration Statement and
one dated as of the Closing Date, in each case confirming the continued validity
of its Pooling Letter as though made on and as of such date.
(c) In the event that the Closing Date is after August 31, 1998, Parent
agrees to use its reasonable best efforts to publish as soon as practicable
following the completion of the first fiscal quarter in which there has been at
least 30 days of combined operations of Parent and the Company (within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies) financial results covering at least 30 days of such combined
operations.
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(d) On or prior to the date the Prospectus/Proxy Statement is mailed to
its stockholders and on or prior to the Closing Date, each of the Company and
Parent shall use its reasonable best efforts to cause to be delivered to the
other party and its directors a letter of its independent auditors, dated the
date of which the S-4 Registration Statement shall become effective and the
Closing Date, respectively, in form and substance customary for "comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the S-4 Registration Statement.
6.7. Access. Upon reasonable notice, and except as may otherwise be
required by applicable Law, the Company and Parent each shall (and shall cause
its Subsidiaries to) afford the other's Representatives access, during normal
business hours throughout the period prior to the Effective Time, to its
properties, books, contracts and records and, during such period, each shall
(and shall cause its Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the
Company, Parent or Merger Subsidiary, and provided, further, that the foregoing
shall not require the Company or Parent to permit any inspection, or to disclose
any information, that in the reasonable judgment of the Company or Parent, as
the case may be, would result in a violation of applicable Law or would result
in the disclosure of any trade secrets of third parties or violate any of its
obligations with respect to confidentiality if the Company or Parent, as the
case may be, shall have used all reasonable efforts to obtain the consent of
such third party to such inspection or disclosure. All requests for information
made pursuant to this Section shall be directed to an executive officer of the
Company or Parent, as the case may be, or such Person as may be designated by
either of its officers, as the case may be. All such information shall be
governed by the terms of the Confidentiality Agreement.
6.8. Affiliates. (a) Within 15 days after the date hereof, the Company
shall deliver to Parent a list of names and addresses of those Persons who are,
in the opinion of the Company, as of the time of the Stockholders Meeting
referred to in Section 6.4, "affiliates" of the Company within the meaning of
Rule 145 under the Securities Act and for the purposes of applicable
interpretations regarding the pooling-of-interests method of accounting. The
Company shall provide to Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. There shall be added to
such list the names and addresses of any other Person subsequently identified by
either Parent (by written notice to the Company) or the Company as a Person who
may be deemed to be such an affiliate of the Company; provided, however, that no
such Person identified by Parent shall be added to the list of affiliates of the
Company if Parent shall receive from the Company, on or before the date of the
Stockholders Meeting, an opinion of counsel reasonably satisfactory to Parent to
the effect that such Person is not such an affiliate. To the extent not already
delivered to Parent, the Company shall exercise its reasonable best efforts to
deliver or cause to be
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delivered to Parent, as promptly as practicable after the date hereof but in no
event later than the date of the Stockholders Meeting, from each affiliate of
the Company identified in the foregoing list (as the same may be supplemented as
aforesaid), a letter substantially in the form attached as Exhibit C-1 (the
"Affiliates Letter"). Parent shall not be required to maintain the effectiveness
of the S-4 Registration Statement or any other registration statement under the
Securities Act for the purposes of resale by such affiliates of Parent Common
Stock received in the Merger and the certificates representing Parent Common
Stock received by such affiliates shall bear a customary legend regarding
applicable Securities Act restrictions and the provisions of this Section.
(b) Within 15 days after the date hereof, Parent shall deliver to the
Company a list of names and addresses of those Persons who were, in the opinion
of the Parent, at the time of the Stockholders Meeting referred to in Section
6.4, "affiliates" of Parent for the purposes of applicable interpretations
regarding the pooling-of-interests method of accounting. Parent shall provide to
the Company such information and documents as the Company shall reasonably
request for purposes of reviewing such list. There shall be added to such list
the names and addresses of any other Person identified by either the Company (by
written notice to Parent) or Parent as being a Person who may be deemed to be
such an affiliate of Parent; provided, however, that no such Person identified
by the Company shall be added to the list of affiliates of Parent if the Company
shall receive from Parent, on or before the date of the Stockholders Meeting, an
opinion of counsel reasonably satisfactory to the Company to the effect that
such Person is not such an affiliate. To the extent not already received by the
Company, Parent shall exercise its reasonable best efforts to deliver or cause
to be delivered to the Company, as promptly as practicable after the date hereof
but in no event later than the date of the Stockholders Meeting, from each of
such affiliates of Parent identified in the foregoing list (as the same may be
supplemented as aforesaid), a letter dated as of the Closing Date substantially
in the form attached as Exhibit C-2.
6.9. Stock Exchange Listing. Parent shall use its reasonable best
efforts to cause the shares of Parent Common Stock to be issued in the Merger to
be approved for listing on the NYSE subject to official notice of issuance,
prior to the Closing Date.
6.10. Publicity. The initial press release shall be a joint press
release and thereafter the Company and Parent each shall consult with each other
and use reasonable best efforts to agree upon the text of any press release,
subject to their respective legal obligations (including requirements of stock
exchanges and other similar regulatory bodies) with respect to the timing of
such public announcements, prior to issuing any such press releases or otherwise
making public announcements with respect to the Merger and the other
transactions contemplated by this Agreement and prior to making any filings with
any third party and/or any Governmental Entity (including any national
securities exchange) with respect thereto.
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6.11. Benefits. (a) Stock Options. (i) At the Effective Time, each
Company Option, whether vested or unvested, shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Company Option, the same number of shares of Parent Common Stock as the
holder of such Company Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior to
the Effective Time (rounded down to the nearest whole number), at a price per
share (rounded up to the nearest whole cent) equal to (y) the aggregate exercise
price for the Shares otherwise purchasable pursuant to such Company Option
divided by (z) the number of full shares of Parent Common Stock deemed
purchasable pursuant to such Company Option in accordance with the foregoing;
provided, however, that in the case of any Company Option to which Section 422
of the Code applies, the option price, the number of shares purchasable pursuant
to such option and the terms and conditions of exercise of such option shall be
determined in accordance with the foregoing, subject to such adjustments as are
necessary in order to satisfy the requirements of Section 424(a) of the Code. At
or prior to the Effective Time, the Company shall make all necessary
arrangements with respect to the Company Stock Plans to permit the assumption of
the unexercised Company Options by Parent pursuant to this Section.
(ii) Effective at the Effective Time, Parent shall assume each Company
Option in accordance with the terms of the relevant Company Stock Plan under
which it was issued and the stock option agreement by which it is evidenced. At
or prior to the Effective Time, Parent shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of the Company Options assumed by it in accordance with
this Section. As soon as practicable after the Effective Time, Parent shall file
a registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), or another appropriate form (or shall
cause such Company Option to be deemed to be an option issued pursuant to a
Parent Stock Plan for which shares of Parent Common Stock have previously been
registered pursuant to an appropriate registration form) with respect to the
Parent Common Stock subject to such Company Options, and shall use its
reasonable best efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Company Options remain outstanding.
(b) Employee Benefits. (i) Parent agrees that from and after the
Effective Time, the employees of the Company and its Subsidiaries (other than
employees covered by collective bargaining agreements) will be provided with
benefits under employee benefit plans, such benefits to be, in the discretion of
Parent, either (i) no less favorable in the aggregate than the benefits that are
currently provided by the Company and its Subsidiaries to such employees or (ii)
no less favorable in the aggregate than the benefits that are provided by Parent
and its Subsidiaries to their employees, taking into account the duties and
responsibilities of such employees.
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(ii) Parent agrees to continue the fixed profit sharing contribution
feature of the Company's Retirement and Savings Plan for the period that
commences at the Effective Time and continues up to and including December 31,
1999.
(iii) Following the Effective Time, Parent shall honor, or shall cause
the Surviving Corporation to honor, (A) employment and severance agreements (the
form of which has been provided to Parent prior to the date hereof) as in effect
as of the date hereof for current and former employees of the Company and its
Subsidiaries; provided, however, that nothing contained herein shall prevent
Parent from amending or terminating any such employment or severance agreement
in accordance with its terms; and (B) from the Effective Time until December 31,
1999, the benefits under the Company's severance policy for current employees of
the Company and its Subsidiaries as set forth in Section 6.11(b) of the Company
Disclosure Letter. The Company has used its reasonable best efforts to set forth
in Section 6.11(b) of the Company Disclosure Letter all persons subject to
employment and severance agreements and all forms of such agreements.
(iv) Employees of the Company and its Subsidiaries who are employees on
or after the Effective Time, shall be credited to the fullest extent permissible
under law for purposes of eligibility and vesting with all service with the
Company and its Subsidiaries to the same extent that such service was credited
for such purposes by the Company under each employee benefit plan, program,
policy or arrangement of the Parent and its Subsidiaries in which the employees
are eligible to participate.
(v) If employees of the Company and its Subsidiaries become eligible to
participate in a medical, dental or health plan of Parent, Parent shall cause
such plan to (a) waive any pre-existing condition limitations and (b) credit any
deductibles and out-of-pocket expenses that are applicable and/or covered under
Company's plans, and are incurred by the employees and their beneficiaries
during the portion of the calendar year prior to participation in Parent's
plans.
(vi) (A) The current directors of the Company, and those former
directors of the Company, in each case as listed in Section 6.11(b) of the
Company Disclosure Letter, shall be deemed to be retired at the Effective Time
for purposes of the Company's Directors Retirement Policy. At the Effective
Time, Parent will honor for such directors the terms of such policy, which is
specifically described in Section 6.11(b) of the Company Disclosure Letter. (B)
Also, as of the Effective Time, Parent will honor the terms of, and assume all
obligations of the Company under, those agreements of the Company with former
employees of the Company and its Subsidiaries whose employment terminated prior
to the date hereof (the form of which has been provided to
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Parent prior to the date hereof), which agreements are listed in Section 6.11(b)
of the Company Disclosure Schedule.
(vii) Company shall, at Parent's request and subject to and in
accordance with such plans, take appropriate actions so that from and after the
Effective Time (A) Parent or any of its Subsidiaries will not have any
obligation to make employer contributions to the Company's Supplemental
Executive Retirement Plan or the Company's Thrift Excess Plan or to a grantor
trust or other funding vehicle under either plan and (B) no benefits will accrue
from and after the Effective Time pursuant to the Company's Officers' Target
Retirement Plan.
6.12. Expenses. The Surviving Corporation shall pay all charges and
expenses, including those of the Exchange Agent, in connection with the
transactions contemplated in Article IV, and Parent shall reimburse the
Surviving Corporation for such charges and expenses. Except as otherwise
provided in Section 8.5(b), whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the Merger and the
other transactions contemplated by this Agreement shall be paid by the party
incurring such expense, except that expenses incurred in connection with the
filing fee for the S-4 Registration Statement and printing and mailing the
Prospectus/Proxy Statement and the S-4 Registration Statement shall be shared
equally by Parent and the Company.
6.13. Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Time, Parent agrees that it will indemnify and hold
harmless, or cause the Company to so indemnify and hold harmless to the fullest
extent that Parent could do so, each present and former director and officer of
the Company (when acting within the scope of such capacity) determined as of the
Effective Time, against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities (collectively,
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent permitted under Delaware Law to indemnify such Person (and Parent shall
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the Person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification). From and after the Effective Time,
Parent agrees that it will indemnify and hold harmless, or cause the Company to
so indemnify and hold harmless, each present and former director and officer of
the Company's Subsidiaries (when acting within the scope of such capacity)
determined as of the Effective Time (together with the Persons referred to in
the first sentence of this Section 6.13(a), the "Indemnified Parties"), against
any Costs incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring
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at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under Delaware Law and its certificate of incorporation or by-laws in
effect thereof to indemnify such Person (and Parent shall or shall cause the
Company to also advance expenses as incurred to the fullest extent permitted
under applicable Law provided the Person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.13, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent thereof, but the
failure to so notify shall not relieve Parent of any liability it may have to
such Indemnified Party to the extent such failure does not materially prejudice
the indemnifying party. In the event of any such claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), (i)
Parent or the Surviving Corporation shall have the right to assume the defense
thereof and Parent shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof, except that if
Parent or the Surviving Corporation elects not to assume such defense or does
not elect to assume such defense on a timely basis after notice thereof by the
Indemnified Party or counsel for the Indemnified Parties advises that there are
issues which raise conflicts of interest between Parent or the Surviving
Corporation and the Indemnified Parties, the Indemnified Parties may retain
counsel satisfactory to them, and Parent or the Surviving Corporation shall pay
all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that Parent
shall be obligated pursuant to this paragraph (b) to pay for only one firm of
counsel for all Indemnified Parties in any jurisdiction unless the use of one
counsel for such Indemnified Parties would present such counsel with a conflict
of interest, (ii) the Indemnified Parties will cooperate in the defense of any
such matter and (iii) Parent shall not be liable for any settlement effected
without its prior written consent, which consent shall not be unreasonably
withheld; and provided, further, that Parent shall not have any obligation
hereunder to any Indemnified Party if and when a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
nonappealable, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable Law.
(c) For a period of six years after the Effective Time, Parent shall
cause to be maintained officers' and directors' liability insurance ("D&O
Insurance") covering the Indemnified Parties who are currently covered, in their
capacities as officers and directors, by the Company's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance; provided,
however, that Parent shall not be required to maintain or procure such coverage
to pay an annual premium in excess of 250% of the current annual
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premium paid by the Company for its existing coverage (the "Cap"); provided,
further, that if equivalent coverage cannot be obtained, or can be obtained only
by paying an annual premium in excess of the Cap, Parent shall only be required
to obtain as much coverage as can be obtained by paying an annual premium equal
to the Cap.
(d) After the Effective Time Parent shall or shall cause the Company to
perform the obligations of the Company and any of its Subsidiaries under each
indemnification agreement which is in effect as of the date hereof between the
Company and any of its Subsidiaries and an Indemnified Party.
(e) The rights of each Indemnified Party hereunder shall be in addition
to any other rights such Indemnified Party may have under the Certificate of
Incorporation or By-Laws, under the DGCL or otherwise.
(f) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
6.14. Parent's Board of Directors. Parent shall take all necessary
actions such that at the Effective Time David A. Jones will be a Class III
director of Parent's Board of Directors.
6.15. Takeover Statute. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, the Stock Option Agreement or the Voting Agreement, each of Parent
and the Company and its Board of Directors shall grant such approvals and take
such actions as are necessary so that such transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement, the Stock
Option Agreement or the Voting Agreement or by the Merger and otherwise act to
eliminate or minimize the effects of such statute or regulation on such
transactions.
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
duly approved by holders of Shares constituting the Company Requisite Vote in
accordance with applicable Law and its certificate of incorporation and by-laws,
and
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the issuance of Parent Common Stock pursuant to the Merger shall have been duly
approved by the holders of Parent Common Stock constituting the Parent Requisite
Vote in accordance with applicable Law and its certificate of incorporation and
by-laws.
(b) NYSE Listing. The shares of Parent Common Stock issuable to the
Company stockholders pursuant to this Agreement shall have been authorized for
listing on the NYSE upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and, other than the filing provided for in Section 1.3, all notices,
reports and other filings required to be made prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries with, and all
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Effective Time (including as required by Health Benefit
Laws) by the Company or Parent or any of their respective Subsidiaries from, any
Governmental Entity (collectively, "Governmental Consents") in connection with
the execution and delivery of this Agreement, the Stock Option Agreement and the
Voting Agreement and the consummation of the Merger and the other transactions
contemplated hereby and thereby by the Company, Parent and Merger Subsidiary
shall have been made or obtained (as the case may be).
(d) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law, (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger
(collectively, an "Order"), and no Governmental Entity shall have instituted any
proceeding seeking any such Order.
(e) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been initiated or be threatened, by the SEC.
(f) Blue Sky Approvals. Parent shall have received all state securities
and "blue sky" permits and approvals, if any, necessary to consummate the
transactions contemplated hereby.
(g) Accountant Letters. Parent and the Company shall have received from
Arthur Andersen LLP, Parent's independent accountants, the confirmatory letter,
dated as of the Closing Date, referred to in Section 6.6(b).
7.2. Conditions to Obligations of Parent and Merger Subsidiary. The
obligations of Parent and Merger Subsidiary to effect the Merger are also
subject to
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the satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of the
date hereof and as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representation or warranty expressly speaks
as of an earlier date); provided, however, that notwithstanding anything herein
to the contrary, this Section 7.2(a) shall be deemed to have been satisfied even
if such representations or warranties are not so true and correct unless the
failure of such representations or warranties to be so true and correct,
individually or in the aggregate, has had, or is reasonably likely to have, a
Company Material Adverse Effect or is reasonably likely to prevent or to
materially burden or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement. Parent shall have received a
certificate signed on behalf of the Company by an executive officer of the
Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by an executive officer
of the Company to such effect.
(c) Consents. Other than as set forth in Section 7.2(c) of the Company
Disclosure Letter, the Company shall have obtained the consent or approval of
each Person whose consent or approval shall be required under any Contract to
which the Company or any of its Subsidiaries is a party, except those the
failure to obtain, individually or in the aggregate, are not reasonably likely
to have a Company Material Adverse Effect.
(d) Tax Opinion. Parent shall have received the opinion of Sullivan &
Cromwell, counsel to Parent, dated the Closing Date, to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of Parent,
Merger Subsidiary and the Company will be a party to that reorganization within
the meaning of Section 368(b) of the Code. In connection with such opinion,
Sullivan & Cromwell may require, and such opinion may be based on, in addition
to the review of such matters of law and fact as Sullivan & Cromwell considers
appropriate, (i) representations made at the request of Sullivan & Cromwell by
Parent, the Company or stockholders of the Company or any combination of such
persons or (ii) certificates provided at the request of Sullivan & Cromwell by
officers of Parent, the Company and other appropriate persons.
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(e) Affiliates Letters. Parent shall have received an Affiliates Letter
from each Person identified as an affiliate of the Company pursuant to Section
6.8.
7.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Subsidiary set forth in this Agreement shall be true and
correct as of the date hereof and as of the Closing Date as though made on and
as of the Closing Date (except to the extent any such representation or warranty
expressly speaks as of an earlier date); provided, however, that notwithstanding
anything herein to the contrary, this Section 7.3(a) shall be deemed to have
been satisfied even if such representations or warranties are not so true and
correct unless the failure of such representations or warranties to be so true
and correct, individually or in the aggregate, has had, or is reasonably likely
to have, a Parent Material Adverse Effect or is reasonably likely to prevent or
to materially burden or materially impair the ability of the Parent to
consummate the transactions contemplated by this Agreement. The Company shall
have received a certificate signed on behalf of Parent by an executive officer
of Parent and on behalf of Merger Subsidiary by an executive officer of Merger
Subsidiary to such effect.
(b) Performance of Obligations of Parent and Merger Subsidiary. Each of
Parent and Merger Subsidiary shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent and Merger Subsidiary by an executive officer of Parent to such
effect.
(c) Consents. Parent shall have obtained the consent or approval of
each Person whose consent or approval shall be required in order to consummate
the transactions contemplated by this Agreement under any Contract to which
Parent or any of its Subsidiaries is a party, except those the failure to
obtain, individually or in the aggregate, are not reasonably likely to have a
Parent Material Adverse Effect.
(d) Tax Opinion. The Company shall have received the opinion of Fried,
Frank, Harris, Shriver & Jacobson, counsel to the Company, dated the Closing
Date, to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that each of Parent, Merger Subsidiary and the Company will be a party to
that reorganization within the meaning of Section 368(b) of the Code. In
connection with such opinion, Fried, Frank, Harris, Shriver & Jacobson may
require, and such opinion may be based on, in addition to the review of such
matters of law and fact as Fried, Frank, Harris, Shriver & Jacobson considers
appropriate, (i) representations made at the request of Fried, Frank, Harris,
Shriver & Jacobson by Parent, the Company or stockholders of the Company or any
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combination of such persons or (ii) certificates provided at the request of
Fried, Frank, Harris, Shriver & Jacobson by officers of Parent, the Company and
other appropriate persons.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approvals by stockholders of the Company and Parent referred
to in Section 7.1(a), by mutual written consent of the Company and Parent by
action of their respective Boards of Directors.
8.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the Company if (i)
the Merger shall not have been consummated by the Termination Date (as defined
below), whether such date is before or after the date of approvals by the
stockholders of the Company or Parent; (ii) the approval of the Company's
stockholders required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof;
provided, however, that if an Acquisition Proposal has been made by any Person
prior to the time of such vote, the Company may not terminate this Agreement
pursuant to this clause (ii) until a date that is not less than 90 days after
the date of such vote, (iii) the approval of Parent's shareholders as required
by Section 7.1(a) shall not have been obtained at a meeting duly convened
therefor or at any adjournment or postponement thereof, or (iv) any Order
permanently restraining, enjoining or otherwise prohibiting consummation of the
Merger shall become final and non-appealable (whether before or after the
approval by the stockholders of the Company or Parent); provided, that the right
to terminate this Agreement pursuant to clause (i) above shall not be available
to any party that has breached in any material respect its obligations under
this Agreement in any manner that shall have proximately contributed to the
occurrence of the failure of the Merger to be consummated. For purposes hereof,
the "Termination Date" shall mean December 31, 1998, provided, however, that on
or after December 15, 1998, either Parent or the Company shall have the right to
extend this date until March 31, 1999 in order to obtain all of the Governmental
Consents.
8.3. Termination by the Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company referred to in
Section 7.1(a), by action of the Board of Directors of the Company:
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(a) if (i) the Company is not in material breach of any of the terms of
this Agreement, (ii) the Board of Directors of the Company authorizes the
Company, subject to complying with the terms of this Agreement, to enter into a
binding written agreement concerning a transaction that constitutes a Superior
Proposal and the Company notifies Parent in writing that it intends to enter
into such an agreement, attaching the most current version of such agreement to
such notice, (iii) Parent does not make, within five business days of receipt of
the Company's written notification of its intention to enter into a binding
agreement for a Superior Proposal, an offer that the Board of Directors of the
Company determines, in good faith after consultation with its financial
advisors, is at least as favorable, taking into account, among other things, the
long-term prospects and interests of the Company and its stockholders, as the
Superior Proposal and (iv) the Company prior to such termination pays to Parent
in immediately available funds the fees required to be paid pursuant to Section
8.5. The Company agrees (x) that it will not enter into a binding agreement
referred to in clause (ii) above until at least the sixth business day after it
has provided the notice to Parent required thereby and (y) to notify Parent
promptly if its intention to enter into a written agreement referred to in its
notification shall change at any time after giving such notification.
(b) if there has been (i) a breach by Parent or Merger Subsidiary of
any representation or warranty that, individually or in the aggregate, has had,
or is reasonably likely to have, a Parent Material Adverse Effect or is
reasonably likely to prevent or materially burden or materially impair the
ability of Parent to consummate the transactions contemplated by this Agreement
or (ii) a material breach of a covenant or agreement contained in this
Agreement, in each case that is not curable or, if curable, is not cured within
30 days after written notice of such breach is given by the Company to the party
committing such breach.
8.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by the stockholders of Parent referred to in Section
7.1(a), by action of the Board of Directors of Parent if (a) the Company (i)
enters into a binding agreement for a Superior Proposal or the Board of
Directors of the Company recommends a Superior Proposal or (ii) the Board of
Directors of the Company shall have withdrawn or adversely modified its approval
or recommendation of this Agreement or, after an Acquisition Proposal has been
made, failed to reconfirm its recommendation of this Agreement within five
business days after a written request by Parent to do so, (b) there has been (i)
a breach by the Company of any representation or warranty that, individually or
in the aggregate, has had, or is reasonably likely to have, a Company Material
Adverse Effect or is reasonably likely to prevent or materially burden or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement, or (ii) a material breach of a covenant or
agreement contained in this Agreement, in each case that is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to Parent or (c) if the Company, any of its Subsidiaries or
any of
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their Representatives shall engage in any negotiations or substantive
discussions (other than negotiations or discussions solely with respect to the
Third Party Confidentiality Agreement) pursuant to clause (C) of the proviso set
forth in Section 6.2 or take any actions pursuant to clause (D) of the proviso
set forth in Section 6.2.
8.5. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than as set forth in Section 9.1) shall
become void and of no effect with no liability on the part of any party hereto
(or of any of its directors, officers, employees, agents, legal and financial
advisors or other representatives); provided, however, except as otherwise
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any breach of this Agreement.
(b) In the event that this Agreement is terminated (A) by the Company
pursuant to Section 8.3(a) or (B) by Parent pursuant to Section 8.4(a)(i), then
the Company shall promptly, but in no event later than two days after the date
of such termination or such earlier time as required by this Agreement, pay to
Parent a termination fee of $200 million (the "Termination Fee") and shall
promptly, but in no event later than two days after being notified of such by
Parent, pay to Parent an amount equal to all of the reasonable (under the
circumstances) expenses incurred by Parent or Merger Subsidiary in connection
with this Agreement and the transactions contemplated by this Agreement up to a
maximum amount of $10 million, in each case payable by wire transfer of same day
funds ("Expenses").
(c) In the event this Agreement is terminated (A) by the Company or by
Parent pursuant to Section 8.2(i) and prior to such termination an Acquisition
Proposal shall have been made to the Company or any of its Subsidiaries or any
of its stockholders or any Person shall have publicly announced an intention
(whether or not conditional) to make an Acquisition Proposal, and if within 18
months of such termination, the Company enters into an agreement concerning a
transaction of a type that would constitute an Acquisition Proposal (an
"Alternative Transaction"), with any Person (or any of its affiliates) who made
an Acquisition Proposal prior to the termination of this Agreement, then the
Company shall (x) at the time of entering into such agreement, pay to Parent the
Expenses and 50% of the Alternative Termination Fee (as defined below) and (y)
at the time such Alternative Transaction is consummated, pay to Parent the
remaining 50% of the Alternative Termination Fee, in each case payable by wire
transfer of same day funds; (B) by Parent pursuant to Section 8.4(c), then,
promptly, but in no event later than two days after the date of such
termination, the Company shall pay to Parent the Expenses, and if within 18
months of such termination, the Company enters into an agreement concerning an
Alternative Transaction with the Person (or any of its affiliates) that
triggered the termination right set forth in Section 8.4(c), the Company shall
(x) at the time of entering into such agreement, pay to Parent 50% of the
Termination Fee and (y) at the time such transaction is consummated, pay to
Parent the
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remaining 50% of the Termination Fee, in each case payable by wire transfer of
same day funds; (C) by Parent pursuant to Section 8.4(a)(ii), then, promptly,
but in no event later than two days after the date of such termination or such
earlier time as required by this Agreement, the Company shall pay to Parent the
Expenses, and if within 18 months of such termination, the Company enters into
an agreement concerning an Alternative Transaction with any Person, the Company
shall, at the time of entering into such agreement, pay to Parent the
Termination Fee, in each case payable by wire transfer of same day funds; or (D)
in the event that an Acquisition Proposal shall have been made to the Company or
any of its Subsidiaries or any of its stockholders or any Person shall have
publicly announced an intention (whether or not conditional) to make an
Acquisition Proposal and thereafter this Agreement is terminated by either
Parent or the Company pursuant to Section 8.2(ii), then, promptly, but in no
event later than two days after the date of such termination or such earlier
time as required by this Agreement, the Company shall pay to Parent the
Expenses, and if within 18 months of such termination, the Company enters into
an agreement concerning an Alternative Transaction with any Person, the Company
shall, at the time of entering into such agreement, pay to Parent an amount
equal to the Termination Fee, in each case payable by wire transfer of same day
funds. For purposes of this Section 8.5(c), (i) the "Alternative Termination
Fee" shall be an amount equal to 4% of the Aggregate Value (as defined below) of
the Alternative Transaction and (ii) "Aggregate Value" shall be determined by
multiplying the average closing price of the Shares on the NYSE Composite Tape
for the five consecutive trading days after the Alternative Transaction is
publicly announced (which shall include the day the Alternative Transaction is
publicly announced if such announcement is made by noon on that day) by the
number of Shares outstanding (calculated on a fully diluted basis). It is
understood that nothing herein shall require the Company to pay the entire
Termination Fee (or, if applicable, the entire Alternative Transaction Fee) more
than once.
(d) The Company acknowledges that the agreements contained in Sections
8.5(b) and (c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Merger Subsidiary
would not enter into this Agreement; accordingly, if the Company fails to
promptly pay the amount due pursuant to either Section 8.5(b) or (c), and, in
order to obtain such payment, Parent or Merger Subsidiary commences a suit which
results in a judgment against the Company for the fee set forth therein the
Company shall pay to Parent or Merger Subsidiary its costs and expenses
(including reasonable attorneys' fees) in connection with such suit, together
with interest from the date such amounts became due on the amounts owed at the
prime rate of The Chase Manhattan Bank in effect from time to time during such
period.
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ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX, the agreements of the Company, Parent
and Merger Subsidiary contained in Sections 6.6 (Taxation and Accounting), 6.11
(Benefits), 6.13 (Indemnification; Directors' and Officers' Insurance) and 6.14
(Parent's Board of Directors) and the acknowledgment of Parent contained in
Section 5.1(e)(ii) shall survive the consummation of the Merger. This Article IX
and the agreements of the Company, Parent and Merger Subsidiary contained in
Section 6.12 (Expenses) and Section 8.5 (Effect of Termination and Abandonment)
shall survive the termination of this Agreement. All other representations,
warranties, covenants and agreements in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
9.2. Modification or Amendment. Subject to the provisions of the
applicable Law, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable Law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. Governing Law And Venue; Waiver of Jury Trial. (A) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of
Delaware or New York and the Federal courts of the United States of America
located in the State of Delaware or the Southern District of the State of New
York solely in respect of the interpretation and enforcement of the provisions
of this Agreement and the Stock Option Agreement and of the documents referred
to in this Agreement and the Stock Option Agreement, and in respect of the
transactions contemplated hereby and thereby, and hereby waive, and agree not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement and the
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Stock Option Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Delaware State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.6 or in such other
manner as may be permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT OR THE STOCK OPTION AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR THE STOCK OPTION AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT AND THE STOCK OPTION AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. All notices or other communications under this Agreement
shall be in writing and shall be deemed duly given, effective (i) three business
days later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by telecopier or fax, provided that the
telecopy or fax is promptly confirmed by telephone confirmation thereof, (iii)
when served, if delivered personally to the intended recipient, and (iv) one
business day later, if sent by overnight delivery via a national courier
service, and in each case, addressed to the intended recipient at the address
set forth in the preamble hereof. Any party may change the address to which
notices or other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth:
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if to Parent or Merger Subsidiary
---------------------------------
United HealthCare Corporation
9900 Bren Road East
Minnetonka, MN 55343
Attention: David J. Lubben, General Counsel and Secretary
fax: (612) 936-0044
with a copy to
--------------
James C. Morphy, Esq.,
Sullivan & Cromwell,
125 Broad Street,
New York NY 10004
fax: (212) 558-3588
if to the Company
-----------------
Humana Inc.
The Humana Building
500 West Main Street
P.O. Box 1438
Louisville, KY 40201-1438
Attention: Arthur P. Hipwell, Senior Vice President and General Counsel
fax: (502) 580-3615
with a copy to
--------------
Jeffrey Bagner, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
fax: (212) 859-4000
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement; No Other Representations. This Agreement
(including any exhibits hereto), the Company Disclosure Letter, the Parent
Disclosure Letter, the Stock Option Agreement and the Confidentiality Agreement,
dated May 4, 1998, between Parent and the Company (the "Confidentiality
Agreement") constitute the entire agreement, and supersede all other prior
agreements, understandings,
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representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof.
9.8. No Third Party Beneficiaries. Except as provided in Section 9.8 of
the Parent Disclosure Letter, the covenants contained in 6.13 (Indemnification;
Directors' and Officers' Insurance), 6.14 (Parent's Board of Directors) or the
acknowledgment of Parent contained in Section 5.1(e)(ii) this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision so long as the economics or legal substance of the transactions
contemplated hereby are not affected in any manner adverse in any material
respect to any party and (b) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
9.11. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Any disclosure in any section of the Company Disclosure Letter or
the Parent Disclosure Letter of any contract, document, liability, default,
breach, violation, limitation, impediment or other matter, although the
provision for such disclosure may require such disclosure only if such contract,
document, liability, default, breach, violation, limitation, impediment or other
matter be "material," shall not be construed against the party making such
disclosure as an admission by such party that
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any such contract, document, liability, default, breach, violation, limitation,
impediment or other matter is, in fact, material.
9.12. Assignment. This Agreement shall not be assignable other than by
operation of law; provided, however, that Parent may designate, by written
notice to the Company, another wholly owned direct or indirect Subsidiary to be
a Constituent Corporation in lieu of Merger Subsidiary, in which event all
references herein to Merger Subsidiary shall be deemed references to such other
Subsidiary, except that all representations and warranties made herein with
respect to Merger Subsidiary as of the date hereof shall be deemed
representations and warranties made with respect to such other Subsidiary as of
the date of such designation.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto as of the date first
written above.
HUMANA INC.
By: /s/ David A. Jones
------------------------------------
Name: David A. Jones
Title: Chairman of the Board
UNITED HEALTHCARE CORPORATION
By: /s/ William W. McGuire
------------------------------------
Name: William W. McGuire
Title: President & CEO
UH-1 INC.
By: /s/ William W. McGuire
------------------------------------
Name: William W. McGuire
Title: President & CEO
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<PAGE>
EXHIBIT C-1
FORM OF COMPANY AFFILIATE'S LETTER
_______, 1998
Humana Inc.
The Humana Building
500 West Main Street
P.O. Box 1438
Louisville, KY 40201-1438
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, par value $0.16-2/3 per
share ("Company Common Stock"), of Humana Inc., a Delaware corporation
("Company"). Pursuant to the terms of that certain Agreement and Plan of Merger,
dated as of May 27, 1998, among the Company, United HealthCare Corporation, a
Minnesota corporation ("Parent"), and UH-1 Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Subsidiary"), Merger Subsidiary will
be merged with and into the Company and the Company will become a wholly owned
subsidiary of Parent (the "Merger"). In connection with the Merger, the
undersigned, as a holder of the Company Common Stock, will be entitled to
receive Common Stock, par value $1.00 per share, of Parent (the "Securities") in
exchange for the shares of Company Common Stock held by the undersigned at the
effective time of the Merger.
The undersigned acknowledges that the undersigned may be deemed an "affiliate"
of the Company within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act of 1933, as amended (the "Act"), and/or as such term is used in
and for purposes of Accounting Series Release Nos. 130 and 135, as amended, of
the Securities and Exchange Commission (the "Commission"), although nothing
contained herein shall be construed as an admission of such status.
If in fact the undersigned were an affiliate of the Company under the Act, the
undersigned's ability to sell, assign or transfer any Securities received by the
undersigned in exchange for any shares of Company Common Stock pursuant to the
Merger may be restricted unless such sale, assignment or transfer is registered
under the Act or an exemption from such registration is available. The
undersigned understands that such exemptions are limited and the undersigned has
obtained advice of counsel as to the nature and conditions of such exemptions,
including information with respect to the
C1-1
<PAGE>
Humana Inc.
_______, 1998
Page 2
applicability to the sale of such Securities of Rules 144 and 145(d) promulgated
under the Act.
The undersigned hereby represents to and covenants with Parent that it will not
sell, assign or transfer any Securities received by the undersigned in exchange
for shares of Company Common Stock pursuant to the Merger except (i) pursuant to
an effective registration statement under the Act, (ii) by a sale made in
conformity with the volume and other limitations of Rule 145 (and otherwise in
accordance with Rule 144 under the Act, if the undersigned is an affiliate of
Parent and if so required at the time) or (iii) in a transaction which, in the
opinion of independent counsel reasonably satisfactory to Parent or as described
in a "no-action" or interpretive letter from the Staff of the Commission
reasonably satisfactory to Parent, is not required to be registered under the
Act.
The undersigned understands that Parent is under no obligation to register the
sale, assignment, transfer or other disposition of the Securities by the
undersigned or on behalf of the undersigned under the Act or to take any other
action necessary in order to make compliance with an exemption from such
registration available solely as a result of the Merger.
In the event of a sale of Securities pursuant to Rule 145, the undersigned will
supply Parent with evidence of compliance with such Rule, in the form of
customary seller's and broker's Rule 145 representation letters or as Parent may
otherwise reasonably request. The undersigned understands that Parent may
instruct its transfer agent to withhold the transfer of any Securities disposed
of by the undersigned in a manner inconsistent with this letter.
The undersigned acknowledges and agrees that appropriate legends will be placed
on certificates representing Securities received by the undersigned in the
Merger or held by a transferee thereof, which legends will be removed (i) by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to Parent to the effect that such legends are
no longer required for the purposes of the Act and the rules and regulations of
the Commission promulgated thereunder, (ii) in the event of a sale of the
Securities which has been registered under the Act or made in conformity with
the provisions of Rule 145 or (iii) when Rule 145 no longer applies to the
undersigned.
The undersigned further represents to and covenants with Parent that (i) the
undersigned will not, during the 30 days prior to the effective time of the
Merger sell, transfer or otherwise dispose of, or reduce any risk relative to,
any securities of the Company or Parent, and (ii) the undersigned will not sell,
transfer or otherwise dispose of, or reduce
C1-2
<PAGE>
Humana Inc.
_______, 1998
Page 3
any risk relative to, the Securities received (or to be received) by the
undersigned in the Merger or any other shares of the capital stock of Parent
until after such time as financial results covering at least 30 days of
post-Merger operations of Parent (including the combined operations of the
Company and Parent) have been published by Parent in the form of a quarterly
earnings report, an effective registration statement filed with the Commission,
a report to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing
or announcement which includes such results of operations, except in the cases
of clauses (i) and (ii) of this paragraph to the extent permitted by, and in
accordance with, SEC Accounting Series Release 135 and SEC Staff Accounting
Bulletins 65 and 76, or any SEC Accounting Series Release and SEC Staff
Accounting Bulletin dated subsequent to the date hereof that amends, modifies or
supersedes such release or bulletins, if and to the extent that such release and
bulletins remain in full force and effect at the relevant time; it being
understood that, during the aforementioned period, I will not be prohibited from
selling up to 10% of the Securities received (or to be received) by me in the
Merger.
I further understand and agree that this letter agreement shall apply to all
shares of Company Common Stock, Securities, and any other shares of the capital
stock of Parent, that I am deemed to beneficially own pursuant to applicable
federal securities law.
The undersigned acknowledges that it has carefully reviewed this letter and
understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of Securities.
Sincerely,
[NAME OF COMPANY AFFILIATE]
C1-3
<PAGE>
EXHIBIT C-2
FORM OF POOLING AFFILIATE'S LETTER
_______, 1998
United HealthCare Corporation
9900 Bren Road East
Minnetonka, MN 55343
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, par value $1.00 per share
(the "Securities"), of United HealthCare, a Minnesota Corporation ("Parent").
Pursuant to the terms of that certain Agreement and Plan of Merger, dated as of
May 27, 1998, among [the Company,] a Delaware corporation, Parent and UH-1 Inc.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary"), Merger Subsidiary will be merged with and into the Company and the
Company will become a wholly owned subsidiary of Parent (the "Merger").
The undersigned acknowledges that the undersigned may be deemed an "affiliate"
of Parent as such term is used in and for purposes of Accounting Series Release
Nos. 130 and 135, as amended, of the Securities and Exchange Commission (the
"Commission"), although nothing contained herein shall be construed as an
admission of such status.
The undersigned hereby represents to and covenants with Parent that the
undersigned will not, from and after the 30 days prior to the effective time of
the Merger sell, transfer or otherwise dispose of, or reduce any risk relative
to, the Securities or any other shares of the capital stock of Parent, until
after such time as financial results covering at least 30 days of post-Merger
operations of Parent (including the combined operations of the Company and
Parent) have been published by Parent in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a report
to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes such results of operations, except to the extent
permitted by, and in accordance with, SEC Accounting Series Release 135 and SEC
Staff Accounting Bulletins 65 and 76 if and to the extent that such Release and
Bulletins remain in full force and effect at the relevant time.
I further understand and agree that this letter agreement shall apply to all
Securities that I am deemed to beneficially own pursuant to applicable federal
securities law.
<PAGE>
United HealthCare
_______, 1998
Page 2
The undersigned acknowledges that it has carefully reviewed this letter and
understands the requirements hereof and the limitations imposed upon the sale,
transfer or other disposition of Securities.
Sincerely,
[NAME OF PARENT AFFILIATE]
C2-2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 27, 1998 (the "Agreement"),
between United HealthCare Corporation, a Minnesota corporation ("Parent"), and
Humana Inc., a Delaware corporation (the "Company").
WHEREAS, Parent, UH-1 Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Newco"), and the Company are contemporaneously herewith
entering into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which provides, among other things, for the merger of Newco
with and into the Company (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Newco have requested that the Company grant to Parent an
option to purchase up to 33,000,000 shares of Common Stock, par value $.162/3
per share, of the Company (the "Common Stock"), upon the terms and subject to
the conditions hereof; and
WHEREAS, in order to induce Parent and Newco to enter into the Merger
Agreement, the Company is willing to grant Parent the requested option and the
Board of Directors of the Company has approved the granting of such option and
authorized the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Offset (a) On the terms and
subject to the conditions set forth herein, the Company hereby grants to Parent
an irrevocable option (the "Option") to purchase up to 33,000,000 shares of
Common Stock (the "Shares") at a cash purchase price per Share equal to the
average closing price of Common Stock on the New York Stock Exchange Composite
Tape for the five consecutive trading days after the Merger is publicly
announced, which shall include the day the Merger is publicly announced if such
announcement is made by noon on that day (the "Purchase Price"). The Option may
be exercised by Parent, in whole or in part, at any time, or from time to time,
(i) following the time the Merger Agreement is terminated (A) by either Parent
or the Company pursuant to Section 8.2(ii) if prior to such termination an
Acquisition Proposal (as defined in the Merger Agreement) shall have been made
to the Company or any of its Subsidiaries or any of its stockholders or any
Person shall have publicly announced an intention (whether or not conditional)
to make an Acquisition Proposal; or (B) by the Company pursuant to Section
8.3(a) or by Parent pursuant to Section 8.4(a) or 8.4(c) or (ii) upon the
Company's entering into an agreement, within 18 months of the termination of the
Merger Agreement by either Parent or the Company pursuant to Section 8.2(i),
concerning a transaction of a type that would
<PAGE>
constitute an Acquisition Proposal with any Person (or any of its affiliates)
that made an Acquisition Proposal prior to termination of the Merger Agreement
(collectively, the "Exercise Events").
(b) In the event Parent wishes to exercise the Option, Parent shall
send a written notice to the Company (the "Stock Exercise Notice") specifying a
date for the closing of such purchase (subject to the HSR Act (as defined below)
and obtaining other applicable regulatory approvals) not earlier than two
business days following the date the Stock Exercise Price Notice is given and
not later than 15 business days thereafter (or, if all applicable regulatory
approvals and consents have not been obtained by such date, the second business
day after all such approvals and consents have been obtained). Prior to the
occurrence of an Exercise Event, Parent may, in the exercise of its sole
discretion, unilaterally cancel the Option by giving written notice thereof to
the Company. In the event of any change in the number of issued and outstanding
shares of Common Stock by reason of any stock dividend, stock split, split-up,
recapitalization, or other change in the corporate or capital structure of the
Company, the number of Shares subject to this Option and the Purchase Price
shall be appropriately adjusted to restore Parent to its rights hereunder,
including its right to purchase Shares representing 19.9% of the capital stock
of the Company entitled to vote generally for the election of the directors of
the Company which is issued and outstanding immediately prior to the exercise of
the Option at an aggregate purchase price equal to the Purchase Price multiplied
by 33,000,000. In the event of a merger or other business combination with an
unrelated third party involving the Company, this Option and the Purchase Price
shall be appropriately adjusted so that, upon exercise of the Option, Parent
shall be entitled to receive the same merger consideration that Parent would
have received had it exercised its Option immediately prior to such merger or
other business combination.
(c) Parent will (i) offset against any Termination Fee or Alternative
Termination Fee, as the case may be (in each case as defined in the Merger
Agreement and each hereinafter referred to as the "Fee"), or portion thereof,
that becomes due and payable to Parent an amount from the Offset Account (as
defined below) equal to the Fee, or portion thereof, against which the offset is
to be made (but only to the extent of the amount then in the Offset Account) and
(ii) with respect to a Fee, or portion thereof, that has already been paid to
Parent prior to exercise of the Option and that has not been fully offset
pursuant to clause (i) above, remit to the Company an amount from the Offset
Account equal to the amount by which the Fee, or portion thereof, that has been
paid has not been offset pursuant to clause (i) above (but only to the extent of
the amount then in the Offset Account); it being understood and agreed that in
no event shall the sum of the amounts to be offset or remitted hereunder be
greater than the Fee. As used herein, the "Offset Account" shall equal (A) the
aggregate Fair Market Value of the Shares with respect to which the Option has
been exercised, minus the aggregate Purchase Price of such Shares, each as
determined at the time of the exercise of the Option with respect to
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<PAGE>
such Shares, minus (B) the sum of the amounts, if any, that have been offset or
remitted pursuant to clauses (i) or (ii) above; it being understood that Parent
shall not be obligated to escrow or otherwise set aside the amounts referred to
above; and the term "Fair Market Value" shall mean, with respect to the Shares
subject to the Stock Exercise Notice, the average closing price of Common Stock
on the New York Stock Exchange Composite Tape for the five consecutive trading
days immediately preceding the date on which the Option is exercised, in whole
or in part, by Parent with respect to such Shares.
2. Conditions to Delivery of Shares. The Company's obligation to
deliver Shares upon exercise of the Option is subject only to the conditions
that:
(a) No preliminary or permanent injunction or other order issued by any
federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall have
expired or been terminated; and
(c) Any approval required to be obtained prior to the delivery of the
Shares under any Health Benefit Law (as defined in the Merger Agreement)
shall have been obtained and be in full force and effect.
3. The Closing. (a) Any closing hereunder shall take place on the date
specified by Parent in its Stock Exercise Notice at 9:00 A.M., local time, at
the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York, or, if
Shares are to be delivered and the conditions set forth in Section 2(a), (b) or
(c) have not then been satisfied, on the second business day following the
satisfaction of such conditions, or at such other time and place as the parties
hereto may agree (the "Closing Date"). On the Closing Date the Company shall
deliver to Parent a certificate or certificates, representing the Shares in the
denominations designated by Parent in its Stock Exercise Notice and Parent shall
purchase such Shares from the Company at the price per Share equal to the
Purchase Price. Any payment made by Parent to the Company pursuant to this
Agreement shall be made by certified or official bank check or by wire transfer
of federal funds to a bank designated by the party receiving such funds.
(b) The certificates representing the Shares shall bear an appropriate
legend relating to the fact that such Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Company. The Company
represents and warrants to Parent that (a) the Company is a corporation duly
organized,
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<PAGE>
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to enter into and perform
this Agreement; (b) the execution and delivery of this Agreement by the Company
and the consummation by it of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company and this Agreement has
been duly executed and delivered by a duly authorized officer of the Company and
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; (c)
the Company has taken all necessary corporate action to authorize and reserve
the Shares issuable upon exercise of the Option, and the Shares, when issued and
delivered by the Company upon exercise of the Option and paid for by Parent as
contemplated hereby, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights; (d) except as otherwise may be
required by the HSR Act and applicable Health Benefit Laws, the execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby do not require the consent, waiver, approval or
authorization of or any filing with any person or public authority and will not
violate, result in a breach of or the acceleration of any obligation under, or
constitute a default under, any provision of the Company's certificate or
incorporation or by-laws, or any indenture, mortgage, lien, lease, agreement,
contract, instrument, order, law, rule, regulation, judgment, ordinance, or
decree, or restriction by which the Company or any of its subsidiaries or any of
their respective properties or assets is bound; (e) no restrictive provision of
any "fair price," "moratorium," "control share acquisition," or other form of
antitakeover statute or regulation, including without limitation, Section 203 of
the Delaware General Corporation Law, or similar provision contained in the
charter or by-laws of the Company, including without limitation, Article
Eleventh of the Company's Restated Certificate of Incorporation, is or shall be
applicable to the acquisition of Shares by Parent pursuant to this Agreement or
the Merger; and (f) the Company has taken all corporate action necessary so that
the rights issuable pursuant to the Rights Agreement (as defined in the Merger
Agreement) will not separate from the Shares or otherwise became exercisable, as
a result of entering into this Agreement, the Merger Agreement, the Voting
Agreement (as defined in the Merger Agreement) or consummating the Merger and/or
the other transactions contemplated hereby and thereby.
5. Representations and Warranties of Parent. Parent represents and
warrants to the Company that Parent is acquiring the Option and, if and when it
exercises the Option, will be acquiring the Shares issuable upon the exercise
thereof for its own account and not with a view to distribution or resale in any
manner which would be in violation of the Securities Act.
6. Listing of Shares; Filings; Governmental Consents. Subject to
applicable law and the rules and regulations of the New York Stock Exchange,
Inc. (the "NYSE"), the Company shall file as soon as is practicable an
application to list the Shares
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<PAGE>
on the NYSE and shall use its best efforts to obtain approval of such listing
and to effect all necessary filings required of the Company under the HSR Act
and the applicable Health Benefit Laws, if any, of each state and foreign
jurisdiction; provided, however, that if the Company is unable to effect such
listing on the NYSE by the Closing Date, the Company shall nevertheless be
obligated to deliver the Shares upon the Closing Date. The Company shall
cooperate with Parent to obtain consents of all third parties and governmental
authorities necessary to the consummation of the transactions contemplated.
7. Registration Rights. (a) In the event that Parent shall desire to
sell any of the Shares within two years after the purchase of such Shares
pursuant hereto, and such sale requires, in the opinion of counsel to Parent,
which opinion shall be reasonably satisfactory to the Company and its counsel,
registration of such Shares under the Securities Act, the Company shall
cooperate with Parent and any underwriters in registering such Shares for
resale, including, without limitation, promptly filing a registration statement
which complies with the requirements of applicable federal and state securities
laws, and entering into an underwriting agreement with such underwriters upon
such terms and conditions as are customarily contained in underwriting
agreements with respect to secondary distributions; provided that the Company
shall not be required to have declared effective more than two registration
statements hereunder and shall be entitled to delay the filing or effectiveness
of any registration statement for up to 60 days if the offering would, in the
judgment of the Board of Directors of the Company, require premature disclosure
of any material corporate development or material transaction involving the
Company or interfere with any pending or proposed securities offering by the
Company.
(b) If the Shares are registered pursuant to the provisions of this
Section 7, the Company agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as Parent may from time to time reasonably request and (ii) if any event
shall occur as a result of which it becomes necessary to amend or supplement any
registration statement or prospectus, to prepare and file under the applicable
securities laws such amendments and supplements as may be necessary to keep
available for at least 90 days a prospectus covering the Shares meeting the
requirements of such securities laws, and to furnish Parent such numbers of
copies of the registration statement and prospectus as amended or supplemented
as may reasonably be requested. The Company shall bear the cost of the
registration, including, but not limited to, all registration and filing fees,
printing expenses, and fees and disbursements of counsel and accountants for the
Company, except that Parent shall pay the fees and disbursements of its counsel,
and the underwriting fees and selling commissions applicable to the Shares sold
by Parent. Company shall indemnify and hold harmless (i) Parent, its affiliates
and its officers and directors and (ii) each underwriter and each person who
controls any underwriter (collectively, the "Underwriters") within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
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<PAGE>
"Exchange Act") ((i) and (ii) being referred to as "Indemnified Parties")
against any losses, claims, damages, liabilities or expenses to which the
Indemnified Parties may become subject, insofar as such losses, claims, damages,
liabilities (or actions in respect thereof) and expenses arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in any registration statement filed
pursuant to this paragraph, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, liability, claim, damage or expense arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any such documents in reliance upon and in conformity with written
information furnished to the Company by the Indemnified Parties expressly for
use or incorporation by reference therein. As used in this Agreement, "person"
shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act.
(c) Parent and the Underwriters shall indemnify and hold harmless the
Company, its affiliates and its officers and directors against any losses,
claims, damages, liabilities or expenses to which the Company, its affiliates
and its officers and directors may become subject, insofar as such losses,
claims, damages, liabilities (or actions in respect thereof) and expenses arise
out of or are based upon any untrue statement of any material fact contained or
incorporated by reference in any registration statement filed pursuant to this
paragraph, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by Parent or the Underwriters, as
applicable, specifically for use or incorporation by reference therein.
8. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
9. Specific Performance. The Company acknowledges that if the Company
fails to perform any of its obligations under this Agreement immediate and
irreparable harm or injury would be caused to Parent for which money damages
would not be an adequate remedy. In such event, the Company agrees that Parent
shall have the right, in addition to any other rights it may have, to specific
performance of this Agreement. Accordingly, if Parent should institute an action
or proceeding seeking specific enforcement of the provisions hereof, the Company
hereby waives the claim or defense that Parent has an adequate remedy at law and
hereby agrees not to assert in any such action or proceeding the claim or
defense that such a remedy at law exists. The
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<PAGE>
Company further agrees to waive any requirements for the securing or posting of
any bond in connection with obtaining any such equitable relief.
10. Notice. All notices or other communications under this Agreement
shall be in writing and shall be deemed duly given, effective (i) three business
days later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by telecopier or fax, provided that the
telecopy or fax is promptly confirmed by telephone confirmation thereof, (iii)
when served, if delivered personally to the intended recipient, and (iv) one
business day later, if sent by overnight delivery via a national courier
service, and in each case, addressed to the intended recipient at the address
set forth in the preamble hereof. Any party may change the address to which
notices or other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth:
If to Parent:
-------------
United HealthCare Corporation
9900 Bren Road East
Minnetonka, MN 55343
Attn: David J. Lubben, General Counsel and Secretary
Telecopy: (612) 936-0044
With a copy to:
---------------
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attn: James C. Morphy, Esq.
Telecopy: (212) 558-3588
If to the Company:
------------------
Humana Inc.
The Humana Building
500 West Main Street
P.O. Box 1438
Louisville, KY 40201-1438
Attn: Arthur P. Hipwell, Senior Vice President and General Counsel
Telecopy: (502) 580-3615
With a copy to:
---------------
Fried, Frank, Harris, Shriver & Jacobson
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<PAGE>
One New York Plaza
New York, NY 10004
Attn: Jeffrey Bagner, Esq.
Telecopy: (212) 859-4000
11. Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successor in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the Company or Parent, or their successors or assigns, any rights or remedies
under or by reason of this Agreement.
12. Entire Agreement; Amendments. This Agreement, together with the
Merger Agreement and the other documents referred to therein, contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
13. Assignment. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the prior written consent of the
other party hereto, except that Parent may assign its rights and obligations
hereunder to any of its direct or indirect wholly owned subsidiaries (including
Newco), but no such transfer shall relieve Parent of its obligations hereunder
if such transferee does not perform such obligations.
14. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
17. Termination. The right to exercise the Option granted pursuant to
this Agreement shall terminate at the earlier of (i) the Effective Time (as
defined in the Merger Agreement); and (ii) one year after the date of the
Exercise Event that caused the Option to become exercisable (the date referred
to in clause (ii) being hereinafter referred to as the "Option Termination
Date"); provided that, if the Option cannot be exercised or
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<PAGE>
the Shares cannot be delivered to Parent upon such exercise because the
conditions set forth in Section 2(a), (b) or (c) hereof have not yet been
satisfied, the Option Termination Date shall be extended until thirty days after
such impediment to exercise or delivery has been removed but not beyond the
first anniversary of the Option Termination Date.
All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
18. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, of the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
19. Public Announcement. Parent and the Company shall each consult with
the other and use reasonable best efforts to agree upon the text of any press
release, subject to their respective legal obligations (including requirements
of stock exchanges and other similar regulatory bodies) with respect to the
timing of such public announcements, prior to issuing any such press releases or
otherwise making public announcements with respect to the transactions
contemplated by this Agreement and prior to making any filings with any third
party and/or any governmental authorities (including any national securities
exchange) with respect thereto.
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<PAGE>
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be duly executed and delivered on the day and year first above written.
HUMANA INC.
/s/ David A. Jones
--------------------------------------
By: David A. Jones
Title: Chairman of the Board
UNITED HEALTHCARE CORPORATION
/s/ William W. McGuire
--------------------------------------
By: William W. McGuire
Title: President & CEO
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STOCKHOLDER VOTING AGREEMENT
STOCKHOLDER VOTING AGREEMENT, dated as of May 27, 1998 (this
"Agreement"), between David A. Jones ("Stockholder") and United HealthCare
Corporation, a Minnesota corporation ("Purchaser").
WHEREAS, Humana Inc., a Delaware corporation (the "Company"), Purchaser
and UH-1 Inc., a Delaware corporation and a wholly owned subsidiary of Purchaser
("Merger Sub"), are contemporaneously herewith entering into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, for the merger of Merger Sub with and into the
Company (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Purchaser and Merger Sub have requested that Stockholder make certain
agreements with respect to 5,963,778 shares of Common Stock, par value $.162/3
per share ("Shares"), of the Company beneficially owned by Stockholder (the
"Stockholder Shares"), upon the terms and subject to the conditions hereof; and
WHEREAS, in order to induce Purchaser and Merger Sub to enter into the
Merger Agreement, Stockholder is willing to make certain agreements with respect
to the Stockholder Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. Voting Agreements; Proxy.
(a) For so long as this Agreement is in effect, in any meeting of
stockholders of the Company, however called, and in any action by consent of the
stockholders of the Company, Stockholder shall vote, or, if applicable, give
consents with respect to, all of the Stockholder Shares (and any other Shares
over which Stockholder has voting power) that are held on the record date
applicable thereto in favor of the Merger Agreement and the Merger contemplated
by the Merger Agreement, as such agreement may be modified or amended from time
to time. Any such vote shall be cast or consent shall be given in accordance
with such procedures relating thereto as shall ensure that it is duly counted
for purposes of determining that a quorum is present and for purposes of
recording the results of such vote or consent.
<PAGE>
(b) Upon the written request of Purchaser, Stockholder, in furtherance
of the transactions contemplated hereby and by the Merger Agreement, and in
order to secure the performance of Stockholder of his duties under this
Agreement, shall promptly execute, in accordance with the provisions of Section
212 of the Delaware General Corporation Law, and deliver to Purchaser an
irrevocable proxy, substantially in the form attached as Exhibit A hereto, and
irrevocably appoint Purchaser or its designees, with full power of substitution,
its attorney and proxy to vote or, if applicable, to give consent with respect
to, all Stockholder Shares with regard to any of the matters referred to in
paragraph (a) above at any meeting of the stockholders of the Company, however
called, or in connection with any action by written consent by the stockholders
of the Company. Stockholder acknowledges and agrees that such proxy, if and when
given, shall be coupled with an interest, shall constitute, among other things,
an inducement for Purchaser to enter into the Merger Agreement, shall be
irrevocable and shall not be terminated by operation of law or otherwise upon
the occurrence of any event (other than as provided in Section 14 hereof) and
that no subsequent proxies with respect to the Stockholder Shares shall be given
(and if given shall not be effective).
2. Covenants. (a) From and after the date of this Agreement,
Stockholder agrees not to (i) sell, transfer, pledge, assign, hypothecate,
encumber, tender or otherwise dispose of, or enter into any contract with
respect to the sale, transfer, pledge, assignment, hypothecation, encumbrance,
tender or other disposition of more than 1% of the Stockholder Shares; (ii)
grant any proxies with respect to any Stockholder Shares, deposit any such
Stockholder Shares into a voting trust or enter into a voting or option
agreement with respect to any of such Stockholder Shares; (iii) directly or
indirectly, solicit, initiate, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to an Acquisition Proposal
or, except solely in his capacity as a director of the Company if permitted by
the proviso contained in Section 6.2 of the Merger Agreement, engage in any
negotiation concerning, or provide any confidential information or data to, or
have any discussions with any person relating to an Acquisition Proposal; or
(iv) take any action which would make any representation or warranty of
Stockholder herein untrue or incorrect or prevent, burden or materially delay
the consummation of the transactions contemplated by this Agreement. As used in
this Agreement, "person" shall have the meaning specified in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act of 1934, as amended (the "Exchange Act").
(b) Stockholder agrees to execute and deliver to the Company or to
Purchaser an "affiliates letter," dated the date hereof, substantially in the
form attached as Exhibit C-1 of the Merger Agreement.
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<PAGE>
3. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Purchaser that:
(a) Capacity; No Violations. Stockholder has the legal capacity to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Stockholder, and
constitutes a valid and binding agreement of Stockholder enforceable against
Stockholder in accordance with its terms; and such execution and delivery and
performance by Stockholder of this Agreement will not (i) conflict with, require
a consent, waiver or approval under, or result in a breach or default under, any
of the terms of any contract, commitment or other obligation to which
Stockholder is a party or by which Stockholder is bound; (ii) violate any order,
writ, injunction, decree or statute, or any law, rule or regulation applicable
to Stockholder or the Stockholder Shares; or (iii) result in the creation of, or
impose any obligation on Stockholder to create, any Lien upon the Stockholder
Shares. In this Agreement, "Lien" shall mean any lien, pledge, security
interest, claim, third party right or other encumbrance.
(b) Stockholder Shares. As of the date of this Agreement, Stockholder
is the record holder of, and has good and valid title to, the Stockholder Shares
free and clear of all Liens. Other than the Shares held by Stockholder in a
fiduciary capacity or as a general partner, the Stockholder Shares are the only
shares of any class of capital stock of the Company which Stockholder has the
right, power or authority (sole or shared) to sell or vote, and, other than the
options on Shares held by Stockholder as of the date hereof, Stockholder does
not have any right to acquire, nor is it the beneficial owner of, any other
shares of any class of capital stock of the Company or any securities
convertible into or exchangeable or exercisable for any shares of any class of
capital stock of the Company. There are no options or rights to acquire or other
contracts (including proxies, voting trusts or voting agreements) relating to
the Stockholder Shares to which Stockholder is a party.
4. Adjustments; Additional Shares. In the event (i) of any stock
dividend, stock split, recapitalization, reclassification, combination or
exchange of Shares on, of or affecting the Stockholder Shares, or (ii)
Stockholder shall become the beneficial owner of any additional Shares or other
securities entitling the holder thereof to vote or give consent with respect to
the matters set forth in Section 1 hereof, then the terms of this Agreement
shall apply to the Shares held by Stockholder immediately following the
effectiveness of the events described in clause (i) or Stockholder becoming the
beneficial owner of the Shares or other securities, as described in clause (ii),
as though they were Stockholder Shares hereunder; provided that any Shares
acquired by Stockholder as described in clause (ii) and not held of record by
Stockholder shall be subject only to Section 1 hereof.
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<PAGE>
5. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement.
6. Specific Performance. Stockholder acknowledges and agrees that if it
fails to perform any of its obligations under this Agreement immediate and
irreparable harm or injury would be caused to Purchaser for which money damages
would not be an adequate remedy. In such event, Stockholder agrees that
Purchaser shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if Purchaser should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, Stockholder hereby waives the claim or defense that Purchaser has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. Stockholder
further agrees to waive any requirements for the securing or posting of any bond
in connection with obtaining any such equitable relief.
7. Notices. All notices or other communications under this Agreement
shall be in writing and shall be deemed duly given, effective (i) three business
days later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by telecopier or fax, provided that the
telecopy or fax is promptly confirmed by telephone confirmation thereof, (iii)
when served, if delivered personally to the intended recipient, and (iv) one
business day later, if sent by overnight delivery via a national courier
service, and in each case, addressed to the intended recipient at the address
set forth in the preamble hereof. Any party may change the address to which
notices or other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth:
If to the Purchaser:
--------------------
United HealthCare Corporation
9900 Bren Road East
Minnetonka, MN 55343
Attention: David J. Lubben, General Counsel and Secretary
Fax: (612) 936-0044
With a copy to:
---------------
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: James C. Morphy
Fax: (212) 558-3588
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<PAGE>
If to Stockholder:
------------------
David A. Jones
c/o Humana Inc.
The Humana Building
500 West Main Street
P.O. Box 1438
Louisville, KY 40201-1438
Telecopy: (502) 580-3698
With a copy to:
---------------
Humana Inc.
The Humana Building
500 West Main Street
P.O. Box 1438
Louisville, KY 40201-1438
Attn: Arthur P. Hipwell, Senior Vice President and General Counsel
Telecopy: (502) 580-3615
With a copy to:
---------------
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attn: Jeffrey Bagner, Esq.
Telecopy: (212) 859-4000
8. Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successor in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
Purchaser, Stockholder or their successors or assigns, any rights or remedies
under or by reason of this Agreement.
9. Entire Agreement; Amendments. This Agreement contains the entire
agreement between Stockholder and Purchaser with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing
-5-
<PAGE>
signed by the party against whom any waiver, change, amendment, modification or
discharge may be sought.
10. Assignment. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the prior written consent of the
other party hereto, except that Purchaser may assign its rights and obligations
hereunder to any of its direct or indirect wholly owned subsidiaries (including
Merger Sub), but no such transfer shall relieve Purchaser of its obligations
hereunder if such transferee does not perform such obligations.
11. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
14. Termination. This Agreement shall terminate at the earlier of (i)
the Effective Time (as defined in the Merger Agreement) and (ii) on the date the
Merger Agreement is terminated pursuant to the terms thereof.
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<PAGE>
IN WITNESS WHEREOF, Purchaser and Stockholder have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
UNITED HEALTHCARE CORPORATION
By: /s/ William W. McGuire
---------------------------------------
Name: William W. McGuire
Title: President & CEO
DAVID A. JONES
By: /s/ David A. Jones
---------------------------------------
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<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties of the
undersigned pursuant to the Stockholder Voting Agreement, dated as of _____,
1998 (the "Voting Agreement") between the undersigned and [Parent], a Minnesota
corporation ("Purchaser"), a copy of such agreement being attached hereto and
incorporated by reference herein, the undersigned hereby irrevocably appoints
___________________ _________________and __________________________________ and
__________________________, and each of the attorneys, agents and proxies,
with full power of substitution in each of them, for the undersigned and in the
name, place and stead of the undersigned, to vote or, if applicable, to give
written consent, in such manner as each such attorney, agent and proxy or his
substitute shall in his sole discretion deem proper to record such vote (or
consent) in the manner set forth in Section 1 of the Voting Agreement with
respect to all shares of Common Stock, par value $0.16-2/3 per share (the
"Shares"), of Humana Inc., a Delaware corporation (the "Company"), which the
undersigned is or may be entitled to vote at any meeting of the Company held
after the date hereof, whether annual or special and whether or to an adjourned
meeting, or, if applicable, to give written consent with respect thereto. This
Proxy is coupled with an interest, shall be irrevocable and binding on any
successor in interest of the undersigned and shall not be terminated by
operation of law or otherwise upon the occurrence of any event (other than as
provided in Section 14 of the Voting Agreement), including, without limitation,
the death or incapacity of the undersigned. This Proxy shall operate to revoke
any prior proxy as to the Shares heretofore granted by the undersigned. This
Proxy shall terminate upon the Termination Date (as defined in the Voting
Agreement). This Proxy has been executed in accordance with Section 212 of the
Delaware General Corporation Law.
Dated: _________________ ________________________
[Name]
-8-
