<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
------------------------
HEALTHSOURCE, INC.
(NAME OF SUBJECT COMPANY)
CHC ACQUISITION CORP.
CIGNA CORPORATION
(BIDDERS)
COMMON STOCK, $.10 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
42221E 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
THOMAS J. WAGNER, ESQ.
CIGNA CORPORATION
ONE LIBERTY PLACE
PHILADELPHIA, PENNSYLVANIA 19192
215-761-6028
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
COPY TO:
C. DOUGLAS KRANWINKLE, ESQ.
O'MELVENY & MYERS LLP
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
212-326-2000
FEBRUARY 27, 1997
(DATE OF EVENT WHICH REQUIRES FILING STATEMENT ON SCHEDULE 13D)
CALCULATION OF FILING FEE
TRANSACTION VALUATION* $1,551,656,244
AMOUNT OF FILING FEE $310,331.25
- ---------------
* Estimated for purposes of calculating the amount of the filing fee only. The
amount assumes the purchase of 71,340,517 shares of common stock, $.10 par
value (the "Shares"), of Healthsource, Inc. (the "Company") at a price per
Share of $21.75 in cash (the "Offer Price"). Such number of shares represents
all the Shares outstanding as of January 31, 1997 plus all Shares issuable
pursuant to options granted under the Company's stock option and employee
stock purchase plans, pension plans and other similar employee benefit plans.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount previously paid: none
Form or registration no.: n/a
Filing party: n/a
Date filed: n/a
(Continued on following pages)
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<PAGE> 2
CUSIP NO. 42221E 10 4 14D-1 AND 13D Page 2 of 3 Pages
<TABLE>
<C> <S>
- ---------------------------------------------------------------------------------------------
1. Names of Reporting Persons
S.S. or I.R.S. Identification Nos. of Above Persons
CHC ACQUISITION CORP.
- ---------------------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [ ]
(b) [ ]
- ---------------------------------------------------------------------------------------------
3. SEC Use Only
- ---------------------------------------------------------------------------------------------
4. Source of Funds
AF
- ---------------------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or
2(f) [ ]
- ---------------------------------------------------------------------------------------------
6. Citizenship or Place of Organization
New Hampshire
- ---------------------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned By Each Reporting Person*
4,332,760
- ---------------------------------------------------------------------------------------------
8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares [ ]
- ---------------------------------------------------------------------------------------------
9. Percent of Class Represented By Amount in Row (7)*
Approximately 6.1% of the Shares outstanding on a fully diluted basis as of January
31, 1997.
- ---------------------------------------------------------------------------------------------
10. Type of Reporting Person
CO
- ---------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* See footnote on following page.
<PAGE> 3
CUSIP NO. 42221E 10 4 14D-1 AND 13D Page 3 of 3 Pages
<TABLE>
<C> <S>
- ---------------------------------------------------------------------------------------------
1. Names of Reporting Persons
S.S. or I.R.S. Identification Nos. of Above Persons
CIGNA Corporation
- ---------------------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [ ]
(b) [ ]
- ---------------------------------------------------------------------------------------------
3. SEC Use Only
- ---------------------------------------------------------------------------------------------
4. Source of Funds
WC/OO
- ---------------------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or
2(f) [ ]
- ---------------------------------------------------------------------------------------------
6. Citizenship or Place of Organization
Delaware
- ---------------------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned By Each Reporting Person*
4,332,760
- ---------------------------------------------------------------------------------------------
8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares [ ]
- ---------------------------------------------------------------------------------------------
9. Percent of Class Represented By Amount in Row (7)*
Approximately 6.1% of the Shares outstanding on a fully diluted basis as of January
31, 1997.
- ---------------------------------------------------------------------------------------------
10. Type of Reporting Person
CO
- ---------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* On February 27, 1997, CIGNA Corporation, a Delaware corporation ("Parent"),
and CHC Acquisition Corp., a New Hampshire corporation and an indirect wholly
owned subsidiary of Parent (the "Purchaser"), entered into a Tender Agreement
and Irrevocable Proxy (the "Tender Agreement") with Dr. Norman C. Payson, the
Chief Executive Officer and President of the Company and the owner of an
aggregate of 4,332,760 Shares (representing approximately 6.1% of the
Company's outstanding Shares on a fully diluted basis). Pursuant to the Tender
Agreement, Dr. Payson has agreed to tender pursuant to and in accordance with
the terms of the Offer (as defined in the Offer to Purchase) the number of
Shares owned by him. Dr. Payson has also appointed Purchaser and its designees
as proxies to vote his Shares as provided for in the Tender Agreement
(including, but not limited to, to vote in favor of the Merger (as defined in
the Offer to Purchase), the execution and delivery by the Company of the
Merger Agreement (as defined in the Offer to Purchase) and the approval and
adoption of the Merger and the terms thereof and each of the other actions
contemplated by the Merger Agreement and the Tender Agreement and any actions
required in furtherance thereof). The Tender Agreement is described more fully
in Section 12 -- "Purpose of the Offer, Merger, Merger Agreement, Tender
Agreement and Consulting Agreement" of the Offer to Purchase dated March 6,
1997 (the "Offer to Purchase").
<PAGE> 4
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 relates to the offer by the
Purchaser to purchase all outstanding shares of common stock, par value $.10 per
share (the "Shares"), of Healthsource, Inc., a New Hampshire corporation, at
$21.75 per Share, net to the seller in cash, on the terms and subject to the
conditions set forth in the Offer to Purchase dated March 6, 1997 (the "Offer to
Purchase") and in the related Letter of Transmittal, copies of which are
attached hereto as Exhibits (a)(1) and (a)(2), respectively (which, as amended
or supplemented from time to time, together constitute the "Offer"). This Tender
Offer Statement on Schedule 14D-1 also constitutes a Statement on Schedule 13D
with respect to the acquisition by Parent and the Purchaser of beneficial
ownership of the Shares subject to the Tender Agreement. The item numbers and
responses thereto below are in accordance with the requirements of Schedule
14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY
(a) The name of the subject company is Healthsource, Inc., a New Hampshire
corporation (the "Company"). The address of the Company's principal executive
offices is Two College Park Drive, Hooksett, New Hampshire 03106.
(b) The information set forth in the Introduction of the Offer to Purchase
is incorporated herein by reference.
(c) The information set forth in Section 6 -- "Price Range of Shares;
Dividends" of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(d), (g) This Statement is filed by the Purchaser and Parent. The
information set forth in the Introduction, in Section 9 -- "Certain Information
Concerning the Purchaser and Parent" and in Schedule I of the Offer to Purchase
is incorporated herein by reference.
(e)-(f) During the last five years, none of the Purchaser Entities (as
defined in the Offer to Purchase) nor, to their knowledge, any of the persons
listed in Schedule I (Directors and Executive Officers) to the Offer to
Purchase, (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 activities subject to,
federal or state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY
(a) Not applicable.
(b) The information set forth in Section 11 -- "Background of the Offer;
Contacts with the Company" and in Section 12 -- "Purpose of the Offer, Merger,
Merger Agreement, Tender Agreement and Consulting Agreement" of the Offer to
Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a)-(b) The information set forth in Section 10 -- "Source and Amount of
Funds" of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
1
<PAGE> 5
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDERS
(a)-(g) The information set forth in the Introduction, in Section
7 -- "Effect of the Offer on the Market for the Shares; NYSE Listing and
Exchange Act Registration" and in Section 12 -- "Purpose of the Offer, Merger,
Merger Agreement, Tender Agreement and Consulting Agreement" of the Offer to
Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
(a)-(b) The information set forth in the Introduction and in Section
12 -- "Purpose of the Offer, Merger, Merger Agreement, Tender Agreement and
Consulting Agreement" of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES
The information set forth in the Introduction, in Section 9 -- "Certain
Information Concerning the Purchaser and Parent," in Section 11 -- "Background
of the Offer; Contacts with the Company," and in Section 12 -- "Purpose of the
Offer, Merger, Merger Agreement, Tender Agreement and Consulting Agreement" of
the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The information set forth in the Introduction, in Section 16 -- "Fees and
Expenses" and in Section 17 -- "Miscellaneous" of the Offer to Purchase is
incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS
The information set forth in Section 9 -- "Certain Information Concerning
the Purchaser and Parent," of the Offer to Purchase, including the financial
statements and related notes thereto incorporated by reference in Section 9, is
incorporated herein by reference. The incorporation by reference herein of the
above-referenced financial information does not constitute an admission that
such information is material to a decision by a stockholder of the Company
whether to sell, tender or hold shares being sought in the Offer.
ITEM 10. ADDITIONAL INFORMATION
(a) The information set forth in the Introduction, in Section 9 -- "Certain
Information Concerning the Purchaser and Parent," in Section 11 -- "Background
of the Offer; Contacts with the Company," and in Section 12 -- "Purpose of the
Offer, Merger, Merger Agreement, Tender Agreement and Consulting Agreement" of
the Offer to Purchase is incorporated herein by reference.
(b)-(c) The information set forth in Section 12 -- "Purpose of the Offer,
Merger, Merger Agreement, Tender Agreement and Consulting Agreement" and in
Section 15 -- "Certain Legal Matters" of the Offer to Purchase is incorporated
herein by reference.
(d) The information set forth in Section 7 -- "Effect of the Offer on the
Market for the Shares; NYSE Listing and Exchange Act Registration" of the Offer
to Purchase is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Offer to Purchase, dated March 6, 1997.
(a)(2) Letter of Transmittal.
2
<PAGE> 6
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Form of Summary Advertisement, dated March 6, 1997.
(a)(8) Text of Press Release, dated February 28, 1997.
(a)(9) Text of Press Release, dated March 6, 1997.
(b) None.
(c)(1) Agreement and Plan of Merger dated as of February 27, 1997 by and
among Parent, the Purchaser and the Company.
(c)(2) Tender Agreement and Irrevocable Proxy dated as of February 27, 1997
by and among Parent, the Purchaser and Dr. Norman C. Payson.
(c)(3) Confidentiality Agreement dated as of January 31, 1997 by and
between Parent and the Company.
(c)(4) Consulting Agreement dated as of February 27, 1997 by and between
Parent and Dr. Norman C. Payson.
(d) None.
(e) Not applicable.
(f) None.
3
<PAGE> 7
SIGNATURES
After due inquiry and to the best of their knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: March 6, 1997
CHC ACQUISITION CORP.
By: /s/ ROBERT L. ROSE
--------------------------------------
Name: Robert L. Rose
Title: President
CIGNA CORPORATION
By: /s/ MORDECAI SCHWARTZ
--------------------------------------
Name: Mordecai Schwartz
Title: Vice President
S-1
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NO.
- ------- ---------
<S> <C> <C>
(a)(1) Offer to Purchase, dated March 6, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Form of Summary Advertisement, dated March 6, 1997.
(a)(8) Text of Press Release, dated February 28, 1997.
(a)(9) Text of Press Release, dated March 6, 1997.
(c)(1) Agreement and Plan of Merger dated as of February 27, 1997 by and among
Parent, the Purchaser and the Company.
(c)(2) Tender Agreement and Irrevocable Proxy dated as of February 27, 1997 by
and among Parent, the Purchaser and Dr. Norman C. Payson.
(c)(3) Confidentiality Agreement dated as of January 31, 1997 by and between
Parent and the Company.
(c)(4) Consulting Agreement dated as of February 27, 1997 by and between Parent
and Dr. Norman C. Payson.
</TABLE>
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HEALTHSOURCE, INC.
AT
$21.75 NET PER SHARE
BY
CHC ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
CIGNA CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, APRIL 2, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES (AS DEFINED HEREIN) WHICH CONSTITUTES AT LEAST A MAJORITY OF THE SHARES
OUTSTANDING ON A FULLY DILUTED BASIS. THE OFFER IS ALSO SUBJECT TO OTHER TERMS
AND CONDITIONS. SEE SECTION 14.
THE BOARD OF DIRECTORS OF HEALTHSOURCE, INC. (THE "COMPANY") HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER (AS DEFINED
HEREIN), AND HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT
THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE
OFFER.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of his or her shares
of common stock, par value $.10 per share, of the Company (the "Shares") should
either (a) complete and sign the Letter of Transmittal (or a facsimile thereof)
in accordance with the instructions in the Letter of Transmittal and mail or
deliver it together with the certificate(s) evidencing tendered Shares, and any
other required documents, to the Depositary, or tender such Shares pursuant to
the procedures for book-entry transfer set forth in Section 3, or (b) request
such stockholder's broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for such stockholder. A stockholder whose
Shares are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if such stockholder desires to tender such
Shares.
Any stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer described in this Offer to Purchase on a
timely basis may tender such Shares by following the procedures for guaranteed
delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal, the Notice of
Guaranteed Delivery and other tender offer materials may be directed to the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks and trust companies for assistance concerning this Offer.
------------------------
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
------------------------
The date of this Offer to Purchase is March 6, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Introduction.......................................................................... 1
1. Terms of the Offer.............................................................. 3
2. Acceptance for Payment and Payment for Shares................................... 4
3. Procedures for Tendering Shares................................................. 5
4. Withdrawal Rights............................................................... 7
5. Certain Federal Income Tax Consequences......................................... 8
6. Price Range of Shares; Dividends................................................ 9
7. Effect of the Offer on the Market for the Shares; NYSE Listing and Exchange Act
Registration.................................................................. 9
8. Certain Information Concerning the Company...................................... 10
9. Certain Information Concerning the Purchaser and Parent......................... 13
10. Source and Amount of Funds...................................................... 15
11. Background of the Offer; Contacts with the Company.............................. 15
12. Purpose of the Offer, Merger, Merger Agreement, Tender Agreement and Consulting
Agreement..................................................................... 16
13. Dividends and Distributions..................................................... 29
14. Conditions to the Offer......................................................... 30
15. Certain Legal Matters........................................................... 31
16. Fees and Expenses............................................................... 33
17. Miscellaneous................................................................... 33
Schedule I -- Information Concerning Directors and Executive Officers of Parent and
the Purchaser....................................................................... I-1
</TABLE>
<PAGE> 3
To the Holders of Common Stock of
Healthsource, Inc.:
INTRODUCTION
CHC Acquisition Corp., a New Hampshire corporation (the "Purchaser"), and
an indirect wholly owned subsidiary of CIGNA Corporation, a Delaware corporation
("Parent"), hereby offers to purchase all outstanding shares of common stock,
par value $.10 per share (the "Shares"), of Healthsource, Inc., a New Hampshire
corporation (the "Company"), at $21.75 per Share (the "Offer Price"), net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in this Offer to Purchase and in the related Letter of Transmittal
(which, as amended or supplemented from time to time, together constitute the
"Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. The Purchaser will pay all reasonable fees and expenses
of Goldman, Sachs & Co., which are acting as the Dealer Managers, IBJ Schroder
Bank & Trust Company, which is acting as the Depositary (the "Depositary"), and
Georgeson & Company, Inc., which is acting as the Information Agent (the
"Information Agent"), incurred in connection with the Offer. See Section 16.
The Offer is conditioned upon, among other things, there having been
validly tendered and not withdrawn prior to the expiration of the Offer a number
of Shares which, together with any Shares beneficially owned by Parent or the
Purchaser, constitutes at least a majority of the Shares outstanding on a fully
diluted basis (the "Minimum Condition"). See Section 14.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 27, 1997 (the "Merger Agreement"), by and among the Company,
Parent and the Purchaser. The Merger Agreement provides that, among other
things, following the consummation of the Offer and the satisfaction or waiver
of the other conditions set forth in the Merger Agreement, the Purchaser will be
merged with and into the Company (the "Merger"). At the effective time of the
Merger (the "Effective Time"), each outstanding Share (other than Shares held in
the treasury of the Company, owned by Parent, the Purchaser or any other wholly
owned subsidiary of Parent or held by stockholders who perfect their dissenter's
rights under New Hampshire law) will be converted into the right to receive the
per Share price paid in the Offer, without interest (referred to herein as the
"Merger Consideration"). See Section 12.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, AND HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES IN THE OFFER.
The Merger Agreement provides that promptly upon the purchase by Parent or
any of its subsidiaries of Shares pursuant to the Offer that represent at least
a majority of the outstanding Shares on a fully diluted basis, Parent shall be
entitled to designate up to such number of directors, rounded up to the next
whole number, on the Company Board as will give Parent representation on the
Company Board equal to the product of the total number of directors on the
Company Board multiplied by the percentage that the number of Shares so accepted
for payment bears to the total number of Shares then outstanding. In the Merger
Agreement, the Company has agreed to use its best efforts to promptly cause
Parent's designees to be elected as directors of the Company, including by
increasing the size of the Company Board or securing the resignations of
incumbent directors. Notwithstanding the foregoing, Parent and the Purchaser
have agreed that, until the Effective Time, the Company Board shall have at
least two members who were directors on the date of the Merger Agreement.
1
<PAGE> 4
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including, if required by law, the approval and adoption of
the Merger Agreement by the requisite vote of the stockholders of the Company.
See Section 12. Under the Company's Articles of Incorporation and New Hampshire
law, the affirmative vote of the holders of a majority of the outstanding Shares
is required to approve and adopt the Merger Agreement and the Merger.
Consequently, if the Purchaser acquires (pursuant to the Offer or otherwise) at
least a majority of the then outstanding shares, the Purchaser will have
sufficient voting power to approve and adopt the Merger Agreement and the Merger
without the vote of any other stockholder. Parent has agreed to vote the Shares
purchased in the Offer in favor of the Merger.
The Merger Agreement provides that, following the satisfaction or waiver of
the conditions to the Offer, the Purchaser will accept for payment, in
accordance with the terms of the Offer, all Shares validly tendered pursuant to
the Offer as soon as it is permitted to do so pursuant to applicable law, which
could be as early as immediately following 12:00 midnight, New York City time,
on Wednesday, April 2, 1997. The Merger Agreement provides that the Purchaser
shall, if all conditions to the Offer have not been satisfied or waived, from
time to time until seven months from February 27, 1997, extend the expiration
date of the Offer beyond the time it would otherwise be required to accept
validly tendered shares for payment. The Merger Agreement also provides that the
Company may, in its sole discretion, require the Purchaser to extend the
expiration date of the Offer for up to an additional 60 days in the event that
certain regulatory approvals required to consummate the Offer and the Merger
shall not have been obtained by the end of such initial seven month period and
provided that, at the end of such seven month period, no Company Material
Adverse Effect (as hereinafter defined) shall have occurred and be continuing.
The Offer will not remain open following the time Shares are accepted for
payment.
In connection with the execution of the Merger Agreement, Parent and the
Purchaser entered into a Tender Agreement and Irrevocable Proxy dated as of
February 27, 1997 (the "Tender Agreement") with Norman C. Payson, M.D., the
Company's Chief Executive Officer and President and the owner of 4,332,760
Shares, or approximately 6.1% of the Company's outstanding Shares on a fully
diluted basis. Pursuant to the Tender Agreement, Dr. Payson has agreed to
validly tender pursuant to the Offer and not withdraw all such Shares which are
owned by him. The Tender Agreement is more fully described in Section 12.
According to the Company, as of January 31, 1997, there were 63,795,517
Shares outstanding, 5,262,600 Shares reserved for issuance pursuant to the
conversion of the Company's 5% Convertible Subordinated Notes due 2003 (the
"Company Convertible Notes"), Shares reserved for issuance in connection with
the rights (the "Rights") issued pursuant to the Rights Agreement between the
Company and The Bank of New York dated as of July 29, 1996 (the "Rights
Agreement"), and, as of February 27, 1997, 7,545,000 Shares issuable pursuant to
options granted under the Company's stock option and employee stock purchase
plans, pension plans and other similar employee benefit plans. For purposes of
the Offer, "fully diluted basis" assumes that all such options are exercised for
Shares, that none of the Company Convertible Notes (which, within 30 days
following the acquisition by Purchaser of beneficial ownership, directly or
indirectly, of more than 50% of the Shares, the Company will offer to repurchase
no later than 60 days thereafter) will be converted into Shares and that none of
the Rights (which will be redeemed prior to the consummation of the Offer) will
be exercised for Shares. Based upon the foregoing information, the Minimum
Condition would be satisfied if 35,670,259 Shares were validly tendered.
Assuming the valid tender into the Offer of the 4,332,760 Shares beneficially
owned by the Shareholder, the Purchaser will need to purchase an additional
31,337,499 Shares to satisfy the Minimum Condition.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
2
<PAGE> 5
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares which
are validly tendered prior to the Expiration Date and not withdrawn in
accordance with Section 4. The term "Expiration Date" means 12:00 Midnight, New
York City time, on Wednesday, April 2, 1997, unless and until the Purchaser
(subject to the terms of the Merger Agreement) shall have extended the period of
time during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition. See Section 14, which sets forth in full the conditions to
the Offer. If the Minimum Condition is not satisfied or any or all of the other
events set forth in Section 14 shall have occurred or shall be determined by the
Purchaser to have occurred prior to the Expiration Date, the Purchaser reserves
the right (but shall not be obligated) to, subject to the terms of the Merger
Agreement, (i) decline to purchase any of the Shares tendered in the Offer and
terminate the Offer and return all tendered Shares to the tendering
stockholders, (ii) waive any or all conditions to the Offer, to the extent
permitted by applicable law and the provisions of the Merger Agreement, and,
subject to complying with applicable rules and regulations of the Securities and
Exchange Commission (the "Commission"), purchase all Shares validly tendered,
(iii) extend the Offer and, subject to the right of stockholders to withdraw
Shares until the Expiration Date, retain the Shares which have been tendered
during the period or periods for which the Offer is extended or (iv) amend the
Offer. The Merger Agreement provides that the Purchaser will not, without the
consent of the Company, decrease the Offer Price, decrease the numbers of Shares
sought in the Offer, amend or waive the Minimum Condition, or amend any other
term or condition of the Offer in any manner adverse to the holders of Shares,
except that if on the initial Expiration Date, or any extension thereof, all
conditions to the Offer shall not have been satisfied or waived, the Offer shall
be extended from time to time until seven months from the date of the execution
of the Merger Agreement (as such time may be extended pursuant to the Merger
Agreement).
The Purchaser expressly reserves the right, in its sole discretion, at any
time or from time to time, subject to the terms of the Merger Agreement and
regardless of whether or not any of the events set forth in Section 14 shall
have occurred or shall have been determined by the Purchaser to have occurred,
(i) to extend the period of time during which the Offer is open and thereby
delay acceptance for payment of, and the payment for, any Shares, by giving oral
or written notice of such extension to the Depositary and (ii) to amend the
Offer in any respect by giving oral or written notice of such amendment to the
Depositary. The rights reserved by the Purchaser in this paragraph are in
addition to the Purchaser's rights to terminate the Offer pursuant to Section
14. Any extension, amendment or termination will be followed as promptly as
practicable by public announcement thereof, the announcement in the case of an
extension to be issued no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date in accordance with
Rules 14d-4(c), 14d-6(d) and 14e-1(d) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Without limiting the obligation of the
Purchaser under such rules or the manner in which the Purchaser may choose to
make any public announcement, the Purchaser currently intends to make
announcements by issuing a release to the Dow Jones News Service.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in Section 4. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-1(c) under the Exchange Act,
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<PAGE> 6
which requires that a bidder pay the consideration offered or return the
securities deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including the Minimum Condition, subject to the Merger Agreement), the
Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange
Act. The minimum period during which the Offer must remain open following
material changes in the terms of the Offer or information concerning the Offer,
other than a change in price or a change in percentage of securities sought,
will depend upon the facts and circumstances, including the relative materiality
of the terms or information. With respect to a change in price or a change in
percentage of securities sought, a minimum ten business day period is required
to allow for adequate dissemination to stockholders and investor response. If,
prior to the Expiration Date, the Purchaser should decide to increase the price
per Share being offered in the Offer, such increase will be applicable to all
stockholders whose Shares are accepted for payment pursuant to the Offer. The
Merger Agreement provides that, without the Company's consent, the Purchaser
will not decrease the price or the number of Shares sought in the Offer. As used
in this Offer to Purchase, "business day" has the meaning set forth in Rule
14d-1 under the Exchange Act.
The Company has provided to the Purchaser its list of stockholders and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares and
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will purchase, by accepting for payment, and will pay
for, all Shares validly tendered prior to the Expiration Date (and not properly
withdrawn in accordance with Section 4) promptly after the later to occur of (i)
the Expiration Date and (ii) the satisfaction or waiver of the conditions set
forth in Section 14. Subject to the applicable rules of the Commission and the
terms of the Merger Agreement, the Purchaser expressly reserves the right to
delay acceptance for payment of, or payment for, Shares in order to comply, in
whole or in part, with any applicable law, including the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). See Sections 14
and 15.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates evidencing
such Shares ("Stock Certificates") or timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Shares into the Depositary's
account at The Depository Trust Company or the Philadelphia Depository Trust
Company (each, a "Book-Entry Transfer Facility") pursuant to the procedures set
forth in Section 3, (ii) a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an
Agent's Message (as defined below) and (iii) any other documents required by the
Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
4
<PAGE> 7
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, tendered Shares if, as and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of such Shares for payment. Payment for Shares accepted pursuant to
the Offer will be made by deposit of the purchase price with the Depositary,
which will act as agent for tendering stockholders for the purpose of receiving
payments from the Purchaser and transmitting payments to such tendering
stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR
SHARES BE PAID BY THE PURCHASER, REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering stockholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering stockholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer.
If any tendered Shares are not accepted pursuant to the Offer for any
reason, or if Stock Certificates are submitted evidencing more Shares than are
tendered, Stock Certificates evidencing Shares not purchased or tendered will be
returned, without expense to the tendering stockholder (or in the case of Shares
tendered by book-entry transfer into the Depositary's account at a Book-Entry
Transfer Facility pursuant to the procedures set forth in Section 3, such Shares
will be credited to an account maintained at such Book-Entry Transfer Facility),
as promptly as practicable after the expiration, termination or withdrawal of
the Offer.
The Purchaser reserves the right to transfer or assign, in whole at any
time or in part from time to time, to Parent or to one or more of its
affiliates, the right to purchase all or a portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve the
Purchaser of its obligations under the Offer and will in no way prejudice the
rights of tendering stockholders to receive payment for Shares validly tendered
and accepted for payment pursuant to the Offer.
3. PROCEDURES FOR TENDERING SHARES
Valid Tender. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message (in the
case of any book-entry transfer), and any other required documents, must be
received by the Depositary at its address set forth on the back cover of this
Offer to Purchase prior to the Expiration Date. In addition, either (i) the
Stock Certificates evidencing Shares must be received by the Depositary along
with the Letter of Transmittal or Shares must be tendered pursuant to the
procedures for book-entry transfer described below and a Book-Entry Confirmation
must be received by the Depositary, in each case prior to the Expiration Date or
(ii) the tendering stockholder must comply with the guaranteed delivery
procedures described below.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at a Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message in connection with a book-entry
delivery of Shares, and any other required documents, must, in any case, be
transmitted to and received by the Depositary at its address set forth on the
back cover of this Offer to Purchase prior to the Expiration Date or the
tendering stockholder must comply with the guaranteed delivery procedures
described below. DELIVERY OF
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<PAGE> 8
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY
TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a participant in the Security Transfer Agents Medallion Program
(each, an "Eligible Institution"), unless the Shares tendered thereby are
tendered (i) by a registered holder of Shares who has not completed either the
box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal, or (ii) for the account of
an Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If a Stock Certificate is registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made, or a Stock
Certificate not accepted for payment or not tendered is to be returned, to a
person other than the registered holder(s), then the Stock Certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the Stock
Certificate, with the signature(s) on such Stock Certificate or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
THE METHOD OF DELIVERY OF STOCK CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Stock Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date, or the procedures for book-entry transfer cannot
be completed on a timely basis, such Shares may nevertheless be tendered if all
the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary prior to the Expiration Date as provided below;
and
(iii) the Stock Certificates for all tendered Shares, in proper form
for transfer (or a Book-Entry Confirmation), together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and any other documents required by the
Letter of Transmittal, are received by the Depositary within three New York
Stock Exchange (the "NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Offer will in all cases be made only after timely receipt by the
Depositary of (i) Stock Certificates evidencing such Shares or a Book-Entry
Confirmation of the delivery of such Shares, (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and (iii) any other documents required by the Letter of Transmittal.
BACKUP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME TAX
WITHHOLDING WITH RESPECT TO PAYMENT OF THE PURCHASE PRICE FOR SHARES PURCHASED
PURSUANT TO THE OFFER, EACH TENDERING STOCKHOLDER MUST PROVIDE
6
<PAGE> 9
THE DEPOSITARY WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME
TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF
TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A STOCKHOLDER, THE
DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH STOCKHOLDER.
SEE INSTRUCTION 10 OF THE LETTER OF TRANSMITTAL. BACKUP WITHHOLDING IS NOT AN
ADDITIONAL TAX AND MAY BE CLAIMED AS A CREDIT AGAINST THE FEDERAL INCOME TAX
LIABILITY OF A STOCKHOLDER, PROVIDED THE REQUIRED INFORMATION IS FURNISHED TO
THE INTERNAL REVENUE SERVICE.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by the Purchaser, in its sole discretion, whose determination will be
final and binding on all parties. The Purchaser reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right, in its sole discretion, subject to the Merger Agreement, to
waive any of the conditions of the Offer or any defect or irregularity in any
tender with respect to Shares of any particular stockholder, and the Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the Instructions thereto) will be final and binding. None of the
Purchaser, Parent, the Dealer Managers, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification.
Other Requirements. By executing a Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Purchaser
as the stockholder's attorneys-in-fact and proxies, in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of the stockholder's rights with respect to the Shares tendered by the
stockholder and accepted for payment by the Purchaser (and any and all other
Shares or other securities or property (other than the proceeds receivable upon
redemption of the Rights) issued or issuable in respect of such Shares on or
after the date of the Merger Agreement). All such proxies shall be considered
coupled with an interest in the tendered Shares. This appointment will be
effective when, and only to the extent that, the Purchaser accepts Shares for
payment. Upon acceptance for payment, all prior proxies and consents given by
the stockholder with respect to the Shares or other securities will, without
further action, be revoked, and no subsequent proxies may be given nor any
subsequent written consent executed by such stockholder (and if given or
executed, will not be deemed to be effective) with respect thereto. The
designees of the Purchaser will, with respect to the Shares and other
securities, be empowered to exercise all voting and other rights of such
stockholder as they in their sole discretion may deem proper at any annual,
special or adjourned meeting of the Company's stockholders, by written consent
or otherwise. The Purchaser reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser must be able to exercise
full voting and other rights of a record and beneficial holder, including rights
in respect of acting by written consent, with respect to such Shares (including
voting at any meeting of stockholders then scheduled or acting by written
consent without a meeting).
A tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer. The Purchaser's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable, provided that Shares tendered pursuant to
the Offer may be withdrawn at any time
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<PAGE> 10
prior to the Expiration Date and, unless theretofore accepted for payment by the
Purchaser pursuant to the Offer, may also be withdrawn at any time after May 5,
1997, or at such later time as may apply if the Offer is extended.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If Stock Certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such Stock Certificates, the serial numbers of the particular Stock
Certificates and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution, except in the case of Shares tendered for the account of
an Eligible Institution, must also be furnished to the Depositary as described
above. If Shares have been tendered pursuant to the procedures for book-entry
transfer as set forth in Section 3, any notice of withdrawal must also specify
the name and number of the account at the appropriate Book-Entry Transfer
Facility to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, Parent, the Dealer Managers, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
ANY SHARES PROPERLY WITHDRAWN WILL BE DEEMED TO NOT HAVE BEEN VALIDLY
TENDERED FOR PURPOSES OF THE OFFER. However, withdrawn Shares may be re-tendered
by following one of the procedures described in Section 3 at any time prior to
the Expiration Date.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Offer (or the Merger) will
be a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local or foreign tax laws. The tax
consequences of such receipt pursuant to the Offer (or the Merger) may vary
depending upon, among other things, the particular circumstances of the
stockholder. In general, a stockholder who receives cash for Shares pursuant to
the Offer (or the Merger) will recognize gain or loss for federal income tax
purposes equal to the difference between the amount of cash received in exchange
for the Shares sold and such stockholder's adjusted tax basis in such Shares.
Provided that the Shares constitute capital assets in the hands of the
stockholder, such gain or loss will be capital gain or loss, and will be
long-term capital gain or loss if the holding period for such Shares exceeds one
year at the time of sale. With respect to the receipt of cash for Shares
pursuant to the Offer, gain or loss will be recognized by the stockholder in the
taxable year in which such Shares are accepted for payment by the Purchaser
(even if the cash is not received by such stockholder until after the close of
such tax year). With respect to the receipt of cash for Shares pursuant to the
Merger, gain or loss will be recognized by the stockholder at the Effective Time
of the Merger (even if the cash is not received until a later time).
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
OFFER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. IN ADDITION, THE DISCUSSION SET
FORTH ABOVE MAY NOT APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS, INCLUDING
STOCKHOLDERS WHO ACQUIRED SHARES PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK
OPTIONS OR OTHERWISE AS COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES AND FOREIGN CORPORATIONS, OR ENTITIES THAT ARE
OTHERWISE SUBJECT TO SPECIAL TAX TREATMENT.
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<PAGE> 11
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares trade on the NYSE under the symbol "HS." The following table
sets forth, for the fiscal quarters indicated, the high and low sales price per
Share on the NYSE (as adjusted for a two-for-one stock split effective December
15, 1995). All prices set forth below are as reported in published financial
sources (rounded to the nearest eighth):
<TABLE>
<CAPTION>
MARKET PRICE
------------
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1995:
First Quarter........................................................ $23 5/8 $19 1/4
Second Quarter....................................................... 23 15 1/8
Third Quarter........................................................ 24 1/2 17 1/4
Fourth Quarter....................................................... 36 21
Year Ended December 31, 1996:
First Quarter........................................................ 40 1/8 29 1/4
Second Quarter....................................................... 40 17 3/8
Third Quarter........................................................ 17 3/4 11
Fourth Quarter....................................................... 14 3/4 10 7/8
Year Ended December 31, 1997:
First Quarter (through March 5, 1997)................................ 21 11 7/8
</TABLE>
On February 27, 1997, the last full trading day prior to the announcement
of the terms of the Merger Agreement, the reported closing sales price per Share
on the NYSE was $16 7/8. On March 5, 1997, the last full trading day prior to
the commencement of the Offer, the reported closing sales price per Share on the
NYSE was $21. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR
THE SHARES.
The Company has not paid cash dividends on the Shares since its inception.
The Merger Agreement prohibits the Company from declaring or paying any
dividends until such time as the directors designated by Parent have been
elected to, and shall constitute a majority of, the Board of Directors of the
Company.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NYSE LISTING AND EXCHANGE
ACT REGISTRATION.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares
and could adversely affect the liquidity and market value of the remaining
Shares held by the public. Neither Parent nor the Purchaser can predict whether
the reduction in the number of Shares that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for or marketability of
the Shares or whether it would cause future market prices to be greater or less
than the Offer Price.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing and
may, therefore, be delisted therefrom. According to the NYSE's published
guidelines, the NYSE could consider delisting the Shares if, among other things,
the number of publicly held Shares (excluding Shares held by officers,
directors, their immediate families and other concentrated holdings of 10% or
more) were less than 600,000, there were less than 1,200 holders of at least 100
shares or the aggregate market value of the publicly held Shares was less than
$5 million. If, as a result of the purchase of Shares pursuant to the Offer, the
Shares no longer meet the requirements of the NYSE for continued listing and the
listing of Shares on such exchanges is discontinued, the market for the Shares
could be adversely affected.
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<PAGE> 12
If the NYSE were to delist the Shares, it is possible that the Shares would
trade on another securities exchange or in the over-the-counter market and that
price quotations for the Shares would be reported by such exchange or through
the NASDAQ National Market or other sources. The extent of the public market for
the Shares and availability of such quotations would, however, depend upon such
factors as the number of holders and/or the aggregate market value of the
publicly held Shares at such time, the interest in maintaining a market in the
Shares on the part of securities firms, the possible termination of registration
of the Shares under the Exchange Act and other factors.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, following the Offer it
is possible that the Shares would no longer constitute "margin securities" for
the purposes of the margin regulations of the Federal Reserve Board and
therefore could no longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are not listed on a national securities
exchange or the NASDAQ National Market and there are fewer than 300 record
holders of the Shares. Termination of registration of the Shares under the
Exchange Act would reduce substantially the information required to be furnished
by the Company to its stockholders and to the Commission and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b), the requirement of furnishing a proxy statement in
connection with stockholders' meetings pursuant to Section 14(a) and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Company. Furthermore, if the
Purchaser acquires a substantial number of Shares or the registration of the
Shares under the Exchange Act were to be terminated, the ability of "affiliates"
of the Company and persons holding "restricted securities" of the Company to
dispose of such securities pursuant to Rule 144 under the Securities Act of
1933, as amended, may be impaired or eliminated. If registration of the Shares
under the Exchange Act were terminated prior to the consummation of the Merger,
the Shares would no longer be "margin securities" or be eligible for listing on
a securities exchange or NASDAQ reporting. It is the present intention of the
Purchaser to seek to cause the Company to delist the Shares from the NYSE and to
make an application for termination of registration of the Shares under the
Exchange Act as soon as possible following the purchase of Shares pursuant to
the Offer if the requirements for termination of registration are met.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The information concerning the Company contained in this Offer to Purchase,
including financial information (other than forecasts of the Company's results
of operations provided below), has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources. Neither Parent nor the Purchaser assumes any responsibility for the
accuracy or completeness of the information concerning the Company contained in
such documents and records or for any failure by the Company to disclose events
which may have occurred or may affect the significance or accuracy of any such
information but which are unknown to Parent or the Purchaser.
General. The Company is a New Hampshire corporation with its principal
executive offices located at Two College Park Drive, Hooksett, New Hampshire
03302. The telephone number of the Company at such offices is 603-268-7000.
The Company is a diversified provider of a range of managed health care
services. The Company provides managed care through health maintenance
organizations ("HMOs") in North Carolina, South Carolina, New Hampshire,
Massachusetts, Indiana, Maine, Tennessee, Arkansas,
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<PAGE> 13
New York, New Jersey. The Company also offers point of service plans, preferred
provider organization plans, utilization review services, managed workers
compensation services, pharmacy benefit management services and other managed
care consulting and administrative services to other health care payors. The
Company also owns insurance companies that are domiciled in Indiana, Tennessee,
New Hampshire and South Carolina.
Financial Information. Set forth below is a summary of certain
consolidated financial information with respect to the Company, excerpted or
derived from the information contained in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, as well as the Company's
audited financial statements as of and for the fiscal year ended December 31,
1996 as provided to Parent and the Purchaser. More comprehensive financial
information is included in such reports and other documents filed by the Company
with the Commission as well as the press release issued by the Company on
February 28, 1997, and the following summary is qualified in its entirety by
reference to such reports and other documents and all of the financial
information (including any related notes) contained therein. Such reports and
other documents may be inspected and copies may be obtained from the offices of
the Commission in the manner set forth below.
HEALTHSOURCE, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue....................................... $ 1,713,963 $ 1,166,697 $ 584,243
Net Income (Loss)............................. $ (3,940) $ 56,271 $ 39,044
Total Assets.................................. $ 1,006,900 $ 873,039 $ 424,275
Total Long Term Debt.......................... $ 247,250 $ 95,000 $ --
Shareholders' Equity.......................... $ 385,425 $ 488,082 $ 322,484
Net Income (Loss) Per Share................... $ (0.08) $ 0.81 $ 0.62
</TABLE>
11
<PAGE> 14
Available Information. The Company is subject to the information filing
requirements of the Exchange Act and is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information, as of particular dates, concerning the Company's
directors and officers, their remuneration, options granted to them, the
principal holders of the Company's securities and any material interest of such
persons in transactions with the Company is required to be described in proxy
statements distributed to the Company's stockholders and filed with the
Commission. These reports, proxy statements and other information should be
available for inspection and copying at the Commission's office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and also should be available for
inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
this material may also be obtained by mail, upon payment of the Commission's
customary fees, from the Commission's principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains an internet web site
at http://www.sec.gov that contains reports, proxy statements and other
information. Copies should also be available at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
During the course of the discussions between Parent and the Company that
led to the execution of the Merger Agreement, the Company provided Parent with
certain information about the Company and its financial performance which is not
publicly available. The information provided included projections of the
Company's 1997, 1998 and 1999 results of operations as an independent company
(i.e., without regard to the impact to the Company of a transaction with
Parent), which included the following information: revenues, $2,083,900,000,
$2,425,200,000, and $2,933,000,000, for calendar years 1997, 1998 and 1999,
respectively; HMO premiums, $1,646,000,000, $1,975,000,000 and $2,468,200,000,
for such years, respectively; medical loss ratio, 79.1%, 80% and 80%, for such
years, respectively; administrative costs, $460,300,000, $485,000,000 and
$540,800,000, for such years, respectively; operating margin, $138,400,000,
$202,000,000 and $251,800,000, for such years, respectively; and earnings,
$61,400,000, $104,600,000 and $134,900,000, for such years, respectively.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION REGARDING PROJECTIONS OR
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS AND ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE SUCH
INFORMATION WAS PROVIDED TO PARENT. NONE OF PARENT, THE PURCHASER, THE COMPANY
OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY RESPONSIBILITY
FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THESE PROJECTIONS ARE BASED UPON
NUMEROUS ASSUMPTIONS RELATING TO INDUSTRY PERFORMANCE, GENERAL BUSINESS AND
ECONOMIC CONDITIONS, THE BUSINESS OF THE COMPANY AND OTHER MATTERS, ALL OF WHICH
MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE
NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE SHOWN. THE PROJECTIONS HAVE NOT BEEN EXAMINED OR COMPILED
BY THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. FOR THESE REASONS, AS WELL AS
THE BASES ON WHICH SUCH PROJECTIONS WERE COMPILED, THERE CAN BE NO ASSURANCE
THAT SUCH PROJECTIONS WILL BE REALIZED, OR THAT ACTUAL RESULTS WILL NOT BE
MATERIALLY HIGHER OR LOWER THAN THOSE ESTIMATED. THE INCLUSION OF SUCH
PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT PARENT, THE
PURCHASER, THE COMPANY OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION
CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS. PARENT DID AN INDEPENDENT
ASSESSMENT OF THE COMPANY'S VALUE AND DID NOT RELY TO ANY MATERIAL DEGREE UPON
THE FOREGOING PROJECTIONS. NONE OF THE COMPANY, PARENT, THE PURCHASER OR ANY
OTHER PARTY INTENDS PUBLICLY TO UPDATE OR OTHERWISE PUBLICLY REVISE THE PROJEC-
12
<PAGE> 15
TIONS SET FORTH ABOVE EVEN IF EXPERIENCE OR FUTURE CHANGES MAKE IT CLEAR THAT
SUCH PROJECTIONS WILL NOT BE REALIZED.
THE PROJECTIONS SET FORTH ABOVE CONSTITUTE FORWARD-LOOKING INFORMATION. FOR A
DISCUSSION OF FACTORS REGARDING SUCH FORWARD-LOOKING INFORMATION SEE
"-- CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION."
Cautionary Statement Regarding Forward-Looking Information. For purpose of the
Private Securities Litigation Reform Act of 1995 Parent and the Purchaser
identify the following important factors which could cause the Company's actual
results to differ materially from the foregoing projections:
(a) heightened competition, including specifically the intensification
of price competition, the entry of new competitors and the formation of new
products by new and existing competitors;
(b) adverse state and federal legislation and regulation, including
limitations on premium levels, increases in minimum capital and reserves
and other financial viability requirements, prohibition or limitation of
capitated arrangements or provider financial incentives, benefit mandates
(including mandatory length of stay and emergency room coverage),
limitations on the ability to manage care and utilization and any willing
provider or pharmacy laws;
(c) increases in medical costs, including increases in utilization and
costs of medical services and the effects of actions by competitors or
groups of providers;
(d) termination of provider contracts or renegotiation thereof at less
cost-effective rates or terms of payment;
(e) failure to obtain new customers, retain existing customers or
reductions in force by existing customers; and
(f) significant litigation matters.
Many of the foregoing factors have been discussed in the Company's prior
filings with the Commission. The foregoing review of factors pursuant to the
Private Litigation Securities Reform Act of 1995 should not be construed as
exhaustive.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT
General. The Purchaser is a newly incorporated New Hampshire corporation
and an indirect wholly owned subsidiary of Parent. To date the Purchaser has not
conducted any business other than in connection with the Offer and the Merger.
The principal executive offices of the Purchaser are located at 900 Cottage
Grove Road, Bloomfield, Connecticut 06152.
Parent is a Delaware corporation with its principal executive offices
located at One Liberty Place, Philadelphia, Pennsylvania 19192. With
shareholders' equity of $7.2 billion, revenues of $19.0 billion and assets of
$98.9 billion as of December 31, 1996, Parent and its subsidiaries constitute
one of the largest investor-owned insurance organizations in the United States
and one of the principal United States companies in the financial services
industry. Although Parent is not an insurance company, its subsidiaries are
major providers of group life and health insurance, managed care products and
services, retirement products and services, individual financial services, and
property and casualty insurance. Parent is one of the largest international
insurance organizations based in the United States, measured by international
revenues, and one of the largest investor-owned health maintenance organizations
in the United States, based on the number of members. Parent's major insurance
subsidiaries, Connecticut General Life Insurance Company ("CG Life") and
Insurance Company of North America ("ICNA"), are among the oldest insurance
companies in the United States, with ICNA tracing its origins to 1792 and CG
Life to 1865. Parent was incorporated in the State of Delaware in 1981.
13
<PAGE> 16
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of the Purchaser and Parent are set forth in Schedule I
hereto.
Until immediately prior to the time the Purchaser purchases Shares pursuant
to the Offer, it is not anticipated that the Purchaser will have any significant
assets or liabilities or engage in activities other than those incident to its
formation and capitalization and the transactions contemplated by the Offer and
the Merger. Because the Purchaser is a newly formed corporation and has minimal
assets and capitalization, no meaningful financial information regarding the
Purchaser is available.
Financial Information. Set forth below is a summary of certain
consolidated financial information with respect to Parent, excerpted or derived
from the information contained in Parent's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, as well as Parent's audited financial
statements and notes thereto for the fiscal year ended December 31, 1996
contained in Parent's Current Report on Form 8-K dated March 5, 1997. More
comprehensive financial information is included in such reports and other
documents filed by Parent with the Commission, and the following summary is
qualified in its entirety by reference to such reports and other documents and
all of the financial information (including any related notes) contained
therein. Such reports and other documents may be inspected and copies may be
obtained from the offices of the Commission in the manner set forth below.
CIGNA CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Premiums and fees....................................... $13,916 $13,914 $13,912
Net investment income and other revenues................ 4,943 4,808 4,438
Realized investment gains............................... 91 233 42
Total Revenues................................ $18,950 $18,955 $18,392
Net Income.............................................. $ 1,056 $ 211 $ 554
Total assets............................................ $98,932 $95,903 $86,102
Total assets less goodwill.............................. $97,864 $94,785 $84,937
Total debt.............................................. $ 1,310 $ 1,480 $ 1,660
Shareholders' equity.................................... $ 7,208 $ 7,157 $ 5,811
Net income per share:
primary............................................... $ 13.85 $ 2.86 $ 7.66
fully diluted......................................... $ 13.84 $ 2.86 $ 7.47
</TABLE>
Available Information. Parent is subject to the informational filing
requirements of the Exchange Act and is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information, as of particular dates, concerning Parent's
directors and officers, their remuneration, options granted to them, the
principal holders of Parent's securities and any material interest of such
persons in transactions with Parent is required to be described in proxy
statements distributed to Parent's stockholders and filed with the Commission.
Such reports, proxy statements and other information may be inspected and copies
may be obtained from the offices of the Commission in the same manner as set
forth with respect to information concerning the Company in Section 8. Such
material should also be available at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
14
<PAGE> 17
Except as set forth in this Offer to Purchase, neither the Purchaser nor
Parent (collectively, the "Purchaser Entities"), or, to the best knowledge of
either of the Purchaser Entities, any of the persons listed on Schedule I, has
any contract, arrangement, understanding or relationship with any other person
with respect to any securities of the Company, including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or the voting of any securities of the Company, joint ventures, loan or option
arrangement, puts or calls, guarantees of loans, guarantees against loss or the
giving or withholding of proxies. Except as set forth in this Offer to Purchase,
neither of the Purchaser Entities, nor, to the best knowledge of either of the
Purchaser Entities, any of the persons listed on Schedule I, has had any
business relationships or transactions with the Company or any of its executive
officers, directors or affiliates that would require reporting under the rules
of the Commission. Except as set forth in this Offer to Purchase, there have
been no contacts, negotiations or transactions between the Purchaser Entities,
or their respective subsidiaries or, to the best knowledge of either of the
Purchaser Entities, any of the persons listed on Schedule I, and the Company or
its affiliates, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors or a sale or other
transfer of a material amount of assets. Except as set forth in this Offer to
Purchase, neither of the Purchaser Entities nor, to the best knowledge of either
of the Purchaser Entities, any of the persons listed on Schedule I, beneficially
owns any Shares or has effected any transactions in the Shares in the past 60
days.
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase all of the
Shares pursuant to the Offer and to pay related fees and expenses, assuming no
options to purchase shares of Company common stock are exercised prior to the
consummation of the Offer, is approximately $1.4 billion. The Purchaser plans to
obtain all funds needed for the Offer and the Merger through a capital
contribution from Parent or its affiliates. Parent plans to obtain such funds
from cash on hand and short-term and long-term borrowings at market interest
rates under credit facilities to be arranged prior to the consummation of the
Offer. Parent does not expect to make any borrowings under any of its existing
credit agreements to obtain funds needed for the Offer and the Merger. The
borrowings will be repaid by Parent from time to time from internally generated
funds or from the proceeds of other borrowings. No final decisions have been
made by Parent concerning the specific source of funds to be used for purchase
of the Shares. However, the Offer is not conditioned on obtaining financing.
11. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
At various times, Parent has considered the possibilities for a combination
transaction with other companies in the health care industry. In mid-January of
1997, a meeting was arranged between Wilson H. Taylor, Chairman of Parent, and
Dr. Payson, the President and Chief Executive Officer of the Company. That
meeting occurred on January 27, 1997. No specific proposals were made by either
party at that meeting, although Parent and the Company indicated a willingness
to have further discussions to explore the possibility of a business
combination. On January 31, 1997, Parent and the Company entered into a
confidentiality agreement.
Thereafter, on February 4, 1997, Dr. Payson, another officer of the Company
and representatives of the Company's financial advisor met with James G.
Stewart, Executive Vice President and Chief Financial Officer of Parent, other
officers of Parent and representatives of Parent's financial advisors to conduct
preliminary due diligence on the Company. The Company provided Parent with
certain materials describing the Company and its operations, a description of
the Company's projected results of operations for 1996 and the reasons for such
results and forecasts of the Company's 1997, 1998 and 1999 results of
operations.
On February 10, 1997, at the request of the Company, Parent advised the
Company that Parent's preliminary indication of interest for a business
combination with the Company would
15
<PAGE> 18
involve a wide per share price range, and that further due diligence and review
would be necessary in order for such range to be narrowed. On February 13 and
14, 1997, Parent conducted more thorough due diligence on the business,
operations and financial performance of the Company that included meetings in
Manchester, New Hampshire. At the end of such period, Parent indicated to the
Company that its review of the Company to date suggested that Parent would
consider exploring a business combination with the Company at a per share price
in the range of $20 to $22 per share, although Parent was not ready to make a
formal proposal at such time.
On February 15, 1997, Parent requested further due diligence material from
the Company and shortly thereafter the Company and its counsel began providing
additional information about the Company to Parent and its advisors. The Company
had advised Parent that it had previously scheduled a board meeting for February
18, 1997. Because the Company wanted to receive a proposal from Parent prior to
its board meeting, the Company rescheduled the meeting for February 21 or 22 to
permit Parent to continue its due diligence review of the Company and to further
explore a transaction with the Company. While Parent continued its review of the
Company, many telephone calls between representatives of Parent and the Company
regarding due diligence and requests for information were made between February
20 and February 25.
The Company held a board meeting on February 22, 1997. At the Company's
request, Parent sent a letter to the Company on the morning of February 22, 1997
for presentation at such board meeting confirming Parent's interest in a
business combination with the Company at a per share price between $20 and $22
per share in cash, subject to the approval of Parent's board of directors,
negotiation of a definitive merger agreement and satisfactory resolution of open
due diligence issues. Parent and its advisors and the Company and its advisors
exchanged phone calls prior to, during and after the board meeting, and the
Company advised Parent that Parent would be allowed until February 26, 1997 to
complete its due diligence review and to make a definitive proposal.
Thereafter, on February 25, 1997, Dr. Payson and representatives of the
Company met with Mr. Stewart and other representatives of Parent. Initially,
Parent indicated that it would be interested in acquiring the Company for a per
Share cash price of $21.00. After further negotiations, the proposed price was
increased to $21.75 per share, subject to, among other things, approval of
Parent's and the Company's boards of directors and further resolution of a
number of contract points. Those contract points included, among other things,
the definition of what would constitute a material adverse effect for the
Company, when a termination fee would be payable to the Purchaser, as well as
the amount of such fee, the scope of restrictions on the operation of the
business prior to the consummation of the Offer, the scope of certain
representations and warranties of the parties, the extent to which Parent would
be required to undertake certain actions to consummate the Offer and the
conditions to the Offer.
On February 26, 1997, the board of directors of Parent approved the making
of a proposal for an acquisition of the Company at a price per share not to
exceed $21.75, subject to satisfactory definitive documents. On the evening of
February 27, 1997, the board of directors of the Company approved the
acquisition of the Company by Parent at a price per share of $21.75. Thereafter,
Parent, Purchaser and the Company finalized the contracts and entered into the
documentation pursuant to which the Offer is being made. The transaction was
publicly announced on the morning of February 28, 1997, and the Offer commenced
on March 6, 1997.
12. PURPOSE OF THE OFFER, MERGER, MERGER AGREEMENT, TENDER AGREEMENT AND
CONSULTING AGREEMENT
The purpose of the Offer, the Merger, the Merger Agreement and the Tender
Agreement is to enable Parent to acquire control of, and the entire equity
interest in, the Company. Upon consummation of the Merger, the Company will
become an indirect wholly owned subsidiary of Parent. The Offer and the Tender
Agreement are intended to increase the likelihood that the Merger will be
effected.
16
<PAGE> 19
MERGER AGREEMENT. The following is a summary of certain provisions of the
Merger Agreement. The summary is qualified in its entirety by reference to the
Merger Agreement which is incorporated herein by reference and a copy of which
has been filed with the Commission as an exhibit to Parent's and the Purchaser's
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"). The Merger
Agreement may be examined and copies may be obtained at the places and in the
manner set forth in Section 8 of this Offer to Purchase.
The Offer. The Merger Agreement provides for the commencement of the Offer
not later than the fifth business day from the public announcement of the
execution of the Merger Agreement. The Merger Agreement provides that the
Purchaser cannot amend or waive the Minimum Condition or decrease the Offer
Price or the number of Shares sought, or amend any other term or condition of
the Offer in any manner adverse to the holders of Shares or extend the
expiration date of the Offer without the prior written consent of the Company.
Notwithstanding the foregoing, the Purchaser has agreed to extend the Offer from
time to time until seven months from execution of the Merger Agreement if, and
to the extent that, at the initial expiration date of the Offer, or any
extension thereof, all conditions to the Offer have not been satisfied or
waived. In the event that the Insurance Regulatory Approvals (as defined below)
have not been obtained by the end of such initial seven month period and
provided that, at the end of such seven month period, no Company Material
Adverse Effect (as defined below) has occurred and is continuing, the Company
may, in its sole discretion, require the Purchaser to extend the expiration date
of the Offer for up to an additional 60 days. In addition, in the event that the
Offer Price is increased, the Offer may be extended to the extent required by
law in connection with such increase.
The obligation of the Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to certain conditions. See Section 14.
For purposes of the Merger Agreement, "Company Material Adverse Effect" is
defined to mean only (I) any adverse change in, or effect on, the business,
financial condition or operations (excluding results of operations and effects
of net income) of the Company and its subsidiaries, taken as a whole, that
individually or in the aggregate, exceeds, or is reasonably likely to exceed,
$67.5 million, or (II) the net income of the Company and its subsidiaries (not
taking into account any (A) gains or losses resulting from sales or other
dispositions of assets by the Company or any of its subsidiaries (including,
without limitation, gains or losses resulting from related severance costs)
effected with the prior written consent of Parent (which consent will not be
unreasonably withheld), and (B) losses resulting from the costs related to the
Merger Agreement and the transactions contemplated thereby), determined in
accordance with United States generally accepted accounting principles ("GAAP"),
from January 1, 1997 through the last full month of operations for which
financial information is available prior to the consummation of the Offer being
less, on a cumulative basis, than the Targeted Income (as defined below) by an
amount in excess of the Allowed Shortfall (as defined below); provided, however,
that, in the case of either of (I) or (II) above, the effects of changes that
are generally applicable to (i) the health care or HMO industries, (ii) the
United States economy or (iii) the United States securities markets shall be
excluded from such determination; and provided, further, that any adverse effect
on the Company and its subsidiaries resulting from the execution of the Merger
Agreement and the announcement of the Merger Agreement and the transactions
contemplated thereby and any change in value of the Company's marketable
securities shall also be excluded from such determination. In addition to the
foregoing, the determination of the dollar value or impact of any change or
event pursuant to the preceding sentence shall be based solely on the actual
dollar value of such change or effect, on a dollar-for-dollar basis, and shall
not take into account (i) any multiplier valuation, including, without
limitation, any multiple based on earnings or other financial indicia or the
Offer Price or (ii) any consequential damages or other consequential valuation.
For purposes of the Merger Agreement, (x) "Targeted Income" means, with respect
to the following periods, the cumulative monthly net income (in thousands)
listed for such periods: January 1997 -- $1,413, February 1997 -- $5,281, March
1997 -- $8,963, April 1997 -- $13,075, May 1997 -- $17,780, June
1997 -- $22,741, July 1997 -- $27,819, August 1997 -- $34,169, September
1997 -- $40,182, October 1997 -- $45,862,
17
<PAGE> 20
November 1997 -- $53,956, and December 1997 -- $61,423, and (y) "Allowed
Shortfall" means, for the same period, $5 million of net income per month, on a
cumulative basis, plus an aggregate of an additional $10 million of net income.
For purposes of considering whether a "Company Material Adverse Effect" has
occurred, (A) any adjustment of reserves for hospital provider contracts
receivables on the Company's balance sheet as of December 31, 1996 shall be
counted only in clause (I) above, and (B) any new reserves for hospital provider
contracts receivables established for the period after December 31, 1996 shall
be counted only in clause (II) above, unless such new reserves are required to
be restated on the Company's balance sheet as of December 31, 1996 under GAAP,
in which case such new reserves shall be counted only in clause (I) above.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, the Purchaser will be merged with and into the Company, with
the Company continuing as the Surviving Corporation (the "Surviving
Corporation") and an indirect wholly-owned subsidiary of Parent, and each issued
and outstanding Share (other than Shares owned by Parent, the Purchaser or any
other wholly-owned subsidiary of Parent or Shares held by shareholders who
properly exercise their dissenters' rights under the New Hampshire Business
Corporation Act (the "NHBCA")) shall be converted into the right to receive the
Offer Price, without interest. The Merger Agreement also provides that (i) the
directors of the Purchaser immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation and the officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation; (ii) the Articles of Incorporation of the Company (the
"Articles of Incorporation") will be the initial Articles of Incorporation of
the Surviving Corporation; and (iii) the By-laws of the Company (the "By-laws")
will be the initial By-laws of the Surviving Corporation.
Employee Benefits; Treatment of Options. The Merger Agreement provides
that, during the two year period following the Effective Time, employees of the
Company will receive employee benefits that are no less favorable in the
aggregate than those provided to such employees immediately prior to the date of
the Merger Agreement. As soon as reasonably practical (and in any event prior to
consummation of the Offer) and following a review of Parent and employee plans
and programs, the Company will confirm to Parent whether it considers Parent's
employee plans and programs to be no less favorable in the aggregate than the
employee plans and benefits of the Company. With respect to such benefits,
service accrued with the Company by such employees will be recognized for all
purposes (except to the extent that benefits may be duplicated). The Merger
Agreement further requires that Parent honor, without modification, all
employment and severance agreements with employees and former employees of the
Company, as amended through the date of the Merger Agreement or as amended or
adopted after the date of the Merger Agreement in accordance with the terms of
the Merger Agreement.
The Merger Agreement provides that the Company will amend all outstanding
options to purchase Shares under the Company's 1994 Stock Option Plan, 1991
Non-Qualified Stock Option Plan, 1992 Director Stock Option Plan and 1996
Non-Employee Director Stock Option Plan, if necessary, to provide that such
options will be fully vested and exercisable. Any options held by members of the
Company's board of directors who are not full-time employees of the Company will
remain outstanding until the earlier of the expiration of the term of such
option or the third anniversary of the Effective Time, without regard to any
earlier termination from service as a member of the Company's board of
directors.
The Merger Agreement further provides that Parent will adopt a stock option
plan and replace each option with a fully vested substitute option to purchase
Parent Common Stock (each, a "Substitute Option"). Each Substitute Option will
be for a number of shares of Parent Common Stock equal to the number of Shares
subject to the corresponding option, multiplied by the Option Ratio (as defined
below) and will have an exercise price per share equal to the exercise price per
share of the option, divided by the Option Ratio. All other terms and conditions
of each Substitute Option will be substantially the same as the terms and
conditions of the corresponding option, except that each such Substitute Option
will expire no earlier than the date the option would expire if
18
<PAGE> 21
the holder would have remained continuously employed by the Company until such
date. The Option Ratio will equal the Offer Price divided by the average closing
price per share of Parent Common Stock on the NYSE for the five consecutive
trading days ending immediately prior to the date of the Merger Agreement.
In addition, within 30 days after the Effective Time, Parent is required to
grant stock options to purchase no less than 200,000 shares of Parent Common
Stock to employees of the Company. The recipients and allocation of such options
will be determined by Parent after consultation with Dr. Payson. Such stock
options will have an exercise price per share equal to the closing price per
share of Parent Common Stock on the date of grant and have a term of ten years.
Directors. The Merger Agreement provides that, promptly upon Parent's
purchase of and payment for Shares which represent at least a majority of the
outstanding Shares (on a fully diluted basis), Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board as shall give Parent, subject to compliance with Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder, representation on the
Company Board equal to the product of the total number of directors on the
Company Board (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by Parent, the Purchaser and any of their affiliates bears to the total
number of Shares then outstanding. The Company shall, upon request of the
Purchaser, use its best efforts to cause Parent's designees to be so elected,
including by increasing the size of the Company Board or by securing the
resignations of incumbent directors. Notwithstanding the foregoing, until the
Effective Time, the Company shall have on the Company Board at least two
directors who were directors of the Company on the date of the Merger Agreement;
provided, that, subsequent to the purchase of and payment for Shares pursuant to
the Offer, Parent shall always have its designees represent at least a majority
of the entire Company Board.
The Merger Agreement also provides that from and after the time, if any,
that Parent's designees constitute a majority of the Company Board, any
amendment of the Merger Agreement, any termination of the Merger Agreement by
the Company, any extension of time for performance of any of the obligations of
Parent or the Purchaser, or any waiver of any condition or any of the Company's
rights thereunder may be effected only by the action of a majority of the
directors of the Company then in office who were directors on the date of the
Merger Agreement, which action shall be deemed to constitute the action of the
full Company Board; provided, that, if there are no such directors, such actions
may be effected by unanimous vote of the entire Company Board.
Shareholders' Meeting. Pursuant to the Merger Agreement, the Company
shall, if required by applicable law in order to consummate the Merger, duly
call, give notice of, convene and hold a special meeting of its shareholders as
soon as practicable following the acceptance for payment and purchase of Shares
by the Purchaser pursuant to the Offer for the purpose of considering and taking
action upon the Merger Agreement.
The Merger Agreement also provides that the Company shall, if required by
applicable law in order to consummate the Merger, prepare and file with the
Commission a preliminary proxy or information statement relating to the Merger
and the Merger Agreement and shall use its best efforts (i) to obtain and
furnish the information required to be included by the Commission in the Proxy
Statement (as hereinafter defined) and, after consultation with Parent, to
respond promptly to any comments made by the Commission with respect to the
preliminary proxy or information statement and cause a definitive proxy or
information statement (the "Proxy Statement") to be mailed to its shareholders
and (ii) to obtain the necessary approvals of the Merger and the Merger
Agreement by its shareholders. The Merger Agreement also provides that the
Company shall include in the Proxy Statement the recommendation of the Company
Board that shareholders of the Company vote in favor of the approval of the
Merger and the adoption of the Merger Agreement. The Merger Agreement also
provides that, if permitted by the NHBCA, in the event that Parent, the
Purchaser or any other subsidiary of Parent shall acquire at least 90% of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, the parties shall take all necessary
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and appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of the Company's
shareholders (a "Short-Form Merger"). Under the NHBCA, as currently in effect,
the Merger cannot be accomplished as a Short-Form Merger because the NHBCA
requires the parent corporation in such a merger (i.e., the Purchaser) to be the
surviving corporation.
Representations and Warranties. The Merger Agreement contains
representations and warranties of one or both of the parties with respect to,
among other things (i) organization, good standing, corporate power and
enforceability, (ii) ownership of subsidiaries, (iii) capitalization, (iv) no
conflicts, (v) required consents or approvals, (vi) no material misstatements in
filings with the Commission, financial statements and regulatory statements,
(vii) no undisclosed liabilities, (viii) absence of material adverse changes,
(ix) no litigation, (x) compliance with law, (xi) no undisclosed liabilities
under ERISA, (xii) tax returns filed and taxes paid, (xiii) receipt of fairness
opinion from financial advisor, and (xiv) sufficiency of funds to consummate the
Merger.
In the Merger Agreement, each of Parent and the Purchaser also (i)
acknowledges that none of the Company, its subsidiaries or any of their
respective directors, officers, employees, affiliates, agents, advisors or
representatives makes any representation or warranty, either express or implied,
as to the accuracy or completeness of any of the information provided or made
available to Parent, the Purchaser or their agents or representatives, and (ii)
agrees, to the fullest extent permitted by law, that none of the Company, its
subsidiaries or any of their respective directors, officers, employees,
shareholders, affiliates, agents, advisors or representatives shall have any
liability or responsibility whatsoever to Parent or the Purchaser on any basis
(including, without limitation, in contract or tort, under federal or state
securities laws or otherwise) based upon any information provided or made
available, or statements made, to Parent, except that the foregoing limitation
shall not apply to the extent the Company makes specific representations and
warranties in the Merger Agreement or preclude Parent and the Purchaser from
seeking any remedy for fraud. The Company has also made a reciprocal
acknowledgement and agreement with Parent and the Purchaser.
Interim Operations. In the Merger Agreement, the Company has covenanted
and agreed that, among other things, between the date of the Merger Agreement
and prior to the time the Purchaser's designees have been elected to, and
constitute a majority of, the Company Board, unless Parent otherwise agrees in
writing and except as otherwise contemplated by the Merger Agreement, (a) the
Company and each of its subsidiaries will conduct its business only in the
ordinary and usual course and, to the extent consistent therewith, use their
best efforts to preserve in all material respects their business organization
intact and maintain their existing relations with customers, suppliers,
employees and business associates and (b) neither the Company nor any of its
subsidiaries will (i) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock (other than dividends from any subsidiary of the Company to the Company or
any other subsidiary of the Company); (ii) issue or sell any additional shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital stock
of any class of the Company or its subsidiaries, other than Shares reserved for
issuance on the date of the Merger Agreement upon exercise of outstanding Rights
pursuant to the Rights Agreement, issuances pursuant to the exercise of stock
options outstanding on the date of the Merger Agreement, or issuances pursuant
to the Company Convertible Notes; (iii) acquire, sell, lease or dispose of any
assets in excess of $5 million, other than in the ordinary and usual course of
business; (iv) incur or modify any material debt, other than in the ordinary and
usual course of business; (v) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock other than redemption of the outstanding
Rights pursuant to the Rights Agreement; (vi) terminate or materially amend any
employee benefit plans; (vii) (except as contemplated by the Merger Agreement)
adopt or materially amend any employee benefit plans or amend any employment or
severance agreement or (except for certain normal increases in the ordinary and
usual course of business) increase in any manner the compensation of any
employees; (viii) assume, guarantee, endorse or otherwise become liable or
responsible
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<PAGE> 23
(whether directly, contingently or otherwise) for the material obligations of
any other person (other than subsidiaries of the Company), except in the
ordinary and usual course of business; (ix) make any material loans, advances or
capital contributions to, or investments in, any other person (other than to
subsidiaries of the Company), other than in the ordinary and usual course of
business; (x) make capital expenditures in excess of an aggregate of $10 million
for the first seven months from the date of the Merger Agreement or an
additional $5 million thereafter; (xi) materially change any of the accounting
methods used by it unless required by GAAP or applicable law; (xii) settle or
compromise any claim (including arbitration) or litigation involving payments by
the Company in excess of $1,000,000, individually, which are not subject to
insurance reimbursement without the prior written consent of Parent, which
consent will not be unreasonably withheld, and will consult with Parent with
respect to settlement or compromise of any claim (including arbitration) or
litigation involving less than $1,000,000; (xiii) amend, modify or terminate in
any material respect its hospital contracts without the prior written consent of
Parent, which consent shall not be unreasonably withheld, and provided that
Parent shall designate a single senior officer with responsibility to provide
such consent and such officer shall respond within two business days of any such
request and the Company will consult with Parent prior to entering into any new
hospital contract or agreement; or (ix) authorize or enter into an agreement to
do any of the foregoing.
Actions Regarding the Rights. The Company has agreed in the Merger
Agreement that it shall, in accordance with the terms and provisions of the
Rights Agreement and as promptly as practicable on or after the date of the
Merger Agreement, take all reasonable actions necessary to cause the (a)
postponement of the Distribution Date (as defined in the Rights Agreement) as
necessary to prevent the Merger Agreement or the consummation of any of the
transactions contemplated thereby, including without limitation, the publication
or other announcement of the Offer and the consummation of the Offer and the
Merger, from resulting in (i) the distribution of separate Rights certificates,
or (ii) the occurrence of a Distribution Date, and (b) redemption of the Rights
prior to the consummation of the Offer.
5% Convertible Subordinated Notes. The Merger Agreement provides that, in
accordance with the terms of the Indenture, dated as of March 6, 1996 (the
"Indenture"), between the Company, as issuer, and The Bank of New York, as
trustee (the "Trustee"), with respect to the Company Convertible Notes, within
30 days following the acquisition by Purchaser of beneficial ownership, directly
or indirectly, of more than 50% of the Shares, the Company shall publish a
notice in The Wall Street Journal, notify the Trustee and give written notice to
each holder of the Company Convertible Notes, stating, among other things, (i)
that a Change of Control (as defined in the Indenture) has occurred, (ii) that
each holder of the Company Convertible Notes has the right to require the
Company to repurchase such holder's Company Convertible Notes at a purchase
price in cash in an amount equal to 101% of the principal amount of such Company
Convertible Notes, plus accrued and unpaid interest thereon, if any, to the
purchase date thereof and (iii) the date on which such Company Convertible Notes
shall be purchased which shall be a business day no later than 60 days from the
date such notice is mailed. In connection with such repurchases, Parent has
agreed in the Merger Agreement to contribute to the Company an amount in cash
necessary to repurchase all such Company Convertible Notes.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither it nor any of its subsidiaries shall (and the Company shall use its
best efforts to cause its officers, directors, employees and investment bankers,
attorneys or other agents not to), (i) initiate, solicit or encourage, directly
or indirectly, any inquiries or the making of any proposal that constitutes or
is reasonably likely to lead to any Acquisition Proposal (as defined below);
(ii) engage in negotiations or discussions with, or furnish any information or
data to any third party relating to an Acquisition Proposal; or (iii) enter into
any agreement with respect to or approve any Acquisition Proposal; provided,
however, that the Company and the Company Board may participate in discussions
or negotiations (including, as a part thereof, making any counterproposal) with
or furnish information to any third party making an unsolicited Acquisition
Proposal (a "Potential Acquiror") or approve an unsolicited Acquisition Proposal
if the Company Board is advised by its financial advisor that such
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<PAGE> 24
Potential Acquiror has the financial wherewithal to be reasonably capable of
consummating such an Acquisition Proposal, and either (i) the Company Board
determines in good faith, after receiving advice from its financial advisor,
that such third party has submitted to the Company an Acquisition Proposal which
is a Superior Proposal (as defined below), or (ii) the Company Board determines
in good faith, based upon advice of its outside legal counsel, that the failure
to participate in such discussions or negotiations or to furnish such
information or approve an Acquisition Proposal would violate the Company Board's
fiduciary duties under applicable law.
For purposes of the Merger Agreement, "Acquisition Proposal" means any bona
fide proposal, whether in writing or otherwise, made by a third party to acquire
beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of all or
a material portion of the assets of, or any material equity interest in, the
Company or its material subsidiaries pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock, sale of assets,
tender offer or exchange offer or similar transaction involving the Company or
its material subsidiaries. "Superior Proposal" means any bona fide proposal to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than a majority of the Shares then outstanding or all or
substantially all the assets of the Company, and otherwise on terms which the
Company Board determines in good faith to be more favorable to the Company and
its shareholders than the Offer and the Merger (based on advice of the Company's
financial advisor that the value of the consideration provided for in such
proposal is superior to the value of the consideration provided for in the Offer
and the Merger), for which financing, to the extent required, is then committed
or which, in the good faith reasonable judgment of the Company Board, after
receiving advice from its financial advisor, is reasonably capable of being
financed by such third party.
The Merger Agreement also provides that except to the extent such action
would violate the Company Board's fiduciary duties under, or otherwise violate,
applicable law, the Company will (i) promptly inform Parent in writing of any
provision of information, as described above, or of any Acquisition Proposal and
the identity of the recipient of such information and/or the Potential Acquiror
and the terms of such Acquisition Proposal, and (ii) keep Parent reasonably
informed of the status of any such Acquisition Proposal (including amendments or
proposed amendments). The Company has agreed that any non-public information
furnished to a Potential Acquiror will be pursuant to a confidentiality
agreement substantially similar to the confidentiality provisions of the
confidentiality agreement entered into between the Company and Parent.
In the Merger Agreement, the Company has agreed that the Company Board
shall not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent, its approval or recommendation of the Merger Agreement, the
Offer or the Merger or (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal unless, in each case, the Company Board
determines in good faith, after receiving advice from its financial advisor,
that such Acquisition Proposal is a Superior Proposal or, based upon advice of
its outside legal counsel, that the failure to take such action would violate
its fiduciary duties under applicable law.
Directors' and Officers' Insurance and Indemnification. The Merger
Agreement provides that (a) from and after the consummation of the Offer, Parent
will, and will cause the Company (or the Surviving Corporation if after the
Effective Time) to, indemnify, defend and hold harmless any current or former
officer, director, employee and agent (the "Indemnified Party") of the Company
and its subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorney's fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "Claim") to the extent that any
such Claim is based on, or arises out of, (i) the fact that such person is or
was a director, officer, employee or agent of the Company or any subsidiaries or
is or was serving at the request of the Company or any of its subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (ii) the Merger Agreement, or any of the
transactions contemplated thereby, in each case to the extent that any such
Claim pertains to any matter or fact arising, existing, or occurring prior to or
at the Effective
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<PAGE> 25
Time, regardless of whether such Claim is asserted or claimed prior to, at or
after the Effective Time, to the full extent permitted under New Hampshire law
or the Company's Articles of Incorporation, By-laws or existing indemnification
agreements, including provisions relating to advancement of expenses incurred in
the defense of any action or suit; provided, that, in the event any Indemnified
Party becomes involved in any capacity in any Claim, then from and after
consummation of the Offer, Parent will, or will cause the Company (or the
Surviving Corporation if after the Effective Time) to, periodically advance to
such Indemnified Party its legal and other expenses (including the cost of any
investigation and preparation incurred in connection therewith), subject to the
provision by such Indemnified Party of an undertaking to reimburse the amounts
so advanced in the event of a final non-appealable determination by a court of
competent jurisdiction that such Indemnified Party is not entitled thereto; (b)
Parent and the Company agree that all rights to indemnification and all
limitations on liability existing in favor of the Indemnified Party as provided
in the Company's Articles of Incorporation and By-laws as in effect as of the
Merger Agreement shall survive the Merger and shall continue in full force and
effect, without any amendment thereto, for a period of six years from the
Effective Time to the extent such rights are consistent with the NHBCA;
provided, that, in the event any claim or claims are asserted or made within
such six year period, all rights to indemnification in respect of any such claim
or claims shall continue until disposition of any and all such claims; provided,
further, that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under New
Hampshire law, the Company's Articles of Incorporation or By-laws or such
agreements, as the case may be, shall be made by independent legal counsel
selected by the Indemnified Party and reasonably acceptable to Parent; (c) in
the event Parent or the Purchaser or any of their successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, proper provision shall be
made so that the successors and assigns of Parent and the Purchaser assume the
obligations set forth above and none of the actions described in clauses (i) or
(ii) shall be taken until such provision is made; and (d) Parent or the
Surviving Corporation shall maintain the Company's existing officers' and
directors' liability insurance policy for a period of not less than six years
after the Effective Date; provided, that, Parent may substitute therefor
policies of substantially similar coverage and amounts containing terms no less
advantageous to the covered former directors or officers.
Shareholder Litigation. The Merger Agreement provides that in connection
with any litigation which may be brought against the Company or its directors
relating to the transactions contemplated thereby, the Company will keep Parent
and its counsel informed of the status of such litigation, to the extent Parent
is not otherwise a party thereto. The Company has also agreed that it will
consult with Parent prior to entering into any settlement or compromise of any
such shareholder litigation and will not enter into any such settlement or
compromise involving the payment of money in excess of $1 million (to the extent
not subject to insurance reimbursement) without Parent's prior written consent.
Further Assurances. In the Merger Agreement, each of the parties has agreed
to use its respective best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement which efforts shall include,
without limitation, (a) Parent and the Purchaser proffering their willingness to
accept an order or orders providing for the divestiture by Parent and the
Purchaser of such of the Company's assets and businesses (or, in lieu thereof,
approximately equivalent assets and businesses of Parent and the Purchaser)
which do not represent in the aggregate assets with a fair market value greater
than $67.5 million as are necessary to permit Parent and the Purchaser otherwise
fully to consummate the Offer and the Merger and the transactions contemplated
by the Merger Agreement, including an offer to hold separate such assets and
businesses pending any such divestiture or pending the receipt of any required
regulatory approvals; (b) Parent and the Purchaser using their best efforts
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to prevent any preliminary or permanent injunction or other order by a court of
competent jurisdiction or Governmental Entity (as defined in the Merger
Agreement) relating to consummating the transactions contemplated by the Merger
Agreement, including, without limitation, under the antitrust laws and with
respect to the Insurance Regulatory Approvals, and, if issued, to appeal any
such injunction or order through the appellate court or body for the relevant
jurisdiction, provided that Parent shall not be obligated to continue pursuing
any particular litigation or action following the issuance of any preliminary
injunction with respect thereto; and (c) Parent and the Purchaser using their
best efforts to satisfy any objections of, and accept any conditions imposed by,
any Governmental Entity in connection with any Insurance Regulatory Approval,
except where such objection or condition would result in costs or liabilities to
the Company and Parent, taken together (and aggregated with any loss incurred in
connection with a disposition of assets pursuant to clause (a) above at less
than fair market value), in excess of $67.5 million; provided, however, that
notwithstanding the foregoing, during the sixty day period following the date of
the Merger Agreement, Parent and Purchaser will only be obligated to use
commercially reasonable efforts to obtain all Insurance Regulatory Approvals. If
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of the Merger Agreement, the parties thereto
shall take or cause to be taken all such necessary action, including, without
limitation, the execution and delivery of such further instruments and documents
as may be reasonably requested by the other party for such purposes or otherwise
to consummate and make effective the transactions contemplated thereby. Parent
has agreed to file all applications on Form A (or equivalent form) necessary to
obtain the Insurance Regulatory Approvals within 12 business days from the date
of the Merger Agreement.
Conditions to the Merger. The Merger Agreement provides that the respective
obligations of each party to effect the Merger shall be subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(a) if required by applicable law and the Articles of Incorporation, the Merger
Agreement shall have been approved and adopted by the requisite vote of the
Company's shareholders; (b) any waiting period applicable to the Merger under
the HSR Act shall have expired or been terminated; (c) all Insurance Regulatory
Approvals shall have been obtained, except where the failure to do so would not
have a Company Material Adverse Effect; (d) no statute, rule, regulation, order,
decree or injunction shall have been enacted, promulgated or issued by any
Governmental Entity or court which prohibits consummation of the Merger; and (e)
Parent, the Purchaser or their affiliates shall have purchased Shares pursuant
to the Offer. The Merger Agreement provides that the obligation of the Company
to effect the Merger is further subject to the conditions that the
representations and warranties of Parent and the Purchaser shall be true and
accurate, except where the failure to be so true and accurate would not have a
Parent Material Adverse Effect (as hereinafter defined), and that Parent and the
Purchaser shall have performed in all material respects all of their respective
obligations under the Merger Agreement. For purposes of the Merger Agreement,
"Parent Material Adverse Effect" means only any adverse change in, or effect on,
the business, financial condition, operations or results of operations of Parent
and its subsidiaries, taken as a whole that, individually or in the aggregate,
exceeds, or is reasonably likely to exceed, $67.5 million; provided, however,
that the effects of changes that are generally applicable to (i) the healthcare
or HMO industries, (ii) the United States economy, or (iii) the United States
securities markets shall be excluded from such determination. In addition to the
foregoing, the determination of the dollar value or impact of any change or
event pursuant to the preceding sentence shall be based solely on the actual
dollar value of such change or effect, on a dollar-for-dollar basis, and shall
not take into account (i) any multiplier valuation, including, without
limitation, any multiple based on earnings or other financial indicia or (ii)
any consequential damages or other consequential valuation. The Merger Agreement
also provides that the obligations of Parent and the Purchaser to effect the
Merger are further subject to the conditions that the Company's representations
and warranties shall be true and accurate, except where the failure to be so
true and accurate would not have a Company Material Adverse Effect, and that the
Company shall have performed in all material respects all of its obligations
under the Merger Agreement; provided, however, that these
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<PAGE> 27
conditions shall cease if the Purchaser shall have accepted for payment and paid
for Shares validly tendered pursuant to the Offer.
Termination. The Merger Agreement provides that it may be terminated at any
time prior to the Effective Time: (a) by mutual consent of Parent and the
Company; (b) by either the Company or Parent and the Purchaser (i) if the Shares
shall not have been purchased pursuant to the Offer on or prior to seven months
from the execution of the Merger Agreement; provided, however, that the Company
may, in its sole discretion, extend such termination date for up to an
additional 60 days in the event that the Insurance Regulatory Approvals shall
not have been obtained by the end of such initial seven month period and
provided that, at the end of such seven month period, no Company Material
Adverse Effect shall have occurred and be continuing; and provided, further,
that a party may not terminate the Merger Agreement pursuant to this clause (i)
if such party's failure to fulfill any obligation under the Merger Agreement was
the cause of, or resulted in, the failure of Parent or the Purchaser to purchase
the Shares on or prior to such date or (ii) if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement or prohibiting Parent from acquiring or holding or
exercising rights of ownership of the Shares except such prohibitions which
would not have a Company Material Adverse Effect, and such order, decree, ruling
or other action shall have become final and non-appealable; (c) by the Company
(i) if prior to the purchase of Shares pursuant to the Offer, either (A) a third
party shall have made an Acquisition Proposal that the Company Board determines
in good faith, after consultation with its financial advisor, is a Superior
Proposal, or (B) the Company Board shall have withdrawn, or modified or changed
in a manner adverse to Parent or the Purchaser its approval or recommendation of
the Offer, the Merger Agreement or the Merger, (ii) if Parent or the Purchaser
shall have terminated the Offer, or the Offer shall have expired, without Parent
or the Purchaser purchasing any Shares; provided, that, the Company may not
terminate the Merger Agreement pursuant to this clause (ii) if the Company is in
willful breach of the Merger Agreement or (iii) if, due to an occurrence that if
occurring after the commencement of the Offer would result in a failure to
satisfy any of the conditions to completion of the Offer, Parent, the Purchaser
or any of their affiliates shall have failed to commence the Offer on or prior
to five business days following the date of the initial public announcement of
the Offer, provided, that, the Company may not terminate the Merger Agreement
pursuant to this clause (iii) if the Company is in willful breach of the Merger
Agreement; or (d) by Parent and the Purchaser (i) if, prior to the purchase of
Shares pursuant to the Offer, the Company Board shall have withdrawn, modified
or changed in a manner adverse to Parent or the Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger or shall have
recommended an Acquisition Proposal or shall have executed an agreement in
principle or definitive agreement relating to an Acquisition Proposal or similar
business combination with a person or entity other than Parent, the Purchaser or
their affiliates or (ii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions to completion of the Offer, Parent, the Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer;
provided, that, Parent may not terminate the Merger Agreement pursuant to this
clause (ii) if Parent or the Purchaser is in willful breach of the Merger
Agreement.
Effect of Termination; Termination Fee. The Company has agreed to pay to
Parent a termination fee of $45 million if: (a) the Merger Agreement is
terminated pursuant to the provisions described in clauses (c)(i) or (d)(i)
under "Termination" above, or (b) the Merger Agreement is terminated for any
reason (other than as a result of a material breach by Parent or the Purchaser
that resulted in the termination of the Merger Agreement or a willful breach by
Parent or the Purchaser of their obligations under the Merger Agreement) at any
time after an Acquisition Proposal has been made by a third party (a "Third
Party Acquiror") and, within one year after such a termination, the Company
completes either (i) a merger, consolidation or other business combination with
any such Third Party Acquiror (or another party who makes an Acquisition
Proposal at a time when the Company is in discussions with any such Third Party
Acquiror), or (ii) the sale of 50% or more (in
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voting power) of the voting securities of the Company or of 40% or more (in
market value) of the assets of the Company and its subsidiaries, on a
consolidated basis to any such Third Party Acquiror (or another party who makes
an Acquisition Proposal at a time when the Company is in discussions with any
such Third Party Acquiror).
Amendment. The Merger Agreement provides that it may be amended, modified
and supplemented in any and all respects, whether before or after any vote of
the shareholders of the Company, by written agreement of the parties thereto, by
action taken by their respective Boards of Directors at any time prior to the
date of closing with respect to any of the terms contained therein; provided,
however, that after the approval of the Merger Agreement by the shareholders of
the Company, no such amendment, modification or supplement shall reduce or
change the consideration payable in the Merger or adversely affects the rights
of the Company's shareholders under the Merger Agreement without the approval of
such shareholders.
TENDER AGREEMENT. The following is a summary of certain provisions of the
Tender Agreement. This summary is qualified in its entirety by reference to the
Tender Agreement which is incorporated herein by reference and a copy of which
has been filed with the Commission as an exhibit to the Schedule 14D-1. The
Tender Agreement may be examined and a copy of it may be obtained at the place
and in the manner set forth in Section 8.
Tender of Shares. In connection with the execution of the Merger
Agreement, Parent and the Purchaser entered into the Tender Agreement with Dr.
Payson. Upon the terms and subject to the conditions of the Tender Agreement,
Dr. Payson has agreed to tender pursuant to and in accordance with the terms of
the Offer the number of Shares owned by him (or a total of 4,332,760 Shares,
representing approximately 6.1% of the Company's outstanding Shares on a fully
diluted basis).
Provisions Concerning the Shares. Dr. Payson has agreed that during the
period commencing on the date of the Tender Agreement and continuing until the
earlier to occur of the consummation of the Offer and the termination of the
Tender Agreement, at any meeting (whether annual or special, and whether or not
an adjourned or postponed meeting) of the Company's shareholders, however
called, or in connection with any written consent of the Company's shareholders,
subject to the absence of a preliminary or permanent injunction or other
requirement under applicable law by any United States federal, state or foreign
court barring such action, Dr. Payson will vote (or cause to be voted) all
Shares owned beneficially by him: (i) in favor of the Merger, the execution and
delivery by the Company of the Merger Agreement and the approval and adoption of
the Merger and the terms thereof and each of the other actions contemplated by
the Merger Agreement and the Tender Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would impede,
interfere with, or prevent the Offer or the Merger; and (iii) except as
otherwise agreed to in writing in advance by Parent, against the following
actions (other than the Offer, the Merger and the transactions contemplated by
the Merger Agreement and the Tender Agreement): (I) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any of its subsidiaries (including any transaction
contemplated by an Acquisition Proposal (as defined in the Merger Agreement));
(II) any sale, lease or transfer of a material amount of the assets or business
of the Company or its subsidiaries, or any reorganization, restructuring,
recapitalization, special dividend, dissolution, liquidation or winding up of
the Company or its subsidiaries; and (III) any change in the present
capitalization of the Company including any proposal to sell any material equity
interest in the Company or any amendment of the Articles of Incorporation of the
Company. In addition, Dr. Payson has appointed Purchaser and its designees as
proxies to vote his Shares in accordance with the foregoing. Dr. Payson has also
agreed, subject to certain exceptions, not to transfer his Shares and, in his
capacity as a director or officer of the Company, not to initiate, solicit or
encourage, directly or indirectly, any inquiries or the making of any proposal
that constitutes or is reasonably likely to lead to any Acquisition Proposal,
engage in negotiations or discussions with, or furnish any information or data
to any third party relating to an Acquisition Proposal or enter into any
agreement with
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respect to any Acquisition Proposal or approve any Acquisition Proposal except
to the extent that his taking such actions would not violate the provisions of
the Merger Agreement.
Representations and Warranties. In connection with the Tender Agreement,
Dr. Payson made certain customary representations and warranties, including with
respect to his authority to enter into and perform his obligations under the
Tender Agreement, ownership of his Shares, the absence of conflicts with other
agreements and laws, and the absence of encumbrances on and in respect of his
Shares. Parent and the Purchaser have made certain representations and
warranties with respect to Parent and the Purchaser's authority to enter into
the Tender Agreement and the absence of conflicts with other agreements and
laws.
Termination. The Tender Agreement, and all rights and obligations of the
parties thereunder, terminates upon the earlier of (a) the date upon which
Parent shall have purchased and paid for all of Dr. Payson's Shares in
accordance with the Offer and (b) the date on which the Merger Agreement is
terminated.
CONSULTING AGREEMENT. The following is a summary of certain provisions of
the Consulting Agreement. This summary is qualified in its entirety by reference
to the Consulting Agreement which is incorporated herein by reference and a copy
of which has been filed with the Commission as an exhibit to the Schedule 14D-1.
The Consulting Agreement may be examined and copies may be obtained at the
places and in the manner set forth in Section 8 of this Offer to Purchase.
General. Pursuant to the Consulting Agreement entered into on February 27,
1997 between Parent and Dr. Payson (the "Consulting Agreement"), Parent agreed
to engage Dr. Payson for the nine month period commencing on the date of
consummation of the Offer to perform such services relating to the business of
Parent as Dr. Payson and the President of CIGNA HealthCare (or his designee)
shall mutually agree. The Consulting Agreement provides that Parent will pay Dr.
Payson a monthly consulting fee of $100,000 during the nine-month term of the
Consulting Agreement and provide him with reimbursement of ordinary and
appropriate business expenses, $25,000 to establish an office in his home,
appropriate telephones and computers, up to $200,000 for office and staff costs,
the use of the Company's aircraft and certain health care, life insurance and
disability benefits coverage. Upon the expiration of the nine-month term of the
Consulting Agreement, Dr. Payson has the right to purchase the Company aircraft.
The Consulting Agreement also provides for a mutual release of claims between
Dr. Payson, on the one hand, and the Company, the Purchaser and Parent and their
affiliates, on the other hand.
Options. The Consulting Agreement provides that Parent will take all
action necessary to cause each Substitute Option held by Dr. Payson (or, in the
event of his death, held by his estate or designated beneficiary) to expire no
earlier than the tenth anniversary of the date of grant of the corresponding
Company Employee Stock Option that was converted into a Substitute Option (as
defined in the Merger Agreement) pursuant to the Merger Agreement, without
regard to any of (i) the termination or expiration of the Consulting Agreement,
(ii) the termination of Dr. Payson's employment with the Company, (iii) the
death or disability of Dr. Payson or (iv) the cessation of Dr. Payson's services
to Parent; provided, however, that Parent may grant Substitute Options to Dr.
Payson under a stock option plan of Parent, so long as such grant does not
adversely affect the rights of Dr. Payson under the Consulting Agreement and
under the Merger Agreement. Parent also agreed that each such Substitute Option
held by Dr. Payson will be freely exercisable without restriction, at all times
prior to the expiration of such option, by Dr. Payson and his successors, for
shares of Parent common stock.
Covenant Not to Compete; Non-Solicitation. Dr. Payson has agreed that, for
a period of nine months following the date of consummation of the Offer, Dr.
Payson will not, whether acting individually or as an officer, director,
employee, agent, stockholder or consultant of any person, firm, corporation,
business or other entity, engage in a business that competes, directly or
indirectly, in any material respect with the business conducted as of the date
of the Consulting Agreement by Parent, the Company and their respective
subsidiaries. Dr. Payson has also agreed that during the
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term of the Consulting Agreement and for a period of one year following the
termination thereof, he will not, subject to certain limited exceptions, (i)
induce any employee of Parent, the Company or any of their affiliates to leave
the employ of Parent, the Company or any of their affiliates or to accept any
other employment or position, or (ii) assist any other person in hiring any such
employee.
CONFIDENTIALITY AGREEMENT. The following is a summary of certain
provisions of the Confidentiality Agreement, dated as of January 31, 1997,
between Parent and the Company (the "Confidentiality Agreement"). This summary
is qualified in its entirety by reference to the Confidentiality Agreement which
is incorporated herein by reference and a copy of which has been filed with the
Commission as an exhibit to the Schedule 14D-1. The Confidentiality Agreement
may be examined and copies may be obtained at the places and in the manner set
forth in Section 8 of this Offer to Purchase.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, Parent agreed to keep confidential all nonpublic,
confidential or proprietary information furnished to it by the Company relating
to the Company, subject to certain exceptions (the "Confidential Information"),
and to use the Confidential Information solely for the purpose of evaluating a
possible transaction involving the Company and Parent. Parent has agreed in the
Confidentiality Agreement that for a period of 18 months from the date thereof,
unless invited in writing by the Company, neither it nor any of its affiliates
would, among other things, directly or indirectly, acquire or offer to acquire
any securities or assets of the Company or enter into or propose to enter into
any business combination involving the Company or seek to influence the
management of the Company. Parent further agreed that, for a period of 18 months
from the date of the Confidentiality Agreement, neither Parent nor any of its
affiliates will without the written consent of the Company employ or solicit the
employment of any executive officer of the Company, the chief executive officer
of any health maintenance organization or insurance subsidiary of the Company or
any other management employee of the Company or any of its affiliates with whom
Parent or its representatives had contact during the negotiations and
investigations in connection with a possible transaction between Parent and the
Company.
OTHER MATTERS. Under New Hampshire law, the affirmative vote of holders of
a majority of the outstanding Shares entitled to vote, including any Shares
owned by the Purchaser, would be required to adopt the Merger. If the Purchaser
acquires, through the Offer or otherwise, voting power with respect to at least
a majority of the outstanding Shares, which would be the case if the Minimum
Condition were satisfied, it would have sufficient voting power to effect the
Merger without the vote of any other stockholder of the Company.
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, stockholders of the Company may have certain rights
under New Hampshire law to dissent and demand appraisal of, and payment in cash
of the fair value of, their Shares. Such rights, if the statutory procedures
were complied with, could lead to a judicial determination of the fair value
(excluding, unless inequitable to do so, any element of value arising from the
accomplishment or expectation of the Merger) required to be paid in cash to such
dissenting holders for their Shares. Any such judicial determination of the fair
value of Shares could be based upon considerations other than or in addition to
the price paid in the Offer and the market value of the Shares, including asset
values and the investment value of the Shares. Ultimately, the value received by
a dissenting shareholder could be more or less than the purchase price per Share
pursuant to the Offer or the consideration per Share to be paid in the Merger.
The Commission has adopted Rule 13e-3 under the Exchange Act which is
applicable to certain "going private" transactions and which may under certain
circumstances be applicable to the Merger or another business combination
following the purchase of Shares pursuant to the Offer in which the Purchaser
seeks to acquire the remaining Shares not held by it. The Purchaser believes,
however, that Rule 13e-3 will not be applicable to the Merger because it is
anticipated that the Merger will be effected within one year following
consummation of the Offer. Rule 13e-3 requires, among other things, that certain
financial information concerning the Company and certain informa-
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tion relating to the fairness of the proposed transaction and the consideration
offered to minority stockholders in such transaction, be filed with the
Commission and disclosed to stockholders prior to consummation of the
transaction.
The Purchaser or an affiliate of the Purchaser may, following the
consummation or termination of the Offer, seek to acquire additional Shares
through open market purchases, privately negotiated transactions, a tender offer
or exchange offer or otherwise, upon such terms and at such prices as it shall
determine, which may be more or less than the price to be paid pursuant to the
Offer. The Purchaser and its affiliates also reserve the right to dispose of any
or all Shares acquired by them, subject to the terms of the Merger Agreement.
Upon the completion of the Offer, Parent intends to conduct a detailed
review of the Company and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies, management and personnel and
consider what, if any, changes would be desirable in light of the circumstances
which then exist. Although Parent and the Purchaser do not have any specific
plans with respect to the Company after the consummation of the Offer, to
achieve operating synergies, Parent and the Purchaser generally intend to
integrate the Company's operations with the operations of Parent's health care
division as soon as practicable. At this time, Parent and the Purchaser have not
determined how this integration will be structured. The combining of the
Company's business with Parent's health care business could, among other things,
involve consolidating and streamlining certain operations and reorganizing other
businesses and operations.
Except as noted in this Offer to Purchase, and except as may be effected in
connection with the integration of operations referred to above, neither Parent
nor the Purchaser has any present plans or proposals that would result in an
extraordinary corporate transaction, such as a merger, reorganization,
liquidation, relocation of operations, or sale or transfer of assets, involving
the Company or any of its subsidiaries, or any material changes in the Company's
corporate structure, business or composition of its management or personnel.
13. DIVIDENDS AND DISTRIBUTIONS
If, on or after the date of the Merger Agreement, the Company should (a)
split, combine or reclassify the outstanding Shares, (b) redeem, purchase or
otherwise acquire any of its capital stock or (c) issue or sell any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class of the Company, other than Shares reserved for
issuance on the date of the Merger Agreement upon exercise of outstanding Rights
pursuant to the Rights Agreement, issuances pursuant to the exercise of Options
outstanding on the date of the Merger Agreement or issuances pursuant to the
Company's Convertible Notes, then, without prejudice to the Purchaser's rights
under Sections 1 and 14, the Purchaser, in its sole discretion, may make such
adjustments as it deems appropriate in the Offer Price and other terms of the
Offer, including, without limitation, the number or type of securities offered
to be purchased.
If, on or after the date of the Merger Agreement, the Company should
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock with respect to the Shares,
payable or distributable to stockholders of record on a date prior to the
transfer of the Shares purchased pursuant to the Offer to the Purchaser or its
nominee or transferee on the Company's stock transfer records (other than the
redemption of the Rights), then, without prejudice to the Purchaser's rights
under Sections 1 and 14, (a) the Offer Price may, in the sole discretion of the
Purchaser, be reduced by the amount of any such cash dividend or cash
distribution and (b) the whole of any such noncash dividend, distribution or
issuance to be received by the tendering stockholders will (i) be received and
held by the tendering stockholders for the account of the Purchaser and will be
required to be promptly remitted and transferred by each tendering stockholder
to the Depositary for the account of the Purchaser, accompanied by appropriate
documentation of transfer, or (ii) at the direction of the Purchaser, be
exercised for the benefit of the Purchaser, in which case the proceeds of such
exercise will promptly be remitted to
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the Purchaser. Pending such remittance and subject to applicable law, the
Purchaser will be entitled to all rights and privileges as owner of any such
dividend, distribution or right and may withhold the entire purchase price for
Shares tendered in the Offer or deduct from the purchase price the amount or
value thereof, as determined by the Purchaser in its sole discretion.
Section 5.1 of the Merger Agreement prohibits the Company from taking any
of the foregoing actions without the prior written consent of the Purchaser.
14. CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the provisions
of the Merger Agreement, the Purchaser will not be required to accept for
payment or, subject to any applicable rules and regulations of the Commission,
including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate the Offer and not accept for payment any tendered
Shares if (i) any applicable waiting period under the HSR Act has not expired or
been terminated prior to the expiration of the Offer, (ii) any Insurance
Regulatory Approvals or any other material consent, approval, or authorization
required under Federal or any State law required to consummate the Offer have
not been obtained, except where the failure to have obtained any such approvals,
consents, authorizations or Insurance Regulatory Approvals would not have a
Company Material Adverse Effect and would not result in a violation of law,
(iii) the Minimum Condition has not been satisfied, or (iv) at any time on or
after February 26, 1997, and before the time of acceptance of Shares for payment
pursuant to the Offer, any of the following events shall occur:
(a) there shall have been any statute, rule, regulation, judgment,
order or injunction promulgated, entered, enforced, enacted or issued
applicable to the Offer or the Merger by any federal or state governmental
regulatory or administrative agency or authority or court or legislative
body or commission which (1) prohibits the consummation of the Offer or the
Merger, (2) prohibits, or imposes any material limitations on, Parent's or
the Purchaser's ownership or operation of all or a material portion of the
Company's businesses or assets or the Shares, except for such prohibitions
or limitations which would not have a Company Material Adverse Effect, (3)
prohibits, or makes illegal the acceptance for payment, payment for or
purchase of Shares or the consummation of the Offer, or (4) renders the
Purchaser unable to accept for payment, pay for or purchase a material
portion or all of the Shares; provided, that the parties shall have used
their best efforts to cause any such statute, rule, regulation, judgment,
order or injunction to be vacated or lifted;
(b) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which
need only be true and accurate as of such date or with respect to such
period) or the Company shall have breached or failed to perform or comply
with any obligation, agreement or covenant required by the Merger Agreement
to be performed or complied with by it except, in each case where the
failure of such representations and warranties to be true and accurate
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth therein), or the performance or compliance with
such obligations, agreements or covenants, do not, individually or in the
aggregate, have a Company Material Adverse Effect;
(c) the Merger Agreement shall have been terminated in accordance with
its terms;
(d) it shall have been publicly disclosed that any person, entity or
"group" (as defined in Section 13(d)(3) of the Exchange Act), shall have
acquired beneficial ownership (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 30% of the
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then outstanding Shares, through the acquisition of stock, the formation of
a group or otherwise;
(e) the Board of Directors of the Company shall have withdrawn,
modified or changed in a manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended an Acquisition Proposal or shall have executed an
agreement in principle or definitive agreement relating to an Acquisition
Proposal or similar business combination with a person or entity other than
Parent, the Purchaser or their affiliates or the Board of Directors of the
Company shall have adopted a resolution to do any of the foregoing; or
(f) there shall have occurred (i) any general suspension of trading in
securities on any national securities exchange or in the over-the-counter
market, (ii) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not
mandatory), or (iii) any limitation (whether or not mandatory) by an United
States governmental authority or agency on the extension of credit by banks
or other financial institutions;
which, in the reasonable judgment of Parent or the Purchaser, in any such case,
and regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of the Purchaser and
Parent and, subject to the Merger Agreement, may be asserted by either of them
or may be waived by Parent or the Purchaser, in whole or in part at any time and
from time to time in the sole discretion of Parent or the Purchaser. The failure
by Parent or the Purchaser at any time to exercise any such rights shall not be
deemed a waiver of any right and each right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
15. CERTAIN LEGAL MATTERS
Except as described in this Section 15, based on a review of publicly
available filings by the Company with the Commission and other publicly
available information concerning the Company, the Purchaser is not aware of any
regulatory license or permit that appears to be material to the business of the
Company and its subsidiaries, taken as a whole, that might be adversely affected
by the acquisition of Shares by the Purchaser pursuant to the Offer or, except
as set forth below, of any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required prior to the acquisition of Shares by the Purchaser pursuant
to the Offer. Should any such approval or other action be required, the
Purchaser currently contemplates that it will be sought. While the Purchaser
does not currently intend to delay the acceptance for payment of Shares tendered
pursuant to the Offer pending the outcome of such matters, there can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that adverse consequences
might not result to the Company's business or that certain parts of the
Company's business might not have to be disposed of in the event that such
approvals were not obtained or any other actions were not taken. The Purchaser's
obligation under the Offer to accept for payment and pay for Shares is subject
to certain conditions, including conditions relating to the legal matters
discussed in this Section 15. See Section 14.
United States Antitrust. The Offer and the Merger are subject to the HSR
Act, which provides that certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission ("FTC") and certain waiting period requirements have been satisfied.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares under the Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by Parent. If, within such
15-day period, either the Antitrust Division or the FTC requests additional
information or material from Parent concerning the Offer, the waiting period
will be
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extended and would expire at 11:59 p.m., New York City time, on the tenth
calendar day after the date of substantial compliance by Parent with such
request. Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of Parent. The
Purchaser will not accept for payment Shares tendered pursuant to the Offer
unless and until the waiting period requirements imposed by the HSR Act with
respect to the Offer have been satisfied. See Section 14.
The Merger would not require an additional filing under the HSR Act if the
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of Parent or its subsidiaries.
Private parties and state attorneys general may also bring legal action under
the antitrust laws under certain circumstances. Based upon an examination of
publicly available information relating to the businesses in which Parent and
the Company are engaged, Parent and the Purchaser believe that the acquisition
of Shares by the Purchaser will not violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Offer or other acquisition of
Shares by the Purchaser on antitrust grounds will not be made or, if such a
challenge is made, of the result. See Section 14 for certain conditions to the
Offer, including conditions with respect to certain governmental actions.
State Regulatory Approvals. HMOs and insurance companies are closely
regulated by the individual states or territories in which they operate or are
domiciled. A change in control of an HMO or an insurance company triggers state
regulatory oversight processes, which range from a requirement of notice to
state regulatory agencies to a formal review and approval process. In those
jurisdictions with a formal review and approval process, the regulatory agencies
may approve the change in control, approve it with conditions or deny approval.
Conditional approval may require changes in planned operations or structure.
Denial of approval would effectively block the change in control. Parent
anticipates that notice or approval will be required in the jurisdictions in
which the Company operates HMOs and in which insurance companies owned by the
Company are domiciled and, in some cases, licensed. The specific requirements
and the scope of any regulatory review are anticipated to vary significantly
among states. The Company operates HMOs in North Carolina, South Carolina, New
Hampshire, Massachusetts, Indiana, Maine, Tennessee, Arkansas, New York, New
Jersey, Kentucky, Georgia, Texas, Ohio and Connecticut. The Company owns
insurance companies, that are domiciled in Indiana, Tennessee, New Hampshire and
South Carolina.
Although requirements vary by state, regulatory review of the Offer and the
Merger (where required) will be based on, among other factors: (i) continued
compliance, after the consummation of the Offer and the Merger, with
requirements for licensure of HMOs or insurance companies; (ii) effects on
competition; (iii) the financial condition of the HMO or insurance company after
the consummation of the Offer and the Merger; (iv) plans or proposals for
changes in business, corporate structure and management; (v) competence,
experience and integrity of those persons, who will be controlling the HMOs or
insurance company's operations; and (vi) whether the Offer and the Merger would
be hazardous or prejudicial to those buying health care coverage.
Parent and the Purchaser intend to file applications with the regulatory
agencies of all applicable states seeking orders granting regulatory approval
and expect that all such approvals will be received. However, there can be no
assurance that all required approvals will be granted, either with or without
significant conditions. Affected persons, as determined by a state regulatory
agency, may be able to seek to participate in proceedings on the Offer and the
Merger. Although procedures
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vary by state, orders of state regulatory agencies may be appealed by certain
persons and the effectiveness of an order could be stayed by the agency or a
court while such an appeal is pending. If approval is stayed, consummation of
the Offer and the Merger could be delayed pending such proceedings.
State Takeover Statutes. A number of states have adopted "takeover"
statutes that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of business
in such states.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
"takeover" statutes. Except as provided below, the Purchaser does not know
whether any of these statutes will, by their terms, apply to the Offer, and has
not complied with any such statutes. To the extent that certain provisions of
these statutes purport to apply to the Offer, the Purchaser believes that there
are reasonable bases for contesting such statutes. If any person should seek to
apply any state takeover statute, the Purchaser would take such action as then
appears desirable, which action may include challenging the validity or
applicability of any such statute in appropriate court proceedings. If it is
asserted that one or more takeover statutes apply to the Offer, and it is not
determined by an appropriate court that such statute or statutes do not apply or
are invalid as applied to the Offer, the Purchaser might be required to file
certain information with, or receive approvals from, the relevant state
authorities, and the Purchaser might be unable to purchase or pay for Shares
tendered pursuant to the Offer, or be delayed in continuing or consummating the
Offer. In such case, the Purchaser may not be obligated to accept for payment or
pay for Shares tendered. See Section 14. Notwithstanding the foregoing, the
Purchaser intends to file a registration statement in New Hampshire, the state
of domicile of the Purchaser and the Company, with respect to the Offer.
16. FEES AND EXPENSES
Parent has retained Goldman, Sachs & Co. to act as the Dealer Managers and
to provide certain financial advisory services, Georgeson & Company Inc. to act
as the Information Agent and IBJ Schroder Bank & Trust Company to act as the
Depositary in connection with the Offer. The Dealer Managers and the Information
Agent may contact holders of Shares by mail, telephone, telex, telegraph and
personal interview and may request brokers, dealers, commercial banks, trust
companies and other nominees to forward the Offer materials to beneficial
owners. The Dealer Managers, the Information Agent and the Depositary each will
receive reasonable and customary compensation for their services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws. None of the Dealer
Managers, the Information Agent or the Depositary has been retained to make
solicitations or recommendations in connection with the Offer. Neither Parent
nor the Purchaser will pay any fees or commissions to any broker or dealer or
other person for soliciting tenders of Shares pursuant to the Offer. Brokers,
dealers, commercial banks and trust companies will be reimbursed by the
Purchaser for reasonable expenses incurred by them in forwarding material to
their customers.
17. MISCELLANEOUS
The Purchaser is not aware of any jurisdiction in which the making of the
Offer is not in compliance with applicable law. If the Purchaser becomes aware
of any jurisdiction in which the making of the Offer would not be in compliance
with applicable law, the Purchaser will make a good faith effort to comply with
any such law. If, after such good faith effort, the Purchaser cannot comply with
any such law, the Offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of Shares residing in such jurisdiction. In those
jurisdictions whose securities or blue sky laws require the Offer to be made by
a licensed broker or dealer, the Offer is being made on behalf
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of the Purchaser by the Dealer Managers or one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR PARENT NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-1
and any amendments thereto, including exhibits, may be inspected and copies may
be obtained at the same places and in the same manner as set forth in Section 8
(except that they will not be available at the regional offices of the
Commission).
CHC ACQUISITION CORP.
MARCH 6, 1997
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SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of Parent. The business address of each such
person is c/o Parent, One Liberty Place, Philadelphia, PA 19192. All directors
and officers listed below are citizens of the United States except for B.
Kingsley Schubert, who is a citizen of Australia.
ROBERT P. BAUMAN, 65 Director since 1990
Non-Executive Chairman of British Aerospace, plc (manufacturer of aerospace
and other defense systems and commercial aircraft) since May 1994. From 1989
until May 1994, Mr. Bauman served as a Director and Chief Executive of
SmithKline Beecham plc (manufacturer of pharmaceuticals and health care
products). Mr. Bauman was Chairman of the Board and Chief Executive Officer of
Beecham Group plc from 1986 to 1989, and was Vice Chairman of Textron, Inc.
(aerospace technology, commercial products and financial services) from 1985 to
1986. He is a Director of Morgan Stanley, Reuters Holdings, plc, Russell
Reynolds Associates, Inc., Union Pacific Corporation and Hathaway Holdings Inc.
and a member of Booz-Allen & Hamilton, Inc.'s advisory board.
ROBERT H. CAMPBELL, 59 Director since 1992
Chairman of the Board and Chief Executive Officer of Sun Company, Inc.
(domestic refining and marketing of petroleum products). He was elected Chairman
of the Board in May 1992 and Chief Executive Officer in 1991. Mr. Campbell
additionally held the post of President from 1991 until 1996. Previously, Mr.
Campbell had been an Executive Vice President beginning in 1988 and a Group Vice
President beginning in 1983. Mr. Campbell is also a director of Hershey Foods,
Inc.
ALFRED C. DECRANE, JR., 65 Director since 1980
Retired Chairman of the Board of Texaco Inc.(integrated oil, gas and
chemical manufacturer). Mr. DeCrane served as Chairman of the Board of Texaco
Inc. from January 1987 until June 1996, and as Chief Executive Officer from
April 1993 until June 1996, and as a Director from 1977 until June 1996, and as
its President from 1983 through 1986. Between 1970 and 1983, Mr. DeCrane served
Texaco Inc. in various other positions. He also serves as a Director of CPC
International Inc., Dean Witter, Discover & Co. and Harris Corporation.
JAMES F. ENGLISH, JR., 70 Director since 1962
President Emeritus of Trinity College (educational institution). Mr.
English was President of Trinity College from 1981 until 1989 and Vice President
for Finance and Planning from 1977 to 1981. Before that he had twenty-six years
of service with CBT Corporation and its affiliates. Mr. English also serves as a
Director of Connecticut Natural Gas Corporation and five of Fleet Financial
Group, Inc.'s bank subsidiaries in Connecticut, Massachusetts and Rhode Island.
Pursuant to the retirement policy adopted by the Board of Directors, Mr. English
will tender his resignation prior to CIGNA's 1997 Annual Meeting of Shareholders
to be effective as of the date of that meeting.
BERNARD M. FOX, 54 Director since 1994
Chairman of the Board since August 1995, President and Chief Executive
Officer since July 1993 of Northeast Utilities (energy utility holding company)
and Chairman, Chief Executive Officer and a Director of its principal
subsidiaries. Mr. Fox is also Chairman, President, Chief Executive Officer and a
Director of Connecticut Yankee Atomic Power Company. From 1990 until July 1993,
he
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<PAGE> 38
served as President and Chief Operating Officer of Northeast Utilities and of
its principal subsidiaries and of Connecticut Yankee Atomic Power Company. He is
also a Director of Fleet Financial Group and the Dexter Corporation.
MARILYN WARE LEWIS, 53 Director since 1993
Chairman of American Water Works Company, Inc. (water utility holding
company) since 1988 and a Director since 1982. Prior to her election as
Chairman, Ms. Lewis served for four years as Vice Chairman. From 1987 until
January 1992, Ms. Lewis served as President of KLS Educational Systems, Inc. She
is also a Director of Penn Fuel Gas Company, Inc. and serves as the Chief
Executive Officer of The Ware Family Offices.
PAUL F. OREFFICE, 69 Director since 1979
Retired Chairman of the Board of The Dow Chemical Company (manufacturer of
chemicals, metals, plastics and other products). Mr. Oreffice served as Chairman
of the Board of Dow Chemical from 1986 through 1992, as President and Chief
Executive Officer from 1978 to 1987, and as a Director from 1971 through 1992.
Mr. Oreffice also serves as a Director of The Coca-Cola Company and Northern
Telecom, Ltd.; as Chairman of Fairfield Homes of Arizona, Inc.; as a member of
the International Advisory Board of Marsh & McLennan; and as an advisor to the
Chairman of Smith Barney Inc.
CHARLES R. SHOEMATE, 57 Director since 1991
Chairman, President, and Chief Executive Officer of CPC International Inc.
(consumer foods) since 1990. Mr. Shoemate has served as a Director of CPC
International since 1988. Prior to his election as President in 1988, Mr.
Shoemate served as Vice President of CPC International and President of the Corn
Refining Division. Mr. Shoemate joined CPC International in 1962 and progressed
through a variety of positions in manufacturing, finance, and business
management. Mr. Shoemate also serves as a Director of International Paper Co.
LOUIS W. SULLIVAN, M.D., 63 Director since 1993
President, Morehouse School of Medicine (educational institution). Dr.
Sullivan became the first President of Morehouse School of Medicine in 1981 when
it became independent from Morehouse College, and has held that position since
1981 except for March 1989 to January 1993, when he served as Secretary of
Health and Human Services of the United States. Dr. Sullivan is a Director of
Bristol-Myers Squibb Company, Equifax Inc., Endo Vascular Instruments, Inc.,
General Motors Corporation, Georgia Pacific Corporation, Household
International, Inc., and Minnesota Mining & Manufacturing Co.
WILSON H. TAYLOR, 53 Director, President and
Chief Executive Officer since 1988
Chairman of the Board, Chief Executive Officer and President of CIGNA
Corporation. Mr. Taylor has served as Chairman of the Board since November 1989,
as Chief Executive Officer since November 1988, and as President since May 1988.
Between 1964 and 1988, he held various positions with CIGNA Corporation and its
predecessor and subsidiary companies.
CAROL COX WAIT, 54 Director since 1995
Director, President and Chief Executive Officer, Committee for a
Responsible Federal Budget (a non-profit educational organization) since 1981.
Ms. Wait is also President of Carol Cox and Associates, a Washington, D.C.
consulting firm. Ms. Wait is President of The International Women's Forum.
I-2
<PAGE> 39
H. EDWARD HANWAY, 45 President, CIGNA HealthCare
since 1996
President of CIGNA HealthCare beginning February 1996; President of CIGNA
International from March 1994 until February 1996; and President of CIGNA
International: Property & Casualty from February 1989 until March 1994.
GERALD A. ISOM, 58 President, CIGNA Property and Casualty
since 1993
President of CIGNA Property and Casualty since March 1993; Group Vice
President of Transamerica Corporation from 1990 until March 1993; and Chief
Executive Officer and President of Transamerica Insurance Group from January
1985 until March 1993. Transamerica Insurance Group is a major provider of
property and casualty insurance products.
THOMAS C. JONES, 50 President, CIGNA Individual Insurance
since 1995
President of CIGNA Individual Insurance since February 1995; President of
CG Life since March 1995; President of CIGNA Reinsurance Property & Casualty
from March 1994 until February 1995; Executive Vice President, Chief
Administrative Officer and member of the Boards of Directors of NAC Re
Corporation and NAC Reinsurance Corporation from November 1985 until January
1994; and Chief Operating Officer of NAC Re Corporation and NAC Reinsurance
Corporation from June 1993 and September 1990, respectively, until January 1994.
NAC Re Corporation is the parent corporation of NAC Reinsurance Corporation, a
major provider of property and casualty reinsurance products.
JOHN K. LEONARD, 48 President, CIGNA Group Insurance:
Life, Accident, Disability
since 1992
President of CIGNA Group Insurance: Life, Accident, Disability since March
1992; and Senior Vice President of CIGNA from March 1989 until March 1992, with
responsibility for Corporate Marketing and Strategy.
DONALD M. LEVINSON, 51 Executive Vice President, CIGNA
since 1988
Executive Vice President of CIGNA since March 1988, with responsibility for
Human Resources and Services.
FRANCINE M. NEWMAN, 52 President of CIGNA Reinsurance:
Life, Accident, Health
since 1984
President of CIGNA Reinsurance: Life, Accident, Health since July 1984.
BYRON D. OLIVER, 54 President, CIGNA Retirement
Investment Services
since 1988
President of CIGNA Retirement & Investment Services since February 1988.
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<PAGE> 40
ARTHUR C. REEDS, III, 52 President, CIGNA Investment
Management since 1992
President of CIGNA Investment Management since March 1992; and Managing
Director and Head of Portfolio Management, CIGNA's Investment Division, from May
1986 until March 1992.
B. KINGSLEY SCHUBERT, 50 President, CIGNA International
since 1996
President of CIGNA International beginning February 1996; Senior Vice
President of CIGNA International (Asia-Pacific) from March 1995 until February
1996; President of CIGNA Insurance Company in Japan from June 1992 until
February 1996; Senior Vice President of American International Underwriters
Corporation from September 1991 until April 1992. American International
Underwriters Corporation is a subsidiary of American International Group, Inc.,
a major provider of insurance products.
JAMES G. STEWART, 54 Executive Vice President and
Chief Financial Officer, CIGNA
since 1983
Executive Vice President and Chief Financial Officer of CIGNA since 1983.
THOMAS J. WAGNER, 57 Executive Vice President and
General Counsel, CIGNA
since 1992
Executive Vice President and General Counsel of CIGNA since January 1992;
Senior Vice President and Corporate Secretary of CIGNA from January 1988 until
April 1992.
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. The following table
sets forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of the Purchaser. Each such person is a citizen
of the United States of America and the business address of each such person is
c/o Parent, One Liberty Place, Philadelphia, Pennsylvania 19192.
ROBERT L. ROSE, 51 President
since 1997
President of Purchaser since February 1997; Vice President of the
Financial, Marketing and Systems Division of CIGNA companies since February
1989, with responsibility for Strategic Growth & Development since September
1995 and responsibility for Corporate Accounting & Planning from February 1989
until September 1995.
DAVID R. DEVOE, 54 Secretary and Treasurer
since 1997
Secretary and Treasurer of Purchaser since February 1997; Assistant General
Counsel, Corporate Law Department, of CIGNA Corporation since September 1986.
I-4
<PAGE> 41
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or his broker, dealer, commercial bank or other nominee to the
Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
IBJ Schroder Bank & Trust Company
By Mail:
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attn: Reorganization Operations Department
By Facsimile Transmission:
(212) 858-2611
Confirm by telephone:
(212) 858-2103
By Hand or Overnight Delivery:
One State Street
New York, New York 10004
Attn: Securities Processing Window,
Subcellar One (SC-1)
Any questions or requests for assistance may be directed to the Dealer
Managers or the Information Agent at their respective telephone numbers and
locations listed below. Additional copies of this Offer to Purchase, the Letter
of Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent at its address and telephone numbers set forth below. You may
also contact your broker, dealer, commercial bank or trust company or nominee
for assistance concerning the Offer.
The Information Agent for the Offer is:
(LOGO)
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
HEALTHSOURCE, INC.
AT $21.75 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 6, 1997
BY
CHC ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
CIGNA CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK
CITY TIME, ON WEDNESDAY, APRIL 2, 1997, UNLESS THE OFFER IS EXTENDED.
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of the Company or his
broker, dealer, commercial bank or other nominee to the Depositary at one of its
addresses set forth below.
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or By Overnight Courier:
IBJ Schroder Bank & Trust Company (212) 858-2611 IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station To Confirm New York, New York 10004
New York, New York 10274-0084 Facsimile Transmissions Call: Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One,
Department (212) 858-2103 (SC-1)
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
<PAGE> 2
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARES CERTIFICATE(S) AND SHARE(S) TENDERED
SHARE CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL LIST IF NECESSARY)
------------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
REPRESENTED BY NUMBER
SHARE CERTIFICATE BY SHARE OF SHARES
NUMBER(S) CERTIFICATE(S)* TENDERED**
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total Shares:
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by
each Share Certificate delivered to the Depositary are being tendered
hereby. See Instruction 4.
- --------------------------------------------------------------------------------
This Letter of Transmittal is to be completed by stockholders either if
certificates are to be forwarded herewith or if delivery is to be made by
book-entry transfer to the Depositary's account at The Depository Trust Company
("DTC") or the Philadelphia Depository Trust Company ("PDTC") (each, a
"Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth in Section 3 of the Offer to
Purchase (as defined below).
Stockholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary prior to the Expiration
Date (as defined in Section 1 of the Offer to Purchase) or who cannot comply
with the book-entry transfer procedures on a timely basis must tender their
Shares according to the guaranteed delivery procedure set forth in Section 3 of
the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH ONE OF THE BOOK-ENTRY
TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------
Check Box of Book-Entry Transfer Facility (check one):
[ ] DTC
[ ] PDTC
[ ] Account Number
--------------------------------------------------------
Transaction Code Number
-------------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s)
------------------------------------------------
Window Ticket Number (if any)
-------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------------
Name of Institution that Guaranteed Delivery
----------------------------------
Check Box of Book-Entry Transfer Facility if Delivered by Book-Entry Transfer
(check one):
[ ] DTC
[ ] PDTC
Account Number (if delivered by Book-Entry Transfer)
--------------------------
Transaction Code Number
-------------------------------------------------------
BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to CHC Acquisition Corp. (the "Purchaser"),
a New Hampshire corporation and an indirect wholly owned subsidiary of CIGNA
Corporation, a Delaware corporation ("Parent"), the above-described shares of
Common Stock, par value $.10 per share (the "Shares"), of Healthsource, Inc., a
New Hampshire corporation (the "Company"), at $21.75 per Share, net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Offer to Purchase dated March 6, 1997 (the "Offer to
Purchase"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which, as amended or supplemented from time to time, together
constitute the "Offer"). The undersigned understands that the Purchaser reserves
the right to transfer or assign, in whole or in part from time to time to Parent
or one or more direct or indirect wholly owned subsidiaries of Parent, the right
to purchase Shares tendered pursuant to the Offer.
Subject to and effective upon acceptance for payment of the Shares tendered
herewith in accordance with the terms and subject to the conditions of the
Offer, the undersigned hereby sells, assigns and transfers to, or upon the order
of, the Purchaser all right, title and interest in and to all of the Shares that
are being tendered hereby and all other Shares or other securities or property
(other than the proceeds receivable upon redemption of the Rights (as defined in
the Offer to Purchase)) issued or issuable in respect thereof on or after
February 27, 1997 (such other Shares, securities or property other than the
Shares being referred to herein as the "Other Securities") and irrevocably
appoints the Depositary the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares and all Other Securities with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver Share Certificates evidencing such
Shares and all Other Securities, or transfer ownership of such Shares and all
Other Securities on the account books maintained by any of the Book-Entry
Transfer Facilities, together, in either case, with all accompanying evidences
of transfer and authenticity, to or upon the order of the Purchaser, upon
receipt by the Depositary, as the undersigned's agent, of the purchase price
(adjusted, if appropriate, as provided in the Offer to Purchase), (b) present
such Shares and all Other Securities for transfer on the books of the Company,
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares and all Other Securities, all in accordance with the
terms of the Offer.
The undersigned hereby irrevocably appoints Parent, David R. DeVoe and
Robert L. Rose, and each of them or any other designees of the Purchaser, the
attorneys and proxies of the undersigned, each with full power of substitution,
to the full extent of the undersigned's rights, including to exercise such
voting and other rights as each such attorney and proxy or his (or her)
substitute shall, in his (or her) sole discretion, deem proper, and otherwise
act (including pursuant to written consent), with respect to all of the Shares
tendered hereby which have been accepted for payment by the Purchaser (and any
and all Other Securities issued or issuable in respect thereof on or after
February 27, 1997), which the undersigned is entitled to vote at any meeting of
stockholders of the Company (whether annual or special and whether or not an
adjourned meeting), or written consent in lieu of such meeting, or otherwise.
This proxy and power of attorney is coupled with an interest in the Shares
tendered hereby and is irrevocable and is granted in consideration of, and is
effective upon, the acceptance for payment of such Shares by the Purchaser in
accordance with the terms of the Offer. Such acceptance for payment shall,
without further action, revoke all prior proxies and consents granted by the
undersigned with respect to such Shares (and all Shares and other securities
issued in Other Securities in respect of such Shares), and no subsequent proxy
or power of attorney or written consent shall be given (and if given or
executed, shall be deemed not to be effective) with respect thereto by the
undersigned. The Purchaser reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser is able to exercise full
voting and other rights with respect to such Shares (including voting at any
meeting of stockholders then scheduled or acting by written consent without a
meeting).
<PAGE> 4
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Other Securities, and that when such Shares are accepted
for payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances, and that none of such Shares and Other Securities will be
subject to any adverse claim. The undersigned, upon request, shall execute and
deliver any signature guarantees or additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby and all Other Securities.
In addition, the undersigned shall promptly remit and transfer to the Depositary
for the account of the Purchaser all Other Securities in respect of the Shares
tendered hereby, accompanied by appropriate documentation of transfer, and
pending such remittance or appropriate assurance thereof, the Purchaser shall be
entitled to all rights and privileges as owner of such Other Securities and may
withhold the entire purchase price or deduct from the purchase price the amount
or value thereof, as determined by the Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned. Except as stated in
the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, the Purchaser may not be required to accept for payment any of the
Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Share
Certificates evidencing Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
Share Certificates evidencing Shares not tendered or accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and the Special Payment Instructions are
completed, please issue the check for the purchase price and/or return any Share
Certificates evidencing Shares not purchased (together with accompanying
documents as appropriate) in the name(s) of, and deliver said check and/or
return such Share Certificates to, the person or persons so indicated.
Stockholders tendering Shares by book-entry transfer may request that any Shares
not accepted for payment be returned by crediting such account maintained at DTC
or PDTC as such stockholder may designate by making an appropriate entry under
"Special Payment Instructions." The undersigned recognizes that the Purchaser
has no obligation pursuant to the Special Payment Instructions to transfer any
Shares from the name of the registered holder(s) thereof if the Purchaser does
not accept for payment any of the Shares so tendered.
<PAGE> 5
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not
purchased are to be issued in the name of someone other than the
undersigned.
Issue [ ] Check and/or [ ] Certificate(s) to:
Name
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Name
------------------------------------------------------------
(PLEASE PRINT)
Address
----------------------------------------------------------
----------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not
purchased are to be mailed to someone other than the undersigned, or to
the undersigned at an address other than that shown under "Description of
Shares Tendered."
Mail: [ ] Check and/or [ ] Certificate(s) to:
Name
------------------------------------------------------------
(PLEASE PRINT)
------------------------------------------------------------
------------------------------------------------------------
Address
----------------------------------------------------------
----------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
<PAGE> 6
STOCKHOLDERS SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF STOCKHOLDER(S))
Dated: , 1997
---------------
(Must be signed by registered holder(s) as name(s) appear(s) on share
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or any other person acting in a fiduciary or
representative capacity, please provide the following information. See
Instruction 5.)
Name(s)
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number No.
(home)
--------------------------------------------------------------------------
(business)
----------------------------------------------------------------------
Tax Identification or Social Security Number:
-----------------------------------
(COMPLETE SUBSTITUTE FORM W-9)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
------------------------------------------------------------
Name
---------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
Name of Firm
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------
Dated: , 1997
------------------
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a participant in the Security Transfer Agents Medallion
Program (each, an "Eligible Institution"), unless (i) this Letter of Transmittal
is signed by the registered holder(s) of Shares (which term, for the purposes of
this document, shall include any participant in a Book-Entry Transfer Facility
whose name appears on a security position listing as the owner of Shares)
tendered hereby and such holder(s) has (have) not completed either the box
entitled "Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on this Letter of Transmittal or (ii) such Shares are tendered for
the account of an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by stockholders
either if Share Certificates are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in Section 3 of the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or confirmation ("Book-Entry
Confirmation") of any book-entry transfer into the Depositary's account at a
Book-Entry Transfer Facility of Shares delivered by book-entry transfer as well
as a properly completed and duly executed Letter of Transmittal, must be
received by the Depositary, at one of the addresses set forth herein prior to
the Expiration Date (as defined in Section 1 of the Offer to Purchase). If Share
Certificates are forwarded to the Depositary in multiple deliveries, a properly
completed and duly executed Letter of Transmittal must accompany each such
delivery. Stockholders whose Share Certificates are not immediately available,
who cannot deliver their Share Certificates and all other required documents to
the Depositary prior to the Expiration Date or who cannot comply with the
book-entry transfer procedures on a timely basis may tender their Shares by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedure set forth in Section 3 of the Offer to
Purchase. Pursuant to such procedure, (i) such tender must be made by or through
an Eligible Institution, (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form provided by the Purchaser, must
be received by the Depositary (as provided in (iii) below) prior to the
Expiration Date and (iii) the Share Certificates evidencing all physically
tendered Shares (or Book-Entry Confirmation with respect to such Shares), as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three New York Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of
the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS
BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. All
tendering stockholders, by execution of this Letter of Transmittal (or facsimile
thereof), waive any right to receive any notice of the acceptance of their
Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares tendered should be listed on a separate signed schedule and attached
hereto.
4. Partial Tenders. (Not applicable to stockholders who tender by
book-entry transfer.) If fewer than all the Shares evidenced by any Share
Certificate submitted are to be tendered, fill in the number of Shares which are
to be tendered in the box entitled "Number of Shares Tendered." In such case,
new Share Certificate(s) evidencing the remainder of the Shares that were
evidenced by the old Share Certificate(s) will be sent to the registered holder,
unless otherwise provided in the appropriate box on this Letter of Transmittal,
as soon as practicable after the Expiration Date. All Shares represented by
Share Certificates delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
<PAGE> 8
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Share Certificate(s) without alteration, enlargement
or any change whatsoever. If any of the Shares tendered hereby are held of
record by two or more persons, all such persons must sign this Letter of
Transmittal.
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of such Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by Share Certificates listed and transmitted hereby, no
endorsements of Share Certificates or separate stock powers are required unless
payment is to be made to or Share Certificates evidencing Shares not tendered or
purchased are to be issued in the name of a person other than the registered
holder(s), in which case the Share Certificate(s) evidencing the Shares tendered
hereby must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s) appear(s) on such
Share Certificate(s). Signatures on such certificates and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holder or holders appear on the Share Certificate(s). Signatures
on such Share Certificate(s) or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificates or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or any person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or if Share
Certificates evidencing Shares not tendered or purchased are to be registered in
the name of, any person other than the registered holder(s), or if Share
Certificates evidencing tendered shares are registered in the name of any person
other than the person(s) signing this letter of transmittal, the amount of any
stock transfer taxes (whether imposed on the registered holder(s) or such other
person) payable on account of the transfer to such person will be deducted from
the purchase price unless satisfactory evidence of the payment of such taxes or
exemption therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF
TRANSMITTAL.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent and/or any Share Certificates
are to be returned to someone other than the signer above, or to the signer
above but at an address other than that shown in the box entitled "Description
of Shares Tendered" on the first page hereof, the appropriate boxes on this
Letter of Transmittal should be completed. Stockholders tendering Shares by
book-entry transfer may request that Shares not purchased be credited to such
account maintained at any of the Book-Entry Transfer Facilities as such
stockholder may designate under "Special Delivery Instructions". If no such
instructions are given, any such Share not purchased will be returned by
crediting the account at the Book-Entry Transfer Facilities designated above.
8. Request for Assistance or Additional Copies. Requests for assistance
may be directed to, or additional copies of the Offer to Purchase, this Letter
of Transmittal and the Notice of Guaranteed Delivery may be obtained from, the
Information Agent or the Dealer Managers at the telephone numbers and address
set forth below. Stockholders may also contact their broker, dealer, commercial
bank or trust company.
9. Waiver of Conditions. Except as otherwise provided in the Offer to
Purchase, the Purchaser reserves the right in its sole discretion to waive in
whole or in part at any time or from time to time any of the specified
conditions of the Offer or any defect or irregularity in tender with regard to
any Shares tendered.
<PAGE> 9
10. Substitute Form W-9. The tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN"), generally
the stockholder's social security or employer identification number, on
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, whether he or she is subject to
backup withholding of federal income tax. If a tendering stockholder is subject
to backup withholding, he or she must cross out item (2) of the Certification
Box on Substitute Form W-9. Failure to provide the information on Substitute
Form W-9 may subject the tendering stockholder to 31% federal income tax
withholding on the payment of the purchase price. If the tendering stockholder
has not been issued a TIN and has applied for a number or intends to apply for a
number in the near future, he or she should write "Applied For" in the space
provided for the TIN in Part I, sign and date the Substitute Form W-9 and sign
and date the Certificate of Awaiting Taxpayer Identification Number. If "Applied
For" is written in Part I and the Depositary is not provided with a TIN within
60 days, the Depositary will withhold 31% of payments for surrendered Shares
thereafter until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, OR AN AGENT'S MESSAGE IN THE CASE OF A BOOK-ENTRY
DELIVERY, TOGETHER WITH CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER
REQUIRED DOCUMENTS OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE
EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under federal tax law, a stockholder whose tendered Shares are accepted for
payment is required to provide the Depositary (as payor) with such stockholder's
correct TIN on Substitute Form W-9 below. If such stockholder is an individual,
the TIN is such stockholder's Social Security Number. If the Depositary is not
provided with the correct TIN or an adequate basis for exemption, the
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such stockholder with respect to
Shares purchased pursuant to the Offer may be subject to backup withholding in
an amount equal to 31% of the gross proceeds resulting from the Offer.
Certain stockholders (including, among others, certain corporations and
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8, signed under penalties
of perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Depositary. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of his correct TIN by completing the
Substitute Form W-9 contained herein, certifying that the TIN provided on the
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN) and
that (1) the stockholder is exempt from backup withholding, (2) the stockholder
has not been notified by the Internal Revenue Service that he is subject to
backup withholding as a result of failure to report all interest or dividends,
or (3) the Internal Revenue Service has notified the stockholder that he or she
is no longer subject to backup withholding.
<PAGE> 10
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
If the tendering stockholder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, he or she should
write "Applied For" in the space provided for the TIN in Part I, sign and date
the Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I and the Depositary
is not provided with a TIN within 60 days, the Depositary will withhold 31% of
all payments of the purchase price until a TIN is provided to the Depositary.
<PAGE> 11
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
PAYOR'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS DEPOSITARY
- ---------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW: TIN
DEPARTMENT OF THE TREASURY --------------------------
INTERNAL REVENUE SERVICE Social Security Number
OR
PAYOR'S REQUEST FOR Employer Identification
TAXPAYER IDENTIFICATION Number
NUMBER (TIN)
-----------------------------------------------------------------------------
NAME (PLEASE PRINT) IF AWAITING TIN WRITE
------------------------------------------------ "APPLIED FOR"
ADDRESS
------------------------------------------------ --------------------------
CITY STATE ZIP CODE
-------------------------------------------------
PART II -- For Payees NOT subject to backup withholding, see the enclosed
Guidelines for Certificaiton of Taxpayer Identification Number on Substitute
Form W-9 and complete as ________________ instructed therein.
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because either (a) I am exempt
from backup withholding, (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
-----------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer
subject to backup withholding, do not cross out item (2). (Also see
instructions in the enclosed Guidelines.)
- ---------------------------------------------------------------------------------------------------------
Signature ___________________________________________________________________ Date ______________, 1997
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART I OF
SUBSTITUTE FORM W-9
<PAGE> 12
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature(s) Date: , 1997
------------------------------------------- --------
The Information Agent for the Offer is:
[GEORGESON & COMPANY LOGO]
Wall Street Plaza
New York, New York 10005
Bankers and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
HEALTHSOURCE, INC.
TO
CHC ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
CIGNA CORPORATION
As set forth in Section 3 of the Offer to Purchase (as defined below), this
form, or a form substantially equivalent to this form, must be used to accept
the Offer (as defined below) if the certificates representing shares of common
stock, par value $.10 per share of Healthsource, Inc. (the "Shares"), are not
immediately available or time will not permit all required documents to reach
the Depositary prior to the Expiration Date (as defined in the Offer to
Purchase) or the procedures for book-entry transfer cannot be completed on a
timely basis. Such form may be delivered by hand or transmitted by telegram,
facsimile transmission or mail to the Depositary and must include a guarantee by
an Eligible Institution (as defined in Section 3 of The Offer to Purchase). See
Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
IBJ Schroder Bank & Trust Company
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or
IBJ Schroder Bank & Trust Company (212) 858-2611 By Overnight Courier:
P.O. Box 84 IBJ Schroder Bank & Trust Company
Bowling Green Station One State Street
New York, New York 10274-0084 New York, New York 10004
Attn: Reorganization Operations Attn: Securities Processing Window,
Department Subcellar One, (SC-1)
</TABLE>
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(212) 858-2103
------------------------------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to CHC Acquisition Corp., a New Hampshire
corporation and an indirect wholly owned subsidiary of CIGNA Corporation, a
Delaware corporation, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated March 6, 1997 (the "Offer to Purchase") and the
related Letter of Transmittal (which, as amended or supplemented from time to
time, together constitute the "Offer"), receipt of which is hereby acknowledged,
the number of Shares indicated below pursuant to the guaranteed delivery
procedure set forth in Section 3 of the Offer to Purchase.
Number of Shares:
------------------------------------------
Share Certificate Numbers (if available):
- -----------------------------------------------------------
- -----------------------------------------------------------
If Shares will be delivered by book-entry transfer, check one box:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number
--------------------------------------------
Dated: , 1997
--------
Name(s) of Record Holder(s):
- -----------------------------------------------------------
- -----------------------------------------------------------
================================================
PLEASE TYPE OR PRINT
Address(es)
----------------------------------------------
----------------------------------------------
Zip Code
Area Code and Telephone Number:
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
SIGNATURE(S)
Dated: , 1997
-----
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in the Security Transfer Agents Medallion
Program (each, an "Eligible Institution"), hereby guarantees that either the
certificates representing the Shares tendered hereby in proper form for
transfer, or timely confirmation of a book-entry transfer of such Shares into
the Depositary's account at The Depository Trust Company or the Philadelphia
Depository Trust Company (pursuant to procedures set forth in Section 3 of the
Offer to Purchase), together with a properly completed and duly executed Letter
of Transmittal (or facsimile thereof) with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message (as defined in the
Offer to Purchase)) and any other documents required by the Letter of
Transmittal, will be received by the Depositary at one of its addresses set
forth above within three (3) New York Stock Exchange trading days after the date
of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal,
certificates for Shares and any other required documents to the Depositary
within the time period shown herein. Failure to do so could result in a
financial loss to such Eligible Institution.
Name of Firm:
-----------------------------------------
Address:
----------------------------------------------
- ------------------------------------------------------
ZIP CODE
Area Code and
Telephone Number:
------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
AUTHORIZED SIGNATURE
Name:
-------------------------------------------------
PLEASE TYPE OR PRINT
Title:
------------------------------------------------
Dated: , 1997
-----
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF
TRANSMITTAL.
2
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HEALTHSOURCE, INC.
BY
CHC ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
CIGNA CORPORATION
AT
$21.75 NET PER SHARE
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, APRIL 2, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
March 6, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by CHC Acquisition Corp. (the "Purchaser"), a New
Hampshire corporation and an indirect wholly owned subsidiary of CIGNA
Corporation, a Delaware corporation ("Parent"), to act as Dealer Managers in
connection with its offer to purchase all outstanding shares of common stock,
par value $.10 per share (the "Shares"), of Healthsource, Inc., a New Hampshire
corporation (the "Company"), at $21.75 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Purchaser's Offer to Purchase dated March 6, 1997 (the "Offer to Purchase") and
in the related Letter of Transmittal (which, as amended or supplemented from
time to time, together constitute the "Offer"), copies of which are enclosed
herewith. The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of February 27, 1997, by and among the Company, Parent and the
Purchaser.
For your information and for forwarding to your clients for whose accounts
you hold Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase;
2. Letter of Transmittal for your use and for the information of your
clients, together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 providing information relating
to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (as defined in the Offer to Purchase);
4. A form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer;
5. Solicitation/Recommendation Statement on Schedule 14D-9 issued by
the Company; and
<PAGE> 2
6. Return envelope addressed to IBJ Schroder Bank & Trust Company, as
the Depositary.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 27, 1997 (the "Merger Agreement"), by and among the Company,
Parent and the Purchaser. The Merger Agreement provides that, among other
things, following the consummation of the Offer and the satisfaction or waiver
of the other conditions set forth in the Merger Agreement, the Purchaser will be
merged with and into the Company (the "Merger"). At the effective time of the
Merger, each outstanding Share (other than Shares held in the treasury of the
Company, owned by Parent, the Purchaser or any other wholly owned subsidiary of
Parent or held by stockholders who perfect their dissenter's rights under New
Hampshire law) will be converted into the right to receive the per Share price
paid in the Offer, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY
AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will be deemed to have accepted for payment, and
will pay for, all Shares validly tendered and not properly withdrawn by the
Expiration Date (as defined in the Offer to Purchase) if, as and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of the tenders of such Shares for payment pursuant to the Offer.
Payment for Shares purchased pursuant to the Offer will be made only after
timely receipt by the Depositary of (i) certificates evidencing such Shares or
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at one of the Book-Entry Transfer Facilities (as defined in
the Offer to Purchase), (ii) a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an
Agent's Message (as defined in the Offer to Purchase) and (iii) any other
documents required by the Letter of Transmittal.
In order to tender Shares pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message (in the case of any book-entry
transfer), and any other documents required by the Letter of Transmittal, should
be sent to the Depositary, and either certificates representing the tendered
Shares should be delivered or such Shares must be delivered to the Depositary
pursuant to the procedures for book-entry transfers, all in accordance with the
instructions set forth in the Letter of Transmittal and the Offer to Purchase.
If holders of Shares wish to tender their Shares, but it is impracticable
for them to deliver their certificates on or prior to the Expiration Date or to
comply with the book-entry transfer procedures on a timely basis, a tender may
be effected by following the guaranteed delivery procedures specified in Section
3 of the Offer to Purchase.
Neither Parent nor the Purchaser will pay any fees or commissions to any
broker, dealer or other person (other than the Dealer Managers, the Information
Agent and the Depositary as described in the Offer to Purchase) in connection
with the solicitation of tenders of Shares pursuant to the Offer. The Purchaser
will, however, upon request, reimburse brokers, dealers, commercial banks and
trust companies for reasonable expenses incurred by them in forwarding materials
to their customers. The Purchaser will pay all stock transfer taxes applicable
to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the
Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, APRIL 2, 1997, UNLESS THE OFFER IS
EXTENDED.
2
<PAGE> 3
Any inquiries you may have with respect to the Offer may be addressed to
the Information Agent or the undersigned at the addresses and telephone numbers
set forth on the back cover page of the Offer to Purchase. Requests for
additional copies of the enclosed materials may be directed to the Information
Agent or the Dealer Managers.
Very truly yours,
Goldman, Sachs & Co.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY
PERSON THE AGENT OF THE PURCHASER, PARENT, THE COMPANY, ANY AFFILIATE OF THE
COMPANY, THE DEALER MANAGERS, THE INFORMATION AGENT OR THE DEPOSITARY, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS
ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HEALTHSOURCE, INC.
AT
$21.75 NET PER SHARE
BY
CHC ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
CIGNA CORPORATION
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, APRIL 2, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated March 6,
1997 (the "Offer to Purchase") and the related Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer") and
other materials relating to the Offer by CHC Acquisition Corp. (the
"Purchaser"), a New Hampshire corporation and an indirect wholly owned
subsidiary of CIGNA Corporation, a Delaware corporation ("Parent"), to purchase
all of the outstanding shares of common stock, par value $.10 per share (the
"Shares"), of Healthsource, Inc., a New Hampshire corporation (the "Company"),
at $21.75 per Share, net to the seller in cash, without interest, upon the terms
and subject to the conditions set forth in the Offer. Also enclosed is the
letter to stockholders of the Company from the Chairman of the Board and the
President and Chief Executive Officer of the Company accompanied by the
Company's Solicitation/Recommendation Statement on Schedule 14D-9. This material
is being sent to you as the beneficial owner of Shares held by us for your
account but not registered in your name. A tender of such Shares can be made
only by us as the holder of record and pursuant to your instructions. The Letter
of Transmittal accompanying this letter is furnished to you for your information
only and cannot be used by you to tender Shares held by us for your account.
We request instructions as to whether you wish to have us tender any or all
of the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Your attention is directed to the following:
1. The tender price is $21.75 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions of the
Offer.
2. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Wednesday, April 2, 1997, unless the Offer is extended.
3. The Offer is being made pursuant to an Agreement and Plan of
Merger, dated as of February 27, 1997 (the "Merger Agreement"), by and
among the Company, Parent and the Purchaser. The Merger Agreement provides
that, among other things, following the consummation of the Offer and the
satisfaction or waiver of the other conditions set forth in the Merger
Agreement, the Purchaser will be merged with and into the Company (the
"Merger"). At the effective time of the Merger, each outstanding Share
(other than Shares held in the treasury of the Company, owned by Parent,
the Purchaser or any other wholly owned subsidiary of Parent or held by
stockholders who perfect their
<PAGE> 2
dissenter's rights under New Hampshire law) will be converted into the
right to receive the per Share price paid in the Offer, without interest.
4. In connection with the execution of the Merger Agreement, Parent
and the Purchaser entered into a Tender Agreement and Irrevocable Proxy,
dated as of February 27, 1997 (the "Tender Agreement"), with Norman C.
Payson, M.D., the Company's Chief Executive Officer and President and the
owner of an aggregate of 4,332,760 Shares, or approximately 6.1% of the
Company's outstanding Shares on a fully diluted basis. Pursuant to the
Tender Agreement, Dr. Payson has agreed to validly tender pursuant to the
Offer, and not withdraw, all such Shares.
5. Pursuant to the Merger Agreement, the rights issued pursuant to the
Rights Agreement between the Company and The Bank of New York, dated as of
July 29, 1996, will be redeemed by the Company prior to the consummation of
the Offer.
6. The Board of Directors of the Company has unanimously approved the
Merger Agreement, the Offer and the Merger, has determined that the Offer
and the Merger are fair to and in the best interests of the stockholders of
the Company and unanimously recommends that stockholders accept the Offer
and tender their Shares pursuant to the Offer.
7. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer,
that number of Shares which, together with any Shares beneficially owned by
Parent or the Purchaser, represent at least a majority of the Shares
outstanding on a fully diluted basis. Subject to the terms of the Merger
Agreement, the Offer is also subject to other terms and conditions,
including receipt of certain regulatory approvals, set forth in the Offer
to Purchase. Pursuant to the Merger Agreement, the Purchaser has agreed to
extend the Offer from time to time until September 27, 1997 (as such date
may be extended pursuant to the terms of the Merger Agreement), if at the
initial Expiration Date (as defined in the Offer to Purchase), or any
extension thereof, all conditions to the Offer have not been satisfied or
waived. Any or all conditions to the Offer may be waived by the Purchaser.
8. Any stock transfer taxes applicable to the sale of Shares to the
Purchaser pursuant to the Offer will be paid by the Purchaser, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
In order to tender Shares pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message (in the case of any book-entry
transfer), and any other documents required by the Letter of Transmittal, should
be sent to the Depositary, and either certificates representing the tendered
Shares should be delivered or such Shares must be delivered to the Depositary
pursuant to the procedures for book-entry transfers, all in accordance with the
instructions set forth in the Letter of Transmittal and the Offer to Purchase.
The Offer is being made to all holders of Shares. The Offer is not being
made to, nor will tenders be accepted from or on behalf of, holders of Shares in
any jurisdiction in which the making of the Offer or acceptance thereof would
not be in compliance with the laws of such jurisdiction. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of the
Purchaser by Goldman, Sachs & Co. or one or more registered brokers or dealers
licensed under the laws of such jurisdictions.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing and returning to us the
instruction form set forth below. Please forward your instructions to us in
ample time to permit us to submit a tender on your behalf prior to the
expiration of the Offer. If you authorize the tender of your Shares, all such
Shares will be tendered unless otherwise specified on the instruction form set
forth below.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HEALTHSOURCE, INC.
BY
CHC ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
CIGNA CORPORATION
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated March 6, 1997 and the related Letter of Transmittal, in
connection with the offer by CHC Acquisition Corp., a New Hampshire corporation
and an indirect wholly owned subsidiary of CIGNA Corporation, a Delaware
corporation, to purchase for cash all outstanding shares of common stock, par
value $.10 per share (the "Shares"), of Healthsource, Inc., a New Hampshire
corporation.
This will instruct you to tender the number of Shares indicated below (or
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer and the related Letter of Transmittal.
Dated: , 1997
NUMBER OF SHARES TO BE TENDERED:
......................... SHARES*
---------------------------------------------------------
---------------------------------------------------------
Signature(s)
---------------------------------------------------------
Please Print Name(s)
---------------------------------------------------------
Please Print Address(es)
---------------------------------------------------------
Area Code and Telephone Number(s)
---------------------------------------------------------
Tax Identification or Social Security Number(s)
- ---------------
* I (We) understand that if I (we) sign this instruction form without indicating
a lesser number of Shares in the space above, all Shares held by you for my
(our) account will be tendered.
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
------------------------------------------------------------
GIVE THE SOCIAL
SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF -
------------------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the
minor is the only
contributor, the
minor(1)
6. Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent person(3)
minor, or incompetent person
7. a. The usual revocable savings trust The grantor-trustee(1)
account (grantor is also trustee)
b. So-called trust account that is not The actual owner(1)
a legal or valid trust under State
law
8. Sole proprietorship account The owner(4)
------------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF -
------------------------------------------------------------
9. A valid trust, estate or pension trust The legal entity (Do
not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or educational The organization
organization account
12. Partnership account held in the name The partnership
of the business
13. Association, club, or other tax-exempt The organization
organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
</TABLE>
============================================================
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments that are not subject to information reporting are also not
subject to backup withholding. For details, see the regulations under sections
6041, 6041A(a), 6045, and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- if you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
2
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer (as defined below) is made solely
by the Offer to Purchase dated March 6, 1997 and the related Letter of
Transmittal and is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares in any jurisdiction in which the making of the
Offer or acceptance thereof would not be in compliance with the laws of such
jurisdiction. In those jurisdictions where securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser (as defined below) by one or more
registered brokers or dealers licensed under the laws of such jurisdictions.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Healthsource, Inc.
at
$21.75 Net Per Share
by
CHC Acquisition Corp.
an indirect wholly owned subsidiary of
CIGNA Corporation
CHC Acquisition Corp. (the "Purchaser"), a New Hampshire corporation and an
indirect wholly owned subsidiary of CIGNA Corporation, a Delaware corporation
("Parent"), is offering to purchase all outstanding shares of common stock, par
value $.10 per share (the "Shares"), of Healthsource, Inc., a New Hampshire
corporation (the "Company"), at $21.75 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated March 6, 1997 (the "Offer to Purchase") and in the
related Letter of Transmittal (which, as amended or supplemented from time to
time, together constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, APRIL 2, 1997, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, there being validly tendered
and not withdrawn prior to the expiration of the Offer, that number of Shares
which, together with any Shares beneficially owned by Parent or the Purchaser,
represent at least a majority of the Shares outstanding on a fully diluted
basis. The Offer is also subject to other terms and conditions, including
receipt of certain regulatory approvals, set forth in the Offer to Purchase.
Pursuant to the Merger Agreement, the Purchaser has agreed to extend the Offer
from time to time until September 27, 1997 (as such date may be extended
pursuant to the terms of the Merger Agreement) if at the initial Expiration Date
(as defined in the Offer to Purchase), or any extension thereof, all conditions
to the Offer have not been satisfied or waived.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of
February 27, 1997 (the "Merger Agreement"), by and among the Company, Parent and
the Purchaser. The Merger Agreement provides that, among other things, following
the
-1-
<PAGE> 2
consummation of the Offer and the satisfaction or waiver of the other
conditions set forth in the Merger Agreement, the Purchaser will be merged with
and into the Company (the "Merger"). At the effective time of the Merger, each
outstanding Share (other than Shares held in the treasury of the Company, owned
by Parent, the Purchaser or any other wholly owned subsidiary of Parent or held
by stockholders who perfect their dissenter's rights under New Hampshire law)
will be converted into the right to receive the per Share price paid in the
Offer, without interest.
Pursuant to the Merger Agreement, the rights issued pursuant to the Rights
Agreement between the Company and The Bank of New York, dated as of July 29,
1996, will be redeemed by the Company prior to the consummation of the Offer.
In connection with the execution of the Merger Agreement, Parent and the
Purchaser entered into a Tender Agreement and Irrevocable Proxy, dated as of
February 27, 1997 (the "Tender Agreement"), with Norman C. Payson, M.D. (the
"Stockholder"), the Company's Chief Executive Officer and President and the
owner of an aggregate of 4,332,760 Shares, or approximately 6.1% of the
Company's outstanding Shares on a fully diluted basis. Pursuant to the Tender
Agreement, the Stockholder has agreed to validly tender pursuant to the Offer,
and not withdraw, all such Shares.
The Board of Directors of the Company has unanimously approved the Merger
Agreement, the Offer and the Merger, has determined that the Offer and the
Merger are fair to and in the best interests of the stockholders of the Company
and unanimously recommends that stockholders accept the Offer and tender their
Shares pursuant to the Offer.
The Offer is subject to certain conditions set forth in the Offer to Purchase.
If any such condition is not satisfied, the Purchaser shall not be required to
accept for payment or pay for, and may delay the acceptance for payment of, or
(whether or not the Shares have theretofore been accepted for payment) the
payment for, any Shares tendered, and may terminate or extend the Offer and not
accept for payment any Shares. The Purchaser may waive any or all of the
conditions to the Offer in whole or in part at any time, to the extent permitted
by applicable law and the provisions of the Merger Agreement.
The Purchaser reserves the right, at any time or from time to time, subject to
the terms of the Merger Agreement, to extend the period of time during which the
Offer is open by giving oral or written notice of such extension to IBJ Schroder
Bank & Trust Company (the "Depositary"). Any such extension will be followed as
promptly as practicable by a public announcement thereof no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled date on which the Offer was to expire. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment tendered Shares if, as and when the Purchaser gives oral or written
notice to the Depositary of its acceptance of the tenders of such Shares.
Payment for Shares accepted for payment pursuant to the Offer will be made only
after timely receipt by the Depositary of certificates for such Shares (or a
confirmation of a book-entry
-2-
<PAGE> 3
transfer of such Shares into the Depositary's account at one of the Book-Entry
Transfer Facilities (as defined in the Offer to Purchase)), a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees (or in the case of a book-entry transfer, an Agent's
Message (as defined in the Offer to Purchase)) and any other documents required
by the Letter of Transmittal.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior
to the Expiration Date. After that, such tenders are irrevocable, except that
they may be withdrawn at any time after May 5, 1997, unless they have previously
been accepted for payment as provided in the Offer to Purchase. To be effective,
a written, telegraphic or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth in the Offer
to Purchase and must specify the name of the person who tendered the Shares to
be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If the Shares to be withdrawn have been delivered to the Depositary or
otherwise identified to the Depositary, a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution must be submitted prior to the
release of such Shares (except in the case of Shares tendered by an Eligible
Institution (as defined in the Offer to Purchase)). In addition, such notice
must specify the serial numbers shown on the particular certificates evidencing
the Shares to be withdrawn, or, in the case of Shares tendered by book-entry
transfer, the name and number of the account at one of the Book-Entry Transfer
Facilities to be credited with the withdrawn Shares.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided the Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares.
The Offer to Purchase and the related Letter of Transmittal will be mailed to
record holders of Shares and will be furnished to brokers, banks and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing for subsequent transmittal to beneficial owners of
Shares. The Offer to Purchase and the related Letter of Transmittal contain
important information which should be read carefully before any decision is made
with respect to the Offer.
Requests for copies of the Offer to Purchase, the related Letter of Transmittal
and other tender offer materials may be directed to the Information Agent as set
forth below, and copies will be furnished promptly at the Purchaser's expense.
Neither Parent nor the Purchaser will pay any fees or commissions to any broker
or dealer or any other person (other than the Dealer Managers, the Information
Agent and the Depositary) in connection with the solicitation of tenders of
Shares pursuant to the Offer.
The Information Agent for the Offer is:
-3-
<PAGE> 4
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Bankers and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
The Dealer Managers for the Offer are:
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
(212) 902-1000
March 6, 1997
-4-
<PAGE> 1
NEWS RELEASE
IMMEDIATE [CIGNA LOGO]
CIGNA: MICHAEL J. MONROE, MEDIA RELATIONS - 215.761.6133
ROBERT W. SULLIVAN, FINANCIAL RELATIONS - 215.761.6130
HEALTHSOURCE: TRACEY TURNER, CORPORATE COMMUNICATIONS -
603.268.7516
CIGNA CORPORATION AGREES TO PURCHASE
HEALTHSOURCE FOR $21.75 PER SHARE
----------
Purchase Offers Significant Strategic and Operational Benefits
PHILADELPHIA, PA, February 28, 1997 -- CIGNA Corporation (NYSE: CI) and
Healthsource Inc. (NYSE: HS), an HMO company based in New Hampshire, announced
today that they have signed a definitive agreement under which CIGNA has agreed
to tender $21.75 per share in cash for all outstanding shares of Healthsource.
It is expected that the purchase price of this acquisition will be
approximately $1.7 billion, including the payment of approximately $250 million
of outstanding Healthsource long-term debt. CIGNA expects to commence a tender
offer for all outstanding Healthsource shares within five business days.
"Health care is our largest and most profitable business, and this transaction
will further strengthen our operation to the benefit of our shareholders," said
Wilson H. Taylor, CEO of CIGNA. "Healthsource provides us with access to new
markets, enhances our competitive position in others and fits well with our
managed care and indemnity businesses.
"We expect this acquisition to contribute to increased earnings upon full
integration, which is
<PAGE> 2
Page 2
targeted for 1998. We believe there are potential pre-tax cost savings of more
than $75 million associated with the integration. We also expect revenue and
earnings growth through efficiencies generated by combining operations and by
taking advantage of the core competencies of both businesses."
CIGNA is one of the country's leading health care companies, offering a
complete range of group medical, dental, disability and life insurance
products. It markets them in all 50 states and operates managed care networks
in 43 states, the District of Columbia and Puerto Rico.
Healthsource has approximately 1.1 million members in HMOs operating in 15
states. In addition, it maintains national medical and dental indemnity books
of business; medical covers approximately 2 million people and dental
approximately 2.5 million people. The indemnity business primarily provides
self-insured products to customers in the middle and large segments of the
market.
According to Norman C. Payson, M.D., President and CEO of Healthsource, "We
hold CIGNA Corporation in the highest regard, and believe it will be able to
utilize the culture and resources of Healthsource to further its national
leadership position in health care."
Once the acquisition is completed, CIGNA HealthCare would operate medical HMOs
with total membership of 5.3 million members. CIGNA's medical indemnity
business would cover 7 million lives.
The completion of the transaction is subject to regulatory approvals.
In 1996, CIGNA's Employee Life and Health Benefits segment, of which CIGNA
HealthCare is a
<PAGE> 3
Page 3
part, had premium and premium equivalents of approximately $18 billion and
operating income of $500 million. Healthsource's 1996 net loss was $5 million,
including after-tax special charges of $35 million. It had premium and premium
equivalents of approximately $3.8 billion.
CIGNA Corporation, with 1996 assets of $99 billion and revenues of $19 billion,
is a leading provider of health care, insurance and related financial services
throughout the United States and internationally. CIGNA ranks among the largest
investor-owned insurance organizations in the U.S., with shareholders' equity
of $7.2 billion.
Statements not dealing with historical results are forward-looking and are
based on estimates, assumptions and projections. CIGNA cautions the reader that
actual results could differ materially from those expected by CIGNA depending
on the outcome of certain factors including: (i) successful offering of CIGNA
managed care products to existing Healthsource corporate customers and
cross-selling of CIGNA's ancillary coverages (such as mental health and
pharmacy coverages); (ii) timely elimination of redundant expenses and timely
integration of management and information systems; (iii) achievement of medical
cost reductions through effective medical cost management; (iv) renegotiation
of provider contracts at less cost-effective rates or terms of payment; and (v)
in order to secure the requisite antitrust and other approvals for the merger,
CIGNA may be required to divest or hold separate certain assets which would
render the merger less beneficial than expected. Finally, CIGNA and
Healthsource face intense competition in their markets and there is,
accordingly, no guarantee that after consummation of the merger CIGNA will
achieve the expected financial and operating results and synergies. The reader
is also directed to other important factors that are noted in CIGNA's annual,
quarterly and current reports filed with the Securities and Exchange
Commission.
# # #
CIGNA AND HEALTHSOURCE HMO STATE PRESENCE
Image of a map of the United States of America coded to show the presence in
each state of CIGNA and Healthsource, and both CIGNA and Healthsource HMOs.
<PAGE> 1
NEWS RELEASE
CIGNA CORPORATION ANNOUNCES COMMENCEMENT OF TENDER OFFER
FOR HEALTHSOURCE, INC. STOCK
Philadelphia, PA, March 6, 1997 -- CIGNA Corporation announced today that CHC
Acquisition Corp., its indirect wholly-owned subsidiary, has commenced a cash
tender offer for all outstanding shares of common stock of Healthsource, Inc.
at $21.75 per share.
The offer is being made pursuant to the previously announced merger agreement
among CIGNA, CHC Acquisition Corp., and Healthsource, Inc. The offer is
conditioned upon, among other things, the tender of a majority of the shares
outstanding on a fully diluted basis and obtaining regulatory approvals. The
offer and withdrawal right are scheduled to expire at 12:00 midnight on
Wednesday, April 2, 1997, unless and until extended. Goldman, Sachs & Co. is
acting as the Dealer Manager and Georgeson & Company, Inc. is acting as the
Information Agent in connection with the offer.
CIGNA Corporation, with 1996 assets of $99 billion and revenues of $19 billion,
is a leading provider of health care, insurance and related financial services
throughout the United States and internationally. CIGNA ranks among the largest
investor-owned insurance organizations in the U.S., with shareholders' equity
of $7.2 billion.
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
by and among
CIGNA CORPORATION
CHC ACQUISITION CORP.
and
HEALTHSOURCE, INC.
February 27, 1997
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 27, 1997 (this
"Agreement"), by and among CIGNA Corporation, a Delaware corporation ("Parent"),
CHC Acquisition Corp., a New Hampshire corporation and a wholly-owned, indirect
subsidiary of Parent (the "Purchaser"), and Healthsource, Inc., a New Hampshire
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, the Purchaser and the
Company have approved, and deem it advisable and in the best interests of their
respective shareholders to consummate, the acquisition of the Company by Parent
and the Purchaser upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1 The Offer. (a) As promptly as practicable (but in no event
later than five business days from the public announcement of the execution
hereof), the Purchaser shall commence (within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) an offer
(the "Offer") to purchase for cash any and all of the issued and outstanding
shares of Common Stock, par value $.10 per share (referred to herein as either
the "Shares" or "Company Common Stock"), of the Company (excluding the related
Common Stock Purchase Rights (the "Rights") issued pursuant to the Rights
Agreement between the Company and The Bank of New York, dated as of July 29,
1996 (the "Rights Agreement") which will be redeemed prior to the consummation
of the Offer), at a price of $21.75 per Share, net to the seller in cash (such
price, or such higher price per Share as may be paid in the Offer, being
referred to herein as the "Offer Price"). The Purchaser shall, on
<PAGE> 3
the terms and subject to the prior satisfaction or waiver of the conditions of
the Offer (except that the Minimum Condition (as hereinafter defined) may not be
waived), accept for payment and pay for Shares tendered as soon as it is legally
permitted to do so under applicable law. The obligations of the Purchaser to
accept for payment and to pay for any and all Shares validly tendered on or
prior to the expiration of the Offer and not withdrawn shall be subject only to
there being validly tendered and not withdrawn prior to the expiration of the
Offer, that number of Shares which, together with any Shares beneficially owned
by Parent or the Purchaser, represent at least a majority of the Shares
outstanding on a fully diluted basis (the "Minimum Condition") and the other
conditions set forth in Annex A hereto. The Offer shall be made by means of an
offer to purchase (the "Offer to Purchase") containing the terms set forth in
this Agreement, the Minimum Condition and the other conditions set forth in
Annex A hereto. The Purchaser shall not amend or waive the Minimum Condition and
shall not decrease the Offer Price or decrease the number of Shares sought, or
amend any other term or condition of the Offer in any manner adverse to the
holders of the Shares or extend the expiration date of the Offer without the
prior written consent of the Company (such consent to be authorized by the Board
of Directors of the Company or a duly authorized committee thereof).
Notwithstanding the foregoing, the Purchaser shall, and Parent agrees to cause
the Purchaser to, extend the Offer from time to time until seven months from
execution of this Agreement (as such time may be extended pursuant to Section
7.1(b)(i) hereof) if, and to the extent that, at the initial expiration date of
the Offer, or any extension thereof, all conditions to the Offer have not been
satisfied or waived. In addition, the Offer Price may be increased and the Offer
may be extended to the extent required by law in connection with such increase
in each case without the consent of the Company.
(b) As soon as practicable on the date the Offer is commenced,
Parent and the Purchaser shall file with the United States Securities and
Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with
respect to the Offer (together with all amendments and supplements thereto and
including the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will
include, as exhibits, the Offer to Purchase and a form of
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<PAGE> 4
letter of transmittal and summary advertisement (collectively, together with any
amendments and supplements thereto, the "Offer Documents"). The Offer Documents
will comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the SEC and on the date first
published, sent or given to the Company's shareholders, shall not 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, except
that no representation is made by Parent or the Purchaser with respect to
information supplied by the Company in writing for inclusion in the Offer
Documents. Each of Parent and the Purchaser further agrees to take all steps
necessary to cause the Offer Documents to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Parent and the Purchaser, on the one
hand, and the Company, on the other hand, agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that it shall have become false and misleading in any material respect and the
Purchaser further agrees to take all steps necessary to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given a reasonable
opportunity to review the initial Schedule 14D-1 before it is filed with the
SEC. In addition, Parent and the Purchaser agree to provide the Company and its
counsel in writing with any comments or other communications that Parent, the
Purchaser or their counsel may receive from time to time from the SEC or its
staff with respect to the Offer Documents promptly after the receipt of such
comments or other communications.
Section 2 Company Actions.
(a) The Company hereby approves of and consents to the Offer
and represents that the Board of Directors, at a meeting duly called and held,
has (i) approved this Agreement and the transactions contemplated hereby,
including the Offer and the Merger (as defined in Section 1.4) (collectively,
the "Transactions"), which approvals constitute approval of this Agreement, the
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<PAGE> 5
Offer and the Merger for purposes of Section 293-A:11.01 of the New Hampshire
Business Corporation Act (the "NHBCA"), (ii) resolved to recommend that the
shareholders of the Company accept the Offer, tender their Shares thereunder to
the Purchaser and approve and adopt this Agreement and the Merger; provided,
that such recommendation may be withdrawn, modified or amended only as provided
in Section 5.5(b) hereof, and (iii) approved the redemption of the Rights prior
to the consummation of the Offer according to the provisions of the Rights
Agreement.
(b) As promptly as practicable following the commencement of
the Offer and in all events not later than 10 business days following such
commencement, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto and including the exhibits thereto, the "Schedule 14D-9") which shall,
subject to the fiduciary duties of the Company's directors under applicable law
and to the provisions of this Agreement, contain the recommendation referred to
in clause (ii) of Section 1.2(a) hereof. The Schedule 14D-9 will comply in all
material respects with the provisions of applicable federal securities laws and,
on the date filed with the SEC and on the date first published, sent or given to
the Company's shareholders, shall not 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, except that no representation is
made by the Company with respect to information supplied by Parent or the
Purchaser in writing for inclusion in the Offer Documents. The Company further
agrees to take all steps necessary to cause the Schedule 14D-9 to be filed with
the SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Each of the Company, on
the one hand, and Parent and the Purchaser, on the other hand, agrees promptly
to correct any information provided by it for use in the Schedule 14D-9 if and
to the extent that it shall have become false and misleading in any material
respect and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated
to holders of the Shares, in each case as and to the extent required
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<PAGE> 6
by applicable federal securities laws. Parent and its counsel shall be given a
reasonable opportunity to review the initial Schedule 14D-9 before it is filed
with the SEC. In addition, the Company agrees to provide Parent, the Purchaser
and their counsel in writing with any comments or other communications that the
Company or its counsel may receive from time to time from the SEC or its staff
with respect to the Schedule 14D-9 promptly after the receipt of such comments
or other communications.
(c) In connection with the Offer, the Company will promptly
furnish or cause to be furnished to the Purchaser mailing labels, security
position listings and any available listing or computer file containing the
names and addresses of the record holders of the Shares as of a recent date, and
shall furnish the Purchaser with such additional information (including updated
lists of holders of Shares and their addresses, mailing labels and lists of
security positions) and such other assistance as the Purchaser or its agents may
reasonably request in communicating the Offer to the record and beneficial
shareholders of the Company. Except for such steps as are necessary to
disseminate the Offer Documents, Parent and the Purchaser shall hold in
confidence the information contained in any of such labels and lists and the
additional information referred to in the preceding sentence, will use such
information only in connection with the Offer, and, if this Agreement is
terminated, will upon request of the Company deliver or cause to be delivered to
the Company all copies of such information then in its possession or the
possession of its agents or representatives.
Section 3 Directors.
(a) Promptly upon the purchase of and payment for Shares by
Parent or any of its subsidiaries which represent at least a majority of the
outstanding shares of Company Common Stock (on a fully diluted basis), Parent
shall be entitled to designate such number of directors, rounded up to the next
whole number, on the Board of Directors of the Company as is equal to the
product of the total number of directors on such Board (giving effect to the
directors designated by Parent pursuant to this sentence) multiplied by the
percentage that the aggregate number of Shares beneficially owned by the
Purchaser, Parent and any of their affiliates bears
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<PAGE> 7
to the total number of shares of Company Common Stock then outstanding. The
Company shall, upon request of the Purchaser, use its best efforts promptly
either to increase the size of its Board of Directors (which, pursuant to the
Company's Articles of Incorporation, has a maximum number of 15 directors) or,
at the Company's election, secure the resignations of such number of its
incumbent directors as is necessary to enable Parent's designees to be so
elected to the Company's Board, and shall cause Parent's designees to be so
elected. Notwithstanding the foregoing, until the Effective Time (as defined in
Section 1.5 hereof), the Company shall retain as members of its Board of
Directors at least two directors who are directors of the Company on the date
hereof (the "Company Designees"); provided, that subsequent to the purchase of
and payment for Shares pursuant to the Offer, Parent shall always have its
designees represent at least a majority of the entire Board of Directors. The
Company's obligations under this Section 1.3(a) shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to such Section 14(f) and Rule
14f-1 in order to fulfill its obligations under this Section 1.3(a), including
mailing to shareholders the information required by such Section 14(f) and Rule
14f-1 as is necessary to enable Parent's designees to be elected to the
Company's Board of Directors. Parent or the Purchaser will supply the Company
any information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1.
(b) From and after the time, if any, that Parent's designees
constitute a majority of the Company's Board of Directors, any amendment of this
Agreement, any termination of this Agreement by the Company, any extension of
time for performance of any of the obligations of Parent or the Purchaser
hereunder, any waiver of any condition or any of the Company's rights hereunder
or other action by the Company hereunder may be effected only by the action of a
majority of the directors of the Company then in office who were directors of
the Company on the date hereof, which action shall be deemed to constitute the
action of the full Board of Directors; provided, that if there shall be no such
directors, such actions may be effected by unanimous vote of the entire Board of
Directors of the Company.
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<PAGE> 8
Section 4 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.5 hereof), the Company
and the Purchaser shall consummate a merger (the "Merger") pursuant to which (a)
the Purchaser shall be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of New
Hampshire, and (c) the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. Pursuant to the Merger, (x) the Articles of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law and such Articles of Incorporation, and (y) the By-laws of
the Company, as in effect immediately prior to the Effective Time, shall be the
By-laws of the Surviving Corporation until thereafter amended as provided by
law, the Articles of Incorporation and such Bylaws. The Merger shall have the
effects set forth in the NHBCA.
Section 5 Effective Time. On the date of the Closing (as defined in
Section 1.6 hereof) (or on such other date as the parties may agree), the
parties shall file such certificates of merger, articles of merger or other
appropriate documents (in any such case, the "Certificates of Merger") executed
in accordance with the relevant provisions of the NHBCA, and shall make all
other filings, recordings and publications required by the NHBCA with respect to
the Merger. The Merger shall become effective on the date specified in the
Certificates of Merger, which specified time shall be the same in each
Certificate of Merger (the time the Merger becomes effective is hereinafter
referred to as the "Effective Time").
Section 6 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VI hereof (the "Closing Date"), at the offices
of O'Melveny & Myers LLP, 153 East 53rd Street, New York, New York 10022,
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<PAGE> 9
unless another date or place is agreed to in writing by the parties hereto.
Section 7 Directors and Officers of the Surviving Corporation. The
directors of the Purchaser at the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors shall have been duly elected or appointed or qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and By-laws. 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 shall have been
duly elected or appointed or qualified or until their earlier death, resignation
or removal in accordance with the Surviving Corporation's Articles of
Incorporation and By-laws.
Section 8 Shareholders' Meeting.
(a) If required by applicable law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in accordance
with applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its shareholders (the "Special Meeting") as soon as
practicable following the acceptance for payment and purchase of Shares
by the Purchaser pursuant to the Offer for the purpose of considering
and taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use
its best efforts (x) to obtain and furnish the information required to
be included by the SEC in the Proxy Statement (as hereinafter defined)
and, after consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy or
information statement and cause a definitive proxy or information
statement (the "Proxy Statement") to be mailed to its shareholders and
(y) to obtain the necessary approvals of the Merger and this Agreement
by its shareholders; and
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<PAGE> 10
(iii) subject to the fiduciary obligations of the Board
under applicable law as advised by independent counsel, include in the
Proxy Statement the recommendation of the Board that shareholders of
the Company vote in favor of the approval of the Merger and the
adoption of this Agreement.
(b) Parent agrees that it will provide the Company with the
information concerning Parent and the Purchaser required to be included in the
Proxy Statement and will vote, or cause to be voted, all of the Shares then
owned by it, the Purchaser or any of its other subsidiaries and affiliates in
favor of the approval of the Merger and the adoption of this Agreement.
Section 9 Merger Without Meeting of Shareholders. Notwithstanding
Section 1.8 hereof, if permitted by the NHBCA, in the event that Parent, the
Purchaser or any other subsidiary of Parent shall acquire at least 90% of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, the parties hereto agree to take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of shareholders of the
Company.
Section 10 Convertible Notes. In accordance with the terms of the
Indenture, dated as of March 6, 1996 (the "Indenture"), between the Company, as
issuer, and The Bank of New York, as trustee (the "Trustee"), with respect to
the Company's 5% Convertible Subordinated Notes due 2003 (the "Company
Convertible Notes"), within 30 days following the acquisition by Purchaser of
beneficial ownership, directly or indirectly, of more than 50% of the Shares,
the Company shall, in accordance with the Indenture, publish a notice in The
Wall Street Journal, notify the Trustee and give written notice to each holder
of the Company Convertible Notes, stating, among other things, (i) that a Change
of Control (as defined in the Indenture) has occurred, (ii) that each holder of
the Company Convertible Notes has the right to require the Company to repurchase
such holder's Company Convertible Notes at a purchase price in cash in an amount
equal to 101% of the principal amount of such Company Convertible Notes, plus
accrued and unpaid interest thereon, if any, to the purchase date thereof and
(iii) the date on which
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<PAGE> 11
such Company Convertible Notes shall be purchased which shall be a business day
no later than 60 days from the date such notice is mailed. Parent shall
contribute to the Company an amount in cash necessary to repurchase all such
Company Convertible Notes.
ARTICLE II
CONVERSION OF SECURITIES
Section 1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or common stock of the Purchaser (the "Purchaser
Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share
of the Purchaser Common Stock shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Parent-Owned Stock. Any shares of Company
Common Stock owned by Parent, the Purchaser or any other wholly owned Subsidiary
(as defined in Section 3.1 hereof) of Parent shall be cancelled and retired and
shall cease to exist and no consideration shall be delivered in exchange
therefor.
(c) Exchange of Shares. Each issued and outstanding share of
Company Common Stock (other than Shares to be cancelled in accordance with
Section 2.1(b) hereof and any Dissenting Shares (if applicable and as defined in
Section 2.3 hereof)), shall be converted into the right to receive the Offer
Price, payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing such
share of Company Common Stock in the manner provided in Section 2.2 hereof. All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section
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2.2 hereof, without interest, or to perfect any rights of appraisal as a holder
of Dissenting Shares (as hereinafter defined) that such holder may have pursuant
to Section 293-A:13.02 of the NHBCA.
Section 2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as agent for the holders of
shares of Company Common Stock in connection with the Merger (the "Paying
Agent") to receive the funds to which holders of shares of Company Common
Stock shall become entitled pursuant to Section 2.1(c) hereof. Prior to the
Effective Time, Parent shall take all steps necessary to deposit or cause to be
deposited with the Paying Agent such funds for timely payment hereunder. Such
funds shall be invested by the Paying Agent as directed by Parent or the
Surviving Corporation.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time but in no event more than three business days
thereafter, the Paying Agent shall mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates"),
whose shares were converted pursuant to Section 2.1 hereto into the right to
receive the Merger Consideration (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in such form and have such other provisions as Parent and the
Company may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration for
each share of Company Common Stock formerly represented by such Certificate and
the Certificate so surrendered shall forthwith be cancelled. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is
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<PAGE> 13
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares, except as
otherwise provided for herein or by applicable law. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following
one year after the Effective Time, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
holder of a Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
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Section 3 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance with the
NHBCA ("Dissenting Shares") shall not be converted into a right to receive the
Merger Consideration, unless such holder fails to perfect or withdraws or
otherwise loses his or her right to appraisal. A holder of Dissenting Shares
shall be entitled to receive payment of the appraised value of such Shares held
by him or her in accordance with the provisions of Section 293-A:13.25 of the
NHBCA, unless, after the Effective Time, such holder fails to perfect or
withdraws or loses his or her right to appraisal, in which case such Shares
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Merger Consideration, without interest thereon.
Section 4 Company Option Plans. (a) As soon as practicable following
the date of this Agreement, the Company shall take such actions as may be
required to effect the following:
(i) adjust the terms of all outstanding options to purchase
Company Common Stock held by all current and former employees and
directors of the Company ("Company Employee Stock Options") and the
terms of each applicable stock option plan maintained by the Company
("Company Employee Stock Plans"), to provide that at the Effective
Time, each individual Company Employee Stock Option outstanding
immediately prior to the Effective Time shall be fully vested and
exercisable;
(ii) further adjust the terms of each Company Employee Stock
Option held by any person who immediately prior to the Effective Time
served as a member of the Board of Directors of the Company (and who
was not also a full-time employee of the Company) to provide that such
Company Employee Stock Option shall remain exercisable for a period
ending on the first to occur of (A) the third anniversary of the
Effective Time and (B) the original expiration
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date of such option, determined without regard to any termination (for
any reason whatsoever) from service as a member of the Board of
Directors of the Company; and
(iii) make such other changes to the Company Employee Stock
Plans and Company Employee Stock Options as it deems appropriate to
give effect to the Merger (subject to the approval of Parent, which
shall not be unreasonably withheld).
(b) As soon as practicable following the date of this
Agreement, Parent shall take such actions as may be required to adopt a plan
("Parent Stock Option Plan") under which Parent will grant options ("Substitute
Options") to purchase shares of Parent common stock, par value $1.00 per share
("Parent Common Stock") to replace any Company Employee Stock Options that are
outstanding at the Effective Time, which plan will include, but not be limited
to, the terms and conditions described in Section 2.4(c) below.
(c) Pursuant to the Parent Stock Option Plan each
current and former director and employee of the Company who holds one or more
unexercised Company Employee Stock Options at the Effective Time ("Eligible
Grantee") shall, subject to the terms and conditions set forth below,
automatically receive a grant as of the Effective Time of one or more Substitute
Options in replacement of his or her Company Employee Stock Options. Each
Substitute Option granted to an Eligible Grantee pursuant to this Section 2.4(b)
shall:
(i) be for a number of shares of Parent Common Stock equal to
the number of shares of Company Common Stock subject to the Company
Employee Stock Option, multiplied by the Option Ratio (as defined
below), rounded down to the next whole number of shares;
(ii) be for a per share exercise price equal to the exercise
price for the shares of Company Common Stock otherwise purchasable
pursuant to such Company Employee Stock Option divided by the Option
Ratio, rounded to the nearest hundredth of a cent;
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<PAGE> 16
(iii) be immediately exercisable upon the Eligible Grantee's
execution of the Option Agreement (referred to below) and, except as
provided in Section 2.4(a)(ii) with respect to current and former
directors of the Company (and regardless of the actual date of
termination of employment of the Eligible Grantee with the Company,
Parent or any subsidiary of the Parent), shall expire no earlier than
the date the Company Employee Stock Option would expire if the Eligible
Grantee would have remained continuously employed by the Company until
such date; and
(iv) otherwise be subject to substantially the same terms
and conditions as applicable to the Company Employee Stock Option.
For purposes of this Section 2.4, "Option Ratio" shall mean the Offer Price
divided by the average closing price per share of Parent Common Stock on the New
York Stock Exchange for the five consecutive trading days ending immediately
prior to the date of this Agreement.
(d) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Employee Stock Options, appropriate notices
setting forth such holders' rights pursuant to the Parent Stock Option Plan, and
the Option Agreements (based upon a form reasonably satisfactory to the Company,
such form to be delivered to the Company at least 10 days prior to the purchase
of any shares pursuant to the Offer), evidencing the grants of such Substitute
Options and the provisions of this Section 2.4. Execution of the Option
Agreement by Eligible Grantee shall result in the replacement of his or her
Company Employee Stock Options with Substitute Options as described above and
immediate cancellation of all of the Eligible Grantee's rights under the Company
Employee Stock Options.
(e) 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 Substitute Options issued in accordance with this Section
2.4. At the Effective Time, Parent shall file a registration statement on Form
S-8 (or any successor or other appropriate form) with the SEC with respect to
the shares of Parent Common Stock subject to
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<PAGE> 17
such Substitute Options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Substitute Options remain outstanding. With respect to those
individuals who subsequent to the Merger are subject to the reporting
requirements under Section 16(a) of the Exchange Act with respect to Parent,
where applicable, Parent shall administer the Parent Stock Plan assumed pursuant
to this Section 2.4 in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act to the extent the applicable Company Stock Plan complied with
such rule prior to the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Parent and Purchaser in a letter
delivered to it at or prior to the execution hereof (the "Company Disclosure
Letter"), the Company represents and warrants to Parent and Purchaser as
follows:
Section 1 Organization. Each of the Company and its Subsidiaries (as
hereinafter defined) is a corporation or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where failure to be so existing and in good
standing or to have such power and authority would not have a Company Material
Adverse Effect (as hereinafter defined). Each of the Company and its
Subsidiaries is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified, licensed and in good standing
or to be so qualified or licensed would not have a Company Material Adverse
Effect. The Company has heretofore delivered to Parent a complete and correct
copy of each of its Articles of Incorporation and By-Laws, as currently in
effect, and
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has heretofore made available to Parent a complete and correct copy of the
Articles of Incorporation and By-Laws of each of its Subsidiaries, as currently
in effect. As used in this Agreement, the word "Subsidiary" means, with respect
to any party, any corporation, partnership or other entity or organization,
whether incorporated or unincorporated, of which (i) such party or any other
Subsidiary of such party is a general partner (excluding such partnerships where
such party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries. As used in this Agreement, "Company
Material Adverse Effect" means only (I) any adverse change in, or effect on, the
business, financial condition or operations (excluding results of operations and
effects of net income) of the Company and its Subsidiaries, taken as a whole,
that individually or in the aggregate, exceeds, or is reasonably likely to
exceed, $67.5 million, or (II) the net income of the Company and its
Subsidiaries (not taking into account any (A) gains or losses resulting from
sales or other dispositions of assets by the Company or any of its Subsidiaries
(including, without limitation, gains or losses resulting from related severance
costs) effected with the prior written consent of Parent (which consent will not
be unreasonably withheld), and (B) losses resulting from the costs related to
this Agreement and the transactions contemplated hereby), determined in
accordance with United States generally accepted accounting principles ("GAAP"),
from January 1, 1997 through the last full month of operations for which
financial information is available prior to the consummation of the Offer being
less, on a cumulative basis, than the Targeted Income (as defined below) by an
amount in excess of the Allowed Shortfall (as defined below); provided, however,
that, in the case of either of (I) or (II) above, the effects of changes that
are generally applicable to (i) the health care or HMO industries, (ii) the
United States economy or (iii) the United States securities markets shall be
excluded from such determination; and provided, further, that any adverse effect
on the
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Company and its Subsidiaries resulting from the execution of this Agreement and
the announcement of this Agreement and the transactions contemplated hereby and
any change in value of the Company's marketable securities shall also be
excluded from such determination. In addition to the foregoing, the
determination of the dollar value or impact of any change or event pursuant to
the preceding sentence shall be based solely on the actual dollar value of such
change or effect, on a dollar-for-dollar basis, and shall not take into account
(i) any multiplier valuation, including, without limitation, any multiple based
on earnings or other financial indicia or the Offer Price or (ii) any
consequential damages or other consequential valuation. For purposes hereof, (x)
"Targeted Income" shall mean, for any period, the cumulative monthly net income
from January 1, 1997 set forth on Schedule 3.1 hereto, and (y) "Allowed
Shortfall" shall mean, for the same period, $5 million of net income per month,
on a cumulative basis, plus an aggregate of an additional $10 million of net
income. For purposes of considering whether a "Company Material Adverse Effect"
has occurred, (A) any adjustment of reserves for hospital provider contracts
receivables on the Company's balance sheet as of December 31, 1996 shall be
counted only in clause (I) above, and (B) any new reserves for hospital provider
contracts receivables established for the period after December 31, 1996 shall
be counted only in clause (II) above, unless such new reserves are required to
be restated on the Company's balance sheet as of December 31, 1996 under GAAP,
in which case such new reserves shall be counted only in clause (I) above.
Section 2 Capitalization. (a) As of the date hereof, the authorized
capital stock of the Company consists of 800,000,000 shares of Company Common
Stock and 10,000,000 shares of preferred stock, par value $.10 per share (the
"Company Preferred Stock"). As of January 31, 1997, (i) 63,795,517 shares of
Company Common Stock were issued and outstanding, (ii) 5,262,600 shares of
Company Common Stock were reserved for issuance pursuant to the conversion of
the Company Convertible Notes, (iii) shares of Company Common Stock issuable
pursuant to the Rights Agreement were reserved for issuance in connection with
the Rights, (iv) no shares of Company Common Stock were issued and held in the
treasury of the Company, and (v) there were no shares of Preferred Stock issued
and outstanding. Since January 31, 1997, no additional
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shares of capital stock have been issued except shares of Company Common Stock
and options therefor issued pursuant to the Company's stock option and employee
stock purchase plans, pension plans and other similar employee benefit plans
(the "Company Stock Plans"), which, upon exercise of all such options as of such
date (whether or not vested), would not exceed 7,545,000 shares of Company
Common Stock in the aggregate. Since January 31, 1997, the Company has issued
only options to acquire 1,474,100 shares of Company Common Stock. All the
outstanding shares of the Company's capital stock are duly authorized, validly
issued, fully paid, non-assessable and free of preemptive rights. Except as
disclosed in Section 3.2(a) of the Company Disclosure Letter and, except for the
Company Convertible Notes, the Company Stock Plans and the Rights Agreement, as
of the date hereof, there are no existing (i) options, warrants, calls,
subscriptions or other rights, convertible securities, agreements or commitments
of any character obligating the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other equity interest in, the
Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual obligations
of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any capital stock of the Company or any of its Subsidiaries of the
Company or (iii) voting trusts or similar agreements to which the Company is a
party with respect to the voting of the capital stock of the Company.
(b) Except as disclosed in Section 3.2(b) of the Company
Disclosure Letter, all of the outstanding shares of capital stock (or equivalent
equity interests of entities other than corporations) of each of the Company's
Subsidiaries are owned of record and beneficially, directly or indirectly, by
the Company.
Section 3 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement and, subject to obtaining the necessary approval of its shareholders,
to consummate the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors and,
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except for those actions contemplated by Section 1.2(a) hereof and obtaining the
approval of its shareholders as contemplated by Section 1.8 hereof, no other
corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the consummation by
it of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and, subject to approval and adoption of
this Agreement by the Company's shareholders (and assuming due and valid
authorization, execution and delivery hereof by Parent and the Purchaser) is a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 4 Consents and Approvals; No Violations. Except as disclosed in
Section 3.4 of the Company Disclosure Letter and except for (a) filings pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (b) applicable requirements under the Exchange Act, (c) the filing
of the Certificates of Merger, (d) applicable requirements under corporation or
"blue sky" laws of various states, (e) approvals or filings under various state
and federal laws, rules and regulations governing insurance holding and
operating companies, health maintenance organizations, health care services
plans, third party administrators, preferred provider plans, providers of
utilization review services, or other managed health care organizations,
including laws, rules and regulations with respect to the administration of
Medicaid and Medicare (the "Insurance Regulatory Approvals") or (f) matters
specifically described in this Agreement, neither the execution, delivery or
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby will (i) violate any provision of the
Articles of Incorporation or By-Laws of the Company or any of its Subsidiaries,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give
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rise to any right of termination, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture
(other than the Indenture), lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
and which has been filed as an exhibit to the Company SEC Documents (as defined
in Section 3.5 hereof) (the "Material Agreements"), (iii) violate any order,
writ, judgment, injunction, decree, law, statute, rule or regulation applicable
to the Company, any of its Subsidiaries or any of their properties or assets, or
(iv) require on the part of the Company any filing or registration with,
notification to, or authorization, consent or approval of, any court,
legislative, executive or regulatory authority or agency (a "Governmental
Entity"); except in the case of clauses (ii), (iii) or (iv) for such violations,
breaches or defaults which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, (A) would
not have a Company Material Adverse Effect and would not materially adversely
affect the ability of the Company to consummate the transactions contemplated by
this Agreement, or (B) become applicable as a result of the business or
activities in which Parent or Purchaser is or proposes to be engaged or as a
result of any acts or omissions by, or the status of any facts pertaining to,
Parent or Purchaser.
Section 5 SEC Reports and Financial Statements. The Company has filed
all reports required to be filed by it with the SEC pursuant to the Exchange Act
and the Securities Act of 1933, as amended (the "Securities Act"), since January
1, 1994 (as such documents have been amended since the date of their filing,
collectively, the "Company SEC Documents"). The Company SEC Documents, as of
their respective filing dates, or if amended, as of the date of the last such
amendment, did not contain any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company has delivered to Parent or the Purchaser the
audited consolidated balance sheet (including the related notes) of the Company
and its Subsidiaries as of December 31, 1996 and the audited
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consolidated statements of operations and cash flow of the Company and its
Subsidiaries for the period ended December 31, 1996 (collectively, the "1996
Financial Statements"). Each of the consolidated balance sheets (including the
related notes) included in the Company SEC Documents and the 1996 Financial
Statements fairly presents in all material respects the financial position of
the Company and its consolidated Subsidiaries as of the respective dates
thereof, and the other related statements (including the related notes) included
in the Company SEC Documents and the 1996 Financial Statements fairly present in
all material respects the results of operations and cash flows of the Company
and its consolidated Subsidiaries for the respective periods or as of the
respective dates set forth therein. Each of the consolidated balance sheets and
statements of operations and cash flow (including the related notes) included in
the Company SEC Documents and the 1996 Financial Statements has been prepared in
all material respects in accordance with GAAP applied on a consistent basis
during the periods involved, except as otherwise noted therein and subject, in
the case of unaudited interim financial statements, to normal year-end
adjustments.
Section 6 No Undisclosed Liabilities. Except (a) for liabilities and
obligations incurred in the ordinary course of business since December 31, 1996,
(b) for liabilities and obligations disclosed in the Company SEC Documents or
the 1996 Financial Statements, (c) for liabilities and obligations incurred in
connection with the Offer and the Merger or otherwise as contemplated by this
Agreement and (d) as disclosed in Section 3.6 of the Company Disclosure Letter,
since December 31, 1996, neither the Company nor any of its Subsidiaries has
incurred any material liabilities or obligations that would be required to be
reflected or reserved against in a consolidated balance sheet of the Company and
its consolidated Subsidiaries prepared in accordance with GAAP as applied in
preparing the consolidated balance sheet of the Company and its consolidated
Subsidiaries as of December 31, 1996.
Section 7 Absence of Certain Changes. Except as (a) disclosed in the
Company SEC Documents or the 1996 Financial Statements, (b) disclosed in Section
3.7 of the Company Disclosure Letter or (c) contemplated by this Agreement,
since December 31, 1996, the Company has not
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(i) suffered any change constituting a Company Material Adverse Effect;
(ii) amended its Articles of Incorporation or By-laws; (iii) split, combined or
reclassified the Company Common Stock or any capital stock of any of the
Subsidiaries of the Company; (iv) declared or set aside or paid any dividend or
other distribution with respect to the Company Common Stock (other than the
redemption of the Rights); or (v) materially changed the Company's accounting
methods, except as required by GAAP or applicable law.
Section 8 Employee Benefit Plans; ERISA.
(a) Section 3.8 of the Company Disclosure Letter sets forth a
list of all material employee benefit plans, (including but not limited to plans
described in section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), maintained by the Company or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), which together
with the Company would be deemed a "single employer" within the meaning of
section 4001(b)(15) of ERISA ("Benefit Plans") and all material employment and
severance agreements with employees of the Company ("Employee Agreements"). True
and complete copies of all Employee Agreements, including all amendments to
date, have been made available to Parent by the Company.
(b) Except as set forth in Section 3.8 of the Company
Disclosure Schedule, with respect to each Benefit Plan: (i) if intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder (the "Code"), such plan has
received a determination letter from the Internal Revenue Service stating that
it so qualifies and that its trust is exempt from taxation under section 501(a)
of the Code and nothing has occurred to the best knowledge of the Company since
the date of such determination that could materially adversely affect such
qualification or exempt status; (ii) such plan has been administered in all
material respects in accordance with its terms and applicable law; (iii) no
breaches of fiduciary duty have occurred which might reasonably be expected to
give rise to material liability on the part of the Company; (iv) no disputes are
pending, or, to the knowledge of the Company, threatened that give rise to or
might reasonably be expected to give rise to material
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liability on the part of the Company; (v) no prohibited transaction (within the
meaning of Section 406 of ERISA) has occurred that give rise to or might
reasonably be expected to give rise to material liability on the part of the
Company; and (vi) all contributions required to be made to such plan as of the
date hereof (taking into account any extensions for the making of such
contributions) have been made in full.
(c) No Benefit Plan is a "multiemployer pension plan," as
defined in section 3(37) of ERISA, nor is any Benefit Plan a plan described in
section 4063(a) of ERISA.
(d) No Benefit Plan has incurred an accumulated funding
deficiency, as defined in section 302 of ERISA or section 412 of the Code,
whether or not waived.
(e) With respect to each Benefit Plan that is a "welfare plan"
(as defined in section 3(1) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of the Company or any of
its Subsidiaries beyond their termination of employment (other than to the
extent required by applicable law).
(f) Except as set forth in the Disclosure Schedule, no
material liability has been or is expected to be incurred by the Company or any
ERISA Affiliate (either directly or indirectly, including as a result of an
indemnification obligation or any joint and several liability obligations) under
or pursuant to Title I or IV of ERISA or the penalty or the excise tax or joint
and several liability provisions of the Code, relating to its or their employee
benefit plans, and no event, transaction or condition has occurred or exists
that have resulted in or would reasonably be expected to result in any such
liability to Parent, the Purchaser, the Company or any ERISA Affiliate or any
employee benefit plan of the Company or any ERISA Affiliate.
(g) As of the last valuation date prior to the date hereof,
the market value of assets under each Benefit Plan which is an Employee Pension
Benefit Plan under Section 3(2) of ERISA (other than any multiemployer plan) is
less than the present value of all vested and nonvested liabilities thereunder
determined in accordance
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with PBGC methods, factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination, by an amount no greater
than $100,000.
Section 9 Litigation. Except as disclosed in Section 3.9 of the Company
Disclosure Letter or as disclosed in the Company SEC Documents, there is no
action, suit, proceeding (other than any action, suit or proceeding resulting
from or arising out of this Agreement or the transactions contemplated hereby)
or, to the best knowledge of the Company, audit or investigation pending or, to
the best knowledge of the Company, action, suit, proceeding, audit or
investigation threatened, involving the Company or any of its Subsidiaries, by
or before any court, governmental or regulatory authority or by any third party
that would have a Company Material Adverse Effect.
Section 10 No Default; Compliance with Applicable Laws. The business of
the Company and each of its Subsidiaries is not in default or violation of any
term, condition or provision of (i) its respective articles of incorporation or
by-laws or similar organizational documents, (ii) any Material Agreement or
(iii) any statute, law, rule, regulation, judgment, decree, order, arbitration
award, concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to the Company or any of its Subsidiaries,
including, without limitation, laws, rules and regulations relating to the
environment, insurance companies, health maintenance organizations, Medicare,
Medicaid, third-party administrators, occupational health and safety, employee
benefits, wages, workplace safety, equal employment opportunity and race,
religious or sex discrimination, excluding from the foregoing clauses (i), (ii)
and (iii), defaults or violations which would not have a Company Material
Adverse Effect or which become applicable as a result of the business or
activities in which Parent or the Purchaser is or proposes to be engaged or as a
result of any acts or omissions by, or the status of any facts pertaining to,
Parent or Purchaser.
Section 11 Taxes. (a) Except as disclosed in Section 3.11 of the
Company Disclosure Letter, the Company and each of its Subsidiaries has (i)
timely filed all federal, state, local and foreign tax returns required to be
filed by any of them for tax years ended prior to the
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date of this Agreement or requests for extensions have been timely filed and any
such request shall have been granted and not expired and all such returns are
true, correct and complete, (ii) paid or accrued (in accordance with GAAP) all
material taxes other than such taxes as are being contested in good faith by the
Company or its Subsidiaries, and (iii) properly accrued (in accordance with
GAAP) in all respects all such taxes for such periods subsequent to the periods
covered by such returns, except in the case of the foregoing clauses (i), (ii)
and (iii) where any such failure would not have a Company Material Adverse
Effect.
(b) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, there are no ongoing or, to the best knowledge of the
Company, threatened, in writing, federal, state, local or foreign audits or
examinations of any Tax Return of the Company or its Subsidiaries, except where
any such audit or examination would not have a Company Material Adverse Effect.
(c) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, there are no outstanding written requests, agreements,
consents or waivers to extend the statutory period of limitations applicable to
the assessment of any material Taxes or deficiencies against the Company or any
of its Subsidiaries, and no power of attorney granted by either the Company or
any of its Subsidiaries with respect to any Taxes is currently in force.
(d) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to
any agreement providing for the allocation or sharing of Taxes.
(e) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, there are no material liens for Taxes upon the assets of the
Company or any of its Subsidiaries which are not provided for in the financial
statements included in the SEC Reports or the 1996 Financial Statements, except
liens for Taxes not yet due and payable.
(f) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, excise, real
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or personal property, sales, withholding, social security, occupation, use,
service, service use, value added, license, net worth, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States
Internal Revenue Service or any taxing authority (whether domestic or foreign
including, without limitation, any state, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "Tax Return" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes.
Section 12 Real Property. The Company and the Subsidiaries, as the case
may be, have sufficient title, leaseholds or rights to real property to conduct
their respective businesses as currently conducted in all material respects.
Section 13 Intellectual Property. Except as disclosed in Section 3.13
of the Company Disclosure Letter or as disclosed in the Company SEC Documents,
and except for such claims, which individually or in the aggregate, would not
have a Company Material Adverse Effect, there are no pending or threatened
claims of which the Company or its Subsidiaries have been given written notice,
by any person against their use of any material trademarks, trade names, service
marks, service names, mark registrations, logos, assumed names and copyright
registrations, patents and all applications therefor which are owned by the
Company or its Subsidiaries and used in their respective operations as currently
conducted (collectively, the Intellectual Property"). The Company and its
Subsidiaries have such ownership of or such rights by license, lease or other
agreement to the Intellectual Property as are necessary to permit them to
conduct their respective operations as currently conducted, except where the
failure to have such rights would not have a Company Material Adverse Effect.
Section 14 Computer Software. The Company and its Subsidiaries have
such title or such rights by li-
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cense, lease or other agreement to the computer software programs (other than
off-the-shelf software) which are owned, licensed, leased or otherwise used by
the Company and its Subsidiaries and which are material to the conduct of their
respective operations as currently conducted except where the failure to have
such rights would not have a Company Material Adverse Effect.
Section 15 Information in Offer Documents. None of the information
supplied or to be supplied by the Company, or any of their officers, directors,
employees, representatives or agents for inclusion or incorporation by reference
in the Offer Documents or the Schedule 14D- 9, including any amendments or
supplements thereto, will at the respective times the Offer Documents and the
Schedule 14D-9 are filed with the SEC or first published, sent or given to the
Company's shareholders, contain any statement which, at such time and in light
of the circumstances under which it is made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not false or misleading. Notwithstanding the
foregoing, the Company does not make any representation or warranty with respect
to the information that has been supplied by Parent or the Purchaser or their
officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in any of the foregoing documents. The Schedule 14D-9
and any amendments or supplements thereto will comply in all material respects
with the applicable provisions of the Exchange Act and the rules and regulations
thereunder.
Section 16 Brokers or Finders. The Company represents, as to itself,
its Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except Bear, Stearns & Co. Inc.
("Bear, Stearns"), whose fees and expenses will be paid by the Company in
accordance with the Company's agreement with such firm, a true and complete copy
of which has heretofore been furnished to Parent or the Purchaser.
Section 17 Opinion of Financial Advisor. The Company has received the
opinion of Bear, Stearns to the
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effect that, as of the date hereof, the Offer and the Merger are fair, from a
financial point of view, to the shareholders of the Company.
Section 18 Regulatory Statements. The annual and quarterly statements
described in Section 3.18 of the Company Disclosure Letter and the statutory
balance sheets and income statements included therein present fairly the
statutory financial condition and results of operations of the Company and/or
its Subsidiaries as of the dates and for the periods indicated therein and have
been prepared in accordance with the accounting principles or practices set
forth in applicable state laws and regulations or prescribed or permitted by the
relevant state regulatory body consistently applied throughout the periods
indicated, except as expressly set forth therein and except where the failure of
such statements to so present fairly or to have been so prepared would not have
a Company Material Adverse Effect.
Section 19 Certain Contracts. Except as set forth in Section 3.19 of
the Company Disclosure Letter, neither the Company nor any of its Subsidiaries
is a party to any contract which by its terms expressly prohibits or limits its
ability, to an extent material to the business of the Company and its
Subsidiaries taken as a whole, to engage in any line of business, compete with
any person or expand the nature or geographic scope of its business.
Section 20 Investigation by the Company. In entering into this
Agreement, the Company:
(a) acknowledges that none of Parent, the Purchaser, their
Subsidiaries or any of their respective directors, officers, employees,
affiliates, agents, advisors or representatives makes any representation or
warranty, either express or implied, as to the accuracy or completeness of any
of the information provided or made available to the Company or their agents or
representatives, and
(b) agrees, to the fullest extent permitted by law, that
none of Parent, the Purchaser, their Subsidiaries or any of their respective
directors, officers, employees, shareholders, affiliates, agents, advisors or
representatives shall have any liability or re-
29
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sponsibility whatsoever to the Company on any basis (including, without
limitation, in contract or tort, under federal or state securities laws or
otherwise) based upon any information provided or made available, or statements
made, to the Company,
except that the foregoing limitations shall not (a) apply to Parent and the
Purchaser to the extent Parent and the Purchaser makes the specific
representations and warranties set forth in Article IV of this Agreement, but
always subject to the limitations and restrictions contained herein, or (b)
preclude the Company from seeking any remedy for fraud.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Parent and the Purchaser jointly and severally represent and warrant to
the Company as follows:
Section 1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a Parent Material Adverse Effect. Parent and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a Parent Material Adverse Effect. As used in this Agreement, "Parent
Material Adverse Effect" means only any adverse change in, or effect on, the
business, financial condition, operations or results of operations of Parent and
its Subsidiaries, taken as a whole that, individually or in the aggregate,
exceeds, or is reasonably likely to exceed, $67.5 million; provided, however,
that the effects of changes that are generally applicable to (i) the
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healthcare or HMO industries, (ii) the United States economy, or (iii) the
United States securities markets shall be excluded from such determination. In
addition to the foregoing, the determination of the dollar value or impact of
any change or event pursuant to the preceding sentence shall be based solely on
the actual dollar value of such change or effect, on a dollar-for-dollar basis,
and shall not take into account (i) any multiplier valuation, including, without
limitation, any multiple based on earnings or other financial indicia or (ii)
any consequential damages or other consequential valuation.
Section 2 Authorization; Validity of Agreement; Necessary Action. Each
of Parent and the Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and the Purchaser of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by their Boards of Directors and no other corporate
action on the part of Parent and the Purchaser is necessary to authorize the
execution and delivery by Parent and the Purchaser of this Agreement and the
consummation by them of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and the Purchaser, as the case may be
(and assuming due and valid authorization, execution and delivery hereof by the
Company) is a valid and binding obligation of each of Parent and the Purchaser,
as the case may be, enforceable against them in accordance with its respective
terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 3 Consents and Approvals; No Violations. Except for (a) filings
pursuant to the HSR Act, (b) applicable requirements under the Exchange Act, (c)
the filing of the Certificates of Merger, (d) applicable requirements under
corporation or "blue sky" laws of various states, (e) the Insurance Regulatory
Approvals or (f) as described in this Agreement, neither the execu-
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tion, delivery or performance of this Agreement by Parent and the Purchaser nor
the consummation by Parent and the Purchaser of the transactions contemplated
hereby will (i) violate any provision of the Articles of Incorporation or
By-Laws of Parent or the Purchaser, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Parent or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound and which has been filed as an exhibit
to the Parent SEC Documents (as defined in Section 4.4 hereof), (iii) violate
any order, writ, judgment, injunction, decree, law, statute, rule or regulation
applicable to Parent, any of its Subsidiaries or any of their properties or
assets, or (iv) require on the part of Parent or the Purchaser any filing or
registration with, notification to, or authorization, consent or approval of,
any court, legislative, executive or regulatory authority or agency (a
"Governmental Entity"); except in the case of clauses (ii), (iii) or (iv) for
such violations, breaches or defaults which, or filings, registrations,
notifications, authorizations, consents or approvals the failure of which to
obtain, (A) would not have a Parent Material Adverse Effect and would not
materially adversely affect the ability of Parent and the Purchaser to
consummate the transactions contemplated by this Agreement, or (B) become
applicable as a result of the business or activities in which the Company is or
proposes to be engaged or as a result of any acts or omissions by, or the status
of any facts pertaining to, the Company.
Section 4 SEC Reports and Financial Statements. Parent has filed with
the SEC, and has heretofore made available to the Company true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its Subsidiaries since January 1, 1994 under the
Exchange Act or the Securities Act (as such documents have been amended since
the time of their filing, collectively, the "Parent SEC Documents"). As of their
respective dates or, if amended, as of the date of the last such amendment, the
Parent SEC Documents, including, without limitation, any financial
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statements or schedules included therein did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets (including the related notes) included in the Parent
SEC Documents fairly presents in all material respects the financial position of
Parent and its consolidated Subsidiaries as of the respective dates thereof, and
the other related statements (including the related notes) included therein
fairly present in all material respects the results of operations and cash flows
of Parent and its consolidated Subsidiaries for the respective periods or as of
the respective dates set forth therein. Each of the consolidated balance sheets
and statements of operations and cash flow (including the related notes)
included in the Parent SEC Documents has been prepared in all material respects
in accordance with GAAP applied on a consistent basis during the periods
involved, except as otherwise noted therein and subject, in the case of
unaudited interim financial statements, to normal year-end adjustments.
Section 5 Information in Offer Documents; Proxy Statement. None of the
information supplied or to be supplied by Parent or the Purchaser, or any of
their officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-9 or the
Proxy Statement, including any amendments or supplements thereto, will, in the
case of the Offer Documents and the Schedule 14D-9, at the respective times the
Offer Documents and the Schedule 14D-9 are filed with the SEC or first
published, sent or given to the Company's shareholders, or, in the case of the
Proxy Statement, at the date the Proxy Statement is first mailed to the
Company's shareholders or at the time of the Special Meeting, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
false or misleading. Notwithstanding the foregoing, Parent and the Purchaser do
not make any representation or warranty with respect to the information that has
been supplied by the Company or its officers, directors, employees,
representatives or agents for inclusion or
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incorporation by reference in any of the foregoing documents. The Offer
Documents and the Proxy Statement and any amendments or supplements thereto will
comply in all material respects with the applicable provisions of the Exchange
Act and the rules and regulations thereunder.
Section 6 Sufficient Funds. Either Parent or the Purchaser has
sufficient funds available (through existing credit arrangements or otherwise)
to purchase all of the Shares outstanding on a fully diluted basis and to pay
all fees and expenses related to the transactions contemplated by this
Agreement.
Section 7 Share Ownership. None of Parent, the Purchaser or any of
their respective "affiliates" or "associates" (as those terms are defined in
Rule 12b-2 under the Exchange Act) beneficially owns any Shares.
Section 8 Purchaser's Operations. The Purchaser was formed solely for
the purpose of engaging in the transactions contemplated hereby and has not
engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
Section 9 Brokers or Finders. Parent represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finders' fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except Goldman, Sachs & Co.,
whose fees and expenses will be paid by Parent in accordance with Parent's
agreement with such firm, a true and complete copy of which has heretofore been
furnished to the Company.
Section 10 Investigation by Parent. In entering into this Agreement,
each of Parent and the Purchaser:
(a) acknowledges that none of the Company, its Subsidiaries or
any of their respective directors, officers, employees, affiliates, agents,
advisors or representatives makes any representation or warranty, either express
or implied, as to the accuracy or completeness of any of the information
provided or made
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available to Parent, the Purchaser or their agents or representatives, and
(b) agrees, to the fullest extent permitted by law, that none
of the Company, its Subsidiaries or any of their respective directors, officers,
employees, shareholders, affiliates, agents, advisors or representatives shall
have any liability or responsibility whatsoever to Parent or the Purchaser on
any basis (including, without limitation, in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or made
available, or statements made, to Parent, except that the foregoing limitations
shall not (a) apply to the Company to the extent the Company makes the specific
representations and warranties set forth in Article III of this Agreement, but
always subject to the limitations and restrictions contained herein, or (b)
preclude Parent and the Purchaser from seeking any remedy for fraud.
ARTICLE V
COVENANTS
Section 1 Interim Operations of the Company. The Company covenants
and agrees that, except (i) as contemplated by this Agreement, (ii) as disclosed
in Section 5.1 of the Company Disclosure Letter or (iii) as agreed in writing by
Parent, after the date hereof, and prior to the time the directors of the
Purchaser have been elected to, and shall constitute a majority of, the Board of
Directors of the Company pursuant to Section 1.3 (the "Appointment Date"):
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course of business and, to the extent
consistent therewith, each of the Company and its Subsidiaries shall use its
best efforts to preserve in all material respects its business organization
intact and maintain its existing relations with customers, suppliers, employees
and business associates;
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(b) the Company will not, directly or indirectly, (i) amend
its Articles of Incorporation or By-laws or similar organizational documents; or
(ii) split, combine or reclassify the outstanding Company Common Stock or any
outstanding capital stock of any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock (other than dividends from
any Subsidiary of the Company to the Company or any other Subsidiary of the
Company); (ii) issue or sell any additional shares of, or securities convertible
into or exchangeable for, or options, warrants, calls, commitments or rights of
any kind to acquire, any shares of capital stock of any class of the Company or
its Subsidiaries, other than shares of Company Common Stock reserved for
issuance on the date hereof upon exercise of outstanding Rights pursuant to the
Rights Agreement, issuances pursuant to the exercise of Options outstanding on
the date hereof, or issuances pursuant to the Company Convertible Notes; (iii)
acquire, sell, lease or dispose of any assets in excess of $5 million, other
than in the ordinary and usual course of business; (iv) incur or modify any
material debt, other than in the ordinary and usual course of business; or (v)
redeem, purchase or otherwise acquire directly or indirectly any of its capital
stock other than redemption of the outstanding Rights pursuant to the Rights
Agreement;
(d) neither the Company nor any of its Subsidiaries shall,
except as may be required or contemplated by this Agreement or in the ordinary
and usual course of business, terminate or materially amend any of its Benefit
Plans;
(e) neither the Company nor any of its Subsidiaries shall,
except as contemplated by this Agreement, enter into, adopt or materially amend
any employee benefit plans or amend any employment or severance agreement or
(except for normal increases in the ordinary and usual course of business to
persons other than the employees listed as Tier I through Tier V on Schedule
5.4(b) hereof) increase in any manner the compensation of any employees;
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(f) neither the Company nor any of its Subsidiaries shall: (i)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the material obligations of any other
person (other than Subsidiaries of the Company), except in the ordinary and
usual course of business; (ii) make any material loans, advances or capital
contributions to, or investments in, any other person (other than to
Subsidiaries of the Company), other than in the ordinary and usual course of
business; or (iii) make capital expenditures in excess of an aggregate of $10
million for the first seven months from the date hereof or an additional $5
million thereafter;
(g) neither the Company nor any of its Subsidiaries shall
materially change any of the accounting methods used by it unless required by
GAAP or applicable law;
(h) the Company will not settle or compromise any claim
(including arbitration) or litigation involving payments by the Company in
excess of $1,000,000, individually, which are not subject to insurance
reimbursement without the prior written consent of Parent, which consent will
not be unreasonably withheld, and will consult with Parent with respect to
settlement or compromise of any claim (including arbitration) or litigation for
less than $1,000,000;
(i) the Company will not amend, modify or terminate in any
material respect its hospital contracts without the prior written consent of
Parent, which consent shall not be unreasonably withheld, and provided that
Parent shall designate a single senior officer with responsibility to provide
such consent and such officer shall respond within two business days of any such
request and the Company will consult with Parent prior to entering into any new
hospital contract or agreement; and
(j) neither the Company nor any of its Subsidiaries will
authorize or enter into an agreement to do any of the foregoing.
Section 2 Actions Regarding the Rights. The Company, in accordance
with the terms and provisions of the Rights Agreement, and as promptly as
practicable on or after the date hereof, shall take all reasonable ac-
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tions necessary to cause the (a) postponement of the Distribution Date under the
Rights Agreement as necessary to prevent this Agreement or the consummation of
any of the transactions contemplated hereby, including without limitation, the
publication or other announcement of the Offer and the consummation of the Offer
and the Merger, from resulting in (i) the distribution of separate Rights
certificates, or (ii) the occurrence of a Distribution Date, and (b) redemption
of the Rights prior to the consummation of the Offer.
Section 3 Access to Information. Upon reasonable notice, the Company
shall (and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
Parent, access, during normal business hours during the period prior to the
Appointment Date, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause each of its
Subsidiaries to) furnish promptly to the Parent (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(b) all other information concerning its business, properties and personnel as
Parent may reasonably request. After the Appointment Date the Company shall
provide Parent and such persons as Parent shall designate with all such
information, at such time, as Parent shall request. Unless otherwise required by
law and until the Appointment Date, Parent will hold any such information which
is nonpublic in confidence in accordance with the provisions of the
Confidentiality Agreement between the Company and Parent, dated as of January
31, 1997 (the "Confidentiality Agreement").
Section 4 Employee Benefits.
(a) Parent and the Purchaser agree that, effective as of the
Effective Time and for a two-year period following the Effective Time, the
Surviving Corporation and its Subsidiaries and successors shall provide those
persons who, immediately prior to the Effective Time, were employees of the
Company or its Subsidiaries ("Retained Employees") with employee plans and
programs which provide benefits that are no less favorable in the aggregate to
those provided to such Retained Employees
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immediately prior to the date hereof. As soon as reasonably practicable (and in
any event prior to consummation of the Offer) and following a review of Parent's
employee plans and programs, the Company will confirm to Parent whether it
considers Parent's employee plans and programs to be no less favorable in the
aggregate than the employee plans and programs of the Company. With respect to
such benefits, service accrued by such Retained Employees during employment with
the Company and its Subsidiaries prior to the Effective Time shall be recognized
for all purposes, except to the extent necessary to prevent duplication of
benefits.
(b) Parent and the Purchaser agree to honor, and cause the
Surviving Corporation to honor, without modification, (i) all employment and
severance agreements and arrangements, as amended through the date hereof, with
respect to employees and former employees of the Company, including, without
limitation, the Employee Agreements referred to in Section 3.8(a) hereof
(collectively, the "Severance Agreements"), and (ii) the New Severance
Arrangements (as defined below). Parent and the Purchaser acknowledge that the
transactions contemplated hereby shall constitute a "change in control" for
purposes of the Severance Agreements. Parent, the Purchaser and the Company
agree that, prior to the Effective Time, the Company shall adopt severance plans
and/or enter into severance agreements substantially as provided in Schedule
5.4(b) hereof (the "New Severance Arrangements").
(c) In the event Parent or the Purchaser or the Surviving
Corporation or any of their successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii) transfers or
conveys all or substantially all of its properties and assets to any person,
then, and in each such case, to the extent necessary to effectuate the purposes
of this Section 5.4, proper provision shall be made so that the successors and
assigns of Parent, the Purchaser or the Surviving Corporation, as the case may
be, assume the obligations set forth in this Section 5.4 and none of the actions
described in clauses (i) or (ii) shall be taken until such provision is made.
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(d) As soon as practicable following the Effective Time (but
in no event later than 30 days following the Effective Time) Parent shall take
any and all action necessary and appropriate to grant options ("Parent Options")
to purchase 200,000 shares of Parent Common Stock to persons who were employees
of the Company immediately prior to the Effective Time. Each Parent Option shall
have (i) an exercise price equal to the closing price of the Parent Common Stock
on the New York Stock Exchange as of the date of grant and (ii) a term of ten
years. The allocation to individual employees of the Parent Options shall be
made solely by Parent after reasonable consultation with the individual serving
as CEO of the Company on the date hereof (the "Company CEO"). The Company CEO
shall not be eligible to receive any Parent Options. All other terms and
conditions of Parent Options shall be determined by Parent after reasonable
consultation with the Company CEO; provided, that such options shall be issued
under Parent's existing option plans with terms and conditions customary for
grants to similarly situated employees.
Section 5 No Solicitation. (a) The Company and its Subsidiaries will
not, and will use their best efforts to cause their respective officers,
directors, employees and investment bankers, attorneys or other agents retained
by or acting on behalf of the Company or any of its Subsidiaries not to, (i)
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal that constitutes or is reasonably likely to lead to any
Acquisition Proposal (as defined in Section 5.5(c) hereof), (ii) except as
permitted below, engage in negotiations or discussions with, or furnish any
information or data to any third party relating to an Acquisition Proposal, or
(iii) except as permitted below, enter into any agreement with respect to any
Acquisition Proposal or approve any Acquisition Proposal. Notwithstanding
anything to the contrary contained in this Section 5.5 or in any other provision
of this Agreement, the Company and its Board of Directors (i) may participate in
discussions or negotiations (including, as a part thereof, making any
counterproposal) with or furnish information to any third party making an
unsolicited Acquisition Proposal (a "Potential Acquiror") or approve an
unsolicited Acquisition Proposal if the Company's Board of Directors is advised
by its financial advisor that such Potential Acquiror has the financial
wherewith-
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al to be reasonably capable of consummating such an Acquisition Proposal, and
either (A) the Board determines in good faith, after receiving advice from its
financial advisor, that such third party has submitted to the Company an
Acquisition Proposal which is a Superior Proposal, or (B) the Board determines
in good faith, based upon advice of its outside legal counsel, that the failure
to participate in such discussions or negotiations or to furnish such
information or approve an Acquisition Proposal would violate the Board's
fiduciary duties under applicable law, and (ii) shall be permitted to (X) take
and disclose to the Company's shareholders a position with respect to any tender
or exchange offer by a third party, or amend or withdraw such position, pursuant
to Rules 14d-9 and 14e-2 of the Exchange Act or (Y) make disclosure to the
Company's shareholders, in the case of clause (X) or clause (Y) either (1) with
respect to or as result of a Superior Proposal, or (2) if the Company's Board of
Directors determines in good faith, based upon advice of its outside legal
counsel, that the failure to take such action would violate such Board's
fiduciary duties under, or otherwise violate, applicable law. The Company agrees
that any non-public information furnished to a Potential Acquiror will be
pursuant to a confidentiality agreement substantially similar to the
confidentiality provisions of the confidentiality agreement entered into between
the Company and Parent. In the event that the Company shall determine to provide
any information as described above, or shall receive any Acquisition Proposal,
it shall promptly inform Parent in writing as to the fact that information is to
be provided and shall furnish to Parent the identity of the recipient of such
information and/or the Potential Acquiror and the terms of such Acquisition
Proposal, except to the extent that the Board determines in good faith, based
upon advice of its outside legal counsel, that any such action described in this
sentence would violate such Board's fiduciary duties under, or otherwise
violate, applicable law. The Company will keep Parent reasonably informed of the
status (including amendments or proposed amendments) of any such Acquisition
Proposal except to the extent that the Board determines in good faith, based
upon advice of its outside legal counsel, that any such action would violate
such Board's fiduciary duties under, or otherwise violate, applicable law.
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(b) The Board of Directors of the Company shall not (i)
withdraw or modify or propose to withdraw or modify, in any manner adverse to
Parent, the approval or recommendation of such Board of Directors of this
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal unless, in each case, (A) the
Board determines in good faith, after receiving advice from its financial
advisor, that such Acquisition Proposal is a Superior Proposal or (B) the Board
determines in good faith, based upon advice of its outside legal counsel, that
the failure to take such action would violate Board's fiduciary duties under
applicable law.
(c) For purposes of this Agreement, "Acquisition Proposal"
shall mean any bona fide proposal, whether in writing or otherwise, made by a
third party to acquire beneficial ownership (as defined under Rule 13(d) of the
Exchange Act) of all or a material portion of the assets of, or any material
equity interest in, the Company or its material Subsidiaries pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer or exchange offer or similar transaction
involving the Company or its material Subsidiaries including, without
limitation, any single or multi-step transaction or series of related
transactions which is structured to permit such third party to acquire
beneficial ownership of any material portion of the assets of, or any material
portion of the equity interest in, the Company or its material Subsidiaries
(other than the transactions contemplated by this Agreement).
(d) The term "Superior Proposal" means any bona fide proposal
to acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than a majority of the Shares then outstanding or all or
substantially all the assets of the Company, and otherwise on terms which the
Board of Directors of the Company determines in good faith to be more favorable
to the Company and its shareholders than the Offer and the Merger (based on
advice of the Company's financial advisor that the value of the consideration
provided for in such proposal is superior to the value of the consideration
provided for in the Offer and the Merger), for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
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the Board of Directors, after receiving advice from its financial advisor, is
reasonably capable of being financed by such third party.
Section 6 Publicity. The initial press releases with respect to the
execution of this Agreement shall be acceptable to Parent and the Company.
Thereafter, so long as this Agreement is in effect, neither the Company, Parent
nor any of their respective affiliates shall issue or cause the publication of
any press release with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by any listing agreement with a
national securities exchange.
Section 7 Directors' and Officers' Insurance and Indemnification.
(a) From and after the consummation of the Offer, Parent shall, and shall cause
the Company (or the Surviving Corporation if after the Effective Time) to,
indemnify, defend and hold harmless any person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, an
officer, director, employee and agent (the "Indemnified Party") of the Company
and its Subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorney's fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "Claim") to the extent that any
such Claim is based on, or arises out of, (i) the fact that such person is or
was a director, officer, employee or agent of the Company or any Subsidiaries or
is or was serving at the request of the Company or any of its Subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (ii) this Agreement, or any of the
transactions contemplated hereby, in each case to the extent that any such Claim
pertains to any matter or fact arising, existing, or occurring prior to or at
the Effective Time, regardless of whether such Claim is asserted or claimed
prior to, at or after the Effective Time, to the full extent permitted under New
Hampshire law or the Company's Articles of Incorporation, By-laws or
indemnification agreements in effect at the date hereof, including provisions
relating to advancement of expenses incurred in the defense of any action or
suit. Without limiting the foregoing, in the event any Indemnified Party becomes
involved in any capacity in any Claim, then from and after consummation
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of the Offer Parent shall, or shall cause the Company (or the Surviving
Corporation if after the Effective Time) to, periodically advance to such
Indemnified Party its legal and other expenses (including the cost of any
investigation and preparation incurred in connection therewith), subject to the
provision by such Indemnified Party of an undertaking to reimburse the amounts
so advanced in the event of a final non-appealable determination by a court of
competent jurisdiction that such Indemnified Party is not entitled thereto.
(b) Parent and the Company agree that all rights to
indemnification and all limitations or liability existing in favor of the
Indemnified Party as provided in the Company's Articles of Incorporation and
By-laws as in effect as of the date hereof shall survive the Merger and shall
continue in full force and effect, without any amendment thereto, for a period
of six years from the Effective Time to the extent such rights are consistent
with the NHBCA; provided, that, in the event any claim or claims are asserted or
made within such six year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims; provided, further, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under New Hampshire law, the Company's Articles of Incorporation or
By-laws or such agreements, as the case may be, shall be made by independent
legal counsel selected by the Indemnified Party and reasonably acceptable to
Parent and; provided, further, that nothing in this Section 5.7 shall impair any
rights or obligations of any present or former directors or officers of the
Company.
(c) In the event Parent or the Purchaser or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 5.7, proper
provision shall be made so that the successors and assigns of Parent and the
Purchaser assume the obligations set forth in this Section 5.7 and none of the
ac-
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tions described in clauses (i) or (ii) shall be taken until such provision is
made.
(d) Parent or the Surviving Corporation shall maintain the
Company's existing officers' and directors' liability insurance policy ("D&O
Insurance") for a period of not less than six years after the Effective Date;
provided, that the Parent may substitute therefor policies of substantially
similar coverage and amounts containing terms no less advantageous to such
former directors or officers.
Section 8 Approvals and Consents; Cooperation; Notification.
(a) The parties hereto shall use their respective best efforts, and cooperate
with each other, to obtain as promptly as practicable all governmental and third
party authorizations, approvals, consents or waivers, including, without
limitation, pursuant to the HSR Act and with respect to the Insurance Regulatory
Approvals, required in order to consummate the transactions contemplated by this
Agreement, including, without limitation, the Offer and the Merger.
(b) The Company, Parent and the Purchaser shall take all
actions necessary to file as soon as practicable all notifications, filings and
other documents required to obtain all governmental authorizations, approvals,
consents or waivers, including, without limitation, under the HSR Act and with
respect to the Insurance Regulatory Approvals, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice and any other Governmental
Entity for additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection therewith.
(c) The Company shall give prompt notice to Parent of the
occurrence of any Company Material Adverse Effect. Each of the Company and
Parent shall give prompt notice to the other of the occurrence or failure to
occur of an event that would, or, with the lapse of time would cause any
condition to the consummation of the Offer or the Merger not to be satisfied.
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Section 9 Further Assurances. Each of the parties hereto agrees to
use their respective best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, the
Offer and the Merger, which efforts shall include, without limitation, (a)
Parent and the Purchaser proffering their willingness to accept an order or
orders providing for the divestiture by Parent and the Purchaser of such of the
Company's assets and businesses (or, in lieu thereof, approximately equivalent
assets and businesses of Parent and the Purchaser) which do not represent in the
aggregate assets with a fair market value greater than $67.5 million as are
necessary to permit Parent and the Purchaser otherwise fully to consummate the
Offer and the Merger and the transactions contemplated hereby, including an
offer to hold separate such assets and businesses pending any such divestiture
or pending the receipt of any required regulatory approvals, (b) Parent and the
Purchaser using their best efforts to prevent any preliminary or permanent
injunction or other order by a court of competent jurisdiction or Governmental
Entity relating to consummating the transactions contemplated by this Agreement,
including, without limitation, under the antitrust laws and with respect to the
Insurance Regulatory Approvals, and, if issued, to appeal any such injunction or
order through the appellate court or body for the relevant jurisdiction,
provided that Parent shall not be obligated to continue pursuing any particular
litigation or action following the issuance of any preliminary injunction with
respect thereto and (c) Parent and the Purchaser using their best efforts to
satisfy any objections of, and accept any conditions imposed by, any
Governmental Entity in connection with any Insurance Regulatory Approval, except
where such objection or condition would result in costs or liabilities to the
Company and Parent, taken together (and aggregated with any loss incurred in
connection with a disposition of assets pursuant to clause (a) above at less
than fair market value), in excess of $67.5 million; provided, however, that
notwithstanding the foregoing, during the sixty day period following the date
hereof, Parent and Purchaser shall only be obligated to use commercially
reasonable efforts to obtain all Insurance Regulatory Approvals. If at any time
after the Effective Time any
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further action is necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall take or cause to be taken all such necessary
action, including, without limitation, the execution and delivery of such
further instruments and documents as may be reasonably requested by the other
party for such purposes or otherwise to consummate and make effective the
transactions contemplated hereby. Parent agrees to file all applications on Form
A (or equivalent form) necessary to obtain the Insurance Regulatory Approvals
within 12 business days of the date hereof.
Section 10 Taxes. With respect to any Taxes, the Company shall not
(i) make any material tax election or (ii) settle or compromise any material
income tax liability (whether with respect to amount or timing), in each case
without the prior written consent of Parent which consent shall not be
unreasonably withheld.
Section 11 Compliance with Security Takeover Disclosure Act. As soon
as practicable following the commencement of the Offer, Parent and Purchaser
shall, to the extent required by law, (i) file with the Director of the Office
of Securities Regulation (the "Director") of the State of New Hampshire a
registration statement (the "Registration Statement") in accordance with, and
containing the information required by, Section 421-A:4 of the New Hampshire
Security Takeover Disclosure Act (the "Takeover Disclosure Act"), and (ii)
comply with all other requirements of the Takeover Disclosure Act. None of the
information supplied or to be supplied by Parent or the Purchaser, or any of
their officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in the Registration Statement will, at the time its
is filed with the Director, contain any statement which, at such time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein not false or misleading. Notwithstanding
the foregoing, Parent and the Purchaser do not make any representation or
warranty with respect to the information that has been supplied by the Company
or its officers, directors, employees, representatives or agents for inclusion
or incorporation by reference in the Registration Statement.
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<PAGE> 49
Section 12 1996 Form 10-K. The Company will periodically provide
Parent with current draft versions of the Company's Annual Report on Form 10-K
including documents incorporated therein by reference, for the year ended
December 31, 1996.
Section 13 Shareholder Litigation. The Company and Parent agree that
in connection with any litigation which may be brought against the Company or
its directors relating to the transactions contemplated hereby, the Company will
keep Parent, and any counsel which Parent may retain at its own expense,
informed of the course of such litigation, to the extent Parent is not otherwise
a party thereto, and the Company agrees that it will consult with Parent prior
to entering into any settlement or compromise of any such shareholder
litigation; provided, that, no such settlement or compromise will be entered
into involving the payment of money in excess of $1 million (to the extent not
subject to insurance reimbursement) without Parent's prior written consent,
which consent shall not be unreasonably withheld.
ARTICLE VI
CONDITIONS
Section 1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the holders of Company Common Stock, if required by applicable
law and the Articles of Incorporation;
(b) any waiting period applicable to the Merger under the HSR
Act shall have expired or been terminated;
(c) all Insurance Regulatory Approvals shall have been
obtained, except where the failure to have obtained any such approvals would not
have a Company Material Adverse Effect;
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<PAGE> 50
(d) no statute, rule, regulation, order, decree or injunction
shall have been enacted, promulgated or issued by any Governmental Entity or
court which prohibits the consummation of the Merger; and
(e) Parent, the Purchaser or their affiliates shall have
purchased shares of Company Common Stock pursuant to the Offer.
Section 2 Conditions to the Obligations of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of Parent and the
Purchaser shall be true and accurate as of the Effective Time as if made at and
as of such time (except for those representations and warranties that address
matters only as of a particular date or only with respect to a specific period
of time which need only be true and accurate as of such date or with respect to
such period), except where the failure of such representations and warranties to
be so true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) would not have a
Parent Material Adverse Effect; and
(b) each of Parent and the Purchaser shall have performed in
all material respects all of the respective obligations hereunder required to be
performed by Parent or the Purchaser, as the case may be, at or prior to the
Effective Time.
Section 3 Conditions to the Obligations of Parent and the Purchaser
to Effect the Merger. The obligations of Parent and the Purchaser to effect the
Merger shall be further subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) the representations and warranties of the Company shall be true
and accurate as of the Effective Time as if made at and as of such time (except
for those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and accurate as of such date or with respect to such period),
except
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<PAGE> 51
where the failure of such representations and warranties to be so true and
accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein), would not have a Company Material
Adverse Effect; and
(b) the Company shall have performed in all material respects
all of the respective obligations hereunder required to be performed by the
Company, at or prior to the Effective Time.
Section 4 Exception. The conditions set forth in Section 6.3 hereof
shall cease to be conditions to the obligations of the parties if the Purchaser
shall have accepted for payment and paid for Shares validly tendered pursuant to
the Offer, provided that the terms of this exception will be deemed satisfied if
the Purchaser fails to accept for payment any Shares pursuant to the Offer in
violation of the terms thereof.
ARTICLE VII
TERMINATION
Section 1 Termination. This Agreement may be terminated and the
Merger contemplated herein may be abandoned at any time prior to the Effective
Time, whether before or after shareholder approval thereof:
(a) By the mutual consent of Parent, the Purchaser and the
Company.
(b) By either of the Company, on the one hand, or Parent and
the Purchaser, on the other hand:
(i) if shares of Company Common Stock shall not have
been purchased pursuant to the Offer on or prior to seven months from the
execution of this Agreement; provided, however, the Company may, in its
sole discretion, extend such termination date for up to an additional 60
days in the event that the Insurance Regulatory Approvals shall not have
been obtained by the end of such initial seven month period and provided
that, at the end of such seven month period, no Company Material Adverse
Effect shall have occurred and be continuing; provid-
50
<PAGE> 52
ed, further, that the right to terminate this Agreement under this Section
7.1(b)(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of Parent or the Purchaser, as the case may be, to purchase shares
of Company Common Stock pursuant to the Offer on or prior to such date; or
(ii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use their respective best
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement or
prohibiting Parent to acquire or hold or exercise rights of ownership of
the Shares except such prohibitions which would not have a Company
Material Adverse Effect, and such order, decree, ruling or other action
shall have become final and non-appealable.
(c) By the Company:
(i) if, prior to the purchase of shares of Company
Common Stock pursuant to the Offer, either (A) a third party shall have
made an Acquisition Proposal that the Board of Directors of the Company
determines in good faith, after consultation with its financial advisor,
is a Superior Proposal, or (B) the Board of Directors of the Company shall
have withdrawn, or modified or changed in a manner adverse to Parent or
the Purchaser its approval or recommendation of the Offer, this Agreement
or the Merger (or the Board of Directors of the Company resolves to do any
of the foregoing); or
(ii) if Parent or the Purchaser shall have terminated
the Offer, or the Offer shall have expired, without Parent or the
Purchaser, as the case may be, purchasing any shares of Company Common
Stock pursuant thereto; provided that the Company may not terminate this
Agreement pursuant to this Section 7.1(c)(ii) if the Company is in willful
breach of this Agreement; or
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(iii) if, due to an occurrence that if occurring after
the commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Parent, the Purchaser or any
of their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement
of the Offer; provided, that the Company may not terminate this Agreement
pursuant to this Section 7.1(c)(iii) if the Company is in willful breach
of this Agreement.
(d) By Parent and the Purchaser:
(i) if, prior to the purchase of shares of Company
Common Stock pursuant to the Offer, the Board of Directors of the Company
shall have withdrawn, modified or changed in a manner adverse to Parent or
the Purchaser its approval or recommendation of the Offer, this Agreement
or the Merger or shall have recommended an Acquisition Proposal or shall
have executed an agreement in principle or definitive agreement relating
to an Acquisition Proposal or similar business combination with a person
or entity other than Parent, the Purchaser or their affiliates (or the
Board of Directors of the Company resolves to do any of the foregoing); or
(ii) if, due to an occurrence that if occurring after
the commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Parent, the Purchaser, or any
of their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement
of the Offer; provided that Parent may not terminate this Agreement
pursuant to this Section 7.1(d)(ii) if Parent or the Purchaser is in
willful breach of this Agreement.
Section 2 Effect of Termination. (a) In the event of the termination
of this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void,
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and there shall be no liability on the part of Parent, the Purchaser or the
Company or their respective directors, officers, employees, shareholders,
representatives, agents or advisors other than, with respect to Parent, the
Purchaser and the Company, the obligations pursuant to this Section 7.2,
Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13 and
the last sentence of Section 5.3. Nothing contained in this Section 7.2 shall
relieve Parent, the Purchaser or the Company from liability for willful breach
of this Agreement.
(b) In the event that this Agreement is terminated by the Company
pursuant to Section 7.1(c)(i) hereof or by Parent and the Purchaser pursuant to
Section 7.1(d)(i) hereof, the Company shall pay to Parent by certified check or
wire transfer to an account designated by Parent immediately following receipt
of a request therefor, an amount equal to $45 million (the "Termination Fee").
In addition, the Company shall pay Parent the Termination Fee if this Agreement
is terminated for any reason (other than as a result of a material breach by
Parent or the Purchaser that resulted in the termination of this Agreement, or a
willful breach by Parent or the Purchaser of their obligations hereunder) at any
time after an Acquisition Proposal has been made by a third party (a "Third
Party Acquiror") and, within one year after such a termination, the Company
completes either (x) a merger, consolidation or other business combination with
any such Third Party Acquiror (or another party who makes an Acquisition
Proposal at a time when the Company is in discussions with any such Third Party
Acquiror), or (y) the sale of 50% or more (in voting power) of the voting
securities of the Company or of 40% or more (in market value) of the assets of
the Company and its Subsidiaries, on a consolidated basis to any such Third
Party Acquiror (or another party who makes an Acquisition Proposal at a time
when the Company is in discussions with any such Third Party Acquiror).
ARTICLE VIII
MISCELLANEOUS
Section 1 Amendment and Modification. Subject to applicable law,
this Agreement may be amended,
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<PAGE> 55
modified and supplemented in any and all respects, whether before or after any
vote of the shareholders of the Company contemplated hereby, by written
agreement of the parties hereto, by action taken by their respective Boards of
Directors (which in the case of the Company shall include approvals as
contemplated in Section 1.3(b)), at any time prior to the Closing Date with
respect to any of the terms contained herein; provided, however, that after the
approval of this Agreement by the shareholders of the Company, no such
amendment, modification or supplement shall reduce or change the Merger
Consideration or adversely affect the rights of the Company's shareholders
hereunder without the approval of such shareholders.
Section 2 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time or the termination of this Agreement. This Section 8.2 shall not
limit any covenant or agreement contained in this Agreement which by its terms
contemplates performance after the Effective Time.
Section 3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
CIGNA Corporation
One Liberty Place
1650 Market Street
Philadelphia, PA 19192-1520
Telephone No.: (215) 761-6041
Telecopy No.: (215) 761-3399
Attention: Robert L. Rose
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with a copy to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
New York, New York 10022
Telephone No.: (212) 326-2000
Telecopy No.: (212) 326-2061
Attention: C. Douglas Kranwinkle, Esq.
(b) if to the Company, to:
Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
Telephone No.: (603) 268-7000
Telecopy No.: (603) 268-7905
Attention: Norman C. Payson, M.D.
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom LLP
919 Third Avenue
New York, New York 10022
Telephone No.: (212) 735-2322
Telecopy No.: (212) 735-2000
Attention: Paul T. Schnell, Esq.
Section 4 Interpretation. The words "hereof", "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include", "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation". The words describing
the singular number shall include the plural and vice versa, and words denoting
any gender shall include all genders and words denoting natural persons shall
include corporations and partnerships and vice versa. The phrase "to the best
knowledge of" or any similar phrase shall mean such facts and other information
which as of the date of determination are actually known to any vice president,
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<PAGE> 57
chief financial officer, general counsel, chief compliance officer, controller,
and any officer superior to any of the foregoing, of the referenced party after
the conduct of a reasonable investigation under the circumstances by such
officer. The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to February 27, 1997. As used in
this Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule
l2b-2 of the Exchange Act. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
Section 5 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 6 Entire Agreement; Third Party Beneficiaries. This
Agreement, the Tender Agreement and Irrevocable Proxy and the Confidentiality
Agreement (including the documents and the instruments referred to herein and
therein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Sections
2.4, 5.4 and 5.7, are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 7 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain
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<PAGE> 58
in full force and effect and shall in no way be affected, impaired or
invalidated.
Section 8 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York (other than the
provisions relating to the mechanics of the Merger, and other than the duties
and obligations of directors and officers of the Company, including without
limitation, the provisions of Section 5.5 and 5.7, which shall be governed by
New Hampshire law) without giving effect to the principles of conflicts of law
thereof or of any other jurisdiction.
Section 9 Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, each
non-breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties hereto
(a) will waive, in any action for specific performance, the defense of adequacy
of a remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in a court of competent jurisdiction.
Section 10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
Section 11 Expenses. Except as set forth in Section 7.2 hereof, all
costs and expenses incurred in connection with the Offer, the Merger, this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Offer or
the Merger is consummated.
Section 12 Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
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Section 13 Waivers. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant,
agreement or condition herein may be waived by the party or parties entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Section 14 Schedules. The Company Disclosure Letter shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein. Any matter disclosed pursuant to
the Company Disclosure Letter shall be deemed to be disclosed for all purposes
under this Agreement but such disclosure shall not be deemed to be an admission
or representation as to the materiality of the item so disclosed.
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<PAGE> 60
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
HEALTHSOURCE, INC.
By:/s/ Norman C. Payson
----------------------------------------------
Name: Norman C. Payson
Title: President and Chief
Executive Officer
CIGNA CORPORATION
By:/s/ Robert L. Rose
----------------------------------------------
Name: Robert L. Rose
Title: Vice President
Strategic Growth &
Development
CHC ACQUISITION CORP.
By:/s/ Robert L. Rose
----------------------------------------------
Name: Robert L. Rose
Title: President
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ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the
provisions of the Merger Agreement, the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate the Offer and not accept for payment any tendered
Shares if (i) any applicable waiting period under the HSR Act has not expired or
been terminated prior to the expiration of the Offer, (ii) any Insurance
Regulatory Approvals or any other material consent, approval, or authorization
required under Federal or any State law required to consummate the Offer have
not been obtained, except where the failure to have obtained any such approvals,
consents, authorizations or Insurance Regulatory Approvals would not have a
Company Material Adverse Effect and would not result in a violation of law,
(iii) the Minimum Condition has not been satisfied, or (iv) at any time on or
after February 26, 1997, and before the time of acceptance of Shares for payment
pursuant to the Offer, any of the following events shall occur:
(a) there shall have been any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted or issued
applicable to the Offer or the Merger by any federal or state governmental
regulatory or administrative agency or authority or court or legislative body or
commission which (1) prohibits the consummation of the Offer or the Merger, (2)
prohibits, or imposes any material limitations on, Parent's or the Purchaser's
ownership or operation of all or a material portion of the Company's businesses
or assets or the Shares, except for such prohibitions or limitations which would
not have a Company Material Adverse Effect, (3) prohibits, or makes illegal the
acceptance for payment, payment for or purchase of Shares or the consummation of
the Offer, or (4) renders the Purchaser unable to accept for payment, pay for or
purchase a material portion or all of the Shares; provided, that the parties
shall have used their best efforts to cause any such statute,
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rule, regulation, judgment, order or injunction to be vacated or lifted;
(b) the representations and warranties of the Company set
forth in the Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for those
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time which need only be true and
accurate as of such date or with respect to such period) or the Company shall
have breached or failed to perform or comply with any obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with by it
except, in each case where the failure of such representations and warranties to
be true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein), or the
performance or compliance with such obligations, agreements or covenants, do
not, individually or in the aggregate, have a Company Material Adverse Effect;
(c) the Merger Agreement shall have been terminated in
accordance with its terms;
(d) it shall have been publicly disclosed that any person,
entity or "group" (as defined in Section 13(d)(3) of the Exchange Act), shall
have acquired beneficial ownership (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 30% of the then outstanding
Shares, through the acquisition of stock, the formation of a group or otherwise;
(e) the Board of Directors of the Company shall have
withdrawn, modified or changed in a manner adverse to Parent or the Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended an Acquisition Proposal or shall have executed an
agreement in principle or definitive agreement relating to an Acquisition
Proposal or similar business combination with a person or entity other than
Parent, the Purchaser or their affiliates or the Board of Directors of the
Company shall have adopted a resolution to do any of the foregoing; or
(f) there shall have occurred (i) any general suspension of
trading in securities on any national securities exchange or in the
over-the-counter market, (ii) the declaration of a banking moratorium or any
suspension of
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payments in respect of banks in the United States (whether or not mandatory), or
(iii) any limitation (whether or not mandatory) by an United States governmental
authority or agency on the extension of credit by banks or other financial
institutions
which in the reasonable judgment of Parent or the Purchaser, in any such case,
and regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of the Purchaser
and Parent and, subject to the Merger Agreement, may be asserted by either of
them or may be waived by Parent or the Purchaser, in whole or in part at any
time and from time to time in the sole discretion of Parent or the Purchaser.
The failure by Parent or the Purchaser at any time to exercise any such rights
shall not be deemed a waiver of any right and each right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
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Schedule 5.4(b)
- - Severance Agreements with Company Officers
- Benefits to be paid if employment is terminated by officer for "good
reason" or by Parent or the Company without "cause", in either case,
within two years of the consummation of the Offer. Benefits to be
paid to the tier I officer concurrently with consummation of the
Offer.
- Lump sum severance benefits for the number of of-
ficers identified in this paragraph will be equal
to a multiple of salary and maximum bonus. The
multiple shall be: 3 with respect to the tier I
officer identified to Parent by the Company (pro-
vided that such lump sum severance benefit of 3
times salary plus bonus shall not exceed $2.5 mil-
lion for such tier I officer) and the 2 tier II
officers identified to Parent by the Company; 2
with respect to the 5 tier III officers identified
to Parent by the Company; 1.5 with respect to the 4
tier IV officers identified to Parent by the Compa-
ny; and 1 with respect to the 17 tier V officers
identified to Parent by the Company.
- Severance benefit also to include (1) pro rata
target bonus for the year employment terminates,
(2) continuation of medical and other welfare bene-
fits for a period of years equal to the applicable
multiple, (3) office and secretarial services for
the same period, (4) outplacement and financial
planning services for 12 months following a termi-
nation (outplacement services to be consistent with
those provided under Parent's severance plan as in
effect on the date hereof), (5) a 280G "gross up"
payment for any such officer subject to such provi-
sion (including the tier I officer) and (6) reason-
able legal fees and other expenses incurred in en-
forcing the agreement or in connection with any tax
audit or proceeding to the extent attributable to
the application of Section 4999 of the Code.
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- - Severance Plan for All Other Company Employees
- Benefits to be paid if employment is terminated by employee for
"good reason" or by Parent or the Company without "cause", in either
case, within eighteen months of the consummation of the Offer.
- Severance benefit to be equal to the benefit provided under the
applicable Company Severance Plan (as in effect on the date hereof)
or, if greater, under any agreement entered into between the Company
and such individual prior to the date hereof, provided however that
in no event shall the severance benefit exceed 18 months of base
salary.
- Severance benefit also to include (1) pro rata target bonus for the
year employment terminates and (2) continuation of medical and other
welfare benefits for a number of weeks equal to the period during
which severance is paid.
- - Definitions
- "Cause" shall mean (i) the commission of any fraud
or embezzlement against the Company, (ii) the will-
ful and continued refusal to perform duties or
willful and continued refusal to comply with direc-
tives of superiors, in each case after the
employee's failure to cure such conduct within 10
days after receiving written notice from the Compa-
ny, (iii) the conviction of a felony and (iv) an
order by, or an agreement by an employee with, an
appropriate governmental health care regulatory
agency removing or otherwise disqualifying an em-
ployee from employment with the Company or any of
its affiliates.
- "Good Reason" shall mean (i) any reduction in total
compensation, including incentive compensation
opportunity, (ii) relocation of place of employment
to a location more than 35 miles from each of the
employee's existing place of employment and the
employee's primary residence or (iii) (A) in the
case of the tier II officers, any adverse change in
duties, responsibilities, authority, title or of-
fice and (B) in the case of tier III, tier IV and
tier V officers, any material adverse change to
5
<PAGE> 66
title or office or material diminution of duties, responsibilities
or authority. Notwithstanding the foregoing, Good Reason shall not
include a reduction from regional responsibility to serving as CEO
of the individual's principal HMO with respect to the Senior Vice
Presidents of the Company identified to Parent by the Company.
6
<PAGE> 67
TABLE OF CONTENTS
Page
----
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer.......................................... 1
Section 1.2 Company Actions.................................... 3
Section 1.3 Directors.......................................... 5
Section 1.4 The Merger......................................... 7
Section 1.5 Effective Time..................................... 7
Section 1.6 Closing............................................ 7
Section 1.7 Directors and Officers of the Surviving
Corporation........................................ 8
Section 1.8 Shareholders' Meeting.............................. 8
Section 1.9 Merger Without Meeting of Shareholders............. 9
Section 1.10 Convertible Notes.................................. 9
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock........................ 10
Section 2.2 Exchange of Certificates........................... 11
Section 2.3 Dissenting Shares.................................. 13
Section 2.4 Company Option Plans............................... 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization....................................... 16
Section 3.2 Capitalization..................................... 18
Section 3.3 Authorization; Validity of Agreement;
Company Action..................................... 19
Section 3.4 Consents and Approvals; No Violations.............. 20
Section 3.5 SEC Reports and Financial Statements............... 21
Section 3.6 No Undisclosed Liabilities......................... 22
Section 3.7 Absence of Certain Changes......................... 22
Section 3.8 Employee Benefit Plans; ERISA...................... 23
Section 3.9 Litigation......................................... 25
Section 3.10 No Default; Compliance with Applicable
Laws............................................... 25
Section 3.11 Taxes.............................................. 25
Section 3.12 Real Property...................................... 27
Section 3.13 Intellectual Property.............................. 27
Section 3.14 Computer Software.................................. 27
Section 3.15 Information in Offer Documents..................... 28
Section 3.16 Brokers or Finders................................. 28
Section 3.17 Opinion of Financial Advisor....................... 28
i
<PAGE> 68
Page
----
Section 3.18 Regulatory Statements.............................. 29
Section 3.19 Certain Contracts.................................. 29
Section 3.20 Investigation by the Company....................... 29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Section 4.1 Organization....................................... 30
Section 4.2 Authorization; Validity of Agreement;
Necessary Action................................... 31
Section 4.3 Consents and Approvals; No Violations.............. 31
Section 4.4 SEC Reports and Financial Statements............... 32
Section 4.5 Information in Offer Documents; Proxy
Statement.......................................... 33
Section 4.6 Sufficient Funds................................... 34
Section 4.7 Share Ownership.................................... 34
Section 4.8 Purchaser's Operations............................. 34
Section 4.9 Brokers or Finders................................. 34
Section 4.10 Investigation by Parent............................ 34
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company.................. 35
Section 5.2 Actions Regarding the Rights....................... 37
Section 5.3 Access to Information.............................. 38
Section 5.4 Employee Benefits.................................. 38
Section 5.5 No Solicitation.................................... 40
Section 5.6 Publicity.......................................... 43
Section 5.7 Directors' and Officers' Insurance and
Indemnification.................................... 43
Section 5.8 Approvals and Consents; Cooperation;
Notification....................................... 45
Section 5.9 Further Assurances................................. 46
Section 5.10 Taxes.............................................. 47
Section 5.11 Compliance with Security Takeover Dis-
closure Act........................................ 47
Section 5.12 1996 Form 10-K..................................... 48
Section 5.13 Shareholder Litigation............................. 48
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to
Effect the Merger.................................. 48
ii
<PAGE> 69
Page
----
Section 6.2 Conditions to the Obligations of the
Company to Effect the Merger................. 49
Section 6.3 Conditions to the Obligations of Parent
and the Purchaser to Effect the Merger....... 49
Section 6.4 Exception.................................... 50
ARTICLE VII
TERMINATION
Section 7.1 Termination.................................. 50
Section 7.2 Effect of Termination........................ 52
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendment and Modification................... 53
Section 8.2 Nonsurvival of Representations and War-
ranties...................................... 54
Section 8.3 Notices...................................... 54
Section 8.4 Interpretation............................... 55
Section 8.5 Counterparts................................. 56
Section 8.6 Entire Agreement; Third Party Beneficia-
ries......................................... 56
Section 8.7 Severability................................. 56
Section 8.8 Governing Law................................ 57
Section 8.9 Specific Performance......................... 57
Section 8.10 Assignment................................... 57
Section 8.11 Expenses..................................... 57
Section 8.12 Headings..................................... 57
Section 8.13 Waivers...................................... 58
Section 8.14 Schedules.................................... 58
Annex A Conditions to the Offer
iii
<PAGE> 1
TENDER AGREEMENT AND IRREVOCABLE PROXY
THIS TENDER AGREEMENT AND IRREVOCABLE PROXY dated as of February
27, 1997 (this "Agreement") is by and among CIGNA CORPORATION, a Delaware
corporation ("PARENT"), CHC ACQUISITION CORP., a New Hampshire corporation and a
wholly owned subsidiary of Parent ("PURCHASER"), and DR. NORMAN PAYSON
("SHAREHOLDER").
WITNESSETH:
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Purchaser and Healthsource, Inc., a New Hampshire corporation (the
"COMPANY"), have entered into an Agreement and Plan of Merger (as amended from
time to time, the "MERGER AGREEMENT"), pursuant to which Purchaser has agreed,
among other things, to commence a cash tender offer (as such tender offer may
hereafter be amended from time to time, the "OFFER") to purchase any and all
shares of common stock, $0.10 par value, of the Company (the "COMPANY COMMON
STOCK");
WHEREAS, as of the date hereof, Shareholder is the record and
beneficial owner of, and has the sole right to vote and dispose of, the number
of shares of Company Common Stock set forth on the signature page hereto;
WHEREAS, as an inducement and a condition to its entering into the
Merger Agreement and incurring the obligations set forth therein, including the
Offer and the Merger, Parent has required that Shareholder enter into this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained herein
and in the Merger Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement. In
addition, for purposes of this Agreement:
"AFFILIATE" means, with respect to any specified Person, any
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified. For purposes of this Agreement, with respect to Shareholder,
"AFFILIATE" shall not include the Company and the Persons that directly, or
indirectly through one or more intermediaries, are controlled by the Company.
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any
securities means having "BENEFICIAL OWNERSHIP" of such securities (as determined
pursuant to Rule 13d-3 under the Exchange Act ), including pursuant to any
agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same
<PAGE> 2
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all Affiliates of such Person and all other Persons with
whom such Person would constitute a "GROUP" within the meaning of Section 13(d)
of the Exchange Act and the rules promulgated thereunder.
"OWNED SHARES" means the shares of Company Common Stock owned by
Shareholder on the date hereof, together with any other shares of Company Common
Stock, or any other securities of the Company entitled, or which may be
entitled, to vote generally in the election of directors and any other shares of
Company Common Stock or such other securities which may hereafter be owned by
Shareholder.
"PERSON" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"REPRESENTATIVE" means, with respect to any Person, such Person's
officers, directors, employees, agents and representatives (including any
investment banker, financial advisor, agent, representative or expert retained
by or acting on behalf of such Person or its subsidiaries).
"TRANSFER" means, with respect to a security, the sale, transfer,
pledge, hypothecation, encumbrance, assignment or disposition of such security
or the Beneficial Ownership thereof, the offer to make such a sale, transfer or
other disposition, and each option, agreement, arrangement or understanding,
whether or not in writing, to effect any of the foregoing. As a verb, "TRANSFER"
shall have a correlative meaning.
2. Tender of Shares. Shareholder hereby agrees to tender (or
cause the record owner thereof), pursuant to and in accordance with the terms of
the Offer, all Owned Shares. Shareholder hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for shares of
Company Common Stock in the Offer, including any Owned Shares tendered by
Shareholder, is subject to the terms and conditions of the Offer. The parties
agree that Shareholder will, for all Owned Shares tendered by Shareholder in the
Offer and accepted for payment by Purchaser, receive a price per Owned Share
equal to $21.75, or such higher per share consideration paid to other
shareholders who have tendered into the Offer.
3. Voting of Owned Shares; Proxy. (a) Shareholder hereby agrees
that during the period commencing on the date hereof and continuing until the
earlier of (x) the consummation of the Offer and (y) the termination of this
Agreement (such period being referred to as the "VOTING PERIOD"), at any meeting
(whether annual or special, and whether or not an adjourned or postponed
meeting) of the Company's shareholders, however called, or in connection with
any written consent of the Company's shareholders, subject to the absence of a
preliminary or permanent injunction or other requirement under applicable law by
any United States federal, state or foreign court barring such action,
Shareholder shall vote (or cause to be voted) all Owned Shares: (i) in favor of
the Merger, the execution and delivery by the Company of the Merger Agreement
and the approval and adoption of the Merger and the terms
2
<PAGE> 3
thereof and each of the other actions contemplated by the Merger Agreement and
this Agreement and any actions required in furtherance thereof and hereof; (ii)
against any action or agreement that would impede, interfere with, or prevent
the Offer or the Merger; and (iii) except as otherwise agreed to in writing in
advance by Parent, against the following actions (other than the Offer, the
Merger and the transactions contemplated by the Merger Agreement and this
Agreement): (I) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or any of its
subsidiaries (including any transaction contemplated by an Acquisition
Proposal); (II) any sale, lease or transfer of a material amount of the assets
or business of the Company or its subsidiaries, or any reorganization,
restructuring, recapitalization, special dividend, dissolution, liquidation or
winding up of the Company or its subsidiaries; and (III) any change in the
present capitalization of the Company including any proposal to sell any
material equity interest in the Company or any amendment of the Articles of
Incorporation of the Company. Shareholder shall not enter into any agreement,
arrangement or understanding with any Person the effect of which would be
inconsistent or violative of the provisions and agreements contained in this
Section 3(a).
(b) IRREVOCABLE PROXY. SHAREHOLDER HEREBY GRANTS TO, AND APPOINTS
PURCHASER AND ANY DESIGNEE OF PURCHASER, EACH OF THEM INDIVIDUALLY,
SHAREHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND
ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE OWNED SHARES OF
SHAREHOLDER AS INDICATED IN SECTION 3(a) ABOVE. SHAREHOLDER INTENDS THIS PROXY
TO BE IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) AND COUPLED WITH AN
INTEREST AND WILL TAKE SUCH FURTHER ACTION AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY SHAREHOLDER WITH RESPECT TO SHAREHOLDER'S OWNED SHARES.
(c) Shareholder Capacity. Shareholder is making this Agreement solely
in his capacity as the owner of the Owned Shares and not in his capacity as a
director or officer, and the agreements set forth herein shall in no way
restrict Shareholder in the exercise of his fiduciary duties as a director and
officer of the Company. Shareholder signs solely in his or her capacity as the
record and beneficial owner of the Owned Shares.
4. Restrictions on Transfer, Other Proxies; No Solicitation. (a)
Shareholder shall not, until the termination of this Agreement, directly or
indirectly: (i) except as provided in Section 2 hereof, Transfer to any Person
any or all Owned Shares; or (ii) except as provided in Section 3(b), grant any
proxies or powers of attorney, deposit any Owned Shares into a voting trust or
enter into a voting agreement, understanding or arrangement with respect to such
Owned Shares. Notwithstanding anything to the contrary provided in this
Agreement, Shareholder shall have the right to Transfer Owned Shares to (i) any
Family Member, (ii) the trustee or trustees of a trust solely (except for remote
contingent interests) for the benefit of Shareholder and/or one or more Family
Members, (iii) a foundation created or established by Shareholder, (iv) a
corporation of which Shareholder and/or any Family Members owns all of the
outstanding capital stock, (v) a partnership of which Shareholder and/or any
Family Members owns all of the partnership interests, (vi) the executor,
3
<PAGE> 4
administrator or personal representative of the estate of Shareholder, or (vii)
any guardian, trustee or conservator appointed with respect to the assets of
Shareholder; provided, that in the case of any such Transfer, the transferee
shall execute an agreement to be bound by the terms of this Agreement, or terms
substantially identical thereto. "Family Member" shall have the meaning ascribed
to "Related Parties" under Section 672(c) of the Internal Revenue Code of 1986,
as amended.
(b) Until the termination of this Agreement, Shareholder will comply
with the provisions of Section 5.5 of the Merger Agreement to the extent
applicable to Shareholder in his capacity as a director or officer of the
Company; provided, that nothing in this Section 4(b) shall prohibit Shareholder
from taking any actions that the Company is permitted to take in accordance with
Section 5.5 of the Merger Agreement.
5. Representations and Warranties of Shareholder. Shareholder hereby
represents, warrants and covenants to Parent and Purchaser as follows:
(a) Shareholder has all necessary power and authority to execute and
deliver this Agreement and perform his obligations hereunder. No other
proceedings or actions on the part of Shareholder are necessary to authorize the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by
Shareholder and constitutes the valid and binding agreement of Shareholder,
enforceable against Shareholder in accordance with its terms except (i) to the
extent limited by applicable bankruptcy, insolvency or similar laws affecting
creditors rights and (ii) the remedy of specified performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) Shareholder is the record holder and beneficial owner of the Owned
Shares which, as of the date hereof, are set forth on the signature page hereto.
Shareholder has good and marketable title to all of the Owned Shares, free and
clear of all liens, claims, options, proxies, voting agreements, security
interests, charges and encumbrances. The Owned Shares constitute all of the
capital stock of the Company Beneficially Owned by Shareholder, and except for
the Owned Shares and shares of Company Common Stock issuable upon exercise of
options held by Shareholder, neither Shareholder nor any of his Affiliates
Beneficially Owns or has any right to acquire (whether currently, upon lapse of
time, following the satisfaction of any conditions, upon the occurrence of any
event or any combination of the foregoing) any shares of Company Common Stock or
any securities convertible into Company Common Stock. Except as provided in
Section 3(b) hereof and in this Section 5(c), Shareholder has sole power to vote
and to dispose of the Owned Shares.
(d) Except for the items disclosed in clauses (a) through (f) in
Section 3.4 of the Merger Agreement, none of the execution and delivery of this
Agreement by Shareholder, the consummation by Shareholder of the transactions
contemplated hereby or compliance by Shareholder with any of the provisions
hereof shall (A) result in a violation or breach of, or
4
<PAGE> 5
constitute (with or without notice or lapse of time or both) a default (or give
rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, loan agreement, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which Shareholder is a party or by which Shareholder
or any of his properties or assets (including the Owned Shares) may be bound, or
(B) violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to Shareholder or any of its properties or assets.
(e) Shareholder understands and acknowledges that Parent is entering
into, and causing the Purchaser to enter into, the Merger Agreement, and is
incurring the obligations set forth therein, in reliance upon Shareholder's
execution and delivery of this Agreement.
(f) No broker, investment banker, financial adviser or other
intermediary is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated hereby or by the Merger
Agreement based upon arrangements made by or on behalf of Shareholder or any of
his Representatives.
(g) Shareholder agrees with and covenants to Parent that Shareholder
shall not request that the Company or Parent, as the case may be, register the
Transfer (book-entry or otherwise) of any certificated or uncertificated
interest representing any of the securities of the Company or of Parent, as the
case may be, unless such Transfer is made in compliance with this Agreement.
6. Representations and Warranties of Parent and Purchaser. Parent and
Purchaser hereby represent, warrant and covenant to Shareholder as follows:
(a) Each of Parent and Purchaser is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation, and each
of them is in good standing under the laws of its jurisdiction of incorporation.
Parent and Purchaser have all necessary corporate power and authority to execute
and deliver this Agreement and perform their respective obligations hereunder.
The execution and delivery by Parent and Purchaser of this Agreement and the
performance by Parent and Purchaser of their respective obligations hereunder
have been duly and validly authorized by the Board of Directors of each of
Parent and Purchaser and no other corporate proceedings on the part of Parent or
Purchaser are necessary to authorize the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by
Parent and Purchaser and constitutes a valid and binding agreement of each of
Parent and Purchaser, enforceable against each of them in accordance with its
terms except (i) to the extent limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
5
<PAGE> 6
(c) Except for the items disclosed in clauses (a) through (f) in
Section 4.3 of the Merger Agreement, none of the execution and delivery of this
Agreement by Parent or Purchaser, the consummation by Parent or Purchaser of the
transactions contemplated hereby or compliance by Parent or Purchaser with any
of the provisions hereof shall (A) conflict with or result in any breach of the
certificate of incorporation or by-laws of Parent or Purchaser, or (B) result in
a violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Parent or Purchaser is a party or
by which Parent or Purchaser or any of their respective properties or assets may
be bound, or violate any order, writ, injunction, decree, judgment, statute,
rule or regulation applicable to Parent or Purchaser or any of their respective
properties or assets.
(d) Except for Goldman, Sachs & Co., whose fees and expenses are the
sole responsibility of Parent, no broker, investment banker, financial adviser
or other intermediary is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby or by the
Merger Agreement based upon arrangements made by or on behalf of Parent or any
of its Representatives.
7. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
8. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earlier of (a) the date upon which
the Parent shall have purchased and paid for all of the Owned Shares of
Shareholder in accordance with the Offer and (b) the date on which the Merger
Agreement is terminated.
9. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Shareholder agrees that this Agreement and the respective rights
and obligations of Shareholder hereunder shall attach to any shares of Company
Common Stock, and any securities convertible into such shares, that may become
Beneficially Owned by Shareholder.
(c) Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
6
<PAGE> 7
(d) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective successors,
personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party (whether by operation of law or otherwise) without the
prior written consent of the other party; provided, that Parent and the
Purchaser may assign their rights and obligations hereunder to any assignee of
such parties' rights and obligations under the Merger Agreement. Nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
(e) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
(f) All notices and other communications hereunder shall be in writing
and shall be deemed given upon (a) transmitter's confirmation of a receipt of a
facsimile transmission, (b) confirmed delivery by a standard overnight carrier
or when delivered by hand or (c) the expiration of five business days after the
day when mailed by certified or registered mail, postage prepaid, addressed at
the following addresses (or at such other address for a party as shall be
specified by like notice):
If to Parent or Purchaser:
CIGNA Corporation
1 Liberty Place
1950 Market Street
Philadelphia, PA 19192-1520
Telecopy: 215-761-6041
Attn: Robert L. Rose, Esq.
Copy to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022-4611
Telecopy: 212-326-2061
Attn: C. Douglas Kranwinkle, Esq.
7
<PAGE> 8
If to Shareholder, to Shareholder's address or facsimile number set
forth on the signature page hereto;
or to such other address or facsimile number as the Person to whom notice is
given shall have previously furnished to the others in writing in the manner set
forth above.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without affecting the
validity or enforceability of the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. If any provision
of this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
(h) Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) This Agreement shall be governed and construed in accordance with
the laws of the State of New York (other than the duties and obligations of
directors and officers of the Company, which shall be governed by the laws of
the State of New Hampshire), without giving effect to the principles of
conflicts of law thereof or of any other jurisdiction.
(k) The descriptive headings used herein are inserted for convenience
of reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. "Include," "includes," and "including" shall
be deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import.
(l) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same instrument.
8
<PAGE> 9
IN WITNESS WHEREOF, Parent, Purchaser and Shareholder have
caused this Agreement to be duly executed as of the day and year first above
written.
CIGNA CORPORATION
By: /s/ Robert L. Rose
---------------------------------
Name: Robert L. Rose
Title: Vice President
Strategic Growth &
Development
CHC ACQUISITION CORP.
By: /s/ Robert L. Rose
---------------------------------
Name: Robert L. Rose
Title: President
DR. NORMAN PAYSON
/s/ Norman C. Payson
---------------------------------
Address: c/o Healthsource, Inc.
2 College Park Drive
Hooksett, NH 03106
Telecopy: 603-268-7905
Owned Shares: 4,332,760
S-1
<PAGE> 1
CONFIDENTIALITY AGREEMENT
DATED AS OF JANUARY 31, 1997
In connection with the consideration of a possible transaction (the
"Transaction") between CIGNA CORPORATION ("CIGNA") and HEALTHSOURCE, INC.
("Healthsource"), Healthsource has or will furnish certain financial and other
information (the "Evaluation Material") to CIGNA. In consideration of the
receipt of the Evaluation Material from Healthsource and for CIGNA's agreement
to the terms of this Confidentiality Agreement, CIGNA agrees, as set forth
below, to keep the Evaluation Material and analyses derived from the Evaluation
Material ("Analysis") confidential, and both parties agree to the other matters
contained herein.
CIGNA agrees that the Evaluation Material will be used solely for
purposes of determining whether and under what terms and conditions it may have
an interest in negotiating or concluding a Transaction with Healthsource. CIGNA
further agrees to keep the Evaluation Material and Analysis confidential and not
to disclose the Evaluation Material and Analysis to any person except as
otherwise provided in this Confidentiality Agreement. For purposes of this
Confidentiality Agreement, the term "person" includes, without limitation, any
corporation, company, partnership, limited liability company, individual or
other entity. CIGNA may disclose the Evaluation Material and Analysis to its
directors, officers, employees, agents, and consultants (collectively
"Representatives") who, CIGNA determines, in the exercise of reasonable
judgment, need to know such information for the purpose of considering whether
to negotiate or conclude a Transaction with Healthsource, provided that such
persons are made aware of the confidentiality of the information, and the
limitations on its use. CIGNA shall assume responsibility for the breach of this
Agreement by its Representatives.
For purposes of this Confidentiality Agreement, "Evaluation Material"
means documents and information furnished by Healthsource to CIGNA or its
Representatives, orally, in writing, or by inspection of documents and all
analyses, compilations, forecasts, studies, summaries, notes, data and other
documents and materials in whatever form maintained, whether prepared by CIGNA,
its Representatives or others, to the extent such documents or materials contain
or reflect, any such information. The term "Evaluation Material" does not apply
to information which (a) is or becomes generally available to the public other
than as a result of disclosure by CIGNA (or its Representatives) in violation of
this Confidentiality Agreement, (b) was available to CIGNA on a non-confidential
basis from a source other than Healthsource or its employees, agents or
consultants
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<PAGE> 2
prior to receipt in accordance with this agreement, or (c) becomes available to
CIGNA on a non-confidential basis from a source other than Healthsource or its
employees, agents or consultants provided that CIGNA does not know that such
source is prohibited from disclosing such information to CIGNA by a contractual
or legal obligation.
CIGNA agrees not to disclose to any person, other than its
Representatives, any Evaluation Material, the fact that Evaluation Material has
been made available to CIGNA, the fact that either party is discussing a
possible transaction with the other or with any other person, or any fact
concerning the discussions or negotiations (including the existence or status
thereof), except pursuant to a subpoena (after immediate prior notice to the
other party so that the other party may seek an appropriate protective order)
and then only after using such disclosing party's best efforts to maintain the
continuing confidentiality of all such information required to be so disclosed.
Upon request, CIGNA will promptly deliver to Healthsource, or destroy,
all Evaluation Material furnished by Healthsource, without retaining any copies.
Upon request, CIGNA will also instruct all Representatives to deliver to
Healthsource or destroy, all Evaluation Material furnished by CIGNA to such
Representatives. Upon request, CIGNA will furnish Healthsource a letter stating
that the Evaluation Material has been returned or destroyed.
CIGNA acknowledges that neither Healthsource nor its Representatives,
agents or controlling persons makes any express or implied representation or
warranty as to the accuracy or completeness of the Evaluation Material or any
other information provided to CIGNA by Healthsource. CIGNA and its
Representatives agree that no such person will have any liability to CIGNA or
any of its Representatives with respect to the Evaluation Material on any basis
(including, without limitation, in contract, tort, under federal or state
securities laws or otherwise), except pursuant to the final, executed
Transaction documents, if any, and neither CIGNA nor its Representatives will
make any claims whatsoever against such persons, with respect to or arising out
of the Transaction, whether as a result of this Agreement, any other written or
oral expression with respect to the Transaction, CIGNA's participation in
evaluating the possible Transaction or any procedures therefor, CIGNA's review
of Healthsource, the use of the Evaluation Material by CIGNA or its
Representatives, any errors therein or omissions from the Evaluation Material,
or otherwise, except pursuant to the final, executed Transaction documents, if
any. CIGNA and its Representatives further agree that they are not entitled to
rely on the accuracy or completeness of the Evaluation Material and that only
such representations or warranties, if any, contained in the final, executed,
transaction documents, if any, shall have any binding effect. CIGNA further
acknowledges that nothing in this Confidentiality
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<PAGE> 3
Agreement precludes Healthsource from furnishing Evaluation Material to other
persons or parties.
CIGNA agrees that, for a period of eighteen (18) months from the date
of this Agreement, unless specifically invited in writing by Healthsource,
neither CIGNA nor any of CIGNA's affiliates, will in any manner, directly or
indirectly, effect or seek, offer, propose (whether publicly or otherwise) or
take any other action to effect, or cause or participate in, or in any way
assist, advise or encourage any other person to effect, seek, or offer or
propose (whether publicly or otherwise) to effect or participate in, (i) any
acquisition of the securities (or beneficial ownership thereof as such term is
used in the Securities Exchange Act of 1934) or assets of Healthsource, or
rights or options to acquire the same (except that the foregoing shall not
prohibit CIGNA, in the ordinary course of its investment activities for
third-party or fiduciary accounts, from trading or beneficially owning
securities of Healthsource; provided neither CIGNA nor its Affiliates shall
exercise any voting control over such third-party shares in a manner intended to
influence the management or operations of Healthsource); (ii) any tender or
exchange offer, merger or other business combination involving Healthsource
(including with a third-party); (iii) any recapitalization, restructuring,
liquidation, dissolution, purchase or sale of a substantial portion of the
assets of, or other extraordinary transaction with respect to Healthsource; (iv)
any "solicitation" of "proxies" (as such terms are used in the rules of the
Securities and Exchange Commission) to vote, or seek to advise or influence any
person or entity with respect to the voting of, any voting securities of
Healthsource or any action to elect or remove directors of, or to influence the
management, policy or conduct of the business affairs of Healthsource, or (v)
any action which would likely cause Healthsource to be required to make a public
announcement regarding any of the types of matters set forth in (i) - (iv)
above, nor will CIGNA enter into any arrangement or understanding with any
third-party to accomplish any of the foregoing. During such period, unless
specifically invited as provided above, CIGNA further agrees not to approach or
request Healthsource (or its directors, officer, employees or agents), directly
or indirectly, to amend or waive any provision of this paragraph (including this
sentence). If at any time during such period, CIGNA is approached by a
third-party concerning its or such third-party's participation in a transaction
or activity described in (i) - (iv) above, CIGNA will promptly inform
Healthsource of the nature of each contact and the identities of the
third-parties involved. CIGNA will not take any action during such period,
unless specifically invited as provided above, to communicate (either publicly
or privately) with Healthsource shareholders.
CIGNA agrees that neither CIGNA nor any of its Affiliates will, for a
period of eighteen (18) months from the date of this Confidentiality Agreement,
without the prior written consent of the Healthsource, (i) employ or solicit the
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<PAGE> 4
employment of any executive officer of Healthsource (as defined under the 1934
Act), or the CEO of any HMO or insurance subsidiary of Healthsource, nor (ii)
employ or solicit the employment of any other management employee of
Healthsource or any of its Affiliates with whom CIGNA or its Representatives had
contact during the negotiations and investigations of the Transaction, provided
that this clause (ii) shall not prevent CIGNA from hiring any such other
management employee who approaches CIGNA on his own initiative without direct or
indirect solicitation by CIGNA other than through an advertisement in a
newspaper or magazine.
CIGNA agrees that all of its communications with Healthsource with
respect to the Evaluation Material and any potential Transaction, will be
conducted solely with Norman C. Payson, M.D. or his designees.
The parties agree that a breach of any material provision of this
Agreement by either of them would result in irreparable harm to the
non-breaching party, that any remedy at law is inadequate because damages are
not fully ascertainable, and accordingly, in the event of any breach or
threatened breach of any material provision of this Agreement by a party (or its
Representative), the non-breaching party shall have the right to seek immediate
injunctive relief to prevent the breach in addition to any other remedies
available at law or in equity.
CIGNA agrees to advise its Representatives who receive the Evaluation
Material, that the Untied States securities laws prohibit any person who has
material, non-public information concerning the matters which are the subject of
this Agreement from purchasing or selling securities of Healthsource (and
options, warrants and rights relating thereto) or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
You acknowledge that if Healthsource determines to pursue a
Transaction, it may establish procedures and guidelines ("Procedures") for the
submission of proposals with respect to any Transaction with or involving
Healthcare. If CIGNA determines to submit a proposal, CIGNA and its
Representatives agree to act in accordance with the Procedures and to be bound
by the terms and conditions that may be established pursuant to the Procedures.
The Parties agree that unless and until a definitive transaction
agreement is executed by the parties, no contract or agreement providing for a
Transaction with the parties shall be deemed to exist. The parties agree that
neither party will be under any legal obligation of any kind whatsoever with
respect to any such Transaction by virtue of this Confidentiality Agreement or
by virtue of any oral or written expression with respect to such a Transaction
made by any of its
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<PAGE> 5
officers or Representatives. CIGNA agrees that Healthsource will have the right
in its sole discretion, without giving any reason therefor, at any time to
terminate the discussions with CIGNA concerning a possible Transaction, to elect
not to pursue any such Transaction, or to pursue the Transaction without your
involvement. This paragraph may only be modified by a written instrument signed
by both parties and referencing this paragraph specifically.
If it is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) that any term or provision hereof is invalid or
unenforceable, (i) the remaining terms and provision hereof shall be unimpaired
and shall remain in full force and effect and (ii) the invalid or unenforceable
provision or term shall be replaced by a term or provision that is valid,
enforceable and that comes closest to expressing the intention of such invalid
or unenforceable term or provision.
This Agreement embodies the entire agreement and understanding of the
parties hereto and supersedes any and all prior agreements, arrangements and
understandings relating to the matters provided for herein. No alteration,
waiver, amendment, change or supplement hereto shall be binding or effective
unless the same is set forth in a written instrument signed by a duly authorized
representative of each party and expressly so altering or waiving such
Agreement.
All notices required or permitted to be given under this Agreement
shall be given by personal delivery or by overnight courier service (signature
required) as follows, or to such other address as may be subsequently provided:
If to the Company: CIGNA Corporation
One Liberty Place
1650 Market Street
Philadelphia, PA 19192
Attn: Robert Rose
Vice-President - Strategic Growth and Development
FAX No.: (215) 761-3399
With a copy to: CIGNA Corporation
One Liberty Place
1650 Market Street
Philadelphia, PA 19192
Attn: Thomas J. Wagner, Esq.
General Counsel
FAX No.: (215) 761-5519
5
<PAGE> 6
If to Healthsource: Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
Attn: Norman C. Payson, M.D.
President & CEO
Fax No.: (603) 268-7905
With a copy to: Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
Attn: Jon S. Richardson
Special Counsel to the President
Fax No.: (603) 268-7905
This Agreement shall be governed by the internal substantive law of the State of
New Hampshire without regard to choice of law principles.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
duplicate original copies as of the date stated above.
HEALTHSOURCE, INC.
By: /s/ Joseph M. Zubretsky
--------------------------
Joseph M. Zubretsky
Chief Financial Officer
CIGNA CORPORATION
By: /s/ Robert L. Rose
--------------------------
Robert L. Rose
Vice President
6
<PAGE> 1
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of February 27, 1997 (this
"Agreement") by and between CIGNA Corporation, a Delaware corporation
("Parent"), and Dr. Norman Payson (the "Consultant").
WHEREAS, Parent, has entered into an Agreement and Plan of
Merger (the "Merger Agreement"), by and among Parent, CHC Acquisition Corp., a
New Hampshire corporation (the "Purchaser"), and Healthsource, Inc., a New
Hampshire corporation (the "Company"), dated as of February 27, 1997;
WHEREAS, in connection with the transactions contemplated by
the Merger Agreement and in recognition of the Consultant's experience and
abilities, Parent desires to assure itself of the services of the Consultant in
accordance with and subject to the terms and conditions provided herein; and
WHEREAS, the Consultant wishes to perform services for Parent
in accordance with and subject to the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Engagement as Consultant. Parent hereby agrees to engage
the Consultant, and the Consultant hereby agrees to perform services for Parent,
on the terms and conditions set forth herein.
2. Term. This Agreement is for the nine month period (the
"Term") commencing on the date of consummation of the "Offer" (as such term is
defined in the Merger Agreement) and terminating nine months from such
<PAGE> 2
date; provided, however, that if the Offer is not consummated or if the Merger
Agreement is terminated this Agreement shall terminate immediately and be of no
force or effect.
3. Duties and Reporting Relationship. From time to time during
the Term, the Consultant shall perform such services relating to the business
of Parent as the Consultant and the President of CIGNA HealthCare (or his
designee) shall mutually agree. The Consultant shall in no event be required to
provide more than 120 hours per month of consulting services to Parent for the
first 6 months of the Term and no more than 80 hours per month of consulting
services to Parent for the next 3 months of the Term. The scheduling of such
time shall be mutually agreeable to the Consultant and Parent. Subject to the
Consultant's obligations elsewhere herein, Parent acknowledges that the
Consultant is permitted to pursue other activities, whether of a personal or
business nature, and, accordingly, may not always be immediately available to
Purchaser.
4. Place of Performance. The Consultant shall perform his
duties and conduct his business from his primary residence and/or at such other
locations as are reasonably acceptable to him; provided, however, that, as
mutually agreed, the Consultant will be available to travel domestically to meet
from time to time with representatives of Parent.
5. Independent Contractor. During the term of this Agreement,
the Consultant shall be an independent contractor and not an employee of Parent.
6. Compensation and Related Matters.
(a) Monthly Consulting Fee. During the Term, Parent shall
pay to the Consultant a monthly consulting fee at a rate of $100,000 per month.
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<PAGE> 3
(b) Business Expenses. In addition to the expenses to be
reimbursed pursuant to Annex A hereto, the Consultant will be reimbursed by
Parent for all ordinary and appropriate business expenses incurred by him in
connection with his performance of consulting services hereunder upon submission
by the Consultant of receipts and other documentation in accordance with
Parent's normal reimbursement procedures.
(c) Benefits and Perquisites. During the Term and, where
applicable, thereafter, Parent shall provide the Consultant (and, to the extent
applicable, his covered dependents) with those employee benefits and perquisites
set forth on Annex A hereto.
(d) Options. Notwithstanding anything to the contrary,
including, without limitation, anything contained in this Agreement, the Merger
Agreement or any stock option or incentive plan of Parent, the Purchaser or the
Company, Parent shall take all action necessary to cause each Substitute Option
(as defined in the Merger Agreement) held by the Consultant (or, in the event of
his death, held by his estate or designated beneficiary) to expire no earlier
than the tenth anniversary of the date of grant of the corresponding Company
Employee Stock Option (as defined in the Merger Agreement) that was converted
into a Substitute Option pursuant to Section 2.4 of the Merger Agreement,
without regard to any of (i) the termination or expiration of this Agreement,
(ii) the termination of the Consultant's employment with the Company, (iii) the
death or disability of the Consultant or (iv) the cessation of the Consultant's
services to Parent; provided, however, that Parent may grant Substitute Options
to the Consultant under a stock option plan of Parent, so long as such grant
does not adversely affect the rights of the Consultant hereunder and under the
Merger Agreement. In this regard, notwithstanding anything to the contrary,
including, without limitation, anything contained in this Agreement, the Merger
Agreement or any stock option or incentive plan of Parent, the
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<PAGE> 4
Purchaser or the Company, Parent agrees that each such Substitute Option held by
the Consultant shall be freely exercisable without restriction, at all times
prior to the expiration of such option, by the Consultant and his successors,
for shares of Parent common stock.
7. Termination. The Consultant's engagement as a consultant
hereunder shall terminate without further action by any party hereto nine months
from the date of consummation of the Offer. Upon any termination of this
Agreement or the Consultant's engagement as a consultant hereunder, the parties
hereto shall have no further obligation or liability under this Agreement,
except that (a) Parent shall pay the Consultant all fees and reimburse the
Consultant for all expenses incurred prior to the date of termination, (b)
Parent shall continue to provide the Consultant (and his covered dependents)
with the employee benefits and perquisites set forth on Annex A hereto for a
period of 36 months from such date of termination (except for use of the
aircraft described in Annex A which Parent will provide for a period of 12
months from such date of termination) and (c) the provisions of Sections 6(c),
6(d) and 7, 8 and 11 through 15 of this Agreement shall survive any such
termination.
8. Releases. (a) In consideration for the payment and benefits
provided in this Agreement, the Consultant hereby voluntarily, knowingly,
willingly, irrevocably and unconditionally releases Parent and the Company,
together with each of its parents, subsidiaries and affiliates, and each of
their respective officers, directors, employees, representatives, attorneys and
agents, and each of their respective predecessors, successors and assigns
(collectively, the "Releasees") from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, causes of action, rights, costs,
losses, debts and expenses of any nature whatsoever, known or unknown (other
than with respect to any breach by the Releasees of this Agreement or the Merger
Agreement), against them which the Consultant or his succes-
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<PAGE> 5
sors or assigns ever had, now have or hereafter can, shall or may have (either
directly, indirectly, derivatively or in any other representative capacity) by
reason of any matter, fact or cause whatsoever arising from the beginning of
time to the date of consummation of the Offer, including without limitation all
claims arising under Title VII of the Civil Rights Act of 1964, the federal Age
Discrimination in Employment Act ("ADEA") and all other federal, state or local
laws, rules, regulations, judicial decisions or public policies now or hereafter
recognized. By signing this Agreement, the Consultant admits that he has read
this Agreement, understands it is a legally binding agreement and that he was
advised to review it with legal counsel of his choice, and has reviewed it with
legal counsel of his choice, has had, or had the opportunity to take, 21
calendar days to discuss it with legal counsel of his choice before signing and
that if he signs prior to the end of such period, he does so of his own free
will and with full knowledge that he could have taken the full period. The
Consultant realizes and understands that this release applies to and covers all
claims, demands and causes of action including those under the ADEA against the
Releases whether or not the Consultant knows or suspects them to exist at the
present time. The Consultant acknowledges that he understands the terms of this
Agreement, that it is not part of an exit incentive or other employment
termination program being offered to a group or class of employees. The
Consultant shall have a period of 7 calendar days from the date he signs this
Agreement to revoke the Agreement and any revocation and cancellation must be in
writing, signed by the Consultant and received by Parent before the close of
business on the seventh calendar day following the date hereof.
(b) In consideration for the Consultant's obligations under
this Agreement, Parent hereby voluntarily, knowingly, willingly, irrevocably and
unconditionally releases the Consultant (and hereby agrees to cause each of the
Purchaser, the Company and their affil-
5
<PAGE> 6
iates to release the Consultant) from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, causes of action, rights, costs,
losses, debts and expenses of any nature whatsoever, known or unknown (other
than with respect to any breach by the Consultant of this Agreement) against him
which Parent, the Purchaser or the Company or their respective successors or
assigns ever had, now have or hereafter can, shall or may have (either directly,
indirectly, derivatively or in any other representative capacity) by reason of
any matter, fact or cause whatsoever arising from the beginning of time to the
date of consummation of the Offer.
9. Covenant Not to Compete. (a) The Consultant hereby agrees
that, for a period of nine months following the date of consummation of the
Offer, the Consultant shall not, whether acting individually or as an officer,
director, employee, agent, stockholder or consultant of any person, firm,
corporation, business or other entity, engage in a business that competes,
directly or indirectly, in any material respect with the business conducted as
of the date hereof by Parent, the Company and their respective subsidiaries;
provided, however, that the Consultant may own publicly-traded stock of any such
person, firm, corporation, business or other entity constituting not more than
5% of the outstanding shares of such class of stock so long as his involvement
with any such entity is limited to the ownership of such stock.
(b) The Consultant and Parent acknowledge that the
non-competition provision contained in Section 9(a) above is reasonable and
necessary, in view of the nature of Parent and the Company, their businesses and
his knowledge thereof, in order to protect the legitimate interests of Parent
and the Company.
(c) The Consultant agrees that during the Term and for a
period of one year following the termination of this Agreement, he shall not (i)
induce any employee of
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<PAGE> 7
Parent, the Company or any of their affiliates to leave the employ of Parent,
the Company or any of their affiliates or to accept any other employment or
position, or (ii) assist any other person in hiring any such employee, provided,
however, that nothing contained herein shall prevent the Consultant from
responding to or addressing inquiries initiating from employees of Parent, the
Company and its affiliates or from hiring any such employees who make initial
contact with the Consultant.
(d) The Consultant hereby agrees that he shall not following
the termination of this Agreement retain in his possession any written,
documentary, tape, recorded or computerized proprietary information relating to
the Company and its clients and customers.
(e) Parent hereby agrees that in the event of any alleged
breach of this Section 9 by the Consultant, Parent shall deliver to the
Consultant a written notice, which notice shall specifically identify the manner
in which the Consultant has allegedly breached this Section 9. Upon receipt of
such notice, Consultant shall have a period of 10 calendar days during which
period he may attempt to cure any such specified breach. Parent hereby agrees
that it shall not seek any judicial remedy or relief in respect of any such
alleged breach until after the expiration of such 10 calendar day period, and
may only seek such judicial remedy or relief in the event any such breach has
not been reasonably cured during such 10 calendar day period.
10. No Disparagement. Parent and the Consultant hereby agree
that each shall not (and Parent further agrees (i) to cause the Company and the
Purchaser and its and their respective directors and officers and (ii) if
notified in writing by the Consultant of a material breach of this paragraph,
Parent agrees to use reasonable efforts to cause its and their respective
subsidiaries, employees, affiliates, advisors, representatives and agents to
not) make, or cause to be made, any statement,
7
<PAGE> 8
observation or opinion, or communicate any information (whether oral or
written), that materially disparages the reputation or business of the other
party hereto. The Consultant agrees that in the event of any alleged breach of
this Section 10 by Parent, the Consultant shall deliver to Parent written notice
specifically identifying the manner in which Parent has allegedly breach this
Section 10. Upon receipt of such notice, Parent shall have a period of 10
calendar days during which period it may attempt to cure any such specified
breach. The Consultant hereby agrees that he will not seek any judicial remedy
or relief in respect of such breach (including the remedy described in this
paragraph) until after the expiration of such 10 calendar day period, and may
only seek such judicial remedy or relief in the event any such breach has not
been reasonably cured during such 10 calendar day period.
11. Indemnification. Parent shall indemnify and hold harmless
the Consultant to the full extent permitted by law and the by-laws of Parent for
all expenses, costs, liabilities and legal fees that the Consultant may incur in
the discharge of his duties hereunder, including the mandatory advancement of
and reimbursement for any legal fees and expenses incurred by the Consultant in
enforcing any right or benefit under this Agreement. Such payments shall be made
within 5 days after the Consultant's request for payment. Any termination or
expiration of the Consultant's engagement as a consultant hereunder or of this
Agreement shall have no effect on the continuing operation of this Section 11.
12. Successors; Binding Agreement.
(a) Parent shall require any successor to all or
substantially all of the business or assets of Parent, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
Parent would be required to perform it if no such succession had taken place.
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<PAGE> 9
(b) This Agreement and all rights of the Consultant
hereunder shall inure to the benefit of and be enforceable by the Consultant's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement is personal to and may not
be assigned by the Consultant.
13. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by the notice):
If to Parent:
c/o CIGNA HealthCare (B-216)
900 North Cottage Grove Road
Hartford, CT 06152-1216
Attention: H. Edward Hanway
If to the Consultant:
Dr. Norman Payson
Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
14. Disputes.
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement, including any annexes hereto, or the breach,
termination or validity hereof, shall be finally settled by arbitration by one
arbitrator in the city and state of the Company's headquarters on the date
hereof pursuant to the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court of competent jurisdiction. The
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<PAGE> 10
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-16.
(b) In no event shall the Consultant be liable to Parent
on account of any breach or breaches of this Agreement for an aggregate amount
that exceeds the amount paid to the Consultant during the Term under Section
6(a) hereof.
15. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the parties hereto. No waiver by a party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by the parties which are not set forth expressly in this
Agreement. This Agreement shall be governed and construed in accordance with the
laws of the State in which the Company is incorporated on the date hereof,
without giving effect to the principles of conflicts of law thereunder or of any
other jurisdiction.
16. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but both of which
together will constitute one and the same instrument.
17. Enforcement. If any court or arbitrator determines that
any covenant contained in this Agreement, or any part thereof, is unenforceable
for any reason, the duration and/or scope of such provision shall be reduced so
that such provision becomes enforceable and, in its reduced form, such provision
shall then be enforceable and shall be enforced.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
/s/ Norman Payson
---------------------------
Dr. Norman Payson
CIGNA CORPORATION
By:/s/ Robert L. Rose
------------------------
Name: Robert L. Rose
Title: Vice President
<PAGE> 12
ANNEX A
Medical, hospitalization, dental, life and
disability insurance benefits at a level no less
favorable than that provided to senior executive
officers of Parent and without any waiting periods
or preexisting condition limitations.
Full and complete access to the aircraft cur-
rently used by the Consultant as Chief Executive
Officer of the Company (or comparable aircraft if
the current aircraft is unavailable). To the ex-
tent such aircraft use is not in connection with
the business of Parent, the Consultant shall
reimburse Parent for such use at the rate of
$1,000 per hour for the time such aircraft is
airborne. Upon termination or expiration of the
Agreement, the Consultant shall have the right to
purchase such aircraft from Parent at its then
book value.
An initial cash payment of $25,000, made immedi-
ately following the consummation of the Offer, the
proceeds of which are to be used by the Con-
sultant solely to purchase computer and telephone
equipment in connection with the establishment of
an office in the Consultant's home (or other
location selected by him). The Consultant may
employ one or more assistants to administer his
office and, if any such assistant was an employee
of the Company immediately prior to the consumma-
tion of the Offer, such assistant shall be enti-
tled to receive from Parent full severance bene-
fits as if such assistant was terminated by Par-
ent without cause. Purchaser will reimburse the
Consultant for the costs associated with the
employment of such assistants as well as for any
other expenses incurred with the operation of
<PAGE> 13
such office on a monthly basis, up to a total
annual cost of $200,000.
