________________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 0-13253
UNITED HEALTHCARE CORPORATION
State of Incorporation: Minnesota
I.R.S. Employer Identification No: 41-1321939
Principal Executive Offices:
300 Opus Center
9900 Bren Road East
Minnetonka MN, 55343
Telephone Number: (612)936-1300
Indicate by check mark (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _______
The number of shares of Common Stock, par value $.01 per share, outstanding on
November 10, 1995 was 174,696,191.
________________________________________________________________________________
<PAGE>
UNITED HEALTHCARE CORPORATION
INDEX
Part I. Financial Information. Page Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Operations for the three 4
and nine month periods ended September 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Report of Independent Public Accountants 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
<TABLE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share & per share data)
(unaudited)
<CAPTION>
September 30, December 31,
<S> <C> <C>
ASSETS 1995 1994
Current Assets
Cash and cash equivalents $ 1,307,531 $ 1,519,049
Short-term investments 276,467 135,287
Accounts receivable, net 253,053 167,369
Other 56,650 86,510
Total Current Assets 1,893,701 1,908,215
Long-term Investments 1,001,584 1,115,054
Intangible Assets, net 803,551 303,613
Property and Equipment, net 198,035 162,597
TOTAL ASSETS $ 3,896,871 $ 3,489,479
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Medical costs payable $ 500,450 $ 443,559
Accounts payable 67,199 66,938
Accrued expenses 73,249 83,087
Unearned premiums 95,251 70,718
Total Current Liabilities 736,149 664,302
Long-term Obligations 26,189 24,275
Minority Interests 7,021 5,446
Shareholders' Equity
Preferred stock, $.001 par value - 10,000,000
shares authorized; 9,900,000 shares available for
issuance; no shares outstanding -- --
Common stock, $.01 par value - 500,000,000 shares
authorized; 173,845,000 and 172,831,000 issued and
outstanding 1,739 1,728
Additional paid-in capital 779,843 752,472
Retained earnings 2,352,845 2,085,056
Deferred compensation -- (35)
Net unrealized holding losses on investments
available for sale, net of tax effects (6,915) (43,765)
Total Shareholders' Equity 3,127,512 2,795,456
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,896,871 $ 3,489,479
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES
Premium $1,100,013 $ 858,228 $3,153,275 $2,498,921
Management Services 76,367 59,820 210,340 218,794
Investment Income and Other 39,156 38,786 113,701 82,140
Total Revenues 1,215,536 956,834 3,477,316 2,799,855
OPERATING EXPENSES
Medical Costs 872,358 675,650 2,480,020 1,957,494
Selling, General and
Administrative Costs 173,267 133,462 500,364 424,996
Depreciation and Amortization 19,343 16,258 59,392 48,539
Total Operating Expenses 1,064,968 825,370 3,039,776 2,431,029
EARNINGS FROM OPERATIONS 150,568 131,464 437,540 368,826
Interest Expense (146) (413) (704) (1,550)
Merger Costs -- -- -- (35,940)
EARNINGS BEFORE INCOME TAXES,
MINORITY INTERESTS AND
EXTRAORDINARY GAIN 150,422 131,051 436,836 331,336
Provision for Income Taxes (55,655) (49,810) (161,629) (125,908)
Minority Interests in Net
Earnings of Consolidated
Subsidiaries (1,097) (399) (2,226) (1,532)
NET EARNINGS BEFORE
EXTRAORDINARY GAIN 93,670 80,842 272,981 203,896 <F1>
EXTRAORDINARY GAIN ON SALE OF
SUBSIDIARY (net of income
taxes of $808,758) -- -- -- 1,377,075
NET EARNINGS $ 93,670 $ 80,842 $ 272,981 $1,580,971
NET EARNINGS PER SHARE
BEFORE EXTRAORDINARY GAIN $ 0.53 $ 0.46 $ 1.55 $ 1.16 <F1>
EXTRAORDINARY GAIN PER SHARE -- -- -- 7.85
NET EARNINGS PER SHARE $ 0.53 $ .46 $ 1.55 $ 9.01
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 177,070 176,038 176,615 175,501
See notes to condensed consolidated financial statements
<FN>
<F1> Excluding the effects of the Ramsay and Complete Health merger costs, net earnings of
$226,179 and net earnings per share before extraordinary gain of $1.29 would have been reported
for the nine month period ended September 30, 1994.
</FN>
</TABLE>
<PAGE>
<TABLE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 272,981 $1,580,971
Non-Cash Items
Depreciation and amortization 59,392 48,539
Net gain on sale of subsidiary -- (1,377,075)
Other (5,304) 6,043
Net Change in Other Operating Items, net of effects from
acquisitions and sale of subsidiary
Accounts receivable and other current assets (48,876) (16,673)
Medical costs payable 13,796 (24,316)
Accounts payable (44,879) (54,392)
Accrued expenses (3,579) 32,413
Unearned premiums 23,954 (3,128)
Cash Flows From Operating Activities 267,485 192,382
INVESTING ACTIVITIES
Cash Received From Sale of Subsidiary, net of
cash surrendered and other effects -- 2,298,819
Cash Paid for Income Taxes and Transaction Costs related to
Sale of Subsidiary -- (656,933)
Cash Paid for Acquisitions, net of cash assumed
and other effects (546,054) (48,429)
Net Purchases of Property and Equipment (66,046) (49,145)
Purchases of Investments Available for Sale (2,121,949) (890,895)
Maturities/Sales of Investments Available for Sale 2,265,167 559,532
Purchases of Investments Held to Maturity (8,517) (1,391)
Maturities of Investments Held to Maturity 4,942 16,572
Other (14,661) (3,988)
Cash Flows From (Used for)Investing Activities (487,118) 1,224,142
FINANCING ACTIVITIES
Net Proceeds from Stock Option Exercises 18,284 38,543
Payment of Long-term Obligations (4,977) (16,166)
Dividends Paid (5,192) (4,626)
Cash Flows From Financing Activities 8,115 17,751
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (211,518) 1,434,275
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,519,049 228,260
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,307,531 $1,662,535
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Accounting
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting solely
of normal recurring adjustments, necessary for a fair presentation of the
financial results for the interim periods presented. Pursuant to the rules
and regulations of the Securities and Exchange Commission, footnote
disclosures which would substantially duplicate the disclosures contained in
the audited financial statements of the Company have been omitted from these
interim financial statements. Although the Company believes that the
disclosures presented below are adequate to make the interim financial
statements presented not misleading, it is suggested that these unaudited
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto incorporated by
reference in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
2. Acquisitions
After the completion of the third quarter, the Company acquired The
MetraHealth Companies, Inc.(MetraHealth) on October 2, 1995. MetraHealth was
formed in January 1995 by combining the group health care operations of
Metropolitan Life Insurance Company and The Travelers Insurance Company. At
the time of acquisition, MetraHealth served 10.3 million individuals,
including 5.9 million in network-based care programs, approximately 469,000 of
whom are health maintenance organization (HMO) members.
The acquisition will be accounted for using the purchase
method of accounting, whereby the purchase price will be allocated to assets
and liabilities based on their estimated fair values at the date of
acquisition.
The total purchase price of the acquisition was $1.09 billion in cash and
$500.0 million of 5.75% convertible preferred stock, for a total consideration
at closing of $1.59 billion. The convertible preferred stock is convertible
into United's common stock at $49.48 per share, has a three-year no-call
provision, and has a ten-year mandatory redemption. In addition, the former
owners of MetraHealth are eligible to receive up to an additional $350.0
million if MetraHealth achieves certain 1995 operating results, as defined.
Any consideration payable for this 1995 earnout in excess of the initial $1.59
billion may, at United's sole discretion be in the form of cash, convertible
debt, convertible preferred stock, or straight debt. Moreover, if United's
post-acquisition combined net earnings for 1996 and 1997 reaches certain
specified levels, certain of MetraHealth's former owners will be eligible to
receive up to an additional $175 million in cash for each of those years.
On January 3, 1995, the Company completed its acquisition of GenCare Health
Systems, Inc. (GenCare), a health plan based in St. Louis, Missouri, which
served 230,000 members at the time of acquisition. The total purchase price
of the acquisition was $515.4 million in cash. The acquisition was accounted
for using the purchase method of accounting. The purchase price and
associated acquisition costs in excess of the estimated fair value of net
assets acquired of $490.0 million is being amortized on a straight-line basis
over 40 years. Had the transaction occurred on January 1, 1994, combined
unaudited pro forma results for the nine month period ended September 30,
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
1994 would have been: revenues - $2.94 billion; net earnings before
extraordinary gain - $200.1 million; net earnings - $1.58 billion; net
earnings per share before extraordinary gain - $1.14; and net earnings per
share - $8.99.
3. Dividends
On February 13, 1995, the Company's Board of Directors approved an annual
dividend for 1995 of $0.03 per share to holders of the Company's common stock.
This dividend, totaling $5.2 million, was paid on April 15, 1995 to
shareholders of record at the close of business on April 1, 1995.
4. Cash and Investments
As of September 30, 1995, the amortized cost, gross unrealized holding gains
and losses and fair value of the Company's cash and investments were as
follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $1,307,531 $ -- $ -- $1,307,531
Investments Available for Sale 1,262,468 9,549 (20,525) 1,251,492
Investments Held to Maturity 26,559 305 (176) 26,688
Total Cash and Investments $2,596,558 $ 9,854 $ (20,701) $2,585,711
</TABLE>
5. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No.121), effective for fiscal years beginning after December 15, 1995,
requires recognition of impairment losses on long-lived assets, certain
intangible assets and goodwill based on the future operating results associated
with such assets, as defined. The Company plans to adopt SFAS No. 121 in
1996, and currently believes that upon adoption the statement will not
have a material impact on the Company's results of operations or financial
position.
Financial Accounting Standards Board Statement No. 123, "Accounting for Stock
- -Based Compensation" (SFAS No. 123), effective for fiscal years beginning
after December 15, 1995, encourages, but does not require, companies to adopt
a fair value based method of accounting for employee stock options. It also
allows companies to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25), and submit pro forma disclosures of net earnings and earnings
per share as if a fair value based method of accounting had been applied.
The Company plans to adopt SFAS No. 123 in 1996. While the Company is still
evaluating SFAS No. 123, it currently expects to elect to continue to measure
compensation cost under APB No. 25 and comply with the pro forma disclosure
requirements. If the Company makes this election, this statement would not
have a material impact on the Company's results of operations or financial
position. The Company's stock option plans are generally fixed plans, as
defined under APB No. 25, and accordingly, stock options issued under the
Company's plans have no intrinsic value at the grant date.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United HealthCare Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
United HealthCare Corporation (a Minnesota corporation) and Subsidiaries as of
September 30, 1995, and the related condensed consolidated statements of
operations for the three and nine months periods ended September 30, 1995 and
1994, and the condensed consolidated statements of cash flows for the nine
month periods ended September 30, 1995 and 1994. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United HealthCare Corporation and
Subsidiaries as of December 31, 1994 (not presented herein), and, in our
report dated February 14, 1995, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1994, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/Arthur Andersen LLP
Minneapolis, Minnesota,
November 2, 1995
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated financial results and related comparisons presented in this
discussion include several significant transactions which affect year-to-year
comparability. On May 27, 1994, the Company sold Diversified Pharmaceutical
Services, Inc. (Diversified), then a wholly owned subsidiary, to SmithKline
Beecham Corporation for $2.3 billion in cash. In connection with this
transaction, the Company recognized an extraordinary gain after transaction
costs and income tax effects of $1.38 billion, or $7.86 per share. The
results of Diversified subsequent to the sale are not included in the
consolidated financial results of the Company.
On January 3, 1995, the Company acquired GenCare Health Systems, Inc.
(GenCare), a health plan based in St. Louis, Missouri serving 230,000 members
at the time of acquisition. On February 28, 1995, the Company acquired Group
Sales and Service of Puerto Rico, Inc. (Group Sales), a health plan based in
San Juan, Puerto Rico serving 135,000 members at the time of acquisition.
Each of these acquisitions was accounted for as a purchase transaction.
Accordingly, only the post-acquisition results of GenCare and Group Sales are
included in the Company's consolidated financial results.
After the completion of the third quarter, the Company acquired The
MetraHealth Companies, Inc.(MetraHealth) on October 2, 1995. MetraHealth was
formed in January 1995 by combining the group health care operations of
Metropolitan Life Insurance Company and The Travelers Insurance Company. At
the time of acquisition, MetraHealth served 10.3 million individuals,
including 5.9 million in network-based care programs, approximately 469,000 of
whom are health maintenance organization (HMO) members.
The acquisition will be accounted for using the purchase
method of accounting. Accordingly, the post-acquisition results of
MetraHealth will be included in the Company's consolidated financial results
beginning in the fourth quarter of 1995.
The Company is developing a comprehensive integration plan to achieve the
potential benefits of its merger with MetraHealth. The plan is expected to
result in a substantial restructuring charge related to the impact of the
integration on United's operations. The magnitude of the charge will be
determined as the integration plan is finalized and will be reported as part
of the Company's fourth quarter consolidated financial results.
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto.
CONSOLIDATED OPERATING RESULTS
Revenues for the three and nine month periods ended September 30, 1995 of
$1.22 billion and $3.48 billion exceeded revenues reported for the comparable
1994 periods by 27% and 24%, respectively. The growth in revenues was driven
primarily by strong enrollment gains within the Company's owned and managed
health plans. In addition, the Company's 1995 acquisitions of GenCare and
Group Sales accounted for approximately 37% of the increase in revenues for
the three and nine month periods. The loss of revenues as a result of the
sale of Diversified was more than offset by the investment income earned on
the proceeds from the sale.
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Total operating expenses as a percent of revenues for the third quarter of
1995 were 87.6%, up from 86.3% for the comparable 1994 period. Through the
first nine months of 1995, this ratio increased to 87.4% compared to 86.8% for
the same nine month period in 1994, primarily due to higher medical costs in
relation to the premium revenues associated with certain of the Company's
Medicaid programs.
The Company's provision for income taxes represents the tax effects of its
current operations based on the Federal statutory tax rate, adjusted primarily
for the effects of tax-exempt investment income and state income taxes. The
effective income tax rate was 37% in 1995 and 38% in 1994.
Third quarter net earnings were $93.7 million in 1995, a 16% increase over
comparable net earnings of $80.8 million in 1994. On a per share basis, net
earnings for those periods increased from $0.46 in 1994 to $0.53 in 1995. For
the nine months ended September 30, 1995, net earnings increased 21% to $273.0
million, or $1.55, per share from comparable 1994 net earnings of $226.2
million, or $1.29 per share.
In the second quarter of 1994, the Company recorded nonrecurring, non-
operating merger costs of $35.9 million associated with its May 1994
acquisitions of Complete Health Services, Inc. (Complete Health) and Ramsay-
HMO, Inc. (Ramsay). This reduced 1994 net earnings by $22.3 million, or $0.13
per share. Each of these acquisitions was accounted for as a pooling of
interests and, accordingly, the Company's consolidated operating results
include Complete Health and Ramsay for all periods presented.
LINE OF BUSINESS REPORTING
The Company operates in a single industry segment, managed health care. The
general management and various aspects of the Company's operations, including
information systems, transaction processing and certain administrative
functions and procedures, are interrelated. The following table presents
financial information reflecting the Company's operations by two lines of
business: (i) owned health plans and (ii) managed health plans and specialty
managed care services. This information is provided solely to facilitate the
discussion of the Company's results of operations.
Owned health plan operations include health plans in which the Company has at
least a majority ownership interest and the Company's related insurance
operations. This line of business is characterized by operations in which the
Company assumes underwriting risk in return for premium revenue. The second
line of business, includes managed health plan and specialty managed care
services operations. The managed health plan component of this line of
business provides administrative and other management services to health plans
in which the Company has less than a majority ownership interest, if any. The
Company's specialty managed care services operations serve the Company's owned
and managed health plans as well as customers unaffiliated with the Company.
This line of business is characterized by operations in which the Company
receives fees for the provision of service, primarily administrative in
nature, and generally accepts no financial responsibility for health care
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
costs, except in the case of its subsidiary United Behavioral Systems (UBS)
and the formerly-owned Diversified. Through UBS, the Company does accept some
health care cost responsibility for the provision of mental health and
substance abuse services and thus recognizes premium revenue and medical
services expense. Except for directly identifiable expenses, the Company s
general and administrative expenses are allocated between the two lines of
business, primarily on the basis of enrollment, revenues, information systems
or other resource usage.
Diversified has been included in the managed and specialty line of business
through the date of sale. As a result of the acquisitions of Complete Health,
Ramsay, GenCare, Group Sales and MetraHealth, coupled with the sale of
Diversified, the managed health plans and specialty managed care services line
of business comprises a substantially smaller portion of the Company s total
revenues and operating income.
<PAGE>
<TABLE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LINE OF BUSINESS FINANCIAL INFORMATION
(in thousands, except ratios)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES <F1>
Owned Health Plans $1,103,066 $ 852,746 $3,156,146 $2,487,816
Managed Health Plan
and Specialty Managed
Care Services <F2> 104,480 86,392 297,504 370,108
Corporate and
Eliminations <F3> 7,990 17,696 23,666 (58,069)
TOTAL REVENUES $1,215,536 $ 956,834 $3,477,316 $2,799,855
OPERATING INCOME <F1>
Owned Health Plans $ 103,545 88,141 $ 312,337 256,023
Managed Health Plan
and Specialty Managed
Care Services <F2> 22,098 14,242 57,905 57,372
Corporate and
Eliminations <F3> 24,925 29,081 67,298 55,431
TOTAL OPERATING
INCOME $ 150,568 $131,464 $ 437,540 $ 368,826
OPERATING MARGIN
Owned Health Plans 9.4% 10.3% 9.9% 10.3%
Managed Health Plan
and Specialty Managed
Care Services <F2> 21.2% 16.5% 19.5% 15.5%
TOTAL OPERATING MARGIN 12.4% 13.7% 12.6% 13.2%
<FN>
<F1> Revenues and operating income for each line of business include its respective
investment income. Interest earned on cash available for general corporate use is included
in "corporate and eliminations." Investment income included in the owned health plan line
of business for the third quarter of 1995 and 1994 was $14.6 million and $8.4 million,
respectively, and for the nine month periods ended September 30, 1995 and 1994, $40.3
million and $24.8 million, respectively. Investment income included in "corporate and
eliminations" for the third quarter of 1995 and 1994 was $24.6 million and $30.4 million,
respectively, and for the nine month periods ended September 30, 1995 and 1994, $73.4
million and $57.3, respectively.
<F2> Excludes the post-disposition results of Diversified.
<F3> "Corporate and eliminations" includes revenue eliminations between lines of business and
amounts not deemed to be related to a line of business, including interest earned on cash
available for general corporate use, research and development costs and certain other
corporate expenses.
</FN>
</TABLE>
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
OWNED HEALTH PLANS
Revenues generated by the Company s owned health plans increased by 29% and
27%, respectively, for of the three and nine month periods ended September 30,
1995 compared to the same periods in 1994. Excluding the effects of the
GenCare and Group Sales acquisitions, the increase in revenues in the three
and nine month periods ended September 30, 1995 over the same periods in 1994
was 19% and 17%, respectively. This increase reflects year-over-year
enrollment growth of 19% and an average premium rate increase on renewing
commercial groups of approximately 2% in 1995.
The Company's year-over-year enrollment growth slightly exceeded the
corresponding growth in revenues in this line of business due to changes in
customer mix. Much of the commercial enrollment growth has been in the small
group product which is generally characterized as having lower benefits (and
therefore lower premiums) than the Company's other commercial products. In
addition, enrollment in the Company's self-funded product (a product where the
Company receives administrative fees rather than premiums) has increased 29%
year-over-year and as of September 30, 1995, comprises 192,000 enrollees out
of the Company's total owned health plan enrollment of 2,923,000.
Owned health plan commercial premiums are established by the Company based on
anticipated health care costs. The Company has been able to effectively manage
health care costs and maintain the effective rate at which its health care
costs have grown within the commercial line of business to 1% to 2%.
`
Competition for commercial enrollment in certain of the Company's owned health
plan markets has increased in recent quarters. However, the Company has
continued to follow its strategy of pricing its commercial products in
accordance with anticipated health care costs. Depending on the level of
future competition or other external factors beyond the Company's control,
there can be no assurances that the Company's recent enrollment growth trends
will continue.
The combination of the Company's pricing strategy and combined medical cost
management efforts are reflected in the owned health plans' medical expense
ratio (the percent of premium revenues used for medical costs). The medical
expense ratio for the third quarter of 1995 was 80.1%, up slightly from 79.4%
for the same period in 1994. Through the first nine months of 1995, this
ratio increased to 79.5% from 79.4% for the comparable 1994 period. The
slight increase in the medical expense ratio is largely a reflection of
declines in Medicaid premium rates in certain markets and the Company's
strategic decision to selectively increase Medicaid provider reimbursements.
Owned health plan operating income increased 18% from $88.1 million for the
three months ended September 30, 1994 to $103.5 million for the same period in
1995. Through the first nine months of 1995, operating income was $312.3
million, an increase of 22% over the same period in 1994. Consistent with the
movement in the medical expense ratio, the operating margin in this line of
business for the third quarter of 1995 of 9.4% was down from the 10.3% for the
same period in 1994. The operating margin through the first nine months of
1995 reflected a comparable decrease, down to 9.9% from 10.3% for the same
nine month period in 1994.
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
MANAGED HEALTH PLAN AND
SPECIALTY MANAGED CARE SERVICES
Revenues generated by the Company s managed health plans and specialty managed
care services operations increased 21% in the three month period ended
September 30, 1995 compared to the same period in 1994. However, revenues as
reported for the nine month period ended September 30, 1995 of $297.5 million
decreased 20% compared to the same period in 1994. The nine month results
were significantly impacted by the effects of the sale of Diversified in May
1994 and a change in the terms of the Company s management agreement with the
Minneapolis, Minnesota, based Medica health plan in August 1994. The results
of Diversified s operations have been included in this line of business only
through the date of sale. Under the new Medica agreement, the Company
transferred cost responsibility for certain management contract expenses and
employees to Medica. The Company s selling, general and administrative
expenses decreased accordingly, matched with a corresponding decrease in
management services revenues. Excluding the effects of the sale of
Diversified and the Medica contract change, revenues generated in this line of
business increased approximately 23% in the nine month period ended September
30, 1995 compared to the same period in 1994.
After excluding the effects of the Diversified sale and the change in the
Medica agreement, the principal factors behind the growth in revenues for the
three and nine month periods ended September 30, 1995 were enrollment gains
and premium rate increases in the managed health plans and growth in the
specialty managed care services operations. The Company's revenues from its
managed health plans are typically based on a percentage of the plans' premium
revenues. The managed health plans experienced year-over-year enrollment
growth of 22% and an average premium rate increase on renewing commercial
groups of approximately 2% in 1995. In addition, lives served by the Company's
specialty managed care services operations increased by 34% for the period
ended September 30, 1995 compared to the same period in 1994.
Operating income as reported for the three and nine month periods ended
September 30, 1995, increased $7.9 million and $.5 million, respectively, as
compared to the same periods in 1994. However, after excluding the effects of
the sale of Diversified, operating income for the nine month period actually
increased $20.8 million reflecting the growth experienced by the remaining
managed health plan and specialty managed care services operations. These
remaining operations also have comparatively higher operating margins than
that experienced by Diversified. Accordingly, operating margins in this line
of business increased from 16.5% in the third quarter of 1994 to 21.2% for the
same period of 1995, and for the nine month period, operating margins
increased from 15.5% in 1994 to 19.5% in 1995.
INFLATION
Although the general rate of inflation has remained relatively stable and
health care cost inflation has declined in recent years, the national total
health care cost inflation rate still exceeds the general inflation rate. The
Company uses various strategies to mitigate the negative effects of health
care cost inflation on its operations, including setting commercial premiums
based on its anticipated health care costs, risk-sharing arrangements with the
Company's various health care providers and other health care cost containment
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
measures. The Company's health plans attempt to control medical and hospital
costs through contractual arrangements with independent providers of health
care services which set fixed prices for certain periods of time, generally at
least a year. Cost-effective delivery of health care services by health care
providers is also achieved by the reduction of unnecessary hospitalizations,
appropriate use of specialty referral services and emphasizing preventive
health services. While the Company believes its current strategies to mitigate
health care cost inflation are successful, there is no assurance that
those efforts will be as effective as they have been in the past. In
addition, certain products of recently acquired MetraHealth are not network-
based programs and do not have similar health care cost containment measures as
the Company. As a result, in the future the Company may be subject to more
risk associated with health care cost inflation.
GOVERNMENT REGULATIONS
Government regulation of employee benefit plans, including health care
coverage, health plans and the Company's specialty managed care products, is a
changing area of law that varies from jurisdiction to jurisdiction and
generally gives responsible administrative agencies broad discretion. The
Company believes that it is in compliance in all material respects with the
various federal and state regulations applicable to its current operations. To
maintain such compliance, it may be necessary for the Company or a subsidiary
to make changes from time to time in its services, products, structure or
marketing methods. Additional governmental regulation or future interpretation
of existing regulations could increase the cost of the Company's compliance or
otherwise affect the Company's operations, products, profitability or business
prospects. The Company is unable to predict what additional government
regulations, if any, affecting its business may be enacted in the future or
how existing or future regulations might be interpreted.
RECENTLY ISSUED ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No.121), effective for fiscal years beginning after December 15, 1995,
requires recognition of impairment losses on long-lived assets, certain
intangible assets and goodwill based on the future operating results associated
with such assets, as defined. The Company plans to adopt SFAS No. 121 in
1996, and currently believes that upon adoption the statement will not have
a material impact on the Company's results of operations or financial
position.
Financial Accounting Standards Board Statement No. 123, "Accounting for Stock
- -Based Compensation" (SFAS No. 123), effective for fiscal years beginning
after December 15, 1995, encourages, but does not require, companies to adopt
a fair value based method of accounting for employee stock options. It also
allows companies to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25), and submit pro forma disclosures of net earnings and earnings
per share as if a fair value based method of accounting had been applied.
The Company plans to adopt SFAS No. 123 in 1996. While the Company is still
evaluating SFAS No. 123, it currently expects to elect to continue to measure
compensation cost under APB No. 25 and comply with the pro forma disclosure
requirements. If the Company makes this election, this statement would not
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
have a material impact on the Company's results of operations or financial
position. The Company's stock option plans are generally fixed plans, as
defined under APB No. 25, and accordingly, stock options issued under the
Company's plans have no intrinsic value at the grant date.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash and investments decreased from $2.77 billion at December
31, 1994, to $2.59 billion at September 30, 1995. The decrease of $183.8
million during the first nine months of 1995 reflects the January purchase of
GenCare for $515.4 million in cash, offset primarily by cash generated from
operations.
The Company generally invests a large portion of its cash resources in high-
quality, long-term instruments. During the first six months of 1995, the
Company invested a substantial portion of its cash and cash equivalents in
longer term investments. As a result of this investment strategy and the
purchase of GenCare, the Company's working capital decreased from $1.24
billion at December 31, 1994 to $600.5 million at June 30, 1995. During the
third quarter of 1995, the Company moved certain investments to shorter term
instruments in anticipation of the cash required for the MetraHealth
acquisition, discussed below. Accordingly, the Company's working capital
increased to $1.16 billion at September 30, 1995.
Under applicable state regulations, certain of the Company's subsidiaries are
required to retain cash generated from their operations. After giving effect
to these restrictions, the Company had approximately $1.63 billion in cash and
investments available for general corporate use at September 30, 1995.
On October 2, 1995, the Company acquired MetraHealth. The total purchase price
of the acquisition was $1.09 billion in cash and $500.0 million of 5.75%
convertible preferred stock, for a total consideration at closing of $1.59
billion and was accounted for using the purchase method of accounting. The
convertible preferred stock is convertible into United's common stock at
$49.48 per share, has a three-year no-call provision, and has a ten-year
mandatory redemption. In addition, the former owners of MetraHealth are
eligible to receive up to an additional $350.0 million if MetraHealth achieves
certain 1995 operating results, as defined. Any consideration payable for
this 1995 earnout in excess of the initial $1.59 billion may, at United's sole
discretion be in the form of cash, convertible debt, convertible preferred
stock, or straight debt. Moreover, if United's post-acquisition combined net
earnings for 1996 and 1997 reaches certain specified levels, certain of
MetraHealth's former owners will be eligible to receive up to an additional
$175 million in cash for each of those years.
The Company believes its available cash resources will be sufficient to meet
its current operating requirements and internal development initiatives. Other
than the MetraHealth acquisition and the resulting integration, there
currently are no material definitive commitments for future use of the
Company's available cash resources; however, management continually evaluates
opportunities to expand its health plan operations and specialty managed care
services, which includes internal development of new products and programs and
may include additional acquisitions. A portion of the Company's available
cash resources will be retained by the Company to maintain its strong
financial position.
<PAGE>
UNITED HEALTHCARE CORPORATION
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed in response to Item 601 of Regulation
S-K.
Exhibit No. Exhibit
Exhibit 10(a) - Employment Agreement effective as of October 2, 1995 between
United HealthCare Corporation and James G. Carlson
10(b) - Employment Agreement effective as of October 2, 1995 between
United HealthCare Corporation and Elliot Gerson
10(c) - Employment Agreement effective as of October 2, 1995 between
United HealthCare Corporation and Allen Wise.
Exhibit 11 - Statements Re Computation of Per Share Earnings.
Exhibit 15 - Letter Re Unaudited Interim Financial Information.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter for which this report is filed, the Registrant filed
Form 8-K Current Reports with the Securities and Exchange Commission as
follows:
1. Form 8-K Current Report Dated August 3, 1995. The items
reported on this Form 8-K were Items 5 and 7 concerning the
Registrant's announcement of its financial results for the
quarter ended June 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED HEALTHCARE CORPORATION
Dated: November 10, 1995 By /s/ William W. McGuire, M.D.
William W. McGuire, M.D.
President and Chief Executive Officer
Dated: November 10, 1995 By /s/ David P. Koppe
David P. Koppe
Chief Financial Officer
<PAGE>
UNITED HEALTHCARE CORPORATION
Exhibit Index
Exhibit Number Description Page
10(a) Employment Agreement effective as of
October 2, 1995 between United HealthCare
Corporation and James G. Carlson 20
10(b) Employment Agreement effective as of
October 2, 1995 between United HealthCare
Corporation and Elliot Gerson 27
10(c) Employment Agreement effective as of
October 2, 1995 between United HealthCare
Corporation and Allen Wise. 34
11 Statements Re Computation of Per 41
Share Earnings
15 Letter Re Unaudited Interim Financial 42
Information
27 Financial Data Schedule
<PAGE>
EXHIBIT 10(a)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of the Effective
Date between UHC Management Company, Inc. (the "Company") and James G. Carlson
("Executive").
RECITALS:
The Board of Directors of the Company (the "Board of Directors")
recognizes that outstanding management of the Company is essential to
advancing the best interests of the Company, its shareholders and its
subsidiaries. The Company desires to employ Executive and Executive has
agreed to be employed by the Company under the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:
1. Employment. The Company will employ Executive, and Executive
accepts employment by the Company, for the period beginning on the date the
proposed merger transaction between United HealthCare Corporation and The
MetraHealth Companies ("Metra") closes ("Effective Date") and ending on
December 31, 1998 (the "Employment Period"), according to the terms of this
Agreement. This Agreement shall never be of any effect in the event the
proposed merger transaction does not close.
2. Duties.
(a) The Company and Executive agree that during the Employment
Period Executive will have such authority and perform such executive duties as
are commensurate with his position. Executive will support the Chief
Executive Officer of the Company in carrying out his responsibilities as Chief
Executive Officer.
(b) Executive (i) will devote his knowledge, skill and best
efforts on a full-time basis to performing his duties and obligations to the
Company (with the exception of absences on account of illness or vacation in
accordance with the Company's policies and civic and charitable commitments
not involving a conflict with the Company's business), and (ii) will comply
with the directions and orders of the Board of Directors and Chief Executive
Officer of the Company with respect to the performance of his duties.
3. Compensation and Benefits.
(a) During the Employment Period, the Company will pay to
Executive the following salary and incentive awards for services rendered to
the Company:
(i) An annualized base salary of not less than $400,000.
Executive's performance will be evaluated at least annually and
annual increases in Executive's base salary will be considered
based on Executive's performance.
(ii) Executive shall be eligible to participate in the
Company's management incentive compensation plan in accordance
with the terms and conditions of that plan. Executive's
management incentive plan target will be 100% of his base salary.
For calendar year 1995 Executive shall be paid whatever incentive
compensation he would have received under his employment agreement
<PAGE>
with Metra.
(b) During the Employment Period, Executive will be eligible to
participate in a similar manner as other senior executives of the Company in
such employee benefit plans and programs as may be established and maintained
by the Company for its senior management employees.
(c) Executive shall be eligible to participate in the Company's
stock option and stock grant plans in accordance with the terms and conditions
of those plans.
4. Termination of Employment.
(a) By the Company without Cause. If the Company terminates
Executive's employment without Cause (as defined in paragraph (c) below)
during the Employment Period, the Company will pay Executive severance pay as
follows:
(i) If the Company terminates Executive's employment
without Cause, Executive will receive severance pay equal to one
year of both base salary and management incentive plan payments,
plus a prorated management incentive plan payment for the fraction
of the management incentive plan payment period ending on
Executive's termination of employment and any management incentive
plan payments remaining unpaid from the preceding year under the
terms of the management incentive plan. The severance pay will be
paid over a one year period in equal biweekly installments.
(ii) The Company will continue coverage under the Company's
group health plan for Executive and his eligible dependents for
the period during which Executive is entitled to receive severance
benefits pursuant to (i). Notwithstanding the foregoing, if the
Company determines that giving such continued coverage could
adversely affect the tax qualification or tax treatment of a
benefit plan, or otherwise have adverse legal ramifications to the
Company, the Company may reimburse Executive for the cost of COBRA
coverage for himself and his eligible dependents, and if
Executive's severance payments extend beyond the period of his
COBRA coverage, pay Executive a lump sum cash amount that
reasonably approximates the after-tax value to Executive of the
balance of his continued coverage through the severance payment
period, in lieu of giving credit and continued coverage.
(iii) Any unvested stock options or grants awarded Executive
shall continue to vest for a period of two years from the last day
of Executive's employment, in accordance with those grants' or
options' pre-established vesting schedule.
(iv) For purposes of subparagraphs (i) and (ii),
Executive's annual base salary will be calculated at the highest
rate in effect for Executive at any time during the twelve month
period preceding the time of his termination of employment, and
Executive's management incentive payment will be calculated at a
rate equal to the management incentive payment paid or payable to
Executive for the fiscal year preceding his termination of
employment.
(b) By Executive for Good Reason. If Executive voluntarily
terminates employment with the Company during the Employment Period for Good
Reason (as defined in this subsection (b)), Executive will be entitled to
receive the benefits described in subsection (a) for termination by the
<PAGE>
Company without Cause. Subject to the provisions of this subsection (b),
these benefits will be provided if Executive voluntarily terminates employment
after (i) the Company reduces Executive's base salary from the level in effect
during the preceding fiscal year, (ii) Executive is not in good faith
considered for management incentive payments as described in Section 3
(a)(ii), (iii) the Company fails to provide benefits as required by Section 3
(b), (iv) the Company demotes Executive to a position that is not a senior
management position of comparable scope and responsibility (other than on
account of Executive's disability, as defined in Section 5 below) or (v) the
Company relocates Executive's place of employment to a location more than 100
miles from Reston, Virginia. In order for this subsection (b) to be
effective: (1) Executive must give written notice to the Company indicating
that Executive intends to terminate employment under this section (b), (2)
Executive's voluntary termination under this subsection must occur within 60
days after he has actual knowledge of an event described in clause (i), (ii),
(iii), (iv) or (v) above, or within 60 days after the last in a series of such
events, and (3) the Company must have failed to remedy the event describe in
clause (i), (ii), (iii), (iv) or (v), as the case may be, within 30 days after
receiving Executive's written notice. If the Company remedies the event
described in clause (i), (ii), (iii), (iv) or (v), as the case may be, within
30 days after receiving Executive's written notice, Executive may not
terminate employment under this subsection (b) on account of the event
specified in Executive's notice.
(c) By the Company for Cause or the Executive Without Good
Reason. If Executive's employment is terminated by the Company for Cause or
if Executive voluntarily terminates employment without Good Reason, as
described in subsection (b) above, this Agreement will immediately terminate.
For purposes of this Agreement, the term "Cause" means (i) the repeated
material failure or refusal of Executive to follow the reasonable directions
of Company's Board of Directors or Executive's supervisor or to adequately
perform any duties reasonably required by Company, (ii) material violations of
Company's Code of Conduct or (iii) the commission of any criminal act or act
of fraud or dishonesty by Executive in connection with Executive's employment
by Company. In the event that Company terminates Executive's employment under
subsection (i) of this Cause definition, Company shall specify in the notice
of termination the basis for Cause. If the Cause described in the notice is
cured to Company's reasonable satisfaction prior to the end of the 30 day
notice period, the notice of termination of employment shall be withdrawn.
(d) Notwithstanding the foregoing, the amount of severance
benefits under this Agreement will be reduced by 80% of any compensation
earned by Executive from another employer (including self-employment) if
Executive is employed by another employer (including self-employment) during
the period which Executive receives severance benefits.
(e) The amounts under this Agreement will be paid in lieu of
severance benefits under any severance plan or program maintained by the
Company.
5. Disability or Death.
(a) If Executive becomes disabled (as defined below) during the
Employment Period while he is employed by the Company, Executive shall be
entitled to receive continued base salary at the annual rate in effect on the
date of his disability during the remaining Employment Period while he remains
disabled, including a prorated management incentive payment for the fraction
of the management incentive payment measuring period ending on the date of
Executive's disability, plus any management incentive payment remaining unpaid
from the preceding year under the terms of the management incentive plan.
These payments shall be reduced by any amounts that Executive receives from
<PAGE>
Company paid for disability insurance, his compensation from other employment,
or from worker's compensation, Social Security or governmental programs
relating to disability. Except as provided in this Section 5, all of the
rights and benefits of Executive under this Agreement shall cease immediately
upon the date of Executive's disability, except that Executive shall receive
any management incentive payment remaining unpaid from the preceding year
under the terms of the management incentive plan. The term "disability" means
a condition, resulting from mental or physical incapacity, bodily injury or
disease, that renders, and for a six consecutive month period has rendered,
Executive unable to perform any and every duty pertaining to his employment
with the Company. A return to work of less than 14 consecutive days will not
be considered an interruption in Executive's six consecutive months of
disability. Disability will be determined by the Company on the basis of
medical evidence satisfactory to the Company.
(b) If Executive dies during the Employment Period while he is
employed by the Company, the Company will pay to the personal representative
of Executive's estate Executive's base salary for the month in which his death
occurs, plus a prorated management incentive payment for the fraction of the
management incentive payment measuring period ending on the date of
Executive's death, plus any management incentive payment remaining unpaid from
any preceding year under the terms of the management incentive plan. Insofar
as practicable, the prorated management incentive payment will be paid within
90 days after the end of the management incentive payment measuring period.
Except for the foregoing payments, this Agreement terminates on the date of
Executive's death.
(c) Except as provided in (a) above, the foregoing benefits will
be provided in addition to any death and other benefits provided under any
Company benefit plan in which Executive participates.
6. Confidential Information. Executive agrees that during and after
the term of this Agreement Executive shall keep confidential all confidential
information and trade secrets of the Company, or any subsidiaries or
affiliates of the Company and shall not disclose such information to any
person without the prior approval of the Company, or use such information for
any purpose other than in the course of fulfilling his duties pursuant to this
Agreement. Upon termination of this Agreement, Executive shall return any
documents, records, data, books or materials of or pertaining to the Company
or its subsidiaries or affiliates in his possession or control and any of his
work papers in his possession or control containing confidential information
or trade secrets. The Company acknowledges that Executive already has
substantial experience and expertise in the health insurance and managed
health care business, and use of that experience and expertise in other
employment will not be deemed a violation of this Agreement.
7. Non-Competition.
(a) Executive agrees that (i) until the expiration of the
Employment Period under Section 1, and (ii) for a period of one year after the
last day of Executive's employment if Executive's employment is terminated by
the Company without Cause (as provided in Section 4(a)) or Executive
voluntarily terminates his employment for Good Reason (as provided in Section
4(b)), Executive agrees not to engage, directly or indirectly (whether as
officer, director, employee, consultant or by ownership or otherwise) in a
competitive business in the Company's market area.
(b) Executive agrees that if (i) Executive's employment is
terminated by Company for Cause, (ii) Executive terminates his employment
without Good Reason, or (iii) upon termination of this agreement at the end of
the term, Company shall have the option of electing to pay Executive the
<PAGE>
periodic payments set forth in Section 4 (a) (i) for up to one year and that
if Company so elects, Executive agrees not to engage, directly or indirectly
(whether as officer, director, employee, consultant or by ownership or
otherwise) in a competitive business in the Company's market area for so long
as Company is making those periodic payments to Executive.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall prohibit or penalize the ownership by Executive of investments in shares
of a competitive business that are registered under Section 12 of the
Securities Exchange Act of 1934 and constitute, together with all such
investments owned by any immediate family member of affiliate of, or person
acting in concert with, Executive, less than 5% of the outstanding registered
investments in such business. As used herein, the term "competitive business"
means a business entity that markets health insurance, managed health care,
health maintenance organizations, or the administration of health insurance
programs, and the term "market area" means any state or possession in which
the Company is engaged in business on the date of the Executive's termination
of employment.
8. Nonsolicitation. Executive agrees that (i) during the Employment
Period, and (ii) for the longer of a one-year period after Executive's
termination of employment for any reason, and any period with respect to which
the Company is required to make payments pursuant to Section 4(a) or 4(b) or
elects to make payments pursuant to Section 7(b), Executive will not (a)
induce or attempt to induce, directly or indirectly, any of the Company's
employees to terminate their employment with the Company nor (b) solicit the
sale of any product or service that constitutes a competitive business to any
entity which on the date of Executive's termination of employment was
purchasing (or with which substantial negotiations were then in progress for
the purchase of) the Company's services or products.
9. Indemnification. The Company will pay all reasonable fees and
expenses, if any, (including, without limitation, legal fees and expenses)
that are incurred by Executive to enforce this Agreement and that result from
an actual or threatened breach of this Agreement by the Company.
10. Payment of Compensation and Taxes. All amounts payable under this
Agreement (other than stock-related compensation, which will be paid according
to the terms of the Company's stock incentive plan) will be paid in cash,
subject to required income and payroll tax withholdings.
11. Assignment. The rights and obligations of the Company under this
Agreement will inure to the benefit of and will be binding upon the successors
and assigns of the Company. If the Company is consolidated or merged with or
into another corporation, or if another entity purchases all or substantially
all of the Company's assets, the surviving or acquiring corporation will
succeed to the Company's rights and obligations under this Agreement.
Executive's rights under this Agreement may not be assigned or transferred in
whole or in part, except that the personal representative of Executive's
estate will receive any amounts payable under this Agreement after the death
of Executive. The Company may arrange for one or more of its affiliates to
act as the Company for purposes of administering and providing Executive's
compensation and benefits under this Agreement.
12. Rights Under the Agreement. The right to receive benefits under
this Agreement will not give Executive any proprietary interest in the Company
or any of its assets. Benefits under the Agreement will be payable from the
general assets of the Company, and there will be no required funding of
amounts that may become payable under the Agreement. Executive will for all
purposes be a general creditor of the Company. The interest of Executive
under the Agreement cannot be assigned, anticipated, sold, encumbered or
<PAGE>
pledged and will not be subject to the claims of Executive's creditors. The
foregoing provisions of this Section 12 shall not apply to the extent (if any)
that they conflict with the rights of the Executive under the stock option
plans referred to in Section 3(c).
13. Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the Company and Executive with respect to the
matters referred to herein and supersedes all prior agreements and
understandings between Executive and the Company or any affiliate of the
Company, including Metra, with respect to the employment of Executive after
the Effective Date and any other matters referred to herein.
14. Notice. Any written notice required to be given by one party to
the other party hereunder shall be deemed effective if mailed by registered
mail:
To the Company c/o:
UHC Management Company, Inc.
9900 Bren Rd E
Minnetonka, MN 55343
Attention: Vice President Human Resources
with a copy to: General Counsel
To Executive at:
1763 Brookside Lane
Vienna, Virginia 22182
or such other address as may be stated in notice given under this Section 14.
15. Dispute Resolution and Remedies. Any dispute arising between the
parties relating to this Agreement or to Executive's employment by Company
shall be resolved by binding arbitration pursuant to the Rules of the American
Arbitration Association. In no event may the arbitration be initiated more
than one year after the date one party first gave written notice of the
dispute to the other party. The arbitrators shall interpret and construe this
Agreement pursuant to controlling law but may not in any case award any
punitive or exemplary damages. The parties acknowledge that Executive's
failure to comply with the Confidentiality, Nonsolicitation and Non-
Competition provisions of this Agreement will cause immediate and irreparable
injury to Company and that therefore the arbitrators, or a court of competent
jurisdiction if an arbitration panel cannot be immediately convened, will be
empowered to provide injunctive relief, including temporary or preliminary
relief, to restrain any such failure to comply.
16. Miscellaneous. To the extent not governed by federal law, this
Agreement will be construed in accordance with the laws of the State of
Minnesota, without reference to its conflict of law rules. No provisions of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and the writing is signed by
Executive and the Company. A waiver of any breach of or compliance with any
provision or condition of this Agreement is not a waiver of similar or
dissimilar provisions or conditions. The invalidity or unenforceability of
any provision of this Agreement will not affect the validity or enforceability
of any other provision of this Agreement, which will remain in full force and
effect. This Agreement may be executed in one or more counterparts, all of
which will be considered one and the same agreement.
<PAGE>
WITNESS the following signatures.
UHC Management Company, Inc.
Dated 6/25/95 By: /s/ Kevin H. Roche
Executive
Dated 6/25/95 /s/ James G. Carlson
<PAGE>
EXHIBIT 10(b)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of the Effective
Date between UHC Management Company, Inc. (the "Company") and Elliot Gerson
("Executive").
RECITALS:
The Board of Directors of the Company (the "Board of Directors")
recognizes that outstanding management of the Company is essential to
advancing the best interests of the Company, its shareholders and its
subsidiaries. The Company desires to employ Executive and Executive has
agreed to be employed by the Company under the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:
1. Employment. The Company will employ Executive, and Executive
accepts employment by the Company, for the period beginning on the date the
proposed merger transaction between United HealthCare Corporation and The
MetraHealth Companies ("Metra") closes ("Effective Date") and ending on
December 31, 1998 (the "Employment Period"), according to the terms of this
Agreement. This Agreement shall never be of any effect in the event the
proposed merger transaction does not close.
2. Duties.
(a) The Company and Executive agree that during the Employment
Period Executive will have such authority and perform such executive duties as
are commensurate with his position. Executive will support the Chief
Executive Officer of the Company in carrying out his responsibilities as Chief
Executive Officer.
(b) Executive (i) will devote his knowledge, skill and best
efforts on a full-time basis to performing his duties and obligations to the
Company (with the exception of absences on account of illness or vacation in
accordance with the Company's policies and civic and charitable commitments
not involving a conflict with the Company's business), and (ii) will comply
with the directions and orders of the Board of Directors and Chief Executive
Officer of the Company with respect to the performance of his duties.
3. Compensation and Benefits.
(a) During the Employment Period, the Company will pay to
Executive the following salary and incentive awards for services rendered to
the Company:
(i) An annualized base salary of not less than $400,000.
Executive's performance will be evaluated at least annually and
annual increases in Executive's base salary will be considered
based on Executive's performance.
(ii) Executive shall be eligible to participate in the
Company's management incentive compensation plan in accordance
with the terms and conditions of that plan. Executive's
management incentive plan target will be 100% of his base salary.
For calendar year 1995 Executive shall be paid whatever incentive
<PAGE>
compensation he would have received under his employment agreement
with Metra.
(b) During the Employment Period, Executive will be eligible to
participate in a similar manner as other senior executives of the Company in
such employee benefit plans and programs as may be established and maintained
by the Company for its senior management employees.
(c) Executive shall be eligible to participate in the Company's
stock option and stock grant plans in accordance with the terms and conditions
of those plans.
4. Termination of Employment.
(a) By the Company without Cause. If the Company terminates
Executive's employment without Cause (as defined in paragraph (c) below)
during the Employment Period, the Company will pay Executive severance pay as
follows:
(i) (A) If the Company terminates Executive's employment
without Cause on or before January 1, 1997, Executive will
receive severance pay equal to two years of both base salary
and management incentive plan payments, plus a prorated
management incentive plan payment for the fraction of the
management incentive plan payment period ending on
Executive's termination of employment and any management
incentive plan payments remaining unpaid from the preceding
year under the terms of the management incentive plan. The
severance pay will be paid over a two year period in equal
biweekly installments.
(B) If the Company terminates Executive's employment
without Cause after January, 1, 1997, Executive will receive
severance pay equal to one year of both base salary and
management incentive plan payments, plus a prorated
management incentive plan payment for the fraction of the
management incentive plan payment period ending on
Executive's termination of employment and any management
incentive plan payments remaining unpaid from the proceeding
year under the terms of the management incentive plan. The
severance pay will be paid over a one year period in equal
biweekly installments.
(ii) The Company will continue coverage under the Company's
group health plan for Executive and his eligible dependents for
the period during which Executive is entitled to receive severance
benefits pursuant to (i). Notwithstanding the foregoing, if the
Company determines that giving such continued coverage could
adversely affect the tax qualification or tax treatment of a
benefit plan, or otherwise have adverse legal ramifications to the
Company, the Company may reimburse Executive for the cost of COBRA
coverage for himself and his eligible dependents, and if
Executive's severance payments extend beyond the period of his
COBRA coverage, pay Executive a lump sum cash amount that
reasonably approximates the after-tax value to Executive of the
balance of his continued coverage through the severance payment
period, in lieu of giving credit and continued coverage.
(iii) Any unvested stock options or grants awarded Executive
shall continue to vest for a period of two years from the last day
of Executive's employment, in accordance with those grants' or
<PAGE>
options' pre-established vesting schedule.
(iv) For purposes of subparagraphs (i) and (ii),
Executive's annual base salary will be calculated at the highest
rate in effect for Executive at any time during the twelve month
period preceding the time of his termination of employment, and
Executive's management incentive payment will be calculated at a
rate equal to the management incentive payment paid or payable to
Executive for the fiscal year preceding his termination of
employment.
(b) By Executive for Good Reason. If Executive voluntarily
terminates employment with the Company during the Employment Period for Good
Reason (as defined in this subsection (b)), Executive will be entitled to
receive the benefits described in subsection (a) for termination by the
Company without Cause. Subject to the provisions of this subsection (b),
these benefits will be provided if Executive voluntarily terminates employment
after (i) the Company reduces Executive's base salary from the level in effect
during the preceding fiscal year, (ii) Executive is not in good faith
considered for management incentive payments as described in Section 3
(a)(ii), (iii) the Company fails to provide benefits as required by Section 3
(b), (iv) the Company demotes Executive to a position that is not a senior
management position of comparable scope and responsibility (other than on
account of Executive's disability, as defined in Section 5 below) or (v) the
Company relocates Executive's place of employment to a location more than 100
miles from Reston, Virginia. In order for this subsection (b) to be
effective: (1) Executive must give written notice to the Company indicating
that Executive intends to terminate employment under this section (b), (2)
Executive's voluntary termination under this subsection must occur within 60
days after he has actual knowledge of an event described in clause (i), (ii),
(iii), (iv) or (v) above, or within 60 days after the last in a series of such
events, and (3) the Company must have failed to remedy the event describe in
clause (i), (ii), (iii), (iv) or (v), as the case may be, within 30 days after
receiving Executive's written notice. If the Company remedies the event
described in clause (i), (ii), (iii), (iv) or (v), as the case may be, within
30 days after receiving Executive's written notice, Executive may not
terminate employment under this subsection (b) on account of the event
specified in Executive's notice.
(c) By the Company for Cause or the Executive Without Good
Reason. If Executive's employment is terminated by the Company for Cause or
if Executive voluntarily terminates employment without Good Reason, as
described in subsection (b) above, this Agreement will immediately terminate.
For purposes of this Agreement, the term "Cause" means (i) the repeated
material failure or refusal of Executive to follow the reasonable directions
of Company's Board of Directors or Executive's supervisor or to adequately
perform any duties reasonably required by Company, (ii) material violations of
Company's Code of Conduct or (iii) the commission of any criminal act or act
of fraud or dishonesty by Executive in connection with Executive's employment
by Company. In the event that Company terminates Executive's employment under
subsection (i) of this Cause definition, Company shall specify in the notice
of termination the basis for Cause. If the Cause described in the notice is
cured to Company's reasonable satisfaction prior to the end of the 30 day
notice period, the notice of termination of employment shall be withdrawn.
(d) Notwithstanding the foregoing, the amount of severance
benefits under this Agreement will be reduced by 80% of any compensation
earned by Executive from another employer (including self-employment) if
Executive is employed by another employer (including self-employment) during
the period which Executive receives severance benefits.
<PAGE>
(e) The amounts under this Agreement will be paid in lieu of
severance benefits under any severance plan or program maintained by the
Company.
5. Disability or Death.
(a) If Executive becomes disabled (as defined below) during the
Employment Period while he is employed by the Company, Executive shall be
entitled to receive continued base salary at the annual rate in effect on the
date of his disability during the remaining Employment Period while he remains
disabled, including a prorated management incentive payment for the fraction
of the management incentive payment measuring period ending on the date of
Executive's disability, plus any management incentive payment remaining unpaid
from the preceding year under the terms of the management incentive plan.
These payments shall be reduced by any amounts that Executive receives from
Company paid for disability insurance, his compensation from other employment,
or from worker's compensation, Social Security or governmental programs
relating to disability. Except as provided in this Section 5, all or the
rights and benefits of Executive under this Agreement shall cease immediately
upon the date of Executive's disability, except that Executive shall receive
any management incentive payment remaining unpaid from the preceding year
under the terms of the management incentive plan. The term "disability" means
a condition, resulting from mental or physical incapacity, bodily injury or
disease, that renders, and for a six consecutive month period has rendered,
Executive unable to perform any and every duty pertaining to his employment
with the Company. A return to work of less than 14 consecutive days will not
be considered an interruption in Executive's six consecutive months of
disability. Disability will be determined by the Company on the basis of
medical evidence satisfactory to the Company.
(b) If Executive dies during the Employment Period while he is
employed by the Company, the Company will pay to the personal representative
of Executive's estate Executive's base salary for the month in which his death
occurs, plus a prorated management incentive payment for the fraction of the
management incentive payment measuring period ending on the date of
Executive's death, plus any management incentive payment remaining unpaid from
any preceding year under the terms of the management incentive plan. Insofar
as practicable, the prorated management incentive payment will be paid within
90 days after the end of the management incentive payment measuring period.
Except for the foregoing payments, this Agreement terminates on the date of
Executive's death.
(c) Except as provided in (a) above, the foregoing benefits will
be provided in addition to any death and other benefits provided under any
Company benefit plan in which Executive participates.
6. Confidential Information. Executive agrees that during and after
the term of this Agreement Executive shall keep confidential all confidential
information and trade secrets of the Company, or any subsidiaries or
affiliates of the Company and shall not disclose such information to any
person without the prior approval of the Company, or use such information for
any purpose other than in the course of fulfilling his duties pursuant to this
Agreement. Upon termination of this Agreement, Executive shall return any
documents, records, data, books or materials of or pertaining to the Company
or its subsidiaries or affiliates in his possession or control and any of his
work papers in his possession or control containing confidential information
or trade secrets. The Company acknowledges that Executive already has
substantial experience and expertise in the health insurance and managed
health care business, and use of that experience and expertise in other
employment will not be deemed a violation of this Agreement.
<PAGE>
7. Non-Competition.
(a) Executive agrees that (i) until the expiration of the
Employment Period under Section 1, and (ii) for a period of two years after
the last day of Executive's employment if Executive's employment is terminated
by the Company without Cause (as provided in Section 4(a)) or Executive
voluntarily terminates his employment for Good Reason (as provided in Section
4(b)), in either case on or before January 1, 1997, or for a period of one
year if the termination occurs after January 1, 1997, Executive agrees not to
engage, directly or indirectly (whether as officer, director, employee,
consultant or by ownership or otherwise) in a competitive business in the
Company's market area.
(b) Executive agrees that if (i) Executive's employment is
terminated by Company for Cause, (ii) Executive terminates his employment
without Good Reason, or (iii) upon termination of this agreement at the end of
the term, Company shall have the option of electing to pay Executive the
periodic payments set forth in Section 4 (a) (i) for up to one year and that
if Company so elects, Executive agrees not to engage, directly or indirectly
(whether as officer, director, employee, consultant or by ownership or
otherwise) in a competitive business in the Company's market area for so long
as Company is making those periodic payments to Executive.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall prohibit or penalize the ownership by Executive of investments in shares
of a competitive business that are registered under Section 12 of the
Securities Exchange Act of 1934 and constitute, together with all such
investments owned by any immediate family member of affiliate of, or person
acting in concert with, Executive, less than 5% of the outstanding registered
investments in such business. As used herein, the term "competitive business"
means a business entity that markets health insurance, managed health care,
health maintenance organizations, or the administration of health insurance
programs, and the term "market area" means any state or possession in which
the Company is engaged in business on the date of the Executive's termination
of employment.
8. Nonsolicitation. Executive agrees that (i) during the Employment
Period, and (ii) for the longer of a one-year period after Executive's
termination of employment for any reason, and any period with respect to which
the Company is required to make payments pursuant to Section 4(a) or 4(b) or
elects to make payments pursuant to Section 7(b), Executive will not (a)
induce or attempt to induce, directly or indirectly, any of the Company's
employees to terminate their employment with the Company nor (b) solicit the
sale of any product or service that constitutes a competitive business to any
entity which on the date of Executive's termination of employment was
purchasing (or with which substantial negotiations were then in progress for
the purchase of) the Company's services or products.
9. Indemnification. The Company will pay all reasonable fees and
expenses, if any, (including, without limitation, legal fees and expenses)
that are incurred by Executive to enforce this Agreement and that result from
an actual or threatened breach of this Agreement by the Company.
10. Payment of Compensation and Taxes. All amounts payable under this
Agreement (other than stock-related compensation, which will be paid according
to the terms of the Company's stock incentive plan) will be paid in cash,
subject to required income and payroll tax withholdings.
11. Assignment. The rights and obligations of the Company under this
Agreement will inure to the benefit of and will be binding upon the successors
and assigns of the Company. If the Company is consolidated or merged with or
<PAGE>
into another corporation, or if another entity purchases all or substantially
all of the Company's assets, the surviving or acquiring corporation will
succeed to the Company's rights and obligations under this Agreement.
Executive's rights under this Agreement may not be assigned or transferred in
whole or in part, except that the personal representative of Executive's
estate will receive any amounts payable under this Agreement after the death
of Executive. The Company may arrange for one or more of its affiliates to
act as the Company for purposes of administering and providing Executive's
compensation and benefits under this Agreement.
12. Rights Under the Agreement. The right to receive benefits under
this Agreement will not give Executive any proprietary interest in the Company
or any of its assets. Benefits under the Agreement will be payable from the
general assets of the Company, and there will be no required funding of
amounts that may become payable under the Agreement. Executive will for all
purposes be a general creditor of the Company. The interest of Executive
under the Agreement cannot be assigned, anticipated, sold, encumbered or
pledged and will not be subject to the claims of Executive's creditors. The
foregoing provisions of this Section 12 shall not apply to the extent (if any)
that they conflict with the rights of the Executive under the stock option
plans referred to in Section 3(c).
13. Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the Company and Executive with respect to the
matters referred to herein and supersedes all prior agreements and
understandings between Executive and the Company or any affiliate of the
Company, including Metra, with respect to the employment of Executive after
the Effective Date and any other matters referred to herein.
14. Notice. Any written notice required to be given by one party to
the other party hereunder shall be deemed effective if mailed by registered
mail:
To the Company c/o:
UHC Management Company, Inc.
9900 Bren Rd E
Minnetonka, MN 55343
Attention: Vice President Human Resources
with a copy to: General Counsel
To Executive at:
480 River Bend Road
Great Falls, Virginia 22066
or such other address as may be stated in notice given under this Section 14.
15. Dispute Resolution and Remedies. Any dispute arising between the
parties relating to this Agreement or to Executive's employment by Company
shall be resolved by binding arbitration pursuant to the Rules of the American
Arbitration Association. In no event may the arbitration be initiated more
than one year after the date one party first gave written notice of the
dispute to the other party. The arbitrators shall interpret and construe this
Agreement pursuant to controlling law but may not in any case award any
punitive or exemplary damages. The parties acknowledge that Executive's
failure to comply with the Confidentiality, Nonsolicitation and Non-
Competition provisions of this Agreement will cause immediate and irreparable
injury to Company and that therefore the arbitrators, or a court of competent
jurisdiction if an arbitration panel cannot be immediately convened, will be
<PAGE>
empowered to provide injunctive relief, including temporary or preliminary
relief, to restrain any such failure to comply.
16. Miscellaneous. To the extent not governed by federal law, this
Agreement will be construed in accordance with the laws of the State of
Minnesota, without reference to its conflict of law rules. No provisions of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and the writing is signed by
Executive and the Company. A waiver of any breach of or compliance with any
provision or condition of this Agreement is not a waiver of similar or
dissimilar provisions or conditions. The invalidity or unenforceability of
any provision of this Agreement will not affect the validity or enforceability
of any other provision of this Agreement, which will remain in full force and
effect. This Agreement may be executed in one or more counterparts, all of
which will be considered one and the same agreement.
WITNESS the following signatures.
UHC Management Company, Inc.
Dated 6/25/95 By: /s/ Kevin H. Roche
Executive
Dated 6/25/95 /s/ Elliot Gerson
<PAGE>
EXHIBIT 10(c)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of the Effective
Date between UHC Management Company, Inc. (the "Company") and Allen F. Wise
("Executive").
RECITALS:
The Board of Directors of the Company (the "Board of Directors")
recognizes that outstanding management of the Company is essential to
advancing the best interests of the Company, its shareholders and its
subsidiaries. The Company desires to employ Executive and Executive has
agreed to be employed by the Company under the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:
1. Employment. The Company will employ Executive, and Executive
accepts employment by the Company, for the period beginning on the date the
proposed merger transaction between United HealthCare Corporation and The
MetraHealth Companies ("Metra") closes ("Effective Date") and ending on
December 31, 1998 (the "Employment Period"), according to the terms of this
Agreement. This Agreement shall never be of any effect in the event the
proposed merger transaction does not close.
2. Duties.
(a) The Company and Executive agree that during the Employment
Period Executive will have such authority and perform such executive duties as
are commensurate with his position. Executive will support the Chief
Executive Officer of the Company in carrying out his responsibilities as Chief
Executive Officer. As of the Closing Executive's responsibilities will
include information services, claims, administration, facilities and services
and human resources. Executive will report to either the Chief Executive
Officer of Chief Operating Officer of the Company.
(b) Executive (i) will devote his knowledge, skill and best
efforts on a full-time basis to performing his duties and obligations to the
Company (with the exception of absences on account of illness or vacation in
accordance with the Company's policies and civic and charitable commitments
not involving a conflict with the Company's business), and (ii) will comply
with the directions and orders of the Board of Directors and Chief Executive
Officer of the Company with respect to the performance of his duties.
3. Compensation and Benefits.
(a) During the Employment Period, the Company will pay to
Executive the following salary and incentive awards for services rendered to
the Company:
(i) An annualized base salary of not less than $450,000.
Executive's performance will be evaluated at least annually and
annual increases in Executive's base salary will be considered
based on Executive's performance.
(ii) Executive shall be eligible to participate in the
Company's management incentive compensation plan in accordance
with the terms and conditions of that plan. Executive's
<PAGE>
management incentive plan target will be 100% of his base salary.
For calendar year 1995 Executive shall be paid whatever incentive
compensation he would have received under his employment agreement
with Metra.
(b) During the Employment Period, Executive will be eligible to
participate in a similar manner as other senior executives of the Company in
such employee benefit plans and programs as may be established and maintained
by the Company for its senior management employees.
(c) Executive shall be eligible to participate in the Company's
stock option and stock grant plans in accordance with the terms and conditions
of those plans.
(d) On the Effective Date Executive will receive a special bonus
of $900,000. If Executive has not resigned his employment within six months
after the Effective Date, on the date six months after the Effective Date
Executive shall receive an additional special bonus of $900,000.
4. Termination of Employment.
(a) By the Company without Cause. If the Company terminates
Executive's employment without Cause (as defined in paragraph (c) below)
during the Employment Period, the Company will pay Executive severance pay as
follows:
(i) (A) If the Company terminates Executive's employment
without Cause on or before November 7, 1996, Executive will
receive severance pay equal to two years of both base salary
and management incentive plan payments, plus a prorated
management incentive plan payment for the fraction of the
management incentive plan payment period ending on
Executive's termination of employment and any management
incentive plan payments remaining unpaid from the preceding
year under the terms of the management incentive plan. The
severance pay will be paid over a two year period in equal
biweekly installments.
(B) If the Company terminates Executive's employment
without Cause after November 7, 1996, Executive will receive
severance pay equal to one year of both base salary and
management incentive plan payments, plus a prorated
management incentive plan payment for the fraction of the
management incentive plan payment period ending on
Executive's termination of employment and any management
incentive plan payments remaining unpaid from the proceeding
year under the terms of the management incentive plan. The
severance pay will be paid over a one year period in equal
biweekly installments.
(ii) The Company will continue coverage under the Company's
group health plan for Executive and his eligible dependents for
the period during which Executive is entitled to receive severance
benefits pursuant to (i). Notwithstanding the foregoing, if the
Company determines that giving such continued coverage could
adversely affect the tax qualification or tax treatment of a
benefit plan, or otherwise have adverse legal ramifications to the
Company, the Company may reimburse Executive for the cost of COBRA
coverage for himself and his eligible dependents, and if
Executive's severance payments extend beyond the period of his
COBRA coverage, pay Executive a lump sum cash amount that
<PAGE>
reasonably approximates the after-tax value to Executive of the
balance of his continued coverage through the severance payment
period, in lieu of giving credit and continued coverage.
(iii) Any unvested stock options or grants awarded Executive
shall continue to vest for a period of two years from the last day
of Executive's employment, in accordance with those grants' or
options' pre-established vesting schedule.
(iv) For purposes of subparagraphs (i) and (ii),
Executive's annual base salary will be calculated at the highest
rate in effect for Executive at any time during the twelve month
period preceding the time of his termination of employment, and
Executive's management incentive payment will be calculated at a
rate equal to the management incentive payment paid or payable to
Executive for the fiscal year preceding his termination of
employment.
(b) By Executive for Good Reason. If Executive voluntarily
terminates employment with the Company during the Employment Period for Good
Reason (as defined in this subsection (b)), Executive will be entitled to
receive the benefits described in subsection (a) for termination by the
Company without Cause. Subject to the provisions of this subsection (b),
these benefits will be provided if Executive voluntarily terminates employment
after (i) the Company reduces Executive's base salary from the level in effect
during the preceding fiscal year, (ii) Executive is not in good faith
considered for management incentive payments as described in Section 3
(a)(ii), (iii) the Company fails to provide benefits as required by Section 3
(b), (iv) the Company demotes Executive to a position that does not include
the responsibilities and reporting relationship described in Section 2(a)
(other than on account of Executive's disability, as defined in Section 5
below) or (v) the Company relocates Executive's place of employment to a
location more than 100 miles from Reston, Virginia. In order for this
subsection (b) to be effective: (1) Executive must give written notice to the
Company indicating that Executive intends to terminate employment under this
section (b), (2) Executive's voluntary termination under this subsection must
occur within 60 days after he has actual knowledge of an event described in
clause (i), (ii), (iii), (iv) or (v) above, or within 60 days after the last
in a series of such events, and (3) the Company must have failed to remedy the
event describe in clause (i), (ii), (iii), (iv) or (v), as the case may be,
within 30 days after receiving Executive's written notice. If the Company
remedies the event described in clause (i), (ii), (iii), (iv) or (v), as the
case may be, within 30 days after receiving Executive's written notice,
Executive may not terminate employment under this subsection (b) on account of
the event specified in Executive's notice.
(c) By the Company for Cause or the Executive Without Good
Reason. If Executive's employment is terminated by the Company for Cause or
if Executive voluntarily terminates employment without Good Reason, as
described in subsection (b) above, this Agreement will immediately terminate.
For purposes of this Agreement, the term "Cause" means (i) the repeated
material failure or refusal of Executive to follow the reasonable directions
of Company's Board of Directors or Executive's supervisor or to adequately
perform any duties reasonably required by Company and consistent with
Executive's position, (ii) material violations of Company's Code of Conduct or
(iii) the commission of any criminal act or act of fraud or dishonesty by
Executive in connection with Executive's employment by Company. In the event
that Company terminates Executive's employment under subsection (i) of this
Cause definition, Company shall specify in the notice of termination the basis
for Cause. If the Cause described in the notice is cured to Company's
reasonable satisfaction prior to the end of the 30 day notice period, the
<PAGE>
notice of termination of employment shall be withdrawn.
(d) Notwithstanding the foregoing, the amount of severance
benefits under this Agreement will be reduced by 80% of any compensation
earned by Executive from another employer (including self-employment) if
Executive is employed by another employer (including self-employment) during
the period which Executive receives severance benefits.
(e) The amounts under this Agreement will be paid in lieu of
severance benefits under any severance plan or program maintained by the
Company.
5. Disability or Death.
(a) If Executive becomes disabled (as defined below) during the
Employment Period while he is employed by the Company, Executive shall be
entitled to receive continued base salary at the annual rate in effect on the
date of his disability during the remaining Employment Period while he remains
disabled, including a prorated management incentive payment for the fraction
of the management incentive payment measuring period ending on the date of
Executive's disability, plus any management incentive payment remaining unpaid
from the preceding year under the terms of the management incentive plan.
These payments shall be reduced by any amounts that Executive receives from
Company paid for disability insurance, his compensation from other employment,
or from worker's compensation, Social Security or governmental programs
relating to disability. Except as provided in this Section 5, all of the
rights and benefits of Executive under this Agreement shall cease immediately
upon the date of Executive's disability, except that Executive shall receive
any management incentive payment remaining unpaid from the preceding year
under the terms of the management incentive plan. The term "disability" means
a condition, resulting from mental or physical incapacity, bodily injury or
disease, that renders, and for a six consecutive month period has rendered,
Executive unable to perform any and every duty pertaining to his employment
with the Company. A return to work of less than 14 consecutive days will not
be considered an interruption in Executive's six consecutive months of
disability. Disability will be determined by the Company on the basis of
medical evidence satisfactory to the Company.
(b) If Executive dies during the Employment Period while he is
employed by the Company, the Company will pay to the personal representative
of Executive's estate Executive's base salary for the month in which his death
occurs, plus a prorated management incentive payment for the fraction of the
management incentive payment measuring period ending on the date of
Executive's death, plus any management incentive payment remaining unpaid from
any preceding year under the terms of the management incentive plan. Insofar
as practicable, the prorated management incentive payment will be paid within
90 days after the end of the management incentive payment measuring period.
Except for the foregoing payments, this Agreement terminates on the date of
Executive's death.
(c) Except as provided in (a) above, the foregoing benefits will
be provided in addition to any death and other benefits provided under any
Company benefit plan in which Executive participates.
6. Confidential Information. Executive agrees that during and after
the term of this Agreement Executive shall keep confidential all confidential
information and trade secrets of the Company, or any subsidiaries or
affiliates of the Company and shall not disclose such information to any
person without the prior approval of the Company, or use such information for
any purpose other than in the course of fulfilling his duties pursuant to this
Agreement. Upon termination of this Agreement, Executive shall return any
<PAGE>
documents, records, data, books or materials of or pertaining to the Company
or its subsidiaries or affiliates in his possession or control and any of his
work papers in his possession or control containing confidential information
or trade secrets. The Company acknowledges that Executive already has
substantial experience and expertise in the health insurance and managed
health care business, and use of that experience and expertise in other
employment will not be deemed a violation of this Agreement.
7. Non-Competition.
(a) Executive agrees that (i) until the expiration of the
Employment Period under Section 1, and (ii) for a period of two years after
the last day of Executive's employment if Executive's employment is terminated
by the Company without Cause (as provided in Section 4(a)) or Executive
voluntarily terminates his employment for Good Reason (as provided in Section
4(b)), in either case, on or before November 7, 1996, or for a period of one
year if the termination occurs after November 7, 1996, Executive agrees not to
engage, directly or indirectly (whether as officer, director, employee,
consultant or by ownership or otherwise) in a competitive business in the
Company's market area.
(b) Executive agrees that if (i) Executive's employment is
terminated by Company for Cause, (ii) Executive terminates his employment
without Good Reason, or (iii) upon termination of this agreement at the end of
the term, Company shall have the option of electing to pay Executive the
periodic payments set forth in Section 4 (a) (i) for up to one year and that
if Company so elects, Executive agrees not to engage, directly or indirectly
(whether as officer, director, employee, consultant or by ownership or
otherwise) in a competitive business in the Company's market area for so long
as Company is making those periodic payments to Executive.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall prohibit or penalize the ownership by Executive of investments in shares
of a competitive business that are registered under Section 12 of the
Securities Exchange Act of 1934 and constitute, together with all such
investments owned by any immediate family member of affiliate of, or person
acting in concert with, Executive, less than 5% of the outstanding registered
investments in such business. As used herein, the term "competitive business"
means a business entity that markets health insurance, managed health care,
health maintenance organizations, or the administration of health insurance
programs, and the term "market area" means any state or possession in which
the Company is engaged in business on the date of the Executive's termination
of employment.
8. Nonsolicitation. Executive agrees that (i) during the Employment
Period, and (ii) for the longer of a one-year period after Executive's
termination of employment for any reason, and any period with respect to which
the Company is required to make payments pursuant to Section 4(a) or 4(b) or
elects to make payments pursuant to Section 7(b), Executive will not (a)
induce or attempt to induce, directly or indirectly, any of the Company's
employees to terminate their employment with the Company nor (b) solicit the
sale of any product or service that constitutes a competitive business to any
entity which on the date of Executive's termination of employment was
purchasing (or with which substantial negotiations were then in progress for
the purchase of) the Company's services or products.
9. Indemnification. The Company will pay all reasonable fees and
expenses, if any, (including, without limitation, legal fees and expenses)
that are incurred by Executive to enforce this Agreement and that result from
an actual or threatened breach of this Agreement by the Company.
<PAGE>
10. Payment of Compensation and Taxes. All amounts payable under this
Agreement (other than stock-related compensation, which will be paid according
to the terms of the Company's stock incentive plan) will be paid in cash,
subject to required income and payroll tax withholdings.
11. Assignment. The rights and obligations of the Company under this
Agreement will inure to the benefit of and will be binding upon the successors
and assigns of the Company. If the Company is consolidated or merged with or
into another corporation, or if another entity purchases all or substantially
all of the Company's assets, the surviving or acquiring corporation will
succeed to the Company's rights and obligations under this Agreement.
Executive's rights under this Agreement may not be assigned or transferred in
whole or in part, except that the personal representative of Executive's
estate will receive any amounts payable under this Agreement after the death
of Executive. The Company may arrange for one or more of its affiliates to
act as the Company for purposes of administering and providing Executive's
compensation and benefits under this Agreement.
12. Rights Under the Agreement. The right to receive benefits under
this Agreement will not give Executive any proprietary interest in the Company
or any of its assets. Benefits under the Agreement will be payable from the
general assets of the Company, and there will be no required funding of
amounts that may become payable under the Agreement. Executive will for all
purposes be a general creditor of the Company. The interest of Executive
under the Agreement cannot be assigned, anticipated, sold, encumbered or
pledged and will not be subject to the claims of Executive's creditors. The
foregoing provisions of this Section 12 shall not apply to the extent (if any)
that they conflict with the rights of the Executive under the stock option
plans referred to in Section 3(c).
13. Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the Company and Executive with respect to the
matters referred to herein and supersedes all prior agreements and
understandings between Executive and the Company or any affiliate of the
Company, including Metra, with respect to the employment of Executive after
the Effective Date and any other matters referred to herein.
14. Notice. Any written notice required to be given by one party to
the other party hereunder shall be deemed effective if mailed by registered
mail:
To the Company c/o:
UHC Management Company, Inc.
9900 Bren Rd E
Minnetonka, MN 55343
Attention: Vice President Human Resources
with a copy to: General Counsel
To Executive at:
2841 Furlong Road
Doylestown, Pennsylvania 18901
or such other address as may be stated in notice given under this Section 14.
15. Dispute Resolution and Remedies. Any dispute arising between the
parties relating to this Agreement or to Executive's employment by Company
shall be resolved by binding arbitration pursuant to the Rules of the American
Arbitration Association. In no event may the arbitration be initiated more
<PAGE>
than one year after the date one party first gave written notice of the
dispute to the other party. The arbitrators shall interpret and construe this
Agreement pursuant to controlling law but may not in any case award any
punitive or exemplary damages. The parties acknowledge that Executive's
failure to comply with the Confidentiality, Nonsolicitation and Non-
Competition provisions of this Agreement will cause immediate and irreparable
injury to Company and that therefore the arbitrators, or a court of competent
jurisdiction if an arbitration panel cannot be immediately convened, will be
empowered to provide injunctive relief, including temporary or preliminary
relief, to restrain any such failure to comply.
16. Miscellaneous. To the extent not governed by federal law, this
Agreement will be construed in accordance with the laws of the State of
Minnesota, without reference to its conflict of law rules. No provisions of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and the writing is signed by
Executive and the Company. A waiver of any breach of or compliance with any
provision or condition of this Agreement is not a waiver of similar or
dissimilar provisions or conditions. The invalidity or unenforceability of
any provision of this Agreement will not affect the validity or enforceability
of any other provision of this Agreement, which will remain in full force and
effect. This Agreement may be executed in one or more counterparts, all of
which will be considered one and the same agreement.
WITNESS the following signatures.
UHC Management Company, Inc.
Dated 6/25/95 By: /s/ Kevin H. Roche
Executive
Dated 6/25/95 /s/ Allen F. Wise
<PAGE>
<TABLE>
EXHIBIT 11
UNITED HEALTHCARE CORPORATION
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Nine
Months Ended September 30, Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET EARNINGS BEFORE
EXTRAORDINARY GAIN $ 93,670 $ 80,842 $ 272,981 $ 203,896<F1>
EXTRAORDINARY GAIN ON SALE OF
SUBSIDIARY -- -- -- 1,377,075
NET EARNINGS $ 93,670 $ 80,842 $ 272,981 $1,580,971
Weighted average number of
common shares outstanding 173,606 171,416 173,255 170,892
Additional equivalent shares
issuable from assumed exercise
of common stock options
and warrants 3,464 4,622 3,360 4,609
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 177,070 176,038 176,615 175,501
NET EARNINGS PER SHARE
BEFORE EXTRAORDINARY GAIN $ 0.53 $ 0.46 $ 1.55 $ 1.16<F1>
EXTRAORDINARY GAIN PER SHARE -- -- -- 7.85
NET EARNINGS PER SHARE $ 0.53 $ 0.46 $ 1.55 $ 9.01
<FN>
<F1> Excluding the effects of the Ramsay and Complete Health merger costs, net earnings of
$226,179 and net earnings per share before extraordinary gain of $1.29 would have been reported
for the nine month period ended September 30, 1994.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15
LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
November 2, 1995
To United HealthCare Corporation:
We are aware that United HealthCare Corporation and Subsidiaries has
incorporated by reference in its Registration Statements No. 33-3558, 2-95342,
33-22310, 33-21813, 33-27208, 33-30869, 33-35365, 33-39060, 33-45263, 33-
50282, 33-65994, 33-67918, 33-68158, 33-68300, 33-75846, 33-79632, 33-79634,
33-79636, 33-79638, 33-59083, 33-59623, 33-63885 its Form 10-Q for the quarter
ended September 30, 1995, which includes our report dated November 2, 1995,
covering the unaudited interim condensed consolidated financial information
contained herein. Pursuant to Regulation C of the Securities Act of 1933,
that report is not considered a part of the registration statement prepared or
certified by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/Arthur Andersen LLP
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731766
<NAME> UNITED HEALTHCARE CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,307,531
<SECURITIES> 1,278,051
<RECEIVABLES> 265,097
<ALLOWANCES> 12,044
<INVENTORY> 1,893,701
<CURRENT-ASSETS> 3,607
<PP&E> 341,580
<DEPRECIATION> 145,915
<TOTAL-ASSETS> 3,896,871
<CURRENT-LIABILITIES> 736,149
<BONDS> 0
<COMMON> 1,739
0
0
<OTHER-SE> 772,928
<TOTAL-LIABILITY-AND-EQUITY> 3,896,871
<SALES> 3,363,615
<TOTAL-REVENUES> 3,477,316
<CGS> 2,980,384
<TOTAL-COSTS> 3,039,776
<OTHER-EXPENSES> 59,392
<LOSS-PROVISION> 1,696
<INTEREST-EXPENSE> 704
<INCOME-PRETAX> 436,836
<INCOME-TAX> 161,629
<INCOME-CONTINUING> 272,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272,981
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
