<PAGE>
Registration No. 333-
As Filed with the Securities and Exchange Commission on March 22, 1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________
UNITED HEALTHCARE CORPORATION
(Exact Name of Registrant as specified in its charter)
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<S> <C> <C>
Minnesota 6324 41-1321939
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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<TABLE>
<S> <C>
Kevin H. Roche, Esq.
Secretary and General Counsel
United HealthCare Corporation
300 Opus Center 300 Opus Center
9900 Bren Road East 9900 Bren Road East
Minnetonka, MN 55343 Minnetonka, MN 55343
(612) 936-1300 (612) 936-1736
(Address, including zip code, and telephone (Name, address, including zip code,
number, including area code, of Registrant's and telephone number, including
principal executive offices) area code, of agent for service)
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-----------------------
Copies to:
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<S> <C> <C>
David J. Lubben, Esq. Emile Provost Thomas H. Benton, Esq.
Dorsey & Whitney LLP Louisiana Independent Physicians Thomas H. Benton & Associates
Pillsbury Center South Association, Inc. 601 St. Ferdinand Street
220 South Sixth Street 8550 United Plaza Boulevard Baton Rouge, LA 70802
Minneapolis, MN 55402 Baton Rouge, LA 70809
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Approximate date of commencement of proposed sale of the securities to the
public: As promptly as practicable after this Registration Statement becomes
effective and the effective time of the proposed merger (the "Merger") of
Louisiana Independent Physicians Association, Inc. ("LIPA") with and into a
subsidiary of the Registrant, as described in the Agreement and Plan of Merger,
dated as of January 16, 1996, attached as Exhibit A to the Proxy
Statement/Prospectus forming a part of this Registration Statement (the "Merger
Agreement").
-------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
-------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
==========================================================================================================
Proposed Proposed
Amount Maximum Maximum
Title of each Class of to be Offering Price Aggregate Amount of
Securities to be Registered(1) Registered Per Unit Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value
per share....................... 1,013,005 shares(2) Not applicable Not applicable $1,101.34(3)
==========================================================================================================
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(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of LIPA in connection with the Merger.
(2) Represents the approximate maximum number of shares issuable in connection
with the Merger, based on the option of the Registrant and LIPA to
terminate the Merger Agreement if the average closing price of the common
stock of the Registrant as quoted on the New York Stock Exchange, Inc., for
the ten consecutive days ending with and including the second business day
preceding the date of the Merger (the Average Stock Price") is less than
$45.65625, and the number of shares of the common stock of the Registrant
to be issued if the Average Stock Price is at such level ($46,250,000 /
$45.65625).
(3) Pursuant to Rule 457(f)(2), the registration fee was computed on the basis
of the book value of the LIPA common stock to be exchanged in the Merger as
of December 31, 1995, or $3,193,891.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing the Location in the Prospectus of the
Information Required by Part I of Form S-4
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<CAPTION>
Form S-4 Location in
Item Prospectus
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus...... Forepart of the Registration Statement;
Outside Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus......................... Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............... Summary; Risk Factors; The Merger
4. Terms of the Transaction...................... Summary; The Special Meeting; The Merger;
The Merger Agreement; Comparison of
Shareholder Rights
5. Pro Forma Financial Information............... Summary; Unaudited Pro Forma Condensed
Combining Financial Information
6. Material Contacts with the Company
Being Acquired.............................. Summary; The Merger; The Merger Agreement
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters................................ Not Applicable
8. Interests of Named Experts and
Counsel..................................... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities............................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants................................. Available Information; Incorporation of
Certain Documents by Reference;
Summary; The Merger; Certain Information
Concerning United; Description of United
Capital Stock; Unaudited Pro Forma
Condensed Combining Financial Information
11. Incorporation of Certain Information
by Reference................................ Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or
S-3 Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference................................... Not Applicable
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants........... Not Applicable
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies................................... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies............................... Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies............. Summary; The Merger; Certain Information
Concerning LIPA; Description of LIPA
Capital Stock; Consolidated Financial
Statements of Louisiana Independent
Physicians Association, Inc.
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be
Solicited................................... Available Information; Summary; The Special
Meeting; The Merger; Incorporation of
Certain Documents by Reference
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer........... Not Applicable
</TABLE>
<PAGE>
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Louisiana Independent Physicians Association, Inc. ("LIPA"), to be held in
the ____ Room of the Radisson Hotel, 4728 Constitution Avenue, Baton Rouge,
Louisiana 70808, on ________, 1996, at ____ local time. A notice of the Special
Meeting, Proxy Statement/Prospectus and proxy card containing information about
the matters to be acted upon are enclosed. All holders of LIPA's outstanding
shares of Common Stock ("LIPA Common Stock"), as of ________, 1996 (the "Record
Date"), will be entitled to notice of and to vote at the Special Meeting and any
postponement or adjournment thereof.
At the Special Meeting, you will be asked to consider and to vote upon
a proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of January 16, 1996, among LIPA, United HealthCare
Corporation ("United") and UHC Gold Acquisition, Inc., a direct, wholly owned
subsidiary of United ("United Sub"), pursuant to which LIPA would be merged with
and into United Sub (the "Merger"). If the Merger Agreement is approved and
adopted and the Merger becomes effective, each outstanding share of LIPA Common
Stock, other than LIPA Common Stock as to which dissenters' rights have been
duly demanded as permitted under Louisiana law and not withdrawn or lost (the
"Dissenting Stock"), will be converted into the right to receive a pro rata
allotment of an aggregate number of shares of common stock, $.01 par value, of
United (the "United Common Stock"), equal to $50,000,000 divided by the average
closing price of United Common Stock on the New York Stock Exchange (the "NYSE")
for the ten trading days ending with and including the second trading day
preceding the closing of the Merger (the "Average Stock Price"); provided,
however, that the number of shares issuable in the Merger will be fixed at (1)
938,692 if the Average Stock Price is at least $49.2707 but less than $53.2656,
or (2) 730,093 if the Average Stock Price is more than $68.4844 but not more
than $73.0500. If the Average Stock Price is more than $73.0500, the number of
shares issuable in the Merger will be (1) $53,750,000 divided by (2) the Average
Stock Price. If the Average Stock Price is less than $49.2707, the number of
shares issuable in the Merger will be (1) $46,250,000 divided by (2) the Average
Stock Price.
On March __, 1996, the closing price per share of United Common Stock
on the NYSE was $_____. If the Average Stock Price were equal to this price per
share, shareholders of LIPA would be entitled to receive approximately _____
shares of United Common Stock, having a market value of approximately $_____, in
exchange for each share of LIPA Common Stock held by them.
The Merger is subject to the satisfaction of a number of conditions,
including approval of the Merger Agreement and the Merger by the requisite vote
of LIPA's shareholders. Pursuant to the Merger Agreement, the letter of
transmittal that the shareholders of LIPA must submit in order to receive their
shares of United Common Stock will contain a waiver. The waiver, the form of
which is Exhibit 2.02(b) to the Merger Agreement, will release United and other
parties from all claims relating to the provision prior to January 1, 1995 by
the shareholder of services to Community Health Network of Louisiana, Inc., a
Louisiana corporation, Louisiana Health Management Company, a Louisiana general
<PAGE>
partnership, and Louisiana Health Partners, Inc., a Louisiana corporation
(collectively, the "Community Health Entities").
In addition to the receipt of United Common Stock, at the effective
time of the Merger each share of LIPA Common Stock outstanding, other than
Dissenting Stock, will receive the right (the "Contingent Payment Right") to
receive contingent cash payments, net of any amount to which United is entitled
pursuant to the indemnification provisions of the Merger Agreement. The
aggregate amount of such payments (each, an "Earn-Out") will be determined by
reference to the audited combined net income of the Community Health Entities
and MetraHealth Care of Louisiana, Inc., after taking into account certain
adjustments, including adding back the after-tax effect of interest expenses,
acquisition expenses, expenses relating to matters for which United is
indemnified under the Merger Agreement, and certain operating expenses that
exceed 10% of specified premium revenues (the "Adjusted Net Income"). For the
period January 1, 1996 to December 31, 1996, the Earn-Out will equal the amount
by which Adjusted Net Income exceeds $10.0 million, multiplied by 6.3. For the
period January 1, 1997 to December 31, 1997, the Earn-Out will equal the amount
by which Adjusted Net Income exceeds $16.5 million, multiplied by 4.5. In no
case, however, can the aggregate of the two Earn-Outs exceed $35.0 million. The
amount payable to each holder of a Contingent Payment Right will be equal to the
Earn-Out for the applicable year divided by the number of Contingent Payment
Rights outstanding at the time payment is due.
Details of the proposed Merger and other important information are set
forth in the accompanying Proxy Statement/Prospectus, which you are urged to
read carefully.
Your Board of Directors has carefully reviewed and considered the
terms and conditions of the proposed Merger. In addition, your Board of
Directors has received the opinion of its financial advisor, The Robinson-
Humphrey Company, Inc., that the consideration to be received by the holders of
LIPA Common Stock pursuant to the Merger is fair to such shareholders from a
financial point of view.
Your Board of Directors has unanimously approved the Merger and
recommends that you vote FOR approval and adoption of the Merger Agreement.
Whether or not you plan to attend the Special Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. If you attend the Special Meeting, you may revoke
such proxy and vote in person if you wish, even if you have previously returned
your proxy card. If you do not attend the Special Meeting, you may still revoke
such proxy at any time prior to the Special Meeting by providing written notice
of such revocation to ________, Secretary of LIPA. Your prompt cooperation will
be greatly appreciated.
Very truly yours,
V. Lynn McCord, M.D.
________, 1996 President
<PAGE>
8850 United Plaza Boulevard
Suite 600
Baton Rouge, Louisiana 70809
(504) 924-1772
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on _______, 1996
----------------------
To the Shareholders of Louisiana Independent Physicians Association, Inc.:
A Special Meeting of Shareholders of Louisiana Independent Physicians
Association, Inc., a Louisiana corporation ("LIPA"), will be held in the ____
Room of the Radisson Hotel, 4728 Constitution Avenue, Baton Rouge, Louisiana
70808, on ________, 1996, at _____ local time, for the following purposes:
1. To consider and vote upon a proposal (a) to approve and
adopt an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of January 16, 1996, by and among LIPA, United
HealthCare Corporation, a Minnesota corporation ("United"), and
UHC Gold Acquisition, Inc., a Louisiana corporation and a direct,
wholly owned subsidiary of United ("United Sub"), pursuant to
which, among other things, (i) LIPA will be merged with and into
United Sub (the "Merger"), (ii) each outstanding share of common
stock, no par value, of LIPA ("LIPA Common Stock"), other than
LIPA Common Stock as to which dissenters' rights have been duly
demanded as permitted under Louisiana law and not withdrawn or
lost (the "Dissenting Stock"), will be converted into the right
to receive a pro rata allotment of an aggregate number of shares
of common stock, $.01 par value, of United (the "United Common
Stock"), with a value between $46,250,000 and $53,750,000, and
(iii) each share of LIPA Common Stock outstanding, other than
Dissenting Stock, will receive one right (the "Contingent Payment
Right") to receive contingent cash payments with a value of
between $0 and approximately $84,000 per share, and (b) to
approve any transactions relating to the Merger Agreement and the
Merger to the extent such transactions are deemed transactions
for purposes of Section 84 of the Louisiana Business Corporation
Law.
2. To transact such other business as may properly come
before the Special Meeting or any adjournment or postponement
thereof.
The close of business on ________, 1996, has been fixed as the record
date for the determination of the shareholders of LIPA entitled to notice of and
to vote at the Special Meeting and any adjournment or postponement thereof.
Accordingly, only holders of record of outstanding shares of LIPA Common Stock
at the close of business on such date shall be entitled to notice of and to vote
at the Special Meeting and any adjournment or postponement thereof. To be
approved, the Merger Agreement must receive the affirmative vote of two-thirds
of the LIPA Common Stock present at the Special Meeting. The meeting may be
postponed or adjourned from time to time without notice other than such notice
as may be given at the meeting or any postponement or adjournment thereof, and
any business for which notice is hereby given may be transacted at any such
postponed or adjourned meeting. Dissenting shareholders who comply with the
procedural requirements of the Business Corporation Law of Louisiana will be
entitled to receive payment of the fair cash value of their shares if the merger
or consolidation is effected upon approval by less than eighty per cent of the
corporation's total voting power.
By Order of the Board of Directors,
Baton Rouge, Louisiana ___________________________________
__________, 1996 Secretary
TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. DO NOT SEND ANY STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD. THE PROCEDURE FOR THE EXCHANGE OF
YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET FORTH IN THE ATTACHED PROXY
STATEMENT/PROSPECTUS.
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
PROXY STATEMENT
-------------------
UNITED HEALTHCARE CORPORATION
PROSPECTUS
-------------------
This Proxy Statement/Prospectus is being furnished by Louisiana
Independent Physicians Association, Inc., a Louisiana corporation ("LIPA"), to
holders of common stock, no par value, of LIPA (the "LIPA Common Stock"), in
connection with the solicitation of proxies by the Board of Directors of LIPA
for use at a Special Meeting of Shareholders of LIPA to be held on ________,
1996, in the ____ Room of the Radisson Hotel, 4728 Constitution Avenue, Baton
Rouge, Louisiana 70808, commencing at ______ local time, and at any adjournment
or postponement thereof (the "Special Meeting").
The Special Meeting has been called (1) to consider and vote upon a
proposal (a) to approve and adopt an Agreement and Plan of Merger, dated as of
January 16, 1996, by and among LIPA, United HealthCare Corporation, a Minnesota
corporation ("United"), and UHC Gold Acquisition, Inc., a Louisiana corporation
and a direct, wholly owned subsidiary of United ("United Sub"), pursuant to
which, among other things, (i) LIPA will be merged with and into United Sub (the
"Merger"), (ii) each outstanding share of LIPA Common Stock, other than LIPA
Common Stock as to which dissenters' rights have been duly demanded as permitted
under Louisiana law and not withdrawn or lost (the "Dissenting Stock"), will be
converted into the right to receive a pro rata allotment of a number of shares
of common stock, $.01 par value, of United (the "United Common Stock"), with an
aggregate value between $46,250,000 and $53,750,000, and (iii) each share of
LIPA Common Stock outstanding, other than Dissenting Stock, will have the right
to receive contingent cash payments with a value of between $0 and approximately
$84,000 per share, and (b) to approve any transactions relating to the Merger
Agreement and the Merger to the extent such transactions are deemed transactions
for purposes of Section 84 of the Louisiana Business Corporation Law; and (2) to
transact such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of
United with respect to the shares of United Common Stock issuable to the
shareholders of LIPA upon consummation of the Merger. United has supplied all
information contained in this Proxy Statement/Prospectus relating to United and
its subsidiaries, certain information concerning the subsidiaries of LIPA and
information about LIPA on a consolidated basis, and LIPA has supplied all
information contained in this Proxy Statement/Prospectus relating to LIPA on an
unconsolidated basis.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to shareholders of LIPA on or about _________, 1996.
---------------
See "Risk Factors" on page 23 for a discussion of certain factors that
should be considered by holders of shares of LIPA Common Stock.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Proxy Statement/Prospectus is ________, 1996
<PAGE>
AVAILABLE INFORMATION
United is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by United with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048 and CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material also may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. In addition, material
filed by United may be inspected at the offices of the New York Stock Exchange,
Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005.
United has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
United Common Stock to be issued pursuant to the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Such additional information may
be obtained from the Commission's principal office in Washington, D.C.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Documents relating to United
(excluding exhibits unless specifically incorporated herein) are available
without charge upon written or oral request to Kevin H. Roche, Secretary and
General Counsel, United HealthCare Corporation, 300 Opus Center, 9900 Bren Road
East, Minnetonka, Minnesota 55343, telephone number (612) 936-1736. In order to
ensure timely delivery of the documents, any request should be made by
__________, 1996.
The following documents, which have been filed by United with the
Commission, are hereby incorporated by reference in this Proxy
Statement/Prospectus: (1) United's Annual Report on Form 10-K for the year ended
December 31, 1994; (2) United's Quarterly Reports on Form 10-Q for the periods
ended March 31, June 30 and September 30, 1995; (3) United's Current Reports on
Form 8-K dated February 29, 1996, February 15, 1996, November 2, 1995, October
2, 1995, August 7, 1995, June 25, 1995, May 4, 1995, February 14, 1995 and
January 3, 1995, and on Form 8-K/A dated October 2, 1995 and January 3, 1995;
and (4) the description of the United Common Stock contained in United's
Registration Statement on Form 8-A dated September 20, 1991, and any amendment
or report filed for the purpose of updating such description.
The following documents, which have been filed by HealthWise of America,
Inc. ("HealthWise"), with the Commission, are hereby incorporated by reference
in this Proxy Statement/Prospectus: (1) HealthWise's Annual Report on Form 10-K
for the year ended December 31, 1994 and (2) HealthWise's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995.
All documents filed by United pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and before the Special Meeting
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of filing of such documents. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed
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to be modified or superseded for the purposes of this Proxy Statement/Prospectus
to the extent that a statement contained herein or in another document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
_____________________________
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus in
connection with the solicitation of proxies or the offering of securities made
hereby and, if given or made, such information or representation must not be
relied upon as having been authorized by United, LIPA or any other person. This
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the solicitation of a proxy,
in any jurisdiction to or from any person to whom it is not lawful to make any
such offer or solicitation in such jurisdiction. This Proxy
Statement/Prospectus does not cover any resales of the United Common Stock
offered hereby to be received by shareholders of LIPA deemed to be "affiliates"
of LIPA or United upon the consummation of the Merger. No person is authorized
to make use of this Proxy Statement/Prospectus in connection with such resales.
Neither the delivery of this Proxy Statement/Prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of United or LIPA since the date
hereof or that the information herein is correct as of any time subsequent to
its date.
All share and per share amounts relating to United Common Stock in this
Proxy Statement/Prospectus have been restated to reflect a two-for-one stock
split in September 1992 and a two-for-one stock split on March 10, 1994, each of
which was effected in the form of a 100% stock dividend.
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AVAILABLE INFORMATION.................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................ 2
SUMMARY................................................................ 7
General........................................................... 7
The Parties to the Merger......................................... 7
United HealthCare Corporation............................... 7
Louisiana Independent Physicians Association, Inc........... 8
UHC Gold Acquisition, Inc................................... 8
The Special Meeting............................................... 8
Time, Date and Place........................................ 8
Purposes of the Special Meeting............................. 8
Record Date; Shares Entitled to Vote........................ 9
Votes Required; Quorum...................................... 9
The Merger........................................................ 9
Effective Time of the Merger................................ 9
Effects of the Merger....................................... 9
Procedures for Exchange of Certificates, Waiver of
Claims and Contingent Payment Rights........................ 10
Recommendation of the Board of Directors of LIPA............ 11
Opinion of LIPA's Financial Advisor......................... 11
Management of LIPA after the Merger......................... 11
Interests of Certain Persons in the Merger.................. 11
Accounting Treatment........................................ 12
Certain Federal Income Tax Consequences..................... 12
Dissenters' Rights of Appraisal............................. 12
Regulatory Approvals........................................ 12
Resales of United Common Stock.............................. 13
Comparison of Shareholder Rights............................ 13
The Merger Agreement.............................................. 13
Limitations on Negotiations by LIPA......................... 13
Conditions to the Merger.................................... 13
Termination of the Merger Agreement......................... 14
Fees and Expenses........................................... 14
Market Price Data................................................. 14
Comparative Unaudited Per Common Share Data....................... 15
Summary Consolidated Financial Data of United..................... 18
Summary Consolidated Financial Data of LIPA....................... 20
Unaudited Pro Forma Combined Summary Financial Data............... 22
RISK FACTORS........................................................... 23
Regulation........................................................ 23
Litigation........................................................ 23
Competition....................................................... 23
Health Care Cost Changes......................................... 23
Recent Acquisitions............................................... 24
THE SPECIAL MEETING.................................................... 25
General........................................................... 25
Matters to be Considered at the Special Meeting................... 25
Board of Directors' Recommendation................................ 25
Record Date; Voting at the Special Meeting; Required Vote......... 25
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Proxies.......................................................... 26
THE MERGER............................................................ 27
Effects of the Merger............................................ 27
Effective Time................................................... 28
Procedures for Exchange of Certificates and Waiver of Claims..... 28
Fractional Shares................................................ 30
Contingent Payment Rights........................................ 30
Background of the Merger......................................... 30
LIPA's Reasons for the Merger; Recommendation of LIPA's
Board of Directors............................................. 33
United's Reasons for the Merger.................................. 34
Opinion of LIPA's Financial Advisor.............................. 34
Interests of Certain Persons in the Merger....................... 38
Management of Surviving Corporation After the Merger............. 39
Accounting Treatment............................................. 39
Certain Federal Income Tax Consequences.......................... 39
Stock Exchange Listing........................................... 43
Dissenters' Rights of Appraisal.................................. 43
Regulatory Approvals............................................. 44
Resales of United Common Stock Issued in the Merger.............. 45
THE MERGER AGREEMENT.................................................. 47
The Merger Agreement............................................. 47
General.......................................................... 47
Certain Representations and Warranties........................... 47
Certain Covenants................................................ 48
Limitations on Negotiations by LIPA.............................. 49
Indemnification.................................................. 49
Conditions....................................................... 51
Termination...................................................... 52
Amendment and Waiver............................................. 53
Fees and Expenses................................................ 53
CERTAIN INFORMATION CONCERNING UNITED................................. 54
CERTAIN INFORMATION CONCERNING LIPA................................... 64
COMPARISON OF SHAREHOLDER RIGHTS...................................... 71
DESCRIPTION OF UNITED CAPITAL STOCK................................... 77
DESCRIPTION OF LIPA CAPITAL STOCK..................................... 79
LEGAL MATTERS......................................................... 79
EXPERTS............................................................... 79
OTHER MATTERS......................................................... 80
CONSOLIDATED FINANCIAL STATEMENTS OF LOUISIANA INDEPENDENT
PHYSICIANS ASSOCIATION, INC...................................... F-2
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION......... F-16
</TABLE>
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<TABLE>
<S> <C> <C>
Exhibit A Agreement and Plan of Merger, dated as of January 16, 1996,
among United HealthCare Corporation, UHC Gold
Acquisition, Inc. and Louisiana Independent Physicians
Association, Inc., and selected Exhibits.................. A-1
Exhibit B Opinion of The Robinson-Humphrey Company, Inc. dated
January 9, 1996........................................... B-1
Exhibit C Section 131 of the Louisiana Business Corporation Law
(Rights of Dissenting Shareholders)....................... C-1
</TABLE>
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<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Proxy Statement/Prospectus. This summary is not intended to be complete and is
qualified in all respects by the more detailed information included in this
Proxy Statement/Prospectus and its Exhibits. Shareholders are urged to read
carefully the entire Proxy Statement/Prospectus, including the Exhibits. As
used in this Proxy Statement/Prospectus, the terms "United" and "LIPA" refer to
United HealthCare Corporation and Louisiana Independent Physicians Association,
Inc., respectively, and, where the context so requires, to their respective
subsidiaries. United has supplied all information concerning United and its
subsidiaries included herein, certain information concerning the subsidiaries of
LIPA and information about LIPA on a consolidated basis, and LIPA has supplied
all information herein concerning LIPA on an unconsolidated basis.
General
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Louisiana Independent Physicians Association, Inc., a Louisiana
corporation ("LIPA"), and UHC Gold Acquisition, Inc., a Louisiana corporation
("United Sub") and a direct, wholly owned subsidiary of United HealthCare
Corporation, a Minnesota corporation ("United"), pursuant to an Agreement and
Plan of Merger, dated as of January 16, 1996 (the "Merger Agreement"), among
LIPA, United and United Sub, a copy of which is attached to this Proxy
Statement/Prospectus as Exhibit A. As a result of the Merger, among other
things, (1) LIPA will be merged with and into United Sub (the "Merger"), (2)
each outstanding share of common stock, no par value, of LIPA ("LIPA Common
Stock"), other than LIPA Common Stock as to which dissenters' rights have been
duly demanded as permitted under Louisiana law and not withdrawn or lost (the
"Dissenting Stock"), will be converted into the right to receive a pro rata
allotment of an aggregate number of shares of common stock, $.01 par value, of
United (the "United Common Stock"), with a value between $46,250,000 and
$53,750,000, and (3) each share of LIPA Common Stock outstanding, other than
Dissenting Stock, will receive one right (the "Contingent Payment Right") to
receive contingent cash payments with a value of between $0 and approximately
$84,000 per share.
The close of business on ________, 1996, has been fixed as the record
date for the determination of the shareholders of LIPA entitled to notice of and
to vote at the Special Meeting and any adjournment or postponement thereof.
Accordingly, only holders of record of outstanding shares of LIPA Common Stock
at the close of business on such date shall be entitled to notice of and to vote
at the Special Meeting and any adjournment or postponement thereof. To be
approved, the Merger Agreement must receive the affirmative vote of two-thirds
of the LIPA Common Stock present at the Special Meeting. The meeting may be
postponed or adjourned from time to time without notice other than such notice
as may be given at the meeting or any postponement or adjournment thereof, and
any business for which notice is hereby given may be transacted at any such
postponed or adjourned meeting. See "THE MERGER," "THE MERGER AGREEMENT," "-The
Merger" and "-The Merger Agreement."
The Parties to the Merger
United HealthCare Corporation
United is a national leader in health care management services and has
offered services to health care purchasers and providers since 1974. United
serves over 40 million covered lives through a broad continuum of health care
products and services, including health maintenance organization ("HMO") and
health insurance products and other specialized health care management services.
United has developed a number of core capabilities, including medical
information management, health benefit administration, risk assessment and
pricing, health benefit design, provider contracting and risk sharing and health
care delivery management. With these capabilities, United provides both
comprehensive managed care services, such as HMO, insurance and self-funded
health plan
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products, and unbundled health care management and cost containment products
such as mental health and substance abuse services, utilization review services,
specialized provider networks and employee assistance programs. On October 2,
1995, United completed its acquisition of The MetraHealth Companies, Inc.
("MetraHealth"), a large health care coverage company with over ten million
covered lives. MetraHealth has a large national health insurance business and
relationships with many of the country's largest companies. The acquisition of
MetraHealth enhances United's ability to offer a full range of health care
coverage products to all classes of customers. On February 1, 1996, United
entered into a definitive agreement to acquire HealthWise of America, Inc.
("HealthWise"), a provider of a broad range of managed health care services to
approximately 144,000 members through HMOs in Kentucky, Maryland, Tennessee and
Arkansas. The acquisition of HealthWise, which is expected to close in the
second quarter of 1996, will, among other things, enhance United's position in
the Kentucky and Maryland markets.
Louisiana Independent Physicians Association, Inc.
LIPA is a physician owned holding company, which was formed in October
1985 by approximately 400 medical physicians practicing in Baton Rouge,
Louisiana and the surrounding area. LIPA owns 51% of Community Health Network
of Louisiana, Inc., a Louisiana corporation ("CHN"), 49% of Louisiana Health
Management Company, a Louisiana general partnership ("LHMC"), and 51% of
Louisiana Health Partners, Inc., a Louisiana corporation ("LHP," and together
with CHN and LHMC, the "Community Health Entities"). CHN sells comprehensive
health care coverage products to employers, other groups and to Medicare-
eligible individuals. CHN has approximately 107,000 members enrolled in its
insured HMO products and also provides services to approximately 6,000 enrolled
members in its self-funded HMO and PPO products. CHN offers its products
through a network of health care providers that included approximately 2,465
physicians as of March 1, 1996.
For further information concerning LIPA, see "CERTAIN INFORMATION
CONCERNING LIPA" herein. The principal executive offices of LIPA are located at
8550 United Plaza Boulevard, Suite 600, Baton Rouge, Louisiana 70809, and the
telephone number is (504) 924-1772.
UHC Gold Acquisition, Inc.
UHC Gold Acquisition, Inc., a Louisiana corporation and wholly-owned
subsidiary of United ("United Sub"), was incorporated on November 14, 1995 for
purposes of the transactions contemplated by the Merger Agreement. United Sub
engages in no other business. The principal executive offices of United Sub are
located at 300 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343,
and the telephone number is (612) 936-1300.
The Special Meeting
Time, Date and Place
The Special Meeting will be held at ____ a.m., local time, on _______,
1996, in the ____ Room of the Radisson Hotel, 4728 Constitution Avenue, Baton
Rouge, Louisiana 70808.
Purposes of the Special Meeting
The purposes of the Special Meeting are to (i) consider and vote on a
proposal to approve and adopt the Merger Agreement, the Merger and any
transactions related thereto, to the extent that such transactions are deemed
transactions for purposes of Section 84 of the Louisiana Business Corporation
Law ("LBCL"), see "THE MERGER--Interests of Certain Persons in the Merger," and
(ii) transact such other business as may properly come before the Special
Meeting.
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Record Date; Shares Entitled to Vote
Holders of record of shares of LIPA Common Stock outstanding at the
close of business on _______, 1996 (the "Record Date"), are entitled to notice
of and to vote at the Special Meeting. At that date there were _________ shares
of LIPA Common Stock outstanding, each of which will be entitled to one vote on
each matter to be acted upon or which may properly come before the Special
Meeting.
Votes Required; Quorum
The approval and adoption of the Merger Agreement by the shareholders
of LIPA will require the affirmative vote of the holders of two-thirds of the
voting power of LIPA Common Stock present at the Special Meeting (assuming the
presence of a quorum). The presence, in person or by properly executed proxy,
of the holders of a majority of the outstanding shares of LIPA Common Stock
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting. See "THE SPECIAL MEETING."
As of the Record Date, the directors, executive officers and
affiliates of LIPA held, beneficially or otherwise, approximately _____ % of the
LIPA Common Stock.
The Merger
Effective Time of the Merger
The Merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of Louisiana (the "Effective
Time"). See "THE MERGER-Effective Time."
Effects of the Merger
At the Effective Time, pursuant to the Merger Agreement, (1) LIPA will
be merged with and into United Sub, which will be the surviving corporation (the
"Surviving Corporation"), (2) each share of LIPA Common Stock outstanding, other
than Dissenting Stock, will be converted into the right to receive a pro rata
allotment of an aggregate number of shares of United Common Stock, equal in
value to $50,000,000 divided by the average closing price of United Common Stock
on the New York Stock Exchange (the "NYSE") for the ten trading days ending with
and including the second trading day preceding the closing of the Merger (the
"Average Stock Price"); provided, however, that the number of shares issuable in
the Merger will be fixed at (1) 938,692 if the Average Stock Price is at least
$49.2707 but less than $53.2656, or (2) 730,093 if the Average Stock Price is
more than $68.4844 but not more than $73.0500. If the Average Stock Price is
more than $73.0500, the number of shares issuable in the Merger will be (1)
$53,750,000 divided by (2) the Average Stock Price. If the Average Stock Price
is less than $49.2707, the number of shares issuable in the Merger will be (1)
$46,250,000 divided by (2) the Average Stock Price. The Merger is subject to
the satisfaction of a number of conditions, including, among others, approval of
the Merger Agreement and the Merger by the requisite vote of LIPA's
shareholders.
On ________, 1996, the closing price per share of United Common Stock
on the NYSE was $_____. If the Average Stock Price were equal to this price per
share, shareholders of LIPA would be entitled to receive approximately _____
shares of United Common Stock (the "Assumed Exchange Ratio"), having a market
value of approximately $_____, in exchange for each share of LIPA Common Stock
held by them.
Fractional shares of United Common Stock will not be issued in
connection with the Merger. Shareholders of LIPA otherwise entitled to
fractional shares of United Common Stock will be paid cash in lieu of such
fractional shares determined as described herein under "THE MERGER-Fractional
Shares."
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In addition to United Common Stock, at the effective time of the
Merger each share of LIPA Common Stock outstanding, other than Dissenting Stock,
will receive one Contingent Payment Right to receive two contingent cash
payments, net of any amount to which United is entitled pursuant to the
indemnification provisions of the Merger Agreement. The aggregate amount of such
payments (each of the two aggregate payments, an "Earn-Out") will be determined
by reference to the audited net income of Community Health Network of Louisiana,
Inc., a Louisiana corporation ("CHN"), Louisiana Health Management Company, a
Louisiana general partnership ("LHMC"), Louisiana Health Partners, Inc., a
Louisiana corporation ("LHP," and together with CHN and LHMC, the "Community
Health Entities"), and MetraHealth Care of Louisiana, Inc. ("MetraHealth
Louisiana") after taking into account certain adjustments, including adding back
the after-tax effect of interest expenses, acquisition expenses, expenses
relating to matters for which United is indemnified under the Merger Agreement,
and certain operating expenses that exceed 10% of specified premium revenues
(the "Adjusted Net Income"). For the period January 1, 1996 to December 31,
1996, the Earn-Out will equal the amount by which Adjusted Net Income exceeds
$10.0 million, multiplied by 6.3. For the period January 1, 1997 to December 31,
1997, the Earn-Out will equal the amount by which Adjusted Net Income exceeds
$16.5 million, multiplied by 4.5. In no case, however, can the aggregate of the
two Earn-Outs exceed $35.0 million (or approximately $84,000 per share of LIPA
Common Stock). The amount payable to each holder of a Contingent Payment Right
will be equal to the Earn-Out for the applicable year divided by the number of
Contingent Payment Rights outstanding at the time payment is due. See
"THE MERGER--Contingent Payment Rights."
Procedures for Exchange of Certificates, Waiver of Claims and
Contingent Payment Rights
Promptly after the Effective Time, a letter of transmittal and
instructions for surrendering stock certificates evidencing shares of LIPA
Common Stock will be mailed to each holder of LIPA Common Stock for use in
exchanging such holder's stock certificates for certificates evidencing shares
of United Common Stock and for receiving cash in lieu of fractional shares and
any dividends or other distributions to which such holder is entitled as a
result of the Merger. Upon surrender of a certificate or certificate
representing outstanding shares of LIPA Common Stock (the "Certificates") for
cancellation to the Exchange Agent together with a letter of transmittal, duly
executed, including a waiver of claims arising from the provision of services by
the shareholder to the Community Health Entities prior to January 1, 1995, the
form of which is Exhibit 2.02(b) to the Merger Agreement (the "Waiver"), and any
other documents as may be required pursuant to such instructions, the holder of
the Certificate will be entitled to receive in exchange therefor a certificate
representing that number of whole shares of United Common Stock which the holder
has received in respect of the shares of LIPA Common Stock formerly represented
by the Certificate, cash in lieu of fractional shares of United Common Stock
(after taking into account all shares of LIPA Common Stock then held by the
holder) and any dividends or other distributions to which the holder is entitled
pursuant to the Merger Agreement, and the Certificate so surrendered will
forthwith be canceled. The Waiver is a release by a LIPA shareholder of United,
LIPA, the Community Health Entities, and United's subsidiaries, officers,
directors, employees and agents from all claims relating to the provision by the
shareholder of services to the Community Health Entities prior to January 1,
1995, including any claims that may exist in connection with certain withholding
arrangements between providers and the Community Health Entities. The Waiver
functions as an alternative to a representation, with related indemnification
provisions, in the Merger Agreement by LIPA that it had settled all outstanding
claims concerning these withholding arrangements. United required this more
effective form of protection as a condition to the acceptance of its final offer
of merger terms. See "THE MERGER--Procedures for Exchange of Certificates and
Waiver of Claims" and "THE MERGER--Background of the Merger." SHAREHOLDERS
SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER-
Procedures for Exchange of Certificates and Waiver of Claims."
United will deliver a calculation of the Earn-Out for each of the
years ended December 31, 1996 and December 31, 1997 to a group of three
shareholders of LIPA (the "Shareholder Representative")
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within 90 days of the end of each such year. United will make any payment due
pursuant to the Contingent Payment Rights not later than 45 days following
public announcement of United's audited financial results for the applicable
year. See "THE MERGER--Contingent Payment Right Procedures."
Recommendation of the Board of Directors of LIPA
The Board of Directors of LIPA believes that the Merger is in the best
interests of LIPA and its shareholders and has unanimously approved the Merger
Agreement. The Board of Directors of LIPA unanimously recommends approval and
adoption of the Merger Agreement to LIPA's shareholders. This recommendation
is based on a number of factors discussed in this Proxy Statement/Prospectus.
See "THE MERGER-LIPA's Reasons for the Merger; Recommendation of LIPA's Board of
Directors."
Opinion of LIPA's Financial Advisor
The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey") has
delivered its written opinion to the Board of Directors of LIPA to the effect
that, as of the date two days before the date of this Proxy
Statement/Prospectus, the consideration to be received by the holders of LIPA
Common Stock pursuant to the Merger is fair to such shareholders from a
financial point of view. A copy of the opinion of Robinson-Humphrey, dated as
of the date two days before the date of this Proxy Statement/Prospectus, which
sets forth the assumptions made, matters considered and limits on the review
undertaken, is attached as Exhibit B to this Proxy Statement/Prospectus and is
incorporated by reference. Shareholders of LIPA are urged to read carefully the
opinion in its entirety. See "THE MERGER-Opinion of LIPA's Financial Advisor."
Management of LIPA after the Merger
United Sub, as the Surviving Corporation, will remain a direct, wholly
owned subsidiary of United upon consummation of the Merger. The directors of
United Sub immediately prior to the Effective Time will be the initial directors
of the Surviving Corporation, and the officers of United Sub immediately prior
to the Effective Time will be the initial officers of the Surviving Corporation.
United currently expects that after the Effective Time most of the executive
officers of the Community Health Entities immediately prior to the Effective
Time will retain those positions. See "THE MERGER-Management of Surviving
Corporation After the Merger."
Interests of Certain Persons in the Merger
UHC Management Company, Inc., a wholly owned subsidiary of United, has
entered into consulting agreements with each of V. Lynn McCord, President of
LIPA, Kenneth C. Cranor, Chairman of the Board of Directors of LIPA, Williams D.
Wall, IV, Vice President of LIPA, and Thomas H. Benton, counsel for LIPA, (the
"Managers"). These agreements (the "Manager Agreements"), each of which has a
three-year term, provide that each Manager will provide certain consulting
services to United. The Manager Agreements prohibit the Managers from
disclosing any confidential information regarding United that may become known
to the Managers, and also contain non-solicitation and non-competition
provisions. The Manager Agreements provide that such obligations shall be
waived to the extent they may conflict with the performance of the duties of a
Manager as a Shareholder Representative. Aggregate annual compensation under the
Manager Agreements is $300,000. UHC has also entered into consulting agreements
with nine additional directors and 20 shareholders of LIPA who serve on various
committees of CHN with terms similar to the Manager Agreements, except that the
length of each of these agreements is two years. The aggregate annual
compensation due under the agreements to the nine directors is $190,000, and to
the 20 shareholders is $250,000. See "THE MERGER--Interests of Certain Persons
in the Merger."
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Accounting Treatment
United intends to treat the Merger as a purchase for accounting and
financial reporting purposes.
Certain Federal Income Tax Consequences
The obligation of each of United and LIPA to consummate the Merger is
conditioned on, among other things, the receipt of an opinion of Dorsey &
Whitney LLP, counsel to United, based upon certain representations and
assumptions set forth therein, substantially to the effect that for federal
income tax purposes the Merger will qualify as a "reorganization" under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). On the
basis of the foregoing opinion, it is expected that the following material
federal income tax consequences will result from the Merger: (1) no gain or loss
will be recognized by United, LIPA, or United Sub as a result of the Merger; (2)
no gain or loss will be recognized by any LIPA shareholder upon the exchange of
LIPA Common Stock for United Common Stock pursuant to the Merger (except to the
extent that (a) a Contingent Payment Right is taxable immediately upon its
receipt by a shareholder of LIPA Common Stock and (b) any cash is ultimately
received by a shareholder of LIPA Common Stock in connection with the receipt of
a fractional share interest in United Common Stock or on account of a Contingent
Payment Right); and (3) the basis of the United Common Stock received by a LIPA
shareholder who exchanges LIPA Common Stock for United Common Stock will be the
same as the basis of the LIPA Common Stock surrendered in exchange therefor
(subject to any current or future adjustments required as the result of (a) the
receipt of a Contingent Payment Right and (b) the receipt of cash in lieu of a
fractional share of United Common Stock or on account of a Contingent Payment
Right). If the required tax opinion is not received, the Merger will not be
consummated unless the condition requiring its receipt is waived and the
approvals of the United and LIPA shareholders are resolicited by means of an
updated Proxy Statement/Prospectus. Each LIPA shareholder is urged to consult
with his or her own tax advisor concerning the federal income tax consequences
of the Merger, as well as any applicable state, local, foreign or other tax
consequences, based upon such shareholder's own particular facts and
circumstances. See "THE MERGER--Certain Federal Income Tax Consequences."
Dissenters' Rights of Appraisal
Holders of LIPA Common Stock have the right to dissent from approval
and adoption of the Merger Agreement and, if the Merger is consummated upon a
vote of less than 80% of the total outstanding LIPA Common Stock, to receive
payment of the fair cash value of their shares (determined in accordance with
Louisiana law) upon compliance with the provisions of Section 131 of the LBCL, a
copy of which is attached to this Proxy Statement/Prospectus as Exhibit C and is
incorporated herein by reference. Shareholders of LIPA Common Stock are urged
to read Section 131 carefully. See "THE MERGER--Dissenters' Rights of
Appraisal."
Regulatory Approvals
Consummation of the Merger is conditioned upon, among other things,
the expiration or termination of all applicable waiting periods pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The HSR Act requires that parties to certain acquisitions file
notifications with the federal antitrust authorities and observe a waiting
period prior to consummation. United and LIPA each initially filed Notification
and Report Forms with respect to the Merger under the HSR Act on January 25,
1996 and the applicable waiting period expired on February 25, 1996.
Consummation of the Merger is also conditioned upon the giving of all required
notices and obtaining receipt of all other regulatory approvals necessary for
consummation of the Merger, including the giving of notice or receipt of
approval under the federal Health Maintenance Organization Act of 1973 and the
applicable provisions of the Louisiana laws regulating HMOs and Insurance
Holding Company Systems. See "THE MERGER-Regulatory Approvals."
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Resales of United Common Stock
The shares of United Common Stock to be issued to shareholders of LIPA
in connection with the Merger have been registered under the Securities Act of
1933, as amended (the "Securities Act"). All shares of United Common Stock
received by holders of LIPA Common Stock upon consummation of the Merger will be
freely transferable by those shareholders of LIPA not deemed to be "affiliates"
(as such term is defined under the Securities Act) of LIPA or United. See "THE
MERGER--Resales of United Common Stock Issued in the Merger."
Comparison of Shareholder Rights
Upon consummation of the Merger, LIPA shareholders will become United
shareholders. As a result, their rights as shareholders, which are now governed
by Louisiana corporate law and LIPA's Articles of Incorporation and Bylaws, will
be governed by Minnesota corporate law and United's Articles of Incorporation
and Bylaws. See "COMPARISON OF SHAREHOLDER RIGHTS" for a summary of certain
material differences between the rights of holders of United Common Stock and
the rights of holders of LIPA Common Stock.
The Merger Agreement
Limitations on Negotiations by LIPA
The Merger Agreement provides that LIPA may not initiate, solicit or
encourage any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, (1) any sale of stock or other equity
interests, merger, consolidation, share exchange, business combination, or other
similar transaction; (2) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of any of LIPA's interest in the Community Health Entities
or 20% or more of the assets of LIPA in a single transaction or a series of
related transactions; or (3) any agreement to do, or public announcement by LIPA
of a proposal, plan or intention to do, any of the actions described in (1) or
(2) (each of (1), (2) and (3), referred to as a "Competing Transaction"), or
enter into discussions or negotiate with any person in furtherance of, or to
obtain a Competing Transaction, or agree to endorse a Competing Transaction, and
that LIPA will use its reasonable efforts to cause the directors, officers,
employees, agents and representatives of LIPA (as such persons are defined in
the Merger Agreement, see "THE MERGER AGREEMENT--Limitations on Negotiations by
LIPA") not to take such action, except in each such case as may be required in
order to comply with the Board of Directors' fiduciary duties, as evidenced by
the written opinion of counsel experienced in such matters. LIPA has agreed to
keep United informed regarding any inquiries or proposals with respect to a
Competing Transaction. See "THE MERGER AGREEMENT--Limitations on Negotiations
by LIPA."
Conditions to the Merger
The obligations of United and LIPA to consummate the Merger are
subject to the satisfaction of certain conditions (any or all of which may be
waived to the extent permitted by applicable law), including effectiveness of
the Registration Statement, requisite shareholder approval of the Merger
Agreement, the absence of any action, proceeding or injunction prohibiting
consummation of the Merger, the receipt of necessary regulatory and other
approvals and consents, the receipt of an opinion from legal counsel to the
effect that the Merger will qualify as a tax-free reorganization for federal
income tax purposes, the accuracy, as of the Effective Time, of representations
and warranties in the Merger Agreement, performance or compliance with the
agreements and covenants in the Merger Agreement, the receipt of "cold comfort"
letters from each of United and LIPA's respective independent public accountants
and the receipt by LIPA of a fairness opinion from Robinson-Humphrey dated the
date hereof. See "THE MERGER AGREEMENT--Conditions."
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Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the
Effective Time (1) by mutual written consent of United and LIPA; (2) by either
United or LIPA, if (a) any decree, permanent injunction, judgment, order or
other action by any court of competent jurisdiction or any governmental or
regulatory authority preventing or prohibiting consummation of the Merger shall
have become final and nonappealable, (b) if the Merger shall not have been
consummated before June 30, 1996, or a later date under certain circumstances
set forth in the Merger Agreement, (c) if the Merger Agreement shall fail to
receive the requisite vote for approval and adoption by the shareholders of LIPA
at the Special Meeting or any adjournment thereof or (d) the Average Stock Price
is more than $76.09 or less than $45.66; (3) by United, if LIPA has breached any
of its covenants or agreements contained in the Merger Agreement, or if any of
the representations and warranties of LIPA shall have become untrue, in any such
case such that the conditions to United's obligation to effect the Merger on
account of the continuing truth, accuracy and compliance with LIPA's
representations, warranties, agreements or covenants will not be satisfied (and
such breach or condition has not been cured by the earlier of 30 days following
receipt by LIPA of written notice of such breach or June 30, 1996 (or a later
date under certain circumstances set forth in the Merger Agreement)); (4) by
LIPA, if United has breached any of its covenants or agreements contained in the
Merger Agreement, or if any of the representations and warranties of United
shall have become untrue, in any case such that the conditions to LIPA's
obligation to effect the Merger on account of the continuing truth, accuracy and
compliance with United's representations, warranties, agreements or covenants
will not be satisfied (and such breach or condition has not been cured by the
earlier of 30 days following receipt by United of written notice of such breach
or June 30, 1996 (or a later date under certain circumstances set forth in the
Merger Agreement)); or (5) by LIPA, if United has entered into a written
agreement under which United will be acquired by or merge with another entity or
publicly announced its intention to enter into such a transaction, and after
such transaction, persons who were directors of United prior to such transaction
would not constitute a majority of the board of directors of the acquiring or
surviving corporation in such transaction.
In the event of termination of the Merger Agreement by either United
or LIPA, the Merger Agreement will become void and there will be no liability or
obligation on the part of United, United Sub or LIPA, subject to certain
exceptions. See "THE MERGER AGREEMENT--Termination."
Fees and Expenses
LIPA and United have agreed to bear their own expenses incurred in
connection with the Merger.
Market Price Data
The United Common Stock is listed on the NYSE under the symbol "UNH."
There is no public trading market for the LIPA Common Stock. The following
table sets forth the closing price per share of the United Common Stock and the
"equivalent per share price" (as defined below) of LIPA Common Stock as of (1)
January 15, 1996, the last trading day before United and LIPA announced
execution of the Merger Agreement, and (2) ______, 1996. The "equivalent per
share price" of LIPA Common Stock as of each date equals (1) the number of
shares of United Common Stock to be issued in the Merger based on each closing
price, multiplied by (2) the same such closing price, and divided by (3) the
number of shares of LIPA Common Stock outstanding on the Record Date.
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<TABLE>
<CAPTION>
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Equivalent Per
Market Price United Share Price (LIPA
Per Share At: Common Stock Common Stock)
- ------------ ------------ ------------------
<S> <C> <C>
January 15, 1996.. $ 58.25 $
________, 1996.... $ $
</TABLE>
Shareholders of LIPA are advised to obtain current market quotations
for United Common Stock. No assurance can be given as to the market price of
United Common Stock at any time before the Effective Time or as to the market
price of United Common Stock at any time thereafter.
Comparative Unaudited Per Common Share Data
The following table presents selected comparative unaudited per share
data with respect to United Common Stock on a historical and a pro forma
combined basis, and with respect to LIPA Common Stock on a historical and pro
forma equivalent basis, giving effect to the Merger as a purchase for accounting
and financial reporting purposes. Such pro forma data assume that the Merger had
been effective on September 30, 1995 for the book value per share data and at
the beginning of the year ended December 31, 1994 and the nine months ended
September 30, 1995 for the dividends declared and net earnings per share data.
The table also presents book value per share data as of September 30, 1995 and
net earnings per share data for the nine months ended September 30, 1995 and the
year ended December 31, 1994, adjusted to give effect to United's October 2,
1995 acquisition of MetraHealth and the probable merger with HealthWise as if
the acquisition and merger had occurred on September 30, 1995 with respect to
the book value per share data and January 1, 1994 with respect to the net
earnings per share data. United's unaudited pro forma condensed combining
financial statements giving effect to the MetraHealth acquisition are included
in its Current Report on Form 8-K/A dated October 2, 1995, incorporated by
reference into this Proxy Statement/Prospectus. The historical per share data
set forth in the following table are derived from and should be read in
conjunction with the historical consolidated financial statements of United,
MetraHealth, LIPA and HealthWise, including the notes thereto, incorporated by
reference into or included in this Proxy Statement/Prospectus. See "UNAUDITED
PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION," "CONSOLIDATED FINANCIAL
STATEMENTS OF LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC." and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The per share data set forth
below are presented for informational purposes only and are not necessarily
indicative of the results of the future operations of the combined entity or the
actual results that would have been achieved had the acquisition of MetraHealth,
and the mergers of LIPA and HealthWise, been consummated on the dates indicated
above.
- --------------------------------------------------------------------------------
-15-
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
United Common Stock LIPA Common Stock
----------------------- ---------------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Book value per share(1):
September 30, 1995............... $17.99 $17.91 $ 9,560.70 $
September 30, 1995 as
adjusted (4).................... 17.79 17.71 --
Cash dividends per share:(2)
Nine months ended
September 30, 1995............... $ 0.03 $ 0.03 $ -- $
Year ended December 31, 1994...... $ 0.03 $ 0.03 $ -- $
Net earnings per share from
continuing operations:(3)
Nine months ended
September 30, 1995............... $ 1.55 $ 1.55 $ 2,781.65 $
1995 as adjusted (4)............. 1.65 1.65 --
Year ended December 31, 1994...... $ 1.64 $ 1.64 $ 2,160.67 $
1994 as adjusted (4)............. 1.76 1.75 --
</TABLE>
- ----------------------------
(1) The pro forma combined book value per share of United Common Stock is based
upon the pro forma common shareholders' equity of the combined companies,
divided by the total pro forma common shares of the combined companies
outstanding as of the date indicated, assuming conversion of the LIPA Common
Stock at the Exchange Ratio. The pro forma equivalent book value per share of
LIPA Common Stock represents the pro forma combined book value per share
multiplied by the Assumed Exchange Ratio. The actual exchange ratio may differ
depending on the price of United Common Stock on the date of exchange.
(2) The pro forma combined dividends per share for United Common Stock assumes
no changes in cash dividends per share. The pro forma equivalent dividends per
share for LIPA Common Stock represent the cash dividends declared on a share of
United Common Stock multiplied by the Assumed Exchange Ratio. The actual
exchange ratio may differ depending on the price of United Common Stock on the
date of exchange.
(3) The pro forma combined net earnings per share from continuing operations
(based on fully diluted weighted average shares outstanding) of United Common
Stock is based on the pro forma net earnings for the combined companies, divided
by the pro forma weighted average common shares of the combined companies. The
pro forma equivalent net earnings per share from continuing operations of LIPA
Common Stock represents pro forma combined net earnings per share from
continuing operations multiplied by the Assumed Exchange Ratio. The actual
exchange ratio may differ depending on the price of United Common Stock on the
date of exchange.
- -------------------------------------------------------------------------------
-16-
<PAGE>
- -------------------------------------------------------------------------------
(4) The as adjusted book value and net earnings per share data give effect to
United's October 2, 1995 acquisition MetraHealth and United's probable merger
with HealthWise as if the acquisition and merger had occurred on September 30,
1995 with respect to the book value per share data and on January 1, 1994 with
respect to the net earnings per share data.
- -------------------------------------------------------------------------------
-17-
<PAGE>
- -------------------------------------------------------------------------------
Summary Consolidated Financial Data of United
The following table summarizes certain selected historical consolidated
financial data of United which should be read in conjunction with the
consolidated financial statements of United, and the notes thereto, incorporated
by reference into this Proxy Statement/Prospectus. The financial data for the
five years ended December 31, 1994 have been derived from the audited
consolidated financial statements of United. The financial data as of and for
the nine months ended September 30, 1995 and 1994 have been derived from the
unaudited condensed consolidated financial statements of United. The following
summary data does not include the estimated pro forma effects of United's
October 2, 1995 acquisition of MetraHealth or its probable merger with
HealthWise. United's unaudited pro forma condensed combining financial
statements giving effect to the MetraHealth acquisition are included in its
Current Report on Form 8-K/A dated October 2, 1995, incorporated by reference
into this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE." Each acquisition described in the footnotes to the table below
has been recorded using the purchase method of accounting and accordingly, the
operating results of each acquired company have been included in United's
historical financial information from the respective dates of acquisition. In
the opinion of United's management, all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial data
for the nine months ended September 30, 1995 and 1994 have been reflected
therein. Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the full year.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(unaudited) Years Ended December 31,
-------------------------- ------------------------------------------------------------------
1995(1)(2) 1994 1994(3) 1993(4) 1992(5) 1991(6) 1990(7)
---------- ---------- ---------- ---------- ---------- ---------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues $3,477,316 $2,799,855 $3,768,882 $3,115,202 $2,200,636 $1,416,120 $ 1,056,019
Earnings from Operations $ 437,540 $ 368,826 $ 506,047 $ 336,351 $ 207,306 $ 142,724 $ 79,548
Net Earnings Before
Extraordinary Gain $ 272,981 $ 203,896 $ 288,139 $ 212,078 $ 130,591 $ 89,398 $ 47,142
Extraordinary Gain on
Sale of Subsidiary, net $ -- $1,377,075 $1,377,075 $ -- $ -- $ -- $ --
Net Earnings $ 272,981 $1,580,971 $1,665,214 $ 212,078 $ 130,591 $ 89,398 $ 47,142
Net Earnings Per Share:
Earnings Before
Extraordinary Gain $ 1.55 $ 1.16 $ 1.64 $ 1.23 $ 0.79 $ 0.60 $ 0.38
Extraordinary Gain $ -- $ 7.85 $ 7.86 $ -- $ -- $ -- $ --
Primary $ 1.55 $ 9.01 $ 9.50 $ 1.23 $ 0.79 $ 0.60 $ 0.38
Fully Diluted $ 1.55 $ 9.01 $ 9.50 $ 1.23 $ 0.79 $ 0.60 $ 0.34
Dividends Per Common
Share $ 0.030 $ 0.030 $ 0.030 $ 0.015 $ 0.0075 $ 0.0075 $ 0.0075
Weighted Average Number
of Common Shares
Outstanding:
Primary 176,615 175,501 175,209 171,739 166,091 148,105 124,898
Fully Diluted 176,615 175,501 175,209 171,739 166,091 148,105 138,022
Balance Sheet Data:
Cash and Investments $2,585,582 $2,864,624 $2,769,390 $1,169,433 $ 923,576 $516,174 $ 258,071
Total Assets $3,896,871 $3,529,057 $3,489,479 $1,787,354 $1,321,174 $801,473 $ 434,555
Long-term Obligations $ 26,189 $ 23,956 $ 24,275 $ 39,099 $ 24,132 $ 41,649 $ 39,123
Shareholders' Equity $3,127,512 $2,701,773 $2,795,456 $1,085,410 $ 822,903 $426,796 $ 169,460
- ----------------------
</TABLE>
- -------------------------------------------------------------------------------
-18-
<PAGE>
- --------------------------------------------------------------------------------
(1) On October 2, 1995, United acquired MetraHealth. The total purchase price
of the acquisition was $1.09 billion in cash and $500 million of 5.75%
convertible preferred stock, for total consideration at closing of $1.59
billion. In addition, certain former owners of MetraHealth will be eligible to
receive up to an additional $700 million if MetraHealth achieves certain defined
operating results for each of 1995, 1996 and 1997. Had this transaction
occurred on January 1, 1994, and excluding the effects of any potential future
consideration, combined unaudited pro forma results for the nine months ended
September 30, 1995 and the year ended December 31, 1994 would have been revenues
- - $6.50 billion and $7.98 billion; net earnings before extraordinary gain -
$315.0 million and $337.0 million; net earnings - $293.0 million and $308.0
million; net earnings per common share before extraordinary gain - $1.66 and
$1.76 and net earnings per common share - $1.66 and $9.62.
(2) On January 3, 1995, United acquired GenCare Health Systems, (GenCare), a
health plan based in St. Louis, Missouri, which served 230,000 members at the
time of acquisition, for a total purchase price of $515.4 million in cash. Had
the transaction occurred on January 1, 1994, combined unaudited pro forma
results for the nine months ended September 30, 1994 and the year ended December
31, 1994 would have been: revenues - $2.94 billion and $3.97 billion; net
earnings before extraordinary gain - $200.1 million and $284.9 million; net
earnings - $1.58 billion and $1.66 billion; net earnings per common share before
extraordinary gain - $1.14 and $1.63 and net earnings per common share - $8.99
and $9.49.
(3) On May 27, 1994, United 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, United 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 financial information presented above.
(4) On January 29, 1993, United acquired Western Ohio Health Care Corporation,
then a 183,000-member HMO located in Dayton, Ohio, for a purchase price of
$100.1 million.
(5) On January 2, 1992, United acquired Physicians Health Plan Corporation, the
sole shareholder of Physicians Health Plan of Ohio, Inc., then a 154,000-member
HMO located in Columbus, Ohio, for a purchase price of $89 million. In addition,
United completed a public offering in March 1992 of ten million shares of United
Common Stock, with net proceeds of $195.9 million.
(6) United completed a public offering in March 1991 of 13.8 million shares of
United Common Stock, with net proceeds of $99.1 million. On August 30, 1991,
United acquired approximately 79% of Ocean State Coordinated Health Services
Corporation ("Ocean State"), the sole shareholder of Ocean State Physicians
Health Plan, Inc. (subsequently renamed United Health Plans of New England,
Inc.), then a 136,000-member HMO located in Warwick, Rhode Island, for a
purchase price of $26.4 million. United previously owned 21% of Ocean State. As
a result of the transaction, Ocean State became a wholly-owned subsidiary of
United.
(7) On March 1, 1990, United acquired PrimeCare Health Plan, Inc.
("PrimeCare"), then a 100,000-member HMO located in Milwaukee, Wisconsin. In
addition to the purchase price of $9.1 million, the transaction required the
repayment of $2.2 million of subordinated debt of PrimeCare.
- --------------------------------------------------------------------------------
-19-
<PAGE>
- --------------------------------------------------------------------------------
Summary Consolidated Financial Data of LIPA
The following table summarizes certain selected historical consolidated
financial data of LIPA. The balance sheet data presented below as of December
31, 1994 and 1993 and the statement of operations data presented below for each
of the years in the three-year period ended December 31, 1994 are derived from
LIPA's audited consolidated financial statements appearing elsewhere in this
Proxy Statement/Prospectus. The balance sheet data as of December 31, 1992,
1991 and 1990 and the statement of operations data for the years ended December
31, 1991 and 1990 have been derived from other audited consolidated financial
statements of LIPA; however, these financial statements are not included in this
Proxy Statement/Prospectus. The financial data as of September 30, 1995 and
1994 and for the nine months ended September 30, 1995 and 1994 are derived from
the unaudited condensed consolidated financial statements of LIPA. In the
opinion of LIPA's management, the consolidated balance sheet data as of
September 30, 1995 and 1994 and the consolidated statement of operations data
for the nine months ended September 30, 1995 and 1994 reflect all adjustments
(which consist of only normal recurring adjustments) necessary for a fair
presentation of results of these interim periods. Operating results for the
nine months ended September 30, 1995 and 1994 are not necessarily indicative of
results for the full fiscal year or for any future interim period. The
summarized historical financial data should be read in conjunction with "LIPA's
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of LIPA, and the notes
thereto, included elsewhere in this Proxy Statement/Prospectus. See
"CONSOLIDATED FINANCIAL STATEMENTS OF LOUISIANA INDEPENDENT PHYSICIANS
ASSOCIATION, INC."
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------- -------------------------------------------------------------
(Unaudited)
1995 1994 1994 1993 1992 1991 1990(1)
---- ---- ---- ---- ---- ---- -------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues $93,751 $61,467 $82,529 $66,258 $61,163 $50,853 $43,172
Earnings (loss) from
Operations (252) (7) 10 528 (1,376) (770) 1,140
Equity in Earnings of
Unconsolidated
Affiliates (2) 2,104 1,178 1,363 1,081 1,217 934 1,178
Minority Interest (54) (7) (8) (278) (9) (16) (586)
Net Earnings Before
Extraordinary Gain 1,160 757 901 840 1,106 99 790
Extraordinary Gain, net -- -- -- -- -- -- 477
Net Earnings (Loss) $ 1,160 $ 757 $ 901 $ 840 $ (107) $ 99 $ 1,267
Net Earnings (Loss)
Per Share:
Net Earnings (Loss)
Before Extraordinary
Gain $ 2,782 $ 1,816 $ 2,161 $ 2,015 $ (255) $ 237 $ 1,894
Extraordinary Gain -- -- -- -- -- -- 1,144
Net Earnings (Loss) 2,782 1,816 2,161 2,015 (255) 237 3,038
Dividends per Common
Share $ -- $ -- $ -- $ 24 $ 953 $ -- $ 251
Weighted Average Number
of Common Shares
Outstanding 417 417 417 417 417 417 417
Balance Sheet Data:
Cash and Investments $ 4,245 $ 7,969 $ 8,206 $ 7,650 $ 2,281 $ 2,856 $ 5,206
Total Assets $21,818 $16,700 $16,997 $13,883 $11,650 $10,451 $10,483
Stockholders' Equity $ 3,987 $ 2,683 $ 2,827 $ 1,926 $ 1,095 $ 1,600 $ 1,501
- ----------------------------
</TABLE>
- --------------------------------------------------------------------------------
-20-
<PAGE>
- --------------------------------------------------------------------------------
(1) During 1990 LIPA realized an extraordinary gain relating to a reduction in
income taxes arising from the carryforward of prior year losses.
(2) Amount represents LIPA's Equity interest in two unconsolidated entities,
LHMC and LHP, which are both properly accounted for under the equity method of
accounting for investments.
- --------------------------------------------------------------------------------
-21-
<PAGE>
- --------------------------------------------------------------------------------
Unaudited Pro Forma Combined Summary Financial Data
The following table summarizes certain selected unaudited pro forma
financial data for United and LIPA combined, giving effect to (1) the Merger as
a purchase for accounting and financial reporting purposes and (2) the
acquisition of MetraHealth accounted for as a purchase and (3) the probable
merger with HealthWise to be accounted for as a pooling of interests. Such pro
forma data assumes that the Merger, the MetraHealth acquisition and the merger
with HealthWise had been effective on September 30, 1995 for the balance sheet
data and at the beginning of the nine months ended September 30, 1995 and the
year ended December 31, 1994 for the statement of operations data. The
unaudited pro forma data set forth in the following table is derived from, and
should be read in conjunction with, the historical consolidated financial
statements of United, MetraHealth, LIPA and HealthWise, including the respective
notes thereto, and the unaudited pro forma condensed combining financial
information, including the respective notes thereto, incorporated by reference
into or included in this Proxy Statement/Prospectus. See "UNAUDITED PRO FORMA
CONDENSED COMBINING FINANCIAL INFORMATION," "CONSOLIDATED FINANCIAL STATEMENTS
OF LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC." and "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." The following pro forma financial data is
presented for informational purposes only, and is not necessarily indicative of
the results of the future operations of the combined entity or the actual
results that would have been achieved had the LIPA Merger, the acquisition of
MetraHealth and the proposed merger of HealthWise been consummated on the dates
or prior to the periods presented.
<TABLE>
<CAPTION>
United, MetraHealth, HealthWise
and LIPA Pro Forma Combined
------------------------------------
Nine Months
Ended Year Ended
September 30, December 31,
1995(2) 1994(2)
------------- ------------
(in millions except share and per share amounts)
<S> <C> <C>
Statement of Operations
Data(1):
Revenues $ 6,658 $ 8,149
Earnings from Operations $ 533 $ 624
Net Earnings Before
Extraordinary Gain $ 322 $ 345
Extraordinary Gain on
Sale of Subsidiary, net $ -- $ 1,377
Net Earnings Applicable
to Common Shareholders $ 300 $ 1,693
Net Earnings Per Share
Applicable to Common
Shareholders:
Earnings Before
Extraordinary Gain $ 1.65 $ 1.75
Extraordinary Gain $ -- $ 7.65
Net Earnings $ 1.65 $ 9.40
Dividends Per Common Share $ 0.03 $ 0.03
Weighted Average Number
of Common Shares
Outstanding 181,749,000 180,136,000
Balance Sheet Data(1):
Cash and Investments $ 3,179 N/A
Total Assets $ 6,385 N/A
Long-term Obligations $ 49 N/A
Shareholders' Equity $ 3,210 N/A
- -------------------
</TABLE>
(1) All pro forma amounts exclude the one-time costs associated with the merger
of United and HealthWise. See Note D to "UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL INFORMATION."
(2) United has signed definitive agreements to acquire in separate transactions
PHP, Inc. and Physicians Health Association, Ltd. These transactions are
expected to close in the first or second quarters of 1996 and have been
excluded from the unaudited pro forma condensed combining financial information
as their effects are not significant.
- --------------------------------------------------------------------------------
-22-
<PAGE>
RISK FACTORS
Certain factors relating to the industry in which United operates and
United's business should be carefully considered.
Regulation
United's primary business, offering health care coverage and health
care management services, is heavily regulated at both the federal and state
level. Changes in applicable laws and regulations are continually being
considered. While United is unable to predict what regulatory changes may occur
or the impact on United of any particular change, United's operations and
financial results could be negatively affected by regulatory revisions. Certain
proposed changes in Medicare and Medicaid programs may increase the
opportunities for United to enroll persons under products developed for the
Medicare and Medicaid eligible populations, but proposed changes also may limit
the reimbursement available to United and increase competition in those
programs, which would adversely affect United's financial results. The
continued consideration and enactment of "anti-managed care" laws and
regulations, such as "any willing provider" laws and limits on utilization
management, by federal and state bodies may make it more difficult for United to
control medical costs and may adversely affect financial results.
In addition to changes in applicable laws and rules, United is
potentially subject to governmental investigations and enforcement actions.
These include possible government actions relating to the federal Employee
Retirement Income Security Act ("ERISA"), which regulates insured and self-
insured health coverage plans offered by employers and United's services to such
plans and employers, the Federal Employees Health Benefit Plan ("FEHBP"),
federal and state fraud and abuse laws and laws relating to utilization
management and the delivery of health care. Any such government action could
result in assessment of damages, civil or criminal fines or penalties, or other
sanctions, including exclusion from participation in government programs.
Although United is currently involved in various government audits, such as
under the FEHBP or relating to services for ERISA plans, United does not believe
the results of such current audits will, individually or in the aggregate, have
a material adverse effect on United's financial results. See "CERTAIN
INFORMATION CONCERNING UNITED--Government Regulation."
Litigation
Because of the nature of its business, United is subject to suits
relating to the failure to provide or pay for health care, poor outcomes for
care delivered or arranged under United's programs, nonacceptance or termination
of providers, failure to return withheld amounts from provider compensation,
failure of a self-funded plan serviced by United to pay benefits, improper
copayment calculations and other forms of legal actions. Some of these suits
may include claims for substantial punitive damages. While United does not
believe that any such actions currently threatened or pending will, individually
or in the aggregate, have a material adverse effect on United's financial
results, the likelihood or outcome of such current or future suits cannot be
accurately predicted, and they could adversely affect United's financial
results.
Competition
The industry in which United operates is highly competitive and
significant consolidation has occurred within the industry, creating stronger
competitors. At the same time, there are a number of new entrants to the
industry, which may also increase competitive pressures. The current
competitive markets in certain areas may limit United's ability to price its
products at levels United believes appropriate. These competitive factors could
adversely affect United's financial results. See "CERTAIN INFORMATION
CONCERNING UNITED--Competition."
-23-
<PAGE>
Health Care Cost Changes
Trends in health care prices and utilization have a substantial effect
on United's financial results. Historically, increases in health care prices
and utilization have caused health care costs to rise faster than general
inflation. In recent time periods these increases have moderated, but there can
be no assurance that health care prices or utilization will not again increase
at a more rapid pace. If health care costs do begin to increase more rapidly,
there can be no assurance that United will be able to meet its goal of
maintaining price increases at least sufficient to cover increases in health
care costs. Competitive pressures, demands from providers and customers,
applicable regulations or other factors may adversely affect United's ability to
limit the impact of health care cost increases by reducing the amounts paid to
providers or by increasing prices. If United were unable to continue to meet
its objective of matching price increases to health care cost increases, its
financial results would likely be materially adversely affected.
Recent Acquisitions
United has engaged in an extensive acquisition program over the last
few years. United continues to evaluate opportunities to acquire additional
businesses or to sell existing ones. The intensive acquisition program may
affect United's ability to integrate and manage its overall business
effectively, which may increase costs, slow membership, revenue and earnings
growth and adversely affect United's financial results. United's recent
acquisition of MetraHealth poses significant integration challenges,
particularly since MetraHealth itself was the product of a merger of businesses
that were not yet fully integrated. Failure to successfully integrate
MetraHealth would likely materially adversely affect United's financial results.
The acquisition of MetraHealth also may make United's revenues more
sensitive to fluctuations in overall health care cost trends, because the
proportion of the former MetraHealth revenues derived from indemnity insurance
business, which may have a lesser degree of health care cost control, is
relatively high, and because former MetraHealth revenues will constitute a
substantial portion of United's revenues. See "CERTAIN INFORMATION CONCERNING
UNITED--Expansion and Disposal of Operations."
-24-
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of LIPA
Common Stock in connection with the solicitation of proxies by the Board of
Directors of LIPA for use at a Special Meeting to be held on __________, 1996,
in the ____ Room of the Radisson Hotel, 4728 Constitution Avenue, Baton Rouge,
Louisiana, 70808, commencing at _______ local time, and at any adjournment or
postponement thereof.
This Proxy Statement/Prospectus and accompanying form of proxy are first
being mailed to shareholders of LIPA on or about __________, 1996.
Matters to be Considered at the Special Meeting
At the Special Meeting, holders of LIPA Common Stock will (1) consider and
vote upon a proposal to approve and adopt the Merger Agreement, the Merger and
any transactions related thereto, to the extent that such transactions are
deemed transactions under Section 84 of the LBCL, see "THE MERGER--Interests of
Certain Persons in the Merger," and (2) transact such other business as may
properly come before the Special Meeting or any postponement or adjournment
thereof.
Board of Directors' Recommendation
THE BOARD OF DIRECTORS OF LIPA BELIEVES THAT THE MERGER AGREEMENT IS IN THE
BEST INTERESTS OF LIPA AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT TO ITS SHAREHOLDERS.
Record Date; Voting at the Special Meeting; Required Vote
LIPA has fixed _________, 1996, as the Record Date for the determination of
the holders of LIPA Common Stock entitled to notice of and to vote at the
Special Meeting. Accordingly, only holders of record of LIPA Common Stock on
the Record Date will be entitled to notice of and to vote at the Special
Meeting. As of the Record Date, there were _______ shares of LIPA Common Stock
outstanding and entitled to vote, which shares were held in the aggregate by
______ holders of record. Each holder of record of LIPA Common Stock on the
Record Date is entitled to cast one vote per share of LIPA Common Stock,
exercisable in person or by properly executed proxy, at the Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the LIPA Common Stock entitled to vote at the Special Meeting is
necessary to constitute a quorum at the Special Meeting.
The approval and adoption of the Merger Agreement by the shareholders of
LIPA will require the affirmative vote of the holders of two-thirds of LIPA
Common Stock present at the Special Meeting (assuming a quorum is present). If
an executed proxy card is returned and the shareholder has abstained from voting
on any matter, the shares represented by such proxy will be considered present
at the meeting for purposes of determining a quorum and for purposes of
calculating the vote but will not be considered to have been voted in favor of
such matter. Accordingly, abstentions will have the same effect as a vote
against the Merger Agreement.
As of the Record Date, neither United nor any of its directors or executive
officers or their affiliates beneficially owned any shares of LIPA Common Stock.
-25-
<PAGE>
Proxies
All shares of LIPA Common Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, and not
revoked, will be voted at the Special Meeting in accordance with the
instructions indicated on such proxies. If no instructions are indicated, such
proxies will be voted for approval and adoption of the Merger Agreement. If any
other matters are properly presented at the Special Meeting for consideration,
including, among other things, consideration of a motion to postpone or adjourn
the Special Meeting to another time or place, the persons named in the enclosed
form of proxy and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (1) filing
with the Secretary of LIPA, at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy, (2)
duly executing a later dated proxy relating to the same shares and delivering it
to the Secretary of LIPA before the taking of the vote at the Special Meeting,
or (3) attending the Special Meeting and voting in person (although attendance
at the Special Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to Louisiana Independent Physicians Association, Inc., 8550
United Plaza Boulevard, Suite 600, Baton Rouge, Louisiana 70809, Attention:
Corporate Secretary, or hand delivered to the Secretary of LIPA at or before the
taking of the vote at the Special Meeting.
The meeting may be postponed or adjourned from time to time without notice
other than such notice as may be given at the meeting or any postponement or
adjournment thereof, including, without limitation, if a quorum is not obtained,
or if fewer shares are likely to be voted in favor of approval and adoption of
the Merger Agreement than the number required for approval. Any business for
which notice has been given may be transacted at any such postponed or adjourned
meeting. If the Special Meeting is postponed or adjourned for the purpose of
obtaining additional proxies or votes or for any other purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the meeting (except for any proxies which have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively voted
on the same or any other matter at a previous meeting.
Pursuant to the Merger Agreement, all expenses related to the printing,
filing and mailing of the Registration Statement and this Proxy
Statement/Prospectus will be borne by the party that incurs such expenses. In
addition to use of the mails, proxies may be solicited personally or by
telephone or telegraph by directors, officers and employees of LIPA, who will
not be specially compensated for such activities.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH IN THIS PROXY STATEMENT/PROSPECTUS. See "THE MERGER--Procedures for
Exchange of Certificates and Waiver of Claims."
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THE MERGER
The following information describes the material aspects of the Merger.
This description does not purport to be complete and is qualified in its
entirety by reference to the Exhibits hereto, including the Merger Agreement,
which is attached to this Proxy Statement/Prospectus as Exhibit A and is
incorporated herein by reference. All shareholders are urged to read Exhibit A
in its entirety. See also "THE MERGER AGREEMENT."
Effects of the Merger
Upon consummation of the Merger, (1) LIPA will merge with and into United
Sub, which will be the Surviving Corporation, (2) LIPA will cease to exist, and
(3) each share of LIPA Common Stock outstanding, other than Dissenting Stock,
will be converted into the right to receive a pro rata allotment of an aggregate
number of shares of United Common Stock equal to $50,000,000 divided by the
Average Stock Price; provided, however, that the number of shares issuable in
the Merger will be fixed at (1) 938,692 if the Average Stock Price is at least
$49.2707 but less than $53.2656, or (2) 730,093 if the Average Stock Price is
more than $68.4844 but not more than $73.0500. If the Average Stock Price is
more than $73.0500, the number of shares issuable in the Merger will be (1)
$53,750,000 divided by (2) the Average Stock Price. If the Average Stock Price
is less than $49.2707, the number of shares issuable in the Merger will be (1)
$46,250,000 divided by (2) the Average Stock Price.
On ________, 1996, the closing price per share of United Common Stock on
the NYSE was $_____. If the Average Stock Price were equal to this price per
share, shareholders of LIPA would be entitled to receive approximately _____
shares of United Common Stock, having a market value of approximately $_____, in
exchange for each share of LIPA Common Stock held by them. As of the Record
Date, there were ___ shares of LIPA Common Stock outstanding. Assuming the
Average Stock Price is $____ and there is no Dissenting Stock, then, upon
consummation of the Merger, _______ shares of United Common Stock would be
issuable to the holder of each share of LIPA Common Stock.
In addition to United Common Stock, at the effective time of the Merger
each share of LIPA Common Stock outstanding, other than Dissenting Stock, will
receive one Contingent Payment Right to receive two contingent cash payments,
net of any amount to which United is entitled pursuant to the indemnification
provisions of the Merger Agreement. The aggregate amount of such payments will
be determined by reference to the Adjusted Net Income of the Community Health
Entities and MetraHealth Louisiana. For the period January 1, 1996 to December
31, 1996, the Earn-Out will equal the amount, if any, by which Adjusted Net
Income exceeds $10.0 million, multiplied by 6.3. For the period January 1, 1997
to December 31, 1997, the Earn-Out will equal the amount, if any, by which
Adjusted Net Income exceeds $16.5 million, multiplied by 4.5. In no case,
however, can the aggregate of the two Earn-Outs exceed $35.0 million (or
approximately $84,000 per share of LIPA Common Stock). The amount payable to
each holder of a Contingent Payment Right will be equal to the Earn-Out for the
applicable year divided by the number of Contingent Payment Rights outstanding
at the time payment is due. See "--Contingent Payment Right Procedures."
All shares of LIPA Common Stock converted into shares of United Common
Stock in the Merger will no longer be outstanding and will automatically be
canceled and retired and will cease to exist at the Effective Time. Each
certificate previously representing shares of LIPA Common Stock will thereafter
represent the right to receive a certificate representing shares of United
Common Stock. Certificates previously representing shares of LIPA Common Stock
may be exchanged for certificates representing whole shares of United Common
Stock issued in consideration therefor upon the surrender of such certificates
as provided below, without interest. No fractional shares of United Common
Stock will be issued, and, in lieu thereof, a cash payment will be made as
provided below. Each share of
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LIPA Common Stock held in the treasury of LIPA or owned by any direct or
indirect wholly owned subsidiary of LIPA immediately prior to the Effective Time
will be canceled and extinguished without any conversion thereof, and no payment
will be made with respect thereto.
For a description of the procedures for exchanging LIPA Common Stock for
United Common Stock and for payment of cash in lieu of the issuance of
fractional shares, see "--Procedures for Exchange of Certificates" and
"--Fractional Shares."
Effective Time
If the Merger Agreement is approved and adopted by the requisite vote of
the shareholders of LIPA and the other conditions to the Merger are satisfied
(or waived to the extent permitted), the Merger will be consummated and effected
at the time the certificate of merger is filed with the Secretary of State of
the State of Louisiana.
The closing of the transactions contemplated by the Merger Agreement will
take place on the last business day of the month during which all of the
conditions to the Merger are satisfied (or waived to the extent permitted) or on
such other date, time and place as United and LIPA may agree. The Merger
Agreement may be terminated by either United or LIPA in certain circumstances
notwithstanding the prior approval and adoption of the Merger Agreement by the
shareholders of LIPA. See "THE MERGER AGREEMENT--Termination."
Procedures for Exchange of Certificates and Waiver of Claims
As of the Effective Time, United will deposit, or will cause to be
deposited, with a bank or trust company designated by United and acceptable to
LIPA (the "Exchange Agent"), for the benefit of the holders of shares of LIPA
Common Stock, for exchange in accordance with the terms of the Merger Agreement,
certificates representing the shares of United Common Stock (such certificates
for shares of United Common Stock, together with any dividends or distributions
with respect thereto and appropriate cash payments in lieu of fractional shares
of United Common Stock, being hereinafter referred to as the "Exchange Fund")
issuable pursuant to the Merger Agreement in exchange for outstanding shares of
LIPA Common Stock. The Exchange Agent will, pursuant to irrevocable
instructions, deliver the United Common Stock contemplated to be issued pursuant
to the Merger Agreement out of the Exchange Fund.
Promptly after the Effective Time, United will instruct the Exchange Agent
to mail to each holder of record of a Certificates (1) a letter of transmittal
in customary form (which will specify that delivery will be effected, and risk
of loss and title to the Certificates will pass, only upon proper delivery of
the Certificates to the Exchange Agent), and (2) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of United Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with a duly executed letter of
transmittal, which will also include the Waiver (as described in the paragraph
immediately following), and any other documents as may be required pursuant to
such instructions, the holder of the Certificate will be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
United Common Stock which the holder has received in respect of the shares of
LIPA Common Stock formerly represented by the Certificate, cash in lieu of
fractional shares of United Common Stock (after taking into account all shares
of LIPA Common Stock then held by the holder) and any dividends or other
distributions to which the holder is entitled pursuant to the Merger Agreement,
and the Certificate so surrendered will forthwith be canceled. In the event of
a transfer of ownership of shares of LIPA Common Stock which is not registered
in the transfer records of LIPA, a certificate representing the proper number of
shares of United Common Stock, together with cash in lieu of
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fractional shares of United Common Stock and any dividends or other
distributions to which such holder is entitled, may be issued to a transferee if
the Certificate representing such shares of LIPA Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon surrender the
certificate representing shares of United Common Stock, cash in lieu of any
fractional shares of United Common Stock and any dividends or other
distributions to which the holder is entitled as described below.
The Waiver, the form of which is Exhibit 2.02(b) to the Merger Agreement,
is a release by a LIPA shareholder of United, LIPA, the Community Health
Entities, and United's subsidiaries, officers, directors, employees and agents
from all claims that a shareholder may have relating to the provision by the
shareholder of services to the Community Health Entities prior to January 1,
1995. The Waiver is intended to cover claims in connection with withholding
arrangements between providers and CHN that existed prior to January 1, 1995
under certain provider contracts. The Waiver functions as an alternative to a
representation, with related indemnification provisions, in the Merger Agreement
by LIPA that it had settled all outstanding claims concerning these withholding
arrangements. United required this more effective form of protection as a
condition to the acceptance of its final offer of merger terms. See
"--Background of the Merger."
SHAREHOLDERS OF LIPA SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE EXCHANGE
AGENT WITHOUT A LETTER OF TRANSMITTAL AND SHOULD NOT RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
No dividends or other distributions declared or made after the Effective
Time with respect to United Common Stock with a record date after the Effective
Time will be paid to the holder of any unsurrendered Certificate with respect to
the shares of United Common Stock represented thereby, and no cash payment in
lieu of fractional shares will be paid to any such holder, until the holder of
the Certificate has surrendered such Certificate. Subject to the effect of
escheat, tax or other applicable laws, following surrender of any such
Certificate, there will be paid to the holder of the certificates representing
whole shares of United Common Stock issued in exchange therefor, without
interest, (1) promptly, the amount of any cash payable with respect to a
fractional share of United Common Stock to which such holder is entitled and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of United
Common Stock, and (2) at the appropriate payment date, the amount of dividends
or other distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of United Common Stock. All shares of United Common Stock
issued upon conversion of the shares of LIPA Common Stock (including any cash
paid for fractional shares and for dividends or other distributions described
above) will be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of LIPA Common Stock, other than the right to receive
the Earn-Outs, if any. See THE MERGER--Contingent Payment Rights."
Any portion of the Exchange Fund remaining undistributed one year after the
Effective Time will be returned to United, upon demand, and any holders of
theretofore unsurrendered LIPA Common Stock will thereafter be able to look only
to United for any portion of the Exchange Fund to which they are entitled.
Neither United nor LIPA will be liable to any holder of shares of LIPA Common
Stock for any such shares of United Common Stock (or dividends or distributions
with respect thereto) or cash in lieu of fractional shares delivered to a public
official pursuant to any abandoned property, escheat or similar law.
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Fractional Shares
No certificates or scrip representing fractional shares of United Common
Stock will be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
other rights of a shareholder of United. Each holder of Certificates who
otherwise would be entitled to receive a fractional share of United Common Stock
will receive, in lieu of such fractional share interest, an amount in cash
(without interest) determined by multiplying (1) the closing sale price per
share of United Common Stock as reported on the NYSE on the business day
immediately preceding the date of closing of the Merger by (2) the fractional
share interest to which such holder would otherwise be entitled. United will
transfer to the Exchange Agent on a timely basis the cash necessary to make such
payments. As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of LIPA Common Stock with respect to any
fractional share interests, the Exchange Agent will promptly pay such amounts to
holders of LIPA Common Stock at such time as they have surrendered their
Certificates.
Contingent Payment Rights
Within 90 days following the end of each of the years ended December 31,
1996 and December 31, 1997 (the "Earn-Out Years"), United will deliver to
Dr. V. Lynn McCord, Dr. Williams D. Wall, IV, and Dr. Kenneth C. Cranor, or
their properly designated successors (collectively, the "Shareholder
Representative"), a calculation of the Earn-Out with respect to such year,
together with (1) the certification of the chief financial officers of United
and the Surviving Corporation to the effect that (a) United and Surviving
Corporation have not disposed of all or substantially all of their respective
interests in the Community Health Entities or otherwise combined the operations
of such entities, unless United shall have made reasonably adequate provisions
to provide for the determination of the Earn-Out, and (b) that United and the
Surviving Corporation have maintained their respective books and records in
accordance with generally accepted accounting principles; and (2) the
certification of such officers and the independent certified public accountants
of United or the Surviving Corporation to the effect that the calculation is in
accordance with an audit by such accountants for the Community Health Entities.
The Shareholder Representative may contest the calculation of the Earn-Out in
accordance with certain procedures, including the arbitration of unresolved
issues. United shall make any payment due under the Contingent Payment Rights to
each holder thereof by cashier's or certified check not later than 45 days
following public announcement of United's audited financial results for each of
the Earn-Out Years. Contingent Payment Rights are personal to each initial
holder of such rights and are not transferable for any reason other than by
operation of law or by will or the laws of descent and distribution. Contingent
Payment Rights will not be represented by any certificate or similar instrument.
Background of the Merger
On May 31, 1994, United and Complete Health Services, Inc. ("Complete")
consummated a merger pursuant to which United became the owner of approximately
51% of LHMC, 49% of CHN and 51% of LHP, with LIPA holding the remaining interest
in these entities. See "CERTAIN INFORMATION CONCERNING LIPA--The Business of
LIPA." Shortly after the announcement of the merger of United and Complete, LIPA
objected to Complete regarding the exclusion of LIPA from the merger
negotiations. LIPA's understanding of Complete's response was that LIPA's
participation in the negotiations was not possible and that United would have to
wait two years before it could seek a merger with LIPA. Based on this
understanding, LIPA's Board of Directors (the "LIPA Board") abandoned its
request to negotiate and cooperated in the transition of the management
resulting from United's merger with Complete, in the belief that the new joint
ownership would substantially increase the value of LIPA's interest in the
Community Health Entities.
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On February 7, 1995, United offered to buy LIPA's interest in the Community
Health Entities. On February 10, 1995, the LIPA Board initiated a discussion of
LIPA's strategic options and methods by which the LIPA Board could effectively
evaluate those options. Dr. McCord, Dr. Kenneth C. Cranor, Chairman of the Board
of Directors of CHN, and Thomas H. Benton, LIPA's senior legal counsel,
expressed the view to the Board that it was not then a good time to negotiate a
sale to United. The reasons for this view were that (1) the LIPA Board lacked
sufficient information about the value of LIPA, (2) the recent departure of the
CHN chief executive officer created an uncertain environment and (3) CHN would
soon experience increased profit margins due to the introduction of new
products. Dr. McCord informed United that the LIPA Board had decided to delay
further negotiations for these reasons. On February 27, 1995, LIPA communicated
to its shareholders United's offer to buy LIPA's interest in the Community
Health Entities and the decision to delay negotiations with United.
Thereafter, Dr. McCord, Dr. Cranor, Dr. Williams D. Wall, IV, LIPA's Vice
President, and personnel from Thomas H. Benton & Associates (the "Benton Law
Firm") studied recent HMO acquisitions in general and United acquisitions in
particular. As part of the process, this group gave the Complete transaction
with United particular scrutiny. LIPA also informed several investment banks of
United's interest in acquiring LIPA's interest in the Community Health Entities.
As a result, several inquiries were received and a national investment banking
firm offered to review the operations of the Community Health Entities without
obligation. This offer was accepted, and on April 6, 1995, the investment bank
sent a three person team to Baton Rouge. This team interviewed senior
management and reviewed financial reports, then advised orally representatives
of LIPA regarding methods for valuing HMO acquisitions.
In its review of the strategic options available to LIPA, the LIPA Board
considered, in addition to the financial condition and outlook of LIPA, the
following factors that might adversely impact the value of LIPA: (1) the then-
current general decline of HMO acquisition values in the national market;
(2) the resignation of CHN's chief executive officer and the existing vacancy in
that position; (3) that few potential buyers would be interested in acquiring
LIPA's holdings because LIPA did not own a controlling interest in the
management company; and (4) uncertainty concerning LIPA's projected income
figures for the next two years.
On June 26, 1995, United announced its agreement to acquire MetraHealth.
As a result of this acquisition, which United consummated on October 2, 1995,
United acquired approximately 200,000 covered lives in Louisiana, 12,000 of whom
were in CHN's service areas in New Orleans and Baton Rouge.
On July 18, 1995, Dr. McCord and Dr. Cranor met with representatives of
United. Following that meeting, in a letter dated July 20, United provided a
list of six alternatives to the previous United offer. United proposed that
LIPA either (1) sell 100% of its interest in the Community Health Entities to
United, (2) sell less than 100% of its interest in the Community Health Entities
to United, (3) retain its current interest in the Community Health Entities, but
if United were to acquire a competing HMO, the acquired entity would be merged
into CHN as additional paid in capital from United, thereby reducing the
percentage of LIPA's equity interest, (4) contribute equally to the cost of such
an acquisition of an competing HMO, (5) perform some combination of the actions
described in (2) and (3) above, or (6) maintain the status quo.
The LIPA Board met on July 27, 1995 to consider United's offer and related
alternatives. Given the recent acquisition of MetraHealth by United, the hiring
of a new CEO and the recent substantial increases in CHN's monthly income, the
LIPA Board authorized Drs. McCord, Cranor, Wall and Mr. Thomas H. Benton
(collectively, the "Committee") to engage in negotiations for a possible
acquisition of LIPA by United on the basis of a tax-free exchange of shares.
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The Committee was authorized to consult with H. J. Lowe and Company, LIPA's
accountants, for any appropriate assistance, including the recommendation of
additional consultants. The Committee was instructed to consult with the LIPA
Board regarding each offer. The consensus of the LIPA Board was that the value
to United of the holdings of LIPA should reflect (1) current monthly income,
which had recently increased and was expected to remain at this higher level;
(2) the non-compete covenant with United, which had an economic value separate
and apart from the value of LIPA; (3) that control of 100% of the Community
Health Entities had value to United; and (4) that United faced potential
conflicts due to the MetraHealth acquisition.
Accordingly, the LIPA Board sent to United on August 25, 1995 a written
offer to sell LIPA for $110 million based, in part, on the factors listed above.
In response to this letter, United at an August 28, 1995 meeting offered $40
million for LIPA and urged the Committee to seek investment banking advice in
evaluating the offer. United also suggested that an earn-out, which would
provide additional compensation to the shareholders of LIPA if the earnings of
the Community Health Entities reached specified levels, could address the
difference in opinion concerning the valuation of the Community Health Entities.
Shortly thereafter, the Committee, together with LIPA's accountants, performed a
valuation analysis based upon various assumed growth rates. This valuation
analysis was compared to an analysis that United prepared. United's and LIPA's
representatives had several discussions regarding basic assumptions underlying
the valuation analyses.
In the course of these discussions, United informed LIPA that as a
condition of the Merger United would require consulting agreements containing
non-compete covenants with key personnel of LIPA. In order to avoid any
conflict of interest on the part of the Committee members, the Committee and
United deferred discussion of such agreements until the conclusion of price
negotiations.
On September 5, 1995, another meeting was held in Baton Rouge, which
included United's chairman and chief executive officer, Dr. William W. McGuire,
M.D. On October 13, 1995, United made an offer of approximately $50 million in
stock plus a $35 million cash earn-out, subject to the receipt of a release from
each shareholder regarding withholding arrangements in pre-1995 provider
contracts, in lieu of a representation by LIPA and related indemnification
provisions addressing this concern. On October 27, 1995, United revised the
earn-out terms, and indicated that this was its final offer. This final offer
contained the condition that consulting agreements be received from certain key
LIPA personnel, including the four Committee members, physicians that were board
members of LIPA and CHN and physicians serving on the existing committees of
CHN. United insisted on these agreements in order to effect a smooth transition
of control of the Community Health Entities and to maintain local participation
in management of CHN.
The Committee recommended to the LIPA Board that LIPA should retain counsel
experienced in corporate mergers to advise LIPA regarding the merger
documentation and the request for the consulting agreements. Accordingly, LIPA
retained the New Orleans firm of Correro, Fishman & Casteix, L.L.P. as special
merger counsel ("Special Merger Counsel").
The LIPA Board considered United's final offer at a December 7, 1995
meeting, which Special Merger Counsel attended. The Committee reported that it
approved the offer subject to the resolution of certain matters. At that
meeting, the LIPA Board chose The Robinson-Humphrey Company, Inc., an investment
banking firm headquartered in Atlanta, Georgia, to perform a fairness
evaluation. Following the meeting, United performed certain due diligence
regarding LIPA. United also presented a draft of the proposed merger agreement
to LIPA. Special Merger Counsel, together with the Benton Law Firm, negotiated
the terms of the Merger Agreement with United over the next few weeks.
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The LIPA Board met on January 9, 1996, at which time a draft of the
Robinson-Humphrey report was given to each Board member for study, and
representatives of Robinson-Humphrey discussed the report. The report concluded
that the proposed merger was fair to the shareholders of LIPA from a financial
point of view. See "THE MERGER--Opinion of LIPA's Financial Advisor." Also at
that meeting, Special Merger Counsel reviewed with the LIPA Board the proposed
merger agreement and suggested that the LIPA Board further study the Robinson-
Humphrey report and the Merger Agreement before voting whether to approve the
proposed merger agreement.
The LIPA Board held a meeting to vote on the approval of the proposed
merger agreement on January 11, 1996. Special Merger Counsel attended that
meeting and representatives from Robinson-Humphrey were present by telephone.
The LIPA Board discussed whether to approve the proposed merger agreement or to
remain independent as a part owner of CHN. The benefits and risks inherent in
each choice were discussed. The LIPA Board also discussed whether it could
terminate the management contract between Complete (now a United subsidiary) and
LIPA and whether, absent such contract, any other purchaser might buy LIPA's 51%
ownership of CHN. This alternative was rejected because it would initiate an
adversarial relationship with United, which could reduce LIPA's value, and
because the LIPA Board considered it unlikely that a prospective buyer would
offer a higher price than that offered by United. The LIPA Board further
determined that retaining LIPA's separate interest in CHN was not in the best
interest of LIPA's shareholders because it could result in a hostile, perhaps
even unprofitable, relationship between United and LIPA. Furthermore, in light
of the increasing level of competition in the health care industry and the
recent changes to the Medicare and Medicaid programs, it was determined that
United's size and expertise would provide better growth opportunities for CHN
than if CHN's ownership remained divided. On the basis of the recommendations
and opinions it received, the LIPA Board unanimously authorized the execution of
the proposed merger agreement and its submission to a vote by LIPA's
shareholders. The Merger Agreement was duly executed effective January 16,
1996.
LIPA's Reasons for the Merger; Recommendation of LIPA's Board of Directors
By the unanimous vote of the entire LIPA Board at a special meeting held on
January 11, 1996, the LIPA Board determined that the proposed Merger Agreement
was in the best interests of LIPA and its shareholders. The Merger Agreement
was adopted and approved by the entire LIPA Board, which also unanimously
resolved to recommend that the shareholders of LIPA vote FOR approval and
adoption of the Merger Agreement. In reaching its conclusion to enter into the
Merger Agreement and to recommend that the shareholders of LIPA vote for the
approval and adoption of the Merger Agreement, the Board of Directors of LIPA
considered a number of factors, including, without limitation and without
assigning relative weights thereto, the factors described in the preceding two
paragraphs. See "--Background of the Merger." In making these determinations
the Board was cognizant that achieving a significant, or even any, Earn-Out
payment was speculative, as it depends on various factors that are not reliably
predictable. Moreover, for an Earn-Out to become payable the Community Health
Entities would have to perform at a substantially more profitable level than
they have ever previously performed. The Board was mindful, however, that
several factors could, separately or in combination with each other, create a
synergy following the Merger that could result in the Earn-Out being achieved.
These factors are the inclusion of MetraHealth Louisiana in the earnings of CHN
for purposes of the Earn-Out, and the freedom of operations that United would
achieve from a resolution of the possible conflicts of interest inherent in
having two separate operations in Louisiana (CHN and MetraHealth Louisiana). The
Board believes that the Earn-Out will serve to capture the benefit from this
synergy, should it result in substantial improvement to CHN's earnings.
Nonetheless, the Board recommends that in making their decisions on how to vote
with respect to the Merger Agreement, shareholders should not assign any value
to the Earn-Out.
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United's Reasons for the Merger
As part of its acquisition of Complete Health Services, Inc. in 1994,
United acquired an interest in the Community Health Entities. In general,
United prefers to have 100% ownership of health plans. Therefore, United has
had periodic discussions with LIPA regarding the purchase of its interest in the
Community Health Entities, concluding with the Merger Agreement. In addition,
United acquired another health plan in Louisiana in connection with the
MetraHealth acquisition, along with other health care coverage business in
Louisiana. United believes that 100% ownership of the Community Health Entities
will facilitate combining and expanding all of United's Louisiana operations.
The presence of the non-competition clause with LIPA would have caused
significant conflicts and difficulties for United in operating separate health
plans in Louisiana. United also believes that following the Merger it will
continue to have a strong relationship with LIPA's managers and provider owners.
Opinion of LIPA's Financial Advisor
Background. LIPA engaged Robinson-Humphrey to undertake the following
on behalf of LIPA in connection with the Merger: (1) to render a First Opinion
at or about the date of the Merger Agreement and a Second Opinion at or about
the date of this Proxy Statement/Prospectus to the Board of Directors of LIPA
with respect to the fairness, from a financial point of view, to LIPA's
shareholders of the consideration to be received in the Merger; and (2) to
provide financial advice concerning (a) the quality and value of the United
Common Stock described herein, (b) adjustments to the exchange ratio of the
United Common Stock to be received by LIPA's shareholders, and (c) the adequacy
of the Merger consideration in view of what other purchasers might be willing to
pay for LIPA, it having been understood that Robinson-Humphrey would not make a
survey of other purchasers upon which to base such advice.
The terms of Robinson-Humphrey's engagement were set forth in a letter
agreement dated December 18, 1995 (the "Robinson-Humphrey Engagement Letter").
Under the terms of the Robinson-Humphrey Engagement Letter, LIPA agreed to pay
Robinson-Humphrey a fee of $150,000 payable upon delivery of the First Opinion
and a fee of $50,000 upon delivery of the Second Opinion. If LIPA had not
requested the Second Opinion, then the $50,000 fee would have been payable at
the time this Proxy Statement/Prospectus was mailed. If LIPA had broken off
negotiations with United or had not requested the First Opinion before March 31,
1996, then LIPA would have been obligated to pay Robinson-Humphrey an advisory
fee equal to $75,000. Upon subsequent delivery of the First Opinion, such
advisory fee would have been credited against the fee payable upon delivery of
such First Opinion. The Robinson-Humphrey Engagement Letter also provides that
LIPA will reimburse Robinson-Humphrey its reasonable out-of-pocket expenses up
to $15,000. LIPA has also agreed to indemnify Robinson-Humphrey and hold it
harmless against any and all losses, claims, damages or liabilities (together
with reimbursement of legal and other expenses incurred in defense of such
claims) to which Robinson-Humphrey may become subject arising in any manner out
of or in connection with the professional services, advice or opinions of
Robinson-Humphrey pursuant to its engagement by LIPA, unless it is finally
judicially determined that such losses, claims, damages or liabilities resulted
directly from the negligence or willful misconduct of Robinson-Humphrey or any
of its controlling persons, affiliates, directors, officers, employees or
agents, or any breach by Robinson-Humphrey of the Engagement Letter. If the
Merger is not sooner completed, Robinson-Humphrey's engagement by LIPA will
terminate on September 30, 1996.
As a part of its engagement, Robinson-Humphrey advised LIPA concerning
certain adjustments to the exchange ratio of United Common Stock for LIPA Common
Stock. See "The Merger - Effects of the
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Merger." Robinson-Humphrey advised LIPA that these adjustments were important to
provide limited protection of the merger consideration to be received by LIPA
shareholders against market volatility in the price of United Common Stock. See
"RISK FACTORS." The exchange ratio adjustments agreed to in the Merger Agreement
were arrived at as a result of direct negotiations between United and Robinson-
Humphrey.
Robinson-Humphrey is a recognized investment banking firm and, as a
customary part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements, and valuations for
corporate and other purposes. The Board of Directors of LIPA selected Robinson-
Humphrey primarily because of its expertise and reputation, and secondarily
because of its availability to complete the assignment on a timely basis and its
competitive pricing of the service.
The Opinion. On January 9, 1996, Robinson-Humphrey delivered its
written opinion to LIPA's Board of Directors that, as of such date, the
consideration to be received by the shareholders of LIPA in the Merger was fair
to such shareholders from a financial point of view. No limitations were
imposed by LIPA's Board of Directors upon Robinson-Humphrey with respect to the
investigations made or the procedures followed by it in rendering its opinion,
except that Robinson-Humphrey was not authorized to, and did not, solicit any
indications of interest from any third party to acquire all or any part of LIPA.
Robinson-Humphrey has assumed that United is effectively acquiring 50%
of the operations of the Community Health Entities for $50,000,000, thereby
implying a value of approximately $100,000,000 for 100% of the Community Health
Entities. This assumption was necessitated, in part, by the fact that although,
historically, the Community Health Entities have been operated separately, with
each maintaining separate financial statements, the operations of the two
entities are related so inextricably that their historical and projected
financial results should be combined for purposes of analyzing them, evaluating
the value of LIPA's ownership interest in them and comparing them to other
companies. In preparation of the pro forma financial projections for the
Community Health Entities, Robinson-Humphrey consulted with members of
management of the Community Health Entities, as well as representatives from
LIPA and United.
In rendering its opinion, Robinson-Humphrey reviewed and analyzed:
(1) the Merger Agreement, (2) financial and operating information with respect
to the business, operations and prospects of the Community Health Entities
furnished to Robinson-Humphrey by LIPA and the Community Health Entities; (3) a
comparison of the historical financial results and present financial condition
of the Community Health Entities with those of other companies which Robinson-
Humphrey deemed relevant; (4) an analysis of financial and stock market
information of selected publicly-traded companies which Robinson-Humphrey deemed
comparable to the Community Health Entities; (5) a comparison of the financial
terms of the Merger with the financial terms of certain other recent
transactions which Robinson-Humphrey deemed relevant; (6) analyses of the
present value of the free cash flows projected to be generated by the Community
Health Entities during the forecast period; and (7) certain information
regarding United, including, among others, (a) certain recent filings with the
Commission, (b) equity research reports published by analysts within the
investment community who provide research coverage of United, (c) the recent
trading and volume history of United's stock, and (d) historical and projected
financial information of the Louisiana HMO operations of MetraHealth acquired by
United. In addition, Robinson-Humphrey held discussions with the management of
LIPA, the Community Health Entities and United concerning their respective
businesses and operations, assets, present conditions and future prospects and
undertook such other studies, analyses and investigations as it deemed
appropriate.
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In rendering its opinion, Robinson-Humphrey assumed and relied upon,
without independent verification, the accuracy and completeness of the financial
and other information used by it. Robinson-Humphrey further relied upon the
assurances of the management of LIPA and the Community Health Entities that they
were not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial forecasts provided to and discussed
with Robinson-Humphrey by the management of LIPA and the Community Health
Entities, Robinson-Humphrey assumed, with LIPA's approval, that (1) such
forecasts and projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of management as to the future
financial performance of the Community Health Entities; and (2) the Community
Health Entities would perform in accordance with such projections. Robinson-
Humphrey did not conduct a physical inspection of the properties and facilities
of the Community Health Entities, and did not make or obtain any evaluations or
appraisals of the assets or liabilities of the Community Health Entities.
Robinson-Humphrey's opinion was based upon market, economic and other conditions
as they existed, and which were capable of being evaluated, as of the date of
the opinion.
The full text of the written opinion of Robinson-Humphrey, dated
________, 1996, which sets forth assumptions made and matters considered,
appears as Exhibit B to this Proxy Statement/Prospectus. LIPA's shareholders
are urged to read this opinion in its entirety. Robinson-Humphrey's opinion was
directed only to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of LIPA. Robinson-Humphrey's
opinion was delivered for the information of LIPA's Board of Directors and does
not constitute a recommendation as to how any shareholder should vote at the
Special Meeting or any other meeting of LIPA's shareholders called to consider
the Merger. This summary of the opinion of Robinson-Humphrey is qualified in
its entirety by reference to the full text of such opinion.
In connection with the preparation of its fairness opinion, Robinson-
Humphrey performed certain financial and comparative analyses, including those
described below. The summary set forth below includes all of the financial
analyses used by Robinson-Humphrey and deemed to be material but does not
purport to be a complete description of the analyses performed by Robinson-
Humphrey in arriving at its opinion. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances, and therefore, such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its fairness opinion,
Robinson-Humphrey did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Robinson-
Humphrey believes its analyses must be considered as a whole and that
considering any portions of such analyses without considering all analyses and
factors could create a misleading or incomplete view of the process underlying
the opinion. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the price at which businesses may
actually be sold. No public company used as a comparison is identical to the
Community Health Entities. An analysis of the results of such a comparison is
not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the value of the
companies to which the Community Health Entities are being compared.
The generally accepted financial analyses Robinson-Humphrey used in
reaching its opinion included (1) comparison with selected publicly traded
companies, which consisted of reviewing market statistics and financial and
operating information in respect of selected companies considered to have
businesses similar to that of the Community Health Entities; (2) analysis of
selected merger transactions, which consisted of reviewing operating statistics
and purchase price information with respect to selected acquisitions of assets
or businesses similar to those of the Community Health
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Entities; and (3) discounted cash flow analysis, which consisted of estimating
the present value of the Community Health Entities' future free cash flows,
under various forecast assumptions provided by the management of LIPA and the
Community Health Entities. The material portions of these analyses (which are
all of the material valuation methodologies performed by Robinson-Humphrey) are
summarized below.
Comparison with Selected Companies. Robinson-Humphrey compared
selected financial data and market information for the Community Health Entities
to the corresponding financial data and market information for two groups of
selected public companies in the health care industry: (1) multi-market HMOs,
and (2) single market HMOs. Robinson-Humphrey used this analysis to derive
implied equity values (i.e., the value of the total equity of the Community
Health Entities implied by multiplying certain ratios derived from selected HMOs
other than the Community Health Entities by the Community Health Entities' own
financial data) for the Community Health Entities. This comparison showed,
among other things, that (1) the mean ratio of price to earnings for the last 12
months was 20.2x for the multi-market HMOs, 17.6x for the single market HMOs and
19.4x for all HMOs; (2) the mean ratio of price to projected calendar 1996
earnings was 16.2x for multi-market HMOs, 14.5x for single market HMOs and 15.6x
for all HMOs; (3) the mean ratio of price to projected calendar 1997 earnings
was 13.3x for multi-market HMOs, 13.0x for single market HMOs and 13.2x for all
HMOs; (4) the mean ratio of market value to book value was 3.7x for multi-market
HMOs, 2.4x for single market HMOs and 3.2x for all HMOs; (5) the mean ratio of
firm value (firm value equals equity value plus total debt less cash) to
revenues for the last 12 months was 1.0x for multi-market HMOs, 0.8x for single
market HMOs and 0.9x for all HMOs; (6) the mean ratio of firm value to earnings
before interest and tax ("EBIT") for the last 12 months was 11.8x for multi-
market HMOs, 11.2x for single market HMOs and 12.4x for all HMOs; and (7) the
mean ratio of firm value to earnings before interest, depreciation and
amortization ("EBITDA") for the last 12 months was 9.4x for multi-market HMOs,
9.4x for single market HMOs and 9.4x for all HMOs. Robinson-Humphrey also
calculated a value per member of $1,312 for multi-market HMOs, $680 for single
market HMOs and $1,139 for all HMOs. Based upon these values and these and
other multiples, Robinson-Humphrey calculated an average implied equity value
for the Community Health Entities based on multi-market HMOs of $97,285,000,
with a median value of $99,696,000, an average implied equity value for the
Community Health Entities based on single market HMOs of $84,802,000, with a
median value of $85,088,000, and an average implied equity value for the
Community Health Entities based on all HMOs of $94,031,000, with a median value
of $97,916,000.
Analysis of Selected Merger Transactions. Robinson-Humphrey analyzed
18 mergers and acquisitions occurring since March 1993 involving health care
companies. Some of these transactions involved United. In each such
acquisition, Robinson-Humphrey calculated the implied equity value as a multiple
of earnings for the last 12 months and book value, as well as the implied firm
value as a multiple of revenues for the last 12 months, EBIT for the last 12
months, EBITDA for the last 12 months and membership. The resulting average
multiples were as follows: earnings, 30.3x; book value, 5.2x; revenues, 0.88x;
EBIT, 15.3x; EBITDA, 12.3x, membership, $1,051. Based upon the multiples for
these transactions, Robinson-Humphrey calculated an average implied equity value
of $88,182,000 and a median implied equity value of $84,132,000 for the
Community Health Entities. Robinson-Humphrey then identified one of these 18
transactions which was a pending acquisition by United and compared the purchase
price multiples in this transaction with the corresponding multiples for the
Merger (in parenthesis): earnings, 20.7x (33.0x); revenues, 0.97x (0.70x);
EBITDA, 15.4x (18.3x); EBIT, 18.1x (20.5x); membership, $1,248 ($994); and book
value, 5.5x (8.4x).
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Robinson-Humphrey estimated the present value of the equity of the Community
Health Entities based upon projected cash flows through the year 2000. Terminal
values were calculated by applying projected EBITDA and EBIT
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in the year 2000 to a range of multiples from 6.0x to 9.0x and 8.0x to 11.0x,
respectively. The terminal values were discounted to present value using a
range of discount rates (from 15% to 25%). These values were combined with the
present value of the net cash flows (also discounted using a range of discount
rates from 15% to 25%) and then adjusted for the estimated value of pro forma
net debt as of November 30, 1995, resulting in a range of implied equity values
based on each operating scenario. The calculations, based on a range of EBITDA
multiples of 6.0x to 9.0x projected EBITDA in the year 2000, resulted in a mean
implied equity value in the base case of $97,512,000 and a median implied equity
value of $95,962,000 for the Community Health Entities. The calculations, based
on a range of EBIT multiples of 8.0x to 11.0x projected EBIT in the year 2000,
resulted in a mean implied equity value in the base case of $111,933,000 and a
median implied equity value of $110,024,000 for the Community Health Entities.
Interests of Certain Persons in the Merger
Pursuant to the Merger Agreement, and as a condition to the closing of
the Merger, UHC Management Company, Inc., a wholly owned subsidiary of United,
has entered into consulting agreements with each of V. Lynn McCord, President of
LIPA, Kenneth C. Cranor, Chairman of the LIPA Board, Williams D. Wall, IV, Vice
President of LIPA, and Thomas H. Benton, counsel for LIPA, (the "Managers").
These agreements (the "Manager Agreements"), each of which has a three-year
term, provide that each Manager will provide the following consulting services
to United: (1) to assist in maintaining provider relations and to advise United
regarding improvements in CHN's operations; (2) upon request of United, to
continue (except in the case of Mr. Benton) to provide health care services and
to encourage physicians and other providers to participate in, or to maintain
participation in, the CHN provider networks; and (3) upon request of United, to
serve on the Board of Directors of CHN or related entities and/or to serve on
committees of CHN. Annual compensation under the Manager Agreements is as
follows: Dr. McCord--$80,000; Dr. Cranor--$80,000; Dr. Wall--$80,000; and Mr.
Benton--$60,000.
The Manager Agreements prohibit the Managers from disclosing any
confidential information regarding United that may become known to the Managers.
The Manager Agreements also contain non-solicitation and non-competition
provisions, pursuant to which each Manager agrees not (1) to hire away or
attempt to hire away any then-current employees of CHN or UHC or persuade any
such employee to leave the employ of CHN or UHC; (2) to solicit, divert, or take
away, or attempt to solicit, divert, or take away the business of any person or
entity with whom CHN has established or is actively seeking to establish a
business or customer relationship within Louisiana; and, except in the case of
Thomas H. Benton, (3) without United's prior written consent, to assume a
management position in any HMO or Blue Cross/Blue Shield of Louisiana operation
competing with CHN in Louisiana, it being expressly recognized that each Manager
will remain free to provide personal medical services for and contract as a
medical provider with any such HMO or Blue Cross/Blue Shield of Louisiana
operation. The Manager Agreements further provide that such obligations shall
be waived to the extent they may conflict with the performance of the duties of
a Manager as a Shareholder Representative. See "THE MERGER--Contingent Payment
Rights" and "THE MERGER AGREEMENT--Indemnification."
UHC has also entered into consulting agreements with nine additional
directors and 20 shareholders of LIPA who serve on various committees of CHN.
The service, confidentiality, non-solicitation and non-competition
confidentiality provisions in such agreements are comparable to the consulting
agreements with the Managers, and the term of each of these agreements is two
years. Annual compensation under the agreements with each director is as
follows: Dr. Harold Brandt--$20,000; Dr. Edward Chiasson--$25,000; Dr. William
J. Dimattia--$20,000; Dr. Henry Wade Giles--$20,000; Dr. James Lanasa--$20,000;
Dr. C. W. Lovell III--$20,000; Dr. Henry D. Olinde--$20,000; Dr. Charles P.
Raborn--$25,000; Dr. Edwin Walker--$20,000.
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In addition to the director fees customarily paid to directors for
attendance at meetings of the LIPA Board, (1) all members of the LIPA Board have
received payments of $5,000 per director and (2) Dr. V. Lynn McCord, Dr. Kenneth
C. Cranor and Dr. Williams D. Wall, IV, as members of the Committee, each
received in addition to the $5,000 payment a payment of $20,000, in all cases as
compensation for additional services to LIPA in connection with the Merger
rendered outside of meetings of the LIPA Board. The additional services
included, among other things, extensive review of documents prepared in
connection with the Merger, attendance at informational meetings, and review of
materials and reports prepared by LIPA's advisors.
Management of Surviving Corporation After the Merger
United Sub will be the Surviving Corporation of the Merger and will be
a wholly owned subsidiary of United. The directors of United Sub immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation, and the officers of United Sub immediately prior to the Effective
Time will be the initial officers of the Surviving Corporation. United
currently expects that, after the Effective Time, it will retain most of the
executive officers of LIPA's operational subsidiaries immediately prior to the
Effective Time, with duties substantially similar to those that such executive
officers are currently performing.
CHN and United HealthCare South, Inc. ("UHCS") a wholly-owned
subsidiary of United, have agreed to the terms of a Management Agreement to
become effective at the Effective Time. This Agreement calls for CHN to pay
UHCS a management fee based upon a percentage of CHN's gross revenues. The
effectiveness of the Management Agreement is contingent upon approval of such
agreement by the Louisiana Department of Insurance.
Accounting Treatment
United intends to treat the Merger as a purchase for accounting and
financial reporting purposes. Under this method of accounting, United will
allocate the purchase price to the assets it acquires and liabilities it assumes
based on their estimated fair values at the date of acquisition.
Certain Federal Income Tax Consequences
United and LIPA expect that the Merger will be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Code and that for
federal income tax purposes no gain or loss will be recognized by any
shareholder of LIPA Common Stock upon the receipt of United Common Stock for
LIPA Common Stock pursuant to the Merger (except to the extent that (1) a
Contingent Payment Right is taxable immediately upon its receipt by a
shareholder of LIPA Common Stock and (2) any cash is ultimately received by a
shareholder of LIPA Common Stock in connection with (a) the receipt of a
fractional share interest in United Common Stock, or (b) on account of a
Contingent Payment Right). The Internal Revenue Service (the "Service") has not
been and will not be asked to rule upon the tax consequences of the Merger.
Instead, LIPA and United will rely upon the opinion of Dorsey & Whitney LLP,
counsel to United, as to certain federal income tax consequences of the Merger.
Such opinion will be based upon facts described therein and upon certain
assumptions and representations that will be made by LIPA and United. The
opinion of Dorsey & Whitney LLP will be based upon the Code, the Regulations
promulgated thereunder, current administrative rulings and practice and judicial
authority, all of which are subject to change. An opinion of counsel is not
binding on the Service and there can be no assurance, and none is hereby given,
that the Service will not take a position contrary to
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one or more positions reflected in such opinion or that such opinion will be
upheld by the courts if challenged by the Service. Each LIPA shareholder is
urged to consult with his or her own tax advisor concerning the federal income
tax consequences of the Merger, as well as any applicable state, local, foreign
or other tax consequences, based upon such shareholder's own particular facts
and circumstances.
The obligations of each of LIPA and United to consummate the Merger is
conditioned on, among other things, the receipt by LIPA and United of the
opinion of Dorsey & Whitney LLP, which will be based upon facts and
representations to be provided to such firm, and subject to various assumptions
and qualifications, substantially to the effect that the Merger will qualify as
a "reorganization" under Section 368(a) of the Code. On the basis of the
foregoing opinion, it is expected that the following material federal income tax
consequences will result from the Merger:
(1) No gain or loss will be recognized by United, LIPA, or
United Sub as a result of the Merger;
(2) No gain or loss will be recognized by any LIPA shareholder upon
the exchange of LIPA Common Stock for United Common Stock pursuant to the Merger
(except to the extent that (a) a Contingent Payment Right is taxable immediately
upon its receipt by a shareholder of LIPA Common Stock and (b) any cash is
ultimately received by a shareholder of LIPA Common Stock in connection with (i)
the receipt of a fractional share interest in United Common Stock, or (ii) on
account of a Contingent Payment Right);
(3) The tax basis of the United Common Stock received by a LIPA
shareholder who exchanges LIPA Common Stock for United Common Stock will be the
same as the basis of the LIPA Common Stock surrendered in exchange therefor
(subject to any current or future adjustments required as the result of (a) the
receipt of a Contingent Payment Right and (b) the receipt of cash (i) in lieu of
a fractional share of United Common Stock or (ii) on account of a Contingent
Payment Right);
(4) The holding period of the United Common Stock received by a LIPA
shareholder receiving United Common Stock will include the period during which
the LIPA Common Stock surrendered in exchange therefor was held (provided that
the LIPA Common Stock of such LIPA shareholder was held as a capital asset at
the Effective Date); and
(5) A LIPA shareholder who exchanges LIPA Common Stock for cash in
lieu of receiving a fractional share interest of United Common Stock will be
treated as though such cash was received as a distribution in full payment in
exchange for the fractional share interest of United Common Stock which the LIPA
shareholder would otherwise be entitled to receive, and will qualify as capital
gain or loss (assuming the LIPA Common Stock exchanged was a capital asset in
the shareholder's hands as of the Effective Date).
The opinion described above will be based upon certain assumptions,
including, but not limited to, the assumption that the shareholders of LIPA do
not have any plan or intention to dispose, sell, exchange or otherwise dispose
of a number of shares of United Common Stock received pursuant to the Merger
that would reduce the ownership by such shareholders of LIPA of United Common
Stock to a number of shares having a value, as of the date of the Merger, which
is less than 50 percent of the value of all of the formerly outstanding LIPA
Common Stock held by such LIPA shareholders as of the same date. Moreover, if
such required tax opinion is not received, the Merger will not be consummated
unless the conditions requiring its receipt are waived and the approvals of
United and LIPA shareholders are resolicited by means of an updated Proxy
Statement/Prospectus.
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In addition, (1) the possibility exists that a former LIPA shareholder
may be taxed immediately upon the receipt of the Contingent Payment Rights; and
(2) to the extent not taxable immediately, it is expected that gain, if any, but
not loss, will be recognized by former LIPA shareholders who, after the
Effective Time and within 90 days following the end of each of the years ended
December 31, 1996, and December 31, 1997, receive cash payments from United in
connection with the Contingent Payment Rights issued pursuant to the Merger. If
the initial receipt of the Contingent Payment Rights (assuming the value of such
Rights are in fact taxable at that time) or the receipt of cash in connection
with the Contingent Payment Rights does not have the effect of the distribution
of a dividend (as described below), then all of the gain recognized (other than
certain interest income as described below) would be capital gain, provided that
a LIPA shareholder held their LIPA Common Stock as a capital asset as of the
Effective Time.
The amount of gain that might be immediately recognized by a former
LIPA shareholder upon the initial receipt of the Contingent Payment Rights may
be equal to, but not in excess of, the total value of the Contingent Payment
Rights and any other cash received (such as cash received in lieu of a
fractional share of United Common Stock). United does not expect to undertake
any tax reporting in connection with the Merger on the basis that the initial
receipt of the Contingent Payment Rights is taxable immediately.
Assuming the initial receipt of the Contingent Payment Rights are not
taxable, the amount of gain that would be recognized upon the eventual receipt
of cash pursuant to the Contingent Payment Rights, will be equal to the
difference, if any, between the fair market value of the United Common Stock,
plus the value of the cash received, and the former LIPA shareholder's adjusted
tax basis in their newly acquired United Common Stock. As of the Effective
Time, the adjusted tax basis of a former LIPA shareholder in their newly
acquired shares of United Common Stock will be equal to the total cost of
acquiring their original shares of LIPA Common Stock (plus or minus any required
adjustments that relate to events occurring prior to the Effective Time) plus or
minus certain other basis adjustments arising out of the Merger which are, at
least in part, a function of: (1) the amount of cash received in lieu of a
fractional share of United Common Stock; and (2) the amount of cash, if any,
that is received in connection with the Contingent Payment Rights.
As a result of the cash that may ultimately be received in connection
with the Contingent Payment Rights, it is possible that a former LIPA
shareholder's basis in their newly acquired shares of United Common Stock would
have to be adjusted downward to reflect the entire amount of cash that could
potentially be received under such Rights. As a result, if a former LIPA
shareholder sold shares of United Common Stock, it is possible that the amount
of gain associated with the sale of such shares would be greater than the gain
that would be recognized if something less than the maximum amount of cash that
could potentially be received in connection with the Contingent Payment Rights
were taken into account as of the Effective Time. If a former LIPA
shareholder's basis in their newly acquired shares of United Common Stock is
adjusted as described above and less than such maximum amount of cash is
ultimately received, a former LIPA shareholder should be able to make
appropriate adjustments in the recognition of income or the tax basis of other
shares of United Common Stock in order to properly reflect the correct amount of
gain to be reported. The methods to be used in making such adjustments are,
however, uncertain.
The determination of whether or not the receipt of cash by a former
LIPA shareholder in connection with payments received pursuant to a Contingent
Payment Right has the effect of a distribution of a dividend will be made, on a
shareholder by shareholder basis, by applying the rules of Section 302 of the
Code and by comparing the proportionate, percentage interest of a former LIPA
shareholder in United after the Merger with the proportionate, percentage
interest such shareholder would have had if such shareholder had received solely
United Common Stock pursuant to the Merger.
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This comparison is made as though United had issued in the Merger to such
shareholder solely its United Common Stock and, in the course of undertaking a
hypothetical redemption, had then redeemed such portion of its United Common
Stock at the time of the Merger for the amount of cash the shareholder actually
received pursuant thereto. In making this comparison, there must be taken into
account (i) any other shares of United Common Stock actually owned by such LIPA
shareholder, and (ii) any such shares considered to be owned by such shareholder
by reason of the constructive ownership rules set forth in Section 318 of the
Code. These constructive ownership rules apply in certain specified
circumstances to attribute ownership of shares of a corporation from the
shareholder actually owning the shares, whether an individual, trust,
partnership or corporation, to certain members of such individual's family or to
certain other individuals, trusts, partnerships or corporations. Moreover, under
these rules, a shareholder is also considered to own any shares with respect to
which a shareholder holds exercisable stock options.
Finally, as previously mentioned above, a certain portion of any cash
received by a former LIPA shareholder in connection with a subsequent payment
made by United pursuant to a Contingent Payment Right will constitute interest
income pursuant to the provisions of Sections 483 or 1275 of the Code. In turn,
under Sections 483 or 1275 of the Code and the relevant Treasury Regulations
promulgated thereunder, the amount of any gain that will be characterized as
interest income is a function of the actual amount of cash ultimately received
by a former LIPA shareholder and the prevailing short-term applicable federal
interest rate as of the Effective Time. Specifically, any cash received will be
discounted by the applicable rate to determine both a principal and interest
component, such that the interest component will be taxed as interest income,
while the principal component will be taxed in accordance with the provisions of
the Code described above.
Pursuant to applicable Internal Revenue Service guidelines, a
hypothetical redemption, as described above, involving a holder of a minority
interest in United whose relative stock interest in United is minimal, who
exercises no control over the affairs of United and who experiences a reduction
in the shareholder's proportionate, percentage interest in United, both directly
and by application of the foregoing constructive ownership rules, generally will
not be deemed to have resulted in the distribution of a dividend under the rules
set forth in Section 302(b)(1) of the Code. Accordingly, in the case of a LIPA
shareholder with a large amount of unrealized appreciation inherent in their
holdings of LIPA Common Stock, it is likely that any cash payment received
pursuant to a Contingent Payment Right will be taxable in full only upon its
receipt, and will be characterized, in part, as interest income and, in part, as
capital gain.
Because the determination of (1) whether cash received pursuant to the
Merger will be treated as the distribution of a dividend, (2) the tax basis and
adjustments thereto of United Common Stock received pursuant to the Merger,
(3) the possibility that the receipt of the Contingent Payment Rights are
immediately taxable, and (4) the extent to which a former LIPA shareholder must
ultimately recognize gain upon the receipt of cash pursuant to the Contingent
Payment Rights, is uncertain and may depend upon the facts and circumstances
peculiar to each LIPA shareholder, such shareholders are strongly advised to
consult with their own tax advisers regarding these tax consequences of the
Merger.
The foregoing is only a general description of certain anticipated
federal income tax consequences of the Merger, without regard to the particular
facts and circumstances of the tax situation of each shareholder of LIPA. It
does not discuss all of the consequences that may be relevant to shareholders of
LIPA entitled to special treatment under the Code (such as insurance companies,
dealers in securities, exempt organizations or foreign persons) or to
shareholders of LIPA who acquired their LIPA Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation. Moreover, the
summary set forth above does not purport to be a complete analysis of all
potential tax effects of the transactions contemplated by the Merger Agreement
or the Merger itself,
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and no information is provided herein with respect to the tax consequences, if
any, of the Merger under state, local, foreign or other tax laws.
Stock Exchange Listing
United has agreed that the United Common Stock to be issued pursuant
to the Merger will be approved for listing on the NYSE, subject to official
notice of issuance. An application will be made for listing such United Common
Stock on the NYSE.
Dissenters' Rights of Appraisal
Unless the Merger Agreement is approved by the holders of at least 80%
of outstanding LIPA Common Stock, Section 131 of the LBCL, a copy of which is
included as Exhibit C to this Proxy Statement/Prospectus, allows a shareholder
of LIPA who objects to the Merger Agreement and who strictly complies with the
provisions of that section to dissent from the Merger Agreement and to have paid
to him or her in cash the fair cash value of his or her shares of LIPA Common
Stock as of the day before the Special Meeting, as determined by agreement
between the shareholder and United or by the District Court for the Parish of
East Baton Rouge if the shareholder and United are unable to agree.
To exercise the right of dissent, a LIPA shareholder (1) must file
with LIPA a written objection to the Merger Agreement prior to or at the Special
Meeting and (2) must also vote his or her shares (in person or by proxy) against
the Merger Agreement at such Meeting. Neither a vote against the Merger
Agreement nor a specification in a proxy to vote against the Merger Agreement
will in and of itself constitute the necessary written objection to the Merger
Agreement. Moreover, by voting in favor of, or abstaining from voting on, the
Merger Agreement, or by returning the enclosed proxy without instructing the
proxy holders to vote against the Merger Agreement, a shareholder waives his or
her rights under Section 131. The right to dissent may be exercised only by the
record owners of the shares and not by persons who hold shares only
beneficially. Beneficial owners who wish to dissent to the Merger Agreement
should have the record ownership of the shares transferred to their names or
instruct the record owner to follow the Section 131 procedure on their behalf.
If the Merger Agreement is approved by less than 80% of the total
number of shares of LIPA Common Stock outstanding, then promptly after the
Effective Date written notice of the consummation of the Merger Agreement will
be given by United by registered mail to each former shareholder of LIPA who
filed a written objection to the Merger Agreement and voted against it at such
shareholder's last address on LIPA's records. Within 20 days after the mailing
of such notice, the shareholder must file with United a written demand for
payment for his or her shares at their fair cash value as of the day before the
Special Meeting and must state the amount demanded and a post office address to
which United may reply. Such shareholder must also deposit the certificates
formerly representing his or her shares of LIPA Common Stock in escrow with a
bank or trust company located in East Baton Rouge Parish, Louisiana. The
certificates must be duly endorsed and transferred to United upon the sole
condition that they be delivered to United upon payment of the value of the
shares in accordance with Section 131. With the above-mentioned demand, the
shareholder must also deliver to United the written acknowledgment of such bank
or trust company that it holds the certificate(s), duly endorsed as described
above.
Unless the shareholder objects to and votes against the Merger
Agreement, demands payment, endorses and deposits his certificates and delivers
the required acknowledgment in accordance with the procedures and within the
time periods set forth above, the shareholder will conclusively be presumed to
have acquiesced to the Merger Agreement and will forfeit any right to seek
payment pursuant to Section 131.
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If United does not agree to the amount demanded by the shareholder, or
does not agree that payment is due, it will, within 20 days after receipt of
such demand and acknowledgment, notify such shareholder in writing at the
designated post office address of either (1) the value it will agree to pay or
(2) its belief that no payment is due. If the shareholder does not agree to
accept the offered amount, or disagrees with United's assertion that no payment
is due, he or she must, within 60 days after receipt of such notice, file suit
against United in the District Court for the Parish of East Baton Rouge for a
judicial determination of the fair cash value of the shares. Any shareholder
entitled to file such suit may, within such 60-day period but not thereafter,
intervene as a plaintiff in any suit filed against United by another former
shareholder for a judicial determination of the fair cash value of such other
shareholder's shares. If a shareholder fails to bring or to intervene in such a
suit within the applicable 60-day period, such shareholder will be deemed to
have consented to accept United's statement that no payment is due or, if United
does not contend that no payment is due, to accept the amount specified by
United in its notice of disagreement.
If upon the filing of any such suit or intervention, United deposits
with the court the amount, if any, which it specified in its notice of
disagreement, and if in that notice United offered to pay such amount to the
shareholder on demand, then the costs (not including legal fees) of the suit or
intervention will be taxed against the shareholder if the amount finally awarded
to him or her, exclusive of interest and costs, is equal to or less than the
amount so deposited; otherwise, the costs (not including legal fees) will be
taxed against United.
Upon filing a demand for the value of his or her shares, a shareholder
ceases to have any rights of a shareholder except the rights created by
Section 131. The shareholder's demand may be withdrawn voluntarily at any time
before United gives its notice of disagreement, but thereafter only with the
written consent of United. If the demand is properly withdrawn, or if the
shareholder otherwise loses his or her dissenters' rights, the shareholder will
be restored to his or her rights as a shareholder as of the time of filing of
his or her demand for fair cash value.
Until the Effective Date, dissenting shareholders of LIPA should send
any communications regarding their rights to Louisiana Independent Physicians
Association, Inc., c/o Emile Provost, 8550 United Plaza Boulevard, Suite 600,
Baton Rouge, Louisiana 70809. After the Effective Date, dissenting shareholders
should send any communications regarding their rights to United HealthCare
Corporation, 9900 Bren Road East, Minnetonka, Minnesota 55343, Attention:
General Counsel. All such communications should be signed by or on behalf of
the dissenting shareholder in the form in which his or her shares are registered
on the books of LIPA.
Shareholders who receive cash for the fair value of their shares of
LIPA Common Stock upon the exercise of dissenters' rights will realize taxable
gain or loss for federal income tax purposes. Each shareholder of LIPA is urged
to consult with his or her own personal tax and financial advisors concerning
federal income tax consequences of the exercise of dissenters' rights, as well
as any applicable state, local, foreign or other tax consequences, based upon
such shareholder's own particular facts and circumstances.
The foregoing summary of Section 131 does not purport to be complete
and is qualified in its entirety by reference to Section 131, a copy of which is
included as Exhibit C to this Proxy Statement/Prospectus and incorporated herein
by reference. All shareholders of LIPA are urged to read Section 131 in its
entirety.
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Regulatory Approvals
Under the HSR Act and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), certain acquisition transactions may not be
consummated unless notice has been given and certain information has been
furnished to the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and the FTC and certain waiting period requirements
have been satisfied. The Merger is subject to these requirements.
United and LIPA each filed with the Antitrust Division and the FTC a
Notification and Report Form with respect to the Merger on January 25, 1996.
Under the HSR Act, the Merger may not be consummated until the expiration of a
waiting period of at least 30 days following the receipt of the amended filings,
unless the waiting period is earlier terminated by the FTC and the Antitrust
Division. The waiting period expired on February 25, 1996.
The FTC and the Antitrust Division frequently scrutinize the legality
of transactions such as the Merger under the antitrust laws. At any time before
or after the Effective Time, the FTC or the Antitrust Division could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or seeking the divestiture of
LIPA by United, in whole or in part, or the divestiture of substantial assets of
United, LIPA or their respective subsidiaries. State Attorneys General and
private parties may also bring legal actions under the federal or state
antitrust laws under certain circumstances. Based upon an examination of
information available to United and LIPA relating to the businesses in which
United, LIPA and their respective subsidiaries are engaged, United and LIPA
believe that the consummation of the Merger will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the proposed Merger
on antitrust grounds will not be made or, if such a challenge is made, that
United and LIPA will prevail.
In addition, the consummation of the Merger will require the prior
approval of, or the furnishing of notice to, the appropriate regulatory
authorities in Louisiana, the state in which LIPA owns an interest in an HMO.
On or about March 13, 1996, United filed a Form A application with the
Louisiana Department of Insurance seeking approval of the change in control
effected pursuant to the Merger. On ___________, 1996, the Louisiana Department
of Insurance ordered that the change of control effected by the Merger be
approved.
On or about March 16, 1996, Community Health Network of Louisiana,
Inc. filed a material modification notice with the Louisiana Department of
Insurance. Material modification notices are required to be filed when there are
certain changes in the operations of an HMO, including a change of ten percent
or more of the ownership of the health maintenance organization. If the
commissioner of insurance does not disapprove the proposed modification within
thirty days of filing, or request a thirty day extension in writing, the
modification shall be deemed approved.
Neither United nor LIPA is aware of any other material governmental
approvals or actions that may be required for consummation of the Merger except
as described above. Should any such approval or action be required, it is
presently contemplated that such approval or action would be sought. There can
be no assurance, however, that any such approval or action, if needed, could be
obtained and would not be conditioned in a manner that would cause the parties
to abandon the Merger.
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Resales of United Common Stock Issued in the Merger
United Common Stock to be issued to shareholders of LIPA in connection
with the Merger has been registered under the Securities Act. United Common
Stock received by shareholders of LIPA upon consummation of the Merger will be
freely transferable under the Securities Act except for shares issued to any
person who may be deemed to be an "Affiliate" (as defined below) of LIPA or
United within the meaning of Rule 145 under the Securities Act. "Affiliate" is
generally defined as a person who controls, is controlled by, or is under common
control with LIPA or United at the time of the Special Meeting (generally,
directors, certain executive officers and major shareholders). Affiliates of
LIPA or United may not sell their shares of United Common Stock acquired in
connection with the Merger, except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 or another applicable exemption from the registration requirements of
the Securities Act. In general, under Rule 145, for two years following the
Effective Time, an Affiliate (together with certain related persons) would be
entitled to sell shares of United Common Stock acquired in connection with the
Merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144 under the
Securities Act. Additionally, the number of shares to be sold by an Affiliate
(together with certain related persons and certain persons acting in concert)
during such two-year period within any three-month period for purposes of Rule
145 may not exceed the greater of 1% of the outstanding shares of United Common
Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Currently such limitation is _____ shares.
Rule 145 would remain available to Affiliates only if United remained current
with its informational filings with the Commission under the Exchange Act. Two
years after the Effective Time, an Affiliate would be able to sell such United
Common Stock without such manner of sale or volume limitations, provided that
United was current with its Exchange Act informational filings and such
Affiliate was not then an affiliate of United. Three years after the Effective
Time, an Affiliate would be able to sell such shares of United Common Stock
without any restrictions so long as such Affiliate had not been an affiliate of
United for at least three months prior thereto.
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THE MERGER AGREEMENT
The Merger Agreement
The following is a brief summary of the material provisions of the
Merger Agreement. This description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement included as
Exhibit A to this Proxy Statement/Prospectus and incorporated herein by
reference. All shareholders are urged to read the Merger Agreement in its
entirety. See also "THE MERGER."
General
The Merger Agreement provides that, upon the satisfaction or waiver of
certain conditions, LIPA will be merged with and into United Sub, United Sub
will continue as the Surviving Corporation, and the separate existence of LIPA
will cease. Pursuant to the Merger Agreement, at the Effective Time the LIPA
Common Stock outstanding, other than Dissenting Stock, will be converted into
the right to receive a pro rata allotment of an aggregate number of shares of
United Common Stock, equal in value to $50,000,000 divided by the Average Stock
Price; provided, however, that the number of shares issuable in the Merger will
be fixed at (1) 938,692 if the Average Stock Price is at least $49.2707 but less
than $53.2656, or (2) 730,093 if the Average Stock Price is more than $68.4844
but not more than $73.0500. If the Average Stock Price is more than $73.0500,
the number of shares issuable in the Merger will be (1) $53,750,000 divided by
(2) the Average Stock Price. If the Average Stock Price is less than $49.2707,
the number of shares issuable in the Merger will be (1) $46,250,000 divided by
(2) the Average Stock Price.
In addition to United Common Stock, at the effective time of the
Merger each share of LIPA Common Stock outstanding, other than Dissenting Stock,
will receive one Contingent Payment Right to receive two contingent cash
payments, collectively, the Earn-Outs, net of any amount to which United is
entitled pursuant to the indemnification provisions of the Merger Agreement.
The Earn-Outs will be determined by reference to the Adjusted Net Income of the
Community Health Entities and MetraHealth Louisiana. For the period January 1,
1996 to December 31, 1996, the Earn-Out will equal the amount by which Adjusted
Net Income exceeds $10.0 million, multiplied by 6.3. For the period January 1,
1997 to December 31, 1997, the Earn-Out will equal the amount by which Adjusted
Net Income exceeds $16.5 million, multiplied by 4.5. In no case, however, can
the aggregate of the two Earn-Outs exceed $35.0 million (or approximately
$84,000 per share of LIPA Common Stock). The amount payable to each holder of a
Contingent Payment Right will be equal to the Earn-Out for the applicable year
divided by the number of Contingent Payment Rights outstanding at the time
payment is due.
Certain Representations and Warranties
The Merger Agreement contains various representations and warranties
of United, United Sub and LIPA relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions): (1) the due organization, power and standing of, and
similar corporate matters with respect to, each of United, United Sub and LIPA;
(2) each of United's and LIPA's capital structure; (3) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement by
each such party; (4) the absence of any governmental or regulatory
authorization, consent or approval required to consummate the Merger; (5) the
absence of any conflict with each party's Articles of Incorporation or Bylaws,
with applicable law or with certain contracts; (6) the possession of all permits
material to the business of LIPA; (7) compliance with applicable laws; (8) the
filing of reports and other documents with the SEC and other regulatory
authorities and the accuracy of the information contained therein; (9) the
absence of certain changes or
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events having a material adverse effect on the consolidated financial condition,
business or results of operations of United, its subsidiaries and LIPA; (10) the
absence of material pending or threatened litigation with respect to LIPA;
(11) the absence of actions taken by United or LIPA that would prevent the
Merger from qualifying as a tax-free reorganization under the Code; (12) the
absence of any brokerage, finder's or other fees due in connection with the
Merger; and (13) material disclosures.
LIPA also has made certain additional representations and warranties
to United relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (1) its material contracts; (2) the absence of any employee
benefits plans; (3) taxes; (4) intellectual property rights; (5) customer
relationships and certain business practices; (6) insurance coverage;
(7) certain relationships between LIPA and its directors and executive
officers; (8) real property ownership; and (9) the vote of its shareholders
required to approve the Merger.
United and United Sub also have made certain additional
representations and warranties to LIPA relating to, among other things, (1) the
authorization and validity of the shares of United Common Stock to be issued
pursuant to the Merger Agreement and (2) the ownership, obligations and prior
activities of United Sub.
The respective representations and warranties of United, United Sub
and LIPA will survive for the period during which claims for indemnification may
be made under the Merger Agreement. See "-Indemnification."
Certain Covenants
Pursuant to the Merger Agreement, LIPA has agreed that, prior to the
Effective Time, except as expressly permitted by the Merger Agreement or as
otherwise consented to by United, which consent shall not be unreasonably
withheld, it will, subject to certain exceptions and among other things, do the
following: (1) operate its business in the usual and ordinary course consistent
with past practice; (2) use reasonable efforts to keep in full force and effect
property and casualty insurance and bonds comparable in amount and scope of
coverage to that maintained on the date of the Merger Agreement; (3) use
reasonable efforts to obtain extended insurance on the fiduciary liability,
professional liability and directors' and officers' liability policies currently
covering LIPA or its officers and directors; (4) use reasonable efforts to cause
the closing conditions to be satisfied; (5) not, subject to certain exceptions
and limitations, (a) increase the compensation payable to any director, officer
or employee, (b) grant any severance pay to, or enter into or amend any
severance agreement with, any director, officer or employee, (c) enter into or
amend any employment agreement with any director, officer or employee, or
(d) enter into, adopt, establish or amend any employee benefit plan; (6) not
declare or pay any dividends on, or make other distributions in respect of, or
repurchase, any of its capital stock or rights to acquire its capital stock;
(7) not effect certain other changes in its capitalization; (8) not issue,
deliver, award, grant or sell any shares of any class of its capital stock, any
securities convertible into or exercisable or exchangeable for any such shares,
or any rights, warrants or options to acquire any such shares, or amend their
terms to make such securities more favorable to the holders thereof; (9) not
acquire any business organization or division thereof or acquire any assets of
any other person (other than the purchase of assets from suppliers or vendors in
the ordinary course of business and consistent with past practice); (10) not
sell, pledge or otherwise dispose of any of its assets; (11) not solicit,
negotiate with or otherwise cooperate with any other person concerning a
Competing Transaction, except as may be required by the directors and officers
of the Company in exercise of their fiduciary duties; (12) not adopt any
amendments to its Articles of Incorporation or Bylaws or change any of its
methods of accounting in effect at December 31, 1994, or take certain actions
with respect to its tax position, except as may be required by law, the Internal
Revenue Service or generally accepted
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accounting principles; (13) not incur any obligation for borrowed money or
purchase money indebtedness, except for borrowings made in the ordinary course
of business consistent with past practice; and (14) not agree to do any of those
activities set forth in (5) through (13) above.
Pursuant to the Merger Agreement, United has agreed that, prior to the
Effective Time, except as expressly permitted by the Merger Agreement or as
otherwise consented to by LIPA, it and each of its subsidiaries will, among
other things, (1) operate its business in the usual and ordinary course and (2)
use reasonable efforts to cause the closing conditions to be satisfied.
LIPA and United have agreed to afford each other reasonable access to
all information concerning their respective businesses as each party shall
reasonably request, and to maintain the confidential nature of certain
information provided to it by the other party.
Limitations on Negotiations by LIPA
Under the Merger Agreement, LIPA has agreed that it will not directly
or indirectly solicit or initiate any discussions or negotiations with, or in
any way participate in any negotiations with or provide any information to or
otherwise cooperate in any other way with, or facilitate or encourage any effort
to attempt to, or enter into any agreement or understanding with, any person or
group of persons (other than United and its directors, officers, employees,
representatives and agents), concerning any Competing Transaction, or authorize
any of the officers or directors of LIPA to take any such action, except, in any
such case, as may be required by the directors and officers of LIPA in the
exercise of their fiduciary duties as evidenced by a written opinion of counsel
experienced in such matters, and, with the same exception, LIPA shall use
reasonable efforts to cause the directors, officers, employees, agents,
shareholders and representatives of LIPA (including, without limitation, any
investment banker, financial advisor, attorney or accountant retained by LIPA)
not to take any such action. LIPA shall promptly notify United (1) if any
inquiries, or proposals or requests for information concerning a Competing
Transaction are received by LIPA or any of its respective officers or directors,
or (2) when LIPA becomes aware that any such inquiries or proposals have been
received by LIPA's investment bankers, financial advisors, attorneys,
accountants, other representatives or shareholders.
Indemnification
Subject to certain limitations, United and its officers, directors,
employees and agents (collectively, the "United Indemnified Parties") shall,
from and after the Effective Time, be indemnified and held harmless against any
loss, liability, tax (including interest and penalties), damage or expense
(including reasonable legal expenses and costs) or any assertion thereof
("Losses"), which any United Indemnified Party may suffer, sustain or become
subject to as a result of (1) certain representations and warranties by LIPA in
the Merger Agreement that are not true and correct as of the date made, (2) any
breach of any covenant or agreement of LIPA contained in the Merger Agreement
that is required to be performed prior to the Effective Time, (3) certain
claims by a person who held shares of LIPA Common Stock prior to the Effective
Time relating to a breach of fiduciary duty or other improper action, (4)
certain claims for indemnification by officers and directors of LIPA, (5)
certain taxes resulting from the failure of the Merger to qualify as a tax-free
reorganization under Section 368(a) of the Code, and (6) any amounts paid in
respect of Dissenting Stock in excess of the Merger Consideration. The United
Indemnified Parties shall be entitled to indemnification for any Losses only
upon delivery of written notice of any claims to the Shareholder Representative.
United Indemnified Parties are entitled to payment for any Losses only to the
extent such Losses in the aggregate exceed $1,000,000. Furthermore, such right
to payment is limited to, and shall be payable only in the form of, an offset
against the Earn-Outs but only if such amount (1) has not already been paid to
the holders of LIPA Common Stock at the Effective Time, and (2) would not
previously have been paid to such holders
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if United were, at the time the claim is asserted, in full compliance with the
provisions of the Merger Agreement relating to the payment of Contingent Payment
Rights. The rights of the United Indemnified Parties to indemnification will
expire as to any claim that has not been asserted prior to 5:00 p.m.,
Minneapolis time, on May 15, 1998; provided, however, that if any such claim is
based on a breach of representation or warranty relating to any Community Health
Entity, the right will expire as to any claim that has not been asserted prior
to 5:00 p.m., Minneapolis time, May 15, 1997. The Shareholder Representative
shall be entitled, on behalf of the Company's shareholders, to contest and
defend certain actions or proceedings brought by a third party against a United
Indemnified Party, subject to certain conditions. United shall pay the
reasonable fees and reimbursable expenses of any attorneys and all other
reasonable expenses of conducting such defense.
United has agreed that, from and after the Effective Time, United
shall, subject to the limitations set forth below, indemnify and hold harmless
the former shareholders of LIPA and the Shareholder Representative
(collectively, the "Shareholder Indemnified Parties") from and against any
Losses which any Shareholder Indemnified Party may suffer, sustain or become
subject to as a result of (1) any representation or warranty by United in the
Merger Agreement relating to the validity of the United Common Stock received by
such Shareholder Indemnified Party in connection with the Merger, that it is not
true and correct as of the date made, (2) any breach by United or the Surviving
Corporation of any covenant or agreement contained in the Merger Agreement
required to be performed after the Effective Time, (3) certain claims by a
person who held shares of LIPA Common Stock prior to the Effective Time relating
to a breach of fiduciary duty or other improper action, and (4) certain claims
for indemnification by officers and directors of LIPA. The Shareholder
Indemnified Parties shall be entitled to indemnification for any Losses
described above only if a Shareholder Indemnified Party delivers to United
written notice describing such claim or claims prior to (1) 5:00 p.m.,
Minneapolis time, May 15, 1998, if such claim is based on the untruth or
incorrectness of a representation or warranty of United or (2) two years after
the Shareholder Indemnified Party asserting the claim became aware of such
claim, in all other cases.
United has agreed that, from and after the Effective Time, United will
(and will cause the Surviving Corporation to) jointly and severally indemnify,
defend and hold harmless the present and former officers and directors of LIPA
(collectively, the "LIPA Indemnified Parties") against all losses, expenses
(including reasonable attorney's fees), claims, damages, liabilities, costs or
judgments or amounts that are paid in settlement with the written consent of
United arising out of actions or omissions occurring at or prior to the
Effective Time in the LIPA Indemnified Parties' respective capacities as
officers and/or directors of LIPA and/or any of the Community Health Entities
(except for claims relating to the particular LIPA Indemnified Party's purchase
of LIPA Common Stock from another shareholder of LIPA), and will also advance
expenses as incurred, all to the full extent permitted by the laws of Louisiana
or LIPA's Articles of Incorporation and Bylaws. See "COMPARISON OF SHAREHOLDER
RIGHTS--Indemnification." LIPA shall use reasonable efforts to obtain tail
coverage on the fiduciary liability, professional liability and directors and
officers liability policies currently covering LIPA or any of the LIPA
Indemnified Parties required to be indemnified by United at a commercially
reasonable cost, effective as of and following the Closing. In the event LIPA
is unable to obtain such tail coverage at a commercially reasonable cost, United
shall use reasonable efforts to provide similar coverage for those LIPA
Indemnified Parties that it is required to indemnify under policies then
maintained by United, provided that such coverage is available to United at a
commercially reasonable cost. Failure by LIPA or United to obtain such extended
tail coverage or to provide such coverage under United's policies shall not in
any way excuse United from its obligation to, and to cause the Surviving
Corporation to, indemnify, defend and hold harmless the LIPA Indemnified Parties
to the extent required by the Merger Agreement. If a claim is brought against
any LIPA Indemnified Party after the Effective Time, such LIPA Indemnified Party
may retain its own counsel, subject to prior reasonable approval by United.
Upon the occurrence of such a claim, United
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will pay the reasonable fees and expenses of counsel selected by the LIPA
Indemnified Party and will use reasonable efforts to assist in the defense of
such matter.
Conditions
Each party's respective obligations to effect the Merger are subject
to various conditions (any or all of which may be waived to the extent permitted
by applicable law), including the following: (1) the effectiveness of the
Registration Statement, the absence of any stop order suspending the
effectiveness thereof, and the receipt by United of all other authorizations
necessary to issue United Common Stock in exchange for LIPA Common Stock
pursuant to the Merger Agreement and to consummate the Merger; (2) the approval
and adoption of the Merger and the Merger Agreement by the requisite vote of
holders of LIPA Common Stock; (3) the absence of any instituted, pending or
threatened action or proceeding by a governmental entity, or any order or decree
(a) imposing or seeking to impose material limitations on the ability of United
to acquire or hold or to exercise full rights of ownership of any securities of
LIPA or any Community Health Entity, (b) imposing or seeking to impose material
limitations on the ability of United to combine and operate the business and
assets of LIPA with any of United's Subsidiaries or other operations,
(c) imposing or seeking to impose other material sanctions, damages or
liabilities arising out of the Merger on United, United Sub or LIPA or any of
their officers or directors, (d) requiring or seeking to require divestiture by
United of all or any significant portion of the business, assets or property of
LIPA or any Community Health Entity, or (e) restraining, enjoining or
prohibiting, or seeking to restrain, enjoin or prohibit, the consummation of the
Merger, provided that prior to invoking this condition, the party seeking to
invoke it shall have used its reasonable efforts to have any such action or
proceeding dismissed or such order or decree vacated; (4) the expiration or
termination of the applicable waiting period under the HSR Act; (5) the receipt
of applicable approvals (or waiver thereof) or the termination of applicable
waiting periods under certain health benefit laws; and (6) the obtaining or
making of all governmental approvals, consents, waivers, authorizations, filings
and notices (other than the filing and, if required, recordation of Merger
documents in accordance with Louisiana law).
The obligations of United and United Sub to effect the Merger are also
subject to the satisfaction (or waiver) of certain conditions, including the
following: (1) the accuracy in all respects as of the Effective Time of each of
the representations and warranties of LIPA contained in the Merger Agreement as
though such representations and warranties were made on and as of the Effective
Time, provided that those representations and warranties which address matters
only as of a particular date shall remain true and correct in all respects as of
such date; (2) the performance of or compliance in all material respects with
all agreements and covenants required by the Merger Agreement to be performed or
complied with by LIPA at or prior to the Effective Time; (3) the receipt by LIPA
of all required consents and approvals under all agreements or instruments to
which it is a party, except for those consents and approvals for which the
failure to obtain such consents or approvals would not have a material adverse
effect on the consolidated financial condition or results of operations of LIPA
prior to or after the Effective Time or on United after the Effective Time;
(4) no more than 10% of the holders of shares of LIPA Common Stock outstanding
immediately prior to the Merger shall have exercised their dissenters' rights
under Louisiana Law; (5) the receipt by United of cold comfort" letters from
LIPA's independent public accountants, Arthur Andersen LLP, dated the date on
which the Registration Statement becomes effective and the Effective Time;
(6) the receipt by United of the legal opinion of Thomas H. Benton & Associates,
counsel for LIPA, as contemplated by the Merger Agreement; (7) the receipt by
United of the tax opinion of Dorsey & Whitney LLP to the effect that the Merger
will be treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Code; and (8) the receipt by
United of the updated written opinion of Robinson-Humphrey to the effect that
the Merger is fair to the shareholders of LIPA from a financial point of view.
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The obligation of LIPA to effect the Merger is also subject to the
satisfaction (or waiver) of certain conditions, including the following: (1) the
accuracy in all respects as of the Effective Time of each of the representations
and warranties of United contained in the Merger Agreement as though such
representations and warranties were made on and as of the Effective Time,
provided that those representations and warranties which address matters only as
of a particular date shall remain true and correct in all respects as of such
date; (2) the performance of or compliance in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by United at or prior to the Effective Time; (3) the receipt by
LIPA of the tax opinion of Dorsey & Whitney LLP to the effect that the Merger
will be treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Code; (4) the receipt by LIPA of
the opinion of Robinson-Humphrey, dated not more than two business days prior to
the date of this Proxy Statement/Prospectus, to the effect that the Merger is
fair to the shareholders of LIPA from a financial point of view; (5) the receipt
by LIPA of "cold comfort" letters from United's independent public accountants,
Arthur Andersen LLP, dated the date on which the Registration Statement becomes
effective and the Effective Time; and (6) the receipt by LIPA of the legal
opinion of Kevin H. Roche, United's General Counsel, as contemplated by the
Merger Agreement.
Termination
The Merger Agreement may be terminated at any time prior to the
Effective Time (1) by mutual written consent of United and LIPA; (2) by either
United or LIPA, if (a) any decree, permanent injunction, judgment, order or
other action by any court of competent jurisdiction or any governmental or
regulatory authority preventing or prohibiting consummation of the Merger shall
have become final and nonappealable, (b) the Merger shall not have been
consummated before June 30, 1996, or a later date under certain circumstances
set forth in the Merger Agreement, (c) the Merger Agreement shall fail to
receive the requisite vote for approval and adoption by the shareholders of LIPA
at the Special Meeting or any adjournment thereof, or (d) the Average Stock
Price is more than $76.09 or less than $45.66; (3) by United, if LIPA has
breached any of its covenants or agreements contained in the Merger Agreement,
or if any of the representations and warranties of LIPA shall have become
untrue, in any such case such that the conditions to United's obligation to
effect the Merger on account of the continuing truth, accuracy and compliance
with LIPA's representations, warranties, agreements or covenants will not be
satisfied (and such breach or condition has not been cured by the earlier of 30
days following receipt by LIPA of written notice of such breach or June 30, 1996
(or a later date under certain circumstances set forth in the Merger
Agreement)); (4) by LIPA, if United has breached any of its covenants or
agreements contained in the Merger Agreement, or if any of the representations
and warranties of United shall have become untrue, in any case such that the
conditions to LIPA's obligation to effect the Merger on account of the
continuing truth, accuracy and compliance with United's representations,
warranties, agreements or covenants will not be satisfied (and such breach or
condition has not been cured by the earlier of 30 days following receipt by
United of written notice of such breach or June 30, 1996 (or a later date under
certain circumstances set forth in the Merger Agreement)); or (5) by LIPA, if
United has entered into a written agreement under which United will be acquired
by or merge with another entity or publicly announced its intention to enter
into such a transaction, and after such transaction, persons who were directors
of United prior to such transaction would not constitute a majority of the board
of directors of the acquiring or surviving corporation in such transaction.
In the event of termination of the Merger Agreement by either United
or LIPA, the Merger Agreement will become void, and there will be no liability
or obligation on the part of United, United Sub or LIPA, except that if (1)
United terminates the Merger Agreement by reason of LIPA's breach of its
covenant not to solicit, negotiate or otherwise cooperate concerning a Competing
Transaction, (2) a party refuses to consummate the Merger for any reason not
permitted under the Merger Agreement, or (3)
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all conditions to the obligations of a party referred to in "--Conditions" have
been satisfied, waived or can be satisfied at the will of such party and such
party does not proceed with the Closing, then in each case all remedies
available to United (if the situation described in clause (1) occurs or if LIPA
is the party referred to in clause (2) or (3)) or LIPA (if United or United Sub
is the party referred to in clause (2) or (3)) as the case may be, against the
other of them either at law or in equity, on account of such circumstance, shall
be preserved and shall survive the termination of the Merger Agreement.
Amendment and Waiver
Subject to applicable law, the Merger Agreement may be amended in
writing by action taken by or on behalf of the respective Boards of Directors of
United or LIPA at any time prior to the Effective Time. After approval of the
Merger by the shareholders of LIPA, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of LIPA
Common Stock shall be converted pursuant to the Merger Agreement upon
consummation of the Merger.
At any time prior to the Effective Time, any party may, by action
taken in writing, (1) extend the time for the performance of any of the
obligations or other acts of the other parties, (2) waive any inaccuracies in
the representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant thereto, and (3) waive
compliance by the other party with any of the agreements or conditions contained
therein.
Fees and Expenses
Under the Merger Agreement, all "Expenses" (as defined below) incurred
by United and LIPA shall be borne solely and entirely by the party that has
incurred the same. "Expenses" includes all reasonable out-of-pocket expenses
(including, without limitation, all fees and expenses of counsel, accountants,
investment bankers, experts and consultants) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of the Merger Agreement, the preparation,
printing and filing of the Registration Statement and this Proxy
Statement/Prospectus and the mailing of this Proxy Statement/Prospectus, the
solicitation of shareholder approvals and all other matters related to the
closing of the Merger.
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CERTAIN INFORMATION CONCERNING UNITED
General
United is a national leader in offering health care coverage and
related services and served over 40 million covered lives through a broad
continuum of health care products and services at December 31, 1995. United
utilizes a number of core capabilities, including medical information
management, health care delivery management, health benefit administration, risk
assessment and pricing, health benefit design and provider contracting and risk
sharing to provide comprehensive managed care services, such as health
maintenance organization ("HMO"), insurance and self-funded health care coverage
products, as well as unbundled health care management and cost containment
products such as mental health and substance abuse services, utilization review
services, specialized provider networks and employee assistance programs. On
October 2, 1995, United completed its acquisition of MetraHealth, a managed
health care coverage company and health insurer with over ten million covered
lives at the time of the acquisition. As a result of the MetraHealth
acquisition, United increased the national scope of its health care coverage
business and now has relationships with many of the country's largest companies.
The acquisition of MetraHealth enhanced United's ability to offer a full range
of health care coverage products to all types of customers.
United HealthCare Corporation is a Minnesota corporation, incorporated
in January 1977. Unless the context otherwise requires, the term "United"
refers to United HealthCare Corporation and its subsidiaries. United's
executive offices are located at 300 Opus Center, 9900 Bren Road East,
Minnetonka, Minnesota 55343; telephone (612) 936-1300.
Health Plans, Insurance and Related Operations
Health Plans. As of December 31, 1995, United had a majority
ownership interest in health plans principally licensed as HMOs in 24 states and
Puerto Rico. With respect to these owned health plan operations, United assumes
the risk for health care and administrative costs in return for the premium
revenue it receives. United's owned health plans are usually licensed as HMOs
or insurers and provide comprehensive health care coverage for a fixed fee or
premium that usually does not vary with the extent of medical services received
by the member. In addition, these health plans enter into contractual
arrangements with independent providers of health care services to help manage
medical and hospital utilization, quality and costs. A few of the health plans
employ health care providers and directly deliver health care services to
enrollees and other individuals. Cost-effective delivery of health care
services by both employed and contracted health care providers is achieved by
assuring appropriate use of health care services, emphasizing preventive health
services and encouraging the reduction of unnecessary hospitalization and other
medical services. United also provides administrative and other management
services to health plans licensed in five states and in which United has no
ownership interest. With respect to these managed health plan operations,
United receives an administrative fee for providing its services and generally
assumes no responsibility for health care costs.
Health Plan Point-of-Service Products. Point-of-service plans are
one of United's most popular and fastest growing health plan coverage options.
Unlike traditional closed-panel HMO products, which cover non-emergency services
only when rendered by contracted providers, the point-of-service plans also
provide coverage, usually at a lower level, for services received from non-
contracting providers. This out-of-network coverage is sometimes offered
directly by the health plan, but more often is provided by an insurance policy
"wrapped around" the health plan benefit contract. The insurance policy is
usually sold by one of United's insurance subsidiaries.
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Health Plan Self-Funded Products. United has developed HMO-like self-
funded products for employers who desire the cost containment aspects of an HMO
product and want to self-insure the health care cost risk. United uses the
provider networks it has developed in connection with its HMO products for these
self-funded products. Many of these self-funded products include a point-of-
service feature. The provider contracts for these products are with individual
physicians or groups of physicians as well as health care facilities and are
generally on a standardized fee-for-service basis. These self-funded products
offer employers and other sponsoring groups access to a provider network and the
administrative and utilization review services associated with an HMO product,
but the risks of health care utilization generally are borne by the sponsoring
group.
Health Plan Medicare Products. Several of United's owned health plans
contract with the federal Health Care Financing Administration ("HCFA") to
provide coverage for Medicare-eligible individuals. Under these contracts the
plans receive a fixed payment each month from HCFA for each enrolled individual.
Several of United's health plans which do not currently have such a contract are
in the process of seeking one. Under these contracts, the health plans must
provide at least the benefits which would be covered under traditional Medicare
and typically provide a significantly higher level of coverage. The plans may,
but generally do not, charge an additional premium to the members for the
additional benefits. The health plans generally use a subset of their
commercial product provider network as the provider network for the Medicare
products. Any Medicare eligible person in the Plans service area may enroll in
the Medicare product.
Some of United's health plans may also offer these Medicare products
to or through employer groups as a method of providing retiree health care
coverage. In addition, certain health plans may market Medicare Select products
which do not substitute for traditional Medicare, but provide additional
benefits for a premium charged directly to the member.
Health Plan Medicaid Products. Several of United's health plans offer
coverage to Medicaid-eligible individuals. These plans typically contract with
a state agency to provide such coverage and are paid a fixed monthly payment for
each enrolled individual. The level of benefits is generally set by contract
and few additional benefits are offered. Enrollment must usually be offered to
all eligible individuals, without underwriting or health screening. Generally,
the same provider network as for commercial products is utilized, but some
providers may refuse to participate in the Medicaid product and the network may
otherwise have a different number or set of providers.
PPO and Indemnity Insurance and Self-Funded Products. Primarily
through its insurance and third-party administrator subsidiaries, United offers
a variety of health insurance and self-funded plan products and services,
covering approximately ten million persons. Many of the insurance and self-
funded products are marketed as point-of-service products or include a preferred
provider organization ("PPO") feature, under which a higher level of coverage is
received if certain providers are utilized. The self-funded products are
usually sold on an administrative fee basis. In some cases United may agree to
penalties or rewards related to administrative service standards and/or health
care costs. The insurance products are often sold on an experience-rated basis,
which means that the premiums may be adjusted in the future based on actual past
health care costs or that premiums may be adjusted at the end of a specific time
period (usually one year) with premium returned to the customer or additional
premium paid to the company based on health care costs in that time period.
Ancillary Insurance Products. Through its insurance subsidiaries,
United offers several health insurance products in conjunction with health plan
products on a carrier replacement basis. These products permit employers to
replace multiple health care policies and vendors with a single health care
plan. These subsidiaries also offer reinsurance and other insured products on a
selective basis to most of United's health plans and to employers and other
sponsoring groups offering self-funded health
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care benefit plans. United's insurance subsidiaries are licensed to sell group
life, accidental death and dismemberment, short-term disability and health
insurance products in all 50 states, the District of Columbia, Puerto Rico and
the Virgin Islands. In connection with the MetraHealth acquisition, United
entered into an agreement with Metropolitan Life Insurance Company ("MetLife")
under which United offers MetLife's life, accidental death and dismemberment and
short-term disability products to United customers and MetLife offers United's
health care coverage products to MetLife customers.
The following tables provide information with respect to the
enrollment in United's various health plan and insurance products. The
enrollment numbers are provided as of December 31, 1995 and January 31, 1996
since a number of the contracts for United's health care coverage products
commence, expire or renew, as the case may be, as of January 1 of each year.
ENROLLMENT BY PRODUCT TYPE
--------------------------
<TABLE>
<CAPTION>
Product December 31, 1995 January 31, 1996
- --------------------------------- ----------------- ----------------
<S> <C> <C>
Health Plan Products(1)
Commercial 3,005,000 3,204,500
Medicare 147,800 153,300
Medicaid 352,100 353,900
---------- ----------
Total Health Plan Products 3,504,900 3,711,700
Other Network Based Products(2)
Commercial 5,737,700 5,731,100
Indemnity
Commercial 4,367,400 4,053,700
---------- ----------
Total 13,610,000 13,496,500
========== ==========
</TABLE>
(1) Includes various HMO and HMO point-of-service products as well as self-
funded programs utilizing a health plan network of providers.
(2) Includes insurance-based and self-funded PPO and point-of-service
products.
ENROLLMENT BY FUNDING MECHANISM AND PRODUCT TYPE
------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995 January 31, 1996
----------------- ----------------
Product Funded Self Funded Funded Self Funded
--------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Health Plan Products 3,261,900 243,000 3,444,500 267,200
Other Network Based
Products 699,300 5,038,400 792,500 4,938,600
Indemnity 982,600 3,384,800 924,500 3,129,200
--------- --------- --------- ---------
Total 4,943,800 8,666,200 5,161,500 8,335,000
========= ========= ========= =========
</TABLE>
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Specialty Managed Care Services
Through its experience in providing comprehensive health care management
products and in response to increasing market demand for greater choice and
flexibility in the design of health care coverage products and funding
arrangements, United has utilized its core capabilities to create and sell
specialized products to facilitate the efficient delivery of health care
services. These products are offered independently of United's owned and
managed health plans and insurance operations through United's specialty managed
care services businesses. United also makes these products available to or in
connection with the products of its owned and managed health plans and insurance
operations where feasible.
With respect to its specialty managed care services, United receives fees
for the provision of services, primarily administrative in nature, and generally
assumes no responsibility for health care costs except in the case of its
behavioral health products. In connection with those products, United assumes
some responsibility for health care costs for the provision of mental
health/substance abuse services and thus recognizes premium-like revenue and
medical services expense.
United's specialty managed care products were available to a total of
approximately 40 million participant lives at December 31, 1995, many of whom
were not enrolled in one of United's owned health plans. One person may be
covered by more than one specialty managed care service and therefore may
account for more than one of these participant lives. United offers the
following specialty managed care services to HMOs, PPOs, insurers, providers,
Blue Cross/Blue Shield plans, third-party administrators, employers, labor
unions and/or government agencies.
Care Management and Benefit Administration Services. United's care
management programs offer customers unbundled cost and utilization review and
case management services. These services include prior, concurrent and
retrospective review of hospital admissions and certain ambulatory services,
second opinion programs, case management, specialist referrals and discharge
planning. These services emphasize patient and provider education as a means of
assisting clients in managing their health care costs.
United's Total Care Management programs offer those customers who may not
have geographic access to United's health plans an alternative to bundled
managed care services. These services include utilization management, medical
information and education, claims payment, provider networks, mental
health/substance abuse services and other related services. Use of these
services can provide health plan-like results to those clients who have members
outside health plan service areas.
Transplant Network. United's transplant network services programs offer
clients access to a network of health care facilities for transplant-related
services and transplant case management services. United negotiates fixed,
competitive rates for high-cost, low-frequency health care services such as
organ and tissue transplants.
Workers Compensation and Disability Management Services. United's workers
compensation and disability management services tailor United's broad managed
care resources into products and services intended to apply managed care
concepts, such as utilization review and use of specialized preferred provider
networks, to workers compensation and casualty insurance cases. These products
and services include hospitalization and outpatient surgery pre-certification
and case management, access to provider networks, specialized programs such as
carpal tunnel and back injury case management, and review of imaging (CAT scans
and MRI) services.
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Demand Management Programs. United's demand management programs help
consumers make informed choices about their health and well-being by focusing on
preventive care, self-care, smart lifestyle options, and consumer education.
United's OPTUM(R) 24-hour nurseline and employee assistance programs, provide
customers the opportunity to reduce the cost of medical care by early
identification of medical and human risks and the subsequent development of
problem-specific solutions that change behavior and reduce those risks. In
addition, these programs issue various publications to members as supplementary
tools for managing demand for services.
Geriatric Care Management Services. United also develops and provides
products and services for cost control and the management of health care for the
elderly. LinkAge(R) identifies for hospitals high-cost, high-risk patients upon
admission and provides the hospital with tools to perform focused case
management throughout the patient's hospital stay. United's EverCare(R) program
arranges for the provision of a broad spectrum of health care services to
institutionalized elderly individuals in nursing homes through contracts with a
physician-nurse practitioner team. EverCare(R) is participating in a
demonstration project with HCFA to offer health care services to the
institutionalized elderly in nine separate locations throughout the country.
Through its Government Operations division, United provides administrative
services in regard to certain government health care programs. Most of this
business is Medicare Part B claims processing. One of United's insurance
subsidiaries is the sole carrier for the States of Minnesota, Virginia,
Mississippi and Connecticut. That subsidiary also serves as the fiscal
intermediary for Medicare Part A, in Connecticut, Michigan and New York, and
handles all Medicare durable medical equipment claims for the 10 states in
HCFA's northeast region.
Behavioral Health Services. The specialty operations in United's
behavioral health services business unit include mental health and substance
abuse-related services. United's behavioral health subsidiaries provide
specialized provider networks and behavioral health care case management
services to certain of United's owned or managed health plans and to other
customers. Such services are provided by employed behavioral health care
professionals and by a network of contracted providers. Certain of these
services are sold on a capitated basis.
Third Party Administration Services. United provides third party
administrator ("TPA") services to employers who choose to utilize self-funding
to control health care costs and also desire customized health care plans and
administration. United's TPA services are available to employers of all sizes
in both single and multiple locations and include a fully integrated portfolio
of products.
International Business. United has begun exploring opportunities to sell
its products and services in foreign countries and anticipates utilizing various
arrangements such as joint ventures, as well as direct contracting. United has
entered into a joint venture to create a health plan in the Republic of South
Africa and has entered into an agreement to provide certain managed care
consulting services in Germany.
The Center for Health Care Policy and Evaluation. As the research and
performance evaluation arm of United, the Center for Health Care Policy and
Evaluation (the "Center") studies the operations and populations of enrolled
health care systems. The Center's pathfinding research studies and analytical
tools evaluate cost and quality of health care delivery -- illuminating common
problems such as uneven access to care, variations in treatment, patient non-
compliance with preventive care and other differences in the health care
characteristics of the studied population. United's health plans and specialty
organizations across the country use Center developed tools and methods to
monitor and access health care delivery to their members and clients. The
Center also works on behalf of other external organizations and clients to
provide research services and analytic software tools.
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One of the Centers' major software services EPIS(TM). EPIS(TM) is a
specialized medical management software system which provides clients with an
integrated picture of a health care system in many dimensions, replacing
piecemeal reports with a common reference point on cost, utilization, quality,
access and satisfaction.
Expansion and Disposal of Operations
United continually evaluates opportunities to expand its business and
considers whether to dispose of or cease offering the products of certain of its
businesses. Such opportunities may include acquisitions or dispositions of a
specialty managed care services program or of insurance and health plan
operations. Significant attention is also devoted to internal development of new
products and techniques for the containment of health care costs, the
measurement of the outcomes and efficiency of health care delivered and the
management of health care delivery systems.
United has engaged in an extensive acquisition program over the last few
years. The intensive acquisition program may affect United's ability to
integrate and manage its overall business effectively, which may increase costs,
slow membership, revenue and earnings growth and adversely affect United's
financial results. United's recent acquisition of MetraHealth poses significant
integration challenges, particularly since MetraHealth itself was the product of
a merger of businesses that were not yet fully integrated. Failure to
successfully integrate MetraHealth would likely materially adversely affect
United's financial results.
The acquisition of MetraHealth also may make United's revenues more
sensitive to fluctuations in overall health care cost trends, because the
proportion of the former MetraHealth revenues derived from indemnity insurance
business, which may have a lesser degree of health care cost control, is
relatively high, and because former MetraHealth revenues will constitute a
substantial portion of United's revenues.
On November 28, 1995, United executed a definitive agreement to acquire
PHP, Inc., a North Carolina based health plan to which United had previously
provided administrative services. On February 1, 1996, United agreed to acquire
HealthWise of America, Inc. and its related health plan operations in Arkansas,
Tennessee, Maryland and Kentucky. On February 21, 1996, United executed an
agreement to purchase the owner of the remaining minority equity interest in its
St. Louis, Missouri-based health plans.
On March 1, 1996, United sold MetraHealth Care Plan of St. Louis, Inc.,
("Metra-St. Louis"), a St. Louis, Missouri-based HMO acquired in October as part
of MetraHealth acquisition.
Government Regulation
United's primary business, offering health care coverage and health care
management services, is heavily regulated at both the federal and state level.
United 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 United or a subsidiary to make
changes from time to time in its services, products, structure or marketing
methods.
Changes in applicable laws and regulations are continually being considered
and the interpretation of existing laws and rules may also change from time to
time. Government regulation of health care coverage products and services is a
changing area of law that varies from jurisdiction to jurisdiction. While
United is unable to predict what regulatory changes may occur or the impact on
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United of any particular change, United's operations and financial results could
be negatively affected by regulatory revisions. Certain proposed changes in
Medicare and Medicaid programs may increase the opportunities for United to
enroll persons under products developed for the Medicare and Medicaid eligible
populations, but other proposed changes also may limit the reimbursement
available to United and increase competition in those programs, which could
adversely affect United's financial results. The continued consideration and
enactment of "anti-managed care" laws and regulations, such as "any willing
provider" laws and limits on utilization management, by federal and state bodies
may make it more difficult for United to control medical costs and may adversely
affect financial results.
A number of jurisdictions have enacted small group insurance and rating
reforms which generally limit the ability of insurer and health plans to use
risk selection as a method of controlling costs for small group business. These
laws may generally limit or eliminate use of preexisting conditions exclusions,
experience rating and industry class rating and may limit the amount of rate
increases from year to year. Under these laws, cost control through provider
contracting and managing care may become more important and United currently
believes its experience in these areas will allow it to compete effectively.
In addition to changes in applicable laws and rules, United is potentially
subject to governmental investigations and enforcement actions. These include
possible government actions relating to the federal Employee Retirement Income
Security Act ("ERISA"), which regulates insured and self-insured health coverage
plans offered by employers and United's services to such plans and employers,
the Federal Employees Health Benefit Plan ("FEHBP"), federal and state fraud and
abuse laws and laws relating to utilization management and the delivery of
health care. Any such government action could result in assessment of damages,
civil or criminal fines or penalties, or other sanctions, including exclusion
from participation in government programs. Although United is currently
involved in various government audits, such as under the FEHBP or relating to
services for ERISA plans, United does not believe the results of such current
audits will, individually or in the aggregate, have a material adverse effect on
United's financial results.
HMOs. All of the states in which United's health plans offer HMO products
have enacted statutes regulating the activities of those health plans. Most
states require periodic financial reports from HMOs licensed to operate in their
states and impose minimum capital or reserve requirements. Certain of United's
subsidiaries are required to retain for their own use cash generated from their
operations. In addition, certain of United's subsidiaries are required by state
regulatory agencies to maintain restricted cash reserves represented by
interest-bearing instruments which are held by trustees or state regulatory
agencies to ensure that adequate financial reserves are maintained. Some state
regulations enable agencies to review all contracts entered into by HMOs,
including management contracts, for reasonableness of fees charged and other
provisions.
United's health plans which have Medicare risk contracts are subject to
regulation by HCFA. HCFA has the right to audit health plans operating under
Medicare risk contracts to determine each health plan's compliance with HCFA's
contracts and regulations and the quality of care being rendered to the health
plan's members. To enter into Medicare risk contracts, a health plan must
either be federally qualified or be considered a Competitive Medical Plan under
HCFA's requirements. Health plans which offer a Medicare risk product also must
comply with requirements established by peer review organizations ("PROs"),
which are organizations under contract with HCFA to monitor the quality of
health care received by Medicare beneficiaries. PRO requirements relate to
quality assurance and utilization review procedures. United's health plans
which have Medicare cost contracts are subject to similar regulatory
requirements. In addition, these health plans are required to file certain cost
reimbursement reports with HCFA which are subject to audit and revision.
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United's health plans which have Medicaid contracts are subject to both
federal and state regulation regarding services to be provided to Medicaid
enrollees, payment for those services and other aspects of the Medicaid program.
Both Medicare and Medicaid have in force or have proposed regulations relating
to fraud and abuse, physician incentive plans and provider referrals which may
affect United's operations.
Many of United's health plans have contracts with the FEHBP. These
contracts are subject to extensive regulation, including complex rules relating
to the premiums charged. FEHBP has the authority to retroactively audit the
rates charged and frequently seeks premium refunds and other sanctions against
health plans participating in the program. United's health plans which have
contracted with FEHBP are subject to such audits and may be requested to make
such refunds.
Insurance Regulation. United's insurance subsidiaries are subject to
regulation by the Department of Insurance in each state in which the entity is
licensed. Regulatory authorities exercise extensive supervisory power over
insurance companies in regard to licensing; the amount of reserves which must be
maintained; the approval of forms of insurance policies used; the nature of, and
limitation on, an insurance company's investments; periodic examination of the
operations of insurance companies; the form and content of annual statements and
other reports required to be filed on the financial condition of insurance
companies; and the establishment of capital requirements for insurance
companies. United's insurance company subsidiaries are required to file
periodic statutory financial statements in each jurisdiction in which they are
licensed. Additionally, such companies are periodically examined by the
insurance departments of the jurisdiction in which they are licensed to do
business.
Insurance Holding Company Regulations. Certain of United's health plans
and each of United's insurance subsidiaries are subject to regulation under
state insurance holding company regulations. Such insurance holding company
laws and regulations generally require registration with the state Department of
Insurance and the filing of certain reports describing capital structure,
ownership, financial condition, certain intercompany transactions and general
business operations. Various notice and reporting requirements generally apply
to transactions between companies within an insurance holding company system,
depending on the size and nature of the transactions. Certain state insurance
holding company laws and regulations require prior regulatory approval or, in
certain circumstances, prior notice of, certain material intercompany transfers
of assets as well as certain transactions between the regulated companies, their
parent holding companies and affiliates, and acquisitions.
TPAs. Certain subsidiaries of United are also licensed as third-party
administrators ("TPAs") in states where such licensing is required for their
activities. TPA regulations, although differing greatly from state to state,
generally contain certain required administrative procedures, periodic reporting
obligations and minimum financial requirements.
PPOs. Certain of United's subsidiaries' operations may be subject to PPO
regulation in a particular state. PPO regulations generally contain certain
network, contracting, financial and reporting requirements which vary from state
to state.
Utilization Review Regulations. A number of states have enacted laws
and/or adopted regulations governing the provision of utilization review
activities and these laws may apply to certain of United's operations.
Generally, these laws and regulations require compliance with specific standards
for the delivery of services, confidentiality, staffing, and policies and
proceeds of private review entities, including the credentials required of
personnel.
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MCOs. In recent years a number of states have enacted laws enabling self-
insured employers and/or insurance carriers to apply medical management and
other managed care techniques to the medical benefit portion of workers'
compensation, if such managed care is performed by a state certified managed
care organization ("MCO"). United, by itself or with its HMOs, has generally
sought MCO certification in the states where it is available and where it
markets managed care workers' compensation products. MCO laws differ
significantly from state to state, but generally address network and utilization
review activities.
ERISA. The provision of goods and services to or through certain types of
employee health benefit plans is subject to ERISA. ERISA is a complex set of
laws and regulations that are subject to periodic interpretation by the United
States Department of Labor. ERISA places controls on how United's business
units may do business with employers covered by ERISA, particularly employers
that maintain self-funded plans. The Department of Labor is engaged in an
ongoing ERISA enforcement program which may result in additional constraints on
how ERISA-governed benefit plans conduct their activities. There recently have
been legislative attempts to limit ERISA's preemptive effect on state laws. If
such limitations were to be enacted, they might increase United's liability
exposure under state law-based suits relating to employee health benefits
offered by United's health plans and specialty businesses and permit greater
state regulation of other aspects of those businesses' operations.
Management Information Systems
United's health plans, insurance, self-funded and specialty managed care
products use computer-based management information systems for various purposes,
including claims processing, billing, utilization management, underwriting,
marketing and sales tracking, general accounting, medical cost trending, managed
care reporting and financial planning. These systems also support member, group
and provider service functions, including on-line access to membership
verification, claims and referral status and information regarding hospital
admissions and lengths of stay. In addition, these systems support extensive
analysis of cost and outcome data.
United continually evaluates, upgrades and enhances the computer
information systems which support its operations. System development efforts
relating to increased efficiency, capacity and flexibility are ongoing.
United's computer processing capabilities support multiple product delivery
systems with attendant tracking and processing for such systems, an integrated
database of information for increased reporting and research capabilities, and
use automated entry and edit capabilities to speed the capture and processing of
information. Over the past several years, United has upgraded its mainframe
computers, enhanced its existing software functionality and migrated to various
software database environments. This approach allows United to preserve its
investment in existing systems while, at the same time, enabling it to exploit
new technologies that help improve either the cost effectiveness of the services
provided, or allow for the introduction of new product capabilities. Following
the MetraHealth acquisition United has begun an extensive review of its
information systems, including integration of multiple systems. United has also
agreed to outsource operation of a substantial portion of its computer
operations centers to a subsidiary of IBM. Simplification and integration of
the many different systems now servicing United's business is an important
component of controlling administrative expenses and effectively managing
United's operations. To the extent that these integration efforts are not
successful, United's financial results may be adversely affected.
Marketing
United's marketing strategy and implementation for its health plan,
insurance, self-funded and specialty and managed care products are defined and
coordinated by United's corporate marketing staff. Primary marketing
responsibility for each of United's health plans and specialty managed care
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products resides with a marketing director and a direct sales force. In
addition, United's health plan, insurance, self-funded and specialty managed
care products are sold through independent insurance agents and brokers.
Marketing efforts are supported by ongoing market research that identifies and
grades prospective customers and establishes specific enrollment goals by
territory and employer. Marketing efforts are also supported by public
relations efforts and advertising programs that may employ television, radio,
newspapers, billboards, direct mail and telemarketing.
Competition
The managed health care industry evolved primarily as a result of health
care buyers' concerns regarding rising health care costs. The industry's goal
is to infuse greater cost effectiveness and accountability into the health care
system through the development of managed care products, including health plans,
PPOs, and specialized services such as mental health or pharmacy benefit
programs, while increasing the accessibility and quality of health care
services. The industry in which United operates is highly competitive and
significant consolidation has occurred within the industry, creating stronger
competitors. At the same time, there are a number of new entrants to the
industry, which may also increase competitive pressures. The current
competitive markets in certain areas may limit United's ability to price its
products at levels United believes appropriate. These competitive factors could
adversely affect United's financial results.
As HMO and PPO penetration of the health care market and the effects of
health care reforms increase nationwide, United expects that obtaining new
contracts for its HMO and PPO products with large employer and government groups
may increasingly become more difficult and that competition for smaller employer
groups will intensify. In addition, employers may increasingly choose to self-
insure the health care risk while seeking benefit administration and utilization
review services from third parties to assist them in controlling and reporting
health care costs.
United's health plan, insurance, self-funded and specialty managed care
coverage products compete for group and individual membership with other health
insurance plans, Blue Cross/Blue Shield plans, other health plans, HMOs, PPOs,
third party administrators and health care management companies, and employers
or groups which elect to self-insure. United also faces competition from
hospitals, health care facilities and other health care providers who have
combined and formed their own networks to contract directly with employer groups
and other prospective customers for the delivery of health care services.
United's ability to increase the number of persons covered by its products or
services or to increase its premiums and fees can be affected by the number and
strength of United's competitors in any particular area. United believes that
the principal competitive factors affecting United and its products include
price, the level and quality of products and service, provider network
capabilities, market share, the offering of innovative products, product
distribution systems, financial strength, and marketplace reputation.
Further, United currently believes that factors that generally help it in
regard to competitors are the breadth of its product line, its geographic scope
and diversity, the strength of its underwriting and pricing practices and staff,
its significant market position in certain geographic areas, the strength of its
distribution network, its financial strength, its generally large provider
networks, which provide more member choice, its point-of-service products and
experience and its generally favorable marketplace reputation. In a number of
markets United may be at a disadvantage in regard to competitors with larger
market shares, broader networks, narrower networks, which may allow greater cost
control and lower prices or a more-established marketplace name and reputation.
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CERTAIN INFORMATION CONCERNING LIPA
The Business of LIPA
LIPA is a physician owned holding company, which was formed in October 1985
by approximately 400 medical physicians practicing in Baton Rouge, Louisiana and
the surrounding area. LIPA was formed to act as a holding company of an HMO
organized in 1986 as Southeast Health Plan of Louisiana ("Southeast").
Southeast was managed under a contract with a regional health care management
company.
During 1987, Southeast experienced rapid growth in membership but sustained
losses from operations. In 1987, the management contract was terminated due to
unprofitable operating results. Thereafter, the Board of Directors of LIPA
assumed management responsibility of Southeast, but changed the HMO's name from
Southeast to Community Health Network of Louisiana, Inc. ("CHN," as previously
defined).
Due to the losses sustained in 1987, CHN needed capital to continue its
operations and to attract experienced personnel. To meet this need, the Board
of Directors of LIPA entered into negotiations with investors who were also
investors in Complete (the "Complete Investors"). As a result of these
negotiations, LIPA and the Complete Investors formed LHMC. The Complete
Investors acquired 51% of LHMC and LIPA acquired 49%. The Complete Investors
also acquired 51% of LHP, the corporation that is the general partner and 1%
owner of LHMC. At the same time, the Complete Investors acquired 49% of CHN
from LIPA. LHMC then entered into a management contract to manage CHN.
CHN has approximately 107,000 members enrolled in its commercial HMO
products and also provided services to approximately 6,000 HMOs and PPOs. CHN
has a contracted network of health care providers that included approximately
2,465 physicians as of March 1, 1996. Pursuant to its commercial HMO plans, CHN
receives monthly premium payments based on rates fixed by contract with
employers and other groups and, in contrast to self-funded HMO and PPO products,
assumes the risk that the premiums will cover the costs of the health care
services provided by CHN's network of health care providers. CHN contracts with
physicians, hospitals and other health care providers to provide services to
members and to negotiate provider contracts that specify rates which are
discounted from billed charges and require utilization management and other cost
control measures. Under CHN's risk-sharing model, primary and specialty care
physicians also assume part of the utilization risk through a withholding
arrangement on their contractual payments. Certain of CHN's HMO plans also
include a "point of service" option that permits members to receive certain
health care services from providers that are not included in CHN's provider
network, or to see a specialist without the prior referral of a designated
primary care physician at an additional out-of-pocket cost to the member that
includes a deductible and higher co-payment percentage obligations.
Under CHN's self-funded HMO and PPO plans, the employer or group assumes
the risk of its employees' health care costs, and CHN receives an administrative
fee for designing benefit packages, claims processing and administration,
utilization management, generation of management reports and other related
matters. Like its commercial HMO products, CHN's self-funded products utilize
CHN's network of health care providers and thereby benefit from negotiated
rates, utilization management and other cost control measures negotiated by CHN
with its providers. CHN's PPO plans, all of which are self-funded plans, are
similar to its HMO plans in providing health care delivery at lower costs than
traditional health insurance through a provider network under contracts which
specify negotiated rates. Members of CHN's PPO, however, may choose physicians
from the PPO network to perform required services without the prior approval of
a designated primary care physician. PPO members typically are subject to
deductible requirements and higher premiums and co-payment
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obligations than HMO members. PPO members also have the option to receive health
care services from providers that are not a part of CHN's network, typically at
additional out-of-pocket costs to the member.
The following table sets forth, as of January 31, 1996, certain information
with respect to the beneficial ownership of LIPA Common Stock by (1) each person
who is the beneficial owner of more than 5% of the outstanding LIPA Common
Stock, (2) each director of LIPA who is a shareholder, (3) each of the executive
officers of LIPA, and (4) all directors and executive officers as a group.
Except as otherwise noted, the named beneficial owner has sole voting and
investment power of the shares of LIPA Common Stock indicated:
<TABLE>
<CAPTION>
Common Stock Beneficially Owned(1)
----------------------------------
Name Shares Percent
- ---- ------ -------
<S> <C> <C>
Dr. Harold D. Brandt 1 *
Dr. Edward Chiasson 1 *
Dr. Kenneth C. Cranor 1 *
Dr. William J. DiMattia 1 *
Dr. Henry Wade Giles 1 *
Dr. James J. Lanasa, Jr. 1 *
Dr. C. W. Lovell, III 1 *
Dr. V. Lynn McCord 6 1.4
Dr. Henry D. Olinde 1 *
Dr. Charles Raborn 3 *
Dr. Edwin Walker 1 *
Dr. Williams D. Wall, IV 1 *
All Directors and Executive
Officers as a Group 19 4.6
- ------------------------
</TABLE>
* Represents beneficial ownership of less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares as of January 31, 1996 that such person or
group has the right to acquire within 60 days after such date. For purposes of
computing the percentages of outstanding shares held by each person or group of
persons named above on a given date, shares which such person or group has the
right to acquire within 60 days after such date are deemed to be outstanding but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
LIPA's principal executive offices are located at 8550 United Plaza
Boulevard, Suite 600, Baton Rouge, Louisiana 70809. Its telephone number is
(504) 924-1772.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
The following table sets forth, for the fiscal periods indicated,
certain items from the consolidated statements of operations of LIPA
expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
--------------------- --------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums 99.7% 99.5% 99.5% 99.0% 99.2%
Investment & Other .3 .5 .5 1.0 .8
------ ------ ------ ------ ------
Total 100.0 100.0 100.0 100.0 100.0
Operating Expenses:
Medical Services 83.6 84.2 84.0 83.3 85.9
Management Fee 15.0 15.0 15.0 15.0 15.0
Selling, General & Administrative 1.6 .7 1.0 .7 1.0
Interest .1 .1 -- .2 .3
------ ------ ------ ------ ------
Operating Income (Loss) (.3) -- -- .8 (2.2)
Equity in Earnings of
Unconsolidated Affiliates 2.3 1.9 1.7 1.6 2.0
------ ------ ------ ------ ------
Income (Loss) Before Income Taxes 2.0 1.9 1.7 2.4 (.3)
====== ====== ====== ====== ======
</TABLE>
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Comparison of the Nine Month Periods Ended September 30, 1995 and
September 30, 1994
Premiums. LIPA's premiums increased by $32.3 million or 52.7% to
$93.4 million for the nine months ended September 30, 1995 from $61.2 million
for the nine months ended September 30, 1994. This increase resulted primarily
from an increase in membership of 35% and an increase in the average premium
yield of $17 per member per month ( PMPM"), or 13%, in average PMPM premiums.
This large increase in the PMPM yield is due primarily to the significant growth
in LIPA's higher-yield Medicare risk product.
Investment and Other Revenues. LIPA's investment and other revenues
increased 11.6% to $315,000 for the nine months ended September 30, 1995
compared to the corresponding period in 1994. LIPA's investment revenue
consists primarily of interest earned on overnight repurchase agreements. The
increase is a result of higher average daily investment balances in 1995
compared to 1994 and higher interest rates.
Medical Services Expenses. Medical services expenses increased $26.5
million or 51.3% to $78.3 million for the nine months ended September 30, 1995
from $51.7 million for the nine months ended September 30, 1994. This increase
resulted primarily from the 35% increase in membership and an increase of $14,
or 15%, in average PMPM medical services costs. This increase is due to the
significant growth in the more costly medicare risk product.
Medical Loss Ratio. LIPA's medical loss ratio, which is medical
services costs as a percent of premiums, decreased from 84.6% for the nine
months ended September 30, 1994 to 83.8% for the nine months ended September 30,
1995. This decrease occurred in large part because the significant growth in the
higher-yield Medicare risk product.
Management Fee Expenses. Pursuant to the terms of an administrative
management contract, CHN, one of LIPA's subsidiaries, pays LHMC 15% of CHN's
premium revenues for management services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.1 million, or 355%, to $1.5 million for the
nine months ended September 30, 1995 compared to the corresponding period in
1994. This increase is primarily the result of LIPA increasing the use of
outside brokers in 1995 to sell LIPA's products and increase membership. Broker
commissions increased 600% in the nine months ended September 30, 1995 compared
to the corresponding period in 1994.
Equity in Earnings of Unconsolidated Affiliates. Equity in earnings
of unconsolidated affiliates represents LIPA's equity interest in the earnings
of LHMC and LHP. LIPA accounts for these investments under the equity method of
accounting. LIPA's equity in earnings of unconsolidated affiliates increased
$926,000, or 78.5%, to $2.1 million for the nine months ended September 30, 1995
compared to the corresponding period in 1994. This increase is the result of
increased net income at LHMC and LHP, as LIPA's ownership percentages in LHMC
and LHP did not change in 1995 or 1994.
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Comparison of the Years Ended December 31, 1994 and December 31, 1993
Premiums. LIPA's premiums increased by $16.6 million, or
25.2%, to $82.2 million for the year ended December 31, 1994 from $65.6 million
for the year ended December 31, 1993. This increase resulted primarily from an
increase in membership of 17% and an increase in the average premium yield of
$12 PMPM, or 10%, for the year ended December 31, 1994 compared to the
corresponding period in 1993.
Investment and Other Revenue. LIPA's investment and other
revenues decreased 43.5% to $373,000 for the year ended December 31, 1994
compared to the corresponding period in 1993. LIPA's investment revenue
consists primarily of interest earned on overnight repurchase agreements for
LIPA's cash balances. Revenues on such agreements decreased because LIPA's
average daily cash balances were lower.
Medical Services Expenses. Medical services expenses increased 25.5%
for the year ended December 31, 1994 to $69.3 million from $55.2 million for the
year ended December 31, 1993. This increase resulted primarily from the 17%
increase in membership and an increase of $10 PMPM, or 10%, in average PMPM
medical services costs.
Medical Loss Ratio. LIPA's medical loss ratio, which is
medical services costs as a percent of premiums, remained relatively flat at
84.4% and 84.2% for the years ended December 31, 1994 and 1993, respectively.
Management Fee Expenses. Management fees remained the same at 15% of
CHN's premium revenues for the years ended December 31, 1994 and 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $234,000, or 49.0%, to $712,000 for the year
ended December 31, 1994 compared to the corresponding period in 1993. This
increase is primarily the result of LIPA using outside brokers in 1994 to
sell LIPA's products and increase enrollment. Prior to 1994, internal
marketing personnel performed these functions for LIPA.
Equity in Earnings of Unconsolidated Affiliates. LIPA's equity
in earnings of unconsolidated affiliates increased $282,000, or 26.1%, to $1.4
million for the year ended December 31, 1994 from $1.1 million for the year
ended December 31, 1993. This increase is the result of increased net income at
LHMC of $645,000 primarily attributable to higher management contract fee
revenue. LIPA's ownership percentages in LHMC did not change in 1994 or
1993.
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Comparison of the Years Ended December 31, 1993 and December 31, 1992
Premiums. LIPA's premiums increased by $4.9 million, or 8.1%,
to $65.6 million for the year ended December 31, 1993 from $60.7 million for the
year ended December 31, 1992. This increase resulted primarily from an increase
in membership of 6% and an increase in the average premium yield of $2 PMPM, or
2%, for the year ended December 31, 1993 compared to the corresponding period in
1992.
Investment and Other Revenue. LIPA's investment and other
revenues increased 33.1% to $661,000 for the year ended December 31, 1993
compared to the corresponding period in 1992. LIPA's investment revenue
consists primarily of interest earned on overnight repurchase agreements for
LIPA's cash balances. Revenues on such agreements increased because LIPA's
average daily cash balances were higher.
Medical Services Expenses. Medical services expenses increased $2.6
million, or 5.0%, for the year ended December 31, 1993 from $52.6 million for
the year ended December 31, 1992. This increase resulted primarily from the 6%
increase in membership. Medical costs on a PMPM basis stayed approximately the
same.
Medical Loss Ratio. LIPA's medical loss ratio, which is
medical services costs divided by premiums, decreased to 84.1% for the year
ended December 31, 1993 from 86.7% for the corresponding period in 1993. This
occurred in large part because the average premium increased by 2% while medical
costs PMPM remained the same.
Management Fee Expenses. Management fees remained the same at 15% of
CHN's premium revenues for the years ended December 31, 1993 and 1992.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased slightly for the year ended December 31, 1993
compared to the corresponding period in 1992.
Equity in Earnings of Unconsolidated Affiliates. LIPA's equity
in earnings of unconsolidated affiliates decreased $136,000, or 8%, to $1.1
million for the year ended December 31, 1993 from $1.2 million for the year
ended December 31, 1992. This decrease is the result of decreased income at
LHMC due to higher advertising, marketing and selling, general and
administrative expenses as a percentage of revenues. LIPA's ownership
percentages in LHMC and LHP did not change in 1993 or 1992.
Provision for (Benefit from) Income Taxes. The provision for income
taxes increased from a benefit of $61,000 for the year ended December 31, 1992
to a provision of approximately $491,000 for the year ended December 31, 1993.
This increase was due primarily to increased earnings in 1993.
Liquidity and Capital Resources
LIPA's principal source of liquidity and working capital has
historically been cash flows from operations. At September 30, 1995, cash and
cash equivalents totaled approximately $3.2 million and working capital totaled
approximately $1.1 million. Net cash used in operating activities for the nine
months ended September 30, 1995 was $4.0 million compared to cash provided by
operations of $1.3 million in the corresponding period in 1994.
Cash used in operating activities for the first nine months of 1995
resulted primarily from (1) an excess of $294,000 in earnings of unconsolidated
affiliates over net income, and (2) an increase in receivables of $7.3 million
resulting from a significant increase in membership in 1995, offset by (3) an
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increase in unearned premiums of $3.8 million due to timing differences in the
receipt of premium remittances.
No material investing or financing activities occurred during the
nine months ended September 30, 1995 or 1994.
LIPA believes that its existing cash and cash equivalents and
its cash flows from operations will be adequate to fund its existing operations.
There are currently no other material definitive commitments for future use of
LIPA's available resources.
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COMPARISON OF SHAREHOLDER RIGHTS
The rights of the shareholders of LIPA are governed by the LBCL, the
Articles of Incorporation, as amended, of LIPA (the "LIPA Articles"), and the
Bylaws of LIPA (the "LIPA Bylaws"). The rights of the shareholders of United
are governed by the Minnesota Business Corporation Act (the "MBCA"), the
Restated Articles of Incorporation of United, as amended (the "United
Articles"), and the Amended and Restated Bylaws of United (the "United Bylaws").
The following is a summary of certain material differences between the rights of
shareholders of LIPA and the rights of shareholders of United, as contained in
provisions of the LBCL and the MBCA, the LIPA Articles and the LIPA Bylaws, and
the United Articles and the United Bylaws.
The following does not purport to be a complete statement of the
rights of LIPA's shareholders under applicable Louisiana law, and the LIPA
Articles and the LIPA Bylaws as compared with the rights of United shareholders
under applicable Minnesota law, and the United Articles and the United Bylaws.
The identification of certain specific differences is not meant to indicate that
other equally or more significant differences do not exist.
Number of Directors
The LBCL provides that the board of directors of a Louisiana
corporation having more than two shareholders shall consist of three or more
directors. The LIPA Articles and the LIPA Bylaws provide that the board shall
consist of seven to twenty-seven directors, all of whom must be LIPA
shareholders. The terms of directors are staggered, with approximately one-
half of the directors elected each year for 2-year terms. Directors may be
removed at any time, with or without cause, by a majority vote of the
shareholders at a special meeting called for that purpose.
The MBCA provides that the board of directors of a Minnesota
corporation shall consist of one or more directors as fixed by the articles of
incorporation or bylaws. The United Bylaws provide that the board shall consist
of one or more directors, which number may be increased or decreased from time
to time by resolution of a majority of the board (determined as if all vacancies
are filled) or at least two-thirds of the capital stock entitled to vote (voting
as one class). Under the United Articles and United Bylaws, the directors are
divided into three classes which are to be as nearly equal as possible.
Directors in each class serve for three years, and elections are staggered such
that one class is elected each year.
The United Bylaws further provide that a candidate for director must
be nominated by or at the direction of the board or by a shareholder. If
nominated by a shareholder, a notice containing information about the candidate,
the shareholder nominating such candidate, and such other information as would
be required by federal securities regulations if proxies were to be solicited
with respect to such nomination, must be submitted to United not less than 60
days prior to the date of the annual meeting.
Action of Directors
The LBCL provides that the act of a majority of directors present at a
meeting at which a quorum is present shall be the act of the board of directors.
The LIPA Bylaws require that a vote of two-thirds of the directors is required
to authorize, under certain circumstances, the appointment of non-shareholders
to the board of directors of subsidiaries of LIPA.
Under the United Bylaws, the act of a majority of directors present at
a meeting at which a quorum is present is generally required to approve
corporate actions. A vote of more than two-thirds of
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the directors in office is required, however, to approve, with or without cause,
the removal of any or all of the directors.
Vote on Merger, Consolidation or Sale of Substantially All Assets
The LBCL requires the affirmative vote of at least two-thirds of the
voting power present, or by such larger or smaller vote, but not less than a
majority, of the voting power present or of the total voting power as the
articles of incorporation may prescribe to effect (1) any merger or
consolidation with or into any other corporation, or (2) any sale or lease of
any substantial part of the assets of the corporation if the corporation is not
insolvent.
Section 133 of the LBCL places restrictions on "business combinations"
(as defined in Section 132(4) of the LBCL, generally including mergers,
consolidations, share exchanges, sales and leases of assets, issuances of
securities, and similar transactions) by Louisiana corporations with an
"interested stockholder" (as defined in Section 132(9) of the LBCL, generally as
the beneficial owner of 10% or more of the voting power of the then outstanding
voting stock). Section 133 of the LBCL generally applies to business
combinations of Louisiana corporations having greater than 100 beneficial owners
of its stock or which did not have an interested stockholder on January 1, 1985,
unless the articles of incorporation expressly provide otherwise. Section 133
of the LBCL generally does not apply, provided the stockholders receive in the
business combination substantially similar consideration for their shares of
stock in the corporation in terms of price and method of payment, as determined
in accordance with Section 134B of the LBCL, as the interested stockholder
received for its shares of stock in the corporation acquired by such interested
stockholder within two years of such business combination.
Since LIPA has not specifically elected to avoid the application of
Section 133 of the LBCL, Section 133 of the LBCL generally would prohibit a
business combination by LIPA with an interested stockholder, unless the business
combination is recommended by LIPA's board of directors and approved by the
affirmative vote of at least each of the following: (1) 80% of the votes
entitled to be cast by outstanding shares of LIPA voting stock voting together
as a single voting group and (2) two-thirds of the votes entitled to be cast by
holders of voting stock, other than voting stock held by the interested
stockholder who is a party to the business combination with LIPA, voting
together as a single voting group. Since United is not an "interested
stockholder" with respect to LIPA, Section 133 of the LBCL does not apply to the
Merger.
Under Section 135 of the LBCL and the sections that follow it, any
person who acquires more than 20% of the voting power of a corporation such as
LIPA may not vote all or a portion of such shares unless the stockholders other
than the acquiring person have, at a duly called stockholders meeting, voted to
permit the acquiring person to exercise voting rights.
The MBCA provides that a resolution containing a plan of merger or
exchange must be approved by the affirmative vote of a majority of the directors
present at a meeting, and submitted to the shareholders and approved by the
affirmative vote of the holders of a majority of the voting power of all shares
entitled to vote. The MBCA requires that any class of shares of a Minnesota
corporation must approve the plan if it contains a provision which, if contained
in a proposed amendment to the corporation's articles of incorporation, would
entitle such class to vote as a class. The United Articles require the
affirmative vote of not less than two-thirds of the outstanding shares entitled
to vote generally in the election of directors for approval of certain mergers,
consolidations or other combinations with affiliated entities.
Although the MBCA contains a provision which restricts certain
business combination transactions with an interested shareholder for four years
after such shareholder has acquired 10% of
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the voting power of a publicly traded corporation having 50 or more
shareholders, United has elected, pursuant to its Bylaws, not to be subject to
the business combination rules of the MBCA. Instead, the United Articles set
forth certain other business combination requirements. Under the United
Articles, if a business combination (including a merger, disposition of
substantial assets, issuance of securities and other similar transactions)
occurs with a person who, together with its affiliates, owns 20% or more of the
outstanding capital stock of United (a "Related Person"), then the combination
must be approved by two-thirds of the outstanding capital stock entitled to vote
for directors. However, the combination may occur without such a vote if, among
other exceptions, (1) those directors who were directors of United before the
acquiring party became a Related Person approve the combination by a two-thirds
vote, or those directors approved the combination before the party became a
Related Person or (2) if the business combination is a merger or consolidation,
the board of directors determines that the cash or fair market value of all
consideration to be received by shareholders is at least equal to the highest
per share price paid by the Related Person in acquiring any of United's stock.
Shareholder Proposals
Neither the LIPA Articles nor the LIPA Bylaws contain a provision
requiring that a shareholder provide advance notice of any proposal to be
submitted by such shareholder at any meeting of LIPA shareholders.
The United Bylaws require that a shareholder provide notice of any
proposal to be submitted at any annual meeting of shareholders to the Secretary
of United not less than 60 nor more than 90 days prior to the date of the
meeting (subject to a shorter time period if notice or public disclosure of the
meeting occurs less than 70 days prior to the meeting).
Special Meetings of Shareholders
The LIPA Bylaws provide that special meetings of shareholders may be
called at any time by the President or by a majority of the directors. The
President is required to call a special meeting of shareholders upon written
request by the holders of not less than one-tenth of all of the shares entitled
to vote at the meeting. The LCBL provides that the date of a special meeting
called at the request of shareholders shall be fixed not less than 15 nor more
than 60 days after receipt of the request. If the date of the meeting is not so
fixed, or if notice of the meeting is not given, then the shareholders making
the request may do so.
The MBCA and the United Bylaws provide that the Chief Executive
Officer, the Chairman of the Board, the Chief Financial Officer, any two
directors, or a shareholder or shareholders holding 10% or more of shares
entitled to vote at such meeting may call a special meeting. However, if the
meeting involves a business combination, including an action to affect the
composition of the Board of Directors, then at least 25% of the shares entitled
to vote at such meeting are required to call the meeting. If the meeting is
demanded by shareholders, the meeting, on notice, must occur between 30 and 90
days after receipt of the demand.
Shareholder Action by Written Consent
The LBCL provides that action required or permitted to be taken at a
meeting of shareholders may be taken without a meeting by unanimous consent of
all shareholders entitled to vote thereon.
The MBCA provides that an action required or permitted to be taken at
a meeting of the shareholders may be taken without a meeting by written action
signed by all of the shareholders entitled to vote on that action.
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Amendment of Articles of Incorporation
The LIPA Articles provide that they may be amended by an affirmative
vote of at least a majority of the shareholders at any regular or special
meeting of shareholders, provided that the notice of such meeting includes the
text of the proposed amendments.
The MBCA provides that an amendment to a corporation's articles must
be by resolution approved by the affirmative vote of a majority of the directors
present, or proposed by a shareholder or shareholders holding 3% or more of the
voting shares entitled to vote thereon. Under the MBCA, such an amendment must
be approved by the affirmative vote of a majority of the shareholders entitled
to vote thereon, except that the articles may provide for a specified proportion
or number larger than a majority. The United Articles provide that the
affirmative vote of the holders of two-thirds of the outstanding United Common
Stock is required in order to amend provisions of the United Articles concerning
the election and removal of directors, and that the affirmative vote of the
holders of two-thirds of the outstanding shares of capital stock entitled to
vote generally in the election of directors is required in order to amend
provisions concerning certain mergers, consolidations and other business
combinations and reorganizations.
Amendment of Bylaws
The LIPA Bylaws provide that they may be amended by affirmative vote
of at least a majority of the shareholders, at a regular or special meeting
called for the purpose, by written consent of a majority of the shareholders, or
by affirmative vote of at least a majority of the board of directors at a
regular or special meeting of the board called for that purpose. However, no
change of the LIPA Bylaws governing the time or place for the election of
directors shall be made within 60 days preceding the date on which such election
is to be held, and notice of any change in such LIPA Bylaws shall be delivered
to each shareholder at least 20 days before such election is held.
The MBCA and the United Bylaws provide that the power to adopt, amend
or repeal the bylaws shall be vested in the board (subject to certain notice
requirements set forth in the United Bylaws), except that the board shall not
adopt, amend, or repeal a bylaw fixing a quorum for a meeting of shareholders,
prescribing procedures for removing directors or filling vacancies in the board,
or fixing the number of directors or their classifications, qualifications, or
terms of office, but may adopt or amend a bylaw to increase the number of
directors. Notwithstanding the above, under the MBCA a shareholder or
shareholders holding 3% or more of the voting shares entitled to vote may
propose a resolution to amend or repeal bylaws adopted, amended or repealed by
the board, in which event such resolution must be approved pursuant to the
procedures for amending the articles of incorporation.
Liability of Officers and Directors
Neither the LIPA Articles nor the LIPA Bylaws contains a provision
exculpating officers and directors from liability to LIPA.
The United Articles provides that a director shall not be personally
liable to United or its shareholders for monetary liability relating to breach
of fiduciary duty, unless the liability relates to a breach of the duty of
loyalty, acts or omissions involving a lack of good faith or an intentional or
knowing violation of law, liability for illegal distributions and unlawful sales
of United securities, transactions where the director gained an improper
personal benefit, or acts or omissions occurring prior to the date on which the
liability limitation provision was added to the United Articles. The United
Articles provide that any amendment to the MBCA that authorizes further
elimination or limitation
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of director liability shall result in the further elimination or limitation of
liability of directors of United to the fullest extent permitted by the MBCA, as
so amended.
Indemnification of Officers and Directors
The LIPA Articles provide that LIPA is permitted to indemnify its
officers and directors for their expenses and liabilities in actions, other than
actions brought by or on behalf of LIPA, brought against them by reason of the
fact that they are or were officers or directors of LIPA. Such indemnification
could be made only if the indemnitee used the prevailing party or if it were
determined in the specific case that the proposed indemnitee acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of LIPA and, with respect to any criminal proceedings, if such
person had no reasonable cause to believe that the conduct was unlawful. In
actions brought by or on behalf of LIPA, such indemnification probably would be
limited to reasonable expenses (including attorneys' fees) and would apply if it
were determined in the specific case that the proposed indemnitee acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of LIPA, except that no indemnification may be made with
respect to any matter as to which such person is adjudged liable to LIPA,
unless, and only to the extent that, the court determines upon application that,
in view of all the circumstances of the case, the proposed indemnitee is fairly
and reasonably entitled to indemnity for such expenses as the court deems
proper.
The LIPA Articles provide further that (1) the determination to
indemnify, unless that determination is made by a court in the case of an action
brought by or on behalf of LIPA, shall be made by the board of directors, or a
committee thereof, acting by a majority vote of a quorum consisting of directors
who were not parties or otherwise involved in the action giving rise to the
proposed indemnification, or, if a quorum is not obtainable and the board of
directors so directs, by independent legal counsel, or by the shareholders; (2)
expenses incurred in defense of an action may be paid in advance by LIPA,
subject to an agreement by the officer or director to reimburse LIPA if he or
she is ultimately determined not to be entitled to indemnification; and (3) to
the extent that any director, officer, employee or agent of LIPA has been
successful on the merits or otherwise in defense of any action, suit or
proceeding, whether civil, criminal, administrative or investigative, such
person must be indemnified against reasonable expenses incurred by him in
connection therewith.
The MBCA contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers, and employees. Although
indemnification is permitted only if certain statutory standards of conduct are
met, the MBCA provides for indemnification if the person acted in good faith and
in a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful.
Indemnification of officers, directors and employees is mandatory under the
MBCA. The advancement of expenses is mandatory under the MBCA. The MBCA
requires that a corporation report any indemnification payments to its
shareholders no later than the next meeting of shareholders.
Payment of Dividends
Pursuant to the LBCL, the board of directors may from time to time
declare dividends in cash, property or its own shares out of surplus, except
earned surplus reserved by the board of directors, unless the corporation is
insolvent or would thereby be made insolvent or the declaration or payment of
the dividend would be contrary to any restrictions contained in the articles of
incorporation or by-laws. If the corporation does not have surplus available
for dividends, it may pay dividends out of its net profits for the then current
or the preceding fiscal year or both. However, no dividend may be paid at a
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time when, either before or after the payment of the dividend, the corporation's
liabilities exceed its assets or the net assets are less than the aggregate
amount payable on liquidation upon the issued shares, if any, which have a
preferential right to participate in the corporation's assets in the event of
liquidation. No dividends may be paid in shares, other than treasury shares,
except upon transfer to stated capital from capital surplus of (1) an amount not
less than the aggregate par value of the issued par value shares and (2) such
amount as the board of directors of the corporation may determine in respect of
issued shares without par value. No dividend payable in shares of any class
shall be paid to stockholders of any other class, unless the articles of
incorporation so permit or such payment is authorized by the holders of a
majority of the shares of the class in which the payment is to be made.
The MBCA provides that a corporation may make a distribution only if
it is able to pay its debts in the ordinary course of business after making the
distribution.
Anti-Takeover Protection
Although the LIPA Articles and the LIPA Bylaws contain no specific
anti-takeover provisions, the LCBL provides certain anti-takeover protections
(See "-Vote on Merger, Consolidation or Sale of Substantially All Assets"). In
addition it should be noted that the LIPA Articles provide for a staggered board
of directors, and the LIPA Bylaws provide for certain restrictions on the voting
rights of holders of common stock. (See "-Number of Directors" and "DESCRIPTION
OF LIPA COMMON STOCK").
Although the MBCA contains a control share acquisition statute, the
United Articles make this statute inapplicable to United.
The MBCA also provides that during any tender offer, a publicly held
corporation may not enter into or amend an agreement (whether or not subject to
contingencies) that increases the current or future compensation of any officer
or director. In addition, under the MBCA, a publicly held corporation is
prohibited from purchasing any voting shares owned for less than two years from
a 5% shareholder for more than the market value unless the transaction has been
approved by the affirmative vote of the holders of a majority of the voting
power of all shares entitled to vote, or unless the corporation makes a
comparable offer to all holders of shares of the class or series of stock held
by the 5% shareholder and to all holders of any class or series into which such
securities may be converted.
It should be noted that in addition to the anti-takeover measure
discussed above, the provisions in (1) the United Bylaws providing for a
staggered board of directors and requiring advance notice of director
nominations (discussed above under " Number of Directors"), (2) the United
Articles providing that the affirmative vote of the holders of two-thirds of the
outstanding United Common Stock is required in order to amend provisions of the
United Articles concerning the election and removal of directors, and that the
affirmative vote of the holders of two-thirds of the outstanding shares of
capital stock entitled to vote generally in the election of directors is
required in order to amend provisions concerning certain mergers, consolidations
and other business combinations and reorganizations (See "-Amendment of Articles
of Incorporation"), (3) the United Bylaws limiting the right of shareholders to
call a special meeting of shareholders to consider a business combination or any
action to change or otherwise affect the composition of the Board of Directors
by requiring the request of holders of at least 25% of the outstanding shares
(see "--Special Meetings of Shareholders"), (4) the United Articles providing
that shareholders may not cumulate their votes in the election of directors, and
(5) the United Articles providing that the Board of Directors can, without
shareholder approval, issue preferred shares with voting, conversion and other
rights which could adversely affect the voting power of the holders of United
Common Stock (see "DESCRIPTION OF UNITED CAPITAL
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STOCK-United Preferred Stock"), may make it more difficult to effect a change in
control of United and may discourage or deter a third party from attempting a
takeover.
Dissenters' Rights
Under the MBCA, a shareholder is entitled to dissent from many
corporate actions, including an amendment to the articles of incorporation which
materially and adversely affects the rights or preferences of shares held by the
dissenting shareholder, a disposition of all or substantially all of the
corporation's property and assets, a plan of merger with respect to which the
shareholder may vote, and a plan of exchange involving the acquisition of the
corporation's shares. This remedy is an exclusive remedy, except where the
corporate action involves fraud.
Under the LBCL, a shareholder is entitled to dissent from certain
corporate actions, including the sale, lease or exchange of substantially all of
the corporation's assets, or a merger or consolidation involving the
corporation, if the action taken is not approved by the holders of at least 80%
of LIPA Common Stock entitled to vote thereon.
DESCRIPTION OF UNITED CAPITAL STOCK
United Common Stock
United is authorized by the United Articles to issue 500,000,000
shares of Common Stock, par value $.01 per share, of which 175,434,343 shares
were issued and outstanding as of February 1, 1996 and which were held of record
by 2,557 shareholders. Holders of shares of United Common Stock are entitled to
one vote per share on all matters to be voted on by shareholders. United
shareholders are not entitled to cumulate their votes in the election of
directors. The holders of United Common Stock are entitled to receive such
dividends, if any, as may be declared by the Board of Directors in its
discretion out of funds legally available therefor. Subject to the rights of
any preferred stock outstanding, upon liquidation or dissolution of United, the
holders of United Common Stock are entitled to receive on a pro-rata basis all
assets remaining for distribution to shareholders. Shares of United Common
Stock do not have preemptive or other subscription or conversion rights (or
redemption or sinking fund provisions). All of the outstanding shares of United
Common Stock are, and shares of United Common Stock to be issued as described in
this Proxy Statement-Offering Circular will be, fully paid and nonassessable.
United Preferred Stock
United's Board of Directors is authorized to issue preferred stock in
one or more series and to fix the voting rights, liquidation preferences,
dividend rights, conversion rights, redemption rights and terms, including
sinking fund provisions and certain other rights and preferences, of the
preferred stock. The Board of Directors of United can, without shareholder
approval, issue shares of such preferred stock with voting and conversion rights
which could adversely affect the voting power of the holders of United Common
Stock and may have the effect of delaying, deferring or preventing a change in
control of United.
United is authorized by the United Articles to issue 10,000,000 shares
of Preferred Stock, par value $.001 per share, 500,000 of which were issued and
outstanding as of February 1, 1996. The 500,000 shares of United preferred
stock outstanding, as set forth in a certificate of designations, are 5.75%
Series A Convertible Preferred Stock, par value $.001 (the "Convertible
Preferred Stock"). Holders of Convertible Preferred Stock are entitled to a
liquidating distribution of $1,000 per share (the
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"Liquidation Preference"), plus any accrued dividends, and rank senior to United
Common Stock with respect to rights to receive dividends and rights to receive
distributions upon the liquidation or dissolution of United. Dividends are
cumulative and payable quarterly at an annual rate of 5.75% of the Liquidation
Preference. Holders of Convertible Preferred Stock are not entitled to any other
dividends. The holders of Convertible Preferred Stock have the right to convert
each of their shares into a number of shares of United Common Stock equal to the
Liquidation Preference divided by a conversion price. The conversion price is
$49.48, but is subject to adjustment as set forth in the certificate of
designations. On or after October 1, 1998, United may redeem the Convertible
Preferred Stock in whole or in part at a redemption price per share between
100.575% and 104.025% of the Liquidation Preference, depending on the date of
redemption. On October 1, 2005, United must redeem the Convertible Preferred
Stock then outstanding at a price per share equal to the Liquidation Preference.
For as long as United is in arrears on six quarterly dividends or has failed to
pay any optional or mandatory redemption amount, the number of Directors of
United will be increased by two, and the holders of the Convertible Preferred
Stock will be entitled to elect the additional directors. The approval of
66-2/3% of the holders of the outstanding shares of Convertible Preferred Stock
is required before United may (1) create capital stock with rights to receive
dividends or a liquidation preference senior to the Convertible Preferred Stock;
(2) change any provision of the United Articles of Incorporation or any
certificate of designations with the effect of changing the number of authorized
shares of Convertible Preferred Stock, changing the par value thereof or
adversely affecting the rights and privileges of the holders of Convertible
Preferred Stock. The holders of Convertible Preferred Stock otherwise have no
voting rights. Holders of the Convertible Preferred Stock are not entitled to
any preemptive rights to acquire shares of United capital stock. United may only
repurchase, redeem or retire United Common Stock if full cumulative dividends on
the Convertible Preferred Stock have been paid, or declared and set apart for
payment. All of the outstanding shares of Convertible Preferred Stock are fully
paid and nonassessable.
Special Voting Rights
The Board of Directors of United is divided into three classes as
nearly equal in number as possible, with each class serving for a three-year
term. One of the three classes of the Board of Directors is elected each year.
The United Articles and United Bylaws require the affirmative vote of not less
than two-thirds of the outstanding shares of United Common Stock or the
affirmative vote of two-thirds of the directors in office at the time such vote
is taken in order to remove a director from office.
The United Articles require the affirmative vote of two-thirds of the
outstanding shares of voting capital stock to approve certain transactions with
a person holding 20% or more of the United Common Stock, including any merger,
consolidation, sale, transfer or other disposition of a substantial portion of
United's assets, issuances of securities or certain reclassifications of
securities or recapitalizations, unless such transaction or such person's
acquisition of 20% or more of the United Common Stock is approved in advance by
two-thirds of the members of the Board of Directors who were directors prior to
the potential acquirer's obtaining 20% or more of the shares of United Common
Stock, or unless certain fair price considerations are met.
United's authorized but unissued United Common Stock and preferred
stock might also be issued in such a fashion as would prevent or deter a change
in control. The effect of these provisions could be to delay or prevent
attempts by other corporations or groups to acquire control of United without
negotiation with management.
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Transfer Agent and Registrar
United's transfer agent and registrar is Norwest Bank Minnesota,
N.A., Minneapolis, Minnesota.
DESCRIPTION OF LIPA CAPITAL STOCK
LIPA is authorized by the LIPA Articles to issue 5,000 shares of
Common Stock, no par value, of which 418 shares were issued and outstanding as
of January 31, 1996, and which were held of record by 411 shareholders. The
LIPA Common Stock is not traded on any public trading market. Holders of LIPA
Common Stock are entitled to one vote per share on all matters to be voted on by
shareholders. The holders of LIPA Common Stock do not have preemptive rights
and are not entitled to cumulate their votes in the election of directors. Only
physicians active in the practice of medicine and licensed by the State of
Louisiana, or dentists who specialize in oral surgery and who are members in
good standing of the American Society of Oral and Maxillofacial Surgeons may
qualify initially as shareholders.
The LIPA Articles set forth certain restrictions on the
transferability of LIPA Common Stock that apply in the event a shareholder dies,
divorces, wishes to sell his or her LIPA Common Stock, or ceases to be a
participating physician in one of LIPA's HMO subsidiaries. Transfers arising in
these situations are subject to approval by the Board of Directors and
qualification of the transferee as a shareholder under the LIPA Bylaws. If the
transfer is not, or cannot be, consummated in accordance with the procedures set
forth in the LIPA Articles, then LIPA has the option to redeem the share or
shares at current book value to be paid out with interest over a two-year
period.
LEGAL MATTERS
The validity of the United Common Stock to be issued in connection
with the Merger will be passed upon by Kevin H. Roche, General Counsel of
United. The opinion of counsel described under "THE MERGER--Certain Federal
Income Tax Consequences," will be rendered by Dorsey & Whitney LLP, Pillsbury
Center South, 220 South Sixth Street, Minneapolis, MN 55402-1498. The opinion
of LIPA's counsel to be delivered in connection with the Merger Agreement will
be rendered by Thomas H. Benton & Associates, 601 St. Ferdinand Street, Baton
Rouge, LA 70802.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1993, and
the consolidated statements of operations, shareholders' equity and cash flows
for the each of the three years in the period ended December 31, 1994, of United
and of LIPA, as well as the combined statement of net assets as of September 30,
1995 and the related combined statements of operations, changes in net assets
and cash flows for the nine months then ended of the MetraHealth Business (as
defined in United's Current Report on Form 8-K/A dated October 2, 1995
incorporated by reference herein), have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, which are incorporated herein by reference for United and the
MetraHealth Business, and are included herein for LIPA in reliance upon the
authority of said firm as experts in giving said reports.
With respect to the unaudited interim financial information of United
for the quarters ended March 31, June 30 and September 30, 1995 and 1994
incorporated by reference in this Proxy Statement/Prospectus, Arthur Andersen
LLP has applied limited procedures in accordance with
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professional standards for a review of that information. However, their separate
reports thereon state that they did not audit and they do not express an opinion
on that interim financial information. Accordingly, the degree of reliance on
their reports on that information should be restricted in light of the limited
nature of the review procedures applied. In addition, the accountants are not
subject to the liability provisions of Section 11 of the Securities Act for
their reports on the unaudited interim financial information because these
reports are not "reports" or "parts" of the Proxy Statement/Prospectus prepared
or certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
The consolidated financial statements and the related financial
statement schedule incorporated in this Proxy Statement/Prospectus by reference
from HealthWise's Annual Report on Form 10-K for the year ended December 31,
1994 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The combined financial statements incorporated in this Proxy
Statement/Prospectus by reference from the financial statements of Metropolitan
Life Insurance Company Health Care Benefits Business as of December 31, 1994 and
for the years ended December 31, 1994 and 1993 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The combined financial statements incorporated in this Proxy
Statement/Prospectus by reference from The Managed Care and Employee Benefits
Operations Medical Division of The Travelers Insurance Group Inc. and
Subsidiaries for the year ended December 31, 1994 have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1994
combined financial statements refers to the adoption of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," in 1994.
The consolidated financial statements and the related financial
statement schedule incorporated in this Proxy Statement/Prospectus by reference
from GenCare Health Systems, Inc. for the year ended December 31, 1994 have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
OTHER MATTERS
The management of LIPA is not aware of any other business that may
come before the Special Meeting. However, if additional matters properly come
before the Special Meeting, proxies will be voted at the discretion of the proxy
holders.
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INDEX TO FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS OF LOUISIANA INDEPENDENT
PHYSICIANS ASSOCIATION, INC.
<TABLE>
AUDITED FINANCIAL STATEMENTS
<S> <C>
Report of Independent Public Accountants............................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993......... F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992.................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1994, 1993 and 1992........................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.................................... F-6
Notes to Consolidated Financial Statements--December 31, 1994........ F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1995 (unaudited) and
December 31, 1994................................................... F-12
Consolidated Statements of Operations for the nine months
ended September 30, 1994 and 1995 (unaudited)....................... F-13
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1994 and 1995 (unaudited)............................. F-14
Notes to Consolidated Financial Statements--September 30, 1995
(unaudited)......................................................... F-15
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Introduction............................................................ F-16
Unaudited Pro Forma Condensed Combining Balance Sheet as of
September 30, 1995..................................................... F-17
Unaudited Pro Forma Condensed Combining Statements of Operations:
Nine Month Period Ended September 30, 1995........................... F-18
Year Ended December 31, 1994......................................... F-19
Notes to Unaudited Pro Forma Condensed Combining Financial Information.. F-20
</TABLE>
F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Louisiana Independent Physicians Association, Inc.:
We have audited the accompanying consolidated balance sheets of Louisiana
Independent Physicians Association, Inc. (a Louisiana corporation) as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Louisiana Independent
Physicians Association, Inc. as of December 31, 1994 and 1993, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
February 14, 1995
F-2
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
ASSETS
------
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents, including
restricted cash of $476,369 and $434,646....... $ 7,205,571 $ 6,650,495
Receivables -
Premiums....................................... 5,236,698 3,604,424
Affiliate...................................... 681,424 807,997
Other.......................................... 542,908 268,701
Prepaid Expenses and Other...................... 9,155 148,786
Deferred Income Tax Benefit..................... 90,400 --
Current Portion of Note Receivable - Affiliate.. 39,156 34,688
----------- -----------
TOTAL CURRENT ASSETS.......................... 13,805,312 11,515,091
NOTE RECEIVABLE - AFFILIATE...................... 248,954 288,110
INVESTMENTS IN UNCONSOLIDATED
AFFILIATES...................................... 1,942,571 1,079,934
RESTRICTED CASH RESERVES......................... 1,000,000 1,000,000
----------- -----------
TOTAL ASSETS.................................. $16,996,837 $13,883,135
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Payables -
Medical services............................... $11,261,145 $ 9,624,169
Related party.................................. 102,300 --
Income taxes................................... 50,825 51,332
Other.......................................... 439,998 467,137
Unearned Premiums............................... 511,675 --
----------- -----------
TOTAL CURRENT LIABILITIES..................... 12,365,943 10,142,638
MINORITY INTEREST................................ 1,804,029 1,814,799
COMMITMENTS AND CONTINGENCIES (Notes 2 and 5)
SHAREHOLDERS' EQUITY:
Common Stock - No par value; 5,000 shares
authorized; 417 shares issued and outstanding.. 2,085,000 2,085,000
Retained Earnings (Deficit)..................... 746,865 (154,302)
Treasury stock, 1 share, at cost................ (5,000) (5,000)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY.................... 2,826,865 1,925,698
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY......................................... $16,996,837 $13,883,135
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
F-3
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Premiums............................ $82,156,356 $65,597,599 $60,667,090
Investment and Other................ 373,076 660,709 496,274
----------- ----------- -----------
TOTAL REVENUES 82,529,432 66,258,308 61,163,364
OPERATING EXPENSES:
Medical Services.................... 69,295,255 55,198,584 52,565,358
Management Fee...................... 12,432,474 9,925,090 9,195,640
Selling, General and Administrative. 712,316 478,001 575,964
Interest............................ 78,953 129,023 202,773
----------- ----------- -----------
TOTAL OPERATING EXPENSES 82,518,998 65,730,698 62,539,735
----------- ----------- -----------
OPERATING INCOME (LOSS) 10,434 527,610 (1,376,371)
Equity in earnings of
unconsolidated affiliates.......... 1,362,637 1,081,062 1,217,217
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,373,071 1,608,672 (159,154)
PROVISION FOR (BENEFIT FROM) INCOME
TAXES 463,474 490,678 (61,151)
MINORITY INTEREST.................... (8,430) (277,772) (8,503)
----------- ----------- -----------
NET INCOME (LOSS) $ 901,167 $ 840,222 $ (106,506)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ 2,161 $ 2,015 $ (255)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 417 417 417
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
Retained Total
Common Earnings Treasury Shareholders'
Stock (Deficit) Stock Equity
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1991 $2,085,000 $(480,417) $(5,000) $1,599,583
Net Loss -- (106,506) -- (106,506)
Dividends -- (397,601) -- (397,601)
---------- --------- ------- ----------
BALANCE, December 31, 1992 2,085,000 (984,524) (5,000) 1,095,476
Net Income -- 840,222 -- 840,222
Dividends -- (10,000) -- (10,000)
---------- --------- ------- ----------
BALANCE, December 31, 1993 2,085,000 (154,302) (5,000) 1,925,698
Net Income -- 901,167 -- 901,167
---------- --------- ------- ----------
BALANCE, December 31, 1994 $2,085,000 $ 746,865 $(5,000) $2,826,865
========== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss)...................... $ 901,167 $ 840,222 $ (106,506)
Non Cash Items:
Depreciation and amortization -- -- 84,120
Equity in earnings of unconsolidated
affiliates, net of distribution of
$500,000 in 1994; $3,469,292 in 1993;
and $850,000 in 1992................. (862,637) 267,970 (792,217)
Minority interest, net of dividend
distribution of $19,200 in 1994;
$17,421 in 1993; and $16,672 in 1992. (10,770) 260,351 (8,169)
Deferred income tax benefit........... (90,400) --
Net Change in Other Operating Elements:
Receivables........................... (1,779,908) 1,838,127 (1,268,740)
Prepaid expenses and others........... 139,631 (32,853) 34,540
Medical services payable.............. 1,636,976 1,475,138 1,636,132
Related party and other payables...... 74,654 483,864 181,573
Unearned premiums..................... 511,675 (284,462) 45,079
----------- ---------- -----------
NET CASH FLOW (USED FOR) FROM
OPERATING ACTIVITIES 520,388 4,848,357 (194,180)
----------- ---------- -----------
INVESTING ACTIVITIES:
Decrease in Investment in Preferred
Stock of Affiliate.................... -- 525,000 --
Decrease in Note Receivable - Affiliate 34,688 30,731 2,322
----------- ---------- -----------
NET CASH FLOW PROVIDED BY INVESTING
ACTIVITIES 34,688 555,731 2,322
----------- ---------- -----------
FINANCING ACTIVITIES:
Dividends Paid......................... -- (34,500) (373,101)
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 555,076 5,369,588 (564,959)
CASH AND CASH EQUIVALENTS, beginning of
year 6,650,495 1,280,907 1,845,866
----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 7,205,571 $6,650,495 $ 1,280,907
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION OWNERSHIP AND BASIS OF PRESENTATION -
Louisiana Independent Physicians Association, Inc., (LIPA), a physician owned
holding company, provides health care services to its majority owned subsidiary,
Community Health Network of Louisiana, Inc. (CHN), a for-profit health
maintenance organization (HMO) which offers its enrollees a variety of managed
care programs and products through contractual arrangements with health care
providers. CHN has entered into contracts with physicians, hospitals and other
health care providers pursuant to which, such providers deliver medical care to
CHN enrollees on a modified fee-for-service basis.
CHN is subject to regulation by the Louisiana Department of Insurance, and is
required to maintain minimum equity levels, as defined. In addition, all
dividends paid by CHN to its shareholders must be approved by the Louisiana
Department of Insurance.
The accompanying consolidated financial statements include the accounts of LIPA
and its majority-owned subsidiary, CHN, (collectively referred to as the
Company). All significant intercompany transactions are eliminated in
consolidation.
LIPA and CHN have entered into an Administrative Management Contract and Master
Agreement with Complete Health Partners, Inc. (CHP), an indirect wholly owned
subsidiary of United HealthCare Corporation (UHC), and Louisiana Health
Management Company (LHMC or the Partnership), a general partnership, under which
these entities provide administrative management services to CHN (see Note 2).
LIPA owns 48.51% of the Partnership; the remaining interest in the Partnership
is 50.49% owned by CHP, and 1% owned by Louisiana Health Partners, Inc. (LHP),
an HMO management corporation. LHP is, in turn, 49% owned by LIPA and 51% owned
by CHP.
REVENUE RECOGNITION -
Premium revenues are recognized in the period in which enrollees are entitled to
receive health care services. Premiums received prior to the period of service
are recorded as unearned premiums.
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents consist primarily of money market instruments and
commercial paper with original maturities of three months or less.
Included in cash and cash equivalents is restricted cash of $358,000 and
$435,000 as of December 31, 1994 and 1993, which has been withheld by CHN from
payments to providers under the claims administration agreement entered into
with the City of Baton Rouge. This amount will be paid to the providers or
returned to the City of Baton Rouge based on utilization of health care
services. Also included in restricted cash at December 31, 1994 is $118,000
which represents collateral for appeal of a prior legal judgement against CHN.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES -
Investments in unconsolidated affiliates consist of LIPA's equity investments in
LHMC and LHP and are accounted for under the equity method of accounting.
F-7
<PAGE>
The following table summarizes certain selected historical consolidated
financial data of LHMC and LHP. The following information has been derived from
audited financial statements as of and for the years ending December 31, 1994,
1993 and 1992.
<TABLE>
<CAPTION>
LHMC
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues $13,768,720 $11,231,742 $10,283,934
Net Earnings $ 2,789,015 $ 2,165,892 $ 2,446,652
LIPA's Ownership
percentage 48.51% 48.51% 48.51%
LIPA's share of net
earnings $ 1,352,951 $ 1,050,674 $ 1,186,871
Balance Sheet Data:
Cash and investments $ 4,011,891 $ 1,973,956 $ 3,331,074
Total assets $ 6,225,159 $ 4,238,250 $ 5,496,771
Long-term obligations $ 248,954 $ 288,110 $ 322,798
Shareholders' equity $ 4,617,939 $ 2,829,006 $ 4,154,783
<CAPTION>
LHP
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues $ 17,587 $ 82,665 $ 109,797
Earnings from Operations $ 4,517 $ 40,582 $ 65,228
Net Earnings $ 19,768 $ 62,017 $ 61,931
LIPA's Ownership
percentage 49.00% 49.00% 49.00%
LIPA's share of net
earnings $ 9,686 $ 30,388 $ 30,346
Balance Sheet Data:
Cash and investments $ 74,205 $ 11,181 $ 13,644
Total assets $ 175,911 $ 129,162 $ 644,119
Shareholders' equity $ 76,810 $ 57,042 $ 63,931
</TABLE>
As of December 31, 1994 and 1993, undistributed earnings of unconsolidated
affiliates of $2,124,000 and $1,271,000, respectively, were included in the
consolidated retained earnings of LIPA.
F-8
<PAGE>
RESTRICTED CASH RESERVES -
CHN is required by Louisiana regulations to maintain minimum cash reserves.
These restricted cash reserves consist principally of certificates of deposit
and are stated at amortized cost which approximates market value. These
reserves are classified as a noncurrent asset as they are not available for
working capital purposes. Interest earned on these reserves accrues to the
Company.
MEDICAL SERVICES EXPENSES -
Medical services expenses include claims paid, claims in process and pending,
and unreported claims and charges by physicians, hospitals and other health care
providers for services rendered to enrolled members during the period. Medical
cost adjustments to prior period estimates are reflected in the current period
and have not been significant.
An agreement between LIPA, CHP, and CHN contains a provision that makes LIPA
responsible for funding 50% of CHN's health care cost overruns, defined as when
actual health care costs are in excess of funds budgeted for health care costs.
There were no health care cost overruns reimbursed by LIPA under this agreement
in 1994 or 1993.
In addition, CHN contracts with shareholders of LIPA to provide health care
services. Approximately $17,274,000, $17,647,000 and $20,908,000 of medical
services expenses included in the accompanying statements of operations for the
years ended December 31, 1994, 1993 and 1992, respectively, and a portion of
medical claims payable at December 31, 1994 and 1993 is related to these
providers.
MAJOR CUSTOMERS -
One customer group accounted for 35%, 42%, and 40% of total CHN enrollment and
32%, 40%, and 56% of total premiums for 1994, 1993, and 1992.
PHYSICIAN INCENTIVES -
Participating physicians receive a payment for health care services that does
not exceed predetermined fee maximums for each unit of service provided. In
addition, a percentage of each participating physician's reimbursement is
reduced and held as a Physician Incentive Allowance (PIA). The purpose of the
PIA is to provide an incentive for the physicians to appropriately manage
medical costs. The PIA contract year is on a calendar year basis, and the
amount of PIA to be returned to participating physicians is mathematically
determined based on utilization of health care services by the Company's
members. The Company paid approximately $747,000, $577,000, and $547,000 of PIA
for the contract years ended December 31, 1994, 1993, and 1992, respectively.
USE OF ESTIMATES -
These financial statements have been prepared in accordance with generally
accepted accounting principles, which require the use of certain estimates, the
most significant of which relate to incurred but not yet reported claims for
medical services.
F-9
<PAGE>
RECLASSIFICATIONS -
Certain 1993 and 1992 amounts in the consolidated financial statements have been
reclassified to conform with the 1994 presentation. These reclassifications had
no effect on net income or shareholders' equity as previously reported.
2. OPERATING AGREEMENTS
Pursuant to the terms of an Administrative Management Contract, the Partnership
provides management services to CHN for a fee based on CHN's premium revenues.
CHN also pays an amount equal to the interest due on the Partnership's notes to
CHN and LHP, which totaled $35,000 in 1994, $85,000 in 1993, and $94,000 in 1992
and are included in interest in the accompanying consolidated statements of
operations.
Under the terms of the Master Agreement, CHN sold certain of its business rights
to the Partnership (see Note 1) in exchange for a ten-year promissory note with
a face value of $500,000 at an 8% rate. The note is payable semi-annually
through May 1, 2000, and is included in Notes Receivable - Affiliate in the
accompanying consolidated balance sheets at its discounted value based upon a
market interest rate at November 1, 1988, less payments made. As a part of this
Master Agreement CHN's employees became employees of the Partnership.
Effective October 1, 1994, CHN contracted with Diversified Pharmaceutical
Services, Inc. (Diversified), to provide pharmacy management and claims
processing services for its enrollees. UHC signed a six-year management
services agreement with Diversified's parent which requires CHN, subject to
competitive cost and quality considerations, to continue to utilize the
Diversified drug benefit management services required in CHN's operations. At
the end of the six-year period, the parties will consider continuation of the
contract. Prior to October 1, 1994, CHN had a contract with Rx Management,
Inc., a wholly owned subsidiary of Complete Health Services, Inc. (CHS), and
fees related to this agreement approximated $52,000 in 1994 and $328,000 in
1993.
3. INCOME TAXES
CHN and LIPA file separate federal and state income tax returns. The provision
for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
For the years ended December 31
-------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current 553,874 490,678 (61,151)
Deferred (90,400) -- --
-------- -------- --------
$463,474 $490,678 $(61,151)
======== ======== ========
</TABLE>
F-10
<PAGE>
The differences between income taxes computed using the federal statutory rate
and the effective tax rate were as follows:
<TABLE>
<CAPTION>
For the years ended December 31
-------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Federal Statutory Rate 34% 34% (34%)
Net Operating Loss Utilization -- (3%) (4%)
------ ------ ------
34% 31% (38%)
====== ====== ======
</TABLE>
Deferred income taxes relate principally to differences in the method of
recording medical services expenses for book and tax purposes.
4. REINSURANCE AGREEMENT
The Company has a reinsurance agreement with Lincoln National to cover hospital
inpatient claims in excess of certain limits. Reinsurance premiums, net of
recoveries, of approximately $377,000 in 1994 and reinsurance recoveries, net of
premiums, of approximately $123,000 in 1993 and $298,000 in 1992, are included
in medical services expenses in the accompanying statements of operations.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION -
CHN is involved in legal actions which arise in the ordinary course of its
business. While the outcome of these actions is not presently determinable, it
is the opinion of management that the ultimate resolution of these claims will
not have a material adverse effect on the consolidated financial position or
results of operations of the Company.
CONCENTRATION OF CREDIT RISKS -
At December 31, 1994, substantially all of the Company's cash and cash
equivalents were maintained by a bank in Baton Rouge, Louisiana. The Company
periodically considers the financial condition of its depository bank.
CHN, a majority owned subsidiary of LIPA and an affiliate of LHP, is required to
obtain a performance bond in accordance with the contract with the State of
Louisiana Employer Group Benefits Program (the Program). Accordingly, CHN paid
UHC $27,000 to obtain a performance bond on its behalf from St. Paul Fire and
Marine Insurance Company in the amount of $3,830,000. This bond is effective
until June 30, 1995. UHC has agreed to indemnify the St. Paul Fire and Marine
Insurance Company for any losses under the bond. In return, LHP has pledged the
proceeds from CHN's accounts receivable from the Program as collateral for any
loss UHC might incur.
6. SHAREHOLDERS' EQUITY
In 1993, LIPA declared a dividend of $10,000, or $24 per share, to its common
shareholders.
F-11
<PAGE>
LOUISIANA INDEPENDENT PHYSICIAN ASSOCIATION, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF
ASSETS
- ------
<TABLE>
<CAPTION>
December 31 September 30
1994 1995
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents, including
restricted cash of $476,369 and 192,703....... $ 7,205,571 $ 3,245,323
Receivables -
Premiums................................... 5,236,698 7,509,033
Affiliate.................................. 681,424 5,192,349
Other...................................... 542,908 987,455
Prepaid Expenses and Other...................... 9,155 129,759
Deferred Income Tax Benefit..................... 90,400 90,400
Current Portion of Note Receivable - Affiliate.. 39,156 41,196
----------- ------------
TOTAL CURRENT ASSETS........................... 13,805,312 17,195,515
NOTE RECEIVABLE - AFFILIATE...................... 248,954 225,129
INVESTMENTS IN UNCONSOLIDATED AFFILIATES......... 1,942,571 3,396,329
RESTRICTED CASH RESERVES......................... 1,000,000 1,000,664
----------- ------------
TOTAL ASSETS $16,996,837 $ 21,817,637
=========== ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS EQUITY
-----------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Payables -
Medical services........................... $11,261,145 $ 11,405,014
Related party.............................. 102,300 102,300
Income taxes............................... 50,825 120,535
Other...................................... 439,998 188,760
Unearned Premiums............................... 511,675 4,264,560
----------- ------------
TOTAL CURRENT LIABILITIES...................... 12,365,943 16,081,169
MINORITY INTEREST................................ 1,804,029 1,749,655
SHAREHOLDERS' EQUITY:
Common Stock - No par value; 5,000 shares
authorized 417 shares issued and outstanding... 2,085,000 2,085,000
Retained Earnings............................... 746,865 1,906,813
Treasury stock, at cost......................... (5,000) (5,000)
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 2,826,865 3,986,813
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $16,996,837 $521,817,637
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-12
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
REVENUES
Premiums $61,184,653 $93,435,831
Investment and Other 282,137 314,985
----------- -----------
TOTAL REVENUES 61,466,790 93,750,816
OPERATING EXPENSES:
Medical Services 51,745,320 78,291,511
Management Fee 9,250,661 14,133,886
Selling, General and Administrative 426,804 1,516,670
Interest 51,144 61,066
----------- -----------
TOTAL OPERATING EXPENSES 61,473,930 94,003,133
----------- -----------
OPERATING INCOME (LOSS) (7,140) (252,317)
Equity in earnings of unconsolidated affiliates 1,178,352 2,103,758
----------- -----------
INCOME BEFORE INCOME TAXES 1,171,212 1,851,441
PROVISION FOR INCOME TAXES 406,460 745,867
MINORITY INTEREST 7,350 (54,374)
----------- -----------
NET INCOME $ 757,402 $ 1,159,948
----------- -----------
NET INCOME PER COMMON SHARE $ 1,816 $ 2,782
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 417 417
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-13
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 757,402 $ 1,159,948
Non Cash Items:
Equity in undistributed earnings of
unconsolidated affiliates (678,352) (1,453,758)
Minority interest 7,350 (54,374)
Net Change in Other Operating Elements:
Receivables (910,633) (7,277,807)
Prepaid expenses and other 71,375 (121,268)
Medical services payable 1,694,088 143,869
Related party and other payables 357,552 (181,528)
Unearned premiums -- 3,752,885
---------- -----------
NET CASH FLOW (USED FOR) FROM
OPERATING ACTIVITIES 1,298,782 (3,982,033)
INVESTING ACTIVITIES
Increase (Decrease) in Note Receivable - Affiliate 19,978 (21,785)
---------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,318,760 (3,960,248)
CASH AND CASH EQUIVALENTS, beginning of period 6,650,495 7,205,571
---------- -----------
CASH AND CASH EQUIVALENTS, end of period $7,969,255 $ 3,245,323
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AS OF SEPTEMBER 30
1. BASIS OF PRESENTATION
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared
by Louisiana Independent Physicians Association, Inc. (LIPA), without
audit, in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although LIPA believes that the disclosures made are
adequate to make the information not misleading.
The unaudited consolidated balance sheet as of September 30, 1995 and
the unaudited consolidated statements of operations and cash flows for
the nine months ended September 30, 1995 and 1994 include, in the
opinion of management, all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the
financial condition and results of operations for the respective
interim periods and are not necessarily indicative of result of
operations to be expected for the entire fiscal year ending December
31, 1995. The accompanying interim consolidated financial statements
have been prepared under the presumption that users of the interim
financial information have either read or have access to the audited
consolidated financial statements and notes thereto included in LIPA's
annual report for the year ended December 31, 1994. Accordingly,
footnote disclosures which would substantially duplicate the
disclosures contained in the December 31, 1994 audited financial
statements have been omitted from these interim consolidated financial
statements except for the disclosure below. It is suggested that these
unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the
notes thereto for LIPA included elsewhere in the Proxy
Statement/Prospectus.
2. SUBSEQUENT EVENT
In January 1996, LIPA and United HealthCare Corporation (UHC)
announced that they had entered into a definitive merger agreement
(the "Merger Agreement") whereby LIPA would become an indirect wholly
owned subsidiary of UHC. Under the terms of the Merger Agreement, and
as of the record date for the meeting of LIPA Shareholders to be held
to approve the merger, each outstanding share of LIPA common stock
will be converted into the right to receive approximately ______
shares of UHC common stock, subject to adjustment for the average per
share closing price of UHC common stock as reported on the New York
Stock Exchange, Inc., leading up to the closing date of the merger.
Consummation of the merger is subject to various conditions, including
among other things, the approval by LIPA shareholders of the merger
pursuant to the Merger Agreement, receipt by LIPA and UHC of an
opinion of counsel as to the treatment of the merger as tax-free
reorganization for federal income tax purposes; and other customary
closing conditions. The transaction is anticipated to close in the
second quarter of 1996.
F-15
<PAGE>
Unaudited Pro Forma Condensed Combining Financial Information
The following unaudited pro forma condensed combining financial
information (the "Pro Forma Information") presents the estimated effects of (1)
the acquisition of LIPA, using the purchase method for accounting and financial
reporting purposes, (2) the Merger between United and HealthWise, using the
pooling of interests method for accounting and financial reporting purposes, and
(3) United's October 2, 1995 acquisition of MetraHealth, which was accounted for
using the purchase method of accounting. The Pro Forma Information assumes that
(1) the HealthWise Merger had been effective on September 30, 1995 for the
Unaudited Pro Forma Condensed Combining Balance Sheet and at the beginning of
each of the respective periods presented in the Unaudited Pro Forma Condensed
Combining Statement of Operations and (2) the purchases of LIPA and MetraHealth
had been effective on September 30, 1995 for the Unaudited Pro Forma Condensed
Combining Balance Sheet and at the beginning of each of the respective periods
presented in the Unaudited Pro Forma Condensed Combining Statement of
Operations.
Prior to the proposed transaction, United owned approximately one-half
the outstanding stock of LIPA. The historical financial information of LIPA has
been consolidated into United's balance sheet as of September 30, 1995 and
statements of operations for the nine months ended September 30, 1995 and the
year ended December 31, 1994.
For purposes of preparing the Pro Forma Information, the carrying
values of LIPA's assets and liabilities were assumed to approximate their fair
values at the date of acquisition. Accordingly, the purchase price and
estimated acquisition and LIPA integration costs in excess of net assets
acquired have been allocated to goodwill. The goodwill is being amortized on a
straight line basis using an estimated useful life of 40 years.
The Pro Forma Information is derived from, and should be read in
conjunction with the historical consolidated financial statements of United,
LIPA and HealthWise, including the respective notes thereto, and United's
unaudited pro forma condensed combining financial statements giving effect to
the MetraHealth Acquisition included in United's Current Report on Form 8-K/A
dated October 2, 1995, all of which are included or incorporated by reference
into this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE". The Pro Forma Information is presented for informational
purposes only and is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have been
achieved had the Merger and the acquisition of MetraHealth been consummated on
the dates indicated above.
F-16
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
UNITED AND HEALTHWISE COMBINED
UNITED METRA HEALTHWISE PRO FORMA POOLED LIPA PRO FORMA
HISTORICAL COMBINED(1) HISTORICAL(A) ADJUSTMENTS COMPANIES ADJUSTMENTS(E)
---------- ----------- ------------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... 1,308 599 15 614
Short-term investments............ 276 881 31 912
Accounts receivable, net.......... 253 535 5 540
Other............................. 57 158 6 164
----- ----- --- -----
Total current assets............. 1,894 2,173 57 2,230
----- ----- --- -----
Long-Term Investments.............. 1,002 1,649 4 1,653
Property and Equipment, net........ 198 272 4 276
Intangible Assets and Other, net... 803 2,152 18 2,170 60 (F)
----- ----- --- ----- ---
Total assets..................... 3,897 6,246 83 6,329 60
===== ===== === ===== ===
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Medical costs payable............. 501 1,090 26 1,116
Other policy benefits............. 479 479
Accounts payable, accrued expenses
and other liabilities............ 140 617 4 621 12 (F)
Due to affiliates................. 186 186
Unearned premiums................. 95 204 3 207
----- ----- --- ----- ---
Total current liabilities........ 736 2,576 33 2,609 12
Long-term obligations............. 26 35 14 49
Minority interests................ 7 7 4 11 (2)(F)
5.75% Convertible Preferred Stock. 500 500
Commitments and Contingencies
Shareholders' Equity/Net Assets
Common stock...................... 2 2 1 (1)(B) 2
Additional paid-in capital........ 780 780 9 1 (B) 790
Retained earnings................. 2,353 2,353 22 2,375 50 (F)
Net unrealized investment losses.. (7) (7) (7)
----- ----- --- --- ----- ---
Total shareholders' equity/net
assets.......................... 3,128 3,128 32 3,160 50
----- ----- --- --- ----- ---
Total liabilities and
shareholders' equity/net
assets.......................... 3,897 6,246 83 6,329 60
===== ===== === === ===== ===
<CAPTION>
PRO FORMA
POOLED &
COMBINED
COMPANIES(I)
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... 614
Short-term investments............ 912
Accounts receivable, net.......... 540
Other............................. 164
------------
Total current assets............. 2,230
------------
Long-Term Investments.............. 1,653
Property and Equipment, net........ 276
Intangible Assets and Other, net... 2,230
------------
Total assets..................... 6,389
============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Medical costs payable............. 1,116
Other policy benefits............. 479
Accounts payable, accrued expenses
and other liabilities............ 633
Due to affiliates................. 186
Unearned premiums................. 207
------------
Total current liabilities........ 2,621
Long-term obligations............. 49
Minority interests................ 9
5.75% Convertible Preferred Stock. 500
Commitments and Contingencies
Shareholders' Equity/Net Assets
Common stock...................... 2
Additional paid-in capital........ 790
Retained earnings................. 2,425
Net unrealized investment losses.. (7)
------------
Total shareholders' equity/net
assets.......................... 3,210
------------
Total liabilities and
shareholders' equity/net
assets.......................... 6,389
============
</TABLE>
- --------
See Notes A-I to Unaudited Pro Forma Condensed Combining Financial Information
(1) Information derived from United's Current Report on Form 8-K/A dated
October 2, 1995
F-17
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
UNITED AND COMBINED
UNITED METRA HEALTHWISE POOLED LIPA PRO FORMA
HISTORICAL COMBINED(1) HISTORICAL(A) COMPANIES ADJUSTMENTS(E)
----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premium................................ 3,153 5,255 152 5,407
Management services and fees........... 210 1,114 1 1,115
Investment income and other............ 114 133 3 136
----------- ----------- --- -----------
Total revenues....................... 3,477 6,502 156 6,658
Operating Expenses:
Medical costs.......................... 2,480 4,219 119 4,338
Selling, general and administrative
costs................................. 500 1,655 23 1,678
Depreciation and amortization.......... 59 107 1 108 1(H)
----------- ----------- --- ----------- ---
Total operating expenses............. 3,039 5,981 143 6,124 1
Earnings from Operations................ 438 521 13 534
Interest Expense........................ (1) (1) (1) (2)
----------- ----------- --- ----------- ---
Earnings before income taxes and
minority interests.................... 437 520 12 532 (1)
Provision for Income Taxes.............. (162) (203) (4) (207)
Minority Interests...................... (2) (2) (2) (4) 2(G)
----------- ----------- --- ----------- ---
Net Earnings............................ 273 315 6 321(D) 1
----------- ----------- --- ----------- ---
Preferred Dividends..................... (22) (22)
----------- ----------- --- ----------- ---
Net Earnings Applicable to Common
Shareholders........................... 273 293 6 299 1
=========== =========== === =========== ===
Net Earnings Per Common Share........... $1.55 $1.66 $1.65(C)
=========== =========== ===========
Weighted Average Common Shares
Outstanding............................ 176,615,000 176,615,000 180,955,000(C)
=========== =========== ===========
<CAPTION>
PRO FORMA
POOLED &
COMBINED
COMPANIES(I)
---------------
<S> <C>
Revenues:
Premium................................ 5,407
Management services and fees........... 1,115
Investment income and other............ 136
---------------
Total revenues....................... 6,658
Operating Expenses:
Medical costs.......................... 4,338
Selling, general and administrative
costs................................. 1,678
Depreciation and amortization.......... 109
---------------
Total operating expenses............. 6,125
Earnings from Operations................ 533
Interest Expense........................ (2)
---------------
Earnings before income taxes and
minority interests.................... 531
Provision for Income Taxes.............. (207)
Minority Interests...................... (2)
---------------
Net Earnings............................ 322(D)
---------------
Preferred Dividends..................... (22)
---------------
Net Earnings Applicable to Common
Shareholders........................... 300
===============
Net Earnings Per Common Share........... $1.65(C)
===============
Weighted Average Common Shares
Outstanding............................ 181,749,000(C)
===============
</TABLE>
- --------
See Notes A-I to Unaudited Pro Forma Condensed Combining Financial Information
(1) Information derived from United's Current Report on Form 8-K/A dated
October 2, 1995
F-18
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
UNITED AND COMBINED
UNITED METRA HEALTHWISE POOLED LIPA PRO FORMA
HISTORICAL COMBINED(1) HISTORICAL(A) COMPANIES ADJUSTMENTS(E)
----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premium................................ 3,376 6,406 161 6,567
Management services and fees........... 275 1,479 2 1,481
Investment income and other............ 118 99 2 101
----------- ----------- --- -----------
Total revenues....................... 3,769 7,984 165 8,149
Operating Expenses:
Medical costs.......................... 2,643 5,049 124 5,173
Selling, general and administrative
costs................................. 556 2,213 23 2,236
Depreciation and amortization.......... 64 114 1 115 1(H)
----------- ----------- --- ----------- ---
Total operating expenses............. 3,263 7,376 148 7,524 1
Earnings from Operations................ 506 608 17 625
Interest Expense........................ (2) (2) (1) (3)
Merger Costs............................ (36) (36) (36)
----------- ----------- --- ----------- ---
Earnings before income taxes and
minority interests.................... 468 570 16 586 (1)
Provision for Income Taxes.............. (178) (231) (4) (235)
Minority Interests...................... (2) (2) (5) (7) 2(G)
----------- ----------- --- ----------- ---
Net Earnings Before Extraordinary Gain.. 288 337 7 344(D) 1
Preferred Dividends..................... (29) (29)
----------- ----------- --- ----------- ---
Net Earnings Before Extraordinary Gain
Applicable to Common Shareholders...... 308 7 315 1
=========== =========== === =========== ===
Net Earnings Before Extraordinary Gain
Per Common Share....................... $1.64 $1.76 $1.76(C)
=========== =========== ===========
Weighted Average Common Shares
Outstanding............................ 175,209,000 175,209,000 179,342,000(C)
=========== =========== ===========
<CAPTION>
PRO FORMA
POOLED &
COMBINED
COMPANIES(I)
---------------
<S> <C>
Revenues:
Premium................................ 6,567
Management services and fees........... 1,481
Investment income and other............ 101
---------------
Total revenues....................... 8,149
Operating Expenses:
Medical costs.......................... 5,173
Selling, general and administrative
costs................................. 2,236
Depreciation and amortization.......... 116
---------------
Total operating expenses............. 7,525
Earnings from Operations................ 624
Interest Expense........................ (3)
Merger Costs............................ (36)
---------------
Earnings before income taxes and
minority interests.................... 585
Provision for Income Taxes.............. (235)
Minority Interests...................... (5)
---------------
Net Earnings Before Extraordinary Gain.. 345(D)
Preferred Dividends..................... (29)
---------------
Net Earnings Before Extraordinary Gain
Applicable to Common Shareholders...... 316
===============
Net Earnings Before Extraordinary Gain
Per Common Share....................... $1.75(C)
===============
Weighted Average Common Shares
Outstanding............................ 180,136,000(C)
===============
</TABLE>
- --------
See Notes A-I to Unaudited Pro Forma Condensed Combining Financial Information
(1) Information derived from United's Current Report on Form 8-K/A dated
October 2, 1995
F-19
<PAGE>
Notes to Unaudited Pro Forma Condensed Combining Financial Information
A. Certain amounts in the HealthWise historical financial information have
been reclassified to conform with United's financial presentation.
B. This adjustment reflects the effect on the common shareholders' equity of
the combined United and HealthWise companies resulting from pooling of interests
accounting, net of the elimination of HealthWise shareholders' equity upon
consolidation.
C. The combined pro forma net earnings per common share data is computed by
dividing pro forma net earnings by the weighted average number of common shares
and common share equivalents (where dilutive) of the combined companies.
D. Does not include one-time estimated United and HealthWise non-operating
costs associated with their merger of approximately $13 million. These non-
operating costs, which will be expensed in the period in which the merger of
United and HealthWise is consummated, include legal, accounting and financial
advisor fees, printing and mailing charges, and SEC filing and stock exchange
fees. United also expects to incur substantial non-operating expenses in
addition to these transaction costs. The additional non-operating expenses may
include charges with respect to the elimination of duplicate functions and
facilities, severance costs relating to terminating certain employees and the
write-off of certain assets. Such additional non-operating costs will be
expensed in the period in which the merger of United and HealthWise is
consummated.
E. As United had previously consolidated LIPA, the pro forma adjustments only
reflect those entries necessary to adjust United's balance sheet and statements
of operations for the excess purchase price and related goodwill amortization,
recording of the acquisition and integration reserves, issuance of common stock,
elimination of the minority interest liability and elimination of minority
interest earnings.
F. This adjustment reflects the estimated costs in excess of the net
assets acquired resulting from the acquisition.
<TABLE>
<CAPTION>
<S> <C>
Purchase price $ 50(a)
Acquisition and integration costs 12
Less: net assets acquired (2)
------
Purchase price, acquisition and
integration costs in excess of the
fair value of net assets acquired $60
======
</TABLE>
(a) For purposes of preparing the unaudited pro forma statements, the
additional consideration was assumed not to have been earned.
G. This adjustment reflects the amortization of costs in excess of net
assets acquired resulting from the acquisition of $56 million as in (F) above,
using an estimated useful life of 40 years.
H. This adjustment adds back the earnings from operations attributable to
minority interests.
I. United has signed a definitive agreement to acquire in separate
transactions PHP, Inc. and Physicians Health Association, Ltd. These
transactions are expected to close in the first and second quarters of 1996,
respectively, and have been excluded from the "UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL INFORMATION" as their effects are not significant.
F-20
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
UNITED HEALTHCARE CORPORATION,
UHC GOLD ACQUISITION, INC.
AND
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
JANUARY 16, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER
SECTION 1.01 The Merger.............................................. 3
SECTION 1.02 Effective Time.......................................... 3
SECTION 1.03 Effect of the Merger.................................... 4
SECTION 1.04 Articles of Incorporation; By-Laws...................... 4
SECTION 1.05 Directors and Officers.................................. 4
SECTION 1.06 Taking Necessary Action; Further Action................. 4
SECTION 1.07 The Closing............................................. 4
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES........... 5
SECTION 2.01 Conversion of Securities................................ 5
SECTION 2.02 Exchange of Certificates................................ 7
SECTION 2.03 Stock Transfer Books.................................... 9
SECTION 2.04 Contingent Payment Rights............................... 9
SECTION 2.05 Dissenting Shareholders................................. 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 13
SECTION 3.01 Organization and Qualification; Subsidiaries............ 14
SECTION 3.02 Articles of Incorporation; By-Laws...................... 14
SECTION 3.03 Capitalization; Ownership of Shares..................... 14
SECTION 3.04 Authority; Vote Required................................ 15
SECTION 3.05 No Conflict; Required Filings and Consents.............. 16
SECTION 3.06 Permits; Compliance..................................... 17
SECTION 3.07 Reports; Financial Statements........................... 17
SECTION 3.08 Absence of Certain Changes or Events.................... 18
SECTION 3.09 Absence of Litigation................................... 19
SECTION 3.10 Contracts; No Default................................... 20
SECTION 3.11 Employee Benefit Plans; Employees....................... 21
SECTION 3.12 Taxes................................................... 21
SECTION 3.13 Intellectual Property Rights............................ 22
SECTION 3.14 Certain Business Practices and Regulations.............. 22
SECTION 3.15 Insurance............................................... 22
SECTION 3.16 Tax Matters............................................. 23
SECTION 3.17 Certain Relationships................................... 23
SECTION 3.18 Brokers................................................. 24
SECTION 3.19 Properties.............................................. 24
SECTION 3.20 Fairness Opinion........................................ 24
SECTION 3.21 Disclosure.............................................. 24
-i-
<PAGE>
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB................................ 25
SECTION 4.01 Organization and Qualification; Subsidiaries........... 25
SECTION 4.02 Articles of Incorporation; By-Laws..................... 25
SECTION 4.03 Capitalization......................................... 25
SECTION 4.04 Authority; Enforceability.............................. 26
SECTION 4.05 No Conflict; Required Filings and Consents............. 26
SECTION 4.06 Reports; Financial Statements.......................... 27
SECTION 4.07 Tax Matters............................................ 29
SECTION 4.08 Ownership of Acquiror Sub; No Prior Activities......... 29
SECTION 4.09 Brokers................................................ 29
SECTION 4.10 Effective Time; Disclosure............................. 29
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS................... 30
SECTION 5.01 Affirmative Covenants of the Company................... 30
SECTION 5.02 Negative Covenants of the Company...................... 30
SECTION 5.03 Affirmative Covenants of Acquiror...................... 32
SECTION 5.04 Access and Information................................. 33
ARTICLE VI ADDITIONAL AGREEMENTS....................................... 34
SECTION 6.01 Meeting of Shareholders................................ 34
SECTION 6.02 Appropriate Action; Consents; Filings.................. 34
SECTION 6.03 Update Disclosure; Breaches............................ 35
SECTION 6.04 Tax Treatment.......................................... 35
SECTION 6.05 Public Announcements................................... 36
SECTION 6.06 Indemnification of Directors and Officers.............. 36
SECTION 6.07 Obligations of Acquiror Sub............................ 37
SECTION 6.08 Registration of Acquiror Common Stock.................. 37
SECTION 6.09 Cooperation and Exchange of Tax Information;
Preparation of Tax Returns............................ 41
SECTION 6.10 NYSE Listing........................................... 42
SECTION 6.11 Other Agreements....................................... 42
SECTION 6.12 Consulting Agreements.................................. 42
SECTION 6.13 Access to Information.................................. 42
SECTION 6.14 Rule 145 Transfers..................................... 43
ARTICLE VII CLOSING CONDITIONS.......................................... 43
SECTION 7.01 Conditions to Obligations of Each Party Under This
Agreement............................................. 43
SECTION 7.02 Additional Conditions to Obligations of Acquiror and
Acquiror Sub.......................................... 44
SECTION 7.03 Additional Conditions to Obligations of the Company.... 46
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER........................... 47
SECTION 8.01 Termination............................................ 47
SECTION 8.02 Effect of Termination.................................. 48
-ii-
<PAGE>
SECTION 8.03 Fees; Expenses and Remedies............................. 48
ARTICLE IX INDEMNIFICATION.............................................. 49
SECTION 9.01 Survival of Representations and Warranties.............. 49
SECTION 9.02 Indemnification of Acquiror............................. 49
SECTION 9.03 Method of Asserting Claims.............................. 50
SECTION 9.04 Expiration of Indemnities............................... 52
SECTION 9.05 Indemnification Claims; Interest........................ 52
SECTION 9.06 Exclusivity of Indemnification; Right of Offset......... 52
SECTION 9.07 Indemnification of Shareholders......................... 53
ARTICLE X DEFINITIONS.................................................. 54
SECTION 10.01 Defined Terms.......................................... 54
ARTICLE XI GENERAL PROVISIONS........................................... 59
SECTION 11.01 Arbitration............................................ 59
SECTION 11.02 Notices................................................ 60
SECTION 11.03 Amendment.............................................. 62
SECTION 11.04 Waiver................................................. 62
SECTION 11.05 Headings............................................... 62
SECTION 11.06 Severability........................................... 62
SECTION 11.07 Entire Agreement....................................... 62
SECTION 11.08 Assignment............................................. 62
SECTION 11.09 Parties in Interest.................................... 63
SECTION 11.10 Construction of Terms.................................. 63
SECTION 11.11 No Strict Construction................................. 63
SECTION 11.12 Governing Law.......................................... 63
SECTION 11.13 Counterparts........................................... 63
-iii-
<PAGE>
EXHIBITS
--------
EXHIBIT 1.02 CERTIFICATE OF MERGER
EXHIBIT 2.02(b) FORM OF WAIVER OF PROVIDER CLAIMS
EXHIBIT 2.04(e) CALCULATION OF NET INCOME
EXHIBIT 2.04(k) IDENTIFICATION OF SHAREHOLDER REPRESENTATIVE
EXHIBIT 6.12 CONSULTING AGREEMENTS
EXHIBIT 7.02(e) FORM OF COMPANY COUNSEL OPINION
EXHIBIT 7.03(c) FORM OF ACQUIROR COUNSEL OPINION
SCHEDULES
---------
COMPANY DISCLOSURE SCHEDULE
ACQUIROR DISCLOSURE SCHEDULE
-iv-
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER, dated as of JANUARY 16, 1996 (this
"Agreement"), is by and among UNITED HEALTHCARE CORPORATION, a Minnesota
corporation ("Acquiror"), UHC GOLD ACQUISITION, INC., a Louisiana corporation
and a wholly owned Subsidiary of Acquiror ("Acquiror Sub"), and LOUISIANA
INDEPENDENT PHYSICIANS ASSOCIATION, INC., a Louisiana corporation (the
"Company"). Capitalized terms used and not otherwise defined herein have the
meanings set forth in Article X.
RECITALS
--------
The following recitals summarize the principal terms of this Agreement and
the transactions contemplated by this Agreement, are intended for convenience
only, shall not be accorded any legal significance, and are qualified in their
entirety by reference to the terms and conditions set forth in this Agreement
and the schedules, exhibits and other agreements attached to, or contemplated
by, this Agreement:
Current Structure
-----------------
1. The Company is a holding company which owns (a) 51% of the common
stock of Community Health Network of Louisiana, Inc., a Louisiana corporation
("CHN"), (b) a 48.51% general partnership interest in Louisiana Health
Management Company, a Louisiana general partnership ("LHMC"), and (c) 49% of the
common stock of Louisiana Health Partners, Inc., a Louisiana corporation and the
1% owner and managing general partner of LHMC ("LHP"). CHN, LHMC and LHP are
referred to herein as the "Community Health Entities."
2. Acquiror, indirectly through one or more wholly owned subsidiaries,
owns (a) 49% of the common stock of CHN, (b) a 50.49% general partnership
interest in LHMC and (c) 51% of the common stock of LHP.
The Merger
----------
3. The outstanding capital stock of the Company is held by over 400
persons, each of whom is a medical services provider to, or an employee of, the
HMO operated by CHN. Acquiror has agreed to acquire the Company by means of the
merger of the Company with and into Acquiror Sub, with Acquiror Sub being the
surviving corporation (the "Merger").
4. Upon consummation of the Merger, the Company's shareholders will in the
aggregate receive:
(a) a number of shares of Acquiror's Common Stock, $.01 par value per share
("Acquiror Common Stock") equal to $50 million divided by the average closing
price of the Acquiror Common Stock on the NYSE calculated for the ten trading
days ending two trading days prior to the closing of the Merger, subject to
adjustments in certain instances herein provided; and
A-1
<PAGE>
(b) cash earn-out payments in an amount ranging from $0 to $35 million,
which payments will be made to the extent, if any, that the level of the
Company's net income during 1996 and 1997 exceeds certain specified targets. For
purposes of calculating the earn-out payments, the Company's net income will be
adjusted as set forth in Exhibit 2.04(e) to cap certain operation expenses based
on a percentage of premium revenues and to include the results of operations of
the Louisiana HMO business of The MetraHealth Companies (acquired by Acquiror in
October 1995).
Registration of Acquiror Common Stock
-------------------------------------
5. Acquiror, as sole shareholder of Acquiror Sub, will deliver or cause to
be delivered, to the shareholders of the Company the consideration to be issued
or paid pursuant to the Merger. The Acquiror Common Stock issued in the Merger
will be registered with the SEC pursuant to a Form S-4 Registration Statement
filed by Acquiror and, following the Merger, will be freely transferable subject
to Rule 145 under the Securities Act.
Tax Treatment of Merger
-----------------------
6. For federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the Code,
with the result that the value of the whole number of shares of Acquiror Common
Stock issued in the Merger will not be taxable to the Company's shareholders
until such shares are disposed of by such shareholders. Earn-out payments, if
any, will be taxable to the Company's shareholders upon receipt.
Indemnification of Acquiror
---------------------------
7. Acquiror is entitled to indemnification for certain items identified in
this Agreement. Acquiror has the right to offset amounts for which it is
entitled to indemnity against the cash earn-out payments described above.
Acquiror's right to recovery is limited to this right of offset.
Principal Conditions to the Merger
----------------------------------
8. As a condition to the Merger, Acquiror has required, among other
things, that:
(a) certain persons enter into consulting and noncompetition
arrangements with Acquiror, in return for which Acquiror will make certain
payments to such persons;
(b) the shareholders of the Company waive any claims against the Company
and the Community Health Entities arising from their relationship as medical
services providers; and
A-2
<PAGE>
(c) less than 10% of the Company's shareholders exercise dissenters'
rights regarding the Merger.
9. The closing of the Merger is also subject to a number of other
conditions, including approval of the Merger by the Company's shareholders,
receipt of all required regulatory and third party approvals, absence of
litigation regarding the Merger, and the delivery of certain legal opinions and
other documents at closing.
Approval of Merger
------------------
10. The boards of directors of Acquiror, Acquiror Sub and the Company
have approved this Agreement and the Merger. Acquiror, as sole shareholder of
Acquiror Sub, has also approved this Agreement and the Merger. The Company has
agreed to hold a special meeting of its shareholders for the purpose, among
other things, of approving this Agreement and the Merger, and the closing of the
Merger is subject to the receipt of such approval.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and subject to the terms and conditions hereof, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Louisiana Law, at the
Effective Time (as defined in Section 1.02) the Company shall be merged with and
into Acquiror Sub. As a result of the Merger, the separate corporate existence
of the Company shall cease and Acquiror Sub shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). Acquiror Sub and the
Company are sometimes collectively referred to herein as the "Constituent
Corporations".
SECTION 1.02 Effective Time. Provided this Agreement shall not have been
terminated as provided in Article VIII, the parties shall cause the Merger to be
consummated on the Closing Date (as defined in Section 1.07) by executing and
filing a certificate of merger substantially in the form of Exhibit 1.02 hereof
(the "Articles of Merger") with the Secretary of State of the State of
Louisiana, all in accordance with the relevant provisions of Louisiana Law (the
date and time of such filing being the "Effective Time").
SECTION 1.03 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Louisiana Law.
Without limiting the generality of those laws, and subject to their provisions,
at the
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Effective Time, except as otherwise provided in this Agreement, all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authorities of Acquiror Sub and the Company shall vest in the Surviving
Corporation, and all debts, liabilities, duties and obligations of Acquiror Sub
and the Company shall become the debts, liabilities, duties and obligations of
the Surviving Corporation.
SECTION 1.04 Articles of Incorporation; By-Laws. At the Effective Time,
the Articles of Incorporation and the By-Laws of Acquiror Sub, as in effect on
the date hereof and as otherwise amended prior to the Effective Time or pursuant
to the Articles of Merger, shall be the Articles of Incorporation and the By-
Laws of the Surviving Corporation.
SECTION 1.05 Directors and Officers. The directors of Acquiror Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Acquiror Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
SECTION 1.06 Taking Necessary Action; Further Action. Acquiror, Acquiror
Sub and the Company, respectively, shall each use its reasonable efforts as
promptly as possible to take all such action as may be necessary or appropriate
to effectuate the Merger under Louisiana Law at the time specified in Section
1.02. If, at any time after the Effective Time, any further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all properties,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of either of the Constituent Corporations, the officers of the
Surviving Corporation are fully authorized in the name of each Constituent
Corporation or otherwise to execute and deliver or cause to be executed and
delivered such deeds and other instruments and to take or cause to be taken all
such further lawful and necessary action.
SECTION 1.07 The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of CHN, in
Baton Rouge, Louisiana, commencing at 10:00 a.m., local time, on the last
business day of the month during which all of the conditions to the Merger set
forth in Article VII shall have been fulfilled or waived in accordance herewith,
or such other date, time and place as the parties may agree (the "Closing Date")
and shall be effective at the Effective Time. Subject to the provisions of this
Agreement, at the Closing there shall be delivered to each of the parties the
certificates and other documents and instruments required to be so delivered
pursuant to this Agreement.
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ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01 Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any further action on the part of Acquiror Sub, the
Company or the holders of the Company's Common Stock, no par value ("Company
Common Stock"):
(a) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 2.01(d) and other than Dissenting Shares (as
defined in Section 2.05)) shall be converted, subject to Section 2.02(e), into
and become the right to receive the following (collectively, the "Merger
Consideration"):
(i) a number of shares of Acquiror Common Stock equal to:
(A) if the Average Stock Price is at least $53.2656, but not more
than $68.4844, the number obtained by dividing (x) the quotient of (1)
$50,000,000 divided by (2) the Average Stock Price by (y) the number
of shares of Company Common Stock outstanding at the Effective Time
(excluding shares that are to be canceled pursuant to 2.01(d)) (the
"Outstanding Company Shares"); or
(B) if the Average Stock Price is more than $68.4844, but not
more than $73.0500, the number obtained by dividing (x) 730,093, by
(y) the Outstanding Company Shares; or
(C) if the Average Stock Price is at least $49.2707, but less
than $53.2656, the number obtained by dividing (x) 938,692, by (y) the
Outstanding Company Shares; or
(D) if the Average Stock Price is more than $73.0500, the number
obtained by dividing (x) the quotient of (1) $53,750,000 divided by
(2) the Average Stock Price by (y) the Outstanding Company Shares; or
(E) if the Average Stock Price is less than $49.2707, the number
obtained by dividing (x) the quotient of (1) $46,250,000 divided by
(2) the Average Stock Price by (y) the Outstanding Company Shares; and
(ii) one "Contingent Payment Right" having the rights and terms set
forth in Section 2.04;
provided that payment of amounts in respect of Contingent Payment Rights
shall be subject to Acquiror's right of offset set forth in Article IX of
this Agreement.
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The foregoing formula for conversion of the Company Common Stock is
referred to as the "Exchange Ratio."
(b) Notwithstanding the foregoing, if between the date of this Agreement
and the Effective Time the outstanding shares of Acquiror Common Stock or
Company Common Stock shall have been changed into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(c) All shares of Company Common Stock converted pursuant to the Merger
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the right to receive the Merger Consideration
into which such Company Common Stock was converted in the Merger and cash in
lieu of fractional shares of Acquiror Common Stock pursuant to Section 2.02(e).
Certificates previously representing shares of Company Common Stock shall be
exchanged for certificates representing whole shares of Acquiror Common Stock
issued in consideration therefor upon the surrender of such certificates in
accordance with the provisions of Section 2.02, without interest. No fractional
share of Acquiror Common Stock shall be issued, and, in lieu thereof, a cash
payment shall be made pursuant to Section 2.02(e) of this Agreement.
(d) Each share of Company Common Stock held in the treasury of the Company
and each share of Company Common Stock owned by any direct or indirect wholly
owned Subsidiary of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion of such shares and no payment
shall be made with respect to such shares.
(e) Each share of common stock, par value $0.01 per share, of Acquiror Sub
("Acquiror Sub Common Stock") issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding after the Merger.
SECTION 2.02 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Acquiror shall deposit, or
shall cause to be deposited, with a bank or trust company designated by Acquiror
and acceptable to the Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article II, through the Exchange Agent, certificates representing the shares of
Acquiror Common Stock (such certificates for shares of Acquiror Common Stock,
together with any dividends or distributions with respect thereto and
appropriate cash payments in lieu of fractional shares of Acquiror Common Stock
pursuant to Section 2.02(e), being referred to as the "Exchange Fund") issuable
at the Closing
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pursuant to Section 2.01(a)(i) (the "Closing Shares") in exchange for
outstanding shares of Company Common Stock. The Exchange Agent shall, pursuant
to irrevocable instructions, deliver the Closing Shares contemplated to be
issued pursuant to Section 2.01 out of the Exchange Fund. The Exchange Fund
shall not be used for any other purpose.
(b) Exchange Procedures. Promptly after the Effective Time, Acquiror shall
instruct the Exchange Agent to mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates") (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in customary form) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing Closing Shares. Upon surrender of a Certificate
for cancellation to the Exchange Agent, together with such letter of transmittal
and a waiver in the form of Exhibit 2.02(b) to this Agreement, each duly
executed, and such other documents as may be required pursuant to such
instructions, the holder of such Certificate shall receive in exchange a
certificate representing that number of whole Closing Shares which such holder
has received in the Merger in respect of the shares of Company Common Stock
formerly represented by such Certificate, cash in lieu of fractional shares of
Acquiror Common Stock to which such holder is entitled pursuant to Section
2.02(e) (after taking into account all shares of Company Common Stock then held
by such holder) and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c) with respect only to the number of whole
shares of Acquiror Common Stock which such holder has received, and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Common Stock which is not registered
in the transfer records of the Company, a certificate representing the proper
number of shares of Acquiror Common Stock, together with cash in lieu of
fractional shares of Acquiror Common Stock and any dividends or other
distributions to which such holder is entitled, may be issued to such a
transferee if the Certificate representing such shares of Company Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time to
represent solely the right to receive (i) the Merger Consideration and (ii) any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.02(c).
(c) Distributions with Respect to Unexchanged Shares of Acquiror Common
Stock. No dividends or other distributions declared or made with respect to
Acquiror Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Acquiror Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.02(e),
until the holder
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of such Certificate shall surrender such Certificate. The Surviving Corporation
will replace lost certificates representing Company Common Stock upon receipt of
such documentation as is customary in the case of lost certificates and
reasonably requested by Acquiror. Subject to the effect of escheat, tax or other
applicable Laws, following surrender of any such Certificate, there shall be
paid to the holder, without interest, (i) promptly, the amount of any cash
payable with respect to a fractional share of Acquiror Common Stock to which
such holder is entitled pursuant to Section 2.02(e) and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to the Closing Shares which the holder received as part of the
Merger Consideration, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to the Closing Shares which the holder received as part of the
Merger Consideration.
(d) No Further Rights in Company Common Stock. All shares of Acquiror
Common Stock issued upon conversion of the shares of Company Common Stock in
accordance with the terms of this Agreement (including any cash paid pursuant to
Sections 2.02(c) or (e)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
other than the right to receive payments in respect of the Contingent Payment
Rights in accordance with Section 2.04.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of Acquiror Common Stock shall be issued upon the surrender for exchange
of Certificates, and the owner of such fractional share interests will not be
entitled to vote or to any other rights of a shareholder of Acquiror. Each
holder of Certificates who otherwise would be entitled to receive a fractional
share of Acquiror Common Stock shall receive, in lieu of such fractional share
interest, an amount in cash (without interest) determined by multiplying (i) the
closing sale price per share of Acquiror Common Stock as reported on the NYSE on
the business day immediately preceding the Closing Date by (ii) the fractional
share interest to which such holder would otherwise be entitled. Acquiror shall
transfer to the Exchange Agent on a timely basis the cash necessary to make
payments under this Section 2.02(e). As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of Company
Common Stock with respect to any fractional share interests, the Exchange Agent
shall promptly pay such amounts to such holders of Company Common Stock subject
to and in accordance with the terms of Section 2.02(c).
(f) Termination of Exchange Fund . Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock for one year after
the Effective Time shall be delivered to Acquiror, upon demand, and any holders
of Company Common Stock who have not theretofore complied with this Article II
shall thereafter look only to Acquiror for the shares of Acquiror Common Stock,
any cash in lieu of fractional shares of Acquiror Common Stock to
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which they are entitled pursuant to Section 2.02(e) and any dividends or other
distributions with respect to Acquiror Common Stock to which they are entitled
pursuant to Section 2.02(c).
(g) No Liability. Neither Acquiror nor the Company shall be liable to any
holder of shares of Company Common Stock for any such shares of Acquiror Common
Stock (or dividends or distributions with respect to such shares) or cash
delivered to a public official pursuant to any abandoned property, escheat,
interpleader or similar Law, provided that Acquiror will endeavor to give the
record holder advance notice thereof at holder's address of record.
SECTION 2.03 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company, except for transfers resulting from proceedings under
any interpleader or similar Law. From and after the Effective Time, the holders
of certificates representing shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Company Common Stock except as otherwise provided in
this Agreement or by Law. On or after the Effective Time, any Certificates
presented to the Exchange Agent or Acquiror, in accordance with Section 2.02(b),
for any reason shall be converted into shares of Acquiror Common Stock, any cash
in lieu of fractional shares of Acquiror Common Stock to which the holders of
the Certificates are entitled pursuant to Section 2.02(e), any dividends or
other distributions to which the holders of the Certificates are entitled
pursuant to Section 2.02(c) and Contingent Payment Rights.
SECTION 2.04 Contingent Payment Rights.
(a) Each Contingent Payment Right shall represent only a right to receive a
cash payment (the "Earn-Out") from Acquiror, subject to the terms set forth in
this Section 2.04 and Acquiror's right of offset under Article IX of this
Agreement. The amount of any Earn-Out payment payable with respect to each
Contingent Payment Right shall be equal to the aggregate Earn-Out payment
payable, calculated as set forth below, divided by the total number of
Contingent Payment Rights outstanding as of the date such payment is due. The
amount of the Earn-Out payment payable for each Earn-Out Year (as defined
below), if any, shall be calculated by Acquiror as set forth in this Section
2.04 and paid not later than 45 days following public announcement of Acquiror's
audited financial results for each Earn-Out Year. Contingent Payment Rights
shall not possess any attributes of common stock or other security and shall not
entitle the holders of the Contingent Payment Rights to any rights of any kind
other than as specifically set forth in this Agreement. Subject to Section
2.04(j), all payments of the Earn-Out shall be made net of any amount for which
Acquiror is entitled to indemnification under Article IX of this Agreement.
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(b) The term "Earn-Out Year" shall refer to each of the following twelve
month periods: (i) January 1, 1996 to December 31, 1996; and (ii) January 1,
1997 to December 31, 1997.
(c) The Earn-Out payments shall be determined by measuring the Actual Net
Income (as defined below) of the Community Health Entities for Earn-Out Years
1996 and 1997 against certain target amounts, as follows:
(i) subject to Section 2.04(d) below, for the 1996 Earn-Out Year, the
total Earn-Out payment shall equal the product of: (A) Actual Net Income
for the 1996 Earn-Out Year less $10.0 million, multiplied by (B) 6.3;
provided that if Actual Net Income for the 1996 Earn-Out Year is less than
$10.0 million, the Earn-Out payment for such year will be zero; and
(ii) subject to Section 2.04(d) below, for the 1997 Earn-Out Year, the
total Earn-Out payment shall equal the product of (A) Actual Net Income for
the 1997 Earn-Out Year less $16.5 million, multiplied by (B) 4.5; provided
that if Actual Net Income for the 1997 Earn-Out Year is less than $16.5
million, the Earn-Out payment for such year will be zero.
(d) In no event shall the aggregate Earn-Out payments payable in respect of
Contingent Payment Rights exceed $35.0 million. Accordingly, the Earn-Out
payments calculated under Section 2.04(c) above shall be reduced to the extent,
if any, that the sum of such payments exceeds $35.0 million.
(e) "Actual Net Income" means the audited net income of the Community
Health Entities, determined on a consolidated basis in accordance with GAAP,
subject to the adjustments described in Exhibit 2.04(e). Actual Net Income shall
be determined by Acquiror in the manner set forth in Exhibit 2.04(e) to this
Agreement.
(f) The Contingent Payment Rights are personal to each initial holder
thereof and shall not be transferable for any reason other than by operation of
law or by will or the laws of descent and distribution. Any attempted transfer
of a Contingent Payment Right by any holder thereof (other than as permitted by
the immediately preceding sentence) shall be null and void.
(g) Payment of the Earn-Out shall be made by cashier's or certified check.
(h) During the two Earn-Out Years: (i) Acquiror and the Surviving
Corporation will not dispose of all or substantially all its interest in the
Community Health Entities or otherwise combine the operations of the Community
Health Entities unless Acquiror shall have made reasonably adequate provision to
provide for the determination of the Earn-Out payments; and (ii) Acquiror and
the
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Surviving Corporation will maintain its books and records in accordance with
GAAP.
(i) Within 90 days following the end of each Earn-Out Year, Acquiror will
deliver to the Shareholder Representative, as defined in Section 2.04(k), a
calculation of the aggregate Earn-Out with respect to such Year, together with
the certification of the chief financial officers of Acquiror and the Surviving
Corporation to the effect that the provisions of Section 2.04(h) have been
complied with, and the further certification of such officers and the
independent certified public accountants of Acquiror or the Surviving
Corporation to the effect that the calculation shown therein is in accordance
with an audit by such accountants of the Community Health Entities, with the
adjustments provided for in Exhibit 2.04(e). A copy of the audit shall be
delivered to the Shareholder Representative, together with such other
information reasonably related to the calculation of the Earn-out as the
Shareholder Representative may reasonably request. The Shareholder
Representative will be deemed to have accepted such calculation and to have
waived forever any right to contest it unless it notifies Acquiror within 60
days after delivery of the calculation to the Shareholder Representative that
such Representative contests such calculation and the reasons therefor. Any such
contest which cannot be resolved within 30 days by Acquiror and the Shareholder
Representative shall be resolved by arbitration in the manner provided in
Section 11.01, except that the third arbitrator shall be a member of a
nationally recognized accounting firm. Acquiror shall make the Earn-Out payment
required pursuant to Section 2.04(a) when due notwithstanding the pendency of
any such contest, except that until such contest shall have been finally
determined Acquiror shall be required to pay only the amount reflected in its
calculation. Any remaining amount determined to be due by the arbitrators, or
any other amount not paid by the due date, shall bear interest at the rate
provided for in Section 9.05 from the original due date until paid.
(j) If, at the time an Earn-Out payment is otherwise to be made, Acquiror
reasonably determines that it is or may be entitled to an offset pursuant to
Article IX against such payment, Acquiror shall, in good faith, estimate the
amount of such offset and deduct it from the payments otherwise to be made
pursuant to this Section 2.04. Acquiror shall give prompt notice of any such
offset to the Shareholder Representative (as defined in Section 2.04(k)).
Promptly following any development that would reduce the amount of such offset,
Acquiror shall remit to the Former Holders (as defined in Section 2.04(k)) the
resulting amount in the manner provided for in this Section 2.04 together with
interest as provided in Section 9.05.
(k) (i) A group of 3 shareholders of the Company (the "Shareholder
Representative") shall be constituted to act on behalf of the persons who were
shareholders of the Company at the Effective Time ("Former Holders") with
respect to all matters relating to Earn-Out payments pursuant to this Section
2.04 as well as to any indemnity pursuant to Article IX. The Shareholder
Representative shall
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consist initially of the persons identified in Exhibit 2.04(k). The Shareholder
Representative shall act (A) by meeting (of which reasonable notice shall be
given to its members of the date, time, place, and purpose, which notice may be
waived in writing but shall not otherwise be deemed to have been waived), by the
affirmative vote of at least a majority of the persons serving as Shareholder
Representative (failing which the Shareholder Representative shall be deemed to
have determined not to act with respect to the matter voted upon), which vote
may be cast by general or special proxy held by any Former Holder, or (B) by
unanimous written consent. Any vacancy in the Shareholder Representative may be
filled by majority vote of the remaining persons then serving (even if not
constituting a quorum) from among Former Holders.
(ii) The Former Holders may at any time, by vote of a majority of their
former voting power of Company Common Stock present in person or by proxy at a
meeting or by written consent of such a majority, (A) remove any person from
service as a member of the Shareholder Representative and elect a replacement
(who shall be a Former Holder) and (B) ratify any proposed action of the
Shareholder Representative. No such ratification shall be required unless so
determined by the Shareholder Representative.
(iii) Meetings of the Former Holders shall be held as if the Company were
still in existence, still had the same Articles and By-Laws as it had at the
Effective Time, the Former Holders were its holders of record, and the persons
serving as Shareholder Representative were its directors. The Shareholder
Representative will not be liable for any act or failure to act in the capacity
as Shareholder Representative except to the extent such act or failure to act
involved gross negligence or wilful misconduct. Any action taken in good faith
upon the written advice of qualified legal counsel or certified public
accountants shall be conclusively deemed not to constitute gross negligence or
wilful misconduct. The Surviving Corporation and Acquiror shall, promptly upon
request, pay the reasonable expenses of the Shareholder Representative with
respect to its duties hereunder, including the fees of counsel and accountants,
up to a maximum aggregate amount of $200,000. In addition, upon request by
notice at any time from the Shareholder Representative, Acquiror will pay
directly to the Shareholder Representative such portion of any subsequent Earn-
Out payment as the Shareholder Representative may request for the purpose of
paying expenses incurred or reasonably anticipated by the Shareholder
Representative.
(iv) The Shareholder Representative may pay, from any funds held by it, any
expenses incurred by it in such capacity and may reimburse its members for their
reasonable expenses and indemnify them against claims made against them as
persons serving as Shareholder Representative to the same extent as if funds
held by the Shareholder Representative were funds of the Company and the persons
serving as Shareholder Representative were directors of the Company.
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SECTION 2.05 Dissenting Shareholders. In the event the Merger is approved
by less than 80% of the total voting power of the outstanding Company Common
Stock, each outstanding share of Company Common Stock, the holder of which has
demanded and perfected such shareholder's demand for payment of the fair value
of such share in accordance with Section 12:131 of the Louisiana Law (the
"Dissent Provisions"), to the extent applicable, and has not effectively
withdrawn or lost such shareholder's right to an appraisal (the "Dissenting
Shares"), shall not be converted into or represent a right to receive the Merger
Consideration issuable or payable in the Merger but the holder thereof shall be
entitled only to such rights as are granted by the Dissent Provisions. In the
event the Merger is approved by less than 80% of the total voting power of the
outstanding Company Common Stock, the Company shall give Acquiror prompt written
notice upon receipt by the Company of any written objection to the Merger and
any written demands for payment of the fair cash value of shares of Company
Common Stock, and of withdrawals of such demands, and any other instruments
provided to the Company pursuant to the Dissent Provisions (any shareholder duly
making such demand being hereinafter called a "Dissenting Shareholder"). Each
Dissenting Shareholder who becomes entitled, pursuant to the Dissent Provisions,
to payment of the fair cash value for any shares of Company Common Stock held by
such Dissenting Shareholder shall receive payment therefor from the Surviving
Corporation (but only after the amount thereof shall have been agreed upon or at
the times and in the amounts required by the Dissent Provisions) and all of such
Dissenting Shareholder's shares of Company Common Stock shall be canceled.
Neither the Company nor the Surviving Corporation shall, except with the prior
written consent of Acquiror, voluntarily make any payment with respect to, or
settle or offer to settle, any demand for payment by any Dissenting Shareholder.
If any Dissenting Shareholder shall have failed to perfect or shall have
effectively withdrawn or lost such right to demand payment of the fair cash
value, the shares of Company Common Stock held by such Dissenting Shareholder
shall thereupon be deemed to have converted into the right to receive the
consideration to be issued in the Merger as provided by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule delivered by the Company to
Acquiror prior to the execution of this Agreement (the "Company Disclosure
Schedule"), which identifies exceptions by specific Section references, the
Company hereby represents and warrants to Acquiror as set forth in this Article
III. For purposes of this Article III, references to the "Company" mean solely
Louisiana Independent Physicians Association, Inc. and exclude all Community
Health Entities as well as any obligation or liability of the Company that
exists solely by reason of its status as a partner or shareholder, as the case
may be, of any of the Community Health Entities or as a consolidated parent of
any of them. All representations and warranties that pertain to the Community
Health Entities
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(including, without limitation, representations and warranties pertaining to the
Company Financial Statements (as defined in Section 3.07(b)), to the extent such
Financial Statements include the accounts of any of the Community Health
Entities) are based on the Company's actual knowledge, without independent
investigation or inquiry.
SECTION 3.01 Organization and Qualification; Subsidiaries. The Company is
a corporation, duly incorporated, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation or organization, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction in which the nature of
the business conducted by it or the ownership or leasing of its properties makes
such qualification necessary. Except for CHN, 51% of the outstanding common
stock of which is owned by the Company, the Company does not have any
Subsidiaries.
SECTION 3.02 Articles of Incorporation; By-Laws. The Company has furnished
to Acquiror complete and correct copies of the Articles of Incorporation and the
By-Laws, as amended or restated, of the Company. The Company is not in violation
of any of the provisions of its Articles of Incorporation or By-Laws.
SECTION 3.03 Capitalization; Ownership of Shares.
(a) As of the date of this Agreement, the authorized capital stock of the
Company consists of 5,000 shares of Company Common Stock, of which 418 shares
were issued and outstanding.
(b) Of the shares of CHN common stock outstanding, 900,000 are held
beneficially and of record by the Company. Of the shares of common stock of LHP
outstanding, 490 are held beneficially and of record by the Company.
Information, as of the date of this Agreement, relating to the Company's
beneficial and record ownership of outstanding partnership interests in LHMC, is
set forth in the Company Disclosure Schedule.
(c) Except as described in this Section 3.03, no shares of Company Common
Stock are reserved for any purpose. Since December 31, 1994, no shares of
Company Common Stock have been issued by the Company. Each of the outstanding
shares of Company Common Stock is duly authorized, validly issued, fully paid
and non-assessable, and such shares were issued in compliance with all
applicable federal and state securities Laws. None of the outstanding shares of
Company Common Stock are subject to preemptive rights created by statute, the
Company's Articles of Incorporation or By-Laws or any agreement to which the
Company is a party or by which it is bound. Section 3.03 of the Company
Disclosure Schedule sets forth a true and complete list of the shareholders of
record of the Company, including the name, address and number of shares held by
each such shareholder.
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(d) Each of the outstanding shares of capital stock of, or other equity
interests in, each Community Health Entity that are owned directly or indirectly
by the Company is duly authorized, validly issued, fully paid and, in the case
of capital stock, non-assessable, and such shares or other equity interests are
owned by the Company free and clear of all security interests, liens, claims,
pledges, agreements, limitations on the Company's voting rights, charges or
other encumbrances of any nature whatsoever.
(e) There are no options, warrants or other rights, agreements,
arrangements or commitments to which the Company or, to the Company's knowledge,
any Community Health Entity is a party of any character relating to the issuance
of capital stock of, or other equity interests in, the Company or any Community
Health Entity or obligating the Company or, to the Company's knowledge, any
Community Health Entity to grant, issue, sell or register for sale any shares of
the capital stock of, or other equity interests in, the Company or any Community
Health Entity, by sale, lease, license or otherwise. As of the date of this
Agreement, there are no obligations, contingent or otherwise, of the Company or,
to the Company's knowledge, any Community Health Entity to (i) repurchase,
redeem or otherwise acquire any shares of Company Common Stock, or the capital
stock of, or other equity interests in, any Community Health Entity; or (ii)
provide funds to, or make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any Community Health Entity or any other person.
SECTION 3.04 Authority; Vote Required.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations under this Agreement and
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement (other than with respect to the
approval and adoption of this Agreement by the holders of Company Common Stock
in accordance with Louisiana Law and the Company's Articles of Incorporation and
By-Laws). This Agreement has been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by, and the legal,
valid and binding effect on, Acquiror and Acquiror Sub, constitutes a legal,
valid and binding obligation of the Company, enforceable in accordance with the
terms and conditions hereof.
(b) The affirmative vote of the holders of two-thirds of the voting power
of Company Common Stock present at the Shareholder Meeting (as defined in
Section 6.08(b)) is the only vote of the holders of any class or series of
capital stock
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of the Company necessary to approve the Merger under the provisions of Louisiana
Law and the Company's Articles of Incorporation and Bylaws.
SECTION 3.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Incorporation or By-Laws or equivalent organizational
documents of the Company; (ii) subject to (A) obtaining the requisite approval
and adoption of this Agreement by the holders of the outstanding shares of the
Company Common Stock in accordance with Louisiana Law and the Company's Articles
of Incorporation and By-Laws, (B) obtaining the consents, approvals,
authorizations and permits of, and making filings with or notifications to, any
Governmental Entity, pursuant to the applicable requirements of any Law
(including any Health Benefit Law) or of any third party listed on Section 3.05
of the Company Disclosure Schedule and (C) the filing and recordation of
appropriate merger documents as required by Louisiana Law, conflict with or
violate any Laws applicable to the Company or by which any of its properties is
bound or affected; or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company is a party or by which the Company
or any of its properties is bound or affected. Section 3.05 of the Company
Disclosure Schedule sets forth a list of all consents, approvals,
authorizations, permits, filings, and notifications of, with and to (i) any
Governmental Entity required to be made, obtained or filed by the Company under
any Health Benefit Law or other Law applicable to the Company or (ii) any other
third party, as a result of the execution and delivery of this Agreement by the
Company and the consummation of the Merger.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entities or other third party, except for (i) the consents,
approvals, authorizations, filings, notices or permits described in Section 3.05
of the Company Disclosure Schedule and (ii) the filing and recordation of
appropriate merger documents as required by Louisiana Law.
SECTION 3.06 Permits; Compliance.
(a) The Company is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary for the Company to own, lease and
operate its properties or to carry on its business as it is now being conducted
(the
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"Company Permits"). No suspension, revocation or cancellation of any of the
Company Permits is pending or, to the knowledge of the Company, threatened. The
Company is not operating in material conflict with, or in material default or
violation of, (i) any Law applicable to the Company or by which any of its
properties is bound or affected or (ii) any of the Company Permits.
(b) To the Company's knowledge, each of the Community Health Entities is in
possession of all material franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders necessary for the Community Health Entities to own, lease and operate
their properties or to carry on their businesses as now being conducted (the
"Community Health Permits"). To the Company's knowledge, no suspension,
revocation or cancellation of any of the Community Health Permits is pending or
threatened. To the Company's knowledge, none of the Community Health Entities is
operating in conflict with, or in default or violation of, (i) any Law
applicable to any of the Community Health Entities or by which any of their
respective properties is bound or affected or (ii) any of the Community Health
Permits, which conflict, default or violation would have a Community Health
Material Adverse Effect.
SECTION 3.07 Reports; Financial Statements.
(a) Since December 31, 1991, the Company has filed all forms, reports
statements and other documents required to be filed by it with (i) the SEC, (ii)
any applicable state securities authorities; and (iii) any other applicable
federal or state regulatory authorities including, without limitation, state
insurance and health regulatory authorities (all such forms, reports, statements
and other documents being collectively referred to as the "Company Reports").
The Company Reports, including all Company Reports filed after the date of this
Agreement and prior to the Effective Time were or will be prepared in all
material respects in accordance with the requirements of applicable Law.
(b) The Company has reviewed copies of (i) the consolidated balance sheet
of the Company as at December 31, 1994 and the related consolidated statements
of operations, shareholders' equity and cash flows for the fiscal year then
ended together with any notes thereto audited by Arthur Andersen LLP (the "1994
Financials"), (ii) the unaudited balance sheets of the Company as at September
30, 1995 and the related unaudited statement of operations for the nine months
then ended (the "1995 Financials"), (iii) the respective balance sheets of CHN,
LHP and LHMC, as at December 31, 1994 and the respective related statements of
operations, and cash flows for the fiscal year then ended together with any
notes thereto, audited by Arthur Andersen LLP, (the "1994 Louisiana
Financials"), and (iv) the unaudited balance sheets as at September 30, 1995,
and the related unaudited comparative statement of operations for the nine
months then ended for each of CHN, LHP and LHMC (the "1995 Louisiana
Financials"). The 1994 Financials and the 1995 Financials are sometimes
collectively referred to herein as the "Company Financial Statements," and the
1994 Louisiana Financials and the 1995 Louisiana
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Financials are sometimes collectively referred to herein as the "Louisiana
Financial Statements." Copies of the Company Financial Statements have been
delivered to Acquiror. Those portions of the Company Financial Statements
relating directly to the Company on an unconsolidated basis present fairly in
accordance with GAAP the financial position of the Company as of the respective
date thereof and the results of operations and cash flows for the periods
indicated, except that such Company Financial Statements are not consolidated
with the majority owned subsidiary, do not include a statement of cash flows,
and omit substantially all disclosures. The 1995 Financials and Louisiana
Financials are subject to normal and recurring year-end adjustments and
consolidation. To the Company's knowledge, the Louisiana Financial Statements
(including, in each case, any related notes to such statements, if any) do not
contain any material inaccuracy that would cause such financial statements not
to present fairly in accordance with GAAP, in all material respects, the
financial position of CHN, LHP and LHMC, as the case may be, as of the
respective dates thereof and the results of operations and cash flows of each
such entity for the periods indicated, except that the 1995 Louisiana Financial
Statements are subject to normal and recurring year-end adjustments which, to
the Company's knowledge, are not expected to be material in amount and do not
have statements of cash flows and accompanying footnotes.
(c) The Company does not actively conduct, and has not ever actively
conducted, any trade or business, except indirectly through the Community Health
Entities. The Company does not have any assets other than the equity interests
in the Community Health Entities, as described in this Agreement. Except as and
to the extent set forth on the Company Financial Statements, including all notes
thereto, the Company does not have any material liabilities or obligations of
any nature (whether known or unknown, matured or unmatured, and whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of the Company or in the notes thereto
prepared in accordance with GAAP, other than those incurred in the ordinary
course of business since September 30, 1995 that would not have a Community
Health Material Adverse Effect and none of which is a liability resulting from
breach of contract, breach of warrant, tort, infringement, claim or lawsuit and
except for those incurred in connection with this Agreement and the transactions
contemplated hereby, none of which would constitute a Community Health Material
Adverse Effect.
SECTION 3.08 Absence of Certain Changes or Events. Except as
contemplated in connection with the transactions referred to in this Agreement,
since December 31, 1994:
(a) the Company has conducted its business only in the ordinary and usual
course, consistent with past practice;
(b) there has not been any material adverse change in the condition
(financial or otherwise), results of operations, business, properties, assets or
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liabilities of the Company or any development which reasonably could be expected
to result in any such material adverse change;
(c) the Company has not hired any employees and the Company has not made
any increase in compensation to officers or key employees or any increase in any
or created any new bonus, insurance, pension or other employee benefit plan,
payment or arrangement (including, but not limited to, the granting of employee
stock options), except for increases granted in the ordinary course of business
consistent with past practice;
(d) the Company has not made any loans or advances to any of the Company's
officers, directors, shareholders or affiliates;
(e) the Company has not declared or paid, or accrued any liability for the
payment of, any dividends or made any other distributions to its shareholders
with respect to shares of its capital stock;
(f) the Company has not entered into any commitment or transaction
(including without limitation any borrowing or capital expenditure);
(g) there has not been any change in the accounting methods or practices
followed by the Company, except as required by GAAP;
(h) the Company has not incurred any debt, liability or obligation, whether
accrued, absolute, contingent or otherwise;
(i) the Company has not issued, redeemed or repurchased any stock, bond or
other security;
(j) the Company has not experienced any damage, theft or loss in an amount
exceeding $25,000 in the aggregate;
(k) the Company has not relinquished any contract or contract right;
(l) the Company has not sold, assigned or transferred any of its assets
(tangible or intangible); and
(m) the Company has not entered into any commitment (contingent or
otherwise) to do any of the foregoing.
SECTION 3.09 Absence of Litigation.
(a) Section 3.09(a) of the Company Disclosure Schedule lists and briefly
describes all claims, actions, suits, litigation, proceedings, arbitrations or,
to the knowledge of the Company, investigations of any kind to which the Company
is a party, at law or in equity (including actions or proceedings seeking
injunctive
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relief), which are pending or, to the knowledge of the Company, threatened,
other than grievance proceedings in the ordinary course of business. There is no
action pending against the Company seeking to enjoin or restrain the Merger or
the transactions contemplated by this Agreement.
(b) The Company is not subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
knowledge of the Company, continuing investigation by any Governmental Entity,
or any judgment, order, writ, injunction, decree or award of any Governmental
Entity or arbitrator, including, without limitation, cease-and-desist or other
orders.
(c) Copies of all correspondence delivered to the Company's external
certified public accountants by the Company's counsel in connection with any
audit report by the Company's external certified public accountants for the
three years prior to this Agreement relating to loss contingencies have been
provided to Acquiror.
SECTION 3.10 Contracts; No Default.
(a) Section 3.10(a) of the Company Disclosure Schedule sets forth as of the
date of this Agreement a list of each written Contract, and to the knowledge of
the Company, each material, oral Contract between the Company on the one hand,
and any person or entity on the other hand.
(b) Correct and complete copies of all written Contracts required to be
disclosed on Section 3.10(a) of the Company Disclosure Schedule have been made
available to Acquiror and, to the knowledge of the Company, the essential terms
of all oral Contracts required to be disclosed thereon have been disclosed to
Acquiror.
(c) Each Contract to which the Company is a party is in full force and
effect, each is a legal, valid and binding Contract and there is no material
default (or any event known to the Company which, with the giving of notice or
lapse of time or both, would be a material default) by the Company or any other
party, in the timely performance of any obligation to be performed or paid under
any such Contract.
(d) As of the date of this Agreement, to the Company's knowledge, the
relationships of the Community Health Entities with their material contract
providers, are good commercial working relationships. To the Company's
knowledge, during the 12 months prior to the date of this Agreement, no material
contract provider or group of contract providers to the Community Health
Entities who are shareholders of the Company has canceled or otherwise
terminated its relationship with any Community Health Entity, and, to the
Company's knowledge, no such contract provider or group of contract providers
has given notice that it may cancel or otherwise terminate its relationship with
any Community Health Entity.
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SECTION 3.11 Employee Benefit Plans; Employees. Neither the Company
(except through the Community Health Entities) nor any of its ERISA Affiliates
(other than the Community Health Entities) maintains, sponsors or serves as a
fiduciary of, is bound by, or has any liability under any Employee Benefit Plan.
The Company has no employees and is not a party to any employment Contracts.
SECTION 3.12 Taxes.
(a) (i) All Returns (as defined below) in respect of Taxes (as defined
below) required to be filed with respect to the Company (including any
consolidated federal income tax returns of the Company and any state tax returns
that include the Company on a consolidated, combined or unitary basis) are true,
correct and complete in all material respects (but solely to the extent such
returns relate to the Company), have been timely filed (including extensions),
and no extension of time within which to file any such Return has been
requested, which Return has not since been filed;
(ii) All Taxes shown on such Returns or otherwise known by the Company to
be due or payable have been timely paid and all payments of estimated Taxes
required to be made with respect to the Company under Section 6655 of the Code
or any comparable provision of state, local or foreign law have been made on the
basis of the Company's good faith estimate of the required installments, and all
Taxes of the Company which will be due and payable, whether now or hereafter,
for any period ending on, prior to or including the Closing Date, shall have
been paid by or on behalf of the Company or shall be reflected on the Company's
books as an accrued Tax liability, either current or deferred, the amount of
which as of the date of the Company Financial Statements is set forth on Section
3.12 of the Company Disclosure Schedule;
(iii) No adjustment relating to any of such Returns has been proposed in
writing by any Tax authority, except proposed adjustments that have been
resolved prior to the date hereof;
(iv) There are no outstanding subpoenas or requests for information with
respect to any federal income tax Returns of the Company or the Taxes reflected
on such Returns;
(v) There are no Tax liens on any assets of the Company other than liens
for Taxes not yet due or payable; and
(vi) All Taxes required to be withheld, collected or deposited by the
Company during any taxable period for which the statute of limitations on an
assessment remains open have been timely withheld, collected or deposited and,
to the extent required, have been paid to the relevant Tax authority.
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(b) (i) There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax, other than real
or personal property Taxes, to which the Company may be subject; and
(ii) the Company is not, as of the date of this Agreement, under audit with
respect to any taxable period for any federal, state, local or foreign Tax
(including income and franchise Taxes but not including real or personal
property Taxes) by the Internal Revenue Service or the applicable Tax authority
in each such state, local, or foreign jurisdiction.
(c) For the purposes of this Section 3.12, references to the Company shall
include former Subsidiaries of the Company for periods during which any such
corporations were owned, directly or indirectly, by the Company but shall not
include the Community Health Entities.
SECTION 3.13 Intellectual Property Rights. Section 3.13 of the Company
Disclosure Schedule sets forth (a) all patents, patents pending, trademarks,
servicemarks, trade names, service names, slogans, registered copyrights, and
commercially significant unregistered copyrights owned, used, or licensed by the
Company (the "Marks and Rights"), and (b) all litigation and claims brought or
made by the Company since December 31, 1993 or by a third party against the
Company involving the Marks and Rights or other intellectual property rights,
including all conflicting claims of ownership and claims of infringement of the
Marks and Rights or other intellectual property rights. The Company owns or
possesses the right to use all Marks and Rights it currently uses, without any
known conflict with the rights of others.
SECTION 3.14 Certain Business Practices and Regulations. Neither the
Company nor any of its executive officers, directors, or managerial employees
and, to the Company's knowledge, neither any Community Health Entity nor any of
their respective executive officers, directors, or managerial employees has (i)
made or agreed to make any contribution, payment or gift to any customer,
supplier, governmental official, employee or agent where either the
contribution, payment or gift or the purpose thereof was illegal under any Law,
(ii) established or maintained any unrecorded fund or asset of the Company for
any improper purpose or made any false entries on its books and records for any
reason, (iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other person, to any candidate for
federal, state or local public office in violation of any Law, or (iv) engaged
in any activity constituting fraud or abuse under the Laws relating to health
care, insurance or the regulation of professional corporations.
SECTION 3.15 Insurance. All policies and binders of insurance for
professional liability, directors and officers, fire, property and casualty,
liability, worker's compensation and other customary matters held by or on
behalf of the Company ("Insurance Policies") have been made available to
Acquiror. The Insurance Policies are in full force and effect and the Company is
not in default with
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respect to any provision contained in any Insurance Policy nor has the Company
failed to give any notice of any known claim under any Insurance Policy in due
and timely fashion, nor has any coverage for current claims been denied, except
where such default or failure as of the date of this Agreement, individually or
in the aggregate, could not reasonably be expected to result in a cost to the
Company in excess of $50,000. The business policy of the Company is to require
that each individual or entity rendering professional health care services as an
employee of or contractor to the Company maintain professional liability
insurance and the Company has no reason to believe that such individuals and
entities in the aggregate generally do not comply with such policy of the
Company.
SECTION 3.16 Tax Matters. To the Company's knowledge, neither the Company
nor any of its affiliates or shareholders has taken or agreed to take any action
that would prevent the Merger from constituting a transaction qualifying under
Section 368(a) of the Code.
SECTION 3.17 Certain Relationships. To the Company's knowledge, none of
the executive officers or directors of the Company or any entity (other than a
Community Health Entity) Controlled by the Company or any member of the
immediate family of any of the foregoing:
(a) owns, directly or indirectly, any interest in (except for stock
holdings not in excess of 2% held solely for investment purposes in securities
which are listed on a national securities exchange or which are regularly traded
in the over-the-counter market), or, except for directors of the Company who are
medical services providers to competitors of the Community Health Entities, is
an owner, sole proprietor, shareholder, partner, director, officer, employee,
provider, consultant or agent, of any person which is a competitor, lessor,
lessee or customer of, or supplier of goods or services to, the Company or a
Community Health Entity.
(b) owns, directly or indirectly, in whole or in part, any real property,
leasehold interests, tangible property or intangible property which the Company
or a Community Health Entity currently use in their respective businesses;
(c) has asserted any suit, action or claim whatsoever against, or owes any
amount, to the Company or a Community Health Entity except for claims against a
Community Health Entity in the ordinary course of business, such as for accrued
benefits under Employee Benefit Plans and similar matters;
(d) has sold to, or purchased from, the Company or a Community Health
Entity any assets or property for consideration in excess of $25,000 in the
aggregate; or
(e) has the right to borrow a material amount of funds from the Company or
a Community Health Entity.
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As used in this Section 3.17, a person's immediate family shall mean such
person's spouse, parents, children, siblings, mothers and fathers-in-law, sons
and daughters-in-law, and brothers and sisters-in-law.
SECTION 3.18 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company, except with respect to the opinion referred to in
Section 3.20.
SECTION 3.19 Properties. The Company does not own any real property.
There is no real property leased by the Company, other than under leases
covering less than 20,000 square feet of rentable space for which $200,000 or
less per year is due as gross rent, including any operating expenses.
SECTION 3.20 Fairness Opinion. The Company has delivered to Acquiror the
written opinion of The Robinson-Humphrey Company, Inc. addressed to the board of
directors of the Company, dated as of the date of this Agreement, to the effect
that, as of the date of this Agreement, the Merger is fair to the Company's
shareholders from a financial point of view, and such opinion has not been
withdrawn.
SECTION 3.21 Disclosure. Each of the representations and warranties set
forth in this Article III shall be deemed made at and as of the date of this
Agreement and again at and as of the Effective Time, as if made at such time,
except to the extent such representations and warranties specifically refer to a
date other than the date of this Agreement. No representation or warranty
contained in this Agreement or in the Company Disclosure Schedule, or in any
document delivered by the Company to Acquiror pursuant to Article VIII of this
Agreement, contains, or will at the Effective Time contain, any untrue statement
of a material fact or omits or will at, the Effective Time, omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were or will be made, not misleading. No material
facts relating to the ongoing business decisions or financial condition of the
Company have been withheld from Acquiror, and copies of all documents which have
been delivered or made available to Acquiror are true, correct and complete
copies thereof, and include all amendments, supplements or modifications thereto
or waivers thereunder. To the extent the three preceding sentences pertain to
representations and warranties concerning the Community Health Entities, they
are given to the knowledge of the Company.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB
Except as set forth in the Disclosure Schedule delivered by Acquiror and
Acquiror Sub to the Company prior to the execution of this Agreement (the
"Acquiror Disclosure Schedule"), which identifies exceptions by specific Section
references, Acquiror and Acquiror Sub hereby jointly and severally represent and
warrant to the Company that:
SECTION 4.01 Organization and Qualification; Subsidiaries. Each of
Acquiror and Acquiror Sub is a corporation, duly incorporated, validly existing
and in good standing under the Laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted.
SECTION 4.02 Articles of Incorporation; By-Laws. Acquiror has furnished
to the Company a complete and correct copy of the Articles of Incorporation and
the By-Laws, as amended or restated, of each of Acquiror and Acquiror Sub.
Neither Acquiror nor Acquiror Sub is in violation of any of the provisions of
its Articles of Incorporation or By-Laws.
SECTION 4.03 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
Acquiror consists of (i) 300,000,000 shares of Acquiror Common Stock and (ii)
10,000,000 shares of preferred stock, par value $0.001 per share ("Acquiror
Preferred Stock"). As of the close of business on December 31, 1995, (A)
185,200,670 shares of Acquiror Common Stock were issued and outstanding, all of
which are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, Acquiror's Articles of
Incorporation or By-Laws or any agreement to which Acquiror is a party or is
bound; (B) 200,000 shares of Acquiror Common Stock were reserved for future
issuance pursuant to Acquiror's 1993 Employee Stock Purchase Plan ("Acquiror's
Stock Purchase Plan") in accordance with the terms of such Plan; (C) no shares
are held in the treasury of Acquiror. As of the date of this Agreement, 500,000
shares of Acquiror's 5.75% Series A Convertible Preferred Stock were issued and
outstanding. As of the close of business on October 2, 1995, 33,221,250 shares
of Acquiror Common Stock were reserved for future issuance pursuant to options
outstanding pursuant to Acquiror's stock option and incentive plans relating to
stock options and awards for certain officers, employees, consultants and
directors.
(b) The authorized capital stock of Acquiror Sub consists of 1,000 shares
of Acquiror Sub Common Stock of which, as of the date of this Agreement, 100
shares are issued and outstanding. On the date of this Agreement, all issued and
outstanding shares of Acquiror Sub Common Stock are, and at the Effective Time,
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all issued and outstanding shares of Acquiror Sub Common Stock will be, duly
authorized, validly issued, fully paid and non-assessable.
(c) Except as disclosed in the Acquiror SEC Reports (as defined in Section
4.06(a)) or as disclosed in this Section 4.03, as of the date of this Agreement,
there are no options, warrants or other rights, agreements, arrangements or
commitments to which Acquiror or any of its Subsidiaries is a party of any
character relating to the issued or unissued capital stock of, or other equity
interests in, Acquiror or any of its Subsidiaries or obligating Acquiror or any
of its Subsidiaries to grant, issue, sell or register for sale any shares of the
capital stock of, or other equity interests in, Acquiror or any of its
Subsidiaries by sale, lease, license or otherwise, except Acquiror's existing
stock option plans to the extent options have not yet been granted thereunder
and Acquiror's Stock Purchase Plan. As of the date of this Agreement, there are
no obligations, contingent or otherwise, of Acquiror to (i) repurchase, redeem
or otherwise acquire any shares of Acquiror Common Stock or the capital stock
of, or other equity interests in, any Subsidiary of Acquiror; or (ii) except for
guarantees of obligations of, or loans to, Subsidiaries entered into in the
ordinary course of business, provide funds to, make any investment in (in the
form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of, any Subsidiary of Acquiror or any other
person.
(d) The shares of Acquiror Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, Acquiror's Articles of
Incorporation or By-Laws or any agreement to which Acquiror is a party or is
bound.
SECTION 4.04 Authority; Enforceability. Each of Acquiror and Acquiror Sub
has the requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Acquiror and Acquiror Sub, and the consummation by Acquiror and Acquiror Sub
of the transactions contemplated hereby, have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Acquiror or Acquiror Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly executed and delivered by Acquiror and Acquiror Sub and, assuming the
due authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of Acquiror and Acquiror Sub, enforceable in
accordance with its terms.
SECTION 4.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Acquiror and Acquiror
Sub do not, and the performance of this Agreement by Acquiror and Acquiror Sub
will not: (i) conflict with or violate the Articles or Certificate of
Incorporation or By-Laws or equivalent organizational documents of Acquiror or
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Acquiror Sub; (ii) subject to (A) obtaining the consents, approvals,
authorizations and permits of, and making filings with or notifications to, any
Governmental Entities pursuant to the applicable requirements of Law (including
any Health Benefit Law) or of any third party which are required to be disclosed
in Section 3.05 of the Company Disclosure Schedule, (B) the filing and
recordation of appropriate merger documents as required by Louisiana Law and (C)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, any Governmental Entities pursuant to the
applicable requirements of Law (including any Health Benefit Law) or of any
third party described in Section 4.05 of the Acquiror Disclosure Schedule,
conflict with or violate any Laws applicable to Acquiror, Acquiror Sub or any of
Acquiror's Subsidiaries or by which any of their respective properties is bound
or affected; or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Acquiror, Acquiror Sub or any of Acquiror's
Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Acquiror, Acquiror Sub or any of Acquiror's Subsidiaries is a party or
by which Acquiror, Acquiror Sub or any of Acquiror's Subsidiaries or any of
their respective properties is bound or affected, except for any such matters
described in clause (ii) or (iii) that would not have an Acquiror Material
Adverse Effect. Section 4.05 of the Acquiror Disclosure Schedule sets forth a
list of all consents, approvals, authorizations, permits, filings, and
notifications of, with and to (A) any Governmental Entity required to be made,
obtained or filed under any Health Benefit Law or other Law applicable to
Acquiror or (B) any other third party, as a result of the execution and delivery
of this Agreement and the consummation of the Merger, other than those required
to be disclosed in Section 3.05 of the Company Disclosure Schedule.
(b) The execution and delivery of this Agreement by Acquiror and Acquiror
Sub do not, and the performance of this Agreement by Acquiror and Acquiror Sub
shall not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entities or other third party in
addition to those required to be disclosed in the Company Disclosure Schedule,
except for (i) the consents, approvals, authorizations or permits described in
Section 4.05 of the Acquiror Disclosure Schedule, and (ii) the filing and
recordation of appropriate merger documents as required by Louisiana Law.
SECTION 4.06 Reports; Financial Statements.
(a) Since December 31, 1992, Acquiror and its Subsidiaries have filed (i)
all forms, reports, statements and other documents required to be filed with (A)
the SEC (collectively, the "Acquiror SEC Reports") and (B) any applicable state
securities authorities; and (ii) all forms, reports, statements, notices and
other documents required to be filed with any other applicable federal or state
regulatory authorities, including, without limitation, state insurance and
health regulatory
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authorities, except where the failure to file any such forms, reports,
statements, notices and other documents under this clause (ii) would not have an
Acquiror Material Adverse Effect (all such forms, reports, statements, notices
and other documents in clauses (i) and (ii) of this Section 4.06(a) being
collectively referred to as the "Acquiror Reports"). The Acquiror Reports,
including all Acquiror Reports filed after the date of this Agreement and prior
to the Effective Time, were or will be prepared in all material respects in
accordance with the requirements of applicable Law (including, with respect to
the Acquiror SEC Reports, the Securities Act and the Exchange Act, as the case
may be).
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Acquiror SEC Reports, including any
Acquiror SEC Reports filed after the date of this Agreement and prior to the
Effective Time, (i) have been or will be prepared in all material respects in
accordance with the published rules and regulations of the SEC and GAAP applied
on a consistent basis throughout the periods involved (except (x) to the extent
required by changes in GAAP and (y) with respect to Acquiror SEC Reports filed
prior to the date of this Agreement, as may be indicated in the notes thereto)
and (ii) fairly present or will fairly present the consolidated financial
position of Acquiror and its Subsidiaries as of the respective dates thereof and
the consolidated results of operations and cash flows for the periods indicated,
except that (A) any unaudited interim financial statements were or will be
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount and (B) any pro forma financial information
contained in such consolidated financial statements is not or may not be
necessarily indicative of the consolidated financial position of Acquiror and
its Subsidiaries as of the respective dates thereof and the consolidated results
of operations and cash flows for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance sheet
of Acquiror and its Subsidiaries at December 31, 1994, including all notes
thereto, neither Acquiror nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether known or unknown, matured or unmatured, and
whether accrued, absolute, contingent or otherwise) that would be required to be
reflected on, or reserved against in, a balance sheet of Acquiror or in the
notes thereto, prepared in accordance with the published rules and regulations
of the SEC and GAAP, except (i) as otherwise reported in the consolidated
financial statements contained in Acquiror's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995, or (ii)
for liabilities or obligations incurred in the ordinary course of business since
December 31, 1994 that would not have an Acquiror Material Adverse Effect, and
none of which is a liability resulting from breach of contract, breach of
warranty, tort, infringement, claim or lawsuit. To the knowledge of Acquiror and
Acquiror Sub, the financial information regarding the Louisiana operations of
The MetraHealth Companies provided to The Robinson-Humphrey Company, Inc. is
complete and accurate.
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SECTION 4.07 Tax Matters. To the knowledge of Acquiror, neither Acquiror
nor any of its affiliates has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
SECTION 4.08 Ownership of Acquiror Sub; No Prior Activities.
(a) Acquiror Sub was formed for the purpose of engaging in the transactions
contemplated by this Agreement.
(b) As of the Effective Time, all of the outstanding capital stock of
Acquiror Sub will be owned directly by Acquiror. As of the Effective Time, there
will be no options, warrants or other rights (including registration rights),
agreements, arrangements or commitments to which Acquiror Sub is a party of any
character relating to the issued or unissued capital stock of, or other equity
interests in, Acquiror Sub or obligating Acquiror Sub to grant, issue or sell
any shares of the capital stock of, or other equity interests in, Acquiror Sub,
by sale, lease, license or otherwise. There are no obligations, contingent or
otherwise, of Acquiror Sub to repurchase, redeem or otherwise acquire any shares
of the capital stock of Acquiror Sub.
(c) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, Acquiror Sub has not and will
not have incurred, directly or indirectly, through any Subsidiary or affiliate,
any obligations or liabilities or engaged in any business activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
person.
SECTION 4.09 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Acquiror except to the extent, if any, Acquiror may retain such
person to render an opinion or provide other advisory services to Acquiror in
connection with this transaction and without liability to the Company.
SECTION 4.10 Effective Time; Disclosure. Each of the representations and
warranties set forth in this Article IV shall be deemed made at and as of the
date of this Agreement and again at and as of the Effective Time, as if made at
such time, except to the extent such representations and warranties specifically
refer to a date other than the date of this Agreement. No representation or
warranty contained in this Agreement or in the Acquiror Disclosure Schedule, or
in any document delivered by the Acquiror to the Company pursuant to Article VII
of this Agreement, contains or will, at the Effective Time, contain any untrue
statement of a material fact or omits or will, at the Effective Time, omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which
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they were or will be made, not misleading. To the knowledge of Acquiror, no
material facts relating to the ongoing business decisions or financial condition
of Acquiror or Acquiror Sub have been withheld from the Company, and copies of
all documents which have been delivered or made available to the Company are
true, correct and complete copies thereof, and include all amendments,
supplements or modifications thereto or waivers thereunder.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01 Affirmative Covenants of the Company. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Acquiror,
the Company will:
(a) operate its business in the usual and ordinary course consistent with
past practice; and
(b) use reasonable efforts to keep in full force and effect property and
casualty insurance and bonds comparable in amount and scope of coverage to that
currently maintained;
(c) use reasonable efforts to obtain extended reporting endorsements (tail
coverage), effective as of and following the Effective Time, on the fiduciary
liability, professional liability and directors and officers liability policies
currently covering the Company or its officers and directors. At Acquiror's
request, the Company will submit to the applicable insurer a full and complete
list of any known potential claims under the policy issued by such insurer; and
(d) use reasonable efforts to cause each of the conditions set forth in
Article VII to be satisfied as soon as practicable after the date of this
Agreement.
SECTION 5.02 Negative Covenants of the Company. Except as expressly
contemplated by this Agreement, as set forth in Section 5.02 of the Company
Disclosure Schedule or otherwise consented to in writing by Acquiror, from the
date of this Agreement until the Effective Time, the Company shall not do any of
the following:
(a) (i) increase the compensation payable or to become payable to any
director, officer or employee, except for increases in salary or wages payable
or to become payable in the ordinary course of business and consistent with past
practice; (ii) grant any severance or termination pay to, or enter into or amend
any severance agreement with, any director, officer or employee, (iii) subject
to clause (i), enter into or amend any employment agreement with any director,
officer or employee that would extend beyond the Effective Time except on an at-
will basis; or (iv) establish,
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adopt, enter into or amend any Employee Benefit Plan except as may be required
to comply with applicable Law or the Code;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or any options, warrants or conversion or other
rights to acquire any shares of its capital stock or any such securities or
obligations; (ii) effect any reorganization or recapitalization; or (iii) split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock;
(d) issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale (including the grant of any security interests,
liens, claims, pledges, limitations in voting rights, charges or other
encumbrances) of, any shares of any class of its capital stock (including shares
held in treasury), any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to acquire,
any such shares;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than the purchase of assets from
suppliers or vendors in the ordinary course of business and consistent with past
practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, any of its assets;
(g) directly or indirectly solicit or initiate any discussions or
negotiations with, or in any way participate in any negotiations with or provide
any information to or otherwise cooperate in any other way with, or facilitate
or encourage any effort to attempt to, or enter into any agreement or
understanding with, any person or group of persons (other than Acquiror and its
directors, officers, employees, representatives and agents), concerning any
Competing Transaction (as defined below), or authorize any of the officers or
directors of the Company to take any such action, except, in any such case, as
may be required by the directors and officers of the Company in the exercise of
their fiduciary duties as evidenced by a written opinion of counsel experienced
in such matters, and, with the same exception, the Company shall use reasonable
efforts to cause the directors, officers, employees, agents, shareholders and
representatives of the Company (including, without limitation, any investment
banker, financial advisor, attorney or accountant retained by the Company) not
to take any such action. The Company
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shall promptly notify Acquiror (i) if any inquiries, or proposals or requests
for information concerning a Competing Transaction are received by the Company
or any of its respective officers or directors, or (ii) when the Company becomes
aware that any such inquiries or proposals have been received by the Company's
investment bankers, financial advisors, attorneys, accountants, other
representatives or shareholders.
For purposes of this Agreement, "Competing Transaction" shall mean any of
the following involving the Company or any Community Health Entity (other than
the transactions contemplated by this Agreement): (A) any sale of stock or other
equity interests, merger, consolidation, share exchange, business combination,
or other similar transaction; (B) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of any of the Company's interest in the Community
Health Entities or 20% or more of the assets of the Company in a single
transaction or a series of related transactions; or (C) any agreement to, or
public announcement by the Company of a proposal, plan or intention to, do any
of the foregoing;
(h) adopt any amendments to its Articles of Incorporation or By-Laws;
(i) (i) change any of its methods of accounting in effect at December 31,
1994, or (ii) make or rescind any express or deemed election relating to Taxes,
(iii) settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or (iv)
change any of its methods of reporting income or deductions for federal income
Tax purposes from those employed in the preparation of the federal income Tax
returns for the taxable year ending December 31, 1994, except in the case of
clauses (i) or (iv), as may be required by Law, the IRS or GAAP and after
consultation with Acquiror;
(j) incur any obligation for borrowed money or purchase money indebtedness,
whether or not evidenced by a note, bond, debenture or similar instrument,
except for borrowings made in the ordinary course of business and consistent
with past practice; or
(k) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03 Affirmative Covenants of Acquiror. Acquiror hereby covenants
and agrees that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by the Company,
Acquiror will, and will cause each of its Subsidiaries to:
(a) operate its business in the usual and ordinary course (taking into
account Acquiror's acquisition program); and
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(b) use reasonable efforts to cause each of the conditions set forth in
Article VII to be satisfied as soon as practicable after the date of this
Agreement.
SECTION 5.04 Access and Information.
(a) The Company shall (and shall cause its Subsidiaries to) afford to the
Acquiror and its respective officers, employees, accountants, consultants, legal
counsel and other representatives reasonable access upon reasonable notice to
all information concerning the business, properties, contracts, and personnel of
the Company or its Subsidiaries as Acquiror may reasonably request.
(b) The Acquiror and the Acquiror Sub shall afford to the Company and its
officers, employees, accountants, consultants, legal counsel and other
representatives reasonable access upon reasonable notice to all information
reasonably related to Acquiror's business, properties and contracts as the
Company may reasonably request and which is reasonably necessary in connection
with the transactions contemplated by this Agreement.
(c) Each party will, and will use reasonable efforts to cause its officers,
employees, accountants, consultants, legal counsel and other representatives to,
not disclose to any person any information regarding the other parties
(including information regarding the business, properties, contracts or
personnel of such other parties) or any of the terms or conditions of this
Agreement or the other agreements and transactions contemplated hereby;
provided, however, that (i) any of such information may be disclosed to a
party's officers, employees, accountants, consultants, legal counsel or other
representatives who need to know such information in connection with this
Agreement and the transactions contemplated hereby, (ii) any disclosure of such
information may be made to which the other parties consent in writing; and such
information may be disclosed in the Registration or Proxy Statement (as defined
in Section 6.08(a)) to the extent required or appropriate. Notwithstanding the
foregoing, this Section 5.04(c) shall not apply to information which (A) is
already in a party's possession (provided that such information is not known by
such party to be subject to another confidentiality agreement with or other
obligation of secrecy to another party), (B) becomes generally available to the
public other than as a result of a disclosure by a party or its officers,
employees, accountants, consultants, legal counsel or other representatives, or
(C) becomes available to a party on a nonconfidential basis from a source other
than another party or its officers, employees, accountants, consultants, legal
counsel or other representatives (provided that such source is not known by such
party to be bound by a confidentiality agreement with or other obligation of
secrecy to another party).
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Meeting of Shareholders. The Company shall take all action
necessary in accordance with Louisiana Law and its Articles of Incorporation and
By-Laws to present this Agreement and the Merger for the vote or consent of
shareholders required by Louisiana Law to adopt and approve this Agreement and
the Merger, including calling a meeting of shareholders or obtaining and
executing a written consent in lieu of a shareholders meeting in accordance with
the Louisiana Law.
SECTION 6.02 Appropriate Action; Consents; Filings.
(a) Subject to the terms and conditions of this Agreement, each party
hereto shall use all reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Agreement as promptly
as practicable, except that no party shall be required hereby to waive any
condition in Article VII, (ii) obtain from any Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Acquiror or the Company or any of their
respective Subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions contemplated
in this Agreement, including, without limitation, the Merger, and (iii) make all
necessary notifications and filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under
applicable Health Benefits Laws and other applicable Laws; provided that,
Acquiror and the Company shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such documents to
the non-filing party and its advisors prior to filing and, if requested, to
accept all reasonable additions, deletions or changes suggested in connection
therewith. The Company and Acquiror shall furnish to each other all information
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable Law in connection with the transactions
contemplated by this Agreement.
(b) (i) The Company and Acquiror shall give (or shall cause their
respective Subsidiaries and each of the Community Heath Entities to give) any
notices to third parties, and use, and cause their respective Subsidiaries to
use, all reasonable efforts to obtain any third party consents (A) disclosed in
the Company Disclosure Schedule or the Acquiror Disclosure Schedule, as the case
may be, or (B) which are otherwise identified by Acquiror or required to prevent
a Company Material Adverse Effect from occurring prior to or after the Effective
Time or an Acquiror Material Adverse Effect from occurring after the Effective
Time.
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(ii) In the event that either party shall fail to obtain any third party
consent described in subsection (b)(i) above, such party shall use all
reasonable efforts, and shall take any such actions reasonably requested by the
other party, to minimize any adverse effect upon the Company and Acquiror, their
respective Subsidiaries, and their respective businesses resulting, or which
could reasonably be expected to result after the Effective Time, from the
failure to obtain such consent.
(c) From the date of this Agreement until the Effective Time, the Company
shall promptly notify Acquiror in writing of any pending or, to the knowledge of
the Company, threatened action, proceeding or investigation by any Governmental
Entity or any other person (i) challenging or seeking material damages in
connection with the Merger or the conversion of the Company Common Stock into
the Merger Consideration pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of Acquiror
to own or operate all or any portion of the businesses or assets of the Company
or the Community Health Entities.
(d) From the date of this Agreement until the Effective Time, the Acquiror
shall promptly notify the Company in writing of any pending or, to the knowledge
of Acquiror, threatened action, proceeding or investigation by any Governmental
Entity or any other person (i) challenging or seeking material damages in
connection with the Merger or the conversion of the Company Common Stock into
the Merger Consideration pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of the
Acquiror or its Subsidiaries to own or operate all or any portion of the
business or assets of the Company or the Community Health Entities.
SECTION 6.03 Update Disclosure; Breaches. From and after the date of this
Agreement until the Effective Time, each party shall promptly notify the other
parties by written update to its Disclosure Schedule of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any condition to the obligations of any party to effect the
Merger and the other transactions contemplated by this Agreement not to be
satisfied, or (ii) the failure of the Company or Acquiror, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it pursuant to this Agreement which would be likely to
result in any condition to the obligations of any party to effect the Merger and
the other transactions contemplated by this Agreement not to be satisfied;
provided, however, that the delivery of any notice pursuant to this Section 6.03
shall not cure any breach of any representation or warranty requiring disclosure
of such matter prior to the date of this Agreement or otherwise limit or affect
the remedies available to the party receiving such notice except as expressly
provided in Section 9.02(a).
SECTION 6.04 Tax Treatment. Each party shall use reasonable efforts to
cause the Merger to qualify, and shall not take any actions which could prevent
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the Merger from qualifying, as a reorganization under the provisions of Section
368(a) of the Code.
SECTION 6.05 Public Announcements. Acquiror and the Company shall consult
in good faith with each other before issuing any press release or otherwise
making any public statements with respect to the Merger or this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation and obtaining the consent of the other parties, except as
may be required by Law or the requirements of the NYSE.
SECTION 6.06 Indemnification of Directors and Officers.
(a) From and after the Effective Time, Acquiror shall, and shall cause the
Surviving Corporation, jointly and severally, to indemnify, defend and hold
harmless the present and former officers and directors of the Company
(collectively, the "Indemnitees") against all losses, expenses (including
reasonable attorney's fees), claims, damages, liabilities, costs or judgments or
amounts that are paid in settlement with the written consent of Acquiror arising
out of actions or omissions occurring at or prior to the Effective Time in the
Indemnitees' respective capacities as officers and/or directors of the Company
and/or any of the Community Health Entities (including the transactions
contemplated by this Agreement but excluding claims against an Indemnitee
relating to that Indemnitee's purchase of Company Common Stock from another
shareholder of the Company) to the full extent permitted as of the date of this
Agreement by the Louisiana Law or the Company's Articles of Incorporation and
Bylaws (and shall also advance expenses as incurred to the fullest extent
permitted under the Louisiana Law or the Company's Articles of Incorporation and
Bylaws; provided that the person to whom expenses are advanced provides an
undertaking to repay such advances as contemplated by applicable Law or such
Articles of Incorporation or Bylaws). The Company shall use reasonable efforts
to obtain extended reporting endorsements (tail coverage) on the fiduciary
liability, professional liability and directors and officers liability policies
currently covering the Company or any of the Indemnitees required to be
indemnified by Acquiror at a commercially reasonable cost, effective as of and
following the Closing; provided that such coverage and the cost thereof shall be
subject to Acquiror's approval. In connection with such efforts, the Company
will use its reasonable efforts to accurately complete any insurance
applications and forms of the applicable insurer and take any reasonable steps
to preserve any known claims, including submitting a full and complete list of
any potential claims of which the Company has knowledge, under the policy issued
by such insurer. In the event the Company is unable to obtain such extended
reporting coverage under the Company's existing directors and officers liability
insurance policies at a commercially reasonable cost, Acquiror shall use
reasonable efforts to provide similar coverage for those Indemnitees that it is
required to indemnify under policies then maintained by Acquiror; provided that
such similar coverage is available to Acquiror at a commercially reasonable
cost. Notwithstanding any provisions of this Section 6.06(a), failure by the
Company, Acquiror, or both, despite
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use of their respective reasonable efforts, to obtain such extended reporting
endorsements or to provide such similar coverage under Acquiror's policies shall
not in any way affect, lessen or excuse Acquiror from its obligation to, and to
cause the Surviving Corporation to, indemnify, defend and hold harmless the
Indemnitees to the extent required by this Section 6.06.
(b) In the event any claim, action, suit, proceeding or investigation (a
"D&O Claim") for which indemnification is provided under this Section 6.06 is
brought against an Indemnitee (whether arising before or after the Closing)
after the Closing (i) such Indemnitee may retain counsel satisfactory to it
(subject to prior reasonable approval by Acquiror and subject to the terms and
conditions of the applicable directors and officers liability insurance or
fiduciary liability insurance policies), (ii) the indemnifying party shall pay
all reasonable fees and expenses of such counsel for such Indemnitee promptly as
statements therefor are received (subject to the ability of the indemnifying
party to receive such information relative to the legal services provided as is
customarily provided and reasonably requested by the indemnifying party and
provided that nothing in this Section 6.06 shall prevent the indemnifying party
from disputing any fees it believes are not reasonable), and (iii) the
indemnifying party will use all reasonable efforts to assist in the vigorous
defense of any such matter, provided that the indemnifying party shall not be
liable for any settlement of any D&O Claim effected without its written consent,
which consent will not be unreasonably withheld. Any Indemnitee wishing to claim
indemnification under this Section 6.06, upon learning of any such D&O Claim,
shall notify the appropriate indemnifying party (but the failure so to notify
such indemnifying party shall not relieve it from any liability which it may
have under this Section 6.06 except to the extent such failure materially
prejudices such indemnifying party), and shall deliver to such indemnifying
party the expense reimbursement undertaking contemplated by applicable Law. The
Indemnitees as a group may retain only one law firm to represent them with
respect to each such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnitees.
(c) This Section 6.06 is intended to benefit the Indemnitees, shall be
enforceable by each Indemnitee and his or her heirs and representatives, and
shall be binding on all successors and assigns of the Company and Acquiror.
SECTION 6.07 Obligations of Acquiror Sub. Acquiror shall take all action
necessary to cause Acquiror Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
SECTION 6.08 Registration of Acquiror Common Stock.
(a) As promptly as practicable after the execution of this Agreement,
Acquiror shall prepare and file with the SEC a registration statement on Form
S-4 (the registration statement together with the amendments thereto being the
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"Registration Statement"), complying in all material respects with the
applicable requirements of the Securities Act and Exchange Act, in connection
with the registration under the Securities Act of the Acquiror Common Stock
issuable in the Merger. As promptly as practicable after the execution of this
Agreement, the Company shall cause to be prepared those portions of the proxy
statement/prospectus contained in the Registration Statement that pertain
directly to the Company, and a form of proxy, in connection with the vote of the
Company's shareholders with respect to the Merger (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's shareholders,
being the "Proxy Statement"). The form of proxy included in the Proxy Statement
shall include or be accompanied by a waiver substantially in the form of Exhibit
2.02(b) to this Agreement. Each of Acquiror and the Company will use all
reasonable efforts to cause the Registration Statement to become effective as
promptly as practicable, which Registration Statement, at the time it becomes
effective, and at the Effective Time, shall in all material respects conform to
the requirements of the Securities Act. Acquiror shall take all actions required
to register or qualify or obtain exemptions from such registrations or
qualifications under any applicable state securities laws in connection with the
issuance of shares of Acquiror Common Stock in the Merger. Each of Acquiror and
the Company shall furnish all information concerning it and the holders of its
capital stock as the other may reasonably request in connection with such
actions. As promptly as practicable after the Registration Statement shall have
become effective, the Company shall mail the Proxy Statement to its
shareholders. The Proxy Statement shall include the recommendation of the
Company's Board of Directors in favor of the Merger unless, in the written
opinion of counsel experienced in such matters, the inclusion of such
recommendation would constitute a breach of such directors' fiduciary duties.
(b) The Company covenants and agrees that the information specifically
designated as being supplied by the Company for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Company covenants and agrees that the information specifically
designated as being supplied by the Company for inclusion in the Proxy Statement
to be sent to the shareholders of the Company in connection with the meeting of
the Company's shareholders to consider the Merger (the "Shareholder Meeting")
shall not, at the date the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to shareholders, or at the time of the
Shareholder Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading. If at any time prior to the Effective Time the Company
discovers any event or circumstance relating to the Company, or its officers or
directors, which should be set forth in an
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amendment to the Registration Statement or a supplement to the Proxy Statement,
the Company shall promptly inform Acquiror of such event or circumstance.
(c) The Acquiror covenants and agrees that, except for the information
referred to in subsection (b) above, the Registration Statement shall not, at
the time the Registration Statement is declared effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Acquiror
covenants and agrees that, except for the information referred to in subsection
(b) above, in the Proxy Statement to be sent to the shareholders of the Company
in connection with the Shareholder Meeting shall not, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
shareholders, or at the time of the Shareholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time Acquiror discovers any event or circumstance
relating to Acquiror or any of its Subsidiaries, or its or their respective
officers or directors which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Acquiror shall
promptly inform the Company of such event or circumstance and shall promptly
file such amendment to the Registration Statement or supplement to the Proxy
Statement. All documents that Acquiror is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form and
substance in all material respects with the applicable requirements of the
Securities Act and the Exchange Act.
(d) Each party to the Agreement hereby (i) consents to the use of its name
and, on behalf of its Subsidiaries and affiliates, the names of such
Subsidiaries and affiliates and to the inclusion of financial statements and
business information relating to such party and its Subsidiaries and affiliates
(in each case, to the extent required by applicable securities laws) in any
registration statement or proxy statement prepared by the Company, Acquiror or
any person or entity with which the Acquiror may enter into a definitive
acquisition agreement prior to the Effective Time, (ii) agrees to use its
reasonable efforts to obtain the written consent of any person or entity
retained by it which may be required to be named (as an expert or otherwise) in
such registration statement or proxy statement (provided that reasonable
efforts, as used herein and elsewhere in this Agreement, shall not include
expending money other than as is customary for professional advisors and
reasonable expenses) and (iii) agrees to cooperate, and agrees to use its
reasonable efforts to cause its Subsidiaries and affiliates to cooperate, with
any legal counsel, investment banker, accountant or other agent or
representative retained by any of the parties specified in clause (i) in
connection with the preparation of any and all information required, as
determined after consultation with each party's counsel, by applicable
securities laws to be disclosed in any such registration statement or proxy
statement.
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(e) The Company shall use its reasonable efforts to cause to be delivered
to Acquiror "cold comfort" letters of Arthur Andersen LLP, its independent
public accountant, dated the date on which the Registration Statement shall
become effective and as of the Closing, respectively, and addressed to Acquiror,
in form and substance reasonably satisfactory to Acquiror and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement and transactions such as those contemplated by this
Agreement.
(f) Acquiror shall use its reasonable efforts to cause to be delivered to
the Company "cold comfort" letters of Arthur Andersen LLP, its independent
public accountant, dated the date on which the Registration Statement shall
become effective and as of the Closing, respectively, and addressed to the
Company, in form and substance reasonably satisfactory to the Company and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement and transactions such as those contemplated by this
Agreement.
(g) Acquiror will indemnify and hold harmless the Company, and each of its
directors and officers, and each controlling person of the Company within the
meaning of the Securities Act, against any claims, suits, proceedings,
investigations or other actions ("Claims"), and any related losses, damages,
costs, expenses, liabilities or judgments, whether joint, several or solidary
insofar as they arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact made in the Registration Statement or the
Proxy Statement, or an omission or alleged omission therefrom of a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, and will reimburse
each such person promptly as incurred for legal and other expenses reasonably
incurred in connection with investigating or defending any such Claims;
provided, that Acquiror will not be liable to the extent that any such Claim
arises out of or is based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information furnished to Acquiror by the Company or, with respect to any other
indemnified person, by that person, specifically for inclusion therein.
(h) Any indemnified person wishing to claim indemnification under Section
6.08(g), upon learning of any claim, shall notify Acquiror thereof as promptly
as is practicable, but the failure so to notify Acquiror shall not relieve
Acquiror from any obligation it has under Section 6.08(g) except to the extent
it is actually prejudiced by such failure. Acquiror shall have the right to
assume the defense thereof and shall not be liable for any expenses subsequently
incurred by such indemnified person in connection with the defense thereof,
except that if Acquiror does not assume or continue to pursue such defense, or
counsel for the indemnified person advises in writing that there are material
substantive issues
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that raise conflicts of interest between Acquiror and the indemnified person,
requiring separate representation under applicable attorneys' rules of
professional conduct, then the indemnified person may retain counsel
satisfactory to such person (and reasonably satisfactory to Acquiror), and
Acquiror shall pay all reasonable fees and expenses of such counsel promptly as
incurred, provided that (i) Acquiror shall not be obligated to pay for more than
one counsel for all indemnified persons in any jurisdiction except as may be
required due to conflicts of interest as evidenced by a written opinion of
reputable counsel, (ii) the indemnified persons will cooperate (to the extent
reasonably appropriate under the circumstances) in the defense of any such
claim, and (iii) Acquiror shall not be liable for any settlement effected
without its prior written consent.
SECTION 6.09 Cooperation and Exchange of Tax Information; Preparation of
Tax Returns.
(a) The Company shall file (or cause to be filed) at its own expense, on or
prior to the due date, all Tax returns for all Tax periods ending on or before
the Closing Date where the due date for such returns or reports (taking into
account valid extensions of the respective due dates) falls on or before the
Closing Date; provided, however, that the Company shall not file any such Tax
returns, or other returns, elections, claims for refund or information
statements with respect to any liabilities for Taxes (other than federal, state
or local sales, use, withholding or employment tax returns or statements) for
any Tax period, or consent to any adjustment or otherwise compromise or settle
any matters with respect to Taxes, without prior consultation with Acquiror;
provided, further, that the Company shall not make any election or take any
other discretionary position with respect to Taxes, in a manner inconsistent
with past practices, without the prior written approval of Acquiror. The Company
shall provide Acquiror with a copy of appropriate workpapers, schedules, drafts
and final copies of each federal and state income Tax return or election of the
Company (including returns of all Employee Benefit Plans) at least ten days
before filing such return or election and shall reasonably cooperate with any
request by Acquiror in connection therewith.
(b) Acquiror will file (or cause to be filed) all Tax returns of the
Company due after the Closing Date. After the Closing Date, Acquiror, to the
extent permitted by Law, shall have the right to amend, modify or otherwise
change all Tax returns of the Company for all Tax Periods. Acquiror will file
(or cause to be filed) any Returns of the Company for Tax periods which begin
before the Closing Date and end after the Closing Date. All such Returns
described in this Section 6.09(b) and any schedules to be included therewith
shall be prepared on a basis consistent with those of the Company prepared for
prior Tax periods.
(c) For purposes of this Section 6.09, all references to the Company shall
include the Subsidiaries and affiliates, and the former Subsidiaries and
affiliates, of the Company.
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SECTION 6.10 NYSE Listing. Acquiror shall cause those shares of Acquiror
Common Stock to be issued in the Merger to be listed on the NYSE, subject only
to official notice of issuance thereof.
SECTION 6.11 Other Agreements.
(a) The Company will use reasonable efforts to cause each director and
officer of the Company to encourage actively all other Company shareholders to
vote their shares in favor of the Merger, unless to do so in the written opinion
of counsel experienced in such matters would violate such directors' fiduciary
duties; provided that any director of the Company who votes, in such person's
capacity as a director, against approval of the Merger by the Company's board of
directors shall only be required to agree, subject to fiduciary duties, not to
discourage any shareholder of the Company from voting such shareholder's Company
Common Stock in favor of the Merger.
(b) The Company shall use its reasonable efforts to obtain from each
shareholder of the Company who is also a provider of medical services to the
Company or the Community Health Entities the waiver contemplated by Exhibit
2.02(b).
SECTION 6.12 Consulting Agreements. As a material inducement to Acquiror
to enter into this Agreement and consummate the Merger, and in order to assist
Acquiror in operating the Community Health Entities for a period following the
Closing, Acquiror has required that each of the persons listed on Exhibit 6.12
enter into a consulting and noncompetition agreement with Acquiror, which
agreements shall be executed and delivered by such persons not later than the
Closing.
SECTION 6.13. Access to Information. After the Effective Time, Acquiror
shall grant and cause the Surviving Corporation to grant to the Shareholder
Representative (defined in Section 2.04(k)) (or their designees) access at all
reasonable times to information, books and records relating to the Company or
the Surviving Corporation within the possession of Acquiror or the Surviving
Corporation (including workpapers and correspondence with taxing authorities),
and shall afford the Shareholder Representative (or their designees) the right
(at the expense of the Shareholder Representative except to any extent to which
such expense is subject to indemnification under Section 9.07) to take extracts
therefrom and to make copies thereof, but only to the extent necessary to permit
the Shareholder Representative (or their designees) to prepare Tax Returns, to
conduct negotiations with Tax authorities, or to implement the provisions of, or
to investigate or defend any claims between the parties arising under, this
Agreement. Acquiror will, and will cause the Surviving Corporation to, retain
all of the Company's books and records and those of the Surviving Corporation
relating to the Company, for not less than three years following the Effective
Time or such
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longer period of time during which any claim for indemnity or dispute regarding
payments pursuant to Section 2.04 remains unresolved.
SECTION 6.14. Rule 145 Transfers. If any holder of Company Common Stock
(or affiliate or associate thereof) who is subject to Rule 145 under the
Securities Act with respect to shares of Acquiror Common Stock desires to sell,
transfer or otherwise dispose of any of such Acquiror Common Stock during the
restrictive period set forth in Rule 145(d), Acquiror will request its transfer
agent to send a copy of the typical representation letter and other information
to Acquiror's counsel. If Acquiror's counsel concludes that such proposed
disposition complies with Rule 145(d), Acquiror shall request such counsel, at
Acquiror's expense, to provide such opinions as may be necessary to Acquiror's
transfer agent so that such transfer agent may complete the proposed
disposition. If such counsel is unable to so conclude, such counsel will
immediately notify such holder of the reasons and of any action that would
enable such counsel to conclude that such proposed disposition complies with
Rule 145(d).
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01 Conditions to Obligations of Each Party Under This Agreement.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived by the parties, in whole or in
part, to the extent permitted by applicable Law:
(a) Securities Laws. The Registration Statement shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose shall have been initiated and be continuing
or, to the knowledge of Acquiror or the Company, threatened by the SEC. Acquiror
shall have received all other federal or state securities permits and other
authorizations necessary to issue Acquiror Common Stock in exchange for Company
Common Stock and to consummate the Merger.
(b) Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the shareholders of the Company.
(c) No Action or Proceeding. There shall not have been instituted and there
shall not be pending any action or proceeding by a Governmental Entity, and no
such action or proceeding shall have been specifically threatened in a written
communication from a representative of a Governmental Entity with authority to
institute such an action or proceeding, before any court of competent
jurisdiction or governmental agency or regulatory or administrative body, and no
order or decree
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shall have been entered in any action or proceeding before such court, agency or
body, (i) imposing or seeking to impose material limitations on the ability of
Acquiror to acquire or hold or to exercise full rights of ownership of any
securities of the Company or any Community Health Entity (ii) imposing or
seeking to impose material limitations on the ability of Acquiror to combine and
operate the business and assets of the Company with any of Acquiror's
Subsidiaries or other operations; (iii) imposing or seeking to impose other
material sanctions, damages or liabilities arising out of the Merger on the
Acquiror, Acquiror Sub or the Company or any of their officers or directors;
(iv) requiring or seeking to require divestiture by the Acquiror of all or any
significant portion of the business, assets or property of the Company or any
Community Health Entity or (v) restraining, enjoining or prohibiting or seeking
to restrain, enjoin or prohibit the consummation of the Merger; provided that,
prior to invoking this condition, the party seeking to invoke it shall have used
its reasonable efforts to have any such action or proceeding dismissed or such
order or decree vacated.
(d) HSR Act. The applicable waiting period, together with any extensions
thereof, under the HSR Act shall have expired or been terminated.
(e) Health Benefit Laws. The applicable approvals and any applicable
waiting periods under all Health Benefit Laws shall have been received, waived
or terminated and all notices required by such Laws given.
(f) Other Approvals or Notices. All consents, waivers, approvals and
authorizations required by law to be obtained, and all filings or notices
required by law to be made, by Acquiror, the Company, any Community Health
Entity or any Subsidiary prior to consummation of the transactions contemplated
in this Agreement with all Governmental Entities (other than the filing and
recordation of merger documents in accordance with Louisiana Law and matters
covered by Section 7.01(e)) shall have been obtained or made.
SECTION 7.02 Additional Conditions to Obligations of Acquiror and
Acquiror Sub. The obligations of Acquiror and Acquiror Sub to effect the Merger
are also subject to the satisfaction (or waiver by Acquiror) of each of the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement, without giving effect to
any update to the Company Disclosure Schedule under Section 6.03: (A) with
respect to those representations and warranties that are qualified by reference
to "materiality" or "Material Adverse Effect," shall be true and correct in all
respects as of the Effective Time, as though made on and as of the Effective
Time and (B) with respect to all other representations and warranties, shall be
true and correct in all material respects as of the Effective Time, as though
made on and as of the Effective Time; provided, however, that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date.
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Acquiror shall have received a certificate of the Chief Executive Officer or
Chief Financial Officer of the Company to that effect or noting any
discrepancies.
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time. Acquiror shall have received a certificate of the Chief Executive Officer
or Chief Financial Officer of the Company to that effect or noting any
discrepancies.
(c) Third Party Consents. The Company shall have obtained (i) each of the
consents or approvals listed in Section 3.05 of the Company Disclosure Schedule
(other than with respect to matters covered by Section 7.01(e) or 7.01(f)) and
(ii) any such consents or approvals required to be included in, but omitted from
Section 3.05 of the Company Disclosure Schedule, the failure to obtain which
would reasonably be expected to have a Community Health Material Adverse Effect
prior to or after the Effective Time or an Acquiror Material Adverse Effect
after the Effective Time, shall have been obtained.
(d) Exercise of Dissenters' Rights. In the event the Merger is approved by
less than 80% of the total voting power of the outstanding Company Common Stock,
the total amount of Company Common Stock held by shareholders of the Company who
have elected to exercise their dissenters' rights under Louisiana Law shall not
exceed 10% of the total number of shares of Company Common Stock outstanding as
of immediately prior to the Merger.
(e) Legal Opinion. Acquiror shall have received the opinion of Thomas H.
Benton & Associates, counsel for the Company, substantially in the form attached
hereto as Exhibit 7.02(e).
(f) Tax Opinion. Acquiror shall have received a copy of the opinion of
Dorsey & Whitney P.L.L.P., dated not more than two business days prior to the
Effective Date and addressed to the Company, in form and substance reasonably
satisfactory to Acquiror, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization qualifying under the provisions
of Section 368(a) of the Code.
(g) Fairness Opinion. Acquiror shall have received a copy of the updated
written opinion of The Robinson-Humphrey Company, Inc., addressed to the board
of directors of the Company and dated not more than two business days prior to
the date the Proxy Statement is first mailed to the Company's shareholders, to
the effect that, as of the date of such opinion, the Merger is fair to the
Company's shareholders from a financial point of view.
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(h) Accountant Letters. Acquiror shall have received from the Company the
"cold comfort" letters of Arthur Andersen LLP described in Section 6.08(e).
SECTION 7.03 Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is also subject to the
satisfaction (or waiver by the Company) of each of the following conditions;
provided that, under no circumstances shall the decrease in the price per share
of Acquiror Common Stock, as reported on the NYSE, after the date hereof,
constitute any basis in and of itself for the Company to claim that any of the
following conditions has not been satisfied:
(a) Representations and Warranties. Each of the representations and
warranties of Acquiror contained in this Agreement, without giving effect to any
update to the Acquiror Disclosure Schedule under Section 6.03: (A) with respect
to those representations and warranties that are qualified by reference to
"materiality" or "Acquiror Material Adverse Effect," shall be true and correct
in all respects as of the Effective Time, as though made on and as of the
Effective Time and (B) with respect to all other representations and warranties,
shall be true and correct in all material respects as of the Effective Time, as
though made on and as of the Effective Time; provided, however, that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date. The Company shall have
received a certificate of the Chief Executive Officer or Chief Financial Officer
of Acquiror to that effect.
(b) Agreements and Covenants. Acquiror shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time. The Company shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of Acquiror to that effect.
(c) Legal Opinion. The Company shall have received the opinion of Kevin H.
Roche, Acquiror's General Counsel, substantially in the form attached hereto as
Exhibit 7.03(c).
(d) Accountant Letters. The Company shall have received from Acquiror the
"cold comfort" letters of Arthur Andersen LLP described in Section 6.08(f).
(e) Tax Opinion. The Company shall have received the opinion of Dorsey &
Whitney P.L.L.P., dated not more than two business days prior to the Effective
Time and addressed to the Company, in form and substance reasonably satisfactory
to the Company, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization qualifying under the provisions of Section
368(a) of the Code.
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(f) Fairness Opinion. The Company shall have received an updated written
opinion of The Robinson-Humphrey Company, Inc., addressed to the board of
directors of the Company and dated not more than two business days prior to the
date the Proxy Statement is first mailed to the Company's shareholders, to the
effect that, as of the date of such opinion, the Merger is fair to the Company's
shareholders from a financial point of view.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the shareholders of the Company:
(a) by mutual written consent of Acquiror and the Company;
(b) (i) by Acquiror, if there has been a breach by the Company of any of
its covenants or agreements contained in this Agreement or if any of the
representations and warranties of the Company shall have become untrue, in any
such case such that Section 7.02(a) or Section 7.02(b) will not be satisfied,
and, if capable of being cured, such breach or condition has not been cured
within 30 days following receipt by the Company of written notice of such
breach, except that such curative period will not extend beyond the date set
forth in Section 8.01(d) as the same may be extended in accordance therewith; or
(ii) by the Company, if there has been a breach by Acquiror of any of its
covenants or agreements contained in this Agreement or if any of the
representations and warranties of Acquiror shall have become untrue, in any such
case such that Section 7.03(a) or Section 7.03(b) will not be satisfied, and, if
capable of being cured, such breach or condition has not been cured within 30
days following receipt by Acquiror of written notice of such breach, except that
such curative period will not extend beyond the date set forth in Section
8.01(d) as the same may be extended in accordance therewith;
(c) by either Acquiror or the Company, if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or any
Governmental Entity preventing or prohibiting consummation of the Merger shall
have become final and nonappealable;
(d) by either Acquiror or the Company, if the Merger shall not have been
consummated on or before June 30, 1996; provided, however, that this Agreement
may be extended not more than 60 days thereafter by either party by written
notice to the other party if the Merger shall not have been consummated as a
direct result of such other party's having failed (i) to receive all regulatory
approvals or consents required to be obtained by that party with respect to the
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Merger or (ii) to resolve all actions or proceedings of a type described in
Section 7.01(c) or the last sentence of Section 3.09(a);
(e) by either Acquiror or the Company, if the Agreement shall fail to
receive the requisite vote for approval and adoption by the shareholders of the
Company at the Company's shareholders' meeting or any adjournment thereof;
(f) by either the Company or the Acquiror if, on the Closing Date, the
Average Stock Price is more than 125% or less than 75% of the Average Signing
Price;
(g) by the Company if Acquiror has entered into a written agreement under
which Acquiror will be acquired by or merge with another entity or publicly
announced its intention to enter into such a transaction and, after such
transaction, persons who were directors of Acquiror prior to such transaction
would not constitute a majority of the board of directors of the acquiring or
surviving corporation.
SECTION 8.02 Effect of Termination. Except as provided in Section 9.01
and subject to the remedies of the parties set forth in Section 8.03(c), in the
event of termination of this Agreement pursuant to Section 8.01, this Agreement
shall forthwith become void, there shall be no liability under this Agreement on
the part of Acquiror, Acquiror Sub or the Company or any of their respective
officers or directors and all rights and obligations of any party under this
Agreement shall cease. Notwithstanding the foregoing, the agreements set forth
in Sections 5.04(c), 8.02 and 8.03 and Article XI shall survive termination of
this Agreement.
SECTION 8.03 Fees; Expenses and Remedies.
(a) All Expenses (as defined below) incurred by the parties shall be borne
solely and entirely by the party which has incurred the same.
(b) "Expenses" as used in this Agreement shall include all reasonable out-
of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing and filing of the
Registration Statement and the Proxy Statement, the mailing of the Proxy
Statement, the solicitation of shareholder approvals and all other matters
related to the closing of the transactions contemplated by this Agreement.
(c) If (i) Acquiror shall terminate this Agreement pursuant to Section
8.01(b) by reason of a breach of Section 5.02(g), (ii) a party determines not to
consummate the Merger for any reason not permitted under this Agreement or (iii)
all conditions to the obligations of a party at Closing contained in Article VII
of
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this Agreement have been satisfied (or waived by the party entitled to waive
such conditions or can be satisfied at the will of such party) and the first
party does not proceed with the Closing, then in each case all remedies
available to Acquiror (if the event referred to in clause (i) occurs or the
Company is the party referred to in clause (ii) or (iii)) or the Company (if
Acquiror or Acquiror Sub is the party referred to in clause (ii) or (iii)), as
the case may be, against the other of them either at law or in equity, on
account of such circumstances, including the right to pursue a claim for damages
against the other of them on account of a breach of this Agreement, shall be
preserved and shall survive any termination of this Agreement. A party which
brings a successful action against another party pursuant to this Section
8.03(c) shall be entitled to recover from such other party the reasonable fees
and expenses (including reasonable attorney's fees) of such successful party in
connection with such action.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 Survival of Representations and Warranties. Notwithstanding
any investigation made by or on behalf of any of the parties hereto or the
results of any such investigation and notwithstanding the participation of such
party in the Closing, the representations and warranties contained in Articles
III and IV hereof shall survive the Closing for the period during which claims
for indemnification may be made with respect thereto under Article IX.
SECTION 9.02 Indemnification of Acquiror.
(a) Subject to the limitations set forth in Section 9.02(b) below, Acquiror
and its officers, directors, employees and agents (collectively, the "Acquiror
Indemnified Parties") shall, from and after the Effective Time, be indemnified
and held harmless against any loss, liability, Tax (including interest and
penalties), damage or expense (including reasonable legal expenses and costs) or
any assertion thereof, whether or not matured, contingent or prospective in
nature ("Losses"), which any Acquiror Indemnified Party (but without
duplication) may suffer, sustain or become subject to as a result of (i) any
representation or warranty by the Company in this Agreement, that is not true
and correct as of the date made, other than any such representation and warranty
pertaining to any of the Community Health Entities as to which Acquiror has
actual knowledge no later than the Effective Time that such representation and
warranty is not then or was not when made true and correct, (ii) any breach of
any covenant or agreement of the Company contained in this Agreement, but only
to the extent that such agreement or covenant is required to be performed prior
to the Effective Time, (iii) any claim by a person who held shares of Company
Common Stock prior to the Effective Time against the Company or one or more
directors or officers of the Company alleging a breach of fiduciary duty or
other improper action by such director(s) or officer(s) in connection with the
approval of the Merger, this Agreement and the transactions contemplated hereby,
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(iv) any claim for indemnification under Section 6.06, (v) Taxes, if any, of the
Company, any of its Subsidiaries or Acquiror Sub, or any successor thereto, as a
result of the failure of the Merger to qualify as a tax-free reorganization
under Section 368(a) of the Code by reason of any actions taken by any Former
Holder of the Company after the Effective Time, and (vi) any amounts paid in
respect of Dissenting Shares in excess of the Merger Consideration. Such
indemnification shall be deemed to be a reduction in the Merger Consideration,
shall be payable solely as provided in Section 9.03(c), and shall not constitute
a personal liability of any shareholder of the Company or any officer, director,
employee or agent of the Company.
(b) The Acquiror Indemnified Parties shall be entitled to indemnification
for any Losses described in Section 9.02(a) only if (i) aggregate Losses for
which timely notice is given in accordance with clause (ii) exceed $1,000,000
(and then the Acquiror Indemnified Parties shall be indemnified only to the
extent of such excess) and (ii) Acquiror or another Acquiror Indemnified Party
delivers to the Shareholder Representative written notice, setting forth in
reasonable detail the basis of the claim and the identity, nature and (to the
extent known) amount of Losses related to such claim or claims prior to
expiration of Acquiror's right to indemnity under Section 9.04. Notwithstanding
the foregoing, the aggregate entitlement of the Acquiror Indemnified Parties for
indemnity under this Article IX shall be payable solely as provided in Section
9.03.
SECTION 9.03 Method of Asserting Claims. As used in this Section 9.03, the
terms "Indemnified Party" and "Notifying Party" shall refer to the Acquiror
Indemnified Party who is entitled to indemnification hereunder.
(a) In the event that any of the Indemnified Parties is made a defendant in
or party to any action or proceeding, judicial or administrative, instituted by
any third party, the liability or the costs or expenses of which are Losses (any
such third party action or proceeding being referred to as a "Claim"), the
Notifying Party shall give the Shareholder Representative prompt notice thereof.
The failure to give such notice shall not affect any Indemnified Party's ability
to seek indemnification unless such failure has materially and adversely
affected the Shareholder Representative's ability to defend successfully a
Claim. The Shareholder Representative shall be entitled, on behalf of the
Company's shareholders, to contest and defend such Claim; provided that the
Shareholder Representative (i) has a reasonable basis for concluding that such
defense may be successful and (ii) diligently contests and defends such Claim.
Notice of the intention so to contest and defend shall be given by the
Shareholder Representative to the Notifying Party within 20 business days after
the Notifying Party's notice of such Claim (but, in all events, at least five
business days prior to the date that an answer to such Claim is due to be
filed). Such contest and defense shall be conducted by reputable attorneys
employed by the Shareholder Representative. Acquiror shall pay the reasonable
fees and reimbursable expenses of such attorneys (based on no more than normal
hourly rates for services provided, without markup
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and the actual cost of any such disbursements) promptly as billed and all other
reasonable expenses of conducting such defense, all of which payments shall
constitute Losses. The Notifying Party shall be entitled at any time, at its own
cost and expense (which expense shall not constitute a Loss unless the Notifying
Party reasonably determines that the Shareholder Representative is not
adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. If the
Notifying Party elects to participate in such defense, the Notifying Party will
cooperate with the Shareholder Representative in the conduct of such defense.
Neither the Notifying Party nor the Shareholder Representative may concede,
settle or compromise any Claim without the consent of the other party, which
consents will not be unreasonably withheld. Notwithstanding the foregoing, (i)
if a Claim seeks equitable relief or (ii) if the subject matter of a Claim
relates to the ongoing business of any of the Indemnified Parties, which Claim,
if decided against any of the Indemnified Parties, would materially adversely
affect the ongoing business or reputation of any of the Indemnified Parties,
then, in each such case, the Indemnified Parties alone shall be entitled to
contest, defend and settle such Claim in the first instance and, if the
Indemnified Parties do not contest, defend or settle such Claim, the Shareholder
Representative shall then have the right to contest and defend (but not settle)
such Claim.
(b) In the event any Indemnified Party should have a claim for
indemnification under this Article IX that does not involve a Claim, the
Notifying Party shall deliver a notice of such claim with reasonable promptness
to the Shareholder Representative. If the Shareholder Representative notifies
the Notifying Party that it does not dispute the claim described in such notice
or fails to notify the Notifying Party within 30 days after delivery of such
notice by the Notifying Party whether the Shareholder Representative disputes
the claim described in such notice, the Notifying Party shall conclusively be
deemed to be entitled to indemnification for the Loss in the amount specified in
the Notifying Party's notice by offset as provided in Section 9.03(c). If the
Shareholder Representative has timely disputed Liability with respect to such
claim, the representatives of each of the Shareholder Representative and the
Notifying Party will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through the negotiations of such persons within 60
days after the delivery of the Notifying Party's notice of such claim, such
dispute shall be resolved fully and finally pursuant to an arbitration
proceeding in accordance with Section 11.01 below. The arbitrator(s) shall
resolve the dispute within 30 days after selection, and judgment upon the award
rendered by such arbitrator(s) may be entered in any court of competent
jurisdiction.
(c) Claims for indemnification by Acquiror Indemnified Parties pursuant to
Section 9.02(a) shall be payable solely by offset by Acquiror against amounts
(if any) that become payable by Acquiror in accordance with Section 2.04
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pursuant to the Contingent Payment Rights, and then only if such amounts both
(i) have not previously been paid by Acquiror to the Former Holders, and (ii)
would not have previously been paid by Acquiror to the Former Holders if
Acquiror were, at the time the claim is asserted, in full compliance with the
provisions of Section 2.04 (other than any noncompliance resulting from
withholding a payment in accordance with Section 2.04(j)).
If any Earn-out payment becomes due at a time during which Acquiror has
pending a claim for indemnification pursuant to Section 9.02(a) (as limited by
Section 9.02(b)), then Acquiror may make such payment to the Former Holders
entitled thereto after deducting therefrom an amount equal to Acquiror's good
faith estimate of the amount of such claim. Acquiror shall pay interest on the
amount of any such deduction to the extent it is subsequently determined that
the actual amount of such claim is less than the amount so deducted at the rate
provided for in Section 9.05. Payments pursuant to this Section 9.03 shall be
distributed to the Former Holders in proportion to their respective interests in
Earn-out payments pursuant to this Agreement.
SECTION 9.04 Expiration of Indemnities. The indemnification obligations
set forth in Section 9.02(a) shall expire as to any claim that has not been
asserted as of 5:00 p.m., Minneapolis Time, on May 15, 1998; provided, however,
if any such claim is based on a breach of a representation or warranty relating
to any Community Health Entity, the obligation shall expire as to any claim that
has not been asserted as of 5:00 p.m., Minneapolis time, on May 15, 1997.
SECTION 9.05 Indemnification Claims; Interest. Interest on any claim for
indemnification pursuant to this Article IX shall accrue at a floating rate
equal to the Prime Rate as published from time to time in the "Money Rates"
section of the Wall Street Journal, from the date the claim arose until the
claim is satisfied by payment.
SECTION 9.06 Exclusivity of Indemnification; Right of Offset. After the
Closing, the indemnification rights of the Acquiror Indemnified Parties under
this Article IX shall be the sole and exclusive remedy of the Acquiror
Indemnified Parties arising from this Agreement; provided, that nothing in this
Article IX shall limit the ability of any party to seek prior to Closing
injunctive or other equitable relief for any breach of this Agreement; provided
further that nothing herein shall prevent any Indemnified Party from bringing an
action based upon allegations of fraud or with respect to any party in
connection with this Agreement and such other agreements. In the event such a
fraud action is brought, the prevailing party's attorneys' fees and costs shall
be paid by the nonprevailing party.
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SECTION 9.07. Indemnification of Shareholders.
(a) From and after the Effective Time, Acquiror shall, subject to the
limitations set forth in Section 9.07(b) below, indemnify and hold harmless the
former shareholders of the Company and the Shareholder Representative
(collectively, the "Shareholder Indemnified Parties") from and against any
Losses which any Shareholder Indemnified Party (but without duplication) may
suffer, sustain or become subject to as a result of (i) any representation or
warranty by Acquiror in this Agreement relating to the validity of the Acquiror
Common Stock received by such Shareholder Indemnified Party in connection with
the Merger, that it is not true and correct as of the date made, (ii) any breach
by Acquiror or the Surviving Corporation of any covenant or agreement contained
in this Agreement required to be performed after the Effective Time, (iii) any
claim by a person who held shares of Acquiror Common Stock prior to the
Effective Time against Acquiror or one or more directors or officers of Acquiror
alleging a breach of fiduciary duty or other improper action by such director(s)
or officer(s) in connection with the approval of the Merger, this Agreement and
the transactions contemplated hereby, or (iv) Taxes, if any, of any Shareholder
Indemnified Party, or any successor thereto, as a result of the failure of the
Merger to qualify as a tax-free reorganization under Section 368(a) of the Code
by reason of any actions taken by Acquiror or the Surviving Corporation after
the Effective Time.
(b) The Shareholder Indemnified Parties shall be entitled to
indemnification for any Losses described in Section 9.07(a) only if a
Shareholder Indemnified Party delivers to Acquiror written notice, setting forth
in reasonable detail the basis of the claim and the identity, nature and (to the
extent known) amount of Losses related to such claim or claims prior to (i) 5:00
p.m., Minneapolis time, on May 15, 1998, if such claim is based on the untruth
or incorrectness of a representation or warranty of Acquiror, or (ii) two years
after the Shareholder Indemnified Party asserting the claim became aware of such
claim, in all other cases.
(c) The provisions of Section 9.03 shall apply to indemnification pursuant
to Section 9.07(a) except that (i) "Shareholder Representative" in Section 9.03
shall mean Acquiror, and "Indemnified Party" and "Notifying Party" shall refer
to the Shareholder Indemnified Party who is entitled to indemnification under
this Section 9.07 (or to the Shareholder Representative acting in behalf of the
Indemnified Party), and (ii) the sixth sentence (beginning "Acquiror shall
pay. . .") shall be disregarded.
(d) Section 9.05 and 9.06 shall apply to the indemnification pursuant to
Section 9.07, for which purpose references to the Acquiror Indemnified Parties
shall mean the Shareholder Indemnified Parties.
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ARTICLE X
DEFINITIONS
SECTION 10.01 Defined Terms.
(a) When each of the following terms is used in this Agreement it shall
have the meaning stated below:
"Acquiror Common Stock" means the common stock, par value $.01 per share,
of Acquiror.
"Acquiror Material Adverse Effect" as used in this Agreement means any
change or effect that, individually or when taken together with all such other
changes or effects, is, or would reasonably be considered to be, materially
adverse to the condition (financial or otherwise), results of operations,
business, properties, assets or liabilities of Acquiror and its Subsidiaries,
taken as a whole.
"affiliate" with respect to any person, means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person.
"Average Signing Price" means $_______ (the average closing price of the
Acquiror Common Stock as quoted on the NYSE for the ten consecutive trading days
ending with and including the trading day immediately preceding the date of this
Agreement).
"Average Stock Price" means the average closing price of the Acquiror
Common Stock as quoted on the NYSE for the ten consecutive trading days ending
with and including the second business day preceding the Closing Date.
"business day" means any day on which the NYSE is open for trading.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Community Health Material Adverse Effect" as used in this Agreement means
any change or effect that, individually or when taken together with all such
other changes or effects, is, or would reasonably be considered to be,
materially adverse to the condition (financial or otherwise), results of
operations, business, prospects, properties, assets or liabilities of the
Company and the Community Health Entities, taken as a whole.
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"Contract" means any written contract, agreement, arrangement or
understanding and any oral contract or agreement.
"Company Common Stock" means the Common Stock, without par value, of the
Company.
"Control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of stock or as trustee or executor, by
contract or credit arrangement or otherwise.
"Employee Benefit Plan" means any pension, retirement, savings, disability,
medical, dental, health, life (including any individual life insurance policy as
to which the Company or any of its ERISA Affiliates is the owner, beneficiary or
both of such policy), death benefit, group insurance, profit sharing, deferred
compensation, stock option, bonus, incentive, vacation pay, severance pay,
Internal Revenue Code Section 125 "cafeteria" or "flexible benefit" plan, or
other employee benefit plan, trust, arrangement, contract, agreement, policy or
commitment (including, without limitation, any employee pension benefit plan as
defined in Section 3(2) of ERISA, and any employee welfare benefit plan as
defined in Section 3(1) of ERISA), under which current or former employees of
the Company or any of its ERISA Affiliates are entitled to participate by reason
of their employment with the Company or any of its ERISA Affiliates, whether or
not any of the foregoing is funded, whether insured or self-funded, and whether
written or oral, (i) to which the Company or any of its ERISA Affiliates is a
party or a sponsor or a fiduciary thereof or by which, the Company or any of its
ERISA Affiliates (or any of their rights, properties or assets) is bound or (ii)
with respect to which the Company or any of its ERISA Affiliates has made any
payments, contributions or commitments, or may otherwise have any liability
(whether or not the Company or any of its ERISA Affiliates still maintains such
plan, trust, arrangement, contract, agreement, policy or commitment).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliates" means any trade or business (whether or not
incorporated) that is part of the same controlled group, or under common control
with, or part of an affiliated service group that includes, the Company within
the meaning of Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Federal HMO Act" means the federal Health Maintenance Organization Act of
1973 and the rules and regulations thereunder.
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"GAAP" means United States generally accepted accounting principles, as in
effect from time to time applied on a consistent basis.
"Governmental Entity" means any governmental or regulatory authority,
domestic or foreign.
"Health Benefit Law" means all Laws related to the licensure,
certification, qualification or authority to transact business relating to the
provision of and/or payment for health benefits, including, but not limited to,
ERISA, COBRA and laws relating to the regulation of health maintenance
organizations, workers compensation, managed care organizations, insurance,
preferred provider organizations, point-of-service plans, certificates of need,
third party administrators, utilization review, coordination of benefits,
hospital reimbursement, Medicare and Medicaid participation, fraud and abuse and
patient referrals, including, without limitation, the Federal HMO Act, the State
HMO Act and the Holding Company Act.
"HMO" means a health maintenance organization organized or qualified as
such under applicable Law.
"Holding Company Act" means the applicable provisions of the Law and the
rules and regulations thereunder relating to the regulation of Insurance Holding
Company Systems in the State of Louisiana.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder.
"IRS" means the Internal Revenue Service.
"knowledge" of a party means the actual knowledge of that party or any of
its Subsidiaries, as such knowledge has been obtained in the normal conduct of
the business and also includes such knowledge as a reasonably prudent person
would have obtained upon the exercise of reasonable diligence, except that when
used in Article III with respect to the Company's Knowledge about the Community
Health Entities, knowledge has the meaning given in the first paragraph thereof.
"Law" means any federal, state or local law, statute, ordinance, rule,
regulation, order, judgment or decree.
"Louisiana Law" means the Louisiana Business Corporation Law.
"Medicaid" means the applicable provisions of Title XIX of the Social
Security Act and the regulations promulgated thereunder and the state laws and
regulations implementing the Medicaid program.
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"Medicare" means the applicable provisions of Title XVIII of the Social
Security Act and the regulations promulgated thereunder.
"NYSE" means the New York Stock Exchange, Inc.
"person" means an individual, corporation, partnership, association,
limited liability company, trust, unincorporated organization, other entity or
group (as defined in Section 13(d) of the Exchange Act).
"Returns" means any and all returns, reports, information returns and
information statements with respect to Taxes required to be filed with the IRS
or any other Governmental Entity or tax authority or agency, whether domestic or
foreign, including, without limitation, consolidated, combined and unitary tax
returns.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"State HMO Act" mean the applicable provisions of Louisiana law regulating
health maintenance organizations and the rules and regulations thereunder.
"Subsidiary" (or its plural) as used in this Agreement with respect to the
Company, Acquiror, the Surviving Corporation or any other person means any
corporation, partnership, limited liability company, joint venture or other
legal entity of which the Company, Acquiror, the Surviving Corporation or such
other person, as the case may be (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
"Tax" or "Taxes" means any and all taxes, charges, fees, levies, and other
governmental assessments and impositions of any kind, payable to any federal,
state, local or foreign governmental entity or taxing authority or agency,
including, without limitation,
(i) income, franchise, net worth, profits, gross receipts, minimum,
alternative minimum, estimated, ad valorem, value added, sales, use, service,
real or personal property, capital stock, license, payroll, withholding,
disability, employment, social security, Medicare, workers compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes,
(ii) customs duties, imposts, charges, levies or other similar assessments
of any kind, and
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(iii) interest, penalties and additions to tax imposed with respect
thereto.
(b) When each of the following terms is used in this Agreement, it shall
have the meaning stated in the Section indicated below:
1994 Financials SECTION 3.07(b)
1994 Louisiana Financials SECTION 3.07(b)
1995 Louisiana Financials SECTION 3.07(b)
1995 Financials SECTION 3.07(b)
Acquiror PREAMBLE
Acquiror Common Stock PREAMBLE
Acquiror Indemnified Parties SECTION 9.02(a)
Acquiror Reports SECTION 4.06(a)
Acquiror SEC Reports SECTION 4.06(a)
Acquiror Sub PREAMBLE
Acquiror Sub Common Stock PREAMBLE
Actual Net Income SECTION 2.04(e)
Agreement PREAMBLE
Articles of Merger SECTION 1.02
CHN PREAMBLE
Certificates SECTION 2.02(b)
Claim SECTION 9.03(a)
Closing SECTION 1.07
Closing Date SECTION 1.07
Closing Shares SECTION 2.02(a)
Community Health Permits SECTION 3.06(b)
Company PREAMBLE
Company Common Stock SECTION 2.01
Company Disclosure Schedule ARTICLE III PREAMBLE
Company Financial Statements SECTION 3.07(b)
Company Permits SECTION 3.06(a)
Company Reports SECTION 3.07(a)
Competing Transaction SECTION 5.02(g)
Constituent Corporations SECTION 1.01
Contingent Payment Rights SECTION 2.01(a)
D&O Claim SECTION 6.06(b)
Dissenting Shares SECTION 2.05
Dissenting Shareholders SECTION 2.05
Earn-Out SECTION 2.04
Earn-Out Year SECTION 2.04
Effective Time SECTION 1.02
Exchange Agent SECTION 2.02(a)
Exchange Fund SECTION 2.02(a)
Exchange Ratio SECTION 2.01(a)
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Expenses SECTION 8.03(b)
Final Determination SECTION 11.01(c)
Former Holders SECTION 2.04(k)
Indemnified Party SECTION 9.03
Indemnitee SECTION 6.06(a)
Insurance Policies SECTION 3.15
LHMC PREAMBLE
LHP PREAMBLE
Losses SECTION 9.02
Louisiana Financial Statements SECTION 3.07(b)
Marks and Rights SECTION 3.13
Merger PREAMBLE
Merger Consideration SECTION 2.01(a)
Notifying Party SECTION 9.0
Outstanding Company Shares SECTION 2.01
Petitioner SECTION 11.01(b)
Proxy Statement SECTION 6.08(a)
Registration Statement SECTION 6.08(a)
Respondent SECTION 11.01(b)
Shareholder Meeting SECTION 6.08(b)
Shareholder Representative SECTION 2.04(k)
Surviving Corporation SECTION 1.01
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 Arbitration.
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement or the agreements contemplated by this Agreement, the breach hereof or
thereof, or coverage of this arbitration provision which is not settled shall be
resolved by arbitration conducted in accordance with this Section 11.01. In such
cases the disputing parties will submit their differences to a panel of three
arbiters selected in accordance with Section 11.01(b) below. The arbiters will
make their award with a view to effectuating the intent of the parties; provided
that the arbiters shall have no authority to award punitive or exemplary damages
or to vary or ignore (but may interpret or construe) the terms of this Agreement
or the other agreements contemplated by this Agreement, and the arbiters shall
be bound by controlling Laws and legal precedent. In the event of disagreement
among the arbiters, the decision will rest with the majority. Each arbiter shall
be independent, and no arbiter shall be a present or former associate,
affiliate, attorney, director, officer or employee of any party or its
affiliates.
(b) Arbitration may be initiated by Acquiror or by the Company or the
Shareholder Representative (the initiating party is referred to as the
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"Petitioner") by written notice to the other party or parties demanding
arbitration and naming its arbiter. The other party or parties (collectively,
the "Respondent') shall have 20 days after receipt of said notice within which
to designate its arbiter. The third arbiter shall be chosen by the two arbiters
named by the Respondent and the Petitioner within 20 days thereafter and the
arbitration shall be held at the place hereinafter set forth ten days after the
appointment of the third arbiter. Should the two arbiters not be able to agree
on the choice of the third, each arbiter shall nominate three persons and the
other arbiter shall be entitled to reject one such person. The third arbiter
shall then be chosen by drawing lots. If the Respondent does not name its
arbiter within 20 days, the Petitioner may designate the second arbiter.
Arbitration shall take place in Louisiana.
(c) The arbiters shall apply the Commercial Arbitration Rules of the
American Arbitration Association, except as may otherwise be agreed and
stipulated by all of the disputing parties prior to commencement of any
arbitration. The arbiters shall conduct the arbitration so that a final result,
determination, finding, judgment and/or award (a "Final Determination") is made
or rendered as soon as practicable, but in no event later than 90 days after the
third arbiter is chosen. The arbiters shall render a Final Determination within
15 days of completion of the arbitration. The Final Determination shall be final
and binding on all parties and there shall be no appeal from or reexamination of
the Final Determination, except (i) in the case of fraud, evident partiality or
misconduct by an arbiter which materially prejudices the rights of any party,
and (ii) to correct manifest clerical errors. Judgment may be entered upon the
Final Determination in any court of competent jurisdiction. If injunctive or
other equitable relief is permitted under this Agreement or otherwise
permissible under applicable law, either the arbiters or a court of competent
jurisdiction (if an arbitration panel cannot be timely convened or is otherwise
unavailable) shall be empowered to grant such injunctive or other equitable
relief on a permanent, preliminary or temporary basis, as appropriate under the
circumstances. The parties hereby irrevocably consent and submit to the
jurisdiction of the courts of or sitting in the State of Louisiana for all
purposes relative to any arbitration and to any subsequent entry of judgment on
any Final Determination rendered pursuant thereto. Subject to Section 8.03(c)
and Article IX: (i) the Petitioner and the Respondent each shall pay its own
attorneys' and witnesses' fees and expenses and other expenses connected with
the presentation of its case subject to Section 9.03(a) and (ii) the remaining
costs of any arbitration, including the cost of the record or transcripts
thereof, if any, administrative fees and other fees and expenses of the arbiters
shall be shared equally between the Petitioner and the Respondent.
SECTION 11.02 Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, sent by reputable overnight
express courier, charges prepaid, to the parties at the following addresses (or
at such
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other address for a party as shall be specified by like changes of address) or
sent by electronic transmission to the telecopier number specified below:
(a) If to Acquiror or Acquiror Sub:
United HealthCare Corporation
9900 Bren Road East
Minnetonka, Minnesota 55343
Telecopier No.: (612) 936-1745
Attention: General Counsel
With a copy to:
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Telecopier No.: (612) 340-8738
Attention: David J. Lubben, Esq.
(b) If to the Company:
Louisiana Independent Physicians Association, Inc.
c/o Emile Provost
8550 United Plaza Boulevard
Suite 600
Baton Rouge, Louisiana 70809
Telecopier No.: (504) 927-9075
With a copy to:
Thomas H. Benton & Associates
601 St. Ferdinand Street
Baton Rouge, Louisiana 70802
Telecopier No.: (504) 343-6635
Attention: Thomas H. Benton
(c) If to the Shareholder Representative:
V. Lynn McCord
11830 King Richard Drive
Baton Rouge, Louisiana 70815
Telecopier No.: (504) 272-0551
With a copy to:
Thomas H. Benton & Associates
601 St. Ferdinand Street
Baton Rouge, Louisiana 70802
Telecopier No.: (504) 343-6635
Attention: Thomas H. Benton
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SECTION 11.03 Amendment. This Agreement may be amended by the parties by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after adoption of this
Agreement by the shareholders of the Company, no amendment may be made without
further approval of such shareholders which would reduce the amount or change
the type of consideration into which each share of Company Common Stock shall be
converted pursuant to this Agreement upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties.
SECTION 11.04 Waiver. At any time prior to the Effective Time, any party
may (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement and (c) waive compliance by the other party
with any of the agreements or conditions contained in this Agreement. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 11.05 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.06 Severability. If any term or other provision of this
Agreement is finally adjudicated by a court of competent jurisdiction to be
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon any such determination prior to the Effective Time
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
SECTION 11.07 Entire Agreement. This Agreement (together with the
Exhibits, the Company and Acquiror Disclosure Schedules and the other documents
delivered pursuant hereto), constitutes the entire agreement of the parties and
supersedes all prior agreements and undertakings, both written and oral, between
the parties, or any of them, with respect to the subject matter hereof.
SECTION 11.08 Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
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SECTION 11.09 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party, and nothing in this Agreement,
express or implied, other than the provisions of Sections 6.06, 6.13 and 6.14
and Articles II and IX, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 11.10 Construction of Terms. Whenever used in this Agreement,
singular number shall include the plural and the plural the singular. Pronouns
of one gender shall include all genders. Accounting terms used and not otherwise
defined in this Agreement have the meanings determined by, and all calculations
with respect to accounting of financial matters unless otherwise provided for
herein, shall be computed in accordance with GAAP, consistently applied.
References herein to articles, sections, paragraphs, subparagraphs or the like
shall refer to the corresponding articles, sections, paragraphs, subparagraphs
or the like of this Agreement. The words "hereof", "herein", and terms of
similar import shall refer to this entire Agreement. Unless the context clearly
requires otherwise, the use of the terms "including", "included", "such as", or
terms of similar meaning, shall not be construed to imply the exclusion of any
other particular elements.
SECTION 11.11 No Strict Construction. The language used in this Agreement
and the other agreements contemplated hereby shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
SECTION 11.12 Governing Law. This Agreement (other than the provisions of
Article I and Sections 2.01, 2.02, 2.03, 2.04(k), 2.05 and 2.06) shall be
governed by, and construed in accordance with, the Laws of the State of
Minnesota, regardless of the Laws that might otherwise govern under applicable
principles of conflicts of law. The provisions of Article I and Sections 2.01,
2.02, 2.03, 2.04(k), 2.05 and 2.06 of this Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Louisiana, regardless of
the Laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 11.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
* * * * *
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IN WITNESS WHEREOF, Acquiror, Acquiror Sub and the Company have caused this
Agreement and Plan of Merger to be executed as of the date first written above
by their respective officers duly authorized.
UNITED HEALTHCARE CORPORATION
By /s/ William W. McGuire
-----------------------------------
Its Chief Executive Officer
----------------------------------
UHC GOLD ACQUISITION, INC.
By /s/ William W. McGuire
-----------------------------------
Its Chief Executive Officer
----------------------------------
LOUISIANA INDEPENDENT PHYSICIANS
ASSOCIATION, INC.
By /s/ V. Lynn McCord
-----------------------------------
Its President
----------------------------------
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Exhibit 2.02(b)
FORM OF WAIVER OF PROVIDER CLAIMS
In consideration for the receipt of the securities and any other payments (the
"Merger Consideration") described in the Agreement and Plan of Merger, dated
__________, 1996 (the "Merger Agreement"), by and among United HealthCare
Corporation ("United"), UHC Gold Acquisition, Inc. and the Louisiana Independent
Physicians Association, Inc. ("LIPA"), and as the Merger Agreement requires for
payment of the Merger Consideration, Shareholder hereby releases United and all
its current and future subsidiaries (including LIPA, Community Health Network of
Louisiana, Inc., Louisiana Health Management Company or Louisiana Health
Partners, Inc. (collectively, the "Louisiana Companies")), and the predecessors
and successors of United and its current and future subsidiaries, and all
officers, directors, employees and agents of all such entities, from each and
every claim of any kind which Shareholder may have, whether known or unknown,
relating to the provision by Shareholder of services prior to January 1, 1995,
to any of the Louisiana Companies, including, but not limited to, any claim for
wages, penalties, benefits, breach of contract, or breach of the implied
covenant of good faith and fair dealing.
Shareholder states that prior to signing this Waiver, Shareholder has reviewed
the description of this Waiver in the section entitled "_________" of the Proxy
Statement and has been given sufficient time to review this Waiver with whomever
Shareholder so desires, including legal counsel.
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Exhibit 2.04(e)
Calculation of Actual Net Income
--------------------------------
The Net Income of the Community Health Entities determined in accordance
with Section 2.04(e) of the Agreement shall be subject to the following
adjustments:
1. If demanded by the Shareholder Representative, there shall be added to
such Net Income any amount by which it has been reduced by the failure of
Acquiror, the Surviving Corporation, or any of the Community Health Entities to
comply with Section 2.04(h).
2. There shall be added back to Net Income the following expenses, net of
the tax effect thereof: (a) interest expense, (b) expenses of the acquisition
transactions contemplated by the Agreement or goodwill therefrom or similar
expenses or goodwill from other acquisitions, and (c) matters for which any
Acquiror Indemnified Party has received, or will receive, indemnification under
Article IX.
3. There shall be added to Net Income the amount (if any) by which
"Adjusted Operating Expenses" (defined below) exceeds 10% of "Adjusted Premium
Revenues" (defined below), after deducting the tax effect of such excess
expenses. For purposes of this calculation, (a) Adjusted Operating Expenses
means all expenses (including any charges under a management contract or charges
for any services provided to the Community Health Entities by Acquiror or any
Affiliate of Acquiror or by any officer, director or employee of Acquiror or any
such Affiliate) other than (i) cost of Medical Services Expenses, (ii) expenses
added back to Net Income in accordance with 2. above, (iii) broker commissions,
and (iv) premium and other taxes; and (b) Adjusted Premium Revenues means all
premium revenues other than (i) interest and other investment income, (ii) fees
from self-funded groups, and (iii) miscellaneous management fees.
4. The Louisiana HMO operations acquired by Acquiror from The MetraHealth
Companies, Inc. will be deemed to be a Community Health Entity for all purposes
of calculating the Earn-Out.
5. Adjustments identified by the independent auditors of the Community
Health Entities as part of their standard audit procedures, which procedures
shall be in accordance with Generally Accepted Auditing Standards and consistent
with prior periods, will be considered not material in preparing the
consolidated financial statements only if the aggregate effect thereof, taking
in account both positive and negative adjustments, does not exceed $20,000.
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<PAGE>
[LETTERHEAD OF THE ROBINSON-HUMPHREY COMPANY, INC.]
January 9, 1996
Board of Directors
Louisiana Independent Physicians Association, Inc.
c/o Thomas H. Benton
601 St. Ferdinand Street
Baton Rouge, Louisiana 70802
Gentlemen:
We understand that Louisiana Independent Physicians Association, Inc.
("LIPA" or the "Company") has entered into an Agreement and Plan of Merger (the
"Proposed Transaction") with UNC Gold Acquisition, Inc., a wholly-owned
subsidiary of United HealthCare Corporation ("United"). The Company is a
holding company which owns (i) 51% of the common stock of Community Health
Network of Louisiana, Inc., a Louisiana corporation, (ii) a 48.51% general
partnership interest in Louisiana Health Management Company, a Louisiana general
partnership ("LHMC"), and (iii) 49% of the common stock of Louisiana Health
Partners, Inc., a Louisiana corporation and the 1% owner and managing general
partner of LHMC.
In connection with the Proposed Transaction, we understand that the
stockholders of LIPA shall receive approximately $50.0 million of United's
common stock as merger consideration at closing. In addition, the stockholders
shall be entitled to cash earn-out payments up to an aggregate of $35.0 million
if the Company's net income in 1996 and 1997 exceeds certain minimum thresholds.
The combination of the initial stock payment and the potential earn-out payments
is herein referred to in the aggregate as the consideration (the
"Consideration"). A detailed description of the Proposed Transaction is
provided in the Agreement and Plan of Merger (the "Agreement").
We have been requested by the Company to render our opinion (the
"Opinion") with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Consideration to be received by the Company's
stockholders in the Proposed Transaction. We have not been requested to opine
as to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.
In arriving at our Opinion, we reviewed and analyzed: (i) the Agreement,
(ii) financial and operating information with respect to the business,
operations and prospects of the Company furnished to us by the Company, (iii) a
comparison of the historical financial results and present financial condition
of the Company with those of other companies which we deemed relevant, (iv) an
analysis of financial and stock market information of selected publicly-traded
companies which we deemed comparable to the Company, (v) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other recent transactions which we deemed relevant, (vi) analyses of the present
value of the free cash flows projected to be generated by the Company during the
forecast period, and (vii) certain information regarding
[LETTERHEAD OF THE ROBINSON-HUMPHREY COMPANY, INC.]
<PAGE>
Board of Directors
Louisiana Independent Physicians Association, Inc.
January 9, 1996
Page 2
_________________________________________
United, including, among others, (a) certain recent filings with the Securities
and Exchange Commission, (b) equity research reports published by analysts
within the investment community who provide research coverage of United, (c) the
recent trading and volume history of United's stock, and (d) historical and
projected financial information of the Louisiana HMO operations of the
MetraHealth Companies, Inc. acquired by United. In addition, we held discussions
with the management of the Company and United concerning their respective
businesses and operations, assets, present conditions and future prospects and
undertook such other studies, analyses and investigations as we deemed
appropriate.
We have relied upon the accuracy and completeness of the financial and
other information used by us in arriving at our Opinion without independent
verification and have further relied upon the assurances of management of the
Company that it is not aware of any facts that would make such information
inaccurate or misleading. In arriving at our Opinion, we have not conducted a
physical inspection of the properties and facilities of the Company. We have
not made nor obtained any evaluations or appraisals of the assets or liabilities
of the Company. Our Opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated as of the date of this
letter.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which will be paid
upon the delivery of this Opinion. In addition, the Company has agreed to
indemnify us for certain potential liabilities arising out of the rendering of
this Opinion.
Based upon and subject to the foregoing, we are of the Opinion as of the
date hereof that, from a financial point of view, the Consideration to be
received by the Company's stockholders in the Proposed Transaction is fair to
the stockholders of the Company.
This opinion is solely for the use and benefit of the Board of Directors
of the Company and shall not be disclosed publicly or made available to, or
relied upon by, any third party without our prior approval except that (i) this
opinion may be filed with the Securities and Exchange Commission as an exhibit
to the registration statement on Form S-4 being filed by United in connection
with the Proposed Transaction; and (ii) this opinion may be described in, and a
copy hereof may be annexed to, the proxy statement to be circulated to the
stockholders of the Company in connection with the Proposed Transaction. This
Opinion is not intended to be and does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the Proposed
Transaction.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
<PAGE>
EXHIBIT C
LOUISIANA BUSINESS CORPORATION LAW SECTION 12:131--RIGHTS OF SHAREHOLDER
DISSENTING FROM CERTAIN CORPORATE ACTIONS.
A. Except as provided in subsection B of this Section if a corporation
has, by vote of its shareholders, authorized a sale, lease or exchange of all of
its assets, or has, by vote of its shareholders, become a party to a merger or
consolidation, then, unless such authorization or action shall have been given
or approved by at least eighty per cent of the total voting power, a shareholder
who voted against such corporate action shall have the right to dissent. If a
corporation has become a party to a merger pursuant to R.S. 12:112(H), the
shareholders of any subsidiaries party to the merger shall have the right to
dissent without regard to the proportion of the voting power which approved the
merger and despite the fact that the merger was not approved by vote of the
shareholders of any of the corporations involved.
B. The right to dissent provided by this Section shall not exist in the
case of:
(1) A sale pursuant to an order of a court having jurisdiction in the
premises.
(2) A sale for cash on terms requiring distribution of all or
substantially all of the net proceeds to the shareholders in accordance with
their respective interests within one year after the date of the sale.
(3) Shareholders holding shares of any class of stock which, at the record
date fixed to determine shareholders entitled to receive notice of and to vote
at the meeting of shareholders at which a merger or consolidation was acted on,
were listed on a national securities exchange, or were designated as a national
market system security on an inter-dealer quotation system by the National
Association of Securities Dealers, unless the articles of the corporation
issuing such stock provide otherwise or the shares of such shareholders were not
converted by the merger or consolidation solely into shares of the surviving or
new corporation.
C. Except as provided in the last sentence of this subsection, any
shareholder electing to exercise such right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to such proposed
corporate action, and shall vote his shares against such action. If such
proposed corporate action be taken by the required vote, but by less than eighty
per cent of the total voting power, and the merger, consolidation or sale, lease
or exchange of assets authorized thereby be effected, the corporation shall
promptly thereafter give written notice thereof, by registered mail, to each
shareholder who filed such written objection to, and voted hi shares against,
such action, at such shareholder's last address on the corporation's records.
Each such shareholder may, within twenty days after the mailing of such
<PAGE>
notice to him, but not thereafter, file with the corporation a demand in writing
for the fair cash value of his shares as of the day before such vote was taken;
provided that he state in such demand the value demanded, and a post office
address to which the reply of the corporation may be sent, and at the same time
deposit in escrow in a chartered bank or trust company located in the parish of
the registered office of the corporation, the certificates representing his
shares, duly endorsed and transferred to the corporation upon the sole condition
that said certificates shall be delivered to the corporation upon payment of the
value of the shares determined in accordance with the provisions of this
Section. With his demand the shareholder shall deliver to the corporation, the
written acknowledgement of such bank or trust company that it so holds his
certificates of stock. Unless the objection, demand and acknowledgement
aforesaid be made and delivered by the shareholder within the period above
limited, he shall conclusively be presumed to have acquiesced in the corporate
action proposed or taken. In the case of a merger pursuant to R.S. 12:112(H),
the dissenting shareholder need not file an objection with the corporation nor
vote against the merger, but need only file with the corporation, within twenty
days after a copy of the merger certificate was mailed to him, a demand in
writing for the cash value of his shares as of the day before the certificate
was filed with the Secretary of State, state in such demand the value demanded
and a post office address to which the corporation's reply may be sent, deposit
the certificates representing his shares in escrow as hereinabove provided, and
deliver to the corporation with his demand the acknowledgement of the escrow
bank or trust company as hereinabove prescribed.
D. If the corporation does not agree to the value so stated and demanded,
or does not agree that a payment is due, it shall, within twenty days after
receipt of such demand and acknowledgement, notify in writing the shareholder,
at the designated post office address, of its disagreement, and shall state in
such notice the value it will agree to pay if any payment should be held to be
due; otherwise it shall be liable for, and shall pay to the dissatisfied
shareholder, the value demanded by him for his shares.
E. In the case of disagreement as to such fair cash value, or as to
whether any payment is due, after compliance by the parties with the provisions
of subsections C and D of this Section, the dissatisfied shareholder, within
sixty days after receipt of notice in writing of the corporation's disagreement,
but not thereafter, may file suit against the corporation, or the merged or
consolidated corporation, as the case may be, in the district court of the
parish in which the corporation or the merged or consolidated corporation, as
the case may be, has its registered office, praying the court to fix and decree
the fair cash value of the dissatisfied shareholder's shares as of the day
before such corporate action complained of was taken, and the court shall, on
such evidence as may be adduced in relation thereto, determine summarily whether
any payment is due, and, if so, such cash value, and render judgment
accordingly. Any shareholder entitled to file
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<PAGE>
such suit may, within such sixty-day period but not thereafter, intervene as a
plaintiff in such suit filed by another shareholder, and recover therein
judgment against the corporation for the fair cash value of his shares. No order
or decree shall be made by the court staying the proposed corporate action, and
any such corporate action may be carried to completion notwithstanding any such
suit. Failure of the shareholder to bring suit, or to intervene in such a suit,
within sixty days after receipt of notice of disagreement by the corporation
shall conclusively bind the shareholder (1) by the corporation's statement that
no payment is due, or (2) if the corporation does not contend that no payment is
due, to accept the value of his shares as fixed by the corporation in its notice
of disagreement.
F. When the fair value of the shares has been agreed upon between the
shareholder and the corporation, or when the corporation has become liable for
the value demanded by the shareholder because of failure to give notice of
disagreement and of the value it will pay, or when the shareholder has become
bound to accept the value the corporation agrees is due because of his failure
to bring suit within sixty days after receipt of notice of the corporation's
disagreement, the action of the shareholder to recover such value must be
brought within five years from the date the value was agreed upon, or the
liability of the corporation became fixed.
G. If the corporation or the merged or consolidated corporation, as the
case may be, shall, in its notice of disagreement, have offered to pay to the
dissatisfied shareholder on demand an amount in cash deemed by it to be the fair
cash value of his shares, and if, on the institution of a suit by the
dissatisfied shareholder claiming an amount in excess of the amount so offered,
the corporation, or the merged or consolidated corporation, as the case may be,
shall deposit in the registry of the court, there to remain until the final
determination of the cause, the amount so offered, then, if the amount finally
awarded such shareholder, exclusive of interest and costs, be more than the
amount offered and deposited as aforesaid, the costs of the proceeding shall be
taxed against the corporation, or the merged or consolidated corporation, as the
case may be; otherwise the costs of the proceeding shall be taxed against such
shareholder.
H. Upon filing a demand for the value of his shares, the shareholder
shall cease to have any of the rights of a shareholder except the rights
accorded by this Section. Such a demand may be withdrawn by the shareholder for
any time before the corporation gives notice of disagreement, as provided in
subsection D of this Section. After such notice of disagreement is given,
withdrawal of a notice of election shall require the written consent of the
corporation. If a notice of election is withdrawn, or the proposed corporate
action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares, his share certificates shall be
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<PAGE>
returned to him (and, on his request, new certificates shall be issued to him in
exchange for the old ones endorsed to the corporation), and he shall be
reinstated to all his rights as a shareholder as of the filing of his demand for
value, including any intervening preemptive rights, and the right to payment of
any intervening dividend or other distribution, or, if any such rights have
expired or any such dividend or distribution other than in cash has been
completed, in lieu thereof, at the election of the corporation, the fair value
thereof in cash as determined by the board as of the time of such expiration or
completion, but without prejudice otherwise to any corporate proceedings that
may have been taken in the interim.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors.
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best interests
of the corporation in the case of acts or omissions in such person's official
capacity for the corporation or reasonably believed that the conduct was not
opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated organizations.
Article IX of the Bylaws of United provides that United shall indemnify officers
and directors to the extent permitted by Section 302A.521 as now enacted or
hereafter amended.
United also carries a directors' and officers' liability insurance
policy.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
2 Agreement and Plan of Merger, dated as of January 16,
1996, by and among United HealthCare Corporation, UHC Gold
Acquisition, Inc. and Louisiana Independent Physicians
Association, Inc. (included as Exhibit A to the Proxy
Statement/Prospectus that forms a part of this
Registration Statement on form S-4 (certain exhibits and
schedules omitted--the Registrant agrees to furnish a copy
of any exhibit or schedule to the Commission upon
request)).
5 Opinion of Kevin H. Roche, General Counsel of United
HealthCare Corporation, regarding the validity of United
HealthCare Corporation's Common Stock to be issued.
8 Opinion of Dorsey & Whitney LLP
regarding certain tax matters relating to the Merger.
23.1 Consent of Arthur Andersen LLP with respect to financial
statements of United HealthCare Corporation, Louisiana
Independent Physicians Association, Inc. and The
MetraHealth Business.
23.2 Consent of Deloitte & Touche LLP with respect to financial
statements of HealthWise of America, Inc.
II-1
<PAGE>
23.3 Consent of Deloitte & Touche LLP with respect to financial
statements of Metropolitan Life Insurance Company Health
Care Benefit Business.
23.4 Consent of KPMG Peat Marwick LLP with respect to the
combined financial statements of The Managed Care and
Employee Benefits Operations Medical Division of The
Travelers Insurance Group Inc. and Subsidiaries.
23.5 Consent of KPMG Peat Marwick LLP with respect to the
financial statements of GenCare Health Systems, Inc.
23.6 Consent of The Robinson-Humphrey Company, Inc.
23.7 Consent of Kevin H. Roche, General Counsel of United
HealthCare Corporation (contained in Exhibit 5).
23.8 Consent of Dorsey & Whitney LLP (contained in Exhibit 8).
24 Power of Attorney.
99.1 Form of Proxy Card for the Special Meeting.
(b) Financial Statement Schedules
Not applicable.
(c) The opinion of The Robinson-Humphrey Company, Inc. is attached as
Exhibit B to the Proxy Statement/Prospectus that forms a part of
this Registration Statement.
Item 22. Undertakings. The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
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<PAGE>
Registration Fee" table in the effective Registration
Statement.
(C) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b)(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form; and
(2) That every prospectus (A) that is filed pursuant to paragraph (1)
immediately preceding, or (B) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective and that, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class
II-3
<PAGE>
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
(f) For purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minnetonka, State of
Minnesota, on March 22, 1996.
UNITED HEALTHCARE CORPORATION
By /s/ William W. McGuire, M.D.
---------------------------------------
William W. McGuire, M.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 22, 1996.
By /s/ William W. McGuire, M.D.
----------------------------------------
William W. McGuire, M.D.
Director, Chief Executive Officer
(principal executive officer)
By /s/ David P. Koppe
----------------------------------------
David P. Koppe
CFO
(principal financial officer)
By *
----------------------------------------
William C. Ballard, Jr.
Director
By *
----------------------------------------
Richard T. Burke
Director
By *
----------------------------------------
James A. Johnson
Director
By *
----------------------------------------
Thomas H. Kean
Director
II-5
<PAGE>
By *
----------------------------------------
Douglas W. Leatherdale
Director
By *
----------------------------------------
James L. Seiberlich
Director
By *
----------------------------------------
Kennett L. Simmons
Director
By *
----------------------------------------
William G. Spears
Director
By *
----------------------------------------
Gail R. Wilensky
Director
By /s/ William W. McGuire, M.D.
----------------------------------------
William W. McGuire, M.D.
As Attorney-In-Fact
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit Page
Number Description Number
------ ----------- ------
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of January 16, 1996, by and
among United HealthCare Corporation, UHC Gold Acquisition, Inc. and
Louisiana Independent Physicians Association, Inc. (included as
Exhibit A to the Proxy Statement/Prospectus that forms a part of
this Registration Statement on form S-4 (certain exhibits and
schedules omitted--the Registrant agrees to furnish a copy of any
exhibit or schedule to the Commission upon request)).
5 Opinion of Kevin H. Roche, General Counsel of United HealthCare
Corporation, regarding the validity of United HealthCare
Corporation's Common Stock to be issued.
8 Opinion of Dorsey & Whitney LLP regarding certain tax matters
relating to the Merger.
23.1 Consent of Arthur Andersen LLP with respect to financial statements
of United HealthCare Corporation, Louisiana Independent Physicians
Association, Inc. and The MetraHealth Business.
23.2 Consent of Deloitte & Touche LLP with respect to financial
statements of HealthWise of America, Inc.
23.3 Consent of Deloitte & Touche LLP with respect to financial
statements of Metropolitan Life Insurance Company Health Care
Benefit Business.
23.4 Consent of KPMG Peat Marwick LLP with respect to the combined
financial statements of The Managed Care and Employee Benefits
Operations Medical Division of The Travelers Insurance Group Inc.
and Subsidiaries.
23.5 Consent of KPMG Peat Marwick LLP with respect to the financial
statements of GenCare Health Systems, Inc.
23.6 Consent of The Robinson-Humphrey Company, Inc.
23.7 Consent of Kevin H. Roche, General Counsel of United HealthCare
Corporation (contained in Exhibit 5).
23.8 Consent of Dorsey & Whitney LLP (contained in Exhibit 8).
24 Power of Attorney.
99.1 Form of Proxy Card for the Special Meeting.
</TABLE>
<PAGE>
EXHIBIT 5
March 22, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: United HealthCare Corporation
1,013,055 Shares of Common Stock
Form S-4 Registration Statement
Ladies and Gentlemen:
I am General Counsel for United HealthCare Corporation ("UHC"), a
Minnesota corporation and the parent of UHC Gold Acquisition, Inc. ("United
Sub"), a Louisiana corporation, a constituent corporation in a merger (the
"Merger") with Louisiana Independent Physicians Association, Inc. ("LIPA"), a
Delaware corporation, pursuant to an Agreement and Plan of Merger among UHC,
United Sub and LIPA dated January 16, 1996 (the "Merger Agreement"). The Merger
Agreement calls for the preparation of a Registration Statement on Form S-4 (the
"Registration Statement") covering the issuance by UHC of shares of its common
stock, $.01 par value (the "Common Stock"), relating to the Merger.
In connection with the rendering of this opinion, I, or members of my
staff, have examined originals or copies, certified or otherwise identified to
my satisfaction, of such instruments, documents, certificates, agreements and
records as I have deemed necessary or appropriate under the circumstances for
the purpose of rendering this opinion. In so acting, I have examined and relied
upon the accuracy of original, certified, conformed, photostatic, or telecopied
copies of such instruments, documents, certificates, agreements and records. In
all such examinations, I have assumed the genuineness and due authorization of
all signatures on, and the authenticity and completeness of, all documents
submitted to me as originals, and the conformity to such original documents of
all copies submitted to me as copies, and the veracity and completeness of
statements, both written and oral, made by officers or other representatives of
UHC, United Sub and LIPA. As to various questions of fact material to my
opinion, I have relied upon the veracity of the factual representations made by
UHC, United Sub and LIPA in the Merger Agreement, certificates and other
statements, both written and oral, from officers and other representatives of
UHC, United Sub and LIPA, and upon certificates and other written or telephonic
statements of public officials, and I have assumed that the facts and
circumstances contained in such certificates and other statements are true and
complete and have not changed since the date thereof. I have assumed that all
conditions precedent to the obligations of the parties to consummate the
transactions under the Merger Agreement have been satisfied or waived. I have
also assumed the legal capacity for all purposes relevant hereto of all natural
persons and, with respect to all parties to agreements or instruments relevant
hereto other than UHC, that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. I have also assumed that the Common
Stock will be issued as described in the Registration Statement.
Based on the foregoing, I am of the opinion that the shares of Common
Stock to be issued by UHC in connection with the Merger, when issued in
accordance with the terms of the Merger Agreement, will be duly authorized,
validly issued, fully paid and nonassessable.
This opinion is given as of the date set forth above and I assume no
obligation to advise you of any changes, whether or not material, which may be
brought to my attention at a later date. This
<PAGE>
Securities and Exchange Commission
March 22, 1996
Page 2
opinion is limited to the matters stated herein and no opinion is implied or may
be inferred beyond the matters expressly stated herein.
I am a member of the Bar of the State of Minnesota only and do not
hold myself out as an expert on the law of any other state or of any foreign
country. This opinion is rendered solely for, and may be relied upon only by,
you in connection with the transaction the Registration Statement describes.
Finally, this opinion may not be disseminated to, or relied upon by, any other
person or entity for any other purpose without my prior written consent.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to me under the heading "Legal
Matters" in the Prospectus constituting part of the Registration Statement.
Sincerely,
/s/ Kevin H. Roche
Kevin H. Roche
General Counsel
<PAGE>
EXHIBIT 8
[Dorsey & Whitney LLP letterhead]
March 22, 1996
United HealthCare Corporation
300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Dear Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration
Statement on Form S-4 filed on March 22, 1996 (the "Registration Statement"),
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). The Registration Statement relates to the
proposed merger of Louisiana Independent Physicians Association, Inc., a
Louisiana corporation, with and into UHC Gold Acquisition, Inc., also a
Louisiana corporation and a wholly-owned subsidiary of United Healthcare
Corporation, a Minnesota corporation. This opinion is delivered in accordance
with the requirements of Item 601(b)(8) of the Regulation S-K under the
Securities Act.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of the Registration Statement, the Joint Proxy Statement/Prospectus included
therein (the "Joint Proxy Statement/Prospectus") and such other documents as we
have deemed necessary or appropriate.
We hereby confirm that the discussions in the Joint Proxy
Statement/Prospectus under the captions "SUMMARY -- Certain Federal Income Tax
Consequences" and "THE MERGER -- Certain Federal Income Tax Consequences" are a
fair and accurate summary of the matters addressed therein, based upon current
law and the facts and assumptions stated or referred to therein. There can be
no assurance that contrary positions may not be taken by the Internal Revenue
Service.
We hereby consent to the filing of this opinion as Exhibit 8 to the
Registration Statement and to the use of our name under the captions "THE MERGER
- -- Certain Federal Income Tax Consequences" and "LEGAL MATTERS" in the Joint
Proxy Statement/Prospectus. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act.
Very truly yours,
Dorsey & Whitney LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accountants, we hereby consent to the
incorporation by reference in the Registration Statement on Form S-4 related to
United HealthCare Corporation's acquisition of Louisiana Independent Physicians
Association, Inc. of our reports dated (i) February 14, 1995 incorporated by
reference in United HealthCare Corporation's Form 10-K for the year ended
December 31, 1994 (ii) February 14, 1995 included in Louisiana Independent
Physicians Association, Inc.'s Financial Statements for the year ended December
31, 1994 and (iii) December 15, 1995 included in United HealthCare Corporation's
Current report on Form 8-K/A, an amendment to United HealthCare Corporation's
Current report on Form 8-K dated October 2, 1995 related to United HealthCare
Corporation's acquisition of the MetraHealth Companies, Inc. and to all
references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 22, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of United HealthCare, Inc. on Form S-4 of our report dated February
23, 1995, appearing in the Annual Report on Form 10-K of HealthWise of America,
Inc. for the year ended December 31, 1994 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
March 19, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in this Registration
Statement of United HealthCare Corporation on Form S-4 of our report dated March
17, 1995, except for note 10 as to which the date is October 2, 1995, (relating
to the financial statements of Metropolitan Life Insurance Company Health Care
Benefit Business not presented separately herein) incorporated by reference in
the Form 8-K/A Current Report of United HealthCare Corporation dated October 2,
1995 and to the reference to us under the heading "Experts" in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
March 20, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of United HealthCare Corporation of our report dated May 31, 1995,
except as to Notes 1, 5 and 11, which are as of December 8, 1995, with respect
to the combined statements of assets and liabilities of The Managed Care and
Employee Benefits Operations Medical Division of the Travelers Insurance Group
Inc. as of December 31, 1994 and the related combined statements of operations
and cash flows for each of the years in the two-year period ended December 31,
1994, which report appears in the Form 8-K/A of United HealthCare Corporation
dated October 2, 1995 and filed on December 18, 1995, and to the reference to
our Firm under the heading "Experts" in the Proxy Statement/Prospectus.
Our report refers to the adoption of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in
1994.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
March 19, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-4 of United HealthCare Corporation of our
report dated January 27, 1995 with respect to the consolidated balance sheets of
GenCare Health Systems, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of earnings, changes in shareholders'
equity and cash flows for each of years in the three-year period ended December
31, 1994, which report appears in the Form 8-K/A of United HealthCare
Corporation dated January 3, 1995 and to the reference to our firm under the
heading "Experts" in the prospectus.
Our report refers to the adoption of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments and Debt and Equity
Securities" in 1994.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
March 20, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF THE ROBINSON-HUMPHREY COMPANY, INC.
We consent to the inclusion in this Registration Statement on Form S-4 (the
"Form S-4") of our opinion dated January 9, 1996, set forth as Exhibit B to the
Form S-4. In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under the federal securities
laws or the rules and regulations of the Securities and Exchange Commission
thereunder.
THE ROBINSON-HUMPHREY COMPANY, INC.
Atlanta, Georgia
March 22, 1996
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D., David P. Koppe
and Kevin H. Roche, each with full power to act without the other, his or her
true and lawful attorney-in-fact and agent with full power of substitution, for
him or her and in his or her name, place and stead, in any and all capacities,
to sign the Registration Statement on Form S-4 relating to the registration
under the Securities Act of 1933 of common stock of United HealthCare
Corporation (the "Company") issuable pursuant to the Agreement and Plan of
Merger dated as of January 16, 1996 providing for the merger of Louisiana
Independent Physicians Association, Inc., a Louisiana corporation, with and into
UHC Gold Acquisition, Inc., a Louisiana corporation and wholly owned subsidiary
of the Company, and any or all amendments or post-effective amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and to file
the same with such state commissions and other agencies as necessary, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each such
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on the 13th
day of February, 1996, by the following persons.
/s/ William W. McGuire /s/ Douglas W. Leatherdale
- ---------------------------- -------------------------------
William W. McGuire, M.D. Douglas W. Leatherdale
/s/ David P. Koppe
- ---------------------------- -------------------------------
David P. Koppe Elizabeth J. McCormack
/s/ William C. Ballard, Jr. /s/ James L. Seiberlich
- ---------------------------- -------------------------------
William C. Ballard, Jr. James L. Seiberlich
/s/ Richard T. Burke /s/ William G. Spears
- ---------------------------- -------------------------------
Richard T. Burke William G. Spears
/s/ James A. Johnson /s/ Kennett L. Simmons
- ---------------------------- -------------------------------
James A. Johnson Kennett L. Simmons
/s/ Gail R. Wilensky
- ---------------------------- -------------------------------
Thomas H. Kean Gail R. Wilensky
<PAGE>
EXHIBIT 99.1
LOUISIANA INDEPENDENT PHYSICIANS ASSOCIATION, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
__________________and ________________, or either of them, are hereby
appointed attorneys and proxies of the undersigned, each with the power of
substitution, to attend, vote and act for the undersigned at the special meeting
of shareholders of Louisiana Independent Physicians Association, Inc. (the
"Company") to be held on ______________, 1996, in the ____ Room of the Radisson
Hotel, 4728 Constitution Avenue, Baton Rouge, Louisiana, 70808, and at any
postponement or adjournment thereof, in connection therewith to vote and present
all of the shares of Common Stock ("Common Stock") of the Company which the
undersigned would be entitled to vote as follows:
1. To consider and vote upon a proposal (a) to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of
January 16, 1996, by and among LIPA, United HealthCare Corporation, a
Minnesota corporation ("United"), and UHC Gold Acquisition, Inc., a
Louisiana corporation and a direct, wholly owned subsidiary of United
("United Sub"), pursuant to which, among other things, (i) LIPA will be
merged with and into United Sub (the "Merger"), (ii) each outstanding
share of common stock, no par value, of LIPA ("LIPA Common Stock"),
other than LIPA Common Stock as to which dissenters' rights have been
duly demanded as permitted under Louisiana law and not withdrawn or lost
(the "Dissenting Stock"), will be converted into the right to receive a
pro rata allotment of aggregate number of shares of common stock, $.01
par value, of United (the "United Common Stock"), with a value between
$46,250,000 and $53,750,000, and (iii) each share of LIPA Common Stock
outstanding, other than Dissenting Stock, will have the right (the
"Contingent Payment Right") to receive two contingent cash payments with
an aggregate value of between $0 and approximately $84,000 per share,
and (b) to approve any transactions relating to the Merger Agreement and
the Merger to the extent such transactions are deemed transactions for
purposes of Section 84 of the Louisiana Business Corporation Law.
For ___ Against ___ Abstain ___
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
If this proxy is duly executed and returned, this proxy will be voted, and
will be voted in accordance with the instructions specified above. If no
instruction is specified, the proxy will be voted FOR Item 1.
(Continued and to be dated and signed on reverse side)
<PAGE>
(Continued from front)
The undersigned hereby revokes any other proxy or proxies heretofore given
to vote or act with respect to such Common Stock and hereby ratifies and
confirms all action that said attorneys and proxies, their substitutes, or any
of them, may have lawfully taken by virtue thereof.
Dated: _________________________, 1996
___________________________________
___________________________________
Signature(s) of Shareholder
This proxy should be signed exactly as your name appears thereon.
Joint owners should both sign. If signed by an attorney, executor,
guardian or in some other capacity or as officer of a corporation,
please add title as such.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT IN THE ENCLOSED ENVELOPE.
