<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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)
MINNESOTA 6324 41-1321939
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
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 (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE AND TELEPHONE NUMBER, INCLUDING
NUMBER, INCLUDING AREA CODE, OF AREA CODE, OF AGENT FOR SERVICE)
REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
COPIES TO:
DAVID J. LUBBEN, ESQ. KENNETH J. MELKUS ALAN C. MYERS, ESQ.
DORSEY & WHITNEY CHIEF EXECUTIVE OFFICER SKADDEN, ARPS, SLATE,
P.L.L.P. HEALTHWISE OF AMERICA, MEAGHER
PILLSBURY CENTER SOUTH INC. & FLOM
220 SOUTH SIXTH STREET 102 WOODMONT BOULEVARD 919 THIRD AVENUE
MINNEAPOLIS, MN 55402 SUITE 110 NEW YORK, NY 10022
NASHVILLE, TN 37205
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 a
subsidiary of the Registrant with and into HealthWise of America, Inc.
("HealthWise"), as described in the Agreement and Plan of Merger, dated as of
February 1, 1996, attached as Exhibit A to the Proxy Statement/Prospectus
forming a part of this Registration Statement.
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value
per share....................... 5,077,506 shares(2) Not applicable Not applicable $110,865.53(3)(4)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of HealthWise, in connection with the
Merger.
(2) Based on the maximum number of shares of common stock of HealthWise that
may be outstanding immediately prior to the Merger described herein
(7,841,708 shares).
(3) Pursuant to Rule 457(f)(1) and (c), the registration fee was calculated
based on the average of the high and low price per share ($41.00) of the
common stock of HealthWise to be canceled in the Merger as reported on the
Nasdaq National Market System on February 29, 1996, and the maximum number
of shares of such stock that may be outstanding immediately prior to the
Merger.
(4) Of such registration fee, $60,493.15 was previously paid on February 20,
1996 upon the filing under the Securities Exchange Act of 1934 of
preliminary copies of HealthWise's proxy materials included herein and
$50,372.38 is being paid herewith.
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
<TABLE>
<CAPTION>
FORM
S-4 LOCATION IN
ITEM PROSPECTUS
---- -----------
A. INFORMATION ABOUT THE TRANSACTION
<S> <C>
1.Forepart of Registration
Statement and Outside Front Forepart of the Registration Statement;
Cover Page of Prospectus..... Outside Front Cover Page of the Prospectus
2.Inside Front and Outside Back Available Information; Incorporation of
Cover Pages of Prospectus.... Certain Documents by Reference; 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
Stockholder Rights
5.Pro Forma Financial Summary; Unaudited Pro Forma Condensed
Information.................. Combining Financial Information
6.Material Contracts 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 Available Information; Incorporation of
Registrants.................. 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 Incorporation of Certain Documents by
Information by Reference..... 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
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15.Information with Respect to S-3 Available Information; Incorporation of
Companies.................... Certain Documents by Reference; Summary;
The Merger; Certain Information Concerning
HealthWise
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................ Not Applicable
D.VOTING AND MANAGEMENT INFORMATION
18.Information if Proxies,
Consents or Authorizations Available Information; Incorporation of
are to be Solicited.......... Certain Documents by Reference; Summary;
The Special Meeting; The Merger; Other
Matters
19.Information if Proxies,
Consents or Authorizations
are not to be Solicited in an
Exchange Offer............... Not Applicable
</TABLE>
<PAGE>
[HEALTHWISE Logo]
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
HealthWise of America, Inc. ("HealthWise"), to be held at 102 Woodmont Blvd.,
Suite 110, Nashville, Tennessee 37205, on , 1996, at 9:00 a.m. 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 HealthWise's outstanding shares of common stock, $.25 par value
("HealthWise Common Stock"), as of March 4, 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 February 1, 1996, among HealthWise, United HealthCare
Corporation ("United") and UHC Black Acquisition, Inc., a direct, wholly owned
subsidiary of United ("United Sub"), pursuant to which, among other things,
United Sub will be merged with and into HealthWise (the "Merger"). If the
Merger Agreement is approved and adopted and the Merger becomes effective,
each outstanding share of HealthWise Common Stock will be converted into
0.6475 of a share of common stock, $.01 par value, of United (the "United
Common Stock"). 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 holders of a majority of the outstanding shares of HealthWise
Common Stock.
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, Bear, Stearns & Co. Inc., that
the Merger is fair, from a financial point of view, to the stockholders of
HealthWise.
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 Harold D. Simpson, Secretary of HealthWise. Your prompt
cooperation will be greatly appreciated.
Very truly yours,
Ken Melkus
Chairman and Chief Executive Officer
, 1996
<PAGE>
HEALTHWISE OF AMERICA, INC.
102 WOODMONT BOULEVARD
SUITE 110
NASHVILLE, TENNESSEE 37205
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1996
To the Stockholders of HealthWise of America, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of HealthWise
of America, Inc., a Delaware corporation ("HealthWise"), will be held at 102
Woodmont Blvd. Suite 110, Nashville, Tennessee 37205, on , 1996, at
9:00 a.m. local time, for the following purposes:
1. To consider and to vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (as it may be amended, supplemented or
modified from time to time, the "Merger Agreement"), dated as of February
1, 1996, among HealthWise, United HealthCare Corporation ("United") and UHC
Black Acquisition, Inc., a direct, wholly owned subsidiary of United
("United Sub"), pursuant to which, among other things, United Sub will be
merged with and into HealthWise (the "Merger"). If the Merger Agreement is
approved and adopted and the Merger becomes effective, each outstanding
share of common stock, $.25 par value, of HealthWise ("HealthWise Common
Stock") (other than shares of HealthWise Common Stock held by United,
United Sub or HealthWise) will be converted into 0.6475 of a share of
common stock, $.01 par value, of United (the "United Common Stock").
HealthWise stockholders will receive cash (without interest) in lieu of
fractional shares of United Common Stock.
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 March 4, 1996 (the "Record Date"), has been fixed
as the record date for the determination of the stockholders of HealthWise
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 HealthWise Common Stock at the close of business on the Record Date
shall be entitled to notice of and to vote at the Special Meeting and any
adjournment or postponement thereof. The Merger Agreement is required to be
approved and adopted by the affirmative vote of the holders of a majority of
the outstanding shares of HealthWise Common Stock. 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.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it promptly 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 Harold D. Simpson, Secretary of HealthWise.
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.
THE BOARD OF DIRECTORS OF HEALTHWISE OF AMERICA, INC.
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE MERGER AGREEMENT.
By Order of the Board of Directors,
Sig TK
Harold D. Simpson
Secretary
Nashville, Tennessee
, 1996
<PAGE>
HEALTHWISE OF AMERICA, INC.
PROXY STATEMENT
----------------
UNITED HEALTHCARE CORPORATION
PROSPECTUS
----------------
This Proxy Statement/Prospectus is being furnished by HealthWise of America,
Inc., a Delaware corporation ("HealthWise"), to holders of common stock, $.25
par value, of HealthWise (the "HealthWise Common Stock"), in connection with
the solicitation of proxies by the Board of Directors of HealthWise for use at
a Special Meeting of Stockholders of HealthWise to be held on , 1996,
at 102 Woodmont Blvd. Suite 110, Nashville, Tennessee 37205, commencing at
9:00 a.m. local time, and at any adjournment or postponement thereof (the
"Special Meeting").
The Special Meeting has been called to consider and to vote upon a proposal
to approve and adopt an Agreement and Plan of Merger (as it may be amended,
supplemented or otherwise modified from time to time, the "Merger Agreement"),
dated as of February 1, 1996, among HealthWise, United HealthCare Corporation
("United") and UHC Black Acquisition, Inc., a direct, wholly owned subsidiary
of United ("United Sub"), pursuant to which, among other things, United Sub
will be merged with and into HealthWise (the "Merger"). If the Merger
Agreement is approved and adopted and the Merger becomes effective, each
outstanding share of HealthWise Common Stock will be converted into 0.6475 of
a share of common stock, $.01 par value, of United (the "United Common
Stock"). Pursuant to agreements with United dated February 1, 1996 (the
"Voting Agreements"), Ken Melkus, the Chairman of the Board and Chief
Executive Officer of HealthWise, Leon Kaplan, President of HealthWise, Joel C.
Gordon, the Vice Chairman of the Board of HealthWise, and Andrew W. Miller, a
director of HealthWise, in their individual capacities as stockholders, have
agreed to vote all of their outstanding shares of HealthWise Common Stock
(approximately 21% of the outstanding shares of record as of March 4, 1996,
the record date for the Special Meeting) in favor of approval of the Merger
Agreement and the Merger. 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 holders of a majority of the outstanding
shares of HealthWise Common Stock. See "THE MERGER" and "THE MERGER
AGREEMENT--General."
This Proxy Statement/Prospectus also constitutes a prospectus of United with
respect up to 5,077,506 shares of United Common Stock issuable to the
stockholders of HealthWise upon consummation of the Merger. United has
supplied all information contained in this Proxy Statement/Prospectus relating
to United and its subsidiaries, and HealthWise has supplied all information
contained in this Proxy Statement/Prospectus relating to HealthWise and its
subsidiaries.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of HealthWise on or about March 11, 1996.
SEE RISK FACTORS ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY HOLDERS OF SHARES OF HEALTHWISE 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 and HealthWise are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by United and HealthWise 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, and
material filed by HealthWise may be inspected at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006.
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 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, 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 THEREIN) 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) 936-1300.
DOCUMENTS RELATING TO HEALTHWISE (EXCLUDING EXHIBITS UNLESS SPECIFICALLY
INCORPORATED THEREIN) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL
REQUEST TO HAROLD D. SIMPSON, SECRETARY, HEALTHWISE OF AMERICA, INC., 102
WOODMONT BOULEVARD, SUITE 110, NASHVILLE, TENNESSEE 37205, TELEPHONE NUMBER
(615) 385-4666. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY APRIL 1, 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 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 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; (2) HealthWise's Quarterly Reports on Form 10-Q for
the quarters
ended March 31, June 30 and September 30, 1995; and (3) HealthWise's Current
Report on Form 8-K dated February 1, 1996.
2
<PAGE>
All documents filed by United or HealthWise 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 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.
----------------
Notice to North Carolina Stockholders: The Commissioner of Insurance of the
State of North Carolina has not approved or disapproved this offering nor has
the Commissioner passed upon the accuracy or adequacy 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, HEALTHWISE 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 STOCKHOLDERS OF HEALTHWISE DEEMED TO BE
AFFILIATES OF HEALTHWISE 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 HEALTHWISE 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.
All share and per share amounts relating to HealthWise Common Stock in this
Proxy Statement/Prospectus have been adjusted to reflect a three-for-two stock
split effective May 26, 1994.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................... 2
SUMMARY............................................................... 7
General............................................................ 7
The Parties to the Merger.......................................... 7
United HealthCare Corporation.................................. 7
HealthWise of America, Inc..................................... 8
UHC Black Acquisition, Inc..................................... 8
The Special Meeting................................................ 8
Time, Date and Place........................................... 8
Purposes of the Special Meeting................................ 8
Record Date; Shares Entitled to Vote........................... 8
Votes Required; Quorum......................................... 8
The Merger......................................................... 9
Effective Time of the Merger................................... 9
Effects of the Merger.......................................... 9
Procedures for Exchange of Certificates........................ 9
Effect of the Merger on HealthWise Stock Options and Warrants.. 9
Recommendation of the Board of Directors of HealthWise......... 10
Opinion of HealthWise's Financial Advisor...................... 10
Management of HealthWise After the Merger; Interests of
Certain Persons in the Merger................................. 10
Voting Agreements.............................................. 11
Accounting Treatment........................................... 11
Certain Federal Income Tax Consequences........................ 11
Dissenters' Rights of Appraisal................................ 11
Regulatory Approvals........................................... 12
Resales of United Common Stock................................. 12
Comparison of Stockholder Rights............................... 12
The Merger Agreement............................................... 12
Limitations on Negotiations by HealthWise...................... 12
Conditions to the Merger....................................... 13
Termination of the Merger Agreement............................ 13
Fees and Expenses.............................................. 14
Comparative Market Price Data...................................... 14
Comparative Unaudited Per Common Share Data........................ 15
Summary Consolidated Financial Data of United...................... 17
Summary Consolidated Financial Data of HealthWise.................. 19
Unaudited Pro Forma Combined Summary Financial Data................ 20
RISK FACTORS.......................................................... 21
THE SPECIAL MEETING................................................... 23
General............................................................ 23
Matters to be Considered at the Special Meeting.................... 23
Board of Directors' Recommendation................................. 23
Record Date; Voting at the Special Meeting; Required Vote.......... 23
Proxies............................................................ 24
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE MERGER............................................................ 25
Effects of the Merger.............................................. 25
Effective Time..................................................... 25
Procedures for Exchange of Certificates............................ 26
Fractional Shares.................................................. 27
Effect of the Merger on HealthWise Stock Options and Warrants...... 27
Background of the Merger........................................... 27
HealthWise's Reasons for the Merger; Recommendation of
HealthWise's Board of Directors................................... 28
United's Reasons for the Merger.................................... 29
Opinion of Bear Stearns as HealthWise's Financial Advisor.......... 29
Interests of Certain Persons in the Merger......................... 34
Management of HealthWise After the Merger.......................... 35
Voting Agreements.................................................. 35
Accounting Treatment............................................... 36
Certain Federal Income Tax Consequences............................ 36
Stock Exchange Listing............................................. 37
Dissenters' Rights of Appraisal.................................... 37
Regulatory Approvals............................................... 37
Resales of United Common Stock Issued in the Merger;
Affiliate Agreements.............................................. 38
THE MERGER AGREEMENT.................................................. 40
General............................................................ 40
Certain Representations and Warranties............................. 40
Certain Covenants.................................................. 41
Limitations on Negotiations by HealthWise.......................... 42
Indemnification.................................................... 42
Conditions......................................................... 43
Termination........................................................ 44
Amendment and Waiver............................................... 44
Fees and Expenses.................................................. 44
CERTAIN INFORMATION CONCERNING UNITED................................. 45
General............................................................ 45
Health Plans, Insurance and Related Operations..................... 45
Specialty Managed Care Services.................................... 46
Expansion and Disposal of Operations............................... 48
Government Regulation.............................................. 48
CERTAIN INFORMATION CONCERNING HEALTHWISE............................. 50
COMPARISON OF STOCKHOLDER RIGHTS...................................... 51
Stockholders' Dissenters' Rights................................... 52
Board of Directors................................................. 52
Removal of Directors............................................... 53
Amendments to Bylaws............................................... 53
Amendments to Certificate or Articles.............................. 53
Indemnification.................................................... 54
Liability of Directors............................................. 55
Stockholder Meetings............................................... 55
Mergers and Consolidations......................................... 56
Business Combinations.............................................. 56
Other Anti-Takeover Provisions..................................... 57
</TABLE>
5
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<TABLE>
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PAGE
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DESCRIPTION OF UNITED CAPITAL STOCK...................................... 57
United Common Stock................................................... 57
United Preferred Stock................................................ 58
Special Voting Rights................................................. 58
Transfer Agent and Registrar.......................................... 59
LEGAL MATTERS............................................................ 59
EXPERTS.................................................................. 59
OTHER MATTERS............................................................ 59
STOCKHOLDER PROPOSALS.................................................... 59
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION............ F-1
Exhibit A Agreement and Plan of Merger, dated as of February 1, 1996, A-1
among United HealthCare Corporation, UHC Black Acquisition,
Inc. and HealthWise of America, Inc...........................
Exhibit B Opinion of Bear, Stearns & Co. Inc., dated March 5, 1996...... B-1
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere 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 and the documents incorporated by
reference herein. Stockholders are urged to read carefully the entire Proxy
Statement/Prospectus, including the Exhibits. As used in this Proxy
Statement/Prospectus, the terms "United" and "HealthWise" refer to United
HealthCare Corporation and HealthWise of America, Inc., respectively, and,
where the context so requires, to their respective subsidiaries. United has
supplied all information concerning United and its subsidiaries included
herein, and HealthWise has supplied all information concerning HealthWise and
its subsidiaries included herein.
GENERAL
This Proxy Statement/Prospectus relates to the proposed merger (the "Merger")
of HealthWise of America, Inc., a Delaware corporation ("HealthWise"), and UHC
Black Acquisition, Inc., a Delaware 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 February 1, 1996 (the "Merger Agreement"), among HealthWise, United and
United Sub, a copy of which is attached to this Proxy Statement/Prospectus as
Exhibit A. As a result of the Merger, United Sub will merge with and into
HealthWise and each outstanding share of common stock, $.25 par value, of
HealthWise (the "HealthWise Common Stock") will be converted into 0.6475 (the
"Exchange Ratio") of a share of common stock, $.01 par value, of United (the
"United Common Stock"). Pursuant to agreements with United dated February 1,
1996 (the "Voting Agreements"), Ken Melkus, the Chairman of the Board and Chief
Executive Officer of HealthWise, Leon Kaplan, President of HealthWise, Joel C.
Gordon, the Vice Chairman of the Board of HealthWise, and Andrew W. Miller, a
director of HealthWise, in their individual capacities as stockholders, have
agreed to vote all of their shares of HealthWise Common Stock (approximately
21% of the outstanding shares of record as of March 4, 1996, the record date
for the Special Meeting of HealthWise stockholders described herein (the
"Record Date")) in favor of approval of the Merger Agreement and the Merger and
have granted an irrevocable proxy to United so to vote their respective shares.
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 holders of
a majority of the outstanding shares of HealthWise Common Stock. See "THE
MERGER" and "THE SPECIAL MEETING".
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 organizations ("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 products, and unbundled health care management and cost containment
products such as mental health and substance abuse benefit plans, 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.
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For further information concerning United, see "CERTAIN INFORMATION
CONCERNING UNITED." The principal executive offices of United are located at
300 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343, and the
telephone number is (612) 936-1300.
HEALTHWISE OF AMERICA, INC.
HealthWise provides a broad range of managed health care services through
HMOs in Kentucky, Maryland, Tennessee and Arkansas and recently received a
license to operate an HMO in Virginia. At December 31, 1995, HealthWise's HMOs
served approximately 144,000 commercial, Medicare and Medicaid members,
principally through its Kentucky and Maryland HMOs. HealthWise believes that,
in terms of membership, its HMO in Kentucky is the third largest in the state
and its HMO in Maryland is one of the fastest growing in the state.
HealthWise's aggregate enrollment increased by approximately 29,000 members, or
25.2%, to approximately 144,000 members at December 31, 1995 from approximately
115,000 members at December 31, 1994.
For further information concerning HealthWise, see "CERTAIN INFORMATION
CONCERNING HEALTHWISE." The principal executive offices of HealthWise are
located at 102 Woodmont Boulevard, Suite 110, Nashville, Tennessee 37205, and
the telephone number is (615) 385-4666.
UHC BLACK ACQUISITION, INC.
UHC Black Acquisition, Inc., a Delaware corporation and wholly-owned
subsidiary of United ("United Sub"), was incorporated on January 22, 1996 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 9:00 a.m., local time, on ,
1996, at 102 Woodmont Blvd. Suite 110, Nashville, Tennessee 37205.
PURPOSES OF THE SPECIAL MEETING
The purposes of the Special Meeting are to (1) consider and vote on a
proposal to approve and adopt the Merger Agreement, and (2) transact such other
business as may properly come before the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of shares of HealthWise Common Stock at the close of
business on March 4, 1996 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting. At that date there were 6,647,314 shares of
HealthWise Common Stock outstanding, each of which will be entitled to one vote
on each matter which may properly come before the Special Meeting.
A list of the stockholders entitled to vote at the Special Meeting may be
examined at the offices of HealthWise during the ten day period preceding the
Special Meeting.
VOTES REQUIRED; QUORUM
The approval and adoption of the Merger Agreement by the stockholders of
HealthWise will require the affirmative vote of the holders of a majority of
the outstanding shares of HealthWise Common Stock, or 3,323,658 shares. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of HealthWise Common Stock entitled to vote at the
Special Meeting is necessary to
8
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constitute a quorum at the Special Meeting. Pursuant to the Voting Agreements,
Messrs. Melkus, Kaplan, Gordon and Miller, in their individual capacities as
stockholders, have agreed to vote all of their shares of HealthWise Common
Stock (approximately 21% of the outstanding shares of record as of the Record
Date) in favor of approval of the Merger Agreement and the Merger, and have
granted to United an irrevocable proxy so to vote their respective shares. See
"THE SPECIAL MEETING"--Record Date; Voting at the Special Meeting; Required
Vote."
THE MERGER
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be agreed upon by the parties in writing and specified in the Certificate
of Merger (the "Effective Time"). Such filing is required by the Delaware
General Corporation Law (the "DGCL") in connection with the Merger and will be
made as soon as practicable after the adoption by the stockholders of
HealthWise of the Merger Agreement and the satisfaction or waiver of all other
conditions to the Merger. See "THE MERGER--Effects of the Merger" and "--
Effective Time."
EFFECTS OF THE MERGER
At the Effective Time, pursuant to the Merger Agreement, (1) United Sub will
be merged with and into HealthWise, which will be the surviving corporation
(the "Surviving Corporation"), (2) HealthWise will become a wholly owned
subsidiary of United and (3) each outstanding share of HealthWise Common Stock
will be converted into 0.6475 of a share of United Common Stock. Fractional
shares of United Common Stock will not be issued in connection with the Merger.
Stockholders of HealthWise otherwise entitled to fractional shares of United
Common Stock will be paid cash without interest in lieu of such fractional
shares determined as described herein under "THE MERGER--Fractional Shares."
Based on the Exchange Ratio and the number of shares of United Common Stock
and HealthWise Common Stock outstanding as of the Record Date, and assuming
that such numbers remain the same at the Effective Time, the aggregate number
of shares of United Common Stock issuable to stockholders of HealthWise
pursuant to the Merger would be 4,304,136, or approximately 2.4% of the United
Common Stock outstanding immediately following consummation of the Merger (or
5,077,506 shares and 2.8%, assuming the exercise of all of the currently
outstanding options and warrants on HealthWise Common Stock which are
exercisable prior to the Merger). See "THE MERGER--Effects of the Merger" and
"--Effect of the Merger on HealthWise Stock Options and Warrants."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, a letter of transmittal and instructions
for surrendering stock certificates evidencing shares of HealthWise Common
Stock will be mailed to each holder of HealthWise 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. STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS. See "THE MERGER--Procedures for Exchange of Certificates."
EFFECT OF THE MERGER ON HEALTHWISE STOCK OPTIONS AND WARRANTS
At the Effective Time, United will assume the obligations of HealthWise under
its 1993 Key Employee Incentive Stock Option Plan, 1993 Non-Qualified Stock
Option Plan for Non-Employee Directors and the Option Agreement, dated as of
August 1, 1993, between HealthWise and Kenneth J. Melkus (collectively, the
"HealthWise Stock Option Agreements"), and each outstanding option to purchase
HealthWise Common Stock
9
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("HealthWise Stock Options") granted under the HealthWise Stock Option
Agreements will become an option to acquire United Common Stock on the same
terms and conditions as were applicable under the HealthWise Stock Option
Agreements, except that the number of shares subject to each option and the
exercise price will be appropriately adjusted to give effect to the Exchange
Ratio. See "THE MERGER--Effect of the Merger on HealthWise Stock Options and
Warrants."
Each outstanding warrant to purchase shares of HealthWise Common Stock (the
"HealthWise Warrants") shall remain outstanding following the Effective Time.
To the extent the terms of the HealthWise Warrants permit, United shall assume
each such warrant, and the related agreements shall be deemed to refer to
United. Each HealthWise Warrant that United assumes shall be exercisable on the
same terms and conditions as were applicable under the terms of the individual
warrants and related agreements, except that, to the extent the terms of the
HealthWise Warrants permit, the issuer, the number of shares subject to each
warrant and the exercise price will be appropriately adjusted to give effect to
the Exchange Ratio.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF HEALTHWISE
The Board of Directors of HealthWise believes that the Merger is in the best
interests of HealthWise and its stockholders and has unanimously approved the
Merger and the Merger Agreement. THE BOARD OF DIRECTORS OF HEALTHWISE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER
AGREEMENT. This recommendation is based on a number of factors discussed in
this Proxy Statement/Prospectus. See "THE MERGER--HealthWise's Reasons for the
Merger; Recommendation of HealthWise's Board of Directors."
OPINION OF HEALTHWISE'S FINANCIAL ADVISOR
Bear, Stearns & Co. Inc. ("Bear Stearns") has delivered its written opinion
to the Board of Directors of HealthWise to the effect that, as of the date
hereof, the consideration to be received by the holders of HealthWise Common
Stock pursuant to the Merger is fair to such stockholders from a financial
point of view. A copy of the opinion, 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 herein by reference.
Stockholders of HealthWise are urged to read carefully the opinion in its
entirety. See "THE MERGER--Opinion of Bear Stearns as HealthWise's Financial
Advisor."
MANAGEMENT OF HEALTHWISE AFTER THE MERGER; INTERESTS OF CERTAIN PERSONS IN
THE MERGER
HealthWise, as the Surviving Corporation, will become a direct, wholly owned
subsidiary of United upon consummation of the Merger. The directors and
officers of United Sub immediately prior to the Effective Time will be the
initial directors and officers of the Surviving Corporation. See "THE MERGER--
Management of HealthWise after the Merger." United has agreed in the Merger
Agreement to assume all HealthWise Stock Options granted under the HealthWise
Stock Option Agreements and, to the extent the relevant agreements permit, to
assume the HealthWise Warrants. See "THE MERGER--Effect of the Merger on
HealthWise Stock Options and Warrants." Pursuant to the Voting Agreements,
Messrs. Melkus, Kaplan, Gordon and Miller, in their individual capacities as
stockholders, have agreed to vote all shares of HealthWise Common Stock owned
by them for adoption of the Merger Agreement and have granted to United an
irrevocable proxy so to vote their respective shares. See "THE MERGER--Voting
Agreements." It is a condition to United's obligation to effect the Merger that
United or HealthWise enter into a one-year consulting agreement with Mr. Melkus
and a two-year employment agreement with Mr. Kaplan. See "THE MERGER--Interests
of Certain Persons in the Merger." United has agreed to indemnify the directors
and officers of HealthWise for liabilities arising out of actions or omissions
occurring at or prior to the Effective Time to the full extent permitted or
required as of February 1, 1996 by HealthWise's Certificate of Incorporation
and Bylaws, and has agreed, subject to certain
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limitations, to use reasonable efforts to provide directors' and officers'
liability insurance under United's policies to the directors and officers of
HealthWise if HealthWise is unable to obtain extended coverage under its
existing directors' and officers' liability insurance policies. See "THE MERGER
AGREEMENT--Indemnification." The Board of Directors of HealthWise was aware of
the interests of certain persons in the Merger described above and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
VOTING AGREEMENTS
As a condition to the willingness of United to execute the Merger Agreement,
concurrently with the execution of the Merger Agreement, each of Messrs.
Melkus, Kaplan, Gordon and Miller, who collectively had record ownership of
approximately 1,424,000 shares, or 21% of the outstanding shares, of HealthWise
Common Stock as of the Record Date, entered into separate Voting Agreements
with United, pursuant to which such stockholders, in such capacity, have agreed
to vote, and have granted to United an irrevocable proxy to vote, such shares
(and any other shares of HealthWise Common Stock acquired after the date of the
Merger Agreement, including shares acquired pursuant to the exercise of any
rights to purchase or otherwise acquire shares) in favor of approval of the
Merger Agreement and Merger. In addition, under the Voting Agreements, such
stockholders have agreed that, if HealthWise seeks a vote of its stockholders
with respect to (1) any sale of stock, merger, consolidation, share exchange,
business combination or other similar transaction, (2) any sale, lease,
exchange, mortgage, pledge, transfer, or other disposition of 20% of more of
the assets of HealthWise on a consolidated basis, in a single transaction or a
series of related transactions, or (3) any agreement, or public announcement by
HealthWise of a proposal, plan, or intention, to do any of the foregoing (each
of (1), (2) and (3), a "Competing Transaction"), such stockholders will vote
against such Competing Transaction. The Voting Agreements, other than the
provisions relating to the grant of an irrevocable proxy, terminate on the
earlier to occur of (1) the Closing Date or (2) 90 days after termination of
the Merger Agreement. The irrevocable proxy provision terminates on the
earliest of (1) the termination of the Merger Agreement, (2) the Closing Date,
or (3) 11:59 p.m. on August 31, 1996. See "THE MERGER--Voting Agreements."
ACCOUNTING TREATMENT
It is intended that the Merger will qualify as a pooling of interests for
accounting and financial reporting purposes. It is a condition to the
obligation of both United and HealthWise to effect the Merger that United shall
have received the opinion of Arthur Andersen LLP, United's independent public
accountants, and HealthWise shall have received the opinion of Deloitte &
Touche LLP, HealthWise's independent public accountants, both to the effect
that, as of the Effective Time, the Merger qualifies for pooling of interests
accounting treatment if consummated in accordance with the Merger Agreement.
See "THE MERGER--Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). It is a condition to the obligation of both United and
HealthWise that HealthWise shall have received an opinion of its counsel,
Skadden, Arps, Slate, Meagher & Flom, to the effect that the Merger qualifies
as a tax-free reorganization.
See "THE MERGER--Certain Federal Income Tax Consequences" and "THE MERGER
AGREEMENT--Conditions."
DISSENTERS' RIGHTS OF APPRAISAL
Holders of shares of HealthWise Common Stock are not entitled to dissenters'
rights of appraisal under the DGCL in connection with the Merger. See "THE
MERGER--Dissenters' Rights of Appraisal."
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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 HealthWise each initially filed
Notification and Report Forms with respect to the Merger under the HSR Act on
February 9, 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 (the "Federal HMO Act"), the applicable provisions of the Arkansas,
Kentucky, Maryland, Tennessee and Virginia laws regulating HMOs (the "HMO
Acts"), and the applicable provisions of the Arkansas, Kentucky, Maryland and
Tennessee laws relating to regulation of Insurance Holding Company Systems (the
"Holding Company Acts"). See "THE MERGER--Regulatory Approvals."
RESALES OF UNITED COMMON STOCK
The shares of United Common Stock to be issued to stockholders of HealthWise
in connection with the Merger have been registered under the Securities Act.
All shares of United Common Stock received by holders of HealthWise Common
Stock upon consummation of the Merger will be freely transferable by those
stockholders of HealthWise not deemed to be "affiliates" (as such term is
defined under the Securities Act) of HealthWise or United. It is a condition to
the obligation of United to effect the Merger that HealthWise cause each
"affiliate" of HealthWise to execute and deliver to United, on or prior to the
Effective Time, an agreement providing that such affiliate will not sell,
pledge, transfer or otherwise dispose of any United Common Stock obtained as a
result of the Merger except in specified circumstances (each, an "Affiliate
Agreement"). See "THE MERGER--Resales of United Common Stock issued in the
Merger; Affiliate Agreements" and "THE MERGER AGREEMENT--Conditions."
COMPARISON OF STOCKHOLDER RIGHTS
Upon consummation of the Merger, HealthWise stockholders will become United
shareholders. As a result, their rights as holders of common stock, which are
now governed by Delaware corporate law and HealthWise's Certificate of
Incorporation and Bylaws, will be governed by Minnesota corporate law and
United's Articles of Incorporation and Bylaws. See "COMPARISON OF STOCKHOLDER
RIGHTS" for a summary of certain material differences between the rights of
holders of United Common Stock and the rights of holders of HealthWise Common
Stock.
THE MERGER AGREEMENT
LIMITATIONS ON NEGOTIATIONS BY HEALTHWISE
The Merger Agreement provides that HealthWise may not participate in any
discussions with, provide any information to, enter into any agreement or
understanding with, or otherwise cooperate in any other way with any person
(other than United and its agents) concerning any Competing Transaction and
that it will not permit or authorize the directors, officers, employees,
stockholders or representatives of HealthWise and its subsidiaries to take such
action. However, provided that certain other conditions are met, the Board of
Directors may take certain actions with respect to a Competing Transaction if
it determines in good faith, after consultation with and receipt of written
advice from independent legal counsel, that such action is required in order to
comply with the Board of Directors' fiduciary duties under applicable law.
HealthWise has agreed to notify United regarding any inquiries or proposals
with respect to a Competing Transaction and to keep United informed, on a
current basis, of the status of any discussions or negotiations with respect to
a Competing Transaction. See "THE MERGER AGREEMENT--Limitations on Negotiations
by HealthWise."
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CONDITIONS TO THE MERGER
The obligations of United and HealthWise to effect 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, stockholder 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 and
opinions from two independent public accounting firms to the effect that the
Merger qualifies for pooling of interests accounting treatment, continuing
accuracy of representations and warranties in the Merger Agreement, performance
or compliance with the agreements and covenants in the Merger Agreement,
receipt by United of an Affiliate Agreement from each person identified
pursuant to the Merger Agreement as an "affiliate" of HealthWise, the entering
into by United or HealthWise and Messrs. Melkus and Kaplan of mutually
satisfactory consulting and employment agreements, respectively, and the
absence of any "Material Adverse Effect" (as defined in the Merger Agreement)
with respect to HealthWise or United. See "THE MERGER AGREEMENT--Conditions."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after adoption of the Merger Agreement by the
stockholders of HealthWise (1) by mutual consent of United, United Sub and
HealthWise; (2) by either United, United Sub or HealthWise if either (a) the
Effective Time shall not have occurred on or before August 31, 1996, subject to
certain limitations or (b) the consummation of the Merger is prohibited by law
or by final action taken by a court of competent jurisdiction; (3) by United or
HealthWise, if the Board of Directors of HealthWise withdraws or changes its
recommendation of the Merger Agreement or the Merger in a manner adverse to
United or United Sub or shall have recommended to the stockholders of
HealthWise any Competing Transaction or shall have resolved to do any of the
foregoing (a "Board Termination Event"); (4) by United, if (a) HealthWise
receives an unsolicited proposal that constitutes a Competing Transaction and
the Board of Directors of HealthWise, within 30 calendar days after such
proposal is received by HealthWise (which 30-day period may be extended by up
to 30 days), either fails to terminate discussions with the maker of such
proposal and its agents, or determines to accept, or takes no position with
respect to, such proposal, (b) a tender offer or exchange offer for 20% or more
of the outstanding aggregate shares of HealthWise Common Stock and Preferred
Stock, $.25 par value, of HealthWise (collectively, the "HealthWise Capital
Stock") is commenced, and the Board of Directors of HealthWise, within ten
business days after such tender offer or exchange offer is so commenced, either
fails to recommend against acceptance of such tender offer or exchange offer by
its stockholders or takes no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders, or (c) any person (other
than United or its affiliates) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term is
defined under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) shall have been formed which beneficially owns, or has
the right to acquire beneficial ownership of, 20% or more of the then
outstanding shares of HealthWise Capital Stock (excluding for this purpose
holdings of shares by persons or groups as reflected on February 1, 1996 in
filings with the Commission under Section 13(d) of the Exchange Act) (each of
(a), (b) and (c), a "Competing Transaction Termination Event"); (5) by either
United, United Sub, or HealthWise, if the Special Meeting shall have been held
and the stockholders of HealthWise shall have failed to approve the Merger
Agreement and the Merger at such meeting (a "Stockholder Termination Event");
(6) by HealthWise, in the event of a material breach by United or United Sub of
any representation, warranty, covenant or agreement contained in the Merger
Agreement which has not been cured or is not curable by August 31, 1996; or (7)
by United, in the event of a material breach by HealthWise of any
representation, warranty, covenant or agreement contained in the Merger
Agreement which has not been cured or is not curable by August 31, 1996.
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In the event of termination of the Merger Agreement by either United or
HealthWise, the Merger Agreement will become void and there will be no
liability or obligation on the part of United, United Sub or HealthWise except
that (1) under certain circumstances, HealthWise could be required to pay to
United a termination fee, as described in the next section and under "THE
MERGER AGREEMENT--Fees and Expenses," (2) all remedies available to either
party at law or in equity will be preserved if the Merger Agreement is
terminated, and (3) the parties will continue to abide by the terms of the
confidentiality agreement between United and HealthWise, dated as of February
23, 1995 (the "Confidentiality Agreement"). See "THE MERGER AGREEMENT--
Termination."
FEES AND EXPENSES
Under the Merger Agreement, except as provided below, all expenses incurred
by United and HealthWise shall be borne solely and entirely by the party that
has incurred the same; provided, however, that United and HealthWise will each
pay one-half of all expenses related to printing, filing and mailing the
Registration Statement and this Proxy Statement/Prospectus and all filing fees
incurred under the HSR Act in connection with the Registration Statement and
this Proxy Statement/Prospectus. See "THE MERGER AGREEMENT--Fees and Expenses."
In addition, HealthWise has agreed that it will pay to United a termination
fee in an amount equal to $11,000,000, plus interest from the date the
termination fee is due, if (1) United or HealthWise shall terminate the Merger
Agreement because a Stockholder Termination Event exists and on the date of the
Special Meeting there exists a Competing Transaction; (2) the Merger Agreement
is terminated by United or HealthWise because a Board Termination Event exists;
or (3) United terminates the Merger Agreement because a Competing Transaction
Termination Event exists. See "THE MERGER AGREEMENT--Fees and Expenses."
COMPARATIVE MARKET PRICE DATA
The United Common Stock is listed on the NYSE under the symbol "UNH." The
HealthWise Common Stock is traded on the Nasdaq National Market under the
symbol "HOAM." The following table sets forth the closing price per share of
the United Common Stock, the last sale price per share of HealthWise Common
Stock and the "equivalent per share price" (as defined below) of HealthWise
Common Stock as of (1) January 31, 1996, the last full trading day before
United and HealthWise announced the execution of the Merger Agreement, and (2)
, 1996. The "equivalent per share price" of HealthWise Common Stock as of
each date equals the closing price per share of United Common Stock on that
date multiplied by the Exchange Ratio.
<TABLE>
<CAPTION>
EQUIVALENT PER
MARKET PRICE PER SHARE UNITED HEALTHWISE SHARE PRICE (HEALTHWISE
AT: COMMON STOCK COMMON STOCK COMMON STOCK)
---------------------- ------------ ------------ -----------------------
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January 31, 1996........ $62.75 $37.50 $40.63
, 1996........ $ $ $
</TABLE>
Stockholders of HealthWise are advised to obtain current market quotations
for United Common Stock and HealthWise Common Stock. No assurance can be given
as to the market prices of United Common Stock or HealthWise Common Stock at
any time before the Effective Time or as to the market price of United Common
Stock at any time thereafter. Because the Exchange Ratio is fixed, stockholders
of HealthWise will not be compensated for decreases in the market price of
United Common Stock which could occur before the Effective Time. As a result,
in the event the market price of United Common Stock decreases, the value of
the United Common Stock to be received in the Merger in exchange for HealthWise
Common Stock would decrease. In the event the market price of United Common
Stock instead increases, the value of the United Common Stock to be received in
the Merger in exchange for HealthWise Common Stock would increase.
14
<PAGE>
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 HealthWise Common Stock on a historical and pro
forma equivalent basis, giving effect to the Merger as a pooling of interests
for accounting and financial reporting purposes. Such pro forma data assume
that the Merger had been effective on September 30, 1995 and December 31, 1994
for the book value per share data and at the beginning of each of the three
years ended December 31, 1994, 1993 and 1992 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 as if the acquisition had occurred on
September 30, 1995 with respect to the book value of 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 8K/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 and HealthWise, including the notes thereto, incorporated
by reference into this Proxy Statement/Prospectus. See "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 Merger and the acquisition of
MetraHealth been consummated on the dates indicated above.
15
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMON STOCK HEALTHWISE COMMON STOCK
---------------------- ------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED(4) HISTORICAL EQUIVALENT(4)
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE: (1)
September 30, 1995........... $ 17.99 $ 17.79 $5.47 $ 11.52
September 30, 1995 as
adjusted (5)................ 17.99 17.79 5.47 11.52
December 31, 1994............ 16.17 15.95 3.49 10.33
CASH DIVIDENDS PER SHARE: (2)
Nine months ended September
30, 1995.................... $ 0.03 $ 0.03 -- $ 0.02
Year ended December 31,
1994........................ $ 0.03 $ 0.03 -- $ 0.02
1993........................ 0.01 0.01 -- 0.0065
1992........................ 0.0075 0.0075 -- 0.0049
NET EARNINGS PER SHARE FROM
CONTINUING OPERATIONS: (3)
Nine months ended September
30,
1995........................ $ 1.55 $ 1.54 $ .93 $ 1.00
1995 as adjusted (5)........ 1.66 1.65 .93 1.07
Year ended December 31,
1994........................ $ 1.64 $ 1.64 $1.06 $ 1.06
1994 as adjusted (5)........ 1.76 1.76 1.06 1.14
1993........................ 1.23 1.24 0.72 0.80
1992........................ 0.79 0.79 0.45 0.51
</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 HealthWise
Common Stock at the Exchange Ratio. The pro forma equivalent book value per
share of HealthWise Common Stock represents the pro forma combined book
value per share multiplied by the Exchange Ratio.
(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 HealthWise Common Stock represent the cash dividends declared
on a share of United Common Stock multiplied by the Exchange Ratio.
(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 HealthWise Common Stock represents pro forma
combined net earnings per share from continuing operations multiplied by
the Exchange Ratio.
(4) All pro forma amounts exclude one-time costs associated with the Merger.
See Note D to "UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL
INFORMATION."
(5) The adjusted book value and net earnings per share data give effect to
United's October 2, 1995 purchase of MetraHealth as if the acquisition 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.
16
<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. 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 YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------------------------
9/30/95(1)(2) 9/30/94(3) 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 $ 0.79 $ 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>
- --------
(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 share before
extraordinary gain--$1.66 and $1.76 and net earnings per 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
17
<PAGE>
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 share before extraordinary
gain--$1.14 and $1.63 and net earnings per 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; thus, 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.
18
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF HEALTHWISE
The following table summarizes certain selected historical consolidated
financial data of HealthWise which should be read in conjunction with the
consolidated financial statements of HealthWise, and the notes thereto,
incorporated by reference into this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The consolidated statement
of operations data set forth below for the years ended December 31, 1994, 1993,
1992, 1991 and 1990 and the consolidated balance sheet data at December 31,
1994, 1993, 1992, 1991 and 1990 are derived from consolidated financial
statements audited by HealthWise's independent auditors. The data for the nine
months ended September 30, 1995 and 1994 and at September 30, 1995 and 1994 are
derived from the unaudited consolidated financial statements of HealthWise. In
the opinion of HealthWise, the consolidated statement of operations data for
the nine months ended September 30, 1995 and 1994 and the consolidated balance
sheet data at September 30, 1995 and 1994 reflect all adjustments (which
consist of only normal recurring adjustments) necessary for a fair presentation
of results of interim periods. Operating results for the nine months ended
September 30, 1995 are not necessarily indicative of results for the full
fiscal year or for any future interim period. The consolidated statement of
operations data set forth below for the years ended December 31, 1994, 1993 and
1992 and the consolidated balance sheet data at December 31, 1994 and 1993 are
qualified by reference to the audited consolidated financial statements
incorporated by reference herein. The consolidated statement of operations data
set forth below for the nine months ended September 30, 1995 and 1994 and the
consolidated balance sheet data at September 30, 1995 and 1994 are qualified by
reference to the unaudited consolidated financial statements incorporated by
reference herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ---------------------------------------------
1995(1) 1994(2) 1994(2) 1993(3) 1992 1991 1990
-------- -------- -------- -------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $153,311 $119,753 $163,112 $119,395 $63,526 $50,738 $37,493
Earnings from
Operations............. $ 10,750 $ 10,935 $ 14,794 $ 12,705 $ 9,050 $ 8,385 $ 3,379
Net Earnings Before
Income Taxes and
Minority Interests..... $ 12,378 $ 12,164 $ 16,259 $ 14,418 $10,383 $ 9,458 $ 4,112
Minority Interests in
Earnings............... $ (1,855) $ (4,296) $ (5,196) $ (6,503) $(5,088) $(4,635) $(2,015)
Net Earnings............ $ 6,209 $ 4,799 $ 6,748 $ 4,828 $ 3,283 $ 2,972 $ 1,258
Weighted Average Number
of Common and Common
Equivalent Shares...... 6,702 6,350 6,383 5,786 5,734 5,734 5,734
Net Earnings Per Share.. $ 0.93 $ 0.76 $ 1.06 $ 0.83 $ 0.57 $ 0.52 $ 0.22
Unaudited Pro Forma
Data: (4)
Net Earnings........... $ -- $ -- $ -- $ 4,152 $ 2,590 $ 2,181 $ 652
Net Earnings Per Share. $ -- $ -- $ -- $ 0.72 $ 0.45 $ 0.38 $ 0.11
BALANCE SHEET DATA:
Cash and Investments.... $ 45,868 $ 51,376 $ 51,913 $ 42,946 $26,101 $19,012 $11,181
Total Assets............ $ 82,533 $ 77,928 $ 80,128 $ 52,269 $27,819 $21,336 $13,137
Long-term Obligations... $ 13,400 $ 19,000 $ 13,000 $ -- $ -- $ -- $ --
Minority Interests...... $ 4,067 $ 4,702 $ 4,709 $ 10,245 $ 6,908 $ 4,873 $ 2,510
Stockholders' Equity.... $ 32,251 $ 18,233 $ 20,012 $ 13,825 $ 6,940 $ 4,777 $ 2,222
</TABLE>
- --------
(1) On January 1, 1995 HealthWise acquired an additional 15.625% of the common
shares of Chesapeake for $5.7 million.
(2) During June 1994, HealthWise acquired a 39% partnership interest in its
Kentucky subsidiary for $22 million. Prior to this acquisition, HealthWise
owned approximately 51% of this subsidiary.
(3) On February 3, 1993, HealthWise acquired an 81.25% interest in Chesapeake
for a total purchase price of $1.4 million in cash.
(4) Pro forma to reflect estimated additional general and administrative
expenses that would have been incurred by HealthWise had it been a separate
public company throughout the periods presented. HealthWise was a wholly-
owned subsidiary of SCA until December 1, 1993.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED SUMMARY FINANCIAL DATA
The following table summarizes certain selected unaudited pro forma financial
data for United and HealthWise combined, giving effect to (1) the Merger as a
pooling of interests for accounting and financial reporting purposes and (2)
the purchase of MetraHealth. Such pro forma data assumes that (1) the Merger
had been effective on September 30, 1995 and December 31, 1994, 1993 and 1992
for the balance sheet data and at the beginning of each of the nine months
ended September 30, 1995 and the three years ended December 31, 1994, 1993 and
1992 for the statement of operations data and (2) the purchase of MetraHealth
had been effective on September 30, 1995 for the balance sheet data and at the
beginning of 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 and HealthWise, including the respective notes
hereto, 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" 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 Merger and the acquisition of MetraHealth been
consummated on the dates or prior to the periods presented.
<TABLE>
<CAPTION>
UNITED AND METRAHEALTH
PRO FORMA AND HEALTHWISE
COMBINED UNITED AND HEALTHWISE COMBINED
-------------------------- -------------------------------------
NINE MONTHS NINE MONTHS YEARS ENDED DECEMBER
ENDED YEAR ENDED ENDED 31,
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, -----------------------
1995(2) 1994(2) 1995 1994 1993 1992
------------- ------------ ------------- ------- ------- -------
(IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Revenues................ $ 6,658 $ 8,149 $ 3,633 $ 3,934 $ 3,237 $ 2,266
Earnings from
Operations............. $ 532 $ 625 $ 451 $ 523 $ 351 $ 218
Net Earnings Before
Extraordinary Gain..... $ 321 $ 344 $ 279 $ 295 $ 218 $ 134
Extraordinary Gain on
Sale of Subsidiary,
net.................... $ -- $ 1,377 $ -- $ 1,377 $ -- $ --
Net Earnings Applicable
to Common Shareholders. $ 299 $ 1,692 $ 279 $ 1,672 $ 218 $ 134
Net Earnings Per Share
Applicable to Common
Shareholders:
Earnings Before
Extraordinary Gain.... $ 1.65 $ 1.76 $ 1.54 $ 1.64 $ 1.24 $ 0.79
Extraordinary Gain..... $ -- $ 7.68 $ -- $ 7.68 $ -- $ --
Net Earnings........... $ 1.65 $ 9.44 $ 1.54 $ 9.32 $ 1.24 $ 0.79
Dividends Per Common
Share.................. $ .03 $ .03 $ .03 $ .03 $ .01 $ .0075
Weighted Average Number
of Common Shares
Outstanding............ 180,955 179,342 180,955 179,342 175,485 169,804
BALANCE SHEET DATA(1):
Cash and Investments.... $ 3,179 $ 2,824 $ 2,636 $ 2,824 $ 1,214 $ 969
Total Assets............ $ 6,329 $ 3,569 $ 3,980 $ 3,569 $ 1,839 $ 1,334
Long-term Obligations... $ 49 $ 37 $ 40 $ 37 $ 39 $ 24
Shareholders' Equity.... $ 3,160 $ 2,815 $ 3,160 $ 2,815 $ 1,099 $ 830
</TABLE>
- --------
(1) All pro forma amounts exclude the one-time costs associated with the
Merger. 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 Louisiana Independent Physicians Association, Inc. These
transactions are expected to close in the first quarter of 1996 and have
been excluded from the pro forma data as their effects are not significant.
20
<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 health coverage plans offered by
employers, and United's dealings with self-funded employer health plans, 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 audits
will have a material adverse effect on United's financial results.
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 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.
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
21
<PAGE>
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.
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 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.
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.
22
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of HealthWise
Common Stock in connection with the solicitation of proxies by the Board of
Directors of HealthWise for use at a Special Meeting to be held on ,
1996 at 102 Woodmont Blvd. Suite 110, Nashville, Tennessee 37205, commencing
at 9:00 a.m. local time, and at any adjournment or postponement thereof.
This Proxy Statement/Prospectus and accompanying forms of proxy are first
being mailed to stockholders of HealthWise on or about .
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of HealthWise Common Stock will (i) consider
and vote upon a proposal to adopt the Merger Agreement and (ii) 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 HEALTHWISE BELIEVES THAT THE MERGER AGREEMENT IS
IN THE BEST INTERESTS OF HEALTHWISE AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS ADOPTION OF THE MERGER AGREEMENT TO ITS STOCKHOLDERS.
RECORD DATE; VOTING AT THE SPECIAL MEETING; REQUIRED VOTE
HealthWise has fixed March 4, 1996 as the Record Date for the determination
of the holders of HealthWise Common Stock entitled to notice of and to vote at
the Special Meeting. Only holders of record of HealthWise 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 6,647,314 shares of HealthWise Common Stock
outstanding and entitled to vote, which shares were held in the aggregate by
approximately 1,935 holders of record. Each holder of record of HealthWise
Common Stock on the Record Date is entitled to cast one vote per share of
HealthWise Common Stock on all matters properly submitted for the vote of
HealthWise stockholders, 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 outstanding shares of HealthWise 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 stockholders of
HealthWise will require the affirmative vote of the holders of a majority of
the outstanding shares of HealthWise Common Stock, or shares. If an executed
proxy card is returned and the stockholder 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. If an executed proxy card is returned by a broker holding shares of
HealthWise Common Stock in street name which indicates that the broker does
not have discretionary authority as to certain shares to vote on the Merger
Agreement, such shares will be considered present at the meeting for purposes
of determining a quorum and for purposes of calculating the vote, but will not
be voted with respect to such matter. Accordingly, abstentions and "broker
non-votes" will have the same effect as a vote against adoption of the Merger
Agreement.
As of the Record Date, the executive officers and directors of HealthWise
collectively owned, directly or indirectly, 1,471,862 shares of HealthWise
Common Stock (approximately 22% of the total outstanding HealthWise Common
Stock). In addition, the executive officers and directors hold HealthWise
Stock Options covering an aggregate of 830,388 shares of HealthWise Common
Stock. Pursuant to the Voting Agreements, Messrs. Melkus, Kaplan, Gordon and
Miller have agreed to vote, and have granted United an irrevocable proxy
23
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to vote, all shares of HealthWise Common Stock collectively owned by them
(1,424,246 shares of record of HealthWise Common Stock, representing
approximately 21% of the total outstanding HealthWise Common Stock as of the
Record Date) for adoption of the Merger Agreement. See "THE MERGER--Voting
Agreements." As of the Record Date, neither United nor any of its directors
and executive officers nor their affiliates beneficially owned any shares of
HealthWise Common Stock.
PROXIES
All shares of HealthWise 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 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 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 HealthWise, 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 HealthWise 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 HealthWise of
America, Inc., 102 Woodmont Boulevard, Suite 110, Nashville, Tennessee 37205,
Attention: Secretary, or hand-delivered to the Secretary of HealthWise at or
before the taking of the vote at the Special Meeting.
If a quorum is not obtained, or if fewer shares of HealthWise Common Stock
are likely to be voted for adoption of the Merger Agreement than the number
required for adoption, the Special Meeting may be adjourned for the purpose of
obtaining additional proxies or votes or for any other purpose, and, 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 of this solicitation,
including the cost of preparing and mailing this Proxy Statement/Prospectus,
will be borne equally by United and HealthWise except that each party shall
pay its own attorneys', accountants' or investment bankers' fees. In addition
to use of the mails, proxies may be solicited personally or by telephone or
telegraph by directors, officers and employees of HealthWise, who will not be
specially compensated for such activities. Arrangements will be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares of HealthWise Common Stock held of
record by such custodians, nominees and fiduciaries, and HealthWise will
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. HealthWise has retained Morrow & Co. at an
estimated cost of $4,000, plus reimbursement of expenses, to assist in its
solicitation of proxies from brokers, nominees, institutions and individuals.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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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 stockholders are urged to read Exhibit A in its
entirety. See also THE "MERGER AGREEMENT."
EFFECTS OF THE MERGER
Upon consummation of the Merger, (1) United Sub will merge with and into
HealthWise, which will be the Surviving Corporation, (2) HealthWise will
become a wholly owned subsidiary of United, and (3) each share of HealthWise
Common Stock outstanding immediately prior to the Effective Time (other than
shares owned by United, United Sub or HealthWise) will be converted into
0.6475 of a share of United Common Stock.
As of the Record Date, there were 6,647,314 shares of HealthWise Common
Stock outstanding and 1,575,000 shares of HealthWise Common Stock reserved for
future issuance pursuant to currently outstanding HealthWise Stock Options and
HealthWise Warrants. Assuming that (1) no additional shares of HealthWise
Common Stock or HealthWise Stock Options are outstanding at the Effective Time
and (2) all HealthWise Stock Options and HealthWise Warrants that are
exercisable prior to the Merger are exercised, then, upon consummation of the
Merger, 5,077,506 shares of United Common Stock would be issuable to holders
of HealthWise Common Stock.
All shares of HealthWise 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 HealthWise Common Stock will
thereafter represent the right to receive a certificate representing shares of
United Common Stock. Certificates previously representing shares of HealthWise
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 HealthWise Common Stock held in the
treasury of HealthWise or owned by United or any direct or indirect wholly
owned subsidiary of United or of HealthWise 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 HealthWise 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 adopted by the requisite vote of the stockholders
of HealthWise 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 Delaware or at such later time as may be agreed in writing by the
parties and specified in the Certificate of Merger.
The Merger Agreement provides that United and HealthWise will cause the
Effective Time to occur as promptly as practicable after the adoption by the
stockholders of HealthWise of the Merger Agreement and the satisfaction (or
waiver, if permissible) of the other conditions set forth in the Merger
Agreement. The Merger Agreement may be terminated prior to the Effective Time
by either United or HealthWise in certain circumstances, whether before or
after adoption of the Merger Agreement by the stockholders of HealthWise. See
"THE MERGER AGREEMENT--Termination."
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PROCEDURES FOR EXCHANGE OF CERTIFICATES
As of the Effective Time, United will deposit, or will cause to be
deposited, with Norwest Bank Minnesota, N.A. (the "Exchange Agent"), for the
benefit of the holders of shares of HealthWise 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
HealthWise 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 certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
HealthWise Common Stock (the "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 letter of transmittal, duly
executed, 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 the rights to which the holder has received in respect of
the shares of HealthWise Common Stock formerly represented by the Certificate,
cash in lieu of fractional shares of United Common Stock (after taking into
account all shares of HealthWise 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 HealthWise
Common Stock which is not registered in the transfer records of HealthWise, a
certificate representing the proper number of shares of United Common Stock
may be issued to a transferee if the Certificate representing such shares of
HealthWise 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.
STOCKHOLDERS OF HEALTHWISE 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 HealthWise 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 HealthWise Common
Stock.
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Any portion of the Exchange Fund remaining undistributed two years after the
Effective Time will be returned to United, and any holders of theretofore
unsurrendered HealthWise 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 United Sub nor HealthWise will be liable to any holder of
shares of HealthWise 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.
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 rights of a stockholder 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 of
cash (without interest) determined by multiplying (i) the closing sale price
per share of United Common Stock as reported on the NYSE on the day of the
closing of the Merger by (ii) 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 payments.
EFFECT OF THE MERGER ON HEALTHWISE STOCK OPTIONS AND WARRANTS
At the Effective Time, United will assume the obligations of HealthWise
under its 1993 Key Employee Incentive Stock Option Plan, 1993 Non-Qualified
Stock Option Plan for Non-Employee Directors and the Option Agreement, dated
as of August 1, 1993, between Healthwise and Kenneth J. Melkus (collectively,
the "HealthWise Stock Option Agreements"), and each outstanding option to
purchase HealthWise Common Stock ("HealthWise Stock Options") granted under
the HealthWise Stock Option Agreements will become an option to acquire United
Common Stock on the same terms and conditions as were applicable under the
HealthWise Stock Option Agreements, except that the number of shares subject
to each option and the exercise price will be appropriately adjusted to give
effect to the Exchange Ratio.
Each outstanding warrant to purchase shares of HealthWise Common Stock
outstanding on February 1, 1996 (the "HealthWise Warrants") shall remain
outstanding following the Effective Time. To the extent the terms of the
HealthWise Warrants permit, United shall assume each such warrant, and the
related agreements shall be deemed to refer to United. Each HealthWise Warrant
that United assumes shall be exercisable on the same terms and conditions as
were applicable under the terms of the individual warrants and related
agreements, except that, to the extent the terms of the HealthWise Warrants
permit, the issuer, the number of shares subject to each warrant and the
exercise price will be appropriately adjusted to give effect to the Exchange
Ratio.
BACKGROUND OF THE MERGER
William W. McGuire, M.D., Chairman of the Board and Chief Executive Officer
of United, and Kenneth J. Melkus, Chairman of the Board and Chief Executive
Officer of HealthWise, have been familiar with each other and have met
informally at various times in the past at industry conferences and other
business gatherings. In September, 1994, Mr. Melkus met with Dr. McGuire to
discuss HealthWise's interest in potentially acquiring United's health plans
in Tennessee and Arkansas. Dr. McGuire stated that United was not interested
in pursuing such a sale, but that a business combination of the two companies
might be of interest to United. In February, 1995, United and HealthWise
entered into a confidentiality agreement pertaining to the sharing of certain
non-public information about HealthWise. Between January and September, 1995,
HealthWise internally and with its financial advisors explored and considered
a variety of strategic financial alternatives including a public sale of
common stock and potential business combinations with several larger managed
care companies, including United.
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In late November, 1995, Dr. McGuire and Mr. Melkus, with their respective
financial advisors, met again and discussed in a general way whether there
existed a basis for considering a possible business combination between the
two companies. Following several telephone conversations, Dr. McGuire and Mr.
Melkus and their respective financial and legal advisors met in early January
1996 to hold detailed discussions regarding the possible terms of a merger of
the two companies, including the structure, valuation alternatives and
documentation of such a transaction. During the remainder of January 1996,
management of HealthWise and its legal and financial advisors negotiated the
terms of the Merger with United and its legal and financial advisors. At
various times in December 1995 and January 1996, officials of HealthWise and
United and their respective financial and legal advisors and legal staff met
to perform due diligence activities in anticipation of reviewing a possible
merger.
The Board of Directors of HealthWise held a meeting on January 30, 1996
attended by HealthWise senior management and its financial and legal advisors.
At the January 30, 1996 meeting, senior management and the financial and legal
advisors made detailed presentations concerning material aspects of the
proposed Merger and related transactions. The January 30, 1996 meeting was
adjourned without taking a vote and at a reconvened meeting on January 31,
1996 the HealthWise Board of Directors approved and adopted the Merger
Agreement. United's Board of Directors had been apprised of HealthWise as a
possible acquisition candidate at United's October 31, 1995 directors' meeting
and given certain information concerning HealthWise at that time. On February
1, 1996, the Board of Directors of United held a meeting to consider the terms
of United's offer and, after reviewing information about HealthWise and the
proposed Merger Agreement with United's management and financial and legal
advisors, unanimously approved the Merger. Following such approvals, United,
HealthWise and the United Sub executed the definitive Merger Agreement.
HEALTHWISE'S REASONS FOR THE MERGER; RECOMMENDATION OF HEALTHWISE'S BOARD OF
DIRECTORS
By the unanimous vote of the entire Board of Directors of Healthwise at a
special meeting held on January 30 and January 31, 1996, the HealthWise Board
of Directors determined that the proposed Merger, and the terms and conditions
of the Merger Agreement, were in the best interests of HealthWise and its
stockholders. The Merger Agreement and the Merger were adopted and approved
unanimously by the entire Board of Directors of HealthWise, who also
unanimously resolved to recommend that the stockholders of HealthWise vote FOR
approval and adoption of the Merger Agreement. See "--Background of the
Merger". In reaching its conclusion to enter into the Merger Agreement and to
recommend that the stockholders of HealthWise vote for the approval and
adoption of the Merger Agreement, the Board of Directors of HealthWise
considered a number of factors, including, without limitation and without
assigning relative weights thereto, the following:
(1) The fact that the Merger would provide the holders of HealthWise
Common Stock with an opportunity to receive a premium over the market price
of their shares immediately prior to the announcement of the Merger (the
Exchange Ratio represented a premium of approximately 8.3% over the sales
price of $37.50 per share of HealthWise Common Stock on January 31, 1996,
the last full trading day prior to the announcement of the Merger, based
upon .6475 times the closing sales price of $62.75 per share of United
Common Stock on January 31, 1996);
(2) Historical data relating to market prices and trading volumes of
HealthWise Common Stock as compared to those of United Common Stock and as
compared to those of certain other publicly traded companies;
(3) The fact that United has recently paid a $.03 quarterly dividend on
the United Common Stock, whereas HealthWise has not paid dividends on the
HealthWise Common Stock;
(4) The fact that United Common Stock has a more liquid trading market
than that of HealthWise Common Stock, as evidenced by the facts that (a) as
of the Record Date, United had approximately 175,478,912 shares of common
stock outstanding while HealthWise had approximately 6,647,314 shares of
common stock outstanding, (b) as of the Record Date, there were
approximately 5,506 holders of record of United Common Stock and only 1,935
holders of record of HealthWise Common Stock, and (c) the average weekly
trading volume of United Common Stock over the four week period ending
January 26, 1996, was 4,266,950 shares compared to 96,800 shares of
HealthWise Common Stock;
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(5) The fact that the holders of approximately 21% of the HealthWise
Common Stock approved of the Merger Agreement, as evidenced by the
willingness of Messrs. Melkus, Gordon, Miller and Kaplan to enter into
Voting Agreements;
(6) The terms and conditions of the proposed Merger, including the
parties' representations, warranties and covenants, the conditions to their
respective obligations, and the circumstances and terms under which
HealthWise may terminate the Merger Agreement to accept a higher offer;
(7) The fact that the Merger is expected to be treated as a tax-free
reorganization and that the Merger will be accounted for under the
"pooling-of-interests" method of accounting;
(8) The HealthWise Board's familiarity with HealthWise's business,
assets, financial condition, results of operations, business strategy and
prospects and current trends in the markets in which it operates;
(9) The opportunity for HealthWise stockholders to continue to share in
the potential for long-term gains in HealthWise and the healthcare industry
through the ownership of United Common Stock following the Merger;
(10) The business reputation and capabilities of United and its
management, United's financial strength, prospects, market position and
strategic objectives, and the historical performance of United Common
Stock; and
(11) The presentation of Bear Stearns delivered to the Board of Directors
of HealthWise at its special meeting held on January 30 and January 31,
1995, including the oral opinion of Bear Stearns delivered on January 31,
1996 that the Merger is fair, from a financial point of view, to the
stockholders of HealthWise. Bear Stearns has since delivered an updated
written opinion, dated as of the date of this Proxy Statement/Prospectus,
to the effect that, as of the date of this Proxy Statement/Prospectus, the
Merger is fair, from a financial point of view, to such stockholders. See
"--Opinion of Bear Stearns as HealthWise's Financial Advisor."
UNITED'S REASONS FOR THE MERGER
United has engaged in a continual acquisition program over the last few
years. A primary objective of that program has been ownership of health plans
with significant market positions and good growth opportunities. United
believes that HealthWise, and particularly HealthWise's operations in Maryland
and Kentucky, meet these criteria because they have good market positions in
geographic areas where United currently has no health plan. Other of
HealthWise's operations are in the same geographic areas as health plans that
United currently operates and therefore will enhance United's positions in
those markets. HealthWise has significant expertise in Medicaid managed care,
and has good growth opportunities in the Medicaid and Medicare product
segments. United also believes that HealthWise has outstanding management.
OPINION OF BEAR STEARNS AS HEALTHWISE'S FINANCIAL ADVISOR
The Board of Directors of HealthWise retained Bear Stearns as of September
30, 1995 to act as its financial advisor and to render an opinion to the Board
of Directors of HealthWise as to the fairness of the Merger, from a financial
point of view, to the stockholders of HealthWise. On January 31, 1996, Bear
Stearns rendered its written opinion to the Board of Directors of HealthWise
that the Merger was fair, from a financial point of view, to the stockholders
of HealthWise as of the date thereof. Bear Stearns subsequently issued its
written opinion to the Board of Directors of HealthWise that the Merger was
fair, from a financial point of view, to the stockholders of HealthWise as of
the date of this Proxy Statement/Prospectus (the "Bear Stearns Opinion").
THE FULL TEXT OF THE BEAR STEARNS OPINION IS ATTACHED AS APPENDIX B TO THIS
PROXY STATEMENT/PROSPECTUS. HEALTHWISE STOCKHOLDERS ARE URGED TO, AND SHOULD,
READ THE BEAR STEARNS OPINION CAREFULLY IN ITS ENTIRETY IN CONJUNCTION WITH
THIS PROXY STATEMENT/PROSPECTUS FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW BY BEAR STEARNS.
The Bear Stearns Opinion addresses only the fairness of the Merger, from a
financial point of view, to the stockholders of HealthWise and does not
constitute a recommendation to any stockholder of HealthWise as to
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how such stockholder should vote with respect to the approval of the Merger
Agreement. The summary of the Bear Stearns Opinion set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
Although Bear Stearns evaluated the financial terms of the Merger and
participated in discussions concerning the consideration to be paid, Bear
Stearns did not recommend the specific consideration to be paid in the Merger.
The consideration to be received by HealthWise's stockholders as a result of
the Merger was determined by negotiations between HealthWise and United after
consultation by each of such parties with their respective financial advisors.
In connection with rendering its opinion, Bear Stearns, among other things: (1)
reviewed the Proxy Statement/Prospectus; (2) reviewed HealthWise's Annual
Reports to Stockholders and Annual Reports on Form 10-K for the fiscal years
ended December 31, 1992 through 1994, and its Quarterly Reports on Form 10-Q
for the periods ended March 31, June 30 and September 30, 1995; (3) reviewed
United's Form 8-K dated October 2, 1995 regarding the acquisition of The
MetraHealth Companies, Inc., its Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1992 through 1994,
and its Quarterly Reports on Form 10-Q for the periods ended March 31, June 30
and September 30, 1995; (4) reviewed certain operating and financial
information, including financial projections, provided to Bear Stearns by the
management of HealthWise relating to its businesses and prospects; (5) met with
certain members of the senior managements of HealthWise and United to discuss
their respective operations, historical financial statements and, in the case
of HealthWise, future prospects; (6) reviewed the historical prices and trading
volume of the common shares of HealthWise and United; (7) reviewed publicly
available financial data and stock market performance data of companies which
Bear Stearns deemed generally comparable to HealthWise and United; (8) reviewed
the terms of mergers and acquisitions of companies which Bear Stearns deemed
generally comparable to the Merger; and (9) conducted such other studies,
analyses, inquiries and investigations as Bear Stearns deemed appropriate.
Bear Stearns relied upon and assumed without independent verification (1) the
accuracy and completeness of all of the financial and other information
provided to it by HealthWise for purposes of its opinion and (2) the
reasonableness of the assumptions made by the management of HealthWise with
respect to its projected financial results. Bear Stearns further relied upon
the assurances of the managements of HealthWise and United that they are
unaware of any facts that would make the information provided to Bear Stearns
incomplete or misleading. In addition, Bear Stearns did not make or seek to
obtain appraisals of HealthWise's or United's assets and liabilities in
rendering its opinion. The Bear Stearns Opinion is also necessarily based upon
the market, economic and other conditions as in effect on, and the information
made available to it, as of the date thereof.
In connection with its opinion, Bear Stearns performed the following
analyses: (1) a contribution analysis based upon (a) a relative contribution
analysis, and (b) a pro forma analysis to examine the effect of the Merger on
HealthWise's and United's earnings per share; and, (2) a going concern analysis
based upon (a) a going concern value of HealthWise based (i) upon an analysis
of selected publicly traded companies which it deemed to be comparable to
HealthWise and (ii) an analysis of selected merger and acquisition transactions
which it deemed to be comparable to the Merger, and (b) a going concern value
of United, based upon an analysis of selected publicly traded companies which
it deemed to be comparable to United.
The following is a brief summary of certain of the financial analyses used by
Bear Stearns in connection with providing its opinion to the Board of Directors
of HealthWise.
CONTRIBUTION ANALYSIS
Pro Forma Analysis. Bear Stearns analyzed the pro forma effects of the Merger
upon the earnings per share of HealthWise and United. In its analysis, Bear
Stearns imputed the equivalent earnings per share for HealthWise based upon the
pro forma earnings per share of United. Bear Stearns noted that each share of
HealthWise Common Stock would be exchanged for a fraction of a share of United
Common Stock based upon the Exchange Ratio, and that the earnings attributable
to each share of HealthWise Common Stock would be equal to the pro
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forma earnings per share of United multiplied by the Exchange Ratio (the
"HealthWise Equivalent Pro Forma Earnings Per Share"). The pro forma analysis
compared the projected financial results of HealthWise and United which
reflected the stand-alone projected financial results of each company assuming
the Merger was not consummated with the pro forma projected financial results
for United assuming it consummated the Merger. The projected financial results
for HealthWise used in the analysis were prepared by the management of
HealthWise. The projected financial results for United used in the analysis
were prepared by Bear Stearns and were based, in part, upon consensus estimates
published by Wall Street research analysts as well as discussions with the
management of United regarding future prospects of United. The pro forma
analysis reflected certain assumptions made by Bear Stearns and HealthWise,
some of which may be beyond the control of HealthWise and which may not
necessarily reflect what will actually occur upon the consummation of the
Merger. The pro forma analysis assumed that upon consummation of the Merger the
newly combined entity would not be able to realize any benefits from the
Merger. Based upon the assumptions incorporated, the pro forma analysis
indicated that the Merger would not be materially dilutive to United's earnings
per share for the years ending December 31, 1996 and 1997, respectively.
Based upon the Exchange Ratio of 0.6475, the HealthWise Equivalent Pro Forma
Earnings Per Share were $1.83 and $2.28 for the years ending December 31, 1996
and 1997, respectively, which compared with projected earnings per share of
$1.59 and $1.94 for the years ending December 31, 1996 and 1997, respectively,
for HealthWise assuming it did not consummate the Merger. The imputed accretion
to the HealthWise Equivalent Pro Forma Earnings Per Share resulting from the
Merger for the years ending December 31, 1996 and 1997 was 15% and 18%,
respectively. Bear Stearns noted, based upon the pro forma analysis, that the
Merger could potentially have a substantial positive impact on the HealthWise
Equivalent Pro Forma Earnings Per Share.
Relative Contribution Analysis. Bear Stearns reviewed and compared the
relative contribution of HealthWise and United to the pro forma results of the
newly combined entity based upon net revenue, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income, total assets and shareholders' equity for the fiscal
years ending (or as of) December 31, 1995 and 1996 and compared these ratios to
the ratio of the pro forma ownership of the stockholders of HealthWise and
United of the newly combined entity. Based upon the terms of the Merger,
HealthWise stockholders would own approximately 2.4% of the newly combined
entity. HealthWise would contribute to the newly combined entity the
approximate following percentages: (1) 2.4% and 2.8% of projected 1995 and 1996
net revenue, respectively, (2) 2.5% and 2.3% of projected 1995 and 1996 EBITDA,
respectively, (3) 3.0% and 2.5% of projected 1995 and 1996 EBIT, respectively,
(4) 1.6% and 1.7% of projected 1995 and 1996 total assets, respectively, (5)
2.2% and 2.0% of projected 1995 and 1996 net income, respectively, and (6) 0.9%
and 1.1% of projected 1995 and 1996 book value of stockholders' equity,
respectively. Bear Stearns noted that the pro forma ownership of HealthWise's
current stockholders of the newly combined entity would be greater than
HealthWise's percentage contribution to projected 1995 and 1996 net income of
the newly combined entity.
Based upon the contribution analysis, Bear Stearns concluded that the Merger
was fair, from a financial point of view, to the stockholders of HealthWise.
GOING CONCERN VALUE
Going Concern Value of HealthWise--Analysis of Selected Publicly Traded
Companies. Bear Stearns reviewed and compared the financial and market
performance of HealthWise to the financial and market performance of sixteen
publicly traded companies engaged in the managed health care services that Bear
Stearns believed were comparable in certain respects to HealthWise (the
"Comparable Companies"): Coventry Corporation, FHP International Corporation,
Foundation Health Corporation, Health Systems International, Inc., Healthsource
Corporation, Humana Inc., Maxicare Health Plans, Inc., Mid Atlantic Medical
Services, Inc., Oxford Health Plans, Inc., PacifiCare Health Systems, Inc.,
Physician Corporation of America, Inc., Physicians Health Systems, Inc., Sierra
Health Services, Inc., U.S. Healthcare, Inc., Wellcare Management Group, Inc.,
and WellPoint Health Systems, Inc. For each of the Comparable Companies, Bear
Stearns examined certain publicly
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available financial data including, net revenue, EBITDA, EBIT, net income,
earnings per share, profit and expense margins and enrolled membership. Bear
Stearns examined balance sheet items, published earnings forecasts and the
trading performance of the common stock of each of the Comparable Companies. In
addition, Bear Stearns calculated the ratio of the closing price (as of January
31, 1996) of HealthWise and of each of the Comparable Companies' stock in
relation to each companies' earnings per share and the ratio of the enterprise
value (the total market value of the common stock outstanding plus the par
value of total debt and medical claims payable less cash, cash equivalents and
investments) of HealthWise and of each of the Comparable Companies in relation
to each company's net revenue, EBITDA, EBIT and enrolled membership. The ratios
of the stock prices of the Comparable Companies to projected calendarized 1995
earnings per share ranged from 14.5x to 44.8x and had a harmonic mean of 21.0x
and a median of 21.7x. The ratios of the stock prices of the Comparable
Companies to projected calendarized 1996 earnings per share ranged from 12.0x
to 29.1x and had a harmonic mean of 16.8x and a median of 17.2x. The ratios of
the enterprise value to latest twelve months ("LTM") net revenue of the
Comparable Companies ranged from 0.35x to 2.27x and had a harmonic mean of
0.83x and a median of 0.97x. The ratios of the enterprise value to LTM EBITDA
of the Comparable Companies ranged from 6.3x to 31.0x and had a harmonic mean
of 11.0x and a median of 11.9x. The ratios of the enterprise value to LTM EBIT
of the Comparable Companies ranged from 6.6x to 36.6x and had a harmonic mean
of 13.5x and a median of 14.6x. The ratios of the enterprise value to LTM
enrolled membership of the Comparable Companies ranged from $585 to $3,235 and
had a mean of $1,515 and a median of $1,382.
Based upon the latest closing price of United's Common Stock of $62.75 per
share (closing price on January 31, 1996), (1) the implied purchase price of
HealthWise was approximately $268 million, (2) the implied transaction value
(defined as the total purchase price of the common stock plus the par value of
total debt and medical claims payable less cash, cash equivalents and
investments) of HealthWise was approximately $248 million, (3) the ratios of
the purchase price per share to HealthWise's projected 1995 and 1996 earnings
per share were 31.7x and 25.6x, respectively, (4) the ratios of the transaction
value to HealthWise's projected 1995 net revenue, EBITDA and EBIT were 1.17x,
15.2x and 16.2x, respectively, and (5) the ratio of the transaction value to
HealthWise's projected 1995 enrolled membership was $1,676. Bear Stearns noted
that, based upon these ratios, (1) the ratio of HealthWise's transaction value
to projected 1995 net revenue was greater than the harmonic mean of the LTM net
revenue ratios for the Comparable Companies, (2) the ratio of HealthWise's
transaction value to projected 1995 EBITDA was greater than the harmonic mean
and median of the LTM EBITDA ratios for the Comparable Companies, (3) the
ratios of HealthWise's purchase price per share to projected 1995 and 1996
earnings per share were greater than the harmonic mean and median of the
comparable ratios for the Comparable Companies, and (4) the ratio of
HealthWise's transaction value to projected 1995 enrolled membership was
greater than the mean and median of the LTM enrolled membership ratios for the
Comparable Companies.
Going Concern Value of HealthWise--Analysis of Selected Merger and
Acquisition Transactions. Bear Stearns reviewed certain financial data and the
purchase prices paid in 29 merger and acquisition transactions completed in the
managed health care services industry (target company/acquiring company) (the
"Comparable Transactions"): Physician Health Plan, Inc./United HealthCare
Corporation, Emphesys Financial Group, Inc./Humana Inc., PACC HMO,
Inc./Healthsource, Inc., Graduate Health Systems, Inc./Health Systems
International, Inc., MetraHealth Companies, Inc./United HealthCare Corporation,
CII Financial Group, Inc./Sierra Health Services, Inc., Provident Life and
Accident Insurance Company of America, Inc./Healthsource, Inc., OakTree Health
Plans, Inc./Oxford Health Plans, Inc., HealthLink, Inc./RightCHOICE Managed
Care, Inc., HealthCare USA/Coventry Corporation, ValuCare Inc./PacifiCare
Health Systems, Inc., Southeast Health Plan, Inc./Physician Corporation of
America, Inc., Health Plus, Inc./Physician Corporation of America, Inc.,
CareNetwork, Inc./Humana Inc., M.D. Enterprises, Inc./Health Systems,
International, Inc., Southern Health Management, Inc./Coventry Corporation,
GenCare Health Systems, Inc./United HealthCare Corporation, Intergroup Health
Care, Inc./Foundation Health Corporation, TakeCare, Inc./FHP International
Corporation, Ramsay-HMO Inc./United HealthCare Corporation, Complete Health
Services, Inc./United HealthCare Corporation, Advantage Health Plans,
Inc./PacifiCare Health Systems, Inc., HMO America, Inc./United HealthCare
Corporation, Comprecare, Inc./TakeCare, Inc., Western Ohio, Inc./United
HealthCare Corporation,
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Century MediCorp, Inc./Foundation Health Corporation, Bridgeway Plan for
Health, Inc./Qual-Med, Inc., Lincoln National Administrative, Inc./TakeCare,
Inc., and Physicians Health Plan, Inc. (Ohio)/United HealthCare Corporation.
For each of the target companies involved in the Comparable Transactions,
Bear Stearns examined certain publicly available financial data, including net
revenue, EBITDA, EBIT, net income, earnings per share, profit and expense
margins and enrolled membership. Bear Stearns examined the balance sheet items
and published earnings forecasts (when available) of the common stock of each
of the target companies involved in the Comparable Transactions. In addition,
Bear Stearns calculated the ratios of the purchase price of the target company
in relation to the target company's LTM and projected net income (for the next
calendar year) and the ratios of the transaction value (the total purchase
price of the equity plus the target company's total debt at par value and
medical claims payable less cash, cash equivalents and investments) of each
target company to its LTM net revenue, LTM EBITDA, LTM EBIT and LTM enrolled
membership. Bear Stearns noted that ratios of the purchase price of the equity
to LTM net income of the target companies in the Comparable Transactions ranged
from 5.8x to 59.3x and had a harmonic mean of 16.4x and a median of 23.0x. The
ratios of the purchase price of the equity to projected net income of the
target companies in the Comparable Transactions ranged from 10.6x to 27.9x and
had a harmonic mean of 18.7x and a median of 22.4x. The ratios of the
transaction value to LTM net revenue of the target companies in the Comparable
Transactions ranged from 0.20x to 4.30x and had a harmonic mean of 0.57x and a
median of 0.89x. The ratios of the transaction value to LTM EBIT of the target
companies in the Comparable Transactions ranged from 3.0x to 50.9x and had a
harmonic mean of 10.2x and a median of 16.6x. The ratios of the transaction
value to the enrolled members of the target companies in the Comparable
Transactions ranged from $112 to $2,576 and had a mean of $1,144 and a median
of $1,122.
Bear Stearns noted that, based upon these ratios, (1) the ratio of
transaction value to HealthWise's projected 1995 net revenue was greater than
the harmonic mean and median of the LTM net revenue ratios for the target
companies in the Comparable Transactions, (2) the ratio of transaction value to
HealthWise's projected 1995 EBITDA was greater than the harmonic mean and
median of the LTM EBITDA ratios for the target companies in the Comparable
Transactions, (3) the ratio of transaction value to HealthWise's projected 1995
EBIT was greater than the harmonic mean and median of the LTM EBIT ratios for
the target companies in the Comparable Transactions, (4) the ratio of purchase
price to HealthWise's projected 1995 net income was greater than the harmonic
mean and median of the purchase price to LTM net income ratios for the target
companies in the Comparable Transactions, (5) the ratio of purchase price to
HealthWise's projected 1996 net income was greater than the harmonic mean and
median of the purchase price to projected net income ratios for the target
companies in the Comparable Transactions, and (6) the ratio of transaction
value to HealthWise's projected 1995 enrolled membership was greater than the
mean and median of the LTM enrolled membership ratios for the target companies
in the Comparable Transactions.
Going Concern Value of United--Analysis of Selected Publicly Traded
Companies. Based upon the latest closing price of United's Common Stock of
$62.75 per share (closing price on January 31, 1996), (1) the implied equity
value of United was approximately $11,097 million, (2) the implied enterprise
value (defined as the total market value of the common stock plus the par value
of total debt and medical claims payable less cash, cash equivalents and
investments) of United was approximately $9,093 million, (3) the ratios of the
stock price per share to United's projected 1995 and 1996 net income were 29.6x
and 22.1x, respectively, and (4) the ratios of the enterprise value to United's
projected 1995 net revenue, EBITDA and EBIT were 1.07x, 14.4x and 18.2x,
respectively. Bear Stearns noted that, based upon these ratios, (1) the ratio
of United's enterprise value to projected 1995 net revenue was greater than the
harmonic mean and median of the LTM net revenue ratios for the Comparable
Companies, (2) the ratio of United's enterprise value to projected 1995 EBITDA
was greater than the harmonic mean and median of the LTM EBITDA ratios for the
Comparable Companies, and (3) the ratios of United's stock price per share to
projected 1995 and 1996 earnings per share were greater than the harmonic mean
and median of the comparable ratios for the Comparable Companies.
Based upon the analysis of going concern values of HealthWise and United,
Bear Stearns concluded that the Merger was fair, from a financial point of
view, to the stockholders of HealthWise.
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Bear Stearns also reviewed the historical market price and volume relating to
HealthWise's Common Stock and noted the following: (1) on January 31, 1996, the
last trading day prior to public disclosure of the Merger, the closing price
was $37.50 per share; (2) during the period from January 1, 1995 through
January 31, 1996, HealthWise's Common Stock traded in a range of $23.63 to
$39.00; and (3) during the period from December 1, 1993 through January 31,
1996, HealthWise's Common Stock traded in a range of $15.68 to $39.00.
Bear Stearns reviewed the historical market price and volume relating to
United's Common Stock and noted the following: (1) on January 31, 1996, the
last trading day prior to public disclosure of the Merger, the closing price
was $62.75 per share, (2) during the period from January 1, 1995 through
January 31, 1996, United's Common Stock traded in a range of $34.63 to $65.50;
and (3) during the period from January 1, 1994 through January 31, 1996,
United's Common Stock traded in a range of $34.63 to $65.50.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the Bear Stearns Opinion. In arriving at its opinion, Bear Stearns
considered the results of all such analyses. The analyses were prepared solely
for purposes of providing its opinion as to the fairness of the Merger, from a
financial point of view, to the stockholders of HealthWise and do not purport
to be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. As
described above, Bear Stearns' opinion and presentation to the Board of
Directors of HealthWise was one of many factors taken into consideration by the
Board of Directors of HealthWise in making its determination to approve the
Merger Agreement. The foregoing summary does not purport to be a complete
description of the analyses performed by Bear Stearns.
In the ordinary course of its business, Bear Stearns may actively trade the
equity securities of HealthWise for its own accounts and for the accounts of
customers and, accordingly, may, at any time, hold a long or short position in
such securities.
Pursuant to a letter agreement, dated as of September 30, 1995, HealthWise
agreed to pay Bear Stearns a fee of $400,000 upon the rendering of its fairness
opinion relating to the Merger (the "Fairness Opinion Fee"). HealthWise also
agreed to pay Bear Stearns a fee of $1,845,000, such fee being payable upon
consummation of the Merger, against which fee the Fairness Opinion Fee would be
credited. HealthWise also agreed to reimburse Bear Stearns for its reasonable
out-of-pocket expenses and to indemnify Bear Stearns and certain related
persons against certain liabilities in connection with the engagement of Bear
Stearns, including certain liabilities under federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Board of Directors of HealthWise was aware of the interests of certain
persons in the Merger described below, which are in addition to the interests
of HealthWise stockholders generally, and considered those interests, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
Employment of HealthWise's Directors and Officers. HealthWise will be the
Surviving Corporation of the Merger and will become a wholly owned subsidiary
of United upon consummation of the Merger. The directors and officers of United
Sub immediately prior to the Effective Time will be the initial directors and
officers of the Surviving Corporation. United currently expects that, after the
Effective Time, it will retain most of the executive officers of HealthWise's
operational subsidiaries immediately prior to the Effective Time with duties
substantially similar to those that such executive officers are currently
performing. See "Interests of Certain Persons in the Merger--Employment and
Consulting Agreements."
Employment and Consulting Agreements. Mr. Melkus, Mr. Kaplan and Mr. Simpson
are currently parties to employment agreements with HealthWise, which
agreements provide that if HealthWise merges, consolidates or combines with
another business entity (a "Change in Control"), then, at the employee's
option, the new entity
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will assume the employment agreements or HealthWise will pay Mr. Melkus three
years' compensation, Mr. Kaplan two years' compensation and Mr. Simpson one
year's compensation. Each of Mr. Melkus, Mr. Kaplan and Mr. Simpson has elected
to receive payments under his respective employment agreement. Accordingly, if
the Merger is consummated, Mr. Melkus will receive $960,000, Mr. Kaplan will
receive $412,000, and Mr. Simpson will receive $106,000. It is a condition to
United's obligation to consummate the Merger that United or HealthWise enter
into a new two-year employment agreement with Mr. Kaplan, the President of
HealthWise, and a new one-year consulting agreement with Mr. Melkus, the
Chairman and Chief Executive Officer of HealthWise, each to be effective as of
the Effective Time, and in a form and substance customary for agreements of
such type and consistent with comparable agreements of United.
Stock Options. The Merger Agreement provides that HealthWise Stock Options
(including HealthWise Stock Options held by HealthWise's executive officers and
directors) will be exercisable for shares of United Common Stock after the
Effective Time. Options granted pursuant to HealthWise's 1993 Key Employee
Incentive Stock Plan will become immediately exercisable for a 30 day period
commencing on the date the Merger Agreement is approved by HealthWise's
stockholders. Each HealthWise Stock Option, following the Merger, will be
exercisable for that number of shares of United Common Stock equal to the
number of shares of HealthWise Common Stock subject to such option multiplied
by the Exchange Ratio, and shall have an exercise price per share equal to the
exercise price per share prior to the Merger divided by the Exchange Ratio.
See""--Effect of the Merger on HealthWise Stock Options and Warrants." Of the
1,194,394 HealthWise Stock Options outstanding on the Record Date, 670,264 were
held by Mr. Melkus, 69,624 were held by Mr. Kaplan and 90,500 were held by
other directors and executive officers of HealthWise.
Indemnification of Directors and Officers; Insurance. United has agreed that,
from and after the Effective Time, United will (and will cause the Surviving
Corporation to) indemnify, defend and hold harmless the present and former
officers and directors of HealthWise (the "Indemnified Parties") against all
losses, expenses, claims, damages, liabilities, costs or judgments or amounts
paid in settlement with the approval of United arising out of actions or
omissions occurring at or prior to the Effective Time (including the
transactions contemplated by the Merger Agreement) to the full extent permitted
or required as of February 1, 1996 by HealthWise's Certificate of Incorporation
and Bylaws (including advances of expenses incurred). If a claim, action, suit,
proceeding or investigation (a "Claim") is brought against any Indemnified
Party (whether arising before or after the Effective Time) after the Effective
Time, United and United Sub have agreed to pay the reasonable fees and expenses
of counsel selected by the Indemnified Party and will use reasonable efforts to
assist in the defense of such matter. United also has agreed that in the event
HealthWise is unable to obtain extended coverage under its existing directors'
and officers' liability insurance policies, United will use reasonable efforts
to provide similar coverage for the Indemnified Parties under policies then
maintained by United, provided, that such similar coverage is available to
United at a cost judged reasonable by United. HealthWise has agreed to
indemnify the officers and directors who have entered into the Voting
Agreements for certain losses arising from such action.
MANAGEMENT OF HEALTHWISE AFTER THE MERGER
HealthWise will be the Surviving Corporation of the Merger and will become a
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,
it will retain most of the executive officers of HealthWise's operational
subsidiaries immediately prior to the Effective Time with duties substantially
similar to those that such executive officers are currently performing. See "--
Interests of Certain Persons in the Merger--Employment of HealthWise's
Directors and Officers."
VOTING AGREEMENTS
As a condition to the willingness of United to execute the Merger Agreement,
concurrently with the execution of the Merger Agreement, each of Messrs.
Melkus, Kaplan, Gordon and Miller, who collectively had record ownership of
approximately 1,424,000 shares of HealthWise Common Stock as of the Record Date
(or
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approximately 21 % of the outstanding shares of HealthWise Common Stock as of
the Record Date), entered into separate Voting Agreements with United, pursuant
to which such stockholders, in such capacity, have agreed to vote, and have
granted to United an irrevocable proxy to vote, such shares (and any shares of
HealthWise Common Stock beneficially owned, or acquired after the date of the
Merger Agreement, including shares acquired pursuant to the exercise of any
rights to purchase or otherwise acquire shares) in favor of approval of the
Merger Agreement and Merger. In addition, under the Voting Agreements, such
stockholders have agreed to vote against any Competing Transaction. The Voting
Agreements, other than the provisions relating to the grant of an irrevocable
proxy, terminate on the earlier to occur of (1) the Closing Date or (2) 90 days
after termination of the Merger Agreement. The irrevocable proxy provision
terminates on the earliest of (1) the termination of the Merger Agreement, (2)
the Closing Date, or (3) 11:59 p.m. on August 31, 1996. See "THE MERGER
AGREEMENT--Limitations on Negotiations by HealthWise."
Such stockholders received no monetary consideration for entering into the
Voting Agreements. The Voting Agreements specify that Messrs. Melkus, Kaplan,
Gordon and Miller each entered into the Voting Agreements solely in his
individual capacity and that nothing in the Voting Agreements shall require the
individual signatory to take any action that would constitute a violation of
the individual's fiduciary duties as a director or officer of HealthWise.
ACCOUNTING TREATMENT
United and HealthWise intend that the Merger qualify as a pooling of
interests for accounting and financial reporting purposes. The obligation of
each of United and HealthWise to consummate the Merger is conditioned upon
receipt by United of the opinion of Arthur Andersen LLP, the independent public
accountants of United, and the receipt by HealthWise of the opinion of Deloitte
& Touche LLP, the independent public accountants of HealthWise, to the effect
that the Merger qualifies for pooling of interests accounting treatment. For
information concerning certain restrictions to be imposed on the
transferability of the United Common Stock received by affiliates of HealthWise
in the Merger in order, among other things, to assure the availability of
pooling of interests accounting treatment, see "--Resales Of United Common
Stock Issued In The Merger; Affiliate Agreements."
Under the pooling of interests method of accounting, the historical basis of
the assets and liabilities of HealthWise and United will be combined when the
Merger becomes effective and carried forward at their previously recorded
amounts, the stockholders' equity accounts of HealthWise and United will be
combined on United's consolidated balance sheet, and no goodwill or other
intangible assets will be created. Financial statements of United issued after
consummation of the Merger will be restated retroactively to reflect the
consolidated operations of HealthWise and United as if the Merger had been in
effect for the periods presented therein.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences of the Merger to a stockholder of HealthWise that holds its shares
of HealthWise Common Stock as a capital asset (a "holder"). The discussion set
forth below is for general information only and may not apply to a holder
subject to special treatment under the Code, such as a holder that is a foreign
person, a tax exempt organization or that acquired its shares of HealthWise
Common Stock pursuant to the exercise of an employee stock option or otherwise
as compensation. This summary is based upon federal income tax laws,
regulations, rulings and decisions in effect as of the date hereof, all of
which are subject to change, retroactively or prospectively, and to differing
interpretation.
It is a condition to the consummation of the Merger that HealthWise receive
an opinion (the "Tax Opinion") from its counsel, Skadden, Arps, Slate, Meagher
& Flom, substantially to the effect that for federal income tax purposes: (1)
the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and HealthWise, United and United Sub will each be a party
to such reorganization within the meaning
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of Section 368(b) of the Code; (2) no gain or loss will be recognized by
HealthWise, United or United Sub as a result of the Merger; (3) no gain or loss
will be recognized by the stockholders of HealthWise upon the exchange of their
HealthWise Common Stock solely for shares of United Common Stock pursuant to
the Merger, except with respect to cash, if any, received in lieu of fractional
shares of United Common Stock; (4) the aggregate tax basis of the shares of
United Common Stock received solely in exchange for HealthWise Common Shares
pursuant to the Merger (including fractional shares of United Common Stock for
which cash is received) will be the same as the aggregate tax basis of the
HealthWise Common Shares exchanged therefor; (5) the holding period for shares
of United Common Stock received in exchange for HealthWise Common Stock
pursuant to the Merger will include the holding period of the HealthWise Common
Shares exchanged therefor, provided such HealthWise Common Shares were held as
capital assets by the stockholder at the Effective Time; and (6) a stockholder
of HealthWise who receives cash in lieu of a fractional share of United Common
Stock will recognize gain or loss equal to the difference, if any, between such
stockholder's tax basis in such fractional share (as described in clause (6)
above) and the amount of cash received. In rendering such opinions, Skadden,
Arps, Slate, Meagher & Flom may receive and rely upon representations contained
in certificates of HealthWise, United, United Sub and others.
Cash received in lieu of a fractional share of United Common Stock will be
treated as received in redemption of such fractional share and gain or loss
will be recognized, measured by the difference between the amount of cash
received and the portion of the basis of the share of HealthWise Common Stock
allocable to such fractional interest. Such gain or loss should constitute
capital gain or loss, and will be long-term capital gain or loss if the holding
period for such shares of HealthWise Common Stock was greater than one year as
of the date of the exchange.
NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF
ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
THE FOREGOING DISCUSSION IS BASED UPON THE PROVISIONS OF THE CODE, APPLICABLE
TREASURY REGULATIONS THEREUNDER, INTERNAL REVENUE SERVICE RULINGS AND JUDICIAL
DECISIONS, AS IN EFFECT AS OF THE DATE HEREOF. THERE CAN BE NO ASSURANCE THAT
FUTURE LEGISLATIVE, ADMINISTRATIVE OR JUDICIAL CHANGES OR INTERPRETATIONS WILL
NOT AFFECT THE ACCURACY OF THE STATEMENTS OR CONCLUSIONS SET FORTH HEREIN. ANY
SUCH CHANGE COULD APPLY RETROACTIVELY AND COULD AFFECT THE ACCURACY OF SUCH
DISCUSSION. NO RULINGS HAVE OR WILL BE SOUGHT FROM THE INTERNAL REVENUE SERVICE
CONCERNING THE TAX CONSEQUENCES OF THE MERGER.
STOCK EXCHANGE LISTING
United has agreed that it will promptly prepare and submit a listing
application to the NYSE covering the United Common Stock to be issued pursuant
to the Merger and upon exercise of HealthWise Stock Options, Puts and Warrants,
and that it will make reasonable efforts to have such application approved by
the NYSE prior to the Effective Time. It is a condition to the obligation of
HealthWise to effect the Merger that the United Common Stock to be issued in
the Merger be approved for listing on the NYSE.
DISSENTERS' RIGHTS OF APPRAISAL
Holders of HealthWise Common Stock are not entitled to dissenters' rights of
appraisal under the DGCL in connection with the Merger.
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.
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United and HealthWise each filed with the Antitrust Division and the FTC a
Notification and Report Form with respect to the Merger on February 9, 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 each filing,
unless the waiting period is earlier terminated by the FTC and the Antitrust
Division.
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 HealthWise by United, in whole or in part, or the divestiture
of substantial assets of United, HealthWise 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 HealthWise relating to the
businesses in which United, HealthWise and their respective subsidiaries are
engaged, United and HealthWise 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 HealthWise 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
four of the five states in which HealthWise operates HMOs.
The consummation of the Merger will require the prior approval of, or the
furnishing of notice to, the Department of Insurance ("DOI") in each of
Arkansas, Kentucky, Tennessee and Maryland. On February 21 and 23, 1996,
United filed a Form A application with the Tennessee and Maryland DOIs,
respectively, seeking approval of the change in control to be effected
pursuant to the Merger. On February 22 and March 1, 1996, United filed notices
with the Kentucky Cabinet for Human Resources and the Commissioner of the
Arkansas DOI, respectively, informing such agencies of the pending Merger and
providing background information as to United.
Due to HealthWise's recent entry into the Virginia market, United intends to
provide information regarding to the Merger to the Virginia DOI, although no
filing appears to be required.
Neither United nor HealthWise 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.
RESALES OF UNITED COMMON STOCK ISSUED IN THE MERGER; AFFILIATE AGREEMENTS
United Common Stock to be issued to stockholders of HealthWise in connection
with the Merger has been registered under the Securities Act. United Common
Stock received by stockholders of HealthWise 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 of HealthWise 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, HealthWise or United at the time of the Special Meeting
(generally, directors, certain executive officers and major stockholders).
Affiliates of HealthWise 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) within any three-month period during such two-year
period for purposes of Rule 145
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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. 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 as long as
such Affiliate had not been an affiliate of United for at least three months
prior thereto.
It is a condition to the obligation of United to consummate the Merger that
HealthWise cause each person identified as an Affiliate of HealthWise to
execute and deliver to United, on or prior to the Effective Time, an agreement
(the "Affiliate Agreements") providing that such Affiliate will not sell,
pledge, transfer or otherwise dispose of any United Common Stock obtained as a
result of the Merger (1) unless (a) such sale, transfer or other disposition
has been registered under the Securities Act, (b) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of Rule
145, or (c) in the opinion of counsel reasonably acceptable to United, such
sale, transfer or other disposition is otherwise exempt from registration under
the Securities Act; (2) during the 30 days prior to the Effective Time; and (3)
until after such time as results covering at least 30 days of post-Merger
combined operations of United and HealthWise have been published. See "THE
MERGER AGREEMENT--Conditions."
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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
stockholders 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, HealthWise will be merged with and into United Sub,
HealthWise will continue as the Surviving Corporation, and the separate
existence of United Sub will cease. Pursuant to the Merger Agreement, at the
Effective Time, (1) each outstanding share of common stock of United Sub will
be converted into one share of the common stock of the Surviving Corporation,
(2) each outstanding share of HealthWise Common Stock (other than any shares
of HealthWise Common Stock owned by United, United Sub or HealthWise) will be
converted into 0.6475 of a share of United Common Stock, subject to
adjustments for, among other things, stock dividends by either HealthWise or
United occurring after the date of the Merger Agreement, and (3) each
outstanding share of HealthWise Common Stock owned by United, HealthWise or
any of their respective subsidiaries shall be canceled and extinguished
without any conversion thereof. Following the Merger, the Surviving
Corporation will be a wholly owned subsidiary of United.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
United, United Sub and HealthWise 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 HealthWise; (2) each of United's and HealthWise's capital
structure; (3) the authorization, execution, delivery and performance by, and
enforceability of, the Merger Agreement against 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 or Certificate of Incorporation or Bylaws, or with applicable
law; (6) the filing of reports and other documents with the Commission and
other regulatory authorities and the accuracy of the information contained
therein; (7) the absence of certain changes or events having a material
adverse effect on the financial condition, business or results of operations
of United and its subsidiaries (a "United Material Adverse Effect") and
HealthWise and its subsidiaries (a "HealthWise Material Adverse Effect"), as
the case may be; (8) the absence of actions taken by United or HealthWise that
would prevent the Merger from being effected as a pooling of interests for
accounting and financial reporting purposes or that would prevent the Merger
from qualifying as a tax-free reorganization under the Code; (9) the absence
of any brokerage, finder's or other fees due in connection with the Merger
(other than the fees payable to Goldman, Sachs & Co. and Bear Stearns as
financial advisors to the parties to the Merger); and (10) material
disclosures.
HealthWise 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) the possession of all permits necessary to operate the
business of HealthWise and its subsidiaries; (2) compliance with applicable
laws; (3) the absence of material pending or threatened litigation having a
HealthWise Material Adverse Effect; (4) HealthWise's ownership of all
outstanding shares of its subsidiaries, all of which shares have been duly
authorized and validly issued and are fully paid and nonassessable; (5)
HealthWise's and its subsidiaries' material contracts, and, in particular, the
absence of exclusivity provisions, covenants not to compete and similar
provisions in any of such contracts, other than as disclosed in the Merger
Agreement; (6) HealthWise's employee benefit plans, and the absence of pending
or threatened labor disputes, strikes, work stoppages and unfair labor
practice charges; (7) HealthWise's receipt of the Bear Stearns opinion; (8)
taxes; and (9) certain business practices.
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United and United Sub also have made certain additional representations and
warranties to HealthWise 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 of United Sub.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, HealthWise has agreed that, prior to the
Effective Time, except as expressly permitted by the Merger Agreement or as
otherwise consented to by United, HealthWise and its subsidiaries each will,
subject to certain exceptions, among other things, (1) carry on its business
in the usual and ordinary course consistent with past practice; (2) use
reasonable efforts to preserve intact its business organization and
relationships with third parties and to keep available the services of its
present officers and employees; (3) not amend its Certificate of
Incorporation, Bylaws, or other comparable charter of organizational
documents; (4) not declare or pay any dividends on, or make any other
distributions in respect of, any of its capital stock; (5) not split, combine,
or reclassify any of their capital stock, or issue or authorize the issuance
of any other securities in respect of shares of their capital stock; (6) not
repurchase any shares of capital stock or any other securities or any rights,
warrants, or options to acquire any such shares or other securities; (7) not
issue, pledge, or otherwise encumber any shares of its capital stock, any
other voting securities, or any securities convertible into, any such shares,
voting securities, or convertible securities (other than the issuance of
shares of HealthWise Common Stock upon the exercise of a HealthWise Option,
the HealthWise Warrants, or the HealthWise Puts in accordance with their
present terms); (8) not acquire or agree to acquire (a) any business
organization or any division thereof or (b) any assets that are material,
individually or in the aggregate, to HealthWise, except purchases of inventory
in the ordinary course of business consistent with past practice; (9) not
sell, lease, license, mortgage, subject to any lien, or otherwise dispose of
any of its assets, except sales of inventory in the ordinary course of
business consistent with past practice; (10) not incur any indebtedness, issue
any debt securities or warrants or other rights to acquire any debt securities
of HealthWise or a subsidiary, guarantee any debt of another person, enter
into any agreement to maintain any financial statement condition of another
person, except for short-term borrowings incurred in the ordinary course of
business consistent with past practice; (11) not make any loans, advances, or
capital contributions to, or investments in, any other person, other than to
HealthWise or advances to employees consistent with past practice; (12) not
make or agree to make any new capital expenditure or expenditures which,
individually, is in excess of $100,000 or, in the aggregate, are in excess of
$500,000; (13) not make any tax election or settle any tax liability, or make
any change in any method of accounting or tax practice; (14) not pay or settle
any material claims, liabilities or obligations, other than the payment or
settlement in the ordinary course of business consistent with past practice or
in accordance with their terms, of liabilities reflected in the most recent
consolidated financial statements of HealthWise included in the Company SEC
Documents (as defined in the Merger Agreement) or incurred in the ordinary
course of business consistent with past practice; (15) not waive any material
benefits of, or agree to modify in any material respect, any confidentiality,
standstill or similar agreements to which HealthWise or a subsidiary is a
party; (16) not, except in the ordinary course of business, modify, amend, or
terminate any material contract or agreement to which HealthWise is a party or
waive, release, or assign any material rights or claims; (17) not enter into
or modify any agreement containing geographical exclusivity provisions,
relating to Medicare, Medicaid or the Federal Employee Benefit Plan or
covering state or local government employees; (18) not, except as required by
applicable law or in the ordinary course of business, adopt, enter into,
terminate, or amend the compensation of, or any benefit plan for, any of its
directors or officers; (19) not make any change in any method of accounting
other than those required by generally accepted accounting principles; (20)
not take any action that would prevent United from accounting for the business
combination to be effected by the Merger as a pooling of interests; (21) not
take any action that would prevent the Merger from qualifying as a
reorganization within the meaning of Sections 368(a) of the Code; (22) not
authorize or agree to take any of the foregoing actions; or (23) not enter
into any employment agreement, after the Agreement Date, with any person who
is an officer, or who would become an officer under such agreement.
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 in writing by HealthWise, neither United nor
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any of its subsidiaries will (1) take any action that would prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of
the Code; (2) take any action that would prevent United from accounting for
the Merger as a pooling of interests; or (3) authorize or agree to take either
of the foregoing actions. In addition, each of HealthWise, United and United
Sub have agreed, except as otherwise permitted by the Merger Agreement, not to
knowingly take any action, or omit to take any action, which would, or would
reasonably be expected to, result in any of its representations or warranties
being untrue or any of the conditions to the Merger not being satisfied.
HealthWise and United have agreed to afford each other reasonable access to
all information concerning their respective businesses. HealthWise and United
have entered into a confidentiality agreements whereby each party has agreed
to maintain the confidential nature of certain information provided to it by
the other party.
LIMITATIONS ON NEGOTIATIONS BY HEALTHWISE
Under the Merger Agreement, HealthWise has agreed that it will not
participate in any discussions with, provide any information to, enter into
any agreement or understanding with, or otherwise cooperate in any other way
with any person (other than United and its agents) concerning any "Competing
Transaction", or permit or authorize any of the directors, officers,
employees, shareholders or representatives of HealthWise or any of its
subsidiaries to take any such action. HealthWise also has agreed to promptly
notify United when it receives, or becomes aware that any of its subsidiaries
or any director, officer, employee, or representative of HealthWise or any of
its subsidiaries has received any inquiries, proposals, or requests for
information concerning a Competing Transaction. Notwithstanding the foregoing,
HealthWise's Board of Directors may (1) furnish information to, or participate
in limited discussions solely for the purpose of clarifying or understanding
an unsolicited, bona fide, written offer for a Competing Transaction with the
person making such offer and negotiating with, any person or entity concerning
any unsolicited proposal to enter into a Competing Transaction, so long as (a)
the Board of Directors of HealthWise in its good faith judgment believes that
the expression of interest is made in good faith, (b) such written offer
indicates that it will provide superior value to the terms herein contemplated
and the offer contains no material contingencies as to financing or other
terms, (c) HealthWise's Board of Directors determines in its good faith
judgment in the exercise of its fiduciary duties, after consultations with
independent legal counsel (reasonably satisfactory written evidence of which
is made available to United), that such action is required in light of its
fiduciary duties to HealthWise's stockholders under applicable law, (d) prior
to engaging in such discussions, HealthWise provides United with written
notice of such discussions, (e) HealthWise keeps United informed, on a current
basis, of the occurrence of any such discussions, and (f) HealthWise promptly
delivers to United a written summary of all such discussions, (2) having
received such an unsolicited offer meeting all of the foregoing requirements,
from failing to make or from withdrawing its recommendation of approval of the
Merger Agreement and the Merger if HealthWise's Board of Directors determines
it is required to take such action in the exercise of its fiduciary duties to
HealthWise's stockholders under applicable law (after consultations with
independent legal counsel, reasonably satisfactory written evidence of which
consultations is made available to United), or (3) from complying with Rule
14e-2 promulgated under the Exchange Act; provided that in no event shall
HealthWise's Board of Directors furnish information to a party making a
competing bid before entering into a confidentiality agreement containing
terms no less favorable to HealthWise than those agreed to by United in
connection with the Merger Agreement and otherwise reasonably agreed upon by
United.
INDEMNIFICATION
United has agreed that, from and after the Effective Time, United will (and
will cause the Surviving Corporation to) indemnify, defend and hold harmless
the present and former officers and directors of HealthWise and persons who
become officers or directors prior to the Effective Time (the "Indemnified
Parties") against all losses, expenses, claims, damages or liabilities arising
out of actions or omissions occurring at or prior to the Effective Time
(including the transactions contemplated by the Merger Agreement) to the full
extent permitted or required by HealthWise's Certificate of Incorporation or
Bylaws, as in effect on the date of the Merger
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Agreement, (including advances of expenses incurred). HealthWise has agreed to
use reasonable efforts to obtain extended liability insurance coverage for its
officers and directors, provided that such coverage and the cost thereof shall
be subject to United's approval. In the event HealthWise is unable to obtain
extended coverage under its existing directors' and officers' liability
insurance policies, United will use all reasonable efforts to provide similar
coverage for the Indemnified Parties under policies then maintained by United,
provided, that such similar coverage is available to United at a cost judged
reasonable by United. If any claim, action, suit, proceeding or investigation
for which indemnification is provided under the terms of the Merger Agreement
(a "Claim") is brought against any Indemnified Party after the Effective Time
(whether arising before or after the Effective Time), United has agreed to pay
the reasonable fees and expenses of counsel selected by the Indemnified
Parties and will use reasonable efforts to assist in the defense of such
matter. See "THE MERGER--Interests of Certain Persons in the Merger--
Indemnification of Directors and Officers; Insurance" and "COMPARISON OF
STOCKHOLDER RIGHTS--Indemnification."
CONDITIONS
Each party's respective obligations to effect the Merger are subject to
various conditions, including the following, unless waived to the extent
permitted by applicable law: (1) the holders of HealthWise Common Stock shall
have approved the Merger and the Merger Agreement by requisite vote; (2) all
approvals of, filings with, or expiration of waiting periods imposed by any
federal, state, local, or foreign governmental body, agency, official or
authority (each, a "Governmental Entity") necessary for the consummation of
the Merger shall have been filed, expired, or obtained; (3) the Registration
Statement shall have been declared effective, no stop order shall have been
issued which suspends the effectiveness thereof, and the Proxy Statement, at
the Effective Time, shall not be subject to any proceedings commenced or
threatened by the Commission; (4) no restraining order, injunction, or other
order issued by any Governmental Entity, nor other legal restraint preventing
the consummation of the Merger, shall be in effect; (5) HealthWise shall have
received the Tax Opinion; and (6) United and HealthWise shall have received
each of the pooling letters from Arthur Andersen LLP and Deloitte & Touche
LLP, respectively, and such letters shall not have been withdrawn.
The obligations of United and United Sub to effect the Merger are subject to
the satisfaction prior to or upon the Closing of the following conditions,
unless waived by United and United Sub: (1) the representations and warranties
of HealthWise set forth in the Merger Agreement shall be true and correct in
all respects as of the closing date of the Merger (the "Closing Date"), as
though made on and as of such date (provided that those representations or
warranties made as of a particular date need only be true and correct as of
such date), except for any inaccuracies which, individually or in the
aggregate, have not had, and would not have, a HealthWise Material Adverse
Effect; (2) HealthWise shall have performed in all material respects all
obligations and covenants required to be performed by it under the Merger
Agreement prior to or as of the Closing Date; (3) the consents, approvals, and
authorizations described in the Merger Agreement shall have been obtained in
form and in substance reasonably satisfactory to each of United and United
Sub, except for such consents, approvals, and authorizations with respect to
which the failure to obtain would not have a HealthWise Material Adverse
Effect; (4) United shall have received an Affiliate Agreement from each person
specified pursuant to the Merger Agreement as an affiliate; (5) the rights of
Melkus Partners, Ltd., by assignment from Kenneth J. Melkus under the
Agreement dated July 1, 1993, among Surgical Care Affiliates, Inc., SCA-
Kentucky Health Plan, Inc., Chesapeake Health Plan, Inc. and Kenneth J.
Melkus, shall have been exercised and converted into shares of HealthWise
Common Stock; and (6) Mr. Melkus shall have entered into a one-year consulting
agreement with HealthWise or United and Mr. Kaplan shall have entered into a
two-year employment agreement with HealthWise or United;
The obligation of HealthWise to effect the Merger is subject to the
satisfaction prior to or upon the Closing of the following conditions, unless
waived by HealthWise: (1) the representations and warranties of United and
United Sub set forth in the Merger Agreement shall be true and correct in all
respects as of the Closing Date, as though made on and as of such date
(provided that those representations or warranties made as of a particular
date need only be true and correct as of such date), except for any
inaccuracies which, individually or in the aggregate, have not had, and would
not have, a United Material Adverse Effect; (2) United and United Sub shall
have performed in all material respects all obligations and covenants required
to be performed by them under
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the Merger Agreement prior to or as of the Closing Date; (3) the consents,
approvals, and authorizations described in the Merger Agreement shall have
been obtained in form and substance reasonably satisfactory to HealthWise,
except for such consents, approvals, and authorizations with respect to which
the failure to obtain would not have a United Material Adverse Effect; and (4)
the shares of United Common Stock to be issued in connection with the Merger
shall have been approved for listing on the NYSE.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after adoption of the Merger Agreement by the
stockholders of HealthWise (1) by mutual consent of United, United Sub and
HealthWise; (2) by either United, United Sub or HealthWise if either (a) the
Effective Time shall not have occurred on or before August 31, 1996; provided,
however, such right to terminate the Merger Agreement shall not be available
to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date, or (b) there shall be any law that makes
consummation of the Merger illegal or if any court of competent jurisdiction
or Governmental Entity shall have taken any action restraining, enjoining or
otherwise prohibiting the Merger and such action shall have become final and
unappealable; (3) by United or HealthWise, in the event of a Board Termination
Event; (4) by United, in the event of a Competing Transaction Termination
Event; (5) by either United, United Sub, or HealthWise, in the event of a
Stockholder Termination Event; (6) by HealthWise, in the event of a material
breach by United or United Sub of any representation, warranty, covenant or
agreement contained herein which has not been cured or is not curable by
August 31, 1996; or (7) by United, in the event of a material breach by
HealthWise of any representation, warranty, covenant or agreement contained
herein which has not been cured or is not curable by August 31, 1996.
In the event of termination of the Merger Agreement by either United or
HealthWise, the Merger Agreement will become void and there will be no
liability or obligation on the part of United, United Sub or HealthWise except
that (1) under certain circumstances, HealthWise could be required to pay to
United a termination fee, as described under "--Fees and Expenses," (2) all
remedies available to either party at law or in equity will be preserved if
the Merger Agreement is terminated, and (3) the parties will continue to abide
by the terms of the Confidentiality Agreement.
AMENDMENT AND WAIVER
Subject to applicable law, the Merger Agreement may be amended by action
taken by or on behalf of the respective Boards of Directors of United, United
Sub or HealthWise at any time prior to the Effective Time. After adoption of
the Merger Agreement by the stockholders of HealthWise, however, no amendment
may be made which would reduce the amount or change the type of consideration
into which each share of HealthWise 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 party, (2) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant thereto, and (3) waive compliance with any of the
agreements or conditions contained therein.
FEES AND EXPENSES
Under the Merger Agreement, except as provided below, all expenses incurred
by United and HealthWise shall be borne solely and entirely by the party that
has incurred the same; provided, however, that United and HealthWise will each
pay one-half of all expenses, other than attorneys', accountants' and
investment bankers' fees, related to printing, filing and mailing the
Registration Statement and this Proxy Statement/Prospectus and all filing fees
incurred under the HSR Act.
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In addition, HealthWise has agreed that it will pay to United a termination
fee in an amount equal to $11,000,000, plus interest from the date the
termination fee is due, if (1) United or HealthWise shall terminate the Merger
Agreement due to the failure of HealthWise's stockholders to adopt the Merger
Agreement, and at the time of such failure to adopt the Merger Agreement there
exists a Competing Transaction; (2) the Merger Agreement is terminated by
United or HealthWise because a Board Termination Event exists; or (3) United
terminates the Merger Agreement because a Competing Transaction Termination
Event exists. See""--Termination."
The termination fee payable upon termination of the Merger Agreement under
the circumstances described above could have the effect of discouraging a
third party from pursuing a takeover of, or other acquisition transaction
involving, HealthWise because the cost of such takeover or acquisition
transaction, if successful, would effectively be increased by the amount of
the termination fee payable. In addition, HealthWise's payment of the
termination fee to United could preclude a third party from receiving pooling
of interests accounting treatment in a subsequent transaction involving
HealthWise.
CERTAIN INFORMATION CONCERNING UNITED
GENERAL
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 HMO and health insurance products and other
specialized health care management services. Since its inception, 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 care
coverage products, and unbundled health care management and cost containment
products such as mental health and substance abuse benefit plans, utilization
review services, specialized provider networks and employee assistance
programs. On October 2, 1995, United completed its acquisition of 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.
United 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
underwriting risk in return for the premium revenue it receives. United also
provides administrative and other management services to health plans licensed
in five states. United has no ownership interest in these plans. 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. 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
control medical and hospital costs. Certain of these 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.
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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 health plan products and services,
covering approximately ten million persons. Many of the insurance and self-
funded products include a PPO feature. 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.
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. 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.
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 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 a total
of 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.
SPECIALTY MANAGED CARE SERVICES
Through its experience in providing comprehensive health care management
services 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 developed core capabilities which have enabled it to
introduce 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 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 are available to a total of
approximately 40 million participant lives, many of whom are 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 and/or government agencies.
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Care Management and Benefit Administration Services. United's care
management programs offer insurers, employers, labor union health and welfare
funds and governmental entities 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 employers, labor union
health and welfare funds and governmental entities 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 an international 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. United's network is utilized by
United's health plans, other health plans and insurers, third-party
administrators, government agencies and self-funded employers.
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 are provided to insurers and large self-insured employers and
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.
Employee and Member Assistance Programs. United's employee and member
assistance programs offer clients programs that provide an assessment and
referral service to a client's employees and family members for work-related
or personal problems which might otherwise interfere with an employee's
productivity. United also offers its employee assistance programs in
conjunction with its care management programs and its 24-hour health care
information line product. These products' clients include health plans,
government agencies or department, self-insured organizations and insurers.
Geriatric Care Management Services. United also develops and provides
products and services to HMOs and providers 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 managed
medical 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 the federal Health Care
Financing Administration ("HCFA") to offer managed health care services to the
institutionalized elderly in nine separate locations throughout the country.
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 mental health and substance abuse benefit program
services including providing or arranging for behavioral health care/case
management services and network development services, primarily on a
capitation basis, to certain of United's owned or managed health plans, and to
other health plans or PPOs and insurance companies. Such services are also
sold to self-funded health plans primarily on an administrative fee basis and
are provided by employed behavioral health care professionals and by a network
of contracted providers.
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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 South Africa and has
entered into an agreement to provide certain managed care consulting services
in Germany.
The Center for HealthCare Policy and Evaluation; Information, Research and
Analysis. The Center for HealthCare Policy and Evaluation and Corporate Health
Strategies, Inc. (the "Centers") are United's quality-of-care and research
units. The Centers' activities include developing United's nationwide
operations' cost-effectiveness research and analysis, and participating in
major national public policy initiatives to positively influence the reform of
health care delivery, financing and access.
United's HealthCare Evaluation Services ("HCES") division, a part of the
Centers, performs services and research relating to the growing data and
analysis needs of United's health plans, specialty managed care services
business and an external client base. HCES offers research services and
software developed by the Centers to third-party payors, providers, employers
and the government, and utilizes these services and software in the management
of United's health plans and specialty managed care services.
One of the Centers' major software services is EPIS(TM). EPIS(TM) is a
specialized analytic software system which allows clients to profile
comparative data. United also utilizes EPIS(TM) as the platform from which it
updates and disseminates the latest expert-derived clinical guidelines to its
health plans and other clients.
EXPANSION AND DISPOSAL OF OPERATIONS
United continually seeks out and evaluates opportunities for future growth
and expansion, as well as for disposition of certain businesses. Such growth
and expansion opportunities may include acquisitions or dispositions of a
specialty managed care services program or insurance and health plan
operations, and the 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.
GOVERNMENT REGULATION
Government regulation of employee benefit plans, including health care
coverage, insurers, health plans and United's specialty managed care products,
is a changing area of law that varies from jurisdiction to jurisdiction and
generally gives responsible administrative agencies broad discretion. 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. Additional governmental regulation or future interpretation
of existing regulations could increase the cost of United's compliance or
otherwise adversely affect United's operations, products, profitability or
business prospects.
United is unable to predict what additional government regulations, if any,
affecting its business may be enacted in the future or how existing or future
regulations might be interpreted. 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 believes its experience in these areas will
allow it to compete effectively.
Increasingly states are considering various health care reform measures and
are adopting laws or regulations which may limit United's health plans' and
insurance operations' ability to control which providers are part of their
networks and may hinder their ability to effectively manage utilization and
cost. United is unable to predict what reforms, if any, may be enacted or how
those reforms would affect United's operations. In addition, the United States
Congress has proposed Medicare and Medicaid program changes which may affect
United's products for those programs.
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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, a branch of the United States Department of Health and
Human Services. 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.
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 the licensing of insurance companies; the
amount of reserves which must be maintained; the approval of forms and
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.
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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.
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. Some of these laws and regulations may affect certain
operations of United's business units.
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 the Employee Retirement Income
Security Act of 1974 ("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 certain 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 may permit
greater state regulation of other aspects of those businesses' operations.
CERTAIN INFORMATION CONCERNING HEALTHWISE
HealthWise provides a broad range of managed health care services through
its HMOs in Kentucky, Maryland, Tennessee and Arkansas. At December 31, 1995,
HealthWise's HMOs served approximately 144,000 commercial, Medicare and
Medicaid members, principally through its Kentucky and Maryland HMOs.
HealthWise believes that, in terms of membership, its HMO in Kentucky is the
third largest in the state and its HMO in Maryland is one of the fastest
growing in the state. HealthWise has recently expanded its product line to
include POS and Medicare products in its service areas. HealthWise's aggregate
enrollment increased by approximately 29,000 members, or 25.2%, to
approximately 144,000 members at December 31, 1995 from 115,000 at December
31, 1994.
HealthWise has achieved significant growth in membership and revenues since
1992 through the development of its HMO in Kentucky and the acquisition and
expansion of its HMO in Maryland. In late 1994, HealthWise began operating
HMOs in Tennessee and Arkansas. Additionally, HealthWise recently received
approval to operate an HMO in Virginia.
HealthWise provides comprehensive health care services to the members of its
HMOs through arrangements with independent health care practitioners. Unlike
conventionally-designed indemnity health plans that frequently require the
payment of substantial copayments and deductibles, members receive health care
services for a fixed
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monthly payment and generally with minimal out-of-pocket expenditures. When an
individual enrolls in one of HealthWise's HMOs, he or she selects a primary
care physician from among the physicians who have contracted with that HMO.
The primary care physicians are family practitioners, general practitioners,
internists or pediatricians who provide necessary preventive and primary
medical care and are responsible for making referrals to specialists. Except
in emergency situations, hospital care requires a referral from the member's
primary care physician and generally takes place in hospitals that have
contracts to serve the HMO's members for an agreed compensation.
At December 31, 1995, HealthWise contracted with approximately 3,100 primary
care physicians and 7,000 special physicians. HealthWise's primary care
physicians include family practitioners, general practitioners, pediatricians
and internists. These physicians provide preventive and routine health care
services and are responsible for making referrals to consulting physicians,
hospitals and other providers. Health care services provided directly by the
primary care physicians include the treatment of illnesses not requiring
referrals, periodic physical examinations, routine immunizations, maternity
and well-child care, and other preventive health care services. Specialist
physicians provide more specialized care to members on a referral basis from
the primary care physicians. In order to control medical services costs, it is
HealthWise's general policy that any proposed hospitalization or referral to a
specialist physician must be reviewed and approved by an employee of
HealthWise's medical services unit.
HealthWise's primary care and specialist physicians are compensated pursuant
to modified fee-for-service or capitation arrangements, as appropriate. Under
capitation, the physician generally receives a fixed monthly fee for each
member served and assumes the risk that medical costs may exceed that amount.
At December 31, 1995, HealthWise contracted with 160 hospitals in its
service areas. HealthWise's hospital care generally includes all services
normally provided by acute-care hospitals. HealthWise believes that it has
been able to negotiate favorable hospital contracts because of the oversupply
of hospital beds in each of its service areas and its ability to direct
significant patient volume to contracted hospitals. HealthWise has formed
joint ventures with hospital providers in certain of its markets, which
management believes results in increased recognition in the market and,
consequently, increased market penetration.
HealthWise contracts with independent providers to provide other health care
services on an outpatient basis, including laboratory tests, diagnostic
radiology services and ambulatory surgery. HealthWise provides other
outpatient services, including pharmaceuticals, eye care, crisis intervention,
group therapy and counseling, substance abuse services, physical therapy and
other similar services for which hospitalization is not medically necessary.
HealthWise provides such services either as a part of a member's basic benefit
program or through optional rider contracts entered into between the member
and the HMO.
COMPARISON OF STOCKHOLDER RIGHTS
The rights of the stockholders of HealthWise are governed by the DGCL, the
Certificate of Incorporation, as amended, of HealthWise ("HealthWise
Certificate"), and the Bylaws of HealthWise ("HealthWise Bylaws"). The rights
of the stockholders of United are governed by the Minnesota Business
Corporation Act (the "MBCA"), the Restated Articles of Incorporation of
United, as amended ("United Articles"), and the Amended and Restated Bylaws of
United ("United Bylaws"). The following is a summary of certain material
differences between the rights of stockholders of HealthWise and the rights of
shareholders of United, as contained in provisions of the DGCL and the MBCA,
the HealthWise Certificate and HealthWise Bylaws, and the United Articles and
United Bylaws.
The following does not purport to be a complete statement of the rights of
HealthWise's stockholders under applicable Delaware law and the HealthWise
Certificate and HealthWise Bylaws as compared with the rights of United
shareholders under applicable Minnesota law and the United Articles and United
Bylaws. The identification of certain specific differences is not meant to
indicate that other equally or more significant differences do not exist.
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STOCKHOLDERS' DISSENTERS' RIGHTS
Under both the DGCL and the MBCA, stockholders may exercise a right of
dissent from certain corporate actions and obtain payment of the fair value of
their shares. This remedy is an exclusive remedy, except where the corporate
action involves fraud or illegality.
Under the DGCL, dissenters' rights are limited. Appraisal rights are
available only in connection with certain statutory mergers or consolidations,
amendments to the certificate of incorporation (if so provided in the
certificate of incorporation), any merger or consolidation in which the
corporation is a constituent corporation, or sales of all or substantially all
of the assets of a corporation. The HealthWise Certificate does not grant such
rights. Appraisal rights are not available under Delaware law, however, if the
corporation's stock is (prior to the relevant transaction) listed on a
national securities exchange or designated on the Nasdaq National Market or
held of record by more than 2,000 stockholders; provided, that if the merger
or consolidation requires stockholders to exchange their stock for anything
other than (a) shares of the surviving corporation, (b) shares of another
corporation that will be listed on a national securities exchange, designated
on the Nasdaq National Market or held of record by more than 2,000
stockholders, (c) cash in lieu of fractional shares of any such corporation,
or (d) any combination of such shares and cash in lieu of fractional shares,
then appraisal rights will be available. Because the HealthWise Common Stock
is designated on the Nasdaq National Market and its stockholders will receive
United Common Stock pursuant to the Merger, which is NYSE-listed, HealthWise
stockholders do not have the right to dissent from the Merger or receive
payment for the fair value of their shares.
Under the MBCA, the categories of transactions subject to dissenters' rights
are broader than those in the DGCL. A shareholder of a Minnesota corporation
may exercise dissenter's rights in connection with 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 not in the usual
course of business, a plan of merger in which the shareholder may vote, and a
plan of exchange involving the acquisition of the corporation's shares if the
shareholder is entitled to vote on the plan.
BOARD OF DIRECTORS
The DGCL provides that the board of directors of a Delaware corporation
shall consist of one or more directors as fixed by the certificate of
incorporation or bylaws. The HealthWise Bylaws require a board comprised of
not less than two nor more than 15 directors, which number may be increased or
decreased within such range by the Board. Although permitted under the DGCL,
HealthWise's Board of Directors is not classified.
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 HealthWise Bylaws and the United Bylaws each further provide that a
candidate for director must be nominated by or at the direction of the board
or by a stockholder. If nominated by a stockholder, a notice containing
information about the candidate, the stockholder 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 the corporation not less than 60 days prior to, in the case of
HealthWise the anniversary date of the previous annual meeting, and, in the
case of United, the date of the annual meeting.
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REMOVAL OF DIRECTORS
The DGCL provides that a director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors, unless the certificate of
incorporation provides, in the case of a corporation whose board is
classified, that directors may be removed only for cause, or unless the
corporation has cumulative voting, in which event if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against the director's removal would be sufficient to elect that director
if voted cumulatively either at an election of the entire board of directors
or for classes of the board. The HealthWise Certificate does not classify its
board of directors and does not provide for cumulative voting. The HealthWise
Bylaws require the affirmative vote of the holders of 80% of the shares
entitled to vote to remove a director without cause.
The MBCA provides that, unless modified by the articles or bylaws of the
corporation or by shareholder agreement, the directors may be removed with or
without cause by the affirmative vote of that proportion or number of the
voting power of the shares of the classes or series the director represents
which would be sufficient to elect such director. If a corporation has
cumulative voting, the MBCA provides that, unless the entire board is removed
simultaneously, a director is not removed from the board if there are cast
against removal of the director the votes of a proportion of the voting power
sufficient to elect the director at an election of the entire board under
cumulative voting. 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. United does not have cumulative voting.
AMENDMENTS TO BYLAWS
Under the DGCL, the HealthWise Bylaws may be altered, amended, supplemented
or repealed, or new bylaws adopted, by the stockholders entitled to vote, by
the Board of Directors, or by any other manner as may be authorized by the
HealthWise Certificate. Under the HealthWise Bylaws, the HealthWise Bylaws may
be altered, amended or repealed, and new Bylaws adopted, only as set forth in
the HealthWise Certificate.
Under the HealthWise Certificate, the Board of Directors is expressly
authorized and empowered to adopt, amend or repeal the HealthWise Bylaws;
provided, however, that the Bylaws adopted by the Board of Directors may be
amended or repealed by the Board or by the stockholders having voting power
with respect thereto, provided further that in the case of action by the
stockholders, the affirmative vote of the holders of at least 80% of the
shares entitled to vote in the election of directors, voting together as a
single class, shall be required to alter, amend or repeal any provision of the
HealthWise Bylaws.
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.
AMENDMENTS TO CERTIFICATE OR ARTICLES
Under the DGCL, amendment of the certificate of incorporation shall be made
by a resolution of the board of directors setting forth the amendment,
declaring its advisability, and either calling a special meeting of the
stockholders entitled to vote or directing that the amendment proposed be
considered at the next annual meeting of the stockholders. At such
stockholders' meeting, a majority of the outstanding shares entitled to vote
is
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required to approve the amendment. If an amendment would increase or decrease
the number of authorized shares of such class, increase or decrease the par
value of the shares of such class or alter or change the powers, preferences
or other special rights of a class of outstanding shares so as to affect the
class adversely, then a majority of shares of that class must approve the
amendment as well. The DGCL also permits a corporation to make provision in
its certificate requiring a greater proportion of voting power to approve a
specified amendment. The HealthWise Certificate requires the affirmative vote
of the holders of 80% of the shares entitled to vote to amend, repeal or adopt
any provision inconsistent with paragraph (a) of Article 11 of the HealthWise
Certificate (concerning amendment of the HealthWise Bylaws).
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, any such 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.
INDEMNIFICATION
The DGCL and the MBCA both contain provisions setting forth conditions under
which a corporation may indemnify its directors, officers, and employees.
While indemnification is permitted only if certain statutory standards of
conduct are met, the DGCL and the MBCA are substantially similar in providing
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. The statutes differ,
however, with respect to whether indemnification is permissive or mandatory,
whether there is a distinction between third-party actions and actions by or
in the right of the corporation, and whether, and to what extent,
reimbursement of judgments, fines, settlements, and expenses is allowed.
The major difference between the MBCA and the DGCL is that while
indemnification of officers, directors and employees is mandatory under the
MBCA, indemnification is merely permissive under the DGCL. The one exception
to the DGCL's permissive indemnification rule is that a corporation must
indemnify a person who is successful on the merits or otherwise in the defense
of certain specified actions, suits or proceedings for expenses and attorneys'
fees actually and reasonably incurred in connection therewith.
Although indemnification is permissive in Delaware, the DGCL allows a
corporation, through its certificate of incorporation, bylaws, or other
intracorporate agreements, to make indemnification mandatory. Pursuant to this
authority, the HealthWise Certificate and HealthWise Bylaws provide that
HealthWise shall indemnify its directors and officers to the fullest extent
permitted by law. The HealthWise Bylaws specifically require indemnification
of judgments, fines, settlements, and expenses of third-party actions for any
person who was or is a party, or is threatened to be a party, by reason of the
fact that such person was or is a director or officer of HealthWise or because
such person was serving HealthWise or any other legal entity in any capacity
at the request of HealthWise while a director or officer of HealthWise. The
HealthWise Bylaws do not, however, extend this mandatory indemnification for
third-party actions to employees or agents.
The DGCL, unlike the MBCA, also differentiates between third-party actions
and claims by or in the right of the corporation (i.e., stockholder derivative
suits). While the MBCA makes no distinction between third-party actions and
shareholder derivative suits and requires indemnification in either case if
the relevant statutory standard of conduct is met, indemnification under the
DGCL varies depending on whether the action is brought by a third party or by
stockholders in a derivative suit. Unlike a third-party action, in which
indemnification of
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<PAGE>
judgments, settlements, and expenses is permissive under the statute and
mandatory for officers and directors under the HealthWise Bylaws, the DGCL
does not permit indemnification in a stockholder derivative suit if the person
is found liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was
brought determines that the person is fairly and reasonably entitled to
indemnification. Further, the corporation may indemnify such persons only for
attorneys' fees and other expenses.
The advancement of expenses is permissive under the DGCL but mandatory under
the MBCA. The HealthWise Bylaws make the advancement of expenses mandatory for
any threatened, pending or completed action involving an officer or director
but leave such expense advancement permissive for employees and agents.
Although the MBCA allows broader indemnification than under the DGCL, the
MBCA requires that a corporation report any indemnification payments to its
shareholders no later than the next meeting of stockholders. The DGCL and the
HealthWise Bylaws contain no such similar provision.
LIABILITY OF DIRECTORS
Under the DGCL, a corporation's certificate of incorporation may contain a
provision limiting or eliminating a director's personal liability to the
corporation or its stockholders for monetary damages for a director's breach
of fiduciary duty subject to certain limitations. The HealthWise Certificate
provides that a director shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for any breach of the director's duty of
loyalty to the corporation or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for any transaction for which the director derived any personal benefit,
or as provided in the DGCL for liability for an unlawful payment of dividend,
stock purchase or redemption. The HealthWise Certificate also provides that if
the DGCL is amended to authorize further elimination of the personal liability
of directors, then the liability of HealthWise directors shall be limited to
the fullest extent permitted by the DGCL, as so amended.
The United Articles provide that a director shall not be personally liable
to United or its stockholders 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 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.
STOCKHOLDER MEETINGS
In accordance with the HealthWise Bylaws, special meetings of the
stockholders of HealthWise may be called only by the Chairman or by the Board
of Directors pursuant to a resolution adopted by a majority of the entire
Board of Directors. The DGCL and the HealthWise Bylaws require that whenever
stockholders are required or permitted to take action at a meeting, a written
notice stating the place, time and date of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, must
be sent to all stockholders of record entitled to vote thereon not less than
10 nor more than 60 days before the meeting. Under the DGCL, notice of a
meeting to consider an agreement of merger must be sent at least 20 days prior
to the date of the meeting.
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
55
<PAGE>
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.
The HealthWise and United Bylaws each require that a stockholder provide
notice of any proposal to be submitted at an annual meeting of stockholders to
the Secretary of the corporation not less than 60 nor more than 90 days prior
to, in the case of HealthWise, the anniversary date of the previous annual
meeting, and, in the case of United, the date of the meeting (subject to a
different time period under certain circumstances).
MERGERS AND CONSOLIDATIONS
In order to effect a merger under the DGCL, a corporation's board of
directors must adopt an agreement of merger and recommend it to the
stockholders. The agreement must be adopted by holders of a majority of the
outstanding shares of the corporation entitled to vote thereon.
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. Unlike the DGCL, 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 (see--"Business Combinations" below).
BUSINESS COMBINATIONS
The DGCL bars a corporation which has securities traded on an exchange,
designated on the Nasdaq National Market or held of record by more than 2,000
stockholders from engaging in certain business combinations, including a
merger, sale of substantial assets, loan or substantial issuance of stock,
with an interested stockholder, or an interested stockholder's affiliates and
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if (a) the
board of directors gives prior approval to the transaction in which the 15%
ownership level is exceeded, (b) the interested stockholder acquires at one
time at least 85% of the corporation's stock (excluding those shares owned by
persons who are directors and also officers as well as employee stock plans in
which employees do not have a confidential right to vote), or (c) the business
combination is approved by the board of directors and authorized at a meeting
of stockholders by the holders of at least two-thirds of the outstanding
voting stock, excluding shares owned by the interested stockholder. Although a
Delaware corporation may elect, pursuant to its certificate or bylaws, not to
be governed by this provision, the HealthWise Certificate and HealthWise
Bylaws contain no such election or other limitation on the applicability of
this provision.
Although the MBCA contains a provision which restricts certain business
combination transactions with an interested stockholder for four years after
such shareholder has acquired 10% of the voting power of a publicly traded
corporation having 50 or more stockholders, 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
56
<PAGE>
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.
OTHER ANTI-TAKEOVER PROVISIONS
The DGCL does not contain a control share acquisition statute which
restricts the voting rights of a person who acquires a controlling interest in
the corporation to those voting rights which are conferred by the stockholders
at a meeting. Although the MBCA contains a control share acquisition statute,
the United Articles make this statute inapplicable to United.
The MBCA 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. Delaware law has no equivalent provision. 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. Delaware law has no equivalent provision.
It should be noted that in addition to the anti-takeover measures 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 "Board of Directors"), and the lack of a provision entitling
holders of United Common Stock to cumulate their votes in the election 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 (discussed above under "Amendments to Certificate or Articles"
and "Mergers and Consolidations"), (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 (discussed above under "Stockholder Meetings"), and (4) the
authority of the Board of Directors to issue, without shareholder approval,
shares of preferred stock with voting and conversion rights that could
adversely affect the voting power of the holders of United Common 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. See "DESCRIPTION
OF UNITED CAPITAL STOCK--Special Voting Provisions."
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 and Preferred Stock are, and shares of United Common Stock
to be issued as described in this Proxy Statement/Prospectus will be, fully
paid and nonassessable.
57
<PAGE>
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 "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 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.
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.
58
<PAGE>
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.
TRANSFER AGENT AND REGISTRAR
United's transfer agent and registrar is Norwest Bank Minnesota, N.A.,
Minneapolis, Minnesota.
LEGAL MATTERS
The validity of the United Common Stock to be issued in connection with the
Merger will be passed upon for United by Kevin H. Roche, General Counsel of
United.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1993, and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994, of United
incorporated by reference in this Proxy Statement/Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, which is incorporated herein by reference in
reliance upon the authority of said firm as experts in giving said report.
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 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.
OTHER MATTERS
The management of HealthWise 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.
STOCKHOLDER PROPOSALS
If the Merger is not effected and HealthWise holds an Annual Meeting of
Stockholders in 1996, Stockholders who intend to present proposals at the 1996
Annual Meeting of Stockholders must submit their proposals to the Secretary of
HealthWise on or before May 1, 1996.
59
<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 Merger
between United and HealthWise as a pooling of interests for accounting and
financial reporting purposes and (2) 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 Merger had been effective
September 30, 1995 for the Unaudited Pro Forma Condensed Combining Balance
Sheet and as of the beginning of each of the respective periods presented in
the Unaudited Pro Forma Condensed Combining Statement of Operations and (2)
the purchase of MetraHealth had been effective on September 30, 1995 for the
Unaudited Pro Forma Condensed Combining Balance Sheet and at the beginning of
the year ended December 31, 1994 for the Unaudited Pro Forma Condensed
Combining Statement of Operations for that year.
The Pro Forma Information is derived from, and should be read in conjunction
with the historical consolidated financial statements of United 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 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.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Combining Balance Sheet:
As of September 30, 1995................................................. F-2
Unaudited Pro Forma Condensed Combining Statements of Operations:
Nine Month Period Ended September 30, 1995............................... F-3
Year Ended December 31, 1994............................................. F-4
Year Ended December 31, 1993............................................. F-5
Year Ended December 31, 1992............................................. F-6
Notes to Unaudited Pro Forma Condensed Combining Financial Information..... F-7
</TABLE>
F-1
<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 METRA HEALTHWISE
UNITED HISTORICAL PRO FORMA POOLED COMBINED HISTORICAL
HISTORICAL (A) ADJUSTMENTS COMPANIES (1) (A)
---------- ---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... 1,308 15 1,323 599 15
Short-term investments.......... 276 31 307 881 31
Accounts receivable, net........ 253 5 258 535 5
Other........................... 57 6 63 158 6
----- --- ----- ----- ---
Total current assets........... 1,894 57 1,951 2,173 57
----- --- ----- ----- ---
Long-term investments............ 1,002 4 1,006 1,649 4
Property and equipment, net...... 198 4 202 272 4
Intangible assets and other, net. 803 18 821 2,152 18
----- --- ----- ----- ---
Total assets................... 3,897 83 3,980 6,246 83
===== === ===== ===== ===
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Medical costs payable........... 501 26 527 1,090 26
Other policy benefits........... 479
Accounts payable, accrued
expenses and other liabilities. 140 4 144 617 4
Due to affiliates............... 186
Unearned premiums............... 95 3 98 204 3
----- --- ----- ----- ---
Total current liabilities...... 736 33 769 2,576 33
Long-term obligations........... 26 14 40 35 14
Minority interests.............. 7 4 11 7 4
5.75% Convertible Preferred
Stock.......................... 500
Commitments and contingencies
Shareholders' Equity/Net Assets
Common stock.................... 2 1 (1)(B) 2 2 1
Additional paid-in capital...... 780 9 1 (B) 790 780 9
Retained earnings............... 2,353 22 2,375 2,353 22
Net unrealized investment
losses......................... (7) (7) (7)
----- --- --- ----- ----- ---
Total shareholders' equity/net
assets........................ 3,128 32 3,160 3,128 32
----- --- --- ----- ----- ---
Total liabilities and
shareholders' equity/net
assets........................ 3,897 83 0 3,980 6,246 83
--------------------------------------------------
===== === === ===== ===== ===
<CAPTION>
PRO FORMA
COMBINED
POOLED
PRO FORMA COMPANIES
ADJUSTMENTS (E)
----------- ---------
<S> <C> <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. 2,170
---------
Total assets................... 6,329
=========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Medical costs payable........... 1,116
Other policy benefits........... 479
Accounts payable, accrued
expenses and other liabilities. 621
Due to affiliates............... 186
Unearned premiums............... 207
---------
Total current liabilities...... 2,609
Long-term obligations........... 49
Minority interests.............. 11
5.75% Convertible Preferred
Stock.......................... 500
Commitments and contingencies
Shareholders' Equity/Net Assets
Common stock.................... (1)(B) 2
Additional paid-in capital...... 1 (B) 790
Retained earnings............... 2,375
Net unrealized investment
losses......................... (7)
----------- ---------
Total shareholders' equity/net
assets........................ 3,160
----------- ---------
Total liabilities and
shareholders' equity/net
assets........................ 0 6,329
--------------------------------------------------
=========== =========
</TABLE>
- --------
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements
(1) Information taken from United's Current Report on Form 8-K/A dated October
2, 1995
F-2
<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 PRO FORMA COMBINED
HEALTHWISE COMBINED UNITED AND HEALTHWISE POOLED
UNITED HISTORICAL POOLED METRA HISTORICAL COMPANIES
HISTORICAL (A) COMPANIES COMBINED(1) (A) (E)
----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premium...................................... 3,153 152 3,305 5,255 152 5,407
Management services and fees................. 210 1 211 1,114 1 1,115
Investment income and other.................. 114 3 117 133 3 136
----------- --- ----------- ----------- --- -----------
Total revenues............................. 3,477 156 3,633 6,502 156 6,658
Operating expenses:
Medical costs................................ 2,480 119 2,599 4,219 119 4,338
Selling, general and administrative costs.... 500 23 523 1,655 23 1,678
Depreciation and amortization................ 59 1 60 107 1 108
----------- --- ----------- ----------- --- -----------
Total operating expenses................... 3,039 143 3,182 5,981 143 6,124
Earnings from operations....................... 438 13 451 521 13 534
Interest expense............................... (1) (1) (2) (1) (1) (2)
----------- --- ----------- ----------- --- -----------
Earnings before income taxes and minority
interests................................. 437 12 449 520 12 532
Provision for income taxes..................... (162) (4) (166) (203) (4) (207)
Minority interests............................. (2) (2) (4) (2) (2) (4)
----------- --- ----------- ----------- --- -----------
Net earnings................................... 273 6 279(D) 315 6 321(D)
Preferred dividends............................ (22) (22)
----------- --- ----------- ----------- --- -----------
Net earnings applicable to common shareholders. 273 6 279 293 6 299
=========== === =========== =========== === ===========
Net earnings per common share.................. $ 1.55 $ 1.54(C) $ 1.66 $ 1.65(C)
=========== =========== =========== ===========
Weighted average common shares outstanding..... 176,615,000 180,955,000(C) 176,615,000 180,955,000(C)
- --------------------------------------------------
=========== =========== =========== ===========
</TABLE>
- --------
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements
(1) Information taken from United's Current Report on Form 8-K/A dated October
2, 1995
F-3
<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
PRO FORMA UNITED AND COMBINED
HEALTHWISE COMBINED METRA HEALTHWISE POOLED
UNITED HISTORICAL POOLED COMBINED HISTORICAL COMPANIES
HISTORICAL (A) COMPANIES (1) (A) (E)
----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premium...................................... 3,376 161 3,537 6,406 161 6,567
Management services and fees................. 275 2 277 1,479 2 1,481
Investment income and other.................. 118 2 120 99 2 101
----------- --- ----------- ----------- --- -----------
Total revenues............................. 3,769 165 3,934 7,984 165 8,149
Operating Expenses:
Medical costs................................ 2,643 124 2,767 5,049 124 5,173
Selling, general and administrative costs.... 556 23 579 2,213 23 2,236
Depreciation and amortization................ 64 1 65 114 1 115
----------- --- ----------- ----------- --- -----------
Total operating expenses................... 3,263 148 3,411 7,376 148 7,524
Earnings from operations....................... 506 17 523 608 17 625
Interest expense............................... (2) (1) (3) (2) (1) (3)
Merger costs................................... (36) (36) (36) (36)
----------- --- ----------- ----------- --- -----------
Earnings before income taxes and minority
interests................................. 468 16 484 570 16 586
Provision for income taxes..................... (178) (4) (182) (231) (4) (235)
Minority interests............................. (2) (5) (7) (2) (5) (7)
----------- --- ----------- ----------- --- -----------
Net earnings before extraordinary gain......... 288 7 295(D) 337 7 344(D)
Preferred dividends............................ (29) (29)
----------- --- ----------- ----------- --- -----------
Net earnings before extraordinary gain
applicable to common shareholders............. 288 7 295 308 7 315
=========== === =========== =========== === ===========
Net earnings before extraordinary gain per
common share.................................. $1.64 $1.64(C) $1.76 $1.76(C)
=========== =========== =========== ===========
Weighted average common shares outstanding..... 175,209,000 179,342,000(C) 175,209,000 179,342,000(C)
- --------------------------------------------------
=========== =========== =========== ===========
</TABLE>
- --------
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements
(1) Information taken from United's Current Report on Form 8-K/A dated October
2, 1995
F-4
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HEALTHWISE COMBINED
UNITED HISTORICAL POOLED
HISTORICAL (A) COMPANIES
----------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Premium............................... 2,782 119 2,901
Management services and fees.......... 270 1 271
Investment income and other........... 63 2 65
----------- --- -----------
Total revenues...................... 3,115 122 3,237
Operating expenses:
Medical costs......................... 2,237 91 2,326
Selling, general and administrative
costs................................ 492 16 508
Depreciation and amortization......... 50 50
----------- --- -----------
Total operating expenses............ 2,779 107 2,886
Earnings from operations................ 336 15 351
Interest expense........................ (3) (3)
Merger costs............................ (15) (15)
Gain on sale of subsidiary.............. 15 15
----------- --- -----------
Earnings before income taxes and
minority interests................. 333 15 348
Provision for income taxes.............. (119) (3) (122)
Minority interests...................... (2) (6) (8)
----------- --- -----------
Net earnings............................ 212 6 218(D)
=========== === ===========
Net earnings before extraordinary gain
per common share....................... $ 1.23 $ 1.24(C)
=========== ===========
Weighted average common shares
outstanding............................ 171,739,000 175,485,000(C)
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements.
F-5
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HEALTHWISE COMBINED
UNITED HISTORICAL POOLED
HISTORICAL (A) COMPANIES
------------ ---------- ------------
<S> <C> <C> <C>
Revenues:
Premium............................. 1,944 64 2,008
Management services and fees........ 208 208
Investment income and other......... 49 1 50
------------ --- ------------
Total revenues.................... 2,201 65 2,266
Operating expenses:
Medical costs....................... 1,578 49 1,627
Selling, general and administrative
costs.............................. 381 6 387
Depreciation and amortization....... 34 34
------------ --- ------------
Total operating expenses.......... 1,993 55 2,048
Earnings from operations.............. 208 10 218
Interest expense...................... (3) 0 (3)
------------ --- ------------
Earnings before income taxes and
minority interests............... 205 10 215
Provision for income taxes............ (72) (2) (74)
Minority interests.................... (2) (5) (7)
------------ --- ------------
Net earnings.......................... 131 3 134(D)
============ === ============
Net earnings per common share......... $ 0.79 $ 0.79(C)
============ ============
Weighted average common shares
outstanding.......................... 166,091,000 169,804,000(C)
============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements
F-6
<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 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 the Merger of approximately $13 million. These non-
operating costs, which will be expensed in the period in which the Merger
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 is consummated.
E. United has signed definitive agreements to acquire in separate transactions
PHP, Inc. and Louisiana Independent Physicians Association, Inc. These
transactions are expected to close in the first quarter of 1996 and have
been excluded from the "UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL
INFORMATION" as their effects are not significant.
F-7
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
UNITED HEALTHCARE CORPORATION,
UHC BLACK ACQUISITION, INC.
AND
HEALTHWISE OF AMERICA, INC.
DATED: FEBRUARY 1, 1996
<PAGE>
INDEX
<TABLE>
<C> <S> <C>
Article I THE MERGER................................................... 1
Section 1.1 The Merger................................................... 1
Section 1.2 Certificate of Merger; Effective Time........................ 2
Section 1.3 Effect of Merger............................................. 2
Section 1.4 Closing...................................................... 2
Section 1.5 Certificate of Incorporation; By-laws........................ 2
Section 1.6 Directors and Officers....................................... 2
Article II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES........... 2
Section 2.1 Conversion of Securities..................................... 2
Section 2.2 Rights of Holders of Company Common Stock.................... 3
Section 2.3 Adjustments to Exchange Ratio................................ 3
Section 2.4 Exchange of Certificates..................................... 3
Section 2.5 Stock Options................................................ 6
Section 2.6 Warrants..................................................... 7
Section 2.7 Notices to Option and Warrant Holders........................ 8
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 9
Section 3.1 Corporate Existence and Power................................ 9
Section 3.2 Subsidiaries................................................. 9
Section 3.3 Corporate Authorization...................................... 10
Section 3.4 Governmental Authorization................................... 10
Section 3.5 Non-Contravention............................................ 10
Section 3.6 Capitalization............................................... 11
Section 3.7 SEC Documents................................................ 12
Section 3.8 Absence of Certain Changes or Events......................... 12
Section 3.9 Litigation................................................... 13
Section 3.10 Taxes........................................................ 14
Section 3.11 No Excess Parachute Payments................................. 14
Section 3.12 Labor Matters................................................ 15
Section 3.13 Employee Benefit Plans....................................... 15
Section 3.14 Compliance with Laws......................................... 16
Section 3.15 Brokers...................................................... 16
Section 3.16 Opinion of Financial Advisor................................. 16
Section 3.17 Accounting Matters........................................... 17
Section 3.18 Tax Matters.................................................. 17
Section 3.19 Certain Business Matters..................................... 17
Section 3.20 Certain Contract Matters..................................... 17
Section 3.21 Disclosure................................................... 18
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............. 18
Section 4.1 Corporate Existence and Power................................ 18
Section 4.2 Corporate Authorization...................................... 19
Section 4.3 Governmental Authorization................................... 19
Section 4.4 Non-Contravention............................................ 19
Section 4.5 Capitalization............................................... 20
Section 4.6 SEC Documents................................................ 20
Section 4.7 Absence of Certain Changes or Events......................... 21
Section 4.8 Brokers...................................................... 21
Section 4.9 Accounting Matters........................................... 21
Section 4.10 Tax Matters.................................................. 21
Section 4.11 Disclosure................................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
Article V COVENANTS RELATING TO CONDUCT OF BUSINESS................... 22
Section 5.1 Conduct of Business by the Company.......................... 22
Section 5.2 Conduct of Business by Parent............................... 24
Section 5.3 No Solicitation of Transactions............................. 25
Article VI ADDITIONAL AGREEMENTS....................................... 26
Preparation of Form S-4 and the Proxy Statement;
Section 6.1 Stockholders' Meeting....................................... 26
Section 6.2 Information Supplied by the Company......................... 27
Section 6.3 Information Supplied by Parent.............................. 27
Section 6.4 Letters of the Company's Accountants........................ 28
Section 6.5 Letters of Parent's Accountants............................. 28
Section 6.6 Access to Information....................................... 28
Section 6.7 Confidentiality............................................. 28
Section 6.8 Public Announcements........................................ 28
Section 6.9 Appropriate Action; Consents; Filings....................... 29
Section 6.10 Directors' and Officers' Indemnification and Insurance...... 30
Section 6.11 Obligations of Sub.......................................... 31
Section 6.12 Pooling Affiliates.......................................... 31
Section 6.13 NYSE Listing................................................ 32
Section 6.14 Employee Benefits........................................... 32
Section 6.15 Company Put Conversion...................................... 33
Section 6.16 Minority Interests.......................................... 33
Section 6.17 Surgical Care Affiliates, Inc............................... 34
Section 6.18 Preparation of Tax Returns.................................. 34
Article VII CONDITIONS TO THE MERGER.................................... 34
Section 7.1 Conditions of Each Party's Obligation to Effect the Merger.. 34
Section 7.2 Conditions of Obligations of Parent and Sub................. 35
Section 7.3 Conditions of Obligation of the Company..................... 36
Article VIII TERMINATION, AMENDMENT AND WAIVER........................... 37
Section 8.1 Termination................................................. 37
Section 8.2 Effect of Termination....................................... 39
Section 8.3 Remedies and Dispute Resolution............................. 39
Article IX GENERAL PROVISIONS.......................................... 39
Section 9.1 Nonsurvival of Representations and Warranties............... 39
Section 9.2 Notices..................................................... 40
Section 9.3 Definitions................................................. 40
Section 9.4 Amendment................................................... 42
Section 9.5 Waiver...................................................... 42
Section 9.6 Entire Agreement............................................ 42
Section 9.7 Severability................................................ 42
Section 9.8 Successors and Assigns...................................... 43
Section 9.9 Parties in Interest......................................... 43
Section 9.10 Governing Law............................................... 43
Section 9.11 Counterparts; Effectiveness................................. 43
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated February 1, 1996, ("Agreement Date") by
and among United Healthcare Corporation, a Minnesota corporation ("Parent"),
UHC Black Acquisition, Inc., a Delaware corporation and wholly owned
subsidiary of Parent ("Sub"), and Healthwise of America, Inc., a Delaware
corporation (the "Company").
Whereas, the respective boards of directors of the Company, Parent and Sub
have determined that it is in the best interests of Company, Parent and Sub
and their respective shareholders or stockholders, as appropriate, to
consummate the merger of Sub and the Company (the "Merger") upon the terms and
subject to the conditions of this Agreement;
Whereas, as a result of the Merger, all of the outstanding common stock,
$.25 par value, of the Company ("Company Common Stock"), will be converted
into the right to receive common stock, $.01 par value, of Parent ("Parent
Common Stock");
Whereas, Parent, Sub, and the Company desire to make certain
representations, warranties, covenants, and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
Whereas, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests."
Now, Therefore, in consideration of the representations, warranties,
covenants, and agreements, the parties agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time, Sub shall be merged with and
into the Company in accordance with the General Corporation Law of the State
of Delaware ("Delaware Law"), whereupon the separate existence of Sub shall
cease, and the Company shall continue as the surviving corporation (the
"Surviving Corporation").
Section 1.2 Certificate of Merger; Effective Time. As soon as practicable
after satisfaction or, to the extent permitted hereunder, waiver of all
conditions to the Merger set forth in Article VII, the parties shall cause the
Merger to be consummated by filing a certificate of merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware and make all
other filings or recordings required by Delaware Law in connection with the
Merger and the transactions contemplated by this Agreement. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware or at such later time as may
be agreed by the parties in writing and specified in the Certificate of Merger
(the "Effective Time").
Section 1.3 Effect of Merger. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers, and
franchises and be subject to all of the restrictions, disabilities, and duties
of the Company and Sub, all as provided under Delaware Law.
Section 1.4 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be
no later than the second business day after satisfaction or waiver of the
conditions set forth in Article VII (the "Closing Date"), at a time and place
and by a method as mutually agreed to by the parties.
A-1
<PAGE>
Section 1.5 Certificate of Incorporation; By-laws. At the Effective Time,
the certificate of incorporation and by-laws of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation and by-laws of the Surviving Corporation.
Section 1.6 Directors and Officers. The directors and officers of Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation.
ARTICLE II
Conversion of Securities; Exchange of Certificates
Section 2.1 Conversion of Securities. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub:
(a) each share of Company Common Stock (all issued and outstanding shares
of Company Common Stock being hereinafter collectively referred to as the
"Shares") issued and outstanding immediately prior to the Effective Time
(other than any Shares to be canceled pursuant to Section 2.1(b)) shall be
converted, subject to Section 2.4(e), into the right to receive 0.6475
shares (the "Exchange Ratio") of Parent Common Stock (such shares of Parent
Common Stock being hereinafter referred to as the "Merger Consideration").
(b) each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time and owned by Parent, Sub or the Company or any
direct or indirect subsidiary of Parent, Sub or the Company shall be
canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto; and
(c) each share of common stock, $.01 par value per share, of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective
Time shall be converted into one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
Section 2.2 Rights of Holders of Company Common Stock. On and after the
Effective Time and until surrendered for exchange, each outstanding stock
certificate which immediately prior to the Effective Time represented shares
of Company Common Stock shall be deemed for all purposes, except as provided
in Section 2.4(e), to evidence ownership of and to represent the right to
receive the number of whole shares of Parent Common Stock into which such
shares of Company Common Stock shall have been converted. The record holder of
such outstanding certificate shall, after the Effective Time, be entitled to
vote the shares of Parent Common Stock into which such shares of Company
Common Stock shall have been converted on any matters on which the holders of
record of Parent Common Stock, as of any date subsequent to the Effective
Time, shall be entitled to vote. In any matters relating to such certificates,
Parent may rely conclusively upon the record of stockholders maintained by the
Company containing the names and addresses of the holders of record of Company
Common Stock at the Effective Time.
Section 2.3 Adjustments to Exchange Ratio. The Exchange Ratio set forth in
Section 2.1 shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Company Common Stock or Parent Common Stock),
reorganization, recapitalization or other like change with respect to Company
Common Stock or Parent Common Stock occurring after the Agreement Date and
prior to the Effective Time.
Section 2.4 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall deposit with
Norwest Bank Minnesota, National Association or such other bank or trust
company as may be designated by Parent and as is reasonably acceptable to the
Company (the "Exchange Agent") certificates representing the shares of Parent
Common Stock issuable pursuant to Section 2.1 (such shares of Parent Common
Stock, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund"). The Exchange Agent
shall hold the
A-2
<PAGE>
Exchange Fund for the benefit of holders of Shares. The Exchange Agent shall
distribute the Exchange Fund pursuant to Section 2.1 in exchange for
outstanding Shares. Except as contemplated by Section 2.4(f), the Exchange
Fund shall not be used for any other purpose. Parent shall make available to
the Exchange Agent from time to time as needed, cash sufficient to pay cash in
lieu of fractional shares pursuant to Section 2.4(e).
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, Parent shall cause 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 (the "Certificates") whose Shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 2.1(a) a letter of transmittal in customary form. The letter of
transmittal shall specify that delivery of Certificates shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent. The Exchange Agent shall accompany the
letter of transmittal with instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, and such other
documents as the Exchange Agent may reasonably require, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock (rounded down
to the nearest whole share) which such holder has the right to receive
pursuant to the provisions of this Article II (after taking into account all
the Shares then held by such holder under all such Certificates so
surrendered), cash in lieu of fractional shares of Parent Common Stock to
which such holder is entitled pursuant to Section 2.4(e), and any dividends or
other distributions to which such holder is entitled pursuant to section
2.4(c). The Exchange Agent shall forthwith cancel the Certificates so
surrendered. If there is a transfer of Share ownership which is not registered
in the transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock may be issued to a person other than
the person in whose name the Certificate so surrendered is registered, if,
upon presentation to the Exchange Agent, such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
issuance of shares of Parent Common Stock to a person other than the
registered holder of such Certificate or establish to the reasonable
satisfaction of Parent that such tax has been paid or is not applicable.
Except as provided in Section 2.2, until surrendered as contemplated by this
Section 2.4(b), each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Certificate representing shares of Parent Common Stock, cash in lieu of any
fractional shares of Parent Common Stock as contemplated by this Section 2.4,
and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.4(c). No interest will be paid or will accrue on any
cash payable pursuant to Sections 2.4(c) or 2.4(e).
(c) Distributions with Respect to Unexchanged Shares. Parent will pay no
dividends and make no other distributions with respect to Parent Common Stock
with a record date after the Effective Time to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby, and Parent will make no cash payment in lieu of fractional shares to
any such holder pursuant to Section 2.4(e) until the holder of record of such
Certificate surrenders such Certificate. Following surrender of any such
Certificate, the Exchange Agent, on behalf of the Parent, shall pay to the
record holder of the Certificate representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Parent Common Stock to which such holder is entitled pursuant to Section
2.4(e) 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
Parent Common Stock 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 such surrender and a payment date subsequent to such surrender
payable with respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of Shares in
accordance with the terms hereof (including any cash paid pursuant to Section
2.4(c) or 2.4(e)) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such Shares.
A-3
<PAGE>
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of Parent
Common Stock shall 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 rights of a shareholder of Parent.
(ii) Notwithstanding any other provision of this Agreement, each holder
of Shares exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Parent Common Stock (after
taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of Parent Common Stock multiplied by the
closing price of Parent Common Stock on the Closing Date.
(f) Termination of Exchange Fund. The Exchange Agent shall deliver any
portion of the Exchange Fund that remains undistributed to the holders of the
Certificates for two years after the Effective Time to Parent, upon demand.
Any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to Parent for payment of their claim for
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock, and any dividends or distributions with respect to Parent Common Stock.
(g) No Liability. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Parent Common Stock
(or dividends or distributions with respect thereto) or cash in the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat, or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund in deposit accounts, as directed by Parent, on a
daily basis. The Exchange Agent shall pay any interest and other income
resulting from such investments to Parent.
(i) Lost Certificates. If any Certificate shall have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen, or destroyed, and, if required by the
Surviving Corporation, upon the delivery to the Exchange Agent of a bond in
such sum as the Surviving Corporation may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen, or destroyed
Certificate the shares of Parent Common Stock and any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Parent
Common Stock deliverable in respect thereof, pursuant to this Agreement.
Section 2.5 Stock Options.
(a) Each option to purchase shares of Company Common Stock (a "Company
Option") under (i) the Option Agreement, dated August 1, 1993, between SCA-
Kentucky Health Plan, Inc. (now HealthWise of America, Inc.) and Ken Melkus,
(ii) the HealthWise of America, Inc. 1993 Key Employee Incentive Stock Plan,
and (iii) the HealthWise of America, Inc. 1993 Non-Qualified Stock Option Plan
for Non-Employee Directors, outstanding on the Agreement Date shall remain
outstanding following the Effective Time.
(b) At the Effective Time, Parent shall assume each Company Option by virtue
of the Merger and without any further action on the part of the Company or the
holders thereof. Parent shall assume each such option in such manner that
Parent (i) is a corporation "assuming a stock option in a transaction to which
Section 424(a) applied" within the meaning of Section 424 of the Code or (ii)
to the extent that Section 424 of the Code does not apply to any such Company
Option, would be such a corporation were Section 424 of the Code applicable to
such Company Option.
(c) From and after the Effective Time, all references to the Company in the
Company Options and the related stock option agreements shall be deemed to
refer to Parent. After the Effective Time, each Company Option assumed by
Parent shall be exercisable upon the same terms and conditions as were in
effect under the Company Options and the related option agreements immediately
prior to the Effective Time, except that (i) each Company Option shall be
exercisable for that whole number of shares of Parent Common Stock (rounded
down to the nearest whole share) equal to the number of shares of Company
Common Stock subject to such Company
A-4
<PAGE>
Option immediately prior to the Effective Time multiplied by the Exchange
Ratio, and (ii) the option price per share of Parent Common Stock shall be an
amount equal to the option price per share of Company Common stock subject to
such Company Option in effect immediately prior to the Effective Time divided
by the Exchange Ratio (the option price per share, as so determined, being
rounded upward to the nearest full cent).
(d) The rights of Melkus Partners, Ltd., by assignment from Kenneth J.
Melkus under the Agreement, dated July 1, 1993, among Surgical Care
Affiliates, Inc., SCA-Kentucky Health Plan, Inc. ("KHP"), Chesapeake Health
Plan, Inc. ("Chesapeake") and Mr. Melkus, and the rights of Leon Kaplan and
Bernard J. Eckert under the Stockholders Agreement, dated February 3, 1993,
among Mr. Kaplan, Mr. Eckert, Chesapeake and KHP, as amended by the Letter
Agreement, dated February 14, 1995, (collectively, the "Company Puts"), to
require the Company to purchase certain securities shall remain the obligation
of the Company following the Effective Time; provided, however, that to the
extent that any of the Company Puts require the issuance of Company Common
Stock, Parent Common Stock shall be issued upon exercise of any such rights
after the Effective Time.
Section 2.6 Warrants.
(a) Each outstanding warrant to purchase shares of Company Common Stock (a
"Company Warrant") outstanding on the Agreement Date shall remain outstanding
following the Effective Time. To the extent permitted by the terms of the
Company Warrants, at the Effective Time, Parent shall assume each Company
Warrant, by virtue of the Merger and without any further action on the part of
the Company or the holders thereof.
(b) To the extent permitted by the terms of the Company Warrants, from and
after the Effective Time, all references to the Company in the Company
Warrants and the related warrant agreements shall be deemed to refer to
Parent. After the Effective Time, each Company Warrant assumed by Parent shall
be exercisable upon the same terms and conditions as were in effect under the
Company Warrants and the related warrant agreements immediately prior to the
Effective Time, except that, to the extent permitted by the terms of the
Company Warrants, (i) each Company Warrant shall be exercisable for that whole
number of shares of Parent Common Stock (to the nearest whole share) into
which the number of shares of Company Common Stock subject to such Company
Warrant immediately prior to the Effective Time would be converted under
Section 2.1, and (ii) the warrant price per share of Parent Common Stock shall
be an amount equal to the warrant price per share of Company Common stock
subject to such Company Warrant in effect immediately prior to the Effective
Time divided by the Exchange Ratio (the warrant price per share, as so
determined, being rounded upward to the nearest full cent).
Section 2.7 Notices to Option and Warrant Holders. As soon as practicable
after the Effective Time, Parent shall deliver to each holder of a Company
Option or Company Warrant, an appropriate notice setting forth such holder's
rights pursuant thereto. Parent shall notify such holders that the Company
Option or Company Warrant, as the case may be, shall continue in effect on the
same terms and conditions (including further anti-dilution provisions, and
subject to the adjustments required by Sections 2.5 and 2.6 after giving
effect to the Merger). Parent shall comply with the terms of each Company
Option or Company Warrant. Parent shall use reasonable efforts to ensure that
each Company Option and Company Warrant, to the extent it qualifies for
special tax treatment prior to the Effective Time (including, without
limitation, Section 422 of the Code), shall continue so to qualify after the
Effective Time. Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
pursuant to the terms set forth in Sections 2.5 and 2.6. After the Effective
Time (but in no event later than thirty days after the Effective Time), Parent
shall file Registration Statements on Form S-8 and S-3 with respect to the
shares of Parent Common Stock subject to Company Options, Company Puts, and
Company Warrants, and shall use its reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the current status
of the prospectuses contained therein) for so long as such options remain
outstanding.
A-5
<PAGE>
ARTICLE III
Representations and Warranties
of The Company
The Company represents and warrants to Parent and Sub that, except as set
forth in, and qualified by, the Company Disclosure Schedules attached to this
Agreement (which schedules identify exceptions by specific section reference):
Section 3.1 Corporate Existence and Power.
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. The Company has all
corporate power required to carry on its business as now conducted. The
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the character of the property it
owns or leases or the nature of its activities makes such qualification
necessary, except for those jurisdictions in which the failure to be so
qualified would not have a material adverse effect on the Company (a "Company
Material Adverse Effect"). For purposes of this Agreement, a "Company Material
Adverse Effect" means (i) a material adverse effect on the business, assets
(including intangible assets), liabilities, financial condition, or results of
operations of the Company and any of its subsidiaries, taken as a whole, or on
the ability of the Surviving Corporation following the Merger to continue the
business of the Company and any of its subsidiaries, taken as a whole,
substantially as currently conducted or proposed to be conducted, or (ii) a
material impairment in the ability of the Company to perform any of its
obligations under this Agreement or to consummate the Merger.
(b) The Company has delivered to Parent correct and complete copies of the
Company's certificate of incorporation and by-laws in effect as of the
Agreement Date.
Section 3.2 Subsidiaries.
(a) Schedule 3.2 lists each subsidiary of the Company, together with its
jurisdiction of incorporation or organization. All outstanding shares of
capital stock of each such subsidiary have been duly authorized and validly
issued and are fully paid and nonassessable. The Company owns all of such
shares, free and clear of pledges, claims, liens, charges, encumbrances, and
security interests of any nature whatsoever (each, a "Lien"). No options,
warrants, or other rights to acquire any securities of any type of any of such
subsidiaries are outstanding as of the Agreement Date.
(b) Except for the capital stock of its subsidiaries and except for
ownership interests set forth in Schedule 3.2, the Company does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture, or other entity.
Section 3.3 Corporate Authorization. The Company's execution, delivery, and
performance of this Agreement and its consummation of the transactions
contemplated hereby are within its corporate powers. Except for approval by
the affirmative vote of a majority of the holders of the outstanding Shares
required for the Merger, the Company has duly authorized the Merger. The
Company has duly and validly executed and delivered this Agreement. Assuming
this Agreement constitutes the valid and binding agreement of Parent and Sub,
this Agreement constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms.
Section 3.4 Governmental Authorization. Except as set forth on Schedule 3.4,
the Company's execution, delivery and performance of this Agreement and its
consummation of the Merger require no action by, or in respect of, or filing
with, any federal, state, local, or foreign governmental body, agency,
official, or authority (including courts, administrative agencies,
commissions, self-regulatory agencies, or authorities or other governmental
authority or instrumentality) (each, a "Governmental Entity") other than the
following: (a) filing the Certificate of Merger in accordance with Delaware
Law; (b) compliance with applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"); (c) compliance with
applicable
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requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder (the "Exchange Act"); (d) compliance
with the rules or regulations of Nasdaq; (e) compliance with the securities
laws of various states; (f) compliance with the applicable provisions of the
federal Health Maintenance Organization Act of 1973 and the rules and
regulation thereunder (the "Federal HMO Act"); (g) compliance with the
applicable provisions of Arkansas, Kentucky, Maryland, Tennessee and Virginia
laws regulating health maintenance organizations, and the rules and
regulations thereunder (collectively referred to as the "State HMO Acts" and,
collectively with the Federal HMO Act, the "HMO Acts"); (h) compliance with
applicable provisions of the Laws and the rules and regulations thereunder
relating to the regulation of Insurance Holding Company Systems in the States
of Arkansas, Kentucky, Maryland, and Tennessee (collectively referred to as
the "Insurance Holding Company Acts"); (i) compliance with the applicable
provisions of Title XVIII of the Social Security Act and the regulations
promulgated thereunder (the "Medicare Laws"); and (j) compliance with the
applicable provisions of Title XIX of the Social Security Act and the
regulations promulgated thereunder and the Arkansas, Kentucky, Maryland, and
Tennessee laws and regulations implementing the Medicaid Program (the
"Medicaid Laws").
Section 3.5 Non-Contravention. The Company's execution, delivery, and
performance of this Agreement does not, and its consummation of the
transactions contemplated hereby will not: (a) contravene or conflict with the
certificate of incorporation or by-laws of the Company; (b) assuming
compliance with the matters referred to in Section 3.4, contravene, conflict
with, or constitute a violation of any provision of any law, regulation,
judgment, injunction, order, or decree binding on or applicable to the
Company, other than such as would not, individually or in the aggregate, have
a Company Material Adverse Effect; (c) assuming compliance with the matters
set forth in Section 3.4 constitute a breach, violation, or a default under,
or give rise to a right of termination, cancellation, or acceleration of any
right or obligation of the Company or to a loss of any benefit to which the
Company is entitled under any provision of, any agreement, contract, or other
instrument binding upon the Company or any license, franchise, permit or other
similar authorization held by the Company, other than such as would not,
individually or in the aggregate, have a Company Material Adverse Effect; or
(d) result in the creation or imposition of any Lien on any asset of the
Company, other than such as would not, individually or in the aggregate, have
a Company Material Adverse Effect. Schedule 3.5 sets forth a complete, and
correct list of all consents, approvals, and authorizations the Company is
required to obtain from any non-Governmental Entity in connection with this
Agreement, the Merger, and the transactions contemplated hereby, other than
those with respect to which the failure of the Company to obtain such consent,
approval, or authorization, individually or in the aggregate, would not have a
Company Material Adverse Effect.
Section 3.6 Capitalization.
(a) The authorized capital stock of the Company consists of 25,000,000
shares of Company Common Stock and 1,000,000 shares of preferred stock, $.25
par value ("Company Preferred Stock" and together with Company Common Stock,
"Company Capital Stock"). As of the Agreement Date, 5,921,347 shares of
Company Common Stock are outstanding and no shares of Company Preferred Stock
are outstanding. As of the Agreement Date, Company Options to purchase an
aggregate of 1,147,194 shares of Company Common Stock are outstanding. The
Company has duly reserved for issuance pursuant thereto 1,575,000 shares of
Company Common Stock, and Company Warrants to purchase an aggregate of 48,300
shares of Company Common Stock are outstanding. All outstanding shares of
Company Capital Stock have been duly authorized and validly issued and are
fully paid and nonassessable. The Company issued all such shares in compliance
with all applicable federal and state securities laws. The Company Common
Stock is registered pursuant to Section 12(g) of the Exchange Act and has been
approved for listing on the Nasdaq.
(b) Except as set forth in this Section and except for changes since the
Agreement Date resulting from the exercise of the Company Options outstanding
on the Agreement Date, (i) no shares of Company Capital Stock or other voting
securities of the Company are outstanding, (ii) no securities of the Company
convertible into or exchangeable for shares of Company Capital Stock or other
voting securities of the Company are outstanding, and (iii) other than the
Company Puts, no options or other rights to acquire from the Company, and no
obligation of the Company to issue, any Company Capital Stock, voting
securities or securities convertible into or
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exchangeable for Company Capital Stock or other voting securities of the
Company are outstanding (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "Company Securities").
Section 3.7 SEC Documents. The Company has filed all required reports,
schedules, forms, statements, and other documents with the Securities and
Exchange Commission (the "SEC") since December 1, 1993 (together with
subsequent documents filed by the Company before the Agreement Date that
revise or supersede such earlier filed documents, the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied
as to form in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Company SEC Documents. As of
their respective dates none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the Company SEC Documents
complied as of their respective dates of filing with the SEC as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case
of unaudited statements, as permitted by Form 10-Q of the Exchange Act)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto), and fairly present the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the Company SEC Documents,
and except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice, the Company has no liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by generally accepted accounting principles to be set forth on a
consolidated balance sheet of the Company or in the notes thereto which,
individually or in the aggregate, would have a Company Material Adverse
Effect.
Section 3.8 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents, and except as expressly contemplated by this Agreement,
since the date of the most recent audited financial statements included in the
Company SEC Documents, the Company and each of its subsidiaries have conducted
their respective businesses only in the ordinary course, and neither the
Company nor any of its subsidiaries has experienced, agreed to, or effected,
as the case may be:
(a) any event, occurrence, or development of a state of circumstances or
facts which has had a Company Material Adverse Effect;
(b) any declaration, setting aside, or payment of any dividend or other
distribution with respect to any shares of capital stock, or any
repurchase, redemption, or other acquisition by the Company of any
outstanding shares of Company Capital Stock or other securities of, or
other ownership interests in, the Company or its subsidiaries;
(c) any split, combination, or reclassification of any capital stock or
any issuance or the authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of capital stock;
(d) any incurrence, assumption, or guarantee of any indebtedness for
borrowed money other than in the ordinary course of business and in amounts
and on terms consistent with past practices (including any such borrowings
under its existing bank credit facility);
(e) any change in any method of accounting or accounting practice by the
Company, except for any such change required by reason of a concurrent
change in generally accepted accounting principles;
(f) any (i) grant, except pursuant to agreements in effect on the
Agreement Date, of any material severance or termination pay to any
director, officer or employee of the Company, (ii) material employment,
deferred compensation, or other similar agreement (or any amendment to any
such existing agreement), (iii) material increase in benefits payable under
any existing severance or termination pay policies or
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employment agreements, or (iv) other than in the ordinary course of
business consistent with past practices, material increase in compensation,
bonus or other benefits payable to directors, officers or employees of the
Company; or
(g) any damage, destruction, or other casualty loss (if not covered by
collectible insurance) affecting the business assets of the Company which,
individually or in the aggregate, has had or would reasonably be expected
to have a Company Material Adverse Effect.
Section 3.9 Litigation. Except as disclosed in the Company SEC Documents,
there is no action, suit, investigation, or proceeding pending against or, to
the knowledge of the Company, overtly threatened against or affecting, the
Company or any of its properties (other than any such suit, action, or
proceeding challenging the acquisition by Parent or Sub of the Shares or any
provision of this Agreement or seeking to restrain or prohibit the
consummation of the Merger) before any Governmental Entity or by any
Governmental Entity that, individually or in the aggregate, would reasonably
be expected to have a Company Material Adverse Effect.
Section 3.10 Taxes. The Company, its subsidiaries and each affiliated,
consolidated, combined or unitary group of which the Company or any of its
subsidiaries is a member (an "Affiliated Group"), has filed all material tax
returns and reports required to be filed by it and has paid (or the Company
has paid on its behalf) all taxes required to be paid by it (other than taxes,
the failure to pay which would not, individually or in the aggregate, have a
Company Material Adverse Effect). All other Taxes of the Company which will be
due and payable, whether now or hereafter, for any period ending on,
including, or ending prior to 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 most recent financial
statements contained in the Company SEC Documents reflect an adequate reserve
for all material taxes payable by the Company and any of its subsidiaries for
all taxable periods and portions thereof through the date of such financial
statements. No deficiencies for any taxes have been proposed, asserted, or
assessed against the Company or any Affiliated Group (other than deficiencies,
the liability for which would not, individually or in the aggregate, have a
Company Material Adverse Effect). No requests for waivers of the time to
assess any taxes are pending. None of the assets or properties of the Company
or its subsidiaries is subject to any tax lien (other than liens for taxes
that are not yet due or that are being contested in good faith by appropriate
proceedings) except for liens which would not, individually or in the
aggregate, have a Company Material Adverse Effect. The Company is not, as of
the Agreement Date, under audit with respect to any taxable period for any
federal, state, local, or foreign taxes (including income and franchise taxes
but not including real or personal property taxes) by the Internal Revenue
Service or other applicable tax authority. As used in this Agreement, "taxes"
shall include all federal, state, local and foreign income, property, premium,
payroll, sales, excise, and other taxes, tariffs, or governmental charges of
any nature whatsoever, including any interest, penalties, or additions with
respect thereto, and "returns" shall include all returns, reports, information
returns, and information statements with respect to taxes required to be filed
by the Internal Revenue Service or any other tax authority.
Section 3.11 No Excess Parachute Payments. No amount that could be received
(whether in cash or property or the vesting of property) as a result of any of
the transactions contemplated by this Agreement by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Company Plan (as defined below) currently in
effect would be an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code.)
Section 3.12 Labor Matters. Neither the Company nor any of its subsidiaries
is a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Company or any of its
subsidiaries.
Section 3.13 Employee Benefit Plans.
(a) Section 3.13 of the Company Disclosure Schedule sets forth each employee
benefit plan with respect to which the Company or its ERISA Affiliates, as
hereinafter defined sponsors or otherwise has any obligation (the
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"Employee Benefit Plans"). For purposes of this Agreement "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.
(b) Except as otherwise disclosed in Section 3.13 of the Company Disclosure
Schedule:
(i) No Employee Benefit Plan is subject to Title IV of ERISA.
(ii) No Employee Benefit Plan promises or provides health or life
benefits to retirees or former employees except as required by federal
continuation of coverage laws or similar state laws.
(iii) Each Employee Benefit Plan has at all times been operated in
substantial compliance with ERISA, the Code, any other applicable law
(including all reporting and disclosure requirements thereunder) and the
terms of the plan. Each Employee Benefit Plan that is intended to be tax
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service stating that the
Plan (and all amendments) is tax qualified and that any trust associated
with the plan is tax exempt under Section 501(a) of the Code. To the
knowledge of the Company, there is no reason why such qualified status
would be revoked.
(iv) To the knowledge of the Company, no state of facts or conditions
exist which reasonably could be expected to subject the Company to any
material liability (other than routine claims for benefits) under the terms
of the Plan or applicable law.
(v) The Company has not committed to make any material increase in
contributions or benefits under any Employee Benefit Plan.
(vi) There are no material unfunded liabilities as of the Closing Date
associated with any Employee Benefit Plan. All contributions to each
Employee Benefit Plan that are required to be made with respect to periods
ending on or before the Closing Date (including periods from the first day
of the then current plan or policy year to the Closing Date) have been made
or accrued before the Closing Date.
(vii) With respect to each such Employee Benefit Plan, the Company has
delivered to Parent copies of the plan documents, plan amendments, summary
plan descriptions, the most recent tax qualified determination letters from
the IRS, the three most recent Form 5500 Annual Reports, including related
schedules and audited financials, and a list of assets associated with each
Employee Benefit Plan.
(viii) The benefits to be provided to participants under each Employee
Benefit Plan, other than a tax qualified plan under Code Section 401(a),
are to be provided exclusively from the general assets of the Company.
Section 3.14 Compliance with Laws. Except as disclosed in the Company SEC
Documents, neither the Company nor any of its subsidiaries (a) is in violation
of, nor has it violated, any applicable provisions of any laws, statutes,
ordinances or regulations or (b) has received any notice from any Governmental
Entity or any other person that the Company or any of its subsidiaries is in
violation of, or has violated, any applicable provisions of any laws,
statutes, ordinances or regulations, except in the case of clauses (a) and
(b), for violations, individually or in the aggregate, which have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
Each of the Company and each of its subsidiaries has all permits, licenses,
and franchises from Governmental Entities required to conduct its business as
now being conducted, except for such permits, licenses, and franchises the
absence of which would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 3.15 Brokers. No broker, investment banker, financial advisor, or
other person, other than Bear, Stearns & Co. Inc. ("Bear Stearns"), the fees
and expenses of which will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's, or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. The Company has provided
Parent with a correct and complete copy of the fee letter between the Company
and Bear Stearns.
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Section 3.16 Opinion of Financial Advisor. The Company has received the
opinion of Bear Stearns, dated the Agreement Date, to the effect that, as of
such date, the consideration to be received in the Merger by the Company's
stockholders (other than Parent and its affiliates) is fair to such
stockholders from a financial point of view, a signed copy of which opinion
has been delivered to Parent.
Section 3.17 Accounting Matters. Neither the Company nor, to its knowledge,
any of its affiliates, has taken or agreed to take any action that (without
regard to any action taken or agreed to be taken by Parent or any of its
affiliates) would prevent Parent from accounting for the business combination
to be effected by the Merger as a pooling of interests.
Section 3.18 Tax Matters. Neither the Company nor, to its knowledge, any of
its affiliates, has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken
by Parent or any of its affiliates) would prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
Section 3.19 Certain Business Matters. Neither the Company nor, to its
knowledge, any of its affiliates has (a) 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 applicable law, (b) established or
maintained any unrecorded fund or asset of the Company or any of its
subsidiaries for any improper purpose or made any false entries on its books
and records for any reason, (c) 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
applicable law, or (d) engaged in any activity constituting fraud or abuse
under applicable laws relating to health care, insurance or the regulation of
professional corporations.
Section 3.20 Certain Contract Matters.
(a) Section 3.20(a) of the Company Disclosure Schedule sets forth, as of the
Agreement Date, a list of each contract to which the Company, its
subsidiaries, or any of its affiliates (other than individuals) is a party
limiting the right of the Company prior to the Closing Date, or Parent or any
of its subsidiaries, or affiliates (other than individuals), at or after the
Closing Date, to engage in, or to compete with any person in, any business,
including each contract containing exclusivity provisions restricting the
geographical area in which, or the method by which, any business may be
conducted by the Company, its subsidiaries, or any of its affiliates (other
than individuals) prior to the Closing Date, or by the Parent, its
subsidiaries, or affiliates (other than individuals) after the Closing Date.
(b) The Company and its subsidiaries have acted in full compliance with all
laws and regulations applicable to the contracts held by the Company or its
subsidiaries with, or covering beneficiaries of, the federal Medicare Program,
the federal and state Medicaid programs, the Federal Employees Health Benefit
Plan or the employees of any state or local government. To the Company's
knowledge, no circumstances exist which would allow the government customer
under such contracts to require or request the repayment or reduction, as the
case may be, of any payments made to, accrued by, or to be made to the Company
or its subsidiaries under such contracts.
(c) Each contract listed on Section 3.20(a) of the Company Disclosure
Schedule or described in Section 3.20(b) is in full force and effect, each is
a legal, valid and binding contract, and there is no material default (or any
event which, with the giving of notice or lapse of time or both, would be a
material default) by the Company or any of its subsidiaries, in the timely
performance of any material obligation to be performed or paid under any such
contract.
Section 3.21 Disclosure. No representation or warranty contained in this
Agreement, in the Company Disclosure Schedule, or in any document delivered by
the Company to Parent 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 they
were or will be made, not misleading.
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ARTICLE IV
Representations and Warranties
of Parent and Sub
Parent and Sub represent and warrant to the Company that, except as set
forth in, and qualified by, the Parent Disclosure Schedules attached to this
Agreement (which schedules identify exceptions by specific section reference):
Section 4.1 Corporate Existence and Power.
(a) Each of Parent and Sub is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of Parent and Sub has all corporate powers required to
carry on its business as now conducted. Each of Parent and Sub is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the character of their respective property or the
nature of their respective activities makes such qualification necessary,
except for those jurisdictions in which the failure to be so qualified would
not have a material adverse effect on the Parent or any of its subsidiaries (a
"Parent Material Adverse Effect"). For purposes of this Agreement, a "Parent
Material Adverse Effect" means (i) a material adverse effect on the business,
assets (including intangible assets), liabilities, financial condition or
results of operations of the Parent and any of its subsidiaries, taken as a
whole, or (ii) a material impairment in the ability of Parent and any of its
subsidiaries to perform any of their respective obligations under this
Agreement or to consummate the Merger.
(b) Parent and Sub have heretofore made available to the Company correct and
complete copies of the certificate of incorporation and by-laws of Parent and
Sub as currently in effect.
Section 4.2 Corporate Authorization. Parent's and Sub's execution, delivery
and performance of this Agreement and their consummation of the transactions
contemplated hereby are within their respective corporate powers. Parent and
Sub each has duly authorized the Merger. Parent and Sub each has duly and
validly executed and delivered this Agreement. This Agreement constitutes a
valid and binding agreement of each of Parent and Sub and is enforceable in
accordance with its terms. Parent has taken all actions as may be necessary,
in its capacity as sole stockholder of Sub, to authorize the Merger.
Section 4.3 Governmental Authorization. Parent's and Sub's execution,
delivery, and performance of this Agreement and their consummation of the
transactions contemplated hereby require no action by, or in respect of, or
filing with, any federal, state, local, or foreign Governmental Entity other
than the following: (a) the filing of the Certificate of Merger in accordance
with Delaware Law; (b) compliance with applicable requirements of the HSR Act;
(c) compliance with applicable requirements of the Securities Act of 1933, as
amended; (d) compliance with the rules or regulations of the New York Stock
Exchange (the "NYSE"); (e) compliance with the securities laws of various
states; (f) compliance with applicable requirements of the HMO Acts; (g)
compliance with any applicable requirements of the Insurance Holding Company
Acts; (h) compliance with any applicable provisions of the Medicare Laws; and
(i) compliance with any applicable provisions of Medicaid Laws.
Section 4.4 Non-Contravention. Parent's and Sub's execution, delivery and
performance of this Agreement do not, and Parent's and Sub's consummation of
the transactions contemplated hereby will not: (a) contravene or conflict with
the articles or certificate of incorporation or by-laws of Parent and Sub; (b)
assuming compliance with the matters referred to in Section 4.3, contravene or
conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order, or decree binding upon or applicable
to Parent and Sub, other than such as would not, individually or in the
aggregate, have a Parent Material Adverse Effect; (c) constitute a breach or
violation of, or a default under or give rise to a right of termination,
cancellation, or acceleration of any right or obligation of Parent or Sub or
to a loss of any benefit to which Parent or Sub is entitled under any
provision of, any agreement, contract, or other instrument binding upon Parent
or Sub or any license, franchise, permit, or other similar authorization held
by Parent or Sub, other than such as would not, individually or in the
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aggregate, have a Parent Material Adverse Effect; or (d) result in the
creation or imposition of any Lien on any asset of Parent or Sub, other than
such as would not, individually or in the aggregate, have a Parent Material
Adverse Effect. Schedule 4.4 sets forth a correct and complete list of all
consents, approvals, and authorizations required to be obtained by Parent and
Sub from any non-Governmental Entity in connection with this Agreement, the
Merger and the transactions contemplated hereby, other than those with respect
to which the failure of Parent and Sub to obtain such consent, approval or
authorization, individually or in the aggregate, would not have a Parent
Material Adverse Effect.
Section 4.5 Capitalization.
(a) The capital stock of Parent consists of Parent Common Stock and Parent
preferred stock ("Parent Preferred Stock" and together with Parent Common
Stock, "Parent Capital Stock"). The Parent SEC Documents set forth Parent's
capitalization in all material respects. All outstanding shares of Parent
Capital Stock have been duly authorized and validly issued and are fully paid
and nonassessable. Parent issued all such shares in compliance with applicable
federal and state securities laws. Parent Common Stock is registered pursuant
to Section 12(b) of the Exchange Act and has been approved for listing on the
NYSE.
(b) Parent owns, beneficially and of record, all issued and outstanding
shares of common stock of Sub, which shares are validly issued, fully paid,
and non-assessable, and free and clear of all liens.
(c) Except as set forth in this Section and except for changes since the
Agreement Date resulting from the exercise of employee and director options
outstanding on the Agreement Date, (i) no shares of Parent Capital Stock or
other voting securities of Parent are outstanding, (ii) no securities of
Parent convertible into or exchangeable for shares of capital stock or voting
securities of Parent are outstanding, and (iii) no options or other rights to
acquire from Parent, and no obligation of Parent to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent are outstanding (the items in clauses
(i), (ii), and (iii) being referred to collectively as the "Parent
Securities"). No obligations of Parent to repurchase, redeem, or otherwise
acquire any Parent Securities are outstanding.
Section 4.6 SEC Documents. Parent has filed all required reports, schedules,
forms, statements, and other documents with the SEC since December 31, 1993
(together with later filed documents that revise or supersede earlier filed
documents, the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied as to form in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
such Parent SEC Documents. None of the Parent SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the Parent SEC
Documents complied as of their respective dates of filing with the SEC as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except,
in the case of unaudited statements, as permitted by Form 10-Q of the Exchange
Act) applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto), and fairly present the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Parent SEC
Documents, and except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice, neither Parent nor any of
its subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of
Parent and its consolidated subsidiaries or in the notes thereto which,
individually or in the aggregate, would have a Parent Material Adverse Effect.
Section 4.7 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Documents, since the date of the most recent audited financial
statements included in such documents, Parent has conducted
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its business only in the ordinary course, giving effect to Parent's ongoing
acquisition and divestiture program, and Parent has not experienced, agreed
to, or effected, as the case may be, any event, occurrence, or development of
a state of circumstances or facts which has had a Parent Material Adverse
Effect.
Section 4.8 Brokers. Except for Goldman, Sachs & Co., no broker, investment
banker, financial advisor or other person is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent and Sub.
Section 4.9 Accounting Matters. Neither Parent nor Sub nor, to Parent's
knowledge, any of Parent's affiliates, has taken or agreed to take any action
that (without regard to any action taken or agreed to be taken by the Company
or any of its affiliates) would prevent Parent from accounting for the
business combination to be effected by the Merger as a pooling of interests.
Section 4.10 Tax Matters. Neither Parent nor Sub nor, to its knowledge, any
of Parent's affiliates, has taken or agreed to take any action, or knows of
any circumstances, that (without regard to any action taken or agreed to be
taken by the Company or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
Section 4.11 Disclosure. No representation or warranty contained in this
Agreement, in the Parent Disclosure Schedule, or in any document delivered by
Parent 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 they
were or will be made, not misleading.
ARTICLE V
Covenants Relating to Conduct of Business
Section 5.1 Conduct of Business by the Company. Except as contemplated by
this Agreement or set forth on Schedule 5.1, from the Agreement Date until the
Effective Time, each of the Company and each of its subsidiaries shall conduct
its business in the ordinary course consistent with past practice and shall
use reasonable efforts to preserve intact its business organization and
relationships with third parties and to keep available the services of its
present officers and employees. Without limiting the generality of the
foregoing, except as provided in this Agreement or set forth on Schedule 5.1,
from the Agreement Date until the Effective Time, neither the Company nor any
of its subsidiaries, without the prior written approval of Parent, will:
(a) amend its certificate of incorporation, by-laws, or other comparable
charter of organizational documents;
(b) (i) declare or pay any dividends on, or make any other distributions
(whether in cash, stock or property) in respect of, any of their capital
stock, (ii) split, combine, or reclassify any of their capital stock, or
issue or authorize the issuance of any other securities in respect of
shares of their capital stock, or (iii) purchase, redeem, or otherwise
acquire any shares of capital stock or any other securities or any rights,
warrants, or options to acquire any such shares or other securities;
(c) issue, pledge, or otherwise encumber any shares of their capital
stock, any other voting securities, or any securities convertible into, any
such shares, voting securities, or convertible securities (other than the
issuance of shares of Company Common Stock upon the exercise of a Company
Option, the Company Warrants, or the Company Puts in accordance with their
present terms);
(d) acquire or agree to acquire by merger, consolidation, asset purchase,
or any other manner, (i) any corporation, partnership, joint venture,
association or other business organization, or any division thereof or (ii)
any assets that are material, individually or in the aggregate, to the
Company, except purchases of inventory in the ordinary course of business
consistent with past practice;
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(e) sell, lease, license, mortgage, subject to any Lien, or otherwise
dispose of any of its assets, except sales of inventory in the ordinary
course of business consistent with past practice;
(f) (i) incur any indebtedness, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or a
subsidiary, guarantee any debt or debt security of another person, enter
into any keep well or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice,
or (ii) make any loans, advances, or capital contributions to, or
investments in, any other person, other than (A) to the Company or (B)
advances to employees consistent with past practice;
(g) make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $100,000 or, in the aggregate, are in
excess of $500,000;
(h) make any tax election or settle or compromise any tax liability, or
make any change in any method of accounting for taxes or accounting policy
or practice with respect to taxes;
(i) pay, discharge, settle, or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement, or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or the notes thereto) of the Company included in the Company SEC Documents
or incurred in the ordinary course of business consistent with past
practice, or waive any material benefits of, or agree to modify in any
material respect, any confidentiality, standstill or similar agreements to
which the Company or a subsidiary is a party;
(j) except in the ordinary course of business, modify, amend, or
terminate any material contract or agreement to which the Company is a
party or waive, release, or assign any material rights or claims;
(k) enter into any agreement which if entered into prior to the Agreement
Date would have been required to be listed on Section 3.20(a) of the
Company Disclosure Schedule or which is covered by Section 3.20(b) or amend
or modify any agreement listed on 3.20(a) or covered by Section 3.20(b);
(l) except as required by applicable law or in the ordinary course of
business, (i) adopt, enter into, terminate, or amend any bonus, profit
sharing, thrift, compensation, stock option, stock purchase, restricted
stock, pension, retirement, or deferred compensation or other plan, trust
arrangement or fund for the benefit or welfare of any director, officer or
current or former employee (each, a Benefit Plan), (ii) increase in any
manner the compensation or fringe benefits of, or pay any bonus to, any
director or employee (except for normal increases or bonuses in the
ordinary course of business consistent with past practice), (iii) pay any
benefit not provided for under any Benefit Plan, (iv) except as permitted
in clause (ii), grant any awards, or remove any existing restrictions,
under any bonus, incentive, performance or other compensation plan or
arrangement or Benefit Plan, or (v) take any action to fund or in any other
way secure the payment of compensation or benefits under any employee plan,
agreement, or arrangement or Benefit Plan;
(m) make any change in any method of accounting or accounting practice or
policy other than those required by generally accepted accounting
principles;
(n) take any action that (without regard to any action taken or agreed to
be taken by Parent or any of its affiliates) would prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling of interests;
(o) take any action that (without regard to any action taken or agreed to
be taken by Parent or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Sections 368(a) of the
Code;
(p) authorize any of, or commit or agree to take any of, the foregoing
actions; or
(q) enter into any employment agreement, after the Agreement Date, with
any person who is an officer, or who would become an officer under such
agreement.
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Section 5.2 Conduct of Business by Parent. Except as provided in this
Agreement, from the Agreement Date until the Effective Time, neither Parent
nor any of its subsidiaries, without the prior written approval of the
Company, will:
(a) take any action that (without regard to any action taken or agreed to
be taken by Parent or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Sections 368(a) of the
Code;
(b) take any action that (without regard to any action taken or agreed to
be taken by the Company or any of its affiliates) would prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling of interests; or
(c) authorize either of, or commit or agree to take either of, the
foregoing actions.
Section 5.3 No Solicitation of Transactions. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Parent,
from the Agreement Date until the Effective Time, the Company shall not
participate in any discussions with, provide any information to, enter into
any agreement or understanding with, or otherwise cooperate in any other way
with any person (other than Parent and its directors, officers, employees,
representatives, and agents) concerning any "Competing Transaction", or permit
or authorize any of the directors, officers, employees, shareholders or
representatives (including, without limitation, any financial advisor,
attorney, or accountant) of the Company or any of its subsidiaries to take any
such action. The Company shall promptly notify Parent when it receives, or
becomes aware that any subsidiary or any director, officer, employee, or
representative of the Company or any subsidiary has received any inquiries,
proposals, or requests for information concerning a Competing Transaction.
For purposes of this Agreement, "Competing Transaction" shall mean any of
the following involving the Company (other than the transactions
contemplated by this Agreement): (a) any sale of stock, merger,
consolidation, share exchange, business combination, or other similar
transaction (including any tender offer or exchange offer); (b) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition of 20% or
more of the assets of the Company on a consolidated basis, 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;
Nothing contained in this Agreement, including this Section 5.3, shall
prohibit the Company's board of directors, directly or indirectly, (a) from
furnishing information to, or participating in limited discussions solely for
the purpose of clarifying or understanding an unsolicited, bona fide, written
offer for a Competing Transaction with the person making such offer and
negotiating with, any corporation, partnership, person or other entity or
group concerning any unsolicited proposal to enter into a Competing
Transaction, so long as (i) the board of directors of the Company in its good
faith judgment believes that the expression of interest is made in good faith,
(ii) such written offer indicates that it will provide superior value to the
terms herein contemplated and the offer contains no material contingencies as
to financing or other terms, (iii) the Company's board of directors determines
in its good faith judgment in the exercise of its fiduciary duties, after
consultations with independent legal counsel (reasonably satisfactory written
evidence of which consultations is made available to Parent), that such action
is required in light of its fiduciary duties to the Company's stockholders
under applicable law, (iv) prior to engaging in such discussions, the Company
provides Parent with written notice of such discussions, (v) the Company keeps
Parent informed, on a current basis, of the occurrence of any such
discussions, and (vi) the Company promptly delivers to Parent a written
summary of all such discussions, (b) having received such an unsolicited,
offer meeting all of the foregoing requirements, from failing to make or from
withdrawing its recommendation of approval of this Agreement and the Merger if
the Company's board of directors determines it is required to take such action
in the exercise of its fiduciary duties to the Company's stockholders under
applicable law (after consultations with independent legal counsel, reasonably
satisfactory written evidence of which consultations is made available to
Parent), or (c) from complying with Rule 14e-2 promulgated under the Exchange
Act; provided that in no event shall the Company's board of directors furnish
information to a party making a competing bid before entering into a
confidentiality agreement containing terms no less favorable to Company than
those agreed to by Parent in connection herewith and otherwise reasonably
agreed upon by the Parent.
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ARTICLE VI
Additional Agreements
Section 6.1 Preparation of Form S-4 and the Proxy Statement; Stockholders'
Meeting.
(a) As soon as practicable following the Agreement Date, (i) the Company and
Parent shall prepare and file with the SEC a proxy statement (the "Proxy
Statement") relating to the approval by the holders of Company Capital Stock
of this Agreement and the Merger and (ii) Parent shall prepare and file with
the SEC a registration statement on Form S-4 (the "Form S-4") for the purpose
of registering the shares of Parent Common Stock to be issued in the Merger
under the Securities Act, which Form S-4 shall include the Proxy Statement as
a prospectus. Each of the Company and Parent shall use reasonable efforts to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing and to maintain such effectiveness until the
shares covered thereby have been issued. Parent shall provide the Company with
copies of all filings made pursuant to this Section 6.1 and shall consult with
the Company on any responses to comments made by the staff of the SEC with
respect thereto. The Company will use reasonable efforts to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Parent shall, at its expense, also take any action required to be taken under
any applicable state securities laws in connection with the issuance of Parent
Common Stock in the Merger and under the Company Options.
(b) The Company will establish a record date for (which date shall be
reasonably acceptable to Parent), duly call, give notice of, convene, and hold
a meeting of its stockholders (the "Stockholders' Meeting") for the purpose of
approving this Agreement; provided, however, that the Company may postpone or
adjourn any Stockholders' Meeting to a date no later than September 30, 1996,
in order to facilitate the satisfaction of the condition set forth in Section
7.1(a). The Company will, through its board of directors, recommend to its
stockholders approval of this Agreement, except to the extent that the board
of directors of the Company shall have withdrawn or modified its approval or
recommendation of this Agreement or the Merger as permitted by Section 5.3.
Section 6.2 Information Supplied by the Company. None of the information
supplied or to be supplied by the Company specifically for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time the Form S-4
is filed with the SEC, at any time it is amended or supplemented and, at the
time it becomes effective under the Securities Act and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading, and (ii) the Proxy Statement will, at the date it is first mailed
to the Company's stockholders and at the time of the Stockholders' 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 light of the circumstances under which they are made,
not misleading. If at any time prior to the Effective Time any event or
circumstance relating to the Company, or its officers or directors, should be
discovered by the Company which should be set forth in an amendment to the
Form S-4 or a supplement to the Proxy Statement, the Company shall promptly
inform Parent. All documents, if any, that the Company 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 Exchange Act and the rules and regulations
thereunder.
Section 6.3 Information Supplied by Parent. None of the information supplied
or to be supplied by Parent specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented, at the time it becomes
effective under the Securities Act and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading, and (ii)
the Proxy Statement will, at the date it is first mailed to the
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Company's stockholders and at the time of the Stockholders' 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 light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event or
circumstance relating to Parent or its officers and directors, should be
discovered by Parent which should be set forth in an amendment to the Form S-4
or a supplement to the Proxy Statement, Parent shall promptly inform the
Company and shall promptly prepare such supplement or amendment and file such
amendment to the Form S-4. All documents that Parent 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 rules and regulations thereunder.
Prior to the Closing Date, Parent shall use reasonable efforts to cause the
shares of Parent Common Stock to be issued pursuant to the Merger to be
registered or qualified under all applicable securities or blue sky laws of
each of the states and territories of the United States, and to take any other
actions which may be necessary to enable the Parent Common Stock to be issued
pursuant to the Merger to be distributed in each such jurisdiction.
Section 6.4 Letters of the Company's Accountants. The Company shall use
reasonable efforts to cause to be delivered to Parent opinion letters from
Deloitte & Touche LLP, addressed to Parent and the Company, on or prior to the
Agreement Date, stating that after appropriate review of the Merger Agreement
and based on its familiarity with the Company, the Company will qualify as a
party to a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations.
Section 6.5 Letters of Parent's Accountants. Parent shall use reasonable
efforts to cause to be received by it opinion letters from Arthur Andersen
LLP, addressed to Parent and the Company, on or prior to the Agreement Date,
stating that the Merger will qualify as a pooling of interests transaction
under Opinion 16 of the Accounting Principles Board and applicable SEC rules
and regulations.
Section 6.6 Access to Information. Subject to Section 6.7, from the
Agreement Date to the Effective Time, Parent and the Company shall each
provide to the other access to all information and documents which the other
may reasonably request regarding the business, assets, liabilities, employees
and other aspects of the other party, other than the information and documents
that in the opinion of such other party's legal counsel may not be disclosed
under applicable law.
Section 6.7 Confidentiality. The parties will, and will cause their
respective officers, employees, accountants, consultants, legal counsel, and
other representatives to, comply with all of their respective obligations
under the confidentiality agreement between Parent and the Company, dated
February 23, 1995 (the "Confidentiality Agreement").
Section 6.8 Public Announcements. Each of Parent and the Company will
consult with the other party before issuing any press release or making any
public statement with respect to this Agreement and the transactions
contemplated hereby and, except as may be required by applicable law or any
listing agreement with any national securities exchange, will not issue any
such press release or make any such public statement prior to such
consultation. The parties have agreed on the text of a joint press release by
which Parent and the Company will announce the execution of this Agreement.
Section 6.9 Appropriate Action; Consents; Filings.
(a) The Company and Parent shall use reasonable efforts to (i) take, or
cause to be taken, all appropriate action necessary under applicable law or
required to be taken by any Governmental Entity to consummate the Merger and
the transactions contemplated by this Agreement as promptly as practicable,
(ii) obtain from any Governmental Entities any licenses, waivers, or approvals
required to be obtained by the Company or Parent or any of their respective
subsidiaries in connection with the authorization, execution, and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
(iii) give any notices to non-Governmental Entities and obtain any third party
consents, (A) necessary to consummate the Merger and the transactions
contemplated by this Agreement, (B) disclosed or required to be disclosed in
the schedules to this Agreement, or (C) required to prevent a Company Material
Adverse Effect or a Parent Material Adverse Effect,
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and (iv) as promptly as practicable, make all necessary filings, and
thereafter make any other required submissions, with respect to this Agreement
and the Merger required under (A) the Securities Act, the Exchange Act, and
any other applicable federal or state securities laws, (B) the HSR Act and any
related governmental request thereunder, and (C) any other applicable law;
provided that Parent 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. In the event that either Parent or the
Company shall fail to perform any action listed in (i), (ii), (iii), or (iv)
above, it shall use reasonable efforts, and shall take any such actions
reasonably requested by the other party, to minimize any adverse effect upon
the Company and Parent, their respective subsidiaries and their respective
businesses resulting, or which could reasonably be expected to result after
the Effective Time, from the failure to perform such action. The Company and
Parent shall use reasonable efforts to 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 (including all information required to
be included in the Form S-4 and the Proxy Statement) in connection with the
transactions contemplated by this Agreement.
(b) Except as otherwise permitted by this Agreement, none of the Company,
Parent or Sub will knowingly take any action, or omit to take any action, if
such action or omission would, or would reasonably be expected to, result in
any of its representations or warranties set forth herein being or becoming
untrue, or in any of the conditions to the Merger set forth in this Agreement
not being satisfied.
(c) From the Agreement Date until the Effective Time, each of Parent, and
the Company shall promptly notify the other of any pending or 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 Parent Common Stock
pursuant to the Merger or (ii) seeking to restrain or prohibit the
consummation of the Merger or otherwise limit the right of Parent or any of
its subsidiaries to own or operate all or any portion of the businesses or
assets of the Company.
Section 6.10 Directors' and Officers' Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall, and shall cause the
Company to, jointly and severally, indemnify, defend and hold harmless the
present and former officers and directors of the Company and persons who
become officers or directors prior to the Effective Time (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 approval of Parent (which approval shall not be
unreasonably withheld) arising out of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) to the full extent permitted or required as of
the Agreement Date by the Company's certificate of incorporation and by-laws
(and shall also advance expenses as incurred to the fullest extent permitted
under the Company's certificate of incorporation and by-laws, provided that
the person to whom expenses are advanced provides the undertaking to repay
such advances if and as contemplated by applicable law or such certificate of
incorporation and by-laws). The Company shall use reasonable efforts to obtain
extended reporting endorsements (tail coverage) on the fiduciary liability,
professional liability (including medical malpractice and hospital
professional liability), and directors and officers liability policies
currently covering the Company or any of the Indemnitees required to be
indemnified by Parent at a commercially reasonable cost, effective as of and
following the Effective Time; provided that such coverage and the cost thereof
shall be subject to Parent's approval. In connection with such efforts, the
Company will complete accurately in all material respects any insurance
applications and forms of the applicable insurer and take any reasonable steps
to preserve any 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, Parent shall
use reasonable efforts to provide similar coverage for those Indemnitees that
it is required to indemnify under policies then maintained by Parent; provided
that such similar coverage is available to Parent at a commercially reasonable
cost. Notwithstanding any provisions of this Section 6.10(a), failure by the
Company and/or Parent, despite use of their respective
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reasonable efforts, to obtain such extended reporting endorsements or to
provide such similar coverage under Parent's policies shall not in any way
affect, lessen or excuse Parent from its obligation to indemnify, defend and
hold harmless the Indemnitees to the extent required by this Section 6.10.
(b) In the event any claim, action, suit, proceeding or investigation (a
"D&O Claim") for which indemnification is provided under this Section 6.10 is
brought against an Indemnitee (whether arising before or after the Effective
Time) after the Effective Time (i) such Indemnitee may retain counsel
satisfactory to it (subject to approval by the indemnifying party, which
approval shall not be unreasonably withheld, 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 6.10 shall
prevent the indemnifying party from disputing any fees it reasonably 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 shall not be unreasonably
withheld. Any Indemnitee wishing to claim indemnification under this Section
6.10, 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 the indemnifying party from any liability which it may have under
this Section 6.10 except to the extent such failure materially prejudices such
indemnifying party), and shall deliver to such indemnifying party the
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 6.10 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 Parent.
Section 6.11 Obligations of Sub. Parent shall take all action necessary to
cause Sub to perform its obligations under this Agreement and to consummate
the Merger on the terms and subject to conditions set forth in this Agreement.
Section 6.12 Pooling Affiliates.
(a) Promptly following the Agreement Date, the Company shall deliver to
Parent a list of names and addresses of those persons who are affiliates
within the meaning of Rule 145 of the rules and regulations promulgated under
the Securities Act or otherwise applicable SEC accounting releases with
respect to pooling of interests accounting treatment (each such person, a
"Pooling Affiliate") of the Company. The Company shall provide Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall deliver to Parent, on or prior to the
Effective Time, an affiliate letter in the form attached hereto as Exhibit A,
executed by each of the Pooling Affiliates of the Company identified in the
foregoing list. Parent shall be entitled to place legends as specified in such
affiliate letters on the certificates evidencing any of the Parent Common
Stock to be received by such Pooling Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for the Parent Common Stock, consistent with the terms of such letters.
(b) For so long as resales of shares of Parent Common Stock issued pursuant
to the Merger are subject to the resale restrictions set forth in Rule 145
under the Securities Act, Parent will use reasonable efforts to comply with
Rule 144(c)(1) under the Securities Act.
Section 6.13 NYSE Listing. Parent shall promptly prepare and submit a
listing application in accordance with the rules of the NYSE covering the
Shares of Parent Common Stock to be issued in connection with the Merger and
to be issued in connection with the exercise of Company Options, Company Puts,
and Company
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Warrants to be assumed by Parent hereunder. Parent shall use reasonable
efforts to have such application approved by the NYSE prior to the Effective
Time.
Section 6.14 Employee Benefits.
(a) Parent reserves the right to request in writing at least 15 days prior
to the Closing Date, that the Company cease contributing to one or more of the
Company's Employee Benefit Plans effective as of the Closing Date.
(b) If Parent requests that the Company cease contributions to or terminate
a qualified plan under Section 401(k) of the Code (the "401(k) Plan"), the
Company shall (i) adopt written resolutions, the form and substance of which
shall be satisfactory to Parent, to terminate the 401(k) Plan and to fully
(100%) vest all participants under said 401(k) Plan no later than the third
business day preceding the Closing Date; provided, however, that such 401(k)
Plan termination may be made contingent upon the consummation of the Merger
and distribution of benefits may be made contingent upon the receipt of a
favorable determination letter from the IRS with respect to the termination of
the 401(k) Plan, (ii) deliver, prior to the Closing Date, notice of the 401(k)
Plan termination to any trustees and custodians of the 401(k) Plan and/or its
assets, (iii) appoint (if not already appointed) an institutional trustee of
the 401(k) Plan, and (iv) prepare IRS Form 5310, with full disclosure of the
Merger and the existence of Parent's 401(k) Savings Plan (the "Parent 401(k)
Plan") and the fact that Company employees participating in the 401(k) Plan as
of the Closing Date shall become participants in the Parent 401(k) Plan
immediately following the Closing Date. The Company shall take all actions
necessary to cause such IRS Form 5310, in a form satisfactory to Parent, to be
filed with the IRS on, or as soon as practicable following the Effective Time.
If a favorable determination letter is received from the IRS with respect to
the termination of the 401(k) Plan and distributions of benefits thereunder,
Parent shall take all actions necessary to cause distributions on account of
termination of the Plan to be made as soon as administratively feasible
thereafter. If the IRS fails to issue a favorable determination letter, the
401(k) Plan shall, at Parent's option, be (i) merged into the Parent 401(k)
Plan, or (ii) maintained as a separate frozen qualified plan. In the event
that Parent elects, in accordance with the preceding sentence, to continue the
401(k) Plan, then the 401(k) Plan shall be operated in a manner generally
consistent with the Parent 401(k) Plan, in terms of available investment
options, payment of expenses and other plan features.
(c) Parent shall recognize all past service with the Company for employees
who are employed by the Company or on disability or a leave of absence on the
Closing Date (the "eligible employees") for all purposes under all of Parent's
Employee Benefit Plans provided, however, that only up to 5 years of past
service shall be recognized under Parent's tax qualified defined contribution
plans and no past service shall be recognized for eligibility waiting periods
under Parent's Employee Stock Purchase Plan and welfare plans.
(d) Parent shall cause each eligible employee to receive a level of employee
benefits, which in the aggregate is no less favorable than the employee
benefits provided to other Parent employees of substantially comparable
status.
(e) Parent shall recognize all deductibles and coinsurance payments accrued
by eligible employees in 1996 prior to Closing and, except with respect to
group life insurance coverages in excess of three times an eligible employee's
compensation, agrees to waive pre-existing medical conditions upon initial
open enrollment in Parent's Employee Benefit Plans.
(f) Notwithstanding the foregoing, the Company shall terminate the
HealthWise of America, Inc. 1993 Employee Stock Purchase Plan effective as of
the Closing Date and no further contributions or purchases shall be made under
such plan. Contributions made during the current purchase period will be
refunded to participants.
Section 6.15 Company Put Conversion. The Company will use reasonable efforts
to encourage and facilitate the conversion of any rights to receive Company
Common Stock held by those individuals identified on Schedule 6.15 prior to
the Closing Date.
Section 6.16 Minority Interests. The Company will use reasonable efforts to
cause holders of minority interests in the Company's subsidiaries to transfer
such interests to the Company prior to the Closing Date.
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<PAGE>
Section 6.17 Surgical Care Affiliates, Inc. The Company will use reasonable
efforts to eliminate any rights that Surgical Care Affiliates, Inc. may have
to have a representative or representatives on the board of directors of the
Company and to terminate any right of first refusal relating to outpatient
surgical centers that such company may have.
Section 6.18 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, including all Employee Benefit Plan
returns and reports, 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. The Company shall provide Parent 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 Parent in connection therewith.
(b) Parent, in its sole and absolute discretion, will file (or cause to be
filed) all Tax returns of the Company due after the Closing Date. After the
Closing Date, Parent, in its sole and absolute discretion and 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.
ARTICLE VII
Conditions to the Merger
Section 7.1 Conditions of Each Party's Obligation to Effect the Merger. The
respective obligations of the Company, Parent and Sub to consummate the Merger
are subject to the satisfaction upon or prior to the Closing of the following
conditions:
(a) Stockholder Approval. The holders of a majority of shares of outstanding
Company Common Stock shall have approved this Agreement and the Merger in
accordance with Delaware Law and the certificate of incorporation and by-laws
of the Company.
(b) Governmental Entity Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation of
the transactions contemplated by this Agreement shall have been filed, expired
or been obtained.
(c) Form S-4; Proxy Statement. The Form S-4 shall have become effective
under the Securities Act, shall not be the subject of any stop order or
proceedings seeking a stop order, and the Proxy Statement shall not at the
Effective Time of the Merger be subject to any proceedings commenced or
threatened by the SEC.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any Governmental
Entity of competent jurisdiction nor other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(e) Tax Opinion. The Company shall have received an opinion dated as of the
Effective Time in form and substance satisfactory to the Company of Skadden,
Arps, Slate, Meagher & Flom, to the effect that (i) the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, (ii) Parent, Sub and the Company will each be a
party to that reorganization within the meaning of Section 368(b) of the Code,
(iii) no income, gain or loss will be recognized for federal income tax
purposes by either the Company or Parent as a result of the consummation of
the Merger, and (iv) no income, gain or loss will be
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<PAGE>
recognized for federal income tax purposes by stockholders of the Company upon
the exchange in the Merger of Shares solely for shares of Parent Common Stock
(except to the extent of any cash received in lieu of fractional shares). In
connection with such opinion, counsel shall be entitled to rely upon certain
representations and covenants of the Company, Parent, Sub, and such other
persons as such counsel deems appropriate.
(f) Pooling Letters. Parent and the Company shall have received each of the
letters described in Sections 6.4 and 6.5 from Deloitte & Touche LLP and
Arthur Andersen LLP, respectively and such letters shall not have been
withdrawn.
Section 7.2 Conditions of Obligations of Parent and Sub. The obligations of
Parent and Sub to effect the Merger are subject to the satisfaction prior to
or upon the Closing of the following conditions, unless waived by Parent and
Sub:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement, without regard to any qualification
or reference to materiality or "Company Material Adverse Effect," shall be
true and correct in all respects as of the Closing Date, as though made on and
as of such date (provided that those representations or warranties made as of
a particular date need only be true and correct as of such date), except for
any inaccuracies which, individually or in the aggregate, have not had, and
would not have, a Company Material Adverse Effect. Parent shall have received
a certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations and covenants required to
be performed by it under this Agreement prior to or as of the Closing Date,
and Parent shall have received a certificate signed on behalf of the Company
by the chief executive officer and the chief financial officer of the Company
to such effect.
(c) Consents. The consents, approvals and authorizations described in
Schedule 3.5 shall have been obtained in form and in substance reasonably
satisfactory to each of Parent and Sub, except for such consents, approvals
and authorizations with respect to which the failure to obtain would not have
a Company Material Adverse Effect.
(d) Letters from Company Affiliates. Parent shall have received from each
person referred to in Section 6.12 an executed copy of an agreement
substantially in the form of Exhibit A.
(e) Company Puts. The rights of Melkus Partners, Ltd., by assignment from
Kenneth J. Melkus under the Agreement, dated July 1, 1993, among Surgical Care
Affiliates, Inc., KHP, Chesapeake, and Mr. Melkus, shall have been exercised,
converted into shares of Company Common Stock, and Parent shall have no
further obligation under such agreement.
(f) Consulting and Employment Agreements. Kenneth J. Melkus shall have
entered into a one-year consulting agreement with the Company or Parent, and
Leon Kaplan shall have entered into a two-year employment agreement with the
Company or Parent. Such agreements shall be in form and substance customary
for agreements of this type, consistent with comparable agreements of Parent,
and shall otherwise be acceptable to Parent, as to all of which Parent shall
have acted reasonably and in good faith.
Section 7.3 Conditions of Obligation of the Company. The obligation of the
Company to effect the Merger is subject to the satisfaction prior to or upon
the Closing of the following conditions, unless waived by the Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in this Agreement, without regard to any
qualification or reference to materiality or "Parent Material Adverse Effect,"
shall be true and correct in all respects as of the Closing Date, as though
made on and as of such date (provided that those representations or warranties
made as of a particular date need only be true and correct as of such date),
except for any inaccuracies which, individually or in the aggregate, have not
had, and would not have, a
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<PAGE>
Parent Material Adverse Effect. The Company shall have received a certificate
signed on behalf of Parent by the chief executive officer and the chief
financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall have
performed in all material respects all obligations and covenants required to
be performed by them under this Agreement prior to or as of the Closing Date,
and the Company shall have received a certificate signed on behalf of Parent
by the chief executive officer and the chief financial officer of Parent to
such effect.
(c) Consents. The consents, approvals and authorizations described in
Schedule 4.4 shall have been obtained in form and substance reasonably
satisfactory to the Company, except for such consents, approvals and
authorizations with respect to which the failure to obtain would not have a
Parent Material Adverse Effect.
(d) NYSE Listing. The Shares shall have been approved for listing on the
NYSE.
ARTICLE VIII
Termination, Amendment and Waiver
Section 8.1 Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval of this Agreement and the Merger by the stockholders of the
Company:
(a) by mutual written consent of each of Parent, Sub and the Company;
(b) by either Parent, Sub or the Company if either (i) the Effective Time
shall not have occurred on or before August 31, 1996; provided, however,
that the right to terminate this Agreement under this Section 8.1(b) (i)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date, or (ii) there shall be
any law that makes consummation of the Merger illegal or otherwise
prohibited or if any court of competent jurisdiction or Governmental Entity
shall have issued an order, decree, ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and unappealable;
(c) by Parent or the Company, if the board of directors of the Company
withdraws, modifies, or changes its recommendation of this Agreement or the
Merger in a manner adverse to Parent or Sub or shall have resolved to do
any of the foregoing or the board of directors of the Company shall have
recommended to the stockholders of the Company any Competing Transaction or
resolved to do so;
(d) by Parent, if (i) the Company receives an unsolicited proposal that
constitutes a Competing Transaction and the board of directors of the
Company, within 30 calendar days after such proposal is received by the
Company (which thirty-day period may be extended by the Company for such
additional period not exceeding thirty days as the Company reasonably
determines, based on consultations with independent counsel, to be required
in order to satisfy its fiduciary obligations under law), either fails to
terminate discussions with the maker of such proposal and its agents, or
determines to accept, or takes no position with respect to, such proposal,
(ii) a tender offer or exchange offer for 20% or more of the outstanding
shares of Company Capital Stock is commenced, and the board of directors of
the Company, within 10 business days after such tender offer or exchange
offer is so commenced, either fails to recommend against acceptance of such
tender offer or exchange offer by its stockholders or takes no position
with respect to the acceptance of such tender offer or exchange offer by
its stockholders, or (iii) any person (other than Parent or its affiliates)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder)
shall have been formed which beneficially owns, or has the right to acquire
beneficial ownership of, 20% or more of the then outstanding shares of
Company Capital Stock (excluding for this purpose holdings of shares by
persons or groups as currently reflected in filings with the SEC under
Section 13(d));
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<PAGE>
(e) by either Parent, Sub, or the Company, if the Stockholders' Meeting
shall have been held and the stockholders of the Company shall have failed
to approve this Agreement and the Merger at such meeting (including any
adjournment or postponement thereof);
(f) by the Company, in the event of a material breach by Parent or Sub of
any representation, warranty, covenant or agreement contained herein which
has not been cured or is not curable by August 31, 1996; or
(g) by Parent, in the event of a material breach by the Company of any
representation, warranty, covenant or agreement contained herein which has
not been cured or is not curable by August 31, 1996.
Section 8.2 Effect of Termination. Except as provided in Section 9.1, in the
event of the termination of this Agreement pursuant to Section 8.1, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of Parent, Sub, or the Company or any of their
respective officers or directors and all rights and obligations of any party
shall cease, subject to the remedies of the parties set forth in Section 8.3.
Section 8.3 Remedies and Dispute Resolution.
(a) Termination Fee. The Company shall pay Parent a fee (the "Company
Termination Fee") of $11,000,000, (i) if this Agreement is terminated pursuant
to Section 8.1(c), (ii) if this Agreement is terminated pursuant to Section
8.1(d), or (iii) if this Agreement is terminated pursuant to Section 8.1(e)
and a Competing Transaction exists on the date of the Stockholders' Meeting.
In the event that the Company shall fail to pay the Termination Fee when due,
there shall also be paid the costs and expenses actually incurred or accrued
by Parent or Sub (including, without limitation, fees and expenses of counsel)
in connection with the collection under and enforcement of this Section
8.3(a), together with interest on such unpaid Termination Fee, commencing on
the date that such Termination Fee becomes due, at a rate equal to the rate of
interest publicly announced by First Bank National Association, from time to
time, in the City of Minneapolis, Minnesota, as such bank's "base rate" plus
2%.
(b) Transaction Costs. Except as set forth in this Section, all costs and
expenses incurred in connection with this Agreement and the Merger shall be
paid by the party incurring such costs or expenses, whether or not the Merger
is consummated; provided, however, that Parent and the Company shall share
equally (i) all fees and expenses, other than attorneys' and accountants' and
investment bankers' fees, incurred in relation to the printing, filing, and
mailing of the Form S-4 and the Proxy Statement (including financial
statements and exhibits) and any amendments or supplements thereto and (ii)
the HSR fee.
(c) Other Remedies. Nothing in this Section 8.3 precludes a party from
seeking such other remedies at law or equity as it deems appropriate.
ARTICLE IX
General Provisions
Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time;
provided, however, that this Section 9.1 shall not limit any agreement or
covenant of the parties which by its terms contemplates performance after the
Effective Time.
Section 9.2 Notices. All notices, requests, claims, demands and other
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be deemed given if delivered personally, by
facsimile, certified mail (postage prepaid, return receipt requested) or sent
by overnight courier (in each case, providing proof of delivery) to the
parties at the following addresses (or such other address for a party as shall
be specified in like notice):
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<PAGE>
if to Parent or Sub, to:
United HealthCare Corporation
Opus Center MN08-8313
9900 Bren Road East
Minnetonka, MN 55343
Attention: Kevin H. Roche, Esq.
Telecopy: (612) 936-1745
if to the Company, to:
HealthWise of America, Inc.
102 Woodmont Boulevard
Suite 110
Nashville, TN 37205
Attention: Kenneth J. Melkus
Telecopy: (615) 383-0104
Section 9.3 Definitions. For purposes of this Agreement, the following terms
shall have the meanings ascribed to such terms in the sections referenced
below:
<TABLE>
<CAPTION>
TERM SECTION
------------
<S> <C>
Affiliated Group................................................. 3.10
Agreement Date................................................... Recitals
Benefit Plan..................................................... 5.1
Bear Stearns..................................................... 3.15
Certificate of Merger............................................ 1.2
Certificates..................................................... 2.4
Chesapeake....................................................... 2.5
Closing.......................................................... 1.4
Closing Date..................................................... 1.4
Code............................................................. Recitals
Company.......................................................... Recitals
Company Capital Stock............................................ 3.6
Company Common Stock............................................. Recitals
Company Material Adverse Effect.................................. 3.1
Company Option................................................... 2.5
Company Plans.................................................... 3.13
Company Put...................................................... 2.5
Company SEC Documents............................................ 3.7
Company Securities............................................... 3.6
Company Termination Fee.......................................... 8.3
Competing Transaction............................................ 5.3
Company Warrant.................................................. 2.6
CON Laws......................................................... 3.4
Confidentiality Agreement........................................ 6.7
D & O Claim...................................................... 1.4
Delaware Law..................................................... 1.1
Effective Time................................................... 1.2
ERISA............................................................ 3.13
ERISA Affiliates................................................. 3.13
Evaluation Material.............................................. 6.7
Exchange Act..................................................... 3.4
Exchange Agent................................................... 2.4
</TABLE>
A-26
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
------------
<S> <C>
Exchange Fund.................................................... 2.4
Exchange Ratio................................................... 2.1
Expenses......................................................... 8.3
Facility Licensing Laws.......................................... 3.4
Federal HMO Act.................................................. 3.4
Form S-4......................................................... 6.1
Governmental Entity.............................................. 3.4
HMO Acts......................................................... 3.4
HSR Act.......................................................... 3.4
Indemnification Agreements....................................... 6.11
Indemnitees...................................................... 6.10
Insurance Holding Company Acts................................... 3.4
KHP.............................................................. 2.5
Lien............................................................. 3.2
Medicaid Laws.................................................... 3.4
Medicare Laws.................................................... 3.4
Merger........................................................... Recitals
Merger Consideration............................................. 2.1
NYSE............................................................. 4.3
Parent........................................................... Recitals
Parent Capital Stock............................................. 4.6
Parent Common Stock.............................................. Recitals
Parent Material Adverse Effect................................... 4.1
Parent Plans..................................................... 4.12
Parent Preferred Stock........................................... 4.6
Parent SEC Documents............................................. 4.7
Parent Securities................................................ 4.6
Parent Termination Fee........................................... 8.3
Pooling Affiliate................................................ 6.13
Proxy Statement.................................................. 6.1
Reference Market Value........................................... 2.1
SEC.............................................................. 3.7
Securities Act................................................... 3.4
Stockholders' Meeting............................................ 6.1
Shares........................................................... 2.1
State HMO Acts................................................... 3.4
State Takeover Laws.............................................. 6.10
Sub.............................................................. Recitals
Sub Common Stock................................................. 2.1
Surviving Corporation............................................ 1.1
</TABLE>
Section 9.4 Amendment. This Agreement may be changed or modified by the
parties only by action taken by or on behalf of their respective boards of
directors, reflected in a written amendment signed by the parties, at any time
prior to the Effective Time; provided, however, that, after the approval of
this Agreement and the Merger by the stockholders of the Company, no amendment
may be made which would reduce the amount or change the type of consideration
into which each Share shall be converted upon consummation of the Merger.
Section 9.5 Waiver. At any time prior to the Effective Time, any party may
(a) extend the time for the performance of any obligation or other act of any
other party, (b) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant to this Agreement and
(c) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid only if set forth in any instrument in
writing signed by the party or parties to be bound thereby.
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<PAGE>
Section 9.6 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the other documents referenced herein (including the
Confidentiality Agreement) contain the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior arrangements
and understandings, both written and oral, with respect thereto.
Section 9.7 Severability. It is the desire and intent of the parties that
the provisions of this Agreement be enforced to the fullest extent permissible
under the law and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, in the event that any provision of this
Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall
be ineffective, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in
such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn,
without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.
Section 9.8 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors and assigns, provided that no party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties.
Section 9.9 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, 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, other than Section 6.10 (which is intended to be for
the benefit of the persons covered by the indemnification provisions contained
therein and may be enforced by such persons).
Section 9.10 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware, without giving effect
to the principles of conflict of laws thereof.
Section 9.11 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
In Witness Whereof, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
United Healthcare Corporation
/s/ William W. McGuire
By __________________________________
Name: William W. McGuire, M.D.
Title: Chairman and CEO
UHC Black Acquisition, Inc.
/s/ William W. McGuire
By __________________________________
Name: William W. McGuire, M.D.
Title: CEO
HealthWise of America, Inc.
/s/ Kenneth J. Melkus
By __________________________________
Name: Kenneth J. Melkus
Title: Chairman and CEO
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<PAGE>
EXHIBIT B
March 8, 1996
Board of Directors
HealthWise of America, Inc.
102 Woodmont Boulevard
Suite 110
Nashville, Tennessee 37205
Dear Sirs:
We understand that HealthWise of America, Inc. ("HealthWise") and United
HealthCare Corporation ("United") have entered into an Agreement and Plan of
Merger dated January 31, 1996 (the "Agreement"), pursuant to which a newly
formed subsidiary of United would be merged with and into HealthWise in a
stock-for-stock exchange in which all issued and outstanding shares of
HealthWise Common Stock, par value $0.01, would be exchanged for shares of
United Common Stock, par value $0.01, on the basis of 0.6475 of a share of
United Common Stock for each share of HealthWise Common Stock (the "Merger").
You have asked us to render our opinion as to whether the Merger is fair,
from a financial point of view, to the shareholders of HealthWise.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement/Prospectus;
2. reviewed HealthWise's Annual Reports to Shareholders and Annual Reports
on Form 10-K for the fiscal years ended December 31, 1992 through 1994,
and its Quarterly Reports on Form 10-Q for the periods ended March 31,
June 30 and September 30, 1995;
3. reviewed certain operating and financial information, including
financial projections, provided to us by the management of HealthWise
relating to HealthWise's business and prospects;
4. met with certain members of HealthWise's senior management to discuss
its operations, historical financial statements and future prospects;
5. reviewed the historical prices and trading volume of the common shares
of HealthWise and United;
6. reviewed United's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1992 through 1994,
and its Quarterly Reports on Form 10-Q for the periods ended March 31,
June 30 and September 30, 1995;
7. reviewed certain operating and financial information with the
management of United relating to United's business and prospects;
8. reviewed publicly available financial data and stock market performance
data of companies which we deemed generally comparable to HealthWise
and United;
9. reviewed the terms of recent mergers and acquisitions of companies
which we deemed generally comparable to the Merger; and
10. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
B-1
<PAGE>
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by
HealthWise and United. With respect to HealthWise's projected financial
results, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of HealthWise as to the expected future performance of HealthWise.
We have not assumed any responsibility for the information or projections
provided to us and we have further relied upon the assurances of the
managements of HealthWise and United that they are unaware of any facts that
would make the information or projections provided to us incomplete or
misleading. In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets and liabilities of HealthWise or United.
Our opinion is necessarily based upon economic, market and other conditions,
and the information made available to us, as of the date hereof. This opinion
does not address the Company's underlying decision to effect the Merger.
It is understood that this letter is intended solely for the benefit and use
of the Board of Directors of HealthWise and is not to be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in
whole or in part, in any manner for any purpose without our prior written
consent, which shall not be unreasonably withheld.
Based on the foregoing, it is our opinion that the Merger is fair, from a
financial point of view, to the shareholders of HealthWise.
We have acted as financial advisor to HealthWise in connection with the
Merger and will receive a fee for such services, payment of a significant
portion of which is contingent upon the consummation of the Merger.
Very truly yours,
Bear, Stearns & Co. Inc.
By: _________________________________
Managing Director
B-2
<PAGE>
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.
EXHIBIT INDEX
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
2 Agreement and Plan of Merger, dated as of February 1,
1996, by and among United HealthCare Corporation, UHC
Black Acquisition, Inc. and HealthWise of America, Inc.
(included as Exhibit A to the Proxy Statement/Prospectus
that forms a part of this Registration Statement on Form
S-4 (schedules omitted--the Registrant agrees to furnish a
copy of any 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 Skadden, Arps, Slate, Meagher & Flom, regarding
certain tax matters relating to the Merger.
23.1 Consent of Arthur Andersen LLP with respect to financial
statements of United HealthCare Corporation 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 fi-
nancial statements of The Managed Care and Employee Bene-
fits Operations Medical Division of The Travelers
Insurance Group, Inc.
23.5 Consent of KPMG Peat Marwick LLP with respect to the fi-
nancial statements of GenCare Health Systems, Inc.
23.6 Consent of Bear, Stearns & Co. Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S> <C>
23.7 Consent of Kevin H. Roche, General Counsel of United
HealthCare Corporation (contained in Exhibit 5).
23.8 Consent of Skadden, Arps, Slate, Meagher & Flom (contained
in Exhibit 8).
24 Power of Attorney.
99.1 Form of Proxy Card for the Special Meeting.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
(c) The opinion of Bear, Stearns & Co. 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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) 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 Registration Fee" table in the
effective Registration Statement.
(iii) 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 (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) 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
II-2
<PAGE>
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 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-3
<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 6, 1996.
United HealthCare Corporation
/s/ William W. McGuire, M.D.
By __________________________________
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 AND ON THE
DATES INDICATED.
/s/ William W. McGuire, M.D. Dated: March 6, 1996
By __________________________________
William W. McGuire, M.D.
Director, Chief Executive Officer
(principal executive officer)
/s/ David P. Koppe Dated: March 6, 1996
By __________________________________
David P. Koppe
CFO
(principal financial officer)
* Dated: March 6, 1996
By __________________________________
William C. Ballard, Jr.
Director
* Dated: March 6, 1996
By __________________________________
Richard T. Burke
Director
* Dated: March 6, 1996
By __________________________________
James A. Johnson
Director
* Dated: March 6, 1996
By __________________________________
Thomas H. Kean
Director
* Dated: March 6, 1996
By __________________________________
Douglas W. Leatherdale
Director
* Dated: March 6, 1996
By __________________________________
Elizabeth J. McCormack
Director
II-4
<PAGE>
* Dated: March 6, 1996
By __________________________________
James L. Seiberlich
Director
* Dated: March 6, 1996
By __________________________________
Kennett L. Simmons
Director
* Dated: March 6, 1996
By __________________________________
William G. Spears
Director
* Dated: March 6, 1996
By __________________________________
Gail R. Wilensky
Director
/s/ William W. McGuire, M.D.
By __________________________________
William W. McGuire, M.D.
As Attorney-In-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of February 1, 1996,
by and among United HealthCare Corporation, UHC Black
Acquisition, Inc. and Healthwise of America, Inc. (included
as Exhibit A to the Proxy Statement/Prospectus that forms a
part of this Registration Statement on form S-4 (schedules
omitted--the Registrant agrees to furnish a copy of any
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 Skadden, Arps, Slate, Meagher & Flom, regarding
certain tax matters relating to the Merger.
23.1 Consent of Arthur Andersen LLP with respect to financial
statements of United HealthCare Corporation 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
financial statements of The Managed Care and Employee
Benefits Operations Medical Division of The Travelers
Insurance Group, Inc.
23.5 Consent of KPMG Peat Marwick LLP with respect to the
financial statements of GenCare Health Systems, Inc.
23.6 Consent of Bear, Stearns & Co. Inc.
23.7 Consent of Kevin H. Roche, General Counsel of United
HealthCare Corporation (contained in Exhibit 5).
23.8 Consent of Skadden, Arps, Slate, Meagher & Flom (contained in
Exhibit 8).
24 Power of Attorney.
99.1 Form of Proxy Card for the Special Meeting.
</TABLE>
<PAGE>
EXHIBIT 5
March 5, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: United HealthCare Corporation
5,077,506 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 Black Acquisition, Inc. ("United Sub"), a
Delaware corporation, a constituent corporation in a merger (the "Merger")
with HealthWise of America, Inc. ("HealthWise"), a Delaware corporation,
pursuant to an Agreement and Plan of Merger among UHC, United Sub and
HealthWise dated February 1, 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 HealthWise. 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 HealthWise in the
Merger Agreement, certificates and other statements, both written and oral,
from officers and other representatives of UHC, United Sub and HealthWise, 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 and sold as described in the Registration Statement.
Based on the foregoing, I am of the opinion that the shares of Common Stock
to be sold by the Company pursuant to the Registration Statement have been
duly authorized by all requisite corporate action and, upon issuance, delivery
and payment therefor as described in the Registration Statement, will be
validly issued, fully paid and nonassessable.
1
<PAGE>
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 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
county. 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,
Kevin H. Roche
General Counsel
2
<PAGE>
EXHIBIT 8
March 6, 1996
HealthWise of America, Inc.
102 Woodmont Boulevard, Suite 110
Nashville, Tennessee 37205
Ladies and Gentlemen:
You have requested our opinion regarding the discussions of the material
U.S. federal income tax consequences under the captions "SUMMARY--The Merger--
Certain Federal Income Tax Consequences" and "THE MERGER--Certain Federal
Income Tax Consequences" in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") which will be included in the Registration Statement on
Form S-4 (the "Registration Statement") filed on the date hereof with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). The Proxy Statement/Prospectus
relates to the proposed merger of UHC Black Acquisition, Inc. a wholly owned
subsidiary of United HealthCare Corporation, with and into Healthwise of
America, Inc. This opinion is delivered in accordance with the requirements of
Item 601(b)(8) of Regulation S-K under the Securities Act.
In rendering our opinion, we have reviewed the Proxy Statement/Prospectus
and such other materials as we have deemed necessary or appropriate as a basis
for our opinion. In addition, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended, Treasury regulations, pertinent
judicial authorities, rulings of the Internal Revenue Service, and such other
authorities as we have considered relevant.
Based upon the foregoing, it is our opinion that the statements made under
the captions "SUMMARY--The Merger--Certain Federal Income Tax Consequences"
and "THE MERGER--Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus, to the extent that they constitute matters of law or
legal conclusions, are correct in all material respects. There can be no
assurance that contrary positions may not be asserted by the Internal Revenue
Service.
This opinion is being furnished in connection with the Proxy
Statement/Prospectus. You may rely upon and refer to the foregoing opinion in
the Proxy Statement/Prospectus. Any variation or difference in the facts from
those set forth or assumed either herein or in the Proxy Statement/Prospectus
may affect the conclusions stated herein.
In accordance with the requirements of Item 601(b)(23) of Regulation S-K
under the Securities Act, we hereby consent to the use of our name under the
captions "SUMMARY--The Merger--Certain Federal Income Tax Consequences" and
"THE MERGER--Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus and to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Skadden Arps Slate Meagher & Flom
1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 merger with HealthWise of America, 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 and
(ii) 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 6, 1996
<PAGE>
EXHIBIT 23.2
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 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 6, 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.
Deloitte & Touche LLP
New York, New York
March 5, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the 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 December 18, 1995.
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 6, 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.
Our report dated January 27, 1995 refers to a change in the method of
accounting for certain investments in debt securities.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 4, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF BEAR, STEARNS & CO. INC.
We hereby consent to the inclusion in the Proxy Statement/Prospectus forming
part of this Registration Statement on Form S-4 of United HealthCare
Corporation of our opinion attached as Exhibit B thereto and to the reference
to such opinion and to our firm therein. We also confirm the accuracy in all
material respects of the description and summary of such fairness opinion and
the description and summary of our analyses, observations, beliefs and
conclusions relating thereto, set forth under the heading "Opinion of Bear,
Stearns & Co. Inc." therein. In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, and the rules and regulations of
the Securities and Exchange Commission issued thereunder.
Bear, Stearns & Co. Inc.
/s/
By: _________________________________
Managing Director
Dated: March 5, 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 February 1, 1996 providing for the merger of UHC Black
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of the
Company, with and into HealthWise of America, Inc., a Delaware corporation, 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
6th day of March, 1996, by the following persons.
/s/ William W. McGuire, M.D. /s/ Douglas W. Leatherdale
- ---------------------------------- --------------------------------
William W. McGuire, M.D. Douglas W. Leatherdale
/s/ David P. Koppe /s/ Elizabeth J. McCormack
- ---------------------------------- --------------------------------
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/ Thomas H. Kean /s/ Gail R. Wilensky
- ---------------------------------- --------------------------------
Thomas H. Kean Gail R. Wilensky
<PAGE>
EXHIBIT 99.1
HealthWise of America, Inc.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Kenneth J. Melkus and Harold D. Simpson, 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 stockholders of HealthWise of America, Inc. (the "Company") to be held on
__________________, 1996, at 102 Woodmont Blvd., Suite 110, Nashville,
Tennessee, 37205, and at any postponement or adjournment thereof, in connection
therewith to vote and present all of the shares of common stock, $.25 par value
("Common Stock"), of the Company which the undersigned would be entitled to vote
as follows:
1. Approval and adoption of an Agreement and Plan of Merger, dated as of
February 1, 1996, by and among the Company, United HealthCare
Corporation, a Minnesota corporation ("United"), and UHC Black
Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of United ("United Sub"), pursuant to which, among other
things, (i) United Sub will be merged with and into the Company (the
"Merger"), and (ii) each outstanding share of Common Stock of the
Company will be converted into 0.6475 of a share of common stock, par
value $.01, of United (the "United Common Stock").
For [_] Against [_] Abstain [_]
2. In their discretion to act upon 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. ANY STOCKHOLDER
WHO WISHES TO WITHHOLD THE DISCRETIONARY AUTHORITY REFERRED TO IN ITEM 2 ABOVE
SHOULD MAKE A LINE THROUGH THE ENTIRE ITEM.
(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.
