<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-10864
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UNITED HEALTHCARE CORPORATION
State of Incorporation: Minnesota
I.R.S. Employer Identification No: 41-1321939
Principal Executive Offices:
300 Opus Center
9900 Bren Road East
Minnetonka MN, 55343
Telephone Number: (612) 936-1300
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Indicate by check mark (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _/X/_ No _/ /_
The number of shares of Common Stock, par value $.01 per share, outstanding on
August 11, 1997 was 187,567,494.
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UNITED HEALTHCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996............................................................... 3
Condensed Consolidated Statements of Operations for the three and
six month periods ended June 30, 1997 and 1996.................................................... 4
Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 1997 and
1996............................................................................................... 5
Notes to Condensed Consolidated Financial Statements................................................ 6
Report of Independent Public Accountants............................................................ 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................... 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS.................................................................................... 15
Signatures.............................................................................................. 16
</TABLE>
2
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................................................. $ 610.3 $ 1,036.7
Short-term investments................................................................ 269.6 610.6
Accounts receivable, net.............................................................. 703.4 605.8
Assets under management............................................................... 128.3 155.1
Other................................................................................. 276.7 331.4
--------- ------------
Total Current Assets................................................................ 1,988.3 2,739.6
Long-term Investments................................................................... 2,654.3 1,805.0
Property and Equipment, net............................................................. 333.2 313.0
Goodwill and Other Intangible Assets, net............................................... 2,150.1 2,139.0
--------- ------------
TOTAL ASSETS............................................................................ $ 7,125.9 $ 6,996.6
--------- ------------
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Medical costs payable................................................................. $ 1,595.5 $ 1,516.1
Other policy liabilities.............................................................. 286.1 334.0
Accounts payable...................................................................... 46.2 73.1
Accrued expenses and other liabilities................................................ 449.1 491.3
Unearned premiums..................................................................... 102.4 228.3
--------- ------------
Total Current Liabilities........................................................... 2,479.3 2,642.8
Long-term Obligations................................................................... 22.7 30.8
Convertible Preferred Stock............................................................. 500.0 500.0
--------- ------------
Shareholders' Equity
Common stock, $.01 par value--500,000,000 shares authorized; 187,313,000 and
184,865,000 issued and outstanding.................................................. 1.9 1.8
Additional paid-in capital............................................................ 1,235.3 1,148.0
Retained earnings..................................................................... 2,884.8 2,680.2
Net unrealized holding gains (losses) on investments available for sale, net of income
tax effects......................................................................... 1.9 (7.0)
--------- ------------
Total Shareholders' Equity.......................................................... 4,123.9 3,823.0
--------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. $ 7,125.9 $ 6,996.6
--------- ------------
--------- ------------
</TABLE>
See notes to unaudited condensed consolidated financial statements
3
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Premiums......................................................... $ 2,500.3 $ 2,095.1 $ 4,944.9 $ 4,009.4
Management Services and Fees..................................... 366.3 351.8 722.0 709.7
Investment and Other Income...................................... 63.9 45.3 114.7 91.2
--------- --------- --------- ---------
Total Revenues................................................. 2,930.5 2,492.2 5,781.6 4,810.3
--------- --------- --------- ---------
OPERATING EXPENSES
Medical Costs.................................................... 2,118.6 1,821.0 4,182.6 3,406.3
Selling, General and Administrative Costs........................ 591.7 542.1 1,167.0 1,050.4
Depreciation and Amortization.................................... 35.5 31.9 69.1 63.0
--------- --------- --------- ---------
Total Operating Expenses....................................... 2,745.8 2,395.0 5,418.7 4,519.7
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS........................................... 184.7 97.2 362.9 290.6
Merger Costs..................................................... -- (15.0) -- (15.0)
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES....................................... 184.7 82.2 362.9 275.6
Provision for Income Taxes....................................... (69.0) (31.9) (138.3) (106.3)
--------- --------- --------- ---------
NET EARNINGS....................................................... 115.7 50.3 224.6 169.3
CONVERTIBLE PREFERRED STOCK DIVIDENDS.............................. (7.2) (7.2) (14.4) (14.4)
--------- --------- --------- ---------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS..................... $ 108.5 $ 43.1 $ 210.2 $ 154.9
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER COMMON SHARE...................................... $ 0.57 $ 0.23 $ 1.11 $ 0.84
--------- --------- --------- ---------
--------- --------- --------- ---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING......................... 190.4 186.7 189.9 183.7
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to unaudited condensed consolidated financial statements
4
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings........................................................................... $ 224.6 $ 169.3
Non-cash Items:
Depreciation and amortization...................................................... 69.1 63.0
Provision for future losses........................................................ 45.0
Other.............................................................................. (7.7) (5.2)
Net Change in Other Operating Items:
Accounts receivable and other current assets....................................... (50.2) (194.1)
Accounts payable................................................................... (24.8) (16.4)
Accrued expenses and other liabilities............................................. (11.2) (118.9)
Medical costs payable.............................................................. 80.2 169.5
Other policy liabilities........................................................... (22.0) 23.3
Unearned premiums.................................................................. (125.5) (81.2)
------------ -----------
Cash Flows From Operating Activities............................................. 132.5 54.3
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INVESTING ACTIVITIES
Cash Assumed in Acquisition, net of cash paid and other effects...................... -- 59.1
Purchases of Property and Equipment and Capitalized Software......................... (89.8) (74.7)
Purchases of Investments Available for Sale.......................................... (3,167.4) (1,915.6)
Maturities/Sales of Investments Available for Sale................................... 2,668.9 1,931.5
Purchases of Investments Held to Maturity............................................ (28.2) (11.8)
Maturities of Investments Held to Maturity........................................... 39.1 5.2
Other................................................................................ (13.0) 3.0
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Cash Flows Used for Investing Activities......................................... (590.4) (3.3)
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FINANCING ACTIVITIES
Net Proceeds from Stock Option Exercises............................................. 46.6 24.8
Payment of Long-term Obligations..................................................... -- (.5)
Dividends Paid
Convertible Preferred Stock........................................................ (14.4) (14.4)
Common Stock....................................................................... (5.6) (5.3)
Other................................................................................ 4.9 --
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Cash Flows From Financing Activities............................................. 31.5 4.6
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................................... (426.4) 55.6
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................................... 1,036.7 940.1
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................... $ 610.3 $ 995.7
------------ -----------
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</TABLE>
See notes to unaudited condensed consolidated financial statements
5
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the financial
results for the interim periods presented. These financial statements include
some amounts that are based on management's best estimates and judgments. The
most significant estimates relate to medical costs payable and other policy
liabilities, intangible asset valuations and integration and restructuring
reserves relating to the Company's acquisitions. These estimates are subject to
adjustment as further information becomes available and any such adjustment
could be significant.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, footnote disclosures which would substantially duplicate the
disclosures contained in the audited financial statements of the Company have
been omitted from these interim financial statements. Although the Company
believes that the disclosures presented below are adequate to make the interim
financial statements presented not misleading, these unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
2. DIVIDENDS
On February 13, 1997, the Company's Board of Directors approved an annual
dividend for 1997 of $0.03 per share to holders of the Company's common stock.
Dividends of $5.6 million were paid on April 15, 1997 to shareholders of record
at the close of business on April 3, 1997.
3. CASH AND INVESTMENTS
As of June 30, 1997, the amortized cost, gross unrealized holding gains and
losses and fair value of the Company's cash and investments were as follows (in
millions):
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
-------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents......................... $ 610.3 $ -- $ -- $ 610.3
Investments Available for Sale.................... 2,858.6 19.0 (15.8) 2,861.8
Investments Held to Maturity...................... 62.1 .2 (.1) 62.2
-------------- ----- ------ -----------
Total Cash and Investments...................... $ 3,531.0 $ 19.2 $ (15.9) $ 3,534.3
-------------- ----- ------ -----------
-------------- ----- ------ -----------
</TABLE>
4. RECENTLY ISSUED ACCOUNTING STANDARDS
During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
No. 128), which changes the computation and disclosure of earnings per share.
SFAS No. 128 is effective for both interim and annual periods ending after
December 15, 1997 and earlier application is not permitted. Under the Company's
current capital structure, the adoption of SFAS No. 128 will not have a material
impact on the Company's determination of earnings per share.
During June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130), effective for fiscal years beginning after December 15,
1997. SFAS No. 130 will require the Company to report and display
6
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
comprehensive income and its components. Comprehensive income is defined as
changes in equity of a business enterprise during a period except those
resulting from investments by owners and distributions to owners. The changes
required by SFAS No. 130 will not effect net income or shareholders' equity as
previously reported.
7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United HealthCare Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
United HealthCare Corporation (a Minnesota corporation) and Subsidiaries as of
June 30, 1997, and the related condensed consolidated statements of operations
and cash flows for the three and six month periods ended June 30, 1997 and 1996.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of United HealthCare
Corporation and Subsidiaries as of and for the year ended December 31, 1996 (not
presented herein), and, in our report dated February 28, 1997, we expressed an
unqualified opinion on those statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 1996, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota
August 7, 1997
8
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto. A number of
factors should also be considered in conjunction with any discussion of
operations or results by the Company or its representatives, including any
forward-looking discussions. These factors are set forth in Exhibit 99 to this
Quarterly Report.
SUMMARY OPERATING INFORMATION
<TABLE>
<CAPTION>
OPERATING RESULTS THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
- --------------------------------------------- ----------------------------------- -----------------------------------
PERCENT PERCENT
(in millions except per share data) 1997 1996(a) CHANGE 1997 1996(a) CHANGE
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues............................... $ 2,930.5 $ 2,492.2 18% $ 5,781.6 $ 4,810.3 20%
Earnings from Operations..................... $ 184.7 $ 142.2 30% $ 362.9 $ 335.6 8%
Net Earnings................................. $ 115.7 $ 86.8 33% $ 224.6 $ 205.8 9%
Earnings Per Share........................... $ 0.57 $ 0.43 33% $ 1.11 $ 1.04 7%
Medical Costs to Premium Revenues............ 84.7% 84.8% 84.6% 83.8%
SG&A Expenses to Total Revenues.............. 20.2% 21.7% 20.2% 21.8%
</TABLE>
<TABLE>
<CAPTION>
PERCENT
ENROLLMENT BY PRODUCT JUNE 30, 1997 JUNE 30, 1996 CHANGE
- --------------------------------------------------------------------------- ------------- ------------- ------------
(in thousands)
<S> <C> <C> <C>
Health Plan Products
Commercial............................................................... 4,383 3,726 18%
Medicare................................................................. 286 184 55
Medicaid................................................................. 483 392 23
------------- ------------- ---
Total Health Plan Products............................................. 5,152 4,302 20
Other Network-Based Products............................................... 5,350 5,473(b) (2)
Indemnity Products......................................................... 2,492 3,408(b) (27)
------------- ------------- ---
Total Enrollment....................................................... 12,994 13,183 (1)%
------------- ------------- ---
------------- ------------- ---
ENROLLMENT BY FUNDING ARRANGEMENT
- ---------------------------------------------------------------------------
Fully Insured
Health Plan Products................................................... 4,846 3,999 21%
Other Network-Based Products........................................... 692 764 (9)
Indemnity Products..................................................... 492 804 (39)
------------- ------------- ---
Total Fully Insured.................................................. 6,030 5,567 8
------------- ------------- ---
Self-Funded
Health Plan Products................................................... 306 303 1
Other Network-Based Products........................................... 4,658 4,709 (1)
Indemnity Products..................................................... 2,000 2,604 (23)
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Total Self-Funded.................................................... 6,964 7,616 (9)
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Total Enrollment................................................... 12,994 13,183 (1)%
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</TABLE>
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(a) Amounts include post-acquisition operating results of PHP, Inc. (PHP)
acquired on March 29, 1996, and HealthWise of America, Inc. (HealthWise)
acquired on April 12, 1996. For comparability purposes, amounts exclude
merger costs of $14.9 million ($9.1 million after tax) associated with the
acquisition of HealthWise and the provision for future losses on two
multi-year contracts of $45.0 million ($27.4 million after tax).
(b) For comparability purposes, amounts exclude 571,000 self-funded other
network-based and indemnity lives served by United HealthCare
Administrators, Inc., which was sold June 30, 1997.
9
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
PREMIUM REVENUES
Premium revenues of $2.5 billion in the second quarter of 1997 increased
$405 million, or 19%, over the second quarter of 1996. For the six months ended
June 30, 1997, premium revenues of $4.9 billion increased $936 million, or 23%,
over the same period in 1996. Excluding the effects of the Company's 1996
acquisitions of HealthWise and PHP, the increase in premium revenues for the six
months ended June 30, 1997 over the same period in 1996 was 20%.
The increase in premium revenues is primarily attributable to year-over-year
same-store health plan premium revenue growth of $425 million, or 27%, for the
quarter ended June 30, 1997, and $820 million, or 29%, for the six months ended
June 30, 1997. The health plan premium revenue increase reflects same-store
enrollment growth of 20% and an average year-over-year premium rate increase on
renewing commercial groups of approximately 5%. Growth in the Company's Medicare
programs also contributed to the increase in premium revenues. Included in the
total health plan same-store enrollment growth of 20% are year-over-year
same-store increases of 55% in the Company's Medicare enrollment. Significant
growth in Medicare enrollment will affect year-over-year comparability of
premium revenue. The Medicare product generally realizes per member premium
rates three to four times higher than the average commercial premium rates
because of the higher level of medical care services utilized by this
population.
The year-over-year increase in premium revenues from health plan operations
was partially offset by an expected decrease in premium revenues of $47 million
from fully insured non-network-based indemnity products. In response to
increased medical costs associated with these products, the Company instituted
rate increases averaging from 10% to 20% during 1996 and into 1997. These rating
actions appear to have been sufficient to cover the corresponding increases in
medical costs. As a result of these pricing decisions and other factors, the
Company has seen enrollment decreases in the non-network-based indemnity
products and expects these decreases to continue throughout 1997. To the extent
practicable, the Company will attempt to convert these enrollees to its
network-based managed care products.
MEDICAL COSTS
The combination of the Company's pricing strategy and its medical management
efforts are reflected in its medical care ratio (the percent of premium revenues
expensed as medical costs). The Company's commercial health plan business is
most sensitive to this strategy.
New and renewal commercial health plan premium rates are generally
established by the Company based on anticipated health care costs. The Company
believes its current health care cost trend is in the 3% to 4% range. In
response to this cost trend, the Company has been increasing premium rates in
excess of 5% on new and existing commercial health plan business in the last
half of 1996 and continuing throughout 1997.
The medical care ratio for the second quarter of 1997 was 84.7%, down
slightly from 84.8% in the comparable period a year ago. For the six months, the
medical care ratio increased from 83.8% in 1996 to 84.6% in 1997. The increase
in the six month 1997 medical care ratio is the result of several factors. A few
health plan markets, most notably Maryland, Rhode Island and the Gulf Coast, had
medical care ratios substantially higher than the Company's other health plans
in the aggregate. While the reasons varied from plan to plan, these results can
generally be attributed to medical cost controls and provider contracting
10
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
initiatives not being fully implemented and insufficient commercial premium
yields relative to corresponding medical costs. The Company anticipates
performance will improve in these markets; however, the Company believes these
health plans will continue to moderate the Company's overall results through the
remainder of 1997. The rapid growth associated with recently introduced Medicare
products in several new markets (with the proportionately higher medical care
ratios expected at this early stage of product introduction) and the absence of
Medicaid premium increases also contributed to the increased medical care ratio.
Further Medicaid premium reductions in certain markets are possible during the
second half of 1997 and this factor may affect the Company's ability to improve
its overall medical care ratio in the near term.
In the second quarter of 1996, the Company recorded a provision to cover the
estimated losses expected to be incurred through the remaining term of two
large, multi-year contracts in its St. Louis health plan of $45.0 million. These
contracts covered approximately 23% of the health plan's total commercial
insured enrollment at that time and run through 1998. With the contract loss
provision, the medical expense ratio was 86.9% for the second quarter of 1996
and 85.0% for the six months ended June 30, 1996.
MANAGEMENT SERVICES AND FEE REVENUES
Management services and fee revenues for the three and six months ended June
30, 1997 were $366 million and $722 million compared to $352 million and $710
million for the same periods in 1996. These revenues are primarily generated
from self-funded indemnity products wherein the Company receives a fee for the
provision of administrative services and generally assumes no financial
responsibility for health care costs associated with these products.
Additionally, the company generates fee revenues from administrative services
performed on behalf of managed health plans and for services provided by the
Company's specialty managed care services.
Management services and fee revenues from self-funded indemnity products
decreased $19 million through the first six months of 1997 compared to the same
period in 1996 as a result of declining enrollment in this product. This
decrease is fully offset by an increase in revenues generated from the Company's
other sources of management services and fee revenues, attributable to
enrollment growth within the managed health plans and an increase in lives
served by the specialty managed care services operations, most notably in the
behavioral health and demand management businesses.
INVESTMENT AND OTHER INCOME
Investment and other income of $64 million in the second quarter of 1997
increased by $19 million, or 41%, over the second quarter of 1996. For the six
months ended June 30, 1997, investment and other income of $115 million
increased by $24 million, or 26%, over the same period in 1996. The increase in
investment and other income is primarily attributable to an increase in cash and
investments of $402 million, or 13%, from June 30, 1996 to June 30, 1997 and a
decision to extend maturities on a portion of the Company's investments, thereby
generating a higher rate of return. Additionally, during the second quarter of
1997, the Company recorded a $0.02 per share gain on the sale of its subsidiary,
United HealthCare Administrators, Inc.
11
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs as a percent of total revenues
(the SG&A ratio) decreased from 21.7% in the second quarter of 1996 to 20.2% in
the first quarter of 1997, and remained flat at 20.2% in the second quarter.
This improvement in the SG&A ratio reflects ongoing operating efficiencies as
well as the Company's diligence in managing these expenses. On an absolute
dollar basis, selling, general and administrative costs in the first half of
1997 increased $117 million, or 11%, over the first half of 1996, reflecting the
additional infrastructure necessary to support the corresponding $936 million
increase in premium-based business, as well as additional investment in new
Medicare markets and increased support for its growing specialty managed care
service operations.
INFLATION
Although the general rate of inflation has remained relatively stable and
health care cost inflation has declined in recent years, the total national
health care cost inflation rate still exceeds the general inflation rate. The
Company uses various strategies to mitigate the negative effects of health care
cost inflation, including setting commercial premiums based on its anticipated
health care costs, risk-sharing arrangements with the Company's various health
care providers, and other health care cost containment measures. Specifically,
the Company's health plans attempt to control medical and hospital costs through
contractual arrangements primarily with independent providers of health care
services. Cost-effective delivery of health care services by such health care
providers is encouraged by emphasizing preventive health services, the
appropriate use of specialty referral services, and the reduction of unnecessary
hospitalizations. While the Company currently believes its strategies to
mitigate health care cost inflation will continue to be successful, competitive
pressures, new health care product introductions, demands from providers and
customers, applicable regulations or other factors may adversely affect the
Company's ability to control the impact of health care cost increases. In
addition, certain non-network-based products do not have similar health care
cost containment measures as the Company's network-based managed care products.
As a result, the Company is subject to more health care cost inflation risk with
these products.
GOVERNMENT REGULATION
The Company's primary business, offering health care coverage and health
care management services, is heavily regulated at both the federal and state
levels. The Company believes that it is in compliance in all material respects
with the various federal and state regulations applicable to its current
operations. To maintain such compliance, it may be necessary for the Company or
one of its subsidiaries to make changes from time to time in its services,
products, marketing methods, or organizational or capital structure.
Government regulation of health care coverage products and services is a
changing area of law that varies from jurisdiction to jurisdiction. Changes in
applicable laws and regulations are continually being considered and the
interpretation of existing laws and rules also may change from time to time.
Regulatory agencies generally have broad discretion in promulgating regulations
and in interpreting and enforcing laws and rules.
While the Company is unable to predict what regulatory changes may occur or
the impact on the Company of any particular change, the Company'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 the Company to enroll people under products developed for the
Medicare and Medicaid-eligible populations. Other proposed changes also may
limit the reimbursement available to
12
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
the Company and increase competition in those programs, which could adversely
affect the Company's financial results. The continued consideration and
enactment of "anti-managed care" laws and regulations by federal and state
bodies may make it more difficult for the Company to control medical costs and
may adversely affect financial results.
A number of jurisdictions have enacted small group insurance and rating
reforms, which generally limit the ability of insurers and health plans to use
risk selection as a method of controlling medical costs for small group
business. These laws generally may 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, medical
cost control through provider contracting and managing care may become more
important, and the Company currently believes its experience in these areas will
allow it to compete effectively.
In addition to changes in applicable laws and rules, the Company is
potentially subject to governmental audits, investigations and enforcement
actions. These include possible government actions relating to the federal
Employee Retirement Income Security Act (ERISA), which regulates insured and
self-insured health coverage plans offered by employers, 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 the Company is currently involved in various
government audits, such as under the FEHBP or relating to services for ERISA
plans, the Company currently does not believe the results of such audits will
have a material adverse effect on the Company's financial position or results of
operations.
FINANCIAL CONDITION AND LIQUIDITY
Cash and investments at June 30, 1997 were $3.5 billion, a $102 million
increase in the second quarter of 1997 and a $82 million increase compared to
December 31, 1996. The increase in cash and investments since year-end is
primarily a result of cash generated from operations of $133 million and
proceeds received from common stock issuances of $47 million partially offset by
$90 million in purchases of property and equipment and capitalized software
payments.
Under applicable state regulations, several of the Company's subsidiaries
are required to maintain capital levels to support their operations. After
giving effect to these regulations and certain business considerations, the
Company had approximately $934 million in cash and investments available for
general corporate use at June 30, 1997.
The Company continues to focus on expanding its health care programs to the
Medicare population. In connection with the introduction of a Medicare health
plan product in a particular site, significant expenditures must be incurred.
These start-up expenditures include a lengthy and detailed regulatory approval
process, product-specific provider contracting and network configuration, high
up-front sales and marketing costs, and staffing of service areas in advance of
product sales. In addition, start-up markets generally experience a higher
medical care ratio due to the low enrollment base. The Company expects to incur
operating losses from its Medicare products in these start-up markets usually
for the first 12 to 18 months until Medicare enrollment is sufficient to cover
the corresponding administrative cost structure in each site and to absorb the
medical risk attributable to these products.
13
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
In February 1997, the Company completed a contract to deliver Medicare
supplement insurance and is developing an array of new products for the American
Association of Retired Persons (AARP) beginning in January 1998. Under the terms
of the 10-year contract, the Company's portion of the AARP insurance offerings
is expected to represent approximately $3.5 billion in annual premium revenue
from over 4.5 million policyholders.
The Company currently believes its available cash resources will be
sufficient to meet its current operating requirements and internal development
and integration initiatives. In addition, the Company believes that, based on
its current financial condition and results of operations, it would be able to
finance additional cash requirements in the public or private markets, if
necessary.
There currently are no other material definitive commitments for future use
of the Company's available cash resources; however, management continually
evaluates opportunities to expand its operations, which includes internal
development of new products and programs and may include additional
acquisitions.
14
<PAGE>
UNITED HEALTHCARE CORPORATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
The following exhibits are filed in response to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- -------------- -------------------------------------------------------------------------
<S> <C> <C>
Exhibit 10(a ) -- United HealthCare Corporation Amended
and Restated 1991 Stock and Incentive Plan
Exhibit 10(b ) -- United HealthCare Corporation Nonemployee
Director Stock Option Plan
Exhibit 10(c ) -- United HealthCare Corporation 1997
Long-Term Incentive Program
Exhibit 11 -- Statements Re Computation of Per Share Earnings
Exhibit 15 -- Letter Re Unaudited Interim Financial Information
Exhibit 99 -- Cautionary Statements
</TABLE>
15
<PAGE>
UNITED HEALTHCARE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
UNITED HEALTHCARE CORPORATION
By /s/ WILLIAM W. MCGUIRE, M.D.
------------------------------------------
Dated: August 13, 1997 William W. McGuire, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By /s/ DAVID P. KOPPE
------------------------------------------
Dated: August 13, 1997 David P. Koppe
CHIEF FINANCIAL OFFICER
</TABLE>
16
<PAGE>
UNITED HEALTHCARE CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
10(a) United HealthCare Corporation Amended and Restated 1991 Stock and Incentive Plan...................
10(b) United HealthCare Corporation Nonemployee Director Stock Option Plan...............................
10(c) United HealthCare Corporation 1997 Long-Term Incentive Program.....................................
11 Statements Re Computation of Per Share Earnings....................................................
15 Letter Re Unaudited Interim Financial Information..................................................
99 Cautionary Statements..............................................................................
</TABLE>
<PAGE>
UNITED HEALTHCARE CORPORATION
AMENDED AND RESTATED
1991 STOCK AND INCENTIVE PLAN,
AMENDED AND RESTATED EFFECTIVE MAY 14, 1997
1. PURPOSE OF PLAN.
This Plan shall be known as the "United HealthCare Corporation 1991
Stock and Incentive Plan" and is hereinafter referred to as the "Plan". The
purpose of the Plan is to aid in maintaining and developing personnel capable
of contributing to the future success of United HealthCare Corporation, a
Minnesota corporation (the "Company"), to offer such personnel additional
incentives to put forth maximum efforts for the success of the business, and
to afford them an opportunity to acquire a proprietary interest in the
Company through stock options and other awards as provided herein. Options
granted under this Plan may be either incentive stock options ("Incentive
Stock Options") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code), or options which do not qualify as
Incentive Stock Options. Awards granted under this Plan shall be SARs,
restricted stock or performance awards as hereinafter described.
2. STOCK SUBJECT TO PLAN.
Subject to the adjustments authorized by Section 15 hereof and the
provisions of the remaining subsection of this Section 2, the stock to be
subject to options or other awards under the Plan shall be the Company's
authorized common shares, par value $.01 per share (the "Shares"). Such
shares may be either authorized but unissued shares, or issued shares which
have been reacquired by the Company. Subject to adjustment as provided in
Section 15 hereof, the number of shares on which options may be exercised or
other awards issued under this Plan shall be 3,000,000 shares plus a number
of shares equal to the sum of (i) one and one-half percent of the number of
shares of the Company's Common Stock outstanding as of the December 31
immediately preceding the year in which such options may be granted plus (ii)
options for such number of shares of Common Stock as were available for grant
in any preceding year and were not otherwise granted. If awards lapse,
expire, terminate or are canceled prior to the issuance of shares, or if
shares issued under an option are reacquired by the Company pursuant to this
Plan, those shares will be available for new awards. Notwithstanding the
foregoing, the number of Shares that may be subject to Incentive Stock
Options granted under the Plan may not exceed 1,000,000; such number may be
adjusted pursuant to Section 15.
3. ADMINISTRATION OF PLAN.
(a) The Plan shall be administered by a committee (the "Committee") of
two or more directors of the Company, none of whom shall be officers or
employees of the Company and all of whom shall be "Non-Employee Directors"
with respect to the Plan within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, and any successor rule. The members of the
Committee shall be appointed by and serve at the pleasure of the Board of
Directors.
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Shares covered by each option, (ii) to determine the
employees to whom and the time or times at which such options and awards
shall be granted and the number of shares to be subject to each, (iii) to
determine the form of payment to be made upon the exercise of an SAR or in
connection with performance awards, either cash, Common Shares of the Company
or a combination thereof, (iv) to determine the terms of exercise of each
option and award, (v) to accelerate the time at which all or any part of an
option or award may be exercised, (vi) to amend or modify the terms of any
option or award with the consent of the holder of the optionee or grantee,
(vii) to interpret the Plan, (viii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (ix) to determine the terms and provisions
of each option or award agreement under the Plan (any of which agreements
need not be identical), including the designation of those options intended to
<PAGE>
be Incentive Stock Options, (x) to delegate such of its authority granted
herein as it deems is in the best interests of the Company, and (xi) to make
all other determinations necessary or advisable for the administration of the
Plan, subject to the exclusive authority of the Board of Directors under
Section 16 herein to amend or terminate the Plan. The Committee's
determinations on the foregoing matters, unless otherwise disapproved by the
Board of Directors of the Company, shall be final and conclusive; provided,
however, that the Committee's determinations with respect to the matters set
forth in clauses (ii) and (iii) above, unless delegated as provided in
subsection 3(C) below, shall be final and conclusive without any right of
disapproval by the Board of Directors of the Company.
(c) The Chief Executive Officer of the Company shall have the
authority, as granted by the Committee pursuant to clause (x) of the
preceding subsection, to grant, pursuant to the Plan, options or other awards
to eligible persons who are not considered by the Company as its officers or
directors for purposes of Section 16 of the Securities Exchange Act of 1934,
as amended. The Chief Executive Officer of the Company shall provide
information as to any grants made pursuant to this subsection to the
Committee at its next meeting.
(d) The Committee shall select one of its members as its Chairperson
and shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of the
Committee shall be made by not less than a majority of its members. Any
decision or determination reduced to writing and signed by all of the members
of the Committee shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The grant of an option or
award shall be effective only if a written agreement shall have been duly
executed and delivered by and on behalf of the Company following such grant.
The Committee may appoint a Secretary and may make such rules and regulations
for the conduct of its business as it shall deem advisable.
4. ELIGIBILITY.
Incentive Stock Options may be granted under this Plan only to any full
or part-time employee (which term as used herein includes, but is not limited
to, officers and directors who are also employees) of the Company and of its
present and future subsidiary corporations within the meaning of Section
424(f) of the Code (herein called "subsidiaries"). Full or part-time
employees, consultants or independent contractors to the Company or one of
its subsidiaries shall be eligible to receive awards and options which do not
qualify as Incentive Stock Options. In determining the persons to whom
options and awards shall be granted and the number of shares subject to each,
the Committee may take into account the nature of services rendered by the
respective employees or consultants, their present and potential
contributions to the success of the Company and such other factors as the
Committee in its discretion shall deem relevant. A person who has been
granted an option or award under this Plan may be granted additional options
or awards under the Plan if the Committee shall so determine; provided,
however, that for Incentive Stock Options granted after December 31, 1986, to
the extent the aggregate fair market value (determined at the time the
Incentive Stock Option is granted) of the Common Shares with respect to which
all Incentive Stock Options are exercisable for the first time by an employee
during any calendar year (under all plans described in subsection (d) of
Section 422 of the Code of his or her employer corporation and its parent and
subsidiary corporations) exceeds $100,000, such options shall be treated as
options which do not qualify as Incentive Stock Options. Nothing in the Plan
or in any agreement thereunder shall confer on any employee any right to
continue in the employ of the Company or any of its subsidiaries or affect in
any way the right of the Company or any of its subsidiaries to terminate his
or her employment at any time.
2
<PAGE>
5. PRICE.
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the
fair market value of the Common Shares at the date of grant of such option.
The option price for options granted under the Plan which do not qualify as
Incentive Stock Options and, if applicable, the price for all awards shall
also be determined by the Committee. For purposes of the preceding sentence
and for all other valuation purposes under the Plan, the fair market value of
the Common Shares shall be as reasonably determined by the Committee, but
shall not be less than the closing price of the stock on the date for which
fair market value is being determined, as reported on any national securities
exchange on which the Common Shares are then traded. If on the date of grant
of any option or award hereunder the Common Shares are not traded on an
established securities market, the Committee shall make a good faith attempt
to satisfy the requirements of this Section 5 and in connection therewith
shall take such action as it deems necessary or advisable.
6. TERM.
Each option and award and all rights and obligations thereunder shall
expire on the date determined by the Committee and specified in the option or
award agreement. The Committee shall be under no duty to provide terms of
like duration for options or awards granted under the Plan, but the term of
an Incentive Stock Option may not extend more than ten (10) years from the
date of grant of such option and the term of options granted under the Plan
which do not qualify as Incentive Stock Options may not extend more than
fifteen (15) years from the date of grant of such option.
7. EXERCISE OF OPTION OR AWARD.
(a) The Committee shall have full and complete authority to determine
whether the option or award will be exercisable in full at any time or from
time to time during the term thereof, or to provide for the exercise thereof
in such installments, upon the occurrence of such events, such as termination
of employment for any reason, and at such times during the term of the option
or award as the Committee may determine and specify in the option or award
agreement.
(b) The exercise of any option or award granted hereunder shall be
effective only at such time as the sale of Common Shares pursuant to such
exercise will not violate any state or federal securities or other laws. To
the extent required in order to comply with Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, in the case of an option or award granted
to a person considered by the Company as one of its officers or directors for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended,
the terms of the option or award will require that such shares are not
disposed of by such officer or director for a period of at least six months
from the date of grant.
(c) An optionee or grantee electing to exercise an option or award
shall give written notice to the Company of such election and of the number
of shares subject to such exercise. The Company will verify the
appropriateness of the election and determine the compensation and related
withholding tax amounts. The exercise amount and applicable taxes must be
tendered by the employee prior to the issuance of shares pursuant to the
exercise. Payment shall be made to the Company in cash (including wire
transfer, bank check, certified check, personal check, or money order), or,
at the discretion of the Committee and as specified by the Committee, (i) by
delivering certificates for the Company's Common Shares already owned by the
optionee or grantee having a fair market value as of the date of grant equal
to the full purchase price of the shares, together with any applicable
withholding taxes, or (ii) a combination of cash and such shares; provided,
however, that an optionee shall not be entitled to tender shares of the
Company's Common Stock pursuant to successive, substantially simultaneous
exercises of options granted under this or any other stock option plan of the
Company. The fair market value of such tendered shares shall be determined
as provided in Section 5 herein. Until such person has been issued
3
<PAGE>
the shares subject to such exercise, he or she shall possess no rights as a
shareholder with respect to such shares.
8. ALTERNATIVE STOCK APPRECIATION RIGHTS.
(a) GRANT. At the time of grant of an option or award under the Plan
(or at any other time), the Committee, in its discretion, may grant a Stock
Appreciation Right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR, which agreement shall comply with and be subject to
the following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) EXERCISE. An SAR shall be exercised by the delivery to the Company
of a written notice which shall state that the holder thereof elects to
exercise his or her SAR as to the number of shares specified in the notice
and which shall further state what portion, if any, of the SAR exercise
amount (hereinafter defined) the holder thereof requests be paid to him or
her in cash and what portion, if any, is to be paid in Common Shares of the
Company. The Committee promptly shall cause to be paid to such holder the
SAR exercise amount, less any applicable withholding taxes, either in cash,
in Common Shares of the Company, or in any combination of cash and shares as
the Committee may determine. Such determination may be either in accordance
with the request made by the holder of the SAR or in the sole and absolute
discretion of the Committee. The SAR exercise amount is the excess of the
fair market value of one share of the Company's Common Shares on the date of
exercise over the per share exercise price in respect of which the SAR was
granted, multiplied by the number of shares as to which the SAR is exercised.
For the purposes, hereof, the fair market value of the Company's shares
shall be determined as provided in Section 5 herein.
9. RESTRICTED STOCK AWARDS.
Awards of Common Shares subject to forfeiture and transfer restrictions
may be granted by the Committee. Any restricted stock award shall be
evidenced by an agreement in such form as the Committee shall from time to
time approve, which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan:
(a) GRANT OF RESTRICTED STOCK AWARDS. Each restricted stock award made
under the Plan shall be for such number of Common Shares as shall be
determined by the Committee and set forth in the agreement containing the
terms of such restricted stock award. Such agreement shall set forth a
period of time during which the grantee must remain in the continuous
employment of the Company in order for the forfeiture and transfer
restrictions to lapse. If the Committee so determines, the restrictions may
lapse during such restricted period in installments with respect to specified
portions of the shares covered by the restricted stock award. The agreement
may also, in the discretion of the Committee, set forth performance or other
conditions that will subject the Common Shares to forfeiture and transfer
restrictions. The Committee may, at its discretion, waive all or any part of
the restrictions applicable to any or all outstanding restricted stock
awards, provided that, in the case of restricted stock awards made to a
person considered by the Company as an officer or director for purposes of
Section 16 of the Securities Act of 1934, as amended, the terms of such
restricted stock agreement will provide that the stock so awarded may not be
disposed of for a period of at least six months from the date the award was
made.
4
<PAGE>
(b) DELIVERY OF COMMON SHARES AND RESTRICTIONS. At the time of a
restricted stock award, a certificate representing the number of Common
Shares awarded thereunder shall be registered in the name of the grantee.
Such certificate shall be held by the Company or any custodian appointed by
the Company for the account of the grantee subject to the terms and
conditions of the Plan, and shall bear such a legend setting forth the
restrictions imposed thereon as the Committee, in its discretion, may
determine. The grantee shall have all rights of a shareholder with respect
to the Common Shares, including the right to receive dividends and the right
to vote such shares, subject to the following restrictions: (i) the grantee
shall not be entitled to delivery of the stock certificate until the
expiration of the restricted period and the fulfillment of any other
restrictive conditions set forth in the restricted stock agreement with
respect to such Common Shares; (ii) none of the Common Shares may be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or
disposed of during such restricted period or until after the fulfillment of
any such other restrictive conditions; and (iii) except as otherwise
determined by the Committee, all of the shares shall be forfeited and all
rights of the grantee to such shares shall terminate, without further
obligation on the part of the Company, unless the grantee remains in the
continuous employment of the Company for the entire restricted period in
relation to which such Common Shares were granted and unless any other
restrictive conditions relating to the restricted stock award are met. Any
Common Shares, any other securities of the Company and any other property
(except for cash dividends) distributed with respect to the Common Shares
subject to restricted stock awards shall be subject to the same restrictions,
terms and conditions as such restricted Common Shares.
(c) TERMINATION OF RESTRICTIONS. At the end of the restricted period
and provided that any other restrictive conditions of the restricted stock
award are met, or at such earlier time as otherwise determined by the
Committee, all restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse as to the restricted Common
Shares subject thereto. Upon payment by the grantee to the Company of any
withholding tax required to be paid, a stock certificate for the appropriate
number of Common Shares, free of the restrictions and the restricted stock
legend, shall be delivered to the grantee or his or her beneficiary or
estate, as the case may be.
10. PERFORMANCE AWARDS.
The Committee is further authorized to grant performance awards.
Subject to the terms of this Plan and any applicable award agreement, a
performance award granted under the Plan (i) may be denominated or payable in
cash, Common Shares (including, without limitation, restricted stock), other
securities, other awards, or other property and (ii) shall confer on the
holder thereof rights valued as determined by the Committee, in its
discretion, and payable to, or exercisable by, the holder of the performance
awards, in whole or in part, upon achievement of such performance goals
during such performance periods as the Committee, in its discretion, shall
establish. Subject to the terms of this Plan and any applicable award
agreement, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any performance
award granted, and the amount of any payment or transfer to be made by the
grantee and by the Company under any performance award shall be determined by
the Committee.
11. INCOME TAX WITHHOLDING AND TAX BONUSES.
(a) In order to comply with all applicable federal, state or local
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state or local payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of an optionee or grantee under the Plan, are withheld or
collected from such optionee or grantee prior to his or her receipt of Common
Shares pursuant to the exercise of an option or the satisfaction of the
conditions of any other award. In order to assist an optionee or grantee in
paying all federal and state taxes to be withheld or collected upon exercise
of an option or award which does not qualify as an Incentive Stock
5
<PAGE>
Option hereunder, the Committee, in its absolute discretion and subject to
such additional terms and conditions as it may adopt, shall permit the
optionee or grantee to satisfy such tax obligation by (i) electing to have
the Company withhold a portion of the shares otherwise to be delivered upon
exercise of such option or award with a fair market value, determined in
accordance with Section 5 herein, equal to such taxes or (ii) delivering to
the Company Common Shares other than the shares issuable upon exercise of
such option or award with a fair market value, determined in accordance with
Section 5, equal to such taxes. The election must be made on or before the
date that the amount of tax to be withheld is determined.
(b) The Committee shall have the authority, at the time of grant of an
option under the Plan or at any time thereafter, to approve tax bonuses to
designated optionees or grantees to be paid upon their exercise of options or
awards granted hereunder. The amount of any such payments shall be
determined by the Committee but shall not exceed one hundred percent (100%)
of the excess of the fair market value of the shares received upon exercise
of an option or award over the price paid therefor. The Committee shall have
full authority in its absolute discretion to determine the amount of any such
tax bonus and the terms and conditions affecting the vesting and payment
thereof.
12. ADDITIONAL RESTRICTIONS.
The Committee shall have full and complete authority to determine
whether all or any part of the Common Shares of the Company acquired upon
exercise of any of the options or awards granted under the Plan shall be
subject to restrictions on the transferability thereof or any other
restrictions affecting in any manner the optionee's or grantee's rights with
respect thereto, but any such restriction shall be contained in the agreement
relating to such options or awards.
13. TEN PERCENT SHAREHOLDER RULE.
Notwithstanding any other provision in the Plan, if at the time an
option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 424(d) of the Code)
Common Shares of the Company possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or its
parent or subsidiary corporations (within the meaning of Section 422(b)(5) of
the Code), then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of Section 422(c)(5) of
the Code, and the option price shall be not less than 110% of the fair market
value of the Common Shares of the Company determined as described herein, and
such option by its terms shall not be exercisable after the expiration of
five (5) years from the date such option is granted.
14. NONTRANSFERABILITY.
No option or award granted under the Plan shall be transferable by an
optionee or grantee, otherwise than by will or the laws of descent or
distribution. Except as otherwise provided in an option or award agreement,
during the lifetime of an optionee or grantee, the option or award shall be
exercisable only by such optionee or grantee. The Committee shall have the
authority to waive the provisions of this Section with respect to any grant
of options under the Plan subject to such terms, conditions or limitations as
they may, in their discretion impose.
15. DILUTION OR OTHER ADJUSTMENTS.
If there shall be any change in the Common Shares through merger,
consolidation, reorganization, recapitalization, dividend in the form of
stock (of whatever amount), stock split or other change in the corporate
structure, appropriate adjustments in the Plan and outstanding options and
awards shall be made by the Committee. In the event of any such changes,
adjustments shall include, where appropriate, changes in the aggregate number
of shares subject to the Plan, the number of shares
6
<PAGE>
and the price per share subject to outstanding options and awards and the
amount payable upon exercise of outstanding awards, in order to prevent
dilution or enlargement of option or award rights.
16. AMENDMENT OR DISCONTINUANCE OF PLAN.
The Board of Directors may amend or discontinue the Plan at any time.
Subject to the provisions of Section 15 no amendment of the Plan, however,
shall without shareholder approval: (a) increase the number of shares
authorized under the Plan as provided in Section 2 herein, (b) decrease the
minimum price provided in Section 5 herein, (c) extend the maximum term under
Section 6, or (d) modify the eligibility requirements for participation in
the Plan. The Committee, or the Company's Chief Executive Officer as
authorized by the Committee, may grant, each year, options and awards for the
number of shares authorized by Section 2 herein without further amendment to
the Plan increasing the number of shares authorized for distribution. The
Board of Directors shall not alter or impair any option or award theretofore
granted under the Plan without the consent of the holder of the option or
award.
17. TIME OF GRANTING.
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the shareholders of the Company, and
no action taken by the Committee, the Chief Executive Officer or the Board of
Directors (other than the execution and delivery of an option or award
agreement), shall constitute the granting of an option or award hereunder.
18. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The Plan was approved by the Board of Directors on February 15,
1993, and shall be approved by the shareholders of the Company within twelve
(12) months thereof.
(b) Unless the Plan shall have been discontinued as provided in Section
16 hereof, the Plan shall terminate on February 14, 2003. No option or award
may be granted after such termination, but termination of the Plan shall not,
without the consent of the optionee or grantee, alter or impair any rights or
obligations under any option or award theretofore granted.
19. OPTION AND AWARD LIMITATIONS UNDER THE PLAN.
No participant who is an employee of the Company at the time of grant
may be granted an option or award the value of which is based solely on an
increase in the value of the shares after the date of grant of such option or
awards for more than 1,000,000 shares, in the aggregate, in any one calendar
year period beginning with the period commencing on January 1, 1996 and
ending December 31, 1996. The foregoing annual limitation specifically
includes the grant of any options or awards representing qualified
performance-based compensation within the meaning of Section 162(m) of the
Code.
7
<PAGE>
UNITED HEALTHCARE CORPORATION
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDED AND RESTATED EFFECTIVE MAY 14, 1997
SECTION 1. PURPOSE.
This plan shall be known as the "United HealthCare Corporation
Nonemployee Director Stock Option Plan" and is hereinafter referred to as the
"Plan." The purpose of the Plan is to promote the interests of United
HealthCare Corporation, a Minnesota corporation (the "Company"), by enhancing
its ability to attract and retain the services of experienced and
knowledgeable independent directors and by providing additional incentive for
these directors to increase their interest in the Company's long-term success
and progress.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a committee (the "Committee") of two
or more persons appointed by the Board of Directors of the Company. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic as described in Section 6. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Committee and such determination shall be final and binding
upon all persons having an interest in the Plan.
SECTION 3. PARTICIPATION IN THE PLAN.
Each director of the Company shall be eligible to participate in the
Plan unless such director is an employee of the Company or any subsidiary of
the Company.
SECTION 4. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 10 hereof, the stock to be subject
to options under the Plan shall be authorized but unissued shares of the
Company's common stock, par value $.01 per share (the "Common Stock").
Subject to adjustment as provided in Section 10 hereof, the maximum number of
shares with respect to which options may be exercised under this Plan shall
be 350,000 shares. If an option under the Plan expires, or for any reason is
terminated, any shares that have not been purchased upon exercise of
<PAGE>
the option prior to the expiration or termination date shall again be
available for options thereafter granted during the term of the Plan.
SECTION 5. NONQUALIFIED STOCK OPTIONS.
All options granted under the Plan shall be nonqualified stock options
that do not qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
Each option granted under this plan shall be evidenced by a written
agreement in such form as the Committee shall from time to time approve,
which agreements shall comply with and be subject to the following terms and
conditions:
(a) ANNUAL OPTION GRANTS. Each eligible director of the
Company in office on the first business day immediately following each
annual meeting of the Company's shareholders (the "Annual Option Grant
Date") held during the term of the Plan shall be granted automatically
on the Annual Option Grant Date an option to purchase 4,000 shares of
Common Stock, provided that no director shall be granted an option with
respect to an Annual Option Grant Date if such director has been
granted an option under Section 6(b) hereof within 12 months of such
Annual Option Grant Date, and except that, in lieu thereof, each
eligible director of the Company who is in office on the Annual Option
Grant Date immediately following the 1995 annual meeting of shareholders
(the "1995 Annual Meeting"), shall be granted automatically (i) an
option to purchase 16,000 shares of Common Stock on the Annual Option
Grant Date following the 1995 Annual Meeting, (ii) an option to
purchase 8,000 shares of Common Stock on the Annual Option Grant Date
following the 1996 annual meeting of shareholders, and (iii) an option
to purchase 4,000 shares of Common Stock on each Annual Option Grant
Date thereafter. Each option granted pursuant to this Section 6(a)
shall have an exercise price as determined pursuant to Section 7 hereof.
(b) INITIAL OPTION GRANTS. Each eligible director of the
Company that is elected to the Board of Directors after the Annual
Option Grant Date following the 1995 Annual Meeting shall be granted
automatically on the date that the director is elected to the Board of
Directors an option to purchase 9,000 shares of Common Stock.
Notwithstanding Section 6(e), the options granted pursuant to this
Section 6(b) shall not be exercisable for a period of one year after
the date on which they were granted, but thereafter will become
exercisable as to one-third of the shares covered by the option on each
anniversary date of the option grant. Each option granted pursuant to
this Section 6(d) shall have an exercise price as determined pursuant
to Section 7 hereof.
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<PAGE>
(c) OPTIONS NON-TRANSFERABLE. No option granted under the
Plan shall be transferable by the optionee otherwise than by will or by
the laws of descent and distribution as provided in Section 6(f)
hereof. During the lifetime of the optionee, the options shall be
exercisable only by such optionee. No option or interest therein may
be transferred, assigned, pledged or hypothecated by the optionee
during such optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar
process. The Committee shall have the authority to waive the
provisions of this Section with respect to any grant of options under
the Plan subject to such terms, conditions or limitations as they may,
in their discretion, impose.
(d) PERIOD OF OPTIONS. Options shall terminate upon the expiration
of 10 years from the date on which they were granted.
(e) EXERCISE OF OPTIONS.
(i) Options granted under the Plan shall not be exercisable
for a period of six months after the date on which they were granted,
but thereafter will be exercisable in full at any time or from time
to time during the term of the option, provided that options
granted under the Plan may become fully exercisable upon a
director's resignation from the Board of Directors or death of the
optionee.
(ii) The exercise of any option granted hereunder shall only be
effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to
such exercise will not violate any federal or state securities or
other laws. An optionee desiring to exercise an option may be
required by the Company, as a condition of the effectiveness of any
exercise of an option granted hereunder, to agree in writing that all
Common Stock to be acquired pursuant to such exercise shall be held
for his or her own account without a view to any distribution
thereof, that the certificates for such shares shall bear an
appropriate legend to that effect and that such shares will not be
transferred or disposed of except in compliance with applicable
federal and state securities laws.
(iii) An optionee electing to exercise an option shall give
written notice to the Company of such election and of the number
of shares subject to such exercise. The full purchase price of such
shares shall be tendered with such notice of exercise. Payment shall
be made to the Company in cash (including check, bank draft or money
order).
(f) Effect of Death. If the optionee shall die prior to the time the
option is fully exercised, such option may be exercised at any time within
one year after his or her death by the personal representatives or
administrators of the optionee or by
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<PAGE>
any person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution, to the extent of the full
number of shares the optionee was entitled to purchase under the option
on the date of death and subject to the condition that no option shall
be exercisable after the expiration of the term of the option.
SECTION 7. OPTION EXERCISE PRICE.
The option exercise price per share for the shares covered by each
option shall be equal to the "fair market value" of a share of Common Stock
as of the date on which the option is granted. For the purposes of the Plan,
the fair market value of the Common Stock on a given date shall be the
closing price of the Common Stock on such date on the New York Stock
Exchange, Inc. (the "NYSE") Composite Tape, if the Common Stock is then being
traded on the NYSE. If on the date as of which the fair market value is
being determined the Common Stock is not publicly traded, the Committee shall
make a good faith attempt to determine such fair market value and, in
connection therewith, shall take such actions and consider such factors as it
deems necessary or advisable.
SECTION 8. TIME FOR GRANTING OPTIONS.
Unless the Plan shall have been discontinued as provided in Section 12
hereof, the Plan shall terminate upon the expiration of 10 years from the
date upon which it takes effect as provided in Section 11 hereof. No option
may be granted after such termination, but termination of the Plan shall not,
without the consent of the optionee, alter or impair any rights or
obligations under any option theretofore granted.
SECTION 9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan,
shall constitute, or be evidence of, any agreement or understanding,
express or implied, that the Company will retain a director for any
period of time, or at any particular rate of compensation.
(b) NO SHAREHOLDER RIGHTS FOR OPTIONS. An optionee shall have
no rights as a shareholder with respect to the shares covered by options
until the date of the issuance to such optionee of a stock certificate
therefor, and no adjustment will be made for cash dividends or other
rights for which the record date is prior to the date such certificate
is issued.
SECTION 10. ADJUSTMENTS TO COMMON STOCK.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, stock dividend (of whatever
amount), stock split or other
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<PAGE>
change in the corporate structure, appropriate adjustments in the Plan and
outstanding options shall be made. In the event of any such changes,
adjustments shall include, where appropriate, changes in the aggregate number
of shares subject to the Plan, the number of shares subject to outstanding
options and the option exercise prices thereof in order to prevent dilution
or enlargement of option rights.
SECTION 11. EFFECTIVE DATE OF THE PLAN.
The Plan shall take effect immediately upon its approval by the
affirmative vote of the holders of a majority of the shares present in person
or by proxy and voted at a duly held meeting of shareholders of the Company.
SECTION 12. AMENDMENT OF THE PLAN.
The Board may suspend or discontinue the Plan or revise or amend it in
any respect whatsoever; provided, however, that without approval of the
shareholders of the Company no revision or amendment shall be made that (a)
absent such shareholder approval, would cause Rule 16b-3, as promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act", or any successor rule or regulation
thereto, to become unavailable with respect to the Plan, or (b) requires the
approval of the Company's shareholders under any rules or regulations of the
NYSE that are applicable to the Company. The Board shall not alter or impair
any option theretofore granted under the Plan without the consent of the
holder of the option.
SECTION 13. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Minnesota and construed
accordingly.
SECTION 14. COMPLIANCE WITH EXCHANGE ACT.
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Committee fails to so
comply, such provision or action shall be deemed null and void to the extent
permitted by law and deemed advisable by the Committee.
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<PAGE>
United HealthCare Corporation
1997 Long-Term Incentive Plan
adopted pursuant to
Amended and Restated 1991 Stock and Incentive Plan
1. Establishment. This 1997 Long-Term Incentive Plan (this "Plan") is
adopted under and pursuant to the United HealthCare Corporation Amended and
Restated 1991 Stock and Incentive Plan, Amended and Restated Effective August
15, 1996 (the "1991 Plan"). This Plan was approved and adopted by the Committee
referred to in Section 3 of the 1991 Plan on February 11, 1997.
2. Purpose. The purpose of this Plan is to advance the interests of
United HealthCare Corporation and its shareholders by attracting and retaining
key employees, and by stimulating the efforts of such employees to contribute to
the continued success and growth of the business of United HealthCare
Corporation.
3. Definitions. When the following terms are used herein with initial
capital letters, they shall have the following meanings:
3.1. "Additional Start-Up Period" has the meaning assigned in Section 4.3.
3.2. "Award" means a Cash Award or a Stock-Based Award.
3.3. "Cash Award" means a single lump sum cash payment payable to a
Participant under this Plan with respect to a Performance Period pursuant to
Section 5.
3.4. "Change in Control" means the occurrence of any of the following
events:
(a) The acquisition by any person, entity or "group," within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, other than the Company or any of its affiliates, or any
employee benefit plan of the Company and/or one or more of its
affiliates, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 20% or more of
either the then outstanding shares of the Company's Common Stock or the
combined voting power of the Company's then outstanding voting
securities in a transaction or series of transactions not approved in
advance by a vote of at least three-quarters of the Continuing Directors
(as hereinafter defined).
(b) Individuals who, as of January 1, 1997 constitute the Board of
Directors of the Company (generally the "Directors" and, as of January
1, 1997, the "Continuing Directors") cease for any reason to constitute
at least a majority thereof, provided that any person becoming a
Director subsequent to
<PAGE>
January 1, 1997 whose nomination for election was approved in advance by
a vote of at least three-quarters of the Continuing Directors (other
than a nomination of an individual whose initial assumption of office is
in connection with an actual or threatened solicitation with respect to
the election or removal of the Directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A under the Securities Exchange
Act of 1934) shall be deemed to be a Continuing Director.
(c) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, liquidation or dissolution of the
Company or of the sale (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company
other than a reorganization, merger, consolidation, liquidation,
dissolution or sale approved in advance by a vote of at least
three-quarters of the Continuing Directors.
(d) The first purchase under any tender offer or exchange offer
(other than an offer by the Company or any of its affiliates) pursuant
to which shares of the Company's Common Stock are purchased.
(e) At least a majority of the Continuing Directors determine in
their sole discretion that there has been a change of control of the
Company.
3.5. "Committee" means the Committee referred to in Section 3 of the 1991
Plan.
3.6. "Company" means United HealthCare Corporation, a Minnesota
corporation, and any of its more than 50%-owned subsidiaries, whether now
existing or hereafter established or acquired.
3.7. "First Performance Period" has the meaning assigned in Section 4.3.
3.8. "Maximum Award Level" means the Maximum Award Level for a Participant
and a Performance Period designated by the Committee pursuant to Section 4.2(e)
or 4.3.
3.9. "Participant" means any executive officer of the Company who is
designated by the Committee pursuant to Section 4.2(c) or 4.3 to participate
with respect to a Performance Period as a Participant in this Plan.
3.10. "Performance Measures" means measures of the Company's performance
designated by the Committee with respect to a Performance Period pursuant to
Section 4.2(b) or 4.3.
3.11. "Performance Period" means a period established by the Committee
pursuant to Section 4.2(a) or 4.3 for the purpose of determining Awards
payable or issuable pursuant to this Plan. Each Performance Period shall
begin on the first day of a fiscal year of the Company.
3.12. "Stock-Based Award" means a an award of the Company's Shares (as
defined in the 1991 Plan), options to acquire Shares, SARs (as defined in the
1991 Plan), or other stock-based award available under the 1991 Plan,
issuable to a Participant under this Plan with respect to a Performance
Period pursuant to Section 5.
3.13. "Target Award Level" means the Target Award Level for a
Participant and a Performance Period designated by the Committee pursuant to
Section 4.2(e) or 4.3.
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<PAGE>
4. Administration.
4.1. Power and Authority of Committee. This Plan shall be administered
by the Committee. The Committee shall have full power and authority, subject
to all the applicable provisions of this Plan, the 1991 Plan and applicable
law, to (a) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it deems necessary or advisable for the proper
administration of this Plan, (b) construe, interpret and administer this Plan
and any instrument or agreement relating to this Plan, (c) consult with the
Company's finance and accounting areas in making computations under this
Plan, and (d) make all other determinations and take all other actions
necessary or advisable for the administration of this Plan. Unless otherwise
expressly provided in this Plan or the 1991 Plan, each determination made and
each action taken by the Committee pursuant to this Plan or any instrument or
agreement relating to this Plan (i) shall be within the sole discretion of
the Committee, (ii) may be made at any time and (iii) shall be final, binding
and conclusive for all purposes on all persons, including, but not limited
to, Participants and their legal representatives and beneficiaries, and
employees of the Company.
4.2. Determination of Performance Periods, Etc. Except as provided in
Section 4.3 below with respect to the First Performance Period and the
Additional Start-Up Period, on or before the 90th day of each fiscal year of
the Company the Committee shall:
(a) Establish the length of the Performance Period, if any, which
will commence with the first day of such fiscal year. Unless otherwise
determined by the Committee, each Performance Period shall be a period of
two, three, four or five years.
(b) Designate the Performance Measures for determining Awards for
such Performance Period. Such Performance Measures may include growth in
earnings per share, growth in operating income per share, return on equity,
return on assets, total shareholder return, or such other measures as are
selected by the Committee. The Committee may, with respect to a
Performance Period, (i) select one Performance Measure or more than one
Performance Measure; (ii) establish goals based on the achievement of
alternative Performance Measures or based on the achievement of a
combination of Performance Measures; and (iii) select Performance Measures
and establish goals based on absolute performance or based on the
performance of a peer group of companies selected by the Committee or
determined in a manner specified by the Committee. Any Performance Measure
designated by the Committee for a Performance Period may be modified by the
Committee at any time during the first calendar quarter of such Performance
Period.
(c) Upon the recommendation of the Company's Chief Executive
Officer, designate the Participants in the Plan for such Performance
Period. The Committee's designation of an individual as a Participant for
one Performance Period does not require that the Committee designate such
individual as a Participant for any subsequent Performance Period. Each
Participant shall be an executive officer employed by the Company.
Directors of the Company who are not also employees of the Company shall
not be designated as Participants. The Committee may designate an
individual as a Participant in the Plan for a Performance Period after the
90th day of the first fiscal year in such Performance Period where such
individual's employment with the Company commences after such 90th day or
where such individual is promoted within the Company after such 90th day.
(d) Designate whether the Awards for such Performance Period will be
Cash Awards and/or Stock-Based Awards and, if Stock-Based Awards, specify
the nature (i.e., restricted stock, unrestricted stock, options, SARs, or
other) and terms of such
3
<PAGE>
Awards, which shall be consistent with the 1991 Plan; or specify that the
nature of such Awards shall be designated by the Committee at any time
during or after the end of such Performance Period.
(e) Designate the Target Award Level and the Maximum Award Level for
each Participant for such Performance Period.
(f) Determine the method for calculating Awards for such Performance
Period, based on the Performance Measures, goals, Target Award Levels and
Maximum Award Levels for such Performance Period.
4.3. First Performance Period and Additional Start-up Period. Concurrently
with the adoption of this Plan, the Committee is establishing two Performance
Periods. The first such Performance Period (the "First Performance Period")
shall commence January 1, 1997 and end December 31, 1999. The second such
Performance Period (the "Additional Start-Up Period") shall commence January 1,
1997 and end December 31, 1998. The Performance Measures, goals, Participants,
type of Awards, Target Award Levels, Maximum Award Levels, and method for
calculating Awards for the First Performance Period and the Additional Start-Up
Period, as approved by the Committee, are attached hereto as Exhibits A and B,
respectively.
4.4. Certification. As promptly as is feasible following the close of each
Performance Period and prior to payment or issuance of any Award to any
Participant under this Plan, the Committee shall certify in writing as to the
attainment of all goals upon which any Award to a Participant for that
Performance Period are to be based and the calculation of all such Awards.
5. Incentive Payments.
5.1. Awards. Each Participant with respect to a Performance Period shall
receive an Award for such Performance Period, of the type and calculated in the
manner previously determined by the Committee with respect to such Performance
Period, in an amount not greater than the Participant's Maximum Award Level for
such Performance Period. Notwithstanding the foregoing, if so specified in the
determinations provided for in Section 4.2, the Committee may, in its
discretion, increase or decrease a Participant's Award for a Performance Period
based on the Committee's assessment of non-financial factors relating to the
Participant's and/or the Company's performance during the Performance Period.
5.2. Time of Making Awards. Provided that the Committee has made the
certifications provided for in Section 4.4 hereof, Awards shall be paid or
issued to Participants as soon as is administratively feasible after the end of
a Performance Period and, unless the Committee has not made such certifications,
in no event more than six months after the end of such Performance Period.
Participants may elect to defer the receipt of all or any portion of a Cash
Award pursuant to any deferred compensation plan of the Company which is
applicable to such payments in which a Participant is eligible to participate.
5.3. Nontransferability. Participants and beneficiaries shall not have the
right to assign, encumber or otherwise anticipate the Awards to be made under
this Plan, and the benefits provided hereunder shall not be subject to seizure
for payment of any debts or judgments against any Participant or any
beneficiary.
5.4. Requirement of Continued Employment; Exceptions. Notwith-standing any
other provision herein, no Award will be paid or issued to any Participant
unless such Participant continues to be employed by the Company at the date of
payment or issuance, subject to the following exceptions:
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<PAGE>
(a) If a Participant retires with the approval of the Committee
before the end of a Performance Period or after the end of a Performance
Period but before payment or issuance is made, the Committee may, in its
discretion, determine that the Participant shall be paid or issued a pro
rated portion of the Award that the Participant would have received but for
such retirement. In such event, (i) the pro rationing shall be based on
the portion of such Performance Period prior to the Participant's
retirement, and (ii) the measurement of Performance Measures and the
achievement of goals shall be based on performance through the end of the
fiscal year of the Company which ends closest to the Participant's date of
retirement. The Committee shall determine the Participant's date of
retirement in a manner consistent with Company practices.
(b) If a Participant dies or becomes permanently and totally disabled
before the end of a Performance Period or after the end of a Performance
Period but before payment or issuance is made, the Committee may, in its
discretion, determine that the Participant (or, in the case of death, the
Participant's estate) shall be paid or issued a pro rated portion of the
Award that the Participant would have received but for such death or
disability. In such event, (i) the pro rationing shall be based on the
portion of such Performance Period prior to the Participant's death or
disability, and (ii) the measurement of Performance Measures and the
achievement of goals shall be based on performance through the end of the
fiscal year of the Company which ends closest to the date of such death or
disability. The Committee shall determine the existence and date of
permanent and total disability in a manner consistent with Company
practices.
(c) If a Change in Control shall occur during a Performance Period,
each Participant shall receive the full Award earned for such Performance
Period, with the measurement of Performance Measures and the achievement of
goals to be based on performance through the end of the fiscal year of the
Company which ends closest to the date of such Change in Control.
(d) If the Committee determines that a Participant shall be paid or
issued a pro rated portion of an Award pursuant to (a) or (b) above, or if
a Participant is entitled to be paid or issued an Award pursuant to (c)
above, the Committee shall make the certifications referred to in Section
4.4 with respect to the applicable portion of the relevant Performance
Period as promptly as is feasible. Provided that the Committee has made
such certifications, the Award or pro rated portion of such Award, as the
case may be, shall be paid or issued to the Participant (or, in the case of
death, to the Participant's estate) as soon as is administratively feasible
after such certifications are made.
5.5. Tax Withholding. In order to comply with all applicable federal or
state income, social security, payroll, withholding or other tax laws or
regulations, the Committee may establish such policy or policies as it deems
appropriate with respect to such laws and regulations, including, without
limitation, the establishment of policies to ensure that all applicable federal
or state income, social security, payroll, withholding or other taxes, which are
the sole and absolute responsibility of the Participant, are withheld or
collected from such Participant.
6. Amendment and Termination; Adjustments. Except to the extent
prohibited by applicable law and unless otherwise expressly provided in this
Plan or the 1991 Plan:
5
<PAGE>
(a) Subject to the provisions of (b) below, the Committee may amend
this Plan prospectively at any time and for any reason deemed sufficient by
it without notice to any person affected by this Plan.
(b) Neither the Committee nor the Company shall amend, alter,
suspend, discontinue or terminate any right to an Award with respect to a
Performance Period previously designated, prospectively or retroactively,
in a manner adverse to a Participant without the consent of the Participant
affected thereby, except as otherwise provided herein.
(c) The Committee may correct any defect, supply any omission or
reconcile any inconsistency in this Plan in the manner and to the extent it
shall deem desirable to carry this Plan into effect.
7. Miscellaneous.
7.1. Effective Date. This Plan shall be deemed effective as of January 1,
1997.
7.2. Headings. Headings are given to the Sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of this Plan or any provision thereof.
7.3. Applicability to Successors. This Plan shall be binding upon and
inure to the benefit of the Company and each Participant, the successors and
assigns of the Company, and the beneficiaries, personal representatives and
heirs of each Participant. If the Company becomes a party to any merger,
consolidation or reorganization, this Plan shall remain in full force and effect
as an obligation of the Company or its successors in interest.
7.4. Employment Rights and Other Benefit Programs. The provisions of
this Plan shall not give any Participant any right to be retained in the
employment of the Company. In the absence of any specific agreement to the
contrary, this Plan shall not affect any right of the Company, or of any
affiliate of the Company, to terminate, with or without cause, any
Participant's employment at any time. This Plan shall not replace any
contract of employment, whether oral or written, between the Company and any
Participant, but shall be considered a supplement thereto. This Plan is in
addition to, and not in lieu of, any other employee benefit plan or program
in which any Participant may be or become eligible to participate by reason
of employment with the Company. No compensation or benefit awarded to or
realized by any Participant under this Plan shall be included for the purpose
of computing such Participant's compensation under any compensation-based
retirement, disability, or similar plan of the Company unless required by law
or otherwise provided by such other plan.
7.5. No Trust or Fund Created. This Plan shall not create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any affiliate and a Participant or any
other person. To the extent that any person acquires a right to receive
payments from the Company or any affiliate pursuant to this Plan, such right
shall be no greater than the right of any unsecured general creditor of the
Company or of any affiliate.
7.6. Governing Law. The validity, construction and effect of this Plan
or any Award payable or issuable under this Plan shall be determined in
accordance with the laws of the State of Minnesota.
7.7. Severability. If any provision of this Plan is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction, such
provision shall be construed or
6
<PAGE>
deemed amended to conform to applicable laws, or if it cannot be so construed
or deemed amended without, in the determination of the Committee, materially
altering the purpose or intent of this Plan, such provision shall be stricken
as to such jurisdiction, and the remainder of this Plan shall remain in full
force and effect.
7.8. Cash Awards Not Qualified Performance-Based Compensation. Cash
Awards made under this Plan are not intended to qualify as "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended.
7
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Exhibit A
to
United HealthCare Corporation 1997 Long-Term Incentive Plan
Terms for First Performance Period
These Terms for First Performance Period have been adopted and approved by
the Compensation and Stock Option Committee of United HealthCare Corporation
pursuant to the United HealthCare Corporation 1997 Long-Term Incentive Plan (the
"Plan"). Capitalized terms which are used herein and are not otherwise defined
herein have the meanings assigned to them in the Plan.
1. Performance Period. The First Performance Period shall commence
January 1, 1997 and end December 31, 1999.
2. Participants, Type of Awards, Target Award Levels, and Maximum Award
Levels. The Participants for the First Performance Period are as set forth on
Attachment One hereto. The Target Award Levels and Maximum Award Levels for the
First Performance Period for each such Participant are as set forth below.
Awards for the First Performance Period shall be Cash Awards. Target Award
Levels and Maximum Award Levels are expressed as a percentage of the sum of
(a) each Participant's weighted average annual base earnings during the First
Performance Period, plus (b) the Participant's weighted average target
compensation under the Company's management incentive plan during the First
Performance Period.
Target Award Level Maximum Award Level
as Percentage of as Percentage of
Amount Described Above Amount Described Above
---------------------- ----------------------
33-1/3% 100%
33-1/3% 100%
33-1/3% 100%
3. Performance Measures. Cash Awards for the First Performance Period
will be based on the following two Performance Measures:
(a) Three-Year EPS Growth Relative to High Performance Group. The
Company's "Three-Year EPS Growth Relative to High Performance Group" for
the First Performance Period will be determined as follows:
(i) The Company's percentage growth in earnings per share
during the First Performance Period will be computed based on primary
earnings per share as reported in the Company's audited financial
statements for the fiscal years ended December 31, 1996 and
December 31, 1999, as filed with the Securities and Exchange
Commission.
(ii) The percentage growth in earnings per share during the
First Performance Period of each company (other than the Company)
included in the High Performance Group (as defined in Section 5 below)
will be computed based on primary earnings per share as reported in
such companies' audited financial statements for the fiscal years
ended December 31, 1996 and December 31, 1999, as filed with the
Securities Exchange Commission.
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Notwithstanding the foregoing, if such a company's fiscal year
ends on a date other than December 31, such company's results for
its last fiscal year ending before December 31, 1996 or December
31, 1999, as applicable, shall be used in making such computations.
(iii) The percentage growth in earnings per share of the
companies included in the High Performance Group, computed as
specified in (ii) above, will be divided into the 25% quartile, the
50% quartile, and the 75% quartile, based on the formula (N+1) *
(applicable percentage quartile), where N equals the number of such
companies.(1)
(iv) The Company's percentage growth in earnings per share,
computed as specified in (i) above, will be compared against the
percentage quartiles computed as specified in (iii) above, with the
result referred to herein as the Company's "Three-Year EPS Growth
Relative to High Performance Group."
(b) Three-Year Operating Income Per Share Growth Relative to
Healthcare Industry. The Company's "Three-Year Operating Income Per Share
Growth Relative to Healthcare Industry" for the First Performance Period
will be determined as follows:
(i) The Company's percentage growth in operating income per
share during the First Performance Period will be computed based on
operating income and weighted average shares outstanding as reported
in the Company's audited financial statements for the fiscal years
ended December 31, 1996 and December 31, 1999, as filed with the
Securities and Exchange Commission.
(ii) The percentage growth in operating income per share during
the First Performance Period of each company included in the
Healthcare Industry Peer Group (as defined in Section 6 below) will be
computed based on operating income and weighted average shares
outstanding as reported in such companies' audited financial
statements for the fiscal years ended December 31, 1996 and December
31, 1999, as filed with the Securities Exchange Commission.
Notwithstanding the foregoing, if such a company's fiscal year ends on
a date other than December 31, such company's results for its last
fiscal year ending before December 31, 1996 or December 31, 1999, as
applicable, shall be used in making such computations.
(iii) The percentage growth in operating income per share of
the companies included in the Healthcare Industry Peer Group, computed
as specified in (ii) above, will be divided into the 25% quartile, the
50% quartile, the 75% quartile, and the 90% quartile, based on the
formula (N+1) * (applicable percentage quartile), where N equals the
number of such companies.
(iv) The Company's percentage growth in operating income per
share, computed as specified in (i) above, will be compared against
the percentage quartiles computed as specified in (iii) above, with
the result referred to herein as the Company's "Three-Year Operating
Income Per Share Growth Relative to Healthcare Industry."
- ---------------
(1) Example: If 10 companies, excluding the Company, are included in the
High Performance Group, and if their respective growth in earnings per share
are 1%, 2%, 4%, 4%, 5%, 6%, 8%, 9%, 11%, and 15%, the 25% quartile would be
3.5%; the 50% quartile would be 5.5%; and the 75% quartile would be 9.5%.
2
<PAGE>
4. Adjustments to Reported Financial Results. In computing earnings per
share for purposes of Section 3(a)(i) and (ii) above and operating income per
share for purposes of Section 3(b)(i) and (ii) above, reported results shall be
adjusted to eliminate (a) the cumulative effect of changes in generally accepted
accounting principles; (b) gains and losses from discontinued operations; (c)
extraordinary gains or losses; and (d) any other unusual or nonrecurring gains
or losses which are separately identified and quantified in the reporting
entity's financial statements, including merger related charges.
5. Definition of High Performance Group. The "High Performance Group"
shall include each company which satisfies each of the following criteria:
(a) The company is included in the Standard & Poor's 500 stock index
at the end of the First Performance Period.
(b) The company files audited financial statements with the
Securities and Exchange Commission for each fiscal year referred to in
Section 3(a)(ii).
(c) For the three-year period comprising the First Performance
Period, the company ranks in the top quartile of all companies included in
the Standard & Poor's 500 stock index on the basis of total return to
shareholders (price appreciation plus reinvested dividends).
(d) For the three-year period comprising the First Performance
Period, the company reports compounded growth in earnings per share of at
least 15% per year.
(e) For the last fiscal year of such company referred to in Section
3(a)(ii), the company reports revenues of not less than $3 billion and not
more than $15 billion.
The companies included in the High Performance Group shall be determined by the
Committee on the basis of the criteria set forth above at the end of the First
Performance Period.
6. Definition of Healthcare Industry Peer Group. The "Healthcare
Industry Peer Group" shall include the following companies:
Company Ticker Symbol
-----------------------------------------------
Aetna Inc. AET
Cigna Corp. CI
Columbia/HCA Healthcorp COL
FHP International Corp. FHPC
Foundation Health Corp. FH
Health Systems International HQ
Healthsource Inc. HS
Humana Inc. HUM
Oxford Health Plans Inc. OXHP
Pacificare Health Systems PHSYB
Physicians Corp. America PCAM
Wellpoint Health Network WLP
If any of the companies named above is acquired by or merges with or into
another of the companies named above during the First Performance Period, the
resulting company shall be included in the Healthcare Industry Peer Group and
any company which ceases to be a separate reporting company shall be removed
from the Healthcare Industry Peer Group. If
3
<PAGE>
any of the companies named above is acquired by or merges with or into a
company not named above during the First Performance Period, the Committee
shall determine at the end of the First Performance Period whether the
resulting company shall be included in the Healthcare Industry Peer Group.
Regardless of the Committee's determination, any company which ceases to be a
separate reporting company as a result of such a transaction shall be removed
from the Healthcare Industry Peer Group.
7. Determination of Cash Awards. Subject to the provisions of the
Plan, each Participant for the First Performance Period shall receive a Cash
Award in an amount calculated on the basis of the following table. The
amounts set forth in the cells of the following table represent the Cash
Awards to be paid, expressed as percentages of a Participant's Target Award
Level. In the event that the Company's Three-Year EPS Growth Relative to
High Performance Group or its Three-Year Operating Income Per Share Growth
Relative to Healthcare Industry falls between the percentage quartiles set
forth in the row and column headings below, the Committee shall interpolate
from the amounts set forth in the cells in order to determine Cash Awards.
<TABLE>
Three-Year Operating Income Per Share
Growth Relative to Healthcare Industry
-----------------------------------------------------
Below 25% 25% 50% 75% 90% quartile
quartile quartile quartile quartile or more
--------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
75% quartile
or more 0% 75% 150% 225% 300%
Three-Year
EPS Growth 50% quartile 0% 50% 100% 175% 250%
Relative to
High Performance 25% quartile 0% 25% 75% 125% 220%
Group
Below 25%
quartile 0% 0% 0% 0% 0%
</TABLE>
Notwithstanding the foregoing, the Committee may, in its discretion, increase
or decrease a Participant's Award for the First Performance Period by an
amount equal to up to 10% of the amount otherwise payable to the Participant,
based on the Committee's assessment of non-financial factors relating to the
Participant's and/or the Company's performance during the First Performance
Period.
8. Terms Subject to Plan. These Terms for First Performance Period
are subject to all the terms, conditions, qualifications and limitations set
forth in the Plan, which is hereby incorporated herein by reference.
4
<PAGE>
Attachment One
Participants for First Performance Period
William W. McGuire, M.D. James Carlson
Jeannine M. Rivet David S. Lubben
Robert J. Backes Henry Loubet
Blair R. Suellentrop Travers H. Wills
David George Michael Mooney
Paul LeFort David Devereaux
Marshall Rozzi R. Channing Wheeler
David P. Koppe Stephen J. Hemsley
Fred Dunlop Thomas P. McDonough
Robert Sheehy
<PAGE>
Exhibit B
to
United HealthCare Corporation 1997 Long-Term Incentive Plan
Terms for Additional Start-up Period
These Terms for Additional Start-Up Period have been adopted and approved
by the Compensation and Stock Option Committee of United HealthCare Corporation
pursuant to the United HealthCare Corporation 1997 Long-Term Incentive Plan (the
"Plan"). Capitalized terms which are used herein and are not otherwise defined
herein have the meanings assigned to them in the Plan.
1. Performance Period. The Additional Start-Up Period shall commence
January 1, 1997 and end December 31, 1998.
2. Participants, Type of Awards, Target Award Levels, and Maximum Award
Levels. The Participants for the Additional Start-Up Period are as set forth on
Attachment One hereto. The Target Award Levels and Maximum Award Levels for the
Additional Start-Up Period for each such Participant are as set forth below.
Awards for the Additional Start-Up Period shall be Cash Awards. Target Award
Levels and Maximum Award Levels are expressed as a percentage of the sum of (a)
each Participant's weighted average annual base earnings during the Additional
Start-Up Period, plus (b) the Participant's weighted average target compensation
under the Company's management incentive plan during the Additional Start-Up
Period.
Target Award Level Maximum Award Level
as Percentage of as Percentage of
Amount Described Above Amount Described Above
---------------------- ----------------------
33-1/3% 100%
33-1/3% 100%
33-1/3% 100%
3. Performance Measures. Cash Awards for the Additional Start-Up Period
will be based on the following two Performance Measures:
(a) Two-Year EPS Growth Relative to High Performance Group. The
Company's "Two-Year EPS Growth Relative to High Performance Group" for the
Additional Start-Up Period will be determined as follows:
(i) The Company's percentage growth in earnings per share
during the Additional Start-Up Period will be computed based on
primary earnings per share as reported in the Company's audited
financial statements for the fiscal years ended December 31, 1996
and December 31, 1998, as filed with the Securities and Exchange
Commission.
(ii) The percentage growth in earnings per share during the
Additional Start-Up Period of each company (other than the Company)
included in the High Performance Group (as defined in Section 5 below)
will be computed based on primary earnings per share as reported in
such companies' audited financial statements for the fiscal years
ended December 31, 1996 and
<PAGE>
December 31, 1998, as filed with the Securities Exchange
Commission. Notwithstanding the foregoing, if such a company's
fiscal year ends on a date other than December 31, such company's
results for its last fiscal year ending before December 31, 1996 or
December 31, 1998, as applicable, shall be used in making such
computations.
(iii) The percentage growth in earnings per share of the
companies included in the High Performance Group, computed as
specified in (ii) above, will be divided into the 25% quartile, the
50% quartile, and the 75% quartile, based on the formula (N+1) *
(applicable percentage quartile), where N equals the number of such
companies.(1)
(iv) The Company's percentage growth in earnings per share,
computed as specified in (i) above, will be compared against the
percentage quartiles computed as specified in (iii) above, with the
result referred to herein as the Company's "Two-Year EPS Growth
Relative to High Performance Group."
(b) Two-Year Operating Income per Share Growth Relative to Healthcare
Industry. The Company's "Two-Year Operating Income Per Share Growth
Relative to Healthcare Industry" for the Additional Start-Up Period will be
determined as follows:
(i) The Company's percentage growth in operating income per
share during the Additional Start-Up Period will be computed based on
operating income and weighted average shares outstanding as reported
in the Company's audited financial statements for the fiscal years
ended December 31, 1996 and December 31, 1998, as filed with the
Securities and Exchange Commission.
(ii) The percentage growth in operating income per share during
the Additional Start-Up Period of each company included in the
Healthcare Industry Peer Group (as defined in Section 6 below) will be
computed based on operating income and weighted average shares
outstanding as reported in such companies' audited financial
statements for the fiscal years ended December 31, 1996 and December
31, 1998, as filed with the Securities Exchange Commission.
Notwithstanding the foregoing, if such a company's fiscal year ends on
a date other than December 31, such company's results for its last
fiscal year ending before December 31, 1996 or December 31, 1998, as
applicable, shall be used in making such computations.
(iii) The percentage growth in operating income per share of
the companies included in the Healthcare Industry Peer Group, computed
as specified in (ii) above, will be divided into the 25% quartile, the
50% quartile, the 75% quartile, and the 90% quartile, based on the
formula (N+1) * (applicable percentage quartile), where N equals the
number of such companies.
(iv) The Company's percentage growth in operating income per
share, computed as specified in (i) above, will be compared against
the percentage quartiles computed as specified in (iii) above, with
the result referred to herein as the Company's "Two-Year Operating
Income Per Share Growth Relative to Healthcare Industry."
- ---------------
(1) Example: If 10 companies, excluding the Company, are included in the
High Performance Group, and if their respective growth in earnings per share
are 1%, 2%, 4%, 4%, 5%, 6%, 8%, 9%, 11%, and 15%, the 25% quartile would be
3.5%; the 50% quartile would be 5.5%; and the 75% quartile would be 9.5%.
2
<PAGE>
4. Adjustments to Reported Financial Results. In computing earnings per
share for purposes of Section 3(a)(i) and (ii) above and operating income per
share for purposes of Section 3(b)(i) and (ii) above, reported results shall be
adjusted to eliminate (a) the cumulative effect of changes in generally accepted
accounting principles; (b) gains and losses from discontinued operations; (c)
extraordinary gains or losses; and (d) any other unusual or nonrecurring gains
or losses which are separately identified and quantified in the reporting
entity's financial statements, including merger related charges.
5. Definition of High Performance Group. The "High Performance Group"
shall include each company which satisfies each of the following criteria:
(a) The company is included in the Standard & Poor's 500 stock index
at the end of the Additional Start-Up Period.
(b) The company files audited financial statements with the
Securities and Exchange Commission for each fiscal year referred to in
Section 3(a)(ii).
(c) For the two-year period comprising the Additional Start-Up
Period, the company ranks in the top quartile of all companies included in
the Standard & Poor's 500 stock index on the basis of total return to
shareholders (price appreciation plus reinvested dividends).
(d) For the two-year period comprising the Additional Start-Up
Period, the company reports compounded growth in earnings per share of at
least 15% per year.
(e) For the last year fiscal year of such company referred to in
Section 3(a)(ii), the company reports revenues of not less than $3 billion
and not more than $15 billion.
The companies included in the High Performance Group shall be determined by the
Committee on the basis of the criteria set forth above at the end of the
Additional Start-Up Period.
6. Definition of Healthcare Industry Peer Group. The "Healthcare
Industry Peer Group" shall include the following companies:
Company Ticker Symbol
-------- -------------
Aetna Inc. AET
Cigna Corp. CI
Columbia/HCA Healthcorp COL
FHP International Corp. FHPC
Foundation Health Corp. FH
Health Systems International HQ
Healthsource Inc. HS
Humana Inc. HUM
Oxford Health Plans Inc. OXHP
Pacificare Health Systems PHSYB
Physicians Corp. America PCAM
Wellpoint Health Network WLP
If any of the companies named above is acquired by or merges with or into
another of the companies named above during the Additional Start-Up Period, the
resulting company shall be included in the Healthcare Industry Peer Group and
any company which ceases to be a separate reporting company shall be removed
from the Healthcare Industry Peer Group. If
3
<PAGE>
any of the companies named above is acquired by or merges with or into a
company not named above during the Additional Start-Up Period, the Committee
shall determine at the end of the Additional Start-Up Period whether the
resulting company shall be included in the Healthcare Industry Peer Group.
Regardless of the Committee's determination, any company which ceases to be a
separate reporting company as a result of such a transaction shall be removed
from the Healthcare Industry Peer Group.
7. Determination of Cash Awards. Subject to the provisions of the
Plan, each Participant for the Additional Start-Up Period shall receive a
Cash Award in an amount calculated on the basis of the following table. The
amounts set forth in the cells of the following table represent the Cash
Awards to be paid, expressed as percentages of a Participant's Target Award
Level. In the event that the Company's Two-Year EPS Growth Relative to High
Performance Group or its Two-Year Operating Income Per Share Growth Relative
to Healthcare Industry falls between the percentage quartiles set forth in
the row and column headings below, the Committee shall interpolate from the
amounts set forth in the cells in order to determine Cash Awards.
<TABLE>
Three-Year Operating Income Per Share
Growth Relative to Healthcare Industry
-----------------------------------------------------
Below 25% 25% 50% 75% 90% quartile
quartile quartile quartile quartile or more
--------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
75% quartile
or more 0% 75% 150% 225% 300%
Three-Year
EPS Growth 50% quartile 0% 50% 100% 175% 250%
Relative to
High Performance 25% quartile 0% 25% 75% 125% 220%
Group
Below 25%
quartile 0% 0% 0% 0% 0%
</TABLE>
Notwithstanding the foregoing, the Committee may, in its discretion, increase or
decrease a Participant's Award for the Additional Start-Up Period by an amount
equal to up to 10% of the amount otherwise payable to the Participant, based on
the Committee's assessment of non-financial factors relating to the
Participant's and/or the Company's performance during the Additional Start-Up
Period.
8. Terms Subject to Plan. These Terms are subject to all the terms,
conditions, qualifications and limitations set forth in the Plan, which is
hereby incorporated herein by reference.
4
<PAGE>
Attachment One
Participants for Additional Start-Up Period
William W. McGuire, M.D. James Carlson
Jeannine M. Rivet David S. Lubben
Robert J. Backes Henry Loubet
Blair R. Suellentrop Travers H. Wills
David George Michael Mooney
Paul LeFort David Devereaux
Marshall Rozzi R. Channing Wheeler
David P. Koppe Stephen J. Hemsley
Fred Dunlop Thomas P. McDonough
Robert Sheehy
<PAGE>
EXHIBIT 11
UNITED HEALTHCARE CORPORATION
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS(2)
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY
NET EARNINGS............................................................. $ 115.7 $ 50.3 $ 224.6 $ 169.3
LESS CONVERTIBLE PREFERRED STOCK DIVIDENDS............................... 7.2 7.2 14.4 14.4
--------- --------- --------- ---------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS........................... $ 108.5 $ 43.1 $ 210.2 $ 154.9
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding............................... 185.8 182.1 184.9 178.8
Additional equivalent shares issuable from assumed exercise of common
stock options and warrants............................................. 4.6 4.6 5.0 4.9
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................... 190.4 186.7 189.9 183.7
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER COMMON SHARE............................................ $ 0.57 $ 0.23 $ 1.11 $ 0.84
--------- --------- --------- ---------
--------- --------- --------- ---------
FULLY DILUTED(1)
NET EARNINGS............................................................. $ 115.7 $ 50.3 $ 224.6 $ 169.3
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding............................... 185.8 182.1 184.9 178.8
Additional equivalent shares issuable from assumed exercise of common
stock options and warrants............................................. 4.7 4.6 5.3 4.9
Assumed conversion of convertible preferred stock........................ 10.1 10.1 10.1 10.1
--------- --------- --------- ---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................... 200.6 196.8 200.3 193.8
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER COMMON SHARE............................................ $ 0.58 $ 0.26 $ 1.12 $ 0.87
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
(2) As discussed more fully in Footnote 4 to the condensed consolidated
financial statements, the Company is required to implement a new methodology
for determining earnings per share in the fourth quarter of 1997. The impact
of this new methodology is not expected to be material.
18
<PAGE>
EXHIBIT 15
LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
August 7, 1997
To United HealthCare Corporation:
We are aware that United HealthCare Corporation and Subsidiaries has
incorporated by reference in its Registration Statements No. 33-3558, 2-95342,
33-22310, 33-27208, 33-36579, 33-50282, 33-67918, 33-68300, 33-75846, 33-79632,
33-79634, 33-79636, 33-59083, 33-59623, 33-63885, 333-05717, 333-02525,
333-04875, 333-04401, 333-06533, 333-01517, 333-01915, 333-25923 and 333-05291
its Form 10-Q for the quarter ended June 30, 1997, which includes our report
dated August 7, 1997, covering the unaudited interim condensed consolidated
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the registration
statement prepared or certified by our firm or a report prepared or certified by
our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNITED HEALTHCARE CORPORATION FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 610,300
<SECURITIES> 2,923,900
<RECEIVABLES> 748,100
<ALLOWANCES> 44,700
<INVENTORY> 0
<CURRENT-ASSETS> 1,988,300
<PP&E> 628,700
<DEPRECIATION> 295,500
<TOTAL-ASSETS> 7,125,900
<CURRENT-LIABILITIES> 2,479,300
<BONDS> 0
500,000
0
<COMMON> 1,900
<OTHER-SE> 4,122,000
<TOTAL-LIABILITY-AND-EQUITY> 7,125,900
<SALES> 5,666,900
<TOTAL-REVENUES> 5,781,600
<CGS> 5,349,600
<TOTAL-COSTS> 5,418,700
<OTHER-EXPENSES> 69,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 362,900
<INCOME-TAX> 138,300
<INCOME-CONTINUING> 224,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224,600
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.12
</TABLE>
<PAGE>
EXHIBIT 99
CAUTIONARY STATEMENTS
The statements contained in this Form 10-Q include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "PSLRA"). When used in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, presentations to securities analysts or investors, and in oral
statements made by or with the approval of an authorized executive officer of
the Company, the words or phrases "believes," "anticipates," "intends," "will
likely result," "estimates," "projects" or similar expressions are intended to
identify such forward-looking statements. Any of these forward-looking
statements involve risks and uncertainties that may cause the Company's actual
results to differ materially from the results discussed in the forward-looking
statements.
The following discussion contains certain cautionary statements regarding
the Company's business that investors and others should consider. This
discussion is intended to take advantage of the "safe harbor" provisions of the
PSLRA. In making these cautionary statements, the Company is not undertaking to
address or update each factor in future filings or communications regarding the
Company's business or results, and is not undertaking to address how any of
these factors may have caused results to differ from discussions or information
contained in previous filings or communications. In addition, any of the matters
discussed below may have affected the Company's past, as well as current,
foward-looking statements about future results, so that the Company's actual
results in the future may differ materially from those expressed in prior
communications.
HEALTH CARE COSTS. A large portion of the revenue received by the Company
is used to pay the costs of health care services or supplies delivered to its
members. The total health care costs incurred by the Company are affected by the
number of individual services rendered and the cost of each service. Much of the
Company's premium revenue is set in advance of the actual delivery of services
and incurrence of the related costs, usually on a prospective annual basis.
While the Company attempts to base the premiums it charges at least in part on
its estimate of future health care costs over the fixed premium period,
competition, regulations and other circumstances may limit the Company's ability
to fully base premiums on estimated costs. In addition, many factors may and
often do cause actual health care costs to exceed that estimated and reflected
in premiums. These factors may include increased utilization of services,
increased cost of individual services, catastrophes, epidemics, the introduction
of new or costly treatments, general inflation, new mandated benefits or other
regulatory changes, and insured population characteristics. In addition, the
Company's earnings reported for any particular quarter include estimates of
covered services incurred by the Company's enrollees during that period but for
which a claim has not been received or processed. These are estimates and
therefore the Company's earnings may be subject to later adjustment based on the
actual costs.
In addition, as a result of natural changes in the level of health care
utilization during the calendar year, the Company's operating results may be
affected by the seasonal nature of medical costs. Although there are no
assurances, per member medical costs generally have been higher in the first
half of a year than the second half.
INDUSTRY FACTORS. The managed care industry periodically receives
significant amounts of negative publicity. This publicity, in turn, has
contributed to increased legislative activity, regulation and review of industry
practices. These factors may adversely affect the Company's ability to market
its products or services, could necessitate changes in the Company's products
and services, and may increase regulatory burdens under which the Company
operates, further increasing the costs of doing business and adversely affecting
profitability.
20
<PAGE>
COMPETITION. In many of its geographic or product markets, the Company
competes with a number of other entities, some of which may have certain
characteristics or capabilities that give them an advantage in competing with
the Company. The Company believes the barriers to entry in these markets are not
substantial, so that the addition of new competitors can occur relatively
easily. Certain of the Company's customers may decide to perform for themselves
functions or services formerly provided by the Company, which would result in a
decrease in the Company's revenues. Certain of the Company's providers may
decide to market products and services to Company customers in competition with
the Company. In addition, significant merger and acquisition activity has
occurred in the industry in which the Company operates as well as in industries
that act as suppliers to the Company, such as the hospital, physician,
pharmaceutical and medical device industries. This activity may create stronger
competitors or result in higher health care costs. To the extent that there is
strong competition or that competition intensifies in any market, the Company's
ability to retain or increase customers or providers, its revenue growth, its
pricing flexibility, its control over medical cost trends and its marketing
expenses may all be adversely affected.
AARP CONTRACT. In early 1997, the Company finalized its contract
arrangements with the American Association of Retired Persons ("AARP") under
which the Company will provide Medicare supplement health insurance products to
AARP members, effective January 1, 1998. As a result of this agreement, the
Company will significantly expand the number of members served, the products
offered and the services it must provide. The success of the AARP arrangement
will depend, in part, on the Company's ability to service these new members,
develop additional products and services, and price the products and services
competitively.
GOVERNMENT PROGRAMS AND REGULATION. The Company's business is heavily
regulated on a federal, state and local level. The laws and rules governing the
Company's business and interpretations of those laws and rules are subject to
frequent change and broad latitude is given to the agencies administering those
regulations. Existing or future laws and rules could force the Company to change
how it does business, may restrict the Company's revenue and/or enrollment
growth, increase its health care and administrative costs, and/or increase the
Company's liability for medical malpractice or other actions. Regulatory
approvals must be obtained and maintained to market many of the Company's
products and services. Delays in obtaining or failure to obtain or maintain such
approvals could adversely affect the Company's revenue or the number of its
members, or could increase costs. A significant portion of the Company's
revenues relates to federal, state and local government health care coverage
programs. These types of programs, such as the federal Medicare program and the
federal and state Medicaid programs, are generally subject to frequent change
including changes that may reduce the number of persons enrolled or eligible,
reduce the revenue received by the Company or increase the Company's
administrative or health care costs under such programs. Such changes have in
the past and may in the future adversely affect the Company's results and its
willingness to participate in such programs.
The Company is also subject to various governmental reviews, audits and
investigations. Such activities could result in the loss of licensure or the
right to participate in certain programs, or the imposition of fines, penalties
and other sanctions. In addition, disclosure of any adverse investigation or
audit results or sanctions could negatively affect the Company's reputation in
various markets and make it more difficult for the Company to sell its products
and services.
The National Association of Insurance Commissioners (the "NAIC") has an
effort underway that would require new minimum capitalization limits for health
care coverages provided by insurance companies, HMOs and other risk bearing
health care entities. The requirements would take the form of risk-based capital
rules similar to those, which currently apply, only to insurance companies.
Depending on the nature and extent of the new minimum capitalization
requirements ultimately adopted, there could be an increase in the capital
required for certain of the Company's subsidiaries and there may be some
potential for disparate treatment relative to competing products. Failure of the
NAIC to act may result in some form of federal solvency regulation of companies
providing Medicare-related benefit programs.
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PROVIDER RELATIONS. One of the significant techniques the Company uses to
manage health care costs and utilization and monitor the quality of care being
delivered is contracting with physicians, hospitals and other providers. Because
of the geographic diversity of its health plans and the large number of
providers with which most of those health plans contract, the Company currently
believes it has a limited exposure to provider relations issues. In any
particular market, however, providers could refuse to contract with, demand
higher payments or take other actions that could result in higher health care
costs, less desirable products for customers and members, or difficulty meeting
regulatory or accreditation requirements.
In some markets, certain providers, particularly hospitals,
physician/hospital organizations or multi-specialty physician groups, may have
significant market positions or near monopolies. In addition, physician or
practice management companies, which aggregate physician practices for purposes
of administrative efficiency and marketing leverage, continue to expand. These
providers may compete directly with the Company. If such providers refuse to
contract with the Company, use their market position to negotiate favorable
contracts, or place the Company at a competitive disadvantage, the Company's
ability to market products or to be profitable in those areas could be adversely
affected.
LITIGATION AND INSURANCE. The Company may be a party to a variety of legal
actions to which any corporation may be subject, including employment and
employment discrimination-related suits, employee benefit claims, breach of
contract actions, tort claims, shareholder suits, including for securities
fraud, and intellectual property related litigation. In addition, because of the
nature of its business, the Company is subject to a variety of legal actions
relating to its business operations, such as claims relating to the denial of
health care benefits, medical malpractice actions, provider disputes including
disputes over withheld compensation and termination of provider contracts,
disputes related to self-funded business including actions alleging claim
administration errors and the failure to disclose network rate discounts and
other fee and rebate arrangements, disputes over copayment calculations, and
claims relating to customer audits and contract performance. Recent court
decisions and legislative activity may have the effect of increasing the
Company's exposure for any of these types of claims. In some cases, substantial
non-economic or punitive damages may be sought. While the Company currently has
insurance coverage for some of these potential liabilities, others may not be
covered by insurance, the insurers may dispute coverage or the amount of
insurance may not be enough to cover the damages awarded. In addition, certain
types of damages, such as punitive damages, may not be covered by insurance and
insurance coverage for all or certain forms of liability may become unavailable
or prohibitively expensive in the future.
INFORMATION SYSTEMS. The Company's business is significantly dependent on
effective information systems. the Company has many different information
systems for its various businesses. The Company's information systems require an
ongoing commitment of resources to maintain and enhance existing systems and
develop new systems. As a result of the Company's acquisition activities, the
Company is in the process of attempting to reduce the number of systems and also
upgrade and expand its information systems capabilities. Failure to maintain
effective and efficient information systems could result in loss of existing
customers, difficulty in attracting new customers, customer and provider
disputes, regulatory problems, increases in administrative expenses or other
adverse consequences. In addition, the Company may, from time-to-time, obtain
significant portions of its systems-related or other services or facilities from
independent third parties, which may make the Company's operations vulnerable to
such third parties' failure to perform adequately.
THE YEAR 2000. The Company is in the process of modifying its computer
systems to accommodate the year 2000 and currently expects to complete this
modification sufficiently in advance of the year 2000 so as not adversely to
affect its operations. The Company is expensing the costs incurred to make these
modifications. The inability of the Company to complete timely its year 2000
modifications or the inability of other companies with which the Company does
business to complete timely their year 2000 modifications could adversely affect
the Company's operations.
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ADMINISTRATION AND MANAGEMENT. Efficient and cost-effective administration
of the Company's operations is integral to the Company's profitability and
competitive positioning. While the Company attempts to effectively manage such
expenses, increases in staff-related and other administrative expenses may occur
from time-to-time due to business or product start-ups or expansions, growth or
changes in business, acquisitions, regulatory requirements or other reasons.
Such expense increases are not clearly predictable and increases in
administrative expenses may adversely affect results. The Company believes it
currently has a relatively experienced, capable management staff. Loss of
certain managers or a number of such managers could adversely affect the
Company's ability to administer and manage its business.
MARKETING. The Company markets its products and services through both
employed sales people and independent sales agents. Although the Company has a
number of such sales employees and agents, if certain key sales employees or
agents or a large subset of such individuals were to leave the Company, its
ability to retain existing customers and members could be impaired. In addition,
certain of the Company's customers or potential customers consider rating,
accreditation or certification of the Company by various private or governmental
bodies or rating agencies necessary or important. Certain of the Company's
health plans or other business units may not have obtained or may not desire or
be able to obtain or maintain such accreditation or certification, which could
adversely affect the Company's ability to obtain or retain business with such
customers.
ACQUISITIONS. The Company has made several large acquisitions in recent
years and has an active ongoing acquisition program. These acquisitions may
entail certain risks and uncertainties in addition to those present in its
ongoing business operations, unknown liabilities, unforeseen administrative
needs or increased efforts to integrate the acquired operations. Failure to
identify liabilities, anticipate additional administrative needs or effectively
integrate acquired operations could result in reduced revenues, increased
administrative and other costs, or customer confusion or dissatisfaction.
STOCK MARKET. The market prices of the securities of the Company and
certain of the publicly-held companies in the industry in which the Company
operates have shown volatility and sensitivity in response to many factors,
including general market trends, public communications regarding managed care,
legislative or regulatory actions, health care cost trends, pricing trends,
competition, earnings or membership reports of particular industry participants,
and acquisition activity. There can be no assurance regarding the level or
stability of the Company's share price at any time or of the impact of these or
any other factors on the share price.
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