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FILED PURSUANT TO RULE 424(B)(3)
FILE NO. 333-71007
PROSPECTUS
UNITED HEALTHCARE CORPORATION
OFFER TO EXCHANGE
ITS $250,000,000 6.60% NOTES DUE DECEMBER 1, 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ALL OF ITS OUTSTANDING
$250,000,000 6.60% NOTES DUE DECEMBER 1, 2003
TERMS OF THE EXCHANGE OFFER
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME
ON JUNE 15, 1999, UNLESS WE EXTEND THAT DEADLINE.
- - We will not receive any proceeds from the issuance of the new notes or from
the exchange of the new notes for the old notes.
- - The new notes are almost identical to the old notes, except that the new
notes have been registered under the Securities Act, and therefore the
transfer restrictions and registration rights provisions applicable to the
old notes do not apply to the new notes, and the new notes will not provide
for an increase in interest rate thereon. The new notes are senior unsecured
debt of the company. Each of the new notes is of equal rank with the other
new notes and with all other senior unsecured debt of the company.
- - The new notes pay interest at an annual rate of 6.60%, payable on June 1 and
December 1 of each year, beginning June 1, 1999.
- - The exchange offer is not subject to any condition other than that the
exchange offer not violate applicable law or any applicable interpretation of
the staff of the SEC.
- - We will exchange all old notes validly tendered and not validly withdrawn.
- - Old notes validly tendered may be withdrawn at any time prior to 5:00 p.m.,
New York City time on the expiration date.
- - The exchange of old notes for new notes will not be a taxable exchange for
United States federal income tax purposes.
- - We do not intend to apply for listing of the new notes on any securities
exchange or for quotation through the NASD Automated Quotation System. We
cannot assure the development or liquidity of any market for the new notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR RISKS YOU SHOULD CONSIDER WHEN
EXCHANGING YOUR OLD NOTES FOR NEW NOTES.
Neither the SEC nor any state securities commission has approved or disapproved
of the new notes or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The date of this prospectus is May 7, 1999
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TABLE OF CONTENTS
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Where You Can Find More Information........................................................................ 3
Incorporation of Certain Documents by Reference............................................................ 3
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 12
Use of Proceeds from Sale of Old Notes..................................................................... 17
Capitalization............................................................................................. 17
Selected Consolidated Historical Financial Data............................................................ 18
Business................................................................................................... 19
The Exchange Offer......................................................................................... 19
Description of New Notes................................................................................... 30
Description of Old Notes................................................................................... 38
Certain United States Federal Income Tax Considerations.................................................... 38
Plan of Distribution....................................................................................... 39
Validity of New Notes...................................................................................... 40
Experts.................................................................................................... 40
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus forms a part of a registration statement that United
HealthCare (which operates under the name UnitedHealth Group) has filed with the
SEC with respect to the new notes. The registration statement contains some
information not present in this prospectus. For further information about us and
about the securities we offer hereby, you should consult the registration
statement and the exhibits and schedules thereto. You may read and copy the
registration statement (and any other documents we file with the SEC) at the
SEC's Public Reference Rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at (800) SEC-0330 for further information
on the Public Reference Rooms. You can also access our SEC filings
electronically at the SEC's home page on the Internet (http://www.sec.gov). You
may also obtain copies of our SEC filings at the offices of the New York Stock
Exchange. For further information on obtaining copies of such filings at the New
York Stock Exchange, you should call (212) 656-5060.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The company files annual, quarterly and special reports, proxy statements
and other information with the SEC. The SEC allows the company to "incorporate
by reference" the information we file with the SEC. This means that we can
disclose important information to you by referring you to those documents we
have already filed with the SEC. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update this prospectus.
We incorporate by reference into this prospectus the following documents:
- our Annual Report on Form 10-K as amended by the Amendment to Annual
Report on Form 10-K/A filed April 22, 1999, for the year ended December
31, 1998;
- our Amendment to Quarterly Report on Form 10-Q/A (amending the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998) filed April 22,
1999 and our Amendment to Quarterly Report on Form 10-Q/A (amending the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
filed April 22, 1999;
- our reports on Form 8-K filed on January 8, 1999 and February 23, 1999;
and
- all future filings we make under Section 13(a), 13(c), 14 and 15(d) of the
Exchange Act, until we complete the exchange offer.
This prospectus incorporates important business and financial information
about the company that is not included in or delivered with this document. You
may obtain this information at no charge upon request to UnitedHealth Group, 300
Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343, Attention:
Investor Relations, telephone number (612) 936-1300. In order to ensure timely
delivery of the information, you should request such information at least five
days before expiration of the exchange offer. HOLDERS OF THE OLD NOTES MUST
REQUEST SUCH INFORMATION NO LATER THAN JUNE 10, 1999.
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PROSPECTUS SUMMARY
This summary contains basic information about the company and this offering.
It likely does not contain all the information that is important to you. For a
more complete understanding of this offering, we encourage you to read this
entire document and the documents we refer you to. The words "United
HealthCare," "company," "we," "our," "ours" and "us" refer to United HealthCare
Corporation, which operates under the name of, and is sometimes referred to in
this prospectus as, UnitedHealth Group. The term "old notes" refers to the 6.60%
unregistered notes due December 1, 2003 issued on November 24, 1998. The term
"new notes" refers to the 6.60% notes due December 1, 2003, which new notes have
been registered under the Securities Act, to be offered by the company in
exchange for the old notes. The term "notes" refers to the old notes and new
notes collectively.
The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information is accurate as of any other
date. Neither the delivery of this prospectus nor any sale made under it shall
imply that information in the prospectus is correct at any time after the date
of the prospectus.
You should rely only on the information incorporated by reference or
provided in the prospectus. We have not authorized anyone else to provide you
with different information.
THE COMPANY
UnitedHealth Group is a national leader in offering health care coverage and
related services, which it provides through the following six lines of business:
- Organized Health Systems;
- Insurance Services;
- Administrative Services;
- Health and Well-being Services for Retirees and Older Americans;
- Specialized Care Services; and
- Knowledge and Information Services.
See "BUSINESS."
Our principal executive offices are located at 300 Opus Center, 9900 Bren
Road East, Minnetonka, Minnesota 55343, where our main telephone number is
612/936-1300.
THE EXCHANGE OFFER
On November 24, 1998, we completed the private offering of $250 million
aggregate principal amount of 6.60% notes due December 1, 2003. At the time of
the offering, we entered into an Exchange and Registration Rights Agreement with
Goldman, Sachs & Co., as representative of the purchasers of the old notes, in
which we agreed, among other things, to:
- file a registration statement for the new notes within 60 days of the sale
of the old notes;
- use our best efforts to cause the registration statement to become
effective as soon as practicable after its filing, and no more than 180
days after the sale of the old notes;
- hold open the exchange offer for at least 30 days; and
- begin and complete the exchange offer within 45 days after the
registration statement becomes effective.
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If we fail to comply with any of these obligations, we will have to pay
additional interest on the old notes equal to 0.25% per annum, until we meet our
obligations. Under the exchange and registration rights agreement, you are
entitled to exchange your old notes for new notes with substantially identical
terms. You should read the discussion under the headings "SUMMARY OF TERMS OF
NEW NOTES" and "DESCRIPTION OF NEW NOTES" for more information about the new
notes.
We believe that you may resell the new notes issued in the exchange offer
without compliance with the registration and prospectus delivery requirements of
the Securities Act, subject to certain conditions. You should read the
discussion under the headings, "SUMMARY OF TERMS OF THE EXCHANGE OFFER" and the
"EXCHANGE OFFER" for further information regarding the exchange offer and
resales of the new notes.
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
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The Exchange Offer................ In order to satisfy our obligations under the exchange
and registration rights agreement, we are offering to
exchange $1,000 principal amount of new notes, and
integral multiples thereof, for each $1,000 principal
amount of old notes, and integral multiples thereof. To
receive new notes in exchange for old notes, you must
properly tender your old notes. See "THE EXCHANGE OFFER
-- PROCEDURES FOR TENDERING OLD NOTES." All old notes
validly tendered and not validly withdrawn before the
expiration of the exchange offer will be exchanged. We
will issue new notes promptly after expiration of the
exchange offer.
As of the date of this prospectus, there are $250
million principal amount of old notes outstanding.
Expiration Date................... The exchange offer will expire at 5:00 p.m., New York
City time, on June 15, 1999, unless we decide to extend
the expiration date. See "THE EXCHANGE OFFER --
EXPIRATION DATE; EXTENSIONS; AMENDMENTS."
Conditions to the Exchange
Offer......................... The exchange offer is not conditioned upon any minimum
amount of old notes being tendered, but is subject to
certain other conditions, which the company may waive in
its sole and absolute discretion. See "THE EXCHANGE
OFFER -- CONDITIONS TO THE EXCHANGE OFFER."
Procedures for Tendering Old
Notes......................... If you wish to tender old notes under the exchange
offer, you must, on or before the expiration date,
transmit to The Bank of New York, as exchange agent, at
the address on the cover page of the letter of
transmittal, either (1) a properly completed and
executed letter of transmittal (which accompanies this
prospectus) or a facsimile of the letter of transmittal,
including all other documents required by the letter of
transmittal or (2) a computer generated message
transmitted by means of DTC's Automated Tender Offer
Program system and received by the exchange agent and
forming a part of a confirmation of book-entry transfer
in which you acknowledge and agree to be bound by the
terms of the letter of transmittal; and, either (a) a
timely confirmation of book-entry transfer of your
outstanding notes into the exchange agent's account at
DTC pursuant to the procedure for book-entry transfers
described in this prospectus under the heading "THE
EXCHANGE OFFER -- PROCEDURES FOR TENDERING OLD NOTES;"
or (b) the documents necessary for compliance with the
guaranteed delivery procedures described below. By
executing the letter of transmittal, each holder will
represent to us that, among other things, (i) the new
notes to be issued in the exchange offer are being
obtained in the ordinary course of business of the
person receiving such new notes whether or not that
person is the holder, (ii) neither the holder nor any
other person receiving the new notes has an
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arrangement or understanding with any person to
participate in the distribution of the new notes and
(iii) neither the holder nor any other person receiving
the new notes is an "affiliate," as defined in Rule 405
under the Securities Act, of the company. See "THE
EXCHANGE OFFER -- PROCEDURES FOR TENDERING OLD NOTES."
Special Procedures for Beneficial
Owners........................ If you are the beneficial owner of old notes in
book-entry form and your name does not appear on a
security position listing of DTC as the holder of the
book-entry notes and you wish to tender the book-entry
notes in the exchange offer, you should promptly contact
the person in whose name your book-entry notes are
registered and instruct that person to tender on your
behalf.
Withdrawal Rights................. You may withdraw the tender of old notes at any time
before 5:00 p.m., New York City time, on the expiration
date. See "THE EXCHANGE OFFER -- WITHDRAWAL RIGHTS."
Use of Proceeds................... We will not receive any cash proceeds from the issuance
of the new notes. See "USE OF PROCEEDS FROM SALE OF OLD
NOTES."
Certain United States Federal
Income Tax Considerations..... The exchange of old notes for the new notes will not be
a taxable event for United States federal income tax
purposes. We believe that you will not recognize any
taxable gain or loss as a result of the exchange.
Interest on the new notes will be taxable in the same
manner as interest on the old notes. See "CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS."
Resales of New Notes.............. Based on an interpretation by the staff of the SEC set
forth in no-action letters issued to third parties,
including "Exxon Capital Holdings Corporation"
(available May 13, 1988), "Morgan Stanley & Co.
Incorporated" (available June 5, 1991) and "Mary Kay
Cosmetics, Inc.," (available June 5, 1991), we believe
that you may resell the new notes issued in the exchange
offer without complying with the registration and
prospectus delivery requirements of the Securities Act,
provided that:
- the new notes issued in the exchange offer are being
acquired in the ordinary course of business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the notes issued to you in the exchange offer;
- you are not a broker-dealer who purchased the
outstanding notes directly from us for resale pursuant
to Rule 144A or any other available exemption under the
Securities Act; and
- you are not an "affiliate" of ours.
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A broker-dealer may use this prospectus for an offer to
resell or a resale or other retransfer of the new notes
issued to it in the exchange offer. We have agreed for a
period of 180 days (subject to any extension) after the
date of this prospectus, to make this prospectus
available to any such broker-dealer for use in
connection with any resales. Any participating broker-
dealer who is an "affiliate" of the company may not rely
on the interpretive letters and must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. We believe that no registered holder of the
old notes is an affiliate (as such term is defined in
rule 405 of the Securities Act) of the company. Each
broker-dealer that receives new notes in the exchange
offer for its own account in exchange for old notes
which were acquired by that broker-dealer as a result of
market making or other trading activities must
acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection
with any resale of the new notes issued in the exchange
offer. The letter of transmittal states that by so
acknowledging and by delivering a prospectus the broker-
dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
See "THE EXCHANGE OFFER -- RESALES OF NEW NOTES."
Consequences of Failure to
Exchange...................... Holders of old notes that do not tender their old notes
generally will not have any further registration rights.
Any holder of old notes that does not exchange its old
notes for new notes will continue to hold the untendered
old notes subject to the terms of the indenture, except
to the extent that those terms terminate or cease to
have further effect following the exchange offer. Old
notes that are not exchanged for new notes under the
exchange offer will remain restricted securities and
continue to bear a restrictive legend. Accordingly,
holders of old notes after we complete the exchange
offer will be able to sell their old notes only in
limited circumstances. See "THE EXCHANGE OFFER --
CONSEQUENCES OF FAILURE TO EXCHANGE."
Accrued Interest on the Exchange
Notes and the Outstanding
Notes......................... The new notes will bear interest from November 24, 1998.
Holders of old notes whose old notes are accepted for
exchange will be deemed to have waived the right to
receive any payment of interest on the old notes accrued
from November 24, 1998 to the date of the issuance of
the new notes. Consequently, holders who exchange their
old notes for new notes will receive the same interest
payment on June 1, 1999 (the first interest payment date
with respect to the old notes and the new notes to be
issued in the exchange offer) that they would have
received had they not accepted the exchange offer.
Guaranteed Delivery Procedures.... If you wish to tender your old notes and time will not
permit your required documents to reach the exchange
agent by the
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expiration date, the procedure for book-entry transfer
cannot be completed on time or certificates for
registered notes cannot be delivered on time, you may
tender your old notes pursuant to the procedures
described in this prospectus under the heading "THE
EXCHANGE OFFER -- GUARANTEED DELIVERY."
Exchange Agent.................... The Bank of New York is serving as exchange agent in
connection with the exchange offer. The exchange agent
can be contacted at: Reorganization Section, 101 Barclay
Street, Floor 7E, New York, NY 10286. For more
information with respect to the exchange offer, the
telephone number for the exchange agent is (212)
815-5920 and the facsimile number for the exchange agent
is (212) 815-6339.
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SUMMARY OF TERMS OF NEW NOTES
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Notes Offered..................... Up to $250 million aggregate principal amount of 6.60%
Notes due December 1, 2003.
Interest Payment Dates............ June 1 and December 1 of each year, beginning on June 1,
1999.
Denominations..................... We will issue the new notes in minimum denominations of
$1,000 and integral multiples of $1,000.
Ranking........................... The new notes are senior but unsecured obligations of
the company, and rank equal in right of payment with all
other senior unsecured indebtedness of the company.
Redemption........................ The new notes are not subject to redemption by the
company before their maturity date.
Sinking Fund...................... None.
Certain Covenants................. The indenture governing the new notes contains certain
covenants that, among other things, will:
- limit the ability of the company and certain of its
subsidiaries to grant liens under certain
circumstances on stock or indebtedness of certain of
the company's subsidiaries, or on certain property of
the company or certain of its subsidiaries, to secure
debt of the company or any other person; and
- prohibit the company from merging with another company
unless the company meets certain specified conditions.
Trustee........................... The Bank of New York will serve as trustee with respect
to the new notes.
Form of New Notes................. The new notes will be issued in the form of one or more
registered notes in global form. These global note(s)
will then be deposited on the closing date with, or on
behalf of, DTC and registered in the name of Cede & Co.,
as nominee of DTC, or remain in the custody of the
trustee of the new notes according to a FAST Balance
Certificate Agreement between DTC and the trustee.
Absence of Public Market for the
New Notes..................... No public market currently exists for the new notes. The
company currently does not intend to apply for listing
of the new notes on any securities exchange or for
quotation through the NASD Automated Quotation System.
See "RISK FACTORS -- ABSENCE OF PUBLIC MARKET FOR THE
NEW NOTES."
Risk Factors...................... Holders of old notes should carefully consider all the
information contained in this prospectus. For a
description of the risks involved in an investment in
the new notes, you should review the section entitled
"RISK FACTORS."
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FOR FURTHER INFORMATION CONCERNING THE NEW NOTES, SEE "DESCRIPTION OF NEW
NOTES."
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RATIO OF EARNINGS TO FIXED CHARGES AND TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges and of earnings to fixed charges and
preferred stock dividends for each of the periods indicated is as follows:
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YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
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Ratio of Earnings to Fixed Charges................... NM* 10.75 8.58 11.53 17.78
--- --------- --- --------- ---------
--- --------- --- --------- ---------
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends.................................... NM* 6.65 5.38 9.10 17.78
--- --------- --- --------- ---------
--- --------- --- --------- ---------
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* Not meaningful.
For purposes of computing these ratios, earnings represent income from
continuing operations before extraordinary items. Fixed charges represent
interest expense, including amounts capitalized plus the interest factor in
rental expense. For purposes of calculating the ratios of earnings to fixed
charges and preferred stock dividends, fixed charges would then be combined with
preferred stock dividend requirements, adjusted to a pretax basis, on the
outstanding preferred stock of UnitedHealth Group.
Earnings were insufficient to cover fixed charges by $42,000 for the year
ended December 31, 1998. Excluding the realignment charge of $725 million taken
by UnitedHealth Group in the second quarter of 1998, the pro forma ratio of
earnings to fixed charges would have been 8.97. Earnings were insufficient to
cover fixed charges and preferred stock dividends by $88,000 for the year ended
December 31, 1998. Excluding the realignment charge of $725 million taken by
UnitedHealth Group in the second quarter of 1998, the pro forma ratio of
earnings to fixed charges and preferred stock dividends would have been 5.84.
For current information on these ratios, please see UnitedHealth Group's
most recent Form 10-K and 10-Q. See "WHERE YOU CAN FIND MORE INFORMATION."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The words or
phrases "believes," "anticipates," "intends," "will likely result," "estimates,"
"projects" and similar expressions identify such forward-looking statements.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, our business involves risks and uncertainties that
may cause our actual results to differ significantly from the results discussed
in the forward-looking statements. See "RISK FACTORS."
The following text under the heading "Risk Factors" contains cautionary
statements regarding our business and results of operations. These statements
discuss matters which may in part be contained elsewhere in this prospectus and
which may have been contained in other documents prepared by us under federal or
state securities laws. This discussion is intended to take advantage of the
"safe harbor" provisions of the PSLRA. In making these cautionary statements,
UnitedHealth Group does not undertake to address or update each factor in future
filings with the SEC or communications regarding UnitedHealth Group's business
or results, and does not undertake 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 UnitedHealth Group's past, as well as current, forward-looking
statements about future results, so that UnitedHealth Group's actual results in
the future may differ materially from those expressed in prior communications.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION IN
CONJUNCTION WITH THE OTHER INFORMATION IN THIS PROSPECTUS.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
No public market exists for the new notes and we cannot assure the liquidity of
any markets that may develop for the new notes, the ability of the holders to
sell their new notes or the price at which holders will be able to sell their
new notes. Future trading prices of the new notes will depend on many factors
including, among other things, prevailing interest rates, the company's
operating results and the market for similar securities.
The initial purchasers have informed us that they intend to make a market in the
new notes; they are not, however, obligated to do so and they may terminate any
such market activity at any time without notice to the holders of the new notes.
In addition, market-making activity will be subject to the Securities Act and
may be limited during the pendency of the exchange offer registration statement.
We do not intend to apply for listing of the new notes on any securities
exchange or for quotation through the NASD Automated Quotation System.
Untendered old notes that are not exchanged for new notes pursuant to the
exchange offer will remain restricted securities. Old notes will continue to be
subject to the following restrictions on transfer: (i) old notes may be resold
only if registered pursuant to the Securities Act, if an exemption from
registration is available thereunder, or if neither registration nor an
exemption is required by law, (ii) old notes shall bear a legend restricting
transfer in the absence of registration or an exemption therefrom and (iii) a
holder of old notes who desires to sell or otherwise dispose of all or any part
of its old notes under an exemption from registration under the Securities Act,
if requested by us, must deliver to us an opinion of independent counsel
experienced in Securities Act matters, reasonably satisfactory in form and
substance to us, that an exemption is available.
HEALTH CARE COSTS
We use a large portion of our revenue to pay the costs of health care services
and supplies delivered to our members. Our total health care costs are affected
by the number of individual services rendered and the cost of each service. Much
of our premium revenue is priced before services are delivered and the related
costs are incurred, usually on a prospective annual basis. Although we try to
base the premiums we charge in part on our estimate of future health care costs
over the fixed premium period, competition, regulations and other circumstances
may limit our ability to fully base premiums on estimated costs.
In addition, many factors may and often do cause actual health care costs to
exceed what we estimated and reflected in premiums. These factors include
increased use and 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.
The earnings we report for any particular quarter include estimates of covered
services incurred by our enrollees during that period for claims that have not
been received or processed. Because these are merely estimates, our earnings may
be adjusted later to reflect actual costs. Relatively insignificant changes in
the medical care ratio, because of the narrow margins of our health plan
business, can create significant changes in our earnings.
Our medical care ratio has generally increased over the past several fiscal
periods. We are addressing the medical cost trend underlying our increase in the
medical care ratio by altering benefit designs, recontracting with providers,
and aggressively increasing both our contemporaneous and retrospective claim
management activities. Our inability to implement these changes successfully
could lead to further increases in our medical care ratio. In addition, seasonal
changes in the level of health
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care use during the calendar year may affect our operating results. Per member
medical costs generally have been higher in the first half than in the second
half of each year, though we cannot assure that this trend will continue.
NEGATIVE PUBLICITY REGARDING THE MANAGED CARE INDUSTRY
The managed care industry receives significant negative publicity. This
publicity has led to increased legislation, regulation and review of industry
practices. These factors may adversely affect our ability to market our products
or services, require us to change our products and services, and increase the
regulatory burdens under which we operate, further increasing the costs of doing
business and adversely affecting profitability.
COMPETITION
In many of our geographic or product markets, we compete with a number of other
entities, some of which may have certain characteristics or capabilities that
give them a competitive advantage. We believe the barriers to entry in these
markets are not substantial, so the addition of new competitors can occur
relatively easily. Moreover, consumers enjoy significant flexibility in moving
to new managed care providers. Certain of our customers may decide to perform
for themselves functions or services that we provide, which would decrease our
revenues. Certain of our providers may decide to market products and services to
our customers in competition with us. In addition, significant merger and
acquisition activity has occurred in the industry in which we operate and in
industries that act as suppliers to us, such as the hospital, physician,
pharmaceutical and medical device industries. To the extent that strong
competition exists or that competition intensifies in any market, our ability to
retain and add customers or providers, or maintain or increase our revenue
growth, pricing flexibility, control over medical cost trends and marketing
expenses may be adversely affected.
AARP CONTRACT
Under our long-term contract with the American Association of Retired Persons
("AARP"), we provide Medicare supplemental, hospital indemnity health insurance
and other products to AARP members. As a result of the agreement, the number of
members we serve, products we offer, and services we provide has grown
significantly. Our portion of the AARP's insurance program represents
approximately $3.5 billion in annual net premium revenue from approximately 4
million AARP members. The success of the AARP arrangement will depend, in part,
on our ability to serve these new members, develop additional products and
services, price the products and services competitively, and respond effectively
to federal and state regulatory changes. Additionally, events that adversely
affect the AARP could have an adverse effect on the success of our arrangement
with the AARP.
MEDICARE OPERATIONS
In the second quarter of 1998, we experienced a significant rise in the medical
care ratio for our Medicare operations. The increase in medical costs was
primarily due to the business growth in new markets with higher and more
volatile medical cost trends, coupled with lower reimbursement rates. In
response, we announced in October 1998 our decision to withdraw Medicare product
offerings from 86 of the 206 counties we served at that time. The decision,
effective January 1, 1999, affects approximately 60,000, or 13%, of then-current
Medicare members. As a consequence of this withdrawal, we are precluded from
re-entering these counties with Medicare product offerings until 5 years after
the effective date. We will continue to offer Medicare products in strong and
economically viable markets. However, our ability to improve the financial
results of our Medicare operations will depend on a number of factors, including
future premium increases, growth in markets where we have achieved sufficient
size to operate efficiently, benefit design, provider contracting, and other
factors. We cannot assure that we will be able to successfully prevent future
losses on our Medicare operations.
REALIGNMENT OF OPERATIONS
We recognized a charge to earnings in the second quarter of 1998 for our
realignment. In
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<PAGE>
January 1998, we initiated a significant realignment of our operations into six
business lines. As part of the realignment, we began shifting resources and
activities to more directly support the operations of our businesses. Although
we do not expect our realignment efforts to negatively affect our product
offerings, provider relations, billing and collection disciplines, claims
processing and payment activities or other business functions, we cannot assure
that negative effects will not occur. Our second quarter charge to earnings for
costs associated with the realignment was $725 million. Although we believe the
charges are adequate, we cannot assure that the costs associated with our
realignment efforts will not exceed the charges we have taken for the costs.
GOVERNMENT PROGRAMS AND REGULATION
Our business is heavily regulated on federal, state and local levels. The laws
and rules governing our business and interpretations of those laws and rules are
subject to frequent change. The agencies administering those regulations have
broad latitude to enforce them. Existing or future laws and rules could force us
to change how we do business, restrict revenue and enrollment growth, increase
our health care and administrative costs and capital requirements, and increase
our liability for medical malpractice or other actions.
We must obtain and maintain regulatory approvals to market many of our products.
Delays in obtaining or failures to obtain or maintain these approvals could
adversely affect our revenue, number of members or costs.
A significant portion of our revenues relate 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, generally
are subject to frequent change, including changes that may reduce the number of
persons enrolled or eligible, reduce the amount of reimbursement or payment
levels, or reduce or increase our administrative or health care costs under such
programs. These types of changes have adversely affected our results and
willingness to participate in those programs in the past and may also do so in
the future.
We are also subject to various governmental reviews, audits and investigations.
This oversight could result in the loss of licensure or of the right to
participate in certain programs, or in the imposition of fines, penalties and
other sanctions. In addition, disclosure of any adverse investigation or audit
results or sanctions could damage our reputation in various markets and make it
more difficult for us to sell our products and services.
The National Association of Insurance Commissioners is expected to adopt rules
which, if implemented by the states, will require certain capitalization levels
for health care coverage provided by insurance companies, health maintenance
organizations and other risk-bearing health care entities. The requirements
would take the form of risk-based capital rules. Currently, similar risk-based
capital rules apply generally to insurance companies. Depending on the nature
and extent of the new minimum capitalization requirements ultimately
implemented, there could be an increase in the capital required for certain of
our subsidiaries and there may be some potential for disparate treatment of
competing products. Federal solvency regulation of companies providing
Medicare-related benefit programs may also be applied.
PROVIDER RELATIONS
One of the significant techniques we use to manage health care costs and
utilization and monitor the quality of care being delivered is contracting with
physicians, hospitals and other providers. Because our health plans are
geographically diverse and most of our plans contract with a large number of
providers, we currently believe our exposure to provider relations issues is
limited.
In any particular market, however, providers could refuse to contract, 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
14
<PAGE>
positions or near monopolies. If these providers refuse to contract with us, use
their market position to negotiate favorable contracts, or place us at a
competitive disadvantage, those activities could adversely affect our ability to
market products or to be profitable in those areas.
LITIGATION AND INSURANCE
We may be a party to a variety of legal actions that affect any business, such
as employment and employment discrimination-related suits, employee benefit
claims, breach of contract actions, tort claims, shareholder suits, including
securities fraud, and intellectual property-related litigation. In addition,
because of the nature of our business, we are subject to a variety of legal
actions relating to our business operations. These could include: claims
relating to the denial of health care benefits; medical malpractice actions;
provider disputes over 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 increase our exposure for any of these
types of claims. In some cases, substantial non-economic or punitive damages may
be sought.
We currently have insurance coverage for some of these potential liabilities.
However, insurance may not cover other potential liabilities, insurers may
dispute coverage, or the amount of insurance may not be enough to cover the
damages awarded. In addition, insurance may not cover certain types of damages,
such as punitive damages, and insurance coverage for all or certain forms of
liability may become unavailable or prohibitively expensive in the future.
INFORMATION SYSTEMS
Our business depends significantly on effective information systems, and we have
many different information systems for our various businesses. Our information
systems require an ongoing commitment of resources for maintenance, enhancements
and the development of new systems in order to keep pace with continuing changes
in information processing technology, evolving industry standards and changing
customer preferences. In addition, we may from time to time obtain significant
portions of our systems-related or other services or facilities from independent
third parties, which may make our operations vulnerable to such third parties'
failure to perform adequately. As a result of our acquisition activities, we
have acquired additional systems and have been taking steps to reduce the number
of systems and have upgraded and expanded our information systems capabilities.
Failure to maintain effective and efficient information systems could cause loss
of existing customers, difficulty in attracting new customers, customer and
provider disputes, regulatory problems, increases in administrative expenses or
other adverse consequences.
YEAR 2000 ACTIVITIES
We are in the process of modifying our computer systems to accommodate the "Year
2000." We currently expect to complete this modification enough in advance of
the Year 2000 to avoid adverse impacts on our operations. We are expensing the
costs incurred to make these modifications. Our operations could be adversely
affected if we were unable to complete our Year 2000 modifications in a timely
manner or if other companies with which we do business fail to complete their
Year 2000 modifications in a timely manner.
ADMINISTRATIVE AND MANAGEMENT
Efficient and cost-effective administration of our operations is essential to
our profitability and competitive positioning. Although we attempt to
effectively manage expenses, staff-related and other administrative expenses may
rise from time-to-time due to business or product start-ups or expansions,
growth or changes in business, acquisitions, regulatory requirements or other
reasons. These expense increases are not clearly predictable and may adversely
affect results.
We believe we currently have an experienced, capable management and technical
staff. The market for management and technical personnel, including information
systems professionals, in
15
<PAGE>
the health care industry is very competitive. The loss of certain managers or a
number of managers or technical staff could adversely affect our ability to
administer and manage our business.
MARKETING
We market our products and services through employed salespeople and independent
sales agents. Although we have many sales employees and agents, the departure of
certain key sales employees or agents or a large subset of such individuals
could impair our ability to retain existing customers and members. In addition,
certain of our 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 our health plans or other
business units may not have obtained or maintained, or may not desire or be able
to obtain or maintain, rating accreditation or certification, which could
adversely affect our ability to obtain or retain business with these customers.
ACQUISITIONS AND DISPOSITIONS
The company has made several large acquisitions in recent years and has an
active, ongoing acquisition and disposition program under which it may engage in
transactions involving the acquisition or disposition of assets, products or
businesses, some or all of which may be material. These acquisitions may entail
certain risks and uncertainties and may affect ongoing business operations
because of 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.
DATA AND PROPRIETARY INFORMATION
Many of the products that are part of our knowledge and information-related
business depend significantly on the integrity of the data on which they are
based. If the information contained in our databases were found or perceived to
be inaccurate, or if this information were generally perceived to be unreliable,
commercial acceptance of our database-related products would be adversely and
materially affected.
Furthermore, the use by our knowledge and information-related business of
patient data is regulated at federal, state, and local levels. These laws and
rules are changed frequently by legislation or administrative interpretation.
These restrictions could adversely affect revenues from these products and, more
generally, affect our business, financial condition and results of operations.
The success of our knowledge and information-related business also depends
significantly on our ability to maintain proprietary rights to our products. We
rely on our agreements with customers, confidentiality agreements with
employees, and our trade secrets, copyrights and patents to protect our
proprietary rights. We cannot assure that these legal protections and
precautions will prevent misappropriation of our proprietary information. In
addition, substantial litigation regarding intellectual property rights exists
in the software industry, and we expect software products to be increasingly
subject to third-party infringement claims as the number of products and
competitors in this industry segment grows. This type of litigation could have
an adverse effect on the ability of our knowledge and information-related
business to market and sell its products and on our business, financial
condition and results of operations.
MARKET VALUE OF THE NEW NOTES
General market trends, public communications regarding managed care, legislative
or regulatory actions, health care cost trends, pricing trends, competition,
earnings or membership reports of participants in our industry and acquisition
activity may affect the market value of the new notes. We can make no assurances
regarding the level or stability of the market value of the new notes in our
industry at any time or of the impact of these or any other factors on the
market value of the new notes.
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<PAGE>
USE OF PROCEEDS FROM SALE OF OLD NOTES
The company will not receive any cash proceeds from the issuance of the new
notes offered by this prospectus. As consideration for issuing the new notes in
exchange for old notes as described in this prospectus, the company will receive
old notes in the same principal amount. We will retire and cancel old notes
surrendered in exchange for the new notes. Accordingly, the issuance of the new
notes will not result in any change in the indebtedness of the company.
The company received net proceeds from the sale of the old notes totaling
approximately $248 million. The company used all of the net proceeds to redeem
shares of its 5.75% Series A Convertible Preferred Stock.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
company at December 31, 1998, as adjusted to give effect to the exchange offer.
The issuance of new notes in exchange for old notes will not affect the
capitalization of the company. See "USE OF PROCEEDS FROM SALE OF OLD NOTES."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN MILLIONS)
<S> <C>
Short-term debt:
Commercial paper......................................................... $ 59
5.65% Notes due December 1, 1999......................................... 400
------
Total short-term debt.................................................. 459
Long-term debt:
6.60% Notes due December 1, 2003......................................... 249
------
Shareholders' equity:
Common Stock -- $.01 per share:
500,000,000 shares authorized, 183,930,492 issued and outstanding...... 2
Additional paid-in capital............................................... 1,107
Retained earnings........................................................ 2,885
Net unrealized holding gains on investments available for sale, net of
income tax effects..................................................... 44
------
Total shareholders' equity............................................. 4,038
------
Total capitalization................................................... $ 4,746
------
------
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table summarizes selected consolidated historical financial
data of the company on a consolidated basis. The financial data for the years
ended December 31, 1998, 1997, 1996 and 1995 and as of December 31, 1997 and
1996, were derived from the audited consolidated financial statements
incorporated herein by reference. The selected financial data set forth below
for the company for the years ended December 31, 1994 and 1993 and as of
December 31, 1995, 1994 and 1993 were derived from the audited consolidated
financial statements not included or incorporated herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $17,355 $11,794 $10,074 $5,671 $3,769
Earnings (Loss) from Operations......... (42)(1) 742 581(2) 461(3) 506
Net Earnings (Loss) Before Extraordinary
Gain.................................. (166)(1) 460 356(2) 286(3) 288(4)
Extraordinary Gain on Sale of
Subsidiary, net....................... -- -- -- -- 1,377(5)
------- ------- ------- ------ ------
Net Earnings (Loss)..................... (166)(1) 460 356(2) 286(3) 1,665
Convertible Preferred Stock Dividends... (28) (29) (29) (7) --
Preferred Stock Redemption Premium...... (20) -- -- -- --
------- ------- ------- ------ ------
Net Earnings (Loss) Applicable to Common
Shareholders.......................... $ (214) $ 431 $ 327 $ 279 $1,665
------- ------- ------- ------ ------
------- ------- ------- ------ ------
Basic Net Earnings (Loss) per Common
Share Before Extraordinary Gain....... $ (1.12)(1) $ 2.30 $ 1.80(2) $ 1.61(3) $ 1.69(4)
Extraordinary Gain.................... -- -- -- -- 8.06(5)
------- ------- ------- ------ ------
Basic Net Earnings (Loss) per Common
Share................................. $ (1.12)(1) $ 2.30 $ 1.80(2) $ 1.61(3) $ 9.75
------- ------- ------- ------ ------
------- ------- ------- ------ ------
Diluted Net Earnings (Loss) per Common
Share Before Extraordinary Gain....... $ (1.12)(1) $ 2.26 $ 1.76(2) $ 1.57(3) $ 1.64(4)
Extraordinary Gain.................... -- -- -- -- 7.86(5)
------- ------- ------- ------ ------
Diluted Net Earnings (Loss) per Common
Share............................... $ (1.12)(1) $ 2.26 $ 1.76(2) $ 1.57(3) $ 9.50
------- ------- ------- ------ ------
------- ------- ------- ------ ------
Weighted Average Number of Common Shares
Outstanding:
Basic................................. 191 187 182 174 171
Diluted............................... 191 191 186 177 175
Dividends per Share:
Common Stock.......................... $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03
Convertible Preferred Stock........... 56.03 57.50 57.50 14.38 --
BALANCE SHEET DATA (AS OF):
Cash and Investments.................... $ 4,424 $ 4,041 $ 3,453 $3,078 $2,769
Total Assets............................ 9,701 7,623 6,997 6,161 3,489
Debt.................................... 708(6) -- -- -- --
Shareholders' Equity.................... 4,038 4,534 3,823 3,188 2,795
</TABLE>
- ------------------------------
Notes:
(1) Excluding the operational realignment and other charges of $725 million,
$175 million of charges related to contract losses associated with certain
Medicare markets and other increases to commercial and Medicare medical
costs payable estimates and the $20 million convertible preferred stock
redemption premium from 1998 results, earnings from operations and net
earnings applicable to common shareholders would have been $858 million and
$509 million, or $2.62 diluted net earnings per common share.
(2) Excluding the merger costs associated with the acquisition of HealthWise of
America, Inc. of $15 million ($9 million after tax, or $0.05 diluted net
earnings per common share) and the provision for future losses on two large
contracts of $45 million ($27 million after tax, or $0.15 diluted net
earnings per common share), 1996 earnings from operations and net earnings
would have been $641 million and $392 million, or $1.96 diluted net earnings
per common share.
(3) Excluding restructuring charges associated with the acquisition of The
MetraHealth Companies, Inc., of $154 million ($97 million after tax, or
$0.55 diluted net earnings per common share), 1995 earnings from operations
and net earnings would have been $615 million and $383 million, or $2.12
diluted net earnings per common share.
(4) Excluding the nonoperating merger costs associated with the acquisition of
Complete Health Services, Inc. and Ramsey-HMO, Inc., of $36 million ($22
million after tax, or $0.13 diluted net earnings per common share), 1994 net
earnings before extraordinary gain would have been $310 million, or $1.77
diluted net earnings per common share.
(5) In May 1994, the company sold Diversified Pharmaceutical Services, Inc. for
$2.3 billion in cash and recognized an extraordinary gain after transaction
costs and income tax effects of $1.4 billion, or $7.86 diluted net earnings
per common share.
(6) During 1998, we issued notes and commercial paper aggregating $708 million,
which remained outstanding at December 31, 1998.
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<PAGE>
BUSINESS
UnitedHealth Group is a national leader in offering health care coverage and
related services, which it offers through the following six lines of business:
ORGANIZED HEALTH SYSTEMS. UnitedHealth Group organizes, operates and manages
health systems under the name UnitedHealthcare. As of December 31, 1998,
UnitedHealthcare held a majority ownership interest in health plans operating in
approximately 40 markets nationwide and in Puerto Rico. UnitedHealthcare also is
engaged in a joint venture that operates a health plan in the Republic of South
Africa and provides consulting services in Germany, Hong Kong and the
Philippines through this business unit. Health systems we offer include:
- Health Maintenance Organizations (HMOs), where we contract with health
care providers within a defined geographic area to provide an agreed-upon
set of preventive and health maintenance and treatment services to
enrolled members who pay a fixed fee or premium that does not vary with
the extent of medical services received by the member;
- Point-of-Service (POS) Plans, which are health benefit plans that allow
the covered person to choose to receive service from a participating or
non-participating health care provider, with better benefit levels for
using participating providers. POS plans may be offered through HMOs or
preferred provider organizations, which are sometimes combined with
supplemental insurance plans.
INSURANCE SERVICES. UnitedHealth Group's insurance affiliate, Unimerica,
underwrites the health insurance coverage provided through its organized health
systems, as well as its Medicare supplemental insurance.
ADMINISTRATIVE SERVICES. Our Uniprise business provides administrative support
services and strategic planning services to large employers who self-insure
their employee benefits programs. Services include: member enrollment, member
eligibility, claim processing, issuing documents, billing and banking, customer
service and production of plan descriptions, provider directories and ID cards.
HEALTH AND WELL-BEING SERVICES FOR RETIREES AND OLDER AMERICANS. Through
Ovations, we provide Medicare supplement insurance and hospital indemnity
coverage for members enrolled in the health insurance program of the American
Association of Retired Persons (AARP). The company also provides health care
benefits to elderly nursing home residents through EverCare, a program which
works with the Medicare program and arranges the delivery of health care
services in the nursing home for no extra premium cost.
SPECIALIZED CARE SERVICES. Through Specialized Care Services, UnitedHealth
Group arranges and offers benefits, networks of health care providers, and
services focused on highly specialized health care needs. These include employee
assistance/counseling programs, mental health/substance abuse services, a
contracted network of solid organ transplant programs and related services,
24-hour health information and counseling services and health publications.
KNOWLEDGE AND INFORMATION SERVICES. Our subsidiary Ingenix offers reporting,
research, publishing and consulting services to health care providers,
employers, pharmaceutical companies and government institutions.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the old notes, the company entered into an
exchange and registration rights agreement. In that agreement, the company
agreed to file with the SEC (and cause to become effective) a registration
statement for the new notes. This prospectus forms a part of that registration
statement. We
19
<PAGE>
have filed the exchange and registration rights agreement as an exhibit to the
registration statement.
We are making the exchange offer to satisfy our contractual obligations under
the exchange and registration rights agreement. The form and terms of the new
notes are the same as the form and terms of the old notes except that the new
notes:
- - have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer applicable to the old notes;
- - will not be entitled to registration and other rights under the exchange and
registration rights agreement; and
- - will not provide for liquidated damages thereon.
The exchange and registration rights agreement provides that if we do not:
- - file a registration statement for the new notes within 60 days of the sale of
the old notes;
- - cause the registration statement for the new notes to become effective within
180 days after the sale of the old notes;
- - hold the exchange offer open for at least 30 days;
- - begin and complete the exchange offer within 45 days after the registration
statement becomes effective,
we will be required to pay an additional 0.25% interest on the old notes, per
annum, until we meet our obligations under the exchange and registration rights
agreement.
Upon consummation of the exchange offer, holders of old notes will not be
entitled to any interest rate increases or any further registration rights under
the exchange and registration rights agreement, except under limited
circumstances. See EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, exhibit 4.2 to
the registration statement.
A participating broker-dealer may use this prospectus, as it may be amended or
supplemented from time to time, during the period referred to below in
connection with resales of new notes received in exchange for old notes where
the participating broker-dealer acquired the old notes as a result of market-
making or other trading activities. The company has agreed that for 180 days
after the expiration date, it will make this prospectus available to any
broker-dealer for use in connection with any such resale. See "DESCRIPTION OF
NEW NOTES -- PLAN OF DISTRIBUTION."
The company is not making the exchange offer to, and will not accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or its acceptance would violate the securities or blue sky laws of that
jurisdiction.
Unless the context requires otherwise, the term "holder" in the context of the
exchange offer means:
- - any person in whose name the old notes are registered on the books of the
company;
- - any person who has obtained a properly completed bond power from the
registered holder; or
- - any person whose old notes are held of record by DTC who desires to deliver
such old notes by book-entry transfer at DTC.
TERMS OF THE EXCHANGE
The company hereby offers, upon the terms and subject to the conditions set
forth in this prospectus and in the accompanying letter of transmittal, to
exchange up to $250 million aggregate principal amount of new notes for the same
aggregate principal amount of old notes properly tendered on or before the
expiration date (which is explained below) and not properly withdrawn in
accordance with the procedures described below.
The company will issue, promptly after the expiration date, an aggregate
principal amount of up to $250 million of new notes in exchange for the same
principal amount of outstanding old notes tendered and accepted in connection
with the exchange offer. Holders may tender their old notes in whole or in part
in a principal amount of $1,000 and integral multiples thereof,
20
<PAGE>
provided that if any old note is tendered for exchange in part, the untendered
principal amount must be $1,000 or any integral multiple of $1,000.
The exchange offer is not conditioned upon any minimum number of old notes being
tendered. As of the date of this prospectus $250 million aggregate principal
amount of the old notes is outstanding.
Holders of old notes do not have any appraisal or dissenters' rights in
connection with the exchange offer. Old notes which are not tendered for, or are
tendered but not accepted in connection with, the exchange offer will remain
outstanding and be entitled to the benefits of the indenture. Those old notes
will not be entitled to any further registration rights under the exchange and
registration rights agreement, except under limited circumstances. See "--
CONSEQUENCES OF FAILURE TO EXCHANGE."
If any old notes are not accepted for exchange because of an invalid tender, the
occurrence of certain other events set forth in this prospectus or for any other
reason, certificates for those unaccepted old notes will be returned, without
expense, to the tendering holder promptly after the expiration date.
Holders who tender old notes in connection with the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of old
notes pursuant to the exchange offer. The company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the exchange offer. See "-- FEES AND EXPENSES."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING THEIR OLD NOTES UNDER THE EXCHANGE OFFER, NOR HAS THE COMPANY
AUTHORIZED ANYONE TO MAKE ANY RECOMMENDATION. A HOLDER OF OLD NOTES MUST MAKE
ITS OWN DECISION, BASED ON ITS OWN FINANCIAL POSITION AND REQUIREMENTS, WHETHER,
AND IF SO, HOW MUCH OF ITS OLD NOTES, TO TENDER UNDER THE EXCHANGE OFFER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH ITS
ADVISERS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on June 15, 1999
unless we extend the exchange offer (in which case "expiration date" will mean
the latest date and time to which we extend the exchange offer).
The company expressly reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time:
- - to delay the acceptance of the old notes for exchange;
- - to terminate the exchange offer (whether or not any old notes have theretofore
been accepted for exchange) if the company determines, in its sole and
absolute discretion, that any of the events or conditions referred to under
"-- CONDITIONS TO THE EXCHANGE OFFER" have occurred or exist or have not been
satisfied;
- - to extend the expiration date of the exchange offer and retain all old notes
tendered under the exchange offer, subject, however, to the right of holders
of old notes to withdraw their tendered old notes as described under "--
WITHDRAWAL RIGHTS," and
- - to waive any condition or otherwise amend the terms of the exchange offer in
any respect. If we amend the exchange offer in a manner we determine
constitutes a material change, or we waive a material condition of the
exchange offer, we will promptly disclose that amendment by means of a
prospectus supplement that we will distribute to the registered holders of the
old notes, and will extend the exchange offer to the extent required by Rule
14e-1 under the Exchange Act.
We will follow any delay we make in acceptance, extension, termination or
amendment with oral or written notice to the exchange agent and by public
announcement. In the case of an extension, the announcement will be made no
later than 9:00 a.m., New York City time, on the
21
<PAGE>
next business day after the previously scheduled expiration date. Without
limiting the manner in which we may choose to make any public announcement, and
subject to applicable law, we shall have no obligation to publish, advertise or
otherwise communicate any public announcement other than by issuing a release to
an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
We will deliver new notes in exchange for old notes validly tendered and
accepted for exchange under the exchange offer only after timely receipt by the
exchange agent of:
- - old notes or a book-entry confirmation of a book-entry transfer of old notes
into the exchange agent's account at DTC;
- - the letter of transmittal (or facsimile thereof), properly completed and
executed, with any required signature guarantees; and
- - any other documents required by the letter of transmittal.
The term "book-entry confirmation" means a timely confirmation of a book-entry
transfer of old notes into the exchange agent's account at DTC.
The company will accept for exchange (and exchange) old notes by giving oral or
written notice to the exchange agent that the company has accepted the old notes
for exchange under the exchange offer.
The exchange agent will act as agent for the company for the purpose of
receiving tenders of old notes, letters of transmittal and related documents,
and as agent for tendering holders for the purpose of receiving old notes,
letters of transmittal and related documents and transmitting new notes to
validly tendering holders.
Promptly after the expiration date, the company will exchange, and will issue to
the exchange agent, new notes for old notes validly tendered and not withdrawn
(see "-- WITHDRAWAL RIGHTS"), subject to the terms and conditions of the
exchange offer.
If for any reason,
- - acceptance for exchange or the exchange of any old notes tendered under the
exchange offer is delayed (whether before or after the company's acceptance
for exchange of old notes), or
- - the company extends the exchange offer or is unable to accept for exchange or
exchange old notes tendered under the exchange offer,
then, without prejudice to the company's rights set forth herein, the exchange
agent may, on behalf of the company and subject to Rule 14e-1(c) under the
Exchange Act, retain tendered old notes, and such old notes may not be withdrawn
except to the extent tendering holders are entitled to withdrawal rights as
described under "-- WITHDRAWAL RIGHTS."
In the letter of transmittal, a holder of old notes will warrant and agree that:
- - it has full power and authority to tender, exchange, sell, assign and transfer
old notes;
- - the company will acquire good, marketable and unencumbered title to the
tendered old notes, free and clear of all liens, restrictions, charges and
encumbrances; and
- - the old notes tendered for exchange are not subject to any adverse claims or
proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the company or the
exchange agent to be necessary or desirable to complete the exchange, sale,
assignment, and transfer of the old notes tendered pursuant to the exchange
offer.
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER. In order to validly tender old notes, the holder must either
comply with the guaranteed delivery requirements described below or, on or
before the expiration date, deliver to the exchange agent at its address listed
under "-- EXCHANGE AGENT" a properly completed letter of transmittal (or
facsimile thereof) with any required signature guarantees and any other required
documents and:
- - the holder's old notes; or
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- - a book-entry confirmation (if the holder tenders its old notes under the
book-entry transfer procedures).
If a holder tenders less than all of its old notes, it should fill in the amount
of old notes being tendered in the appropriate box on the letter of transmittal.
We will exchange the entire amount of old notes delivered to the exchange agent
unless instructed otherwise.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS ARE AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER. WE
WILL CONSIDER DELIVERY TO HAVE OCCURRED ONLY UPON ACTUAL RECEIPT BY THE EXCHANGE
AGENT. IF THE HOLDER CHOOSES DELIVERY BY MAIL, WE RECOMMEND REGISTERED MAIL,
RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE. IN
ALL CASES, A HOLDER SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
BOOK ENTRY TRANSFER. Within two business days after the date of this
prospectus, the exchange agent will establish an account at DTC for purposes of
the exchange offer. Any financial institution that is a participant in DTC's
book-entry transfer facility system may make a book-entry delivery of the old
notes by causing DTC to transfer the old notes into the exchange agent's account
at DTC according to DTC's procedures for transfers. However, although a holder
may effect delivery of old notes through book-entry transfer into the exchange
agent's account at DTC, the holder must still deliver the letter of transmittal
(or facsimile thereof), properly completed and executed, with any required
signature guarantees and any other required documents, to the exchange agent at
its address listed under "-- EXCHANGE AGENT" on or before the expiration date,
or the holder must comply with the guaranteed delivery procedure described
below.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT AMOUNT
TO DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. A holder need not endorse its certificates for old notes
or obtain signature guarantees on the letter of transmittal unless:
- - the certificates are registered in a name other than that of the person
surrendering the certificates; or
- - the registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the letter of transmittal.
In the case of either of the two bullet points above, the holder must endorse
the certificates or provide a properly executed bond power, with the endorsement
or signature on the bond power and on the letter of transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution" (also referred to in this prospectus as an
"eligible institution"), unless the old notes are surrendered on behalf of such
eligible institution.
The term eligible guarantor institution includes:
- - a bank;
- - a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;
- - a credit union;
- - a national securities exchange, registered securities association or clearing
agency; or
- - a savings association that is a participant in a Securities Transfer
Association.
See LETTER OF TRANSMITTAL, Instruction 1, exhibit 99.1 to the registration
statement.
GUARANTEED DELIVERY. If a holder desires to tender old notes under the exchange
offer and the certificates for the holder's old notes are not immediately
available, time will not permit all required documents to reach the exchange
agent on or before the expiration date, or the procedures for book-entry
transfer cannot be completed on a timely basis, a holder may nevertheless tender
the holder's old notes,
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provided that the holder complies with all of the following guaranteed delivery
procedures:
- - the tenders are made by or through an eligible institution;
- - the holder delivers a properly completed and executed notice of guaranteed
delivery, substantially in the form accompanying the letter of transmittal, to
the exchange agent, as provided below, on or before the expiration date; and
- - the holder delivers the certificates (or a book-entry confirmation)
representing all tendered old notes, in proper form for transfer, together
with a properly completed and executed letter of transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the letter of transmittal, to the exchange agent within five New
York Stock Exchange trading days after the execution of the notice of
guaranteed delivery.
The notice of guaranteed delivery may be delivered by hand, facsimile or mail to
the exchange agent and must include a guarantee by an eligible institution in
the form set forth in the notice.
The company will deliver new notes in exchange for old notes tendered and
accepted for exchange under the exchange offer only after the old notes have
been validly tendered as described above.
Accordingly, we might not deliver new notes to all tendering holders at the same
time, depending on when the exchange agent receives old notes, book-entry
confirmations with respect to old notes and other required documents.
The company's acceptance for exchange of old notes tendered under any of the
procedures described above will constitute a binding agreement between the
tendering holder and the company upon the terms and subject of the conditions to
the exchange offer.
DETERMINATION OF VALIDITY. The company, in its sole discretion, will resolve all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tendered old notes. The company's
determination regarding these questions shall be final and binding on all
parties.
The company reserves the absolute right, in its sole and absolute discretion, to
reject any tender if it determines that it is not in proper form or the
company's counsel determines that the acceptance of the tender, or the related
exchange, may be unlawful.
The company also reserves the absolute right, subject to applicable law, to
waive any of the conditions to the exchange offer set forth under "-- CONDITIONS
TO THE EXCHANGE OFFER" or any condition or irregularity in any tender of old
notes whether or not the company waives similar conditions or irregularities in
the case of other holders.
The company's interpretation of the terms and conditions to the exchange offer
(including the letter of transmittal and its instructions) will be final and
binding. No tender of old notes will be considered validly made until all
irregularities with respect to that tender have been cured or waived. Neither
the company, any affiliates or assigns of the company, the exchange agent nor
any other person has any obligation to give notice of any irregularities in
tenders nor will they have any liability for failure to give any notice of
irregularities.
When a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or other person acting in a fiduciary or representative capacity
signs any letter of transmittal, endorsement, bond power, power of attorney, or
any other document required by the letter of transmittal, that person must:
- - indicate below the person's signature the capacity in which the person is
signing; and
- - submit evidence of the person's authority to sign in such capacity to the
company, unless the company waives this requirement.
A person who beneficially owns old notes held by or registered in the name of a
broker, dealer, commercial bank, trust company or other nominee or custodian
should contact that entity promptly if the person wants to participate in the
exchange offer.
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If a beneficial holder wishes to tender on the holder's own behalf, the
beneficial holder must, prior to completing and executing the letter of
transmittal and delivering the holder's old notes, either make appropriate
arrangements to register ownership of the old notes in the holder's name or
obtain a properly completed bond power from the registered holder. The transfer
of record ownership may take considerable time.
RESALES OF NEW NOTES
The company is making the exchange offer in reliance on a position that the
staff of the SEC has taken in certain interpretive letters addressed to third
parties in other transactions. The company has not sought its own interpretive
letter for this transaction, and cannot assure that the staff would take the
same position with respect to the exchange offer as it has taken in letters to
third parties concerning other transactions.
Based on these interpretations, and subject to the preceding paragraph, the
company believes that new notes issued under the exchange offer may be offered
for resale, resold and otherwise transferred (except by a broker-dealer) without
further compliance with the registration and prospectus delivery requirements of
the Securities Act, as long as the holder acquires the new notes in the ordinary
course of its business and is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of the new notes.
However, a holder of old notes who is an "affiliate" of the company or intends
to participate in the exchange offer for the purpose of distributing new notes,
or a broker-dealer who purchased old notes from the company for resale under
Rule 144A or any other available exemption under the Securities Act:
- - may not rely on the interpretations of the staff of the SEC set forth in the
above-mentioned interpretive letters;
- - may not tender their old notes in the exchange offer; and
- - must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of the old notes
unless the sale is made under an exemption from those requirements.
In addition, as described below, if a broker-dealer holds old notes acquired for
its own account as a result of market-making or other trading activities and
exchanges those old notes for new notes, then the broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of the new notes.
Each holder of old notes who wants to exchange old notes for new notes in the
exchange offer must represent that:
- - it is not an "affiliate" (as defined under Rule 405 of the Securities Act), of
the company or, if it is an affiliate, it will comply with the registration
and prospectus delivery requirements of the Securities Act;
- - it is acquiring new notes in the ordinary course of its business;
- - it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of new notes; and
- - if it is not a broker-dealer, it is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of new
notes.
Each broker-dealer that receives new notes for its own account where the old
notes were acquired by the broker-dealer as a result of market-making activities
or other trading activities must acknowledge that it will deliver a prospectus
in connection with any resale of new notes. See "PLAN OF DISTRIBUTION." The
letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the SEC in the above-mentioned
interpretive letters, the company believes that broker-dealers that acquired old
notes for their own accounts as a result of market-making or other trading
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activities ("participating broker-dealers") may fulfill their prospectus
delivery requirements with respect to new notes received in exchange for old
notes (other than old notes which represent an unsold allotment from the
original sale of the old notes) with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange offer
as long as it contains a description of the plan of distribution with respect to
the resale of the new notes.
Accordingly, a participating broker-dealer may use this prospectus, as it may be
amended or supplemented from time to time, during the period referred to below
in connection with resales of new notes received in exchange for old notes where
the old notes were acquired by a participating broker-dealer for its own account
as a result of market-making or other trading activities. Subject to certain
provisions set forth in the exchange and registration rights agreement, the
company has agreed that a participating broker-dealer may use this prospectus,
as it may be amended or supplemented from time to time, in connection with
resales of new notes until the earlier of:
- - 180 days after the expiration date (subject to extension under certain limited
circumstances described below); or
- - the disposition of all new notes by the participating broker-dealer. See "PLAN
OF DISTRIBUTION."
Any participating broker-dealer who is an "affiliate" of the company may not
rely on the above-mentioned interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each participating broker-dealer who surrenders old notes under
the exchange offer, by executing the letter of transmittal, will agree that,
upon:
- - receipt of notice from the company of the occurrence of any event or the
discovery of any fact which:
- makes any statement contained or incorporated by reference in this
prospectus untrue in any material respect, or
- causes this prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in
light of the circumstances under which they were made, not misleading; or
- - the occurrence of certain other events specified in the exchange and
registration rights agreement,
the participating broker-dealer will suspend the sale of new notes under this
prospectus until the company has:
- - amended or supplemented the prospectus to correct the misstatement or omission
and has furnished copies of the amended or supplemented prospectus to the
participating broker-dealer; or
- - given notice that the sale of the new notes may be resumed.
If the company gives notice to suspend the sale of the new notes, it shall
extend the 180-day period referred to above during which participating
broker-dealers are entitled to use this prospectus in connection with the resale
of new notes by the number of days during the period from and including the date
of the giving of notice to and including:
- - the date when participating broker-dealers receive copies of the amended or
supplemented prospectus necessary to permit resales of the new notes; or
- - the date on which the company has given notice that the sale of new notes may
be resumed.
WITHDRAWAL RIGHTS
Except as otherwise provided in this prospectus, holders may withdraw tenders of
old notes at any time on or before the expiration date.
In order for a holder to validly withdraw old notes tendered for exchange, the
holder must deliver a written, telegraphic or facsimile transmission of the
notice of withdrawal to the exchange agent at its addresses listed under
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"-- EXCHANGE AGENT" so that the exchange agent receives the notice on or before
the expiration date.
The notice of withdrawal must specify the name of the person who tendered the
old notes to be withdrawn, the aggregate principal amount of old notes to be
withdrawn, and (if certificates for old notes have been tendered) the name of
the registered holder of the old notes as set forth on the old notes (if
different from that of the person who tendered the old notes).
If old notes have been delivered or otherwise identified to the exchange agent,
then in order for the holder to obtain the physical release of the old notes,
the holder must submit the serial numbers shown on the old notes to be withdrawn
and submit a guarantee of the signature on the notice of withdrawal, provided by
an eligible institution (unless the old notes are tendered for the account of an
eligible institution).
If old notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "-- PROCEDURES FOR TENDERING OLD NOTES," the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of old notes. In this case, a notice of withdrawal will be
effective if timely delivered to the exchange agent by written, telegraphic or
facsimile transmission.
Withdrawals of tenders of old notes may not be rescinded. Holders that have
withdrawn their tenders may, however, retender their old notes at any time on or
before the expiration date by following the procedures described above under "--
PROCEDURES FOR TENDERING OLD NOTES."
The company, in its sole discretion, will resolve all questions as to the
validity, form and eligibility (including time of receipt) of withdrawal
notices. The company's determinations on these questions will be final and
binding on all parties. Neither the company, any affiliates or assigns of the
company, the exchange agent nor any other person has any duty to give notice of
any irregularities in any notice of withdrawal or any liability for failure to
give any notice. Any old notes tendered and withdrawn before the expiration date
will be returned to the appropriate holder promptly after withdrawal.
INTEREST ON THE NEW NOTES
Each new note will bear interest at an annual rate of 6.60%:
- - from the most recent date to which interest has been paid or provided for on
the old note surrendered in exchange for the new note; or
- - if no interest has been paid or provided for on the old note, from November
24, 1998.
We will pay interest on the new notes semiannually on June 1 and December 1 of
each year, beginning June 1, 1999.
Holders of old notes which are accepted for exchange will not receive accrued
interest on their old notes for any period from and after the last interest
payment date to which interest has been paid or duly provided for on their old
notes before the original issue date of the new notes or, if no interest has
been paid or duly provided for, will not receive any accrued interest on their
old notes, and will be deemed to have waived the right to receive any interest
on their old notes accrued from and after the interest payment date or, if no
such interest has been paid or duly provided for, from and after November 24,
1998.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, or any extension of
the exchange offer, the company will not be required to accept for exchange, or
to exchange, any old notes for any new notes, and, as described below, may
terminate the exchange offer (whether or not any old notes have already been
accepted for exchange) or may waive any conditions to or amend the exchange
offer, if any of the following conditions has occurred, exists or has not been
satisfied:
- - any of the following occur which, in the company's judgment, would reasonably
be expected to impair the ability of the company to proceed with the exchange
offer:
- any action or proceeding is instituted or threatened in any court or by or
before
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any governmental agency or body with respect to the exchange offer;
- any law, statute, rule or regulation is adopted or enacted; or
- trading on the New York Stock Exchange or generally in the United States
over-the-counter market is suspended by order of the SEC or any other
governmental authority;
- - the SEC or any state securities authority issues a stop order suspending the
effectiveness of the registration statement, or proceedings are initiated or,
to the knowledge of the company, threatened, for that purpose; or
- - any change, or any development involving a prospective change, in the business
or financial affairs of the company or any of its subsidiaries has occurred
which, in the sole judgment of the company, might materially impair the
ability of the company to proceed with the exchange offer.
If the company determines in its sole and absolute discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied,
the company may, subject to applicable law, terminate the exchange offer
(whether or not any old notes have already been accepted for exchange) or may
waive any of the foregoing or otherwise amend the terms of the exchange offer in
any respect. If a waiver or amendment constitutes a material change to the
exchange offer, the company will promptly disclose the waiver by means of a
prospectus supplement that it will distribute to the registered holders of the
old notes, and the company will extend the exchange offer to the extent required
by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
The company has appointed The Bank of New York as exchange agent for the
exchange offer. Delivery of the letters of transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent as follows:
The Bank of New York
101 Barclay Street
New York, NY 10286
Attention: Reorganization Section 7-E
Telephone: (212) 815-5920
Facsimile: (212) 815-6339
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
We have agreed to pay, and promptly reimburse others who have paid, the
following fees and expenses incurred in connection with the exchange offer and
issuance of the new notes:
- - SEC and NASD registration, filing and review fees and expenses;
- - fees and expenses incurred in complying with State securities and blue sky
laws;
- - expenses relating to the preparation and distribution of the registration
statement, prospectus, any amendments and supplements to those documents, and
the new notes;
- - the fees and expenses of the exchange agent and its attorneys;
- - the fees and expenses of the trustee and its attorneys;
- - the fees and expenses of our attorneys and our independent certified public
accountants; and
- - certain other fees expenses that may or may not be incurred.
For additional details concerning the fees and expenses we have agreed to pay in
connection with the exchange offer, see the EXCHANGE AND REGISTRATION RIGHTS
AGREEMENT, exhibit 4.2 to the registration statement.
Holders who tender their old notes for exchange usually will not have to pay
transfer taxes in connection with the exchange. If, however, new notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the old notes tendered, or if a transfer tax is imposed for
any reason other
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than the exchange of old notes in connection with the exchange offer, then the
holder will be obligated to pay any transfer taxes (whether imposed on the
registered holder or any other persons). If the tendering holder does not submit
satisfactory evidence of payment of, or an exemption from, such taxes, the
amount of the transfer taxes will be billed directly to the tendering holder.
In addition, except as described in the preceding paragraphs concerning which
fees and expenses we will pay, holders of notes must pay all:
- - agency fees and commissions and underwriting discounts and commissions
attributable to the sales of the notes;
- - the fees and disbursements of their legal counsel or other advisors or
experts;
- - transfer taxes on resales of the notes; and
- - advertising and solicitation expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
By making this exchange offer, we will have fulfilled one of our obligations
under the exchange and registration rights agreement. Holders of old notes who
do not tender their notes generally will not have any further registration
rights, under the exchange and registration rights agreement or otherwise.
Accordingly, any holder of old notes that does not exchange its old notes for
new notes will continue to hold the untendered old notes and will be entitled to
the rights and limitations applicable to the old notes under the indenture,
except to the extent that those rights or limitations terminate or cease to have
further effect following the exchange offer.
Old notes that are not exchanged for new notes under the exchange offer will
remain restricted securities, and will continue to bear a restrictive legend. As
a result, holders of old notes may resell their old notes only:
- - to us;
- - under an effective registration statement under the Securities Act;
- - so long as the old notes are eligible for resale under Rule 144A, to a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A;
- - under an exemption from registration under the Securities Act provided by Rule
144 thereunder (if available); or
- - to an institutional accredited investor in a transaction exempt from the
registration requirements of the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
Participation in the exchange offer is voluntary and holders should carefully
consider whether to accept. Holders of the old notes are urged to consult their
financial and tax advisors in making their own decision on what action to take.
We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
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DESCRIPTION OF NEW NOTES
Under the exchange offer, we will issue up to $250 million aggregate principal
amount of 6.60% senior notes due December 1, 2003. We will pay interest on the
new notes semiannually on June 1 and December 1 of each year, beginning June 1,
1999, until the new notes mature on December 1, 2003. Each new note will bear
interest at an annual rate of 6.60% from the most recent date to which interest
has been paid or provided for on the old note surrendered in exchange for such
new note or, if no interest has been paid or provided for on such old note, from
November 24, 1998 (the date of original issuance of the old notes). Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The new notes will be issued under an indenture, or agreement, between the
company and The Bank of New York, as trustee. See SENIOR INDENTURE, exhibit 4.1
to the registration statement. The indenture will be qualified under the Trust
Indenture Act. This section summarizes certain terms and provisions of the
indenture. The summary is not complete. You should read the indenture for
additional information before you exchange your old notes for new notes.
Capitalized terms used but not defined in this summary have the meanings
specified in the indenture.
GENERAL
New notes issued under the indenture will be issued as part of a series that
UnitedHealth Group has established under the indenture. The amount of new notes
offered by this prospectus will be limited to the amount of securities set forth
on the cover of this prospectus that UnitedHealth Group has not already issued
or reserved for issuance. The indenture does not limit the aggregate principal
amount of new notes which we may issue under the indenture.
The old notes and the new notes will constitute a single series of debt
securities under the indenture. If the exchange offer is consummated, holders of
the old notes who do not exchange their old notes for new notes will vote
together with the holders of new notes for all relevant purposes under the
indenture. In that regard, the indenture requires that certain actions by the
holders thereunder (including acceleration following an event of default) must
be taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding debt securities of the
relevant series. In determining whether holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the indenture, any old notes which remain outstanding
after the exchange offer will be aggregated with the new notes and the holders
of such old notes and new notes will vote together as a single series for all
such purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the outstanding old notes or new notes shall be
deemed to mean, at any time after the exchange offer is consummated, such
percentage in aggregate principal amount of the old notes and new notes then
outstanding.
The new notes are senior unsecured obligations of the company and will rank
equal in right of payment with all other unsecured unsubordinated indebtedness
of the company.
The new notes will be issued only in registered form, without coupons, in
denominations of $1,000 each or multiples of $1,000.
The new notes will be issued in the form of one or more global securities, as
described below under "GLOBAL NEW NOTES."
The company has appointed the Bank of New York to serve as registrar and paying
agent under the indenture at its offices in the Borough of Manhattan, City of
New York.
There will be no service charge for any registration of transfer or exchange of
the new notes, but we may require you to pay any tax or other governmental
charge payable in connection with a transfer or exchange of the new notes.
The new notes will not provide for an increase in the interest rate thereon. For
a discussion of the circumstances in which the interest rate on
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the old notes may be increased, see "DESCRIPTION OF OLD NOTES."
CONVERSION
The new notes are not convertible into any other securities of the company.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Please refer to
the indenture for full definitions of all terms.
"CAPITAL STOCK" means:
- - corporate stock including, without limitation, common stock and preferred
stock;
- - any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
- - partnership interests (whether general or limited); and
- - any other interest or participation that confers on a person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing person.
"CONSOLIDATED NET WORTH" means, with respect to any person as of any date, the
sum of:
- - the consolidated equity of the common stockholders of a person and its
consolidated Subsidiaries as of a particular date; plus
- - the respective amounts reported on a person's balance sheet as of a particular
date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless
those dividends may be declared and paid only out of net earnings in the year
of declaration and payment, but only to the extent of any cash received by a
person upon issuance of the preferred stock; less
- - all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of the business), subsequent to the
date of the indenture, in the book value of any asset owned by a person or a
consolidated Subsidiary of that person; and
- - all unamortized debt discount and expense and unamortized deferred charges as
of a particular date,
all of the foregoing determined in accordance with generally accepted accounting
principles.
"DEFAULT" means any event that is or with the passage of time or the giving of
notice or both would be an event of default under the indenture.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible or for which it is exchangeable),
or upon the happening of any event:
- - matures; or
- - is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise;
or
- - is redeemable at the option of the holder of the Capital Stock,
in whole or in part, on or before the date that is 91 days after the date on
which the notes mature.
"PRINCIPAL PROPERTY" means:
- - the land;
- - the land improvements;
- - the buildings; and
- - the fixtures (to the extent they constitute real property interests)
(including any leasehold interest therein)
constituting UnitedHealth Group's principal corporate office or any other
discrete facility of UnitedHealth Group and its Subsidiaries (whether owned at
the date of initial issuance of the notes or acquired after that date), provided
in each case that the facility:
- - is owned by UnitedHealth Group or any Subsidiary;
- - is located within any of the present 50 states of the United States of America
or the District of Columbia;
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- - has not been determined in good faith by UnitedHealth Group's Board of
Directors not to be of material importance to the business conducted by
UnitedHealth Group and its Subsidiaries taken as a whole; and
- - has a book value as on the date as of which the determination is being made in
excess of 5% of the Consolidated Net Worth of UnitedHealth Group as of the
most recent quarterly consolidated balance sheet of UnitedHealth Group
prepared in accordance with generally accepted accounting principles.
"RESTRICTED SUBSIDIARY" means
- - each Subsidiary as of the date of the indenture; and
- - each Subsidiary created or acquired after the date of the indenture, provided,
however, that any Subsidiary may be expressly excluded by resolution of the
board of directors of UnitedHealth Group before, or within 120 days following,
the creation or acquisition of the Subsidiary.
"SUBSIDIARY" means, with respect to any person:
- - any corporation, association or other business entity of which more than 50%
of the total voting power of shares of Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees of the entity is at the time owned or controlled,
directly or indirectly, by the person or one or more of the other Subsidiaries
of that person (or a combination thereof); and
- -any partnership:
(a) the sole general partner or the managing general partner of which is the
person or a Subsidiary of that person; or
(b) the only general partners of which are the person or of one or more
Subsidiaries of that person (or any combination thereof), with certain
exceptions.
CERTAIN COVENANTS
LIMITATION ON LIENS. The indenture provides that UnitedHealth Group will not,
and will permit any Restricted Subsidiary to, create, assume, incur or suffer to
exist:
- - any lien, which includes any mortgage, pledge, lien, encumbrance, charge or
security interest of any kind, upon any stock or indebtedness of any
Restricted Subsidiary, whether owned on the date of the indenture or acquired
after that date, to secure any indebtedness for money borrowed of UnitedHealth
Group or any other person (other than the notes); or
- - any lien upon any Principal Property, whether owned or leased on the date of
the indenture, or acquired after that date, to secure any indebtedness for
money borrowed of UnitedHealth Group or any other person (other than the
notes),
in each case, without making effective provision to secure all the outstanding
notes on the same basis as the indebtedness for money borrowed.
The restriction referred to in the preceding paragraph does not include the
following liens ("Permitted Liens"):
- - any lien upon property, stock or indebtedness of an entity existing at the
time that entity becomes a Restricted Subsidiary;
- - any lien upon property, stock or indebtedness existing at the time it is
acquired by UnitedHealth Group or a Restricted Subsidiary (whether directly or
by merger, consolidation or otherwise) or granted to secure payment of any
part of the purchase price thereof or granted to secure any the indebtedness
for money borrowed incurred to finance the purchase thereof (provided that the
indebtedness for money borrowed is incurred before, concurrently with or
within 270 days after the completion of the purchase);
- - any lien upon property to secure any part of the cost of development,
construction, alteration, repair or improvement of the property or granted to
secure indebtedness for money borrowed incurred to finance the cost (provided
that the indebtedness is incurred before, concurrently with or within 270 days
after the completion of such development,
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construction, alteration, repair or improvement);
- - any lien securing indebtedness for money borrowed of a Restricted Subsidiary
owing to UnitedHealth Group or to another Restricted Subsidiary;
- - any lien existing on the date of initial issuance of the new notes;
- - any lien on property of UnitedHealth Group or a Restricted Subsidiary in favor
of the United States of America or any State or political subdivision thereof,
or in favor of any other country or any political subdivision thereof, to
secure payment pursuant to any contract or statute, rule or regulation; and
- - any extension, renewal or replacement, in whole or in part, of any Lien
referred to in the preceding six bullet points; provided, however, that the
principal amount of indebtedness for money borrowed secured thereby shall not
exceed the principal amount of indebtedness for money borrowed so secured at
the time of the extension, renewal or replacement; and provided, further, that
the lien shall be limited to all or part of the property which was subject to
the lien that was extended, renewed or replaced.
Notwithstanding the two preceding paragraphs. UnitedHealth Group may, and may
permit any Restricted Subsidiary, to:
- create any lien upon any stock or indebtedness of any Restricted
Subsidiary or upon any Principal Property;
- assume any lien upon any stock or indebtedness of any Restricted
Subsidiary or upon any Principal Property;
- incur or allow to exist any lien upon any stock or indebtedness of any
Restricted Subsidiary or upon any Principal Property:
in each case, without securing the notes on the same basis. This will only be
permitted if the aggregate amount of all indebtedness for money borrowed (except
indebtedness for money borrowed that is secured by Permitted Liens) then
outstanding and secured by the lien and all similar liens does not exceed 10% of
the Consolidated Net Worth of UnitedHealth Group as of the most recent quarterly
consolidated balance sheet of UnitedHealth Group prepared in accordance with
generally accepted accounting principles.
MERGER, CONSOLIDATION, OR SALE OF ASSETS. The indenture provides that we may
not merge with another company or sell or lease all of our property to another
company unless:
- - we are the continuing corporation, or the successor corporation is a domestic
corporation and expressly assumes the payment of principal and interest on the
notes and the performance and observance of all the covenants and conditions
to the indenture binding on us;
- - immediately after the transaction, we, or our successor corporation, is not in
default in the performance of a covenant or condition in the indenture; and
- - we, or our successor corporation, will have Consolidated Net Worth immediately
after the transaction equal to or greater than our Consolidated Net Worth
immediately preceding the transaction.
REPORTS. The indenture provides that as long as any notes are outstanding, we
will file with the trustee and furnish to the holders of notes all reports on
Forms 8-K, 10-Q and 10-K and all proxy statements that we file with the SEC. If
we no longer are subject to Section 13 or 15(d) of the Exchange Act, we will not
be obligated to provide these reports to the trustee and holders.
TRUSTEE. The Bank of New York will serve as trustee with respect to the new
notes.
ABSENCE OF CERTAIN COVENANTS. The indenture does not contain provisions
permitting the holders of notes to require us to repurchase or redeem the notes
in the event of a takeover, recapitalization or similar restructuring, highly
leveraged transaction, or downgrading of our debt ratings. We are not required
to make mandatory redemption or sinking fund payments with respect to the notes.
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EVENTS OF DEFAULT; REMEDIES
The indenture provides that each of the following constitutes an event of
default:
- - failure to pay interest on any notes for 30 days after payment is due;
- - failure to pay the principal of or premium, if any, on any notes when due;
- - failure to comply with the provisions described above under the heading
"CERTAIN COVENANTS -- MERGER, CONSOLIDATION, OR SALE OF ASSETS;"
- - failure to comply with any of our other agreements in the indenture or the
notes for 60 days after notice from the trustee or holders of at least 25% of
the principal amount of the outstanding notes; and
- - certain events of bankruptcy or insolvency with respect to us or any of our
Subsidiaries.
If an event of default under the indenture occurs and continues, the trustee or
holders of at least 25% of the notes may declare the principal amount of all
notes to be due and payable immediately. Under certain circumstances, holders of
a majority of the notes may rescind that declaration.
Notwithstanding the foregoing, in the case of an event of default arising from
certain events of bankruptcy or insolvency with respect to UnitedHealth Group or
any of its Subsidiaries, all principal, premium, if any, and interest on the
notes will become due and payable without further action or notice.
The trustee may withhold from holders of the notes notice of any continuing
default or event of default under the indenture (except a default or event of
default in payment on any notes) if it determines that withholding notice is in
their best interest.
If an event of default occurs under the indenture which:
- occurs as a result of the willful action (or inaction) of UnitedHealth
Group or its Subsidiaries; and
- results in the avoidance of the payment of any premium that UnitedHealth
Group would have had to pay upon redemption of the notes
then, an equivalent premium shall also become immediately due and payable if the
notes are repaid.
The holders of a majority in principal amount of the outstanding notes may waive
the rights of all holders with respect to circumstances that constitute an event
of default or will constitute an event of default with notice and the passage of
time. The holders must waive the rights in a written notice to the trustee.
Holders of a majority of the notes cannot, however, waive the rights of all
holders relating to these events if they involve a default in payment
obligations. Any waivers that are given will not apply to any subsequent default
or unrelated default and will not impair any future rights if those types of
defaults occur.
Holders of a majority in principal amount of the outstanding notes may direct
the time, method and place of conducting any proceeding for any remedy available
to, or exercising any trust or power conferred on, the trustee with respect to
the notes. However, the trustee may refuse to follow any direction that
conflicts with law or the indenture that the trustee determines may be unduly
prejudicial to the rights of other holders of notes or that may involve the
trustee in personal liability. The trustee may take any other action which it
deems proper which is not inconsistent with any direction given.
A holder of any notes will have the right to institute any proceeding with
respect to the indenture or for any remedy only if:
- - the holder gives written notice to the trustee of a continuing event of
default under the indenture with respect to the notes;
- - the holders of at least 25% in principal amount of the outstanding notes make
a written request to the trustee to pursue the remedy;
- - the holder or holders offer and, if requested, provide the trustee indemnity
satisfactory to the trustee against any loss, liability or expense;
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- - the trustee does not comply with the request within 60 days after receiving
the request and the offer and, if requested, the provision of indemnity; and
- - the trustee has not received directions inconsistent with the request from the
holders of a majority in principal amount of the outstanding notes during the
60-day period.
The indenture also provides that a holder may not use the indenture to prejudice
the rights of another holder or to obtain a preference or priority over another
holder.
We are required to deliver to the trustee an annual certificate, signed by an
officer, about any default by us under any provisions of the indenture.
DEFEASANCE PROVISIONS
The indenture provides that, subject to certain limitations,
- - UnitedHealth Group shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding notes, and to have satisfied all
its other obligations under the notes and the indenture as it relates to the
notes ("legal defeasance") and
- - UnitedHealth Group may omit to comply with certain restrictive covenants under
the indenture and shall have no liability in respect of any term, condition or
limitation set forth in any such restrictive covenant, and such omission to
comply shall not constitute a default or an event of default with respect to
the notes under the indenture ("covenant defeasance"),
provided that the following conditions have been satisfied:
- - UnitedHealth Group deposits with the trustee, in trust, sufficient money or
government obligations to pay the principal, interest, any premium and other
sums due on the notes on the date such payments are due under the indenture
and the terms of the notes;
- - No event of default or default under the indenture shall have occurred on the
date of the deposit;
- - UnitedHealth Group shall have delivered to the trustee an opinion of counsel
which states that (i) holders of notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and (ii) after
the 91st day following the deposit, the deposited funds will not be subject to
the effect of any applicable bankruptcy law;
- - The defeasance shall not result in a breach or violation of, or constitute a
default under the indenture or any other material agreement or instrument to
which UnitedHealth Group is a party or by which UnitedHealth Group is bound;
- - UnitedHealth Group shall have delivered an Officers' Certificate that states
that (i) the deposit was not made with the intent of preferring the holders of
the notes to be defeased over other creditors of UnitedHealth Group and (ii)
all conditions precedent applicable to the legal defeasance or the covenant
defeasance, as the case may be, have been complied with.
MODIFICATION AND AMENDMENT OF INDENTURE
Under the indenture, UnitedHealth Group's rights and obligations and the rights
of the holders of new notes may be changed. Certain changes require the consent
of the holders of not less than a majority in aggregate principal amount of the
outstanding notes, voting as one class. The following changes, however, may not
be made without the consent of each holder of the outstanding notes:
- - changes to the stated maturity date of the principal or any interest
installment;
- - reductions in the principal amount or interest due;
- - changes to the place of payment or form of currency regarding payment of
principal;
- - impairment of the right to institute suit for the enforcement of payment;
- - reduction of the stated percentage of holders necessary to modify the
indenture; or
- - modifications to any of these requirements, or modifications to reduce the
percentage of
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outstanding notes necessary to waive compliance with certain provisions of the
indenture or to waive certain defaults.
REGARDING THE TRUSTEE
The indenture provides that before an event of default under the indenture, the
trustee is required to perform only the specific duties stated in the indenture.
Upon an event of default under the indenture, the trustee must exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. In the absence of bad faith on its part, the trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
trustee and conforming to the requirements of the indenture. However, the
trustee is required to examine such certificates and opinions to determine
whether or not they conform to the requirements of the indenture.
The indenture provides that the trustee may resign at any time or may be removed
by the holders of a majority in principal amount of the outstanding new notes by
notice delivered to the trustee and UnitedHealth Group. The indenture also
provides that the trustee must resign if it ceases to meet certain
qualifications set forth in the indenture. In the event of the trustee's
resignation or removal, UnitedHealth Group or, if it fails to act, the holders
of a majority in principal amount of the outstanding notes, may appoint a
successor trustee.
The Trust Indenture Act contains limitations on the rights of the trustee,
should it become a creditor of the company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of the
claims, as security or otherwise. The trustee is permitted to engage in other
transactions with the company and its subsidiaries from time to time, provided
that if the trustee acquires any conflicting interest it must eliminate the
conflict upon the occurrence of an event of default, or else resign.
GOVERNING LAW
The indenture and the new notes will be governed by, and construed in accordance
with, the laws of the State of New York except to the extent the Trust
Indentures Act applies.
GLOBAL NEW NOTES
The new notes may be issued in whole or in part in the form of one or more
global securities that will be deposited with, or on behalf of Cede & Co., as
nominee of DTC. See "-- BOOK-ENTRY ISSUANCE."
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary for the new notes. The new notes will be
deposited with, and issued only as fully-registered securities registered in the
name of, Cede & Co. (DTC's nominee) or will remain in the custody of the trustee
pursuant to a FAST Balance Certificate Agreement between DTC and the trustee.
One or more fully registered global certificates will be issued for the new
notes, represent all of the new notes, and be deposited with DTC.
DTC is a limited purpose Trust company organized under the New York Banking Law,
a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the provisions of Section 17A of the Exchange Act. DTC holds
securities that its participants deposit with DTC. DTC also facilitates the
settlement among participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thus eliminating the need for physical
movement of securities certificates. "Direct participants" include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as
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securities brokers and dealers, banks and trust companies that clear through or
maintain custodial relationships with direct participants, either directly or
indirectly ("indirect participants"). The rules applicable to DTC and its
participants are on file with the SEC.
Exchanges of old notes for new notes within the DTC system must be made by or
through direct participants, which will receive a credit for the new notes on
DTC's records. The ownership interest of each holder of new notes ("beneficial
owner") will in turn be recorded on the direct and indirect participants'
records. Beneficial owners will not receive written confirmation from DTC of
their interests in new notes, but are expected to receive written confirmations
providing details of the transactions in, as well as periodic statements of
their holdings of, the new notes from the direct or indirect participants
through which the beneficial owners tendered their old notes for exchange.
Transfers of ownership interests in the new notes will be accomplished by
entries made on the books of participants acting on behalf of beneficial owners.
Beneficial owners will not receive certificates representing their ownership
interests in new notes, except in the event that use of the book-entry system
for the new notes is discontinued.
DTC has no knowledge of the actual beneficial owners of the new notes; DTC's
records reflect only the identity of the direct participants to whose accounts
the new notes are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to direct participants, by
direct participants to indirect participants, and by direct participants and
indirect participants to beneficial owners and the voting rights of direct
participants, indirect participants and beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the new notes is limited to the holders of
record of the new notes, in those instances in which a vote is required, neither
DTC nor Cede & Co. will itself consent or vote with respect to new notes.
Instead, the company expects that DTC will authorize its direct participants to
take the required action and the direct participants will, in turn, authorize
holders who beneficially own new notes through the direct participants to take
the required action.
The trustee will make payments of interest and principal on the new notes to
DTC. DTC's practice is to credit direct participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by participants to beneficial owners will be governed by
standing instructions and customary practices and will be the responsibility of
such participant, not DTC, the trustee or UnitedHealth Group, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of interest and principal to DTC is the responsibility of the trustee,
disbursement of such payments to direct participants is the responsibility of
DTC, and disbursements of such payments to the beneficial owners is the
responsibility of direct and indirect participants.
DTC may discontinue providing its services as securities depositary with respect
to the new notes at any time by giving reasonable notice to the trustee and
UnitedHealth Group. In the event that a successor securities depositary is not
obtained, the company will print and deliver definitive certificates
representing the new notes. UnitedHealth Group, at its option, may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary). After an event of default, the holders of a majority in
aggregate principal amount of the new notes under the indenture may determine to
discontinue the system of book-entry transfers through DTC. In any such event,
the company will print and deliver definitive certificates representing the new
notes.
We have obtained the information in this section concerning DTC and DTC's
book-entry system from sources that the trustee and UnitedHealth
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Group believe to be accurate, but UnitedHealth Group assumes no responsibility
for the accuracy of this information. UnitedHealth Group has no responsibility
for the performance by DTC or its participants of their respective obligations
as described herein or under the rules and procedures governing their respective
operations.
DESCRIPTION OF OLD NOTES
The old notes were issued pursuant to the indenture. See SENIOR INDENTURE,
exhibit 4.1 to the registration statement. You should read the indenture for
additional information on the old notes.
The terms of the old notes are identical in all material respects to the new
notes, except that (i) the old notes have not been registered under the
Securities Act, are subject to certain restrictions on transfer and are entitled
to certain registration rights under the exchange and registration rights
agreement (which rights will terminate upon consummation of the exchange offer,
except under limited circumstances); and (ii) unlike the old notes, the new
notes are not subject to additional interest in certain circumstances. The old
notes and the new notes will constitute a single series of debt securities under
the indenture. See "DESCRIPTION OF NEW NOTES -- GENERAL." Accordingly, holders
of old notes should review the information set forth under "THE EXCHANGE OFFER
- -- CONSEQUENCES OF FAILURE TO EXCHANGE."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS
The following describes the principal United States federal income tax
consequences to a holder of new notes who is (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity treated as a
corporation or a partnership for United States federal income tax purposes
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia (unless, in the case of a partnership,
Treasury regulations provide otherwise), (iii) an estate whose income is subject
to United States federal income tax regardless of its source, or (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, as well as certain
trusts in existence on August 20, 1996, and treated as United States persons
before that date, that elect to continue to be treated as United States persons.
The following summary deals only with new notes held as capital assets by
purchasers of old notes at the issue price and not with special classes of
holders, such as dealers in securities or currencies, financial institutions,
life insurance companies, persons holding new notes as a hedge against or which
are hedged against currency risks, and persons whose functional currency is not
the U.S. dollar. A person considering the exchange of old notes for new notes
should consult his or her own tax advisor concerning these matters and the tax
treatment under foreign, state and local tax laws and regulations.
This summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Changes in this area of law may be applied retroactively in
a manner that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a beneficial owner of
the new notes. The authorities on which this summary is based are subject to
various interpretations, and it is therefore possible that the federal income
tax treatment of the purchase, ownership and disposition of the new notes may
differ from the treatment described below.
EXCHANGE OF NOTES
The exchange of old notes for new notes should not be a taxable event for
federal income tax purposes. The exchange of old notes for new notes pursuant to
the exchange offer should not be treated as an "exchange" for federal income tax
purposes because the new notes should not be considered to differ materially in
kind or extent from the old notes and because the
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exchange will occur by operation of the terms of the old notes. If, however, the
exchange of the old notes for new notes were treated as an exchange for federal
income tax purposes, the exchange should constitute a recapitalization for
federal income tax purposes. Accordingly, the new notes should have the same
issue price as the old notes, and a holder should have the same adjusted basis
and holding period in the new notes as the holder had in the old notes
immediately before the exchange.
INTEREST
As a general rule, interest paid or accrued on the new notes will be treated as
ordinary income to holders of new notes. A holder using the accrual method of
accounting for federal income tax purposes is required to include interest paid
or accrued on the new notes in ordinary income as the interest accrues, while a
holder using the cash receipts and disbursements method of accounting for
federal income tax purposes must include that interest in ordinary income when
payments are received (or made available for receipt) by such holder.
SALE, EXCHANGE OR RETIREMENT OF NOTES
A holder's tax basis in a new note will generally be the same as the holder's
basis in the old note surrendered for the new note. Upon the sale, exchange or
retirement of a new note, a holder will generally recognize gain or loss equal
to the difference between the amount realized (not including any amounts
attributable to accrued and unpaid interest) and the holder's tax basis of the
note. Long-term capital gain of a non-corporate United States holder is
generally subject to a maximum tax rate of 20% in respect of property held for
more than one year.
WITHHOLDING TAXES AND REPORTING REQUIREMENTS
Interest payments, accrual of original issue discount and payments of principal
and any premium with respect to a note will be reported to the extent required
by the Code to holders and the IRS. These amounts will ordinarily not be subject
to withholding of federal income tax. However, a backup withholding tax at a
rate of 31% may apply to these payments if a holder fails to supply the company
or its agent with the holder's taxpayer identification number or to report all
interest and dividends required to be shown on its federal income tax returns.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in connection
with the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by participating
broker-dealers during the period referred to below in connection with resales of
new notes received in exchange for old notes if the old notes were acquired by
the participating broker-dealers for their own accounts as a result of
market-making activities or other trading activities. The company has agreed
that this prospectus, as it may be amended or supplemented from time to time,
may be used by a participating broker-dealer in connection with resales of new
notes for a period ending 180 days after the expiration date (subject to
extension under certain limited circumstances described herein) or, if earlier,
when all new notes have been disposed of by the participating broker-dealer. See
"THE EXCHANGE OFFER -- RESALES OF NEW NOTES."
The company will not receive any cash proceeds from the issuance of the new
notes. New notes received by broker-dealers for their own accounts in connection
with the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of these methods of
resale, at market prices prevailing at the time of resale, at prices related to
prevailing market prices or at negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any new notes.
Any broker-dealer that resells new notes that were received by it for its own
account in
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connection with the exchange offer and any broker or dealer that participates in
a distribution of new notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of new notes and any
commissions or concessions received by any persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The company has agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the new notes) other
than commissions or concessions of any broker-dealers and will indemnify the
holders of the new notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF NEW NOTES
Dorsey & Whitney LLP has passed upon the validity of the new notes offered by
this prospectus.
EXPERTS
The consolidated balance sheets as of December 31, 1998 and 1997, and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998, of UnitedHealth
Group incorporated by reference in this prospectus and included elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, which is
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports.
With respect to the unaudited condensed interim financial information for the
quarters ended June 30, and September 30, 1998 and 1997 of UnitedHealth Group
incorporated by reference in this registration statement, Arthur Andersen LLP
has applied limited procedures in accordance with professional standards for a
review of that information. However, their separate reports thereon state that
they did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on that
information should be restricted in light of the limited nature of the review
procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act for their reports on
the unaudited condensed interim financial information because these reports are
not "reports" or "parts" of the prospectus or the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of the Securities Act.
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