<PAGE>
As filed with the Securities and Exchange Commission on October 27, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UNITEDHEALTH GROUP INCORPORATED
(exact name of registrant as specified in its charter)
Minnesota 6324 41-1321939
(state or other (primary standard (IRS employer
jurisdiction industrial identification no.)
of organization) classification
code number)
UNITEDHEALTH GROUP CENTER
9900 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
(952) 936-1300
(address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
David J. Lubben, Esq.
General Counsel and Secretary
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota 55343
(952) 936-1300
(name, address, including zip code, and telephone number, including area code,
of agent for service)
copies to:
James D. Alt, Esq. J. Craig Walker, Esq.
Dorsey & Whitney LLP Bell, Boyd & Lloyd LLC
220 South Sixth Street Three First National Plaza
Minneapolis, Minnesota 55402 70 West Madison Street
(612) 340-2803 Chicago, Illinois 60602
Fax: (612) 340-8738 (312) 372-1121
Fax: (312) 372-2098
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: At the
effective time of the merger of a wholly owned subsidiary of the Registrant
with and into Lifemark Corporation, which shall occur as soon as practicable
after the Effective Date of this Registration Statement and the satisfaction or
waiver of all conditions to closing of such merger.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Offering Amount of
registered Registered (1) Per Share (2) Price (2) Registration Fee
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<S> <C> <C> <C> <C>
Common stock, par value
$0.01 per share........ 693,000 9.8125 59,365,625 15,672.53
</TABLE>
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(1) Based upon the maximum number of shares of the Registrant's common
stock expected to be issued in connection with the merger described herein to
holders of shares of common stock of Lifemark Corporation at the effective time
of the merger.
(2) Estimated solely for purposes of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"). This fee has been computed pursuant to Rules 457(f) and (c)
and is based on (i) $9.8125, the average of the high and low sales price per
share of common stock, par value $0.01 per share, of Lifemark Corporation
("Lifemark common stock") on the Nasdaq National Market on October 23, 2000,
and (ii) 6,050,000, the maximum number of shares of Lifemark common stock to be
acquired by UnitedHealth Group Incorporated pursuant to the merger (assuming
exercise of all outstanding warrants and vested stock options and conversion of
all outstanding convertible securities).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Commission, acting pursuant to such Section 8(a), may
determine.
<PAGE>
[LOGO OF LIFEMARK]
Dear Lifemark Stockholders:
I am pleased to forward the enclosed proxy statement/prospectus regarding an
opportunity for Lifemark to merge with a newly formed and wholly owned
subsidiary of UnitedHealth Group Incorporated. As a result of the merger,
Lifemark will become part of a combined company that is a national leader in
forming and operating markets for the delivery of health and well-being
services. By becoming part of a much larger health and well-being company,
Lifemark's ability to market its services and expand its business is expected
to be greatly enhanced. Upon completion of the merger, it is anticipated that
Lifemark's operations will be integrated with those of UnitedHealth Group's
existing EverCare(R) unit to serve the health and well-being needs of older
Americans across the full continuum of care settings.
In the merger, each share of your Lifemark common stock will be exchanged
for either UnitedHealth Group common stock or cash. Unless UnitedHealth Group
makes the cash payment election described in the next paragraph below, for each
share of Lifemark common stock you own, you will receive a number of shares of
UnitedHealth Group common stock based on the average closing price per share of
UnitedHealth Group common stock on the New York Stock Exchange for the ten
consecutive trading days ending with and including the second business day
before the closing date of the merger. If the average closing price is:
. $95.00 or more, for each share of Lifemark common stock you own, you
will receive a number of shares of UnitedHealth Group common stock equal
to $10.55 divided by the average closing price (or $113.00, whichever is
less);
. $88.00 or less, and UnitedHealth Group does not make the cash payment
election described below, then for each share of Lifemark common stock
you own, you will receive a number of shares of UnitedHealth Group
common stock equal to $10.08 divided by the average closing price; and
. greater than $88.00, but less than $95.00, for each share of Lifemark
common stock you own, you will receive a number of shares of
UnitedHealth Group common stock equal to between $10.08 and $10.55
(according to a formula described in the proxy statement/prospectus)
divided by the average closing price.
If the average closing price as described above is less than $88.00,
UnitedHealth Group may elect to pay cash rather than shares of its own common
stock in the merger. If UnitedHealth Group makes this election, you will
receive $10.08 in cash per share of Lifemark common stock. UnitedHealth Group
common stock is traded on the New York Stock Exchange under the trading symbol
"UNH." On November , 2000, UnitedHealth Group common stock closed at $
per share. We believe the merger offers significant value to our stockholders.
UnitedHealth Group has declared a two for one split of its common stock
payable on December 22, 2000, to UnitedHealth Group shareholders of record on
December 1, 2000. The discussion above and (except as otherwise noted) the
calculations presented throughout the proxy statement/prospectus do not reflect
the stock split. If the merger is completed after December 1, 2000, however,
appropriate adjustments will be made so that Lifemark stockholders and
optionholders receive the same value as they would have received if the merger
had been completed before the stock split.
Before we can merge, holders of a majority of the common stock of Lifemark
must vote in favor of the merger proposal. This proposal involves the approval
and adoption of the merger agreement related to the merger. Only stockholders
who hold shares of Lifemark common stock at the close of business on
, 2000, will be entitled to vote at the special meeting. If the
requisite Lifemark stockholders approve the merger agreement, the parties
intend to close the merger shortly after the special meeting and after all of
the conditions to closing the merger are satisfied.
<PAGE>
Your Board of Directors has reviewed and considered the terms and conditions
of the merger agreement, has determined that the merger is in the best
interests of Lifemark and its stockholders, and has approved the merger
agreement. Stephens Inc. has rendered a written opinion dated October 10, 2000
to the effect that, as of such date and based upon and subject to the matters
stated in its opinion, the consideration provided for under the merger
agreement is fair, from a financial point of view, to our stockholders. The
written opinion of Stephens Inc. is attached as Annex C to the proxy
statement/prospectus and you should read it carefully and in its entirety.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
MERGER AND RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT AND MERGER.
The proxy statement/prospectus provides you with detailed information
concerning UnitedHealth Group and the merger. Please give all of the
information contained in the proxy statement/prospectus your careful attention.
In particular, you should carefully consider the discussion in the section
entitled "Risk Factors" beginning on page 12 of this proxy
statement/prospectus.
YOUR VOTE IS VERY IMPORTANT. TO VOTE YOUR SHARES, you may use the enclosed
proxy card or attend a special stockholders meeting that will be held for this
important vote. The special meeting will be held on , ,
2000, at 10:00 a.m., at Lifemark's executive offices located at 7600 North 16th
Street, Suite 150, Phoenix, Arizona 85020.
TO APPROVE AND ADOPT THE MERGER AGREEMENT, YOU MUST VOTE "FOR" THE PROPOSAL
BY FOLLOWING THE INSTRUCTIONS STATED ON THE ENCLOSED PROXY CARD. IF YOU DO NOT
VOTE AT ALL, YOU WILL, IN EFFECT, HAVE VOTED AGAINST THE PROPOSAL.
On behalf of the Lifemark board of directors, I thank you for your support
and urge you to VOTE FOR APPROVAL of the merger of Lifemark Corporation and
UnitedHealth Group Incorporated.
Sincerely,
_____________________________________
Rhonda E. Brede
President and Chief Executive
Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF UNITEDHEALTH GROUP COMMON
STOCK TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
This proxy statement/prospectus is dated November , 2000, and was first
mailed to Lifemark stockholders on or about November , 2000.
<PAGE>
REFERENCE TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about UnitedHealth Group and Lifemark from documents that
are not included in or delivered with this proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain documents incorporated by reference in this proxy
statement/prospectus by requesting them in writing or by telephone from
UnitedHealth Group or Lifemark, as the case may be, at the following addresses
and telephone numbers:
UnitedHealth Group Incorporated Lifemark Corporation
Investor Relations Investor Relations
UnitedHealth Group Center 7600 North 16th Street
9900 Bren Road East Suite 150
Minneapolis, Minnesota 55343 Phoenix, Arizona 85020
(952) 936-1300 (602) 331-5150
If you would like to request documents, please do so by [5 business days
prior to meeting], 2000 in order to receive them before the Lifemark special
meeting.
See "Where You Can Find More Information" on page .
<PAGE>
LIFEMARK CORPORATION
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To the Stockholders of Lifemark Corporation:
We will hold a special meeting of stockholders of Lifemark Corporation at
10:00 a.m., local time, on , , 2000 at Lifemark's
executive offices located at 7600 North 16th Street, Suite 150, Phoenix,
Arizona 85020, for the following purposes:
1. To consider and vote on a proposal to adopt and approve the Agreement
and Plan of Merger by and among UnitedHealth Group Incorporated, Leo
Acquisition Corp. and Lifemark Corporation dated October 10, 2000, which
is referred to as the merger agreement in the enclosed documents.
Pursuant to the merger agreement, Leo Acquisition Corp. will merge with
and into Lifemark, and Lifemark will become a wholly owned subsidiary of
UnitedHealth Group. Each outstanding share of Lifemark common stock will
be converted into the right to receive either UnitedHealth Group common
stock or cash, as described in the attached proxy statement/prospectus.
2. To transact such other business as may properly come before the special
meeting.
We describe the merger proposal more fully in the proxy statement/prospectus
attached to this notice. You are encouraged to read the entire document
carefully.
Only stockholders of record of Lifemark common stock at the close of
business on , 2000 are entitled to notice of, and will be
entitled to vote at, the special meeting or any adjournment or postponement.
Adoption of the merger agreement will require the affirmative vote of Lifemark
stockholders representing a majority of the outstanding shares of Lifemark
common stock entitled to vote at the special meeting.
Lifemark stockholders will have the right to dissent from the merger and
obtain payment in cash of the fair value of their shares of common stock under
applicable provisions of Delaware law only if UnitedHealth Group makes the cash
payment election described in the attached proxy statement/prospectus. In order
to perfect dissenters' rights, stockholders must give written demand for
appraisal of their shares before the taking of the vote on the merger at the
special meeting and must not vote in favor of the merger. A copy of the
applicable Delaware statutory provisions is included as Annex D to the attached
proxy statement and a summary of these provisions can be found under "Appraisal
Rights for Lifemark Stockholders" in the attached proxy statement/prospectus.
Your vote is important. To assure that your shares are represented at the
special meeting, you are urged to complete, date and sign the enclosed proxy
and mail it promptly in the postage-paid envelope provided, whether or not you
plan to attend the special meeting in person.
You may revoke your proxy in the manner described in the accompanying proxy
statement/prospectus at any time before it has been voted at the special
meeting. If you attend the special meeting you may vote in person even if you
returned a proxy.
<PAGE>
Please do not send your stock certificates at this time. If the merger is
consummated, you will be sent instructions regarding the surrender of your
stock certificates.
BY ORDER OF THE BOARD OF DIRECTORS
Rhonda E. Brede
President and Chief Executive
Officer
Phoenix, Arizona
November , 2000
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF UNITEDHEALTH GROUP COMMON
STOCK TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE WE PROPOSING TO MERGE?
A: As a result of the merger, Lifemark will become part of a combined company
that is a national leader in forming and operating markets for the delivery of
health and well-being services. By becoming part of a much larger health and
well-being company, Lifemark's ability to market its services and expand its
business is expected to be greatly enhanced. Upon completion of the merger, it
is anticipated that Lifemark's operations will be integrated with those of
UnitedHealth Group's existing EverCare unit to serve the health and well-being
needs of older Americans across the full continuum of care settings.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed and UnitedHealth Group does not make the cash
payment election described in the next paragraph, for each share of Lifemark
common stock you own you will receive a number of shares of UnitedHealth Group
common stock equal to (1) between $10.08 and $10.55 (according to a formula
described under "The Merger Agreement--Structure of the Merger and Conversion
of Lifemark Common Stock" in the proxy statement/prospectus) (2) divided by the
lesser of $113.00 or the average closing price per share of UnitedHealth Group
common stock on the New York Stock Exchange for the ten consecutive trading
days ending with and including the second business day before the closing date
of the merger. UnitedHealth Group will not issue fractional shares of common
stock. Instead, in lieu of any fractional share that you would otherwise
receive, you will receive cash based on the closing market price of
UnitedHealth Group common stock as of the last trading date prior to the
effective date of the merger.
If the average closing price per share of UnitedHealth Group common stock on
the New York Stock Exchange for the ten consecutive trading days ending with
and including the second business day before the closing date of the merger is
$88.00 or less, UnitedHealth Group may elect to have each outstanding share of
Lifemark common stock convert into the right to receive cash instead of
UnitedHealth Group common stock. If UnitedHealth Group makes such an election,
you will receive $10.08 for each share of Lifemark common stock you own.
Following the merger, Lifemark's stockholders will no longer own any interest
in Lifemark, whether they receive UnitedHealth Group common stock or cash in
the merger.
In addition, each outstanding option to purchase a share of Lifemark common
stock will be assumed by UnitedHealth Group and converted into an option to
purchase a number of whole shares of UnitedHealth Group common stock determined
according to the same formula provided in the merger agreement for the
conversion of shares of Lifemark common stock to UnitedHealth Group common
stock (unless the cash payment election is made, in which case the exchange
ratio will be calculated based on the greater of $80.00 or the average closing
price of UnitedHealth Group common stock in the time leading up to the merger),
rounded down to the nearest whole number of shares of UnitedHealth Group common
stock, with the exercise price adjusted accordingly.
Q: HOW WILL THE DECEMBER 1, 2000 UNITEDHEALTH GROUP STOCK SPLIT AFFECT WHAT I
RECEIVE IN THE MERGER?
A: If the merger is completed after December 1, 2000, appropriate adjustments
will be made to the calculations under the merger agreement so that Lifemark
stockholders and optionholders receive the same value that they would have
received if the merger had been completed before the stock split.
Q: WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?
A: The special meeting is scheduled to take place at 10:00 a.m. local time on
at Lifemark's executive offices located at 7600 North 16th Street,
Suite 150, Phoenix, Arizona 85020.
Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A: Holders of record of Lifemark common stock as of the close of business on
, 2000 are entitled to vote at the special meeting. Each stockholder
has one vote for each share of Lifemark common stock he or she owns.
<PAGE>
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A: In order for the merger to be approved, holders of a majority of the
outstanding Lifemark common stock must vote for the merger. If you do not vote
your shares, you will, in effect, have voted against the merger. Certain
stockholders of Lifemark, representing approximately [39.1]% of the outstanding
shares of Lifemark common stock on the record date, have signed a voting
agreement obligating them to vote in favor of the merger.
Q: WHAT DO I NEED TO DO NOW?
A:Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting. If your
shares are held in "street name" by your broker, your broker will vote your
shares only if you provide instructions on how to vote. You should follow the
directions provided by your broker regarding how to instruct your broker to
vote your shares. Without instructions, your shares will not be voted at the
special meeting, which will have the same effect as if they had been voted
against adoption of the merger agreement.
Lifemark's board of directors unanimously recommends that Lifemark
stockholders vote FOR adoption of the merger agreement.
Q: DO I NEED TO ATTEND THE SPECIAL MEETING IN PERSON?
A: No. It is not necessary for you to attend the special meeting to vote your
shares if Lifemark has previously received your proxy, although you are welcome
to attend.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY?
A: You may change your vote by delivering a signed notice of revocation or a
later-dated, signed proxy card to Lifemark's corporate secretary before the
special meeting, or by attending the special meeting and voting in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After we complete the merger, UnitedHealth Group will send you
instructions explaining how to exchange your shares of Lifemark common stock
for the appropriate number of shares of UnitedHealth Group common stock or, if
UnitedHealth Group exercises its cash payment election, for cash.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We hope to complete the merger by [the end of , 2000]. Because the
merger is subject to governmental approvals, however, we cannot predict the
exact timing.
Q: WHAT ARE THE TAX CONSEQUENCES TO ME?
A: If the merger is completed and you receive UnitedHealth Group common stock
in exchange for your shares of Lifemark stock, your receipt of shares of
UnitedHealth Group common stock generally will not be taxable in the United
States. If UnitedHealth Group exercises its cash payment election, your receipt
of cash in consideration for the cancellation of your shares of Lifemark common
stock generally will be a taxable transaction for federal income tax purposes
and may also be taxable under applicable state, local, foreign and other tax
laws. You are urged to both carefully consider the discussion in the section
entitled "The Merger--Certain Federal Income Tax Considerations" on page of
this proxy statement/prospectus and to consult your own tax advisors regarding
the specific tax consequences of the merger to you.
Q: WILL I HAVE APPRAISAL RIGHTS AS A RESULT OF THE MERGER?
A: Only if UnitedHealth Group makes the cash payment election described in the
proxy statement/prospectus. In order to exercise your appraisal rights, you
must follow the requirements of Delaware law. A copy of the applicable Delaware
statutory provisions is included as Annex D to the proxy statement/prospectus
and a summary of these provisions can be found under "Appraisal Rights for
Lifemark Stockholders" in the attached proxy statement/prospectus.
Q: WHEN WILL LIFEMARK STOCKHOLDERS RECEIVE THE MERGER CONSIDERATION?
A:The parties expect to complete the merger promptly following the special
meeting. However, it is possible that delays could require that the merger be
completed at a later time. Following the merger, you will receive instructions
on how to receive shares of UnitedHealth Group common stock or cash
<PAGE>
in exchange for Lifemark common stock. You must return your Lifemark stock
certificates as described in the instructions, and you will receive your share
of the merger consideration as soon as practicable after Wells Fargo Bank
Minnesota, N.A. receives your Lifemark stock certificate. If you hold shares
through a brokerage account, your broker will handle the surrender of stock
certificates to Wells Fargo Bank.
Q: WHO CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger, please call Lifemark Investor
Relations at (602) 331-5150. For additional information about UnitedHealth
Group, please contact its Investor Relations' Department at (952) 936-1300.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS.................................... 1
<S> <C>
MARKET PRICE AND DIVIDEND INFORMATION........................................ 11
RISK FACTORS................................................................. 13
Risks relating to the Merger............................................... 13
Risks relating to UnitedHealth Group....................................... 14
THE SPECIAL MEETING OF LIFEMARK STOCKHOLDERS................................. 20
Date, Time and Place of the Special Meeting................................ 20
Matters to be Considered at the Special Meeting............................ 20
Record Date and Shares Entitled to Vote.................................... 20
Voting of Proxies; Revocation of Proxies................................... 20
Vote Required.............................................................. 20
Quorum; Abstentions and Broker Non-Votes................................... 21
Expenses of Solicitation................................................... 21
Board Recommendation....................................................... 21
THE MERGER................................................................... 22
Background of the Merger................................................... 22
UnitedHealth Group's Reasons for the Merger................................ 23
Lifemark's Reasons for the Merger and Board of Directors Recommendation.... 24
Opinion of Lifemark's Financial Advisor.................................... 26
Completion and Effectiveness of the Merger................................. 29
Operations Following the Merger............................................ 29
Interests of Certain Persons in the Merger................................. 30
Indemnification and Insurance.............................................. 31
Lifemark Common Stock Ownership............................................ 32
Regulatory Matters......................................................... 32
Certain Federal Income Tax Considerations.................................. 33
Accounting Treatment....................................................... 35
Dissenters' or Appraisal Rights............................................ 35
Restrictions on Sale of Shares by Affiliates of Lifemark and UnitedHealth
Group..................................................................... 35
Stock Market Listing....................................................... 35
THE MERGER AGREEMENT......................................................... 36
Structure of the Merger and Conversion of Lifemark Common Stock............ 36
Treatment of Lifemark Stock Options........................................ 37
Exchange of Lifemark Stock Certificates for UnitedHealth Group Stock
Certificates.............................................................. 38
Representations and Warranties............................................. 38
Concept of Material Adverse Effect......................................... 40
Lifemark's Conduct of Business before Completion of the Merger............. 40
No Solicitation of Transactions............................................ 41
Conditions to the Merger................................................... 41
Termination of the Merger Agreement........................................ 42
Payment of Fees and Expenses............................................... 43
Amendments, Extension and Waivers.......................................... 43
APPRAISAL RIGHTS FOR LIFEMARK STOCKHOLDERS................................... 44
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
COMPARISON OF RIGHTS OF SHAREHOLDERS OF UNITEDHEALTH GROUP AND LIFEMARK.... 47
EXPERTS.................................................................... 55
LEGAL MATTERS.............................................................. 55
FUTURE SHAREHOLDER PROPOSALS............................................... 55
WHERE YOU CAN FIND MORE INFORMATION........................................ 55
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 57
ANNEX A--AGREEMENT AND PLAN OF MERGER BY AND AMONG UNITEDHEALTH GROUP
INCORPORATED, LEO ACQUISITION CORP. AND LIFEMARK CORPORATION............... A-1
ANNEX B--FORM OF VOTING AGREEMENT.......................................... B-1
ANNEX C--FAIRNESS OPINION.................................................. C-1
ANNEX D--APPRAISAL RIGHTS UNDER SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW............................................................ D-1
ANNEX E--LIFEMARK ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MAY
31, 2000................................................................... E-1
ANNEX F--LIFEMARK QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED AUGUST
31, 2000................................................................... F-1
</TABLE>
ii
<PAGE>
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire document and the other
documents referred to for a more complete understanding of the merger. In
particular, you should read the documents attached to this proxy
statement/prospectus, including the merger agreement, the voting agreement and
the fairness opinion, which are attached as Annexes A, B, and C. In addition,
we have incorporated by reference important business and financial information
about UnitedHealth Group and Lifemark into this proxy statement/prospectus. You
may obtain the information incorporated by reference into this proxy
statement/prospectus without charge by following the instructions in the
section entitled "Where You Can Find More Information" on page .
The Companies
Lifemark Corporation
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
(602) 331-5100
Lifemark is a national, diversified health care management organization
serving vulnerable, frail, elderly and chronically ill individuals. Within its
health plan operations, Lifemark manages the care of more than 200,000
individuals nationally, who consume in excess of $400 million in annual health
care expenses. Additionally, over 2,500,000 individuals have access to
Lifemark's eldercare consultation and referral center, and over 380,000 people
are served through its diversified services division.
Lifemark's customers include commercial health maintenance organizations
("HMOs"); county, state, and federal agencies; associations of health care
providers; large employer groups; area agencies on aging; long term care
insurance plans; and individuals. Lifemark seeks to achieve substantial cost
savings through implementing innovative, proactive care management strategies
customized for each program's unique characteristics.
For further information concerning Lifemark, please refer to Lifemark's
Annual Report on Form 10-K for the fiscal year ended May 31, 2000, attached
hereto as Annex E, and its Quarterly Report on Form 10-Q for the quarterly
period ended August 31, 2000, attached hereto as Annex F, both of which are
incorporated by reference in this proxy statement/prospectus.
UnitedHealth Group Incorporated
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota 55343
(952) 936-1300
UnitedHealth Group Incorporated is a national leader in forming and
operating markets for the exchange of health and well-being services. In our
five primary businesses, we provide a broad spectrum of resources to help
people improve their health and well-being through all stages of life. These
businesses include UnitedHealthcare, which coordinates network-based health and
well-being services on behalf of local employers and consumers nationwide;
Ovations, which is a business dedicated to advancing the health and well-being
goals of Americans in the second half of life, age 50 and older; Uniprise,
which is devoted to serving the needs of large organizations; Specialized Care
Services, which is comprised of an expanding
1
<PAGE>
portfolio of health and well-being companies, each serving a specialized market
need with a unique blend of benefits, provider networks, services and
resources; and Ingenix, which is a leader in the field of health care data and
information, research, analysis and application. While separate, our businesses
remain interrelated as part of our health and well-being enterprise. Our
businesses share customers, and in some instances, use common information
systems and have access to shared administrative services.
Upon completion of the merger, it is anticipated that Lifemark's operations
will be integrated with those of the existing EverCare unit within Ovations to
create an organization which serves the health and well-being needs of older
Americans across the full continuum of care settings. EverCare, which was
founded in 1987, has pioneered coordinated care for older Americans living in
nursing homes. Upon completion of the merger, the combined operations of
Lifemark and EverCare will conduct business in over a dozen states, serving
Medicare, Medicaid, and private-pay patients in a variety of care settings,
including home, community-based and nursing facilities.
UnitedHealth Group Incorporated, formerly known as United HealthCare
Corporation, is a Minnesota corporation, incorporated in January 1977. For
further information concerning UnitedHealth Group, please refer to UnitedHealth
Group's Annual Report on Form 10-K for the fiscal year ended December 31, 1999,
and its Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2000, both of which are incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" beginning on
page .
Structure of the Transaction (See page )
Lifemark will merge with Leo Acquisition Corp., a newly formed, wholly owned
subsidiary of UnitedHealth Group. Lifemark will be the surviving corporation
and will become a wholly owned subsidiary of UnitedHealth Group. Provided that
UnitedHealth Group does not exercise its cash payment election described in the
last sentence of this paragraph, holders of Lifemark common stock will receive
a number of shares of UnitedHealth Group common stock determined by applying a
formula contained in the merger agreement and described below under "The Merger
Agreement--Structure of the Merger and Conversion of Lifemark Common Stock."
Stockholders will receive cash for any fractional shares which they would
otherwise receive in the merger. If the average closing price per share of
UnitedHealth Group common stock on the New York Stock Exchange for the ten
consecutive trading days ending with and including the second business day
preceding the closing date of the merger is $88 or less, UnitedHealth Group may
elect to convert each outstanding share of Lifemark common stock into the right
to receive $10.08 in cash rather than shares of UnitedHealth Group common
stock.
In addition, each Lifemark stock option outstanding on the effective date of
the merger will be assumed by UnitedHealth Group and converted into an option
to acquire a number of shares of UnitedHealth Group common stock equal to the
number of shares that were issuable upon exercise of the Lifemark option
immediately prior to the effective time of the merger multiplied by the
exchange ratio set forth in the merger agreement (unless the cash payment
election is made, in which case the exchange ratio will be calculated based on
the greater of $80.00 or the average closing price of UnitedHealth Group common
stock in the time leading up to the merger), rounded down to the nearest whole
number of shares. The per share exercise price of the new UnitedHealth Group
option will equal the exercise price per share at which the Lifemark option was
exercisable immediately prior to the effective time divided by the exchange
ratio set forth in the merger agreement (calculated, if UnitedHealth Group
makes the cash payment election, in the same manner described above for
determining the number of shares issuable upon exercise of the option), rounded
up to the nearest whole cent. After the merger, the other terms and conditions
of the UnitedHealth Group option will be substantially the same as the terms
and conditions of the Lifemark option immediately before the merger, except
that each UnitedHealth Group option issued in exchange for a Lifemark option
will be exercisable for
2
<PAGE>
the entire remaining term of the option, even if the option holder ceases to be
an employee or director of Lifemark or UnitedHealth Group and, pursuant to the
terms of the Lifemark options, each previously unvested Lifemark option will be
converted into a fully vested UnitedHealth Group option.
Stockholder Approval (See page )
In order for the merger to be completed, holders of a majority of the
outstanding shares of Lifemark common stock must approve and adopt the merger
agreement. UnitedHealth Group shareholders are not required to approve and
adopt the merger agreement and will not vote on the merger.
You are entitled to cast one vote per share of Lifemark common stock you
owned as of , 2000, the record date.
Recommendation of Lifemark's Board of Directors (See page )
After careful consideration, Lifemark's board of directors has unanimously
approved the merger agreement and determined that the merger is advisable and
in the best interests of Lifemark and its stockholders and recommends that
Lifemark stockholders vote FOR approval and adoption of the merger agreement.
Fairness Opinion (See page )
Stephens Inc. has delivered to the Lifemark Board of Directors its opinion,
dated October 10, 2000, that the merger consideration is fair to the holders of
Lifemark common stock from a financial point of view.
Conditions to the Merger (See page )
The parties' respective obligations to complete the merger are subject to
the prior satisfaction or waiver of certain conditions. The following
conditions, among others, must be satisfied or waived before the completion of
the merger:
. the merger agreement must be approved and adopted by Lifemark's
stockholders;
. all necessary governmental and other third party consents must be
obtained;
. Lifemark must receive an opinion of its tax counsel to the effect that
the merger will qualify as a tax-free reorganization (unless
UnitedHealth Group makes the cash payment election);
. certain employees of Lifemark must have entered into employment
agreements with UnitedHealth Group;
. there must have been no developments between the date of the merger
agreement and completion of the merger that either had, or with the
passage of time would reasonably be expected to have, a material adverse
effect on either Lifemark or UnitedHealth Group;
. UnitedHealth Group must have received resignations from Lifemark's
directors and officers;
. The William Gardner Brown GST Trust, established by William G. Brown, a
director of Lifemark, must have exercised certain warrants to purchase
Lifemark common stock and converted certain notes held by it into
Lifemark common stock; and
. If UnitedHealth Group makes the cash payment election, holders of no
more than 10% of outstanding Lifemark stock must have perfected and
maintained their appraisal rights.
Termination of the Merger Agreement (See page )
The merger agreement may be terminated by mutual consent, or by either
UnitedHealth Group or Lifemark under certain circumstances, at any time before
the completion of the merger, including:
. if the merger is not completed, without the fault of the terminating
party, by March 31, 2001;
3
<PAGE>
. if the Lifemark stockholders do not approve and adopt the merger
agreement at the special meeting;
. if Lifemark commits to or enters into an acquisition proposal from a
third party which Lifemark's board of directors determines in good faith
to be superior to the terms of the merger with UnitedHealth Group; or
. If Lifemark or UnitedHealth Group materially breaches any of its
representations, warranties, covenants or other agreements made in the
merger agreement.
The merger agreement may also be terminated by UnitedHealth Group if, among
other things, Lifemark's board of directors or any of its committees withdraws
or modifies, in a manner adverse to UnitedHealth Group, its recommendation of
the merger to Lifemark's stockholders, or approves or recommends an acquisition
proposal other than the merger with UnitedHealth Group.
Payment of Termination Fee (See page )
Lifemark has agreed to pay UnitedHealth Group a termination fee of
$2,000,000 and reimburse UnitedHealth Group for its out-of-pocket expenses if
the merger agreement is terminated under certain circumstances described on
page under the heading "The Merger Agreement--Payment of Fees and Expenses."
No Other Negotiations Involving Lifemark (See page )
Lifemark has agreed, subject to limited exceptions, that it will not,
whether directly or indirectly, until the merger is completed or the merger
agreement is terminated:
. initiate, solicit or encourage, directly or indirectly, any inquiries
concerning, or the making of, any acquisition proposals (as described
below);
. engage or participate in negotiations or discussions with, or furnish
any information or data to, or facilitate any inquiries or proposals by,
a third party relating to an acquisition proposal; or
. enter into any agreement with respect to an acquisition proposal or
approve an acquisition proposal.
However, Lifemark may engage in any of these acts otherwise prohibited,
other than solicitation, initiation or encouragement of any takeover proposal,
if Lifemark's board of directors determines that Lifemark has received an
acquisition proposal that is superior, from a financial point of view, to the
merger with UnitedHealth Group and also determines that there is a substantial
probability that the failure to act on the acquisition proposal would amount to
a violation of its fiduciary duties.
Under the merger agreement, an acquisition proposal is any proposal made by
a party other than UnitedHealth Group to acquire 15% or more of the assets, or
15% or more of the outstanding capital stock, of Lifemark or any of its
subsidiaries. Lifemark has also agreed to provide UnitedHealth Group with
detailed information about any acquisition proposal it receives.
Certain Individuals have entered into a Voting Agreement (See page )
In connection with the merger, certain Lifemark officers and directors who
are also stockholders of Lifemark have entered into a voting agreement with
UnitedHealth Group. The voting agreement requires, among other things, that
these Lifemark stockholders vote all shares of Lifemark common stock
beneficially owned by them in favor of adoption of the merger agreement. These
Lifemark stockholders were not paid additional consideration in connection with
the voting agreement.
4
<PAGE>
The Lifemark stockholders who entered into the voting agreement
collectively held approximately [39.1]% of the outstanding Lifemark common
stock as of , 2000.
You are urged to read the voting agreement in its entirety, a copy of which
is attached hereto as Annex B.
Interests of Certain Persons in the Merger (See page )
Certain executive officers and directors of Lifemark have interests in the
merger that are different from and in addition to their interests as Lifemark
stockholders generally. Six executive officers of Lifemark will execute
employment agreements with UnitedHealth Group that provide for certain
benefits, including signing bonuses, stock option grants, severance payments
and benefits, and debt forgiveness.
U.S. Federal Income Tax Consequences of the Merger (See page )
We have structured the merger so that, in general, Lifemark's stockholders
will not recognize gain or loss for United States federal income tax purposes
in the merger, except for taxes payable because of cash received by Lifemark
stockholders instead of fractional shares of UnitedHealth Group common stock.
If UnitedHealth Group exercises its cash payment election, however, your
receipt of cash in consideration for the cancellation of your shares of
Lifemark common stock will be a taxable transaction for federal income tax
purposes and may also be taxable under applicable state, local, foreign and
other tax laws. It is a condition to the merger that Lifemark receives a legal
opinion to the effect that, as long as UnitedHealth Group does not exercise
its cash payment election, the merger will constitute a tax-free
reorganization within the meaning of the U.S. Internal Revenue Code. You are
urged to both carefully consider the discussion under "The Merger--Certain
Federal Income Tax Considerations" beginning on page of this proxy
statement/prospectus and to consult your own tax advisors regarding the
specific tax consequences of the merger to you.
Accounting Treatment of the Merger (See page )
UnitedHealth Group intends to account for the merger using the purchase
method of accounting in accordance with generally accepted accounting
principles.
Antitrust Approval required to complete the Merger (See page )
The merger is subject to U.S. antitrust laws. We have made the required
filings with the U.S. Department of Justice and the Federal Trade Commission.
However, we are not permitted to complete the merger until the applicable
waiting period has expired or been terminated. The applicable waiting period
will expire at 11:59 p.m. on November 11, 2000 unless extended by a second
request for information. The Department of Justice or the Federal Trade
Commission, as well as a state or private person, may challenge the merger at
any time before or after its completion.
Restrictions on the ability to sell UnitedHealth Group Common Stock (See page
)
All shares of UnitedHealth Group common stock received by you in connection
with the merger will be freely transferable unless you are considered an
"affiliate" of either of Lifemark or UnitedHealth Group for purposes of the
Securities Act of 1933. Shares of UnitedHealth Group common stock held by
these affiliates may only be sold pursuant to an effective registration
statement or an exemption from the registration requirements of the Securities
Act. This proxy statement/prospectus does not register the resale of stock
held by affiliates.
Dissenters' or Appraisal Rights (See page )
Under Delaware law, you are not entitled to dissenters' or appraisal rights
in connection with the merger unless UnitedHealth Group elects to pay cash in
lieu of shares of its common stock.
5
<PAGE>
If you do not wish to accept cash as payment for your Lifemark shares in the
merger and UnitedHealth Group makes the cash payment election described in the
proxy statement/prospectus, you will have the right under Delaware law to have
the fair value of your shares of Lifemark determined by the Delaware Chancery
Court. This right to appraisal is subject to a number of restrictions and
technical requirements. Generally, in order to exercise your appraisal rights
you must:
. send a written demand to Lifemark for appraisal in compliance with
Delaware General Corporation Law before the vote on the merger;
. not vote in favor of the merger; and
. continuously hold your Lifemark common stock, from the date you make the
demand for appraisal through the closing of the merger.
Merely voting against the merger will not protect your rights to an
appraisal, which requires following all the steps provided under Delaware law.
Delaware law requirements for exercising appraisal rights are described in
further detail beginning on page and are attached as Annex D to this
document.
IF YOU VOTE FOR THE MERGER, YOU WILL WAIVE YOUR RIGHTS TO SEEK APPRAISAL OF
YOUR LIFEMARK SHARES UNDER DELAWARE LAW.
Surrender of Stock Certificates (See page )
Following the effective time of the merger, UnitedHealth Group will cause a
letter of transmittal to be mailed to all holders of Lifemark common stock
containing instructions for surrendering their certificates. Certificates
should not be surrendered until the letter of transmittal is received, fully
completed and returned as instructed in the letter of transmittal.
Certain Effects of the Merger (See page )
Upon consummation of the merger, Lifemark stockholders will become
shareholders of UnitedHealth Group. The internal affairs of UnitedHealth Group
are governed by the Minnesota Business Corporation Act and UnitedHealth Group's
restated articles of incorporation and bylaws. The merger will result in
certain differences in the rights of Lifemark stockholders. See "Comparison of
Rights of Shareholders of UnitedHealth Group and Lifemark."
Forward-Looking Statements in this Proxy Statement/Prospectus
This proxy statement/prospectus and the documents incorporated by reference
into this proxy statement/prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates" and similar expressions identify forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the forward-
looking statements. In evaluating the merger, you should carefully consider the
discussion of risks and uncertainties in the section entitled "Risk Factors"
beginning on page of this proxy statement/prospectus.
6
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
OF UNITEDHEALTH GROUP INCORPORATED
The following table summarizes selected consolidated historical financial
data of UnitedHealth Group. The financial data for the years ended December 31,
1999, 1998 and 1997 and as of December 31, 1999 and 1998 was derived from the
audited consolidated financial statements of UnitedHealth Group incorporated by
reference in this proxy statement/prospectus. The financial data for the years
ended December 31, 1996 and 1995 and as of December 31, 1997, 1996 and 1995 was
derived from the audited consolidated financial statements of UnitedHealth
Group not included or incorporated by reference in this proxy
statement/prospectus. The financial data as of June 30, 2000 and for the six
months ended June 30, 2000 and 1999 was derived from the unaudited condensed
consolidated financial statements of UnitedHealth Group incorporated by
reference in this proxy statement/prospectus. The financial data as of June 30,
1999 was derived from the unaudited condensed consolidated financial statements
of UnitedHealth Group not incorporated by reference in this proxy
statement/prospectus. In the opinion of UnitedHealth Group's management, all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial data for the six months ended June 30, 2000
and 1999 have been reflected therein. Operating results for the six months
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the full year.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
-------------- ----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
(in millions, except per share data)
Statement of Operations
Data:
Revenues................ $10,319 $9,667 $19,562 $17,355 $11,794 $10,074 $5,671
======= ====== ======= ======= ======= ======= ======
Earnings (Loss) from
Operations............. $ 561 $ 446 $ 943 $ (42)(1) $ 742 $ 581(2) $ 461(3)
======= ====== ======= ======= ======= ======= ======
Net Earnings (Loss)..... $ 344 $ 267 $ 568 $ (166)(1) $ 460 $ 356(2) $ 286(3)
Convertible Preferred
Stock Dividends........ -- -- -- (28) (29) (29) (7)
Preferred Stock
Redemption Premium..... -- -- -- (20) -- -- --
------- ------ ------- ------- ------- ------- ------
Net Earnings (Loss)
Applicable to Common
Shareholders........... $ 344 $ 267 $ 568 $ (214)(1) $ 431 $ 327(2) $ 279(3)
======= ====== ======= ======= ======= ======= ======
Basic Net Earnings
(Loss) per Common
Share................ $ 2.11 $ 1.51 $ 3.26 $ (1.12)(1) $ 2.30 $ 1.80(2) $ 1.61(3)
======= ====== ======= ======= ======= ======= ======
Diluted Net Earnings
(Loss) per Common
Share................ $ 2.04 $ 1.48 $ 3.20 $ (1.12)(1) $ 2.26 $ 1.76(2) $ 1.57(3)
======= ====== ======= ======= ======= ======= ======
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
Weighted Average Number
of Common Shares
Outstanding:
Basic................. 163 177 174 191 187 182 174
Diluted............... 169 180 178 191 191 186 177
Balance Sheet Data (as
of):
Cash and Investments.... $ 4,570 $4,608 $ 4,719 $ 4,424 $ 4,041 $ 3,453 $3,078
Total Assets............ 10,313 9,754 10,273 9,675 7,623 6,997 6,161
Debt.................... 874 649 991 708 -- -- --
Convertible Preferred
Stock.................. -- -- -- -- 500 500 500
Shareholders' Equity.... 3,709 4,158 3,863 4,038 4,534 3,823 3,188
</TABLE>
--------
(1) Excluding the operational realignment and other charges of $725, charges
related to contract losses associated with certain Medicare markets and
other increases to commercial and Medicare medical costs
7
<PAGE>
payable estimates of $175 and the convertible preferred stock redemption
premium of $20 from the year ended December 31, 1998, from 1998 results,
earnings from operations, net earnings and net earnings applicable to common
shareholders would have been $858, $537 and $509, respectively, or $2.62
diluted net earnings per common share.
(2) Excluding the merger costs associated with the April 1996 acquisition of
HealthWise of America, Inc. ("HealthWise") of $15 ($9 after tax or $0.05
diluted net earnings per common share) and the provision for future losses
on two large multi-year contracts of $45 ($27 after tax, or $0.15 diluted
net earnings per common share), 1996 earnings from operations and net
earnings would have been $641 and $392, or $1.96 diluted net earnings per
common share. The HealthWise merger was accounted for using the pooling-of-
interests method of accounting; however, UnitedHealth Group did not restate
its historical financial statements, as the effects on the historical
consolidated financial statements were not material.
(3) Excluding restructuring charges associated with the October 1995
acquisition of The MetraHealth Companies, Inc. ("MetraHealth") of $154 ($97
after tax, or $0.55 diluted net earnings per common share), 1995 earnings
from operations and net earnings would have been $615 and $383, or $2.12
diluted net earnings per common share. The MetraHealth acquisition was
accounted for using the purchase method of accounting and, accordingly, its
operating results have been included in UnitedHealth Group's historical
consolidated financial information from the acquisition date.
8
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
OF LIFEMARK CORPORATION
The following table summarizes selected consolidated historical financial
data of Lifemark. The financial data for the years ended May 31, 2000, 1999 and
1998 and as of May 31, 2000 and 1999 was derived from the audited consolidated
financial statements of Lifemark incorporated by reference in this proxy
statement/prospectus. The financial data for the years ended May 31, 1997 and
1996 and as of May 31, 1998, 1997 and 1996 was derived from the audited
consolidated financial statements of Lifemark not included or incorporated in
this proxy statement/prospectus. The financial data as of August 31, 2000 and
for the three months ended August 31, 2000 and 1999 was derived from the
unaudited condensed consolidated financial statements of Lifemark incorporated
by reference in this proxy statement/prospectus. The financial data as of
August 31, 1999 was derived from the unaudited condensed consolidated financial
statements of Lifemark not incorporated by reference in this proxy
statement/prospectus. In the opinion of Lifemark's management, all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial data for the three months ended August 31, 2000
and 1999 have been reflected therein. Operating results for the three months
ended August 31, 2000 are not necessarily indicative of the results that may be
expected for the full year.
<TABLE>
<CAPTION>
Three Months
Ended August 31, Years Ended May 31,
----------------- ------------------------------
2000 1999 2000 1999 1998 1997 1996
-------- -------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(in millions, except per share data)
Statement of Operations
Data:
Revenues.................... $ 53 $ 24 $ 150 $ 85 $ 66 $ 64 $ 23
======== ======== ===== ===== ===== ===== =====
Earnings (Loss) from
Operations................. $ 1 $ -- $ 3 $ 2 $ 1 $ (2) $ (3)
======== ======== ===== ===== ===== ===== =====
Net Earnings (Loss)
Applicable to Common
Shareholders............... $ 1 $ -- $ 2 $ 2 $ 1 $ (1) $ (2)
======== ======== ===== ===== ===== ===== =====
Basic Net Earnings (Loss)
per Common Share......... $ .22 $ .04 $ .50 $ .41 $ .19 $(.21) $(.82)
======== ======== ===== ===== ===== ===== =====
Diluted Net Earnings
(Loss) per Common Share.. $ .19 $ .04 $ .47 $ .36 $ .18 $(.21) $(.82)
======== ======== ===== ===== ===== ===== =====
Dividends per Share:
Common Stock.............. $ -- $ -- $ -- $ -- $ -- $ -- $0.14
Weighted Average Number of
Common Shares Outstanding:
Basic..................... 5 5 5 5 4 4 3
Diluted................... 6 5 5 6 6 4 3
Balance Sheet Data (as of):
Cash and Investments........ $ 18 $ 14 $ 19 $ 14 $ 14 $ 9 $ 7
Total Assets................ 63 34 59 35 32 28 28
Debt........................ 5 4 5 4 4 4 2
Shareholders' Equity........ 20 16 19 16 14 11 12
</TABLE>
9
<PAGE>
COMPARATIVE PER SHARE DATA
In the following tables, we provide you with certain historical per share
data and combined per share data on an unaudited pro forma basis after giving
effect to the merger assuming that 0.10 shares of UnitedHealth Group common
stock are issued in exchange for each share of Lifemark common stock. This data
should be read along with the summary financial data and the historical
financial statements of UnitedHealth Group and the historical financial
statements of Lifemark and the notes thereto that are incorporated by reference
herein or attached hereto. The pro forma information is presented for
illustrative purposes only. You should not rely on the pro forma financial
information as an indication of the combined financial position or results of
operations of future periods or the results that actually would have been
realized had the entities been a single entity during the periods presented.
<TABLE>
<CAPTION>
UnitedHealth Group Lifemark
Common Stock Common Stock
---------------------- ------------------------
Pro Forma Pro Forma
Historical Combined(4) Historical Equivalent(4)
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Book value per share(1):
August 31, 2000............. NA NA $3.78 $2.32
June 30, 2000............... $22.89 $23.19 NA NA
November 30, 1999........... NA NA 3.29 2.34
December 31, 1999........... 23.07 23.34 NA NA
Cash dividends per share(2):
Six months ended August 31,
2000....................... NA NA $ -- $ --
Six months ended June 30,
2000....................... $ -- -- NA NA
Year ended November 30,
1999....................... NA NA -- --
Year ended December 31,
1999....................... 0.03 0.03 NA NA
Diluted earnings per share
from continuing
operations(3):
Six months ended August 31,
2000....................... NA NA $0.36 $0.20
Six months ended June 30,
2000....................... $ 2.04 $ 2.04 NA NA
Year ended November 30,
1999....................... NA NA 0.33 0.32
Year ended December 31,
1999....................... 3.20 3.20 NA NA
</TABLE>
--------
(1) The pro forma combined book value per share of UnitedHealth Group common
stock is based upon the pro forma common shareholders' equity of the
combined companies divided by the total pro forma common shares of the
combined companies outstanding as of the date indicated, assuming
conversion of the Lifemark common stock at an exchange ratio of 0.10. The
pro forma equivalent book value per share of Lifemark common stock
represents the pro forma combined book value per share multiplied by the
exchange ratio.
(2) The pro forma combined dividends per share for UnitedHealth Group common
stock assumes no changes in cash dividends per share. The pro forma
equivalent dividends per share for Lifemark common stock represent the cash
dividends declared per share of UnitedHealth Group common stock multiplied
by the exchange ratio.
(3) The pro forma combined net earnings per share from continuing operations
(based on fully diluted weighted average shares outstanding) of
UnitedHealth Group common stock is based on the pro forma net earnings for
the combined companies, divided by the pro forma weighted average common
shares of the combined companies. The pro forma equivalent net earnings per
share from continuing operations of Lifemark common stock represents pro
forma combined net earnings per share from continuing operations multiplied
by the exchange ratio.
(4) All pro forma amounts exclude one-time costs associated with the merger.
10
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Recent Closing Prices
The table below presents the closing price per share of UnitedHealth Group
common stock on the New York Stock Exchange and Lifemark common stock on the
Nasdaq National Market on October 10, 2000, the last full trading day
immediately preceding the public announcement of the proposed merger, and on
, 2000, the most recent practicable date prior to the mailing of
this document, as well as the "equivalent stock price" of shares of Lifemark
common stock on such dates. The "equivalent stock price" of shares of Lifemark
common stock represents the closing sales price per share for UnitedHealth
Group's common stock on the New York Stock Exchange at such specified date,
multiplied by 0.10, an estimate of the exchange ratio based on the closing
price per share of UnitedHealth Group common stock on the New York Stock
Exchange shortly before the mailing of this proxy statement prospectus. Keep in
mind that because of market price fluctuations the equivalent stock price may
be greater than or less than the value of the UnitedHealth Group common stock
and cash in lieu of fractional shares (or cash, if UnitedHealth Group makes the
cash payment election) that a Lifemark stockholder will receive for each share
of Lifemark common stock in connection with the merger. Stockholders should
obtain current market quotations for shares of UnitedHealth Group common stock
and Lifemark common stock prior to making any decision with respect to the
merger.
<TABLE>
<CAPTION>
UnitedHealth Lifemark
Group Lifemark Equivalent
Common Stock Common Stock Stock Price
(Price per share) (Price per share) (Price per share)
----------------- ----------------- -----------------
<S> <C> <C> <C>
October 10, 2000... $105.88 $9.00 $10.59
, 2000........ $ $ $
</TABLE>
Historical Market Price Data
Lifemark's common stock is quoted on the Nasdaq National Market under the
symbol "LMRK." UnitedHealth Group's common stock is quoted on the New York
Stock Exchange under the symbol "UNH."
The following table sets forth the high and low sales prices per share of
Lifemark's common stock for the periods indicated:
<TABLE>
<CAPTION>
Lifemark
Common Stock
------------
High Low
------ -----
<S> <C> <C>
1999
Quarter ended August 31, 1998.............................. $ 8.00 $3.38
Quarter ended November 30, 1998............................ 5.88 3.88
Quarter ended February 28, 1999............................ 6.00 4.00
Quarter ended May 31, 1999................................. 5.00 3.38
2000
Quarter ended August 31, 1999.............................. $ 5.00 $2.75
Quarter ended November 30, 1999............................ 3.50 2.12
Quarter ended February 29, 2000............................ 3.75 2.94
Quarter ended May 31, 2000................................. 5.88 3.25
2001
Quarter ended August 31, 2000.............................. $ 9.88 $5.50
Quarter ended November 30, 2000 (through November ,
2000)..................................................... 11.44 7.63
</TABLE>
11
<PAGE>
The following table sets forth the high and low sales prices per share of
UnitedHealth Group's common stock. For purposes of comparison, the Lifemark
common stock price information is also presented for the fiscal periods of
UnitedHealth Group rather than for Lifemark's historical fiscal periods:
<TABLE>
<CAPTION>
UnitedHealth
Group Lifemark
Common Stock Common Stock
--------------- ------------
High Low High Low
------- ------- ------ -----
<S> <C> <C> <C> <C>
1998
Quarter ended March 31, 1998..................... $ 66.81 $ 46.56 $ 7.63 $3.50
Quarter ended June 30, 1998...................... 73.94 61.25 9.50 5.50
Quarter ended September 30, 1998................. 66.50 29.56 6.00 3.38
Quarter ended December 31, 1998.................. 50.62 33.38 6.25 3.75
1999
Quarter ended March 31, 1999..................... $ 54.68 $ 39.43 $ 6.00 $3.25
Quarter ended June 30, 1999...................... 70.00 44.69 5.13 3.38
Quarter ended September 30, 1999................. 66.69 48.06 5.00 2.75
Quarter ended December 31, 1999.................. 58.50 39.38 3.50 2.13
2000
Quarter ended March 31, 2000..................... $ 62.84 $ 47.60 $ 5.00 $3.00
Quarter ended June 30, 2000...................... 86.00 60.00 8.09 3.38
Quarter ended September 30, 2000................. 99.44 78.19 11.44 5.50
Quarter ended December 31, 2000 (through November
, 2000)....................................... 108.94 101.50 9.75 7.83
</TABLE>
Dividend Information
UnitedHealth Group has paid a cash dividend equal to $.03 per share, per
year, on its common stock for its fiscal years 1999, 1998, 1997, 1996 and 1995.
Lifemark did not pay a cash dividend on its common stock in its fiscal years
2000, 1999, 1998 or 1997, but did pay a cash dividend of $.14 per share in
fiscal 1996 prior to its reorganization in that year. Lifemark anticipates that
if the merger is not consummated, it will continue to retain any earnings for
the foreseeable future for use in the operation of its business.
Number of Stockholders
As of , 2000, there were approximately stockholders of record
who held shares of Lifemark common stock, as shown on the records of Lifemark's
transfer agent for such shares.
Shares held by Certain Stockholders
As of , 2000, % of the outstanding shares of Lifemark common stock
were held by directors and executives officers of Lifemark and their
affiliates. Adoption of the merger agreement by Lifemark's stockholders
requires the affirmative vote of the holders of a majority of the shares of
Lifemark common stock outstanding and entitled to vote at the special meeting.
Lifemark stockholders holding approximately 39.1% of the outstanding Lifemark
common stock as of October 10, 2000 have entered into a voting agreement, a
copy of which is attached hereto as Annex B, to vote in favor of the merger.
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RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in
UnitedHealth Group common stock. In addition to the other information contained
in or incorporated by reference into this proxy statement/prospectus, you
should carefully consider the following risk factors in deciding whether to
approve and adopt the merger agreement.
Risks relating to the Merger
The number of shares of UnitedHealth Group common stock you receive will
depend on the market value of UnitedHealth Group common stock in the time
leading up to the merger.
Upon completion of the merger, if UnitedHealth Group does not make the cash
payment election, each share of Lifemark common stock will be exchanged for a
number of shares of UnitedHealth Group common stock equal to between $10.08 and
$10.55 (according to a formula described under "The Merger Agreement--Structure
of the Merger and Conversion of Lifemark Common Stock" below) divided by the
lesser of $113.00 or the average closing price per share of UnitedHealth Group
common stock on the New York Stock Exchange for the ten consecutive trading
days ending with and including the second business day before the closing date
of the merger. Thus, the actual exchange ratio will depend on the market price
of UnitedHealth Group common stock in the time leading up to the merger. No
prediction can be made as to the market price of UnitedHealth Group common
stock at such time or after the completion of the merger. Lifemark and
UnitedHealth Group are not permitted to terminate the merger agreement or
resolicit the vote of Lifemark's stockholders solely because of changes in the
market price of Lifemark common stock or UnitedHealth Group common stock.
You may receive cash instead of shares of UnitedHealth Group common stock in
the merger.
If the average closing price per share of UnitedHealth Group common stock on
the New York Stock Exchange for the ten consecutive trading days ending with
and including the second business day before the closing date of the merger is
$88.00 or less, UnitedHealth Group may elect to pay cash, instead of shares of
its own common stock, for each share of Lifemark common stock. If UnitedHealth
Group makes this cash payment election, you will receive $10.08 in cash for
each share of Lifemark common stock you own, and you may be required to pay
taxes on the difference between your tax basis in your Lifemark shares and the
amount of cash you receive for your shares. See "The Merger--Certain Federal
Income Tax Considerations--Consequences if the Cash Payment Election is
Exercised."
Failure to complete the merger could negatively impact Lifemark's stock
price and future business and operations.
If the merger is not completed for any reason, Lifemark may be subject to a
number of material risks, including the following:
. Lifemark may be required to pay UnitedHealth Group a termination fee of
$2,000,000 under certain circumstances;
. the price of Lifemark common stock may decline to the extent that the
current market price of Lifemark common stock reflects a market
assumption that the merger will be completed; and
. Lifemark may not be able to obtain reimbursement by UnitedHealth Group
of Lifemark's costs related to the merger, such as legal, accounting and
certain financial advisory fees.
In addition, potential customers of Lifemark may, in response to the
announcement of the merger, delay or defer contracting decisions. Any delay or
deferral in contracting decisions by potential customers could have a material
adverse effect on Lifemark's business, regardless of whether or not the merger
is ultimately completed. Similarly, current and prospective Lifemark employees
may experience uncertainty about their future role with UnitedHealth Group
until UnitedHealth Group's strategies with regard to Lifemark are executed.
This may adversely affect Lifemark's ability to attract and retain key
management, sales, marketing and technical personnel.
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Further, if the merger is terminated and Lifemark's board of directors
determines to seek another merger or business combination, there can be no
assurance that Lifemark will be able to find a partner willing to pay an
equivalent or more attractive price than that which would be paid in the
merger. In addition, while the merger agreement is in effect, subject to
certain limited exceptions described on page of this proxy
statement/prospectus, Lifemark is prohibited from soliciting, initiating or
encouraging or entering into a transaction with any party other than
UnitedHealth Group that would result in the acquisition of Lifemark.
Risks relating to UnitedHealth Group
Health Care Costs.
UnitedHealth Group uses a large portion of its revenue to pay the costs of
health care services or supplies delivered to its members. The total health
care costs that UnitedHealth Group incurs are affected by the number of
individual services rendered and the cost of each service. Much of UnitedHealth
Group's premium revenue is priced before services are delivered and the related
costs are incurred, usually on a prospective annual basis. Although
UnitedHealth Group bases the premiums it charges on its estimate of future
health care costs over the fixed premium period, competition, regulations and
other factors may and often do cause actual health care costs to exceed what
was estimated and reflected in premiums. These factors may include increased
use of services, increased cost of individual services, catastrophes,
epidemics, the introduction of new or costly treatments, medical cost
inflation, new mandated benefits or other regulatory changes and insured
population characteristics. In addition, the earnings UnitedHealth Group
reports for any particular quarter include estimates of covered services
incurred by its enrollees during that period for claims that have not been
received or processed. Because these are estimates, UnitedHealth Group's
earnings may be adjusted later to reflect the actual costs. Relatively
insignificant changes in the medical care ratio, because of the narrow margins
of UnitedHealth Group's health plan business, can create significant changes in
UnitedHealth Group's earnings. In addition, UnitedHealth Group's operating
results may be affected by the seasonal changes in the level of health care use
during the calendar year. Although there are no assurances that this pattern
will continue, per member medical costs generally have been higher in the first
half than in the second half of each year.
Industry Factors.
The managed care industry receives significant negative publicity and has
been the subject of large jury awards. This publicity has been accompanied by
increased litigation, legislative activity, regulation and governmental review
of industry practices. These factors may adversely affect UnitedHealth Group's
ability to market its products or services, may require it to change its
products and services, and may increase the regulatory burdens under which it
operates, further increasing its costs of doing business and adversely
affecting its profitability.
Competition.
In many of UnitedHealth Group's geographic or product markets, UnitedHealth
Group competes with a number of other entities, some of which may have certain
characteristics or capabilities that give them a competitive advantage.
UnitedHealth Group believes the barriers to entry in these markets are not
substantial, so the addition of new competitors can occur relatively easily,
and consumers enjoy significant flexibility in moving to new providers of
health and well-being services. Certain of UnitedHealth Group's customers may
decide to perform for themselves functions or services that UnitedHealth Group
provides, which would decrease UnitedHealth Group's revenues. Certain of
UnitedHealth Group's contracted providers may decide to market products and
services to UnitedHealth Group's customers in competition with UnitedHealth
Group. In addition, significant merger and acquisition activity has occurred in
the industry in which UnitedHealth Group operates as well as in industries that
act as suppliers to UnitedHealth Group, such as the hospital, physician,
pharmaceutical, medical device and health information systems industries. To
the extent that there is strong competition or that competition intensifies in
any market, UnitedHealth Group's ability to retain or increase customers or
providers, or maintain or increase its revenue growth, pricing flexibility,
control over medical cost trends and marketing expenses may be adversely
affected.
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AARP Contract.
Under UnitedHealth Group's long-term contract with AARP, UnitedHealth Group
provides Medicare supplemental, hospital indemnity health insurance and other
products to AARP members. As a result of the agreement, the number of members
UnitedHealth Group serves, products UnitedHealth Group offers and services
UnitedHealth Group provides has grown significantly. As of September 30, 2000,
UnitedHealth Group's portion of AARP's insurance program represents
approximately $3.5 billion in annual net premium revenue from approximately 3.6
million AARP members. The success of the AARP arrangement will depend, in part,
on UnitedHealth Group's ability to service 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 AARP or one of its other business
partners for its member insurance program could have an adverse effect on the
success of UnitedHealth Group's arrangement with AARP.
Medicare Operations.
In the second quarter of 1998, UnitedHealth Group experienced a significant
rise in the medical care ratio for UnitedHealth Group's 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, UnitedHealth Group announced in October 1998
its decision to withdraw Medicare product offerings from 86 of the 206 counties
it then served. The decision, effective January 1, 1999, affected approximately
60,000, or 12%, of Medicare members as of December 31, 1998. On July 1, 1999,
UnitedHealth Group announced its decision to withdraw Medicare+Choice product
offerings from an additional 49 counties. This decision, effective January 1,
2000, affected approximately 40,000 additional Medicare members. Also effective
January 1, 2000, UnitedHealth Group filed significant benefit adjustments. In
June 2000, UnitedHealthcare announced that it would not renew its
Medicare+Choice contracts in 21 counties across the United States, effective
January 1, 2001, affecting 56,000 individuals served. Annual revenues for 2000
from the Medicare markets UnitedHealth Group is exiting effective January 1,
2001, are expected to be approximately $320 million. These actions and other
actions are expected to further reduce Medicare enrollment and may result in
further withdrawals of Medicare product offerings, when and as permitted by
UnitedHealth Group's contracts with the Health Care Financing Administration
("HCFA"). As a consequence of these withdrawals, UnitedHealth Group is
precluded from re-entering these counties with Medicare product offerings until
5 years after the respective effective date of withdrawal.
UnitedHealth Group will continue to offer Medicare products in strong and
economically viable markets. However, its ability to improve the financial
results of all of its Medicare operations will depend on a number of factors,
including future premium increases, growth in markets where it has achieved
sufficient size to operate efficiently, benefit design, provider contracting
and other factors. There can be no assurance that UnitedHealth Group will be
able to successfully prevent future losses on its Medicare operations.
Realignment of Operations.
In the second quarter of 1998, UnitedHealth Group recognized a charge to
earnings for its realignment. The original operational realignment plan
provided for substantial completion in 1999. UnitedHealth Group continues to
implement its original realignment plan; however, some initiatives including
the consolidation of certain claims and administrative processing functions and
certain divestitures and market realignment activities are requiring additional
time to complete in the most effective manner and will extend through the
middle of 2001. Based on current facts and circumstances, UnitedHealth Group
believes the remaining realignment reserve is adequate to cover the costs to be
incurred in executing the remainder of the plan. However, as UnitedHealth Group
proceeds with the execution of the plan and more current information becomes
available, it may be necessary to adjust estimates for severance, lease
obligations on exited facilities and losses on disposition of businesses.
Government Programs and Regulation.
UnitedHealth Group's business is heavily regulated at federal, state and
local levels. The laws and rules governing UnitedHealth Group's business and
interpretations of those laws and rules are subject to frequent change. Broad
latitude is given to the agencies administering those regulations. Existing or
future laws and
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rules could force UnitedHealth Group to change how it does business, restrict
revenue and enrollment growth, increase its health care and administrative
costs and capital requirements, and increase its liability for medical
malpractice or other actions. UnitedHealth Group must obtain and maintain
regulatory approvals to market many of its products. Delays in obtaining or
failure to obtain or maintain these approvals could adversely affect its
revenue or could increase its costs. UnitedHealth Group participates in
federal, state and local government health care coverage programs. These
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 UnitedHealth Group's
administrative or health care costs under such programs. Such changes have
adversely affected UnitedHealth Group's results and willingness to participate
in such programs in the past and may also do so in the future.
State legislatures and Congress continue to focus on health care issues. In
Congress, managed health care has been the subject of proposed legislation, in
the form of a "Patients Bill of Rights" bill. In addition, other proposed bills
and regulations may impact certain aspects of UnitedHealth Group's business
including provider contracting, claims payments and processing, confidentiality
of health information and government-funded programs. Further, tax code changes
considered from time to time by Congress may make it easier and more cost
effective for employers to establish deferred contribution plans. While
UnitedHealth Group cannot predict if any of these initiatives will ultimately
become binding law or regulation, or if enacted, what their terms will be,
their enactment could increase UnitedHealth Group's costs, expose it to
expanded liability, require it to revise the ways in which it conducts business
or put it at risk for a loss of business to new health care funding
arrangements. As UnitedHealth Group's businesses continue to implement their e-
commerce initiatives, uncertainty surrounding the regulatory authority and
requirements in this area will make it difficult to ensure compliance.
UnitedHealth Group is subject to various governmental reviews, audits and
investigations. Such oversight could result in the loss of licensure or the
right to participate in certain programs, or the imposition of civil or
criminal fines, penalties and other sanctions. In addition, disclosure of any
adverse investigation or audit results or sanctions could damage UnitedHealth
Group's reputation in various markets and make it more difficult for it to sell
its products and services. UnitedHealth Group is currently involved in various
governmental investigations, audits and reviews. These include routine, regular
and special audits by HCFA, state insurance departments, the Office of
Personnel Management and the Office of the Inspector General. UnitedHealth
Group does not believe the results of any of the current audits, individually
or in the aggregate, will have a material adverse effect on its financial
position or results.
The National Association of Insurance Commissioners has adopted rules which,
to the extent that they are implemented by the states, will set new minimum
capitalization requirements for insurance companies, HMOs and other entities
bearing risk for health care coverage. The requirements take the form of risk-
based capital rules. The change in rules for insurance companies was effective
December 31, 1998. The new HMO rules are subject to state-by-state adoption,
but not many states have adopted the rules as of September 30, 2000. The HMO
rules, if adopted by the states in their proposed form, would significantly
increase the minimum capital required for certain of UnitedHealth Group's
subsidiaries. Although UnitedHealth Group believes it can redeploy capital
among its regulated entities, such rule changes may require incremental
investments of general corporate resources into regulated subsidiaries.
Provider Relations.
One of the significant techniques UnitedHealth Group uses to manage health
care costs, coordinate care and monitor the quality of care being delivered is
contracting with physicians, hospitals and other providers. Because
UnitedHealth Group's health plans are geographically diverse and most of those
health plans contract with a large number of providers, UnitedHealth Group
currently believes its aggregate exposure to provider relations issues is
limited. In Congress, legislation has been considered that would exempt certain
providers from federal and state antitrust laws, the adoption of which could
impact this assessment. In any particular market, providers could refuse to
contract, demand higher payments, or take other actions that could result in
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<PAGE>
higher health care costs, less desirable products for customers and members, or
difficulty meeting regulatory or accreditation requirements. In some markets,
certain providers, particularly hospitals, physician/hospital organizations or
multi-specialty physician groups, may have significant market positions or near
monopolies. In addition, physician or practice management companies, which
aggregate physician practices for administrative efficiency and marketing
leverage, continue to expand. These providers may compete directly with
UnitedHealth Group. If these providers refuse to contract with UnitedHealth
Group, use their market position to negotiate favorable contracts, or place
UnitedHealth Group at a competitive disadvantage, those activities could
adversely affect UnitedHealth Group's ability to market products or to be
profitable in those areas.
Litigation and Insurance.
UnitedHealth Group 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 UnitedHealth Group's business,
UnitedHealth Group is subject to a variety of legal actions relating to its
business operations, including the design, management and offering of its
products and services. These could include: claims relating to the denial of
health care benefits; medical malpractice actions; allegations of anti-
competitive and unfair business activities; 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; claims related to the
failure to disclose certain business practices; and claims relating to customer
audits and contract performance. Recently, a number of class action lawsuits
have been filed against UnitedHealth Group and certain of its competitors in
the managed care business. The suits are purported class actions on behalf of
all of UnitedHealth Group's managed care members and network providers for
alleged breaches of federal statutes, including the Employee Retirement Income
Security Act and the Racketeer Influenced Corrupt Organization Act. While
UnitedHealth Group believes these suits against it are without merit and
intends to defend its position vigorously, it will incur expenses in the
defense of these matters and cannot predict their outcome.
Recent court decisions and legislative activity may increase UnitedHealth
Group's exposure for any of these types of claims. In some cases, substantial
non-economic or punitive damages, or treble damages, may be sought.
UnitedHealth Group currently has insurance coverage for some of these potential
liabilities. Other potential liabilities may not be covered by insurance,
insurers may dispute coverage, or the amount of insurance may not be enough to
cover the damages awarded. In addition, certain types of damages, such as
punitive damages, may not be covered by insurance and insurance coverage for
all or certain forms of liability may become unavailable or prohibitively
expensive in the future.
Information Systems.
UnitedHealth Group's businesses depend significantly on effective
information systems, and UnitedHealth Group has many different information
systems for its various businesses. Its information systems require an ongoing
commitment of significant resources to maintain and enhance existing systems
and develop new systems in order to keep pace with continuing changes in
information processing technology, evolving industry and regulatory standards,
and changing customer preferences. For example, the administrative
simplification provisions of the Health Insurance Portability and
Accountability Act ("HIPAA") and the Department of Labor's proposed claim
processing regulations may ultimately require significant changes to current
systems. In addition, UnitedHealth Group may from time to time obtain
significant portions of its systems-related or other services or facilities
from independent third parties, which may make its operations vulnerable to
such third parties' failure to perform adequately. As a result of UnitedHealth
Group's acquisition activities, it has acquired additional systems and has been
taking steps to reduce the number of systems and has upgraded and expanded its
information systems capabilities. Failure to maintain effective and efficient
information systems could cause the loss of existing customers, difficulty in
attracting new customers, issues in determining medical cost estimates,
customer and provider disputes, regulatory problems, increases in
administrative expenses or other adverse consequences.
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Administrative and Management.
Efficient and cost-effective administration of UnitedHealth Group's
operations is essential to its profitability and competitive positioning. While
UnitedHealth Group attempts to effectively manage expenses, staff-related and
other administrative expenses may arise 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. Further, UnitedHealth
Group believes it currently has an experienced, capable management and
technical staff. The market for management and technical personnel, including
information systems professionals, in the health care industry is very
competitive. Loss of certain key employees or a number of managers or technical
staff could adversely affect UnitedHealth Group's ability to administer and
manage its business.
Marketing.
UnitedHealth Group markets its products and services through both employed
sales people and independent sales agents. Although UnitedHealth Group has many
sales employees and agents, the departure of certain key sales employees or
agents or a large subset of these individuals could impair its ability to
retain existing customers and members. In addition, certain of its customers or
potential customers consider rating, accreditation or certification of
UnitedHealth Group by various private or governmental bodies or rating agencies
necessary or important. Certain of its health plans or other business units may
not have obtained or maintained, or may not desire or be able to obtain or
maintain, such rating accreditation or certification, which could adversely
affect its ability to obtain or retain business with these customers.
Acquisitions and Dispositions.
UnitedHealth Group 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 transactions 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 UnitedHealth Group's knowledge and
information-related business depend significantly on the integrity of the data
on which they are based. If the information contained in UnitedHealth Group's
databases were found or perceived to be inaccurate, or if such information were
generally perceived to be unreliable, commercial acceptance of UnitedHealth
Group's database-related products would be adversely and materially affected.
Furthermore, the use of individually identifiable data by UnitedHealth Group's
businesses 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 certain of UnitedHealth
Group's products or services and, more generally, affect UnitedHealth Group's
business, financial condition and results of operations. There are various
proposals currently under consideration that address the use of individually
identifiable health data from federal and state legislative and regulatory
bodies. The U.S. Department of Health and Human Services is expected to release
soon final regulations regarding this issue, as directed under HIPAA. If these
final regulations follow generally the proposed regulations, UnitedHealth
Group's existing policies and practices should be largely unaffected, with the
exception of needed systems changes and the development of new administrative
processes, which may lead to cost increases. Additionally, if state and/or
federal laws are enacted, some of these provisions may impose restrictions on
UnitedHealth Group's use of patient data and may increase UnitedHealth Group's
cost to use health care data. The success of UnitedHealth Group's knowledge and
information-related business also depends significantly on its ability to
maintain proprietary rights to its products. UnitedHealth Group relies on its
agreements with customers, confidentiality agreements with employees, and its
trade secrets, copyrights and patents to protect its proprietary rights.
UnitedHealth Group cannot assure that these legal protections and precautions
will prevent misappropriation of its proprietary information. In addition,
substantial litigation
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regarding intellectual property rights exists in the software industry, and
UnitedHealth Group expects software products to be increasingly subject to
third-party infringement claims as the number of products and competitors in
this industry segment grows. Such litigation could have an adverse effect on
the ability of UnitedHealth Group's knowledge and information-related business
to market and sell its products and on its business, financial condition and
results of operations.
Stock Market.
The market prices of the securities of the publicly-held companies in the
industry in which UnitedHealth Group operates have shown volatility and
sensitivity in response to many factors, including general market trends,
public communications regarding managed care, litigation and judicial
decisions, legislative or regulatory actions, health care cost trends, pricing
trends, competition, earnings, membership reports of particular industry
participants and acquisition activity. UnitedHealth Group cannot assure the
level or stability of the price of its securities at any time or the impact of
the foregoing or any other factors on such prices.
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THE SPECIAL MEETING OF LIFEMARK STOCKHOLDERS
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of Lifemark common stock by the
Lifemark board of directors for use at the special meeting of Lifemark
stockholders.
Date, Time and Place of the Special Meeting
The special meeting will be held on , , 2000 at
10:00 a.m., local time, at Lifemark's executive offices located at 7600 North
16th Street, Suite 150, Phoenix, Arizona 85020.
Matters to be Considered at the Special Meeting
At the special meeting, stockholders of Lifemark will be asked to consider
and vote upon a proposal to approve and adopt the merger agreement and to
transact such other business as may properly come before the special meeting or
any postponements or adjournments thereof. Adoption of the merger agreement
will also constitute approval of the merger and the other transactions
contemplated by the merger agreement.
Record Date and Shares Entitled to Vote
Lifemark's board of directors has fixed the close of business on
, 2000, as the record date for determination of Lifemark
stockholders entitled to notice of and to vote at the special meeting. As of
the close of business on , 2000, there were shares of
Lifemark common stock outstanding and entitled to vote, held of record by
approximately stockholders. A majority of these shares, present in person
or represented by proxy, will constitute a quorum for the transaction of
business. If a quorum is not present, it is expected that the special meeting
will be adjourned or postponed to solicit additional proxies. Each Lifemark
stockholder is entitled to one vote for each share of Lifemark common stock
held as of the record date.
Voting of Proxies; Revocation of Proxies
You are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to
Lifemark. If your shares are held in "street name" by your broker, your broker
will vote your shares for you only if you provide instructions on how to vote.
Your broker will provide you directions regarding how to instruct your broker
to vote your shares. All properly executed proxies received by Lifemark prior
to the vote at the special meeting, and that are not revoked, will be voted in
accordance with the instructions indicated on the proxies or, if no direction
is indicated, to approve and adopt the merger agreement. Votes will be
tabulated, using an automated scanner, by the inspectors of election appointed
by Lifemark.
Lifemark's board of directors does not presently intend to bring any other
business before the special meeting and, so far as is presently known to
Lifemark's board of directors, no other matters are to be brought before the
special meeting. As to any business that may properly come before the special
meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
such proxies.
You may revoke your proxy at any time prior to its use by delivering to the
Secretary of Lifemark a signed notice of revocation or a later-dated, signed
proxy, or by attending the special meeting and voting in person. Attendance at
the special meeting does not in itself constitute the revocation of a proxy.
Vote Required
Adoption of the merger agreement by Lifemark's stockholders is required by
the Delaware General Corporation Law. Such adoption requires the affirmative
vote of the holders of a majority of the shares of Lifemark common stock
outstanding and entitled to vote at the special meeting. Certain stockholders
of Lifemark have entered into a voting agreement obligating them to vote in
favor of the merger agreement and
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the merger. As of , 2000, such stockholders as a group beneficially
owned 2,016,786 shares (exclusive of any shares issuable upon the exercise of
options) of Lifemark common stock (constituting approximately [39.1]% of the
shares of Lifemark common stock outstanding as of the record date). As of the
record date and the date of this proxy statement/prospectus, UnitedHealth Group
owns no shares of Lifemark common stock.
Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the special meeting
is a majority of the shares of Lifemark common stock issued and outstanding on
the record date. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the meeting for the
purpose of determining the presence of a quorum. Because adoption of the merger
agreement and the consummation of the merger requires the affirmative vote of a
majority of the outstanding shares of Lifemark common stock entitled to vote,
abstentions and broker non-votes will have the same effect as votes against the
merger agreement and the consummation of the merger. In addition, a failure of
a Lifemark stockholder to return a proxy will have the effect of a vote against
the adoption of the merger agreement.
THE ACTIONS PROPOSED IN THIS PROXY STATEMENT/PROSPECTUS ARE NOT MATTERS THAT
CAN BE VOTED ON BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS WITHOUT THE
OWNERS' SPECIFIC INSTRUCTIONS. ACCORDINGLY, YOU ARE URGED TO RETURN THE
ENCLOSED PROXY CARD MARKED TO INDICATE YOUR VOTE.
Expenses of Solicitation
Lifemark will assume the cost of solicitation of proxies from you, which is
estimated to be approximately $10,000 plus reasonable out-of-pocket expenses.
In addition to solicitation by mail, the directors, officers and employees of
Lifemark may solicit proxies from stockholders by telephone, facsimile or in
person. Following the original mailing of the proxies and other soliciting
materials, Lifemark will request brokers, custodians, nominees and other record
holders to forward copies of the proxy and other soliciting materials to
persons for whom they hold shares of Lifemark common stock and to request
authority for the exercise of proxies. In such cases, Lifemark, upon the
request of the record holders, will reimburse such holders for their reasonable
expenses.
Board Recommendation
THE LIFEMARK BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT LIFEMARK STOCKHOLDERS VOTE FOR ADOPTION OF THE
MERGER AGREEMENT.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF LIFEMARK. ACCORDINGLY, YOU ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME. A
TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK CERTIFICATES FOR
LIFEMARK COMMON STOCK WILL BE MAILED TO YOU AS SOON AS PRACTICABLE AFTER
COMPLETION OF THE MERGER.
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THE MERGER
This section of the proxy statement/prospectus describes material aspects of
the proposed merger. While we believe that the description covers the material
terms of the merger and the related transactions, this summary may not contain
all of the information that is important to you. You should read this entire
document, the attached exhibits and the other documents we refer to carefully
for a more complete understanding of the merger.
Background of the Merger
On September 1, 1999, Richard M. Jelinek, Executive Vice President of
Lifemark, met with Marcia Smith, Chief Executive Officer of EverCare, to
discuss potential joint venture or business combination transactions between
Lifemark and EverCare. Following this meeting, Mr. Jelinek provided Ms. Smith
with additional background information concerning Lifemark.
On October 28, 1999, representatives of Lifemark and Ovations executed a
confidentiality agreement providing for the companies to exchange business
information in connection with a possible transaction between them. On the same
date, Mr. Jelinek and Michael J. Kennedy, Lifemark's Chief Financial Officer,
met with John K. Ellingboe, Ovations' Chief Operating Officer, Ms. Smith, and
other representatives of UnitedHealth Group, in order to discuss such a
possible transaction.
On January 27, 2000, Rhonda E. Brede, Lifemark's Chief Executive Officer,
and Mr. Jelinek met with Ms. Smith and Mary Paoli, Vice President of Strategic
Business Development of EverCare, to explore possible synergies that might
result from Lifemark and EverCare working together. On April 25, 2000, Mr.
Jelinek and Mr. Kennedy met with Ms. Smith and Ronald Watson, Senior Vice
President of Ovations, in order to discuss the possible acquisition of Lifemark
by UnitedHealth Group.
On May 3, 2000, Mr. Jelinek, Mr. Kennedy, and representatives of
UnitedHealth Group discussed the process that UnitedHealth Group typically
follows in considering a corporate transaction. On May 11, 2000, Mr. Jelinek
and Ms. Smith discussed who would participate in this process on behalf of
Lifemark and discussed in general terms certain employee, structural and
transition matters that would need to be addressed.
On May 22, 2000, Ms. Brede, Mr. Jelinek and Mr. Kennedy met with Ms. Smith
and Mr. Watson in order to continue discussions of the strategic fit between
Lifemark and EverCare and to discuss the timing of the process going forward.
By letter agreement dated May 25, 2000, Lifemark retained Stephens Inc. to
act as its financial adviser in connection with possible business combination
transactions. On May 25 and on June 2, 2000 representatives of the parties
again discussed the timing of the process going forward.
On June 5, 2000, Lifemark delivered a copy of its business plan, including
financial forecasts, to representatives of UnitedHealth Group, and the parties
again discussed the timing of the process. These materials were reviewed and
discussed by various representatives of the parties on June 8, June 12, and
June 19, 2000. On the latter date, representatives of the parties also
discussed Lifemark's current contracts, and UnitedHealth Group provided a list
of other issues to be discussed.
On June 23, 2000, Mr. Watson indicated to Mr. Jelinek that UnitedHealth
Group desired to continue working toward a possible transaction. On July 5,
2000, Ms. Brede, Mr. Jelinek and Mr. Kennedy met with Ms. Smith and Mr. Watson
in order to discuss organizational structure, personnel, and contractual issues
relating to a transaction. On July 13, 2000, Ms. Brede, Mr. Jelinek and Mr.
Kennedy met with Mr. Ellingboe, Ms. Smith, Mr. Watson, and representatives of
Stephens Inc. to discuss Lifemark's programs and results to date
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and its forecasts for 2001, and to begin discussions concerning the possible
valuation of Lifemark. After this meeting, UnitedHealth Group requested and
received additional information concerning Lifemark's current contracts.
On July 20, 2000, Ms. Brede, Mr. Jelinek, Ms. Smith and Mr. Watson met again
to discuss the possible valuation of Lifemark and the factors that could affect
this valuation. On July 24, 2000, Ms. Smith and Mr. Watson delivered a proposed
letter of intent to Ms. Brede which called for Ovations to acquire Lifemark for
an estimated total consideration of between $55 million and $60 million,
subject to several assumptions and conditions set forth in the letter.
This letter of intent was presented to and discussed by Lifemark's board of
directors at a meeting held on July 26 and 27, 2000. At this meeting,
representatives of Stephens Inc. also discussed the terms set forth in the
letter of intent and the potential valuation of Lifemark. At the conclusion of
this discussion, Lifemark's board of directors authorized management and
Stephens Inc. to commence negotiations toward a definitive agreement with
UnitedHealth Group (rather than entering into a letter of intent), subject to
certain parameters established by the board.
On August 2 and 3, 2000, representatives of the parties made arrangements
for UnitedHealth Group representatives to conduct a due diligence review of
Lifemark. At a meeting of Lifemark's board of directors on August 4,
representatives of Stephens Inc. presented a revised proposal from UnitedHealth
Group, which included a total purchase price of $60 million. The board
authorized management and Stephens to continue negotiations. UnitedHealth
Group's due diligence commenced on August 9, 2000, and continued throughout the
remaining negotiations. On August 11, 2000, Lifemark's board of directors met
and was advised that this due diligence review had begun and that UnitedHealth
Group would circulate a draft merger agreement shortly.
On August 16, 2000, representatives of UnitedHealth Group provided a draft
merger agreement and related documents to representatives of Lifemark. This
draft was presented to and discussed at a Lifemark board of directors meeting
held on August 18, 2000. At the conclusion of this meeting, the board of
directors directed management to continue the discussions and to seek several
changes to the draft merger agreement.
UnitedHealth Group's due diligence review and the parties' negotiation of
the terms of the merger agreement and related documents continued for the
remainder of August and through September and early October 2000, with the
Lifemark board of directors meeting again on August 25, September 1, September
13, and September 18 to receive updates and provide direction regarding the
negotiations. At various of these meetings, representatives of Stephens Inc.
and outside counsel to Lifemark provided advice to Lifemark's directors
concerning issues arising in the course of the negotiations. In addition,
outside counsel to Lifemark advised the directors concerning their
responsibilities under applicable law in connection with the possible
acquisition of Lifemark.
The negotiations were concluded on October 10, 2000, at which time a
definitive merger agreement and related documents were presented at a meeting
of Lifemark's board of directors for consideration. At this meeting,
representatives of Stephens Inc. delivered its fairness opinion described below
under "--Opinion of Lifemark's Financial Adviser," and outside counsel to
Lifemark reviewed the directors' responsibilities in considering the proposed
merger agreement. Following a discussion of this information and of the
proposed definitive merger agreement, Lifemark's board of directors unanimously
determined that the merger is advisable and in the best interests of Lifemark
and its stockholders and approved the merger agreement. Representatives of
UnitedHealth Group and Lifemark then executed and delivered the merger
agreement, and the transaction was publicly announced.
UnitedHealth Group's Reasons for the Merger
Management of UnitedHealth Group believes that Lifemark's business is
complementary to that of the existing EverCare unit within Ovations, a
UnitedHealth Group subsidiary, which has pioneered coordinated care for older
Americans living in nursing homes. Accordingly, upon completion of the merger,
it is anticipated that Lifemark's operations will be integrated with those of
EverCare to create an organization which serves the
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health and well-being needs of older Americans across the full continuum of
care settings. These combined operations will conduct business in over a dozen
states, serving Medicare, Medicaid, and private-pay patients in a variety of
care settings, including home, community-based and nursing facilities. In
addition, the combined operations will provide a platform for further expansion
of this portion of Ovations' business.
Lifemark's Reasons for the Merger and Board of Directors Recommendation
In reaching its conclusions to approve the merger agreement and merger and
recommend that stockholders vote in favor of approval of the merger agreement
and merger, the board of directors of Lifemark consulted with management, legal
counsel, and Stephens Inc., Lifemark's financial adviser, and considered a
number of factors, including, without limitation, the following:
. that, at $10.55 per share, the consideration to be received by
Lifemark's stockholders in the merger represents a premium of
approximately 25% over the closing market price of $8.44 per share on
October 9, 2000, the last full trading day prior to the October 10, 2000
board meeting at which the merger was approved, and premiums of
approximately 40.1% and 116.6% over the average closing prices for the
three-month period and the twelve-month period, respectively, preceding
October 9, 2000;
. the other terms and conditions of the merger agreement, including:
. that the consideration to be received in the merger would be in the
form of UnitedHealth Group stock (unless UnitedHealth Group
exercises its election to pay cash in certain circumstances),
resulting in a tax-free transaction to Lifemark stockholders, that
the board believes that there is a possibility of significant
appreciation in the value of such stock in the future, and that such
stock represents a more liquid investment than Lifemark's stock;
. the fact that the reduction in the consideration to be received for
each Lifemark share resulting from a drop in UnitedHealth Group's
price below $95.00 is limited (the value can not go below $10.08),
while, if UnitedHealth Group's price increases above $113.00, there
is no limit on the increase in the consideration to be received by
Lifemark stockholders;
. the fact that, to the extent required by the fiduciary obligations
of Lifemark's board of directors to stockholders under Delaware law,
Lifemark may terminate the merger agreement in order to approve an
acquisition proposal by a third party on terms more favorable to
Lifemark's stockholders than the merger, upon the payment of a $2
million termination fee and reimbursement of UnitedHealth Group's
expenses associated with the merger;
. the board of directors' review, particularly since the beginning of
calendar year 2000, of Lifemark's strategic plan, and the determination
of the board and management that continued growth and success of
Lifemark could best be achieved through increased risk assumption in its
business, and their belief that this risk assumption required
significantly more capital than currently available to Lifemark;
. Lifemark's business, financial condition, results of operations, assets,
liabilities, business strategy and prospects, as well as various
uncertainties associated with those prospects;
. information concerning UnitedHealth Group's businesses, financial
condition, and results of operations;
. the opinion of Stephens Inc. delivered at the October 10 meeting that
the consideration to be received by the holders of Lifemark stock in the
merger is fair to such stockholders from a financial point of view; a
copy of the Stephens Inc. opinion is attached to this proxy
statement/prospectus as Annex C and is incorporated herein by reference;
. the presentations of Stephens Inc. to the board of directors at its
meetings on July 26, 2000 and October 10, 2000, as to various financial
and other matters involving Lifemark and the transaction which the board
of directors deemed relevant, including, among things, (a) a review of
Lifemark's historical and projected financial performance and other data
provided to Stephens Inc. by Lifemark
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relating to Lifemark's business, (b) a review of UnitedHealth Group's
historical financial performance, and the views of Stephens Inc. on the
outlook for UnitedHealth Group in the future, (c) a review of the
historical stock prices and trading volumes of Lifemark common stock and
UnitedHealth Group common stock, (d) a review of the trading and
operating performance of certain publicly traded managed care companies,
(e) a review of certain transactions in the managed care industry, (f) a
review of premiums paid in certain other transactions, (g) a discounted
cash flow valuation of Lifemark, and (h) an analysis of the
consideration implied by the merger consideration as a multiple of
various measures of Lifemark's operating performance;
. the risks associated with remaining an independent company, particularly
given Lifemark's size and small market capitalization, including the
reliance on a relatively small number of significant customers, the
potential losses resulting from risk sharing arrangements, the
possibility of unfavorable changes in government reimbursement rates,
and increasing exposure to possible third party claims, as well as the
difficulties in obtaining the funds needed to execute management's
strategic growth plans;
. the historic volatility and relative lack of liquidity of Lifemark's
common stock;
. the board's belief that the combination of Lifemark and EverCare would
be extremely beneficial to both businesses, because of the shared values
and philosophies of the two organizations and the complementary nature
of Lifemark's and EverCare's business operations, including the fact
that the particular skills and experience of Lifemark management fulfill
a perceived need of EverCare, and that the expertise and assets of each
company could be applied to, and significantly enhance, the business of
the other;
. the board and management's belief that the merger would provide Lifemark
with additional revenue sources and expanded product offerings, as well
as much greater access to capital, and would significantly enhance its
ability to achieve its strategic goals;
. the tax and other potential effects on stockholders if UnitedHealth
Group exercised its election to pay cash in certain circumstances;
. the risks that the conditions to consummation of the merger might not be
satisfied and that it might take a significant length of time to
consummate the merger;
. the future of Lifemark's employees, management's view that UnitedHealth
Group is a very employee-focused organization, and management's belief
that the transaction was not being driven on UnitedHealth Group's part
by any opportunities for substantial employee-related cost savings; and
. the impact of the merger on existing options and employment agreements
with Lifemark personnel and the terms and conditions of the new
employment agreements to be entered into between UnitedHealth Group and
Lifemark's executive officers.
The discussion above addresses the material factors considered by the
Lifemark board of directors in its consideration of the merger. In view of the
variety of factors and the amount of information considered, the Lifemark board
did not find it practical to, and did not, make specific assessments of,
quantify or otherwise assign relative weights to the specific factors
considered in making its determination. The determination was made after
consideration of all of the factors as a whole. In addition, individual members
of the Lifemark board may have given different weights to the different
factors. For a discussion of the interests of certain members of Lifemark's
management and the Lifemark board of directors in the merger, see "--Interests
of Certain Persons in the Merger" below.
FOR THE REASONS DISCUSSED ABOVE, THE LIFEMARK BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT LIFEMARK
STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
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In considering the recommendation of Lifemark's board of directors with
respect to the merger agreement, you should be aware that certain directors and
officers of Lifemark may have certain interests in the merger that are
different from, or are in addition to, the interests of Lifemark stockholders
generally. Please see the section entitled "--Interests of Certain Persons in
the Merger" on page of this proxy statement/prospectus.
Opinion of Lifemark's Financial Advisor
The board of directors of Lifemark retained Stephens Inc. to act as its
financial advisor in connection with the proposed merger of a subsidiary of
UnitedHealth Group with and into Lifemark pursuant to the merger agreement.
Stephens delivered a written opinion, dated October 10, 2000, to the Board
of Directors of Lifemark to the effect that, as of such date and subject to the
qualifications set forth therein, the consideration to be received by the
stockholders of Lifemark in exchange for the shares of common stock of Lifemark
was fair from a financial point of view to the stockholders of Lifemark.
The full text of the fairness opinion of Stephens, dated October 10, 2000,
which sets forth the assumptions made, general procedures followed, factors
considered and limitations on the review undertaken by Stephens in rendering
its opinion, is attached as Annex C hereto and is incorporated herein by
reference. You should read this opinion in its entirety.
Stephens has consented to the use of its fairness opinion as an annex to
this proxy statement/prospectus. Stephens provided the fairness opinion to the
board of directors of Lifemark for its information, and the fairness opinion is
directed only to the fairness from a financial point of view of the
consideration to be received in exchange for the Lifemark common stock and does
not constitute a recommendation to any stockholder of Lifemark as to how any
stockholder should vote on the merger or any matter related thereto. The
summary of the fairness opinion set forth in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the fairness opinion.
In arriving at the fairness opinion, Stephens:
. reviewed certain publicly available financial statements and reports
regarding Lifemark and UnitedHealth Group;
. reviewed certain internal financial statements and other financial and
operating data (including financial projections) concerning Lifemark
prepared by the management of Lifemark;
. reviewed, on a pro forma basis, the effect of the merger;
. reviewed the reported prices and trading activity for Lifemark common
stock and UnitedHealth Group common stock;
. reviewed the financial terms, to the extent publicly available, of other
mergers that Stephens deemed to be relevant;
. reviewed the merger agreement and related documents;
. discussed with the management of Lifemark the operations of and future
business prospects for Lifemark and the anticipated financial
consequences of the transaction to Lifemark;
. assisted in deliberations regarding the material terms of the merger
agreement and the negotiations with UnitedHealth; and
. reviewed other analyses and performed other investigations and took into
account other matters that Stephens deemed appropriate.
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In preparing the fairness opinion, Stephens assumed and relied on the
accuracy and completeness of all information supplied or reviewed by it in
connection with its analysis of the transaction and has further relied on the
assurances of management of Lifemark that they are not aware of any facts that
would make this information inaccurate or misleading. Stephens has not assumed
any responsibility for independently verifying this information and has not
undertaken an independent evaluation or appraisal of any of the assets of
liabilities of Lifemark or UnitedHealth Group or been furnished with any
evaluation or appraisal, nor conducted a physical inspection of the properties
or facilities of Lifemark or UnitedHealth Group. With respect to the financial
projections furnished to or discussed with Stephens by Lifemark, Stephens
assumed that the financial projections were reasonably prepared and reflected
the best currently available estimates and judgment as to the expected future
financial performance of Lifemark, including after giving effect to the merger.
Stephens expressed no opinion as to these financial projections or the
assumptions on which they were based.
For purposes of rendering the fairness opinion, Stephens assumed, in all
respects material to its analysis, that the representations and warranties of
each party to the merger agreement and all related documents and instruments
contained therein were true and correct, that each party to these documents
would perform all of the covenants and agreements required to be performed by
each party under these documents and that all conditions to the consummation of
the merger would be satisfied without waiver thereof. Stephens assumed that in
the course of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the merger, no restrictions, including any
divestiture requirements or amendments or modifications, would be imposed that
would have a material adverse effect on the contemplated benefits of the
merger.
Stephens was not asked to consider, and the fairness opinion does not in any
manner address, the price at which Lifemark or UnitedHealth Group common stock
would trade following either the announcement or consummation of the merger.
The fairness opinion is necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated, as of the date of the
opinion.
Stephens noted that with a merger consideration of $10.55 of UnitedHealth
Group common stock for each outstanding share of Lifemark common stock, the
value of common equity, including the value of stock options, plus the amount
of assumed debt of Lifemark is approximately $66.9 million, representing 10.2x
and 5.7x Lifemark's earnings before taxes, depreciation and amortization, and
costs associated with software development and implementation for fiscal 2000
and the projected twelve month period ending November 30, 2000, respectively;
15.8x and 7.4x Lifemark's earnings before taxes and costs associated with
software development and implementation for fiscal 2000 and the projected
twelve month period ending November 30, 2000, respectively; and that the value
of common equity, including the value of stock options was approximately $63.0
million, representing 25.9x and 12.1x Lifemark's earnings for fiscal 2000 and
the projected twelve month period ending November 30, 2000, respectively.
The following is a summary of the material financial analyses used by
Stephens in connection with its presentation to the board of directors of
Lifemark on October 10, 2000, and the preparation of its fairness opinion.
Publicly Traded Company Analysis. Stephens analyzed certain publicly
available financial information, operating data and projected financial
performance (per research analyst estimates) of ten selected publicly traded
companies that Stephens believed to be appropriate for comparison to
corresponding financial information and operating data of Lifemark,
specifically, UnitedHealth Group, Wellpoint Health Network, Oxford Health
Plans, Inc., Foundation Health Systems, Humana, Inc., Trigon Healthcare, Inc.,
Pacificare Health Systems, Inc., Coventry Health Care, Inc., Mid Atlantic
Medical Services, Inc., and Rightchoice Managed Care, Inc. (collectively, the
"Public Comparables"). Stephens' analysis of the Public Comparables yielded
ratios of market value of common equity (as of October 6, 2000) ("Equity
Value") to the latest twelve month ("LTM") earnings ranging from 3.4x to 26.8x
with a median of 16.3x; Equity Value to projected fiscal 2000 earnings ranging
from 3.5x to 25.3x with a median of 17.2x; Equity Value plus total outstanding
debt ("Enterprise Value") to LTM earnings before taxes, depreciation and
amortization ("Operating Cash Flow") ranging from 3.1x to 14.3x with a median
of 8.6x; Enterprise Value to projected fiscal 2000 Operating Cash Flow ranging
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from 3.1x to 13.5x with a median of 9.7x; Enterprise Value to LTM earnings
before taxes ("Operating Income") ranging from 3.8x to 17.0x with a median of
11.7x; and Enterprise Value to projected fiscal 2000 Operating Income ranging
from 3.8x to 19.8x with a median of 11.5x.
Stephens derived a range of implied trading value of Lifemark common stock
of $6.38 to $8.30 per share based on a ratio of Equity Value to LTM earnings; a
range of $10.49 to $12.13 per share based on a ratio of Equity Value to
projected earnings for the twelve month period ending November 30, 2000; a
range of $8.25 to $10.31 per share based on a ratio of Enterprise Value to LTM
Operating Cash Flow; a range of $9.31 to $13.04 per share based on a ratio of
Enterprise Value to projected Operating Cash Flow for the twelve month period
ending November 30, 2000; a range of $7.36 to $8.70 per share based on a ratio
of Enterprise Value to LTM Operating Income; and a range of $9.94 to $12.78 per
share based on a ratio of Enterprise Value to projected Operating Income for
the twelve month period ending November 30, 2000.
Stock Price History. To provide contextual data and comparative market data,
Stephens examined the history of the trading prices for both Lifemark common
stock and UnitedHealth Group common stock for the two year period prior to
October 6, 2000. Stephens reviewed the daily closing prices of Lifemark common
stock and compared the performance of the price of Lifemark common stock to
that of the Nasdaq Composite Index and an index of the share prices of the
Public Comparables. Stephens also reviewed the daily closing prices of
UnitedHealth Group common stock and compared the performance of the price of
UnitedHealth Group common stock to that of the Standard and Poor's 500 Stock
Index and an index of the share prices of the Public Comparables (excluding
UnitedHealth Group). This information was presented solely to provide the Board
of Directors of Lifemark with background information regarding the prices of
Lifemark common stock and UnitedHealth Group common stock over the period
indicated.
Discounted Cash Flow Analysis. Stephens performed a discounted cash flow
analysis of Lifemark based upon estimates of projected financial performance
prepared by the management of Lifemark. Utilizing these projections, Stephens
calculated a range of implied equity value per share based upon the discounted
net present value of the sum of the projected stream of unlevered free cash
flows for the years ending May 31, 2001 to May 31, 2010 and a projected
terminal value at May 31, 2010 less debt outstanding as of August 31, 2000
divided by the number of Lifemark's fully-diluted shares outstanding. Stephens
applied several discount rates (ranging from 22.0% to 24.0%) and multiples of
Operating Cash Flow ranging from 6.0x to 8.0x to generate the terminal value.
Utilizing this methodology, the implied value per share of Lifemark common
stock ranged from $9.22 to $12.30 per share.
Precedent Transaction Analysis. Stephens analyzed the financial terms, to
the extent publicly available, of eight transactions involving businesses
comparable to that of Lifemark, which were announced since August 1, 1997. The
selected transactions include UnitedHealth Group's merger with Humana, Inc.
(subsequently terminated), CIGNA Corporation's acquisition of Healthsource,
Inc., Humana, Inc.'s acquisition of Physician's Corporation of America, Blue
Cross & Blue Shield of Kansas City's acquisition of Rightchoice Managed Care,
Inc., Coventry Corporation's acquisition of Principal Health Care, Inc.,
Foundation Health Systems, Inc.'s acquisition of Physician Health Services,
Inc., Humana, Inc.'s acquisition of ChoiceCare Corporation, and UICI's
acquisition of Healthplan Services Corporation (subsequently terminated).
Stephens' analysis of the selected transactions yielded a ratio of the price
paid for the common equity plus the assumed debt ("Total Transaction Value") to
the LTM revenue ranging from 0.3x to 1.0x with a median of 0.6x; a ratio of
Total Transaction Value to the LTM Operating Cash Flow ranging from 5.9x to
28.3x with a median of 14.7x; and a ratio of Total Transaction Value to the LTM
Operating Income ranging from 8.9x to 48.4x with a median of 21.8x.
Stephens derived a range of implied value of Lifemark common stock of $7.70
to $12.42 per share based on a ratio of Total Transaction Value to LTM revenue;
a range of $8.25 to $10.31 per share based on a ratio of Total Transaction
Value to LTM Operating Cash Flow; and a range of $8.70 to $10.71 per share
based on a ratio of Total Transaction Value to LTM Operating Income.
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The summary set forth above does not purport to be a complete description of
the analyses performed by Stephens but describes, in summary form, the
principal elements of the presentation made by Stephens to the Lifemark board
of directors on October 10, 2000. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by Stephens
was carried out in order to provide a different perspective on the transaction
and to add to the total mix of information available. Stephens did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching its conclusion, Stephens considered the results of
the analyses in light of each other and ultimately reached its opinion based on
the results of all analyses taken as a whole. Accordingly, notwithstanding the
separate factors summarized above, Stephens has indicated to Lifemark that it
believes that consideration of some of the analyses and factors considered,
without considering all analyses and factors, could create an incomplete or
inaccurate view of the evaluation process underlying the opinion. The analyses
performed by Stephens are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.
Fees. Stephens will receive a fee for its services to Lifemark. Pursuant to
a letter agreement between Lifemark and Stephens, Lifemark agreed to pay
Stephens $300,000 upon the rendering of a fairness opinion. In addition,
Lifemark engaged Stephens as its financial advisor in connection with the
proposed transaction and has agreed, if the merger is consummated, to pay
Stephens additional compensation in an amount that is reasonable and customary
for such services. Stephens will also be reimbursed for its out-of-pocket
expenses, including reasonable fees and expenses for its legal counsel. In
addition, Lifemark has agreed to indemnify Stephens for certain liabilities
related to or arising out of the engagement.
As part of Stephens' investment banking business, it regularly issues
fairness opinions and is continually engaged in the valuation of companies and
their securities in connection with business reorganizations, private
placements, negotiated underwritings, mergers and acquisitions and valuations
for estate, corporate and other purposes. In the ordinary course of business,
Stephens and its affiliates at any time may hold long or short positions, and
may trade or otherwise effect transactions as principal or for the accounts of
customers, in debt or equity securities or options on securities of Lifemark
and UnitedHealth Group.
Completion and Effectiveness of the Merger
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including approval and adoption of the merger
agreement by the stockholders of Lifemark. The merger will become effective
upon the filing of a Certificate of Merger with the State of Delaware.
We are working to complete the merger as quickly as possible. We hope to do
so by the end of , 2000. Because the merger is subject to government
approvals, however, we cannot predict the exact timing of its closing.
Operations following the Merger
Following the merger, Lifemark will continue its operations as a wholly
owned subsidiary of UnitedHealth Group. Upon consummation of the merger, the
current members of Lifemark's board of directors will resign, and the new
members will be designated by UnitedHealth Group. Unless UnitedHealth Group
elects to pay cash instead of shares of its common stock in exchange for
Lifemark shares, the stockholders of Lifemark will become shareholders of
UnitedHealth Group and their rights as shareholders will be governed by the
UnitedHealth Group second restated articles of incorporation, the UnitedHealth
Group amended and restated bylaws and the laws of the State of Minnesota. See
"Comparison of Rights of Shareholders of UnitedHealth Group and Lifemark."
Following the merger, current directors and executive officers of
UnitedHealth Group will continue to serve in their present capacities.
Information with respect to the business experience of UnitedHealth Group's
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directors and executive officers, compensation of UnitedHealth Group's
executive officers and certain relationships and related transactions involving
UnitedHealth Group's directors and executive officers, as well as information
with respect to UnitedHealth Group's voting securities and principal holders
thereof, is included in UnitedHealth Group's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, and definitive Proxy Statement for the
Annual Meeting of Shareholders held May 10, 2000, both of which are
incorporated by reference herein.
Interests of Certain Persons in the Merger
Certain executive officers and directors of Lifemark have interests in the
merger that are different from and in addition to their interests as Lifemark
stockholders generally. The Lifemark board of directors was aware of these
interests and considered them in approving the merger agreement.
Employment Agreements. UnitedHealth Group's obligation to complete the
merger is conditioned upon the execution of employment agreements by five
designated employees of Lifemark: Rhonda E. Brede, Lifemark's President and
Chief Executive Officer; Michael J. Kennedy, Lifemark's Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary; Richard M. Jelinek,
Lifemark's Executive Vice President; David G. Decker, Lifemark's Chief
Information Officer; and Mete Sahin, Lifemark's Vice President--Finance. In
addition, the parties expect UnitedHealth Group and Chuck Dow, Lifemark's
Senior Vice President--Health Program Services, to enter into an employment
agreement in connection with the merger. Each employment agreement will take
effect upon the effectiveness of the merger and will have an indefinite term,
but be terminable by either UnitedHealth Group or the individual on 45 days'
written notice. Each employment agreement provides for a base salary, payable
bi-weekly, and eligibility for participation in UnitedHealth Group's bonus plan
(up to 20%-30% of initial base salary), employee benefit plans, incentive
compensation plans, and stock option and grant plans. Each individual that
signs an employment agreement with UnitedHealth Group will received stock
options upon signing and, with the exception of Mr. Sahin and Mr. Dow, will
receive cash payments equal to approximately 15% of the individual's base
salary, payable in March 2001, and approximately 35% of the individual's base
salary, payable in December 2002, if the individual remains employed in good
standing with UnitedHealth Group at such times.
Each employment agreement (other than those for Messrs. Sahin and Dow)
contains provisions for the forgiveness over time of certain debt owed by the
individual to Lifemark under a promissory note. On December 31 of each year
during the term of the note, if the individual remains employed and in good
standing with UnitedHealth Group, payment of interest under the note will be
forgiven. On December 31 of each of the years 2003 through 2006, if the
individual remains employed and in good standing, UnitedHealth Group will
forgive 25% of the original principal amount of the note. UnitedHealth Group
will forgive the entire unpaid principal and accrued and unpaid interest if the
individual's employment is terminated due to death or disability. Each
employment agreement contains customary terms concerning the assignment of
property rights, nondisclosure of confidential information, non-disparagement
of UnitedHealth Group, non-solicitation of UnitedHealth Group employees and
non-competition with Ovations' and/or UnitedHealth Group's Medicare/Medicaid
business.
If one of the foregoing individuals is terminated without cause, that
individual will receive bi-weekly payments, for a period of twelve months,
equal to 1/26 of the sum of (1) the individual's annualized base salary (less
withholdings or deductions), plus (2) one-half of the total of certain bonus or
incentive compensation paid or payable for the two most recent calendar years,
or if the individual has been eligible for the bonus for less than the two
years, one-half of the last bonus or incentive payment paid or payable to the
individual. Upon termination following a change in control, the terminated
individual will receive, for a period of twelve months, bi-weekly payments
equal to 1/26 of the sum of (1) the individual's highest annualized base salary
during the two year period immediately preceding the termination (less
withholdings or deductions), plus (2) the greater of (a) all bonuses payable to
the individual, or (b) one-half of the total of certain bonus or incentive
compensation paid or payable for the two most recent calendar years, or if the
individual has been eligible for the bonus for less than the two years, one-
half of the last bonus or incentive payment paid or payable to the individual.
An
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<PAGE>
individual entitled to severance compensation will also receive a cash payment
equal to the portion of the premiums that UnitedHealth Group subsidized for
health, dental and group life benefits. In addition, for a one-year period,
UnitedHealth Group will pay for outplacement and job search services for that
individual. Mr. Kennedy's employment agreement provides for a one-time
election, upon 60 days notice, to terminate his employment for any reason
between the tenth and twelfth month of his employment. Upon such election,
Mr. Kennedy would receive the same severance compensation that he would receive
if he were terminated without cause.
Stock-Based Rights. In the merger, each outstanding option to purchase
shares of Lifemark common stock will be converted into an option to acquire, on
substantially the same terms and conditions as applied to the Lifemark option
(except that each UnitedHealth Group option issued in exchange for a Lifemark
option will be exercisable for the entire remaining term of the option, even if
the option holder ceases to be an employee or director of Lifemark or
UnitedHealth Group and, pursuant to the terms of the Lifemark options, each
previously unvested Lifemark option will be converted into a fully vested
UnitedHealth Group option), a number of shares of UnitedHealth Group common
stock to be determined by multiplying the number of shares of Lifemark common
stock subject to such option immediately prior to the merger by the exchange
ratio (calculated, if the cash payment election is made, based on the greater
of the average closing price or $80.00), rounded down to the nearest whole
share, at a price per share equal to the aggregate exercise price of such
option divided by the exchange ratio (calculated, if the cash payment election
is made, as described above) and rounded up to the nearest whole cent.
The following table sets forth information, as of October , 2000, with
respect to estimates of the numbers of Lifemark shares covered by options held
by Lifemark's directors and executive officers and the numbers of UnitedHealth
Group shares into which such options will be converted as a result of the
merger based on the market value of UnitedHealth Group common stock shortly
before the mailing of this proxy statement/prospectus:
<TABLE>
<CAPTION>
Name of Director or Shares Covered by Shares to be Covered by
Executive Officer Lifemark Options UnitedHealth Group Options
------------------- ----------------- --------------------------
<S> <C> <C>
Rhonda E. Brede.............. 260,000 26,123
William G. Brown............. 75,000 7,535
Richard C. Jelinek........... 30,000 3,014
Henry H. Kaldenbaugh......... 30,000 3,014
Risa Lavizzo-Mourey.......... 75,000 7,535
John G. Lingenfelter......... 30,000 3,014
Michael J. Kennedy........... 127,000 12,760
David G. Decker.............. 75,000 7,535
Richard M. Jelinek........... 208,823 20,981
</TABLE>
Exercise of Warrants and Conversion of Debt. The merger is conditioned upon
the William Gardner Brown GST Trust, established by William G. Brown, a
director of Lifemark, exercising certain warrants held by it to purchase
Lifemark common stock and converting certain notes held by it into Lifemark
common stock. In exchange for the exercise of the warrants and the conversion
of the notes before the end of their respective terms, Lifemark will pay the
William Gardner Brown GST Trust $96,000.
Indemnification and Insurance
The merger agreement provides that UnitedHealth Group will, for a period of
six years after the completion of the merger, cause Lifemark to indemnify and
hold harmless the present and former officers and directors of Lifemark and its
subsidiaries in each case to the fullest extent such person is permitted to be
indemnified under applicable law, Lifemark's certificate of incorporation or
bylaws, or certain indemnification agreements to which Lifemark is a party, in
each case as in effect on October 10, 2000. The merger agreement also provides
that, for six years after the completion of the merger, UnitedHealth Group will
maintain Lifemark's policies of directors' and officers' liability insurance or
substitute comparable policies.
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<PAGE>
Lifemark Common Stock Ownership
The following table sets forth, as of October 25, 2000, information
regarding the beneficial ownership of Lifemark common stock by certain of
Lifemark's directors and executive officers, by all directors and executive
officers of Lifemark as a group, and by each person known by Lifemark to be the
beneficial owner of 5% or more of the outstanding common stock of Lifemark. The
address of all of the persons named or identified below, except Michael D.
Hernandez and Hollybank Investments, LP, is c/o Lifemark Corporation, 7600
North 16th Street, Suite 150, Phoenix, Arizona 85020.
<TABLE>
<CAPTION>
Shares Percent of
Name Beneficially Owned Common Stock
---- ------------------ ------------
<S> <C> <C>
Rhonda E. Brede.................... 275,845(1) 5.2
William G. Brown................... 257,842(1)(2) 4.9
Richard C. Jelinek................. 814,520(1)(2)(3) 15.5
Henry H. Kaldenbaugh............... 521,703(1) 10.1
Risa Lavizzo-Mourey................ 77,715(1) 1.5
John G. Lingenfelter............... 436,718(1) 8.4
Michael J. Kennedy................. 214,997(1) 4.1
David G. Decker.................... 72,877(1) 1.4
Richard M. Jelinek(4).............. 276,148(1) 5.1
Michael D. Hernandez(5)............ -- --
Hollybank Investments, LP.......... 596,347(6) 11.6
All directors and executive
officers as a group (10 persons).. 2,790,443(1)(2)(3) 47.3
</TABLE>
--------
(1) Includes 150,000, 56,250, 11,250, 11,250, 37,500, 11,250, 127,000, 42,500,
208,823, and 855,823 shares covered by options held by Ms. Brede, Mr.
Brown, Richard C. Jelinek, Dr. Kaldenbaugh, Dr. Lavizzo-Mourey, Dr.
Lingenfelter, Mr. Kennedy, Mr. Decker, Richard M. Jelinek, and all
directors and executive officers as a group, respectively, which were
exercisable within sixty days of October 25, 2000. These amounts also
include 90,000, 60,000, 60,000 and 25,000 shares of stock pledged by Ms.
Brede, Mr. Kennedy, Richard M. Jelinek and Mr. Decker, respectively, to
Lifemark as security for payment pursuant to loans made by Lifemark in
connection with the acquisition of such shares pursuant to the exercise of
stock options.
(2) Includes 77,922 shares which may be acquired upon conversion of $300,000
in principal amount of a Convertible Note of Lifemark and 10,000 shares
covered by a currently exercisable stock purchase warrant. Each of the
Convertible Note, the Stock Purchase Warrant and an additional 70,000
shares are held by a trust created by Mr. Brown for the benefit of members
of his family, of which Mr. Jelinek is one of the co-trustees.
(3) Includes 1,635, 25,333, 2,135 and 809 shares owned by the spouses of Ms.
Brede, Richard C. Jelinek, Dr. Lavizzo-Mourey and Dr. Lingenfelter,
respectively.
(4) Richard M. Jelinek is the son of Richard C. Jelinek.
(5) The address of Michael D. Hernandez is 770 Park Avenue, New York, New York
10021.
(6) Represents shares as of June 5, 2000, as reported on Form 4. Except to the
extent of his interest as a limited partner of Hollybank Investments, LP,
Dorsey R. Gardner, the general partner of Hollybank Investments, LP,
disclaims beneficial ownership with respect to all of the shares for all
purposes other than for reporting purposes on Schedule 13G. The address of
Hollybank Investments, LP is One Financial Center, Suite 1600, Boston,
Massachusetts, 02111.
Regulatory Matters
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, which prevents certain acquisitions from
being completed until required information and materials
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<PAGE>
are furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and certain waiting periods are terminated or expire.
Lifemark and UnitedHealth Group expect the applicable waiting periods to expire
at 11:59 p.m. on November 11, 2000 unless extended by a second request for
information. If the waiting period under the Hart-Scott-Rodino Act expires or
is terminated, the parties may close the merger at any time within one year
from the termination of the waiting period without having to file updated
materials with the Department of Justice or Federal Trade Commission.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may, however, challenge the merger on antitrust grounds either
before or after expiration of the waiting period. Private parties could take
action under the antitrust laws, including seeking an injunction prohibiting or
delaying the merger, divestiture or damages. Additionally, at any time before
or after the completion of the merger, notwithstanding expiration or
termination of the applicable waiting period, any state could take action under
its antitrust laws as it deems necessary or desirable in the public interest.
There can be no assurance that a challenge to the merger will not be made or
that, if a challenge is made, Lifemark and UnitedHealth Group will prevail.
The closing of the merger is conditioned upon receipt by Lifemark and
UnitedHealth Group of consents from the Arizona Health Care Cost Containment
System Administration. Neither Lifemark nor UnitedHealth Group is aware of any
other material governmental or regulatory approval required for completion of
the merger.
Certain Federal Income Tax Considerations
The following is a summary of the material anticipated U.S. federal income
tax considerations relevant to the exchange of shares of Lifemark common stock
pursuant to the merger for either UnitedHealth Group common stock or cash (if
UnitedHealth Group exercises its cash payment election) that are generally
applicable to Lifemark stockholders who hold Lifemark common stock as a capital
asset. This summary is based on existing provisions of the Internal Revenue
Code of 1986, as amended, existing and proposed Treasury regulations, and
current administrative rulings and court decisions, all of which are subject to
change at any time, possibly with retroactive effect. Any such change could
alter the tax consequences described below.
Lifemark stockholders should be aware that this discussion does not deal
with all federal income tax consequences that may be relevant to particular
Lifemark stockholders in light of their particular facts and circumstances.
Furthermore, this discussion does not address the tax consequences to Lifemark
stockholders subject to special treatment under United States federal income
tax law, including, for example, foreign persons, financial institutions,
dealers in securities, insurance companies, tax-exempt entities, holders who
acquired their Lifemark common stock pursuant to the exercise of employee stock
options or otherwise as compensation, and holders who hold Lifemark common
stock as part of a hedge, straddle, or conversion transaction. This summary
does not purport to be a complete analysis of all potential tax effects of the
merger and any transactions effectuated in conjunction with the merger. No
information is provided herein with respect to the tax consequences, if any, of
the merger under state, local, or foreign tax laws.
LIFEMARK STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
Consequences if the Cash Payment Election is Not Exercised
If UnitedHealth Group does not exercise its cash payment election, Lifemark
stockholders will receive UnitedHealth Group common stock in exchange for their
Lifemark common stock (plus cash in lieu of any fractional shares to which they
would otherwise be entitled). Subject to the limitations and qualifications set
forth below, the merger (within the limitations noted in the introductory
paragraphs of this section above) will generally result in the following U.S.
federal income tax consequences:
. The merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and Lifemark, UnitedHealth
Group, and Leo Acquisition Corp. will each be a party to the
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code;
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<PAGE>
. Neither Lifemark nor UnitedHealth Group will recognize income, gain, or
loss as a result of the consummation of the merger;
. No gain or loss will be recognized by holders of Lifemark common stock
upon their exchange of Lifemark common stock for UnitedHealth Group
common stock in the merger (except to the extent of cash received in
lieu of a fractional share of UnitedHealth Group common stock, as
described below);
. The aggregate tax basis of the UnitedHealth Group common stock received
by Lifemark stockholders in the merger, including any fractional shares
deemed received as described below, will be the same as the aggregate
tax basis of the Lifemark common stock surrendered in exchange therefor;
. The holding period of the UnitedHealth Group common stock received by
each Lifemark stockholder in the merger will include the period for
which the Lifemark common stock surrendered in exchange therefor was
considered to be held, provided that the Lifemark common stock so
surrendered is a capital asset in the hands of the Lifemark stockholder
at the time of the merger; and
. A cash payment received by a holder of Lifemark common stock in lieu of
a fractional share of UnitedHealth Group common stock will generally be
treated as received in redemption of such fractional share interest, and
a Lifemark stockholder will generally recognize gain or loss, which gain
or loss will be capital gain or loss provided the Lifemark common stock
was a capital asset in the hands of the Lifemark stockholder at the time
of the merger. For U.S. federal income tax purposes, the gain or loss is
measured by the difference between the amount of cash received and the
portion of the tax basis of the share of Lifemark common stock allocable
to such fractional share interest.
The parties have not requested and will not request a ruling from the
Internal Revenue Service regarding the tax consequences of the merger. If the
cash payment election is not exercised, the consummation of the merger will be
contingent upon the receipt by Lifemark of an opinion from Bell, Boyd & Lloyd
LLC, its outside legal counsel, or from Dorsey & Whitney LLP, UnitedHealth
Group's outside legal counsel, to the effect that the merger will constitute a
reorganization within the meaning of the Internal Revenue Code. Lifemark
stockholders should be aware that the tax opinion does not bind the Internal
Revenue Service and the Internal Revenue Service is therefore not precluded
from successfully asserting a contrary opinion. The tax opinion will be subject
to certain assumptions and qualifications, including, but not limited to the
truth and accuracy of certain representations made by Lifemark and UnitedHealth
Group.
Consequences if Cash Payment Election is Exercised
If UnitedHealth Group exercises its cash payment election, the merger will
be treated for federal income tax purposes as a taxable sale or exchange of
common stock for cash by each Lifemark stockholder. Accordingly, the federal
income tax consequences to the Lifemark stockholders if UnitedHealth Group
exercises its cash payment election (within the limitations noted in the
introductory paragraphs of this "Certain Federal Income Tax Considerations"
section) will generally be as follows:
. The stockholders may recognize a capital gain or loss by reason of the
disposition of their shares of common stock pursuant to the merger;
. The capital gain or loss, if any, will be long-term with respect to
shares of the Lifemark common stock held for more than 12 months as of
the date of the merger; and
. The amount of capital gain or loss to be recognized by each stockholder
will be measured by the difference between the amount of cash received
by such stockholder in connection with the merger and such stockholder's
tax basis in the common stock on the date of the merger.
Cash payments made pursuant to the merger will be reported to the extent
required by the Internal Revenue Code to Lifemark stockholders and to the
Internal Revenue Service. Such amounts will ordinarily not be subject to
withholding of U.S. federal income tax. However, backup withholding of such tax
at a rate of 31% may apply to certain stockholders by reason of the events
specified in Section 3406 of the Internal
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<PAGE>
Revenue Code and the Treasury regulations promulgated thereunder, which include
failure of a stockholder to supply Lifemark or its agent with such
stockholder's taxpayer identification number. Accordingly, Lifemark
stockholders will be asked to provide their correct taxpayer identification
numbers on Substitute Forms W-9, which should be included in the appropriate
letter of transmittal for the Lifemark stock. Withholding may also apply to
Lifemark stockholders who are otherwise exempt from such withholding, such as
foreign persons, if such stockholders fail to properly document their status as
exempt recipients.
Accounting Treatment
The merger will be accounted for by UnitedHealth Group using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their fair market values at the date of the acquisition. The results
of operations and cash flows of UnitedHealth Group after the merger will not
include the operations of Lifemark prior to the Effective Date.
Dissenters' or Appraisal Rights
Unless UnitedHealth Group elects to pay cash in lieu of shares of its common
stock, you will not be entitled to exercise dissenter's or appraisal rights as
a result of the merger or to demand payment in cash for your shares under
Delaware law. In order to exercise your appraisal rights if UnitedHealth Group
makes the cash payment election, you must follow the requirements of Delaware
law. Under these requirements, you must notify Lifemark of your intent to
exercise your appraisal rights before the merger closes and before it is known
whether UnitedHealth Group will make the cash payment election. See "Appraisal
Rights for Lifemark Stockholders" beginning on page .
Restrictions on Sale of Shares by Affiliates of Lifemark and UnitedHealth Group
The shares of UnitedHealth Group common stock to be received by Lifemark's
stockholders in connection with the merger will be freely transferable, except
for shares of UnitedHealth Group common stock issued to any person who is
deemed to be an affiliate of either Lifemark or UnitedHealth Group at the time
of the special meeting. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
control of either of Lifemark or UnitedHealth Group and may include the
executive officers and directors, as well as the principal stockholders, of
both companies. Affiliates may not sell their shares of UnitedHealth Group
common stock acquired in connection with the merger except pursuant to:
. an effective registration statement under the Securities Act of 1933
covering the resale of those shares;
. in accordance with paragraph (d) of Rule 145 under the Securities Act;
or
. any other applicable exemption under the Securities Act.
The merger agreement requires Lifemark to cause each of its affiliates to
execute a written agreement to the effect that such person will not offer or
sell or otherwise dispose of any of the shares of UnitedHealth Group common
stock issued to such person in or pursuant to the merger except in compliance
with the Securities Act and the rules and regulations promulgated by the
Securities and Exchange Commission thereunder. This proxy statement/prospectus
may not be used in connection with the resale of shares of UnitedHealth Group
common stock received in the merger by affiliates of Lifemark.
Stock Market Listing
An application will be filed for listing the shares of UnitedHealth Group
common stock to be issued in the merger on the New York Stock Exchange. If the
merger is completed, Lifemark common stock will be delisted from the Nasdaq
National Market and will be deregistered under the Securities Exchange Act of
1934.
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<PAGE>
THE MERGER AGREEMENT
The following is a summary of certain aspects of the merger agreement. This
summary does not purport to be complete and is qualified in its entirety by
reference to the complete text of the merger agreement, which is incorporated
by reference and attached to this proxy statement/prospectus as Annex A.
Structure of the Merger and Conversion of Lifemark Common Stock
In accordance with the merger agreement and Delaware law, Leo Acquisition
Corp., a newly formed, wholly owned subsidiary of UnitedHealth Group, will be
merged with and into Lifemark. As a result of the merger, the separate
corporate existence of Leo Acquisition Corp. will cease and Lifemark will
survive as a wholly owned subsidiary of UnitedHealth Group.
Upon completion of the merger, each outstanding share of Lifemark common
stock, other than shares held by Lifemark as treasury stock or by UnitedHealth
Group or their respective subsidiaries, will be canceled and converted into the
right to receive either UnitedHealth Group common stock or cash. Unless
UnitedHealth Group makes the cash payment election described below, for each
share of Lifemark common stock you own, you will receive a number of shares of
UnitedHealth Group common stock based on the average closing price per share of
UnitedHealth Group common stock on the New York Stock Exchange for the ten
consecutive trading days ending with and including the second business day
before the closing date of the merger. If the average closing price is:
. $95.00 or more, for each share of Lifemark common stock you own, you
will receive a number of shares of UnitedHealth Group common stock equal
to $10.55 divided by the average closing price (or $113.00, whichever is
less);
. $88.00 or less, and UnitedHealth Group does not make the cash payment
election described below, for each share of Lifemark common stock you
own, you will receive a number of shares of UnitedHealth Group common
stock equal to $10.08 divided by the average closing price; and
. greater than $88.00, but less than $95.00, for each share of Lifemark
common stock you own, you will receive a number of shares of
UnitedHealth Group common stock equal to a fraction, the numerator of
which is $10.08 plus (1) the product of (a) $0.47 and (b) the difference
between the average closing price and $88.00, divided by (2) $7.00, and
the denominator of which is the average closing price. The numerator
derived above will be an amount between $10.08 and $10.55.
If the average closing price as described above is less than $88.00,
UnitedHealth Group may elect to pay cash rather than shares of its common stock
in the merger. If UnitedHealth Group makes this cash payment election, you will
receive $10.08 in cash per share of Lifemark common stock. UnitedHealth Group
common stock is traded on the New York Stock Exchange under the trading symbol
"UNH." On November , 2000, UnitedHealth Group common stock closed at $
per share. We believe the merger offers significant value to our stockholders.
The number of shares of UnitedHealth Group common stock issuable in the
merger will be proportionately adjusted for any stock split, stock dividend or
similar event with respect to UnitedHealth Group common stock effected between
the date of the merger agreement and the completion of the merger. UnitedHealth
Group has declared a two for one stock split payable on December 22, 2000 to
shareholders of record on December 1, 2000. If the merger is completed after
the record date of the stock split, the exchange ratio will be doubled to
adjust for the stock split. The calculation of the exchange ratio for Lifemark
options and the terms governing the availability of UnitedHealth Group's cash
payment election will be similarly adjusted.
No fractional shares of UnitedHealth Group common stock will be issued in
connection with the merger. Instead, you will receive an amount of cash
(rounded to the nearest whole cent) in lieu of a fraction of a share of
UnitedHealth Group common stock equal to the product of such fraction
multiplied by the closing price for a share of UnitedHealth Group common stock
on the New York Stock Exchange on the last full trading day prior to the
effective time of the merger.
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<PAGE>
The following examples illustrate how the number of shares of UnitedHealth
Group common stock to which a Lifemark stockholder will be entitled will vary
based on changes in the average closing price of UnitedHealth Group common
stock.
(1) If the average closing price is $86.00, a person holding 100
shares of Lifemark common stock will be entitled to receive 11 shares of
UnitedHealth Group common stock*:
$10.08/$86.00 = 0.1172093 X 100 = 11.72093 = 11
* Because the average closing price is below $88.00, UnitedHealth Group
may elect to pay the shareholder cash in the amount of $10.08 per share of
Lifemark stock, rather than shares of UnitedHealth Group common stock.
If the merger is completed after the record date of the two-for-one
stock split, the exchange ratio will be doubled, to 0.2344186 (instead of
0.1172093).
Instead of a fraction of a share, the Lifemark stockholder will receive
an amount of cash equal to 0.72093 multiplied by the closing price of
UnitedHealth Group common stock on the New York Stock Exchange on the last
full trading day prior to the completion of the merger.
(2) If the average closing price is $90.00, a person holding 100
shares of Lifemark common stock will still be entitled to receive 11 shares
of UnitedHealth Group common stock:
<TABLE>
<CAPTION>
$10.08 + $0.47
[($90.00 -
$88.00)/$7.00)]
<S> <C>
= 0.113492 X 100 = 11.3492 = 11
$90.00
</TABLE>
If the merger is completed after the record date of the two-for-one
stock split, the exchange ratio will be doubled, to 0.226984 (instead of
0.113492).
Instead of a fraction of a share, the Lifemark stockholder will receive
an amount of cash equal to 0.3492 multiplied by the closing price of
UnitedHealth Group common stock on the New York Stock Exchange on the last
full trading day prior to the completion of the merger.
(3) If the average closing price is $115.00, a person holding 100
shares of Lifemark common stock will be entitled to receive 9 shares of
UnitedHealth Group common stock:
$10.55/$113.00** = 0.0933628 X 100 = 9.33628 = 9
** For purposes of calculating the exchange ratio, the average closing
price may not exceed $113.00.
If the merger is completed after the record date of the two-for-one
stock split, the exchange ratio will be doubled, to 0.1867256 (instead of
0.0933628).
Instead of a fraction of a share, the Lifemark stockholder will receive
an amount of cash equal to 0.33628 multiplied by the closing price of
UnitedHealth Group common stock on the New York Stock Exchange on the last
full trading day prior to the completion of the merger.
Treatment of Lifemark Stock Options
At the effective time, each outstanding option granted by Lifemark to
purchase shares of Lifemark common stock, whether vested or unvested, will be
assumed by UnitedHealth Group and converted into an option to acquire, on
substantially the same terms and conditions as applied to the Lifemark option
(except that
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<PAGE>
each UnitedHealth Group option issued in exchange for a Lifemark option will be
exercisable for the entire remaining term of the option, even if the option
holder ceases to be an employee or director of Lifemark or UnitedHealth Group
and, pursuant to the terms of the Lifemark options, each previously unvested
Lifemark option will be converted into a fully vested UnitedHealth Group
option), a number of shares of UnitedHealth Group common stock equal to the
number of shares of Lifemark common stock that were issuable upon exercise of
such option immediately prior to the effective time of the merger multiplied by
the exchange ratio (calculated, if the cash payment election is made, based on
the greater of the average closing price or $80.00) and rounded down to the
nearest whole number of shares. The per share exercise price of such
UnitedHealth Group stock options will equal the exercise price per share at
which the Lifemark stock option was exercisable immediately prior to the
effective time of the merger divided by the exchange ratio (calculated, if the
cash payment election is made, as set forth above, and rounded up to the
nearest whole cent). UnitedHealth Group has agreed to cause the UnitedHealth
Group common stock issuable upon exercise of the UnitedHealth Group stock
options to be listed on the New York Stock Exchange. Within five business days
following the effective time, UnitedHealth Group will file a registration
statement on Form S-8 with the Securities and Exchange Commission with respect
to the UnitedHealth Group common stock underlying such UnitedHealth Group stock
options.
Exchange of Lifemark Stock Certificates for UnitedHealth Group Stock
Certificates
Within ten business days after the merger is completed, Wells Fargo Bank
Minnesota, N.A., UnitedHealth Group's transfer agent and exchange agent for the
merger, will mail to you a letter of transmittal and instructions for
surrendering your Lifemark stock certificates in exchange for UnitedHealth
Group stock certificates or, if the cash payment election is made, in exchange
for cash. When you deliver your Lifemark stock certificates to the exchange
agent along with a properly executed letter of transmittal and any other
required documents, your Lifemark stock certificates will be cancelled and you
will receive UnitedHealth Group stock certificates representing the number of
whole shares of UnitedHealth Group common stock, and cash in lieu of fractional
shares, to which you are entitled under the merger agreement or, if the cash
payment election is made, cash as provided under the merger agreement.
YOU SHOULD NOT SUBMIT YOUR STOCK CERTIFICATES FOR
EXCHANGE UNTIL YOU HAVE RECEIVED
THE LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE
If the cash payment election is not made, you will be entitled to receive
dividends or other distributions on UnitedHealth Group common stock with a
record date after the merger is completed, but only after you have surrendered
your Lifemark stock certificates in exchange for UnitedHealth Group stock
certificates. If there is any dividend or other distribution on UnitedHealth
Group common stock with a record date after the merger, you will receive the
dividend or distribution promptly after the later of the date that your
UnitedHealth Group shares are issued to you or the date the dividend or other
distribution is paid to all UnitedHealth Group shareholders.
UnitedHealth Group will issue a UnitedHealth Group stock certificate or a
check in lieu of a fractional share in a name other than the name in which a
surrendered Lifemark stock certificate is registered only if you present the
exchange agent with all documents required to show and effect the unrecorded
transfer of ownership and show that you paid any applicable stock transfer
taxes.
Representations and Warranties
Lifemark and UnitedHealth Group each made a number of representations and
warranties in the merger agreement regarding our authority to enter into the
merger agreement and to consummate the other transactions contemplated by the
merger agreement, and with regard to aspects of our business, financial
condition, structure and other facts pertinent to the merger. The
representations and warranties will have no legal force or effect after the
merger has been completed.
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The representations given by Lifemark cover the following topics as they
relate to Lifemark and its subsidiaries:
. Lifemark's organization, qualification and power to do business;
. Lifemark's ownership of its subsidiaries;
. capitalization of Lifemark;
. no conflict with charter documents, certain contracts or applicable law;
. required filings and consents;
. Lifemark's filings and reports with the Securities and Exchange
Commission;
. Lifemark's financial statements;
. changes in Lifemark's business since May 31, 2000;
. litigation involving Lifemark;
. Lifemark's title to the properties it owns and leases;
. matters relating to material contracts;
. Lifemark's compliance with applicable laws;
. intellectual property used and owned by Lifemark;
. Lifemark's taxes;
. matters relating to Lifemark's employees;
. Lifemark's employee benefit plans;
. environmental laws that apply to Lifemark;
. Lifemark's insurance;
. Lifemark's compliance with the Foreign Corrupt Practices Act;
. finders or brokers for the merger;
. authorization and recommendation by the Lifemark board of directors of
the merger;
. the vote required of the Lifemark stockholders to approve the merger;
. opinion of Lifemark's financial advisor;
. ability to treat the merger as a tax-free reorganization;
. the inapplicability of state anti-takeover statutes to the merger; and
. information supplied by Lifemark in this proxy statement/prospectus and
the related registration statement of UnitedHealth Group.
The representations given by UnitedHealth Group and Leo Acquisition Corp.
cover the following topics as they relate to UnitedHealth Group, Leo
Acquisition Corp. and UnitedHealth Group's other subsidiaries:
. organization, qualification and power to do business;
. capitalization of UnitedHealth Group;
. no conflict with charter documents, certain contracts or applicable law;
. UnitedHealth Group's filings and reports with the Securities and
Exchange Commission;
. UnitedHealth Group's financial statements;
. changes in UnitedHealth Group's business since June 30, 2000;
. litigation involving UnitedHealth Group;
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. finders or brokers for the merger;
. ability to treat the merger as a tax-free reorganization; and
. information supplied by UnitedHealth Group and Leo Acquisition Corp. in
this proxy statement/prospectus and the related registration statement
of UnitedHealth Group;
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the sections in the
merger agreement under the headings "Representations and Warranties of the
Company" and "Representations and Warranties of Merger Sub and Parent."
Concept of Material Adverse Effect
Many of the representations and warranties contained in the merger agreement
are qualified by the concept of "material adverse effect." This concept also
applies to some of the covenants and conditions to the merger described under
"--Conditions to the Merger" below, as well as to termination of the merger
agreement for breaches of representations and warranties as described under "--
Termination of the Merger Agreement." For purposes of the merger agreement, the
concept of "material adverse effect" means any change, effect, event or
condition that has a material adverse effect on the assets, business, results
of operations or financial condition or prospects of Lifemark or UnitedHealth
Group, as the case may be, taken as a whole with their respective subsidiaries,
or would prevent or materially delay the ability of Lifemark or UnitedHealth
Group to complete the merger.
Lifemark's Conduct of Business before Completion of the Merger
Lifemark agreed that, until termination of the merger agreement or the
completion of the merger, or unless UnitedHealth Group consents in writing,
Lifemark and its subsidiaries will operate its businesses consistent with past
practices, and will use reasonable efforts to preserve its business
organization, keep available the services of its officers and employees and
maintain satisfactory relationships with suppliers, distributors and customers.
Further, Lifemark agreed not to take any action which would adversely affect
the ability of the parties to complete the merger. Lifemark also agreed that,
until the completion of the merger or unless UnitedHealth Group consents in
writing, Lifemark and its subsidiaries will conduct their businesses in
compliance with specific restrictions or prohibitions relating to the
following:
. modification of Lifemark's certificate of incorporation or bylaws;
. the issuance of securities, except for issuances in connection with
Lifemark's outstanding stock options, employee stock purchase plan,
warrants and convertible notes;
. modification of existing capital stock;
. the incurrence of indebtedness other than in the ordinary course;
. employee benefits and severance arrangements;
. entrance into or modification of material contracts;
. disposition of property or assets other than in the ordinary course of
business;
. acquisition of substantial assets or equity in another business entity,
except as otherwise agreed;
. alteration of the corporate structure of Lifemark or its subsidiaries;
. authorization of any material capital expenditures not reflected in the
budget previously provided to UnitedHealth Group;
. change in accounting methods;
. elections under United States or foreign tax laws;
. settlement of any legal actions requiring payment in excess of $50,000;
and
. payment of any claims other than in the ordinary course of business.
The agreements related to the conduct of Lifemark's business in the merger
agreement are complicated and not easily summarized. You are urged to carefully
read the sections in the merger agreement under the heading "Covenants and
Agreements."
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No Solicitation of Transactions
Until the merger is completed or the merger agreement is terminated,
Lifemark has agreed, subject to limited exceptions, that it will not, nor will
it permit any of its subsidiaries to, nor will it authorize or permit any of
its officers, directors or employees or any investment bankers, attorneys or
other agents or representatives retained by or acting on behalf of Lifemark to,
whether directly or indirectly:
. initiate, solicit or encourage, directly or indirectly, any inquiries or
acquisition proposals (as described below);
. engage or participate in negotiations or discussions with, or furnish
any information or data to, or facilitate any inquiries or proposals by,
a third party relating to an acquisition proposal; or
. enter into any agreement with respect to an acquisition proposal or
approve an acquisition proposal.
However, prior to the special meeting, Lifemark may engage in any of these
acts otherwise prohibited, other than solicitation, initiation or encouragement
of any acquisition proposal, if:
. a majority of Lifemark's board of directors who are disinterested with
respect to the unsolicited proposal determines in good faith, after
receiving advice from its independent financial advisor, that Lifemark
has received a superior proposal; and
. a majority of Lifemark's disinterested directors determines in good
faith, after receiving advice from its outside legal counsel, that if
Lifemark failed to participate in discussions or negotiations, or to
furnish information, there would be a substantial probability that the
board would violate its fiduciary duties under applicable law.
Additionally, Lifemark's board of directors is not prohibited from taking
and disclosing to Lifemark's stockholders a position with respect to a tender
offer, pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities
Exchange Act, after receiving advice from its outside legal counsel that such
disclosure is required by applicable law. Lifemark has agreed to provide
UnitedHealth Group with detailed information about any acquisition proposal it
receives.
An acquisition proposal is any proposal made by a party other than
UnitedHealth Group to acquire 15% or more of the assets, or 15% or more of the
outstanding capital stock, of Lifemark or any of its subsidiaries. A superior
proposal is an acquisition proposal to acquire 50% or more of the outstanding
capital stock, or substantially all of the assets, of Lifemark or any of its
subsidiaries on terms that the Lifemark board determines, in good faith, with
advice from an independent financial advisor, to be more favorable to Lifemark
and its stockholders than the terms of the merger with UnitedHealth Group.
For purposes of the foregoing, any violation of the restrictions described
above by any director or officer of Lifemark or any of its subsidiaries, or any
financial advisor, attorney or other advisor or representative of Lifemark,
whether or not such person is purporting to act on behalf of Lifemark or any of
its subsidiaries, is deemed to be a breach of the relevant restriction by
Lifemark.
Conditions to the Merger
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of certain conditions. If either UnitedHealth Group or
Lifemark waives any conditions, Lifemark will consider the facts and
circumstances at that time and make a determination as to whether a
resolicitation of proxies from Lifemark stockholders is appropriate. The
following conditions, among others, must be satisfied or waived before the
completion of the merger:
. the merger agreement must be approved by Lifemark's stockholders;
. no action or proceeding by a governmental entity seeking to prevent the
merger or asserting its illegality may be in effect;
. this registration statement must be effective under the Securities Act,
and not be the subject of any stop order or pending or threatened
proceeding seeking a stop order;
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. all necessary governmental and other third party consents must be
obtained, including expiration or termination of the applicable waiting
periods under U.S. antitrust laws;
. our respective representations and warranties in the merger agreement
must be true and correct, with certain exceptions;
. we must comply with our respective obligations in the merger agreement;
. if the cash payment election is not made, Lifemark must receive an
opinion of its tax counsel to the effect that the merger will qualify as
a tax-free reorganization;
. The William Gardner Brown GST Trust, established by William G. Brown, a
director of Lifemark, must have exercised in full its warrants to
purchase Lifemark common stock and converted in full its notes
convertible into Lifemark common stock in exchange for a payment by
Lifemark of not more than $96,000;
. arrangements must have been made to repay Lifemark's outstanding
indebtedness to Imperial Bank and release the security interest of
Imperial Bank in assets of Lifemark;
. arrangements must have been made to release the security interest of
Wells Fargo Equipment Finance, Inc., in certain assets of Lifemark;
. if dissenters' rights apply, holders of no more than 10% of the shares
of Lifemark common stock must have exercised their dissenters' rights;
. certain employees of Lifemark must have entered into employment
agreements with UnitedHealth Group;
. since the date of the merger agreement, there must not have been a
material adverse effect, or any change, event or condition that would
reasonably be expected to result in a material adverse effect, with
respect to UnitedHealth Group or Lifemark.
Termination of the Merger Agreement
The merger agreement may be terminated by mutual consent, or by either
UnitedHealth Group or Lifemark under certain circumstances, at any time before
the completion of the merger, as summarized below:
. if the merger is not completed by March 31, 2001 (without the fault of
the terminating party);
. if Lifemark's stockholders do not approve and adopt the merger agreement
at the special meeting;
. if a governmental restraint prohibiting the merger is issued and is not
appealable; or
. if Lifemark commits to or enters into an acquisition proposal from a
third party which Lifemark's board of directors determines in good faith
to be superior to the terms of the merger with UnitedHealth Group, and
UnitedHealth Group has not, within four business days of receiving
notice of such proposal, proposed comparable amendments to the merger
agreement.
The merger agreement may be terminated by UnitedHealth Group:
. if Lifemark has materially breached any of its representations and
warranties or failed to perform any of its covenants and the breach or
failure to perform has not been cured within 30 days following receipt
of notice of the breach; or
. if Lifemark's board of directors or any of its committees withdraws or
modifies, in a manner adverse to UnitedHealth Group, its recommendation
of the merger to Lifemark's stockholders, or approves or recommends an
acquisition proposal other than the merger with UnitedHealth Group.
Furthermore, the merger agreement may be terminated by Lifemark if
UnitedHealth Group has materially breached any of its representations and
warranties or failed to perform any of its covenants and the breach or failure
to perform has not been cured within 30 days following receipt of notice of the
breach.
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Payment of Fees and Expenses
Except as described below, whether the merger is consummated or the merger
agreement is terminated, all costs and expenses incurred in connection with the
merger agreement and the merger will be paid by the party incurring the
expense.
If the merger agreement is terminated by Lifemark or UnitedHealth Group
because Lifemark fails to obtain stockholder approval at the special meeting,
or if UnitedHealth Group terminates the merger agreement because:
. Lifemark commits to or enters into an acquisition proposal from a third
party which Lifemark's board of directors has determined in good faith
to be superior to the merger with UnitedHealth Group;
. Lifemark has materially breached any of its representations and
warranties or failed to perform in any material way any of its covenants
and the breach or failure to perform has not been cured within 30 days
following receipt of notice; or
. Lifemark's board of directors or any of its committees withdraws or
modifies, in a manner adverse to UnitedHealth Group, its recommendation
of the merger to the Lifemark stockholders, or approves or recommends an
acquisition proposal other than the merger with UnitedHealth Group,
then Lifemark will reimburse UnitedHealth Group for all out-of-pocket fees and
expenses incurred or paid by or on behalf of UnitedHealth Group in connection
with the merger agreement. Likewise, if Lifemark terminates the merger
agreement because UnitedHealth Group has materially breached any of its
representations and warranties or failed to perform any of its covenants in any
material way and the breach or failure to perform has not been cured within 30
days following receipt of notice, then UnitedHealth Group will reimburse
Lifemark for all out-of-pocket fees and expenses incurred or paid by or on
behalf of Lifemark in connection with the merger agreement.
Additionally, if the merger agreement is terminated by Lifemark or
UnitedHealth Group at a time when UnitedHealth Group is entitled to terminate
the merger agreement because Lifemark did not obtain stockholder approval at
the special meeting or Lifemark has materially breached any of its
representations and warranties or failed to perform in any material way any of
its covenants (excluding its covenant regarding no solicitation of other
transactions) and the breach or failure to perform has not been cured within 30
days following receipt of notice and, concurrently with or within twelve months
after termination, Lifemark enters into an acquisition proposal with a third
party (which can include the commencement of a tender offer by a third party
directly with Lifemark's stockholders), or if the merger agreement is
terminated because:
. Lifemark commits to or enters into an acquisition proposal from a third
party which Lifemark's board of directors has determined in good faith
to be superior to the merger with UnitedHealth Group;
. Lifemark has failed to perform its covenant regarding no solicitation of
other transactions; or
. Lifemark's board of directors or any of its committees withdraws or
modifies, in a manner adverse to UnitedHealth Group, its recommendation
of the merger to Lifemark's stockholders, or approves or recommends an
acquisition proposal other than the merger with UnitedHealth Group,
then Lifemark will, in addition to reimbursing UnitedHealth Group for its
merger-related expenses, pay UnitedHealth Group a termination fee of
$2,000,000.
Failure to pay the foregoing amounts promptly will require the delinquent
party to pay interest on the payments due at the prime rate announced by U.S.
Bank National Association in Minneapolis.
If the merger agreement is terminated prior to the completion of the merger,
UnitedHealth Group and its affiliates will not solicit, for a period of one
year, the employment of certain employees without obtaining consent of
Lifemark.
Amendments, Extension and Waivers
The merger agreement may be amended by action of the board of directors of
each of the parties at any time before or after the special meeting, provided
that any amendment made after the special meeting that
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would otherwise require stockholder approval under applicable law must be
submitted to the stockholders. All amendments to the merger agreement must be
in a writing signed by each party. At any time before the effective time of the
merger, any party to the merger agreement may, to the extent legally allowed:
. extend the time for the performance of any of the obligations or other
acts of the other parties to the merger agreement;
. waive any inaccuracies in the representations and warranties of the
other parties contained in the merger agreement; and
. waive compliance by the other parties with any of the agreements or
conditions contained in the merger agreement.
All extensions and waivers must be in writing and signed by the party
against whom the waiver is to be effective.
APPRAISAL RIGHTS FOR LIFEMARK STOCKHOLDERS
Under Delaware law, you have the right to dissent from the merger and to
receive payment in cash for the fair value of your Lifemark common stock, as
determined by the Court of Chancery of the State of Delaware, only if the
merger is consummated and UnitedHealth Group elects to pay cash instead of
shares of its common stock in exchange for shares of common stock of Lifemark.
If UnitedHealth Group does not elect to pay cash instead of shares of its
common stock, you will not have appraisal rights. The availability of appraisal
rights will not be determined until following the special meeting. Accordingly,
Lifemark stockholders who do not want to receive cash in the merger should
exercise their appraisal rights. Lifemark stockholders electing to exercise
appraisal rights must comply with the provisions of Section 262 of the Delaware
General Corporation Law in order to perfect their rights. Lifemark will require
strict compliance with the statutory procedures. A copy of Section 262 is
attached to this proxy statement/prospectus as Annex D.
The following is intended as a brief summary of the material provisions of
the Delaware statutory procedures required to be followed by a stockholder in
order to dissent from the merger and perfect the stockholder's appraisal
rights. This summary, however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to Section 262 of
the Delaware General Corporation Law.
Section 262 requires that stockholders be notified not less than 20 days
before the special meeting to vote on the merger that dissenters' appraisal
rights will be available. A copy of Section 262 must be included with such
notice. This proxy statement constitutes Lifemark's notice to its stockholders
of the availability of appraisal rights in connection with the merger in
compliance with the requirements of Section 262. If you wish to consider
exercising your appraisal rights, you should carefully review the text of
Section 262 contained in Annex D because failure to timely and properly comply
with the requirements of Section 262 will result in the loss of your appraisal
rights under Delaware law.
If you elect to demand appraisal of your shares, you must satisfy each of
the following conditions:
1. You must deliver to Lifemark a written demand for appraisal of your
shares before the vote is taken on the merger agreement at the special
meeting. This written demand for appraisal must be in addition to and
separate from any proxy or vote abstaining from or voting against the
merger. Voting against or failing to vote for the merger by itself does not
constitute a demand for appraisal under Section 262.
2. You must not vote in favor of the merger. A vote in favor of the
merger, by proxy or in person, will constitute a waiver of your appraisal
rights in respect of the shares so voted and will nullify any previously
filed written demands for appraisal.
If you fail to comply with either of these conditions, the merger is
completed, and UnitedHealth Group elects to pay cash instead of its common
stock in exchange for Lifemark common stock, you will be entitled to receive
the cash payment for your shares of Lifemark common stock as provided for in
the merger agreement, but will have no appraisal rights with respect to your
shares of Lifemark common stock.
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All demands for appraisal should be addressed to Lifemark Corporation,
Investor Relations, 7600 North 16th Street, Suite 150, Phoenix, Arizona 85020,
should be delivered before the vote on the merger is taken at the special
meeting and should be executed by, or on behalf of, the record holder of the
shares of Lifemark common stock. The demand must reasonably inform Lifemark of
the identity of the stockholder and the intention of the stockholder to demand
appraisal of his or her shares.
To be effective, a demand for appraisal by a holder of Lifemark common stock
must be made by, or in the name of, such record stockholder, fully and
correctly, as the stockholder's name appears on his or her stock certificate(s)
and cannot be made by the beneficial owner if he or she does not also hold the
shares of record. The beneficial holder must, in such cases, have the record
owner submit the required demand in respect of such shares.
If shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of a demand for appraisal should be made in
such capacity; and if the shares are owned of record by more than one person,
as in a joint tenancy or tenancy in common, the demand should be executed by or
for all joint owners. An authorized agent, including an authorized agent for
two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, he or she
is acting as agent for the record owner. A record owner, such as a broker, who
holds shares as a nominee for others, may exercise his or her right of
appraisal with respect to the shares held for one or more beneficial owners,
while not exercising this right for other beneficial owners. In such case, the
written demand should state the number of shares as to which appraisal is
sought. Where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of such record owner.
If you hold your shares of Lifemark common stock in a brokerage account or
in other nominee form and you wish to exercise appraisal rights, you should
consult with your broker or such other nominee to determine the appropriate
procedures for the making of a demand for appraisal by such nominee.
Within 10 days after the effective date of the merger, UnitedHealth Group
must give written notice of the date the merger became effective to each
Lifemark stockholder who has properly filed a written demand for appraisal and
who did not vote in favor of the merger. Within 120 days after the effective
date, either UnitedHealth Group or any stockholder who has complied with the
requirements of Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the shares held by all
stockholders entitled to appraisal. UnitedHealth Group has no obligation to
file such a petition in the event there are dissenting stockholders.
Accordingly, the failure of a stockholder to file such a petition within the
period specified could nullify such stockholder's previous written demand for
appraisal.
At any time within 60 days after the effective date, any stockholder who has
demanded an appraisal has the right to withdraw the demand and to accept the
cash payment specified by the merger agreement for his or her shares of
Lifemark common stock. Any attempt to withdraw an appraisal demand more than 60
days after the effective date will require the written approval of the
surviving corporation. Within 120 days after the effective date, any
stockholder who has complied with Section 262 will be entitled, upon written
request, to receive a statement setting forth the aggregate number of shares of
Lifemark common stock with respect to which demands for appraisal have been
received and the aggregate number of such shares. If a petition for appraisal
is duly filed by a stockholder and a copy of the petition is delivered to
UnitedHealth Group, UnitedHealth Group will then be obligated within 20 days
after receiving service of a copy of the petition to provide the Chancery Court
with a duly verified list containing the names and addresses of all
stockholders who have demanded an appraisal of their shares. After notice to
dissenting stockholders, the Chancery Court is empowered to conduct a hearing
upon the petition, to determine those stockholders who have complied with
Section 262 and who have become entitled to the appraisal rights provided
thereby. The Chancery Court may require the stockholders who have demanded
payment for their shares to submit their stock certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Chancery Court may
dismiss the proceedings as to such stockholder.
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After determination of the stockholders entitled to appraisal of their
shares of Lifemark common stock, the Chancery Court will appraise the shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid. When the value is determined, the Chancery Court
will direct the payment of such value, with interest thereon accrued during the
pendency of the proceeding, if the Chancery Court so determines, to the
stockholders entitled to receive the same, upon surrender by such holders of
the certificates representing such shares.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. You should be aware that the fair value of your
shares as determined under Section 262 could be more, the same, or less than
the value that you are entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon UnitedHealth Group and
the stockholders participating in the appraisal proceeding by the Chancery
Court as the Chancery Court deems equitable in the circumstances. Upon the
application of a stockholder, the Chancery Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
shares entitled to appraisal. Any stockholder who had demanded appraisal rights
will not, after the effective date, be entitled to vote shares subject to such
demand for any purpose or to receive payments of dividends or any other
distribution with respect to such shares (other than with respect to payment as
of a record date prior to the effective date); however, if no petition for
appraisal is filed within 120 days after the effective date of the merger, or
if such stockholder delivers a written withdrawal of his or her demand for
appraisal and an acceptance of the merger within 60 days after the effective
date of the merger, then the right of such stockholder to appraisal will cease
and such stockholder will be entitled to receive the cash payment for shares of
his or her Lifemark common stock pursuant to the merger agreement. Any
withdrawal of a demand for appraisal made more than 60 days after the effective
date of the merger may only be made with the written approval of the surviving
corporation and must, to be effective, be made within 120 days after the
effective date.
In view of the complexity of Section 262, Lifemark stockholders who may wish
to dissent from the merger and pursue appraisal rights should consult their
legal advisors.
Failure to take any required step in connection with exercising appraisal
rights may result in the termination or waiver of such rights.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF UNITEDHEALTH GROUP AND LIFEMARK
This section of the proxy statement/prospectus describes certain differences
between the rights of holders of Lifemark common stock and the rights of
holders of UnitedHealth Group common stock. While we believe that the
description covers the material differences between the two, this summary may
not contain all of the information that is important to you. You should
carefully read this entire document and refer to the other documents discussed
below for a more complete understanding of the differences between being a
stockholder of Lifemark and being a shareholder of UnitedHealth Group.
As a stockholder of Lifemark, your rights are governed by Lifemark's
conformed certificate of incorporation, as amended, and conformed bylaws, as
amended, each as currently in effect. After completion of the merger, you will
become a shareholder of UnitedHealth Group. UnitedHealth Group's common stock
is quoted on the New York Stock Exchange under the symbol "UNH." As a
UnitedHealth Group shareholder, your rights will be governed by UnitedHealth
Group's second restated articles of incorporation, as amended, and UnitedHealth
Group's amended and restated bylaws. In addition, UnitedHealth Group is
incorporated in Minnesota while Lifemark is incorporated in Delaware. Although
the rights and privileges of stockholders of a Delaware corporation are in many
instances comparable to those of shareholders of a Minnesota corporation, there
are also differences.
MINNESOTA CORPORATION DELAWARE CORPORATION
Shareholder Meetings
Under the UnitedHealth Group Delaware law and the Lifemark
bylaws, holders of UnitedHealth bylaws require that stockholders be
Group common stock are entitled to provided prior written notice no
at least five days' prior written more than 60 days nor less than 10
notice for each regular meeting and days prior to the date of any
special meeting to consider any meeting of stockholders. Notice must
matter, except that Minnesota law be given at least 20 days prior to a
and the UnitedHealth Group bylaws meeting at which the stockholders
require that notice of a meeting at will be asked to approve and adopt
which an agreement of merger or an agreement relating to the merger
exchange is to be considered shall of the corporation.
be mailed to shareholders of record,
whether entitled to vote or not, at
least 14 days prior to such meeting.
Right to Call Special Meetings
Under Minnesota law and the Under Delaware law, a special
UnitedHealth Group bylaws, a special meeting of stockholders may be
meeting of shareholders may be called by the board of directors or
called by the chairman of the board, by such person or persons as may be
the chief executive officer, the authorized by the certificate of
chief financial officer, any two or incorporation or by the bylaws. The
more directors, a person authorized Lifemark bylaws authorize a special
in the articles or bylaws to call meeting of stockholders to be called
special meetings or a shareholder or by the president, a majority of the
shareholders holding 10% or more of board of directors, or at the
all shares entitled to vote, except request in writing of stockholders
that a special meeting called by a owning not less than 50%
shareholder for the purpose of of the entire voting stock of
considering any action to Lifemark.
facilitate, directly or indirectly,
or effect a business combination,
including any action to change or
otherwise affect the composition of
the board of directors for that
purpose, must be called by 25% or
more of the voting power of all
shares entitled to vote.
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Actions by Written Consent of Shareholders
Under Minnesota law and the Under Delaware law and the
UnitedHealth Group bylaws, any Lifemark bylaws, stockholders may
action required or permitted to be act by a written consent in lieu of
taken in a meeting of the a meeting provided the written
shareholders may be taken without a consent is signed by the holders of
meeting by a written action signed outstanding stock having at least
by all of the shareholders entitled the minimum number of votes that
to vote on that action. The would be necessary to authorize or
UnitedHealth Group articles do not take such action at a meeting at
restrict shareholder action by which all shares entitled to vote
written consent. thereon were present. The Lifemark
certificate does not contain any
provision restricting action of
stockholders by written consent.
Rights of Dissenting Shareholders
Under both Minnesota and Delaware Under Delaware law, appraisal
law, shareholders may exercise a rights are available in connection
right of dissent from certain with certain statutory mergers or
corporate actions and obtain payment consolidations in which the
of the fair value of their shares. corporation is a constituent
Generally, under Minnesota law, the corporation, or if such rights are
categories of transactions subject otherwise provided in the
to dissenter's rights are broader corporation's certificate of
than those under Delaware law. incorporation. Appraisal rights are
Shareholders of a Minnesota not available under Delaware law,
corporation may exercise dissenter's however, if the corporation's stock
rights in connection with: is (i) listed on a national
securities exchange or designated on
. an amendment of the articles the Nasdaq National Market, or
of incorporation that (ii) held of record by more than
materially and adversely 2,000 stockholders; provided, that
affects the rights and if the merger or consolidation
preferences of the shares of requires stockholders to exchange
the dissenting shareholder in their stock for anything other than:
certain respects; (a) shares of the surviving
corporation; (b) shares of another
. a sale or transfer of all or corporation that will be listed on a
substantially all of the national securities exchange; (c)
assets of the corporation; cash in lieu of fractional shares of
any such corporation; or (d) any
. a plan of merger to which the combination of such shares and cash
corporation is a party; in lieu of fractional shares, then
appraisal rights will be available.
. a plan of exchange of shares The Lifemark certificate does not
to which the corporation is a grant any other appraisal rights.
party; and Stockholders who desire to exercise
their appraisal rights must satisfy
. any other corporate action all of the conditions and
with respect to which the requirements as set forth in the
corporation's articles of Delaware General Corporation Law in
incorporation or bylaws give order to maintain such rights and
dissenting shareholders the obtain such payment.
right to obtain payment for
their shares.
Unless the articles, the bylaws,
or a resolution approved by the
board of directors otherwise
provide, such dissenters' rights do
not apply to a shareholder of the
surviving corporation in a merger if
the shares of the shareholder are
not entitled to be voted on the
merger. The UnitedHealth Group
articles do not grant any other
dissenters' rights. Shareholders who
desire to exercise their dissenters'
rights must satisfy all of the
conditions and requirements as set
forth in the Minnesota Business
Corporation Act in order to maintain
such rights and obtain such payment.
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Board of Directors
Minnesota law provides that the Delaware law states that the
board of directors of a Minnesota board of directors shall consist of
corporation shall consist of one or one or more members with the number
more directors as fixed by the of directors to be fixed as provided
articles of incorporation or bylaws. in the bylaws of the corporation,
The UnitedHealth Group board of unless the certificate of
directors currently consists of 12 incorporation fixes the number of
directors. The UnitedHealth Group directors, in which case a change in
articles provide that the board is the number of directors shall be
divided into three classes, as made only by amendment of the
nearly equal in number as possible, certificate. The Lifemark bylaws
with directors serving three year provide that the number of directors
terms. The UnitedHealth Group bylaws which shall constitute the board of
provide that in the case of any directors shall be six.
increase or decrease in the number
of directors, the increase or Except in the case of a
decrease shall be distributed among classified board, Delaware law
the several classes as nearly equal states that any director or the
as possible, as determined by the entire board of directors may be
affirmative vote of a majority of removed, with or without cause, by
the UnitedHealth Group board or by the holders of a majority of the
the affirmative vote of a majority shares then entitled to vote at an
of the holders of the voting stock election of directors.
of UnitedHealth Group. The number of
directors may be increased or
decreased from time to time by
resolution adopted by a majority of
the board of directors or by the
affirmative vote of the holders of a
majority of the voting stock of
UnitedHealth Group, considered as
one class.
Minnesota law provides that,
unless modified by the articles or
bylaws of the corporation or by
shareholder agreement, the directors
may be removed with or without cause
by the affirmative vote of that
proportion or number of the voting
power of the shares of the classes
or series the director represents
which would be sufficient to elect
such director (with an exception for
corporations with cumulative
voting). The UnitedHealth Group
articles require the affirmative
vote of the holders of 66 2/3% of
the outstanding shares of common
stock or the affirmative vote of 66
2/3% of the directors in office at
the time such vote is taken.
Shareholders of UnitedHealth Group
do not have the right to cumulative
voting in the election of directors.
Filling Vacancies on the Board of Directors
Under Minnesota law, unless Delaware law provides that,
different rules for filling unless otherwise provided in the
vacancies are provided for in the certificate of incorporation or
articles of incorporation or bylaws, bylaws, vacancies may be filled by a
vacancies resulting from the death, majority of the directors then in
resignation, removal or office, although less than a quorum,
disqualification of a director may or by a sole remaining director.
be filled by the affirmative vote of Further, if, at the time of filling
a majority of the remaining any vacancy, the directors then in
directors, even though less than a office shall constitute less than a
quorum, and vacancies resulting from majority of the whole board, the
a newly-created directorship may be Court of Chancery may, upon
filled by the affirmative vote of a application of any stockholder or
majority of the directors serving at stockholders holding at least 10% of
the time of the increase. The the total number of the
shareholders
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may also elect a new director to shares at the time outstanding
fill a vacancy that is created by having the right to vote for such
the removal of a director by the directors, summarily order an
shareholders. election to be held to fill any such
vacancies or newly created
The UnitedHealth Group bylaws directorships, or to replace the
provide that vacancies on the board directors chosen by the directors
of directors may be filled by the then in office.
affirmative vote of a majority of
the remaining members of the board,
though less than a quorum; newly
created directorships resulting from
an increase in the authorized number
of directors shall be filled by the
vote of a majority of the directors
present at a meeting at the time the
action is taken.
Amendments to Bylaws and Articles
Minnesota law and the Delaware law requires a vote of
UnitedHealth Group bylaws provide the corporation's board of directors
that the power to adopt, amend or followed by the affirmative vote of
repeal the bylaws is vested in the a majority of the outstanding stock
board (subject to certain notice entitled to vote for any amendment
requirements set forth in the to the certificate of incorporation,
UnitedHealth Group bylaws). unless a greater level of approval,
Minnesota law provides that the or a class vote, is required by the
authority in the board of directors certificate of incorporation.
is subject to the power of the Further, Delaware law states that if
shareholders to change or repeal an amendment would increase or
such bylaws by a majority vote of decrease the aggregate number of
the shareholders at a meeting of the authorized shares of such class,
shareholders called for such increase or decrease the par value
purpose, and the board of directors of shares of such class or alter or
shall not make or alter any bylaws change the powers, preferences or
fixing a quorum for meetings of special rights of a particular class
shareholders, prescribing procedures or series of stock so as to affect
for removing directors or filling them adversely, the class or series
vacancies in the board of directors, shall be given the power to vote as
or fixing the number of directors or a class notwithstanding the absence
their classifications, of any specifically enumerated power
qualifications or terms of office. in the certificate of incorporation.
Under Minnesota law, a shareholder Delaware law also states that the
or shareholders holding 3% or more power to adopt, amend or repeal the
of the voting power of all shares bylaws of a corporation shall be in
entitled to vote may propose a the stockholders entitled to vote,
resolution to amend or repeal bylaws provided that the corporation in its
adopted, amended or repealed by the certificate of incorporation may
board, in which event such confer such power on the board of
resolutions must be brought before directors in addition to the
the shareholders for their stockholders. The Lifemark
consideration pursuant to the certificate expressly authorizes the
procedures for amending the articles board of directors to make, adopt,
of incorporation. alter, or repeal any or all of the
bylaws of Lifemark.
Minnesota law provides that a
proposal to amend the articles of
incorporation may be presented to
the shareholders of a Minnesota
corporation by a resolution (i)
approved by the affirmative vote of
a majority of the directors present
or (ii) proposed by a shareholder or
shareholders holding 3% or more of
the voting shares entitled to vote
thereon. Under Minnesota law, any
such amendment must be approved by
the affirmative vote of a majority
of the shareholders entitled to vote
thereon, except that the articles
may provide for a specified
proportion or number larger than a
majority. The UnitedHealth Group
articles provide that the
affirmative vote of the holders of
at least 66 2/3% of the outstanding
shares of common stock is required
in order to
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amend provisions of the UnitedHealth
Group articles concerning the
election and removal of directors
and that the affirmative vote of the
holders of 66 2/3% of the
outstanding shares of voting stock
is required in order to amend
provisions concerning certain
mergers, consolidations and other
business combinations and
reorganizations.
Indemnification of Directors, Officers and Employees
Although indemnification is
Minnesota law and Delaware law permissive in Delaware, a
both contain provisions setting corporation may, through its
forth conditions under which a certificate of incorporation, bylaws
corporation may indemnify its or other intracorporate agreements,
directors, officers and employees. make indemnification mandatory.
While indemnification is permitted Pursuant to this authority, the
only if certain statutory standards Lifemark certificate and bylaws
of conduct are met, Minnesota law provide that Lifemark shall
and Delaware law are substantially indemnify its officers and directors
similar in providing for to the fullest extent permitted
indemnification if the person acted under the Delaware law, unless an
in good faith and in a manner the officer or director has initiated a
person reasonably believed to be in proceeding, in which case approval
or not opposed to the best interests by the board of directors is
of the corporation and, with respect required prior to indemnification.
to any criminal action or
proceeding, had no reasonable cause
to believe the conduct was unlawful.
The statutes differ, however, with
respect to whether indemnification
is permissive or mandatory, where
there is a distinction between
third-party actions and actions by
or in the right of the corporation,
and whether, and to what extent,
reimbursement of judgments, fines,
settlements, and expenses is
allowed. The major difference
between Minnesota law and Delaware
law is that while indemnification of
officers, directors and employees is
mandatory under Minnesota,
indemnification is permissive under
Delaware law, except that a Delaware
corporation must indemnify a person
who is successful on the merits or
otherwise in the defense of certain
specified actions, suits or
proceedings for expenses and
attorney's fees actually and
reasonably incurred in connection
therewith.
Minnesota law requires a
corporation to indemnify any
director, officer or employee who is
made or threatened to be made party
to a proceeding by reason of the
former or present official capacity
of the director, officer or
employee, against judgments,
penalties, fines, settlements and
reasonable expenses. Minnesota law
permits a corporation to prohibit
indemnification by so providing in
its articles of incorporation or its
bylaws. UnitedHealth Group has not
limited the statutory
indemnification in its articles of
incorporation, however, and the
bylaws of UnitedHealth Group state
that UnitedHealth Group shall
indemnify such persons for such
expenses and liabilities to such
extent as permitted by statute.
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Liabilities of Directors
Under Minnesota law, a director Under Delaware law, a certificate
may be liable to the corporation for of incorporation may contain a
distributions made in violation of provision limiting or eliminating a
Minnesota law or a restriction director's personal liability to the
contained in the corporation's corporation or its stockholders for
articles or bylaws. The UnitedHealth monetary damages for a director's
Group articles provide that a breach of fiduciary duty subject to
director shall not be personally certain limitations. The Lifemark
liable to UnitedHealth Group or its certificate provides that the
shareholders for monetary liability corporation's directors shall not be
relating to breach of fiduciary duty personally liable to the corporation
as a director, unless the liability or its stockholders for monetary
relates to: damages for breach of fiduciary duty
as a director, except for liability:
. a breach of the director's
duty of loyalty to the . for any breach of the
corporation or its director's duty of loyalty to
shareholders; the corporation or its
stockholders;
. acts or omissions involving a
lack of good faith or which . for acts or omissions not in
involve intentional good faith or which involve
misconduct or a knowing intentional misconduct or
violation of law; knowing violation of law;
. liability for illegal . for unlawful payment of
distributions and unlawful dividend or unlawful stock
sales of UnitedHealth Group purchase or redemption as set
securities; forth in section 174 of the
Delaware General Corporation
Law; or
. transactions where the
director gained an improper . for any transaction from
personal benefit; or which the director derived an
improper personal benefit.
. any acts or omissions
occurring prior to the date
on which the liability
limitation provisions of the
UnitedHealth Group articles
became effective.
The UnitedHealth Group articles
provide that any repeal or
modification of the foregoing
provisions shall not adversely
affect any right or protection of a
director of UnitedHealth Group
existing at the time of such repeal
or modification.
The UnitedHealth Group articles
also provide that if Minnesota law
is amended to authorize further
elimination of the personal
liability of directors, then the
liability of UnitedHealth Group
directors shall be limited to the
fullest extent permitted by
Minnesota law, as so amended.
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Shareholder Approval of Merger
Minnesota law provides that a In order to effect a merger under
resolution containing a plan of Delaware law, a corporation's board
merger or exchange must be approved of directors must adopt an agreement
by the affirmative vote of a of merger and recommend it to the
majority of the directors present at stockholders. The agreement must be
a meeting and submitted to the approved and adopted by holders of a
shareholders and approved by the majority of the outstanding shares
affirmative vote of the holders of a of the corporation entitled to vote
majority of the voting power of all thereon unless the certificate of
shares entitled to vote. Unlike incorporation requires a greater
Delaware law, Minnesota law requires vote.
that any class of shares of a
Minnesota corporation must be given
the right to approve the plan if it
contains a provision which, if
contained in a proposed amendment to
the corporation's articles of
incorporation, would entitle such a
class to vote as a class.
Business Combinations, Control Share Acquisitions and Anti-Takeover Provisions
Delaware law prohibits, in
Minnesota law prohibits certain certain circumstances, a "business
"business combinations" (as defined combination" between the corporation
in the Minnesota Business and an "interested stockholder"
Corporations Act) between a within three years of the
Minnesota corporation with at least stockholder becoming an "interested
100 shareholders, or a publicly held stockholder." An "interested
corporation that has at least 50 stockholder" is a holder who,
shareholders, and an "interested directly or indirectly, controls 15%
shareholder" for a four-year period or more of the outstanding voting
following the share acquisition date stock or is an affiliate of the
by the interested shareholder, corporation and was the owner of 15%
unless certain conditions are or more of the outstanding voting
satisfied or an exemption is found. stock at any time within the prior
An "interested shareholder" is three-year period. A "business
generally defined to include a combination" includes a merger or
person who beneficially owns at consolidation, a sale or other
least 10% of the votes that all disposition of assets having an
shareholders would be entitled to aggregate market value equal to 10%
cast in an election of directors of or more of the consolidated assets
the corporation. Minnesota law also of the corporation or the aggregate
limits the ability of a shareholder market value of the outstanding
who acquires beneficial ownership of stock of the corporation and certain
more than certain thresholds of the transactions that would increase the
percentage voting power of a interested stockholder's
Minnesota corporation (starting at proportionate share ownership in the
20%) from voting those shares in corporation. This provision does not
excess of the threshold unless such apply where:
acquisition has been approved in
advance by a majority of the voting . either the business
power held by shareholders combination or the
unaffiliated with such shareholder. transaction which resulted in
However, as permitted by Minnesota the stockholder becoming an
law, the UnitedHealth Group bylaws interested stockholder is
provide that this statutory approved by the corporation's
provision shall not apply to board of directors prior to
UnitedHealth Group. Minnesota law the date the interested
also includes a provision stockholder acquired such 15%
restricting certain "control share interest;
acquisitions" of Minnesota
corporations. However, as permitted . upon the consummation of the
by Minnesota law, the UnitedHealth transaction which resulted in
Group articles provide that this the stockholder becoming an
statutory provision shall not apply interested stockholder, the
to UnitedHealth Group. interested stockholder owned
at least 85% of the
The UnitedHealth Group articles outstanding voting stock of
require the affirmative vote of at the corporation excluding for
least 66 2/3% of the outstanding the purposes of determining
shares of UnitedHealth Group voting the number of shares
stock in order to effect certain outstanding shares held by
business combinations, including a persons who are directors and
merger, consolidation, also officers and by
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exchange of shares, sale of all or employee stock plans in which
substantially all of the assets of participants do not have the
UnitedHealth Group or other similar right to determine
transactions, with a person who, confidentiality whether the
together with its affiliates, owns shares held subject to the
20% or more of the outstanding plan will be tendered;
voting stock of UnitedHealth Group
(a "Related Person"). However, the . the business combination is
66 2/3% voting requirement will not approved by a majority of the
be applicable if 66 2/3% of the board of directors and the
continuing directors approve the affirmative vote of two-
business combination, the business thirds of the outstanding
combination is solely between votes entitled to be cast by
UnitedHealth Group and a wholly disinterested stockholders at
owned subsidiary, or the cash or an annual or special meeting;
fair market value of the property,
securities or other consideration to . the corporation does not have
be received per share by holders of a class of voting stock that
UnitedHealth Group common stock is listed on a national
other than the Related Person is not securities exchange,
less than the highest per share authorized for quotation on
price paid by the Related Person in an inter-dealer quotation
acquiring any of its holdings of system of a registered
UnitedHealth Group common stock. national securities
association, or held of
Minnesota law provides that record by more than 2,000
during any tender offer, a publicly stockholders unless any of
held corporation may not enter into the foregoing results from
or amend an agreement (whether or action taken, directly or
not subject to contingencies) that indirectly, by an interested
increases the current or future stockholder or from a
compensation of any officer or transaction in which a person
director. In addition, under becomes an interested
Minnesota law, a publicly held stockholder;
corporation is prohibited from
purchasing any voting shares owned . the stockholder acquires a
for less than two years from a 5% 15% interest inadvertently
shareholder for more than the market and divests itself of such
value unless the transaction has ownership and would not have
been approved by the affirmative been a 15% stockholder in the
vote of the holders of a majority of preceding 3 years but for the
the voting power of all shares inadvertent acquisition of
entitled to vote or unless the ownership;
corporation makes a comparable offer
to all holders of shares of the . the stockholder acquired the
class or series of stock held by the 15% interest when these
5% shareholder and to all holders of restrictions did not apply;
any class or series into which such or
securities may be converted.
. the corporation has opted out
It should be noted that in of this provision. Lifemark
addition to the anti-takeover has not opted out of this
measures discussed above, the provision.
provisions of the UnitedHealth Group
articles and bylaws (i) providing
for a staggered board of directors,
(ii) requiring a vote of 66 2/3% of
the outstanding voting stock to
amend certain provisions of the
UnitedHealth Group articles
concerning the election and removal
of directors and concerning certain
business combinations and (iii)
requiring the request of holders of
at least 25% of the outstanding
shares in order for shareholders to
call a special meeting of
shareholders involving a business
combination or any change in the
composition of the board of
directors as a result of such
business combination, may make it
more difficult to effect a change in
control of UnitedHealth Group and
may discourage or deter a third
party from attempting a takeover.
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The foregoing discussion of certain similarities and material differences
between the rights of UnitedHealth Group shareholders and the rights of
Lifemark stockholders under the respective articles/certificate of
incorporation and bylaws is only a summary of certain provisions and does not
purport to be a complete description of such similarities and differences, and
is qualified in its entirety by reference to the Minnesota law and Delaware
law, the common law thereunder and the full text of the articles/certificate of
incorporation and bylaws of each of UnitedHealth Group and Lifemark.
EXPERTS
The consolidated balance sheets as of December 31, 1999 and 1998, and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999, of UnitedHealth
Group incorporated by reference in this proxy statement/prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are 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, 2000 and 1999 and March 31, 2000 and 1999 of
UnitedHealth Group incorporated by reference in this proxy
statement/prospectus, Arthur Andersen LLP has applied limited procedures in
accordance with professional standards for a review of that information.
However, their separate reports thereon state that they did not audit and they
do not express an opinion on that condensed interim financial information.
Accordingly, the degree of reliance on their reports on that information should
be restricted in light of the limited nature of the review procedures applied.
In addition, the accountants are not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their reports on the unaudited
condensed interim financial information because these reports are not "reports"
or "parts" of the prospectus or elsewhere in the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and
11 of the Securities Act of 1933.
The consolidated financial statements as of May 31, 2000 and 1999 and for
each of the three years in the period ended May 31, 2000 of Lifemark
incorporated by reference in this proxy statement/prospectus have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the shares of UnitedHealth Group common stock offered by
this proxy statement/prospectus will be passed upon for UnitedHealth Group by
Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain legal matters with
respect to federal income tax consequences in connection with the merger will
be passed upon for Lifemark by Bell, Boyd & Lloyd LLC, Chicago, Illinois.
FUTURE SHAREHOLDER PROPOSALS
UnitedHealth Group's 2000 annual meeting of shareholders took place on May
10, 2000. UnitedHealth Group shareholders wishing to present proposals to be
considered at the 2001 annual meeting of shareholders should submit the
proposals to UnitedHealth Group in accordance with all applicable rules and
regulations of the SEC and no later than December 7, 2000. Lifemark will hold
an annual meeting in the year 2001 only if the merger is not completed. If such
meeting is held, the deadline for receipt of a proposal to be considered for
inclusion in Lifemark's proxy statement for the 2001 annual meeting is April
23, 2001.
WHERE YOU CAN FIND MORE INFORMATION
Lifemark and UnitedHealth Group file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
they file at the SEC's public reference rooms in Washington, D.C., New York,
New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Lifemark and UnitedHealth
Group filings with the SEC are also available to the public from commercial
document retrieval services and at the Internet Website maintained by the SEC
at http://www.sec.gov.
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UnitedHealth Group has filed a registration statement on Form S-4 to
register the shares of UnitedHealth Group common stock to be issued to Lifemark
stockholders in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes the prospectus of UnitedHealth Group as
well as the proxy statement of Lifemark for the Lifemark special meeting.
UnitedHealth Group has supplied all the information contained in this proxy
statement/prospectus relating to UnitedHealth Group and Lifemark has supplied
all such information relating to Lifemark. As allowed by SEC rules, this proxy
statement/prospectus does not contain all of the information relating to
UnitedHealth Group and Lifemark you can find in this registration statement or
the exhibits to this registration statement.
Some of the important business and financial information relating to
UnitedHealth Group and Lifemark that you may want to consider in deciding how
to vote is not included in this proxy statement/prospectus, but rather is
"incorporated by reference" to documents that have been previously filed by
UnitedHealth Group and Lifemark with the SEC. The information incorporated by
reference is deemed to be a part of this proxy statement/prospectus, except for
any information superseded by information contained directly in this proxy
statement/prospectus.
If you are a stockholder, you can obtain any of the documents incorporated
by reference through UnitedHealth Group, Lifemark or the SEC. Documents
incorporated by reference are available from UnitedHealth Group or Lifemark
without charge, excluding all exhibits. You may obtain documents incorporated
by reference in this proxy statement/prospectus by requesting them orally or in
writing to the following addresses or by telephone:
UnitedHealth Group Incorporated Lifemark Corporation
Investor Relations Investor Relations
UnitedHealth Group Center 7600 North 16th Street
9900 Bren Road East Suite 150
Minnetonka, Minnesota 55343 Phoenix, Arizona 85020
(952) 936-1300 (602) 331-5150
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT
IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY
STATEMENT/PROSPECTUS IS DATED NOVEMBER , 2000. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THE PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF UNITEDHEALTH GROUP
COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by UnitedHealth Group with the Securities and
Exchange Commission (File No. 1-10864) are incorporated by reference in this
proxy statement/prospectus:
1. UnitedHealth Group's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, including certain information in UnitedHealth
Group's definitive proxy statement for its 2000 Annual Meeting of
Shareholders and certain information in UnitedHealth Group's Annual
Report to Shareholders for the fiscal year ended December 31, 1999.
2. UnitedHealth Group's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31 and June 30, 2000.
3. UnitedHealth Group's Current Report on Form 8-K filed March 7, 2000.
4. The description of UnitedHealth Group's common stock contained in
UnitedHealth Group's Registration Statement on Form 8-A filed September
20, 1991, including any amendment or report filed for the purpose of
updating such description.
The following documents filed by Lifemark (File No. 0-19393) with the
Securities and Exchange Commission are incorporated by reference in this proxy
statement/prospectus:
1. Lifemark's Annual Report on Form 10-K for the fiscal year ended May 31,
2000.
2. Lifemark's Quarterly Report on Form 10-Q for the quarterly period ended
August 31, 2000.
All reports and definitive proxy or information statements filed by
UnitedHealth Group and Lifemark pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act subsequent to the date of this proxy
statement/prospectus and prior to the date of the special meeting shall be
deemed to be incorporated by reference into this proxy statement/prospectus
from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein shall be deemed to be
modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement/prospectus.
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THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL HOLDER OF LIFEMARK COMMON
STOCK, TO WHOM A PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN
REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED BY
REFERENCE HEREIN (EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN). YOU CAN OBTAIN DOCUMENTS INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS BY REQUESTING THEM IN WRITING OR
BY TELEPHONE FROM UNITEDHEALTH GROUP OR LIFEMARK, AS THE CASE MAY BE, AT THE
FOLLOWING ADDRESSES AND TELEPHONE NUMBERS:
UnitedHealth Group Incorporated Lifemark Corporation
Investor Relations Investor Relations
UnitedHealth Group Center 7600 North 16th Street
9900 Bren Road East Suite 150
Minnetonka, Minnesota 55343 Phoenix, Arizona 85020
(952) 936-1300 (602) 331-5150
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL
MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES, ANY SUCH REQUEST
SHOULD BE MADE BY [5 business days before meeting], 2000.
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ANNEX A
AGREEMENT
AND PLAN OF MERGER
By and Among
UnitedHealth Group Incorporated
Leo Acquisition Corp.
and
Lifemark Corporation
----------------
October 10, 2000
----------------
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TABLE OF CONTENTS
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<S> <C>
ARTICLE I. THE MERGER..................................................... 1
1.1. The Merger....................................................... 1
1.2. Effect of Merger................................................. 1
1.3. Effective Time................................................... 1
1.4. Certificate of Incorporation; Bylaws............................. 2
1.5. Directors and Officers........................................... 2
1.6. Taking of Necessary Action; Further Action....................... 2
1.7. The Closing...................................................... 2
ARTICLE II. CONVERSION OF SECURITIES...................................... 2
2.1. Conversion of Securities......................................... 2
2.2. Stock Options.................................................... 4
2.3. Exchange of Certificates......................................... 4
2.4. Dissenting Shares................................................ 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 6
3.1. Organization and Qualification................................... 6
3.2. Capital Stock of Subsidiaries.................................... 7
3.3. Capitalization................................................... 7
3.4. Authority Relative to this Agreement............................. 8
3.5. No Conflict; Required Filings and Consents....................... 8
3.6. SEC Filings; Financial Statements................................ 9
3.7. Absence of Changes or Events..................................... 9
3.8. Absence of Certain Developments.................................. 9
3.9. Litigation....................................................... 10
3.10. Title to Properties.............................................. 10
3.11. Certain Contracts................................................ 10
3.12. Compliance with Law.............................................. 11
3.13. Intellectual Property Rights..................................... 11
3.14. Taxes............................................................ 12
3.15. Employees........................................................ 13
3.16. Employee Benefit Plans........................................... 14
3.17. Environmental Matters............................................ 15
3.18. Insurance........................................................ 16
3.19. Foreign Corrupt Practices Act.................................... 16
3.20. Finders or Brokers............................................... 16
3.21. Board Recommendation............................................. 16
3.22. Vote Required.................................................... 16
3.23. Opinion of Financial Advisor..................................... 16
3.24. Tax Matters...................................................... 17
3.25. State Takeover Statutes.......................................... 17
3.26. Registration Statement; Proxy Statement/Prospectus............... 17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT....... 17
4.1. Organization and Qualification................................... 17
4.2. Capitalization................................................... 18
4.3. Authority Relative to this Agreement............................. 18
4.4. No Conflicts; Required Filings and Consents...................... 18
4.5. SEC Filings; Financial Statements................................ 19
</TABLE>
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4.6. Absence of Changes or Events.................................... 19
4.7. Litigation...................................................... 19
4.8. Finders or Brokers.............................................. 19
4.9. Tax Matters..................................................... 19
4.10. Registration Statement; Proxy Statement/Prospectus.............. 19
ARTICLE V. COVENANTS AND AGREEMENTS...................................... 20
5.1. Conduct of Business of the Company Pending the Merger........... 20
5.2. Preparation of Registration Statement; Proxy
Statement/Prospectus.................................................. 22
5.3. Meeting of Stockholders......................................... 22
5.4. Additional Agreements; Cooperation.............................. 22
5.5. Publicity....................................................... 22
5.6. No Solicitation................................................. 23
5.7. Access to Information........................................... 24
5.8. Notification of Certain Matters................................. 24
5.9. Resignation of Officers and Directors........................... 24
5.10. Indemnification................................................. 25
5.11. Stockholder Litigation.......................................... 25
5.12. Employee Benefit Plans.......................................... 25
5.13. Determination of Optionholders.................................. 26
5.14. Preparation of Tax Returns...................................... 27
5.15. Rule 145 Matters................................................ 27
5.16. Tax-Free Reorganization......................................... 27
5.17. SEC Filings; Compliance......................................... 27
5.18. Listing of Additional Shares.................................... 27
ARTICLE VI. CONDITIONS TO CLOSING........................................ 28
6.1. Conditions to Each Party's Obligation to Effect the Merger...... 28
6.2. Conditions to Obligations of Parent............................. 28
6.3. Conditions to Obligations of the Company........................ 29
ARTICLE VII. TERMINATION................................................. 30
7.1. Termination..................................................... 30
7.2. Effect of Termination........................................... 31
7.3. Fees and Expenses............................................... 31
7.4 on-solicitation................................................. 32
ARTICLE VIII. MISCELLANEOUS.............................................. 33
8.1. Nonsurvival of Representations and Warranties................... 33
8.2. Waiver.......................................................... 33
8.3. Notices......................................................... 33
8.4. Counterparts.................................................... 34
8.5. Interpretation.................................................. 34
8.6. Amendment....................................................... 34
8.7. No Third Party Beneficiaries.................................... 34
8.8. Governing Law................................................... 34
8.9. Entire Agreement................................................ 34
8.10. Validity........................................................ 34
SIGNATURES............................................................... 35
</TABLE>
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EXHIBITS
A Voting Agreement
B Certificate of Merger
C Form of Company Affiliate Letter
D Form of Employment Agreement of Rhonda E. Brede
E Form of Employment Agreement of Michael J. Kennedy
F Form of Employment Agreement of Richard M. Jelinek
G Form of Employment Agreement of Dave Decker
H Form of Employment Agreement of Mete Sahin
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated October 10,
2000, is made and entered into by and among UnitedHealth Group Incorporated, a
Minnesota corporation ("Parent"), Leo Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and Lifemark Corporation,
a Delaware corporation (the "Company"). Merger Sub and the Company are
sometimes collectively referred to as the "Constituent Corporations."
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have determined that it is advisable and in the best interests of the
respective corporations and their stockholders that Merger Sub be merged with
and into the Company in accordance with the General Corporation Law of the
State of Delaware (the "DGCL") and the terms of this Agreement, pursuant to
which the Company will be the surviving corporation and will be a wholly owned
subsidiary of Parent (the "Merger"); and
WHEREAS, unless the Election hereinafter referred to is made, for United
States federal income tax purposes the parties intend that the Merger shall
qualify as a "reorganization" under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and that this Agreement constitute a "plan of
reorganization" within the meaning of the Code; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with, and
establish various conditions precedent to, the Merger; and
WHEREAS, as an inducement to Parent to enter into this Agreement, certain
principal stockholders of the Company are concurrently herewith entering into a
Voting Agreement (the "Voting Agreement") in substantially the form attached
hereto as Exhibit A, whereby each such stockholder agrees to vote in favor of
the Merger and all other transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement and in the Certificate of
Merger (as defined in Section 1.3 hereof), the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. At the Effective Time (as defined in Section 1.3 hereof),
subject to the terms and conditions of this Agreement and the Certificate of
Merger (as defined in Section 1.3 hereof), Merger Sub shall be merged with and
into the Company, the separate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation. The Company, in its
capacity as the corporation surviving the Merger, is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2. Effect of Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement, the Certificate of Merger and the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, the
Surviving Corporation shall succeed to and possess all the properties, rights,
privileges, immunities, powers, and franchises, and be subject to all the
duties, liabilities, debts, obligations, restrictions and disabilities, of the
Constituent Corporations, all without further act or deed.
1.3. Effective Time. Subject to the terms and conditions of this Agreement,
the parties hereto will cause a copy of the Certificate of Merger, attached
hereto as Exhibit B (the "Certificate of Merger") to be executed, delivered and
filed with the Secretary of State of the State of Delaware in accordance with
the applicable provisions of the DGCL at the time of the Closing (as defined in
Section 1.7 hereof). The Merger shall become effective upon filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, or
at such later time as may be agreed to by the parties and set forth in the
Certificate of Merger. The time of effectiveness is herein referred to as the
"Effective Time." The day on which the Effective Time shall occur is herein
referred to as the "Effective Date."
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1.4. Certificate of Incorporation; Bylaws. From and after the Effective Time
and until further amended in accordance with applicable law, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation,
as amended in the Certificate of Merger to change the name of the Surviving
Corporation to that of the Company. From and after the Effective Time and until
further amended in accordance with law, the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation.
1.5. Directors and Officers. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Merger Sub immediately prior to the Effective Time, and the
officers of the Surviving Corporation shall be the persons who were the
officers of Merger Sub immediately prior to the Effective Time. Said directors
and officers of the Surviving Corporation shall hold office for the term
specified in, and subject to the provisions contained in, the Certificate of
Incorporation and Bylaws of the Surviving Corporation and applicable law. If,
at or after the Effective Time, a vacancy shall exist on the Board of Directors
or in any of the offices of the Surviving Corporation, such vacancy shall be
filled in the manner provided in the Certificate of Incorporation and Bylaws of
the Surviving Corporation.
1.6. Taking of Necessary Action; Further Action. Parent, Merger Sub and the
Company, respectively, shall each use its or their reasonable best efforts to
take all such action as may be necessary or appropriate to effectuate the
Merger under the DGCL at the time specified in Section 1.3 hereof. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all properties, rights, privileges,
immunities, powers and franchises of either of the Constituent Corporations,
the officers of the Surviving Corporation are fully authorized in the name of
each Constituent Corporation or otherwise to take, and shall take, all such
lawful and necessary action.
1.7. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of the Company within
two business days after the date on which the last of the conditions set forth
in Article VI shall have been satisfied or waived, or at such other place and
on such other date as is mutually agreeable to Parent and the Company (the
"Closing Date"). The Closing will be effective as of the Effective Time.
ARTICLE II
CONVERSION OF SECURITIES
2.1. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company,
the holder of any shares of Company Common Stock (defined below) or the holder
of any options, warrants or other rights to acquire or receive shares of
Company Common Stock, the following shall occur:
(a) Conversion of Company Common Stock. At the Effective Time, and
subject to the provisions of Section 2.1(b) below, each share of common
stock, par value $.01 per share, of the Company (the "Company Common
Stock") issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Common Stock to be canceled pursuant to
Section 2.1(c)) will be canceled and extinguished and be converted
automatically into the right to receive that number of shares (the
"Exchange Ratio") of common stock, par value $.01 per share, of the Parent
(the "Parent Common Stock") which is equal to the Per Share Price, as
defined in (i) below, divided by the Parent Average Price, as defined in
(ii) below.
(i) The term "Per Share Price" means:
(A) If the Parent Average Price is $95.00 or more, $10.55;
(B) If the Parent Average Price is $88.00 or less, $10.08; and
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(C) If the Parent Average Price is more than $88.00 and less than
$95.00, the sum of $10.08 plus the product of
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Parent Average
Price - $88.00
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$0.47 X ( )
$7.00
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(ii) The term "Parent Average Price" means the average closing price
per share of Parent Common Stock on the New York Stock Exchange for the
ten consecutive trading days ending with and including the second
business day preceding the Closing Date; provided, that if the amount
so calculated is more than $113.00, the term "Parent Average Price"
shall mean $113.00.
(b) Parent Election to Pay in Cash. Notwithstanding the provisions of
Section 2.1(a), if the Parent Average Price is $88.00 or less, Parent may
elect (the "Election"), by means of written notice delivered to the Company
prior to or at the Closing Date, that each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
any shares of Company Common Stock to be canceled pursuant to Section
2.1(c) and other than any Dissenting Shares, as such term is defined in
Section 2.4) will be canceled and extinguished and be converted
automatically into the right to receive from Parent an amount of cash equal
to the Per Share Price. If Parent makes the Election, each such share of
Company Common Stock shall, at the Effective Time, be canceled and
extinguished and be converted automatically into the right to receive such
amount of cash.
(c) Cancellation of Company Common Stock Owned by Parent or the
Company. At the Effective Time, all shares of Company Common Stock that are
owned by Company as treasury stock and each share of Company Common Stock
owned by Parent or any direct or indirect wholly owned subsidiary of Parent
or of the Company immediately prior to the Effective Time shall be canceled
and extinguished without any conversion thereof.
(d) Company Stock Option Plans. At the Effective Time the 1995 Stock
Option Plan, the 1996 Stock Option Plan, the 1995 Directors' Stock Option
Plan, the 1996 Non-Employee Director Stock Option Plan, the 1998 CEO Stock
Option Plan, the 1999 Executive Stock Option and Ownership Plan, the 2000
Non-Employee Director Stock Plan, the Medicus 1989 Stock Option Plan, and
the Medicus 1991 Stock Option Plan (collectively, the "Company Stock Option
Plans") and all options to purchase Company Common Stock then outstanding
under the Company Stock Option Plans shall be assumed by Parent in
accordance with Section 2.2 hereof.
(e) Capital Stock of Merger Sub. At the Effective Time, each share of
common stock, $0.01 par value, of Merger Sub ("Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, $0.01 par value, of the Surviving
Corporation, and the Surviving Corporation shall be a wholly owned
subsidiary of Parent. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio, and the dollar
amounts set forth in Sections 2.1(b) and 2.2(a), shall be adjusted in the
event of any stock split, reverse split, stock dividend (including any
dividend or distribution of securities convertible into Parent Common
Stock), reorganization, recapitalization or other like change with respect
to Parent Common Stock occurring after the execution of this Agreement and
prior to the Effective Time, so as to provide holders of Company Common
Stock and Company Options the same economic effect as contemplated by this
Agreement prior to such stock split, reverse split, stock dividend,
reorganization, recapitalization or other like change.
(g) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall receive from Parent an amount of
cash (rounded to the nearest whole cent)
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equal to the product of (i) such fraction, multiplied by (ii) the closing
price for a share of Parent Common Stock on the New York Stock Exchange on
the last full trading day prior to the Effective Time.
2.2. Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares of
Company Common Stock under the Company Stock Option Plans (each, a "Company
Option"), whether vested or unvested, shall be assumed by Parent and converted
into an option (each, a "Parent Option") to acquire, on substantially the same
terms and conditions, including but not limited to any performance criteria set
forth in the applicable stock option agreements (provided, that notwithstanding
any termination of employment with Parent or any resignation as a director of
the Company, each optionee shall be deemed, solely for the purposes of such
Parent Option, to be an employee or director, as the case may be, for the
entire term of each such Parent Option), as were applicable under such Company
Option, the number of whole shares of Parent Common Stock equal to the number
of shares of Company Common Stock that were issuable upon exercise of such
Company Option immediately prior to the Effective Time multiplied by the
Exchange Ratio (calculated, if the Election is made, based on the greater of
the Parent Average Price determined as set forth in Section 2.1(a)(ii) or a
Parent Average Price of $80.00 per share, and in any event rounded down to the
nearest whole number of shares of Parent Common Stock), and the per share
exercise price of the shares of Parent Common Stock issuable upon exercise of
such Parent Option shall be equal to the exercise price per share of Company
Common Stock at which such Company Option was exercisable immediately prior to
the Effective Time divided by the Exchange Ratio (calculated, if the Election
is made, as set forth above, and in any event rounded up to the nearest whole
cent). The Company shall not, and shall cause any Company Stock Option Plan
administrator not to, take any action prior to the Effective Time that will
extend the exercise period of any Company Option or cause the vesting period of
any Company Option to accelerate under any circumstances (other than as may
already be provided by the terms of such Company Option or as is contemplated
by this Section 2.2(a)), regardless of whether such circumstances are to occur
before or after the Effective Time, or otherwise amend the terms of outstanding
Company Options.
(b) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of the Parent Options and to file all documents required to be filed to cause
the shares of Parent Common Stock issuable upon exercise of the Parent Options
to be listed on the New York Stock Exchange. As soon as practicable after the
Effective Time, but no later than five business days after the Effective Time,
Parent shall file a registration statement with the U.S. Securities and
Exchange Commission (the "SEC") on Form S-8 (or any successor form) or another
appropriate form with respect to the Parent Common Stock subject to such Parent
Options, and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
Parent Options remain outstanding. As soon as practicable after the Effective
Time, Parent shall inform in writing the holders of Company Options of their
rights pursuant to the Company Stock Option Plans and the agreements evidencing
the grants of such Company Options shall continue in effect on the same terms
and conditions (subject to the adjustments required by Section 2.2(a) hereof),
after giving effect to the Merger and the assumption by Parent of the Company
Options as set forth herein.
2.3. Exchange of Certificates.
(a) Prior to the Effective Time, Parent shall designate a commercial bank,
trust company or other financial institution, which may include Parent's stock
transfer agent, to act as exchange agent ("Exchange Agent") in the Merger.
(b) If the Election is not made, promptly after the Effective Time Parent
shall make available to the Exchange Agent for exchange in accordance with this
Article II, (i) the aggregate number of shares of Parent Common Stock issuable
pursuant to Section 2.1 in exchange for outstanding shares of Company Common
Stock, and (ii) cash in an amount sufficient to permit payment of cash in lieu
of fractional shares pursuant to Section 2.1(g). If the Election is made,
promptly after the Effective Time Parent shall deposit with the Exchange Agent
the aggregate amount of cash payable pursuant to Section 2.1 with respect to
outstanding
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shares of Company Common Stock. The shares, if any, and cash so made available
or deposited with the Exchange Agent are referred to herein as the "Exchange
Fund."
(c) Promptly, and in any event no later than ten business days after the
Effective Time, the Parent shall cause to be mailed to each holder of record of
a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates") (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent, and shall be in such form
and have such other provisions as Parent may reasonably specify and which shall
be reasonably acceptable to the Company) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock (and cash in lieu of fractional
shares) or, if the Election is made, in exchange for cash. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal, duly completed and validly executed, and such other documents
as may be reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange a certificate representing
the number of whole shares of Parent Common Stock, plus cash in lieu of
fractional shares in accordance with Section 2.1(g), to which such holder is
entitled pursuant to Section 2.1, or, if the Election is made, cash as provided
in Section 2.1, and the Certificate so surrendered shall forthwith be canceled.
Until surrendered as contemplated by this Section 2.3, each Certificate that,
prior to the Effective Time, represented shares of Company Common Stock will be
deemed from and after the Effective Time, for all corporate purposes, other
than the payment of dividends, to evidence the right to receive the number of
full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive an amount of cash
in lieu of the issuance of any fractional shares in accordance with Section
2.1(g) or, if the Election is made, cash as provided in Section 2.1.
(d) If the Election is not made, no dividends or other distributions
declared or made after the Effective Time with respect to Parent Common Stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. In such event, subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) None of Parent, the Surviving Corporation or the Exchange Agent shall be
liable to any holder of shares of Company Common Stock for any amount properly
delivered to a public official in compliance with any abandoned property,
escheat or similar law.
(f) At the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock except as
otherwise provided in this Agreement or by law.
(g) Subject to any applicable escheat or similar laws, any portion of the
Exchange Fund that remains unclaimed by the former stockholders of the Company
for one year after the Effective Time shall be delivered by the Exchange Agent
to Parent, upon demand of Parent, and any former stockholders of the Company
shall thereafter look only to Parent for satisfaction of their claim for
certificates representing shares of Parent Common Stock (and cash in lieu of
fractional shares) or, if the Election is made, cash, in exchange for their
shares of Company Common Stock pursuant to the terms of Section 2.1 hereof.
(h) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact, in form and substance acceptable to the
Exchange Agent, by the person claiming such Certificate to be lost, stolen or
destroyed, and complying with such other conditions as the Exchange Agent may
reasonably impose (including the execution of an indemnification undertaking or
the posting of an indemnity bond or other surety in favor of the Exchange Agent
and Parent with respect to the Certificate alleged to be lost, stolen or
5
<PAGE>
destroyed), the Exchange Agent will deliver to such person, such shares of
Parent Common Stock and cash in lieu of fractional shares, if any, or, if the
Election is made, cash, as may be required pursuant to Section 2.1.
2.4. Dissenting Shares. For purposes of this Agreement, the term "Dissenting
Shares" means any shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time with respect to which appraisal rights
apply under Section 262 of the DGCL and held by a holder who has not voted in
favor of the Merger or consented thereto in writing and who has demanded
properly in writing appraisal for such shares in accordance with Section 262 of
the DGCL. Notwithstanding any provision of this Agreement to the contrary,
Dissenting Shares shall not be converted into the right to receive the
consideration provided for in Section 2.1(b), and holders of such Dissenting
Shares shall be entitled to receive payment of the appraised value of such
Dissenting Shares in accordance with the provisions of Section 262 of the DGCL
unless and until such holders fail to perfect or effectively withdraw or
otherwise lose their rights to appraisal and payment under the DGCL. If, after
the Effective Time, any such holder fails to perfect or effectively withdraws
or otherwise loses such right, such Dissenting Shares shall thereupon be
treated as if they had been converted into and become exchangeable for, at the
Effective Time, the right to receive the consideration provided for in Section
2.1(b), without any interest thereon. Notwithstanding anything to the contrary
contained in this Section 2.4, if (a) the Merger is rescinded or abandoned or
(b) the stockholders of the Company revoke the authority to effect the Merger,
then the right of any stockholder to be paid the fair value of such
stockholder's Dissenting Shares pursuant to Section 262 of the DGCL shall
cease. The Company shall give Parent prompt notice of any demands received by
the Company for appraisals of Dissenting Shares. The Company shall not, except
with the prior written consent of Parent, make any payment with respect to any
demands for appraisals or offer to settle or settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Merger Sub and Parent that the
statements contained in this Article III are true and correct, except as set
forth in the letter delivered by the Company to Merger Sub on the date hereof
(the "Company Disclosure Letter") (which Company Disclosure Letter sets forth
the exceptions to the representations and warranties contained in this Article
III under captions referencing the Sections to which such exceptions apply):
3.1. Organization and Qualification. Each of the Company and its
Subsidiaries (as defined below) is a company (including a corporation, a
limited liability company, a limited partnership or a similar entity with
corporate characteristics including limited liability of stockholders or other
owners) duly organized, validly existing, duly registered (if applicable) and,
if applicable, in good standing under the laws of the jurisdiction of its
organization and each such entity has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of the Company and its Subsidiaries is duly
qualified or licensed to carry on its business as it is now being conducted,
and is qualified to conduct business, in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified that would not,
individually or in the aggregate, have, or would not reasonably be expected to
have, a Company Material Adverse Effect (as defined below). Neither the Company
nor any of its Subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or other applicable charter document (any such
document of any business entity hereinafter referred to as its "Charter
Document") or its Bylaws, or other applicable governing document (any such
documents of any business entity hereinafter referred to as its "Governing
Document"). As used in this Agreement, the term "Company Material Adverse
Effect" means any change, effect, event or condition that (i) has a material
adverse effect on the assets, business, results of operations, condition
(financial or other) or prospects of the Company and its Subsidiaries, taken as
a whole, or (ii) would prevent or materially delay the Company's ability to
consummate the transactions contemplated hereby. As used in this Agreement, the
term "Subsidiary" when used with respect to any party means any corporation or
other organization, whether
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incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions.
3.2. Capital Stock of Subsidiaries. Neither the Company nor any of its
Subsidiaries owns, controls or holds with the power to vote, directly or
indirectly, of record, beneficially or otherwise, any share capital, capital
stock or any equity or ownership interest in any company, corporation, limited
liability company, partnership, association, joint venture, business, trust or
other entity, except for the Subsidiaries described in the Company SEC Reports
(as defined in Section 3.6(a) hereof) or listed in Section 3.2 of the Company
Disclosure Letter, and except for ownership of securities in any publicly
traded company held for investment by the Company or any of its Subsidiaries
and comprising less than five percent of the outstanding stock of such company.
Except as set forth in Section 3.2 of the Company Disclosure Letter, the
Company is directly or indirectly the registered, record and beneficial owner
of all of the outstanding share capital or shares of capital stock (or other
ownership interests having by their terms ordinary voting power to elect a
majority of directors or others performing similar functions with respect to
such Subsidiary) of each of its Subsidiaries, there are no proxies with respect
to such shares, and no equity securities of any of such Subsidiaries are or may
be required to be issued by reason of any options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, share capital or
shares of any capital stock of any such Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which the Company or any such
Subsidiary is bound to issue, transfer or sell any share capital or shares of
such capital stock or securities convertible into or exchangeable for such
shares. Other than as set forth in Section 3.2 of the Company Disclosure
Letter, all of such shares so owned by the Company are validly issued, fully
paid and nonassessable and are owned by it free and clear of any claim, lien,
pledge, security interest or other encumbrance of any kind (collectively
"Liens") with respect thereto other than restrictions on transfer pursuant to
applicable securities laws.
3.3. Capitalization. (a) The authorized capital stock of the Company
consists of 10,000,000 shares of Company Common Stock, 1,000,000 shares, par
value $.0l per share, of Preferred Stock; and 6.85 shares, par value $1,000 per
share, of Voting Preferred Stock (such Preferred Stock and Voting Preferred
Stock being referred to herein collectively as the "Company Preferred Stock").
As of the date hereof, (i) 5,157,694 shares of Company Common Stock were issued
and outstanding, (ii) no shares of Company Preferred Stock were issued and
outstanding, (iii) the Company had no shares of Company Common Stock held in
its treasury, (iv) 1,673,797 shares of Company Common Stock were reserved for
issuance under the Company Stock Option Plans and the Company's Employee Stock
Purchase Plan (the "ESPP"), (v) Company Options to purchase 1,067,627 shares of
Company Common Stock in the aggregate had been granted and remained outstanding
under the Company Stock Option Plans, (vi) warrants to purchase 10,000 shares
of Company Common Stock (the "Warrants") were outstanding, (vii) $300,000
principal amount of notes convertible into 77,922 shares of Company Common
Stock (the "Convertible Notes") were outstanding, and (viii) except for the
Company Options, the Warrants, the Convertible Notes, and rights to the
issuance of 208,281 shares of Company Common Stock in the aggregate under the
ESPP, there were no outstanding Rights (defined below). Except as set forth
above or in Section 3.3 of the Company Disclosure Letter, the Company has no
outstanding bonds, debentures, notes or other securities or obligations the
holders of which have the right to vote or which are convertible into or
exercisable for securities having the right to vote on any matter on which any
stockholder of the Company has a right to vote. All issued and outstanding
shares of Company Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are not as of the date
hereof any existing options, warrants, stock appreciation rights, stock
issuance rights, calls, subscriptions, convertible securities or other rights
which obligate the Company or any of its Subsidiaries to issue, exchange,
transfer or sell any shares in the capital of the Company or any of its
Subsidiaries, other than Company Common Stock issuable under the Company Stock
Option Plans, the Warrants, the Convertible Notes and the ESPP, or awards
granted pursuant thereto (collectively, "Rights"). As of the date hereof, there
are no outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, reprice, redeem or otherwise acquire any shares of
the capital of the Company or any of its Subsidiaries. As of the date hereof,
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there are no outstanding contractual obligations of the Company to vote or to
dispose of any shares in the capital of any of its Subsidiaries. The Company
does not hold any rights to repurchase any shares of Company Common Stock which
are subject to unvested Company Options or other Rights.
(b) Subsequent to May 31, 2000, the Company has not issued any shares of
Company Common Stock or Company Preferred Stock, or issued any Company Options
or other Rights, or amended the terms of any of the Company Stock Option Plans,
Company Options, or other Rights or the instruments or agreements under which
such Rights are outstanding, or waived any of the terms or conditions of any
such Company Stock Option Plans, Company Options, other Rights, instruments or
agreements, except as contemplated by Section 2.2(a) and except for (i) Company
Options to purchase an aggregate of 50,000 shares of Company Common Stock which
were granted on June 1, 2000 under the Company's 2000 Non-Employee Director
Stock Plan, (ii) an aggregate of 25,000 shares of restricted Company Common
Stock which were issued on June 1, 2000 under the Company's 2000 Non-Employee
Director Stock Plan, and (iii) an aggregate of 14,645 shares of Company Common
Stock issued subsequent to May 31, 2000 upon the exercise of Company Options
that were issued before such date.
3.4. Authority Relative to this Agreement. The Company has the requisite
corporate power and authority to execute and deliver, and perform its
obligations under, this Agreement and, subject to obtaining the necessary
approval of its stockholders, to consummate the Merger and the other
transactions contemplated hereby under applicable law. The execution and
delivery of this Agreement and the consummation of the Merger and other
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of the Company and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or to consummate
the Merger or other transactions contemplated hereby (other than approval by
the Company's stockholders required by applicable law). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Merger Sub,
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors
rights generally or by general equitable principles.
3.5. No Conflict; Required Filings and Consents.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 3.5(b) hereof, neither the execution and delivery of this Agreement by
the Company nor the consummation of the Merger or other transactions
contemplated hereby nor compliance by the Company with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination or
suspension of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any of its Subsidiaries
under, any of the terms, conditions or provisions of (x) their respective
Charter Documents or Governing Documents, (y) any note, bond, charge, lien,
pledge, mortgage, indenture or deed of trust to which the Company or any such
Subsidiary is a party or to which they or any of their respective properties or
assets may be subject, or (z) any license, lease, agreement or other instrument
or obligation to which the Company or any such Subsidiary is a party or to
which they or any of their respective properties or assets may be subject, or
(ii) violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or any of its Subsidiaries or any
of their respective properties or assets, except for, in the case of clauses
(i)(y), (i)(z) and (ii), such defaults or violations as are set forth in
Section 3.5 of the Company Disclosure Letter.
(b) No filing or registration with or notification to and no permit,
authorization, consent or approval of any court, commission, governmental body,
regulatory authority, agency or tribunal wherever located (a "Governmental
Entity") is required to be obtained, made or given by the Company in connection
with the execution and delivery of this Agreement or the consummation by the
Company of the Merger or other transactions contemplated hereby except (i) the
filing of the Certificate of Merger as provided in Section 1.3 hereof, (ii) in
connection with the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements
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<PAGE>
Act of 1976, as amended (the "HSR Act"), (iii) the filing of the Proxy
Statement/Prospectus (as defined in Section 3.26 hereof) and such reports under
Sections 13(a), 13(d), 15(d) or 16(a) with the SEC in accordance with the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act") and the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), as may be required in connection with this Agreement and the
transactions contemplated hereby, (iv) as shown on Section 3.5(b) of the
Company Disclosure Letter, or (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable state securities laws and the laws of any country other than
the United States.
3.6. SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports, schedules, statements and
other documents required to be filed by it since May 31, 1997 to the date
hereof (collectively, as supplemented and amended since the time of filing, the
"Company SEC Reports") with the SEC. The Company SEC Reports (i) were prepared
in all material respects in compliance with all applicable requirements of the
Securities Act and the Exchange Act, as the case may be and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The representation in clause (ii) of the preceding
sentence does not apply to any misstatement or omission in any Company SEC
Report filed prior to the date of this Agreement which was superseded by a
subsequent Company SEC Report filed prior to the date of this Agreement. No
Subsidiary of the Company is required to file any report, form or other
document with the SEC.
(b) The audited consolidated financial statements and unaudited consolidated
interim financial statements of the Company and its Subsidiaries included or
incorporated by reference in such Company SEC Reports (collectively, the
"Financial Statements") have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be otherwise indicated in the notes
thereto) and present fairly, in all material respects, the financial position
and results of operations and cash flows of the Company and its Subsidiaries on
a consolidated basis at the respective dates and for the respective periods
indicated (except, in the case of all such Financial Statements that are
interim financial statements, for footnotes and normal year-end adjustments).
(c) Neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether absolute, accrued, unmatured, contingent or
otherwise whether due or to become due, known or unknown, or any unsatisfied
judgments or any leases of personalty or realty or unusual or extraordinary
commitments, in each such case, that are required to be disclosed under United
States generally accepted accounting principles, except (i) as set forth in the
Company SEC Reports or in Section 3.6(c) of the Company Disclosure Letter, (ii)
the liabilities recorded on the Company's consolidated balance sheet at May 31,
2000 (the "Balance Sheet") included in the financial statements referred in
Section 3.6(a) hereof and the notes thereto, or (iii) liabilities or
obligations incurred since May 31, 2000 in the ordinary course of business and
consistent with past practice.
3.7. Absence of Changes or Events. Except as set forth in Section 3.7 of the
Company Disclosure Letter or in the Company SEC Reports, since May 31, 2000,
through the date of this Agreement, neither the Company nor any of its
Subsidiaries have incurred any liability or obligation that has resulted or
would reasonably be expected to result in a Company Material Adverse Effect,
and there has not been any change in the business, financial condition or
results of operations of the Company or any of its Subsidiaries which has had,
or would reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect, and the Company and its Subsidiaries have
conducted their respective businesses in the ordinary course consistent with
their past practices.
3.8. Absence of Certain Developments. Except as disclosed in the Company SEC
Reports or as set forth in Section 3.8 of the Company Disclosure Letter, since
May 31, 2000, the Company has not taken any of the actions set forth in Section
5.1 hereof.
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<PAGE>
3.9. Litigation. Except as disclosed in the Company SEC Reports or as set
forth in Section 3.9 of the Company Disclosure Letter, there is no (a) claim,
action, suit or proceeding pending or overtly threatened against or relating to
the Company or any of its Subsidiaries before any Governmental Entity,
(b) alternative dispute resolution proceeding pending or overtly threatened
against the Company or any of its Subsidiaries, or (c) outstanding judgment,
order, writ, injunction or decree (collectively, "Orders"), or application,
request or motion therefor, of any Governmental Entity in a proceeding to which
the Company, any Subsidiary of the Company or any of their respective assets
was or is a party, and neither the Company nor any Subsidiary is in default in
any material respect with respect to any such Order.
3.10. Title to Properties. The Company does not own any real property. The
Company has heretofore made available to Parent correct and complete copies of
all leases, subleases and other agreements (collectively, the "Real Property
Leases") under which the Company or any of its Subsidiaries uses or occupies or
has the right to use or occupy, now or in the future, any real property or
facility (the "Leased Real Property"), including without limitation all
modifications, amendments and supplements thereto. Except as otherwise set
forth in Section 3.10 of the Company Disclosure Letter, (i) the Company or one
of its Subsidiaries has a valid leasehold interest in each parcel of Leased
Real Property free and clear of all Liens except liens of record and liens for
taxes not yet due and payable, and such imperfections of title and
encumbrances, if any, as are not substantial in character, amount or extent and
do not materially detract from the value, or materially interfere with the
present use, of such properties or otherwise impair business operations in any
material respect ("permitted liens") and each Real Property Lease is in full
force and effect, (ii) all rent and other sums and charges due and payable by
the Company or its Subsidiaries as tenants thereunder are current in all
material respects, (iii) no termination event or condition or uncured default
of a material nature on the part of the Company or any such Subsidiary or, to
the knowledge of the Company, the landlord, exists under any Real Property
Lease, (iv) the Company or one of its Subsidiaries is in actual possession of
each Leased Real Property and is entitled to quiet enjoyment thereof in
accordance with the terms of the applicable Real Property Lease and applicable
law, and (v) the Company and its Subsidiaries own outright all of the real and
personal property (except for leased property or assets for which it has a
valid and enforceable right to use) which is reflected on the Balance Sheet,
except for property since sold or otherwise disposed of in the ordinary course
of business and consistent with past practice and except for liens of record
and other permitted liens. The plant, property and equipment of the Company and
its Subsidiaries that are used in the operations of their businesses are in
good operating condition and repair, subject to ordinary wear and tear, and,
subject to normal maintenance, are available for use.
3.11. Certain Contracts. Except as set forth in Section 3.11 of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries has
breached, or received in writing any claim or notice that it has breached, any
of the terms or conditions of (i) any agreement, contract or commitment
required to be filed as an exhibit to the Company SEC Reports (including any
agreements, contracts or commitments entered into since May 31, 2000, that will
be required to be filed by the Company with the SEC in any report), (ii) any
agreements, contracts or commitments with suppliers, sales representatives, or
customers of the Company or others with whom the Company does business pursuant
to which the Company recognized revenues or payments in excess of $1,000,000
for the twelve-month period ending May 31, 2000 or anticipates recognizing
revenues or payments in excess of $1,000,000 for the twelve-month period ended
May 31, 2001, or (iii) any agreements, contracts or commitments containing
covenants that limit the ability of the Company or any of its Subsidiaries to
compete in any line of business or with any Person (as defined in Section 8.5
hereof), or that include any exclusivity provision or involve any restriction
on the geographic area in which the Company or any of its Subsidiaries may
carry on its business (collectively, "Company Material Contracts"). Section
3.11 of the Company Disclosure Letter lists each Company Material Contract
described in clauses (ii) and (iii) of the preceding sentence. Each Company
Material Contract that has not expired by its terms is in full force and effect
and is the legal, valid and binding obligation of the Company and/or its
Subsidiaries, enforceable against them in accordance with its terms except as
set forth in Section 3.11 of the Company Disclosure Letter, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as set forth
in Section 3.11 of the Company
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Disclosure Letter, no consent, approval, waiver or authorization of, or notice
to any Person is needed in order that each contract or other agreement to which
the Company or any of its Subsidiaries is a party shall continue in full force
and effect in accordance with its terms without penalty, acceleration or rights
of early termination by reason of the consummation of the Merger and the other
transactions contemplated by this Agreement.
3.12. Compliance with Law.
(a) All activities of the Company and its Subsidiaries have been, and are
currently being, conducted in compliance in all material respects with all
applicable United States federal, state, local and all provincial and other
foreign laws, ordinances, regulations, interpretations, judgments, decrees,
injunctions, permits, licenses, certificates, governmental requirements, Orders
and other similar items of any court or other Governmental Entity or any
nongovernmental self-regulatory agency, including without limitation all Health
Benefit Laws (as defined in (b) below), and no notice has been received by the
Company or any Subsidiary of any claims filed against the Company or any
Subsidiary alleging a violation of any such laws, regulations or other
requirements. The Company Stock Option Plans and the ESPP have been duly
authorized, approved and operated in compliance in all material respects with
all applicable securities, corporate and other laws of each jurisdiction in
which participants of such plans are located. The Company and its Subsidiaries
have all permits, licenses and franchises from Governmental Entities required
to conduct their businesses as now being conducted, including without
limitation those applicable to a long-term care plan, health maintenance
organization, third-party administrator or other managed care, insurance,
reinsurance or third-party administrator business ("Managed Care
Organization"), or to a Medicare or Medicaid (as such terms are defined in (b)
below) contractor.
(b) For purposes of this Agreement, (i) the term "Health Benefit Law" means
any laws relating to the licensure, certification, qualification or authority
to transact business relating to the provision of, or payment for, or both the
provision of and payment for, health benefits or insurance coverage, including
without limitation the Employee Retirement Income Security Act of 1974, the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, the Health
Insurance Portability and Accountability Act of 1996, and laws relating to the
regulation of Managed Care Organizations, utilization review, coordination of
benefits, fraud and abuse and patient referrals, and Medicare and Medicaid
participation; (ii) the term "Medicaid" means the applicable provision of Title
XIX of the Social Security Act and the regulations promulgated thereunder, and
the state laws and regulations implementing the Medicaid program; and (iii) the
term "Medicare" means the applicable provisions of Title XVIII of the Social
Security Act and the regulations promulgated thereunder.
3.13. Intellectual Property Rights; Year 2000.
(a) The Company and its Subsidiaries own, or are validly licensed or
otherwise possess legally enforceable rights to use, all patents, trademarks,
trade names, service marks, domain names and copyrights, any applications for
and registrations of such patents, trademarks, trade names, service marks,
domain names and copyrights, and all database rights, net lists, processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of the Company and its Subsidiaries
as currently conducted or, except as set forth in Section 3.13(a) of the
Company Disclosure Letter, as presently planned to be conducted as set forth in
writing by the Company (the "Company Intellectual Property Rights"). The
Company and its Subsidiaries have taken all action reasonably necessary to
protect the Company Intellectual Property Rights which is customary in the
industry, including, without limitation, use of reasonable secrecy measures to
protect the trade secrets included in the Company Intellectual Property Rights.
(b) All patents, registered trademarks, service marks, domain names and
copyrights held by the Company or any of its Subsidiaries, are valid and, with
respect to registrations of the foregoing, subsisting. The Company (i) has not
been sued in any suit, action or proceeding, or received in writing any claim
or notice, which involves a claim of infringement or misappropriation of any
patents, trademarks, service marks, domain names, copyrights or violation of
any trade secret or other proprietary right of any third party; and has no
reason to believe that the marketing, licensing or sale of its products or
services infringe upon, misappropriate or otherwise come into conflict with any
patent, trademark, service mark, copyright, trade secret or other
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proprietary right of any third party. To the knowledge of the Company, no other
Person has interfered with, infringed upon or otherwise come into conflict with
any Company Intellectual Property Rights or other proprietary information of
the Company or any of its Subsidiaries which has or would, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(c) Each employee, agent, consultant or contractor who has materially
contributed to or participated in the creation or development of any
copyrightable, patentable or trade secret material (including, without
limitation, computer software programs) on behalf of the Company, any of its
Subsidiaries or any predecessor in interest thereto either: (i) is a party to
an agreement under which the Company or such Subsidiary is deemed to be the
original owner/author of all property rights therein; or (ii) has executed an
assignment or an agreement to assign in favor of the Company, such Subsidiary
or such predecessor in interest, as applicable, all right, title and interest
in such material.
(d) Other than in the ordinary course of business, neither the Company nor
any of its Subsidiaries has granted any license or other right to any third
party with respect to any Company Intellectual Property Rights. The
consummation of the transactions contemplated by this Agreement will not result
in the termination or impairment of any of the Company Intellectual Property
Rights.
(e) With respect to each license or other agreement pursuant to which the
Company or any of its Subsidiaries has obtained the right to use Company
Intellectual Property Rights from others (each, a "License"): (i) such License
is valid and binding and in full force and effect and represents the entire
agreement between the respective licensor and licensee with respect to the
subject matter of such License; (ii) such License will not cease to be valid
and binding and in full force and effect on terms identical to those currently
in effect as a result of the consummation of the transactions contemplated by
this Agreement, nor will the consummation of the transactions contemplated by
this Agreement constitute a breach or default under such License or otherwise
give the licensor a right to terminate such License; (iii) neither the Company
nor any of its Subsidiaries has (A) received any notice of termination or
cancellation under such License, (B) received any notice of breach or default
under such License, which breach has not been cured, or (C) granted to any
other third party any rights, adverse or otherwise, under such License that
would constitute a breach of such License; and (iv) neither the Company or any
of its Subsidiaries nor, to the Company's knowledge, any other party to such
license is in breach or default thereof in any material respect, and no event
has occurred that, with notice or lapse of time, would constitute such a
material breach or default or permit termination, modification or acceleration
under such License.
(f) To the knowledge of the Company, the computer software programs owned,
licensed, or used by the Company and its Subsidiaries are free of all material
viruses, worms, trojan horses and other material contaminants and do not
contain any bugs, errors or problems of a material nature that disrupt their
operations in any material respect or have a materially adverse impact on the
operation of other software programs or operating systems. Neither the Company
nor any of its Subsidiaries exports or has exported any such computer software
programs outside the United States or imports or has imported any such computer
software programs into any country. No rights in such computer software
programs have been transferred to any third party except to the customers of
the Company and its Subsidiaries to whom such computer software programs have
been licensed in the ordinary course of business. None of such computer
software programs is licensed pursuant to an "open source" or "GNU" license, or
incorporates or is based on any computer software that is licensed pursuant to
an "open source" or "GNU" license. The Company and its Subsidiaries have the
right to use all software development tools, library functions, compilers, and
other computer software programs and elements thereof that are material to the
business of the Company or its Subsidiaries, or that are required to operate or
modify the computer software programs owned, licensed, or used by the Company
and its Subsidiaries.
3.14. Taxes.
(a) "Tax" or "Taxes" shall mean all United States federal, state,
provincial, local or foreign taxes and any other applicable duties, levies,
fees, charges and assessments that are in the nature of a tax, including
income, gross receipts, property, sales, use, license, excise, franchise, ad
valorem, value-added, transfer, social
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security payments, and health taxes and any deductibles relating to wages,
salaries and benefits and payments to subcontractors for any jurisdiction in
which the Company or any of its Subsidiaries does business (to the extent
required under applicable Tax law), together with all interest, penalties and
additions imposed with respect to such amounts.
(b) Except as set forth in (or resulting from matters set forth in) Section
3.14 of the Company Disclosure Letter:
(i) the Company and its Subsidiaries have prepared and timely filed with
the appropriate governmental agencies all franchise, income and all other
material Tax returns and reports required to be filed (collectively
"Returns"), taking into account any extension of time to file granted to or
obtained on behalf of the Company and/or its Subsidiaries;
(ii) all Taxes of the Company and its Subsidiaries shown on such Returns
or all Taxes otherwise known by the Company to be due or payable (including
the uncontested portion of any Taxes which are being contested) have been
timely paid in full to the proper authorities, other than such Taxes as are
being contested in good faith by appropriate proceedings or which are
adequately reserved for in accordance with generally accepted accounting
principles;
(iii) all deficiencies resulting from Tax examinations of income, sales
and franchise and all other material Returns filed by the Company and its
Subsidiaries in any jurisdiction in which such Returns are required to be
so filed have either been paid or are being contested in good faith by
appropriate proceedings;
(iv) no deficiency has been asserted or assessed against the Company or
any of its Subsidiaries which has not been satisfied or otherwise resolved,
and no examination of the Company or any of its Subsidiaries is pending or
overtly threatened for any amount of Tax by any taxing authority;
(v) no extension of the period for assessment or collection of any
material Tax is currently in effect and no extension of time within which
to file any Return has been requested, which Return has not since been
filed;
(vi) all Returns filed by the Company and its Subsidiaries are correct
and complete or adequate reserves have been established with respect to any
additional Taxes that may be due (or may become due) as a result of such
Returns not being correct or complete;
(vii) there are no Tax liens on any assets of the Company or any of its
Subsidiaries other than liens for Taxes not yet due or payable;
(viii) neither the Company nor any of its Subsidiaries have made since
May 31, 1997, and none will make, any voluntary adjustment by reason of a
change in their accounting methods for any pre-Merger period;
(ix) the Company and its Subsidiaries have made timely payments of the
Taxes required to be deducted and withheld from the wages paid to their
employees; and
(x) the Company and its Subsidiaries are not parties to any Tax sharing
or Tax matters agreement.
(c) The Company and its Subsidiaries are not parties to any agreement,
contract, or arrangement that would, as a result of the transactions
contemplated hereby, result, separately or in the aggregate, in (i) the
payment of any "excess parachute payments" within the meaning of Section 280G
of the Code by reason of the Merger or (ii) the payment of any form of
compensation or reimbursement for any Tax incurred by any Person arising under
Section 280G of the Code.
3.15. Employees.
(a) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement, arrangement or labor contract with a labor
union or labor organization, whether formal or otherwise. Section 3.15 of the
Company Disclosure Letter lists all employment, severance and change of
control agreements (or
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any other agreements that may result in the acceleration of outstanding
options) of the Company or its Subsidiaries. Each of the Company and its
Subsidiaries is in material compliance with all applicable laws (including,
without limitation, all applicable extension orders) respecting employment and
employment practices, terms and conditions of employment, equal opportunity,
anti-discrimination laws, and wages and hours. To the knowledge of the Company,
there is no labor strike, slowdown or stoppage, unfair labor practice
complaint, labor disturbance, discrimination charge or other employment-related
legal or administrative proceeding, governmental review, compliance audit, or
enforcement proceeding of any kind either pending or threatened against the
Company or any of its Subsidiaries.
(b) (i) Each current employee of the Company and its Subsidiaries and, to
the knowledge of the Company, each other employee of the Company and its
Subsidiaries hired after November 6, 1986, has completed, and the Company and
its subsidiaries have retained, an Immigration and Naturalization Service Form
I-9 in accordance with applicable rules and regulations (and the Company and
its Subsidiaries have not undergone any compliance review or inspection by the
Immigration and Naturalization Service with respect thereto); (ii) the Company
and its Subsidiaries have no non-immigrant employees whose status would
terminate or be otherwise affected by the transactions contemplated by this
Agreement; and (iii) Section 3.15 of the Company Disclosure Letter sets forth
the name and non-immigrant status of each employee of the Company who is an
alien who is authorized to work in the United States in non-immigrant status.
Upon the request of Parent, the Company will promptly provide to Parent or
Parent's attorneys copies of all immigration-related documents related to the
Company's non-immigrant employees which are in the possession of the Company or
its agents or attorneys.
3.16. Employee Benefit Plans.
(a) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and "Plan" means every plan, fund, contract, program and arrangement
(whether written or not) which is sponsored, maintained or contributed to by
the Company or its Subsidiaries for the benefit of present or former employees,
including those intended to provide: (i) medical, surgical, health care,
hospitalization, dental, vision, life insurance, death, disability, legal
services, severance, sickness or accident benefits (whether or not defined in
Section 3(1) of ERISA), (ii) pension, profit sharing, stock bonus, retirement,
supplemental retirement or deferred compensation benefits (whether or not tax
qualified and whether or not defined in Section 3(2) of ERISA), (iii) bonus,
incentive compensation, option, stock appreciation right, phantom stock or
stock purchase benefits, or (iv) salary continuation, supplemental
unemployment, termination pay, vacation or holiday benefits (whether or not
defined in Section 3(3) of ERISA).
(b) Section 3.16 of the Company Disclosure Letter sets forth each Plan by
name, and the funding arrangement for the Plan.
(c) There are no Plans subject to Title IV of ERISA or Code Section 412.
(d) No employer other than the Company and its Subsidiaries is permitted to
participate or participates in the Plans. No leased employees (as defined in
Section 414(n) of the Code) or independent contractors are eligible for, or
participate in, any Plan.
(e) The only entities which are members of a controlled group, under common
control with a trade or business, or part of an affiliated service group,
within the meaning of Code Section 414(b), (c), (m) or (o), which contains the
Company and its Subsidiaries are the Company and its Subsidiaries. The Company
and its Subsidiaries have no liability resulting from past memberships in any
Section 414 controlled group of corporations.
(f) There are no Plans which promise or provide health or life benefits to
retirees or former employees of the Company, or which provide severance
benefits to employees of the Company other than those identified in Section
3.16 of the Company Disclosure Letter, except as otherwise required by Code
Section 4980(B) or comparable state statute which provides for continuing
health care coverage.
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(g) No Plan that is intended to be qualified under Section 401(a) of the
Code has received or committed to receive a transfer of assets and/or
liabilities or spin-off from another plan, except transfers which qualify as
transfers from eligible rollover distributions within the meaning of Code
Section 402(c)(4).
(h) With respect to all Plans, to the extent that the following documents
exist, the Company has furnished Parent with true and complete copies of: (i)
the most recent determination letter, if any, received by the Company from the
IRS, (ii) all pending applications for rulings, determinations, opinions, no
action letters and the like filed with any governmental agency (including the
Department of Labor and the IRS), (iii) the Annual Report/Return (Form Series
5500) with financial statements, if any, and attachments for the three (3) most
recent plan years, and (iv) Plan documents (including any amendments thereto),
summary Plan descriptions, trust agreements, funding agreements/arrangements,
insurance contracts, service agreements and all related contracts and documents
(including any employee summaries and material employee communications).
(i) Each Plan has at all times been operated in substantial compliance with
ERISA, the Code, any other applicable law (including all reporting and
disclosure requirements thereunder) and the terms of the Plan. With respect to
each Plan that is intended to be qualified under Section 401(a) of the Code,
each such Plan has been determined by the IRS to be so qualified, and each
trust forming a part thereof has been determined by the IRS to be exempt from
tax pursuant to Section 501(a) of the Code. No reason exists which would cause
such qualified status to be revoked.
(j) No state of facts or conditions exist which reasonably could be expected
to subject the Company to any material liability (other than routine claims for
benefits) under the terms of any Plan or applicable law.
(k) All contributions, premiums, fees or charges due and owing to or in
respect of any Plan have been paid in full by the Company prior to the Closing,
in accordance with the terms of the Plan and all applicable laws, and no taxes,
penalties or fees are owing as a result of any Plan.
(l) The Company has not made or committed to make any material increase in
contributions or benefits under any Plan which would become effective either on
or after the Closing Date.
(m) No Plan is currently under audit or examination by the IRS or the United
States Department of Labor.
(n) The events contemplated in this Agreement will not trigger, or entitle
any current or former employee of the Company or its Subsidiaries to,
severance, termination or change in control payments under any Plan or
employment agreement.
(o) Benefits provided to participants under each Plan (other than a tax
qualified plan under Code Section 401(a)) are provided exclusively from the
general assets of the Company and/or through an insurance contract or welfare
benefit trust. The values of all assets associated with each Plan are readily
determinable on an established market or pursuant to an insurance contract.
(p) The Company can terminate each Plan, and withdraw from participation in
each group policy, without further liability to the Company, Merger Sub,
Parent, the Plan(s) or participants in such Plan(s).
3.17. Environmental Matters.
(a) The Company and its Subsidiaries (i) have been in material compliance
and are presently complying in all material respects with all applicable
health, safety and Environmental Laws (defined below), and (ii) have obtained
all material permits, licenses and authorizations which are required under all
applicable health, safety and Environmental Laws and are in compliance in all
material respects with such permits, licenses and authorizations. Except as
disclosed in the Company SEC Reports (i) to the Company's knowledge, none of
the Leased Real Property (including without limitation soils and surface and
ground waters) are contaminated with any Hazardous Materials in quantities
which require investigation or remediation under Environmental Laws, (ii)
neither the Company nor any of its Subsidiaries is liable for any off-site
contamination, and (iii) there is no
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environmental matter which could reasonably be expected to expose the Company
or any of its Subsidiaries to a claim to clean-up any Hazardous Materials or
otherwise to remedy any pollution or damage at any of the properties utilized
in the Company's business under any Environmental Laws.
(b) For purposes of this Agreement, the term (i) "Environmental Laws" means
all applicable United States federal, state, provincial, local and other
foreign laws, rules, regulations, codes, ordinances, orders, decrees,
directives, permits, licenses and judgments relating to pollution,
contamination or protection of the environment (including, without limitation,
all applicable United States federal, state, provincial, local and other
foreign laws, rules, regulations, codes, ordinances, orders, decrees,
directives, permits, licenses and judgments relating to Hazardous Materials in
effect as of the date of this Agreement), and (ii) "Hazardous Materials" means
any dangerous, toxic or hazardous pollutant, contaminant, chemical, waste,
material or substance as defined in or governed by any United States federal,
state, provincial, local or other foreign law, statute, code, ordinance,
regulation, rule or other requirement relating to such substance or otherwise
relating to the environment or human health or safety, including without
limitation any waste, material, substance, pollutant or contaminant that might
cause any injury to human health or safety or to the environment or might
subject the Company or any of its Subsidiaries to any imposition of costs or
liability under any Environmental Law.
3.18. Insurance. The Company has made available to Parent copies of all
material policies of insurance and bonds in force on the date hereof covering
the businesses, properties and assets of the Company and its Subsidiaries, and
all such policies are currently in effect and all premiums with respect thereto
have been duly paid to date. Except as disclosed in Section 3.18 of the Company
Disclosure Letter, there are no material claims outstanding under any insurance
policy, and neither the Company nor any of its Subsidiaries has failed to give
any notice or to present any such claim with respect to its business under any
such policy in due and timely fashion.
3.19. Foreign Corrupt Practices Act. Neither the Company nor any of its
Subsidiaries (nor any person representing the Company or any of its
Subsidiaries) has at any time during the last five years (a) made any payment
in violation of the Foreign Corrupt Practices Act or similar laws of other
countries where the Company engages in business, or (b) made any payment to any
foreign, federal, state or local governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
3.20. Finders or Brokers. Except for such Persons as set forth in Section
3.20 of the Company Disclosure Letter, whose fees will be paid by the Company,
none of the Company, the Subsidiaries of the Company, the Board of Directors of
the Company (the "Company Board") or any member of the Company Board has
employed any agent, investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or any commission in connection with the Merger or the other transactions
contemplated hereby. Section 3.20 of the Company Disclosure Letter sets forth
the Company's fee and expense arrangements with each Person identified therein.
3.21. Board Recommendation. The Company Board has, at a meeting of such
Company Board duly held on October 10, 2000, approved and adopted this
Agreement and the Merger and the other transactions contemplated hereby,
declared the advisability of the Merger and recommended that the stockholders
of the Company approve the Merger and the other transactions contemplated
hereby, and has not as of the date hereof rescinded or modified in any respect
any of such actions.
3.22. Vote Required. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date set for the
Company Stockholders Meeting (as defined in Section 3.26 hereof) is the only
vote of the holders of any of the Company's capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
3.23. Opinion of Financial Advisor3.24. Opinion of Financial Advisor. The
Company has received the opinion of Stephens Inc. dated the date of the meeting
of the Company Board referenced in Section 3.21 above, to the effect that, as
of such date, the consideration to be received by the holders of Company Common
Stock pursuant to Section 2.1 is fair, from a financial point of view, to the
holders of Company Common Stock.
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3.24. Tax Matters. Neither the Company nor any of its affiliates has taken
or agreed to take any action, or knows of any circumstances, that (without
regard to any action taken or agreed to be taken by Parent or any of its
affiliates) would prevent the business combination to be effected by the Merger
from constituting a transaction qualifying as a reorganization within the
meaning of Section 368 of the Code if the Election is not made.
3.25. State Takeover Statute. The Company Board has taken all actions so
that the restrictions contained in Section 203 of the DGCL applicable to a
"business combination" (as defined in Section 203 of the DGCL) will not apply
to the execution, delivery of performance of this Agreement or the consummation
of the Merger or the other transactions contemplated by this Agreement.
3.26. Registration Statement; Proxy Statement/Prospectus. The information
supplied by the Company for inclusion in the registration statement on Form S-4
(or such other or successor form as shall be appropriate) pursuant to which the
shares of Parent Common Stock to be issued in the Merger will be registered
with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The information supplied by the Company
for inclusion in the proxy statement/prospectus to be sent to the stockholders
of Company in connection with the meeting of Company's stockholders to consider
the Merger (the "Company Stockholders Meeting") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Proxy Statement/Prospectus") shall not, on the date the Proxy
Statement/Prospectus is first mailed to Company's stockholders, at the time of
the Company Stockholders Meeting and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading. If at any time prior to the Effective Time any event or
information should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent. Notwithstanding
the foregoing, the Company makes no representation, warranty or covenant with
respect to any information supplied by Parent or Merger Sub in writing
specifically for use in any of the foregoing documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT
Merger Sub and Parent represent and warrant to the Company that the
statements contained in this Article IV are true and correct, except as set
forth in the letter delivered by Parent to the Company on the date hereof (the
"Parent Disclosure Letter") (which Parent Disclosure Letter sets forth the
exceptions to the representations and warranties contained in this Article IV
under captions referencing the Sections to which such exceptions apply):
4.1. Organization and Qualification. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
with the corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Merger Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Merger Sub and Parent is duly qualified
or licensed to carry on its business as it is now being conducted, and is
qualified to conduct business, in each jurisdiction where the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified that would not,
individually or in the aggregate, have, or would not reasonably be expected to
have, a Parent Material Adverse Effect (as defined below). Neither Parent nor
Merger Sub is in violation of any of the provisions of its Charter
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Document or its Governing Document. As used in this Agreement, the term "Parent
Material Adverse Effect" means any change, effect, event or condition that (i)
has a material adverse effect on the assets, business, results of operations,
condition (financial or other) or prospects of Parent and its Subsidiaries,
taken as a whole, or (ii) would prevent or materially delay Merger Sub's or
Parent's ability to consummate the transactions contemplated hereby.
4.2. Capitalization. All issued and outstanding shares of Parent Common
Stock are duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights.
4.3. Authority Relative to this Agreement. Each of Parent and Merger Sub has
the requisite corporate power and authority to execute and deliver, and to
perform its obligations under, this Agreement under applicable law. The
execution and delivery by Parent and Merger Sub of this Agreement, and the
consummation of the Merger and the transactions contemplated hereby, have been
duly and validly authorized by all necessary corporate action on the part of
Parent and Merger Sub. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery of this Agreement by the Company, is a valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors rights generally or by general equitable
principles. The shares of Parent Common Stock to be issued by Parent pursuant
to the Merger if the Election is not made, as well as the Parent Options and
the shares of Parent Common Stock to be issued upon exercise thereof in such
event: (i) have been duly authorized, and, when issued in accordance with the
terms of the Merger and this Agreement (or the applicable option agreements),
will be validly issued, fully paid and nonassessable and will not be subject to
preemptive rights, (ii) will, when issued in accordance with the terms of the
Merger and this Agreement (or the applicable option agreements), be registered
under the Securities Act, and registered or exempt from registration under
applicable United States "Blue Sky" laws and (iii) will, when issued in
accordance with the terms of the Merger and this Agreement (or the applicable
option agreements), be listed on the New York Stock Exchange.
4.4. No Conflicts; Required Filings and Consents.
(a) Neither the execution, delivery or performance of this Agreement by
Merger Sub or Parent, nor the consummation of the transactions contemplated
hereby, nor compliance by Merger Sub or Parent with any provision hereof will
(i) conflict with or result in a breach of any provision of the Charter
Documents or Governing Documents of Merger Sub or Parent, (ii) cause a default
or give rise to any right of termination, cancellation or acceleration or loss
of a material benefit under, or result in the creation of any lien, charge or
other encumbrance upon any of the properties of Merger Sub or Parent under any
of the terms, conditions or provisions of any note, bond, mortgage or
indenture, or any other material instrument, obligation or agreement to which
Merger Sub or Parent is a party or by which its properties or assets may be
bound or (iii) violate any law applicable to Merger Sub or Parent or binding
upon any of its properties, except for, in the case of clauses (ii) and (iii),
such defaults or violations which would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
(b) No filing or registration with or notification to and no permit,
authorization, consent or approval of any Governmental Entity is required to be
obtained, made or given by Merger Sub or Parent in connection with the
execution and delivery of this Agreement or the consummation by Merger Sub of
the Merger or other transactions contemplated hereby except (i) in connection
with the applicable requirements of the HSR Act, (ii) the filing of the
Registration Statement with the SEC in accordance with the Securities Act, as
further described in Section 5.3 hereof, (iii) as shown on Section 4.4(b) of
the Parent Disclosure Letter, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable state securities laws and the laws of any country other than
the United States, or (v) the filing of the Certificate of Merger as provided
in Section 1.3 hereof.
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4.5. SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports, schedules, statements and other
documents required to be filed by it since December 31, 1997 to the date hereof
(collectively, as supplemented and amended since the time of filing, the
"Parent SEC Reports") with the SEC. The Parent SEC Reports (i) were prepared in
all material respects in compliance with all applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and (ii) did not at
the time they were filed contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The representation in clause (ii) of the
preceding sentence does not apply to any misstatement or omission in any Parent
SEC Report filed prior to the date of this Agreement which was superseded by a
subsequent Parent SEC Report filed prior to the date of this Agreement.
(b) The audited consolidated financial statements and unaudited consolidated
interim financial statements of Parent and its Subsidiaries included or
incorporated by reference in such Parent SEC Reports have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may otherwise be
indicated in the notes thereto) and present fairly, in all material respects,
the financial position and results of operations and cash flows of Parent and
its Subsidiaries on a consolidated basis at the respective dates and for the
respective periods indicated (except, in the case of all such financial
statements that are interim Financial Statements, for normal year-end
adjustments).
4.6. Absence of Changes or Events. Except as set forth in the Parent SEC
Reports, since June 30, 2000, through the date of this Agreement, Parent and
its Subsidiaries have not incurred any liability or obligation that has
resulted or would reasonably be expected to result in a Parent Material Adverse
Effect, and there has not been any change in the business, financial condition
or results of operations of Parent or any of its Subsidiaries which has had, or
would reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect, and Parent and its Subsidiaries have conducted
their respective businesses in the ordinary course consistent with their past
practices.
4.7. Litigation. Except as disclosed in the Parent SEC Reports, there is no
(a) claim, action, suit or proceeding pending or overtly threatened against or
relating to Parent or any of its Subsidiaries before any Governmental Entity,
(b) alternative dispute resolution proceeding pending or overtly threatened
against Parent or any of its Subsidiaries, or (c) outstanding Orders, or
application, request or motion therefor, of any Governmental Entity in a
proceeding to which Parent, any Subsidiary of Parent or any of their respective
assets was or is a party except actions, suits, proceedings or Orders that,
individually or in the aggregate, have not had or would not reasonably be
expected to have a Parent Material Adverse Effect, and neither Parent nor any
Subsidiary is in default in any material respect with respect to any such
Order.
4.8. Finders or Brokers. None of Parent, Merger Sub, the other Subsidiaries
of Parent, the Boards of Directors of Parent and Merger Sub or any member of
such Boards of Directors has employed any agent, investment banker, broker,
finder or intermediary in connection with the transactions contemplated hereby
who might be entitled to a fee or any commission in connection with the Merger
or the other transactions contemplated hereby.
4.9. Tax Matters. Neither Parent nor any of its affiliates has taken or
agreed to take any action, or knows of any circumstances, that (without regard
to any action taken or agreed to be taken by the Company or any of its
affiliates) would prevent the business combination to be effected by the Merger
from constituting a transaction qualifying as a reorganization within the
meaning of Section 368 of the Code if the Election is not made.
4.10. Registration Statement; Proxy Statement/Prospectus. The information
supplied by Parent and Merger Sub for inclusion in the Registration Statement
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Parent
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for inclusion in the Proxy Statement/Prospectus shall not, on the date the
Proxy Statement/Prospectus is first mailed to the Company's stockholders, at
the time of the Company Stockholders Meeting and at the Effective Time, contain
any statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading. If at any time prior to the Effective Time any event or
information should be discovered by Parent or Merger Sub which should be set
forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement/Prospectus, Parent or Merger Sub will promptly inform the
Company. Notwithstanding the foregoing, Parent and Merger Sub make no
representation, warranty or covenant with respect to any information supplied
by the Company in writing specifically for use in any of the foregoing
documents.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1. Conduct of Business of the Company Pending the Merger. Except as
contemplated by this Agreement or as expressly agreed to in writing by Parent,
during the period from the date of this Agreement to the earlier of (i) the
termination of this Agreement or (ii) the Effective Time, each of the Company
and its Subsidiaries will conduct their respective operations according to its
ordinary course of business consistent with past practice, and will use its
reasonable best efforts consistent with past practice and policies to preserve
intact its business organization, to keep available the services of its
officers and employees and to maintain satisfactory relationships with
suppliers, distributors, customers and others having business relationships
with it and will take no action which would adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement, or the
timing thereof. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, prior to the Effective Time,
the Company will not nor will it permit any of its Subsidiaries to, without the
prior written consent of Parent:
(a) amend any of its Charter Documents or Governing Documents;
(b) authorize for issuance, issue, sell, deliver, grant any options,
warrants, stock appreciation rights, or stock issuance rights for, or
otherwise agree or commit to issue, sell, deliver, pledge, dispose of or
otherwise encumber any shares of any class of its share capital or any
securities convertible into shares of any class of its share capital,
except (i) pursuant to and in accordance with the terms of Company Options
outstanding on the date hereof, (ii) up to 26,000 shares of Company Common
Stock issued pursuant to the ESPP (to the extent shares of Company Common
Stock have been paid for with payroll deductions), (iii) up to 10,000
shares of Company Common Stock issued upon exercise of the Warrants, and
(iv) up to 77,922 shares of Company Common Stock issued upon conversion of
the Convertible Notes;
(c) subdivide, cancel, consolidate or reclassify any shares of its share
capital, issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its share capital, declare,
set aside or pay any dividend or other distribution (whether in cash,
shares or property or any combination thereof) in respect of its share
capital or purchase, redeem or otherwise acquire any shares of its own
share capital or of any of its Subsidiaries, except as otherwise expressly
provided in this Agreement;
(d) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business consistent with past practice; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the material obligations of any
other person (other than Subsidiaries of the Company); or (iii) make any
material loans, advances or capital contributions to, or investments in,
any other person (other than to Subsidiaries of the Company), except as set
forth in Section 5.1(d) of the Company Disclosure Letter or pursuant to
existing commitment, all of which commitments are disclosed in Section
5.1(d) of the Company Disclosure Letter;
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(e) except as otherwise expressly contemplated by this Agreement, (i)
increase in any manner the compensation of (A) any employee who is not an
officer of the Company or any Subsidiary (a "NonExecutive Employee"),
except in the ordinary course of business consistent with past practice or
(B) any of its directors or officers, (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required, or enter into,
amend or agree to enter into or amend any agreement or arrangement with any
such director or officer or employee, whether past or present, relating to
any such pension, retirement allowance or other employee benefit, except as
required to comply with law or under currently existing agreements, plans
or arrangements or with respect to NonExecutive Employees, in the ordinary
course of business consistent with past practice; (iii) grant any rights to
receive any severance or termination pay to, or enter into or amend any
employment or severance agreement with, any employee or any of its
directors or officers, except as required by applicable law; or (iv) except
as may be required to comply with applicable law, become obligated (other
than pursuant to any new or renewed collective bargaining agreement) under
any new pension plan, welfare plan, multiemployer plan, employee benefit
plan, benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, share purchase, share option, share appreciation right, group
insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit
of any person, or amend any of such plans or any of such agreements in
existence on the date hereof; provided, however, that this clause (iv)
shall not prohibit the Company from renewing any such plan, agreement or
arrangement already in existence on terms no more favorable to the parties
to such plan, agreement or arrangement;
(f) except as otherwise expressly contemplated by this Agreement, enter
into, amend in any material respect or terminate any Company Material
Contracts other than in the ordinary course of business consistent with
past practice;
(g) sell, lease, license, mortgage or dispose of any of its properties
or assets, other than (i) transactions in the ordinary course of business
consistent with past practice, (ii) as may be required or contemplated by
this Agreement or (iii) as set forth in Section 5.1(g) of the Company
Disclosure Letter;
(h) except for the Merger, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of
or equity in, or by any other manner, any business or any corporation,
limited liability company, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets, other than transactions in the ordinary course of business
consistent with past practice;
(i) alter (through merger, liquidation, reorganization, restructuring or
in any fashion) the corporate structure or ownership of the Company or any
Subsidiary;
(j) authorize or commit to make any material capital expenditures not
reflected in the budget previously provided in writing by the Company to
Parent without the prior written consent of Parent;
(k) make any change in the accounting methods or accounting practices
followed by the Company, except as required by United States generally
accepted accounting principles or applicable law;
(l) make any election under any Tax law;
(m) settle any action, suit, claim, investigation or proceeding (legal,
administrative or arbitrative) requiring a payment by the Company or its
Subsidiaries in excess of $50,000 without the consent of Parent;
(n) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the most recent financial statements (or the notes
thereto) of the Company included in the Company SEC Reports or incurred in
the ordinary course of business consistent with past practice; or
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(o) authorize, recommend, propose, agree or announce an intention to do
any of the foregoing or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
5.2. Preparation of Registration Statement; Proxy Statement/Prospectus; Blue
Sky Laws. As promptly as practicable and no later than 20 business days after
the date hereof, Parent and the Company shall prepare, and Parent shall file
with the SEC, the Registration Statement, in which the Proxy
Statement/Prospectus will be included as part thereof. Parent and the Company
shall each use its reasonable best efforts to have such Registration Statement
declared effective under the Securities Act as promptly as practicable after
filing. The Proxy Statement/Prospectus will, when prepared pursuant to this
Section 5.2 and mailed to the Company's stockholders, comply in all material
respects with the applicable requirements of the Exchange Act and the
Securities Act. The Proxy Statement/Prospectus shall include the declaration of
the Company Board of the advisability of the Merger and its recommendation that
the Company's stockholders approve the Merger. Parent shall also take any
action required to be taken under any applicable provincial or state securities
laws (including "Blue Sky" laws) in connection with the issuance of the Parent
Common Stock in the Merger if the Election is not made; provided, however, that
neither Parent nor the Company shall be required to register or qualify as a
foreign corporation or to take any action that would subject it to service of
process in any jurisdiction where any such entity is not now so subject, except
as to matters and transactions arising solely from the offer and sale of Parent
Common Stock or the Parent Options.
5.3 Meeting of Stockholders. The Company shall, promptly after the date
hereof, take all action necessary in accordance with the DGCL and its
Certificate of Incorporation and Bylaws to convene the Company Stockholders
Meeting within 30 days of the Registration Statement being declared effective
by the SEC, whether or not the Company Board determines at any time after the
date hereof that the Merger is no longer advisable. The Company shall consult
with Parent regarding the date of the Company Stockholders Meeting. Subject to
Section 5.2 and Section 5.6 hereof, the Company shall use its best efforts to
solicit from stockholders of the Company proxies in favor of the Merger and
shall take all other action necessary or advisable to secure the vote or
consent of stockholders required to effect the Merger.
5.4. Additional Agreements, Cooperation.
(a) Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, and to cooperate, subject to
compliance with applicable law, with each other in connection with the
foregoing, including using its reasonable best efforts (i) to obtain all
necessary waivers, consents and approvals from other parties to loan
agreements, material leases and other material contracts, (ii) to obtain all
necessary consents, approvals and authorizations as are required to be obtained
under any federal, state or foreign law or regulations, (iii) to defend all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby or thereby, (iv) to lift
or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby, (v) to effect all necessary registrations and filings and
submissions of information requested by Governmental Entities and (vi) to
fulfill all conditions to this Agreement.
(b) Each of the parties hereto agrees, subject to compliance with applicable
law, to furnish to each other party hereto such necessary information and
reasonable assistance as such other party may request in connection with its
preparation of necessary filings or submissions to any regulatory or
governmental agency or authority, including, without limitation, any filing
necessary under the provisions of the HSR Act, the Exchange Act, the Securities
Act or any other United States federal or state, or foreign statute or
regulation. Each party hereto shall promptly inform each other party of any
material communication from the U.S. Federal Trade Commission or any other
government or governmental authority regarding any of the transactions
contemplated thereby.
5.5. Publicity. Except as otherwise required by applicable law, rule,
regulation, or stock exchange rule, so long as this Agreement is in effect,
Parent and the Company will not, and will not permit any of their respective
affiliates or representatives to, issue or cause the publication of any press
release or make any other
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public announcement with respect to the transactions contemplated by this
Agreement without the consent of the other party, which consent shall not be
unreasonably withheld or delayed. Parent and the Company will cooperate with
each other in the development and distribution of all press releases and other
public announcements with respect to this Agreement and the transactions
contemplated hereby, and will furnish the other with drafts of any such
releases and announcements as far in advance as possible.
5.6. No Solicitation.
(a) Immediately upon execution of this Agreement, the Company shall (and
shall cause its officers, directors, employees, investment bankers, attorneys
and other agents or representatives to) cease all discussions, negotiations,
responses to inquiries and other communications relating to any potential
transaction with all third parties who, prior to the date hereof, may have
expressed or otherwise indicated any interest in pursuing an Acquisition
Proposal (as hereinafter defined) with the Company.
(b) Prior to termination of this Agreement pursuant to Article VII hereof,
the Company and its Subsidiaries shall not, and the Company shall not authorize
or permit any officers, directors, employees, investment bankers, attorneys or
other agents or representatives to, (i) initiate, solicit or encourage,
directly or indirectly, any inquiries or the making of any proposal that
constitutes an Acquisition Proposal, (ii) engage or participate in negotiations
or discussions with, or furnish any information to, or take any other action
to, facilitate any inquiries or making any proposal by, any third party
relating to an Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal or approve an Acquisition Proposal.
Notwithstanding anything to the contrary contained in this Section 5.6, prior
to the Company Stockholders Meeting, the Company Board may engage or
participate in negotiations or discussions with and furnish information to any
third party making an unsolicited Acquisition Proposal (a "Potential Acquiror")
if both (A) a majority of the directors of the Company Board, without including
directors who may be considered Affiliates (as defined in Rule 405 under the
Securities Act) of any person making an Acquisition Proposal ("disinterested
directors") determines in good faith, after consultation with its independent
financial advisor, that a Potential Acquiror has submitted to the Company an
Acquisition Proposal that is a Superior Proposal (as hereinafter defined), and
(B) a majority of the disinterested directors of the Company Board determines
in good faith, after receiving the advice of Bell, Boyd & Lloyd LLC or other
reputable outside legal counsel experienced in such matters, that if the
Company fails to engage or participate in such negotiations or discussions or
to furnish such information, there is a substantial probability that the
Company Board will be in violation of its fiduciary duties under applicable
law. In the event that the Company shall receive any Acquisition Proposal, it
shall promptly (and in no event later than 24 hours after receipt thereof)
furnish to Parent the identity of the recipient of the Acquisition Proposal and
of the Potential Acquiror, the terms of such Acquisition Proposal and copies of
all information requested by the Potential Acquiror.
(c) Except as set forth in this Section 5.6(c), neither the Company Board
nor any committee thereof shall withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Merger Sub, the approval or
recommendation by the Company Board or any such committee of this Agreement and
the Merger. Notwithstanding the foregoing, prior to the Company Stockholders
Meeting the Company Board or such committee may withdraw or modify their
approval of this Agreement and the Merger if both (A) a majority of the
disinterested directors of the Company Board determines in good faith, after
consultation with its independent financial advisor, that a Potential Acquiror
has submitted to the Company an Acquisition Proposal that is a Superior
Proposal, and (B) a majority of the disinterested directors of the Company
Board determines in good faith, after receiving the advice of Bell, Boyd &
Lloyd LLC or other reputable outside legal counsel experienced in such matters,
that if the Company fails to take such action, there is a substantial
probability that the Company Board will be in violation of its fiduciary duties
under applicable law.
(d) Nothing contained in (b) or (c) above shall prevent the Company from
complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal or making any disclosure to the Company's
stockholders if, in the good faith judgment of the Company Board, after
receiving the advice of Bell, Boyd & Lloyd LLC or other reputable outside legal
counsel experienced in such matters, such disclosure is required by applicable
law. Without limiting the foregoing, the Company agrees that any violation of
(b) or (c) above by the Company or any of its Subsidiaries, or by any officer,
director, employee,
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investment banker, attorney or other agent or representative, whether or not
such person is purporting to act on behalf of the Company or any of its
Subsidiaries or otherwise, shall be deemed to be a breach of this Section 5.6
and shall enable Parent to terminate this Agreement pursuant to Section
7.1(d)(i) hereof.
(e) For the purposes of this Agreement, "Acquisition Proposal" shall mean
any proposal, whether in writing or otherwise, made by any person other than
Parent and its Subsidiaries to acquire "beneficial ownership" (as defined under
Rule 13(d) of the Exchange Act) of 15% or more of the assets of, or 15% or more
of the outstanding capital stock of any of the Company or its Subsidiaries
pursuant to a merger, consolidation, exchange of shares or other business
combination, sale of shares of capital stock, sales of assets, tender offer or
exchange offer or similar transaction involving the Company or its
Subsidiaries.
(f) The term "Superior Proposal" means any bona fide Acquisition Proposal to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the Company Common Stock then outstanding or all
or substantially all the assets of the Company, and otherwise on terms that a
majority of the disinterested directors determines, in good faith, to be more
favorable to the Company and its stockholders than the Merger (after receiving
a written opinion from the Company's independent financial advisor, a copy of
which shall be delivered contemporaneously to Parent, that the Acquisition
Proposal is more favorable to the Company's stockholders, from a financial
point of view, than the Merger) and for which financing, to the extent
required, is then committed.
5.7. Access to Information. From the date of this Agreement until the
Effective Time, and upon reasonable notice, the Company will give Parent and
its authorized representatives (including counsel, other consultants,
accountants and auditors) reasonable access during normal business hours to all
facilities, personnel, operations of the Company or any of its Subsidiaries and
to the customers, suppliers and other third parties with which the Company or
any of its Subsidiaries do business and to all books and records of it and its
Subsidiaries, will permit Parent to make such inspections as it may reasonably
require, will cause its officers and those of its Subsidiaries to furnish
Parent with such financial and operating data and other information with
respect to its business and properties as Parent may from time to time
reasonably request and confer with Parent to keep it reasonably informed with
respect to operational and other business matters relating to the Company and
its Subsidiaries and the status of satisfaction of conditions to the Closing.
All information obtained by Parent pursuant to this Section 5.7 shall be kept
confidential in accordance with the Confidentiality Agreement, dated October
28, 1999, between Parent and the Company (the "Confidentiality Agreement").
5.8. Notification of Certain Matters. The Company or Parent, as the case may
be, shall promptly notify the other of the occurrence, or failure to occur, of
any event, which occurrence or failure to occur would be likely to cause, (i)
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, (ii) any material failure of the Company or Parent, as the case
may be, or of any officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement or (iii) the institution of any claim,
suit, action or proceeding arising out of or related to the Merger or the
transactions contemplated hereby; provided, however, that no such notification
shall affect the representations or warranties of the parties or the conditions
to the obligations of the parties hereunder.
5.9. Resignation of Officers and Directors. At or prior to the Effective
Time, the Company shall deliver to Parent the resignations of such officers and
directors of the Company and shall use its best efforts to deliver to Parent
the resignations of such officers and directors of its Subsidiaries (in each
case, in their capacities as officers and directors, but not as employees if
any of such persons are employees of the Company or any Subsidiary) as Parent
shall specify, which resignations shall be effective at the Effective Time and
shall contain an acknowledgment that the relevant individual has no outstanding
claims for compensation for loss of office, redundancy, unfair dismissal or
otherwise, other than those claims specified on Section 5.9 of the Company
Disclosure Letter.
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5.10. Indemnification.
(a) As of the Effective Time and for a period of six years following the
Effective Time, Parent will cause the Surviving Corporation to indemnify and
hold harmless from and against all claims, damages, losses, obligations or
liabilities ("Losses") any persons who were directors or officers of the
Company prior to the Effective Time (the "Indemnified Persons") to the fullest
extent such person could have been indemnified for such Losses under applicable
law, under the Governing Documents of the Company or under any indemnification
agreements listed in Section 5.10 of the Company Disclosure Letter in effect
immediately prior to the date hereof, with respect to any act or failure to act
by any such Indemnified Person prior to the Effective Time. The Company shall
cause each of the indemnification agreements listed or required to be listed in
Section 5.10 of the Company Disclosure Letter to be terminated as of the
Effective Time, except for such agreements as are specifically noted in Section
5.10 of the Company Disclosure Letter as not being required to be terminated.
(b) Any determination required to be made with respect to whether an
Indemnified Person's conduct complies with the standards set forth under the
DGCL or other applicable law shall be made by independent counsel selected by
Parent and reasonably acceptable to the Indemnified Persons. Parent shall cause
the Surviving Corporation to pay such counsel's fees and expenses so long as
the Indemnified Persons do not challenge any such determination by such
independent counsel.
(c) In the event that Parent, the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person, and Parent, the Surviving Corporation or such successor or assign is
not the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each case, proper provision shall be made so that
such person or the continuing or surviving corporation assumes the obligations
set forth in this Section 5.10 and none of the actions described in clauses (i)
and (ii) above shall be taken until such provision is made.
(d) Parent shall maintain or cause the Surviving Corporation to maintain in
effect for not less than six years from the Effective Time the current policies
of directors' and officers' liability insurance maintained by the Company
(provided that they may substitute therefor policies of at least comparable
coverage containing terms and conditions which are no less advantageous to the
Indemnified Parties in all material respects so long as no lapse in coverage
occurs as a result of such substitution) with respect to all matters, including
the transactions contemplated hereby, occurring prior to, and including the
Effective Time; provided that, in the event that any Claim is asserted or made
within such six-year period, such insurance shall be continued in respect of
any such Claim until final disposition of any and all such Claims; and
provided, further, that Parent and the Surviving Corporation shall not be
obligated to make annual premium payments for such insurance to the extent such
premiums exceed 200% of the premiums paid as of the date hereof by the Company
or any Subsidiary for such insurance. In such case, Parent shall purchase or
cause the Surviving Corporation to purchase as much coverage as possible for
200% of the premiums paid as of the date hereof for such insurance.
5.11. Stockholder Litigation. The Company shall give Parent the reasonable
opportunity to participate in the defense of any stockholder litigation against
or in the name of the Company and/or its respective directors relating to the
transactions contemplated by this Agreement.
5.12. Employee Benefit Plans.
(a) Parent reserves the right to request in writing prior to the Closing
that the Company, contingent upon the Closing, cease contributions to and/or
terminate one or more of the Company's Plans prior to the Closing.
(b) Pursuant to (a) above, Parent requests and the Company agrees that the
Company Board or its delegate shall cause the Company to cease contributions to
and terminate each plan qualified under Code Section 401(k) (the "Company
401(k) Plan"), and shall cause the Company, prior to the Closing Date, to
(i) adopt written resolutions, the form and substance of which shall be
satisfactory to Parent, to terminate such Company 401(k) Plan and to fully
(100%) vest all participants under said Company 401(k) Plan; provided,
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however, that such Company 401(k) Plan termination shall be made contingent
upon the consummation of the Merger, and (ii) deliver notice of the Company
401(k) Plan termination (which shall be contingent upon the consummation of the
Merger) to any trustees and custodians of the Company 401(k) Plan and/or its
assets. As soon as practicable after the Closing Date, Parent shall cause the
Company to prepare IRS Form 5310, with full disclosure of the Merger and the
existence of Parent's 401(k) Savings Plan (the "Parent 401(k) Plan") and the
fact that Company employees participating in the Company 401(k) Plan as of the
Closing shall become participants in the Parent 401(k) Plan as soon as
administratively feasible following the Closing. Parent reserves the right to
suspend the distribution of benefits from the Company 401(k) Plan until the
later of the receipt of a favorable determination letter from the IRS with
respect to the termination of such Plan and the completion of final testing and
recordkeeping for such Plan.
(c) Parent shall recognize past employment service with the Company and its
Subsidiaries (based upon the Company's service records which are provided to
Parent) only for employees of the Company and its Subsidiaries who are employed
by them on the Closing Date (including employees who are, at the Closing Date,
on disability, pregnancy or family leave or other leave granted in accordance
with pre-existing written policies of the Company, provided in each case that
the employee returns to active employment by the Company or its Subsidiaries
for at least 30 continuous days following the Closing Date) (the "Eligible
Employees") for all purposes under the Parent plans which are similar to and
become successors to the Plans. To the extent that Eligible Employees have
covered expenses that are credited against the Company's group health plan's
deductibles or out of pocket maximums for plan year 2001, those expenses will
be credited against deductibles or out of pocket maximums of Parent's group
health plan for Eligible Employees who elect health coverage under Parent's
group health plan. The Eligible Employees shall enter the Parent 401(k) Plan
pursuant to the terms of such plan.
(d) The Eligible Employees shall leave the employee benefit plans of the
Company and its Subsidiaries and enter Parent's employee benefit plans pursuant
to the terms of such plans on such date as Parent deems appropriate.
(e) The Company shall accrue on its balance sheet as of the Closing Date or
shall pay prior to the Closing Date any costs, adjustments, or charges
associated with any termination, discontinuance, cancellation or liquidation of
the Company's portion of or interest in any funding medium arising in
connection with the actions described in (b) above including, but not limited
to, the discontinuance of any group annuity contract issued by an insurance
company with respect to the Company 401(k) Plan. The Company shall also
reasonably compensate each affected participant of the Company, prior to the
Closing Date, to the extent that such participant or his/her account balance is
impacted by such costs, adjustments or charges.
(f) The parties acknowledge that the ESPP shall continue to operate in
accordance with its terms following the execution of this Agreement, except as
provided below. Effective as of one business day prior to the Effective Time,
the Company shall cause each outstanding purchase right to be automatically
exercised, the Company shall cause the ESPP to terminate and no purchase rights
shall be subsequently granted or exercised under the ESPP. The Company shall
take all actions necessary to ensure that the ESPP will not be amended or
modified in any respect after the date hereof, except to effect the terms of
this Section 5.12(f).
(g) Section 5.12(g) of the Company Disclosure Letter sets forth the number
of hours of personal time accrued by employees of the Company and its
Subsidiaries as of the date hereof and the amount required to be paid with
respect thereto pursuant to the following sentence. As of the earlier of
December 31, 2000 or the Closing Date, employees of the Company and its
Subsidiaries shall be paid in accordance with past practice for all hours of
personal time. In lieu of being paid for personal time, employees may choose to
carry-over to Parent up to 40 hours of available personal time for employees
with less than five years of service, or up to 80 hours for employees with five
or more years of service. All personal time carried over to Parent will be
considered sick leave and will be treated consistent with Parent's policy
regarding sick leave time.
5.13. Determination of Optionholders. At least ten business days before the
Effective Time, the Company shall provide Parent with a true and complete list
of (a) the holders of Company Options, (b) the number of shares of Company
Common Stock subject to Company Options held by each such optionholder and
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(c) the address of each such optionholder as set forth in the books and records
of the Company or any Subsidiary, following upon which there shall be no
additional grants of Company Options without Parent's prior consent. From the
date such list is provided to Parent until the Effective Time, the Company
shall provide a daily option activity report to Parent containing such
information as Parent shall reasonably request.
5.14. Preparation of Tax Returns. The Company shall file (or cause to be
filed) at its own expense, on or prior to the due date thereof (as the same may
be extended), all Returns required to be filed on or before the Closing Date.
The Company shall provide Parent with a copy of appropriate workpapers,
schedules, drafts and final copies of each foreign and domestic, federal,
provincial and state income Tax return or election of the Company (including
returns of all Employee Benefit Plans) at least ten days before filing such
return or election and shall consult with Parent with respect thereto prior to
such filing.
5.15. Rule 145 Matters.
(a) Promptly following the date of this Agreement, the Company shall deliver
to Parent a list of names and addresses of those persons who are affiliates
within the meaning of Rule 145 of the rules and regulations promulgated under
the Securities Act (the "Company Affiliates"). The Company shall provide Parent
such information and documents as Parent shall reasonably request for purposes
of reviewing such list. If the Election is not made, the Company shall deliver
to Parent, on or prior to the Closing, an affiliate letter in the form attached
hereto as Exhibit C, executed by each of the Company Affiliates identified in
the foregoing list. In such event, Parent shall be entitled to place legends as
specified in such affiliate letters on the certificates evidencing any of the
Parent Common Stock to be received by such Company Affiliates pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions to
the transfer agent for the Parent Common Stock, consistent with the terms of
such letters.
(b) For so long as resales of shares of Parent Common Stock issued pursuant
to the Merger are subject to the resale restrictions set forth in Rule 145
under the Securities Act, Parent will use good faith efforts to comply with
Rule 144(c)(1) under the Securities Act.
5.16. Tax-Free Reorganization. If the Election is not made, Parent and the
Company shall each use all commercially reasonable efforts to cause the Merger
to qualify as a reorganization within the meaning of Section 368(a) of the
Code. In such event, neither Parent nor the Company shall take or fail to take,
or cause any third party to take or fail to take, any action that would cause
the Merger to fail to qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
5.17. SEC Filings; Compliance. The Company and Parent shall each cause the
forms, reports, schedules, statements and other documents required to be filed
with the SEC by the Company and Parent, respectively, between the date of this
Agreement and the Effective Time to be prepared in all material respects in
compliance with all applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and such reports, schedules, statements, and
other documents will not at the time they are filed contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
5.18. Listing of Additional Shares. If the Election is not made, prior to
the Effective Time Parent shall list the shares of Parent Common Stock to be
issued in the Merger on the New York Stock Exchange, subject to official notice
of issuance.
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ARTICLE VI
CONDITIONS TO CLOSING
6.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Effective Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the
Company under the DGCL and the Company's Charter Document and Governing
Documents.
(b) Governmental Action; No Injunction or Restraints. No action or
proceeding by any Governmental Entity seeking to prevent consummation of
the Merger, asserting the illegality of the Merger or this Agreement or
seeking material damages directly arising out of the transactions
contemplated hereby which continues to be outstanding shall be pending or
threatened.
(c) Governmental Consents. All necessary authorizations, consents,
orders or approvals of, or declarations or filings with, or expiration or
waiver of waiting periods imposed by, any Governmental Entity of any
applicable jurisdiction required for the consummation of the transactions
contemplated by this Agreement shall have been, as applicable, filed,
expired or obtained.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act, no stop order suspending such
effectiveness shall have been issued, and no proceedings seeking such a
stop order shall be pending before or, to the knowledge of Parent,
threatened by the SEC.
6.2. Conditions to Obligations of Parent. The obligation of Parent to effect
the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth herein which are subject to materiality or Company
Material Adverse Effect qualifications shall be true and correct in all
respects both when made and at and as of the Effective Date, as if made at
and as of such time (except to the extent expressly made as of an earlier
date, in which case as of such date), and the representations and
warranties of the Company set forth herein which are not subject to
materiality or Company Material Adverse Effect qualifications shall be true
and correct in all material respects both when made and at and as of the
Effective Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date).
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Date.
(c) No Material Adverse Effect. Since the date of this Agreement, there
shall not have been a Company Material Adverse Effect nor shall there have
been any change, event or condition that, with the passage of time, would
reasonably be expected to result in a Company Material Adverse Effect.
(d) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition shall be in effect (i)
imposing or seeking to impose material limitations on the ability of Parent
to acquire or hold or to exercise full rights of ownership of any
securities of the Company; (ii) imposing or seeking to impose material
limitations on the ability of Parent or its Affiliates to combine and
operate the business and assets of the Company; (iii) imposing or seeking
to impose other material sanctions, damages, or liabilities directly
arising out of the Merger on Parent or any of its officers or directors; or
(iv) requiring or seeking to require divestiture by Parent of any
significant portion of the business, assets or property of the Company or
of Parent.
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(e) Delivery of Closing Documents. At or prior to the Effective Time,
the Company shall have delivered to Parent all of the following:
(i) a certificate of the President and the Chief Financial Officer
of the Company, dated as of the Effective Date, stating that the
conditions precedent set forth in Sections 6.2(a), (b) and (c) hereof
have been satisfied; and
(ii) a copy of (A) the Certificate of Incorporation of the Company,
dated as of a recent date, certified by the Secretary of State of the
State of Delaware, and (B) the Bylaws of the Company and the
resolutions of the Company Board and stockholders authorizing the
Merger and the other transactions contemplated by this Agreement,
certified by the Secretary of the Company.
(f) Director and Officer Resignations. Merger Sub shall have received
the resignation of the directors and officers of the Company as are
described in Section 5.9 hereof.
(g) Key Employee Agreements. Rhonda E. Brede, Michael J. Kennedy,
Richard M. Jelinek, Dave Decker, and Mete Sahin shall have entered into
employment agreements in the respective forms set forth as Exhibits D
through H to this Agreement, and none of such employees shall have
indicated any intention of not fulfilling his or her obligations
thereunder; the predecessor employment agreements between the Company and
such employees, and all other arrangements or understandings between the
Company and such employees (including, without limitation, any agreement or
understanding pursuant to which such employees may exercise those Company
Options granted to them on October 14, 1999 by means of the delivery of
promissory notes), shall have been terminated; and subsequent to the
execution of this Agreement, such employees shall not have exercised any
Company Options referred to in the preceding clause by means of the
delivery of promissory notes.
(h) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that all licenses, permits,
consents, waivers, approvals, contract extensions, authorizations,
qualifications, and orders of all Governmental Entities and any other third
parties contemplated by Sections 3.5 and 3.11 hereof and of all parties set
forth in the Company Disclosure Letter in reference to such sections have
been obtained, and that all of the steps specified in Schedule 6.2(h) to
this Agreement have been completed.
(i) Company Affiliate Letters. If the Election is not made, Parent shall
have received all of the letters described in Section 5.15(a) hereof
executed by each of the Company Affiliates.
(j) Exercise of Warrants and Conversion of Convertible Notes. The
Warrants shall have been exercised in full and the Convertible Notes shall
have been converted in full, in each case pursuant to their respective
terms, effective prior to the Closing Date; and the Company shall not have
paid more than $96,000 in the aggregate to the holders of such Warrants and
Convertible Notes in consideration of their early exercise or conversion
thereof.
(k) Lien Releases and Repayments. Arrangements shall have been made to
take the following actions effective as of the Effective Time: (i) repay
the Company's outstanding indebtedness to Imperial Bank and release the
security interest of Imperial Bank in assets of the Company, and (ii)
release the security interest of Wells Fargo Equipment Finance, Inc. in
assets of the Company, which actions, in the case of (ii), shall not
require the payment by the Company of an amount in excess of $50,000.
(l) Exercises of Dissenters Rights. If appraisal rights apply under
Section 262 of the DGCL to any outstanding shares of Company Common Stock,
holders of no more than 10% of the shares of Company Common Stock
outstanding at the Closing Date shall have delivered to the Company and not
withdrawn written demands for appraisal of the shares held by them pursuant
to Section 262(d)(1) of the DGCL.
6.3. Conditions to Obligations of the Company. The obligation of the Company
to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth herein which are subject to materiality
or Parent Material Adverse Effect qualifications shall be
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true and correct in all respects both when made and at and as of the
Effective Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), and
the representations and warranties of Parent and Merger Sub set forth
herein which are not subject to materiality or Parent Material Adverse
Effect qualifications shall be true and correct in all material respects
both when made and at and as of the Effective Date, as if made at and as of
such time (except to the extent expressly made as of an earlier date, in
which case as of such date).
(b) Performance of Obligations of Parent. Parent shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Date.
(c) Delivery of Closing Documents. At or prior to the Effective Time,
the Parent shall have delivered to the Company a certificate of a Senior
Vice President and the Chief Financial Officer of Parent, dated as of the
Effective Date, stating that the conditions precedent set forth in Sections
6.3(a), (b) and (e) hereof have been satisfied.
(d) Tax Opinion. If the Election is not made, the Company shall have
received the opinion of Bell, Boyd & Lloyd LLC, counsel to the Company, in
form and substance satisfactory to the Company and Parent, to the effect
that the Merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; provided
that, if Bell, Boyd & Lloyd LLC does not render such opinion, this
condition shall nonetheless be deemed satisfied if Dorsey & Whitney LLP
renders such opinion to the Company (it being agreed that Parent and the
Company shall each provide reasonable cooperation, including making
reasonable representations, to Bell, Boyd & Lloyd LLC or Dorsey & Whitney
LLP, as the case may be, to enable them to render such opinion).
(e) No Parent Material Adverse Effect. Since the date of this Agreement,
there has not been a Parent Material Adverse Effect nor shall there have
been any change, event or condition that, with the passage of time, would
reasonably be expected to result in a Parent Material Adverse Effect.
ARTICLE VII
TERMINATION
7.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the
Company's stockholders:
(a) by mutual written consent of the Company and Parent (on behalf of
Parent and Merger Sub);
(b) by either the Company or Parent (on behalf of Parent and Merger
Sub):
(i) if the Merger shall not have been completed by March 31, 2001;
provided, however, that the right to terminate this Agreement pursuant
to this Section 7.1(b)(i) shall not be available to any party whose
failure to perform any of its obligations under this Agreement results
in the failure of the Merger to be consummated by such time;
(ii) if stockholder approval shall not have been obtained at the
Company Stockholders Meeting duly convened therefor or at any
adjournment or postponement thereof; provided, however, that the right
to terminate this Agreement pursuant to this Section 7.1(b)(ii) shall
not be available to any party whose failure to perform any of its
obligations under this Agreement results in the failure to obtain
stockholder approval;
(iii) if any restraint having any of the effects set forth in Section
6.1(b) or Section 6.2(d) hereof shall be in effect and shall have become
final and nonappealable; provided, however, that the right to terminate
this Agreement pursuant to this Section 7.1(b)(iii) shall not be
available to any party whose failure to perform any of its obligations
under this Agreement results in such restraint to continue in effect; or
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(iv) if the Company enters into a merger, acquisition or other
agreement (including an agreement in principle) or understanding to
effect a Superior Proposal or the Company Board or a committee thereof
resolves to do so; provided, however, that the Company may not
terminate this Agreement pursuant to this Section 7.1(b)(iv) unless (a)
the Company has delivered to Parent and Merger Sub a written notice of
the Company's intent to enter into such an agreement to effect such
Acquisition Proposal, which notice shall include, without limitation,
the material terms and conditions of the Acquisition Proposal and the
identity of the Person making the Acquisition Proposal, (b) four
business days have elapsed following delivery to Parent and Merger Sub
of such written notice by the Company and (c) during such four-
business-day period, the Company has fully cooperated with Parent and
Merger Sub to allow Parent and Merger Sub within such four-business-day
period to propose amendments to the terms of this Agreement to be at
least as favorable as the Superior Proposal; provided, further, that
the Company may not terminate this Agreement pursuant to this Section
7.1(b)(iv) unless, at the end of such four-business-day-period, the
Company Board continues reasonably to believe that the Acquisition
Proposal constitutes a Superior Proposal;
(c) by the Company, if Parent or Merger Sub shall have breached in any
respect any of its representations and warranties contained in Article IV
hereof which are subject to materiality or Parent Material Adverse Effect
qualifications, or Parent or Merger Sub shall have breached in any material
respect any of its representations and warranties contained in Article IV
hereof which are not subject to materiality or Parent Material Adverse
Effect qualifications, or Parent or Merger Sub shall have breached or
failed to perform in any material respect any of its covenants or other
agreements contained in this Agreement, in each case, which breach or
failure to perform has not been cured by Parent or Merger Sub within thirty
days following receipt of notice thereof from the Company; or
(d) by Parent (on behalf of Parent and Merger Sub):
(i) if the Company shall have breached in any respect any of its
representations and warranties contained in Article III hereof which
are subject to materiality or Company Material Adverse Effect
qualifications, or the Company shall have breached in any material
respect any of its representations and warranties contained in Article
III hereof which are not subject to materiality or Company Material
Adverse Effect qualifications, or the Company shall have breached or
failed to perform in any material respect any of its covenants or other
agreements contained in this Agreement, in each case (other than a
breach of Section 5.6(b) or (c) hereof, as to which no cure period
shall apply), which breach or failure to perform has not been cured by
the Company within thirty days following receipt of notice thereof from
Parent; or
(ii) if (a) the Company Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Parent its approval or
recommendation of the Merger or this Agreement, or approved or
recommended an Acquisition Proposal (including a Superior Proposal), or
(b) the Company Board or any committee thereof shall have resolved to
take any of the foregoing actions
7.2. Effect of Termination. The termination of this Agreement pursuant to
the terms of Section 7.1 hereof shall become effective upon delivery to the
other party of written notice thereof. In the event of the termination of this
Agreement pursuant to the foregoing provisions of this Article VII, there shall
be no obligation or liability on the part of any party hereto (except as
provided in Section 7.3 hereof) or its stockholders or directors or officers in
respect thereof, except (i) for agreements which survive the termination of
this Agreement and (ii) for liability that Parent or Merger Sub or the Company
might have to the other party or parties arising from a breach of this
Agreement due to termination of this Agreement in accordance with Sections
7.1(c) or 7.1(d) or due to the fraudulent or willful misconduct of such party.
7.3. Fees and Expenses.
(a) Except as provided in this Section 7.3, whether or not the Merger is
consummated or this Agreement terminated, the Company, on the one hand, and
Parent and Merger Sub, on the other, shall bear their respective expenses
incurred in connection with the Merger, including, without limitation, the
preparation, execution and
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performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants.
(b) Notwithstanding any provision in this Agreement to the contrary, if this
Agreement is terminated (x) by the Company or Parent pursuant to Section
7.1(b)(ii) or (y) by Parent pursuant to Section 7.1(b)(iv), 7.1(d)(i) or
7.1(d)(ii) hereof, then, in each case, the Company shall (without prejudice to
any other rights Parent may have against the Company for breach of this
Agreement), reimburse Parent upon demand for all out-of-pocket fees and
expenses incurred or paid by or on behalf of Parent or any Affiliate of Parent
in connection with this Agreement, the Merger and transactions contemplated
herein, including all fees and expenses of counsel, investment banking firm,
accountants and consultants.
(c) Notwithstanding any other provision in this Agreement to the contrary,
if (x) this Agreement is terminated by the Company or Parent at a time when
Parent is entitled to terminate this Agreement pursuant to Section 7.1(b)(ii)
(except if, immediately prior to the Company Stockholder Meeting, an event or
condition exists that would result in a Parent Material Adverse Effect) or
7.1(d)(i) (other than due to a breach of Section 5.6(b) or (c) hereof) and,
concurrently with or within twelve months after such a termination, the Company
shall enter into an agreement, arrangement or binding understanding with
respect to an Acquisition Proposal (which shall include, for this purpose, the
commencement by a third party of a tender offer or exchange offer or similar
transaction directly with the Company's stockholders) with a third party
(collectively, a "Third Party Deal") or (y) this Agreement is terminated
pursuant to Section 7.1(b)(iv), Section 7.1(d)(i) (if such termination results
from a breach of Section 5.6(b) or (c) hereof) or 7.1(d)(ii) (except, in the
case of 7.1(d)(ii) only, if the Company Board's withdrawal or modification of
its approval or recommendation of this Agreement or the Merger occurs after the
occurrence of a Parent Material Adverse Effect), then, in each case, the
Company shall (in addition to any obligation under Section 7.3(b) hereof and as
liquidated damages and not as a penalty or forfeiture) pay to Parent U.S.
$2,000,000 (the "Termination Fee") in cash, such payment to be made promptly,
but in no event later than the second business day following, in the case of
clause (x), the later to occur of such termination and the entry into of such
Third Party Deal, or, in the case of clause (y), such termination.
(d) If this Agreement is terminated by the Company pursuant to Section
7.1(c) hereof, Parent shall (without prejudice to any other rights the Company
may have against Parent for breach of this Agreement), reimburse the Company
upon demand for all out-of-pocket fees and expenses incurred or paid by or on
behalf of the Company or any Affiliate of the Company in connection with this
Agreement, the Merger and the transactions contemplated herein, including all
fees and expenses of counsel, investment banking firm, accountants and
consultants.
(e) The parties acknowledge that the agreements contained in Sections
7.3(b), (c) and (d) hereof are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent and
Merger Sub on the one hand, and the Company on the other, would not enter into
this Agreement. Accordingly, if the Company fails promptly to pay the amounts
due pursuant to Sections 7.3(b) and/or (c) hereof, or if Parent fails promptly
to pay the amounts due pursuant to Section 7.3(d) hereof, (i) the party failing
to so pay shall pay interest on such amounts at the prime rate announced by
U.S. Bank National Association, Minneapolis office, in effect on the date the
Termination Fee (or fees and expenses) were required to be paid, and (ii) if,
in order to obtain such payment, a party commences a suit or takes other action
which results in a judgment or other binding determination against the
nonpaying party for the fees and expenses in Sections 7.3(b) or 7.3(d) hereof
or the Termination Fee, the nonpaying party shall also pay to the party
entitled to receive payment its costs and expenses (including reasonable
attorneys' fees) in connection with such suit, together with interest payable
under the preceding clause (i).
7.4. Non-solicitation. If this Agreement is terminated pursuant to this
Article VII, Parent hereby agrees that for a period of one year from the date
of such termination, neither Parent nor any of its affiliates will directly
solicit the employment of any of the employees of the Company or its
Subsidiaries who are named in Section 7.4 of the Company Disclosure Letter or
any of the employees who are named in Section 6.2(g) of this Agreement without
obtaining the prior written consent of the Company.
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ARTICLE VIII
MISCELLANEOUS
8.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
8.2. Waiver. At any time prior to the Effective Date, either Parent of
Merger Sub, on the one hand, or the Company, on the other hand, may (a) extend
the time for the performance of any of the obligations or other acts of the
other party hereto, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements of the
other party or with any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing duly authorized by and
signed on behalf of such party.
8.3. Notices.
(a) Any notice or communication to any party hereto shall be duly given if
in writing and delivered in person or mailed by first class mail and airmail,
if overseas (registered or return receipt requested), facsimile (with receipt
electronically acknowledged) or overnight air courier guaranteeing next day
delivery, to such other party's address.
If to Parent:
UnitedHealth Group Incorporated
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: General Counsel
Facsimile No.: (952) 936-0044
with a copy to:
James D. Alt
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile No.: (612) 340-8738
If to the Company:
Lifemark Corporation
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Attention: President
Facsimile No.: (602) 944-7325
with a copy to:
J. Craig Walker
Bell, Boyd & Lloyd LLC
Three First National Plaza
70 West Madison Street
Chicago, Illinois 60602
Facsimile No.: (312) 372-2098
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(b) All notices and communications will be deemed to have been duly given at
the time delivered by hand, if personally delivered; three business days after
being deposited in the mail, if mailed; when sent, if sent by facsimile; and
one business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
8.4. Counterparts. This Agreement may be executed via facsimile in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5. Interpretation. The language used in this Agreement and the other
agreements contemplated hereby shall be deemed to be the language chosen by the
parties to express their mutual intent, and no rule of strict construction
shall be applied against any party. The headings of articles and sections
herein are for convenience of reference, do not constitute a part of this
Agreement, and shall not be deemed to limit or affect any of the provisions
hereof. As used in this Agreement, "Person" means any individual, corporation,
limited liability company, limited or general partnership, joint venture,
association, joint stock company, trust, unincorporated organization or other
entity; all amounts shall be deemed to be stated in U.S. dollars, unless
specifically referenced otherwise.
8.6. Amendment. This Agreement may be amended by the parties at any time
before or after any required approval of matters presented in connection with
the Merger by the stockholders of the Company; provided, however, that after
any such approval, there shall not be made any amendment that by law requires
further approval by such stockholders without obtaining such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
8.7. No Third Party Beneficiaries. Except for the provisions of Section 5.10
hereof (which is intended to be for the benefit of the persons referred to
therein, and may be enforced by such persons) nothing in this Agreement shall
confer any rights upon any person or entity which is not a party or permitted
assignee of a party to this Agreement.
8.8. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
8.9. Entire Agreement. This Agreement (together with the Exhibits and the
Company Disclosure Letter, the Parent Disclosure Letter, and the other
documents delivered pursuant hereto or contemplated hereby) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof, in each
case other than the Confidentiality Agreement.
8.10. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers all as of the day and year first
above written.
UNITEDHEALTH GROUP INCORPORATED
/s/ David J. Lubben
By: _________________________________
Name: David J. Lubben
Title: General Counsel
LEO ACQUISITION CORP.
/s/ David J. Lubben
By: _________________________________
Name: David J. Lubben
Title: Secretary
LIFEMARK CORPORATION
/s/ Rhonda E. Brede
By: _________________________________
Name: Rhonda E. Brede
Title: President and Chief Executive
Officer
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ANNEX B
VOTING AGREEMENT
VOTING AGREEMENT, dated as of October 10, 2000 (the "Agreement"), by and
among UnitedHealth Group Incorporated, a Minnesota corporation ("Buyer"), each
record and beneficial stockholder of Lifemark Corporation, a Delaware
corporation (the "Company"), whose signature is set forth on the signature
pages to this Agreement (each a "Stockholder," and collectively the
"Stockholders"), and, as to Section 3(b) below, the Company. Capitalized terms
which are used but not defined herein shall have the meanings ascribed to them
in the Merger Agreement (as defined below).
WITNESSETH:
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Buyer and the Company are entering into an Agreement and Plan of Merger, dated
as of the date hereof (the "Merger Agreement"), which provides for a wholly
owned subsidiary of Buyer to be merged with and into the Company in accordance
with the General Corporation Law of the State of Delaware and the terms of the
Merger Agreement, as a result of which the Company will be the surviving
corporation and will be a wholly owned subsidiary of Buyer;
WHEREAS, the Stockholders own in the aggregate approximately 39.1% of the
Company Common Stock issued and outstanding; and
WHEREAS, the Stockholders desire that the Company and Buyer consummate the
Merger contemplated by the Merger Agreement and are willing to enter into this
Agreement to induce Buyer to enter into the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements set forth herein, the parties hereto, intending to be legally
bound, agree as follows:
1. Agreement to Vote; Waiver.
(a) At such time as the Company convenes a meeting of, solicits written
consents from or otherwise seeks a vote of, the Company's stockholders for the
purpose of considering and approving the Merger and the other transactions
contemplated by the Merger Agreement, each of the Stockholders hereby
irrevocably and unconditionally agrees to vote all shares of Company Common
Stock owned by such Stockholder (whether held directly or beneficially) (the
"Shares") in favor of the Merger and the other transactions contemplated by the
Merger Agreement and all other actions necessary or desirable for the
consummation of the Merger.
(b) Each Stockholder hereby agrees that it will not vote any Shares in favor
of the approval of any (i) Acquisition Proposal (as defined in Section 4(c)),
(ii) reorganization, recapitalization, liquidation or winding up of the Company
or any other extraordinary transaction involving the Company, other than as
contemplated by the Merger Agreement, (iii) corporate action the consummation
of which would frustrate the purposes, or prevent or delay the consummation, of
the transactions contemplated by the Merger Agreement or (iv) other matter
relating to, or in connection with, any of the foregoing matters.
(c) Each Stockholder hereby revokes any and all previous proxies granted
with respect to all shares of Company Common Stock held of record or
beneficially owned by such Stockholder. By entering into this Agreement, each
Stockholder hereby grants a proxy appointing Parent and each of its designees
as the Stockholder's attorney-in-fact and proxy, with full power of
substitution, for and in the Stockholder's name, to vote, express, consent or
dissent, or otherwise to utilize such voting power in the manner contemplated
by (a) and (b) above as Parent or its proxy or substitute shall, in Parent's
sole discretion, deem proper with respect to all such shares. The proxy granted
by each Stockholder pursuant to this Section 1 is irrevocable and is granted in
consideration of Parent entering into this Agreement and the Merger Agreement
and incurring certain related
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fees and expenses. The proxy granted by each Stockholder shall be revoked upon
termination of this Agreement in accordance with its terms.
(d) Each of the undersigned William G. Brown, Malcolm M. Brown, and Richard
C. Jelinek hereby waives any and all rights which he may have to require the
Warrants held by him individually or as trustee, the shares of Company Common
Stock issuable upon exercise of such Warrants, the Notes held by him
individually or as trustee, or the shares of Company Common Stock issuable upon
conversion of such Notes, to be registered under the Securities Act of 1933, as
amended, or under any state securities laws; provided that this waiver shall
only be effective upon, and shall be subject to, consummation of the merger
contemplated by the Merger Agreement.
2. Limitation. Each Stockholder shall retain at all times the right to vote
such Stockholder's shares of Company Common Stock in that Stockholder's sole
discretion on all matters, other than those set forth in Section 1, that are at
any time or from time to time presented for consideration by the Company's
stockholders generally.
3. Street Name Shares, Etc.
(a) With respect to any Shares listed on the signature page of this
Agreement as being held in "street name" by a broker-dealer for a Stockholder,
each Stockholder hereby irrevocably agrees to instruct and direct such broker-
dealer to vote such Shares in accordance with such Stockholder's agreements set
forth in Section 1. With respect to any such Shares, each Stockholder further
irrevocably agrees to complete and submit any proxy voting cards received by
such Stockholder from such broker-dealer in accordance with such Stockholder's
agreements set forth in Section 1.
(b) With respect to any Shares listed on the signature page of this
Agreement as being pledged to the Company, the Company acknowledges that it
does not presently have any voting rights with respect to such Shares and
agrees that it will not take any action to prevent the applicable Stockholders
from voting such Shares in accordance with such Stockholders' agreements set
forth in Section 1.
(c) With respect to any Shares listed on the signature page of this
Agreement as being beneficially owned by a Stockholder through an individual
retirement account, trust, partnership, or other legal entity, such Stockholder
agrees to take and to cause to be taken all actions which are necessary or
appropriate in order to cause such Shares to be voted in accordance with such
Stockholder's agreements set forth in Section 1.
4. No Solicitation.
(a) Immediately upon execution of this Agreement, the Stockholders shall
(and shall use best efforts to cause the Company and its officers, directors,
employees, investment bankers, attorneys and other agents or representatives
to) cease all discussions, negotiations, responses to inquiries and other
communications with all third parties who, prior to the date hereof, may have
expressed or otherwise indicated any interest in pursuing an Acquisition
Proposal with the Company.
(b) Prior to termination of this Agreement pursuant to Section 8 hereof,
each Stockholder hereby covenants and agrees that he or she will not, and each
Stockholder shall use best efforts to cause the Company and its officers,
directors, employees, investment bankers, attorneys and other agents or
representatives not to, directly or indirectly, (i) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making of any proposal
that constitutes an Acquisition Proposal, (ii) engage or participate in
negotiations or discussions with, or furnish any information or data to, or
take any other action to, facilitate any inquiries or making any proposal by,
any third party relating to an Acquisition Proposal, or (iii) enter into any
agreement with respect to any Acquisition Proposal or approve an Acquisition
Proposal; provided, that if a Stockholder is a director of the Company, such
Stockholder may, as such a director (but not as a stockholder), engage in the
activities specified in (ii) and (iii), but only if and to the extent that the
Company Board may do so pursuant to Section
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5.6(b) of the Merger Agreement, and only subject to the conditions and
limitations set forth in said Section 5.6(b). In the event that any Stockholder
shall receive any Acquisition Proposal, he or she shall promptly (and in no
event later than 24 hours after receipt thereof) furnish to Buyer the identity
of the Potential Acquiror, the terms of such Acquisition Proposal, copies of
all information requested by the Potential Acquiror, and shall further promptly
inform Buyer in writing as to the fact such information is to be provided after
compliance with the terms of the preceding sentence. Without limiting the
foregoing, each of the Stockholders understands and agrees that any violation
of the restrictions set forth in this Section 4 by any Stockholder who is a
director or officer of the Company, whether or not such Stockholder is
purporting to act on behalf of the Company or any of its Subsidiaries or
otherwise, shall be deemed to be a breach of Section 5.6(b) of the Merger
Agreement sufficient to enable Buyer to terminate the Merger Agreement pursuant
to Section 7.1(d)(i) thereof. Nothing set forth in this Section 4 shall be
deemed to limit or qualify in any way the Stockholders' agreements and
obligations set forth in Section 1.
(c) For the purposes of this Agreement, "Acquisition Proposal" shall mean
any proposal, whether in writing or otherwise, made by any person other than
Parent and its Subsidiaries to acquire "beneficial ownership" (as defined under
Rule 13(d) of the Exchange Act) of 15% or more of the assets of, or 15% or more
of the outstanding capital stock of any of the Company or its Subsidiaries
pursuant to a merger, consolidation, exchange of shares or other business
combination, sale of shares of capital stock, sales of assets, tender offer or
exchange offer or similar transaction involving the Company or its
Subsidiaries.
5. Representations and Warranties of the Stockholders. The Stockholders
severally, but not jointly, hereby represent and warrant to Buyer that:
(a) Each Stockholder has the requisite legal capacity and authority to
execute and deliver this Agreement, to perform the obligations of the
Stockholder under this Agreement and to consummate the transactions
contemplated by this Agreement. This Agreement has been duly executed and
delivered by such Stockholder and constitutes a valid and legally binding
obligation of such Stockholder enforceable in accordance with its terms, except
to the extent that enforceability thereof may be limited by bankruptcy and
other similar laws and general principles of equity;
(b) Each Stockholder's execution, delivery and performance of this Agreement
will not result in the creation of any Lien upon any of the shares of Company
Common Stock held by such Stockholder under any of the terms, conditions or
provisions of any contract to which such Stockholder is a party;
(c) No filing or registration with or notification to and no permit,
authorization, consent or approval of, any Governmental Entity is required to
be obtained, made or given by any Stockholder in connection with the execution,
delivery and performance by any Stockholder of this Agreement; and
(d) The signature page of this Agreement correctly sets forth the number of
shares of Company Common Stock held of record and/or beneficially owned by each
Stockholder as of the date of this Agreement. With respect to shares of Company
Common Stock beneficially owned by each Stockholder and held by a broker in
street name, the signature page of this Agreement correctly sets forth the name
of such broker and the number of shares of Company Common Stock held by such
broker. With respect to shares of Company Common Stock beneficially owned by
each Stockholder through an individual retirement account, trust, partnership,
or other legal entity, the signature page of this Agreement correctly sets
forth the identity of such entity and the number of shares of Company Common
Stock so held. Each Stockholder has good title to all of the shares of Company
Common Stock set forth below his or her name on the signature page hereto free
and clear of all liens, security interests and encumbrances or any restrictions
on transfer, except for such Shares as are listed on such signature page as
being pledged to the Company to secure the payment of the purchase price of
such Shares.
(e) Each Stockholder, in his or her capacity as record owner, beneficial
owner, partner or trustee, either acting alone or together with another
Stockholder, has the sole power (or shares such power only with such other
Stockholder) to direct the voting and disposition of the Shares and to prevent
the amendment of any custodial, trust, partnership or other operative agreement
under which the Shares are held.
3
<PAGE>
6. Capacity. The parties hereby agree that the Stockholders are executing
this Agreement solely in their capacity as Stockholders of the Company. Nothing
contained in this Agreement shall limit or otherwise affect the conduct or
exercise of the Stockholders' fiduciary duties as officers or directors of the
Company.
7. Covenants.
(a) Each Stockholder will, and will cause any broker-dealer, individual
retirement account trustee or custodian, trustee, trust, partnership, or other
legal entity through which such Stockholder holds Shares to, execute and
deliver such documents and take such action reasonably requested by Buyer to
effectuate the purposes of this Agreement and to consummate the transactions
contemplated by the Merger Agreement.
(b) Each Stockholder, either acting alone or together with another
Stockholder, has the power to, and will, and will cause any broker-dealer,
individual retirement account trustee or custodian, trustee, trust,
partnership, or other legal entity through which such Stockholder holds Shares
to, during the term hereof, prevent (i) the amendment of any custodial, trust,
partnership or other operative agreement under which the Shares are held and
(ii) except as a result of a pledge of the Shares to the Company in connection
with the exercise of options to purchase shares of the Company's common stock,
the existence of any lien, security interest, or other encumbrance on the
Shares resulting from outstanding indebtedness or any other outstanding
obligation secured by the Shares.
8. Termination. This Agreement shall terminate upon the earlier of (i) the
Effective Time and (ii) the termination of the Merger Agreement in accordance
with its terms. In the event this Agreement is terminated, this Agreement shall
immediately become void, there shall be no liability under this Agreement on
the part of Buyer, its officers or directors or the Stockholders, and all
rights and obligations of the parties to this Agreement shall cease.
9. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specified in the Merger
Agreement.
10. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement, without the necessity of
proving damages or posting any bond, and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
11. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or if sent
by telex or facsimile (with receipt electronically confirmed) to the person at
the address set forth below, or such other address as may be designated in
writing hereafter, in the same manner, by such person:
(a) if to a Stockholder: To the address set forth on the signature page(s)
hereto
(b) if to Buyer:
UnitedHealth Group Incorporated
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: General Counsel
Facsimile No.: (952) 936-0044
4
<PAGE>
with a copy to:
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
Attention: James D. Alt
Facsimile No.: (612) 340-8738
12. Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the parties named herein and their respective successors and
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any Person other than the Stockholders or Buyer, or their permitted
successors or assigns, any rights or remedies under or by reason of this
Agreement.
13. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings, both
written or oral, between the parties with respect to the subject matter hereof.
This Agreement may not be changed, amended or modified orally, but only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought.
14. Assignment. No party to this Agreement may assign any of its rights or
delegate any of its obligations under this Agreement (whether by operation of
law or otherwise) without the prior written consent of the other party hereto.
15. Interpretation. The language used in this Agreement shall be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any party. The headings of
articles and sections herein are for convenience of reference, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
16. Counterparts. This Agreement may be executed via facsimile in two or
more counterparts, each of which, when executed, shall be deemed to be an
original and all of which together shall constitute one and the same document.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of laws thereof.
18. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
* * * * *
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to
be executed as of the day and year first written above.
UNITEDHEALTH GROUP INCORPORATED
/s/ David J. Lubben
By:__________________________________
David J. Lubben
Name:________________________________
General Counsel
Title:_______________________________
LIFEMARK CORPORATION (as to Section
3(b))
/s/ Rhonda E. Brede
By:__________________________________
Rhonda E. Brede
Name:________________________________
President and Chief Executive
Officer
Title:_______________________________
STOCKHOLDERS
/s/ Rhonda E. Brede
_____________________________________
Name: Rhonda E. Brede
Address: 19870 N. 68th Drive,
Glendale, AZ 85308
Number of Shares Held Directly:
123,089 (of which 90,000 are
pledged to the Company)
Number of Shares Held in Street
Name: 1,121 (Stephens Inc.)
/s/ Michael J. Kennedy
_____________________________________
Name: Michael J. Kennedy
Address: 5226 E. Anderson Drive,
Scottsdale, AZ 85254
Number of Shares Held Directly:
79,497 (of which 60,000 are pledged
to the Company)
Number of Shares Held in Individual
Retirement Account: 8,500 (Stephens
Inc., custodian)
6
<PAGE>
/s/ Richard M. Jelinek
_____________________________________
Name: Richard M. Jelinek
Address: 8120 N. Dreamy Dr.,
Phoenix, AZ 85020
Number of Shares Held Directly:
60,000 (of which 60,000 are pledged
to the Company)
Number of Shares Held in Street
Name: 7,325 (Stephens Inc.)
/s/ Dave Decker
_____________________________________
Name: Dave Decker
Address: 10833 E. Raintree Dr.,
Scottsdale, AZ 85259
Number of Shares Held Directly:
26,877 (of which 25,000 are pledged
to the Company)
Number of Shares Held in Street
Name: 3,500 (Charles Schwab)
/s/ Henry H. Kaldenbaugh
_____________________________________
Name: Henry H. Kaldenbaugh
Individually and in his capacity as
General Partner of the Hemarco
Investments Limited Partnership
Address: 214 South Main Street,
Cottonwood, AZ 86326
Number of Shares Held Directly:
5,000
Number of Shares Held in Street
Name: 8,000 (Ameritrade)
Number of Shares Held Through
Hemarco Investments Limited
Partnership: 497,453
/s/ Martha E. Kaldenbaugh
_____________________________________
Name: Martha E. Kaldenbaugh
As General Partner of the Hemarco
Investments Limited Partnership
Address: 214 South Main Street,
Cottonwood, AZ 86326
Number of Shares Held Through
Hemarco Investments Limited
Partnership: 497,453
7
<PAGE>
/s/ John G. Lingenfelter
_____________________________________
Name: John G. Lingenfelter
Individually and in his capacity as
Trustee under the Lingenfelter
Family Trust U/T/A dated January 31,
1992, and as General Partner of the
Lingenfelter Investments Limited
Partnership
Address: 1080 Riata Valley Rd.,
Kingman, AZ 86401
Number of Shares Held Directly:
5,000
Number of Shares Held in Individual
Retirement Account: 7,781
Number of Shares Held Through
Lingenfelter Family Trust: 400,878
Number of Shares Held Through
Lingenfelter Investments Limited
Partnership: 11,000
/s/ Diana R. Lingenfelter
_____________________________________
Name: Diana R. Lingenfelter
In her capacity as Trustee under the
Lingenfelter Family Trust U/T/A
dated January 31, 1992, and as
General Partner of the Lingenfelter
Investments Limited Partnership
Address: 1080 Riata Valley Rd.,
Kingman, AZ 86401
Number of Shares Held Through
Lingenfelter Family Trust: 400,878
Number of Shares Held Through
Lingenfelter Investments Limited
Partnership: 11,000
/s/ Richard C. Jelinek
_____________________________________
Name: Richard C. Jelinek
Individually and in his capacity as
Trustee under the William Gardner
Brown GST Trust U/T/A dated 12/1/91
Address: 0312 Ridge Road, Aspen, CO
81611
Number of Shares Held Directly:
612,500
Number of Shares Held in Street
Name: 3,315 (Stephens Inc.); 1,200
(E Trade); 3,000 (William Blair)
Number of Shares Held Under Trust
Agreement Dated December 1, 1991:
70,000
8
<PAGE>
/s/ William G. Brown
_____________________________________
Name: William G. Brown
Individually and in his capacity as
Trustee under the William Gardner
Brown Grantor Revocable Trust U/T/A
9/15/91
Address: 207 South Beach Rd., Hobe
Sound, FL 33455
Number of Shares Held Directly:
5,000
Number of Shares Held Under Trust
Agreement Dated September 15, 1991:
38,670
Number of Shares Held Under Trust
Agreement Dated December 1, 1991:
70,000
/s/ Malcolm M. Brown
_____________________________________
Name: Malcolm M. Brown
As Trustee under the William Gardner
Brown GST Trust U/T/A dated 12/1/91
Address: 1110 Arbor Road, Winston-
Salem, NC 27104
Number of Shares Held Under Trust
Agreement Dated December 1, 1991:
70,000
/s/ Risa J. Lavizzo-Mourey
_____________________________________
Name: Risa J. Lavizzo-Mourey
Address: 711 Papermill Road,
Erdenheim, PA 19038
Number of Shares Held Directly:
5,000
Number of Shares Held in Individual
Retirement Account: 4,200 (Fidelity
Investments, custodian)
Number of Shares Held in Street
Name: 28,880 (Fidelity Investments)
9
<PAGE>
ANNEX C
[Stephens Inc. Letterhead]
October 10, 2000
Members of the Board of Directors of
Lifemark Corporation
7600 North 16th Street, Suite 150
Phoenix, AZ 85020
Members of the Board:
We have acted as your financial advisor in connection with the proposed
merger (the "Transaction") pursuant to which Lifemark Corporation (the
"Company") will become a subsidiary of UnitedHealth Group, Inc.
("UnitedHealth") pursuant to the terms and conditions set forth in the
Agreement and Plan of Merger.
You have requested our opinion as to the fairness to the shareholders of the
Company from a financial point of view of the consideration to be received by
such shareholders for each outstanding share of the Company's common stock, par
value $0.01 per share (the "Company Shares") pursuant to the Agreement and Plan
of Merger.
In connection with rendering our opinion we have:
(i) analyzed certain publicly available financial statements and reports
regarding the Company and UnitedHealth;
(ii) analyzed certain internal financial statements and other financial and
operating data (including financial projections) concerning the
Company prepared by management of the Company;
(iii) analyzed, on a pro forma basis, the effect of the transaction;
(iv) reviewed the reported prices and trading activity for the Company
Shares and the outstanding shares of UnitedHealth's common stock, par
value $0.01 per share (the "UnitedHealth Shares");
(v) compared the financial performance of the Company and UnitedHealth and
the prices and trading activity of the Company Shares and UnitedHealth
Shares with that of certain other comparable publicly-traded companies
and their securities;
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
(vii) reviewed the Agreement and Plan of Merger and related documents;
(viii) discussed with management of the Company the operations of and
future business prospects for the Company and the anticipated
financial consequences of the Transaction to the Company;
(ix) assisted in your deliberations regarding the material terms of the
Transaction and your negotiations with UnitedHealth;
(x) performed such other analyses and provided such other services as we
have deemed appropriate.
We have relied on the accuracy and completeness of the information and
financial data provided to us by the Company, and our opinion is based upon
such information. We have inquired into the reliability of such information and
financial data only to the limited extent necessary to provide a reasonable
basis for our opinion, recognizing that we are rendering only an informed
opinion and not an appraisal or certification of value. With respect to the
financial projections prepared by management of the Company, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company.
<PAGE>
October 10, 2000
Page 2
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. We are familiar with the Company and issue
periodic research reports regarding its business activities and prospects. In
the ordinary course of business, Stephens Inc. and its affiliates at any time
may hold long or short positions, and may trade or otherwise effect
transactions as principal or for the accounts of customers, in debt or equity
securities or options on securities of the Company or UnitedHealth. Stephens is
acting as financial advisor to the Company in connection with the Transaction
and will receive a fee from the Company for our services, a significant
position of which is contingent upon the consummation of the Transaction.
Based on the foregoing and our general experience as investment bankers, and
subject to the qualifications stated herein, we are of the opinion on the date
hereof that the consideration to be received by the shareholders of the Company
for the Company Shares in the Transaction is fair to them from a financial
point of view.
This opinion and a summary discussion of our underlying analyses and role as
your financial advisor may be included in communications to the Company's
shareholders provided that we approve of such disclosures prior to publication.
Very truly yours,
/s/ STEPHENS INC.
STEPHENS INC.
<PAGE>
ANNEX D
DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S) 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to (S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228
or (S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
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the Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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ANNEX E
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 2000
COMMISSION FILE NUMBER 0-19393
LIFEMARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3338328
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7600 NORTH 16TH STREET
SUITE 150
PHOENIX, ARIZONA 85020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 602-331-5100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _________
Based on the closing sale price of $6.63 on the Nasdaq National Market, as of
August 2, 2000 the aggregate market value of the registrant's common stock held
by nonaffiliates was approximately $15,620,393.
As of August 2, 2000 the number of shares outstanding of the registrant's common
stock, $.01 par value, was 5,131,444 shares.
Documents Incorporated by Reference. Portions of the Company's Proxy Statement
for its Annual Meeting of Stockholders (the "2000 Proxy Statement") are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I Item 1. Business............................................................................ 1
Item 2. Properties.......................................................................... 9
Item 3. Legal Proceedings................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders................................. 10
Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........... 10
Item 6. Selected Financial Data............................................................. 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.......................... 15
Item 8. Financial Statements and Supplementary Data......................................... 15
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 15
Part III Item 10. Directors and Executive Officers.................................................... 15
Item 11. Executive Compensation.............................................................. 15
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 16
Item 13. Certain Relationships and Related Transactions...................................... 16
Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................... 16
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Lifemark Corporation ("Lifemark" or the "Company") (Nasdaq: LMRK) is a
national, diversified health care management organization serving vulnerable,
frail, elderly and chronically ill individuals. Within its health plan
operations, Lifemark manages the care of more than 200,000 individuals
nationally, who consume in excess of $400 million in annual health care
expenses. Additionally, over 2,500,000 individuals have access to the Company's
eldercare consultation and referral center, and over 380,000 people are served
through its diversified services division.
The Company's customers include commercial health maintenance
organizations ("HMOs"); county, state, and federal agencies; associations of
health care providers; large employer groups; area agencies on aging; long term
care insurance plans; and individuals. Lifemark seeks to achieve substantial
cost savings through implementing innovative, proactive care management
strategies customized for each program's unique characteristics.
HISTORY
Lifemark Corporation, as it presently exists, is the result of a
spin-off and subsequent merger transactions, which occurred on March 1, 1996.
Prior to March 1, 1996, the Company was named Medicus Systems Corporation (the
"Predecessor Corporation"). On March 1, 1996, all of the assets of the
Predecessor Corporation, other than those related to its managed care business,
were transferred to a wholly-owned subsidiary of the Predecessor Corporation,
and all of the shares of that company were distributed on a share-for-share
basis to stockholders of the Predecessor Corporation. The Company, consisting of
the managed care business of the Predecessor Corporation, then effected a
one-for-three reverse stock split and immediately acquired through merger
transactions three Arizona corporations engaged in the managed care business,
Ventana Health Systems, Arizona Health Concepts, and Managed Care Solutions.
Following those mergers, the Company's name was changed to Managed Care
Solutions, Inc. On July 12, 1999, the Company changed its name from Managed Care
Solutions, Inc. to Lifemark Corporation.
Significant events from fiscal year 1995 through fiscal year 2000
follow. For specific information about each of Lifemark's business segments,
please see the Description of Products and Services section below.
December 1995. Lifemark was awarded a contract to manage all aspects, including
start-up activities, of Community Choice Michigan ("CCM"), a Michigan based HMO.
CCM is a non-profit entity owned by a consortium of 17 Michigan community health
centers. CCM HMO enrollment operations began in August 1996.
November 1996. Lifemark formed Community Health USA ("CHUSA"), a wholly-owned
subsidiary, to provide non-medical, home-based services. Subsequently, in July
1999, CHUSA's name was changed to Lifemark at Home, Inc.
June 1997. The Company began its management services of Lovelace Community
Health Plan ("LCHP"), which is part of Lovelace Health Systems, Inc., in
Albuquerque, New Mexico, a subsidiary of CIGNA Corporation.
January 1998. Under Lifemark's full management, HMO Blue STAR+PLUS began
operations in Harris County, Texas. Lifemark entered into an administrative
services contract with Rio Grande HMO, Inc. ("RGHMO") (d.b.a. HMO Blue,
Southeast Texas) of BlueCross and BlueShield of Texas ("BCBSTX"), a division of
Health Care Service Corporation ("HCSC"), an independent licensee of the
BlueCross and BlueShield Association, and initiated start-up services for this
Plan in March 1997. STAR+PLUS is the State of Texas' managed long term care
demonstration project designed to provide integrated acute and long term health
care services to eligible individuals.
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March 1999. The Company acquired AdviNet, Inc., an eldercare information,
consultation and referral business which owns a national databank of long term
care and aftercare providers now known as the AdviNet Extended Care Network. In
February 2000, this wholly-owned subsidiary of Lifemark was renamed Lifemark
Care Connection, Inc.
April 1999. The Company was awarded a one-year contract with the County of San
Diego, Health and Human Services Agency, Aging and Independent Services for
consulting services for the County's Long Term Care Integration Planning Grant.
This contract includes providing technical assistance, facilitating consensus
building among key stakeholders participating in the workgroups, planning
committee and advisory group, and assisting in the design of the plan for acute
and long term care integration in San Diego, California.
July 1999. On July 27, 1999, Rhonda Brede was named President and Chief
Operating Officer of the Company and was appointed to serve as a member of the
Board of Directors. On November 1, 1999, Ms. Brede was named President and Chief
Executive Officer.
August 1999. Lifemark renegotiated its administrative service agreement with
AlohaCare, which had been in place since 1994. This one-year agreement called
for assisting AlohaCare with transitioning its administrative services to a self
administered basis by August 1, 2000. During the transition period, the Company
assisted AlohaCare with preparation of financial reports and financial
management, and provided information systems and technology. At AlohaCare's
request, the transition contract has been extended through November 2000, with a
significantly reduced scope effective August 1, 2000.
November 1999. Lifemark's wholly-owned subsidiary, Ventana Health Systems, Inc.
("Ventana"), was awarded a contract from the Arizona Health Care Cost
Containment System Administration's ("AHCCCSA") Arizona Long Term Care System
("ALTCS") to provide services to members residing in Coconino and Yuma Counties
in Arizona, starting December 1, 1999. The expansion increased Ventana's
membership by approximately 30 percent.
December 1999. Lifemark purchased the assets of MJB Capital Corporation, d.b.a
ValleyWide Attendant Care ("VWAC"), an Arizona based provider of in-home
personal care services. VWAC was founded in 1993 to provide non-medical
attendant care, personal care and homemaking services to clients in need of long
term care services who reside in the east metropolitan area of Phoenix, Arizona.
Lifemark combined the operations of VWAC with its own non-medical home care
provider subsidiary, Lifemark at Home, Inc.
December 1999. Lifemark entered a risk-sharing agreement with HCSC. This new
agreement replaced the administrative services agreement for managing the care
of approximately 21,000 STAR+PLUS members for RGHMO in Houston, Texas. Lifemark
also replaced its outstanding $3,000,000 convertible debt held by HCSC with a
bank term loan.
January 2000. Lifemark Care Connection, Inc. was awarded a two-year contract
with the State of New Mexico's Human Services Department to develop, implement
and manage a statewide, centralized intake, screening and referral service for
State residents needing long term care services. The contract, which includes
two optional one-year renewal periods, began in June 2000.
April 2000. The Company created Lifemark Care Management, Inc. This wholly-owned
subsidiary performs research, development, marketing and technical support for
the Company's health management technology tools, including its proprietary care
management software product called CareOne.
April 2000. The Company was awarded a one-year contract extension with the
County of San Diego, Health and Human Services Agency, Aging and Independent
Services for consulting services for the County's Long Term Care Integration
Planning Grant.
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May 2000. Lifemark's subsidiary, Lifemark at Home, Inc., was awarded a contract
with the Arizona Area Agency on Aging, Region One to provide non-medical in-home
services to residents of Maricopa County, which includes the Phoenix
metropolitan area. Services under this contract started on July 1, 2000.
June 2000. Lifemark at Home, Inc., was awarded a contract with the Pinal-Gila
Council for Senior Citizens, Area Agency on Aging, Region Five in Arizona to
provide non-medical in-home services to residents of Pinal and Gila Counties in
Arizona. Services under this contract started on July 1, 2000.
June 2000. Ventana was awarded a contract from AHCCCSA to provide services to
members throughout Maricopa County, Arizona (Phoenix). Ventana is one of three
awardees under this $300 million program. Services under this contract will
start on October 1, 2000.
June 2000. Lifemark Care Connection, Inc. signed a multi-year agreement with
CaregiverZone, a provider of integrated online/offline eldercare information,
products and services. The agreement to provide offline eldercare consultation
and referral services to CaregiverZone clients began in July 2000.
July 2000. Lifemark signed a contract extension agreement with Community Choice
Michigan to provide management services through 2005. Lifemark has provided
administrative services to this 63,000 member HMO since 1996.
DESCRIPTION OF PRODUCTS AND SERVICES
Lifemark's business includes managing risk through its health plan
operations segment, developing health management technology-based tools through
its software and technology segment, and owning and/or managing services through
its diversified services segment.
HEALTH PLAN OPERATIONS
Full or Shared Risk
Arizona
Ventana Health Systems, Inc. Ventana, a wholly-owned subsidiary of the
Company, is a long term care health plan in Arizona. As the Company's flagship
health plan since its inception in 1989, Ventana has been the largest private
contractor providing long term care services under a contract with AHCCCSA.
Currently Ventana serves nine Arizona counties; however, this service area will
expand to add Maricopa County, including the metropolitan Phoenix area,
beginning October 1, 2000. The Company was named one of three providers in
Maricopa County for a new $300 million ALTCS program. In all of its service
areas, Ventana uses comprehensive care management to support members living in
the least restrictive, safest environment by incorporating this philosophy,
Ventana increased its home and community based services' ratio from seven
percent of all of its members in 1989 to 46 percent in 1999. Ventana currently
serves approximately 2,000 elderly and physically disabled members.
Arizona Health Concepts, Inc. Arizona Health Concepts ("AHC"), a
wholly-owned subsidiary of Lifemark, is a health plan currently operating in two
Arizona counties. AHC has been a contracted health plan with AHCCCS since 1992.
Enrollees served by AHC include persons qualifying for the following programs:
Temporary Assistance for Needy Families ("TANF," formerly Aid to Families with
Dependent Children); Aged, Blind and Disabled; and the Medically
Indigent/Medically Needy, which is comprised of an indigent population not
eligible for federal Medicaid matching funds. AHC has approximately 10,000
members.
In the summer of 2000, Ventana and AHC began operations under the
product name Lifemark Health Plans to underscore their role as part of
Lifemark's family of services.
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Texas
HMO Blue STAR+PLUS. Lifemark has provided full health plan start-up and
management services for RGHMO in Houston, Texas. Lifemark began providing
services in March 1997 and began member enrollment in January 1998. Current
membership is approximately 21,000 persons. RGHMO is the largest of three
contractors for the State's managed long term care demonstration project in
Harris County. The STAR+PLUS Program provides comprehensive managed health care
services to nursing home eligible individuals and Aged, Blind and Disabled
Medicaid beneficiaries, including those needing long term care services. In
December 1999, the Company's role expanded into a 50/50 risk sharing partnership
with HCSC through Lifemark of Texas, Inc., a wholly-owned subsidiary of the
Company.
Management Services
Michigan
Community Choice Michigan. Since 1996, Lifemark has provided health
plan management services for CCM, a not-for-profit 501(c)(3) HMO. CCM was formed
by 19 Michigan-based Community and Migrant Federally Qualified Community Health
Centers ("FQHC") and serves the traditional Medicaid and the Aged, Blind and
Disabled populations in 42 counties throughout Michigan. This health plan
provides health care coverage to approximately 63,000 members. As part of its
management services, Lifemark developed and supports a comprehensive network of
approximately 3,500 physicians and specialists and over 50 hospitals.
New Mexico
Lovelace Community Health Plan. Since 1997, Lifemark has provided
management services for LCHP. LCHP serves nearly 48,000 members, all of whom are
recipients of the State of New Mexico's innovative managed care Medicaid program
called SALUD! LCHP was one of three organizations awarded a contract for
participation in SALUD! LCHP, under Lifemark's management, received the State of
New Mexico's highest rating of all program contractors in the 1999 and 2000
SALUD! audits.
Hawaii
AlohaCare. From 1994 to 1999, Lifemark was the full-service
administrative contractor for AlohaCare, a not for profit 501(c)(4) health plan.
AlohaCare was formed through the efforts of Hawaii-based FQHC and other local
provider organizations. The plan serves approximately 53,000 members. In 1999,
Lifemark entered into a one-year transition agreement to continue to provide
certain services to AlohaCare, while assisting AlohaCare to transition to self
administration. The transition contract expires in November 2000.
SOFTWARE AND TECHNOLOGY SERVICES
The Company has supported the development and enhancement of CareOne, a
proprietary state-of-the-art disease and care management software program that
has been used internally at Lifemark since 1994. In April 2000, the Company
formed a wholly-owned subsidiary, Lifemark Care Management, Inc. and transferred
the assets of CareOne into this subsidiary. In keeping with its focus of
researching and developing health management technology tools, Lifemark Care
Management's initial project involves creating an expanded version of CareOne
for both internal and external customer use. Through initial market studies,
Lifemark Care Management identified commercial insurers, state and county
agencies, HMOs and risk-bearing providers as potential external users.
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DIVERSIFIED SERVICES
National
Lifemark Care Connection. Lifemark Care Connection, a wholly-owned
subsidiary of the Company, is a nationwide eldercare and long term care client
intake, assessment, consultation, referral, and telephonic case management
service. Its clients are insurance companies, employee assistance programs, long
term care insurance companies, fraternal organizations, state agencies, affinity
and discount card programs, internet companies and private pay clients. Lifemark
Care Connection also operates the AdviNet(R) Extended Care Network, a national
network and databank of LTC and other post-acute providers and supportive
resources. Over 2.5 million individuals nationwide have access to Lifemark Care
Connection services.
In January 2000, Lifemark Care Connection was awarded a contract with
the State of New Mexico, Human Services Division to develop and manage the New
Mexico Intake and Screening System. Through this program, which began start-up
services in June 2000, Lifemark Care Connection will provide telephonic
eligibility screening, assessment, and referral information for New Mexico
residents requiring long term care services.
Lifemark Care Connection also entered into an agreement to provide a
suite of offline eldercare consultation and referral services designed to assist
clients of CaregiverZone. CaregiverZone is a provider of integrated
internet-based and offline eldercare information, products and services. Clients
of CaregiverZone include family caregivers, eldercare professionals and seniors.
Services under this multi-year agreement started in July 2000.
Arizona
Lifemark at Home. Lifemark at Home, a wholly-owned subsidiary of the
Company, offers services to health plans, area agencies on aging, and private
pay clients needing non-medical in-home assistance and care. Since 1996, this
subsidiary has offered personal care, homemaking/housekeeping and respite
services to persons recovering from an illness or operation, living with a
chronic condition, or facing the limitations imposed by aging. Lifemark at Home
caregivers provide services to approximately 1,200 clients throughout Arizona.
Approximately 40 percent of these services are delivered to members of Lifemark
Health Plans (Ventana and AHC). The percentage of services to non-Lifemark
entities has increased from zero to 60 percent since 1998. In June 2000,
Lifemark at Home was awarded contracts with Arizona's Area Agencies on Aging,
Region One (including the greater Phoenix area), and with the Pinal-Gila Council
for Senior Citizens Services/Area Agency on Aging, Region Five. Services under
both of these contracts began on July 1, 2000 and together are expected to add
over 300 clients to Lifemark at Home.
California
County Medical Services Program. Since 1983, Lifemark has managed the
San Diego County Medical Services Program ("CMS") which provides necessary
health care services to medically indigent adult residents. Included in the CMS
program are: the Ryan White Comprehensive AIDS Resources Emergency Act
Supplemental Program, a federally funded and County administered program
offering preventive and primary care clinic services to HIV+ patients; the
California Healthcare for Indigents Program ("CHIP") AB-75 Hospital Formula
Fund, a program which distributes payment to hospitals for uncompensated
emergency and acute care services; and the Physician Emergency Services Program,
which distributes payment to physicians for uncompensated emergency services.
California Healthcare for Indigents Program. Since 1991, Lifemark has
served as a fiscal intermediary for CHIP through a contract with the City and
County of San Francisco. CHIP offers medical services to persons who cannot
afford to pay for their own healthcare and who are not recipients of any state
or federally funded program.
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Access for Infants and Mothers Program. Since 1992, the Company has
performed marketing and outreach services for the Access for Infants and Mothers
Program ("AIM") through a contract with internal agencies of San Diego and
Imperial Counties. The AIM program provides prenatal and infant care for
uninsured moderate-income women.
California Work Opportunities and Responsibility to Kids and Personal
Assistance Employment Service. In 1999, Lifemark became the fiscal intermediary
for the California Work Opportunities and Responsibility to Kids program,
through a contract with San Francisco County. This program assists low-income
families after their TANF benefits are exhausted. Additionally in 1999, the
Company began fiscal intermediary services for the vision and dental services'
components of the Personal Assistance Employment Service ("PAES"), also through
a contract with San Francisco County. PAES is designed to reduce barriers to
employment and increase the job readiness skills of single, low-income persons.
County of San Diego, Long Term Care Integration Project. In 1999,
Lifemark was awarded a contract to provide consulting services, including long
term care planning services, technical and design assistance, and group
facilitation, for San Diego's Long Term Care Integration Project Planning Grant.
This contract was extended in April 2000 for one year. This project's focus is
to develop a system of care that integrates acute and long term care services
for frail, elderly and disabled residents.
Perinatal Care Network. Since 1990, Lifemark has operated a telephone
referral and care coordination service for low-income pregnant women
participating in the Perinatal Care Network ("PCN"), a program of the County of
San Diego's Health and Human Services Agency. Specifically, the Company has
managed this program's referral service; data management, reporting and
analysis; and provider recruitment and provider relations functions. As a result
of a County directive realigning PCN with an existing County-managed telephone
service, the Company's contract for this program ended on June 30, 2000.
Indiana
Hoosier Healthwise. Since 1994, the Company has been under a contract
with the State of Indiana to provide a variety of administrative services for
Hoosier Healthwise, the statewide managed care Medicaid program serving pregnant
women, children and low-income families. This contract, which continues through
December 2001, includes the services of enrollment broker services, provider
network development for Primary Care Case Management ("PCCM"), member outreach,
education and enrollment, statewide helpline development and operation, database
development and management, and quality improvement activities for both PCCM and
Risk Based Managed Care delivery systems.
SIGNIFICANT CUSTOMERS; PERCENTAGE OF REVENUES
In fiscal year 2000, revenues from the health plan operations accounted
for approximately 90 percent of total revenues. The Lifemark Health Plans'
contract with AHCCCSA represented 40 percent, and the Lifemark of Texas contract
with HCSC represented 33 percent of total revenues, respectively.
RECURRING REVENUE
Lifemark's recurring revenue (defined as revenue generated pursuant to
a multi-year contract or pursuant to an ongoing contract whose nature
contemplates continued renewals) for the three fiscal years ended May 31, 2000,
1999, and 1998 was $145,023,000, $79,582,000, and $65,548,000, respectively, or
97 percent, 93 percent, and 99 percent of total revenues, respectively.
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INDUSTRY BACKGROUND
Twelve million people in the United States need some form of long term
care services. Addressing the medical and social needs of this population has
grown to be an estimated $150 billion business annually. The government, through
Medicaid and Medicare, pays 56 percent of these long term care costs, with out
of pocket expenditures (including private long term care insurance) accounting
for 40 percent of these same costs. The Veterans' Administration, philanthropic
organizations and other commercial insurance organizations absorb the remaining
costs associated with long term care. The Company views long term care as a
subset of a larger chronic care segment, with similar skills in care
coordination and health care management being necessary to address the unique
needs of this population. The annual cost of addressing the needs of persons who
are chronically ill is approximately $650 billion. Considering the aging baby
boomers, the prevalence of persons with chronic illness is expected to rise to
over 95 million people and cost $807 billion by 2005.
Historically, addressing long term care and chronic care needs of
adults and children has been based on a fee-for-service model. This model has
been regarded by some as both failing to spend health care dollars efficiently
and failing to meet the needs of the target populations. To address these
shortcomings, many insurance companies, states, counties, and other governing
bodies have begun evaluating alternatives, including turning to cost- and
quality-conscious managed care or coordinated care delivery models for these
special populations. Lifemark has implemented integrated care coordination
strategies to address the needs of its members and to more efficiently spend
limited health funds.
COMPETITION
The movement of nearly every state Medicaid program in the country away
from traditional fee-for-service insurance programs to managed care has
threatened the traditional third party administrator, fiscal intermediary and
state/government contractor companies who stand to lose significant business to
managed care companies. This philosophical and corresponding structural shift
will force current and new contractors to adapt themselves to the managed care
environment by expanding into business segments that Lifemark historically has
served.
Changes in health care also are likely to accelerate the creation of
provider-based delivery systems consisting of providers who traditionally have
served the Medicaid population through fee-for-service programs. As the movement
to managed care continues in the provider community, a large number of physician
practices and groups have turned to management organizations to assist with
their business functions. These management organizations will likely enter the
Medicaid managed care niche. All of the entities discussed by business segment
below will compete to varying degrees with the services offered by Lifemark.
HMOs and Insurance Companies. HMOs and insurance companies, which now
have a significant presence in the states sought by Lifemark, are expected to be
strong competitors. These entities currently may be processing claims for a
State Medicaid agency, or for Medicare as a third-party administrator. In some
cases they may already be participating in regionalized Medicaid or Medicare
managed care programs. These organizations may include major publicly traded
managed care organizations which may have the requisite capital, underwriting
expertise, and provider networks to develop and implement a Medicaid/Medicare
health plan.
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Provider Service Organizations. Physician organizations often
collaborate with a strong hospital partner to form managed care entities. Both
hospitals and physicians wish to increase their prospective patient base and to
protect their existing market positions. Physician organizations are attractive
partners for hospitals due to their strength in the provider network area,
influence on contractual issues, and ongoing relationships and experience with
the member and with managed care entities.
Health Care Management Companies. A variety of management and third
party administrator companies have emerged and are expected to continue to
emerge to administer Medicaid and Medicare health plans established by provider
organizations. Although Lifemark is currently one of only a few companies to
have succeeded in multiple states in which all of the state's acute care and
long term care Medicaid recipients are placed in managed care plans, several
other companies have had success in states where some managed care
experimentation and development has occurred.
Care Management Companies. There are a significant number of companies
whose market niche is the intense focus on certain high volume and/or high cost
diseases, and on developing expertise in the management of these populations.
The number of organizations with the ability to accurately identify these
individuals, design and deliver appropriate care management interventions, and
provide improved outcomes has grown significantly in the marketplace.
Specialty Service Companies. There are a growing number of long term
care niche companies and companies that specialize in the provision of specialty
services to vulnerable populations. These companies provide one or more of the
following: national or regional home health care services, including care
management services; eldercare and/or specialty information and referral
services, including those using the Internet as an educational/informational
tool, personal care/attendant care services; enrollment broker services; and
long term care insurance. Potential competitors for these services include EDS,
Maximus, and Birch & Davis, a wholly-owned subsidiary of Affiliated Computer
Services, Inc. (ACS).
Health Care Software and Technology Companies. Computerization of
health management tasks is a relatively new and growing industry. Although there
are companies that develop software with care management as a component, many of
these companies may not emphasize the long term care continuum. Lifemark
believes that companies with experience in developing health management software
programs or case management tools will compete vigorously for clients needing
specialized care management software.
Lifemark believes that the principal factors affecting competition in
all of its lines of business are customer service, customer focus, performance
track record, employee expertise, competitive pricing, and corporate reputation.
Strength in these areas is gained over time by seasoned companies which have
refined their services to meet the needs of their clients and have been
sensitive to the changing needs of a dynamic market. Lifemark has eleven years
of dedicated service to persons who need long term care or who are chronically
ill and has had consistently steady growth in its total enrollment statistics.
Through its ownership and/or management of health plans and diversified
services, and its software and technology initiatives, the Company believes it
is advancing towards its goal of being a leader in the long term care service
industry.
EMPLOYEES
On May 31, 2000, the Company employed 607 full-time employees and 333
part-time employees. Of the part-time employees, 331 provided direct services
for Lifemark's subsidiary, Lifemark at Home, Inc. None of the Company's
employees is represented by a union.
8
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Rhonda E. Brede 43 President, Chief Executive Officer and Director
David G. Decker 39 Chief Information Officer
Richard M. Jelinek 34 Executive Vice President
Michael J. Kennedy 44 Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
</TABLE>
Rhonda E. Brede, age 43, has been president, chief executive officer
and director of the Company since November 1999. She had been president and
chief operating officer since July 1999. She also has been the chief executive
officer of Ventana and AHC since 1998. Ms. Brede was a senior vice president of
the Company from 1996 through 1999. She was the executive director for Ventana
from 1993 through 1996. From 1989 through 1993, she held several positions with
Ventana.
David G. Decker, age 39, has been chief information officer since May
1997. He was previously employed by Samaritan Health System in Phoenix, Arizona,
where he was the director of application development from 1993 to 1997, the
manager of patient accounting systems from 1991 to 1993, and a
programmer/analyst from 1990 to 1991.
Richard M. Jelinek, age 34, has been executive vice president since
September 1999. From 1997 to 1999 he served as the Company's senior vice
president. From 1996 to 1997 he was regional vice president, from 1995 to 1996
vice president of managed care and division head, and from 1994 to 1995 program
director for the Company's Indiana project. From 1992 to 1994 he was the
administrator for new product development at the Henry Ford Health System and
Health Alliance Plan in Detroit, Michigan.
Michael J. Kennedy, age 44, has been chief financial officer since
April 1996. He was vice president and treasurer of In Home Health, Inc. from
1993 to 1996, vice president and controller of In Home Health, Inc. from 1991 to
1993, and controller from 1989 to 1991. From 1978 to 1989, he was with Deloitte
and Touche as a certified public accountant.
ITEM 2. PROPERTIES
The Company's executive offices are located in Phoenix, Arizona, in
approximately 54,000 square feet of leased space. The Company leases 20 other
offices in various locations in Arizona, Arkansas, California, Indiana,
Michigan, New Mexico and Texas. The Company's leased properties are suitable and
adequate for its current needs and additional space is expected to be available
as needed at prevailing rates.
ITEM 3. LEGAL PROCEEDINGS
The Company has been notified by RGHMO that it will pursue a claim
against the Company arising out of the following circumstances. Prior to
December 1999, the Company had a non-risk sharing administrative services
agreement with RGHMO, a wholly-owned subsidiary of HCSC. Under the agreement,
the Company administered RGHMO's STAR+PLUS operations in Texas and was
responsible, among other things, for developing and maintaining RGHMO's provider
network and for administering the claims adjudication and payment functions. On
July 5, 1997, RGHMO entered into an agreement for medical services with
Universal Healthplan, Inc. ("Universal"), a Texas health maintenance
organization. The agreement provided for Universal to provide hospitalization
services to RGHMO members through Universal's contract with Tenet Health Care
Ltd. ("Tenet"), a hospital chain. Tenet asserts that RGHMO owes it approximately
$6,500,000 for claims allegedly improperly denied or paid at incorrect rates. On
July 1, 1999, Tenet filed a demand for arbitration against RGHMO to recover such
amounts.
9
<PAGE>
On March 23, 2000, RGHMO filed a demand for arbitration against the
Company in the same arbitration alleging that because the Company is responsible
for claim adjudication, the Company should be responsible for any amount
determined by the arbitrators to be due to Tenet. The Company moved to be
severed from the arbitration and the arbitration panel granted the motion. The
arbitration continues to be litigated and no decision has yet been rendered.
RGHMO has notified the Company that if there is an adverse result in the
arbitration, it will commence an arbitration action to recover from the Company
the amount of the judgement rendered in favor of Tenet. The Company believes its
adjudication of the Tenet claims on RGHMO's behalf was appropriate and Tenet was
paid what it was owed. Accordingly, if an arbitration is commenced by RGHMO, the
Company intends to vigorously assert its position in this manner.
The Company is a party to various claims and legal proceedings which
management believes are in the normal course of business and will not involve
any material loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is registered under Section 12(g) of the
Securities Exchange Act of 1934 and is traded on the Nasdaq National Market
under the symbol "LMRK". As of, July 25, 2000, there were 376 record holders of
the common stock.
The high and low closing sale prices for the common stock as reported
by the Nasdaq National Market during fiscal years 2000 and 1999 are set forth
below.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year 1999
First Quarter $ 8.00 $ 3.38
Second Quarter 5.88 3.88
Third Quarter 6.00 4.00
Fourth Quarter 5.00 3.38
Fiscal Year 2000
First Quarter $ 5.00 $ 2.75
Second Quarter 3.50 2.12
Third Quarter 3.75 2.94
Fourth Quarter 5.88 3.25
</TABLE>
These prices do not include retail markups, markdowns, or commissions
and may not represent actual transactions. The Company did not pay any dividends
in fiscal years 2000 or 1999. The Company intends to reinvest any earnings in
continued expansion and does not expect to pay cash dividends in the foreseeable
future.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(Dollars and Shares in Thousands, except per share amounts)
STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $149,604 $ 85,392 $ 65,994 $ 63,790 $ 23,192
Operating income (loss) 2,791 2,066 818 (1,582) (2,799)
Income (loss) from continuing operations 2,433 1,953 832 (911) (2,214)
Income (loss) from continuing operations
per share - basic 0.50 0.41 0.19 (0.21) (0.82)
Income (loss) from continuing operations
per share - assuming dilution 0.47 0.36 0.18 (0.21) (0.82)
Cash dividends per share -- -- -- -- 0.14
Weighted average common shares outstanding 4,829 4,737 4,476 4,365 2,702
Weighted average common and common
equivalent shares outstanding 5,356 5,867 5,639 4,365 2,702
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
May 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ 3,381 $ 7,163 $ 4,972 $ 2,811 $ (2,350)
Total assets 58,903 34,820 31,723 28,017 27,816
Long-term debt, excluding current portion 3,241 3,651 3,961 3,710 516
Stockholders' equity 18,533 15,903 13,503 11,470 12,194
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table indicates the percentage relationship of income
and expense items to revenue as set forth in the Company's consolidated
statements of operations and the percentage changes from year to year.
<TABLE>
<CAPTION>
Percent of Revenues Percent Change
------------------- --------------
2000 1999 1998 1999 to 2000 1998 to 1999
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 75.2% 29.4%
----- ----- -----
Direct cost of operations 84.6 75.2 79.6 97.0 22.4
Marketing, sales and administrative 13.5 22.4 19.2 6.2 50.6
----- ----- -----
Total costs and expenses 98.1 97.6 98.8 76.2 27.8
----- ----- -----
Operating income 1.9 2.4 1.2 35.1 152.6
</TABLE>
11
<PAGE>
Consolidated revenues increased 75 percent and 29 percent to
$149,604,000 and $85,392,000 for fiscal years 2000 and 1999, respectively.
Direct cost of operations increased 97 percent and 22 percent to $126,542,000
and $64,239,000 in fiscal years 2000 and 1999, respectively. The direct cost of
operations as a percentage of revenue was 85 percent, 75 percent and 80 percent
in fiscal years 2000, 1999 and 1998, respectively. The increase in both revenues
and direct costs of operations in fiscal year 2000 was primarily due to the
financial risk-sharing agreement signed with RGHMO and growth in enrollment in
all health plans. The increase in both revenues and direct costs in fiscal year
1999 was attributable to growth in enrollment in certain plans covered by
management contracts, coupled with growth in membership of Ventana and AHC.
Health Plan Operations-Risk Contracts. Health plan operations-risk
contracts, which consists of the operations of Ventana, AHC and Lifemark of
Texas, generated combined revenues of $113,986,000, $46,041,000 and $39,772,000
for fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year
2000 is primarily a result of entering into a financial risk-sharing
relationship with RGHMO, which accounted for $53,423,000. Also contributing to
the increase, was the growth in VHS membership mainly due to expansion of
services into Yuma and Coconino counties, which accounts for approximately
$8,000,000 of the revenue increase. The increase in fiscal year 1999 was
primarily due to the increase in membership in Ventana and AHC, along with an
increase in the capitation rate received from the State of Arizona.
Direct costs of operations related to health plan operations-risk
contracts were $107,040,000, $42,295,000, and $35,619,000 for fiscal years 2000,
1999 and 1998, respectively. The increase in fiscal year 2000 was a result of
the financial risk-sharing agreement with RGHMO, which accounted for
$50,661,000, and growth in enrollment in both Ventana and AHC. The aggregated
membership of Ventana and AHC increased by 22 percent and 13 percent, for fiscal
years 2000 and 1999, respectively. The direct costs of health plan
operations-risk contracts as a percentage of related revenue for fiscal years
2000, 1999 and 1998 was 94 percent, 92 percent, and 90 percent, respectively.
The increase in this percentage was due to the start up costs of Lifemark of
Texas.
Health Plan Operations-Management Contracts. Health plan
operations-management contracts, which consists of the operations of Lovelace,
Community Choice Michigan and AlohaCare, generated revenues of $21,113,000,
$26,911,000 and $16,751,000 for fiscal years 2000, 1999 and 1998, respectively.
The decrease in revenues from 1999 to 2000 was primarily due to the new
transitional administrative service agreement with AlohaCare, as well as the
modification of the contract with RGHMO under which those revenues became part
of health plan operations-risk contracts. The increase in revenues from 1998 to
1999 was due to increased enrollment in RGHMO, Community Choice Michigan and
Lovelace.
Direct cost of operations related to health plan operations-management
contracts was $9,808,000, $13,640,000 and $11,093,000 for fiscal years 2000,
1999 and 1998, respectively. The decrease in fiscal year 2000 was largely due to
the reduced costs of the new transitional administrative service agreement with
AlohaCare and entering into a financial risk sharing relationship with RGHMO,
under which those direct costs became part of health plan operations-risk
contracts. The increase in 1999 was due to the completion of a full year under
the RGHMO management contract. The direct costs of health plan
operations-management contracts as a percentage of revenue for fiscal years
2000, 1999 and 1998 was 46 percent, 51 percent, and 66 percent, respectively.
Diversified Services. Diversified services, which consist of the
operations of Lifemark at Home, Lifemark Care Connection (formerly AdviNet), the
California programs, and Indiana PCCM, generated revenues of $14,505,000,
$12,440,000 and $9,471,000 for fiscal years 2000, 1999 and 1998, respectively.
The growth in fiscal year 2000 is due to continued expansion of Lifemark at Home
through the purchase of Valleywide Attendant Care and the acquisition of
Lifemark Care Connection in March 1999. The increase in fiscal year 1999 was due
to the expansion of Lifemark at Home and growth in revenues from the Indiana
program.
12
<PAGE>
Direct costs of operations related to diversified services was
$9,694,000, $8,304,000 and $5,788,000 for fiscal year 2000, 1999 and 1998,
respectively. The increase in all fiscal years was due to growth in the
diversified programs as well as the acquisition of Lifemark Care Connection. The
direct costs of diversified services as a percentage of revenue for fiscal year
2000, 1999 and 1998 were 67 percent, 67 percent, and 61 percent, respectively.
Interest Income. Interest income for fiscal years 2000, 1999 and 1998
was $1,868,000, $957,000 and $856,000, respectively. The increase from 1999 to
2000 is a result of increased levels of cash and investments and the recognition
of interest income associated with the RGHMO risk-sharing agreement. The
increase from 1998 to 1999 primarily relates to increased levels of cash and
investments held by the Company.
Interest Expense. Interest expense of $418,000, $365,000 and $377,000
during fiscal years 2000, 1999 and 1998, respectively, is primarily attributable
to outstanding debt maintained by the Company which consists of notes
outstanding initially with HCSC and refinanced with a bank, and the Brown GST
Trust for principal amounts of $3,000,000 and $300,000, respectively.
Income Taxes. The income tax expense was $1,808,000, $705,000, and
$465,000 for fiscal years 2000, 1999, and 1998, respectively. The effective tax
rate for fiscal year 2000 was 43 percent. The increase over the statutory rate
is primarily the result of non-deductible goodwill expense. The effective tax
rate for 1999 and 1998 was 27 percent and 36 percent, respectively, and for both
years reflected a reduction in the deferred tax asset valuation allowance
partially offset by amortization of non-deductible expenses, including $365,000
of goodwill expense. See Note 10 to Consolidated Financial Statements for
additional information.
Net Income. Net income was $2,433,000, $1,953,000 and $832,000 in
fiscal years 2000, 1999 and 1998, respectively. The increase in net income in
fiscal year 2000 is primarily due to increased profitability from the AlohaCare
contract and a reduction in administrative costs as a percentage of related
revenue offset by losses attributable to the financial risk-sharing agreement
with RGHMO. The increase in net income for fiscal year 1999 is primarily due to
completion of a full year of the contract with RGHMO and significant increases
in membership in the Community Choice Michigan and Lovelace contracts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased $5,413,000 to
$19,205,000, and $1,028,000 to $13,792,000 at May 31, 2000 and 1999,
respectively. Restricted cash increased $1,922,000 to $11,635,000 at May 31,
2000 and $706,000 to $9,713,000 at May 31, 1999. Operating activities generated
$12,902,000, $1,360,000 and $6,560,000 during fiscal years 2000, 1999 and 1998,
respectively. The change from fiscal year 1999 to fiscal year 2000 is a result
of earnings of $2,433,000, an increase in accrued medical claims primarily
related to Lifemark of Texas operations of $19,119,000, and an increase in
accrued expenses of $1,860,000 due primarily to a refundable deposit of $650,000
obtained from AlohaCare pursuant to the terms of the administrative services
agreement. The growth in cash was partially offset by an increase in accounts
receivable of $13,390,000 related in part to the financial risk-sharing
agreement with RGHMO and a payment of $710,000 in accrued interest associated
with the $3,000,000 convertible debt with HCSC. The significant reasons for the
change from fiscal year 1998 to fiscal year 1999 were income from operations and
increases in accrued medical claims and accrued compensation offset by decreases
in risk pool payables and accrued expenses and the increase in accounts
receivable. The change during fiscal year 1998 was due to income from
operations, decreases in risk pool receivables and prepaid expenses including
approximately $1,500,000 of prepaid income taxes and an increase in accrued
compensation of $679,000.
13
<PAGE>
Investing activities used $6,854,000, $687,000, and $2,002,000 in
fiscal years 2000, 1999 and 1998, respectively. The primary use of funds during
fiscal year 2000 was the purchase of property and equipment of $2,709,000 and
the increase in assets securing performance bonds of $5,537,000. The purchases
of property and equipment was mostly a result of capitalized costs related to
the implementation of new claims processing software. The increase in
performance bonds was due to the expansion of Ventana into Yuma and Coconino
counties and the purchase of a certificate of deposit pursuant to the terms of
the financial risk-sharing agreement with RGHMO. The primary sources of funds
were the receipt of payments on notes receivable of $568,000, primarily from
related parties, proceeds received from the maturity of short-term investments
and proceeds from the sale of property and equipment. The primary uses of funds
during 1999 were purchases of property and equipment of $1,577,000 and an
increase in assets securing performance bonds of $409,000, offset by the
maturity of short-term investments of $1,009,000. The principal use of funds
during fiscal year 1998 was the purchase of fixed assets of $2,509,000.
Financing activities used $635,000 during fiscal year 2000 and
generated $355,000 and $994,000 during fiscal years 1999 and 1998, respectively.
The principal use of funds in fiscal year 2000 was the Company's repayment of
its $3,000,000 convertible loan to HCSC and additional payments on other
outstanding debt of approximately $1,000,000. The issuance of common stock
provided $215,000 during fiscal year 2000. The principal source of funds in
fiscal year 1999 was the issuance of common stock through the stock option and
employee stock purchase plans, along with borrowings under an interim funding
agreement with Wells Fargo Bank, for the purchase and implementation of software
necessary to improve operational efficiencies. The primary source of funds in
fiscal year 1998 was the sale of 200,000 shares of common stock at $5.00 per
share to Beverly Enterprises, Inc. On December 22, 1999, the Company signed an
agreement with Imperial Bank to refinance the existing debt with HCSC. The loan
has an original term of four years and bears interest at a rate of prime plus
0.375 percent per annum. The loan is secured by certain assets of Lifemark
Corporation. The agreement includes several financial covenants with which the
Company was in compliance as of May 31, 2000.
Ventana and AHC are subject to state regulations, which require
compliance with certain net worth, reserve and deposit requirements. To the
extent Ventana and AHC must comply with these regulations, they may not have the
financial flexibility to transfer funds to Lifemark. Additionally, Lifemark has
pledged a certificate of deposit to secure its obligations under the contract to
share financial risk with RGHMO in the STAR+PLUS program in Harris County,
Texas. Lifemark's proportionate share of net assets (after inter-company
eliminations) which, at May 31, 2000 and 1999, may not be transferred to
Lifemark by subsidiaries in the form of loans, advances or cash dividends
without the consent of a third party is referred to as "Restricted Net Assets".
Total Restricted Net Assets of these operating subsidiaries were $8,632,000 and
$10,378,000 at May 31, 2000 and 1999, respectively, with deposit and reserve
requirements (performance bonds) representing $6,823,000 and $4,203,000,
respectively, of the Restricted Net Assets and net worth requirements, in excess
of deposit and reserve requirements, representing the remaining $1,809,000 and
$6,175,000, respectively. In 1994, Ventana provided funds to the Company under
two separate loans. The remaining principal outstanding under these loans was
repaid during fiscal year 2000. All such loan agreements were pre-approved as
required by AHCCCSA.
The Company believes that its existing capital resources and cash flow
generated from future operations will enable it to maintain its current level of
operations and its planned operations, including capital expenditures, in fiscal
year 2001.
YEAR 2000 ISSUES
There were no significant disruptions to Company operations as a result
of year 2000 issues.
IMPACT OF INFLATION
To date, the rate of inflation has not had a material impact on the
Company's results of operations.
14
<PAGE>
FORWARD-LOOKING INFORMATION
This report contains both historical and forward-looking information.
Forward-looking statements include, but are not limited to, discussion of the
Company's strategic goals, new contracts, possible expansion of existing plans,
expected increase in certain expenses, and cash flow. These statements speak of
the Company's plans, goals or expectations and refer to estimates. The
forward-looking statements may be significantly impacted by risks and
uncertainties, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). There can
be no assurance that anticipated future results will be achieved because actual
results may differ materially from those projected in the forward-looking
statements. Readers are cautioned that a number of factors, which are described
herein, could adversely affect the Company's ability to obtain these results.
These include the effects of either federal or state health care reform or other
legislation; changes in reimbursement system trends; the ability of care
providers (including physician practice management groups) to comply with
current contract terms; and renewal of the Company's contracts with various
state and other governmental entities. Such factors also include the effects of
other general business conditions, including but not limited to, government
regulation, competition and general economic conditions. The cautionary
statements made pursuant to the Reform Act herein and elsewhere by the Company
should not be construed as exhaustive or as any admission regarding the adequacy
of disclosures made by the Company prior to the effective date of the Reform
Act. The Company cannot always predict what factors could cause actual results
to differ materially from those indicated by the forward-looking statements. In
addition, readers are urged to consider statements that include the terms
"believes", "belief", "expects", "plans", "objectives", "anticipates",
"intends", or the like, to be uncertain and forward-looking.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the
ordinary course of business on certain assets and liabilities including cash and
cash equivalents, short-term investments and long-term debt. The Company's
variable rate debt relates to the bank note as well as borrowings under their
software financing arrangement, which are primarily vulnerable to movements in
the prime rate. The Company does not expect changes in interest rates to have a
significant effect on the Company's operations, cash flow or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is attached as referenced under
item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information required under this item with respect to directors is
contained in the sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 2000 Proxy
Statement, which are incorporated herein by reference.
Information concerning executive officers is set forth in the section
entitled "Executive Officers of the Registrant" in Part I of this Form 10-K
pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item will be contained in the section
entitled "Compensation" in the Company's 2000 Proxy Statement, which is
incorporated herein by reference.
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the section
entitled "Common Stock Ownership by Management" in the Company's 2000 Proxy
Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item is contained in the sections
entitled "Compensation - Employment Agreements" and "Compensation and Stock
Option Committee Interlocks and Insider Participation" in the Company's 2000
Proxy Statement, which are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
The Consolidated Financial Statements and Financial Statement Schedules
filed with this Form 10-K are listed below with their location in this
report and are included in Item 8 above.
1. Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants............................... 22
Consolidated Balance Sheet - May 31, 2000 and 1999.............. 23
Consolidated Statement of Income -
Years Ended May 31, 2000, 1999 and 1998.................... 24
Consolidated Statement of Changes in Stockholders Equity -
Years Ended May 31, 2000, 1999 and 1998.................... 25
Consolidated Statement of Cash Flows -
Years Ended May 31, 2000, 1999 and 1998.................... 26
Notes to Consolidated Financial Statements...................... 27
</TABLE>
2. Financial Statement Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule I. Condensed Financial Information of the Registrant.. 45
Schedule II. Valuation and Qualifying Accounts.................. 49
</TABLE>
All schedules, other than those indicated above, are omitted because of
the absence of the conditions under which they are required or because
the information required is shown in the consolidated financial
statements or notes thereto.
16
<PAGE>
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and among Ventana
Health Systems, Inc., Arizona Health Concepts, Inc.,
Managed Care Solutions, Inc., VHS Managed Care Merger
Sub, Inc., AHC Managed Care Merger Sub, Inc., MCS
Managed Care Merger Sub, Inc. and the registrant (1)
</TABLE>
<TABLE>
<S> <C>
3.1 (a) Conformed Certificate of Incorporation of the
registrant, as amended (2)
(b) Conformed Certificate of Ownership and Merger of
Lifemark Incorporated into Managed Care Solutions,
Inc.(3)
3.2 (a) Restated Bylaws (4)
(b) Conformed Bylaws (5)
10.1 Administrative Services Agreement between the registrant
and the County of San Diego, California (6)
10.2 (a) Contract between Ventana Health Systems and Arizona
Health Care Cost Containment System (7)
(b) Contract Amendment 1 to the contract between
Ventana Health Systems and Arizona Health Care Cost
Containment System (8)
(c) Solicitation Amendment 1 between Ventana Health
Systems and Arizona Health Care Cost Containment
System (9)
(d) Solicitation Amendment 2 to contract between
Ventana Health Systems and Arizona Health Care Cost
Containment System (10)
(e) Solicitation Amendment 3 to contract between
Ventana Health Systems and Arizona Health Care Cost
Containment System (11)
10.3 Administrative contract between Arizona Health Concepts,
Inc. and Arizona Health Care Cost Containment System (12)
10.4 Agreement between the registrant and the State of Indiana
(13)
10.5 (a) Administrative Services contract between registrant
and Community Choice Michigan (14)
(b) First Amendment to Administrative Services contract
between registrant and Community Choice Michigan
(15)
(c) Second Amendment to Administrative Services
contract between registrant and Community Choice
Michigan (16)
10.6 (a) Health Services Agreement between Rio Grande HMO,
Inc. and Lifemark of Texas, Inc. (17)
(b) Amended and Restated Administrative Services
Agreement between RioGrande HMO, Inc. and the
Registrant. (18)
(c) Administrative Services Agreement between
registrant and Rio Grande HMO, Inc. (a subsidiary
of Blue Cross Blue Shield of Texas, Inc.) (19)
(d) Amendment to Administrative Services Agreement
between registrant and Rio Grande HMO, Inc. (a
subsidiary of Blue Cross Blue Shield of Texas,
Inc.) (20)
10.7 (a) Administrative Services Agreement between
registrant and Lovelace Community Health Systems,
Inc. (21)
(b) Amendment to the Administrative Services Agreement
between the registrant and Lovelace Health Systems
Inc. (22)
10.8 Loan Agreement between the registrant and Blue Cross Blue
Shield of Texas, Inc. (23)
10.9 Loan Agreement between the registrant and William Gardner
Brown Trust (24)
10.10 (a) Lease Agreement between registrant and Pivotal
Simon Office XVI, LLC (25)
(b) First Amendment to Lease Agreement between
registrant and Pivotal Simon Office XVI, LLC (26)
(c) Amended and Restated Second Amendment to Lease
Agreement between registrant and Pivotal Simon
Office XVI, LLC (27)
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
10.11 Employment Agreement between the registrant and Michael
D. Hernandez* (28)
10.12 (a) Administrative Services Agreement between
AlohaCare, Inc. and the registrant (29)
10.13 (b) Administrative Services Agreement between
registrant and AlohaCare (30)
(c) Second Amendment to contract between registrant and
AlohaCare (31)
(d) Fourth Amendment to contract between registrant and
AlohaCare (32)
10.14 Contract between registrant and State of California
Managed Risk Medical Insurance Board (33)
10.15 Form of Indemnification Contract between the registrant
and its officers and directors* (34)
10.16 Purchase Agreement between the registrant and Beverly
Enterprises, Inc. (35)
10.17 The Company's 1996 Stock Option Plan* (36)
10.18 The Company's 1995 Stock Option Plan, as amended* (37)
10.19 The Company's 1995 Directors' Stock Option Plan* (38)
10.20 The Company's 1996 Non-Employee Director Stock Option
Plan* (39)
10.21 The Company's 1998 CEO Stock Option Plan* (40)
10.22 (a) The Company's Employee Stock Purchase Plan* (41)
(b) Amendment to the registrant's Employee Stock
Purchase Plan* (42)
(c) Second Amendment to the Employee Stock Purchase
Plan*
(d) Third Amendment to the Employee Stock Purchase
Plan*
10.23 Pledge Agreement and Promissory Note between Rhonda E.
Brede and the registrant. (43)
10.24 Pledge Agreement and Promissory Note between Michael J.
Kennedy and the registrant. (44)
10.25 Pledge Agreement and Promissory Note between Richard M.
Jelinek and the registrant. (45)
10.26 Pledge Agreement and Promissory Note between David G.
Decker and the registrant. (46)
10.27 (a) Employment and Severance Agreement between Rhonda
E. Brede and the registrant.* (47)
(b) Amendment to the Employment and Severance Agreement
between Rhonda E. Brede and the Registrant.*
10.28 (a) Employment Agreement between Richard M. Jelinek and
the registrant.* (48)
(b) Amendment to the Employment Agreement between
Richard M. Jelinek and the Registrant.*
10.29 (a) Employment Agreement between David G. Decker and
the registrant.* (49)
(b) Amendment to the Employment Agreement between David
G. Decker and the Registrant.*
10.30 (a) Employment Agreement between Michael J. Kennedy and
the registrant.* (50)
(b) Amendment to the Employment Agreement between
Michael J. Kennedy and the Registrant.*
10.31 Severance Agreement between Richard M. Jelinek and the
registrant. * (51)
10.32 Severance Agreement between David G. Decker and the
registrant. * (52)
10.33 Severance Agreement between Michael J. Kennedy and the
registrant.* (53)
21 Subsidiaries of the registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
* Indicates exhibits which constitute management contracts or
compensatory plans or agreements.
(1) Incorporated by reference to Exhibit 2 to the registrant's Registration
Statement Number 333-558 on Form S-4.
(2) Incorporated by reference to Exhibit 4(a)(5) to the registrant's
Registration Statement Number 333-04981 on Form S-8.
18
<PAGE>
(3) Incorporated by reference to Exhibit 3.1(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1999.
(4) Incorporated by reference to Exhibit 4(b)(3) to the registrant's
Registration Statement Number 333-04981 on Form S-8.
(5) Incorporated by reference to Exhibit 3.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(6) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1997.
(7) Incorporated by reference to Exhibit 10.9(a) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(8) Incorporated by reference to Exhibit 10.9(a)(1) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(9) Incorporated by reference to Exhibit 10.9(a)(2) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(10) Incorporated by reference to Exhibit 10.9(a)(3) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(11) Incorporated by reference to Exhibit 10.9(a)(4) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(12) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1997.
(13) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 28, 1998.
(14) Incorporated by reference to Exhibit 10.12(a) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(15) Incorporated by reference to Exhibit 10.12(a)(1) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(16) Incorporated by reference to Exhibit 10.12(a)(2) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(17) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 29, 2000.
(18) Incorporated by reference to Exhibit 10.2 files as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 29, 2000.
(19) Incorporated by reference to Exhibit 10.6 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1997.
(20) Incorporated by reference to Exhibit 10.6(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(21) Incorporated by reference to Exhibit 10.7 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1997.
(22) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1998.
(23) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1996.
(24) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1996.
(25) Incorporated by reference to Exhibit 10.4 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1996.
(26) Incorporated by reference to Exhibit 10.10(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(27) Incorporated by reference to Exhibit 10.10(c) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(28) Incorporated by reference to Exhibit 10.12 filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(29) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
19
<PAGE>
(30) Incorporated by reference to Exhibit 10.16 filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(31) Incorporated by reference to Exhibit 10.12(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1997.
(32) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997.
(33) Incorporated by reference to Exhibit 10.13 filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1997.
(34) Incorporated by reference to Exhibit 10.24 to the registrant's
Registration Statement Number 33-41253.
(35) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 28, 1998.
(36) Incorporated by reference to Exhibit 10.4 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(37) Incorporated by reference to Exhibit 10.5 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(38) Incorporated by reference to Exhibit 10.6 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(39) Incorporated by reference to Exhibit 10.20 filed as part of
registrant's Annual Report on Form 10-K for the year ended May 31,
1998.
(40) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q/A for the quarter ended February 28,
1998.
(41) Incorporated by reference to Exhibit 10.7 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(42) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997.
(43) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(44) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(45) Incorporated by reference to Exhibit 10.4 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(46) Incorporated by reference to Exhibit 10.5 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(47) Incorporated by reference to Exhibit 10.6 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(48) Incorporated by reference to Exhibit 10.7 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(49) Incorporated by reference to Exhibit 10.8 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(50) Incorporated by reference to Exhibit 10.9 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(51) Incorporated by reference to Exhibit 10.10 filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1999.
(52) Incorporated by reference to Exhibit 10.11 filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1999.
(53) Incorporated by reference to Exhibit 10.12 filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Phoenix, Arizona.
LIFEMARK CORPORATION
By: /s/ Rhonda E. Brede
-----------------------------------------
Rhonda E. Brede
President, Chief Executive Officer and
Director
(Principal Executive Officer)
Dated: August 18, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date set forth above.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Rhonda E. Brede President, Chief Executive Officer August 18, 2000
------------------------------------ and Director
Rhonda E. Brede (Principal Executive Officer)
/s/ Michael J. Kennedy Vice President and Chief Financial August 18, 2000
------------------------------------ Officer (Principal Financial and
Michael J. Kennedy Accounting Officer)
/s/ Richard C. Jelinek Chairman of the Board and Director August 18, 2000
------------------------------------
Richard C. Jelinek
/s/ John G. Lingenfelter Vice Chairman and Director August 18, 2000
------------------------------------
John G. Lingenfelter, M.D.
/s/ William G. Brown Director August 18, 2000
------------------------------------
William G. Brown
/s/ Henry H. Kaldenbaugh Director August 18, 2000
------------------------------------
Henry H. Kaldenbaugh, M.D.
/s/ Risa J. Lavizzo-Mourey Director August 18, 2000
------------------------------------
Risa J. Lavizzo-Mourey, M.D.
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Lifemark Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) on page 16 present fairly, in all material
respects, the financial position of Lifemark Corporation and its subsidiaries at
May 31, 2000 and 1999, and the results of their operations and their cash flows
for each of the three years in the period ended May 31, 2000, in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedules listed in the index appearing
under Item 14 (a) (2) on page 16 present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Phoenix, Arizona
July 24, 2000
22
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31,
-------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash
of $11,635,000 and $9,713,000, respectively $ 19,205,000 $ 13,792,000
Short-term investments -- 501,000
Accounts and notes receivable and unbilled services, net 19,276,000 5,886,000
Deferred income taxes 1,245,000 1,213,000
Prepaid expenses and other current assets 729,000 882,000
------------ ------------
Total current assets 40,455,000 22,274,000
Related party notes receivable -- 568,000
Property and equipment, net 6,331,000 4,205,000
Performance bonds 9,740,000 4,203,000
Goodwill, net 2,097,000 2,462,000
Other assets 280,000 1,108,000
------------ ------------
Total assets $ 58,903,000 $ 34,820,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 912,000 $ 659,000
Accrued medical claims 27,781,000 8,662,000
Risk pool payables 455,000 691,000
Related party risk pool payables 154,000 152,000
Accrued compensation 2,889,000 2,464,000
Other accrued expenses 3,610,000 1,750,000
Related party interest payable -- 710,000
Current portion of long-term debt 1,273,000 23,000
------------ ------------
Total current liabilities 37,074,000 15,111,000
Long-term debt 2,941,000 211,000
Related party long-term debt 300,000 3,440,000
Deferred income taxes 55,000 155,000
------------ ------------
Total liabilities 40,370,000 18,917,000
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued and outstanding - 5,118,000 and 4,808,000 shares,
respectively 51,000 48,000
Capital in excess of par value 17,050,000 16,148,000
Stockholder notes receivable (708,000) --
Retained earnings (accumulated deficit) 2,140,000 (293,000)
------------ ------------
Total stockholders' equity 18,533,000 15,903,000
------------ ------------
$ 58,903,000 $ 34,820,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
---------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $ 149,604,000 $ 85,392,000 $ 65,994,000
------------- ------------- -------------
Direct cost of operations 126,542,000 64,239,000 52,500,000
Marketing, sales and administrative 20,271,000 19,087,000 12,676,000
------------- ------------- -------------
Total costs and expenses 146,813,000 83,326,000 65,176,000
------------- ------------- -------------
Operating income 2,791,000 2,066,000 818,000
------------- ------------- -------------
Interest income 1,868,000 957,000 856,000
Interest expense (418,000) (365,000) (377,000)
------------- ------------- -------------
Net interest income 1,450,000 592,000 479,000
------------- ------------- -------------
Income before income taxes 4,241,000 2,658,000 1,297,000
Provision for income taxes 1,808,000 705,000 465,000
------------- ------------- -------------
Net income $ 2,433,000 $ 1,953,000 $ 832,000
============= ============= =============
Net income per share - basic $ 0.50 $ 0.41 $ 0.19
============= ============= =============
Weighted average common
shares outstanding 4,829,000 4,737,000 4,476,000
============= ============= =============
Net income per share - assuming
dilution $ 0.47 $ 0.36 $ 0.18
============= ============= =============
Weighted average common and
common equivalent shares outstanding 5,356,000 5,867,000 5,639,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in
--------------- ------------ Excess
Shares Par Value Shares Par Value of Par Value
------ --------- ------ --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1997 7 $ 7,000 4,394,000 $ 44,000 $ 14,497,000
Net income -- -- -- -- --
Redemption of preferred stock (7) (7,000) -- -- --
Issuance of common stock:
Employee stock purchase plan -- -- 62,000 1,000 161,000
Employee stock option plan -- -- 15,000 -- 50,000
Stock issued to Beverly Enterprises -- -- 200,000 2,000 994,000
-------- -------- --------- --------- ------------
BALANCE, MAY 31, 1998 -- -- 4,671,000 47,000 15,702,000
Net income -- -- -- -- --
Issuance of common stock:
Employee stock purchase plan -- -- 80,000 1,000 278,000
Employee stock option plan -- -- 132,000 1,000 432,000
Repurchase of common stock -- -- (75,000) (1,000) (375,000)
Tax benefit from exercise of stock options -- -- -- -- 111,000
-------- -------- --------- --------- ------------
BALANCE, MAY 31, 1999 -- -- 4,808,000 48,000 16,148,000
Net income -- -- -- -- --
Issuance of common stock:
Employee stock purchase plan -- -- 75,000 1,000 214,000
Employee stock option plan -- -- 235,000 2,000 688,000
Interest accrued on stockholder notes
receivables -- -- -- -- --
-------- -------- --------- --------- ------------
BALANCE, MAY 31, 2000 -- $ -- 5,118,000 $ 51,000 $ 17,050,000
======== ======== ========= ========= ============
</TABLE>
<TABLE>
<CAPTION>
Retained
Stockholder Earnings
Notes (Accumulated
Receivables Deficit) Total
----------- -------- -----
<S> <C> <C> <C>
BALANCE, MAY 31, 1997 $ -- $ (3,078,000) $ 11,470,000
Net income -- 832,000 832,000
Redemption of preferred stock -- -- (7,000)
Issuance of common stock:
Employee stock purchase plan -- -- 162,000
Employee stock option plan -- -- 50,000
Stock issued to Beverly Enterprises -- -- 996,000
--------- ------------ ------------
BALANCE, MAY 31, 1998 -- (2,246,000) 13,503,000
Net income -- 1,953,000 1,953,000
Issuance of common stock:
Employee stock purchase plan -- -- 279,000
Employee stock option plan -- -- 433,000
Repurchase of common stock -- -- (376,000)
Tax benefit from exercise of stock options -- -- 111,000
--------- ------------ ------------
BALANCE, MAY 31, 1999 -- (293,000) 15,903,000
Net income -- 2,433,000 2,433,000
Issuance of common stock:
Employee stock purchase plan -- -- 215,000
Employee stock option plan (690,000) -- --
Interest accrued on stockholder notes
receivables (18,000) -- (18,000)
--------- ------------ ------------
BALANCE, MAY 31, 2000 $(708,000) $ 2,140,000 $ 18,533,000
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
---------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,433,000 $ 1,953,000 $ 832,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt expense -- -- 23,000
Depreciation and amortization 2,293,000 2,231,000 1,988,000
(Gain) loss on sale of property and equipment 22,000 (10,000) 31,000
Deferred income taxes (132,000) (231,000) (59,000)
Interest on long term debt -- 297,000 285,000
Tax benefit from exercise of stock options -- 111,000 --
Interest on stockholder notes receivable (18,000) -- --
Changes in assets and liabilities:
Accounts receivable and unbilled services (13,390,000) (2,717,000) 832,000
Prepaid expenses and other current assets 153,000 (399,000) 1,252,000
Other assets 828,000 (300,000) (143,000)
Accounts payable 253,000 212,000 97,000
Accrued medical claims 19,119,000 863,000 719,000
Risk pool payable (236,000) (849,000) (495,000)
Related party risk pool payable 2,000 -- (149,000)
Accrued compensation 425,000 602,000 679,000
Accrued expenses 1,860,000 (403,000) 668,000
Related party interest payable (710,000) -- --
------------ ------------ ------------
Net cash provided by operating activities 12,902,000 1,360,000 6,560,000
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (2,709,000) (1,577,000) (2,509,000)
Proceeds from sale of property and equipment 323,000 164,000 9,000
Purchase of short-term investments -- -- (508,000)
Maturity/sale of short-term investments 501,000 1,009,000 501,000
Increase in assets securing performance bond (5,537,000) (409,000) (57,000)
Issuance of notes receivable -- (12,000) (47,000)
Payments received on notes receivable 568,000 138,000 609,000
------------ ------------ ------------
Net cash used in investing activities (6,854,000) (687,000) (2,002,000)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of long-term debt 3,154,000 234,000 --
Principal payment on long-term debt (4,004,000) (215,000) (207,000)
Redemption of voting preferred stock -- -- (7,000)
Issuance of common stock 215,000 712,000 1,208,000
Repurchase of common stock -- (376,000) --
------------ ------------ ------------
Net cash provided by (used in) financing activities (635,000) 355,000 994,000
------------ ------------ ------------
Net increase in cash and cash equivalents 5,413,000 1,028,000 5,552,000
Cash and cash equivalents, beginning of period 13,792,000 12,764,000 7,212,000
------------ ------------ ------------
Cash and cash equivalents, end of period $ 19,205,000 $ 13,792,000 $ 12,764,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS:
Lifemark Corporation ("Lifemark" or the "Company"), formerly Managed Care
Solutions, Inc., is a provider of health plan and care management service to
high risk populations, including vulnerable, frail, elderly and chronically ill
individuals on a national basis. Based in Phoenix, Arizona, Lifemark has
regional offices in Arkansas, California, Indiana, Michigan, New Mexico and
Texas.
Two subsidiaries of the Company, Ventana Health Systems, Inc. ("Ventana") and
Arizona Health Concepts, Inc. ("AHC"), derive substantially all of their
revenues through contracts with the Arizona Health Care Cost Containment System
Administration ("AHCCCSA") to provide specified long-term and primary care
health services, respectively, to qualified members. The contract periods expire
September 30, 2001 and September 30, 2002 for Ventana and AHC, respectively. In
June 2000, Ventana was awarded a contract for Maricopa County which begins on
October 1, 2000 and expires September 30, 2003. Each contract provides for fixed
monthly premiums, based on negotiated per capita enrollee rates. Ventana and AHC
subcontract with nursing homes, hospitals, physicians, and other medical
providers within Arizona to care for Arizona Health Care Cost Containment System
("AHCCCS") members. Effective July 17, 2000, Ventana and AHC began conducting
business as Lifemark Health Plans.
Lifemark of Texas, Inc., another subsidiary of the Company, derives
substantially all of its revenue through a contract with Rio Grande HMO, Inc.
("RGHMO"), a subsidiary of Health Care Service Corporation ("HCSC"), to share
financial risk in the State of Texas' STAR+PLUS program contract in Harris
County, Texas.
The Company purchased AdviNet, Inc., an eldercare information, consultation and
referral business, which owns a national databank of long term care and
aftercare providers, from Beverly Enterprises, Inc. in March 1999 for an
immaterial amount. During February 2000, this wholly-owned subsidiary of
Lifemark was renamed Lifemark Care Connection, Inc.
In December 1999, the Company purchased Valley Wide Attendant Care for an
immaterial amount and merged it into the Company's subsidiary, Lifemark at Home,
Inc. Lifemark at Home, Inc. provides attendant, personal, homemaking and respite
care services throughout Arizona.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
Revenue from contract services is recognized as the service is performed.
Capitation premiums are recognized as revenue in the month that enrollees are
entitled to health care services.
27
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sixth Omnibus Budget Reconciliation Act ("SOBRA") supplemental premiums are
payments intended by AHCCCSA to cover the costs of maternity care for pregnant
women qualified under SOBRA. Such premiums are recognized in the month the
delivery occurs.
Health care expenses
Monthly capitation payments to primary care physicians and other health care
providers are expensed as incurred. Hospital services are paid based on tiered
per diem rates or outpatient cost-to-charge ratios, as defined by AHCCCSA, less
any applicable discounts. Physician and other medical services are paid on a
capitated or discounted fee-for-service basis. All medical expenses are reported
net of Medicare reimbursements.
The Company receives reinsurance recoveries, which are recorded as estimated
amounts due pursuant to the AHCCCSA contract. Reinsurance recoveries are
recognized as a percentage of expenses incurred by members whose medical costs
exceed a stated deductible per member per contract year. Recoveries are recorded
as a reduction of medical expenses.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Restricted cash
includes funds restricted by AHCCCSA for utilization in the current operations
of the individual subsidiaries. (See "Restrictions on Fund Transfers")
Short-term investments
The Company's short-term investments consist of municipal bonds, which are held
by Ventana and AHC. Short-term investments are classified as available for sale
and carried at fair market value (see Note 4).
Property and equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the useful lives of
the related assets estimated as follows: machinery and equipment, three to five
years; furniture and fixtures, seven years; and software, three to five years.
Leasehold improvements are amortized over the shorter of the lease term or their
estimated useful life. Maintenance and repairs are charged to expense as
incurred.
Performance bonds
Pursuant to the contracts with AHCCCSA, the Company's subsidiaries, Ventana and
AHC, are required to provide either a performance bond or designated substitute
to guarantee performance of the Company's obligations under the contracts. The
Company's guarantee of performance consists of treasury bills pledged as
collateral for bank letters of credit. The Company must maintain such guarantees
at amounts which approximate the total monthly capitation revenues. These
investments are considered to be held to maturity and are thus carried at
amortized cost which approximates fair market value. All investments are
expected to mature within the next fiscal year.
Under the agreement between Lifemark of Texas, Inc. and RGHMO to share financial
risk in the State of Texas' STAR+PLUS program contract in Harris County, Texas,
Lifemark pledged a certificate of deposit to secure its obligations under the
contract.
28
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts securing performance consist of the following:
<TABLE>
<CAPTION>
May 31,
----------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Ventana Health Systems, Inc. $ 4,951,000 $ 2,553,000
Arizona Health Concepts, Inc. 1,872,000 1,650,000
Lifemark Corporation 2,917,000 -
-------------- -------------
$ 9,740,000 $ 4,203,000
============== =============
</TABLE>
Goodwill
The excess of the acquisition cost over the fair value of the net assets of the
Lifemark companies acquired in a purchase transaction on March 1, 1996 has been
included in goodwill and is amortized on a straight-line basis over the period
of expected benefit of ten years. The reported balances as of May 31, 2000 and
1999 are net of accumulated amortization of $1,551,000 and $1,186,000,
respectively.
The carrying value of goodwill is assessed for any permanent impairment by
evaluating the operating performance and future undiscounted cash flows of the
underlying business. Adjustments are made if the sum of the expected future net
cash flows is less than the carrying value.
Accrued medical claims
Accrued medical claims include amounts billed and not paid and an estimate of
costs incurred for unbilled services provided through the date of the balance
sheet.
Risk pool payable
The Company contracts with certain provider networks based on utilization
control incentive clauses. Incentives, which are based on annual performance,
are estimated monthly and recorded as either a risk pool payable or risk pool
receivable. The risk pool contracts are based on a September 30 year-end, which
coincides with the AHCCCSA contract period.
Income taxes
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The statement requires an
asset and liability approach for financial accounting and reporting for income
taxes. The Company files a consolidated income tax return with its subsidiaries.
Deferred income taxes have been provided for all significant temporary
differences. These temporary differences arise principally from accrued medical
claims, compensation not yet deductible for tax purposes and the use of
accelerated depreciation methods.
29
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restrictions on fund transfers
Ventana and AHC are subject to AHCCCSA regulations, which require compliance
with certain net worth, reserve and deposit requirements. To the extent Ventana
and AHC must comply with these regulations, they may not have the financial
flexibility to transfer funds to Lifemark. Lifemark's proportionate share of net
assets (after inter-company eliminations) which, at May 31, 2000 and 1999, may
not be transferred to Lifemark by subsidiaries in the form of loans, advances or
cash dividends without the consent of AHCCCSA, is referred to as "Restricted Net
Assets". Total Restricted Net Assets of these operating subsidiaries were
$8,632,000 and $10,378,000 at May 31, 2000 and 1999, respectively, with deposit
and reserve requirements (performance bonds) representing $6,823,000 and
$4,203,000, respectively, of the Restricted Net Assets and net worth
requirements, in excess of deposit and reserve requirements, representing the
remaining $1,809,000 and $6,175,000, respectively.
Concentration of credit risk and significant clients
The Company's revenues are generated from contracts with RGHMO, AHCCCSA and
healthcare provider organizations. Accordingly, as of May 31, 2000 and 1999, all
of the Company's trade receivables were from RGHMO, AHCCCSA or entities in the
healthcare industry. See Note 5 - Accounts and Notes Receivable.
Approximately 40 percent, 54 percent and 60 percent of the Company's revenues
for fiscal 2000, 1999 and 1998, respectively, were generated from Ventana and
AHC through the contracts with AHCCCSA. Approximately 33 percent, 10 percent and
4 percent of the Company's revenues for fiscal 2000, 1999 and 1998,
respectively, were generated by the Company through contracts with RGHMO.
In addition, as of May 31, 2000, the Company had cash and cash equivalents on
deposit with major financial institutions that were in excess of FDIC insured
limits. Historically, the Company has not experienced any loss of its cash and
cash equivalents due to such concentration of credit risk.
Fair value of financial instruments
The Company's financial instruments consist primarily of cash, investments,
accounts and notes receivable, accounts payable, accrued medical claims, risk
pool payables, accrued compensation, other accrued expenses, and debt. These
balances are carried in the financial statements at amounts that approximate
fair value based upon their comparison to similar instruments of comparable
materials.
Recently issued accounting pronouncements
Effective June 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and
Related Information", which establishes standards for reporting information
about operating segments in annual financial statements and requires that
selected information about operating segments be reported in interim financial
statements. See Note 15 - Business Segments.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
The Company adopted SOP 98-1 effective for its fiscal 2000 financial statements.
Under the provisions of SOP 98-1, software development is divided into three
phases: the preliminary project stage, which includes conceptual formulation and
selection of alternatives; the application development stage, which includes
design of chosen path, coding, installation of hardware and testing; and the
post-implementation/operation stage, which includes training and application
maintenance. Generally, only internal and
30
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
external costs incurred during the second phase, the application development
stage, should be capitalized with the exception of data conversion and training
costs, which, when incurred during this phase, should be expensed. During fiscal
2000, the Company capitalized $2,604,000 of software development costs,
including $868,000 of internal development costs.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). The Company adopted SOP 98-5 in June
1999. Under the provisions of SOP 98-5, start-up activities and organizational
costs are required to be expensed as incurred. The adoption of SOP 98-5 did not
materially impact the Company's financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires companies to recognize all
derivatives as either assets or liabilities in their statement of financial
position and measure those instruments at fair value. In September 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," which
delayed the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company is analyzing the implementation requirements and currently
does not anticipate there will be a material impact on its financial position or
the results of its operations.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". SAB 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
In June 2000, the SEC staff issued SAB 101B which delays the implementation date
of SAB 101 until no later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. The company does not anticipate that the
pronouncement will have a material impact on its financial position or the
results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25." The interpretation became effective July 1, 2000. The Company
is analyzing the implementation requirements and currently does not anticipate
there will be a material impact on its financial position or the results of
operations.
NOTE 3 - NET INCOME PER COMMON SHARE:
Net income per share - basic is computed by dividing net income by the weighted
average of common shares outstanding during each period. Net income per share -
assuming dilution is computed by dividing net income by the weighted average
number of common shares outstanding during the period after giving effect to
dilutive stock options and warrants and adjusted for dilutive common shares
assumed to be issued on conversion of the Company's convertible loans.
31
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is the computation of the reconciliation of the numerators and
denominators of net income per share - basic and net income per share - assuming
dilution in accordance with SFAS No. 128, "Earnings Per Share".
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income per common share:
Income available to common stockholders $ 2,433,000 $ 1,953,000 $ 832,000
Interest associated with stockholder notes
receivable (11,000) -- --
----------- ----------- -----------
Net income - basic 2,422,000 1,953,000 832,000
Interest associated with convertible notes 83,000 158,000 158,000
----------- ----------- -----------
Net income - assuming
dilution $ 2,505,000 $ 2,111,000 $ 990,000
=========== =========== ===========
Applicable common shares:
Average shares outstanding during year 4,977,000 4,737,000 4,476,000
Reduction in shares associated with stockholder
notes receivable (148,000) -- --
----------- ----------- -----------
Weighted average shares outstanding - basic 4,829,000 4,737,000 4,476,000
Stock options and warrants 66,000 273,000 306,000
Convertible notes 461,000 857,000 857,000
----------- ----------- -----------
Weighted average shares outstanding - assuming
dilution 5,356,000 5,867,000 5,639,000
=========== =========== ===========
Net income per share - basic $ 0.50 $ 0.41 $ 0.19
Net income per share - assuming dilution $ 0.47 $ 0.36 $ 0.18
</TABLE>
At May 31, 2000, 1999 and 1998, no shares of common stock had been issued upon
conversion of the convertible notes issued in October 1996. These notes were
convertible into an aggregate of 78,000, 857,000 and 857,000 shares of common
stock, respectively. These shares were included in the calculation of diluted
earnings per share for the years ended May 31, 2000, 1999 and 1998.
On October 14, 1999, promissory notes were issued in the amount of $690,000 to
officers of the Company in connection with the purchase of 235,000 shares of
common stock. Interest is computed on the basis of the actual number of days
elapsed over a 365-day year at a rate of 6.02 percent per annum. All outstanding
principal, plus all accrued but unpaid interest, will be due on October 14,
2008. The impact of this transaction has been reflected in the net income per
share table above.
NOTE 4 - SHORT-TERM INVESTMENTS:
As of May 31, 1999, the Company's investments consisted primarily of municipal
bonds with stated maturities within one year. The fair value of these
investments is based upon quoted market prices and approximated cost. As of May
31, 1999, the fair value of such securities approximated cost. These securities
matured during the year ended May 31, 2000.
32
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE:
Third party accounts and notes receivable and unbilled services consist of the
following:
<TABLE>
<CAPTION>
May 31,
-------
2000 1999
---- ----
<S> <C> <C>
Due from RGHMO $14,691,000 $ --
Contract management receivables 2,239,000 3,869,000
Due from AHCCCSA 2,098,000 1,810,000
Interest receivable 208,000 147,000
Other receivables 75,000 95,000
----------- -----------
19,311,000 5,921,000
Less allowance for doubtful accounts 35,000 35,000
----------- -----------
Net current portion of accounts and notes receivable $19,276,000 $ 5,886,000
=========== ===========
</TABLE>
The amounts due from AHCCCSA primarily include billed and unbilled reinsurance,
SOBRA and capitation receivables.
The amounts due from RGHMO primarily represents revenue earned by the Company
under its contract with RGHMO. See Note 1 - Nature of Business for additional
discussion.
Related party notes receivable of $568,000 at May 31, 1999 were due from
stockholders and consisted of loans taken against the cash surrender value of
life insurance policies, on which no interest was charged, and other loans to
stockholders. At May 31, 2000, there were no amounts due pursuant to these
loans. During fiscal year 2000, life insurance policies were cancelled, related
parties paid $385,000 to the Company and $183,000 was written off pursuant to
these notes.
NOTE 6 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
May 31,
-------
2000 1999
---- ----
<S> <C> <C>
Machinery and equipment $ 5,719,000 $ 4,862,000
Furniture and fixtures 1,982,000 1,863,000
Software 4,191,000 1,588,000
Leasehold improvements 621,000 622,000
----------- -----------
12,513,000 8,935,000
Less - accumulated depreciation and amortization 6,182,000 4,730,000
----------- -----------
$ 6,331,000 $ 4,205,000
=========== ===========
</TABLE>
During fiscal years 2000 and 1999, the Company sold property and equipment with
a net book value of $345,000 and $154,000, respectively, and was paid $323,000
and $164,000, respectively.
33
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT:
Third party long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
-------
2000 1999
---- ----
<S> <C> <C>
Long-term debt payable to a bank,
interest at prime (9.24% at May 31, 2000) plus 0.5%,
principal and interest due monthly on outstanding balance,
secured by computer software, due January 2003 $1,443,000 $ 234,000
Note payable to a bank, interest at prime (9.24% at May 31,
2000) plus 0.375%, principal of $62,500 and interest
due monthly secured by various assets, due December 2003 2,771,000 --
---------- ----------
4,214,000 234,000
Less - current portion 1,273,000 23,000
---------- ----------
$2,941,000 $ 211,000
========== ==========
</TABLE>
Related party long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
-------
2000 1999
---- ----
<S> <C> <C>
Due to Health Care Services Corporation (net of $14,000
discount) $ -- $3,697,000
Due to stockholders 300,000 453,000
---------- ----------
300,000 4,150,000
Less - current portion -- 710,000
---------- ----------
$ 300,000 $3,440,000
========== ==========
</TABLE>
On December 22, 1999, the Company signed an agreement with Imperial Bank to
refinance the existing debt with HCSC for $3,000,000. The loan has an original
term of four years and bears interest at a rate of prime plus 0.375 percent per
annum. The loan is secured by all of the assets of Lifemark Corporation. The
agreement also includes several financial covenants with which the Company was
in compliance as of May 31, 2000.
On October 2, 1996, the Company signed an agreement with Blue Cross and Blue
Shield of Texas, Inc. (now a division of HCSC) whereby HCSC invested $3,000,000
in the Company in the form of a convertible secured loan. The loan had an
original term of three years with a renewal option for two additional one-year
periods if certain conditions were met. The loan was secured by all of the
assets of the Company. The loan bore interest at a rate of 8 percent per annum.
Principal and interest were payable at the end of the initial three-year term
and, thereafter, at the end of each annual extension. The loan was convertible
into the Company's common stock at a conversion price of $3.85 per share. HCSC
also received a warrant to purchase 100,000 shares of the Company's common stock
at an exercise price of $4.45 per share and had the right of first refusal to
participate as an equity partner in future Lifemark funding requirements. On
December 22, 1999, the HCSC debt was paid in full with proceeds from the
Imperial Bank loan. Pursuant to the termination of the loan agreement with HCSC,
the warrant was terminated.
34
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In a separate transaction, a trust created by William G. Brown, a director of
the Company, for the benefit of members of his family, and of which Richard C.
Jelinek, Chairman and Director, is one of the co-trustees, (the "Brown GST
Trust") invested $300,000 in the Company through a convertible unsecured loan
and received a warrant to purchase 10,000 shares of Lifemark common stock. The
interest rate, term, conversion price, and warrant exercise price are the same
for the Brown GST Trust as for HCSC, except that interest on the loan is payable
monthly. The Company determined that the warrants issued in conjunction with the
loan to the Brown GST Trust had a value of $13,000. The value assigned to the
warrant was recorded as a discount on the loan and amortized over the life of
the loan. During fiscal 2000, the term of the note and the life of the warrant
were extended through September 30, 2004.
In October 1995, Lifemark borrowed $155,000 from a trust established by Dr.
Lingenfelter, $51,000 from a trust established by Dr. Kaldenbaugh, and $43,000
from a trust established by Geralde Curtis, who was then a director and officer
of Lifemark. The notes due December 31, 2000 provide for interest income to
accrue at 8 percent per annum. Lifemark then loaned from these funds $118,000
each to Dr. Kaldenbaugh and Ms. Curtis pursuant to promissory notes due December
31, 2000 also providing for interest to accrue at 8 percent per annum. In July
1997, Ms. Curtis paid the promissory note and accrued interest in full. During
fiscal year 2000, all notes between the Company and Drs. Lingenfelter and
Kaldenbaugh were repaid. The Company also had risk pool agreements with Dr.
Lingenfelter and Dr. Kaldenbaugh during fiscal year 2000 and 1999. The Company
made payments to them under such agreements totaling $132,000 and $150,000
during the fiscal years 2000 and 1999, respectively.
Scheduled principal payments on related and third party long-term debt are as
follows:
2001 $ 1,273,000
2002 1,279,000
2003 1,176,000
2004 786,000
---------------
$ 4,514,000
===============
35
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
The Company has various lease agreements for real and personal property. These
obligations extend through 2003 and in some cases contain renewal options. As of
May 31, 2000, future minimum lease payments for noncancellable operating leases
in excess of one year are as follows:
2001 $ 2,392,000
2002 1,483,000
2003 33,000
---------------
$ 3,908,000
===============
Rental expense on all operating leases totaled $2,708,000, $2,213,000 and
$1,761,000 during fiscal years 2000, 1999 and 1998, respectively.
The Company has been notified by RGHMO that it will pursue a claim against the
Company arising out of the following circumstances. Prior to December 1999, the
Company had a non-risk sharing, administrative services agreement with RGHMO, a
wholly-owned subsidiary of HCSC. Under the agreement, the Company administered
RGHMO's STAR+PLUS operations in Texas and was responsible, among other things,
for developing and maintaining RGHMO's provider network and for administering
the claims adjudication and payment functions. On July 5, 1997, RGHMO entered
into an agreement for medical services with Universal Healthplan, Inc.
("Universal"), a Texas health maintenance organization. The agreement provided
for Universal to provide hospitalization services to RGHMO members through
Universal's contract with Tenet Health Care Ltd. ("Tenet"), a hospital chain.
Tenet asserts that RGHMO owes it approximately $6,500,000 for claims allegedly
improperly denied or paid at incorrect rates. On July 1, 1999, Tenet filed a
demand for arbitration against RGHMO to recover such amounts.
On March 23, 2000, RGHMO filed a demand for arbitration against the Company in
the same arbitration alleging that because the Company is responsible for claim
adjudication, the Company should be responsible for any amount determined by the
arbitrators to be due to Tenet. The Company moved to be severed from the
arbitration and the arbitration panel granted the motion. The arbitration
continues to be litigated and no decision has yet been rendered. RGHMO has
notified the Company that if there is an adverse result in the arbitration, it
will commence an arbitration action to recover from the Company the amount of
the judgement rendered in favor of Tenet. The Company believes its adjudication
of the Tenet claims on RGHMO's behalf was appropriate and Tenet was paid what it
was owed. Accordingly, if an arbitration is commenced by RGHMO, the Company
intends to vigorously assert its position in this manner.
The Company is a party to various claims and legal proceedings which management
believes are in the normal course of business and will not involve any material
loss.
36
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - EMPLOYEE AND DIRECTOR BENEFIT PLANS:
The Company provides various health, welfare and disability benefits to its
full-time salaried employees, which are funded primarily by contributions. The
Company does not provide post-employment or post-retirement health care and life
insurance benefits to its employees.
Stock Option Plans
The Company adopted various stock option plans beginning in 1989. The plans
provide for the issuance of shares of common stock to key personnel and
directors. Options granted under all plans become exercisable at various times
and under certain conditions as determined by the Board of Directors, or its
committee, and expire no later than ten years from the date of grant.
The Company has adopted a 1995 Stock Option Plan, a 1996 Stock Option Plan and a
1998 CEO Stock Option Plan, which provide for the issuance of up to an aggregate
of 1,150,000 shares of common stock to key employees and directors of the
Company.
The Company adopted a 1995 Director Stock Option Plan and a 1996 Non-Employee
Director Stock Option Plan, which provide for the issuance of up to an aggregate
of 230,000 shares of common stock to directors of the Company. Options granted
under all Company option plans have 10-year terms and become exercisable with
respect to 25 percent of the shares 12 months after the date of grant and with
respect to an additional 25 percent at the end of each 12-month period
thereafter during the succeeding three years.
On July 18, 1996, the Stock Option Committee of the Board of Directors
determined that stock options issued to certain employees had an exercise price
higher than the market price of the Company's common stock. In light of the
Committee's conclusion that such options were not providing the desired
incentive, it replaced options with exercise prices of $7.38 per share with new
stock options to purchase an identical number of shares of Company common stock
at the then current market price of $3.25.
Effective October 14, 1999, the Company adopted the 1999 Executive Stock Option
and Ownership Plan. The plan provides for the issuance of up to an aggregate of
200,000 shares of common stock to key personnel.
Effective April 20, 2000, the Company adopted its 2000 Non-Employee Director
Stock Option Plan. The total number of shares available for awards, including
grants of options, under the plan may not exceed 250,000. Under the terms of the
plan, each non-employee director shall receive an award of 5,000 shares of
restricted stock on June 1 of each year. The restrictions shall lapse over a
period of five years. In addition to the restricted stock, an option under which
a total of 10,000 shares of common stock may be purchased from the Company shall
be automatically granted to each non-employee director on June 1 of each year.
The option price shall be the fair market value of the shares subject to the
option on the grant dates. The options shall be for a term of ten years and
become exercisable with respect to 25 percent of the shares 12 months after the
date of grant and with respect to an additional 25 percent at the end of each 12
month period thereafter during the following three years.
37
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company's stock option activity and related information for the
years ended May 31 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------- ---------------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- --------------- -------- --------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 1,046,000 $3.63 1,217,000 $3.51 747,000 $3.26
Granted 650,000 $3.08 45,000 $5.17 485,000 $3.96
Exercised (235,000) $2.94 (133,000) $3.26 (15,000) $3.25
Forfeited (428,000) $3.95 (83,000) $3.27 - $ -
--------- --------- ---------
Outstanding - end of year 1,033,000 $3.31 1,046,000 $3.63 1,217,000 $3.51
========= ========= =========
Exercisable - end of year 655,000 $3.25 492,000 $3.34 359,000 $3.13
</TABLE>
Company options outstanding and options exercisable are as follows at May 31,
2000:
<TABLE>
<CAPTION>
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
(yrs)
--------------- ----------- ----------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.21 $ 0.21 13,000 0.84 $0.21 13,000 $0.21
$ 2.88 - $ 4.00 975,000 7.45 $3.26 631,000 $3.28
$ 5.00 - $ 5.50 45,000 8.31 $5.17 11,000 $5.17
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 123"), but continues to apply Accounting Principles' Board Opinion No. 25
and related interpretations in the accounting for its stock option plans. If the
Company had adopted the expense recognition provisions of SFAS No. 123 for
purposes of determining compensation expense related to stock options granted
during the years ended May 31, 2000, 1999 and 1998, net income and net income
per common share would have been changed to the pro forma amounts shown below:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income
As reported $2,433,000 $1,953,000 $832,000
Pro forma $2,040,000 $1,491,000 $504,000
Net income per common share -
assuming dilution
As reported $ 0.47 $ 0.36 $ 0.18
Pro forma $ 0.39 $ 0.28 $ 0.11
</TABLE>
38
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option granted during fiscal year 2000, 1999 and 1998 was
estimated on the date of grant using an option-pricing model (Black-Scholes)
with the following weighted average assumptions: (i) no dividend yield, (ii) an
expected volatility of 76 percent, 80 percent and 84 percent for fiscal years
2000, 1999 and 1998, respectively, (iii) a risk-free interest rate of 5.90
percent, 5.18 percent and 5.55 percent for fiscal years 2000, 1999 and 1998,
respectively, and (iv) an expected option life of five years. Based upon the
above assumptions, the weighted average fair value at grant date of options
granted during fiscal years 2000, 1999 and 1998 were $2.04, $3.49 and $2.76,
respectively. The effects of applying SFAS No. 123 in the pro forma disclosures
are not likely to be representative of the effects on pro forma net income for
future years because variables such as option grants, exercises, and stock price
volatility included in the disclosures may not be indicative of future activity.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan providing for the sale of shares
of common stock to eligible employees. Employees can designate up to 10 percent
of their compensation for the purchase of stock. The purchase price is the
lesser of 85 percent of the fair market value of the stock on either the date of
grant of a six-month purchase option or the date the purchase option is
exercised. The plan was effective June 1, 1996 and amended August 11, 2000 and
provides for the sale of 450,000 shares of common stock to eligible employees
over an eight-year period. During the years ended May 31, 2000, 1999 and 1998,
75,000, 80,000 and 62,000 shares of common stock were issued under the plan for
an aggregate purchase price of $215,000, $279,000 and $162,000, respectively.
Retirement savings plan
The Company has a contributory retirement savings plan (401(k) Plan) which
covers eligible employees who qualify as to age and length of service. The plan,
effective March 1, 1996, allows participants to contribute up to 15 percent of
their eligible wages, subject to maximum contribution limitations imposed by the
IRS. The expense of the plan, consisting of discretionary Company contributions,
was $330,000, $269,000 and $158,000 for the years ended May 31, 2000, 1999 and
1998, respectively.
NOTE 10 - INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------------------------------------
2000 1999 1998
------------------- ------------------- ------------------
<S> <C> <C> <C>
Current:
Federal $ 1,806,000 $ 950,000 $ 417,000
State 372,000 184,000 87,000
------------------ ------------------ -----------------
2,178,000 1,134,000 504,000
------------------ ------------------ -----------------
Deferred:
Federal (307,000) (359,000) (32,000)
State (63,000) (70,000) (7,000)
------------------ ------------------ -----------------
(370,000) (429,000) (39,000)
------------------ ------------------ -----------------
$ 1,808,000 $ 705,000 $ 465,000
================== ================== =================
</TABLE>
39
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of income tax provision based on the federal statutory rate and
the Company's actual income tax provision is as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
-----------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income tax at the federal statutory rate of 34% $ 1,442,000 $ 904,000 $ 441,000
State taxes, net of federal benefit 213,000 106,000 58,000
Nondeductible goodwill amortization 124,000 124,000 124,000
Other permanent items 35,000 49,000 11,000
Valuation allowance -- (397,000) (351,000)
Other, net (6,000) (81,000) 182,000
----------- ----------- -----------
$ 1,808,000 $ 705,000 $ 465,000
=========== =========== ===========
</TABLE>
Deferred income tax assets and liabilities were comprised of the following:
<TABLE>
<CAPTION>
May 31,
---------------------------------------
2000 1999
------------------- -----------------
<S> <C> <C>
Gross deferred tax assets:
Accrued medical claims $ 896,000 $ 854,000
Compensation not yet deductible
for tax purposes 314,000 294,000
Other 35,000 65,000
------------------ -----------------
Total deferred tax assets 1,245,000 1,213,000
------------------ -----------------
Gross deferred tax liabilities:
Depreciation 55,000 155,000
------------------ -----------------
Total gross deferred tax liabilities 55,000 155,000
------------------ -----------------
Net deferred tax assets $ 1,190,000 $ 1,058,000
================== =================
</TABLE>
In assessing the realizability of its deferred tax assets, the Company considers
whether it is more likely than not that some or all of such assets will be
realized. The Company has determined, as of May 31, 2000, that all of its
deferred tax assets are more likely than not to be realized.
40
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY:
On January 7, 1998 the Company entered into a purchase agreement with Beverly
Enterprises, Inc., pursuant to which the Company received $1,000,000 and issued
200,000 shares of the Company's common stock at $5.00 per share. This
transaction was effected pursuant to the exemption contained in section 4(2) of
the Securities Act of 1933.
On September 28, 1998, the Company entered into an agreement to purchase
approximately 15,000 shares of the Company's common stock at $5.00 per share
from former Chief Executive Officer, James Burns. Also on that date, Mr. Burns
exercised his option to purchase 75,000 shares of the Company's common stock at
a price of $3.25 per share. Consideration for the 75,000 shares consisted of
approximately 60,000 mature shares of the Company's common stock owned by Mr.
Burns valued at $5.00 per share.
The Company has reserved an aggregate of 88,000 shares of common stock for
issuance upon conversion of the note and exercise of the warrants held by the
Brown GST Trust.
The authorized capital stock of the Company also includes 1,000,000 shares of
Preferred Stock, $1,000 par value. No shares of Preferred Stock are currently
outstanding. The Board of Directors has the authority to determine the rights
and preferences of this preferred stock upon its issuance. On May 31, 1998, the
Company redeemed and canceled all 6.85 shares of Voting Preferred Stock at par
value plus accrued dividends.
NOTE 12 - RELATED PARTY TRANSACTIONS:
For the fiscal years ended May 31, 2000, 1999 and 1998, the Company generated
management fees of $10,107,000, $7,772,000 and $2,820,000 from Rio Grande HMO,
of which Rogers Coleman, former Director of the Company, was Chairman of its
parent organization.
For the fiscal years ended May 31, 2000, 1999 and 1998, the Company incurred
legal fees for general legal services of $54,000, $49,000 and $74,000,
respectively, from the law firm of Bell, Boyd and Lloyd, of which William G.
Brown, Director and former Secretary of the Company, is a member.
For the fiscal years ended May 31, 2000 and 1999, the Company made service
payments of $1,136,000 and $379,000, respectively, to the Gardens Care Center, a
nursing facility owned by Dr. Lingenfelter, a Director of the Company.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $1,896,000 $1,417,000 $ 281,000
Interest $1,119,000 $ 99,000 $ 99,000
</TABLE>
The Company acquired software under financing arrangements totaling $1,690,000
in fiscal 2000. The Company issued common shares to certain executives in
exchange for notes receivable totaling $690,000 in fiscal 2000.
41
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
In the opinion of management, all adjustments necessary for a fair presentation
of the financial results for interim periods have been included in the unaudited
financial information presented below. These adjustments are only of a normal
and recurring nature. These interim results of operations are not necessarily
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
May 31, February 29, November 30, August 31,
2000 2000 1999 1999
----------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 51,771,000 $ 49,650,000 $ 24,574,000 $23,609,000
Total costs and expenses 51,065,000 48,526,000 23,837,000 23,385,000
Operating income 706,000 1,124,000 737,000 224,000
Net income 895,000 809,000 515,000 214,000
Net income per share:
Basic 0.18 0.17 0.11 0.04
Assuming dilution 0.17 0.16 0.10 0.04
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
May 31, February 28, November 30, August 31,
1999 1999 1998 1998
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 23,936,000 $ 21,573,000 $ 20,639,000 $19,244,000
Total costs and expenses 23,391,000 21,209,000 20,039,000 18,687,000
Operating income 545,000 364,000 600,000 557,000
Net income 421,000 618,000 492,000 422,000
Net income per share:
Basic 0.09 0.13 0.10 0.09
Assuming dilution 0.08 0.11 0.09 0.08
</TABLE>
42
<PAGE>
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - BUSINESS SEGMENTS:
The Company's principal business segments are:
- Health plan operations - risk contracts, is engaged in the
business of administering risk-based managed care plans and
programs in two states. The segment is comprised of the operations
of Ventana, AHC and Lifemark of Texas.
- Health plan operations - management contracts, is engaged in the
management of managed care plans and programs in three states. The
segment is comprised of the contracts with AlohaCare, Community
Choice Michigan and Lovelace Community Health Plan.
The Company has accumulated all other services within the diversified services
category. This category consists of the operations in California and Indiana, as
well as the operations of Lifemark at Home and Lifemark Care Connection.
During fiscal year 2000, the Company modified the structure of its internal
organization in a manner that caused the composition of its reportable segments
to change. As such, segment information for previously reported periods has been
restated to reflect this change. Following is a tabulation of business segment
information for each of the past three years. Corporate allocations have been
provided on a consistent basis.
<TABLE>
<CAPTION>
As of and for the Year Ended May 31, 2000
-------------------------------------------------------------------------
Health Plan Operations
---------------------------------
Risk Management Diversified
Contracts Contracts Services Totals
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 113,986,000 $ 21,113,000 $ 16,047,000 $ 151,146,000
Intersegment revenues -- -- (1,542,000) (1,542,000)
------------- ------------- ------------- -------------
Total consolidated revenues $ 113,986,000 $ 21,113,000 $ 14,505,000 $ 149,604,000
============= ============= ============= =============
Interest income $ 1,642,000 $ 127,000 $ 99,000 $ 1,868,000
Interest expense 157,000 149,000 112,000 418,000
------------- ------------- ------------- -------------
Net interest income (expense) $ 1,485,000 $ (22,000) $ (13,000) $ 1,450,000
============= ============= ============= =============
Depreciation and amortization $ 821,000 $ 812,000 $ 660,000 $ 2,293,000
============= ============= ============= =============
Segment income (loss) before taxes $ (652,000) $ 4,579,000 $ 314,000 $ 4,241,000
Income tax expense (benefit) (278,000) 1,952,000 134,000 1,808,000
------------- ------------- ------------- -------------
Net income (loss) $ (374,000) $ 2,627,000 $ 180,000 $ 2,433,000
============= ============= ============= =============
Expenditures for capital assets $ 970,000 $ 959,000 $ 780,000 $ 2,709,000
============= ============= ============= =============
Total segment assets $ 52,536,000 $ 6,282,000 $ 8,022,000 $ 66,840,000
Intersegment assets (6,874,000) -- (1,063,000) (7,937,000)
------------- ------------- ------------- -------------
Total assets $ 45,662,000 $ 6,282,000 $ 6,959,000 $ 58,903,000
============= ============= ============= =============
</TABLE>
43
<PAGE>
46
LIFEMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
As of and for the Year Ended May 31, 1999
---------------------------------------------------------------------
Health Plan Operations
-------------------------------
Risk Management Diversified
Contracts Contracts Services Totals
--------- --------- -------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 46,041,000 $ 26,911,000 $ 13,611,000 $ 86,563,000
Intersegment revenues -- -- (1,171,000) (1,171,000)
------------ ------------ ------------ ------------
Total consolidated revenues $ 46,041,000 $ 26,911,000 $ 12,440,000 $ 85,392,000
============ ============ ============ ============
Interest income $ 802,000 $ 105,000 $ 50,000 $ 957,000
Interest expense 55,000 210,000 100,000 365,000
------------ ------------ ------------ ------------
Net interest income (expense) $ 747,000 $ (105,000) $ (50,000) $ 592,000
============ ============ ============ ============
Depreciation and amortization $ 447,000 $ 1,183,000 $ 601,000 $ 2,231,000
============ ============ ============ ============
Segment income before taxes $ 976,000 $ 749,000 $ 933,000 $ 2,658,000
Income tax expense 259,000 199,000 247,000 705,000
------------ ------------ ------------ ------------
Net income $ 717,000 $ 550,000 $ 686,000 $ 1,953,000
============ ============ ============ ============
Expenditures for capital assets $ 346,000 $ 853,000 $ 378,000 $ 1,577,000
============ ============ ============ ============
Total segment assets $ 31,929,000 $ 6,934,000 $ 5,307,000 $ 44,170,000
Intersegment assets (8,941,000) -- (409,000) (9,350,000)
------------ ------------ ------------ ------------
Total assets $ 22,988,000 $ 6,934,000 $ 4,898,000 $ 34,820,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
As of and for the Year Ended May 31, 1998
-----------------------------------------------------------------------
Health Plan Operations
-------------------------------
Risk Management Diversified
Contracts Contracts Services Totals
--------- --------- -------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 39,772,000 $ 17,831,000 $ 10,397,000 $ 68,000,000
Intersegment revenues -- (1,080,000) (926,000) (2,006,000)
------------ ------------ ------------ ------------
Total consolidated revenues $ 39,772,000 $ 16,751,000 $ 9,471,000 $ 65,994,000
============ ============ ============ ============
Interest income $ 772,000 $ 57,000 $ 27,000 $ 856,000
Interest expense 56,000 217,000 104,000 377,000
------------ ------------ ------------ ------------
Net interest income (expense) $ 716,000 $ (160,000) $ (77,000) $ 479,000
============ ============ ============ ============
Depreciation and amortization $ 503,000 $ 1,012,000 $ 473,000 $ 1,988,000
============ ============ ============ ============
Segment income (loss) before taxes $ 880,000 $ (1,144,000) $ 1,561,000 $ 1,297,000
Income tax expense (benefit) 315,000 (410,000) 560,000 465,000
------------ ------------ ------------ ------------
Net income (loss) $ 565,000 $ (734,000) $ 1,001,000 $ 832,000
============ ============ ============ ============
Expenditures for capital assets $ 813,000 $ 1,237,000 $ 459,000 $ 2,509,000
============ ============ ============ ============
Total segment assets $ 28,863,000 $ 6,587,000 $ 4,207,000 $ 39,657,000
Intersegment assets (7,624,000) -- (310,000) (7,934,000)
------------ ------------ ------------ ------------
Total assets $ 21,239,000 $ 6,587,000 $ 3,897,000 $ 31,723,000
============ ============ ============ ============
</TABLE>
44
<PAGE>
LIFEMARK CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,579,000 $ 3,908,000
Accounts and notes receivable and unbilled services, net 1,940,000 3,800,000
Due from subsidiaries 1,107,000 974,000
Prepaid expenses and other current assets 663,000 847,000
Deferred income taxes 329,000 333,000
------------ ------------
Total current assets 11,618,000 9,862,000
Related party notes receivable -- 169,000
Property and equipment, net 6,331,000 4,205,000
Goodwill, net 2,097,000 2,462,000
Investment in subsidiaries 6,297,000 7,879,000
Performance bonds 2,917,000 --
Other assets 155,000 276,000
------------ ------------
Total assets $ 29,415,000 $ 24,853,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,027,000 $ 744,000
Accrued expenses 5,286,000 3,501,000
Current portion of related party long-term debt -- 876,000
Current portion of long-term debt 1,273,000 23,000
------------ ------------
Total current liabilities 7,586,000 5,144,000
Long-term debt 2,941,000 211,000
Related party long-term debt 300,000 3,440,000
Deferred income taxes 55,000 155,000
------------ ------------
Total liabilities 10,882,000 8,950,000
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued and outstanding - 5,118,000 and 4,808,000 shares,
respectively 51,000 48,000
Capital in excess of par value 17,050,000 16,148,000
Interest in earnings of subsidiaries 3,093,000 2,925,000
Stockholder notes receivable (708,000) --
Accumulated deficit (953,000) (3,218,000)
------------ ------------
Total stockholders' equity 18,533,000 15,903,000
------------ ------------
$ 29,415,000 $ 24,853,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE>
LIFEMARK CORPORATION
--------------------------------------------------------------------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
----------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 51,671,000 $ 44,214,000 $ 30,951,000
------------ ------------ ------------
Direct cost of operations 27,828,000 24,031,000 18,443,000
Marketing, sales and administrative 19,864,000 18,994,000 12,694,000
------------ ------------ ------------
Total costs and expenses 47,692,000 43,025,000 31,137,000
------------ ------------ ------------
Operating income (loss) 3,979,000 1,189,000 (186,000)
------------ ------------ ------------
Interest income 361,000 183,000 154,000
Interest expense (421,000) (393,000) (432,000)
------------ ------------ ------------
Net interest expense (60,000) (210,000) (278,000)
------------ ------------ ------------
Income (loss)
before income taxes 3,919,000 979,000 (464,000)
Provision for income taxes 1,654,000 471,000 13,000
------------ ------------ ------------
Net income (loss)
before earnings of subsidiaries 2,265,000 508,000 (477,000)
Income in subsidiaries 168,000 1,445,000 1,309,000
------------ ------------ ------------
Net income $ 2,433,000 $ 1,953,000 $ 832,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE>
LIFEMARK CORPORATION
--------------------------------------------------------------------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
-------------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,433,000 $ 1,953,000 $ 832,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,293,000 2,231,000 1,941,000
(Gain) loss on sale of property and equipment 22,000 (10,000) 31,000
Deferred income taxes (96,000) 46,000 (118,000)
Interest on long term debt -- 297,000 285,000
Tax benefit from exercise of stock options -- 111,000 --
Income in subsidiaries (168,000) (1,445,000) (1,309,000)
Interest on stockholder note receivable (18,000) -- --
Dividends received from subsidiaries 2,000,000 -- 1,700,000
Changes in assets and liabilities:
Accounts receivable and unbilled services 1,860,000 (1,398,000) 236,000
Due from subsidiaries (133,000) (139,000) (579,000)
Prepaid expenses and other current assets 184,000 (474,000) 770,000
Other assets 121,000 (104,000) (27,000)
Accounts payable 283,000 165,000 179,000
Accrued expenses 1,785,000 318,000 918,000
Related party interest (710,000) -- --
----------- ----------- -----------
Net cash provided by operating activities 9,856,000 1,551,000 4,859,000
----------- ----------- -----------
Cash flows from investing activities:
Investment in subsidiary (250,000) -- (1,700,000)
Purchase of property and equipment (2,709,000) (1,577,000) (2,509,000)
Proceeds from sale of property and equipment 323,000 164,000 9,000
Increase in assets securing performance bond (2,917,000) -- --
Related party note receivable 169,000 11,000 492,000
----------- ----------- -----------
Net cash used in investing activities (5,384,000) (1,402,000) (3,708,000)
----------- ----------- -----------
Cash flows from financing activities:
Cash received from related parties -- -- 5,000
Issuance of long-term debt 3,154,000 234,000 --
Payment of long-term debt (4,170,000) (555,000) (473,000)
Redemption of voting preferred stock -- -- (7,000)
Issuance of common stock 215,000 712,000 1,208,000
Repurchase of common stock -- (376,000) --
----------- ----------- -----------
Net cash provided by (used in) financing activities (801,000) 15,000 733,000
----------- ----------- -----------
Net increase in cash and cash equivalents 3,671,000 164,000 1,884,000
Cash and cash equivalents, beginning of period 3,908,000 3,744,000 1,860,000
----------- ----------- -----------
Cash and cash equivalents, end of period $ 7,579,000 $ 3,908,000 $ 3,744,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
47
<PAGE>
LIFEMARK CORPORATION
--------------------------------------------------------------------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE 1 - BASIS OF PRESENTATION:
The condensed financial statements of the registrant ("Lifemark") should be read
in conjunction with the consolidated financial statements, which are included
elsewhere herein. On June 1, 1997, the operations of Managed Care Solutions of
Arizona, Inc., an Arizona Corporation, were merged with those of Managed Care
Solutions of Arizona, Inc., a Delaware Corporation. The increase in total assets
of $3,242,000 and total liabilities of $3,611,000 has been treated as a non-cash
transaction for the purpose of the Statement of Cash Flows.
NOTE 2 - DIVIDENDS:
In June 2000, Lifemark made capital contributions of $1,250,000 in Ventana, a
wholly owned subsidiary. In June 1997, Lifemark invested $1,700,000 in AHC, a
wholly owned subsidiary.
Ventana declared and paid out two separate cash dividends to Lifemark,
$1,000,000 each in January 2000 and March 2000, respectively. Ventana declared
and paid out a cash dividend to Lifemark of $1,700,000 in June 1997.
NOTE 3 - RELATED PARTY TRANSACTIONS:
The following is a list of transactions with related parties. All accounts below
have been eliminated in consolidation.
<TABLE>
<CAPTION>
For the years ended May 31,
--------------------------------------------------------
2000 1999 1998
---------------- ------------------ -----------------
<S> <C> <C> <C>
Management fee revenues - Ventana $ 4,428,000 $ 3,177,000 $ 2,728,000
Management fee revenues - AHC 2,044,000 1,703,000 1,444,000
Management fee revenues - Lifemark at Home 365,000 211,000 -
Management fee revenues - Lifemark of Texas 5,486,000 - -
</TABLE>
<TABLE>
<CAPTION>
May 31,
-------------------------------------
2000 1999
------------------ ---------------
<S> <C> <C>
Intercompany receivable - Lifemark at Home $ 548,000 $ 323,000
Intercompany receivable - Ventana 672,000 846,000
Intercompany payable - AHC 49,000 195,000
Intercompany payable - Lifemark of Texas 67,000 -
Current portion of long-term debt - Ventana - 166,000
</TABLE>
48
<PAGE>
LIFEMARK CORPORATION
--------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End
Description Period Expenses Accounts Deductions (1) of Period
----------- ------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1998
Allowance for doubtful accounts $1,464,000 $ 23,000 $ - $ (874,000) $ 613,000
Tax valuation allowance 748,000 - - (351,000) 397,000
YEAR ENDED MAY 31, 1999
Allowance for doubtful accounts $ 613,000 $ - $ - $ (578,000) $ 35,000
Tax valuation allowance 397,000 - - (397,000) -
YEAR ENDED MAY 31, 2000
Allowance for doubtful accounts $ 35,000 $ - $ - $ - $ 35,000
</TABLE>
(1) Deductions from allowance for doubtful accounts represents changes in
estimated collectible balances.
49
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and among Ventana
Health Systems, Inc., Arizona Health Concepts, Inc.,
Managed Care Solutions, Inc., VHS Managed Care Merger
Sub, Inc., AHC Managed Care Merger Sub, Inc., MCS
Managed Care Merger Sub, Inc. and the registrant (1)
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.1 (a) Conformed Certificate of Incorporation of the
registrant, as amended (2)
(b) Conformed Certificate of Ownership and Merger of
Lifemark Incorporated into Managed Care Solutions,
Inc.(3)
3.2 (a) Restated Bylaws (4)
(b) Conformed Bylaws (5)
10.1 Administrative Services Agreement between the registrant
and the County of San Diego, California (6)
10.2 (a) Contract between Ventana Health Systems and Arizona
Health Care Cost Containment System (7)
(b) Contract Amendment 1 to the contract between
Ventana Health Systems and Arizona Health Care Cost
Containment System (8)
(c) Solicitation Amendment 1 between Ventana Health
Systems and Arizona Health Care Cost Containment
System (9)
(d) Solicitation Amendment 2 to contract between
Ventana Health Systems and Arizona Health Care Cost
Containment System (10)
(e) Solicitation Amendment 3 to contract between
Ventana Health Systems and Arizona Health Care Cost
Containment System (11)
10.3 Administrative contract between Arizona Health Concepts,
Inc. and Arizona Health Care Cost Containment System (12)
10.4 Agreement between the registrant and the State of Indiana
(13)
10.5 (a) Administrative Services contract between registrant
and Community Choice Michigan (14)
(b) First Amendment to Administrative Services contract
between registrant and Community Choice Michigan
(15)
(c) Second Amendment to Administrative Services
contract between registrant and Community Choice
Michigan (16)
10.6 (a) Health Services Agreement between Rio Grande HMO,
Inc. and Lifemark of Texas, Inc. (17)
(b) Amended and Restated Administrative Services
Agreement between RioGrande HMO, Inc. and the
Registrant. (18)
(c) Administrative Services Agreement between
registrant and Rio Grande HMO, Inc. (a subsidiary
of Blue Cross Blue Shield of Texas, Inc.) (19)
(d) Amendment to Administrative Services Agreement
between registrant and Rio Grande HMO, Inc. (a
subsidiary of Blue Cross Blue Shield of Texas,
Inc.) (20)
10.7 (a) Administrative Services Agreement between
registrant and Lovelace Community Health Systems,
Inc. (21)
(b) Amendment to the Administrative Services Agreement
between the registrant and Lovelace Health Systems
Inc. (22)
10.8 Loan Agreement between the registrant and Blue Cross Blue
Shield of Texas, Inc. (23)
10.9 Loan Agreement between the registrant and William Gardner
Brown Trust (24)
10.10 (a) Lease Agreement between registrant and Pivotal
Simon Office XVI, LLC (25)
(b) First Amendment to Lease Agreement between
registrant and Pivotal Simon Office XVI, LLC (26)
(c) Amended and Restated Second Amendment to Lease
Agreement between registrant and Pivotal Simon
Office XVI, LLC (27)
10.11 Employment Agreement between the registrant and Michael
D. Hernandez* (28)
10.12 (a) Administrative Services Agreement between
AlohaCare, Inc. and the registrant (29)
10.13 (b) Administrative Services Agreement between
registrant and AlohaCare (30)
(c) Second Amendment to contract between registrant and
AlohaCare (31)
(d) Fourth Amendment to contract between registrant and
AlohaCare (32)
10.14 Contract between registrant and State of California
Managed Risk Medical Insurance Board (33)
10.15 Form of Indemnification Contract between the registrant
and its officers and directors* (34)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.16 Purchase Agreement between the registrant and Beverly
Enterprises, Inc. (35)
10.17 The Company's 1996 Stock Option Plan* (36)
10.18 The Company's 1995 Stock Option Plan, as amended* (37)
10.19 The Company's 1995 Directors' Stock Option Plan* (38)
10.20 The Company's 1996 Non-Employee Director Stock Option
Plan* (39)
10.21 The Company's 1998 CEO Stock Option Plan* (40)
10.22 (a) The Company's Employee Stock Purchase Plan* (41)
(b) Amendment to the registrant's Employee Stock
Purchase Plan* (42)
(c) Second Amendment to the Employee Stock Purchase
Plan*
(d) Third Amendment to the Employee Stock Purchase
Plan*
10.23 Pledge Agreement and Promissory Note between Rhonda E.
Brede and the registrant. (43)
10.24 Pledge Agreement and Promissory Note between Michael J.
Kennedy and the registrant. (44)
10.25 Pledge Agreement and Promissory Note between Richard M.
Jelinek and the registrant. (45)
10.26 Pledge Agreement and Promissory Note between David G.
Decker and the registrant. (46)
10.27 (a) Employment and Severance Agreement between Rhonda
E. Brede and the registrant.* (47)
(b) Amendment to the Employment and Severance Agreement
between Rhonda E. Brede and the Registrant.*
10.28 (a) Employment Agreement between Richard M. Jelinek and
the registrant.* (48)
(b) Amendment to the Employment Agreement between
Richard M. Jelinek and the Registrant.*
10.29 (a) Employment Agreement between David G. Decker and
the registrant.* (49)
(b) Amendment to the Employment Agreement between David
G. Decker and the Registrant.*
10.30 (a) Employment Agreement between Michael J. Kennedy and
the registrant.* (50)
(b) Amendment to the Employment Agreement between
Michael J. Kennedy and the Registrant.*
10.31 Severance Agreement between Richard M. Jelinek and the
registrant. * (51)
10.32 Severance Agreement between David G. Decker and the
registrant. * (52)
10.33 Severance Agreement between Michael J. Kennedy and the
registrant.* (53)
21 Subsidiaries of the registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
* Indicates exhibits which constitute management contracts or
compensatory plans or agreements.
(1) Incorporated by reference to Exhibit 2 to the registrant's Registration
Statement Number 333-558 on Form S-4.
(2) Incorporated by reference to Exhibit 4(a)(5) to the registrant's
Registration Statement Number 333-04981 on Form S-8.
(3) Incorporated by reference to Exhibit 3.1(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1999.
(4) Incorporated by reference to Exhibit 4(b)(3) to the registrant's
Registration Statement Number 333-04981 on Form S-8.
(5) Incorporated by reference to Exhibit 3.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(6) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1997.
(7) Incorporated by reference to Exhibit 10.9(a) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
52
<PAGE>
(8) Incorporated by reference to Exhibit 10.9(a)(1) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(9) Incorporated by reference to Exhibit 10.9(a)(2) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(10) Incorporated by reference to Exhibit 10.9(a)(3) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(11) Incorporated by reference to Exhibit 10.9(a)(4) filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1996.
(12) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1997.
(13) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 28, 1998.
(14) Incorporated by reference to Exhibit 10.12(a) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(15) Incorporated by reference to Exhibit 10.12(a)(1) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(16) Incorporated by reference to Exhibit 10.12(a)(2) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(17) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 29, 2000.
(18) Incorporated by reference to Exhibit 10.2 files as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 29, 2000.
(19) Incorporated by reference to Exhibit 10.6 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1997.
(20) Incorporated by reference to Exhibit 10.6(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(21) Incorporated by reference to Exhibit 10.7 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1997.
(22) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1998.
(23) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1996.
(24) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1996.
(25) Incorporated by reference to Exhibit 10.4 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1996.
(26) Incorporated by reference to Exhibit 10.10(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(27) Incorporated by reference to Exhibit 10.10(c) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(28) Incorporated by reference to Exhibit 10.12 filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
(29) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(30) Incorporated by reference to Exhibit 10.16 filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
(31) Incorporated by reference to Exhibit 10.12(b) filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1997.
(32) Incorporated by reference to Exhibit 10.1 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997.
(33) Incorporated by reference to Exhibit 10.13 filed as part of
registrant's Annual Report on Form 10-K for the fiscal year ended May
31, 1997.
(34) Incorporated by reference to Exhibit 10.24 to the registrant's
Registration Statement Number 33-41253.
(35) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended February 28, 1998.
53
<PAGE>
(36) Incorporated by reference to Exhibit 10.4 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(37) Incorporated by reference to Exhibit 10.5 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(38) Incorporated by reference to Exhibit 10.6 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(39) Incorporated by reference to Exhibit 10.20 filed as part of
registrant's Annual Report on Form 10-K for the year ended May 31,
1998.
(40) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q/A for the quarter ended February 28,
1998.
(41) Incorporated by reference to Exhibit 10.7 filed as part of registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1996.
(42) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997.
(43) Incorporated by reference to Exhibit 10.2 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(44) Incorporated by reference to Exhibit 10.3 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(45) Incorporated by reference to Exhibit 10.4 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(46) Incorporated by reference to Exhibit 10.5 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(47) Incorporated by reference to Exhibit 10.6 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(48) Incorporated by reference to Exhibit 10.7 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(49) Incorporated by reference to Exhibit 10.8 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(50) Incorporated by reference to Exhibit 10.9 filed as part of registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1999.
(51) Incorporated by reference to Exhibit 10.10 filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1999.
(52) Incorporated by reference to Exhibit 10.11 filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1999.
(53) Incorporated by reference to Exhibit 10.12 filed as part of
registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1999.
54
<PAGE>
Exhibit 10.22(c)
SECOND AMENDMENT TO THE
MANAGED CARE SOLUTIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
The Managed Care Solutions, Inc. Employee Stock Purchase Plan (the
"Plan"), as approved by Managed Care Solutions, Inc. (the "Corporation"),
effective June 1, 1996, and as previously amended by action of the Board of
Directors (the "Board") of the Corporation on September 9, 1997 is hereby
further amended, pursuant to the authority of Section 17 of the Plan, as
follows:
1. The final two sentences of the first paragraph of the preamble to
the Plan are amended to read as follows:
"Pursuant to this Plan, 300,000 shares of authorized but unissued
common stock of the Corporation may be offered for sale to eligible
employees through periodic offerings to be made during the five year
period commencing June 1, 1996. The Plan will be implemented by
offerings of the Corporation's common stock (the "offerings"), as
described in more detail in Section 3 below."
2. The first sentence of the last paragraph of Section 18 is amended by
striking out "May 31, 1999", and substituting "May 31, 2001" in lieu thereof.
3. This amendment shall not require the approval of the Corporation's
stockholders, and shall be effective on the date on which it is approved by the
Board of Directors. Except as otherwise amended herein, the Plan shall remain in
full force and effect, except that the Committee is authorized to make any
additional changes to the Plan of an administrative or ministerial nature which
may be appropriate to implement the extension of the term of the Plan as set
forth herein.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
executed this 4th day of August, 1998.
MANAGED CARE SOLUTIONS, INC.
By: /s/Michael D. Hernandez
Its: Chairman and Chief Executive Officer
<PAGE>
Exhibit 10.22(d)
THIRD AMENDMENT TO THE
LIFEMARK CORPORATION
(FORMERLY MANAGED CARE SOLUTIONS, INC.)
EMPLOYEE STOCK PURCHASE PLAN
Lifemark Corporation (the "Corporation"), under its former name of
Managed Care Solutions, Inc., adopted the Managed Care Solutions, Inc. Employee
Stock Purchase Plan (the "Plan"), effective June 1, 1996, and has previously
adopted two amendments to the Plan. The Plan, as previously amended, is hereby
further amended, pursuant to the authority of Section 17 of the Plan, as
follows:
1. The name of the Plan is changed to the Lifemark Corporation Employee
Stock Purchase Plan, and all references in the Plan to Managed Care Solutions,
Inc., are amended to refer to Lifemark Corporation
2. A new sentence is added to the end of Section 13 of the Plan to read
as follows:
"Notwithstanding the foregoing, if any participating employee's
employment is terminated within three months from the end of the current
offering period as a result of the sale or other transfer of a portion of the
Corporation's business (including the management of any health plan) to a
successor employer, such employee may elect to leave the balance in his account
until the end of the offering period, to be used to purchase stock on the same
terms as if he were still employed on the last day of the offering period,
provided that no additional amounts shall be added to his account after his
employment is terminated, and any balance remaining after the purchase of stock
at the end of the offering period shall be distributed to him."
3. This amendment shall not require the approval of the Corporation's
stockholders, and shall be effective on the date on which it is approved by the
Board of Directors. Except as otherwise amended herein, the Plan shall remain in
full force and effect, except that the Committee is authorized to make any
additional changes to the Plan of an administrative or ministerial nature which
may be appropriate to implement the amendments set forth herein.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
executed this 8th day of November, 1999.
LIFEMARK CORPORATION
By: /s/Michael J. Kennedy
Its: Chief Financial Officer
<PAGE>
Exhibit 10.27(b)
Lifemark Corporation
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
August 11, 2000
Mrs. Rhonda Brede
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Dear Rhonda:
This letter amends the October 14, 1999 agreement pursuant to which
Lifemark Corporation ("Lifemark") has agreed to employ you and you have agreed
to serve as President and Chief Executive Officer of Lifemark effective October
14, 2000.
As of October 14, 2000, Lifemark granted you ten year stock options to
purchase 150,000 shares of Lifemark common stock. You also agreed to exercise
these options at the time of their vesting by delivering to Lifemark a secured
nine-year promissory note in the full amount of your exercise price. 90,000 of
the options granted to you vested immediately and were exercised by you on
October 14, 1999. The remaining 60,000 options granted to you under the 1999
Executive Stock Option and Ownership Plan will vest immediately if the Plan is
approved by the Company's stockholders.
Lifemark and you agree to amend the October 14, 1999 agreement to
provide that you are entitled, but have no obligation, to exercise the remaining
options immediately upon their vesting.
The substance of the terms of this letter was negotiated and agreed to
in Arizona and it is solely for the convenience of the parties that it is being
signed by facsimile outside of Arizona. Arizona law applicable to contracts made
and to be performed in Arizona shall therefore apply to and govern all aspects
of this Agreement.
Please confirm your agreement with and acceptance of the provisions of
this letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/Richard C. Jelinek
Richard C. Jelinek,
Chairman
ACCEPTED AND AGREED:
/s/Rhonda E. Brede
Rhonda Brede
<PAGE>
Exhibit 10.28(b)
Lifemark Corporation
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
August 11, 2000
Richard M. Jelinek
7600 North 16th Street, Suite 150
Phoenix, Arizona 85020
Dear Rick:
This letter amends the October 14, 1999 agreement between us pursuant
to which Lifemark Corporation ("Lifemark") agreed to employ you and you have
agreed to serve as a Vice President of Lifemark.
As of October 14, 2000, Lifemark granted you ten year stock options to
purchase 100,000 shares of Lifemark common stock. You also agreed to exercise
these options at the time of their vesting by delivering to Lifemark a secured
nine-year promissory note in the full amount of your exercise price. 60,000 of
the options granted to you vested immediately and were exercised by you on
October 14, 1999. The remaining 40,000 options granted to you under the 1999
Executive Stock Option and Ownership Plan will vest immediately if the Plan is
approved by the Company's stockholders.
Lifemark and you agree to amend the October 14, 1999 agreement to
provide that you are entitled, but have no obligation, to exercise the remaining
options immediately upon their vesting.
Please confirm your agreement with and acceptance of the provisions of
this letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/Rhonda E. Brede
Rhonda Brede,
President
ACCEPTED AND AGREED:
/s/ Richard M. Jelinek
Richard M. Jelinek
<PAGE>
Exhibit 10.29(b)
Lifemark Corporation
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
August 11, 2000
Dave Decker
7600 North 16th Street, Suite 150
Phoenix, Arizona 85020
Dear Dave:
This letter amends the October 14, 1999 agreement between us pursuant
to which Lifemark Corporation ("Lifemark") agreed to employ you and you have
agreed to serve as a Vice President of Lifemark.
As of October 14, 2000, Lifemark granted you ten year stock options to
purchase 50,000 shares of Lifemark common stock. You also agreed to exercise
these options at the time of their vesting by delivering to Lifemark a secured
nine-year promissory note in the full amount of your exercise price. 25,000 of
the options granted to you vested immediately and were exercised by you on
October 14, 1999. The remaining 25,000 options granted to you under the 1999
Executive Stock Option and Ownership Plan will vest immediately if the Plan is
approved by the Company's stockholders.
Lifemark and you agree to amend the October 14, 1999 agreement to
provide that you are entitled, but have no obligation, to exercise the remaining
options immediately upon their vesting.
Please confirm your agreement with and acceptance of the provisions of
this letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/Rhonda E. Brede
Rhonda Brede,
President
ACCEPTED AND AGREED:
/s/David Decker
Dave Decker
<PAGE>
Exhibit 10.30(b)
Lifemark Corporation
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
August 11, 2000
Michael Kennedy
7600 North 16th Street, Suite 150
Phoenix, Arizona 85020
Dear Michael:
This letter amends the October 14, 1999 agreement between us pursuant
to which Lifemark Corporation ("Lifemark") agreed to employ you and you have
agreed to serve as a Vice President of Lifemark.
As of October 14, 2000, Lifemark granted you ten year stock options to
purchase 100,000 shares of Lifemark common stock. You also agreed to exercise
these options at the time of their vesting by delivering to Lifemark a secured
nine-year promissory note in the full amount of your exercise price. 60,000 of
the options granted to you vested immediately and were exercised by you on
October 14, 1999. The remaining 40,000 options granted to you under the 1999
Executive Stock Option and Ownership Plan will vest immediately if the Plan is
approved by the Company's stockholders.
Lifemark and you agree to amend the October 14, 1999 agreement to
provide that you are entitled, but have no obligation, to exercise the remaining
options immediately upon their vesting.
Please confirm your agreement with and acceptance of the provisions of
this letter by signing and returning the enclosed copy of this letter where
indicated.
Sincerely,
/s/Rhonda E. Brede
Rhonda Brede,
President
ACCEPTED AND AGREED:
/s/Michael J. Kennedy
Michael Kennedy
<PAGE>
EXHIBIT 21
LIFEMARK CORPORATION
-------------------------------------------------------------------------------
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiary State of Incorporation or Organization Ownership %
---------- -------------------------------------- -----------
<S> <C> <C>
Arizona Health Concepts, Inc. Arizona 100%
Lifemark at Home, Inc Arizona 100%
Lifemark Care Connection, Inc. Delaware 100%
Lifemark Care Management, Inc. Delaware 100%
Lifemark Health Plan of Texas, LLC Texas 100%
Lifemark New York, Inc. Delaware 100%
Lifemark at Home New York, Inc. New York 100%
Lifemark of Texas, Inc. Texas 100%
MCS HP New York, LLC New York 100%
Ventana Health Systems, Inc. Arizona 100%
</TABLE>
<PAGE>
EXHIBIT 23
LIFEMARK CORPORATION
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-80345, No. 333-04981, No. 33-42905, No.
33-56826, No. 33-76720, No. 33-92042, and No. 333-27063) of Lifemark Corporation
of our report dated July 24, 2000 appearing on page 22 of this Form 10-K.
PricewaterhouseCoopers LLP
Phoenix, Arizona
August 18, 2000
<PAGE>
<TABLE>
<CAPTION>
[ARTICLE] 5
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] MAY-31-2000
[PERIOD-START] JUN-01-1999
[PERIOD-END] MAY-31-2000
[CASH] 19,205,000
[SECURITIES] 0
[RECEIVABLES] 19,311,000
[ALLOWANCES] 35,000
[INVENTORY] 0
[CURRENT-ASSETS] 40,455,000
[PP&E] 12,513,000
[DEPRECIATION] 6,182,000
[TOTAL-ASSETS] 58,903,000
[CURRENT-LIABILITIES] 37,074,000
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 51,000
[OTHER-SE] 18,482,000
[TOTAL-LIABILITY-AND-EQUITY] 58,903,000
[SALES] 149,604,000
[TOTAL-REVENUES] 149,604,000
[CGS] 0
[TOTAL-COSTS] 146,813,000
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 418,000
[INCOME-PRETAX] 4,241,000
[INCOME-TAX] 1,808,000
[INCOME-CONTINUING] 2,433,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2,433,000
[EPS-BASIC] 0.50
[EPS-DILUTED] 0.47
</TABLE>
<PAGE>
ANNEX F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000
COMMISSION FILE NUMBER 0-19393
LIFEMARK CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-3338328
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
7600 NORTH 16TH STREET
SUITE 150
PHOENIX, ARIZONA 85020
(Address of principal executive offices)
(Zip Code)
602-331-5100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
There were 5,157,694 shares of common stock outstanding as of September 30,
2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets................................................................ 3
Consolidated Statements of Income.......................................................... 4
Consolidated Statements of Cash Flows...................................................... 5
Notes to Unaudited Consolidated Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................. 13
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........................................ 13
Item 5. Other Information.......................................................................... 14
Item 6. Exhibits and Reports on Form 8-K........................................................... 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFEMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 2000 MAY 31, 2000
--------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents, including restricted cash of $12,925,000
and $11,635,000, respectively $ 17,875,000 $ 19,205,000
Accounts and notes receivable and unbilled services, net 23,669,000 19,276,000
Deferred income taxes 1,260,000 1,245,000
Prepaid expenses and other current assets 703,000 729,000
------------ ------------
Total current assets 43,507,000 40,455,000
Property and equipment, net 6,580,000 6,331,000
Performance bonds 10,832,000 9,740,000
Goodwill, net 2,006,000 2,097,000
Other assets 258,000 280,000
------------ ------------
Total assets $ 63,183,000 $ 58,903,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,005,000 $ 912,000
Accrued medical claims 30,877,000 27,781,000
Risk pool payable 552,000 455,000
Related party risk pool payable 149,000 154,000
Accrued compensation 2,177,000 2,889,000
Other accrued expenses 4,484,000 3,610,000
Current portion of long-term debt 1,287,000 1,273,000
------------ ------------
Total current liabilities 40,531,000 37,074,000
Long-term debt 2,627,000 2,941,000
Related party long-term debt 300,000 300,000
Deferred income taxes 55,000 55,000
------------ ------------
Total liabilities 43,513,000 40,370,000
------------ ------------
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued and outstanding - 5,156,000 and 5,118,000 shares, respectively 52,000 51,000
Capital in excess of par value 17,255,000 17,050,000
Stockholder notes receivable (719,000) (708,000)
Unearned compensation (154,000) --
Retained earnings 3,236,000 2,140,000
------------ ------------
Total stockholders' equity 19,670,000 18,533,000
------------ ------------
$ 63,183,000 $ 58,903,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
AUGUST 31, AUGUST 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 53,483,000 $ 23,609,000
------------ ------------
Direct cost of operations 46,107,000 17,850,000
Marketing, sales and administrative 6,176,000 5,535,000
------------ ------------
Total costs and expenses 52,283,000 23,385,000
------------ ------------
Operating income 1,200,000 224,000
------------ ------------
Interest income 843,000 255,000
Interest expense (121,000) (100,000)
------------ ------------
Net interest income 722,000 155,000
------------ ------------
Income before income taxes 1,922,000 379,000
Provision for income taxes 826,000 165,000
------------ ------------
Net income $ 1,096,000 $ 214,000
============ ============
Net income per share - basic $ 0.22 $ 0.04
============ ============
Weighted average common shares
outstanding - basic 5,029,000 4,808,000
============ ============
Net income per share - assuming dilution $ 0.19 $ 0.04
============ ============
Weighted average common shares outstanding -
assuming dilution 5,634,000 4,865,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
AUGUST 31, AUGUST 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,096,000 $ 214,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt expense -- 7,000
Depreciation and amortization 738,000 536,000
(Gain) loss on sale of property and equipment (15,000) 7,000
Deferred income taxes (15,000) (34,000)
Interest on long-term debt -- 78,000
Interest on stockholder note receivable (11,000) --
Stock based compensation 8,000 --
Changes in assets and liabilities:
Accounts receivable and unbilled services (4,393,000) 132,000
Prepaid expenses and other current assets 26,000 263,000
Accounts payable 93,000 (179,000)
Accrued medical claims 3,096,000 (201,000)
Risk pool payable 97,000 (24,000)
Related party risk pool payable (5,000) 23,000
Accrued compensation (712,000) (493,000)
Other accrued expenses 874,000 (143,000)
Other assets 22,000 104,000
------------ ------------
Net cash provided by operating activities 899,000 290,000
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (926,000) (767,000)
Proceeds from sale of property and equipment 45,000 12,000
Maturity/sale of short-term investments -- 501,000
Issuance of related party notes receivable -- 3,000
Increase in assets securing performance bond (1,092,000) (200,000)
------------ ------------
Net cash used in investing activities (1,973,000) (471,000)
------------ ------------
Cash flow from financing activities:
Issuance of long-term debt 81,000 251,000
Principal payment on long-term debt (381,000) --
Issuance of common stock 44,000 --
------------ ------------
Net cash provided by (used in) by financing activities (256,000) 251,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,330,000) 70,000
Cash and cash equivalents, beginning of period 19,205,000 13,792,000
------------ ------------
Cash and cash equivalents, end of period $ 17,875,000 $ 13,862,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
LIFEMARK CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
Lifemark Corporation ("Lifemark" or the "Company"), formerly Managed Care
Solutions, Inc., is a provider of health plan and care management service to
high risk populations, including vulnerable, frail, elderly and chronically ill
individuals on a national basis. Based in Phoenix, Arizona, Lifemark has
regional offices in Arkansas, California, Indiana, Michigan, New Mexico and
Texas.
Two subsidiaries of the Company, Ventana Health Systems, Inc. ("Ventana") and
Arizona Health Concepts, Inc. ("AHC"), derive substantially all of their
revenues through contracts with the Arizona Health Care Cost Containment System
Administration ("AHCCCSA") to provide specified long-term and primary care
health services, respectively, to qualified members. The contract periods expire
September 30, 2001 and September 30, 2002 for Ventana and AHC, respectively. In
June 2000, Ventana was awarded a contract for Maricopa County which began on
October 1, 2000 and expires September 30, 2003. Each contract provides for fixed
monthly premiums, based on negotiated per capita enrollee rates. Ventana and AHC
subcontract with nursing homes, hospitals, physicians, and other medical
providers within Arizona to care for Arizona Health Care Cost Containment System
("AHCCCS") members. Effective July 17, 2000, Ventana and AHC began conducting
business as Lifemark Health Plans.
In October 2000, the Company decided to terminate the operations of AHC.
Pursuant to the company's contract with AHCCCSA, a notification and transition
will take place with the cessation of operations expected to occur by January
31, 2001. Management is currently in the process of formalizing its plans to
effect this decision. AHC contributed revenues of $5,596,000 and $4,764,000 for
the periods ended August 31, 2000 and 1999, respectively, and incurred net
losses of $142,000 and $113,000, respectively, for the same periods.
Lifemark of Texas, Inc., another subsidiary of the Company, derives
substantially all of its revenue through a contract with Rio Grande HMO, Inc.
("RGHMO"), a subsidiary of Health Care Service Corporation ("HCSC"), to share
financial risk in the State of Texas' STAR+PLUS program contract in Harris
County, Texas.
NOTE 2 - NET INCOME PER SHARE
Net income per share - basic is computed by dividing net income by the weighted
average number of common shares outstanding during each period. Net income per
share assuming dilution is computed by dividing net income by the weighted
average number of common shares outstanding during the period after giving
effect to dilutive stock options and warrants and adjusted for dilutive common
shares assumed to be issued on conversion of the Company's convertible loans.
The following is the computation of the reconciliation of the numerators and
denominators of net income per common share - basic and net income per common
share - assuming dilution in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
August 31, 2000 August 31, 1999
------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share, basic:
Income available to common $1,096,000 5,156,000 $ 214,000 4,808,000
stockholders
Reduction in shares outstanding in
connection with stockholder notes
receivables and unvested
restricted stock (6,000) (127,000) - -
---------- ----------- ---------- ----------
Adjusted income available to common
stockholders 1,090,000 5,029,000 $ 0.22 214,000 4,808,000 $ 0.04
Effective of dilutive securities:
Stock options, warrants and
restricted shares - 527,000 - 57,000
Convertible notes 3,000 78,000 - -
---------- ----------- ---------- ----------
Net income per common share,
assuming dilution:
Income available to common
stockholders and assumed
conversions $1,093,000 5,634,000 $ 0.19 $ 214,000 4,865,000 $ 0.04
========== =========== ======== ========= ========== =======
</TABLE>
NOTE 3 - ACCOUNTS AND NOTES RECEIVABLE
Third party accounts and notes receivable and unbilled services consist of the
following:
<TABLE>
<CAPTION>
August 31, 2000 May 31, 2000
------------------ ----------------
<S> <C> <C>
Due from Rio Grande HMO, Inc. $ 18,215,000 $ 14,691,000
Contract management receivables 3,434,000 2,239,000
Due from AHCCCSA 2,027,000 2,098,000
Interest receivable 15,000 208,000
Other 12,000 75,000
------------------ ----------------
23,703,000 19,311,000
Less allowance for doubtful accounts (34,000) (35,000)
------------------ ----------------
Net current portion of accounts and notes receivables $ 23,669,000 $ 19,276,000
================== ================
</TABLE>
The amount due from RGHMO primarily represents revenue earned by Lifemark of
Texas, Inc., which has contracted with RGHMO, a subsidiary of Health Care
Services Corporation, as successor to Blue Cross Blue Shield of Texas.
The amounts due from AHCCCSA primarily include billed and unbilled reinsurance,
SOBRA and capitation receivables.
7
<PAGE>
NOTE 4 - RESTRICTIONS ON FUND TRANSFERS
Certain of the Company's operating subsidiaries are subject to state
regulations, which require compliance with certain net worth, reserve and
deposit requirements. To the extent the operating subsidiaries must comply with
these regulations, they may not have the financial flexibility to transfer funds
to the parent organization, Lifemark. Net assets of subsidiaries (after
inter-company eliminations) which, at August 31, 2000, may not be transferred to
Lifemark by subsidiaries in the form of loans, advances or cash dividends
without the consent of a third party are referred to as "Restricted Net Assets".
Total Restricted Net Assets of these operating subsidiaries were $9,976,000 at
August 31, 2000, with deposit and reserve requirements (performance bonds)
representing $7,872,000 of the Restricted Net Assets and net worth requirements,
in excess of deposit and reserve requirements, representing the remaining
$2,104,000.
NOTE 5 - BUSINESS SEGMENTS
The Company's principal business segments are:
- Health Plan Operations - Risk Contracts, which is engaged in the
business of administering risk-based managed care plans and programs
in two states. The segment is comprised of the operations of Ventana,
AHC and Lifemark of Texas.
- Health Plan Operations - Management Contracts, which is engaged in the
management of managed care plans and programs in three states. The
segment is comprised of the contracts with AlohaCare, Community Choice
Michigan and Lovelace Community Health Plan.
The Company has grouped all other services within the Diversified Services
segment. This category consists of the operations in California and Indiana, as
well as the operations of Lifemark at Home and Lifemark Care Connection.
During fiscal year 2000, the Company modified the structure of its internal
organization in a manner that caused the composition of its reportable segments
to change. As such, segment information for previously reported periods has been
restated to reflect this change. Following is a tabulation of business segment
information for the three month periods ended August 31, 2000 and 1999.
Corporate allocations have been provided on a consistent basis.
Information concerning operations by business segment follows:
<TABLE>
<CAPTION>
For the Three Months Ended August 31, 2000
-----------------------------------------------------------------
Health Plan Operations
--------------------------------
Risk Management Diversified
Contracts Contracts Services Totals
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 44,418,000 $ 5,299,000 $ 4,381,000 $ 54,098,000
Intersegment revenues - (127,000) (488,000) (615,000)
------------- -------------- ------------ -------------
Total consolidated revenues $ 44,418,000 $ 5,172,000 $ 3,893,000 $ 53,483,000
============= ============== ============ =============
Interest income $ 748,000 $ 53,000 $ 42,000 $ 843,000
Interest expense 43,000 44,000 34,000 121,000
------------- -------------- ----------- -------------
Net interest income $ 705,000 $ 9,000 $ 8,000 $ 722,000
============= ============== ============ =============
Depreciation and amortization $ 218,000 $ 336,000 $ 184,000 $ 738,000
============= ============== ============ =============
Segment income (loss) before taxes $ 1,265,000 $ 686,000 $ (29,000) $ 1,922,000
Income tax expense (benefit) 544,000 294,000 (12,000) 826,000
------------- -------------- ------------ -------------
Net income (loss) $ 721,000 $ 392,000 $ (17,000) $ 1,096,000
============= ============== ============ =============
Expenditures for capital assets $ 274,000 $ 421,000 $ 231,000 $ 926,000
============= ============== ============ =============
Segment total assets $ 59,042,000 $ 5,948,000 $ 9,212,000 $ 74,202,000
Intersegment assets (9,153,000) - (1,866,000) (11,019,000)
------------- -------------- ----------- -------------
Total assets $ 49,889,000 $ 5,948,000 $ 7,346,000 $ 63,183,000
============= ============== =========== =============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended August 31, 1999
----------------------------------------------------------------
Health Plan Operations
-------------------------------
Risk Management Diversified
Contracts Contracts Services Totals
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 12,372,000 $ 9,185,000 $ 3,805,000 $ 25,362,000
Intersegment revenues - (1,402,000) (351,000) (1,753,000)
------------- -------------- ------------ -------------
Total consolidated revenues $ 12,372,000 $ 7,783,000 $ 3,454,000 $ 23,609,000
============= ============== ============ =============
Interest income $ 199,000 $ 39,000 $ 17,000 $ 255,000
Interest expense 13,000 60,000 27,000 100,000
------------- -------------- ----------- -------------
Net interest income (expense) $ 186,000 $ (21,000) $ (10,000) $ 155,000
============= ============== ============ =============
Depreciation and amortization $ 95,000 $ 303,000 $ 138,000 $ 536,000
============= ============== ============ =============
Segment income (loss) before taxes $ (108,000) $ 565,000 $ (78,000) $ 379,000
Income tax expense (benefit) (47,000) 246,000 (34,000) 165,000
------------- -------------- ------------ -------------
Net income (loss) $ (61,000) $ 319,000 $ (44,000) $ 214,000
============= ============== ============ =============
Expenditures for capital assets $ 139,000 $ 426,000 $ 202,000 $ 767,000
============= ============== ============ =============
Segment total assets $ 29,518,000 $ 7,573,000 $ 6,683,000 $ 43,774,000
Intersegment assets (9,084,000) - (365,000) (9,449,000)
------------- -------------- ------------ -------------
Total assets $ 20,434,000 $ 7,573,000 $ 6,318,000 $ 34,325,000
============= ============== ============ =============
</TABLE>
NOTE 6 - SUBSEQUENT EVENTS
On October 10, 2000, the Company announced that it will merge with EverCare, an
operating unit of Ovations, which is a subsidiary of UnitedHealth Group.
Lifemark shareholders will be entitled to receive shares of UnitedHealth Group
Common Stock having a value of $63 million or $10.55 per Lifemark share on a
fully diluted basis, so long as the average ten-day closing price of
UnitedHealth Group stock immediately preceding the transaction close remains at
or between $95.00 and $113.00 per share. In the event the average ten-day
closing price of UnitedHealth Group stock immediately preceding the transaction
close is above $113 per share, Lifemark shareholders will receive a total of
557,500 UnitedHealth Group shares and the merger consideration may thereby
increase based on UnitedHealth Group's stock appreciation above $113.00. If the
average ten-day closing price of UnitedHealth Group stock immediately preceding
the transaction is at or between $88.00 and $95.00 per share, the value Lifemark
shareholders will receive will decrease proportionately from $63 million or
$10.55 per share to $60 million or $10.08 per share. If the average ten-day
closing price of UnitedHealth Group Common Stock preceding the transaction close
is below $88.00 per share, UnitedHealth Group has the option to pay $10.08 per
share of merger consideration in either cash or shares of UnitedHealth Group
Common Stock. The transaction is subject to approval by Lifemark's shareholders.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Lifemark Corporation ("Lifemark" or the "Company"), formerly Managed Care
Solutions, Inc., is involved in a variety of health care programs, many of which
serve indigent and Medicaid populations. Two subsidiaries of the Company,
Ventana Health Systems, Inc. ("Ventana") and Arizona Health Concepts, Inc.
("AHC"), derive substantially all of their revenues through contracts with the
Arizona Health Care Cost Containment System Administration ("AHCCCSA") to
provide specified long-term and primary care health services, respectively, to
qualified members. The contract periods expire September 30, 2000 and September
30, 2002 for Ventana and AHC, respectively. Each contract provides for fixed
monthly premiums, based on negotiated per capita enrollee rates. Ventana and AHC
subcontract with nursing homes, hospitals, physicians, and other medical
providers within Arizona to care for members.
In October 2000, the Company decided to terminate the operations of AHC.
Pursuant to the company's contract with AHCCCSA, a notification and transition
will take place with the cessation of operations expected to occur by January
31, 2001. Management is currently in the process of formalizing their plans to
affect this decision. AHC contributed revenues of $3,596,000 and $4,764,000 for
the periods ended August 31, 2000 and 1999, respectively, and incurred net
losses of $142,000 and $113,000, respectively, for the same periods.
Lifemark of Texas, Inc., another subsidiary of the Company, derives
substantially all of its revenue through a contract with Rio Grande HMO, Inc.
("RGHMO"), a subsidiary of Health Care Service Corporation ("HCSC"), to share
financial risk in the State of Texas' STAR+PLUS program contract in Harris
County, Texas.
The Company also provides contract management services to county and state
governmental units and other health care organizations. The Company has nine
contracts for services, with multi-year terms that contemplate continued
renewals, which expire at various dates through the year 2005.
RESULTS OF OPERATIONS
Consolidated revenues for the three month period ended August 31, 2000 increased
127% over the same period of the previous year to $53,483,000. Direct cost of
operations increased 158% over the comparable period of the previous fiscal year
to $46,107,000. Direct cost of operations, as a percentage of revenue was 86%
for the three month period ended August 31, 2000 versus 76% for the same period
of the prior fiscal year. The increase in both revenues and direct costs of
operations was primarily due to the financial risk-sharing agreement with RGHMO,
as well as growth in enrollment in certain plans covered by management contracts
and growth in membership of Ventana and AHC.
Health Plan Operations-Risk Contracts. Revenues for the three month period ended
August 31, 2000 related to health plan operations-risk contracts increased 259%
to $44,418,000 from $12,372,000 from the comparable period of the prior fiscal
year. The increase is primarily a result of the financial risk-sharing agreement
with RGHMO, which accounted for $26,202,000 of the increase. Also contributing
to the increase was the expansion of Ventana into Yuma and Coconino counties,
which resulted in an increase of approximately $4,248,000 in revenues.
Direct cost of operations for the three month periods ended August 31, 2000 and
1999 included $40,928,000 and $11,541,000, respectively, related to fees
generated from risk contracts of health plans and programs. The primary
contributor to the increase was the financial risk-sharing agreement with RGHMO,
which accounted for $22,700,000, along with growth in enrollment in Ventana and
AHC of 60% and 10%, respectively. Direct cost of operations for risk contracts
as a percentage of related revenue was 92% for both the three month periods
ended August 31, 2000 and 1999.
10
<PAGE>
Health Plan Operation-Management Contracts. Revenues for the three month period
ended August 31, 2000 related to health plan operations - management contracts
decreased 34%, from $7,783,000 to $5,172,000 from the comparable period of the
prior fiscal year. The decrease was primarily due to the transitional
administrative service agreement with AlohaCare, as well as the modification of
the contract with RGHMO under which such revenues became part of health plan
operations-risk contracts.
Direct cost of operations related to health plan operations-management contracts
for the three month periods ended August 31, 2000 and 1999 were $2,501,000 and
$4,088,000, respectively, representing a 39% decrease. Direct cost of operations
as a percentage of related revenue were 48% and 53% for the three month periods
ended August 31, 2000 and 1999, respectively. The decrease was largely due to
the reduced costs associated with the transitional administrative services
agreement with AlohaCare, and the financial risk-sharing agreement with RGHMO,
under which those direct costs became part of health plan operations-risk
contracts.
Diversified Services. Diversified Services, which consists of the operations of
Lifemark at Home, Lifemark Care Connection (formerly Advinet), and the contracts
in California and Indiana, generated revenues of $3,893,000 and $3,454,000, for
the three month periods ended August 31, 2000 and 1999, respectively. The
increase of 13% is primarily due to the expansion of Lifemark at Home into Pinal
County, along with increases in the other programs.
Direct cost of operations related to Diversified Services for the three month
periods ended August 31, 2000 and 1999 were $2,679,000 and $2,221,000,
respectively, representing an increase of 21%. The principal reason for the
increase is the growth in Lifemark at Home operations. Direct cost of operations
as a percentage of related revenue was 69% and 64% for the three month periods
ended August 31, 2000 and 1999, respectively. The increase is due to the growth
in Lifemark at Home, which has a higher cost of operations when compared to the
other diversified services.
Marketing, Sales and Administrative. Marketing, sales and administrative
expenses as a percentage of consolidated revenue for the three month period
ended August 31, 2000 decreased from 23% to 12% from the comparable period of
the prior year. The decrease in marketing, sales and administrative expenses for
the three months ended August 31, 2000 compared with the same quarter of the
prior year is primarily a result of Lifemark of Texas entering into the
financial risk sharing agreement with RGHMO. Lifemark of Texas, similar to other
health plan operations, typically experiences significantly less marketing,
sales and administrative expenses as a percentage of related revenue in
comparison to an administrative services contract.
Interest Income. Interest income for the three month period ended August 31,
2000 was $843,000 versus $255,000 for the same period of the previous year. The
increase from 1999 to 2000 is a result of increased levels of cash and
investments and the RGHMO Contract.
Interest Expense. Interest expense was $121,000 for the three month period ended
August 31, 2000 compared to $100,000 for the comparable period of the prior
fiscal year. Interest expense is primarily attributable to outstanding debt
maintained by the Company which consists of notes with a bank, and the William
Brown Trust in the principal amounts of $3,914,000 and $300,000, respectively at
August 31, 2000.
Income Taxes. Income tax expense was $826,000 and $165,000 for the three month
periods ended August 31, 2000 and 1999, respectively. The effective tax rates
were 43% and 44%. These rates were higher than the statutory rates for the
respective periods, primarily due to the amortization of non-deductible goodwill
expenses.
Net Income. Net income for the three month periods ended August 31, 2000 and
1999 was $1,096,000 and $214,000, respectively. The primary reasons for the
increase in profitability are the amendment in the RGHMO Administrative Services
Agreement, under which terms it moved from a management agreement to a
risk-sharing agreement, and increases in membership across certain health plans.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $1,330,000 from $19,205,000 to
$17,875,000 for the three months ended August 31, 2000. Operating activities
generated $899,000 for the three month period ended August 31, 2000 versus
$290,000 in the same period of the previous fiscal year. The primary sources of
cash for the three month period ended August 31, 2000 were earnings before
non-cash charges and an increase in accrued medical claims for Lifemark of
Texas, Ventana and AHC offset by an increase in the amount due from Lifemark of
Texas. The primary sources of cash for the three-month period ended August 31,
1999 were earnings before non-cash charges, increases in prepaids and other
current assets, partially offset by the decrease in accrued compensation due to
an incentive bonus payout.
Investing activities used $1,973,000 for the three month period ended August 31,
2000 as compared to $471,000 for the same period of the previous fiscal year.
During the three month period ended August 31, 2000, cash was used to purchase
$926,000 in capital equipment and $1,092,000 was added to the amount held in
restricted funds to meet the AHCCCSA's performance bond requirements with
respect to Ventana's contract award in Maricopa County. During the three month
period ended August 31, 1999, cash was used to purchase $767,000 of fixed assets
and to increase assets securing performance bonds by $220,000, partially offset
by cash generated from the maturity of short-term investments of $501,000.
Financing activities used $256,000 for the three month period ended August 31,
2000 versus generating $251,000 for the same period of the prior fiscal year.
Funds were used to reduce the principal balance on a note held by a bank, offset
by the issuance of common stock pursuant to the stock option plan. Funds
received pursuant to an interim funding agreement with a bank were the primary
source of cash for the three month period ended August 31, 1999.
Certain of the Company's operating subsidiaries are subject to state
regulations, which require compliance with net worth, reserve and deposit
requirements. To the extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to transfer funds to
Lifemark. Net assets of subsidiaries (after inter-company eliminations) which,
at August 31, 2000, may not be transferred to Lifemark by subsidiaries in the
form of loans, advances or cash dividends without the consent of a third party
are referred to as "Restricted Net Assets". Total Restricted Net Assets of these
operating subsidiaries was $9,976,000 at August 31, 2000, with deposit and
reserve requirements (performance bonds) representing $7,872,000 of the
Restricted Net Assets and net worth requirements, in excess of deposit and
reserve requirements, representing the remaining $2,104,000.
The Company believes that its existing capital resources and cash flow generated
from future operations will enable it to maintain its current level of
operations and its planned operations, including capital expenditures, in fiscal
year 2001.
12
<PAGE>
FORWARD-LOOKING INFORMATION
This report contains both historical and forward-looking information.
Forward-looking statements include, but are not limited to, discussion of the
Company's strategic goals, new contracts, possible expansion of existing plans,
expected increase in certain expenses, and cash flow. These statements speak of
the Company's plans, goals or expectations and refer to estimates. The
forward-looking statements may be significantly impacted by risks and
uncertainties, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). There can
be no assurance that anticipated future results will be achieved because actual
results may differ materially from those projected in the forward-looking
statements. Readers are cautioned that a number of factors, which are described
herein, could adversely affect the Company's ability to obtain these results.
These include the effects of either federal or state health care reform or other
legislation; changes in reimbursement system trends, the ability of care
providers (including physician practice management groups) to comply with
current contract terms; and renewal of the Company's contracts with various
state and other governmental entities. Such factors also include the effects of
other general business conditions, including but not limited to, government
regulation, competition and general economic conditions. The cautionary
statements made pursuant to the Reform Act herein and elsewhere by the Company
should not be construed as exhaustive or as any admission regarding the adequacy
of disclosures made by the Company prior to the effective date of the Reform
Act. The Company cannot always predict what factors would cause actual results
to differ materially from those indicated by the forward-looking statements. In
addition, readers are urged to consider statements that include the terms
"believes", "belief", "expects", "plans", "objectives", "anticipates", "intends"
or the like to be uncertain and forward-looking.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the ordinary
course of business on certain assets and liabilities including cash and cash
equivalents, short-term investments and long-term debt. The Company's variable
rate debt relates to the bank note as well as borrowings under their software
financing arrangement, which are primarily vulnerable to movements in the prime
rate. The Company does not expect changes in interest rates to have a
significant effect on the Company's operations, cash flow or financial position.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of security holders during the
Company's Annual Meeting of Stockholders held September 11, 2000.
<TABLE>
<CAPTION>
DESCRIPTION OF MATTER VOTES CAST FOR AUTHORITY WITHHELD
--------------------- -------------- ------------------
<S> <C> <C>
ELECTION OF DIRECTORS:
Rhonda E. Brede 4,251,987 116,463
William G. Brown 4,260,337 108,122
Richard C. Jelinek 4,260,467 107,963
Henry M. Kaldenbaugh 4,260,337 108,113
John G. Lingenfelter 4,260,328 108,122
Risa Lavizzo-Mourey 4,260,337 108,113
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
VOTES CAST FOR VOTES CAST AGAINST AUTHORITY WITHHELD
-------------- ------------------ ------------------
<S> <C> <C> <C>
PROPOSALS:
Proposal to Approve 2000 Non-Employee
Director Stock Plan 2,615,032 335,236 13,310
Proposal to Approve 1999 Executive Stock
Option and Ownership Plan 2,599,328 361,748 6,300
Proposal to Amend the Employee
Stock Purchase Plan 2,810,797 151,465 1,314
</TABLE>
ITEM 5. OTHER INFORMATION
On October 10, 2000, the Company issued a press release announcing the execution
of an agreement and plan of merger among the Company, UnitedHealth Group
Incorporated and a subsidiary of UnitedHealth Group. A copy of that press
release is filed as Exhibit 99 to this report on Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Administrative Services Agreement between the registrant and
Lovelace Health Systems, Inc.*
10.2 Amendment to the Administrative Services Agreement between
the registrant and Community Choice Michigan*
27 Financial Data Schedule
99 Press Release Issued October 10, 2000
(b) Reports on Form 8-K
None
* Confidential Treatment Requested
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIFEMARK CORPORATION
By: /s/ Rhonda E. Brede
-----------------------------------
Rhonda E. Brede, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Michael J. Kennedy
-----------------------------------
Michael J. Kennedy, Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: October 16, 2000
15
<PAGE>
EXHIBIT 10.1
Agreement
between
Lovelace Health Systems, Inc.
and
Lifemark Corporation
(Contract #LHS00271)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
------- ----------------------------------------------------------------------- ----
<S> <C> <C>
1 Recitals 2
2 Definitions 3
3 Lifemark Duties 3
4 LHS Duties 4
5 Administrative Services 5
6 Performance Standards and Penalties 9
7 Reports and Records 9
8 Compensation 10
9 Relationship of Parties 11
10 Ownership of Data 11
11 Confidentiality 12
12 Insurance and Indemnification 13
13 Term and Termination of Agreement 13
14 Rights and Obligations Upon Termination 14
15 Assignment and Delegation of Duties 14
16 Affirmative Action 14
17 Interpretation 15
18 Amendment 15
19 Entire Agreement 15
20 Notice 15
21 Enforceability and Waiver 15
22 Dispute Resolution 16
Exhibit A: Standards for Delegation of Member Rights and Responsibilities Function
Exhibit B: Minimum Requirements for Call Tracking System
Exhibit C: Standards for Delegation of Utilization Management Activities
Exhibit D: Standards for Delegation of Specific Preventive Health Activities
Exhibit E: Standards for Delegation of Payment Administration Activities
Exhibit F: Matrix of Performance Standards and Penalties
Exhibit G: Matrix of Required Reports and Reporting Frequencies
Exhibit H: Confidentiality Agreement
</TABLE>
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ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made and entered into by and between Lovelace Health Systems,
Inc., a New Mexico Corporation (hereinafter called "LHS") and Lifemark
Corporation, a Delaware Corporation (hereinafter collectively called
"Lifemark").
1. RECITALS
WHEREAS, LHS is a New Mexico corporation wholly owned by HealthSource,
Inc., a New Hampshire Corporation; and,
WHEREAS, LHS is a health maintenance organization ("HMO"), doing business
as Lovelace Health Plan ("LHP"), duly licensed under the New Mexico HMO Act
(Chapter 59A, Article 46 NMSA 1978), as amended, federally qualified under
the federal HMO Act of 1973 (42 U.S.C. Section 300e et seq.), as amended,
and accredited by the National Committee on Quality Assurance (NCQA). LHP
provides, insures, or administers health care benefits for participants
("Participants") in various insured and self-insured plans. In the course
of its business, LHS establishes and administers contracts with physicians
and other health care providers, conducts health care utilization
management and quality improvement activities, maintains member services
operations, and other administrative functions of an HMO; and,
WHEREAS, LHS is also a health care delivery system ("LDS") consisting of a
multispecialty medical group and an acute care hospital facility duly
licensed by the New Mexico Department of Health ("DOH"), certified to
participate in Medicare and Medicaid, and accredited by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO"). In the
course of its business, the LDS operates inpatient and outpatient health
care facilities in Albuquerque and Santa Fe, New Mexico, to provide health
care services and supplies to LHP Participants, and to patients with other
third party payor sources or who are financially responsible for their own
care ("FFS Patients"). Participants and FFS Patients are hereinafter
collectively referred to as "LHS Patients"; and,
WHEREAS, LHS is a contracted health plan under a managed care program
administered by the State of New Mexico Human Services Department ("HSD")
for the provision of covered medical, dental, vision, behavioral, home
health, and other health services to Medicaid recipients through a program
known as SALUD! New Mexico Partnership for Wellness and Health ("Program");
and,
WHEREAS, LHS has organized Lovelace Community Health Plan ("LCHP") as a
division of LHS for the purpose of contracting with HSD and performing
LHS's obligations to manage and administer the Program; and,
WHEREAS, Lifemark is primarily organized for and engaged in the
development, management, and ownership of managed care health plans and
programs serving the indigent and Medicaid population; and,
WHEREAS, LHS desires to engage Lifemark, and Lifemark desires to be
engaged, to provide administrative and management services in connection
with LCHP's contract with the Program and the Members enrolled through the
Program.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
2. DEFINITIONS
a. Covered Services. Medically necessary health care services or
products, including those
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medical, dental, vision, behavioral, home health, and other health
care services to which Members are entitled under the Program as
described in the Request for Proposal and contract between LHS and
HSD.
b. Human Services Department or "HSD". The department of the State of New
Mexico government responsible for administration of its State Medicaid
Program pursuant to Title XIX of the Social Security Act and
applicable law.
c. Members. Those individuals who are eligible for coverage under the
Program and who have enrolled with LCHP to provide their health care
benefits.
d. Participating Provider. A duly licensed (if subject to licensure)
hospital, health care facility, medical group, physician, or other
health care provider that has entered into a contract with LHS for the
provision of Covered Services to Members.
e. Program. The State of New Mexico SALUD! New Mexico Partnership for
Wellness and Health, a program established for the provision of
covered medical, dental, vision, behavioral, home health, and other
health services to Medicaid recipients in a managed care delivery
setting as described in the Request for Proposal.
f. Request for Proposal or "RFP". The Request for Proposal for the
Program and any amendments thereto issued by HSD.
3. LIFEMARK DUTIES
a. Lifemark shall be responsible for furnishing administrative services
to LCHP in accordance with the provisions of this Agreement, as well
for all ordinary and necessary business expenses associated with
Lifemark's employees and its responsibilities under this Agreement,
including but not limited to the following:
(1) Office space (including all property lease/purchase
arrangements);
(2) Business and operating licenses and/or certifications, except
those specifically required of LHS;
(3) Office equipment/furniture;
(4) Utilities;
(5) Telephone lines and equipment;
(6) Computer hardware and software;
(7) Printing and copying equipment;
(8) Office supplies;
(9) Personnel and human resources;
(10) Personnel training and education;
(11) Travel, expenses, taxes.
b. Lifemark will appoint a Program Director who will reside in the
Albuquerque area and be responsible for oversight of Lifemark's day to
day Program related operational activities. Lifemark Program Director
will be responsible for coordinating all Lifemark activities and, for
purposes of this Agreement, will be subject to the oversight of the
LHP General Manager and others as designated by LHP for this
agreement. Lifemark will only use LHS, LHP, or LCHP trademarks, trade
names, or logos as designated and approved by the LHP General Manager.
c. Lifemark shall not discriminate in arranging for delivery of Covered
Services for LHS Patients based upon race, color, religion, sex,
sexual preference, age, national origin, or payor source.
d. Lifemark shall comply with all aspects of LHS's response to the RFP,
HSD regulations pertaining to the Program, all the regulations
promulgated by the Medical Assistance program
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under Title XIX of the Social Security Amendments of 1965 (Medicaid),
and with all other federal and state laws and regulations applicable
to the Administrative Services.
e. Lifemark shall be responsible for any sanctions or penalties imposed
on LHS by HSD, HCFA, or other governmental entity that arise from
Lifemark's failure to comply with any applicable law or regulation or
any other nonperformance of obligations outlined in this Agreement.
Lifemark shall not be responsible for the non-performance of LHS
subcontractors, and Lifemark agrees to promptly notify LHS in writing
of non-performance issues by LHS subcontractors when identified by
Lifemark and will assist in developing recommended corrective action
plans where applicable. As a condition to Lifemark's obligation to pay
such penalties, at Lifemark's request, LHS shall appeal such penalties
to the fullest extent possible under the regulation of HSD, HCFA or
other governmental entity if reasonable grounds for such appeal exist.
f. Lifemark shall, upon request by LHS, and at no cost to LHS, assist LHS
in developing and implementing reasonable and necessary undertakings
initiated by LHS to comply with applicable regulations and HSD
requirements, or to improve the quality of programs and services
furnished to Members by LCHP. Such undertakings shall include
Lifemark's participation, as requested, with LHS's response to the
anticipated 2000-2001 HSD RFPs.
4. LHS DUTIES
a. The primary liaison with HSD and other governmental entities for the
purposes of LCHP's business and the Program shall be the General
Manager of LHP or his/her designate.
b. LHS shall budget and pay the costs of marketing the Program to
prospective Members in amounts consistent with HSD regulations and
deemed reasonable by LHS. The procurement of such items shall utilize
the standard LHS procurement system according to LHS policies if paid
by LHS or its affiliates.
c. LHS shall select and recruit, negotiate and establish contracts with
providers to become Participating Providers of LHS for medical dental,
vision, behavioral, and other services to provide Covered Services to
Members as required by the contract between HSD and LHS. Such
contracts shall be between LHS and Participating Providers. All
contracts with Participating Providers shall be in a form and contain
such provisions as are acceptable to LHS, set forth the amount of
compensation to Participating Providers, and specify that the
Participating Providers shall be subject to all the requirements
contained in the RFP and any contract between HSD and LHS. LHS shall
submit any unusual payment methodologies to Lifemark for review and
comment before executing contracts containing such methodologies.
d. LHS shall be responsible for credentialing and recredentialing of
Participating providers.
e. LHS shall maintain its established process for subrogation tracking
and recovery.
f. LHS shall be responsible for Quality Improvement programs requirements
of HSD and appropriate accrediting bodies (e.g. NCQA, JCAHO, etc.).
g. LHS shall be responsible for performing or sub-contracting for case
management services. Case management services shall encompass
inpatient and outpatient case management as defined by HSD's case
management benefit and as set forth in the contract between HSD and
LHS.
h. LHS shall furnish the services of a Medical Director to provide
oversight to Lifemark Utilization Management services.
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i. LHS shall be responsible for the following Program-related expenses:
(1) Covered Services.
(2) Legal services of LHS.
(3) Actuarial Services of LHS
(4) All insurance and re-insurance premium of LHS.
(5) Expenses related to corporate existence for LHS.
(6) Income, property, premium, and other taxes of LHS and any
assessments or license fees of LHS.
(7) Costs associated with health assessment administration, health
education, and promotion (excluding Health Promotion Services for
which Lifemark is engaged), administration of case management and
quality management functions as they relate to NCQA, JCAHO, and
HSD (including HSD's independent external quality review
organization) quality requirements, credentialing, and marketing
(except for those Marketing Services for which Lifemark is
engaged.
(8) Costs associated with LHS's business operations and its employees
including, but not limited to capitalized and non-capitalized
computer equipment, office equipment furniture, software, office
supplies, office space for LHS staff, printing, copying, postage
(associated with quality management and case management),
contracted labor (including clerical, word processing, and
secretarial services), legal fees, sub-contracted professional
fees, wages (including overtime wages), employee benefits,
telephone line leases, telephone, utilities, licenses, seminars
and all related travel expenses for LHS employees, audits, taxes,
fees, and other expenses incurred.
(9) Costs associated with LCHP Medical Director(s), including, but
not limited to, salaries and benefits.
(10) Prescription drug claims processing and payment.
j. LHS shall establish and maintain a separate bank account ("Account")
specifically for use by Lifemark for the purpose of depositing all
receipts from any source including payments from HSD, and for the
payment of claims for Covered Services under the Program and
Lifemark's administrative fees. Failure to maintain an adequate
balance in the Account, and any penalties incurred as a result, will
be the sole responsibility of LHS; except where the failure by LHS to
maintain an adequate Account balance occurred because Lifemark
negligently mispaid, overpaid, or committed any other negligent action
or omission in processing claims payable from the Account, in which
case the penalties will be the responsibility of Lifemark.
5. ADMINISTRATIVE SERVICES
Lifemark shall furnish the following services ("Administrative Services"):
a. Marketing Service(s)
(1) Distribute (including postage) marketing materials developed or
procured by LHS within the scope of normal plan operations as
outlined by contractual requirements set forth by HSD and this
Agreement.
b. Enrollment and Eligibility Service(s)
(1) Make available to LHS and Participating Providers, in a
nationally accepted standard format (e.g. NSF 2.0), Member
enrollment and eligibility information within three business days
of receipt of such information from HSD.
(2) Make available electronic enrollment/eligibility data obtained by
HSD in a format set forth by Lifemark and agreed to by LHP and
its subcontractors. Lifemark will educate subcontractors about
the electronic enrollment data file structure and processes, and
will verify that data is being appropriately transferred to LHS
subcontractors. It will be the responsibility of LHP
subcontractor's to maintain interfaces that allow for electronic
data interchange to obtain enrollment files maintained by
Lifemark.
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(3) Provide card stock, print, and distribute member ID cards within
timeframes required by HSD.
c. Member Service(s)
(1) Provide all Member Services functions as are required by the RFP,
any and all existing and known contracts between HSD and LHS, and
this Agreement.
(2) Establish and maintain a complaint resolution procedure to
process Member and Participating Provider complaints that
complies with applicable law, LHS's contract with HSD (including
HSD's independent external quality review organization),
applicable law and regulations, NCQA standards, and, with respect
to Member complaints, LHS's "Standards for Delegation of Member
Rights and Responsibilities Function", which is attached hereto
as Exhibit A.
(3) Operate or provide for a member services call center in
accordance with HSD and Lovelace requirements. This will be
accomplished by Lifemark using the LHS nurse hotline after normal
business hours.
(4) Implement an enhanced call tracking system and reporting
capabilities in accordance with NCQA standards and LHS
requirements attached as Exhibit B. Implementation to be
substantially completed by June 30, 2001.
d. Provider Contracting Service(s)
Supply consultation to LHS regarding geographic distribution of
network and negotiated rates.
e. Provider Relations Service(s)
(1) Lifemark will appropriately update its information systems with
new or revised contract information within ten (10) business days
after complete and accurate information has been received by
Lifemark personnel. Lifemark will periodically perform audits of
its contract loading functions and allow oversight by LHS Medical
Economics group if requested by LCHP, LHP, or LHS. Lifemark will
have the right to review all non-standard SALUD! provider and
subcontractor agreements prior to final execution to ensure
compliance with system administration. Lifemark will not be held
responsible for timely processing of claims for contracts that
have been executed, or for provider information forwarded to
Lifemark staff, with effective dates prior to receipt date by
Lifemark. However, Lifemark will be responsible for timely
processing after the tenth (10th) day following receipt by
Lifemark of the signed contract.
(2) Produce and distribute a new Provider Reference Manual on an
annual basis and produce and distribute an update to the Manual
every six months.
(3) Perform orientation of new Participating Providers regarding
features of the Program and LCHP.
(4) Align the geographic territory assignment of Lifemark's Provider
Relations Representatives consistent with the geographic
territory assignment of LHP's Provider Relations alignment, even
if LHP changes the territory assignments of its Provider
Relations Representative. LHP shall give Lifemark reasonable
advance notice of such changes.
(5) Conduct on-going education of existing Participating Providers
regarding features of the Program and LCHP, and any changes that
may have be implemented by HSD.
(6) Update, print, and distribute a directory of Participating
Providers two times per year after receiving approval of the
draft by LHP personnel.
(7) Operate a provider relations call center to address Participating
provider and non-participating provider inquiries about billing,
referrals/authorizations, claims issues, etc.
f. Utilization Management Service(s)
(1) Conduct Utilization Management ("UM") in accordance with a UM
program plan, which shall be submitted to LHS annually for review
by the Health Plan Quality Council. Such
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plan and related activities shall comply with LHS's contract with
HSD (including HSD's independent external quality review
organization requirements), applicable law and regulations, NCQA
standards, and LHS's "Standards for Delegation of Utilization
Management Activities", which is attached hereto as Exhibit C.
Lifemark shall obtain and maintain any license, certification, or
accreditation necessary to perform it UM activities. Lifemark
agrees that its UM activities shall be subject to oversight and
supervision of the designated LHS Medical Director.
(2) Ensure necessary interfaces for electronic data interchange to
timely update the claims system related to referrals, prior
authorizations, and other UM activities.
(3) Perform prior authorization function in accordance with HSD and
LHS requirements.
(4) Perform referral process in accordance with HSD and LHS
requirements and performance standards.
g. Preventive Health Service(s)
(1) Perform Member outreach and education for well childcare,
including but not limited to EPSDT (including the behavioral
health screening component of the EPSDT) and prenatal care in
accordance with HSD requirements and the requirements of any
appropriate accrediting body in which LHS participates (e.g.
NCQA, JCAHO, etc.) as set forth in the "Standards for Delegation
of Specific Preventive Health Activities", which is attached
hereto as Exhibit D.
(2) Cooperate with other reasonable preventive health or quality
improvement initiatives as requested by LHS.
h. Claims Administration Services(s)
(1) Process and pay claims to Participating Providers for all
approved Covered Services rendered to Members (except
prescription drug benefit claims and other benefits for which LHS
has sub-contracted claims payment) in accordance with contracts
entered into between Participating Providers and LHS, the RFP,
HSD requirements, and this Agreement.
(2) Comply with LHS "Standards for Delegation of Payment
Administration Activities", attached hereto as Exhibit E.
(3) Comply with the requirements of the RFP, the contract between HSD
and LHS, and the contracts between LHS and Participating
Providers with respect to payment of claims to Participating
Providers. Claims payments shall be made by check or drafts
signed by Lifemark out of the Account established under the terms
of this Agreement.
(4) Ensure necessary interfaces to accept electronic data interchange
of claims and encounter data.
(5) Process complete encounter data that has been received from
Participating Providers who pay their own claims. Such encounter
data must be received by Lifemark in a nationally accepted
standard format (or other format agreed to by Lifemark). Lifemark
will upload such data into Lifemark information systems or data
repository systems for reporting purposes.
(6) Conduct necessary activities in connection with coordination of
benefits, third-party liability recoveries, and reinsurance as
required under the provisions of the RFP and HSD requirements.
Such activities will include but not be limited to the following:
(a) Recovering or coordinating medical expenses incurred by
Members from all third-party liability sources on behalf of
LHS, and depositing any amounts recovered in the Account;
(b) Establishing and maintaining files of Members' third-party
liability information;
(c) Receiving third-party liability information from HSD and
updating the Members' files on a timely basis;
(d) Informing HSD and the LHS of third-party liability
information discovered during the course of business
operations;
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(e) Providing HSD and the LHS with required reports relating to
amounts recovered from third-parties;
(f) Recovering reinsurance revenues payable to LHS from HSD and
/or other reinsurers.
(7) Cooperate with LHS in the development of a subrogation tracking
and recovery program and provide LHS with any information,
reports, or other data in its possession which indicates that a
right of recovery may exist with respect to a benefit or service
provided under the Program.
i. Accounting and Finance Services(s)
(1) Install appropriate controls and perform finance accounting
functions as reasonably requested by the LHS VP of Financial
Operations.
(2) Make deposits to and payments from the Account established by LHS
for LCHP. Payments from the account are expressly limited to (i)
payment of approved provider claims, (ii) payment of monthly
(PMPM) fees in accordance with Section 8 of this Agreement, and
(iii) other expenses as expressly approved in advance by LHS.
(3) Reconcile Account statements as reasonably requested by LHS.
(4) Performing all day to day financial and accounting functions of
LCHP, including preparation of regulatory financial reporting,
claims accounts payable, and premium accounts receivable
administration.
(5) Provide LHS with financial statement information and related
supporting documentation (including information that Lifemark
possesses for required filings for the New Mexico Department of
Insurance.
(6) Prepare for LHS's review, signature and submission any financial
and regulatory reports required by HSD in connection with the
Program.
j. Information Systems Services(s)
(1) Maintain an automated management information system as required
by the contract with HSD, HSD requirements, and as necessary for
Lifemark to fulfill its obligations under the provisions of this
Agreement.
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k. Exit/Transition Planning Services(s)
(1) Cooperate in a professional and businesslike manner with
transition to new vendor.
(2) Continue, for no additional administrative fee, to process and
pay claims accurately for dates of service up to termination date
for a period of one hundred, eighty (180) days following the
effective date of termination/expiration of the Agreement.
(3) Transition of data upon termination shall include transfer of
file data, accruals against benefit limitations and copayment
carryover if appropriate, and shall be timely enough to allow
smooth transition of activities to the new vendor.
6. PERFORMANCE STANDARDS AND PENALTIES
a. Lifemark agrees that performance standards pertaining to certain
Administrative Services, along with penalties for failure on the part
of Lifemark to achieve the performance standards, shall be
established. A matrix of Performance Standards and Penalties is
attached and made part of this Agreement as Exhibit F.
b. The methods of measurement of performance related to each Performance
Standard is also contained in Exhibit F.
c. Lifemark shall supply, from its information and other systems, all
data necessary for measurement of performance against the Performance
Standards.
d. The periods of performance and reporting dates shall be as follows:
(1) For the period from September 1, 2000, through June 30, 2001,
Lifemark will supply performance data to LHS no later than July
31, 2001. The total of all penalties imposed for this period of
performance shall not exceed [ ]* of the total amount paid by LHS
to Lifemark for Administrative Services for the same period.
(2) For the period July 1, 2001, through December 31, 2001, Lifemark
will supply performance data to LHS no later than January 31,
2002. The total of all penalties imposed for this period of
performance shall not exceed [ ]* of the total amount paid by LHS
to Lifemark for Administrative Services for the same period.
(3) For each six- (6-) month period thereafter, Lifemark will supply
performance data to LHS for that period no later than thirty (30)
days following the close of the period. The total of all
penalties imposed for each such period of performance shall not
[ ]* of the total paid by LHS to Lifemark for Administrative
Services for the same period.
e. Subject to Lifemark's rights under section 22 hereof, Lifemark shall
pay penalties related to performance standards within ninety (90) days
following the close of the period of performance.
f. In addition to penalties related to performance standards as described
herein, Lifemark shall also be responsible for any penalties pursuant
to Paragraph 3.e.
7. REPORTS AND RECORDS
a. Lifemark shall maintain financial, utilization, claims, and other
records necessary to demonstrate that it has met its obligations under
this Agreement.
b. Lifemark agrees to furnish certain data and reports in a form and
format mutually agreed and in the frequency reasonably required by
HSD, LHS, and other third parties. A matrix of Required Reports and
Reporting Frequencies is attached and made part of this Agreement
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as Exhibit G.
c. For each occurrence of failure on the part of Lifemark to furnish the
on-time reports as described in Exhibit G, Lifemark shall pay LHS,
upon request, a penalty of [ ]* per report for each day it is not
delivered as scheduled, to a maximum of [ ]* per occurrence. Penalty
shall not be imposed if said reports are not produced due to data that
has not been received from third parties other than Lifemark
subcontractors.
d. Until the expiration of four (4) years after performing Administrative
Services under this Agreement, Lifemark and its subcontractors whose
subcontracts are of a value or cost of [ ]* or more, shall upon
written request, make available to the Secretary of the Department of
Health and Human Services, the Comptroller General of the United
States, or any of other duly authorized government entity, the
Agreement and such books, documents, and records of Lifemark and such
subcontractors, if any, as are necessary to certify the nature and
extent of the costs to LHS of performance of the Agreement. The
subcontracts, if any, shall contain a clause similarly requiring the
retention and availability of like documentation. LHS may, at any
reasonable time, audit the financial records related to Administrative
Services.
e. Notwithstanding the obligations of this section. Lifemark acknowledges
and agrees that all information concerning Members, including, but not
limited to, eligibility lists, utilization data, and claims
information, which are generated by HSD, LHS, Lifemark or other third
parties, shall be treated by Lifemark as confidential and proprietary
information of LHS and shall be returned to LHS upon request by LHS
and upon termination or expiration of this Agreement. Any use of such
information for other than the express purpose for which it is
provided is prohibited and shall be construed as a material breach of
this Agreement.
f. Lifemark shall treat as confidential all Member records in compliance
with all applicable state and federal laws and regulations and this
Agreement.
g. LHS shall have the exclusive right to use, publish, distribute,
market, or sell any such information and data in statistical form, but
the release of such information shall not violate the right of privacy
of any LHS Patient or any trade secrets of Lifemark. Subject to the
qualification herein, Lifemark hereby authorizes the release of all
such information and data.
8. COMPENSATION
a. LHS shall compensate Lifemark as follows for Administrative Services
performed by Lifemark in accordance with the provisions of this
Agreement.
(1) For the period from September 1, 2000, to June 30, 2001, LHS
shall pay Lifemark at the rate of [ ]* per Member per month
(PMPM).
(2) If by June 30, 2001, LHS has not implemented electronic
transmission of claims data (in a nationally accepted data format
or UB-92 claim) for facility services provided to Members in the
LDS, LHS shall increase the rate of compensation to [ ]* PMPM
beginning on July 1, 2001. If LHS has implemented electronic
transmission of claims data for facility services provided to
Members in the LDS, the rate of payment will remain [ ]* PMPM
through June 30, 2002.
(3) In the event this Agreement is renewed for additional one (1)
year periods, the rate of payment for the new period, beginning
on July 1, shall increase by the percentage of increase in the
CPI-All Items for the twelve-month period most recently published
by the U.S. Department of Labor, Bureau of Labor Statistics.
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(4) The above compensation rates are predicated on the scope of
Administrative Services performed by Lifemark as of the effective
date of this Agreement (e.g., management of behavioral health
benefits is not included).
(5) Programming expenses related to the transition of data upon
termination or expiration of this Agreement shall be paid by LHS
at Lifemark's cost plus [ ]*, to a maximum of [ ]*.
b. The compensation payable by LHS to Lifemark shall not be subject to
withholding for taxes, F.I.C.A. or otherwise, and nothing in this
Agreement creates for LHS any duties of an employer with respect to
Lifemark under any state workers' compensation laws or any state or
federal laws applicable to employers. The amount paid by LHS hereunder
shall be inclusive of all taxes and Lifemark will be responsible for
all applicable sales, use, real or personal property, franchise or
other like taxes attributable to this Agreement.
c. The payment rates specified herein shall be payment in full for all
Administrative Services provided under this Agreement, Lifemark agrees
that in no event including but not limited to nonpayment by LHS,
insolvency of LHS, or breach of this Agreement, shall Lifemark bill,
charge, collect a deposit from, seek compensation, remuneration, or
reimbursement from or have any recourse against a Member, HSD, or
persons other than LHS for Administrative Services provided pursuant
to this Agreement. This hold harmless provision shall survive the
termination of this Agreement with respect to Administrative Services
performed by Lifemark under the provisions of this Agreement.
9. RELATIONSHIP OF PARTIES
a. Lifemark shall perform Administrative Services under this Agreement as
an independent contractor of LHS. Nothing contained in this Agreement
shall be deemed or construed to make Lifemark or any of Lifemark's
employees an agent, employee, partner, or joint venturer of or with
LHS.
b. Lifemark agrees that Lifemark and its personnel are not employees of
LHS and are not entitled to worker's compensation or employee benefits
provided by LHS to its employees. In addition, Lifemark agrees that
Lifemark is responsible for Lifemark's own federal, state and local
income, social security, unemployment, sales, disability and any other
applicable local, state or federal taxes arising out of Lifemark's
performance of Administrative Services under this Agreement.
c. Lifemark is available to perform services for entities other than LHS.
However, Lifemark warrants and represents that there is no breach of
any duties to LHS in the delivery of Administrative Services under
other contracts for services.
d. Both Lifemark and LHS agree not to employ personnel from the other
party for the period of one year after an employee has left its
respective organization or for one year following the effective date
of termination or expiration of this agreement, unless approved in
advance by the other party.
10. OWNERSHIP OF DATA
a. The parties acknowledge that Lifemark may use certain proprietary
software programs, source and object codes and databases, the trade
secrets related thereto, the copyright of Managed Care One, CareOne,
or other Lifemark software, the trademark of the names, all
intellectual property rights associated with the programs, the
technical information, design concepts, processes, formulae and
algorithms and all other rights and aspects pertaining thereto are
highly confidential and the exclusive property of Lifemark. Nothing in
this Agreement shall be construed to be an assignment, transfer,
purchase, lease or license of
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such rights. Lifemark has selected Managed Care One in fulfilling its
duties under this Agreement and may elect at any time in its sole
discretion to use a different information system; provided however
that no disruption of LCHP functions, increase in LHS cost or
reduction in LCHP capability will result from such decision. LHS
waives all claim, right or interest whatsoever in Managed Care One,
CareOne, or other Lifemark software, or any of the above described
aspects and features thereof, and all amendments or revisions thereto.
b. All data entered into Lifemark's information systems in the course of
fulfilling its duties under this Agreement are owned by LHS. Lifemark
shall furnish such data to LHS, in a nationally accepted form and
format (as described in Exhibit C, paragraph 5.c.) reasonably
requested by LHS, upon request from LHS.
11. CONFIDENTIALITY
a. During the term of the Agreement, the parties may have access to
certain proprietary materials of each other.
(1) In the case of Lifemark, LHS acknowledges that certain features
of Managed Care One and CareOne are proprietary software programs
of Lifemark subject to protection by copyright law and Lifemark's
policies procedures, systems, clinical, financial or
administrative assessment tools, systems, data information, or
other related content are highly confidential and proprietary
("Trade Secrets").
(2) In the case of LHS, Lifemark acknowledges that while supplying
Administrative Services under this Agreement, Lifemark will be
exposed to records, documents, client lists, records, computer
data and systems information, provider information and listings,
and other written or verbal information ("Information")
considered confidential and proprietary in nature to LHS.
b. Neither party shall disclose any of the other party's Trade Secrets or
Information, directly or indirectly, during or after the term of the
Agreement. The parties shall not photocopy or otherwise duplicate any
such material without the prior written consent of its owner except as
otherwise required under the terms of this Agreement. All Trade
Secrets and Information shall remain the exclusive property of its
owner and shall be returned thereto immediately upon the termination
of the Agreement.
c. Without limiting the foregoing, the parties specifically agree that
all software associated with the operation of the Services, including
without limitation, each party's accounting systems, and other
software, are owned by or licensed to each party. Access or use of
such software shall not create any right, title, interest, or
copyright in such software, except to the party that owns or licenses
the software and only the party that owns or licenses the software
shall retain such software beyond the termination of the Agreement.
d. Lifemark further agrees that its personnel, contractors, and
subcontractors involved in the performance of Administrative Services
under the terms of this Agreement shall sign a Confidentiality
Agreement, which is attached hereto as Exhibit H. For purposes of that
Confidentiality Agreement, all activities performed under this
Administrative Services Agreement shall be considered "an activity
managed by Lifemark Corporation."
e. The obligations of this section shall survive the termination of this
Agreement.
12
<PAGE>
12. INSURANCE AND INDEMNIFICATION
a. During the term of this Agreement, LHS shall maintain, at its sole
expense, a policy of HMO-type professional liability insurance
coverage with minimum limits of liability of [ ]* per occurrence and
[ ]* in the annual aggregate or such greater limits of liability as
may be required by applicable state or federal law.
b. LHS and Lifemark shall each maintain, at its sole expense, throughout
the term of this Agreement, the following types of insurance with the
indicated minimum limits:
(1) Workers' Compensation insurance to the full extent as required by
applicable laws but not less than [ ]* each occurrence; and,
(2) Comprehensive General Liability coverage, including bodily
injury, property damage, and contractual liability coverage, with
a combined single limit of not less than [ ]*; and,
(3) Motor Vehicle liability insurance with a combined single limit of
not less than [ ]* for any owned vehicles or operated for the
purpose of fulfilling its duties under this Agreement; and,
(4) Errors and Omissions coverage with limits of liability of [ ]*
per occurrence and [ ]* in the aggregate; and,
(5) Fidelity Bond with a minimum of [ ]* coverage limit.
c. Each party shall, upon request from the other party, furnish the other
party with evidence of insurance reflecting the coverage and amounts
set forth in this section. Each party shall provide the other party
with a minimum of thirty (30) days prior written notice in the event
any of the insurance policies required by this Agreement are
cancelled, modified, or restricted in any way.
d. LHS and Lifemark agree to indemnify, defend, and hold harmless the
other, its agents and employees from and against any and all liability
or expense, including defense costs and reasonable legal fees,
incurred in connection with claims for damages of any nature,
including but not limited to bodily injury, death, personal injury,
property damage, financial loss, or other damages arising from the
performance of, or failure to perform, the indemnifying party's
obligations under this Agreement, unless it is determined that the
liability was the direct consequence of negligence or willful
misconduct on the part of the other party, its agents or employees."
13. TERM AND TERMINATION OF AGREEMENT
a. This Agreement shall be effective on September 1, 2000, and shall be
for an initial term of twenty-two months, ending on June 30, 2002.
Thereafter, it shall continue from year to year, unless terminated as
set forth below.
b. Lifemark or LHS may terminate this Agreement at any time for cause.
Cause for termination includes, but is not limited to, the following:
(1) Except as otherwise set forth in the Exhibits hereto, material
breach that is not remedied within 60 days of receipt of written
notice thereof by either party.
(2) An adverse change in the financial condition of the other party
that results in its inability to materially perform this
Agreement.
(3) Failure by either party to maintain licenses or certificates
required to comply with the terms of this Agreement, or to comply
with applicable laws or regulations that have not been cured
within 60 days of written notice by the other party.
(4) Any material misrepresentation or material intentional
falsification of any information
13
*Confidential Treatment Requested
<PAGE>
(5) submitted by Lifemark to LHS.
(6) Failure of either party to maintain required insurance coverage
protection that has not been cured within 60 days of written
notice by the other party.
(7) Intentional failure of either party to comply with Section 8,
Confidentiality.
(8) Expiration or termination of the contract between HSD and LHS.
c. This Agreement may be terminated by either party without cause at any
time upon one hundred, eighty (180) days' prior written notice by
either party. This paragraph may not be exercised by either party
before January 1, 2002.
14. RIGHTS AND OBLIGATIONS UPON TERMINATION
a. Upon termination of this Agreement for any reason, the rights of each
party hereunder shall terminate, except as otherwise provided in this
Agreement.
b. Termination shall not release Lifemark or LHS from obligations under
this Agreement prior to the effective date of termination.
c. LHS shall compensate Lifemark for any services rendered in accordance
with the provisions of this Agreement prior to the effective date of
termination.
15. ASSIGNMENT AND DELEGATION OF DUTIES
a. Neither party shall assign any right or interest in this Agreement
without the written permission of the other party. Neither party shall
delegate any duty owed under this Agreement without the written
permission of the other party.
b. Any attempted assignment or delegation without the written permission
of the other party shall be wholly void and totally ineffective for
all purposes.
c. Notwithstanding the foregoing, either party may assign its rights or
delegate its duties under this Agreement, in whole or in part, to its
parent, affiliates and/or subsidiaries, provided that such assignee or
delegate agrees in writing to comply with all applicable provisions of
this Agreement and prior notice of such assignment is given to the
other party. Assignment or delegation by either party will not act to
relieve that party of any of its obligations under this Agreement.
16. AFFIRMATIVE ACTION
a. Lifemark agrees that, if Lifemark employs any other individuals to
perform services under this Agreement, that Lifemark shall comply with
all federal, state, and municipal laws and regulations dealing with
equal employment opportunity.
b. The provisions set forth in U.S. Department of Labor regulations
dealing with employment opportunity obligation of government
contractors and subcontractors, employment by government contractors
of Vietnam-era and disabled veterans, and employment of the physically
handicapped by government contractors and subcontractors, are
incorporated herein by reference and shall constitute additional terms
and conditions to the extent required by law.
c. Lifemark warrants that, to the best of Lifemark's knowledge, no laws,
regulations, or ordinances of the United States, or any state, or
government authority or agency has been violated, including the Fair
Labor Standards Act, as amended, in the performance of work pursuant
to this Agreement, and agrees to indemnify and hold harmless from any
and all claims arising out of its own failure to comply with all laws,
rules and regulations with respect
14
<PAGE>
to Lifemark's performance hereunder.
17. INTERPRETATION
The validity, enforceability and interpretation of this Agreement shall be
governed by any applicable federal law and by the laws of the state of New
Mexico.
18. AMENDMENT
No changes, amendments, or alterations to this Agreement will be effective
unless in writing and signed by both parties.
19. ENTIRE AGREEMENT
This Agreement, together with all its Exhibits, contains all the terms and
conditions agreed upon by the parties, and supersedes all other agreements,
expressed or implied, regarding the subject matter.
20. NOTICE
a. Any notice required hereunder shall be in writing and shall be sent by
United States mail, postage prepaid, Certified, return receipt
requested or by facsimile (as evidenced by written confirmation of
receipt by recipient's machine), to LHS and Lifemark at the addresses
set forth below.
(1) To LHS at: Lovelace Health Systems, Inc.
c/o Lovelace Health Plan
4101 Indian School Rd., N.E., Suite 110 S
Albuquerque, New Mexico 87110
Attention: General Manager
With a copy to: Lovelace Health Systems, Inc.
5400 Gibson Blvd., S.E.
Albuquerque, NM 87108
Attention: Senior Contracting Officer
(2) To Lifemark at: Lifemark Corporation
7600 North 16th Street, Suite 150
Phoenix, AZ 85020
Attention: Michael Kennedy, CFO
With a copy to: Smyth, Schneck, Fisher, Smyth and Herrod, PC
1221 E. Osborn
Albuquerque, NM 87108
Phoenix, AZ, 85014
Attention: Mr. Stephen Smyth
b. Either party may change the address to which notice is to be delivered
upon reasonable notice.
21. ENFORCEABILITY AND WAIVER
The invalidity and nonenforceability of any term or provision of this
Agreement shall in no way affect the validity or enforceability of any
other term or provision. The waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a
waiver of any subsequent breach thereof.
22. DISPUTE RESOLUTION
15
<PAGE>
a. Attempts to resolve any disputes between the parties arising with
respect to the performance or interpretation of the Agreement should
first be made at the operational levels of both LHS's and Lifemark's
organizations.
b. Should the dispute not be resolved through the aforementioned process,
then the parties shall refer the dispute, controversy or question
arising under this Agreement to arbitration as follows:
(1) Each party shall select an arbitrator of its choice and the
appointed arbitrators will select a third arbitrator.
(2) The panel of three arbitrators will hear the parties and settle
the dispute, controversy or question.
(3) The proceeding shall be governed by the Rules of the American
Arbitration Association then in effect, and shall be held in
Albuquerque, New Mexico.
(4) Each party shall assume its own costs, but the compensation and
expenses of the arbitrator(s) and any administrative fees or
costs associated with the arbitration proceeding shall be borne
equally by the parties.
(5) Arbitration shall be the exclusive remedy for the settlement of
disputes arising under this Agreement.
(6) The decision of the arbitrators shall be final, conclusive and
binding, and no action at law or in equity may be instituted by
either party other than to enforce the award of the
arbitrator(s).
(7) Judgment upon the award rendered by the arbitrator(s) may be
entered in any court of competent jurisdiction.
IN WITNESS whereof the parties have caused this Agreement to be signed by their
duly authorized representatives on the date first set forth above.
Lovelace Health Systems, Inc. Lifemark Corporation
By: /s/ Gayle Adams By: /s/ Rick Jelinek
----------------------------- -------------------------------
(Signature) (Signature)
Gayle Adams Rick Jelinek
----------------------------- -------------------------------
(Print Name) (Print Name)
Its: Its:
----------------------------- -------------------------------
(Title) (Title)
Date: Date:
----------------------------- -------------------------------
APPROVED AS TO FORM
/s/ Nicholas R. Hatrim
- ----------------------------------
Senior Contracting Officer
16
<PAGE>
EXHIBIT A
STANDARDS FOR DELEGATION OF MEMBER RIGHTS AND RESPONSIBILITIES FUNCTION
1. Lifemark shall administer the written policies and procedures developed by
the LHS and Lifemark for the timely and appropriate resolution of Member
concerns and complaints that meet LHS's requirements, requirements set
forth in applicable law and LHS's contract with HSD, and NCQA requirements.
Lifemark shall not materially modify such written policies and procedures
without LHS's prior written approval.
a. Lifemark shall document appropriate procedures that address the
various types of complaints.
b. Lifemark's/LCHP's procedures shall define at least a two-step process:
(1) how the organization responds to first-level concerns; and (2) how
the organization responds to second level complaints with a review by
individual(s) not involved in the original decision.
c. LHS retains the responsibility for the final level of appeal (third
step) in all cases of Member grievances.
d. Lifemark shall maintain appropriate documentation of the substance of
concerns and complaints received and the investigation of such
concerns/complaints.
e. Lifemark shall maintain appropriate documentation of its monitoring of
complaints to ensure that appropriate actions are taken, as well as
compliance with standards for timeliness of resolution.
f. Lifemark's/LCHP's procedures for the resolution of complaints about
quality of care issues shall specify when a review by a clinical
person is required.
g. Lifemark's/LCHP's procedures shall include timely notification to
Members of the resolution of the problem and should inform Member of
his or her right to appeal during each step of the complaint and
appeal process.
h. Lifemark's procedures will include a mechanism for notifying LHS
within one working day of a Member's request for final appeal
(grievance).
2. Lifemark shall maintain Lifemark developed written policies and procedures
that protect the confidentiality of Member information and records.
3. Lifemark shall make available the following information to LHS:
a. Lifemark's/LCHP's complaint and grievance policies and procedures -
annually.
b. Lifemark's tracking and trending reports for complaints and
grievances, including timeliness of resolution - quarterly.
c. Lifemark's confidentiality policies and procedures - annually.
4. LHS, its designee and any applicable governmental authorities or
accrediting bodies shall have the right to conduct routine periodic audits
at LHS's expense, of the performance hereunder upon reasonable prior
notice, and Lifemark shall cooperate with any such audits. LHS will conduct
an onsite visit at least annually and will provide a written assessment of
findings. If the audit reveals any deficiencies, Lifemark shall submit a
written corrective action plan to LHS within 30 days of receipt of LHS's
findings. Such plan must be acceptable to LHS. Evidence that corrective
actions have been implemented must be documented and submitted to LHS by
Lifemark within 90 days of Lifemark's receipt of the audit findings. All
identified deficiencies shall be corrected as soon as
<PAGE>
possible but no later than 6 months after Lifemark's receipt of the audit
findings.
5. Lifemark's system must be capable of administering appropriate payment,
adjustments and coordination of benefits in a timely manner.
Lifemark acknowledges receipt of the above standards for delegation of Member
rights and responsibilities function and agrees to comply with the standards set
forth herein.
Lifemark Corporation
By: /s/ Rick Jelinek
---------------------------------
(Signature)
---------------------------------
(Print Name)
Its:
---------------------------------
(Title)
Date:
---------------------------------
<PAGE>
EXHIBIT B
MINIMUM REQUIREMENTS FOR CALL TRACKING SYSTEM
- - Subscriber Information
Name, address, phone number, date of birth, effective date, primary care
physician, SCHIPS member
- - Who's Calling - Member or Provider?
- - Reasons for calls - Inquiry, Concern, Complaint
INQUIRY REASONS:*
Core benefits
Delegated benefits - VSP, CBH, Superior, Doral
Coverage questions (i.e. referral process, change primary care physician)
Location of services
Enrollment status emergency care
* Within the reasons categories there should be built in categorization
CONCERN REASONS:
Core benefit (hardcoded selections)
Delegated benefit (hardcoded selections)
Claims (hardcoded selections)
Quality of services (hardcoded - location, provider)
Quality of care (hardcoded - location, provider)
Referral denial (hardcoded - type of service)
Access (hardcoded - location, provider)
Physical plant (hardcoded - location)
Prescription coverage
Etc.
COMPLAINT REASONS:
Quality/appropriateness of care (hardcoded selections)
Attitude of provider (hardcoded selections)
Refusal to provide care (hardcoded selections)
Risk management/safety issues (hardcoded - location)
Referral denials (hardcoded - type of service)
The Call Tracking System must have the capability of showing historical calls by
Member, which includes date stamping for each call date. Member Services
Representative should not be able to change the reason categories or change
free-text without there being a chronological listing of events and who made the
change.
The System must be able to report on each of the global categories and have the
capability to break down the reasons to the next level of detail.
Written letters from members should be tracked in the System and reported as
part of the call tracking system.
<PAGE>
EXHIBIT C
STANDARDS FOR DELEGATION OF UTILIZATION MANAGEMENT ACTIVITIES
1. Lifemark shall be subject upon reasonable prior notice to a site review and
evaluation of the Lifemark/LCHP utilization management program ("UM
Program").
2. Lifemark shall maintain a written UM Program description which includes:
a. Description of Lifemark's/LCHP's
(1) Policies/procedures to evaluate Medical Necessity, and,
(2) Use of nationally recognized and locally approved criteria and
information sources; and,
(3) Process to review and approve services.
b. Description of Lifemark's/LCHP's mechanism to periodically update the
UM Program description and the UM Program's policies and procedures;
c. Documented evidence of approval of Lifemark's/LCHP's UM Program by
LHS;
d. Description of the roles and functions of Lifemark's/LCHP's UM Program
to include a definition of the roles and responsibilities of
Lifemark's/LCHP's UM Program staff; and
e. Evidence demonstrating a utilization management work plan which
responds to identified opportunities for improvement and action steps,
as well as a process for, and evidence of, an annual evaluation of the
UM Program.
3. Lifemark's/LCHP's UM Program shall at a minimum comply in all respects with
the requirements of an appropriate accrediting body designated by LHS (i.e.
NCQA, JCAHO, etc.), the requirements established by LHS herein, the
Administrative Services Agreement, the contract between LHS and HSD, and
the requirements of applicable law. Lifemark shall maintain all applicable
licensures and certifications required to perform the delegated utilization
management activities. Lifemark shall maintain appropriate records with
respect to all utilization management activities for the duration of the
managed care provider agreement with LHS and six years thereafter. Lifemark
shall regard all clinical records of Members and any other records
containing individually identifiable information with respect to Members as
confidential and shall comply with all applicable federal and state laws
and regulations regarding such records.
4. Lifemark shall maintain adequate professional liability coverage as
required by the Administrative Services Agreement. Any Lifemark
subcontractor shall be required to comply with all standards applicable to
Lifemark with regard to the subcontracted services.
5. Lifemark shall provide LHS with a copy of Lifemark's/LCHP's written UM
Program description upon request. Such UM Program description shall be
submitted to LHS for review and approval and annually thereafter and shall
not be materially modified without LHS's prior written approval.
6. With respect to each request for medical services for which Lifemark
performs utilization management hereunder, Lifemark shall apply the
utilization management criteria set forth in the Lifemark/LCHP UM Program
description as required by HSD applicable to the Member for whom medical
services have been requested.
7. All information relating to Lifemark's utilization management activities
hereunder shall be confidential, shall not be disclosed to any third
parties except as required by applicable law and
<PAGE>
except as required to fulfill Lifemark's utilization management
responsibilities hereunder, and shall be maintained in such a manner so
that such information shall be protected from discovery and use in judicial
or administrative proceedings to the fullest extent possible under
applicable law. In the event that Lifemark receives a subpoena, civil
investigative demand or other similar process requesting disclosure of
information relating to its utilization management activities hereunder,
Lifemark shall immediately notify LHS of such subpoena, demand or process
so as to afford LHS with an adequate opportunity to seek an appropriate
protective order should it choose to do so.
8. This exhibit, all information provided by LHS to Lifemark pertaining to
LHS's delegation of utilization management to Lifemark and all data made
known to Lifemark relating to services rendered to Members under the
managed care provider agreement is confidential and proprietary information
subject to the protections set forth in the confidentiality provision
contained in Lifemark's managed care provider agreement with LHS. In the
event that Lifemark receives a subpoena, civil investigative demand or
other similar process requesting disclosure of such confidential and
proprietary information, Lifemark shall immediately notify LHS of such
subpoena, demand or process so as to afford LHS with an adequate
opportunity to seek an appropriate protective order should it choose to do
so.
9. Lifemark shall authorize services requested to be provided by
noncredentialed providers within approved guidelines and protocols.
10. All UM Program activities shall be supervised by appropriately qualified
professionals including:
a. use of a licensed physician to conduct medical review on any denial;
and
b. use of board certified specialists to assist in determining Medical
Necessity and in preparing documentation to support the decision.
11. Total UM Program staff ratios (including nurses) shall be at least 1 per
10,000 Members. The UM Program shall utilize clinical nurses (RN or
LPN/LVN) licensed to practice nursing as required by the State of New
Mexico with a ratio of licensed clinical nurses to Members to be agreed
upon by Lifemark and LHS. Non-clinical staff shall utilize protocols and
criteria approved by the Medical Director and shall not make medical
appropriateness/necessity decisions. All decisions of the non-clinical
staff shall be supervised by clinical staff. Lifemark shall maintain
appropriate levels of telephone line staffing for the utilization
management activities required to be performed hereunder and shall satisfy
the following standards: (a) the overall abandonment rate for the
pre-certification telephone line shall be less than 5%; (b) 80% of all
calls to the pre-certification telephone line shall be answered in less
than 30 seconds; (c) telephone prompts shall be clear and user friendly;
and (d) a telephone message after hours shall give normal business hours
information and after hours instructions.
12. Lifemark shall maintain a set of written utilization management decision
protocols that are based on reasonable available medical evidence, are
acceptable to LHS and indicate that:
a. Criteria for appropriateness of medical services are clearly
documented, communicated to participating physicians, and available to
the physician upon request; and,
b. An appropriate mechanism is present for checking the consistency of
application of criteria across physician and non-physician reviewers;
and
c. An appropriate mechanism is present for updating review criteria
periodically and the time of the update is specified in protocol or
policy.
* Confidential Treatment Requested
<PAGE>
13. In connection with all utilization management activities hereunder,
Lifemark shall obtain all necessary information, including pertinent
clinical information, and consult with the treating physician, as
appropriate, and document such efforts.
14. Denials must be clearly documented including:
a. Documentation indicating who recommended denial and why;
b. Documentation that an explanation is provided to the Member and
applicable provider;
c. Notification to the Member and applicable provider in writing, which
includes all information required by applicable law, including but not
limited to, the specific reason for the denial, and a description of
how to file a final appeal.
Lifemark's form denial letters will be made available to LHS and HSD
and shall not be materially modified without LHS's and HSD's prior
written approval. LHS shall administer the appeal process with respect
to all appeals of determinations hereunder. In connection with any
such appeal, LHS shall assist and cooperate with Lifemark and shall
promptly provide all documentation reasonably requested by Lifemark.
LHS, or the applicable governmental authority (i.e. HSD), as
applicable, shall have final decision making authority with regard to
all appeals (including expedited appeals) of determinations hereunder.
In connection with any such appeal, Lifemark shall assist and cooperate
with LHS and shall promptly provide all documentation reasonably requested
by LHS and any such other relevant information as Lifemark deems
appropriate.
15. Lifemark's/LCHP's UM Program decisions shall be made in a timely manner.
a. Lifemark's/LCHP's UM Program policies and procedures shall clearly
define the maximum time frames for utilization management decisions.
All utilization management decisions shall be made within the time
frames that satisfy all applicable legal requirements (e.g. HSD).
b. Lifemark shall implement an appropriate mechanism to monitor and
document timeliness of decisions which shall include:
(1) Documentation to show Emergency requests are responded to as soon
as possible and as necessary in relate to the Member's medical
condition, or within the timeframes required by applicable law,
if earlier; and,
(2) Documentation to show urgent requests are responded to within 24
hours, or within the time frame required by applicable law, if
earlier; and
(3) Documentation to show routine requests are responded to within 3
to 5 working days, or within the time frame required by
applicable law, if earlier.
c. Lifemark shall monitor and analyze its compliance with timeliness
requirements and take prompt action to meet or improve adherence to
such requirements.
16. Lifemark shall maintain a system to track authorizations, to evaluate
Lifemark's compliance with Lifemark's/LCHP's utilization management
requirements as set forth in the Administrative Services Agreement, to
monitor providers for inappropriate utilization, to evaluate member
satisfaction and provider satisfaction, and other measures of evaluation
agreed upon by the parties. Lifemark shall submit reports to LHS, in
mutually agreed formats, at the frequency established in the
<PAGE>
Administrative Services Agreement. Upon request, Lifemark will submit an
action plan that addresses opportunities for improvement when applicable.
17. LHS, its designee and any applicable governmental authorities or
accrediting bodies shall have the right to conduct periodic audits of
Lifemark's/LCHP's UM Program activities upon reasonable prior notice, and
Lifemark shall cooperate with any such audits. In addition, Lifemark's
performance of its utilization management activities hereunder may be
measured by LHS at least annually. Lifemark shall cooperate with any such
audits and shall provide any and all information reasonably requested by
LHS in connection with such audits. Applicable performance measures include
but are not limited to:
a. Member satisfaction survey results which indicate a significant
overall satisfaction with the service provided and document an
improvement process for any specific areas identified with
satisfaction lower than [ ]*;
b. Timeliness in responding to Member complaints and grievances; and
c. Audits of utilization management activities show compliance with LHS
requirements.
LHS will provide Lifemark with a written report detailing its findings with
respect to any such audits. If such audits reveal any deficiencies,
Lifemark shall submit a corrective action plan to LHS within 30 days of
receipt of LHS's findings. Such plan must be acceptable to LHS. Evidence
that corrective actions have been implemented must be documented and
submitted to LHS by Lifemark within 90 days of Lifemark's receipt of the
audit findings. All identified deficiencies shall be corrected as soon as
possible but no later than 6 months after Lifemark's receipt of the audit
findings. Failure to correct any identified deficiencies within such 6
month period may be cause for revocation of the delegation set forth herein
and LHS's pursuit of other remedies under the Administrative Services
Agreement.
18. Lifemark shall prepare and provide such periodic reports or other data as
is reasonably requested by LHS relating to Lifemark's utilization
management activities. Lifemark shall participate in utilization management
oversight activities (i.e., committee meetings, report submission) to the
extent reasonably required by LHS and at least quarterly.
19. If LHS determines that Lifemark cannot meet its utilization management
obligations, LHS may elect to assume responsibility for such activities. If
LHS elects to assume responsibility for such activities, the parties agree
to renegotiate the rates set forth in the managed care provider agreement
to the extent necessary, and Lifemark shall cooperate and provide to LHS
any information reasonably required to perform such activities.
20. All referrals shall be to Participating Providers whenever possible, except
where an Emergency requires otherwise or as otherwise required by law.
Except in an Emergency, Lifemark shall require all Participating Providers
to obtain authorization from Lifemark prior to hospital admission of any
Member or outpatient surgical procedures. Lifemark shall not make a
referral to a non-Participating Providers without the consent of the
Medical Director or as stipulated in the LHS out-of-network referral or
related policy.
21. All electronic data which Lifemark maintains concerning the detail of all
utilization management decisions made hereunder shall be made available and
submitted to LHS, upon request, using ANSI standard transaction formats or
other mutually agreeable formats. Such data shall be submitted to LHS at
least monthly. If a non-ANSI format is reasonably agreed upon, Lifemark
shall cooperate with LHS in the development of the transmission format,
frequency and protocol.
*Confidential Treatment Requested
<PAGE>
22. Lifemark shall distribute a statement to its employees, affirming the
following:
a. UM decision making is based only on appropriateness of care and
service.
b. Lifemark does not compensate practitioners/providers/employees for
denials.
c. Lifemark does not offer incentives to encourage denials.
d. The need for special concern about underutilization.
23. If a subcontractor is used for the purpose of meeting these requirements,
the subcontractor must agree in writing to meet these standards for
delegation.
Lifemark acknowledges receipt of LHS's above Standards for Delegation and, in
accordance with the managed care provider agreement between LHS and Lifemark,
will comply with the terms and conditions set forth herein.
Lifemark Corporation
By: /s/ Rick Jelinek
-----------------------------
(Signature)
-----------------------------
(Print Name)
Its:
-----------------------------
(Title)
Date:
-----------------------------
<PAGE>
EXHIBIT D
STANDARDS FOR DELEGATION OF SPECIFIC PREVENTIVE HEALTH ACTIVITIES
1. Lifemark shall maintain written policies and procedures describing in
detail the performance of each of the Preventive Health Functions delegated
to Lifemark. Such Policies and Procedures shall meet LHS requirements, the
requirements set forth in applicable law, requirements of HSD, and the
requirements of an appropriate accrediting body designated by LHS (i.e.
NCQA, JCAHO, etc.). Lifemark shall not materially modify or implement such
written policies and procedures without LHS's prior written approval.
The following Preventive Health Functions are delegated to Lifemark.
a. As directed and approved by LHS: member outreach and education for
well childcare including but not limited to EPSDT (including the
behavioral health screening component) and Prenatal Care.
b. Provider Education with regards to well childcare, and prenatal care
guidelines. Such education shall include Lifemark and LHS's
expectations for provider compliance with well childcare and prenatal
care guidelines.
2. Lifemark shall maintain written policies and procedures that protect the
confidentiality of participant information and records.
3. Lifemark shall provide the following information to LHS:
a. Policies and Procedures describing in detail how each of the
Preventive Health Functions delegated to Lifemark will be executed.
b. An annual work plan describing how Lifemark will satisfy the
requirements of each of the delegated preventive health functions.
c. Any materials used to satisfy the requirements of each of the
delegated preventive health functions.
d. Information necessary for LHS to satisfy HEDIS reporting requirements.
e. Evaluation of preventive health initiatives specific to wellchild
(EPSDT) and prenatal care. Such evaluation shall be reported to LHS no
less than quarterly.
4. LHS, its designee and any applicable governmental authorities or
accrediting bodies shall have the right to conduct periodic audits of the
performance hereunder upon reasonable prior notice, and Lifemark shall
cooperate with any such audits. LHS will conduct an onsite visit at least
annually and will provide a written assessment of findings. If the audit
reveals any deficiencies, Lifemark shall submit a written corrective action
plan to LHS within 30 days of receipt of LHS's findings. Such plan must be
acceptable to LHS. Evidence that corrective actions have been implemented
must be documented and submitted to LHS by Lifemark within 90 days of
Lifemark's receipt of the audit findings. All identified deficiencies shall
be corrected as soon as possible but no later than 6 months after
Lifemark's receipt of the audit findings.
5. If LHS determines that Lifemark cannot meet its obligations hereunder, LHS
may elect to assume responsibility for such activities. If LHS elects to
assume responsibility for such activities, Lifemark shall cooperate and
provide to LHS any information necessary to perform such activities.
6. All electronic data which Lifemark is required to maintain and/or permit
access to hereunder shall include the century (MMDDCCYY) and, all system
logic with regard to all of such data shall be
<PAGE>
century compliant (i.e. 19xx can roll correctly to 20xx).
7. Any other Preventive Health Functions not identified in this Agreement,
remain the responsibility of LHS.
Lifemark acknowledges receipt of the above standards for the delegation of
specific preventive health activities agrees to comply with the standards set
forth herein.
Lifemark Corporation
By: /s/ Rick Jelinek
------------------------------
(Signature)
------------------------------
(Print Name)
Its:
------------------------------
(Title)
Date:
------------------------------
<PAGE>
EXHIBIT E
STANDARDS FOR DELEGATION OF PAYMENT ADMINISTRATION ACTIVITIES
1. GENERAL CONSIDERATIONS
a. Lifemark shall be responsible for administering payments for all
Covered Services included within the scope of the Administrative
Services Agreement. Any Lifemark subcontractor will be required to
comply with all standards applicable to Lifemark under the
Administrative Services Agreement with regard to the subcontracted
services.
b. Lifemark's payment activities shall, at a minimum, satisfy the
requirements established by LHS herein, the requirements in the
Administrative Services Agreement between LHS and Lifemark, the
contract between LHS and HSD, and any requirements set forth in
applicable laws and regulations, including but not limited to, laws
relating to fair claims settlement practices, laws and regulations
related to timely claims processing and notices of determination and
appeal rights, laws regulations applicable to Members in LCHP.
Lifemark shall maintain any applicable licensures required to perform
its payment activities hereunder.
c. Lifemark shall submit its payment administration process to LHS upon
request. If Lifemark materially modifies its documented payment
processes it will notify LHS not less than 30 days in advance of such
modification taking effect.
d. Lifemark's payment administration processes shall, at a minimum:
(1) Administer claims payment under the Program in accordance with
the terms of the contract between LHS and HSD and applicable laws
and regulations of the Program; and,
(2) Utilize eligibility information furnished by HSD to determine any
person's right to benefits; and,
(3) Promptly process claims and adjustments, determine whether
requests for payment qualify for reimbursement in accordance with
the terms of contract between LHS and HSD and applicable laws and
regulations, and calculate and issue payment due; and
(4) Implement a contingency and recovery plan in the event that
Lifemark's payment processing systems become inoperable.
e. LHS, its designee and applicable governmental regulatory authorities
shall have the right to audit Lifemark's payment activities for the
purpose of evaluating Lifemark's performance of its payment
responsibilities hereunder. Reasonable advance notice shall be given
to Lifemark prior to an audit and LHS shall bear the cost of such
audit, if any. Lifemark shall cooperate with any such audits. LHS will
provide Lifemark with a written report detailing the findings with
respect to any such audits. If such audits reveal any material
deficiencies, Lifemark shall submit a corrective action plan to LHS
within 30 days of receipt of such findings. Such plan must be
acceptable to LHS. Evidence that corrective actions have been
implemented must be documented and submitted to LHS by Lifemark within
90 days of Lifemark's receipt of the audit findings. All identified
deficiencies shall be corrected as soon as possible but no later than
6 months after Lifemark's receipt of the audit findings. If LHS
determines that Lifemark cannot adequately satisfy its payment
responsibilities hereunder, LHS may elect to assume such
responsibility. If LHS elects to assume such responsibility, the
parties shall renegotiate the rates set forth in the managed care
provider agreement to the extent necessary and Lifemark shall
cooperate and provide to LHS any information necessary to perform such
activities.
f. Lifemark shall be responsible for the production of all applicable tax
reporting documents (e.g.,
<PAGE>
1099's) for Participating Providers. Such documents shall be produced
in a format and within time frames set forth in applicable state and
federal laws and regulations.
g. Lifemark shall produce any applicable explanations of benefits and/or
remittance advises for Participating Providers. Any changes to
Lifemark's standard Explanation of Benefits or Remittance Advice
formats must be mutually agreed upon by both parties.
h. Lifemark shall develop and deliver training programs for Participating
Providers, which outline Lifemark's billing and reimbursement
processes. Lifemark shall make best efforts to ensure that
Participating Providers avoid submitting requests for payment to LHS
for those Covered Services rendered for which Lifemark has payment
responsibility.
2. SERVICE STANDARDS
For the purposes of this Agreement, it is understood by both parties that
Lifemark's ability to satisfy the service standards that follow are based
on the Provider's responsibility to submit clean claims to Lifemark in a
prompt manner. Lifemark will not be liable for any provider's failure to
perform its duties in an acceptable manner.
a. With respect to Participating Providers entitled to reimbursement on a
fee-for-service basis, Lifemark shall pay for Covered Services in
accordance with the Matrix of Performance Standards set forth in
Exhibit E, or any more rigorous standard established or required by
any laws or regulations governing this activity.
b. With respect to the Performance Standards set forth in Exhibit E:
(1) Financial accuracy shall be measured during routinely conducted
audits and calculated in accordance with the following formula:
total value of dollars paid correctly divided by total dollars
paid.
(2) Processing accuracy shall be measured during routinely conducted
audits and calculated in accordance with the following formula:
total number of claims processed without data errors, divided by
the total number of claims audited.
c. In addition to the Performance Standards set forth in Exhibit E,
Lifemark's agrees to the following standards:
(1) Lifemark shall ensure that less than [ ]* of remaining
mail-on-hand are pended claims (excluding newborns) and there are
no more than five percent [ ]* of pends over [ ]* days old.
(2) Lifemark shall establish and maintain a process to inventory,
store and track incoming mail to ensure that mail on hand is less
than 5 days old.
d. Lifemark shall establish and maintain a process acceptable to LHS,
which tracks and audits the financial accuracy, data accuracy,
timeliness and productivity of its payment administration activities.
Lifemark shall report to LHS the results of any such audits in a
format and in time frames acceptable to LHS and shall promptly correct
any deficiencies identified.
e. Lifemark shall respond to general inquiries or claim adjustments in a
timely manner and shall provide LHS with a contact person who will
oversee the handling of these situations.
f. Lifemark shall maintain appropriate levels of telephone line staffing
for the inquiry of claims status, claims payment and administration
activities required to be performed hereunder and shall satisfy the
following standards: (a) the overall abandonment rate shall be less
than [ ]*; and (b) [ ]* of all calls shall be answered in less than
[ ]* seconds. Some claims inquiry calls may be taken within the
Provider Relations Department of Lifemark.
*Confidential Treatment Requested
<PAGE>
3. DENIALS, REQUESTS FOR APPEALS AND MEMBER INQUIRIES AND COMPLAINTS
a. Lifemark's form payment denial letters shall be submitted to LHS for
approval upon request, and the approved forms shall not be materially
modified without LHS's prior written consent. All such denial letters
shall contain the information required by applicable law .
b. LHS shall administer the final appeal process with respect to all
appeals of payment determinations made hereunder. In connection with
any such appeal, Lifemark shall assist and cooperate with LHS and
shall promptly provide all documentation reasonably requested by LHS.
LHS, or the applicable governmental authority (e.g. HSD), as
applicable, shall have final decision making authority with respect to
all appeals of payment determinations hereunder.
4. SYSTEMS
Lifemark's system must be capable of administering appropriate payment,
adjustments and coordination of benefits in a timely manner and to perform
all of Lifemark's other obligations under the Administrative Services
Agreement related to payment administration activities.
5. RECORDS AND REPORTING REQUIREMENTS
a. Lifemark shall maintain appropriate records with respect to all
payment determinations made hereunder for the duration of the
Administrative Services Agreement and for six years thereafter, or for
any greater duration required by any applicable law or regulation. All
requests for payment shall be maintained in the original form or on
electronic media.
b. Lifemark shall comply with all applicable laws and regulations
relating to the confidentiality of medical records and other
individually identifiable information. In addition, this exhibit, all
information provided by LHS to Lifemark pertaining to LHS's delegation
of payment responsibility to Lifemark and all data or information made
known to Lifemark relating to the services rendered to Members is
confidential and proprietary information subject to the protections
set forth in the confidentiality provision contained in the
Administrative Services Agreement, the contract between LHS and HSD,
and any applicable law or regulation. In the event that Lifemark
receives a subpoena, civil investigative demand or other similar
process requesting disclosure of such confidential and proprietary
information, Lifemark shall immediately notify LHS of such subpoena,
demand or process so as to afford LHS with an adequate opportunity to
seek an appropriate protective order should it choose to do so.
c. Lifemark shall provide LHS with processed encounter data with respect
to all services rendered by all providers to LCHP Members. Such
encounter data shall be submitted electronically or by using magnetic
or optical media. The format of the data shall be the
industry-standard ANSI X.12 837 submission record layout or a format
mutually acceptable to all parties. Data shall made available monthly.
The contents of the data submission shall include all data items,
which appear on the HCFA approved 1500 or 1450 (UB-92) forms, as
determined by the type of service reported.
d. Lifemark shall provide any additional reports, which are reasonably
requested by LHS and relate to Lifemark's performance of its payment
responsibilities hereunder.
6. QUALITY AND TRAINING
a. Lifemark shall maintain a quality program acceptable to LHS, which
ensures that processing errors are identified, trended and used to
provide feedback to payment analysts for corrective action.
b. Lifemark will maintain a training program acceptable to LHS to ensure
adequate training for payment analysts on medical coding, benefits,
provider reimbursement and system functionality.
<PAGE>
c. Lifemark shall implement a hiring process for hiring appropriately
qualified payment analysts. Lifemark shall only utilize appropriately
qualified trainers, quality reviewers and payment analysts.
Lifemark acknowledges receipt of LHS's above Standards for Delegation and, in
accordance with the managed care provider agreement between LHS and Lifemark,
will comply with the terms and conditions set forth herein.
Lifemark Corporation
By: Rick Jelinek
--------------------------------------------
(Signature)
--------------------------------------------
(Print Name)
Its:
--------------------------------------------
(Title)
Date:
--------------------------------------------
<PAGE>
EXHIBIT F
MATRIX OF PERFORMANCE STANDARDS AND PENALTIES
<TABLE>
<CAPTION>
PERFORMANCE STANDARD PENALTY COMMENTS
<S> <C> <C>
MEMBER SERVICES CALL ABANDONMENT RATE: [ ]* OF FEE
- - [ ]* or less of all calls abandoned (excluding the first 20 sec.) or FOR PERIOD
- - [ ]* or less of all calls abandoned (including the first 20 sec.)
MEMBER SERVICES TIME TO ANSWER CALLS: [ ]* OF FEE
- - [ ]* of all calls answered within 30 seconds FOR PERIOD
REFERRAL PROCESSING TIMELINESS: [ ]* OF FEE
All referrals processed within two (2) Business Days FOR PERIOD
AUTHORIZATION PROCESSING TIMELINESS: [ ]* OF FEE
- - [ ]* of all routine authorizations processed within two (2) business days FOR PERIOD
- - All urgent authorizations processed within one (1) Business Day
HEALTH SERVICES CALL ABANDONMENT RATE: [ ]* OF FEE
- - [ ]* or less of all calls abandoned (excluding the first 20 sec.) or FOR PERIOD
- - [ ]* or less of all calls abandoned (including the first 20 sec.)
CLAIMS PROCESSING TIMELINESS: [ ]* OF FEE ALL CLAIMS MEASURES TO INCLUDE
- - [ ]* of Clean Claims processed within 60 days FOR PERIOD ALL (INCL. RESUBMISSIONS)
- - [ ]* of all Clean Claims processed with 90 days CLAIMS LDS, HH, ETC
CLAIMS PROCESSING FINANCIAL ACCURACY: [ ]* OF FEE ALL CLAIMS MEASURES TO INCLUDE
- - [ ]* of all claims paid error free FOR PERIOD ALL (INCL. RESUBMISSIONS)
CLAIMS LDS, HH, ETC
PENDED CLAIMS: [ ]* OF FEE ALL CLAIMS MEASURES TO INCLUDE
- - Participating Providers: no more than [ ]* over [ ]* days FOR PERIOD ALL (INCL. RESUBMISSIONS)
- - Non-Participating providers: no more than [ ]* over [ ]* days CLAIMS EXCLUDE NEWBORNS
PROVIDER RELATIONS ACTIVITIES: [ ]* OF FEE
- - Conduct orientation of new provider within [ ]* days FOR PERIOD
- - Visit PCP & hospitals [ ]* times/ year
- - Visit other high volume providers [ ]* times/ year
- - Participate in LHP sponsored workshops not less than [ ]*times/year
- - Publish/distribute Provider newsletter not less than [ ]* times/year
ENROLLMENT AND ELIGIBILITY DATA ENTRY TIMELINESS: [ ]* OF FEE
- - All enrollments data entered into Lifemark Systems and available to FOR PERIOD
subcontractors within [ ]* working days of receipt of data from HSD
</TABLE>
For purposes of this exhibit:
1. "Clean Claim" will mean a claim received on appropriate HCFA-1500
or UB-92 claim form, complete, no additional documentation
needed, and does not meet pend code criteria; and,
2. "Business Day" will mean the day(s) of the week that the Lifemark
is conducting business, which excludes Saturdays, Sundays and
holidays observed by Lifemark.
*Confidential Treatment Requested
<PAGE>
MEASUREMENT OF PERFORMANCE STANDARDS
MEMBER SERVICES CALL ABANDONMENT RATE:
- Reporting Period Monthly
- The Lifemark Automatic Call Distribution (ACD) System will
monitor calls received by the Member Services call center and
abandoned.
- Abandonment Rate will be measured by:
Dividing the total number of calls received by the call center
during the reporting period that result in the caller terminating
the call before speaking to a Member Services representative by
the total number of telephone calls received by the call center
during the reporting period, and expressing that number as a
percent; or,
Dividing the total number of calls received by the call center
during the reporting period that result in the caller terminating
the call before speaking to a Member Services representative
(excluding those calls that are abandoned within twenty seconds)
by the total number of telephone calls received by the call
center during the reporting period, and expressing that number as
a percent.
MEMBER SERVICES TIME TO ANSWER CALLS:
- Reporting Period Monthly
- The Lifemark Automatic Call Distribution (ACD) System will
monitor the elapsed time between the time calls come into the
call center and the time calls are connected to a Member Services
representative.
- The Time to Answer Calls will be determined by measuring the
total elapsed time between the moment when callers select to
speak Member Services representative and the time the callers are
connected with a Member Services representative during the
reporting period.
REFERRAL PROCESSING TIMELINESS:
- Reporting Period Monthly
- Referral Processing Timeliness will be determined by counting the
number of Business Days from the Business Day that a Referral is
received by Lifemark to and including the Business Day the
Approved Referral is entered into the Lifemark system. - Lifemark
will systematically select [ ]* of the total number of referrals
processed during the reporting period to determine the percentage
processed within [ ]* working days.
AUTHORIZATION PROCESSING TIMELINESS:
- Reporting Period Monthly
- Authorization Processing Timeliness will be determined by
counting the number of Business Days from the Business Day that
an Authorization request is received by Lifemark to and including
the Business Day the Approved Authorization is entered into the
Lifemark system.
- Lifemark will systematically select [ ]* of the total number of
routine authorizations processed during the reporting period to
determine the percentage processed within [ ]* working days.
HEALTH SERVICES CALL ABANDONMENT RATE:
- Reporting Period Monthly
- The Lifemark Automatic Call Distribution (ACD) System will
monitor calls received by the Health Services call center and
abandoned.
- Abandonment Rate will be measured by: Dividing the total number
of calls received by the call center during the reporting period
that result in the caller terminating the call before speaking to
a Member Services representative by the total number of telephone
calls received by the call center during the reporting period,
and expressing that number as a percent; or,
*Confidential Treatment Requested
<PAGE>
- Dividing the total number of calls received by the call center
during the reporting period that result in the caller terminating
the call before speaking to a Member Services representative
(excluding those calls that are abandoned within twenty seconds)
by the total number of telephone calls received by the call
center during the reporting period, and expressing that number as
a percent.
CLAIMS PROCESSING TIMELINESS:
- Reporting Period Monthly
- Claims Processing Timeliness will be determined by counting the
number of Business Days from the Business Day that a claim is
received by Lifemark to and including the Business Day the claim
is paid.
- Lifemark will systematically select three hundred (300) claims
(150 HCFA -1500 claims, and 150 UB92 claims) processed during the
reporting period for audit of Claims Processing Timeliness.
Audits will be completed within [ ]* days after the end of a
period being audited.
CLAIMS PROCESSING FINANCIAL ACCURACY:
- Reporting Period Monthly
- Claims Processing Financial Accuracy will be measured by
subtracting the sum of the total dollars overpaid and the total
dollars underpaid (without offsetting one against the other) from
the total dollars paid and dividing that amount by the total
dollars paid.
- Lifemark will systematically select three hundred (300) claims
(150 HCFA -1500 claims, and 150 UB92 claims) processed during the
reporting period for audit of Claims Processing Financial
Accuracy. Audits will be completed within [ ]* days after the end
of a period being audited.
PENDED CLAIMS:
- Reporting Period Monthly
- Lifemark will maintain an aged inventory of Pended Claims for
Participating Providers and non-Participating provider.
- Lifemark will divide the number of pended claims for each
category of provider by the total number of claims received
during the reporting period (excluding newborns) and will provide
a report of the of the current percent of Pended Claims by age in
inventory.
PROVIDER RELATIONS ACTIVITIES:
- Reporting Period Quarterly
- Lifemark will maintain a log of the orientations given to new
Participating Providers, including their effective date of
Participation and the date on which the orientation was given.
Lifemark will report the number of new providers and the number
of orientations given in the reporting period.
- Lifemark will maintain a log of the Providers and the dates on
which they receive a provider relations visit. Lifemark will
report the number of visits to each PCP, hospital, and high
volume providers during the reporting period . (High volume
providers will be identified by the parties within [ ]* days of
the effective date of the Administrative Services Agreement.)
ENROLLMENT AND ELIGIBILITY DATA ENTRY TIMELINESS:
- Reporting Period Monthly
- Lifemark will maintain a log of receipt of all enrollment files
from HSD, date processed, date files posted to bulletin board for
access by subcontractors and LHS. Lifemark will furnish the log
to LHS within [ ]* days of end of the reporting period.
*Confidential Treatment Requested
<PAGE>
EXHIBIT G:
MATRIX OF REQUIRED REPORTS AND REPORTING FREQUENCIES
PART 1: HSD QUALITY ASSURANCE REPORTS
<PAGE>
EXHIBIT G:
MATRIX OF REQUIRED REPORTS AND REPORTING FREQUENCIES
PART 2: MONTHLY FINANCIAL/OPERATIONAL REPORT
THE FOLLOWING REPORTS ARE DUE TO LHS BY THE 3RD BUSINESS DAY OF EACH MONTH:
- - Pended Claims Report - Lovelace & Non-Lovelace
- - Shock Loss Report (Cases over $50,000)
- - Lag Schedule Reports
- Total Payments
- Payments to LHS Providers/Lovelace & Non-Lovelace
- Payments to Non-LHS Providers/ Lovelace & Non-Lovelace
- Non-LHS providers for all members by COS
- Payments to Non-LHS providers for Non-Lovelace Members by COS
- Payments to Non-LHS providers for Lovelace Members by COS
- Payments for IHS Members
(For purposes of penalties as described in Paragraph 7.C of
this Agreement, all Lag Schedule Reports shall be treated as
one)
THE FOLLOWING REPORTS ARE DUE TO LHS BY THE 4TH BUSINESS DAY OF EACH MONTH:
- - Membership/Revenue Report (age/sex adjusted)
- - Cash Report
- - Reinsurance Receivable Report - Lovelace & Non-Lovelace
- - Inpatient Days
- - A/R Reconciliation - IHS Deferred Revenue; Recoveries Receivable;
Capitation Acute Receivable; Risk Pool Payable
- - Admits
THE FOLLOWING REPORTS ARE DUE TO LHS BY THE 10TH BUSINESS DAY OF EACH MONTH:
- - ACD Reporting (Provider, Member, Medical)
- - QI indicators
- - Member Roster to Hotline
- - Member Enrollment report by region
THE FOLLOWING REPORTS ARE DUE TO LHS BY THE 10TH BUSINESS DAY OF A END OF A
QUARTER:
- - Denied Claims Report - Lovelace & Non-Lovelace
Monthly reports will be submitted by the due date, as shown above, of the month
following the activity.
<PAGE>
EXHIBIT H
CONFIDENTIALITY AGREEMENT
This agreement is entered into this day ____ of __________, 200__ by and
between LIFEMARK CORPORATION, its affiliated companies including but not limited
to Arizona Health Concepts, Inc. and Ventana Health Systems, Inc., or any other
company or activity managed by Lifemark Corporation (hereinafter referred to as
"COMPANY") and ________________ (hereinafter referred to as "EMPLOYEE").
RECITALS:
1. COMPANY desires to protect its investment in confidential information,
trade secrets, and in its other property.
2. COMPANY considers the protection of its confidential information, trade
secrets and its property to be critical and is therefore unwilling to hire
anyone to work for it unless such person is willing to agree to the terms
of this Agreement.
3. The EMPLOYEE understands the importance this Confidentiality Agreement
plays in his or her employment and is therefore willing to work for COMPANY
under the terms of this Agreement.
NOW THEREFORE, IN CONSIDERATION of the mutual promises and conditions set forth
herein, the parties do hereby agree as follows:
1. Confidential Information. The EMPLOYEE acknowledges that in the course of
his or her employment, he or she will become acquainted with and will have
access to trade secrets, confidential information, files, records, manuals,
lists, forms, WAGE INFORMATION, COMPUTER PASSWORDS, and computer programs
(collectively "Confidential Information"). Confidential Information shall
include but is not limited to, any information or materials related to
COMPANY's organizational structure, internal policy and procedure manuals,
case management protocols and tools, utilization review/quality management
protocols and tools, advertising/sales programs, financial results,
anticipated premium capitation rates, computer system design, software
source and/or object code, customer lists, provider lists, member/provider
specific medical information, and any other information or materials which
will give COMPANY an opportunity to obtain an advantage over its
competitors or which COMPANY is ethically obligated to protect from
unauthorized sources. None of the Confidential Information shall be deemed
to be in the public domain.
2. Agreement is Condition of Employment. The parties agree that the terms and
conditions of this Agreement and the protection of COMPANY's Confidential
Information is a condition of the EMPLOYEE's future and/or continued
employment. The EMPLOYEE is not to reveal any of COMPANY's Confidential
Information to any third party, within or outside COMPANY except to the
extent required by his or her normal job duties. The EMPLOYEE agrees not to
discuss or provide Confidential Information to anyone outside COMPANY or
its affiliated entities including, without limitation, at conferences,
seminars, meetings of professional or governmental organizations, or by
publication in journals, or granting of interviews to journalists or other
members of the news media.
3. Protection of COMPANY's Property. All records, files, manuals, lists of
customers, lists of accounts, blanks, forms, materials, supplies, computer
programs, and other materials furnished to the EMPLOYEE by COMPANY or an
affiliate of COMPANY, used by EMPLOYEE on behalf of COMPANY or an affiliate
of COMPANY, or generated or obtained by EMPLOYEE during the course of his
or her employment or any other work product produced or developed by the
EMPLOYEE in the performance of his or her employment duties shall be and
remain the property of the COMPANY. The EMPLOYEE acknowledges that this
property is confidential and is not readily accessible to COMPANY's
competitors. Upon termination of employment hereunder, the EMPLOYEE shall
immediately deliver to COMPANY or its authorized representative, all
property,
<PAGE>
including all copies, remaining in the EMPLOYEE's possession or control.
4. Enforcement of this Agreement. If the EMPLOYEE breaches or threatens to
breach the provisions of this Agreement, COMPANY shall be entitled to an
injunction restraining the EMPLOYEE from disclosing in whole or in part the
Confidential Information, or from using any of COMPANY's property or the
property of COMPANY's affiliates. Nothing herein shall be construed as
prohibiting company from pursuing any other remedies available to it due to
the breach or threatened breach by the EMPLOYEE, including the recovery of
damages from the EMPLOYEE.
5. Counterparts. The Agreement may be executed in one or more parts, all of
which taken together shall constitute one instrument.
6. Interpretation. Whenever any word is used in the Agreement in the masculine
gender, it shall also be construed as being used in the feminine and neuter
genders, and singular usage shall include the plural and vice versa, all as
the context shall require.
7. Marginal Headings. The marginal headings of the paragraphs of this
Agreement are for convenience only, and are not to be considered a part of
the Agreement or used in determining its content or context.
8. Modification. Any modification or amendment of the Agreement shall be in
writing and shall be executed by all parties.
9. Partial Invalidity. If any provision of the Agreement is held to be invalid
or unenforceable, all the remaining provisions shall nevertheless continue
in full force and effect.
10. Secession of Benefits. The provisions of the Agreement shall inure to the
benefit of and be binding upon the parties hereto, their heirs, executors,
administrators and assignees.
11. Waiver. Any waiver by any party of a breach of any provision of the
Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
12. Good Faith - Attorney's Fees and Costs. The parties desire that each raise
only good faith disputes for arbitration and litigation. In the event of
any action initiated by EMPLOYEE or COMPANY in connection with a breach of
the terms of the Agreement, the prevailing party shall be entitled to
recover from the losing party all of the prevailing party's court costs and
reasonable attorney's fees.
13. Applicable Law. The Agreement shall be subject to and governed by the laws
of the State of Arizona, regardless of the fact that one or more of the
parties now is or may become a resident of a different state. All lawsuits
under this Agreement shall be filed in Maricopa County, Arizona.
In witness whereof, the parties have hereunto set their hand.
LIFEMARK CORPORATION EMPLOYEE
By:
--------------------------------- --------------------------------
Its:
---------------------------------
<PAGE>
EXHIBIT 10.2
AMENDMENT TO ADMINISTRATIVE
SERVICES AGREEMENT
This Amendment ("Amendment") to the Administrative Services Agreement
(the "Agreement") dated as of December 1, 1995 between Community Choice Michigan
(the "Plan") and Lifemark Corporation, formerly known as Managed Care Solutions,
Inc. ("Lifemark," which name shall replace "MCS" throughout the Agreement as
amended by this Amendment), is entered into this _30th_day of __June_, 2000.
By this Amendment the parties agree to amend the terms and conditions
of the Agreement as set forth below. All provisions of the Agreement not so
amended shall remain in effect.
1. Paragraph I.I. The following paragraphs shall be added to Section I:
I. Other Programs. "Other Programs" shall mean other contractual
relationships with governmental agencies or private entities in which the Plan
provides for or arranges for the provision of health care services in a managed
care setting, each of which is described in an amendment to the Agreement.
J. Clean Claim. "Clean Claim" shall mean a claim that contains all data
fields required by the Plan and Lifemark or as otherwise required by the State
for adjudication of a claim. The required data fields must be complete and
accurate and include Plan-published requirements for adjudication.
2. Paragraph II.D.4. The following shall be added to the end of the paragraph:
Lifemark is hereby authorized to manage Plan cash on Plan's behalf in
accordance with State regulations through banks or investment firms that have
been expressly recommended by the Plan's Finance department and approved by the
Plan's board of directors and in accordance with investment guidelines as
approved by the Plan's board.
3. Paragraph II.D.6. The following shall be inserted after the first sentence
of the paragraph:
Lifemark may fulfill such responsibility through a subcontractor and will notify
CCM prior to engaging in a sub-contracted arrangement. Under a sub-contracted
arrangement, portions of recoveries may be deducted from the Plan's medical fund
if a recovery sharing contract has been established. CCM will have the right to
approve any such contract that is considered a recovery sharing agreement.
4. Paragraph II.D.7. The following shall be added to the end of the paragraph:
Page 1 of 3
<PAGE>
Lifemark shall assign the number of its employees to provide the
services set forth in this paragraph in accordance with its customary staffing
levels for Medicaid acute care plans, currently at an average of 1 case manager
per 10,000 Plan members. If, at the Plan request, Lifemark provides more than a
customary number of employees to provide an increased level of case management
services, the Plan or the relevant risk pools shall bear the entire cost of the
additional employees; provided however, if Lifemark is participating in the risk
of medical loss with the Plan, then Lifemark shall bear the same percentage of
the cost of such employees as the percentage of risk of loss that it bears.
5. Paragraph II.D.13. The following shall be added to the end of the
paragraph:
The Plan acknowledges that administrative fee it has been paying to
Lifemark includes payment for the information system in its current form and
known as Managed Care One. If the Plan desires the installation, support and use
of other Lifemark or non-Lifemark third party software, the Plan shall pay
additional fees as set forth in an amendment to this Agreement.
6. Paragraph II.D.18. The words "separate" and "and Provider" shall be removed
from this sentence, and the words "and shall report regularly to the Plan's
board of directors concerning grievance matters." shall be added to the end of
the sentence. The sentence "Lifemark will also establish a provider complaint
tracking system and report out of the ordinary provider issues to the board as
necessary", will be added to the end of this paragraph.
7. Paragraph II.D.19. Add the following to the end of the paragraph:
Lifemark shall report the results of the satisfaction surveys to the Plan's
board of directors.
8. Paragraph III.A. Add the following to the end of the first paragraph:
The Administrative Fee is set forth on Exhibit A hereto.
8.1 Subpart b of Paragraph III.A is deleted and changed to the following:
All legal services of the Plan except for those legal services
related to provider contract documents.
8.2 Subpart e of Paragraph III.A is amended by adding the following at the
end of the phrase:
...and other expenses related to board activities, including but not
limited to, board member training or seminar expense, association dues, planning
expenses, and consulting fees.
Page 2 of 3
<PAGE>
8.3 Subpart h of Paragraph III.A is amended by adding the following at the
end of the phrase:
..., including but not limited to, direct marketing services and the costs
associated with employees or contractors engaged to conduct or support marketing
activities of the Plan; provided however, that the expense of Lifemark's
supervision of the Plan's marketing activities shall remain the sole and
separate expense of Lifemark.
8.4 The following shall be added to Paragraph III.A:
k. Expense associated with obtaining and maintaining accreditation with a
national healthcare accrediting association, including but not limited to, the
expense of consultants, attorneys, annual dues, and fees; provided however, that
Lifemark shall bear the expense of its existing employees who assist the Plan in
the accreditation process.; Should there be a need to hire or subcontract
additional staff for the sole purpose of acquiring additional accreditation not
presently in place, those expenses would become the responsibility of the Plan.
8.5 The following shall be added to Paragraph III.A.:
l. Other expenses agreed to by both parties in writing.
9. Paragraph III.B. This paragraph is deleted in its entirety and shall be
replaced with the following:
Lifemark shall no longer be obligated to lend funds to the Plan.
10. Paragraph V.A. The first sentence of the this paragraph is amended by
deleting the words "...through the first five years of the Program" and
replacing them with the words "...until July 31, 2005." The third sentence of
this paragraph is deleted in its entirety and a new sentence will be added, as
follows..."This agreement shall automatically renew thereafter annually unless
either party gives a 180 day written notice prior to the end of a contract
period." A one year transition period will begin at the time of the termination
notice. If it is necessary for Lifemark to provide administrative services after
the contract period, Lifemark will bill the Plan at a rate of "Cost" plus [ ]*
for the remainder of the transition period.
COMMUNITY CHOICE MICHIGAN LIFEMARK CORPORATION
/s/ Catherine Lamb /s/ Rick Jelinek
-------------------------------- -----------------------------------
Catherine Lamb, President Rick Jelinek, Executive Vice President
-------------------------------- -----------------------------------
Date Date
Page 3 of 3
*Confidential Treatment Requested
<PAGE>
<TABLE>
[ARTICLE] 5
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] MAY-31-2001
[PERIOD-START] JUN-01-2000
[PERIOD-END] AUG-31-2000
[CASH] 17,875,000
[SECURITIES] 0
[RECEIVABLES] 23,703,000
[ALLOWANCES] 34,000
[INVENTORY] 0
[CURRENT-ASSETS] 43,507,000
[PP&E] 13,250,000
[DEPRECIATION] 6,670,000
[TOTAL-ASSETS] 63,183,000
[CURRENT-LIABILITIES] 40,531,000
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 52,000
[OTHER-SE] 19,618,000
[TOTAL-LIABILITY-AND-EQUITY] 63,183,000
[SALES] 53,483,000
[TOTAL-REVENUES] 53,483,000
[CGS] 0
[TOTAL-COSTS] 52,283,000
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 121,000
[INCOME-PRETAX] 1,922,000
[INCOME-TAX] 826,000
[INCOME-CONTINUING] 1,096,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,096,000
[EPS-BASIC] 0.22
[EPS-DILUTED] 0.19
</TABLE>
<PAGE>
[LIFEMARK LOGO]
EXHIBIT 99
FOR FURTHER INFORMATION PLEASE CONTACT:
Michael J. Kennedy Bob Hussey
Lifemark Corporation EverCare
(602) 331-5150 (952) 936-3629
e-mail: [email protected] e-mail: [email protected]
LIFEMARK CORPORATION TO MERGE WITH EVERCARE
Merger Will Create National Organization Serving the
Health and Well-Being Needs of America's Elderly Across Care Settings
PHOENIX, AZ, October 10, 2000--Lifemark Corporation (Nasdaq: LMRK) today
announced that it will merge with EverCare, an operating unit of Ovations, which
is a subsidiary of UnitedHealth Group (NYSE: UNH). The merger will create a
national leader in serving the health and well-being needs of America's elderly
across the full continuum of care settings.
Rhonda Brede, chief executive officer of Lifemark, stated "This merger is a
wonderful opportunity to integrate two of the leading organizations in the
country serving frail, vulnerable and elderly people. Together, we will
establish ourselves as the preeminent providers of health and well-being
services for these individuals."
Marcia Smith, chief executive officer of EverCare, commented that "While we both
seek to help the elderly live better lives, we currently operate in different
markets serving different groups of people. Combining our resources creates a
powerful platform that allows us to expand our ability to deliver better care to
more people."
The combined company will operate as EverCare, with Ms. Smith as the chief
executive officer and Ms. Brede as chief operating officer. It will conduct
business in over a dozen states, serving Medicare, Medicaid, and private-pay
patients in a variety of care settings, including home, community-based and
nursing facilities.
Lifemark shareholders will be entitled to receive shares of UnitedHealth Group
Common Stock having a value of $63 million or $10.55 per Lifemark share on a
fully diluted basis, so long as the average ten-day closing price of
UnitedHealth Group stock immediately preceding the transaction close remains at
or between $95.00 and $113.00 per share. In the event the average ten-day
closing price of UnitedHealth Group stock immediately preceding the transaction
close is above $113 per share, Lifemark shareholders will receive a total of
557,500 UnitedHealth Group shares and the merger consideration may thereby
increase based on UnitedHealth Group's stock appreciation above $113.00. If the
average ten-day closing price of UnitedHealth Group stock immediately preceding
the transaction is at or between $88.00 and $95.00 per share, the value Lifemark
shareholders will receive will decrease proportionately from $63 million or
$10.55 per share to $60
<PAGE>
million or $10.08 per share. If the average ten-day closing price of
UnitedHealth Group Common Stock preceding the transaction close is below $88.00
per share, UnitedHealth Group has the option to pay $10.08 per share of merger
consideration in either cash or shares of UnitedHealth Group Common Stock.
The transaction is subject to approval by Lifemark's shareholders. Shareholders
of Lifemark holding approximately 40% of the outstanding shares of Lifemark
common stock have entered into a voting agreement with UnitedHealth Group
whereby they have agreed to vote their shares in favor of the merger. The merger
is also subject to approvals by certain antitrust and state regulators. Lifemark
and UnitedHealth Group anticipate closing the transaction near the end of the
year.
ABOUT LIFEMARK
Lifemark develops, coordinates, and administers all aspects of specialty,
risk-based care management programs designed to improve the quality of life for
vulnerable, frail elderly and chronically ill patients. Lifemark manages both
the financing and delivery of comprehensive health care services that create
fundamental change in the well-being of its customers. In fiscal year 2000
(ended 5/31/00), Lifemark had revenues of approximately $150 million,
representing a 75% increase over 1999. Lifemark is based in Phoenix, Arizona and
has regional offices in Arkansas, California, Hawaii, Indiana, Michigan, New
Mexico and Texas.
ABOUT EVERCARE
Founded in 1987, EverCare has pioneered coordinated care for frail elderly
persons in nursing homes. EverCare provides direct medical care through nurse
practitioner/physician primary care teams and seeks to provide as much care
"on-site" in the nursing home as possible. EverCare also helps ensure close
communication among families, physicians and nursing home staff regarding a
resident's care. EverCare serves 18,000 patients in over 450 nursing homes.
EverCare is headquartered in Minnetonka, Minnesota and conducts business in
Arizona, Colorado, Florida, Georgia, Illinois, Maryland, Massachusetts, New York
and Ohio. EverCare is part of Ovations, a subsidiary of UnitedHealth Group.
FORWARD LOOKING STATEMENTS
Statements that EverCare, Lifemark, or UnitedHealth Group may publish, including
those in this announcement, that are not strictly historical are
"forward-looking" statements under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve
known and unknown risks, which may cause actual results and corporate
developments to differ materially from those expected. Factors that could cause
results and developments to differ materially from expectations include, without
limitation, the failure of the Lifemark shareholders to approve the merger; the
risk that the businesses of Lifemark and EverCare will not be integrated
successfully; disruptions from the merger making it more difficult to maintain
relationships with
<PAGE>
clients, employees and other third parties; and the effects of state and federal
regulations. Additional factors that could cause UnitedHealth Group's and
Lifemark's results to differ materially from those described in the
forward-looking statements can be found in each of UnitedHealth Group's and
Lifemark's respective SEC reports, including quarterly reports on Form 10-Q,
annual reports on Form 10-K, and reports on Form 8-K.
OTHER IMPORTANT INFORMATION
IN CONNECTION WITH THE TRANSACTION DESCRIBED IN THIS ANNOUNCEMENT, UNITEDHEALTH
GROUP WILL FILE A REGISTRATION STATEMENT ON FORM S-4 AND OTHER RELEVANT
DOCUMENTS WITH THE SECURITIES AND EXCHANGE COMMISSION AND LIFEMARK WILL FILE
WITH THE SEC A PROXY STATEMENT CONTAINING INFORMATION ABOUT THE MERGER.
UNITEDHEALTH GROUP AND LIFEMARK WILL MAIL A PROXY STATEMENT/PROSPECTUS TO
SHAREHOLDERS OF LIFEMARK. INVESTORS AND STOCKHOLDERS OF LIFEMARK ARE URGED TO
READ CAREFULLY THE REGISTRATION STATEMENT, THE PROXY STATEMENT/PROSPECTUS AND
OTHER DOCUMENTS TO BE FILED WITH THE SEC WHEN THEY ARE AVAILABLE. THE
REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS AND OTHER FILINGS WILL
CONTAIN IMPORTANT INFORMATION ABOUT UNITEDHEALTH GROUP, LIFEMARK, THE MERGER,
THE PERSONS SOLICITING PROXIES RELATING TO THE MERGER, THEIR INTERESTS IN THE
MERGER, AND RELATED MATTERS. INVESTORS AND STOCKHOLDERS OF LIFEMARK WILL BE ABLE
TO OBTAIN FREE COPIES OF THESE DOCUMENTS THROUGH THE WEBSITE MAINTAINED BY THE
SEC AT http:/www.sec.gov. INVESTORS AND STOCKHOLDERS OF LIFEMARK WILL ALSO BE
ABLE TO OBTAIN COPIES OF THE DOCUMENTS FILED BY UNITEDHEALTH GROUP FREE OF
CHARGE FROM UNITEDHEALTH GROUP BY MAILING A REQUEST TO UNITEDHEALTH GROUP
INCORPORATED, INVESTOR RELATIONS, UNITEDHEALTH GROUP CENTER, 9900 BREN ROAD
EAST, MINNETONKA, MINNESOTA 55343, TELEPHONE: (952) 936-1300. THE PROXY
STATEMENT/PROSPECTUS WILL ALSO BE AVAILABLE TO INVESTORS AND STOCKHOLDERS FREE
OF CHARGE FROM LIFEMARK BY MAILING A REQUEST TO LIFEMARK CORPORATION, INVESTOR
RELATIONS, 7600 NORTH 16TH STREET, SUITE 150, PHOENIX, ARIZONA 85020, TELEPHONE:
(602) 331-5150.
UNITEDHEALTH GROUP, LIFEMARK AND THEIR RESPECTIVE DIRECTORS, EXECUTIVE OFFICERS,
CERTAIN OTHER MEMBERS OF MANAGEMENT AND EMPLOYEES, EACH OF WHOM MAY BE
CONSIDERED PARTICIPANTS IN THIS TRANSACTION UNDER APPLICABLE SECURITIES LAWS,
MAY BE SOLICITING PROXIES FROM LIFEMARK'S STOCKHOLDERS IN FAVOR OF APPROVAL AND
ADOPTION OF THE MERGER AND THE MERGER AGREEMENT. A DETAILED LIST OF THE NAMES OF
UNITEDHEALTH GROUP'S AND LIFEMARK'S DIRECTORS AND EXECUTIVE OFFICERS ARE
INCLUDED IN THEIR RESPECTIVE PROXY STATEMENTS AND ANNUAL REPORTS ON FORM 10-K
FILED WITH THE SEC. A DESCRIPTION OF ANY INTERESTS THAT THESE PERSONS HAVE IN
THE MERGER WILL BE AVAILABLE IN THE PROXY STATEMENT/PROSPECTUS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best
interests of the corporation in the case of acts or omissions in such person's
official capacity for the corporation or reasonably believed that the conduct
was not opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated
organizations. Article IX of the amended and restated bylaws of UnitedHealth
Group provides that UnitedHealth Group shall indemnify officers and directors
to the extent permitted by Section 302A.521 as now enacted or hereafter
amended.
UnitedHealth Group also maintains an insurance policy or policies to assist
in funding indemnification of directors and officers for certain liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2(a) Agreement and Plan of Merger dated as of October 10, 2000 by and among
UnitedHealth Group, Leo Acquisition Corp. and Lifemark (included as
Annex A to the proxy statement/prospectus contained in this
registration statement).
2(b) Voting Agreement dated as of October 10, 2000 by and among
UnitedHealth Group and various Lifemark directors and executive
officers (included as Annex B to the proxy statement/prospectus
contained in this registration statement).
3(a) Articles of Merger amending UnitedHealth Group's Articles of
Incorporation, effective March 6, 2000. (Incorporated by reference to
Exhibit 3(a) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
3(b) Second Restated Articles of Incorporation of UnitedHealth Group.
(Incorporated by reference to Exhibit 3(a) to UnitedHealth Group's
Annual Report on Form 10-K for the year ended December 31, 1996.)
3(c) Amended and Restated Bylaws of UnitedHealth Group. (Incorporated by
reference to Exhibit 3 to UnitedHealth Group's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000.)
4(a) Senior Indenture, dated as of November 15, 1998, between United
HealthCare Corporation and the Bank of New York. (Incorporated by
reference to Exhibit 4.1 to UnitedHealth Group's Registration
Statement on Form S-3 (SEC File No. 333-44569).)
4(b) Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of
instruments defining the rights of certain holders of long-term debt
are not filed. UnitedHealth Group agrees to furnish copies thereof to
the Securities and Exchange Commission upon request.
**5 Opinion of Dorsey & Whitney LLP regarding the legality of the
securities being issued.
**8 Opinion of Bell, Boyd & Lloyd LLC regarding certain tax matters.
</TABLE>
II-1
<PAGE>
<TABLE>
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*10(a) United HealthCare Corporation 1990 Stock and Incentive Plan, as
amended. (Incorporated by reference to Exhibit 10(f) to UnitedHealth
Group's Annual Report on Form 10-K for the year ended December 31,
1992.)
*10(b) United HealthCare Corporation Amended and Restated 1991 Stock and
Incentive Plan, Amended and Restated Effective May 14, 1997.
(Incorporated by reference to Exhibit 10(a) to UnitedHealth Group's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.)
*10(c) United HealthCare Corporation Non-employee Director Stock Option Plan.
(Incorporated by reference to Exhibit 10(x) to UnitedHealth Group's
Annual Report on Form 10-K for the year ended December 31, 1994.)
*10(d) UnitedHealth Group Leadership Results Plan. (Incorporated by reference
to Exhibit 10(d) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
*10(e) UnitedHealth Group's 2000 Executive Savings Plan Brochure.
(Incorporated by reference to Exhibit 10(e) to UnitedHealth Group's
Annual Report on Form 10-K for the year ended December 31, 1999.)
*10(f) Employment Agreement, dated as of October 13, 1999, between United
HealthCare Corporation and William W. McGuire, M.D. (Incorporated by
reference to Exhibit 10(f) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1999.)
*10(g) Employment Agreement dated as of October 13, 1999, between United
HealthCare Corporation and Stephen J. Hemsley. (Incorporated by
reference to Exhibit 10(g) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1999.)
*10(h) Employment Agreement, dated as of May 19, 1998, between United
HealthCare Corporation and Arnold H. Kaplan. (Incorporated by reference
to Exhibit 10(h) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
*10(i) Employment Agreement, dated as of October 16, 1998, between United
HealthCare Corporation and Lois E. Quam. (Incorporated by reference to
Exhibit 10(i) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
*10(j) Employment Agreement dated as of January 15, 2000, between United
HealthCare Corporation and James B. Hudak. (Incorporated by reference
to Exhibit 10(j) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
*10(k) Employment Agreement, dated as of October 16, 1998, between United
HealthCare Services, Inc. and Jeannine Rivet. (Incorporated by
reference to Exhibit 10(f) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1998.)
*10(l) Employment Agreement, dated as of May 20, 1998, between United
HealthCare Services, Inc. and R. Channing Wheeler. (Incorporated by
reference to Exhibit 10(c) to UnitedHealth Group's Quarterly Report of
Form 10-Q for the quarter ended June 30, 1998.)
*10(m) Employment Agreement, dated as of October 16, 1998, between United
HealthCare Services, Inc. and David J. Lubben. (Incorporated by
reference to Exhibit 10(j) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1998.)
+10(n) Information Technology Services Agreement between The MetraHealth
Companies, Inc. and Integrated Systems Solutions Corporation dated as
of November 1, 1995. (Incorporated by reference to Exhibit 10(t) to
UnitedHealth Group's Annual Report on Form 10-K for the year ended
December 31, 1995.)
+10(o) AARP Health Insurance Agreement by and among American Association of
Retired Persons, Trustees of the AARP Insurance Plan and United
HealthCare Insurance Company dated as of February 26, 1997.
(Incorporated by reference to Exhibit 10(p) to UnitedHealth Group's
Annual Report on Form 10-K/A for the year ended December 31, 1996.)
+10(p) First Amendment to the AARP Health Insurance Agreement by and among
American Association of Retired Persons, Trustees of the AARP Insurance
Plan and United HealthCare Insurance Company effective January 1, 1998.
(Incorporated by reference to Exhibit 10(a) to UnitedHealth Group's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998.)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
+10(q) Second Amendment to the AARP Health Insurance Agreement by and among
American Association of Retired Persons, Trustees of the AARP Insurance
Plan and United HealthCare Insurance Company effective January 1, 1998.
(Incorporated by reference to Exhibit 10(b) to UnitedHealth Group's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.)
+10(r) Information Technology Services Agreement between United HealthCare
Services, Inc., a wholly owned subsidiary of UnitedHealth Group, and
Unisys Corporation dated June 1, 1996. (Incorporated by reference to
Exhibit 10 to UnitedHealth Group's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.)
11 Statement regarding computation of per share earnings. (Incorporated by
reference to the information contained under the heading "Net Earnings
(Loss) Per Common Share" in Note 2 to the Notes to Consolidated
Financial Statements included in UnitedHealth Group's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, which is
included as part of Exhibit 13 hereto.)
13 Portions of UnitedHealth Group's Annual Report to Shareholders for the
fiscal year ended December 31, 1999. (Incorporated by reference to
Exhibit 13 to UnitedHealth Group's Annual Report on Form 10-K for the
year ended December 31, 1999.)
15 Letter Re Unaudited Interim Financial Information.
21 Subsidiaries of UnitedHealth Group.
23(a) Consent of Arthur Andersen LLP with respect to UnitedHealth Group's
financial statements.
23(b) Consent of PricewaterhouseCoopers LLP with respect to Lifemark's
financial statements.
23(c) Consent of Dorsey & Whitney LLP (included in Exhibit 5).
23(d) Consent of Bell, Boyd & Lloyd LLC (included in Exhibit 8).
23(e) Consent of Stephens Inc. (included in Exhibit 99).
24 Power of Attorney.
99 Opinion of Stephens Inc. (included as Annex C to the proxy
statement/prospectus contained in this registration statement).
</TABLE>
--------
+ Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of these Exhibits have been deleted and filed
separately with the Securities and Exchange Commission pursuant to a request
for confidential treatment.
* Denotes management contracts and compensation plans in which certain
directors and named executive officers participate and which are being filed
pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
** To be filed by amendment.
(b) Not applicable.
(c) Opinion of Stephens Inc. (included as Annex C to the proxy
statement/prospectus contained in this registration statement).
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(2) that, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
II-3
<PAGE>
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of
responding to the request;
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective; and
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item
20 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minnetonka, State of Minnesota, on this 27th day of
October, 2000.
UNITEDHEALTH GROUP INCORPORATED
/s/ William W. McGuire, M.D.
By___________________________________
William W. McGuire, M.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of
the Registrant in the capacities indicated on this 27th day of October, 2000.
<TABLE>
<S> <C>
______/s/ William W. McGuire, M.D._______ Director and Chief Executive Officer
William W. McGuire, M.D. (principal executive officer)
__________/s/ Arnold H. Kaplan___________ Chief Financial Officer
Arnold H. Kaplan (principal financial officer)
________/s/ Patrick J. Erlandson _________ Chief Accounting Officer
Patrick J. Erlandson (principal accounting officer)
_____________________*_____________________ Director
William C. Ballard, Jr.
_____________________*_____________________ Director
Richard T. Burke
_____________________*_____________________ Director
Stephen J. Hemsley
_____________________*_____________________ Director
James A. Johnson
_____________________*_____________________ Director
Thomas H. Kean
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
____________________*______________________ Director
Douglas W. Leatherdale
____________________*______________________ Director
Walter F. Mondale
____________________*______________________ Director
Mary O. Mundinger
____________________*______________________ Director
Robert L. Ryan
____________________*______________________ Director
William G. Spears
____________________*______________________ Director
Gail R. Wilensky
</TABLE>
/s/ David J. Lubben
*By__________________________________
David J. Lubben
As Attorney-In-Fact
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2(a) Agreement and Plan of Merger dated as of October 10, 2000 by and among
UnitedHealth Group, Leo Acquisition Corp. and Lifemark (included as
Annex A to the proxy statement/prospectus contained in this
registration statement).
2(b) Voting Agreement dated as of October 10, 2000 by and among
UnitedHealth Group and various Lifemark directors and executive
officers (included as Annex B to the proxy statement/prospectus
contained in this registration statement).
3(a) Articles of Merger amending UnitedHealth Group's Articles of
Incorporation, effective March 6, 2000. (Incorporated by reference to
Exhibit 3(a) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
3(b) Second Restated Articles of Incorporation of UnitedHealth Group.
(Incorporated by reference to Exhibit 3(a) to UnitedHealth Group's
Annual Report on Form 10-K for the year ended December 31, 1996.)
3(c) Amended and Restated Bylaws of UnitedHealth Group. (Incorporated by
reference to Exhibit 3 to UnitedHealth Group's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000.)
4(a) Senior Indenture, dated as of November 15, 1998, between United
HealthCare Corporation and the Bank of New York. (Incorporated by
reference to Exhibit 4.1 to UnitedHealth Group's Registration
Statement on Form S-3 (SEC File No. 333-44569).)
4(b) Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of
instruments defining the rights of certain holders of long-term debt
are not filed. UnitedHealth Group agrees to furnish copies thereof to
the Securities and Exchange Commission upon request.
**5 Opinion of Dorsey & Whitney LLP regarding the legality of the
securities being issued.
**8 Opinion of Bell, Boyd & Lloyd LLC regarding certain tax matters.
*10(a) United HealthCare Corporation 1990 Stock and Incentive Plan, as
amended. (Incorporated by reference to Exhibit 10(f) to UnitedHealth
Group's Annual Report on Form 10-K for the year ended December 31,
1992.)
*10(b) United HealthCare Corporation Amended and Restated 1991 Stock and
Incentive Plan, Amended and Restated Effective May 14, 1997.
(Incorporated by reference to Exhibit 10(a) to UnitedHealth Group's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.)
*10(c) United HealthCare Corporation Non-employee Director Stock Option Plan.
(Incorporated by reference to Exhibit 10(x) to UnitedHealth Group's
Annual Report on Form 10-K for the year ended December 31, 1994.)
*10(d) UnitedHealth Group Leadership Results Plan. (Incorporated by reference
to Exhibit 10(d) to UnitedHealth Group's Annual Report on Form 10-K
for the year ended December 31, 1999.)
*10(e) UnitedHealth Group's 2000 Executive Savings Plan Brochure.
(Incorporated by reference to Exhibit 10(e) to UnitedHealth Group's
Annual Report on Form 10-K for the year ended December 31, 1999.)
*10(f) Employment Agreement, dated as of October 13, 1999, between United
HealthCare Corporation and William W. McGuire, M.D. (Incorporated by
reference to Exhibit 10(f) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1999.)
*10(g) Employment Agreement dated as of October 13, 1999, between United
HealthCare Corporation and Stephen J. Hemsley. (Incorporated by
reference to Exhibit 10(g) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1999.)
*10(h) Employment Agreement, dated as of May 19, 1998, between United
HealthCare Corporation and Arnold H. Kaplan. (Incorporated by
reference to Exhibit 10(h) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1999.)
*10(i) Employment Agreement, dated as of October 16, 1998, between United
HealthCare Corporation and Lois E. Quam. (Incorporated by reference to
Exhibit 10(i) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
*10(j) Employment Agreement dated as of January 15, 2000, between United
HealthCare Corporation and James B. Hudak. (Incorporated by reference
to Exhibit 10(j) to UnitedHealth Group's Annual Report on Form 10-K for
the year ended December 31, 1999.)
*10(k) Employment Agreement, dated as of October 16, 1998, between United
HealthCare Services, Inc. and Jeannine Rivet. (Incorporated by
reference to Exhibit 10(f) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1998.)
*10(l) Employment Agreement, dated as of May 20, 1998, between United
HealthCare Services, Inc. and R. Channing Wheeler. (Incorporated by
reference to Exhibit 10(c) to UnitedHealth Group's Quarterly Report of
Form 10-Q for the quarter ended June 30, 1998.)
*10(m) Employment Agreement, dated as of October 16, 1998, between United
HealthCare Services, Inc. and David J. Lubben. (Incorporated by
reference to Exhibit 10(j) to UnitedHealth Group's Annual Report on
Form 10-K for the year ended December 31, 1998.)
+10(n) Information Technology Services Agreement between The MetraHealth
Companies, Inc. and Integrated Systems Solutions Corporation dated as
of November 1, 1995. (Incorporated by reference to Exhibit 10(t) to
UnitedHealth Group's Annual Report on Form 10-K for the year ended
December 31, 1995.)
+10(o) AARP Health Insurance Agreement by and among American Association of
Retired Persons, Trustees of the AARP Insurance Plan and United
HealthCare Insurance Company dated as of February 26, 1997.
(Incorporated by reference to Exhibit 10(p) to UnitedHealth Group's
Annual Report on Form 10-K/A for the year ended December 31, 1996.)
+10(p) First Amendment to the AARP Health Insurance Agreement by and among
American Association of Retired Persons, Trustees of the AARP Insurance
Plan and United HealthCare Insurance Company effective January 1, 1998.
(Incorporated by reference to Exhibit 10(a) to UnitedHealth Group's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998.)
+10(q) Second Amendment to the AARP Health Insurance Agreement by and among
American Association of Retired Persons, Trustees of the AARP Insurance
Plan and United HealthCare Insurance Company effective January 1, 1998.
(Incorporated by reference to Exhibit 10(b) to UnitedHealth Group's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.)
+10(r) Information Technology Services Agreement between United HealthCare
Services, Inc., a wholly owned subsidiary of UnitedHealth Group, and
Unisys Corporation dated June 1, 1996. (Incorporated by reference to
Exhibit 10 to UnitedHealth Group's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.)
11 Statement regarding computation of per share earnings. (Incorporated by
reference to the information contained under the heading "Net Earnings
(Loss) Per Common Share" in Note 2 to the Notes to Consolidated
Financial Statements included in UnitedHealth Group's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, which is
included as part of Exhibit 13 hereto.)
13 Portions of UnitedHealth Group's Annual Report to Shareholders for the
fiscal year ended December 31, 1999. (Incorporated by reference to
Exhibit 13 to UnitedHealth Group's Annual Report on Form 10-K for the
year ended December 31, 1999.)
15 Letter Re Unaudited Interim Financial Information.
21 Subsidiaries of UnitedHealth Group.
23(a) Consent of Arthur Andersen LLP with respect to UnitedHealth Group's
financial statements.
23(b) Consent of PricewaterhouseCoopers LLP with respect to Lifemark's
financial statements.
23(c) Consent of Dorsey & Whitney LLP (included in Exhibit 5).
23(d) Consent of Bell, Boyd & Lloyd LLC (included in Exhibit 8).
23(e) Consent of Stephens Inc. (included in Exhibit 99).
24 Power of Attorney.
99 Opinion of Stephens Inc. (included as Annex C to the proxy
statement/prospectus contained in this registration statement).
</TABLE>
II-8
<PAGE>
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+ Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of these Exhibits have been deleted and filed
separately with the Securities and Exchange Commission pursuant to a request
for confidential treatment.
* Denotes management contracts and compensation plans in which certain
directors and named executive officers participate and which are being filed
pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
** To be filed by amendment.
II-9
