<PAGE>
As filed with the Securities and Exchange Commission on January 16, 2001
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 classification identification no.)
of organization) 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. W. Michael Walker, Esq.
Dorsey & Whitney LLP Hirschler, Fleischer, Weinberg, Cox
220 South Sixth Street & Allen
Minneapolis, Minnesota 55402 Federal Reserve Bank Building
(612) 340-2803 701 East Byrd Street
Fax: (612) 340-8738 P.O. Box 500
Richmond, Virginia 23218-0500
(804) 771-9590
Fax: (804) 644-0957
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: At the
closing date for the acquisition of shares of United HealthCare of Virginia,
Inc. (the "Acquisition") by the registrant from Virginia's Physician Network,
Inc. ("VPN"), 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 the Acquisition.
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>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of each class of Amount to be Offering Price Offering Registration
Securities to be registered Registered(1) Per Share(2) Price(2) Fee
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value $0.01
per share..................... 450,000 shares $0.0033 $7,756.98 $1.94
------------------------------------------------------------------------------------
</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 Acquisition.
(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 Rule 457(f)(2). Because
there is no market for the shares of VPN common stock to be cancelled in
connection with the Acquisition and VPN has an accumulated capital deficit
at December 31, 2000, the fee is computed based on one-third of the par
value of the maximum number of shares of common stock of VPN outstanding
immediately before the Acquisition, assuming the exercise of all
outstanding options (2,327,092 shares). The par value of VPN common stock
is $0.01 per share.
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>
VIRGINIA'S PHYSICIAN NETWORK, INC.
POST OFFICE BOX 500
RICHMOND, VIRGINIA 23218-0500
January , 2001
NOTICE OF SPECIAL MEETING on
, 2001 and PROXY STATEMENT
Dear Fellow Shareholder:
On behalf of the Board of Directors, you are cordially invited to attend a
Special Meeting of the Shareholders of Virginia's Physician Network, Inc. (VPN)
at a.m. local time on , 2001, at .
A proposal to be considered at this important meeting, if approved, will
conclude the transactions contemplated by agreements with United Healthcare
Services, Inc. that were approved by VPN Shareholders in October 1999. The
proposal involves the approval of (a) the sale of substantially all of VPN's
assets to a subsidiary of UnitedHealth Group Incorporated (UnitedHealth Group)
in exchange for shares of UnitedHealth Group common stock that will be
distributed to VPN shareholders and for the resolution of certain contested
monetary obligations of VPN to a subsidiary of UnitedHealth Group, and (b) the
subsequent dissolution and termination of VPN.
At a meeting on December 28, 2000, VPN's Board of Directors unanimously
voted to exercise its put of VPN's shares in United Healthcare of Virginia,
Inc., an HMO organized by VPN and a subsidiary of UnitedHealth Group in 1996,
and to execute the Asset Acquisition Agreement that memorializes this proposal.
The VPN Board of Directors recommends that you vote FOR this proposal. Approval
of the proposal requires a "FOR" vote from more than two-thirds of the votes
entitled to be cast by VPN Shareholders at the Special Meeting. Unless this
proposal is approved, the value of your investment in VPN may be adversely
impacted.
Every vote FOR the proposal is important. Your vote is important. If you
don't return the enclosed proxy or if you vote by checking the ABSTAIN box on
it, the effect is a vote AGAINST the proposal. Even if you plan to attend the
Special Meeting of Shareholders, you should complete, date and sign the
enclosed proxy and return it to VPN immediately by faxing it to (804) 771-5625
or by mailing it in the pre-addressed, postage paid envelope enclosed. If you
do attend the meeting, you may vote in person, whether or not you have mailed
your proxy. A proxy may be revoked at any time before it is voted.
VPN's Board of Directors is pleased that shareholders will have a positive
return on their initial investment, if this proposal is approved. More
importantly, many of VPN's original objectives have been achieved in the
organization and operation of UnitedHealthcare of Virginia. Many VPN
shareholders serve on its various guidance and oversight committees. VPN
encourages its shareholders to continue to play a vital role in the management
of the health plan by remaining participating physicians in the
UnitedHealthcare network and serving on UnitedHealthcare of Virginia's guidance
and oversight committees. UnitedHealthcare of Virginia promotes an open access,
no referral product which substantially reduces administrative hassle for
patients and physicians when compared to typical HMOs. UnitedHealthcare's Care
Coordination(TM) approach facilitates coverage and benefits administration
between the patient and physician and gives the physician full decision-making
authority in medical necessity judgements.
<PAGE>
The formal meeting Notice and Proxy Statement for the Special Meeting are
enclosed. Please take time to consider the enclosed material carefully. Thank
you for your cooperation and interest in having your shares represented at this
important Special Meeting of Shareholders.
Sincerely,
C. Gregory Lockhart, M.D.
Chairman of the Board, President and
C.E.O.
P.S. This is a very important meeting. The proposal being considered may
impact your investment in VPN and any profit you may make on that
investment.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPROVED THE SHARES OF UNITEDHEALTH GROUP COMMON
STOCK TO BE ISSUED IN THE PROPOSED TRANSACTIONS, OR DETERMINED IF THE PROXY
STATEMENT/PROSPECTUS ATTACHED HERETO IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of the attached proxy statement/prospectus is January , 2001. The
attached notice of special meeting and proxy statement/prospectus are first
being mailed to shareholders of VPN on or about January , 2001.
REFERENCE TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about UnitedHealth Group 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 at the
following address and telephone number:
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: Investor Relations
(952) 936-1300
If you would like to request documents, please do so by , 2001 in
order to receive them before the VPN special shareholders meeting. See "Where
You Can Find More Information" at page 55.
<PAGE>
VIRGINIA'S PHYSICIAN NETWORK, INC.
POST OFFICE BOX 500
RICHMOND, VIRGINIA 23218-0500
ATTENTION: K. MARSHALL COOK, ESQ.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
To the Shareholders of Virginia's Physician Network, Inc.:
We will hold a Special Meeting of Shareholders of Virginia's Physician
Network, Inc. (VPN) at a.m., local time, on , ,
2001, at , for the following purposes:
1. To consider and vote upon a proposal to approve (a) the sale of
substantially all of VPN's assets to a subsidiary of UnitedHealth Group
Incorporated in exchange for shares of UnitedHealth Group common stock
which will be distributed to VPN shareholders and for the resolution of
certain contested monetary obligations of VPN to a subsidiary of
UnitedHealth Group, and (b) the subsequent dissolution and termination
of VPN. The VPN assets to be sold consist of approximately 49% of the
outstanding shares of United HealthCare of Virginia, Inc. The other 51%
of such shares are already owned by a subsidiary of UnitedHealth Group.
2. To transact such other business as may properly come before the Special
Meeting.
We describe the proposed transactions more fully in the proxy
statement/prospectus attached to this notice. We encourage you to read the
entire document carefully.
Only shareholders of record of VPN common stock at the close of business on
January , 2001 are entitled to receive notice of and to vote at the Special
Meeting or at any adjournment or postponement of the Special Meeting. Approval
of the proposed transactions will require the affirmative vote of more than
two-thirds of the votes entitled to be cast at the Special Meeting of
Shareholders.
Your vote is important. To assure that your shares are represented at the
Special Meeting, we urge you to complete, date and sign the enclosed proxy and
to fax it to VPN at (804) 771-5625 or mail it promptly in the pre-addressed,
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 attached 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.
BY ORDER OF THE BOARD OF DIRECTORS
K. Marshall Cook
Secretary
Richmond, Virginia
, 2001
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPROVED THE SHARES OF UNITEDHEALTH GROUP COMMON
STOCK TO BE ISSUED IN THE PROPOSED TRANSACTION, OR DETERMINED IF THE PROXY
STATEMENT/PROSPECTUS ATTACHED HERETO IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SHAREHOLDERS ARE URGED TO DATE, SIGN AND FAX OR MAIL THE ENCLOSED PROXY TO
VPN IMMEDIATELY. YOUR PROXY WILL BE VOTED IN ACCORDANCE WITH ANY
SPECIFICATIONS ON IT. A FAILURE TO VOTE, EITHER BY NOT RETURNING THE PROXY
OR BY CHECKING THE "ABSTAIN" BOX ON THE PROXY, WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST THE PROPOSAL. UNLESS THE PROPOSAL IS APPROVED, THE VALUE
OF YOUR INVESTMENT IN VPN MAY BE ADVERSELY IMPACTED.
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS.................................... 1
<S> <C>
MARKET PRICE AND DIVIDEND INFORMATION........................................ 8
RISK FACTORS................................................................. 10
Risks Relating to the Proposed Transaction................................. 10
Risks Relating to UnitedHealth Group....................................... 11
THE SPECIAL MEETING OF VPN SHAREHOLDERS...................................... 17
Date, Time and Place of the Special Meeting................................ 17
Matters to be Considered at the Special Meeting............................ 17
Record Date and Shares Entitled to Vote.................................... 17
Voting of Proxies; Revocation of Proxies................................... 17
Vote Required.............................................................. 17
Quorum; Abstentions and Broker Non-Votes................................... 18
Expenses of Solicitation................................................... 18
Board Recommendation....................................................... 18
THE PROPOSED TRANSACTION..................................................... 19
Background of the Proposed Transaction..................................... 19
VPN's Reasons for the Proposed Transaction and Board of Directors
Recommendation............................................................ 22
UnitedHealth Group's Reasons for the Proposed Transaction.................. 23
Completion of the Proposed Transaction..................................... 23
Operation of UHC Virginia Following the Proposed Transaction............... 24
Dissolution of VPN Following the Proposed Transaction...................... 24
Interests of Certain Persons in the Proposed Transaction................... 24
VPN Common Stock Ownership................................................. 24
Regulatory Matters......................................................... 25
Certain Federal Income Tax Considerations.................................. 25
No Dissenters' Rights...................................................... 28
Restrictions on Sale of Shares by Affiliates of VPN and UnitedHealth
Group..................................................................... 28
Stock Market Listing....................................................... 28
CERTAIN INFORMATION CONCERNING UNITEDHEALTH GROUP............................ 29
Directors.................................................................. 29
Executives................................................................. 31
UnitedHealth Group Common Stock Ownership.................................. 38
Certain Relationships and Transactions..................................... 40
THE ASSET ACQUISITION AGREEMENT.............................................. 41
Purchase and Sale of UHC Virginia Shares; Purchase Price................... 41
Distribution of UnitedHealth Group Shares to VPN Shareholders.............. 41
Dissolution and Termination of VPN Following the Closing................... 42
Treatment of VPN Stock Options............................................. 42
Representations and Warranties............................................. 42
Additional Agreements...................................................... 43
Conditions to the Closing of the Proposed Transaction...................... 44
Termination of the Asset Acquisition Agreement............................. 45
Fees and Expenses.......................................................... 46
Extensions, Waivers and Amendments......................................... 46
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
COMPARISON OF RIGHTS OF SHAREHOLDERS OF UNITEDHEALTH GROUP AND VPN........ 47
EXPERTS................................................................... 55
LEGAL MATTERS............................................................. 55
FUTURE UNITEDHEALTH GROUP SHAREHOLDER PROPOSALS........................... 55
WHERE YOU CAN FIND MORE INFORMATION....................................... 55
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 56
ANNEX A--ASSET ACQUISITION AGREEMENT BY AND AMONG UNITEDHEALTH GROUP
INCORPORATED, UNITED HEALTHCARE SERVICES, INC. AND VIRGINIA'S PHYSICIAN
NETWORK, INC.
</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 proposed
transaction. In particular, you should read the asset acquisition agreement,
which is attached as Annex A and incorporated herein by reference. In addition,
we have incorporated by reference important business and financial information
about UnitedHealth Group 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 55.
The Companies
Virginia's Physician Network, Inc.
Post Office Box 500
Richmond, Virginia 23218-0500
Attention: K. Marshall Cook, Esq.
(804) 771-5641
Virginia's Physician Network (VPN) was organized as a 100% physician-owned,
statewide network of physicians and incorporated in Virginia on August 9, 1995.
In 1996, VPN executed a Shareholder Agreement with United HealthCare Services,
Inc. (Purchaser), a wholly-owned subsidiary of UnitedHealth Group Incorporated,
by which VPN and Purchaser organized United HealthCare of Virginia, Inc. (UHC
Virginia), an HMO licensed to do business in Virginia as of October 1997.
Until 1999, VPN served as the primary source of physician services for UHC
Virginia, as well as for other insurance products of UnitedHealth Group and its
subsidiary companies in Virginia. As described below, VPN owns approximately
49% of the outstanding shares of UHC Virginia. If the transactions described in
this proxy statement/prospectus are completed, UnitedHealth Group will acquire
these shares from VPN, and UHC Virginia will become an indirect wholly owned
subsidiary of UnitedHealth Group.
UnitedHealth Group Incorporated
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota 55343
(952) 936-1300
UnitedHealth Group is a national leader in forming and operating markets for
the exchange of health and well-being services. In its five primary businesses,
UnitedHealth Group provides 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 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, these businesses remain interrelated as part of
UnitedHealth Group's health and well-being enterprise. UnitedHealth Group's
businesses share customers, and in some instances, use common information
systems and have access to shared administrative services.
1
<PAGE>
As described below, UnitedHealth Group, through its UnitedHealthcare unit,
owns approximately 51% of the outstanding shares of UHC Virginia, a health
maintenance organization which provides healthcare services through
approximately 7,000 physicians located throughout the Commonwealth of Virginia.
If the transactions described in this proxy statement/prospectus are completed,
UnitedHealth Group will acquire the remaining outstanding shares of UHC
Virginia from VPN, and UHC Virginia will become an indirect wholly owned
subsidiary of UnitedHealth Group.
UnitedHealth Group Incorporated, formerly known as United HealthCare
Corporation, is a Minnesota corporation, incorporated in January 1977. For
further information concerning UnitedHealth Group, please see "Certain
Information Concerning UnitedHealth Group" beginning on page 29 and refer to
the UnitedHealth Group documents which are incorporated by reference in this
proxy statement/prospectus as described under "Incorporation of Certain
Documents by Reference" at page 56.
UnitedHealth Group effected a two-for-one split of its common stock on
December 22, 2000. The information presented throughout this proxy
statement/prospectus reflects this stock split.
Structure of the Transaction (see page 41)
The proposed transaction, if approved by VPN shareholders, will be carried
out pursuant to an asset acquisition agreement dated December 29, 2000, among
UnitedHealth Group, Purchaser, and VPN, a copy of which is attached to this
proxy statement/prospectus as Annex A. Pursuant to the asset acquisition
agreement, Purchaser agrees to purchase 1,237.25 shares of UHC Virginia common
stock from VPN in exchange for a combination of (i) shares of UnitedHealth
Group common stock which will be paid to VPN, and (ii) Purchaser's resolution
of certain contested monetary obligations owing from VPN to Purchaser, as
follows:
. The number of shares of UnitedHealth Group common stock to be paid to
VPN will be determined by dividing $17,948,278.04 by the "Parent Average
Price." The "Parent Average Price" will be the average closing price per
share of UnitedHealth Group common stock on the New York Stock Exchange
for the 30 consecutive trading days ending with and including the third
business day preceding the date the transactions called for by the asset
acquisition agreement are completed. Based on the closing price of
UnitedHealth Group common stock on the New York Stock Exchange on
January 12, 2001 ($54.1875 per share), a total of 331,225 shares of
UnitedHealth Group common stock would be paid to VPN.
The shares of UnitedHealth Group common stock paid to VPN will be
immediately distributed to VPN shareholders pro rata based on the number
of shares of VPN common stock held by each shareholder. Based on the
closing price of UnitedHealth Group common stock set forth above and the
number of VPN shares outstanding on the date of this proxy
statement/prospectus (assuming the cashless exercise of all currently
exercisable options to purchase VPN shares), each shareholder of VPN
would receive approximately 0.1493 shares of UnitedHealth Group common
stock having a value of approximately $8.09 for each share of VPN common
stock held by such shareholder. However, no fractional share of
UnitedHealth Group common stock will be issued to any VPN shareholder.
Instead, a cash payment will be made in lieu of such fractional share,
as described under "The Asset Acquisition Agreement--Distribution of
UnitedHealth Group Shares to VPN Shareholders."
. In addition, Purchaser will become responsible for the resolution of a
contested liability represented by VPN's promissory note in the amount
of $2,351,721.96 payable to Purchaser, and VPN will have no further
liability on the note. VPN issued this note to Purchaser in November
1999 pending final determination of the "cost-over-capitation" liability
owing from VPN to Purchaser in connection with Purchaser's purchase of
certain assets from VPN in June 1999. For a further description of this
"cost- over-capitation" liability, see "The Proposed Transaction--
Background of the Proposed Transaction."
2
<PAGE>
The parties have agreed that the sale of UHC Virginia shares pursuant to the
asset acquisition agreement will satisfy VPN's right to "put" such shares to
Purchaser under an existing shareholders agreement between them. See "The
Proposed Transaction--Background of the Proposed Transaction."
The asset acquisition agreement also provides that following this
transaction, VPN will dissolve and terminate its corporate existence in
accordance with its articles of incorporation, bylaws, and Virginia law as soon
as is practicable, and in any event not more than one year after this
transaction is completed.
Shareholder Approval (see page 17)
In order for the proposed transaction to be completed, holders of more than
two-thirds of the shares of VPN common stock outstanding at the close of
business on January , 2001 (the record date for the special meeting) must
approve the proposed transaction. UnitedHealth Group's shareholders are not
required to approve the proposed transaction.
You are entitled to cast one vote per share of VPN common stock you owned as
of the record date for the special meeting.
Recommendation of VPN's Board of Directors (see page 22)
After careful consideration, VPN's board of directors has unanimously
approved the asset acquisition agreement and the proposed transaction and has
determined that they are in the best interests of VPN's shareholders. VPN's
board of directors unanimously recommends that its shareholders vote FOR the
approval of the proposed transaction.
Conditions to the Proposed Transaction (see page 44)
The parties' respective obligations to complete the proposed transaction 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 proposed transaction:
. the proposed transaction must be approved by the holders of more than
two-thirds of the shares of VPN common stock outstanding at the close of
business on the record date for the special meeting;
. all necessary governmental and other third party consents must be
obtained; and
. VPN must receive an opinion from its counsel to the effect that:
. the transfer of UHC Virginia shares by VPN pursuant to the asset
acquisition agreement and the delivery of the shares of UnitedHealth
Group common stock payable therefor to VPN's shareholders will be
treated as a "reorganization" within the meaning of the Internal
Revenue Code;
. VPN will recognize no gain or loss on the transfer of UHC Virginia
shares by VPN pursuant to the asset acquisition agreement or on the
delivery of the shares of UnitedHealth Group common stock payable
therefore to VPN's shareholders; and
. VPN's shareholders will recognize no gain or loss on the transfer of
UHC Virginia shares by VPN pursuant to the asset acquisition
agreement or on the delivery of the shares of UnitedHealth Group
common stock payable therefor to VPN's shareholders other than with
respect to cash received in lieu of fractional shares or otherwise.
3
<PAGE>
Termination of the Asset Acquisition Agreement (see page 45)
The asset acquisition agreement may be terminated by mutual consent, or by
either UnitedHealth Group or VPN under certain circumstances, at any time
before the completion of the proposed transaction, including:
. if the proposed transaction is not completed, without the fault of the
terminating party, on or before May 30, 2001;
. if VPN's shareholders do not approve the proposed transaction by the
required vote;
. if the other party breaches any of its representations and warranties
contained in the asset acquisition agreement or breaches or fails to
perform in any material respect any of its agreements contained in the
asset acquisition agreement and such breach or failure is not cured
within 30 days after receipt of written notice from the non-breaching
party.
The asset acquisition agreement may also be terminated by UnitedHealth Group
if, among other things, VPN's board of directors withdraws or modifies in a
manner adverse to UnitedHealth Group or Purchaser its approval of the asset
acquisition agreement and the transaction contemplated thereby or its
recommendation that VPN's shareholders approve such transaction.
Interests of Certain Persons in the Proposed Transaction (see page 24)
No person that is or has been at any time an executive officer or director
of VPN since the beginning of VPN's last fiscal year has any interest in the
proposed transaction that is different from or in addition to his interest as a
VPN shareholder generally, except that VPN will pay to C. Gregory Lockhart,
M.D. and K. Marshall Cook those sums contractually required to terminate their
existing employment agreements with VPN upon the dissolution and termination of
VPN.
U.S. Federal Income Tax Consequences of the Proposed Transaction (see page 25)
We have structured the proposed transaction so that, in general, neither VPN
nor its shareholders will recognize gain or loss for United States federal
income tax purposes upon their receipt of shares of UnitedHealth Group common
stock pursuant to the asset acquisition agreement, except for taxes payable by
VPN shareholders because of cash received by them. It is a condition to the
completion of the proposed transaction that VPN receives a legal opinion from
its counsel to this effect.
We urge you to carefully consider the discussion under "The Proposed
Transaction--Certain Federal Income Tax Considerations" and to consult your own
tax advisors regarding the specific tax consequences of the proposed
transaction to you.
Restrictions on the Ability to Sell UnitedHealth Group Common Stock (see page
28)
All shares of UnitedHealth Group common stock you receive in connection with
the proposed transaction will be freely transferable unless you are considered
an "affiliate" of either VPN or UnitedHealth Group for purposes of Rule 145
promulgated under the Securities Act of 1933, in which case you will be
permitted to sell the shares of UnitedHealth Group common stock you receive
only in accordance with Rule 145.
No Dissenters' Rights
Under the Virginia Stock Corporation Act, you are not entitled to
dissenters' rights in connection with the proposed transaction. Therefore, if
the proposed transaction is approved by the required two-thirds vote of VPN
shareholders, you will receive shares of UnitedHealth Group common stock
ratably with other VPN shareholders, regardless of whether or not you voted in
favor of the proposed transaction. You will not have the option of having the
"fair value" of your shares of VPN common stock determined by a court and paid
to you in cash by VPN.
4
<PAGE>
Certain Effects of the Proposed Transaction (see page 47)
Upon completion of the proposed transaction you will become a shareholder of
UnitedHealth Group, and upon the dissolution and termination of VPN called for
by the asset acquisition agreement you will cease to be a shareholder of VPN.
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 proposed transaction and the dissolution and
termination of VPN will result in certain differences in the rights of VPN
shareholders. See "Comparison of Rights of Shareholders of UnitedHealth Group
and VPN."
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, as amended. 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 10 of this proxy statement/prospectus.
5
<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 September 30, 2000 and for the
nine months ended September 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
September 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 nine months
ended September 30, 2000 and 1999 have been reflected therein. Operating
results for the nine months ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the full year.
<TABLE>
<CAPTION>
Nine Months
Ended
September 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................ $15,688 $14,570 $19,562 $17,355 $11,794 $10,074 $5,671
======= ======= ======= ======= ======= ======= ======
Earnings (Loss) from
Operations............. $ 870 $ 685 $ 943 $ (42)(1) $ 742 $ 581(2) $ 461(3)
======= ======= ======= ======= ======= ======= ======
Net Earnings (Loss)..... $ 526 $ 411 $ 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........... $ 526 $ 411 $ 568 $ (214)(1) $ 431 $ 327(2) $ 279(3)
======= ======= ======= ======= ======= ======= ======
Basic Net Earnings
(Loss) per Common
Share................ $ 1.62 $ 1.17 $ 1.63 $ (0.56)(1) $ 1.15 $ 0.90(2) $ 0.80(3)
======= ======= ======= ======= ======= ======= ======
Diluted Net Earnings
(Loss) per Common
Share................ $ 1.56 $ 1.15 $ 1.60 $ (0.56)(1) $ 1.13 $ 0.88(2) $ 0.79(3)
======= ======= ======= ======= ======= ======= ======
Dividends per Share:
Common Stock.......... $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02
Convertible Preferred
Stock................ -- -- -- 56.03 57.50 57.50 14.38
Weighted Average Number
of Common Shares
Outstanding:
Basic................. 325.2 352.6 348.2 381.2 374.0 363.2 347.2
Diluted............... 337.2 358.6 355.0 381.2 381.6 371.6 354.8
Balance Sheet Data (as
of):
Cash and Investments.... $ 4,685 $ 4,224 $ 4,719 $ 4,424 $ 4,041 $ 3,453 $3,078
Total Assets............ 10,463 9,785 10,273 9,675 7,623 6,997 6,161
Debt.................... 1,065 650 991 708 -- -- --
Convertible Preferred
Stock.................. -- -- -- -- 500 500 500
Shareholders' Equity.... 3,657 3,970 3,863 4,038 4,534 3,823 3,188
</TABLE>
6
<PAGE>
--------
(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 payable estimates
of $175 and the convertible preferred stock redemption premium of $20 from
the year ended December 31, 1998, 1998 earnings from operations, net
earnings and net earnings applicable to common shareholders would have been
$858, $537 and $509, respectively, or $1.31 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 $0.03
diluted net earnings per common share) and the provision for future losses
on two large multi-year contracts of $45 ($27 after tax, or $0.08 diluted
net earnings per common share), 1996 earnings from operations and net
earnings would have been $641 and $392, or $0.98 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 $0.28 diluted net earnings per common share), 1995 earnings
from operations and net earnings would have been $615 and $383, or $1.06
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.
7
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Recent Closing Prices
There is no established public trading market for VPN common stock and, to
the knowledge of VPN, historical quotation information for such common stock in
the over-the-counter market is not available.
The table below presents the closing price per share of UnitedHealth Group
common stock on the New York Stock Exchange, as adjusted to reflect
UnitedHealth Group's December 22, 2000 two for one stock split, on January 12,
2001, the last full trading day immediately preceding the filing of the
registration statement of which this proxy statement/prospectus is a part, and
on January , 2001, the most recent practicable date prior to the mailing of
this document, as well as the "equivalent stock price" of shares of VPN common
stock on such dates. The "equivalent stock price" of shares of VPN common stock
represents the closing sales price per share for UnitedHealth Group's common
stock on the New York Stock Exchange on January 12, 2001 and January , 2001,
multiplied by 0.1493 and 0. . These decimals are estimates of the numbers of
shares of UnitedHealth Group common stock to be issued for each share of VPN
common stock under the asset acquisition agreement based on (i) the closing
price per share of UnitedHealth Group common stock on such dates, and (ii) the
number of VPN shares outstanding on the date of this proxy statement/prospectus
(assuming the cashless exercise of all currently exercisable options to
purchase VPN shares). Due to the operation of the formula set forth in the
asset acquisition agreement, the VPN "equivalent stock price" will not vary
with changes in the market price of UnitedHealth Group common stock. You should
recognize, however, that the market price of UnitedHealth Group common stock
may be lower on the day the proposed transaction is completed than its average
price during the 30-day calculation period for determining the number of shares
of UHG common stock to be issued, and that such market price will vary from day
to day after the proposed transaction is completed.
<TABLE>
<CAPTION>
UnitedHealth
Group VPN Equivalent
Common Stock Stock Price
(price per share) (price per share)
----------------- -----------------
<S> <C> <C>
January 12, 2001...................... $54.1875 $8.09
January , 2001..................... $ $
</TABLE>
Historical Market Price Data
UnitedHealth Group's common stock is traded on the New York Stock Exchange
under the symbol "UNH." The following table sets forth the high and low sales
prices per share of UnitedHealth Group's common stock for the periods
indicated.
<TABLE>
<CAPTION>
UnitedHealth
Group
Common Stock
---------------
High Low
------- -------
<S> <C> <C>
1998
Quarter ended March 31, 1998................................... $ 33.41 $ 23.28
Quarter ended June 30, 1998.................................... 36.97 30.63
Quarter ended September 30, 1998............................... 33.25 14.78
Quarter ended December 31, 1998................................ 25.31 16.69
1999
Quarter ended March 31, 1999................................... $ 27.34 $ 19.72
Quarter ended June 30, 1999.................................... 35.00 22.35
Quarter ended September 30, 1999............................... 33.35 24.03
Quarter ended December 31, 1999................................ 29.25 19.69
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
UnitedHealth
Group
Common Stock
---------------
High Low
------- -------
<S> <C> <C>
2000
Quarter ended March 31, 2000................................... $ 31.42 $ 23.80
Quarter ended June 30, 2000.................................... 34.00 30.00
Quarter ended September 30, 2000............................... 49.72 39.10
Quarter ending December 31, 2000............................... 62.44 48.63
2001
Quarter ended March 31, 2001 (through , 2001)............ $ $
</TABLE>
As noted before, there is no established public trading market for VPN
common stock and, to the knowledge of VPN, historical quotation information for
such common stock in the over-the-counter market is not available.
Dividend Information
UnitedHealth Group has paid a cash dividend equal to $.02 per share, per
year, on its common stock for its fiscal years 1999, 1998, 1997, 1996 and 1995.
VPN has never had sufficient earnings to pay a cash dividend to its
shareholders, and consequently no cash dividends have ever been declared or
paid on its common stock.
Number of Shareholders
As of January 12, 2001, there were approximately 3,105 shareholders of
record who held shares of VPN common stock.
Shares Held by Certain VPN Shareholders
As of January 12, 2001, the directors and executive officers of VPN and
their affiliates as a group held approximately 1.83% of the outstanding shares
of VPN and held presently exercisable options to acquire another approximately
7.55%. Approval of the transaction contemplated by the asset acquisition
agreement requires the affirmative vote of the holders of more than two-thirds
of the shares of VPN common stock outstanding at the close of business on the
record date for the special meeting.
9
<PAGE>
RISK FACTORS
By voting in favor of the proposed transaction, 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 proposed transaction.
Risks Relating to the Proposed Transaction
Subsequent Liabilities.
The proposed transaction calls for the liquidation and dissolution of VPN as
soon as practicable, and in any event not more than one year after the
transactions provided for in the asset acquisition agreement are completed. VPN
shareholders generally will not be liable for VPN obligations to the extent
claims are asserted against VPN after such liquidation and dissolution for
liabilities incurred prior the liquidation and dissolution. However, under
certain circumstances, you, as a VPN shareholder, may be liable for certain
claims (for example, tax obligations) asserted against VPN after its
liquidation and dissolution, but only to the extent of the value of any
UnitedHealth Group stock and the amount of cash, if any, distributed to you in
connection with the proposed transaction. This risk is exacerbated by the
uncertainty surrounding the proper tax treatment of the settlement of the cost-
over-capitation liability. See "--Consideration Associated With Cost Over
Capitation Liability" and "The Proposed Transaction--Certain Federal Income Tax
Considerations--C Reorganization Requirements and Consequences--Boot and Debt
Resolution" and "--Other Consequences--Forgiveness of Debt" below.
Minority Shareholder Status if Proposed Transaction is Not Completed.
If the proposed transaction is not completed, VPN will continue to own 49%
of the outstanding shares of common stock of UHC Virginia. As such, VPN will
continue to be a minority shareholder of UHC Virginia, and will have limited
ability to control the policies and practices of UHC Virginia. In addition, it
will not have the ability to require the sale of UHC Virginia, or all or
substantially all of its assets. Further, VPN may be required to make
additional capital contributions to UHC Virginia. If the proposed transaction
is not completed and VPN remains a minority shareholder, the VPN Board of
Directors believes that it is unlikely that VPN shareholders will receive a
return that is equal to or greater than the price per share to be paid in the
proposed transaction.
Consideration Associated With Cost-Over-Capitation Liability.
As part of the consideration VPN will receive in the proposed transaction,
Purchaser will become responsible for the resolution of a contested liability
represented by VPN's promissory note in the amount of $2,351,721.96 payable to
Purchaser, and VPN will have no further liability on the note. VPN issued the
note to Purchaser in November 1999 pending final determination of the cost-
over-capitation liability owing from VPN to Purchaser in connection with
Purchaser's purchase of certain assets from VPN in June 1999. VPN and
UnitedHealth Group and Purchaser disagree as to VPN's cost-over-capitation
liability. The amount of consideration attributed to transfer of responsibility
for the note is different than the value placed on it by VPN. No assurances can
be given that the amount of consideration attributed to transfer of
responsibility for the note is equal to its fair value.
Absence of Investment Banker's Opinion.
No investment banker has been asked to give, nor has any given, its opinion
as the specific provisions or the fairness of the proposed transaction.
However, since early 1999, VPN has utilized the services of Cain Brothers &
Company, LLC, a nationally recognized investment banking firm that focuses
exclusively on the medical services industry, to act as a strategic and
financial adviser. Prior to the VPN shareholders' approval in 1999 of the
agreements that form the basis for the proposed transaction (including the
value of the consideration to be received by VPN or its shareholders), Cain
Brothers & Company, LLC rendered a written
10
<PAGE>
opinion that the consideration to be received by VPN and its shareholders was
fair. Cain Brothers & Company, LLC continued its financial analysis of UHC
Virginia throughout 2000, meeting by telephone with the VPN Board of Directors
in October 2000 and concluding that it was unlikely that the value of VPN's
interest in UHC Virginia exceeded the guaranteed minimum available to VPN
shareholders under the existing agreements with Purchaser at that time.
Accordingly, you may take into account this information, but you are cautioned
to rely on your own determination as to the reasonableness of the terms of the
proposed transaction and the fairness of the consideration to be received by
VPN.
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. 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
11
<PAGE>
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.
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 will 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 have required additional
time to complete in the most effective manner and to obtain certain required
regulatory approvals, 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
12
<PAGE>
current information becomes available, it may be necessary for UnitedHealth
Group to adjust its 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 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 also 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.
UnitedHealth Group's operations are conducted through its wholly owned
subsidiaries, which include HMOs and insurance companies. HMOs and insurance
companies are subject to state regulations that, among other things, may
require the maintenance of minimum levels of statutory capital, as defined by
each state, and may restrict the timing and amount of dividends and other
distributions that may be paid to their respective parent companies. Generally,
the amount of dividend distributions that may be paid by regulated insurance
and HMO companies, without prior approval by state regulatory authorities, is
limited based on the entity's level of statutory net income and statutory
capital and surplus. As of September 30, 2000, UnitedHealth Group's regulated
subsidiaries had aggregate statutory capital and surplus of approximately $1.4
billion, compared with their aggregate minimum statutory capital and surplus
requirements of approximately $400 million.
Provider Relations.
One of the significant techniques UnitedHealth Group uses to manage health
care costs and facilitate care delivery is contracting with physicians,
hospitals and other providers. Because UnitedHealth Group's health
13
<PAGE>
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. A number of organizations are
advocating for legislation 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 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-
competition 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. 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, treble or punitive 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 Health Insurance
Portability and Accountability Act's ("HIPAA's") administrative simplification
provisions and the Department of Labor's 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'
14
<PAGE>
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.
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 United States Department of Health and Human
Services has recently released final regulations regarding this issue, as
directed under HIPAA.
15
<PAGE>
UnitedHealth Group is currently evaluating the effect these rules will have on
its existing policies and practices and anticipates that certain systems
changes and new administrative processes will be required, 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 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.
Financial Outlook.
From time to time in earnings releases and otherwise, UnitedHealth Group may
publish forecasts or other forward-looking statements regarding its future
results, including estimated revenues or net earnings. Any forecast of its
future performance reflects various assumptions. These assumptions are subject
to significant uncertainties, and as a matter of course, any number of them may
prove to be incorrect. Further, the achievement of any forecast depends on
numerous risk and other factors (including those described in this discussion),
many of which are beyond UnitedHealth Group's control. As a result,
UnitedHealth Group cannot assure you that its performance will be consistent
with any management forecasts or that the variation from such forecasts will
not be material and adverse. You are cautioned not to base your entire analysis
of UnitedHealth Group's business and prospects upon isolated predictions, but
instead are encouraged to utilize UnitedHealth Group's entire publicly
available mix of historical and forward-looking information, as well as other
available information affecting UnitedHealth Group and its services, when
evaluating UnitedHealth Group's prospective 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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<PAGE>
THE SPECIAL MEETING OF VPN SHAREHOLDERS
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of VPN common stock by VPN board of
directors for use at the Special Meeting of VPN shareholders.
Date, Time and Place of the Special Meeting
The Special Meeting will be held at a.m., local time, on ,
, 2001, at .
Matters to be Considered at the Special Meeting
At the Special Meeting, VPN shareholders will be asked to consider and vote
upon a proposal to approve (a) the sale of substantially all of VPN's assets,
consisting of approximately 49% of the outstanding shares of UHC Virginia, to
Purchaser in exchange for shares of UnitedHealth Group common stock which will
be distributed to VPN shareholders and for the resolution of certain contested
monetary obligations of VPN, all pursuant to the asset acquisition agreement,
and (b) the subsequent dissolution and termination of VPN as required by the
asset acquisition agreement.
Record Date and Shares Entitled to Vote
VPN's board of directors has fixed the close of business on January , 2001,
as the record date for determination of VPN shareholders entitled to notice of
and to vote at the Special Meeting. As of the close of business on the record
date, there were shares of VPN common stock outstanding and
entitled to vote, held of record by approximately shareholders. 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 VPN shareholder is entitled to one vote for each share
of VPN common stock held as of the record date.
Voting of Proxies; Revocation of Proxies
You are requested to complete, date and sign the enclosed proxy and return
it to VPN immediately by faxing it to (804) 771-5625 or by mailing it in the
enclosed pre-addressed, postage-paid envelope. All properly executed proxies
received by VPN 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 the proposed transaction.
Votes will be tabulated by the inspectors of election appointed by VPN.
VPN'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 VPN'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 VPN 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
Approval of the sale of substantially all of VPN's assets pursuant to the
asset acquisition agreement and the subsequent dissolution and termination of
VPN as required by the asset acquisition agreement is required by the Virginia
Stock Corporation Act. Such approval requires the affirmative vote of the
holders of more than two-thirds of the shares of VPN common stock outstanding
and entitled to vote at the special meeting.
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<PAGE>
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 VPN common stock issued and outstanding on the
record date. Abstentions 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 approval of the proposed transaction requires the
affirmative vote of more than two-thirds of the outstanding shares of VPN
common stock entitled to vote, abstentions will have the same effect as votes
against the proposed transactions. In addition, the failure of a VPN
shareholder to return a proxy will have the effect of a vote against the
approval of the proposed transaction.
Expenses of Solicitation
VPN will pay its out-of-pocket expenses of soliciting proxies from you. In
addition to solicitation by mail, the directors and officers of VPN may solicit
proxies from shareholders by telephone, facsimile or in person.
Board Recommendation
THE VPN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT VPN SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE PROPOSED TRANSACTION.
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<PAGE>
THE PROPOSED TRANSACTION
This section of the proxy statement/prospectus describes material aspects of
the proposed transaction. While we believe that the description covers the
material terms of the asset acquisition agreement and the transactions provided
for therein, this summary may not contain all of the information that is
important to you. You should read this entire document, the attached annex and
the other documents we refer to carefully for a more complete understanding of
the proposed transaction.
Background of the Proposed Transaction
General.
VPN was organized as a 100% physician-owned, statewide network of physicians
and incorporated in Virginia on August 9, 1995. Pursuant to the initial
Shareholder Agreement (Shareholder Agreement I) between VPN and Purchaser, VPN
and Purchaser organized UHC Virginia, an HMO licensed to do business in
Virginia as of October 1997. Purchaser owns 51% and VPN owns 49% of UHC
Virginia. Under Shareholder Agreement I, VPN was granted authority to elect
five of eleven directors to the UHC Virginia Board of Directors, one of whom
was the chairman of the board. A majority of both Purchaser and VPN
representatives to the UHC Virginia Board of Directors had to approve the
annual budget, any amendment or repeal of its articles of incorporation or
bylaws, the determination of a need for and raising of additional capital and
twelve other items specifically detailed in Shareholder Agreement I. In
addition, Shareholder Agreement I assured VPN a majority of the members on UHC
Virginia committees that dealt with patient care (credentialing, quality
assurance, utilization management, medical policy and guidelines).
In the event that the UHC Virginia Board of Directors determined that
additional capital was necessary, Shareholder Agreement I required Purchaser to
provide 51% and VPN to provide 49% of that capital. If either party was unable
or refused to provide its portion of necessary capital within 75 days of the
UHC Virginia Board's determination, the other party could do so and obtain the
appropriate number of additional shares in UHC Virginia.
VPN served as the primary source of physician services for UHC Virginia, as
well as for other insurance products of UnitedHealth Group and its subsidiary
companies in Virginia pursuant to a Provider Agreement dated March 1, 1996,
between VPN and UHC Virginia. Until July 1, 1999, VPN provided these physician
services to UHC Virginia under a global capitation arrangement. Physicians were
reimbursed on a discounted fee-for-service basis. VPN also received a network
access fee from United HealthCare Insurance Company (UHI), a subsidiary of
UnitedHealth Group, for access to VPN's network of physicians under the terms
of a letter agreement with UHI, dated April 27, 1998.
Sales of UHC Virginia's HMO product began in October 1997 and grew
significantly. On December 31, 1997, UHC Virginia had approximately 5,000
members. By December 1998, that number had grown to more than 46,000, and by
June 1999 to more than 67,000. Since then this number has remained relatively
stable.
VPN and UHC Virginia Financial Losses.
Both VPN and UHC Virginia faced financial challenges as a result of this
rapid growth in membership. Prior to July 1, 1999, VPN received revenue from
two sources (other than its investment income): (i) its capitation payment from
UHC Virginia and (ii) the network access fee paid by UHI. When UHC Virginia
began operations in 1997, its Board of Directors voted to withhold a 10%
financial allowance under each physician's individual provider agreement to
cushion the network against potential financial losses under the capitation
payment agreement with UHC Virginia. Even with this 10% cushion, however, VPN
spent at least $1.26 million more in physician reimbursements than it received
in 1998. Capitation losses for VPN for 1999 were even more significant.
Financial losses for UHC Virginia, in which VPN owned a 49% interest, were
equally significant. Audited financial statements for UHC Virginia showed a net
operating loss of $734,069 in 1997 and of $5,665,339 in 1998. The book value of
VPN's interest in UHC Virginia dropped from $4,326,300 on December 31, 1997 to
$1,550,068 on December 31, 1998.
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<PAGE>
Capital Infusions Required in 1999.
In March 1999, UHC Virginia required a capital infusion of $1.25 million to
maintain the minimum net worth required by Virginia law. VPN contributed its
49% portion ($612,500) of that capital infusion on March 30, 1999, and
Purchaser contributed its 51% portion ($637,500) as well.
On June 8, 1999, UHC Virginia received correspondence from the Virginia
Bureau of Insurance that significantly more capital would be required by the
Bureau for UHC Virginia to maintain its statutorily-required net worth. At its
meeting on June 29, 1999, the UHC Virginia Board of Directors reviewed and
discussed the correspondence from the Virginia Bureau of Insurance and the net
worth requirements and unanimously determined that UHC Virginia required
additional capital of $14 million by June 30, 1999 to continue to do business
in Virginia. Purchaser funded its 51% of the additional capital infusion with
cash and loaned VPN $6.86 million (VPN's 49% of the required capital). VPN
signed a $6.86 million Promissory Note and used the loan proceeds for its 49%
portion of the required capital call. As a result of this loan, VPN maintained
its 49% ownership interest in UHC Virginia. Without this loan, VPN would not
have had sufficient assets to satisfy its 49% portion of the capital call.
UnitedHealth Group Negotiations.
Facing losses through its capitation agreement with UHC Virginia and a
reduction in the book value of its 49% ownership in UHC Virginia, the VPN Board
of Directors on January 24, 1999 authorized the officers of VPN to begin
negotiations with UnitedHealth Group to attempt to resolve the financial
problems faced by VPN and UHC Virginia. These negotiations began immediately,
and VPN retained the services of Cain Brothers, Inc. a New York investment
banking firm that focuses exclusively on the medical services industry, to
assist in these negotiations and in the necessary financial analyses to support
VPN's position.
Negotiations ended in late June 1999, with the unanimous approval by the VPN
Board of Directors of an Asset Purchase Agreement, a Second Amendment and
Restatement of Shareholder Agreement, and other related agreements between VPN
and Purchaser (the "Agreements"), and a Plan of Complete Liquidation and
Dissolution (the "Liquidation Plan"). The Agreements and the Liquidation Plan
were approved by the affirmative vote of more than two-thirds of the votes
entitled to be cast at an October 6, 1999 meeting of the VPN shareholders.
The Agreements.
The Asset Purchase Agreement. Purchaser and VPN entered into an Asset
Purchase Agreement dated June 30, 1999, pursuant to which Purchaser purchased
certain assets from VPN for $8 million. The Asset Purchase Agreement was
designed to provide VPN the funds (i) to satisfy its $6.86 million loan, the
proceeds of which were used to satisfy its 49% portion of the $14 million
capital infusion described above, in addition to interest accrued on the loan,
and (ii) to augment VPN's operating funds until a Liquidity Event (as was
defined in the Second Amendment and Restatement of Shareholder Agreement)
occurred. Among the primary assets of VPN were (i) its individual Physician
Participation Agreements with its physicians ("Physician Contracts"), (ii) its
network access fee from UHI, and (iii) its 49% ownership interest in UHC
Virginia. Under the terms of the Asset Purchase Agreement, VPN sold,
transferred and assigned to Purchaser all of its Physician Contracts and all
records relating to VPN's participating physicians, its right to receive the
network access fee from UHI, and all information relating to health services
provided or arranged by VPN. VPN retained its 49% ownership interest in UHC
Virginia.
In the Asset Purchase Agreement, VPN agreed to satisfy all claims for
physician reimbursement under its global capitation agreement with UHC Virginia
for the period ending December 31, 1998. VPN paid $1.26 million from its
operating funds to UHC Virginia to satisfy this requirement on July 15, 1999.
VPN further agreed to satisfy all claims for physician reimbursement under its
global capitation agreement with UHC Virginia for the period from January 1,
1999 through June 30, 1999. This liability ("cost-over-capitation" liability)
was estimated at approximately $3.2 million.
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<PAGE>
VPN intended to satisfy the cost-over-capitation liability through a loan it
would obtain either from a third-party lender or from the Purchaser. Purchaser
agreed to loan VPN the funds to satisfy the cost-over-capitation liability at
an interest rate of prime plus 1% and collateralized by all shares of UHC
Virginia held by VPN that were unencumbered on the date the loan was executed.
The maturity date of the loan from Purchaser would be the closing date
associated with a Liquidity Event. Beginning July 1, 1999, UHC Virginia agreed
to assume full responsibility for claims for physician reimbursement.
The Second Amendment and Restatement of Shareholder Agreement. As part of
their financial arrangements, VPN and Purchaser entered into a Second Amendment
and Restatement of Shareholder Agreement, dated June 30, 1999 ("Shareholder
Agreement II"). Shareholder Agreement II was an amended and restated version of
Shareholder Agreement I, which also was amended effective January 1, 1998 to
facilitate HMO operations in states adjoining Virginia. Shareholder Agreement
II was intended to permit VPN to retain its 49% ownership in UHC Virginia and
its positions on the UHC Virginia Board of Directors and committees while
providing UHC Virginia with additional time to achieve profitability. It also
created (i) a purchase option in favor of Purchaser and a subsequent
requirement for VPN to sell its interest in UHC Virginia (a call right), and
(ii) a sale option in favor of VPN and a subsequent requirement for Purchaser
to purchase VPN's interest (a put right) at fair market value by a certain
date, whether or not UHC Virginia had become profitable, with minimum and
maximum values established for VPN's 49% interest in UHC Virginia.
The amendments to Shareholder Agreement I contained in Shareholder Agreement
II included provisions that established a Valuation Methodology for stock in
UHC Virginia for purposes of the put and call rights in Shareholder Agreement
II. The Valuation Methodology agreed upon would value UHC Virginia stock at
fair market value, subject to a $20 million minimum valuation for all of VPN's
shares in UHC Virginia and a $40 million maximum valuation for such shares. The
put and call rights, as well as the Valuation Methodology, applied (with
exceptions described below) in the following circumstances ("Liquidity
Events"):
. On April 1, 2003, VPN at its sole discretion could require that
Purchaser purchase all of VPN's stock in UHC Virginia. The purchase,
again at VPN's sole option, could be made either by exchanging certain
shares of common voting stock of UnitedHealth Group or cash. In this
instance, the valuation of UHC Virginia stock would be based on a 2002
fiscal year end valuation. VPN's fiscal year ends on December 31.
. On April 1, 2004, if VPN had not exercised its rights described in the
first bullet point above, then VPN would be required to sell, and
Purchaser would be required to purchase, all of VPN's shares in UHC
Virginia. The purchase, at VPN's sole option, could be made either by
exchanging certain shares of common voting stock of UnitedHealth Group
or cash. In this instance, the valuation of UHC Virginia stock would be
based on a 2003 fiscal year end valuation.
. If UHC Virginia requested the infusion of any further capital, VPN had
the option to require Purchaser to purchase all of its shares in UHC
Virginia for a total price of $20 million. Any capital call required a
majority vote of both Purchaser and VPN representatives on the UHC
Virginia Board of Directors, except that no such supermajority consent
was required if the capital infusion was necessary to satisfy UHC
Virginia's regulatory requirements. VPN could elect to receive the total
price either in shares of UnitedHealth Group or cash. This right had to
be exercised by VPN within 30 days of the date VPN first learned of the
additional capital call.
. Purchaser had the right to purchase all of VPN's shares in UHC Virginia
on any date prior to January 1, 2001, for a total price of $30 million.
VPN could elect to receive this total price either in shares of
UnitedHealth Group or in cash.
. VPN had the right to require Purchaser to purchase all of VPN's shares
in UHC Virginia on any date if Purchaser materially breached Shareholder
Agreement II. The sale, at VPN's sole option, could be made either by
exchanging certain shares of common voting stock of UnitedHealth Group
or cash. In this instance, the valuation of UHC Virginia would be fair
market value at the time of the material breach.
21
<PAGE>
The Agreements were overwhelmingly approved by VPN shareholders at a meeting
held on October 6, 1999. At the closing on the Agreements that occurred on
November 5, 1999, VPN executed a Note to Purchaser for $2,351,731.96,
representing its estimated cost-over-capitation liability less a portion of
that debt VPN paid from its operating funds. VPN's shares in UHC Virginia were
pledged as security for that loan. A First Amendment to the Asset Purchase
Agreement was signed, establishing an independent audit procedure to calculate
an actual amount for VPN's cost-over-capitation liability.
Additional Capital Required.
In late 1999, UHC Virginia was notified by the Virginia Bureau of Insurance
that additional capital would be required for the HMO to maintain the minimum
net worth required by statute. A letter agreement was signed by VPN and the
Purchaser, pursuant to which the Purchaser agreed to (i) loan UHC Virginia
sufficient funds to satisfy state requirements, and (ii) extend VPN's put right
for its shares in UHC Virginia as described in the third bullet point above
until December 31, 2000.
VPN Board of Directors Meetings.
The VPN Board of Directors met seven times in 2000, largely (i) to review
UHC Virginia's financial reports, budget and operations and (ii) to receive
reports from its independent auditor on its cost-over-capitation liability to
Purchaser and from Cain Brothers & Company, LLC on its financial analysis of
UHC Virginia's operations.
Following its October meeting, the directors instructed VPN's management to
begin discussions with Purchaser to effect its put of VPN's shares of UHC
Virginia to Purchaser. The proposed transaction is the result of those
negotiations and was approved unanimously at the December 28, 2000 meeting of
the VPN Board of Directors.
VPN's Reasons for the Proposed Transaction and Board of Directors
Recommendation
In reaching its conclusion to approve the asset acquisition agreement and
the transaction provided for therein, the board of directors of VPN considered
a number of factors, including, without limitation, the following:
. Financial losses for UHC Virginia in 1999 and in 2000 were significant.
At regular and special meetings held throughout both years, VPN's board
of directors received reports from management of UHC Virginia that
significant capital infusions were required due to these operating
losses. Pursuant to the agreements with Purchaser approved by VPN
shareholders in October 1999, VPN satisfied its obligations for its
portion of capital by assigning virtually all its assets to Purchaser,
except its 49% ownership interest in UHC Virginia.
. The resolution of the contested cost-over-capitation liability of VPN to
Purchaser, estimated in the earlier agreements with Purchaser to be
approximately $3.2 million, was proving to be time consuming and could
have become more costly to VPN. The resolution of this contested VPN
liability through the proposed transaction, compared to the alternative
methods in the existing agreements with Purchaser to contest and
determine what, if any, cost-over-capitation liability VPN had to
Purchaser, was preferable.
. Since early 1999, VPN has utilized the services of Cain Brothers &
Company, LLC, a nationally recognized investment banking firm that
focuses exclusively on the medical services industry, to act as a
strategic and financial advisor. Prior to the VPN shareholders' approval
in 1999 of the agreements that form the basis for the proposed
transaction (including the value of the consideration to be received by
VPN and its shareholders), Cain Brothers & Company, LLC rendered a
written opinion to the VPN Board of Directors that the consideration to
be received by VPN and its shareholders was fair to such shareholders.
Cain Brothers & Company, LLC continued its financial analysis of UHC
Virginia throughout 2000, meeting with the VPN Board of Directors in
October
22
<PAGE>
2000 by telephone and concluding that it was unlikely that the value of
VPN's interest in UHC Virginia exceeded the guaranteed minimum available
to VPN shareholders under the existing agreements with Purchaser at that
time.
VPN contracted to pay Cain Brothers & Company, LLC a fee for its
strategic and financial advisory services in connection with the
negotiation of the earlier agreements with Purchaser and contingent on
the closing of those agreements. This fee equals 1% of the first $15
million purchase price for VPN's interest in UHC Virginia and 4% of that
portion of the purchase price in excess of $15 million. An additional
fee of $100,000 was paid to Cain Brothers & Company, LLC for preparation
of the fairness opinion in 1999, concerning the earlier agreements with
Purchaser.
. There would be beneficial tax consequences for VPN and VPN shareholders
if the transaction was treated as a reorganization within the meaning of
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended,
as provided in the asset acquisition agreement.
. VPN's put under existing agreements with Purchaser was required to be
exercised on or before December 31, 2000, and could not be exercised
thereafter until April 1, 2003.
The discussion above addresses the material factors considered by the VPN
board of directors in its consideration of the proposed transaction. In view of
the variety of factors and the amount of information considered, the VPN 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 VPN board may have given different weights to the different factors. For
a discussion of the interests of certain members of VPN's management and the
VPN board of directors in the proposed transaction, see "--Interests of Certain
Persons in the Proposed Transaction" below.
FOR THE REASONS DISCUSSED ABOVE, THE VPN BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE ASSET ACQUISITION AGREEMENT AND THE PROPOSED TRANSACTION, AND IT
UNANIMOUSLY RECOMMENDS THAT VPN SHAREHOLDERS VOTE FOR APPROVAL OF THE PROPOSED
TRANSACTION.
In considering the recommendation of VPN's board of directors with respect
to the proposed transaction, you should be aware that certain directors and
officers of VPN may have certain interests in the proposed transaction that are
different from, or are in addition to, the interests of VPN shareholders
generally. Please see the section entitled "--Interests of Certain Persons in
the Proposed Transaction" on page 24 of this proxy statement/prospectus.
UnitedHealth Group's Reasons for the Proposed Transaction
As described above under "--Background of the Proposed Transaction," VPN had
the right to "put" its shares of UHC Virginia stock to Purchaser for $20
million in cash or UnitedHealth Group common stock, at VPN's option, if the
right was exercised on or before December 31, 2000. During the fourth quarter
of 2000, representatives of VPN indicated to UnitedHealth Group that VPN
intended to exercise this right. In order to provide for the exercise of this
put right and to resolve the cost-over-capitation issue between the parties,
UnitedHealth Group and Purchaser negotiated and entered into the asset
acquisition agreement with VPN.
Completion of the Proposed Transaction
The sale of UHC Virginia common stock by VPN to Purchaser will be completed
when all of the conditions to closing set forth in the asset acquisition
agreement have been satisfied or waived, including the approval of the proposed
transaction by VPN shareholders. We are working to complete the proposed
transactions as quickly as possible. Because the closing is subject to
governmental approvals, however, we cannot predict the exact timing of the
closing.
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<PAGE>
Operation of UHC Virginia Following the Proposed Transaction
After the sale of UHC Virginia common stock by VPN to Purchaser is
completed, UHC Virginia will be a wholly owned indirect subsidiary of
UnitedHealth Group. As such, UnitedHealth Group will have the ability to elect
all of UHC Virginia's directors and officers and to operate UHC Virginia in
such manner as it deems to be in UnitedHealth Group's own best interests, as
opposed to the current structure where UnitedHealth Group controls a majority
of shares.
Dissolution of VPN Following the Proposed Transaction
The asset acquisition agreement provides that VPN shall dissolve and
terminate its corporate existence promptly after the closing of the transaction
contemplated thereby, and in any event not more than one year after the
closing. At its meeting on August 8, 1999, the VPN Board of Directors adopted a
Plan of Complete Liquidation and Distribution for VPN (the "Plan of
Liquidation"). VPN shareholders approved the Plan of Liquidation on October 6,
1999. It is the intention of the VPN Board of Directors that VPN will be
dissolved and terminated as described below and in accordance with the Plan of
Liquidation.
In connection with the Plan of Liquidation, VPN will collect its assets, pay
all fixed and known liabilities, and make provision for unascertained or
contingent liabilities, all in accordance with applicable law and in reliance
on experts and consultants as appropriate and necessary. VPN's Board will use
its good faith business judgment to determine the propriety of making a final
reserve for contingent, unascertained, or unliquidated claims, and may
establish a liquidating trust to hold assets for the purpose or satisfying any
such claims for a period of time. VPN will then make a final distribution of
its remaining assets (less the potential reserve described above to meet claims
of creditors, if determined appropriate) on a pro rata basis to and among its
shareholders in complete cancellation of their shares. There can be no
assurance that unanticipated claims will not arise or that no claims will be
asserted in larger amounts than anticipated or reserved for. See "Certain
Federal Income Tax Considerations--Other Consequences--Forgiveness of Debt."
Although unlikely, the possibility exists that creditors could assert claims
against VPN's shareholders to satisfy such claims, but only to the extent of
the value of consideration received by such shareholders. See "Risk Factors--
Risks Related to the Proposed Transaction--Subsequent Liabilities."
Finally, after completion of the steps outlined above but in no event more
than one year after closing the transaction contemplated herein, the VPN Board
will cause VPN to file Articles of Termination with the State Corporation
Commission of the Commonwealth of Virginia to terminate the corporate existence
of VPN.
Interests of Certain Persons in the Proposed Transaction
No person that is or has been at any time an executive officer or director
of VPN since the beginning of VPN's last fiscal year has any interest in the
proposed transaction that is different from or in addition to his interest as a
VPN shareholder generally, except that VPN will pay to C. Gregory Lockhart,
M.D. and K. Marshall Cook those sums contractually required to terminate their
existing employment agreements with VPN. Dr. Lockhart is President, Chief
Executive Officer, Chairman of the Board of Directors and a director of VPN,
and Mr. Cook is Secretary and General Counsel of VPN. When the corporate
existence of VPN is terminated as required by the asset acquisition agreement,
Dr. Lockhart and Mr. Cook each will be entitled to receive a lump sum payment
equal to the amount of salary payable through the end of the stated terms of
their respective employment agreements with VPN. Both employment agreements
have a stated term ending December 31, 2002. Dr. Lockhart's provides for an
annual salary of $100,000, and Mr. Cook's provides for an annual salary of
$150,000.
VPN Common Stock Ownership
No shareholder owns beneficially more than 5% of the outstanding shares of
VPN common stock as of January 12, 2001.
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The following table sets forth, as of January 12, 2001, information
regarding the beneficial ownership of VPN common stock by VPN's directors and
executive officers, and by all directors and executive officers of VPN as a
group.
<TABLE>
<CAPTION>
Number of Shares
Amount and Beneficially Owned
Nature of as a Result of Options
Beneficial Exercisable Within
Name of Beneficial Owner Ownership(1) 60 days of Jan. 12, 2001
------------------------ ------------ ------------------------
<S> <C> <C>
Elaine L. Cockerham, M.D......... 5,525 1,525
K. Marshall Cook................. 92,294(2) 85,994
David A. Ellington, M.D.......... 4,635(3) 1,575
Thomas W. Eppes, Jr., M.D........ 6,975(4) 1,975
Edward G. Koch, M.D.............. 1,910 -0-
C. Gregory Lockhart, M.D......... 85,994(5) 81,393
Henry L. Rothfuss, M.D........... 3,325 2,125
Robert E. Rude, M.D.............. 2,700 -0-
Thomas M. Walker, M.D............ 11,925(6) 1,325
All executive officers and
directors as a group
(9 persons)..................... 215,283 175,912
</TABLE>
--------
(1) Unless otherwise noted, each person and group identified possesses sole
voting and investment power with respect to the shares shown opposite such
person's or group's name. Shares not outstanding but deemed beneficially
owned by virtue of the right of an individual to acquire them within 60
days of January 12, 2001 are treated as outstanding only when determining
the amount and percent owned by such individual or group. All amounts
shown for individuals reflect less than 1% of the shares outstanding,
except for Mr. Cook who beneficially owns 3.97% of the shares outstanding,
and Dr. Lockhart who beneficially owns 3.7% of the shares outstanding. The
group total reflects 9.25% of the shares outstanding.
(2) Includes 6,300 shares held by Mr. Cook's spouse in an Individual
Retirement Account. Mr. Cook disclaims beneficial ownership with respect
to these shares.
(3) Includes 3,060 shares held in an Individual Retirement Account for the
benefit of Dr. Ellington.
(4) Includes 5,000 shares held in Central Virginia Family Physician's 401K
Profit Sharing Plan and Trust.
(5) Includes 4,000 shares held in an Individual Retirement Account for the
benefit of Dr. Lockhart.
(6) Includes 10,000 shares held in Thomas A. Walker, M.D., Inc. Profit Sharing
Plan.
Regulatory Matters
The closing of the purchase of UHC Virginia common stock by UnitedHealth
Group from VPN is conditioned upon the approval of the purchase by the Virginia
Bureau of Insurance. Neither VPN nor UnitedHealth Group is aware of any other
material governmental or regulatory approvals required for completion of the
transaction contemplated by the asset acquisition agreement.
Certain Federal Income Tax Considerations
The following is a summary of the general federal income tax consequences to
VPN and its shareholders from the proposed transaction, which has been
structured to qualify as a tax-free "C reorganization" under existing
provisions of the Internal Revenue Code of 1986, as amended (Code) and U.S.
Treasury Regulations promulgated thereunder (Regulations). Consequently,
neither VPN nor its shareholders should recognize gain from the receipt of
UnitedHealth Group stock. While VPN and the VPN shareholders may recognize gain
to the extent that VPN sells assets to satisfy contingent liabilities and/or
the VPN shareholders receive cash in
25
<PAGE>
liquidation of their VPN interests, such a sale and/or such a receipt of cash,
if any, are expected to involve relatively minor amounts that would not alter
the substantially tax-free nature of the proposed transaction.
C Reorganization Requirements and Consequences.
Generally. A tax-free C reorganization includes a transaction in which a
corporation (1) transfers substantially all of its assets to another
corporation solely in exchange for voting stock in a controlling parent of such
other corporation, and (2) distributes such voting stock to its own
shareholders in liquidation of their interests. In the proposed transaction,
VPN will (1) transfer its interest in UHC Virginia to Purchaser in exchange for
voting stock in UnitedHealth Group, which is a controlling parent of Purchaser
and (2) distribute such voting stock in UnitedHealth Group to VPN shareholders
in liquidation of their VPN interests.
Substantially All of VPN's Assets. In order for the proposed transaction to
qualify as a C reorganization, the assets that VPN transfers to Purchaser must
constitute substantially all of VPN's assets. The precise quantity of assets
that must be transferred in order to meet the "substantially all" requirement
is not specified in the Code or the Regulations, and courts have reached
different conclusions on the matter. According to Revenue Procedure 77-37
(1977-2 C.B. 568), which sets forth the requirements established by the
Internal Revenue Service (IRS) for obtaining an advance ruling, the
"substantially all" requirement will be met if VPN transfers to Purchaser at
least 70 percent in value of its total gross assets and 90 percent in value of
its total net assets. The assets that VPN will transfer to Purchaser have a
value of approximately $20,300,000, its other assets (principally cash) have a
value of approximately $1,000,000 and thus its gross assets total $21,300,000.
VPN's liabilities consist of (a) approximately $900,000 in employment-related
contract obligations and transaction costs and (b) indebtedness to Purchaser,
the amount of which is in dispute but which is assumed for purposes of this
discussion to be approximately $2.3 million. Thus, VPN's net assets will be
approximately $18.1 million (that is $21,300,000 of gross assets minus
liabilities of approximately $3,200,000). Accordingly, VPN will transfer to
Purchaser approximately 95% of its gross assets and (even if the maximum
possible amount of the disputed liability is assumed) approximately 100% of its
net assets. Thus, VPN should satisfy the requirement set forth in Revenue
Procedure 77-37 for an advance ruling that it would be deemed to transfer
substantially all of its assets to Purchaser.
Voting Stock in UnitedHealth Group. In order for the proposed transaction to
qualify as a C reorganization, the principal consideration that VPN receives in
exchange for the transfer of its assets to Purchaser must consist of voting
stock in UnitedHealth Group. In Section 368(a)(1)(C), the Code provides that
for purposes of this requirement, any indebtedness of VPN that is assumed by
Purchaser will be ignored in determining the consideration that VPN has
received. Because VPN will receive no actual cash or other property in the
transaction except UnitedHealth Group voting stock and because the resolution
and termination of VPN's indebtedness to Purchaser should not be considered
other consideration for purposes of this test (for the reasons stated herein),
VPN should meet the requirement that it receive principally voting stock in
UnitedHealth Group in exchange for its assets.
Boot and Debt Resolution. Section 361(b) of the Code provides that under
certain circumstances VPN must recognize gain in an otherwise tax-free C
reorganization to the extent that (in addition to UnitedHealth Group voting
stock) it receives cash or other property (boot) in the transaction. However,
the Code also provides that for purposes of this rule, an assumption by
Purchaser of VPN's indebtedness will not constitute boot and thus should not
cause VPN to recognize gain.
As described above, VPN's indebtedness to Purchaser will be "resolved and
terminated" in the proposed transaction. (The amount of such debt is in dispute
but for purposes of this discussion is assumed to equal approximately
$2,300,000.) This resolution will not be accomplished by a cash payment from
VPN to Purchaser but instead will be effected through the mechanism of reducing
the amount of UnitedHealth Group stock that VPN receives in the transaction
from that amount of UnitedHealth Group stock with a value of $20,300,000 (which
VPN is entitled to receive under its put right) to that amount of UnitedHealth
Group stock with a value of $17,948,278.04 (that is, approximately $2,300,000
less in value than VPN would be entitled to receive in the absence of such
arrangement with respect to the debt).
26
<PAGE>
In Revenue Ruling 72-264 (1972-2 C.B. 568), a corporation that was the
holder of a promissory note acquired all of the note maker's assets and
liabilities in a merger that qualified as a tax-free A reorganization. The IRS
ruled that acquisition of the debt that was evidenced by the note would be
considered an assumption of such debt by the acquiring corporation
notwithstanding that the acquiring corporation also was the creditor and that
the debt would be extinguished rather than paid off. Consequently, the debtor
corporation was not considered to have received taxable boot. Similarly, in a
1962 case where an individual transferred to his corporation all of his sole
proprietorship assets and liabilities, including a debt owed to such
corporation, the Tax Court held that the transfer of such debt would be
considered an assumption of the debt by the acquiring corporation as though the
acquiring corporation also was the creditor. As a result, the individual was
not required to recognize gain under a debt assumption rule similar to the rule
described above for a C reorganization.
Based on Revenue Ruling 72-264 and the case described above, the resolution
and termination of VPN's indebtedness to Purchaser should be considered an
assumption of such debt by Purchaser. Consequently, VPN should not be
considered to have received boot and thus should not be required to recognize
gain from the resolution and termination of its indebtedness to Purchaser.
Liquidation of VPN. In order for the proposed transaction to qualify as a C
reorganization, VPN must distribute all of its UnitedHealth Group stock and
other assets (net of amounts used to satisfy its liabilities) to its
shareholders and cease its business after the closing of the proposed
transaction. The asset acquisition agreement requires VPN to terminate its
legal existence within one year after the closing of the proposed transaction.
Based on the requirements of the asset acquisition agreement and the
resolutions of VPN's Board of Directors, it is assumed for purposes of this
discussion that VPN will satisfy this requirement.
Conclusion. Based on the foregoing, the proposed transaction should qualify
as a tax-free C reorganization under the Code and VPN should not be considered
to receive any taxable boot in the transaction. As a result, VPN should not
recognize gain from a transfer of its assets to Purchaser in exchange for
UnitedHealth Group stock or from a transfer of UnitedHealth Group stock to the
VPN shareholders. In addition, the VPN shareholders should not recognize gain
from the receipt of UnitedHealth Group stock in liquidation of their interests
in VPN. VPN's tax basis in the UnitedHealth Group stock that it receives in the
proposed transaction will equal VPN's tax basis in the assets that it transfers
to Purchaser, reduced by the amount of VPN's indebtedness that Purchaser
assumes, or is deemed to assume, in the transaction. VPN's holding period for
such stock will include its holding period for the assets that it transfers to
Purchaser. The VPN shareholders' tax basis in the UnitedHealth Group stock that
they receive in the proposed transaction will equal their tax basis in their
VPN stock immediately prior to their receipt of such UnitedHealth Group stock,
and their holding period for such stock will include the holding period of
their stock in VPN. As a result, any gain or loss that a VPN shareholder
recognizes from a disposition of his UnitedHealth Group stock will constitute
long term capital gain or loss, as the case may be, if the shareholder's
combined holding period for VPN and UnitedHealth Group stock exceeds twelve
months.
Other Consequences.
Cash for Fractional Shares. In addition to voting stock, VPN will receive
cash in lieu of fractional shares from UnitedHealth Group. Such cash is not
separately negotiated consideration but represents an automatic rounding off
mechanism that is designed to avoid the inconvenience of fractional shares. In
this circumstance, cash received by VPN in lieu of fractional shares will not
be considered boot and thus VPN will not recognize gain from its receipt. When
VPN distributes such cash to its shareholders, the distribution will be
considered a payment to the shareholders in redemption of their fractional
shares, and will be subject to tax as capital gain under Revenue Ruling 66-365.
Forgiveness of Debt. VPN would recognize income if its debt to Purchaser is
deemed to be forgiven rather than assumed. VPN has been advised by counsel and
its accountants that, although the matter is not free from doubt, it is more
likely than not that the resolution of the liability will be treated as a tax-
free debt assumption rather than a taxable debt forgiveness.
27
<PAGE>
The foregoing discussion addresses only the general federal income tax
consequences of the proposed transaction. It does not address any state or
local income tax consequences from the transaction. The actual tax consequences
may vary from shareholder to shareholder depending on each shareholder's
particular tax situation and accordingly each shareholder should consult his or
her own tax advisor about the effect of such consequences on his or her own
situation.
The foregoing discussion and conclusions are based on the Code, Regulations,
IRS administrative pronouncement (such as revenue rulings) as currently in
effect and on case law as of the date of this prospectus. Future changes in the
law, any of which could have a retroactive affect, could alter the conclusions
contained herein.
Hirschler, Fleischer, Weinberg, Cox & Allen, as counsel to VPN, will deliver
an opinion at closing that the federal income tax discussion herein fully,
fairly and accurately addresses the material federal income tax issues
associated with the proposed transaction and correctly and completely describes
current federal income tax law applicable to the issues discussed herein.
Subject to the limitations and assumptions contained herein, counsel's opinion
adopts all of the conclusions reached in this proxy statement/prospectus
regarding the tax consequences to VPN and its shareholders from the proposed
transaction. An opinion of counsel, however, is not binding on the IRS, and the
IRS could challenge one or more positions taken in reliance on conclusions
herein. No assurance can be given that the IRS will not challenge such
positions.
No Dissenters' Rights
VPN shareholders will not have dissenters' rights of appraisal under the
Virginia Stock Corporation Act as a result of the transaction to be considered
at the special meeting.
Restrictions on Sale of Shares by Affiliates of VPN and UnitedHealth Group
The shares of UnitedHealth Group common stock to be received by VPN's
shareholders pursuant to the asset acquisition agreement 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 VPN 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 VPN or UnitedHealth Group and may include the
executive officers and directors, as well as the principal shareholders, of
both companies. Affiliates may not sell their shares of UnitedHealth Group
common stock acquired in connection with the merger except in accordance with
Rule 145 under the Securities Act.
The asset acquisition agreement requires VPN to deliver a written agreement
from each of its affiliates 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 pursuant to the asset acquisition agreement 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 by affiliates of VPN.
Stock Market Listing
An application will be filed for listing the shares of UnitedHealth Group
common stock to be issued pursuant to the asset acquisition agreement on the
New York Stock Exchange.
28
<PAGE>
CERTAIN INFORMATION CONCERNING UNITEDHEALTH GROUP
For a detailed description of UnitedHealth Group's business, the latest
financial statements of UnitedHealth Group, management's discussion and
analysis of UnitedHealth Group's financial condition and results of operations,
and other important information concerning UnitedHealth Group, please refer to
UnitedHealth Group's Annual Report to Shareholders for the fiscal year ended
December 31, 1999, attached hereto as Annex G, and its Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2000, attached hereto as
Annex H, both of which are incorporated by reference in this proxy
statement/prospectus.
Directors
The Board of Directors of UnitedHealth Group is divided into three classes
as nearly equal in number as possible. Each class serves three years with the
term of office of one class expiring at the Annual Meeting each year in
successive years. The following table provides certain information about the
directors of UnitedHealth Group.
<TABLE>
<CAPTION>
Director
Name Age since
---- --- --------
<S> <C> <C>
Directors Whose Terms Expire in 2001
William C. Ballard, Jr....................................... 60 1993
Richard T. Burke............................................. 57 1977
Stephen J. Hemsley........................................... 48 2000
William W. McGuire, M.D...................................... 52 1989
Directors Whose Terms Expire in 2002
Thomas H. Kean............................................... 65 1993
Robert L. Ryan............................................... 57 1996
William G. Spears............................................ 62 1991
Gail R. Wilensky............................................. 57 1993
Directors Whose Terms Expire in 2003
James A. Johnson............................................. 57 1993
Douglas W. Leatherdale....................................... 64 1983
Walter F. Mondale............................................ 73 1997
Mary O. Mundinger............................................ 63 1997
</TABLE>
Mr. Ballard is currently of counsel to Greenebaum, Doll & McDonald, a law
firm in Louisville, Kentucky. In 1992, Mr. Ballard retired after serving 22
years as the Chief Financial Officer and a director of Humana, Inc., a company
operating managed health care facilities. Mr. Ballard is a director of
Healthcare Recoveries, Inc., HealthCare REIT, Inc., LG&E Energy Corp. and Mid-
America Bancorp.
Mr. Burke has been a member of UnitedHealth Group's Board of Directors since
inception and was its Chief Executive Officer until February 1988. Mr. Burke is
owner, Chief Executive Officer and Governor of the Phoenix Coyotes, a National
Hockey League team. Mr. Burke is also a director of First Cash, Inc.
Mr. Hemsley has been a member of UnitedHealth Group's Board of Directors
since February 2000. Mr. Hemsley joined UnitedHealth Group in May 1997 and
became President in May 1999. Prior to that time, Mr. Hemsley served as Chief
Operating Officer and Senior Executive Vice President of UnitedHealth Group.
Prior to joining UnitedHealth Group, Mr. Hemsley was with Arthur Andersen LLP
where he served since 1974 in various capacities, including Chief Financial
Officer and Managing Partner, Strategy and Planning. Mr. Hemsley is also a
director of DAMARK International, Inc.
Mr. Johnson is the Chairman and Chief Executive Officer of Johnson Capital
Partners, a private investment company. On January 1, 1999, Mr. Johnson retired
as the Chairman and Chief Executive Officer of
29
<PAGE>
Fannie Mae, positions he had held since 1990. Mr. Johnson is also a director of
Cummins Engine Company, Inc., The Goldman Sachs Group, Inc., Kaufman and Broad
Home Corporation, Target Corporation and Temple-Inland, Inc.
Mr. Kean is currently the President of Drew University in New Jersey. Mr.
Kean served as the Governor of the State of New Jersey from 1982 to 1990. From
1968 to 1977, Mr. Kean served in the New Jersey State Assembly, including two
years in the position of Speaker. Mr. Kean is also a director of Amerada Hess
Corporation, Aramark Corporation, Bell Atlantic Corporation, The CIT Group,
Inc., Fiduciary Trust Company International and The Pepsi Bottling Group, Inc.
Mr. Leatherdale has been the Chairman, Chief Executive Officer, President
and Chief Operating Officer of The St. Paul Companies, Inc. since 1990. The St.
Paul Companies, Inc. is an insurance, financial and general business
corporation. In addition, Mr. Leatherdale is a director of The John Nuveen
Company and Xcel Energy Inc.
Dr. McGuire is the Chairman of the Board of Directors and Chief Executive
Officer of UnitedHealth Group. Dr. McGuire joined UnitedHealth Group as
Executive Vice President in November 1988 and became its Chief Executive
Officer in February 1991. Dr. McGuire also served as UnitedHealth Group's Chief
Operating Officer from May 1989 to June 1995 and as its President from November
1989 until May 1999.
Mr. Mondale has been a partner in the law firm of Dorsey & Whitney LLP since
January 1997, and was also a partner in that firm from 1987 to 1993. He
previously served as a director of UnitedHealth Group from August 1991 to
August 1993. Mr. Mondale served as United States Ambassador to Japan from
August 1993 through December 1996. In 1984, Mr. Mondale was the Democratic
nominee for President of the United States. From 1977 to 1981, Mr. Mondale was
the Vice President of the United States. From 1964 to 1976, Mr. Mondale was a
U.S. Senator from Minnesota, and Mr. Mondale served as the Attorney General of
Minnesota from 1960 to 1964. Mr. Mondale also serves as a director of CNA
Financial Corporation, Northwest Airlines Corporation, St. Jude Medical, Inc.
and several BlackRock mutual funds managed by BlackRock Financial Management,
Inc.
Ms. Mundinger is Dean and Centennial Professor of Health Policy, School of
Nursing and Associate Dean, Faculty of Medicine at Columbia University in New
York. Ms. Mundinger has been with Columbia University since 1982. She is also a
director of Cell Therapeutics, Inc.
Mr. Ryan has been Senior Vice President and Chief Financial Officer of
Medtronic, Inc., a leading medical technology company specializing in
implantable and invasive therapies, since 1993. Mr. Ryan is also a director of
Brunswick Corporation.
Mr. Spears is a Managing Partner of W. G. Spears Grisanti & Brown LLC, an
investment counseling and management firm. Mr. Spears was the Chairman of the
Board of Spears, Benzak, Salomon & Farrell, Inc., an investment counseling and
management firm, from 1972 until 1999. In April 1995, Spears, Benzak, Salomon &
Farrell became a wholly owned subsidiary of KeyCorp. Mr. Spears also serves as
Chairman of Key Asset Management and as a director of Alcide Corporation and
Avatar Holdings, Inc.
Ms. Wilensky is currently the John M. Olin Senior Fellow at Project HOPE, an
international health foundation, and Chair of the Medicare Payment Advisory
Commission. From 1992 to 1993, Ms.Wilensky served as the Deputy Assistant to
President George Bush for policy development, and from 1990 to 1992, she was
the Administrator of the Health Care Financing Administration directing the
Medicaid and Medicare programs for the United States. Ms. Wilensky also serves
as a director of Advanced Tissue Sciences, Inc., Manor Care, Inc., Quest
Diagnostics Incorporated, St. Jude Medical, Inc., Shared Medical Systems
Corporation and Syncor International Corporation.
30
<PAGE>
Director Compensation
UnitedHealth Group pays directors who are not employees of UnitedHeath Group
an annual retainer of $30,000, a $1,500 fee for attending each Board meeting in
person ($750 for attending by telephone), and a $1,000 fee for attending each
committee meeting in person ($500 for attending by telephone). In addition,
UnitedHealth Group pays each of the Chairman of the Audit Committee and the
Chairman of the Compensation and Human Resources Committee an annual retainer
of $5,000.
UnitedHealth Group also provides health care coverage to current and past
directors who are not eligible for coverage under another group health care
benefit program or Medicare. During 2000, UnitedHealth Group paid approximately
$4,297 in health care premiums on behalf of Mr. Burke and an aggregate of
approximately $5,084 on behalf of past directors.
Directors of UnitedHealth Group who are not employees of UnitedHealth Group
receive grants of non-qualified stock options under the 1995 Non-employee
Director Stock Option Plan (the "Director Plan"). Under the Director Plan,
directors receive two types of option grants: initial grants and annual grants.
The initial grants (non-qualified stock options to purchase 18,000 shares of
UnitedHealth Group common stock) are made automatically on the date the
eligible director is first elected to the Board of Directors and become
exercisable over the following three-year period at the rate of 6,000 shares
per year. The annual grants (non-qualified stock options to purchase 10,000
shares of UnitedHealth Group common stock) are made automatically in four equal
quarterly installments on the first business day of each fiscal quarter. They
become exercisable six months after grant. The exercise price for options
granted under the Director Plan is the closing sale price of UnitedHealth Group
common stock on the date the option is granted. In 2000, each non-employee
director also received a special one-time grant of 3,000 shares of restricted
stock. These shares become available in equal installments over a period of
three years.
Executives
Executive Officers of UnitedHealth Group
<TABLE>
<CAPTION>
First Elected as
Name Age Position Executive Officer
---- --- -------- -----------------
<S> <C> <C> <C>
William W. McGuire,
M.D. .................. 52 Chairman, Chief Executive Officer and Director 1988
Stephen J. Hemsley...... 48 President and Director 1997
Patrick J. Erlandson.... 41 Chief Financial Officer 2001
David J. Lubben......... 49 General Counsel and Secretary 1996
Lois E. Quam............ 39 Chief Executive Officer, Ovations 1998
Jeannine R. Rivet....... 52 Executive Vice President and Chief Executive Officer, Ingenix 1998
Robert J. Sheehy........ 43 Chief Executive Officer, UnitedHealthcare 2001
R. Channing Wheeler..... 48 Chief Executive Officer, Uniprise 1998
</TABLE>
UnitedHealth Group's Board of Directors elects executive officers annually.
UnitedHealth Group's executive officers serve until their successors are duly
elected and qualified.
Dr. McGuire became a director of UnitedHealth Group in February 1989 and the
Chairman of the Board in May 1991. Dr. McGuire became an Executive Vice
President of UnitedHealth Group in November 1988, was appointed UnitedHealth
Group's Chief Operating Officer in May 1989, its President in November 1989,
and its Chief Executive Officer in February 1991.
Mr. Hemsley joined UnitedHealth Group in May 1997. He became President in
May 1999 and a member of the Board of Directors in February 2000. Prior to that
time, he served as Chief Operating Officer and Senior Executive Vice President
of UnitedHealth Group. Prior to joining UnitedHealth Group, Mr. Hemsley was
with Arthur Andersen LLP where he served since 1974 in various capacities,
including Chief Financial Officer and Managing Partner, Strategy and Planning.
Mr. Erlandson joined UnitedHealth Group in 1997 and became Chief Financial
Officer in January 2001. Prior to January 2001, Mr. Erlandson served in various
capacities with UnitedHealth Group, including
31
<PAGE>
Corporate Controller and Chief Accounting Officer. Prior to joining
UnitedHealth Group, Mr. Erlandson was a partner with Arthur Andersen LLP where
he served from 1981 to 1997.
Mr. Lubben became UnitedHealth Group's General Counsel and Secretary in
October 1996. Prior to joining UnitedHealth Group, he was a partner in the law
firm of Dorsey & Whitney LLP. Mr. Lubben first became associated with Dorsey &
Whitney in 1977.
Ms. Quam joined UnitedHealth Group in 1989 and became the Chief Executive
Officer of Ovations in April 1998. Prior to April 1998, Ms. Quam served in
various capacities including Chief Executive Officer, AARP Division, Vice
President, Public Sector Services and Director, Research. Prior to joining
UnitedHealth Group, Ms. Quam served as Research Director from 1987-1989 for
Partners National Health Plan.
Ms. Rivet joined UnitedHealth Group in June 1990 and became Executive Vice
President and Chief Executive Officer of Ingenix in January 2001. Ms. Rivet was
an Executive Vice President of UnitedHealthcare from October 1994 to March 1998
and served as the Chief Executive Officer of UnitedHealthcare from April 1998
to December 2000. She served as UnitedHealth Group's Senior Vice President,
Health Plan Operations from September 1993 to September 1994 and its Vice
President of Health Service Operations from June 1990 to September 1993.
Mr. Sheehy joined UnitedHealth Group in 1992 and became the Chief Executive
Officer of UnitedHealthcare in January 2001. From April 1998 to December 2000,
he was President of UnitedHealthcare. Prior to April 1998, Mr. Sheehy served in
various capacities with UnitedHealth Group, including Chief Executive Officer
of United HealthCare of Ohio.
Mr. Wheeler joined UnitedHealth Group in March 1995 and became Chief
Executive Officer of Uniprise in May 1998. Prior to May 1998, he served in
various capacities with UnitedHealth Group, including Chief Executive Officer,
Northeast HealthPlans.
32
<PAGE>
Cash and Other Compensation
The following table provides certain summary information for the fiscal
years ended December 31, 2000, 1999 and 1998 relating to cash and other forms
of compensation paid to, or accrued by UnitedHealth Group on behalf of,
UnitedHealth Group's Chief Executive Officer and each of the four other most
highly compensated executive officers of UnitedHealth Group in the fiscal year
ended December 31, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Other Annual Securities All Other
Name and Principal Salary Compensation Underlying Compensation
Position Year ($) Bonus ($) ($)(2) Options/(#) ($)(3)
------------------ ---- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William W. McGuire,
M.D.................... 2000 1,696,154 --(1) 109,159 650,000 2,822,599
Chief Executive Officer 1999 1,588,461 2,978,365 81,479 4,150,000 123,863
1998 1,300,000 -0- 54,985 980,000 110,682
Stephen J. Hemsley...... 2000 871,154 --(1) 22,108 300,000 662,672
President and Chief 1999 747,116 1,167,368 19,303 2,020,000 23,929
Operating Officer 1998 559,615 -0- 14,400 560,000 8,913
Jeannine M. Rivet....... 2000 462,961 --(1) -0- 80,000 15,633
Chief Executive
Officer, 1999 442,831 442,831 6,400 199,624 14,608
UnitedHealthcare 1998 374,039 178,200 14,400 222,104 11,000
R. Channing Wheeler..... 2000 457,308 --(1) 3,200 100,000 31,839
Chief Executive
Officer, 1999 420,192 475,000 -0- 277,520 12,100
Uniprise 1998 365,385 146,650 6,300 160,000 7,154
Arnold H. Kaplan(4)..... 2000 414,400 --(1) 12,616 30,000 29,133
Chief Financial Officer 1999 405,715 400,000 13,352 180,000 12,959
1998 177,400 141,000 11,096 250,000 -0-
</TABLE>
--------
(1) UnitedHealth Group anticipates that bonus amounts for the fiscal year ended
December 31, 2000 will be determined by the Board of Directors of
UnitedHealth Group at its regularly scheduled meeting in February 2001.
(2) Other annual compensation for Dr. McGuire includes company-provided
transportation of $67,667 in 2000, $50,839 in 1999 and $29,625 in 1998, and
an expense allowance of $21,600 in each of 2000, 1999 and 1998.
(3) For each of the named executive officers except Dr. McGuire and Mr.
Hemsley, the indicated amounts consist of contributions made pursuant to
UnitedHealth Group's 401(k) Savings Plan and Executive Savings Plan and
company-paid insurance premiums of $1,744 in each of 2000 and 1999 for Ms.
Rivet; $3,870 in 2000 and $3,731 in 1999 for Mr. Wheeler; and $4,701 in
2000 and $2,514 in 1999 for Mr. Kaplan. The amounts indicated for Dr.
McGuire and Mr. Hemsley include bonuses of $2,600,000 and $600,000,
respectively, received in early 2000 for services rendered to UnitedHealth
Group over the past several years, as well as company contributions made
pursuant to UnitedHealth Group's 401(k) Savings Plan and Executive Savings
Plan. The amounts indicated for Dr. McGuire also include company-paid
insurance premiums of $82,364 in 2000, $77,556 in 1999 and $72,774 in 1998,
and the amounts indicated for Mr. Hemsley include company-paid insurance
premiums of $1,516 in each of 2000 and 1999.
(4) Mr. Kaplan joined UnitedHealth Group on July 1, 1998 and served as
UnitedHealth Group's Chief Financial Officer from July 1, 1998 through
January 2, 2001.
33
<PAGE>
OPTION GRANTS IN 2000
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------- Value at Assumed
Number of Annual Rates of
Securities % of Total Stock Price
Underlying Options Exercise Appreciation for
Options Granted to or Base Option Term(2)
Granted Employees Price Expiration --------------------
Name (#) In 2000 ($/share) Date(1) 5%($) 10%($)
---- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William W. McGuire,
M.D.................... 650,000(3) 8.1 23.8125 03/08/10 9,734,110 24,668,145
Stephen J. Hemsley...... 300,000(4) 3.8 23.8125 03/08/10 4,492,666 11,385,298
Jeannine M. Rivet....... 40,000(5) 0.5 23.8125 03/08/10 559,022 1,518,040
40,000(6) 0.5 39.0938 07/26/10 983,435 2,492,218
R. Channing Wheeler..... 60,000(5) 0.8 23.8125 03/08/10 898,533 2,277,060
40,000(6) 0.5 39.0938 07/26/10 983,435 2,492,218
Arnold H. Kaplan........ 30,000(7) 0.4 39.0938 07/26/10 737,576 1,869,163
</TABLE>
--------
(1) All options granted in 2000 expire ten years following the date of grant,
subject to earlier termination upon certain events related to termination
of employment. Options not yet exercisable generally become exercisable
upon a change in control of UnitedHealth Group. A change in control as
defined in UnitedHealth Group's Amended and Restated 1991 Stock and
Incentive Plan occurs upon the sale of all or substantially all of the
assets of UnitedHealth Group or any merger, reorganization or exchange or
tender offer that will result in a change in the power to elect 50% or more
of UnitedHealth Group's Board of Directors. The exercise price may be paid
in cash, in shares of stock or pursuant to a cashless exercise procedure
under which the optionee instructs a brokerage firm to sell the purchased
shares and remit to UnitedHealth Group out of the proceeds an amount equal
to the exercise price plus all applicable withholding taxes.
(2) The "potential realizable value" shown is the potential gain on the last
day the option remains exercisable. This value will be achieved only if the
options have been held for the full ten years and the stock price has
appreciated at the assumed rate. Potential realizable value is listed for
illustration only. The values disclosed are not intended to be, and should
not be interpreted as, representations or projections of future value of
UnitedHealth Group common stock or of the stock price.
(3) Options become exercisable at the rate of 25% per year over a period of
four years on the first day of each year, beginning on January 1, 2001.
(4) Options become exerciseable at the rate of 25% per year over a period of
four years on the eighth day of March of each year, beginning on March 8,
2001.
(5) Options become exerciseable at the rate of 33.3% per year over a period of
three years, subject to certain conditions.
(6) Options become exercisable at the rate of 25% per year over a period of
four years on the twenty-sixth day of July of each year, beginning on July
26, 2001.
(7) Options become exercisable at the rate of 25% per year over a period of
four years on the twenty-sixth day of July of each year, beginning July 26,
2001, subject to certain early vesting provisions.
34
<PAGE>
AGGREGATED OPTION EXERCISES IN 2000 AND OPTION VALUES AT DECEMBER 31, 2000
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Securities in-the-Money Options
Acquired Value Underlying Unexercised At 12/31/00
On Exercise Realized Options at 12/31/00 Exercisable/
Name (#) ($) Exercisable/Unexercisable* Unexercisable ($)(1)
---- ----------- ---------- -------------------------- -----------------------
<S> <C> <C> <C> <C>
William W. McGuire,
M.D.................... 1,000,000 46,448,512 5,906,791/2,555,833 247,819,400/100,312,136
Stephen J. Hemsley...... -0- -0- 2,151,666/1,328,334 88,354,019/52,082,201
Jeannine M. Rivet....... 199,638 4,117,785 612,056/343,672 25,113,728/12,754,210
R. Channing Wheeler..... 138,626 4,349,208 342,486/448,284 13,420,871/17,204,031
Arnold H. Kaplan........ -0- -0- 186,667/273,333 7,261,160/10,268,526
</TABLE>
--------
(1) Calculated as market price per share on December 29, 2000 (the last trading
day of the calendar year 2000) of $61.38, less the per share exercise
price, times the number of unexercised options.
LONG TERM INCENTIVE PLAN
The following table reflects awards made under the Company's Supplemental
Long Term Executive Compensation Plan (the "Plan") during the fiscal year ended
December 31, 2000 to the Chief Executive Officer and the executive officers
named in the Summary Compensation Table above. Any payments earned and made
under the Plan will be reported in the Summary Compensation Table in the year
paid. The amounts shown in the table are for illustration purposes only and
should not be construed as payouts for the executives listed. Performance
thresholds must be achieved before any payments are made under the Plan.
Long-Term Incentive Plans--Awards During Year Ended December 31, 2000
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based
Performance or Other Plans($)(2)
Period Until ---------------------------
Name Maturation or Payout(1) Threshold Target Maximum
---- ----------------------- --------- ------- ---------
<S> <C> <C> <C> <C>
William W. McGuire.......... 1999-2000 -0- 821,154 1,642,308
1999-2001 -0- 847,436 1,694,872
2000-2002 -0- 899,359 1,798,718
Stephen J. Hemsley.......... 1999-2000 -0- 404,568 809,135
1999-2001 -0- 419,712 839,423
2000-2002 -0- 472,875 945,750
Jeannine M. Rivet .......... 1999-2000 -0- 226,448 452,896
1999-2001 -0- 228,465 456,931
2000-2002 -0- 244,319 488,638
R. Channing Wheeler......... 1999-2000 -0- 219,375 438,750
1999-2001 -0- 223,750 447,500
2000-2002 -0- 244,319 488,638
Arnold H. Kaplan............ 1999-2000 -0- -0- -0-
1999-2001 -0- -0- -0-
2000-2002 -0- -0- -0-
</TABLE>
--------
(1) Each performance cycle ends on December 31 of its final year. Payouts, if
any, will be made within six months of the end of the applicable period,
provided, however, that a pro rata portion of such payouts may be made
earlier upon a change in control of UnitedHealth Group, and participants
may elect, if permitted by law, to defer the payment of any awards under
UnitedHealth Group's Executive Savings Plan.
(2) Performance goals are based on a number of criteria, including financial
factors, such as revenue, return on equity, and share price appreciation
and non-financial factors, such as diversity.
Executive Employment Agreements
UnitedHealth Group has entered into an employment agreement with each of the
executive officers named in the Summary Compensation Table.
35
<PAGE>
William W. McGuire, M.D. Dr. McGuire entered into a revised employment
agreement, effective October 13, 1999, to serve as Chief Executive Officer. The
initial term of this agreement is five years ending on October 13, 2004 and is
automatically extended for additional one-year periods on each anniversary of
the effective date unless either party delivers prior notice of intent not to
renew.
Pursuant to the agreement, Dr. McGuire currently receives a base annual
salary of $1,700,000 which is subject to a minimum increase of $100,000 each
year. During each calendar year of the initial five-year term of the agreement,
Dr. McGuire receives a nonqualified stock option to purchase a minimum of
650,000 shares of UnitedHealth Group common stock. These stock options vest
over a period of four years at the rate of 25% per year, subject to additional
vesting provisions if specified future events occur. Dr. McGuire is eligible to
participate in UnitedHealth Group's incentive bonus plan at prescribed levels
and in its other employee benefit programs. In addition, UnitedHealth Group
provides and pays for life and disability policies on Dr. McGuire that he owns.
The agreement provides Dr. McGuire with a supplemental retirement benefit equal
to a percentage of his cash compensation during the three calendar years
preceding his retirement.
The employment agreement provides severance benefits if Dr. McGuire's
employment by UnitedHealth Group ends under certain circumstances. If his
employment is terminated by UnitedHealth Group without cause or by Dr. McGuire
for good reason as those terms are defined in the agreement, UnitedHealth Group
will pay Dr. McGuire his salary and bonus for the 36 months following the
termination of his employment. In addition, Dr. McGuire will continue to
receive credited service under his supplemental retirement benefits for the 36-
month period. Certain stock options and restricted stock awards granted to
Dr. McGuire will also vest and his stock options will remain exercisable for a
period of up to 72 months but not beyond the expiration date of the respective
option.
If Dr. McGuire's employment is terminated because of his death or permanent
disability, UnitedHealth Group will pay his beneficiaries or him his salary and
bonus for a period of 24 months. In addition, he or his beneficiaries will
receive the proceeds from his disability or life insurance policies, and
certain of his stock options will vest immediately and remain exercisable for
up to 36 months following his death or permanent disability but not beyond the
expiration date of the respective option.
If Dr. McGuire voluntarily terminates his employment without good reason,
UnitedHealth Group will pay his beneficiaries or him his salary and bonus for a
period of 24 months. Any vested stock options at the time of the termination of
his employment will remain exercisable for up to 36 months following
termination of his employment but not beyond the expiration date of the
respective option. In addition, in the event of any termination of Dr.
McGuire's employment other than a termination for cause, UnitedHealth Group
will continue to provide health coverage for Dr. McGuire and his spouse for the
remainder of their lives and his children until age 25.
Pursuant to the employment agreement, Dr. McGuire is subject to provisions
prohibiting his solicitation of UnitedHealth Group employees and competition
with UnitedHealth Group during the term of the agreement, for the period of the
severance payments and one year thereafter. In addition, he is prohibited at
all times from disclosing confidential information related to UnitedHealth
Group.
Stephen J. Hemsley. Mr. Hemsley entered into an employment agreement,
effective October 13, 1999, to serve as President. This agreement continues
until it is terminated in accordance with its terms as discussed below.
During each calendar year of the agreement, Mr. Hemsley receives a
nonqualified stock option to purchase a minimum of 300,000 shares of
UnitedHealth Group common stock. These stock options vest over a period of four
years at the rate of 25% per year based on the achievement of performance goals
established at the time of grant or upon the ninth anniversary of the date of
grant, subject to additional vesting provisions if specified
36
<PAGE>
future events occur. Mr. Hemsley is eligible to participate in UnitedHealth
Group's incentive bonus plan at prescribed levels and in its other employee
benefit programs. In addition, UnitedHealth Group provides and pays for life
and disability policies on Mr. Hemsley that he owns. Pursuant to the terms of
the agreement, UnitedHealth Group is in the process of establishing a
supplemental retirement benefit plan for Mr. Hemsley that will be reasonable
and customary for executives of a similar position in comparably sized
companies.
The employment agreement provides severance benefits if Mr. Hemsley's
employment by UnitedHealth Group ends under certain circumstances. If his
employment is terminated by UnitedHealth Group without cause or by Mr. Hemsley
for good reason other than in connection with a change in control as those
terms are defined in the agreement, UnitedHealth Group will pay Mr. Hemsley two
times his annual salary and bonus over the 12 months following the termination
of his employment. If such termination is in connection with a change in
control, Mr. Hemsley will receive three times his annual salary and bonus over
the 12 months following the termination of his employment. If the termination
is in connection with a change in control, any stock options or restricted
stock awards granted to Mr. Hemsley will also vest and the stock options will
remain exercisable for a period of 36 months but not longer than the expiration
date under the respective option. If the termination is not in connection with
a change in control, the Compensation and Human Resources Committee will give
consideration to the vesting of any unvested options and the period that the
vested options remain exercisable after termination of Mr. Hemsley's
employment.
If Mr. Hemsley's employment is terminated because of his death or permanent
disability, UnitedHealth Group will pay his beneficiaries or him his salary and
bonus for a period of 12 months. In addition, he or his beneficiaries will
receive the proceeds from his disability or life insurance policies, and his
stock options will vest immediately and remain exercisable for up to 36 months
following his death or permanent disability but not beyond the expiration date
of the respective option. In addition, in the event of any termination of Mr.
Hemsley's employment other than a termination for cause, UnitedHealth Group
will continue to provide health coverage for Mr. Hemsley and his spouse until
age 65 and his children until age 25.
Pursuant to the employment agreement, Mr. Hemsley is subject to provisions
prohibiting his solicitation of UnitedHealth Group employees during the term of
the agreement, for the period of the severance payments and for one year
thereafter. Mr. Hemsley is also prevented from competing with UnitedHealth
Group during the term of his employment and the period that severance payments
are made to him under the employment agreement. In addition, he is prohibited
at all times from disclosing confidential information related to UnitedHealth
Group.
Jeannine M. Rivet. Ms. Rivet entered into an employment agreement, effective
October 16, 1998, to serve in an executive position. This agreement remains in
effect until it is terminated by either party under certain circumstances.
Under this agreement, Ms. Rivet is eligible to participate in UnitedHealth
Group's incentive bonus and stock plans and its other employee benefit plans.
R. Channing Wheeler. Mr. Wheeler entered into an employment agreement,
effective June 9, 1998, to serve in an executive position. The initial term of
this agreement is three years; after the initial term, this agreement
automatically renews for additional one year terms unless either party provides
prior notice of intent not to renew. Under this agreement, Mr. Wheeler is
eligible to participate in UnitedHealth Group's incentive bonus and stock plans
and its other employee benefit plans.
Arnold H. Kaplan. Mr. Kaplan entered into an employment agreement, effective
May 19, 1998, to serve as Chief Financial Officer of UnitedHealth Group. This
agreement remains in effect until it is terminated by either party under
certain circumstances. Under this agreement, Mr. Kaplan is eligible to
participate in UnitedHealth Group's incentive bonus and stock plans and its
other employee benefit plans. Mr. Kaplan retired as Chief Financial Officer
effective as of January 2, 2001.
Pursuant to their agreements, each of Ms. Rivet and Mr. Wheeler is entitled
to receive severance compensation for a 12-month period equal to the
executive's base salary and bonus (as determined by his or
37
<PAGE>
her agreement) if the executive's employment is terminated by UnitedHealth
Group without cause or if a change in employment occurs (as defined in his or
her agreement). This severance compensation is greater if these events occur
within two years following a change in control (as defined in his or her
agreement). During the term of these agreements and during certain periods of
time following termination of these agreements, each executive is subject to
non-solicitation and non-competition provisions.
Severance Arrangements and Change-in-Control Provisions
According to UnitedHealth Group's Severance Pay Plan, which applies to all
regular company employees, certain of the executive officers may be eligible to
receive severance pay following their termination in certain events. However,
any payments an executive officer receives in connection with a change in
control (as defined in and pursuant to an employment agreement with
UnitedHealth Group) will replace and be in lieu of payment and/or benefits
under any company severance program, including UnitedHealth Group's Severance
Pay Plan. Under UnitedHealth Group's Severance Pay Plan, the amount of
severance pay following termination depends upon the executive officer's length
of service, grade level within UnitedHealth Group, and the execution of a
company-approved release.
In the case of a change in control of UnitedHealth Group, certain of the
outstanding stock options granted under UnitedHealth Group's Amended and
Restated 1991 Stock and Incentive Plan will become exercisable in full. Change
in control is defined for this purpose as the sale of all or substantially all
of UnitedHealth Group's assets, or any merger, reorganization or exchange or
tender offer that will result in a change in the power to elect 50% or more of
the members of UnitedHealth Group's Board of Directors.
UnitedHealth Group Common Stock Ownership
The following table provides information about each shareholder known to
UnitedHealth Group to own beneficially more than 5% of the outstanding shares
of UnitedHealth Group common stock as of December 31, 2000.
<TABLE>
<CAPTION>
Name And Address Of Beneficial Amount And Nature Percent of
Owner Of Beneficial Ownership(1) Class(2)
------------------------------ -------------------------- ----------
<S> <C> <C>
Massachusetts Financial Services
Company
500 Boylston Street, 15th Floor
Boston, MA 02116................... 25,602,094 (3) 8.0%
FMR Corporation
82 Devonshire Street
Boston, MA 02109-3614.............. 23,410,034 (4) 7.3%
</TABLE>
--------
(1) Except as otherwise described, the shareholders in the table have sole
voting and investment powers with respect to the shares listed.
(2) Percent of class calculation is based on 319,821,652 shares of UnitedHealth
Group common stock outstanding as of December 31, 2000.
(3) This information is based on a Schedule 13G/A filed by Massachusetts
Financial Services Company ("MFS") with the Securities and Exchange
Commission (the "SEC") on February 11, 2000 reporting beneficial ownership
data as of February 11, 2000. MFS holds sole voting power with respect to
25,561,934 shares and sole investment power with respect to all 25,602,094
shares. The MFS Schedule 13G/A states that these shares are also
beneficially owned by certain other nonreporting entities.
(4) This information is based on a Schedule 13G/A filed by FMR Corporation
("FMR") with the SEC on February 14, 2000 reporting beneficial ownership
data as of December 31, 1999. FMR, through its control over Fidelity
Management and Research Company, a wholly-owned investment adviser
subsidiary of FMR, Fidelity Management Trust Company and Fidelity
International Limited, holds sole investment power with respect to all
23,410,034 shares.
38
<PAGE>
The following table provides information about the beneficial ownership of
UnitedHealth Group common stock as of December 31, 2000 by each director, each
named executive officer, and by all directors and all executive officers as a
group. The amounts set forth in the column entitled "Amount and Nature of
Beneficial Ownership" include shares set forth in the column entitled "Number
of Shares Beneficially Owned as a Result of Options Exercisable Within 60 Days
of December 31, 2000."
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned
as a Result of
Amount and Options
Nature of Exercisable
Name of Beneficial Owner or Identity Beneficial Within 60 Days of
of Group Ownership(1) December 31, 2000
------------------------------------ ------------ ------------------
<S> <C> <C>
William C. Ballard.................... 91,900 76,500
Richard T. Burke...................... 1,285,762(2) 396,500
Stephen J. Hemsley.................... 2,158,476(3) 2,151,666
James A. Johnson...................... 167,900(4) 140,500
Thomas H. Kean........................ 153,500(5) 140,500
Douglas W. Leatherdale................ 540,400(6) 332,500
William W. McGuire, M.D............... 6,744,554(3) 6,481,792
Walter F. Mondale..................... 51,840(7) 38,500
Mary O. Mundinger..................... 47,700 38,500
Robert L. Ryan........................ 49,500 38,500
William G. Spears..................... 220,724 204,500
Gail R. Wilensky...................... 87,500 78,500
Jeannine M. Rivet..................... 685,057(3) 625,389
R. Channing Wheeler................... 366,528(3) 362,486
Arnold H. Kaplan...................... 492,232(8) 460,000
All executive officers and directors
as a group (17 persons).............. 13,512,721(9) 11,929,835
</TABLE>
--------
(1) Unless otherwise noted, each person and group identified possesses sole
voting and investment power with respect to the shares shown opposite such
person's or group's name. Shares not outstanding but deemed beneficially
owned by virtue of the right of an individual to acquire them within 60
days of December 31, 2000 are treated as outstanding only when determining
the amount and percent owned by such individual or group. All amounts shown
for individuals reflect less than 1% of the shares outstanding, except for
Dr. McGuire who beneficially owns 2.1% of the shares outstanding. The group
total reflects 4.2% of the shares outstanding.
(2) Includes 33,062 shares held directly by Mr. Burke's spouse. Mr. Burke
disclaims beneficial ownership with respect to these shares.
(3) Includes the following number of shares held in account by the Trustee of
UnitedHealth Group's ESOP for each of the following, who have sole voting
power and no investment power: Dr. McGuire, 1,554 shares; Mr. Hemsley, 36
shares; Mr. Kaplan, 18 shares; Ms. Rivet, 408 shares; and Mr. Wheeler, 60
shares.
(4) Includes 400 shares held by Mr. Johnson in a family trust. Mr. Johnson
disclaims beneficial ownership with respect to these shares.
(5) Includes 2,000 shares held by Mr. Kean in a trust for the benefit of his
minor child.
(6) Includes 1,400 shares held by Mr. Leatherdale's one dependent child. Mr.
Leatherdale disclaims beneficial ownership with respect to these shares.
(7) Includes 1,140 shares held by Mr. Mondale in a revocable trust and 4,200
shares held in an Individual Retirement Account.
39
<PAGE>
(8) Includes 30,000 shares held by Mr. Kaplan in an Individual Retirement
Account.
(9) Includes 2,736 shares held by the Trustee of UnitedHealth Group's ESOP for
the accounts of executive officers of UnitedHealth Group, with respect to
which such persons have sole voting power and no investment power, the
indirect holdings included in footnotes (2), (4), (5), (6), (7) and (8)
above, and the holdings of spouses of executive officers.
Properties
As of December 31, 2000, the Company leased approximately 1.7 million
aggregate square feet of space for its principal administrative offices in the
greater Minneapolis/St. Paul, Minnesota area and in Hartford, Connecticut.
Excluding these areas, as of December 31, 2000, the Company leased
approximately 5.6 million aggregate square feet in the United States and
Europe. Such space accommodates health plans, managed care services, specialty
programs or satellite administrative offices. The Company's leases expire at
various dates through May 31, 2025. As of December 31, 2000, the Company owned
approximately 121,500 aggregate square feet of space for administrative offices
in various states.
Employees
As of December 31, 2000, UnitedHealth Group employed approximately 28,700
individuals.
Certain Relationships and Transactions
During UnitedHealth Group's fiscal year ended December 31, 1999,
UnitedHealth Group paid insurance premiums, in an amount which was not material
to either The St. Paul Companies, Inc. or UnitedHealth Group, to The St. Paul
Companies, Inc., of which Mr. Leatherdale is a director and an executive
officer.
Dorsey & Whitney LLP is UnitedHealth Group's corporate legal counsel. Mr.
Mondale is a partner of Dorsey & Whitney LLP.
40
<PAGE>
THE ASSET ACQUISITION AGREEMENT
The following is a summary of certain aspects of the asset acquisition
agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the asset acquisition agreement,
which is incorporated by reference and attached to this proxy
statement/prospectus as Annex A.
Purchase and Sale of UHC Virginia Shares; Purchase Price
Pursuant to the asset acquisition agreement, VPN agrees to sell to
Purchaser, and Purchaser agrees to purchase from VPN, all of VPN's right, title
and interest in and to 1,237.25 shares of common stock of UHC Virginia. The
purchase price to be paid under the asset acquisition agreement for these
shares of UHC Virginia common stock consists of:
. that number of shares of UnitedHealth Group common stock determined by
dividing $17,948,278.04 by the "Parent Average Price," as defined below,
and
. the Purchaser's becoming responsible for the resolution of a contested
liability represented by VPN's promissory note in the amount of
$2,351,721.96 payable to Purchaser (including accrued interest thereon),
and VPN's having no further liability on the note.
For purposes of the foregoing, the term "Parent Average Price" means the
average closing price per share of UnitedHealth Group common stock on the New
York Stock Exchange for the 30 consecutive trading days ending with and
including the third business day preceding the date upon which the purchase and
sale of UHC Virginia shares is completed.
The nature of the contested liability represented by the promissory note
referred to above is described earlier in this proxy statement/prospectus under
the caption "The Proposed Transaction--Background of the Proposed Transaction."
Except with respect to this note, the agreement provides that VPN shall retain,
and neither Purchaser nor UnitedHealth Group shall assume, any liabilities,
obligations or undertakings of VPN of any nature whatsoever, whether accrued or
unaccrued, fixed or contingent, known or unknown, due or to become due, or
otherwise.
The asset acquisition agreement provides that the sale of UHC Virginia
shares pursuant thereto will satisfy VPN's right to "put" such shares to
Purchaser under an existing shareholders agreement between them. See "The
Proposed Transaction--Background of the Proposed Transaction."
Distribution of UnitedHealth Group Shares to VPN Shareholders
At the time the foregoing transaction is closed, the shares of UnitedHealth
Group common stock which are included in the purchase price, as described
above, will be distributed on a pro rata basis to the holders of VPN common
stock in the following manner:
At least two business days prior to the closing date (but no sooner than one
business day after the special shareholders meeting), VPN will provide to
Purchaser a list of all of the shareholders of VPN as of the close of business
on the preceding business day (the "Cutoff Date") and of the number of shares
of VPN common stock owned by each such shareholder at the close of business on
the Cutoff Date. VPN will not issue or reacquire any shares of VPN common
stock, and will not permit any such shares to be transferred on its books,
after the Cutoff Date and on or before the closing date.
Purchaser will deliver or cause to be delivered to each VPN shareholder
identified in the foregoing list that number of shares of UnitedHealth Group
common stock, registered in such shareholders' respective names, determined by
multiplying the total number of shares of UnitedHealth Group common stock
required to be paid to VPN for distribution to VPN shareholders by a fraction,
the numerator of which is the number of shares of VPN common stock held by such
shareholder as set forth in such list, and the denominator of which is the
total number of shares of VPN common stock set forth in such list.
41
<PAGE>
Notwithstanding the foregoing, no fraction of a share of UnitedHealth Group
common stock will be delivered to any holder of VPN common stock. In lieu
thereof, Purchaser will pay to each holder of VPN common stock who would
otherwise be entitled to a fraction of a share of UnitedHealth Group common
stock an amount of cash (rounded to the nearest whole cent) 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 closing date.
The shares of UnitedHealth Group common stock to be delivered to VPN
shareholders may, at VPN's option, be delivered by mailing stock certificates
evidencing such shares to VPN shareholders at their addresses as they appear in
VPN's stock register, or they may be delivered in the form of uncertificated
shares issued in accordance with the provisions of Minnesota law and the direct
registration system maintained by the registrar and transfer agent for
UnitedHealth Group common stock.
Dissolution and Termination of VPN Following the Closing
The asset acquisition agreement provides that VPN shall dissolve and
terminate its corporate existence promptly after the closing of the transaction
contemplated thereby, and in any event not more than one year after the
closing. For more information concerning this dissolution and termination, see
"The Proposed Transaction--Dissolution of VPN Following the Proposed
Transaction."
Treatment of VPN Stock Options
Holders of outstanding options to purchase VPN common stock will not be
entitled to receive shares of UnitedHealth Group common stock in connection
with the transaction contemplated by the asset purchase agreement unless such
options are exercised before the close of business on the Cutoff Date.
Representations and Warranties
VPN, on the one hand, and UnitedHealth Group and Purchaser, on the other,
each made several representations and warranties to the other in the asset
acquisition agreement. These representations and warranties will have no legal
force or effect after the transaction contemplated by the asset purchase
agreement has been completed.
The representations and warranties made by VPN cover the following topics:
. VPN's organization, qualification and power to do business;
. the absence of any subsidiaries of VPN;
. the capitalization of VPN;
. the authorization of the asset purchase agreement by VPN;
. the absence of conflicts between the asset purchase agreement and VPN's
charter documents and agreements to which it is a party, and the filings
and consents required to be made by VPN in connection with the proposed
transaction;
. the absence of requirements that VPN have made certain filings under
federal or state securities laws;
. VPN's title to the UHC Virginia shares that are to be sold to Purchaser;
. VPN's compliance with applicable laws;
. the absence of certain pending or threatened litigation or other
proceedings against VPN;
. the compliance by VPN with tax laws;
. the absence of any finders or brokers retained by VPN or certain
affiliates in connection with the proposed transaction, other than as
described under "The Proposed Transaction--VPN's Reasons for the
Proposed Transaction and Board of Directors Recommendation;"
42
<PAGE>
. the authorization and recommendation of the asset purchase agreement by
VPN's board of directors;
. the absence of any actions by VPN or its affiliates that would prevent
the proposed transaction from being a "reorganization" under the
Internal Revenue Code;
. the accuracy of the information supplied by VPN for inclusion in this
proxy statement/prospectus and the registration statement of which it is
a part; and
. the absence of material misstatements or omissions from the foregoing
representations and warranties taken as a whole.
The representations and warranties made by UnitedHealth Group and Purchaser
cover the following topics:
. the organization, qualification and power of UnitedHealth Group and
Purchaser to do business;
. the due authorization and valid issuance of UnitedHealth Group's
outstanding shares of common stock;
. the authorization of the asset acquisition agreement by UnitedHealth
Group and Purchaser, and the authorization of the UnitedHealth Group
common stock to be issued pursuant to the asset acquisition agreement;
. the absence of conflicts between the asset purchase agreement and the
charter documents of UnitedHealth Group and Purchaser and agreements to
which either of them is a party, and the filings and consents required
to be made by either of them in connection with the proposed
transaction;
. the accuracy of UnitedHealth Group's SEC filings and the conformity of
the financial statements included therein with generally accepted
accounting principles;
. the absence of certain changes or events since UnitedHealth Group's most
recent financial statements;
. the absence of any finders or brokers retained by UnitedHealth Group or
certain affiliates in connection with the proposed transaction;
. the absence of any actions by UnitedHealth Group or its affiliates that
would prevent the proposed transaction from being a "reorganization"
under the Internal Revenue Code; and
. the accuracy of the information supplied by UnitedHealth Group and
Purchaser for inclusion in this proxy statement/prospectus and the
registration statement of which it is a part.
The representations and warranties in the asset acquisition agreement are
complicated and are not easily summarized. The full text of these
representations and warranties is set forth in Articles II and III of the asset
acquisition agreement, which is attached as Annex A to this proxy
statement/prospectus. We urge you to review the full text carefully.
Additional Agreements
In the asset acquisition agreement, VPN agrees that until the proposed
transaction is closed or the agreement is terminated, it will not take or agree
to take any of the following actions:
. issue any shares of VPN common stock after the Cutoff Date, whether
pursuant to outstanding stock options or otherwise, or reacquire any VPN
common stock, or take certain other actions with respect to its capital
stock;
. sell, encumber, or take certain other actions with respect to the UHC
Virginia shares which are to be sold to Purchaser;
. amend its charter documents or bylaws;
. acquire any substantial assets; or
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. alter its corporate structure or ownership.
In addition, in the asset acquisition agreement each of VPN, on the one
hand, and UnitedHealth Group and Purchaser, on the other, agrees, subject to
the terms and conditions in the agreement, 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 transaction contemplated by the agreement and to
cooperate with one another in connection with these actions. VPN and
UnitedHealth Group also agree to use all commercially reasonable efforts to
cause the proposed transaction to qualify as a "reorganization" within the
meaning of the Internal Revenue Code.
The asset acquisition agreement also provides that, as contemplated by the
shareholders agreement between Purchaser and VPN relating to UHC Virginia, upon
Purchaser's acquisition of the remaining shares of UHC Virginia common stock
Purchaser will assume VPN's obligations under a guarantee that VPN delivered to
the Virginia Bureau of Insurance in connection with Purchaser's original
purchase of assets from VPN.
In the asset acquisition agreement, UnitedHealth Group also agrees to list
the shares of UnitedHealth Group common stock to be delivered to VPN
shareholders on the New York Stock Exchange.
These and other additional agreements of the parties in the asset
acquisition agreement are complicated and are not easily summarized. The full
text of these agreements is set forth in Articles IV of the asset acquisition
agreement, which is attached as Annex A to this proxy statement/prospectus. We
urge you to review the full text carefully.
Conditions to the Closing of the Proposed Transaction
The parties' respective obligations to complete the sale and purchase of UHC
Virginia shares and to complete the other transactions provided for in the
asset acquisition agreement are subject to the prior satisfaction or waiver of
certain conditions. If VPN waives any of the conditions to its obligations to
complete the proposed transactions, it will consider the facts and
circumstances at that time and make a determination whether proxies should then
be resolicited from VPN shareholders.
Under the asset acquisition agreement, each party's obligations are subject
to the following conditions, among others:
. the sale of UHC Virginia shares by VPN and the dissolution of VPN must
have been approved by the holders of at least two-thirds of the
outstanding shares of VPN common stock;
. certain legal proceedings seeking to prevent or assert material damages
with respect to the proposed transaction must not be pending or
threatened;
. all governmental filings and consents required to complete the proposed
transaction must have been made and obtained; and
. the registration statement of which this proxy statement/prospectus is a
part must have become and must remain effective under the Securities
Act.
In addition, the obligations of Purchaser and Parent are subject to the
following additional conditions, among others:
. VPN's representations and warranties in the asset acquisition agreement
must be true and correct when made and at the closing date;
. VPN must have performed in all materials respects its obligations under
the asset acquisition agreement which are required to be performed on or
prior to the closing date;
. since the asset acquisition agreement was signed, there must not have
been any change, event or condition that would reasonably be expected to
prevent or materially delay VPN's ability to complete the transaction
contemplated by the agreement;
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. no law or governmental action shall be in effect that would limit or
penalize the ability of UnitedHealth Group or Purchaser to acquire or
hold the UHC Virginia shares to be purchased by Purchaser;
. VPN must have made all filings and notices to, and received all consents
from, all governmental entities and private parties necessary to
complete the proposed transaction;
. UnitedHealth Group must have received the letters from affiliates of VPN
which are described under "The Proposed Transaction--Restrictions on
Sale of Shares by Affiliates of VPN and UnitedHealth Group;" and
. UnitedHealth Group and Purchaser must have received an opinion of
counsel of Hirschler, Fleischer, Weinberg, Cox & Allen, counsel to VPN,
with respect to certain legal aspects of the proposed transaction.
The obligations of VPN are subject to the following additional conditions,
among others:
. the representations and warranties of UnitedHealth Group and Purchaser
in the asset acquisition agreement must be true and correct when made
and at the closing date;
. UnitedHealth Group and Purchaser must have performed in all materials
respects their obligations under the asset acquisition agreement which
are required to be performed on or prior to the closing date;
. since the asset acquisition agreement was signed, there must not have
been certain adverse changes in UnitedHealth Group's business or its
ability to complete the transaction contemplated by the agreement; and
. VPN must have received an opinion of counsel of Hirschler, Fleischer,
Weinberg, Cox & Allen, counsel to VPN, with respect to certain federal
income tax aspects of the proposed transaction.
Termination of the Asset Acquisition Agreement
The asset acquisition agreement can be terminated at any time before the
closing by the mutual consent of VPN and UnitedHealth Group, whether or not
the proposed transaction has been approved by VPN shareholders. It also can be
terminated at any time before closing by either VPN or UnitedHealth Group if:
. the proposed transaction has not been completed on or before May 30,
2001, without the fault of the terminating party;
. the required approval by VPN shareholders is not obtained, without the
fault of the terminating party; or
. if certain legal restraints affecting the proposed transaction are in
effect and have become final and nonappealable, without the fault of the
terminating party.
In addition, VPN can terminate the asset acquisition agreement at any time
before the closing if UnitedHealth Group or Purchaser has breached any of its
representations and warranties in the agreement, or has breached or failed to
perform in any material respect any of its agreements in the agreement, and
has not cured the breach or failure within 30 day after receiving written
notice thereof from VPN.
Also, UnitedHealth Group can terminate the asset acquisition agreement at
any time before the closing if:
. VPN has breached any of its representations and warranties in the
agreement, or has breached or failed to perform in any material respect
any of its covenants in the agreement, and has not cured the breach or
failure within 30 days after receiving written notice thereof from
UnitedHealth Group; or
. VPN's board of directors withdraws or adversely modifies its approval of
the asset acquisition agreement or its recommendation that VPN
shareholders approve the transactions contemplated thereby.
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Fees and Expenses
The asset acquisition agreement provides that whether or not the transaction
contemplated by it is completed, VPN, on the one hand, and UnitedHealth Group
and Purchaser, on the other, will bear their own expenses in connection with
the transaction, except under the following two circumstances:
. If VPN or UnitedHealth Group terminates the agreement because VPN
shareholder approval was not obtained, or if UnitedHealth Group
terminates the agreement because VPN breached its representations,
warranties or agreements or VPN's board of directors withdrew or
adversely modified its approval or recommendation, then VPN must
reimburse UnitedHealth Group for its reasonable out-of-pocket expenses
in connection with the proposed transaction; and
. If VPN terminates the agreement because UnitedHealth Group or Purchaser
breached its representations, warranties or agreements, then
UnitedHealth Group must reimburse VPN for its reasonable out-of-pocket
expenses in connection with the proposed transaction.
If either party does not reimburse the other promptly as set forth above,
that party will be required to pay interest on the unreimbursed amounts at
rates specified in the asset acquisition agreement.
Extensions, Waivers and Amendments
The asset acquisition agreement provides that at any time before the
completion of the transaction provided for therein, either VPN, on the one
hand, or UnitedHealth Group or Purchaser, on the other, may:
. extend the time within which the other party must perform its
obligations;
. waive any inaccuracy in the representations and warranties of the other
party;
. waive the other party's compliance with its agreements; or
. waive the satisfaction of any condition to its own obligation.
In order to be valid, any extension or waiver must be in writing and signed by
the party granting the extension or waiver.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF UNITEDHEALTH GROUP AND VPN
Upon completion of the proposed transaction described in this proxy
statement/prospectus you will become a shareholder of UnitedHealth Group, and
upon the dissolution and termination of VPN called for by the asset acquisition
agreement you will cease to be a shareholder of VPN. The internal affairs of
VPN are governed by the Virginia Stock Corporation Act and VPN's restated
articles of incorporation and bylaws, while the internal affairs of
UnitedHealth Group are governed by the Minnesota Business Corporation Act and
UnitedHealth Group's restated articles of incorporation and bylaws. For this
reason, the proposed transaction and the dissolution and termination of VPN
will result in your having somewhat different rights as a shareholder of
UnitedHealth Group than you had as a shareholder of VPN. This section describes
the material differences between your rights as a shareholder of the two
companies.
MINNESOTA CORPORATION VIRGINIA CORPORATION
Shareholder Meetings
Under the UnitedHealth Group Virginia law and VPN's bylaws
bylaws, holders of UnitedHealth require that shareholders be given
Group common stock are entitled to no less than 10 nor more than 60
at least five days' prior written days' prior notice of shareholders
notice for each regular meeting and meetings. However, under Virginia
special meeting to consider any law and VPN's bylaws, if a
matter, except that Minnesota law shareholders meeting is held to act
and the UnitedHealth Group bylaws on an amendment of the articles of
require that notice of a meeting at incorporation, a merger or share
which an agreement of merger or exchange, a proposed sale of
exchange is to be considered shall substantially all of the company's
be mailed to shareholders of assets or the company's
record, whether entitled to vote or dissolution, notice of the meeting
not, at least 14 days prior to such must be given not less than 25 nor
meeting. more than 60 days before the
meeting date.
Right to Call Special Meetings
Under Minnesota law and the Under Virginia law, a special
UnitedHealth Group bylaws, a meeting of shareholders may be
special meeting of shareholders may called by the chairman of the board
be called by the chairman of the of directors, the president, the
board, the chief executive officer, board of directors, or any person
the chief financial officer, any or persons authorized to do so by
two or more directors, a person the articles of incorporation or
authorized in the articles or bylaws. VPN's bylaws provide that a
bylaws to call special meetings or special meeting of shareholders may
a shareholder or shareholders be called by the chairman of the
holding 10% or more of all shares board of directors, the president,
entitled to vote, except that a a majority of the board of
special meeting called by a directors, or by the written
shareholder for the purpose of request of the holders of not less
considering any action to than one-half of all votes entitled
facilitate, directly or indirectly, to be cast at the special meeting.
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 Virginia law and VPN's bylaws
UnitedHealth Group bylaws, any provide that any action required or
action required or permitted to be permitted to be taken at a
taken in a meeting of the shareholders meeting may be taken by
shareholders may be taken without a written consent without a meeting
meeting by a written action signed and without prior notice, if the
by all of the shareholders entitled action is taken by all the
to vote on that action. The shareholders entitled to vote on the
UnitedHealth Group articles do not action.
restrict shareholder action by
written consent.
Rights of Dissenting Shareholders
Under both Minnesota and Virginia Under Virginia law, a shareholder
law, shareholders may exercise a may exercise dissenters' rights in
right of dissent from certain connection with:
corporate actions and obtain payment
of the fair value of their shares. . a merger to which the
Shareholders of a Minnesota corporation is a party if the
corporation may exercise dissenters' shareholder is entitled to
rights in connection with: vote on the merger or if it
is a "short form" merger of a
. an amendment of the articles subsidiary with a parent
of incorporation that corporation;
materially and adversely
affects the rights and . a plan of exchange of shares
preferences of the shares of to which the corporation is a
the dissenting shareholder in party if the shareholder is
certain respects; entitled to vote on the plan;
. a sale or transfer of all or . except in certain cases, a
substantially all of the sale or exchange of all or
assets of the corporation; substantially all of the
corporation's property if the
. a plan of merger to which the shareholder is entitled to
corporation is a party; vote on the transaction or on
a related dissolution of the
. a plan of exchange of shares corporation; and
to which the corporation is a
party; and . any other corporate action
taken pursuant to a
. any other corporate action shareholder vote if the
with respect to which the articles of incorporation,
corporation's articles of bylaws, or a board resolution
incorporation or bylaws give give dissenting shareholders
dissenting shareholders the the right to obtain payment
right to obtain payment for for their shares.
their shares.
VPN's articles of incorporation and
Unless the articles, the bylaws, bylaws do not grant any additional
or a resolution approved by the dissenters' rights pursuant to the
board of directors otherwise fourth bullet point above.
provide, such dissenters' rights do Notwithstanding the foregoing,
not apply to a shareholder of the shareholders of a Virginia
surviving corporation in a merger if corporation do not have dissenters'
the shares of the shareholder are rights in connection with a merger,
not entitled to be voted on the exchange of shares, or sale or
merger. The UnitedHealth Group exchange of property if, at the
articles do not grant any other record date for shareholder action
dissenters' rights. Shareholders who on the transaction, their shares are
desire to exercise their dissenters' listed on a national securities
rights must satisfy all of the exchange or NASDAQ or are held of
conditions and requirements as set record by at least 2,000
forth in the Minnesota Business shareholders, unless:
Corporation Act in order to maintain
such rights and obtain such payment. . the corporation's articles of
incorporation provide
otherwise (VPN's do not);
. in the case of a merger or
exchange of shares,
shareholders are required to
accept anything other than
cash, shares which are listed
on a national securities
exchange or are held of
record by at least 2,000
shareholders, or a
combination of cash and such
shares; or
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. the transaction is an
"affiliated transaction" not
approved by a majority of the
corporation's "disinterested
directors," as those terms
are defined in the Virginia
Stock Corporation Act.
Shareholders who desire to exercise
their dissenters' rights must
satisfy all of the conditions and
requirements of the Virginia Stock
Corporation Act in order to maintain
such rights and obtain such payment.
Board of Directors
Minnesota law provides that the Virginia law provides that a
board of directors of a Minnesota corporation's board of directors
corporation shall consist of one or shall consist of one or more
more directors as fixed by the individuals, with the number
articles of incorporation or bylaws. specified in or fixed in accordance
The UnitedHealth Group board of with the bylaws, or if not so
directors currently consists of 12 specified or fixed, with the number
directors. The UnitedHealth Group specified in or fixed in accordance
articles provide that the board is with the articles of incorporation.
divided into three classes, as VPN's bylaws provide that the number
nearly equal in number as possible, of its directors shall be ten, which
with directors serving staggered number may be increased or decreased
three year terms. The UnitedHealth by the board of directors but which
Group bylaws provide that in the shall not be less than 6 or more
case of any increase or decrease in than 15. Its bylaws also provide
the number of directors, the that all directors must be
increase or decrease shall be physicians who are members of the
distributed among the several Medical Society of Virginia and must
classes as nearly equal as possible, include at least one obstetrician
as determined by the affirmative and at least five physicians whose
vote of a majority of the primary area of practice is family
UnitedHealth Group board or by the practice, pediatrics or general
affirmative vote of a majority of internal medicine.
the holders of the voting stock of
UnitedHealth Group. The number of As permitted by Virginia law,
directors may be increased or VPN's articles of incorporation and
decreased from time to time by bylaws provide that the board is
resolution adopted by a majority of divided into three classes, as
the board of directors or by the nearly equal in number as possible,
affirmative vote of the holders of a with directors serving staggered
majority of the voting stock of three year terms.
UnitedHealth Group, considered as
one class. Under Virginia law and VPN's
bylaws, shareholders may remove any
Minnesota law provides that, director for cause or without cause
unless modified by the articles or by a majority vote of the shares
bylaws of the corporation or by present at a meeting called
shareholder agreement, the directors expressly for such purpose. VPN
may be removed with or without cause shareholders do not have the right
by the affirmative vote of that to cumulative voting in the election
proportion or number of the voting of directors.
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.
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Filling Vacancies on the Board of Directors
Under Minnesota law, unless Under Virginia law, unless a
different rules for filling corporation's articles of
vacancies are provided for in the incorporation provide otherwise
articles of incorporation or bylaws, (which VPN's do not), if a vacancy
vacancies resulting from the death, occurs on the board of directors,
resignation, removal or including a vacancy resulting from
disqualification of a director may an increase in the number of
be filled by the affirmative vote of directors, either the shareholders
a majority of the remaining or the board of directors may fill
directors, even though less than a the vacancy (even if the directors
quorum, and vacancies resulting from remaining in office do not
a newly-created directorship may be constitute a quorum of the board).
filled by the affirmative vote of a VPN's bylaws provide that any
majority of the directors serving at vacancy on the board may be filled
the time of the increase. The by the board of directors (even if
shareholders may also elect a new the directors remaining in office do
director to fill a vacancy that is not constitute a quorum of the
created by the removal of a director board).
by the shareholders.
The UnitedHealth Group bylaws
provide that vacancies on the board
of directors may be filled by the
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 Under Virginia law, a
UnitedHealth Group bylaws provide corporation's board of directors may
that the power to adopt, amend or amend or repeal the corporation's
repeal the bylaws is vested in the bylaws except to the extent that the
board (subject to certain notice articles of incorporation or the
requirements set forth in the Virginia Stock Corporation Act
UnitedHealth Group bylaws). reserve this power exclusively to
Minnesota law provides that the shareholders (which, in the case of
authority in the board of directors VPN, they do not), or the
is subject to the power of the shareholders in adopting a bylaw
shareholders to change or repeal provide that the board cannot amend
such bylaws by a majority vote of or repeal that bylaw. Virginia law
the shareholders at a meeting of the also provides that a corporation's
shareholders called for such shareholders may amend or repeal the
purpose, and the board of directors bylaws even if the board of
shall not make or alter any bylaws directors also can amend or repeal
fixing a quorum for meetings of them.
shareholders, prescribing procedures
for removing directors or filling Virginia law provides that a
vacancies in the board of directors, corporation's board of directors may
or fixing the number of directors or propose amendments to its articles
their classifications, of incorporation for submission to
qualifications or terms of office. shareholders. In order for an
Under Minnesota law, a shareholder amendment to be adopted:
or shareholders holding 3% or more
of the voting power of all shares . the board of directors must
entitled to vote may propose a recommend the amendment to
resolution to amend or repeal bylaws shareholders unless it
adopted, amended or repealed by the determines that it should make
board, in which event such no recommendation due to
resolutions must be brought before conflicts of interest or other
the shareholders for their special circumstances; and
consideration pursuant to the
procedures for amending the articles . the amendment must be
of incorporation. approved, in VPN's case, by
more than two-thirds of the
Minnesota law provides that a outstanding shares of VPN
proposal to amend the articles of common stock.
incorporation may be presented
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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 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
Minnesota law and Virginia law Virginia law permits, but does
both contain provisions setting not require, a corporation to
forth conditions under which a indemnify an individual made a party
corporation may indemnify its to a proceeding because the
directors, officers and employees. individual is or was a director,
Minnesota law requires a corporation officer, employee or agent of the
to indemnify any director, officer corporation against judgments,
or employee who is made or settlements, penalties, fines and
threatened to be made party to a reasonable expenses, but only if the
proceeding by reason of the former individual conducted himself in good
or present official capacity of the faith, believed his conduct was in
director, officer or employee, (or in specified cases, at least not
against judgments, penalties, fines, opposed to) the corporation's best
settlements and reasonable expenses, interest and, in the case of a
but only if such person acted in criminal proceeding, had no
good faith and in a manner the reasonable cause to believe that his
person reasonably believed to be in conduct was unlawful. Virginia law
or not opposed to the best interests requires a corporation to indemnify
of the corporation and, with respect a director or, unless the
to any criminal action or corporation's articles provide
proceeding, had no reasonable cause otherwise, an officer who entirely
to believe the conduct was unlawful. prevails in the defense of such a
Minnesota law permits a corporation proceeding against reasonable
to prohibit indemnification by so expenses incurred in connection with
providing in its articles of the proceeding. VPN's articles of
incorporation or its bylaws. incorporation require VPN to
UnitedHealth Group has not limited indemnify directors and officers
the statutory indemnification in its against all liabilities and expenses
articles of incorporation, however, incurred in proceedings to which
and the bylaws of UnitedHealth Group they are parties by virtue of the
state that UnitedHealth Group shall fact that they are such directors or
indemnify such persons for such officers against all liabilities and
expenses and liabilities to such expenses incurred in the
extent as permitted by statute. proceedings, except for any incurred
because of their willful misconduct
or knowing violation of criminal
law.
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Liabilities of Directors
Under Minnesota law, a director Under Virginia law, a director
may be liable to the corporation for may be liable to the corporation for
distributions made in violation of distributions made in violation of
Minnesota law or a restriction Virginia law or a restriction
contained in the corporation's contained in the corporation's
articles or bylaws. The UnitedHealth articles. Virginia law provides that
Group articles provide that a in a proceeding brought in the name
director shall not be personally of a corporation or by shareholders
liable to UnitedHealth Group or its against a director or officer, the
shareholders for monetary liability damages assessed against the
relating to breach of fiduciary duty director or officer in connection
as a director, unless the liability with a single occurrence shall not
relates to: exceed the lesser of:
. a breach of the director's . the amount, including the
duty of loyalty to the elimination of liability,
corporation or its specified in the
shareholders; corporation's articles of
incorporation or in bylaws
. acts or omissions involving a approved by shareholders, or
lack of good faith or which
involve intentional . the greater of $100,000 or
misconduct or a knowing the amount of cash
violation of law; compensation received by the
officer or director from the
. liability for illegal corporation during the 12
distributions and unlawful months immediately preceding
sales of UnitedHealth Group the act or omission for which
securities; liability was imposed.
. transactions where the VPN's articles of incorporation
director gained an improper provide that, to the full extent
personal benefit; or permitted by Virginia law, directors
and officers shall not be liable to
. any acts or omissions VPN or its shareholders for any
occurring prior to the date monetary damages. No amendment or
on which the liability repeal of this provision may
limitation provisions of the diminish a director's or officer's
UnitedHealth Group articles rights thereunder with respect to
became effective. acts or omissions before the
amendment or repeal.
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 Virginia law provides that a plan
resolution containing a plan of of merger must be approved by the
merger or exchange must be approved board of directors and, except in
by the affirmative vote of a certain cases where the corporation
majority of the directors present at will be the surviving corporation in
a meeting and, except in certain the merger, submitted to the
cases where the corporation will be shareholders and approved by the
the surviving corporation in the affirmative vote of more than two-
merger, submitted to the thirds of the shares entitled to
shareholders and approved by the vote. Any class of shares must vote
affirmative vote of the holders of a separately to approve the plan of
majority of the voting power of all merger if it contains a provision
shares entitled to vote. Minnesota which, if contained in a proposed
law requires that any class of amendment to the corporation's
shares of a Minnesota corporation articles of incorporation, would
must be given the right to approve entitle the class to vote as a
the plan if it contains a provision separate class.
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
Minnesota law prohibits certain Virginia law prohibits a Virginia
"business combinations" (as defined corporation from engaging in an
in the Minnesota Business "affiliated transaction" (as defined
Corporations Act) between a in the Virginia Stock Corporation
Minnesota corporation with at least Act) with an "interested
100 shareholders, or a publicly held shareholder," for a three-year
corporation that has at least 50 period following the date on which
shareholders, and an "interested the person became an interested
shareholder" for a four-year period shareholder, unless approved by a
following the share acquisition date majority of the disinterested
by the interested shareholder, directors and by the holders of two-
unless certain conditions are thirds of the outstanding voting
satisfied or an exemption is found. stock not owned by the interested
An "interested shareholder" is shareholder. The Virginia Stock
generally defined to include a Corporation Act defines an
person who beneficially owns at "interested shareholder" to include
least 10% of the votes that all a person who is the beneficial owner
shareholders would be entitled to of more than 10% of any class of
cast in an election of directors of outstanding voting shares of the
the corporation. Minnesota law also corporation. Virginia law also
limits the ability of a shareholder prohibits a person who acquires
who acquires beneficial ownership of beneficial ownership of shares of
more than certain thresholds of the outstanding voting stock that would
percentage voting power of a increase his voting power in
Minnesota corporation (starting at director elections beyond certain
20%) from voting those shares in statutory thresholds (starting at
excess of the threshold unless such 20%) from voting those shares,
acquisition has been approved in unless voting rights are granted by
advance by a majority of the voting a majority of the outstanding voting
power held by shareholders stock not owned by such acquiring
unaffiliated with such shareholder. person. If the voting rights are
However, as permitted by Minnesota granted and the acquiring person
law, the UnitedHealth Group bylaws controls 50% or more of the voting
provide that this statutory power, all other shareholders have
provision shall not apply to the right to demand payment of the
UnitedHealth Group. Minnesota law fair value of their shares, unless
also includes a provision the corporation's articles of
restricting certain "control share incorporation or bylaws provide
acquisitions" of Minnesota otherwise. Neither VPN's articles
corporations. However, as permitted nor bylaws opt out of this
by Minnesota law, the UnitedHealth provision. If the voting rights are
Group articles provide that this not granted to the acquiring person
statutory provision shall not apply and the corporation's articles of
to UnitedHealth Group. incorporation or bylaws permit, the
corporation may purchase the
The UnitedHealth Group articles acquiring person's shares at their
require the affirmative vote of at cost to the acquiring person.
least 66 2/3% of the outstanding Neither VPN's articles nor bylaws
shares of UnitedHealth Group voting grant such authorization to the
stock in order to effect certain corporation.
business
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combinations, including a merger, It should be noted that in
consolidation, exchange of shares, addition to the anti-takeover
sale of all or substantially all of provisions discussed above, VPN's
the assets of UnitedHealth Group or articles and bylaws provide for a
other similar transactions, with a staggered board of directors.
person who, together with its
affiliates, owns 20% or more of the
outstanding voting stock of
UnitedHealth Group (a "Related
Person"). However, the 66 2/3%
voting requirement will not be
applicable if 66 2/3% of the
continuing directors approve the
business combination, the business
combination is solely between
UnitedHealth Group and a wholly
owned subsidiary, or the cash or
fair market value of the property,
securities or other consideration
to be received per share by holders
of UnitedHealth Group common stock
other than the Related Person is
not less than the highest per share
price paid by the Related Person in
acquiring any of its holdings of
UnitedHealth Group common stock.
Minnesota law provides that
during any tender offer, a publicly
held corporation may not enter into
or amend an agreement (whether or
not subject to contingencies) that
increases the current or future
compensation of any officer or
director. In addition, under
Minnesota law, a publicly held
corporation is prohibited from
purchasing any voting shares owned
for less than two years from a 5%
shareholder for more than the
market value unless the transaction
has been approved by the
affirmative vote of the holders of
a majority of the voting power of
all shares entitled to vote or
unless the corporation makes a
comparable offer to all holders of
shares of the class or series of
stock held by the 5% shareholder
and to all holders of any class or
series into which such securities
may be converted.
It should be noted that in
addition to the anti-takeover
measures discussed above, the
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.
54
<PAGE>
The foregoing discussion of certain similarities and material differences
between the rights of UnitedHealth Group and VPN shareholders under their
respective governing statutes, articles 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 Minnesota law and Virginia law, the common law thereunder and the
full text of the articles of incorporation and bylaws of each of UnitedHealth
Group and VPN.
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 September 30, 2000 and 1999, 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.
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
David J. Lubben, Esq., General Counsel of UnitedHealth Group. Certain legal
matters with respect to federal income tax consequences in connection with the
proposed transactions will be passed upon for VPN by Hirschler, Fleischer,
Weinberg, Cox & Allen, P.C., Richmond, Virginia.
FUTURE UNITEDHEALTH GROUP 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 have submitted
their proposals to UnitedHealth Group in accordance with all applicable rules
and regulations of the SEC by December 7, 2000.
WHERE YOU CAN FIND MORE INFORMATION
UnitedHealth Group Incorporated files annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). You may read and copy any reports, statements or other
information it files 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. 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. VPN is not required to, and has not, filed any reports,
proxy statements or other information with the SEC.
55
<PAGE>
UnitedHealth Group has filed a registration statement on Form S-4 to
register the shares of UnitedHealth Group common stock to be issued to VPN
shareholders in the proposed transaction. 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 VPN for the VPN Special
Meeting.
As allowed by SEC rules, this proxy statement/prospectus does not contain
all of the information relating to UnitedHealth Group 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
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 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 VPN shareholder, you can obtain any of the documents
incorporated by reference from UnitedHealth Group or the SEC. Documents
incorporated by reference are available from UnitedHealth Group 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 Center, 9900 Bren Road
East, Minnetonka, Minnesota 55343, Attention: Investor Relations, telephone:
(952) 936-1300.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE PROPOSED
TRANSACTION. 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 JANUARY , 2001. 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 SHAREHOLDERS NOR THE ISSUANCE OF UNITEDHEALTH GROUP
COMMON STOCK IN THE PROPOSED TRANSACTION SHALL CREATE ANY IMPLICATION TO THE
CONTRARY.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by UnitedHealth Group with the SEC (File No.
1-10864) are incorporated by reference in this proxy statement/prospectus:
. Annual Report on Form 10-K for the year ended December 31, 1999.
. Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30,
and September 30, 2000.
. Current Reports on Form 8-K filed on March 7 and November 17, 2000.
. The description of UnitedHealth Group's common stock contained in the
registration statement on Form 8-A dated September 20, 1991, and any
amendment or report filed for the purpose of updating that description
filed after the date of this prospectus and prior to the termination of
this offering.
All reports and definitive proxy or information statements filed by
UnitedHealth Group 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 VPN special shareholders
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.
56
<PAGE>
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 VPN 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 AT THE FOLLOWING ADDRESS AND TELEPHONE NUMBER:
UNITEDHEALTH GROUP CENTER, 9900 BREN ROAD EAST, MINNETONKA, MINNESOTA 55343,
ATTENTION: INVESTOR RELATIONS, TELEPHONE: (952) 936-1300.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE VPN
SPECIAL SHAREHOLDERS MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES,
ANY SUCH REQUEST SHOULD BE MADE BY , 2001.
57
<PAGE>
ANNEX A
ASSET ACQUISITION AGREEMENT
By and Among
UnitedHealth Group Incorporated,
United HealthCare Services, Inc.
and
Virginia's Physician Network, Inc.
----------------
December 29, 2000
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I. PURCHASE AND SALE OF ASSETS................................. A-1
1.1. Purchase and Sale............................................... A-1
1.2. Satisfaction of Seller's Contractual Put Right.................. A-1
1.3. Resolution of Other Contractual Obligations..................... A-1
1.4. Payment of Shares............................................... A-2
1.5. Seller Guaranty to Virginia Bureau of Insurance................. A-2
1.6. The Closing..................................................... A-2
1.7. Actions by Seller After Closing................................. A-3
1.8. Dissenting Shares............................................... A-3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER................... A-3
2.1. Organization and Qualification.................................. A-3
2.2. No Subsidiaries................................................. A-3
2.3. Capitalization.................................................. A-3
2.4. Authority Relative to this Agreement............................ A-4
2.5. No Conflict; Required Filings and Consents...................... A-4
No Securities Law Registrations or Filings Required on the Part
2.6. of Seller....................................................... A-5
2.7. Title to Purchased Shares, Etc.................................. A-5
2.8. Compliance with Law............................................. A-5
2.9. Litigation...................................................... A-5
2.10. Taxes........................................................... A-5
2.11. Finders or Brokers.............................................. A-6
2.12. Board Recommendation............................................ A-6
2.13. Tax Matters..................................................... A-6
2.14. Registration Statement; Proxy Statement/Prospectus.............. A-6
2.15. Disclosure...................................................... A-7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.... A-7
3.1. Organization and Qualification.................................. A-7
3.2. Capitalization.................................................. A-7
3.3. Authority Relative to this Agreement............................ A-7
3.4. No Conflicts; Required Filings and Consents..................... A-8
3.5. SEC Filings; Financial Statements............................... A-8
3.6. Absence of Changes or Events.................................... A-9
3.7. Finders or Brokers.............................................. A-9
3.8. Tax Matters..................................................... A-9
3.9. Registration Statement; Proxy Statement/Prospectus.............. A-9
ARTICLE IV. COVENANTS AND AGREEMENTS................................... A-9
4.1. Seller Not to Take Certain Actions Pending the Closing Date..... A-9
Preparation of Registration Statement; Proxy
4.2. Statement/Prospectus; Blue Sky Laws............................. A-10
4.3. Seller Shareholders Meeting..................................... A-10
4.4. Additional Agreements; Cooperation.............................. A-10
4.5. Publicity....................................................... A-11
4.6. Notification of Certain Matters................................. A-11
4.7. Rule 145 Matters................................................ A-11
4.8. Tax-Free Reorganization......................................... A-12
4.9. SEC Filings; Compliance......................................... A-12
4.10. Listing of Additional Shares.................................... A-12
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE V. CONDITIONS TO CLOSING....................................... A-12
Conditions to Each Party's Obligation to Effect the
5.1. Transactions.................................................... A-12
5.2. Conditions to Obligations of Purchaser and Parent............... A-13
5.3. Conditions to Obligations of Seller............................. A-15
ARTICLE VI. TERMINATION................................................ A-16
6.1. Termination..................................................... A-16
6.2. Effect of Termination........................................... A-16
6.3. Fees and Expenses............................................... A-16
ARTICLE VII. MISCELLANEOUS............................................. A-17
7.1. Nonsurvival of Representations and Warranties................... A-17
7.2. Waiver.......................................................... A-17
7.3. Notices......................................................... A-17
7.4. Counterparts.................................................... A-18
7.5. Interpretation.................................................. A-18
7.6. Amendment....................................................... A-18
7.7. No Third Party Beneficiaries.................................... A-18
7.8. Governing Law................................................... A-18
7.9. Entire Agreement................................................ A-19
7.10. Validity........................................................ A-19
SIGNATURES............................................................. A-19
EXHIBITS
A Form of Seller Affiliate Letter...................................... A-20
</TABLE>
ii
<PAGE>
ASSET ACQUISITION AGREEMENT
This Asset Acquisition Agreement (this "Agreement"), dated December 29,
2000, is made and entered into by and among UnitedHealth Group Incorporated, a
Minnesota corporation ("Parent"), United HealthCare Services, Inc., a Minnesota
corporation and a direct wholly owned subsidiary of Parent ("Purchaser"), and
Virginia's Physician Network, Inc., a Virginia corporation ("Seller").
WHEREAS, UnitedHealthcare, Inc., a Delaware corporation and a direct wholly
owned subsidiary of Purchaser, owns approximately 51% of the issued and
outstanding shares of common stock of United HealthCare of Virginia, Inc., a
Virginia corporation ("UHC Virginia"), and Seller owns the remaining
approximately 49% of the issued and outstanding shares of common stock of UHC
Virginia; and
WHEREAS, the shares of common stock of UHC Virginia owned by Seller comprise
substantially all of the assets of Seller; and
WHEREAS, Purchaser wishes to purchase from Seller, and Seller wishes to sell
to Purchaser, the shares of common stock of UHC Virginia owned by Seller in
exchange for (i) shares of common stock of Parent which will be distributed to
the shareholders of Seller on a pro rata basis and (ii) the resolution by
Purchaser of certain monetary obligations owing from Seller to Purchaser; and
WHEREAS, it is intended that the transactions contemplated by this Agreement
will qualify as a "reorganization" within Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1. Purchase and Sale. On the terms and subject to the conditions set forth
in this Agreement, Seller shall, at the Closing (as defined in Section 1.5
hereof), sell, transfer and assign to Purchaser, and Purchaser shall purchase
and acquire from Seller, all of Seller's right, title and interest in and to
1,237.25 shares of common stock, par value $$1.00 per share, of UHC Virginia
(the "Purchased Shares"). Purchaser shall not purchase or acquire any assets of
Seller other than the Purchased Shares.
1.2. Satisfaction of Seller's Contractual Put Right. In satisfaction of
Seller's put right as set forth in the Intra-Party Agreements (as hereinafter
defined), the Purchaser shall pay to the Seller for the Purchased Shares that
number of shares of common stock, par value $0.01 per share, of Parent ("Parent
Common Stock") determined by dividing $17,948,278.04 by the "Parent Average
Price".
The term "Parent Average Price" means the average closing price per share of
Parent Common Stock on the New York Stock Exchange for the thirty consecutive
trading days ending with and including the third business day preceding the
Closing Date.
1.3. Resolution of Other Contractual Obligations. Purchaser agrees to be
responsible for the ultimate negotiation and resolution of the contested
liability represented by the promissory note dated November 5, 1999, from
Seller to Purchaser in the amount of $2,351,721.96, including accrued and
unpaid interest thereon
A-1
<PAGE>
(the "Promissory Note"), and Seller shall have no further liability on the
Promissory Note. Except as provided above, Seller shall retain, and neither
Purchaser nor Parent shall assume, and nothing contained in this Agreement
shall be construed as an assumption by Purchaser or Parent of, any liabilities,
obligations or undertakings of Seller of any nature whatsoever, whether accrued
or unaccrued, fixed or contingent, known or unknown, due or to become due, or
otherwise.
1.4. Payment of Shares.
(a) At least two business days prior to the Closing Date (but in no event
sooner than 1 business day after the Seller Shareholder Meeting as described in
Section 2.14), Seller shall provide to Purchaser a list (the "Seller
Shareholder List"), certified as true, correct and complete by an officer of
Seller, of all of the shareholders of Seller as of the close of business on the
preceding business day (the "Cutoff Date") and of the number of shares of
common stock, par value $0.01 per share, of Seller ("Seller Common Stock")
owned by each such shareholder at the close of business on the Cutoff Date.
Seller shall not issue or reacquire any shares of Seller Common Stock, and
shall not permit any shares of Seller Common Stock to be transferred on the
books of Seller, after the Cutoff Date and on or before the Closing Date.
(b) Purchaser shall deliver or cause to be delivered to each shareholder of
Seller identified in the Seller Shareholder List that number of shares of
Parent Common Stock, registered in such shareholders' respective names,
determined by multiplying the total number of shares of Parent Common Stock
payable pursuant to Section 1.2 by a fraction, the numerator of which is the
number of shares of Seller Common Stock held by such shareholder as set forth
in the Seller Shareholder List, and the denominator of which is the total
number of shares of Seller Common Stock set forth in the Seller Shareholder
List. Notwithstanding the above, at Seller's election, which shall be
communicated to Purchaser no later than three (3) business days prior to the
filing of the Registration Statement, Seller may direct that a portion of the
Parent Common Stock be paid and delivered to, and titled in the name of,
Seller.
(c) Notwithstanding (b) above, no fraction of a share of Parent Common Stock
will be delivered to any holder of Seller Common Stock. In lieu thereof,
Purchaser shall pay to each holder of shares of Seller Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Stock an amount
of cash (rounded to the nearest whole cent) 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
Closing Date.
(d) At Seller's sole discretion, the shares of Parent Common Stock to be
delivered pursuant to (b) above may be delivered by mailing stock certificates
evidencing such shares to Seller's shareholders at their addresses as they
appear in Seller's stock register, or they may be delivered in the form
uncertificated shares of Parent Common Stock issued in accordance with the
provisions of Section 302A.417, Subd. 7 of the Minnesota Business Corporation
Act and the direct registration system maintained by the registrar and transfer
agent for Parent Common Stock.. Seller's determination in this regard shall be
communicated to Purchaser along with the Seller Shareholder List.
1.5. Seller Guaranty to Virginia Bureau of Insurance. As set forth in
Section VI.L. of the Second Amendment and Restatement of Shareholder Agreement
between Purchaser and Seller dated June 30, 2000, Purchaser and Parent will (i)
assume all of Seller's obligations pursuant to that certain guaranty dated June
18, 1997 made by Seller to the Virginia Bureau of Insurance, (ii) use its
reasonable best efforts to have Seller released from such guaranty, and (iii)
indemnify and hold harmless Seller from and against any and all costs, claims,
payments, damages, or expenses (including, without limitation, legal expenses)
incurred by Seller related to any attempted or actual enforcement of such
guaranty.
1.6. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Parent within two
business days after the date on which the last of the conditions set forth in
Article V shall have been satisfied or waived, or at such other place and on
such other date as are mutually agreed upon by Parent, Purchaser and Seller
(the "Closing Date").
A-2
<PAGE>
1.7 Actions by Seller After Closing. As soon as is practicable after the
Closing (and in any event not more than one year after the Closing Date),
Seller shall dissolve and terminate its corporate existence in accordance with
the provisions of its articles of incorporation, bylaws, and the Virginia Stock
Corporation Act (the "VSCA").
1.8. Dissenting Shares. For purposes of this Agreement, the term "Dissenting
Shares" means any shares of Seller Common Stock issued and outstanding
immediately prior to the Closing Date with respect to which dissenters rights
apply under Section 13.1-730 of the VSCA which are held by a holder who has not
voted in favor of the transactions contemplated by this Agreement or consented
thereto in writing and who has properly delivered to Seller a notice of intent
to demand payment pursuant to Section 13.1-733 of the VSCA. Notwithstanding any
provision of this Agreement to the contrary, no holder of Dissenting Shares
shall be entitled to receive shares of Parent Common Stock pursuant to Section
1.4 unless and until such holder fails to perfect or effectively withdraws or
otherwise loses such holder's right to payment under the VSCA. Instead, with
respect to all such Dissenting Shares on the Closing Date, Purchaser shall
issue Parent Common Stock to Seller in the amount that would otherwise be
issuable to holders of Dissenting Shares, and Seller shall comply with the
dissenter's rights statutes under Virginia law. Seller shall give Purchaser
notice of any notices of intent to demand payment which are received by Seller
with respect to Dissenting Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser and Parent that the statements
contained in this Article II are true and correct:
2.1. Organization and Qualification. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the Commonwealth of
Virginia and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Seller is duly qualified and in good standing in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary. Seller is not in violation of any of the
provisions of its articles of incorporation, bylaws, or other applicable
governing document.
2.2. No Subsidiaries. There is no corporation or other organization, whether
incorporated or unincorporated, of which Seller 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.
2.3. Capitalization.
(a) The authorized capital stock of Seller consists of 10,000,000 shares of
Seller Common Stock. As of the date hereof, 2,151,180 shares of Seller Common
Stock were issued and outstanding, and Seller held no shares of Seller Common
Stock in its treasury. Seller 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 shareholder of Seller has a right to vote. All
issued and outstanding shares of Seller Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Except
for options to purchase an aggregate of 175,912 shares of Seller Common Stock
which are outstanding under Seller's Virginia's Physician Network, Inc. Stock
Option
A-3
<PAGE>
Plan dated April 22, 1998, as amended, ("Seller's Option Plan"), there are no
outstanding options, warrants, convertible or exchangeable securities or other
rights which obligate Seller to issue, exchange, transfer or sell any shares of
capital stock of Seller or any other securities or obligations which are
convertible into, exercisable for or exchangeable for any shares of such
capital stock. Other than agreements with Purchaser, including the Shareholder
Agreement between Purchaser and Seller dated March 1, 1996, the First Amendment
to the Shareholder Agreement dated January 1, 1998, the Second Amendment and
Restatement of Shareholder Agreement dated June 30, 2000, and the Letter
Agreement between Purchaser and Seller dated December 29, 1999 (collectively,
the "Intra-Party Agreements"), there are no outstanding obligations of Seller
to repurchase, redeem or otherwise acquire any shares of capital stock of
Seller.
(b) The Seller Shareholder List delivered by Seller to Purchaser pursuant to
Section 1.4(a) will be a true, correct and complete list of all of the
shareholders of Seller as of the Cutoff Date and of the number of shares of
Seller Common Stock owned by each such shareholder at the close of business, in
each case as reflected on the books of the Seller, on the Cutoff Date.
2.4. Authority Relative to this Agreement. Seller 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 shareholders as required by the VSCA and Seller's articles of
incorporation and bylaws, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
board of directors of Seller and no other corporate proceedings on the part of
Seller are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than approval by Seller's shareholders
as required by the VSCA and Seller's articles of incorporation and bylaws).
This Agreement has been duly and validly executed and delivered by Seller and,
assuming the due authorization, execution and delivery hereof by Purchaser and
Parent, constitutes a valid and binding agreement of Seller, enforceable
against Seller 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.
2.5. No Conflict; Required Filings and Consents
(a) Assuming that all filings, notices, permits, authorizations, consents
and approvals or waivers thereof have been duly made or obtained as
contemplated by (b) and (c) below, neither the execution and delivery of this
Agreement by Seller nor the consummation of the transactions contemplated
hereby nor the compliance by Seller 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 Seller under, any of the terms, conditions
or provisions of (x) its articles of incorporation, bylaws, or other applicable
governing document, (y) any note, bond, charge, lien, pledge, mortgage,
indenture or deed of trust to which Seller is a party or to which it or any of
its properties or assets may be subject, or (z) any license, lease, agreement
or other instrument or obligation to which Seller is a party or to which it or
any of its properties or assets may be subject, or (ii) violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation applicable
to Seller or any of its properties or assets.
(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 (collectively,
"Governmental Approvals") is required to be obtained, made or given by Seller
in connection with the execution and delivery of this Agreement or the
consummation by Seller of the transactions contemplated hereby exceptthe filing
of a Form D with the Virginia Bureau of Insurance with respect to the purchase
and sale of the Purchased Shares and the approval of such filing by the
Virginia Bureau of Insurance.
A-4
<PAGE>
(c) No consent, approval, waiver, or other action on the part of, and no
notice to, any non-governmental person or entity is required to be obtained,
made or given by Seller in connection with the execution and delivery of this
Agreement or the consummation by Seller of the transactions contemplated hereby
except for the approval of the sale of the Purchased Shares by Seller and the
dissolution of Seller by the holders of at least two-thirds of the outstanding
shares of Seller Common Stock pursuant to Sections 13.1-724 and 13.1-742 of the
VSCA.
2.6. Securities Law Registrations and Required Filings on the Part of
Seller. To the best of Seller's knowledge after reasonable investigation and
due diligence, Seller is not and has not been required to register Seller
Common Stock under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act") or the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act") or the securities or Blue Sky laws of any
state, except that Seller has registered by qualification under the Virginia
Securities Act and sold 2,040,755 shares of Seller common stock pursuant to
that certain Registration Statement of Seller dated March 25, 1996. To the best
of Seller's knowledge after reasonable investigation and due diligence, Seller
is not and has not been required to file any annual or quarterly reports, proxy
statements, or other documents with the Securities and Exchange Commission (the
"SEC") under the Exchange Act.
2.7. Title to Purchased Shares, Etc.
(a) Other than a Stock Pledge Agreement dated November 5, 1999 with Seller
as pledgor and Purchaser, as pledgee, to secure Seller's obligations under the
Note (the "Pledge Agreement"), Seller owns, beneficially and of record, all
right, title and interest in and to the Purchased Shares free and clear of any
security interests, claims, liens, pledges, options, encumbrances, charges,
agreements, voting trusts, proxies or other arrangements, restrictions or
limitations of any kind. On the Closing Date, the delivery by Seller of a stock
certificate or certificates evidencing the Purchased Shares in the manner set
forth in Section 5.2(f) hereof will transfer good and valid title to the
Purchased Shares to Purchaser, free and clear of any security interests,
claims, liens, pledges, options, encumbrances, charges, agreements, voting
trusts, proxies or other arrangements, restrictions or other legal or equitable
limitations of any kind.
(b) The Purchased Shares constitute all of the shares of capital stock of
UHC Virginia which are owned beneficially or of record by Seller. Other than
pursuant to the Intra-Party Agreements, Seller has no rights to acquire any
shares of capital stock of UHC Virginia from UHC Virginia or any other person
or entity. The Purchased Shares constitute substantially all of the assets of
Seller within the meaning of Section 368(a)(1)(C) of the Code.
2.8. Compliance with Law. To the best of Seller's knowledge, all activities
of Seller have been, and are currently being, conducted in compliance in all
material respects with all applicable United States federal, state, and local
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.
2.9. Litigation. There is no (a) claim, action, suit or proceeding pending
or, to Seller's knowledge, overtly threatened against or relating to Seller
before any court or other governmental entity, (b) alternative dispute
resolution proceeding pending or overtly threatened against Seller, or (c)
outstanding judgment, order, writ, injunction or decree, or application,
request or motion therefor, of any court or other governmental entity in a
proceeding to which Seller or any of its assets was or is a party, and Seller
is not in default with respect to any such judgment, order, writ, injunction or
decree.
2.10. 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
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income, gross receipts, property, sales, use, license, excise, franchise, ad
valorem, value-added, transfer, social security payments, and health taxes and
any deductibles relating to wages, salaries and benefits and payments to
subcontractors for any jurisdiction in which Seller does business (to the
extent required under applicable Tax law), together with all interest,
penalties and additions imposed with respect to such amounts.
(b) (i) Other than Seller's 1999 federal and state income tax returns,
which have been filed but which were filed late Seller has 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 Seller;
(ii) all Taxes of Seller shown on such Returns or all Taxes otherwise
known by Seller 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 Seller 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 Seller which
has not been satisfied or otherwise resolved, and no examination of Seller
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 Seller 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; and
(vii) there are no Tax liens on any assets of Seller other than liens
for Taxes not yet due or payable.
2.11. Finders or Brokers. Other than an approximately $12,000 fee to be
paid to Cain Brothers, Inc. by Seller, neither Seller nor the board of
directors of Seller nor any member of such 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 transactions contemplated hereby.
2.12. Board Recommendation. The board of directors of Seller, at a meeting
of such board duly held on December 28, 2000, approved and adopted this
Agreement and the transactions contemplated hereby and recommended that the
shareholders of Seller approve such transactions, and such board has not
rescinded or modified in any respect any of such actions.
2.13. Tax Matters. Neither Seller 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 transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368(a)(1)(C) of the Code.
2.14. Registration Statement; Proxy Statement/Prospectus. The information
supplied by Seller 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 pursuant to this Agreement will be
registered with the SEC (the "Registration Statement") shall not, to the best
of Seller's knowledge after reasonable investigaton and due diligence,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
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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 Seller for inclusion in
the proxy statement/prospectus to be sent to the shareholders of Seller in
connection with the meeting of Seller's shareholders to consider the
transactions contemplated by this Agreement (the "Seller Shareholders Meeting")
(such proxy statement/prospectus as amended or supplemented is referred to
herein as the "Proxy Statement/Prospectus") shall not, to the best of Seller's
knowledge after reasonable investigation and due diligence, on the date the
Proxy Statement/Prospectus is first mailed to Seller's shareholders, at the
time of the Seller Shareholders Meeting and at the Closing Date, 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 Seller Shareholders Meeting which has become
false or misleading. If at any time prior to the Closing Date any event or
information should be discovered by Seller which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Seller shall promptly inform Parent. Notwithstanding the
foregoing, Seller makes no representation, warranty or covenant with respect to
any information supplied by Parent or Purchaser in writing specifically for use
in any of the foregoing documents.
2.15. Disclosure. Each of the representations and warranties set forth in
this Article II shall be deemed made at and as of the date of this Agreement
and again at and as of the Closing Date, as if made at such time and
substituting the Closing Date for the date of this Agreement throughout this
Article II, except to the extent such representations and warranties
specifically refer to a date other than the date of this Agreement. The
representations and warranties set forth in this Article II, taken as a whole,
do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT
Purchaser and Parent represent and warrant to Seller that the statements
contained in this Article III are true and correct:
3.1. Organization and Qualification. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Purchaser
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Minnesota and 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 Parent and Purchaser is duly qualified and in
good standing 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 hereinafter defined. As used in this Agreement, the
term "Parent Material Adverse Effect" means any change, effect, event or
condition that (a) 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 (b) would prevent or materially
delay Purchaser's or Parent's ability to consummate the transactions
contemplated hereby.
3.2. Capitalization. All issued and outstanding shares of Parent Common
Stock are duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights.
3.3. Authority Relative to this Agreement.
(a) Each of Purchaser and Parent has the requisite corporate power and
authority to execute and deliver, and perform its obligations under, this
Agreement and to consummate the transactions contemplated hereby.
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The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
board of directors of each of Purchaser and Parent and no other corporate
proceedings on the part of Purchaser or Parent are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by each of Purchaser and
Parent and, assuming the due authorization, execution and delivery hereof by
Seller, constitutes a valid and binding agreement of each of Purchaser and
Parent, enforceable against each of 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.
(b) The shares of Parent Common Stock to be issued by Parent pursuant to
this Agreement (i) have been duly authorized, and, when issued in accordance
with the terms of this Agreement, 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 this Agreement, be registered under the
Securities Act, and registered or exempt from registration under applicable
state securities and Blue Sky laws, and (iii) will, when issued in accordance
with the terms of this Agreement, be listed on the New York Stock Exchange.
3.4. No Conflicts; Required Filings and Consents.
(a) Neither the execution, delivery or performance of this Agreement by
Purchaser or Parent, nor the consummation of the transactions contemplated
hereby, nor compliance by Purchaser or Parent with any provision hereof will
(i) conflict with or result in a breach of any provision of the certificate of
incorporation or bylaws of Purchaser 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 Purchaser 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 Purchaser or
Parent is a party or by which its properties or assets may be bound or (iii)
violate any law applicable to Purchaser 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 Governmental Approvals are required to be obtained, made or given by
Purchaser or Parent in connection with the execution and delivery of this
Agreement or the consummation by Purchaser or Parent of the transactions
contemplated hereby except:
(i) the filing of the Registration Statement with the SEC under the
Securities Act, as further described in Section 4.2;
(ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state
securities and Blue Sky laws; and
(iiii) the filing of a Form D with the Virginia Bureau of Insurance with
respect to the purchase and sale of the Purchased Shares and the approval
of such filing by the Virginia Bureau of Insurance.
3.5. 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.
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(b) The audited consolidated financial statements and unaudited consolidated
interim financial statements of Parent and its subsidiaries included or
incorporated by reference in the 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).
3.6. Absence of Changes or Events. Except as set forth in the Parent SEC
Reports, since September 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.
3.7. Finders or Brokers. None of Parent, Purchaser, the other subsidiaries
of Parent, the boards of directors of Parent or Purchaser 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
transactions contemplated hereby.
3.8. 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 Seller or any of its affiliates)
would prevent the transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368(a)(1)(C) of the Code.
3.9. Registration Statement; Proxy Statement/Prospectus. The information
supplied by Parent and Purchaser 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 and
Purchaser for inclusion in the Proxy Statement/Prospectus shall not, on the
date the Proxy Statement/Prospectus is first mailed to Seller's shareholders,
at the time of the Seller Shareholders Meeting and at the Closing Date, 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 Seller Shareholders Meeting which has become
false or misleading. If at any time prior to the Closing Date any event or
information should be discovered by Parent or Purchaser which should be set
forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement/Prospectus, Parent or Purchaser will promptly inform Seller.
Notwithstanding the foregoing, Parent and Purchaser make no representation,
warranty or covenant with respect to any information supplied by Seller in
writing specifically for use in any of the foregoing documents.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1. Seller Not to Take Certain Actions Pending the Closing Date. Except as
expressly agreed to in writing by Parent, during the period from the date of
this Agreement to the earlier of the termination of this Agreement pursuant to
its terms or the Closing Date, Seller shall not:
(a) issue any shares of Seller Common Stock after the Cutoff Date,
whether upon the exercise of options outstanding under Seller's Option Plan
or otherwise; or reacquire any shares of Seller Common Stock; or issue any
bonds, debentures, notes or other securities or obligations the holders of
which have
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the right to vote or which are convertible into or exercisable for
securities having the right to vote on any matter on which any shareholder
of Seller has a right to vote; or issue any options, warrants, convertible
or exchangeable securities or other rights which obligate Seller to issue,
exchange, transfer or sell any shares of capital stock of Seller or any
other securities or obligations which are convertible into, exercisable for
or exchangeable for any shares of such capital stock; or enter into any
obligations of Seller to repurchase, redeem or otherwise acquire any shares
of capital stock of Seller; or permit any shares of Seller Common Stock to
be transferred on its books after the Cutoff Date;
(b) sell or otherwise dispose of, or agree to sell or otherwise dispose
of, any interest in the Purchased Shares; or create or suffer to be created
or to exist any security interest, claim, lien, pledge, option,
encumbrance, charge, agreement, voting trust, proxy or other arrangement,
restriction or limitation of any kind with respect to the Purchased Shares;
or take or suffer to be taken any action which would prevent the delivery
by Seller of a stock certificate or certificates evidencing the Purchased
Shares in the manner set forth in Section 5.2(f) hereof at the Closing Date
from transferring good and valid title to the Purchased Shares to
Purchaser, free and clear of any security interests, claims, liens,
pledges, options, encumbrances, charges, agreements, voting trusts, proxies
or other arrangements, restrictions or other legal or equitable limitations
of any kind;
(c) amend its articles of incorporation, bylaws, or other applicable
governing document;
(d) acquire any substantial assets;
(e) alter (through merger, liquidation, reorganization, restructuring or
in any fashion) the corporate structure or ownership of Seller; or
(f) 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.
4.2. 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 Seller 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 Seller 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 shall, when prepared pursuant to this Section 4.2 and
mailed to Seller's shareholders, comply in all material respects with the
applicable requirements of the Exchange Act and the Securities Act. The Proxy
Statement/Prospectus shall include the recommendation of Seller's board of
directors that Seller's shareholders approve the transactions contemplated by
this Agreement. Parent shall also take any action required to be taken under
any applicable state securities or Blue Sky laws in connection with the
issuance of the Parent Common Stock pursuant to this Agreement; provided,
however, that neither Parent nor Seller 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.
4.3 Seller Shareholders Meeting. Seller shall, promptly after the date
hereof, take all action necessary in accordance with the VSCA and its articles
of incorporation and bylaws to convene the Seller Shareholders Meeting within
30 days of the Registration Statement being declared effective by the SEC (or
such longer period as may be required by the VSCA or Seller's bylaws). Seller
shall consult with Parent regarding the date of the Seller Shareholders
Meeting. Seller shall use its best efforts to solicit from Seller's
shareholders proxies in favor of approval of the transactions contemplated by
this Agreement and shall take all other action necessary or advisable to secure
the vote or consent of Seller's shareholders required to effect such
transactions.
4.4. 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
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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 Exchange Act, the Securities Act and 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 any
government or governmental authority regarding any of the transactions
contemplated thereby.
(c) UHC Virginia will have input into the communication to Seller's
shareholders of the transactions contemplated by this Agreement. The
communication will encourage Seller's shareholders to remain participating
physicians in the UnitedHealthcare network and members of UHC Virginia
committees and advisory panels.
4.5. Publicity. Except as otherwise required by applicable law, rule,
regulation, or stock exchange rule, so long as this Agreement is in effect,
Parent and Seller shall not, and shall not permit any of their respective
affiliates or representatives to, issue or cause the publication of any press
release or make any other 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 Seller shall
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 shall furnish the other with drafts of
any such releases and announcements as far in advance as possible. Such
communications shall emphasize the positive positioning of UHC Virginia and the
achievement of many of the Seller's original objectives.
4.6. Notification of Certain Matters. Seller 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, (a) 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
Closing Date, (b) any material failure of Seller, Parent or Purchaser, 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 (c) the institution of any claim, suit,
action or proceeding arising out of or related to the transactions contemplated
by this Agreement; 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.
4.7. Rule 145 Matters.
(a) Promptly following the date of this Agreement, Seller shall deliver to
Parent a list of names and addresses of those persons who are affiliates of
Seller within the meaning of Rule 145 of the rules and regulations promulgated
under the Securities Act (the "Seller Affiliates"). Seller shall provide Parent
such information and documents as Parent shall reasonably request for purposes
of reviewing such list. Seller shall deliver to Parent, on or prior to the
Closing, an affiliate letter in the form attached hereto as Exhibit A, executed
by each of the Seller Affiliates identified in the foregoing list. Parent shall
be entitled to place the legend that is specified in such affiliate letters on
any certificates evidencing any of the shares of Parent
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Common Stock to be received by such Seller 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. Promptly following the execution of this Agreement by the Parties and
no less than 30 days prior to the Closing Date, Purchaser and Parent agree to
deliver to Seller all administrative procedures, copies of forms and other
documents for Seller Affiliates to complete to enable such Seller Affiliates to
sell Parent Common Stock received by them in accordance with Rule 145 and
pursuant to this Agreement.
(b) For so long as resales of shares of Parent Common Stock issued pursuant
to this Agreement 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.
4.8. Tax-Free Reorganization. Parent and Seller shall each use all
commercially reasonable efforts to cause the transactions contemplated by this
Agreement to qualify as a reorganization within the meaning of Section
368(a)(1)(C) of the Code.
4.9. SEC Filings; Compliance. Parent and Seller shall each cause the forms,
reports, schedules, statements and other documents required to be filed with
the SEC by Parent and Seller (if any), respectively, between the date of this
Agreement and the Closing Date 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. Notwithstanding
any other provision hereof, Parent and Purchaser shall pay all costs associated
with the preparation and filing of the Registration Statement, except for costs
incurred by Seller in preparing the Proxy Statement/Prospectus.
4.10. Listing of Additional Shares. Prior to the Closing Date Parent shall
list the shares of Parent Common Stock to be issued pursuant to this Agreement
on the New York Stock Exchange, subject to official notice of issuance.
ARTICLE V
CONDITIONS TO CLOSING
5.1. Conditions to Each Party's Obligation to Effect the Transactions. The
respective obligations of each party to effect the transactions contemplated by
this Agreement is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) Shareholder Approval. The sale of the Purchased Shares by Seller and
the dissolution of Seller shall have been approved by the holders of at
least two-thirds of the outstanding shares of Seller Common Stock pursuant
to Sections 13.1-724 and 13.1-742 of the VSCA and Seller's articles of
incorporation and bylaws.
(b) No Action, Injunction or Restraints. No action or proceeding by any
court, regulatory authority or other governmental entity or by any private
party seeking to prevent consummation of the transactions contemplated by
this Agreement, asserting the illegality of such transactions or this
Agreement or seeking material damages arising out of such transactions
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 court, regulatory authority or
other 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.
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5.2. Conditions to Obligations of Purchaser and Parent. The obligations of
Purchaser to purchase the Purchased Shares from Seller and of Purchaser and
Parent to consummate the other transactions contemplated by this Agreement are
further subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Seller set forth herein shall be true and correct both when made and at
and as of the Closing 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 Seller. Seller shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date.
(c) No Material Adverse Effect. Since the date of this Agreement, there
shall not have been any change, event or condition that would reasonably be
expected to prevent or materially delay Seller's ability to consummate the
transactions contemplated by this Agreement.
(d) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation entered, enacted, promulgated, enforced
or issued by any court, regulatory authority 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 Purchaser or Parent to acquire or hold or to exercise full
rights of ownership of any of the Purchased Shares, or (ii) imposing or
seeking to impose other material sanctions, damages, or liabilities as a
result of the transactions contemplated by this Agreement on Purchaser or
Parent or any of their officers or directors.
(e) Delivery of Closing Documents. At or prior to the Closing Date,
Seller shall have delivered to Purchaser and Parent all of the following:
(i) a certificate of the chief executive officer of Seller, dated as
of the Closing Date, stating that the conditions precedent set forth in
(a), (b) and (c) above have been satisfied; and
(ii) copies of (A) the articles of incorporation of Seller, dated as
of a recent date, certified by the Secretary of State of the
Commonwealth of Virginia, and (B) the bylaws of Seller and the
resolutions adopted by the board of directors of Seller and by the
shareholders of Seller authorizing and approving the transactions
contemplated by this Agreement, certified by the secretary of Seller.
(f) Delivery of Certificates for the Purchased Shares and Cross-
Receipts. Seller shall have delivered to Purchaser one or more stock
certificates evidencing in the aggregate all of the Purchased Shares, duly
endorsed to Purchaser; and Seller and Purchaser shall have delivered cross-
receipts for the Purchased Shares and the purchase price payable therefor
pursuant to Article I.
(g) Consents, etc. Purchaser and Parent shall have received evidence, in
form and substance reasonably satisfactory to them, that all notices to,
licenses, permits, consents, waivers, approvals, contract extensions,
authorizations, qualifications, and orders of all governmental entities and
any other third parties contemplated by Sections 2.5(b) and (c) have been
made and obtained.
(h) Seller Affiliate Letters. Parent shall have received the letters
described in Section 4.7(a) hereof executed by each of the Seller
Affiliates.
(i) Exercises of Dissenters Rights. Holders of no more than 10% of the
shares of Seller Common Stock outstanding at the Cutoff Date shall have
delivered to Seller and not withdrawn notices of intent to demand payment
pursuant to Section 13.1-733 of the VSCA.
(j) Opinion of Counsel to Seller. Hirschler, Fleischer, Weinberg, Cox &
Allen, counsel to Seller, shall have delivered their opinion to Purchaser
and Parent, dated the Closing Date, addressed to Purchaser and Parent, and
in form and substance reasonably satisfactory to Purchaser and Parent, to
the effect that:
(i) Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Virginia and
has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted. Seller is duly qualified and in good standing in each
jurisdiction where the character of its properties owned or leased
or the nature of its activities makes such qualification necessary.
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(ii) The authorized capital stock of Seller consists of
10,000,000 shares of Seller Common Stock. As of the Closing Date,
2,151,180 shares of Seller Common Stock are issued and outstanding,
which is the same number of shares as the total number of shares set
forth in the certified list delivered by Seller to Purchaser and
Parent pursuant to Section 1.4(a. To the knowledge of such counsel,
Seller 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 shareholder of
Seller has a right to vote. All issued and outstanding shares of
Seller Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, To the knowledge of
such counsel, except for options to purchase an aggregate of 175,912
shares of Seller Common Stock which are outstanding under Seller's
Option Plan, there are no outstanding options, warrants, convertible
or exchangeable securities or other rights which obligate Seller to
issue, exchange, transfer or sell any shares of capital stock of
Seller or any other securities or obligations which are convertible
into, exercisable for or exchangeable for any shares of such capital
stockTo the knowledge of such counsel, other than the Intra-Party
Agreements, there are no outstanding obligations of Seller to
repurchase, redeem or otherwise acquire any shares of capital stock
of Seller.
(iii) Seller has the requisite corporate power and authority to
execute and deliver, and perform its obligations under, this
Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly
authorized by the board of directors and shareholders of Seller and
no other corporate proceedings on the part of Seller are necessary
to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller and, assuming the due
authorization, execution and delivery hereof by Purchaser and
Parent, constitutes a valid and binding agreement of Seller,
enforceable against Seller 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.
(iv) Neither the execution and delivery of this Agreement by
Seller nor the consummation of the transactions contemplated hereby
nor the compliance by Seller 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 Seller under, any of the terms, conditions or provisions
of (x) its articles of incorporation, bylaws, or other applicable
governing document, (y) any note, bond, charge, lien, pledge,
mortgage, indenture or deed of trust known to such counsel to which
Seller is a party or to which it or any of its properties or assets
may be subject, or (z) any license, lease, agreement or other
instrument or obligation known to such counsel to which Seller is a
party or to which it or any of its properties or assets may be
subject, or (ii) violate any judgment, ruling, order, writ,
injunction, or decree known to such counsel, or any statute, rule or
regulation, applicable to Seller or any of its properties or assets.
(v) To the best of Seller's knowledge after reasonable
investigation and due diligence, Seller is not and has not been
required to register Seller Common Stock under the Securities Act or
the Exchange Act or the securities or Blue Sky laws of any state,
except that Seller has registered by qualification under the
Virginia Securities Act and sold 2,040,755 shares of Seller common
stock pursuant to that certain Registration Statement of Seller
dated March 25, 1996. To the best of Seller's knowledge after
reasonable investigation and due diligence, . Seller is not and has
not been required to file any annual or quarterly reports, proxy
statements, or other documents with the SEC under the Exchange Act.
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(vi) The delivery by Seller of a stock certificate or
certificates evidencing the Purchased Shares in the manner set forth
in Section 5.2(f) hereof will transfer all of Seller's right, title
and interest in and to the Purchased Shares to Purchaser, free and
clear, to the knowledge of such counsel, of any security interests,
claims, liens, pledges, options, encumbrances, charges, agreements,
voting trusts, proxies or other arrangements, restrictions or other
legal or equitable limitations of any kind, other than lien imposed
by the Pledge Agreement.
In rendering such opinions, Hirschler, Fleischer, Weinberg, Cox & Allen shall
not be required to render any opinion with respect to any law other than the
law of the Commonwealth of Virginia and the federal law of the United States of
America. In rendering the enforceability opinion called for in (iii) above and
the opinion called for in (vi) above, Hirschler, Fleischer, Weinberg, Cox &
Allen may assume that the laws of the State of Minnesota are the same as the
laws of the Commonwealth of Virginia in all respects material to such opinions.
5.3. Conditions to Obligations of Seller. The obligations of Seller to sell
the Purchased Shares to Purchaser and to consummate the other transactions
contemplated by this Agreement are further subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Purchaser set forth herein shall be true and correct both
when made and at and as of the Closing 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 Purchaser and Parent. Purchaser and
Parent shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement at or prior
to the Closing Date.
(c) No Parent Material Adverse Effect. Since the date of this Agreement,
there shall not have been any Parent Material Adverse Effect.
(d) Delivery of Closing Documents. At or prior to the Closing Date,
Parent shall have delivered to Seller a certificate of a senior vice
president of Parent, dated as of the Closing Date, stating that the
conditions precedent set forth in (a), (b) and (c) above have been
satisfied.
(e) [Reserved]
(f) Delivery of Cross-Receipts. Seller and Purchaser shall have
delivered cross-receipts for the Purchased Shares and the purchase price
payable therefor pursuant to Article I.
(g) Tax Opinion. Seller shall have received the opinion of Hirschler,
Fleischer, Weinberg, Cox & Allen, counsel to Seller, dated the Closing
Date, addressed to Seller and in form and substance reasonably satisfactory
to Seller and Parent, to the effect that:
(i) The sale of the Purchased Shares by Seller pursuant to this
Agreement and the delivery of the shares of Parent Common Stock payable
therefor to the shareholders of Seller pursuant to Article I will be
treated for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a)(1)(C) of the Code.
(ii) Seller will recognize no gain or loss on the sale of the
Purchased Shares by Seller pursuant to this Agreement or on the
delivery of the shares of Parent Common Stock payable therefor to the
shareholders of Seller pursuant to Article I.
(iii) The shareholders of Seller will recognize no gain or loss on
the sale of the Purchased Shares by Seller pursuant to this Agreement
or on the delivery of the shares of Parent Common Stock payable
therefor to the shareholders of Seller pursuant to Article I other than
with respect to cash received for fractional Shares
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ARTICLE VI
TERMINATION
6.1. Termination. This Agreement may be terminated at any time prior to the
Closing, whether before or after approval of the transactions contemplated
hereby by Seller's shareholders:
(a) by mutual written consent of Seller and Parent (on behalf of Parent
and Purchaser);
(b) by either Seller or Parent (on behalf of Parent and Purchaser):
(i) if the Closing shall not have occurred on or before May 30,
2001; provided, however, that the right to terminate this Agreement
pursuant to this clause (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 Closing to have occurred by such time;
(ii) if shareholder approval of the transactions contemplated hereby
shall not have been obtained at the Seller Shareholders Meeting duly
convened therefor or at any adjournment or postponement thereof;
provided, however, that the right to terminate this Agreement pursuant
to this clause (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 such shareholder approval; or
(iii) if any restraint having any of the effects set forth in
Section 5.1(b) or Section 5.2(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 clause (iii) shall not be
available to any party whose failure to perform any of its obligations
under this Agreement results in such restraint continuing in effect;
(c) by Seller, if Parent or Purchaser shall have breached any of its
representations and warranties contained in Article III hereof, or Parent
or Purchaser 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 Purchaser, as the case may be, within 30 days following
receipt of written notice thereof from Seller; or
(d) by Parent (on behalf of Parent and Purchaser):
(i) if Seller shall have breached any of its representations and
warranties contained in Article II hereof, or Seller 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 Seller
within 30 days following receipt of written notice thereof from Parent;
or
(ii) if the board of directors of Seller shall have withdrawn or
modified in a manner adverse to Parent or Purchaser its approval of
this Agreement and the transactions contemplated hereby or its
recommendation that the shareholders of Seller approve such
transactions.
6.2. Effect of Termination. The termination of this Agreement pursuant to
the terms of Section 6.1 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 VI, there shall
be no obligation or liability on the part of any party hereto (except as
provided in Section 6.3) or its shareholders or directors or officers in
respect thereof, except (a) for agreements which survive the termination of
this Agreement and (b) for liability that Parent or Purchaser or Seller may
have to the other party or parties arising from a breach of this Agreement
resulting in the termination of this Agreement in accordance with Sections
6.1(c) or 6.1(d)(i) or due to the fraudulent or willful misconduct of such
party.
6.3. Fees and Expenses.
(a) Except as provided in this Section 6.3, whether or not the transactions
contemplated by this Agreement are consummated or this Agreement terminated,
Seller, on the one hand, and Parent and Purchaser, on the other, shall bear
their respective expenses incurred in connection with such transactions,
including, without limitation, the preparation, execution and performance of
this Agreement and all fees and expenses of counsel, accountants and financial
printers.
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(b) Notwithstanding any provision in this Agreement to the contrary, if this
Agreement is terminated by Seller or Parent pursuant to Section 6.1(b)(ii) or
by Parent pursuant to Section 6.1(d)(i) or (ii), then Seller shall (without
prejudice to any other rights which Parent or Purchaser may have against Seller
for breach of this Agreement), reimburse Parent upon demand for all reasonable
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 and the transactions
contemplated hereby, including, without limitation, all reasonable fees and
expenses of counsel, accountants and financial printers.
(c) Notwithstanding any provision in this Agreement to the contrary, if this
Agreement is terminated by Seller pursuant to Section 6.1(c) hereof, then
Parent shall (without prejudice to any other rights which Seller may have
against Parent for breach of this Agreement), reimburse Seller upon demand for
all reasonable out-of-pocket fees and expenses incurred or paid by or on behalf
of Seller or any affiliate of Seller in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, all reasonable
fees and expenses of counsel and accountants.
(d) The parties acknowledge that the agreements contained in (b) and (c)
above are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent and Purchaser on the one hand, and
Seller on the other, would not enter into this Agreement. Accordingly, if
Seller fails promptly to pay the amounts due pursuant to (b) above, or if
Parent fails promptly to pay the amounts due pursuant to (c) above, (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 such amounts 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 referred to in (b) and (c) above, 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).
ARTICLE VII
MISCELLANEOUS
7.1. 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 Closing.
7.2. Waiver. At any time prior to the Closing, either Parent or Purchaser,
on the one hand, or Seller, 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.
7.3. 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 as set forth below:
If to Parent or Purchaser:
UnitedHealth Group Incorporated
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: General Counsel UnitedHealthcare
Facsimile No.: (952) 936-7288
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with a copy to:
James D. Alt
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile No.: (612) 340-8738
If to Seller:
Virginia's Physician Network, Inc.
c/o Hirschler, Fleischer, Weinberg, Cox & Allen
Federal Reserve Bank Building
701 East Byrd Street
P.O. Box 500
Richmond, Virginia 23218-0500
Attention: K. Marshall Cook, Esq.
Facsimile No.: (804) 644-0957
with a copy to:
W. Michael Walker, Esq.
Hirschler, Fleischer, Weinberg, Cox & Allen
Federal Reserve Bank Building
701 East Byrd Street
P.O. Box 500
Richmond, Virginia 23218-0500
Facsimile No.: (804) 644-0957
(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.
7.4. 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.
7.5. 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.
7.6. Amendment. This Agreement may be amended by the parties at any time
before or after the approval of the transactions contemplated hereby by the
shareholders of Seller; provided, however, that after any such approval, there
shall not be made any amendment that by law requires further approval by such
shareholders 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.
7.7. No Third Party Beneficiaries.. 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.
7.8. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Minnesota.
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7.9. Entire Agreement. This Agreement 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.
7.10. 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.
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/ Brian K. Beutner
By: _________________________________
Brian K. Beutner
Name: _______________________________
Assistant Secretary
Title: ______________________________
UNITED HEALTHCARE SERVICES, INC.
/s/ Brian K. Beutner
By: _________________________________
Brian K. Beutner
Name: _______________________________
Assistant Secretary
Title: ______________________________
VIRGINIA'S PHYSICIAN NETWORK, INC.
/s/ C. Gregory Lockhart, M.D.
By: _________________________________
C. Gregory Lockhart, M.D.
Name: _______________________________
Chairman of the Board, President
Title: ______________________________
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Exhibit A
SELLER AFFILIATE LETTER
, 2001
UnitedHealth Group Incorporated
United HealthGroup Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Ladies and Gentlemen:
Reference is made to the terms of that Asset Acquisition Agreement dated
December , 2000 (the "Agreement"), by and among UnitedHealth Group
Incorporated, a Minnesota corporation ("Parent"), United HealthCare Services,
Inc., a Minnesota corporation and a direct wholly owned subsidiary of Parent
("Purchaser"), and Virginia's Physician Network, Inc., a Virginia corporation
("Seller"). I understand that as a result of the transactions contemplated by
the Agreement, I may receive shares of common stock, par value $0.01 per share,
of Parent ("Parent Common Stock"), in proportion to my ownership of shares of
common stock, par value $0.01 per share, of Seller ("Seller Common Stock"). I
have been advised that as of the date of this letter I may be deemed to be an
"affiliate" of Seller, as that term is defined by the Securities and Exchange
Commission (the "SEC") for purposes of Rule 145 promulgated under the
Securities Act of 1933, as amended (the "Securities Act")
In connection with the foregoing, I hereby represent and warrant to, and
covenant with, Parent that:
1. I am the record and/or beneficial owner of an aggregate of
shares of Seller Common Stock (the "Shares"). The Shares are not subject to any
claim, lien, pledge, charge, security interest or other encumbrance or to any
rights of first refusal of any kind. There are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which I
am a party or by which I am bound obligating me to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any Shares or obligating me to grant or enter into any such option,
warrant, call, right, commitment or agreement. I have the sole right to
transfer such Shares. The Shares constitute all shares of Seller Common Stock
owned, beneficially or of record, by me. The Shares are not subject to
preemptive rights created by any agreement to which I am a party. All shares of
Seller Common Stock acquired by me subsequent to the date hereof shall be
subject to the provisions of this letter agreement as if held by me as of the
date hereof.
2. I will not sell, transfer or otherwise dispose of any of the shares of
Parent Common Stock that I receive as a result of the transactions contemplated
by the Agreement in violation of the Securities Act or any rules or regulations
promulgated thereunder. As provided in the Agreement, Parent will use good
faith efforts to comply with Rule 144(c)(1) under the Securities Act so that
the resale provisions of Rule 145 are available to me.
3. I understand that Parent will issue stop transfer instructions to its
transfer agent with respect to Parent Common Stock I receive as a result of the
transactions contemplated by the Agreement and that a restrictive legend will
be placed on any certificates for the Parent Common Stock issued to me, which
legend will be in substantially the following form:
"The shares represented by this certificate were issued in a transaction
to which Rule 145 promulgated under the Securities Act of 1933, as amended,
applies and may not be sold or otherwise disposed of unless the proposed
sale or disposition can be made in compliance with Rule 145. The shares
represented by this certificate may be transferred only in accordance with
the terms of a letter agreement dated , 2001, between the holder
and UnitedHealth Group Incorporated."
In connection with any sale or other transfer of Parent Common Stock so
acquired by me, the undersigned agrees to provide to Parent (i) satisfactory
written evidence that the shares have been sold in compliance with
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Rule 145 (in which case, the substitute certificate will be issued in the name
of the transferee), or (ii) an opinion of counsel, in form and substance
reasonably satisfactory to Parent, to the effect that public sale of the shares
by the holder thereof is no longer subject to Rule 145.
4. I understand that the representations, warranties and covenants by me set
forth herein will be relied upon by Parent, Seller and their respective
affiliates and counsel. I have carefully read this letter agreement and the
Agreement and have discussed their requirements and the limitations on my
ability to offer to sell, transfer or dispose of Parent Common Stock, to the
extent I felt necessary, with my counsel or counsel for Seller.
Execution of this letter agreement shall not be considered an admission on
my part that I am an affiliate of Seller as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter. This letter
agreement shall terminate and be of no further force or effect if the Agreement
is terminated pursuant to the terms thereof.
Sincerely,
[Name of Affiliate]
Agreed and accepted this day of , 2001 by
UnitedHealth Group Incorporated
By ____________________________
Its ___________________________
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<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) Asset Acquisition Agreement dated December 29, 2000, by and among
UnitedHealth Group Incorporated, United HealthCare Services, Inc. and
Virginia's Physician Network, Inc. (included as Annex A 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, as amended by an
Amendment to Indenture dated as of November 6, 2000 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) and to Exhibit 4.2 to
UnitedHealth Group's Current Report on Form 8-K filed on November 16,
2000.)
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 David J. Lubben, Esq. regarding the legality of the
securities being issued.
8 Form of opinion of Hirschler, Fleischer, Weinberg, Cox & Allen
regarding certain tax matters.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
*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, filed as
Exhibit 13 to UnitedHealth Group's Annual Report on Form 10-K for the
year ended December 31, 1999).
13 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. (Incorporated by reference to
Exhibit 21 to UnitedHealth Group's Registration Statement on Form S-4,
File No. 333-48858, filed October 27, 2000.)
23(a) Consent of Arthur Andersen LLP with respect to UnitedHealth Group's
financial statements.
23(b) Consent of David J. Lubben, Esq. (included in Exhibit 5).
23(c) Consent of Hirschler, Fleischer, Weinberg, Cox & Allen (included in
Exhibit 8).
23(d) Consent of Cain Brothers & Company, LLC.
24 Power of Attorney.
99 Form of Proxy Card.
</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.
(b) Not applicable.
(c) Not applicable.
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 16th day of
January, 2001.
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 16th day of January, 2001.
/s/ William W. McGuire, M.D.
__________________________________ Director and Chief Executive Officer
William W. McGuire, M.D. (principal executive officer)
/s/ Patrick J. Erlandson
__________________________________ Chief Financial Officer (principal
Patrick J. Erlandson financial and accounting officer)
*
__________________________________ Director
William C. Ballard, Jr.
*
__________________________________ Director
Richard T. Burke
*
__________________________________ Director
Stephen J. Hemsley
__________________________________ Director
James A. Johnson
__________________________________ Director
Thomas H. Kean
__________________________________ Director
Douglas W. Leatherdale
*
__________________________________ Director
Walter F. Mondale
*
__________________________________ Director
Mary O. Mundinger
II-5
<PAGE>
<TABLE>
<S> <C>
_____________________*_____________________ 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) Asset Acquisition Agreement dated December 29, 2000, by and among
UnitedHealth Group Incorporated, United HealthCare Services, Inc. and
Virginia's Physician Network, Inc. (included as Annex A 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, as amended by an
Amendment to Indenture dated as of November 6, 2000 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) and to Exhibit 4.2 to
UnitedHealth Group's Current Report on Form 8-K filed on November 16,
2000.)
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 David J. Lubben, Esq. regarding the legality of the
securities being issued.
8 Form of opinion of Hirschler, Fleischer, Weinberg, Cox & Allen
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, filed as
Exhibit 13 to UnitedHealth Group's Annual Report on Form 10-K for the
year ended December 31, 1999).
13 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. (Incorporated by reference to
Exhibit 21 to UnitedHealth Group's Registration Statement on Form S-4,
File No. 333-48858, filed October 27, 2000.)
23(a) Consent of Arthur Andersen LLP with respect to UnitedHealth Group's
financial statements.
23(b) Consent of David J. Lubben, Esq. (included in Exhibit 5).
23(c) Consent of Hirschler, Fleischer, Weinberg, Cox & Allen (included in
Exhibit 8).
23(d) Consent of Cain Brothers & Company, LLC.
24 Power of Attorney.
99 Form of Proxy Card.
</TABLE>
II-8
<PAGE>
--------
+ 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.
II-9
