<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PACIFICARE HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0064895
(State of Incorporation) (I.R.S. Employer
Identification Number)
</TABLE>
5995 PLAZA DRIVE
CYPRESS, CALIFORNIA 90630-5028
(714) 952-1121
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ALAN HOOPS
PACIFICARE HEALTH SYSTEMS, INC.
5995 PLAZA DRIVE
CYPRESS, CALIFORNIA 90630-5028
(714) 952-1121
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO:
<TABLE>
<S> <C>
RICHARD A. GOLDBERG, ESQ. ERIC H. SCHUNK, ESQ.
Shereff, Friedman, Hoffman & Goodman, Milbank, Tweed, Hadley & McCloy
LLP 601 South Figueroa, 30th Floor
919 Third Avenue Los Angeles, California 90017
New York, New York 10022 (213) 892-4000
(212) 758-9500
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class B Common Stock, par value $0.01
per share............................ 5,175,000(2) $69.75 $360,956,250 $124,468
<FN>
(1) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457 under the Securities Act of 1933, on the basis of the
average of the high and low prices of the registrant's Class B Common Stock
as quoted on the Nasdaq National Market on a date within five days of the
filing hereof.
(2) Includes 675,000 shares of Class B Common Stock which the Underwriters have
an option to purchase to cover over-allotments, if any.
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-3 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Facing Sheet; Cross Reference Sheet; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Available Information;
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Available Information
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...................... *
6. Dilution............................................. *
7. Selling Security Holders............................. Principal and Selling Stockholder
8. Plan of Distribution................................. Front Cover Page; Underwriting
9. Description of Securities to be Registered........... Front Cover Page; Prospectus Summary; Description of
Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Material Changes..................................... *
12. Incorporation of Certain Documents by Reference...... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
<FN>
- ------------------------
*Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
DATED FEBRUARY 22, 1995
4,500,000 SHARES
PACIFICARE HEALTH SYSTEMS, INC.
CLASS B COMMON STOCK
-------------
OF THE 4,500,000 SHARES OF CLASS B COMMON STOCK BEING OFFERED (THE "SHARES"),
3,000,000 SHARES WILL BE SOLD BY PACIFICARE HEALTH SYSTEMS, INC. ("PACIFICARE"
OR THE "COMPANY") AND 1,500,000 SHARES WILL BE SOLD BY UNIHEALTH, INC., A
CALIFORNIA NON-PROFIT PUBLIC BENEFIT COMPANY (THE "SELLING
STOCKHOLDER"). SEE "PRINCIPAL AND SELLING STOCKHOLDER." THE COMPANY
WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY
THE SELLING STOCKHOLDER.
--------------------
THE CLASS B COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL PHSYB. ON FEBRUARY 21, 1995, THE LAST REPORTED SALE PRICE OF THE
CLASS B COMMON STOCK WAS $70.75 PER SHARE. SEE "PRICE
RANGE OF COMMON STOCK."
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(2)
<S> <C> <C> <C> <C>
PER SHARE $ $ $ $
TOTAL (3) $ $ $ $
<FN>
(1) THE COMPANY AND THE SELLING STOCKHOLDER HAVE AGREED TO INDEMNIFY THE
SEVERAL UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES
UNDER THE SECURITIES ACT OF 1933. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES ESTIMATED AT $ PAYABLE BY THE COMPANY AND
$ PAYABLE BY THE SELLING STOCKHOLDER.
(3) THE SELLING STOCKHOLDER HAS GRANTED TO THE SEVERAL UNDERWRITERS A 30-DAY
OPTION TO PURCHASE UP TO AN ADDITIONAL 675,000 SHARES OF CLASS B COMMON
STOCK TO COVER OVER-ALLOTMENTS, IF ANY. IF ALL SUCH SHARES ARE PURCHASED,
THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND
PROCEEDS TO THE SELLING STOCKHOLDER WILL BE $ , $ AND $ ,
RESPECTIVELY.
</TABLE>
--------------------
THE SHARES ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED HEREIN WHEN, AS AND
IF RECEIVED AND ACCEPTED BY THEM, SUBJECT TO THEIR RIGHT TO REJECT ORDERS IN
WHOLE OR IN PART AND SUBJECT TO CERTAIN OTHER CONDITIONS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE IN NEW YORK, NEW YORK ON OR ABOUT
, 1995.
--------------------
DEAN WITTER REYNOLDS INC.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
LEHMAN BROTHERS
ROBERTSON, STEPHENS & COMPANY
, 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE FOR THE STATE OF NORTH CAROLINA NOR HAS THE COMMISSIONER PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
--------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements, information statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at the principal offices of the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661-2511, and at Suite 1300, 7 World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein together with all amendments thereto called the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), with
respect to the securities offered by this Prospectus. This Prospectus does not
contain all the information set forth or incorporated by reference in the
Registration Statement and the exhibits and schedules relating thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement and the exhibits and schedules thereto which are on file at the
offices of the Commission and may be obtained upon payment of the fee prescribed
by the Commission, or may be examined without charge at the offices of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and are
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994, as amended February 8, 1995.
3. The description of the Class B Common Stock of the Company contained
in its Registration Statement on Form 8-A (File No. 0-14181), dated May 20,
1992.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering
shall be deemed to be incorporated by reference in
2
<PAGE>
this Prospectus and to be a part of this Prospectus from the date of filing
thereof. Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this 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 Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference
(other than exhibits). Requests for such copies should be directed to:
PacifiCare Health Systems, Inc., 5995 Plaza Drive, Cypress, California,
90630-5028, Attention: Investor Relations, telephone (714) 952-1121.
Unless the context indicates otherwise, all references herein to
"PacifiCare" or the "Company" refer to PacifiCare Health Systems, Inc., its
subsidiaries and its non-profit predecessor.
Unless the context indicates otherwise, all references herein to "UniHealth"
or the "Selling Stockholder" refer to UniHealth, Inc.
The Company's principal executive offices are located at 5995 Plaza Drive,
Cypress, California, 90630-5028, telephone (714) 952-1121.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 4
Use of Proceeds........................................................... 7
Capitalization............................................................ 7
Price Range of Common Stock............................................... 8
Dividend Policy........................................................... 8
Selected Consolidated Financial Data...................................... 9
Business.................................................................. 10
Principal and Selling Stockholder......................................... 15
Description of Capital Stock.............................................. 16
Underwriting.............................................................. 17
Legal Matters............................................................. 18
Experts................................................................... 18
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED IN THIS PROSPECTUS BY REFERENCE. THE CLASS A AND CLASS B COMMON
STOCK ARE SOMETIMES REFERRED TO COLLECTIVELY IN THIS PROSPECTUS AS THE "COMMON
STOCK." UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
PacifiCare-Registered Trademark- is one of the nation's leading managed
health care services companies serving approximately 1.5 million commercial,
Medicare and Medicaid members and is a leader in the management, development and
marketing of diversified health maintenance organization ("HMO") products and
related services. The Company operates HMOs in California, Florida, Oklahoma,
Oregon, Texas and Washington. Through internal growth and strategic
acquisitions, the Company believes it has built a strong competitive position in
California and has expanded operations into new geographic markets.
Since fiscal 1990, the Company has achieved 42 percent compound annual
earnings per share growth and 19 percent compound annual membership growth. The
Company believes that future earnings and enrollment growth will result
primarily from (i) expanding its Secure Horizons Medicare programs, (ii)
marketing a broader range of managed care products and services, (iii)
capitalizing on its experience in developing long-term relationships with health
care providers and (iv) selectively expanding into new markets in order to
develop its multi-regional servicing capabilities.
The Company serves more than 1,040,000 commercial HMO members and offers a
comprehensive range of products including HMOs, preferred provider organizations
and point-of-service plans. The Company has historically focused on the larger
employer market, but has recently entered the smaller employer and individual
markets. The Company believes that these markets have lower HMO penetration than
the larger employer market and represent significant growth opportunities. The
Company has enhanced its competitive position by entering into innovative
relationships with health care providers which the Company believes will
facilitate expansion into new and existing geographic markets.
Through its Secure Horizons-Registered Trademark- programs, the Company
operates the largest and one of the fastest growing Medicare risk programs (as
measured by membership) with approximately 409,000 members enrolled as of
January 31, 1995. The Company believes that its Secure Horizons programs are
attractive to Medicare beneficiaries because these programs provide a more
comprehensive package of benefits than offered under traditional Medicare, and
because these programs substantially reduce the member's administrative
responsibilities. In addition, as of January 31, 1995, the Company had enrolled
more than 33,000 Medicaid eligibles.
The Company believes that its ability to provide a comprehensive range of
products and services through its commercial, Medicare and Medicaid programs,
together with its specialty managed care products and services and its long-term
relationships with health care providers, are the major factors that will enable
PacifiCare to respond effectively to changes and needs in the health care
marketplace and continue to be among the nation's leading managed health care
services companies.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class B Common Stock Offered by the Company... 3,000,000 shares
Class B Common Stock Offered by the Selling
Stockholder(1)................................ 1,500,000 shares
Common Stock Outstanding after the Offering
(2):
Class A Common Stock........................ 12,278,783 shares
Class B Common Stock........................ 18,384,092 shares
Rights of Common Stock........................ The Class B Common Stock offered hereby has
no voting rights, other than as required by
Delaware law, and the Class A Common Stock
has one vote per share. The Class A Common
Stock and the Class B Common Stock have
equal rights to cash dividends, if any, and
upon liquidation. See "Dividend Policy" and
"Description of Capital Stock."
Use of Proceeds by the Company................ To repay amounts outstanding under its
credit line, to increase working capital and
for general corporate purposes, including
acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbols:
Class A Common Stock........................ PHSYA
Class B Common Stock........................ PHSYB
<FN>
- ------------------------
(1) Currently, the Selling Stockholder owns 5,909,500 shares of Class A Common
Stock or 48.1 percent of the outstanding Class A Common Stock and 3,160,000
shares of the Class B Common Stock or 20.5 percent of the outstanding Class
B Common Stock. Upon completion of this offering, the Selling Stockholder
will own 5,909,500 shares of the Class A Common Stock or 48.1 percent of
the outstanding Class A Common Stock and 1,660,000 shares of the Class B
Common Stock or 9.0 percent of the outstanding Class B Common Stock. See
"Principal and Selling Stockholder."
(2) Based on the number of shares of Class A and Class B Common Stock
outstanding as of February 16, 1995 and excluding (i) 409,934 shares of the
Class A Common Stock and 1,945,192 shares of the Class B Common Stock
issuable upon the exercise of outstanding stock options, of which options
to purchase 394,109 shares of the Class A Common Stock and 524,662 shares
of the Class B Common Stock are currently exercisable and (ii) 90,000
shares of the Class B Common Stock which certain health care providers are
obligated to purchase over a five year period as a result of an offering of
shares of Class B Common Stock to certain of the Company's health care
providers (the "Provider Offering").
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1993 1994
--------- ----------- ----------- ----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Total operating revenue............... $ 975,849 $ 1,242,357 $ 1,686,314 $ 2,221,073 $ 2,893,252 $ 645,748 $ 821,614
Operating income (1).................. 14,388 29,734 60,549 87,244 120,930 20,337 30,866
Income before income taxes and
cumulative effect of a change in
accounting principle................. 29,438 44,521 74,852 108,327 145,468 25,940 34,083
Income before cumulative effect of a
change in accounting principle (2)... 17,638 25,702 43,590 62,696 84,593 14,739 20,057
Earnings per share before cumulative
effect of a change in accounting
principle (2)........................ $ 0.74 $ 1.10 $ 1.78 $ 2.25 $ 3.02 $ 0.53 $ 0.71
Weighted average number of shares of
common stock and equivalents
outstanding.......................... 23,770 23,346 24,509 27,847 28,004 27,813 28,231
OPERATING STATISTICS:
Medical loss ratio (3):
Commercial.......................... 86.0% 84.0% 80.2% 82.5% 80.5% 83.2% 81.7%
Medicare............................ 87.4% 87.1% 86.6% 85.6% 85.2% 85.1% 85.1%
Operating income margin (4)........... 1.5% 2.4% 3.6% 3.9% 4.2% 3.1% 3.8%
Period-end HMO membership:
Commercial.......................... 546 567 742 807 949 830 971
Medicare (5)........................ 127 159 214 290 409 319 434
--------- ----------- ----------- ----------- ----------- --------- ---------
Total............................... 673 726 956 1,097 1,358 1,149 1,405
--------- ----------- ----------- ----------- ----------- --------- ---------
--------- ----------- ----------- ----------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS ADJUSTED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1994 1994 (6)
------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................................... $ 231,242 $ 233,565 $ 356,110
Total assets....................................................... 1,105,548 1,158,551 1,281,096
Long-term debt, excluding current maturities....................... 101,137 97,590 14,590
Shareholders' equity............................................... 413,358 429,672 635,217
<FN>
- ------------------------------
(1) Certain reclassifications have been made to the 1990 and 1991 amounts to
conform to the 1992, 1993 and 1994 presentations.
(2) Net income after cumulative effect of a change in accounting principle was
$90.3 million or $3.22 per share for the year ended September 30, 1994 and
$20.4 million or $0.73 per share for the three months ended December 31,
1993. See "Selected Consolidated Financial Data."
(3) Health care costs as a percentage of premium revenue. Medicare medical loss
ratios include Medicaid premiums and health care costs, which were
immaterial to the resulting ratios.
(4) Operating income as a percentage of total operating revenue.
(5) Includes Medicaid membership which as of September 30, 1993 and 1994 was
1,597 and 22,010, respectively, and as of December 31, 1993 and 1994 was
1,665 and 30,751, respectively.
(6) As adjusted to give effect to (i) the sale by the Company of the Class B
Common Stock being offered at an assumed price of $70.75 per share, less
assumed underwriting discounts and commissions and offering expenses
payable by the Company and (ii) the application of the net proceeds
therefrom. See "Use of Proceeds."
</TABLE>
6
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
3,000,000 shares of Class B Common Stock offered by the Company, at an assumed
offering price of $70.75 per share, after deducting estimated underwriting
discounts and commissions and expenses of the offering payable by the Company,
are approximately $206,000,000. The Company will not receive any of the proceeds
from the sale of shares of Class B Common Stock by the Selling Stockholder.
Approximately $83 million of the net proceeds to the Company of this
offering will be used to repay the amount outstanding under its $250 million
revolving line of credit (the "Credit Line") established with Bank of America
National Trust and Savings Association and a syndicate of banks. The Credit Line
has a five year term ending on November 30, 1999 and may be extended through
November 30, 2001. The Credit Line may be increased at the Company's option
provided certain debt to equity ratios and other financial covenants are
satisfied. Interest is payable at the London Interbank Offered Rate plus a
margin ranging from 29 to 48 basis points. As of February 22, 1995, the interest
rate on amounts outstanding under the Credit Line was 6.17 percent. The
remaining net proceeds of this offering will be used by the Company to increase
working capital and for general corporate purposes. Such purposes may include
acquisitions, the introduction of new products and services, increased
investment in existing operations and expansion of geographic markets, which may
include states in which the Company currently does not have a presence. Pending
the above-described uses, the net proceeds will be invested in investment-grade,
interest bearing securities.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1994 (i) on an actual basis and (ii) as adjusted to
give effect to the sale by the Company of the Class B Common Stock being
offered, at an assumed offering price of $70.75 per share, less estimated
underwriting discounts and commissions and offering expenses payable by the
Company, and the application of the net proceeds therefrom, as described under
"Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt..................................................... $ 8,275 $ 8,275
---------- -----------
---------- -----------
Long-term debt, excluding current maturities (1)......................................... $ 97,590 $ 14,590
---------- -----------
Shareholders' equity:
Preferred Shares, par value $1.00 per share; 10,000,000 shares authorized;
none issued........................................................................... -- --
Class A Common Shares, par value $0.01 per share; 30,000,000 shares authorized;
12,258,000 shares issued and as adjusted (2).......................................... 123 123
Class B Common Shares, par value $0.01 per share; 60,000,000 shares authorized;
15,335,000 shares issued; and 18,335,000 shares as adjusted (2)....................... 153 183
Unrealized holding loss on available-for-sale securities net of
tax effect of $3,314.................................................................. (4,872) (4,872)
Additional paid-in capital............................................................. 143,083 348,598
Retained earnings...................................................................... 291,185 291,185
---------- -----------
Total shareholders' equity........................................................... 429,672 635,217
---------- -----------
Total capitalization............................................................... $ 527,262 $ 649,807
---------- -----------
---------- -----------
<FN>
- ------------------------
(1) Long-term debt as of December 31, 1994 included $83 million outstanding
under the Credit Line and $14.6 million of long-term capitalized leases and
other long-term indebtedness.
(2) Excludes 424,634 shares of the Class A Common Stock and 1,975,254 shares of
the Class B Common Stock issuable upon the exercise of outstanding stock
options as of December 31, 1994 and 90,000 shares of Class B Common Stock
to be issued pursuant to the Provider Offering. See Note 2 on page 5 for
information as of a more recent date.
</TABLE>
7
<PAGE>
PRICE RANGE OF COMMON STOCK
The Class A and Class B Common Stock are traded on the Nasdaq National
Market under the symbols PHSYA and PHSYB, respectively. The following tables set
forth, for the indicated periods, the high and low last reported sale prices per
share of the Class A and Class B Common Stock as furnished by Nasdaq.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
---------------- ----------------
FISCAL PERIOD HIGH LOW HIGH LOW
- ----------------------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1993
First Quarter.............................................................. $51 $38 $44 3/4 $32 1/4
Second Quarter............................................................. 56 3/4 26 49 20 5/8
Third Quarter.............................................................. 44 34 40 28 5/8
Fourth Quarter............................................................. 43 3/4 31 40 3/4 29 1/2
1994
First Quarter.............................................................. 42 1/4 31 41 1/2 29 7/8
Second Quarter............................................................. 57 38 1/4 56 3/8 37 3/4
Third Quarter.............................................................. 59 3/4 47 1/2 59 1/2 47 1/2
Fourth Quarter............................................................. 79 3/16 47 75 46
1995
First Quarter.............................................................. 77 62 73 3/4 62 1/4
Second Quarter (through February 21, 1995)................................. 72 62 72 1/2 62 7/8
</TABLE>
The last reported sale prices of the Class A and Class B Common Stock as
quoted on the Nasdaq National Market on February 21, 1995 were $69 1/2 and
$70 3/4 per share, respectively. As of February 10, 1995, there were
approximately 274 and 249 holders of record of the Class A and Class B Common
Stock, respectively. Based upon information available to it, the Company
believes that there are approximately 21,000 beneficial holders in the aggregate
of the Class A and Class B Common Stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently anticipates that no cash dividends on its Common Stock will be
declared in the foreseeable future and that all of its earnings will be retained
for the development of the Company's business. Any future dividends would be
conditioned upon, among other things, future earnings, the financial condition
of the Company and regulatory requirements, which may limit the Company's
ability to pay dividends.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated income statement data and consolidated balance
sheet data for each of the five years ended September 30, 1994 are derived from
the audited consolidated financial statements of the Company. The following
consolidated income statement data and consolidated balance sheet data for the
three month periods ended December 31, 1994 and 1993 are derived from the
unaudited consolidated financial statements of the Company. The following
summary financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," found
in the Consolidated Financial Statements and related notes and other financial
information which are incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1993 1994
-------- ---------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenue:
Commercial premiums........................... $525,113 $ 657,715 890,330 $1,046,186 $1,237,411 $286,788 $332,438
Medicare premiums (1)......................... 444,552 575,069 784,844 1,153,964 1,618,145 348,500 477,595
Other income.................................. 6,184 9,573 11,140 20,923 37,696 10,460 11,581
-------- ---------- ---------- ---------- ---------- -------- --------
Total operating revenue..................... 975,849 1,242,357 1,686,314 2,221,073 2,893,252 645,748 821,614
Expenses:
Health care services:
Medical services............................ 405,204 503,816 675,607 867,157 1,127,785 258,547 322,484
Hospital services........................... 352,329 440,244 554,532 766,770 968,605 217,292 279,267
Other services.............................. 83,001 109,179 163,506 216,542 277,868 59,424 74,548
-------- ---------- ---------- ---------- ---------- -------- --------
Total health care services................ 840,534 1,053,239 1,393,645 1,850,469 2,374,258 523,263 676,299
Marketing, general and administrative
expenses..................................... 120,581 158,985 229,881 279,865 394,620 89,382 113,191
Amortization of intangibles................... 346 399 2,239 3,495 3,444 766 1,258
-------- ---------- ---------- ---------- ---------- -------- --------
Operating income (2)............................ 14,388 29,734 60,549 87,244 120,930 20,337 30,866
Interest income................................. 13,577 14,960 17,725 23,459 28,588 6,089 4,901
Gain on sale of Austin, Texas operations........ 1,750 -- -- -- -- -- --
Interest expense................................ (277) (173) (3,422) (2,376) (4,050) (486) (1,684)
-------- ---------- ---------- ---------- ---------- -------- --------
Income before income taxes and cumulative effect
of a change in accounting principle............ 29,438 44,521 74,852 108,327 145,468 25,940 34,083
Provision for income taxes...................... 11,800 18,819 31,262 45,631 60,875 11,201 14,026
-------- ---------- ---------- ---------- ---------- -------- --------
Income before cumulative effect of a change in
accounting principle........................... 17,638 25,702 43,590 62,696 84,593 14,739 20,057
Cumulative effect on prior years of a change in
accounting principle........................... -- -- -- -- 5,658 5,658 --
-------- ---------- ---------- ---------- ---------- -------- --------
Net income...................................... $ 17,638 $ 25,702 $ 43,590 $ 62,696 $ 90,251 $ 20,397 $ 20,057
-------- ---------- ---------- ---------- ---------- -------- --------
-------- ---------- ---------- ---------- ---------- -------- --------
Earnings per share:
Before cumulative effect of a change in
accounting principle......................... $ 0.74 $ 1.10 $ 1.78 $ 2.25 $ 3.02 $ 0.53 $ 0.71
Cumulative effect on prior years of a change
in accounting principle...................... -- -- -- -- 0.20 0.20 --
-------- ---------- ---------- ---------- ---------- -------- --------
Earnings per share.............................. $ 0.74 $ 1.10 $ 1.78 $ 2.25 $ 3.22 $ 0.73 $ 0.71
-------- ---------- ---------- ---------- ---------- -------- --------
-------- ---------- ---------- ---------- ---------- -------- --------
Weighted average number of shares of common
stock and equivalents outstanding.............. 23,770 23,346 24,509 27,847 28,004 27,813 28,231
OPERATING STATISTICS:
Medical loss ratio (3):
Commercial.................................... 86.0% 84.0% 80.2% 82.5% 80.5% 83.2% 81.7%
Medicare...................................... 87.4% 87.1% 86.6% 85.6% 85.2% 85.1% 85.1%
Operating income margin (4)................... 1.5% 2.4% 3.6% 3.9% 4.2% 3.1% 3.8%
Period-end HMO membership:
Commercial.................................... 546 567 742 807 949 830 971
Medicare (5).................................. 127 159 214 290 409 319 434
-------- ---------- ---------- ---------- ---------- -------- --------
Total....................................... 673 726 956 1,097 1,358 1,149 1,405
-------- ---------- ---------- ---------- ---------- -------- --------
-------- ---------- ---------- ---------- ---------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1993 1994
-------- -------- -------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $ 43,080 $ 21,837 $ 49,550 $162,781 $ 231,242 $151,578 $ 233,565
Total assets.................................... 231,608 322,328 498,082 693,646 1,105,548 891,482 1,158,551
Long-term debt, excluding current maturities.... 305 2,280 18,488 21,821 101,137 21,488 97,590
Shareholders' equity............................ 74,550 99,678 198,884 319,294 413,358 340,516 429,672
<FN>
- ----------------------------------
(1) Medicare premiums include premiums from the Company's Medicaid programs,
which premiums were immaterial in amount.
(2) Certain reclassifications have been made to the 1990 and 1991 amounts to
conform to the 1992, 1993 and 1994 presentations.
(3) Health care costs as a percentage of premium revenue. Medicare medical loss
ratios include Medicaid premiums and health care costs, which were
immaterial to the resulting ratios.
(4) Operating income as a percentage of total operating revenue.
(5) Includes Medicaid membership which as of September 30, 1993 and 1994 was
1,597 and 22,010, respectively, and as of December 31, 1993 and 1994 was
1,665 and 30,751, respectively.
</TABLE>
9
<PAGE>
BUSINESS
PacifiCare-Registered Trademark- is one of the nation's leading managed
health care services companies, serving approximately 1.5 million commercial,
Medicare and Medicaid members, and is a leader in the management, development
and marketing of diversified health maintenance organization ("HMO") products
and related services. The Company operates HMOs in California, Florida,
Oklahoma, Oregon, Texas and Washington. Through internal growth and strategic
acquisitions, the Company believes it has built a strong competitive position in
California and has expanded operations into new geographic markets. The Company
has historically focused on the larger employer market, but recently has entered
the smaller employer and individual markets, which the Company believes
represent significant growth opportunities. Since fiscal 1990, the Company has
achieved 42 percent compound annual earnings per share growth and 19 percent
compound annual membership growth.
GROWTH STRATEGY
The Company's growth strategy is to solidify its position as one of the
leading managed health care services companies by (i) expanding its Secure
Horizons Medicare programs, (ii) marketing a broader range of managed care
products and services, (iii) capitalizing on its experience in developing
long-term relationships with health care providers and (iv) selectively
expanding into new markets in order to further develop its multi-regional
servicing capabilities.
SECURE HORIZONS MEDICARE PROGRAMS. Through its Secure Horizons
programs, PacifiCare operates the largest and one of the fastest growing
Medicare risk programs in the United States (as measured by membership). The
Company believes the Medicare market offers significant growth opportunities
since only approximately seven percent of Medicare beneficiaries are
enrolled in at-risk HMO programs such as those offered by the Company. The
Company will seek to continue its rapid growth in the Medicare risk arena by
entering into new geographic markets with its Secure Horizons programs. In
markets where the Company does not currently operate a commercial HMO, it
has the ability to develop Medicare risk programs through licensing or other
arrangements. See "-- Products and Services -- Specialty Managed Care
Products and Services -- Secure Horizons USA, Inc."
COMPREHENSIVE RANGE OF PRODUCTS AND SERVICES. The Company offers a
comprehensive range of products and services, including traditional HMOs,
preferred provider organizations ("PPOs"), point-of-service plans ("POS
plans"), as well as specialty managed care products and services such as
prescription pharmacy benefit management, dental and vision care and
behavioral health care services. The Company intends to leverage its ability
to offer a comprehensive range of products and services by targeting new
geographic markets and market segments where it has not historically
focused, such as the smaller employer and individual markets.
PROVIDER RELATIONSHIPS. The Company has enhanced its competitive
position by entering into innovative relationships with health care
providers which the Company believes will facilitate expansion into new and
existing geographic markets. For example, the Company has entered into
provider service contracts, with terms up to 10 years, which pay providers a
percentage of premium revenue. The Company believes that percentage of
premium arrangements with providers lessen the risk associated with changes
in government reimbursement policies and competitive pricing pressures. The
Company has been able to customize its contractual arrangements with health
care providers to recognize the unique needs of each market. In addition,
the Company has recently completed an equity offering to certain providers
aimed at developing more strategic and long-term alliances.
ENTRY INTO NEW MARKETS. During the last 18 months, the Company has
entered into new markets, including South Florida, Houston and Dallas,
Texas, Seattle, Washington and Central California. The Company has been
successful in building its membership through expansion of its existing HMOs
into additional geographic markets within the same state. For example, in
Texas, the Company utilized its existing HMO in San Antonio to establish
HMOs in Houston and Dallas which currently service approximately 20,600 and
1,400 members, respectively. The Company plans to enhance its presence in
the Central California market through an agreement to acquire the membership
of ValuCare, an HMO
10
<PAGE>
with approximately 61,000 members. The Company believes it can continue to
expand its membership through selective acquisitions and by establishing
HMOs in new markets. The strategy of growth through acquisitions will be
enhanced commencing in December 1995 when, for the first time, the Company
will have the ability to use the pooling-of-interests method of accounting
in connection with stock-for-stock acquisitions.
PRODUCTS AND SERVICES
The Company's total HMO membership has grown from 615,317 at January 31,
1990 to 1,483,346 at January 31, 1995, a 19 percent compound annual growth rate.
The following table provides a breakdown of the Company's membership at January
31, 1995.
<TABLE>
<CAPTION>
PERCENT
COMMERCIAL MEDICARE(1) COMBINED OF TOTAL
---------- ----------- --------- --------
<S> <C> <C> <C> <C>
California....................................................... 689,733 322,817 1,012,550 68.3%
Florida.......................................................... 56,466 11,636 68,102 4.6
Oklahoma......................................................... 111,671 12,913 124,584 8.4
Oregon........................................................... 81,047 37,717 118,764 8.0
Texas............................................................ 65,296 39,343 104,639 7.0
Washington....................................................... 37,211 17,496 54,707 3.7
---------- ----------- --------- --------
Total Membership................................................. 1,041,424 441,922 1,483,346 100.0%
---------- ----------- --------- --------
---------- ----------- --------- --------
- ------------------------
(1) Includes Medicaid membership of 11,437 in California, 11,636 in Florida and 9,974 in Oregon.
</TABLE>
COMMERCIAL HMO OPERATIONS
The Company's commercial HMO membership has grown from 506,280 at January
31, 1990 to 1,041,424 at January 31, 1995, a 16 percent compound annual growth
rate. Commercial members generally join the Company's HMOs through an employer,
which typically offers employees a selection of indemnity insurance and managed
health care plans, pays for all or part of the monthly costs thereof and makes
payroll deductions for any costs payable by the employee.
The Company has historically focused on the larger employer market, but has
recently entered the smaller employer and individual markets. The Company
believes that these markets have lower HMO penetration levels than the larger
employer market and represent significant growth opportunities. The Company has
also developed PPOs and POS plans, which combine the features of an HMO (a
defined provider network providing care to members with reduced deductibles and
co-payments) with the features of a traditional indemnity insurance product (the
option to use any physician, with higher deductibles and co-payments). In
addition, the Company also offers specialty managed care products and services,
such as prescription drug, dental, vision and behavioral health care services.
SECURE HORIZONS PROGRAMS
Through its Secure Horizons programs, the Company operates the largest and
one of the fastest growing Medicare risk programs (as measured by membership).
The Company's Medicare membership has grown from 109,037 at January 31, 1990 to
408,875 at January 31, 1995, a 30 percent compound annual growth rate. The
Company has provided health care services to Medicare beneficiaries through its
Secure Horizons programs pursuant to annual contracts with the Health Care
Financing Administration ("HCFA") since 1985.
The Company believes that its Secure Horizons programs are attractive to
Medicare beneficiaries because these programs provide a more comprehensive
package of benefits than offered under traditional Medicare, and because these
programs substantially reduce the member's administrative responsibilities.
Members in the Secure Horizons programs are enrolled on an individual basis and
may disenroll upon 30 days' notice. The Company believes that its Secure
Horizons programs have one of the lowest disenrollment rates relative to other
Medicare risk plans.
11
<PAGE>
In response to employers' needs to provide cost-effective health care
coverage for their retired employees who may not yet be currently eligible for
Medicare benefits, the Company developed the Secure Horizons retiree product.
The retiree product provides the Company with access to individuals who, once
familiar with the Company's services and delivery system, may enroll in Secure
Horizons programs after they become eligible for Medicare benefits. The premium
rate structure and provider networks for this product are similar to the
Company's Secure Horizons programs. This product takes advantage of the
expertise the Company has developed in its Secure Horizons Medicare risk
programs.
Because the use of health care services by Medicare recipients generally
exceeds the use of services by those who are under the age of 65, the Company's
Medicare contracts provide for substantially larger revenue per member than do
the Company's non-Medicare plans. Premium revenue for each Secure Horizons
member is generally more than three times that of a commercial member,
reflecting, in part, the higher medical and administrative costs of serving a
Medicare member. As a result, although members in the Secure Horizons programs
represented approximately 28 percent of the Company's membership at December 31,
1994, they accounted for approximately 57 percent of the consolidated premium
revenue and a greater percentage of the Company's profits for the three-month
period ended December 31, 1994.
MEDICAID HMO OPERATIONS
Since 1993, the Company has arranged for health care services to Medicaid
eligibles through its HMO subsidiaries pursuant to annual contracts with the
Department of Health and Human Services ("HHS"). The Company's Medicaid
membership has grown from 1,597 at September 30, 1993 to 33,047 at January 31,
1995. Currently, the Company arranges for this provision of health care services
to Medicaid eligibles in California, Florida and Oregon and anticipates
enrolling Medicaid eligibles in other geographic markets. The Company receives a
premium for each Medicaid member comparable to that of a commercial member. The
Company believes that its programs are attractive to Medicaid eligibles because
these programs provide access to quality health care providers, continuity of
medical care and an introduction into mainstream managed care. The Company's
Medicaid contracts with HHS are subject to annual renewal.
SPECIALTY MANAGED CARE PRODUCTS AND SERVICES
In addition to its HMO operations, the Company provides a wide range of
specialty managed care products and services. These products and services are
offered to HMOs, insurers, employers, governmental entities, providers and PPOs
through various affiliated operations of the Company.
SECURE HORIZONS-REGISTERED TRADEMARK- USA, INC. ("SHUSA") was formed in
March 1993 to take advantage of the Company's expertise in the Medicare risk
area. SHUSA is authorized to license the use of the Secure Horizons service
mark, trade name and systems, in exchange for license fees, to qualified
HMOs that want to engage in Medicare risk contracting. SHUSA provides
consulting, marketing, provider contracting, administrative services and
other various services in support of the operation of a Medicare risk
program by such HMOs. SHUSA is reimbursed for its expenses and receives a
percentage of the revenue derived from each program in the form of license
fees. SHUSA may also enter into joint ventures related to Medicare risk
contracting. In September 1993, SHUSA formed an alliance with Tufts
Associated Health Maintenance Organization, Inc. ("Tufts"). Through the
alliance, Tufts operates Secure Horizons, Tufts Health Plan for Seniors,
under a license from and with the assistance of SHUSA. As of October 1,
1994, Tufts began enrolling Medicare beneficiaries in the Boston area in
Secure Horizons, Tufts Health Plan for Seniors which, as of February 1,
1995, had approximately 7,100 members. The Company believes the Secure
Horizons, Tufts Health Plan for Seniors will be ultimately offered
throughout Massachusetts and other parts of New England.
PACIFICARE LIFE AND HEALTH INSURANCE COMPANY-SM- ("PLHIC"), formerly
Columbia General Life Insurance Company, offers employer groups managed
health care insurance products which have been integrated with the Company's
existing HMO products to form multi-option health benefits programs. PLHIC
is a health and life insurance company licensed to operate in 37 states
including California, Florida, Oklahoma, Oregon and Texas.
12
<PAGE>
PRESCRIPTION SOLUTIONS was established in May 1993 to offer pharmacy
benefit management services. Clients of Prescription Solutions have access
to a pharmacy provider network that features independent and chain
pharmacies, as well as a variety of cost and quality management
capabilities. In January 1995, Prescription Solutions acquired all of the
outstanding capital stock of Preferred Solutions, a San Jose-based pharmacy
benefit management company. The acquisition of Preferred Solutions enables
Prescription Solutions to provide fully integrated services, including mail
order distribution, an extensive network of retail pharmacies, claims
processing and sophisticated drug utilization reporting. In addition, the
Company believes this acquisition makes Prescription Solutions one of the
industry's 10 largest pharmacy benefit management companies covering
approximately 3.5 million total lives.
LIFELINK-SM-, INC. ("LIFELINK"), a licensed specialized health care
service plan, provides behavioral health care services, including chemical
dependency benefit programs, in California directly to corporate customers
and indirectly through the Company's California HMO to its commercial
members. Outside of California, PacifiCare Behavioral Health, Inc. contracts
with various HMOs, insurers and employers to manage their respective mental
health and chemical dependency benefit programs.
Other specialty products and services offered by the Company through various
affiliated operations include (i) dental and vision services through California
Dental Health Plan, Inc., (ii) coordination of managed care products for
multi-region employers through Covantage, Inc., (iii) military health care
management through PacifiCare-Registered Trademark- Military Health Systems,
Inc., (iv) workers' compensation managed care through COMPREMIER-SM-, Inc., and
(v) health promotion through PacifiCare Wellness Company.
The Company believes that its wide range of specialty managed care products
and services complements its core HMO business and, given increasing market
demand for greater choice and flexibility in the design of health care products
and funding arrangements, will contribute to the Company's competitive position
in the health care services marketplace.
HEALTH CARE PROVIDER RELATIONSHIPS AND CONTROL OF HEALTH CARE COSTS
The Company manages health care costs primarily by entering into contractual
arrangements with health care providers and by sharing the risk of certain
health care costs with the Company's contracting physicians or physician groups
and hospitals. For the three-month period ended December 31, 1994, fixed fee
capitated payments to providers represented 56 percent and 70 percent of total
health care costs for the commercial and Medicare programs, respectively.
The Company contracts for hospital services under a variety of arrangements
including per diem, percentage of premium or per-member-per-month capitation,
discounted fee-for-service, flat fee and fee-for-service arrangements. The loss
of contracts with certain physician groups and with certain hospitals could have
a material adverse effect on the Company's HMO operations.
The Company's ability to expand is dependent, in part, on competitive
premium pricing and its ability to secure cost effective contracts with
additional physicians or to ensure that existing physician groups expand their
operations to accommodate the Company's new HMO membership. Achieving such
objectives with respect to competitive premium pricing and physician contracts
is becoming difficult due to increasing competition.
The Company's profitability is dependent, in part, on its ability to
maintain effective control over health care costs while providing members with
quality care. Factors such as health care reform, levels of utilization of
health care services, new technologies, hospital costs, major epidemics, and
numerous other external influences may affect the ability of HMOs to control
health care costs.
GOVERNMENT REGULATION
The Company's HMOs are licensed and subject to periodic examination by
governmental agencies and are subject to state and federal statutes and
regulations which extensively regulate the activities and licensing of HMOs. As
a result of the continued escalation of health care costs and the inability of
many individuals to obtain health care insurance, numerous proposals relating to
health care reform have been, and additional proposals may be, introduced in the
United States Congress and the legislatures of the states in which the
13
<PAGE>
Company operates or may seek to operate. The Company cannot predict what effect,
if any, such proposals would have on the Company if and when enacted. Although
the Company believes that it would benefit from proposals encouraging the use of
managed health care, there can be no assurance that the enactment of any of such
reforms would not adversely affect the operations, profitability or business
prospects of the Company.
The Company's Secure Horizons programs provide services pursuant to
contracts with HCFA and are subject to regulation by HCFA and certain state
agencies. As a result of HCFA's regulations governing the Company's Medicare
fixed-fee-per-member programs, the Company's premiums are determined through
formulas established by HCFA for the Company's Medicare contracts in a
particular region. If these premiums are reduced, or if premium rate increases
in a particular region are lower than the rate of increase in health care
service expenses for the Company's Secure Horizons members in such region, the
Company's operations, profitability or business prospects could be affected. The
Company has mitigated this risk by paying approximately 70 percent of the health
care service expenses for the Secure Horizons programs on a percentage of
premium basis, and believes that any slowdown in the rate of premium growth may
be offset by the effect of proposals encouraging managed health care for
Medicare eligibles. The Secure Horizons programs are subject to certain risks
relative to commercial programs, such as higher comparative medical costs,
higher levels of utilization, and higher marketing and advertising costs
associated with selling to individuals rather than to groups.
The Company's Medicare contracts are automatically renewed every 12 months
unless the Company or HCFA elects either not to renew or to terminate them.
These contracts (a "risk contract") are also subject to periodic unilateral
revisions by HCFA based on certain demographic information relating to the
Medicare population and the cost of providing health care in a particular
geographic area. HCFA may unilaterally terminate the Company's Medicare
contracts if the Company fails to continue to meet compliance and eligibility
standards. Unilateral termination or failure to renew could have a material
adverse effect on the Company.
The Company's Secure Horizons programs are not permitted, under federal
regulations, to account for more than one-half of the Company's total HMO
members in each of the Company's non-contiguous geographic state markets. This
limitation may constrain the Company's rate of growth in markets where the
Company is able to add Medicare members at a faster rate than commercial
members.
14
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDER
Of the 4,500,000 shares of the Class B Common Stock being offered, 1,500,000
shares of the Class B Common Stock are being sold by the Selling Stockholder.
The following table sets forth, as of the date hereof and as adjusted to reflect
the sale of the shares being offered, certain information regarding the
ownership of the Class A and Class B Common Stock by the Selling Stockholder:
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP
CLASS OF OFFERING AFTER OFFERING
COMMON ------------------ ----------------------
STOCKHOLDER STOCK NUMBER PERCENT NUMBER PERCENT
- ------------------------------ -------- --------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
UniHealth, Inc. A 5,909,500 48.1% 5,909,500 48.1 %
4100 West Alameda Avenue B 3,160,000 20.5% 1,660,000(1) 9.0 %
Burbank, California 91505
<FN>
- ------------------------
(1) If the Underwriters' over-allotment option is exercised in full, the
Selling Stockholder will own 985,000 shares of the Class B Common Stock or
5.4 percent of the outstanding Class B Common Stock after completion of the
offering.
</TABLE>
Currently, the Selling Stockholder owns 5,909,500 shares of the Class A
Common Stock, or 48.1 percent of all such shares outstanding, and 3,160,000
shares of the Class B Common Stock, or 20.5 percent of all such shares
outstanding. Combined, the Selling Stockholder owns 32.8 percent of the total
shares outstanding of the Company. Upon completion of this offering of the Class
B Common Stock, the Selling Stockholder will own 5,909,500 shares of the Class A
Common Stock, or 48.1 percent of all such shares outstanding, and 1,660,000
shares of the Class B Common Stock, or 9.0 percent of all such shares
outstanding. Combined, the Selling Stockholder will own 24.7 percent of the
total shares outstanding of the Company.
The Selling Stockholder is a California non-profit public benefit
corporation which is the parent corporation of an integrated health care
delivery system consisting of 10 non-profit medical centers and various
for-profit health care companies, including one company in the HMO business. The
Selling Stockholder's HMO, which is not federally qualified, and certain of its
operations compete with the Company, primarily in California.
The Company purchases health care services from hospitals owned and managed
by the Selling Stockholder on terms the Company believes are at least as
favorable to the Company as would be available from unaffiliated third parties.
In addition, the Company pays a management fee to the Selling Stockholder for
certain services, including certain consulting services, pays a fee to the
Selling Stockholder for payroll processing and reimburses the Selling
Stockholder for the Company's share of joint insurance purchasing. The Company
anticipates paying fees to, and purchasing services from, the Selling
Stockholder in the future. Future transactions between the Company and the
Selling Stockholder will be on terms no less favorable than could be obtained
from unaffiliated third parties.
Terry Hartshorn, President and Chief Executive Officer of the Selling
Stockholder, is the Chairman of the Board of PacifiCare. Gary L. Leary,
Executive Vice President, Chief Operating Officer and General Counsel, director
and Executive Committee member of the Selling Stockholder, David R. Carpenter,
director, Chairman of the Board, Chairman of the Compensation, Executive and
Nominating Committees of the Selling Stockholder, and Jean Bixby Smith, a
director of the Selling Stockholder, are directors of the Company.
In connection with the current offering, the Selling Stockholder and the
Company have agreed to contribute to certain liabilities, including liabilities
under the Act, in amounts proportionate to the proceeds received by the Selling
Stockholder and the Company and in certain circumstances to indemnify the other
against certain liabilities, including liabilities under the Act. The Selling
Stockholder's liability to the Company under such agreement is limited to the
proceeds received by the Selling Stockholder in this offering.
15
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30 million shares of
the Class A Common Stock, par value $0.01 per share, 60 million shares of the
Class B Common Stock, par value $0.01 per share, and 10 million shares of
Preferred Stock, par value $1.00 per share (the "Preferred Stock"). As of
February 16, 1995, there were 12,278,783 shares of the Class A Common Stock
outstanding, 15,384,092 shares of the Class B Common Stock outstanding and no
shares of Preferred Stock outstanding.
The Class A Common Stock and the Class B Common Stock are more fully
described in the Company's Registration Statement on Form 8-A (File No 0-14181),
dated May 20, 1992, incorporated in this Prospectus by reference. The comparison
of the Class A Common Stock and the Class B Common Stock set forth below is
qualified in its entirety by reference thereto.
COMPARISON OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
VOTING. Holders of the Class A Common Stock have one vote per share, while
holders of the Class B Common Stock have no voting rights other than as required
by the Delaware General Corporation Law.
DIVIDENDS, OTHER DISTRIBUTIONS AND MERGERS OR CONSOLIDATIONS. Holders of
the Class A Common Stock and Class B Common Stock are entitled to equal per
share cash dividends, if any, distributions upon liquidation of the Company and
consideration in a merger or consolidation of the Company (whether or not the
Company is the surviving corporation). Holders of the Class A Common Stock and
Class B Common Stock are entitled to equal per share stock dividends and stock
splits, if any, except that if stock dividends in shares of Class A Common Stock
are made to holders of Class A Common Stock, holders of Class B Common Stock may
receive, on a share-for-share basis, shares of Class B Common Stock.
CLASS B PROTECTION. Certain provisions of the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), suspend the
voting rights of any person or group that acquires a beneficial interest of 10
percent or more of the then outstanding shares of the Class A Common Stock
(excluding the number of shares beneficially owned by such person or group prior
to the reclassification in 1992 of the Certificate of Incorporation, dividing
the Company's common stock into the Class A Common Stock and the Class B Common
Stock, other than upon issuance or sale by the Company, by operation of law, by
will or the laws of descent or distribution, by gift or by foreclosure of a bona
fide loan), unless such person or group (a "Significant Shareholder") then owns
an equal or greater percentage of all outstanding shares of the Class B Common
Stock acquired after the date of reclassification or acquires additional shares
of the Class B Common Stock. These provisions will also be triggered if any
Significant Shareholder acquires the next higher integral multiple of five
percent (e.g., 15%, 20%, 25%, etc.) of the outstanding Class A Common Stock
after the date of the reclassification of the Certificate of Incorporation
(other than upon issuance or sale by the Company, by operation of law, by will
or the laws of descent or distribution, by gift or by foreclosure of a bona fide
loan).
PREEMPTIVE RIGHTS. The Class A and Class B Common Stock do not carry any
preemptive rights enabling a holder to subscribe for or receive shares of any
class of stock of the Company or any other securities convertible into shares of
any class of stock of the Company.
16
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Dean Witter
Reynolds Inc., Salomon Brothers Inc, Dillon, Read & Co. Inc., Lehman Brothers
Inc. and Robertson, Stephens & Company, L.P. are acting as Representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement by and among the Company, the Selling
Stockholder and the Underwriters (the "Underwriting Agreement"), to purchase
from the Company and the Selling Stockholder, and the Company and the Selling
Stockholder have agreed to sell to the Underwriters, the number of shares of
Class B Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------- ---------
<S> <C>
Dean Witter Reynolds Inc..............................................
Salomon Brothers Inc..................................................
Dillon, Read & Co. Inc................................................
Lehman Brothers Inc...................................................
Robertson, Stephens & Company, L.P....................................
---------
Total............................................................. 4,500,000
---------
---------
</TABLE>
The Underwriters are obligated to purchase all of the Shares offered hereby
if any are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the Shares to the public at the offering price set forth on the cover
page of this Prospectus and to certain securities dealers at such price less a
concession not in excess of $ per share and that the Underwriters and
such dealers may reallow a concession not in excess of $ per share of
sales to other dealers, including the Underwriters. After the Shares are
released for sale to the public, the public offering price and concessions and
discounts may be changed by the Underwriters.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Act,
or to contribute to payments which the Underwriters may be required to make in
respect thereof.
The Selling Stockholder and the Company have agreed that they will not sell,
contract to sell or otherwise dispose of any shares of the Class A or the Class
B Common Stock for a period of 90 days after the effective date of this
offering, except for the shares of the Class B Common Stock offered hereby, the
issuance of shares by the Company pursuant to employee stock options and the
issuance of shares or options by the Company pursuant to employee benefit, stock
option and compensation plans of the Company, without the prior written consent
of Dean Witter Reynolds Inc. The officers and directors of the Company and of
the Selling Stockholder have not individually entered into any such agreements.
The Selling Stockholder has granted to the Underwriters an option,
exercisable within 30 days from the date of this Prospectus, to purchase up to
an additional 675,000 shares of the Class B Common Stock at the same price per
share as the 4,500,000 shares of the Class B Common Stock offered hereby, less
underwriting
17
<PAGE>
discounts and commissions. The Underwriters may exercise the option only for the
purpose of covering over-allotments, if any, made in connection with the
distribution of the shares of the Class B Common Stock to the public.
Pursuant to regulations promulgated by the Securities and Exchange
Commission, market makers in the Common Stock who are underwriters and
prospective underwriters ("Passive Market Makers") may, subject to certain
limitations, make bids for or purchases of Common Stock until the earlier of the
time of commencement (the "Commencement Date") of offers or sales of the Common
Stock contemplated by this Prospectus or the time at which a stabilizing bid for
such Common Stock is made. In general, on and after the date two business days
prior to the Commencement Date (i) such market maker's net daily purchase of the
Common Stock may not exceed 30% of its average daily trading volume in such
Common Stock for the two full consecutive calendar months immediately preceding
the filing date of the registration statement of which this Prospectus forms a
part, (ii) such market maker may not effect transactions in, or display bids
for, the Common Stock at a price that exceeds the highest bid for the Common
Stock by persons who are not Passive Market Makers, and (iii) bids made by
Passive Market Makers must be identified as such.
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby will be passed upon
for the Company by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New
York, and for the Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles,
California. Certain legal matters related to the offering will be passed upon
for the Selling Stockholder by O'Melveny & Myers, Los Angeles, California.
EXPERTS
The Consolidated Financial Statements of the Company included in the
Company's Annual Report (Form 10-K) for the year ended September 30, 1994 have
been audited by Ernst & Young, LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
18
<PAGE>
PACIFICARE HEALTH
SYSTEMS, INC.
4,500,000 SHARES
CLASS B COMMON STOCK
PROSPECTUS
DEAN WITTER REYNOLDS INC.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
LEHMAN BROTHERS
ROBERTSON, STEPHENS & COMPANY
, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 124,468
NASD Fee.......................................................... 30,500
NASDAQ Fee........................................................ 17,500
Printing and Engraving............................................ 90,000
Legal Fees and Expenses (other than Blue Sky)..................... 200,000
Blue Sky Fees and Expenses........................................ 20,000
Accounting Fees and Expenses...................................... 20,000
Transfer Agent Fees............................................... 600
Travel and Miscellaneous.......................................... 46,932
---------
Total........................................................... $ 550,000
---------
---------
</TABLE>
All of the above items except the registration fee, the NASD fee and the
NASDAQ fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The indemnification of officers and directors of the Company is governed by
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"). Among other things, the DGCL permits indemnification of a director,
officer, employee or agent in civil, criminal, administrative or investigative
actions, suits or proceedings (other than an action by or in the right of the
corporation) to which such person is a party or is threatened to be made a party
by reason of the fact of such relationship with the corporation or the fact that
such person is or was serving in a similar capacity with another entity at the
request of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he had no reasonable cause to
believe his conduct was unlawful. Indemnification in a suit by or in the right
of the corporation is permitted if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, but no indemnification may be made in such suit to any person
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which the action was brought
determines that despite the adjudication of liability, such person is under all
circumstances, fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper. Under the DGCL, to the extent that a
director, officer, employee or agent is successful, on the merits or otherwise,
in the defense of any action, suit or proceeding or any claim, issue or matter
therein (whether or not the suit is brought by or in the right of the
corporation), he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him. In all cases in which
indemnification is permitted (unless ordered by a court), it may be made by the
corporation only as authorized in the specific case upon a determination that
the applicable standard of conduct has been met by the party to be indemnified.
The determination must be made by a majority vote of a quorum consisting of the
directors who were not parties to the action or, if such a quorum is not
obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or by the
stockholders. The statute authorizes the corporation to pay expenses incurred by
an officer or director in advance of a final disposition of a proceeding upon
receipt of an undertaking, by or on behalf of the person to whom the advance
will be made, to repay the advances if it shall ultimately be determined that he
was not entitled to indemnification. The DGCL provides that indemnification and
advances of expenses permitted thereunder are not to be exclusive of any rights
to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise. The DGCL also authorizes the corporation to purchase
and maintain liability insurance on behalf of its directors, officers, employees
and agents regardless of whether the corporation would have the statutory power
to indemnify such persons against the liabilities insured.
II-1
<PAGE>
The By-Laws of the Company (the "By-Laws") provide, in effect, that, to the
extent and under the circumstances described above, the Company shall indemnify
any person who was or is a party or is threatened to be made a party to any
action, suit or proceeding of the type described above by reason of the fact
that he is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The By-Laws also permit the Company to purchase insurance on behalf
of such persons against any liability whether or not the Company would have
power to indemnify him against such liability pursuant to the By-Laws. The
By-Laws further provide that the termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that such person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. In addition, indemnification provided by the By-Laws is deemed not
to be exclusive of any other rights to which those indemnified may be entitled,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
The Certificate of Incorporation of the Company, as amended (the
"Certificate"), provides that no director shall be personally liable to the
Company or any stockholder for monetary damages for breach of fiduciary duty as
a director, except for any matter in respect of which such director shall be
liable under Section 174 of the DGCL or any amendment thereto or successor
provision thereto or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the Company or its stockholders, (ii) shall not have acted in good
faith or, in failing to act, shall not have acted in good faith, (iii) shall
have acted in a manner involving intentional misconduct or a knowing violation
of law or, in failing to act, shall have acted in a manner involving intentional
misconduct or a knowing violation of law, or (iv) shall have derived an improper
personal benefit. The Certificate further provides that no amendment or repeal
of the rights herein referenced, nor the adoption of any provision of the
Certificate inconsistent therewith, shall eliminate or reduce the effect of such
rights in respect of any matter occurring or any cause of action, suit or claim
that, but for the existence of such rights, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
The Company maintains a directors, officers and trustees liability and
company reimbursement insurance policy which, among other things, provides for
(i) payment on behalf of any of the Company's past, present or future directors,
officers, trustees, employees, volunteers or any members of the Company's staff,
faculty or any duly constituted committee of the Insured Entity (as defined in
the policy) and other Insured Persons (as defined in the policy) against loss
(as defined in the policy) stemming from actual or alleged acts or omissions
committed by Insured Persons in their capacity as such, or while serving as
director or trustee of any other non-profit entities at the express written
direction of the Insured Entity, and (ii) payment on behalf of the Insured
Entity against such loss for which the Insured Entity has paid as
indemnification to or on behalf of the Insured Person. The policy does not cover
loss from claims made against Insured Persons arising from, among other things,
specified categories of misconduct, including a claim against an Insured Person
brought about or contributed to in fact (1) by any dishonest or fraudulent act
or omission or any willful violation of any statute, rule of law or by any
Insured (defined to include the Insured Entity and any Insured Person) or (2) by
any Insured gaining any profit, remuneration or advantage to which such Insured
was not entitled.
Reference is made to the Underwriting Agreement filed as Exhibit 1.1 hereto
for information regarding indemnification of officers and directors in
connection with this offering.
In connection with the current offering, the Selling Stockholder and the
Company have agreed to contribute to certain liabilities including liabilities
under the Act in amounts proportionate to the proceeds received by the Selling
Stockholder and the Company and in certain circumstances to indemnify the other
against certain liabilities, including liabilities under the Act. The Selling
Stockholder's liability to the Company under such agreement is limited to the
proceeds received by the Selling Stockholder in this offering.
II-2
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP
10.1 Contribution and Indemnification Agreement, dated as of , 1995 between
PacifiCare Health Systems, Inc. and UniHealth, Inc.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in Exhibit 5.1)
24.2 Power of Attorney (appears on signature page)
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Cypress, State of California, on this 21st day of
February, 1995.
PACIFICARE HEALTH SYSTEMS, INC.
By: /s/ ALAN R. HOOPS
-----------------------------------
Alan R. Hoops
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose signature
appears below constitutes and appoints Alan R. Hoops and Wayne B. Lowell, and
each of them (with full power of each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and on his behalf, and in his name, place and stead, in any and all
capacities to execute and sign any and all amendments or post-effective
amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof and the Registrant hereby confers like authority on its
behalf.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ TERRY O. HARTSHORN
------------------------------------------- Chairman of the Board February 21, 1995
Terry O. Hartshorn
/s/ ALAN R. HOOPS Director, President and Chief
------------------------------------------- Executive Officer (Principal February 21, 1995
Alan R. Hoops Executive Officer)
Executive Vice President, Chief
/s/ WAYNE B. LOWELL Administrative Officer and Chief
------------------------------------------- Financial Officer (Principal February 21, 1995
Wayne B. Lowell Financial Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ FRED V. RYDER Senior Vice President and Corporate
------------------------------------------- Controller (Principal Accounting February 21, 1995
Fred V. Ryder Officer)
/s/ DAVID R. CARPENTER
------------------------------------------- Director February 21, 1995
David R. Carpenter
/s/ GARY L. LEARY
------------------------------------------- Director February 21, 1995
Gary L. Leary
/s/ DAVID A. REED
------------------------------------------- Director February 21, 1995
David A. Reed
/s/ WARREN E. PINCKERT II
------------------------------------------- Director February 21, 1995
Warren E. Pinckert II
/s/ LLOYD ROSS
------------------------------------------- Director February 21, 1995
Lloyd Ross
/s/ JEAN BIXBY SMITH
------------------------------------------- Director February 21, 1995
Jean Bixby Smith
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP
10.1 Contribution and Indemnification Agreement, dated as of , 1995, between
PacifiCare Health Systems, Inc. and UniHealth, Inc.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
</TABLE>
<PAGE>
4,500,000 Shares
PACIFICARE HEALTH SYSTEMS, INC.
Class B Common Stock
UNDERWRITING AGREEMENT
___, 1995
DEAN WITTER REYNOLDS INC.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
LEHMAN BROTHERS INC.
ROBERTSON, STEPHENS & COMPANY, L.P.
As Representatives of the
several Underwriters
c/o Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
Dear Sirs:
1. INTRODUCTORY. PacifiCare Health Systems, Inc., a Delaware
corporation (the "COMPANY"), and the selling stockholder named in SCHEDULE B
hereto (the "SELLING STOCKHOLDER") propose to sell, pursuant to the terms of
this Agreement, to the several Underwriters named in SCHEDULE A hereto (the
"UNDERWRITERS"), an aggregate of 4,500,000 shares of Class B Common Stock, par
value $.01 per share (the "CLASS B COMMON STOCK"), of the Company. The
aggregate of 4,500,000 shares so proposed to be sold is herein called the
"FIRM STOCK." The Selling Stockholder also proposes to sell severally to the
Underwriters, on a pro rata basis, at the option of the Underwriters, an
aggregate of not more than 675,000 additional shares of Class B Common Stock
as provided in SECTION 3 of this Agreement. The aggregate of 675,000 shares
so proposed to be sold is herein called the "OPTIONAL STOCK." The Firm Stock
and the Optional Stock are collectively referred to herein as the "STOCK".
Dean Witter Reynolds Inc., Salomon Brothers Inc, Dillon, Read & Co. Inc.,
Lehman Brothers Inc. and Robertson, Stephens & Company, L.P. are acting as
representatives of the several Underwriters and in such capacity are
hereinafter referred to as the "REPRESENTATIVES."
<PAGE>
2. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(i) The Company meets the requirements for use of Form S-3
and a registration statement (Registration No. 33-_____) on Form S-3
relating to the Stock, including a preliminary prospectus and such
amendments to such registration statement as may have been required to the
date of this Agreement, has been prepared by the Company under the provi-
sions of the Securities Act of 1933, as amended (the "ACT"), and the rules
and regulations (collectively referred to as the "RULES AND REGULATIONS")
of the Securities and Exchange Commission (the "COMMISSION") thereunder,
and has been filed with the Commission. The registration statement
contains the form of preliminary prospectus to be used in connection with
the offering and sale of the Stock (the "PRELIMINARY PROSPECTUS"). The
term "PRELIMINARY PROSPECTUS" as used herein means a preliminary prospectus
as contemplated by Rule 430 or Rule 430A ("RULE 430A") of the Rules and
Regulations included at any time as part of the registration statement.
Copies of such registration statement, amendments and each preliminary
prospectus have been delivered to the Representatives. If such regis-
tration statement has not become effective pursuant to the Act, a further
amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become so
effective will be filed promptly by the Company with the Commission. If
such registration statement has become effective, a final prospectus
containing information permitted to be omitted at the time of effectiveness
by Rule 430A will be filed by the Company with the Commission in accordance
with Rule 424(b) of the Rules and Regulations promptly after execution and
delivery of this Agreement. The term "REGISTRATION STATEMENT" means the
registration statement as amended at the time it becomes or became effec-
tive pursuant to the Act (the "EFFECTIVE DATE"), including financial
statements and all exhibits and any information deemed to be included by
Rule 430A. The term "PROSPECTUS" means, collectively, a prospectus
relating to the Stock, in the form it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing
is required, the form of final prospectus included in the Registration
Statement at the Effective Date. Any reference herein to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 that were filed under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), on or before the
Effective Date or the date of such preliminary prospectus or the
Prospectus, as the
- 2 -
<PAGE>
case may be. Any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include the
filing of any document under the Exchange Act after the Effective Date, or
the date of any preliminary prospectus or the Prospectus, as the case may
be, and deemed to be incorporated therein by reference.
(ii) On the Effective Date, the date the Prospectus is first
filed with the Commission pursuant to Rule 424(b) (if required), and at all
times subsequent to the Effective Date through and including the First
Closing Date (as defined in Section 3 herein) and, if later, the Option
Closing Date (as defined in Section 3 herein), and when any post-effective
amendment to the Registration Statement becomes effective or any amendment
or supplement to the Prospectus is filed with the Commission, the
Registration Statement and the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment or supple-
ment thereto), including the financial statements included or incorporated
by reference in the Prospectus, did or will comply in all material respects
with all applicable provisions of the Act, the Exchange Act, the rules and
regulations thereunder (the "EXCHANGE ACT RULES AND REGULATIONS") and the
Rules and Regulations and will contain all statements required to be stated
therein in accordance with the Act, the Exchange Act, the Exchange Act
Rules and Regulations and the Rules and Regulations, as the case may be.
On the Effective Date and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration
Statement or any such amendment did or will contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not mis-
leading. At the Effective Date, the date the Prospectus or any amendment
or supplement to the Prospectus is filed with the Commission and at the
First Closing Date and, if later, the Option Closing Date, the Prospectus
did not or will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this SECTION 2(a)(ii) do not
apply to any statements or omissions made in conformity with information
relating to (i) any Underwriter furnished in writing to the Company by the
Underwriters specifically for inclusion in the Registration Statement or
the Prospectus or any amendment or supplement thereto or (ii) the Selling
Stockholder furnished in writing to the Company by the
- 3 -
<PAGE>
Selling Stockholder specifically for inclusion in the Registration
Statement or the Prospectus or any amendment or supplement thereto. For
all purposes of this Agreement (including, but not limited to, SECTION 6
hereof), the statements set forth in the last paragraph of the cover page
of the Prospectus, the first and third paragraphs on the inside front cover
page of the Prospectus and the statements set forth under the heading
"Underwriting" in the Prospectus constitute the only information relating
to any Underwriter furnished in writing to the Company by the Underwriters
specifically for inclusion in the preliminary prospectus, the Registration
Statement or the Prospectus. For purposes of this Agreement, the
statements referred to in SCHEDULE C constitute the only information
relating to the Selling Stockholder furnished in writing to the Company
by the Selling Stockholder specifically for inclusion in the preliminary
prospectus, the Registration Statement or the Prospectus.
(iii) The documents that are incorporated by reference in the
preliminary prospectus and the Prospectus or from which information is so
incorporated by reference, when they become effective or were filed with
the Commission, as the case may be, complied in all material respects with
the requirements of the Act or the Exchange Act, as applicable, and the
Exchange Act Rules and Regulations or the Rules and Regulations, as
applicable, except as amended and superseded by statements made in the
Registration Statement; and any documents so filed and incorporated by
reference subsequent to the Effective Date shall, when they are filed with
the Commission, conform in all material respects with the requirements of
the Act or the Exchange Act, as applicable, and the Exchange Act Rules and
Regulations or the Rules and Regulations, as applicable.
(iv) The only subsidiaries (as defined in the Rules and
Regulations) of the Company that are material to the operations, business
or financial condition of the Company and its subsidiaries taken as a whole
are the subsidiaries listed on SCHEDULE D hereto (the "SUBSIDIARIES"). The
Company and each of its subsidiaries is, and at each of the First Closing
Date and the Option Closing Date, will be, a corporation or partnership, as
applicable, duly organized, and in the case of a corporation, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization. The Company and each of its subsidiaries
has, and at each of the First Closing Date and the Option Closing Date will
have, full corporate or partnership, as applicable, power and authority to
own or lease all the assets owned or leased by it and to conduct its
activities and business as described in the Registration Statement and the
Prospectus. The Company and each of its subsidiaries is, and at each of
the First Closing Date and the Option Closing Date will be,
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duly licensed or qualified to do business and in good standing as a foreign
corporation or partnership, if applicable, in all jurisdictions in which
the nature of the activities conducted by it or the character of the assets
owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, properties, condition (financial
or otherwise) or results of operations of the Company and its subsidiaries,
taken as a whole. None of the Company or any of its subsidiaries has any
interest in a joint venture, corporation or partnership which interest
requires disclosure in the Registration Statement that has not been so
disclosed. Complete and correct copies of the certificate of incorporation
and of the by-laws, or partnership agreement, as applicable, of the Company
and each of its subsidiaries and all amendments thereto have been delivered
or made available to the Representatives, and no changes therein will be
made subsequent to the date hereof and prior to the First Closing Date or,
if later, the Option Closing Date, except as otherwise described in the
Registration Statement.
(v) The outstanding shares of the Class B Common Stock and the
Company's Class A Common Stock, par value $.01 per share (the "CLASS A
COMMON STOCK"), have been, and the Stock to be issued and sold by the
Company upon such issuance will be, duly authorized, validly issued, and
are fully paid and nonassessable and, when issued and delivered to and paid
for by the Underwriters will be free of any pledge, charge, lien,
encumbrance, security interest, claim or statutory or contractual
preemptive rights, except those which have been waived or created by the
actions of the Underwriters. The description of the Class A Common Stock
and the Class B Common Stock in the Registration Statement and the
Prospectus is, and at each of the First Closing Date and the Option Closing
Date will be, complete and accurate in all material respects. Except as
described on SCHEDULE D, all of the issued and outstanding shares of
capital stock or partnership interests, as applicable, of each of the
subsidiaries of the Company are owned by the Company directly or
indirectly; all of such shares have been duly authorized and validly issued
and are fully paid and nonassessable and such shares and partnership
interests, as applicable, are so owned free and clear of any pledge, lien,
charge, encumbrance, security interest or other claim, except as described
in the Registration Statement. Except as set forth in the Prospectus,
neither the Company nor any of its subsidiaries has outstanding, and at the
Closing Date will have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or
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obligations convertible into, or any contracts or commitments to issue or
sell, any shares of the Class A or Class B Common Stock, any shares of
capital stock or partnership interests, as applicable, of any subsidiary or
any such warrants, convertible securities or obligations.
(vi) The audited and unaudited financial statements and
schedules included or incorporated by reference in the Registration
Statement or the Prospectus present fairly the consolidated financial
condition of the Company as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company for the
respective periods covered thereby (subject, in the case of the Company's
unaudited financial statements, to normal recurring year end adjustments);
such statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire
period involved, except as otherwise disclosed in the Prospectus. No other
financial statements or schedules of the Company are required by the Act,
the Exchange Act, the Exchange Act Rules and Regulations or the Rules and
Regulations to be included in the Registration Statement or the Prospectus.
Ernst & Young (the "ACCOUNTANTS"), who have reported on such financial
statements and schedules, are independent accountants with respect to the
Company as required by the Act and the Rules and Regulations.
(vii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
First Closing Date, or, if later, the Option Closing Date, except as set
forth in or contemplated by the Registration Statement and the Prospectus,
there has not been (i) any material and adverse change, financial or
otherwise, in the business, properties, regulations or laws affecting the
Company and its subsidiaries, results of operations, business prospects or
condition of the Company or any of its subsidiaries, taken as a whole, (ii)
any transaction that is material to the Company and its subsidiaries, taken
as a whole, (iii) any obligation, contingent or otherwise, directly or
indirectly incurred by the Company or any of its subsidiaries, that is
material to the Company and its subsidiaries, taken as a whole, or (iv) the
payment or declaration of any dividends
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or other distributions of any kind on any class of its capital stock.
(viii) Neither the Company nor any of its subsidiaries is an
"investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," within the meaning of
the Investment Company Act of 1940, as amended.
(ix) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries or any of their respective properties, at law or in equity, or
before or by any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency that are likely to
result in a judgment over and above current reserve levels, decree or order
having a material adverse effect on the business, condition (financial or
otherwise) or property of the Company and its subsidiaries, taken as a
whole.
(x) Except where the effect is not likely to have a material
adverse effect on the properties, assets, operations, business or financial
condition of the Company and its subsidiaries, taken as a whole, neither
the Company nor any of its subsidiaries is in breach of, or in default
under (nor has any event occurred which with notice, lapse of time, or both
would constitute a breach of, or default under) its respective charter or
by-laws, or partnership agreement, as applicable, or in the performance or
observance of any obligation, agreement, covenant or condition contained in
any license, indenture, mortgage, deed of trust, bank loan or credit
agreement or any other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which any of them or their respective
properties are bound. Each of the Company and its subsidiaries has all
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to conduct its business (collectively,
"LICENSES"), other than those Licenses the absence of which is not likely
to have a material adverse effect on the properties, assets, operations,
business or financial condition of the Company and its subsidiaries, taken
as a whole. The Company and each of its subsidiaries are in compliance in
all material respects with all applicable laws, orders, rules, regulations
and directives except where failure to be in compliance is not likely to
have a material adverse effect on the properties, assets, operations,
business or financial condition of the Company and its subsidiaries, taken
as a whole.
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<PAGE>
(xi) PacifiCare of California, PacifiCare of Oregon, Inc.,
PacifiCare of Oklahoma, Inc., and PacifiCare of Texas, Inc. are duly
qualified as health maintenance organizations under the Health Maintenance
Organization Act of 1973, as amended, and the rules and regulations of the
Department of Health and Human Services promulgated thereunder; PacifiCare
of California is licensed and authorized to operate a prepaid health care
service plan and California Dental Health Plan, Inc. and LifeLink, Inc. are
prepaid specialized health care service plans in the State of California
pursuant to the Knox-Keene Health Care Service Plan Act of 1975, as
amended; PacifiCare of Florida is licensed as a health maintenance
organization in the State of Florida by the Florida Department of
Insurance; PacifiCare of Oregon, Inc. has been issued a current certificate
of authority by the Oregon Department of Insurance and Finance authorizing
it to operate in Oregon as a domestic health care service contractor;
PacifiCare of Texas, Inc. is qualified and licensed in the State of Texas
as a health maintenance organization; PacifiCare of Oklahoma, Inc. is duly
qualified and licensed in the State of Oklahoma as a health maintenance
organization under the Oklahoma Health Maintenance Organization Act, Okla.
Stat. Tit. 63 Section 2502 ET SEQ.; PacifiCare of Washington, Inc. is
qualified and licensed as a health maintenance organization under the
Insurance Code of Washington; PacifiCare Life & Health Insurance Company is
duly licensed or qualified as a life insurance company in the States of
Indiana, California, Texas, Oklahoma, Oregon and Washington; and the
statements made in the Registration Statement and the Prospectus under the
caption "Business - Government Regulation" are accurate in all material
respects.
(xii) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required for the consummation by the Company of the transactions on its
part contemplated herein, except such as have been or may be obtained under
the Act or the Rules and Regulations and such as may be required under
state securities or Blue Sky laws or under the laws of any jurisdiction
outside of the U.S. or the by-laws and rules of the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Stock.
(xiii) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and, assuming due authorization,
execution and delivery by the other persons party hereto, constitutes a
valid and binding agreement of the Company and is enforceable against
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<PAGE>
the Company in accordance with the terms hereof, except as rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws and except as the enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and subject to general principles of
equity. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
result in the creation or imposition of any lien, charge or encumbrance
upon any of the assets of the Company or any of its subsidiaries pursuant
to the terms or provisions of, or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or result in
the acceleration of any obligation under, the certificate of incorporation
or by-laws of the Company or any of its subsidiaries, any contract or other
agreement to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties is bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company or any of its subsidiaries, except such as are not material to the
business of the Company and its subsidiaries, taken as a whole.
(xiv) The Company and each of its subsidiaries has good and
marketable title to all properties and assets described in the Prospectus
as owned by it, free and clear of all pledges, charges, liens, encum-
brances, security interests or other claims, except such as are described
in the Prospectus or the Registration Statement or are not material to the
business of the Company and its subsidiaries, taken as a whole.
(xv) There is no document or contract of a character required to
be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that is not described or filed
as required.
(xvi) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.
(xvii) The Stock is eligible for quotation on the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
National Market System.
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<PAGE>
(xviii) Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company, is any
such dispute threatened, in either case, which is material to the Company
and its subsidiaries, taken as a whole.
(xix) The Company and its subsidiaries own, or are licensed or
otherwise have the full exclusive right to use, all trademarks and trade
names that are used in or necessary for the conduct of their respective
businesses as described in the Prospectus, except where the failure to so
own, license or have the exclusive right to use would not have a material
adverse effect on the business of the Company and its subsidiaries, taken
as a whole. Neither the Company nor any of its subsidiaries has received
any notice of any person respecting the use of any such trademarks or trade
names or challenging or questioning the validity or effectiveness of any
such trademark or trade name which is likely to result in a material
adverse effect on the business of the Company and its subsidiaries, taken
as a whole. The use, in connection with the business and operations of the
Company and its subsidiaries of such trademarks and trade names does not,
to the Company's knowledge, infringe on the rights of any person which
infringement is likely to result in a material adverse effect on the
business of the Company and its subsidiaries, taken as a whole.
(b) REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents, warrants and covenants to each Underwriter that:
(i) The Selling Stockholder has full power and authority to
enter into this Agreement. All authorizations and consents necessary for
the execution and delivery by the Selling Stockholder of this Agreement
have been given. This Agreement has been duly authorized, executed and
delivered by the Selling Stockholder and, assuming due authorization,
execution and delivery by the other persons party hereto constitutes a
valid and binding agreement of the Selling Stockholder and is enforceable
against the Selling Stockholder in accordance with the terms hereof except
as rights to indemnity and contribution hereunder may be limited by federal
or state securities laws and except as the enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and subject to general principles of
equity.
(ii) The Selling Stockholder now has, and at the time of
delivery thereof hereunder will have, (i) good title
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<PAGE>
to the Stock, free and clear of all pledges, charges, liens, encumbrances,
security interests and claims whatsoever, except those which have been
waived in writing or created by the actions of the Underwriters, and
(ii) full legal right and power, and all authorizations and approvals
required by law, to sell, transfer and deliver the Stock to the Under-
writers and to make the representations, warranties and agreements made by
the Selling Stockholder herein. Upon the delivery of and payment for such
Stock hereunder, the Selling Stockholder will deliver good title thereto,
free and clear of all pledges, charges, liens, encumbrances, security
interests and claims whatsoever, except those which have been waived in
writing or created by the actions of the Underwriters.
(iii) On the First Closing Date and the Option Closing Date, as
the case may be, all stock transfer or other taxes (other than income
taxes) that are required to be paid in connection with the sale and
transfer of the Stock will have been fully paid or provided for by the
Selling Stockholder and all laws imposing such taxes will have been fully
complied with.
(iv) The performance of this Agreement and the consummation of
the transactions contemplated hereby will not result in the creation or
imposition of any pledge, charge, lien, encumbrance, security interest or
claim upon any of the assets of the Selling Stockholder pursuant to the
terms or provisions of, or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or result in the
acceleration of any obligation under, the organizational documents of the
Selling Stockholder or any contract or other agreement to which the Selling
Stockholder is a party or by which the Selling Stockholder or any of its
property is bound or affected, or under any ruling, decree, judgment,
order, statute, rule or regulation of any court or other governmental
agency or body having jurisdiction over the Selling Stockholder or the
property of the Selling Stockholder.
(v) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required for the consummation by the Selling Stockholder of the
transactions on its part contemplated herein, except such as have been or
may be obtained under the Act or the Rules and Regulations and such as may
be required under state securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Stock.
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<PAGE>
(vi) The Selling Stockholder has no knowledge of any fact or
condition not set forth in the Registration Statement or the Prospectus
that has materially and adversely affected, or will materially and
adversely affect, the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company, and the
sale of the Stock is not prompted by any such knowledge.
(vii) All information with respect to the Selling Stockholder
contained in the Registration Statement and the Prospectus (as amended or
supplemented, if the Company shall have filed with the Commission any
amendment or supplement thereto), which is referred to in SCHEDULE C, does
not and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
(viii) To the best knowledge of the Selling Stockholder, the
representations and warranties of the Company contained in SECTION 2(a)
hereof are true and correct.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS -- CLOSING
DATE. The Company and the Selling Stockholder agree, severally and not jointly,
to sell to the Underwriters the Firm Stock, with the number of shares to be sold
by the Selling Stockholder being set opposite its name in SCHEDULE B; and on the
basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase the Firm Stock from
the Company and the Selling Stockholder, the number of shares of Firm Stock to
be purchased by each Underwriter being set opposite its name in SCHEDULE A,
subject to adjustment in accordance with SECTION 12 hereof.
The purchase price per share to be paid by the several Underwriters to
the Company and the Selling Stockholder will be $________ per share.
The Company and the Selling Stockholder will deliver the Firm Stock to
the Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company and the Selling Stockholder given at or prior to 12:00 Noon, New York
Time, on the second full business day preceding the First Closing Date or, if no
such direction is received, in the names of the respective Underwriters),
against payment of the
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<PAGE>
purchase price therefor by [wire transfer (same day funds), net of the overnight
cost of such funds,] payable to the account or accounts as the Company and the
Selling Stockholder may specify prior to the Closing Date, all at the offices of
Dean Witter Reynolds Inc., Two World Trade Center, New York, New York 10048.
The time and date of delivery and closing shall be at 10:00 A.M., New York Time,
on _____, 1995; PROVIDED, HOWEVER, that such date and/or time may be accelerated
or extended by agreement among the Company, the Selling Stockholder and the
Representatives or postponed pursuant to the provisions of SECTION 12 hereof.
The time and date of such payment and delivery are herein referred to as the
"FIRST CLOSING DATE."
The Company and the Selling Stockholder shall make the certificates
for the Firm Stock available to the Representatives for examination on behalf of
the Underwriters, not later than 10:00 A.M. New York Time, on the business day
preceding the First Closing Date at the offices of Dean Witter Reynolds Inc.,
Two World Trade Center, New York, New York 10048.
It is understood that Dean Witter Reynolds Inc., Salomon Brothers Inc,
Dillon, Read & Co. Inc., Lehman Brothers or Robertson, Stephens & Company, L.P.,
individually and not as Representatives of the several Underwriters, may (but
shall not be obligated to) make payment to the Company or to the Selling
Stockholder on behalf of any Underwriter or Underwriters, for the Firm Stock to
be purchased by such Underwriter or Underwriters. Any such payment by Dean
Witter Reynolds Inc., Salomon Brothers Inc, Dillon, Read & Co. Inc., Lehman
Brothers or Robertson, Stephens & Company, L.P., shall not relieve such
Underwriter or Underwriters from any of its or their other obligations
hereunder.
After the Registration Statement becomes effective, the several
Underwriters propose to make an initial public offering of the Firm Stock at the
initial public offering price. The Representatives shall promptly advise the
Company and the Selling Stockholder of the making of the initial public
offering.
In addition, for the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Stock as contemplated by
the Prospectus, the Selling Stockholder hereby grants the Underwriters an option
to purchase, severally and not jointly, up to 675,000 shares in the aggregate of
the Optional Stock. The purchase price per share to be paid for the Optional
Stock shall be the same price per share as the price per share for the Firm
Stock. The option granted hereby may be exercised as to all or any part of the
Optional Stock at any time (but not more than once) not more than 30 days
subsequent to the effective date of this Agreement. No Optional Stock shall be
sold and delivered unless the Firm Stock
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<PAGE>
previously has been, or simultaneously is, sold and delivered. The right to
purchase the Optional Stock or any portion thereof may be surrendered and
terminated at any time upon notice by the Representatives to the Selling
Stockholder.
The option granted hereby may be exercised by the Representatives on
behalf of the Underwriters by giving written notice to the Selling Stockholder
setting forth the number of shares of the Optional Stock to be purchased by them
and the date and time for delivery of and payment for the Optional Stock. Such
date and time for delivery of and payment for the Optional Stock (which may be
the First Closing Date) is herein called the "OPTION CLOSING DATE" and shall be
not later than two days after written notice is given. Optional Stock shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Stock set forth opposite such Underwriter's name in
SCHEDULE A hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Representatives to eliminate odd lots). Upon exercise of the
option by the Representatives, the Selling Stockholder agrees to sell to the
Underwriters the number of shares of Optional Stock set forth in the written
notice of exercise and the Underwriters agree, severally and not jointly,
subject to the terms and conditions herein set forth, to purchase such shares.
The Selling Stockholder will deliver the Optional Stock to the
Representatives for the respective accounts of the several Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Selling
Stockholder given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the Option Closing Date or, if no such direction is
received, in the names of the respective Underwriters), against payment of the
purchase price therefor by [certified or official bank checks in New York
Clearing House Funds (next day funds), payable to the order of UniHealth
America, all at the offices of Milbank, Tweed, Hadley & McCloy, 601 South
Figueroa Street, 30th Floor, Los Angeles, California 90017]. The Selling
Stockholder shall make the certificates for the Optional Stock available to the
Representatives for examination on behalf of the Underwriters, not later than
10:00 A.M., New York Time, on the business day preceding the Option Closing Date
at the offices of Dean Witter Reynolds Inc., Two World Trade Center, New York,
New York 10048.
4. COVENANTS AND AGREEMENTS OF THE COMPANY AND THE SELLING
STOCKHOLDER. The Company, with respect to Sections 4(a) through 4(i), and the
Selling Stockholder with respect to Section 4(j) covenant and agree with the
several Underwriters that:
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(a) The Company will use its best efforts to cause the
Registration Statement to become effective, will advise the Representatives
promptly as to the time at which the Registration Statement becomes
effective, will advise the Representatives promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use reasonable efforts to prevent the issuance of any
such stop order and to obtain as soon as possible the lifting thereof, if
issued. The Company will advise the Representatives promptly of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional information, and
will not at any time file any amendment to the Registration Statement or
supplement to the Prospectus that shall not previously have been submitted
to the Representatives a reasonable time prior to the proposed filings
thereof or to which the Representatives shall reasonably object in good
faith and in writing or that is not in compliance with the Act and the
Rules and Regulations. If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A, the Company will use its best
efforts to comply with the provisions of and make all requisite filings
with the Commission pursuant to said Rule 430A and to notify the
Representatives promptly of all such filings.
(b) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus that in the
opinion of the Representatives may be necessary to enable the several
Underwriters to continue the distribution of the Stock and will use its
best efforts to cause the same to become effective as promptly as possible.
The Company will promptly file all reports and any definitive proxy or
information statements required to be filed with the Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act subsequent to the date of the
Prospectus and for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Stock.
(c) The Company will promptly notify the Representatives if at
any time after the effective date of the Registration Statement when a
prospectus relating to the Stock is required to be delivered under the Act,
any event relating to or affecting the Company or any of its subsidiaries
occurs as a result of which, in the judgment of the Company, the Prospectus
or any other prospectus as then in effect would include an untrue statement
of a material fact, or omit to state any material fact necessary to make
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<PAGE>
the statements therein in light of the circumstances under which they were
made not misleading. If it is necessary at any time in the judgment of the
Company or counsel to the Underwriters, to amend the Prospectus to comply
with the Act the Company will prepare an amended or supplemented prospectus
or make an appropriate filing pursuant to Section 13 or 14 of the Exchange
Act which will correct such statement or omission; and, if any Underwriter
is required to deliver a prospectus relating to the Stock nine months or
more after the effective date of the Registration Statement, the Company
upon the request of the Representatives and at the expense of such
Underwriter will prepare promptly such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of
the Act.
(d) The Company will deliver to the Representatives, at or
before the First Closing Date, signed copies of the Registration Statement
and all amendments thereto including all financial statements and exhibits
thereto and all documents theretofore incorporated by reference therein,
and will deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements and all
documents theretofore incorporated by reference therein but without
exhibits, and of all amendments thereto, as the Representatives may
reasonably request. The Company will deliver or mail to or upon the order
of the Representatives on the date of the initial public offering, and
thereafter from time to time during the period when delivery of a
prospectus relating to the Stock is required under the Act, as many copies
of the Prospectus, in final form or as thereafter amended or supplemented
as the Representatives may reasonably request; PROVIDED, HOWEVER, that the
expense of the preparation and delivery of any prospectus required for use
nine months or more after the effective date of the Registration Statement
shall be borne by the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than fifteen
months after the effective date of the Registration Statement an earnings
statement which will be in reasonable detail (but which need not be
audited) and which will comply with Section 11(a) of the Act,
covering a period of at least twelve months beginning after the effective
date of the Registration Statement.
(f) The Company will cooperate with the Representatives to
enable the Stock to be qualified for sale under the securities laws of such
jurisdictions as the
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<PAGE>
Representatives may designate and at the request of the Representatives
will make such applications and furnish such information as may be required
of it as the issuer of the Stock for that purpose; PROVIDED, HOWEVER, that
the Company shall not be required to qualify to do business or to file a
general consent to service of process in any such jurisdiction or register
as a broker-dealer or amend its stock option plans. The Company will, from
time to time, prepare and file such statements and reports as are or may be
required of it by law of such jurisdictions as the issuer of the Stock to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for the distribution of the Stock.
(g) During the period of three years from the date hereof, the
Company will deliver to the Representatives and, upon request, to each of
the other Underwriters, (i) copies of each annual report of the Company and
each other report furnished by the Company to its stockholders; and will
deliver to the Representatives, (ii) as soon as they are available, copies
of any other reports (financial or other) that the Company shall publish or
otherwise make available to any of its security holders as such, and (iii)
as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange.
(h) The Company will use its best efforts to maintain the
listing of the Stock on the NASDAQ--National Market System.
(i) The Company will not for a period of 90 days after the
commencement of the public offering of the Stock, without the prior written
consent of Dean Witter Reynolds Inc., sell, contract to sell or otherwise
dispose of any shares of Class A Common Stock or Class B Common Stock or
rights to acquire such shares (other than pursuant to employee stock option
plans or in connection with other employee incentive compensation
arrangements), except for the sale of the Stock to the Underwriters.
(j) The Selling Stockholder will not, for a period of 90 days
after the commencement of the public offering of the Stock, without the
prior written consent of Dean Witter Reynolds Inc., sell, contract to sell
or otherwise dispose of any shares of Class A Common Stock or Class B
Common Stock except for the sale of the Stock to the Underwriters.
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5. PAYMENT OF EXPENSES. The Company and the Selling Stockholder in
such proportions as the number of shares of Stock to be sold by the Company and
the Selling Stockholder bears to the total number of shares of stock, severally
and not jointly, will pay (directly or by reimbursement) all expenses incident
to the performance of the obligations of the Company and the Selling Stockholder
under this Agreement, including but not limited to (i) all expenses and taxes
incident to delivery of the Stock to the Representatives, (ii) all expenses
incident to the registration of the Stock under the Act and the printing of
copies of the Registration Statement, each preliminary prospectus, the
Prospectus, any amendments or supplements thereto, the "Blue Sky" memorandum and
this Agreement and furnishing the same to the Underwriters and dealers except as
otherwise provided in SECTIONS 4(c) AND 4(d), (iii) all filing and printing fees
and expenses (including legal fees and disbursements of counsel for the
Underwriters) incurred in connection with qualification of the Stock for sale
and determination of its eligibility for investment under the laws of such
jurisdictions as the Representatives may designate, (iv) all fees and expenses
paid or incurred in connection with filings made with the NASD, (v) the costs of
preparing stock certificates, (vi) the costs and fees of any registrar or
transfer agent, (vii) all expenses relating to the furnishing (including costs
of shipping and mailing) such copies of the Registration Statement, the
Prospectus, any preliminary prospectus and all amendments and supplements
thereto, as may be requested for use in connection with the offering and sale of
the stock by the Underwriters, or by the dealers to whom the Stock may be sold
and (viii) all other costs and expenses incident to the performance of their
obligations hereunder that are not otherwise specifically provided for in this
Section; PROVIDED, HOWEVER, that if the transactions contemplated by this
Agreement are not consummated, then the Company and the Selling Stockholder
shall not be responsible for the expenses and fees referred to in clause (iii)
above; PROVIDED FURTHER, HOWEVER, except as otherwise provided in this
Agreement, the Company and the Selling Stockholder shall not be responsible for
the expenses of the Underwriters, including the fees and expenses of their
counsel and any stock transfer taxes on the resale of the Stock.
6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter, and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages, liabilities or expenses (including the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred
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<PAGE>
in connection therewith), joint or several, which may be based upon the Act, or
any other statute or at common law, on the ground or alleged ground that any
preliminary prospectus, the Registration Statement or the Prospectus (or any
preliminary prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, unless such statement or omission was made in conformity with,
written information furnished to the Company by any Underwriter, directly or
through the Representatives, specifically for use in the preparation thereof;
PROVIDED that in no case is the Company to be liable with respect to any claims
made against any Underwriter or any such controlling person unless such
Underwriter or controlling person shall have notified the Company in writing
promptly after the summons or other first legal process giving information of
the nature of the claim shall have been served upon such Underwriter or
controlling person and have included with such notice a copy of all papers
served, but failure to provide timely notice shall not affect the right to
indemnification hereunder except to the extent that such failure materially
prejudices the Company in such action; PROVIDED FURTHER that the Company shall
not be responsible pursuant to this indemnity, for losses, claims, damages,
liabilities or expenses arising out of or based upon any untrue statement or
omission or allegation thereof based upon information relating to the Selling
Stockholder which was furnished in writing to the Company by the Selling
Stockholder specifically for inclusion in any preliminary prospectus, the
Registration Statement or the Prospectus; PROVIDED FURTHER, that with respect to
any untrue statement or omission or alleged untrue statement or omission made in
any preliminary prospectus, the indemnity agreement contained in this SUBSECTION
(a) shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased the shares
of Stock concerned (or to the benefit of any person controlling such
Underwriter) to the extent that any such loss, claim, damage or liability of
such Underwriter or controlling person results from the fact that a copy of the
Prospectus excluding documents incorporated by reference therein was not sent or
given to such person at or prior to the written confirmation of the sale of such
shares of Stock to such person as required by the Act, and if the untrue
statement or omission concerned has been corrected in the Prospectus. The
Company will be entitled to participate at its own expense in the defense, or,
if it so elects, to assume the defense of any suit brought to enforce any such
liability, but, if the Company elects to assume the defense, such defense shall
be conducted by counsel chosen by it and reasonably satisfactory to the
indemnified party. If the Company elects to assume the defense of any such suit
and retain such counsel, the
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Underwriter or Underwriters or controlling person or persons, defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Company shall have specifically
authorized in writing the retaining of such counsel, (ii) the parties to such
suit include such Underwriter or Underwriters or controlling person or persons,
and the Company and such Underwriter or Underwriters or controlling person or
persons have been advised by counsel that one or more legal defenses may be
available to it or them which may not be available to the Company, in which case
the Company shall not be entitled to assume the defense of such suit on the
Underwriter's behalf notwithstanding its obligation to bear the fees and
expenses of such counsel or (iii) the Company has not in fact employed counsel
to assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of the
Company. It is understood that the Company shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one additional
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. The Company shall not be liable to indemnify any
person for any settlement of any such claim effected without the Company's
written consent. This indemnity agreement will be in addition to any liability
that the Company might otherwise have.
(b) The Selling Stockholder agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages, liabilities or
expenses (including, unless such Selling Stockholder elects to assume the
defense, the reasonable cost of investigating and defending against any claims
therefor and counsel fees incurred in connection therewith), joint or several,
which may be based upon the Act, or any other statute or at common law, on the
ground or alleged ground that any preliminary prospectus, the Registration
Statement or the Prospectus (or any preliminary prospectus, the Registration
Statement or the Prospectus, as from time to time amended and supplemented)
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in conformity
with, written information furnished to the Company by any Underwriter, directly
or through the Representatives, specifically for use in the preparation thereof;
PROVIDED, HOWEVER, that such Selling Stockholder will not be liable with respect
to any claims made against any Underwriter or any such controlling person unless
such Underwriter or controlling person shall have notified such Selling
Stockholder in writing promptly after the summons or
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<PAGE>
other first legal process giving information of the nature of the claim shall
have been served upon such Underwriter or controlling person and shall have
included with such notice a copy of all papers served; however, failure to
provide timely notice shall only affect the right to indemnification hereunder
to the extent that such failure materially prejudices the Selling Stockholder in
such action; PROVIDED FURTHER, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this SUBSECTION (b) shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased the shares of Stock concerned
(or to the benefit of any person controlling such Underwriter) to the extent
that any such loss, claim, damage or liability of such Underwriter or
controlling person results from the fact that a copy of the Prospectus excluding
documents incorporated by reference therein was not sent or given to such person
at or prior to the written confirmation of the sale of such shares of Stock to
such person as required by the Act, and if the untrue statement or omission
concerned has been corrected in the Prospectus. The Selling Stockholder shall
be entitled to participate at his own expense in the defense, or, if he so
elects, to assume the defense of any suit brought to enforce any such liability,
but, if the Selling Stockholder elects to assume the defense, such defense shall
be conducted by counsel chosen by it and reasonably satisfactory to the
indemnified party. If the Selling Stockholder elects to assume the defense of
any such suit and retain such counsel, the Underwriter or Underwriters or
controlling person or persons, defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel unless
(i) such Selling Stockholder shall have specifically authorized in writing the
retaining of such counsel or (ii) the parties to such suit include such
Underwriter or Underwriters or controlling person or persons and such Selling
Stockholder and such Underwriter or Underwriters or controlling person or
persons have been advised by counsel that one or more legal defenses may be
available to it or them which may not be available to such Selling Stockholder,
in which case such Selling Stockholder shall not be entitled to assume the
defense of such suit on the Underwriter's behalf notwithstanding its obligation
to bear the fees and expenses of such counsel, or (iii) the Selling Stockholder
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the Selling Stockholder. It is understood
that the Selling Stockholder shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one additional firm admitted to
practice in such jurisdiction at any one time for such
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<PAGE>
indemnified party or parties. The Selling Stockholder shall not be liable to
indemnify any person for any settlement of any such claim effected without the
Selling Stockholder's prior written consent. This indemnity agreement will be
in addition to any liability that such Selling Stockholder might otherwise have.
(c) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act and the Selling Stockholder, and each of
its directors and officers, and each person, if any, who controls the Selling
Stockholder within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses (including, unless the Underwriter or Underwriters elect
to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, which may be based upon the Act, or any other statute or at
common law, on the ground or alleged ground that any preliminary prospectus, the
Registration Statement or the Prospectus (or any preliminary prospectus, the
Registration Statement or the Prospectus, as from time to time amended and
supplemented) includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in conformity with, written information furnished to the
Company by such Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; PROVIDED, HOWEVER, that in no
case is such Underwriter to be liable with respect to any claims made against
the Company or any person against whom the action is brought unless the Company
or such person shall have notified such Underwriter in writing promptly after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Company or such person and have included
with such notice a copy of all papers served, but failure to provide timely
notice shall not affect the right to indemnification hereunder except to the
extent that such failure prejudices the Underwriters in such action. Such
Underwriter shall be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if such Underwriter elects to assume the defense, such
defense shall be conducted by counsel chosen by it. If any Underwriter elects
to assume the defense of any such suit and retain such counsel, the Company,
said officers and directors and any other Underwriter or Underwriters or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, respectively,
unless (i) such Underwriter or Underwriters assuming the defense shall have
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<PAGE>
specifically authorized in writing the retaining of such counsel, (ii) the
parties to such suit include the Company, said officers and directors and any
other Underwriter or Underwriters or controlling person or persons, defendant or
defendants in the suit and the Company, said officers and directors and any
other Underwriter or Underwriters or controlling person or persons, defendant or
defendants have been advised by counsel that one or more legal defenses may be
available to it or them which may not be available to such Underwriter or
Underwriters assuming the defense, in which case such Underwriter or
Underwriters assuming the defense shall not be entitled to assume the defense of
such suit on behalf of the Company, said officers and directors and any other
Underwriter or Underwriters or controlling person or persons, or defendant or
defendant's notwithstanding its obligation to bear the fees and expenses of such
counsel, or (iii) the Underwriter or Underwriters assuming the defense have not
in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the Underwriters. It is understood that the
Underwriters shall not, in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one additional firm admitted to practice in such
jurisdiction at any one time for such indemnified party or parties. The
Underwriter against whom indemnity may be sought shall not be liable to
indemnify any person for any settlement of any such claim effected without such
Underwriter's consent. This indemnity agreement will be in addition to any
liability that such Underwriter might otherwise have.
(d) If the indemnification provided for in this SECTION 6 is
applicable by its terms but held to be unavailable to hold harmless an
indemnified party under SUBSECTION (a), (b) OR (c) above in respect of any
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to herein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other from the offering of the Stock. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholder on the one hand and the Underwriters on the other in connection with
the statements or omissions that
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<PAGE>
resulted in such losses, claims, damages, liabilities or expenses (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholder bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholder or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholder and the Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such claim.
Notwithstanding the provisions of this SUBSECTION (d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts
received by it except with respect to losses, claims, liabilities, expenses and
damages which are solely the result of information relating to any Underwriter,
furnished in writing to the Company by the Underwriters, expressly for inclusion
in the Registration Statement, Preliminary Prospectus or the Prospectus. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint. For purposes of this SECTION 6(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. No party will be
liable for contribution with respect to any action or claim settled without its
written consent. Notwithstanding the foregoing, nothing in this Agreement shall
affect the Company and the Selling Stockholder with respect to their rights and
obligations under that certain
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Indemnification and Contribution Agreement dated ___________, 1995.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Stockholder and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Underwriter, the Selling
Stockholder, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock and any
termination of this Agreement.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters hereunder to purchase the Firm Stock on
the First Closing Date and the Optional Stock on the Option Closing Date shall
be subject to the accuracy, at and (except as otherwise stated herein) as of the
date hereof and at and as of the First Closing Date or the Option Closing Date,
as the case may be, of the representations and warranties made herein by the
Company and the Selling Stockholder, to compliance in all material respects at
and as of such Closing Date by the Company and the Selling Stockholder with
their respective covenants and agreements herein contained and other provisions
hereof to be satisfied at or prior to such Closing Date, and to the following
additional conditions:
(a) The Registration Statement shall become effective not later than
1:00 P.M., New York Time, on the day following the date of this Agreement,
or such later date and time as may be agreed upon, and no stop order
suspending the effectiveness thereof, shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or the Representatives, threatened by the Commission, and
any request for additional information on the part of the Commission (to be
included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of the Commission, and
all filings required by Rule 424 of the Rules and Regulations and Rule 430A
shall have been made.
(b) Concurrently with the execution and delivery of this Agreement,
or, if the Company elects to rely on Rule 430A, on the date of the
Prospectus, the Accountants shall have furnished to the Representatives a
letter, dated the date of its delivery (confirmed by procedures performed
within five business days of the date of its delivery), addressed to the
Representatives and in form and substance satisfactory to the
Representatives, confirming that they
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are independent accountants with respect to the Company as required by the
Act and the Rules and Regulations and with respect to the financial and
other statistical and numerical information contained in the Registration
Statement or incorporated by reference therein. At the First Closing Date
and, as to the Optional Stock, the Option Closing Date, the Accountants
shall have furnished to the Representatives a letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance with
the procedures set forth in the letter from the Accountants, that nothing
has come to their attention during the period from the date of the letter
referred to in the prior sentence to a date (specified in the letter) not
more than five business days prior to the First Closing Date and the Option
Closing Date, as the case may be, that would require any change in their
letter dated the date hereof if it were required to be dated and delivered
at the First Closing Date and the Option Closing Date.
(c) The Representatives shall have received from Shereff, Friedman,
Hoffman & Goodman, counsel for the Company, an opinion, dated such Closing
Date, to the effect set forth in EXHIBIT I hereto. In rendering their
opinion, counsel to the Company may rely on the opinions of other counsel
upon which, in their opinion, they and the Representatives are justified in
relying.
(d) The Representatives shall have received from O'Melveny & Myers,
counsel for the Selling Stockholder, an opinion dated such Closing Date to
the effect set forth in EXHIBIT II hereto, and an opinion from corporate
counsel to the Selling Stockholder dated such Closing Date to the effect
set forth in EXHIBIT III hereto.
(e) The Representatives shall have received from Milbank, Tweed,
Hadley & McCloy, counsel for the Underwriters, their opinion or opinions
dated such Closing Date with respect to the incorporation of the Company,
the validity of the Stock, the Registration Statement and the Prospectus,
this Agreement and such other related matters as it may reasonably request,
and the Company and the Selling Stockholder shall have furnished to such
counsel such documents as they may request for the purpose of enabling them
to pass upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the Chief Executive Officer or the President and the Chief
financial or accounting officer of the Company to the effect that:
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(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(ii) Neither any preliminary prospectus, as of its date, nor the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, as of the time when the Registration Statement
became effective, included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as set forth or contemplated in the Prospectus, there has not been any
material adverse change in the condition (financial or otherwise),
business, prospectus or results of operations of the Company and its
subsidiaries considered as a whole; and
(iv) To the best knowledge of the signers, the representations
and warranties of the Company in this Agreement are true and correct
in all material respects at and as of such Closing Date, and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
such Closing Date in all material respects.
(g) The Representatives shall have received a certificate or
certificates, dated such Closing Date, of the Selling Stockholder to the
effect that as of such Closing Date its representations and warranties in
this Agreement are true and correct in all material respects as if made on
and as of such Closing Date, and that it has performed all its obligations
and satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
If any of the conditions hereinabove provided for in this Section
shall not have been satisfied when and as required by this Agreement, this
Agreement may be terminated by the Representatives by notifying the Company of
such termination in writing or by telegram at or prior to such Closing Date, but
the Representatives shall be entitled to waive any of such conditions.
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<PAGE>
9. EFFECTIVE DATE. This Agreement shall become effective at 11:00
A.M., New York Time, on the first full business day following the effective date
of the Registration Statement, or at such earlier time after the effective date
of the Registration Statement as the Representatives in their discretion shall
first release the Stock for offering to the public; PROVIDED, HOWEVER, that the
provisions of SECTIONS 5 AND 6 shall at all times be effective. For the
purposes of this SECTION 9, the Stock shall be deemed to have been released to
the public upon release by the Representatives of the publication of a newspaper
advertisement relating to the Stock or upon release of telegram or letters
offering the Stock for sale to securities dealers, whichever shall first occur.
10. TERMINATION. This Agreement (except for the provisions of
SECTION 5) may be terminated by the Company or the Selling Stockholder at any
time before it becomes effective in accordance with SECTION 9 by notice to the
Representatives and may be terminated by the Representatives at any time before
it becomes effective in accordance with SECTION 9 by notice to the Company. In
the event of any termination of this Agreement under this SECTION 10 or pursuant
to SECTION 8 OR 12 of this Agreement, there shall be no liability of any party
to this Agreement to any other party to this Agreement, other than as provided
in SECTIONS 5, 6 AND 11 and other than as provided in SECTION 12 as to the
liability of defaulting Underwriters, and except that, if any shares of Firm
Stock have been purchased hereunder, the representations and warranties in
SECTION 2 and covenants and agreements in SECTION 4 shall also remain in effect.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date or the Option Closing Date, as the case may be, trading in any of the
equity securities of the Company shall have been suspended by the Commission, by
an exchange that lists such securities or by the NASDAQ--National Market System
shall have been suspended, or trading in securities generally on the New York
Stock Exchange shall have been suspended or limited or minimum or maximum prices
shall have been generally established on such exchange, or a banking moratorium
shall have been declared by New York or United States authorities, (ii) if at or
prior to the First Closing Date or the Option Closing Date, as the case may be,
there shall have been any material adverse change in the political, financial or
economic conditions in the United States or an outbreak of hostilities between
the United States and any foreign power, or of any other insurrection or armed
conflict involving the United States, the effect of any of which is such to make
it, in the sole judgment of a majority in interest of the Underwriters including
the Representatives, impracticable to offer or sell the
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Firm Stock or the Optional Stock, as applicable in a public offering.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other
provisions hereof, if this Agreement shall not become effective by reason of any
election of the Company pursuant to the first paragraph of SECTION 10 or shall
be terminated by the Representatives under SECTION 8 or SECTION 10 (other than
pursuant to the first sentence of SECTION 10), the Company and the Selling
Stockholder on a pro rata basis will bear and pay the expenses specified in
SECTION 5 hereof and, in addition to their obligations pursuant to SECTION 6
hereof, the Company and the Selling Stockholder on a pro rata basis will
reimburse the reasonable out-of-pocket expenses of the several Underwriters
(including reasonable fees and disbursements of counsel for the expenses of the
Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company and the Selling
Stockholder on a pro rata basis will pay such amounts to you as Representatives.
12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall default in its or their obligations to purchase shares of Stock hereunder
on the First Closing Date or the Option Closing Date and the aggregate number of
shares that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares that the Underwriters
are obligated to purchase on such Closing Date, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares that such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than 10% of the total number of shares underwritten and arrangements
satisfactory to the Representatives and the Company and the Selling Stockholder
for the purchase of such shares by other persons are not made within 48 hours
after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or a part of the shares of Firm Stock of a
defaulting Underwriter or Underwriters as provided in this SECTION 12, (i) the
Company and the Selling Stockholder shall have the right to postpone the First
Closing Date for a period of not more than seven full business days, in order
that the Company and the Selling Stockholder may effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus that
may thereby be made necessary,
- 29 -
<PAGE>
and (ii) the respective numbers of shares to be purchased by the remaining
Underwriters or substituted underwriters shall be taken as the basis of their
underwriting obligation for all purposes of this Agreement. Nothing herein
contained shall relieve any defaulting Underwriter of its liability to the
Company, the Selling Stockholder or the other Underwriters for damages
occasioned by its default hereunder. Any termination of this Agreement pursuant
to this SECTION 12 shall be without liability on the part of any non-defaulting
Underwriter, the Selling Stockholder or the Company, except for expenses to be
paid or reimbursed pursuant to SECTION 5 and except for the provisions of
SECTION 6.
13. NOTICES. All communications hereunder shall be in writing and
shall be delivered by hand or facsimile and confirmed as follows: (i) if sent to
the Underwriters, to you, as their Representatives, c/o Dean Witter Reynolds
Inc. at Two World Trade Center, New York, New York 10048, Facsimile No: (212)
392-7614, except that notices given to an Underwriter pursuant to SECTION 6
hereof shall be sent to such Underwriter at the address furnished by the
Representatives, (ii) if sent to the Company, 5995 Plaza Drive, Cypress,
California 90630, Facsimile No: (714) 220-3725, Attention: President, with a
copy to Joseph Konowiecki, Esq., Konowiecki & Rank, 633 W. Fifth Street, Suite
3500, Los Angeles, California 90071, Facsimile No: (213) 229-0992, or (iii) if
to the Selling Stockholder, 4100 West Alameda Avenue, Burbank, California 91505,
Attention: Eric Benveniste, Facsimile No: (818) 566-7178.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Stockholder
and their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Stockholder contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Act, and the indemnities of the several
Underwriters shall also be for the benefit of each director of the Company, each
of its officers who has signed the Registration Statement and the person or
persons, if any, who control the Company or the Selling Stockholder within the
meaning of Section 15 of the Act.
- 30 -
<PAGE>
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS RULES THEREOF.
16. COUNTERPARTS. This Agreement may be executed by the parties
hereto in any number of separate counterparts, each of which when executed shall
be deemed to be an original and all of which, taken together, shall be deemed to
constitute one and the same Agreement.
17. AUTHORITY OF THE REPRESENTATIVES. In connection with this
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by you jointly or by Dean Witter Reynolds
Inc., as Representatives, will be binding on all the Underwriters; and any
action taken under this Agreement by any of the Attorneys-in-fact will be
binding on the Selling Stockholder.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action.
[Signature page follows]
- 31 -
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
PacifiCare Health Systems, Inc.
By:__________________________
Name:
Title:
UniHealth America
By:__________________________
Name:
Title:
Accepted and delivered in
New York, New York as of the
date first above written.
DEAN WITTER REYNOLDS INC.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
LEHMAN BROTHERS INC.
ROBERTSON, STEPHENS & COMPANY, L.P.
Acting on their own
behalf and as Representatives
of the several Underwriters
referred to in the foregoing
Agreement.
BY DEAN WITTER REYNOLDS INC.
By:___________________________
Authorized Signature
<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
SCHEDULES
Schedule A -- List of Underwriters and Firm Stock to be Purchased
Schedule B -- Selling Stockholder and Firm Stock to be Sold
Schedule C -- Statements of Selling Stockholder
Schedule D -- Subsidiaries
EXHIBITS
Exhibit I -- Opinion of Counsel to the Company
Exhibit II -- Opinion of Counsel to the Selling Stockholder
Exhibit III -- Opinion of Corporate Counsel to the Selling Stockholder
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Shares of
Firm Stock to
Name be Purchased
---- ------------
<S> <C>
Dean Witter Reynolds Inc.. . . . . . . . . . . . . . . .
Salomon Brothers Inc . . . . . . . . . . . . . . . . . .
Dillon, Read & Co. Inc.. . . . . . . . . . . . . . . . .
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . .
Robertson, Stephens & Co., L.P.. . . . . . . . . . . . .
------------
Total..................................................
4,500,000
------------
------------
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Shares of
Firm Stock
Selling Stockholder to be Sold
------------------- ----------
<S> <C>
UniHealth, Inc.. . . . . . . . . . . . . . . . . . . . . 1,500,000
-----------
Total................................................... 1,500,000
-----------
-----------
</TABLE>
<PAGE>
SCHEDULE C
STATEMENTS OF SELLING STOCKHOLDER
I. PRELIMINARY PROSPECTUS DATED FEBRUARY 22, 1995 AND THE FINAL PROSPECTUS
DATED MARCH ___, 1995
page 5 -- The line item that reads:
"Class B Common Stock offered by
the Selling Stockholder . . . . . . . 1,500,000 shares"
page 5 -- footnote (1) that reads:
"Currently, the Selling Stockholder owns 5,909,500 shares of Class A Common
Stock or 48.1 percent of the outstanding Class A Common Stock and 3,160,000
shares of the Class B Common Stock or 20.5 percent of the outstanding
Class B Common Stock. Upon completion of this offering, the Selling
Stockholder will own 5,909,500 shares of the Class A Common Stock or
48.1 percent of the outstanding Class A Common Stock and 1,660,000 shares
of the Class B Common Stock or 9.0 percent of the outstanding Class B
Common Stock. See "Principal and Selling Stockholder." "
page 15 -- Under "Principal and Selling Stockholder," the sentence that reads:
"Of the 4,500,000 shares of Class B Common Stock being offered, 1,500,000
shares of Class B Common Stock are being sold by the Selling Stockholder."
In the table near the top of the page, the classes of common stock, beneficial
ownership prior to the offering, shares sold in the offering and beneficial
ownership after the offering, as follows:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
CLASS OF PRIOR TO OFFERING PRIOR TO OFFERING
COMMON ----------------- -----------------
"STOCKHOLDER STOCK NUMBER PERCENT NUMBER PERCENT
---------------- ----- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
UniHealth, Inc. A 5,909,500 48.1 % 5,909,500 48.1 %
4100 West Alameda Ave B 3,160,000 20.5 % 1,160,000 9.0 %(1)
Burbank, CA 91505
<FN>
(1) If the Underwriters' over-allotment option is exercised in full, the
Selling Stockholder will own 985,000 shares of Class B Common Stock or 5.4
percent of the outstanding Class B Common Stock after completion of the
offering."
</TABLE>
- 1 -
<PAGE>
page 15 -- Following the table, the paragraphs which read:
"Currently, the Selling Stockholder owns 5,909,500 shares of the
Class A Common Stock, or 48.1 percent of all such shares outstanding, and
3,160,000 shares of the Class B Common Stock, or 20.5 percent of all such
shares outstanding. Combined, the Selling Stockholder owns 32.8 percent of
the total shares outstanding of the Company. Upon completion of this
offering of the Class B Common Stock, the Selling Stockholder will own
5,909,500 shares of the Class A Common Stock, or 48.1 percent of all such
shares outstanding, and 1,660,000 shares of the Class B Common Stock, or
9.0 percent of all such shares outstanding. Combined, the Selling
Stockholder will own 24.7 percent of the total shares outstanding of the
Company.
The Selling Stockholder is a California non-profit public benefit
corporation which is the parent corporation of an integrated health care
delivery system consisting of 10 non-profit medical centers and various
for-profit health care companies, including one company in the HMO
business. The Selling Stockholder's HMO, which is not federally qualified,
and certain of its operations compete with the Company, primarily in
California.
The Company purchases health care services from hospitals owned and
managed by the Selling Stockholder on terms the Company believes are at
least as favorable to the Company as would be available from unaffiliated
third parties. In addition, the Company pays a management fee to the
Selling Stockholder for certain services, including certain consulting
services, pays a fee to the Selling Stockholder for payroll processing and
reimburses the Selling Stockholder for the Company's share of joint
insurance purchasing. The Company anticipates paying fees to, and
purchasing services from, the Selling Stockholder in the future. Future
transactions between the Company and the Selling Stockholder will be on
terms no less favorable than could be obtained from unaffiliated third
parties.
Terry Hartshorn, President and Chief Executive Officer of the Selling
Stockholder, is the Chairman of the Board of PacifiCare. Gary L. Leary,
Executive Vice President, Chief Operating Officer and General Counsel,
director and Executive Committee member of the Selling Stockholder,
David R. Carpenter, director, Chairman of the Board, Chairman of the
Compensation, Executive and Nominating Committees of the Selling
Stockholder, and Jean Bixby Smith, a director of the Selling Stockholder,
are directors of the Company."
page 24 -- Under "Legal Matters," the sentence that reads:
"Certain legal matters related to the offering will be passed upon for the
Selling Stockholder by O'Melveny & Myers, Los Angeles, California."
II. THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1994.
page 24 -- Under "Notes to Consolidated Financial Statements -- The Reporting
Entity," the sentence of the first paragraph, which reads:
"UniHealth America ("UniHealth"), a California non-profit public
benefit corporation, owned approximately 48 percent and 21 percent of
the Company's outstanding shares of Class A and Class B Common Stock,
respectively, at September 30, 1994."
- 2 -
<PAGE>
III. THE COMPANY'S PROXY STATEMENT TO BE USED AT THE ANNUAL MEETING OF
SHAREHOLDERS HELD ON MARCH 1, 1995.
page 3 -- In the biographical information for David R. Carpenter, the discussion
of positions held with UniHealth America.
Also, the footnote following the table, which reads:
"UniHealth, Inc. is the single largest holder of the Company's Class A
and Class B Common Stock."
page 5 -- The last two paragraphs, which read:
"UniHealth, Inc. ("UniHealth") is a California non-profit public
benefit corporation, which is the parent corporation in a multi-state
health care delivery system consisting of eleven non-profit medical
centers and various for-profit health care companies, including one
company in the health maintenance organization business. UniHealth
has stated its intent to maintain voting control of the Company as its
single largest shareholder."
page 7 -- In the biographical information for Terry O. Hartshorn and Gary L.
Leary, the discussion of positions held with UniHealth.
page 20 -- Under "Certain Transactions" the first and second paragraphs, which
read:
"The Company and its subsidiaries purchased health care services from
hospitals owned and managed by UniHealth totaling $61,497,000 for the
fiscal year ended September 30, 1994. Under the terms of a management
arrangement with UniHealth, the Company paid $831,000 for management fees,
payroll processing services and other services in the fiscal year ended
September 30, 1994. At September 30, 1994, $251,000 was payable to
UniHealth."
"UniHealth purchased health care coverage from the Company and its
subsidiaries in the amount of $10,050,000 for the fiscal year ended
September 30, 1994. Amounts receivable from UniHealth were $1,000,000 at
September 30, 1994."
IV. THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER
31, 1994.
page 8 -- Under "Note 6 - Shareholders' Equity," the second paragraph, which
reads:
- 3 -
<PAGE>
"On December 13, 1993, UniHealth, Inc. ("UniHealth"), the Company's
largest shareholder, completed a public offering of 575,000 shares of the
Company's Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"). The Company did not receive any of the proceeds of this
offering. Subsequent to the offering, UniHealth's ownership of Class A
Common Stock was reduced to less than 50 percent."
- 4 -
<PAGE>
SCHEDULE D
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of Percentage Owned
Incorporation
Name of Subsidiary by Company or Organization
- ------------------ ------------------ ---------------
<S> <C> <C>
PacifiCare of
California 100% California
PacifiCare of
Florida, Inc. 100% Florida
PacifiCare of 100% Oklahoma
Oklahoma, Inc.
PacifiCare of 100% Oregon
Oregon, Inc.
PacifiCare of 100% Texas
Texas, Inc.
PacifiCare of
Washington 100% Washington
PacifiCare Behavioral
Health, Inc. 100% Delaware
LifeLink, Inc. 100%(1) California
PacifiCare Pharmacy
Centers, Inc. 100% California
California Dental
Health Plan, Inc. 100% California
__________
<FN>
(1) owned by PacifiCare Behavioral Health, Inc.
</TABLE>
<PAGE>
EXHIBIT I
OPINION OF COMPANY COUNSEL
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full corporate
power and authority to own its properties and to conduct its business as
described in the Registration Statement and Prospectus, and to execute and
deliver the Underwriting Agreement and to issue, sell and deliver the Stock to
be sold by the Company as therein contemplated.
2. Each of the subsidiaries of the Company is a corporation or
partnership, as applicable, and in the case of a corporation, validly existing
and in good standing under the laws of its jurisdiction of incorporation, with
full corporate or partnership, as applicable, power and authority to own its
respective properties and to conduct its business as described in the
Registration Statement and Prospectus.
3. To our knowledge after due inquiry and except as described in the
Registration Statement, in SCHEDULE D to the Underwriting Agreement or in the
opinions of local counsel attached hereto, all of the issued and outstanding
shares of capital stock or partnership interests, as applicable, of each of the
subsidiaries of the Company are owned by the Company directly or indirectly; all
of such shares have been duly authorized and validly issued and are fully paid
and non-assessable and all of such shares and partnership interests, as
applicable, are so owned free and clear of any pledge, lien, charge,
encumbrance, security interest or other claim; and there are no outstanding
rights, subscriptions, warrants, calls, preemptive rights, options or other
agreements of any kind with respect to the capital stock of any of the
subsidiaries of the Company.
4. To our knowledge none of the Company or its subsidiaries has any
interest in a joint venture or partnership, which interest requires disclosure
in the Registration Statement and which has not been so disclosed.
5. The Company and each of the subsidiaries is duly licensed or
qualified to do business and in good standing as a foreign corporation or
partnership, if applicable, in all jurisdictions in which the nature of the
activities conducted by it or the character of the assets owned or leased by it
makes such licensing or qualification necessary where the failure to be so
licensed or qualified is likely to have a material adverse effect on the
properties, assets, operations, business or financial condition of the Company
and its subsidiaries, taken as a whole.
<PAGE>
6. The Underwriting Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by the other persons party thereto, constitutes a valid and binding
agreement of the Company and is enforceable against the Company in accordance
with its terms, except as rights to indemnity and contribution may be limited by
federal or state securities laws and except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and subject to general principles of equity.
7. (A) The Stock being sold by the Company, when issued and
delivered to and paid for by the Underwriters, will be duly and validly
authorized and issued will be fully paid and nonassessable, and (B) the Stock
being sold by the Company when issued and delivered to and paid for by the
Underwriters, will be free of any pledge, charge, lien, encumbrance, security
interest, claim or statutory or contractual preemptive rights which have not
otherwise been waived or created by the Underwriters.
8. The Company has an authorized share capitalization as set forth
in the Registration Statement and the Prospectus; the outstanding shares of
capital stock of the Company (including the shares of Firm Stock or Optional
Stock delivered on the date hereof) have been duly and validly authorized and
issued and are fully paid, nonassessable and free of statutory and, to our
knowledge, contractual preemptive rights.
9. The capital stock of the Company, including the Stock, conforms
in all material respects to the description thereof contained in the
Registration Statement and Prospectus under the heading "Description of Capital
Stock"; the certificates for the Stock are in proper form under Delaware law;
and the holders of the Stock will not be subject to personal liability by reason
of being such holders.
10. No consent, approval, authorization, or order of, or any filings
or declaration with, any court or governmental agency or body is required for
the consummation by the Company of the transactions on its part contemplated in
the Underwriting Agreement in connection with the purchase and distribution by
the Underwriters of the Stock to be sold by the Company, except such as have
been obtained under the Act or the Rules and Regulations, and except such as may
be required under foreign or state securities or Blue Sky laws or the by-laws
and rules of the NASD.
11. The execution, delivery and performance of the Underwriting
Agreement by the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not conflict with or result in any breach
of, or constitute a default under (nor constitute any event which with notice,
lapse
- 2 -
<PAGE>
of time, or both, would constitute a breach of, or default under), (A) any
provision of the charter or by-laws of the Company or any of its subsidiaries or
under any provision of any material license, indenture, mortgage, deed of trust,
bank loan, credit agreement or other agreement or instrument to which, to our
knowledge after due inquiry, the Company or any of its subsidiaries is a party
or by which any of them or their respective properties may be bound or affected,
or (B) any federal, state, local or foreign law, rule or regulation or, to our
knowledge after due inquiry, any judgment, order or decree applicable to the
Company or any of its subsidiaries, where such conflict, breach or default is
likely to have a material adverse effect on the properties, assets, operations,
business or financial condition of the Company and its subsidiaries, taken as a
whole.
12. To our knowledge after due inquiry, there are no actions, suits
or proceedings pending or threatened against the Company or any of its
subsidiaries or any of their respective properties, at law or in equity or
before or by any Federal or state, court, commission, board, regulatory body,
authority, agency or other governmental body, domestic or foreign, which are
required to be described in the Registration Statement and Prospectus, but are
not so described or which, in our opinion, are likely to have a material adverse
effect on the properties, assets, operations, business or financial condition of
the Company and its subsidiaries, taken as a whole.
13. To our knowledge after due inquiry, neither the Company nor any
of its subsidiaries is in breach of, or in default under (nor has any event
occurred which with notice, lapse of time, or both would constitute a breach of,
or default under) any license, indenture, mortgage, deed of trust, bank loan,
credit agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which any of them or their respective
properties is bound or affected where such default is likely to have a material
adverse effect on the properties, assets, operations, business or financial
condition of the Company and its subsidiaries, taken as a whole. To our
knowledge after due inquiry, the Company and each of its subsidiaries have all
necessary licenses, authorizations, consents, permits and approvals and have
made all necessary filings required under any federal, state, local or foreign
law, regulation or rule and have obtained all necessary authorizations,
consents, permits and approvals from other persons in order to conduct their
respective businesses as described in the Registration Statement and the
Prospectus, the absence of which is likely to have a material adverse effect on
the properties, assets, operations, business or financial condition of the
Company and its subsidiaries, taken as a whole, and neither the Company nor any
of its subsidiaries is in
- 3 -
<PAGE>
violation of, or in default under, any license, authorization, consent, permit
or approval or any law, regulation or rule or any decree, order or judgment
applicable to the Company or its subsidiaries where such default is likely to
have a material adverse effect on the properties, assets, operations, business
or financial condition of the Company and its subsidiaries, taken as a whole.
14. PacifiCare of California, PacifiCare of Oregon, Inc., PacifiCare
of Oklahoma, Inc. and PacifiCare of Texas, Inc. are duly qualified as health
maintenance organizations under the Health Maintenance Organization Act of 1973,
as amended, and the rules and regulations of the Department of Health and Human
Services promulgated thereunder; PacifiCare of California is licensed and
authorized to operate a prepaid health care service plan and California Dental
Health Plan, Inc. and LifeLink, Inc. are prepaid specialized health care service
plans in the State of California pursuant to the Knox-Keene Health Care Service
Plan Act of 1975, as amended; PacifiCare of Florida, Inc. is licensed as a
health maintenance organization in the State of Florida by the Florida
Department of Insurance; PacifiCare of Oregon, Inc. has been issued a current
certificate of authority by the Oregon Department of Insurance and Finance
authorizing it to operate in Oregon as a domestic health care service
contractor; PacifiCare of Texas, Inc. is qualified and licensed in the State of
Texas as a health maintenance organization; PacifiCare of Oklahoma, Inc. is duly
qualified and licensed in the State of Oklahoma as a health maintenance
organization under the Oklahoma Health Maintenance Organization Act, Okla. Stat.
Tit. 63 Section 2502 ET SEQ.; PacifiCare of Washington, Inc. is qualified and
licensed as health maintenance organization under the Insurance Code of
Washington; PacifiCare Life and Health Insurance Company is duly licensed or
qualified as a life insurance company in the States of Indiana, California,
Texas, Oklahoma, Oregon and Washington; and the statements made in the
Registration Statement and the Prospectus under the caption "Business --
Government Regulation" are accurate in all material respects.
15. The descriptions in the Registration Statement and the Prospectus
of laws, regulations and rules, of legal and governmental proceedings and of
contracts, agreements, leases and other documents have been reviewed by us and
are accurate in all material respects.
16. The Registration Statement and the Prospectus (except for the
documents incorporated by reference in the Registration Statement and the
Prospectus and except as to the financial statements and schedules and other
financial data contained therein, as to which we express no opinion), and any
supplements or amendments thereto, comply as to form in all
- 4 -
<PAGE>
material respects with the requirements of the Act and the Rules and
Regulations.
17. The documents incorporated by reference in the Registration
Statement and the Prospectus, when they were filed (or, if an amendment with
respect to any such document was filed, when such amendment was filed) complied
as to form in all material respects with the Exchange Act and the Exchange Act
Rules and Regulations (except as to the financial statements and schedules
contained therein, as to which we express no opinion).
18. The Registration Statement has become effective under the Act,
and to the best of our knowledge, no proceeding suspending effectiveness of the
Registration Statement has been issued and no proceeding for that purpose has
been instituted or is threatened or pending.
19. To our knowledge after due inquiry, there is no document or
contract of a character required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed as required.
20. To our knowledge after due inquiry and except as described in the
Registration Statement, no person has the right, contractual or otherwise, to
cause the Company to issue to it, or register pursuant to the Act, any shares of
capital stock of the Company, upon the issue and sale of the Stock to the
Underwriters under the Underwriting Agreement, nor does any person have
preemptive rights with respect to the Stock, rights of first refusal with
respect to the Stock to be issued and sold by the Company, or other rights to
purchase any of the Shares to be issued and sold by the Company.
21. Neither the Company nor any of its subsidiaries is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
We have participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants of the Company and the Selling Stockholder and representatives of
the Underwriters at which the contents of the Registration Statement and the
Prospectus were discussed and, although we are not passing upon and do not
assume responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (except as
and to the extent stated in paragraphs 8, 9, 12, 15 and 19 above), on the basis
of the foregoing (relying as to materiality to a large extent upon the opinions
of officers and other representatives of the Company) nothing has come to our
attention that causes us to believe that the Registration
- 5 -
<PAGE>
Statement or any amendment thereto at the time such Registration Statement or
amendment became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus or any
supplement thereto at the date of such Prospectus or such supplement, and at all
times up to the date of this opinion letter contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are were made, not misleading (it being understood that we express no
opinion with respect to the financial statements and schedules and other
financial data included in the Registration Statement or the Prospectus).
- 6 -
<PAGE>
EXHIBIT II
OPINION OF SELLING STOCKHOLDER'S COUNSEL
FORM OF OPINION
OF SPECIAL COUNSEL TO THE
SELLING STOCKHOLDER
_____________, 1995
DEAN WITTER REYNOLDS INC.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
LEHMAN BROTHERS INC.
ROBERTSON, STEPHENS & COMPANY, L.P.
as Representatives of the
several U.S. Underwriters
c/o Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
Re: PacifiCare Health Systems, Inc.
-------------------------------
Ladies and Gentlemen:
We have acted as special counsel to UniHealth America, a California
non-profit public benefit corporation (the "Selling Stockholder"), in connection
with its sale of up to 2,175,000 shares of the Class B Common Stock, par value
$0.01 per share (the "Stock") of PacifiCare Health Systems, Inc. (the "Company")
to you pursuant to the terms of an Underwriting Agreement, dated _____________,
1995 (the "Underwriting Agreement"), by and among the Representatives identified
above (the "Representatives") of the Underwriters listed on Schedule A thereto
(the "Underwriters"), the Company and the Selling Stockholder. This opinion is
being delivered to you pursuant to Section 7(f) of the Underwriting Agreement.
Unless otherwise defined herein or unless the context otherwise requires, the
capitalized terms appearing in this letter shall have the meanings ascribed to
them in the Underwriting Agreement.
In our capacity as special counsel to the Selling Stockholder, we have
examined originals or copies of the Underwriting Agreement, such corporate
records of the Selling
<PAGE>
Stockholder, certificates of public officials and of officers of the Selling
Stockholder, and other documents as we have deemed necessary for the purpose of
this opinion.
On the basis of such examination and our consideration of such
questions of law as we have deemed relevant in the circumstances, we are of the
opinion, subject to the assumptions and limitations set forth herein, that:
1. The Selling Stockholder has full legal right and power to enter
into the Underwriting Agreement and to sell, transfer and deliver the Stock as
contemplated by the Underwriting Agreement. Upon payment for and delivery of
the Stock with all necessary endorsements in accordance with the terms of the
Underwriting Agreement, and assuming the Underwriters are acquiring the Stock in
good faith without notice of any adverse claim, the Underwriters will be the
owners of the Stock, free and clear of any adverse claim.
2. The Underwriting Agreement has been duly authorized by all
necessary corporate action on the part of the Selling Stockholder and has been
duly executed and delivered by the Selling Stockholder. The Underwriting
Agreement is a legally valid and binding obligation of the Selling Stockholder,
enforceable against the Selling Stockholder in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or affecting creditors' rights
generally, and except that we express no opinion as to the availability of
equitable remedies.
3. No consent, order or approval of, or, except as specified on
Schedule I hereto, any filing or declaration with, any court or governmental
agency or body is required on the part of the Selling Stockholder for the sale
of the Stock by the Selling Stockholder to the Underwriters, except such as have
been obtained under the Act or the Rules and Regulations, and such as may be
required under state securities or blue sky laws or the bylaws and rules of the
NASD in connection with the purchase and distribution by the Underwriters of the
Stock.
4. There are no transfer or similar taxes payable in connection with
the sale and delivery of the Stock by the Selling Stockholder to the
Underwriters, except for the tax payable pursuant to Article 12 of the New York
State Tax Law (Tax on Transfers of Stock and Other Corporate Certificates).
We have, with your approval, assumed that the certificates for the
Stock conform to the specimen examined by us, that the signatures on all
documents examined by us are genuine, that all items submitted as originals are
authentic,
- 2 -
<PAGE>
that all items submitted as copies conform to the originals, and that you are
authorized to execute and deliver and did execute and deliver the Underwriting
Agreement on behalf of the Underwriters, assumptions that we have not
independently verified.
The opinions expressed herein are limited to the federal laws of the
United States and the laws of the States of California and New York, and we
express no opinion regarding any other law.
This opinion furnished by us as special counsel to the Selling
Stockholder to you as Representatives of the Underwriters in connection with the
sale of the Stock, is solely for your benefit and may not be relied upon by, nor
may copies be delivered to, any other person without our prior written consent.
Respectfully submitted,
- 3 -
<PAGE>
EXHIBIT III
FORM OF OPINION OF CORPORATE
COUNSEL TO THE SELLING STOCKHOLDER
The execution, delivery and performance of the Underwriting Agreement
by the Selling Stockholder and the consummation by the Selling Stockholder of
the transactions therein contemplated do not and will not result in the creation
or imposition of any lien, charge or encumbrance upon any of the assets of the
Selling Stockholder pursuant to the terms or provisions of, or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or result in the acceleration of any obligation under, the
organizational documents of the Selling Stockholder, any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other agreement
or instrument known to us to which the Selling Stockholder is a party or by
which it or any of its properties is bound or affected, or under any ruling,
decree, judgment, order, statute, rule or regulation of any court or other
governmental agency or body having jurisdiction over the Selling Stockholder or
the property of the Selling Stockholder (except that we express no opinion with
respect to the securities or Blue Sky laws of any jurisdiction other than the
United States). All authorizations and consents (other than authorizations and
consents of courts or governmental agencies or bodies) necessary for the
execution and delivery of the Underwriting Agreement on behalf of the Selling
Stockholder have been given.
<PAGE>
(LETTERHEAD)
EXHIBIT 5.1
February 22, 1995
PacifiCare Health Systems, Inc.
5995 Plaza Drive
Cypress, California 90630-5230
Gentlemen:
On the date hereof, PacifiCare Health Systems, Inc., a Delaware corporation
(the "Company"), intends to transmit for filing with the Securities and Exchange
Commission, a Registration Statement on Form S-3 (the "Registration Statement"),
relating to the sale of up to 5,175,000 shares (the "Shares") of Class B Common
Stock, par value $0.01 per share ("Class B Common Stock"), of the Company
(including 675,000 shares subject to the underwriters' over-allotment option),
of which 3,000,000 shares will be issued and sold by the Company and up to
2,175,000 shares will be sold by UniHealth, Inc. (the "Selling Stockholder").
This opinion is an exhibit to the Registration Statement.
We note that we are members of the Bar of the State of New York and do not
represent ourselves to be expert in the laws of any other state or jurisdiction.
Insofar as this opinion may involve the laws of the State of Delaware, our
opinion is based solely upon our reading of the Delaware General Corporation Law
as reported in the Prentice-Hall Corporation Law Service; provided, however,
that our opinion as to the due incorporation of the Company is based upon a
Certificate of Good Standing obtained from the Secretary of State of the State
of Delaware. We have at times acted as special securities counsel to the Company
in connection with certain corporate and securities matters, and in such
capacity we have participated in various corporate and other proceedings taken
by or on behalf of the Company in connection with the proposed offer and sale by
the Company and the Selling Stockholder of the Class B Common Stock as
contemplated by the Registration Statement. We have examined copies (in each
case signed, certified or otherwise proven to our satisfaction to be genuine) of
the Company's Certificate of Incorporation and all amendments thereto, its
By-Laws as presently in effect, minutes and other instruments evidencing actions
taken by its directors and stockholders, the Registration Statement and exhibits
thereto and such other documents and instruments relating to the Company and the
proposed offering as we have deemed necessary under the circumstances.
Based on the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly existing under
the laws of the State of Delaware and has authorized capital stock
consisting of 30,000,000 shares of Class A Common Stock, par value $.01 per
share, 60,000,000 shares of Class B Common Stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $1.00 per share.
2. The 3,000,000 shares of the Company's Class B Common Stock to be sold
by the Company have been duly authorized and, subject to the
effectiveness of the Registration Statement and compliance with applicable
securities or other laws of various states of the United States and foreign
jurisdictions in which the Shares will be offered and/or sold in the
proposed public offering, when issued and delivered against payment therefor
in accordance with the terms set forth in the Registration Statement, will
be legally issued, fully paid and nonassessable.
3. The maximum of 2,175,000 outstanding shares of the Company's Class B
Common Stock to be sold by the Selling Stockholder have been duly
authorized and legally issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any application under the securities
or other laws of any state of the United States or any foreign
<PAGE>
jurisdiction, which relates to the offering which is the subject of this
opinion, and to the reference to this firm appearing under the heading "Legal
Matters" in the prospectus which is contained in the Registration Statement.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes, except as expressly provided in the
preceding paragraph. This opinion is as of the date hereof and we disclaim any
undertaking to update this opinion after the date hereof.
Very truly yours,
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
<PAGE>
EXHIBIT 10.1
February , 1995
UniHealth, Inc.
4100 West Alameda
Burbank, California 91505
Gentlemen:
On February , 1995, PacifiCare Health Systems, Inc. ("PacifiCare") filed
with the Securities and Exchange Commission a Registration Statement on Form S-3
(the Registration Statement and the Prospectus contained therein, and any
Amendment or Post-Effective Amendment to the Registration Statement and the
Prospectus contained in any such Amendment or Post-Effective Amendment are
hereinafter referred to as the "Registration Statement") relating to the
proposed offering and sale by PacifiCare of up to [3,000,000] shares of the
Class B common stock of PacifiCare and the proposed offering and sale by
UniHealth, Inc. ("UniHealth") of up to [2,175,000] shares (including [675,000]
shares subject to the Underwriters' over-allotment option) of the Class B common
stock of PacifiCare (collectively, the "Shares").
In order to provide an equitable method for allocating any liabilities and
costs that arise in connection with the offering or sale of Shares under the
Registration Statement, PacifiCare and UniHealth have agreed as follows:
1. UniHealth and PacifiCare shall contribute proportionally, based upon
the net proceeds, after deducting underwriting discounts and commissions,
received by each of them from the sale of Shares (including shares subject
to the Underwriters' over-allotment option) under the Registration
Statement, to the total losses, claims, damages, expenses and liabilities,
joint or several, including (unless otherwise provided in paragraph 2 below)
reasonable attorneys' fees (collectively, "Liabilities"), to which UniHealth
and PacifiCare, and the officers and directors of UniHealth and PacifiCare,
respectively, and each person, if any, who controls UniHealth or PacifiCare,
within the meaning of Section 15 of the Securities Act of 1933, as amended
(the "Act"), or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any of them, may become subject under the
Act, the Exchange Act or other Federal or state statutory law or regulation,
at common law or otherwise, insofar as such Liabilities (or actions in
respect thereof), arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or (ii) the omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; PROVIDED, HOWEVER, that:
(a) In the event UniHealth should receive more net proceeds from the
sale of the Shares than PacifiCare, then UniHealth and PacifiCare shall
contribute equally to any such Liabilities;
(b) UniHealth shall not be responsible to contribute under this
Agreement to any Liabilities which arise out of or are based upon any
untrue statement or omission or allegation thereof of a material fact in
the Registration Statement required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading if PacifiCare knew or could have
reasonably been expected to know, that such fact was untrue or omitted
prior to the effective date of the Registration Statement and UniHealth
did not know, and could not have reasonably been expected to know, that
such fact was untrue or omitted prior to the effective date of the
Registration Statement; and in such event, PacifiCare shall indemnify
UniHealth, its officers and directors and each person, if any, who
controls UniHealth within the meaning of Section 15 of the Act or Section
20 of the Exchange Act against any and all Liabilities which arise in
connection with the misstatement or omission of such fact in the
Registration Statement; and
(c) PacifiCare shall not be responsible to contribute under this
Agreement to any Liabilities which arise out of or are based upon any
untrue statement or omission or allegation thereof of a material fact in
the Registration Statement required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading if
<PAGE>
(i) UniHealth knew or could have reasonably been expected to know that
such fact was untrue or omitted prior to the effective date of the
Registration Statement and PacifiCare did not know, and could not have
reasonably been expected to know, that such fact was untrue or omitted
prior to the effective date of the Registration Statement, or (ii) such
Liabilities arise out of or are based upon an untrue statement or
omission or allegation thereof based upon information relating to
UniHealth which was furnished to PacifiCare by UniHealth specifically for
inclusion in the Registration Statement; and in either of such events,
UniHealth shall indemnify PacifiCare, its officers and directors and each
person, if any, who controls PacifiCare within the meaning of Section 15
of the Act or Section 20 of the Exchange Act against any and all
Liabilities which arise in connection with the misstatement or omission
of such fact in the Registration Statement. For purposes of this
Agreement, the statements referred to in Schedule I hereto constitute the
only information relating to UniHealth furnished to PacifiCare by
UniHealth specifically for inclusion in the Registration Statement.
Notwithstanding anything to the contrary contained in this paragraph 1,
UniHealth's maximum obligation for contribution or indemnification under this
paragraph 1 shall be limited to the proceeds receive by it from the sale of the
Shares.
2. Any party that proposes to assert the right to contribution or
indemnification under this Agreement will, promptly after receipt of notice
of commencement of any action against such party in respect of which a claim
is to be made against a contributing or indemnifying party, as the case may
be, under this Agreement, notify such indemnifying or contributing party of
the commencement of such action, enclosing a copy of all papers served;
provided, however, that the failure to provide timely notice shall not
affect the right to contribution or indemnification hereunder except to the
extent that such failure materially prejudices the indemnifying or
contributing party in such action. In the event that any action described in
the preceding sentence is commenced, the following provisions shall apply:
(a) If such action relates to Liabilities for which PacifiCare and
UniHealth are required to contribute proportionally (on the bases
described in paragraph 1 hereof) under this Agreement, PacifiCare will be
entitled, to the extent that it elects by delivering written notice to
UniHealth, to assume the defense of the action, with counsel reasonably
satisfactory to UniHealth, and UniHealth and PacifiCare shall contribute
proportionally (on the basis described in paragraph 1 hereof) to the
fees, expenses and other charges of such counsel. In the event that
PacifiCare elects to assume the defense of the action, UniHealth, any
officer or director of PacifiCare or UniHealth, or any person, if any who
controls PacifiCare or UniHealth, within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, will have the right to employ its
own counsel in any such action, but the fees, expenses and other charges
of such counsel will be at the expense of such party unless (i) the
employment of counsel by such party has been authorized in writing by
PacifiCare and (unless such party employing separate counsel is
UniHealth) UniHealth, (ii) such party has reasonably concluded (based on
advice of counsel) that there may be legal defenses available to it that
are different from or in addition to those available to PacifiCare, (iii)
a conflict or potential conflict exists (based on advice of counsel to
the party) between the party and PacifiCare (in which case PacifiCare
will not have the right to direct the defense of such action on behalf of
such party), or (iv) PacifiCare has not in fact employed counsel to
assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which
cases UniHealth and PacifiCare shall contribute proportionally (on the
bases described in paragraph 1 hereof) to the fees, expenses and other
charges of such second counsel. It is understood that neither UniHealth
nor PacifiCare shall, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one additional firm admitted
to practice in such jurisdiction at any one time for all such party or
parties. No party will be liable for contribution with respect to any
settlement of any action or claim effected without its written consent,
which consent shall not be unreasonably withheld.
(b) If any such action is brought against a party entitled to
indemnification under this Agreement, the indemnifying party will be
entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified
party, to assume the defense of the action, with counsel reasonably
satisfactory to the indemnified party, and the indemnifying party will
not be
<PAGE>
liable to the indemnified party for any legal or other expenses except as
provided below. The indemnified party will have the right to employ its
own counsel in any such action, but the fees, expenses and other charges
of such counsel will be at the expense of such indemnified party unless
(i) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (ii) the indemnified
party has reasonably concluded (based on advice of counsel) that there
may be legal defenses available to the indemnified parties that are
different from or in addition to those available to the indemnifying
party, (iii) a conflict or potential conflict exists (based on advice of
counsel to the indemnified party) between the indemnified party and the
indemnifying party (in which case the indemnifying party will not have
the right to direct the defense of such action on behalf of the
indemnified party), or (iv) the indemnifying party has not in fact
employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of
which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one
additional firm admitted to practice in such jurisdiction at any one time
for all such indemnified party or parties. An indemnifying party will not
be liable for any settlement of any action or claim effected without its
written consent, which consent shall not be unreasonably withheld.
3. UniHealth and PacifiCare shall cooperate with each other in all
reasonable respects in connection with the defense of any action or
proceeding which is the subject of a claim under this Agreement, including,
without limitation, making available for inspection by the other any
nonprivileged documents reasonably related to such action or proceeding and
making available to the other such employees having any information relating
to such action or proceeding.
4. UniHealth and PacifiCare shall pay proportionally (on the basis
described in paragraph 1 hereof) all expenses in connection with the
offering of the Shares, including, without limitation, underwriting fees,
reasonable fees and expenses of counsel to PacifiCare and UniHealth,
accounting fees and expenses of PacifiCare's independent auditors, Blue Sky
fees, printing, registration fees and all other expenses set forth in Part
II of the Registration Statement.
Please indicate your acceptance of the terms of this Agreement by your
signature.
PACIFICARE HEALTH SYSTEMS, INC.
By: __________________________________
UNIHEALTH, INC.
By: __________________________________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of PacifiCare Health
Systems, Inc. for the registration of 4,500,000 shares of its Class B Common
Stock and to the incorporation by reference therein of our report dated November
11, 1994, with respect to the consolidated financial statements and schedules of
PacifiCare Health Systems, Inc. included in its Annual Report (Form 10-K) for
the year ended September 30, 1994, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Los Angeles, California
February 21, 1995
