<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission only (as permitted
by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PHYSICIAN CORPORATION OF AMERICA
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
COMMON STOCK, $.01 PAR VALUE PER SHARE
2. Aggregate number of securities to which transaction applies:
37,794,657
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $7.00
4. Proposed maximum aggregate value of transaction: $264,562,599
5. Total fee paid: $52,913
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid: N/A
2. Form, Schedule or Registration Statement No.: N/A
3. Filing Party: N/A
4. Date Filed: N/A
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
6101 BLUE LAGOON DRIVE
MIAMI, FLORIDA 33126
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 8, 1997
To the Stockholders of Physician Corporation of America:
Notice is hereby given that a special meeting of the stockholders of
Physician Corporation of America (the "Company") will be held on Monday,
September 8, 1997, at 10:00 a.m., Miami time, at the offices of the Company,
located at 6101 Blue Lagoon Drive, Miami, Florida 33126 (the "Special
Meeting"), for the following purposes:
1. To consider and act on a proposal to adopt an Agreement and Plan of
Merger, dated as of June 2, 1997 (the "Agreement"), and approve the merger
described therein (the "Merger") providing for the merger of the Company and
HUMNOV, Inc., a Delaware corporation ("Humana Sub"), which is a wholly owned
subsidiary of Humana Inc., a Delaware corporation ("Humana"). As a result of
the Merger:
(a) The Company and Humana Sub will be merged, with the Company
being the surviving corporation and a wholly owned subsidiary of Humana;
and
(b) Each share of Common Stock of the Company outstanding at the
time the Merger becomes effective will be converted into the right to
receive $7.00 in cash (other than shares of Common Stock held by
stockholders, if any, who properly exercise their dissenters' rights of
appraisal under Delaware law and shares of Common Stock held by Humana
and its subsidiaries), as described in the accompanying Proxy Statement).
2. To consider and act on a proposal to approve an adjournment of the
Special Meeting to another time and/or place for the purpose of soliciting
additional proxies in the event that there are not sufficient votes at the
time of the Special Meeting to adopt the Agreement and approve the Merger.
3. To consider and act on any other business that may be properly
brought before the Special Meeting or any adjournment or postponement thereof.
The close of business on July 25, 1997, has been fixed as the record
date for the determination of stockholders entitled to receive notice of, and
to vote at, the Special Meeting and any and all adjournments or postponements
thereof. A list of stockholders of the Company entitled to vote at the
Special Meeting will be available for examination, during ordinary business
hours, at the principal executive offices of the Company, 6101 Blue Lagoon
Drive, Miami, Florida, for ten days prior to the Special Meeting.
Stockholders of the Company are entitled to assert dissenters' rights in
respect of the Merger pursuant to Section 262 of the General Corporation Law
of the State of Delaware.
By Order of the Board of Directors,
Jose M. Menendez
CORPORATE SECRETARY
Miami, Florida
August 8, 1997
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN PROMPTLY THE ENCLOSED
PROXY WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING.
<PAGE>
-- IMPORTANT --
If your shares are held in "street name," only your bank or broker can vote your
shares. Please contact the person responsible for your account and instruct him
or her to vote the proxy card as soon as possible.
If you have any questions or need further assistance in voting your shares,
please call Physician Corporation of America's proxy solicitor,
CORPORATE INVESTOR COMMUNICATIONS, INC.
(toll free) at 1-888-249-3343
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
6101 Blue Lagoon Drive
Miami, Florida 33126
__________
PROXY STATEMENT
__________
FOR A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 8, 1997
This Proxy Statement is furnished to stockholders of Physician
Corporation of America, a Delaware corporation (the "Company"), in connection
with the solicitation by the Board of Directors of the Company of proxies for
use at the Special Meeting of Stockholders of the Company to be held at the
time and place specified below and at any and all adjournments or
postponements thereof (the "Special Meeting").
The cost of soliciting proxies, including reasonable out-of-pocket
expenses incurred by banks, brokerage houses, nominees and fiduciaries and
other custodians in forwarding proxy material to beneficial owners, will be
borne by the Company. Directors, officers and regular employees of the
Company may solicit proxies personally, by telephone, by facsimile, by
telegraph or by other electronic means. Such directors, officers and
employees will receive no compensation for their solicitation services other
than their regular fees or salaries. The Company has retained Corporate
Investor Communications, Inc. to solicit proxies. The fees of such firm are
expected to be approximately $5,000 plus out-of-pocket expenses.
This Proxy Statement and the accompanying form of proxy are first being
mailed to stockholders of the Company on or about August 8, 1997.
DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. THE PROCEDURE
FOR THE EXCHANGE OF YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET FORTH
IN THIS PROXY STATEMENT. SEE "THE MERGER-PAYMENT FOR SHARES".
The Special Meeting will be held at the offices of the Company, located
at 6101 Blue Lagoon Drive, Miami, Florida 33126, on Monday, September 8,
1997, at 10:00 a.m., Miami time.
The purpose of the Special Meeting is to consider and act upon a
proposal to adopt the Agreement and Plan of Merger, dated as of June 2, 1997
(the "Agreement"), among Humana Inc., a Delaware corporation ("Humana"),
HUMNOV, Inc., a Delaware corporation and wholly owned subsidiary of Humana
("Humana Sub"), and the Company, and to approve the merger described therein
pursuant to which Humana Sub will be merged with and into the Company (the
"Merger"). See "Information Concerning Humana and its Affiliates". The
Agreement (omitting the disclosure schedules thereto) is attached hereto as
ANNEX A. For a description of the principal terms of the Agreement, see "The
Merger".
<PAGE>
As a result of the Merger, at the time the Merger becomes effective (the
"Effective Time"), (i) each share of Common Stock, $.01 par value per share,
of the Company (the "Common Stock") then outstanding (except those shares of
Common Stock as to which dissenters' rights, if any, shall have been properly
exercised under Delaware law and shares of Common Stock held by Humana and
its subsidiaries) will be converted into the right to receive $7.00 in cash
without any action on the part of the holder thereof and (ii) the Company
will become a wholly owned subsidiary of Humana. See "The Merger--Conversion
of Shares" and "The Merger-Dissenters' Rights". If the Agreement is adopted
and the Merger is approved by the Company's stockholders, subject to the
satisfaction or waiver of the other conditions set forth in the Agreement, it
is anticipated that the Merger will be consummated as promptly as practicable
following such approval, although there can be no assurance that all such
conditions will have been satisfied or waived by that time. See "The
Merger--Effective Time of the Merger, --Conversion of Shares and --Conditions
to the Merger".
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT YOU
VOTE FOR ADOPTION OF THE AGREEMENT AND APPROVAL OF THE MERGER. In reaching
its determination, the Board of Directors considered, among other things, the
opinion, dated June 2, 1997, of Bear, Stearns & Co. Inc. ("Bear Stearns"),
the Company's financial advisor, to the effect that the Merger is fair, from
a financial point of view, to the stockholders of the Company. The opinion
of Bear Stearns, dated as of the date of this Proxy Statement and
substantially similar to its opinion dated June 2, 1997, is included as ANNEX
B hereto and is incorporated herein by reference together with Bear Stearns'
consent, which is included as ANNEX C hereto. Stockholders are urged to read
the opinion in its entirety for further information respecting the
assumptions made, matters considered and limits of the review undertaken by
Bear Stearns. See "The Merger -- Reasons for the Merger; Recommendation of
the Board of Directors and --Opinion of Bear, Stearns & Co. Inc."
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT OR THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE SOLICITATIONS MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR HUMANA OR ANY OF
THEIR AFFILIATES. THIS PROXY STATEMENT DOES NOT CONSTITUTE A SOLICITATION OF
A PROXY IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH A SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT
SHALL NOT CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
INFORMATION SET FORTH HEREIN OR THE AFFAIRS OF THE COMPANY OR HUMANA SINCE
THE DATE OF THIS PROXY STATEMENT.
_________________________________________
The date of this Proxy Statement is August 8, 1997.
-ii-
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
Summary of Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting and Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Record Date; Voting at the Special Meeting; Required Vote . . . . . . 7
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . 7
Adjournment of the Special Meeting. . . . . . . . . . . . . . . . . . 8
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Background of the Transaction . . . . . . . . . . . . . . . . . . . . 9
Reasons for the Merger; Recommendation of the Board of Directors. . . 15
Opinion of Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . . . . 17
Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . 22
Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 22
Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Payment for Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Conduct of Business Pending the Merger. . . . . . . . . . . . . . . . 24
P&C Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Humana Option . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Amendment of Rights Agreement . . . . . . . . . . . . . . . . . . . . 28
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . . 28
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Expenses of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 31
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Breakup Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . 33
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 34
State Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . 35
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . 35
Source of Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Price Range of the Common Stock. . . . . . . . . . . . . . . . . . . . . . 36
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . 37
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . 38
Beneficial Ownership of Common Stock by Directors, Officers and Certain
Stockholders of the Company . . . . . . . . . . . . . . . . . . . . . . 39
Information Concerning Humana and its Affiliates . . . . . . . . . . . . . 40
Proxy Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Independent Certified Public Accountants . . . . . . . . . . . . . . . . . 40
Stockholder Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Incorporation of Certain Information by Reference. . . . . . . . . . . . . 41
Certain Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . 42
Annex A: Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . A-1
Annex B: Opinion of Bear, Stearns & Co. Inc.. . . . . . . . . . . . . . . B-1
Annex C: Consent of Bear, Stearns & Co. Inc.. . . . . . . . . . . . . . . C-1
Annex D: Section 262 of the General Corporation Law of the
State of Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
-iii-
<PAGE>
SUMMARY OF PROXY STATEMENT
The following is an accurate summary of the material provisions of
certain information contained elsewhere in this Proxy Statement. This
summary is qualified in its entirety by reference to the full text of this
Proxy Statement, the Annexes hereto and the documents incorporated by
reference herein.
GENERAL INFORMATION
Date, Time and Place of
Special Meeting . . . . . . Monday, September 8, 1997, at 10:00 a.m., Miami
time, at the offices of the Company, located at
6101 Blue Lagoon Drive, Miami, Florida 33126.
Record Date . . . . . . . . . July 25, 1997.
Purpose of Special Meeting. . To consider and act upon a proposal to (i) adopt
the Agreement and Plan of Merger dated June 2,
1997 (the "Agreement"), among Humana Inc., a
Delaware corporation ("Humana"), HUMNOV, Inc., a
Delaware corporation and wholly owned subsidiary
of Humana ("Humana Sub"), and Physician
Corporation of America, a Delaware corporation
(the "Company"), and (ii) approve the merger
described therein pursuant to which Humana Sub
will be merged with and into the Company (the
"Merger"). As a result of the Merger, each share
of common stock, par value $.01 per share, of the
Company (the "Common Stock") will be converted
into and become the right to receive $7.00 in
cash. Pursuant to the Merger, approximately
$265 million will be paid for the shares of Common
Stock (excluding the 1,043,000 shares of Common
Stock currently owned by Humana and its
subsidiaries), approximately $123 million of debt
of the Company will be assumed by Humana,
approximately $5 million will be paid for options
to purchase shares of Common Stock, approximately
$15 million will be paid for employee severance
costs and approximately $13 million will be paid
for other costs of Humana and the Company
associated with the Merger.
Vote Required . . . . . . . . Adoption of the Agreement and approval of the
Merger by the holders of a majority of the issued
and outstanding shares of Common Stock of the
Company is required. As of the Record Date, there
were 38,839,791 shares of Common Stock issued and
outstanding.
Ownership . . . . . . . . . . Directors and executive officers of the Company
beneficially own 4,950,374 shares of Common Stock
(approximately 12.4% of the outstanding Common
Stock). The directors and executive officers of
the Company have advised the Company that they
intend to vote the shares of Common Stock they
beneficially own in favor of the adoption of the
Agreement and the approval of the Merger.
Recommendation . . . . . . . THE BOARD OF DIRECTORS OF THE COMPANY HAS
UNANIMOUSLY APPROVED THE AGREEMENT AND THE MERGER
AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION
OF THE AGREEMENT AND APPROVAL OF THE MERGER.
-1-
<PAGE>
THE MERGER
Reasons for the Merger. . . . The Board of Directors has concluded that the
acquisition of the Company by Humana upon the
terms and subject to the conditions set forth in
the Agreement is fair to, and in the best
interests of, the Company's stockholders. See
"The Merger--Reasons for the Merger;
Recommendation of the Board of Directors".
Opinion of Financial
Advisor. . . . . . . . . . . The Company retained Bear, Stearns & Co. Inc.
("Bear Stearns") to act as its financial advisor
in connection with a possible business
combination. On June 2, 1997, Bear Stearns
rendered to the Company its written opinion to the
effect that, as of such date and based upon and
subject to the factors, assumptions and
qualifications set forth therein, the Merger was
fair, from a financial point of view, to the
stockholders of the Company. The opinion was
updated as of the date of this Proxy Statement.
The full text of the Bear Stearns opinion dated
the date of this Proxy Statement, which sets forth
the assumptions made, the matters considered and
the limits of review undertaken by Bear Stearns,
is attached as ANNEX B to this Proxy Statement, is
incorporated herein by reference and should be
read in its entirety. See "The Merger--Opinion of
Bear, Stearns & Co., Inc."
Effective Time of the
Merger . . . . . . . . . . . If the Agreement is adopted and the Merger is
approved by the stockholders of the Company at the
Special Meeting, the Merger is expected to become
effective as promptly as practicable thereafter,
subject to the satisfaction or waiver of the other
conditions to the Agreement. See "The
Merger--Effective Time of the Merger and
--Conditions to the Merger".
Conversion of Shares and
Surrender of Stock
Certificates . . . . . . . . Each share of Common Stock outstanding at the time
(the "Effective Time") the Merger becomes
effective (except those shares of Common Stock as
to which dissenters' rights, if any, shall have
been properly exercised and those shares of Common
Stock held by Humana and its subsidiaries) will be
converted into the right to receive $7.00 in cash.
See "The Merger--Dissenters' Rights". Promptly
after the Effective Time, a form letter of
transmittal and instructions will be mailed to
each person who was, immediately prior to the
Effective Time, a holder of record of issued and
outstanding shares of Common Stock for use in
surrendering his or her certificates representing
such shares of Common Stock. DO NOT SEND IN YOUR
CERTIFICATES UNTIL YOU RECEIVE THE LETTER OF
TRANSMITTAL.
Stock Options . . . . . . . . All employee and director options for the purchase
of shares of Common Stock (the "Options") will be
canceled by the Company at the Effective Time.
Holders of Options (whether or not exercisable at
the Effective Time) who are employees of the
Company at the Effective Time will be entitled to
receive a cash payment based upon a Black-Scholes
option pricing model specified in the Agreement if
they remain employees at the end of a specified
period (which varies from 6 months to 18 months
depending upon the employee) or if they are
terminated without cause or resign with cause
prior thereto. Holders of Options who are no
longer employees at the Effective Time or who are
non-employee directors will be entitled to receive
an amount (if any) equal to the product of (i) the
amount by which $7.00 exceeds the exercise
-2-
<PAGE>
price per share subject to the Option and (ii)
the number of shares subject to the Option
(whether or not such Option was exercisable at
the Effective Time). See "The Merger--Stock
Options".
Conditions to the Merger. . . Consummation of the Merger is subject to certain
conditions, including the accuracy of
representations and warranties (except where an
inaccuracy would not have a material adverse
effect on the breaching party), the performance in
all material respects of certain agreements and
obligations contained in the Agreement, the filing
of certain governmental notices and reports, the
receipt of certain governmental regulatory
approvals or consents, the adoption of the
Agreement and approval of the Merger by the
stockholders of the Company and the absence of any
injunction or other order that prevents the
consummation of the transactions contemplated by
the Agreement. See "The Merger--Conditions to the
Merger".
Dissenters' Rights . . . . . Stockholders have the right, in lieu of
receiving $7.00 in cash for their shares of
Common Stock, to demand payment of the fair
value for their shares of Common Stock if the
Merger is consummated, provided such holders do
not vote for adoption of the Agreement and
approval of the Merger and certain procedures
are followed (including the requirement that
any stockholder wishing to exercise such right
must deliver a written demand for appraisal to
the Corporate Secretary of the Company before
the vote is taken to adopt the Agreement and
approve the Merger). Failure by a stockholder
to take any necessary steps may result in a
termination or waiver of the dissenters' rights
of such stockholder. See "The
Merger--Dissenters' Rights" and ANNEX D to this
Proxy Statement.
Amendment . . . . . . . . . . The Agreement may be amended or modified at any
time by an instrument in writing executed by each
of Humana, Humana Sub and the Company. However,
after the Merger is approved and the Agreement is
adopted by the stockholders of the Company, no
amendment to the Agreement that by law would
require the approval of the stockholders of the
Company may be made without such further approval.
Interests of Certain Persons
in the Merger . . . . . . . In considering the recommendation of the Board
of Directors of the Company with respect to the
Agreement and the Merger, stockholders should
be aware that certain members of the management
of the Company and the Board of Directors of
the Company have certain interests in the
Merger that are in addition to the interests of
stockholders of the Company generally
(including, without limitation, benefits of up
to approximately $5 million in the aggregate
that may be received by the executive officers
of the Company under Salary Continuation
Agreements, consulting or non-compete
agreements and cancellation of stock options as
provided for in the Agreement and the payment
of up $250,000 to one non-employee director).
See "The Merger--Stock Options" and "Interests
of Certain Persons in the Merger".
Breakup Fee . . . . . . . . . Pursuant to the Agreement, the Company has agreed
to pay Humana $17 million in cash, plus documented
expenses not to exceed $1.5 million, if (x) a
person makes an Alternative Proposal (as defined
below) for the Company and thereafter either
(i) the Company
-3-
<PAGE>
terminates the Agreement in accordance with its
terms by reason of such Alternative Proposal or
(ii) Humana or the Company terminates the
Agreement by reason of the stockholders of the
Company not adopting the Agreement and
approving the Merger at the Special Meeting or
(y) Humana terminates the Agreement by reason
of the Board having withdrawn or modified in a
manner adverse to Humana its approval or
recommendation of the Agreement or the Merger
or recommending an Alternative Proposal to the
Company's stockholders. In addition, if the
Agreement is terminated for any other reason
(other than by reason of a breach of the
representations and warranties of Humana or
Humana Sub or the failure of Humana or Humana
Sub to comply with their obligations under the
Agreement) and within 12 months thereafter any
Alternative Proposal is consummated, the
Company has agreed to pay Humana the lesser of
(i) $17 million or (ii) 3.5% of the aggregate
value of the other business combination, plus
documented out-of-pocket expenses incurred by
Humana in connection with the Agreement not to
exceed $1.5 million. An "Alternative Proposal"
is defined in the Agreement as any merger,
acquisition, consolidation or similar
transaction involving, or any purchase of all
or any significant portion of the assets or any
equity securities of, the Company or any of its
Subsidiaries. See "The Merger--Breakup Fee".
P&C Arrangement . . . . . . . On February 25, 1997, the Florida Department of
Insurance (the "Florida Department") instituted
receivership proceedings with respect to PCA
Property & Casualty Insurance Company, a
subsidiary of the Company ("P&C"), due to its
deficit as of December 31, 1996, of approximately
$121 million under generally accepted accounting
principles. In connection with the execution of
the Agreement, the Company, P&C and PCA Solutions,
Inc., a wholly owned subsidiary of the Company,
entered into four interrelated agreements with
Centre Reinsurance Company of New York and an
affiliate related to reinsurance, claims run-off
administration and investment management.
Concurrently, Humana deposited $15 million in an
escrow account for the benefit of P&C (which
deposit is required be returned to Humana except
if the Merger is not consummated under certain
specified circumstances). Based on the foregoing,
the Florida Department agreed not to proceed with
receivership proceedings provided certain
conditions are met and the Merger occurs no later
than October 31, 1997. See "The Merger--P&C
Arrangement".
The Humana Option . . . . . . In consideration for depositing $15 million in an
escrow account for the benefit of P&C, the Company
granted Humana an option to purchase for $0.01 per
share a number of shares of Common Stock equal to
$15 million divided by 70% of the average closing
prices of the Common Stock for the five trading
days immediately prior to the exercise of the
option. The Company has the right to cancel the
option at any time by paying Humana $15 million
plus interest from the date of the deposit. See
"The Merger--The Humana Option".
Termination . . . . . . . . . The Agreement may be terminated at any time prior
to the closing of the transactions contemplated
thereby by mutual consent of the Company and
Humana, or by either the Company or Humana if the
Merger shall not have been consummated by October
31, 1997, or if the stockholders of the Company do
not adopt the Agreement and approve the Merger at
the Special Meeting. Either the Company or Humana
may terminate the Agreement if the other has
materially breached a representation,
-4-
<PAGE>
warranty or covenant contained in the Agreement
and such breach is not cured after notice. In
addition, the Company may terminate the
Agreement if a third party makes a business
combination proposal which is a "Superior
Proposal" (as defined in "The
Merger--Termination"), the Board determines in
good faith after consultation with its outside
counsel that the failure to approve such offer
would not be consistent with the Board's
fiduciary duties to stockholders and Humana is
given five business days to modify the
Agreement so that the other proposal would no
longer constitute a Superior Proposal. Humana
may also terminate the Agreement if the Board
shall have withdrawn or modified in a manner
adverse to Humana its approval or
recommendation of the Agreement or the Merger
or shall have recommended an Alternative
Proposal to the stockholders. See "The
Merger--Termination".
Certain Federal Income Tax
Considerations . . . . . . . The receipt of cash for shares of Common Stock
pursuant to the Merger (including pursuant to the
exercise of dissenters' rights) will be a taxable
transaction for federal income tax purposes and
may also be a taxable transaction under applicable
foreign, state, local and other income tax laws.
ALL STOCKHOLDERS SHOULD CAREFULLY READ THE
DISCUSSION UNDER "THE MERGER--CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS".
Regulatory Approvals . . . . The consummation of the Merger is subject to,
among other approvals, the prior approval of the
Florida Department, the Texas Department of
Insurance and the Office of the Commissioner of
Insurance of Puerto Rico, and the applicable
Medicaid governmental departments in Florida,
Texas and Puerto Rico. The expiration of the
waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended,
has occurred. See "The Merger--Regulatory
Approvals".
-5-
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present for the periods indicated certain
consolidated historical financial and other data for the Company. The
information included therein should be read together with "Selected
Consolidated Financial Data" and the financial information incorporated by
reference in this Proxy Statement. See "Incorporation of Certain Information
by Reference". The unaudited results as of and for the three months ended
March 31, 1997, are not necessarily indicative of the results that may be
expected for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DATA:(1)
Revenues. . . . . . . . . . . . . $359,551 $549,847 $824,729 $1,216,549 $1,454,308 $378,923 $365,484
Operating expenses. . . . . . . . 339,461 482,163 735,844 1,233,555 1,763,672 383,530 355,324
-------- -------- -------- ---------- ---------- -------- --------
Operating income (loss) . . . . 20,090 67,684 88,885 (17,006) (309,364) (4,607) 10,160
Gain on sale of subsidiaries. . . 5,917 -- -- -- 12,352 -- --
Interest expense. . . . . . . . . (2,058) (1,448) (2,107) (9,113) (13,738) (4,027) (5,203)
Other income (expense). . . . . . (36) (542) (31) 263 (2,216) 10 (15)
-------- -------- -------- ---------- ---------- -------- --------
Earnings (loss) before
income taxes. . . . . . . . . 23,913 65,694 86,747 (25,856) (312,966) (8,624) 4,942
Income tax expense
(benefit) . . . . . . . . . . . 9,476 25,600 34,200 (1,260) (35,281) (3,690) 319
-------- -------- -------- ---------- ---------- -------- --------
Net earnings (loss) . . . . . . $ 14,437 $ 40,094 $ 52,547 $ (24,596) $ (277,685) $ (4,934) $ 4,623
-------- -------- -------- ---------- ---------- -------- --------
-------- -------- -------- ---------- ---------- -------- --------
Net earnings (loss) per common
share and common equivalent
share on a primary and
fully diluted basis . . . . . . . $ 0.49 $ 1.12 $ 1.30 $ (0.62) $ (7.16) $ (0.13) $ 0.12
-------- -------- -------- ---------- ---------- -------- --------
-------- -------- -------- ---------- ---------- -------- --------
AT DECEMBER 31 AT MARCH 31
------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Working capital (deficit). . . . . . $(10,848) $ 73,125 $ 59,297 $ 77,167 $ (115,343) $ 5,722 $ (85,851)
Total assets . . . . . . . . . . . . 150,629 356,949 644,978 849,662 1,354,987 917,533 1,200,228
Long-term debt (net of
current maturities). . . . . . . . 9,837 4,414 82,997 157,096 10,344 139,364 9,746
Stockholders' equity (deficit)(2). . 30,993 185,942 243,548 210,169 (64,832) 202,894 (64,192)
</TABLE>
__________
(1) Certain 1992, 1993, 1994 and 1995 amounts have been reclassified to
conform with the 1996 presentation. These reclassifications have no
impact on net earnings (loss) or stockholders' equity as previously
reported.
(2) Includes $10,000 in put warrants in 1994.
<PAGE>
VOTING AND PROXIES
RECORD DATE; VOTING AT THE SPECIAL MEETING; REQUIRED VOTE
The Company has fixed July 25, 1997 as the record date (the "Record
Date") for the determination of the holders of Common Stock entitled to
notice of and to vote at the Special Meeting. Accordingly, only holders of
record of Common Stock on the Record Date will be entitled to notice of and
to vote at the Special Meeting. As of the Record Date, there were 38,839,791
shares of Common Stock outstanding and entitled to vote, which shares were
held in the aggregate by approximately 350 holders of record. Each holder of
record of Common Stock on the Record Date is entitled to cast one vote per
share of Common Stock on all matters properly submitted for the vote of the
Company's stockholders, exercisable in person or by properly executed proxy,
at the Special Meeting. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Special Meeting is necessary to constitute a quorum
at the Special Meeting.
The adoption of the Agreement and approval of the Merger by the
stockholders of the Company will require the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock entitled to vote
thereon. The affirmative vote of a majority of the shares of Common Stock
represented in person or by a properly executed proxy would be required to
approve any proposal to adjourn the Special Meeting to another time and/or
place for the purpose of soliciting additional proxies in the event that
there are not sufficient votes at the time of the Special Meeting to adopt
the Agreement and approve the Merger (the "Adjournment Proposal"). If an
executed proxy card is returned and the stockholder has abstained from voting
on any matter, the shares represented by such proxy will be considered
present at the meeting for purposes of determining a quorum but will not be
considered present for purposes of calculating the vote. If an executed
proxy card is returned by a broker holding shares of Common Stock in street
name that indicates that the broker does not have discretionary authority as
to certain shares to vote on the Agreement, such shares will be considered
present at the meeting for purposes of determining a quorum and for purposes
of calculating the vote, but will not be voted with respect to such matter.
Accordingly, abstentions and "broker non-voters" will have the same effect as
a vote against adoption of the Agreement and approval of the Merger.
Abstention from voting on the Adjournment Proposal would have the practical
effect of voting against the proposal since it is one less vote for approval.
Broker non-votes on the Adjournment Proposal would have no impact on that
proposal since they are not considered "shares present" for voting purposes.
As of the Record Date, the executive officers and directors of the
Company beneficially owned 4,950,374 shares of Common Stock (approximately
12.4% of the total outstanding Common Stock). The directors and executive
officers of the Company have advised the Company that they intend to vote the
shares of Common Stock beneficially owned by them in favor of the adoption of
the Agreement and the approval of the Merger. As of the Record Date, Humana
beneficially owned 1,043,000 shares of Common Stock.
VOTING AND REVOCATION OF PROXIES
All shares of Common Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, and
not revoked, will be voted at the Special Meeting in accordance with the
instructions indicated on such proxies. If no instructions are indicated,
such proxies will be voted for adoption of the Agreement, approval of the
Merger and approval of any Adjournment Proposal.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
(i) filing with the Corporate Secretary of the Company, at or before the
taking of the vote at the Special Meeting, a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a later-dated proxy
relating to the same shares and delivering it before the taking of the vote
at the Special Meeting or (iii) attending the Special Meeting and voting in
person (although attendance at the Special Meeting does not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Physician
Corporation of America, 6101 Blue Lagoon Drive, Miami, Florida 33126,
Attention: Corporate Secretary, or hand-delivered to the Corporate Secretary
of the Company at that address at or before the taking of the vote at the
Special Meeting.
-7-
<PAGE>
If a quorum is not obtained or if fewer shares are likely to be voted
for adoption of the Agreement and approval of the Merger than the number
required for adoption and approval, the Special Meeting may be adjourned for
the purpose of obtaining additional proxies or votes or for any other
purposes, and, at any subsequent reconvening of the Special Meeting, all
proxies will be voted in the same manner as such proxies would have been
voted at the original convening of the meeting (except for any proxies which
have theretofore effectively been revoked or withdrawn), notwithstanding that
they may have been effectively voted on the same or any other matter prior to
the adjournment.
ADJOURNMENT OF THE SPECIAL MEETING
If there are not sufficient votes to adopt the Agreement and approve the
Merger at the Special Meeting, such proposals could not be approved unless
the Special Meeting were adjourned to permit further solicitation of proxies
from the Company's stockholders. Proxies that are being solicited by the
Board grant the discretionary authority to vote for any such adjournment. If
it is necessary to adjourn the Special Meeting, no notice of the time and
place of the adjourned meeting is required to be given to the Company's
stockholders other than the announcement of such time and place at the
Special Meeting. The affirmative vote of at least a majority of the Common
Stock present or represented, in person or by proxy, and voting at the
Special Meeting is required to approve such adjournment, whether or not a
quorum is present at the Special Meeting. An adjournment of the Special
Meeting may be necessary because the limited time between the mailing of the
Proxy Statement and the Special Meeting may result in the lack of a quorum at
the Special Meeting. To obtain the requisite vote, it may be necessary to
adjourn the Special Meeting to solicit additional proxies.
If the Special Meeting is postponed or adjourned, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
Special Meeting (except for any proxies that have theretofore effectively
been revoked or withdrawn).
OTHER MATTERS
The principal executive offices of the Company are located at 6101 Blue
Lagoon Drive, Miami, Florida 33126. Its telephone number is (305) 267-6633.
At the date of this Proxy Statement, the Board of Directors of the
Company (the "Board") is not aware of any matter that may come before the
meeting, other than those described above. If any other matter is properly
presented to the meeting for action and the enclosed form of proxy is
returned, the individuals named in the proxy shall have discretionary
authority to vote such proxy on any such matter in accordance with their best
judgment.
As used in this Proxy Statement, the "Company" refers to either
Physician Corporation of America individually, or Physician Corporation of
America and its consolidated subsidiaries, as the context may require and
"Humana" refers to Humana Inc., individually, or Humana Inc. and its
consolidated subsidiaries, as the context may require.
The information contained in this Proxy Statement pertaining to the
Company and its affiliates was obtained from the Company, and the information
contained in this Proxy Statement pertaining to Humana and its affiliates was
obtained from Humana.
-8-
<PAGE>
THE MERGER
GENERAL
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE
AGREEMENT DESCRIBED BELOW ARE ACCURATE SUMMARIES OF THE MATERIAL PROVISIONS
OF CERTAIN PORTIONS OF THE AGREEMENT SET FORTH IN THIS PROXY STATEMENT, BUT
DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO AND QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE AGREEMENT, A COPY OF WHICH (OMITTING THE
DISCLOSURE SCHEDULES THERETO) IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX A.
On June 2, 1997, the Company, Humana and Humana Sub entered into the
Agreement, which sets forth the terms and conditions upon which the Merger is
to be effected. If the Agreement is adopted and the Merger is approved at
the Special Meeting and all other conditions to the obligations of the
parties thereto to consummate the Merger are satisfied or waived, Humana Sub
will be merged with and into the Company, which will be the surviving
corporation in the Merger. At the Effective Time, (i) without any action on
the part of the holders thereof, each outstanding share of Common Stock
(except those shares of Common Stock as to which dissenters' rights of
appraisal, if any, shall have been properly exercised under Delaware law and
shares of Common Stock held by Humana and the subsidiaries) will be canceled
and converted into and will represent the right to receive $7.00 in cash
(without interest), (ii) the Company will cause each employee and director
option to purchase shares of Common Stock (an "Option"), to be canceled and
each Option (whether or not such Option was exercisable at the Effective
Time) held by former employees at the Effective Time or non-employee
directors will be converted into the right to receive an amount in cash equal
to the product of (x) the amount by which $7.00 exceeds the exercise price
per share subject to the Option and (y) the number of shares subject to the
Option (provided that holders of options (whether or not exercisable at the
Effective Time) who are employees of the Company at the Effective Time will
be entitled to receive a cash payment based upon a Black-Scholes option
pricing model specified in the Agreement if they remain employees at the end
of a specified period (which varies from six months to 18 months depending on
the employee) or if they are terminated without cause or resign with cause
prior thereto, see "-- Stock Options") and (iii) the Company will become a
wholly owned subsidiary of Humana. See "The Merger--Effective Time of the
Merger and --Conversion of Shares" for information concerning the procedures
for submitting stock certificates and receiving cash.
BACKGROUND OF THE TRANSACTION
During the third quarter of 1995, the Company's Florida Medicaid premium
reimbursement rate decreased 18%. Because Florida Medicaid health premiums
represented approximately 26% of the Company's revenues, the premium rate
decrease resulted in a material decrease in the Company's operating earnings.
In addition, continued operating losses at the Company's HMO operations in
Alabama and Georgia and higher than expected medical and administrative
expenses at the Company's Florida HMO operations, due, in part, to the
expansion of the Medicare product line, contributed to the Company's earnings
decline. For the three months ended September 30, 1995, the Company reported
a net loss of $1.2 million compared to net income of $6.7 million for the
three months ended June 30, 1995. As a result of this earnings decrease, the
Board directed the management of the Company to develop and implement a
variety of cost cutting and profit enhancing measures. The Board also
consulted with Bear Stearns & Co. Inc., its financial advisor ("Bear
Stearns"), regarding alternatives available to the Company to enhance
stockholder value. In October 1995, the Company formally retained Bear
Stearns to act as its financial advisor in examining and potentially
implementing various strategic alternatives to enhance stockholder value.
During the course of Bear Stearns' engagement, the Board examined with Bear
Stearns the following strategic alternatives: (i) a high yield debt offering,
(ii) an investment by a financial investor, (iii) divestitures and/or asset
sales, (iv) an initial public offering by a subsidiary, (v) a leveraged
buyout, (vi) a leveraged recapitalization, (vii) a sale of the Company and
(viii) a merger of the Company. The evaluation of alternatives to enhance
stockholder value was undertaken continuously from October 1995 through the
third quarter of 1996 at which time the Board decided to pursue a merger of
the Company. At that time, the Board determined that a merger of the Company
would be in the best interests of the Company's stockholders, members,
medical providers and employees. For the three months and 12 months ended
December 31,
-9-
<PAGE>
1995, the Company reported a net loss of $36.5 million and $24.6 million,
respectively. Additionally, the Company incurred a $95.1 million net loss for
the nine months ended September 30, 1996.
In December 1995, the Board announced its intention to sell the
Company's HMO plans in Alabama and Georgia primarily due to (i) continued
operating losses at the plans, (ii) the high probability that neither state
would implement a Medicaid managed care program in the foreseeable future,
(iii) the decision by CHAMPUS to award its region 3 and 4 contract to Humana,
thereby negating the Company's primary strategic reason for having HMO
operations in these states and (iv) the need for cash by the Company to
satisfy its debt obligations. The Company requested Bear Stearns to assist
it in undertaking an auction process to solicit interest from potential
acquirors of the Alabama and Georgia HMO plans and, as a result of this
process, sold the two HMO plans in September 1996 to Health Partners of
Alabama, Inc. for approximately $23 million in cash and a three-year
non-competition agreement for $1.5 million to be paid over a two year period.
As a result of the sale of the Alabama and Georgia HMOs, the Company was
able to eliminate the operating losses from these HMOs subsequent to
September 1996 and repay approximately $17 million of outstanding bank debt.
In March 1996 the Board approved the sale of the Company's wholly-owned
physician clinic operations located in Florida. The Board, in conjunction
with management, determined that the sale of the Company's clinic operations
was in the best interests of the Company and its stockholders because of the
following benefits that would result from the sale: (i) cash proceeds could
be used to repay debt; (ii) the acquiror would most likely enter into a
long-term medical services risk contract with the Company's Florida HMO
operations at rates that were less than the Company's historical costs,
thereby improving the Company's predictability of medical costs by
transferring a substantial amount of underwriting risk associated with
approximately 85,000 HMO members to a third party; and (iii) certain
administrative costs could be reduced. The sale of the Company's clinic
operations was completed in June 1996 to FPA Medical Management, Inc. ("FPA")
for approximately $24.0 million consisting of stock and warrants of FPA and a
$15 million note that was paid in full in the third quarter of 1996. As a
result of the sale of the clinic operations, the Company was ultimately able
to repay approximately $24.5 million of its outstanding bank debt.
During the first quarter of 1996, the Company's Florida HMO operations
began to demonstrate an improvement in earnings (through a reduction in
operating losses), primarily resulting from the implementation of several
cost cutting measures by management. However, the rate of reduction in the
Company's operating losses was not of the magnitude that would assure the
Company's return to profitability prior to the Company becoming constrained
by the financial covenants contained in the Company's credit facility. As a
result of this assessment, the Board directed management and Bear Stearns to
continue the evaluation of strategic alternatives, including contacting
potential strategic parties that may have an interest in merging with the
Company, in order to enhance stockholder value. The Board also instructed
management to continue the implementation of the corrective measures
identified previously. During the first quarter of 1996, the Company, with
the assistance of Bear Stearns, prepared and delivered informational
documents to six entities, including Humana (collectively, the "1996
Interested Parties") that the Company and Bear Stearns deemed to have a
potential interest in a transaction with the Company. The 1996 Interested
Parties were engaged in the managed care industry and several had operations
that were in the same state or contiguous to a state in which the Company had
HMO operations. The 1996 Interested Parties had entered into confidentiality
agreements with the Company prior to receiving information from the Company.
Senior management of the Company held meetings with several of the 1996
Interested Parties at the Company's corporate offices as well as at the
corporate offices of some of the 1996 Interested Parties. These meetings and
discussions were held through October 1996.
In October 1996, Bear Stearns and management reviewed with the Board a
list of other potential parties that they believed may have had an interest
in merging with or acquiring the Company. Following this review, the Board
authorized Bear Stearns to contact these parties to determine their interest
in a transaction with the Company. On October 8, 1996, Sierra Health
Services, Inc. ("Sierra") presented to the Company and Bear Stearns potential
terms of a transaction with Sierra that would be subject to negotiation. On
October 16, 1996, representatives from Bear Stearns met with and informed the
Board that of the 1996 Interested Parties, four parties were in late stages
of their due diligence and that proposals for a transaction with the Company
were to be communicated to Bear Stearns by
-10-
<PAGE>
October 23, 1996. Except for Humana and Sierra, none of 1996 Interested
Parties nor any of the parties that were contacted by Bear Stearns submitted
a proposal by October 23, 1996, for a transaction with the Company. Humana
did not submit a formal proposal for a transaction with the Company, but
instead communicated certain proposed terms regarding a potential transaction
through certain representatives of senior management and its financial
advisor.
On October 23, 1996, the Board held a meeting with senior management of
the Company and representatives of Bear Stearns and the Company's outside
legal counsel to evaluate alternatives available to the Company to enhance
stockholder value. At this meeting, the Board was apprised by Bear Stearns
of the conversations and meetings with parties that were potentially
interested in a transaction with the Company, including the 1996 Interested
Parties, and reviewed certain other strategic alternatives including an
equity investment by a financial investor and selected divestitures. The
Board authorized management and Bear Stearns to continue discussions with
those parties that had expressed an interest in a transaction with the
Company. On October 24, 1996, the managements of Sierra and the Company
continued their due diligence reviews and their negotiations with respect to
the terms, including the potential exchange ratio (the "Exchange Ratio") of
Sierra's common stock for the Common Stock, on which a definitive agreement
could be reached. On October 29, 1996, the Company and Sierra reached an
oral agreement on the terms of a transaction and agreed upon an Exchange
Ratio of 0.45 (having a value of approximately $12.94 per share based upon
the closing public market price of the Sierra common stock on October 29,
1997 of $28.75). On October 29, 1996, the closing public market prices for
the Common Stock was $11.25. On November 1, 1996, Sierra's Board of
Directors held a meeting at which it approved the merger of a wholly owned
subsidiary of Sierra with the Company. On November 2, 1996, the Board held a
meeting at which it received a report from management and a presentation by
Bear Stearns, was advised by the Company's outside legal counsel and approved
the merger with Sierra. Based on the Exchange Ratio, the value of the
transaction to the Company's stockholders was approximately $13.00 per share
on November 2, 1996. In addition, on November 2, 1996, the Company announced
a third quarter pre-tax charge of $130 million related to a statutory claims
reserve deficit at PCA Property and Casualty Insurance Company, a subsidiary
of the Company ("P&C").
On November 5, 1996, the Company received a written proposal from Humana
to purchase all outstanding shares of the Common Stock for $10.75 per share
in cash, subject to the negotiation of a mutually acceptable definitive
purchase agreement. The Common Stock had closed at $10.75 on November 4,
1996. On November 5, 1996, the Board held a special meeting to review the
proposal received from Humana and, in consultation with Bear Stearns and the
Company's outside legal counsel, unanimously determined to reject the
proposal from Humana because (i) the proposed merger with Sierra held greater
potential long-term benefits to the stockholders of the Company and (ii) the
terms of the merger agreement with Sierra did not permit the Company to
engage in any discussions or negotiations regarding an offer.
During January and February 1997, the Company obtained certain requisite
state and federal approvals for the Sierra merger and continued the year end
audit of its 1996 financial statements. In conjunction with this effort, in
February 1997, the Company's independent actuaries completed a preliminary
valuation of P&C's claims reserves as of December 31, 1996. As a result of
this valuation, after the close of the National Association of Securities
Dealers, Inc. Automated Quotation System/National Market (the "Nasdaq
National Market") on February 20, 1997 (on which date the Common Stock closed
at $9.125), the Company announced that it anticipated recording an additional
fourth quarter pre-tax charge of $80 million relating to P&C's claims. On
February 21, 1997, the Common Stock closed at $5.06.
On February 21, 1997, Sierra announced its intention to re-evaluate its
proposed merger with the Company. On February 25, 1997, the Florida
Department of Insurance for the State of Florida (the "Florida Department")
obtained a court order requiring P&C to submit a plan by May 2, 1997, setting
forth a program to show good cause why the Florida Department should not
place P&C under statutory rehabilitation. See "--P&C Arrangement". On
February 26, 1997, the Company announced that it estimated that the total
1996 pre-tax charge related to P&C would be between $225 million and $250
million. On February 26, 1997, the Common Stock closed at $3.81.
-11-
<PAGE>
On March 1, 1997, Sierra and representatives of its financial advisor
met with the Board and representatives of Bear Stearns and informed the Board
that it would not proceed with the merger under its existing terms. The
value of the transaction to the Company's stockholders as of that date was
approximately $11.87 per share based on the Exchange Ratio. As an
alternative proposal to the Board, Sierra offered to purchase the Company's
Texas operations for $150 million in cash and $40 million in Sierra stock.
Sierra also offered to enter into a management agreement to manage the
Company and its subsidiaries and to manage the rehabilitation of P&C.
Because the Board did not believe that the proposal provided any value to the
Company's stockholders, it declined Sierra's proposal. In subsequent public
statements, Sierra has explained that it was unwilling to proceed with the
merger under its existing terms because of the expected charges relating to
P&C.
On March 18, 1997, the Company filed suit against Sierra in the United
States District Court for the Southern District of Florida. In the suit, the
Company alleges that Sierra terminated the Agreement and Plan of Merger among
Sierra, Sierra Acquisition, Inc. and PCA (the "Sierra-PCA Merger Agreement")
on March 1, 1997 and that the termination was not permitted by the terms of
the Sierra-PCA Merger Agreement. Alternatively, the Company alleges that
Sierra's statement on March 1, 1997 that it would not proceed with the merger
under its existing terms constituted a withdrawal or modification, or
proposed withdrawal or modification, of the approval or recommendation of the
Sierra-PCA Merger Agreement by the Sierra board of directors. The Company
also alleges that Sierra breached its covenants and agreements under the
Sierra-PCA Merger Agreement by failing to take all reasonable action
necessary or use all reasonable efforts to obtain approval of the merger by
the Florida Department and the Florida Agency for Health Care Administration
and by failing to offer employment to a key executive of the Company as
required by the terms of the Sierra-PCA Merger Agreement. The Company seeks
liquidated damages in the amount of $20 million plus costs and expenses,
pursuant to the terms of the Sierra-PCA Merger Agreement. The Company also
seeks additional actual damages for, among other things, loss of business
opportunities, damage to business reputation, lost profits and other
consequential damages allegedly caused by Sierra's breach of contract and
fraudulent inducement to enter into the Sierra-PCA Merger Agreement.
On March 27, 1997, Sierra and its wholly owned subsidiary filed suit
against the Company in the Court of Chancery of the State of Delaware in and
for New Castle County with respect to the failed merger. In the suit, Sierra
alleges that the Company's disclosures relating to P&C constitute a breach of
the Company's representations and warranties under the Sierra-PCA Merger
Agreement and that this breach entitled Sierra to terminate the Sierra-PCA
Merger Agreement and to recover from the Company the sum of $3 million plus
its expenses, as defined under the Sierra-PCA Merger Agreement. Sierra also
alleges that it is entitled to an award of damages resulting from allegedly
false representations by the Company regarding its financial condition and
the financial condition of its subsidiaries. Sierra takes the position that
it terminated the Sierra-PCA Merger Agreement in a letter to the Company
dated March 18, 1997.
Both lawsuits are still pending. At this stage of the proceedings, it
is impossible to predict with any degree of certainty whether the Company
will prevail on the merits or the financial impact of the lawsuits on the
Company. Management of the Company believes that these lawsuits will not
impact the ability to consummate the Merger.
Upon termination of the Sierra merger, the Company went into default of
its $102.0 million Credit Facility, which triggered the following: (i) a
$1.0 million default fee, (ii) the interest rate was increased from prime
plus 1% to a default rate of prime plus 4% and (iii) the entire principal
balance became due upon demand. The Credit Facility was renegotiated and on
April 22, 1997, was modified as follows: (i) the default was waived, (ii) a
$1.0 million fee was paid, (iii) the interest rate became prime plus 3%
increasing to prime plus 4% on August 1, 1997, (iv) the maturity date was
extended to October 1, 1997, (v) the default rate was increased to prime plus
9% and (vi) an additional $1.0 million fee would be payable if the Company
did not have a refinancing commitment or definitive merger agreement that was
satisfactory to the Credit Facility lenders in place before July 31, 1997.
The Company believes that entering into the Agreement has satisfied the July
31, 1997 requirement to pay the additional $1.0 million fee.
-12-
<PAGE>
On March 20, 1997, Sierra gave notice to the Company's Credit Facility
lenders of its intent to demand payment from the Company of the $16.8 million
loan that Sierra had advanced the Company in early 1997 (the "Sierra Loan").
Under the terms of the Sierra Loan, without the consent of the Company's
Credit Facility lenders, Sierra cannot make demand for payment until
September 20, 1997. If the Sierra Loan is not paid when demanded, the
interest rate increases from 8% to a default rate of 13%.
The Company does not have the financial resources immediately available
to repay the Sierra Loan or the Company's Credit Facility if demand were made.
On March 24, 1997, George W. Vieth, Jr., Vice President - Development
and Planning of Humana, another representative of Humana and a representative
of its financial advisor, visited the Company at its offices in Miami to
discuss a possible transaction between Humana and the Company. Thereafter,
between March 24, 1997, and April 15, 1997, Humana and the Company discussed
amending the confidentiality agreement. On March 31, 1997, the Company
reported its net loss for the three and 12 months ended December 31, 1996, of
$182.6 million and $277.7 million, respectively.
In early April 1997, following the announcement by Sierra that it would
not proceed with the merger with the Company, the Company and Bear Stearns
prepared informational memorandums for dissemination to potential interested
parties which included strategic parties as well as financial investors. On
April 15, 1997, Humana and the Company entered into an amended
confidentiality agreement. On April 16, 1997, the Company announced that it
was in discussions with potential strategic and financial partners (on which
date the Common Stock closed at $4.75). The Board authorized Bear Stearns to
commence discussions with parties that had expressed an interest in or it
believed would have an interest in a transaction with the Company. In
addition, the Board directed Bear Stearns to hold discussions primarily with
those parties that the Board believed could by May 2, 1997, enter into a
definitive transaction agreement with the Company to provide for the
elimination of the P&C statutory claims reserve deficit. Discussions were
held with seven entities, including Humana, (collectively, the "1997
Interested Parties"). In addition, the Company retained Arthur Andersen LLP
to solicit potential bank debt refinancing proposals.
Subsequent to April 15, 1997, Humana conducted additional due diligence
concerning the Company and several telephone conversations were held between
representatives of Humana and the Company. On April 24, 1997, Mr. David A.
Jones, Chairman and Chief Executive Officer of Humana, and Mr. Vieth
telephoned Dr. E. Stanley Kardatzke, Chairman of the Board and Chief
Executive Officer of the Company, and Mr. Clifford W. Donnelly, Senior Vice
President and Chief Financial Officer of the Company, to communicate Humana's
interest in pursuing a transaction with the Company pursuant to which Humana
would purchase all of the outstanding shares of common stock of the Company
for $7.50 per share in cash, subject to negotiation of a mutually acceptable
definitive transaction agreement. The Common Stock had closed at $5.00 on
April 23, 1997. Based upon this proposal, the Board authorized
representatives of senior management, Bear Stearns and the Company's outside
legal counsel to conduct negotiations with representatives of Humana, its
financial advisor and outside legal counsel, of a definite agreement. These
negotiations took place at the Company's corporate offices on May 3, 1997,
and May 4, 1997. The Company and Humana were not able to reach mutually
acceptable terms during these discussions.
On May 2, 1997, P&C entered into a Forbearance Agreement with the
Florida Department in which P&C consented to the appointment of the Florida
Department as receiver for purposes of rehabilitation or liquidation at any
time on or after June 2, 1997, if the Florida Department had not approved an
agreement, recapitalization or other transaction providing for the full and
timely resolution of P&C's statutory claims reserve deficit.
During May 1997, one of the other 1997 Interested Parties (the "Other
1997 Interested Party") submitted three letters of interest proposing various
possible structures of a transaction. On May 7, 1997, Dr. Kardatzke was
first contacted by the Other 1997 Interested Party's chief executive officer.
On May 14, 1997, the Other 1997 Interested Party conducted a preliminary
on-site due diligence review of the Company. A letter dated May 21, 1997,
proposed the issuance of shares of Common Stock in exchange for the Other
1997 Interested Party's HMO operations and
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$200.0 million in cash, with such new shares representing a majority of the
outstanding shares of Common Stock. Since only limited data was provided
about the Other 1997 Interested Party's HMO operations and its value was
never established, the proposal was rejected. This proposal included a
related transaction whereby if the first transaction was not completed then
the Company could sell a portion of its operations to the Other 1997
Interested Party for $100.0 million in cash. The May 26, 1997 letter
proposed essentially the same terms as the May 21, 1997 letter, except that
the related transaction was a $100.0 million loan maturing in one year with
interest at prime plus 3%, if the first transaction was not completed.
Inasmuch as both proposals with respect to the related transaction involved
only $100.0 million, which amount was insufficient to meet the Company's cash
requirements, and no consideration being paid to the Company's stockholders,
the proposals were rejected. On May 31, 1997, the Other 1997 Interested
Party submitted a third proposal, which is discussed below.
On May 16, 1997, Bear Stearns disseminated a letter to the 1997
Interested Parties requesting binding written proposals for a transaction
with the Company, including a mark-up of a draft definitive transaction
agreement, by May 21, 1997. On May 20, 1997, Humana submitted a draft merger
agreement to the Company to purchase all of the shares of Common Stock at
$6.50 per share in cash, subject to acceptance by May 30, 1997, which was
later extended to June 2, 1997. The Common Stock had closed at $5.625 on May
19, 1997. On or about May 21, 1997, the Company received written binding
proposals from Humana and one of the other 1997 Interested Parties. The
binding proposal from the other 1997 Interested Party was to acquire $100.0
million of the Company's 10% convertible preferred stock, which would convert
into Common Stock at $3.50 per share, plus warrants. The proposal was
rejected since (i) the conversion price was only 50% of the Humana proposal,
(ii) the $100.0 million was insufficient to meet the Company's cash
requirements and (iii) the other 1997 Interested Party would obtain effective
control of the Company with no consideration being paid to the Company's
stockholders. In addition, the Company received non-binding proposals for a
transaction with the Company from the Other 1997 Interested Party and another
one of the 1997 Interested Parties. The non-binding proposal from the other
1997 Interested Party was to acquire $100.0 million of the Company's 10%
convertible debt, which would be converted into Common Stock at market value
calculated as an average over an agreed upon time period. This proposal was
rejected since (i) it was subject to further exclusive due diligence, (ii)
there was an uncertainty as to its closing, (iii) the $100.0 million was
insufficient to meet the Company's cash requirements and (iv) the other 1997
Interested Party would obtain effective control of the Company with no
consideration being paid to the Company's stockholders. Two of the 1997
Interested Parties did not submit a proposal. In addition, the Company
received a "highly confident letter" for a potential refinancing from a
commercial bank. Other than Humana's written proposal (which provided for
the full and timely resolution of P&C's statutory claims reserve deficit),
each of the written proposals provided for the funding of the reinsurance
arrangement between Centre Reinsurance Company of New York ("Centre Re") and
the Company. See "--P&C Arrangement".
On May 29, 1997, Dr. Kardatzke was informed by the chief executive
officer of one of the 1997 Interested Parties that it was considering
submitting a proposal to purchase all of the outstanding shares of the
Company for $4.00 to $6.00 per share. That party ultimately did not submit a
proposal.
On May 31, 1997, the Other 1997 Interested Party submitted a non-binding
letter of intent to pursue a transaction which provided for a $150 million
loan commitment by June 2, 1997 (subject to due diligence until June 2,
1997), and proposed a merger transaction, but subject to due diligence which
was to be completed by June 30, 1997. The proposed merger would provide for
a contingent value right ("CVR") which required the Company, in the future,
to pay an annual special dividend for any shortfall in the average trading
price of Common Stock in the first year below $8.00, in the second year below
$9.00, and in the third year below $10.00 per share. The Company did not
consider the proposal submitted by the Other 1997 Interested Party to be
superior to the Humana proposal pursuant to its definitive agreement with
Humana because of: (i) the inability of the Company to assure its
shareholders of a value superior to Humana's offer, (ii) the uncertainty of
being able to structure a $150 million loan with the Company's commercial
lenders and Sierra (although several discussions with the Company's
commercial lenders took place) prior to June 2, 1997; (iii) the uncertainty
of satisfactory completion of due diligence by both the Company and the Other
1997 Interested Party and its impact upon the final terms of a definitive
merger agreement and (iv) the uncertainty of whether the combined Company
would have the financial ability to pay the CVR special dividend if necessary.
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The Company continued in its discussions with Humana with meetings
commencing on May 30, 1997, and ending on June 2, 1997, at which meetings the
terms of the Agreement were negotiated, including the $7.00 per share cash
consideration. On June 2, 1997, Humana and the Company negotiated certain
agreements with the Florida Department. Later that day, the Board
unanimously determined that the Merger was fair to, and in the best interests
of, the stockholders of the Company and approved and entered into the
Agreement with Humana and the agreements with the Florida Department. During
this time the Common Stock closed at $7.125, $6.25 and $6.625 on May 30, June
2 and June 3, 1997, respectively.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
In approving the Merger, the Agreement and the other transactions
contemplated thereby and in recommending that the Company's stockholders vote
for adoption of the Agreement and approval of the Merger, the Board
considered a number of factors in favor of its approval including:
1. the presentations and views expressed by management of the
Company (at the meetings of the Board held on May 27, 1997, May 30,
1997, June 1, 1997 and June 2, 1997, and at previous meetings of the
Board) regarding, among other things: (a) the proceedings of the Florida
Department; (b) the financial condition, results of operations, cash
flow, business and prospects of the Company, including prospects of the
Company if it remains independent; (c) the strategic alternatives
available to the Company; (d) the fact that in view of discussions held
with various parties, management of the Company believed that it was
unlikely any other party would propose an acquisition or strategic
business combination that, taken as a whole, would be more favorable to
the Company and its stockholders than the terms of the Agreement; (e)
the recommendation of adoption of the Agreement and approval of the
Merger by the management of the Company; and (f) the short-term nature
of the Company's bank indebtedness and the assumption thereof by Humana
upon consummation of the Merger by virtue thereof;
2. the presentation of Bear Stearns at the meetings of the Board
held on May 27, 1997, May 30, 1997 and June 1, 1997, and the opinion of
Bear Stearns, expressed orally at the June 2, 1997, meeting (and
subsequently confirmed in writing), to the effect that, as of June 2,
1997, the transactions contemplated by the Agreement are fair, from a
financial point of view, to the stockholders of the Company. The full
text of the opinion of Bear Stearns, dated as of the date of this Proxy
Statement, which sets forth the assumptions made, matters considered and
limitations on the review undertaken by Bear Stearns is attached hereto
as ANNEX B. Stockholders are urged to the read the opinion of Bear
Stearns carefully in its entirety for assumptions made, matters
considered and the limits of the review undertaken by Bear Stearns;
3. the extensive arms-length negotiations between the Company and
Humana, leading to the belief of the Board that $7.00 per share
represented the highest price per share that could be negotiated with
Humana;
4. the history of the Company's discussions with other parties,
including, without limitation, (a) the fair and ample opportunity
provided to the 1997 Interested Parties to submit proposals to the
Company, (b) that none of the other proposals contemplated the
acquisition of the Company for more than $7.00 per share in cash, (c)
that the noncash component of the other 1997 Interested Parties'
proposals would subject the stockholders of the Company to the risks and
uncertainties associated with equity securities, and (d) that following
repeated requests by the Company's financial advisors to the other 1997
Interested Parties and their financial advisors that the other 1997
Interested Parties submit their best and final proposals, the other 1997
Interested Parties elected not to amend or modify their proposals;
5. the results of the inquiries made by the Company's management
and financial advisors to major companies in the managed health care and
related industries, regarding a possible strategic alliance,
partnership, business combination, acquisition or similar transaction
with the Company;
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6. that, in the Agreement, Humana has agreed to honor all
employment and severance agreements and arrangements with respect to
employees and former employees of the Company;
7. other provisions of the Agreement, including the parties'
representations, warranties and covenants, the conditions to their
respective obligations and the inability of Humana to terminate the
Agreement for a material adverse change related to P&C or PCA Solutions,
Inc., a wholly owned subsidiary of the Company ("PCA Solutions");
8. the business reputation and capabilities of Humana and its
management, and Humana's financial strength, including its ability to
finance the Merger and to resolve the P&C statutory claims deficit;
9. the current and anticipated status of the managed health care
industry in the United States, including increasing competition, limited
pricing flexibility, anti-managed care legislative initiatives and the
continuing need for mass volume to obtain better health care costs and
to allow lower premiums and appropriate operating and profit margins;
10. the likelihood of continued consolidation in the managed
health care sector and the possibility that changes in the industry,
depending on their nature, could be disadvantageous to the Company as an
independent company;
11. that, following completion of the Merger, Humana has
sufficient financial resources to pay off the Company's Credit Facility
and the Sierra Loan, and to fund the P&C statutory deficit; and
12. that P&C had, in the May 2, 1997 Forbearance Agreement with
the Florida Department, consented to the Florida Department's
appointment any time on or after June 2, 1997, as receiver for P&C for
purposes of rehabilitation or liquidation, unless the Florida Department
was by then satisfied with the Company's plan for assuring full payment
for P&C's liabilities. If so appointed, the Florida Department might
assert additional claims or demands against the Company and certain
subsidiaries or seek to hold the Company responsible for P&C's deficit.
On June 2, 1997 the Florida Department agreed to defer obtaining its
appointment as receiver in view of Humana's commitment made in the
Agreement and the other transactions described elsewhere herein under
"--P&C Arrangement".
In addition, the Board also considered potential risks relating to the
Merger, including the risk that the Merger would not be consummated, with the
adverse effect that might have on the proceedings of the Florida Department
and the Company's ability to repay its outstanding bank indebtedness. The
Board believed, however, that these risks were outweighed by the potential
benefits to be realized from the Merger.
The foregoing discussion of information and factors considered by the
Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with the evaluation of the Merger, the Board did not
find it practicable to, and did not quantify or otherwise assign relative
weights to, the specific facts considered in reaching its determination and
recommendations. In addition, individual members of the Board may have given
different weights to different factors.
THE BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, THE COMPANY AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED IT AND
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR ADOPTION OF THE AGREEMENT
AND APPROVAL OF THE MERGER.
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OPINION OF BEAR, STEARNS & CO. INC.
The Board retained Bear Stearns as of March 19, 1997 to act as its
financial advisor and to render an opinion to the Board as to the fairness of
the Merger (the "Transaction"), from a financial point of view, to the
stockholders of the Company. Bear Stearns was retained based upon its
qualifications, reputation and expertise with respect to mergers and
acquisitions in the health care industry, as well as Bear Stearns' prior
investment banking relationship and familiarity with the Company. On June 2,
1997, Bear Stearns rendered its written opinion to the Board to the effect
that the Transaction was fair, from a financial point of view, to the
stockholders of the Company as of such date. Bear Stearns subsequently
issued a substantially similar written opinion to the Board to the effect
that the Transaction was fair, from a financial point of view, to the
stockholders of the Company as of the date of this Proxy Statement. No
restrictions were imposed by the Board upon Bear Stearns with respect to any
investigations made or procedures followed by Bear Stearns in rendering its
opinions.
THE FULL TEXT OF THE BEAR STEARNS' OPINION DATED AS OF THE DATE OF THIS
PROXY STATEMENT IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT. STOCKHOLDERS
OF THE COMPANY ARE URGED TO, AND SHOULD, READ SUCH OPINION CAREFULLY AND IN
ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY STATEMENT FOR ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY BEAR STEARNS.
Bear Stearns' opinions address only the fairness of the Transaction,
from a financial point of view, to the stockholders and does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the adoption of the Agreement and approval of the Merger.
Although Bear Stearns evaluated the financial terms of the Transaction
and participated in discussions concerning the consideration to be paid, Bear
Stearns did not recommend the specific consideration to be paid in the
Transaction. The consideration to be received by the stockholders as a
result of the Transaction was determined by negotiations between the Company
and Humana after consultation by each of such parties with their respective
financial advisors. In connection with rendering its opinions, Bear Stearns,
among other things: (i) reviewed the Agreement; (ii) reviewed this Proxy
Statement (only with respect to the opinion dated as of the date of this
Proxy Statement); (iii) reviewed the Company's Annual Reports to Shareholders
and Annual Reports on Form 10-K for the years ended December 31, 1994 through
1996 and the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1997; (iv) reviewed certain operating and financial information
provided to Bear Stearns by the management of the Company relating to the
Company's business and prospects, including financial projections as of May
3, 1997, provided to Bear Stearns by management of the Company; (v) met with
certain members of the senior management of the Company to discuss the
Company's operations, historical financial statements, future prospects and
financial condition; (vi) met with certain members of the Florida Department
to discuss the regulatory implications of the financial status of P&C,
including the possibility of having P&C placed into receivership; (vii) met
with certain members of the senior management of the Company to discuss the
impact on the Company of having P&C placed into receivership; (viii) visited
the Company's facilities in Miami, Florida and Orlando, Florida; (ix)
reviewed the historical stock prices, trading activity and valuation
parameters of the Common Stock; (x) reviewed publicly available financial
data, stock market performance data and valuation parameters of companies
that Bear Stearns deemed generally comparable to the Company; (xi) reviewed
the terms of recent mergers and acquisitions of companies that Bear Stearns
deemed generally comparable to the Transaction; and (xii) considered and
conducted such other studies, analyses, inquiries and investigations as Bear
Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed,
without independent verification, the accuracy and completeness of all the
financial, regulatory and other information provided to it by the Company and
others. With respect to the projections provided to Bear Stearns by the
Company, Bear Stearns determined not to rely solely on the internal estimates
of the Company's future financial performance in its analyses because of,
among other things, the inherent uncertainty of such projections and the fact
that actual results for fiscal 1996 differed materially from past projections
for such periods for the Company; with the Company's consent, Bear Stearns
also considered consensus estimates of the Company's earnings per share for
fiscal 1997 published by security analysts (other than those
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published by Bear Stearns' security analyst) as reported by Institutional
Brokers Estimate System as of May 29, 1997. Bear Stearns did not assume any
responsibility for the information or projections provided to it and Bear
Stearns further relied upon the assurances of the management of the Company
that they are unaware of any facts that would make the information or
projections provided to Bear Stearns incomplete or misleading.
Bear Stearns did not perform or obtain any appraisal of the assets or
liabilities of the Company in connection with rendering its opinions, nor was
it furnished with any such appraisals. Bear Stearns' opinions do not address
the Company's underlying decision to pursue the Transaction. Bear Stearns'
opinions are necessarily based on economic, market and other conditions in
effect, and the information made available to Bear Stearns, as of the
respective dates thereof.
In connection with its opinions, Bear Stearns performed the following
analyses: (i) a going concern value of the Company based upon an analysis of
selected publicly-traded companies, (ii) a going concern value of the Company
based upon an analysis of selected precedent transactions and (iii) a segment
analysis of the Company.
The following is a brief summary of certain of the financial analyses
used by Bear Stearns in connection with rendering its opinions to the Board
on June 2, 1997, and as of the date of this Proxy Statement.
GOING CONCERN VALUE - ANALYSIS OF SELECTED PUBLICLY-TRADED COMPANIES.
Bear Stearns reviewed and compared the financial and market performance of
the Company to the financial and market performance of 14 publicly-traded
companies engaged in the managed health care services industry that Bear
Stearns believed were comparable in certain respects to the Company (the "HMO
Companies"). The HMO Companies were: Coventry Corporation; Foundation Health
Corporation; Healthsource, Inc.; Humana; Maxicare Health Plans, Inc.; Mid
Atlantic Medical Services, Inc.; Oxford Health Plans, Inc.; PacifiCare Health
Systems, Inc.; Physicians Health Services, Inc.; RightChoice Managed Care,
Inc.; Sierra; United HealthCare Corp.; United Wisconsin Services, Inc. and
WellPoint Health Networks, Inc. The HMO Companies were chosen by Bear
Stearns as companies that, based on publicly available data, possess general
business, operations and financial characteristics representative of
companies in the industry in which the Company operates, although Bear
Stearns recognized that each of the HMO Companies is distinguishable from the
Company in certain respects.
For each of the HMO Companies, Bear Stearns examined certain publicly
available financial data including net revenue; earnings before interest,
taxes, depreciation and amortization ("EBITDA"); earnings before interest and
taxes ("EBIT"); net income; earnings per share; profit and expense margins;
growth rates and enrolled membership. Bear Stearns also examined certain
balance sheet items, published earnings forecasts and the trading performance
of the common stock of each of the HMO Companies. Bear Stearns calculated
the ratios of the closing prices of each of the HMO Companies' common stock
(as of May 29, 1997) in relation to their respective projected earnings per
share and the ratios of the enterprise value (the total market value of the
outstanding common stock plus the par value of total debt and medical claims
payable less cash, cash equivalents and investments) of each of the HMO
Companies in relation to their respective net revenues, EBITDA, EBIT and
enrolled memberships as of December 31, 1996. Bear Stearns performed an
analysis that compared certain ratios for the HMO Companies that it deemed to
be the most comparable to the Company, including Coventry Corporation;
Maxicare Health Plans, Inc.; Mid Atlantic Medical Services, Inc.; PacifiCare
Health Systems, Inc. and Sierra (collectively, the "Comparable Companies),
with the comparable ratios for the Company based upon the purchase price per
share of the Common Stock (the "Purchase Price").
Bear Stearns' analysis indicated that the ratios of the stock prices of
the Comparable Companies in relation to their respective projected earnings
per share for the year ending December 31, 1997, ranged from 12.9x to 34.5x
and had a harmonic mean of 16.1x and a median of 14.1x. The ratios of the
stock prices of the Comparable Companies in relation to their respective
projected earnings per share for the year ending December 31, 1998, ranged
from 10.7x to 20.8x and had a harmonic mean of 12.9x and a median of 11.5x.
The ratios of the enterprise values of the Comparable Companies to their
respective projected EBITDA for the year ending December 31, 1997, ranged
from
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4.5x to 33.1x (excluding the results of Maxicare Health Plans, Inc., which
Bear Stearns deemed to be not meaningful in its analysis) and had a harmonic
mean of 6.6x and a median of 5.6x. The ratios of the enterprise values of
the Comparable Companies to their respective enrolled memberships as of
December 31, 1996 ranged from $388 to $819 and had a harmonic mean of $541
and a median of $602.
Bear Stearns analyzed the Company's value by reviewing the HMO
operations and P&C separately. Valuation multiples for the Company
throughout Bear Stearns' analysis reflect transaction values and operating
results for the HMO operations only.
Based upon the Purchase Price, (i) the aggregate equity value was
approximately $295 million, (ii) the aggregate transaction value (defined as
the aggregate equity value plus the par value of total debt) (the
"Transaction Value") was approximately $427 million, (iii) the aggregate
adjusted transaction value (defined as the aggregate equity value plus the
par value of total debt plus the assumed cost associated with the liabilities
of P&C) (the "Adjusted Transaction Value") was approximately $529 million,
(iv) the ratios of the Purchase Price per share to the projected earnings per
share based upon the conservative case financial projections prepared by the
Company's management for its HMO operations only (the "HMO Earnings Per
Share") for the years ending December 31, 1997 and 1998 were 18.9x and 6.2x,
respectively, (v) the ratio of the Transaction Value to the projected EBITDA
based upon the conservative case financial projections prepared by the
Company's management for its HMO operations only (the "HMO EBITDA") for the
year ending December 31, 1997, was 11.0x and (vi) the ratios of the
Transaction Value to the Company's enrolled membership as of December 31,
1996, and March 31, 1996, were $422 and $376, respectively.
Bear Stearns noted, based upon its analysis, that (i) the ratio of the
Purchase Price per share to the projected HMO Earnings Per Share for the
Company for the year ending December 31, 1997, was greater than the harmonic
mean and median of the comparable ratios for the Comparable Companies and
(ii) the ratio of the Transaction Value to the projected HMO EBITDA for the
Company for the year ending December 31, 1997, was greater than the mean and
median ratios of the enterprise values of the Comparable Companies to their
respective projected EBITDA for the year ending December 31, 1997.
GOING CONCERN VALUE - ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Bear
Stearns reviewed certain financial data and the purchase prices agreed to be
paid in 38 merger and acquisition transactions completed (except as noted) in
the managed health care services industry, and selected a subset of precedent
transactions that it deemed to be the most comparable to the Transaction (the
"Comparable Transactions"). The Comparable Transactions included the
following transactions (target company / acquiring company): Healthsource,
Inc./CIGNA Corporation (pending); Health Systems International,
Inc./Foundation Health Corp.; FHP International Corp./PacifiCare Health
Systems, Inc.; U.S. Healthcare, Inc./Aetna Life and Casualty Co.; HealthWise
of America, Inc./United HealthCare Corp.; Emphesys Financial Group,
Inc./Humana Inc.; CII Financial Group, Inc./Sierra and Health Systems
International, Inc./WellPoint Health Networks Inc. (terminated).
For each of the target companies involved in the Comparable
Transactions, Bear Stearns reviewed certain publicly available financial
data, including net revenue, EBITDA, EBIT, net income, earnings per share,
profit and expense margins and enrolled membership. Bear Stearns also
examined certain balance sheet items and published earnings forecasts (when
available) for each of the target companies involved in the Comparable
Transactions. Bear Stearns calculated the ratios of the purchase prices of
each of the target companies in the Comparable Transactions in relation to
their respective latest 12 months and projected net income (for the next
calendar year based on securities analysts' estimates immediately prior to
the announcement of such transactions) and the ratios of the transaction
value (the total purchase price of the equity plus total debt at par value
and medical claims payable less cash, cash equivalents and investments) of
each of the target companies in relation to their respective EBITDA for the
latest 12 months and most recent enrolled membership.
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Bear Stearns' analysis indicated that the ratios of the purchase prices
of each of the target companies to their respective net incomes for the
latest 12 months ranged from 6.5x to 48.3x and had a harmonic mean of 15.9x
and a median of 22.3x. The ratios of the purchase price of each of the
target companies to their respective projected net income ranged from 9.3x to
34.0x and had a harmonic mean of 15.9x and a median of 18.4x. The ratios of
the transaction value of each of the target companies to their respective
EBITDA for the latest 12 months ranged from 2.9x to 19.6x and had a harmonic
mean of 8.5x and a median of 12.1x. The ratios of the transaction value of
each of the target companies to their respective enrolled members (excluding
the results of the U.S. Healthcare, Inc./Aetna Life and Casualty Co.
transaction, which Bear Stearns deemed to be not meaningful in its analysis)
ranged from $287 to $1,835 and had a harmonic mean of $808 and a median of
$1,358.
Bear Stearns noted that beginning with the HealthWise of America,
Inc./United HealthCare Corp. transaction announced in February 1996 and
ending with the Health Systems International, Inc./Foundation Health Corp.
transaction announced in October 1996, multiples of purchase price to
projected net income in the Comparable Transactions were on a downward trend.
In its analysis, Bear Stearns noted that the multiples of purchase price to
projected net income in the HealthWise of America, Inc./United HealthCare
Corp.; U.S. Healthcare, Inc./Aetna Life and Casualty Co. (announced April
1996); FHP International Corp./PacifiCare Health Systems, Inc. (announced
August 1996) and Health Systems International, Inc./Foundation Health Corp.
transactions were 26.1x, 18.1x, 22.2x and 11.0x, respectively. Similarly,
the transaction value per member in these same transactions (excluding the
multiple of $4,340 per member for the U.S. Healthcare, Inc./Aetna Life and
Casualty Co. transaction, which Bear Stearns deemed to be not meaningful in
its analysis) were $1,835, $1,497 and $778 per member, respectively. Bear
Stearns believed that valuation levels in the HMO industry had been
decreasing because HMO companies had been experiencing margin pressure due to
a lack of increases in premium rates coupled with increasing medical costs.
Bear Stearns noted, based upon its analysis, that (i) the ratio of the
Purchase Price per share to the Company's projected HMO Earnings Per Share
for the year ending December 31, 1997, was greater than the harmonic mean of
the ratios of the purchase prices of each of the target companies in the
Comparable Transactions to their respective net incomes for the latest 12
months and (ii) the ratio of the Transaction Value to projected HMO EBITDA
for the Company for the year ending December 31, 1997, was greater than the
harmonic mean of the ratios of the transaction values of each of the target
companies in the Comparable Transactions to their respective EBITDA for the
latest 12 months.
SEGMENT ANALYSIS. Bear Stearns determined an implied per share equity
valuation of the Company based upon individual segment valuations of the
Texas, Florida and Puerto Rico HMO operations. Each individual HMO operation
was value based on the Company's (i) enrolled membership as of March 31,
1997, (ii) projected net income (based upon the conservative case financial
projections prepared by the Company's management) for the year ending
December 31, 1998, and (iii) projected EBITDA (based upon the conservative
case financial projections prepared by the Company's management) for the year
ending December 31, 1997. Using the relevant valuation multiples from the
"Going Concern Value - Analysis of Selected Publicly Traded Companies" and
the "Going Concern Value - Analysis of Selected Precedent Transactions"
discussed above, Bear Stearns determined enterprise values for each segment
of the Company. Earnings from P&C and PCA Solutions were not included in
this segment valuation and were assumed to be used to pay down the deficit in
the P&C business.
Depending on Bear Stearns' view towards the quality of earnings and
membership of the Texas, Florida and Puerto Rico HMO operations, Bear Stearns
adjusted the aforementioned valuation multiples to reflect the difficult
operating and regulatory environments particular to its service areas
(particularly Florida) as well as its membership mix. In addition, Bear
Stearns applied a discount due to the inherent uncertainty of such
projections and the fact that actual results for fiscal 1996 differed
materially from past projections for such periods for the Company. Bear
Stearns then decreased the aggregate enterprise value for the estimated
capitalized cost of corporate expenses, costs relating to P&C, total debt and
health claims payable, and increased the aggregate enterprise value for cash
and statutory deposits to determine an imputed equity value and imputed
equity value per share for the Company.
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Bear Stearns noted that the imputed equity value per share based on
multiples of enrolled membership as of March 31, 1997, projected net income
for the year ending December 31, 1997, and projected EBITDA for the year
ending December 31, 1997, ranged from ($3.88) to $5.37 per share. The high
of this range represents a discount of (23.3%) to the Purchase Price. Bear
Stearns also noted that the low tax basis of these operations reduces any
rationale to implement an individual sale of the Company's component HMOs.
Any such sale would generally result in adverse tax consequences to the
stockholders.
The last paragraphs of the sections titled (i) "Going Concern Value
- -Analysis of Selected Publicly Traded Companies", (ii) "Going Concern Value
- -Analysis of Selected Precedent Transactions" and (iii) "Segment Analysis",
each identify certain items that Bear Stearns noted in performing its
analyses. In rendering its opinions that the Transaction was fair, from a
financial point of view, to the stockholders of the Company, Bear Stearns did
not rely upon each individual analysis, but rather considered the results of
the analyses as a whole.
Based upon the analyses of the Company's going concern value and the
analysis of the Company's component HMOs, Bear Stearns concluded that the
Transaction was fair, from a financial point of view, to the stockholders of
the Company.
Bear Stearns also reviewed the historical market prices and trading
volumes of the Common Stock and noted the following: (i) on May 22, 1997, one
week prior to public announcement of the Transaction, the closing price of
the Common Stock was $5.938 per share; (ii) during the period from May 30,
1996, through May 29, 1997, the Common Stock traded in a range of $2.625 to
$14.375 per share; and (iii) during the period from March 30, 1993 (the date
on which the Common Stock commenced trading following the Company's initial
public offering) through May 29, 1997, the Common Stock traded in a range of
$2.625 to $30.00 per share.
The consideration to be received by the Company's stockholders pursuant
to the Merger was determined through negotiations between the Company and
Humana. Bear Stearns provided advice to the Company during the course of such
negotiations, but did not make a recommendation with respect to the amount of
the consideration to be received by the Company's stockholders pursuant to
the Merger. Bear Stearns has consented to the use in this Proxy Statement of
its opinion dated as of the date of this Proxy Statement.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering the analysis as a whole, could create an incomplete view of the
processes underlying Bear Stearns' opinions. In arriving at its opinions,
Bear Stearns considered the results of all the analyses it performed. No
company or transaction used in the above analyses as a comparison is
completely comparable to the Company or the Transaction. Such analyses were
prepared by Bear Stearns solely for purposes of providing its opinions as to
the fairness of the Transaction, from a financial point of view, to the
stockholders of the Company and do not purport to be appraisals or
necessarily indicate the prices at which businesses or securities actually
may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly
more or less favorable than those results suggested by such analyses.
Because such analyses are inherently subject to uncertainty, based upon
numerous events beyond the control of the parties or their respective
advisors, none of the Company, Humana, Humana Sub, Bear Stearns or any other
person assumes responsibility if future results are different from those
suggested by such analyses. As described above, Bear Stearns' opinion, dated
as of June 2, 1997, and Bear Stearns' presentation to the Board were two of
the many factors taken into consideration by the Board in making its
determination to approve the Agreement. The foregoing summary is an accurate
summary of the material provisions of Bear Stearns' opinion, but does not
purport to be a complete description of the analyses performed by Bear
Stearns in connection with rendering its opinions and is qualified in its
entirety by reference to the opinion of Bear Stearns, dated as of the date of
this Proxy Statement, set forth in ANNEX B hereto.
In the ordinary course of its business, Bear Stearns may actively trade
the equity securities of the Company or Humana for its own accounts and for
the accounts of its customers and, accordingly, may, at any time, hold a long
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or short position in such securities. In addition to serving as the
Company's financial advisor in connection with the Transaction, Bear Stearns
served as financial advisor to the Company in connection with several
divestitures in 1996 for which it received aggregate fees equal to $600,000.
Pursuant to a letter agreement between the Company and Bear Stearns,
dated March 19, 1997, the Company agreed to pay Bear Stearns a fee of
$600,000 upon the rendering of its fairness opinion relating to the
Transaction (the "Fairness Opinion Fee"). The Company also agreed to pay
Bear Stearns a fee equal to 1.3% of the Adjusted Transaction Value, such fee
being payable upon consummation of the Transaction, against which fee the
Fairness Opinion Fee would be credited. The Company also agreed to reimburse
Bear Stearns for certain of its out-of-pocket expenses incurred while acting
as financial advisor to the Board in the Transaction and to indemnify Bear
Stearns and certain related persons against certain liabilities in connection
with the engagement of Bear Stearns, including certain liabilities under
federal securities laws.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after adoption of the Agreement and approval
of the Merger by the stockholders of the Company and all other conditions to
the consummation of the Merger are satisfied or waived, Humana and the
Company will take such action as is necessary to cause a Certificate of
Merger to be filed in accordance with the requirements of the General
Corporation Law of the State of Delaware (the "DGCL"). The Effective Time
will be upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware. It is currently contemplated that if all
applicable conditions have been satisfied or waived at the time the Company's
stockholders adopt the Agreement and approve the Merger, the Effective Time
will occur as soon as practicable on the day of the Special Meeting; however,
there can be no assurance that all such conditions will have been satisfied
or waived by that time and it is possible that the Effective Time will occur
after the day of the Special Meeting. See "--P&C Arrangement". The
Agreement may be terminated under certain circumstances as described in
"--Termination."
CONVERSION OF SHARES
As of the Effective Time, and without any action on the part of the
holder thereof, each outstanding share of Common Stock (except those shares
of Common Stock (i) as to which dissenters' rights of appraisal, if any,
shall have been properly exercised under Delaware law and (ii) held by Humana
or its subsidiaries) will be converted into the right to receive $7.00 in
cash. See "The Merger--Dissenters' Rights". All shares of Common Stock held
by Humana or any of its subsidiaries or by the Company as treasury shares
shall be canceled, and each issued and outstanding share of Humana Sub shall
be converted into a share of Common Stock of the Company, as the surviving
corporation in the Merger.
DO NOT SEND IN YOUR CERTIFICATES AT THIS TIME.
YOU WILL RECEIVE A LETTER OF TRANSMITTAL
AND FURTHER INSTRUCTIONS PROMPTLY AFTER THE
EFFECTIVE TIME OF THE MERGER.
LOST CERTIFICATES
In the event any certificate representing shares of Common Stock shall
have been lost, stolen or destroyed, upon delivery to the Company of an
affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed and the delivery of such other documents as the Company
may reasonably request, the Payment Agent (as defined in "--Payment for
Shares") shall deliver $7.00 per share in cash in respect of the shares of
Common Stock represented by such lost, stolen or destroyed certificate. The
Company, as the surviving corporation of the Merger, may, as a condition
precedent to the delivery thereof, require the owner of such lost, stolen or
destroyed certificate to provide to the Company a bond in favor of the
Company or such other security as the Company shall reasonably deem necessary.
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<PAGE>
STOCK OPTIONS
Pursuant to the Agreement, the Company will cause all employee and
director options for the purchase of shares of Common Stock (the "Options")
to be canceled at the Effective Time.
Employee holders of Options employed with the Company as of the
Effective Time will be entitled to receive for each canceled Option (whether
or not exercisable at the Effective Time) either if (a) the employee is
employed by Humana or any of its subsidiaries (including the Company) at the
end of a benefit period specified in a Salary Continuation Agreement between
the Company and the employee of between six months and 18 months depending on
the terms of the Salary Continuation Agreement to which the employee is a
party (or, lacking such an agreement, at the end of six months) following the
Effective Time or (b) the employee's employment is terminated without cause
or the employee resigns with cause prior thereto (as such terms are defined
in the Salary Continuation Agreements), an amount in cash equal to the value
for each such option based on a Black-Scholes option pricing model as
specified in the Salary Continuation Agreements.
Holders of Options who are no longer employed by the Company at the
Effective Time or who are non-employee directors of the Company will be
entitled to receive an amount (if any) equal to the product of (i) the amount
by which $7.00 exceeds the exercise price per share subject to the Option and
(ii) the number of shares subject to the Option (whether or not such Option
was exercisable at the Effective Time).
Assuming all employees who hold Options remained employed at the
Effective Time and become eligible to receive a cash payment for the canceled
Options as set forth above, the Company estimates that the aggregate cash
payments required to be made in respect of Options would be approximately $5
million.
As of the date hereof, each of the University of Miami and The Jackson
Memorial Foundation hold options to purchase 500,000 shares of Common Stock
at $20.75 per share. Since under the terms of the option agreements the
holders of these options would only be entitled to receive the difference
between $7.00 per share of Common Stock (I.E., the per share consideration to
be paid in the Merger) and the exercise price of $20.75 per share, these
options will have no value after the Effective Time.
PAYMENT FOR SHARES
At or before the Effective Time, Humana will deposit in immediately
available funds with a paying agent (the "Payment Agent") an amount (the
"Payment Fund") equal to the product of the number of shares of Common Stock
issued and outstanding at the Effective Time multiplied by $7.00 (other than
shares of Common Stock held by stockholders, if any, who properly exercise
their dissenters' rights of appraisal under Delaware law and shares of Common
Stock held by Humana and its subsidiaries). See "Source of Funds". The
Payment Fund will not contain funds for the payment of the Options. See
"Stock Options".
As provided in the Agreement, as soon as practicable after the Effective
Time (but in no event more than five days thereafter), Humana will direct the
Payment Agent to mail to each person who was, immediately prior to the
Effective Time, a holder of record of issued and outstanding shares of Common
Stock (other than holders who have properly demanded dissenters' rights of
appraisal for their shares of Common Stock), a form letter of transmittal and
instructions for use by such person in effecting the surrender of the
certificates which formerly represented any of such shares of Common Stock
for payment therefor. Upon surrender to the Payment Agent of such
certificates, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and such other
customary documents as may be required pursuant to such instructions, the
Payment Agent will promptly cause to be paid to the person entitled thereto
the amount in cash to which such person is entitled. NO INTEREST WILL BE
PAID OR WILL ACCRUE ON THE CASH PAYABLE UPON THE SURRENDER OF ANY SUCH
CERTIFICATE. If payment is to be made to a person other than the registered
holder of the certificate surrendered, it will be a condition of such payment
that the certificate
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<PAGE>
so surrendered be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment pay any transfer or other taxes
required by reason of the payment or establish to the satisfaction of the
Paying Agent that such tax has been paid or is not applicable. One year
following the Effective Time, Humana will be entitled to the return to it of
any funds (including any interest and dividends received with respect
thereto) that have been made available to the Payment Agent and that have not
been disbursed to holders of certificates representing shares of Common Stock
outstanding immediately prior to the Effective Time, and such holders may
thereafter look only to Humana (subject to applicable abandoned property,
escheat or other similar laws) as general creditors for the cash to which
they are entitled.
CONDUCT OF BUSINESS PENDING THE MERGER
In the Agreement, the Company has agreed that prior to the closing of
the transactions contemplated by the Agreement, it will:
(a) (i) Carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as previously conducted, (ii) use its
best efforts to preserve intact its present business organizations and
preserve its relationships with customers, suppliers and others having
business dealings with them, (iii) maintain insurance coverages and its
books, accounts and records in the usual manner consistent with prior
practices, (iv) comply in all material respects with all laws, ordinances and
regulations applicable to it, (v) maintain and keep its properties and
equipment in good repair, working order and condition, ordinary wear and tear
excepted, (vi) perform in all material respects its obligations under all
material contracts and commitments to which it is a party or by which it is
bound and (vii) cause its subsidiaries to do the same;
(b) Except as permitted or required by the Agreement, not (i) sell or
pledge or agree to sell or pledge any capital stock owned by it in any of its
subsidiaries, (ii) amend its Certificate of Incorporation or By-laws, (iii)
split, combine or reclassify its outstanding capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property, or (iv) directly or indirectly redeem, purchase or
otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of Company capital stock;
(c) Not, and not permit any of its subsidiaries to, (i) issue, deliver
or sell or agree to issue, deliver or sell any additional shares of, or
rights of any kind to acquire any shares of, its capital stock of any class,
any indebtedness having the right to vote on which the Company's stockholders
may vote or any option, rights or warrants to acquire, or securities
convertible into, shares of capital stock other than issuances of Common
Stock pursuant to employment agreements as in effect on the date of the
Agreement, the exercise of stock options outstanding on the date of the
Agreement or granted prior to the Effective Date, (ii) acquire, lease or
dispose or agree to acquire, lease or dispose of any capital assets or any
other assets other than in the ordinary course of business, (iii) incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others, or
encumber or grant a security interest in any asset or make any loans,
advances or capital contribution to, or investments in, any other person,
other than to the Company in any wholly owned subsidiaries of the Company or
enter into any other transaction other than in each case in the ordinary
course of business consistent with past practice, (iv) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in, or by any other manner, any business or any corporation,
partnership association or other business organization or division thereof,
or (v) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(d) Except as permitted by the Agreement, not, and not permit any of
its subsidiaries to, except as required to comply with applicable law, (i)
enter into any new (or amend any existing) Company benefit plan or any new
(or amend any existing) employment, severance or consulting agreement, (ii)
grant any general increase in the compensation of directors, officers or
employees (including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) or (iii) grant any increase in
the compensation payable or to become payable to
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<PAGE>
any director, officer or employee, except in any of the foregoing cases in
accordance with pre-existing contractual provisions or, in the case of clause
(iii), increases for employees in the ordinary course of business consistent
with past practice;
(e) Not, and not permit any of its subsidiaries to, make any
investments in non-investment grade securities exceeding $100,000 in the
aggregate.
P&C ARRANGEMENT
P&C, the Company's subsidiary Florida property and casualty insurer, has
reported a deficit as of December 31, 1996, of approximately $121 million
under generally accepted accounting principles. This deficit resulted from
losses incurred or assumed under excess insurance, reinsurance and
indemnification contracts in favor of assessable workers' compensation self
insurance funds and mutual insurers.
The Florida Department has exerted increasing control over, and has
initiated legal proceedings against, P&C because of its deteriorating
financial condition. In November 1996, P&C entered into an administrative
consent order, pursuant to which P&C ceased writing and renewing insurance
policies, subjected most of its business operations and decisions to review
and approval by the Florida Department, and was required to submit a
corrective plan satisfactory to the Florida Department. In late February
1997, the Florida Department brought judicial proceedings seeking its
appointment as receiver for P&C for purposes of rehabilitation. Several
proposed corrective plans were submitted, but none were approved.
Under a Forbearance Agreement entered into May 2, 1997 (the "Forbearance
Agreement"), P&C consented to the Florida Department's appointment as
receiver for purposes of rehabilitation or liquidation on or after June 2,
1997. The Florida Department allowed P&C until that date to submit a
satisfactory plan assuring full payment of claims and in the interim obtained
greater control over its affairs and access to its records. Separately, the
Florida Department requested that the Company and certain subsidiaries pay
P&C amounts aggregating approximately $35 million and refused to permit P&C
to pay substantial amounts due to affiliates. The Company disputed these
demands but agreed to inform the Florida Department of progress in
negotiations intended to obtain reinsurance coverage for P&C and/or to pay
for such coverage through a financing transaction or business combination as
described elsewhere herein.
In connection with execution of the Agreement, and after lengthy
negotiations in which the Florida Department participated, on June 2, 1997,
the Company, P&C and PCA Solutions entered into four interrelated agreements
with Centre Re and an affiliate. Under the Aggregate Excess of Loss
Reinsurance Agreement (the "Reinsurance Agreement"), Centre Re agreed to pay
up to $230 million to satisfy policyholder claims against P&C if P&C is not
able to discharge all its liabilities from its own resources. The Company
agreed to pay or arrange for payment of certain other liabilities of P&C, to
contribute $20.1 million to P&C for tax benefits realized and to purchase or
guarantee the collection of specified assets. In addition, upon entering
into the Reinsurance Agreement, P&C paid to and received from various
affiliates amounts agreed by the parties to be owing through March 31, 1997.
Of the total premium of $84 million payable to Centre Re, $4 million has been
paid with the balance due at closing of the Reinsurance Agreement, now
expected to coincide with the Effective Time. In the event the Company
consummates the Reinsurance Agreement, the Company may receive an experience
refund up to a maximum amount of $42 million. If the balance of the premium
is not paid or the Centre Re transaction is not closed by October 31, 1997,
the Reinsurance Agreement and the three related agreements identified below
will automatically terminate, and Centre Re will retain the $4 million
premium already paid but the Company would not be liable for the remaining
premiums.
Under the Claims Run-Off Administration Services Agreement (the "Claims
Agreement"), PCA Solutions will act as third party claims service
administrator for purposes of handling the run-off of P&C's insurance
liabilities. The Claims Agreement, which supplements the prior Management
Contract under which PCA Solutions serves as managing general agent for P&C,
imposes additional duties on PCA Solutions and entitles Centre Re to
participate
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<PAGE>
in and direct employment, compensation and property acquisition decisions of
PCA Solutions. The Company guaranteed PCA Solution's performance of its
duties under the Claims Agreement. PCA Solutions' compensation for its
services will be deferred and paid only from any available funds of P&C
remaining after the run-off, which will probably be more than five years from
the date of this Proxy Statement.
Under the Investment Management Agreement, Zurich Investment Management,
Inc., an affiliate of Centre Re, will manage the investment portfolio of P&C,
within agreed guidelines and constraints under the Florida Insurance Code,
for fees based on the size of the portfolio. Under the Tax Allocation and
Escrow Agreement between the Company and P&C, the latter will receive the
benefit of certain federal net operating loss carryforwards of up to $72
million if and when realized in the future by its corporate affiliates due to
its net operating losses and capital loss carryforwards.
If the Centre Re transaction is closed (whether or not in connection
with the Merger), in addition to paying the balance of the reinsurance
premium, the Company, P&C, and PCA Solutions are required to collateralize
various of their obligations to Centre Re. P&C must pledge all its assets to
secure its obligations under the Reinsurance Agreement. In addition, the
Company must pledge $45 million of liquid investments and its stock in PCA
Solutions, and PCA Solutions must pledge all of its assets, to secure (a)
obligations of PCA Solutions under the Claims Agreement, (b) the Company's
guaranty of PCA Solutions' performance under the Claims Agreement and (c)
certain of the Company's obligations under the Reinsurance Agreement. The
Company expects to obtain the $45 million of liquid investments through the
Merger (or another financing transaction or business combination). Other
collateral agreed to be pledged to Centre Re will be available only if the
Company's present lenders release their security interests in connection with
repayment of their loans or otherwise.
The Reinsurance Agreement provides that either Centre Re or Humana may,
by notice, prevent the Centre Re transactions from closing if the Merger is
consummated. However, under the Agreement, Humana must, from and after the
Effective Time, (a) adhere to the Centre Re agreements, (b) eliminate P&C's
statutory deficit by making a capital contribution in that amount and
committing to make additional contributions as and when needed thereafter to
eliminate any future statutory deficits (the "Recapitalization Alternative")
or (c) enter into such other arrangements as the Florida Department deems
acceptable in its sole discretion. If Centre Re elects not to close the
reinsurance transaction, Humana must comply with the alternatives set forth
in clauses (b) or (c) above. The Florida Department has indicated that
Humana's Recapitalization Alternative is acceptable. No other alternative
arrangement has been proposed or is now anticipated. Under the terms of the
Reinsurance Agreement, the consent of Centre Re and the Florida Department
may be required to consummate the Merger prior to September 22, 1997.
Based on its evaluation of the Agreement and Centre Re agreements, on
June 2, 1997, the Florida Department entered into a Joint Report to the
Court and Supplemental Agreement (the "Supplemental Agreement") with P&C. In
the Supplemental Agreement, the Florida Department determined that the
Company had made sufficient progress toward fulfilling the conditions in the
Forbearance Agreement to justify extending the period of forbearance from
appointment of a receiver for P&C and to allow a reasonable period for the
agreed upon transactions to close. The Florida Department agreed not to seek
its appointment as receiver so long as certain conditions are being met,
including: payment of amounts due to P&C's creditors, the absence of an event
of default, absence of a material adverse change in the financial condition
of P&C, PCA Solutions and Centre Re, and diligent pursuit of regulatory
approvals required to close the Merger by October 31, 1997. The Florida
Department reserved the right to obtain its appointment as receiver for P&C
in the event of, among other circumstances, noncompliance with or material
misrepresentation in provisions of the Supplemental Agreement, denial of a
regulatory consent or approval requisite to closing of the Merger, and
failure to close the Merger by October 31, 1997. The Company agreed to
cooperate in the Florida Department's investigation of the assessable
workers' compensation business and to keep the Florida Department regularly
informed of progress in obtaining consents necessary to consummate the
Merger. P&C continues under the Florida Department's administrative
supervision, and the receivership petition remains pending.
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<PAGE>
The Supplemental Agreement also provides that, if the Florida Department
does not enforce the Forbearance Agreement by obtaining its appointment as
receiver or otherwise, and if the Merger is consummated, the receivership
proceeding respecting P&C will be dismissed or abated and the parties will
enter into a new administrative consent order. That new order is to provide,
among other things, for continued administrative supervision of P&C at least
through 1998 under somewhat less stringent Florida Department control,
suspension of P&C's certificate of authority (so that it could not resume
active insurance operations unless its certificate were reinstated), and
covenants that would protect the Company and its affiliates against the
assertion of certain claims based on matters predating March 31, 1997. The
agreements among P&C, the Florida Department and other interested parties
including Humana may be modified before or after the Effective Time (subject
to required consent of the affected parties).
The Florida Department required that, upon entering into the Agreement,
Humana make an escrow deposit of $15 million (the "Escrow Deposit") in an
account held by the Florida Department for the benefit of P&C pursuant to the
terms of the Escrow Agreement, dated June 2, 1997, among the Florida
Department, Humana and the Company (the "Escrow Agreement"). See "--The
Humana Option".
THE HUMANA OPTION
Upon execution of the Agreement, Humana effected the Escrow Deposit.
See "--P&C Arrangement". In consideration for the Escrow Deposit, the
Company granted Humana an option (the "Humana Option") to purchase for $0.01
per share a number of shares equal to $15 million divided by 70% of the
average closing prices of the Common Stock for the five days immediately
prior to the exercise of the Option. The Humana Option may be exercised only
if (i) the Agreement is terminated, (ii) the Escrow Deposit has not been
returned to Humana and (iii) Humana has obtained all required governmental
and regulatory approvals required for such a purchase of Common Stock. The
Humana Option will expire upon the later of (a) six months following
termination of the Agreement or (b) 30 days after receipt of such required
governmental approvals. The Company has the right to cancel the Humana
Option at any time by paying Humana $15 million plus interest at 10% per
annum from the date of the Agreement.
Under the terms of the Escrow Agreement, the Escrow Deposit is required
to be returned to Humana if: (i) the Merger is consummated; (ii) the
Agreement is terminated by (w) either the Company or Humana by reason of the
stockholders of the Company not adopting the Agreement and approving the
Merger at the Special Meeting, (x) either the Company or Humana by reason of
a United States federal or state governmental, regulatory or administrative
agency or commission having issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Agreement that shall have become final and
non-appealable (provided that the terminating party used best efforts to
remove such injunction, order or decree), (y) the Company by reason of a
third party making a Superior Proposal after the Board determines in good
faith after consultation with its outside counsel that the failure to approve
such offer would not be consistent with the Board's fiduciary duties to the
stockholders (provided Humana is given five business days to modify the
Agreement so that the other proposal would no longer constitute a Superior
Proposal) or (z) Humana by reason of the Board having withdrawn or modified
in a manner adverse to Humana its approval or recommendation of the Agreement
or the Merger or recommending an Alternative Proposal to the stockholders;
(iii) the Merger is not consummated because (w) the stockholders do not adopt
the Agreement and approve the Merger, (x) the waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall not have expired or been terminated, (y) a preliminary or
permanent injunction or other order by any federal or state court in the
United States of competent jurisdiction that prevents the consummation of the
Merger shall have been issued and remains in effect or (z) certain
governmental notices and reports have not been made or consents or approvals
obtained; or (iv) the Agreement is terminated as a result of, among other
things, a change in the Company's financial condition or businesses, assets
or liabilities other than changes that have not had, individually or in the
aggregate, a material adverse effect on the Company and its subsidiaries
taken as a whole (excluding any change or effect relating to P&C, PCA
Solutions and certain risk contracts between the Company and P&C) and any
Medicaid contract in Florida, Puerto Rico, one or more Medicaid contracts in
Texas covering in excess of 25,000 members in the aggregate, any HFCA
contract in Florida or Texas or any accreditation by the National Committee
for Quality Assurance held by the Company or any of its
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HMO subsidiaries is terminated. The Escrow Deposit is required to be paid to
P&C if the Agreement is terminated and none of the circumstances set forth in
the previous sentence occur.
Upon the issuance of any shares of Common Stock pursuant to the Humana
Option, the Company is obligated to file a registration statement with the
Securities and Exchange Commission (the "Commission") covering such shares of
Common Stock and any other shares of Common Stock to be issued thereafter
pursuant to the Humana Option.
AMENDMENT OF RIGHTS AGREEMENT
Before the Effective Time, the Company will amend the Rights Agreement,
dated as of January 13, 1995, as amended by Amendment No. 1 to Rights
Agreement, dated November 11, 1996 (the "Rights Agreement"), between the
Company and Boatmen's Trust Company, as Rights Agent, to provide that the
Merger shall not trigger any rights to acquire stock of the Company under the
Rights Agreement.
CONDITIONS TO THE MERGER
The respective obligations of the Company, Humana and Humana Sub to
consummate the Merger are subject to the satisfaction of a number of
conditions, including:
(a) The adoption of the Agreement and approval of the Merger by the
stockholders of the Company;
(b) The waiting period pursuant to the provisions of the HSR Act shall
have expired or been terminated;
(c) No preliminary or permanent injunction or other order by any
federal or state court in the United States of competent jurisdiction which
prevents the consummation of the Merger shall have been issued and remain in
effect;
(d) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery or performance of
the Agreement having been obtained or made, except where the failure to so
obtain would not have a material adverse effect on Humana and its
subsidiaries (including the Company) following the Effective Time;
(e) All consents, authorizations, orders and approvals required under
federal or state statutes regulating managed care, health maintenance
organizations required in connection with the execution, delivery or
performance of the Agreement or insurance organizations having been obtained,
except where the failure to so obtain would not have a material effect on the
ability of the Company and its subsidiaries to continue to conduct their
respective businesses;
(f) With respect to each party, the accuracy of representations and
warranties of the other party (except where an inaccuracy would not have a
"Material Adverse Effect" (i.e., any change or effect, either individually or
in the aggregate, that is or may be materially adverse to the business,
assets, liabilities, properties, condition (financial or otherwise) or
results of operations of all or any part of the respective party; PROVIDED,
HOWEVER, that in respect of the Company any such change or effect relating to
(i) P&C, (ii) PCA Solutions or (iii) risk contracts between P&C or any of its
subsidiaries and the Company's Florida HMOs regarding provision of health
care services with respect to worker's compensation is excluded from such
determination) on the breaching party), the performance in all material
respects of certain agreements and obligations and compliance with all
covenants and conditions of the other party contained in the Agreement; and
(g) With respect to Humana, the Florida Department shall have issued a
consent order relating to the Merger and such consent order shall be in
effect.
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Any conditions described above may be waived by the party or parties
entitled to the benefit thereof, to the extent permitted by applicable law.
The Company has no present plans or intentions, and has been advised by
Humana that it has no present plans or intentions, to waive any of the
conditions to the Merger.
DISSENTERS' RIGHTS
Record holders of Common Stock are entitled to appraisal rights under
Section 262 of the DGCL in connection with the Merger. The following
discussion is an accurate summary of certain provisions of Section 262 and as
such is not a complete statement of the law pertaining to appraisal rights
under the DGCL and is qualified in its entirety by the full text of Section
262, which is reprinted in its entirety as ANNEX D to this Proxy Statement.
Any such stockholder who wishes to exercise appraisal rights should review
the following discussion and ANNEX D carefully because failure to timely and
properly comply with the procedures specified in Section 262 will result in
the loss of appraisal rights under the DGCL. Except as set forth herein,
stockholders of the Company will not be entitled to appraisal rights in
connection with the Merger.
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and have not voted in favor of the
adoption of the Agreement and the approval of the Merger will be entitled to
have their shares of Common Stock appraised by the Delaware Court of Chancery
(the "Court") and to receive payment of the "fair value" of such shares,
EXCLUSIVE OF ANY ELEMENT OF VALUE ARISING FROM THE ACCOMPLISHMENT OR
EXPECTATION OF THE MERGER, together with a fair rate of interest, as
determined by the Court.
Under Section 262, where a merger agreement is to be submitted for
approval and adoption at a meeting of stockholders, as is the case of the
Special Meeting, not less than 20 days prior to the meeting, the Company must
notify each of the holders of Common Stock at the close of business on the
Record Date that such appraisal rights are available and include in each such
notice a copy of Section 262. This Proxy Statement constitutes such notice.
A stockholder wishing to exercise appraisal rights must deliver to the
Company, before the vote on the adoption of the Agreement and approval of the
Merger at the Special Meeting, a written demand for appraisal of such
stockholder's shares of Common Stock. This written demand for appraisal
must be in addition to and separate from any proxy vote abstaining from or
voting against the adoption of the Agreement and the approval of the Merger.
Voting against, abstaining from voting or failing to vote on the adoption of
the Agreement and the approval of the Merger will not constitute a demand for
appraisal within the meaning of Section 262. In addition, a holder of shares
of Common Stock wishing to exercise appraisal rights must hold of record such
shares on the date the written demand for appraisal is made and must continue
to hold such shares through the Effective Time.
Any stockholder electing to exercise their appraisal rights under
Section 262 will not be granted appraisal rights under the DGCL if such
stockholder has either voted in favor of the adoption of the Agreement or the
approval of the Merger or consented thereto in writing (including by granting
the proxy solicited by this Proxy Statement or by returning a signed proxy
without specifying a vote against the Agreement and the Merger or a direction
to abstain from such vote).
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the
holder of record fully and correctly, as the holder's name appears on the
stock certificates.
If the shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the
demand should be made in that capacity, and if the shares of Common Stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners.
An authorized agent, including one or more joint owners, may execute a demand
for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly
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disclose the fact that, in executing the demand, the agent is agent for such
owner or owners. A record holder such as a broker who holds Common Stock as
nominee for several beneficial owners may exercise appraisal rights with
respect to the Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the Common Stock held for other
beneficial owners; in such case, the written demand should set forth the
number of shares as to which appraisal is sought and where no number of
shares is expressly mentioned the demand will be presumed to cover all Common
Stock held in the name of the record owner. Holders of Common Stock who hold
their shares in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal
by such nominee. All written demands for appraisal of Common Stock should be
mailed or delivered to Jose M. Menendez, Corporate Secretary, Physician
Corporation of America, 6101 Blue Lagoon Drive, Miami, Florida 33126,
separate from any proxy or vote against the adoption of the Agreement and the
approval of the Merger, so as to be received before the vote on the adoption
of the Agreement and approval of the Merger at the Special Meeting.
Within 10 days after the Effective Time, the Company, as the surviving
corporation in the Merger, must send a notice as to the effectiveness of the
Merger to each person who has satisfied the appropriate provisions of Section
262. Within 120 days after the Effective Time, but not thereafter, the
Company, or any holder of shares of Common Stock entitled to appraisal rights
under Section 262 and who has complied with the foregoing procedures, may
file a petition in the Court demanding a determination of the fair value of
such shares. The Company is not under any obligation, and has no present
intention, to file a petition with respect to the appraisal of the fair value
of the shares of Common Stock. Accordingly, it is the obligation of the
stockholders to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of shares of
Common Stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from the Company a
statement setting forth the aggregate number of shares of the Common Stock
with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such statements must be mailed
within 10 days after a written request therefor has been received by the
Company or within 10 days after expiration of the period for delivery of
demands for appraisal, whichever is later.
If a petition for an appraisal is timely filed, after a hearing of such
petition, the Court will determine the holders of shares of Common Stock
entitled to appraisal rights and will appraise the "fair value" of the shares
of Common Stock, EXCLUSIVE OF ANY ELEMENT OF VALUE ARISING FROM THE
ACCOMPLISHMENT OR EXPECTATION OF THE MERGER, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Holders considering seeking appraisal should be aware that the fair value of
their shares of Common Stock as determined under Section 262 could be more
than, the same as or less than the $7.00 in cash per share that they would
otherwise receive if they did not seek appraisal of their shares of Common
Stock. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered
in the appraisal proceedings. More specifically, the Delaware Supreme Court
has stated that: "Fair value, in an appraisal context, measures `that which
has been taken from [the shareholder], VIZ., his proportionate interest in a
going concern.' In the appraisal process the corporation is valued `as an
entity,' not merely as a collection of assets or by the sum of the market
price of each share of its stock. Moreover, the corporation must be viewed
as an on-going enterprise, occupying a particular market position in the
light of future prospects." In addition, Delaware courts have decided that
the statutory appraisal remedy, depending on factual circumstances, may or
may not be a dissenter's exclusive remedy. The Court will also determine the
amount of interest, if any, to be paid upon the amounts to be received by
persons whose shares of Common Stock have been appraised. The costs of the
action may be determined by the Court and taxed upon the parties as the Court
deems equitable. The Court may also order that all or a portion of the
expenses incurred by any holder of the shares of Common Stock in connection
with an appraisal, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts utilized in the appraisal proceeding, be
charged pro rata against the value of all of the shares of Common Stock
entitled to appraisal.
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Any holder of shares of Common Stock who has duly demanded an appraisal
in compliance with Section 262 will not, after the Effective Time, be
entitled to vote the shares of Common Stock subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to the holders
of record of shares of Common Stock as of a date prior to the Effective Time).
If any holder of shares of Common Stock who demands appraisal of shares
under Section 262 fails to perfect, or effectively withdraws or loses, the
right to appraisal, as provided in the DGCL, the shares of Common Stock of
such holder will be converted into the right to receive $7.00 in cash per
share of Common Stock in accordance with the Agreement. A holder of shares
of Common Stock will fail to perfect, or effectively lose, the right to
appraisal if no petition for appraisal is filed within 120 days after the
Effective Time. A holder may withdraw a demand for appraisal by delivering
to the Company a written withdrawal of the demand for appraisal and
acceptance of the Merger, except that (i) any such attempt to withdraw made
more than 60 days after the Effective Time will require the written approval
of the Company, as the surviving corporation in the Merger, and (ii) no
appraisal proceeding in the Court may be dismissed as to any stockholder
without the approval of the Court (such approval may be conditioned upon such
terms as the Court deems just).
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
The foregoing is an accurate summary of certain of the provisions of
Section 262 of the DGCL and is qualified in its entirety by reference to the
full text of such section, a copy of which is attached hereto as ANNEX D.
EXPENSES OF THE MERGER
The Agreement provides that the Company, Humana and Humana Sub shall
each pay their own costs and expenses in connection with the Merger. In the
event the Merger is consummated, it is anticipated that the Company's
expenses will be approximately $12 million, including consulting/noncompete
payments to executive officers. In the event the Merger is not consummated,
it is anticipated that the Company's expenses will be approximately $2
million. In addition, in the event the Merger is not consummated due to the
circumstances specified in "--Breakup Fee" below, the Company will be
obligated to pay Humana a breakup fee in the amount of up to $17 million,
plus documented expenses not to exceed $1.5 million.
AMENDMENT
The Agreement provides that the parties thereto may make any amendment
or modification to the Agreement only by an instrument in writing executed by
Humana, Humana Sub and the Company. However, after the Agreement is adopted
and the Merger is approved by the stockholders of the Company, no amendment
to the Agreement that by law would require the approval of the stockholders
of the Company may be made without such further approval.
NO SOLICITATION
Prior to the Effective Time, the Company has agreed in the Agreement:
(a) that neither it nor any of its subsidiaries shall, and it shall direct
and use its best efforts to cause its officer, directors, employees, agents
and representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its subsidiaries) not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any Alternative Proposal or engage in any
negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person relating to an Alternative Proposal,
or release any third party from any obligations under any existing standstill
agreement or arrangement relating to any Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and it will take the
necessary steps to inform the individuals or entities
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referred to above of these obligations; and (c) that it will notify Humana
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it; PROVIDED, HOWEVER, that nothing
contained in this provision shall prohibit the Board from furnishing
information to any person or entity that makes an Alternative Proposal, if,
and only to the extent that, (A) the Board determines in good faith after
consultation with outside counsel that such action is required for the Board
to comply with its fiduciary duties to stockholders imposed by law, (B) the
Alternative Proposal is a Superior Proposal, (C) the Company provides Humana
with a true and complete copy of such proposal as soon as practicable after
the receipt thereof, and (D) such action is required to comply with Rule
14e-2 promulgated under the Securities and Exchange Act of 1934, as amended,
with regard to an Alternative Proposal. This provision does not (x) permit
with the Company to terminate the Agreement (except as specifically
provided), (y) permit the Company to have discussions, negotiations or to
enter into any agreement with respect to an Alternative Proposal during the
term of the Agreement (it being agreed that during the term of the Agreement,
the Company shall not enter into any discussion, negotiation or agreement
with any person that provides for, or in any way facilitates, an Alternative
Proposal (other than a confidentiality agreement in customary form)), or (z)
affect any other obligation of the Company under the Agreement.
BREAKUP FEE
Pursuant to the Agreement, the Company has agreed to pay Humana $17
million in cash, plus documented expenses not to exceed $1.5 million, if (x)
a person makes an Alternative Proposal for the Company and thereafter either
(i) the Company terminates the Agreement in accordance with its terms by
reason of such Alternative Proposal or (ii) Humana or the Company terminates
the Agreement by reason of the stockholders of the Company not adopting the
Agreement and approving the Merger at the Special Meeting or (y) Humana
terminates the Agreement by reason of the Board having withdrawn or modified
in a manner adverse to Humana its approval or recommendation of the Agreement
or the Merger or recommending an Alternative Proposal to the Company
stockholders. In addition, if the Agreement is terminated for any other
reason (other than by reason of a breach of the representations and
warranties of Humana or Humana Sub or the failure of Humana or Humana Sub to
comply with their obligations under the Agreement) and within 12 months
thereafter any Alternative Proposal is consummated, the Company has agreed to
pay Humana the lesser of (i) $17 million or (ii) 3.5% of the aggregate value
of the other business combination, plus documented out-of-pocket expenses
incurred by Humana in connection with the Agreement not to exceed $1.5
million.
TERMINATION
The Agreement may be terminated at any time prior to the closing of the
transactions contemplated by the Agreement by (i) mutual written consent of
the Company and Humana, or (ii) either the Company or Humana if (w) the
Merger is not consummated by October 31, 1997, (x) the stockholders of the
Company do not approve the Merger at the Special Meeting, (y) a United States
federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Agreement which shall have become final and
non-appealable (provided that the terminating party used best efforts to
remove such injunction, order or decree) or (z) the other party to the
Agreement has materially breached a representation, warranty or covenant in
the Agreement and such breach is not cured after a specified notice period.
In addition, the Company may terminate the Agreement if (i) the Board
receives a Superior Proposal, (ii) five business days shall have elapsed
after delivery to Humana of written notice by the Company informing Humana
that the Board has determined that a Superior Proposal has been made and
during such five business day period the Company shall have fully cooperated
with Humana in good faith with the intent of enabling Humana to agree to a
modification of the terms and conditions of the Agreement (including the
merger consideration) so that the Alternative Proposal would not constitute a
Superior Proposal as compared to the terms and conditions of the Agreement as
proposed to be modified by Humana (the "Modified Agreement") and (iii) at the
end of such five business day period, the Board shall continue to determine
in good faith (after consultation with a nationally recognized investment
banking firm which provided a written opinion to such effect) that such
Alternative Proposal continues to constitute a Superior Proposal as compared
to the Modified Agreement (provided, however, that the Company's right to
terminate the Agreement pursuant to this provision shall not be available (A)
if the Company
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has breached in any material respect its obligations under "--No
Solicitation" or (B) if, prior to or concurrently with any purported
termination of the Agreement pursuant to this provision, the Company shall
not have paid the fee contemplated under "--Breakup Fee"). Humana may also
terminate the Agreement if the Board shall have withdrawn or modified in a
manner adverse to Humana its approval or recommendation of the Agreement or
the Merger or shall have recommended an Alternative Proposal to the
stockholders.
As used in the Agreement, a "Superior Proposal" means a bona fide
written offer to acquire the Company pursuant to a merger, consolidation,
share exchange, purchase of a substantial portion of assets, business
combinations or other similar transaction (which offer shall not be subject
to any conditions that are more onerous to the Company than the conditions to
Humana and Humana Sub's obligations to consummate the Merger; PROVIDED,
HOWEVER, that such offer may be subject to confirmatory due diligence to be
effected within a five business day period): (i) that the Board determines,
in good faith after consultation with a nationally recognized investment
banking firm which provided a written opinion to such effect, provides a
higher value per share to the stockholders than the $7.00 in cash after
taking into account, among other things, the reasonable likelihood the
Effective Time will occur as compared to when the closing of such Alternative
Proposal will occur; (ii) that is not subject to any financing condition (and
the offeror has on hand funds available or committed financing to consummate
the offer and the transactions contemplated thereby); (iii) does not have any
condition to closing or rights to terminate more onerous to the Company than
the provisions set forth in the Agreement and (iv) does not involve any
substantive legal impediments that are reasonably likely to prevent such
Alternative Proposal from closing.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal federal income tax
consequences of the Merger to holders whose shares of Common Stock are
converted to cash in the Merger (including pursuant to the exercise of
dissenters' rights). The discussion applies only to holders of shares of
Common Stock in whose hands shares of Common Stock are capital assets, and
may not apply to shares of Common Stock received pursuant to the exercise of
employee stock options or otherwise as compensation, or to holders of shares
of Common Stock who are in special tax situations (such as insurance
companies, tax-exempt organizations, non-U.S. persons or persons who have
engaged in "straddles" or other hedging transactions with respect to their
shares of Common Stock).
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON CURRENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES OF COMMON STOCK
SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY
OF THE RULES DISCUSSED BELOW TO SUCH HOLDER AND THE PARTICULAR TAX EFFECTS OF
THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE, LOCAL AND
OTHER INCOME TAX LAWS.
GENERAL. The receipt of cash for shares of Common Stock pursuant to the
Merger (including pursuant to the exercise of dissenters' rights) will be a
taxable transaction for federal income tax purposes and also may be a taxable
transaction under foreign, state, local and other income tax laws. In
general, for federal income tax purposes, a holder of shares of Common Stock
will recognize gain or loss equal to the difference between his or her
adjusted tax basis in the shares of Common Stock converted to cash in the
Merger and the amount of cash received therefor. Gain or loss must be
determined separately for each block of shares of Common Stock (i.e., shares
of Common Stock acquired at the same cost in a single transaction) converted
to cash in the Merger. Such gain or loss generally will be capital gain or
loss and will be long-term capital gain or loss if, on the date of the
Merger, the shares of Common Stock were held for more than one year. If a
holder exercises his dissenters' rights and receives an amount treated as
interest for federal income tax purposes, such amount will be taxed as
ordinary income.
BACKUP WITHHOLDING. Payments in connection with the Merger may be
subject to "backup withholding" at a rate of 31%. Backup withholding
generally applies if the holder (i) fails to furnish such holder's social
security number or taxpayer identification number ("TIN"), (ii) furnishes an
incorrect TIN, (iii) is subject to backup withholding due
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to previous failures to include reportable interest or dividend payments on
such holder's federal income tax return or (iv) under certain circumstances,
fails to provide a certified statement, signed under penalties of perjury,
that the TIN provided is such holder's correct number and that such holder is
not subject to backup withholding. Backup withholding is not an additional
tax, but rather it is an advance tax payment that is subject to refund if and
to the extent that it results in an overpayment of tax. Certain taxpayers
are generally exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish
correct information and for failure to include reportable payments in income.
REGULATORY APPROVALS
INSURANCE REGULATORY AND SIMILAR APPROVALS
The governmental and regulatory filings and approvals identified below
must be made and obtained before the Merger may be consummated without any
conditions imposed by governmental authorities (other than any conditions
that are ministerial in nature or are customary for transactions of a similar
nature).
The Merger and related transactions are subject to prior written
approval by the Florida Department, the Texas Department of Insurance and the
Office of the Commissioner of Insurance of Puerto Rico. Filings have been
made with each of these entities and additional requests for documents have
been made by the Florida Department and the Texas Department of Insurance,
which have been responded to. Under the insurance laws of these
jurisdictions, a detailed statement containing information describing the
proposed transactions and the business operations, management, financial
condition and resources, and business plans of Humana, the entity acquiring
ultimate control of the Company's subsidiary health maintenance organizations
and insurance companies, must be filed with each such jurisdiction's
insurance commissioner. In some or all such jurisdictions a public hearing
may be held at the initiative of the regulatory agency. The agencies' review
of the filed statements and other information collected or requested by the
agencies generally requires from 30 to 90 days, although a shorter or longer
period may suffice or be required. The insurance commissioner may ultimately
approve or disapprove the application. Approvals are often given in formal
orders that may impose terms and conditions stipulated by the agencies. See
"--P&C Arrangement" for a summary of additional procedures and conditions
affecting the acquisition of P&C both before and after the Effective Time.
Filings with and approvals or consents of other governmental regulatory
authorities will also be required in connection with the Merger. These
authorities include: (a) the Florida Agency for Health Care Administration,
which has jurisdiction over Medicaid prepaid health plans in Florida, (b) the
Texas Department of Health, which has a comparable role in that state, (c)
the Health Care Financing Administration, a federal agency that administers
Medicaid and Medicare contracts and (d) the Bermuda Monetary Authority, which
regulates a reinsurance subsidiary of the Company in that jurisdiction.
These authorities may also impose conditions on their approval of or consent
to the Merger and related transactions.
ANTITRUST REVIEW AND CONSIDERATIONS
The HSR Act and rules and regulations thereunder provide that certain
transactions such as the Merger may not be consummated until all required
information and documents have been submitted to the Antitrust Division of
the U.S. Department of Justice ("DOJ") and Federal Trade Commission ("FTC")
and applicable waiting periods have expired or been terminated. Humana and
the Company made HSR filings with the DOJ and FTC on July 2, 1997, thus
commencing the 30 day waiting period. The waiting period has expired without
any requests from either the DOJ or the FTC for additional information or
material from Humana or the Company.
The DOJ and FTC frequently scrutinize the effect and legality under
federal antitrust laws of transactions such as the Merger. Notwithstanding
expiration of the HSR waiting period, at any time before or after the
Effective Time, the FTC, the DOJ, any state or others may bring actions under
federal or state antitrust and competition laws, seeking to enjoin
consummation of the Merger or seeking divestiture by Humana of some or all of
the stock, operations, or
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subsidiaries of the Company. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances. There is at
present no assurance that the Merger will not be challenged on antitrust
grounds or that such a challenge, if made, would be unsuccessful or would not
require the parties to accept unexpected or adverse conditions to consummate
the Merger.
STATE ANTITAKEOVER STATUTES
A number of states have adopted laws and regulations applicable to
attempts to acquire securities of corporations that are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
effects in such states.
The Company conducts business, and the Company's stockholders are
resident, in a number of states throughout the United States, some of which
have enacted antitakeover statutes. The Company does not know to what extent
each of these statutes may apply to the Merger. Should any person seek to
apply any state antitakeover statute to the Merger, the Company will take
such action as then appears desirable, which may include challenging the
validity or applicability of any such statute in appropriate court
proceedings. In the event that it is asserted that one or more antitakeover
statutes is applicable to the Merger, the Company, Humana or Humana Sub may
be required to file certain information with, or receive approvals from, the
relevant governmental authorities.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase transaction for accounting
purposes.
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SOURCE OF FUNDS
The aggregate amount of cash required to consummate the Merger and pay
related fees and expenses, including payment of Options and employee
severance costs, is approximately $298 million. The amount of funds required
to consummate the Merger will be provided by Humana or Humana Sub. In
addition, Humana expects to repay all of the Company's existing indebtedness
for borrowed money (which had a principal amount of approximately $123
million as of June 30, 1997). Humana expects to obtain the requisite funds
to consummate the Merger through a combination of cash and cash equivalents
on hand and borrowings under a $1.5 billion five year revolving credit
facility (the "Credit Facility") for which Humana has received a commitment
letter from the Chase Manhattan Bank ("Chase"), which will act as the sole
administrative agent for the Credit Facility. The Credit Facility will
contain customary conditions to borrowing, representations and warranties,
covenants and events of default. Amounts under the Credit Facility will
generally be able to be borrowed, repaid and reborrowed from time to time.
The Credit Facility will replace an existing $600 million credit facility
(the "Existing Facility") that Humana currently has with a syndicate of
lenders, including Chase as the sole administrative agent, which would have
expired in September 2000. As of June 20, 1997, Humana had the entire $600
million of credit available under the Existing Facility. It is anticipated
that the terms of the Credit Facility will be substantially similar to the
Existing Facility.
Until such funds are needed for the conversion of shares of Common Stock
into the right to receive $7.00 in cash and payment for Options, the cash in
the Payment Fund may temporarily be invested, as directed by Humana, in
obligations of or guaranteed by the United States of America, with remaining
maturities not exceeding 180 days, in commercial paper obligations receiving
the highest rating from either Moody's Investors Service, Inc. or Standard &
Poor's Corporation or in certificates of deposit, or bankers' acceptances of
commercial banks with capital exceeding $100 million, with the net profits or
interest earned paid to Humana.
PRICE RANGE OF THE COMMON STOCK
The Common Stock has been traded on the Nasdaq National Market under the
symbol "PCAM" since 1993. The table below sets forth, for the calendar
quarters indicated, the high and low sales prices for the Common Stock as
reported by the Nasdaq National Market. During the periods presented below,
the Company has not declared or paid any dividends.
BID PRICE
-----------------
HIGH LOW
---- ---
1995
First Quarter . . . . . . . . . . . . . . . . . 28 19 3/4
Second Quarter. . . . . . . . . . . . . . . . . 24 13 1/2
Third Quarter . . . . . . . . . . . . . . . . . 18 5/8 13 1/2
Fourth Quarter. . . . . . . . . . . . . . . . . 18 1/2 13 1/2
1996
First Quarter . . . . . . . . . . . . . . . . . 20 14 1/4
Second Quarter. . . . . . . . . . . . . . . . . 16 3/4 12 3/4
Third Quarter . . . . . . . . . . . . . . . . . 13 3/4 9 1/2
Fourth Quarter. . . . . . . . . . . . . . . . . 12 3/4 9 1/2
1997
First Quarter . . . . . . . . . . . . . . . . . 11 1/8 2 5/8
Second Quarter. . . . . . . . . . . . . . . . . 7 3/8 4 3/8
Third Quarter (through August 5, 1997). . . . . 6 3/4 6 9/16
On May 30, 1997, the last full trading day prior to the announcement that
the Company was in discussions with a third party for a business combination
transaction at $7.00 per share, the reported Nasdaq National Market closing
price of the Common Stock was $7-1/8 per share. Prior to such time, the
Company had previously announced that it was in discussions with several
potential acquirors. On August 5, 1997, the latest practicable trading day
prior to the date of this Proxy Statement, the last reported sale price of
the Common Stock, as reported on the Nasdaq National Market, was $6-5/8.
-36-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data presented below for,
and as of the end of, each of the fiscal years in the five-year period ended
December 31, 1996, have been derived from the audited consolidated financial
statements of the Company. The selected consolidated financial data shown
below for the three months ended and as of March 31, 1997 and 1996, have been
derived from the unaudited consolidated financial statements of the Company.
In the opinion of management of the Company, such unaudited financial
information includes all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the Company's
results of operations for the periods then ended and the Company's financial
position as of such dates. Operating results for the three-month period
ended March 31, 1997, are not necessarily indicative of results for the
entire year. This information should be read in conjunction with the
financial information incorporated by reference in this Proxy Statement. See
"Incorporation of Certain Information by Reference".
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- --------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DATA:(1)
Revenues:
Health premiums. . . . . . . . . . . . . $354,342 $542,030 $ 760,669 $1,038,637 $1,292,914 $ 318,209 $332,833
Workers' compensation
related revenues. . . . . . . . . . . . -- -- 46,466 143,395 122,611 49,363 23,916
Investment income. . . . . . . . . . . . 1,956 3,880 10,631 18,602 25,961 5,696 7,803
Other revenues . . . . . . . . . . . . . 3,253 3,937 6,963 15,915 12,822 5,655 932
-------- -------- --------- ----------- ----------- --------- --------
Total revenues. . . . . . . . . . . . 359,551 549,847 824,729 1,216,549 1,454,308 378,923 365,484
-------- -------- --------- ----------- ----------- --------- --------
Operating expenses:
Medical costs. . . . . . . . . . . . . 279,128 394,723 562,364 878,918 1,130,528 277,965 289,937
Health administrative,
marketing and other expenses. . . . . 56,432 81,887 124,979 179,362 188,710 52,032 41,700
Workers' compensation
related administrative,
marketing and other expenses. . . . . -- -- 33,751 111,906 191,505 42,518 19,261
Loss on assumption of net workers'
compensation liabilities . . . . . . . -- -- -- -- 180,934 -- --
Loss on write-down of
long lived assets . . . . . . . . . . -- -- -- 25,863 38,979 -- --
Depreciation and amortization. . . . . 3,901 5,553 12,621 23,264 22,497 6,234 4,365
Other operating expenses . . . . . . . -- -- 2,129 14,242 10,519 4,781 61
-------- -------- --------- ----------- ----------- --------- --------
Total operating expenses . . . . . . 339,461 482,163 735,844 1,233,555 1,763,672 383,530 355,324
-------- -------- --------- ----------- ----------- --------- --------
Operating income (loss). . . . . . . 20,090 67,684 88,885 (17,006) (309,364) (4,607) 10,160
Gain on sale of subsidiaries . . . . . 5,917 -- -- -- 12,352 -- --
Interest expense . . . . . . . . . . . (2,058) (1,448) (2,107) (9,113) (13,738) (4,027) (5,203)
Other income (expense) . . . . . . . . (36) (542) (31) 263 (2,216) 10 (15)
-------- -------- --------- ----------- ----------- --------- --------
Earnings (loss) before
income taxes . . . . . . . . . . . 23,913 65,694 86,747 (25,856) (312,966) (8,624) 4,942
Income tax expense
(benefit). . . . . . . . . . . . . . 9,476 25,600 34,200 (1,260) (35,281) (3,690) 319
-------- -------- --------- ----------- ----------- --------- --------
Net earnings (loss). . . . . . . . . $ 14,437 $ 40,094 $ 52,547 $ (24,596) $ (277,685) $ (4,934) $ 4,623
-------- -------- --------- ----------- ----------- --------- --------
-------- -------- --------- ----------- ----------- --------- --------
Net earnings (loss) per common share
and common equivalent share on a
primary and fully diluted basis. . . . $ 0.49 $ 1.12 $ 1.30 $ (0.62) $ (7.16) $ (0.13) $ .12
-------- -------- --------- ----------- ----------- --------- --------
-------- -------- --------- ----------- ----------- --------- --------
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31 AT MARCH 31
----------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- ------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit) $(10,848) $ 73,125 $ 59,297 $ 77,167 $ (115,343) $ 5,722 $ (85,851)
Total assets 150,629 356,949 644,978 849,662 1,354,987 917,533 1,200,228
Long-term debt (net of
current maturities) 9,837 4,414 82,997 157,096 10,344 139,364 9,746
Stockholders' equity (deficit)(2) 30,993 185,942 243,548 210,169 (64,832) 202,894 (64,192)
</TABLE>
__________
(1) Certain 1992, 1993, 1994 and 1995 amounts have been reclassified to
conform with the 1996 presentation. These reclassifications have no
impact on net earnings (loss) or stockholders' equity as previously
reported.
(2) Includes $10,000 in put warrants in 1994.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Agreement provides that Humana will indemnify the officers,
directors and employees of the Company and its subsidiaries from all
liabilities arising out of the transactions contemplated by the Agreement to
the fullest extent permitted by law. The Agreement also provides that all
rights to indemnification existing in favor of those persons provided for in
the Company's Certificate of Incorporation or By-Laws with respect to matters
occurring through the Effective Time shall survive the Merger and continue in
full force for a period of not less than six years from the Effective Time.
Humana has agreed to cause the Surviving Corporation to maintain in effect
for not less than six years after the Effective Time the current policies of
directors' and officers' liability insurance maintained by the Company with
respect to matters occurring on or prior to the Effective Time; PROVIDED,
HOWEVER, that the Surviving Corporation may substitute therefor policies of
at least the same coverage (with carriers comparable to the Company's
existing carriers) containing terms and conditions which are no less
advantageous to the indemnified parties; PROVIDED, FURTHER, that Humana shall
not be required in order to maintain or procure such coverage to pay an
annual premium in excess of 150% of the current annual premium paid by the
Company for its existing coverage (the "Cap"); and PROVIDED, FURTHER, that if
equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, Humana shall only be required to obtain
as much coverage as can be obtained by paying an annual premium equal to the
Cap.
Each of the executive officers of the Company are parties to existing
salary continuation agreements with the Company that provide for aggregate
total payments of up to 18 months salary and a payment for the cash value of
their Options, as defined in the agreements, which the Company estimates
together will approximate $3 million. In addition, pursuant to consulting
agreements entered into by and between the Company and Dr. Kardatzke and
Messrs. Kilissanly and Donnelly on June 2, 1997, in the event that the Merger
is effected and to the extent that such officers of the Company are employed
by the Company on the Effective Time, they will be entitled to receive
payments aggregating $682,228, $652,117 and $415,655 respectively, in
consideration for consulting services to be rendered to the Company during
the year following the Effective Time. The consulting agreements also
provide that Dr. Kardatzke and Messrs. Kilissanly and Donnelly will not
solicit employees from the Company or compete with the Company in Puerto
Rico. In addition, the Board approved payment of a success fee of $250,000
to be paid upon consummation of the Merger to Mr. Clark Mandigo, a
non-employee director of the Company, in connection with his negotiation of
the Agreement on behalf of the Company.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS,
OFFICERS AND CERTAIN STOCKHOLDERS OF THE COMPANY
The following table sets forth as of July 25, 1997, the beneficial
ownership of Common Stock by (i) each person known by the Company to be the
beneficial owner of more than five percent of the outstanding shares of
Common Stock, (ii) the directors of the Company, (iii) the executive officers
of the Company and (iv) all directors and executive officers of the Company
as a group.
BENEFICIAL OWNERSHIP(1)
SHARES OF
NAME COMMON STOCK PERCENT(2)
---- --------------- -------------
Wellington Management Company, LLP(3) 2,925,800 7.5
E. Stanley Kardatzke, M.D.(4) 2,120,448 5.4
Peter E. Kilissanly(5) 875,398 2.2
Clifford W. Donnelly(6) 57,000 *
Glen R. Johnson, M.D.(7) 62,600 *
Donald J. Gessler, M.D.(8) 155,000 *
Elias A. Hourani, M.D.(9) 134,600 *
George J. Farha, M.D.(10) 672,332 1.7
William C. Loewen, M.D.(11) 589,332 1.5
Clark R. Mandigo(12) 283,664 *
All directors and executive officers
as a group (9 persons)(13) 4,950,374 12.4
- ----------
*Less than 1%.
(1) Unless otherwise specified, the Company believes that all persons named in
the above table have sole voting power and investment power with respect to
the shares beneficially owned by them.
(2) Each beneficial owner's percentage ownership is determined by assuming that
Options that are held by such person (but not those held by any other
person) have been exercised.
(3) Pursuant to a Schedule 13G filed with the Commission as of February 20,
1997, has reported that the shares are held of record by its clients for
whom it acts as an investment advisor. All 2,925,800 shares are subject to
shared dispositive power, none are subject to sole voting power and
1,124,000 shares are subject to shared voting power. Address is 75 State
Street, Boston, Massachusetts 02109.
(4) Includes (i) 182,482 shares as to which Dr. Kardatzke's wife has sole
voting and investment power, (ii) 292,750 shares held by a charitable
foundation of which Dr. Kardatzke holds voting and investment power and
(iii) 112,000 shares that can be acquired upon exercise of Options.
(5) Includes (i) 173,332 shares held in trust as to which Mr. Kilissanly holds
sole voting and investment power, (ii) 1,800 shares owned by
Mr. Kilissanly's wife and (iii) 28,000 shares that can be acquired upon
exercise of Options.
(6) Includes (i) 10,000 shares owned by Mr. Donnelly's wife who has sole voting
and investment power with respect to such shares and (ii) 22,000 shares
that can be acquired upon exercise of Options.
(7) Includes (i) 2,666 shares owned by Dr. Johnson's wife who has sole voting
and investment power with respect to such shares, (ii) 15,200 shares held
in an Individual Retirement Account for the benefit of Dr. Johnson,
(iii) 400 shares held in an Individual Retirement Account for the benefit
of Dr. Johnson's wife and (iv) 44,000 shares that can be acquired upon
exercise of Options.
(8) Includes 135,000 shares that can be acquired upon exercise of Options.
(9) Includes 53,600 shares that can be acquired upon exercise of Options.
(10) Includes 18,000 shares that can be acquired upon exercise of Options.
-39-
<PAGE>
(11) Includes (i) 200,000 shares owned by Dr. Loewen's wife who has sole voting
and investment power with respect to such shares, (ii) 50,000 shares held
by a charitable foundation of which Dr. Loewen shares voting and investment
power and (iii) 24,000 shares that can be acquired upon exercise of
Options.
(12) Includes (i) 22,664 shares held in trusts for the benefit of Mr. Mandigo's
children, (ii) 93,334 shares owned jointly with Mr. Mandigo's wife,
(iii) 11,666 shares held in an Individual Retirement Account for the
benefit of Mr. Mandigo and (iv) 64,000 shares that can be acquired upon
exercise of Options.
(13) Includes 500,600 shares that can be acquired upon exercise of Options.
INFORMATION CONCERNING HUMANA AND ITS AFFILIATES
Humana is a public company whose common stock is traded on the New York
Stock Exchange under the symbol HUM. Humana offers managed health care
products that integrate medical management with the delivery of health care
services through a network of providers. This network of providers may share
financial risk or have incentive to deliver quality medical services in a
cost-effective manner. These products are marketed primarily through HMOs
and preferred provider organizations ("PPOs") that encourage or require the
use of contracting providers. HMOs and PPOs control health care costs by
various means, including pre-admission approval for hospital inpatient
services and pre-authorization of outpatient surgical procedures. Humana
also offers various specialty and administrative service products including
dental, group life, workers' compensation and pharmacy benefit management
services. Humana's principal executive offices are located at 500 West Main
Street, Louisville, Kentucky 40202, and its telephone number at that address
is (502) 580-1000. More information about Humana is available on its web
site (http://www.humana.com). Humana Sub is a direct wholly owned subsidiary
of Humana, which has conducted no business to date.
PROXY SOLICITATION
PROXIES ARE BEING SOLICITED FROM THE COMPANY'S STOCKHOLDERS BY AND ON
BEHALF OF THE BOARD. THE COMPANY WILL BEAR THE EXPENSES FOR THE
SOLICITATIONS, INCLUDING THE COSTS OF PREPARING AND MAILING THIS PROXY
STATEMENT TO ITS STOCKHOLDERS. IN ADDITION TO SOLICITATION BY MAIL, PROXIES
MAY BE SOLICITED FROM THE STOCKHOLDERS OF THE COMPANY BY DIRECTORS, OFFICERS
AND REGULAR EMPLOYEES OF THE COMPANY, IN PERSON, BY FACSIMILE, BY TELEPHONE
OR BY OTHER ELECTRONIC MEANS. SUCH DIRECTORS, OFFICERS AND EMPLOYEES WILL
NOT RECEIVE ANY ADDITIONAL COMPENSATION FOR SUCH SERVICES BUT MAY BE
REIMBURSED FOR REASONABLE EXPENSES INCURRED BY THEM IN FORWARDING THE PROXY
SOLICITING MATERIALS TO THE BENEFICIAL OWNERS OF THE COMMON STOCK. CORPORATE
INVESTOR COMMUNICATIONS, INC., AN INVESTOR RELATIONS FIRM, HAS BEEN RETAINED
BY THE COMPANY TO SOLICIT PROXIES. THE FEES OF SUCH FIRM ARE EXPECTED TO BE
APPROXIMATELY $5,000 PLUS REIMBURSEMENT OF REASONABLE OUT-OF-POCKET EXPENSES.
ALTHOUGH THERE IS NO FORMAL AGREEMENT TO DO SO, THE COMPANY WILL REIMBURSE
BANKS, BROKERAGE FIRMS AND OTHER CUSTODIANS, NOMINEES AND FIDUCIARIES FOR THE
REASONABLE OUT-OF-POCKET EXPENSES INCURRED IN CONNECTION WITH THE FORWARDING
OF PROXY SOLICITATION MATERIALS TO BENEFICIAL OWNERS OF THE COMMON STOCK BY
SUCH PERSONS.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company's consolidated financial statements as of December 31, 1996
and 1995 and for each of the years in the three-year period ended December
31, 1996 have been incorporated by reference herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, upon the authority of said firm as experts
in accounting and auditing. A representative of KPMG Peat Marwick LLP is
expected to be present at the Special Meeting and will be afforded an
opportunity to make a statement if he or she so desires and will be available
to respond to appropriate questions presented at the Special Meeting.
-40-
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is not consummated, proposals that stockholders of the
Company intend to present at the next Annual Meeting of Stockholders in 1998
must be received by the Corporate Secretary of the Company at its principal
executive offices (6101 Blue Lagoon Drive, Miami, Florida 33126) no later
than January 10, 1998, for inclusion in the Company's proxy statement and the
proxy for that meeting and must be otherwise in compliance with applicable
Commission regulations. Use of certified mail is suggested.
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 periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information concerning the Company may be inspected and copied at the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, where copies may be obtained at
prescribed rates, as well as at the following regional offices: Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048;
and Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. The Commission maintains a web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding the Company. The Common Stock is quoted on the Nasdaq National
Market.
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company (File
No. 0-21440) are incorporated in this Proxy Statement by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as amended by Amendment Form 10-K/A-1, dated April 17, 1997, and by
Amendment Form 10-K/A-2, dated August 7, 1997.
2. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1997.
3. Current Reports on Form 8-K dated April 28, 1997 and June 17, 1997.
4. The description of the Common Stock contained in the Registration
Statement of the Company on Form 8-A dated March 26, 1993.
5. The description of certain rights attaching to the Common Stock to
purchase the Common Stock contained in the Registration Statement of the
Company on Form 8-A dated January 13, 1995.
All reports and other documents filed by the Company after the date of
this Proxy Statement pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference herein and to be a part hereof from the dates of
filing of such reports or documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for the purposes of this Proxy
Statement to the extent that a statement contained herein or in another
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
-41-
<PAGE>
This Proxy Statement incorporates documents by reference, which are not
presented herein or delivered herewith. These documents (other than exhibits
to such documents unless such exhibits are specifically incorporated herein
by reference) are available, without charge, upon request from the Company,
P.O. Box 527500, Miami, Florida 33152-7500, Attention: Corporate Secretary,
telephone: (305) 267-6633. To ensure timely delivery of the documents, any
request should be made by August 28, 1997. Copies of documents so requested
will be sent by first-class mail, postage paid, within one business day of
receipt of such request.
CERTAIN FORWARD-LOOKING STATEMENTS
This Proxy Statement contains certain forward-looking statements,
including statements about the business, operations and financial condition
of the Company and various statements contained under the captions "Summary,"
"The Merger--Reasons for the Merger; Recommendation of the Board of
Directors," and "The Merger--Opinion of Bear, Stearns & Co. Inc." The
actual results of the Company could differ materially from such
forward-looking statements.
-42-
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
JUNE 2, 1997
AMONG
HUMANA INC.
HUMNOV, INC.
AND
PHYSICIAN CORPORATION OF AMERICA
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
---------
<S> <C> <C>
ARTICLE I THE MERGER............................................................................ A-1
Section 1.1. The Merger............................................................................ A-1
Section 1.2. Effective Date of The Merger.......................................................... A-1
ARTICLE II THE SURVIVING CORPORATION............................................................. A-1
Section 2.1. Certificate of Incorporation.......................................................... A-1
Section 2.2. By-Laws............................................................................... A-1
Section 2.3. Board of Directors; Officers.......................................................... A-1
Section 2.4. Effects of Merger..................................................................... A-1
ARTICLE III CONVERSION OF SHARES.................................................................. A-2
Section 3.1. Merger Consideration.................................................................. A-2
Section 3.2. Payment Procedures.................................................................... A-2
Section 3.3. Dissenting Shares..................................................................... A-3
Section 3.4. Stock Options......................................................................... A-3
Section 3.5. Stockholders' Meetings................................................................ A-4
Section 3.6. Closing of the Company's Transfer Books............................................... A-4
Section 3.7. Assistance in Consummation of the Merger.............................................. A-5
Section 3.8. Closing............................................................................... A-5
Section 3.9. Transfer Taxes........................................................................ A-5
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................ A-5
Section 4.1. Organization, Standing and Power...................................................... A-5
Section 4.2. Capital Structure..................................................................... A-5
Section 4.2A. Subsidiaries.......................................................................... A-6
Section 4.3. Authority............................................................................. A-6
Section 4.4. SEC Documents......................................................................... A-7
Section 4.5. Information Supplied.................................................................. A-8
Section 4.6. Compliance with Applicable Laws....................................................... A-8
Section 4.7. Financial Statements.................................................................. A-8
Section 4.8. Litigation............................................................................ A-9
Section 4.9. Labor and Employment Matters.......................................................... A-9
Section 4.10. Absence of Certain Changes............................................................ A-10
Section 4.11. Material Contracts.................................................................... A-12
Section 4.12. Officers and Directors and Employees.................................................. A-12
Section 4.13. Title to and Condition of Properties and Assets....................................... A-13
Section 4.14. Patents, Copyrights, Service Marks and Trademarks..................................... A-13
Section 4.15. Employee Benefit Plans................................................................ A-14
Section 4.16. Transactions with Officers, Directors and Others...................................... A-15
Section 4.17. Insurance Matters-Reinsurance and Coinsurance......................................... A-16
Section 4.18. Taxes................................................................................. A-16
Section 4.19. Opinion of Financial Advisor.......................................................... A-17
Section 4.20. Investment Company Act................................................................ A-17
Section 4.21. Vote Required......................................................................... A-17
Section 4.22. Applicability of DGCL 203............................................................. A-18
Section 4.23. Environmental Matters................................................................. A-18
Section 4.24 Accreditation's....................................................................... A-18
Section 4.25. Change of Control Payments............................................................ A-18
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGES
---------
<S> <C> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB...................................... A-19
Section 5.1 Organization; Standing and Power...................................................... A-19
Section 5.2 Authority............................................................................. A-19
Section 5.3 Information Supplied.................................................................. A-19
Section 5.4 Interim Operations of Sub............................................................. A-19
Section 5.5 Financing............................................................................. A-19
Section 5.6 Brokers............................................................................... A-19
Section 5.7 Ownership of Company Stock............................................................ A-20
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER................................................ A-20
Section 6.1. Conduct of Business by the Company Pending the Merger................................. A-20
Section 6.2. Conduct of Business by Parent Pending the Merger...................................... A-21
Section 6.3. Conduct of Business of Sub............................................................ A-21
ARTICLE VII ADDITIONAL AGREEMENTS................................................................. A-21
Section 7.1. Access and Information................................................................ A-21
Section 7.2. Proxy Statement....................................................................... A-21
Section 7.3. Company Stockholder Approval.......................................................... A-22
Section 7.4. Employee Matters...................................................................... A-22
Section 7.5. Indemnification....................................................................... A-22
Section 7.6. Best Efforts.......................................................................... A-23
Section 7.7. Public Announcements.................................................................. A-24
Section 7.8. Alternative Proposals................................................................. A-24
Section 7.9. Advice of Changes; SEC Filings........................................................ A-25
Section 7.10. Fee and Expenses...................................................................... A-25
Section 7.11. Amendment to the Company Rights Agreement............................................. A-25
Section 7.12. P&C Commitments....................................................................... A-25
Section 7.13. Assumption of Debt Obligations........................................................ A-25
Section 7.14. Escrow Deposit........................................................................ A-25
ARTICLE VIII CONDITIONS PRECEDENT.................................................................. A-26
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger............................ A-26
Section 8.2. Condition to Obligation of the Company to Effect the Merger........................... A-26
Section 8.3. Conditions to Obligations of Parent and Sub to Effect the Merger...................... A-27
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER..................................................... A-27
Section 9.1. Termination by Mutual Consent......................................................... A-27
Section 9.2. Termination by Either Parent or the Company........................................... A-27
Section 9.3. Termination by the Company............................................................ A-27
Section 9.4. Termination by Parent................................................................. A-28
Section 9.5. Effect of Termination and Abandonment................................................. A-28
Section 9.6. Extension; Waiver..................................................................... A-29
ARTICLE X GENERAL PROVISIONS.................................................................... A-29
Section 10.1. Non-Survival of Representations, Warranties and Agreements............................ A-29
Section 10.2. Notices............................................................................... A-29
Section 10.3. Special Performance................................................................... A-30
Section 10.4. Assignment; Binding Effect............................................................ A-30
Section 10.5. Entire Agreement...................................................................... A-30
Section 10.6. Amendment............................................................................. A-30
Section 10.7. Governing Law......................................................................... A-31
Section 10.8. Counterparts.......................................................................... A-31
Section 10.9. Headings and Table of Contents........................................................ A-31
</TABLE>
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Section 10.10. Interpretation........................................................................ A-31
Section 10.11. Waivers............................................................................... A-31
Section 10.12. Incorporation of Exhibits............................................................. A-31
Section 10.13. Severability.......................................................................... A-32
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 2,
1997, by and among Humana Inc., a Delaware corporation ("Parent"), HUMNOV, Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and
Physician Corporation of America, a Delaware corporation (the "Company"):
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent and the Company each have
determined that it is in the best interests of their respective companies and
stockholders for Parent to acquire the Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection herewith.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER.
Section 1.1. THE MERGER. Upon the terms and subject to the conditions
hereof, on the Effective Date (as defined in Section 1.2), Sub shall be merged
into the Company (the "Merger") and the separate existence of Sub shall
thereupon cease, and the Company, as the corporation surviving the Merger (the
"Surviving Corporation"), shall by virtue of the Merger continue its corporate
existence under the laws of the State of Delaware.
Section 1.2. EFFECTIVE DATE OF THE MERGER. The Merger shall become
effective at the date and time (the "Effective Date") when a properly executed
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware (the "Merger Filing"), which filing shall be made as soon as
practicable following fulfillment of the conditions set forth in Article VIII
hereof, or at such time thereafter as is provided in such Certificate of Merger.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. CERTIFICATE OF INCORPORATION. Subject to Section 7.5, the
Certificate of Incorporation of Sub shall be the Certificate of Incorporation of
the Surviving Corporation after the Effective Date, and thereafter may be
amended in accordance with its terms and as provided by law and this Agreement.
Section 2.2. BY-LAWS. The By-laws of Sub as in effect on the Effective
Date shall be the By-laws of the Surviving Corporation, and thereafter may be
amended in accordance with its terms and as provided by law and this Agreement.
Section 2.3. BOARD OF DIRECTORS; OFFICERS. The directors of Sub
immediately prior to the Effective Date shall be the directors of the Surviving
Corporation, and the officers of Sub immediately prior to the Effective Date
shall be the officers of the Surviving Corporation, in each case until their
respective successors are duly elected and qualified.
Section 2.4. EFFECTS OF MERGER. The Merger shall have the effects set
forth in Section 259 of the Delaware General Corporation Law (The "DGCL").
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ARTICLE III
CONVERSION OF SHARES
Section 3.1. MERGER CONSIDERATION. On the Effective Date, by virtue of the
Merger and without any action on the part of any holder of any Common Stock, par
value $.01 per share, of the Company ("Company Common Stock"):
(a) All shares of Company Common Stock which are held by the Company or any
Subsidiary of the Company, and any shares of Company Common Stock owned by
Parent, Sub or any other subsidiary of Parent, shall be canceled. As used in
this Agreement, "Subsidiary" means any significant corporation, partnership,
joint venture or other legal entity of which Parent or the Company, as the case
may be (either alone or through or together with any other Subsidiary), owns
directly or indirectly, 50% or more of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
(b) Subject to Section 3.3, each remaining outstanding share of Company
Common Stock shall be converted into and represent the right to receive $7.00
(the "Merger Consideration") in accordance with Section 3.2.
(c) In the event of any stock dividend, stock split, reclassification,
recapitalization, combination or exchange of shares with respect to, or rights
issued in respect of, Company Common Stock after the date hereof, the Merger
Consideration shall be adjusted accordingly.
(d) Each issued and outstanding share of capital stock of Sub shall be
converted into and become one fully paid and nonassessable share of common stock
of the Surviving Corporation.
Section 3.2. PAYMENT PROCEDURES. (a) Prior to the Effective Date, Parent
shall select a Payment Agent, which shall be Parent's Transfer Agent or such
other person or persons reasonably satisfactory to the Company, to act as
Payment Agent for the Merger (the "Payment Agent").
(b) As soon as practicable after the Effective Date (but in no event more
than five days thereafter), Parent shall instruct the Payment Agent to mail to
each holder of a certificate or certificates evidencing shares of Company Common
Stock (other than Dissenting Shares, as defined in Section 3.3) ("Certificates")
(i) a letter of transmittal (which shall include a Substitute Form W-9 and shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of such Certificates to the
Payment Agent) and (ii) instructions to effect the surrender of the Certificates
in exchange for the Merger Consideration. Each holder of Company Common Stock,
upon surrender to the Payment Agent of such holder's Certificates with the
letter of transmittal, duly executed, and such other customary documents as may
be required pursuant to such instructions, shall be paid the amount to which
such holder is entitled, pursuant to this Agreement, of cash as payment of the
Merger Consideration (without any interest accrued thereon). Until so
surrendered, each Certificate shall after the Effective Date represent for all
purposes only the right to receive the Merger Consideration. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the posting
by such person of a bond in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Paying Agent will deliver in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
(c) At the closing of the transactions contemplated by this Agreement (the
"Closing"), Parent shall deposit in trust with the Payment Agent, for the
ratable benefit of the holders of Company Common Stock, the appropriate amount
of cash to which such holders are entitled pursuant to this Agreement for
payment of the Merger Consideration (the "Payment Fund"). The Payment Agent
shall, pursuant to irrevocable instructions, make the payments to the holders of
Company Common Stock as set forth in this Agreement.
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(d) If any delivery of the Merger Consideration is to be made to a person
other than the registered holder of the Certificates surrendered in exchange
therefor, it shall be a condition to such delivery that the Certificate so
surrendered shall be properly endorsed or be otherwise in proper form for
transfer and that the person requesting such delivery shall (i) pay to the
Payment Agent any transfer or other taxes required as a result of delivery to a
person other than the registered holder or (ii) establish to the satisfaction of
the Payment Agent that such tax has been paid or is not payable.
(e) Any portion of the Payment Fund that remains undistributed to the
holders of Company Common Stock as of the first anniversary of the Effective
Date shall be delivered to Parent upon demand, and any holder of Company Common
Stock who has not theretofore complied with the exchange requirements of this
Section shall have no further claim upon the Payment Agent and shall thereafter
look only to Parent for payment of the Merger Consideration.
(f) If a Certificate has not been surrendered prior to the date on which any
receipt of Merger Consideration would otherwise escheat to or become the
property of any governmental agency, such Certificate shall, to the extent
permitted by applicable law, be deemed to be canceled and no money or other
property will be due to the holder thereof.
(g) The Payment Agent may invest cash in the Payment Fund, as directed by
Parent, on a daily basis, provided that all such investments shall be in
obligations of or guaranteed by the United States of America with remaining
maturities not exceeding 180 days, in commercial paper obligations receiving the
highest rating from either Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or in certificates of deposit or banker's acceptances of commercial
banks with capital exceeding $100 million (collectively, "Permitted
Investments"). The maturities of Permitted Investments shall be such as to
permit the Payment Agent to make prompt payment to former stockholders of the
Company entitled thereto as contemplated by this Section. Parent shall promptly
replenish the Payment Fund to the extent of any losses incurred as a result of
Permitted Investments. Any interest and other income resulting from such
investments shall be paid to Parent. If for any reason (including losses) the
Payment Fund is inadequate to pay the amounts to which holders of Company Common
Stock shall be entitled under this Agreement, Parent shall in any event be
liable for payment thereof. The Payment Fund shall not be used for any purpose
not specifically provided for in this Agreement.
Section 3.3. DISSENTING SHARES. (a) Notwithstanding any other provision of
this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Date and which are held by
holders who shall have not voted in favor of the Merger or consented thereto in
writing and who shall have demanded properly in writing appraisal for such
shares in accordance with Section 262 of the DGCL and who shall not have
withdrawn such demand or otherwise have forfeited appraisal rights
(collectively, the "Dissenting Shares") shall not be converted into or represent
the right to receive the Merger Consideration. Such holders shall be entitled to
receive payment of the appraised value of such shares, except that all
Dissenting Shares held by holders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable, as of the Effective Date, for the right to
receive, without any interest thereon, the Merger Consideration, upon surrender
of the Certificates evidencing such shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and (ii) the
opportunity to participate and direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company shall not, except
with the prior written consent of Parent, make any payment with respect to any
demands for appraisal, or offer to settle, or settle, any such demands.
Section 3.4. STOCK OPTIONS. (a) All options (the "Options") to acquire
shares of Company Common Stock (whether vested or unvested), other than those
set forth in paragraph (d) below, shall be canceled as
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of the Effective Date. In consideration of such cancellation, each holder of
Options shall have only the right to receive from the Company the payments (if
any) as specified below:
(i) Each employee of the Company or any of its Subsidiaries employed as
of the Effective Date shall be entitled to receive the Cash Value (as such
term is defined in the form of Salary Continuation Agreement attached to
SCHEDULE 3.4 (the "Salary Continuation Agreement")) of each such canceled
Option under either of the following circumstances: (x) the employee is
employed by Parent or any of its Subsidiaries (including the Company) at the
end of the Initial Benefit Period specified in the Salary Continuation
Agreement to which the employee is a party or, if such employee is not a
party to a Salary Continuation Agreement, six months from the Effective Date
(such employee's Initial Benefit Period being deemed to be six months for
purposes of computing the Cash Value) or (y) the employee's employment is
terminated under circumstances resulting in a Termination Date (as such term
is defined in the Salary Continuation Agreement). The payment shall be made
upon the earlier to occur of clauses (x) and (y).
(ii) Each holder of an Option who was not an employee of the Company or
any of its Subsidiaries as of the Effective Date or was a non-employee
director of the Company shall have the right to receive a cash payment in
the amount (if any) equal to the number of shares of Company Common Stock
subject to each canceled Option multiplied by the difference (if positive)
between the exercise price per share of Company Common Stock covered by the
canceled Option and the Merger Consideration.
(b) As a condition to making any payment specified in clause (a) above, each
Option holder shall acknowledge in writing that all Options held by such person
have been canceled in consideration of the right to receive such payment and, in
the case of employees who are parties to the Salary Continuation Agreement, in
full satisfaction of all rights under paragraph 2(b)(iv) of such employee's
Salary Continuation Agreement.
(c) Prior to the Effective Date, the Company shall take such additional
actions as are necessary under applicable law and the applicable agreement and
the Company's option plans to ensure that each Option shall, from and after the
Effective Date, represent only the right to receive the payments specified in
clause (a) above.
(d) The Company shall take all actions necessary to vest all options held by
the University of Miami and The Jackson Memorial Foundation as contemplated by
Section 12.B(i) of the applicable Stock Option Agreement so that from and after
the Effective Date each such option represents the right to receive the Merger
Consideration.
Section 3.5. STOCKHOLDERS' MEETINGS. The Company shall take all action
necessary, in accordance with applicable law and its Certificate of
Incorporation and By-laws, to convene a special meeting of the holders of
Company Common Stock (the "Company Meeting") as promptly as practicable for the
purpose of considering and taking action upon this Agreement. Subject to the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, as advised by outside counsel, the Board of
Directors of the Company will recommend that holders of Company Common Stock
vote in favor of and approve the Merger and the adoption of the Agreement at the
Company Meeting. At the Company Meeting, all of the shares of Company Common
Stock then owned by Parent, Sub, or any other subsidiary of Parent, or with
respect to which Parent, Sub, or any other subsidiary of Parent holds the power
to direct the voting, will be voted in favor of approval of the Merger and
adoption of this Agreement.
Section 3.6. CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective
Date, the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall be made thereafter. In the event that,
after the Effective Date, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration
as provided in Sections 3.1(b) and 3.2.
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Section 3.7. ASSISTANCE IN CONSUMMATION OF THE MERGER. Each of Parent, Sub
and the Company shall provide all reasonable assistance to, and shall cooperate
with, each other to bring about the consummation of the Merger as soon as
possible in accordance with the terms and conditions of this Agreement. Parent
shall cause Sub to perform all of its obligations in connection with this
Agreement.
Section 3.8. CLOSING. The Closing shall take place (i) at the offices of
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York
10004, at 9:00 A.M. local time on the day which is at least one business day
after the day on which the last of the conditions set forth in Article VIII
(other than those that can only be fulfilled on the Effective Date) is fulfilled
or waived or (ii) at such other time and place as Parent and the Company shall
agree in writing.
Section 3.9. TRANSFER TAXES. Parent and Company shall cooperate in the
preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary or
other taxes and any other fees and similar taxes which become payable in
connection with the Merger other than transfer or stamp taxes payable in respect
of transfers pursuant to Section 3.2(d)(i) (collectively, "Transfer Taxes").
From and after the Effective Date, Parent shall pay or cause to be paid, without
deduction or withholding from any amounts payable to the holders of Company
Common Stock, all Transfer Taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Parent and Sub as follows:
Section 4.1. ORGANIZATION, STANDING AND POWER. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business, including those subsidiaries engaged in the insurance
business (the "Insurance Subsidiaries"), as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary except when the failure to be so qualified would not
have a Material Adverse Effect on the Company. As used in this Agreement,
"Material Adverse Effect" means, when used with respect to Parent, Sub or the
Company, as the case may be, any change or effect, either individually or in the
aggregate, that is or may be materially adverse to the business, assets,
liabilities, properties, condition (financial or otherwise) or results of
operations of all or any part of Parent and its Subsidiaries taken as a whole,
Sub, or the Company and its Subsidiaries taken as a whole, as the case may be
(PROVIDED, HOWEVER, that in respect of the Company any such change or effect
relating to (i) PCA Property and Casualty Insurance Company, a Florida
corporation and a wholly-owned subsidiary of the Company ("P&C"), (ii) PCA
Solutions, Inc., a Florida corporation and a wholly-owned subsidiary of the
Company, or (iii) risk contracts between P&C or any of its Subsidiaries and the
Company's Florida HMOs regarding provision of health care services with respect
to worker's compensation as set forth on SCHEDULE 4.1, shall in each case be
excluded from such determination).
Section 4.2. CAPITAL STRUCTURE. As of the date hereof, the authorized
capital stock of the Company consists of 200,000,000 shares of the Company
Common Stock and 10,000,000 shares of preferred stock, $1.00 par value ("Company
Preferred Stock"). At the close of business on May 30, 1997: (i) 38,837,657
shares of Company Common Stock were outstanding, 5,314,108 shares of Company
Common Stock were reserved for issuance upon the exercise of outstanding stock
options (3,119,950 shares of which are subject to outstanding stock options) or
pursuant to the Company's option plans, (ii) no shares of Company Common Stock
were reserved for issuance upon exercise of the Company's rights (the "Company
Rights") granted under the Rights Agreement, dated January 13, 1995 (the
"Company Rights Agreement"), between the Company and the Rights Agent (as
defined therein); (iii) no shares of Company Common Stock were held by its
wholly-owned Subsidiaries; (iv) no shares of the Company Preferred Stock were
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outstanding; and (v) except as set forth on SCHEDULE 4.2, no warrants, bonds,
debentures, notes or other indebtedness or other security having the right to
vote (or convertible into or exercisable for securities having the right to
vote) on any matters on which stockholders may vote ("Voting Debt") were issued
or outstanding; since May 30, 1997 there has been no change in such share
information except by reason of the exercise of Options. All outstanding shares
of the Company capital stock are validly issued, fully paid and nonassessable
and not subject to preemptive rights. As of the date of this Agreement, except
for this Agreement, the Options and the Company Rights, there are no options,
warrants, calls, rights, or agreements to which the Company or any Subsidiary of
the Company is a party or by which it or any such Subsidiary is bound obligating
the Company or any Subsidiary of the Company to issue, deliver or sell, or cause
to be issued, delivered or sold, any shares of capital stock or any Voting Debt
of the Company or of any Subsidiary of the Company or obligating the Company or
any Subsidiary of the Company to grant, extend or enter into any such option,
warrant, call, right or agreement. Assuming compliance by Parent with Section
3.4 after the Effective Date, there will be no option, warrant, call, right or
agreement obligating the Company or any Subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, any shares of capital
stock or any Voting Debt of the Company or any Subsidiary of the Company, or
obligating the Company or any Subsidiary of the Company to grant, extend or
enter into any such option, warrant, call, right or agreement.
Section 4.2A. SUBSIDIARIES. The only Subsidiaries of the Company are
disclosed in SCHEDULE 4.2A. Each Significant Subsidiary (as such term is defined
in Rule 1-02 of Regulation S-X under the Securities Act of 1933, as amended (the
"Securities Act") of the Company has been named in the Company SEC Documents (as
hereinafter defined). SCHEDULE 4.2A contains, with respect to each Subsidiary of
the Company, its name and jurisdiction of incorporation and, with respect to
each Subsidiary that is not wholly owned, the number of issued and outstanding
shares of capital stock and the number of shares of capital stock owned by the
Company or a Subsidiary. All the outstanding shares of capital stock of each
Subsidiary of the Company are validly issued, fully paid and nonassessable, and
those owned by the Company or by a Subsidiary of the Company are owned free and
clear of any security interests, pledges, options, rights of first refusal,
liens, claims, encumbrances or any other limitation or restriction (including a
restriction on the right to vote or sell the same except as may be provided as a
matter of law). Except as set forth in SCHEDULE 4.2A, there are no existing
options, warrants, calls or other rights, agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of any of the Subsidiaries of the Company. Except as set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the
"1996 Form 10K") and as disclosed in SCHEDULE 4.2A, the Company does not
directly or indirectly own any interest in any other corporation, partnership,
joint venture or other business association or entity.
Section 4.3. AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and subject to approval of this Agreement
and the Merger by the stockholders of the Company, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company, subject
to such approval of this Agreement by the stockholders of the Company. This
Agreement has been duly executed and delivered by the Company and, subject to
such approval of this Agreement by the stockholders of the Company, constitutes
a valid and binding obligation of the Company enforceable against it in
accordance with its terms. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or the creation of a lien, pledge, security interest or other encumbrance
on assets (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation"), pursuant to any
provision of the Certificate of Incorporation or By-laws of the Company or any
Subsidiary of the Company or ,except as set forth on SCHEDULE 4.3 hereto, result
in
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any Violation of any loan or credit agreement, note, mortgage, indenture, lease,
Designated Plan (as hereinafter defined) or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any
Subsidiary of the Company or their respective properties or assets which
Violation would have a Material Adverse Effect on the Company. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity"), is
required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the Company, or
the consummation by the Company of the transactions contemplated hereby, the
failure to obtain which would have a Material Adverse Effect on the Company,
except for (i) the filing of a premerger notification report by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (ii) the filing with the Securities and Exchange Commission (the
"SEC") of (x) a proxy statement (the "Proxy Statement") in definitive form
relating to the Company Meeting and (y) such reports under Sections 13(a), 13(d)
and 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Merger Filing and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business, (iv) such filings, authorizations, riders and
approvals (the "State Approvals") as may be required by foreign, state or local
governmental authorities including those in connection with the Company's
insurance business and those required by the federal Health Maintenance
Organization Act of 1973 and the rules and regulations thereunder (the "Federal
HMO Act"), the applicable provisions of the Florida, Texas and Puerto Rico laws
regulating health maintenance organizations and prepaid health clinics, and the
rules and regulations thereunder (the "HMO Act"), the applicable provisions of
the Florida, Texas and Puerto Rico Insurance Code and the rules and regulations
thereunder relating to the regulation of domestic insurers, third-party benefits
administrators and to Insurance Holding Company Systems in the State of Florida
(collectively the "Insurance Laws"), the applicable provisions of Title XVIII of
the Social Security Act and the regulations promulgated thereunder (the
"Medicare Laws"), the applicable provisions of Title XIX of the Social Security
Act and the regulations promulgated thereunder and the Florida and Texas laws
and regulations implementing the Medicaid Program (the "Medicaid Laws"), the
Puerto Rico Healthcare Reform Act and the regulations promulgated thereunder,
the applicable provisions of Florida, Texas and Puerto Rico laws regulating home
health agencies and pharmacies and the regulations promulgated thereunder and
the applicable provisions of the Drug Enforcement Administration laws and
regulations regulating controlled substances (the "Facility Licensing Laws"),
and the applicable provisions of Florida, Texas and Puerto Rico laws respecting
certificates of need and the regulations promulgated thereunder (the "CON Laws")
and (v) such filings, authorizations, orders and approvals (the "State Takeover
Approvals") as may be required by state takeover laws.
Section 4.4. SEC DOCUMENTS. The Company has delivered or made available to
Parent a true and complete copy of each material report, schedule, registration
statement and definitive proxy statement filed by the Company with the SEC since
January 1, 1992 (as such documents have since the time of their filing been
amended, the "Company SEC Documents") which are all the documents (other than
preliminary material) that the Company has been required to file with the SEC
since such date. As of their respective dates, the Company SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Documents and at the time of its
filing none of the Company SEC Documents contained any 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 were made, not misleading. The consolidated financial statements of
the Company included in the Company SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
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consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q) and fairly present in all material respects (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments) the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended.
Section 4.5. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Proxy Statement will, at the date mailed to stockholders of the Company and at
the time of the Company Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
Section 4.6. COMPLIANCE WITH APPLICABLE LAWS. Except as set forth on
SCHEDULE 4.6, the businesses of the Company and each of its Subsidiaries have
been and are being conducted in compliance in all material respects with all
applicable laws, rules, ordinances, regulations, licenses, judgments, orders or
decrees of federal, state, local and foreign governmental authorities, except
for possible violations which individually or in the aggregate do not, and,
insofar as reasonably can be foreseen, in the future will not, have a Material
Adverse Effect on the Company. The Company and each of its Subsidiaries hold all
certificates of authority, franchises, grants, permits, licenses, easements,
consents, certificates, variances, exemptions, orders and approvals from all
Governmental Entities (collectively, "Company Permits") which are necessary to
own, lease and operate the assets and properties they currently own, lease and
operate and to conduct their respective businesses and operations in the manner
heretofore conducted and as proposed to be conducted, except for those Company
Permits the absence of which would not have a Material Adverse Effect on the
Company. SCHEDULE 4.6 contains a list of all Company Permits the violation of
which would have a Material Adverse Effect on the Company, including the
jurisdictions in which the Company or one or more of its Subsidiaries holds a
license or are otherwise authorized to conduct insurance business and the types
or lines of insurance which the Company or one or more of its Subsidiaries is
permitted to write in such jurisdictions. Except as set forth on SCHEDULE 4.6,
no notice has been received and, after due inquiry of management, no
investigation or review is pending or, to the Company's knowledge, threatened by
any Governmental Entity with regard to (i) any alleged violation by the Company
or any of its Subsidiaries of any law, rule, regulation, ordinance, Company
Permit, judgment, order or decree or (ii) any alleged failure to have or any
violation of any Company Permit, which violation or failure would have a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries nor to the Company's knowledge any of its or their respective
executive officers, directors or employees (in their capacities as such) has
engaged in any activity constituting fraud or abuse under the laws relating to
health care, insurance or the regulation of professional corporations.
Section 4.7. FINANCIAL STATEMENTS. (i) The Company has delivered to Parent
complete and correct copies of (i) the consolidated balance sheets of the
Company and each of its then-existing Subsidiaries as at December 31, 1996,
1995, 1994, 1993, 1992, and the related audited consolidated statements of
operations, stockholders' equity/(deficit) and cash flows, for the fiscal years
ended on dates, together with all footnotes and (ii) the unaudited consolidated
interim financial statements for the Company and each of its Subsidiaries as at,
and for the fiscal periods ended on March 31, 1997 and each subsequent quarterly
reporting date. All of such financial statements fairly present or when
delivered will fairly present (subject, in the case of unaudited interim
financial statements, to normal, recurring adjustments which are not expected to
be, individually or in the aggregate, materially adverse to the Company and its
Subsidiaries taken as a whole), in all material respects, the financial
position, results of operations and cash flows of the Company and each of its
Subsidiaries as at the respective dates of such balance sheets and for each of
the respective periods then ended, in conformity with (A) GAAP and (B) in the
case of each of the Insurance Subsidiaries, statutory or other accounting
practices prescribed or permitted by the insurance regulatory
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authorities in the States of Florida and Texas or in Puerto Rico, as
appropriate, in each case applied on a basis consistent throughout the reported
periods.
(ii) Except as set forth on SCHEDULE 4.7, neither such financial statements
nor the financial statements of the Company included in the Company SEC
Documents (A) contain or when delivered will contain, as the case may be, any
item of extraordinary or non-recurring income or expense (except as specified
therein), (B) reflect or when delivered will reflect, as the case may be,
uncollectible accounts receivable without a reserve fairly stated for
uncollectible amounts, and (C) reflect or when delivered will reflect, as the
case may be, any write-off or revaluation of assets (except as specified
therein). As at the respective dates of the balance sheets included in all such
financial statements, there was no liability, indebtedness or obligation of any
nature or in any amount that should properly be reflected or provided for in
financial statements prepared in conformity with GAAP or statutory accounting
practices prescribed or permitted by the applicable insurance regulatory
authorities, whichever is appropriate, applied on a basis consistent with that
for prior periods, which was not fully reflected in such financial statements.
(iii) Except as set forth on SCHEDULE 4.7, the reserves recorded in the
accounting records of each of the Insurance Subsidiaries other than P&C for
insurance policy benefits, losses, claims and expenses and any other reserves
are reasonable and adequate and were prepared in accordance with the statutory
or other accounting practices prescribed or permitted by the applicable
insurance regulatory authorities and of all the jurisdictions in which the
Insurance Subsidiaries are licensed to transact an insurance business and make
good and sufficient provisions for all insurance obligations of the Company and
its Subsidiaries. Such reserves have been opined upon as reasonable and adequate
as of December 31, 1996, by Towers Perrin Integrated Health Systems Consulting,
a duly qualified actuarial firm that, as of the date of its report, was a member
in good standing in the American Academy of Actuaries. The unpaid loss and loss
adjustment expense liabilities of P&C as of December 31, 1996, has been opined
upon as reasonable by William M. Mercer, Incorporated ("Mercer"), a duly
qualified actuarial firm, the opining actuary of which is a member in good
standing in the American Academy of Actuaries.
Section 4.8. LITIGATION. Except (x) as set forth on SCHEDULE 4.8, (y) as
disclosed in the Company SEC Documents and (z) for actions and suits arising in
the ordinary course of the business, none of which is reasonably expected to
have a Material Adverse Effect on the Company, there is no action, suit,
proceeding or investigation, either at law or in equity, at or before any
commission or other administrative authority in any domestic or foreign
jurisdiction, of any kind now pending or, to the Company's knowledge,
threatened, involving the Company, any of its Subsidiaries or any of the
respective properties or assets of the Company or any Subsidiary of the Company
that (A) if asserted is reasonably expected to have a Material Adverse Effect on
the Company, (B) questions the validity of this Agreement or (C) seeks to delay,
prohibit or restrict in any manner the Merger or any action taken or to be taken
by the Company or any of its Subsidiaries under this Agreement. Except as set
forth on SCHEDULE 4.8, none of the Company nor any of its Subsidiaries, nor any
of their respective properties or assets, is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement (other
than agreements related to the settlement of insurance claims in the ordinary
course of business), continuing investigation (other than regularly scheduled
audits) by any court, Governmental Entity, or any judicial, administrative or
arbitral judgment, order, writ, decree, injunction, restraint, or award of any
court, Governmental Entity or arbitrator, including without limitation
cease-and-desist or other orders. Neither the Company nor any of its
Subsidiaries has agreed to, or is bound by, any extension or waiver of the
statute of limitations relating to any pending or potential action, suit, claim,
proceeding or investigation involving the Company or any of its Subsidiaries
(other than extensions or waivers in connection with the settlement of insurance
claims in the ordinary course of business).
Section 4.9. LABOR AND EMPLOYMENT MATTERS. Neither the Company nor any of
its Subsidiaries has employees who are represented by a labor union or
organization, no labor union or organization has been certified or recognized as
a representative of any such employees, and neither the Company nor any of its
Subsidiaries is a party to or has any obligation under any collective bargaining
agreement or other contract
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or agreement with any labor union or organization. There are no pending or, to
the Company's knowledge, threatened, representation campaigns, elections or
proceedings or questions concerning union representation involving any employees
of either the Company or any of its Subsidiaries. Neither the Company nor any of
its Subsidiaries has any knowledge of any activities or efforts of any labor
union or organization (or representatives thereof) to organize any of its
employees, any demands for recognition or collective bargaining, any strikes,
slowdowns, work stoppages or lock-outs of any kind, or threats thereof, by or
with respect to any employees of the Company or any of its Subsidiaries, and no
such activities, efforts, demands, strikes, slowdowns, work stoppages or
lock-outs occurred during a three-year period preceding the date hereof. Neither
the Company nor any of its Subsidiaries has engaged in, admitted committing, or
been held in any administrative or judicial proceeding to have committed any
unfair labor practice under the National Labor Relations Act, as amended. Except
as set forth on SCHEDULE 4.09, neither the Company nor any of its Subsidiaries
is involved in any industrial or trade dispute or any dispute or negotiation
regarding a claim of material importance with any labor union or organization
concerning its employees, and there are no controversies, claims, demands or
grievances of material importance pending or, so far as the Company is aware,
threatened, between the Company or any of its Subsidiaries and any of their
respective employees.
Section 4.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1996 and
except (A) as set forth on SCHEDULE 4.10, (B) for the execution and delivery of
this Agreement and changes in its properties or business attributable to the
transactions contemplated by this Agreement, (C) as disclosed in the Company's
financial statements or in the Company SEC Reports previously delivered or made
available to Parent and (D) sales and purchases of investment securities in the
ordinary course, neither the Company nor any of its Subsidiaries:
(i) had any change in its financial condition or businesses, assets or
liabilities, other than changes which have not had, individually or in the
aggregate, a Material Adverse Effect on the Company;
(ii) suffered any damage, destruction or loss of physical property (not
adequately covered by insurance) that, individually or in the aggregate, has had
a Material Adverse Effect on the Company;
(iii) issued, sold or otherwise disposed of, or, redeemed, purchased or
otherwise acquired, or agreed to issue, sell or otherwise dispose of, redeem,
purchase or otherwise acquire, any capital stock or any other security of the
Company or any of its Subsidiaries or granted or agreed to grant any option
warrant or other right to subscribe for or to purchase any capital stock or any
other security of the Company or any of its Subsidiaries;
(iv) incurred or agreed to incur any material indebtedness for borrowed
money;
(v) paid or obligated itself to pay in excess of $500,000 in the aggregate
for any fixed assets;
(vi) intentionally omitted;
(vii) sold, transferred, leased or otherwise disposed of, or agreed to sell,
transfer, lease or otherwise dispose of, (A) any properties or assets to any
director or officer of the Company or of any Subsidiary of the Company or any
member of the family or any other affiliate of any of the foregoing or (B) any
properties or assets having a fair market value of $250,000 or agreed to sell,
transfer, lease or otherwise dispose of, any assets (other than securities)
having a fair market value at the time of sale, transfer or disposition of
$250,000;
(viii) mortgaged, pledged or subjected to any material charge, lien, claim or
encumbrance, or agreed to mortgage, pledge or subject to any material charge,
lien, claim or encumbrance any of its material properties or assets;
(ix) declared, set aside or paid any dividend or made any distribution
(whether in cash, property or stock) with respect to any of its capital stock;
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(x) (A) increased, or agreed to increase, the compensation or bonuses or
special compensation of any kind of any of its directors, officers or employees
(other than insurance agents or independent contractors) over the rate being
paid to them on December 31, 1996, as set forth in Schedule 4.10, other than
normal merit and cost-of-living increases pursuant to customary arrangements
consistently followed, or (B) paid any bonus or similar compensation to any
director, officer or employee of the Company or any Subsidiary of the Company in
excess of $100,000, or (C) entered into any employment, consulting or severance
agreement or arrangement with any director, officer or employee (other than any
agent or independent contractor) or adopted or increased any benefit under any
insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with any director, officer or employee (other than any agent or
independent contractor);
(xi) has terminated, or been notified in writing of the likely termination
of, a material contract with a hospital or other provider, a self-insured
employer, a union or other association, a government agency or a national
insurance carrier or any other material contract regarding managed care services
or insurance services;
(xii) neither the Company nor any of its Subsidiaries has entered into a
contract or arrangement with an individual or entity (including a network of
health care providers) providing for the rendering of professional health care
services by such person as an employee of or contractor to the Company (other
than a provider of in-patient care) under which, during the last 12 months, the
Company was obligated or became committed to pay in excess of $500,000 or under
which, during the next 12 months, the Company is reasonably expected to pay or
to become obligated to pay in excess of $500,000, except for such contracts that
are terminable by the Company upon 90 days (or less) advance notice without
penalty;
(xiii) except as otherwise required or provided for in this Agreement and
except in the ordinary course of business, made or permitted any material
amendment or termination of any material contract, lease, concession, franchise,
license, indenture, instrument, mortgage, note, loan or credit agreement or
other obligation to which it is a party;
(xiv) had any resignation or termination of employment of any of its key
officers or employees, or become aware of any impending or threatened
termination of employment, that would, individually or in the aggregate, have a
Material Adverse Effect on the Company;
(xv) had any labor trouble or concerted work stoppage or knows of any
impending or threatened labor trouble or concerted work stoppage;
(xvi) canceled, or agreed to cancel, any debts or claims over $500,000 in the
aggregate or $250,000 individually other than in the ordinary course of
business;
(xvii) made any material change in its accounting methods or practices with
respect to its condition, operations, business, properties, assets or
liabilities;
(xviii) entered into any material transaction not in the ordinary course of
its business;
(xix) made any charitable or political contribution or pledge in excess of
$100,000 in the aggregate;
(xx) agreed or committed to do, or authorized or approved any action looking
to, any of the foregoing;
(xxi) paid aggregate commissions to insurance agents and independent
contractors for policies issued in 1996 and with normal anniversary dates of
January 1, 1997 or subsequent thereto in excess of 15% of direct premiums
written or;
(xxii) made any material cash payments to insurance agents, independent
contractors or brokers marketing the Company's products other than pursuant to a
producer profit share agreement.
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Section 4.11. MATERIAL CONTRACTS. Except as set forth in SCHEDULE 4.11,
neither the Company nor any of its Subsidiaries is a party to any written or
oral:
(i) employment or consulting contract or other contract for services
involving a payment of more than $250,000 annually and that is not terminable
without cost upon thirty (30) days' prior written notice;
(ii) material lease, franchise or concession providing for a payment by any
person of more than $500,000 annually and that is not terminable without cost
upon thirty (30) days' prior written notice;
(iii) loan agreement, mortgage, indenture, promissory note, financing lease
or other instrument relating to any debt (in excess of $250,000 and which, in
the aggregate, do not amount to more than $1,000,000); (iv) contract of purchase
or sale involving more than $500,000 and that is not in the ordinary course of
business;
(v) partnership, joint venture, material license or similar agreement;
(vi) stand-by letter of credit, guarantee or performance bond;
(vii) contract restricting the ability of any person from freely engaging in
any business or competing anywhere in the world;
(viii) contract with an employer, a union or other association, a governmental
agency or any other party regarding the provision of insurance or managed care
services that has a term greater than one year and has an annual premium in any
one year exceeding $1,000,000;
(ix) contract or arrangement with an institution for the provision of
in-patient or out-patient hospital or surgical services under which, during
1996, the Company was required to pay or, during 1997, the Company anticipates
that it will be required to pay, in excess of $1,000,000, except for such
contracts that are terminable by the Company upon 90 days (or less) advance
notice without penalty;
(x) contract or arrangement with a physician or group of physicians under
which, during 1996, the Company was required to pay or, during 1997, the Company
anticipates that it will be required to pay, in excess of $1,000,000, except for
such contracts that are terminable by the Company upon 90 days (or less) advance
notice without penalty;
(xi) contract or any arrangement pursuant to which the Company and the
Subsidiaries are provided medical malpractice insurance; or
(xii) medical services agreement which provides for the contracting party to
receive a percentage of premium revenues from the Company or a Subsidiary in
exchange for the provider providing for all medical services to any group of
insureds of the Company or any of its Subsidiaries; or
(xiii) other material contract or commitment not made in the ordinary course
of business.
Each contract or other agreement listed on SCHEDULE 4.11 is in full force
and effect and is valid and enforceable by the Company or a Subsidiary of the
Company, as the case may be, in accordance with its terms. Except as set forth
on SCHEDULE 4.11, neither the Company nor any of its Subsidiaries is in default
in the observance or the performance of any term or obligation to be performed
by it under any contract listed on SCHEDULE 4.11 except for such defaults the
effect of which singly or in the aggregate would not have a Material Adverse
Effect on the Company. To the knowledge of the Company without investigation, no
other person is in default in the observance or the performance of any term or
obligation to be performed by it under any material contract listed on SCHEDULE
4.11. There is currently no outstanding bid or contract proposal by the Company
or any of its Subsidiaries which, if accepted or entered into, might reasonably
be expected to result in a material loss to either the Company or any of its
Subsidiaries. The Company has delivered or made available to Parent copies of
all contracts listed in SCHEDULE 4.11.
Section 4.12. OFFICERS AND DIRECTORS AND EMPLOYEES. The Company's 1996
Form 10-K, as modified by SCHEDULE 4.12, sets forth a list of:
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(i) The names of all directors and officers of the Company and each of its
Subsidiaries;
(ii) The name and current annual rate of compensation (including bonuses and
other forms of compensation) paid by the Company and its Subsidiaries to each of
its respective officers, directors and employees whose annual rate of base
compensation exceeded $100,000 for the year ended December 31, 1996; and
(iii) The names of all persons who have written employment, consulting or
severance agreements or arrangements with the Company or any of its Subsidiaries
if such agreement or arrangement provides for payment to such persons resulting
from such person's resignation, from a change-in-control of the Company or any
of its Subsidiaries or from a change in such person's responsibilities following
a change-in-control; complete and correct copies of such agreements have been
provided to Parent.
Section 4.13. TITLE TO AND CONDITION OF PROPERTIES AND ASSETS.
(i) The Company and its Subsidiaries have good and defensible title to, or
valid leasehold interests in, their respective properties and assets, whether
owned or leased, including, without limitation, (i) those used in their
respective businesses, and (ii) those reflected in the consolidated balance
sheet of the Company as of December 31, 1996 most recently delivered to Parent
(except as since sold or otherwise disposed of in the ordinary course of
business and except for minor defects in title, easements, restrictive covenants
and similar encumbrances or impediments that, individually or in the aggregate,
do not and will not materially interfere with the ability of the Company and its
Subsidiaries to use their properties or to conduct their businesses as currently
conducted), in each case subject to no mortgage, pledge, conditional sales
contract, lien, security interest, right of possession in favor of any third
party, claim or other encumbrance (collectively "Liens"), except for (w) the
lien of current Taxes (as hereinafter defined) not yet due and payable, (x) with
respect to leased property, the provisions of such leases, (y) Liens granted to
the Company's lenders under that certain Revolving Credit Agreement (the "Credit
Facility") between the Company and Citibank, N.A. dated October 27, 1994, as
amended and (z) liens, that, individually or in the aggregate, do not and will
not materially interfere with the ability of the Company or any of its
Subsidiaries to conduct business as currently conducted. Except as described on
SCHEDULE 4.13, subsequent to December 31, 1996, neither the Company nor any of
its Subsidiaries has sold or disposed of any of their respective properties or
assets or obligated themselves to do so except in the ordinary course of
business. The facilities, machinery, furniture, office and other equipment of
the Company and each of its Subsidiaries that are used in their respective
businesses are in good operating condition and repair, subject to the ordinary
wear and tear of those businesses.
(ii) All of the real property owned or leased by the Company or any of its
Subsidiaries has been maintained by the Company in compliance with all federal,
state and local environmental protection, occupational, health and safety or
similar laws, ordinances, restrictions, licenses and regulations, except where
the failure to so maintain the property would not have a Material Adverse Effect
on the Company.
Section 4.14. PATENTS, COPYRIGHTS, SERVICE MARKS AND TRADEMARKS. Neither
the Company nor any of its Subsidiaries own or licenses any patent, copyright,
service mark, trademark or other intellectual property right, other than such
patents, copyrights, service marks, trademarks and other intellectual property
rights as are described in SCHEDULE 4.14, except for such intellectual property
rights the loss of which singly or in the aggregate would not have a Material
Adverse Effect on the Company. Except as set forth on SCHEDULE 4.14 and other
than such as would have a Material Adverse Effect on the Company: (i) the
Company and its Subsidiaries own or license all patents, copyrights, service
marks, trademarks and other intellectual property rights that are necessary to
the conduct of their respective businesses, (ii) all names under which the
Company or any of its Subsidiaries currently conducts business are set forth in
SCHEDULE 4.14, (iii) no claim has been made, and to the Company's knowledge no
basis for any such claim exists, that the Company or any of its Subsidiaries has
infringed any patent, copyright, service mark, trademark or other intellectual
property right of any other person and (iv) no claim has been made, and to the
Company's knowledge no basis for any such claim exists, that any person has
infringed on any patent,
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copyright, service mark, trademark or other intellectual property right of the
Company or any of its Subsidiaries.
Section 4.15. EMPLOYEE BENEFIT PLANS
(a) LIST OF PLANS. SCHEDULE 4.15 includes a complete and accurate list of
all employee benefit plans ("Plans"), as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and material
benefit arrangements that are not Plans ("Benefit Arrangements"), including, but
not limited to any (A) employment or consulting agreements, (B) incentive bonus
or deferred bonus arrangements, (C) arrangements providing termination
allowance, severance or similar benefits, (D) equity compensation plan, (E)
deferred compensation plans, (F) cafeteria plans, (G) employee assistance
programs, (H) bonus programs, (I) scholarship programs, (J) vacation policies,
and (K) stock option plans that are currently in effect or were maintained
within three years of the Effective Date, or have been approved before the
Effective Date but are not yet effective, for the benefit of directors,
officers, employers or former employees (or their beneficiaries) of the Company
or a Controlled Company ("Designated Plans"). For purposes of this Section 4.15,
"Controlled Company" shall mean any entity that, together with the Company as of
the relevant determination date under ERISA, is or was required to be treated as
a single employer under Section 414 of the Internal Revenue Code of 1986, as
amended (the "Code") and any reference to the Company in this Section 4.15 shall
also include a reference to a Controlled Company.
(b) NO TITLE IV PLANS OR VEBAS. Neither the Company nor any entity
(whether or not incorporated) that was at any time during the six years before
the Effective Date treated as a single employer together with the Company under
Section 414 of the Code has ever maintained, had any obligation to contribute to
or incurred any liability with respect to a pension plan that is or was subject
to the provisions of Title IV of ERISA or Section 412 of the Code. Neither the
Company nor any entity (whether or not incorporated) that was at any time during
the six years before the Effective Date treated as a single employer together
with the Company under Section 414 of the Code has ever maintained, had an
obligation to contribute to, or incurred any liability with respect to a
multiemployer pension plan as defined in Section 3(37) of ERISA. During six
years before the Effective Date, the Company has not maintained, had an
obligation to contribute to or incurred any liability with respect to a
voluntary employees beneficiary association that is or was intended to satisfy
the requirements of Section 501(c)(9) of the Code.
(c) DISCLOSED PLANS. With respect to each Designated Plan, the Company has
delivered to Parent, as applicable, true and complete copies of (A) all written
documents comprising such Plan or each Benefit Arrangement (including amendments
and individual agreements relating thereto), (B) the trust, group annuity
contract or other document that provides for the funding of the Designated Plan
or the payment of Designated Plan benefits, (C) the three most recent annual
Form 5500, 990 and 1041 reports (including all schedules thereto) filed with
respect to the Designated Plan, (D) the most recent actuarial report, valuation
statement or other financial statement, (E) the most recent Internal Revenue
Service ("IRS") determination letter and all rulings or determinations requested
from the IRS after the date of that determination letter, (F) the summary plan
description currently in effect and all material modifications thereto, and (G)
all other correspondence from the IRS or Department of Labor received that
relate to one or more of the Designated Plans with respect to any matter, audit
or inquiry that is still pending. All information provided by the Company and
its Subsidiaries to the individuals who prepared any such financial statements
was true, correct and complete in all material respects. Each financial or other
report delivered to Parent pursuant hereto is accurate in all material respects,
and there has been no material adverse change in the financial status of any
Designated Plan since the date of the most recent report provided with respect
thereto.
(d) COMPLIANCE WITH LAW. Except as set forth in SCHEDULE 4.15, the Company
has operated, and has caused its appointees and nominees to operate, each
Designated Plan in a manner which is in compliance with the terms thereof and
with all applicable law, regulations and administrative agency rulings and
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requirements applicable thereto, except the violation of which would not have a
Material Adverse Effect on the Company. Except as otherwise disclosed in
SCHEDULE 4.15, with respect to each Designated Plan that is a Plan (A) the Plan
is in compliance with ERISA in all material respects, including but not limited
to all reporting and disclosure requirements of Part 1 of Subtitle B of Title I
of ERISA, (B) the appropriate Form 5500 has been timely filed, for each year of
its existence, (C) there has been no transaction described in sections 406 or
407 of ERISA or section 4975 of the Code relating to the Plan unless exempt
under section 408 of ERISA or section 4975 of the Code, as applicable, and (D)
the bonding requirements of section 412 of ERISA have been satisfied.
(e) CONTRIBUTIONS. Full payment has been made of all amounts which the
Company or a Controlled Company is required, under applicable law or under any
Designated Plan or any agreement related to any Designated Plan to which the
Company or a Controlled Company is a party, to have paid as contributions
thereto as of the last day of the most recent fiscal year of each Designated
Plan ended prior to the date hereof. Benefits under all Designated Plans are as
represented in the governing instruments provided pursuant to (i) above, and
have not been increased subsequent to the date as of which documents have been
provided.
(f) TAX QUALIFICATION. Each Designated Plan, as amended to date, that is
intended to be qualified under Section 401(a) and 501(a) of the Code has been
determined to be so qualified by the IRS, has been submitted to the IRS for a
determination with respect to such qualified status or the remedial amendment
period established under Section 402(b) of the Code with respect to the
Designated Plan will not have expired prior to the Effective Date. Except as
disclosed on SCHEDULE 4.15, no facts have occurred which if known by the IRS
could cause disqualification of any such Plan.
(g) TAX OR CIVIL LIABILITY. Neither the Company nor a Controlled Company
has participated in, or is aware of, any conduct that could result in the
imposition upon the Company of any excise tax under Sections 4971 through 4980B
of the Code or civil liability under Section 502(i) of ERISA with respect to any
Designated Plan.
(h) CLAIMS LIABILITY. There is no action, claim or demand of any kind
(other than routine claims for benefits) that has been brought or, to the
Company's knowledge, threatened against, or relating to, any Designated Plan,
and the Company has no knowledge of any pending investigation or administrative
review by any Governmental Entity relating to any Designated Plan.
(i) RETIREE WELFARE COVERAGE. Except as set forth in SCHEDULE 4.15, no
Designated Plan provides any health, life or other welfare coverage to employees
of the Company or a Controlled Company beyond termination of their employment
with the Company or a Controlled Company by reason of retirement or otherwise,
other than coverage as may be required under Section 4980B of the Code or Part 6
of ERISA, or under the continuation of coverage provisions of the laws of any
state or locality.
(j) NO EXCESS PARACHUTE PAYMENTS. No amount that could be received
(whether in cash or property or the vesting of property) as a result of any of
transactions contemplated by this Agreement by any employee, officer or director
of the Company or a Controlled Company who is a "disqualified individual" (as
such term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Designated Plan currently in effect would be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
Section 4.16. TRANSACTIONS WITH OFFICERS, DIRECTORS AND OTHERS. Except as
set forth on SCHEDULE 4.16, no director, officer or affiliate of the Company, or
any member of the immediate family or any other affiliate of any of the
foregoing, is a party to business arrangements or relationships of any kind with
the Company or its Subsidiaries in which the amount involved exceeds $60,000,
or, to the knowledge of the Company, owns or has an ownership interest in any
corporation (in excess of 5% of any publicly traded
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corporation) or other entity that is a party to, or in any property which is the
subject of any such business arrangements.
Section 4.17. INSURANCE MATTERS--REINSURANCE AND COINSURANCE. SCHEDULE
4.17 contains a list of all reinsurance or coinsurance treaties or agreements to
which the Company or any of its Subsidiaries is a party. All such treaties or
agreements as set forth in such Schedule are valid, binding and in full force
and effect in accordance with their terms (except as the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies); and neither the Company nor
its Insurance Subsidiaries nor, to the Company's knowledge, any other party
thereto is in default as to any provision thereof, except for such defaults the
effect of which singly or in the aggregate would not have a Material Adverse
Effect on the Company, and none of such agreements contains any provision (A)
providing that any other party thereto may terminate such agreement or declare a
default or seek damages thereunder by reason of the transactions contemplated by
this Agreement or (B) which would be altered or otherwise become applicable by
reason of such transactions. The Company does not know of any facts or events
that could cause the financial condition of any party to any such agreement to
be impaired to such an extent that a default thereunder may be reasonably
anticipated.
Section 4.18. TAXES.
(a) DEFINITIONS. For purposes of this Agreement:
(i) "Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
(ii) "Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, premium, capital, sales, use, ad
valorem, value added, franchise, withholding, payroll, employment,
disability, workers' compensation, excise, property, alternative or add-on
minimum, environmental or other taxes, assessments, duties, fees, levies or
other governmental charges of any nature whatever, whether disputed or not,
together with any interest, penalties, additions to tax or additional
amounts with respect thereto.
(iii) "Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction, or any foreign jurisdiction, having or purported to exercise
jurisdiction with respect to any Tax.
(b) TAX REPRESENTATIONS. Except as set forth in SCHEDULE 4.18:
(i) All Returns required to have been filed on or before the date hereof
by or with respect to the Company or any of its Subsidiaries or any
affiliated, combined, consolidated, unitary or similar group of which the
Company or its Subsidiaries is or was a member (a "Relevant Group") with any
Taxing Authority have been duly and timely filed, and each such Return
correctly and completely reports all material information required to be
reported thereon. All Taxes of the Company or its Subsidiaries or any member
of a Relevant Group (whether or not shown on any Return) with respect to any
period ending on or before the date hereof have been paid or are duly
reserved for in the financial statements of the Company and its Subsidiaries
for such period.
(ii) Neither the Company nor any of its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(iii) the Company is not currently under audit by any Taxing Authority
with respect to any material Return. The Company's consolidated federal
income tax returns have been audited through December 31, 1992. No claim is
pending by any Taxing Authority in a jurisdiction in which the Company or
any of its Subsidiaries does not file Returns, that it is subject to
Taxation in that jurisdiction.
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(iv) Other than agreements among the Company and its Subsidiaries,
neither the Company nor any of its Subsidiaries is a party to any tax
allocation or tax sharing agreement.
(v) Neither the Company nor any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code or
comparable provisions of any state statute, and none of the assets of the
Company or its Subsidiaries is subject to any election under Section 341(f)
of the Code or comparable provisions of any state statutes.
(vi) Neither the Company nor any of its Subsidiaries has received or
requested any ruling of a Taxing Authority relating to Taxes or entered into
any material written or legally binding agreement with a Taxing Authority
relating to Taxes.
(vii) Neither the Company nor any of its Subsidiaries (1) has or is
projected to have a material amount includable in its income for the current
taxable year under Section 951 of the Code, (2) has been a passive foreign
investment company within the meaning of Section 1296 of the Code, and
neither the Company nor any of its Subsidiaries is a shareholder, directly
or indirectly in any passive foreign investment company, or (3) has a
material unrecaptured overall foreign loss within the meaning of Section
940(f) of the Code.
(viii) Neither the Company nor any of its Subsidiaries is, or at any time
has been, subject to (1) the dual consolidated loss provisions of Section
1503(d) of the Code, (2) the overall foreign loss provisions of Section
904(f) of the Code, or (3) the recharacterization provisions of Section
952(c)(2) of the Code.
(ix) None of the assets of the Company or any of its Subsidiaries
constitutes tax-exempt bond financed property or tax-exempt use property,
within the meaning of Section 168 of the Code. Neither the Company nor any
of its Subsidiaries is a party to any "safe harbor lease" that is subject to
the provisions of Section 168(f)(3) of the Internal Revenue Code as in
effect prior to the Tax Reform Act of 1986, or to any "long-term contract"
within the meaning of Section 460 of the Code.
(x) Neither the Company nor any of its Subsidiaries has any material (1)
deferred gain or loss arising out of any deferred intercompany transaction
or (2) income which will be reportable in a period ending after the Closing
which is attributable to a transaction occurring in, or a change in
accounting method made for, a period ending on or prior to the Closing.
(xi) Neither the Company nor any of its Subsidiaries is a party to any
written, oral or implied agreement or obligation to provide any "covered
employee," as defined in Section 162(m)(3) of the Code, with remuneration in
excess of $1 million, that would be disallowed as a deduction for Federal
income tax purposes pursuant to Section 162(m) of the Code.
Section 4.19. OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Bear, Stearns & Co. dated the date hereof, to the effect that the
Merger Consideration is fair, from a financial point of view, to the
stockholders of the Company. The Company has delivered a true and complete copy
of this opinion to Parent.
Section 4.20. INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
Section 4.21. VOTE REQUIRED. The affirmative vote of a majority of the
votes that holders of the outstanding shares of the Company Common Stock are
entitled to cast is the only vote of the holders of any class or series of the
Company capital stock or Voting Debt necessary to approve this Agreement and the
transactions contemplated hereby.
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Section 4.22. APPLICABILITY OF DGCL 203. Assuming the accuracy of the
representations contained in Section 5.7, the provisions of Section 203 of the
DGCL will not apply to this Agreement or any of the transactions contemplated
hereby.
Section 4.23. ENVIRONMENTAL MATTERS.
(a) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received, no complaint has been filed, no
penalty has been assessed and no investigation is pending or has been threatened
(each, an "Action") by any Governmental Entity or other party with respect to
any (i) alleged violation by the Company or any of its Subsidiaries of any
Environmental Law, (ii) alleged failure by the Company or any such Subsidiary to
have any environmental permit, certificate, license, approval, registration or
authorization required in connection with the conduct of its business or (iii)
Regulated Activity, in each case where such Action has had, or would have, a
Material Adverse Effect on the Company.
(b) Neither the Company nor any of its Subsidiaries has any material
Environmental Liabilities and there has been no release of Hazardous Substances
into the environment or violation of any Environmental Law by the Company or any
such Subsidiary or with respect to any of their respective properties which has
had, or would reasonably be expected to have a Material Adverse Effect on the
Company.
(c) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all Federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, codes, injunctions and governmental restrictions relating to human
health, the environment or to emissions, discharges or releases of Hazardous
Substances into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances or the clean-up or other remediation thereof.
"Environmental Liabilities" shall mean all liabilities which (i) arise under
or relate to Environmental Laws and (ii) relate to Regulated Activities
occurring or conditions existing on or prior to the Effective Date.
"Hazardous Substances" shall mean any pollutants, contaminants, toxic,
radioactive, caustic or otherwise hazardous substance or waste, including
petroleum, its derivatives, by-products and other hydrocarbons, or any substance
having any constituent elements displaying any of the foregoing characteristics
that is regulated under or by any applicable Environmental Law.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Substances.
Section 4.24. ACCREDITATION'S. Except as set forth in SCHEDULE 4.24, none
of the Company or its Subsidiaries has been denied or failed to obtain any
accreditation by any health maintenance organization or insurance accreditation
agency from who the Company sought accreditation.
Section 4.25. CHANGE OF CONTROL PAYMENTS. Except as set forth on SCHEDULE
4.25, no broker, investment banker, officer, employee or other person will be
entitled to any payment upon the consummation of the Merger (including payments
which are not required to be made unless an event subsequent to the consummation
of the Merger occurs) based upon arrangements made by or on behalf of the
Company or any of its Subsidiaries. This provision is intended to include,
without limitation, broker fees, investment banker fees, consultant fees,
severance payments and fees payable under non-competition and other contractual
provisions.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 5.1 ORGANIZATION; STANDING AND POWER. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation or organization and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its business or the
ownership of leasing of its properties makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect on Parent.
Section 5.2 AUTHORITY. Parent and Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Sub. This Agreement
has been duly executed and delivered by Parent and Sub and constitutes a valid
and binding obligation of Parent and Sub enforceable against each in accordance
with its terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any Violation pursuant to any provision of the Articles of
Incorporation or Bylaws of Parent and Sub, except (i) as set forth on SCHEDULE
5.2 or (ii) result in any Violation of any loan or credit agreement, note,
mortgage, indenture, lease, Designated Plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any
Subsidiary of Parent or their respective properties or assets, which Violation
would have a Material Adverse Effect on Parent. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent and Sub
or the consummation by Parent and Sub of the transactions contemplated hereby,
the failure to obtain which would have a Material Adverse Effect on Parent,
except for (i) the filing of a premerger notification report by Parent under the
HSR Act, (ii) the filing with the SEC as may be required by the Securities Act
or Exchange Act in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Merger Filing with the Secretary of
State of the State of Delaware and (iv) the State Approvals and State Takeover
Approvals.
Section 5.3 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Parent or Sub for inclusion or incorporation by reference in the
Proxy Statement will, at the date mailed to stockholders of the Company and at
the time of the Company Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
Section 5.4 INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
Section 5.5 FINANCING. Parent has on hand or available through committed
bank facilities all of the funds necessary to consummate the Merger and the
transactions contemplated hereby on a timely basis and to pay any and all
related fees and expenses.
Section 5.6 BROKERS. No broker, investment banker or other person, other
than Morgan Stanley & Co., the fees and expenses of which will be paid by
Parent, is entitled to any broker's, finder's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
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Section 5.7 OWNERSHIP OF COMPANY STOCK. As of the date hereof, Parent
beneficially owns approximately 1,050,000 shares of Company Common Stock.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Prior
to the Effective Date, unless Parent shall otherwise agree in writing:
(a) Except as set forth in SCHEDULE 6.1(A), the Company shall, and shall
cause its Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, and shall, and shall cause its Subsidiaries to, use their best
efforts to preserve intact their present business organizations and preserve
their relationships with customers, suppliers and others having business
dealings with them. The Company shall, and shall cause its Subsidiaries to, (a)
maintain insurance coverages and its books, accounts and records in the usual
manner consistent with prior practices, (b) comply in all material respects with
all laws, ordinances and regulations of Governmental Entities applicable to the
Company and its subsidiaries, (c) maintain and keep its properties and equipment
in good repair, working order and condition, ordinary wear and tear excepted,
and (d) perform in all material respects its obligations under all material
contracts and commitments to which it is a party or by which it is bound;
(b) Except as set forth in SCHEDULE 6.1(B) and except as required by this
Agreement, the Company shall not and shall not propose to (i) sell or pledge or
agree to sell or pledge any capital stock owned by it in any of its
subsidiaries, (ii) amend its Certificate of Incorporation or By-laws, (iii)
split, combine or reclassify its outstanding capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of the Company, or declare, set aside
or pay any dividend or other distribution payable in cash, stock or property, or
(iv) directly or indirectly redeem, purchase or otherwise acquire or agree to
redeem, purchase or otherwise acquire any shares of Company capital stock;
(c) The Company shall not, nor shall it permit any of its Subsidiaries to,
(i) issue, deliver or sell or agree to issue, deliver or sell any additional
shares of, or rights of any kind to acquire any shares of, its capital stock of
any class, any indebtedness having the right to vote on which the Company's
stockholders may vote or any option, rights or warrants to acquire, or
securities convertible into, shares of capital stock other than issuances of
Company Common Stock pursuant to employment agreements as in effect on the date
hereof, the exercise of stock options outstanding on the date hereof or granted
prior to the Effective Date, (ii) acquire, lease or dispose or agree to acquire,
lease or dispose of any capital assets or any other assets other than in the
ordinary course of business, (iii) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, or encumber or grant a security
interest in any asset or make any loans, advances or capital contribution to, or
investments in, any other person, other than to the Company in any wholly owned
Subsidiaries of the Company or enter into any other transaction other than in
each case in the ordinary course of business consistent with past practice, (iv)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or (v) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing.
(d) Except as disclosed in SCHEDULE 6.1(D), the Company shall not, nor
shall it permit any of its Subsidiaries to, except as required to comply with
applicable law and except as provided in Section 3.4 hereof, (i) enter into any
new (or amend any existing) Company Benefit Plan or any new (or amend any
existing) employment, severance or consulting agreement, (ii) grant any general
increase in the compensation of directors, officers or employees (including any
such increase pursuant to any bonus, pension, profit-
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sharing or other plan or commitment) or (iii) grant any increase in the
compensation payable or to become payable to any director, officer or employee,
except in any of the foregoing cases in accordance with pre-existing contractual
provisions or, in the case of clause (iii), increases for employees in the
ordinary course of business consistent with past practice.
(e) The Company shall not, nor shall it permit any of its Subsidiaries to,
make any investments in non-investment grade securities exceeding $100,000 in
the aggregate.
Section 6.2. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. Prior to
the Effective Date, unless the Company shall otherwise agree in writing or
except as otherwise required by this Agreement, Parent shall, and shall cause
its Subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
except where the failure to so act would not adversely affect Parent's ability
to pay the aggregate Merger Consideration payable to the Company's stockholders.
Section 6.3. CONDUCT OF BUSINESS OF SUB. During the period from the date
of this Agreement to the Effective Date, Sub shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. ACCESS AND INFORMATION. The Company and its Subsidiaries
shall afford to Parent and to Parent's accountants, counsel, financial advisers
and other representatives reasonable access during normal business hours (and at
such other times as the parties may mutually agree) throughout the period prior
to the Effective Date to all of its properties, books, contracts, commitments,
records and personnel and, during such period, the Company shall furnish
promptly to Parent (i) a copy of each report, schedule and other document filed
or received by it pursuant to the requirements of federal or state securities
laws, and (ii) all other information concerning its business, properties and
personnel as Parent may reasonably request. Each of the Company and Parent shall
hold, and shall cause their respective employees and agents to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement dated May 1, 1996 between Parent and the Company, as
amended on April 15, 1997 (the "Confidentiality Agreement").
Section 7.2. PROXY STATEMENT. Parent and the Company shall cooperate and
promptly prepare, and the Company shall file with the SEC as soon as
practicable, the Proxy Statement, which shall comply as to form in all material
respects with the applicable provisions of the Exchange Act and the rules and
regulations thereunder. The Company shall use all reasonable efforts, and Parent
will cooperate with the Company, to have the Proxy Statement cleared by the SEC
as promptly as practicable. The Company shall, as promptly as practicable,
provide copies of any written comments received from the SEC with respect to the
Proxy Statement to Parent and advise Parent of any oral comments with respect to
the Proxy Statement received from the SEC. Parent agrees that none of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in the Proxy Statement and each amendment or supplement thereto, at
the time of mailing thereof and at the time of the Company Meeting, will contain
an untrue statement of a material fact or omit 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 were made, not misleading. The Company agrees
that none of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the Proxy Statement and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the Company Meeting, will contain an untrue statement of a material fact or
omit 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 were
made, not misleading. For purposes of the foregoing, it is understood and agreed
that information concerning or related to Parent
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will be deemed to have been supplied by Parent and information concerning or
related to the Company and the Company Meeting shall be deemed to have been
supplied by the Company. The Company will provide Parent with a reasonable
opportunity to review and comment on any amendment or supplement to the Proxy
Statement prior to filing such with the SEC, and will provide Parent with a copy
of all such filings made with the SEC. No amendment or supplement to the
information supplied by Parent for inclusion in the Proxy Statement shall be
made without the approval of Parent, which approval shall not be unreasonably
withheld or delayed.
Section 7.3. COMPANY STOCKHOLDER APPROVAL. The Company will use its best
efforts to obtain the necessary approvals by its stockholders of the Merger,
this Agreement and the transactions contemplated hereby.
Section 7.4. EMPLOYEE MATTERS. (a) The employees of the Company and each
Subsidiary as of the Effective Date shall continue employment with the Surviving
Corporation and the Subsidiaries, respectively, in the same positions and at the
same level of wages and/or salary and without having incurred a termination of
employment or separation from service; PROVIDED, HOWEVER, that the foregoing
shall not constitute any commitment, contract, understanding or guarantee
(express or implied) on the part of the Surviving Corporation of a
post-Effective Date employment relationship of any term or duration or on any
terms other than those the Surviving Corporation may establish. Employment of
any of the employees by the Surviving Corporation shall be "at will" and may be
terminated by the Surviving Corporation at any time for any reason (subject to
any legally binding agreement, or any applicable laws or any arrangement or
commitment); PROVIDED, FURTHER, that no provision of this Agreement shall create
any third-party beneficiary with respect to any employee (or dependent thereof)
of the Company or any of its Subsidiaries in respect of continued employment or
resumed employment. As of the Effective Date, the Surviving Corporation shall be
the sponsor of the Company's option plans immediately prior to the Effective
Date, and Parent shall cause the Surviving Corporation and the Subsidiaries to
satisfy all obligations and liabilities under such option plans. Until at least
December 31, 1997, Parent shall maintain employee benefits and programs for
officers and employees of the Company and its Subsidiaries that are no less
favorable in the aggregate than those being provided to such officers and
employees on the date hereof (it being understood that Parent will not be
obligated to continue any one or more employee benefits or programs). To the
extent any employee benefit plan, program or policy of the Parent or its
affiliates is made available to the employees of the Surviving Corporation or
its Subsidiaries, (i) service with the Company and its Subsidiaries by any
employee prior to the Effective Date shall be credited for eligibility and
vesting purposes under such plan, program or policy, but not for benefit accrual
purposes, and (ii) with respect to any welfare benefit plans to which such
employees may become eligible, Parent shall cause such plans to provide credit
for any co-payments or deductibles by such employees and waive all pre-existing
condition exclusions and waiting periods, other than limitations or waiting
periods that have not been satisfied under any welfare plans maintained by the
Company and the Subsidiaries for their employees prior to the Effective Date.
Parent shall honor or cause to be honored all severance and employment
agreements with the Company's officers and employees to the extent disclosed in
the Schedules to this Agreement.
Section 7.5. INDEMNIFICATION. (a) From and after the Effective Date,
Parent shall indemnify, defend and hold harmless the officers, directors and
employees of the Company and its subsidiaries who were such at any time prior to
the Effective Date (the "Indemnified Parties") from and against all losses,
expenses, claims, damages or liabilities arising out of the transactions
contemplated by this Agreement to the fullest extent permitted or required under
applicable law, including without limitation the advancement of expenses. Parent
agrees that all rights to indemnification existing in favor of those persons
provided for in the Company's Certificate of Incorporation or By-Laws, as in
effect as of the date hereof, with respect to matters occurring through the
Effective Date, shall survive the Merger and shall continue in full force and
effect for a period of not less than six years from the Effective Date. Parent
agrees to cause the Surviving Corporation to maintain in effect for not less
than six years after the Effective Date the current policies of
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directors' and officers' liability insurance maintained by the Company with
respect to matters occurring on or prior to the Effective Date; PROVIDED,
HOWEVER, that the Surviving Corporation may substitute therefor policies of at
least the same coverage (with carriers comparable to the Company's existing
carriers) containing terms and conditions which are no less advantageous to the
Indemnified Parties; PROVIDED, FURTHER, that Parent shall not be required in
order to maintain or procure such coverage to pay an annual premium in excess of
150% of the current annual premium paid by the Company for its existing coverage
(the "Cap"); and PROVIDED, FURTHER, that if equivalent coverage cannot be
obtained, or can be obtained only by paying an annual premium in excess of the
Cap, Parent shall only be required to obtain as much coverage as can be obtained
by paying an annual premium equal to the Cap.
(b) Any Indemnified Party will promptly notify the Parent and the Surviving
Corporation of any claim, action, suit, proceeding or investigation for which
such party may seek indemnification under this Section; PROVIDED, HOWEVER, that
the failure to furnish any such notice shall not relieve Parent or the Surviving
Corporation from any indemnification obligation under this Section except to the
extent Parent or the Surviving Corporation is materially prejudiced thereby. In
the event of any such claim, action, suit, proceeding, or investigation, (x)
Parent or the Parent and Surviving Corporation will have the right to assume the
defense thereof, and Parent and the Surviving Corporation will not be liable to
such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred thereafter by such Indemnified Parties in
connection with the defense thereof, except that all Indemnified Parties (as a
group) will have the right to retain one separate counsel, reasonably acceptable
to such Indemnified Party and Parent, at the expense of the indemnifying party
if the named parties to any such proceeding include both the Indemnified Party
and the Surviving Corporation and the representation of such parties by the same
counsel would be inappropriate due to a conflict of interest between them, (y)
the Indemnified Parties will cooperate in the defense of any such matter, and
(z) the Surviving Corporation will not be liable for any settlement effected
without its prior written consent.
Section 7.6. BEST EFFORTS. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use its best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger, and the other transactions contemplated by this
Agreement, including (a) promptly making their respective filings and thereafter
making any other required submission under the HSR Act, (b) diligently opposing
any objections to, appeals from or petitions to reconsider or reopen any such
approval by persons not a party to this Agreement, (c) the obtaining of all
necessary actions or non-actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by any Governmental Entity, (d) the obtaining of all
necessary consents, approvals or waivers from third parties, (e) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (f)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that the
Company and Parent shall not be under any obligation to take any action to the
extent that their respective Board of Directors shall conclude in good faith,
after consultation with their respective outside counsel, that such action could
be inconsistent with such Board of Director's fiduciary obligations under
applicable law and, PROVIDED FURTHER, that in satisfying their obligations set
forth above neither Parent nor Sub shall be obligated to dispose or to agree to
dispose any assets of either Parent or the Company or their respective
Subsidiaries, nor shall Parent or Sub be required to agree to any conditions as
a prerequisite to obtaining any such approvals (other than any conditions that
are ministerial in nature or are customary for transactions of a similar
nature).
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Section 7.7. PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and
the Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange.
Section 7.8. ALTERNATIVE PROPOSALS. Prior to the Effective Date, the
Company agrees: (a) that neither it nor any of its Subsidiaries shall, and it
shall direct and use its best efforts to cause its officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Company or any of its Subsidiaries (any such
proposal or offer being hereinafter referred to as an "Alternative Proposal") or
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to an Alternative
Proposal, or release any third party from any obligations under any existing
standstill agreement or arrangement relating to any Alternative Proposal, or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and it will take the necessary
steps to inform the individuals or entities referred to above of the obligations
undertaken in this Section 7.8; and (c) that it will notify Parent immediately
if any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it; PROVIDED, HOWEVER, that nothing contained in
this Section 7.8 shall prohibit the Board of Directors of the Company from
furnishing information to any person or entity that makes an Alternative
Proposal, if, and only to the extent that, (A) the Board of Directors of the
Company determines in good faith after consultation with outside counsel that
such action is required for the Board of Directors to comply with its fiduciary
duties to stockholders imposed by law, (B) the Alternative Proposal is a
Superior Proposal, (C) the Company provides Parent with a true and complete copy
of such proposal as soon as practicable after the receipt thereof, and (D) to
the extent applicable, complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Alternative Proposal. Nothing in this Section 7.8 shall
(x) permit the Company to terminate this Agreement (except as specifically
provided in Article IX hereof), (y) permit the Company to have discussions,
negotiations or to enter into any agreement with respect to an Alternative
Proposal during the term of this Agreement (it being agreed that during the term
of this Agreement, the Company shall not enter into any discussion, negotiation
or agreement with any person that provides for, or in any way facilitates, an
Alternative Proposal (other than a confidentiality agreement in customary
form)), or (z) affect any other obligation of the Company under this Agreement.
As used in this Agreement, a "Superior Proposal" means a bona fide written offer
to acquire the Company pursuant to a merger, consolidation, share exchange,
purchase of a substantial portion of assets, business combinations or other
similar transaction (which offer shall not be subject to any conditions that are
more onerous to the Company than the conditions to Parent and Sub's obligations
to consummate the Merger; provided, however, that such offer may be subject to
confirmatory due diligence to be effected within a five (5) business day
period): (i) that the Board of Directors of the Company determines, in good
faith after consultation with a nationally recognized investment banking firm
which provided a written opinion to such effect, provides a higher value per
share to the stockholders of the Company than the Merger Consideration after
taking into account, among other things, the reasonable likelihood the Effective
Date will occur as compared to when the closing of such Alternative Proposal
will occur; (ii) that is not subject to any financing condition (and the offeror
has on hand funds available or committed financing to consummate the offer and
the transactions contemplated; thereby); (iii) does not have any condition to
closing or rights to terminate more onerous to the Company than the
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provisions set forth in Articles VIII or IX hereof; and (iv) does not involve
any substantive legal impediments that are reasonably likely to prevent such
Alternative Proposal from closing.
Section 7.9. ADVICE OF CHANGES; SEC FILINGS. The Company shall confer on a
regular basis with Parent on operational matters. Parent and the Company shall
promptly advise each other orally and in writing of (i) any change or event that
has had, or could reasonably be expected to have, a Material Adverse Effect on
Parent or the Company, as the case may be, (ii) any litigation or governmental
complaints, investigation or hearings (or communication indicating that the same
may be contemplated), or (iii) the breach in any material respect of any
representation or warranty contained herein. The Company and Parent shall
promptly provide each other (or their respective counsel) copies of all filings
made by such party with the Commission or any other Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
Section 7.10. FEE AND EXPENSES. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses, except as provided in Section 9.5.
Section 7.11. AMENDMENT TO THE COMPANY RIGHTS AGREEMENT. The Company, in
accordance with the terms and provisions of the Company Rights Agreement and as
promptly as practicable on or after the date hereof, shall amend the Company
Rights Agreement so as to exclude the Merger and the transaction contemplated by
this Agreement from the Company Rights Agreement.
Section 7.12. P&C COMMITMENTS. (a) Parent and Sub shall (i) on and
following the Effective Date, perform or discharge all obligations of the
Company not previously performed and discharged pursuant to those certain
agreements by and between the Company and Center Reinsurance Company of New York
set forth on SCHEDULE 7.12 hereto (the "Centre Re Agreements") or (ii) in lieu
of such performance or discharge, shall enter into an alternative arrangement
satisfactory to the State of Florida, ex rel, The Department of Insurance (the
"Department").
(b) At the Closing, Parent agrees to perform one of the following actions:
(x) to make (i) a capital contribution to P&C of an amount equal to the
statutory deficit of P&C as of the Closing and (ii) to commit to make additional
contributions, from time to time, in order to remove any statutory deficits
thereafter incurred by P&C; (y) to pay the closing premium required, and cause
PCA and it's subsidiaries to perform all of their obligations, under the terms
of the Centre Re Agreements; or (z) to enter into such other arrangements as the
Department, in its sole discretion, determines is acceptable.
Section 7.13. ASSUMPTION OF DEBT OBLIGATIONS. Sub shall assume or repay
all debt obligations of the Company on the Effective Date.
Section 7.14. ESCROW DEPOSIT. (a) Simultaneously with the execution of
this Agreement, Parent made a $15 million payment (the "Escrow Deposit") into an
escrow account established by the Department for the benefit of P&C, the terms
of which account are set forth in Schedule 7.14. In consideration of making such
payment, the Company hereby grants Parent the right (the "Option") to purchase
for $0.01 per share a number of shares of Company Common Stock equal to $15
million divided by 70% of the average closing prices of the Company Common Stock
for the five trading days immediately prior to the exercise of the Option (as
such prices are reported by the NASD National Market System or such other
principal trading market on which the Company Common Stock then trades).
Parent's right to exercise the Option is subject to (a) the termination of this
Agreement (the "Termination"), (b) the Escrow Deposit not having been returned
to Parent and (c) the obtaining by Parent of all required governmental and
regulatory approvals for such purchase of Company Common Stock. The Option is
exercisable in whole upon 90 days prior written notice to the Company, provided
that the Option may be exercised from time to time in part to the extent Parent
is unable to acquire all of the remaining shares of Company Common Stock subject
to the Option by reason of governmental or regulatory approvals. Parent's right
to give notice
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of exercise of the Option shall expire upon the later of (i) six months
following the Termination or (ii) 30 days after receipt of all required
governmental or regulatory approvals.
(b) The Company represents and warrants to Parent that the shares of Common
Stock issuable upon exercise of the Option shall be validly issued, fully paid
and non-assessable.
(c) In lieu of issuing any shares of Company Common Stock subject to the
Option, the Company may, prior to the exercise of any part of the Option, cancel
the Option by paying to the Company the sum of $15 million plus interest from
the date of execution of this Agreement to the date of payment at a rate per
annum of 10%.
(d) Upon the issuance of any shares of Company Common Stock, the Company
shall file a registration statement with the Securities and Exchange Commission
(the "Commission") covering such shares of Company Common Stock and any other
shares of Company Common Stock to be issued thereafter pursuant to the Option.
The Company shall use its best efforts to cause the Commission to declare the
registration statement effective and cause the registration statement to remain
effective for two years thereafter. The Company will assist Parent in effecting
an underwritten offering, upon customary terms and conditions, with respect to
such shares of Company Common Stock with an underwriter of national standing
selected by Parent.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the Company Common
Stock.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) No preliminary or permanent injunction or other order by any federal or
state court in the United States of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect (each
party agreeing to use its best efforts to have any such injunction lifted).
(d) All consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory body
required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made, except for filings in connection
with the Merger and any other documents required to be filed after the Effective
Date and except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a Material
Adverse Effect on the business of Parent and the Company (and their respective
Subsidiaries) following the Effective Date.
(e) All consents, authorizations, orders and approvals required under
federal or state statutes regulating managed care, health maintenance
organizations or insurance organizations required in connection with the
execution, delivery and performance of this Agreement shall have been obtained,
except where the failure to have obtained any such consent, authorization, order
or approval, would not have a material affect on the ability of the Company and
its Subsidiaries to continue to conduct their respective businesses.
Section 8.2. CONDITION TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the condition, unless
waived by the Company, that Parent and Sub shall have performed in all material
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respects their agreements contained in this Agreement required to be performed
on or prior to the Effective Date, and the representations and warranties of
Parent and Sub contained in this Agreement shall be true and correct when made
and on and as of the Effective Date as if made on and as of such date (except to
the extent they relate to a particular date), except where the failure of such
representations and warranties to be true and accurate when considered in the
aggregate (without giving effect to any limitation as to "materiality" or
material adverse effect set forth therein) would not have a Material Adverse
Effect on Parent.
Section 8.3. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Date of the condition, unless
waived by Parent, that (i) the Company shall have performed in all material
respects its agreements contained in this Agreement required to be performed on
or prior to the Effective Date, (ii) the representations and warranties of the
Company contained in this Agreement shall be true and correct when made and on
and as of the Effective Date as if made on and as of such date (except to the
extent they relate to a particular date), except where the failure of such
representation and warranties to be true and accurate when considered in the
aggregate (without giving effect to any limitation as to "materiality" or
material adverse effect set forth therein) would not have a Material Adverse
Effect on the Company and (iii) the Department shall have entered into the
Consent Order included in SCHEDULE 8.3 and such Consent Order shall remain in
full force and effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Date, before or after the approval of this Agreement by the stockholders of the
Company, by the mutual consent of Parent and the Company.
Section 9.2. TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement
may be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (a) the Merger shall not have been
consummated by October 31, 1997, or (b) the approval of the Company's
stockholders required by Section 3.5 shall not have been obtained at the Company
Meeting or at any adjournment or postponement thereof, or (c) a United States
federal or state court of competent jurisdiction or United States federal or
state governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used best efforts to remove
such injunction, order or decree; and provided, in the case of a termination
pursuant to clause (a) above, that the terminating party shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Merger.
Section 9.3. TERMINATION BY THE COMPANY. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Date, before
or after the adoption and approval by the stockholders of the Company referred
to in Section 3.5, by action of the Board of Directors of the Company, if:
(a) There is a Superior Proposal and: (i) the Board of Directors of the
Company determines in good faith after consultation with the Company's outside
counsel that the failure to approve such offer would not be consistent with the
fiduciary duties to stockholders of the Board of Directors of the Company; (ii)
five business days shall have elapsed after delivery to Parent of a written
notice by the Company informing Parent that the Board of Directors of the
Company has determined that a Superior Proposal has been made and during such
five business-day period the Company shall have fully cooperated with Parent
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in good faith with the intent of enabling Parent to agree to a modification of
the terms and conditions of this Agreement (including the Merger Consideration)
so that the Alternative Proposal would not constitute a Superior Proposal as
compared to the terms and conditions of this Agreement as proposed to be
modified by Parent (the "Modified Agreement"); and (iii) at the end of such five
business-day period, the Board of Directors of the Company shall continue to
determine in good faith (after consultation with a nationally recognized
investment banking firm which provided a written opinion to such effect) that
such Alternative Proposal continues to constitute a Superior Proposal as
compared to the Modified Agreement; PROVIDED, HOWEVER, that the right to
terminate this Agreement pursuant to this clause shall not be available (A) if
the Company has breached in any material respect its obligations under Section
7.8, or (B) if, prior to or concurrently with any purported termination pursuant
to this clause, the Company shall not have paid the fee contemplated by Section
9.5;
(b) There has been a breach by Parent or Sub of any representation or
warranty contained herein that would have a material adverse effect on Parent's
or Sub's ability to perform its obligations under this Agreement and which
breach has not been cured within five (5) business days following receipt by
Parent or Sub of notice of the breach;
(c) There has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of Parent, which breach is not curable
or, if curable, is not cured within 30 days after written notice of such breach
is given by the Company to Parent.
Section 9.4. TERMINATION BY PARENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Date, by action
of the Board of Directors of Parent, if:
(a) The Board of Directors of the Company shall have withdrawn or modified
in a manner adverse to Parent its approval or recommendation of this Agreement
or the Merger or shall have recommended an Alternative Proposal to the Company
stockholders;
(b) There has been a breach by the Company of any representation or warranty
contained herein which has had, or would be reasonably expected to have, a
Material Adverse Effect on the Company and which breach has not been cured
within five (5) business days following receipt by the Company of notice of such
breach; or
(c) There has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of the Company, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by Parent to the Company.
Section 9.5. EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event that
(i) (x) any person shall have made an Alternative Proposal and thereafter this
Agreement is terminated either by the Company pursuant to Section 9.3(a) or by
either party pursuant to Section 9.2(b) or (y) the Board of Directors of the
Company shall have withdrawn or modified in a manner adverse to Parent its
approval or recommendation of this Agreement or the Merger or shall have
recommended an Alternative Proposal to the Company stockholders and Parent shall
have terminated this Agreement pursuant to Section 9.4(a), then the Company
shall promptly, but in no event later than two days after such termination, pay
Parent a fee of $17 million, plus documented out-of-pocket expenses incurred by
Parent in connection with the transactions completed hereby not to exceed $1.5
million (collectively, the "Payment") or (z) this Agreement is terminated for
any reason other than those set forth in clauses (x) or (y) above (other than
pursuant to Section 9.3(b) or (c)), and if within 12 months thereafter any
Alternative Proposal shall have been consummated, then the Company shall
promptly, but in no event later than two days after consummation of any such
transaction, pay Parent the lessor of (i) the Payment and (ii)(a) 3.5% of the
sum of the following: (A) the consideration paid to the Company stockholders
pursuant to such Alternative Proposal, (B) the principal amount of any debt
outstanding on the date such Alternative Proposal is consummated, and (C) the
amount paid or agreed to be paid to the Department in connection with the
matters contemplated by the Forebearance Agreement or any amendments or
supplements thereto plus
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(b) documented out-of-pocket expenses incurred by Parent in connection with the
transactions contemplated hereby not to exceed $1.5 million; PROVIDED, HOWEVER,
that no payment shall be made to Parent under clause (z) above if the Agreement
is terminated pursuant to Section 9.2(a) and, at the time of the termination,
the only condition to closing not satisfied was the condition set forth in
Section 8.1(b), 8.1(c), 8.1(d) or 8.1(e)(or any combination thereof). Any amount
payable hereunder shall be payable by wire transfer of same day funds. The
Company acknowledges that the agreements contained in this Section 9.5(a) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Parent and Sub would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
this Section 9.5(a), and, in order to obtain such payment, Parent or Sub
commences a suit which results in a judgment against the Company for the fee set
forth in this Section 9.5(a), the Company shall pay to Parent its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on the amount of the fee at the rate of 12% per annum.
(b) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article IX, all obligations of the parties hereto shall
terminate, except the obligations of the parties pursuant to this Section 9.5
and Sections 7.10 and 7.14 and except for the provisions of Sections 10.3, 10.4,
10.5, 10.7, 10.9, 10.10 and 10.13. Moreover, in the event of termination of this
Agreement pursuant to Sections 9.2, 9.3 and 9.4, nothing herein shall prejudice
the ability of the non-breaching party from seeking damages from any other party
for any breach of this Agreement, including without limitation, attorneys' fees
and the right to pursue any remedy at law or in equity.
Section 9.6. EXTENSION; WAIVER. At any time prior to the Effective Date,
any party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. All representations and warranties set forth in this Agreement
shall terminate at the Effective Date. All covenants and agreements set forth in
this Agreement shall survive in accordance with their terms.
Section 10.2. NOTICES. This All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
5835 Blue Lagoon Drive
Miami, FL 33126
(305) 265-2840
Telecopy No.: (305) 264-2771
Attention: Chief Financial Officer
With a copy to:
Fulbright & Jaworski, L.L.P.
1301 McKinney, Suite 5100
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Houston, Texas 77010-3095
(713) 651-5151
Telecopy No.: (713) 651-5246
Attention: Robert F. Gray, Jr.
If to Parent or Sub:
500 West Main Street
Louisville, KY 40202
(502) 580-3711
Telecopy No.: (502) 580-3615
Attention: Senior Vice President and General Counsel
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
(212) 859-8000
Telecopy No.: (212) 859-4000
Attention: Jeffrey Bagner
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
Section 10.3. SPECIAL PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 10.4. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement; provided that
the Indemnified Parties shall be third-party beneficiaries of Parent's agreement
contained in Section 7.5 hereof.
Section 10.5. ENTIRE AGREEMENT. This Agreement, the Exhibits, the
Schedules, the Confidentiality Agreement and any documents delivered by the
parties in connection herewith and therewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto;
PROVIDED, HOWEVER, that the provisions of paragraph 8 of the Confidentiality
Agreement shall have no further force or effect. No addition to or modification
of any provision of this Agreement shall be binding upon any party hereto unless
made in writing and signed by all parties hereto.
Section 10.6. AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on
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behalf of each of the parties hereto and the Departments shall be a third party
beneficiary of Parent and Sub's obligations under Sections 7.12 and 7.13 hereto.
Section 10.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its rules of conflict of laws.
Section 10.8. COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
Section 10.9. HEADINGS AND TABLE OF CONTENTS. Headings of the Articles and
Sections of this Agreement and the Table of Contents are for the convenience of
the parties only, and shall be given no substantive or interpretive effect
whatsoever.
Section 10.10. INTERPRETATION. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 10.11. WAIVERS. At any time prior to the Effective Date, the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any documents delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 10.12. INCORPORATION OF EXHIBITS. The SCHEDULE and all Exhibits
attached hereto and referred to herein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
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Section 10.13. SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Amended and
Restated Agreement to be signed by their respective officers thereunder duly
authorized all as of the date first written above.
HUMANA INC.
By:
Title:
HUMNOV, INC.
By:
Title:
PHYSICIAN CORPORATION OF AMERICA
By:
Title:
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ANNEX B
[BEAR STEARNS LETTERHEAD]
August 8, 1997
Board of Directors
Physician Corporation of America
6101 Blue Lagoon Drive
Miami, Florida 33126
Dear Sirs:
We understand that Physician Corporation of America ("PCA") and Humana Inc.
("Humana") have entered into an Agreement and Plan of Merger dated as of June 2,
1997 (the "Merger Agreement"), pursuant to which a newly-formed, wholly-owned
subsidiary of Humana ("Humana Acquisition Corp.") will merge with and into PCA,
with each outstanding share of common stock of PCA, par value $0.01, being
converted into and representing the right to receive $7.00 in cash (the
"Transaction").
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to the stockholders of PCA.
In the course of performing our review and analyses for rendering this
opinion, we have:
1. reviewed the Merger Agreement, dated June 2, 1997;
2. reviewed PCA's Annual Reports to Shareholders and Annual Reports on Form
10-K for the years ended December 31, 1994 through 1996 and PCA's
Quarterly Report on Form 10-Q for the period ended March 31, 1997;
3. reviewed certain operating and financial information provided to us by
the management of PCA relating to its business and prospects, including
financial projections as of May 3, 1997, provided to us by PCA's
management;
4. met with certain members of the senior management of PCA to discuss
PCA's operations, historical financial statements, future prospects and
financial condition;
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ANNEX B
Board of Directors
August 8, 1997
Page 2
5. met with certain members of the Department of Insurance for the State of
Florida ("DOI") to discuss the regulatory implications of the financial
status of PCA Property & Casualty Insurance Company ("P&C"), including
the possibility of having P&C placed into receivership;
6. met with certain members of the senior management of PCA to discuss the
impact on PCA of having P&C placed into receivership;
7. visited PCA's facilities in Miami, Florida and Orlando, Florida;
8. reviewed the historical stock prices, trading activity and valuation
parameters of the PCA Common Stock;
9. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which we deemed generally
comparable to PCA;
10. reviewed the terms of recent mergers and acquisitions of companies which
we deemed generally comparable to the Transaction; and
11. considered and conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial, regulatory and other information provided to
us by PCA and others. With respect to the projections provided to us by PCA, we
determined not to rely on certain of the internal estimates of PCA's future
financial performance in our analyses because of, among other things, the
inherent uncertainty of such projections and the fact that actual results for
fiscal 1996 differed materially from past projections for such periods for PCA;
with your consent we also considered estimates made by security analysts (other
than ourselves) in reports published in the last six months. We have not assumed
any responsibility for the information or projections provided to us and we have
further relied upon the assurances of the management of PCA that they are
unaware of any facts that would make the information or projections provided to
us incomplete or misleading.
In arriving at our opinion, we have not performed, obtained or been
furnished with any independent appraisal of the assets or liabilities of PCA.
This letter does not address PCA's underlying decision to pursue the
Transaction. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the Transaction is fair, from
a financial point of view, to the stockholders of PCA.
B-2
<PAGE>
ANNEX B
Board of Directors
August 8, 1997
Page 3
We have acted as financial advisor to PCA in connection with the Transaction
and will receive a fee for such services, payment of a significant portion of
which is contingent upon the consummation of the Transaction. In addition, in
the past we have acted as financial advisor to PCA, have provided investment
banking services to PCA, and we have been paid fees for such services.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of PCA and does not constitute a recommendation to the
stockholders of PCA as to how to vote on the Transaction. This letter may be
included in its entirety in any proxy statement or other document distributed to
stockholders of PCA in connection with the solicitation of proxies in favor of
the Transaction (but any reference to or description of the opinion expressed
herein in any such proxy statement or other document or any other public
reference to this letter shall be subject to our prior written consent). This
letter is not to be used for any other purpose, or reproduced, disseminated,
quoted or referred to at any time, in whole or in part, without our prior
written consent.
<TABLE>
<S> <C> <C>
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ DAVID H. GLASER
-----------------------------------------
David H. Glaser
SENIOR MANAGING DIRECTOR
</TABLE>
B-3
<PAGE>
ANNEX C
CONSENT OF BEAR, STEARNS & CO. INC.
We hereby consent to the inclusion in the Proxy Statement of Physician
Corporation of America of our opinion attached as Annex B thereto and to the
reference to such opinion and to our firm therein. We also confirm the accuracy
in all material respects of the description and summary of such fairness opinion
and the description and summary of our analyses, observations, beliefs and
conclusions relating thereto, set forth under the heading "Opinion of Bear,
Stearns & Co. Inc." therein. In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 and the rules and regulations of the Securities and
Exchange Commission issued thereunder.
<TABLE>
<S> <C>
Bear, Stearns & Co. Inc.
By: /s/ DAVID H. GLASER
--------------------------------------------
SENIOR MANAGING DIRECTOR
</TABLE>
Dated: August 8, 1997
C-1
<PAGE>
ANNEX D
GENERAL CORPORATION LAW OF DELAWARE
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in
a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251 (other than a merger effected pursuant
to subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this
title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger
or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the holders of the
surviving corporation as provided in subsection (f) of Section 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will
be either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
D-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such
on the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice
a copy of this section; provided that, if the notice is given on or
after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may, and, if given on
or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within
twenty days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date
of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20
days following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights and
who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima
D-2
<PAGE>
facie evidence of the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given; provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
D-3
<PAGE>
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
D-4
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 8, 1997
The undersigned stockholder of Physician Corporation of America ("PCA")
hereby appoints E. Stanley Kardatzke, M.D. and Peter E. Kilissanly, or either
of them, attorneys and proxies of the undersigned, with full power of
substitution, to vote, as hereby designated, the number of votes that the
undersigned would be entitled to cast if personally present at the Special
Meeting of Stockholders of PCA to be held on September 8, 1997, at 10:00
a.m., Miami time, at the offices of the Company, located at 6101 Blue Lagoon
Drive, Miami, Florida 33126, and at any adjournment or postponement thereof,
and hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement (the "Proxy Statement"), each dated August
8, 1997, of PCA distributed in respect thereof. This proxy revokes all prior
proxies given by the undersigned with respect to the matters covered hereby.
(1) Proposal to adopt an Agreement and Plan of Merger, dated as of June 2,
1997, and approve the Merger described therein providing for the merger
of PCA and a wholly owned subsidiary of Humana Inc.
FOR AGAINST ABSTAIN
/ / / / / /
(2) Proposal to approve an adjournment of the meeting to another time and/or
place for the purpose of soliciting additional proxies in the event that
there are not sufficient votes at the time of the meeting for Proposal
(1).
FOR AGAINST ABSTAIN
/ / / / / /
(3) To consider and act upon any other business which may be properly
brought before the meeting or any adjournment or postponement thereof.
(Continued and to be signed on other side.)
THE BOARD OF DIRECTORS OF PCA HAS UNANIMOUSLY APPROVED THE AGREEMENT AND
PLAN OF MERGER AND THE MERGER DESCRIBED THEREIN AND RECOMMENDS THAT
STOCKHOLDERS VOTE FOR PROPOSALS (1) AND (2).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER AND AT THE DISCRETION OF THE PROXY
HOLDERS AS TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSALS (1) AND
(2), WHICH ARE MORE PARTICULARLY DESCRIBED IN THE PROXY STATEMENT, AND AT THE
DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER BUSINESS THAT MAY PROPERLY
COME BEFORE THE MEETING.
_______________________________________________________
_______________________________________________________
Signature of Stockholder(s)
Please sign your name exactly as it appears hereon;
joint owners must each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give your full title. If a
corporation, please sign in full corporate name by
the president or other authorized officer. If a
partnership, please sign the partnership name by
authorized person(s).
PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY.
PLEASE NOTE ANY CHANGE OF ADDRESS.
Dated _____________________, 1997.
