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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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HEALTHSOURCE, INC.
(NAME OF SUBJECT COMPANY)
HEALTHSOURCE, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.10 PER SHARE
(TITLE OF CLASS OF SECURITIES)
42221E 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
JON S. RICHARDSON, ESQ.
SPECIAL COUNSEL TO THE PRESIDENT
HEALTHSOURCE, INC.
TWO COLLEGE PARK DRIVE
HOOKSETT, NEW HAMPSHIRE 03106
(603) 268-7000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATION ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
PAUL T. SCHNELL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-3897
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Healthsource, Inc., a New Hampshire
corporation (the "Company"), and the address of the principal executive offices
of the Company is Two College Park Drive, Hooksett, New Hampshire 03106. The
title of the class of equity securities to which this statement relates is the
common stock, par value $.10 per share (the "Company Common Stock" or the
"Shares"), of the Company (excluding the related Common Stock Purchase Rights
(the "Rights") issued pursuant to the Rights Agreement, dated as of July 29,
1996 (the "Rights Agreement"), between the Company and The Bank of New York, as
Rights Agent, which will be redeemed prior to the consummation of the Offer (as
defined below)).
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to the tender offer by CHC Acquisition Corp., a New
Hampshire corporation (the "Purchaser") and an indirect, wholly-owned subsidiary
of CIGNA Corporation, a Delaware corporation ("CIGNA"), disclosed in a Tender
Offer Statement on Schedule 14D-1, dated March 6, 1997 (the "Schedule 14D-1"),
to purchase all of the issued and outstanding Shares, at a price of $21.75 per
Share, net to the seller in cash (the "Offer Price"), upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated March 6, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which, together
with the Offer to Purchase, constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 27, 1997 (the "Merger Agreement"), by and among CIGNA, the
Purchaser and the Company. The Merger Agreement provides, among other things,
that as soon as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger," and together with the Offer, the "Transaction"), and
the Company will continue as the surviving corporation (the "Surviving
Corporation"). A copy of the Merger Agreement is filed herewith as Exhibit 2 and
is incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
CIGNA are located at One Liberty Place, Philadelphia, Pennsylvania 19192-1550
and the principal executive offices of the Purchaser are located at 900 Cottage
Grove Road, Bloomfield, Connecticut 06152.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
there are no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company's executive officers, directors or affiliates or
(ii) CIGNA or the Purchaser or their respective executive officers, directors or
affiliates.
ARRANGEMENTS WITH CIGNA, THE PURCHASER OR THEIR AFFILIATES
Confidentiality Agreement
The following is a summary of certain material provisions of the
Confidentiality Agreement, dated as of January 31, 1997, between the Company and
CIGNA (the "Confidentiality Agreement"). This summary does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Confidentiality Agreement, a copy of which is filed as Exhibit 1 hereto and
is incorporated herein by reference. Capitalized terms not otherwise defined
below shall have the meanings set forth in the Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, CIGNA agreed to keep confidential all nonpublic,
confidential or proprietary information furnished to it by the Company relating
to the Company, subject to certain exceptions (the "Confidential Information"),
and to use the Confidential Information solely for the purpose of evaluating a
possible transaction involving the
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Company and CIGNA. CIGNA has agreed in the Confidentiality Agreement that for a
period of 18 months from the date thereof, unless invited in writing by the
Company, neither it nor any of its affiliates will, among other things, directly
or indirectly, acquire or offer to acquire any securities or assets of the
Company or propose any tender or exchange offer, merger or other business
combination involving the Company, "solicit" any "proxies" (as those terms are
used in the rules of the Securities and Exchange Commission (the "Commission"))
or seek to influence the management, policy or conduct of the business affairs
of the Company. CIGNA further agreed that, for a period of 18 months from the
date of the Confidentiality Agreement, neither CIGNA nor any of its affiliates
will employ, without the written consent of the Company, or solicit the
employment of any executive officer of the Company, the chief executive officer
of any health maintenance organization or insurance subsidiary of the Company or
any other management employee of the Company or any of its affiliates with whom
CIGNA or its representatives had contact during the negotiations and
investigations in connection with a possible transaction between CIGNA and the
Company.
The Merger Agreement
The following is a summary of certain material provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the Merger Agreement, a copy of
which is filed as Exhibit 2 hereto and is incorporated herein by reference.
Capitalized terms not otherwise defined below shall have the meanings set forth
in the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
not later than the fifth business day from the public announcement of the
execution of the Merger Agreement. The Merger Agreement also provides that the
Purchaser cannot amend or waive the Minimum Condition (as defined below) or
decrease the Offer Price or the number of Shares sought, or amend any other term
or condition of the Offer in any manner adverse to the holders of Shares or
extend the expiration date of the Offer without the prior written consent of the
Company. Notwithstanding the foregoing, the Purchaser has agreed to extend the
Offer from time to time until seven months from execution of the Merger
Agreement if, and to the extent that, at the initial expiration date of the
Offer, or any extension thereof, all conditions to the Offer have not been
satisfied or waived. In the event that the Insurance Regulatory Approvals (as
defined below) have not been obtained by the end of such initial seven month
period and provided that, at the end of such seven month period, no Company
Material Adverse Effect (as defined below) has occurred and is continuing, the
Company may, in its sole discretion, require the Purchaser to extend the
expiration date of the Offer for up to an additional 60 days. In addition, in
the event that the Offer Price is increased, the Offer may be extended to the
extent required by law in connection with such increase.
The obligation of the Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to the condition that there will be
validly tendered and not withdrawn a number of Shares which, together with any
Shares owned by CIGNA or the Purchaser, represent at least a majority of the
Shares outstanding on a fully diluted basis (the "Minimum Condition"). In
addition, the Purchaser is not required to accept for payment or pay for any
Shares tendered pursuant to the Offer, and may terminate the Offer and not
accept for payment any tendered Shares, if (a) any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), has not expired or been terminated prior to the expiration of the
Offer; (b) any approvals or filings under various state and federal laws, rules
and regulations governing insurance holding and operating companies, health
maintenance organizations, health care services plans, third party
administrators, preferred provider plans, providers of utilization review
services, or other managed health care organizations, including laws, rules and
regulations with respect to the administration of Medicaid and Medicare (the
"Insurance Regulatory Approvals") or any other material consent, approval, or
authorization required under any federal or state law required to consummate the
Offer have not been obtained, except where the failure to have obtained such
approvals would not result in a Company Material Adverse Effect (as defined
below) and would not result in a violation of law; or (c) at any time on or
after February 26, 1997, and before the time of acceptance of Shares for payment
pursuant to the Offer any of the following occur: (i) there shall have been any
statute, rule, regulation, judgment, order or
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injunction promulgated, entered, enforced, enacted or issued applicable to the
Offer or the Merger by any federal or state governmental regulatory or
administrative agency, authority, court or legislative body or commission which
(A) prohibits the consummation of the Offer or the Merger, (B) prohibits or
imposes any material limitations on, CIGNA's or the Purchaser's ownership or
operation of all or a material portion of the Company's businesses or assets or
the Shares, except for such prohibitions or limitations which would not have a
Company Material Adverse Effect, (C) prohibits or makes illegal the acceptance
for payment, payment for or purchase of Shares or the consummation of the Offer,
or (D) renders the Purchaser unable to accept for payment, pay for or purchase a
material portion or all of the Shares; provided, that, the parties shall have
used their best efforts to cause any such statute, rule, regulation, judgment,
order or injunction to be vacated or lifted; (ii) the representations and
warranties of the Company set forth in the Merger Agreement shall not be true
and accurate as of the date of consummation of the Offer as though made on or as
of such date (except for those representations and warranties that address
matters only as of a particular date or only with respect to a specific period
of time which need only be true and accurate as of such date or with respect to
such period) or the Company shall have breached or failed to perform or comply
with any obligation, agreement or covenant required by the Merger Agreement to
be performed or complied with by it except, in each case where the failure of
such representations and warranties to be true and accurate (without giving
effect to any limitation as to "materiality" or "material adverse effect" set
forth therein), or the performance or compliance with such obligations,
agreements or covenants, do not, individually or in the aggregate, have a
Company Material Adverse Effect; (iii) the Merger Agreement shall have been
terminated in accordance with its terms; (iv) it shall have been publicly
disclosed that any person, entity or "group" (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall
have acquired beneficial ownership (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 30% of the then outstanding
Shares, through the acquisition of stock, the formation of a group or otherwise;
(v) the Board of Directors of the Company (the "Company Board") shall have
withdrawn, modified or changed in a manner adverse to CIGNA or the Purchaser its
approval or recommendation of the Offer, the Merger Agreement or the Merger or
shall have recommended another proposal or offer or shall have executed an
agreement in principle or definitive agreement relating to another proposal or
offer or similar business combination with a person or entity other than CIGNA,
the Purchaser or their affiliates or the Company Board shall have adopted a
resolution to do any of the foregoing; or (iv) there shall have occurred (A) any
general suspension of trading in securities on any national securities exchange
or in the over-the-counter market, (B) the declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States (whether
or not mandatory), or (C) any limitation (whether or not mandatory) by an United
States governmental authority or agency on the extension of credit by banks or
other financial institutions, which in the reasonable judgment of CIGNA or the
Purchaser, in any such case, and regardless of the circumstances giving rise to
such condition, makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment or payments.
For purposes of the Merger Agreement, "Company Material Adverse Effect"
means only (I) any adverse change in, or effect on, the business, financial
condition or operations (excluding results of operations and effects of net
income) of the Company and its subsidiaries, taken as a whole, that individually
or in the aggregate, exceeds, or is reasonably likely to exceed, $67.5 million,
or (II) the net income of the Company and its subsidiaries (not taking into
account any (A) gains or losses resulting from sales or other dispositions of
assets by the Company or any of its subsidiaries (including, without limitation,
gains or losses resulting from related severance costs) effected with the prior
written consent of CIGNA (which consent will not be unreasonably withheld), and
(B) losses resulting from the costs related to the Merger Agreement and the
transactions contemplated thereby), determined in accordance with United States
generally accepted accounting principles ("GAAP"), from January 1, 1997 through
the last full month of operations for which financial information is available
prior to the consummation of the Offer being less, on a cumulative basis, than
the Targeted Income (as defined below) by an amount in excess of the Allowed
Shortfall (as defined below); provided, however, that, in the case of either of
(I) or (II) above, the effects of changes that are generally applicable to (i)
the health care or HMO industries, (ii) the United States economy or (iii) the
United States securities markets shall be excluded from such determination; and
provided, further, that any adverse effect on the Company and its subsidiaries
resulting from the execution of the Merger Agreement and
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the announcement of the Merger Agreement and the transactions contemplated
thereby and any change in value of the Company's marketable securities shall
also be excluded from such determination. In addition to the foregoing, the
determination of the dollar value or impact of any change or event pursuant to
the preceding sentence shall be based solely on the actual dollar value of such
change or effect, on a dollar-for-dollar basis, and shall not take into account
(i) any multiplier valuation, including, without limitation, any multiple based
on earnings or other financial indicia or the Offer Price or (ii) any
consequential damages or other consequential valuation. For purposes of the
Merger Agreement, (x) "Targeted Income" means, with respect to the following
periods, the cumulative monthly net income (in thousands) listed for such
periods: January 1997 -- $1,413, February 1997 -- $5,281, March 1997 -- $8,963,
April 1997 -- $13,075, May 1997 -- $17,780, June 1997 -- $22,741, July
1997 -- $27,819, August 1997 -- $34,169, September 1997 -- $40,182, October
1997 -- $45,862, November 1997 -- $53,956, and December 1997 -- $61,423, and (y)
"Allowed Shortfall" means, for the same period, $5 million of net income per
month, on a cumulative basis, plus an aggregate of an additional $10 million of
net income. For purposes of considering whether a "Company Material Adverse
Effect" has occurred, (A) any adjustment of reserves for hospital provider
contracts receivables on the Company's balance sheet as of December 31, 1996
shall be counted only in clause (I) above, and (B) any new reserves for hospital
provider contracts receivables established for the period after December 31,
1996 shall be counted only in clause (II) above, unless such new reserves are
required to be restated on the Company's balance sheet as of December 31, 1996
under GAAP, in which case such new reserves shall be counted only in clause (I)
above.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, the Purchaser will be merged with and into the Company, with
the Company continuing as the Surviving Corporation and a wholly-owned
subsidiary of CIGNA, and each issued and outstanding Share (other than Shares
owned by CIGNA, the Purchaser or any other wholly-owned subsidiary of CIGNA or
Shares held by shareholders who properly exercise their dissenters' rights under
the New Hampshire Business Corporation Act (the "NHBCA")) shall be converted
into the right to receive the Offer Price, without interest. The Merger
Agreement also provides that (i) the directors of the Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and the officers of the Company immediately prior to the Effective
Time will be the initial officers of the Surviving Corporation; (ii) the
Articles of Incorporation of the Company will be the initial Articles of
Incorporation of the Surviving Corporation; and (iii) the By-laws of the Company
will be the initial By-laws of the Surviving Corporation.
Treatment of Options. The Merger Agreement provides that each option to
purchase Shares which has been granted under the Company's option plans will be
replaced with a fully vested substitute option to purchase CIGNA's common stock,
$1 par value per share ("CIGNA Common Stock"). See "Arrangements with Executive
Officers, Directors or Affiliates of the Company--Employee and Director Stock
Options."
Directors. The Merger Agreement provides that, promptly upon CIGNA's
purchase of and payment for Shares which represent at least a majority of the
outstanding Shares (on a fully diluted basis), CIGNA will be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board as shall give CIGNA, subject to compliance with Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder, representation on the
Company Board equal to the product of the total number of directors on the
Company Board (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by CIGNA, the Purchaser and any of their affiliates bears to the total
number of Shares then outstanding. The Company will, upon request of the
Purchaser, use its best efforts to cause CIGNA's designees to be so elected,
including by increasing the size of the Company Board or by securing the
resignations of incumbent directors. Notwithstanding the foregoing, until the
Effective Time, the Company will have on the Company Board at least two
directors who were directors of the Company on the date of the Merger Agreement;
provided, that, subsequent to the purchase of and payment for Shares pursuant to
the Offer, CIGNA will always have its designees represent at least a majority of
the entire Company Board.
The Merger Agreement also provides that from and after the time, if any,
that CIGNA's designees constitute a majority of the Company Board, any amendment
of the Merger Agreement, any termination of the Merger Agreement by the Company,
any extension of time for performance of any of the obligations of
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CIGNA or the Purchaser, or any waiver of any condition or any of the Company's
rights thereunder may be effected only by the action of a majority of the
directors of the Company then in office who were directors on the date of the
Merger Agreement, which action shall be deemed to constitute the action of the
full Company Board; provided, that, if there are no such directors, such actions
may be effected by unanimous vote of the entire Company Board.
Shareholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold a special meeting of its shareholders as soon as
practicable following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of considering and taking action
upon the Merger Agreement.
The Merger Agreement also provides that the Company will, if required by
applicable law in order to consummate the Merger, prepare and file with the
Commission a preliminary proxy or information statement relating to the Merger
and the Merger Agreement and shall use its best efforts (i) to obtain and
furnish the information required to be included by the Commission in the Proxy
Statement (as hereinafter defined) and, after consultation with CIGNA, to
respond promptly to any comments made by the Commission with respect to the
preliminary proxy or information statement and cause a definitive proxy or
information statement (the "Proxy Statement") to be mailed to its shareholders
and (ii) to obtain the necessary approvals of the Merger and the Merger
Agreement by its shareholders. The Merger Agreement also provides that the
Company shall include in the Proxy Statement the recommendation of the Company
Board that shareholders of the Company vote in favor of the approval of the
Merger and the adoption of the Merger Agreement. The Merger Agreement also
provides that, if permitted by the NHBCA, in the event that CIGNA, the Purchaser
or any other subsidiary of CIGNA shall acquire at least 90% of the outstanding
shares of each class of capital stock of the Company, pursuant to the Offer or
otherwise, the parties shall take all necessary and appropriate action to cause
the Merger to become effective as soon as practicable after such acquisition,
without a meeting of the Company's shareholders (a "Short-Form Merger"). Under
the NHBCA, as currently in effect, the Merger cannot be accomplished as a
Short-Form Merger because the NHBCA requires the parent corporation in such a
merger (i.e., the Purchaser) to be the surviving corporation.
Representations and Warranties. The Merger Agreement contains
representations and warranties of one or both of the parties with respect to,
among other things (i) organization, good standing, corporate power and
enforceability, (ii) ownership of subsidiaries, (iii) capitalization, (iv) no
conflicts, (v) required consents or approvals, (vi) no material misstatements in
filings made with the Commission, financial statements and regulatory
statements, (vii) no undisclosed liabilities, (viii) absence of material adverse
changes, (ix) no litigation, (x) compliance with law, (xi) no liabilities under
ERISA, (xii) tax returns filed and taxes paid, (xiii) receipt of fairness
opinion from financial advisor, and (xiv) sufficiency of funds to consummate the
Merger.
In the Merger Agreement, each of CIGNA and the Purchaser also (i)
acknowledges that none of the Company, its subsidiaries or any of their
respective directors, officers, employees, affiliates, agents, advisors or
representatives makes any representation or warranty, either express or implied,
as to the accuracy or completeness of any of the information provided or made
available to CIGNA, the Purchaser or their agents or representatives, and (ii)
agrees, to the fullest extent permitted by law, that none of the Company, its
subsidiaries or any of their respective directors, officers, employees,
shareholders, affiliates, agents, advisors or representatives shall have any
liability or responsibility whatsoever to CIGNA or the Purchaser on any basis
(including, without limitation, in contract or tort, under federal or state
securities laws or otherwise) based upon any information provided or made
available, or statements made, to CIGNA, except that the foregoing limitation
shall not apply to the extent the Company makes specific representations and
warranties in the Merger Agreement or preclude CIGNA and the Purchaser from
seeking any remedy for fraud. The Company has also made a reciprocal
acknowledgement and agreement with CIGNA and the Purchaser.
Interim Operations. In the Merger Agreement, the Company has covenanted
and agreed that, among other things, between the date of the Merger Agreement
and prior to the time the Purchaser's designees have been elected to, and
constitute a majority of, the Company Board, unless CIGNA otherwise agrees in
writing
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and except as otherwise contemplated by the Merger Agreement, (a) the Company
and each of its subsidiaries will conduct its business only in the ordinary and
usual course and, to the extent consistent therewith, use their best efforts to
preserve in all material respects their business organization intact and
maintain their existing relations with customers, suppliers, employees and
business associates and (b) neither the Company nor any of its subsidiaries will
(i) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock (other than dividends
from any subsidiary of the Company to the Company or any other subsidiary of the
Company); (ii) issue or sell any additional shares of, or securities convertible
into or exchangeable for, or options, warrants, calls, commitments or rights of
any kind to acquire, any shares of capital stock of any class of the Company or
its subsidiaries, other than Shares reserved for issuance on the date of the
Merger Agreement upon exercise of outstanding Rights pursuant to the Rights
Agreement, issuances pursuant to the exercise of stock options outstanding on
the date of the Merger Agreement, or issuances pursuant to the Company's issued
and outstanding 5% Convertible Subordinated Notes due 2003 (the "Company
Convertible Notes"); (iii) acquire, sell, lease or dispose of any assets in
excess of $5 million, other than in the ordinary and usual course of business;
(iv) incur or modify any material debt, other than in the ordinary and usual
course of business; (v) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock other than redemption of the outstanding
Rights pursuant to the Rights Agreement; (vi) terminate or materially amend any
employee benefit plans; (vii) adopt or materially amend any employee benefit
plans or amend any employment or severance agreement or (except for certain
normal increases in the ordinary and usual course of business) increase in any
manner the compensation of any employees; (viii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the material obligations of any other person (other than
subsidiaries of the Company), except in the ordinary and usual course of
business; (ix) make any material loans, advances or capital contributions to, or
investments in, any other person (other than to subsidiaries of the Company),
other than in the ordinary and usual course of business; (x) make capital
expenditures in excess of an aggregate of $10 million for the first seven months
from the date of the Merger Agreement or an additional $5 million thereafter;
(xi) materially change any of the accounting methods used by it unless required
by GAAP or applicable law; (xii) settle or compromise any claim (including
arbitration) or litigation involving payments by the Company in excess of
$1,000,000, individually, which are not subject to insurance reimbursement
without the prior written consent of CIGNA, which consent will not be
unreasonably withheld, and will consult with CIGNA with respect to settlement or
compromise of any claim (including arbitration) or litigation involving less
than $1,000,000; (xiii) amend, modify or terminate in any material respect its
hospital contracts without the prior written consent of CIGNA, which consent
shall not be unreasonably withheld, and provided that CIGNA shall designate a
single senior officer with responsibility to provide such consent and such
officer shall respond within two business days of any such request and the
Company will consult with CIGNA prior to entering into any new hospital contract
or agreement; or (ix) authorize or enter into an agreement to do any of the
foregoing.
Actions Regarding the Rights. The Company has agreed in the Merger
Agreement that it shall, in accordance with the terms and provisions of the
Rights Agreement and as promptly as practicable on or after the date of the
Merger Agreement, take all reasonable actions necessary to cause the (a)
postponement of the Distribution Date (as defined in the Rights Agreement) as
necessary to prevent the Merger Agreement or the consummation of any of the
transactions contemplated thereby, including without limitation, the publication
or other announcement of the Offer and the consummation of the Offer and the
Merger, from resulting in (i) the distribution of separate Rights certificates,
or (ii) the occurrence of a Distribution Date, and (b) redemption of the Rights
prior to the consummation of the Offer. On February 27, 1997, the Company Board
postponed the Distribution Date until immediately prior to the consummation of
the Offer at which time the Rights will be redeemed.
5% Convertible Subordinated Notes. The Merger Agreement provides that, in
accordance with the terms of the Indenture, dated as of March 6, 1996 (the
"Indenture"), between the Company, as issuer, and The Bank of New York, as
trustee (the "Trustee"), with respect to the Company Convertible Notes, within
30 days following the acquisition by Purchaser of beneficial ownership, directly
or indirectly, of more than 50% of the Shares, the Company will publish a notice
in The Wall Street Journal, notify the Trustee and give written notice to each
holder of the Company Convertible Notes, stating, among other things, (i) that a
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Change of Control (as defined in the Indenture) has occurred, (ii) that each
holder of the Company Convertible Notes has the right to require the Company to
repurchase such holder's Company Convertible Notes at a purchase price in cash
in an amount equal to 101% of the principal amount of such Company Convertible
Notes, plus accrued and unpaid interest thereon, if any, to the purchase date
thereof and (iii) the date on which such Company Convertible Notes shall be
purchased which shall be a business day no later than 60 days from the date such
notice is mailed. In connection with such repurchases, CIGNA has agreed in the
Merger Agreement to contribute to the Company an amount in cash necessary to
repurchase all such Company Convertible Notes.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither it nor any of its subsidiaries shall (and the Company shall use its
best efforts to cause its officers, directors, employees and investment bankers,
attorneys or other agents not to), (i) initiate, solicit or encourage, directly
or indirectly, any inquiries or the making of any proposal that constitutes or
is reasonably likely to lead to any Acquisition Proposal (as defined below);
(ii) engage in negotiations or discussions with, or furnish any information or
data to any third party relating to an Acquisition Proposal; or (iii) enter into
any agreement with respect to or approve any Acquisition Proposal; provided,
however, that the Company and the Company Board may participate in discussions
or negotiations (including, as a part thereof, making any counterproposal) with
or furnish information to any third party making an unsolicited Acquisition
Proposal (a "Potential Acquiror") or approve an unsolicited Acquisition Proposal
if the Company Board is advised by its financial advisor that such Potential
Acquiror has the financial wherewithal to be reasonably capable of consummating
such an Acquisition Proposal, and either (i) the Company Board determines in
good faith, after receiving advice from its financial advisor, that such third
party has submitted to the Company an Acquisition Proposal which is a Superior
Proposal (as defined below), or (ii) the Company Board determines in good faith,
based upon advice of its outside legal counsel, that the failure to participate
in such discussions or negotiations or to furnish such information or approve an
Acquisition Proposal would violate the Company Board's fiduciary duties under
applicable law.
For purposes of the Merger Agreement, "Acquisition Proposal" means any bona
fide proposal, whether in writing or otherwise, made by a third party to acquire
beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of all or
a material portion of the assets of, or any material equity interest in, the
Company or its material subsidiaries pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock, sale of assets,
tender offer or exchange offer or similar transaction involving the Company or
its material subsidiaries. "Superior Proposal" means any bona fide proposal to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than a majority of the Shares then outstanding or all or
substantially all the assets of the Company, and otherwise on terms which the
Company Board determines in good faith to be more favorable to the Company and
its shareholders than the Offer and the Merger (based on advice of the Company's
financial advisor that the value of the consideration provided for in such
proposal is superior to the value of the consideration provided for in the Offer
and the Merger), for which financing, to the extent required, is then committed
or which, in the good faith reasonable judgment of the Company Board, after
receiving advice from its financial advisor, is reasonably capable of being
financed by such third party.
The Merger Agreement also provides that except to the extent such action
would violate the Company Board's fiduciary duties under, or otherwise violate,
applicable law, the Company will (i) promptly inform CIGNA in writing of any
provision of information, as described above, or of any Acquisition Proposal and
the identity of the recipient of such information and/or the Potential Acquiror
and the terms of such Acquisition Proposal, and (ii) keep CIGNA reasonably
informed of the status of any such Acquisition Proposal (including amendments or
proposed amendments). The Company has agreed that any non-public information
furnished to a Potential Acquiror will be pursuant to a confidentiality
agreement substantially similar to the confidentiality provisions of the
confidentiality agreement entered into between the Company and CIGNA.
In the Merger Agreement, the Company has agreed that the Company Board
shall not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to CIGNA, its approval or recommendation of the Merger Agreement, the
Offer or the Merger or (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal unless, in each case, the Company Board
determines in good faith, after
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receiving advice from its financial advisor, that such Acquisition Proposal is a
Superior Proposal or, based upon advice of its outside legal counsel, that the
failure to take such action would violate its fiduciary duties under applicable
law.
Employee Benefits. The Merger Agreement provides that, effective as of the
Effective Time and for a two-year period following the Effective Time, those
persons who, immediately prior to the Effective Time, were employees of the
Company or its subsidiaries will be provided with employee plans and programs
which provide benefits that are no less favorable in the aggregate than those
provided to such employees immediately prior to the date of the Merger
Agreement. As soon as is reasonably practicable (and in any event prior to the
consummation of the Offer) and following a review of Parent's employee plans and
benefits, the Company will confirm to Parent whether it considers Parent's
employee plans and benefits to be no less favorable in the aggregate than the
Company's employee plans and benefits. With respect to such benefits, service
accrued with the Company by such employees will be recognized for all purposes,
except to the extent necessary to prevent duplication of benefits. CIGNA and the
Purchaser have also agreed to honor, without modification, all employment and
severance agreements and arrangements, as amended through the date of the Merger
Agreement, with respect to employees and former employees of the Company as well
as additional severance agreements to be entered into after the date of the
Merger Agreement and prior to the Effective Time. As soon as practicable
following the Effective Time (but in no event later than 30 days following the
Effective Time), CIGNA will grant options to purchase 200,000 shares of CIGNA
Common Stock to persons who were employees of the Company immediately prior to
the Effective Time. See "Arrangements with Executive Officers, Directors or
Affiliates of the Company -- Certain Provisions in the Merger Agreement."
Directors' and Officers' Insurance and Indemnification. The Merger
Agreement provides that (a) from and after the consummation of the Offer, CIGNA
will, and will cause the Company (or the Surviving Corporation if after the
Effective Time) to, indemnify, defend and hold harmless any current or former
officer, director, employee and agent (the "Indemnified Party") of the Company
and its subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorney's fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "Claim") to the extent that any
such Claim is based on, or arises out of, (i) the fact that such person is or
was a director, officer, employee or agent of the Company or any subsidiaries or
is or was serving at the request of the Company or any of its subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (ii) the Merger Agreement, or any of the
transactions contemplated thereby, in each case to the extent that any such
Claim pertains to any matter or fact arising, existing, or occurring prior to or
at the Effective Time, regardless of whether such Claim is asserted or claimed
prior to, at or after the Effective Time, to the full extent permitted under New
Hampshire law or the Company's Articles of Incorporation, By-laws or existing
indemnification agreements, including provisions relating to advancement of
expenses incurred in the defense of any action or suit; provided, that, in the
event any Indemnified Party becomes involved in any capacity in any Claim, then
from and after consummation of the Offer, CIGNA will, or will cause the Company
(or the Surviving Corporation if after the Effective Time) to, periodically
advance to such Indemnified Party its legal and other expenses (including the
cost of any investigation and preparation incurred in connection therewith),
subject to the provision by such Indemnified Party of an undertaking to
reimburse the amounts so advanced in the event of a final non-appealable
determination by a court of competent jurisdiction that such Indemnified Party
is not entitled thereto; (b) CIGNA and the Company agree that all rights to
indemnification and all limitations on liability existing in favor of the
Indemnified Party as provided in the Company's Articles of Incorporation and
By-laws as in effect as of the Merger Agreement shall survive the Merger and
shall continue in full force and effect, without any amendment thereto, for a
period of six years from the Effective Time to the extent such rights are
consistent with the NHBCA; provided, that, in the event any claim or claims are
asserted or made within such six year period, all rights to indemnification in
respect of any such claim or claims shall continue until disposition of any and
all such claims; provided, further, that any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under New Hampshire law, the Company's Articles of
Incorporation or By-laws or such agreements, as the case may be, shall be made
by independent legal counsel selected by the Indemnified Party and reasonably
acceptable to
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CIGNA; (c) in the event CIGNA or the Purchaser or any of their successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, proper provision shall be
made so that the successors and assigns of CIGNA and the Purchaser assume the
obligations set forth above and none of the actions described in clauses (i) or
(ii) shall be taken until such provision is made; and (d) CIGNA or the Surviving
Corporation shall maintain the Company's existing officers' and directors'
liability insurance policy for a period of not less than six years after the
Effective Date; provided, that, CIGNA may substitute therefor policies of
substantially similar coverage and amounts containing terms no less advantageous
to the covered former directors or officers.
Shareholder Litigation. The Merger Agreement provides that in connection
with any litigation which may be brought against the Company or its directors
relating to the transactions contemplated thereby, the Company will keep CIGNA
and its counsel informed of the status of such litigation, to the extent CIGNA
is not otherwise a party thereto. The Company has also agreed that it will
consult with CIGNA prior to entering into any settlement or compromise of any
such shareholder litigation and will not enter into any such settlement or
compromise involving the payment of money in excess of $1 million (to the extent
not subject to insurance reimbursement) without CIGNA's prior written consent.
Further Assurances. In the Merger Agreement, each of the parties agrees to
use its respective best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by the Merger Agreement which efforts shall include,
without limitation, (a) CIGNA and the Purchaser proffering their willingness to
accept an order or orders providing for the divestiture by CIGNA and the
Purchaser of such of the Company's assets and businesses (or, in lieu thereof,
approximately equivalent assets and businesses of CIGNA and the Purchaser) which
do not represent in the aggregate assets with a fair market value greater than
$67.5 million as are necessary to permit CIGNA and the Purchaser otherwise fully
to consummate the Offer and the Merger and the transactions contemplated by the
Merger Agreement, including an offer to hold separate such assets and businesses
pending any such divestiture or pending the receipt of any required regulatory
approvals; (b) CIGNA and the Purchaser using their best efforts to prevent any
preliminary or permanent injunction or other order by a court of competent
jurisdiction or Governmental Entity (as defined in the Merger Agreement)
relating to consummating the transactions contemplated by the Merger Agreement,
including, without limitation, under the antitrust laws and with respect to the
Insurance Regulatory Approvals, and, if issued, to appeal any such injunction or
order through the appellate court or body for the relevant jurisdiction,
provided that CIGNA shall not be obligated to continue pursuing any particular
litigation or action following the issuance of any preliminary injunction with
respect thereto; and (c) CIGNA and the Purchaser using their best efforts to
satisfy any objections of, and accept any conditions imposed by, any
Governmental Entity in connection with any Insurance Regulatory Approval, except
where such objection or condition would result in costs or liabilities to the
Company and CIGNA, taken together (and aggregated with any loss incurred in
connection with a disposition of assets pursuant to clause (a) above at less
than fair market value), in excess of $67.5 million; provided, however, that
notwithstanding the foregoing, during the sixty day period following the date of
the Merger Agreement, CIGNA and Purchaser will only be obligated to use
commercially reasonable efforts to obtain all Insurance Regulatory Approvals. If
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of the Merger Agreement, the parties thereto
shall take or cause to be taken all such necessary action, including, without
limitation, the execution and delivery of such further instruments and documents
as may be reasonably requested by the other party for such purposes or otherwise
to consummate and make effective the transactions contemplated thereby. CIGNA
has agreed to file all applications on Form A (or equivalent form) necessary to
obtain the Insurance Regulatory Approvals within 12 business days from the date
of the Merger Agreement.
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to effect the Merger shall be subject to
the satisfaction, at or prior to the Effective Time, of the following
conditions: (a) if required by applicable law and the Articles of Incorporation,
the Merger Agreement shall
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have been approved and adopted by the requisite vote of the Company's
shareholders; (b) any waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated; (c) all Insurance Regulatory Approvals
shall have been obtained, except where the failure to do so would not have a
Company Material Adverse Effect; (d) no statute, rule, regulation, order, decree
or injunction shall have been enacted, promulgated or issued by any Governmental
Entity or court which prohibits consummation of the Merger; and (e) CIGNA, the
Purchaser or their affiliates shall have purchased Shares pursuant to the Offer.
The Merger Agreement provides that the obligation of the Company to effect the
Merger is further subject to the conditions that the representations and
warranties of CIGNA and the Purchaser shall be true and accurate, except where
the failure to be so true and accurate would not have a CIGNA Material Adverse
Effect (as hereinafter defined), and that CIGNA and the Purchaser shall have
performed in all material respects all of their respective obligations under the
Merger Agreement. For purposes of the Merger Agreement, "CIGNA Material Adverse
Effect" means only any adverse change in, or effect on, the business, financial
condition, operations or results of operations of CIGNA and its subsidiaries,
taken as a whole that, individually or in the aggregate, exceeds, or is
reasonably likely to exceed, $67.5 million; provided, however, that the effects
of changes that are generally applicable to (i) the healthcare or HMO
industries, (ii) the United States economy, or (iii) the United States
securities markets shall be excluded from such determination. In addition to the
foregoing, the determination of the dollar value or impact of any change or
event pursuant to the preceding sentence shall be based solely on the actual
dollar value of such change or effect, on a dollar-for-dollar basis, and shall
not take into account (i) any multiplier valuation, including, without
limitation, any multiple based on earnings or other financial indicia or (ii)
any consequential damages or other consequential valuation. The Merger Agreement
also provides that the obligations of CIGNA and the Purchaser to effect the
Merger are further subject to the conditions that the Company's representations
and warranties shall be true and accurate, except where the failure to be so
true and accurate would not have a Company Material Adverse Effect, and that the
Company shall have performed in all material respects all of its obligations
under the Merger Agreement; provided, however, that these conditions shall cease
if the Purchaser shall have accepted for payment and paid for Shares validly
tendered pursuant to the Offer.
Termination. The Merger Agreement provides that it may be terminated at
any time prior to the Effective Time: (a) by mutual consent of CIGNA and the
Company; (b) by either the Company or CIGNA and the Purchaser (i) if the Shares
shall not have been purchased pursuant to the Offer on or prior to seven months
from the execution of the Merger Agreement; provided, however, that the Company
may, in its sole discretion, extend such termination date for up to an
additional 60 days in the event that the Insurance Regulatory Approvals shall
not have been obtained by the end of such initial seven month period and
provided that, at the end of such seven month period, no Company Material
Adverse Effect shall have occurred and be continuing; and provided, further,
that a party may not terminate the Merger Agreement pursuant to this clause (i)
if such party's failure to fulfill any obligation under the Merger Agreement was
the cause of, or resulted in, the failure of CIGNA or the Purchaser to purchase
the Shares on or prior to such date or (ii) if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement or prohibiting CIGNA from acquiring or holding or
exercising rights of ownership of the Shares except such prohibitions which
would not have a Company Material Adverse Effect, and such order, decree, ruling
or other action shall have become final and non-appealable; (c) by the Company
(i) if prior to the purchase of Shares pursuant to the Offer, either (A) a third
party shall have made an Acquisition Proposal that the Company Board determines
in good faith, after consultation with its financial advisor, is a Superior
Proposal, or (B) the Company Board shall have withdrawn, or modified or changed
in a manner adverse to CIGNA or the Purchaser its approval or recommendation of
the Offer, the Merger Agreement or the Merger, (ii) if CIGNA or the Purchaser
shall have terminated the Offer, or the Offer shall have expired, without CIGNA
or the Purchaser purchasing any Shares; provided, that, the Company may not
terminate the Merger Agreement pursuant to this clause (ii) if the Company is in
willful breach of the Merger Agreement or (iii) if, due to an occurrence that if
occurring after the commencement of the Offer would result in a failure to
satisfy any of the conditions to completion of the Offer, CIGNA, the Purchaser
or any of their affiliates shall have failed to commence the Offer on or prior
to five business days following the date of the initial public announcement of
the Offer, provided, that, the Company may not terminate the Merger Agreement
pursuant to this clause
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(iii) if the Company is in willful breach of the Merger Agreement; or (d) by
CIGNA and the Purchaser (i) if, prior to the purchase of Shares pursuant to the
Offer, the Company Board shall have withdrawn, modified or changed in a manner
adverse to CIGNA or the Purchaser its approval or recommendation of the Offer,
the Merger Agreement or the Merger or shall have recommended an Acquisition
Proposal or shall have executed an agreement in principle or definitive
agreement relating to an Acquisition Proposal or similar business combination
with a person or entity other than CIGNA, the Purchaser or their affiliates or
(ii) if, due to an occurrence that if occurring after the commencement of the
Offer would result in a failure to satisfy any of the conditions to completion
of the Offer, CIGNA, the Purchaser or any of their affiliates shall have failed
to commence the Offer on or prior to five business days following the date of
the initial public announcement of the Offer; provided, that, CIGNA may not
terminate the Merger Agreement pursuant to this clause (ii) if CIGNA or the
Purchaser is in willful breach of the Merger Agreement.
Effect of Termination; Termination Fee. The Company has agreed to pay to
CIGNA a termination fee of $45 million if: (a) the Merger Agreement is
terminated pursuant to the provisions described in clauses (c)(i) or (d)(i)
under "Termination" above, or (b) the Merger Agreement is terminated for any
reason (other than as a result of a material breach by CIGNA or the Purchaser
that resulted in the termination of the Merger Agreement or a willful breach by
CIGNA or the Purchaser of their obligations under the Merger Agreement) at any
time after an Acquisition Proposal has been made by a third party (a "Third
Party Acquiror") and, within one year after such a termination, the Company
completes either (i) a merger, consolidation or other business combination with
any such Third Party Acquiror (or another party who makes an Acquisition
Proposal at a time when the Company is in discussions with any such Third Party
Acquiror), or (ii) the sale of 50% or more (in voting power) of the voting
securities of the Company or of 40% or more (in market value) of the assets of
the Company and its subsidiaries, on a consolidated basis to any such Third
Party Acquiror (or another party who makes an Acquisition Proposal at a time
when the Company is in discussions with any such Third Party Acquiror).
Amendment. The Merger Agreement provides that it may be amended, modified
and supplemented in any and all respects, whether before or after any vote of
the shareholders of the Company, by written agreement of the parties thereto, by
action taken by their respective Boards of Directors at any time prior to the
date of closing with respect to any of the terms contained therein; provided,
however, that after the approval of the Merger Agreement by the shareholders of
the Company, no such amendment, modification or supplement shall reduce or
change the consideration payable in the Merger or adversely affects the rights
of the Company's shareholders under the Merger Agreement without the approval of
such shareholders.
Shareholder Agreement
Concurrently with the execution of the Merger Agreement, the Purchaser and
CIGNA entered into a Tender Agreement and Irrevocable Proxy (the "Shareholder
Agreement") with Norman C. Payson, M.D. (the "Shareholder"), the Company's
President and Chief Executive Officer and a member of the Company Board, with
respect to the 4,332,760 Shares owned by the Shareholder. The following is a
summary of the material provisions of the Shareholder Agreement. This summary
does not purport to be complete and is qualified in its entirety by reference to
the complete text of the Shareholder Agreement, a copy of which is filed as
Exhibit 3 hereto and is incorporated herein by reference. Capitalized terms not
otherwise defined below shall have the meanings set forth in the Shareholder
Agreement.
Pursuant to the Shareholder Agreement, the Shareholder has agreed to tender
all Shares owned by him in the Offer and CIGNA and the Purchaser have agreed to
accept for payment and pay for such Shares subject to the terms and conditions
of the Offer.
Pursuant to the Shareholder Agreement, the Shareholder has also granted to
CIGNA an irrevocable proxy to vote his Shares in connection with any meeting of
the Company's shareholders, or in connection with any written consent of the
Company's shareholders, (i) in favor of the Merger, the execution and delivery
by the Company of the Merger Agreement and the approval and adoption of the
Merger and the terms thereof and each of the other actions contemplated by the
Merger Agreement and the Shareholder Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would impede,
interfere
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with, or prevent the Offer or the Merger; and (iii) except as otherwise agreed
to in writing in advance by CIGNA, against the following actions (other than the
Offer, the Merger and the transactions contemplated by the Merger Agreement and
the Shareholder Agreement): (I) any extraordinary corporate transaction, such as
a merger, consolidation or other business combination involving the Company or
any of its subsidiaries (including any transaction contemplated by an
Acquisition Proposal); (II) any sale, lease or transfer of a material amount of
the assets or business of the Company or its subsidiaries, or any
reorganization, restructuring, recapitalization, special dividend, dissolution,
liquidation or winding up of the Company or its subsidiaries; and (III) any
change in the present capitalization of the Company including any proposal to
sell any material equity interest in the Company or any amendment of the
Articles of Incorporation of the Company. Such irrevocable proxy shall terminate
on the termination of the Shareholder Agreement.
During the term of the Shareholder Agreement, the Shareholder has agreed
that he will not (i) transfer to any person any or all of his Shares (except to
the Purchaser pursuant to the Offer); or (ii) except for the proxy granted to
Purchaser, grant any proxies or powers of attorney, deposit any of his Shares
into a voting trust or enter into a voting agreement, understanding or
arrangement with respect to such Shares. The Shareholder Agreement does permit
the Shareholder to transfer his Shares to any family member, certain entities
owned by or formed for the benefit of the Shareholder or his family members, and
certain successors to the Shareholder; provided, that in the case of any such
transfer, the transferee executes an agreement to be bound by the terms of the
Shareholder Agreement, or terms substantially identical thereto.
Until the termination of the Shareholder Agreement, the Shareholder has
agreed to comply with the provisions of the section of the Merger Agreement
described above under "The Merger Agreement-No Solicitation" to the extent
applicable to the Shareholder in his capacity as a director or officer of the
Company. The foregoing does not prevent the Shareholder from taking any actions
that the Company is permitted to take in accordance with such section of the
Merger Agreement.
The Shareholder Agreement, and all rights and obligations of the parties
thereunder, terminates upon the earlier of (a) the date upon which CIGNA shall
have purchased and paid for all of the Shareholder's Shares in accordance with
the Offer and (b) the date on which the Merger Agreement is terminated.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
Consulting Agreement
Concurrently with the execution of the Merger Agreement, CIGNA entered into
a consulting agreement (the "Consulting Agreement") with Dr. Payson (the
"Consultant"). The following is a summary of the material provisions of the
Consulting Agreement. This summary does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Consulting
Agreement, a copy of which is filed as Exhibit 4 hereto and is incorporated
herein by reference. Capitalized terms not otherwise defined below shall have
the meanings set forth in the Consulting Agreement.
The Consulting Agreement has a term of nine months, commencing on the date
of the consummation of the Offer. During the term, the Consultant will perform
such services relating to the business of CIGNA as the Consultant and the
President of CIGNA HealthCare (or his designee) shall mutually agree. The
Consulting Agreement requires the Consultant to provide up to 120 hours of
consulting services per month during the first six months of the term of the
Consulting Agreement and up to 80 hours per month for the remainder of the term.
For a nine month period following the consummation of the Offer, the Consultant
will be subject to a covenant not to compete against CIGNA or the Company or
their respective subsidiaries. The Consultant has also agreed that during the
term of the Consulting Agreement and for a period of one year following the
termination of the Consulting Agreement, he will not (i) induce any employee of
CIGNA, the Company or any of their respective affiliates to leave such
employment or to accept any other employment or position, or (ii) assist any
other person in hiring any such employee. The foregoing does not, however,
prevent the Consultant from responding to or addressing inquiries initiated by
employees of CIGNA, the Company or any of their respective affiliates or from
hiring any such employees who make such initial contact.
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In the Consulting Agreement, CIGNA and the Consultant have agreed not to
make any statement, observation or opinion, or communicate any information
(whether oral or written), that materially disparages the reputation or business
of the other. The Consulting Agreement also provides for a mutual release of
claims between the Consultant, on the one hand, and CIGNA, the Purchaser, the
Company and their respective affiliates, on the other hand.
Pursuant to the Consulting Agreement, the Consultant will receive $100,000
per month for the nine month term of the Consulting Agreement and is entitled to
reimbursement of ordinary and appropriate business expenses. The Consulting
Agreement further provides that the Consultant is entitled to welfare benefits
generally available to senior executive officers of CIGNA and access to a
corporate airplane, with the right to purchase such airplane at the book value
thereof. The Consultant will also receive a cash payment of $25,000 to purchase
office equipment as well as reimbursement of office and staffing expenses up to
$200,000 per year. The Consulting Agreement further provides that,
notwithstanding anything to the contrary, CIGNA will take all necessary action
to cause any Company stock options held by the Consultant or his successors to
remain freely exercisable until, and expire no earlier than, the tenth
anniversary of the grant of such options without regard to the termination of
the Consulting Agreement, termination of the Consultant's employment with the
Company, the Consultant's death or disability or the cessation of the
Consultant's services to CIGNA.
Employment Agreements
Dr. Middleton. ln January 1995, Dr. Middleton entered into a five year
employment agreement with the Company pursuant to which he serves as President
of Healthsource South, Inc., and more recently as President and Chief Executive
Officer of Healthsource South Carolina, Inc., at a current annual salary
(including stipend) of $350,700 and is also eligible to receive an annual
performance bonus. The employment agreement is terminable by the Company or Dr.
Middleton without cause on 60 days' notice and provides for a severance benefit
of $300,000 plus two months' base pay for each year completed under the
agreement, up to a maximum of 12 months, in the event of termination without
cause by the Company, or $500,000 plus two months' base pay for each year since
1991, up to a maximum of 12 months, in the event Dr. Middleton terminates his
employment within 90 days following a change of control of the Company. The
transactions contemplated by the Merger Agreement will constitute a change in
control of the Company for purposes of the agreement.
Mr. Zubretsky. In June 1996, Mr. Zubretsky entered into an employment
agreement with the Company under which he serves as the Chief Financial Officer
of the Company, at a current annual salary of $375,000 and is eligible to
receive a performance bonus. The agreement expires December 31, 1997, subject to
annual renewal. If Mr. Zubretsky's employment is terminated by the Company
without cause or if the Company does not renew the agreement, Mr. Zubretsky
becomes entitled to continue to receive his base salary for a two year period,
so long as he complies with noncompetition and nondisclosure provisions
contained in the agreement. Further, if Mr. Zubretsky's employment is terminated
by the Company (or by Mr. Zubretsky if his authority or status with the Company
is reduced) within 180 days following a change in control of the Company, then
Mr. Zubretsky becomes entitled to continue to receive his base salary for a
three year period.
Other Agreements. Mr. Schneider has a severance arrangement with the
Company. Mr. Schneider's arrangement provides that if his employment is
terminated by the Company without cause or by Mr. Schneider if, following a
change in control of the Company, his duties or compensation are adversely
altered, he becomes entitled to receive his base salary for a two year period.
Mr. Chin has a severance arrangement with the Company pursuant to which Mr. Chin
becomes entitled to receive six months of base salary if his employment is
terminated for cause, and one year of base salary if his employment is
terminated without cause. Dr. Salmon has a severance arrangement with the
Company providing that if Dr. Salmon's employment is terminated by the Company
with or without cause, or if his duties and responsibilities are materially
altered, he becomes entitled to one year of salary continuation, plus an
additional month of salary continuation for each year of employment with the
Company, plus an amount equal to his eligible bonus.
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Severance Agreements
The Merger Agreement provides that the Company will enter into severance
agreements with 29 of the Company's officers (the "Severance Agreements") prior
to the Merger. The Severance Agreements will provide that severance benefits
will be paid to the officer if his or her employment is terminated by the
officer for good reason or by the Company other than for cause, in either case
within two years following the consummation of the Offer. Dr. Payson will
receive severance benefits upon the consummation of the Offer since his
employment with the Company will be terminated at such time.
Severance benefits under the Severance Agreements will include a lump sum
cash payment equal to the sum of the officer's current base salary plus maximum
annual incentive bonus, multiplied by a factor. The factor will equal: 3 for Dr.
Payson, Mr. Schneider and Mr. Zubretsky; 2 for Mr. Chin, Mr. Moses, Dr.
Middleton, Mr. Richardson and Dr. Salmon; 1.5 for Mr. Greczyn, Ms. Lencki, Mr.
Pearce and Mr. Slater; and 1 for 17 additional officers.
Severance benefits also include the payment of a pro rata portion of the
officer's target bonus for the current year, continuation of medical and welfare
benefits for a number of years following termination of employment equal to the
multiple described above, office and secretarial services for the same period of
time, outplacement and financial planning services for one year following
termination of employment, a cash payment reimbursing the officer for any
liabilities in respect of any taxes or excise taxes in respect of Section 4999
of the Code (the "Parachute Tax"), if applicable, and reimbursement of legal
fees reasonably incurred by the officer in connection with enforcing his or her
rights under a Severance Agreement or in respect of the Parachute Tax. Assuming
that the following officers of the Company are terminated from employment
immediately following the Merger, and assuming the Merger occurs on June 30,
1997, each such officer would be entitled to a lump sum cash payment (excluding
from such amount any reimbursements in respect of the Parachute Tax, if any)
equal to the following: Dr. Payson, $2,475,000, Mr. Schneider, $1,677,000; Mr.
Zubretsky, $1,500,000, Dr. Middleton, $946,890 and Dr. Salmon, $643,750.
Employee and Director Stock Options
The Company maintains the 1994 Stock Option Plan, the 1991 Non-Qualified
Stock Option Plan, the 1992 Director Stock Option Plan and the 1996 Non-Employee
Director Stock Option Plan (collectively, the "Option Plans"). The Option Plans
provide for the grants of stock options to purchase Shares to certain employees
and non-employee directors of the Company ("Options").
The Merger Agreement provides that the Company will amend all outstanding
Options, if necessary, to provide that such Options will be fully vested and
exercisable. Any Options held by members of the Company Board who are not
full-time employees of the Company will remain outstanding until the earlier of
the expiration of the term of such Option or the third anniversary of the
Effective Time, without regard to any earlier termination from service as a
member of the Company Board.
The Merger Agreement further provides that CIGNA will adopt a stock option
plan and replace each option with a fully vested substitute option to purchase
CIGNA Common Stock (each, a "Substitute Option"). Each Substitute Option will be
for a number of shares of CIGNA Common Stock equal to the number of Shares
subject to the corresponding Option, multiplied by the Option Ratio (as defined
below) and will have an exercise price per share equal to the exercise price per
share of the Option, divided by the Option Ratio. All other terms and conditions
of each Substitute Option will be substantially the same as the terms and
conditions of the corresponding Option, except that (regardless of the actual
date of termination of employment of the Optionholder) each such Substitute
Option will expire no earlier than the date the Option would expire if the
holder would have remained continuously employed by the Company until such date.
The Option Ratio will equal the Offer Price divided by the average closing price
per share of CIGNA Common Stock on the New York Stock Exchange (the "NYSE") for
the five consecutive trading days ending immediately prior to the date of the
Merger Agreement.
14
<PAGE> 16
Set forth below is a table indicating, as of February 28, 1997, the number
of outstanding Options held by executive officers and directors of the Company
(and exercise price thereof) and the number of options to acquire CIGNA Common
Stock ("CIGNA Options") (and exercise price thereof) that each such person is
eligible to receive in the Merger. On March 5, 1997, the last full trading day
prior to the commencement of the Offer, the reported closing sales price per
share of CIGNA Common Stock on the NYSE was $151.625.
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE EXERCISE PRICE
COMPANY OF COMPANY NUMBER OF SUBSTITUTE OF SUBSTITUTE CIGNA
DIRECTORS OPTIONS OPTIONS CIGNA OPTIONS OPTIONS
- -------------------------------------- --------- ---------- -------------------- -------------------
<S> <C> <C> <C> <C>
Merwyn Bagan, M.D., M.P.H............. 15,000 $16.78 2,073 $121.3584
15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
Paul D. Baron, M.D.................... 15,000 5.317 2,073 38.4657
15,000 10.62 2,073 76.8519
15,000 16.78 2,073 121.3584
15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
Robert H. Bilbro...................... 15,000 16.78 2,073 121.3584
15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
Robert S. Cathcart, III, M.D.......... 2,000 10.62 276 76.8519
15,000 16.78 2,073 121.3584
15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
J. Harold Chandler.................... 15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
Daniel F. Eubank, M.D................. 15,000 16.78 2,073 121.3584
15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
Robert A. Leipold, M.D................ 15,000 10.62 2,073 76.8519
15,000 16.78 2,073 121.3584
15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
David W. Schall, M.D.................. 15,000 10.62 2,073 76.8519
15,000 16.78 2,073 121.3584
15,000 18.70 2,073 135.2848
45,000 25.16 6,220 182.0196
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
- --------------------------------------
<S> <C> <C> <C> <C>
Charles M. Schneider.................. 32,000 10.52 4,423 76.1068
60,000 15.20 8,293 109.9280
100,000 22.83 13,822 165.1271
50,000 22.83 6,911 165.1271
150,000 41.94 20,734 303.4142
50,000 14.71 6,911 106.4192
200,000 14.16 27,645 102.4403
Joseph M. Zubretsky................... 50,000 14.71 6,911 106.4409
200,000 14.16 27,645 102.4403
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXERCISE
PRICE
NUMBER OF OF EXERCISE PRICE
COMPANY COMPANY NUMBER OF SUBSTITUTE OF SUBSTITUTE CIGNA
EXECUTIVE OFFICERS OPTIONS OPTIONS CIGNA OPTIONS OPTIONS
- ------------------------------------ ---------- --------- -------------------- -------------------
<S> <C> <C> <C> <C>
Norman C. Payson, M.D.*............. 200,000 $ 10.52 27,645 $ 76.1068
200,000 15.20 27,645 109.9280
2,000,000 19.83 276,453 143.4236
200,000 22.83 27,645 165.1271
200,000 41.94 27,645 303.4142
200,000 14.16 27,645 102.4403
Richard B. Salmon, M.D., Ph.D....... 32,000 10.52 4,423 76.1068
32,000 15.20 4,423 109.9280
40,000 22.83 5,529 165.1271
35,000 41.94 4,837 303.4142
57,500 14.16 7,948 102.4403
Robert Chin......................... 8,000 11.10 1,105 80.3245
12,000 15.20 1,658 109.9280
40,000 22.83 5,529 165.1271
30,000 41.94 4,146 303.4142
32,000 14.16 4,423 102.4403
Francis G. Middleton, M.D.*......... 60,000 7.50 8,293 54.2224
60,000 15.20 8,293 109.9280
100,000 22.83 13,822 165.1271
100,000 41.94 13,822 303.4142
110,000 14.16 15,204 102.4403
</TABLE>
- ---------------
* Drs. Payson and Middleton are also directors of the Company.
Deferred Compensation Plan
Certain officers of the Company and members of the Company Board are
eligible to participate in a deferred compensation plan maintained by the
Company (the "Deferred Compensation Plan"). Under the plan, eligible officers of
the Company may elect to defer salary and bonus, and eligible members of the
Company Board may elect to defer retainer fees, in each case until termination
of employment or termination of service as a director, as the case may be. The
transactions contemplated by the Merger Agreement will constitute a "change in
control" under the Deferred Compensation Plan and, therefore, if any
participant's employment or service as a director terminates within two years of
such event, such participant's deferred compensation account will be credited
with interest at a preferred rate (as set forth in the Deferred Compensation
Plan) and immediately distributed.
Certain Provisions in the Merger Agreement
As described above, the Merger Agreement provides that, during the two year
period following the Effective Time, employees of the Company will receive
employee benefits that are no less favorable in the aggregate than those
provided to such employees immediately prior to the date of the Merger
Agreement. With respect to such benefits, service accrued with the Company and
its subsidiaries by such employees will be recognized for all purposes except to
the extent necessary to prevent duplication of benefits. The Merger Agreement
further provides that CIGNA honor, without modification, all employment and
severance agreements with employees and former employees of the Company. In
addition, within 30 days after the Effective Time, CIGNA is required to grant
stock options to purchase no less than 200,000 shares of CIGNA Common Stock to
employees of the Company. The allocation of such options will be determined by
CIGNA after consultation with Dr. Payson. Such stock options will have an
exercise price per share equal to the closing price per share of CIGNA Common
Stock on the date of grant and have a term of ten years.
16
<PAGE> 18
The Merger Agreement also provides for CIGNA to, and to cause the Company
(or the Surviving Corporation if after the Effective Time) to, indemnify, defend
and hold harmless, among other persons, the Company's officers and directors
against claims, losses, and liability arising out of, among other things, (i)
the fact that such person was a director or officer of the Company or (ii) the
Merger Agreement or any of the transactions contemplated thereby, in each case,
to the full extent permitted under New Hampshire law or the Company's Articles
of Incorporation or By-laws or the Company's existing indemnification
agreements. CIGNA has also agreed in the Merger Agreement that all rights to
indemnification and all limitations on liability provided to directors and
officers in the Company's Articles of Incorporation and By-laws as in effect as
of the date of the Merger Agreement shall survive the Merger and shall continue
in full force and effect, without any amendment thereto, for a period of six
years from the Effective Time to the extent such rights are consistent with the
NHBCA. Additionally, CIGNA has agreed that either it or the Surviving
Corporation will maintain the Company's existing officers' and directors'
liability insurance policy for a period of not less than six years after the
Effective Date; provided, that, CIGNA may substitute therefor policies of
substantially similar coverage and amounts containing terms no less advantageous
to the covered directors or officers. See "The Merger Agreement -- Directors'
and Officers' Insurance and Indemnification."
Item 4. The Solicitation or Recommendation.
(a) Recommendation of the Company Board
The Company Board has unanimously approved the Merger Agreement, the Offer
and the Merger, and has determined that the Offer and the Merger are fair to and
in the best interests of the Company's shareholders, and unanimously recommends
that the Company's shareholders accept the Offer and tender their Shares in the
Offer.
A letter to the Company's shareholders communicating the Company Board's
recommendation and a press release announcing the execution of the Merger
Agreement are filed herewith as Exhibits 6 and 7, respectively, and are
incorporated herein by reference.
(b) Background; Reasons for the Company Board's Recommendation
Background
Beginning in the summer of 1996, as a result of changes in the managed care
industry and the Company's strategic position, the Company's management, in
periodic consultation with the Company's directors, began to explore various
possible strategic alternatives to improve long-term shareholder value. These
strategic alternatives generally included, among others, a significant change in
the Company's growth plans and acquisitions strategy, divestitures of various
operating subsidiaries, joint ventures with financial partners to partially
divest various subsidiaries, a stock buyback, a leveraged recapitalization, a
business combination involving the Company, and the sale of the Company.
In the summer and fall of 1996, the Company's management, after consulting
with the Company's financial advisor, Bear, Stearns & Co. Inc. ("Bear Stearns"),
identified and reviewed a list of leading candidates that might be expected to
have an interest in potentially engaging in one or more of the above strategic
transactions with the Company. Thereafter, the Company's CEO or financial
advisor had a number of informal discussions and meetings with these parties
(including several discussions that were initiated by such parties) to assess
the feasibility of the Company's strategic alternatives and the potential level
of interest of such parties in pursuing one or more of these alternatives. As a
result of this process, two of such parties ultimately expressed an interest in
exploring a possible business combination with the Company and entered into
confidentiality agreements with the Company. After several meetings with one of
these parties, such party advised the Company that it was not in a position to
further pursue discussions concerning a business combination. The second party
(the "Other Party") determined, based on these initial contacts, to continue
discussions.
Beginning in November 1996, certain senior officers of the Company and the
Other Party and their respective financial advisors had a number of meetings and
telephone conversations to discuss on a preliminary
17
<PAGE> 19
basis a possible business combination of the Company and the Other Party. In
connection with such preliminary discussions, the Company provided certain
financial and operating information to the Other Party.
Over the next two months, discussions between the Company's and the Other
Party's management and financial advisors progressed through various meetings
and telephone calls during which the parties discussed, among other things,
their respective operations, the Company's financial projections and potential
operating synergies.
In mid-January 1997, a meeting was arranged between the CEOs of CIGNA and
the Company. That meeting occurred on January 27, 1997. No specific proposals
were made by either party at that meeting, although CIGNA and the Company
indicated a willingness to have further discussions to explore the possibility
of an acquisition of the Company by CIGNA. On January 31, 1997, CIGNA and the
Company entered into the Confidentiality Agreement. After the execution of the
Confidentiality Agreement, the Company provided certain requested financial and
operating information to CIGNA.
On February 3, 1997, the Other Party, acting through its financial advisor,
submitted a verbal preliminary indication of interest to explore combining with
the Company in a merger, pursuant to which the Company's shareholders would
receive between $20 and $22 per Share in consideration consisting of a
combination of cash, common stock and/or mandatorily convertible preferred
stock.
On February 4, 1997, senior officers of the Company and CIGNA, and their
respective financial advisors, met to conduct preliminary due diligence on the
Company. The Company provided CIGNA with certain materials describing the
Company, its operations and projected results of operations.
During the evening of February 7, 1997, Dr. Payson met with the Other
Party's Chairman and Chief Executive Officer in New York City. At that meeting,
the parties discussed the Other Party's preliminary indication of interest and
various issues relating to a possible combination between the Other Party and
the Company.
On February 9, 1997, the Company Board held a special meeting and analyzed
and reviewed, with the Company's management and the Company's legal and
financial advisors, among other things, the Other Party's preliminary indication
of interest and various strategic, financial and legal considerations concerning
a possible transaction with the Other Party or with CIGNA. No decision was
reached by the Company Board at the meeting, but it was the consensus of the
directors that the Company's management and legal and financial advisors should
continue to hold discussions with the Other Party and pursue discussions with
CIGNA.
On February 10, 1997, at the request of the Company, CIGNA advised the
Company that CIGNA's preliminary indication of interest for a business
combination with the Company would involve a wide per share price range, and
that, among other things, further due diligence and review would be necessary in
order for such range to be narrowed.
On or about February 12, 1997, at the Company's direction, the Company's
financial advisor provided the Other Party with a draft term sheet outlining the
potential structure of a transaction.
On February 13 and 14, 1997, CIGNA conducted additional due diligence on
the business, operations and financial performance of the Company, that included
meetings in Manchester, New Hampshire. At the end of such meetings, CIGNA
indicated to the Company that its review of the Company to date suggested that
CIGNA would consider exploring a possible acquisition of the Company at a per
share price in the range of $20 to $22 per Share in cash, although CIGNA was not
prepared to make a formal proposal at such time.
CIGNA delivered to the Company a due diligence request list on February 15,
1997 and thereafter the Company began providing additional information about the
Company to CIGNA and its advisors. Numerous telephone calls between
representatives of CIGNA and the Company regarding due diligence and requests
for information were made between February 20 and February 25 and, during that
period, CIGNA continued its review of the Company.
18
<PAGE> 20
On February 16, 1997, the CEOs of the Company and the Other Party met to
discuss issues concerning how the combined entity might operate, as well as
certain issues relating to the terms of a possible combination.
Beginning on February 21, 1997, the Company's legal and financial advisors
commenced negotiations with CIGNA's legal and financial advisors with respect to
the terms of a possible merger agreement. Additionally, CIGNA's legal counsel
distributed to the Company's legal counsel a draft of the Shareholder Agreement
providing, among other things, that certain unspecified shareholders would
tender, or cause to be tendered, all of the Shares owned by them and would agree
to vote all of their Shares in favor of the Offer and the Merger.
On February 22, 1997, at the Company's request, in a telephone call and
letter from CIGNA, CIGNA indicated that it was working towards proposing an
acquisition of the Company for a purchase price ranging from $20 to $22 per
Share in cash. In the letter, CIGNA also advised that its ability to submit such
a proposal would be contingent upon approval by CIGNA's board of directors at a
meeting scheduled to be held on February 26, 1997, confirmatory due diligence
which CIGNA anticipated completing prior to such board meeting, and negotiation
of the definitive form of the Merger Agreement and related agreements.
Later on February 22, 1997, the Company Board held a special meeting to
analyze and review, with the advice and assistance of the Company's financial
and legal advisors, among other things, certain strategic, financial and legal
considerations concerning a possible transaction with CIGNA, the terms of
CIGNA's most recent indication of interest, the potential impact on the
Company's shareholders of a transaction with CIGNA at the prices being suggested
by CIGNA, and the terms and conditions of the most recent draft of the Merger
Agreement. The Company's management and its legal and financial advisors also
reported to the Company Board on the status of the discussions with the Other
Party. No decision was reached by the Company Board at the meeting, but it was
the consensus of the directors that the Company's management and the Company's
legal and financial advisors should continue to hold discussions with CIGNA and
the Other Party and report back to the Company Board once management was
prepared to make a recommendation.
On February 23, 1997, certain senior officers of the Company met in Chicago
with certain senior officers of the Other Party. At the meeting, the parties
discussed various issues relating to a possible combination of the Other Party
and the Company.
On February 25, 1997, the Other Party, through its financial advisor,
submitted a preliminary, non-binding proposal to combine with the Company in a
merger pursuant to which the Company's shareholders would receive $21 per Share
of stated consideration consisting of a combination of cash (45%) and the Other
Party's common stock (55%) or, if agreed to by the Company and the Other Party,
27.5% in common stock of the Other Party and 27.5% in mandatorily convertible
preferred stock of the Other Party. The Other Party's proposal assumed a fixed
exchange ratio, subject to a potential adjustment if the Other Party's stock
price decreased by more than 20%. The Other Party's proposal was subject to
numerous conditions, including, among other things, shareholder approval, due
diligence, and the Company's agreement, effective immediately, not to solicit
any competing transactions.
On several occasions following receipt of the Other Party's proposal, the
Company's financial advisor advised senior management of the Other Party and the
Other Party's financial advisor that the Other Party's proposal was inadequate
in a number of respects, including price, and that the Other Party should make
its best and final proposal.
During the evening of February 25, 1997, representatives of the Company and
the Company's legal and financial advisors met with representatives of CIGNA and
CIGNA's legal and financial advisors to continue negotiating the terms and
conditions of the Merger Agreement and the Shareholder Agreement. Certain terms
of the Consulting Agreement were also negotiated. At that meeting, CIGNA
indicated that, subject to, among other things, the satisfaction of open issues
relating to the terms and conditions of the Merger Agreement, it would be
willing to propose purchasing all of the Shares at a price of $21 per Share in
cash. After further negotiations, such proposed price was increased to $21.75
per Share, subject to, among other things, the
19
<PAGE> 21
satisfactory resolution of the open issues relating to the terms and conditions
of the Merger Agreement, the Shareholder Agreement and the Consulting Agreement,
and the approval of the Company Board and CIGNA's board of directors.
During the afternoon of February 26, 1997, the Company Board held a special
telephonic meeting. At such meeting, the Company Board was advised by the
Company's financial and legal advisors of the status of possible transactions
with CIGNA and the Other Party. No decision was reached by the Company Board at
the meeting, but it was the consensus of the directors that the Company's
management and legal and financial advisors should continue to negotiate with
CIGNA, confirm whether or not the Other Party was prepared to improve its
proposal and report back to the Company Board.
During the evening of February 26, 1997, the Company's legal and financial
advisors met with representatives of CIGNA and CIGNA's legal and financial
advisors to negotiate the remaining issues in the Merger Agreement and the
Shareholder Agreement, and negotiations concerning the terms of the Consulting
Agreement also continued. Such negotiations continued through February 27, 1997
and, by the evening of February 27, 1997, the Company and CIGNA agreed upon
forms of a definitive Merger Agreement, and Dr. Payson and CIGNA agreed upon the
forms of a definitive Shareholder Agreement and Consulting Agreement.
On the evening of February 27, 1997, the Company Board held a special
telephonic meeting to review, with the advice and assistance of the Company's
financial and legal advisors, the final proposed terms and conditions of the
proposed Merger Agreement. At such meeting, the Company's financial advisor
provided an oral opinion (which was subsequently confirmed in writing) that, as
of the date of the Merger Agreement, the Offer and the Merger, are fair, from a
financial point of view, to the shareholders of the Company, and the Company's
legal counsel advised the Company Board of the recent material changes made to
the Merger Agreement. The Company Board was also informed that earlier that day,
during telephone calls between the Company's financial advisor and the Other
Party's management and financial advisor, the Other Party elected not to amend
or modify its previous proposal despite several requests by the Company's
financial advisor that the Other Party put forth its best and final proposal.
Following the Company Board's review of the final terms of the Offer and the
Merger, the Company Board unanimously determined that the Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger, are
fair to and in the best interests of the Company's shareholders, approved the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, authorized the execution and delivery of the Merger Agreement,
recommended that the Company's shareholders accept the Offer and tender their
Shares pursuant to the Offer, and recommended that the Company's shareholders
approve and adopt the Merger Agreement. The Company Board also approved
postponing the Distribution Date (as defined in the Rights Agreement) to
immediately prior to the consummation of the Offer at which time the Rights will
be redeemed.
Later on the evening of February 27, 1997, the Company and CIGNA executed
and delivered the Merger Agreement, CIGNA, the Purchaser and Dr. Payson executed
and delivered the Shareholder Agreement, and CIGNA and Dr. Payson executed and
delivered the Consulting Agreement.
On the morning of February 28, 1997, the Company and CIGNA issued press
releases announcing the execution of the Merger Agreement.
Reasons for the Transaction; Factors Considered by the Company Board
In approving the Offer, the Merger, the Merger Agreement and the other
transactions contemplated thereby and recommending that all holders of Shares
accept the Offer and tender their Shares pursuant to the Offer, the Company
Board considered a number of factors including:
1. the presentations and views expressed by management of the Company
(at the meetings of the Company Board held on February 22, 1997, February
26, 1997 and February 27, 1997 and at previous meetings of the Company
Board) regarding, among other things: (a) the financial condition, results
of operations, cash flows, business and prospects of the Company, including
the prospects of the Company if it remains independent; (b) the strategic
alternatives available to the Company; (c) the fact that in view
20
<PAGE> 22
of the discussions held with various parties, including the Other Party,
management of the Company believed it was unlikely that 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 shareholders
than the Offer and the Merger; and (d) the recommendation of the Merger by
the management of the Company;
2. the presentation of Bear Stearns at the meetings of the Company
Board held on February 22, 1997, February 26, 1997 and February 27, 1997
and the opinion of Bear Stearns, expressed orally at the February 27, 1997
meeting (and subsequently confirmed in writing), to the effect that, as of
February 27, 1997, the Offer and the Merger are fair, from a financial
point of view, to the Company's shareholders. The full text of the opinion
of Bear Stearns, dated as of March 6, 1997, which sets forth the
assumptions made, matters considered and limitations on the review
undertaken by Bear Stearns, is attached hereto as Exhibit 5 and is
incorporated herein by reference. Shareholders are urged to 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 historical market prices and the recent trading activity of the
Shares, including the fact that the Offer Price represents a premium of
approximately 29% over the reported closing price of the Shares on the NYSE
on the last full trading day preceding the public announcement of the
execution of the Merger Agreement;
4. the extensive arms-length negotiations between the Company and
CIGNA leading to the belief of the Company Board that $21.75 per Share
represented the highest price per Share that could be negotiated with
CIGNA;
5. the history of the Company's discussions with the Other Party,
including, without limitation, (i) the fair and ample opportunity provided
to the Other Party to submit a proposal to the Company, (ii) that the
proposal made by the Other Party on February 25, 1997 contemplated the
acquisition of the Company for $21 per Share in stated consideration which
would consist of no more than 45% cash with the remainder to be in the form
of shares of common stock or mandatorily preferred stock of the Other
Party, (ii) that the stock component of the Other Party's proposal would
subject the Company's shareholders to the risks and uncertainties
associated with equity securities, (iii) the highly conditional nature of
the proposal, and (iv) that, following repeated requests by the Company's
financial advisor to the Other Party and its financial advisor that the
Other Party submit its best and final proposal, the Other Party elected not
to amend or modify its proposal;
6. the results of the inquiries made by the Company's management and
financial advisor 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;
7. that the Offer and the Merger provides for a prompt cash tender
offer for all Shares to be followed by a merger for the same consideration,
thereby enabling the Company's shareholders to obtain the benefits of the
transaction in exchange for their Shares at the earliest possible time;
8. that, in the Merger Agreement, CIGNA and the Purchaser have agreed
to honor all employment and severance agreements and arrangements with
respect to employees and former employees of the Company, and that,
effective as of the Effective Time and for a two-year period thereafter,
the Company's employees will be provided with employee benefits that are no
less favorable in the aggregate than those provided to such employees prior
to the date of execution of the Merger Agreement;
9. other provisions of the Offer and the Merger Agreement, including
the parties' representations, warranties and covenants, the conditions to
their respective obligations, and the limited ability of CIGNA and the
Purchaser to terminate the Offer or the Merger Agreement;
10. the regulatory approvals required to consummate the Merger,
including, among others, anti-trust and insurance regulatory approvals, the
favorable prospects for receiving such approval and CIGNA's agreements in
the Merger Agreement with respect to seeking to obtain such approval;
21
<PAGE> 23
11. the business reputation and capabilities of CIGNA and its
management, and CIGNA's financial strength, including its ability to
finance the Offer;
12. the fact that pursuant to the Merger Agreement, the Company Board
has the right to participate in discussions or negotiations (including, as
apart thereof, making any counterproposal) with or furnish information to
third parties making an unsolicited Acquisition Proposal or approve an
unsolicited Acquisition Proposal if the Company Board is advised by its
financial advisor that such acquiror has the financial wherewithal to be
reasonably capable of consummating such an Acquisition Proposal and the
Company Board determines in good faith, after receiving advice from its
financial advisor, that such third party has submitted to the Company an
Acquisition Proposal which is a Superior Proposal, or, the Company Board
determines in good faith, based upon the advice of its outside legal
counsel, that the failure to participate in such discussions or
negotiations or to furnish such information or to approve such an
Acquisition Proposal would violate the Company Board's fiduciary duties;
13. the fact that pursuant to the Merger Agreement, the Company Board
has the right, upon payment to CIGNA of a $45 million termination fee, to
terminate the Merger Agreement if prior to the purchase of Shares, either
(a) a third party shall have made an Acquisition Proposal that the Company
Board determines in good faith, after consultation with its financial
advisor, is a Superior Proposal, or (B) the Company Board shall have
withdrawn, or modified or changed in a manner adverse to CIGNA or the
Purchaser its recommendation of the Offer, the Merger Agreement or the
Merger;
14. that the strategic fit between the Company and CIGNA offers the
opportunity for substantial synergies;
15. the current and anticipated status of the managed health care
industry in the United States, including increasing competition, limited
pricing flexibility, anti-managed care initiatives and the continuing need
for mass and volume to obtain better health care costs and allow lower
premiums and appropriate operating and profit margins;
16. 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; and
17. the belief that the combined company would be better able to
respond to the needs of consumers and customers, the increased
competitiveness of the health care industry, and the opportunities that
changes in the health care industry might bring.
The foregoing discussion of information and factors considered and given
weight by the Company Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Company Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determinations and recommendations. In addition, individual
members of the Company Board may have given different weights to different
factors.
Item 5. Persons Retained, Employed or to be Compensated.
Pursuant to the terms of a letter agreement, dated February 7, 1997 (the
"Bear Stearns Letter Agreement"), the Company retained Bear Stearns, in part, to
assist the Company as its exclusive financial advisor in considering the
desirability and feasibility of effecting various strategies for maximizing the
Company's value to its shareholders, including, among other things, a merger or
sale of the Company (a "Transaction").
The Company agreed in the Bear Stearns Letter Agreement that at such time
as Bear Stearns renders an opinion (the "Opinion") with respect to the fairness,
from a financial point of view, to the Company's shareholders, of any
Transaction, the Company will pay to Bear Stearns a cash fee of $1,000,000,
$250,000 of which will be payable at the time Bear Stearns renders the Opinion
and the balance of $750,000 will be payable at the time the Company enters into
a definitive agreement with respect to a Transaction. If a
22
<PAGE> 24
Transaction is consummated, the Company will pay to Bear Stearns a cash fee of
$12,500,000 immediately upon such consummation, less any fees paid by the
Company in connection with the rendering of the Opinion.
The Company has also agreed to reimburse Bear Stearns for all reasonable
out-of-pocket expenses incurred by Bear Stearns (including fees and
disbursements of counsel, and of other consultants and advisors retained by Bear
Stearns) in connection with the matters contemplated by the Bear Stearns Letter
Agreement, and to indemnify Bear Stearns (and its officers, directors,
employees, controlling persons and agents) against certain liabilities arising
out of or in connection with Bear Stearns' engagement. In addition, the Company
has agreed that if a Transaction is not consummated, but the Company receives a
"break-up" fee or any other payment as a result of the termination of any
Transaction, the Company will pay to Bear Stearns 15% of any such fee or payment
(provided that such payment to Bear Stearns cannot exceed $5,000,000) less any
payments made to Bear Stearns in connection with the rendering of the Opinion.
Bear Stearns has provided certain investment banking services to the
Company from time to time for which it has received customary compensation. Bear
Stearns has also in the past provided financial advisory and financing services
to CIGNA unrelated to the Offer and the Merger and has received fees for the
rendering of such services. Bear Stearns may from time to time effect
transactions and hold positions in securities of the Company and CIGNA.
Except as disclosed herein, neither the Company nor any person acting on
its behalf has employed, retained or compensated any person to make
solicitations or recommendations to the Company's shareholders with respect to
the Offer or the Merger.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) Except as set forth on Schedule II hereto, no transactions in the
Shares have been effected during the past 60 days by the Company or, to the best
of the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best knowledge of the Company, all of its executive officers,
directors, affiliates and subsidiaries currently intend to tender pursuant to
the Offer all Shares held of record or beneficially owned by them (other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Exchange Act).
Item 7. Certain Negotiations and Transactions by the Subject Company.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
Item 8. Additional Information to be Furnished.
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Company Board other
than at a meeting of the Company's shareholders.
23
<PAGE> 25
Item 9. Material to be Filed as Exhibits.
<TABLE>
<S> <C>
Exhibit 1 Confidentiality Agreement, dated January 31, 1997, between Healthsource,
Inc. and CIGNA Corporation.
Exhibit 2 Agreement and Plan of Merger, dated as of February 27, 1997, by and among
Healthsource, Inc., CIGNA Corporation and CHC Acquisition Corp. (including
Schedule 5.4(b) thereto).
Exhibit 3 Tender and Irrevocable Proxy, dated as of February 27, 1997, by and among
CIGNA Corporation, CHC Acquisition Corp. and Norman C. Payson, M.D.
Exhibit 4 Consulting Agreement, dated as of February 27, 1997, between CIGNA
Corporation and Norman C. Payson, M.D.
Exhibit 5 Opinion of Bear, Stearns & Co. Inc. dated as of March 6, 1997.*
Exhibit 6 Letter to Shareholders of Healthsource, Inc. dated March 6, 1997.*
Exhibit 7 Press Release issued by Healthsource, Inc. on February 28, 1997.
Exhibit 8 Employment Agreement, dated as of July 30, 1993, between Healthsource, Inc.
and Robert Chin.
Exhibit 9 Employment Agreement, dated as of January 1, 1995, between Healthsource,
Inc. and Francis G. Middleton, M.D.
Exhibit 10 Employment Agreement, dated as of June 25, 1996, between Healthsource, Inc.
and Joseph M. Zubretsky.
Exhibit 11 Employment Agreement, dated as of July 19, 1996, between Healthsource, Inc.
and Charles M. Schneider.
Exhibit 12 Employment Agreement, dated as of February 14, 1997, between Healthsource,
Inc. and Richard B. Salmon, M.D., Ph.D.
Exhibit 13 Healthsource, Inc. Deferred Compensation Plan for Selected Employees,
effective October 15, 1995.
Exhibit 14 Healthsource, Inc. 1991 Non-Qualified Stock Option Plan.
Exhibit 15 Healthsource, Inc. 1992 Director Stock Option Plan.
Exhibit 16 Healthsource, Inc. 1994 Stock Option Plan.
Exhibit 17 Healthsource, Inc. 1996 Non-Employee Director Stock Option Plan.
</TABLE>
- ---------------
* Included in copies of Schedule 14D-9 mailed to shareholders.
24
<PAGE> 26
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 6, 1997 HEALTHSOURCE, INC.
By: /s/ NORMAN C. PAYSON
--------------------------------------
Name: Norman C. Payson, M.D.
Title: President and Chief Executive
Officer
25
<PAGE> 27
SCHEDULE I
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about March 6, 1997 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Healthsource, Inc., a New Hampshire corporation (the
"Company"), to the holders of record of shares of common stock, par value $.10
per share, of the Company (the "Common Stock" or the "Shares"). You are
receiving this Information Statement in connection with the possible election of
persons designated by CIGNA (as defined below) to a majority of the seats on the
Board of Directors of the Company (the "Company Board").
On February 27, 1997, the Company, CIGNA Corporation, a Delaware
corporation ("CIGNA"), and CHC Acquisition Corp., a New Hampshire corporation
and an indirect, wholly-owned subsidiary of CIGNA ("Purchaser"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which (i)
CIGNA will cause the Purchaser to commence a tender offer (the "Offer") for all
outstanding Shares at a price of $21.75 per Share, net to the seller in cash and
(ii) the Purchaser will be merged with and into the Company (the "Merger"). As a
result of the Offer and the Merger, the Company will become a wholly-owned
subsidiary of CIGNA.
The Merger Agreement provides that, promptly after the purchase of a
majority of the outstanding Shares pursuant to the Offer, CIGNA shall be
entitled to designate directors (the "CIGNA Designees") on the Company Board as
will give CIGNA representation proportionate to its ownership interest. The
Merger Agreement requires the Company to take such action as CIGNA may request
to cause the CIGNA Designees to be elected to the Company Board under the
circumstances described therein. This Information Statement is required by
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Schedule 14D-9.
The information contained in this Information Statement concerning CIGNA
and the Purchaser has been furnished to the Company by CIGNA. The Company
assumes no responsibility for the accuracy or completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; THE CIGNA DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the purchase of and payment by CIGNA for Shares pursuant to
the Offer which represent at least a majority of the outstanding Shares (on a
fully diluted basis), CIGNA will be entitled to designate such number of
directors (the "CIGNA Designees"), rounded up to the next whole number, on the
Company Board as is equal to the product of the total number of directors on the
Company Board (determined after giving effect to the directors elected pursuant
to this sentence) multiplied by the percentage that the aggregate number of
Shares beneficially owned by Purchaser, CIGNA and any of their affiliates bears
to the total number of Shares then outstanding. The Company will promptly, upon
the request of Purchaser, use its best efforts to cause the CIGNA Designees to
be so elected, including, if necessary, increasing the size of the Company Board
or seeking the resignations of one or more existing directors. Notwithstanding
the foregoing, until the Effective Time of the Merger, the Company Board will
have at least two directors who are directors on the date of execution of the
Merger Agreement.
I-1
<PAGE> 28
Set forth below is certain information with respect to the initial CIGNA
Designees:
William M. Pastore
Age 48
Senior Vice President, National Service Organization, CIGNA HealthCare
since December 1995. Prior to that, Mr. Pastore served as Vice President,
Director of National Servicing for Citicorp from 1971 until 1995.
W. Allen Schaffer, M.D.
Age 45
Senior Vice President, Managed Care Operations, CIGNA HealthCare since
November 1994. Prior to that, Dr. Schaffer served as Senior Vice President and
National Medical Director, CIGNA HealthCare beginning in May 1993. Dr. Schaffer
also served as the Vice President, Professional Affairs for Aetna Life and
Casualty from 1992 until 1993 and the Vice President, Quality Management &
Training from 1990 until 1992.
Joseph M. Fitzgerald
Age 52
Senior Vice President, Underwriting Operations, CIGNA HealthCare since May
1992. Prior to that, Mr. Fitzgerald served as Senior Vice President and Chief
Financial Officer, Employee Benefits Division from February 1991 until May 1992
and Senior Vice President, National Accounts, Employee Benefits Division from
June 1990 until February 1991.
H. Edward Hanway
Age 45
President of CIGNA HealthCare since February 1996. Prior to that, Mr.
Hanway served as President of CIGNA International from March 1994 until February
1996 and President of CIGNA International, Property & Casualty from February
1989 until March 1994.
CIGNA has informed the Company that each of the individuals listed above
has consented to act as a director, if so designated. If necessary, CIGNA may
choose additional or other CIGNA Designees, subject to the requirements of Rule
14f-1.
Based solely on the information set forth in the Offer to Purchase, none of
the CIGNA Designees (i) is currently a director of, or holds any position with,
the Company, (ii) has a familial relationship with any directors or executive
officers of the Company, or (iii) to the best knowledge of CIGNA, beneficially
owns any securities (or any rights to acquire such securities) of the Company.
The Company has been advised by CIGNA that, to the best of CIGNA's knowledge,
none of the CIGNA Designees has been involved in any transactions with the
Company or any of its directors, officers, or affiliates which are required to
be disclosed pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"), except as may be disclosed herein or in the
Schedule 14D-9.
DIRECTORS OF THE COMPANY
The following table sets forth certain information with respect to the
current directors of the Company as of February 28, 1997.
Merwyn Bagan, M.D., M.P.H.
Director since 1985
Age 61
Dr. Bagan has served as the Chairman of the Board of the Company since
1985. Dr. Bagan served as President of Healthsource New Hampshire, Inc. from
1985 until July 1993. He is a board certified neurosurgeon and practiced for 23
years in Concord and Manchester, New Hampshire prior to his retirement in July
1993. He subsequently earned an M.P.H. degree and presently works as a
consultant in international
I-2
<PAGE> 29
health. Dr. Bagan is a past President of both the New Hampshire Medical Society
and the American Association of Neurological Surgeons.
Paul D. Baron, M.D.
Director since 1985
Age 56
Dr. Baron has served as a director of the Company since 1985. He is a board
certified anatomic and clinical pathologist and has practiced for 22 years, the
last 17 at Concord Hospital in Concord, New Hampshire. Dr. Baron is the Chairman
of the Department of Pathology at Concord Hospital.
Robert H. Bilbro, M.D.
Director since 1994
Age 56
Dr. Bilbro has served as a director of the Company since May 1994 and since
1987 has served as President and Chairman of the Board of Directors of
Healthsource Health Plans, Inc. ("HSHP"). Dr. Bilbro is engaged in the practice
of internal medicine and cardiology with Raleigh Medical Group, P.A., Raleigh,
North Carolina, where he has practiced for 24 years. He was nominated by the
Company Board pursuant to the agreement under which the Company acquired HSHP in
March 1994.
Robert S. Cathcart, III, M.D.
Director since 1993
Age 58
Dr. Cathcart has served as a director of the Company since May 1993 and as
President of Healthsource South Carolina, Inc. since May 1992. Dr. Cathcart is a
board certified general surgeon with Surgical Associates of Charleston, South
Carolina, P.A. and has practiced for 25 years in Charleston, South Carolina.
J. Harold Chandler
Director since 1995
Age 48
Mr. Chandler has served as a director of the Company since June 1995. Mr.
Chandler is President and Chief Executive Officer and a director of Provident
Companies, Inc. ("Provident") and various of its subsidiaries. Prior to joining
Provident in 1993, he served as President of NationsBank MidAtlantic Banking
Group. Mr. Chandler currently serves as a director of AmSouth Bancorporation and
Herman Miller Inc.
DANIEL F. EUBANK, M.D.
Director since 1985
Age 49
Dr. Eubank has served as a director of the Company since 1985. Since
January 1995, Dr. Eubank has been the Director of the Residency Program at
Concord Hospital. Dr. Eubank was a Partner in Concord Family Medicine from 1983
to 1995. He is board certified in family medicine and has practiced for 17 years
in the Concord, New Hampshire area.
ROBERT A. LEIPOLD, M.D.
Director since 1985
Age 46
Dr. Leipold has served as a director of the Company since 1985 and as
President of Healthsource New Hampshire, Inc. from 1993 to 1996. Dr. Leipold is
a board certified obstetrician/gynecologist with Garrison Medical Professional
Association and has practiced for 17 years in Dover, New Hampshire.
I-3
<PAGE> 30
FRANCIS G. MIDDLETON, M.D.
Director since 1989
Age 57
Dr. Middleton has served as President and Chief Executive Officer of
Healthsource South Carolina, Inc. since October 1996 and as President of
Healthsource South, Inc. since January 1995. He previously served as Medical
Director of Healthsource South Carolina, Inc. from 1986 to January 1995. Until
July 1991, Dr. Middleton practiced medicine in Charleston, South Carolina as a
specialist in internal medicine and infectious disease.
NORMAN C. PAYSON, M.D.
Director since 1985
Age 48
Dr. Payson has served as President and Chief Executive Officer of the
Company since 1985. Dr. Payson has been in the HMO field since 1975, first as a
practicing physician and director of an HMO quality program. By 1980, Dr. Payson
had assumed a full-time position as Chief Executive Officer of a large physician
group practice and as Medical Director for a related HMO company.
DAVID W. SCHALL, M.D.
Director since 1989
Age 53
Dr. Schall has been a director of the Company since September 1989 and the
President of Healthsource Maine, Inc. since 1986. Since January 1994, Dr. Schall
has been employed as President, Chief Executive Officer and Chief Operating
Officer and a Director of Bowdoin Medical Group and as Managing Partner of
Bowdoin Medical Group Associates. He is board certified in family medicine and
practiced for 25 years in Brunswick, Maine prior to his retirement from private
practice in November 1996.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
current executive officers of the Company as of February 28, 1997.
Robert Chin
Chief Information Officer
Age 37
Mr. Chin has served as Chief Information Officer of the Company since
August 1993. Mr. Chin is responsible for the Company's information services and
technology development functions. Prior to joining the Company, Mr. Chin served
as Chief Information Officer at Tufts Associated Health Plan from 1985 to 1993
and as Systems Manager at Harvard Community Health Plan from 1977 to 1985.
Francis G. Middleton, M.D.
President, Healthsource South, Inc.
Age 57
Dr. Middleton has served as President and Chief Executive Officer of
Healthsource South Carolina, Inc. since October 1996 and as President of
Healthsource South, Inc. since January 1995. He previously served as Medical
Director of Healthsource South Carolina, Inc. from 1986 to January 1995. Until
July 1991, Dr. Middleton practiced medicine in Charleston, South Carolina as a
specialist in internal medicine and infectious disease.
I-4
<PAGE> 31
Norman C. Payson, M.D.
President and Chief Executive Officer
Age 48
Dr. Payson has served as President and Chief Executive Officer of the
Company since 1985. Dr. Payson has been in the HMO field since 1975, first as a
practicing physician and director of an HMO quality program. By 1980, Dr. Payson
had assumed a full-time position as Chief Executive Officer of a large physician
group practice and as Medical Director for a related HMO company.
Richard B. Salmon, M.D., Ph.D.
Senior Vice President for Medical Affairs
Age 47
Dr. Salmon has served as corporate medical director of the Company since
October 1994 and served as Medical Director for Healthsource New Hampshire, Inc.
from 1991 to 1994. Dr. Salmon is responsible for medical management issues on a
company-wide basis. Before joining the Company, Dr. Salmon served as medical
director for another New Hampshire HMO and was a family practice physician.
Charles M. Schneider
Executive Vice President and Chief Operating Officer
Age 51
Mr. Schneider has served as Chief Operating Officer of the Company since
January 1997 and as Executive Vice President since October 1993. Prior thereto,
he served as Vice President for Development of the Company from February 1991 to
October 1993 and as Director of Business Development of Healthsource New
Hampshire, Inc. from April 1990 to February 1991. Before joining the Company in
April 1990, Mr. Schneider served as Chief Executive Officer of a New England
hospital, and previously held several senior healthcare management positions.
JOSEPH M. ZUBRETSKY
Chief Financial Officer
Age 40
Mr. Zubretsky has served as Chief Financial Officer since July 1996. Prior
to joining the Company, Mr. Zubretsky was with Coopers & Lybrand LLP's National
Insurance Practice based in Hartford, Connecticut from 1981 through July 1996,
where he had been a partner since 1990.
I-5
<PAGE> 32
EXECUTIVE COMPENSATION
Summary Compensation Table. The following Summary Compensation Table sets
forth for the fiscal years ended December 31, 1996, 1995 and 1994 information as
to the total compensation received by each of the Chief Executive Officer and
the four highest paid executive officers who received total compensation in
excess of $100,000 in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------
-------------------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND ANNUAL STOCK
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION OPTIONS(2)
----- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Norman C. Payson, M.D................... 1996 $ 548,754 --(3) $ 25,550(4) 200,000
President and Chief Executive 1995 483,081 --(3) 10,000(4) 200,000
Officer 1994 387,604 --(3) 10,000(4) 2,200,000(5)
Sally W. Crawford(6).................... 1996 349,531 $ 65,000 10,000(7) --
Former Chief Operating Officer 1995 324,233 65,000 42,063(7) 100,000
1994 289,530 28,500 10,000(7) 100,000
Charles M. Schneider.................... 1996 360,968 206,743 62,484(9) 250,000(10)
Executive Vice President and 1995 322,884 165,000(8) 26,127(9) 150,000
Chief Operating Officer 1994 210,865 21,500 -- 150,000(10)
Francis G. Middleton, M.D............... 1996 348,133 65,000 1,412 110,000
President and Chief Executive Officer, 1995 305,384 25,000 -- 100,000
Healthsource South Carolina, Inc. and
President, Healthsource South, Inc.
Joseph M. Zubretsky (11)................ 1996 143,750 150,000 47,089(12) 250,000(13)
Chief Financial Officer
</TABLE>
- ---------------
(1) Includes amounts deferred pursuant to the Company's 401(k) Plan.
(2) Includes options granted in 1997 for services rendered in 1996.
(3) Dr. Payson declined a cash bonus.
(4) Includes $15,500 for personal use of the Company airplane in 1996 and
$10,000 for automobile expenses in 1996, 1995 and 1994.
(5) Includes options to purchase 2,000,000 shares granted to Dr. Payson in May
1994 in connection with the adoption of the 1994 Stock Option Plan by
shareholders at the 1994 Annual Meeting of Shareholders.
(6) Ms. Crawford resigned effective December 31, 1996.
(7) Includes $10,000 for automobile expenses in 1996, 1995 and 1994 and $32,063
for unused vacation time in 1995.
(8) Includes $100,000 for relocation bonus.
(9) Includes $51,890 for relocation expenses, $4,850 for personal use of the
Company airplane, $1,160 for country club dues and $4,583 for automobile
expenses in 1996. Also includes $11,577 for unused vacation time and
$14,550 for relocation expenses in 1995.
(10) Includes options to purchase 50,000 shares granted to defray relocation
expenses in each of 1996 and 1994.
(11) Mr. Zubretsky joined the Company in July 1996.
(12) Relocation expenses.
(13) Includes options to purchase 50,000 shares granted to defray relocation
expenses.
I-6
<PAGE> 33
Shown in the table below is information on stock options granted to the
President and Chief Executive Officer and to the four other named executive
officers shown in the Summary Compensation Table who received options to
purchase Shares for fiscal year 1996.
OPTION GRANTS FOR FISCAL YEAR 1996
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO
UNDERLYING EMPLOYEES GRANT DATE EXERCISE GRANT DATE
OPTIONS IN 1996 CLOSING PRICE EXPIRATION PRESENT
NAME GRANTED(1) (1,721,794) PRICE $/Sh DATE VALUE(2)
- ------------------------------ ---------- ------------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Norman C. Payson, M.D......... 200,000 11.6% $12.87 $ 14.16(3) 2/9/07 $1,161,800
President and Chief Executive
Officer
Sally W. Crawford(5).......... -- -- -- -- -- --
Former Chief Operating Officer
Charles M. Schneider.......... 200,000 11.6% 12.87 14.16(3) 2/9/07 1,161,800
Executive Vice President and 50,000 2.9% 13.37 14.71(4) 7/16/06 273,650
Chief Operating Officer
Francis G. Middleton, M.D..... 110,000 6.4% 12.87 14.16(3) 2/9/97 638,990
President and Chief Executive
Officer, Healthsource South
Carolina, Inc. and President,
Healthsource South, Inc.
Joseph M. Zubretsky(6)........ 200,000 11.6% 12.87 14.16(3) 2/9/07 1,161,800
Chief Financial Officer 50,000 2.9% 13.37 14.71(4) 7/16/06 273,650
</TABLE>
- ---------------
(1) Options granted on February 9, 1997 for services rendered in 1996 fiscal
year. Options are exercisable after February 9, 1999.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
employee stock options. Assumptions made for the named executives are for
grants expiring on February 9, 2007: expected option term of six years;
risk-free interest rate of 6.25%; annual dividend rate of zero; and
annualized volatility of 38.2%. Assumptions for grants expiring on July 16,
2006 are: expected option term of six years; risk-free interest rate of
6.57%; annual dividend rate of zero; and annualized volatility of 31.5%.
(3) Exercise price is 110% of the closing price of the Company's Common Stock on
February 7, 1997.
(4) Exercise price is 110% of the closing price of the Company's Common Stock on
July 16, 1996.
(5) Ms. Crawford resigned effective December 31, 1996.
(6) Mr. Zubretsky joined the Company in July 1996.
I-7
<PAGE> 34
Shown in the table below, with respect to the President and Chief Executive
Officer and the four other named executive officers shown in the Summary
Compensation Table, are exercised and unexercised options to purchase Shares
granted in fiscal year 1996 and prior years pursuant to the Company's stock
option plans.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND 1996 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1996(1) DECEMBER 31, 1996(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman C. Payson, M.D........... -- -- 1,240,000 1,560,000 $ 521,000 --
President and Chief Executive
Officer
Sally W. Crawford(3)............ -- -- 80,000 180,000 -- --
Former Chief Operating Officer
Charles M. Schneider............ -- -- 122,000 320,000 83,360 --
Executive Vice President and
Chief Operating Officer
Francis G. Middleton, M.D....... -- -- 140,000 180,000 337,800 --
President and Chief Executive
Officer, Healthsource South
Carolina, Inc. and President,
Healthsource South, Inc.
Joseph M. Zubretsky(4).......... -- -- -- 50,000 -- --
Chief Financial Officer
</TABLE>
- ---------------
(1) Does not include options granted in 1997 for services rendered in 1996.
(2) Based upon the closing share price of $13.125 for the Company's Common Stock
on December 31, 1996. Does not include options granted in 1997 for services
rendered in 1996.
(3) Ms. Crawford resigned effective December 31, 1996.
(4) Mr. Zubretsky joined the Company in July 1996.
COMPENSATION OF DIRECTORS
Each director of the Company (except Drs. Payson and Middleton) currently
receives a $25,000 annual director's fee plus $1,000 per meeting of the Company
Board and $1,000 for each committee meeting attended. The Company also
reimbursed the directors for their travel expenses and Drs. Schall, Cathcart and
Bilbro for lost practice time in travel to meetings.
Pursuant to the Company's 1996 Non-Employee Director Stock Option Plan (the
"1996 Director Plan"), each non-employee director of the Company received, at no
cost, options to purchase 45,000 shares of the Common Stock of the Company after
the 1996 annual meeting of shareholders. Each option granted under the 1996
Director Plan is exercisable for a period of ten (10) years and vests and
becomes exercisable as to 15,000 shares on the date of each succeeding annual
meeting during which the director continues to serve as such with the Company.
The exercise price of options granted under the 1996 Director Plan was set
at one hundred ten percent (110%) of the fair market value of the shares on the
date of grant and no option granted thereunder may be exercised after the
expiration of ten years from the date of grant. Vested options are exercisable
provided that the option holder remains a director of the Company. In the event
of the death, retirement or permanent and total disability of a director, such
director may exercise vested options through the date of expiration of the
option. In the event of termination of a director's service on the Company Board
for other reasons, such director's options will terminate within 30 days of the
date of termination of service and all then outstanding options that have been
vested will be exercisable during such period.
I-8
<PAGE> 35
See "Item 3 -- Agreements with Executive Officers, Directors or Affiliates
of the Company -- Employee and Director Stock Options" in the Schedule 14D-9 for
a description of the treatment of director options in connection with the
Merger.
CERTAIN TRANSACTIONS BETWEEN MANAGEMENT AND THE COMPANY AND ITS SUBSIDIARIES
Dr. Middleton. ln January 1995, Dr. Middleton entered into a five year
employment agreement with the Company pursuant to which he serves as President
of Healthsource South, Inc., and more recently as President and Chief Executive
Officer of Healthsource South Carolina, Inc., at a current annual salary
(including stipend) of $350,700 and is also eligible to receive an annual
performance bonus. Under this agreement, Dr. Middleton conducts development
activities for the Company throughout the southern United States. The employment
agreement is terminable by the Company or Dr. Middleton without cause on 60
days' notice and provides for a severance benefit of $300,000 plus two months'
base pay for each year completed under the agreement, up to a maximum of 12
months, in the event of termination without cause by the Company, or $500,000
plus two months' base pay for each year since 1991, up to a maximum of 12
months, in the event Dr. Middleton terminates his employment within 90 days
following a change of control of the Company. Dr. Middleton is also eligible to
receive stock options under the Company's employee stock option plans.
Mr. Zubretsky. In June 1996, Mr. Zubretsky entered into an employment
agreement with the Company under which he serves as the Chief Financial Officer
of the Company, at a current annual salary of $375,000 and is eligible to
receive a performance bonus. The agreement expires December 31, 1997, subject to
annual renewal. If Mr. Zubretsky's employment is terminated by the Company
without cause or if the Company does not renew the agreement, Mr. Zubretsky
becomes entitled to continue to receive his base salary for a two year period,
so long as he complies with noncompetition and nondisclosure provisions
contained in the agreement. Further, if Mr. Zubretsky's employment is terminated
by the Company (or by Mr. Zubretsky if his authority or status with the Company
is reduced) within 180 days following a change in control of the Company, then
Mr. Zubretsky becomes entitled to continue to receive his base salary for a
three year period.
Other Agreements. Mr. Schneider has a severance arrangement with the
Company. Mr. Schneider's arrangement provides that if his employment is
terminated by the Company without cause or by Mr. Schneider if, following a
change in control of the Company, his duties or compensation are adversely
altered, he becomes entitled to receive his base salary for a two year period.
Mr. Chin has a severance arrangement with the Company pursuant to which Mr. Chin
becomes entitled to receive six months of base salary if his employment is
terminated for cause, and one year of base salary if his employment is
terminated without cause. Dr. Salmon has a severance arrangement with the
Company providing that if Dr. Salmon's employment is terminated by the Company
with or without cause, or if his duties and responsibilities are materially
altered, he becomes entitled to one year of salary continuation, plus an
additional month of salary continuation for each year of employment with the
Company, plus an amount equal to his eligible bonus.
Dr. Leipold. In May 1995, the Company made a 7-year term loan in the
principal amount of $1,547,910 to Garrison Medical Professional Association
("Garrison"), the group with which Dr. Leipold practices medicine and is a
shareholder. The loan currently bears interest at a rate of 7.25% which is
adjustable on each anniversary of the loan to a rate one percent below the
reported prime rate of interest. The loan is secured by certain real estate and
accounts receivable of Garrison. The maximum principal amount of the loan
outstanding at any time during 1996 was $1,471,442. As of December 31, 1996,
$1,353,416 in principal amount remained outstanding under the loan.
Mr. Schneider. In June 1996, the Company loaned $400,000 to Mr. Schneider
to temporarily cover the cost of relocating from Chattanooga, Tennessee to
Company headquarters in Hooksett, New Hampshire. The loan bears interest at 6%
per annum and remained outstanding at December 31, 1996.
Mr. Chandler/Provident Transaction. Mr. Chandler serves as President and
Chief Executive Officer of Provident. Effective May 1, 1995, the Company
purchased the assets of the group health, HMO and third party administration
business of Provident for a purchase price of $131 million in cash and $100
million face amount of 6.25% cumulative preferred stock (the "Provident
Transaction"). In conjunction with the
I-9
<PAGE> 36
Provident Transaction, the Company and Provident entered into agreements under
which the Company provides certain administrative services to Provident's
retained stop-loss business and Provident's disability products; the Company
also agreed to obtain computer services from Provident's Chattanooga, Tennessee
data processing center for the acquired Provident business for a minimum of two
years. In September 1996, the Company and Provident settled for approximately
$2.8 million certain claims and accounting issues arising out of the Provident
Transaction and amended the stop-loss servicing agreement between them. In
October 1996, the Company also purchased approximately 72 acres of land in
Chattanooga from Provident for a purchase price of $2.8 million. Mr. Chandler
joined the Company's Board of Directors pursuant to the Provident Transaction
agreements after the completion of the Provident Transaction. On March 6, 1996,
the Company redeemed the $100 million face amount of preferred stock issued in
the Provident Transaction and the Company no longer has an obligation to
nominate a Provident representative to the Company's Board of Directors.
Participating Physician Agreements. Each physician director of the
Company, other than Drs. Payson, Bagan and Middleton, provided medical services
as a participating physician to one of the Company's HMOs during 1996. Each such
director's participating physician agreement conformed with the standard
agreements for all participating physicians in the respective HMOs.
See "Item 3 -- Agreements with Executive Officers, Directors or Affiliates
of the Company -- Severance Agreements" in the Schedule 14D-9 for a description
of certain employee severance arrangements.
MEETINGS AND COMMITTEES OF THE COMPANY BOARD
There were nine meetings of the Company Board held during 1996. All
directors attended at least 75% of the total number of meetings of the Company
Board and of all committees of the Company Board on which they serve.
The Audit Committee reviews the examination reports of state and federal
regulatory agencies and the reports of the independent auditors. Directors Baron
and Eubank serve on this committee. The Audit Committee met three times during
1996.
The Compensation Committee determines the compensation of executive
officers and stock options to be granted to employees of the Company. Directors
Bagan, Baron, Chandler and Leipold serve on this committee. The Compensation
Committee met twice during 1996.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the issued and
outstanding Shares, to file with the SEC and the New York Stock Exchange initial
reports of ownership and reports of changes in beneficial ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
officers, directors and greater than ten percent beneficial owners were complied
with during 1996, other than with respect to one sale transaction by Dr. Bilbro
and with respect to one option award transaction to Dr. Schall.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth, as of February 28, 1997, certain
information as to those persons who were beneficial owners of more than 5% of
the 63,795,517 Shares issued and outstanding as of such date and as to the
shares of Common Stock beneficially owned by each of the executive officers and
by all the Company's executive officers and directors as a group.
I-10
<PAGE> 37
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ----------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Norman C. Payson, M.D.
President and Chief Executive Officer
Two College Park Drive
Hooksett, NH 03106................................................... 5,612,760 8.6 %
Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94403-7777(2).......................................... 6,838,466 10.7 %
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741(3)............................................. 7,609,233 11.9 %
Southeastern Asset Management, Inc.
6075 Poplar Avenue, Suite 900
Memphis, TN 38119(4)................................................. 3,350,900 5.3 %
Charles M. Schneider................................................... 152,000 *
Joseph M. Zubretsky.................................................... -- *
Francis G. Middleton, M.D.............................................. 271,000 *
Robert Chin............................................................ 36,000 *
Richard B. Salmon, M.D., Ph.D.......................................... 102,000 *
All Executive Officers and Directors as a Group (14 persons)(5)........ 7,394,737 11.2 %
</TABLE>
- ---------------
* Less than 1%.
(1) The listed figures include options exercisable within 60 days to purchase
1,280,000, 152,000, 160,000, 36,000, 80,000, and 1,995,000, shares held by
Dr. Payson, Mr. Schneider, Dr. Middleton, Mr. Chin, Dr. Salmon, and all
directors and executive officers as a group, respectively.
(2) Franklin Resources, Inc. ("FRI") is considered a "beneficial owner" of the
Company's Common Stock through its ownership of all of the outstanding
capital stock of Templeton Global Advisors Limited, Templeton Management
Limited, Templeton Investment Management Limited and Franklin Advisers,
Inc., registered investment advisers. The Company is advised, FRI, its
principal shareholders and each advisory subsidiary disclaim any economic or
beneficial ownership in any of the Company securities.
(3) Massachusetts Financial Services Company ("MFS"), a registered investment
advisor, is considered the "beneficial owner" of the Company's Common Stock.
As sponsor of various mutual fund entities, the Company is advised that
4,397,110 (6.9%) shares and 3,051,930 (4.8%) shares of Company Common Stock
are held by MFS Series Trust II -- MFS Emerging Growth Fund and other
non-reporting entities, respectively.
(4) Southeastern Asset Management, Inc. ("Southeastern"), a registered
investment advisor and its Chairman of the Board, in the event he could be
deemed to be a controlling person of Southeastern, advise the Company that
all of the Company Common Stock reported herein are owned by Southeastern's
investment advisory clients and none are owned directly or indirectly by
Southeastern or its Chairman as to which both parties disclaim any
beneficial ownership in any of the Company's securities.
(5) Includes 145,629 shares owned by spouses and minor children of directors and
executive officers and shares held or owned by custodians for the benefit of
such minors, officers or directors, as to which beneficial ownership may be
disclaimed.
I-11
<PAGE> 38
SCHEDULE II
CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK
OF THE COMPANY EFFECTED DURING THE PAST 60 DAYS
The following table shows the options granted to executive officers of the
Company during the past 60 days. Each such option was granted on February 9,
1997 by the Compensation Committee of the Company Board after a preliminary
recommendation made at the January 1997 Compensation Committee meeting
consistent with the Company's history of granting management options in February
of each year.
<TABLE>
<CAPTION>
EXECUTIVE NUMBER OF OPTIONS EXERCISE
OFFICER GRANTED PRICE
--------------------------------- ------------------ ------
<S> <C> <C>
Robert Chin 32,000 $14.16
Francis G. Middleton, M.D. 110,000 14.16
Norman C. Payson, M.D. 200,000 14.16
Richard B. Salmon, M.D., Ph.D. 57,500 14.16
Charles M. Schneider 200,000 14.16
Joseph M. Zubretsky 200,000 14.16
</TABLE>
II-1
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 1 Confidentiality Agreement dated January 31, 1997, between Healthsource, Inc. and
CIGNA Corporation.
Exhibit 2 Agreement and Plan of Merger, dated as of February 27, 1997, by and among
Healthsource, Inc., CIGNA Corporation and CHC Acquisition Corp. (including
Schedule 5.4(b) thereto).
Exhibit 3 Tender and Irrevocable Proxy, dated as of February 27, 1997, by and among CIGNA
Corporation, CHC Acquisition Corp. and Norman C. Payson, M.D.
Exhibit 4 Consulting Agreement, dated as of February 27, 1997, between CIGNA Corporation
and Norman C. Payson, M.D.
Exhibit 5 Opinion of Bear, Stearns & Co. Inc. dated as of March 6, 1997.
Exhibit 6 Letter to Shareholders of Healthsource, Inc. dated March 6, 1997.
Exhibit 7 Press Release issued by Healthsource, Inc. on February 28, 1997.
Exhibit 8 Employment Agreement, dated as of July 30, 1993, between Healthsource, Inc. and
Robert Chin.
Exhibit 9 Employment Agreement, dated as of January 1, 1995, between Healthsource, Inc. and
Francis G. Middleton, M.D.
Exhibit 10 Employment Agreement, dated as of June 25, 1996, between Healthsource, Inc. and
Joseph M. Zubretsky.
Exhibit 11 Employment Agreement, dated as of July 19, 1996, between Healthsource, Inc. and
Charles M. Schneider.
Exhibit 12 Employment Agreement, dated as of February 14, 1997, between Healthsource, Inc.
and Richard B. Salmon, M.D., Ph.D.
Exhibit 13 Healthsource, Inc. Deferred Compensation Plan for Selected Employees, effective
October 15, 1995.
Exhibit 14 Healthsource, Inc. 1991 Non-Qualified Stock Option Plan.
Exhibit 15 Healthsource, Inc. 1992 Director Stock Option Plan.
Exhibit 16 Healthsource, Inc. 1994 Director Stock Option Plan.
Exhibit 17 Healthsource, Inc. 1996 Non-Employee Stock Option Plan.
</TABLE>
<PAGE> 1
CONFIDENTIALITY AGREEMENT
DATED AS OF JANUARY 31, 1997
In connection with the consideration of a possible transaction (the
"Transaction") between CIGNA CORPORATION ("CIGNA") and HEALTHSOURCE, INC.
("Healthsource"), Healthsource has or will furnish certain financial and other
information (the "Evaluation Material") to CIGNA. In consideration of the
receipt of the Evaluation Material from Healthsource and for CIGNA's agreement
to the terms of this Confidentiality Agreement, CIGNA agrees, as set forth
below, to keep the Evaluation Material and analyses derived from the Evaluation
Material ("Analysis") confidential, and both parties agree to the other matters
contained herein.
CIGNA agrees that the Evaluation Material will be used solely for
purposes of determining whether and under what terms and conditions it may have
an interest in negotiating or concluding a Transaction with Healthsource. CIGNA
further agrees to keep the Evaluation Material and Analysis confidential and not
to disclose the Evaluation Material and Analysis to any person except as
otherwise provided in this Confidentiality Agreement. For purposes of this
Confidentiality Agreement, the term "person" includes, without limitation, any
corporation, company, partnership, limited liability company, individual or
other entity. CIGNA may disclose the Evaluation Material and Analysis to its
directors, officers, employees, agents, and consultants (collectively
"Representatives") who, CIGNA determines, in the exercise of reasonable
judgment, need to know such information for the purpose of considering whether
to negotiate or conclude a Transaction with Healthsource, provided that such
persons are made aware of the confidentiality of the information, and the
limitations on its use. CIGNA shall assume responsibility for the breach of this
Agreement by its Representatives.
For purposes of this Confidentiality Agreement, "Evaluation Material"
means documents and information furnished by Healthsource to CIGNA or its
Representatives, orally, in writing, or by inspection of documents and all
analyses, compilations, forecasts, studies, summaries, notes, data and other
documents and materials in whatever form maintained, whether prepared by CIGNA,
its Representatives or others, to the extent such documents or materials contain
or reflect, any such information. The term "Evaluation Material" does not apply
to information which (a) is or becomes generally available to the public other
than as a result of disclosure by CIGNA (or its Representatives) in violation of
this Confidentiality Agreement, (b) was available to CIGNA on a non-confidential
basis from a source other than Healthsource or its employees, agents or
consultants
1
<PAGE> 2
prior to receipt in accordance with this agreement, or (c) becomes available to
CIGNA on a non-confidential basis from a source other than Healthsource or its
employees, agents or consultants provided that CIGNA does not know that such
source is prohibited from disclosing such information to CIGNA by a contractual
or legal obligation.
CIGNA agrees not to disclose to any person, other than its
Representatives, any Evaluation Material, the fact that Evaluation Material has
been made available to CIGNA, the fact that either party is discussing a
possible transaction with the other or with any other person, or any fact
concerning the discussions or negotiations (including the existence or status
thereof), except pursuant to a subpoena (after immediate prior notice to the
other party so that the other party may seek an appropriate protective order)
and then only after using such disclosing party's best efforts to maintain the
continuing confidentiality of all such information required to be so disclosed.
Upon request, CIGNA will promptly deliver to Healthsource, or destroy,
all Evaluation Material furnished by Healthsource, without retaining any copies.
Upon request, CIGNA will also instruct all Representatives to deliver to
Healthsource or destroy, all Evaluation Material furnished by CIGNA to such
Representatives. Upon request, CIGNA will furnish Healthsource a letter stating
that the Evaluation Material has been returned or destroyed.
CIGNA acknowledges that neither Healthsource nor its Representatives,
agents or controlling persons makes any express or implied representation or
warranty as to the accuracy or completeness of the Evaluation Material or any
other information provided to CIGNA by Healthsource. CIGNA and its
Representatives agree that no such person will have any liability to CIGNA or
any of its Representatives with respect to the Evaluation Material on any basis
(including, without limitation, in contract, tort, under federal or state
securities laws or otherwise), except pursuant to the final, executed
Transaction documents, if any, and neither CIGNA nor its Representatives will
make any claims whatsoever against such persons, with respect to or arising out
of the Transaction, whether as a result of this Agreement, any other written or
oral expression with respect to the Transaction, CIGNA's participation in
evaluating the possible Transaction or any procedures therefor, CIGNA's review
of Healthsource, the use of the Evaluation Material by CIGNA or its
Representatives, any errors therein or omissions from the Evaluation Material,
or otherwise, except pursuant to the final, executed Transaction documents, if
any. CIGNA and its Representatives further agree that they are not entitled to
rely on the accuracy or completeness of the Evaluation Material and that only
such representations or warranties, if any, contained in the final, executed,
transaction documents, if any, shall have any binding effect. CIGNA further
acknowledges that nothing in this Confidentiality
2
<PAGE> 3
Agreement precludes Healthsource from furnishing Evaluation Material to other
persons or parties.
CIGNA agrees that, for a period of eighteen (18) months from the date
of this Agreement, unless specifically invited in writing by Healthsource,
neither CIGNA nor any of CIGNA's affiliates, will in any manner, directly or
indirectly, effect or seek, offer, propose (whether publicly or otherwise) or
take any other action to effect, or cause or participate in, or in any way
assist, advise or encourage any other person to effect, seek, or offer or
propose (whether publicly or otherwise) to effect or participate in, (i) any
acquisition of the securities (or beneficial ownership thereof as such term is
used in the Securities Exchange Act of 1934) or assets of Healthsource, or
rights or options to acquire the same (except that the foregoing shall not
prohibit CIGNA, in the ordinary course of its investment activities for
third-party or fiduciary accounts, from trading or beneficially owning
securities of Healthsource; provided neither CIGNA nor its Affiliates shall
exercise any voting control over such third-party shares in a manner intended to
influence the management or operations of Healthsource); (ii) any tender or
exchange offer, merger or other business combination involving Healthsource
(including with a third-party); (iii) any recapitalization, restructuring,
liquidation, dissolution, purchase or sale of a substantial portion of the
assets of, or other extraordinary transaction with respect to Healthsource; (iv)
any "solicitation" of "proxies" (as such terms are used in the rules of the
Securities and Exchange Commission) to vote, or seek to advise or influence any
person or entity with respect to the voting of, any voting securities of
Healthsource or any action to elect or remove directors of, or to influence the
management, policy or conduct of the business affairs of Healthsource, or (v)
any action which would likely cause Healthsource to be required to make a public
announcement regarding any of the types of matters set forth in (i) - (iv)
above, nor will CIGNA enter into any arrangement or understanding with any
third-party to accomplish any of the foregoing. During such period, unless
specifically invited as provided above, CIGNA further agrees not to approach or
request Healthsource (or its directors, officer, employees or agents), directly
or indirectly, to amend or waive any provision of this paragraph (including this
sentence). If at any time during such period, CIGNA is approached by a
third-party concerning its or such third-party's participation in a transaction
or activity described in (i) - (iv) above, CIGNA will promptly inform
Healthsource of the nature of each contact and the identities of the
third-parties involved. CIGNA will not take any action during such period,
unless specifically invited as provided above, to communicate (either publicly
or privately) with Healthsource shareholders.
CIGNA agrees that neither CIGNA nor any of its Affiliates will, for a
period of eighteen (18) months from the date of this Confidentiality Agreement,
without the prior written consent of the Healthsource, (i) employ or solicit the
3
<PAGE> 4
employment of any executive officer of Healthsource (as defined under the 1934
Act), or the CEO of any HMO or insurance subsidiary of Healthsource, nor (ii)
employ or solicit the employment of any other management employee of
Healthsource or any of its Affiliates with whom CIGNA or its Representatives had
contact during the negotiations and investigations of the Transaction, provided
that this clause (ii) shall not prevent CIGNA from hiring any such other
management employee who approaches CIGNA on his own initiative without direct or
indirect solicitation by CIGNA other than through an advertisement in a
newspaper or magazine.
CIGNA agrees that all of its communications with Healthsource with
respect to the Evaluation Material and any potential Transaction, will be
conducted solely with Norman C. Payson, M.D. or his designees.
The parties agree that a breach of any material provision of this
Agreement by either of them would result in irreparable harm to the
non-breaching party, that any remedy at law is inadequate because damages are
not fully ascertainable, and accordingly, in the event of any breach or
threatened breach of any material provision of this Agreement by a party (or its
Representative), the non-breaching party shall have the right to seek immediate
injunctive relief to prevent the breach in addition to any other remedies
available at law or in equity.
CIGNA agrees to advise its Representatives who receive the Evaluation
Material, that the Untied States securities laws prohibit any person who has
material, non-public information concerning the matters which are the subject of
this Agreement from purchasing or selling securities of Healthsource (and
options, warrants and rights relating thereto) or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
You acknowledge that if Healthsource determines to pursue a
Transaction, it may establish procedures and guidelines ("Procedures") for the
submission of proposals with respect to any Transaction with or involving
Healthcare. If CIGNA determines to submit a proposal, CIGNA and its
Representatives agree to act in accordance with the Procedures and to be bound
by the terms and conditions that may be established pursuant to the Procedures.
The Parties agree that unless and until a definitive transaction
agreement is executed by the parties, no contract or agreement providing for a
Transaction with the parties shall be deemed to exist. The parties agree that
neither party will be under any legal obligation of any kind whatsoever with
respect to any such Transaction by virtue of this Confidentiality Agreement or
by virtue of any oral or written expression with respect to such a Transaction
made by any of its
4
<PAGE> 5
officers or Representatives. CIGNA agrees that Healthsource will have the right
in its sole discretion, without giving any reason therefor, at any time to
terminate the discussions with CIGNA concerning a possible Transaction, to elect
not to pursue any such Transaction, or to pursue the Transaction without your
involvement. This paragraph may only be modified by a written instrument signed
by both parties and referencing this paragraph specifically.
If it is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) that any term or provision hereof is invalid or
unenforceable, (i) the remaining terms and provision hereof shall be unimpaired
and shall remain in full force and effect and (ii) the invalid or unenforceable
provision or term shall be replaced by a term or provision that is valid,
enforceable and that comes closest to expressing the intention of such invalid
or unenforceable term or provision.
This Agreement embodies the entire agreement and understanding of the
parties hereto and supersedes any and all prior agreements, arrangements and
understandings relating to the matters provided for herein. No alteration,
waiver, amendment, change or supplement hereto shall be binding or effective
unless the same is set forth in a written instrument signed by a duly authorized
representative of each party and expressly so altering or waiving such
Agreement.
All notices required or permitted to be given under this Agreement
shall be given by personal delivery or by overnight courier service (signature
required) as follows, or to such other address as may be subsequently provided:
If to the Company: CIGNA Corporation
One Liberty Place
1650 Market Street
Philadelphia, PA 19192
Attn: Robert Rose
Vice-President - Strategic Growth and Development
FAX No.: (215) 761-3399
With a copy to: CIGNA Corporation
One Liberty Place
1650 Market Street
Philadelphia, PA 19192
Attn: Thomas J. Wagner, Esq.
General Counsel
FAX No.: (215) 761-5519
5
<PAGE> 6
If to Healthsource: Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
Attn: Norman C. Payson, M.D.
President & CEO
Fax No.: (603) 268-7905
With a copy to: Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
Attn: Jon S. Richardson
Special Counsel to the President
Fax No.: (603) 268-7905
This Agreement shall be governed by the internal substantive law of the State of
New Hampshire without regard to choice of law principles.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
duplicate original copies as of the date stated above.
HEALTHSOURCE, INC.
By: /s/ Joseph M. Zubretsky
--------------------------
Joseph M. Zubretsky
Chief Financial Officer
CIGNA CORPORATION
By: /s/ Robert L. Rose
--------------------------
Robert L. Rose
Vice President
6
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
by and among
CIGNA CORPORATION
CHC ACQUISITION CORP.
and
HEALTHSOURCE, INC.
February 27, 1997
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 27, 1997 (this
"Agreement"), by and among CIGNA Corporation, a Delaware corporation ("Parent"),
CHC Acquisition Corp., a New Hampshire corporation and a wholly-owned, indirect
subsidiary of Parent (the "Purchaser"), and Healthsource, Inc., a New Hampshire
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, the Purchaser and the
Company have approved, and deem it advisable and in the best interests of their
respective shareholders to consummate, the acquisition of the Company by Parent
and the Purchaser upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1 The Offer. (a) As promptly as practicable (but in no event
later than five business days from the public announcement of the execution
hereof), the Purchaser shall commence (within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) an offer
(the "Offer") to purchase for cash any and all of the issued and outstanding
shares of Common Stock, par value $.10 per share (referred to herein as either
the "Shares" or "Company Common Stock"), of the Company (excluding the related
Common Stock Purchase Rights (the "Rights") issued pursuant to the Rights
Agreement between the Company and The Bank of New York, dated as of July 29,
1996 (the "Rights Agreement") which will be redeemed prior to the consummation
of the Offer), at a price of $21.75 per Share, net to the seller in cash (such
price, or such higher price per Share as may be paid in the Offer, being
referred to herein as the "Offer Price"). The Purchaser shall, on
<PAGE> 3
the terms and subject to the prior satisfaction or waiver of the conditions of
the Offer (except that the Minimum Condition (as hereinafter defined) may not be
waived), accept for payment and pay for Shares tendered as soon as it is legally
permitted to do so under applicable law. The obligations of the Purchaser to
accept for payment and to pay for any and all Shares validly tendered on or
prior to the expiration of the Offer and not withdrawn shall be subject only to
there being validly tendered and not withdrawn prior to the expiration of the
Offer, that number of Shares which, together with any Shares beneficially owned
by Parent or the Purchaser, represent at least a majority of the Shares
outstanding on a fully diluted basis (the "Minimum Condition") and the other
conditions set forth in Annex A hereto. The Offer shall be made by means of an
offer to purchase (the "Offer to Purchase") containing the terms set forth in
this Agreement, the Minimum Condition and the other conditions set forth in
Annex A hereto. The Purchaser shall not amend or waive the Minimum Condition and
shall not decrease the Offer Price or decrease the number of Shares sought, or
amend any other term or condition of the Offer in any manner adverse to the
holders of the Shares or extend the expiration date of the Offer without the
prior written consent of the Company (such consent to be authorized by the Board
of Directors of the Company or a duly authorized committee thereof).
Notwithstanding the foregoing, the Purchaser shall, and Parent agrees to cause
the Purchaser to, extend the Offer from time to time until seven months from
execution of this Agreement (as such time may be extended pursuant to Section
7.1(b)(i) hereof) if, and to the extent that, at the initial expiration date of
the Offer, or any extension thereof, all conditions to the Offer have not been
satisfied or waived. In addition, the Offer Price may be increased and the Offer
may be extended to the extent required by law in connection with such increase
in each case without the consent of the Company.
(b) As soon as practicable on the date the Offer is commenced,
Parent and the Purchaser shall file with the United States Securities and
Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with
respect to the Offer (together with all amendments and supplements thereto and
including the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will
include, as exhibits, the Offer to Purchase and a form of
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letter of transmittal and summary advertisement (collectively, together with any
amendments and supplements thereto, the "Offer Documents"). The Offer Documents
will comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the SEC and on the date first
published, sent or given to the Company's shareholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is made by Parent or the Purchaser with respect to
information supplied by the Company in writing for inclusion in the Offer
Documents. Each of Parent and the Purchaser further agrees to take all steps
necessary to cause the Offer Documents to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Parent and the Purchaser, on the one
hand, and the Company, on the other hand, agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that it shall have become false and misleading in any material respect and the
Purchaser further agrees to take all steps necessary to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given a reasonable
opportunity to review the initial Schedule 14D-1 before it is filed with the
SEC. In addition, Parent and the Purchaser agree to provide the Company and its
counsel in writing with any comments or other communications that Parent, the
Purchaser or their counsel may receive from time to time from the SEC or its
staff with respect to the Offer Documents promptly after the receipt of such
comments or other communications.
Section 2 Company Actions.
(a) The Company hereby approves of and consents to the Offer
and represents that the Board of Directors, at a meeting duly called and held,
has (i) approved this Agreement and the transactions contemplated hereby,
including the Offer and the Merger (as defined in Section 1.4) (collectively,
the "Transactions"), which approvals constitute approval of this Agreement, the
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Offer and the Merger for purposes of Section 293-A:11.01 of the New Hampshire
Business Corporation Act (the "NHBCA"), (ii) resolved to recommend that the
shareholders of the Company accept the Offer, tender their Shares thereunder to
the Purchaser and approve and adopt this Agreement and the Merger; provided,
that such recommendation may be withdrawn, modified or amended only as provided
in Section 5.5(b) hereof, and (iii) approved the redemption of the Rights prior
to the consummation of the Offer according to the provisions of the Rights
Agreement.
(b) As promptly as practicable following the commencement of
the Offer and in all events not later than 10 business days following such
commencement, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto and including the exhibits thereto, the "Schedule 14D-9") which shall,
subject to the fiduciary duties of the Company's directors under applicable law
and to the provisions of this Agreement, contain the recommendation referred to
in clause (ii) of Section 1.2(a) hereof. The Schedule 14D-9 will comply in all
material respects with the provisions of applicable federal securities laws and,
on the date filed with the SEC and on the date first published, sent or given to
the Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Parent or the
Purchaser in writing for inclusion in the Offer Documents. The Company further
agrees to take all steps necessary to cause the Schedule 14D-9 to be filed with
the SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Each of the Company, on
the one hand, and Parent and the Purchaser, on the other hand, agrees promptly
to correct any information provided by it for use in the Schedule 14D-9 if and
to the extent that it shall have become false and misleading in any material
respect and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated
to holders of the Shares, in each case as and to the extent required
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by applicable federal securities laws. Parent and its counsel shall be given a
reasonable opportunity to review the initial Schedule 14D-9 before it is filed
with the SEC. In addition, the Company agrees to provide Parent, the Purchaser
and their counsel in writing with any comments or other communications that the
Company or its counsel may receive from time to time from the SEC or its staff
with respect to the Schedule 14D-9 promptly after the receipt of such comments
or other communications.
(c) In connection with the Offer, the Company will promptly
furnish or cause to be furnished to the Purchaser mailing labels, security
position listings and any available listing or computer file containing the
names and addresses of the record holders of the Shares as of a recent date, and
shall furnish the Purchaser with such additional information (including updated
lists of holders of Shares and their addresses, mailing labels and lists of
security positions) and such other assistance as the Purchaser or its agents may
reasonably request in communicating the Offer to the record and beneficial
shareholders of the Company. Except for such steps as are necessary to
disseminate the Offer Documents, Parent and the Purchaser shall hold in
confidence the information contained in any of such labels and lists and the
additional information referred to in the preceding sentence, will use such
information only in connection with the Offer, and, if this Agreement is
terminated, will upon request of the Company deliver or cause to be delivered to
the Company all copies of such information then in its possession or the
possession of its agents or representatives.
Section 3 Directors.
(a) Promptly upon the purchase of and payment for Shares by
Parent or any of its subsidiaries which represent at least a majority of the
outstanding shares of Company Common Stock (on a fully diluted basis), Parent
shall be entitled to designate such number of directors, rounded up to the next
whole number, on the Board of Directors of the Company as is equal to the
product of the total number of directors on such Board (giving effect to the
directors designated by Parent pursuant to this sentence) multiplied by the
percentage that the aggregate number of Shares beneficially owned by the
Purchaser, Parent and any of their affiliates bears
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to the total number of shares of Company Common Stock then outstanding. The
Company shall, upon request of the Purchaser, use its best efforts promptly
either to increase the size of its Board of Directors (which, pursuant to the
Company's Articles of Incorporation, has a maximum number of 15 directors) or,
at the Company's election, secure the resignations of such number of its
incumbent directors as is necessary to enable Parent's designees to be so
elected to the Company's Board, and shall cause Parent's designees to be so
elected. Notwithstanding the foregoing, until the Effective Time (as defined in
Section 1.5 hereof), the Company shall retain as members of its Board of
Directors at least two directors who are directors of the Company on the date
hereof (the "Company Designees"); provided, that subsequent to the purchase of
and payment for Shares pursuant to the Offer, Parent shall always have its
designees represent at least a majority of the entire Board of Directors. The
Company's obligations under this Section 1.3(a) shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to such Section 14(f) and Rule
14f-1 in order to fulfill its obligations under this Section 1.3(a), including
mailing to shareholders the information required by such Section 14(f) and Rule
14f-1 as is necessary to enable Parent's designees to be elected to the
Company's Board of Directors. Parent or the Purchaser will supply the Company
any information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1.
(b) From and after the time, if any, that Parent's designees
constitute a majority of the Company's Board of Directors, any amendment of this
Agreement, any termination of this Agreement by the Company, any extension of
time for performance of any of the obligations of Parent or the Purchaser
hereunder, any waiver of any condition or any of the Company's rights hereunder
or other action by the Company hereunder may be effected only by the action of a
majority of the directors of the Company then in office who were directors of
the Company on the date hereof, which action shall be deemed to constitute the
action of the full Board of Directors; provided, that if there shall be no such
directors, such actions may be effected by unanimous vote of the entire Board of
Directors of the Company.
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Section 4 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.5 hereof), the Company
and the Purchaser shall consummate a merger (the "Merger") pursuant to which (a)
the Purchaser shall be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of New
Hampshire, and (c) the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. Pursuant to the Merger, (x) the Articles of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law and such Articles of Incorporation, and (y) the By-laws of
the Company, as in effect immediately prior to the Effective Time, shall be the
By-laws of the Surviving Corporation until thereafter amended as provided by
law, the Articles of Incorporation and such Bylaws. The Merger shall have the
effects set forth in the NHBCA.
Section 5 Effective Time. On the date of the Closing (as defined in
Section 1.6 hereof) (or on such other date as the parties may agree), the
parties shall file such certificates of merger, articles of merger or other
appropriate documents (in any such case, the "Certificates of Merger") executed
in accordance with the relevant provisions of the NHBCA, and shall make all
other filings, recordings and publications required by the NHBCA with respect to
the Merger. The Merger shall become effective on the date specified in the
Certificates of Merger, which specified time shall be the same in each
Certificate of Merger (the time the Merger becomes effective is hereinafter
referred to as the "Effective Time").
Section 6 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VI hereof (the "Closing Date"), at the offices
of O'Melveny & Myers LLP, 153 East 53rd Street, New York, New York 10022,
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unless another date or place is agreed to in writing by the parties hereto.
Section 7 Directors and Officers of the Surviving Corporation. The
directors of the Purchaser at the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors shall have been duly elected or appointed or qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and By-laws. The officers of the
Company at the Effective Time shall, from and after the Effective Time, be the
officers of the Surviving Corporation until their successors shall have been
duly elected or appointed or qualified or until their earlier death, resignation
or removal in accordance with the Surviving Corporation's Articles of
Incorporation and By-laws.
Section 8 Shareholders' Meeting.
(a) If required by applicable law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in accordance
with applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its shareholders (the "Special Meeting") as soon as
practicable following the acceptance for payment and purchase of Shares
by the Purchaser pursuant to the Offer for the purpose of considering
and taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use
its best efforts (x) to obtain and furnish the information required to
be included by the SEC in the Proxy Statement (as hereinafter defined)
and, after consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy or
information statement and cause a definitive proxy or information
statement (the "Proxy Statement") to be mailed to its shareholders and
(y) to obtain the necessary approvals of the Merger and this Agreement
by its shareholders; and
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(iii) subject to the fiduciary obligations of the Board
under applicable law as advised by independent counsel, include in the
Proxy Statement the recommendation of the Board that shareholders of
the Company vote in favor of the approval of the Merger and the
adoption of this Agreement.
(b) Parent agrees that it will provide the Company with the
information concerning Parent and the Purchaser required to be included in the
Proxy Statement and will vote, or cause to be voted, all of the Shares then
owned by it, the Purchaser or any of its other subsidiaries and affiliates in
favor of the approval of the Merger and the adoption of this Agreement.
Section 9 Merger Without Meeting of Shareholders. Notwithstanding
Section 1.8 hereof, if permitted by the NHBCA, in the event that Parent, the
Purchaser or any other subsidiary of Parent shall acquire at least 90% of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, the parties hereto agree to take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of shareholders of the
Company.
Section 10 Convertible Notes. In accordance with the terms of the
Indenture, dated as of March 6, 1996 (the "Indenture"), between the Company, as
issuer, and The Bank of New York, as trustee (the "Trustee"), with respect to
the Company's 5% Convertible Subordinated Notes due 2003 (the "Company
Convertible Notes"), within 30 days following the acquisition by Purchaser of
beneficial ownership, directly or indirectly, of more than 50% of the Shares,
the Company shall, in accordance with the Indenture, publish a notice in The
Wall Street Journal, notify the Trustee and give written notice to each holder
of the Company Convertible Notes, stating, among other things, (i) that a Change
of Control (as defined in the Indenture) has occurred, (ii) that each holder of
the Company Convertible Notes has the right to require the Company to repurchase
such holder's Company Convertible Notes at a purchase price in cash in an amount
equal to 101% of the principal amount of such Company Convertible Notes, plus
accrued and unpaid interest thereon, if any, to the purchase date thereof and
(iii) the date on which
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such Company Convertible Notes shall be purchased which shall be a business day
no later than 60 days from the date such notice is mailed. Parent shall
contribute to the Company an amount in cash necessary to repurchase all such
Company Convertible Notes.
ARTICLE II
CONVERSION OF SECURITIES
Section 1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or common stock of the Purchaser (the "Purchaser
Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share
of the Purchaser Common Stock shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Parent-Owned Stock. Any shares of Company
Common Stock owned by Parent, the Purchaser or any other wholly owned Subsidiary
(as defined in Section 3.1 hereof) of Parent shall be cancelled and retired and
shall cease to exist and no consideration shall be delivered in exchange
therefor.
(c) Exchange of Shares. Each issued and outstanding share of
Company Common Stock (other than Shares to be cancelled in accordance with
Section 2.1(b) hereof and any Dissenting Shares (if applicable and as defined in
Section 2.3 hereof)), shall be converted into the right to receive the Offer
Price, payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing such
share of Company Common Stock in the manner provided in Section 2.2 hereof. All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section
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2.2 hereof, without interest, or to perfect any rights of appraisal as a holder
of Dissenting Shares (as hereinafter defined) that such holder may have pursuant
to Section 293-A:13.02 of the NHBCA.
Section 2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as agent for the holders of
shares of Company Common Stock in connection with the Merger (the "Paying
Agent") to receive the funds to which holders of shares of Company Common
Stock shall become entitled pursuant to Section 2.1(c) hereof. Prior to the
Effective Time, Parent shall take all steps necessary to deposit or cause to be
deposited with the Paying Agent such funds for timely payment hereunder. Such
funds shall be invested by the Paying Agent as directed by Parent or the
Surviving Corporation.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time but in no event more than three business days
thereafter, the Paying Agent shall mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates"),
whose shares were converted pursuant to Section 2.1 hereto into the right to
receive the Merger Consideration (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in such form and have such other provisions as Parent and the
Company may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration for
each share of Company Common Stock formerly represented by such Certificate and
the Certificate so surrendered shall forthwith be cancelled. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is
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registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares, except as
otherwise provided for herein or by applicable law. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following
one year after the Effective Time, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
holder of a Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
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Section 3 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance with the
NHBCA ("Dissenting Shares") shall not be converted into a right to receive the
Merger Consideration, unless such holder fails to perfect or withdraws or
otherwise loses his or her right to appraisal. A holder of Dissenting Shares
shall be entitled to receive payment of the appraised value of such Shares held
by him or her in accordance with the provisions of Section 293-A:13.25 of the
NHBCA, unless, after the Effective Time, such holder fails to perfect or
withdraws or loses his or her right to appraisal, in which case such Shares
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Merger Consideration, without interest thereon.
Section 4 Company Option Plans. (a) As soon as practicable following
the date of this Agreement, the Company shall take such actions as may be
required to effect the following:
(i) adjust the terms of all outstanding options to purchase
Company Common Stock held by all current and former employees and
directors of the Company ("Company Employee Stock Options") and the
terms of each applicable stock option plan maintained by the Company
("Company Employee Stock Plans"), to provide that at the Effective
Time, each individual Company Employee Stock Option outstanding
immediately prior to the Effective Time shall be fully vested and
exercisable;
(ii) further adjust the terms of each Company Employee Stock
Option held by any person who immediately prior to the Effective Time
served as a member of the Board of Directors of the Company (and who
was not also a full-time employee of the Company) to provide that such
Company Employee Stock Option shall remain exercisable for a period
ending on the first to occur of (A) the third anniversary of the
Effective Time and (B) the original expiration
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date of such option, determined without regard to any termination (for
any reason whatsoever) from service as a member of the Board of
Directors of the Company; and
(iii) make such other changes to the Company Employee Stock
Plans and Company Employee Stock Options as it deems appropriate to
give effect to the Merger (subject to the approval of Parent, which
shall not be unreasonably withheld).
(b) As soon as practicable following the date of this
Agreement, Parent shall take such actions as may be required to adopt a plan
("Parent Stock Option Plan") under which Parent will grant options ("Substitute
Options") to purchase shares of Parent common stock, par value $1.00 per share
("Parent Common Stock") to replace any Company Employee Stock Options that are
outstanding at the Effective Time, which plan will include, but not be limited
to, the terms and conditions described in Section 2.4(c) below.
(c) Pursuant to the Parent Stock Option Plan each
current and former director and employee of the Company who holds one or more
unexercised Company Employee Stock Options at the Effective Time ("Eligible
Grantee") shall, subject to the terms and conditions set forth below,
automatically receive a grant as of the Effective Time of one or more Substitute
Options in replacement of his or her Company Employee Stock Options. Each
Substitute Option granted to an Eligible Grantee pursuant to this Section 2.4(b)
shall:
(i) be for a number of shares of Parent Common Stock equal to
the number of shares of Company Common Stock subject to the Company
Employee Stock Option, multiplied by the Option Ratio (as defined
below), rounded down to the next whole number of shares;
(ii) be for a per share exercise price equal to the exercise
price for the shares of Company Common Stock otherwise purchasable
pursuant to such Company Employee Stock Option divided by the Option
Ratio, rounded to the nearest hundredth of a cent;
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(iii) be immediately exercisable upon the Eligible Grantee's
execution of the Option Agreement (referred to below) and, except as
provided in Section 2.4(a)(ii) with respect to current and former
directors of the Company (and regardless of the actual date of
termination of employment of the Eligible Grantee with the Company,
Parent or any subsidiary of the Parent), shall expire no earlier than
the date the Company Employee Stock Option would expire if the Eligible
Grantee would have remained continuously employed by the Company until
such date; and
(iv) otherwise be subject to substantially the same terms
and conditions as applicable to the Company Employee Stock Option.
For purposes of this Section 2.4, "Option Ratio" shall mean the Offer Price
divided by the average closing price per share of Parent Common Stock on the New
York Stock Exchange for the five consecutive trading days ending immediately
prior to the date of this Agreement.
(d) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Employee Stock Options, appropriate notices
setting forth such holders' rights pursuant to the Parent Stock Option Plan, and
the Option Agreements (based upon a form reasonably satisfactory to the Company,
such form to be delivered to the Company at least 10 days prior to the purchase
of any shares pursuant to the Offer), evidencing the grants of such Substitute
Options and the provisions of this Section 2.4. Execution of the Option
Agreement by Eligible Grantee shall result in the replacement of his or her
Company Employee Stock Options with Substitute Options as described above and
immediate cancellation of all of the Eligible Grantee's rights under the Company
Employee Stock Options.
(e) Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
upon exercise of the Substitute Options issued in accordance with this Section
2.4. At the Effective Time, Parent shall file a registration statement on Form
S-8 (or any successor or other appropriate form) with the SEC with respect to
the shares of Parent Common Stock subject to
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such Substitute Options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Substitute Options remain outstanding. With respect to those
individuals who subsequent to the Merger are subject to the reporting
requirements under Section 16(a) of the Exchange Act with respect to Parent,
where applicable, Parent shall administer the Parent Stock Plan assumed pursuant
to this Section 2.4 in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act to the extent the applicable Company Stock Plan complied with
such rule prior to the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Parent and Purchaser in a letter
delivered to it at or prior to the execution hereof (the "Company Disclosure
Letter"), the Company represents and warrants to Parent and Purchaser as
follows:
Section 1 Organization. Each of the Company and its Subsidiaries (as
hereinafter defined) is a corporation or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
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 it is now being conducted, except where failure to be so existing and in good
standing or to have such power and authority would not have a Company Material
Adverse Effect (as hereinafter defined). Each of the Company and its
Subsidiaries is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified, licensed and in good standing
or to be so qualified or licensed would not have a Company Material Adverse
Effect. The Company has heretofore delivered to Parent a complete and correct
copy of each of its Articles of Incorporation and By-Laws, as currently in
effect, and
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has heretofore made available to Parent a complete and correct copy of the
Articles of Incorporation and By-Laws of each of its Subsidiaries, as currently
in effect. As used in this Agreement, the word "Subsidiary" means, with respect
to any party, any corporation, partnership or other entity or organization,
whether incorporated or unincorporated, of which (i) such party or any other
Subsidiary of such party is a general partner (excluding such partnerships where
such party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries. As used in this Agreement, "Company
Material Adverse Effect" means only (I) any adverse change in, or effect on, the
business, financial condition or operations (excluding results of operations and
effects of net income) of the Company and its Subsidiaries, taken as a whole,
that individually or in the aggregate, exceeds, or is reasonably likely to
exceed, $67.5 million, or (II) the net income of the Company and its
Subsidiaries (not taking into account any (A) gains or losses resulting from
sales or other dispositions of assets by the Company or any of its Subsidiaries
(including, without limitation, gains or losses resulting from related severance
costs) effected with the prior written consent of Parent (which consent will not
be unreasonably withheld), and (B) losses resulting from the costs related to
this Agreement and the transactions contemplated hereby), determined in
accordance with United States generally accepted accounting principles ("GAAP"),
from January 1, 1997 through the last full month of operations for which
financial information is available prior to the consummation of the Offer being
less, on a cumulative basis, than the Targeted Income (as defined below) by an
amount in excess of the Allowed Shortfall (as defined below); provided, however,
that, in the case of either of (I) or (II) above, the effects of changes that
are generally applicable to (i) the health care or HMO industries, (ii) the
United States economy or (iii) the United States securities markets shall be
excluded from such determination; and provided, further, that any adverse effect
on the
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Company and its Subsidiaries resulting from the execution of this Agreement and
the announcement of this Agreement and the transactions contemplated hereby and
any change in value of the Company's marketable securities shall also be
excluded from such determination. In addition to the foregoing, the
determination of the dollar value or impact of any change or event pursuant to
the preceding sentence shall be based solely on the actual dollar value of such
change or effect, on a dollar-for-dollar basis, and shall not take into account
(i) any multiplier valuation, including, without limitation, any multiple based
on earnings or other financial indicia or the Offer Price or (ii) any
consequential damages or other consequential valuation. For purposes hereof, (x)
"Targeted Income" shall mean, for any period, the cumulative monthly net income
from January 1, 1997 set forth on Schedule 3.1 hereto, and (y) "Allowed
Shortfall" shall mean, for the same period, $5 million of net income per month,
on a cumulative basis, plus an aggregate of an additional $10 million of net
income. For purposes of considering whether a "Company Material Adverse Effect"
has occurred, (A) any adjustment of reserves for hospital provider contracts
receivables on the Company's balance sheet as of December 31, 1996 shall be
counted only in clause (I) above, and (B) any new reserves for hospital provider
contracts receivables established for the period after December 31, 1996 shall
be counted only in clause (II) above, unless such new reserves are required to
be restated on the Company's balance sheet as of December 31, 1996 under GAAP,
in which case such new reserves shall be counted only in clause (I) above.
Section 2 Capitalization. (a) As of the date hereof, the authorized
capital stock of the Company consists of 800,000,000 shares of Company Common
Stock and 10,000,000 shares of preferred stock, par value $.10 per share (the
"Company Preferred Stock"). As of January 31, 1997, (i) 63,795,517 shares of
Company Common Stock were issued and outstanding, (ii) 5,262,600 shares of
Company Common Stock were reserved for issuance pursuant to the conversion of
the Company Convertible Notes, (iii) shares of Company Common Stock issuable
pursuant to the Rights Agreement were reserved for issuance in connection with
the Rights, (iv) no shares of Company Common Stock were issued and held in the
treasury of the Company, and (v) there were no shares of Preferred Stock issued
and outstanding. Since January 31, 1997, no additional
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shares of capital stock have been issued except shares of Company Common Stock
and options therefor issued pursuant to the Company's stock option and employee
stock purchase plans, pension plans and other similar employee benefit plans
(the "Company Stock Plans"), which, upon exercise of all such options as of such
date (whether or not vested), would not exceed 7,545,000 shares of Company
Common Stock in the aggregate. Since January 31, 1997, the Company has issued
only options to acquire 1,474,100 shares of Company Common Stock. All the
outstanding shares of the Company's capital stock are duly authorized, validly
issued, fully paid, non-assessable and free of preemptive rights. Except as
disclosed in Section 3.2(a) of the Company Disclosure Letter and, except for the
Company Convertible Notes, the Company Stock Plans and the Rights Agreement, as
of the date hereof, there are no existing (i) options, warrants, calls,
subscriptions or other rights, convertible securities, agreements or commitments
of any character obligating the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other equity interest in, the
Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual obligations
of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any capital stock of the Company or any of its Subsidiaries of the
Company or (iii) voting trusts or similar agreements to which the Company is a
party with respect to the voting of the capital stock of the Company.
(b) Except as disclosed in Section 3.2(b) of the Company
Disclosure Letter, all of the outstanding shares of capital stock (or equivalent
equity interests of entities other than corporations) of each of the Company's
Subsidiaries are owned of record and beneficially, directly or indirectly, by
the Company.
Section 3 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement and, subject to obtaining the necessary approval of its shareholders,
to consummate the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors and,
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except for those actions contemplated by Section 1.2(a) hereof and obtaining the
approval of its shareholders as contemplated by Section 1.8 hereof, no other
corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the consummation by
it of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and, subject to approval and adoption of
this Agreement by the Company's shareholders (and assuming due and valid
authorization, execution and delivery hereof by Parent and the Purchaser) is a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 4 Consents and Approvals; No Violations. Except as disclosed in
Section 3.4 of the Company Disclosure Letter and except for (a) filings pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (b) applicable requirements under the Exchange Act, (c) the filing
of the Certificates of Merger, (d) applicable requirements under corporation or
"blue sky" laws of various states, (e) approvals or filings under various state
and federal laws, rules and regulations governing insurance holding and
operating companies, health maintenance organizations, health care services
plans, third party administrators, preferred provider plans, providers of
utilization review services, or other managed health care organizations,
including laws, rules and regulations with respect to the administration of
Medicaid and Medicare (the "Insurance Regulatory Approvals") or (f) matters
specifically described in this Agreement, neither the execution, delivery or
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby will (i) violate any provision of the
Articles of Incorporation or By-Laws of the Company or any of its Subsidiaries,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give
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<PAGE> 22
rise to any right of termination, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture
(other than the Indenture), lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
and which has been filed as an exhibit to the Company SEC Documents (as defined
in Section 3.5 hereof) (the "Material Agreements"), (iii) violate any order,
writ, judgment, injunction, decree, law, statute, rule or regulation applicable
to the Company, any of its Subsidiaries or any of their properties or assets, or
(iv) require on the part of the Company any filing or registration with,
notification to, or authorization, consent or approval of, any court,
legislative, executive or regulatory authority or agency (a "Governmental
Entity"); except in the case of clauses (ii), (iii) or (iv) for such violations,
breaches or defaults which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, (A) would
not have a Company Material Adverse Effect and would not materially adversely
affect the ability of the Company to consummate the transactions contemplated by
this Agreement, or (B) become applicable as a result of the business or
activities in which Parent or Purchaser is or proposes to be engaged or as a
result of any acts or omissions by, or the status of any facts pertaining to,
Parent or Purchaser.
Section 5 SEC Reports and Financial Statements. The Company has filed
all reports required to be filed by it with the SEC pursuant to the Exchange Act
and the Securities Act of 1933, as amended (the "Securities Act"), since January
1, 1994 (as such documents have been amended since the date of their filing,
collectively, the "Company SEC Documents"). The Company SEC Documents, as of
their respective filing dates, or if amended, as of the date of the last such
amendment, did not contain any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company has delivered to Parent or the Purchaser the
audited consolidated balance sheet (including the related notes) of the Company
and its Subsidiaries as of December 31, 1996 and the audited
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<PAGE> 23
consolidated statements of operations and cash flow of the Company and its
Subsidiaries for the period ended December 31, 1996 (collectively, the "1996
Financial Statements"). Each of the consolidated balance sheets (including the
related notes) included in the Company SEC Documents and the 1996 Financial
Statements fairly presents in all material respects the financial position of
the Company and its consolidated Subsidiaries as of the respective dates
thereof, and the other related statements (including the related notes) included
in the Company SEC Documents and the 1996 Financial Statements fairly present in
all material respects the results of operations and cash flows of the Company
and its consolidated Subsidiaries for the respective periods or as of the
respective dates set forth therein. Each of the consolidated balance sheets and
statements of operations and cash flow (including the related notes) included in
the Company SEC Documents and the 1996 Financial Statements has been prepared in
all material respects in accordance with GAAP applied on a consistent basis
during the periods involved, except as otherwise noted therein and subject, in
the case of unaudited interim financial statements, to normal year-end
adjustments.
Section 6 No Undisclosed Liabilities. Except (a) for liabilities and
obligations incurred in the ordinary course of business since December 31, 1996,
(b) for liabilities and obligations disclosed in the Company SEC Documents or
the 1996 Financial Statements, (c) for liabilities and obligations incurred in
connection with the Offer and the Merger or otherwise as contemplated by this
Agreement and (d) as disclosed in Section 3.6 of the Company Disclosure Letter,
since December 31, 1996, neither the Company nor any of its Subsidiaries has
incurred any material liabilities or obligations that would be required to be
reflected or reserved against in a consolidated balance sheet of the Company and
its consolidated Subsidiaries prepared in accordance with GAAP as applied in
preparing the consolidated balance sheet of the Company and its consolidated
Subsidiaries as of December 31, 1996.
Section 7 Absence of Certain Changes. Except as (a) disclosed in the
Company SEC Documents or the 1996 Financial Statements, (b) disclosed in Section
3.7 of the Company Disclosure Letter or (c) contemplated by this Agreement,
since December 31, 1996, the Company has not
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(i) suffered any change constituting a Company Material Adverse Effect;
(ii) amended its Articles of Incorporation or By-laws; (iii) split, combined or
reclassified the Company Common Stock or any capital stock of any of the
Subsidiaries of the Company; (iv) declared or set aside or paid any dividend or
other distribution with respect to the Company Common Stock (other than the
redemption of the Rights); or (v) materially changed the Company's accounting
methods, except as required by GAAP or applicable law.
Section 8 Employee Benefit Plans; ERISA.
(a) Section 3.8 of the Company Disclosure Letter sets forth a
list of all material employee benefit plans, (including but not limited to plans
described in section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), maintained by the Company or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), which together
with the Company would be deemed a "single employer" within the meaning of
section 4001(b)(15) of ERISA ("Benefit Plans") and all material employment and
severance agreements with employees of the Company ("Employee Agreements"). True
and complete copies of all Employee Agreements, including all amendments to
date, have been made available to Parent by the Company.
(b) Except as set forth in Section 3.8 of the Company
Disclosure Schedule, with respect to each Benefit Plan: (i) if intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder (the "Code"), such plan has
received a determination letter from the Internal Revenue Service stating that
it so qualifies and that its trust is exempt from taxation under section 501(a)
of the Code and nothing has occurred to the best knowledge of the Company since
the date of such determination that could materially adversely affect such
qualification or exempt status; (ii) such plan has been administered in all
material respects in accordance with its terms and applicable law; (iii) no
breaches of fiduciary duty have occurred which might reasonably be expected to
give rise to material liability on the part of the Company; (iv) no disputes are
pending, or, to the knowledge of the Company, threatened that give rise to or
might reasonably be expected to give rise to material
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<PAGE> 25
liability on the part of the Company; (v) no prohibited transaction (within the
meaning of Section 406 of ERISA) has occurred that give rise to or might
reasonably be expected to give rise to material liability on the part of the
Company; and (vi) all contributions required to be made to such plan as of the
date hereof (taking into account any extensions for the making of such
contributions) have been made in full.
(c) No Benefit Plan is a "multiemployer pension plan," as
defined in section 3(37) of ERISA, nor is any Benefit Plan a plan described in
section 4063(a) of ERISA.
(d) No Benefit Plan has incurred an accumulated funding
deficiency, as defined in section 302 of ERISA or section 412 of the Code,
whether or not waived.
(e) With respect to each Benefit Plan that is a "welfare plan"
(as defined in section 3(1) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of the Company or any of
its Subsidiaries beyond their termination of employment (other than to the
extent required by applicable law).
(f) Except as set forth in the Disclosure Schedule, no
material liability has been or is expected to be incurred by the Company or any
ERISA Affiliate (either directly or indirectly, including as a result of an
indemnification obligation or any joint and several liability obligations) under
or pursuant to Title I or IV of ERISA or the penalty or the excise tax or joint
and several liability provisions of the Code, relating to its or their employee
benefit plans, and no event, transaction or condition has occurred or exists
that have resulted in or would reasonably be expected to result in any such
liability to Parent, the Purchaser, the Company or any ERISA Affiliate or any
employee benefit plan of the Company or any ERISA Affiliate.
(g) As of the last valuation date prior to the date hereof,
the market value of assets under each Benefit Plan which is an Employee Pension
Benefit Plan under Section 3(2) of ERISA (other than any multiemployer plan) is
less than the present value of all vested and nonvested liabilities thereunder
determined in accordance
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with PBGC methods, factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination, by an amount no greater
than $100,000.
Section 9 Litigation. Except as disclosed in Section 3.9 of the Company
Disclosure Letter or as disclosed in the Company SEC Documents, there is no
action, suit, proceeding (other than any action, suit or proceeding resulting
from or arising out of this Agreement or the transactions contemplated hereby)
or, to the best knowledge of the Company, audit or investigation pending or, to
the best knowledge of the Company, action, suit, proceeding, audit or
investigation threatened, involving the Company or any of its Subsidiaries, by
or before any court, governmental or regulatory authority or by any third party
that would have a Company Material Adverse Effect.
Section 10 No Default; Compliance with Applicable Laws. The business of
the Company and each of its Subsidiaries is not in default or violation of any
term, condition or provision of (i) its respective articles of incorporation or
by-laws or similar organizational documents, (ii) any Material Agreement or
(iii) any statute, law, rule, regulation, judgment, decree, order, arbitration
award, concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to the Company or any of its Subsidiaries,
including, without limitation, laws, rules and regulations relating to the
environment, insurance companies, health maintenance organizations, Medicare,
Medicaid, third-party administrators, occupational health and safety, employee
benefits, wages, workplace safety, equal employment opportunity and race,
religious or sex discrimination, excluding from the foregoing clauses (i), (ii)
and (iii), defaults or violations which would not have a Company Material
Adverse Effect or which become applicable as a result of the business or
activities in which Parent or the Purchaser is or proposes to be engaged or as a
result of any acts or omissions by, or the status of any facts pertaining to,
Parent or Purchaser.
Section 11 Taxes. (a) Except as disclosed in Section 3.11 of the
Company Disclosure Letter, the Company and each of its Subsidiaries has (i)
timely filed all federal, state, local and foreign tax returns required to be
filed by any of them for tax years ended prior to the
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date of this Agreement or requests for extensions have been timely filed and any
such request shall have been granted and not expired and all such returns are
true, correct and complete, (ii) paid or accrued (in accordance with GAAP) all
material taxes other than such taxes as are being contested in good faith by the
Company or its Subsidiaries, and (iii) properly accrued (in accordance with
GAAP) in all respects all such taxes for such periods subsequent to the periods
covered by such returns, except in the case of the foregoing clauses (i), (ii)
and (iii) where any such failure would not have a Company Material Adverse
Effect.
(b) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, there are no ongoing or, to the best knowledge of the
Company, threatened, in writing, federal, state, local or foreign audits or
examinations of any Tax Return of the Company or its Subsidiaries, except where
any such audit or examination would not have a Company Material Adverse Effect.
(c) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, there are no outstanding written requests, agreements,
consents or waivers to extend the statutory period of limitations applicable to
the assessment of any material Taxes or deficiencies against the Company or any
of its Subsidiaries, and no power of attorney granted by either the Company or
any of its Subsidiaries with respect to any Taxes is currently in force.
(d) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to
any agreement providing for the allocation or sharing of Taxes.
(e) Except as disclosed in Section 3.11 of the Company
Disclosure Letter, there are no material liens for Taxes upon the assets of the
Company or any of its Subsidiaries which are not provided for in the financial
statements included in the SEC Reports or the 1996 Financial Statements, except
liens for Taxes not yet due and payable.
(f) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, excise, real
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or personal property, sales, withholding, social security, occupation, use,
service, service use, value added, license, net worth, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States
Internal Revenue Service or any taxing authority (whether domestic or foreign
including, without limitation, any state, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "Tax Return" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes.
Section 12 Real Property. The Company and the Subsidiaries, as the case
may be, have sufficient title, leaseholds or rights to real property to conduct
their respective businesses as currently conducted in all material respects.
Section 13 Intellectual Property. Except as disclosed in Section 3.13
of the Company Disclosure Letter or as disclosed in the Company SEC Documents,
and except for such claims, which individually or in the aggregate, would not
have a Company Material Adverse Effect, there are no pending or threatened
claims of which the Company or its Subsidiaries have been given written notice,
by any person against their use of any material trademarks, trade names, service
marks, service names, mark registrations, logos, assumed names and copyright
registrations, patents and all applications therefor which are owned by the
Company or its Subsidiaries and used in their respective operations as currently
conducted (collectively, the Intellectual Property"). The Company and its
Subsidiaries have such ownership of or such rights by license, lease or other
agreement to the Intellectual Property as are necessary to permit them to
conduct their respective operations as currently conducted, except where the
failure to have such rights would not have a Company Material Adverse Effect.
Section 14 Computer Software. The Company and its Subsidiaries have
such title or such rights by li-
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cense, lease or other agreement to the computer software programs (other than
off-the-shelf software) which are owned, licensed, leased or otherwise used by
the Company and its Subsidiaries and which are material to the conduct of their
respective operations as currently conducted except where the failure to have
such rights would not have a Company Material Adverse Effect.
Section 15 Information in Offer Documents. None of the information
supplied or to be supplied by the Company, or any of their officers, directors,
employees, representatives or agents for inclusion or incorporation by reference
in the Offer Documents or the Schedule 14D- 9, including any amendments or
supplements thereto, will at the respective times the Offer Documents and the
Schedule 14D-9 are filed with the SEC or first published, sent or given to the
Company's shareholders, contain any statement which, at such time and in light
of the circumstances under which it is made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not false or misleading. Notwithstanding the
foregoing, the Company does not make any representation or warranty with respect
to the information that has been supplied by Parent or the Purchaser or their
officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in any of the foregoing documents. The Schedule 14D-9
and any amendments or supplements thereto will comply in all material respects
with the applicable provisions of the Exchange Act and the rules and regulations
thereunder.
Section 16 Brokers or Finders. The Company represents, as to itself,
its Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except Bear, Stearns & Co. Inc.
("Bear, Stearns"), whose fees and expenses will be paid by the Company in
accordance with the Company's agreement with such firm, a true and complete copy
of which has heretofore been furnished to Parent or the Purchaser.
Section 17 Opinion of Financial Advisor. The Company has received the
opinion of Bear, Stearns to the
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effect that, as of the date hereof, the Offer and the Merger are fair, from a
financial point of view, to the shareholders of the Company.
Section 18 Regulatory Statements. The annual and quarterly statements
described in Section 3.18 of the Company Disclosure Letter and the statutory
balance sheets and income statements included therein present fairly the
statutory financial condition and results of operations of the Company and/or
its Subsidiaries as of the dates and for the periods indicated therein and have
been prepared in accordance with the accounting principles or practices set
forth in applicable state laws and regulations or prescribed or permitted by the
relevant state regulatory body consistently applied throughout the periods
indicated, except as expressly set forth therein and except where the failure of
such statements to so present fairly or to have been so prepared would not have
a Company Material Adverse Effect.
Section 19 Certain Contracts. Except as set forth in Section 3.19 of
the Company Disclosure Letter, neither the Company nor any of its Subsidiaries
is a party to any contract which by its terms expressly prohibits or limits its
ability, to an extent material to the business of the Company and its
Subsidiaries taken as a whole, to engage in any line of business, compete with
any person or expand the nature or geographic scope of its business.
Section 20 Investigation by the Company. In entering into this
Agreement, the Company:
(a) acknowledges that none of Parent, the Purchaser, their
Subsidiaries or any of their respective directors, officers, employees,
affiliates, agents, advisors or representatives makes any representation or
warranty, either express or implied, as to the accuracy or completeness of any
of the information provided or made available to the Company or their agents or
representatives, and
(b) agrees, to the fullest extent permitted by law, that
none of Parent, the Purchaser, their Subsidiaries or any of their respective
directors, officers, employees, shareholders, affiliates, agents, advisors or
representatives shall have any liability or re-
29
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sponsibility whatsoever to the Company on any basis (including, without
limitation, in contract or tort, under federal or state securities laws or
otherwise) based upon any information provided or made available, or statements
made, to the Company,
except that the foregoing limitations shall not (a) apply to Parent and the
Purchaser to the extent Parent and the Purchaser makes the specific
representations and warranties set forth in Article IV of this Agreement, but
always subject to the limitations and restrictions contained herein, or (b)
preclude the Company from seeking any remedy for fraud.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Parent and the Purchaser jointly and severally represent and warrant to
the Company as follows:
Section 1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation 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, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a Parent Material Adverse Effect. Parent and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a Parent Material Adverse Effect. As used in this Agreement, "Parent
Material Adverse Effect" means only any adverse change in, or effect on, the
business, financial condition, operations or results of operations of Parent and
its Subsidiaries, taken as a whole that, individually or in the aggregate,
exceeds, or is reasonably likely to exceed, $67.5 million; provided, however,
that the effects of changes that are generally applicable to (i) the
30
<PAGE> 32
healthcare or HMO industries, (ii) the United States economy, or (iii) the
United States securities markets shall be excluded from such determination. In
addition to the foregoing, the determination of the dollar value or impact of
any change or event pursuant to the preceding sentence shall be based solely on
the actual dollar value of such change or effect, on a dollar-for-dollar basis,
and shall not take into account (i) any multiplier valuation, including, without
limitation, any multiple based on earnings or other financial indicia or (ii)
any consequential damages or other consequential valuation.
Section 2 Authorization; Validity of Agreement; Necessary Action. Each
of Parent and the Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and the Purchaser of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by their Boards of Directors and no other corporate
action on the part of Parent and the Purchaser is necessary to authorize the
execution and delivery by Parent and the Purchaser of this Agreement and the
consummation by them of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and the Purchaser, as the case may be
(and assuming due and valid authorization, execution and delivery hereof by the
Company) is a valid and binding obligation of each of Parent and the Purchaser,
as the case may be, enforceable against them in accordance with its respective
terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 3 Consents and Approvals; No Violations. Except for (a) filings
pursuant to the HSR Act, (b) applicable requirements under the Exchange Act, (c)
the filing of the Certificates of Merger, (d) applicable requirements under
corporation or "blue sky" laws of various states, (e) the Insurance Regulatory
Approvals or (f) as described in this Agreement, neither the execu-
31
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tion, delivery or performance of this Agreement by Parent and the Purchaser nor
the consummation by Parent and the Purchaser of the transactions contemplated
hereby will (i) violate any provision of the Articles of Incorporation or
By-Laws of Parent or the Purchaser, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Parent or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound and which has been filed as an exhibit
to the Parent SEC Documents (as defined in Section 4.4 hereof), (iii) violate
any order, writ, judgment, injunction, decree, law, statute, rule or regulation
applicable to Parent, any of its Subsidiaries or any of their properties or
assets, or (iv) require on the part of Parent or the Purchaser any filing or
registration with, notification to, or authorization, consent or approval of,
any court, legislative, executive or regulatory authority or agency (a
"Governmental Entity"); except in the case of clauses (ii), (iii) or (iv) for
such violations, breaches or defaults which, or filings, registrations,
notifications, authorizations, consents or approvals the failure of which to
obtain, (A) would not have a Parent Material Adverse Effect and would not
materially adversely affect the ability of Parent and the Purchaser to
consummate the transactions contemplated by this Agreement, or (B) become
applicable as a result of the business or activities in which the Company is or
proposes to be engaged or as a result of any acts or omissions by, or the status
of any facts pertaining to, the Company.
Section 4 SEC Reports and Financial Statements. Parent has filed with
the SEC, and has heretofore made available to the Company true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its Subsidiaries since January 1, 1994 under the
Exchange Act or the Securities Act (as such documents have been amended since
the time of their filing, collectively, the "Parent SEC Documents"). As of their
respective dates or, if amended, as of the date of the last such amendment, the
Parent SEC Documents, including, without limitation, any financial
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statements or schedules included therein did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets (including the related notes) included in the Parent
SEC Documents fairly presents in all material respects the financial position of
Parent and its consolidated Subsidiaries as of the respective dates thereof, and
the other related statements (including the related notes) included therein
fairly present in all material respects the results of operations and cash flows
of Parent and its consolidated Subsidiaries for the respective periods or as of
the respective dates set forth therein. Each of the consolidated balance sheets
and statements of operations and cash flow (including the related notes)
included in the Parent SEC Documents has been prepared in all material respects
in accordance with GAAP applied on a consistent basis during the periods
involved, except as otherwise noted therein and subject, in the case of
unaudited interim financial statements, to normal year-end adjustments.
Section 5 Information in Offer Documents; Proxy Statement. None of the
information supplied or to be supplied by Parent or the Purchaser, or any of
their officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-9 or the
Proxy Statement, including any amendments or supplements thereto, will, in the
case of the Offer Documents and the Schedule 14D-9, at the respective times the
Offer Documents and the Schedule 14D-9 are filed with the SEC or first
published, sent or given to the Company's shareholders, or, in the case of the
Proxy Statement, at the date the Proxy Statement is first mailed to the
Company's shareholders or at the time of the Special Meeting, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
false or misleading. Notwithstanding the foregoing, Parent and the Purchaser do
not make any representation or warranty with respect to the information that has
been supplied by the Company or its officers, directors, employees,
representatives or agents for inclusion or
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incorporation by reference in any of the foregoing documents. The Offer
Documents and the Proxy Statement and any amendments or supplements thereto will
comply in all material respects with the applicable provisions of the Exchange
Act and the rules and regulations thereunder.
Section 6 Sufficient Funds. Either Parent or the Purchaser has
sufficient funds available (through existing credit arrangements or otherwise)
to purchase all of the Shares outstanding on a fully diluted basis and to pay
all fees and expenses related to the transactions contemplated by this
Agreement.
Section 7 Share Ownership. None of Parent, the Purchaser or any of
their respective "affiliates" or "associates" (as those terms are defined in
Rule 12b-2 under the Exchange Act) beneficially owns any Shares.
Section 8 Purchaser's Operations. The Purchaser was formed solely for
the purpose of engaging in the transactions contemplated hereby and has not
engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
Section 9 Brokers or Finders. Parent represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finders' fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except Goldman, Sachs & Co.,
whose fees and expenses will be paid by Parent in accordance with Parent's
agreement with such firm, a true and complete copy of which has heretofore been
furnished to the Company.
Section 10 Investigation by Parent. In entering into this Agreement,
each of Parent and the Purchaser:
(a) acknowledges that none of the Company, its Subsidiaries or
any of their respective directors, officers, employees, affiliates, agents,
advisors or representatives makes any representation or warranty, either express
or implied, as to the accuracy or completeness of any of the information
provided or made
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available to Parent, the Purchaser or their agents or representatives, and
(b) agrees, to the fullest extent permitted by law, that none
of the Company, its Subsidiaries or any of their respective directors, officers,
employees, shareholders, affiliates, agents, advisors or representatives shall
have any liability or responsibility whatsoever to Parent or the Purchaser on
any basis (including, without limitation, in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or made
available, or statements made, to Parent, except that the foregoing limitations
shall not (a) apply to the Company to the extent the Company makes the specific
representations and warranties set forth in Article III of this Agreement, but
always subject to the limitations and restrictions contained herein, or (b)
preclude Parent and the Purchaser from seeking any remedy for fraud.
ARTICLE V
COVENANTS
Section 1 Interim Operations of the Company. The Company covenants
and agrees that, except (i) as contemplated by this Agreement, (ii) as disclosed
in Section 5.1 of the Company Disclosure Letter or (iii) as agreed in writing by
Parent, after the date hereof, and prior to the time the directors of the
Purchaser have been elected to, and shall constitute a majority of, the Board of
Directors of the Company pursuant to Section 1.3 (the "Appointment Date"):
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course of business and, to the extent
consistent therewith, each of the Company and its Subsidiaries shall use its
best efforts to preserve in all material respects its business organization
intact and maintain its existing relations with customers, suppliers, employees
and business associates;
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(b) the Company will not, directly or indirectly, (i) amend
its Articles of Incorporation or By-laws or similar organizational documents; or
(ii) split, combine or reclassify the outstanding Company Common Stock or any
outstanding capital stock of any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock (other than dividends from
any Subsidiary of the Company to the Company or any other Subsidiary of the
Company); (ii) issue or sell any additional shares of, or securities convertible
into or exchangeable for, or options, warrants, calls, commitments or rights of
any kind to acquire, any shares of capital stock of any class of the Company or
its Subsidiaries, other than shares of Company Common Stock reserved for
issuance on the date hereof upon exercise of outstanding Rights pursuant to the
Rights Agreement, issuances pursuant to the exercise of Options outstanding on
the date hereof, or issuances pursuant to the Company Convertible Notes; (iii)
acquire, sell, lease or dispose of any assets in excess of $5 million, other
than in the ordinary and usual course of business; (iv) incur or modify any
material debt, other than in the ordinary and usual course of business; or (v)
redeem, purchase or otherwise acquire directly or indirectly any of its capital
stock other than redemption of the outstanding Rights pursuant to the Rights
Agreement;
(d) neither the Company nor any of its Subsidiaries shall,
except as may be required or contemplated by this Agreement or in the ordinary
and usual course of business, terminate or materially amend any of its Benefit
Plans;
(e) neither the Company nor any of its Subsidiaries shall,
except as contemplated by this Agreement, enter into, adopt or materially amend
any employee benefit plans or amend any employment or severance agreement or
(except for normal increases in the ordinary and usual course of business to
persons other than the employees listed as Tier I through Tier V on Schedule
5.4(b) hereof) increase in any manner the compensation of any employees;
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(f) neither the Company nor any of its Subsidiaries shall: (i)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the material obligations of any other
person (other than Subsidiaries of the Company), except in the ordinary and
usual course of business; (ii) make any material loans, advances or capital
contributions to, or investments in, any other person (other than to
Subsidiaries of the Company), other than in the ordinary and usual course of
business; or (iii) make capital expenditures in excess of an aggregate of $10
million for the first seven months from the date hereof or an additional $5
million thereafter;
(g) neither the Company nor any of its Subsidiaries shall
materially change any of the accounting methods used by it unless required by
GAAP or applicable law;
(h) the Company will not settle or compromise any claim
(including arbitration) or litigation involving payments by the Company in
excess of $1,000,000, individually, which are not subject to insurance
reimbursement without the prior written consent of Parent, which consent will
not be unreasonably withheld, and will consult with Parent with respect to
settlement or compromise of any claim (including arbitration) or litigation for
less than $1,000,000;
(i) the Company will not amend, modify or terminate in any
material respect its hospital contracts without the prior written consent of
Parent, which consent shall not be unreasonably withheld, and provided that
Parent shall designate a single senior officer with responsibility to provide
such consent and such officer shall respond within two business days of any such
request and the Company will consult with Parent prior to entering into any new
hospital contract or agreement; and
(j) neither the Company nor any of its Subsidiaries will
authorize or enter into an agreement to do any of the foregoing.
Section 2 Actions Regarding the Rights. The Company, in accordance
with the terms and provisions of the Rights Agreement, and as promptly as
practicable on or after the date hereof, shall take all reasonable ac-
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tions necessary to cause the (a) postponement of the Distribution Date under the
Rights Agreement as necessary to prevent this Agreement or the consummation of
any of the transactions contemplated hereby, including without limitation, the
publication or other announcement of the Offer and the consummation of the Offer
and the Merger, from resulting in (i) the distribution of separate Rights
certificates, or (ii) the occurrence of a Distribution Date, and (b) redemption
of the Rights prior to the consummation of the Offer.
Section 3 Access to Information. Upon reasonable notice, the Company
shall (and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
Parent, access, during normal business hours during the period prior to the
Appointment Date, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause each of its
Subsidiaries to) furnish promptly to the Parent (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(b) all other information concerning its business, properties and personnel as
Parent may reasonably request. After the Appointment Date the Company shall
provide Parent and such persons as Parent shall designate with all such
information, at such time, as Parent shall request. Unless otherwise required by
law and until the Appointment Date, Parent will hold any such information which
is nonpublic in confidence in accordance with the provisions of the
Confidentiality Agreement between the Company and Parent, dated as of January
31, 1997 (the "Confidentiality Agreement").
Section 4 Employee Benefits.
(a) Parent and the Purchaser agree that, effective as of the
Effective Time and for a two-year period following the Effective Time, the
Surviving Corporation and its Subsidiaries and successors shall provide those
persons who, immediately prior to the Effective Time, were employees of the
Company or its Subsidiaries ("Retained Employees") with employee plans and
programs which provide benefits that are no less favorable in the aggregate to
those provided to such Retained Employees
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immediately prior to the date hereof. As soon as reasonably practicable (and in
any event prior to consummation of the Offer) and following a review of Parent's
employee plans and programs, the Company will confirm to Parent whether it
considers Parent's employee plans and programs to be no less favorable in the
aggregate than the employee plans and programs of the Company. With respect to
such benefits, service accrued by such Retained Employees during employment with
the Company and its Subsidiaries prior to the Effective Time shall be recognized
for all purposes, except to the extent necessary to prevent duplication of
benefits.
(b) Parent and the Purchaser agree to honor, and cause the
Surviving Corporation to honor, without modification, (i) all employment and
severance agreements and arrangements, as amended through the date hereof, with
respect to employees and former employees of the Company, including, without
limitation, the Employee Agreements referred to in Section 3.8(a) hereof
(collectively, the "Severance Agreements"), and (ii) the New Severance
Arrangements (as defined below). Parent and the Purchaser acknowledge that the
transactions contemplated hereby shall constitute a "change in control" for
purposes of the Severance Agreements. Parent, the Purchaser and the Company
agree that, prior to the Effective Time, the Company shall adopt severance plans
and/or enter into severance agreements substantially as provided in Schedule
5.4(b) hereof (the "New Severance Arrangements").
(c) In the event Parent or the Purchaser or the Surviving
Corporation or any of their successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii) transfers or
conveys all or substantially all of its properties and assets to any person,
then, and in each such case, to the extent necessary to effectuate the purposes
of this Section 5.4, proper provision shall be made so that the successors and
assigns of Parent, the Purchaser or the Surviving Corporation, as the case may
be, assume the obligations set forth in this Section 5.4 and none of the actions
described in clauses (i) or (ii) shall be taken until such provision is made.
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(d) As soon as practicable following the Effective Time (but
in no event later than 30 days following the Effective Time) Parent shall take
any and all action necessary and appropriate to grant options ("Parent Options")
to purchase 200,000 shares of Parent Common Stock to persons who were employees
of the Company immediately prior to the Effective Time. Each Parent Option shall
have (i) an exercise price equal to the closing price of the Parent Common Stock
on the New York Stock Exchange as of the date of grant and (ii) a term of ten
years. The allocation to individual employees of the Parent Options shall be
made solely by Parent after reasonable consultation with the individual serving
as CEO of the Company on the date hereof (the "Company CEO"). The Company CEO
shall not be eligible to receive any Parent Options. All other terms and
conditions of Parent Options shall be determined by Parent after reasonable
consultation with the Company CEO; provided, that such options shall be issued
under Parent's existing option plans with terms and conditions customary for
grants to similarly situated employees.
Section 5 No Solicitation. (a) The Company and its Subsidiaries will
not, and will use their best efforts to cause their respective officers,
directors, employees and investment bankers, attorneys or other agents retained
by or acting on behalf of the Company or any of its Subsidiaries not to, (i)
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal that constitutes or is reasonably likely to lead to any
Acquisition Proposal (as defined in Section 5.5(c) hereof), (ii) except as
permitted below, engage in negotiations or discussions with, or furnish any
information or data to any third party relating to an Acquisition Proposal, or
(iii) except as permitted below, enter into any agreement with respect to any
Acquisition Proposal or approve any Acquisition Proposal. Notwithstanding
anything to the contrary contained in this Section 5.5 or in any other provision
of this Agreement, the Company and its Board of Directors (i) may participate in
discussions or negotiations (including, as a part thereof, making any
counterproposal) with or furnish information to any third party making an
unsolicited Acquisition Proposal (a "Potential Acquiror") or approve an
unsolicited Acquisition Proposal if the Company's Board of Directors is advised
by its financial advisor that such Potential Acquiror has the financial
wherewith-
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al to be reasonably capable of consummating such an Acquisition Proposal, and
either (A) the Board determines in good faith, after receiving advice from its
financial advisor, that such third party has submitted to the Company an
Acquisition Proposal which is a Superior Proposal, or (B) the Board determines
in good faith, based upon advice of its outside legal counsel, that the failure
to participate in such discussions or negotiations or to furnish such
information or approve an Acquisition Proposal would violate the Board's
fiduciary duties under applicable law, and (ii) shall be permitted to (X) take
and disclose to the Company's shareholders a position with respect to any tender
or exchange offer by a third party, or amend or withdraw such position, pursuant
to Rules 14d-9 and 14e-2 of the Exchange Act or (Y) make disclosure to the
Company's shareholders, in the case of clause (X) or clause (Y) either (1) with
respect to or as result of a Superior Proposal, or (2) if the Company's Board of
Directors determines in good faith, based upon advice of its outside legal
counsel, that the failure to take such action would violate such Board's
fiduciary duties under, or otherwise violate, applicable law. The Company agrees
that any non-public information furnished to a Potential Acquiror will be
pursuant to a confidentiality agreement substantially similar to the
confidentiality provisions of the confidentiality agreement entered into between
the Company and Parent. In the event that the Company shall determine to provide
any information as described above, or shall receive any Acquisition Proposal,
it shall promptly inform Parent in writing as to the fact that information is to
be provided and shall furnish to Parent the identity of the recipient of such
information and/or the Potential Acquiror and the terms of such Acquisition
Proposal, except to the extent that the Board determines in good faith, based
upon advice of its outside legal counsel, that any such action described in this
sentence would violate such Board's fiduciary duties under, or otherwise
violate, applicable law. The Company will keep Parent reasonably informed of the
status (including amendments or proposed amendments) of any such Acquisition
Proposal except to the extent that the Board determines in good faith, based
upon advice of its outside legal counsel, that any such action would violate
such Board's fiduciary duties under, or otherwise violate, applicable law.
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(b) The Board of Directors of the Company shall not (i)
withdraw or modify or propose to withdraw or modify, in any manner adverse to
Parent, the approval or recommendation of such Board of Directors of this
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal unless, in each case, (A) the
Board determines in good faith, after receiving advice from its financial
advisor, that such Acquisition Proposal is a Superior Proposal or (B) the Board
determines in good faith, based upon advice of its outside legal counsel, that
the failure to take such action would violate Board's fiduciary duties under
applicable law.
(c) For purposes of this Agreement, "Acquisition Proposal"
shall mean any bona fide proposal, whether in writing or otherwise, made by a
third party to acquire beneficial ownership (as defined under Rule 13(d) of the
Exchange Act) of all or a material portion of the assets of, or any material
equity interest in, the Company or its material Subsidiaries pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer or exchange offer or similar transaction
involving the Company or its material Subsidiaries including, without
limitation, any single or multi-step transaction or series of related
transactions which is structured to permit such third party to acquire
beneficial ownership of any material portion of the assets of, or any material
portion of the equity interest in, the Company or its material Subsidiaries
(other than the transactions contemplated by this Agreement).
(d) The term "Superior Proposal" means any bona fide proposal
to acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than a majority of the Shares then outstanding or all or
substantially all the assets of the Company, and otherwise on terms which the
Board of Directors of the Company determines in good faith to be more favorable
to the Company and its shareholders than the Offer and the Merger (based on
advice of the Company's financial advisor that the value of the consideration
provided for in such proposal is superior to the value of the consideration
provided for in the Offer and the Merger), for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
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the Board of Directors, after receiving advice from its financial advisor, is
reasonably capable of being financed by such third party.
Section 6 Publicity. The initial press releases with respect to the
execution of this Agreement shall be acceptable to Parent and the Company.
Thereafter, so long as this Agreement is in effect, neither the Company, Parent
nor any of their respective affiliates shall issue or cause the publication of
any press release with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by any listing agreement with a
national securities exchange.
Section 7 Directors' and Officers' Insurance and Indemnification.
(a) From and after the consummation of the Offer, Parent shall, and shall cause
the Company (or the Surviving Corporation if after the Effective Time) to,
indemnify, defend and hold harmless any person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, an
officer, director, employee and agent (the "Indemnified Party") of the Company
and its Subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorney's fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "Claim") to the extent that any
such Claim is based on, or arises out of, (i) the fact that such person is or
was a director, officer, employee or agent of the Company or any Subsidiaries or
is or was serving at the request of the Company or any of its Subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (ii) this Agreement, or any of the
transactions contemplated hereby, in each case to the extent that any such Claim
pertains to any matter or fact arising, existing, or occurring prior to or at
the Effective Time, regardless of whether such Claim is asserted or claimed
prior to, at or after the Effective Time, to the full extent permitted under New
Hampshire law or the Company's Articles of Incorporation, By-laws or
indemnification agreements in effect at the date hereof, including provisions
relating to advancement of expenses incurred in the defense of any action or
suit. Without limiting the foregoing, in the event any Indemnified Party becomes
involved in any capacity in any Claim, then from and after consummation
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of the Offer Parent shall, or shall cause the Company (or the Surviving
Corporation if after the Effective Time) to, periodically advance to such
Indemnified Party its legal and other expenses (including the cost of any
investigation and preparation incurred in connection therewith), subject to the
provision by such Indemnified Party of an undertaking to reimburse the amounts
so advanced in the event of a final non-appealable determination by a court of
competent jurisdiction that such Indemnified Party is not entitled thereto.
(b) Parent and the Company agree that all rights to
indemnification and all limitations or liability existing in favor of the
Indemnified Party as provided in the Company's Articles of Incorporation and
By-laws as in effect as of the date hereof shall survive the Merger and shall
continue in full force and effect, without any amendment thereto, for a period
of six years from the Effective Time to the extent such rights are consistent
with the NHBCA; provided, that, in the event any claim or claims are asserted or
made within such six year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims; provided, further, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under New Hampshire law, the Company's Articles of Incorporation or
By-laws or such agreements, as the case may be, shall be made by independent
legal counsel selected by the Indemnified Party and reasonably acceptable to
Parent and; provided, further, that nothing in this Section 5.7 shall impair any
rights or obligations of any present or former directors or officers of the
Company.
(c) In the event Parent or the Purchaser or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 5.7, proper
provision shall be made so that the successors and assigns of Parent and the
Purchaser assume the obligations set forth in this Section 5.7 and none of the
ac-
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tions described in clauses (i) or (ii) shall be taken until such provision is
made.
(d) Parent or the Surviving Corporation shall maintain the
Company's existing officers' and directors' liability insurance policy ("D&O
Insurance") for a period of not less than six years after the Effective Date;
provided, that the Parent may substitute therefor policies of substantially
similar coverage and amounts containing terms no less advantageous to such
former directors or officers.
Section 8 Approvals and Consents; Cooperation; Notification.
(a) The parties hereto shall use their respective best efforts, and cooperate
with each other, to obtain as promptly as practicable all governmental and third
party authorizations, approvals, consents or waivers, including, without
limitation, pursuant to the HSR Act and with respect to the Insurance Regulatory
Approvals, required in order to consummate the transactions contemplated by this
Agreement, including, without limitation, the Offer and the Merger.
(b) The Company, Parent and the Purchaser shall take all
actions necessary to file as soon as practicable all notifications, filings and
other documents required to obtain all governmental authorizations, approvals,
consents or waivers, including, without limitation, under the HSR Act and with
respect to the Insurance Regulatory Approvals, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice and any other Governmental
Entity for additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection therewith.
(c) The Company shall give prompt notice to Parent of the
occurrence of any Company Material Adverse Effect. Each of the Company and
Parent shall give prompt notice to the other of the occurrence or failure to
occur of an event that would, or, with the lapse of time would cause any
condition to the consummation of the Offer or the Merger not to be satisfied.
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Section 9 Further Assurances. Each of the parties hereto agrees to
use their respective best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, the
Offer and the Merger, which efforts shall include, without limitation, (a)
Parent and the Purchaser proffering their willingness to accept an order or
orders providing for the divestiture by Parent and the Purchaser of such of the
Company's assets and businesses (or, in lieu thereof, approximately equivalent
assets and businesses of Parent and the Purchaser) which do not represent in the
aggregate assets with a fair market value greater than $67.5 million as are
necessary to permit Parent and the Purchaser otherwise fully to consummate the
Offer and the Merger and the transactions contemplated hereby, including an
offer to hold separate such assets and businesses pending any such divestiture
or pending the receipt of any required regulatory approvals, (b) Parent and the
Purchaser using their best efforts to prevent any preliminary or permanent
injunction or other order by a court of competent jurisdiction or Governmental
Entity relating to consummating the transactions contemplated by this Agreement,
including, without limitation, under the antitrust laws and with respect to the
Insurance Regulatory Approvals, and, if issued, to appeal any such injunction or
order through the appellate court or body for the relevant jurisdiction,
provided that Parent shall not be obligated to continue pursuing any particular
litigation or action following the issuance of any preliminary injunction with
respect thereto and (c) Parent and the Purchaser using their best efforts to
satisfy any objections of, and accept any conditions imposed by, any
Governmental Entity in connection with any Insurance Regulatory Approval, except
where such objection or condition would result in costs or liabilities to the
Company and Parent, taken together (and aggregated with any loss incurred in
connection with a disposition of assets pursuant to clause (a) above at less
than fair market value), in excess of $67.5 million; provided, however, that
notwithstanding the foregoing, during the sixty day period following the date
hereof, Parent and Purchaser shall only be obligated to use commercially
reasonable efforts to obtain all Insurance Regulatory Approvals. If at any time
after the Effective Time any
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further action is necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall take or cause to be taken all such necessary
action, including, without limitation, the execution and delivery of such
further instruments and documents as may be reasonably requested by the other
party for such purposes or otherwise to consummate and make effective the
transactions contemplated hereby. Parent agrees to file all applications on Form
A (or equivalent form) necessary to obtain the Insurance Regulatory Approvals
within 12 business days of the date hereof.
Section 10 Taxes. With respect to any Taxes, the Company shall not
(i) make any material tax election or (ii) settle or compromise any material
income tax liability (whether with respect to amount or timing), in each case
without the prior written consent of Parent which consent shall not be
unreasonably withheld.
Section 11 Compliance with Security Takeover Disclosure Act. As soon
as practicable following the commencement of the Offer, Parent and Purchaser
shall, to the extent required by law, (i) file with the Director of the Office
of Securities Regulation (the "Director") of the State of New Hampshire a
registration statement (the "Registration Statement") in accordance with, and
containing the information required by, Section 421-A:4 of the New Hampshire
Security Takeover Disclosure Act (the "Takeover Disclosure Act"), and (ii)
comply with all other requirements of the Takeover Disclosure Act. None of the
information supplied or to be supplied by Parent or the Purchaser, or any of
their officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in the Registration Statement will, at the time its
is filed with the Director, contain any statement which, at such time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein not false or misleading. Notwithstanding
the foregoing, Parent and the Purchaser do not make any representation or
warranty with respect to the information that has been supplied by the Company
or its officers, directors, employees, representatives or agents for inclusion
or incorporation by reference in the Registration Statement.
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Section 12 1996 Form 10-K. The Company will periodically provide
Parent with current draft versions of the Company's Annual Report on Form 10-K
including documents incorporated therein by reference, for the year ended
December 31, 1996.
Section 13 Shareholder Litigation. The Company and Parent agree that
in connection with any litigation which may be brought against the Company or
its directors relating to the transactions contemplated hereby, the Company will
keep Parent, and any counsel which Parent may retain at its own expense,
informed of the course of such litigation, to the extent Parent is not otherwise
a party thereto, and the Company agrees that it will consult with Parent prior
to entering into any settlement or compromise of any such shareholder
litigation; provided, that, no such settlement or compromise will be entered
into involving the payment of money in excess of $1 million (to the extent not
subject to insurance reimbursement) without Parent's prior written consent,
which consent shall not be unreasonably withheld.
ARTICLE VI
CONDITIONS
Section 1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the holders of Company Common Stock, if required by applicable
law and the Articles of Incorporation;
(b) any waiting period applicable to the Merger under the HSR
Act shall have expired or been terminated;
(c) all Insurance Regulatory Approvals shall have been
obtained, except where the failure to have obtained any such approvals would not
have a Company Material Adverse Effect;
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<PAGE> 50
(d) no statute, rule, regulation, order, decree or injunction
shall have been enacted, promulgated or issued by any Governmental Entity or
court which prohibits the consummation of the Merger; and
(e) Parent, the Purchaser or their affiliates shall have
purchased shares of Company Common Stock pursuant to the Offer.
Section 2 Conditions to the Obligations of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of Parent and the
Purchaser shall be true and accurate as of the Effective Time as if made at and
as of such time (except for those representations and warranties that address
matters only as of a particular date or only with respect to a specific period
of time which need only be true and accurate as of such date or with respect to
such period), except where the failure of such representations and warranties to
be so true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) would not have a
Parent Material Adverse Effect; and
(b) each of Parent and the Purchaser shall have performed in
all material respects all of the respective obligations hereunder required to be
performed by Parent or the Purchaser, as the case may be, at or prior to the
Effective Time.
Section 3 Conditions to the Obligations of Parent and the Purchaser
to Effect the Merger. The obligations of Parent and the Purchaser to effect the
Merger shall be further subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) the representations and warranties of the Company shall be true
and accurate as of the Effective Time as if made at and as of such time (except
for those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and accurate as of such date or with respect to such period),
except
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<PAGE> 51
where the failure of such representations and warranties to be so true and
accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein), would not have a Company Material
Adverse Effect; and
(b) the Company shall have performed in all material respects
all of the respective obligations hereunder required to be performed by the
Company, at or prior to the Effective Time.
Section 4 Exception. The conditions set forth in Section 6.3 hereof
shall cease to be conditions to the obligations of the parties if the Purchaser
shall have accepted for payment and paid for Shares validly tendered pursuant to
the Offer, provided that the terms of this exception will be deemed satisfied if
the Purchaser fails to accept for payment any Shares pursuant to the Offer in
violation of the terms thereof.
ARTICLE VII
TERMINATION
Section 1 Termination. This Agreement may be terminated and the
Merger contemplated herein may be abandoned at any time prior to the Effective
Time, whether before or after shareholder approval thereof:
(a) By the mutual consent of Parent, the Purchaser and the
Company.
(b) By either of the Company, on the one hand, or Parent and
the Purchaser, on the other hand:
(i) if shares of Company Common Stock shall not have
been purchased pursuant to the Offer on or prior to seven months from the
execution of this Agreement; provided, however, the Company may, in its
sole discretion, extend such termination date for up to an additional 60
days in the event that the Insurance Regulatory Approvals shall not have
been obtained by the end of such initial seven month period and provided
that, at the end of such seven month period, no Company Material Adverse
Effect shall have occurred and be continuing; provid-
50
<PAGE> 52
ed, further, that the right to terminate this Agreement under this Section
7.1(b)(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of Parent or the Purchaser, as the case may be, to purchase shares
of Company Common Stock pursuant to the Offer on or prior to such date; or
(ii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use their respective best
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement or
prohibiting Parent to acquire or hold or exercise rights of ownership of
the Shares except such prohibitions which would not have a Company
Material Adverse Effect, and such order, decree, ruling or other action
shall have become final and non-appealable.
(c) By the Company:
(i) if, prior to the purchase of shares of Company
Common Stock pursuant to the Offer, either (A) a third party shall have
made an Acquisition Proposal that the Board of Directors of the Company
determines in good faith, after consultation with its financial advisor,
is a Superior Proposal, or (B) the Board of Directors of the Company shall
have withdrawn, or modified or changed in a manner adverse to Parent or
the Purchaser its approval or recommendation of the Offer, this Agreement
or the Merger (or the Board of Directors of the Company resolves to do any
of the foregoing); or
(ii) if Parent or the Purchaser shall have terminated
the Offer, or the Offer shall have expired, without Parent or the
Purchaser, as the case may be, purchasing any shares of Company Common
Stock pursuant thereto; provided that the Company may not terminate this
Agreement pursuant to this Section 7.1(c)(ii) if the Company is in willful
breach of this Agreement; or
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<PAGE> 53
(iii) if, due to an occurrence that if occurring after
the commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Parent, the Purchaser or any
of their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement
of the Offer; provided, that the Company may not terminate this Agreement
pursuant to this Section 7.1(c)(iii) if the Company is in willful breach
of this Agreement.
(d) By Parent and the Purchaser:
(i) if, prior to the purchase of shares of Company
Common Stock pursuant to the Offer, the Board of Directors of the Company
shall have withdrawn, modified or changed in a manner adverse to Parent or
the Purchaser its approval or recommendation of the Offer, this Agreement
or the Merger or shall have recommended an Acquisition Proposal or shall
have executed an agreement in principle or definitive agreement relating
to an Acquisition Proposal or similar business combination with a person
or entity other than Parent, the Purchaser or their affiliates (or the
Board of Directors of the Company resolves to do any of the foregoing); or
(ii) if, due to an occurrence that if occurring after
the commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Parent, the Purchaser, or any
of their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement
of the Offer; provided that Parent may not terminate this Agreement
pursuant to this Section 7.1(d)(ii) if Parent or the Purchaser is in
willful breach of this Agreement.
Section 2 Effect of Termination. (a) In the event of the termination
of this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void,
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<PAGE> 54
and there shall be no liability on the part of Parent, the Purchaser or the
Company or their respective directors, officers, employees, shareholders,
representatives, agents or advisors other than, with respect to Parent, the
Purchaser and the Company, the obligations pursuant to this Section 7.2,
Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13 and
the last sentence of Section 5.3. Nothing contained in this Section 7.2 shall
relieve Parent, the Purchaser or the Company from liability for willful breach
of this Agreement.
(b) In the event that this Agreement is terminated by the Company
pursuant to Section 7.1(c)(i) hereof or by Parent and the Purchaser pursuant to
Section 7.1(d)(i) hereof, the Company shall pay to Parent by certified check or
wire transfer to an account designated by Parent immediately following receipt
of a request therefor, an amount equal to $45 million (the "Termination Fee").
In addition, the Company shall pay Parent the Termination Fee if this Agreement
is terminated for any reason (other than as a result of a material breach by
Parent or the Purchaser that resulted in the termination of this Agreement, or a
willful breach by Parent or the Purchaser of their obligations hereunder) at any
time after an Acquisition Proposal has been made by a third party (a "Third
Party Acquiror") and, within one year after such a termination, the Company
completes either (x) a merger, consolidation or other business combination with
any such Third Party Acquiror (or another party who makes an Acquisition
Proposal at a time when the Company is in discussions with any such Third Party
Acquiror), or (y) the sale of 50% or more (in voting power) of the voting
securities of the Company or of 40% or more (in market value) of the assets of
the Company and its Subsidiaries, on a consolidated basis to any such Third
Party Acquiror (or another party who makes an Acquisition Proposal at a time
when the Company is in discussions with any such Third Party Acquiror).
ARTICLE VIII
MISCELLANEOUS
Section 1 Amendment and Modification. Subject to applicable law,
this Agreement may be amended,
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<PAGE> 55
modified and supplemented in any and all respects, whether before or after any
vote of the shareholders of the Company contemplated hereby, by written
agreement of the parties hereto, by action taken by their respective Boards of
Directors (which in the case of the Company shall include approvals as
contemplated in Section 1.3(b)), at any time prior to the Closing Date with
respect to any of the terms contained herein; provided, however, that after the
approval of this Agreement by the shareholders of the Company, no such
amendment, modification or supplement shall reduce or change the Merger
Consideration or adversely affect the rights of the Company's shareholders
hereunder without the approval of such shareholders.
Section 2 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time or the termination of this Agreement. This Section 8.2 shall not
limit any covenant or agreement contained in this Agreement which by its terms
contemplates performance after the Effective Time.
Section 3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
CIGNA Corporation
One Liberty Place
1650 Market Street
Philadelphia, PA 19192-1520
Telephone No.: (215) 761-6041
Telecopy No.: (215) 761-3399
Attention: Robert L. Rose
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<PAGE> 56
with a copy to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
New York, New York 10022
Telephone No.: (212) 326-2000
Telecopy No.: (212) 326-2061
Attention: C. Douglas Kranwinkle, Esq.
(b) if to the Company, to:
Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
Telephone No.: (603) 268-7000
Telecopy No.: (603) 268-7905
Attention: Norman C. Payson, M.D.
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom LLP
919 Third Avenue
New York, New York 10022
Telephone No.: (212) 735-2322
Telecopy No.: (212) 735-2000
Attention: Paul T. Schnell, Esq.
Section 4 Interpretation. The words "hereof", "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include", "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation". The 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. The phrase "to the best
knowledge of" or any similar phrase shall mean such facts and other information
which as of the date of determination are actually known to any vice president,
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<PAGE> 57
chief financial officer, general counsel, chief compliance officer, controller,
and any officer superior to any of the foregoing, of the referenced party after
the conduct of a reasonable investigation under the circumstances by such
officer. The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to February 27, 1997. As used in
this Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule
l2b-2 of the Exchange Act. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
Section 5 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 6 Entire Agreement; Third Party Beneficiaries. This
Agreement, the Tender Agreement and Irrevocable Proxy and the Confidentiality
Agreement (including the documents and the instruments referred to herein and
therein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Sections
2.4, 5.4 and 5.7, are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 7 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain
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<PAGE> 58
in full force and effect and shall in no way be affected, impaired or
invalidated.
Section 8 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York (other than the
provisions relating to the mechanics of the Merger, and other than the duties
and obligations of directors and officers of the Company, including without
limitation, the provisions of Section 5.5 and 5.7, which shall be governed by
New Hampshire law) without giving effect to the principles of conflicts of law
thereof or of any other jurisdiction.
Section 9 Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, each
non-breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties hereto
(a) will waive, in any action for specific performance, the defense of adequacy
of a remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in a court of competent jurisdiction.
Section 10 Assignment. 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
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
Section 11 Expenses. Except as set forth in Section 7.2 hereof, all
costs and expenses incurred in connection with the Offer, the Merger, this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Offer or
the Merger is consummated.
Section 12 Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
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<PAGE> 59
Section 13 Waivers. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant,
agreement or condition herein may be waived by the party or parties entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Section 14 Schedules. The Company Disclosure Letter shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein. Any matter disclosed pursuant to
the Company Disclosure Letter shall be deemed to be disclosed for all purposes
under this Agreement but such disclosure shall not be deemed to be an admission
or representation as to the materiality of the item so disclosed.
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<PAGE> 60
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
HEALTHSOURCE, INC.
By:/s/ Norman C. Payson
----------------------------------------------
Name: Norman C. Payson
Title: President and Chief
Executive Officer
CIGNA CORPORATION
By:/s/ Robert L. Rose
----------------------------------------------
Name: Robert L. Rose
Title: Vice President
Strategic Growth &
Development
CHC ACQUISITION CORP.
By:/s/ Robert L. Rose
----------------------------------------------
Name: Robert L. Rose
Title: President
59
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ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the
provisions of the Merger Agreement, the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate the Offer and not accept for payment any tendered
Shares if (i) any applicable waiting period under the HSR Act has not expired or
been terminated prior to the expiration of the Offer, (ii) any Insurance
Regulatory Approvals or any other material consent, approval, or authorization
required under Federal or any State law required to consummate the Offer have
not been obtained, except where the failure to have obtained any such approvals,
consents, authorizations or Insurance Regulatory Approvals would not have a
Company Material Adverse Effect and would not result in a violation of law,
(iii) the Minimum Condition has not been satisfied, or (iv) at any time on or
after February 26, 1997, and before the time of acceptance of Shares for payment
pursuant to the Offer, any of the following events shall occur:
(a) there shall have been any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted or issued
applicable to the Offer or the Merger by any federal or state governmental
regulatory or administrative agency or authority or court or legislative body or
commission which (1) prohibits the consummation of the Offer or the Merger, (2)
prohibits, or imposes any material limitations on, Parent's or the Purchaser's
ownership or operation of all or a material portion of the Company's businesses
or assets or the Shares, except for such prohibitions or limitations which would
not have a Company Material Adverse Effect, (3) prohibits, or makes illegal the
acceptance for payment, payment for or purchase of Shares or the consummation of
the Offer, or (4) renders the Purchaser unable to accept for payment, pay for or
purchase a material portion or all of the Shares; provided, that the parties
shall have used their best efforts to cause any such statute,
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rule, regulation, judgment, order or injunction to be vacated or lifted;
(b) the representations and warranties of the Company set
forth in the Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for those
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time which need only be true and
accurate as of such date or with respect to such period) or the Company shall
have breached or failed to perform or comply with any obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with by it
except, in each case where the failure of such representations and warranties to
be true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein), or the
performance or compliance with such obligations, agreements or covenants, do
not, individually or in the aggregate, have a Company Material Adverse Effect;
(c) the Merger Agreement shall have been terminated in
accordance with its terms;
(d) it shall have been publicly disclosed that any person,
entity or "group" (as defined in Section 13(d)(3) of the Exchange Act), shall
have acquired beneficial ownership (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 30% of the then outstanding
Shares, through the acquisition of stock, the formation of a group or otherwise;
(e) the Board of Directors of the Company shall have
withdrawn, modified or changed in a manner adverse to Parent or the Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended an Acquisition Proposal or shall have executed an
agreement in principle or definitive agreement relating to an Acquisition
Proposal or similar business combination with a person or entity other than
Parent, the Purchaser or their affiliates or the Board of Directors of the
Company shall have adopted a resolution to do any of the foregoing; or
(f) there shall have occurred (i) any general suspension of
trading in securities on any national securities exchange or in the
over-the-counter market, (ii) the declaration of a banking moratorium or any
suspension of
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payments in respect of banks in the United States (whether or not mandatory), or
(iii) any limitation (whether or not mandatory) by an United States governmental
authority or agency on the extension of credit by banks or other financial
institutions
which in the reasonable judgment of Parent or the Purchaser, in any such case,
and regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of the Purchaser
and Parent and, subject to the Merger Agreement, may be asserted by either of
them or may be waived by Parent or the Purchaser, in whole or in part at any
time and from time to time in the sole discretion of Parent or the Purchaser.
The failure by Parent or the Purchaser at any time to exercise any such rights
shall not be deemed a waiver of any right and each right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
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Schedule 5.4(b)
- - Severance Agreements with Company Officers
- Benefits to be paid if employment is terminated by officer for "good
reason" or by Parent or the Company without "cause", in either case,
within two years of the consummation of the Offer. Benefits to be
paid to the tier I officer concurrently with consummation of the
Offer.
- Lump sum severance benefits for the number of of-
ficers identified in this paragraph will be equal
to a multiple of salary and maximum bonus. The
multiple shall be: 3 with respect to the tier I
officer identified to Parent by the Company (pro-
vided that such lump sum severance benefit of 3
times salary plus bonus shall not exceed $2.5 mil-
lion for such tier I officer) and the 2 tier II
officers identified to Parent by the Company; 2
with respect to the 5 tier III officers identified
to Parent by the Company; 1.5 with respect to the 4
tier IV officers identified to Parent by the Compa-
ny; and 1 with respect to the 17 tier V officers
identified to Parent by the Company.
- Severance benefit also to include (1) pro rata
target bonus for the year employment terminates,
(2) continuation of medical and other welfare bene-
fits for a period of years equal to the applicable
multiple, (3) office and secretarial services for
the same period, (4) outplacement and financial
planning services for 12 months following a termi-
nation (outplacement services to be consistent with
those provided under Parent's severance plan as in
effect on the date hereof), (5) a 280G "gross up"
payment for any such officer subject to such provi-
sion (including the tier I officer) and (6) reason-
able legal fees and other expenses incurred in en-
forcing the agreement or in connection with any tax
audit or proceeding to the extent attributable to
the application of Section 4999 of the Code.
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- - Severance Plan for All Other Company Employees
- Benefits to be paid if employment is terminated by employee for
"good reason" or by Parent or the Company without "cause", in either
case, within eighteen months of the consummation of the Offer.
- Severance benefit to be equal to the benefit provided under the
applicable Company Severance Plan (as in effect on the date hereof)
or, if greater, under any agreement entered into between the Company
and such individual prior to the date hereof, provided however that
in no event shall the severance benefit exceed 18 months of base
salary.
- Severance benefit also to include (1) pro rata target bonus for the
year employment terminates and (2) continuation of medical and other
welfare benefits for a number of weeks equal to the period during
which severance is paid.
- - Definitions
- "Cause" shall mean (i) the commission of any fraud
or embezzlement against the Company, (ii) the will-
ful and continued refusal to perform duties or
willful and continued refusal to comply with direc-
tives of superiors, in each case after the
employee's failure to cure such conduct within 10
days after receiving written notice from the Compa-
ny, (iii) the conviction of a felony and (iv) an
order by, or an agreement by an employee with, an
appropriate governmental health care regulatory
agency removing or otherwise disqualifying an em-
ployee from employment with the Company or any of
its affiliates.
- "Good Reason" shall mean (i) any reduction in total
compensation, including incentive compensation
opportunity, (ii) relocation of place of employment
to a location more than 35 miles from each of the
employee's existing place of employment and the
employee's primary residence or (iii) (A) in the
case of the tier II officers, any adverse change in
duties, responsibilities, authority, title or of-
fice and (B) in the case of tier III, tier IV and
tier V officers, any material adverse change to
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title or office or material diminution of duties, responsibilities
or authority. Notwithstanding the foregoing, Good Reason shall not
include a reduction from regional responsibility to serving as CEO
of the individual's principal HMO with respect to the Senior Vice
Presidents of the Company identified to Parent by the Company.
6
<PAGE> 1
TENDER AGREEMENT AND IRREVOCABLE PROXY
THIS TENDER AGREEMENT AND IRREVOCABLE PROXY dated as of February
27, 1997 (this "Agreement") is by and among CIGNA CORPORATION, a Delaware
corporation ("PARENT"), CHC ACQUISITION CORP., a New Hampshire corporation and a
wholly owned subsidiary of Parent ("PURCHASER"), and DR. NORMAN PAYSON
("SHAREHOLDER").
WITNESSETH:
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Purchaser and Healthsource, Inc., a New Hampshire corporation (the
"COMPANY"), have entered into an Agreement and Plan of Merger (as amended from
time to time, the "MERGER AGREEMENT"), pursuant to which Purchaser has agreed,
among other things, to commence a cash tender offer (as such tender offer may
hereafter be amended from time to time, the "OFFER") to purchase any and all
shares of common stock, $0.10 par value, of the Company (the "COMPANY COMMON
STOCK");
WHEREAS, as of the date hereof, Shareholder is the record and
beneficial owner of, and has the sole right to vote and dispose of, the number
of shares of Company Common Stock set forth on the signature page hereto;
WHEREAS, as an inducement and a condition to its entering into the
Merger Agreement and incurring the obligations set forth therein, including the
Offer and the Merger, Parent has required that Shareholder enter into this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained herein
and in the Merger Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement. In
addition, for purposes of this Agreement:
"AFFILIATE" means, with respect to any specified Person, any
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified. For purposes of this Agreement, with respect to Shareholder,
"AFFILIATE" shall not include the Company and the Persons that directly, or
indirectly through one or more intermediaries, are controlled by the Company.
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any
securities means having "BENEFICIAL OWNERSHIP" of such securities (as determined
pursuant to Rule 13d-3 under the Exchange Act ), including pursuant to any
agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same
<PAGE> 2
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all Affiliates of such Person and all other Persons with
whom such Person would constitute a "GROUP" within the meaning of Section 13(d)
of the Exchange Act and the rules promulgated thereunder.
"OWNED SHARES" means the shares of Company Common Stock owned by
Shareholder on the date hereof, together with any other shares of Company Common
Stock, or any other securities of the Company entitled, or which may be
entitled, to vote generally in the election of directors and any other shares of
Company Common Stock or such other securities which may hereafter be owned by
Shareholder.
"PERSON" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"REPRESENTATIVE" means, with respect to any Person, such Person's
officers, directors, employees, agents and representatives (including any
investment banker, financial advisor, agent, representative or expert retained
by or acting on behalf of such Person or its subsidiaries).
"TRANSFER" means, with respect to a security, the sale, transfer,
pledge, hypothecation, encumbrance, assignment or disposition of such security
or the Beneficial Ownership thereof, the offer to make such a sale, transfer or
other disposition, and each option, agreement, arrangement or understanding,
whether or not in writing, to effect any of the foregoing. As a verb, "TRANSFER"
shall have a correlative meaning.
2. Tender of Shares. Shareholder hereby agrees to tender (or
cause the record owner thereof), pursuant to and in accordance with the terms of
the Offer, all Owned Shares. Shareholder hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for shares of
Company Common Stock in the Offer, including any Owned Shares tendered by
Shareholder, is subject to the terms and conditions of the Offer. The parties
agree that Shareholder will, for all Owned Shares tendered by Shareholder in the
Offer and accepted for payment by Purchaser, receive a price per Owned Share
equal to $21.75, or such higher per share consideration paid to other
shareholders who have tendered into the Offer.
3. Voting of Owned Shares; Proxy. (a) Shareholder hereby agrees
that during the period commencing on the date hereof and continuing until the
earlier of (x) the consummation of the Offer and (y) the termination of this
Agreement (such period being referred to as the "VOTING PERIOD"), at any meeting
(whether annual or special, and whether or not an adjourned or postponed
meeting) of the Company's shareholders, however called, or in connection with
any written consent of the Company's shareholders, subject to the absence of a
preliminary or permanent injunction or other requirement under applicable law by
any United States federal, state or foreign court barring such action,
Shareholder shall vote (or cause to be voted) all Owned Shares: (i) in favor of
the Merger, the execution and delivery by the Company of the Merger Agreement
and the approval and adoption of the Merger and the terms
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<PAGE> 3
thereof and each of the other actions contemplated by the Merger Agreement and
this Agreement and any actions required in furtherance thereof and hereof; (ii)
against any action or agreement that would impede, interfere with, or prevent
the Offer or the Merger; and (iii) except as otherwise agreed to in writing in
advance by Parent, against the following actions (other than the Offer, the
Merger and the transactions contemplated by the Merger Agreement and this
Agreement): (I) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or any of its
subsidiaries (including any transaction contemplated by an Acquisition
Proposal); (II) any sale, lease or transfer of a material amount of the assets
or business of the Company or its subsidiaries, or any reorganization,
restructuring, recapitalization, special dividend, dissolution, liquidation or
winding up of the Company or its subsidiaries; and (III) any change in the
present capitalization of the Company including any proposal to sell any
material equity interest in the Company or any amendment of the Articles of
Incorporation of the Company. Shareholder shall not enter into any agreement,
arrangement or understanding with any Person the effect of which would be
inconsistent or violative of the provisions and agreements contained in this
Section 3(a).
(b) IRREVOCABLE PROXY. SHAREHOLDER HEREBY GRANTS TO, AND APPOINTS
PURCHASER AND ANY DESIGNEE OF PURCHASER, EACH OF THEM INDIVIDUALLY,
SHAREHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND
ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE OWNED SHARES OF
SHAREHOLDER AS INDICATED IN SECTION 3(a) ABOVE. SHAREHOLDER INTENDS THIS PROXY
TO BE IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) AND COUPLED WITH AN
INTEREST AND WILL TAKE SUCH FURTHER ACTION AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY SHAREHOLDER WITH RESPECT TO SHAREHOLDER'S OWNED SHARES.
(c) Shareholder Capacity. Shareholder is making this Agreement solely
in his capacity as the owner of the Owned Shares and not in his capacity as a
director or officer, and the agreements set forth herein shall in no way
restrict Shareholder in the exercise of his fiduciary duties as a director and
officer of the Company. Shareholder signs solely in his or her capacity as the
record and beneficial owner of the Owned Shares.
4. Restrictions on Transfer, Other Proxies; No Solicitation. (a)
Shareholder shall not, until the termination of this Agreement, directly or
indirectly: (i) except as provided in Section 2 hereof, Transfer to any Person
any or all Owned Shares; or (ii) except as provided in Section 3(b), grant any
proxies or powers of attorney, deposit any Owned Shares into a voting trust or
enter into a voting agreement, understanding or arrangement with respect to such
Owned Shares. Notwithstanding anything to the contrary provided in this
Agreement, Shareholder shall have the right to Transfer Owned Shares to (i) any
Family Member, (ii) the trustee or trustees of a trust solely (except for remote
contingent interests) for the benefit of Shareholder and/or one or more Family
Members, (iii) a foundation created or established by Shareholder, (iv) a
corporation of which Shareholder and/or any Family Members owns all of the
outstanding capital stock, (v) a partnership of which Shareholder and/or any
Family Members owns all of the partnership interests, (vi) the executor,
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<PAGE> 4
administrator or personal representative of the estate of Shareholder, or (vii)
any guardian, trustee or conservator appointed with respect to the assets of
Shareholder; provided, that in the case of any such Transfer, the transferee
shall execute an agreement to be bound by the terms of this Agreement, or terms
substantially identical thereto. "Family Member" shall have the meaning ascribed
to "Related Parties" under Section 672(c) of the Internal Revenue Code of 1986,
as amended.
(b) Until the termination of this Agreement, Shareholder will comply
with the provisions of Section 5.5 of the Merger Agreement to the extent
applicable to Shareholder in his capacity as a director or officer of the
Company; provided, that nothing in this Section 4(b) shall prohibit Shareholder
from taking any actions that the Company is permitted to take in accordance with
Section 5.5 of the Merger Agreement.
5. Representations and Warranties of Shareholder. Shareholder hereby
represents, warrants and covenants to Parent and Purchaser as follows:
(a) Shareholder has all necessary power and authority to execute and
deliver this Agreement and perform his obligations hereunder. No other
proceedings or actions on the part of Shareholder are necessary to authorize the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by
Shareholder and constitutes the valid and binding agreement of Shareholder,
enforceable against Shareholder in accordance with its terms except (i) to the
extent limited by applicable bankruptcy, insolvency or similar laws affecting
creditors rights and (ii) the remedy of specified performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) Shareholder is the record holder and beneficial owner of the Owned
Shares which, as of the date hereof, are set forth on the signature page hereto.
Shareholder has good and marketable title to all of the Owned Shares, free and
clear of all liens, claims, options, proxies, voting agreements, security
interests, charges and encumbrances. The Owned Shares constitute all of the
capital stock of the Company Beneficially Owned by Shareholder, and except for
the Owned Shares and shares of Company Common Stock issuable upon exercise of
options held by Shareholder, neither Shareholder nor any of his Affiliates
Beneficially Owns or has any right to acquire (whether currently, upon lapse of
time, following the satisfaction of any conditions, upon the occurrence of any
event or any combination of the foregoing) any shares of Company Common Stock or
any securities convertible into Company Common Stock. Except as provided in
Section 3(b) hereof and in this Section 5(c), Shareholder has sole power to vote
and to dispose of the Owned Shares.
(d) Except for the items disclosed in clauses (a) through (f) in
Section 3.4 of the Merger Agreement, none of the execution and delivery of this
Agreement by Shareholder, the consummation by Shareholder of the transactions
contemplated hereby or compliance by Shareholder with any of the provisions
hereof shall (A) result in a violation or breach of, or
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<PAGE> 5
constitute (with or without notice or lapse of time or both) a default (or give
rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, loan agreement, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which Shareholder is a party or by which Shareholder
or any of his properties or assets (including the Owned Shares) may be bound, or
(B) violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to Shareholder or any of its properties or assets.
(e) Shareholder understands and acknowledges that Parent is entering
into, and causing the Purchaser to enter into, the Merger Agreement, and is
incurring the obligations set forth therein, in reliance upon Shareholder's
execution and delivery of this Agreement.
(f) No broker, investment banker, financial adviser or other
intermediary is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated hereby or by the Merger
Agreement based upon arrangements made by or on behalf of Shareholder or any of
his Representatives.
(g) Shareholder agrees with and covenants to Parent that Shareholder
shall not request that the Company or Parent, as the case may be, register the
Transfer (book-entry or otherwise) of any certificated or uncertificated
interest representing any of the securities of the Company or of Parent, as the
case may be, unless such Transfer is made in compliance with this Agreement.
6. Representations and Warranties of Parent and Purchaser. Parent and
Purchaser hereby represent, warrant and covenant to Shareholder as follows:
(a) Each of Parent and Purchaser is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation, and each
of them is in good standing under the laws of its jurisdiction of incorporation.
Parent and Purchaser have all necessary corporate power and authority to execute
and deliver this Agreement and perform their respective obligations hereunder.
The execution and delivery by Parent and Purchaser of this Agreement and the
performance by Parent and Purchaser of their respective obligations hereunder
have been duly and validly authorized by the Board of Directors of each of
Parent and Purchaser and no other corporate proceedings on the part of Parent or
Purchaser are necessary to authorize the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by
Parent and Purchaser and constitutes a valid and binding agreement of each of
Parent and Purchaser, enforceable against each of them in accordance with its
terms except (i) to the extent limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
5
<PAGE> 6
(c) Except for the items disclosed in clauses (a) through (f) in
Section 4.3 of the Merger Agreement, none of the execution and delivery of this
Agreement by Parent or Purchaser, the consummation by Parent or Purchaser of the
transactions contemplated hereby or compliance by Parent or Purchaser with any
of the provisions hereof shall (A) conflict with or result in any breach of the
certificate of incorporation or by-laws of Parent or Purchaser, or (B) result in
a violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Parent or Purchaser is a party or
by which Parent or Purchaser or any of their respective properties or assets may
be bound, or violate any order, writ, injunction, decree, judgment, statute,
rule or regulation applicable to Parent or Purchaser or any of their respective
properties or assets.
(d) Except for Goldman, Sachs & Co., whose fees and expenses are the
sole responsibility of Parent, no broker, investment banker, financial adviser
or other intermediary is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby or by the
Merger Agreement based upon arrangements made by or on behalf of Parent or any
of its Representatives.
7. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
8. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earlier of (a) the date upon which
the Parent shall have purchased and paid for all of the Owned Shares of
Shareholder in accordance with the Offer and (b) the date on which the Merger
Agreement is terminated.
9. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Shareholder agrees that this Agreement and the respective rights
and obligations of Shareholder hereunder shall attach to any shares of Company
Common Stock, and any securities convertible into such shares, that may become
Beneficially Owned by Shareholder.
(c) Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
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<PAGE> 7
(d) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective successors,
personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party (whether by operation of law or otherwise) without the
prior written consent of the other party; provided, that Parent and the
Purchaser may assign their rights and obligations hereunder to any assignee of
such parties' rights and obligations under the Merger Agreement. Nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
(e) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
(f) All notices and other communications hereunder shall be in writing
and shall be deemed given upon (a) transmitter's confirmation of a receipt of a
facsimile transmission, (b) confirmed delivery by a standard overnight carrier
or when delivered by hand or (c) the expiration of five business days after the
day when mailed by certified or registered mail, postage prepaid, addressed at
the following addresses (or at such other address for a party as shall be
specified by like notice):
If to Parent or Purchaser:
CIGNA Corporation
1 Liberty Place
1950 Market Street
Philadelphia, PA 19192-1520
Telecopy: 215-761-6041
Attn: Robert L. Rose, Esq.
Copy to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022-4611
Telecopy: 212-326-2061
Attn: C. Douglas Kranwinkle, Esq.
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<PAGE> 8
If to Shareholder, to Shareholder's address or facsimile number set
forth on the signature page hereto;
or to such other address or facsimile number as the Person to whom notice is
given shall have previously furnished to the others in writing in the manner set
forth above.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without affecting the
validity or enforceability of the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision 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.
(h) Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) This Agreement shall be governed and construed in accordance with
the laws of the State of New York (other than the duties and obligations of
directors and officers of the Company, which shall be governed by the laws of
the State of New Hampshire), without giving effect to the principles of
conflicts of law thereof or of any other jurisdiction.
(k) The descriptive headings used herein are inserted for convenience
of reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. "Include," "includes," and "including" shall
be deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import.
(l) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, Parent, Purchaser and Shareholder have
caused this Agreement to be duly executed as of the day and year first above
written.
CIGNA CORPORATION
By: /s/ Robert L. Rose
---------------------------------
Name: Robert L. Rose
Title: Vice President
Strategic Growth &
Development
CHC ACQUISITION CORP.
By: /s/ Robert L. Rose
---------------------------------
Name: Robert L. Rose
Title: President
DR. NORMAN PAYSON
/s/ Norman C. Payson
---------------------------------
Address: c/o Healthsource, Inc.
2 College Park Drive
Hooksett, NH 03106
Telecopy: 603-268-7905
Owned Shares: 4,332,760
S-1
<PAGE> 1
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of February 27, 1997 (this
"Agreement") by and between CIGNA Corporation, a Delaware corporation
("Parent"), and Dr. Norman Payson (the "Consultant").
WHEREAS, Parent, has entered into an Agreement and Plan of
Merger (the "Merger Agreement"), by and among Parent, CHC Acquisition Corp., a
New Hampshire corporation (the "Purchaser"), and Healthsource, Inc., a New
Hampshire corporation (the "Company"), dated as of February 27, 1997;
WHEREAS, in connection with the transactions contemplated by
the Merger Agreement and in recognition of the Consultant's experience and
abilities, Parent desires to assure itself of the services of the Consultant in
accordance with and subject to the terms and conditions provided herein; and
WHEREAS, the Consultant wishes to perform services for Parent
in accordance with and subject to the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Engagement as Consultant. Parent hereby agrees to engage
the Consultant, and the Consultant hereby agrees to perform services for Parent,
on the terms and conditions set forth herein.
2. Term. This Agreement is for the nine month period (the
"Term") commencing on the date of consummation of the "Offer" (as such term is
defined in the Merger Agreement) and terminating nine months from such
<PAGE> 2
date; provided, however, that if the Offer is not consummated or if the Merger
Agreement is terminated this Agreement shall terminate immediately and be of no
force or effect.
3. Duties and Reporting Relationship. From time to time during
the Term, the Consultant shall perform such services relating to the business
of Parent as the Consultant and the President of CIGNA HealthCare (or his
designee) shall mutually agree. The Consultant shall in no event be required to
provide more than 120 hours per month of consulting services to Parent for the
first 6 months of the Term and no more than 80 hours per month of consulting
services to Parent for the next 3 months of the Term. The scheduling of such
time shall be mutually agreeable to the Consultant and Parent. Subject to the
Consultant's obligations elsewhere herein, Parent acknowledges that the
Consultant is permitted to pursue other activities, whether of a personal or
business nature, and, accordingly, may not always be immediately available to
Purchaser.
4. Place of Performance. The Consultant shall perform his
duties and conduct his business from his primary residence and/or at such other
locations as are reasonably acceptable to him; provided, however, that, as
mutually agreed, the Consultant will be available to travel domestically to meet
from time to time with representatives of Parent.
5. Independent Contractor. During the term of this Agreement,
the Consultant shall be an independent contractor and not an employee of Parent.
6. Compensation and Related Matters.
(a) Monthly Consulting Fee. During the Term, Parent shall
pay to the Consultant a monthly consulting fee at a rate of $100,000 per month.
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<PAGE> 3
(b) Business Expenses. In addition to the expenses to be
reimbursed pursuant to Annex A hereto, the Consultant will be reimbursed by
Parent for all ordinary and appropriate business expenses incurred by him in
connection with his performance of consulting services hereunder upon submission
by the Consultant of receipts and other documentation in accordance with
Parent's normal reimbursement procedures.
(c) Benefits and Perquisites. During the Term and, where
applicable, thereafter, Parent shall provide the Consultant (and, to the extent
applicable, his covered dependents) with those employee benefits and perquisites
set forth on Annex A hereto.
(d) Options. Notwithstanding anything to the contrary,
including, without limitation, anything contained in this Agreement, the Merger
Agreement or any stock option or incentive plan of Parent, the Purchaser or the
Company, Parent shall take all action necessary to cause each Substitute Option
(as defined in the Merger Agreement) held by the Consultant (or, in the event of
his death, held by his estate or designated beneficiary) to expire no earlier
than the tenth anniversary of the date of grant of the corresponding Company
Employee Stock Option (as defined in the Merger Agreement) that was converted
into a Substitute Option pursuant to Section 2.4 of the Merger Agreement,
without regard to any of (i) the termination or expiration of this Agreement,
(ii) the termination of the Consultant's employment with the Company, (iii) the
death or disability of the Consultant or (iv) the cessation of the Consultant's
services to Parent; provided, however, that Parent may grant Substitute Options
to the Consultant under a stock option plan of Parent, so long as such grant
does not adversely affect the rights of the Consultant hereunder and under the
Merger Agreement. In this regard, notwithstanding anything to the contrary,
including, without limitation, anything contained in this Agreement, the Merger
Agreement or any stock option or incentive plan of Parent, the
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<PAGE> 4
Purchaser or the Company, Parent agrees that each such Substitute Option held by
the Consultant shall be freely exercisable without restriction, at all times
prior to the expiration of such option, by the Consultant and his successors,
for shares of Parent common stock.
7. Termination. The Consultant's engagement as a consultant
hereunder shall terminate without further action by any party hereto nine months
from the date of consummation of the Offer. Upon any termination of this
Agreement or the Consultant's engagement as a consultant hereunder, the parties
hereto shall have no further obligation or liability under this Agreement,
except that (a) Parent shall pay the Consultant all fees and reimburse the
Consultant for all expenses incurred prior to the date of termination, (b)
Parent shall continue to provide the Consultant (and his covered dependents)
with the employee benefits and perquisites set forth on Annex A hereto for a
period of 36 months from such date of termination (except for use of the
aircraft described in Annex A which Parent will provide for a period of 12
months from such date of termination) and (c) the provisions of Sections 6(c),
6(d) and 7, 8 and 11 through 15 of this Agreement shall survive any such
termination.
8. Releases. (a) In consideration for the payment and benefits
provided in this Agreement, the Consultant hereby voluntarily, knowingly,
willingly, irrevocably and unconditionally releases Parent and the Company,
together with each of its parents, subsidiaries and affiliates, and each of
their respective officers, directors, employees, representatives, attorneys and
agents, and each of their respective predecessors, successors and assigns
(collectively, the "Releasees") from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, causes of action, rights, costs,
losses, debts and expenses of any nature whatsoever, known or unknown (other
than with respect to any breach by the Releasees of this Agreement or the Merger
Agreement), against them which the Consultant or his succes-
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<PAGE> 5
sors or assigns ever had, now have or hereafter can, shall or may have (either
directly, indirectly, derivatively or in any other representative capacity) by
reason of any matter, fact or cause whatsoever arising from the beginning of
time to the date of consummation of the Offer, including without limitation all
claims arising under Title VII of the Civil Rights Act of 1964, the federal Age
Discrimination in Employment Act ("ADEA") and all other federal, state or local
laws, rules, regulations, judicial decisions or public policies now or hereafter
recognized. By signing this Agreement, the Consultant admits that he has read
this Agreement, understands it is a legally binding agreement and that he was
advised to review it with legal counsel of his choice, and has reviewed it with
legal counsel of his choice, has had, or had the opportunity to take, 21
calendar days to discuss it with legal counsel of his choice before signing and
that if he signs prior to the end of such period, he does so of his own free
will and with full knowledge that he could have taken the full period. The
Consultant realizes and understands that this release applies to and covers all
claims, demands and causes of action including those under the ADEA against the
Releases whether or not the Consultant knows or suspects them to exist at the
present time. The Consultant acknowledges that he understands the terms of this
Agreement, that it is not part of an exit incentive or other employment
termination program being offered to a group or class of employees. The
Consultant shall have a period of 7 calendar days from the date he signs this
Agreement to revoke the Agreement and any revocation and cancellation must be in
writing, signed by the Consultant and received by Parent before the close of
business on the seventh calendar day following the date hereof.
(b) In consideration for the Consultant's obligations under
this Agreement, Parent hereby voluntarily, knowingly, willingly, irrevocably and
unconditionally releases the Consultant (and hereby agrees to cause each of the
Purchaser, the Company and their affil-
5
<PAGE> 6
iates to release the Consultant) from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, causes of action, rights, costs,
losses, debts and expenses of any nature whatsoever, known or unknown (other
than with respect to any breach by the Consultant of this Agreement) against him
which Parent, the Purchaser or the Company or their respective successors or
assigns ever had, now have or hereafter can, shall or may have (either directly,
indirectly, derivatively or in any other representative capacity) by reason of
any matter, fact or cause whatsoever arising from the beginning of time to the
date of consummation of the Offer.
9. Covenant Not to Compete. (a) The Consultant hereby agrees
that, for a period of nine months following the date of consummation of the
Offer, the Consultant shall not, whether acting individually or as an officer,
director, employee, agent, stockholder or consultant of any person, firm,
corporation, business or other entity, engage in a business that competes,
directly or indirectly, in any material respect with the business conducted as
of the date hereof by Parent, the Company and their respective subsidiaries;
provided, however, that the Consultant may own publicly-traded stock of any such
person, firm, corporation, business or other entity constituting not more than
5% of the outstanding shares of such class of stock so long as his involvement
with any such entity is limited to the ownership of such stock.
(b) The Consultant and Parent acknowledge that the
non-competition provision contained in Section 9(a) above is reasonable and
necessary, in view of the nature of Parent and the Company, their businesses and
his knowledge thereof, in order to protect the legitimate interests of Parent
and the Company.
(c) The Consultant agrees that during the Term and for a
period of one year following the termination of this Agreement, he shall not (i)
induce any employee of
6
<PAGE> 7
Parent, the Company or any of their affiliates to leave the employ of Parent,
the Company or any of their affiliates or to accept any other employment or
position, or (ii) assist any other person in hiring any such employee, provided,
however, that nothing contained herein shall prevent the Consultant from
responding to or addressing inquiries initiating from employees of Parent, the
Company and its affiliates or from hiring any such employees who make initial
contact with the Consultant.
(d) The Consultant hereby agrees that he shall not following
the termination of this Agreement retain in his possession any written,
documentary, tape, recorded or computerized proprietary information relating to
the Company and its clients and customers.
(e) Parent hereby agrees that in the event of any alleged
breach of this Section 9 by the Consultant, Parent shall deliver to the
Consultant a written notice, which notice shall specifically identify the manner
in which the Consultant has allegedly breached this Section 9. Upon receipt of
such notice, Consultant shall have a period of 10 calendar days during which
period he may attempt to cure any such specified breach. Parent hereby agrees
that it shall not seek any judicial remedy or relief in respect of any such
alleged breach until after the expiration of such 10 calendar day period, and
may only seek such judicial remedy or relief in the event any such breach has
not been reasonably cured during such 10 calendar day period.
10. No Disparagement. Parent and the Consultant hereby agree
that each shall not (and Parent further agrees (i) to cause the Company and the
Purchaser and its and their respective directors and officers and (ii) if
notified in writing by the Consultant of a material breach of this paragraph,
Parent agrees to use reasonable efforts to cause its and their respective
subsidiaries, employees, affiliates, advisors, representatives and agents to
not) make, or cause to be made, any statement,
7
<PAGE> 8
observation or opinion, or communicate any information (whether oral or
written), that materially disparages the reputation or business of the other
party hereto. The Consultant agrees that in the event of any alleged breach of
this Section 10 by Parent, the Consultant shall deliver to Parent written notice
specifically identifying the manner in which Parent has allegedly breach this
Section 10. Upon receipt of such notice, Parent shall have a period of 10
calendar days during which period it may attempt to cure any such specified
breach. The Consultant hereby agrees that he will not seek any judicial remedy
or relief in respect of such breach (including the remedy described in this
paragraph) until after the expiration of such 10 calendar day period, and may
only seek such judicial remedy or relief in the event any such breach has not
been reasonably cured during such 10 calendar day period.
11. Indemnification. Parent shall indemnify and hold harmless
the Consultant to the full extent permitted by law and the by-laws of Parent for
all expenses, costs, liabilities and legal fees that the Consultant may incur in
the discharge of his duties hereunder, including the mandatory advancement of
and reimbursement for any legal fees and expenses incurred by the Consultant in
enforcing any right or benefit under this Agreement. Such payments shall be made
within 5 days after the Consultant's request for payment. Any termination or
expiration of the Consultant's engagement as a consultant hereunder or of this
Agreement shall have no effect on the continuing operation of this Section 11.
12. Successors; Binding Agreement.
(a) Parent shall require any successor to all or
substantially all of the business or assets of Parent, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
Parent would be required to perform it if no such succession had taken place.
8
<PAGE> 9
(b) This Agreement and all rights of the Consultant
hereunder shall inure to the benefit of and be enforceable by the Consultant's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement is personal to and may not
be assigned by the Consultant.
13. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by the notice):
If to Parent:
c/o CIGNA HealthCare (B-216)
900 North Cottage Grove Road
Hartford, CT 06152-1216
Attention: H. Edward Hanway
If to the Consultant:
Dr. Norman Payson
Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
14. Disputes.
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement, including any annexes hereto, or the breach,
termination or validity hereof, shall be finally settled by arbitration by one
arbitrator in the city and state of the Company's headquarters on the date
hereof pursuant to the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court of competent jurisdiction. The
9
<PAGE> 10
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-16.
(b) In no event shall the Consultant be liable to Parent
on account of any breach or breaches of this Agreement for an aggregate amount
that exceeds the amount paid to the Consultant during the Term under Section
6(a) hereof.
15. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the parties hereto. No waiver by a party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by the parties which are not set forth expressly in this
Agreement. This Agreement shall be governed and construed in accordance with the
laws of the State in which the Company is incorporated on the date hereof,
without giving effect to the principles of conflicts of law thereunder or of any
other jurisdiction.
16. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but both of which
together will constitute one and the same instrument.
17. Enforcement. If any court or arbitrator determines that
any covenant contained in this Agreement, or any part thereof, is unenforceable
for any reason, the duration and/or scope of such provision shall be reduced so
that such provision becomes enforceable and, in its reduced form, such provision
shall then be enforceable and shall be enforced.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
/s/ Norman Payson
---------------------------
Dr. Norman Payson
CIGNA CORPORATION
By:/s/ Robert L. Rose
------------------------
Name: Robert L. Rose
Title: Vice President
<PAGE> 12
ANNEX A
Medical, hospitalization, dental, life and
disability insurance benefits at a level no less
favorable than that provided to senior executive
officers of Parent and without any waiting periods
or preexisting condition limitations.
Full and complete access to the aircraft cur-
rently used by the Consultant as Chief Executive
Officer of the Company (or comparable aircraft if
the current aircraft is unavailable). To the ex-
tent such aircraft use is not in connection with
the business of Parent, the Consultant shall
reimburse Parent for such use at the rate of
$1,000 per hour for the time such aircraft is
airborne. Upon termination or expiration of the
Agreement, the Consultant shall have the right to
purchase such aircraft from Parent at its then
book value.
An initial cash payment of $25,000, made immedi-
ately following the consummation of the Offer, the
proceeds of which are to be used by the Con-
sultant solely to purchase computer and telephone
equipment in connection with the establishment of
an office in the Consultant's home (or other
location selected by him). The Consultant may
employ one or more assistants to administer his
office and, if any such assistant was an employee
of the Company immediately prior to the consumma-
tion of the Offer, such assistant shall be enti-
tled to receive from Parent full severance bene-
fits as if such assistant was terminated by Par-
ent without cause. Purchaser will reimburse the
Consultant for the costs associated with the
employment of such assistants as well as for any
other expenses incurred with the operation of
<PAGE> 13
such office on a monthly basis, up to a total
annual cost of $200,000.
<PAGE> 1
EXHIBIT 5
March 6, 1997
Healthsource, Inc.
Two College Park Drive
Hooksett, NH 03106
Attention: Dr. Norman C. Payson
Chairman and Executive Officer
Dear Sirs:
We understand that Healthsource, Inc. ("Healthsource") has received an
offer from CIGNA Corporation ("CIGNA") to acquire all of the outstanding shares
of the common stock of Healthsource (the "Shares"). As more fully described in
the Agreement and Plan of Merger (the "Merger Agreement") among Healthsource,
CIGNA and CHC Acquisition Corp., a wholly-owned subsidiary of CIGNA
("Subsidiary"), Subsidiary (i) would promptly commence a tender offer to
purchase all Shares for $21.75 per share in cash and (ii) as promptly thereafter
as practicable, would merge with Healthsource and each outstanding Share not
previously tendered would be converted into the right to receive $21.75 in cash
(collectively, the "Transaction"). You have provided us with the Offer to
Purchase and the Schedule 14D-9 in substantially the form to be sent to
shareholders of Healthsource (collectively, the "Tender Offer Documents", which
include the Merger Agreement).
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to the shareholders of Healthsource.
In the course of our analyses for rendering this opinion, we have;
1. reviewed the Tender Offer Documents;
2. reviewed Healthsource's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1993
through 1995, and its Quarterly Report on Form 10-Q for the period
ended September 30, 1996;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to Healthsource's
business and prospects;
4. met with certain members of Healthsource's senior management to discuss
its operations, historical financial statements and future prospects;
5. reviewed the historical prices and trading volume of the common shares
of Healthsource;
6. reviewed publicly available financial data and stock market performance
data of companies which we deemed generally comparable to Healthsource;
7. reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Healthsource; and
8. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
<PAGE> 2
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by
Healthsource. With respect to Healthsource's projected financial results we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Healthsource as
to its expected future performance. 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 Healthsource that it is 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 or obtained any
independent appraisal of the assets or liabilities of Healthsource. 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 shareholders of Healthsource.
We have acted as financial advisor to Healthsource 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.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ CURTIS LANE
Senior Managing Director
<PAGE> 1
Healthsource logo
March 6, 1997
To the Shareholders of
Healthsource, Inc.:
We are pleased to inform you that on February 27, 1997, Healthsource, Inc.
("Healthsource" or the "Company") entered into an Agreement and Plan of Merger
(the "Merger Agreement") with CIGNA Corporation ("CIGNA") and CHC Acquisition
Corp. ("Purchaser"), an indirect, wholly-owned subsidiary of CIGNA, pursuant to
which Purchaser has today commenced a tender offer (the "Offer") to purchase all
of the outstanding shares of common stock, $.10 par value per share (the
"Shares"), of the Company for $21.75 per Share in cash. Under the Merger
Agreement, following the Offer, Purchaser will be merged (the "Merger" and,
together with the Offer, the "Transaction") with and into the Company and all
Shares not purchased in the Offer (other than Shares held by CIGNA, Purchaser or
the Company, or Shares held by dissenting shareholders) will be converted into
the right to receive $21.75 per Share in cash.
Your Board of Directors has unanimously approved the Merger Agreement, the
Offer and the Merger and has determined that the Offer and the Merger are fair
to and in the best interests of Healthsource's shareholders. The Board
unanimously recommends that the Company's shareholders accept the Offer and
tender their Shares in the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the opinion of Bear, Stearns & Co. Inc., the
Company's financial advisor, that the Transaction is fair, from a financial
point of view, to the shareholders of Healthsource.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase, dated March 6, 1997, of Purchaser, together
with related materials, including a Letter of Transmittal to be used for
tendering your Shares. These documents set forth the terms and conditions of the
Offer and the Merger and provide instructions as to how to tender your Shares.
We urge you to read the enclosed materials carefully.
Sincerely,
<TABLE>
<S> <C>
Payson sig Bagan sig
Norman C. Payson, M.D. Merwyn Bagan, M.D., M.P.H.
President and Chief Executive
Officer Chairman of the Board
</TABLE>
[HEALTHSOURCE ADDRESS]
<PAGE> 1
For Further Information at Healthsource, Inc.
Joseph Zubretsky
Chief Financial Officer
Tracey Turner
Vice President, Corporate Communications
HEALTHSOURCE, INC. REPORTS FOURTH QUARTER EARNINGS PER SHARE OF $0.05 BEFORE
NON-RECURRING CHARGES; LOSS OF $0.35 PER SHARE AFTER NON-RECURRING CHARGES OF
$0.40 PER SHARE; REVENUE UP 28%; ENROLLMENT UP 26% TO 940,900 IN JANUARY 1997
CIGNA CORPORATION AND HEALTHSOURCE SEPARATELY REPORTED AN AGREEMENT FOR CIGNA TO
PURCHASE HEALTHSOURCE FOR $21.75 PER SHARE
HOOKSETT, NH, FEBRUARY 28, 1997 -- HEALTHSOURCE, INC. (NYSE:HS), a leading owner
of managed health care companies today reported the results of its operations
for the fourth quarter and year end period ended December 31, 1996. Earnings per
share for the fourth quarter 1996 were $0.05 before the effect of a
non-recurring charge of $0.40 per share related to costs the Company has elected
to incur to enhance its provider arrangements and for costs related to a
re-structuring of operations. After non-recurring charges, the Company reported
a net loss of
<PAGE> 2
$0.35 per share compared with net income of $0.22 per share for the three month
period ended December 31, 1995.
QUARTERLY REVENUES AND NET INCOME
Revenue for the period including managed care premiums and other administrative
fees increased 28 percent to $438.3 million from the $343.6 million recorded in
the fourth quarter of 1995. After the effect of a pre-tax, non-recurring charge
of $40.4 million, the quarter's result was a net loss of $22.6 million compared
with net income of $15.8 million for the three month period ended December 31,
1995, representing a decrease of $38.4 million or 243 Percent.
TWELVE MONTH RESULTS
For the twelve month period ended December 31, 1996 earnings per share were
$0.45 before the effect of non-recurring charges of $0.53. Including the effect
of non-recurring charges, the Company recognized a loss of $0.08 versus the
$0.81 earned in 1995. Revenue for the year reached $1.7 billion, up 47% from
$1.2 billion recorded in 1995. After the effect of the pre-tax, non-recurring
<PAGE> 3
charge of $53.4 million, net loss for the twelve month period was $3.9 million
compared with earnings of $56.2 million during the same period a year ago.
ENROLLMENT GROWTH
Enrollment in Healthsource's health maintenance organizations (HMOs) continued
to grow during the fourth quarter increasing to 940,900 in January 1997, up 26
percent from 744,700 reported in the fourth quarter of 1995. Norman Payson,
M.D., President and Chief Executive Officer of Healthsource, Inc., said today,
"The fourth quarter results, exclusive of non-recurring charges, are consistent
with the challenges for the industry in 1996 in which premium pricing did not
keep pace with health care costs. January 1997 premium pricing, however, was
more favorable and the measures we have taken to address certain unprofitable
accounts, improve our provider contracts and significantly trim administrative
costs, we believe will benefit results in 1997. "Separately, the major news for
us today, of course, is the announcement of a definitive merger agreement with
CIGNA Corporation.
<PAGE> 4
We hold CIGNA Corporation in highest regard and look forward to a very
successful combination for all concerned."
Healthsource confirmed today that it has entered into a definitive merger
agreement under which CIGNA Corporation (NYSE:CI) has agreed to acquire the
Company. Pursuant to the Agreement, CIGNA will commence a tender offer for any
and all outstanding Healthsource shares at a price of $21.75 per share in cash.
Following consummation of the tender offer, Healthsource will merge with a
subsidiary of CIGNA under which all remaining Healthsource shareholders will
receive the same per share price. The tender offer is subject to various
conditions, including among others, the tender of at least a majority of
Healthsource's outstanding shares and receipt of regulatory approvals.
Healthsource, Inc., through its subsidiaries, is a geographically diversified
provider of a broad range of managed health care services serving more than
three million members including former members of Provident
<PAGE> 5
Life and Accident Insurance Company. Healthsource owns HMOs operating primarily
in the Northeast, the Midwest and the South which offer traditional HMO plans,
point-of-service plans, preferred provider organizations and utilization review
and managed care services to other health care payors including former members
of Provident Life and Accident Insurance Company.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this release that are not historical facts are
forward looking statements; actual results may differ materially from those
projected in the forward looking statements which statements involve risks and
uncertainties, including but not limited to, the following; that increased
regulation will increase health care expenses; that increased competition in the
Company's markets or change in product mix will unexpectedly reduce premium
yield; that health care costs in any given period may be greater than expected
due to unexpected incidence of major cases, natural disasters, epidemics,
changes in physician prac-
<PAGE> 6
tices, and new technologies; that the Company will be unable to close
acquisitions of other HMOs on satisfactory terms; and that the Company may be
unable to close global capitation arrangements on satisfactory terms in key
markets. Investors are also directed to the other risks discussed in documents
filed by the Company with the Securities and Exchange Commission.
<PAGE> 7
<TABLE>
<CAPTION>
HEALTHSOURCE, INC. (NYSE)
-------------------------
Three Months Ended
December 31,
-------------------------
1996 1995(1)
----------- -----------
(unaudited)
(in thousands, except per
share data)
<S> <C> <C>
Revenue:
HMO medical premiums . . . . . . . . . . . . $322,297 $220,409
Other insured medical premiums(2) . . . . . . 57,491 66,187
Administrative and managed care fees. . . . . . . 58,549 57,039
-------- --------
Total operating revenue . . . . . . . . 438,337 343,635
-------- --------
Expenses:
Cost of HMO medical premiums. . . . . . . . . 263,890 165,177
Cost of other insured medical premiums(2) . . 45,637 53,521
Selling, general and administrative:
HMO and other insured services(3) . . . . . 63,267 45,101
Admin. and managed care services . . . . . 50,921 48,927
-------- --------
Total selling, general and admin. . . . 114,188 94,028
-------- --------
Other charges . . . . . . . . . . . . . . . . 40,462 -
Depreciation and amortization . . . . . . . . 10,770 8,143
-------- --------
Total operating expenses . . . . . . . 474,947 320,869
-------- --------
Operating income (loss) . . . . . . . . (36,610) 22,766
Interest income . . . . . . . . . . . . . . . . . 5,904 4,945
Interest expense . . . . . . . . . . . . . . . . (3,474) (1,785)
-------- --------
Interest income, net . . . . . . . . . 2,430 3,160
-------- --------
Income (loss) before provision
for income taxes . . . . . . . . . . . . . . . . (34,180) 25,926
Income tax benefit (provision). . . . . . . . . . 11,579 (10,071)
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . $(22,601) $ 15,855
======== ========
Preferred stock dividends . . . . . . . . . . . . - (1,563)
-------- --------
Net income (loss) applicable to
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
common shareholders . . . . . . . . . . $(22,601) $ 14,292
======== ========
Net income (loss) per share:(4)... $(0.35) $ 0.22
Weighted average number of common and
common equivalent shares outstanding:... 63,795 65,167
See Addendum 9 for footnote information.
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
HEALTHSOURCE, INC. (NYSE)
-------------------------
Year Ended
December 31,
-------------------------
1996 1995(1)
------------ ----------
(unaudited)
(in thousands, except per
share data)
<S> <C> <C>
Revenue:
HMO medical premiums . . . . . . . . . . . . . $1,238,936 $ 811,645
Other insured medical premiums(2). . . . . . . 242,535 184,819
Administrative and managed care fees . . . . . 232,492 170,233
---------- ----------
Total operating revenue . . . . . . . . 1,713,963 1,166,697
---------- ----------
Expenses:
Cost of HMO medical premiums . . . . . . . . . 1,000,002 621,888
Cost of other
insured medical premiums(2) . . . . . . . . 202,525 149,396
Selling, general and administrative:
HMO and other insured services(3). . . . . . 240,945 153,326
Admin. and managed care services . . . . . . 194,641 146,340
---------- ----------
Total selling, general and admin. . . . 435,586 299,666
---------- ----------
Other charges . . . . . . . . . . . . . . . . 53,411 -
Depreciation and amortization . . . . . . . . 38,721 24,129
---------- ----------
Total operating expenses . . . . . . . . 1,730,245 1,095,079
---------- ----------
Operating income (loss). . . . . . . . . (16,282) 71,618
Interest income . . . . . . . . . . . . . . . . 24,305 20,823
Interest expense . . . . . . . . . . . . . . . . (12,629) (5,392)
---------- ----------
Interest income, net . . . . . . . . . . 11,676 15,431
---------- ----------
Income (loss) before provision
for income taxes . . . . . . . . . . . . . . . (4,606) 87,049
Income tax benefit (provision) . . . . . . . . . 666 (30,778)
---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ (3,940) $ 56,271
========== ==========
Preferred stock dividends . . . . . . . . . . . . (1,128) (4,167)
---------- ----------
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Net income (loss) applicable
to common shareholders . . . . . . . . $ (5,068) $ 52,104
========== ==========
Net income (loss) per share:(4) $(0.08) $0.81
Weighted average number of common and
common equivalent shares outstanding: 63,725 64,195
See Addendum 9 for footnote information.
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
OPERATIONAL STATISTICS
----------------------
(Unaudited)
ENROLLMENT BY PRODUCT LINE
MEDICAL LOSS RATIOS
BY REGION(6)
--------------------
QUARTER QUARTER
ENDED ENDED
1/1/97 1/1/96 %CHANGE 12/31/96 12/31/95
--------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
HMOs(5) Northern Region: 81.9% 77.9%
New Hampshire 136,300 122,300 11%
Massachusetts 77,100 - - %
Maine 70,700 65,500 8%
Indiana 36,500 67,000 (46)%
New Jersey 34,200 1,950 -%
New York City 33,600 30,750 9%
New York (Syracuse) 19,000 21,200 (10)%
Kentucky 12,400 11,200 11%
Ohio 2,500 1,000 150%
--------- --------- -----
Sub-total 422,300 320,900 32%
--------- --------- -----
Southern Region: 81.9% 72.4%
North Carolina 212,200 170,600 24%
South Carolina 141,400 143,700 (2)%
Tennessee 92,600 62,400 48%
Arkansas 34,600 32,800 5%
Georgia 24,800 10,200 143%
Texas 13,000 4,100 217%
--------- --------- -----
Sub-total 518,600 423,800 22%
--------- --------- -----
Total HMO 940,900 744,700 26%
--------- ========= ========= =====
MANAGED INDEMNITY (INSURED)(7) 45,100 66,600 (32)%
- --------------------------- ========= ========= =====
SELF AND PARTIALLY
- ------------------
INSURED MEDICAL PRODUCTS
------------------------
Point of Service(8) 181,300 196,300 (8)%
Workers' Compensation 90,700 120,000 (24)%
Other Managed
Care/Administration(9) 1,914,800 2,300,500 (17)%
--------- --------- -----
Total Self-Insured 2,186,800 2,616,800 (16)%
------------------ --------- --------- -----
TOTAL ADMINISTERED MEDICAL 3,172,800 3,428,100 (7)%
- -------------------------- ========= ========= =====
DENTAL PRODUCTS(10)
- -------------------
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Fully Insured 313,000 396,400 (21)%
Self Insured 2,298,700 2,176,500 6%
--------- --------- -----
TOTAL ADMINISTERED DENTAL 2,611,700 2,572,900 2%
- ------------------------- ========= ========= =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
CONSOLIDATED HMO
MEDICAL LOSS RATIOS(11) 81.9% 74.9%
See Addendum 9 for footnote information.
</TABLE>
<PAGE> 13
HEALTHSOURCE, INC. (NYSE)
-------------------------
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA (IN THOUSANDS)
- ------------------------------------------
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash, cash equivalents, and
current marketable securities $ 150,152 $155,728
Current assets 428,870 427,496
Long-term marketable securities 110,049 68,357
Total assets 1,006,900 873,039
Medical claims payable 175,481 152,649
Current liabilities 365,164 283,026
Long-term debt 247,250 95,000
Shareholders' equity 385,425 488,082
</TABLE>
<TABLE>
<CAPTION>
COMMONLY USED RATIOS
- --------------------
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Book value per common shares
outstanding (63,795,000 and
63,580,800 at December 31,
1996 and December 31, 1995
respectively) $6.04/share $7.68/share
Working capital $63.7 Million $144.5 Million
Current ratio 1.2 1.5
Days of health care expense in Three Months Ended
medical claims payable for December 31,
fully-insured products ------------------
(medical claims payable 1996 1995
divided by average daily ---- ----
health care expenses for the
three months ended December 31, 61 Days 58 Days
1996 and 1995 which does not
include the effects of provider
capitation and other arrangements)
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 31,
1996 1995
---- ----
<S> <C> <C>
Average annual hospital bed days 233 244
per 1,000 members (calculated on
the basis of average members during
the period)(12)
See Addendum 9 for footnote information.
</TABLE>
(1) Results for 1995 include the effects of the acquisition as of May 1, 1995 of
the medical services group of the Provident Life and Accident Insurance Company
of America, Inc. (the "Provident acquisition").
(2) Includes fully-insured indemnity and shared risk (minimum premium and
retrospectively rated premium arrangements with self-insured employers) from the
Provident acquisition and the Company's previously existing managed indemnity
business.
(3) Includes all corporate administrative and development expenses.
(4) Reflects a two-for-one stock split in the form of a 100% stock dividend
effective December 15, 1995.
(5) Includes membership for HMOs owned, co-owned, and/or managed by Healthsource
(New York City and New Jersey) and 81,000 members acquired in the Central
Massachusetts Health Care, Inc. (CMHC) acquisition effective February 1, 1996.
Managed indemnity lives previously reported in the Company's HMO membership are
now reported separately as managed indemnity lives. For 1997 and 1996, these
lives were 4,300 and 7,000, respectively.
(6) Includes aggregate medical loss ratios for HMOs owned or significantly
co-owned by Healthsource, including those from the Provident acquisition. New
York City and New Jersey ("ChubbHealth") are not included.
(7) Includes managed indemnity business from the Provident acquisition of
approximately 40,800 and 59,600 lives for 1997 and 1996, respectively.
<PAGE> 15
(8) Excludes managed care membership from the Provident acquisition.
(9) Includes self-insured business from the Provident acquisition of
approximately 1,703,000 and 2,026,000 lives for 1997 and 1996, respectively.
Included in these totals are approximately 178,700 and 329,000 lives for 1996
and 1995, respectively, which were covered by minimum premium and
retrospectively rated premium products where the Company shares risk with the
employers and where the Company receives an insurance premium. Many of these
employer accounts have managed care benefit designs.
(10) Obtained through the Provident acquisition.
(11) Consolidated medical loss ratios exclude unconsolidated plans (which for
1995 were ChubbHealth and CMHC and which for 1996 is ChubbHealth).
(12) Average annual hospital bed days per 1,000 members exclude mental
health/substance abuse and are presented for HMOs owned or significantly
co-owned by Healthsource, which excludes ChubbHealth.
<PAGE> 1
HEALTHSOURCE
54 Regional Drive
P.O. Box 2041 Concord, NH 03302-2041 Phone 603-225-5077
1-800-531-3121
July 30, 1993
Mr. Robert Chin
38 Cranberry Circle
Sudbury, MA 01776
Dear Bob:
Confirming our discussions, we would like to formally offer you the full-time
position of Vice President of Information Systems reporting to the President and
Chief Executive Officer with a start date anytime prior to December 7, 1993, at
your election. The following are the terms of your employment with Healthsource.
You will be compensated at a biweekly salary of $6,153.85 ($160,000 annually).
You shall also receive a sign-on bonus of ten (10) percent of your salary. In
addition, you will receive (1) a $10,000 stipend for moving expenses when you
relocate your principal residence to New Hampshire. The decision and time frame
for the relocation to New Hampshire shall be entirely up to you; (2) an option
to acquire 2,000 shares of Healthsource, Inc. stock over a five (5) year period,
not exercisable before two (2) years, at a price equal to 110 percent (110%) of
the closing market price on the day your employment understanding is confirmed
with the Company, all pursuant to Healthsource's 1991 stock option plan; (3) all
other routine employee benefits provided to senior management in the Company
including but not limited to health, life, dental and professional liability
insurance, and the opportunity to participate in the Company 401(k) plan, once
eligible, and stock purchase plan (currently in development).
The proposed compensation package also includes:
- The Healthsource New Hampshire HMO for you, or, at a small cost to you,
the Healthsource New Hampshire HMO or our indemnity product for you and
your family.
<PAGE> 2
July 30, 1993
Mr. Robert Chin
Page 2
- A combination of paid days for holiday, vacation, and sick days of 36
which means that 3.0 days accrue each month.
- A Life Insurance Policy worth two times your salary.
- Short Term and Long Term Disability policies.
- Dental Insurance.
This employment offer is irrevocable for a period of thirty (30) days following
the date of the offer letter. Should your employment be terminated by the
Company, you would receive six (6) months' salary in severance pay if
termination was for "cause" and twelve (12) months' salary in severance pay if
the termination was "without cause."
On an annual basis, you will be eligible for increases in your salary and for
further awards of stock options. Please know that an executive compensation plan
is currently in the development stages that will include incentives and bonuses.
We will need you to sign the attached non-compete, no solicitation agreement as
part of our final understanding.
We are very enthusiastic about your joining us.
Sincerely,
/s/ Anne Golden
- ------------------------------
Anne Golden /s/ Robert Chin
Vice President Human Resources ------------------------------------
Robert Chin
<PAGE> 3
HEALTHSOURCE
54 Regional Drive
P.O. Box 2041 Concord, NH 03302-2041
Phone 603-225-3077
1-800-531-3121
NON-COMPETITION/NO SOLICITATION AGREEMENT
(A) Employee may not during his employment with Healthsource, and for a period
of one (1) year after termination of his employment, be employed by, consult
with, operate, own, control or otherwise be directly or indirectly involved in a
corporation or other enterprise engaged in the HMO managed care or other health
care financing or third party administration business located or operating
within New Hampshire or in any Proscribed Area (as defined below) where
Healthsource or any of its affiliates then has active prospects or existing
business relationships which perform the services performed by Healthsource or
any of its affiliates. Proscribed Area shall mean the area within a radius of
100 aerial miles from the location of any plan or other business which is within
the prohibition of the first sentence of this subsection. If any court of
competent jurisdiction shall determine this covenant to be unenforceable upon
the term or scope herein imposed, then this covenant shall nonetheless be
enforceable by such court upon such shorter term, or within such lesser scope,
as may be determined by the court to be reasonable and enforceable.
(B) At all times while Employee is employed by Healthsource, and thereafter for
a period of one (1) year, Employee shall not, directly or indirectly, employ,
attempt to employ, recruit or otherwise solicit, induce or influence to leave
his employment any employee of Healthsource or its affiliates.
(C) Healthsource in addition to and not in limitation of its rights, shall be
entitled to a permanent injunction in order to prevent or restrain any breach of
this Agreement by Employee and any persons acting directly or indirectly for or
with him. Employee waives any right to a jury trial concerning the enforcement
of the covenants in this Agreement and consents to the jurisdiction of Merrimack
County Superior Court with respect to disputes hereunder.
(D) Employee acknowledges that in and as a result of his employment hereunder,
he will be making use of, acquir-
<PAGE> 4
ing, or adding to confidential information of a special nature and value
relating to such matters as Healthsource's systems, procedures, manuals,
confidential reports, and lists of customers, as well as the nature and type of
services rendered by Healthsource. As a material inducement to Healthsource to
enter into this Agreement, Employee covenants and agrees that he shall not, at
any time during or following the term of his employment, divulge or disclose for
a period of one (1) year from termination of employment for any purpose
whatsoever any confidential information that has been obtained by, or disclosed
to, him as a result of his employment by Healthsource. In the event of a breach
or threatened breach by Employee of any of the provisions of this paragraph,
Healthsource, in addition to and not in limitation of, any other rights,
remedies, or damages available to Healthsource at law or in equity, shall be
entitled to a permanent injunction in order to prevent or restrain any such
breach by Employee or by Employee's partners, agents, representatives, servants,
employers, employees, or any and all persons directly or indirectly acting for
or with him.
Accepted and Agreed to:
/s/ Robert Chin
- -----------------------------
Robert Chin
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of January, 1995 by and
between Healthsource, Inc., a corporation organized under the laws of the
State of New Hampshire ("Healthsource"), and Francis G. Middleton, M.D.
("Middleton").
RECITALS
WHEREAS, Healthsource is engaged in the operation of a health
maintenance organization and other managed health care programs and operations,
as well as health insurance companies, third party administrators, and
utilization review organizations; and
WHEREAS, Healthsource wishes to engage Middleton's as an employee
of Healthsource or a subsidiary designated by Healthsource;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the parties agree as
follows:
1. Employment. Healthsource agrees that it or one of its subsidiaries
shall employ Middleton and Middleton agrees to be employed by Healthsource or
its designated subsidiary, upon the terms and conditions set forth in this
Agreement.
2. Duties. Middleton shall assume the title, function and duties of
President of Healthsource South, which generally shall mean development,
management and oversight of the Healthsource subsidiaries based in the southern
portion of the United States, as designated by and under the direction and
control of Healthsource's Board of Directors. Middleton shall devote his full
time to performance of his duties as specified in this Agreement.
3. Compensation. For all services rendered by Middleton under this
Agreement, Healthsource (or the subsidiary designated by Healthsource as
Middleton's employer) shall compensate Middleton as set forth in this Section 3:
<PAGE> 2
3.1 Salary. Healthsource (or the subsidiary designated by
Healthsource as Middleton's employer) shall pay Middleton an annual salary of
$285,000, provided that, after the first year of this Agreement, Middleton shall
be eligible for salary increases which shall be determined in the discretion of
the Board of Directors of Healthsource in accordance with criteria applied to
other Healthsource senior executives generally ("Base Salary"). The Base Salary
will be paid in 26 equal installments.
3.2 Additional Compensation. In lieu of any Board stipends and
fees for attendance at Board of Directors meetings of Healthsource and its
subsidiaries, all rights to which Middleton hereby waives, Healthsource (or the
subsidiary designated by Healthsource as Middleton's employer) shall pay
Middleton additional compensation of $35,000 annually. This additional
compensation will be paid with the Base Salary.
3.3 Bonus Compensation. Middleton will be eligible for an annual
bonus of up to twenty percent (20%) of the Base Salary. Bonus compensation, if
any, will be determined by the Healthsource Board of Directors based on company
performance, Middleton's performance, or such other criteria as determined by
the Healthsource Board of Directors in its sole discretion. Payment of bonus
compensation, if any, will be made at such time and in such manner as determined
by the Healthsource Board of Directors.
3.4 Fringe Benefits. Middleton shall be entitled to participate
in all fringe benefits generally made available to senior management, as such
benefits may be established, amended or discontinued from time to time,
including the following employee benefits:
4.1 The Healthsource South Carolina, Inc. HMO (or indemnity
or other reasonably equivalent coverage from another Healthsource subsidiary)
for Middleton and his family at a cost to Middleton in accordance with
Healthsource's regular policy for its senior management.
4.2 Three (3) weeks fully paid vacation during each
calendar year, at such times as will not unreasonably interfere with Middleton's
performance of his duties under this Agreement.
2
<PAGE> 3
4.3 Middleton shall be entitled to participate in the 401k
deferred compensation plan, in effect on January 1, 1995, in accordance with its
terms as they may be amended from time to time, provided that nothing herein
shall prevent Healthsource from terminating such 401k plan in whole or in part.
3.5 Stock Options. Middleton shall be eligible to receive
options to purchase stock of Healthsource, Inc. in accordance with Healthsource
stock option plans or policies for key or senior management employees as are in
effect from time to time, and as determined by the Board of Directors of
Healthsource in its sole discretion.
4. Reimbursement of Expenses. Healthsource (or the subsidiary
designated by Healthsource as Middleton's employer) shall reimburse Middleton
for travel and other expenses reasonably and necessarily incurred in the
performance of his duties in accordance with Healthsource's normal documentation
procedure.
5. Termination.
5.1 Without Cause Termination. This Agreement may be terminated
by either party, at will, without cause, by giving sixty (60) days prior written
notice to the other. If termination is accomplished in this manner the effective
date of termination shall be the 60th day following receipt of the termination
notice.
5.2 Termination on Change of Control. Within ninety (90) days
following a Change of Control of Healthsource, to a party not "affiliated with"
Healthsource, Middleton may elect to terminate this Agreement by providing sixty
(60) days advance written notice to Healthsource (or its successor in interest).
For purposes of this Agreement, "Change of Control" of Healthsource shall be
deemed to occur if Healthsource shall merge or consolidate with, or transfer
substantially all of its assets to, another corporation, association or business
or person not affiliated with Healthsource or an affiliate of Healthsource. For
purposes of this Agreement, "affiliate" or "affiliated with" Healthsource shall
mean any person or entity which owns or in which Healthsource or any
"affiliated" of Healthsource owns at least a five percent (5%) interest, or with
which
3
<PAGE> 4
Healthsource or any affiliate of Healthsource has a management agreement in
effect to manage such person's or entity's business.
5.3 For-Cause Termination. Healthsource (or the subsidiary
designated by Healthsource as Middleton's employer) may terminate this
Agreement, for cause, if:
3.1 Middleton is convicted by a court of competent
jurisdiction of any criminal offense involving dishonesty, breach of trust or
other act of moral turpitude.
3.2 Middleton shall commit an act of fraud upon, or
materially evidence bad faith toward, Healthsource.
3.3 Middleton willfully refuses to perform the duties
reasonably assigned to him by the Board of Directors of Healthsource consistent
with his duties as described in this Agreement, after notice and opportunity for
thirty (30) days to cure such willful refusal.
6. Middleton's Obligations Upon Termination.
6.1 Middleton. Upon termination of this Agreement, all records
created or maintained by Middleton in the course of his employment shall remain
the property of Healthsource and be returned to Healthsource.
6.2 Non Disclosure of Information.
2.1 Middleton acknowledges that as a consequence of his
employment under this Agreement, he has been and will be given access to
confidential information relating to valued physicians, subscribers, and
customers of Healthsource subsidiaries, and such other confidential matters as
Healthsource's systems, procedures, manuals, confidential reports, and the
nature and type of services rendered by Healthsource. In consideration of the
covenants of Healthsource under this Agreement, Middleton agrees that while
employed, and for a period of two (2) years after termination of this Agreement
for any reason, he shall not disclose any confidential information to third
persons, except for the benefit of Healthsource and its subsidiaries, or in the
course of
4
<PAGE> 5
performing his duties. If any court of competent jurisdiction shall determine
this covenant to be unenforceable upon the term or scope set forth in this
subsection 6.2.1, then this covenant shall nonetheless be enforceable by such
court for such shorter term or within such lesser scope as may be determined by
the court to be reasonable and enforceable. Middleton shall execute the
Healthsource Confidentiality Statement annexed hereto as attachment 1. In the
event of any inconsistency between the Confidentiality Statement and this
Agreement, the terms of this Agreement shall prevail.
6.3 Non-Compete. Upon termination of this Agreement for any
reason, Middleton agrees that, for a period of one (1) year following the date
of termination, he shall not be employed by or associated with (as employee,
consultant, director, officer or shareholder) any company which engages in the
HMO, HMO management, preferred provider organization, physician hospital
organization, integrated delivery system, utilization review or other managed
care business in any state in which Healthsource or any affiliate of
Healthsource is engaged in business or is engaged in discussions or negotiations
regarding any such business as of the effective date of termination; provided,
however, that such restriction shall not apply to Middleton's status as a
participating provider for any such company, or employment in the field of
hospital administration. If any court of competent jurisdiction shall determine
this covenant to be unenforceable upon the term or scope set forth in this
Section 6.3, then this covenant shall nonetheless be enforceable by such court
for such shorter term or within such lesser scope as may be determined by the
court to be reasonable and enforceable.
6.4 Injunctive Relief. In the event that Middleton breaches or
threatens to breach the covenants contained in Article 6, Healthsource (or the
subsidiary designated by Healthsource as Middleton's employer) shall, without
limitation, be entitled to an injunction restraining Middleton (and any person
acting for or on behalf of Middleton) from disclosing in whole or in part any
such confidential information of Healthsource (or the subsidiary designated by
Healthsource as Middleton's employer). Nothing herein shall be construed as
prohibiting Healthsource from pursuing and obtaining any other
5
<PAGE> 6
remedies available to it for such breach or threatened breach.
6.5 Survival. The rights and obligations contained in this
Section 6 shall survive termination of this Agreement for any reason.
7. Healthsource's Obligations Upon Termination.
7.1 Severance.
1.1 In the event that Healthsource (or any successor in
interest) terminates this Agreement under Section 5.1, Healthsource (or its
successor in interest) shall pay Middleton three hundred thousand dollars
($300,000), plus an additional two (2) months Base Salary for each calendar year
or portion of a calendar year that this Agreement remains in effect up to a
maximum of twelve (12) months; provided that Middleton complies with the
obligations set forth in Article 6.
1.2 In the event that Middleton terminates this Agreement
under Section 5.2, Healthsource (or its successor in interest) shall pay
Middleton five hundred thousand dollars ($500,000); provided that Middleton
complies with the obligations set forth in Article 6, plus an additional two (2)
months Base Salary for each calendar year or portion of a calendar year that
this Agreement remains in effect up to a maximum of twelve (12) months; provided
that Middleton complies with the obligations set forth in Article 6.
7.2 Survival. The rights and obligations contained in this
Section 7 shall survive termination of this Agreement for any reason.
8. Miscellaneous.
8.1 Amendments. This Agreement may be modified only by a
writing executed by the parties hereto.
8.2 Integration. This Agreement supersedes all prior agreements
and understandings of the parties as to the employment of Middleton by
Healthsource or any affiliate of Healthsource, including but not limited to the
Employment Agreement by and among Physician's Health Systems, Inc., Healthsource
South Carolina, Inc. and
6
<PAGE> 7
Middleton dated as of July 1991 (the "PHS Agreement") and the Employment
Agreement by and between Healthsource, Inc. and Middleton dated as of February
1, 1994 (the "Healthsource Agreement"). Healthsource and Middleton agree that
the PHS Agreement and the Healthsource Agreement are hereby terminated, and that
all obligations set forth in th PHS Agreement and the Healthsource Agreement
have been satisfied and that, notwithstanding anything to the contrary neither
party (nor their affiliates) has any further obligation to each other under such
agreements.
8.3 Captions. All captions used herein are for purposes of
convenience only and shall not be referred to in construing this Agreement.
8.4 Governing Law. This Agreement shall be governed, construed
and enforced in accordance with the internal laws of the State of New Hampshire,
without regard to conflicts of interest. The parties agree that any action
brought in connection with this Agreement shall be maintained only in a state or
federal court of competent subject matter jurisdiction located within the state
in which Middleton resides.
8.5 Waiver of Breach. The failure by either party to insist upon
strict compliance with any of the terms, conditions, or covenants contained
herein shall not be deemed a waiver of any such terms, conditions or covenants;
nor shall any waiver any one or more times be deemed a waiver at any other time
or times.
8.6 Severability. The provisions of this Agreement are severable
and the invalidity of any term or provision of this Agreement shall not
invalidate any other term or provision of this Agreement.
8.7 Succession. This Agreement shall be binding upon the parties
hereof, their heirs, estates, assigns, transferees and successors in interest.
Middleton's duties shall be non-delegable and non-assignable.
8.8 Notice. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered mail
or courier, with a signed receipt required, as follows:
7
<PAGE> 8
To Healthsource: Healthsource, Inc.
2 College Park Drive
Hooksett, NH 03106
ATTN: Vice President,
Human Resources
with a copy to: Healthsource, Inc.
2 College Park Drive
Hooksett, NH 03106
ATTN: General Counsel
To Middleton: Francis G. Middleton, M.D.
215 East Bay Street
Charleston, SC 29401
with a copy to: T. Hayward Carter, Jr.
Evans, Carter, Canes and
Grant, P.A.
151 Meetinghouse Street,
Suite 145
P.O. Box 369
Charleston, SC 29402-0369
or to such other persons as may from time to time be designated by either of the
parties hereto in writing.
8.9 Corporate Authority. Healthsource and Middleton warrant that
all necessary corporate actions have been taken to authorize them to enter into
this Agreement.
8.10 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one agreement.
8.11 Guarantee. In the event that Healthsource designates a
subsidiary as Middleton's employer, Healthsource hereby guarantees satisfaction
by the subsidiary of the obligations set forth in this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, Middleton and Healthsource, by its duly
authorized representative, have executed this Agreement as of the date first
written above.
HEALTHSOURCE, INC. FRANCIS G. MIDDLETON, M.D.
BY: /s/ Norman C. Payson BY: /s/ Francis G. Middleton, M.D.
----------------------------- -------------------------------
Norman C. Payson, M.D. Francis G. Middleton, M.D.
President and Chief
Executive Officer
<PAGE> 10
HEALTHSOURCE, INC.
Two College Park Drive
Hooksett, New Hampshire 03106
February 5, 1997
Francis G. Middleton, M.D.
Healthsource South, Inc.
146 Fairchild Street
Charleston, SC 29492
Dear Frank:
This letter will correct a scrivener's error in your Employment Agreement dated
as of January 1, 1995.
The severance provision of Paragraph 7.1.2 was intended to provide for the base
amount of $500,000 plus an additional two (2) months salary for each year of
your full-time employment with Healthsource, i.e., from July 1, 1991, not from
the date of the 1995 Agreement as literally stated.
Sincerely,
/s/ Norman C. Payson
- -----------------------------
Norman C. Payson, M.D.
Accepted:
/s/ Francis J. Middleton
- -----------------------------
Francis J. Middleton, M.D.
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 25th day of June, 1996 by and
between Healthsource, Inc., a corporation organized under the laws of the
State of New Hampshire ("Healthsource") and Joseph M. Zubretsky ("Zubretsky").
RECITALS
WHEREAS, Healthsource is engaged in the operation of a health
maintenance organization and other managed health care programs and operations,
as well as health insurance companies, third party administrators, and
utilization review organizations; and
WHEREAS, Healthsource wishes to engage Zubretsky as its chief
financial officer;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the parties agree as
follows:
1. Employment. Healthsource agrees to employ Zubretsky and Zubretsky
agrees to be employed by Healthsource, upon the terms and conditions set forth
in this Agreement.
2. Duties. Zubretsky shall assume the title, function and duties of
Chief Financial Officer which generally shall mean that he is responsible for
financial affairs of Healthsource. Zubretsky shall report to the Chief Executive
Officer of Healthsource, and shall have a functional relationship with the
Executive Vice President of Healthsource, as the same shall be designated from
time to time. Zubretsky shall devote his full time to performance of his duties
as specified in this Agreement.
3. Compensation. For all services rendered by Zubretsky under this
Agreement, Healthsource shall compensate Zubretsky as set forth in this
Section 3:
3.1 Salary. Healthsource shall pay Zubretsky an annual salary of
$325,000, provided that Zubretsky shall be eligible for salary adjustments which
shall be determined in the discretion of Healthsource in accor-
<PAGE> 2
dance with criteria applied to other Healthsource senior executives generally
("Base Salary"). The initial review of Base Salary will be made at January 1,
1997. The Base Salary will be paid in 26 equal installments.
3.2 Bonus Compensation. Zubretsky will be eligible for an annual bonus
of up to thirty percent (30%), and a minimum of twenty percent (20%), of the
Base Salary, the first review being at January 1, 1997. Bonus compensation,
other than the minimum 20%, will be determined by Healthsource based on company
performance, Zubretsky's performance, or such other criteria as determined by
Healthsource in its sole discretion. Payment of bonus compensation, other than
the minimum 20%, will be made at such time and in such manner as determined by
Healthsource.
3.3 Fringe Benefits. Zubretsky shall be entitled to participate in all
fringe benefits generally made available to senior management, as such benefits
may be established, amended or discontinued from time to time. The fringe
benefits made available to senior management as of the execution of this
Agreement include:
3.1 The Healthsource New Hampshire health plan or other
reasonably equivalent coverage from another Healthsource subsidiary for
Zubretsky and his family at a cost to Zubretsky in accordance with
Healthsource's regular policy for its senior management.
3.2 Thirty (30) paid leave days for each year of employment,
accrued at two and one-half (2.5) days per month, which shall include holiday,
vacation and sick days.
3.3 Participation in the Healthsource 401k deferred compensation
plan in accordance with its terms as they may be amended from time to time,
provided that nothing herein shall prevent Healthsource from terminating such
401k plan in whole or in part.
3.4 Stock Options. Upon commencement of employment, and confirmation
by the Compensation Commit- tee of the Healthsource Board of Directors,
Zubretsky shall receive 50,000 options to purchase the common stock of
Healthsource, in accordance with the 1994 Healthsource Employee Stock Option
Plan. Fifty percent (50%) of such
2
<PAGE> 3
stock options shall vest on the first anniversary of the grant of the options by
the Compensation Committee, and the remainder shall vest on the second
anniversary of the grant of the options by the Compensation Committee.
Thereafter, Zubretsky shall be annually considered for additional options in
accordance with Healthsource stock option plans or policies for key or senior
management employees as are in effect from time to time, and as determined by
the Stock Option Plan Committee in its discretion, the first consideration being
at January 1, 1997 for services provided during 1996.
4. Reimbursement of Expenses. Healthsource shall reimburse Zubretsky
for travel and other expenses reasonably and necessarily incurred in the
performance of his duties in accordance with Healthsource's normal documen-
tation procedure.
5. Term and Termination.
5.1 Term of Agreement. The term of this Agreement shall be for an
initial term commencing in July, 1996 and ending December 31, 1997, unless this
Agreement shall be terminated as provided below. Employment shall continue from
year to year thereafter, unless one party provides the other with notice of an
intent not to renew this Agreement no less than sixty (60) days before the
beginning of the next renewal term or unless terminated as provided below.
5.2 Without Cause Termination. This Agreement may be terminated
by either party, at will, without cause, by giving sixty (60) days prior written
notice to the other. If termination is accomplished in this manner the effective
date of termination shall be the 60th day following receipt of the termination
notice.
5.3 For-Cause Termination. Healthsource may terminate this
Agreement immediately, for cause, in the event of:
3.1 Conviction of Zubretsky by a court of competent
jurisdiction of any criminal offense involving dishonesty, breach of trust or
other act of moral turpitude;
3
<PAGE> 4
3.2 Commission by Zubretsky of an act of fraud upon, or
materially evidencing bad faith toward, Healthsource;
3.3 Death of Zubretsky;
3.4 Disability of Zubretsky, provided that he is unable to
perform the necessary functions of his job for a period of ninety (90) days.
6. Zubretsky's Obligations Upon Termination.
6.1 Non Disclosure of Information. Zubretsky acknowledges that
as a consequence of his employment under this Agreement, he has been and will be
given access to confidential information including but not limited to
information relating to valued physicians, subscribers, and customers of
Healthsource subsidiaries, and such other confidential matters as Healthsource's
systems, procedures, manuals, confidential reports, and the nature and type of
services rendered by Healthsource. In consideration of the covenants of
Healthsource under this Agreement, Zubretsky agrees that anytime during or
following the term of the Agreement, he shall not directly or indirectly
disclose any confidential information to third persons except for the benefit of
Healthsource and its subsidiaries, or in the course of performing his duties. In
addition, Zubretsky agrees that all records created or maintained by Zubretsky
in the course of his employment shall remain the property of Healthsource and
Zubretsky shall, upon termination of his employment, immediately return all such
records, without maintaining any copies, to Healthsource. Zubretsky shall
execute the Healthsource Confidentiality Statement annexed hereto as Attachment
1. In the event of any conflict between the Confidentiality Statement and this
Agreement, the terms of this Agreement shall prevail. If any court of compe-
tent jurisdiction shall determine this covenant to be unenforceable then this
covenant shall nonetheless be enforceable by such court for such lesser scope as
may be determined by the court to be reasonable and enforceable.
6.2 Non-Compete. Upon termination of this Agreement for any
reason, Zubretsky agrees that, during the term of this Agreement and for a
period of one (1) year following the date of termination, he shall not be
employed by or associated with (as employee, consultant,
4
<PAGE> 5
director, officer or shareholder) any company which engages in the HMO, HMO
management, preferred provider organization, physician-hospital organization,
integrated delivery system, utilization review or other managed care business in
any state in which Healthsource or any affiliate of Healthsource is engaged in
business or is engaged in discussions or negotiations regarding any such
business as of the effective date of termination. However, Zubretsky may return
to employment with Coopers & Lybrand LLP and not be in violation of this
non-compete clause. If any court of competent jurisdiction shall determine this
covenant to be unenforceable upon the term or scope set forth in this Section
6.2, then this covenant shall nonetheless by enforceable by such court for such
shorter term or within such lesser scope as may be determined by the court to be
reasonable and enforceable.
6.3 Injunctive Relief. In the event that Zubretsky breaches or
threatens to breach the covenants contained in Article 6, Healthsource shall,
without limitation, be entitled to an injunction restraining Zubretsky (and any
person acting for or on behalf of Zubretsky) from disclosing in whole or in part
any such confidential information of Healthsource and from competing with
Healthsource. Nothing herein shall be construed as prohibiting Healthsource from
pursuing and obtaining any other remedies available to it for such breach or
threatened breach.
6.4 Survival. The rights and obligations contained in this
Article 6 shall survive termination of this Agreement for any reason.
7. Healthsource's Obligation Upon Termination.
7.1 Severance.
7.1.1 In the event that Healthsource (or any successor in
interest) issues a notice of intent not to renew this Agreement under Section
5.1 or terminates this Agreement without cause under Section 5.2, Healthsource
(or its successor in interest) shall pay Zubretsky the Base Salary in effect
immediately prior to termination for a period of two (2) years, provided that
Zubretsky complies with the obligations set forth in Article 6.
5
<PAGE> 6
1.2 Notwithstanding subsection 7.1.1, if Healthsource (or a
successor in interest) terminates this Agreement without cause under Section 5.2
within one hundred eighty (180) days following a Change in Control of
Healthsource, or in any way reduces the authority or status of Zubretsky (by way
of example, making Zubretsky chief financial officer of a subsidiary but not the
surviving corporation) then Healthsource (or its successor in interest) shall
pay Zubretsky the Base Salary in effect immediately prior to termination for a
period of two years and 364 days. For purposes of this Section 7.1, a Change in
Control is a change of greater than one-half of the Healthsource Board of
Directors at one time, or the sale of a majority of stock or substantially all
of the assets of Healthsource, or a merger or exchange of stock with another
company in which at least 30% of Healthsource stock is issued or exchanged for
another Company's stock or the purchase of assets or stock of another company
the value of which is greater or equal to 30% of the market value of
Healthsource stock.
1.3 Zubretsky is not entitled to severance benefits if
Healthsource (or any successor in interest) terminates this Agreement for cause
under Section 5.3, or if Zubretsky submits a notice of intent not to renew this
Agreement under Section 5.1 or voluntarily resigns; provided, however, that
Zubretsky shall be entitled to severance benefits under subsection 7.1.1 if he
terminates this Agreement within one hundred eighty (180) days after a Change in
Control of Healthsource, pursuant to which his job title or duties are
diminished, including but not limited being designated only as the chief
financial officer of a subsidiary of Healthsource or its successor, as described
in paragraph 7.1.2.
7.2 Survival. The rights and obligations contained in this
Section 7 shall survive termination of this Agreement for any reason.
8. Miscellaneous.
8.1 Amendments. This Agreement may be modified only by a
writing executed by the parties hereto.
8.2 Integration. This Agreement supersedes all prior agreements
and understandings of the parties as to the employment of Zubretsky by
Healthsource or any
6
<PAGE> 7
affiliate of Healthsource, except for the letter from Norman C. Payson M.D.
dated June 25, 1996.
8.3 Captions. All captions used herein are for purposes of
convenience only and shall not be referred to in construing this Agreement.
8.4 Governing Law. This Agreement shall be governed, construed
and enforced in accordance with the internal laws of the State of New Hampshire,
without regard to conflicts of interest. The parties agree that any action
brought in connection with this Agreement shall be maintained only in a State or
federal court of competent subject matter jurisdiction located within the state
of New Hampshire.
8.5 Waiver of Breach. The failure by either party to insist upon
strict compliance with any of the terms, conditions, or covenants contained
herein shall not be deemed a waiver of any such terms, conditions, or covenants;
nor shall any waiver any one or more times be deemed a waiver at any other time
or times.
8.6 Severability. The provisions of this Agreement are severable
and the invalidity of any term or provision of this Agreement shall not
invalidate any other term or provision of this Agreement.
8.7 Succession. This Agreement shall be binding upon the parties
hereof, their heirs, estates, assigns, transferees and successors in interest.
Zubretsky's duties shall be non-delegable and non-assignable.
8.8 Notice. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered mail
or courier, with a signed receipt required, as follows:
To Healthsource: Healthsource, Inc.
2 College Park Drive
Hooksett, New Hampshire 03106
ATTN: Vice President,
Human Resources
7
<PAGE> 8
with a copy to: Healthsource, Inc.
2 College Park Drive
Hooksett, New Hampshire 03106
ATTN: General Counsel
To Zubretsky: Joseph M. Zubretsky
14 Sturbridge Lane
Avon, Connecticut 06001
or to such other persons as may from time to time be designated by either of the
parties hereto in writing.
8.9 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one agreement.
IN WITNESS WHEREOF, Zubretsky and Healthsource, by its duly
authorized representative, have executed this Agreement as of the date first
written above.
HEALTHSOURCE, INC. JOSEPH M. ZUBRETSKY
BY: /s/ Norman C. Payson BY: /s/ Joseph M. Zubretsky
------------------------------- ---------------------------------
Norman C. Payson, M.D. Joseph M. Zubretsky
President and Chief
Executive Officer
8
<PAGE> 1
EXHIBIT 11
[HEALTHSOURCE LETTERHEAD]
July 19, 1996
OVERNIGHT MAIL
Mr. Charles M. Schneider
298 North Watauge
Lookout Mountain, Tennessee 37350
RE: FOLLOW UP ON YOUR BENEFIT PACKAGE AS PART OF YOUR RELOCATION
"THE PARACHUTE"
Dear Chuck:
I wanted to reassure you in writing, to confirm our earlier discussions, that in
addition to your salary increase, options and other benefits that were approved
by the Healthsource, Inc. Board that in the event Healthsource terminates your
employment without cause or in the event of a change in control (as defined in
the stock option plan) and provided that such change in control materially
adversely alters your duties or salary within ninety (90) days of such change in
control, Healthsource or its successor will pay you for two years from the date
of the termination at the base salary in effect at the time of the termination.
In the frantic last few days, I can't even recall if I told you how much the
Board (and me most of all) appreciate the enormous personal sacrifice of you and
Sandra to relocate back to New Hampshire. It will be extremely valuable to the
Corporation to have us all together and the Board acknowledges and is very
grateful for your singular commitment to our enterprise. I hope your move in the
next week goes smoothly.
Best regards,
/s/ Norman C. Payson
Norman C. Payson, M.D.
President and Chief Executive Officer
NCP/dsl
bcc: Rich Merkle
<PAGE> 1
HEALTHSOURCE, INC.
Two College Park Drive
Hooksett, New Hampshire 03106
February 14, 1997
Dick Salmon, M.D., Ph.D.
105 Tidewater Farm Road
Stratham, NH 03885
Dear Dick:
This letter of agreement confirms your transition to Senior Vice President of
Medical Affairs.
1. Annual Salary for 1997 to be determined. Your 1996 salary was $225,000.
2. Annual Performance Based Bonus for 1996 to be determined, maximum
potential 25%.
3. Stock Option Plan
Participation in the stock option plan on the same basis as other
senior management executives.
4. Benefits
Healthsource benefits at the same level as our other executives.
5. Termination
This agreement may be terminated at will with or without cause by you
upon thirty (30) days written notice. If you terminate this agreement,
you shall not be eligible for any severance benefits and shall not have
the right to exercise any stock options in which you are not fully
vested. The non-competition agreement shall, however, remain in force.
Should your employment be terminated with or without cause, or have
your duties and responsibilities materially altered, you will be
provided with twelve (12) months of salary continuation at your salary
of record at that time or your 1996 salary (whichever
<PAGE> 2
HEALTHSOURCE, INC.
Two College Park Drive
Hooksett, New Hampshire 03106
DICK SALMON, M.D., PH.D.
February 14, 1997
Page 2
is greater) plus your bonus eligibility of record. An additional month
of salary continuation will be given for each year of full-time
employment.
6. Protection of Proprietary Information and Non-compete
In your position with Healthsource, you will have access to and become
familiar with Healthsource trade secrets, business practices and
strategies (such as marketing and provider development strategies and
financing, many of which have been developed over time and at great
expense), and confidential information regarding customers, patients,
and health care practitioners. It would be extremely prejudicial to
Healthsource for this information to be made directly or indirectly
available to competitors, or for it to be used to Healthsource's
disadvantage in the managed care marketplace. In order to protect
Healthsource from such potential harm, you agree that during the time
of your employment with Healthsource, any of its affiliates, or
successors, and for six (6) months thereafter, you will not, on your
own behalf or for any other person or employer, compete or aid
competition in any capacity with Healthsource and/or any of its
affiliates in any state in which Healthsource or one of its affiliates
is operating.
This "Covenant Not to Compete" is material to Healthsource and our
offer of employment is contingent on your agreement to the Covenant.
Your acceptance of our offer will automatically include acceptance of
the Covenant and acknowledgement that it is reasonable. You also agree
that we can enforce the Covenant by asking a court for an injunction to
prevent a breach of the Covenant, and/or to assess money damages for
its breach that is based on damages caused to Healthsource by your
breach of the Covenant Not to Compete. A court is empowered to
<PAGE> 3
HEALTHSOURCE, INC.
Two College Park Drive
Hooksett, New Hampshire 03106
DICK SALMON, M.D., PH.D.
February 14, 1997
Page 3
restrict the scope of the Covenant if it finds that it is too broad and
to enforce it as restricted.
7. Non-solicitation
As an additional condition of your employment on the terms set forth
above, during your employment and for a period of one (1) year
thereafter, you shall not, directly or indirectly, employ, attempt to
employ, recruit or otherwise solicit, induct or influence to leave
his/her employment any employee of Healthsource or its subsidiaries.
We are very pleased with your continued employment with Healthsource.
Sincerely,
/s/ Norm Payson
- -----------------------------
Norm Payson, M.D.
President and
Chief Executive Officer
/kmc
By signing below, I indicate my
acceptance of the terms of this
employment agreement.
/s/ Dick Salmon 2/14/97
-----------------------------------------
<PAGE> 1
THE HEALTHSOURCE
DEFERRED COMPENSATION PLAN
FOR SELECTED EMPLOYEES
Effective October 15, 1995
<PAGE> 2
TABLE OF CONTENTS
Purpose......................................................................1
ARTICLE 1
Definitions..................................................................1
ARTICLE 2 Eligibility and Enrollment......................................6
2.1 Participation...................................................6
2.2 Enrollment Requirements.........................................6
2.3 Commencement of Participation...................................6
2.4 Termination of Participation and/or Deferrals...................7
ARTICLE 3 Deferral Commitments/Interest Crediting/Taxes...................7
3.1 Minimum Deferral................................................7
3.2 Maximum Deferral................................................8
3.3 Election to Defer; Effect of Election Form......................8
3.4 Withholding of Deferral Amounts.................................8
3.5 Employer Credits................................................9
3.6 Interest Crediting..............................................9
3.7 Interesting Crediting for Installment Distributions.............9
3.8 FICA and Other Taxes............................................9
ARTICLE 4 Short-Term Payout; Withdrawals.................................10
4.1 Short-Term Payout..............................................10
4.2 Other Benefits Take Precedence Over Short-Term Payout..........10
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies....................................................10
4.4 Withdrawal Election............................................11
ARTICLE 5 Retirement Benefit.............................................11
5.1 Retirement Benefit.............................................11
5.2 Payment of Retirement Benefit..................................11
5.3 Death Prior to Completion of Retirement Benefit................11
ARTICLE 6 Pre-Retirement Survivor Benefit................................12
6.1 Pre-Retirement Survivor Benefit................................12
6.2 Payment of Pre-Retirement Survivor Benefit.....................12
ARTICLE 7 Termination Benefit............................................12
7.1 Termination Benefit............................................12
7.2 Payment of Termination Benefit.................................13
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<PAGE> 3
ARTICLE 8 Disability Waiver and Benefit................... 13
8.1 Disability Waiver............................... 13
8.2 Continued Eligibility; Disability Benefit....... 13
ARTICLE 9 Beneficiary Designation......................... 14
9.1 Beneficiary..................................... 14
9.2 Beneficiary Designation......................... 14
9.3 Acknowledgment.................................. 14
9.4 No Beneficiary Designation...................... 14
9.5 Doubt as to Beneficiary......................... 14
9.6 Discharge of Obligations........................ 15
ARTICLE 10 Leave of Absence................................ 15
10.1 Paid Leave of Absence........................... 15
10.2 Unpaid Leave of Absence......................... 15
ARTICLE 11 Termination, Amendment or Modification.......... 15
11.1 Termination..................................... 15
11.2 Amendment....................................... 16
11.3 Plan Agreement.................................. 17
11.4 Effect of Payment............................... 17
ARTICLE 12 Administration.................................. 17
12.1 Committee Duties................................ 17
12.2 Agents.......................................... 17
12.3 Binding Effect of Decisions..................... 17
12.4 Indemnity of Committee.......................... 17
12.5 Employer Information............................ 17
ARTICLE 13 Other Benefits and Agreements................... 18
13.1 Coordination with Other Benefits................ 18
ARTICLE 14 Claims Procedures............................... 18
14.1 Presentation of Claim........................... 18
14.2 Notification of Decision........................ 18
14.3 Review of a Denied Claim........................ 19
14.4 Decision on Review.............................. 19
14.5 Legal Action.................................... 19
ARTICLE 15 Trust........................................... 20
15.1 Establishment of the Trust...................... 20
15.2 Interrelationship of the Plan and the Trust..... 20
15.3 Distribution From the Trust..................... 20
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<PAGE> 4
ARTICLE 16 Miscellaneous................................ 20
16.1 Limitation on Benefit Payment................ 20
16.2 Status of Plan............................... 21
16.3 Unsecured General Creditor................... 21
16.4 Employer's Liability......................... 21
16.5 Nonassignability............................. 21
16.6 Not a Contract of Employment................. 21
16.7 Furnishing Information....................... 22
16.8 Terms........................................ 22
16.9 Captions..................................... 22
16.10 Governing Law................................ 22
16.11 Notice....................................... 22
16.12 Successors................................... 22
16.13 Spouse's Interest............................ 22
16.14 Validity..................................... 23
16.15 Incompetent.................................. 23
16.16 Court Order.................................. 23
16.17 Distribution in the Event of Taxation........ 23
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<PAGE> 5
THE HEALTHSOURCE
DEFERRED COMPENSATION PLAN
FOR SELECTED EMPLOYEES
Effective October 15, 1995
Purpose
The purpose of this Plan is to provide specified benefits to a select
group of highly compensated Employees who contribute materially to the
continued growth, development and future business success of Community Choice
Physicians, Healthsource Physician Group, Inc. and any other Healthsource
Company, if any, that adopts this Plan. This Plan shall be unfunded for tax
purposes and for purposes of Title I of ERISA.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated meanings:
1.1 "Account Balance" shall mean (i) the Deferral Amount, plus (ii) interest
credited in accordance with all the applicable interest crediting
provisions of this Plan, less (iii) all distributions. This account
shall be a bookkeeping entry only and shall be utilized solely as a
device for the measurement and determination of the amounts to be paid
to a Participant pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary, paid annually to a Participant as an Employee under any
Employer's annual bonus and incentive plans.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and/or Annual Bonus that a Participant elects to have
deferred in accordance with Article 3, for any one Plan Year, together
with any Employer credit made to the Participant's Account Balance
pursuant to Section 3.5 for such Plan Year. In the event of a
Participant's Retirement, Disability (if deferrals cease in accordance
with Section 8.1), death or a Termination of Employment prior to the end
of a Plan Year, such year's Annual Deferral Amount shall be the actual
amount withheld (or credited pursuant to Section 3.5) prior to such
event.
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<PAGE> 6
1.4 "Base Annual Salary" shall mean the annual compensation, excluding
bonuses, commissions, overtime, fringe benefits, stock options,
relocation expenses, incentive payments, non-monetary awards, directors
fees and other fees, automobile and other allowances (whether or not
such allowances are included in the Employee's gross income), paid to a
Participant for employment services rendered. Base Annual Salary shall
be calculated before reduction for compensation voluntarily deferred or
contributed by the Participant pursuant to all qualified or
non-qualified plans and shall be calculated to include amounts not
otherwise included in the Participant's gross income under Code Sections
125, 402(e)(3), 402(h) or 403(b) pursuant to plans established by any
Employer; provided, however, that all such amounts will be included in
compensation only to the extent that, had there been no such plan, the
amount would have been payable in cash to the Employee.
1.5 "Beneficiary" shall mean one or more persons, trust, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Bonus Rate" shall mean, for a Plan Year, an interest rate equal to 20%
of the Crediting Rate determined for such Plan Year.
1.9 "Change in Control" shall mean the first to occur of any of the
following events:
(a) Any "person" (as that term is used in Section 13 and
14(d)(2) of the Securities Exchange Act of 1934 ("Exchange
Act")) becomes the beneficial owner (as that term is used
in Section 13(d) of the Exchange Act), directly or
indirectly, of 50% or more of the Company's capital stock
entitled to vote in the election of directors;
(b) During any period of not more than two consecutive years,
not including any period prior to the adoption of this
Plan, individuals who, at the beginning of such period
constitute the board of directors of the Company, and any
new director (other than a director designated by a person
who has entered into an agreement with the Company to
effect a transaction described in clause (a), (c), (d) or
(e) of this Section 1.9) whose election by the board of
directors or nomination for election by the Company's
stockholders was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in
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<PAGE> 7
office, who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved, cease for any reason to constitute
at least a majority thereof:
(c) The shareholders of the Company approve any consolidation
or merger of the Company, other than a consolidation or
merger of the Company in which the holders of the common
stock of the Company immediately prior to the consolidation
or merger hold more than 50% of the common stock of the
surviving corporation immediately after the consolidation
or merger;
(d) The shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company;
or
(e) The shareholders of the Company approve the sale or
transfer of substantially all of the assets of the Company
to parties that are not within a "controlled group of
corporations" (as defined in Code Section 1563) in which
the Company is a member.
1.10 "Claimant" shall have the meaning set forth in Section 14.1.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as may be amended
from time to time.
1.12 "Committee" shall mean the committee described in Article 12.
1.13 "Company" shall mean Healthsource, Inc., a New Hampshire corporation, and
any successor to all or substantially all of the Company's assets or
business which assumes the obligations of the Company.
1.14 "Compensation" shall mean compensation as defined in the Healthsource,
Inc. Retirement Savings Plan for purposes of determining Matching
Contributions under that plan.
1.15 "Crediting Rate" shall mean, for each Plan Year, an interest rate, stated
as an annual rate, determined and announced by the Committee before the
Plan Year for which it is to be used that is equal to the applicable
"Moody's Rate." The Moody's Rate for a Plan Year shall be an interest
rate, stated as an annual rate, that (i) is published in Moody's Bond
Record under the heading of "Moody's Corporate Bond Yield Averages -- Av.
Corp." and (ii) is equal to the average corporate bond yield calculated
for the October preceding the Plan Year for which the rate is to be used:
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<PAGE> 8
provided, however, that for the first Plan Year of the Plan, such rate
shall be equal to the average corporate bond yield calculated for
September, 1995.
1.16 "Deferral Amount" shall mean the sum of all of a Participant's Annual
Deferral Amounts.
1.17 "Deduction Limitation" shall mean the limitation described in Section
16.1 on a benefit that may otherwise be distributable pursuant to the
provisions of this Plan.
1.18 "Disability" shall mean a period of disability during which a Participant
qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under
such a plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee.
1.19 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.20 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.21 "Employee" shall mean a person who is an employee of any Employer.
1.22 "Employer(s)" shall mean Community Choice Physicians and Healthsource
Physicians Group, Inc. and any other Healthsource Company (now in
existence or hereafter formed or acquired) that have been selected by the
Board to participate in the Plan and have adopted the Plan as a sponsor.
1.23 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.24 "Healthsource Company" shall mean Healthsource, Inc., a New Hampshire
corporation and any subsidiary of Healthsource, Inc.
1.25 "Matching Contribution" shall mean a matching contribution as defined in
the Healthsource, Inc. Retirement Savings Plan.
1.26 "Participant" shall mean any Employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a
Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv)
whose signed Plan Agreement, Election Form and Beneficiary Designation
Form are accepted by the Committee, (v) who commences participation in the
Plan, and (vi) whose Plan
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<PAGE> 9
Agreement has not terminated. A spouse or former spouse of a Participant
shall not be treated as a Participant in the Plan, even if he or she has
an interest in the Participant's benefits under the Plan as a result of
applicable law or property settlements resulting from legal separation or
divorce.
1.27 "Plan" shall mean the Healthsource Deferred Compensation Plan for Selected
Employees, which shall be evidenced by this instrument and by each Plan
Agreement, as may be amended from time to time.
1.28 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which such
Participant is entitled to under the Plan, and the Plan Agreement bearing
the latest date of acceptance by the Committee shall govern such
entitlement. The terms of any Plan Agreement may be varied by
Participant, and any Plan Agreement may provide additional benefits not
set forth in the Plan or limit the benefits otherwise provided under the
Plan; provided, however, that any such additional benefits or benefit
limitations must be agreed to by both the Employer and the Participant.
1.29 "Plan Year" shall, for the first Plan Year, begin on October 15, 1995, and
end on December 31, 1995. For each Plan Year thereafter, the Plan Year
shall begin on January 1 of each year and continue through December 31.
1.30 "Preferred Rate" shall mean, for each Plan Year, an interest rate that is
the sum of the Crediting Rate and the Bonus Rate for that Plan Year.
1.31 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.32 "Retirement", "Retires" or "Retired" shall mean, with respect to an
Employee, severance from employment from all Employers for any reason
other than a leave of absence, death or Disability on or after the earlier
of the attainment of (a) age sixty-five(65) or (b) age fifty-five(55) with
five (5) Years of Service.
1.33 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.34 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.35 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.36 "Termination of Employment" shall mean the ceasing of employment with all
Employers, voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
-5-
<PAGE> 10
1.37 "Trust" shall mean the trust established pursuant to that certain Trust
Agreement, effective as of October 15, 1995, between the Company and the
trustee named therein, as amended from time to time.
1.38 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting
from (i) a sudden and unexpected illness or accident of the Participant or
a dependent of the Participant, (ii) a loss of the Participant's property
due to casualty, or (iii) other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Committee.
1.39 "Years of Deferral" shall mean, with respect to a Participant's Annual
Deferral Amount for a Plan Year, the number of full Plan Years between the
beginning of such Plan Year and the Participant's Termination of
Employment.
1.40 "Years of Plan Participation" shall mean the total number of full Plan
Years a Participant has been a Participant in the Plan prior to his or her
Termination of Employment. For purposes of a Participant's first Plan
Year of Participation only, any partial Plan Year of participation shall
be treated as a full Plan Year.
1.41 "Years of Service" shall mean the total number of full years in which a
Participant has been an Employee. Any partial year shall not be counted.
ARTICLE 2
ELIGIBILITY AND ENROLLMENT
--------------------------
2.1 PARTICIPATION. Participation in the Plan shall be limited to a select
group of highly compensated Employees of the Employers, as determined by
the Committee, in its sole discretion. From that group, the Committee
shall select, in its sole discretion, Employees to participate in the
Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
Employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form within 30
days of the later of (a) October 15, 1995 or (b) the day on which he or
she is selected to participate in the Plan. In addition, the Committee
shall establish from time to time such other enrollment requirements as it
determines, in its sole discretion, are necessary.
2.3 COMMENCEMENT OF PARTICIPATION. Each selected Employee shall commence
participation in the Plan upon satisfaction of all enrollment requirements
set forth in this Plan and required by the Committee, including returning
all required documents
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to the Committee within the required time frame. If a selected Employee
fails to meet all such requirements within the required 30 day period, he
or she shall not be eligible to participate in the Plan until the first
day of the Plan Year following the delivery to and acceptance by the
Committee of the required documents.
3.4 Termination of Participation and/or Deferrals. If the Committee determines
in good faith that a Participant no longer qualifies as a member of a
select group of management or highly compensated employees, as membership
in such group is determined in accordance with Sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA, the Committee shall have the right, in its sole
discretion, to (i) terminate any deferral election the Participant has
made for the Plan Year in which the Participant's membership status
changes, (ii) prevent the Participant from making future deferral
elections and/or (iii) immediately distribute the Participant's then
Account Balance as a Termination Benefit and terminate the Participant's
participation in the Plan. If the Committee chooses not to terminate the
Participant's participation in the Plan, the Committee may, in its sole
discretion, reinstate the Participant to full Plan participation at such
time in the future as the Participant again becomes a member of the
select group described above.
ARTICLE 3
Deferral Commitments/Interest Crediting/Taxes
3.1 Minimum Deferral
(a) Minimum. For each Plan Year, a Participant may elect to defer one or
more of the following forms of compensation in the following minimum
amounts for each deferral elected:
MINIMUM
DEFERRAL AMOUNTS
Base Annual Salary $2,000
Annual Bonus $2,000
If an election is made for less than stated minimum amounts, or if no
election is made, the amount deferred shall be zero.
(b) Short Plan Year. If a Participant first becomes a Participant after
the first day of a Plan Year, or in the case of the first Plan Year of the Plan
itself, the minimum Base Annual Salary deferral shall be an amount equal to the
minimum set forth above, multiplied by a fraction, the numerator of which is
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the number of complete months remaining in the Plan Year and
the denominator of which is 12.
3.2 Maximum Deferral. For each Plan Year, a Participant may elect to defer
his or her Base Annual Salary and/or Annual Bonus up to the following
maximum percentages for each deferral elected:
MAXIMUM
DEFERRAL PERCENTAGE
Base Annual Salary 50%
Annual Bonus 100%
Notwithstanding the foregoing, if a selected Employee first becomes a
participant after the first day of a Plan Year, or in the case of the first
Plan Year of the Plan itself, the maximum Annual Deferral Amount shall be
limited to the amount of compensation not yet earned by the Participant as of
the later of October 15, 1995 or the date the Participant submits a Plan
Agreement and Election Form that are accepted by the Committee. Moreover, the
Committee, from time to time and in its sole discretion, may establish further
limits regarding the percentage of a Participant's Base Annual Salary and/or
Annual Bonus which may be deferred for a Plan Year.
3.3 Election to Defer: Effect of Election Form.
(a) First Plan Year. In connection with a Participant's
commencement of participation in the Plan, the Participant
shall make an irrevocable deferral election for the Plan Year
in which the Participant commences participation in the Plan,
along with such other elections as the Committee deems
necessary or desirable under the Plan. For these elections to
be valid, the Election Form must be completed and signed by the
Participant, timely delivered to the Committee (in accordance
with Section 2.3 above) and accepted by the Committee.
(b) Subsequent Plan Years. For each succeeding Plan Year, an
irrevocable deferral election for that Plan Year, and such
other elections as the Committee deems necessary or desirable
under the Plan, shall be made by timely delivering to the
Committee, in accordance with its rules and procedures before
the end of the Plan Year preceding the Plan Year for which the
election is made, a new Election Form. if no Election Form is
timely delivered for a Plan Year, there shall be no Annual
Deferral Amount for the Plan Year.
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3.4 WITHHOLDING OF DEFERRAL AMOUNTS. For each Plan Year, the Base Annual
Salary portion of the Annual Deferral Amount shall be withheld in equal
amounts from each regularly scheduled Base Annual Salary payroll. The
Annual Bonus portion of the Annual Deferral Amount shall be withheld at the
time the Annual Bonus is or otherwise would be paid to the Participant.
3.5 EMPLOYER CREDITS. If, for a calendar year, a Participant elects to defer a
percentage of his or her Compensation under the Healthsource, Inc.
Retirement Savings Plan ("Healthsource 401(k) Plan") and the aggregate
Matching Contributions made by the Participant's Employer under that plan
for such year are less than the lesser of (i) 50% of the amounts deferred
under the Healthsource 401(k) Plan for the year or (ii) 3% of the
Participant's Compensation in such year, increased (but not beyond the
$150,000 compensation limit, as adjusted from time to time under Code
section 401(a)(17)) by the amounts deferred under this Plan for the year,
then his or her Employer shall credit to his or her Account Balance under
this Plan, as of the last day of such calendar year, the lesser of the
amounts set forth in clauses (i) and (ii) above, reduced by the aggregate
Matching Contributions made for the Participant under the Healthsource
401(k) Plan for the calendar year.
3.6 INTEREST CREDITING. Prior to any distribution of benefits under Article 4,
5, 6, 7 or 8, interest shall be credited and compounded annually on a
Participant's Account Balance as though the Annual Deferral Amount for that
Plan Year was withheld at the beginning of the Plan Year or, in the case of
the first year of Plan participation, was withheld on the date that the
Participant commenced participation in the Plan; provided, however, that
any employer credit made under Section 3.5 for such Plan Year shall earn
interest only from the end of such Plan Year. The rate of interest for
crediting shall be the Preferred Rate, except as otherwise provided in this
Plan, which rate shall be treated as the nominal rate for crediting
interest. In the event distribution of the Annual Deferral Amount is made
or commences prior to the end of a Plan Year, the basis for that year's
interest crediting will be a fraction of the full year's interest, based on
the number of full months prior to such distribution or commencement. For
purposes of crediting interest up to the time of a distribution, each
distribution shall be treated as made on the first day of the month in
which the distribution is actually made.
3.7 INTEREST CREDITING FOR INSTALLMENT DISTRIBUTIONS. If a Participant's
benefits under this Plan are to be paid in substantially equal monthly
installments, such payments shall be determined by amortizing the
Participant's specified benefit over the number of months elected, using
the Preferred Rate for each year and treating the first installment
payment as all principal and each subsequent installment payment, first as
interest accrued for the applicable installment period on the unpaid
Account Balance and second as a reduction in the Account Balance.
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3.8 FICA AND OTHER TAXES. For each Plan Year in which the Participant has
an Annual Deferral Amount, the Participant's Employer(s) shall withhold
from that portion of the Participant's Base Annual Salary and Annual
Bonus that is not being deferred, in a manner determined by the
Employer(s), the Participant's share of FICA and other employment taxes.
If necessary, the Committee shall reduce the Annual Deferral Amount in
order to comply with this Section 3.8. In addition, the Participant's
Employer(s), or the trustee of the Trust, shall withhold from any
payments made to a Participant under this Plan all federal, state and
local income, employment and other taxes required to be withheld by the
Employer(s), or the trustee of the Trust, in connection with such
payments, in amounts and in a manner to be determined in the sole
discretion of the Employer(s) and the trustee of the Trust.
ARTICLE 4
SHORT-TERM PAYOUT; WITHDRAWALS
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
Deferral Amount, a Participant may elect to receive a future "Short-Term
Payout" from the Plan with respect to that Annual Deferral Amount.
Subject to the Deduction Limitation, the Short-Term Payout shall be a
lump sum payment in an amount that is equal to the Annual Deferral
Amount plus interest credited in the manner provided in Section 3.5
above on that amount, but using the applicable interest rate set forth
in Section 7.1 below determined at the time that the Short-Term Payout
becomes payable (rather than the date of a Termination of Employment).
Subject to the other terms and conditions of this Plan, each Short-Term
Payout elected shall be paid, subject to the Deduction Limitation,
within 60 days of the first day of any Plan Year designated by the
Participant that is at least 5 years after the first day of the Plan
Year in which the Annual Deferral Amount is actually deferred.
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT. Should an event
occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual
Deferral Amount, plus interest thereon, that is subject to a Short-Term
Payout election under Section 4.1 shall not be paid in accordance with
Section 4.1, but shall be paid in accordance with the other applicable
Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or
full payout from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed
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to satisfy Unforeseeable Financial Emergency, If, subject to the sole
discretion of the Committee, the petition for a suspension and/or
payout is approved, suspension shall take effect upon the date of
approval and any payout shall be made with in 60 days to the date of
approval. The payment of any amount under this Section 4.3 shall not
be subject to the Deduction Limitation.
4.4 WITHDRAWAL ELECTION. A Participant may elect, at any time, to withdraw
all of his or her Account Balance, calculated as if there had occurred
a Termination of Employment; as of the day of the election, less a
withdrawal penalty equal to 10% of such amount (the net amount shall
be referred to as the "Withdrawal Amount"). This election can be made
at any time before or after Retirement, Disability, death or
Termination of Employment, and whether or not the Participant (or
Beneficiary) is in the process for being paid pursuant to an
installment payment schedule. No partial withdrawals of the Withdrawal
Amount shall be allowed. The Participant shall make this election by
giving the Committee advance written notice of the election in a form
determined from time to time by the Committee. The Participant shall
be paid the Withdrawal Amount within 60 days of his or her election.
Once the Withdraw Amount is paid, the Participant's
participation in the Plan shall terminate and the Participant shall
not be eligible to participate in the Plan in the future. The payment
of this Withdrawal Amount shall not be subject to the Deduction
Limitation.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a
Participant who Retires shall receive, as a Retirement Benefit, his or
her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his
or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or in
equal monthly payments the latter determined in accordance with
Section 3.6 above) over a period of 60, 120 or 180 months. The
Participant may annually change his or her election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, provided that any such Election Form is submitted as least
3 years prior to the Participant's Retirement and is accepted by the
Committee in its sole discretion. The Election Form most recently
accepted by the Committee shall govern the payout of the Retirement
Benefit. If a Participant does not make any election with respect to
the payment of the Retirement Benefit, then such benefit shall be
payable in a lump sum. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days after the
date the Participant Retires. Any payment made shall be subject to the
Deduction Limitation.
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5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full,
the Participant's unpaid Retirement Benefit payments shall continue
and shall be paid to the Participant's Beneficiary (a) over the
remaining number of months and in the same amounts as that benefit
would have been paid to the Participant had the Participant survived,
or (b) in a lump sum, if requested by the Beneficiary and allowed in
the sole discretion of the Committee, that is equal to the
Participant's unpaid remaining Account Balance.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation,
the Participant's Beneficiary shall receive a Pre-Retirement Survivor
Benefit equal to the Participant's Account Balance, if the Participant
dies before he or she Retires, experiences a Termination of
Employment or suffers a Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. The payment of the
Pre-Retirement Survivor Benefit shall be paid in a lump sum. The lump
sum payment shall be made no later than 60 days after the date the
Committee is provided with proof that is satisfactory to the Committee
of the Participant's death. Any payment made shall be subject to the
Deduction Limitation.
ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the
Participant shall receive a Termination Benefit, which shall be equal
to the Participant's Account Balance, with interest credited in the
manner provided in Section 3.5 above, but using the applicable
interest rate set forth in the following schedule, if a Participant
experiences a Termination of Employment prior to his or her Retirement
or death.
Completion of Years of Plan Participation Applicable Rate
Ten years or more Preferred Rate
Less than ten years:
- Portion of Account Balance
attributable to Annual Deferral
Amounts with five or more
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Years of Deferral Preferred Rate
- Portion of Account Balance
attributable to Annual Deferral
Amounts with less than five
Years of Deferral Crediting Rate
Notwithstanding the foregoing, if a Participant experiences a
Termination of Employment within the two (2) year period following a
Change in Control, the Participant shall receive a Termination Benefit
equal to his or her Account Balance, with interest credited at the
Preferred Rate.
7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid in
a lump sum within 60 days of the Termination of Employment. Any payment
made shall be subject to the Deduction Limitation.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) WAIVER OF DEFERRAL. A Participant who is determined by the
Committee to be suffering from a Disability shall be excused
from fulfilling that portion of the Annual Deferral Amount
commitment that would otherwise have been withheld from a
Participant's Base Annual Salary and/or Annual Bonus for the
Plan Year during which the Participant first suffers a
Disability. During the period of Disability, the Participant
shall not be allowed to make any additional deferral elections,
but will continue to be considered a Participant for all other
purposes of this Plan.
(b) RETURN TO WORK. If a Participant returns to employment, or
service as a Director, with an Employer after a Disability
ceases, the Participant may elect to defer an Annual Deferral
Amount for the Plan Year following his or her return to
employment or service and for every Plan Year thereafter while a
Participant in the Plan; provided such deferral elections are
otherwise allowed and an Election Form is delivered to and
accepted by the Committee for each such election in accordance
with Section 3.3 above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the benefits
provided for in Articles 4,5,6 or 7 in accordance with the provisions of
those Articles. Notwithstanding the above, the
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Committee shall have the right, in its sole and absolute discretion and
for purposes of this Plan only, to terminate a Participant's employment
at any time after such Participant is determined to have a Disability.
If, after the second anniversary of the date a Participant is determined
to have a Disability, the Committee exercises such right under this
Section or the Participant otherwise experiences a Termination of
Employment, the Participant shall receive a Disability Benefit equal to
his or her Account Balance at the time of the termination, credited with
the Preferred Rate; provided, however, that should the Participant
otherwise have been eligible to Retire, he or she shall be paid in
accordance with Article 5. The Disability Benefit shall be paid in a
lump sum within 60 days of the Committee's exercise of such right. Any
payment made shall be subject to the Deduction Limitation.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as
contingent) to receive any benefits payable under the Plan to a
beneficiary upon the death of a Participant. The Beneficiary designated
under this Plan may be the same as or different from the Beneficiary
designation under any other plan of an Employer in which the Participant
participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall
designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. If the Participant names
someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance
by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary
shall be effective until received, accepted and acknowledged in writing
by the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above, or if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's
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benefits, then the Participants designated Beneficiary shall be deemed to be
his or her surviving spouse. If the Participant has no surviving spouse, the
benefits remaining under the Plan to be paid to a Beneficiary shall be payable
to the executor or personal representative of the Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee shall have
the right, exercisable in its discretion, to cause the Participant's Employer
to withhold such payments until this matter is resolved to the Committee's
satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon such
full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence from the
employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with Section 3.4
10.3 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence from
the employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence expires or the
Participant returns to a paid employment status. Upon such expiration or
return, deferrals shall resume for the remaining portion of the Plan Year in
which the expiration or return occurs, based on the deferral election, if any,
made for that Plan Year. If no election was made for that Plan Year, no
deferral shall be withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 TERMINATION. Although the Employers anticipate that they will continue
the Plan for an indefinite period of time, there is no guarantee that any
Employer will continue the Plan or will not terminate the Plan at any time in
the future. Accordingly, each Employer reserves the right to discontinue its
sponsorship of the
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Plan and/or to terminate the Plan, at any time, with respect to its
participating Employees and Directors by the actions of its board of directors.
In addition, the Company may terminate the Plan with respect to any or all
Employers by action of the Board. Upon the termination of the Plan with respect
to any Employer, the Plan Agreements of the affected Participants who are
employed by that Employer shall terminate and their Account Balances, determined
as if they had experienced a Termination of Employment on the date of Plan
termination or, if Plan termination occurs after the date upon which a
Participant was eligible to Retire, then with respect to that Participant as if
he or she had Retired on the date of Plan termination, shall be paid to the
Participants as follows. Prior to a Change in Control, an Employer shall have
the right, in its sole discretion, and notwithstanding any elections made by the
Participant, to pay such benefits in a lump sum or in monthly installments for
up to 15 years, with interest credited during the installment period as provided
in Section 3.6. After a Change in Control, the Employer shall be required to pay
such benefits in a lump sum. The termination of the Plan shall not adversely
affect any Participant or Beneficiary who had become entitled to the payment of
any benefits under the Plan as of the date of termination; provided however,
that the Employer shall have the right to accelerate installment payments by
paying the present value equivalent of such payments, using the Crediting Rate
for the Plan Year in which the termination occurs as the discount rate, in a
lump sum or pursuant to a different payment schedule (provided that, the present
value of all payments that will have been received by a Participant at any given
point in time under the different payment schedule shall equal or exceed the
present value of all payments that would have been received at that point in
time under the original payment schedule).
11.2 AMENDMENT. The Company may, at any time, amend or modify the Plan in
whole or in part with respect to any or all Employers by the action of the
Board; provided, however, that no amendment or modification shall be effective
to decrease or restrict the value of a Participant's Account Balance in
existence at the time the amendment or modification is made, calculated as if
the Participant had experienced a Termination of Employment as of the effective
date of the amendment or modification, or, if the amendment or modification
occurs after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification. The amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the payment of benefits
under the Plan as of the date of the amendment or modification; provided,
however, that the Company shall have the right to accelerate installment
payments by paying the present value equivalent of such payments, using the
Crediting Rate for the Plan Year of the amendment or modification as the
discount rate, in a lump sum or pursuant to a different payment schedule
(provided that, the present value of all payments that will have been received
by a Participant at any given point in time under the different payment
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schedule shall equal or exceed the present value of all payments that
would have been received at that point in time under the original
payment schedule).
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above,
if a Participant's Plan Agreement contains benefits or limitations that
are not in this Plan document, the Employer may only amend or terminate
such provisions with the consent of the Participant.
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Section 4.4 or Articles 5, 6, 7 or 8 of the Plan shall completely
discharge all obligations to a Participant and his or her designated
Beneficiaries under this Plan and the Participant's Plan Agreement shall
terminate.
ARTICLE 12
ADMINISTRATION
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Deferred
Compensation Committee (the "Committee"). Members of the Committee may
be Participants under this Plan. The Committee shall also have the
discretion and authority to (i) make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Plan
and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan.
12.2 AGENTS. In the administration of this Plan, the Committee may, from time
to time, employ agents and delegate to them such administrative duties
as it sees fit (including acting through a duly appointed
representative) and may from time to time consult with counsel who may
be counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan, in the absence
of clear and convincing evidence that the Committee acted arbitrarily
and capriciously.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee and any Employee to whom duties of the
Committee may be delegated against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with
respect to this Plan, except in the case of willful misconduct by the
Committee, any of its members, or any such Employee.
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12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee
on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement. Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in addition
to any other benefits available to such Participant under any other plan
or program for employees of the Participant's Employer. The Plan shall
supplement and shall not supersede, modify or amend any other such plan
or program except as may otherwise be expressly provided.
ARTICLE 14
CLAIMS PROCEDURES
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as
a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after
such notice was received by the Claimant. The claim must state with
particularity the determination desired by the Claimant. All other
claims must be made within 180 days of the date on which the event that
caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood
by the Claimant:
(i) the specific reason(s) for the denial of the claim, or
any part of it;
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(ii) specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth
in Section 14.3 below.
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review procedure
began, the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A claimant's compliance with the foregoing provisions of
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
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ARTICLE 15
TRUST
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and
the Employers shall at least annually transfer over to the Trust such
assets as the Employers determine, in their sole discretion, are
necessary to provide, on a present value basis, for their respective
future liabilities created with respect to the Annual Deferral Amounts
and interest credits for that year.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
and the Plan Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust
shall govern the rights of the Employers, Participants and the creditors
of the Employers to the assets transferred to the Trust. Each Employer
shall at all times remain liable to carry out its obligations under the
Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the Plan
may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employer's
obligations under this Agreement.
ARTICLE 16
MISCELLANEOUS
16.1 LIMITATION ON BENEFIT PAYMENT. Except as otherwise provided, this
limitation shall be applied to all distributions that are "subject to
the Deduction Limitation" under this Plan. If an Employer determines in
good faith prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a taxable
year of the Employer would not be deductible by the Employer solely by
reason of the limitation under Code Section 162(m), then to the extent
deemed necessary by the Employer to ensure that the entire amount of any
distribution to the Participant pursuant to this Plan prior to the
Change in Control is deductible, the Employer may defer all or any
portion of a distribution under this Plan. Any amounts deferred pursuant
to this limitation shall continue to be credited with interest in
accordance with Section 3.5(a). The amounts so deferred and interest
thereon shall be distributed to the Participant or his or her
Beneficiary (in the event of the Participant's death) at the earliest
possible date, as determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the Participant for the
taxable year of the Employer during which the distribution is made will
not be limited by Code Section 162(m) or, if earlier, the effective date
of a Change in Control. Notwithstanding anything to the contrary in this
Plan, the Deduction Limitation shall not apply to any distributions made
after a Change in Control.
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16.2 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified
within the meaning of Code Section 401(a) and that "is unfunded and is
maintained by an employer primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees" within the meaning of ERISA Sections 201(2),
301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted
to the extent possible in a manner consistent with that intent.
16.3 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of an Employer. For
purposes of the payment of benefits under this Plan, any and all of an
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
16.4 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
16.5 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or
convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are
expressly declared to be, unassignable and non-transferable, except that
the foregoing shall not apply to any court order specified in Section
16.4 below. No part of the amounts payable shall, prior to actual
payment, be subject to seizure, attachment, garnishment or sequestration
for the payment of any debts, judgments, alimony or separate maintenance
owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency.
16.6 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any
time for any reason, or no reason, with or without cause, and with or
without notice, unless expressly provided in a written employment
agreement. Nothing in this Plan shall be deemed to give a Participant
the right to be retained in the service of any Employer, either as an
Employee or a Director, or to interfere with the right of any Employer
to discipline or discharge the Participant at any time.
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<PAGE> 26
16.7 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking such
physical examinations as the Committee may deem necessary.
16.8 TERMS. Whenever any words are used herein in the masculine, they shall
be construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular
or in the plural, they shall be construed as though they were used in
the plural or the singular, as the case may be, in all cases where they
would so apply.
16.9 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
16.10 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
New Hampshire without regard to its conflicts of laws principles.
16.11 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Deferred Compensation Committee
Healthsource, Inc.
Two College Park Drive
Hookset, NH 03106
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
16.12 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's designated Beneficiaries.
16.13 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall automatically
pass to the
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<PAGE> 27
Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor shall such interest
pass under the laws of interstate succession.
16.14 VALIDITY. In case any provision of this Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the
remaining part hereof, but this Plan shall be construed and enforced as
if such illegal or invalid provision had never been inserted herein.
16.15 INCOMPETENT. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to
the guardian, legal representative or person having the care and custody
of such minor, incompetent or incapable person. The Committee may
require proof of minority, incompetency, incapacity or guardianship, as
it may deem appropriate prior to distribution of the benefit. Any
payment of a benefit shall be a payment for the account of the
Participant and the Participant's Beneficiary, as the case may be, and
shall be a complete discharge of any liability under the Plan for such
payment amount.
16.16 COURT ORDER. The Committee is authorized to make any payments directed
by court order in any action in which the Plan or the Committee has been
named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Plan as the result
of a property settlement or otherwise, the Committee, in its sole
discretion, shall have the right, notwithstanding any election made by a
Participant to immediately distribute the spouse's or former spouse's
interest in the Plan to that spouse or former spouse.
16.17 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) GENERAL. If, for any reason, all or any portion of a
Participant's benefit under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the
Committee before a Change in Control, or the trustee of the
Trust after a Change in Control, for a distribution of that
portion of his or her benefit that has become taxable. Upon the
grant of such a petition, which grant shall not be reasonably
withheld, a Participant's Employer shall distribute to the
Participant immediately available funds in an amount equal to
the taxable portion of his or her benefit (which amount shall
not exceed a Participant's unpaid Account Balance under the
Plan). If the petition is granted, the tax liability
distribution shall be made within 90 days of the date when the
Participant's petition is granted. Such a distribution shall
affect and reduce the benefits to be paid under this Plan.
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<PAGE> 28
(b) TRUST. If the Trust terminates in accordance with Section 3.6(e)
of the Trust and benefits are distributed from the Trust to a
Participant in accordance with that Section, the Participant's
benefits under this Plan shall be reduced to the extent of such
distributions.
IN WITNESS WHEREOF, the Company has signed this Plan document this 20th
day of October, 1995.
Healthsource, Inc.
--------------------------------------
a New Hampshire corporation
By: /s/
-----------------------------------
Title: Vice President, General Counsel
-------------------------------
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<PAGE> 1
HEALTHSOURCE, INC.
1991 NON-QUALIFIED STOCK OPTION PLAN
A. PURPOSE AND SCOPE.
The purposes of this Plan are to encourage stock ownership by key
management employees of HEALTHSOURCE, INC. (herein called the "Company") and
its Subsidiaries, to provide an incentive for such employees to expand and
improve the profits and prosperity of the Company and its Subsidiaries, and to
assist the Company and its Subsidiaries in attracting and retaining key
personnel through the grant of Options to purchase shares of the Company's
common stock.
B. DEFINITIONS.
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Stock Option Plan Committee,
which is appointed by the Board, and which shall be composed of three
members of the Board.
3. "Company" shall mean Healthsource, Inc., a New Hampshire
corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
5. "Employee" shall mean any person employed by the Company or
any present or future Subsidiary of the Company.
6. "Fair Market Value" shall mean: (i) if the Stock is listed on
a national securities exchange or the NASDAQ National Market System,
then the value per share shall be not less than the closing price on the
date of determination of fair market value, or if there were no sales on
said date, then the value shall be not less than the closing price on
the date next preceding the date of determination of fair market value
on which there were sales; (ii) if the stock is traded over the counter
and not listed on a national securities exchange, then the value per
share shall be not less than the mean between the bid and asked price on
the date of determination of fair market value or, if there is no bid
and asked price on said date, then on the next prior business day on
which there was a bid and asked price; (iii) if the Stock is not
regularly traded over
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<PAGE> 2
the counter or otherwise, then the value shall be as set by the Board
based upon reasonable methods of valuation which the Board in its sole
discretion shall employ based upon advice of counsel and experts as the
Board shall retain to assist it in its determination, but in no event
shall the Fair Market Value be less than the book value of the Stock if
the Stock is not traded over the counter or otherwise.
7. "Option" shall mean a right to purchase Stock, granted
pursuant to the Plan.
8. "Option Price" shall mean the purchase price for Stock under
an Option, as determined in SECTION F below.
9. "Participant" shall mean an employee of the Company, or of
any Subsidiary of the Company, to whom an option is granted under the
Plan.
10. "Plan" shall mean this Healthsource, Inc. 1991 Non-Qualified
Stock Option Plan.
11. "Stock" shall mean the common stock of the Company, par
value $.10 per share.
12. "Subsidiary" shall mean any corporation in which the Company
has an ownership interest.
C. STOCK TO BE OPTIONED.
Subject to the provisions of SECTION L of the Plan, the maximum number
of shares of Stock that may be optioned or sold under the Plan is 400,000
shares. Such shares may be treasury, or authorized but unissued, shares of
Stock of the Company.
D. ADMINISTRATION.
The Plan shall be administered by the Committee. All persons designated
as members of the Committee shall be "disinterested persons" within the meaning
of Rule 16b-3 of the Securities Exchange Act of 1934. Two members of the
Committee shall constitute a quorum for the transaction of business. The
Committee shall be responsible to the Board for the operation of the Plan, and
shall make recommendations to the Board with respect to participation in the
Plan by employees of the Company and its Subsidiaries, and with respect to the
extent of that participation. The interpretation and construction of any
provision of the Plan by the Committee shall be final, unless otherwise
determined by the Board. The Committee shall also have the authority to provide
Participants, in
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<PAGE> 3
any Option granted under the Plan, the right to require the Company to
repurchase options or to reacquire shares of Stock acquired through exercise of
an Option, on terms which the Committee in its sole discretion shall deem
necessary and appropriate. No member of the Board or the Committee shall be
liable for any action or determination made in good faith.
E. ELIGIBILITY.
The Board, upon recommendation of the Committee, may grant Options to
any key management employee (including an employee who is a director or an
officer) of the Company or its Subsidiaries. No options may be granted to such
a person who is also a member of the Committee. Options may be awarded by the
Board at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include
or exclude previous Participants, as the Board, after reviewing the
recommendations of the Committee, shall determine. Options granted at different
times need not contain similar provisions.
F. OPTION PRICE.
The purchase price for Stock under each Option shall be one hundred ten
percent (110%) of the fair market value of the Stock at the time the Option is
granted, but in no event less than the par value of the Stock.
G. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by the Board
and shall be evidenced by agreements in such form as the Board, after reviewing
the recommendations of the Committee, shall from time to time approve. Such
agreements shall comply with and be subject to the following terms and
conditions:
1. EMPLOYMENT AGREEMENT. The Board may, in its discretion,
include in any Option granted under the Plan a condition that the
Participant shall agree to remain in the employ of, and to render
services to, the Company or any of its Subsidiaries for a period of time
(specified in the agreement) following the date the Option is granted.
No such agreement shall impose upon the Company or any of its
Subsidiaries, however, any obligation to employ the Participant for any
period of time.
2. TIME AND METHOD OF PAYMENT. The Option Price shall be
paid in full in cash at the time an Option is exercised under the Plan.
Otherwise, an exercise of any
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<PAGE> 4
Option granted under the Plan shall be invalid and of no effect.
Promptly after the exercise of an Option and the payment of the full
Option Price, the Participant shall be entitled to the issuance of a
stock certificate evidencing his ownership of such Stock. A
Participant shall have none of the rights of a shareholder until
shares are issued to him, and no adjustment will be made for dividends
or other rights for which the record date is prior to the date such
stock certificate is issued.
3. NUMBER OF SHARES. Each Option shall state the total number
of shares of Stock to which it pertains.
4. OPTION PERIOD AND LIMITATIONS ON EXERCISE OF OPTIONS. The
Board may, in its discretion, provide that an Option may not be
exercised in whole or in part for any period or periods of time
specified in the Option agreement. Except as provided in the Option
agreement, an Option may be exercised in whole or in part at any time
during its term. No Option may be exercised after the expiration of
ten (10) years from the date it is granted. No Option may be exercised
for a fractional share of Stock.
5. CONSIDERATION. The consideration for issuance of Options
by the Company shall be determined by the Board and the judgment of
the Board as to the consideration and the sufficiency thereof shall be
conclusive.
E. TERMINATION OF EMPLOYMENT.
Except as provided in Section I below, if a Participant ceases to be
employed by the Company or any of its Subsidiaries, his Options shall terminate
immediately; provided, however, that if a Participant's cessation of
employment with the Company and its Subsidiaries is due to his retirement with
the consent of the Company or any of its Subsidiaries, the Participant may, at
any time within three (3) months after such cessation of employment, exercise
his Options to the extent that he was entitled to exercise them on the date of
cessation of employment, but in no event shall any Option be exercisable more
than ten (10) years from the date it was granted. The Committee may cancel an
Option during the three month period referred to in this paragraph, if the
Participant engages in employment or activities contrary, in the opinion of the
Committee, to the best interests of the Company or any of its Subsidiaries. The
Committee shall determine in each case whether a termination of employment shall
be considered a retirement with the consent of the Company or a Subsidiary,
and, subject to applicable law, whether a leave of absence shall constitute a
termination of employment. Any such
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<PAGE> 5
determination of the Committee shall be final and conclusive, unless overruled
by the Board.
I. RIGHTS IN EVENT OF DEATH.
If a Participant dies while employed by the Company or any of its
Subsidiaries, or within three months after having retired with the consent of
the Company or any of its Subsidiaries, and without having fully exercised his
Options, the executors or administrators, or legatees or heirs, of his estate
shall have the right to exercise such Options to the extent that such deceased
Participant was entitled to exercise the Options on the date of his death;
provided, however, that in no event shall the Options be exercisable more than
ten (10) years from the date they were granted.
J. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.
K. NONASSIGNABILITY.
Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant.
L. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Stock available for Options under the
Plan, the shares subject to any Option and the price per share shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Plan resulting from:
(i) a subdivision or consolidation of shares or any other capital adjustment;
(ii) the payment of a stock dividend; or (iii) other increase or decrease in
such shares effected without receipt of consideration by the Company. If the
Company shall be the surviving corporation in any merger or consolidation, any
Option shall pertain, apply, and relate to the securities to which a holder of
the number of shares of Stock subject to the Option would have been entitled
after the merger or consolidation. Upon dissolution or liquidation of the
Company, or upon a merger or consolidation in which the Company is not the
surviving corporation, all Options outstanding under the Plan shall terminate;
provided, however, that each Participant (and each other person entitled under
Section H to exercise an Option) shall have the right, immediately prior to
such dissolution or liquidation, or such merger or consolidation, to exercise
such Participant's Options in whole or in part,
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<PAGE> 6
but only to the extent that such Options are otherwise exercisable
under the terms of the Plan.
M. AMENDMENT AND TERMINATION.
The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. The Board may
alter, suspend or discontinue the Plan except that no action of the Board may
materially increase the benefits accruing to Participants under the Plan,
increase (other than as provided in Section L) the maximum number of shares
permitted to be optioned under the Plan, or materially modify the requirements
as to eligibility for participation in the Plan, unless such action of the Board
shall be subject to approval or ratification by the shareholders of the Company.
Neither the Board nor the Committee may, without the consent of the holder of an
Option, alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect
for a period of ten (10) years from the date of the Plan's adoption by the
Board. Termination of the Plan shall not affect any Option previously granted.
N. AGREEMENT AND REPRESENTATION OF EMPLOYEE.
As a condition to the exercise of any portion of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of such exercise that any shares of Stock acquired at exercise are being
acquired only for investment and without any present intention to sell or
distribute such stock, if, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933 or any other
applicable law, regulation, or rule or any government agency. Inability of the
Company to obtain from any regulatory body or authority the approvals deemed by
the Company's counsel to be necessary to the lawful issuance and sale of any
shares of Stock shall relieve the Company of any liability in respect of the
non-issuance or sale of such shares of Stock unless and until said approvals are
obtained.
O. RESERVATION OF SHARES OF STOCK.
The Company, during the term of this Plan, will at all times
reserve and keep available, and will seek or obtain from any
regulatory body having jurisdiction any requisite authority necessary
to issue and to sell, the number of shares of Stock that shall be
sufficient to satisfy the requirements of this Plan.
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<PAGE> 7
P. APPROVAL BY SHAREHOLDERS.
The Plan shall be submitted for approval or ratification by the
shareholders of the Company within ninety (90) days of its adoption
by the Board of Directors.
Q. EFFECTIVE DATE OF PLAN.
The Plan shall be effective from the date that the Plan is
approved by the shareholders of the Company.
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<PAGE> 1
HEALTHSOURCE, INC.
1992 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of the Healthsource, Inc. 1992 Director Stock
Option Plan (the "Plan") is to promote the interests of Healthsource,
Inc. (the "Company") and its stockholders by strengthening the
Company's ability to attract and retain the services of experienced
and knowledgeable directors and by encouraging such directors to
acquire an increased proprietary interest in the Company.
2. DEFINITIONS
Unless otherwise required by the context:
- "Board" shall mean the Board of Directors of the Company.
- "Committee" shall mean the Compensation Committee, which is
appointed by the Board, and which shall be composed of three members
of the Board.
- "Company" shall mean Healthsource, Inc., a New Hampshire corporation.
- "Code" shall mean the Internal Revenue Code of 1986, as amended.
- "Director" shall mean any person serving as a Director of the Company.
- "Fair Market Value" shall mean: (i) if the Stock is listed on a
national securities exchange or the NASDAQ National Market System, or any other
national exchange system, then the value per share shall be not less than the
closing price on the date of determination of fair market value, or if there
were no sales on said date, then the value shall be not less than the closing
price on the date next preceding the date of determination of fair market value
on which there were sales; (ii) if the stock is traded over-the-counter and not
listed on a national securities exchange, then the value per share shall be not
less than the mean between the bid and asked price on the date of determination
of fair market value or, if there is no bid and asked price on said date, then
on the next prior business day on which there was a bid and asked price; (iii)
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<PAGE> 2
if the Stock is not regularly traded over-the-counter or otherwise,
then the value shall be as set by the Board based upon reasonable
methods of valuation which the Board in its sole discretion shall
employ based upon advice of counsel and experts as the Board shall
retain to assist in its determination, but in no event shall the Fair
Market Value be less than the book value of the Stock if the Stock is
not traded over-the-counter or otherwise.
-- "Plan" shall mean this Healthsource, Inc. 1992 Director
Stock Option Plan.
-- "Stock" shall mean the common stock of the Company, par
value $.10 per share.
-- "Subsidiary" shall mean any corporation in which the Company
has an ownership interest.
3. STOCK SUBJECT TO THE PLAN
The shares of Stock issued pursuant to Options shall be shares
currently authorized but unissued or currently held or subsequently
acquired by the Company as treasury shares. If any option granted
under the Plan expires or terminates for any reason without having
been exercised in full, the Stock subject to, but not delivered
under, such Option may become available for the grant of other
Options under the Plan.
4. ADMINISTRATION OF THE PLAN
The plan shall be administered by the Committee. Subject to the
terms of the Plan, the Committee shall have the power to construe the
provisions of the Plan, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for
administering the Plan as the Committee deems desirable. All
determinations by the Committee shall be final and binding upon the
Company and holders of Options.
5. PARTICIPATION IN THE PLAN
Each member of the Company's Board of Directors (a "Director")
who is not otherwise an employee of the Company or any Subsidiary of
the Company (an "Eligible Director") shall be eligible to participate
in the Plan.
6. NON-STATUTORY STOCK OPTIONS
All Options granted under the Plan shall be non-statutory options
not intended to qualify under Section 422 of the Code.
2
<PAGE> 3
7. OPTION TERMS
Each Option granted to an Eligible Director under the Plan and
the issuance of Stock thereunder shall be subject to the following terms:
7.1 Each Option granted under the Plan shall be evidenced by
an Option instrument duly executed on behalf of the Company by an
officer or officers delegated such authority by the Committee using
either manual or facsimile signature. Each Option shall comply with
and be subject to the terms and conditions of the Plan. Any Option
may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Committee.
7.2 An Option to purchase two thousand five hundred (2,500)
shares of Stock (as adjusted pursuant to Section 8) shall be granted
automatically in each year of the next five (5) years, immediately
following the Annual Meeting of Shareholders of the Company ("Annual
Meeting") to each Director who is an Eligible Director at such time;
such grants to begin with the 1992 Annual Meeting and to end with and
including the 1996 Annual Meeting (each, an "Annual Grant").
7.3 The option exercise price per share for an Annual Grant
shall be one hundred ten percent (110%) of the Fair Market Value of
the Stock at the time the Option is granted, but in no event less
than the par value of the Stock.
7.4 Options shall vest and become exercisable and
nonforfeitable when, and only if, the optionee continues to serve as
a Director until the Annual Meeting following the year in which the
option was granted.
7.5 Any vested and exercisable Option is exercisable in whole
or in part at any time or from time to time during the Option period
by giving written notice, signed by the person exercising the Option,
to the Company stating the number of shares of Stock with respect to
which the Option is being exercised, accompanied by payment in full
of the Option exercise price for the number of shares of Stock to be
purchased. The date both such notice and payment are received by the
office of the Secretary of the Company shall be the date of exercise
of the Option as to such number of shares of Stock. No option may at
any time be exercised with respect to a fractional share.
7.6 Payment of the Option exercise price may be in cash or by
bank-certified, cashier's, or personal check.
7.7 Each Option shall expire five (5) years from its date of
grant, but shall be subject to earlier termination as follows:
3
<PAGE> 4
(a) In the event of the termination of an optionee's service as a
Director, other than by reason of retirement, total and permanent
disability, or death, the then-outstanding Options of such optionee
shall automatically expire thirty (30) days after the effective date of
such termination and the then outstanding Options that have vested
pursuant to section 7.4 shall be exercisable during such thirty (30) day
period.
(b) In the event of the termination of an optionee's service as a
Director by reason of retirement or total and permanent disability, the
then-outstanding Options of such optionee that have vested pursuant to
SECTION 7.4 shall become immediately exercisable and each such Option
shall expire on the stated grant expiration date.
(c) In the event of the death of an optionee while the optionee is a
Director, the then-outstanding Options of such optionee that have vested
pursuant to SECTION 7.4 shall become exercisable, to the full extent of
the number of shares of Stock remaining covered by such Options,
regardless of whether such Options were previously exercisable, and each
such Option shall expire on the stated grant expiration date. Exercise
of a deceased optionee's Options that are still exercisable shall be by
the estate of such optionee or by a person or persons whom the optionee
has designated in writing filed with the Company, of, if no such
designation has been made, by the person or persons to whom the
optionee's rights have passed by will or the laws of descent and
distribution.
7.8 The right of any optionee to exercise an Option granted under
the Plan shall, during the lifetime of such optionee, be exercisable only by
such optionee and shall not be assignable or transferable by such optionee
other than by will or the laws of descent and distribution.
7.9 Neither the recipient of an Option under the Plan, nor an
optionee's successor or successors in interest shall have any rights as a
stockholder of the Company with respect to any shares subject to an Option
granted to such person until the date of issuance of a stock certificate for
such shares.
7.10 Neither the Plan, nor the granting of an Option, nor any other
action taken pursuant to the Plan shall constitute or be evidence of any
agreement or understanding, express or implied, that an Eligible Director has a
right to continue as a Director for any period of time or at any particular
rate of compensation.
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8. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
The aggregate number of shares of Stock available for Options under the
Plan, the shares subject to any Option and the price per share shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subject to the effective date of the Plan resulting from: (i)
a subdivision or consolidation of shares or any other capital adjustment;
(ii) the payment of a stock dividend; or, (iii) other increase or decrease in
such shares effected without receipt of consideration by the Company. If the
Company shall be the surviving corporation in any merger or consolidation, any
Option shall pertain, apply, and relate to the securities to which a holder of
the number of shares of Stock subject to the Option would have been entitled
after the merger or consolidation. Upon dissolution or liquidation of the
Company, or upon a merger or consolidation in which the Company is not the
surviving corporation, all Options outstanding under the Plan shall terminate;
provided, however, that each optionee (and each other person entitled under
SECTION 7 to exercise an Option) shall have the right, immediately prior to
such dissolution or liquidation, or such merger or consolidation, to
exercise such Options in whole or in part, but only to the extent that such
Options are otherwise exercisable under the terms of the Plan.
9. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan
shall be borne by the Company, and none of such expenses shall be charged to
any optionee.
10. AGREEMENT AND REPRESENTATION OF DIRECTOR
As a condition to the exercise of any portion of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of such exercise that any shares of Stock acquired at exercise are being
acquired only for investment and without any present intention to sell or
distribute such Stock, if, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any government agency. Inability of the
Company to obtain from any regulatory body or authority the approvals deemed by
the Company's counsel to be necessary to the lawful issuance and sale of any
shares of Stock shall relieve the Company of any liability in respect of the
non-issuance or sale of such shares of Stock unless and until said approvals
are obtained.
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11. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective immediately following approval by the
Company's stockholders.
12. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion, provided, however, that if required to qualify the
Plan under Rule 16b-3 promulgated under Section 16 of the Securities Exchange
Act of 1934, as amended, no amendment shall be made more than once every six
months that would change the amount, price or timing of the Initial and Annual
Grants, other than to comport with changes in the Internal Revenue Code of 1986,
as amended, or the rules and regulations promulgated thereunder; and provided,
further, that if required to qualify the Plan under Rule 16b-3, no amendment
that would:
(a) materially increase the number of shares of Stock that may be
issued under the Plan,
(b) materially modify the requirements as to eligibility for
participation in the Plan, or
(c) otherwise materially increase the benefits accruing to
participants under the Plan
shall be made without the approval of the Company's stockholders.
13. RESERVATION OF SHARES OF STOCK
The Company, during the term of this Plan, will at all times reserve and
keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan.
14. APPROVAL BY SHAREHOLDERS
The Plan shall be submitted for approval or ratification by the
shareholders of the Company at the 1992 Annual Meeting.
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<PAGE> 1
HEALTHSOURCE, INC.
1994 STOCK OPTION PLAN
A. PURPOSE AND SCOPE
The purposes of this Plan are to encourage stock ownership by key
management employees of HEALTHSOURCE, INC. (herein called the "Company") and
its Subsidiaries, to provide an incentive for such employees to expand and
improve the profits and prosperity of the Company and its Subsidiaries, and to
assist the Company and its Subsidiaries in attracting and retaining key
personnel through the grant of Options to purchase shares of the Company's
common stock which Options may either (i) be qualified as "incentive" stock
options under Section 422(b) of the Code (hereinafter "ISO" or ISOs") or (ii)
be stock options which do not qualify as ISOs (hereinafter "Non-Qualified
Options").
B. DEFINITIONS
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Stock Option Plan Committee, which
is appointed by the Board, and which shall be composed of at least two
members of the Board who qualify to administer this plan under Section
162(m) of the Code and Rule 16b-3 and Item 402(i) under the 1934 Act.
3. "Company" shall mean Healthsource, Inc., a New Hampshire
corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
5. "Employee" shall mean any person employed by the Company or
any present or future Subsidiary of the Company.
6. "Fair Market Value" shall mean: (i) if the Stock is listed on
a national securities exchange or the NASDAQ National Market System,
then the value per share shall be not less than the closing price on the
date of determination of fair market value, or if there were no sales on
said date, then the value shall be not less than the closing price on
the date next preceding such date of determination on which there were
sales; or (ii) if the Stock is not so listed on a national securities
exchange or the NASDAQ National Market System, then the fair market
value per share shall be as determined by the Committee in good faith
from time-to-time, but in no event to be less than the book value of the
Stock.
7. "Option" shall mean a right to purchase Stock granted
pursuant to the Plan and shall include both ISOs and Non-Qualified
Options.
8. "Option Price" shall mean the purchase price for Stock under
an Option, as determined in Section F below.
9. "Participant" shall mean an employee of the Company, or of
any Subsidiary of the Company, to whom an Option is granted under the
Plan.
10. "Plan" shall mean this Healthsource, Inc. 1994 Stock Option
Plan.
11. "Stock" shall mean the Common Stock of the Company, par
value $.10 per share.
12. "Subsidiary" shall mean any corporation in which the Company
has an ownership interest.
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13. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
C. MAXIMUM AVAILABLE OPTIONS
The maximum number of shares of Stock that may be optioned under the
Plan with respect to each fiscal year the Plan is in effect shall be 1 1/2% of
the total number of shares of outstanding Stock of the Company on December 31 of
each fiscal year plus the number of shares available under the Plan in prior
fiscal years but not granted by the Committee; provided that an additional
1,000,000 shares shall be available for grant during 1994; provided further that
under no circumstances shall Options which qualify as ISO Options aggregate more
than 1,000,000 shares during the life of the Plan, subject to the provisions of
Section N. Subject to the provisions of Section N, the maximum number of shares
of Stock with respect to which Options may be granted to any Participant under
the Plan with respect to each fiscal year of the Plan shall be 1,000,000 shares
of Stock.
D. EFFECTIVE DATE
The Plan shall be effective as of January 1, 1994. No Options may be
granted under the Plan after December 31, 1999 or after any earlier
termination of the Plan by the Board.
E. ADMINISTRATION
The Plan shall be administered by the Committee. All persons designated
as members of the Committee shall be "disinterested persons" within the meaning
of Rule 16b-3 of the 1934 Act and "outside directors" within the meaning of
Section 162(m) of the Code. Two members of the Committee shall constitute a
quorum for the transaction of business. The Committee shall be responsible to
the Board for the operation of the Plan, and shall make recommendations to the
Board with respect to participation in the Plan by employees of the Company and
its Subsidiaries, and with respect to the extent of that participation. The
interpretation and construction of any provision of the Plan by the Committee
shall be final, unless otherwise determined by the Board. The Committee shall
also have the authority to provide Participants, in any Option granted under
the Plan, the right to require the Company to repurchase Options or to
reacquire shares of Stock acquired through exercise of an Option, on terms
which the Committee in its sole discretion shall deem necessary and appropriate.
The Committee shall determine in its sole discretion whether any Option is to
be an ISO or a Non-Qualified Option. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems necessary, under
Section 422 of the Code and the regulations promulgated thereunder, to ensure
that such Option is not treated as an ISO. No member of the Board or the
Committee shall be liable for any action or determination made in good faith.
F. ELIGIBILITY
The Board, upon recommendation of the Committee, may grant Options to
any key management employee (including an employee who is an officer) of the
Company or its Subsidiaries; provided that such participation would not
jeopardize the Plan's compliance with Rule 16b-3 under the 1934 Act or any
successor rule. No Options may be granted to such a person who is also a member
of the Committee. Options may be awarded by the Board at any time and from
time-to-time to new Participants, or to then Participants, or to a greater or
lesser number of Participants, and may include or exclude previous Participants,
as the Board, after reviewing the recommendations of the Committee, shall
determine. Options granted at different times need not contain similar
provisions.
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G. OPTION PRICE
The purchase price for Stock under each Option shall be at least one
hundred ten percent (110%) of the fair market value of the Stock at the time
the Option is granted, but in no event less than the par value of the Stock.
Specifically the Options to purchase 1,000,000 shares of Stock, vesting at the
rate of 200,000 shares per year over five (5) years, to be granted in May 1994
to Norman C. Payson, M.D., CEO of the Company, shall be at 130% of the fair
market value of the Stock at the time the Options are granted.
H. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
Options granted pursuant to the Plan shall be authorized by the Board
and shall be evidenced by agreements in such form as the Board, after reviewing
the recommendations of the Committee, shall from time-to-time approve. Subject
to Section K, such agreements shall comply with and be subject to the following
terms and conditions:
1. Employment Agreement. The Board may, in its discretion include in
any Option granted under the Plan a condition that the Participant shall agree
to remain in the employ of, and to render services to, the Company or any of its
Subsidiaries for a period of time (specified in the agreement) following the
date the Option is granted. No such agreement shall impose upon the Company or
any of its Subsidiaries, however, any obligation to employ the Participant for
any period of time.
2. Time and Method of Payment. The Option Price shall be paid in full
in cash or by delivery of shares of Stock owned by the optionee having a fair
market value equal to the Option Price (or in the case of an immediate sale, by
Participant's 10 day note coupled with an assignment of the proceeds of the
sale) at the time an Option is exercised under the Plan. Otherwise, an exercise
of any Option granted under the Plan shall be invalid and of no effect. Promptly
after the exercise of an Option and the payment of the full Option Price, the
Participant shall be entitled to the issuance of a stock certificate evidencing
his ownership of such Stock. A Participant shall have none of the rights of a
shareholder until shares are issued to him, and no adjustment will be made for
cash dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
3. Number of Shares: Type of Option. Each Option shall state the
total number of shares of Stock to which it pertains and whether or not the
Option is intended to qualify as an ISO.
4. Option Period and Limitations on Exercise of Options. The Board
may, in its discretion, provide that an Option may not be exercised in whole or
in part for any period or periods of time specified in the Option agreement,
provided that not more than 50% of any Option may be exercised prior to the
expiration of one (1) year from the date of grant, and further that the
remaining shares under any Option shall not be exercisable prior to the
expiration of two (2) years from the date of grant. Except as provided in the
Option agreement, an Option may be exercised in whole or in part at any time
during its term. The Options to purchase 1,000,000 shares to be granted to
Norman C. Payson, M.D. in May 1994 shall be vested at the rate of 20% per annum
over five (5) years. No Option may be exercised after the expiration of ten
(10) years from the date it is granted. No Option may be exercised for a
fractional share of Stock. The Committee shall have the right to accelerate the
date of exercise of any installment of any Option; provided that the Committee
shall not accelerate the exercise date of any installment of any ISO (and not
previously converted into a Non-Qualified Option) if such acceleration would
violate the annual vesting limitation contained in Section 422(d) of the Code.
5. Consideration. The consideration for issuance of Options by the
Company shall be determined by the Board and the judgement of the Board as to
the consideration and the sufficiency thereof shall be conclusive.
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<PAGE> 4
I. TERMS AND CONDITIONS APPLICABLE TO ISO OPTIONS.
1. With respect to ISOs, in no event shall the aggregate fair market
value (determined at the time the Option is granted) of Stock for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company and any
Subsidiary) exceed $100,000.
2. With respect to ISOs only, the term "Subsidiary" shall mean any
corporation in an unbroken chain of corporations beginning with the Company
if, at the time of the granting of the ISO Option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
3. With respect to ISOs, the period of any election or exercise shall be
extended automatically in the case of death or disability to the maximum
period provided in Section 422 of the Code, as amended.
J. TERMINATION OF EMPLOYMENT
Except for termination of employment due to death or disability, or in
connection with a "Change in Control" of the Company as governed in Section K
below, if a Participant ceases to be employed by the Company or any of its
Subsidiaries, his Options shall terminate within thirty (30) days of such
termination of employment; provided, however, that if a participant's cessation
of employment with the Company and its Subsidiaries is due to his retirement
with the consent of the Company or any of its Subsidiaries, the Participant
may, at any time within three (3) months after such cessation of employment,
exercise his Options to the extent that he was entitled to exercise them on the
date of cessation of employment, but in no event shall any Option be
exercisable more than ten (10) years from the date it was granted. The
Committee may cancel an Option during the three month period referred to in
this paragraph, if the Participant engages in employment or activities contrary,
in the opinion of the Committee, to the best interests of the Company or any of
its Subsidiaries. The Committee shall determine in each case whether a
termination of employment shall be considered a retirement with the consent of
the Company or a Subsidiary, and subject to applicable law, whether a leave of
absence shall constitute a termination of employment. Any such determination of
the Committee shall be final and conclusive, unless overruled by the Board.
K. CHANGE IN CONTROL
In the event of a "Change in Control" of the Company (or a termination of
employment of a Participant in connection with such a "Change in Control"), all
Options granted pursuant to the Plan shall become immediately vested and each
Participant shall have the right to exercise such Options pursuant to their
terms without regard to (i) any future vesting requirements contained in such
Options or (ii) whether the Participant is employed by the Company at the time
of exercise of the Option; provided, however, that in no event shall the Options
be exercisable more than ten (10) years from the date they were granted. A
"Change in Control" is defined as any sale or transfer of a majority of the
assets of the Company, a sale or transfer (through a merger or otherwise) of
greater than fifty percent (50%) of the outstanding stock of the Company, a
change in the composition of a majority of the Board of Directors of the
Company, or the execution by the Company of an agreement for any of the
foregoing or the public announcement of a tender offer for more than 30% of the
shares of the Company. Any Option not so exercised prior to the consummation of
the event giving rise to the Change in Control shall remain exercisable, subject
to adjustment as provided herein, for the remainder of the term of the Option.
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<PAGE> 5
L. NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Participant to
exercise such Option.
M. RIGHTS IN EVENT OF DEATH/DISABILITY
If a Participant dies or becomes permanently disabled while employed by the
Company or any of its Subsidiaries, or within three months after having retired
with the consent of the Company or any of its Subsidiaries, and without having
fully exercised his Options, all Options granted to the Participant shall
become immediately vested and the executors or administrators, or legatees or
heirs, of his estate shall have the right to exercise such Options pursuant to
their terms without regard to any future vesting requirement contained in such
Options; provided, however, that in no event shall the Options be exercisable
more than ten (10) years from the date they were granted.
N. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
The aggregate number of shares of Stock available for Options under the Plan,
the shares subject to any Option and the price per share shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Plan resulting from: (i)
a subdivision or consolidation of shares or any other capital adjustment (ii)
the payment of a stock dividend; or (iii) any other increase or decrease in such
shares effected without receipt of fair market value consideration by the
Company. If the Company shall be a party to any merger or consolidation, any
Option shall pertain, apply, and relate to the securities to which a holder of
the number of shares of Stock subject to the Option would have been entitled
under the agreements governing the merger or consolidation. Upon dissolution or
liquidation of the Company, all Options outstanding under the Plan shall
terminate; provided, however, that each Participant (and each other person
entitled under Section H to exercise an Option) shall have the right,
immediately prior to such dissolution or liquidation to exercise such
Participant's Options in whole or in part. Nothing herein shall diminish
optionees' rights under Section K.
O. AMENDMENT AND TERMINATION
The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. The Board may
alter, suspend or discontinue the Plan except that no action of the Board may
materially increase the benefits accruing to Participants under the Plan,
increase (other than as provided in Section N) the maximum number of shares
permitted to be optioned under the Plan, or materially modify the requirements
as to eligibility for participation in the Plan, unless such action of the
Board shall be subject to approval or ratification by the shareholders of the
Company. Neither the Board nor the Committee may, without the consent of the
holder of an Option, alter or impair any Option previously granted under the
Plan, except as authorized herein. Unless sooner terminated, the Plan shall
remain in effect for a period of ten (10) years from the date of the Plan's
adoption by the Board. Termination of the Plan shall not affect any Option
previously granted.
P. REGISTRATION OF OPTIONS AND STOCK
Inability of the Company to obtain from any regulatory body or authority the
approvals deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares of Stock shall relieve the Company of any
liability in respect of the non-issuance or sale of such shares of Stock unless
and until said approvals are obtained; provided the Company shall use its best
efforts to obtain any such approvals and specifically shall register with the
SEC all Options (and Stock issuable thereunder) on Form S-8 or other
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<PAGE> 6
applicable SEC forms, shall list such Stock with the New York Stock Exchange
and shall maintain such registration and listing in effect for the duration of
the Options.
Q. Reservation of Shares of Stock
The Company, during the term of this Plan, will at all times reserve
and keep available, and will seek or obtain from any regulatory body having
jurisdiction, any requisite authority necessary to issue and to sell the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan.
R. Conversion of ISOs Non-Qualified Options; Termination of ISOs
The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments thereof) that have not
theretofore been exercised into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an Employee of
the Company or a Subsidiary at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Committee (with the consent of the optionee) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Committee in its discretion may determine, provided that such conditions shall
not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
S. Approval by Shareholders
The Plan shall be submitted for approval by the shareholder of the
Company at the 1994 Annual Meeting of Shareholders.
T. Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Section U), the Company, in accordance
with Section 3402 of the Code, may require the optionee to pay additional
withholding taxes in respect of the amount that is considered compensation
includible in such person's gross income. Alternatively, the Company, at its
option, may issue shares of Stock net of the number of shares sufficient to
satisfy the additional withholding taxes due. The Committee in its discretion
may condition the exercise of an Option on the purchaser's or recipient's
payment of such additional withholding taxes.
U. Notice to Company of Disqualifying Disposition
Each Employee who receives an ISO shall agree to notify the Company in
writing immediately after the Employee makes a disqualifying disposition of any
Stock received pursuant to the exercise of an ISO (a "Disqualifying
Disposition"). Disqualifying Disposition means any disposition (including any
sale) of such Stock before the later of (a) two years after the Employee was
granted the ISO under which he acquired such Stock, or (b) one year after the
Employee acquired such Stock by exercising such ISO. If the Employee has died
before such Stock is sold, these holding period requirements do not apply and
no Disqualifying Disposition can occur thereafter.
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V. Governing Law, Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the internal, substantive laws of the
State of New Hampshire. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine the neuter, unless
the context otherwise requires.
W. Company shall use its best efforts to protect the position of each Option
holder in the event of a transaction (or agreement for same) constituting a
Change in Control and specifically shall require the acquiring entity to cash
out all Options at the closing of any such transaction or provide sufficient
time after all conditions to such closing have been satisfied for the Option
holders to exercise and sell their shares in the public market.
X. Nonassignability
Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant.
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<PAGE> 1
HEALTHSOURCE, INC. 1996 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
SECTION 1. PURPOSE
The Healthsource, Inc. 1996 Non-Employee Director Stock Option
Plan (the "Plan") has been adopted to promote the long-term growth
and financial success of Healthsource, Inc. (the "Company") by
attracting and retaining highly capable and knowledgeable
non-employee directors and promoting a greater interest between the
Company's non-employee directors and its stockholders.
SECTION 2. DEFINITIONS
* "Award" means any grant of an Option under the Plan.
* "Board" means the Company's Board of Directors.
* "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
* "Committee" means the Compensation Committee appointed by the
Company's Board of Directors which shall meet the requirements of Rule
16b-3 under the Securities Exchange Act of 1934, as the same may be
amended from time to time.
* "Common Stock" means the Common Stock, $.10 par value, of the Company.
* "Company" means Healthsource, Inc., a corporation established under
the laws of the State of New Hampshire, and any Subsidiary.
* "Eligible Director" means a Director of the Board who is not an
employee of the Company or any Subsidiary as of the time Options are
Awarded pursuant to the Plan.
* "Fair Market Value" means (i) the last reported sale price at which
the Common Stock is traded on such date or, if no Common Stock is
traded on such date, the most recent date on which Common Stock was
traded, as reflected on such public markets including but not limited
to the New York Stock Exchange, NASDAQ National Market System or any
other national securities exchange or association; (ii) the mean value
between the bid and asked price on such date or the most recent
trading date if the Common Stock is not listed on a national
securities exchange and is traded over-the-counter; (iii) if the
Common Stock is not traded over-the-counter or otherwise, the value
will be set by the Board based upon reasonable methods of valuation
which the Board, in its sole discretion, shall employ based upon the
advise of counsel and experts as the Board shall retain to assist in
its determination, but in no event shall the Fair Market Value be less
than the book value of the Shares.
* "1934 Act" means the Securities Exchange Act of 1934, as the same may
be amended.
* "Shares" means shares of the Common Stock, $.10 par value, of the
Company.
* "Option" means the right to purchase a specified number of Shares at a
specified price during a specified period which is not intended to
meet the requirements of Section 422A of the Code or any successor
provision.
* "Subsidiary" means a corporation, partnership or other business entity
in which the Company has an ownership interest.
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<PAGE> 2
SECTION 3. EFFECTIVE DATES
The Plan shall be in effect as of May 14, 1996 upon approval by
the shareholders of the Company. No Awards may be made under the Plan
after the Annual Meeting of Shareholders of the Company in 2002.
SECTION 4. PLAN ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the
terms of the Plan, the Committee shall have the power to construe the
provisions of the Plan, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for
administering the Plan as the Committee deems necessary. All
determinations by the Committee shall be final and binding upon the
Company and the holder of any Option Awarded under the Plan.
SECTION 5. STOCK AVAILABLE FOR AWARDS
(a) Common Shares Available. The maximum number of Shares
available from time to time for Awards under the Plan shall be a number
equal to the number of Directors serving at such time multiplied by
90,000, subject to adjustment as provided in paragraph (b) below.
(b) Adjustments and Reorganizations. The aggregate number of
Shares available for Options under the Plan, the Shares subject to
any Option and the price per Share shall all be proportionally
adjusted for any increase or decrease in the number of issued Shares
subsequent to the effective date of the Plan resulting from: (i) a
subdivision or consolidation of shares or any other capital
adjustment; (ii) the payment of a stock dividend; or (iii) any other
increase or decrease in such shares effected without receipt of
consideration by the Company. If the Company shall be the surviving
corporation in any merger or consolidation, any Option shall pertain,
apply, and relate to the securities to which a holder of the number of
shares of stock subject to the Option would have been entitled after
the merger or consolidation. Upon dissolution or liquidation of the
Company, or upon a merger or consolidation in which the Company is
not the surviving corporation, all Options outstanding under the Plan
shall terminate; provided, however, that each holder of an Option
(and each other person entitled under Section 7 to exercise an
Option) shall have the right, immediately prior to such dissolution or
liquidation, or such merger of consolidation, to exercise such Option
in whole or in part, but only to the extent that such Option is
otherwise exercisable under the terms of the Plan.
(c) Common Stock Usage. The Shares underlying any Award which
is forfeited, canceled, reacquired by the Company, satisfied without
issuance of Common Stock or otherwise terminated (other than by
exercise) shall be added back to the Shares of Common Stock available
for issuance under this Plan.
SECTION 6. STATUS OF AWARDS
All Awards under the Plan shall be non-qualified stock options
not intended to qualify under Section 422a of the Code.
SECTION 7. GENERAL PROVISIONS AND TERMS APPLICABLE TO AWARDS
Each Option Awarded to an Eligible Director under the Plan, and
the issuance of Shares pursuant thereto, shall be subject to the
following terms:
(a) Form of Option. Each Option Awarded under the Plan shall
be evidenced by an Option instrument duly executed on behalf of the
Company by an officer delegated such authority by the Committee,
using either manual or facsimile signature. Each Option shall comply
with and be subject to the terms and conditions of the Plan. Any
Option may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Committee.
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(b) Size of Award. An Option to purchase forty-five thousand
(45,000) Shares of Common Stock (as adjusted pursuant to Section 5(b)) shall be
Awarded automatically to each Eligible Director serving as such at the
conclusion of the 1996 Annual Meeting of Shareholders of the Company (an
"Annual Meeting"). An additional Option to purchase forty-five thousand (45,000)
Shares (as adjusted pursuant to Section 5(b)) shall be awarded automatically to
each Eligible Director serving as such at the conclusion of the 1999 Annual
Meeting. An Eligible Director appointed or elected (i) subsequent to the 1996
Annual Meeting and prior to the 1999 Annual Meeting or (ii) subsequent to the
1999 Annual Meeting and prior to the 2002 Annual Meeting, shall be Awarded as of
the date of such appointment or election an Option to purchase a number of
Shares corresponding to the number of whole years remaining until the 1999
Annual Meeting or the 2002 Annual Meeting, as the case may be, multiplied by
fifteen thousand (15,000) plus Pro-Rated Shares (as defined) (as adjusted
pursuant to Section 5(b)). "Pro-Rated Shares" shall equal fifteen thousand
(15,000) (as adjusted pursuant to Section 5(b)) multiplied by the fraction of a
year represented by the number of whole months remaining from such director's
appointment or election until the next Annual Meeting. In no event shall any
individual Eligible Director be Awarded Options to purchase more than ninety
thousand (90,000) Shares (as adjusted pursuant to Section 5(b)) over the term of
the Plan.
(c) Exercise Price. The Option exercise price per Share shall not be
less that 110% of the Fair Market Value of the Shares (as defined in Section 2)
at the time the Option is Awarded.
(d) Vesting. Options granted at an Annual Meeting shall vest and
become exercisable by an Eligible Director as to fifteen thousand (15,000)
Shares (subject to adjustment in accordance with Section 5(b)) on each
succeeding Annual Meeting date following the Award of such Options, provided the
Eligible Director continues to serve as a director of the Company on such date.
In the event that an Eligible Director is Awarded an Option which includes
Pro-Rated Shares, such Option shall vest and become exercisable (i) as to such
Pro-Rated Shares on the later of the next succeeding Annual Meeting date or the
date which is six (6) months from the date such Option is Awarded and (ii) as to
the remaining Shares for which options were granted fifteen thousand (15,000)
Shares on each succeeding Annual Meeting date, provided the Eligible Director
continues to serve as a director of the Company on such date.
(e) Exercise Procedure. Any vested and exercisable Option may be
exercised in whole or in part at any time during the Option period by giving
written notice, signed by the person exercising the Option, to the Company
stating the number of Shares for which the Option is being exercised,
accompanied by payment in full of the Option exercise price for the number of
Shares to be purchased. The date on which both such notice and payment are
received by the office of the Secretary of the Company shall be the date of
exercise of the Option as to such number of Shares. No Option may be exercised
with respect to a fractional Share.
(f) Payment of Exercise Price. Payment of the Option exercise price
may be in cash equivalent (cash, bank-certified, cashier's or personal check),
owned stock or some combination, including by means of any "cashless exercise"
program then in effect and approved by the Company.
(g) Termination. Each Option shall expire ten (10) years from its
date of Award, but shall be subject to earlier termination as follows:
(i) In the event of the termination of service as a director
for any reason other than retirement, disability or death, any
outstanding, vested (as pursuant to Section 7(d)), Options shall be
exercisable within thirty (30) days after the effective date of such
termination, following which any unexercised Options shall expire.
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(ii) In the event of the termination of service as a
director by reason of retirement, disability or death, any
outstanding, vested Options (as pursuant to Section 7(d)) Options shall
be immediately exercisable and each such Option shall expire on the
stated expiration date. Exercise of a deceased director's Options that
remain exercisable shall be by the estate of such Option holder or by
a person or persons whom the Option holder has designated in writing
and filed with the Company, or, if no such designation has been made,
by the person or persons to whom the Option holder's rights have passed
by will or the laws of descent and distribution.
(h) Nontransferability. The right of any Option holder to exercise an
Option Awarded under the Plan shall, during the lifetime of such Option
holder, not be assignable or transferable other than by will or the laws of
descent and distribution, or pursuant to a qualified domestic relations
order as defined in the Code, the Employee Retirement Income Security Act,
or the rules thereunder.
(i) No Rights as a Stockholder. Neither the recipient of an Option
under the Plan, nor an Option holder's successor(s) in interest, shall have
any rights as a stockholder of the Company with respect to any Shares
subject to an Option Awarded to such person until the date of issuance of a
certificate for such Shares.
(j) No Right to Employment. Neither the Plan, nor the Awarding of an
Option, nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that
an Eligible Director has a right to continue as a director for any period
of time or at any particular rate of compensation.
SECTION 8. CHANGE IN CONTROL PROVISION
In the event of a "Change in Control" of the Company (or the removal of a
director in connection with such a "Change in Control"), all Options Awarded
pursuant to the Plan shall become immediately vested and each Option holder
shall have the right to exercise such Options pursuant to their terms without
regard to (i) any future vesting requirements contained in such Options or (ii)
whether the recipient continues to serve as an Eligible Director of the Company
at the time of exercise of the Option; provided, however, that in no event shall
the Options be exercisable more than ten (10) years from the date of the
corresponding Award. A "Change in Control" is defined as any sale or transfer
of a majority of the assets of the Company, a sale or transfer (through a merger
or otherwise) of greater than fifty percent (50%) of the outstanding stock of
the Company, the public announcement of a tender offer for more than 30% of the
outstanding stock of the Company, a change in the composition of a majority of
the Board of Directors of the Company, or the execution by the Company of any
agreement providing for any of the foregoing. Any Option not so exercised prior
to the consummation of the event giving rise to the Change in Control shall
remain exercisable, subject to adjustment as provided herein, for the remainder
of the term of the Option.
SECTION 9. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Company, and none of such charges shall be charged to any Option
holder.
SECTION 10. AGREEMENT AND REPRESENTATION OF DIRECTOR
As a condition to the exercise of any portion of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of such exercise that any Shares acquired upon exercise are being acquired for
investment and without any present intention to sell or distribute such Shares,
if, in the opinion of counsel for the Company, such a representation is required
under the Securities Act of 1933 or any other applicable law, regulation, or
rule of any government agency. Inability of the Company to
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obtain from any regulatory body or authority the approvals deemed
necessary by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares shall relieve the Company from any
liability in respect to the non-issuance or sale of such Shares
unless and until said approvals are obtained.
SECTION 11. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time,
at its sole discretion; provided, however, that if required to
qualify the Plan under Rule 16b-3 under Section 16 of the 1934 Act,
as amended, no amendment shall be made more than once every six
months that would change the amount, price or timing of Awards, other
than to comply with changes in the Code, the Employee Retirement
Income Security Act or the rules and regulations thereunder, and
provided, further, that if required to qualify the Plan under Rule
16b-3, no amendment would: (a) materially increase the number of
Shares that may be issued under the Plan; (b) materially modify the
requirements as to eligibility for participation in the Plan; or (c)
otherwise materially increase the benefits accruing to participants
under the Plan.
SECTION 12. RESERVATION OF SHARES OF STOCK
The Company, during the term of the Plan, will at all times
reserve and keep available, and will seek or obtain from any
regulatory body having jurisdiction any requisite authority necessary
to issue and to sell, the number of Shares that shall be sufficient
to satisfy the requirements of the Plan.
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