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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF
THE SECURITIES EXCHANGE ACT OF 1934
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EMPHESYS FINANCIAL GROUP, INC.
(Name of Subject Company)
EMPHESYS FINANCIAL GROUP, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
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29158K104
(CUSIP Number of Class of Securities)
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GAIL A. HOHENSTEIN
VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
EMPHESYS FINANCIAL GROUP, INC.
1100 EMPLOYERS BOULEVARD
DEPERE, WISCONSIN 54115
(414) 336-1100
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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COPY TO:
THOMAS A. COLE
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
(312) 853-7000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is EMPHESYS Financial Group, Inc., a
Delaware corporation (the "Company"), and the address of its principal executive
offices is 1100 Employers Boulevard, DePere, Wisconsin 54115. The title of the
class of equity securities to which this statement relates is the Company's
Common Stock, $.01 par value per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by HEW, Inc. (the "Offeror"), a
Delaware corporation and a wholly owned subsidiary of Humana Inc., a Delaware
corporation (the "Parent"), to purchase all outstanding Shares at $37.50 per
Share (or any higher price that may be paid for each Share pursuant to the Offer
(as defined below)) (the "Offer Price"), net to the seller in cash without
interest, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated August 16, 1995 (the "Offer to Purchase"), and the related
Letter of Transmittal (which together with the Offer to Purchase and any
amendments or supplements thereto constitute the "Offer"). The Offer is
disclosed in the Tender Offer Statement on Schedule 14D-1 dated August 16, 1995
(the "Schedule 14D-1"), as filed by the Offeror and the Parent with the
Securities and Exchange Commission (the "Commission"). The Schedule 14D-1 states
that the address of the principal executive offices of the Offeror and the
Parent is The Humana Building, 500 West Main Street, Louisville, Kentucky 40202.
The Offer is being made pursuant to the terms of an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of August 9, 1995, among the Parent,
the Offeror and the Company, which provides that, following completion of the
Offer, the Offeror will be merged with and into the Company upon the terms and
subject to the conditions set forth in the Merger Agreement (the "Merger").
Certain terms and conditions of the Merger Agreement are described below in Item
3. A copy of the Merger Agreement is filed as an exhibit to this statement and
is incorporated herein by reference. A copy of the press release issued by the
Company and the Parent on August 10, 1995 is filed as an exhibit to this
statement and incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its directors and executive officers are
described in the Company's Proxy Statement dated March 28, 1995 for its 1995
Annual Meeting of Shareholders under "Proposal 2 -- Approval of Amendments to
the 1994 Stock Incentive Plan," "Security Ownership of Certain Beneficial Owners
and Management" and "Executive Compensation." Such sections are filed as an
exhibit to this statement and incorporated herein by reference.
Effective as of March 15, 1995, the Company instituted its Executive Change
in Control Severance Policy (the "Severance Policy"). Pursuant to the Severance
Policy, in the event that a covered executive is terminated within 18 months
following a "Change in Control", with or without good cause, or if the executive
terminates his or her own employment within six months after a 25% or more
reduction in annual base salary following a "Change in Control," the Company
shall (i) pay to the executive an amount equal to his or her current annual base
salary accrued through the date the termination becomes effective, (ii) pay to
the executive an amount equal to his or her accrued management incentive bonus
through the date the termination becomes effective, and (iii) continue to pay
base salary and provide benefits to the executive for either a six or nine month
period, depending on the executive, from the date of termination. The following
executive officers are covered by the Severance Policy and would be entitled to
payment of base salary and provision of benefits for nine months following the
date of termination after a "Change in Control": David R. Astar; Kenneth J.
Fasola; Gail A. Hohenstein; Wayne R. Micksch; Kenneth E. Roesler; Gregory K.
Rotherham; Michael R. Walker and Tod J. Zacharias.
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The purchase by the Offeror of all outstanding Shares pursuant to the Offer
and the Merger will constitute a "Change in Control" for purposes of the
Severance Policy. Assuming that the Merger is consummated on October 1, 1995 and
that the listed executive officers covered by the Severance Policy are
terminated on such date, such executive officers would receive, in addition to
the accrued amount referred to in clause (i) above, the following aggregate
amounts (based on certain assumptions as to the Company's operational
performance relative to its 1995 business plan and assuming that the aggregate
value of benefits provided to each individual is equal to 35% of such
individual's annual base salary): David R. Astar -- $280,686; Kenneth J. Fasola
-- $188,813; Gail A. Hohenstein -- $171,425; Wayne R. Micksch -- $176,024;
Kenneth E. Roesler -- $184,827; Gregory K. Rotherham -- $164,203; Michael R.
Walker -- $169,140; and Tod J. Zacharias -- $141,872.
Effective March 17, 1995, the Employment Agreements of Messrs. William J.
Lawson, the Chairman of the Board and Chief Executive Officer of the Company,
and Gregory H. Wolf, the President and Chief Operating Officer of the Company,
were amended to (i) in the case of Mr. Lawson, provide for continuation of
medical, accident and life insurance benefits for Mr. Lawson and his dependents
for a period of 24 months following termination of employment within two years
of a "Change in Control" and continuation of medical, accident and life
insurance benefits for Mr. Lawson and his dependents for a period of 12 months
following termination for good cause or by reason of incapacity, disability or
death and (ii) in the case of Mr. Wolf, increase his annual base salary from
$220,000 to $250,000. The purchase by the Offeror of all outstanding Shares
pursuant to the Offer and the Merger will constitute a "Change in Control" for
purposes of the employment agreements of Messrs. Lawson and Wolf.
Effective as of March 15, 1995, the restricted stock and stock options
agreements governing grants of restricted stock and stock options to executive
officers of the Company were amended to provide that shares of restricted stock
and stock options shall vest upon the termination of the executive officer "in
anticipation of a Change in Control." The purchase by the Offeror of all
outstanding Shares pursuant to the Offer and the Merger will constitute a
"Change in Control" for purposes of the stock option and restricted stock
agreements.
(b)(2) Certain Background Information.
In the fall of 1994, the senior management of the Company was contacted by
the chief executive officer of a large health care company ("Entity One"). The
chief executive officer of Entity One invited the senior management of the
Company to meet to discuss the health care industry and the prospects of a
strategic combination between the Company and Entity One. A meeting was held in
late 1994. Subsequent thereto, telephone calls occurred between senior
management of the Company and the chief executive officer of Entity One. Shortly
afterward, Entity One announced that it had entered into an agreement for a
significant merger transaction involving a party other than the Company.
The meeting between senior management of the Company and the chief
executive officer of Entity One was reported to the Board of Directors of the
Company at a meeting held on January 16, 1995. At the same meeting, the Board of
Directors was briefed by senior management of the Company and by representatives
of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), the Company's financial
advisor, about developments in the managed care markets and the various
strategic alternatives available to the Company. Legal counsel also briefed the
Board of Directors about its duties in considering various forms of business
combinations. Although no decision was reached by the Board of Directors about
pursuing any form of business combination, the Board of Directors concurred with
senior management's recommendation that they contact three health care companies
("Entity Two," "Entity Three" and the Parent) for introductory meetings. These
three companies were selected by senior management, with the assistance of
Morgan Stanley, due to (i) their perceived strong ability to pay or capital
position and/or the value of their stock as viable acquisition currency at the
time, (ii) their acquisitive track record and (iii) their perceived potential
synergies with the Company.
Introductory meetings with these three companies were held from late
January through early April 1995. During this period, on February 15, 1995, the
Board of Directors received an updated presentation regarding strategic
alternatives, including an analysis of each of Entity One, Entity Two, Entity
Three and the Parent as a potential merger candidate. The Board of Directors
also received a preliminary valuation presentation. Entity
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Two did not sign a confidentiality agreement and subsequently entered into an
agreement with another party for a significant merger transaction. Entity Three
executed a confidentiality agreement but was not provided data pursuant thereto.
The Parent entered into a confidentiality agreement on April 19, 1995 and began
a due diligence investigation shortly thereafter.
On May 18, 1995, the Board of Directors received an updated preliminary
valuation presentation during an informational telephone call reflecting
management's reduced forecast for 1995.
On July 7, 1995, the Parent sent to the Company's financial advisor, Morgan
Stanley, a proposal (the "First Proposal") to acquire the Company for $36 per
share in cash, plus a contingent payment unit ("CPU") which would pay between $0
per share in cash and $6 per share in cash in 1997 based upon 1996 financial
results.
The First Proposal was reviewed with the Board of Directors at a meeting
held on July 12, 1995. Morgan Stanley advised the Board of Directors that it
valued the CPU at approximately $1 per share, and the Board of Directors
expressed concerns about what, if any, trading market might develop for such an
instrument if the aggregate value of the instrument were only $17 million. At
this meeting, the Board of Directors received a further updated presentation
regarding strategic alternatives and a further report about potentially
available merger candidates. The Board of Directors also received an updated
preliminary valuation presentation, based upon a revised management forecast of
further reduced earnings. On the basis of these presentations, the Board of
Directors authorized management and the Company's advisors to seek a higher,
all-cash proposal from Parent.
On July 14, 1995, the Company provided the Parent and its representatives
with a draft Merger Agreement. On July 17 and 18, representatives of the Parent
and the Company met to discuss the terms of the draft Merger Agreement. At the
same time, discussions were held between representatives of the Parent and
Lincoln National Corporation, a Delaware corporation ("LNC"), concerning the
terms of the Stock Option and Tender Agreement (as defined below). During this
period and subsequent thereto, the Parent conducted additional due diligence. On
July 28, 1995, members of senior management of the Parent and the Company met to
discuss further the Parent's interest in acquiring the Company.
On July 31, 1995, the Parent sent the Company a letter proposing a $37 per
share transaction (the "Revised Proposal") and including a contractual right of
termination in the event certain financial and operational goals are not
attained. On August 2, 1995, the Board of Directors met and reviewed the Revised
Proposal with senior management and Morgan Stanley. Based upon the discussion at
the Board of Directors meeting and with the authorization of the Board of
Directors, senior management rejected the Revised Proposal and submitted a
counterproposal of $38.50 per share. The Company's counterproposal also
addressed the financial and operational goal termination provision which the
Parent had demanded but which the Board of Directors had found to be
unacceptable.
In reply, on August 3, 1995, the Parent submitted a modified termination
provision but refused to increase its $37 per share proposal. Thereafter, on
August 3, 1995, the Company suggested further revisions to the termination
provision and reaffirmed its $38.50 per share proposal.
On August 3 and 4, 1995, senior management of the Company received calls
from the chief executive officers of two of the three entities which the Company
had contacted earlier in the year. Taking into account the prior discussions
with, as well as the current activities of, those entities, senior management
concluded that these entities would not currently be in a position to proceed
with a superior transaction.
On August 4, 1995, in a meeting between members of senior management of the
Parent and the Company, a $37.50 per share price was agreed upon, subject to
approval by the Board of Directors of the Company. Negotiation of the financial
and operational goal termination provision and other terms of the Merger
Agreement continued subsequent to the August 4, 1995 meeting up through the
afternoon of August 8, 1995.
On the evening of August 8, 1995, the Board of Directors met with its
financial advisors. Based upon the factors described below, the Board of
Directors approved the transaction. During the day of August 9, 1995,
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the Merger Agreement was put into final form and on the evening of August 9,
1995 was executed. Public disclosure was made on the morning of August 10, 1995,
prior to the opening of trading on the New York Stock Exchange.
(b)(3) Merger Agreement.
The Offer. Pursuant to the Merger Agreement, the Offeror was required to
commence the Offer no later than August 16, 1995. The obligations of the Offeror
to accept for payment, and pay for, any Shares tendered pursuant to the Offer
are subject to the conditions that (i) there shall have been validly tendered
and not withdrawn prior to the expiration of the Offer that number of Shares
which would represent at least a majority of the outstanding Shares on a fully
diluted basis (the "Minimum Condition"), (ii) any waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), applicable to the purchase of Shares pursuant to the Offer shall have
expired or been terminated and all necessary filings with the California
Department of Corporations (the "DOC") and the Office of the Commissioner of
Insurance of the State of Wisconsin ("OCI") shall have been completed and each
of the DOC and the OCI shall have issued an order (which order shall not have
been stayed or enjoined) that (x) constitutes a final order approving, exempting
or otherwise authorizing consummation of the Offer and the Merger and all other
transactions contemplated by the Merger Agreement as may require such
authorization and (y) does not impose on the Company, Parent, the Offeror or any
of their respective affiliates any terms or conditions which in the reasonable
opinion of the Parent materially and adversely affect the economic benefits to
the Parent of the transactions contemplated by the Merger Agreement, and (iii)
none of the following conditions exist or shall occur and remain in effect:
(a) there shall have been instituted or pending any action or
proceeding by any governmental, regulatory or administrative agency or
authority, which (A) seeks to challenge the acquisition by the Parent of
Shares pursuant to the Offer, restrain, prohibit or delay the making or
consummation of the Offer or the Merger, or obtain any material damages in
connection therewith, (B) seeks to make the purchase of or payment for some
or all of the Shares pursuant to the Offer or the Merger illegal, (C) seeks
to impose material limitations on the ability of the Parent (or any of its
affiliates) effectively to acquire or hold, or to require the Parent or the
Company or any of their respective affiliates or subsidiaries to dispose of
or hold separate, any material portion of the assets or the business of the
Parent and its affiliates taken as a whole or the Company and its
subsidiaries taken as a whole, or (D) seeks to impose material limitations
on the ability of the Parent (or its affiliates) to exercise full rights of
ownership of the Shares purchased by it, including, without limitation, the
right to vote the Shares purchased by it on all matters properly presented
to the stockholders of the Company;
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any state, federal or
foreign government or governmental authority or by any court, domestic or
foreign, any statute, rule, regulation, judgment, decree, order or
injunction, that could reasonably be expected to, in the judgment of the
Parent, directly or indirectly, result in any of the consequences referred
to in clauses (A) through (D) of paragraph (a) above;
(c) there shall have occurred (A) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (B) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (C) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States which would reasonably be expected
to have a Material Adverse Effect (as defined below) on the Company or
prevent (or materially delay) the consummation of the Offer, (D) any
limitation (whether or not mandatory) by any governmental or regulatory
authority on, or any other event which, in the reasonable judgment of the
Parent, is reasonably likely to materially adversely affect, the nature or
extension of credit or further extension of credit by banks or other
lending institutions in the United States or (E) from the date of the
Merger Agreement through the date of termination or expiration of the
Offer, a decline of at least 25% in either the Dow Jones Industrial Average
or the Standard & Poor's 500 Index. "Material Adverse Change" or "Material
Adverse Effect" means any change or effect, either individually or in the
aggregate, that is or
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may be materially adverse to the business, assets, liabilities, properties,
condition (financial or otherwise) or results of operations of all or a
material part of the Company and its subsidiaries, taken as a whole;
(d) the Company and the Parent shall have reached an agreement or
understanding that the Offer or the Merger Agreement be terminated or the
Merger Agreement shall have been terminated in accordance with its terms;
(e) any of the representations and warranties made by the Company in
the Merger Agreement shall not have been true and correct in all material
respects when made, or shall thereafter have ceased to be true and correct
in any material respects as if made as of such later date (other than
representations and warranties made as of a specified date), or the Company
shall not in all material respects have performed each obligation and
agreement and complied with each covenant to be performed and complied with
by it under the Merger Agreement; provided, however, that all references in
the Merger Agreement to the phrases "knowledge of the Company" and "to the
best knowledge of the Company," and variants thereof, shall be disregarded
for the purposes of determining whether the Company shall have breached its
representations, warranties and covenants contained in the Merger
Agreement;
(f) the Company's Board of Directors shall have modified or amended
its recommendation of the Offer in any manner adverse to the Parent or
shall have withdrawn its recommendation of the Offer, or shall have
recommended acceptance of any Acquisition Proposal (as defined below) or
shall have resolved to do any of the foregoing, or shall have failed to
reject any Acquisition Proposal within 10 business days after receipt of
the Company or public announcement thereof; or
(g) (i) any corporation, entity or "group" (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than the Parent, shall have acquired beneficial ownership of
50% or more of the outstanding Shares, or shall have been granted any
options or rights, conditional or otherwise, to acquire a total of 50% or
more of the outstanding Shares; (ii) any new group shall have been formed
which beneficially owns 50% or more of the outstanding Shares; or (iii) any
person (other than the Parent or one or more of its affiliates) shall have
entered into an agreement in principle or definitive agreement with the
Company with respect to a tender or exchange offer for any Shares or a
merger, consolidation or other business combination with or involving the
Company.
The Merger Agreement provides that, without the prior written consent of
the Company, the Offeror shall not waive the Minimum Condition, reduce the
number of Shares subject to the Offer, reduce the price per Share to be paid
pursuant to the Offer, extend the Offer if all of the Offer conditions are
satisfied or waived, change the form of consideration payable in the Offer, or
amend, add or waive any term or condition of the Offer in any manner that would
adversely affect the Company or its stockholders. Notwithstanding the foregoing,
the Offeror may, without the consent of the Company, extend the Offer (i) if at
the then scheduled expiration date of the Offer any of the conditions to the
Offeror's obligation to accept for payment and pay for Shares shall not have
been satisfied or waived, until the later of (x) any period during which the
Offer may remain open pursuant to clauses (ii) - (v) below, and (y) the fifth
business day after the date the Offeror reasonably believes to be the earliest
date on which such conditions may be satisfied; (ii) for any period required by
any rule, regulation, interpretation or position of the Commission or its staff
applicable to the Offer; (iii) if the Company shall have failed to reject any
Acquisition Proposal within 10 business days after receipt of the Company or
public announcement thereof, for up to three business days after the then
scheduled expiration date of the Offer; (iv) if all Offer conditions are
satisfied or waived but the number of Shares tendered is less than 90% of the
then outstanding number of Shares, for an aggregate period of not more than 15
business days (for all such extensions) beyond the latest expiration date that
would be permitted under clause (i), (ii) or (iii) of this sentence; and (v) if
all Offer conditions are satisfied or waived but the number of Shares tendered
is less than 90% of the then outstanding number of Shares, for an aggregate
period of not more than 10 business days (for all such extensions) beyond the
latest expiration date that would be permitted under clause (i), (ii), (iii) or
(iv) of this sentence (provided that the Offeror shall acknowledge that, except
in the case of an occurrence of an event that would cause the condition
described in clause (b) under "The Merger Agreement -- Conditions Precedents"
(providing that no governmental entity or court of competent jurisdiction shall
have enacted a rule or issued an injunction that has the effect of prohibiting
the
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consummation of the Merger) not to be satisfied, all the Offer conditions shall
be deemed to be waived and all Shares which are validly tendered and not
withdrawn upon the expiration of such extended period will be accepted and
purchased). In addition to the right of the Offeror to extend the Offer pursuant
to the previous sentence, the Offeror shall have the right to extend the Offer
until five business days from the date on which the Offeror receives all
certificates relating to the Company's operational performance as described
under "Merger Agreement -- Performance Certificates" required to have been
delivered on or prior to the scheduled expiration date in effect prior to the
extension permitted by this sentence. The obligation of the Company to provide
these certificates and the right of the Parent to terminate the Merger Agreement
if certain percentages of specified financial and operational targets are not
attained, shall remain in effect until the Offeror acquires Shares pursuant to
the Offer without affecting the right of the Offeror to extend the Offer
pursuant to clause (iv) above; provided, however, that if the Offeror exercises
its right to extend the Offer pursuant to clause (v) above, the Company's
obligation to provide certificates relating to the Company's financial and
operational performance shall cease and the Parent shall have no further right
to terminate the Merger Agreement as a result of the Company not attaining
certain percentages of specified financial and operational targets. So long as
the Merger Agreement is in effect and the Offer conditions have not been
satisfied or waived, the Offeror shall, and the Parent shall cause the Offeror
to, cause the Offer not to expire. Subject to the terms and conditions of the
Offer and the Merger Agreement, the Offeror shall, and the Parent shall cause
the Offeror to, pay for all Shares validly tendered and not withdrawn pursuant
to the Offer as soon as practicable after the expiration of the Offer.
Company Actions. Pursuant to the Merger Agreement, the Company has agreed
that on the date of the commencement of the Offer, subject to the fiduciary
duties of the Board of Directors of the Company under applicable law as
determined by the Board of Directors of the Company in good faith after
consultation with the Company's outside counsel, it will file with the
Commission and mail to its stockholders, a Solicitation/Recommendation Statement
on Schedule 14D-9 containing the recommendation of the Board of Directors that
the Company's stockholders accept the Offer and approve the Merger and the
Merger Agreement.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the General
Corporation Law of the State of Delaware, as amended (the "DGCL"), the Offeror
shall be merged with and into the Company at the effective time of the Merger
(the "Effective Time"). Following the Merger, the separate corporate existence
of the Offeror shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of the Offeror in accordance with the DGCL. The
certificate of incorporation and bylaws of the Offeror shall be amended to
change the name of the Offeror to "EMPHESYS Financial Group, Inc." and, as so
amended, the certificate of incorporation and the bylaws of the Offeror shall
become the Certificate of Incorporation and Bylaws of the Surviving Corporation,
and the directors and officers of the Offeror shall become the directors and
officers of the Surviving Corporation.
Conversion of Securities. At the Effective Time, each Share issued and
outstanding immediately prior thereto shall be canceled and extinguished and
each Share (other than Shares held by the Company as treasury Shares, Shares
owned by any subsidiary of the Company, Shares owned by the Offeror or any
subsidiary thereof, and Dissenting Shares (as defined below)) shall, by virtue
of the Merger and without any action on the part of the Offeror, the Company or
the holders of the Shares, be converted into and represent the right to receive
the Offer Price. Each share of common stock of the Offeror issued and
outstanding immediately prior to the Effective Time shall, at the Effective
Time, by virtue of the Merger and without any action on the part of the Offeror,
the Company or the holders of Shares, be converted into and shall thereafter
evidence one validly issued and outstanding share of common stock of the
Surviving Corporation.
Dissenting Shares. If required by the DGCL, Shares which are held by
holders who have properly exercised appraisal rights with respect thereto in
accordance with Section 262 of the DGCL ("Dissenting Shares") will not be
exchangeable for the right to receive the Offer Price, and holders of such
Shares will be entitled to receive payment of the appraised value of such Shares
unless such holders fail to perfect or withdraw or lose their right to appraisal
and payment under the DGCL.
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Merger Without a Meeting of Stockholders. In the event that the Offeror
shall acquire at least 90 percent of the outstanding Shares, the parties agree
to take all necessary and appropriate actions to cause the Merger to become
effective without a meeting of stockholders of the Company, in accordance with
Section 253 of the DGCL.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to the Offeror, including, but not
limited to, representations and warranties relating to the Company's
organization and qualification, capitalization, its authority to enter into the
Merger Agreement and carry out the related transactions, filings made by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act (including financial statements included
in the documents filed by the Company under these acts), required consents and
approvals, compliance with applicable laws (including state insurance regulatory
approvals), employee benefit plans, litigation, material liabilities of the
Company and its subsidiaries, the payment of taxes and the absence of certain
material adverse changes or events.
The Offeror and the Parent have also made customary representations and
warranties to the Company, including, but not limited to, representations and
warranties relating to the Offeror's and the Parent's organization and
qualification, authority to enter into the Merger Agreement, required consents
and approvals, and the availability of sufficient funds to consummate the Offer.
Covenants Relating to the Conduct of Business. The Company has agreed that
it will, and will cause its subsidiaries to, in all material respects, carry on
their respective businesses in, and not enter into any material transaction
other than in accordance with, the regular and ordinary course and, to the
extent consistent therewith, use their reasonable best efforts to preserve
intact its current business organizations, keep available the services of their
current officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with them. The Company has agreed
that, except as contemplated by the Merger Agreement or as disclosed by the
Company to the Parent pursuant to the Merger Agreement, it shall not, and shall
not permit any of its subsidiaries to, without the prior written consent of the
Parent:
(a) (x) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to stockholders of the
Company in their capacity as such, other than (1) dividends declared prior
to the date of the Merger Agreement, and (2) dividends payable to the
Company declared by any of the Company's subsidiaries, (y) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (z) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or equity equivalent (other than, in the case of the Company,
the issuance of Shares during the period from the date of the Merger
Agreement through the Effective Time upon the exercise of certain
outstanding stock options of the Company on the date of the Merger
Agreement in accordance with their current terms);
(c) amend its charter or bylaws;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or
agree to acquire any assets, in each case that are material, individually
or in the aggregate, to the Company and its subsidiaries taken as a whole;
(e) sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of, any of its assets that are material, individually or
in the aggregate, to the Company and its subsidiaries taken as a whole;
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(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except for borrowings or guarantees incurred in the
ordinary course of business consistent with past practice, or make any
loans, advances or capital contributions to, or investments in, any other
person, other than to the Company or any wholly owned subsidiary of the
Company and other than in the ordinary course of business consistent with
past practice;
(g) alter through merger, liquidation, reorganization, restructuring
or in any other fashion the corporate structure or ownership of any
subsidiary of the Company;
(h) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or, other than in the ordinary course of business,
enter into or amend any employee benefit plan or employment or consulting
agreement except (x) as permitted by the Merger Agreement or (y) with
respect to employees that are not executive officers or directors,
compensation increases associated with promotions and regular reviews in
the ordinary course of business consistent with past practices; or
(i) waive, amend or allow to lapse any term or condition of any
confidentiality or "standstill" agreement to which the Company is a party.
During the period from the date of the Merger Agreement through the
Effective Time, (i) as requested by the Parent, the Company shall confer on a
regular basis with one or more representatives of the Parent with respect to
material operational matters; (ii) the Company shall, within 20 days following
each fiscal month, deliver to the Parent financial statements, including an
income statement and balance sheet for such month, together with a statement
reconciling differences between the forecasted results of operations for such
month set forth in the monthly business plans delivered by the Company to the
Parent (the "Monthly Plans") and the actual results of operations set forth in
the financial statements delivered pursuant to this clause (ii); and (iii) upon
the knowledge of the Company of any Material Adverse Change on the Company, any
material litigation or material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated), or
the breach in any material respect of any representation or warranty contained
herein, the Company shall promptly notify the Parent thereof.
During the period from the date of the Merger Agreement through the
Effective Time, the Offeror shall not engage in any activities of any nature
except as provided in or contemplated by the Merger Agreement.
No Solicitation. The Company has agreed in the Merger Agreement that, from
the date of the Merger Agreement until the Effective Time or the termination of
the Merger Agreement, neither the Company nor its subsidiaries shall, and the
Company shall direct and use its reasonable best efforts to cause its officers,
directors, employees, authorized agents, and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries) not to initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction
involving the Company or its subsidiaries, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company or
its subsidiaries (an "Acquisition Proposal"), or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal,
and that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
and will take the necessary steps to inform such parties of the obligations
undertaken in the Merger Agreement. The Company will notify the Parent
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it, but the Company need not disclose
the identity of the other party or the terms of its proposals; provided,
however, that such agreement shall not prohibit the Board of Directors of the
Company from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal in writing, not subject to a financing condition, to acquire the
Company pursuant to a merger, consolidation, share exchange, purchase of a
substantial portion of the assets, business
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<PAGE> 10
combination or other similar transaction if, and only to the extent that (A) the
Board of Directors determines in good faith after consultation with the
Company's outside counsel that such action is required for the Board of
Directors to comply with its fiduciary duties to stockholders imposed by laws,
(B) prior to or concurrently with furnishing such information or entering into
such discussions, the Company provides written notice to the Parent to the
effect that it is furnishing information to, or entering discussions or
negotiations with, such a person or entity, and (C) the Company keeps the Parent
informed of the status (not the identity or terms) of any such discussions or
negotiations; and (ii) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
Options. Pursuant to the Merger Agreement, all outstanding employee stock
options (the "Company Stock Options") granted under the Company's 1994 Stock
Incentive Plan (the "Stock Plan") shall become fully exercisable and vested,
and, pursuant to the terms of the Stock Plan shall, upon their surrender to the
Company by the holders, be canceled by the Company, and the holders shall
receive a cash payment from the Company in an amount equal to the number of
Shares subject to each surrendered option multiplied by the difference (if
positive) between the exercise price per Share covered by the option and the
Offer Price; provided, however, that the making of such payment to any such
holder shall be conditioned on such holder acknowledging the cancellation of all
Company Stock Options held by such holder, including any Company Stock Options
as to which the exercise price equals or exceeds $37.50 (the "Out-of-the-Money
Options"). The Company shall use its best efforts to cause each holder of
Out-of-the-Money Options to acknowledge, prior to the purchase of Shares
pursuant to the Offer, the cancellation without consideration therefor of such
holder's Out-of-the-Money Options and to cause each other holder of Company
Stock Options to surrender their Company Stock Options in accordance with the
prior sentence. Any Company Stock Options not canceled in accordance with the
previous sentence shall be canceled at the Effective Time in exchange for an
amount in cash, payable at the Effective Time, equal to the amount which would
have been paid had such stock options been canceled immediately prior to the
consummation of the Offer. The Merger Agreement also provides that the Company
shall terminate the Stock Plan immediately prior to the Effective Time without
prejudice to the holders of such options and grant no additional Company Stock
Options.
Indemnification. From and after the Effective Time, the Parent agrees to,
and to cause the Surviving Corporation to, indemnify and hold harmless all past
and present officers, directors, employees and agents (the "Indemnified
Parties") of the Company and of its subsidiaries to the full extent such persons
may be indemnified by the Company pursuant to the Company's Certificate of
Incorporation and Bylaws as in effect as of the date of the execution of the
Merger Agreement for acts and omissions occurring at or prior to the Effective
Time and shall advance reasonable litigation expenses incurred by such persons
in connection with defending any action arising out of such acts or omissions,
provided that such persons provide the requisite affirmation and undertaking, as
set forth in the Company's Bylaws prior to the Effective Time. The Parent will
provide, or cause the Surviving Corporation to provide, for a period of not less
than six years after the Effective Time, the Company's current directors and
officers an insurance and indemnification policy that provides coverage for
events occurring at or prior to the Effective Time (the "D&O Insurance") that is
no less favorable than the existing policy or, if substantially equivalent
insurance coverage is unavailable, the best available coverage; provided,
however, that the Parent and the Surviving Corporation shall not be required to
pay an annual premium for the D&O Insurance in excess of one and one-half times
the last annual premium paid prior to the date of the execution of the Merger
Agreement, but in such case shall purchase as much such coverage as possible for
such amount.
Employee Benefits. Until at least December 31, 1996, the Parent has agreed
to maintain employee benefits and programs for retirees, officers and employees
of the Company (other than Messrs. William J. Lawson and Gregory H. Wolf, as to
whom benefits shall be as set forth in the agreements now in existence between
the Company and such individuals) and its subsidiaries that are no less
favorable in the aggregate than those being provided to such retirees, officers
and employees on the date of the execution of the Merger Agreement (it being
understood that the Parent will not be obligated to continue any one or more
employee benefits or programs). For purposes of eligibility to participate in
and vesting in all benefits provided to retirees, officers and employees,
retirees, officers and employees of the Company and its subsidiaries will be
granted their years of service with the Company and its subsidiaries and years
of service with prior employers
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<PAGE> 11
to the extent service with prior employers is taken into account under plans of
the Company. Amounts paid before the Effective Time by retirees, officers and
employees of the Company under any medical plans of the Company shall after the
Effective Time be taken into account in calculating balances for deductibles and
maximum out-of-pocket limits applicable under the medical plan of the Parent for
the plan year during which the Effective Time occurs as if such amounts had been
paid under such medical plan of the Parent.
After the Effective Time, the Parent has agreed to cause the Company to
maintain for 1995, without modification or amendment, the Company's Management
Incentive Plan (the "MIP") for all covered employees. The Parent has agreed that
the following principles shall apply for purposes of determining bonuses for
1995 under the MIP: (1) only persons who are employees of the Company or any of
its subsidiaries at the time that bonuses are paid (which shall not be later
than February 28, 1996) and who, at such time, are covered by the MIP shall be
eligible to receive such bonuses, except that employees that are terminated
(actually or constructively) without cause prior to the date that bonuses are
paid shall be eligible to receive a pro rata portion of such bonuses; (2)
whether any bonuses are payable under such plan and, if so, the amounts thereof
shall be determined as if the transactions contemplated in the Merger Agreement
had not occurred and the Company had remained an independent, publicly-owned
company through December 31, 1995, taking into account to the extent reasonably
applicable the limitations imposed by certain provisions of the Merger
Agreement; and (3) the timing of payment of any bonuses payable pursuant to
clause (2) above shall be consistent with past practices. The pro rata portion
of an employee's bonus shall be the amount determined pursuant to the preceding
sentence multiplied by a fraction, the numerator of which shall be the number of
days during 1995 for which such employee was employed by the Company or any of
its subsidiaries and the denominator of which shall be 365.
The Parent has agreed to maintain the existing severance policy applicable
to each officer covered by a severance policy separate from the Company's
standard severance policy for the Company's employees (which separate severance
policy relates to a change of control of the Company) and, for each other
officer and employee, the Parent has agreed to maintain the Company's standard
severance policy as in effect on the date of the Merger Agreement for a period
of at least six months from the Effective Time.
The Parent shall honor or cause to be honored all severance and employment
agreements with the Company's officers and employees to the extent these
agreements have been disclosed to the Parent prior to the execution of the
Merger Agreement.
The Parent has agreed to provide reasonable and customary outplacement
services ("Outplacement Services") to officers of the Company and its
subsidiaries who are terminated by the Company as a result of, or within one
year following, the Effective Time, which Outplacement Services provided to such
officer shall include one-on-one counseling and assistance; provided, however,
that the amount paid by the Parent to provide Outplacement Services shall not
exceed $15,000 for any individual officer or $250,000 in the aggregate.
Board Representation. The Merger Agreement provides that promptly upon the
purchase of Shares pursuant to the Offer, the Parent shall be entitled to
designate members of the Board of Directors of the Company, rounded up to the
next whole number, as will give the Parent, subject to compliance with the
provisions of Section 14(f) of the Exchange Act, representation on the Board of
Directors of the Company equal to the product of (i) the total number of
directors on such Board and (ii) the percentage that the aggregate number of
Shares owned by the Parent bears to the total number of outstanding Shares. The
Company has agreed, upon the request of the Parent, to promptly increase the
size of the Board of Directors of the Company and/or use its reasonable best
efforts to secure the resignations of such number of directors as is necessary
to enable the Parent's designees to be elected to the Board of Directors and
shall cause the Parent's designees to be so elected. The Company has agreed to
take, at its expense, all actions required by Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder to effect any such election, including the
mailing to its stockholders of the information required to be disclosed pursuant
thereto. The Parent will supply to the Company in writing and be solely
responsible for any information with respect to itself and its nominees,
officers, directors and affiliates required by Section 14(f) and Rule 14f-1.
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Performance Certificates. Until the Offeror acquires Shares pursuant to the
Offer, the Company is required to deliver certificates (the "Certificates") to
the Parent and the Offeror containing the following information, each
certificate being certified by the Chairman of the Board and the President of
the Company as true and correct and as being prepared in accordance with the
provisions of the Merger Agreement:
(x) No later than the tenth calendar day of each month, (1) the number
of insured members (the "Members") in the Company's medical plans at the
end of the month immediately prior to said month (the "Prior Month") and
(2) the Adjusted Premiums (as such term is defined below) for the period
(the "Premium Measurement Period") from July 1, 1995 through the end of the
Prior Month, inclusive; and
(y) No later than the first calendar day of each month, the Adjusted
Pretax Income (as such term is defined below) for the period (the "Pretax
Measurement Period") from January 1, 1995 through the end of the month
immediately prior to the Prior Month, inclusive.
For purposes of the foregoing, (I) except as otherwise provided, all
calculations shall be made in accordance with generally accepted accounting
principles applied on a consistent basis with the accounting principles used in
preparing the Company's Consolidated Statement of Income for the year ended
December 31, 1994 as included in the Company's filings with the Commission (the
"Income Statement"), (II) except as otherwise provided, all terms shall have the
meanings customarily used for such terms in the health care industry, (III) the
term "Adjusted Premiums" shall mean the Company's consolidated earned premiums
(including administrative fees and any other items of revenue of the type
included under the caption "Administrative fees and other" in the Income
Statement) but shall not include premium reserve adjustments related to reserves
which arose prior to July 1, 1995, investment income or realized gains or losses
on investments and (IV) the term "Adjusted Pretax Income" shall mean the
Company's consolidated pretax income as adjusted for certain exclusions,
adjustments and assumptions as contemplated by the Merger Agreement.
Until the Offeror acquires Shares pursuant to the Offer, on or prior to the
20th calendar day of each month the Company is generally required to deliver to
the Parent and the Offeror a draft of the certificate (the "Pretax Certificate")
referred to in clause (y) above which is required to be delivered on the first
day of the following month, accompanied by a report of Ernst & Young, LLP, the
Company's independent accountants, of the type contemplated by Rule 436(d)
promulgated under the Securities Act and stating that the Adjusted Pretax Income
included in the draft certificate was determined in a manner consistent with the
methodology set forth in the Merger Agreement. The Company agrees to make the
appropriate officers and employees of the Company and its subsidiaries and
representatives of Ernst & Young, LLP available to discuss the draft certificate
with representatives of the Parent and the Offeror, together with Coopers &
Lybrand, L.L.P., their independent accountants. Subject to the Company complying
with its obligations pursuant to the immediately preceding paragraph in a manner
which under reasonable circumstances would permit the Parent and the Offeror to
complete their review within the time period hereinafter provided, the Parent
and the Offeror agree to complete their review and provide the Company with a
detailed description of their comments and proposed modifications within five
business days after the receipt of the draft certificate (which proposed
modifications shall, in reasonable judgment of the Parent and the Offeror, be
necessary in order for the Adjusted Pretax Income to have been determined in a
manner consistent with the methodology set forth in or contemplated by the
Merger Agreement).
If the Pretax Certificate is accompanied by a certificate from Milliman and
Robertson (or such other firm acceptable to the Parent and the Offeror) stating
that, in its professional opinion, the medical claims component of Adjusted
Pretax Income included in the Pretax Certificate was determined in a manner
consistent with the methodology set forth in the Merger Agreement, the Parent
and the Offeror shall be bound by such determination but solely as it relates to
the medical claims component of Adjusted Pretax Income. All fees and expenses of
Milliman and Robertson (or such other firm) shall be paid by the Company.
For purposes of exercising its right to terminate the Merger Agreement,
notwithstanding the fact that the calculations included in the Certificates
comply with the thresholds established therein, the Parent and the Offeror have
the right, exercised in good faith, to disagree with any of the calculations
made by the Company in such Certificates (except to the extent the calculations
relate to the medical claims component of Adjusted
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<PAGE> 13
Pretax Income as contained in a certificate from Milliman and Robertson) and to
take any permitted action to terminate the Merger Agreement had their
calculations been included in such Certificates (subject to the obligation of
the Parent and the Offeror, in any proceeding commenced by the Company claiming
that the Parent and the Offeror breached their obligations under the Merger
Agreement by improperly exercising their right to terminate, to demonstrate that
the Company's calculations were inaccurate and that, if the calculations were
prepared accurately, the Parent and the Offeror would have had the right to
terminate the Merger Agreement) unless in the case of calculation of Adjusted
Pretax Income, (i) the Company modified its calculation of Adjusted Pretax
Income contained in the corresponding draft certificate to take into account all
of the comments provided to the Company by the Parent and the Offeror, (ii) the
Parent and the Offeror acknowledged in writing to the Company that they had no
comments on the calculation of Adjusted Pretax Income or (iii) the Parent and
the Offeror do not comply with their obligations to review and comment upon the
draft Pretax Certificate.
Conditions Precedent. The respective obligations of each party to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following conditions: (a) if required by applicable law, the Merger
Agreement shall have been approved by the requisite vote of the holders of the
Shares; and (b) no governmental entity or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree or injunction which prohibits or has the
effect of prohibiting the consummation of the Merger; provided, however, that
the Company, the Parent and the Offeror shall use their reasonable best efforts
to have any such order, decree or injunction vacated.
Termination. The Merger Agreement provides that it may be terminated at any
time prior to the Effective Time, whether prior to or after approval by the
stockholders of the Company: (a) by mutual written consent of the Parent and the
Company; (b) by the Company if: (i) the Offer has not been timely commenced
(except as a result of actions or omissions by the Company); (ii) there is an
offer to acquire all of the Shares or substantially all of the assets of the
Company for consideration that provides stockholders of the Company a value per
Share which, in the good faith judgment of the Board of Directors of the
Company, provides a higher value per Share than the consideration per Share
pursuant to the Offer or the Merger and the Board of Directors of the Company
determines in good faith after consultation with the Company's outside counsel
that the failure to approve such offer would not be consistent with the
fiduciary duties of the Board of Directors of the Company to stockholders of the
Company; provided, however that the right to terminate the Merger Agreement
pursuant to this clause (ii) will not be available (A) if the Company has
breached in any material respect its obligations concerning Acquisition
Proposals, (B) in respect of an offer that is subject to a financing condition,
(C) in respect of an offer involving consideration which is not entirely cash,
or does not permit stockholders to receive the payment of the offered
consideration in respect of all Shares at the same time, unless the Board of
Directors of the Company has been furnished with a written opinion of a
nationally recognized investment banking firm to the effect that such offer
provides a higher value per Share than the consideration per Share pursuant to
the Offer or the Merger or (D) if, prior to or concurrently with any purported
termination pursuant to this clause (ii), the Company shall not have paid the
Termination Fee (as defined below); (iii) there has been a breach by the Parent
or the Offeror of any representation or warranty that would have a material
adverse effect on the Parent's or the Offeror's ability to perform its
obligations under the Merger Agreement, and which is not cured within five
business days following receipt by the Parent or the Offeror of notice of the
breach; or (iv) if the Parent or the Offeror fails to comply in any material
respect with any of its material obligations or covenants contained in the
Merger Agreement, including the obligation of the Offeror to purchase Shares
pursuant to the Offer, unless such a failure results from a breach by the
Company of any obligation, representation or warranty under the Merger
Agreement, which is not cured within five business days following the Company's
receipt of notice of the breach; (c) by the Parent if: (i) the Board of
Directors of the Company shall have failed to recommend, or withdrawn, modified
or amended in any material respect its approval or recommendation of the Offer
or the Merger or shall have resolved to do any of the foregoing, or shall have
failed to reject an Acquisition Proposal within 10 business days after receipt
by the Company or public announcement thereof, or (ii) the information contained
in the last Certificates delivered to the Parent and the Offeror do not satisfy
all of the following thresholds: (x) the number of Members is at least 95% of
the number of Members forecasted for the end of the applicable month in the
Monthly Plans; (y) the Adjusted Premiums are at least 90% of the Adjusted
Premiums forecasted for
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<PAGE> 14
the applicable Premium Measurement Period in the Monthly Plans; and (z) the
Adjusted Pretax Income is at least 90% of the Adjusted Pretax Income forecasted
for the applicable Pretax Measurement Period in the Monthly Plans; or (d) by
either the Parent or the Company if: (i) the Merger has not been effected on or
prior to the close of business on March 31, 1996; provided, however, that the
right to terminate the Merger Agreement pursuant to this clause shall not be
available (y) to the Parent if the Offeror or any affiliate of the Offeror
acquires Shares pursuant to the Offer, or (z) to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or prior to the
aforesaid date; or (ii) any court of competent jurisdiction or any other
governmental body shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and non-appealable; or (iii) upon a vote at a duly held meeting or upon any
adjournment thereof, the stockholders of the Company shall have failed to give
any required approval, or (iv) as the result of the failure of any of the
conditions to the Offer as set forth under "Merger Agreement -- The Offer," the
Offer shall have terminated or expired in accordance with its terms without the
Offeror having purchased any Shares pursuant to the Offer; provided, however,
that the right to terminate the Merger Agreement pursuant to this clause (iv)
shall not be available to any party whose failure to fulfill any of its
obligations under the Merger Agreement results in the failure of any such
condition, or (v) the Parent or the Company shall have reasonably determined
that any Offer condition (other than the Minimum Condition) is not capable of
being satisfied at any time in the future; provided, however, that the right to
terminate the Merger Agreement pursuant to this clause (v) shall not be
available to any party whose failure to fulfill any of its obligations under the
Merger Agreement has been the cause of, or resulted in, such Offer condition
being incapable of satisfaction. If the Merger Agreement is terminated, the
Merger Agreement will become void and there will be no liability or further
obligation on the part of the Offeror, the Parent or the Company or their
respective stockholders, officers or directors, except for the Company's
obligations, under certain circumstances, to pay the Termination Fee (as defined
below) or to reimburse the Parent for certain expenses and except for the
confidentiality obligations of the parties.
Fees and Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such costs and
expenses. The Company has agreed in the Merger Agreement that, in the event that
(i) any person (other than the Parent or any of its affiliates) shall have
become, prior to the termination of the Merger Agreement, the beneficial owner
of 50% or more of the outstanding Shares, (ii) the Offer shall have expired at a
time when the Minimum Condition shall not have been satisfied and at any time on
or prior to nine months after the date of the expiration of the Offer any person
(other than the Offeror or any of its affiliates) shall acquire beneficial
ownership of 50% or more of the outstanding Shares or shall consummate an
Acquisition Proposal, (iii) at any time prior to the termination of the Merger
Agreement any person (other than the Offeror or any of its affiliates) shall
publicly announce any Acquisition Proposal and, at any time on or prior to nine
months after the date of the termination of the Merger Agreement, shall become
the beneficial owner of 50% or more of the outstanding Shares or shall
consummate an Acquisition Proposal, or (iv) the Company terminates the Merger
Agreement in accordance with clause (b)(ii) set forth above under "Merger
Agreement -- Termination," then the Company shall, in the case of clause (i),
(ii) or (iii) above, promptly, but in no event later than two business days
after the first of such events to occur, or, in the case of clause (iv), at or
prior to the time of such termination, pay the Offeror the sum of $18 million
(the "Termination Fee") in cash. If the Company fails to pay such amount when
due, which failure is finally determined by a court of competent jurisdiction,
the Parent shall be entitled to the payment from the Company, in addition to any
such amount, of any legal fees and expenses incurred in procuring such judicial
determination.
In the event the Board of Directors of the Company shall modify or amend
its recommendation of the Offer and/or the Merger in a manner adverse to the
Parent or shall withdraw its recommendation of the Offer or shall recommend any
Acquisition Proposal, or shall resolve to do any of the foregoing, or shall have
failed to reject any Acquisition Proposal within 10 business days after receipt
by the Company or public announcement thereof, the Company shall reimburse the
Parent and the Offeror (not later than two business days after submission of
statements therefor) for all reasonable, documented costs and expenses
(including, without limitation, all legal, investment banking, printing,
depositary and related fees and expenses, but excluding any
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<PAGE> 15
internal allocations of overhead attributable to the Offer, the Merger or the
transactions contemplated by the Merger Agreement) (the "Expenses"); provided,
however, that the amount of the Expenses paid to the Parent and the Offeror
shall not exceed $2 million; provided, further, that the amount of the Expenses
paid shall be credited against the Termination Fee; and provided, further, that
if the Company has paid the Termination Fee prior to any payment of Expenses,
then no Expenses shall be payable.
The foregoing description of the terms and provisions of the Merger
Agreement is qualified in its entirety by reference to the text of the Merger
Agreement, which is filed as an exhibit hereto and is incorporated herein by
reference.
(b)(4) Stock Option and Tender Agreement.
Tender of the Shares and Stock Options. On August 9, 1995, Parent, LNC,
and American States Insurance Company, an Indiana corporation and a wholly owned
subsidiary of LNC (the "Selling Stockholder"), entered into the Stock Option and
Tender Agreement (the "Stock Option and Tender Agreement"). Pursuant to the
Stock Option and Tender Agreement, the Selling Stockholder has agreed to tender
to the Offeror all 4,986,507 of the Shares beneficially owned by it (the
"Subject Shares"), representing approximately 29.2% of the outstanding Shares,
pursuant to the Offer no later than the first business day following the
commencement of the Offer and not to withdraw any Subject Shares tendered into
the Offer. The Selling Stockholder has also granted to the Offeror an option
(the "Stock Option") to purchase all of the Subject Shares at a purchase price
equal to the Offer Price, prior to the earlier of (i) the Effective Time or (ii)
45 days after the date of the termination of the Merger Agreement.
Conditions to Delivery of the Shares. The Stock Option and Tender
Agreement provides that the obligation of the Selling Stockholder to deliver the
Subject Shares upon any exercise of the Stock Option is subject to (i) all
waiting periods under the HSR Act applicable to such exercise of the Stock
Option having expired or been terminated, (ii) all regulatory or supervisory
agency approvals required by any applicable law, rule or regulation having been
obtained and each approval having become final, and (iii) there being no
preliminary or permanent injunction or other order by any court of competent
jurisdiction restricting, preventing or prohibiting the exercise of the Stock
Option and the delivery of the Subject Shares pursuant to it.
Representations and Warranties. The Stock Option and Tender Agreement
contains various customary representations and warranties by the Selling
Stockholder, including those relating to (i) title to the Shares being sold,
(ii) authority to execute, deliver and perform the Stock Option and Tender
Agreement, and (iii) waiver of certain rights of LNC as Designated Holder under
a promissory note issued by the Company. The Stock Option and Tender Agreement
also contains various customary representations and warranties by the Parent and
the Offeror, including those relating to the authority to execute, deliver and
perform the Stock Option and Tender Agreement, among others.
Voting Agreement and Proxy. The Stock Option and Tender Agreement provides
that during the time the Stock Option and Tender Agreement is in effect, the
Selling Stockholder shall vote all of the Subject Shares (i) in favor of the
Merger, the Merger Agreement, and any of the transactions contemplated by the
Merger Agreement and (ii) against any action or agreement that would impede,
interfere with or attempt to discourage the Offer or the Merger, or would result
in a breach in any material respect of any covenant, representation or warranty
or any other obligation of the Company under the Merger Agreement. The Stock
Option and Tender Agreement further provides that in the event the Selling
Stockholder shall fail to vote all of the Subject Shares in the manner described
in the preceding sentence, the Offeror will be irrevocably appointed the proxy
of the Selling Stockholder pursuant to Section 212 of the DGCL.
Sale of the Subject Shares by the Offeror. The Stock Option and Tender
Agreement provides that if, subsequent to the exercise of the Stock Option but
prior to the Termination Date (as defined in the Stock Option and Tender
Agreement), the Offeror sells or disposes of the Subject Shares for cash or
securities in excess of the Offer Price, the Offeror will pay 50% of such excess
to the Selling Stockholder.
Termination Date. The Stock Option and Tender Agreement will, subject to
the following sentence, terminate upon the earlier to occur of (i) the Effective
Time or (ii) the date four months after the date of
15
<PAGE> 16
termination of the Merger Agreement, unless the Merger Agreement is terminated
generally, as a result of (a) a breach by the Parent or the Offeror of its
representations, warranties, covenants or obligations under the Merger
Agreement, (b) the Parent exercising its right of termination or failing to
timely commence the Offer, in either case, at a time when no Acquisition
Proposal shall be pending or have been proposed or announced or (c) the mutual
consent of the Parent and the Company. Notwithstanding the foregoing, if (x) the
Merger Agreement has been terminated in a manner that causes the Stock Option
and Tender Agreement to terminate four months after the date of the termination
of the Merger Agreement and (y) on the date four months after the date of
termination of the Merger Agreement the Company shall be a party to an agreement
with a party, other than the Parent (or an affiliate of the Parent), that
contemplates a merger, acquisition, consolidation or similar transaction
involving the Company or any of its significant subsidiaries, or any purchase of
all or any significant portion of the assets or any equity securities of the
Company or any of such significant subsidiaries, then the Stock Option and
Tender Agreement shall terminate on the date nine months after the date of
termination of the Merger Agreement.
The foregoing description of the terms and provisions of the Stock Option
and Tender Agreement is qualified in its entirety by reference to the text of
the Stock Option and Tender Agreement, which is filed as an exhibit hereto and
is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) The Board of Directors of the Company, at a meeting held on August 8,
1995, unanimously approved the execution and delivery of the Merger Agreement,
the Offer and the Merger, determined that the Merger is advisable and that the
terms of the Offer and the Merger are fair to and in the best interests of the
Company's stockholders and recommended that the Company's stockholders accept
the Offer and (if required by applicable law or otherwise) approve the Merger
Agreement and the Merger. A copy of the Company's letter to stockholders dated
August 16, 1995, is filed as an exhibit to this statement and is incorporated
herein by reference.
(b) In reaching the determinations described in paragraph (a) above, the
Board of Directors of the Company considered a number of factors, including the
following:
(1) The financial condition, results of operations, business,
prospects and strategic objectives of the Company, as well as the risks
involved in achieving those prospects and objectives in the health
insurance industry with the current economic and market conditions.
(2) The projected financial condition, results of operations and
prospects of the Company.
(3) The detailed financial and valuation analyses presented to the
Board of Directors by Morgan Stanley on August 8, 1995.
(4) The fact that the $37.50 per Share to be received by the
Company's stockholders in both the Offer and the Merger represents a
substantial premium over the closing market price of $27 per Share on
August 8, 1995 (the day of the Board of Directors meeting referred to in
Section (b)(2) of Item 3 above) and an even higher premium over the closing
market price of $23.375 per Share on July 6, 1995 (the day prior to the
delivery by the Parent to the Company of the First Proposal).
(5) Discussions (described above under "Certain Background
Information") with other parties as to possible transactions.
(6) Management's views, and Morgan Stanley's advice to the Board of
Directors, regarding the likelihood of a superior transaction.
(7) The written opinion dated as of August 8, 1995 of Morgan Stanley
that, as of such date and based upon and subject to the various
considerations set forth in its opinion, the consideration to be received
by the holders of Shares pursuant to the Merger Agreement is fair from a
financial point of view to such holders.
16
<PAGE> 17
(8) The relationship of the Offer Price to historical market prices
of the Shares and to the Company's book value and net asset value per
Share.
(9) The terms and conditions of the Merger Agreement and the course
of the negotiations resulting in the execution thereof (including the terms
of the Merger Agreement that permit the Company's Board of Directors, in
the exercise of its fiduciary duties and subject to certain conditions, to
furnish information to or enter into discussions or negotiations with, any
third party that makes an unsolicited bona fide proposal in writing, not
subject to a financing condition, to acquire the Company pursuant to a
merger, consolidation, share exchange, purchase of a substantial portion of
the assets, business combination or other similar transaction (although the
Company is not permitted by the Merger Agreement to initiate, solicit or
encourage any third party bids), and under certain circumstances to
terminate the Merger Agreement). The Company's directors noted that the
Merger Agreement provides that, under certain circumstances involving a
completed or prospective third party transaction, the Company would be
obligated to pay the Parent up to $18 million. See "Merger Agreement -- Fee
and Expenses.";
(10) The likelihood that the proposed acquisition would be
consummated, including the likelihood of satisfaction of the regulatory
approvals required pursuant to, and the other conditions to the Offer and
the Merger contained in, the Merger Agreement, the experience, reputation
and financial condition of the Parent and the risks to the Company if the
acquisition were not consummated.
(11) The decision by LNC and the Selling Stockholder to enter into
the Stock and Tender Option Agreement.
(12) The recommendation of the Company's management with respect to
the proposed acquisition.
The full text of the written opinion of Morgan Stanley, dated as of August
8, 1995, which sets forth assumptions made, procedures followed, matters
considered and limits on the review undertaken, is attached as an exhibit to
this statement. The Company's stockholders are urged to read this opinion in its
entirety. Morgan Stanley's opinion is directed only to the fairness of the
consideration to be received by the holders of Shares from a financial point of
view to such holders and does not constitute a recommendation as to whether or
not any holder of Shares should tender his or her shares pursuant to the Offer.
The summary of the opinion of Morgan Stanley set forth in this statement is
qualified in its entirety by reference to the full text of such opinion.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement dated as of August 7, 1995 between the
Company and Morgan Stanley, the Company has agreed to pay Morgan Stanley upon
closing of the Offer and the Merger a fee equal to .555% of the aggregate
consideration paid to the Company's stockholders in connection therewith.
Assuming a purchase of all the Shares at a price of $37.50 per Share, Morgan
Stanley will receive fees aggregating approximately $3,910,000. In the event the
Offer and the Merger are not consummated, Morgan Stanley will receive an
advisory fee of approximately $750,000. The Company has also agreed to reimburse
Morgan Stanley for certain out-of-pocket expenses. In addition, the Company has
agreed to indemnify and hold harmless Morgan Stanley and its affiliates and
their respective directors, officers, employees and controlling persons against
certain liabilities and expenses, including liabilities under the federal
securities laws, arising out of or in connection with its rendering of services
under such letter.
Morgan Stanley and its affiliates from time to time provide financial
advisory services for the Company and Parent and have received fees for the
rendering of these services.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to security holders on its behalf concerning the Offer.
17
<PAGE> 18
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in Shares have
been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company except as follows: (i)
on June 15, 1995, Daniel A. Bollom purchased 5.286 Shares pursuant to the
Company's dividend reinvestment plan, (ii) on June 16, 1995, Wayne R. Micksch
purchased 18.9102 Shares, and (iii) on June 15, 1995 and July 17, 1995, Michael
R. Walker purchased 17.621 Shares and 21.39 Shares, respectively, pursuant to
the Company's dividend reinvestment plan.
(b) To the best of the Company's knowledge, all of its executive officers
and directors currently intend to tender to the Offeror, pursuant to the Offer,
all Shares which are held of record or beneficially owned by such persons except
for certain Shares purchasable upon exercise of options, which options will be
cancelled pursuant to the Merger Agreement in exchange for the cash payment as
described in Item 3 above.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in Items 3 and 4, none.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO.
1. Agreement and Plan of Merger, dated as of August 9, 1995, among EMPHESYS
Financial Group, Inc., Humana Inc. and HEW, Inc.
2. Press Release of EMPHESYS Financial Group, Inc. and Humana Inc. issued on
August 10, 1995.
3. Sections entitled "Proposal 2 -- Approval of Amendments to the 1994 Stock
Incentive Plan," "Security Ownership of Certain Beneficial Owners and
Management" and "Executive Compensation" from EMPHESYS Financial Group,
Inc.'s Proxy Statement dated March 28, 1995 relating to its 1995 Annual
Meeting of Shareholders.
4. Stock Option and Tender Agreement, dated as of August 9, 1995, among
Humana Inc., Lincoln National Corporation and American States Insurance
Company.
5. Letter to Stockholders of EMPHESYS Financial Group, Inc. dated August 16,
1995.*
6. Opinion of Morgan Stanley & Co. Incorporated.*
---------------
* Included in copies mailed to stockholders.
18
<PAGE> 19
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.
EMPHESYS FINANCIAL GROUP, INC.
By: /s/ GAIL A. HOHENSTEIN
Gail A. Hohenstein
Vice President, Secretary
and General Counsel
Dated: August 16, 1995
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------------------------------------------------------------------------------
<C> <S>
1. Agreement and Plan of Merger, dated as of August 9, 1995, among EMPHESYS Financial
Group, Inc., Humana Inc. and HEW, Inc.
2. Press Release of EMPHESYS Financial Group, Inc. and Humana Inc. issued on August
10, 1995.
3. Sections Entitled "Proposal 2 -- Approval of Amendments to the 1994 Stock Incentive
Plan," "Security Ownership of Certain Beneficial Owners and Management," and
"Executive Compensation" from EMPHESYS Financial Group, Inc.'s Proxy Statement
dated March 28, 1995 relating to its 1995 Annual Meeting of Shareholders.
4. Stock Option and Tender Agreement, dated as of August 9, 1995, among Humana Inc.,
Lincoln National Corporation and American States Insurance Company.
5. Letter to Stockholders of EMPHESYS Financial Group, Inc. dated August 16, 1995.
6. Opinion of Morgan Stanley & Co. Incorporated.
</TABLE>
20
<PAGE> 1
___________________________________
AGREEMENT AND PLAN OF MERGER
AMONG
HUMANA INC.
HEW, INC.
AND
EMPHESYS FINANCIAL GROUP, INC.
DATED AS OF AUGUST 9, 1995
___________________________________
<PAGE> 2
TABLE OF CONTENTS
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Parties and Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
THE OFFER
Section 1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
THE MERGER
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation and Bylaws; Directors and Officers . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7 Dissenting Company Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.8 Merger Without Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.9 No Further Ownership Rights in Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.10 Closing of Company Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.2 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.3 Offer Documents and Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.4 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.5 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.2 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4 Other Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.5 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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Section 4.7 Offer Documents and Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.8 Absence of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.10 Compliance with Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.11 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.12 Employment Relations and Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.13 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.14 Accreditations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.15 Monthly Business Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.16 State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.18 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Section 5.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.2 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.3 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.2 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.3 Conduct of Business of Sub Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Company Stockholder Approval; Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.4 Company Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.5 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.6 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.7 Real Estate Transfer and Gains Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.8 1996 Monthly Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.9 Indemnification; Directors and Officers Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.10 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.11 Severance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.12 Board Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.13 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.5 Procedure for Termination, Amendment or Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 10.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.5 Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.9 Enforcement of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.10 Incorporation of Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
EXHIBIT A Conditions of the Offer
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 9, 1995 (this
"Agreement"), among Humana Inc., a Delaware corporation ("Parent"), HEW, Inc.,
a Delaware corporation ("Sub") and a wholly owned subsidiary of Parent, and
EMPHESYS Financial Group, Inc., a Delaware corporation (the "Company") (Sub and
the Company being hereinafter collectively referred to as the "Constituent
Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have approved the acquisition of the Company by Parent pursuant to
a tender offer (the "Offer") by Parent for all of the outstanding shares of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company at
a price of $37.50 per share, net to the seller in cash, followed by a merger
(the "Merger") of Sub with and into the Company upon the terms and subject to
the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has adopted
resolutions approving the Offer and the Merger and recommending that the
Company's stockholders accept the Offer;
WHEREAS, Parent has informed the Company that Parent has
previously entered into a Stock Option and Tender Agreement (the "Stock Option
Agreement") with Lincoln National Corporation and American States Insurance
Company (collectively, "Stockholder") pursuant to which Stockholder has agreed,
among other things, (i) to tender all of the shares of Common Stock that
Stockholder now owns or hereafter acquires (the "Stockholder Shares"), (ii) to
grant Parent the option to purchase all of the Stockholder Shares, (iii) to
appoint Parent as Stockholder's proxy to vote the Stockholder Shares, and (iv)
with respect to certain questions put to stockholders of the Company for a
vote, to vote the Stockholder Shares, in each case, in accordance with the
terms and conditions of the Stock Option Agreement; and
WHEREAS, pursuant to the Merger, each issued and outstanding
share of Common Stock not owned directly or indirectly by Parent or the Company
will be converted into the right to receive the per share consideration paid
pursuant to the Offer.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
<PAGE> 6
ARTICLE I
THE OFFER
Section 1.1 The Offer. (a) Subject to the provisions of
this Agreement, as promptly as practicable but in no event later than August
16, 1995, Sub shall, and Parent shall cause Sub to, commence, within the
meaning of Rule 14d-2 under the Exchange Act (as hereinafter defined), the
Offer. The obligation of Sub to, and of Parent to cause Sub to, commence the
Offer and accept for payment, and pay for, any shares of Common Stock tendered
pursuant to the Offer shall be subject to the conditions set forth in Exhibit A
and to the terms and conditions of this Agreement. The initial expiration date
of the Offer shall be September 15, 1995. Without the prior written consent of
the Company, Sub shall not (i) waive the Minimum Condition (as defined in
Exhibit A), (ii) reduce the number of shares of Common Stock subject to the
Offer, (iii) reduce the price per share of Common Stock to be paid pursuant to
the Offer, (iv) extend the Offer if all of the Offer conditions are satisfied
or waived, (v) change the form of consideration payable in the Offer, or (vi)
amend, add or waive any term or condition of the Offer (including the
conditions set forth on Exhibit A) in any manner that would adversely affect
the Company or its stockholders. Notwithstanding the foregoing, Sub may,
without the consent of the Company, extend the Offer (i) if at the then
scheduled expiration date of the Offer any of the conditions to Sub's
obligation to accept for payment and pay for shares of Common Stock shall not
have been satisfied or waived, until the later of (x) any period during which
the Offer may remain open pursuant to clauses (ii)-(v) below, and (y) the fifth
business day after the date Sub reasonably believes to be the earliest date on
which such conditions may be satisfied; (ii) for any period required by any
rule, regulation, interpretation or position of the SEC (as hereinafter
defined) or its staff applicable to the Offer; (iii) if the condition in clause
(f) of Exhibit A referring to a 10 business day period shall not have been
satisfied, for up to three business days after the scheduled expiration date of
such period; (iv) if all Offer conditions are satisfied or waived but the
number of shares of Common Stock tendered is less than 90% of the then
outstanding number of shares of Common Stock, for an aggregate period of not
more than 15 business days (for all such extensions) beyond the latest
expiration date that would be permitted under clause (i), (ii) or (iii) of this
sentence; and (v) if all Offer conditions are satisfied or waived but the
number of shares of Common Stock tendered is less than 90% of the then
outstanding number of shares of Common Stock, for an aggregate period of not
more than 10 business days (for all such extensions) beyond the latest
expiration date that would be permitted under clause (i), (ii), (iii) or (iv)
of this sentence (provided that Sub shall acknowledge that, except in the case
of an occurrence of an event that would cause the condition contained in
Section 8.1(b) not to be satisfied, all the Offer
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<PAGE> 7
conditions shall be deemed to be waived and all shares of Common Stock which
are validly tendered and not withdrawn upon the expiration of such extended
period will be accepted and purchased. In addition to the right of Sub to
extend the Offer pursuant to the previous sentence, Sub shall have the right to
extend the Offer until five business days from the date on which Sub receives
all certificates required to have been delivered to it pursuant to Section 7.13
on or prior to the scheduled expiration date in effect prior to the extension
permitted by this sentence. The obligation of the Company to provide
certificates pursuant to Section 7.13 and the right of Parent to terminate this
Agreement pursuant to Section 9.3(c)(ii) shall remain in effect until Sub
acquires shares of Common Stock pursuant to the Offer without affecting the
right of Sub to extend the Offer pursuant to clause (iv) above; provided,
however, that if Sub exercises its right to extend the Offer pursuant to clause
(v) above, the Company's obligation to provide certificates pursuant to Section
7.13 shall cease and the Parent shall have no further right to terminate this
Agreement pursuant to Section 9.1(c)(ii). So long as this Agreement is in
effect and the Offer conditions have not been satisfied or waived, Sub shall,
and Parent shall cause Sub to, cause the Offer not to expire. Subject to the
terms and conditions of the Offer and the Agreement, Sub shall, and Parent
shall cause Sub to, pay for all shares of Common Stock validly tendered and not
withdrawn pursuant to the Offer as soon as practicable after the expiration of
the Offer.
(b) On the date of commencement of the Offer, Parent and Sub
shall file with the Securities and Exchange Commission (the "SEC") a Tender
Offer Statement on Schedule 14D-1 with respect to the Offer, which shall
contain an offer to purchase and a related letter of transmittal (such Schedule
14D-1 and the documents therein pursuant to which the Offer will be made,
together with any supplements or amendments thereto, the "Offer Documents").
The Company and its counsel shall be given an opportunity to review and comment
upon the Offer Documents prior to the filing thereof with the SEC. The Offer
Documents shall comply as to form in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (including the
rules and regulations promulgated thereunder, the "Exchange Act"), and on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, the Offer Documents 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 Sub with respect to information supplied by
the Company for inclusion in the Offer Documents. Each of Parent, Sub and the
Company agrees promptly to correct any information provided by it for use in
the Offer Documents if and to the extent that such information shall have
become false or misleading in any material
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<PAGE> 8
respect, and each of Parent, Sub and Company 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 of Common Stock, in each case as
and to the extent required by applicable federal securities laws. Parent and
Sub agree to provide the Company and its counsel in writing with any comments
Parent, Sub or their counsel may receive from the SEC or its staff with respect
to the Offer Documents.
(c) Prior to or concurrently with the expiration of the
Offer, Parent shall provide or cause to be provided to Sub all of the funds
necessary to purchase any shares of Common Stock that Sub becomes obligated to
purchase pursuant to the Offer.
Section 1.2 Company Actions. (a) The Company hereby
approves of and consents to the Offer and represents that the Board of
Directors of the Company at a meeting duly called and held has duly adopted
resolutions approving this Agreement, the Offer and the Merger, determining
that the Merger is advisable and that the terms of the Offer and Merger are
fair to, and in the best interests of, the Company's stockholders and
recommending that the Company's stockholders accept the Offer and approve the
Merger and this Agreement. The Company represents that its Board of Directors
has received the written opinion of Morgan Stanley & Co. Incorporated that the
proposed consideration to be received by the holders of shares of Common Stock
pursuant to the Offer and the Merger is fair to such holders from a financial
point of view. Subject to the fiduciary duties of the Board of Directors of
the Company under applicable law as determined by the Board of Directors in
good faith after consultation with the Company's outside counsel, the Company
hereby consents to the inclusion in the Offer Documents of the recommendation
of the board of directors of the Company described in the first sentence of
this Section 1.2.
(b) On the date the Offer Documents are filed with the SEC,
the Company shall file with the SEC a Solicitation/ Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendations described in
paragraph (a) above (subject to the fiduciary duties of the Board of Directors
of the Company under applicable law as determined by the Board of Directors in
good faith after consultation with the Company's outside counsel) and shall
mail the Schedule 14D-9 to the stockholders of the Company. To the extent
practicable, the Company shall cooperate with Parent in mailing or otherwise
disseminating the Schedule 14D-9 with the appropriate Offer Documents to the
Company's stockholders. Parent and its counsel shall be given an opportunity
to review and comment upon the Schedule 14D-9 prior to the filing thereof with
the SEC. The Schedule 14D-9 shall comply as to form in all material respects
with the requirements of the Exchange Act and, on the date filed with the SEC
and on the date first published, sent or given to
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<PAGE> 9
the Company's stockholders, 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 Sub for inclusion in the Schedule 14D-9. Each of the Company, Parent
and Sub agrees promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that such information shall have become
false or 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 disseminated to the holders of shares of Common Stock,
in each case as and to the extent required by applicable federal securities
laws. The Company agrees to provide Parent and Sub and their counsel in
writing with any comments the Company or its counsel may receive from the SEC
or its staff with respect to the Schedule 14D-9 promptly after the receipt of
such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Sub with mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of
those persons becoming record holders subsequent to such date, together with
copies of all lists of stockholders, security position listings and computer
files and all other information in the Company's possession or control
regarding the beneficial owners of Common Stock, and shall furnish to Sub such
information and assistance (including updated lists of stockholders, security
position listings and computer files) as Sub may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of law, and except for such steps as are necessary to disseminate
the Offer Documents and any other documents necessary to consummate the Merger,
Parent and Sub and each of their affiliates and associates shall hold in
confidence the information contained in any of such labels, lists and files,
will use such information only in connection with the Offer and the Merger,
and, if this Agreement is terminated, will promptly deliver to the Company all
copies of such information then in their possession.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the General Corporation Law of the
State of Delaware, as amended (the "DGCL"), Sub shall be merged with and into
the Company at the Effective Time (as hereinafter defined). Following the
Merger, the separate corporate existence of Sub shall cease and the
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<PAGE> 10
Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and obligations of
Sub in accordance with the DGCL.
Section 2.2 Effective Time. The Merger shall become
effective when the Certificate of Merger or, if applicable, the Certificate of
Ownership and Merger (each, the "Certificate of Merger"), executed in
accordance with the relevant provisions of the DGCL, are accepted for record by
the Secretary of State of the State of Delaware. When used in this Agreement,
the term "Effective Time" shall mean the later of the date and time at which
the Certificate of Merger is accepted for record or such later time established
by the Certificate of Merger. The filing of the Certificate of Merger shall be
made as soon as practicable after the satisfaction or waiver of the conditions
to the Merger set forth herein.
Section 2.3 Effects of the Merger. The Merger shall have the
effects set forth in the DGCL.
Section 2.4 Certificate of Incorporation and Bylaws;
Directors and Officers. (a) The Certificate of Incorporation of the Sub, as in
effect immediately prior to the Effective Time, shall be amended to change the
name of Sub to "EMPHESYS Financial Group, Inc." and, as so amended, the
Certificate of Incorporation and the Bylaws of Sub, shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by Certificate of Incorporation and
applicable law.
(b) The directors and officers of Sub immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation as of the Effective Time.
Section 2.5 Conversion of Securities. As of the Effective
Time, by virtue of the Merger and without any action on the part of any
stockholder of the Company:
(a) All shares of Common Stock that are held in the treasury
of the Company or by any wholly owned Subsidiary (as hereinafter
defined) of the Company and any shares of Common Stock owned by
Parent, Sub or any other wholly owned Subsidiary of Parent shall be
cancelled and no consideration shall be delivered in exchange
therefor.
(b) Each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be
cancelled in accordance with Section 2.5(a) and other than Dissenting
Company Common Shares (as defined in Section 2.7)) shall be converted
into the right to receive from the Surviving
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<PAGE> 11
Corporation in cash, without interest, the per share consideration in
the Offer (the "Merger Consideration"). All such shares of Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and each holder of a
certificate or certificates (the "Certificates") representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration.
(c) Each issued and outstanding share of the capital stock of
Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
Section 2.6 Exchange of Certificates. (a) Paying Agent.
Parent shall authorize a commercial bank or trust company having net capital of
not less than $20 million (or such other person or persons as shall be
reasonably acceptable to the Company) to act as paying agent hereunder (the
"Paying Agent") for the payment of the Merger Consideration upon surrender of
Certificates. All of the fees and expenses of the Paying Agent shall be borne
by Parent.
(b) Surviving Corporation to Provide Funds. Parent shall
take all steps necessary to enable and cause the Surviving Corporation to
deposit in trust with the Paying Agent prior to the Effective Time cash in an
amount necessary to pay for all of the shares of Common Stock pursuant to
Section 2.5 (determined as though there are no Dissenting Company Common
Shares) and, in connection with the Company Stock Options, pursuant to Section
7.4. Such amount shall hereinafter be referred to as the "Exchange Fund." If
the amount of cash in the Exchange Fund is insufficient to pay all of the
amounts required to be paid pursuant to Sections 2.5, 2.7 or 7.4, Parent from
time to time after the Effective Time shall take all steps necessary to enable
and cause the Surviving Corporation to deposit in trust additional cash with
the Paying Agent sufficient to make all such payments.
(c) Exchange Procedures. As soon as practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
Certificate, other than Parent, the Company and any Subsidiary of Parent or the
Company, (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 actual delivery of the Certificates to the Paying Agent and shall be in a
form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for 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 the
Surviving Corporation, together with such letter of transmittal,
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<PAGE> 12
duly executed, and such other documents as may reasonably be required by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash into which the shares of Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.5, and the Certificates so surrendered shall forthwith be
cancelled. No interest will be paid or will accrue on the cash payable upon
the surrender of any Certificate. If payment is to be made to a person other
than the person in whose name the Certificate so surrendered is registered, it
shall be a condition of payment that such Certificate shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.6, each Certificate (other than
Certificates representing Dissenting Company Common Shares and Certificates
representing any shares of Common Stock owned by Parent or any Subsidiary of
Parent) shall be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the amount of cash, without interest,
into which the shares of Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 2.5. Notwithstanding
the foregoing, none of the Paying Agent, the Surviving Corporation or any party
hereto shall be liable to a former stockholder of the Company for any cash or
interest delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws. Any portion of the Exchange Fund that
remains unclaimed by the stockholders of the Company for one year after the
Effective Time shall be repaid to the Surviving Corporation (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all such funds). Thereafter, holders of shares of Common Stock
shall look only to Parent or the Surviving Corporation (subject to the terms of
this Agreement, abandoned property, escheat and other similar laws) as general
creditors thereof with respect to any Merger Consideration that may be payable
upon due surrender of the Certificates held by them.
Section 2.7 Dissenting Company Common Shares.
Notwithstanding any provision of this Agreement to the contrary, if required by
the DGCL but only to the extent required thereby, shares of Common Stock which
are issued and outstanding immediately prior to the Effective Time and which
are held by holders of such shares of Common Stock who have properly exercised
appraisal rights with respect thereto in accordance with Section 262 of the
DGCL (the "Dissenting Company Common Shares") will not be exchangeable for the
right to receive the Merger Consideration, and holders of such shares of Common
Stock will be entitled to receive payment of the appraised value of such shares
of Common Stock in accordance with the provisions of such Section 262 unless
and until such holders fail to perfect or
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<PAGE> 13
effectively withdraw or lose their rights to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such shares of Common Stock will
thereupon be treated as if they had been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. The Company will give Parent
prompt notice of any demands received by the Company for appraisals of shares
of Common Stock. The Company shall not, except with the prior written consent
of Parent, make any payment with respect to any demands for appraisal or offer
to settle or settle any such demands.
Section 2.8 Merger Without Meeting of Stockholders.
Notwithstanding the foregoing, in the event that Sub, or any other direct or
indirect subsidiary of Parent, shall acquire at least 90 percent of the
outstanding shares of Common Stock, the parties hereto agree to take all
necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL.
Section 2.9 No Further Ownership Rights in Common Stock. All
cash paid upon the surrender of Certificates in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Common Stock.
Section 2.10 Closing of Company Transfer Books. At the
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of shares of Common Stock shall thereafter be made. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be cancelled and exchanged as provided in this Article II.
Section 2.11 Further Assurances. If at any time after the
Effective Time the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets
of either of the Constituent Corporations, or (b) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations in the Merger,
all such deeds, bills of sale, assignments and assurances and do, in the name
and on behalf of such Constituent Corporations, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, powers,
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<PAGE> 14
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 3.1 Organization, Standing and Power. Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now being conducted.
Section 3.2 Authority; Non-Contravention. Parent has all
requisite power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent. This Agreement has been duly executed and delivered by
Parent and (assuming the valid authorization, execution and delivery of this
Agreement by the Company) constitutes a valid and binding obligation of Parent
enforceable against Parent in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or any of its Subsidiaries under, any provision of (i) the Certificate of
Incorporation or Bylaws of Parent or any provision of the comparable charter or
organization documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent or
any of its Subsidiaries or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or any of its Subsidiaries
or any of their respective properties or assets, other than, in the case of
clauses (ii) or (iii), any such conflicts, violations, defaults, rights, liens,
security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent, materially
impair the ability of Parent to perform its obligations hereunder or prevent
the consummation of any of the transactions contemplated hereby. No filing or
registration with, or authorization, consent or
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<PAGE> 15
approval of, any domestic (federal and state), foreign or supranational court,
commission, governmental body, regulatory or administrative agency, authority
or tribunal (a "Governmental Entity") is required by or with respect to Parent
or any of its Subsidiaries in connection with the execution and delivery of
this Agreement by Parent or is necessary for the consummation of the Offer, the
Merger and the other transactions contemplated by this Agreement, except for
(i) in connection, or in compliance, with the Exchange Act, (ii) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
and appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, (iii) the filing required with
the California Department of Corporations (the "DOC") and the Office of the
Commissioner of Insurance of the State of Wisconsin (the "OCI") in connection
with, and the approval of the DOC and the OCI of, the change-in-control
contemplated by this Agreement and any other required filings with or approvals
by state agencies regulating corporations or insurance companies applicable to
the transactions contemplated hereby (collectively, such filings and approvals
are the "Insurance Approvals"), (iv) such filings and consents, if any, as may
be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by
the Offer, the Merger or the transactions contemplated by this Agreement, (v)
such filings, if any, as may be required in connection with the Gains Taxes
described in Section 7.7, (vi) such filings and approvals as may be required
under the Hart-Scott-Rodino Improvements Act of 1976, as amended (the
"Improvements Act"), and (vii) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse
Effect on Parent, materially impair the ability of Parent to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. For purposes of this Agreement (a) "Material Adverse
Change" or "Material Adverse Effect" means, when used with respect to Parent,
Sub or the Company, as the case may be, any change or effect, either
individually or in the aggregate, that is or may be materially adverse to the
business, assets, liabilities, properties, condition (financial or otherwise)
or results of operations of all or any material part of Parent and its
Subsidiaries taken as a whole, Sub, or the Company and its Subsidiaries taken
as a whole, as the case may be, and (b) "Subsidiary" means any significant
corporation, partnership, joint venture or other legal entity of which Parent
or the Company, as the case may be (either alone or through or together with
any other Subsidiary), owns, directly or indirectly, 50% or more of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation or other legal entity. Except for the approval by the DOC and the
OCI (or any other regulatory authority having
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jurisdiction over the Company) required by virtue of the change-in-control of
the Company contemplated by this Agreement, no approval by any state insurance
regulatory agency pursuant to any insurance statute or regulation is required
in order to consummate the transactions contemplated by this Agreement.
Section 3.3 Offer Documents and Proxy Statement. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Offer Documents, the Schedule 14D-9, the information
statement, if any, filed by the Company in connection with the Offer pursuant
to Rule 14F-1 promulgated under the Exchange Act (the "Information Statement"),
or the proxy statement (together with any amendments or supplements thereto,
the "Proxy Statement") relating to the Stockholder Meeting (as defined in
Section 7.1) will (i) in the case of the Offer Documents, the Schedule 14D-9
and the Information Statement, at the respective time such documents are filed
with the SEC or first published, sent or given to the Company's stockholders,
or (ii) in the case of the Proxy Statement, at the time of the mailing of the
Proxy Statement and at the time of the Stockholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. If at any time
prior to the purchase of shares of Common Stock pursuant to the Offer there
shall occur any event with respect to Parent, its officers and directors or any
of its Subsidiaries which is required to be described in the Offer Documents,
such event shall be so described, and an amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of the Company.
Section 3.4 Financing. Parent has on hand or available
through committed bank facilities all of the funds necessary to consummate the
Offer and the Merger and the transactions contemplated hereby on a timely basis
and to pay any and all related fees and expenses.
Section 3.5 Brokers. No broker, investment banker or other
person, other than Smith Barney Inc., the fees and expenses of which will be
paid by Parent, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Sub.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as
follows:
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Section 4.1 Organization, Standing and Power. The Company
and each of its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on
its business as now being conducted. The Company and each of its Subsidiaries
is duly qualified to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or held under lease or the nature
of its activities makes such qualification necessary, except where the failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 4.2 Capital Structure. The authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock and 1,000,000
shares of Preferred Stock, par value $5.00 per share ("Preferred Stock"). At
the close of business on August 7, 1995, (i) 17,063,893 shares of Common Stock
were issued and outstanding, (ii) 653,700 shares of Common Stock were reserved
for issuance upon the exercise of outstanding Company Stock Options (as defined
in Section 7.4) and (iii) 4,562 shares of Common Stock were held by the Company
in its treasury. As of the date hereof there are no shares of Preferred Stock
outstanding. There are no outstanding stock appreciation rights ("SARs") which
were not granted in tandem with a related Company Stock Option. All
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable (except to the extent Section 180.0622(2)(b) of the
Wisconsin Business Corporation Law may be applicable) and not subject to
preemptive rights. Except for 653,700 Company Stock Options (as defined
herein) under the 1994 Stock Incentive Plan ("the Stock Plan"), there are no
options, warrants, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its Subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of the
Company or of any of its Subsidiaries. No shares of the Company's capital
stock have been issued other than pursuant to the exercise of stock options
already in existence on such date since August 7, 1995. The Company has not
granted any stock options for any capital stock of the Company since August 7,
1995. The Company has not adopted a shareholder's rights or a similar plan.
Section 4.3 Subsidiaries. All of the outstanding capital
stock of, or ownership interests in, each Subsidiary of the Company is owned by
the Company, directly or indirectly. Except as set forth in the letter from
the Company to Parent dated the date hereof, which letter relates to this
Agreement and is designated therein as the Company Disclosure Letter (the
"Company Disclosure Letter"), all of such capital stock or ownership interest
is owned by the Company, directly or
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indirectly, free and clear of any security interests, liens, claims, pledges,
options, rights of first refusal, agreements, charges or other encumbrances of
any nature ("Liens") or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of law). There are no (i) securities of the Company or any of its
Subsidiaries convertible into or exchangeable for, (ii) options or other rights
to acquire from the Company or any of its Subsidiaries, or (iii) other
contracts, understandings, arrangements or obligations (whether or not
contingent) providing for the issuance or sale, directly or indirectly, in each
case, with respect to any capital stock or other ownership interests in, or any
other securities of, any Subsidiary of the Company. There are no outstanding
contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interest in any Subsidiary of the Company nor are there any
irrevocable proxies with respect to any shares of the capital stock of any of
the Company's Subsidiaries. All of the shares of capital stock of each
Subsidiary of the Company are validly existing, fully paid and non-assessable
(except to the extent Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law may be applicable). Except for statutory and regulatory
restrictions, there are no restrictions which prevent or limit the payment of
dividends by any of the Company's Subsidiaries.
Section 4.4 Other Interests. Except for the Company's
interest in its Subsidiaries, investments in ordinary course consistent with
past practice, and as set forth in the Company Disclosure Letter, neither the
Company nor its Subsidiaries owns directly or indirectly any interest or
investment (whether equity or debt) in, nor is the Company or any of its
Subsidiaries subject to any obligation or requirement to provide for or to make
any investment (in the form of a loan, capital contribution or otherwise) to or
in, any corporation, partnership, joint venture, business, trust or entity.
Section 4.5 Authority; Non-Contravention. The Board of
Directors of the Company has declared the Merger advisable and the Company has
all requisite power and authority to enter into this Agreement and, subject to
approval of the Merger by the stockholders of the Company (if required), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to such approval of the
Merger by the stockholders of the Company (if required). This Agreement has
been duly executed and delivered by the Company and (assuming the valid
authorization, execution and delivery of this Agreement by Parent and Sub)
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Except as set forth in the Company
SEC Documents (as hereinafter
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<PAGE> 19
defined) or the Company Disclosure Letter, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries under, any
provision of (i) the Certificate of Incorporation or Bylaws of the Company
(true and complete copies of which as of the date hereof have been delivered to
Parent) or any provision of the comparable charter or organization documents of
any of its Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its Subsidiaries or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights, liens, security interests, charges or
encumbrances that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company, materially impair the ability of the Company to
perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by
or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for (i) in
connection or in compliance with the provisions of the Exchange Act, (ii) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business, (iii) the Insurance
Approvals, (iv) such filings and consents, if any, as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Offer, the
Merger or the transactions contemplated by this Agreement, (v) such filings, if
any, as may be required in connection with the Gains Taxes described in Section
7.7, (vi) such filings and approvals as may be required under the Improvements
Act, and (vii) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company, materially impair the ability of Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby. Except for the approval by the DOC and the OCI required by virtue of
the change-in-control of the Company contemplated by this Agreement,
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<PAGE> 20
no approval by any state insurance regulatory agency pursuant to any insurance
statute or regulation is required in order to consummate the transactions
contemplated by this Agreement.
Section 4.6 SEC Documents. (a) Since January 1, 1994, the
Company has filed all documents with the SEC required to be filed under the
Securities Act of 1933, as amended (including the rules and regulations
promulgated thereunder), or the Exchange Act (the "Company SEC Documents"). As
of their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as
the case may be, and none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly present the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein).
(b) Except as set forth in the Company SEC Documents or the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries has
any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a balance
sheet, or in the notes thereto, prepared in accordance with generally accepted
accounting principles, except for liabilities and obligations incurred in the
ordinary course of business consistent with past practice since December 31,
1994 which would not, individually or in the aggregate, have a Material Adverse
Effect.
Section 4.7 Offer Documents and Proxy Statement. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Offer Documents or the Schedule 14D-9, the
Information Statement, if any, the Proxy Statement, if any, or any amendment or
supplement thereto, will (i) in the case of the Offer Documents, the Schedule
14D-9 and the Information Statement, at the respective times such documents are
filed with the SEC or first published, sent or given to the Company's
stockholders, or (ii) in the case of the Proxy Statement, at the time of the
mailing of the Proxy Statement and at the time of the Stockholder Meeting,
contain any untrue
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<PAGE> 21
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 the
light of the circumstances under which they are made, not misleading. If at
any time prior to the Effective Time any event with respect to the Company, its
officers and directors or any of its Subsidiaries should occur which is
required to be described in an amendment of, or a supplement to, the Proxy
Statement or the Offer Documents, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC and, as required
by law, disseminated to the stockholders of the Company. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act.
Section 4.8 Absence of Certain Events. Since December 31,
1994, the Company and its Subsidiaries have operated their respective
businesses only in the ordinary course substantially consistent with its
historical practices and, except as disclosed in the Company Disclosure Letter,
there has not occurred (i) any event, occurrence or conditions which,
individually or in the aggregate, has, or is reasonably likely to have, a
Material Adverse Effect on the Company; (ii) any entry into or any commitment
or transaction that, individually or in the aggregate, has or is reasonably
likely to have, a Material Adverse Effect on the Company; (iii) any change by
the Company or any of its Subsidiaries in its accounting methods, principles or
practices; (iv) any amendments or changes in the Certificate of Incorporation
or Bylaws of the Company; (v) any revaluation by the Company or any of its
Subsidiaries of any of their respective assets, including, without limitation,
write-offs of accounts receivable, other than in the ordinary course of the
Company's and its Subsidiaries' businesses consistent with past practices; (vi)
any damage, destruction or loss which resulted in or is reasonably likely to
result in a Material Adverse Effect on the Company; or (vii) except for regular
quarterly dividends of $0.15 per share, any declaration, setting aside or
payment of any dividend or other distribution with respect to any shares of
capital stock of the Company, or any repurchase, redemption or other
acquisition by the Company or any of its Subsidiaries of any outstanding shares
of capital stock or other securities of, or other ownership interests in, the
Company.
Section 4.9 Litigation. Except as disclosed in the Company
Disclosure Letter, there are no actions, suits or proceedings pending against
the Company or its Subsidiaries or, to the knowledge of the Company, threatened
against the Company or its Subsidiaries, at law or in equity, or before or by
any federal or state commission, board, bureau, agency, regulatory or
administrative instrumentality or other Governmental Entity or any arbitrator
or arbitration tribunal, that are reasonably likely to have a Material Adverse
Effect on the Company, and, to the knowledge of the Company, no development has
occurred with respect to any pending or threatened action, suit or proceeding
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<PAGE> 22
that is reasonably likely to result in a Material Adverse Effect on the Company
or would prevent or delay the consummation of the transactions contemplated
hereby.
Section 4.10 Compliance with Applicable Law. The Company and
its Subsidiaries hold, and at all required times have held, all permits,
licenses, variances, exceptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses (the
"Company Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals which would not, individually or in
the aggregate, have a Material Adverse Effect on the Company from and after the
date of this Agreement. The Company and its Subsidiaries are, and at all times
have been, in compliance with the terms of the Company Permits, except where
the failure so to comply would not have a Material Adverse Effect on the
Company. The businesses of the Company and its Subsidiaries are not being, and
have not been, conducted in violation of any law, ordinance or regulation of
any Governmental Entity except for violations or possible violations which
individually or in the aggregate do not and will not have a Material Adverse
Effect on the Company. Except as set forth in the Company Disclosure Letter,
no investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending or, to the knowledge of the
Company, threatened, nor, to the knowledge of the Company, has any Governmental
Entity indicated an intention to conduct the same, other than, in each case,
those which the Company reasonably believes will not have a Material Adverse
Effect on the Company.
Section 4.11 Employee Plans. (a) The Company and each of its
Subsidiaries have complied with and performed all contractual obligations and
all obligations under applicable federal, state and local laws, rules and
regulations (domestic and foreign) required to be performed by it under or with
respect to any of the Company Benefit Plans (as defined below) or any related
trust agreement or insurance contract, other than where the failure to so
comply or perform will not have, nor is reasonably likely to have, a Material
Adverse Effect on the Company. All contributions and other payments required
to be made by the Company and its Subsidiaries to any Company Benefit Plan or
Multiemployer Plans (as defined below), prior to the date hereof have been
made, other than where the failure to so contribute or make payments will not
have, nor is reasonably likely to have, a Material Adverse Effect on the
Company and all accruals or contributions required to be made under any Company
Benefit Plan or Multiemployer Plan have been made. There is no claim, dispute,
grievance, charge, complaint, restraining or injunctive order, litigation or
proceeding pending, threatened or anticipated (other than routine claims for
benefits) against or relating to any Company Benefit Plan or against the assets
of any Company Benefit Plan, which will have, or is reasonably likely to have,
a Material Adverse Effect on the Company. Neither the
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<PAGE> 23
Company nor any of its Subsidiaries has communicated generally to employees or
specifically to any employee regarding any future increase of benefit levels
(or future creations of new benefits) with respect to any Company Benefit Plan
beyond those reflected in the Company Benefit Plans, which benefit increases or
creations, either individually or in the aggregate, will have or are reasonably
likely to have, a Material Adverse Effect on the Company. Neither the Company
nor any of its Subsidiaries presently sponsors, maintains, contributes to, nor
is the Company or its Subsidiaries required to contribute to, nor has the
Company or any of its Subsidiaries ever sponsored, maintained, contributed to,
or been required to contribute to, any employee pension benefit plan within the
meaning of section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any multiemployer plan within the meaning of section
3(37) or 4001(a)(3) of ERISA, other than the Company's profit sharing plan
which is qualified under Section 401 of the Internal Revenue Code of 1986, as
amended.
(b) Neither the Company nor any of its Subsidiaries has
incurred, nor has any event occurred which has imposed or is reasonably likely
to impose upon the Company or any of its Subsidiaries, any withdrawal liability
(partial or complete) in respect of any multiemployer plan (within the meaning
of section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan"), which
withdrawal liability has not been satisfied or discharged in full or which,
either individually or in the aggregate, will cause, or is reasonably likely to
cause, a Material Adverse Effect on the Company.
(c) Except as set forth in the Company Disclosure Letter, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby will not result in the imposition of any federal excise tax
with respect to any Company Benefit Plan.
(d) Except as set forth in the Company Disclosure Letter, no
payment or benefit which will or may be made by the Company or any of its
Subsidiaries with respect to any of their employees under any plan or agreement
in effect on the date hereof will be characterized as an "excess parachute
payment" within the meaning of section 280G(b)(1) of the Internal Revenue Code,
as amended.
(e) All awards pursuant to the Company's Management Incentive
Plan are based on the Company's performance and are not discretionary. The
maximum amount of such awards in respect of 1995 is set forth in the Company
Disclosure Letter. Since April 1, 1995 (i) the Company's Management Incentive
Plan has not been modified or amended and (ii) the dollar amount of benefits to
which any participant under the Company's Management Incentive Plan is entitled
(or the method of determining entitlement to benefits) has not been modified.
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<PAGE> 24
(f) (i) "Plan" means any bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, leave
of absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, including, but not limited to, any "employee benefit
plan" within the meaning of section 3(3) of ERISA and (ii) "Company Benefit
Plan") means any employee pension benefit plan and any Plan, other than a
Multiemployer Plan, established by the Company or any of its Subsidiaries or to
which the Company or any of its Subsidiaries contributes or has contributed
(including any such Plans not now maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries does not now
contribute, but with respect to which the Company or any of its Subsidiaries
has or may have any liability).
Section 4.12 Employment Relations and Agreement. (a) Except
as would not constitute a Material Adverse Effect on the Company, (i) each of
the Company and its Subsidiaries is, and at all times has been, in compliance
in all material respects with all federal, state or other applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practice; (ii) no unfair labor practice complaint against the Company or
any of its Subsidiaries is pending before the National Labor Relations Board;
(iii) there is no labor strike, dispute, slowdown or stoppage actually pending
or threatened against or involving the Company or any of its Subsidiaries, (iv)
no representation question exists respecting the employees of the Company or
any of its Subsidiaries; (v) no grievance exists, no arbitration proceeding
arising out of or under any collective bargaining agreement is pending and no
claim therefor has been asserted; (vi) no collective bargaining agreement is
currently being negotiated by the Company or any of its Subsidiaries; and (vii)
the Company and its Subsidiaries taken as a whole have not experienced any
material labor difficulty during the last three years. There has not been and,
to the knowledge of the Company, there will not be, any change in relations
with employees of the Company or any of its Subsidiaries as a result of the
transactions contemplated by this Agreement which could have a Material Adverse
Effect on the Company.
(b) Except as set forth in the Company Disclosure Letter and
other than employment agreements with Messrs. William J. Lawson and Gregory H.
Wolf (the "Officer Employment Agreements"), neither the Company nor any of its
Subsidiaries has any written, or to the knowledge of the Company, any binding
oral, employment or severance agreement with any other person. The copies of
the Officer Employment Agreements previously delivered to Parent are true and
correct and such Officer
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Employment Agreements have not since been amended, modified or rescinded.
Section 4.13 Contracts. Except as set forth in the Company
Disclosure Letter, to the knowledge of the Company, neither the Company nor its
Subsidiaries is a party to, or has any obligation under, any contract or
agreement, written or oral, which contains any covenants currently or
prospectively limiting the freedom of the Company, any of its Subsidiaries or
any of their respective affiliates to engage in any line of business or to
compete with any entity. Neither the Company nor its Subsidiaries is a party
to, or has any obligation under, any contract or agreement, written or oral,
which contains any covenant currently or prospectively limiting the freedom of
the Company, any of its Subsidiaries or any of their respective affiliates to
engage in any line of business or to compete with any entity and which covenant
would materially impair the ability of Parent and its Subsidiaries (including,
after consummation of the Offer, the Company and its Subsidiaries) to conduct
their business as now anticipated to be conducted in the future. All contracts
and agreements to which the Company or any of its Subsidiaries is a party or by
which any of their respective assets is bound are valid and binding, in full
force and effect and enforceable against the parties thereto in accordance with
their respective terms, other than (i) such failures to be so valid and
binding, in full force and effect or enforceable which, would not, either
individually or in the aggregate, have, or be reasonably likely to have, a
Material Adverse Effect on the Company, and (ii) subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity. There is not under any such contract
or agreement any existing default, or event which, after notice or lapse of
time, or both, would constitute a default, by the Company or any of its
Subsidiaries, or to the Company's knowledge, any other party, except to the
extent such default would not, or would be reasonably likely not to, cause a
Material Adverse Effect on the Company.
Section 4.14 Accreditations. Except as set forth in the
Company Disclosure Schedule, none of the Company or its Subsidiaries has been
denied or failed to obtain any accreditation by any health maintenance
organization or insurance accreditation agency from whom the Company sought
accreditation.
Section 4.15 Monthly Business Plans. The Company has
previously delivered to Parent true and complete copies of monthly business
plans of the Company for each month through December 1995 ("Monthly Plans").
Section 4.16 State Takeover Statutes. Pursuant to Article
Tenth of the Company's Certificate of Incorporation, Section 203 of the DGCL is
inapplicable to the transactions contemplated by this Agreement.
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Section 4.17 Taxes. Except as may be disclosed in the
Company Disclosure Letter, (i) the Company and each Subsidiary have filed all
material Tax Returns required to have been filed on or before the date hereof,
which returns are true and complete in all material respects; (ii) the Company
and each Subsidiary have duly paid or made provision on its books for the
payment of all material Taxes (including material estimated Taxes) which are
due and payable on or before the date hereof, taking into account applicable
extensions to pay such Taxes (whether or not shown on any such Tax Returns),
and the Company and each Subsidiary have withheld or collected all material
Taxes they are required to withhold and collect, other than Taxes otherwise
described in this clause (ii) that are being contested by the Company or a
Subsidiary in good faith; (iii) neither the Company nor any Subsidiary has
waived any statute of limitations in respect of material Taxes of the Company
or such Subsidiary; (iv) the Tax Returns referred to in clause (i) relating to
federal and state income Taxes have been examined by the Internal Revenue
Service or the appropriate state taxing authority or the period for assessment
of the Taxes in respect of which such Tax Returns were required to be filed has
expired; (v) no issues that have been raised in writing by the relevant taxing
authority in connection with the examination of the Tax Returns referred to in
clause (i) are currently pending; and (vi) all deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) by a taxing authority have been paid in full. For purposes of
this Agreement (a) "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any federal, state, local or foreign income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll, premium,
withholding, alternative or added minimum, ad valorem, transfer or excise tax,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or penalty, imposed
by any governmental authority, and (b) "Tax Return" means any return, report or
similar statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax.
Section 4.18 Brokers. No broker, investment banker or other
person, other than Morgan Stanley & Co. Incorporated, the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company, which arrangements provide for the payment to Morgan Stanley & Co.
Incorporated of a fee of $3,910,000 and expenses in connection with the
transactions contemplated by this Agreement, and do not bind Parent and its
affiliates (including, after consummation of the Offer, the Company and its
Subsidiaries) other than with respect to indemnification and contribution and
the payment of such fees and expenses.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to
the Company as follows:
Section 5.1 Organization and Standing. Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Sub was organized solely for the purpose of acquiring the
Company engaging in the transactions contemplated by this Agreement and has not
engaged in any business since it was incorporated which is not in connection
with the acquisition of the Company and this Agreement.
Section 5.2 Capital Structure. The authorized capital stock
of Sub consists of 1,000 shares of common stock, par value $.01 per share, all
of which are validly issued and outstanding, fully paid and nonassessable and
are owned by Parent free and clear of all Liens.
Section 5.3 Authority; Non-Contravention. Sub has the
requisite power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement, the performance by Sub of its obligations hereunder and the
consummation of the transactions contemplated hereby have been duly authorized
by its Board of Directors and Parent as its sole stockholder, and, except for
the corporate filings required by state law, no other corporate proceedings on
the part of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Sub and (assuming the due authorization, execution and delivery
hereof by the Company) constitutes a valid and binding obligation of Sub
enforceable against Sub in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Sub
under, any provision of (i) the Certificate of Incorporation or Bylaws of Sub,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license
applicable to Sub or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Sub or any of its properties or
assets, other than, in the case of clauses (ii) or (iii), any such conflicts,
violations, defaults, rights,
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<PAGE> 28
liens, security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on Sub, materially impair
the ability of Sub to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 Conduct of Business by the Company Pending the
Merger. Except as otherwise expressly contemplated by this Agreement or as
described in the Company Disclosure Letter, during the period from the date of
this Agreement through the Effective Time, the Company shall, and shall cause
its Subsidiaries to, in all material respects carry on their respective
businesses in, and not enter into any material transaction other than in
accordance with, the regular and ordinary course and, to the extent consistent
therewith, use its reasonable best efforts to preserve intact their current
business organizations, keep available the services of their current officers
and employees and preserve their relationships with customers, suppliers and
others having business dealings with them. Without limiting the generality of
the foregoing, and, except as otherwise expressly contemplated by this
Agreement or as described in the Company Disclosure Letter, the Company shall
not, and shall not permit any of its Subsidiaries to, without the prior written
consent of Parent:
(a) (x) declare, set aside or pay any dividends on, or make
any other actual, constructive or deemed distributions in respect of,
any of its capital stock, or otherwise make any payments to
stockholders of the Company in their capacity as such, other than (1)
dividends declared prior to the date of this Agreement, and (2)
dividends payable to the Company declared by any of the Company's
Subsidiaries, (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock or (z) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its Subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(b) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock, any other voting securities
or equity equivalent or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or equity equivalent (other than,
in the case of the Company, the issuance of Common Stock during
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the period from the date of this Agreement through the Effective Time
upon the exercise of Company Stock Options outstanding (as set forth
in Section 4.2) on the date of this Agreement in accordance with their
current terms;
(c) amend its charter or bylaws;
(d) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets, in each
case that are material, individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole;
(e) sell, lease or otherwise dispose of or agree to sell,
lease or otherwise dispose of, any of its assets that are material,
individually or in the aggregate, to the Company and its Subsidiaries
taken as a whole;
(f) incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, except for borrowings or
guarantees incurred in the ordinary course of business consistent with
past practice, or make any loans, advances or capital contributions
to, or investments in, any other person, other than to the Company or
any wholly owned Subsidiary of the Company and other than in the
ordinary course of business consistent with past practice;
(g) alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or
ownership of any Subsidiary of the Company;
(h) enter into or adopt or amend any existing severance plan,
agreement or arrangement or, other than in the ordinary course of
business, enter into or amend any employee benefit plan (including
without limitation, the Stock Plan) or employment or consulting
agreement except (x) as permitted by Section 7.11 or (y) with respect
to employees that are not executive officers or directors,
compensation increases associated with promotions and regular reviews
in the ordinary course of business consistent with past practices; or
(i) waive, amend or allow to lapse any term or condition of
any confidentiality or "standstill" agreement to which the Company is
a party.
During the period from the date of this Agreement through the Effective Time,
(i) as requested by Parent, the Company shall
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confer on a regular basis with one or more representatives of Parent with
respect to material operational matters; (ii) the Company shall, within 20 days
following each fiscal month, deliver to Parent financial statements, including
an income statement and balance sheet for such month, together with a statement
reconciling differences between the projected results of operations for such
month set forth in the applicable Monthly Plan and the actual results of
operations set forth in the financial statements delivered pursuant to this
clause (ii); and (iii) upon the knowledge of the Company of any Material
Adverse Change on the Company, any material litigation or material governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the breach in any material respect of any
representation or warranty contained herein, the Company shall promptly notify
Parent thereof.
Section 6.2 Acquisition Proposals. From and after the date
of this Agreement and prior to the Effective Time, except as provided below,
the Company agrees (a) that neither the Company nor its Subsidiaries shall, and
the Company shall direct and use its reasonable best efforts to cause its
officers, directors, employees and authorized agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company or
its Subsidiaries (any such proposal or offer being hereinafter referred to as
an "Acquisition Proposal") or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
Section 6.2; and (c) that it will notify Parent immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it, but need not disclose the identity of the other party or the terms of
its proposals; provided, however, that nothing contained in this Section 6.2
shall prohibit the Board of Directors of the Company from (i) furnishing
information to or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide proposal in writing, not subject to
any financing condition, to acquire the Company pursuant to a merger,
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consolidation, share exchange, purchase of a substantial portion of the assets,
business combination or other similar transaction, if, and only to the extent
that (A) the Board of Directors determines in good faith after consultation
with the Company's outside counsel that such action is required for the Board
of Directors to comply with its fiduciary duties to stockholders imposed by
laws, (B) prior to or concurrently with furnishing such information to, or
entering into discussions or negotiations with, such a person or entity, the
Company provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such a
person or entity, and (C) the Company keeps Parent informed of the status (not
the identity or terms) of any such discussions or negotiations; and (ii) to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal. Subject to Article IX, nothing in this
Section 6.02 shall (x) permit the Company to terminate this Agreement, (y)
permit the Company to enter into any agreement with respect to an Acquisition
Proposal during the term of this Agreement, or (z) effect any other obligation
of any party under this Agreement.
Section 6.3 Conduct of Business of Sub Pending the Merger.
During the period from the date of this Agreement through the Effective Time,
Sub shall not engage in any activities of any nature except as provided in or
contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Company Stockholder Approval; Proxy Statement.
(a) If approval of the Merger by the stockholders of the Company is required by
applicable law, the Company shall call a meeting of its stockholders (the
"Stockholder Meeting") for the purpose of voting upon the Merger and shall use
its reasonable best efforts to obtain stockholder approval of the Merger. The
Stockholder Meeting shall be held as soon as practicable following the purchase
of shares of Common Stock pursuant to the Offer and the Company will, through
its Board of Directors but subject to the fiduciary duties of its Board of
Directors under applicable law as determined by the Board of Directors in good
faith after consultation with the Company's outside counsel, recommend to its
stockholders the approval of the Merger and not rescind its declaration that
the Merger is advisable. The record date for the Stockholder Meeting shall be
a date subsequent to the date Parent or Sub becomes a record holder of Common
Stock purchased pursuant to the Offer.
(b) If required by applicable law, the Company will, as soon
as practicable following the expiration of the Offer,
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prepare and file a preliminary Proxy Statement with the SEC and will use its
reasonable best efforts to respond to any comments of the SEC or its staff and
to cause the Proxy Statement to be cleared by the SEC. The Company will notify
Parent of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for amendments or supplements to the Proxy
Statement or for additional information and will supply Parent with copies of
all correspondence between the Company or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to the
Proxy Statement or the Merger. The Company shall give Parent and its counsel
the opportunity to review the Proxy Statement prior to its being filed with the
SEC and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and Parent agrees to use its
reasonable best efforts, after consultation with the other parties hereto to
respond promptly to all such comments of and requests by the SEC. As promptly
as practicable after the Proxy Statement has been cleared by the SEC, the
Company shall mail the Proxy Statement to the stockholders of the Company. If
at any time prior to the approval of this Agreement by the Company's
stockholders there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company will prepare and
mail to its stockholders such an amendment or supplement.
(c) The Company shall use its reasonable best efforts to
obtain the necessary approvals by its stockholders of the Merger, this
Agreement and the transactions contemplated hereby.
(d) Parent agrees, subject to applicable law, to cause all
shares of Common Stock purchased pursuant to the Offer and all other shares of
Common Stock owned by Sub or any other Subsidiary of Parent to be voted in
favor of the approval of the Merger.
Section 7.2 Access to Information. The Company shall, and
shall cause each of its Subsidiaries to, afford to Parent, and to Parent's
accountants, counsel, financial advisers and other representatives, reasonable
access and permit them to make such inspections as they may reasonably require
during normal business hours during the period from the date of this Agreement
through the Effective Time to all their respective properties, books,
contracts, commitments and records and, during such period, the Company shall,
and shall cause each of its Subsidiaries to, furnish promptly to Parent (i) a
copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state laws
and (ii) all other information concerning its business, properties and
personnel as Parent may reasonably request. In no event shall the Company be
requested to supply to
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Parent, or to Parent's accountants, counsel, financial advisors or other
representatives, any information relating to indications of interest from, or
discussions with, any other potential acquirors of the Company which were
received or conducted prior to the date hereof, except to the extent necessary
for use in the Offer Documents, the Schedule 14D-9 and the Proxy Statement.
Except as required by law, Parent will hold, and will cause its affiliates,
associates and representatives to hold, any nonpublic information in confidence
until such time as such information otherwise becomes publicly available and
shall use its reasonable best efforts to ensure that such affiliates,
associates and representatives do not disclose such information to others
without the prior written consent of the Company. In the event of termination
of this Agreement for any reason, Parent shall promptly destroy all nonpublic
documents so obtained from the Company or any of its Subsidiaries and any
copies made of such documents for Parent.
Section 7.3 Fees and Expenses. (a) Whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
(b) In the event that (A) any person (other than Parent or
any of its affiliates) shall have become, prior to the termination of this
Agreement, the beneficial owner of 50% or more of the outstanding shares of
Common Stock, (B) the Offer shall have expired at a time when the Minimum
Condition (as defined in Exhibit A) shall not have been satisfied and at any
time on or prior to nine months after the expiration of the Offer any person
(other than Parent or any of its affiliates) shall acquire beneficial ownership
of 50% or more of the outstanding shares of Common Stock or shall consummate an
Acquisition Proposal, (C) at any time prior to the termination of this
Agreement any person (other than Parent or any of its affiliates) shall
publicly announce any Acquisition Proposal and, at any time on or prior to nine
months after the termination of this Agreement, shall become the beneficial
owner of 50% or more of the outstanding shares of Common Stock or shall
consummate an Acquisition Proposal, or (D) the Company terminates this
Agreement pursuant to Section 9.1(b)(ii), then the Company shall, in the case
of clause (A), (B) or (C), promptly, but in no event later than two business
days after the first of such events to occur, or, in the case of clause (D) at
or prior to the time of such termination, pay Parent $18 million. If the
Company fails to pay such amount when due in accordance with the immediately
preceding sentence, which failure is finally determined by a court of competent
jurisdiction, Parent shall be entitled to the payment from the Company, in
addition to such amount, of any legal fees and expenses incurred in procuring
such judicial determination.
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(c) In the event the Board of Directors of the Company shall
modify or amend its recommendation of the Offer and/or the Merger in a manner
adverse to Parent or shall withdraw its recommendation of the Offer or shall
recommend any Acquisition Proposal, or shall resolve to do any of the
foregoing, or shall have failed to reject any Acquisition Proposal within 10
business days after receipt by the Company or public announcement thereof, the
Company shall reimburse Parent and Sub (not later than two business days after
submission of statements therefor) for all reasonable, documented cost and
expenses (including, without limitation, all legal, investment banking,
printing, depositary and related fees and expenses, but excluding any internal
allocations of overhead attributable to the Offer, the Merger or the
transactions contemplated by this Agreement); provided, however, that the
amount to be paid to Parent and Sub pursuant to this Section 7.3(c) shall not
exceed $2 million; provided, further, that any amount paid pursuant to this
Section 7.3(c) shall be credited against any amount that may become payable
pursuant to Section 7.3(b); and provided, further, that if the Company has paid
$18 million pursuant to Section 7.3(b) prior to any payment pursuant to this
Section 7.3(c), then no amount shall be payable pursuant to this Section
7.3(c).
Section 7.4 Company Stock Options. (a) The Company shall (i)
terminate the Stock Plan immediately prior to the Effective Time without
prejudice to the holders of Company Stock Options (as hereinafter defined) and
(ii) grant no additional Company Stock Options.
(b) Immediately upon the consummation of the Offer, provided
that a "Change of Control" has occurred under the terms of Stock Plan (which
Parent acknowledges and agrees shall occur upon the purchase of shares of
Common Stock following satisfaction of the Minimum Condition), all outstanding
employee stock options, whether or not then fully exercisable or vested, to
purchase shares of Common Stock (a "Company Stock Option") heretofore granted
under the Stock Plan shall become fully exercisable and vested, and, pursuant
to the terms of the Stock Plan, the Company Stock Options shall, upon their
surrender to the Company by the holders thereof, be cancelled by the Company,
and the holders thereof shall receive a cash payment from the Company in an
amount (if any) equal to the number of shares of Common Stock subject to each
surrendered option multiplied by the difference (if positive) between the
exercise price per share of Common Stock covered by the option and the highest
per share price paid to stockholders of the Company in the Offer; provided,
however, that the making of such payment to any such holder shall be
conditioned on such holder acknowledging the cancellation of all Company Stock
Options held by such holder, including any Company Stock Options as to which
the exercise price equals or exceeds $37.50 (the "Out-of-the-Money Options").
The Company shall use its best efforts to cause each holder of Out-of-the-Money
Options to acknowledge, prior to the purchase of shares of
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Common Stock pursuant to the Offer, the cancellation without consideration
therefor of such holder's Out-of-the-Money Options and to cause each other
holder of Company Stock Options to surrender their Company Stock Options in
accordance with the prior sentence. Any Company Stock Option not cancelled in
accordance with this paragraph (b) immediately prior to the consummation of the
Offer shall be cancelled at the Effective Time in exchange for an amount in
cash, payable at the Effective Time, equal to the amount which would have been
paid had such Company Stock Option been cancelled immediately prior to the
consummation of the Offer.
Section 7.5 Reasonable Best Efforts. Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger, and
the other transactions contemplated by this Agreement, including (a) promptly
making their respective filings and thereafter making any other required
submission under the Improvements Act with respect to the Offer and the Merger;
(b) cooperating with one another to prepare and present to OCI and DOC as soon
as practicable all filings and other presentations necessary in connection with
seeking the Insurance Approvals; (c) diligently opposing any objections to,
appeals from or petitions to reconsider or reopen any such approval by persons
not a party to this Agreement; (d) in addition to the foregoing, the obtaining
of all necessary actions or non-actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by any Governmental Entity, (e) the obtaining of all
necessary consents, approvals or waivers from third parties, (f) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (g)
the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by this Agreement; provided, however,
that the Company shall not be under any obligation to take any action to the
extent that the Board of Directors shall conclude in good faith, after
consultation with its outside counsel, that such action could be inconsistent
with the Board of Director's fiduciary obligations under applicable law.
Section 7.6 Public Announcements. Parent and Sub, on the one
hand, and the Company, on the other hand, will consult
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with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange.
Section 7.7 Real Estate Transfer and Gains Taxes. Parent and
the Company agree that either the Company or the Surviving Corporation will pay
any stamp tax, recording tax, sales tax, use tax, real property transfer or
gains tax, stock transfer tax or similar tax, or any other state or local tax
which is attributable to the transfer of the beneficial ownership of the
Company's or its Subsidiaries real property, if any (collectively, the "Gains
Taxes"), and any penalties or interest with respect to the Gains Taxes, payable
in connection with the consummation of the Offer or the Merger. The Company
agrees to cooperate with Sub in the filing of any returns with respect to the
Gains Taxes, including supplying in a timely manner a complete list of all real
property interests held by the Company or its Subsidiaries and any information
with respect to such property that is reasonably necessary to complete such
returns. The portion of the consideration allocable to the real property of
the Company and its subsidiaries shall be determined by Sub or Parent in its
reasonable discretion. The stockholders of the Company shall be deemed to have
agreed to be bound by the allocation established pursuant to this Section 7.7
in the preparation of any return with respect to the Gains Taxes.
Section 7.8 1996 Monthly Plans. The Company shall prepare,
in a manner (as to substance and timing) consistent with its past practices,
monthly plans of the Company for each of January and February 1996, and,
promptly following such preparation, supply them to Parent; provided, however,
that, in any event, such plans shall be supplied to Parent by November 1, 1995.
If Parent informs the Company in writing by November 13, 1995 that it approves
such plans for purposes of Section 7.13, then they shall be deemed to be
"Monthly Plans" in existence for purposes of Section 7.13.
Section 7.9 Indemnification; Directors and Officers
Insurance. (a) From and after the Effective Time, Parent agrees to, and to
cause the Surviving Corporation to, indemnify and hold harmless all past and
present officers, directors, employees and agents (the "Indemnified Parties")
of the Company and of its Subsidiaries to the full extent such persons may be
indemnified by the Company pursuant to the Company's Certificate of
Incorporation and Bylaws as in effect as of the date hereof for acts and
omissions occurring at or prior to the Effective Time and shall advance
reasonable litigation expenses incurred by such persons in connection with
defending any action arising out of such acts or omissions, provided that such
persons provide the
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requisite affirmations and undertaking, as set forth in the Company's Bylaws
prior to the Effective Time.
(b) Any Indemnified Party will promptly notify the Parent and
the Surviving Corporation of any claim, action, suit, proceeding or
investigation for which such party may seek indemnification under this Section;
provided, however, that the failure to furnish any such notice shall not
relieve Parent or the Surviving Corporation from any indemnification obligation
under this Section except to the extent Parent or the Surviving Corporation is
materially prejudiced thereby. In the event of any such claim, action, suit,
proceeding, or investigation, (x) the Surviving Corporation will have the right
to assume the defense thereof, and the Surviving Corporation will not be liable
to such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred thereafter by such Indemnified Parties in
connection with the defense thereof, except that all Indemnified Parties (as a
group) will have the right to retain one separate counsel, reasonably
acceptable to such Indemnified Party and Parent, at the expense of the
indemnifying party if the named parties to any such proceeding include both the
Indemnified Party and the Surviving Corporation and the representation of such
parties by the same counsel would be inappropriate due to a conflict of
interest between them, (y) the Indemnified Parties will cooperate in the
defense of any such matter, and (z) the Surviving Corporation will not be
liable for any settlement effected without its prior written consent. In
addition, Parent will provide, or cause the Surviving Corporation to provide,
for a period of not less than six years after the Effective Time, the Company's
current directors and officers an insurance and indemnification policy that
provides coverage for events occurring at or prior to the Effective Time (the
"D&O Insurance") that is no less favorable than the existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; provided, however, that Parent and the Surviving Corporation shall
not be required to pay an annual premium for the D&O Insurance in excess of one
and one-half times the last annual premium paid prior to the date hereof, but
in such case shall purchase as much such coverage as possible for such amount.
Section 7.10 Employee Benefits. (a) Until at least December
31, 1996, Parent shall maintain employee benefits and programs for retirees,
officers and employees of the Company (other than Messrs. William J. Lawson and
Gregory H. Wolf, as to whom benefits shall be as set forth in the agreements
now in existence between the Company and such individuals) and its Subsidiaries
that are no less favorable in the aggregate than those being provided to such
retirees, officers and employees on the date hereof (it being understood that
Parent will not be obligated to continue any one or more employee benefits or
programs). For purposes of eligibility to participate in and vesting in all
benefits provided to retirees, officers and
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employees, retirees, officers and employees of the Company and its Subsidiaries
will be granted their years of service with the Company and its Subsidiaries
and years of service with prior employers to the extent service with prior
employers is taken into account under plans of the Company. Amounts paid
before the Effective Time by retirees, officers and employees of the Company
under any medical plans of the Company shall after the Effective Time be taken
into account in calculating balances for deductibles and maximum out-of-pocket
limits applicable under the medical plan of Parent for the plan year during
which the Effective Time occurs as if such amounts had been paid under such
medical plan of Parent.
(b) After the Effective Time, Parent shall cause the Company
to maintain for 1995, without modification or amendment, its Management
Incentive Plan for all covered employees. Parent agrees that the following
principles shall apply for purposes of determining bonuses for 1995 under the
Company's Management Incentive Plan: (1) only persons who are employees of the
Company or any of its Subsidiaries at the time that bonuses are paid (which
shall not be later than February 28, 1996) and who, at such time, are covered
by such plan shall be eligible to receive such bonuses, except that employees
that are terminated (actually or constructively) without cause prior to the
date that bonuses are paid shall be eligible to receive a pro rata portion of
such bonuses; (2) whether any bonuses are payable under such plan and, if so,
the amounts thereof shall be determined as if the transactions contemplated
hereby had not occurred and the Company had remained an independent,
publicly-owned company through December 31, 1995, taking into account to the
extent reasonably applicable the limitations imposed by Section 6.1(a); and (3)
the timing of payment of any bonuses payable pursuant to clause (2) above shall
be consistent with past practices. The pro rata portion of an employee's bonus
shall be the amount determined pursuant to the preceding sentence multiplied by
a fraction, the numerator of which shall be the number of days during 1995 for
which such employee was employed by the Company or any of its Subsidiaries and
the denominator of which shall be 365.
(c) The foregoing shall not constitute any commitment,
contract, understanding or guarantee (express or implied) on the part of the
Surviving Corporation of a post-Effective Time employment relationship of any
term or duration or on any terms other than those the Surviving Corporation may
establish. Employment of any of the employees by the Surviving Corporation
shall be "at will" and may be terminated by the Surviving Corporation at any
time for any reason (subject to any legally binding agreement, or any
applicable laws or collective bargaining agreement, or any arrangement or
commitment). No provision of this Agreement shall create any third-party
beneficiary with respect to any employee (or dependent thereof)
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of the Company or any of its Subsidiaries in respect of continued employment or
resumed employment.
Section 7.11 Severance Policy. (a) With respect to any
officer whom the Company Disclosure Letter states is covered by a severance
policy separate from the standard severance policy for the Company's employees
(which separate severance policy is referred to in the Disclosure Letter),
Parent shall maintain such separate policy as in effect on the date hereof,
and, as to all other officers and employees, Parent shall maintain the
Company's standard severance policy as in effect on the date hereof for a
period of at least six months from the Effective Time.
(b) Parent shall honor or cause to be honored all
severance and employment agreements with the Company's officers and employees
to the extent disclosed in the Company Disclosure Letter.
(c) Parent and its Subsidiaries shall provide reasonable and
customary outplacement services ("Outplacement Services") to officers of the
Company and its Subsidiaries who are terminated by the Company as a result of,
or within one year following, the Merger, which Outplacement Services provided
to such officer shall include one-on-one counseling and assistance; provided,
however, that the amount paid by Parent to provide Outplacement Services shall
not exceed $15,000 for any individual officer or $250,000 in the aggregate.
Section 7.12 Board Representations. Promptly upon the
purchase of shares of Common Stock pursuant to the Offer, 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 will give Parent, subject
to compliance with Section 14(f) of the Exchange Act and the rule and
regulations promulgated thereunder, representation on the Board of Directors
equal to the product of (a) the total number of directors on the Board of
Directors and (b) the percentage that the number of shares of Common Stock
purchased by Parent bears to the number of shares of Common Stock outstanding,
and the Company shall, upon request by Parent, promptly increase the size of
the Board of Directors and/or exercise its reasonable best efforts to secure
the resignations of such number of directors as is necessary to enable Parent's
designees to be elected to the Board of Directors and shall cause Parent's
designees to be so elected. The Company shall take, at its expense, all action
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 7.12 and shall include in the Schedule 14D-9 or
otherwise timely mail to its stockholders such information with respect to the
Company and its officers and directors as is required by Section 14(f) and Rule
14f-1 in order to fulfill its obligations under this Section 7.12. Parent will
supply to the Company in writing and be solely responsible for any information
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with respect to itself and its or Parent's nominees, officers, directors and
affiliates required by Section 14(f) and Rule 14f-1.
Section 7.13 Certificates. (a) Until Sub acquires shares of
Common Stock pursuant to the Offer (subject to the limitation set forth in
Section 1.1(a)), the Company shall deliver certificates to Parent and Sub
containing the following information, each certificate being certified by the
Chairman of the Board and the President of the Company as true and correct and
as being prepared in accordance with the provisions of this Section 7.13 and
the Company Disclosure Letter:
(x) No later than the tenth calendar day of each month, (1)
the number of insured members (the "Members") in the Company's medical
plans as of the end of the month immediately prior to said month (the
"Prior Month") and (2) the Adjusted Premiums (as such term is defined
below) for the period (the "Premium Measurement Period") from July 1,
1995 through the end of the Prior Month, inclusive; and
(y) No later than the first calendar day of each month, the
Company's Adjusted Pretax Income (as such term is defined below) for
the period (the "Pretax Measurement Period") from January 1, 1995
through the end of the month immediately prior to the Prior Month,
inclusive.
Notwithstanding the foregoing, if a Monthly Plan does not exist for January or
February 1996, any certificate which is required to provide information as of
or for a period ending January 31 or February 29, 1996 shall provide the
relevant information as of December 31, 1995 or for the period ending December
31, 1995, as the case may be, whether or not an earlier certificate provided
such information as of such date or for such period, it being understood and
agreed that any such later certificate shall take into account any actual
claims experience available through December 31, 1995. For purposes of the
foregoing, (I) except as otherwise provided, all calculations shall be made in
accordance with generally accepted accounting principles applied on a
consistent basis with the accounting principles used in preparing the Company's
Consolidated Statement of Income for the year ended December 31, 1994 as
included in the Company SEC Documents (the "Income Statement"), (II) except as
otherwise provided, all terms shall have the meanings customarily used for such
terms in the healthcare industry, (III) the term "Adjusted Premiums" shall mean
the Company's consolidated earned premiums (including administrative fees and
any other items of revenue of the type included under the caption
"Administrative fees and other" in the Income Statement) but shall not include
premium reserve adjustments related to reserves which arose prior to July 1,
1995, investment income or realized gains or losses on investments and (IV) the
term "Adjusted Pretax Income" shall mean the Company's consolidated pretax
income as adjusted for certain
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exclusions, adjustments and assumptions set forth in the Company Disclosure
Letter.
(b) Until Sub acquires shares of Common Stock pursuant to the
Offer (subject to the limitations set forth in Section 1.1(a)), on or prior to
the 20th calendar day of each month the Company shall deliver to Parent and Sub
a draft of the certificate (the "Pretax Certificate") referred to in clause (y)
of paragraph (a) of this Section 7.13 which is required to be delivered on the
first day of the following month, accompanied by a report of Ernst & Young, the
Company's independent public accountants, of the type contemplated by Rule
436(d) promulgated under the Securities Act of 1933, as amended, and stating
that the Adjusted Pretax Income included in the draft certificate was
determined in a manner consistent with the methodology set forth in Section
7.13(a) and the Company Disclosure Letter. The Company agrees to make the
appropriate officers and employees of the Company and its Subsidiaries and
representatives of Ernst & Young available to discuss the draft certificate
with representatives of Parent and Sub, together with Coopers & Lybrand, their
independent public accountants. Subject to the Company complying with its
obligations pursuant to Section 7.13(a) in a manner which under reasonable
circumstances would permit Parent and Sub to complete their review within the
time period hereinafter provided, Parent and Sub agree to complete their review
and provide the Company with a detailed description of their comments and
proposed modifications within five business days after the receipt of the draft
certificate (which proposed modifications shall, in the reasonable judgment of
the Parent and Sub, be necessary in order for the Adjusted Pretax Income to
have been determined in a manner consistent with the methodology set forth in
Section 7.13(a) hereof and the Company Disclosure Letter).
(c) If the Pretax Certificate is accompanied by a certificate
from Milliman & Robertson (or such other firm acceptable to Parent and Sub)
stating that, in its professional opinion, the medical claims component of
Adjusted Pretax Income included in the Pretax Certificate was determined in a
manner consistent with the methodology set forth in Section 7.13(a), Parent and
Sub shall be bound by such determination but solely as it relates to the
medical claims component of Adjusted Pretax Income. All fees and expenses of
Milliman and Robertson (or such other firm) shall be paid by the Company.
(d) For purposes of exercising its right to terminate this
Agreement pursuant to Section 9.1(c)(ii), notwithstanding the fact that the
calculations included in the certificates delivered pursuant to this Section
7.13 comply with the thresholds established herein, Parent and Sub have the
right, exercised in good faith, to disagree with any of the calculations made
by the Company in such certificates (except to the extent provided in Section
7.13(c)) and to take any permitted action
-37-
<PAGE> 42
under Section 9.1(c)(ii) had their calculations been included in such
certificates (subject to the obligation of Parent and Sub, in any proceeding
commenced by the Company claiming that Parent and Sub breached their
obligations under this Agreement by improperly exercising their right to
terminate pursuant to Section 9.1(c)(ii), to demonstrate that the Company's
calculations were inaccurate and that, if the calculations were prepared
accurately, Parent and Sub would have had the right to terminate this
Agreement) unless in the case of calculation of Adjusted Pretax Income, (i) the
Company modified its calculation of Adjusted Pretax Income contained in the
corresponding draft certificate to take into account all of the comments
provided to the Company by Parent and Sub, (ii) Parent and Sub acknowledged in
writing to the Company that they had no comments on the calculation of Adjusted
Pretax Income or (iii) Parent and Sub do not comply with their obligations
pursuant to the last sentence of Section 7.13(b).
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 Conditions to Each Party's Obligation to Effect
the Merger. The respective obligations of each party to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. If approval of the Merger by the
holders of the Common Stock is required by applicable law, the Merger
shall have been approved by the requisite vote of such holders.
(b) No Order. No Governmental Entity or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree or
injunction which prohibits or has the effect of prohibiting the
consummation of the Merger; provided, however, that the Company,
Parent and Sub shall use their reasonable best efforts to have any
such order, decree or injunction vacated.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after any approval by
the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
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<PAGE> 43
(b) by the Company if:
(i) the Offer has not been timely commenced (except
as a result of actions or omissions by the Company) in accordance with
Section 1.1(a); or
(ii) there is an offer to acquire all of the
outstanding shares of Common Stock or substantially all of the assets
of the Company for consideration that provides stockholders of the
Company a value per share of Common Stock which, in the good faith
judgment of the Board of Directors of the Company, provides a higher
value per share than the consideration per share pursuant to the Offer
or the Merger and the Board of Directors of the Company determines in
good faith after consultation with the Company's outside counsel that
the failure to approve such offer would not be consistent with the
fiduciary duties to stockholders of the Board of Directors of the
Company; provided, however, that the right to terminate this Agreement
pursuant to this clause shall not be available (i) if the Company has
breached in any material respect its obligations under Section 6.2,
(ii) in respect of an offer that is subject to a financing condition,
(iii) in respect of an offer involving consideration that is not
entirely cash or does not permit stockholders to receive the payment
of the offered consideration in respect of all shares at the same
time, unless the Board of Directors of the Company has been furnished
with a written opinion of a nationally recognized investment banking
firm to the effect that such offer provides a higher value per share
than the consideration per share pursuant to the Offer or the Merger
or (iv) if, prior to or concurrently with any purported termination
pursuant to this clause, the Company shall not have paid the fee
contemplated by Section 7.3(b).
(iii) there has been a breach by Parent or Sub of
any representation or warranty that would have a material adverse
effect on Parent's or Sub's ability to perform its obligations under
this Agreement and which breach has not been cured within five
business days following receipt by Parent or Sub of notice of the
breach; or
(iv) Parent or Sub fails to comply in any material
respect with any of its material obligations or covenants contained
herein, including, without limitation, the obligation of Sub to
purchase shares of Common Stock pursuant to the Offer, unless such
failure results from a breach of the Company of any obligation,
representation, or warranty hereunder, which has not been cured within
five business days following Company's receipt of notice of the
breach;
-39-
<PAGE> 44
(c) by Parent if:
(i) the Board of Directors of the Company shall have
failed to recommend, or withdrawn, modified or amended in any material
respect its approval or recommendations of the Offer or the Merger or
shall have resolved to do any of the foregoing, or shall have failed
to reject an Acquisition Proposal within 10 business days after
receipt by the Company or public announcement thereof; or
(ii) the information contained in the last
certificates delivered to Parent and Sub in accordance with Section
7.13(a) do not satisfy all of the following thresholds:
(x) the number of Members are at least 95% of the
number of Members forecasted for the end of the applicable
month in the Monthly Plans;
(y) the Adjusted Premiums are at least 90% of the
Adjusted Premiums forecasted for the applicable Premium
Measurement Period in the Monthly Plans; and
(z) the Adjusted Pretax Income is at least 90% of the
Adjusted Pretax Income forecasted for the applicable Pretax
Measurement Period in the Monthly Plans; or
(d) by either Parent or the Company if:
(i) the Merger has not been effected on or prior to
the close of business on March 31, 1996; provided, however , that the
right to terminate this Agreement pursuant to this clause shall not be
available (y) to Parent if Sub or any affiliate of Sub acquires shares
of Common Stock pursuant to the Offer, or (z) to any party whose
failure to fulfill any obligation of this Agreement has been the cause
of, or resulted in, the failure of the Merger to have occurred on or
prior to the aforesaid date; or
(ii) any court of competent jurisdiction or any
governmental, administrative or regulatory authority, agency or body
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and nonappealable; or
(iii) upon a vote at a duly held meeting or upon any
adjournment thereof, the stockholders of the Company shall have failed
to give any approval required by applicable law; or
-40-
<PAGE> 45
(iv) as the result of the failure of any of the
conditions set forth in Exhibit A hereto, the Offer shall have
terminated or expired in accordance with its terms without Sub having
purchased any shares of Common Stock pursuant to the Offer; provided,
however, that the right to terminate this Agreement pursuant to this
Section 9.1(d)(iv) shall not be available to any party whose failure
to fulfill any of its obligations under this Agreement results in the
failure of any such condition; or
(v) Parent or the Company shall have reasonably
determined that any Offer condition (other than the Minimum Condition
(as defined in Exhibit A)) is not capable of being satisfied at any
time in the future; provided, however , that the right to terminate
this Agreement pursuant to this clause shall not be available to any
party whose failure to fulfill any obligation of this Agreement has
been the cause of, or resulted in, such Offer condition being
incapable of satisfaction.
Section 9.2 Effect of Termination. In the event of
termination of this Agreement by either Parent or the Company, as provided in
Section 9.1, this Agreement shall forthwith become void and there shall be no
liability hereunder on the part of the Company, Parent or Sub or their
respective officers or directors (except as set forth in the last two sentences
of Section 7.2 and except for Section 7.3, which shall survive the
termination); provided, however, that nothing contained in this Section 9.2
shall relieve any party hereto from any liability for any breach of this
Agreement.
Section 9.3 Amendment. This Agreement may be amended by the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, at any time before or after any approval of the Merger by the
stockholders of the Company but, after the purchase of shares of common stock
pursuant to the Offer, no amendment shall be made which decreases the Merger
Consideration or which in any way materially adversely affects the rights of
such stockholders, without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 9.4 Waiver. At any time prior to the Effective Time,
the parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be waived. Any
agreement on the part of a party
-41-
<PAGE> 46
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
Section 9.5 Procedure for Termination, Amendment or Waiver.
A termination of this Agreement pursuant to Section 9.1, an amendment of this
Agreement pursuant to Section 9.3 or a waiver pursuant to Section 9.4 shall, in
order to be effective, require (a) in the case of Parent, action by its Board
of Directors or the duly authorized designee of its Board of Directors and (b)
in the case of the Company, action by its Board of Directors.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time.
Section 10.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, sent by overnight courier or telecopied (with a confirmatory copy
sent by overnight courier) 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 Sub, to:
Humana Inc.
The Humana Building
500 West Main Street
Louisville, Kentucky 40201
Attn: President and Chief Operating Officer
with a copy to:
Humana Inc.
The Humana Building
500 West Main Street
Louisville, Kentucky 40201
Attn: Senior Vice President and General Counsel
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attn: Jeffrey Bagner
-42-
<PAGE> 47
(b) if to the Company, to:
EMPHESYS Financial Group, Inc.
1100 Employers Boulevard
Green Bay, Wisconsin 54344
Attn: Chairman of the Board and
Chief Executive Officer
with a copy to:
EMPHESYS Financial Group, Inc.
1100 Employers Boulevard
Green Bay, Wisconsin 54344
Attn: Vice President, Secretary and
General Counsel
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attn: Thomas A. Cole and
Frederick C. Lowinger
Section 10.3 Interpretation. When a reference is made in
this Agreement to a Section, such reference shall be to a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." When the
phrase "knowledge of the Company" is used herein, it shall refer to the actual
knowledge of William J. Lawson, Gregory H. Wolf, Gail A. Hohenstein, Wayne R.
Micksch, Tod J. Zacharias, David R. Astar, Michael R. Walker, David R. Nelson,
Kenneth J. Fasala, Kenneth E. Roesler, Kirk E. Rothrock and Melissa L. Weaver
M.D. As used in this Agreement, "business day" shall have the meaning ascribed
thereto in Rule 14d-1(c)(6) under the Exchange Act.
Section 10.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 10.5 Entire Agreement; No Third-Party Beneficiaries.
This Agreement, including the documents and instruments referred to herein, (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 for the provisions of
-43-
<PAGE> 48
Section 7.9, 7.10 and 7.11, is not intended to confer upon any person other
than the parties any rights or remedies hereunder.
Section 10.6 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
Section 10.7 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties without the prior written consent of the other parties, except that Sub
may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
Section 10.8 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions be consummated as originally
contemplated to the fullest extent possible.
Section 10.9 Enforcement of this Agreement. The parties
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in equity.
Section 10.10 Incorporation of Exhibits. The Company
Disclosure Letter and all Exhibits and annexes attached hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes
as if fully set forth herein.
-44-
<PAGE> 49
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized all as of the date first written above.
HUMANA INC.
By: /s/ Wayne T. Smith
-------------------------------
Name: Wayne T. Smith
Title: President and Chief
Operating Officer
HEW, INC.
By: /s/ Wayne T. Smith
-------------------------------
Name: Wayne T. Smith
Title: President and Chief
Operating Officer
EMPHESYS FINANCIAL GROUP, INC.
By: /s/ William J. Lawson
-------------------------------
Name: William J. Lawson
Title: Chairman of the Board and
Chief Executive Officer
-45-
<PAGE> 50
EXHIBIT A
Notwithstanding any other term of the Offer or this Agreement,
Parent shall not be required to accept for payment or pay for, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) of the
Exchange Act, any shares of Common Stock not theretofore accepted for payment
or paid for and may terminate or amend the Offer as to such shares of Common
Stock unless (i) there shall have been validly tendered and not withdrawn prior
to the expiration of the Offer that number of shares of Common Stock which
would represent at least a majority of the outstanding shares of Common Stock
on a fully diluted basis (the "Minimum Condition"), (ii) any waiting period
under the Improvements Act applicable to the purchase of shares of Common Stock
pursuant to the Offer shall have expired or been terminated and (iii) all
necessary filings with the DOC and the OCI shall have been completed and each
of the DOC and the OCI shall have issued an order (which order shall not have
been stayed or enjoined) that (x) constitutes a final order approving,
exempting or otherwise authorizing consummation of the Offer and the Merger and
all other transactions contemplated by this Agreement as may require such
authorization and (y) does not impose on the Company, Parent, Sub or any of
their respective affiliates any terms or conditions which in the reasonable
opinion of Parent materially and adversely affect the economic benefits to
Parent of the transactions contemplated by this Agreement. Furthermore,
notwithstanding any other term of the Offer of this Agreement, Parent shall not
be required to accept for payment or, subject as aforesaid, to pay for any
shares of Common Stock not theretofore accepted for payment or paid for, and
may terminate or amend the Offer if at any time on or after the date of this
Agreement and before the acceptance of such shares of Common Stock for payment
or the payment therefor, any of the following conditions exist or shall occur
and remain in effect:
(a) there shall have been instituted or pending any action or
proceeding by any governmental, regulatory or administrative agency or
authority, which (i) seeks to challenge the acquisition by Parent of
shares of Common Stock pursuant to the Offer, restrain, prohibit or
delay the making or consummation of the Offer or the Merger, or obtain
any material damages in connection therewith, (ii) seeks to make the
purchase of or payment for some or all of the shares of Common Stock
pursuant to the Offer or the Merger illegal, (iii) seeks to impose
material limitations on the ability of Parent (or any of its
affiliates) effectively to acquire or hold, or to require Parent or
the Company or any of their respective affiliates or subsidiaries to
dispose of or hold separate, any material portion of the assets or the
business of Parent and its affiliates taken as a whole or the Company
and its subsidiaries taken as a whole, or (iv) seeks to impose
material limitations on the ability of
<PAGE> 51
Parent (or its affiliates) to exercise full rights of ownership of the
shares of Common Stock purchased by it, including, without limitation,
the right to vote the shares purchased by it on all matters properly
presented to the stockholders of the Company; or
(b) there shall have been promulgated, enacted, entered,
enforced or deemed applicable to the Offer or the Merger, by any
state, federal or foreign government or governmental authority or by
any court, domestic or foreign, any statute, rule, regulation,
judgment, decree, order or injunction, that could reasonably be
expected to, in the judgment of Parent, directly or indirectly, result
in any of the consequences referred to in clauses (i) through (iv) of
subsection (a) above; or
(c) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on any national
securities exchange or in the over-the-counter market in the United
States, (ii) the declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, (iii) the
commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States
which would reasonably be expected to have a Material Adverse Effect
on the Company or prevent (or materially delay) the consummation of
the Offer, (iv) any limitation (whether or not mandatory) by any
governmental or regulatory authority on, or any other event which, in
the reasonable judgment of Parent, is reasonably likely to materially
adversely affect, the nature or extension of credit or further
extension of credit by banks or other lending institutions in the
United States, or, (v) from the date of the Merger Agreement through
the date of termination or expiration of the Offer, a decline of at
least 25% in either the Dow Jones Industrial Average or the Standard &
Poor's 500 Index; or
(d) the Company and Parent shall have reached an agreement or
understanding that the Offer or the Merger Agreement be terminated or
the Merger Agreement shall have been terminated in accordance with its
terms; or
(e) any of the representations and warranties made by the
Company in the Merger Agreement shall not have been true and correct
in all material respects when made, or shall thereafter have ceased to
be true and correct in any material respect as if made as of such
later date (other than representations and warranties made as of a
specified date), or the Company shall not in all material respects
have performed each obligation and agreement and complied with each
covenant to be performed and complied with by it under the Merger
Agreement; provided, however, that all
-2-
<PAGE> 52
references in this Agreement to the phrases "knowledge of the Company"
and "to the best knowledge of the Company," and variants thereof,
shall be disregarded for the purposes of determining whether the
Company shall have breached its representations, warranties and
covenants resulting in the ability of Parent to terminate this
Agreement pursuant to this clause (e);
(f) the Company's Board of Directors shall have modified or
amended its recommendation of the Offer in any manner adverse to
Parent or shall have withdrawn its recommendation of the Offer, or
shall have recommended acceptance of any Acquisition Proposal or shall
have resolved to do any of the foregoing, or shall have failed to
reject any Acquisition Proposal within 10 business days after receipt
of the Company or public announcement thereof; or
(g) (i) any corporation, entity or "group" (as defined in
Section 13(d)(3) of the Exchange Act) ("person"), other than Parent,
shall have acquired beneficial ownership of 50% or more of the
outstanding shares of Common Stock, or shall have been granted any
options or rights, conditional or otherwise, to acquire a total of 50%
or more of the outstanding shares of Common Stock; (ii) any new group
shall have been formed which beneficially owns 50% or more of the
outstanding shares of Common Stock; or (iii) any person (other than
Parent or one or more of its affiliates) shall have entered into an
agreement in principle or definitive agreement with the Company with
respect to a tender or exchange offer for any shares of Common Stock
or a merger, consolidation or other business combination with or
involving the Company.
The foregoing conditions are for the sole benefit of Parent
and may be asserted by Parent regardless of the circumstances giving rise to
any such condition and may be waived by Parent, in whole or in part, at any
time and from time to time, in the sole discretion of Parent. The failure by
Parent at any time to exercise any of the foregoing rights will not be deemed a
waiver of any right, the waiver of such right with respect to any particular
facts or circumstances shall not be deemed a waiver with respect to any other
facts or circumstances, and each right will be deemed an ongoing right which
may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing
provisions, all tendered shares of Common Stock not theretofore accepted for
payment shall forthwith be returned by the Paying Agent to the tendering
stockholders.
-3-
<PAGE> 1
EXHIBIT 2
<TABLE>
<S> <C>
Wayne R. Micksch Laurie G. Scarborough
EMPHESYS -- Vice President & Treasurer Humana -- Investor Relations
414/337-5210 502/580-1037
Jon Drayna Greg Donaldson
EMPHESYS -- Media Relations Humana -- Public Affairs
414/337-5725 502/580-3683
</TABLE>
News Release
August 10, 1995
HUMANA ANNOUNCES ACQUISITION OF EMPHESYS
Louisville, KY -- Humana Inc. (NYSE: HUM) today announced that the company has
signed a definitive agreement to acquire EMPHESYS Financial Group. Inc. (NYSE:
EFG), the nation's tenth largest commercial group health insurer. After the
combination, Humana will have annual premium revenues of $5.6 billion, providing
health care products to 3.7 million members concentrated in 22 states and the
District of Columbia.
Under the proposed transaction, which has been approved by EMPHESYS' board of
directors, Humana will commence an all cash tender offer on or prior to August
16, 1995, to acquire all of EMPHESYS' outstanding common stock for $37.50 per
share. The total consideration approximates $650 million. The initial tender
offer period will expire September 15, 1995, unless extended by Humana. The
transaction, which is subject to certain regulatory approvals, is expected to be
completed in the fall of 1995. Humana also has the right to terminate the
transaction if the financial results of EMPHESYS during the tender offer period
do not achieve certain specified thresholds.
Lincoln National Corporation through a subsidiary owns approximately 29 percent
of the outstanding shares of EMPHESYS. Lincoln National has agreed to tender its
shares, has granted Humana an option to acquire all of its EMPHESYS shares at
$37.50 per share and has entered into other customary provisions with Humana.
EMPHESYS, through its subsidiary Employers Health Insurance Company, is a
leading provider of a broad range of employee benefit products, including
managed care group medical, group life, dental, and disability income insurance.
Focusing primarily on small group customers, EMPHESYS provides health care
services to 1.3 million members, with 1.1 million participants in fully-insured
medical products.
"EMPHESYS fits perfectly with our strategic plan to grow in existing markets and
to expand into attractive new markets" said Wayne T. Smith, Humana's president
and chief operating officer. "Half of EMPHESYS' fully-insured membership is in
states where we already do business. EMPHESYS also has membership and networks
in markets where we want to be. That membership -- in markets like Atlanta,
Dallas and Houston -- forms a foundation on which to build and enhance existing
provider networks while offering a fully array of managed care products."
"EMPHESYS has created an impressive small business product and is now a major
player in the small group market -- one that is fast growing and
under-penetrated," said Mr. Smith.
"They bring this additional sales and marketing expertise to Humana. Coupled
with our medical management skills, this new organization will be a more
significant force with an even wider offering of competitive products and
services."
<PAGE> 2
"Humana's experience in network development and medical management will enhance
our organization," said Willian J. Lawson, EMPHESYS' chairman and chief
executive officer.
This experience, supported by Humana's information systems, should enable us to
further enhance our managed care capabilities."
"EMPHESYS contributes strong sales and marketing capabilities with more than
40,000 brokers in our distribution system. We are very excited about the
opportunity to offer Humana's managed care products to EMPHESYS members and to
sell our specialty products to Humana's membership," said Gregory H. Wolf,
president and chief operating officer of EMPHESYS. "This combination makes good
sense for the members, customers and shareholders of both EMPHESYS and Humana."
EMPHESYS, based in Green Bay, Wisconsin, is one of the nation's premier health
insurers in the small group market. Headquartered in Louisville, Kentucky,
Humana provides managed health care services to 2.4 million members through the
operation of health maintenance organizations and preferred provider
organizations located in 14 states and the District of Columbia.
MEMBERSHIP DATA
JUNE 30, 1995
(000)
<TABLE>
<CAPTION>
PRO-FORMA
HUMANA EMPHESYS TOTAL
------ -------- ---------
<S> <C> <C> <C>
Medical Products:
Commercial............................................... 1,719 931 2,650
Medicare risk............................................ 297 -- 297
Medicare supplement...................................... 122 -- 122
Indemnity................................................ -- 145 145
------ -------- ---------
2,138 1,076 3,214
Admin. Service Only........................................ 264 217 481
------ -------- ---------
2,402 1,293 3,695
Specialty Products:
Pharmacy management...................................... 2,997 2,997
Dental................................................... 226 566 792
Life..................................................... -- 580 580
Workers compensation..................................... 210 -- 210
Disability............................................... -- 103 103
</TABLE>
<PAGE> 1
EXHIBIT 3
PROPOSAL 2
APPROVAL OF AMENDMENTS TO THE 1994 STOCK INCENTIVE PLAN
GENERAL
The Company adopted the 1994 Stock Incentive Plan (the "Stock Incentive
Plan") on March 4, 1994. As currently in effect, the Stock Incentive Plan has
819,693 shares of Common Stock (127,293 shares of which were contributed by LNL
for distribution under the Stock Incentive Plan) available for awards to
executive officers and other key employees of the Company and its subsidiaries,
of which 356,448 shares of Common Stock have been awarded or earned in the form
of restricted stock and stock options as of December 31, 1994. The Board of
Directors has evaluated the operation of the Stock Incentive Plan and has
determined that the Stock Incentive Plan should be amended to provide that (i)
an additional 950,000 shares will be available for the grant of awards under
such plan, (ii) the limit for awards to a participant in any calendar year be
increased to 200,000 shares and (iii) non-employee directors of the Company be
permitted to participate in the Stock Incentive Plan as set forth below. The
amendments to the Stock Incentive Plan are intended to assist in attracting and
retaining employees and well-qualified non-employee directors and to promote the
identification of their interests with those of the stockholders of the Company.
Each of the six non-employee directors will be and approximately 150 employees
are eligible to participate in the Stock Incentive Plan. Reference is made to
Exhibit A to this Proxy Statement for the complete text of the Stock Incentive
Plan (as amended and restated) which is summarized below.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for approval of the amendments to the Stock Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS TO
THE STOCK INCENTIVE PLAN.
DESCRIPTION OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan is administered by a committee of the Board of
Directors (the "Committee") consisting of not less than two directors who are
not eligible to receive discretionary awards under the Stock Incentive Plan or
any other plan of the Company. Except for nondiscretionary grants of stock
options to non-employee directors, the Committee selects eligible employees to
whom restricted stock, stock options and stock appreciation rights
(collectively, "stock awards") are granted, determines the terms and conditions
of such stock awards and determines the number of shares of Common Stock subject
to such stock awards. Options granted pursuant to the Stock Incentive Plan may
be in the form of incentive stock options ("ISOs") qualified under Section 422
of the Internal Revenue Code ("Code") or non-qualified stock options.
Options will be subject to vesting schedules determined by the Committee,
provided that no option may become exercisable prior to the first day of the
year following the year of grant except in the event of the death, disability or
retirement of a participant. In addition, options will vest immediately upon a
"change in control." A "change in control" is generally deemed to have occurred
if any person, directly or indirectly, (i) acquires ownership of the power to
vote in excess of 40% of the voting securities of the Company and one or more of
its representatives are elected to the Board of Directors, (ii) acquires
ownership of the power to vote in excess of 50% of the voting power of the
Company or (iii) otherwise acquires effective control of the business and
affairs of the Company. Options shall generally terminate upon the earlier of
(a) three months after termination of the optionholder's employment with the
Company for any reason other than death, retirement or disability, (b) one year
after termination of the optionholder's employment by reason of death or
disability, (c) five years after termination of the optionholder's employment
with the Company by reason of retirement or (d) ten years after the grant date.
However, the Company has discretion to shorten such periods. The optionholder
may not transfer the options to any other person other than by will or by the
laws of descent and distribution.
<PAGE> 2
Participants may also be awarded shares of restricted stock. Restricted
stock is Common Stock that is non-transferrable or forfeitable, or both, unless
and until certain conditions, as determined by the Committee in its discretion,
are satisfied. These conditions may include, for example, a requirement that the
participant continue employment with the Company for a specified period. The
Committee may award restricted stock in lieu of cash to satisfy the Company's
obligation under the Executive Value Sharing Plan, the Management Incentive Plan
or both. See "Report on Executive Compensation." In addition, the Committee has
discretion with respect to the vesting of shares of restricted stock upon a
change in control.
Under the Stock Incentive Plan, a maximum of 1,769,693 shares of Common
Stock (819,693 shares if the amendments are not approved by stockholders) may be
issued upon the exercise of options and stock appreciation rights ("SARs") and
the award of restricted stock. In general, to the extent shares covered by an
option, SAR or restricted stock award are not issued or delivered by reason of
the expiration, termination, cancellation or forfeiture of such award or by
reason of the delivery or withholding of shares to pay all or a portion of the
tax withholding obligations relating to an award, then such shares will again be
available under the Stock Incentive Plan. The limitation on the number of
available shares will be adjusted as the Committee determines to be appropriate
in the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, spinoff or other similar events. The terms of outstanding
awards also may be adjusted by the Committee to reflect such changes. No
participant may be awarded more than 200,000 shares (100,000 shares if the
amendments are not approved by stockholders) represented by options, SARs and
restricted stock in any calendar year.
No options may be granted and no restricted stock award may be made under
the Stock Incentive Plan after February 1, 2004. The Board may, without further
action by stockholders, terminate or suspend the Stock Incentive Plan in whole
or in part. The Board may also amend the Stock Incentive Plan except that no
amendment which, among other things, increases the number of shares of Common
Stock available under the Stock Incentive Plan or changes the class of
individuals who may be selected to participate in the Stock Incentive Plan will
become effective until it is approved by the Company's stockholders.
Non-Employee Director Options. On May 3, 1995 (or, if later, on the date
on which a person is first elected or begins to serve as a non-employee director
other than by reason of termination of employment), each person who is a
non-employee director will be granted an option to purchase 7,500 shares of
Common Stock at a purchase price per share not less than the average of the high
and low price of the Common Stock, as reported on the New York Stock Exchange
Composite Transactions report, on the first business day preceding the date of
grant (the "Plan exercise price"). Thereafter, on the date of each annual
meeting of stockholders of the Company, each person who is a non-employee
director after such meeting of stockholders will be granted an option to
purchase 2,500 shares of Common Stock at a purchase price per share not less
than the Plan exercise price.
Such options will generally be exercisable with respect to 25% of the
option shares on the January 1 next following the date of grant with an
additional 25% of the option shares becoming exercisable on each successive
January 1. These non-employee director options shall terminate upon the earlier
to occur of (a) three months after termination of the optionholder's
directorship with the Company for any reason other than death, disability or
retirement, (b) one year after termination of the optionholder's directorship by
reason of death or disability, (c) five years after termination of the
optionholder's directorship with the Company by reason of retirement or (d) ten
years after the date of grant. If a non-employee director ceases to be a
director of the Company by reason of death, disability or retirement (or in the
event of a change in control), each option held by such non-employee director
shall become fully exercisable for the periods set forth in the preceding
sentence.
Federal Income Tax Consequences. The following is a brief summary of the
U.S. federal income tax consequences of awards made under the Stock Incentive
Plan.
Stock Options. A participant will not recognize any income upon the grant
of a stock option. A participant will recognize compensation taxable as ordinary
income (and, except for non-employee directors, subject to income tax
withholding) upon exercise of a non-qualified stock option equal to the excess
of the fair market value of the shares purchased over their exercise price, and
the Company will be entitled to
<PAGE> 3
a corresponding deduction. A participant will not recognize income (except for
purposes of the alternative minimum tax) upon exercise of an incentive stock
option. If the shares acquired by exercise of an incentive stock option are held
for the longer of two years from the date the option was granted and one year
from the date it was exercised, any gain or loss arising from a subsequent
disposition of such shares will be taxed as long-term capital gain or loss, and
the Company will not be entitled to any deduction. If, however, such shares are
disposed of within the above-described period, then in the year of such
disposition the participant will recognize compensation taxable as ordinary
income equal to the excess of the lesser of (i) the amount realized upon such
disposition and (ii) the fair market value of such shares on the date of
exercise over the exercise price, and the Company will be entitled to a
corresponding deduction.
SARs. A participant will not recognize any taxable income upon the grant
of the SARs. A participant will recognize compensation taxable as ordinary
income (and subject to income tax withholding) upon exercise of an SAR equal to
the fair market value of any shares delivered and the amount of cash paid by the
Company upon such exercise, and the Company will be entitled to a corresponding
deduction.
Restricted Stock. A participant will not recognize taxable income at the
time of the grant of shares of restricted stock, and the Company will not be
entitled to a tax deduction at such time, unless the participant makes an
election to be taxed at the time restricted stock is granted. If such election
is not made, the participant will recognize taxable income at the time the
restrictions lapse in an amount equal to the excess of the fair market value of
the shares at such time over the amount, if any, paid for such shares. The
amount of ordinary income recognized by a participant by making the
above-described election or upon the lapse of the restrictions is deductible by
the Company as compensation expense, except to the extent the limit of section
162(m) of the Code (described below) applies. In addition, a participant
receiving dividends with respect to restricted stock for which the
above-described election has not been made and prior to the time the
restrictions lapse will recognize taxable compensation (subject to income tax
withholding), rather than dividend income, in an amount equal to the dividends
paid and the Company will be entitled to a corresponding deduction, except to
the extent the limit of section 162(m) of the Code applies.
Section 162(m) of the Code. Section 162(m) of the Code generally limits to
$1 million the amount that a publicly held corporation is allowed each year to
deduct for the compensation paid to each of the corporation's chief executive
officer and the corporation's four most highly compensated officers. However,
certain types of compensation paid to such executives are not subject to the $1
million deduction limit. One such type is "performance-based" compensation. To
qualify as performance-based compensation, the following requirements must be
satisfied: (i) the performance goals are determined by a committee consisting
solely of two or more "outside directors", (ii) the material terms under which
the compensation is to be paid, including the performance goals, are approved by
a majority of the corporation's stockholders and (iii) the committee certifies
that the applicable performance goals were satisfied before payment of any
performance-based compensation is made. The Committee administering the Stock
Incentive Plan will consist solely of "outside directors" as defined for
purposes of section 162(m) of the Code. As a result, and based on certain
proposed regulations issued by the United States Department of the Treasury
which explain these requirements, certain compensation under the Stock Incentive
Plan, such as that payable with respect to options and SARs, is not expected to
be subject to the $1 million deduction limit under section 162(m) of the Code,
but other compensation payable under the Stock Incentive Plan, such as that
payable with respect to restricted stock, is expected to be subject to such
limit.
Stock Incentive Plan Awards. At December 31, 1994, there were options to
purchase 188,600 shares of Common Stock outstanding at an average exercise price
of $22.06 per share and 167,848 shares of restricted stock awarded or earned
pursuant to the Stock Incentive Plan. See "Executive Compensation."
<PAGE> 4
The following table sets forth information regarding all awards granted in
1995 under the Stock Incentive Plan prior to the date of this Proxy Statement.
No determination has been made regarding any specific amounts that may be made
under the Stock Incentive Plan after that date. On March 1, 1995, the closing
price of the Common Stock on the New York Stock Exchange ("NYSE") was $37.75 per
share.
1994 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
1995 AWARDS
NAME AND POSITION DOLLAR VALUE NUMBER OF UNITS
----------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
WILLIAM J. LAWSON................................................ --(1) 180,000(3)
Chairman and Chief Executive Officer
GREGORY H. WOLF.................................................. --(1) 64,000
President and Chief Operating Officer $566,250(2) 15,000
DAVID R. ASTAR................................................... --(1) 18,000
Senior Vice President
WAYNE R. MICKSCH................................................. --(1) 10,000
Vice President, Treasurer and Chief Financial Officer
KENNETH E. ROESLER............................................... --(1) 5,000
Vice President
All Executive Officers as a Group................................ --(1) 305,000
(8 persons) $566,250(2) 15,000
All Non-Employee Directors as a Group............................ --(1) 45,000
(6 persons)
All Employees as a Group......................................... --(1) 108,800
(33 persons, excluding executive officers) $151,000(2) 4,000
</TABLE>
---------------
(1) The option exercise price per share is the average of the high and low price
of the Common Stock as reported on the NYSE Composite Transactions report
on the first business day preceding the date of grant.
(2) These shares represent restricted stock awarded to Mr. Wolf and one other
employee on February 14, 1995. Value is based on the closing price of the
Company's Common Stock reported on the NYSE Composite Transactions report
on the date of grant ($37.75).
(3) A portion of this award (80,000 shares) is contingent upon approval of the
amendments to the Stock Incentive Plan.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 1, 1995 by: (i) all persons known to
the Company to own more than 5% of the Company's Common Stock; (ii) each
director; (iii) the Company's Chief Executive Officer and each of its other four
most highly compensated executives (collectively, the "Named Executive
Officers") for the fiscal year ended December 31, 1994; and (iv) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
(1)(2)
-----------------------
NO. OF PERCENT
NAME SHARES OF TOTAL
------------------------------------------------- -------- --------
<S> <C> <C>
Lincoln National Corporation..................... 4,986,507 29.2
200 East Berry Street
Fort Wayne, Indiana 46802
The Equitable Companies Incorporated............. 1,464,000(3) 8.6
787 Seventh Avenue
New York, New York 10019
Prudential Insurance Company of America.......... 1,245,610(4) 7.3
Prudential Plaza
Newark, New Jersey 07102
William J. Lawson................................ 85,408 *
Director, Chairman of the Board
and Chief Executive Officer of
EMPHESYS and Employers Health Insurance
Robert A. Anker.................................. -- --
Director of EMPHESYS
Daniel A. Bollom................................. 1,000 *
Director of EMPHESYS
Charles W. Elliott............................... 1,000 *
Director of EMPHESYS
H. Thomas McMeekin............................... 300 *
Director of EMPHESYS
Langdon D. Neal.................................. 2,000 *
Director of EMPHESYS
Ian M. Rolland................................... -- --
Director of EMPHESYS
Gregory H. Wolf.................................. 50,597 *
President and Chief Operating Officer of
EMPHESYS and Employers Health Insurance
David R. Astar................................... 16,813 *
Senior Vice President, Customer Service
Operations
of Employers Health Insurance
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
(1)(2)
-----------------------
NO. OF PERCENT
NAME SHARES OF TOTAL
------------------------------------------------- -------- --------
<S> <C> <C>
Wayne R. Micksch................................. 10,400 *
Vice President, Treasurer and Chief
Financial Officer of EMPHESYS and
Employers Health Insurance
Kenneth E. Roesler............................... 11,919 *
Vice President, Management Information Systems
of Employers Health Insurance
All directors and executive officers as a group
(14 persons)................................... 202,739 1.2
</TABLE>
---------------
* Less than 1%
(1) This table is based upon information supplied by directors, executive
officers and Schedules 13D and 13G, if any, filed with the Securities and
Exchange Commission. Unless otherwise indicated in the footnotes and
subject to community property laws where applicable, each of the
stockholders has sole voting and/or investment power with respect to the
shares beneficially owned.
(2) Includes shares which the Named Executive Officers have the right to acquire
on or before April 30, 1995 pursuant to outstanding options as follows: Mr.
Lawson -- 12,500 shares; Mr. Wolf -- 6,250 shares; Mr. Astar -- 2,000
shares; Mr. Micksch -- 1,500 shares; Mr. Roesler -- 1,500 shares; and all
directors and executive officers as a group -- 28,250 shares. Includes
shares, in the following amounts, which are subject to conditions of
forfeiture and restrictions on sale, transfer or other disposition: Mr.
Lawson -- 60,908 shares; Mr. Wolf -- 34,285 shares; Mr. Astar -- 14,116
shares; Mr. Micksch -- 5,352 shares; Mr. Roesler -- 5,739 shares; and all
directors and executive officers as a group -- 134,974 shares.
(3) The Equitable Companies Incorporated ("Equitable") is a parent holding
company. Equitable filed a Schedule 13G dated February 10, 1995 jointly
with Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, and Uni Europe
Assurance Mutuelle, and AXA. Such statement discloses that (i) The
Equitable Life Assurance Society of the United States, a subsidiary of
Equitable, is deemed to have shared voting power and sole dispositive power
with respect to 68,900 shares and (ii) Alliance Capital Management L.P., a
subsidiary of Equitable, is deemed to have sole voting power and sole
dispositive power with respect to 1,395,100 shares.
(4) The Prudential Insurance Company of America ("Prudential") is a mutual
insurance company. According to its Schedule 13G dated February 6, 1995,
Prudential exercises shared voting power with its clients with respect to
1,245,610 shares and shared dispositive power with such clients with
respect to 1,245,610 shares.
<PAGE> 7
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During 1994, each director who was not an employee of EMPHESYS or LNC
received a quarterly retainer of $3,750 and a per meeting fee of $850 (plus $850
for committee members attending a committee meeting). Beginning January 1, 1995,
all directors who are not employees of the Company will receive compensation as
described in the preceding sentence. The members of the Board of Directors are
also eligible for reimbursement for their expenses incurred in connection with
attendance at Board and committee meetings in accordance with Company policy. In
addition, subject to approval of the amendments to the 1994 Stock Incentive
Plan, each non-employee director shall be granted options to purchase shares of
Common Stock in accordance with the terms of such Plan. See Proposal 2 for
further information. There are no family relationships among any directors of
the Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following summary compensation table sets forth information concerning
compensation for services in all capacities to EMPHESYS, EHI, LNC or LNL for the
fiscal years ended December 31, 1994 and 1993 of (i) the Chief Executive Officer
and (ii) the other Named Executive Officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
AWARDS
ANNUAL COMPENSATION --------------------- PAYOUTS
---------------------------------- RESTRICTED SECURITIES --------
OTHER STOCK UNDERLYING LTIP ALL OTHER
ANNUAL AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) (#)(2) (3) (4)
----------------------------------- ---- -------- -------- ------------ -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Lawson.................. 1994 $397,402 $108,333 $ -- $990,656 50,000 $161,059 $ 9,946
Chairman and CEO 1993 240,584 --(5) 2,031 398,446 11,000 -- 41,023
Gregory H. Wolf.................... 1994 229,783 73,333 -- 676,673 25,000 97,317 11,885
President and COO 1993 224,685 --(5) -- 106,282 5,600 106,310 39,984
David R. Astar..................... 1994 175,132 32,800 -- 264,934 8,000 58,390 18,966
Senior Vice President 1993 168,728 --(5) -- 63,756 3,000 63,799 32,581
Wayne R. Micksch................... 1994 130,354 46,113 -- 112,904 6,000 -- 13,079
Vice President, Treasurer and CFO 1993 113,507 39,904 -- -- 1,600 -- 22,813
Kenneth E. Roesler................. 1994 145,171 64,428 -- 118,856 6,000 -- 17,115
Vice President 1993 133,300 44,720 -- -- 1,800 -- 26,645
</TABLE>
---------------
(1) Dollar amounts shown equal the number of shares of restricted stock granted
multiplied by stock price on the grant date. The number and dollar value of
shares of restricted stock held or earned as of December 31, 1994, based on
the closing price as reported on the New York Stock Exchange Composite
Transactions report of the Company's Common Stock on December 31, 1994 of
$31.75, was as follows:
<TABLE>
<CAPTION>
AMOUNT
(SHARES) VALUE
-------- ----------
<S> <C> <C>
William J. Lawson.................................. 60,908 $1,933,829
Gregory H. Wolf.................................... 34,285 1,088,549
David R. Astar..................................... 14,116 448,183
Wayne R. Micksch................................... 5,352 169,926
Kenneth E. Roesler................................. 5,739 182,213
</TABLE>
Restricted stock of the Company awarded to Messrs. Astar, Micksch and
Roesler vest on January 1, 1997. With respect to Mr. Lawson, restricted
stock awards of the Company vest as follows: January 1, 1995 -- 10,063
shares; January 1, 1996 -- 10,063 shares; and January 1, 1997 -- 40,782
shares. With respect to Mr. Wolf, restricted stock awards of the Company
vest as follows: January 1, 1997 -- 8,392 shares; March 21, 1997 -- 25,893
shares. Included in the above table are 37,077 shares of restricted stock
awarded pursuant to Mr. Lawson's Employment Agreement which vest as
follows:
<PAGE> 8
January 1, 1995 -- 4,026 shares; January 1, 1996 -- 4,026 shares; and
January 1, 1997 -- 29,025 shares. Also included in the above table are
25,893 shares of restricted stock awarded pursuant to Mr. Wolf's Employment
Agreement. If either Mr. Lawson's or Mr. Wolf's employment is terminated by
the Company for any reason, or in the event of a change in control of the
Company, any restrictions on the restricted shares shall lapse. See
"Executive Compensation -- Employment Agreements." Holders of restricted
stock are entitled to receive dividends on such shares.
(2) See "Options Grants in Fiscal 1994." 1993 amounts are awards of options to
purchase LNC common stock granted under LNC's 1982 and 1986 Incentive Stock
Option Plans.
(3) These amounts reflect cash awards in satisfaction of liabilities accrued
under LNC's Executive Value Sharing Plan and do not include awards under
this plan of $161,058, $97,317 and $58,390 to Messrs. Lawson, Wolf and
Astar, respectively, in 1994 and $398,446, $106,282 and $63,756 for those
individuals in 1993 which were paid in restricted stock of the Company.
(4) Amounts in the All Other Compensation column include amounts contributed for
the Named Executive Officers under the Company's profit-sharing and excess
benefit plans. In 1994, these contributions were as follows: Mr.
Lawson -- $8,915; Mr. Wolf -- $10,860; Mr. Astar -- $18,060; Mr.
Micksch -- $11,992; and Mr. Roesler -- $15,823. In addition, the following
premiums were paid in 1994 for life insurance benefits: Mr.
Lawson -- $1,031; Mr. Wolf -- $1,025; Mr. Astar -- $906; Mr.
Micksch -- $1,087, and Mr. Roesler -- $1,292.
(5) Messrs. Lawson, Wolf and Astar did not participate in the Company's
Management Incentive Plan in 1993.
STOCK OPTION GRANTS
The Company has granted options to its executive officers under its 1994
Stock Incentive Plan (the "Stock Incentive Plan"). The following table shows for
the fiscal year ended December 31, 1994, certain information regarding options
granted to the Named Executive Officers:
OPTION GRANTS IN FISCAL 1994
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
-------------------------------------- STOCK
% OF TOTAL PRICE APPRECIATION
OPTIONS FOR
NUMBER OF SECURITIES GRANTED TO OPTION TERM (5)
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED )#)(1) FISCAL YEAR (2) ($/SH) (3) DATE (4) 5% 10%
-------------------- -------------------- --------------- -------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
William J. Lawson... 50,000 26.5% $22.00 3/21/2004 $691,784 $1,753,117
Gregory H. Wolf..... 25,000 13.2 22.00 3/21/2004 345,892 876,558
David R. Astar...... 8,000 4.2 22.00 3/21/2004 110,685 280,499
Wayne R. Micksch.... 6,000 3.2 22.00 3/21/2004 83,014 210,374
Kenneth E.
Roesler........... 6,000 3.2 22.00 3/21/2004 83,014 210,374
</TABLE>
---------------
(1) Options granted in 1994 are exercisable with respect to 25% of the option
shares on the next January 1 following the date of grant with an additional
25% of the option shares becoming exercisable on each successive January 1.
These vesting schedules are accelerated in the event of the death,
disability or retirement of a participant or upon a change in control of
the Company.
(2) The Company granted options representing 188,600 shares to 50 employees in
fiscal 1994.
(3) Exercise price is equal to the initial public offering price of the
Company's Common Stock on March 15, 1994.
(4) The options were granted for a term of 10 years, subject to earlier
termination in certain events related to terminationof employment.
<PAGE> 9
(5) Amounts represent the potential realizable value of each grant of options,
assuming that the market price of the underlying shares appreciates in
value from the date of grant to the end of the option term, at annualized
rates of 5% and 10%.
STOCK OPTION EXERCISES
Prior to March 21, 1994, certain EMPHESYS officers were eligible to
participate in LNC stock option plans. Shown below is information with respect
to option exercises in fiscal 1994 and unexercised options to purchase LNC's
common stock granted under LNC's 1982 and 1986 Incentive Stock Option Plans to
the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1994
AND FISCAL YEAR-END 1994 OPTION VALUES
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1994 (#) DECEMBER 31, 1994($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Lawson............ 5,800 $ 91,261 18,750 12,250 $ 151,000 $29,120
Gregory H. Wolf.............. 3,400 29,923 -- -- -- --
David R. Astar............... 1,750 14,968 -- -- -- --
Wayne R. Micksch............. 1,000 9,418 -- -- -- --
Kenneth E. Roesler........... 7,750 122,784 -- -- -- --
</TABLE>
Subsequent to March 4, 1994, EMPHESYS officers have been eligible to
participate in the Company's 1994 Stock Incentive Plan. Shown below is
information with respect to option exercises in fiscal 1994 and unexercised
options to purchase the Company's Common Stock granted under the Company's 1994
Stock Incentive Plan to the Named Executive Officers.
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1994(3) (#) DECEMBER 31, 1994($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Lawson............ -- $ -- -- 50,000 $ -- $487,500
Gregory H. Wolf.............. -- -- -- 25,000 -- 243,750
David R. Astar............... -- -- -- 8,000 -- 78,000
Wayne R. Micksch............. -- -- -- 6,000 -- 58,500
Kenneth E. Roesler........... -- -- -- 6,000 -- 58,500
</TABLE>
---------------
(1) Value realized is calculated based on the aggregate amount of the excess of
the market value of LNC's common stock and the Company's Common Stock on
the date of exercise (the closing price on the New York Stock Exchange
Composite Transactions report on the exercise date) over the exercise
price(s) and does not necessarily indicate that the optionee sold such
stock.
(2) Value of unexercised in-the-money options is calculated based on the
aggregate amount of the excess of the market value of the underlying
securities over the relevant exercise price(s), and assumes sale of the
underlying securities on December 31, 1994 at the closing price on the New
York Stock Exchange Composite Transactions report of LNC's common stock
($35.00) and the Company's Common Stock ($31.75) on that date.
(3) Options became exercisable in the following amounts on January 1, 1995: Mr.
Lawson -- 12,500 shares; Mr. Wolf -- 6,250 shares; Mr. Astar -- 2,000
shares; Mr. Micksch -- 1,500 shares; Mr. Roesler -- 1,500 shares.
<PAGE> 10
EMPLOYMENT AGREEMENTS
The Company has entered into separate employment agreements, effective
March 21, 1994, with Messrs. Lawson and Wolf (the "Employment Agreements"),
pursuant to which Mr. Lawson is employed as the Chief Executive Officer of the
Company and Mr. Wolf as the Chief Operating Officer of the Company. The
Employment Agreements contemplate that Messrs. Lawson and Wolf will serve in
their respective positions with the Company until March 21, 1997, at which time
the employment term will be automatically extended for successive one-year
periods, unless a party notifies the other that the term will not be extended at
least 60 days prior to the termination date.
Under the Employment Agreements, Mr. Lawson's 1994 base salary is $325,000
and Mr. Wolf's is $220,000. Each employee's base salary may be increased
annually at the discretion of the Board of Directors of the Company. Messrs.
Lawson and Wolf are also entitled to participate in and receive all benefits
under any and all bonus and benefit programs maintained by the Company.
The Employment Agreements provide that Messrs. Lawson and Wolf receive
under the 1994 Stock Incentive Plan restricted stock in the amounts of 37,077
and 25,893 shares, respectively, and options in the amounts as set forth and as
described in the "Option Grants in Fiscal 1994" table above. If either is
terminated without good cause or by reason of incapacity or death, he shall
receive severance equal to one times base salary and bonus. If terminated with
or without good cause but within two years following a Change in Control of the
Company or if employment is voluntarily terminated within six months following a
reduction in salary of 25% or more, a significant reduction in duties and
removal of his title, Mr. Lawson shall receive additional severance equal to two
times base salary and bonus and Mr. Wolf shall receive additional severance
equal to one and one-half times base salary and bonus. The Employment Agreements
also contain noncompetition provisions which will apply in the event that either
Mr. Lawson or Mr. Wolf terminates his employment with the Company. The
noncompetition provisions will not apply if either of them is terminated by the
Company without good cause.
For purposes of the employment agreements, a "Change in Control" is deemed
to occur if during or following the consummation of a stock purchase program,
tender offer, exchange offer, merger, consolidation, sale of assets, contested
election, or any combination of the foregoing transactions, any persons, entity,
or group of persons acting in concert, directly or indirectly, (i) acquires
beneficial ownership of voting power in excess of 40% of the voting securities
of the Company and one or more of its representatives are elected to the Board,
(ii) acquires beneficial ownership in excess of 50% of the voting power of the
Company, or (iii) otherwise beneficially acquires effective control of the
business and affairs of the Company, provided however, that the sale or transfer
of any interest by LNC or any of its subsidiaries or affiliates to a subsidiary
or affiliate shall not be used to compute the percentage ownership for purposes
of defining Change in Control, nor shall such transfer to an unrelated third
party be used in computing the 40% ownership threshold of (i) immediately above.
<PAGE> 1
STOCK OPTION AND TENDER AGREEMENT
Stock Option and Tender Agreement (this "Agreement"), dated as of
August 9, 1995, between Humana Inc., a Delaware corporation ("Purchaser"),
Lincoln National Corporation, an Indiana corporation ("Lincoln"), and American
States Insurance Company, an Indiana corporation ("Stockholder").
Background
A. Stockholder is a wholly owned subsidiary of Lincoln. Stockholder
owns (both beneficially and of record) 4,986,507 shares of common stock, par
value $.01 per share ("Common Stock"), of EMPHESYS Financial Group, Inc., a
Delaware corporation (the "Company").
B. Concurrently herewith, Purchaser, HEW, Inc., a Delaware
corporation and a wholly owned subsidiary of Purchaser ("Sub"), and the Company
are entering into an agreement and plan of merger, dated as of August 9, 1995
(the "Merger Agreement"), pursuant to which Sub has agreed to make a tender
offer (the "Offer") for all outstanding shares of Common Stock at $37.50 per
share (the "Offer Price"), net to the seller in cash, to be followed by a merger
of Sub with and into the Company.
C. As a condition to the willingness of Purchaser to enter into the
Merger Agreement, Purchaser has required that Stockholder agree, and in order to
induce Purchaser to enter into the Merger Agreement, Stockholder has agreed,
among other things, (i) to tender all of the shares of Common Stock now owned or
which may hereafter be acquired by Stockholder (the "Shares"), (ii) to grant
Purchaser the option to purchase the Shares, (iii) to appoint Purchaser as
Stockholder's proxy to vote the Shares, and (iv) with respect to certain
questions put to stockholders of the Company for a vote, to vote the Shares, in
each case, in accordance with the terms and conditions of this Agreement.
<PAGE> 2
In consideration of the mutual covenants and agreements contained
herein and other good and valuable consideration, the adequacy of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
Agreement
1. Tender of Shares. Stockholder agrees to tender and sell to
Purchaser pursuant to the Offer all of the Shares. Stockholder agrees that
Stockholder shall deliver to the depositary for the Offer, no later than the
first Business Day (as defined below) following the commencement of the Offer,
either a letter of transmittal together with the certificates for the Shares, if
available, or a "Notice of Guaranteed Delivery", if the Shares are not
available. Stockholder agrees not to withdraw any Shares tendered into the
Offer.
2. Stock Option.
2.1. Grant of Stock Option. Stockholder hereby grants to
Purchaser an irrevocable option (the "Stock Option") to purchase all of the
Shares at such time as Purchaser may exercise the Stock Option at a purchase
price equal to the Offer Price.
2.2. Exercise of Stock Option. (a) The Stock Option may be
exercised by Purchaser, in whole or in part, at any time, or from time to time,
prior to the earlier of (i) the date upon which the Effective Time (as defined
in the Merger Agreement) occurs and (ii) the date forty-five days after the date
of termination of the Merger Agreement.
(b) In the event Purchaser wishes to exercise the
Stock Option, Purchaser shall send a written notice (an "Exercise Notice") to
Stockholder specifying the total number of Shares Purchaser wishes to purchase
from the Stockholder and a date, which shall be a Business Day, and a place,
which shall be in the City of New York, for the closing of such purchase (a
"Stock Option Closing").
(c) Upon receipt of an Exercise Notice, Stockholder
shall be obligated to deliver to Purchaser a certificate or certificates
representing the number of Shares specified in such Exercise Notice, in
accordance with the terms of this Agreement, on the later of the date specified
in such Exercise Notice and the first Business Day on which the conditions
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<PAGE> 3
specified in Section 2.3 shall be satisfied. The date specified in such
Exercise Notice may be as early as one day after the date of such Exercise
Notice.
(d) If on the date an Exercise Notice is delivered to
Stockholder, Purchaser is prohibited by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act") or by Applicable Insurance Regulations from purchasing the
number of Shares specified in the Exercise Notice, then Purchaser shall exercise
a Stock Option to purchase such lesser amount that represents the maximum number
of Shares which it is then permitted to purchase by the HSR Act or by Applicable
Insurance Regulations, as the case may be.
(e) For the purposes of this Agreement, the term
"Business Day" shall mean a day on which banks are not required or authorized to
be closed in the City of New York and the term "Applicable Insurance
Regulations" shall mean all laws or regulations applicable to insurance
companies or health maintenance organizations (including, without limitation,
laws or regulations administered by the Office of the Commissioner of Insurance
of the State of Wisconsin (the "OCI") or the Department of Corporations of the
State of California (the "DOC")) under which any filing or registration with or
authorization, consent or approval of, any governmental entity is required by or
with respect to Purchaser, Stockholder or the Company or any of their respective
subsidiaries in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
2.3. Conditions to Delivery of the Shares. The obligation of
Stockholder to deliver the Shares upon any exercise of a Stock Option is subject
to the following conditions:
(a) All waiting periods under the HSR Act applicable
to such exercise of the Stock Option and the delivery of the Shares subject to
such Stock Option in respect of such exercise shall have expired or been
terminated;
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<PAGE> 4
(b) All regulatory or supervisory agency approvals
required by any applicable law, rule or regulation for a Stock Option Closing
(including Applicable Insurance Regulations) shall have been obtained and each
approval shall have become final; and
(c) There shall be no preliminary or permanent
injunction or other order by any court of competent jurisdiction restricting,
preventing or prohibiting such exercise of such Stock Option or the delivery of
the Shares subject to such Stock Option in respect of such exercise.
2.4. Stock Option Closings. At each Stock Option Closing,
Stockholder will deliver to Purchaser a certificate or certificates evidencing
the number of Shares specified in the Exercise Notice delivered to Stockholder
in respect of such Stock Option Closing, each such certificate being duly
endorsed in blank and accompanied by such stock powers and such other documents
as may be necessary in Purchaser's judgment to transfer record ownership of the
Shares into Purchaser's name on the stock transfer books of the Company and
Purchaser will purchase the delivered Shares at the Offer Price. All payments
made by Purchaser to Stockholder pursuant to this Section 2.4 shall be made by
wire transfer of immediately available funds or by certified bank check payable
to Stockholder, in an amount equal to the product of (a) the Offer Price and (b)
the number of Shares specified in the Exercise Notice delivered in respect of
such Stock Option Closing.
2.5. Adjustments Upon Changes in Capitalization. In the
event of any change in the number of issued and outstanding shares of Common
Stock by reason of any stock dividend, subdivision, merger, recapitalization,
combination, conversion or exchange of shares, or any other change in the
corporate or capital structure of the Company (including, without limitation,
the declaration or payment of an extraordinary dividend of cash or securities)
which would have the effect of diluting or otherwise adversely affecting
Purchaser's rights and privileges under this Agreement, the number and kind of
the Shares and the consideration payable in respect of the Shares shall be
appropriately and equitably adjusted to restore to Purchaser its rights and
privileges under this Agreement. Without limiting the scope of the
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<PAGE> 5
foregoing, in any such event, at the option of Purchaser, the Stock Option
shall represent the right to purchase, in addition to the number and kind of
Shares which Purchaser would be entitled to purchase pursuant to the
immediately preceding sentence, whatever securities, cash or other property the
Shares subject to the Stock Option shall have been converted into or otherwise
exchanged for, together with any securities, cash or other property which shall
have been distributed with respect to such Shares.
2.6. Purchaser Sale of Shares. (a) If subsequent to the
exercise of the Stock Option and prior to the Termination Date (as defined in
Section 8), Purchaser (or any affiliate of Purchaser to which the Shares have
been transferred) sells or otherwise in any way disposes of, in whole or in
part, the Shares to a third party (other than an affiliate of Purchaser), in a
transaction in which Purchaser (or its affiliated transferee) receives cash
and/or securities having a value in excess (such excess is hereinafter the
"Excess") of the Offer Price, Purchaser will, promptly after the completion or
sale or other disposition, pay or deliver to Stockholder 50% of the Excess for
each Share sold or otherwise disposed of. The Excess shall be paid, to the
extent Purchaser (or its transferee) received cash, in cash and, to the extent
that Buyer (or its transferee) received securities or other consideration, in
such securities, or other consideration.
(b) The value of such securities or other
consideration shall be determined as of the date of the receipt thereof. If
Purchaser and Stockholder cannot within 15 days of receipt of such securities or
other consideration agree as to its value, the value of such consideration shall
be determined by agreement between two nationally recognized investment banking
firms, one of which will be designated by Purchaser and the other of which will
be designated by Stockholder. Each of Purchaser and Stockholder shall be
responsible for the costs and expenses of the investment banking firm it
designates. If such investment banking firms are unable to agree as to the
value of such securities or other consideration within 30 days after receipt
thereof by Purchaser, such value shall be established by a third investment
banking firm selected by the initial investment banking firms. All costs and
expenses of the third investment banking firm shall be shared equally by
Purchaser and Stockholder.
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<PAGE> 6
3. Representations and Warranties of Lincoln and Stockholder. Each
of Lincoln and Stockholder hereby represents and warrants to Purchaser as
follows:
3.1. Title to the Shares. Stockholder is the owner (both
beneficially and of record) of the Shares (which term as of the date hereof is
comprised of 4,986,507 shares of Common Stock) and Stockholder does not have any
rights of any nature to acquire any additional shares of Common Stock.
Stockholder owns all of the Shares free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Stockholder's voting rights, charges and other encumbrances of
any nature whatsoever, and, except as provided in this Agreement, Stockholder
has not appointed or granted any proxy, which appointment or grant is still
effective, with respect to any of the Shares. Upon the exercise of the Stock
Option and the delivery to Purchaser by Stockholder of a certificate or
certificates evidencing the Shares, Purchaser will receive good, valid and
marketable title to the Shares, free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
Purchaser's voting rights, charges and other encumbrances of any nature
whatsoever.
3.2. Authority Relative to This Agreement. Each of Lincoln
and Stockholder has all necessary power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by each of Lincoln and Stockholder and the consummation by each of Lincoln and
Stockholder of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of each of Lincoln and
Stockholder, respectively. This Agreement has been duly and validly executed
and delivered by each of Lincoln and Stockholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a legal, valid
and binding obligation of each of Lincoln and Stockholder, enforceable against
each of Lincoln and Stockholder in accordance with its terms.
3.3. No Conflict. The execution and delivery of this
Agreement by each of Lincoln and Stockholder does not, and the performance of
this Agreement by each of
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<PAGE> 7
Lincoln and Stockholder will not, (a) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except for (i) requirements of
federal and state securities laws, (ii) requirements arising out of the HSR Act,
and (iii) requirements of Applicable Insurance Regulations, (b) conflict with or
violate the certificate of incorporation or bylaws or equivalent organizational
documents, if any, of Lincoln or Stockholder, (c) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Lincoln or
Stockholder or by which any property or asset of Lincoln or Stockholder is bound
or affected, or (d) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance of any nature
whatsoever on any property or asset of Lincoln or Stockholder pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Lincoln or Stockholder is a
party or by which Lincoln or Stockholder or any property or asset of Lincoln or
Stockholder is bound or affected, except in each case to the extent any such
breach or default, whether taken singly or in the aggregate, would not have a
material adverse effect on Lincoln or Stockholder or its ability to consummate
the transactions contemplated hereby.
3.4. $50 Million Company Promissory Note. Lincoln is the
Designated Holder of that certain $50,000,000 promissory note due December 31,
1996 (the "Note") issued by the Company. ("Designated Holder" shall have the
meaning ascribed thereto in the Note.) Lincoln hereby represents and
acknowledges that Lincoln approves of the transactions contemplated by this
Agreement and the Merger Agreement and that, therefore, such transactions will
not give rise to rights of acceleration under Section 5 of the Note.
3.5. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of Lincoln or Stockholder.
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<PAGE> 8
4. Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to Lincoln and Stockholder as follows:
4.1. Authority Relative to This Agreement. Purchaser has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of
Purchaser. This Agreement has been duly and validly executed and delivered by
Purchaser and, assuming the due authorization, execution and delivery by Lincoln
and Stockholder, constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms.
4.2. No Conflict. The execution and delivery of this
Agreement by Purchaser does not, and the performance of this Agreement by
Purchaser will not, (a) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except for (i) requirements of federal and state securities
laws, (ii) requirements arising out of the HSR Act, and (iii) requirements of
Applicable Insurance Regulations, (b) conflict with or violate the certificate
of incorporation or bylaws or equivalent organizational documents, if any, of
Purchaser, (c) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Purchaser or by which any property or asset of
Purchaser is bound or affected, or (d) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance of any nature whatsoever on any property or asset of Purchaser
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Purchaser
is a party or by which Purchaser or any property or asset of Purchaser is bound
or affected, except in each case to the extent any
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<PAGE> 9
such breach or default, whether taken singly or in the aggregate, would not
have a material adverse effect on Purchaser or its ability to consummate the
transactions contemplated hereby.
4.3. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission from Lincoln or
Stockholder in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Purchaser.
5. Covenants of Lincoln and Stockholder.
5.1. No Disposition or Encumbrance of Shares; No Acquisition
of Shares. (a) Each of Lincoln and Stockholder hereby covenants and agrees
that, except as contemplated by this Agreement, neither Lincoln nor Stockholder
shall, and neither shall offer or agree to, sell, transfer, tender, assign,
hypothecate or otherwise dispose of, or create or permit to exist any security
interest, lien, claim, pledge, option, right of first refusal, agreement,
limitation on Stockholder's voting rights, charge or other encumbrance of any
nature whatsoever with respect to the Shares now owned or that may hereafter be
acquired by Lincoln or Stockholder.
(b) Each of Lincoln and Stockholder hereby covenants
and agrees that it shall not, and shall not offer to agree to, acquire any
additional shares of Common Stock, or options, warrants or other rights to
acquire shares of Common Stock, without the prior written consent of Purchaser.
5.2. No Solicitation of Transactions. (a) Neither Lincoln
nor Stockholder shall, directly or indirectly, through any agent or
representative or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in section 13(d)(3) of the Securities Exchange Act of 1934, as amended),
trust, association or entity or government, political subdivision, agency or
instrumentality of a government (collectively, other than Purchaser and any
affiliate of Purchaser, a "Person") relating to (i) any acquisition or purchase
of all or any of the Shares or (ii) any acquisition or purchase of all or (other
than in the ordinary course of business) any portion of the assets of, or
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<PAGE> 10
any equity interest in, the Company or any of its subsidiaries (each, a
"Subsidiary") or any business combination with the Company or any Subsidiary or
participate in any negotiations regarding, or furnish to any Person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in or facilitate or encourage, any effort or attempt by any
Person to do or seek any of the foregoing. Each of Lincoln and Stockholder
hereby represents that neither it nor its agents or representatives is now
engaged in any discussions or negotiations with any Person with respect to any
of the foregoing.
(b) Paragraph (a) of this Section 5.2 shall not
restrict Stockholder or any officer or director of Stockholder or its affiliates
from otherwise exercising the fiduciary duties owed by such officer or director
to the Company; provided, however, that Lincoln and Stockholder shall notify
Purchaser promptly of any such proposal or offer, or any inquiry or contact with
any Person with respect thereto, (but need not disclose the identity of the
Person making such proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or contact.
5.3. Compliance of Stockholder with This Agreement. Lincoln
covenants and agrees that it shall cause Stockholder to take all actions and
forbear from all actions, in each case, necessary in order that (a) all of
Stockholder's representations and warranties hereunder are true and correct and
(b) Stockholder fulfills all of its obligations hereunder.
6. Covenants and Acknowledgment of Purchaser.
6.1. No Exercise of Stock Option During Tender Offer.
Purchaser hereby covenants and agrees that, during the pendency of the Offer,
Purchaser shall not exercise the Stock Option.
6.2. Purchaser hereby acknowledges and agrees that if the
Offer Price for the Offer is increased, Stockholder shall be entitled to tender
and sell to Purchaser pursuant to the Offer all of the Shares at the increased
Offer Price.
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<PAGE> 11
7. Voting Agreement; Proxy of Stockholder.
7.1. Voting Agreement. Each of Lincoln and Stockholder
hereby agrees that, during the time this Agreement is in effect, at any meeting
of the stockholders of the Company, however called, and in any action by written
consent of the stockholders of the Company, Stockholder shall (a) vote all of
the Shares in favor of the Merger, the Merger Agreement (as amended from time to
time) and any of the transactions contemplated by the Merger Agreement; (b) vote
the Shares against any action or agreement that would result in a breach in any
material respect of any covenant, representation or warranty or any other
obligation of the Company under the Merger Agreement; and (c) vote the Shares
against any action or agreement that would impede, interfere with or attempt to
discourage the Offer or the Merger, including, but not limited to: (i) any
extraordinary corporate transaction (other than the Merger), such as a merger,
reorganization, recapitalization or liquidation involving the Company or any
Subsidiary; (ii) a sale or transfer of a material amount of assets of the
Company or any Subsidiary; (iii) any change in the management or board of
directors of the Company, except as otherwise agreed to in writing by Purchaser;
(iv) any material change in the present capitalization or dividend policy of the
Company; or (v) any other material change in the Company's corporate structure
or business.
7.2. Irrevocable Proxy. Each of Lincoln and Stockholder
agrees that, in the event Stockholder shall fail to comply with the provisions
of Section 7.1 hereof as determined by Purchaser in its sole discretion, such
failure shall result, without any further action by Stockholder, in the
irrevocable appointment of Purchaser as the attorney and proxy of Stockholder
pursuant to the provisions of section 212 of the DGCL, with full power of
substitution, to vote, and otherwise act (by written consent or otherwise) with
respect to all shares of Common Stock, including the Shares, that Stockholder is
entitled to vote at any meeting of stockholders of the Company (whether annual
or special and whether or not an adjourned or postponed meeting) or consent in
lieu of any such meeting or otherwise, on the matters and in the manner
specified in Section 7.1 hereof. THIS PROXY AND POWER OF
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ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Stockholder hereby
revokes, effective upon the execution and delivery of the Merger Agreement by
the parties thereto, all other proxies and powers of attorney with respect to
the Shares that Stockholder may have heretofore appointed or granted, and no
subsequent proxy or power of attorney (except in furtherance of Stockholder's
obligations under Section 7.1 hereof) shall be given or written consent executed
(and if given or executed, shall not be effective) by Stockholder with respect
thereto so long as this Agreement remains in effect.
8. Termination. Other than the Stock Option, the termination which
shall be governed by Section 2.2(a), this Agreement shall terminate on the date
(the "Termination Date") that is the earlier of
(i) the date upon which the Effective Date occurs and
(ii) (A) if the Merger Agreement is terminated
(I) by the Company in accordance section
9.1(b)(iii), 9.1(b)(iv) or 9.1(d)(ii) thereof,
(II) (a) by the Company in accordance with
section 9.1(b)(i) thereof, (b) no Acquisition
Proposal (as defined in the Merger Agreement)
shall be pending or shall have been proposed or
announced and (c) the Company shall not have
exercised its rights set forth in the proviso of
section 6.2 of the Merger Agreement,
(III) by the Parent in accordance with
Section 9.1(c)(ii) or 9.1(d)(ii) thereof,
(IV) by the Parent and the Company in
accordance with section 9.1(a) thereof, or
(V) (a) by the Company or the Parent
in accordance with Section 9.1(d)(i) thereof
and (b) no Acquisition Proposal shall be
pending or shall have been proposed or announced
and (c) the Company shall not have exercised
its rights set forth in the proviso of section
6.2 of the Merger Agreement,
the date of the termination of the Merger Agreement or
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(B) if the Merger Agreement is otherwise terminated in accordance
with section 9.1 of the Merger Agreement, the date four months after the date of
the termination of the Merger Agreement. Notwithstanding the foregoing, if (x)
the Merger Agreement has been terminated in a manner described in clause (ii)(B)
of this Section 8 and (y) on the date four months after the date of termination
of the Merger Agreement the Company shall be a party to an agreement with a
party, other than Purchaser (or an affiliate of Purchaser), that contemplates a
merger, acquisition, consolidation or similar transaction involving the Company
or any of "significant subsidiaries" (as defined in 17 C.F.R. Section
210.01-02), or any purchase of all or any significant portion of the assets or
any equity securities of the Company or any of such significant subsidiaries,
then the Termination Date shall be the date nine months after the date of
termination of the Merger Agreement.
9. Miscellaneous.
9.1. Expenses. Except as otherwise provided herein, all
costs and expenses incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses.
9.2. Further Assurances. Lincoln, Stockholder and Purchaser
will execute and deliver all such further documents and instruments and take all
such further action as may be necessary in order to consummate the transactions
contemplated hereby.
9.3. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
9.4. Entire Agreement. This Agreement constitutes the entire
agreement between Lincoln, Purchaser and Stockholder with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, between Lincoln, Purchaser and Stockholder with respect to the
subject matter hereof.
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9.5. Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that Purchaser may assign all or any of
its rights and obligations hereunder to any affiliate of Purchaser, provided
that no such assignment shall relieve Purchaser of its obligations hereunder if
such assignee does not perform such obligations.
9.6. Parties in Interest. This Agreement shall be binding
upon, inure solely to the benefit of, and be enforceable by, the parties hereto
and their successors and permitted assigns. Nothing in this Agreement, express
or implied, is intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
9.7. Amendment; Waiver. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto. Any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any agreement or condition contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
9.8. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
9.9. Notices. Except as otherwise provided herein, all
notices, requests, claims, demands and other communications hereunder shall be
in writing and shall be given (and
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<PAGE> 15
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, facsimile transmission, telegram or telex or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 9.9):
if to Purchaser:
Humana Inc.
The Humana Building
500 West Main Street
P.O. Box 1438
Louisville, Kentucky 40201-1438
Attention: W. Roger Drury
Chief Financial Officer
Facsimile: (502) 580-3610
Telephone (502) 580-3923
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Jeffrey Bagner, Esq.
Facsimile: (212) 859-4000
Telephone: (212) 859-8136
if to Lincoln:
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802-2706
Attention: John L. Steinkamp, Esq.
Facsimile: (219) 455-4531
Telephone: (219) 455-3628
if to Stockholder:
American States Insurance Company
500 North Meridian Street
Indianapolis, Indiana 46204-1275
Attention: Thomas Ober
Facsimile: (317) 262-6616
Telephone: (317) 262-6262
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<PAGE> 16
with a copy of all communications to Lincoln or Stockholder to:
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Attention: David A. Massey, Esq.
Facsimile: (202) 637-3593
Telephone: (202) 383-0100
9.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in New York without regard to any
principles of choice of law or conflicts of law of such state. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any state or federal court sitting in the City of New York.
9.11. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
9.12. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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<PAGE> 17
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
HUMANA INC.
By: /S/ ARTHUR P. HIPWELL
-----------------------------------------
Name: Arthur P. Hipwell
Title: Senior Vice President
LINCOLN NATIONAL CORPORATION
By: /S/ IAN M. ROLLAND
-----------------------------------------
Name: Ian M. Rolland
Title: Chairman & CEO
AMERICAN STATES INSURANCE COMPANY
By: /S/ F. CEDRIC MCCURLEY
-----------------------------------------
Name: F. Cedric McCurley
Title: President & CEO
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<PAGE> 1
[LETTERHEAD]
August 16, 1995
Dear Fellow Shareholder:
I am pleased to inform you that EMPHESYS Financial Group, Inc. has entered
into an agreement and plan of merger with Humana Inc., pursuant to which a
wholly owned subsidiary of Humana has commenced a tender offer to purchase all
of the outstanding shares of EMPHESYS for $37.50 per share in cash. Under the
agreement, consummation of the tender offer will be followed by a merger in
which non-tendering shareholders will receive $37.50 per share in cash or the
highest price paid per share pursuant to the tender offer and EMPHESYS will
become a wholly owned subsidiary of Humana.
The Board of Directors of EMPHESYS has determined that the Humana tender
offer and the merger are fair to and in the best interests of EMPHESYS and its
shareholders and recommends that shareholders accept the Humana offer and tender
their shares pursuant to it.
Enclosed are the Humana Offer to Purchase, dated August 16, 1995, Letter of
Transmittal and other related documents. These documents set forth the terms and
conditions of the tender offer. Attached is a copy of the Company's Schedule
14D-9, as filed with the Securities and Exchange Commission. The Schedule 14D-9
describes in more detail the reasons for the Board's conclusions and contains
other important information relating to the tender offer. We urge you to
consider this information carefully.
The Board of Directors and the management and employees of EMPHESYS thank
you for your support.
Sincerely,
[Sig.]
William J. Lawson
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT 6
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(212) 703-4000
August 8, 1995
Board of Directors
EMPHESYS Financial Group, Inc.
1100 Employers Boulevard
Green Bay, WI 54344
Members of the Board:
We understand that EMPHESYS Financial Group, Inc. ("EMPHESYS" or the "Company"),
Humana, Inc. ("Humana") and HEW, Inc., a wholly owned subsidiary of Humana
("Humana Sub"), propose to enter into an Agreement and Plan of Merger
substantially in the form of the draft dated August 7, 1995 (the "Merger
Agreement"), which provides, among other things, for (i) the commencement by
Humana Sub of a tender offer (the "Tender Offer") for all issued and outstanding
shares of common stock, par value $0.01 per share (the "Common Stock") of
EMPHESYS for $37.50 per share net to the seller in cash, and (ii) the subsequent
merger (the "Merger") of Humana Sub with and into the Company. Pursuant to the
Merger, EMPHESYS will become a wholly owned subsidiary of Humana and each issued
and outstanding share of Common Stock, other than shares held in treasury or
held by Humana and its affiliates or as to which dissenters' rights have been
perfected, will be converted into the right to receive $37.50 per share in cash.
The terms and conditions of the Tender Offer and the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of Common Stock pursuant to the Merger Agreement is fair
from a financial point of view to such holders (other than Humana and its
affiliates).
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company;
(ii) analyzed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
(iii) analyzed certain financial projections for 1995, 1996 and 1997 fiscal
years prepared by the management of the Company;
(iv) discussed the results of the first and second quarter of 1995, the past
and current operations, financial condition and the prospects of the
Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other comparable
publicly traded companies and their securities;
<PAGE> 2
MORGAN STANLEY
EMPHESYS Financial Group, Inc.
August 8, 1995
Page 2
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives of the
Company, Humana, and their financial and legal advisors;
(ix) reviewed the Merger Agreement dated August 7, 1995 and certain related
documents; and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the Company's financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation or appraisal of the assets
and liabilities of the Company, nor have we been furnished with such appraisal.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of EMPHESYS in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financial services for the Company and Humana and have
received fees for the rendering of these services.
Although Morgan Stanley reviewed the stock option and voting agreement entered
into between Lincoln National Corporation ("LNC") and Humana, we did not
represent LNC in this transaction, nor did we participate in the negotiation
between LNC and Humana.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent. In addition, we express no opinion and make no
recommendation as to whether or not holders of Common Stock elect to tender his
or her shares pursuant to the Tender Offer.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock pursuant
to the Merger Agreement is fair from a financial point of view to such holders
(other than Humana and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Charles R. Cory
Charles R. Cory
Managing Director
