UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE
14D-9
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
Surgical Care Affiliates, Inc.
(Name of Subject Company)
Surgical Care
Affiliates, Inc.
(Name of Person(s) Filing Statement)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
86881L106
(CUSIP Number
of Common Stock)
Andrew P. Hayek
Chairman, President and Chief Executive Officer
Surgical Care Affiliates, Inc.
510 Lake Cook Road, Suite 400
Deerfield, Illinois 60015
(847)
236-0921
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on
Behalf of the Person(s) Filing Statement)
With
copies to:
Paul J. Shim, Esq.
James E. Langston, Esq.
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New
York, New York 10006
(212)
225-2000
☐
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Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
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TABLE OF CONTENTS
Item 1.
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Subject Company Information.
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(a) Name and Address.
The name of the subject company is Surgical Care Affiliates, Inc., a Delaware corporation (the Company). The address of the
Companys principal executive offices is 510 Lake Cook Road, Suite 400, Deerfield, Illinois 60015, and the telephone number of its principal executive offices is (847)
236-0921.
(b) Securities.
The title of the class
of equity securities to which this Solicitation/Recommendation Statement on Schedule
14D-9
(this Schedule
14D-9)
relates is the Companys common stock,
par value $0.01 per share (the Shares and each, a Share). As of February 15, 2017, there were 40,605,430
Shares issued and outstanding.
Item 2.
|
Identity and Background of Filing Person.
|
(a) Name and Address.
The name, business address and business telephone number of the Company, which is the person filing this Schedule
14D-9
and the subject company, are set forth in Item 1(a) above.
(b) Tender Offer.
This Schedule
14D-9
relates to the exchange offer by Spartan Merger Sub 1, Inc., a Delaware corporation
(Purchaser) and an indirect wholly owned subsidiary of UnitedHealth Group Incorporated, a Delaware corporation (Parent or UnitedHealth Group), to acquire all of the outstanding Shares. Upon the terms and subject
to the conditions set forth in the Prospectus/Offer to Exchange, dated February 21, 2017 (the Prospectus/Offer to Exchange), and in the related Letter of Transmittal (the Letter of Transmittal which, together with the
Prospectus/Offer to Exchange, and together with any amendments or supplements thereto, constitutes the Offer), each Share validly tendered and not properly withdrawn will be exchanged for consideration in the form of:
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i.
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$11.40 in cash, without interest and less any applicable withholding taxes (the Default Cash Consideration); and
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ii.
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a number of shares of UnitedHealth Group common stock, par value $0.01 per share, equal to (a) $45.60 divided by (b) the volume weighted average of the closing sale prices per share of UnitedHealth Group common
stock on the New York Stock Exchange on each of the five full consecutive trading days ending on and including the third business day prior to the final expiration date of the Offer (the UnitedHealth Group Trading Price), together with
cash in lieu of any fractional shares of UnitedHealth Group common stock, without interest and less any applicable withholding taxes (the Default Stock Consideration).
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In lieu of delivering the Default Cash Consideration and the Default Stock Consideration, UnitedHealth Group may, by providing written notice to the Company
no later than 5:00 p.m. New York City time, on the tenth business day prior to the final expiration date of the Offer, deliver (i) an amount in cash greater than the Default Cash Consideration and not to exceed $27.93 per Share, without
interest and less any applicable withholding taxes (the Alternative Cash Consideration, and each of the Alternative Cash Consideration and the Default Cash Consideration, as applicable, being referred to herein as the Cash
Consideration), and (ii) a number of shares of UnitedHealth Group common stock equal to (a) $57.00 minus the Alternative Cash Consideration, divided by (b) the UnitedHealth Group Trading Price, together with cash in lieu of any
fractional shares of UnitedHealth Group common stock, without interest and less any applicable withholding of taxes (the stock consideration calculated in accordance with this clause (ii), the Alternative Stock Consideration, each of the
Alternative Stock Consideration and the Default Stock Consideration, as applicable, being referred to herein as the Stock Consideration, and the applicable Stock Consideration and the applicable Cash Consideration together being referred
to herein as the Transaction Consideration).
1
The Offer is described in a Tender Offer Statement on Schedule TO (as amended or supplemented
from time to time, the Schedule TO) filed by UnitedHealth Group and Purchaser with the U.S. Securities and Exchange Commission (the SEC) on February 21, 2017 and in the Prospectus/Offer to Exchange, which is part of a
Registration Statement on Form
S-4
filed by UnitedHealth Group with the SEC on February 21, 2017. The Prospectus/Offer to Exchange and the Letter of Transmittal have been filed as Exhibits (a)(1)(A)
and
(a)(1)(B)
hereto, respectively.
The Offer is being made pursuant to the Agreement and Plan of Reorganization, dated as
of
January 7, 2017, by and among UnitedHealth Group, Purchaser,
Spartan Merger Sub 2, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of UnitedHealth Group (Merger Sub 2) and the Company (the
Merger Agreement). The Merger Agreement has been filed herewith as Exhibit (e)(1) and is incorporated herein by reference. The Merger Agreement is summarized under the caption
Merger Agreement
of the Prospectus/Offer
to Exchange.
The Merger Agreement provides that, among other things, subject to the satisfaction or waiver of certain conditions,
following completion of the Offer, and in accordance with the General Corporation Law of the State of Delaware (the DGCL), Purchaser will be merged with and into the Company (the First Merger), with the Company continuing as
the surviving corporation (the First Surviving Corporation) as a wholly owned subsidiary of UnitedHealth Group. Because the First Merger will be governed by Section 251(h) of the DGCL (DGCL Section 251(h)), no stockholder
vote will be required to consummate the First Merger. At the effective time of the First Merger (the Effective Time), each outstanding Share (other than (i) Shares owned by UnitedHealth Group, Purchaser or any direct or indirect
wholly owned subsidiary of UnitedHealth Group or any Shares held by the Company as treasury stock, or (ii) Shares that are held by any stockholder who is entitled to demand and properly demands appraisal pursuant to, and who complies in all
respects with the provisions of, Section 262 of the DGCL (DGCL Section 262) with respect to such Shares) will be converted into the right to receive the Transaction Consideration from Purchaser.
Immediately following the First Merger, the First Surviving Corporation will merge with and into Merger Sub 2, with Merger Sub 2 surviving
such second merger (the Second Merger, together with the First Merger, the Mergers, and Merger Sub 2 thereafter, the Surviving Company). As a result of the Second Merger, the Surviving Company will be converted
from a corporation into a limited liability company. It is intended that the Offer and the Mergers, taken together, will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the Code). Please read the discussion under the caption
Material U.S. Federal Income Tax Consequences
in the Prospectus/Offer to Exchange.
UnitedHealth Group formed Purchaser and Merger Sub 2 in connection with the Merger Agreement, the Offer and the Mergers. The Schedule TO
states that the principal executive offices of each of UnitedHealth Group, Purchaser and Merger Sub 2 are located at 9900 Bren Road East, Minnetonka, Minnesota 55343, and the telephone number of their principal executive offices is (952)
936-1300.
The Offer and withdrawal rights will expire at 12:01 a.m., New York City time, on Tuesday,
March 21, 2017, subject to extension in certain circumstances as required or permitted by the Merger Agreement, the SEC or applicable law.
The foregoing summary of the Offer is qualified in its entirety by the more detailed description and explanation contained in the
Prospectus/Offer to Exchange.
Information relating to the Offer, including this Schedule
14D-9
and related documents, can be found on the SECs website, www.sec.gov, or on the Companys website at www.scasurgery.com. UnitedHealth Group and Purchaser have filed the Schedule TO and the Prospectus/Offer to Exchange on the SECs
website.
2
Item 3.
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Past Contacts, Transactions, Negotiations and Agreements.
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Conflicts of Interest
Except as set forth in this Schedule
14D-9
or in the excerpts from the Companys 2016 Definitive
Proxy Statement, dated April 22, 2016 (the 2016 Proxy Statement), filed as Exhibit (e)(3)
to this Schedule
14D-9
(and incorporated by reference into this Item 3), as of the date of this
Schedule
14D-9,
to the knowledge of the Company, there are no material agreements, arrangements or understandings or actual or potential conflicts of interest between the Company or its affiliates and
(i) its executive officers, directors or affiliates, or (ii) UnitedHealth Group, Purchaser or their respective executive officers, directors or affiliates. For further information with respect to these matters, see the 2016
Proxy
Statement under the headings:
Security Ownership of Certain Beneficial Owners and Management
;
Executive Officer and Director Compensation
;
Summary Compensation Table
;
Grants of
Plan-Based Awards During 2015
;
Outstanding Equity Awards at December
31, 2015
;
Options Exercised and Stock Vested During 2015
;
Equity Compensation Plans
;
2007 Option Plan
;
Pre-IPO
Stand-Alone RSU Grant
;
2013 Omnibus Plan
;
Teammate Stock Purchase Plan
;
Potential Payments Upon
Termination of Employment or
Change-in-Control
;
Director Compensation
; and
Certain Relationships and Related Person
Transactions
.
(a) Arrangements with Current Executive Officers, Directors and Affiliates of the Company.
The following is a discussion of all material agreements, arrangements, understandings and any actual or potential conflicts of interest
between the Company and its executive officers, directors and affiliates that relate to the Offer and the Mergers.
Interests of Certain Persons
Certain members of management and the Companys board of directors (the Company Board) may be deemed to have
certain interests in the Offer and Mergers that are different from or in addition to the interests of the Companys stockholders generally. The Company Board was aware of these interests and considered that such interests may be different from
or in addition to the interests of the Companys stockholders generally, among other matters, in determining to approve the Offer and the Mergers.
For further information with respect to the golden parachute compensation arrangements of the Companys named executive
officers, see
Item 8. Additional InformationGolden Parachute Compensation
, which is incorporated herein by reference.
Consideration for Shares, Company Stock Options, Company RSU Awards and Company Performance Share Awards in Connection with the Offer and the Mergers
Consideration for Shares
If
the directors and executive officers of the Company who own Shares tender their Shares for purchase pursuant to the Offer, they will receive the same consideration for their Shares on the same terms and conditions as the other stockholders of the
Company who tender their Shares for purchase pursuant to the Offer. As agreed by UnitedHealth Group under the terms of the Merger Agreement, if the First Merger is consummated, any Shares held of record or beneficially owned by a director or
executive officer that are not tendered into the Offer will be converted into the right to receive the Transaction Consideration at the Effective Time.
The approximate value of the cash payments and the number of shares of UnitedHealth Group common stock that each director and executive
officer of the Company would receive in exchange for his or her Shares in the Offer if they were to tender their Shares is set forth in the table below. Pursuant to the Merger Agreement, each holder of a Share who would otherwise be entitled to
receive a fraction of a share of UnitedHealth Group common stock under the Merger Agreement in respect of a Share will be paid an amount in cash (without
3
interest) determined by multiplying (i) the UnitedHealth Group Trading Price, rounded to the nearest
one-hundredth
of a cent by (ii) the fraction
of a share (after aggregating all Shares held by such stockholder and accepted for payment by Purchaser pursuant to the Offer or otherwise held by such stockholder at the Effective Time, as applicable, and rounded to the nearest one thousandth when
expressed in decimal form) of UnitedHealth Group common stock to which such stockholder would otherwise be entitled. The information set forth in the table below is based on the number of Shares held by the Companys directors and executive
officers as of February 15, 2017, and an assumed UnitedHealth Group Trading Price of $160.50 (which is the volume weighted average of the closing sale prices per share of UnitedHealth Group common stock on the New York Stock Exchange on each of
the five full consecutive trading days ending on and including the third business day prior to the hypothetical closing date of February 15, 2017), for the calculation of the value of the applicable Stock Consideration and cash in lieu of
fractional shares. The amounts set forth in the table below are as calculated before any taxes that may be due on such amounts are paid.
Consideration
for Shares Received by Executive Officer or Director Default Stock Consideration (1)
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Name of Executive
Officer or
Director
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Number
of
Shares
Owned
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Number of
Shares of
UnitedHealth
Group
Common Stock
Received
for
Shares Owned
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Cash
Consideration
for
Shares
Owned ($)(2)
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Total Value
Received for
Shares Owned
($)(3)
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Andrew P. Hayek
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67,656
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19,221
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$
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771,421.50
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$
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3,856,392
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Thomas C. Geiser
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69,783
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19,826
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$
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795,558
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$
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3,977,631
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Kenneth R. Goulet
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Frederick A. Hessler
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15,000
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4,261
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$
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171,109.50
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$
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855,000
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Sharad Mansukani
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Jeffrey K. Rhodes
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Michael A. Sachs
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Todd B. Sisitsky
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Lisa Skeete Tatum
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Joseph T. Clark
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15,880
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4,511
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$
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181,144.50
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$
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905,160
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Tom W.F. De Weerdt
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5,772
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1,639
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$
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65,944.50
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$
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329,004
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Michael A. Rucker
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41,265
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11,723
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$
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470,563.50
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$
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2,352,105
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Richard L. Sharff, Jr.
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9,076
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2,578
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$
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103,563
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$
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517,332
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(1)
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The table sets forth the approximate number of shares of UnitedHealth Group common stock and the value of the
pre-tax
cash payments, if any, that each director and executive
officer of the Company would receive in exchange for his or her Shares in the Offer if they were to tender their Shares, assuming UnitedHealth Group does not elect to decrease the Stock Consideration pursuant to the Merger Agreement.
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(2)
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Includes cash for fractional shares of UnitedHealth Group common stock, calculated based on an assumed UnitedHealth Group Trading Price of $160.50 (which is the volume weighted average of the closing sale prices per
share of UnitedHealth Group common stock on the New York Stock Exchange on each of the five full consecutive trading days ending on and including the third business day prior to the hypothetical closing date of February 15, 2017).
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(3)
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Includes the aggregate value of the UnitedHealth Group common stock to be exchanged for Shares owned.
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Settlement of Certain Restricted Stock Units
Certain fully vested Company RSUs held by Messrs. Hayek, Geiser, Hessler and Sachs, Ms. Skeete Tatum and Dr. Mansukani will settle in
Shares as a result of the transactions described herein, pursuant to the terms of such awards, and Messrs. Hayek, Geiser, Hessler and Sachs, Ms. Skeete Tatum and Dr. Mansukani will receive the Transaction Consideration with a
pre-tax
value of $3,892,644, $418,950, $264,366, $59,223, $188,898 and $418,950 respectively in exchange for such Shares at the Effective Time, upon the same terms and conditions as the other stockholders of the
Company.
4
In addition, in connection with the transactions described herein, our directors will cease to be
directors of the Company and as a result, any outstanding and unvested Company RSUs held by them will become vested and settled. Messrs. Geiser, Goulet, Hessler, and Sachs, Ms. Skeete Tatum and Dr. Mansukani will receive the Transaction
Consideration with a
pre-tax
value of $180,120, $113,601, $180,120, $183,597, $180,120 and $180,120, respectively, in respect of those Shares. Any Company RSUs to be granted to our directors in 2017 prior to,
and that remain outstanding and unvested at the time of, the consummation of the transactions contemplated herein will also become vested and settled in connection with the transactions described herein, as noted below.
As part of the Companys regular annual equity grant practices, our executive officers and directors will receive their ordinary course
grants in the first quarter of 2017, substantially on the same terms and conditions as applied to their awards in 2016, including with respect to additional vesting in the event of a termination related to a change in control. As a result of the
fact that the Company RSUs granted to certain of our directors are expected to vest as a result of the transaction, the value of the directors grants are expected to be reduced in 2017. As of the date hereof, these awards have not been granted
to our executive officers and directors, and these award amounts are not reflected in the disclosure herein.
Consideration for Shares Received by
Executive Officer or Director in respect of the Settlement of Certain Company RSUs Default Stock Consideration (1)
The
following table sets forth Company RSU information related to the payments expected to be made to certain directors and executive officers of the Company in exchange for settlement of certain Company RSUs, as described above. The amounts listed
below are estimates based on (i) an assumed closing date of February 15, 2017, (ii) equity award holdings as of such date and (iii) the per share Transaction Consideration payable for each Share underlying each such settling Company
RSU (calculated based on an assumed price per share of UnitedHealth Group common stock of $160.50, which is the volume weighted average of the closing sale prices per share of UnitedHealth Group common stock on the New York Stock Exchange on each of
the five full consecutive trading days ending on and including the third business day prior to the hypothetical closing date of February 15, 2017).
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Name of Executive
Officer or
Director
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Number of
Company
RSUs to be
Settled in
Shares
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Number of
Shares of
UnitedHealth
Group
Common Stock
Received
for
Shares in
respect of
Settling
Company
RSUs
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Cash
Consideration
for
Shares
in respect of
Settling
Company
RSUs ($)(2)
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Total Value
Received for
Shares in
respect of
Settling
Company
RSUs
($)(3)
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Andrew P. Hayek
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68,292
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19,402
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$
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778,623
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$
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3,892,644
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Thomas C. Geiser
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10,510
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2,986
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$
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119,817
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$
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599,070
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Kenneth R. Goulet
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1,993
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566
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$
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22,758
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$
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113,601
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Frederick A. Hessler
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7,798
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2,215
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$
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88,978.50
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$
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444,486
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Sharad Mansukani
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10,510
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2,986
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$
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119,817
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$
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599,070
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Jeffrey K. Rhodes
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Michael A. Sachs
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4,260
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1,210
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$
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48,615
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$
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242,820
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Todd B. Sisitsky
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Lisa Skeete Tatum
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6,474
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1,839
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$
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73,858.50
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$
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369,018
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Joseph T. Clark
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Tom W.F. De Weerdt
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Michael A. Rucker
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Richard L. Sharff, Jr.
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5
(1)
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The table sets forth the approximate number of shares of UnitedHealth Group common stock and the value of the
pre-tax
cash payments, if any, that each director and executive
officer of the Company would receive in exchange for his or her Shares received in respect of the settlement of certain Company RSUs, as described above, in the Offer if they were to tender their Shares, assuming UnitedHealth Group does not elect to
decrease the Stock Consideration pursuant to the Merger Agreement.
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(2)
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Includes cash for fractional shares of UnitedHealth Group common stock, calculated based on an assumed UnitedHealth Group Trading Price of $160.50 (which is the volume weighted average of the closing sale prices per
share of UnitedHealth Group common stock on the New York Stock Exchange on each of the five full consecutive trading days ending on and including the third business day prior to the hypothetical closing date of February 15, 2017).
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(3)
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Includes the aggregate value of the UnitedHealth Group common stock to be exchanged for Shares received in respect of the settlement of certain Company RSUs, as described above.
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Treatment of Company Stock Options, Company RSUs & Company PSAs
Under the terms of the Merger Agreement, outstanding equity-based awards held by our executive officers and directors will not participate in
the Offer. Pursuant to the Merger Agreement, each option to purchase Shares that is outstanding immediately prior to the Effective Time will be cancelled and converted into an option to purchase a number of shares of UnitedHealth Group common stock
(rounded down to the nearest whole number) equal to the product of (x) the number of Shares subject to such option and (y) $57.00 divided by the UnitedHealth Group Trading Price (the Equity Award Conversion Ratio), at an exercise
price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per Share of such option immediately prior to the Effective Time divided by (B) the Equity Award Conversion Ratio. Each Company restricted stock unit
(Company RSU) outstanding immediately prior to the Effective Time will be cancelled and converted into a restricted stock unit denominated in shares of UnitedHealth Group common stock (UnitedHealth Group RSU). The number of
shares of UnitedHealth Group common stock subject to each UnitedHealth Group RSU will be equal to the product of (x) the number of Shares subject to such Company RSU immediately prior to the Effective Time and (y) the Equity Award
Conversion Ratio, rounded down to the nearest whole share. Each Company performance share award (Company PSA) that is outstanding as of the Effective Time will be cancelled and converted into a performance share award denominated in
shares of UnitedHealth Group common stock (UnitedHealth Group PSA). The number of shares of UnitedHealth Group common stock subject to each UnitedHealth Group PSA will be equal to the product of (x) the number of Shares subject to
such Company PSA immediately prior to the Effective Time, multiplied by (y) the Equity Award Conversion Ratio, rounded down to the nearest whole share. The awards will otherwise continue to be subject to the terms and conditions applicable to
the awards immediately prior to the Effective Time (including with respect to vesting and forfeiture), except that the post-change in control protection period, during which an individual whose employment is terminated by the Company without
cause would benefit from accelerated vesting, is extended from two years to four years.
6
The approximate number of shares of UnitedHealth Group common stock that will underlie the
UnitedHealth Group Stock Options, and UnitedHealth Group RSUs and UnitedHealth Group PSAs that each director and executive officer of the Company will receive in exchange for his or her Company Stock, and Company RSUs and Company PSAs that remain
outstanding as of the Effective Time is set forth in the table below. This information is based on the number of Company Stock Options, Company RSUs and Company PSAs held by the Companys directors and executive officers as of February 15,
2017 and an assumed UnitedHealth Group Trading Price of $160.50 (which is the volume weighted average of the closing sale prices per share of UnitedHealth Group common stock on the New York Stock Exchange on each of the five full consecutive trading
days ending on and including the third business day prior to the hypothetical closing date of February 15, 2017) for the calculation of the Equity Award Conversion Ratio.
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Name of Executive Officer or
Director
|
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Number of
Shares
Subject to
Company
Stock Options
(#)
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Number of
Shares of
UnitedHealth
Group
Common
Stock
Subject to
UnitedHealth
Group Stock
Options
Received for
Company
Stock
Options
(#)(1)
|
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Total Value of
Company Stock
Options ($)
|
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Number of
Shares
Subject to
Company
RSUs and
PSAs
(#)(3)
|
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Number of
Shares of
UnitedHealth
Group
Common
Stock
Subject to
UnitedHealth
Group RSUs
Received for
Company
RSUs and
PSAs
(#)(1)(2)
|
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Total Value of
Company
RSUs and
PSAs ($)
|
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Andrew P. Hayek
|
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572,724
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203,397
|
|
|
$
|
20,930,236.53
|
|
|
|
216,689
|
|
|
|
76,954
|
|
|
$
|
12,351,273
|
|
Thomas C. Geiser
|
|
|
20,661
|
|
|
|
7,337
|
|
|
$
|
937,559.70
|
|
|
|
10,510
|
|
|
|
|
|
|
$
|
599,070
|
|
Kenneth R. Goulet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,993
|
|
|
|
|
|
|
$
|
113,601
|
|
Frederick A. Hessler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,798
|
|
|
|
|
|
|
$
|
444,486
|
|
Sharad Mansukani
|
|
|
9,921
|
|
|
|
3,523
|
|
|
$
|
445,452.90
|
|
|
|
10,510
|
|
|
|
|
|
|
$
|
599,070
|
|
Jeffrey K. Rhodes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Sachs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,260
|
|
|
|
|
|
|
$
|
242,820
|
|
Todd B. Sisitsky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa Skeete Tatum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,474
|
|
|
|
|
|
|
$
|
369,018
|
|
Joseph T. Clark
|
|
|
148,129
|
|
|
|
52,606
|
|
|
$
|
5,026,183.45
|
|
|
|
43,303
|
|
|
|
15,378
|
|
|
$
|
2,468,271
|
|
Tom W.F. De Weerdt
|
|
|
13,792
|
|
|
|
4,898
|
|
|
$
|
217,224
|
|
|
|
30,083
|
|
|
|
10,683
|
|
|
$
|
1,714,731
|
|
Michael A. Rucker
|
|
|
301,107
|
|
|
|
106,935
|
|
|
$
|
11,490,507.51
|
|
|
|
53,570
|
|
|
|
19,024
|
|
|
$
|
3,053,490
|
|
Richard L. Sharff, Jr.
|
|
|
99,377
|
|
|
|
35,292
|
|
|
$
|
3,324,795.79
|
|
|
|
30,312
|
|
|
|
10,765
|
|
|
$
|
1,727,784
|
|
(1)
|
These awards are being assumed as a result of the contemplated transaction and will remain outstanding, on their original terms (including with respect to vesting and forfeiture), except that the shares underlying the
awards will be UnitedHealth Group Shares, adjusted by the Equity Conversion Ratio, and the double-trigger protection period has been extended from 2 years to 4 years.
|
(2)
|
As described above, outstanding Company RSUs held by our directors will vest and be settled in Shares as a result of the transaction, immediately prior to the Effective Time. As a result, these awards will not be
assumed, and the directors will receive the Transaction Consideration in respect of those Shares.
|
(3)
|
The Company PSAs are reported based on the target number of performance shares subject to the award. The award will be settled with respect to a range between 0% and 120% of the target number of performance shares
granted based on a determination of the Companys attainment of its Adjusted
EBITDA-NCI
target in 2018 and system-wide operating revenues target (as defined in the award agreement) in 2018.
|
Treatment of the Companys Teammate Stock Purchase Plan
Except for the
six-month
offering period under the Companys Teammate Stock Purchase Plan (the
TSPP) that commenced on January 1, 2017 (the Final Offering), no offering period will be authorized or
7
commenced on or after the date of the Merger Agreement. If, with respect to the Final Offering, the Effective Time occurs prior to June 30, 2017 (which is the Purchase Date as
defined in the TSPP), (i) each individual participating in the Final Offering will receive notice of the transactions contemplated by the Merger Agreement and will have an opportunity to terminate his or her outstanding purchase rights under the
TSPP, (ii) the Final Offering will end prior to the Effective Time, and (iii) any remaining accumulated but unused payroll deductions will be distributed to the relevant participants without interest as promptly as practicable following
such termination. Each TSPP participants accumulated contributions under the TSPP will be used to purchase Shares in accordance with the TSPP as of the end of the Final Offering (subject to the provisions of the TSPP regarding the maximum
number and value of Shares purchasable per participant). The applicable purchase price for Shares will not be decreased below the levels set forth in the TSPP as of the date of the Merger Agreement. No individual will be permitted to increase his or
her rate of contribution under the TSPP following the date of the Merger Agreement. The TSPP will terminate in its entirety prior to the Effective Time and no further rights will be granted or exercised under the TSPP thereafter.
As of February 15, 2017, assuming that the acceptance time of the Offer or, if the Offer is terminated, the Effective Time has not
occurred prior to June 30, 2017 and assuming that the executive officers do not withdraw from the current offering period and a purchase price of $48.45, which is equal to 15% of the fair market value of a Share at the beginning of the Final
Offering, approximately 62 Shares would be purchased by Tom De Weerdt at the end of the current offering period on June 30, 2017. None of the Companys other executive officers currently participate in the TSPP.
Indemnification of Executive Officers and Directors
The Merger Agreement provides that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior
to the Effective Time and rights to advancement of expenses relating thereto in favor of each present and former director or officer of the Company and any of its subsidiaries and any other person entitled to indemnification under any of the
certificate of incorporation, bylaws, limited partnership agreement, limited liability company agreement or comparable constituent or organizational documents (such documents, Organizational Documents) of the Company or any subsidiary of
the Company (collectively, the Company Indemnified Parties), solely when acting in their capacity as such, existing on the date of the Merger Agreement or as at such time provided in the Organizational Documents of the Company or any
subsidiary of the Company, or any indemnification agreements between the Company or any of its subsidiaries and such Company Indemnified Party, will survive and continue in full force and effect for a period of six years after the Effective Time,
except as required by applicable law.
The Merger Agreement also provides that from and after the Effective Time, the First Surviving
Corporation and the Surviving Company will, and UnitedHealth Group will cause the First Surviving Corporation and the Surviving Company to, indemnify and hold harmless, to the fullest extent permitted by the Organizational Documents of the Company
or any subsidiary of the Company, each Company Indemnified Party against any documented costs or expenses (including documented attorneys fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or related to such individuals service as a director or officer of the Company or any of its subsidiaries prior to or at the
Effective Time. The First Surviving Corporation and the Surviving Company will also advance funds in respect of each Company Indemnified Party as incurred and to the fullest extent permitted by the Organizational Documents of the Company or of any
subsidiary of the Company, provided that such Company Indemnified Party undertakes to repay such advances if it is finally determined by a final and nonappealable judicial determination that such person was not entitled to indemnification.
Prior to the Effective Time, the Company intends to obtain and fully pay the premium for directors and officers liability insurance with a
claims reporting or discovery period of at least six years after the Effective Time, with terms and conditions no less favorable in the aggregate as the Companys existing policies. If neither
8
the Company nor the Surviving Company obtains such a tail insurance policy as of the Effective Time, then for six years after the Effective Time, the Surviving Company must either
maintain in effect the insurance and indemnification policy of the Company in effect as of the date of the Merger Agreement or obtain an alternative insurance and indemnification policy, in each case with terms and conditions no less favorable in
the aggregate than the Companys existing policies, provided that the Surviving Company will not be required to pay annual premiums in excess of 200% of the premiums paid by the Company in 2016 for such insurance.
The foregoing summary of the indemnification of executive officers and directors and directors and officers insurance does not
purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which has been filed as Exhibit (e)(1) hereto and is incorporated herein by reference.
Employment Agreements and Severance Payments Following the Mergers
Andrew Hayek, Michael Rucker and Richard Sharff have previously entered into employment agreements with the Company, more fully described in
Exhibit (e)(3)
Summary Compensation Table Employment Agreements.
In connection with
the Offer and the Mergers, UnitedHealth Group entered into employment agreements with Mr. Hayek, Mr. Rucker and Mr. Sharff, which have been filed as Exhibits (e)(20), (e)(21) and (e)(22) hereto, respectively, and are incorporated
herein by reference. The effectiveness of each of these agreements is contingent upon the consummation of the Offer and the Mergers, and upon becoming effective will supersede any existing employment agreements between the Company and each
executive.
Mr. Hayek
Under his employment agreement with UnitedHealth Group, Mr. Hayek will be continue to serve as Chief Executive Officer of the Company and
will receive: (a) annual base salary of $820,000, (b) annual target bonus opportunity of not less than 120% of base salary, (c) an initial equity award with a value of $4,500,000, (d) a $2,000,000 face value term life insurance policy and
a long-term disability policy covering 60% of base salary and (e) eligibility for annual equity awards, including a recommended equity award with a value of $4,500,000 for the 2018 plan year. In addition, the employment agreement with
Mr. Hayek provides that if UnitedHealth Group terminates Mr. Hayeks employment without cause or he resigns for good reason, Mr. Hayek will, subject to executing a standard separation agreement and release
of claims, be entitled to: (i) 2 times his annualized base salary, (ii) any bonus or incentive compensation paid or payable to Mr. Hayek for the two most recent calendar years (excluding equity-related awards, payments under any long-term
or similar benefit plan, or any other special or
one-time
bonus or incentive compensation payments) or 2 times target incentive (if termination occurs within 2 years following the effective date of the
agreement), (iii) twelve thousand dollars ($12,000) lump sum payment to offset the costs of COBRA, (iv) accrued but unused vacation payable in lump sum, (v) outplacement services, and (vi) if termination occurs within 2 years
following the effective date of the agreement, a pro rata bonus for the portion of the annual performance period that he is employed prior to the termination, based on the amount paid or payable to him for the most recent calendar year (excluding
equity-related awards, payments under any long-term or similar benefit plan, or any other special or
one-time
bonus or incentive compensation payments) or, if termination occurs within 1 year following the
effective date of the agreement, an amount equal to his target incentive. If termination of employment occurs within 2 years of the effective date of the agreement, the severance benefits in items (i), (ii), and (vi) will be payable in lump
sum. If termination of employment occurs more than 2 years after the effective date of the agreement, the severance benefits in items (i) and (ii) above will be payable in equal
bi-weekly
installments
over an 18 month period. In exchange, Mr. Hayek agreed to standard restrictive covenants, including a
non-competition
and
non-solicitation
obligation that extends
for 2 years following the termination of employment, and
non-disparagement
and confidentiality obligations which extend indefinitely following the termination of employment.
9
Mr. Sharff and Mr. Rucker
Under Mr. Sharffs employment agreement with UnitedHealth Group, Mr. Sharff will continue to serve as Executive Vice President,
Corporate Secretary and General Counsel of the Company and will receive: (a) annual base salary of $435,625, (b) annual target bonus opportunity of not less than 65% of base salary, (c) an initial equity award with a value of $700,000, and
(d) eligibility for annual equity awards, including a recommended equity award with a value of $700,000 for the 2018 plan year.
Under Mr. Ruckers employment agreement with UnitedHealth Group, Mr. Rucker will continue to serve as Executive Vice President
and Chief Operating Officer of the Company and will receive: (a) annual base salary of $476,625, (b) annual target bonus opportunity of not less than 77.5% of base salary, (c) an initial equity award with a value of $1,250,000, and
(d) eligibility for annual equity awards, including a recommended equity award with a value of $1,250,000 for the 2018 plan year.
In
addition, both of Mr. Sharffs and Mr. Ruckers employment agreements provide that if UnitedHealth Group terminates the executives employment without cause or the executive resigns for good reason,
the executive will, subject to executing a standard separation agreement and release of claims, be entitled to: (i) 18 months of annualized base salary, (ii) pro rata bonus for the portion of the annual performance period that Executive is
employed prior to the termination, based on the amount paid or payable to the executive for the most recent calendar year (excluding equity-related awards, payments under any long-term or similar benefit plan, or any other special or
one-time
bonus or incentive compensation payments), (iii) twelve thousand dollars ($12,000) lump sum payment to offset the costs of COBRA, (iv) accrued but unused vacation payable in lump sum,
(v) outplacement services, and (vi) if termination occurs within 2 years following the effective date of the agreement, an amount equal to 1.5 times target annual incentive bonus. If termination of employment occurs within 2 years of the
effective date of the agreement, the severance benefits in items (i), (ii), and (vi) will be payable in lump sum. If termination of employment occurs more than 2 years after the effective date of the agreement, the severance benefits in items
(i) and (ii) above will be payable in equal
bi-weekly
installments over an 18 month period. In exchange, Mr. Sharff and Mr. Rucker agreed to standard restrictive covenants, including a
non-competition
and
non-solicitation
obligation that extends for 18 months following the termination of employment, and
non-disparagement
and confidentiality obligations which extend indefinitely following the termination of employment .
Amendment of Company Employment Agreement with Joseph Clark
The Company previously entered into an employment agreement with Joseph Clark, which has been filed as Exhibit (e)(23) and is incorporated
herein by reference. In connection with entering into the Transaction Documents, Joseph Clark and the Company agreed to an amendment, which has been filed as Exhibit (e)(24) and is incorporated herein by reference. The amendment, which is contingent
upon the consummation of the Offer and Mergers, provides that Mr. Clark will continue as Executive Vice President and Chief Development Officer of the Company and amends the term of the employment agreement to June 30, 2020 and provides
for the orderly reduction of Mr. Clarks duties and responsibilities over the remaining term. Mr. Clark will commence a reduced role of 75% of his full time employment on July 1, 2017, and his role will further reduce over time,
with each reduction resulting in a commensurate reduction in base compensation. Mr. Clark agreed that he would not have the right to terminate his employment for good reason upon the acquisition by UnitedHealth Group or as the
result of a relocation of his principal work location.
In exchange, the Company agreed that, subject to Mr. Clarks continued
employment as of the date of grant, Mr. Clark would be entitled to an equity award grant in 2017 with an aggregate value of $1,000,000 and on the same terms and conditions as apply to the 2017 grants made to other executives, except that the
award, the vesting of which will be in part time-based and in part both time and performance-based, will vest over the remaining employment term. This 2017 grant is the only equity or long-term incentive award to which Mr. Clark is expected to
be entitled for the remainder of the employment term.
10
Except as provided above, Mr. Clarks existing employment agreement remains in full
force and effect in accordance with its existing terms. See Exhibit (e)(3)
Summary Compensation Table Employment Agreements
for a description of Mr. Clarks existing employment agreement
with the Company.
Company Employment Agreement with Tom De Weerdt
The Company previously entered into an employment agreement with Tom De Weerdt, which has been filed as Exhibit (e)(25) and is incorporated
herein by reference. As of the date of this Schedule
14D-9,
Mr. De Weerdt has not entered into any agreement with UnitedHealth Group and his existing employment agreement will remain in full force
and effect following the Effective Time. See Exhibit (e)(3)
Summary Compensation Table Employment Agreements
for a description of Mr. De Weerdts existing employment agreement with the
Company, including relevant definitions of cause and good reason.
For further information with respect to the
golden parachute compensation arrangements of the Companys named executive officers, see
Item 8. Additional InformationGolden Parachute Compensation
.
Effect of the Merger Agreement on Employee Benefits
The Merger Agreement provides that for one year after the Effective Time, UnitedHealth Group will provide, or will cause the Surviving Company
to provide, to certain employees of the Company or its subsidiaries who continue to be employed by United Health, the Surviving Company or any of their subsidiaries following the Effective Time (Company Employees) with (i) base
salary and bonus opportunities that are no less favorable to such employee as the base salary and bonus opportunities provided to such employee immediately prior to the Effective Time and (ii) employee benefits that are, in the aggregate, no
less favorable than those provided immediately prior to the Effective Time or, in UnitedHealth Groups discretion, substantially comparable to those made available to similarly situated employees of UnitedHealth Group and its subsidiaries.
UnitedHealth Group will, or will cause the Surviving Company to, cause any employee benefit plans sponsored or maintained by UnitedHealth
Group, the Surviving Company or their subsidiaries in which the Company Employees are eligible to participate following the Effective Time to (1) waive any
pre-existing
conditions or limitations,
actively-at-work
requirements and eligibility waiting periods under any welfare plans of UnitedHealth Group or its Subsidiaries (except, that such waiver will not apply to
UnitedHealth Groups employee supplemental life insurance election options, with or without Accidental Death and Dismemberment, of (i) one times or two times salary for coverage greater than $500,000 or (ii) three times or four times
salary, to the extent such evidence of insurability is required under Contract by UnitedHealth Groups employee supplemental life insurance); and (2) give each Company Employee service credit for such Company Employees employment
with the Company and its Subsidiaries (as well as service with any predecessor employer of the Company or any such Subsidiary, to the extent service with the predecessor employer is recognized by the Company or such Subsidiary) prior to the
Effective Time for all purposes including level of benefits (including severance benefits), vesting, benefit accrual, and eligibility to participate under each applicable UnitedHealth Group benefit plan, as if such service had been performed with
UnitedHealth Group, except for any employee benefit plans that are frozen or grandfathered as of the Effective Time, for purposes of qualifying for subsidized early retirement benefits (including retirement treatment under the Parent Stock Plans (as
defined in the Merger Agreement)), or for benefit accrual under defined benefit pension plans, or to the extent it would result in a duplication of benefits.
UnitedHealth Group may require the Company to terminate its 401(k) plan(s) as of the day immediately preceding the Effective Time. The assets
under the Companys 401(k) plan(s) will be distributed to the participants as soon as reasonably practicable following receipt of a favorable IRS determination letter, and UnitedHealth Group will take all actions that may be required for
Continuing Employees to make rollover contributions in the full account balance amount distributed to such employees to UnitedHealth Groups applicable 401(k) plan.
11
Section 16 Matters
Pursuant to the Merger Agreement, UnitedHealth Group and the Company will take all steps as may be required to cause any dispositions of all
Shares (including derivative securities with respect to Shares) or acquisitions of shares of UnitedHealth Group common stock (including derivative securities with respect to UnitedHealth Group common stock) resulting from the Offer and the Mergers
by each individual who is subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act) with respect to the Company or will become subject to such reporting requirements with
respect to UnitedHealth Group, to be exempt under Rule
16b-3
under the Exchange Act.
Rule
14d-10(d)
Matters
Pursuant to the Merger Agreement, the compensation committee of the Company
Board, at a meeting to be held prior to the time Purchaser accepts the Shares for payment, will duly adopt resolutions approving as an employment compensation, severance or other employee benefit arrangement within the meaning of Rule
14d-10(d)(1)
under the Exchange Act (i) each employment compensation, severance and other employee benefit plans of the Company presented to the compensation committee, (ii) the treatment of the Company
Stock Options, the Company RSU Awards and the Company Performance Share Awards in accordance with the terms set forth in the Merger Agreement, and (iii) the applicable terms of the Merger Agreement. In addition, the compensation committee of
the Company Board will take all other actions necessary to satisfy the requirements of the
non-exclusive
safe harbor under Rule
14d-10(d)(2)
under the Exchange Act with
respect to the foregoing arrangements.
(b) Arrangements with Purchaser and UnitedHealth Group.
Merger Agreement
The summary of
the Merger Agreement contained in the section of the Prospectus/Offer to Exchange entitled
Merger Agreement
and the description of the conditions of the Offer contained in the section of the Prospectus/Offer to Exchange entitled
Merger AgreementConditions to the Offer
, filed as Exhibit (a)(1)(A) hereto, are incorporated herein by reference. Such summary and description are qualified in their entirety by reference to the Merger Agreement, which is
filed as Exhibit (e)(1) hereto and is incorporated herein by reference.
The Merger Agreement governs the contractual rights between the
Company, UnitedHealth Group, Purchaser and Merger Sub 2 in relation to the Offer and the Mergers. The summary and the copy of the Merger Agreement filed as Exhibit (e)(1) hereto are intended to provide information to investors regarding the terms of
the Merger Agreement and are not intended to modify or supplement any factual disclosures about the Company or UnitedHealth Group in their respective public reports filed with the SEC. In particular, the Merger Agreement and this summary of terms
are not intended to be, and should not be relied upon as, disclosures regarding any facts or circumstances relating to any party to the Merger Agreement. The Merger Agreement includes representations, warranties and covenants of the Company,
UnitedHealth Group, Purchaser and Merger Sub 2 made solely for the benefit of the parties to the Merger Agreement. The assertions embodied in those representations and warranties were made solely for purposes of the contract among the Company,
UnitedHealth Group, Purchaser and Merger Sub 2 and may be subject to important qualifications and limitations agreed to by the Company, UnitedHealth Group, Purchaser and Merger Sub 2 in connection with the negotiated terms. Moreover, some of those
representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to the Companys or UnitedHealth Groups SEC filings
and were used for purposes of allocating risk among the Company, UnitedHealth Group, Purchaser and Merger Sub 2 rather than establishing matters as facts. Investors should not rely on the representations, warranties and covenants or any description
thereof as characterizations of the actual state of facts of the Company, UnitedHealth Group, Purchaser, Merger Sub 2 or any of their respective subsidiaries or affiliates.
12
Tender and Support Agreement
On January 7, 2017, concurrently with the execution of the Merger Agreement, TPG FOF
V-A,
L.P.,
TPG FOF
V-B,
L.P. and TPG Partners V, L.P. (each, a TPG Stockholder) entered into a tender and support agreement (the Tender and Support Agreement) with UnitedHealth Group and
Purchaser, pursuant to which, among other things and subject to the terms and conditions therein, each TPG Stockholder agreed to tender all Shares of which such TPG Stockholder is the beneficial or record owner, representing in the aggregate
approximately 30% of the outstanding Shares, into the Offer, and not to tender their Shares into, or vote in favor of, any competing offer or takeover proposal. The Tender and Support Agreement terminates automatically, among other things, upon the
termination of the Merger Agreement.
The foregoing summary of the provisions of the Tender and Support Agreement does not purport to be
complete and is qualified in its entirety by reference to the Tender and Support Agreement, a copy of which is filed as Exhibit (e)(2) hereto and is incorporated herein by reference.
Item 4.
|
The Solicitation or Recommendation.
|
(a) Recommendation of the Company Board.
After consideration, including review of the terms and conditions of the Offer in consultation with the Companys management, as well as
the Companys financial and legal advisors, the Company Board, by unanimous vote at a meeting on January 6, 2017 (i) determined and resolved that the terms of the Offer, the Mergers and the other transactions contemplated by the Merger
Agreement were advisable, and fair to and in the best interests of, the Company and its stockholders, (ii) determined that it was advisable and in the best interests of the Company and its stockholders to enter into the Merger Agreement, and
that the Merger Agreement was advisable, (iii) approved the Merger Agreement and the transactions contemplated thereby, on the terms and conditions set forth in the Merger Agreement and (iv) resolved to recommend that the Companys
stockholders accept the Offer and tender their Shares to Purchaser pursuant to the Offer.
Accordingly, for the reasons described in
more detail below, the Company Board, on behalf of the Company, unanimously recommends that the Companys stockholders accept the Offer and tender their Shares to Purchaser pursuant to the Offer.
(b) Background and Reasons for the Company Boards Recommendation.
Background of the Offer
The
Company Board, with the assistance of the Companys senior management, has regularly reviewed and evaluated the potential strategic alternatives available to the Company (including possible acquisitions, divestitures, joint ventures, business
collaborations and business combination transactions) to maximize stockholder value. As part of this review, the Company Board has periodically considered whether the continued execution of the Companys business strategy as a standalone
company, or a business combination with a third party, would provide the best path to enhance stockholder value.
In addition, in the
ordinary course the Company regularly engages in discussions with a variety of other organizations concerning commercial partnering opportunities. Over the past two years, the Company has engaged in such discussions with UnitedHealth Group with
respect to a commercial relationship focused on, among other things, the development of a national contract between the Company and UnitedHealth Group that would include value-based contracts for surgical care based on quality, patient experience
and efficiency and the establishment of partnerships between the Company and medical groups associated with UnitedHealth Groups OptumCare business whereby the Company would partner with such medical groups to optimize surgical delivery
(quality, experience and cost) in specific markets.
From time to time during 2015, in consultation with members of the Company Board,
Mr. Hayek met with UnitedHealth Group representatives (including Stephen Hemsley, the Chief Executive Officer of UnitedHealth
13
Group, and David S. Wichmann, the President of UnitedHealth Group). During these meetings, Mr. Hayek provided the UnitedHealth Group representatives with an overview of the Company and its
business model of partnering in specific markets with health plans, medical groups and health systems to enhance the delivery of surgical care, and had further discussions with UnitedHealth Group representatives about the proposed commercial
relationship.
At a November 2015 meeting between Messrs. Hayek and Wichmann, Mr. Wichmann briefly raised the potential benefits of a
business combination between the Company and UnitedHealth Groups OptumCare division.
Also in November 2015, a representative of
another healthcare organization with which the Company had an existing commercial relationship (Company A) asked Mr. Hayek whether he would be interested in joining Company A as a senior executive. Mr. Hayek indicated that he
was committed to remaining in his position with the Company. The Company A representative then suggested the possibility of a business combination between the companies in which Mr. Hayek would assume a senior leadership role in Company A that
would include continued responsibility for the Companys business. The representative of Company A did not indicate any price or valuation at which Company A would be interested in pursuing a potential business combination transaction in these
discussions.
On December 1, 2015, at a regularly scheduled meeting, the Company Board discussed the expressions of interest by
UnitedHealth Group and Company A in a potential business combination transaction with the Company. The Company Board discussed various aspects of both potential business combinations, including the risks that they would implicate for the Company in
light of certain change of control provisions contained in agreements governing certain of the Companys key joint ventures. The Company Board agreed that the counterparty in any potential transaction would need to assume the risk with respect
to such change of control provisions, and that any transaction otherwise would need to offer the Companys stockholders a material premium to the then current trading price of the Shares (which was in a range of $35 to $38 per Share). The
Company Board directed Mr. Hayek to continue his dialogue with both of UnitedHealth Group and Company A, and to report any material developments to the Company Board.
Later in December 2015, Messrs. Hayek and Wichmann met to further discuss the proposed commercial relationship. At this meeting, Messrs. Hayek
and Wichmann also discussed the potential benefits of combining the Company and UnitedHealth Groups OptumCare division, including the ability to create a national clinical delivery network that included primary care physicians, urgent care
clinics, and surgery centersand the potential for the Company to serve as a platform for creating the surgical delivery component of that network. Messrs. Hayek and Wichmann also scheduled additional meetings between Mr. Hayek and
UnitedHealth Group executives to occur in January 2016.
Also in December 2015, Mr. Hayek spoke by telephone with the representative
of Company A. The representative advised Mr. Hayek that Company A was unlikely to offer a material premium to the then current trading price of the Shares (which was in a range of $35 to $41 per Share) and that a business combination
transaction with the Company would be dependent upon Mr. Hayeks willingness to assume a senior leadership role within Company A that would require Mr. Hayek to relocate. Following consultation with the Company Board, Mr. Hayek
later advised the Company A representative that, for personal reasons, he would not be in a position to relocate, but that the Company Board would otherwise consider a proposal for a business combination that would offer the Company stockholders a
material premium to the then current trading price of the Shares (which was in a range of $35 to $41 per Share). While the Company and Company A continued to engage on their commercial relationship, Company A did not make any additional proposals or
engage in any further discussions regarding a potential business combination transaction.
From time to time between January and July of
2016, Messrs. Hayek and Wichmann met in person or spoke by telephone to discuss further the commercial relationships between the Company and UnitedHealth Group, and
14
they engaged from time to time regarding the potential merits of a potential business combination between the Company and UnitedHealth Groups OptumCare division. Mr. Hayek provided the
Company Board with periodic updates with respect to such discussions.
In a meeting on July 29, 2016, Mr. Wichmann advised
Mr. Hayek that he believed that there was a strong strategic rationale to combine the Company with UnitedHealths OptumCare division and that UnitedHealth Group therefore was interested in pursuing an
all-stock
business combination transaction with the Company in which the stockholders of the Company would receive shares of UnitedHealth Group common stock in exchange for their Shares. Mr. Hayek updated
the Company Board on his discussion with Mr. Wichmann.
On August 23, 2016, in addition to reporting on such discussions,
Mr. Hayek provided the Company Board with an overview of publicly available research analyst reports regarding UnitedHealth Group. The Company Board determined that, given no further determination had been made to engage in a sale or
change-in-control
of the Company, before engaging in more substantive discussions with UnitedHealth Group or permitting UnitedHealth Group to engage in
in-depth
due diligence, it should be confirmed that the financial terms on which UnitedHealth Group would be willing to pursue a transaction would be acceptable to the Company Board and likely to lead to a
transaction that the Company Board would be prepared to recommend to the holders of Shares. The Company Board also discussed and affirmed the prior discussions of the Company Board that UnitedHealth Group would need to assume the transaction risk
attendant to the change of control provisions contained in the agreements governing certain of the Companys key joint ventures. The Company Board thus determined that Todd B. Sisitsky, the Companys lead outside director, and members of
the Companys standing Transactions Committee of the Company Board, consisting of Thomas Geiser and Jeffrey Rhodes, would provide oversight of, and guidance to, Mr. Hayek in connection with further discussions with UnitedHealth Group
regarding a potential business combination transaction. Messrs. Sisitsky and Rhodes are also partners of TPG Capital, LP, an affiliate of TPG Global, LLC (TPG Global).
In addition to the meetings and conference calls further described below, from August 23, 2016 until the Merger Agreement was executed by
the Company and UnitedHealth Group on January 7, 2017, Messrs. Sisitsky, Geiser and Hayek participated in numerous conference calls, including with outside advisors, to discuss the potential transaction with UnitedHealth Group.
On August 30, 2016 and September 2, 2016, Mr. Hayek met with Mr. Wichmann and other UnitedHealth Group executives. In the
course of these meetings, Messrs. Hayek and Wichmann continued their discussions concerning the possible financial terms of a business combination transaction between the Company and UnitedHealth Group. Mr. Wichmann indicated that UnitedHealth
Groups analysis of a potential transaction supported a range of value from $50 to $55 per Share. Mr. Hayek conveyed to Mr. Wichmann that while the Company Board had not determined to engage in any transaction or discussed the price
at which it might be willing to do so, Mr. Hayek believed that affiliates of TPG Global, collectively the Companys largest shareholders holding approximately 30% of the outstanding Shares (the TPG Stockholders), would not
support any transaction at a price of less than $60 per Share. The closing trading price of the Shares on September 2, 2016 was $42.78 per Share.
On September 14, 2016, in a telephone call between Messrs. Hayek and Wichmann, Mr. Wichmann informed Mr. Hayek that
UnitedHealth Group was not prepared to pursue a transaction with the Company at the $60 per Share price level. Mr. Wichmann suggested, however, that the parties continue their discussions regarding expanding their commercial relationship. The
closing trading price of the Shares on September 14, 2016 was $40.36 per Share.
On September 15, 2016, Mr. Hayek reported
on his conversation with Mr. Wichmann to the Company Board at a regularly scheduled meeting thereof. The Company Board agreed that Mr. Hayek should continue his dialogue with Mr. Wichmann regarding the proposed commercial relationship
between the companies, and that Mr. Hayek would update the Company Board on any further expression of interest regarding a potential business combination.
15
Messrs. Hayek and Wichmann continued to engage in discussions about the proposed commercial
relationship, including development of a national contract with UnitedHealth Group and partnerships with OptumCare medical groups, throughout October 2016, regarding which Mr. Hayek reported to the Company Board at its regularly scheduled
monthly financial review calls on October 4, 2016 and November 4, 2016.
On December 6, 2016, Mr. Hayek met with
Mr. Wichmann to discuss progress on their commercial relationship. At that meeting, Mr. Wichmann shared that UnitedHealth Group had decided to expand into surgical delivery as part of its OptumCare delivery network, that UnitedHealth Group
viewed the Company as a leading surgical services platform, and that he believed that the parties should
re-engage
in discussions regarding a potential business combination. Mr. Hayek indicated that he
would share this information with the Company Board, that any detailed discussion of potential terms would include Mr. Sisitsky, as lead independent director, and that he and Mr. Sisitsky would work closely with the Transactions Committee
of the Company Board.
At a regularly scheduled meeting held on December 8, 2016, the Company Board discussed a potential business
combination transaction with UnitedHealth Group. The Company Board instructed Messrs. Sisitsky and Hayek to meet with Mr. Wichmann as a next step to explore the terms of a potential business combination.
On December 9, 2016, Messrs. Hayek and Sisitsky spoke by telephone with Mr. Wichmann. On the call, Mr. Wichmann stated that
UnitedHealth Group would be interested in pursuing a business combination transaction in which the Company stockholders would receive both cash and shares of UnitedHealth stock having a fixed value in exchange for their Shares. Mr. Sisitsky
indicated that the Company would only engage in discussions of a potential transaction with the understanding that any risks related to change of control provisions contained in the agreements governing certain of the Companys key joint
ventures would be borne by UnitedHealth Group and that a transaction would not be contingent upon the Companys partners in these joint ventures waiving their change of control rights. Mr. Wichmann informed Messrs. Hayek and Sisitsky that
he understood their position and that UnitedHealth Group would be amenable to working with the Company to reduce the risks associated with the change of control provisions. Mr. Sisitsky also noted that the process of due diligence would need to
be expeditious in order to ensure the confidentiality of the process and to minimize disruption to the ongoing business operations of the Company. Mr. Wichmann indicated that $55 per share was the high end of UnitedHealth Groups valuation
range for the Company, and Mr. Sisitsky indicated that he and the Company Board believed that a higher valuation was appropriate given the Companys strategic position and growth prospects. The parties agreed to defer further discussion of
the financial terms of a potential transaction until they could meet in person the following week.
On December 14, 2016, during a
telephonic meeting of the Company Board, Mr. Hayek provided the Company Board with a report on the December 9, 2016 call with Mr. Wichmann. At the meeting, the Company Board also determined to engage J.P. Morgan Securities LLC
(J.P. Morgan) as financial advisor to the Company (subject to the Company Boards review of and satisfaction with a relationship disclosure letter to be provided by J.P. Morgan following the meeting, and entering into a mutually
acceptable engagement letter with J.P. Morgan), and Cleary Gottlieb Steen & Hamilton LLP (Cleary Gottlieb) as outside counsel to the Company, in connection with the Companys consideration of a potential business
combination transaction with UnitedHealth Group. The Company Board determined to engage J.P. Morgan and Cleary Gottlieb based on, among other factors, each of J.P. Morgans and Cleary Gottliebs qualifications, expertise and reputation and
their familiarity with the Company. During this meeting, Cleary Gottlieb also discussed with the Company Board certain legal and fiduciary duty considerations relating to a potential business combination transaction involving the Company and
UnitedHealth Group.
At a December 16, 2016 meeting, Messrs. Hayek, Sisitsky and Wichmann discussed the principal terms of a
potential business combination transaction between the Company and UnitedHealth Group, including price, the timeline and process for further discussions between the parties and the fact that the Company would not be willing to engage in further
discussions unless UnitedHealth Group was willing to move forward on the basis that the risks relating to the change of control provisions contained in the agreements governing certain of the
16
Companys key joint ventures would be borne by UnitedHealth Group and that a transaction would not be contingent upon the Companys partners in these joint ventures waiving their change
of control rights. Messrs. Hayek, Sisitsky and Wichmann also discussed that in light of the need to ensure the confidentiality of the process and to minimize disruption to the ongoing business operations of the Company and the fact that the Company
was scheduled to present at an industry conference on January 9, 2017, the Company and UnitedHealth Group would target an announcement of a transaction prior to the open of trading on the U.S. equity markets on January 9, 2017. Messrs.
Sisitsky and Wichmann each shared their respective views regarding the price per share that UnitedHealth Group would pay in consideration for the Shares. Among other things, Mr. Wichmann noted that UnitedHealth Groups analysis supported a
valuation range of $50 to $55 per share, and Mr. Sisitsky noted that the Company Board was enthusiastic about the Companys strategy and optimistic regarding the Companys growth prospects, and that he believed a valuation of $60 per
share was appropriate. Messrs. Sisitsky and Wichmann engaged in a robust discussion relating to respective views of valuation and how valuation tied to other deal terms, and, after discussing other key deal points (including that the Company would
expect UnitedHealth Group to assume all change of control risks relating to its key joint ventures), ultimately agreed to recommend to their respective boards
a price of $57 per Share.
Later on December 16, 2016, Mr. Hayek sent to Mr. Wichmann a draft confidentiality agreement to facilitate the sharing of
certain confidential information of the Company with UnitedHealth Group in connection with a potential business combination transaction. The draft confidentiality agreement provided by the Company contained an express standstill provision.
On December 17, 2016, Mr. Wichmann delivered to Mr. Hayek a
non-binding
written
proposal to acquire the Company for $57.00 per Share. The $57.00 per Share price represented a 29.4% premium to the
60-day
volume weighted average price of the Companys common stock as of
December 16, 2016. As outlined in the proposal letter, the proposed business combination transaction would be structured as an exchange offer, and the purchase price would be payable in shares of UnitedHealth Group common stock, provided that
UnitedHealth Group would have the ability to elect, up until three days prior to closing, to pay up to 30% of the purchase price in cash. UnitedHealth Groups proposal letter also outlined certain other proposed transaction terms, including
(i) each partys agreement to use its respective reasonable best efforts to take all appropriate actions and do all things necessary to consummate the transaction within twelve months, subject to certain exceptions, (ii) a termination
fee would be payable by the Company in certain circumstances in the amount of 3.5% of the enterprise value of the proposed transaction (or approximately 5.0% of the equity value of the proposed transaction), and (iii) the execution of a Tender
and Support Agreement by the TPG Stockholders. UnitedHealth Group also requested a
thirty-day
exclusivity period, during which the Company would be (i) required to immediately terminate any other
discussions or negotiations with third parties, and (ii) prevented from, among other things, soliciting or initiating discussions or negotiations with any third party, regarding a transaction involving a sale of 10% or more of the
Companys equity interests or assets.
Later on December 17, 2016, a representative of UnitedHealth Group sent comments to the
draft confidentiality agreement to representatives of the Company and Cleary Gottlieb, which, among other things, eliminated the express standstill provision contained in the draft confidentiality agreement.
On the evening of December 17, 2016, Messrs. Hayek, Sisitsky and Geiser held a telephonic meeting with representatives of Cleary
Gottlieb to discuss UnitedHealth Groups proposal letter and comments to the confidentiality agreement. Following this discussion, Messrs. Hayek, Sisitsky and Geiser instructed the representatives of Cleary Gottlieb to engage with
representatives of UnitedHealth Group and Hogan Lovells US LLP (Hogan Lovells), outside counsel to UnitedHealth Group, to obtain greater clarity on certain aspects of the proposal letter and comments to the confidentiality agreement
prior to the Company Board meeting scheduled for December 18, 2016.
On the morning of December 18, 2016, representatives of
Cleary Gottlieb spoke by telephone with representatives of UnitedHealth Group and Hogan Lovells and discussed certain aspects of the proposal letter and
17
confidentiality agreement comments. On this call, a representative of UnitedHealth Group stated that while UnitedHealth Group did not intend to pursue a hostile acquisition of the Company,
UnitedHealth Groups practice was not to enter into express standstill agreements and that UnitedHealth Group would terminate discussions if the Company insisted that it enter into such an express agreement as a condition to engaging in further
discussions.
Later on December 18, 2016, the Company Board met telephonically with members of Company management and representatives
of J.P. Morgan and Cleary Gottlieb. Messrs. Sisitsky and Hayek first updated the Company Board on their meeting with Mr. Wichmann. Representatives of Cleary Gottlieb then discussed the key terms of the UnitedHealth Group proposal letter and
confidentiality agreement with the Company Board, members of Company management and representatives of J.P. Morgan. Members of Company management then discussed with the Company Board managements financial projections for the Company for
fiscal years 2016 through 2021, which discussion included the key drivers and the risks the Company faced in achieving the financial projections. The financial projections were based on the Companys normal long-term planning process from
earlier in the year, updated for actual
year-to-date
results, current forecasts of overhead spending, recent same-site growth trends and the Companys development
pipeline. Representatives of J.P. Morgan then discussed with the Company Board certain of J.P. Morgans relationships and previous engagements with the Company and UnitedHealth Group and noted that they intended to provide the Company Board
with information relating to certain of J.P. Morgans relationships and engagements with the TPG Stockholders and certain of their affiliates in the coming days. Following careful consideration, the Company Board determined that the
relationships and engagements disclosed by J.P. Morgan did not adversely impact J.P. Morgans independence or ability to serve as financial advisor to the Company. J.P. Morgan also provided the Company Board with an overview of potential
counterparties that might be perceived as having an interest in pursuing a potential business combination transaction with the Company. Representatives of J.P. Morgan also discussed preliminary financial analyses of the terms of UnitedHealth
Groups proposal and publicly available information regarding the Company and UnitedHealth Group, each on a standalone basis, with the Company Board. Following careful consideration and discussions with members of Company management and
representatives of J.P. Morgan and Cleary Gottlieb, the Company Board directed the representatives of Cleary Gottlieb to convey the Companys responses to the proposal letter and confidentiality agreement comments to representatives of
UnitedHealth Group and Hogan Lovells and, subject to the satisfactory resolution of the issues raised by the proposal letter and comments to the confidentiality agreement, authorized Company management to continue the discussions with UnitedHealth
Group regarding a potential business combination transaction.
Following the Company Board meeting, representatives of Cleary Gottlieb
spoke by telephone with representatives of UnitedHealth Group and Hogan Lovells to discuss the Companys responses to the proposal letter and confidentiality agreement comments, which included (i) rejecting the request for exclusivity,
(ii) proposing to reduce the amount of the termination fee to 3% of the equity value of the proposed transaction (or approximately $75 million), (iii) reiterating that prior to permitting UnitedHealth Group to perform
in-depth
due diligence on the Company, UnitedHealth Group would need to confirm that it was willing to assume the risks relating to the change of control provisions contained in the agreements governing certain of
the Companys key joint ventures and that any transaction would not be contingent upon the Companys partners in these joint ventures waiving their change of control rights, and (iv) based on the statements made by a representative of
UnitedHealth Group as to UnitedHealth Groups unwillingness to enter into an express standstill agreement, accepting the request to eliminate the express standstill provision from the confidentiality agreement.
Over the next several days, representatives of the Company and UnitedHealth Group and their respective legal advisors continued to discuss and
negotiate the terms of the proposal letter and draft confidentiality agreement, including the amount of the termination fee and the scope of UnitedHealth Groups obligations to obtain the required regulatory approvals. During this time, members
of Company management and Cleary Gottlieb continued to discuss these matters, including the appropriate size of the termination fee, with Messrs. Sisitsky and Geiser. Following numerous discussions between the parties, Messrs. Hayek and Wichmann
agreed,
18
subject to satisfactory resolution of the other terms and conditions of the transaction agreements, to recommend to their respective boards of directors a termination fee of $90 million (or
approximately 3.7% of the equity value of the proposed transaction).
On the morning of December 19, 2016, the Company and
UnitedHealth Group entered into a confidentiality agreement effective as of December 18, 2016 relating to the proposed transaction, and thereafter UnitedHealth Group and its advisors were provided access to the Companys electronic data
room.
Later on December 19, 2016, certain representatives of the Company, including Mr. Hayek, met with representatives of
UnitedHealth Group, including Mr. Wichmann, to present certain information regarding the Company. From December 19, 2016 until the execution of the Merger Agreement on January 7, 2017, representatives of UnitedHealth Group and its
advisors continued their due diligence investigation of the Company.
On December 20, 2016, the Company Board met telephonically with
members of Company management and representatives of J.P. Morgan and Cleary Gottlieb. Mr. Hayek first updated the Company Board on his discussions with Mr. Wichmann regarding a potential business combination transaction and the
December 19, 2016 meeting between representatives of the Company and UnitedHealth Group. Mr. Sisitsky informed the Company Board that Messrs. Hayek and Wichmann had agreed to recommend to their respective boards of directors a termination
fee $90 million and that this recommendation was supported by Messrs. Sisitsky and Geiser. Representatives of J.P. Morgan and Cleary Gottlieb noted that in their view a termination fee of $90 million was within the range of a market
termination fee for a transaction of this nature, and representatives of Cleary Gottlieb noted that in their view such termination fee was reasonable. Representatives of Cleary Gottlieb then updated the Company Board on certain other aspects of the
discussions with representatives of UnitedHealth Group and Hogan Lovells relating to the proposal letter and confidentiality agreement comments and the proposed resolution of the other open issues that had been previously discussed with the Company
Board. After further discussions and careful consideration, the Company Board instructed members of the Company management and the representatives of J.P. Morgan and Cleary Gottlieb to continue the discussions with UnitedHealth Group and its
advisors regarding a potential business combination transaction consistent with the guidance provided by the Company Board. The Company Board then further discussed the financial projections considered by the Company Board at the December 18,
2016 meeting and, after careful consideration, approved the financial projections and authorized Company management to share the financial projections with UnitedHealth Group.
On December 20, 2016, J.P. Morgan provided information regarding certain of its relationships and previous engagements with the TPG
Stockholders and certain of their affiliates to the Company Board.
Also on December 20, 2016, Mr. Wichmann delivered to
Mr. Hayek a revised,
non-binding
proposal to acquire the Company for $57.00 per Share. The terms of UnitedHealth Groups revised proposal were substantially consistent with those contained in
UnitedHealth Groups December 17 proposal, except that, as discussed between representatives of the Company and UnitedHealth Group and their respective legal advisors, (i) the amount of the proposed termination fee had been reduced to
$90 million, and (ii) the proposed exclusivity agreement and certain other terms had been eliminated.
On December 21,
2016, Mr. Wichmann confirmed to Mr. Hayek that UnitedHealth Group was prepared to assume the risks relating to the change of control provisions contained in the agreements governing certain of the Companys key joint ventures and
understood that any transaction would not be contingent upon the Companys partners in these joint ventures waiving their change of control rights. Through the signing of the Merger Agreement, representatives of UnitedHealth Group and the
Company engaged in joint discussions on how to mitigate the risks relating to the change of control provisions.
On December 22,
2016, the Company Board met telephonically with members of Company management and representatives of J.P. Morgan and Cleary Gottlieb. Mr. Hayek updated the Company Board on the
19
discussions with UnitedHealth Group regarding a potential business combination transaction. Representatives of Cleary Gottlieb also summarized for the Company Board the terms of UnitedHealth
Groups December 20 proposal. The Company Board also discussed the information J.P. Morgan had provided on December 20, 2016 regarding certain of its relationships and previous engagements with the TPG Stockholders and certain of
their affiliates. Following careful consideration, the Company Board determined that the relationships and engagements disclosed by J.P. Morgan did not adversely impact J.P. Morgans independence or ability to serve as financial advisor to the
Company.
Later on December 22, 2016, representatives of Hogan Lovells sent an initial draft of the Merger Agreement to
representatives of Cleary Gottlieb.
On December 24, 2016, after consulting with representatives of Cleary Gottlieb and noting that
agreement had been reached on the key economic terms of the proposed transaction, Messrs. Sisitsky and Geiser, on behalf of the Company Board, authorized Mr. Hayek to commence discussions with UnitedHealth Group regarding the terms of
employment for Mr. Hayek and certain other Company executives following the closing of the transactions.
On December 26, 2016,
Messrs. Sisitsky, Geiser and Hayek and representatives of Cleary Gottlieb met telephonically to discuss the key issues raised by the draft Merger Agreement and Messrs. Sisitsky, Geiser and Hayek provided the representatives of Cleary Gottlieb with
guidance on the key issues.
On December 27, 2016, representatives of Cleary Gottlieb circulated a revised draft of the Merger
Agreement to representatives of Hogan Lovells.
Between December 26, 2016 and December 28, 2016, the Company and UnitedHealth
Group held due diligence meetings. On December 28, 2016, representatives of UnitedHealth Group and the Company also held meetings with their respective legal advisors at which certain terms of the draft Merger Agreement were negotiated.
Following the December 28, 2016 meeting until the Merger Agreement was executed by the parties on the morning of January 7, 2017, representatives of Cleary Gottlieb, Hogan Lovells and UnitedHealth Group held several telephonic meetings to
discuss and negotiate the terms and conditions of the draft Merger Agreement. During the same period, Messrs. Hayek and Wichmann spoke on several occasions to discuss certain terms of the draft Merger Agreement.
On December 29, 2016, Hogan Lovells circulated a revised draft of the Merger Agreement to Cleary Gottlieb.
On December 30, 2016, during a telephonic meeting of the Company Board, Mr. Hayek provided the Company Board with updates regarding
his discussions with Mr. Wichmann regarding a potential business combination transaction. Mr. Hayek also updated the Company Board on the meetings that had taken place on December 26 through December 28 among the Company,
UnitedHealth Group and their respective advisors. Representatives of Cleary Gottlieb then addressed various questions from members of the Company Board relating to, among other things, the structure of the proposed consideration to be received by
the Companys stockholders in the proposed transaction. Representatives of J.P. Morgan then presented their preliminary valuation analyses of the proposed consideration to be received by the Companys stockholders in the proposed
transaction and views as to other potential counterparties, including Company A, that might be perceived to have an interest in pursuing a potential business combination transaction with the Company. Representatives of J.P. Morgan noted that
UnitedHealth Groups strategic interest in the Company made it a unique buyer and the best possible suitor for the Company. In this respect, representatives of J.P. Morgan also expressed their view that it would be unlikely for a competing
bidder to be interested and capable of acquiring the Company at a price that would be higher than that proposed by UnitedHealth Group or capable of assuming the
change-in-control
risks relating to certain key joint ventures, which UnitedHealth Group had advised the Company that it was prepared to do. The Company Board also
discussed the risk that UnitedHealth Group would terminate discussions with the
20
Company if it were to learn the Company was soliciting alternative proposals from other parties and the harm that could result to the Company if its discussions with UnitedHealth Group or
solicitation of alternative proposals were to become public. The Company Board also discussed with representatives of Cleary Gottlieb and J.P. Morgan the timeline for commencing the offer and consummating the transactions and the fact that the draft
Merger Agreement would, under certain circumstances, permit the Company to respond to unsolicited acquisition proposals and terminate the Merger Agreement to accept an unsolicited acquisition proposal that was financially superior to the
transactions following compliance with UnitedHealth Groups matching right and payment of the $90 million termination fee, which the Company Board believed was unlikely to meaningfully deter other acquisition proposals. After careful
consideration and taking into account the input of the Companys financial and legal advisors, the Company Board determined not to contact other potential counterparties to gauge their interest in pursuing a potential business combination
transaction at that time and to continue discussing a potential business combination transaction with UnitedHealth Group.
On
December 31, 2016, Mr. Wichmann advised Mr. Hayek that UnitedHealth Group wished to modify its proposal to increase the amount of cash it could substitute for UnitedHealth Group common stock in the proposed consideration, with the
stock consideration comprising a smaller percentage of the total consideration, and the rest of the proposed consideration to be paid in cash. Following discussions with Messrs. Sisitsky and Geiser and the Companys financial and legal
advisors, Mr. Hayek advised Mr. Wichmann that he would be prepared to recommend to the Company Board to provide UnitedHealth Group with greater flexibility to increase the portion of the total consideration that would consist of cash so
long as at least 51% of the total consideration would continue to consist of UnitedHealth Group common stock, which Mr. Wichmann confirmed would be acceptable to UnitedHealth Group.
On January 2, 2017, during a telephonic meeting of the Company Board, Mr. Hayek updated the Company Board on discussions between
representatives of the Company and UnitedHealth Group on a range of topics during certain diligence sessions held on December 31, 2016 and January 1, 2017. Mr. Hayek also updated the Company Board on his discussions with
Mr. Wichmann on December 31, 2016 relating to the potential business combination transaction involving the Company and UnitedHealth Group, including UnitedHealths request to increase the portion of the total consideration that would
be comprised of cash. After discussion and careful consideration, the Company Board agreed that the proposed change to the stock component of the Transaction Consideration was acceptable. Members of the Companys management then left the
meeting, and an executive session of the Company Board was held to further discuss the status of discussions with UnitedHealth Group and the proposed next steps.
Also on January 2, 2017, representatives of Cleary Gottlieb sent to representatives of Hogan Lovells a revised draft of the Merger
Agreement and an initial draft of the Tender and Support Agreement to be entered into by the TPG Stockholders, UnitedHealth Group and Purchaser.
On January 3, 2017, Cleary Gottlieb and Hogan Lovells spoke by telephone to discuss, among other things, certain of the Companys
comments to the Merger Agreement and UnitedHealth Groups positions with respect to such comments. On January 4, 2017, Hogan Lovells circulated revised drafts of the Merger Agreement and the Tender and Support Agreement to Cleary Gottlieb.
From January 4, 2017 until the Tender and Support Agreement was executed by the TPG Stockholders, UnitedHealth Group and Purchaser on the morning of January 7, 2017, representatives of Cleary Gottlieb and Hogan Lovells held several
telephonic meetings to discuss and negotiate the terms and conditions of the draft Tender and Support Agreement.
On January 4, 2017,
during a telephonic meeting of the Company Board, Mr. Hayek updated the Company Board on the discussions and negotiations between representatives of the Company and UnitedHealth Group and their respective advisors regarding a potential business
combination transaction. Representatives of Cleary Gottlieb then updated the Company Board on the status of discussions with representatives of UnitedHealth Group and Hogan Lovells with respect to the terms and conditions of the draft Merger
Agreement and draft Tender and Support Agreement. Representatives of Cleary Gottlieb also noted that at the meeting of the Company Board scheduled for January 6, 2017 it anticipated making a presentation to the Company Board on the principal
terms of the Merger Agreement and the Tender and Support Agreement and a forum selection bylaw
21
that it would be recommending that the Company Board adopt in connection with the transaction. The Company Board also engaged in a discussion with respect to the employment terms UnitedHealth
Group had proposed to offer certain Company executives as contemplated by the draft employment agreements UnitedHealth Group had sent to Mr. Hayek on January 3, 2017. Mr. Hayek noted that the proposed terms were being reviewed by
outside counsel to the Companys management team. Members of the Companys management then left the meeting, and an executive session of the Company Board was held to further discuss the status of discussions with UnitedHealth Group and
the proposed next steps.
On the evening of January 6, 2017, the Company Board held a telephonic meeting with members of the Company
management and representatives of Cleary Gottlieb. At this meeting, representatives of Cleary Gottlieb discussed with the Company Board certain legal and fiduciary duty considerations relating to the proposed transaction with UnitedHealth Group.
Mr. Geiser then reviewed with the Company Board the principal terms of the proposed engagement letter with J.P. Morgan, pursuant to which J.P. Morgan would be engaged as outside financial advisor to the Company in connection with the
transactions. Following careful consideration, the Company Board approved the engagement letter with J.P. Morgan and later that day the Company entered into the engagement letter with J.P. Morgan effective as of December 14, 2016.
Representatives of J.P. Morgan then joined the meeting of the Company Board. Representatives of Cleary Gottlieb then reviewed with the Company Board the principal terms and conditions of the Merger Agreement and Tender and Support Agreement.
Representatives of Cleary Gottlieb also provided the Company Board with an overview of the treatment of the existing Company equity awards in the proposed transaction, and briefly discussed the 2017 equity awards expected to be granted to certain
members of Company management and the employment agreements to be entered into by certain members of Company management with UnitedHealth Group concurrently with the execution of the Merger Agreement and to become effective upon the closing of the
transactions. Representatives of J.P. Morgan then presented their financial analyses of the Transaction Consideration and confirmed to the Company Board that there had been no material changes to such analyses from the presentation made by J.P.
Morgan to the Company Board on December 30, 2016. Representatives of J.P. Morgan then delivered to the Company Board J.P. Morgans oral opinion, which was confirmed by delivery of a written opinion dated January 7, 2017, that, as of
such date and based upon and subject to the factors and assumptions set forth in its opinion, the Transaction Consideration to be paid in the proposed Offer and Mergers to holders of Shares entitled to receive the Transaction Consideration pursuant
to the Merger Agreement was fair, from a financial point of view, to such holders. Representatives of Cleary Gottlieb then discussed with the Company Board the forum selection bylaw that was proposed for adoption by the Company Board in connection
with the transaction. Following further discussion and careful consideration, the Company Board unanimously (i) determined and resolved that the terms of the Offer, the Mergers and the other transactions contemplated by the Merger Agreement
were advisable, and fair to and in the best interests of, the Company and its stockholders, (ii) determined that it was advisable and in the best interests of the Company and its stockholders to enter into the Merger Agreement, and that the
Merger Agreement was advisable, (iii) approved the Merger Agreement and the transactions contemplated thereby, on the terms and conditions set forth in the Merger Agreement and (iv) resolved to recommend, subject to its ability to change
its recommendation as permitted by the Merger Agreement, that the Companys stockholders accept the Offer and tender their Shares to Purchaser pursuant to the Offer. For further information concerning the factors considered by the Company Board
in reaching its decision that the Merger Agreement and the transactions contemplated thereby, including the offer and the mergers, are in the best interests of the Company stockholders, and its decision to approve the Merger Agreement and the
transactions contemplated thereby, see
Item 4. The Solicitation or RecommendationBackground and Reasons for the Company Boards RecommendationReasons for the Recommendation of the Company Board
.
Following the Company Board meeting through the morning of January 7, 2017, Cleary Gottlieb and Hogan Lovells worked to finalize the
Merger Agreement and the Tender and Support Agreement.
On the morning of January 7, 2017, (i) the Merger Agreement was executed by
the Company, UnitedHealth Group, Purchaser and Merger Sub and (ii) the Tender and Support Agreement was executed by UnitedHealth Group, Purchaser and the TPG Stockholders. Concurrently with the execution of the Merger Agreement and the
22
Tender and Support Agreement, Mr. Hayek and certain other members of Company management entered into employment agreements with UnitedHealth Group effective as of the closing of the
transactions.
On January 9, 2017, prior to the opening of trading of the Shares on NASDAQ, the Company and UnitedHealth Group issued
a joint press release announcing the execution of the Merger Agreement and the Tender and Support Agreement and the forthcoming commencement of the Offer.
Reasons for the Recommendation of the Company Board
In evaluating the Merger Agreement and the Offer, the Mergers and the other transactions contemplated by the Merger Agreement, including the
Tender and Support Agreement, the Company Board consulted with the senior management of the Company, as well as J.P. Morgan and Cleary Gottlieb. In the course of making the determination (i) that the Offer, the Mergers and the other
transactions contemplated by the Merger Agreement were advisable, fair to and in the best interests of the Company and its stockholders, (ii) that it was advisable and in the best interests of the Company and its stockholders to enter into the
Merger Agreement and that the Merger Agreement was advisable, and (iii) to recommend that the Companys stockholders accept the Offer and tender their Shares to Purchaser pursuant to the Offer, the Company Board considered each of the
following reasons, among others, each of which the Company Board believed supported its unanimous determination and recommendation (but which are not presented in any relative order of importance):
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Transaction Consideration
. The Company Board considered the fact that the Transaction Consideration consists of a mix of cash and shares of UnitedHealth Group common stock and that the portion of a share of
UnitedHealth Group common stock included in the Transaction Consideration will be determined based on a floating exchange ratio, which, in combination with the cash portion of the Transaction Consideration, is designed to maintain the $57.00 total
value per Share of the Transaction Consideration and therefore provides certainty of value to the Companys stockholders and protects against decreases in the value of UnitedHealth Group common stock between the execution of the Merger
Agreement and the determination of the exchange ratio, and:
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that this total value per Share:
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represents a 21.1% premium to the trading price at which the Shares closed on January 5, 2017, the last trading day before delivery of J.P. Morgans oral opinion on January 6, 2017;
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represents a 27.2% premium over the volume-weighted average closing price for the Shares for the
30-trading
day period ending on and including January 5, 2017;
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represents a 9.6% premium to the highest closing price for the Shares during the last
52-weeks
ending on and including January 5, 2017; and
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exceeded the
all-time
high trading price of the Shares; and
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the Company Board considered that, based on discussions and negotiations with UnitedHealth Group and its advisors, in its view the Transaction Consideration represented the highest
per-Share
consideration that UnitedHealth Group was willing to pay.
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Form of Consideration.
The Company Board considered that the consideration to be paid to the Companys stockholders consists of a combination of cash and shares of UnitedHealth Group common stock, which with
respect to the Cash Consideration, allows holders of Shares to realize immediate value, in cash, for their investment in the Company, without the continued exposure to the Companys business risks and the uncertainty associated with the Company
executing on its standalone plan, and with respect to the Stock Consideration, provides holders of Shares with the ability to participate in the future growth of UnitedHealth Group. The Company also considered that shares of UnitedHealth Group
common stock are highly liquid and that UnitedHealth Group pays quarterly dividends while the Company does not.
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23
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Business and Financial Condition of the Company
. The Company Board considered the Companys business, financial condition, results of operations, business, competitive position, properties, assets and
prospects as well as its standalone plan. The Company Board considered, among other factors, that the holders of the Shares would continue to be subject to the risks and uncertainties of the Company executing on its standalone plan if it remained
independent, including continued financial pressure on smaller physician groups (which constitute a majority of the Companys physician partners), continued risks of hospital employment of independent physicians, reimbursement pressure on the
Companys surgical facilities, risk of increased competition, including from hospital systems and new market entrants, risks of declining interest from health plans and medical groups to strategically partner with the Company, and risks of
declining valuation metrics for healthcare providers, and other risks set forth in Part I, Item IA of the Companys Annual Report on Form
10-K
for its fiscal year ended December 31, 2016 as filed
with the SEC on February 21, 2017. The Company Board weighed the certainty of realizing a compelling value for Shares in the Offer and the Mergers compared to the uncertainty that trading values would approach the Transaction Consideration in the
foreseeable future.
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Strategic Alternatives
. The Company Board considered its belief that the value offered to holders of Shares in the Offer and the Mergers was more favorable to holders of Shares than the potential value of
remaining an independent public company and pursuing alternative strategies that might be available to an independent public company.
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Tax Treatment of the Offer and the Mergers
. The Company Board considered the fact that the Offer and the Mergers are expected to be treated as a reorganization within the meaning of Section 368(a) of the Code,
and that, as a result, receipt of the Stock Consideration by stockholders of the Company in exchange for their Shares would not be taxable to the Company stockholders that are U.S. persons for federal tax income purposes, although the Cash
Consideration will be taxable up to the total amount of gain realized in the Offer and Mergers.
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J.P. Morgans Fairness Opinion and Related Analyses.
The Company Board considered the oral opinion of J.P. Morgan delivered to the Company Board on January 6, 2017, which was confirmed by delivery of a
written opinion dated January 7, 2017, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the Transaction Consideration to be paid in the proposed Offer and the Mergers to the holders of
Shares entitled to receive the Transaction Consideration pursuant to the Merger Agreement was fair, from a financial point of view, to such holders, as more fully described in
Item 4. The Solicitation or RecommendationOpinion of the
Financial Advisor to the Company BoardOpinion of J.P. Morgan Securities LLC
.
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Paucity of Potentially Interested Counterparties.
After discussions with J.P. Morgan and management of the Company, the Company Board considered the paucity of potentially interested and capable counterparties
based on the criteria of whether such parties both had the capacity to compete with the terms proposed by UnitedHealth Group and the likely interest in pursuing a potential business combination transaction with the Company.
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Negotiation Process and Procedural Fairness.
The Company Board considered the fact that the terms of the Offer and Mergers were the result of robust
arms-length
negotiations and that the Transaction Committee of the Company Board, with the assistance of the Companys independent financial and legal advisors, played an active role in the negotiations.
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Speed of Completion.
The Company Board considered the anticipated timing of the consummation of the
transactions contemplated by the Merger Agreement, and the structure of the transaction as an exchange offer for the Shares, which, subject to the satisfaction or waiver of the applicable conditions set forth in the Merger Agreement, is expected to
allow the Companys stockholders to receive the consideration for their Shares in a relatively short time frame, followed by the First Merger in which stockholders who do not validly exercise appraisal rights will receive the same consideration
as received by those stockholders who tender their Shares in the Offer. The Company Board considered that the potential for closing in a relatively short time frame could also reduce the amount of time in
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24
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which the Companys business would be subject to the operational restrictions contained in the Merger Agreement and the potential disruption and uncertainty pending closing.
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Likelihood of Completion; Certainty of Payment
. The Company Board considered its belief that the Offer and the Mergers will likely be consummated, based on, among other factors:
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the absence of any financing condition to consummation of the Offer or the Mergers;
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the reputation and financial condition of UnitedHealth Group;
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the fact that the conditions to the Offer and Mergers are specific and limited in scope;
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the fact that the TPG Stockholders had entered into the Tender and Support Agreement, pursuant to which each TPG Stockholder has agreed to tender the Shares held by it into the Offer, on the terms and conditions set
forth in the Tender and Support Agreement; and
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the Companys ability to specifically enforce the Merger Agreement, including the obligation of UnitedHealth Group and Purchaser to consummate the Offer and the Mergers.
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Assumption of Certain
Change-in-Control
Risks
. The Company Board considered that the risks relating to the change of control
provisions contained in the agreements governing certain of the Companys key joint ventures would be borne by UnitedHealth Group and that a transaction would not be contingent upon the Companys partners in these joint ventures waiving
their change of control rights. The Company Board also considered that it was unlikely for a competing bidder to be capable of assuming the
change-in-control
risks
relating to certain key joint ventures, which UnitedHealth Group had advised the Company that it was prepared to do.
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The Company Board
considered other terms of the Merger Agreement, which are more fully described in the section of the Prospectus/Offer to Exchange entitled
Merger Agreement.
Certain provisions of the Merger Agreement that the Company Board
considered important included:
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Minimum Tender Condition
. Consummation of the Offer is conditioned on the satisfaction of the minimum tender condition, which, if satisfied, would demonstrate strong support for the Offer and the Mergers by
holders of Shares because satisfaction of the minimum tender condition would require that at least a majority of Shares would have been tendered in the Offer and not withdrawn.
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Ability to Respond to Unsolicited Takeover Proposals
. Prior to the time of the Purchasers acceptance of Shares tendered in the Offer, the Company Board may provide confidential information and/or engage in
discussions or negotiations in connection with an unsolicited bona fide written takeover proposal (for further discussion, see the section of the Prospectus/Offer to Exchange entitled
Merger AgreementNo Solicitation of Acquisition
Proposals
) that did not result from the Companys breach of its
non-solicitation
obligations if the Company Board determines in good faith, after consultation with its independent financial
advisor and outside legal counsel, that such takeover proposal constitutes or is reasonably likely to lead to a superior proposal (for further discussion, see the section of the Prospectus/Offer to Exchange entitled
Merger AgreementNo
Solicitation of Acquisition Proposals
) and that the failure to take such action would be inconsistent with the directors fiduciary duties under applicable law, subject to certain notice requirements in favor of UnitedHealth Group and
the entry into an acceptable confidentiality agreement.
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Company Adverse Recommendation Change in Response to a Superior Proposal; Ability to Accept a Superior
Proposal
. The Company Board may, in connection with a superior proposal, effect a change in recommendation (for further discussion, see the section of the Prospectus/Offer to Exchange entitled
Merger AgreementNo Solicitation of
Acquisition Proposals
) and/or cause the Company to terminate the Merger Agreement to enter into a definitive agreement with respect to a superior proposal, if the Company Board determines in good faith, after consultation with its
independent financial advisor and outside legal counsel, that failure to take such action would be inconsistent with the directors fiduciary duties under applicable law, subject to a five-business day
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25
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match right that would allow UnitedHealth Group to match a superior proposal, and which will renew for two additional business days upon any revisions to the financial terms or any
material revisions to the other terms of the superior proposal. If the Merger Agreement is terminated in connection with the Companys entering into a definitive agreement with respect to a superior proposal or changing its recommendation in
response to a superior proposal, then the Company will have an obligation to pay UnitedHealth Group a termination fee of $90 million (as more fully described in the section of the Prospectus/Offer to Exchange entitled
Merger
AgreementTermination Fee
). The Company Board also considered, based on discussions with its independent financial and legal advisors, that the amount of the termination fee is comparable to termination fees in transactions of a
similar size, was reasonable, would not meaningfully deter competing bids and would not likely be required to be paid unless the Company entered into a more favorable transaction. The Company Board also recognized that the provisions in the Merger
Agreement relating to match right and termination fees were insisted upon by UnitedHealth Group as a condition to entering into the Merger Agreement.
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General Company Adverse Recommendation Change
. The Company Board may also effect a change in recommendation other than in response to a superior proposal if the Company Board determines in good faith, after
consultation with its independent financial advisor and outside legal counsel, that failure to take such action would be inconsistent with the directors fiduciary duties under applicable law, subject to a five-business day right that would
allow UnitedHealth Group to propose adjustments to the terms and conditions of the Merger Agreement such that the failure to take such action would no longer be inconsistent with the directors fiduciary duties under applicable law. If
UnitedHealth Group terminates the Merger Agreement as a result of such adverse change in recommendation, the Company will have an obligation to pay UnitedHealth Group a termination fee of $90 million (as more fully described in the section of
the Prospectus/Offer to Exchange entitled
Merger AgreementTermination Fee
).
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Extension of the Offer
. Although the Purchasers obligation to accept and pay for all Shares that have been validly tendered into the Offer and not properly withdrawn is subject to the satisfaction or waiver
of a number of conditions, the Purchaser is required, under certain circumstances, to extend the Offer beyond the initial expiration date which will provide additional time for such conditions to be satisfied (see the section of the Prospectus/Offer
to Exchange entitled
Exchange Offer ProceduresExtension, Termination and Amendment of Offer
).
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End Date
. The end date (as defined in the section of the Prospectus/Offer to Exchange entitled
Questions and Answers About the Transactions
) under the Merger Agreement on which either party,
subject to certain exceptions, can terminate the Merger Agreement allows for sufficient time to consummate the Offer and the Mergers, while minimizing the length of time during which the Company would be required to operate subject to the
restrictions on interim operations set forth in the Merger Agreement.
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Obligations to Consummate the Offer and the Mergers
. The Merger Agreement requires UnitedHealth Group to use its reasonable best efforts to consummate the Offer and the Mergers and to obtain requisite approvals
to consummate the Offer and the Mergers.
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Appraisal Rights
. The Company Board considered the availability of statutory appraisal rights under Delaware law in connection with the First Merger for stockholders of the Company who do not tender their Shares
into the Offer (and who otherwise comply with the statutory requirements of Delaware law), and who believe that exercising such rights would yield them a greater
per-Share
amount than the Transaction
Consideration, which appraisal rights avoid delays in the transaction so that other stockholders of the Company will be able to receive in the Offer and the First Merger the Transaction Consideration, as applicable, for their Shares.
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26
In reaching its determinations and recommendations described above, the Company Board also considered a number of
uncertainties, risks and potentially negative factors relevant to the transactions, including the following (but not in any relative order of importance):
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Floating Exchange Ratio.
The Company Board considered that because
20-49%
of the Transaction Consideration is payable in cash and the portion of a share of UnitedHealth
Group common stock included in the Transaction Consideration will be determined based on a floating exchange ratio, the Company stockholders will not benefit from any increase in the trading price of UnitedHealth Group common stock between the
execution of the Merger Agreement and the determination of the exchange ratio.
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Non-Solicitation
Covenant
. The Company Board considered that the Merger Agreement prohibits the Company from soliciting takeover proposals from third parties (as more fully
described in the section of the Prospectus/Offer to Exchange entitled
Merger AgreementNo Solicitation of Acquisition Proposals
).
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Termination Fee
. The Company Board considered the fact that the Company must pay UnitedHealth Group a termination fee of $90 million if the Merger Agreement is terminated under certain circumstances,
including to accept a superior proposal (as more fully described in the section of the Prospectus/Offer to Exchange entitled
Merger AgreementTermination Fee
).
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Tax Treatment of the Offer and the Mergers
. The Company Board considered the fact that receipt of the Cash Consideration by stockholders of the Company in exchange for their Shares would be taxable to the Company
stockholders that are U.S. persons for federal tax income purposes.
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Interim Operating Covenants
. The Company Board considered that the Merger Agreement imposes restrictions on the conduct of the Companys business prior to the consummation of the First Merger, requiring the
Company and its subsidiaries to conduct their respective businesses in the ordinary course of business in all material respects and use their respective commercially reasonable efforts to, among other things, maintain and preserve intact the
Companys business organizations, and keep available the services of their key employees, and that these restrictions may limit the Company and its subsidiaries from taking specified actions, subject to specific limitations, which may delay or
prevent the Company from undertaking business opportunities that may arise pending completion of the transactions (as more fully described in the section of the Prospectus/Offer to Exchange entitled
Merger AgreementConduct of
SCAs Business Pending the First Merger
).
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Risks and Uncertainties Relating to the Combined Business
.
The Company Board considered the challenges of combining the business of the Company with that of UnitedHealth Group and the risk that the
anticipated performance or operational synergies might not be fully realized.
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Risks the Offer and the Mergers May Not Be Completed
. The Company Board considered the risk that the conditions to the Offer may not be satisfied and that, therefore, Shares may not be purchased pursuant to the
Offer and the Mergers may not be consummated. The Company Board also considered the risks and costs to the Company if the Offer and the Mergers are not consummated, including the diversion of management and employee attention, potential employee
attrition, the potential effect on vendors, distributors, customers, facilities, partners and others that do business with the Company and the potential effect on the trading price of the Shares.
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Potential Conflicts of Interest
. The Company Board considered the fact that the Companys executive officers and directors have financial interests in the transactions contemplated by the Merger Agreement,
including the Offer and the Mergers that may be different from or in addition to those of other stockholders, as more fully described in
Item 3. Past Contacts, Transactions, Negotiations and AgreementsArrangements with Current
Executive Officers, Directors and Affiliates of the Company
.
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The foregoing discussion of the reasons considered
by the Company Board is intended to be a summary only and should not be considered an exhaustive list of all of the reasons considered by the Company Board. The
27
Company Board unanimously concluded that the positive reasons relating to the Merger Agreement and the transactions contemplated thereby, including the Offer and the Mergers, substantially
outweighed the potential negative reasons. The Company Board collectively reached the conclusion to approve the Merger Agreement and the related transactions, including the Offer and the Mergers, in light of the various reasons described above and
other factors that the members of the Company Board believed were appropriate. In view of the wide variety of reasons considered by the Company Board in connection with its evaluation of the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Mergers, and the complexity of these matters, the Company Board did not consider it practical, and did not attempt to quantify, rank or otherwise assign relative weights to the specific reasons it considered in
reaching its decision, and it did not undertake to make any specific determination as to whether any reason, or any particular aspect of any reason, supported or did not support its ultimate determination. Rather, the Company Board made its
recommendation based on the totality of information it received and the investigation it conducted. In considering the reasons discussed above, individual directors may have given different weights to different reasons. It should be noted that this
explanation of the reasoning of the Company Board and certain information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in
Item 8. Additional
InformationCautionary Note Regarding Forward-Looking Statements.
(c) Intent to Tender.
To the best of the Companys knowledge, after reasonable inquiry, to the extent permitted by applicable securities laws, rules or
regulations, including Section 16(b) of the Exchange Act, each executive officer and director of the Company who owns Shares presently intends to tender in the Offer all Shares that he or she owns of record or beneficially.
(d) Opinion of the Financial Advisor to the Company Board.
Opinion of J.P. Morgan Securities LLC
Pursuant to an engagement letter dated January 6, 2017 (the Engagement Letter), the Company retained J.P. Morgan as its
financial advisor in connection with the proposed Offer and the Mergers (referred to in this section as the Transaction).
At
the meeting of the Company Board on January 6, 2017, J.P. Morgan rendered its oral opinion to the Company Board that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the Transaction
Consideration to be paid in the proposed Transaction to the holders of Shares entitled to receive Transaction Consideration pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.
J.P. Morgan has confirmed its January 6, 2017 oral opinion by delivering its written opinion to the Company Board, dated January 7,
2017, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the Transaction Consideration to be paid in the proposed Transaction to the holders of Shares entitled to receive Transaction
Consideration pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. The full text of the written opinion of J.P. Morgan dated January 7, 2017, which sets forth the assumptions made, matters considered and
limits on the review undertaken, is attached as Annex A to this Schedule
14D-9
and is incorporated herein by reference. The Companys stockholders are urged to read the opinion in its entirety. J.P.
Morgans written opinion was provided to the Company Board (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed Transaction and was directed only to the Transaction Consideration to be paid in the
proposed Transaction to the holders of Shares entitled to receive Transaction Consideration pursuant to the Merger Agreement and did not address any other aspect of the proposed Transaction. The issuance of J.P. Morgans opinion was approved by
a fairness committee of J.P. Morgan. The summary of the opinion of J.P. Morgan set forth in this Schedule
14D-9
is qualified in its entirety
28
by reference to the full text of such opinion. The opinion does not constitute a recommendation to any stockholder of the Company as to whether such stockholder should tender its Shares into the
Offer or how such stockholder should vote with respect to the proposed Transaction or any other matter.
In arriving at its opinions, J.P.
Morgan, among other things:
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reviewed the Merger Agreement;
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reviewed certain publicly available business and financial information concerning the Company and UnitedHealth Group and the industries in which they operate;
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compared the proposed financial terms of the proposed Transaction with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such
companies;
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compared the financial and operating performance of the Company and UnitedHealth Group with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and
historical market prices of the Shares and UnitedHealth Group common stock and certain publicly traded securities of such other companies;
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reviewed certain internal financial analyses and forecasts prepared by the management of the Company relating to its business which are set forth in Table 1 of the section of this Schedule
14D-9
entitled
Item 8. Additional InformationCertain Unaudited Prospective Financial Information
(referred to in this section as the unaudited prospective financial
information) and certain financial analyses and forecasts derived therefrom by the management of the Company and guidance provided by management of the Company with respect to extrapolations derived therefrom by J.P. Morgan (which
extrapolations were reviewed and approved by management of the Company); and
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performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.
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In addition, J.P. Morgan held discussions with certain members of the management of the Company with respect to certain aspects of the proposed
Transaction, and the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, the effects of the Transactions on the financial condition and future prospects of the Company, and
certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.
In giving its opinion, J.P. Morgan relied upon and
assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by the Company or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (and did
not assume any obligation to undertake any such independent verification of) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did
J.P. Morgan evaluate the solvency of the Company or UnitedHealth Group under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on the unaudited prospective financial information or on financial analyses and
forecasts derived therefrom by the management of the Company and guidance provided by management of the Company with respect to extrapolations derived therefrom by J.P. Morgan (which extrapolations were reviewed and approved by management of the
Company), J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of the
Company to which the unaudited prospective financial information or such financial analyses and forecasts derived therefrom by management and guidance provided by management of the Company with respect to extrapolations derived therefrom by J.P.
Morgan (which extrapolations were reviewed and approved by management of the Company) relate. J.P. Morgan expressed no view as to the unaudited prospective financial information or the financial analyses and forecasts derived therefrom by the
management of the Company and guidance provided by management of the Company with respect to extrapolations derived therefrom by J.P. Morgan (which extrapolations were reviewed and approved by management of the Company) or the assumptions on which
they were based. J.P. Morgan also assumed that the proposed Transaction and other transactions
29
contemplated by the Merger Agreement will qualify as a
tax-free
reorganization for United States federal income tax purposes and will be consummated as
described in the Merger Agreement. J.P. Morgan also assumed that the representations and warranties made by the Company and UnitedHealth Group in the Merger Agreement and the related agreements were and will be true and correct in all respects
material to its analysis. J.P Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other
consents and approvals necessary for the consummation of the proposed Transaction will be obtained without any adverse effect on the Company or UnitedHealth Group or on the contemplated benefits of the proposed Transaction.
J.P. Morgans opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available
to J.P. Morgan as of the date of its opinion. J.P. Morgans opinion noted that subsequent developments may affect J.P. Morgans opinion, and that J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P.
Morgans opinion is limited to the fairness, from a financial point of view, of the Transaction Consideration to be paid in the proposed Transaction to the holders of Shares entitled to receive Transaction Consideration pursuant to the Merger
Agreement, and J.P. Morgan has expressed no opinion as to the fairness of any consideration to be paid to the holders of any other class of securities, creditors or other constituencies of the Company or the underlying decision by the Company to
engage in the proposed Transaction. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the proposed Transaction, or any class of such
persons relative to the Transaction Consideration to be paid in the proposed Transaction to the holders of Shares entitled to receive Transaction Consideration pursuant to the Merger Agreement or with respect to the fairness of any such
compensation
.
J.P. Morgan expressed no opinion as to the price at which the Shares or UnitedHealth Group common stock will trade at any future time.
The terms of the Merger Agreement, including the Transaction Consideration, were determined through arms length negotiations between the
Company and UnitedHealth Group, and the decision to enter into the Merger Agreement was solely that of the Company Board. J.P. Morgans opinion and financial analyses were only one of the many factors considered by the Company Board in its
evaluation of the proposed Transaction and should not be viewed as determinative of the views of the Company Board or management with respect to the proposed Transaction or the Transaction Consideration to be paid in the proposed Transaction to the
holders of Shares entitled to receive Transaction Consideration pursuant to the Merger Agreement.
In accordance with customary investment
banking practice, J.P. Morgan employed generally accepted valuation methodologies in rendering its oral opinion to the Company Board on January 6, 2017 and contained in the presentation delivered to the Company Board on such date in connection
with the rendering of such oral opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion. Some of the summaries of the financial analyses include information presented in
tabular format. The tables are not intended to stand alone and, in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below
without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgans analyses. For purposes of the
financial analyses utilized by J.P. Morgan in connection with providing its opinion, EBITDA for the Company was calculated as earnings before interest, taxes, depreciation and amortization before stock-based compensation, excluding income
attributable to
non-controlling
interests.
Public Trading Multiples.
Using publicly available information, J.P. Morgan compared selected financial data of the Company with similar data for selected publicly
traded companies engaged in businesses which J.P. Morgan judged to be analogous to the Company or aspects thereof based on J.P. Morgans experience and its familiarity with the industries in which the Company operates. The companies selected by
J.P. Morgan were as follows:
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Envision Healthcare Holdings, Inc.
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30
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TeamHealth Holdings Inc.
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With respect to the selected companies, the information J.P. Morgan presented
included the multiple of firm value (calculated as equity value plus net debt and, with respect to the Company, Surgery Partners, Inc. and Envision Healthcare Holdings, Inc., excluding
non-controlling
interests), referred to in this section as FV, to adjusted EBITDA (calculated as earnings before interest, taxes, depreciation and amortization before stock-based compensation, and, with respect to the Company, Surgery Partners, Inc. and
Envision Healthcare Holdings, Inc., excluding income attributable to
non-controlling
interests), referred to in this section as EBITDA. Estimated financial data for the selected companies was based
on the selected companies filings with the SEC and publicly available analyst consensus estimates for the calendar year ended 2017 that J.P. Morgan obtained from FactSet Research Systems. Results of this analysis were presented for the
selected companies, as indicated in the following table:
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Selected Company
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FV/EBITDA 2017E Multiple
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Surgery Partners, Inc.
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9.5x
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Envision Healthcare Holdings, Inc.
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9.3x
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*
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TeamHealth Holdings Inc.
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10.1x
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**
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MEDNAX, Inc.
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10.7x
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*
|
Pro forma for the merger between AMSURG Corp. and Envision Healthcare Holdings, Inc. announced on June 17, 2016 and completed on December 1, 2016.
|
**
|
Based on TeamHealth Holdings Inc.s unaffected stock price as of October 28, 2016 prior to the announcement of The Blackstone Groups acquisition of TeamHealth Holdings Inc.
|
Based on the above analysis and other factors that J.P. Morgan considered appropriate, J.P. Morgan then selected a FV/EBITDA 2017E reference range for the
Company of 9.50x to 10.75x. Applying this range to the Companys projected EBITDA for the calendar year ended 2017 included in the unaudited prospective financial information, the analysis indicated an implied equity value per Share between
$26.25 and $33.25 (rounded to the nearest $0.25), which J.P. Morgan compared to the value of the Transaction Consideration of $57.00 per Share. J.P. Morgan also derived the FV/EBITDA 2017E multiples for the Company based on publicly available
analyst consensus estimates and the unaudited prospective financial information of 14.00x and 13.30x, respectively, and noted that expanding the FV/EBITDA 2017E reference range to 9.50x to 14.00x and applying it to the Companys projected
EBITDA for the calendar year ended 2017 included in the unaudited prospective financial information would indicate an implied equity value per Share between $26.25 and $51.00 (rounded to the nearest $0.25), as compared to the value of the
Transaction Consideration of $57.00 per Share.
31
Selected Transaction Analysis.
Using publicly available information, J.P. Morgan examined selected transactions with respect to businesses which J.P. Morgan judged to be
analogous to the Companys business or aspects thereof based on J.P. Morgans experience and familiarity with the industries in which the Company operates. The transactions indicated in the following table were selected by J.P. Morgan as
relevant in evaluating the proposed Transaction. Using publicly available information, J.P. Morgan calculated, for each selected transaction, the multiple of the target companys FV implied in the relevant transaction to the target
companys EBITDA for the twelve-month period prior to the announcement date of the applicable transaction. Estimated financial data for the selected transactions was based on the selected companies filings with the SEC and publicly
available analyst consensus estimates that J.P. Morgan obtained from FactSet Research Systems. Results of this analysis were presented for the selected transactions, as indicated in the following table:
|
|
|
|
|
|
|
Announcement Date
|
|
Acquiror
|
|
Target
|
|
LTM EBITDA Multiple
|
October 2016
|
|
Blackstone Group LP
|
|
TeamHealth Holdings Inc.
|
|
12.9x
|
June 2016
|
|
AMSURG Corp.
|
|
Envision Healthcare Holdings, Inc.
|
|
12.6x*
|
August 2015
|
|
TeamHealth Holdings Inc.
|
|
IPC Healthcare, Inc.
|
|
22.7x**
|
May 2014
|
|
AMSURG Corp.
|
|
Sheridan Healthcare, Inc.
|
|
12.2x*
|
June 2014
|
|
Surgery Partners Inc. / H.I.G. Capital, LLC
|
|
Symbion Holdings Corp.
|
|
10.3x
|
April 2011
|
|
AMSURG Corp.
|
|
National Surgical Care, Inc.
|
|
8.1x
|
January 2011
|
|
Surgery Partners Inc. / H.I.G. Capital, LLC
|
|
NovaMed, Inc.
|
|
7.7x*
|
April 2007
|
|
Crestview Partners, L.P.
|
|
Symbion Holdings Corp.
|
|
12.5x
|
March 2007
|
|
TPG Capital, L.P.
|
|
HealthSouth Corporation (Surgery Centers)
|
|
10.1x
|
*
|
EBITDA for Envision Healthcare Holdings, Inc. Sheridan Healthcare and NovaMed, Inc. calculated excluding income attributable to
non-controlling
interests.
|
**
|
Transaction included for reference purposes only and not as a component of J.P. Morgans fairness analysis.
|
Based on the above analysis and other factors that J.P. Morgan considered appropriate, J.P. Morgan then selected a LTM EBITDA multiple reference range for the
Company of 8.00x to 13.00x. Applying this range to the Companys EBITDA for calendar year 2016 included in the unaudited prospective financial information, this analysis indicated an implied equity value per Share between $11.50 and $35.25
(rounded to the nearest $0.25), which J.P. Morgan compared to the value of the Transaction Consideration of $57.00 per Share.
Discounted Cash Flow Analysis.
J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining the fully diluted equity value per Share. J.P. Morgan
calculated the Unlevered Free Cash Flow Estimates for calendar years 2017 through 2031 (as set forth in Table 2 of the section of this Schedule
14D-9
entitled
Item 8. Additional
InformationCertain Unaudited Prospective Financial Information
), which were discussed with, and approved by, the Companys management for J.P. Morgans use in connection with its financial analyses. J.P. Morgan also
calculated a range of terminal values for the Company at the end of this period by applying terminal value growth rates ranging from 1.50% to 2.00% to the Unlevered Free Cash Flow Estimates for the Company during the terminal period. The Unlevered
Free Cash Flow Estimates, the cash flows generated by potential tax savings resulting from utilization of the net operating losses of the Company as provided by the Company management and the range of terminal values were then discounted by J.P.
Morgan to present value as of December 31, 2016 using discount rates ranging from 6.50% to 7.50%, which range was chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of the Company. The present value of the
Unlevered Free Cash Flow Estimates and the range of terminal values
32
were then adjusted by subtracting projected net debt as of December 31, 2016 and adding the discounted value as of December 31, 2016 of the cash flows generated by potential tax savings
resulting from utilization of the net operating losses of the Company. This analysis indicated a range of implied equity values for the Company, which J.P. Morgan divided by the number of outstanding Shares, calculated on a fully-diluted basis, to
derive a range of implied equity values per Share of between $40.00 and $70.50 (rounded to the nearest $0.25) per share, which J.P. Morgan compared to the value of the Transaction Consideration of $57.00 per Share.
Other Information
Historical
Trading Range for the Company
. For reference purposes only and not as a component of its fairness analysis, J.P. Morgan reviewed the historical trading prices of the Shares during the
52-week
period
prior to January 5, 2017, the last trading day before delivery of J.P. Morgans oral opinion on January 6, 2017, noting that the low and high closing prices during such period ranged from $38.29 per share to $52.01 per Share, as
compared to the value of the Transaction Consideration of $57.00 per Share.
Analyst Price Targets for the Company
. For
reference purposes only and not as a component of its fairness analysis, J.P. Morgan reviewed certain publicly available equity research analyst share price targets for the Shares obtained from FactSet Research Systems, noting that the low and high
share price targets ranged from $37.00 per share to $58.00 per Share, as compared to the value of the Transaction Consideration of $57.00 per Share.
Miscellaneous.
The
foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses
as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to
create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of the Company. The order of analyses described does not represent the relative importance or weight given to
those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or
negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion.
Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control
of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover,
J.P. Morgans analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the selected companies reviewed as described in the above summary is
identical to the Company, and certain of these companies may have characteristics that are materially different from those of the Company, and none of the selected transactions reviewed was identical to the proposed Transaction. However, the
companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgans analysis, may be considered similar to those of the Company. The transactions selected were similarly
chosen because their participants, size and other factors, for purposes of J.P. Morgans analysis, may be considered similar to the proposed Transaction. The analyses necessarily involve complex considerations and judgments concerning
differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect the Company and the transactions differently than they would affect the proposed
Transaction.
33
As a part of its investment banking business, J.P. Morgan and its affiliates are continually
engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private
placements, and valuations for corporate and other purposes. J.P. Morgan was selected to advise the Company Board in connection with the proposed Transaction on the basis of, among other things, such experience and its qualifications and reputation
in connection with such matters and its familiarity with the Company and the industries in which it operates.
For financial advisory
services rendered in connection with the Transaction (including the delivery of its opinion), the Company has agreed to pay J.P. Morgan a fee of $14 million, $2 million of which was payable upon delivery by J.P. Morgan of its opinion, and
the remainder of which will become due upon the closing of the proposed Transaction. In addition, the Company has agreed to reimburse J.P. Morgan for certain of its reasonable costs and expenses incurred in connection with its services, including
certain of the reasonable fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities arising out of J.P. Morgans engagement. During the two years preceding the date of J.P. Morgans opinion, J.P. Morgan
and its affiliates have had commercial or investment banking relationships with the Company, UnitedHealth Group and TPG Capital, L.P. (together with its affiliates, TPG) for which J.P. Morgan and such affiliates have received customary
compensation. With respect to the Company, such services during such period have included acting as joint lead arranger and joint bookrunner with respect to its term loan B and revolving credit facility closed March 2015 and as sole bookrunner and
sole lead arranger with respect to the increase of the said term loan B facility closed October 2016, as joint bookrunner with respect to its bond offering closed March 2015, and as joint bookrunner with respect to its equity offering closed March
2015. With respect to UnitedHealth Group, such services during such period have included acting as joint lead arranger and bookrunner with respect to its revolving credit facility closed April 2015 and joint lead arranger and bookrunner with respect
to its term loan A facility closed April 2015, as joint bookrunner with respect to its bond offerings closed December 2016 and July 2015, respectively, and as financial advisor on its acquisition of Catamaran Corporation closed July 2015. With
respect to TPG, such services during such period have included acting as joint lead arranger and bookrunner with respect to its syndicated credit facilities closed October 2015 and August 2016 respectively. In addition, J.P. Morgans commercial
banking affiliate is an agent bank and a lender under outstanding credit facilities of the Company and UnitedHealth Group, for which J.P. Morgan receives customary compensation or other financial benefits. In addition, J.P. Morgan and its affiliates
hold, on a proprietary basis, less than 1% of each of the Shares and UnitedHealth Group common stock. During the two years preceding the date of J.P. Morgans opinion, the aggregate fees received by J.P. Morgan from the Company were
approximately $6 million, the aggregate fees received by J.P. Morgan from UnitedHealth Group were approximately $49 million and the aggregate fees received by J.P. Morgan from TPG were approximately $183 million. In the ordinary
course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of the Company or UnitedHealth Group for its own account
or for the accounts of customers and, accordingly, J.P. Morgan may at any time hold long or short positions in such securities or other financial instruments.
Item 5.
|
Person/Assets, Retained, Employed, Compensated or Used.
|
The Company retained J.P.
Morgan to serve as its financial advisor in connection with the Offer and the Mergers and, in connection with such engagement, J.P. Morgan provided to the Company Board J.P. Morgans written opinion described in
Item 4. The
Solicitation or RecommendationOpinion of the Financial Advisor to the Company BoardOpinion of J.P. Morgan Securities LLC
, which is filed as Annex A hereto and is incorporated herein by reference. The Company Board selected J.P
Morgan to serve as the Companys financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Offer and Mergers, its reputation in the investment community
and its familiarity with the Company and its business.
34
In connection with J.P. Morgans services as the Companys financial advisor, the
Company has agreed to pay J.P. Morgan a transaction fee of $14 million, $2 million of which was payable upon delivery of its opinion, and the remainder of which will become due upon the closing of the Mergers. In addition, the Company has
agreed to reimburse J.P. Morgan for certain of its reasonable costs and expenses incurred in connection with its services, including certain of the reasonable fees and disbursements of counsel, and will indemnify J.P. Morgan against certain
liabilities arising out of J.P. Morgans engagement.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to make solicitations or recommendations to the stockholders of the Company on its behalf with respect to the Offer.
Item 6.
|
Interest in Securities of the Subject Company.
|
No transactions in the Shares have been
effected during the 60 days prior to the date of this Schedule
14D-9
by the Company, or, to the best of the Companys knowledge, by any of the Companys directors, executive officers or affiliates or
subsidiaries of the Company, other than:
|
|
|
|
|
|
|
|
|
Name
|
|
Date
|
|
No.
Shares
|
|
Sale or
Exercise
Price as
Applicable
|
|
Nature of Transaction
|
Tom De Weerdt
|
|
12/31/2016
|
|
270
|
|
$39.33
|
|
Shares acquired under the Companys TSPP in transactions that were exempt under both Rule
16b-3(d)
and
Rule 16b-3(c)
|
Andrew Hayek
|
|
01/03/2017
|
|
3,124
|
|
$11.18
|
|
Shares acquired pursuant to exercise of stock options
|
Andrew Hayek
|
|
01/03/2017
|
|
3,124
|
|
$45.37
|
|
Sale effected pursuant to Rule
10b5-1
plan
|
Andrew Hayek
|
|
01/09/2017
|
|
3,124
|
|
$11.18
|
|
Shares acquired pursuant to exercise of stock options
|
Andrew Hayek
|
|
01/09/2017
|
|
3,124
|
|
$56.55
|
|
Sale effected pursuant to Rule
10b5-1
plan
|
Andrew Hayek
|
|
01/17/2017
|
|
3,124
|
|
$11.18
|
|
Shares acquired pursuant to exercise of stock options
|
Andrew Hayek
|
|
01/17/2017
|
|
3,124
|
|
$56.62
|
|
Sale effected pursuant to Rule
10b5-1
plan
|
Andrew Hayek
|
|
01/23/2017
|
|
3,124
|
|
$11.18
|
|
Shares acquired pursuant to exercise of stock options
|
Andrew Hayek
|
|
01/23/2017
|
|
3,124
|
|
$56.55
|
|
Sale effected pursuant to Rule
10b5-1
plan
|
Andrew Hayek
|
|
01/30/2017
|
|
3,124
|
|
$11.18
|
|
Shares acquired pursuant to exercise of stock options
|
Andrew Hayek
|
|
01/30/2017
|
|
3,124
|
|
$56.51
|
|
Sale effected pursuant to Rule
10b5-1
plan
|
Andrew Hayek
|
|
02/06/2017
|
|
3,124
|
|
$11.18
|
|
Shares acquired pursuant to exercise of stock options
|
Andrew Hayek
|
|
02/06/2017
|
|
3,124
|
|
$56.56
|
|
Sale effected pursuant to Rule
10b5-1
plan
|
Andrew Hayek
|
|
02/13/2017
|
|
3,124
|
|
$11.18
|
|
Shares acquired pursuant to exercise of stock options
|
Andrew Hayek
|
|
02/13/2017
|
|
3,124
|
|
$56.47
|
|
Sale effected pursuant to Rule
10b5-1
plan
|
Item 7.
|
Purposes of the Transaction and Plans or Proposals.
|
Except as indicated in Items 2, 3
and 4 of this Schedule
14D-9,
(a) the Company is not undertaking or engaged in any negotiations in response to the Offer that relate to, or would result in: (i) a tender offer for or other acquisition of
the Shares by the Company, any of its subsidiaries, or any other person; (ii) any extraordinary transaction such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (iii) any purchase, sale or transfer
of a material amount of assets of the Company or any of its subsidiaries; or (iv) any material change in the present dividend rates or policy, or indebtedness or capitalization of the Company and (b) there are no transactions, resolutions
of the Company Board or agreements in principle or signed contracts in response to the Offer that relate to, or would result in, one or more of the events referred to in clause (a) of this Item 7.
35
Item 8.
|
Additional Information.
|
(a) Golden Parachute Compensation.
Set forth below is the information required by Item 402(t) of Regulation
S-K,
which requires disclosure
regarding the compensation for the Companys named executive officers that is based on or otherwise relates to the Offer and Mergers. This compensation is referred to as golden parachute compensation by the applicable SEC disclosure
rules, and in this section we use such term to describe the compensation payable to the Companys named executive officers in connection with the Offer and Mergers.
The arrangement pursuant to which the payment below will be made are described more fully in
Item 3. Past Contacts, Transactions,
Negotiations and AgreementsArrangements with Current Executive Officers, Directors and Affiliates of the CompanyEmployment Agreements and Severance Payments Following the Mergers
, including the material conditions or
obligations applicable to the receipt of payment or benefits. Pursuant to the terms of their employment agreements in effect upon the consummation of the Mergers, each named executive officer is entitled to certain double trigger
severance payments upon a qualifying termination of employment. In each case, the severance payments are triggered upon a termination without cause or a resignation for good reason.
As described under
Item 3. Past Contacts, Transactions, Negotiations and AgreementsArrangements with Current Executive
Officers, Directors and Affiliates of the CompanyConsideration for Shares, Company Stock Options, Company RSU Awards and Company Performance Share Awards in Connection with the Offer and the MergersTreatment of Company Stock Options,
Company RSUs
& Company PSAs
, pursuant to the terms of the Merger Agreement, each named executive officers outstanding Company Stock Options, Company RSUs and Company PSAs will be converted, on their existing
terms (including as to vesting and forfeiture) into UnitedHealth Group Stock Options, UnitedHealth Group RSUs and UnitedHealth Group PSAs, respectively. All such awards are subject to double trigger vesting provisions and will vest in
full upon a termination within four years after the Effective Time (extended from two years pursuant to the Transaction Documents).
The
amounts set forth in the table below assume the following:
|
|
|
the Effective Time occurred on February 15, 2017, the last practicable date prior to the filing of this Schedule
14D-9;
|
|
|
|
the named executive officers were terminated without cause immediately following the Effective Time on February 15, 2017;
|
|
|
|
for purposes of valuing the UnitedHealth Group Stock Options, UnitedHealth Group RSUs and UnitedHealth Group PSAs, an assumed UnitedHealth Group Trading Price of $160.50 (which is the volume weighted average of the
closing sale price per share of UnitedHealth Group common stock on the New York Stock Exchange on each of the five full consecutive trading days ending on and including the third business day prior to the hypothetical closing date of
February 15, 2017); and
|
|
|
|
that the amounts set forth in the table below are as calculated before any taxes that may be due on such amounts.
|
36
In addition, the amounts reported below are estimates based on multiple assumptions that may or
may not actually occur, including assumptions described in this Schedule
14D-9.
As a result, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set
forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash
($)(1)
|
|
|
Equity
($)(2)
|
|
|
Perquisites/Benefits
($)(3)
|
|
|
Other ($)(4)
|
|
|
Total ($)
|
|
Andrew P. Hayek
|
|
$
|
4,604,000
|
|
|
$
|
23,190,108
|
|
|
|
|
|
|
$
|
8,700
|
|
|
$
|
27,802,808
|
|
Joseph T. Clark
|
|
$
|
1,292,375
|
|
|
$
|
6,044,793
|
|
|
$
|
15,511
|
|
|
|
|
|
|
$
|
7,352,679
|
|
Michael A. Rucker
|
|
$
|
1,327,187
|
|
|
$
|
7,568,175
|
|
|
|
|
|
|
$
|
8,700
|
|
|
$
|
8,904,062
|
|
Richard L. Sharff, Jr.
|
|
$
|
1,125,566
|
|
|
$
|
4,043,637
|
|
|
|
|
|
|
$
|
8,700
|
|
|
$
|
5,177,903
|
|
Tom W.F. De Weerdt
|
|
$
|
1,111,969
|
|
|
$
|
2,500,875
|
|
|
$
|
6,773
|
|
|
|
|
|
|
$
|
3,619,617
|
|
(1)
|
The amounts listed in this column represent double trigger cash severance amounts payable in the event the individuals employment is terminated by the Company without cause or by the
executive for good reason, if applicable, assuming base salaries and bonus opportunities remain unchanged from their current levels. For Messrs. Hayek, Rucker and Sharff, these represent the amounts that would become due under their new
agreements with UnitedHealth Group. For Messrs. Clark and De Weerdt, these represent the amounts due under their existing employment agreements with the Company, as, in the case of Mr. Clark, amended. The estimated amounts for each named
executive officer are as follows:
|
|
|
|
Mr.
Hayek
: $4,604,000 (payable in a lump sum, (i) 2 times base salary, (ii) 2 times target annual bonus, (iii) 1 times target annual bonus, and (iii) $12,000 to offset the costs of COBRA).
|
|
|
|
Mr.
Clark
: $1,292,375 ((i) 1.5 base salary and target annual bonus, which is payable in a lump sum within 40 days following his termination date, and (ii) a pro rata share of his annual
bonus based upon achievement of the applicable performance objectives, which for purposes of this disclosure was assumed to have been achieved at target, and which is payable in a lump sum at the same time as the annual bonuses are paid to other
employees).
|
|
|
|
Mr.
Rucker
: $1,327,187 (payable in a lump sum, (i) 18 months base salary, (ii) a pro rata share of his annual bonus based on the amount paid or payable for the most recent calendar year,
which for purposes of this disclosure was assumed to have been paid at target, (iii) 1.5 times target annual bonus, and (iv) $12,000 to offset the costs of COBRA).
|
|
|
|
Mr.
Sharff
: $$1,125,566 (payable in a lump sum, (i) 18 months base salary, (ii) a pro rata share of his annual bonus based on the amount paid or payable for the most recent calendar year,
which for purposes of this disclosure was assumed to have been paid at target, (iii) 1.5 times target annual bonus, and (iv) $12,000 to offset the costs of COBRA).
|
|
|
|
Mr.
De Weerdt
: $1,111,969 ((i) 1.5 times the sum base salary and target annual bonus, which is payable in a lump sum within 40 days following his termination date, and (ii) a pro rata
share of his annual bonus based upon achievement of the applicable performance objectives, which for purposes of this disclosure was assumed to have been achieved at target, and which is payable in a lump sum at the same time as the annual bonuses
are paid to other employees).
|
(2)
|
These amounts represent the value of the unvested UnitedHealth Group Stock Options and UnitedHealth Group RSUs and UnitedHealth Group PSAs held by each named executive officer, in each case the vesting of which is being
accelerated pursuant to double trigger acceleration provisions triggered by a termination without cause within four years after the Effective Time. The value of such awards is based on an assumed UnitedHealth Group Trading
Price of $160.50 (which is the volume weighted average of the closing sale prices per share of UnitedHealth Group common stock on the New York Stock Exchange on each of the five full consecutive trading days ending on and including the third
business day prior to the hypothetical closing date of February 15, 2017).
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Value of UnitedHealth
Group Stock
Options ($)
|
|
|
Value of UnitedHealth
Group RSUs and
PSAs ($)(a)
|
|
|
Total ($)
|
|
Andrew P. Hayek
|
|
$
|
10,838,835
|
|
|
$
|
12,351,273
|
|
|
$
|
23,190,108
|
|
Joseph T. Clark
|
|
$
|
3,576,522
|
|
|
$
|
2,468,271
|
|
|
$
|
6,044,793
|
|
Michael A. Rucker
|
|
$
|
4,514,685
|
|
|
$
|
3,053,490
|
|
|
$
|
7,568,175
|
|
Richard L. Sharff, Jr.
|
|
$
|
2,315,853
|
|
|
$
|
1,727,784
|
|
|
$
|
4,043,637
|
|
Tom W.F. De Weerdt
|
|
$
|
786,144
|
|
|
$
|
1,714,731
|
|
|
$
|
2,500,875
|
|
(a)
|
The values of UnitedHealth Group PSAs in this table are calculated based on vesting of the awards at target performance.
|
(3)
|
These amounts reflect the estimated value of medical benefits continuation for 18 months following termination.
|
(4)
|
These amounts reflect the estimated value of outplacement services.
|
(b) Appraisal Rights.
No appraisal rights are available in connection with the Offer and holders who tender their Shares in the Offer will not have appraisal rights
in connection with the Mergers. However, if the Offer is successful and the First Merger is consummated, stockholders of the Company who have not properly tendered in the Offer, and who otherwise comply with the applicable procedures for demanding
appraisal under DGCL Section 262, will be entitled to seek appraisal for the fair value of their Shares as determined by the Delaware Court of Chancery.
Stockholders should be aware that a financial advisors opinion as to the fairness, from a financial point of view, of the consideration
payable in a sale transaction, such as the Offer or the Mergers, is not an opinion as to, and does not otherwise address, fair value under DGCL Section 262. Any stockholder contemplating the exercise of such appraisal rights should review
carefully the provisions of DGCL Section 262, particularly the procedural steps required to perfect such rights.
Under DGCL
Section 262, where a merger is approved under DGCL Section 251(h), either a constituent corporation before the effective date of the merger, or the surviving corporation within 10 days thereafter, shall notify each of the holders of any class
or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of Section 262.
THIS SCHEDULE
14D-9
CONSTITUTES THE FORMAL NOTICE OF APPRAISAL RIGHTS UNDER DGCL SECTION 262. FAILURE TO FOLLOW THE STEPS REQUIRED
BY DGCL SECTION 262 FOR PERFECTING APPRAISAL RIGHTS WILL RESULT IN THE LOSS OF SUCH RIGHTS.
The foregoing summary of appraisal rights under DGCL Section 262 is not complete and is qualified in its entirety by the full text of DGCL
Section 262, which is attached to this Schedule
14D-9
as Annex B.
Stockholders wishing to
exercise the right to seek an appraisal of their Shares must do ALL of the following:
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the stockholder must deliver to the Company a written demand for appraisal by the later of the consummation of the Offer and 20 days after the date of mailing of this Schedule
14D-9
(which date of mailing is February 21, 2017);
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the stockholder must not tender his, her or its Shares pursuant to the Offer; and
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the stockholder must continuously hold the Shares from the date of making the demand through the Effective Time.
|
38
Only a holder of record of Shares issued and outstanding immediately prior to the Effective Time
may assert appraisal rights for the Shares registered in that holders name. A demand for appraisal must be executed by or on behalf of the stockholder of record. The demand should set forth, fully and correctly, the record stockholders
name as it appears on the stock certificates. The demand must reasonably inform the identity of the stockholder and state that the stockholder intends to demand appraisal of his, her or its Shares.
If the Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand must be made
in that capacity, and if the Shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or on behalf of all joint owners. An authorized agent, including two or more joint owners,
may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is agent for such owner or owners. A record
holder, such as a broker who holds Shares as nominee for several beneficial owners, may exercise appraisal rights with respect to the Shares issued and outstanding immediately prior to the Effective Time held for one or more beneficial owners while
not exercising such rights with respect to the Shares held for other beneficial owners; in such case, however, the written demand should set forth the number of Shares issued and outstanding immediately prior to the Effective Time as to which
appraisal is sought and where no number of Shares is expressly mentioned the demand will be presumed to cover all Shares which are held in the name of the record owner.
STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE
FORMS, AND WHO WISH TO EXERCISE APPRAISAL RIGHTS, SHOULD CONSULT WITH THEIR BROKERS TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE NOMINEE HOLDER TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES HELD
OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL RIGHTS. IF A STOCKHOLDER HOLDS HIS, HER OR ITS
SHARES THROUGH A BROKER WHO IN TURN HOLDS THE STOCKHOLDERS SHARES THROUGH A CENTRAL SECURITIES DEPOSITORY NOMINEE SUCH AS CEDE
& CO., A DEMAND FOR APPRAISAL OF SUCH SHARES MUST BE MADE BY OR ON BEHALF OF THE
DEPOSITORY NOMINEE AND MUST IDENTIFY THE DEPOSITORY NOMINEE AS RECORD HOLDER.
A stockholder who elects to exercise appraisal rights
under DGCL Section 262 should mail or deliver a written demand to:
Surgical Care Affiliates, Inc.
569 Brookwood Village, Suite 901
Birmingham, AL 35209
Attn:
Secretary
If the First Merger is consummated pursuant to DGCL Section 251(h), within 10 days after the Effective Time, the First
Surviving Corporation or the Surviving Company must send an additional notice of the Effective Time to all of the Companys stockholders who are entitled to appraisal rights and who have delivered a written demand for appraisal to the Company
in accordance with DGCL Section 262. Within 120 days after the Effective Time, either the First Surviving Corporation, the Surviving Company or any stockholder who has complied with the requirements of DGCL Section 262 and who is otherwise
entitled to appraisal rights may file a petition in the Delaware Court of Chancery, with a copy served upon the First Surviving Corporation or the Surviving Company in the case of a petition filed by a stockholder, demanding a determination of the
fair value of the Shares held by all dissenting stockholders. A person who is the beneficial owner of Shares held in a voting trust or by a nominee on behalf of such person may, in such persons own name, file the petition described in the
previous sentence. The First Surviving Corporation and the Surviving Company are under no obligation to file any such petition and have no intention of doing so. If a petition for appraisal is not timely filed, all stockholders appraisal
rights will cease.
39
Stockholders who desire to have their Shares appraised should initiate any petitions necessary
for the perfection of their appraisal rights within the time periods and in the manner prescribed in DGCL Section 262.
Within 120
days after the Effective Time, any stockholder who has complied with the provisions of DGCL Section 262 to that point in time may receive from the First Surviving Corporation or the Surviving Company, upon written request, a statement setting
forth the aggregate number of Shares not tendered into the Offer and with respect to which the First Surviving Corporation or the Surviving Company has received demands for appraisal, and the aggregate number of holders of those Shares. A person who
is the beneficial owner of Shares held in a voting trust or by a nominee on behalf of such person may, in such persons own name, request from the First Surviving Corporation or the Surviving Company the statement described in the previous
sentence. The First Surviving Corporation or the Surviving Company must mail this statement to the stockholder within the later of 10 days of receipt of the request or 10 days after expiration of the period for delivery of demands for appraisal.
If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the First Surviving Corporation or
the Surviving Company, the First Surviving Corporation or the Surviving Company will then be obligated, within 20 days after receiving service of a copy of the petition, to file in the office of the Register in Chancery a duly verified list
containing the names and addresses of all stockholders who have demanded an appraisal of their Shares and with whom agreements as to the value of their Shares have not been reached by the First Surviving Corporation or the Surviving Company. After
notice to stockholders who demanded appraisal of their Shares as may be required by the Delaware Court of Chancery, the Delaware Court of Chancery will conduct a hearing upon the petition to determine those stockholders who have complied with DGCL
Section 262 and who have become entitled to the appraisal rights provided thereby.
The Delaware Court of Chancery may require the
stockholders demanding appraisal who hold certificated Shares to submit their stock certificates to the court for notation of the pendency of the appraisal proceedings. If any stockholder fails to comply with the courts direction, the court
may dismiss the proceeding as to such stockholder.
If immediately before the Effective Time, the Shares are listed on a national
securities exchange, the Delaware Court of Chancery will dismiss the appraisal proceedings as to all holders of Shares who are otherwise entitled to appraisal rights unless (i) the total number of shares entitled to appraisal exceeds 1% of the
outstanding Shares, (ii) the value of the consideration provided in the First Merger for such total number of Shares exceeds $1 million, or (iii) the First Merger was approved pursuant to Section 253 or Section 267 of the
DGCL.
The Delaware Court of Chancery will thereafter determine the fair value of the Shares held by stockholders who have complied with
DGCL Section 262, exclusive of any element of value arising from the accomplishment or expectation of the Mergers, but together with the interest if any, to be paid on the amount determined to be fair value. Such interest rate shall accrue from
the Effective Time through the date of payment of the judgment, compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge), unless the Delaware Court of Chancery in its discretion determines
otherwise for good cause shown. At any time before the entry of the judgment in the proceedings, the First Surviving Corporation or the Surviving Company may pay to each stockholder entitled to appraisal an amount in cash, in which case interest
will accrue thereafter only on the sum of (i) the difference, if any, between the amount so paid and the fair value of the Shares as determined by the Delaware Court of Chancery and (ii) interest theretofore accrued, unless paid at that
time.
In determining the fair value, the Delaware Court of Chancery will take into account all relevant factors. In
Weinberger v. UOP,
Inc
., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that proof of value by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court should be considered and that [f]air price obviously requires consideration of all relevant factors involving the value of
40
a company. The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature
of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. DGCL Section 262 provides that fair value is to be exclusive of any element
of value arising from the accomplishment or expectation of the merger. In
Cede
& Co. v. Technicolor, Inc.
, the Delaware Supreme Court stated that such exclusion is a narrow exclusion [that] does not
encompass known elements of value, but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In
Weinberger
, the Delaware Supreme Court construed DGCL Section 262 to mean
that elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered. The Delaware Court of Chancery may
determine the fair value of the Shares to be more than, less than or equal to the consideration that the stockholders would otherwise receive under the Merger Agreement, which is the same as the Transaction Consideration. If no party files a
petition for appraisal in a timely manner, then stockholders will lose the right to an appraisal, and will instead receive the Transaction Consideration described in the Merger Agreement.
The Delaware Court of Chancery may determine the costs of the appraisal proceeding (which do not include attorneys fees or the fees and
expenses of experts) and those costs may be taxed upon the parties as the Delaware Court of Chancery determines to be equitable under the circumstances. Upon application of a stockholder, the Delaware Court of Chancery may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal proceeding, including reasonable attorneys fees and the fees and expenses of experts, to be charged pro rata against the value of all Shares entitled to appraisal.
The fair value of the Shares as determined under DGCL Section 262 could be greater than, the same as, or less than the Transaction
Consideration described in the Merger Agreement. An opinion of an investment banking firm as to the fairness, from a financial point of view, of the consideration payable in a merger is not an opinion as to, and does not in any manner address, fair
value under DGCL Section 262. No representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery and stockholders should recognize that such an appraisal could result in a determination of
a value higher or lower than, or the same as, the Transaction Consideration.
Any stockholder who has duly demanded an appraisal in
compliance with DGCL Section 262 may not, after the Effective Time, vote the Shares subject to the demand for any purpose or receive any dividends or other distributions on those Shares, except dividends or other distributions payable to
holders of record of Shares as of a record date prior to the Effective Time.
If no petition for appraisal is filed within 120 days after
the Effective Time, or if a stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party delivers a written withdrawal of the stockholders demand for appraisal and an acceptance of the terms offered in
the First Merger within 60 days after the Effective Time, then the right of the stockholder to appraisal will cease. Any attempt to withdraw made more than 60 days after the Effective Time will require written approval by the First Surviving
Corporation or the Surviving Company, and no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and may be conditioned on such terms as the Delaware
Court of Chancery deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the Transaction Consideration
offered pursuant to the Merger Agreement within 60 days after the Effective Time. If the stockholder fails to perfect, successfully withdraws or loses the appraisal right, such stockholders Shares will be converted into the right to receive
the Transaction Consideration described in the Merger Agreement.
FAILURE TO FOLLOW THE STEPS REQUIRED BY DGCL SECTION 262 FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF APPRAISAL RIGHTS. IN THAT EVENT, YOU WILL BE ENTITLED TO RECEIVE THE TRANSACTION CONSIDERATION DESCRIBED IN
41
THE MERGER AGREEMENT FOR YOUR SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT. IN VIEW OF THE COMPLEXITY OF THE PROVISIONS OF DGCL SECTION 262, IF YOU ARE A HOLDER OF SHARES AND ARE CONSIDERING
EXERCISING YOUR APPRAISAL RIGHTS UNDER THE DGCL, YOU SHOULD CONSULT YOUR OWN LEGAL ADVISOR.
(c) Anti-Takeover Statute.
The Company has opted out of Section 203 of the DGCL (DGCL Section 203). However, the Companys Certificate of
Incorporation contains provisions substantially similar to DGCL Section 203 (such provisions, the Antitakeover Provisions), that would prevent the Company from engaging in a business combination (as defined in Article
XIII, Section 3 of the Companys certificate of incorporation filed as Exhibit 3.1 to the Companys Current Report on Form
8-K
filed with the SEC on November 4, 2013) with an
interested stockholder (generally defined as a person beneficially owning 15% or more of the Companys voting stock) for three years following the date such person became an interested stockholder unless: (a) prior to such
time, the Company Board approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (b) upon consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, such interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the
outstanding voting stock owned by the interested stockholder) those shares owned by (i) persons who are directors and also officers or (ii) employee stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (c) at or subsequent to such time, the business combination is approved by the Company Board and is authorized at an annual or special
meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock of the Company which is not owned by the interested stockholder. Pursuant to the unanimous written resolutions of
the Company Board on January 6, 2017 and in accordance with the Antitakeover Provisions, the Company Board approved the Merger Agreement, the Tender and Support Agreement, the Offer, the Mergers and the other transactions contemplated thereby,
as described in Item 4 above and, therefore, the restrictions of the Antitakeover Provisions are inapplicable to the Offer, the Mergers and the other transactions contemplated under the Merger Agreement.
(d) Regulatory Approvals.
Antitrust in the United
States
Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), and
related rules and regulations issued by the Federal Trade Commission (the FTC), applicable to the Offer, the acquisition of Shares pursuant to the Offer may be consummated following the expiration of a
30-day
waiting period following the filing by UnitedHealth Group of its Premerger Notification and Report Form with respect to the Offer, unless (a) the parties receive a request for additional
information or documentary material (a Second Request) from the Antitrust Division of the U.S. Department of Justice (the Antitrust Division) or the FTC, or (b) early termination of the waiting period is granted.
The Company and UnitedHealth Group each filed a Premerger Notification and Report Form with respect to the Offer with the Antitrust Division
and with the FTC on January 13, 2017. The required waiting period under the HSR Act expired at 11:59 p.m. New York City time, on February 13, 2017. Accordingly, the condition to the offer relating to the expiration or termination of the
waiting period under the HSR Act has been satisfied.
At any time before or after UnitedHealth Groups acquisition of Shares pursuant
to the Offer, the Antitrust Division or the FTC could take such action under the antitrust laws as either deems necessary or desirable in the public interest, including seeking to enjoin the purchase of the Shares by UnitedHealth Group pursuant to
the Offer or seeking the divestiture of Shares acquired by UnitedHealth Group or the divestiture of substantial assets
42
of the Company or its subsidiaries or UnitedHealth Group or its subsidiaries. State attorneys general may also bring legal action under state antitrust and consumer protection laws. Private
parties may also bring legal action under federal and state antitrust and consumer protection laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is
made, the result thereof.
Certain Health Care Regulatory Approvals
In certain states, the Company is required to obtain certificates of need and licenses to operate an ambulatory surgery center pursuant to
applicable health care laws in order to consummate the Offer and the Mergers. Pursuant to the Merger Agreement, Purchaser is not required to, and UnitedHealth Group is not required to cause Purchaser to, accept any Shares tendered into the Offer for
payment if, at the expiration of the Offer, the Company has failed to obtain all consents, authorizations, waivers and approvals and to make all filings, applications and notices, in each case with respect to such certificates of need and licenses
with respect to more than 6% of all facilities that provide health care services that are operated or managed by the Company or any of its subsidiaries.
(e) Merger without a Vote.
If the Offer
is consummated, the Company will not seek the approval of the Companys remaining public stockholders before effecting the First Merger. DGCL Section 251(h) provides that following consummation of a successful tender offer for a corporation
(the shares of which are listed on a national securities exchange or held of record by more than 2,000 holders), and subject to certain statutory provisions, if the acquirer holds at least the number of shares of each class or series of stock of the
target corporation that would otherwise be required to approve a merger for the target corporation, and the other stockholders receive the same consideration for their stock in the merger as was payable in the tender offer, the acquirer can effect a
merger without the action of the other stockholders of the target corporation. Accordingly, if UnitedHealth Group consummates the Offer, UnitedHealth Group and the Company are obligated pursuant to the Merger Agreement to effect the First Merger
without a vote of the stockholders of the Company in accordance with DGCL Section 251(h).
(f) Certain Unaudited Prospective Financial Information.
The Company does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future revenues,
earnings or other results, due to, among other reasons, the unpredictability of such forecasts or projections and the underlying assumptions and estimates. However, in connection with its evaluation of UnitedHealth Groups acquisition proposal,
the Companys management prepared certain unaudited prospective financial information that was presented to the Company Board on December 17, 2016 (the unaudited prospective financial information). The Companys management
provided the unaudited prospective financial information to (i) the Company Board on December 17, 2016 for purposes of considering and evaluating UnitedHealth Groups acquisition proposal, (ii) UnitedHealth Group on December 20,
2016 in connection with its evaluation of an acquisition of the Company, and (iii) J.P Morgan in connection with the rendering of J.P. Morgans fairness opinion to the Company Board and in performing its related financial analyses, as
described above in
Item 4. The Solicitation or RecommendationOpinion of the Financial Advisor to the Company BoardOpinion of J.P. Morgan Securities LLC
. The Company Board directed J.P Morgan to use the unaudited
prospective financial information in performing its financial analyses in connection with the rendering of its fairness opinion. To give holders of Shares access to certain nonpublic information that was available to the Company Board, UnitedHealth
Group and J.P. Morgan at the time of the evaluation of the Offer, the Mergers and the other transactions contemplated by the Merger Agreement, certain of the unaudited prospective financial information is included below.
The unaudited prospective financial information was developed from historical financial statements and a series of independent assumptions and
estimates of Company management related to future trends and did not give effect to any significant changes or expenses as a result of the Offer, the Mergers or the other transactions
43
contemplated by the Merger Agreement or any other effects of the Offer, the Mergers and the other transactions contemplated by the Merger Agreement. The unaudited prospective financial
information have been prepared by Company management and were not prepared with a view toward public disclosure; and, accordingly, do not necessarily comply with published guidelines of the SEC, the guidelines established by the American Institute
of Certified Public Accountants for preparation and presentation of financial forecasts, or GAAP. PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm, has not audited, reviewed, compiled or performed any
procedures with respect to the unaudited prospective financial information and does not express an opinion or any form of assurance related thereto. The PricewaterhouseCoopers LLP report included in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016 relates to the Companys historical financial information. It does not extend to the unaudited prospective financial information and should not be read to do so.
The inclusion of the unaudited prospective financial information in this Schedule
14D-9
should not be regarded as an indication that the Company, UnitedHealth Group, J.P. Morgan or any of their respective
affiliates, or any other recipient of this information considered, or now considers, such unaudited prospective financial information to be a reliable prediction of future results or any actual future events. None of the Company, UnitedHealth Group,
J.P. Morgan, any of their respective affiliates or any other person assumes any responsibility for the validity, reasonableness, accuracy or completeness of the unaudited prospective financial information included below. Except as required by law,
none of the Company, UnitedHealth Group, J.P Morgan or any of their respective affiliates intends to, and each of them disclaims any obligation to, update, revise, or correct the unaudited prospective financial information if they are or become
inaccurate (in the long term or the short term).
The Companys future financial results may materially differ from those expressed
in the unaudited prospective financial information. While presented with numerical specificity, the unaudited prospective financial information necessarily was based on numerous variables and assumptions that are inherently uncertain and many of
which are beyond the control of the Company and difficult to predict, including with respect to industry performance, competitive factors, industry consolidation, general business, economic, regulatory, market and financial conditions, as well as
matters specific to the Companys business, which assumptions may not prove to have been, or may no longer be, accurate. The Company cannot ensure that any of the results expressed in the unaudited prospective financial information will be
realized or that the Companys future financial results will not materially vary from the unaudited prospective financial information. The unaudited prospective financial information speaks only as of the date it was prepared as it does not
take into account any circumstances or events occurring after the date they were prepared, including the January 9, 2017 announcement of the Merger Agreement or pendency of the transaction with UnitedHealth Group, and has not been updated since
its date of preparation. In addition, the unaudited prospective financial information does not take into account the effect of any failure of the Offer, the Mergers and the other transactions contemplated by the Merger Agreement to occur and should
not be viewed as accurate or continuing in that context. Because the unaudited prospective financial information covers multiple years, by their nature, it becomes subject to greater uncertainty with each successive year.
In light of the foregoing factors and the uncertainties inherent in the unaudited prospective financial information, Company stockholders
are cautioned not to place undue reliance on the unaudited prospective financial information.
They should not be utilized as public guidance and will not be provided in the ordinary course of our business in the future. The unaudited prospective
financial information should be evaluated in conjunction with the Companys historical financial statements and other information regarding the Company and its public filings with the SEC.
44
The unaudited prospective financial information is summarized in Table 1 below:
Table 1Unaudited Prospective Financial Information
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|
|
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|
|
|
|
Fiscal Year Ended 12/31
|
|
2016E
|
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
Net Revenue (in millions)
|
|
$
|
1,200
|
|
|
$
|
1,408
|
|
|
$
|
1,677
|
|
|
$
|
1,940
|
|
|
$
|
2,225
|
|
|
$
|
2,573
|
|
EBITDA (in millions)(1)
|
|
$
|
201
|
|
|
$
|
235
|
|
|
$
|
282
|
|
|
$
|
332
|
|
|
$
|
386
|
|
|
$
|
447
|
|
Adjusted Net Income (in millions)(2)
|
|
$
|
76
|
|
|
$
|
94
|
|
|
$
|
121
|
|
|
$
|
150
|
|
|
$
|
181
|
|
|
$
|
220
|
|
Adjusted EPS(2)
|
|
$
|
1.85
|
|
|
$
|
2.26
|
|
|
$
|
2.86
|
|
|
$
|
3.50
|
|
|
$
|
4.19
|
|
|
$
|
4.99
|
|
(1)
|
As used in this section of the Schedule
14D-9,
EBITDA represents earnings before interest, taxes, depreciation and amortization before stock-based compensation, less income
attributable to
non-controlling
interests. EBITDA is a
non-GAAP
financial measure.
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(2)
|
As used in this section of the Schedule
14D-9,
Adjusted Net Income and Adjusted EPS include certain
non-GAAP
adjustments to remove the
effects of stock-based compensation, amortization, provisions for income taxes and, in the case of 2016E Adjusted Net Income and 2016E Adjusted EPS, impairment of assets and other
non-recurring
losses.
Adjusted EPS is based on a weighted average of outstanding shares of the Companys common stock. Adjusted Net Income and Adjusted EPS are each
non-GAAP
financial measures.
|
In connection with the rendering of its fairness opinion to the Company Board and in performing its related financial analyses, J.P. Morgan
calculated unlevered free cash flow estimates of the Company for calendar years 2017 through 2031 (such estimates of unlevered free cash flow, the Unlevered Free Cash Flow Estimates) based on the unaudited prospective financial
information for calendar years 2017 through 2021 and certain extrapolations derived therefrom by J.P. Morgan on the basis of and in accordance with guidance provided by Company management, which extrapolations were reviewed and approved by Company
management, for calendar years 2022 through 2031. In deriving such extrapolations from the unaudited prospective financial information for calendar years 2017 through 2021, J.P. Morgan, on the basis of and in accordance with guidance provided by
Company management, utilized the following assumptions provided by Company management: (i) EBITDA generated by the Companys existing facilities from 2018 to 2021 was expected to increase by 3.00% per annum, with the increase in EBITDA
declining over the course of the forecast period to 1.50% by 2030; (ii) the Company would establish 9 to 12 de novo facilities per annum for 2017 to 2021 up to a maximum 16 de novo facilities per annum in 2026 and thereafter the number of de novo
facilities established by the Company each year would decline to $0 in 2031; and (iii) cash spent to acquire new facilities would increase each year over the forecast period up to a maximum of $276 million in 2024 and would thereafter
decline each year over the forecast period to $0 in 2031. The Unlevered Free Cash Flow Estimates were discussed with, and approved by, the Companys management for J.P. Morgans use in connection with its financial analyses.
The Unlevered Free Cash Flow Estimates for calendar years 2017 through 2031 and estimates of EBITDA for 2022 through 2031 are summarized in
Table 2 below:
Table 2EBITDA Estimates and Unlevered Free Cash Flow Estimates
Calendar Years 2017E through 2021E
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Fiscal Year
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
Unlevered Free Cash Flow (in millions)(1)
|
|
($
|
52
|
)
|
|
($
|
69
|
)
|
|
($
|
51
|
)
|
|
($
|
26
|
)
|
|
($
|
50
|
)
|
Calendar Years 2022E through 2031E
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
|
2031E
|
|
EBITDA(2)
|
|
$
|
504
|
|
|
$
|
568
|
|
|
$
|
633
|
|
|
$
|
698
|
|
|
$
|
754
|
|
|
$
|
807
|
|
|
$
|
852
|
|
|
$
|
888
|
|
|
$
|
914
|
|
|
$
|
933
|
|
Unlevered Free Cash Flow (in millions)(1)
|
|
($
|
82
|
)
|
|
($
|
71
|
)
|
|
($
|
57
|
)
|
|
$
|
14
|
|
|
$
|
76
|
|
|
$
|
154
|
|
|
$
|
229
|
|
|
$
|
297
|
|
|
$
|
350
|
|
|
$
|
397
|
|
45
(1)
|
As used in this section of the Schedule
14D-9,
the Unlevered Free Cash Flow Estimates for a given period are calculated as follows: EBITDA minus (i) taxes, (ii) stock based
compensation and other expenses, (iii) capital expenditures, and (iv) expenditures on acquisitions and de novo facilities, and plus income attributable to noncontrolling interests and equity (in each case, net of distributions), after
giving effect to the impact of changes in net working capital (including impact from allowance for doubtful accounts and deferred taxes).
|
(2)
|
As used in this section of the Schedule 14D-9, EBITDA represents earnings before interest, taxes, depreciation and amortization before stock-based compensation, less income attributable to non-controlling interests.
EBITDA is a non-GAAP financial measure.
|
(g) Cautionary Note Regarding Forward-Looking Statements.
This Schedule
14D-9
may contain statements that constitute forward-looking statements,
including, for example, information related to UnitedHealth Group, the Company and the proposed acquisition of the Company by UnitedHealth Group. Generally the words believe, expect, intend, estimate,
anticipate, plan, project, should and similar expressions identify forward-looking statements, which generally are not historical in nature. Such statements reflect the current analysis of existing
information and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The following factors, among others, could cause actual results to differ materially
from those described in these forward-looking statements: the possibility that various conditions to the consummation of the Offer and the Mergers may not be satisfied or waived, including the receipt of regulatory clearances related to the Mergers;
uncertainty as to how many Shares will be tendered into the Offer; the risk that the Offer and the Mergers will not close within the anticipated time periods, or at all; the failure to complete or receive the anticipated benefits from UnitedHealth
Groups acquisition of the Company; the possibility that the parties may be unable to successfully integrate the Companys operations into those of UnitedHealth Group; such integration may be more difficult, time-consuming or costly than
expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients, suppliers
or physicians) may be greater than expected following the transaction; the retention of certain key employees at the Company may not be achieved; the parties may be unable to meet expectations regarding the timing, completion and accounting and tax
treatments of the transactions; UnitedHealth Group and the Company are subject to intense competition; factors that affect UnitedHealth Groups ability to generate sufficient funds to maintain its quarterly dividend payment cycle; the effects
of local and national economic, credit and capital market conditions; and the other risks and uncertainties relating to UnitedHealth Group and the Company described in their respective Annual Reports on Form
10-K
for the fiscal year ended December 31, 2016, and in their subsequent Quarterly Reports on Form
10-Q
and Current Reports on Form
8-K,
all of which are filed with the SEC and available at www.sec.gov.
The Company assumes no
obligation to update the information in this Schedule
14D-9,
except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements or information, which
speak only as of the date hereof.
(h) Where You Can Find More Information.
This Schedule
14D-9
relates to a pending business combination transaction between UnitedHealth Group
and the Company. This Schedule
14D-9
is for informational purposes only and is neither an offer to sell or exchange, nor a solicitation of an offer to buy or exchange, any securities, nor shall there be any
sale of securities in any jurisdiction in which such offer, sale or exchange would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
UnitedHealth Group has filed a registration statement on Form
S-4
related to the transaction with the
SEC and may file amendments thereto. UnitedHealth Group and a wholly-owned subsidiary of UnitedHealth Group intend to file a tender offer statement on Schedule TO (including a prospectus/offer to exchange, a related letter
46
of transmittal and other exchange offer documents) related to the transaction with the SEC and may file amendments thereto. The Company may file amendments to this solicitation/recommendation
statement on Schedule
14D-9.
The Company and UnitedHealth Group may also file other documents with the SEC regarding the transaction. This Schedule
14D-9
is not a
substitute for any registration statement, Schedule TO or any other document which the Company or UnitedHealth Group may file with the SEC in connection with the transaction. Investors and security holders are urged to read the registration
statement, the Schedule TO (including the prospectus/offer to exchange, related letter of transmittal and other exchange offer documents), this solicitation/recommendation statement on Schedule
14D-9
and the
other relevant materials with respect to the transaction carefully and in their entirety when they become available before making any decision regarding exchanging their shares, because they will contain important information about the transaction.
The prospectus/offer to exchange, the related letter of transmittal and certain other exchange offer documents, as well as the solicitation/recommendation statement, will be made available to all holders of the Companys stock at no expense to
them. The exchange offer materials and the solicitation/recommendation statement will be made available for free at the SECs website at www.sec.gov. Additional copies of the exchange offer materials may be obtained for free by contacting
UnitedHealth Groups Investor Relations department at (800)
328-5979.
Additional copies of the solicitation/recommendation statement may be obtained for free by contacting the Companys Investor
Relations department at (800)
768-0094.
In addition to the SEC filings made in connection with
the transaction, each of UnitedHealth Group and the Company files annual, quarterly and current reports and other information with the SEC. You may read and copy any reports or other such filed information at the SEC public reference room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room.
UnitedHealth Groups and the Companys filings with the SEC are also available to the public from commercial document-retrieval services and at the website maintained by the SEC at http://www.sec.gov.
The following Exhibits are filed with or incorporated by reference in this Schedule
14D-9:
|
|
|
Exhibit
No.
|
|
Description
|
|
|
(a)(1)(A)
|
|
Prospectus/Offer to Exchange, dated February 21, 2017 (incorporated herein by reference to the Registration Statement on Form
S-4,
filed by UnitedHealth Group Incorporated with the U.S.
Securities and Exchange Commission on February 21, 2017).
|
|
|
(a)(1)(B)
|
|
Form of Letter of Transmittal (incorporated herein by reference to Exhibit 99.5 to the Registration Statement on Form
S-4
filed by UnitedHealth Group Incorporated with the U.S. Securities and
Exchange Commission on February 21, 2017).
|
|
|
(a)(1)(C)
|
|
Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated herein by reference to Exhibit 99.6 to the Registration Statement on Form
S-4
filed by
UnitedHealth Group Incorporated with the U.S. Securities and Exchange Commission on February 21, 2017).
|
|
|
(a)(1)(D)
|
|
Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated herein by reference to Exhibit 99.7 to Registration Statement on the Form
S-4
filed by UnitedHealth Group Incorporated with the U.S. Securities and Exchange Commission on February 21, 2017).
|
|
|
(a)(1)(E)
|
|
Press Release issued by UnitedHealth Group Incorporated, dated February 21, 2017, announcing commencement of the exchange offer (incorporated herein by reference to Exhibit (a)(5)(L) to the Schedule TO of Spartan Merger Sub 1, Inc.
and UnitedHealth Group Incorporated, filed by UnitedHealth Group Incorporated and Spartan Merger Sub 1, Inc., with the U.S. Securities and Exchange Commission on February 21, 2017.
|
47
|
|
|
Exhibit
No.
|
|
Description
|
|
|
(a)(5)(A)
|
|
Joint Press Release issued by UnitedHealth Group Incorporated and Surgical Care Affiliates, Inc. dated January 9, 2017 (incorporated herein by reference to the Exhibit 99.1 to the Current Report on Form
8-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on January 9, 2017).
|
|
|
(a)(5)(B)
|
|
Opinion, dated January 7, 2017, of J.P. Morgan Securities LLC to the Board of Directors of Surgical Care Affiliates, Inc. (incorporated herein by reference to Annex A attached to this Schedule
14D-9).
|
|
|
(a)(5)(C)
|
|
Transcript of Surgical Care Affiliates, Inc./OptumCare Combination Video Message, dated January 9, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the U.S. Securities and
Exchange Commission on January 9, 2017).
|
|
|
(a)(5)(D)
|
|
Email sent by Andrew Hayek, the CEO of Surgical Care Affiliates, Inc., to teammates and physician partners, dated January 9, 2017 (incorporated herein by reference the Form 425 filed by Surgical Care Affiliates, Inc. with the
U.S. Securities and Exchange Commission on January 9, 2017).
|
|
|
(a)(5)(E)
|
|
Transcript of Surgical Care Affiliates, Inc./OptumCare Combination Video Message, dated January 9, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the U.S. Securities and
Exchange Commission on January 9, 2017).
|
|
|
(a)(5)(F)
|
|
Letter sent by Andrew Hayek, the CEO of Surgical Care Affiliates, Inc. to physician partners, dated January 9, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the U.S.
Securities and Exchange Commission on January 9, 2017).
|
|
|
(a)(5)(G)
|
|
Article written by Michael Wegmann, Director of Physician Recruitment at Surgical Care Affiliates, Inc., dated January 11, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the
U.S. Securities and Exchange Commission on January 17, 2017).
|
|
|
(a)(1)(H)
|
|
Optum/Surgical Care Affiliates, Inc. Summary and Frequently Asked Questions, dated January 18, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange
Commission on January 18, 2017).
|
|
|
(a)(5)(I)
|
|
Overview Presentation by Surgical Care Affiliates, Inc., dated January 18, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on
January 18, 2017).
|
|
|
(a)(5)(J)
|
|
Optum/Surgical Care Affiliates, Inc. Physician Frequently Asked Questions, dated January 18, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange
Commission on January 18, 2017).
|
|
|
(a)(5)(K)
|
|
Surgical Care Affiliates, Inc. Physician Update Presentation, dated January 18, 2017 (incorporated herein by reference to the Form 425 filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on
January 18, 2017).
|
|
|
(e)(1)
|
|
Agreement and Plan of Reorganization, dated January 7, 2017, among UnitedHealth Group Incorporated, Spartan Merger Sub 1, Inc., Spartan Merger Sub 2 LLC and Surgical Care Affiliates, Inc. (incorporated herein by reference to
Exhibit 2.1 to the Current Report on Form
8-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on January 9, 2017).
|
|
|
(e)(2)
|
|
Tender and Support Agreement, dated January 7, 2017, among UnitedHealth Group Incorporated, Spartan Merger Sub 1, Inc., TPG Partners V, L.P., TPG FOF
V-A,
L.P. and TPG FOF
V-B,
L.P. (incorporated herein by reference to Exhibit 99.2 to the Registration Statement on Form
S-4,
filed by UnitedHealth Group Incorporated with the U.S. Securities and
Exchange Commission on February 21, 2017).
|
48
|
|
|
Exhibit
No.
|
|
Description
|
|
|
(e)(3)
|
|
Excerpts from Surgical Care Affiliates, Inc.s Definitive Proxy Statement on Schedule 14A related to the 2016 Annual Meeting of Stockholders as filed with the U.S. Securities and Exchange Commission on April 22,
2016.
|
|
|
(e)(4)
|
|
Conformed copy of Surgical Care Affiliates, Inc. Management Equity Incentive Plan, adopted November 16, 2007 (incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form
S-1
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on September 5, 2013).
|
|
|
(e)(5)
|
|
Form of Time-Based Option Award Under the Management Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Registration Statement on Form
S-1
filed by Surgical Care
Affiliates, Inc. with the U.S. Securities and Exchange Commission on September 5, 2013).
|
|
|
(e)(6)
|
|
Conformed copy of Surgical Care Affiliates, Inc. Directors and Consultants Equity Incentive Plan, adopted June 24, 2008 (incorporated herein by reference to Exhibit 10.12 to the Registration Statement on Form
S-1
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on September 5, 2013).
|
|
|
(e)(7)
|
|
Form of Option Award to Directors Under the Director and Consultant Equity Incentive Plan (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form
S-1
filed by
Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on September 5, 2013).
|
|
|
(e)(8)
|
|
Restricted Equity Unit Grant Agreement, dated July 24, 2008, between Surgical Care Affiliates LLC, ASC Acquisition LLC and Andrew Hayek (incorporated herein by reference to Exhibit 10.12 to the Registration Statement on Form
S-1
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on September 5, 2013).
|
|
|
(e)(9)
|
|
Form of Director Restricted Equity Unit Grant Agreement (incorporated herein by reference to Exhibit 10.13 to the Registration Statement on Form
S-1
filed by Surgical Care Affiliates, Inc.
with the U.S. Securities and Exchange Commission on September 5, 2013).
|
|
|
(e)(10)
|
|
Surgical Care Affiliates, Inc. 2013 Omnibus Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.18 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates,
Inc. with the U.S. Securities and Exchange Commission on February 22, 2016).
|
|
|
(e)(11)
|
|
Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Long-Term Incentive Plan (2013 Directors Grants) (incorporated herein by reference to Exhibit 10.31 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on March 24, 2014).
|
|
|
(e)(12)
|
|
Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Long-Term Incentive Plan (2014 Directors Grants) (incorporated herein by reference to Exhibit 10.32 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on March 10, 2015).
|
|
|
(e)(13)
|
|
Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Long-Term Incentive Plan (2015 Directors Grants) (incorporated herein by reference to Exhibit 10.21 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on February 22, 2016).
|
|
|
(e)(14)
|
|
Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Long-Term Incentive Plan (2013 and 2014 Employee Grants) (incorporated herein by reference to Exhibit 10.32 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on March 24, 2014).
|
49
|
|
|
Exhibit
No.
|
|
Description
|
|
|
(e)(15)
|
|
Form of Amendment to Restricted Stock Unit Award Agreement under 2013 Omnibus Long-Term Incentive Plan (Hayek) (incorporated herein by reference to Exhibit 10.36 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on March 10, 2015).
|
|
|
(e)(16)
|
|
Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Long-Term Incentive Plan (2015 Employee Grants) (incorporated herein by reference to Exhibit 10.24 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on February 22, 2016).
|
|
|
(e)(17)
|
|
Form of
Non-qualified
Stock Option Agreement under 2013 Omnibus Long-Term Incentive Plan (2013 and 2014 Employee Grants) (incorporated herein by reference to Exhibit 10.33 to the Annual Report
on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on March 24, 2014).
|
|
|
(e)(18)
|
|
Form of Amendment to
Non-qualified
Stock Option Agreement under 2013 Omnibus Long-Term Incentive Plan (Hayek) (incorporated herein by reference to Exhibit 10.35 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on March 10, 2015).
|
|
|
(e)(19)
|
|
Form of
Non-qualified
Stock Option Agreement under 2013 Omnibus Long-Term Incentive Plan (2015 Employee Grants) (incorporated herein by reference to Exhibit 10.27 to the Annual Report on Form
10-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on February 22, 2016).
|
|
|
(e)(20)
|
|
Employment Agreement, dated as of January 6, 2017, by and between UnitedHealth Group Incorporated and Andrew Hayek.
|
|
|
(e)(21)
|
|
Employment Agreement, dated as of January 6, 2017, by and between UnitedHealth Group Incorporated and Michael Rucker.
|
|
|
(e)(22)
|
|
Employment Agreement, dated as of January 6, 2017, by and between UnitedHealth Group Incorporated and Richard Sharff.
|
|
|
(e)(23)
|
|
Employment Agreement, dated as of October 30, 2013, by and among Surgical Care Affiliates, Inc., Surgical Care Affiliates LLC and Joseph Clark (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form
8-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on November 4, 2013).
|
|
|
(e)(24)
|
|
Amendment of Employment Agreement, dated as of January 6, 2017, by and between Surgical Care Affiliates, Inc. and Joseph Clark.
|
|
|
(e)(25)
|
|
Employment Agreement, dated as of October 30, 2013, by and among Surgical Care Affiliates, Inc., Surgical Care Affiliates LLC and Tom De Weerdt (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form
8-K
filed by Surgical Care Affiliates, Inc. with the U.S. Securities and Exchange Commission on April 17, 2015).
|
Annex AOpinion, dated January 7, 2017, of J.P. Morgan Securities LLC to the Company Board
Annex BSection 262 of the General Corporation Law of the State of Delaware
50
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
|
|
|
|
|
Dated: February 21, 2017
|
|
Surgical Care Affiliates, Inc.
|
|
|
|
|
|
By:
|
|
/s/ Andrew P. Hayek
|
|
|
|
|
Andrew P. Hayek, Chairman, President and Chief
Executive Officer
|
51
Annex A
January 7, 2017
The
Board of Directors
Surgical Care Affiliates, Inc.
510 Lake
Cook Road, Suite 400
Deerfield, IL 60015
Members of the
Board of Directors:
You have requested our opinion as to the fairness, from a financial point of view, of the Transaction Consideration (as defined below)
to be paid to the to the holders of common stock, par value $0.01 per share (the Company Common Stock), of Surgical Care Affiliates, Inc. (the Company) entitled to receive Transaction Consideration pursuant to the Agreement
and Plan of Reorganization, dated as of January 7, 2017 (the Agreement), by and among the Company, UnitedHealth Group Incorporated (the Acquiror), Spartan Merger Sub 2, LLC, a direct wholly-owned subsidiary of the
Acquiror (Merger Sub 2), and Spartan Merger Sub 1, Inc., a direct wholly-owned subsidiary of Merger Sub 2 and an indirect wholly-owned subsidiary of the Acquiror (Purchaser), to such holders. Pursuant to the Agreement,
Purchaser will commence an exchange offer to acquire all outstanding shares of the Company Common Stock (the Exchange Offer), entitling the exchanging holder to receive the Transaction Consideration for each share of Company Common Stock
so exchanged upon the terms and subject to the conditions set forth in the Agreement. Following completion of the Exchange Offer, Purchaser will merge with and into the Company, with the Company surviving such merger (the First Merger),
and immediately following the first merger, the Company will merge with and into Merger Sub 2, with Merger Sub 2 surviving the merger (the second merger, together with the First Merger, the Mergers, and, together with the Exchange Offer,
the Transactions). In connection with the First Merger, each outstanding share of Company Common Stock issued and outstanding prior to the effective time of the First Merger (other than Cancelled Shares (as defined in the Agreement) and
Dissenting Shares (as defined in the Agreement)) will be converted into the right to receive the Transaction Consideration. In connection with the Agreement, certain stockholders of the Company affiliated with TPG Capital, L.P. (collectively with
their affiliates, the Related Party) are entering into an agreement pursuant to which, among other things, such persons will agree to tender shares of Company Common Stock owned by them into the Exchange Offer and vote shares of Company
Common Stock owned by them in favor of adoption of the Agreement if a vote is required to effect the First Merger pursuant to the General Corporation Law of the State of Delaware. The Transaction Consideration means either (i) (x) $11.40
per share in cash (the Minimum Cash Consideration) and (y) a number of shares of common stock, par value $0.01 per share, of the Acquiror (Acquiror Common Stock) equal to $57.00 minus the Minimum Cash Consideration,
divided by the volume weighted average of the closing sale prices per share of Acquiror Common Stock on the New York Stock Exchange on each of the five (5) full consecutive trading days ending on and including the third (3rd) business day prior
to the date of the closing of the Mergers (the Acquiror Trading Price), or (ii) (x) an amount in cash per share greater than the Minimum Cash Consideration and not to exceed $27.93 (the Alternative Cash Consideration)
and (y) a number of shares of Acquiror Common Stock equal to $57.00 minus the Alternative Cash Consideration, divided by the Acquiror Trading Price. The form of the Transaction Consideration will be determined by an election of the Acquiror to
be made no later than 5:00 p.m., New York City time, on the tenth business day prior to the expiration of the Exchange Offer.
In connection with
preparing our opinion, we have (i) reviewed the Agreement; (ii) reviewed certain publicly available business and financial information concerning the Company and the Acquiror and the industries in which they operate; (iii) compared
the proposed financial terms of the Transactions with the publicly available financial terms of certain transactions involving companies we deemed relevant and the consideration paid for such companies; (iv) compared the financial and operating
performance of the Company and the Acquiror with
A-1
publicly available information concerning certain other companies we deemed relevant and reviewed the current and historical market prices of the Company Common Stock and Acquiror Common Stock
and certain publicly traded securities of such other companies; (v) reviewed certain internal financial analyses and forecasts prepared by the management of the Company relating to its business; and (vi) performed such other financial
studies and analyses and considered such other information as we deemed appropriate for the purposes of this opinion.
In addition, we have held
discussions with certain members of the management of the Company with respect to certain aspects of the Transactions, and the past and current business operations of the Company, the financial condition and future prospects and operations of the
Company, the effects of the Transactions on the financial condition and future prospects of the Company, and certain other matters we believed necessary or appropriate to our inquiry.
In giving our opinion, we have relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or
discussed with us by the Company or otherwise reviewed by or for us. We have not independently verified any such information or its accuracy or completeness and, pursuant to our engagement letter with the Company, we did not assume any obligation to
undertake any such independent verification. We have not conducted or been provided with any valuation or appraisal of any assets or liabilities, nor have we evaluated the solvency of the Company or the Acquiror under any state or federal laws
relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to us or derived therefrom, we have assumed that they have been reasonably prepared based on assumptions reflecting the best currently
available estimates and judgments by management as to the expected future results of operations and financial condition of the Company to which such analyses or forecasts relate. We express no view as to such analyses or forecasts or the assumptions
on which they were based. We have also assumed that the Transactions and the other transactions contemplated by the Agreement will qualify as a
tax-free
reorganization for United States federal income tax
purposes, and will be consummated as described in the Agreement. We have also assumed that the representations and warranties made by the Company and the Acquiror in the Agreement and the related agreements are and will be true and correct in all
respects material to our analysis. We are not legal, regulatory or tax experts and have relied on the assessments made by advisors to the Company with respect to such issues. We have further assumed that all material governmental, regulatory or
other consents and approvals necessary for the consummation of the Transactions will be obtained without any adverse effect on the Company or the Acquiror or on the contemplated benefits of the Transactions.
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. It
should be understood that subsequent developments may affect this opinion and that we do not have any obligation to update, revise, or reaffirm this opinion. Our opinion is limited to the fairness, from a financial point of view, of the Transaction
Consideration to be paid in the proposed Transactions to the holders of Company Common Stock entitled to receive Transaction Consideration pursuant to the Agreement, and we express no opinion as to the fairness of any consideration to be paid in
connection with the Transactions to the holders of any other class of securities, creditors or other constituencies of the Company or as to the underlying decision by the Company to engage in the Transactions. Furthermore, we express no opinion with
respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the Transactions, or any class of such persons relative to the Transaction Consideration to be paid in the proposed Transactions to the
holders of Company Common Stock entitled to receive Transaction Consideration pursuant to the Agreement or with respect to the fairness of any such compensation
.
We are expressing no opinion herein as to the price at which the Company Common
Stock or Acquiror Common Stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the proposed Transactions
and will receive a fee from the Company for our services, a substantial portion of which will become payable only if the proposed Transactions are consummated. In addition, the Company has agreed to indemnify us for certain liabilities arising out
of our engagement. During the two years preceding the date of this letter, we and our affiliates have had commercial or investment banking relationships with the Company, the Acquiror and the Related Party, for
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which we and such affiliates have received customary compensation. With respect to the Company, such services during such period have included acting as joint lead arranger and joint bookrunner
with respect to its term loan B and revolving credit facility closed March 2015 and as sole bookrunner and sole lead arranger with respect to the increase of the said term loan B facility closed October 2016; as joint bookrunner with respect to its
bond offering closed March 2015; and as joint bookrunner with respect to its equity offering closed March 2015. With respect to the Acquiror, such services during such period have included acting as joint lead arranger and bookrunner with respect to
its revolving credit facility closed April 2015 and joint lead arranger and bookrunner with respect to its term loan A facility closed April 2015; as joint bookrunner with respect to its bond offerings closed December 2016 and July 2015,
respectively; and as financial advisor on its acquisition of Catamaran Corporation closed July 2015. With respect to the Related Party, such services during such period have included acting as joint lead arranger and bookrunner with respect to its
syndicated credit facilities closed October 2015 and August 2016 respectively. In addition, our commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of the Company and the Acquiror, for which it receives
customary compensation or other financial benefits. In addition, we and our affiliates hold, on a proprietary basis, less than 1% of each of the Company Common Stock and the Acquiror Common Stock. In the ordinary course of our businesses, we and our
affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of the Company or the Acquiror for our own account or for the accounts of customers and, accordingly, we
may at any time hold long or short positions in such securities or other financial instruments.
On the basis of and subject to the foregoing, it is our
opinion as of the date hereof that the Transaction Consideration to be paid in the proposed Transactions to the holders of Company Common Stock entitled to receive Transaction Consideration pursuant to the Agreement is fair, from a financial point
of view, to such holders.
The issuance of this opinion has been approved by a fairness opinion committee of J.P. Morgan Securities LLC. This letter is
provided to the Board of Directors of the Company (in its capacity as such) in connection with and for the purposes of its evaluation of the Transactions. This opinion does not constitute a recommendation to any shareholder of the Company as to
whether such shareholder should tender its shares into the Exchange Offer or how such shareholder should vote with respect to the Transactions or any other matter. This opinion may not be disclosed, referred to, or communicated (in whole or in part)
to any third party for any purpose whatsoever except with our prior written approval. This opinion may be reproduced in full in any proxy or information statement mailed to shareholders of the Company but may not otherwise be disclosed publicly in
any manner without our prior written approval.
Very truly yours,
J.P. MORGAN SECURITIES LLC
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Annex B
§ 262 Appraisal rights.
(a) Any stockholder of a
corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholders shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word stockholder means a
holder of record of stock in a corporation; the words stock and share mean and include what is ordinarily meant by those words; and the words depository receipt mean a receipt or other instrument issued by a
depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title and, subject to paragraph (b)(3) of this section, § 251(h) of this title), § 252, § 254, § 255, § 256, § 257,
§258, § 263 or § 264 of this title:
(1) Provided, however, that, except as expressly provided in § 363(b) of this title, no appraisal
rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the meeting of
stockholders to act upon the agreement of merger or consolidation, were either: (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in § 251(f) of this title.
(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or series of stock of
a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section; or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the
foregoing paragraphs (b)(2)a., b. and c. of this section.
(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger
effected under § 251(h), § 253 or § 267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(4) In the event of an amendment to a corporations certificate of incorporation contemplated by § 363(a) of this title, appraisal rights shall be
available as contemplated by § 363(b) of this title, and the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as practicable, with the word amendment
substituted for the words merger or consolidation, and the word corporation substituted for the words constituent corporation and/or surviving or resulting corporation.
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(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section
shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the provisions of this section, including those set forth in subsections (d), (e), and (g) of this section, shall apply as nearly
as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with §255(c) of this
title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such
notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholders shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholders shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of such stockholders shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228, § 251(h), § 253, or § 267 of this title, then either a constituent
corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of
this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice or, in the case of a merger approved pursuant to § 251(h) of this title, within the
later of the consummation of the offer contemplated by § 251(h) of this title and 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holders shares. Such
demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holders shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of
such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice or, in the case of a merger approved pursuant to § 251(h) of this title, later than the later of the
consummation of the offer contemplated by § 251(h) of this title and 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal
of such holders shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the
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notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the
right to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section
hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such persons own name,
file a petition or request from the corporation the statement described in this subsection.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or
certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne
by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this
section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. If immediately before the merger or consolidation
the shares of the class or series of stock of the constituent corporation as to which appraisal rights are available were listed on a national securities exchange, the Court shall dismiss the proceedings as to all holders of such shares who are
otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in the
merger or consolidation for such total number of shares exceeds $1 million, or (3) the merger was approved pursuant to § 253 or § 267 of this title.
(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the
Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of
the merger or consolidation, together
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with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its
discretion determines otherwise for good cause shown, and except as provided in this subsection, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the
Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings,
the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the
fair value of the shares as determined by the Court, and (2) interest theretofore accrued, unless paid at that time. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted such stockholders certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined
that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Courts decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the
parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of such stockholders demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection
(e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who has not commenced an
appraisal proceeding or joined that proceeding as a named party to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or
consolidation, as set forth in subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to which the shares of such
objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
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