STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 27, 1998 (the "Agreement"),
between United HealthCare Corporation, a Minnesota corporation ("Parent"), and
Humana Inc., a Delaware corporation (the "Company").
WHEREAS, Parent, UH-1 Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Newco"), and the Company are contemporaneously herewith
entering into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), which provides, among other things, for the merger of Newco
with and into the Company (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Newco have requested that the Company grant to Parent an
option to purchase up to 33,000,000 shares of Common Stock, par value $.162/3
per share, of the Company (the "Common Stock"), upon the terms and subject to
the conditions hereof; and
WHEREAS, in order to induce Parent and Newco to enter into the Merger
Agreement, the Company is willing to grant Parent the requested option and the
Board of Directors of the Company has approved the granting of such option and
authorized the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Offset (a) On the terms and
subject to the conditions set forth herein, the Company hereby grants to Parent
an irrevocable option (the "Option") to purchase up to 33,000,000 shares of
Common Stock (the "Shares") at a cash purchase price per Share equal to the
average closing price of Common Stock on the New York Stock Exchange Composite
Tape for the five consecutive trading days after the Merger is publicly
announced, which shall include the day the Merger is publicly announced if such
announcement is made by noon on that day (the "Purchase Price"). The Option may
be exercised by Parent, in whole or in part, at any time, or from time to time,
(i) following the time the Merger Agreement is terminated (A) by either Parent
or the Company pursuant to Section 8.2(ii) if prior to such termination an
Acquisition Proposal (as defined in the Merger Agreement) shall have been made
to the Company or any of its Subsidiaries or any of its stockholders or any
Person shall have publicly announced an intention (whether or not conditional)
to make an Acquisition Proposal; or (B) by the Company pursuant to Section
8.3(a) or by Parent pursuant to Section 8.4(a) or 8.4(c) or (ii) upon the
Company's entering into an agreement, within 18 months of the termination of the
Merger Agreement by either Parent or the Company pursuant to Section 8.2(i),
concerning a transaction of a type that would
constitute an Acquisition Proposal with any Person (or any of its affiliates)
that made an Acquisition Proposal prior to termination of the Merger Agreement
(collectively, the "Exercise Events").
(b) In the event Parent wishes to exercise the Option, Parent shall
send a written notice to the Company (the "Stock Exercise Notice") specifying a
date for the closing of such purchase (subject to the HSR Act (as defined below)
and obtaining other applicable regulatory approvals) not earlier than two
business days following the date the Stock Exercise Price Notice is given and
not later than 15 business days thereafter (or, if all applicable regulatory
approvals and consents have not been obtained by such date, the second business
day after all such approvals and consents have been obtained). Prior to the
occurrence of an Exercise Event, Parent may, in the exercise of its sole
discretion, unilaterally cancel the Option by giving written notice thereof to
the Company. In the event of any change in the number of issued and outstanding
shares of Common Stock by reason of any stock dividend, stock split, split-up,
recapitalization, or other change in the corporate or capital structure of the
Company, the number of Shares subject to this Option and the Purchase Price
shall be appropriately adjusted to restore Parent to its rights hereunder,
including its right to purchase Shares representing 19.9% of the capital stock
of the Company entitled to vote generally for the election of the directors of
the Company which is issued and outstanding immediately prior to the exercise of
the Option at an aggregate purchase price equal to the Purchase Price multiplied
by 33,000,000. In the event of a merger or other business combination with an
unrelated third party involving the Company, this Option and the Purchase Price
shall be appropriately adjusted so that, upon exercise of the Option, Parent
shall be entitled to receive the same merger consideration that Parent would
have received had it exercised its Option immediately prior to such merger or
other business combination.
(c) Parent will (i) offset against any Termination Fee or Alternative
Termination Fee, as the case may be (in each case as defined in the Merger
Agreement and each hereinafter referred to as the "Fee"), or portion thereof,
that becomes due and payable to Parent an amount from the Offset Account (as
defined below) equal to the Fee, or portion thereof, against which the offset is
to be made (but only to the extent of the amount then in the Offset Account) and
(ii) with respect to a Fee, or portion thereof, that has already been paid to
Parent prior to exercise of the Option and that has not been fully offset
pursuant to clause (i) above, remit to the Company an amount from the Offset
Account equal to the amount by which the Fee, or portion thereof, that has been
paid has not been offset pursuant to clause (i) above (but only to the extent of
the amount then in the Offset Account); it being understood and agreed that in
no event shall the sum of the amounts to be offset or remitted hereunder be
greater than the Fee. As used herein, the "Offset Account" shall equal (A) the
aggregate Fair Market Value of the Shares with respect to which the Option has
been exercised, minus the aggregate Purchase Price of such Shares, each as
determined at the time of the exercise of the Option with respect to
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such Shares, minus (B) the sum of the amounts, if any, that have been offset or
remitted pursuant to clauses (i) or (ii) above; it being understood that Parent
shall not be obligated to escrow or otherwise set aside the amounts referred to
above; and the term "Fair Market Value" shall mean, with respect to the Shares
subject to the Stock Exercise Notice, the average closing price of Common Stock
on the New York Stock Exchange Composite Tape for the five consecutive trading
days immediately preceding the date on which the Option is exercised, in whole
or in part, by Parent with respect to such Shares.
2. Conditions to Delivery of Shares. The Company's obligation to
deliver Shares upon exercise of the Option is subject only to the conditions
that:
(a) No preliminary or permanent injunction or other order issued by any
federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall have
expired or been terminated; and
(c) Any approval required to be obtained prior to the delivery of the
Shares under any Health Benefit Law (as defined in the Merger Agreement)
shall have been obtained and be in full force and effect.
3. The Closing. (a) Any closing hereunder shall take place on the date
specified by Parent in its Stock Exercise Notice at 9:00 A.M., local time, at
the offices of Xxxxxxxx & Xxxxxxxx, 125 Broad Street, New York, New York, or, if
Shares are to be delivered and the conditions set forth in Section 2(a), (b) or
(c) have not then been satisfied, on the second business day following the
satisfaction of such conditions, or at such other time and place as the parties
hereto may agree (the "Closing Date"). On the Closing Date the Company shall
deliver to Parent a certificate or certificates, representing the Shares in the
denominations designated by Parent in its Stock Exercise Notice and Parent shall
purchase such Shares from the Company at the price per Share equal to the
Purchase Price. Any payment made by Parent to the Company pursuant to this
Agreement shall be made by certified or official bank check or by wire transfer
of federal funds to a bank designated by the party receiving such funds.
(b) The certificates representing the Shares shall bear an appropriate
legend relating to the fact that such Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Company. The Company
represents and warrants to Parent that (a) the Company is a corporation duly
organized,
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validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to enter into and perform
this Agreement; (b) the execution and delivery of this Agreement by the Company
and the consummation by it of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company and this Agreement has
been duly executed and delivered by a duly authorized officer of the Company and
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; (c)
the Company has taken all necessary corporate action to authorize and reserve
the Shares issuable upon exercise of the Option, and the Shares, when issued and
delivered by the Company upon exercise of the Option and paid for by Parent as
contemplated hereby, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights; (d) except as otherwise may be
required by the HSR Act and applicable Health Benefit Laws, the execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby do not require the consent, waiver, approval or
authorization of or any filing with any person or public authority and will not
violate, result in a breach of or the acceleration of any obligation under, or
constitute a default under, any provision of the Company's certificate or
incorporation or by-laws, or any indenture, mortgage, lien, lease, agreement,
contract, instrument, order, law, rule, regulation, judgment, ordinance, or
decree, or restriction by which the Company or any of its subsidiaries or any of
their respective properties or assets is bound; (e) no restrictive provision of
any "fair price," "moratorium," "control share acquisition," or other form of
antitakeover statute or regulation, including without limitation, Section 203 of
the Delaware General Corporation Law, or similar provision contained in the
charter or by-laws of the Company, including without limitation, Article
Eleventh of the Company's Restated Certificate of Incorporation, is or shall be
applicable to the acquisition of Shares by Parent pursuant to this Agreement or
the Merger; and (f) the Company has taken all corporate action necessary so that
the rights issuable pursuant to the Rights Agreement (as defined in the Merger
Agreement) will not separate from the Shares or otherwise became exercisable, as
a result of entering into this Agreement, the Merger Agreement, the Voting
Agreement (as defined in the Merger Agreement) or consummating the Merger and/or
the other transactions contemplated hereby and thereby.
5. Representations and Warranties of Parent. Parent represents and
warrants to the Company that Parent is acquiring the Option and, if and when it
exercises the Option, will be acquiring the Shares issuable upon the exercise
thereof for its own account and not with a view to distribution or resale in any
manner which would be in violation of the Securities Act.
6. Listing of Shares; Filings; Governmental Consents. Subject to
applicable law and the rules and regulations of the New York Stock Exchange,
Inc. (the "NYSE"), the Company shall file as soon as is practicable an
application to list the Shares
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on the NYSE and shall use its best efforts to obtain approval of such listing
and to effect all necessary filings required of the Company under the HSR Act
and the applicable Health Benefit Laws, if any, of each state and foreign
jurisdiction; provided, however, that if the Company is unable to effect such
listing on the NYSE by the Closing Date, the Company shall nevertheless be
obligated to deliver the Shares upon the Closing Date. The Company shall
cooperate with Parent to obtain consents of all third parties and governmental
authorities necessary to the consummation of the transactions contemplated.
7. Registration Rights. (a) In the event that Parent shall desire to
sell any of the Shares within two years after the purchase of such Shares
pursuant hereto, and such sale requires, in the opinion of counsel to Parent,
which opinion shall be reasonably satisfactory to the Company and its counsel,
registration of such Shares under the Securities Act, the Company shall
cooperate with Parent and any underwriters in registering such Shares for
resale, including, without limitation, promptly filing a registration statement
which complies with the requirements of applicable federal and state securities
laws, and entering into an underwriting agreement with such underwriters upon
such terms and conditions as are customarily contained in underwriting
agreements with respect to secondary distributions; provided that the Company
shall not be required to have declared effective more than two registration
statements hereunder and shall be entitled to delay the filing or effectiveness
of any registration statement for up to 60 days if the offering would, in the
judgment of the Board of Directors of the Company, require premature disclosure
of any material corporate development or material transaction involving the
Company or interfere with any pending or proposed securities offering by the
Company.
(b) If the Shares are registered pursuant to the provisions of this
Section 7, the Company agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as Parent may from time to time reasonably request and (ii) if any event
shall occur as a result of which it becomes necessary to amend or supplement any
registration statement or prospectus, to prepare and file under the applicable
securities laws such amendments and supplements as may be necessary to keep
available for at least 90 days a prospectus covering the Shares meeting the
requirements of such securities laws, and to furnish Parent such numbers of
copies of the registration statement and prospectus as amended or supplemented
as may reasonably be requested. The Company shall bear the cost of the
registration, including, but not limited to, all registration and filing fees,
printing expenses, and fees and disbursements of counsel and accountants for the
Company, except that Parent shall pay the fees and disbursements of its counsel,
and the underwriting fees and selling commissions applicable to the Shares sold
by Parent. Company shall indemnify and hold harmless (i) Parent, its affiliates
and its officers and directors and (ii) each underwriter and each person who
controls any underwriter (collectively, the "Underwriters") within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
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"Exchange Act") ((i) and (ii) being referred to as "Indemnified Parties")
against any losses, claims, damages, liabilities or expenses to which the
Indemnified Parties may become subject, insofar as such losses, claims, damages,
liabilities (or actions in respect thereof) and expenses arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in any registration statement filed
pursuant to this paragraph, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, liability, claim, damage or expense arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any such documents in reliance upon and in conformity with written
information furnished to the Company by the Indemnified Parties expressly for
use or incorporation by reference therein. As used in this Agreement, "person"
shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act.
(c) Parent and the Underwriters shall indemnify and hold harmless the
Company, its affiliates and its officers and directors against any losses,
claims, damages, liabilities or expenses to which the Company, its affiliates
and its officers and directors may become subject, insofar as such losses,
claims, damages, liabilities (or actions in respect thereof) and expenses arise
out of or are based upon any untrue statement of any material fact contained or
incorporated by reference in any registration statement filed pursuant to this
paragraph, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by Parent or the Underwriters, as
applicable, specifically for use or incorporation by reference therein.
8. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
9. Specific Performance. The Company acknowledges that if the Company
fails to perform any of its obligations under this Agreement immediate and
irreparable harm or injury would be caused to Parent for which money damages
would not be an adequate remedy. In such event, the Company agrees that Parent
shall have the right, in addition to any other rights it may have, to specific
performance of this Agreement. Accordingly, if Parent should institute an action
or proceeding seeking specific enforcement of the provisions hereof, the Company
hereby waives the claim or defense that Parent has an adequate remedy at law and
hereby agrees not to assert in any such action or proceeding the claim or
defense that such a remedy at law exists. The
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Company further agrees to waive any requirements for the securing or posting of
any bond in connection with obtaining any such equitable relief.
10. Notice. All notices or other communications under this Agreement
shall be in writing and shall be deemed duly given, effective (i) three business
days later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by telecopier or fax, provided that the
telecopy or fax is promptly confirmed by telephone confirmation thereof, (iii)
when served, if delivered personally to the intended recipient, and (iv) one
business day later, if sent by overnight delivery via a national courier
service, and in each case, addressed to the intended recipient at the address
set forth in the preamble hereof. Any party may change the address to which
notices or other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth:
If to Parent:
-------------
United HealthCare Corporation
0000 Xxxx Xxxx Xxxx
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, General Counsel and Secretary
Telecopy: (000) 000-0000
With a copy to:
---------------
Xxxxxxxx & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, Esq.
Telecopy: (000) 000-0000
If to the Company:
------------------
Humana Inc.
The Humana Building
000 Xxxx Xxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxxx, Senior Vice President and General Counsel
Telecopy: (000) 000-0000
With a copy to:
---------------
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
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Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxxxx, Esq.
Telecopy: (000) 000-0000
11. Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successor in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the Company or Parent, or their successors or assigns, any rights or remedies
under or by reason of this Agreement.
12. Entire Agreement; Amendments. This Agreement, together with the
Merger Agreement and the other documents referred to therein, contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
13. Assignment. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the prior written consent of the
other party hereto, except that Parent may assign its rights and obligations
hereunder to any of its direct or indirect wholly owned subsidiaries (including
Newco), but no such transfer shall relieve Parent of its obligations hereunder
if such transferee does not perform such obligations.
14. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
17. Termination. The right to exercise the Option granted pursuant to
this Agreement shall terminate at the earlier of (i) the Effective Time (as
defined in the Merger Agreement); and (ii) one year after the date of the
Exercise Event that caused the Option to become exercisable (the date referred
to in clause (ii) being hereinafter referred to as the "Option Termination
Date"); provided that, if the Option cannot be exercised or
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the Shares cannot be delivered to Parent upon such exercise because the
conditions set forth in Section 2(a), (b) or (c) hereof have not yet been
satisfied, the Option Termination Date shall be extended until thirty days after
such impediment to exercise or delivery has been removed but not beyond the
first anniversary of the Option Termination Date.
All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
18. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, of the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
19. Public Announcement. Parent and the Company shall each consult with
the other and use reasonable best efforts to agree upon the text of any press
release, subject to their respective legal obligations (including requirements
of stock exchanges and other similar regulatory bodies) with respect to the
timing of such public announcements, prior to issuing any such press releases or
otherwise making public announcements with respect to the transactions
contemplated by this Agreement and prior to making any filings with any third
party and/or any governmental authorities (including any national securities
exchange) with respect thereto.
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IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be duly executed and delivered on the day and year first above written.
HUMANA INC.
/s/ Xxxxx X. Xxxxx
--------------------------------------
By: Xxxxx X. Xxxxx
Title: Chairman of the Board
UNITED HEALTHCARE CORPORATION
/s/ Xxxxxxx X. XxXxxxx
--------------------------------------
By: Xxxxxxx X. XxXxxxx
Title: President & CEO
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