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Item 1.01
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Entry into a Material Definitive Agreement.
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On December 9, 2019, Diplomat Pharmacy,
Inc., a Michigan corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”),
by and among the Company, UnitedHealth Group Incorporated, a Delaware corporation (“Parent”), and Denali Merger Sub,
Inc., a Michigan corporation and a wholly owned subsidiary of Parent (“Sub”). A copy of the Merger Agreement is filed
as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference. The Merger Agreement and the consummation
of the transactions contemplated thereby have been unanimously approved by the Company’s board of directors (the “Company
Board”).
Offer and Merger. Pursuant to the
Merger Agreement, on the terms and subject to the conditions set forth in the Merger Agreement, as promptly as reasonably practicable
(and, in any event, no later than January 8, 2020), Sub will commence a tender offer (the “Offer”) to purchase (subject
to the Minimum Tender Condition (as defined below)) all of the outstanding shares of common stock, no par value per share, of the
Company (“Company Common Stock”), at a price per share of $4.00 (such amount, or any other amount per share paid in
the Offer in accordance with the Merger Agreement, the “Offer Price”), net to the seller in cash, without interest,
subject to any required tax withholding. The Merger Agreement also provides that, as soon as practicable on the same business day
that Sub irrevocably accepts for payment all shares of Company Common Stock that are validly tendered (and not properly withdrawn)
pursuant to the Offer and that Sub becomes obligated to purchase pursuant to the Offer (subject to the Minimum Tender Condition
(as defined below)), upon the terms and subject to the conditions set forth in the Merger Agreement, Sub will be merged with and
into the Company (the “Merger”) pursuant to Section 703a(3) of the Michigan Business Corporation Act (the “MBCA”),
with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent. No vote of shareholders of the
Company will be required in connection with the Offer or the Merger.
Pursuant to the Merger Agreement, at the
effective time of the Merger (the “Effective Time”), each share of Company Common Stock, including each outstanding
award of shares of Company Common Stock subject to forfeiture restrictions or other restrictions, issued and outstanding immediately
prior to the Effective Time (other than shares owned by the Company or held in the treasury of the Company or shares owned by Parent,
Sub or any of their respective wholly owned subsidiaries, in each case, other than those held on behalf of any third party) will
automatically be converted into the right to receive the Offer Price in cash, without interest, subject to any required tax withholding.
Pursuant to the MBCA, no appraisal or dissenter’s rights will be available to shareholders in connection with the Merger.
The transaction is expected to close in
early 2020, subject to the satisfaction of the Minimum Tender Condition, the receipt of specified regulatory approvals and other
customary closing conditions.
Treatment of Outstanding Equity Awards.
Pursuant to the terms of the Merger Agreement, at the Effective Time all:
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outstanding Company stock options held by any former or terminated employee of the Company or its subsidiaries (each a “Company
Non-Employee Option”) will be cancelled by virtue of the Merger and without any action on the part of the holder thereof,
and each holder of any such cancelled Company Non-Employee Option will receive a payment in cash, without interest, of an amount
equal to the product of (i) the total number of shares of Company Common Stock subject to such cancelled Company Non-Employee Option,
multiplied by (ii) the excess, if any, of the (A) the Offer Price over (B) the exercise price per share subject to such cancelled
Company Non-Employee Option, less any applicable withholding taxes, except that any such Company Non-Employee Option with respect
to which the exercise price per share of Company Common Stock subject thereto is equal to or greater than the Offer Price will
be cancelled for no consideration;
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outstanding Company stock options that are not Company Non-Employee Options (“Company Employee Options”), whether
vested or unvested, will, by virtue of the Merger and without any action on the part of the holder thereof, be converted into an
option to purchase a number of shares of common stock, par value $0.01 per share, of Parent (“Parent Common Stock”)
equal to the product (rounded down to the nearest whole number) of (i) (A) in the case of a service-based Company Employee
Option, the total number of shares of Company Common Stock subject to such Company Employee Option immediately prior to the Effective
Time or (B) in the case of a performance-based Company Employee Option, the number of shares of Company Common Stock earned
based on actual performance, if the performance period ends on or before the Effective Time, or the number of shares of Company
Common Stock remaining subject to the award, if the performance period ends after the Effective Time, and (ii) the quotient obtained
by dividing (A) the Offer Price by (B) the volume weighted average of the closing sale prices per share of Parent Common Stock
on the New York Stock Exchange on each of the five (5) full consecutive trading days ending on and including the third business
day prior to the Effective Time (the “Equity Award Conversion Ratio”), at an exercise price per share (rounded up to
the nearest whole cent) equal to (1) the exercise price per share of Company Common Stock of such Company Employee Option immediately
prior to the Effective Time divided by (2) the Equity Award Conversion Ratio, in each case, subject to the same terms and conditions,
including vesting and exercisability, as applied to the exchanged Company Employee Option, except for performance-based vesting
conditions for performance periods ending after the Effective Time, for any terms rendered inoperative as a result of the transactions
contemplated by the Merger Agreement or for such other changes that are necessary for the administration of the converted Company
Employee Option and not materially detrimental to the holder thereof;
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outstanding Company restricted stock unit awards (“RSU Awards”) that by their respective terms automatically become
fully or partially vested effective immediately prior to or upon the consummation of the transactions contemplated by the Merger
Agreement (without the required occurrence of termination of employment or any other event) (the “accelerated RSUs”)
will be cancelled, and each holder of any such cancelled RSU Award will be entitled to receive a payment in cash of an amount equal
to the product of (i) the Offer Price multiplied by (ii) the number of shares of Company Common Stock subject to such cancelled
RSU Award, without interest, less any applicable withholding taxes; and
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outstanding RSUs (other than any accelerated RSUs) will, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into a restricted stock unit award denominated in shares of Parent Common Stock and relating to a
number of shares of Parent Common Stock equal to the product of (i) (A) in the case of a service-based RSU, the total number of
shares of Company Common Stock subject to such RSU immediately prior to the Effective Time, or (B) in the case of a performance-based
RSU, the number of shares of Company Common Stock earned based on actual performance, if the performance period ends on or before
the Effective Time, or the number of shares of Company Common Stock remaining subject to the award (less any shares vested at or
prior to the Effective Time), if the performance period ends after the Effective Time, multiplied by (ii) the Equity Award Conversion
Ratio, with any fractional shares rounded down to the next lower whole number of shares, in each case, subject to the same terms
and conditions, including vesting and settlement, as applied to the exchanged RSU, except for performance-based vesting conditions
for performance periods ending after the Effective Time, for any terms rendered inoperative as a result of the transactions contemplated
by the Merger Agreement or for such other changes that are necessary for the administration of the converted RSU and not materially
detrimental to the holder thereof.
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Financing. The consummation of the
Offer and the Merger are not subject to a financing condition.
Conditions to the Offer. The obligations
of Sub to accept for payment and pay for any shares of Company Common Stock validly tendered (and not properly withdrawn) pursuant
to the Offer are subject to the satisfaction of conditions specified in the Merger Agreement, including (i) that there shall have
been validly tendered and not properly withdrawn in accordance with the terms of the Offer prior to the expiration of the Offer
that number of shares of Company Common Stock that, when added to the shares of Company Common Stock (if any) directly or indirectly
owned by Parent and its wholly owned subsidiaries, represent at least a majority of the shares of Company Common Stock outstanding
at such time (the “Minimum Tender Condition”), (ii) the expiration or termination of any applicable waiting period
(or any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”),
relating to the purchase of shares of Company Common Stock pursuant to the Offer or the consummation of the Merger, (iii) the accuracy
of the Company’s representations and warranties in the Merger Agreement and its compliance with its covenants and obligations
in the Merger Agreement, subject to certain exceptions, (iv) the absence of judgments or laws enjoining, restraining, prohibiting,
preventing or making illegal the making of the Offer, the consummation of the Offer or the Merger and (v) the receipt of certain
consents, authorizations and approvals and the making of certain filings, applications and notices under certain state pharmacy
laws.
Representations, Warranties and Covenants;
Non-Solicitation. The Merger Agreement contains customary representations, warranties and covenants of the Company, Parent
and Sub. These covenants include an obligation of the Company to and to cause its subsidiaries to, for the period between the execution
of the Merger Agreement and the Effective Time and subject to certain exceptions, conduct its operations in all material respects
in the ordinary course of business and, to the extent consistent with the foregoing, use commercially reasonable efforts to maintain
and preserve its assets and business organization intact, keep available the services of key employees and maintain its relationships
with governmental entities, partners, customers, suppliers, licensors and others having significant business dealings with the
Company and the Company’s subsidiaries. The Company and Parent have also agreed to use reasonable best efforts to cause the
conditions to closing to be satisfied as promptly as reasonably practicable, including using reasonable best efforts to obtain
approval of the proposed transactions under the HSR Act, subject to certain exceptions. The Merger Agreement also requires the
Company and its subsidiaries and affiliates, and its and their respective officers (including members of the Company’s executive
committee and management committee), directors, financial advisors, investment bankers and legal counsel to, and requires that
the Company use its reasonable best efforts to cause its and their other representatives to, immediately cease any solicitations,
discussions or negotiations with respect to any actual or potential Competing Proposal (as such term is defined in the Merger Agreement)
and restricts the Company’s ability to initiate, solicit or knowingly encourage, induce or facilitate the submission of,
furnish non-public information to, or conduct, continue or participate in any discussions or negotiations with any third party,
or cooperate in any way with any third party, with respect to, any Competing Proposal or any inquiries or proposals that would
reasonably be expected to lead to a Competing Proposal, subject to certain limited exceptions. The Merger Agreement also contains
covenants that require, subject to certain limited exceptions, the Company Board to recommend that the shareholders of the Company
accept the Offer and tender their shares of Company Common Stock to Sub in the Offer. However, subject to compliance with certain
terms and conditions in the Merger Agreement, (i) in the event the Company Board receives a Superior Proposal (as defined in the
Merger Agreement) the Company Board is permitted to change its recommendation to the Company’s shareholders and cause the
Company to terminate the Merger Agreement to enter into such Superior Proposal and (ii) the Company Board is permitted to change
its recommendation to the Company’s shareholders in response to an Intervening Event (as defined in the Merger Agreement).
Termination; Termination Fees. The
Merger Agreement also provides for certain termination rights for both the Company and Parent. Upon termination of the Merger Agreement
under certain circumstances, the Company is obligated to pay Parent a termination fee equal to $15,000,000, including if the Merger
Agreement is terminated (i) by Parent following a change of recommendation by the Company Board or as a result of the material
breach by the Company of its obligations not to initiate, solicit or knowingly encourage, induce or facilitate the submission of
any Competing Proposal, (ii) by the Company to enter into a Superior Proposal or (iii) by Parent or the Company under specified
circumstances, and, within twelve months following such termination, the Company consummates or enters into a definitive agreement
for a business combination transaction of the type described in the Merger Agreement, in each case, as is described in further
detail in the Merger Agreement.
The foregoing description of the Merger
Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement,
which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.
The Merger Agreement and the above description
of the Merger Agreement have been included to provide investors and security holders with information regarding the terms of the
Merger Agreement and are not intended to provide any other factual information about the Company, Parent or their respective subsidiaries
or affiliates. The representations and warranties contained in the Merger Agreement were made only for purposes of the Merger Agreement
and as of specific dates, are solely for the benefit of the parties to the Merger Agreement, may be subject to a contractual standard
of materiality different from what might be viewed as material to investors and may be subject to limitations agreed upon by the
parties to the Merger Agreement, including being qualified by confidential disclosures made by the parties to each other. Such
representations and warranties were used for the purpose of allocating risk between the parties to the Merger Agreement, rather
than establishing matters of fact, and investors should not rely on the representations and warranties as characterizations of
the actual state of facts or condition of the Company, Parent or any of their respective subsidiaries, affiliates or businesses.