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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission file number: 0-27276
MEDPARTNERS, INC
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 63-1151076
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, ALABAMA 35244
(Address of Principal Executive Offices)
(205)733-8996
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 4, 1998
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<S> <C>
COMMON STOCK, PAR VALUE 197,876,690*
$.001 PER SHARE
</TABLE>
* Includes 9,113,755 shares held in trust to be utilized in employee benefit
plans.
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FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD LOOKING STATEMENTS. Statements in this document that are not
historical facts are hereby identified as "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act") and section 27A of the Securities Act of 1933 (
the "Securities Act"). MedPartners, Inc. (the "Company") cautions readers that
such "forward looking statements", including without limitation, those relating
to the Company's future business prospects, revenue, working capital, liquidity,
capital needs, interest costs and income, wherever they occur in this document
or in other statements attributable to the Company, are necessarily estimates
reflecting the best judgment of the Company's senior management and involve a
number of risks and uncertainties that could cause actual results to differ
materially from those suggested by the "forward looking statements". Such
"forward looking statements" should therefore, be considered in light of various
important factors, including those set forth below and others set forth from
time to time in the Company's reports and registration statements filed with the
Securities and Exchange Commission (the "SEC").
These "forward looking statements" are found at various places
throughout this document. Additionally, the discussion herein under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are susceptible to the risks and uncertainties discussed below.
Moreover, the Company, through its senior management, may from time to time make
"forward looking statements" about matters described herein or other matters
concerning the Company.
The Company disclaims any intent or obligation to update "forward
looking statements".
FACTORS THAT MAY AFFECT FUTURE RESULTS. The healthcare industry in
general and the business engaged in by the Company in particular are in a state
of significant flux. This, together with the circumstance that the Company has a
relatively short operating history in an industry that also is relatively young
and is the largest physician practice management company in the United States,
makes the Company particularly susceptible to various factors that may affect
future results such as the following:
risks relating to the Company's growth strategy; risks relating to
integration in connection with acquisitions; risks relating to capital
requirements; risks relating to identification of growth opportunities; risks
relating to dependence on HMO enrollee growth; risks relating to the capitated
nature of revenues; risks relating to utilization of medical services; risks
relating to control of healthcare costs; risks relating to certain legal
matters; risks relating to exposure to professional liability; risks relating to
government regulation; risks relating to pharmacy licensing operations; risks
relating to healthcare reform and proposed legislation; and risks relating to
possible volatility and/or decline of stock price.
For a more detailed discussion of these factors and their potential
impact on future results, see the applicable discussions herein.
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MEDPARTNERS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1997 (Audited) and March 31, 1998 (Unaudited)............. 4
Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 1997 and 1998............................. 5
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1997 and 1998............................. 6
Notes to Consolidated Financial Statements (Unaudited)................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities......................................... 16
Item 6. Exhibits and Reports on Form 8-K ............................. 16
</TABLE>
3
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MEDPARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
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(AUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 215,801 $ 199,148
Accounts receivable, less allowances for bad debts of $204,249 and $214,713.... 763,551 798,932
Inventories.................................................................... 164,049 127,044
Income tax receivable.......................................................... 10,446 13,402
Deferred tax assets, net....................................................... 72,203 81,592
Prepaid expenses and other current assets...................................... 86,991 82,090
----------- -----------
Total current assets.................................................... 1,313,041 1,302,208
Property and equipment, net...................................................... 530,033 521,642
Intangible assets, net........................................................... 731,586 779,175
Deferred tax asset............................................................... 175,619 179,126
Other assets..................................................................... 140,250 132,040
=========== ===========
Total assets............................................................ $ 2,890,529 $ 2,914,191
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 340,106 $ 316,368
Accrued medical claims payable................................................. 208,937 214,477
Other accrued expenses and liabilities......................................... 670,615 562,922
Current portion of long-term debt.............................................. 17,636 25,257
----------- -----------
Total current liabilities............................................... 1,237,294 1,119,024
Long-term debt, net of current portion........................................... 1,470,622 1,609,632
Other long-term liabilities...................................................... 91,759 117,026
Stockholders' equity:
Common stock, $.001 par value; 400,000 shares
authorized; issued -- 197,766 in 1997
and 197,924 in 1998.......................................................... 198 198
Additional paid-in capital..................................................... 937,233 938,370
Notes receivable from stockholders............................................. (1,367) (1,282)
Other Comprehensive Income .................................................... (5,035) (4,723)
Shares held in trust, 9,317 in 1997 and 9,186 in 1998.......................... (150,200) (148,332)
Accumulated deficit............................................................ (689,975) (715,722)
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Total stockholders' equity.............................................. 90,854 68,509
=========== ===========
Total liabilities and stockholders' equity.............................. $ 2,890,529 $ 2,914,191
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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MEDPARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1997 1998
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(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenue......................................................... $ 1,481,933 $ 1,743,097
Operating expenses:
Clinic expenses................................................... 747,045 1,029,551
Non-clinic goods and services..................................... 555,818 586,107
General and administrative expenses............................... 70,828 84,697
Depreciation and amortization..................................... 26,610 28,647
Net interest expense.............................................. 9,781 25,977
Terminated merger expenses........................................ -- 8,445
Restructuring expense............................................. -- 34,000
(Gain) on sale of international operations........................ -- (20,141)
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Income (loss) before income taxes................................... 71,851 (34,186)
Income tax expense (benefit)........................................ 27,454 (8,439)
=========== ===========
Net income (loss)................................................... $ 44,397 $ (25,747)
=========== ===========
Basic earnings (loss) per common share.............................. $ 0.24 $ (0.14)
=========== ===========
Diluted earnings (loss) per common share............................ $ 0.24 $ (0.14)
=========== ===========
Weighted average common shares outstanding.......................... 183,666 188,610
Dilutive effect of employee stock options........................... 3,490 --
----------- -----------
Weighted average shares outstanding, assuming dilution.............. 187,156 188,610
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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MEDPARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1997 1998
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(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Income (loss) from continuing operations .................. $ 44,397 $ (25,747)
Adjustments for non-cash items:
Depreciation and amortization ............................ 26,610 28,647
Provision for deferred tax expense (benefit) ............. 23,451 (12,896)
Restructuring expense .................................... -- 34,000
Terminated merger expenses ............................... -- 8,445
Gain on sale of international operations ................. -- (20,141)
Other .................................................... 612 194
Changes in operating assets and liabilities,
net of effects of acquisitions .......................... (47,213) (68,255)
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Net cash and cash equivalents provided
(used) by continuing operations ....................... 47,857 (55,753)
Investing activities:
Net cash used to fund acquisitions ........................ (44,391) (85,461)
Cash paid for merger charges .............................. (25,887) (3,068)
Purchase of property and equipment ........................ (18,703) (25,568)
Additions to intangibles, net of acquisitions ............. (5,256) (1,971)
Net proceeds from sale of international operations ........ -- 33,314
Proceeds from sale of property and equipment .............. -- 4,095
Other ..................................................... (416) (338)
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Net cash and cash equivalents used in
investing activities .................................. (94,653) (78,997)
Financing activities:
Capital contributions .................................... 27,401 2,383
Net borrowings under line of credit ...................... (29,400) 153,000
Proceeds from debt ....................................... 82,705 188
Repayment of debt ........................................ (12,045) (4,094)
Other .................................................... 75 (56)
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Net cash and cash equivalents provided
by financing activities ............................... 68,736 151,421
Cash paid for restructuring expenses ....................... -- (24,552)
Cash used in discontinued operations ....................... (1,453) (8,772)
--------- ---------
Net increase (decrease) in cash and cash equivalents ....... 20,487 (16,653)
Cash and cash equivalents at beginning of period ........... 127,397 215,801
Beginning cash and cash equivalents of immaterial
pooling of interests entities ............................. 491 --
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Cash and cash equivalents at end of period ................. $ 148,375 $ 199,148
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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MEDPARTNERS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial reporting
and in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
items) necessary for a fair presentation of results for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements and footnote
disclosures should be read in conjunction with the December 31, 1997 audited
consolidated financials statements and the notes thereto.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the accompanying
consolidated financial statements and notes. Actual results could differ from
those estimates.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption had been reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of Statement 130.
During the first quarter of 1998 and 1997, total other comprehensive
income was immaterial to the consolidated financial statements.
In June 1997, the FASB issued "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements, and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements for fiscal years beginning after
December 15, 1997. The adoption of SFAS 131 will have no impact on the Company's
results of operations, financial position or cash flows.
The Emerging Issues Task Force ("EITF") issued guidance during 1997,
EITF 97-2, on the consolidation of physician practice revenues. Under EITF 97-2,
PPMs will be required to consolidate financial information of a physician
practice where the PPM acquires a "controlling financial interest" in the
practice through the execution of a contractual management agreement even though
the PPM does not own a controlling equity interest in the physician practice.
EITF 97-2 outlines six requirements for establishing a controlling financial
interest. The guidance continued in EITF 97-2 is effective for the Company's
financial statements for the year ended December 31, 1998. The Company does not
believe that the implementation of this guidance will have a material impact on
its financial condition, results of operations or cash flows.
7
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INCOME TAXES
Significant variations exist in the customary relationship between
income tax expense and pretax income. These variations exist primarily because
of the differences in the basis of foreign subsidiaries that have been sold for
income tax purposes.
NOTE 4. ACQUISITIONS
During the three months ended March 31, 1998, the Company's Contract
Medical Services Division acquired two physician groups. The acquisitions have
been accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the net assets based on the estimated fair
values at the date of acquisition. Cash paid during the three months ended March
31, 1998 totaled $8.0 million related to these acquisitions. A total of $85.5
million in cash was paid during the three months ended March 31, 1998 primarily
related to deferred payments for 1997 acquisitions and the $8.0 million for 1998
acquisitions. The most significant deferred payment for 1997 acquisitions was a
$51.9 million payment for the acquisition of the Health Centers Division of Blue
Cross Blue Shield of Massachusetts.
NOTE 5. EARNINGS (LOSS) PER COMMON SHARE
The earnings (loss) per common share outstanding computation is
calculated by dividing income available to common stockholders by the weighted
average number of common shares outstanding. For the computation of diluted
earnings (loss) per share, no incremental shares related to options are included
for the period ended March 31, 1998, since the shares would be antidilutive.
NOTE 6. SALE OF INTERNATIONAL OPERATIONS
The Company, through Caremark, had established home care and other
businesses in various international markets. The international operations are in
the process of being sold. The home infusion operations in Germany, the
Netherlands and Canada were sold to Fresenius A.G. during the first quarter of
1998. In addition, other international operations in Puerto Rico and Japan were
sold to various parties during the first quarter of 1998.
The net gain on the sale of these operations totaled $20.1 million.
The Company sold its remaining operations in the Netherlands subsequent
to March 31, 1998 and expects to sell its remaining international operations,
the home infusion operations in the U.K., during 1998.
NOTE 7. TERMINATED MERGER AND RESTRUCTURING
On October 1, 1997, the Company announced that it entered into an
agreement to acquire America Service Group Inc. ("ASG") in a stock transaction
valued at approximately $59 million. On February 26, 1998, it was announced that
the merger agreement had been terminated by mutual consent of both parties and
that a release and settlement agreement had been executed. Due to the exchange
of confidential information, the settlement agreement contains non-competition
and non-solicitation provisions and provides that certain expenses and costs be
paid by the Company. Included in the pre-tax loss for the three months ended
March 31, 1998 are terminated merger costs totaling $8.4 million. These costs
primarily relate to the terminated merger with ASG.
In addition, during the first quarter of 1998 the Company recorded a
pre-tax restructuring charge of $34.0 million that primarily relates to $24.0
million in corporate severance costs and $10.0 million in costs associated with
the closing of certain clinic operations.
NOTE 8. CREDIT FACILITY
On May 9, 1998 the Company obtained a commitment to restructure its
current $1.0 billion revolving credit facility. The restructured facility is
scheduled to be effective during the second quarter of 1998 and will be
apportioned as follows:
i. a one-year non-amortizing term loan in an aggregate principal amount
of up to $300 million (the Company has an option to extend the term
loan an additional two years as an amortizing term loan);
ii. a three-year non-amortizing term loan in an aggregate principal
amount of up to $300 million; and
8
<PAGE> 9
iii. a three-year revolving credit facility in an aggregate principal
amount of up to $400 million.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9. SUBSEQUENT EVENTS
Effective April 1, 1998 the Company acquired the Tampa Bay Healthcare
Group, P.A. Tampa Bay Healthcare Group has 16 physicians and four locations in
the Hillsborough County area. The acquisition will be accounted for by the
purchase method of accounting.
Effective May 11, 1998, the Company acquired Mid-America Medical Group
("MAMG"). MAMG has 53 primary care physicians operating in 15 locations in
DuPage and Cook Counties in Illinois. The MAMG clinics will be combined with the
Company's Glen Ellyn/Wheaton Clinic operations.
NOTE 10. CONTINGENCIES
In June 1995, Caremark agreed to settle an investigation with the Office of
the Inspector General of the U.S. Department of Health and Human Services (the
"OIG") and the U.S. Department of Justice ("DOJ"), the Veterans Administration,
the Federal Employee Health Benefits Program ("FEHBA"), the Civilian Health and
Medical Program of the Uniformed Services ("CHAMPUS") and related state
investigative agencies in all 50 states and the District of Columbia (the "OIG
Settlement"). Under the terms of the OIG Settlement, which covered allegations
dating back to 1986, a subsidiary of Caremark pled guilty to two counts of mail
fraud -- one each in Minnesota and Ohio. The basis of these guilty pleas was
Caremark's failure to provide certain information to CHAMPUS and FEHBP,
federally funded healthcare benefit programs, concerning financial relationships
between Caremark and a physician in each of Minnesota and Ohio. The OIG
Settlement allows Caremark to continue participating in Medicare, Medicaid and
other government healthcare programs. In its agreement with the OIG and the DOJ,
Caremark agreed to continue to maintain certain compliance-related oversight
procedures. Should these oversight procedures reveal credible evidence of legal
or regulatory violations, Caremark is required to report such violations to the
OIG and DOJ. Caremark is, therefore, subject to increased regulatory scrutiny
and, in the event it commits legal or regulatory violations, Caremark may be
subject to an increased risk of sanctions or penalties, including
disqualification as a provider of Medicare or Medicaid services, which would
have a material adverse effect on the operating results and financial condition
of MedPartners. Caremark took an after-tax charge to discontinued operations of
$154.8 million in 1995 for these settlement payments, costs to defend ongoing
derivative, security and related lawsuits and other associated costs.
In connection with the matters described above relating to the OIG
Settlement, Caremark is the subject of various non-government claims and may in
the future become subject to additional OIG-related claims. Caremark is the
subject of, and may be in the future subjected to, various private suits and
claims being asserted in connection with matters relating to the OIG Settlement
by Caremark's stockholders, patients who received healthcare services from
Caremark and such patients' insurers. The Company does not believe that the
above-referenced settlements or suits will materially affect its ability to
pursue its long-term business strategy. There can be no assurance, however, that
additional costs, claims and damages will not occur or that the ultimate costs
related to the settlements will not exceed estimates in the preceding
paragraphs. MedPartners cannot determine at this time what costs or liabilities
may be incurred in connection with future disposition of non-governmental claims
or litigation. Such additional costs or liabilities, if incurred, could have a
material adverse effect on the operating results and financial condition of
MedPartners.
In May 1996, three home infusion companies, purporting to represent a class
consisting of all of Caremark's competitors in the alternate site infusion
therapy industry, filed a complaint against Caremark, Inc., Caremark
International Inc., and two other corporations in the United States District
Court for the District of Hawaii alleging violations of the federal antitrust
laws, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the
federal antitrust laws and California's unfair business practices statute. The
complaint seeks unspecified treble damages, attorneys' fees and expenses. The
Company intends to defend this case vigorously. Although management believes,
based on information currently available, that the ultimate resolution is not
likely to have a material adverse effect on the operating results and financial
condition of the Company, there can be no assurance that the ultimate resolution
of the matter, if adversely determined would not have a material adverse effect
on the operating results and financial condition of the Company.
In March 1998, a group of 22 private payors filed an action against
Caremark Inc. and Caremark International Inc. seeking recovery for losses
allegedly suffered by the plaintiffs during the period 1986-1995 as a result of
an allegedly fraudulent scheme conceived and implemented by Caremark Inc. and
Caremark International Inc. to submit and cause other providers to submit
fraudulent claims for payment of healthcare benefits by the plaintiffs related
to Caremark's home infusion business. Caremark sold its home infusion business
in 1995. The plaintiffs allege that Caremark failed to disclose to the
plaintiffs the existence and nature of certain relationships that Caremark had
with various physicians and the fact that certain funds were paid to such
physicians without the plaintiffs' knowledge or approval. The action prays for
an unspecified amount in damages and for trebled damages under RICO and other
related fraud claims. Caremark intends to defend this lawsuit vigorously.
Although management believes, based on information currently available, that
the ultimate resolution of this matter is not likely to have a material adverse
effect on the operating results and financial condition of MedPartners, there
can be no assurance that the ultimate resolution of this matter, if adversely
determined, would not have a material adverse effect on the operating results
and financial condition of MedPartners.
In late August 1994, certain patients of a physician who prescribed human
growth hormone distributed by Caremark and the sponsor of a health insurance
plan of one of those patients filed complaints against Caremark, employees of
Caremark and others in the United States District Court for the District of
Minnesota. The complaint alleged violations of the federal mail and wire fraud
statutes, RICO and the state consumer fraud statute, as well as conspiracy to
breach a fiduciary duty, negligence and fraud. The complaint sought unspecified
treble damages, and attorneys' fees and expenses. In July 1996, these plaintiffs
also filed a separate purported class action lawsuit in the Minnesota State
Court in the County of Hennepin against a subsidiary of Caremark alleging all of
the claims contained in the federal complaint and sought unspecified damages,
attorneys' fees and expenses and an award of punitive damages. In November 1996,
in response to a motion by the plaintiffs, the Court dismissed the United States
District Court cases without prejudice. On March 28, 1997, the Minnesota state
court lawsuit was dismissed with prejudice, which decision was affirmed by the
Minnesota Court of Appeals on November 4, 1997. On December 31, 1997, the
Minnesota Supreme Court denied plaintiffs' petition for further reconsideration.
This action is concluded because plaintiffs have no further avenue of appeal. In
July 1995, another patient of the same physician filed a separate complaint in
the District of South Dakota against the physician, Caremark and another
corporation alleging violations of the federal laws prohibiting payment of
remuneration to induce referral of Medicare and Medicaid beneficiaries, the
federal mail fraud statutes and RICO. The complaint also alleges the intentional
infliction of emotional distress and seeks trebling of at least $15.9 million in
general damages, attorneys' fees and costs, and an award of punitive damages. In
August 1995, the parties agreed to a stay of all proceedings until final
judgment was entered in a criminal case that was then pending against this
physician. All charges against the physician have been dismissed. Caremark has
moved for the dismissal of the South Dakota case or transfer of the case to
Minnesota. Management believes, based on information currently available, that
the ultimate resolution of this matter is not likely to have a material adverse
effect on the operating results and financial condition of MedPartners.
In December 1997, a class action was filed in the United States District
Court for the Central District of California. The action purports to be a class
action on behalf of all of the shareholders of Talbert which was acquired by
MedPartners in a cash tender offer transaction closed in September 1997 pursuant
to which each outstanding share of Talbert was acquired for $63 cash per share.
The action alleges that MedPartners violated Rule 14d-10 under the Securities
Exchange Act of 1934, the so-called "all holder, best price" rule, by reason of
provisions in the employment agreements of two senior officers of Talbert, which
provided for a certain contingent payment under certain circumstances. The
complaint requests a class certification and claims damages and interest. The
defendants have filed a Motion to Dismiss this action on a number of grounds,
asserting that the complaint fails to state a claim upon which relief can be
granted. Although management believes, based on information currently available,
that the ultimate resolution of this matter is not likely to have a material
adverse effect on the operating results and financial condition of MedPartners,
there can be no assurance that the ultimate resolution of the matter, if
adversely determined, would not have a material adverse effect on the operating
results and financial condition of MedPartners.
On January 7, 1998, MedPartners issued a press release announcing the
termination of its proposed merger with PhyCor, Inc. On that date, MedPartners
also issued another press release announcing certain fourth quarter 1997
charges and negative earnings estimates, which have since been revised
downward. On January 8, 1998, there was a decline in the market prices for
MedPartners' publicly traded securities. Since then, certain persons claiming
to be stockholders of MedPartners have filed complaints in either state or
federal court against MedPartners and certain officers and directors of
MedPartners. To date, there are two state court actions and 14 federal court
actions, all filed in Birmingham, Alabama. In each of these lawsuits, the
plaintiff purports to represent a class and generally alleges violations of the
Securities Exchange Act of 1934, fraud and various state law claims in
connection with the public disclosure by MedPartners of the termination of the
PhyCor merger and the fourth quarter 1997 charges and earnings estimates. Four
of the lawsuits, one filed in the Circuit Court of Jefferson County, Alabama,
and three filed in the United States Federal Court for the Northern District of
Alabama, were filed against MedPartners and certain of its officers and
directors, purportedly on behalf of all persons who purchased MedPartners'
Threshold Appreciation Price Securities(TM) in the offering occurring on or
about September 16, 1997. The state complaint also asserts claims under
Sections 11 and 15 of the Securities Act of 1933, as well as Sections
8-6-17(a)(2) and 8-6-19 of the Alabama Code. Collectively, these complaints
seek class certification, damages and interest, as well as costs and expenses.
MedPartners' management believes that it and MedPartners have acted properly
throughout and intend to defend each of these cases vigorously. All of these
cases are in the preliminary stages, and their ultimate resolution cannot be
known at this time. Therefore, there can be no assurance that the ultimate
resolution of these matters will not have a material adverse effect on the
operating results and financial condition of MedPartners.
Beginning in September 1994, Caremark was named as a defendant in a series
of lawsuits added to a pending group of actions (including a class action)
brought in 1993 under the antitrust laws by local and chain retail pharmacies
against brand name pharmaceutical manufacturers, wholesalers and prescription
benefit managers other than Caremark. The lawsuits, filed in federal district
courts in at least 38 states (including the United States District Court for the
Northern District of Illinois), allege that at least 24 pharmaceutical
manufacturers provided unlawful price and service discounts to certain favored
buyers and conspired among themselves to deny similar discounts to the
complaining retail pharmacies (approximately 3,900 in number). The complaints
charge that certain defendant prescription benefit managers, including Caremark,
were favored buyers who knowingly induced or received discriminatory prices from
the manufacturers, in violation of the Robinson-Patman Act. Each complaint seeks
unspecified treble damages, declaratory and equitable relief, and attorneys'
fees and expenses. All of these actions have been transferred by the Judicial
Panel for Multidistrict Litigation to the United States District Court for the
Northern District of Illinois for coordinated pretrial procedures. Caremark was
not named in the class action. In April 1995, the Court entered a stay of
pretrial proceedings as to certain Robinson-Patman Act claims in this
litigation, including the Robinson-Patman Act claims brought against Caremark,
pending the conclusion of a first trial of certain of such claims brought by a
limited number of plaintiffs against five defendants not including Caremark. On
July 1, 1996, the district court directed entry of a partial final order in the
class action approving an amended settlement with certain of the pharmaceutical
manufacturers. The amended settlement provides for a cash payment by the
defendants in the class action (which does not include Caremark) of
approximately $351.0 million to class members in settlement of conspiracy claims
as well as a commitment from the settling manufacturers to abide by certain
injunctive provisions. All class action claims against non-settling
manufacturers as well as all opt out and other claims generally, including all
Robinson-Patman Act claims against Caremark, remain unaffected by the
settlement. The district court has scheduled a trial of the remaining class
action claims for the fall of 1998. It is expected that trials of the remaining
individual conspiracy claims will also precede the trial of any Robinson-Patman
Act claims. The Company intends to defend these cases vigorously. Although
management believes, based on information currently available, that the ultimate
resolution of this matter is not likely to have a material adverse effect on the
operating results and financial condition of the Company, there can be no
assurance that the ultimate resolution of this matter, if adversely determined,
would not have a material adverse effect on the operating results and financial
condition of the Company.
Although the Company cannot predict with certainty the outcome of
proceedings described above, based on information currently available,
management believes that the ultimate resolution of such proceedings,
individually and in the aggregate, is not likely to have a material adverse
effect on the Company.
The Company is party to various other commitments, claims and routine
litigation arising in the ordinary course of business. Management does not
believe that the result of such commitments, claims and litigation, individually
or in the aggregate, will have a material adverse effect on the Company's
business or its results of operations, cash flows or financial condition.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
MedPartners is one of the largest healthcare companies in the United
States, with net revenue of approximately $1.7 billion for the three months
ended March 31, 1998. The Company operates three separate business divisions:
Physician Practice Services, Pharmaceutical Services and Contract Medical
Services. The Physician Practice Services Division is larger than any other
physician practice management company ("PPM") in the United States, based on
revenues in that business of approximately $3.0 billion for the year ended
December 31, 1997 ($0.9 billion for the three months ended March 31, 1998). The
Pharmaceutical Services Division operates one of the largest independent PBM and
therapeutic pharmaceutical services programs in the United States, with revenues
of approximately $0.6 billion for the three months ended March 31, 1998. The
Contract Medical Services Division operates one of the largest hospital-based
physician management services and one of the largest corrections and government
services managed care businesses, with combined revenues of approximately $0.2
billion for the three months ended March 31, 1998.
The Company's Physician Practice Services Division affiliates with
physicians who are seeking the resources necessary to function effectively in
healthcare markets that are evolving from fee-for-service to managed care payor
systems. MedPartners also affiliates with physicians who seek greater
efficiencies in operations of traditional fee-for-service practices. The Company
contracts with health maintenance organizations (and other third-party payors
that compensate the Company and its affiliated physicians on a prepaid basis
(collectively, "HMOs")), hospitals and outside providers on behalf of its
affiliated physicians. These relationships provide physicians with the
opportunity to operate under a variety of payor arrangements.
The Company offers medical group practices and independent physicians a
range of affiliation models. These affiliations are carried out by the
acquisition of PPM entities or practice assets, either for cash or equity, or by
affiliation on a contractual basis. In all instances, the Company enters into
long-term practice management agreements with the affiliated physicians that
provide for both the management of their practices by the Company and the
clinical independence of the physicians.
The Company's Pharmaceutical Services business includes prescription
benefit management ("PBM") and other therapeutic pharmaceutical services. The
PBM manages programs for plan sponsors throughout the United States, including
corporations, insurance companies, unions, government employee groups and
managed care organizations. The Company dispenses an average of 44,000
prescriptions daily through its three mail service pharmacies and manages
patients' immediate prescription needs through a network of approximately 53,000
retail pharmacies. The Company's therapeutic pharmaceutical services are
designed to meet the healthcare needs of individuals with certain chronic
diseases or conditions. These services include the design, development and
management of comprehensive programs comprising drug therapy, physician support
and patient education. The Company currently provides therapies and services for
individuals with such conditions as hemophilia, growth disorders, immune
deficiencies, cystic fibrosis and multiple sclerosis. The Company is in the
process of integrating pharmaceutical service programs with the PPM business by
leveraging the existing pharmaceutical services core competencies in pharmacy
management, purchasing, and disease state management.
The Contract Medical Services Division organizes and manages physicians
and other healthcare professionals engaged in the delivery of emergency,
radiology and teleradiology services, primary care and temporary staffing and
support services. Through its Team Health subsidiary the Company provides these
services to hospitals, clinics and managed care organizations, and the Company's
Government Services unit provides these services to correctional facilities,
Department of Defense facilities and government-affiliated physician groups
throughout the United States. The Division also provides occupational health
services to corporate industrial clients. Under contracts with hospitals and
other clients, the Contract Medical Services Division identifies and recruits
physicians and other healthcare professionals for admission to a client's
medical staff and coordinates the ongoing scheduling of staff physicians and
other healthcare professionals who provide clinical coverage in designated areas
of care.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
In June 1997, the Company combined with InPhyNet Medical Management,
Inc. ("InPhyNet") in a transaction that was accounted for as a pooling of
interests. The financial information referred to in this discussion reflects the
combined operations of this entity and several other entities accounted for as
additional poolings of interests. The following table sets forth the earnings
summary by service area for the periods indicated. (Operating income (loss)
represents earnings (loss) before interest and income taxes and excludes
terminated merger expenses, restructuring expense and gains on sale of
international operations):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
--------- ---------
(in thousands)
<S> <C> <C>
Physician Practice Services
Net revenue $ 674,491 $ 886,231
Operating income (loss) 38,944 (25,003)
Margin 5.77% (2.82)%
Pharmaceutical Services
Net revenue $ 591,879 $ 620,226
Operating income 32,865 35,389
Margin 5.55% 5.71%
Contract Medical Services
Net revenue $ 190,272 $ 211,898
Operating income 16,831 14,119
Margin 8.85% 6.66%
International
Net revenue $ 25,291 $ 24,742
Operating income (loss) (334) 122
Margin (1.32)% 0.49%
Corporate Services
Operating (loss) $ (6,674) $ (10,532)
Percentage of total net revenue (0.45)% (0.60)%
</TABLE>
Physician Practice Management Services
The Company's PPM revenues have increased over the first quarter of
1997 primarily due to growth in prepaid enrollment, existing practice growth and
new practice affiliations during the last three quarters of 1997 (primarily
Talbert Medical Management Holdings Corporation, Aetna U.S. Healthcare's
physician practice management business and the Health Centers Division of Blue
Cross and Blue Shield of Massachusetts). The Company's PPM operations in the
Western Region of the country function in a predominantly prepaid environment.
The Company's PPM operations in the other regions of the country are in
predominantly fee-for-service environments with limited but increasing managed
care penetration. The following table sets forth the breakdown of net revenue
for the PPM services area for the periods indicated:
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Prepaid healthcare ...... $416,715 $563,765
Fee-for-service ......... 253,986 322,466
Other ................... 3,790 --
-------- --------
Net Revenue ............. $674,491 $886,231
======== ========
</TABLE>
From the first quarter of 1997 to the first quarter of 1998, prepaid
revenues increased 35%. Approximately 78% of the increase in prepaid revenues
relates to acquisitions made during the last three quarters of 1997 (primarily
Talbert Medical Management Holdings Corporation and the Health Centers Division
of Blue Cross and Blue Shield of Massachusetts). The remaining increase
primarily relates to additional institutional risk assumed.
During the fourth quarter of 1997, the PPM service area began the
process of restructuring and reorganization which included practice
disassociations, site closings, physician and staff reductions and systems
standardization and conversions. As a part of the restructuring process, the
West Coast operations were restructured into three regions: Southern California,
Northwest (Idaho, Oregon, and Washington) and Southwest (Arizona, New Mexico,
Oklahoma, Texas and Utah). Additionally, the Company moved to strengthen the
financial capability of its West Coast operations, internalize its actuarial
capabilities to enhance risk management functions and strengthen the managed
care contracting process. This restructuring process has continued in the first
quarter of 1998, resulting in a $10.0 million restructuring charge related to
the closing of certain clinic operations.
The operating loss for the first quarter of 1998 was $25.0 million,
compared to operating income of $38.9 million for the same period of 1997.
However, the first quarter 1998 operating loss is a substantial improvement from
the fourth quarter 1997 operating loss of $281.2 million for the PPM division.
The most significant component of the first quarter 1998 operating loss is
attributable to the negative performance in the PPM's Southern California
operations.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Pharmaceutical Services
Pharmaceutical Services revenues continue their growth trend in the
first quarter of 1998. This growth is entirely internal and has not been
supplemented by acquisitions. Key factors contributing to this growth include
higher PBM claim volume from high customer retention, penetration of retained
customers, new contracts, drug cost inflation, and increased revenue in the
multiple sclerosis and hemophilia therapy lines. The preponderance of
Pharmaceutical Services revenue is earned on a fee-for-service basis through
contracts covering one to three-year periods. Revenues for selected types of
services are earned based on a percentage of savings achieved or on a
per-enrollee or per-member basis.
Operating income growth in the first quarter of 1998 was 7.8%. Margins
increased from 5.6% in the first quarter of 1997 to 5.7% in the first quarter of
1998. The operating margin increase in the first quarter of 1998 is due
primarily to operational improvements and cost containment programs partially
offset by higher drug acquisition costs and a shift toward lower margin
products.
Contract Medical Services
The Contract Medical Services Division includes Team Health, which
manages one of the largest hospital-based physician groups in the country, and
Government Services, one of the largest correctional and government services
managed care delivery businesses. These groups produced combined contract
medical services revenue of $211.9 million in the first quarter of 1998. Team
Health organizes and manages physicians and other healthcare professionals
engaged in the delivery of emergency, radiology and teleradiology services,
hospital-based primary care and temporary staffing and support services to
hospitals, clinics, managed care organizations and physician groups throughout
the United States. Government Services provides similar services to medical
facilities at correctional institutions and Department of Defense facilities.
Operating income has decreased primarily due to the absorption by the division
of certain overhead costs from InPhyNet corporate operations previously absorbed
by the corporate division. Also contributing to the decrease are some unusually
large utilizations of services and losses on a large new contract in
correctional medical services ("Correctional Care"). It is anticipated that the
losses on this contract will be reduced in future periods.
Team Health. Team Health is currently affiliated with more than 2,300
physicians in 30 states. As of March 31, 1998, Team Health operates under 369
hospital-based contracts compared to 351 contracts at March 31, 1997. Team
Health's net revenue has increased $13.6 million (8.5%) over the first quarter
of 1997 as a result of the increase in contracts.
Government Services. Government Services currently has 1,977 clinical
employees, including 126 affiliated physicians working in 56 correctional
facilities in 18 states with approximately 61,564 globally capitated lives,
making the Company the nation's second largest provider of Correctional Care.
The contracts with correctional facilities are concentrated mainly on the East
Coast (from Florida to Vermont), the Midwest, Colorado and Nevada. Another 73
physicians work in 13 military facilities, covering 300,000 annual patient
visits ("Military Services"). The revenues under the Correctional Care contracts
are generally capitated while some of the Military Services contracts reimburse
the Company on an hourly basis. Government Services revenue has increased $8.1
million (26.8%) over the first quarter of 1997, primarily as a result of
Correctional Care contract growth. The Company obtained 12 contracts from March
31, 1997 through March 31, 1998, and increased globally capitated lives from
42,530 to 61,564 during the same period.
International
The Company, through Caremark, had established home care and other
businesses in various international markets. The international operations are in
the process of being sold. The home infusion operations in Germany, the
Netherlands and Canada were sold to Fresenius A.G. during the first quarter of
1998. In addition, other international
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
operations in Puerto Rico and Japan were sold to various parties during the
first quarter of 1998. The net gain on the sale of these operations totaled
$20.1 million.
The Company sold its remaining operations in the Netherlands subsequent
to March 31, 1998 and expects to sell its remaining international operations,
the home infusion operations in the U.K., during the remainder of 1998.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 AND 1997
For the three months ended March 31, 1998, net revenue was $1,743.1
million, compared to $1,481.9 million for the same period in 1997, an increase
of 17.6%. The increase in net revenue primarily resulted from various increases
in PPM, PBM and Contract Medical Services as discussed above.
Net loss for the first quarter of 1998 was $25.7 million, as compared
to net income of $44.4 million for the same period of 1997. Included in the net
loss for the first quarter of 1998 are several one-time items. These items
include $34.0 million of restructuring expenses, $8.4 million of terminated
merger expenses and a gain on the sale of international operations of $20.1
million. Net loss from operations excluding these non-recurring items is $7.4
million. The restructuring expense of $34.0 million relate primarily to $24.0
million in corporate severance costs and $10.0 million in costs associated with
the closing of certain clinic operations. The terminated merger expenses of $8.4
million relate primarily to the terminated merger with America Service Group
Inc.
Future levels of operating income are dependent upon general economic
conditions, including competitive pressures on sales and profit margins, and
other factors beyond the Company's control. Management has considered these
factors in reaching its conclusion that it is more likely than not that future
taxable income will be sufficient to utilize certain net operating loss
carryforwards and other temporary differences prior to their expiration.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The future operating results and financial condition of the Company are
dependent on the Company's ability to market its services profitably,
successfully increase market share and manage expense growth relative to revenue
growth. The future operating results and financial condition of the Company may
be affected by a number of additional factors, including: the Company's growth
strategy, which involves the ability to raise the capital required to support
growth, competition for expansion opportunities, integration risks and
dependence on HMO enrollee growth; efforts to control healthcare costs; exposure
to professional liability; and pharmacy licensing, healthcare reform and
government regulation. Changes in one or more of these factors could have a
material adverse effect on the future operating results and financial condition
of the Company.
There are various legal matters which, if materially adversely
determined, could have a material adverse effect on the Company's operating
results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had working capital of $183.2
million, including cash and cash equivalents of $199.1 million. For the first
three months of 1998, cash used by operations was $55.8 million compared to cash
flows from operations of $47.9 million for the same period of 1997.
For the three months ended March 31, 1998 and 1997, the Company
invested cash of $85.5 million and $44.4 million, respectively, in acquisitions
of the assets of physician practices, and $25.6 million and $18.7 million,
respectively, in property and equipment. During the three months ended March 31,
1998 and 1997, the Company paid $3.1 and $25.9 million, respectively, in cash
for terminated merger costs and merger costs. During the three months ended
March 31, 1998, the Company paid $24.6 for restructuring expenses. These
expenditures were primarily funded by net incremental
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
borrowings of $149.1 million for the three months ending March 31, 1998 and net
incremental borrowings of $41.3 million and $27.4 million derived from capital
contributions for the same period of 1997. Investments in property and equipment
are anticipated to continue to be substantial uses of funds in future periods.
On May 9, 1998 the Company obtained a commitment to restructure its
current $1.0 billion revolving credit facility. The restructured credit facility
is scheduled to be effective May 28, 1998 and will be apportioned as follows:
i. a one-year non-amortizing term loan in an aggregate principal amount
of up to $300 million (the Company has an option to extend the term
loan an additional two years as an amortizing term loan);
ii. a three-year non-amortizing term loan in an aggregate principal
amount of up to $300 million; and
iii. a three-year revolving credit facility in an aggregate principal
amount of up to $400 million.
The Company's long-term growth strategy requires substantial capital
for the acquisition of PPM businesses and assets of physician practices, and for
their effective integration, operation, and expansion. Affiliated physician
practices may also require capital for renovation, expansion, and additional
medical equipment and technology. The Company believes that its existing cash
resources, the use of the Company's common stock for selected practice and other
acquisitions, and available borrowings under the credit facility or any
successor credit facility, will be sufficient to meet the Company's anticipated
acquisition, expansion, and working capital needs for the next twelve months.
The Company expects from time to time to raise additional capital through the
issuance of long-term or short-term indebtedness or the issuance of additional
equity securities in private or public transactions, at such times as management
deems appropriate and the market allows in order to meet the capital needs of
the Company. There can be no assurance that acceptable financing for future
acquisitions or for the integration and expansion of existing networks can be
obtained. Any of such financings could result in increased interest and
amortization expense, decreased income to fund future expansion and dilution of
existing equity positions.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The following table indicates all unregistered sales of the Company's
Common Stock during the quarter ended March 31, 1998:
<TABLE>
<CAPTION>
TRANSACTION PURPOSE DATE # OF SHARES MARKET VALUE
- ---------------------- ---------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
IMHC Management, Inc. Merger January 2, 1998 4,148 $ 95,000
Bay Area Primary Care Acquisition February 11, 1998 38,747 $ 428,639
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits required by Regulation S-K are set forth in the following
list.
(10)-1 Retirement Agreement, dated January 16, 1998, between
MedPartners, Inc. and Larry R. House.
(10)-2 Letter Agreement, dated January 19, 1998, between
MedPartners, Inc. and Richard M. Scrushy.
(10)-3 Letter Agreement, dated January 19, 1998, between
MedPartners, Inc. and Michael Martin.
(10)-4 Employment Agreement, dated March 18, 1998, between
MedPartners, Inc. and Edwin M. Crawford.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company's Current Report on Form 8-K filed January 9, 1998
(relating to the termination of the PhyCor Merger Agreements; certain
fourth quarter charges and estimates concerning fourth quarter earnings
and 1998 operating results).
The Company's Current Report on Form 8-K filed January 26, 1998
(reporting the filing of certain class action lawsuits filed against
the Company).
No other Items of Part II are applicable to the Company for the period covered
by this Quarterly Report on Form 10-Q.
16
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MedPartners, Inc.
By: /s/ Harold O. Knight, Jr.
--------------------------------------------------------------------------
Harold O. Knight, Jr. Dual capacity as duly authorized officer of the
Registrant and principal financial officer of the
Registrant
Date: May 15, 1998
17
<PAGE> 1
EXHIBIT (10)-1
RETIREMENT AGREEMENT
Med Partners, Inc., a Delaware corporation (hereinafter referred to as the
"Company"), and Larry R. House (hereinafter referred to as the "Executive"),
hereby agree to the following terms and conditions (the "Agreement") governing
the retirement of the Executive.
1. Executive has by notice to the Board of Directors of the Company and,
subject to the execution of the Agreement by the Company, determined to
retire, and has accordingly submitted his resignation as Chairman of the
Board and Chief Executive Officer of the Company and from any employment
with the Company. In addition, subject to the aforesaid conditions,
Executive has resigned from the Board of Directors of the Company and from
all offices and/or board positions with the Company's subsidiaries. The
Board of Directors of the Company has accepted such resignations and
authorized the Company to enter into this Agreement. All such resignations
are effective as of the close of business on January 16, 1998 (the
"Effective Date").
2. Company and Executive desire for Executive to act as a consultant for the
Company for a two-year period commencing as of the Effective Date pursuant
to the terms referred to below.
3. Except as referred to in this Agreement, the certain Employment Agreement,
dated July 24, 1996, between the Company and the Executive (the "1996
Agreement") shall be terminated and the parties shall have no further
obligations thereunder.
4. Except as referred to below in this Section 4, Executive shall be
entitled, in respect of his retirement, to all of the benefits and
severance compensation referred to in Section 10(c) of the 1996 Agreement
as if the terms of Section 10(c) applied to Executive's retirement
referred to in Section 1 of this Agreement. Notwithstanding the foregoing:
a. in lieu of, and in consideration for the cancellation of the
Company's obligation to make, the payments described in section
10(c)(ii) of the 1996 Agreement, Executive shall be entitled to
payment of an amount equal to $3,274,950, payable in cash in a lump
sum on the seventh calendar day after execution of this Agreement;
b. in lieu of, and in consideration for the cancellation of the
Company's obligation to make, the payments described in section
10(c)(iii) of the 1996 Agreement, Executive shall be entitled to
payment of an amount equal to $2,718,450, payable in cash in a lump
sum on the seventh calendar day after execution of this Agreement.
The Company agrees, represents and warrants that all options to purchase
common stock of the Company ("Options") that have been granted to the
Executive are fully vested and exercisable. To the extent that any Options
granted to the Executive would, as a result of the Executive's retirement
or separation from employment with the Company, cease to remain exercisable
for the full period that such Options otherwise would have remained
exercisable if the Executive had not retired or otherwise separated from
employment with the Company, then such Options (and the agreements under
which such Options were issued) are hereby amended so that such Options
will remain exercisable for the full period that such Options
1
<PAGE> 2
otherwise would have remained exercisable if the Executive had not
retired or otherwise separated from employment with the Company. The
Company agrees, represents and warrants that, if and to the extent that
the amendment described in the immediately preceding sentence is not
permitted or otherwise is not effective (as a result of law, any
provision of any applicable option plan or otherwise), then this
Agreement shall constitute the grant to the Executive of an equivalent
number of fully exercisable vested Options (the "Replacement Options")
upon the same exercise prices, terms and provisions as the Options
heretofore granted to the Executive, except that the Replacement
Options will remain exercisable for the full period that the Options
heretofore granted to the Executive would have remained exercisable if
the Executive had not retired or otherwise separated from employment
with the Company. The Company will indemnify and hold harmless the
Executive for any and all damages or other losses (including but not
limited to reasonable attorneys' fees) arising in connection with any
breach of any of the Company's representations or warranties set forth
in this paragraph.
5. Executive acknowledges that he is not entitled to any benefits and
severance compensation referred to in Sections 10(a), (b) and (d) of
the 1996 Agreement.
6. The Company shall continue to owe and shall pay Executive all amounts
due under Sections 5, 6 and 7 of the 1996 Agreement for periods prior
to the Effective Date (to the extent not paid prior thereto) within 30
days of the Effective Date of this Agreement.
7. The provision of Section 11 of the 1996 Agreement shall continue to
apply to all payments referred to in this Agreement.
8. Executive is hereby engaged as a consultant for the Company for a
two-year period commencing on the Effective Date. As a consultant,
Executive shall perform such assignments from time to time as shall be
reasonably requested by the Chairman of the Board of Directors of the
Company regarding the business and affairs of the Company.
9. As compensation for the consulting services referred to in Section 8,
Executive shall be entitled to receive all of the amounts described in
Section 5 of the 1996 Agreement (as applicable to Executive's
employment under the 1996 Agreement), which the parties agree shall
apply as the compensation for the consulting services. The payments
referred to in this Section 9 are independent of and in addition to the
payments referred to in Section 4 of this Agreement. Notwithstanding
the foregoing, the payments referred to in Section 4 of this Agreement
shall be the absolute amount of $776,700 per 12-month period, payable
at the end of each such period, and shall not be contingent upon or
subject to the satisfaction of any performance standards.
10. Contingent upon this Agreement becoming effective and enforceable, the
Company, on its behalf and on behalf of its assigns and successors,
hereby releases the Executive from any and all claims arising out of
the Executive's employment with the Company, the termination of such
employment, and the performance of the Executive's duties with the
Company, and agrees not to sue the Executive in connection with any
such claims, except to enforce its rights under this Agreement.
2
<PAGE> 3
11. The Company agrees that should any inquiry be made regarding the reasons
for the Executive's retirement, the Company shall represent that the
Executive determined of his own volition to retire.
12. IN CONSIDERATION OF THE FOREGOING, WHICH INCUDES AMOUNTS IN ADDITION TO
WHICH THE EXECUTIVE IS OTHERWISE ENTITLED IN THE ABSENCE OF THIS
AGREEMENT, THE SUFFICIENCY OF WHICH AS CONSIDERATION IS ACKNOWLEDGED, AND
IN CONSIDERATION OF THE EXECUTIVE'S AND THE COMPANY'S EXECUTION AND
DELIVERY OF THIS AGREEMENT:
a. The Executive, on his behalf and on behalf of his spouse, heirs,
executors, administrators and assigns hereby irrevocably and
unconditionally releases the Company and any and all of its
subsidiaries, affiliated companies and successor companies
(collectively, the "MedPartners Group"), their directors, officers,
executives, agents, insurers, attorneys and other representatives from
any and all claims, losses, liabilities and causes of action of any
nature, known or unknown, arising in any way out of the Executive's
employment or the termination of such employment or employment
capacity existing on the Effective Date, and the termination of the
Executive's membership on the Board of Directors of the Company, other
than with respect to benefits under this Agreement. Without
limitation, this full waiver and release includes any claim of
contractual restriction on the right of the Company and the
MedPartners Group to terminate the Executive's employment capacity
or employment, wrongful discharge and all rights under federal, state
or local law prohibiting race, sex, age, disability, religion,
national origin or other forms of discrimination, including, but not
limited to, common law, contract, tort or other personal injury
claims, the Age Discrimination in Employment Act of 1967, as amended
("ADEA"), Title VII of the Civil Rights Act of 1964, the Civil Rights
Act of 1991, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Equal Pay Act of 1963, the Americans with
Disabilities Act, the Family and Medical Leave Act, Alabama labor,
employment or civil rights legislation and Alabama workmen's
compensation laws, or any other state or federal statute, arising out
of or in any way related to the Executive's relationship with the
Company and the MedPartners Group and termination of that
relationship, except any right to benefits under this Agreement. The
Executive agrees, on his behalf and on behalf of the parties described
above, not to sue the Company or the MedPartners Group other than to
enforce the Executive's rights under this Agreement.
13. The provisions of Section 6(b), (c), (d), (e), and (f), 7 and 12 of the
1996 Agreement shall apply to Executive during the term during which
Executive acts as a consultant for the Company pursuant to this Agreement.
14. Unless specifically addressed, this Agreement is not intended to be a
waiver of any rights the Executive may have to (1) any nonforfeitable
benefits under any of the Company's employee benefit plans and executive
compensation arrangements which, by their terms, specifically provide for
nonforfeitable benefits; (2) convert group benefits under any of the
Company's employee benefit plans to individual coverage, to the extent
that plans allow such
3
<PAGE> 4
conversion; or (3) continue coverage under any of the Company's medical
plans as provided under the Employee Retirement Income Security Act of
1974, as amended, or section 4980 B of the Internal Revenue Code of 1986,
as amended (provided that any medical plan coverage provided wholly or
partially at Company expense under the 1996 Agreement shall count against
the period for which such continuation coverage can be elected).
15. Except as otherwise required by law, the Executive shall not at any time
or in any manner, directly or indirectly divulge, disclose or communicate
to any person, firm or corporation in any manner whatsoever, without the
written consent of the Company, any of the terms and conditions of the
Agreement or any information concerning any matter affecting or relating
to the business of the Company (except in each case to the extent such
information is in the public domain or is of general public knowledge).
All such information is deemed confidential, material and important to the
Company. It is agreed that dissemination or communication of such
information will gravely affect the effective and successful conduct of
the business and its goodwill, and that any breach of the terms of this
paragraph shall be a material breach of this Agreement. The Executive
agrees that the Company is entitled to injunctive relief in the event of
such a breach.
16. All claims, disputes and controversies under this Agreement shall be
subject to the same provisions as are applicable to such matters in
Section 14 of the 1996 Agreement.
17. Executive shall continue to be entitled to the protections of the
indemnification agreement between the Company and the Executive currently
in effect, as well as provisions set forth in the By-Laws of the Company
as of the Effective Date regardless of subsequent changes in the By-Laws.
The Company agrees to indemnify the Executive and to advance expenses to
the Executive, to the fullest extent permitted by applicable law in effect
on the Effective Date and to such greater extent as applicable law may
hereafter from time to time permit. Such rights shall include, but not be
limited to, the right to indemnification to the fullest extent permitted
by Section 145 of the Delaware General Corporation Law.
18. By his signature below, the Executive affirms that he has been given the
opportunity to review and deliberate upon this Agreement and has received
written notice of his right to consult with an attorney regarding this
Agreement, has done so to the extent that he deemed such action
appropriate. The Executive has carefully read and fully understands all of
the provisions and effects of the Agreement and agrees that his execution
below is knowing and voluntary. The Executive enters into this Agreement
for the benefits set forth above, and no other representations have been
made to the Executive to induce or influence his execution of this
Agreement. This constitute the only and entire agreements between the
Company and the Executive and supersede any and all prior understandings
or agreements regarding the employment rights and benefits of the
Executive, if any. There are no separate understandings, representations or
agreements other than those contained herein. The Executive understands
that benefits are not payable under this Agreement unless he enters into
this Agreement and does not revoke this Agreement. This Agreement may be
revoked by the Executive at any time within seven (7) days after he signs
this Agreement. This Agreement is not effective or enforceable until the
seven (7) day revocation period has expired. This Agreement shall become
effective, irrevocable and enforceable following expiration of the
revocation period.
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Entered at Birmingham, Alabama, this 16th day of January, 1998.
----------------------------------------
LARRY R. HOUSE
MEDPARTNERS, INC.
By:
------------------------------------
Richard M. Serushy
Chairman and Chief Executive Officer
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<PAGE> 1
EXHIBIT (10)-2
January 19, 1998
Mr. Richard M. Scrushy
Chairman and Chief Executive Officer
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, AL 35243
Dear Richard:
In acknowledgment of your decision to accept the position as Chairman and
Acting Chief Executive Officer of MedPartners, Inc. ("Company"), and as
compensation for the responsibilities and duties that you will perform in such
positions (the details of which are fully set forth in Exhibit A attached
hereto), on January 19, 1998, the Compensation Committee of the Board of
Directors of the Company granted you an option to purchase four million shares
of the Company's Common Stock, par value $.001 per share ("Option"). The terms
of the Option are fully set forth in the Nonqualified Stock Option Agreement
attached hereto.
As set forth in Exhibit A hereto, it is understood that you will serve the
Company as Chairman and Acting Chief Executive Officer for an initial term of
six months, during which time it is anticipated that you will develop and begin
the execution of a strategy for revitalizing the Company. During this term, and
for the remainder of the 1998 calendar year, as required, you will serve the
Company as Acting Chief Executive Officer while the Company, under your
guidance, searches for a permanent chief executive officer who is capable of
implementing your business strategy. Following the appointment of a permanent
chief executive officer, it is expected that you will remain the Chairman of the
Company and that you will continue to devote a significant portion of your time
and energies overseeing the business affairs of the Company and the successful
implementation of the strategic plan and be available for consultation. While
serving as Acting Chief Executive Officer, you will be paid a base salary in
cash at an annual rate of $500,000.
It is our belief that your appointment as Chairman and Acting Chief
Executive Officer is a turning point for the Company.
Very truly yours,
Charles W. Newhall III
Chairman, Compensation Committee
<PAGE> 2
EXHIBIT A
EMPLOYMENT TERMS
Title:.....................Chairman and Acting Chief Executive Officer.
Term:..................... Initial 6 month term as Chairman and Acting Chief
Executive Officer to develop and execute turnaround
strategy. A continuing term through the remainder
of1998 as Chairman and Acting Chief Executive
Officer while leading search efforts to find a
permanent chief executive officer capable of
implementing the strategy. To remain as active
Chairman devoting significant time and energies
to overseeing the affairs of the Company and to
help ensure the successful implementation of the
Company's strategic plan following the
appointment of a permanent chief executive officer.
Responsibilities as Acting
Chief Executive Officer:.. To exercise operational and management control over
the day-to-day affairs of the Company, subject to
the oversight of the executive committee and the
board of directors.
To restore investor confidence and the confidence of
key physicians/employees.
To develop a short-term management plan to address
the immediate operating challenges facing the
Company.
To develop a long-term strategic plan to restore
long-term profitability and growth potential.
To report regularly to the board with respect to the
progress on all such fronts.
To help the board implement the strategies developed
above and to find a full-time CEO capable of
assuming day-to-day operational control and
effectively implementing such strategy.
Responsibilities as
Chairman:................. To monitor the operations and financial results of
the Company and to help ensure that the Company
remains on track once a turnaround strategy has
been implemented.
To report to the full board as to the progress of the
Company and its management team in meeting the
targets which are established under the strategic
plan.
To help identify any weaknesses in management systems
and controls or in the Company's operating
strategies on an ongoing basis and to design plans
to correct such weaknesses.
To set the broad strategic direction and vision for
the Company.
Compensation:............. $500,000 annual cash salary, payable semi-monthly,
during the term as Acting Chief Executive Officer.
No cash compensation while serving as Chairman
(other than normal director fees).
No pension or other benefits other than normal
expense reimbursement.
The grant of an option to purchase four million
shares of the Company's Common Stock at an
exercise price of $9 per share, subject to the
terms and conditions set forth in the attached
Nonqualified Stock Option Agreement.
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EXHIBIT (10)-3
January 19, 1998
Mr. Michael D. Martin
Executive Vice President and
Chief Financial Officer
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, AL 35243
Dear Mike:
In connection with your acceptance to serve MedPartners, Inc. ("Company")
as a consultant, and as compensation for the responsibilities and duties that
you will perform at the direction of Richard Scrushy, the Chairman and Acting
Chief Executive Officer of the Company, on January 19, 1998, the Compensation
Committee of the Board of Directors of the Company granted you an option to
purchase five hundred thousand (500,000) shares of the Company's Common Stock,
par value $.001 per share ("Option"). The terms of the Option are fully set
forth in the Nonqualified Stock Option Agreement attached hereto.
It is understood that you will serve the Company as a consultant for an
initial term of six months, during which time you will work with Richard to
develop and execute a strategy for revitalizing the Company. Thereafter, it is
expected that you will continue to serve the Company as needed, at the request
and direction of Richard.
It is our belief that the next six months will be a turning point for the
Company and your contribution will be an integral part of the Company's
progress.
Very truly yours,
Charles W. Newhall III
Chairman, Compensation Committee
<PAGE> 1
EXHIBIT (10)-4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of March 18,
1998, between MEDPARTNERS, INC., a Delaware corporation (together with any
successor corporation, "MedPartners"), and E. MAC CRAWFORD ("Executive").
WITNESSETH:
WHEREAS, MedPartners and its subsidiaries and affiliates are
engaged in providing physician practice management services, pharmacy benefit
management services, disease management services and hospital-based physician
services (collectively, "Healthcare Services") throughout the United States; and
WHEREAS, MedPartners desires to avail itself of Executive's
talents and expertise in management of the Healthcare Services business of
MedPartners, and to employ him as the President and Chief Executive Officer of
MedPartners, and Executive is willing to accept such employment.
NOW THEREFORE, in consideration of the premises, and other
mutual promises and covenants hereinafter contained, MedPartners and Executive
do hereby agree, for their mutual benefit, as follows:
SECTION 1. EMPLOYMENT.
Executive shall be employed by MedPartners under this
Agreement, effective on the date hereof, and Executive accepts such employment
upon the terms and conditions hereinafter set forth.
SECTION 2. TERM.
The term of employment provided for in this Agreement shall
commence on March 18, 1998 (the "Commencement Date"), and shall remain in
full force and effect for a period of five years thereafter. Such term shall be
automatically extended for an additional year on each anniversary of the
Commencement Date, unless written notice of non-extension is provided by
MedPartners to Executive at least 30 days prior to such anniversary.
SECTION 3. POWERS AND DUTIES.
Executive shall be employed by MedPartners during the term of
employment under this Agreement as the President and Chief Executive Officer of
MedPartners. As soon as practicable following the Commencement Date, MedPartners
shall cause Executive to become a member of the Board of Directors of
MedPartners ("Board of Directors"). In addition, Executive shall perform such
duties as may be assigned to him from time to time by and shall report to the
Board of Directors, provided that such duties are consistent with Executive's
title and position.
<PAGE> 2
In carrying out his duties under this Agreement, Executive
shall have such powers and duties usually incident to the offices of President
and Chief Executive Officer and shall have general responsibility for the
overall development, expansion and operations of MedPartners and its
subsidiaries and affiliates.
Executive shall devote substantially all of his time and
energies during business hours to the supervision and conduct, faithfully and to
the best of his ability, of the business and affairs of MedPartners; provided
that it shall not be a violation of this Agreement for the Executive to serve on
the Board of Directors of First Union National Bank of Georgia, Integrated
Health Services, Inc. and MaterniCare, Inc. The Executive shall not be
restricted, subject to Section 12 hereof, from investing his assets in such form
or manner as will not require any services on his part in the operation of the
affairs of the companies in which such investments are made.
SECTION 4. PLACE OF PERFORMANCE.
The Executive shall perform his duties at the principal
offices of MedPartners located in Birmingham, Alabama, but from time to time
Executive shall be required to travel to MedPartners' other locations in the
proper conduct of his responsibilities under this Agreement. Due to the national
scope of MedPartners' business, MedPartners may require Executive to spend a
reasonable amount of time traveling, as his duties and the business of
MedPartners and its subsidiaries and affiliates may require.
SECTION 5. COMPENSATION.
For all services rendered by Executive pursuant to this
Agreement:
(a) MedPartners shall pay Executive a base salary at the rate
of no less than $1,000,000 per annum, such salary to be paid semi-monthly. Such
salary shall be reviewed annually by the Compensation Committee of the Board of
Directors (the "Compensation Committee") with a view to consideration of
appropriate merit increases in such salary, and once increased, the base salary
shall not be decreased during the term hereof.
(b) On the Commencement Date, MedPartners shall pay Executive
a sign-on bonus of $1,000,000. In the event that the Executive voluntarily
terminates his employment with MedPartners other than for Good Reason prior to
the second anniversary of the Commencement Date, the Executive shall repay to
MedPartners one-twenty-fourth (1/24) of such sign-on bonus for each full
calendar month such termination precedes the second anniversary of the
Commencement Date.
(c) For each year of the term of this Agreement, Executive
shall be eligible to receive an annual target bonus (the "Bonus") of at least
two (2) times the base salary in effect for the year to which the Bonus relates
based upon MedPartners' achievement of its target performance goals for such
year (the "Annual Target"). In the event MedPartners achieves 90%, but less than
100%, of its Annual Target for any year, the Bonus for such year shall equal one
and one-half (1.5) times the Executive's base
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salary for such year, with interpolation of results for achievement between 90%
and 100% of its Annual Target for any year (with such achievement measured as a
percent to the nearest two decimal points, e.g., 94.52%, to the extent capable
of precise measurement). At the sole discretion of the Board of Directors, a
payment in excess of 2 times base salary may be made. An advance amount of
$50,000 shall be payable for each month of the applicable year, to the extent
that a pro-rata portion of the applicable Annual Target has been achieved for
each such month. The establishment of Annual Targets shall be mutually agreed
upon by the Executive and the Chairman of the Board of Directors of MedPartners
(the "Chairman") within 90 days of the Commencement Date for the Bonus for the
1998 calendar year, and, for Bonuses for subsequent years, by the March 31 of
such years. The determination of whether and to what extent the Annual Target,
and the monthly pro-rata portion of the Annual Target, have been achieved shall
be mutually agreed upon by the Executive and the Chairman. In the event that the
Executive and the Chairman do not reach an agreement regarding the establishment
of the Annual Target by the applicable date in any calendar year, the Annual
Target shall be the consensus estimate for earnings per share of MedPartners as
published by Nelson Publications as of such date. Notwithstanding the
Executive's commencement of employment hereunder after the beginning the 1998
calendar year, the Executive's target bonus opportunity with respect to the
Bonus for the 1998 calendar year shall be $2,000,000, without pro-ration.
(d) Prior to the Commencement Date, MedPartners shall grant to
Executive an option (the "Option") to purchase 3,250,000 shares of the common
stock of MedPartners (the "Common Stock"). As soon as practicable after the
Commencement Date, MedPartners shall file and keep effective a registration
statement on Form S-8, including a Form S-3 Reoffer Prospectus (an S-3) (or
other applicable registration statement) with respect to the shares of Common
Stock subject to the Option; provided that (i) such S-3 need not be filed until
an S-3 is filed with respect to any shares of Common Stock subject to stock
options granted to the senior-most executives of MedPartners and (ii)
MedPartners agrees to use its best efforts to file the S-3 referenced in clause
(i) with respect to any of its senior-most executives as soon as practicable
following the Commencement Date. The Option shall have a ten (10) year term and,
subject to the vesting requirements described below, shall remain exercisable
for the full term notwithstanding the employment status of the Executive. The
exercise price per share of the Option shall be equal to the lowest fair market
value (determined in accordance with the MedPartners' 1997 Long Term Incentive
Compensation Plan (the "1997 Plan")) of the Common Stock for the period from
February 17, 1998 through April 18, 1998, provided that the exercise price per
share of the Option shall not be greater than $10. The Option shall vest based
on the continued employment of the Executive in increments of 1,250,000 shares
on the date of grant and 1,000,000 shares each on the first and second
anniversaries of the date of grant. The Option shall be granted outside the
terms of the 1997 Plan, however, except as stated in this Agreement, the Option
shall have terms and conditions substantially similar to options granted under
the 1997 Plan. Upon a Change in Control, as defined in Section 8(b) hereof, the
Option will immediately become 100% vested. The Option shall be subject to a
stock option agreement entered into between the parties hereto on terms
consistent with the foregoing; provided that the Option shall be effective as of
the date of grant in accordance with the terms and
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<PAGE> 4
conditions contained herein, irrespective of whether a stock option agreement
has been executed by the parties.
(e) In the event that MedPartners' Annual Target is met with
respect to the 1998 calendar year, MedPartners shall grant Executive an option
(the "Performance Option") to purchase an additional 500,000 shares of Common
Stock. The determination as to whether such Annual Target has been met shall be
mutually agreed upon by the Executive and the Chairman. Such grant shall be made
as soon as practicable following the determination by the Executive and the
Chairman as to the achievement of the applicable Annual Target. The Performance
Option shall have a ten (10) year term and, subject to the vesting requirements
described below, shall remain exercisable for the full term notwithstanding the
employment status of the Executive. The exercise price per share of the
Performance Option shall be equal to the fair market value of Common Stock on
the date of grant of the Performance Option (determined in accordance with the
1997 Plan). The Performance Option shall vest based on the continued employment
of the Executive in increments of 166,667 shares on the date of grant and
166,666 shares each on the first and second anniversaries of the date of grant.
The Performance Option shall be granted under the terms of the 1997 Plan, but
the granting of the Performance Option shall be conditioned upon the approval by
the stockholders of MedPartners of an amendment to the 1997 Plan to increase the
number of authorized shares available for issuance under the 1997 Plan (which
approval MedPartners shall use its best efforts to obtain). Upon a Change in
Control of MedPartners, as defined in Section 8(b) hereof, the Performance
Option will immediately become 100% vested. MedPartners shall make such other
amendments to the 1997 Plan as may be necessary to allow the Performance Option
to have the terms and conditions described in this Agreement. The Performance
Option shall be subject to a stock option agreement entered into between the
parties hereto on terms consistent with the foregoing; provided that the
Performance Option shall be effective as of the date of grant in accordance with
the terms and conditions contained herein, irrespective of whether a stock
option agreement has been executed by the parties.
(f) Upon the occurrence of a Change in Control pursuant to
Section 8(b)(v) hereof, the number and kind of shares subject to the Option and
the Performance Option shall be adjusted and/or substituted for in such manner,
if any, that the shares of the Common Stock generally are adjusted and/or
substituted for in connection with such transaction, provided that the Executive
may agree to such other treatment of the Option and the Performance Option in
this regard that may be proposed by the Compensation Committee. All or a portion
of the Option or the Performance Option shall be transferable by the Executive,
without consideration, to or for the benefit of immediate family members,
including but not limited to a partnership or trust with respect to which
immediate family members are the sole partners or beneficiaries, respectively.
SECTION 6. EMPLOYEE BENEFITS.
Subject to the terms and eligibility requirements of any such
plans, Executive will be entitled to participate in any employee retirement,
benefit or welfare plans provided generally by MedPartners to its employees
and/or to its senior executives, such as life insurance, health and dental,
retirement (qualified and non-qualified), savings
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<PAGE> 5
and disability plans which MedPartners has in effect or may adopt from time to
time. Without limiting the generality of the foregoing, MedPartners shall
provide Executive the following during the term of this Agreement:
(a) health coverage for the Executive and his dependants on
terms and conditions no less favorable than that provided any other executive of
MedPartners, its subsidiaries or affiliates, with no pre-existing condition
exclusions and no waiting periods for coverage;
(b) four weeks vacation during each year of this Agreement;
(c) a $1,000 per month car allowance for an automobile owned
or leased by Executive for use by Executive in connection with the performance
of his duties under this Agreement;
(d) disability insurance coverage paying benefits equal to 60%
of Executive's base salary, either through a corporate group disability
insurance plan or otherwise;
(e) payment of initiation fees and dues for one country club
of Executive's choice and such professional societies and associations of which
Executive is a member in furtherance of his duties hereunder;
(f) personal use of MedPartners' corporate aircraft, with such
use to be determined in accordance with MedPartners' policy for security of
executives;
(g) payment of the Executive's reasonable relocation expenses
from the Atlanta, Georgia area to the Birmingham, Alabama area, as described in
Section 23 hereof;
(h) payment directly to Executive's counsel and/or accountant
not to exceed $5,000 per annum for estate and tax planning services for the
benefit of Executive;
(i) reimbursement of the Executive's reasonable legal and
other expenses incurred in connection with the Executive entering into this
Agreement; and
(j) consideration, at least annually, by the Board of
Directors for the grant to Executive of options to purchase Common Stock in
addition to the Option and the Performance Option.
SECTION 7. EXPENSES.
Executive is authorized to incur reasonable expenses in
promoting the business of MedPartners and its subsidiaries and affiliates,
including expenses, to the extent used for business purposes, for entertainment,
travel and similar items. MedPartners will reimburse Executive for all such
expenses, upon the presentation by
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him of an itemized account of such expenditures in accordance with the
MedPartners expense reimbursement procedures.
SECTION 8. DEFINITIONS.
As used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "CAUSE" shall mean (i) repeated violations by Executive of
Executive's obligations under Section 3 of this Agreement (other than as a
result of failure to meet the Annual Target or other personal or corporate
performance targets and other than as a result of incapacity due to physical or
mental illness) which violations (A) are demonstrably willful and deliberate on
Executive's part, (B) are committed in bad faith or without reasonable belief
that such violations are in the best interests of MedPartners, and (C) are not
remedied in a reasonable period of time after receipt of written notice from
MedPartners specifying such violations (as more fully described below), or (ii)
the conviction of Executive of a felony involving moral turpitude.
Notwithstanding the foregoing, termination by MedPartners for Cause shall not be
effective until and unless (a) notice of intention to terminate for Cause has
been given by MedPartners to the Executive within four (4) months after any
member of the Board of Directors learns of the act, failure or event
constituting "Cause", (b) the Board of Directors has voted (at a meeting of the
Board of Directors duly called and held as to which termination of the Executive
is an agenda item) by a majority vote to terminate the Executive for Cause after
Executive has been given notice of particular acts or circumstances which are
the basis for the termination for Cause and the Executive has been afforded at
least 20 days notice of the meeting and an opportunity to present his position
in writing and the Board of Directors has given notice of termination to the
Executive within three (3) days after such meeting (and the Executive's
termination of employment shall be effective immediately upon receipt of such
notice but shall not be deemed a termination of employment for Cause unless and
until all of the conditions set forth in clauses (a) through (c) hereof have
occurred), and (c) if the Executive has commenced an expedited arbitration
within 15 days after such notice of termination, disputing MedPartners' right
under this Agreement to terminate for Cause, the Arbitrator shall thereafter
have determined that the Executive was terminated for Cause; provided, however,
that (x) MedPartners may suspend the Executive with full compensation and
benefits at any time during the period commencing with the giving of notice to
the Executive under clause (a) above until final notice of termination is given
in clause (b) above and (y) regardless of whether the Executive's employment is
suspended during the period described in clause (x) above, MedPartners shall
continue to pay the Executive his full compensation and benefits under this
Agreement pending the Arbitrator's decision. If the Executive or his
representative fails to file a demand for arbitration with the American
Arbitration Association ("AAA") and file the requisite fees pursuant to Rule 4
of the National Rules for the Resolution of Employment Disputes effective June
1, 1996 (the "National Rules") within 15 days of receipt of notice of
termination from the Board of Directors, and diligently pursue such proceeding
in accordance with the procedures set forth in Section 15 hereof, such
termination shall be conclusively presumed to have been
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for Cause. If the Arbitrator declines to rule that the Executive was terminated
for Cause, the Executive shall be treated as having been terminated without
Cause and the Executive shall have the rights provided under Section 10(b)
hereof with respect to a termination without Cause.
(b) "CHANGE IN CONTROL" shall mean:
(i) The acquisition, whether by open market or private
purchase, tender offer or any other means, by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (a "Person") of beneficial
ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then outstanding shares of Common Stock (the
"Outstanding MedPartners Common Stock") or (B) the combined voting power of the
then outstanding voting securities of MedPartners entitled to vote generally in
the election of directors (the "Outstanding MedPartners Voting Securities");
provided, however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control: (1) any acquisition by
one or more underwriter directly from MedPartners pursuant to a firm commitment
underwritten offering to the public of shares of Common Stock, (2) any
acquisition by MedPartners, provided that immediately following such acquisition
no person other than MedPartners or a subsidiary of MedPartners is such a 20%
beneficial owner, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by MedPartners or any corporation controlled by
MedPartners, provided that immediately following such acquisition no person
other than any such benefit plan (or related trust) is such a 20% beneficial
owner, or (4) any acquisition by any corporation pursuant to a transaction which
complies with clauses (1), (2) and (3) of subsection (iii) below;
(ii) Cessation, for any reason, of the individuals who
constitute the Board of Directors as of the date hereof (the "Incumbent Board")
to constitute at least a majority of the Board of Directors; provided, however,
that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by MedPartners' stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors;
(iii) Consummation of a reorganization, merger or
consolidation of MedPartners or sale or other disposition of all or
substantially all of the assets of MedPartners (a "Business Combination"), in
each case, unless, following such Business Combination, (1) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding MedPartners Common Stock and Outstanding
MedPartners Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then
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outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns MedPartners or all or substantially all of MedPartners'
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding MedPartners Common Stock and Outstanding
MedPartners Voting Securities, as the case may be, (2) no party (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of MedPartners or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination, and (3) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Board of Directors at the
time of the execution of the initial agreement or of the action of the Board of
Directors, providing for such Business Combination;
(iv) Approval by the stockholders of MedPartners of a
complete liquidation or dissolution of MedPartners;
(v) The sale, transfer or other disposition, in a
transaction or series of related transactions, of the majority of the assets of
one of MedPartners' three major lines of business as of the Commencement Date
(consisting of its physician practice management services, pharmacy benefit
management services and contracts management services); or
(vi) The making of a recommendation by the Board of
Directors, pursuant to Rule 14e-2 under the Exchange Act or otherwise, in
connection with a tender offer pursuant to which any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) seeks
to obtain beneficial ownership (within the meaning of Rule 13(d)-3 under the
Exchange Act) of 20% or more of either the Outstanding MedPartners Common Stock
or the Outstanding MedPartners Voting Securities, other than a recommendation
that the holders of shares of such securities (i) not accept the offer and (ii)
not tender Outstanding MedPartners Common Stock or Outstanding MedPartners
Voting Securities.
(c) "DISABILITY" shall be deemed to have occurred if Executive
makes application for or is otherwise eligible for disability benefits under any
MedPartners-sponsored long-term disability program covering Executive, and
Executive qualifies for such benefits. In the absence of a MedPartners-sponsored
long-term disability program covering Executive, Executive shall be presumed
totally and permanently disabled if so determined by the Board of Directors
following reasonable review of a medical opinion certifying that Executive will
be unable to perform his duties under this Agreement for at least 90 consecutive
days due to a physical or mental condition.
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(d) "GOOD REASON" shall mean:
(i) A breach by MedPartners of the compensation
provisions of Section 5 hereof;
(ii) A termination by MedPartners of any compensation,
retirement, benefit or welfare plan in which Executive is participating, without
substituting plans providing Executive with substantially similar benefits, or
the taking of any action by MedPartners which would adversely affect Executive's
participation in or materially reduce Executive's benefits under any of such
plans or deprive Executive of any material fringe benefit enjoyed by Executive;
(iii) the failure to appoint or elect the Executive to be
a member of the Board of Directors within 30 days of the Commencement Date;
(iv) the failure to continue the Executive as President
and Chief Executive Officer of MedPartners;
(v) once appointed or elected, as the case may be, the
Executive is thereafter removed as a member of the Board of Directors or there
is a failure to reelect or reappoint the Executive to such position;
(vi) the assignment to the Executive of duties
inconsistent with his position, duties, responsibilities or status with
MedPartners;
(vii) any material reduction in the Executive's duties,
responsibilities or status with MedPartners, including the appointment of anyone
to an executive position at MedPartners or any of its subsidiaries or affiliates
that is senior to that of the Executive, except for such a reduction with
respect to, or appointment at, any subsidiary, affiliate or line of business of
MedPartners that is in connection with a Change in Control as defined in Section
8(b)(v) hereof;
(viii) the relocation of MedPartners' principal executive
office to a location more than 40 miles from Birmingham, Alabama, or the
location of the Executive's own office to other than MedPartners' principal
executive office without Executive's prior written consent; or
(ix) the failure of MedPartners to obtain the assumption
in writing of its obligation to perform this Agreement by any successor to all
or substantially all of the assets of MedPartners within 15 days after a merger,
consolidation, sale or similar transaction;
provided, however, that (a) "Good Reason" shall not include acts which are cured
by MedPartners within 30 days from receipt by MedPartners of a written notice
from the Executive (the "Preliminary Notice of Good Reason") identifying in
reasonable detail the act or acts constituting "Good Reason", (b) "Good Reason"
shall not exist unless the Preliminary Notice of Good Reason shall have been
given by the Executive within 60 days after learning of the act, failure or
events (or, in the case of a series of related acts,
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<PAGE> 10
failures or events, within 120 days of the first such act, failure or event)
which the Executive alleges constitutes "Good Reason" hereunder, (c) if
MedPartners has failed to cure as provided above, "Good Reason" shall not exist
unless the Executive shall have given notice of termination hereunder for Good
Reason (which termination shall be effective 30 days from the giving of such
notice), and (d) if MedPartners has commenced an expedited arbitration within 15
days after receipt of the Executive's notice of termination, the Executive shall
continue to perform his obligations hereunder, and MedPartners shall continue to
provide the Executive with full compensation and benefits, pending the
Arbitrator's determination as to whether or not the Executive has terminated his
employment for Good Reason. If the Arbitrator determines that the Executive does
not have Good Reason for termination, the Executive's employment shall continue
for the remainder of the term hereof unless earlier terminated by MedPartners
pursuant to Section 9 hereof. If MedPartners fails to file a demand for
arbitration with the AAA and file the requisite fees pursuant to Rule 4 of the
National Rules within 15 days after receipt of notice of termination from the
Executive, and diligently pursue such proceeding in accordance with the
procedures set forth in Section 15 hereof, the Executive's termination of
employment from MedPartners shall be conclusively presumed to have been for Good
Reason and the Executive shall have the rights provided under Section 10(b)
hereof with respect to a termination for Good Reason.
SECTION 9. TERMINATION
This Agreement shall terminate upon the occurrence of any of
the following termination events:
(a) Executive gives written notice to MedPartners that
Executive wishes to terminate this Agreement for any reason other than Good
Reason, such termination to be effective on the date specified in such notice;
(b) Executive gives notice to MedPartners that Executive
wishes to terminate this Agreement for Good Reason, such termination to be
effective as specified in Section 8(d) hereof;
(c) MedPartners gives notice to Executive that MedPartners
wishes to terminate this Agreement for Cause, such termination to be effective
as specified in Section 8(a) hereof;
(d) The Executive's death, such termination to be effective
immediately upon such death;
(e) MedPartners gives notice to Executive that MedPartners
wishes to terminate this Agreement on account of Executive ceasing to be able to
perform his duties hereunder due to Disability, such termination to be effective
on the date specified in such notice; or
(f) MedPartners gives notice to Executive that MedPartners
wishes to terminate this Agreement for any reason other than for Cause, such
termination to be
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<PAGE> 11
effective upon receipt by Executive of such notice (or such later date as may be
agreed to by Executive and MedPartners).
SECTION 10. TERMINATION BENEFITS.
(a) Upon the occurrence of an event of termination described
in Section 9(a)(resignation other than for Good Reason) or 9(c)(termination for
Cause) hereof, Executive shall be entitled to receive the following as severance
compensation:
(i) payment of any previously unpaid base salary through
the date of termination; and
(ii) payment of amounts due to the Executive under the
terms of MedPartners' employee retirement, benefit and welfare plans at the time
of termination(or thereafter, to the extent required by law or the terms of any
such plans).
Payment of amounts in clause (i) shall be made no later than 10 days following
the effective date of Executive's termination.
(b) Upon the occurrence of an event of termination described
in Section 9(b)(resignation for Good Reason), or 9(f)(termination other than for
Cause) hereof, Executive shall be entitled to receive the following as severance
compensation:
(i) payment of any previously unpaid base salary, and a
pro-rata payment of the Bonus (based on the then-current target amount of Bonus)
for any partial year of service through the date of termination;
(ii) lump-sum payment equal to the sum of (a) Executive's
then-current base salary for the then-remaining term of this Agreement (but in
no event less than three (3) years), and (b) Executive's then-current target
amount of the Bonus for the then-remaining term of this Agreement, pro-rated for
any partial calendar years during such remaining term (but in no event less than
three (3) years);
(iii) payment of amounts due to the Executive under the
terms of MedPartners' employee retirement, benefit and welfare plans at the time
of termination (or thereafter, to the extent required by law or the terms of any
such plans);
(iv) subject to the terms and eligibility requirements of
any such plan, continued coverage for the then-remaining term of this Agreement
(but in no event less than three (3) years) under any medical, dental, life
insurance and disability plans of MedPartners for which Executive is eligible at
the time of termination; provided that, (A) if Executive's participation in any
such plan is not permitted under the terms thereof, MedPartners will use
reasonable best efforts to provide or arrange comparable coverage for Executive,
and (B) MedPartners' obligation under this paragraph (iv) will terminate with
respect to any plan on the date Executive first becomes eligible for the same
type of coverage under another employer's plan; and
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<PAGE> 12
(v) immediate 100% vesting of the Option and the
Performance Option. Payment of amounts in clauses (i) and (ii) shall be made no
later than 10 days following the effective date of Executive's termination.
(c) Upon the occurrence of an event of termination described
in Section 9(e)(disability) hereof, Executive shall be entitled to receive the
following as severance compensation:
(i) payment of any previously unpaid base salary, and a
pro-rata payment of the Bonus (based on the then-current target amount of Bonus)
for any partial year of service through the date of termination;
(ii) payment of amounts due to the Executive under the
terms of MedPartners' employee retirement, benefit and welfare plans at the time
of termination (or thereafter, to the extent required by law or the terms of any
such plans); and
(iii) immediate 100% vesting of the Option and the
Performance Option.
Payment of amounts in clause (i) shall be made no later than 10 days following
the effective date of Executive's termination.
(d) Upon the occurrence of an event of termination described
in Section 9(d)(death) hereof, Executive's representative's or estate shall be
entitled to receive the following as severance compensation:
(i) payment of any previously unpaid base salary, and a
pro-rata payment of the Bonus (based on the then-current target amount of Bonus)
for any partial year of service through the date of termination;
(ii) lump-sum payment equal to the sum of (a) Executive's
then-current base salary for the then-remaining term of this Agreement (but in
no event less than three (3) years), and (b) Executive's then-current target
amount of the Bonus for the then-remaining term of this Agreement, pro-rated for
any partial calendar years during such remaining term (but in no event less than
three (3) years), where such lump-sum payment is offset by any amount payable to
Executive's beneficiaries under any life insurance policy paid for by
MedPartners;
(iii) payment of amounts due to the Executive under the
terms of MedPartners' employee retirement, benefit and welfare plans at the time
of termination (or thereafter, to the extent required by law or the terms of any
such plans); and
(iv) immediate 100% vesting of the Option and the
Performance Option.
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<PAGE> 13
Payment of amounts in clauses (i) and (ii) shall be made no later than 10 days
following the effective date of Executive's termination.
SECTION 11. CERTAIN ADDITIONAL PAYMENTS BY MEDPARTNERS.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, if it shall be determined that any amount paid,
distributed or treated as paid or distributed by MedPartners to or for
Executive's benefit (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 11) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or any interest or penalties are
incurred by Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Executive
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
Notwithstanding the foregoing provision of this Section 11, if
it shall be determined that Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount that could be paid
to Executive such that the receipt of Payments would not give rise to any Excise
Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to Executive
and Payments, in the aggregate, shall be reduced to the Reduced Amount.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to MedPartners and Executive within 15 business
days of the receipt of notice from Executive that there has been a Payment, or
such earlier time as is requested by MedPartners. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne by
MedPartners. Any Gross-Up Payment, as determined pursuant to this Section 11,
shall be paid by MedPartners to Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon MedPartners and Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by MedPartners should have been made ("Underpayment"),
consistent with the calculations
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<PAGE> 14
required to be made hereunder. In the event that MedPartners exhausts its
remedies pursuant to Section 11(b) and Executive thereafter is required to make
a payment of any Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by MedPartners to or for Executive's benefit.
(b) Executive shall notify MedPartners in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by MedPartners of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later then ten business days after Executive is informed
in writing of such claim and shall apprise MedPartners of the nature of such
claim and the date on which such claim is requested to be paid. Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to MedPartners (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If
MedPartners notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(i) give MedPartners any information reasonably
requested by MedPartners relating to such claim,
(ii) take such action in connection with contesting such
claim as MedPartners shall reasonably request In writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by MedPartners,
(iii) cooperate with MedPartners in good faith in order
effectively to contest such claim, and
(iv) permit MedPartners to participate in any proceeding
relating to such claim;
provided, however, that MedPartners shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing provisions of
this Section 11, MedPartners shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as MedPartners shall
determine; provided, however, that if MedPartners directs Executive to pay such
claim and sue for a refund, MedPartners shall advance the amount of such payment
to Executive, on an interest-free basis, and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or
14
<PAGE> 15
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for Executive's taxable year with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore,
MedPartners' control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(c) If, after Executive's receipt of an amount advanced by
MedPartners pursuant to Section 11(b), Executive becomes entitled to receive any
refund with respect to such claim, Executive shall (subject to MedPartners'
complying with the requirements of this Section 11(b)) promptly pay to
MedPartners the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after Executive's receipt
of an amount advanced by MedPartners pursuant to Section 11(b), a determination
is made that Executive shall not be entitled to any refund with respect to such
claim and MedPartners does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
SECTION 12. NON-COMPETITION, CONFIDENTIALITY AND NON-SOLICITATION
(a) During the period Executive is employed by MedPartners
hereunder and for the longer of (i) one year or, (ii) if Executive is entitled
to severance payments under Section 10(b) hereof, the then-remaining term of
this Agreement, Executive shall not directly or indirectly, own, operate, be
employed by, be a director of, act as a consultant for, be associated with, or
be a partner or have a proprietary interest in, any enterprise, partnership,
association, corporation, joint venture or other entity, which is competitive
with the Healthcare Services business of MedPartners, or any subsidiary or
affiliate thereof, in any county in a state where MedPartners or its
subsidiaries or affiliates are conducting such business at the time of such
termination.
(b) Executive acknowledges that, by reason of this employment
with MedPartners, he may learn trade secrets and obtain other confidential
information concerning the business and policies of MedPartners, or any
subsidiary or affiliate thereof. Executive agrees that he will not, during the
term of this Agreement or at any time thereafter, voluntarily divulge or
otherwise disclose, directly or indirectly, any such trade secrets or other
confidential information concerning the business or policies of MedPartners, or
any subsidiary or affiliate thereof, that he may learn as a result of his
employment during the term of this Agreement or may have learned prior to the
term of this Agreement, except to the extent such information is lawfully
obtained from public sources or such use or disclosure is (i) necessary to the
performance of this Agreement and in furtherance of MedPartners' best interests,
(ii) required by applicable law, or (iii) authorized by MedPartners.
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<PAGE> 16
(c) During the period Executive is employed by MedPartners
hereunder and for the longer of (i) one year or, (ii) if Executive is entitled
to severance payments under Section 10(b) hereof, the then-remaining term of
this Agreement, Executive agrees to refrain from interfering with the
relationships between MedPartners, or any subsidiary or affiliate thereof, and
their respective employees or affiliated physicians by soliciting any such
individuals to terminate their relationship with MedPartners, or any subsidiary
or affiliate thereof.
(d) The parties have entered into this Section 12 of this
Agreement in good faith and for the reasons set forth in the recitals hereto and
assume that this Agreement is legally binding. If, for any reason, this Section
12 is not binding because of its geographical scope or because of its term, then
the parties agree that this Agreement shall be deemed effective to the widest
geographical area and/or the longest period of time as may be legally
enforceable.
(e) Executive acknowledges that the rights and privileges
granted to MedPartners in this Section 12 are of special and unique character,
which gives them a peculiar value, the loss of which may not be reasonably or
adequately compensated for by damages in an action of law, and that a breach
thereof by Executive of this Section 12 will cause MedPartners great and
irreparable injury and damage. Accordingly, Executive hereby agrees that
MedPartners shall be entitled to remedies of injunction, specific performance or
other equitable relief to prevent a breach of this Section 12 of this Agreement
by Executive. This provision shall not be construed as a waiver of any other
rights or remedies MedPartners may have for damages or otherwise.
SECTION 13. NO MITIGATION OR OFFSET.
The Executive shall not be required to seek other employment
or to reduce any severance benefit payable to him under this Agreement, and,
except for Section 10(b)(iv) hereof, no such severance benefit shall be reduced
on account of any compensation received by the Executive from other employment.
MedPartners' obligation to pay severance benefits under this Agreement shall not
be reduced by any amount owed by Executive to MedPartners.
SECTION 14. NON-ASSIGNABILITY.
Except as stated in the last sentence of Section 5(f) hereof,
Executive shall not have the right to assign, transfer, pledge, hypothecate or
dispose of any right to receive payments hereunder or any rights, privileges or
interest hereunder, all of which are hereby expressly declared to be
non-assignable and non-transferable, except after termination of his employment
hereunder. In the event of a violation of the provisions of this Section 14, no
further sums shall hereafter become due or payable by MedPartners or its
subsidiaries and affiliates to Executive or his assignee, transferee, pledgee or
to any other person whatsoever, and MedPartners shall have no further liability
under this Agreement to Executive.
16
<PAGE> 17
SECTION 15. CLAIMS; ARBITRATION.
(a) All claims by Executive for compensation and benefits
under this Agreement shall be directed to and determined by the Board of
Directors and shall be in writing. Any denial by the Board of Directors of a
claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and specific
provisions of this Agreement relied upon. The Board of Directors shall afford a
reasonable opportunity to Executive for a review of a decision denying a claim
and shall further allow Executive to appeal to the Board of Directors a decision
of the Board of Directors within 60 days after notification by the Board of
Directors that Executive's claim has been denied.
(b) To the extent permitted by applicable law, any dispute in
connection with clause (a) above or any other dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in New York, New York, in accordance with the rules of the AAA then
in effect. The agreement set forth herein to arbitrate shall be specifically
enforceable under the prevailing arbitration law.
(c) By initialing below, the parties hereto (i) acknowledge
that they have read and understood the provisions of this Section regarding
arbitration and (ii) that performance of this Agreement will be an interstate
commerce as that term is used in the Federal Arbitration Act, 9 U.S.C. ss. 1 et
seq., and the parties contemplated substantial interstate activity in the
performance of this Agreement including, but not limited to, interstate travel,
the use of interstate phone lines, the use of the U.S. mail services and other
interstate courier services.
E. Mac Crawford For MedPartners:
/s/ EMC
--------------- -----------------
(d) Notice of the demand for arbitration shall be filed in
writing with the other party to this Agreement and with the AAA. The demand for
arbitration shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen, and in no event shall it be made after the
date when institution of legal or equitable proceedings based on such claim,
dispute or other matter in question would be barred by the applicable statute of
limitations.
(e) The award rendered by the arbitrator shall be final and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
(f) Unless otherwise agreed in writing, MedPartners shall
continue to make payments and provide benefits in accordance with this
Agreement, and Executive shall continue to perform his obligations hereunder
during any arbitration proceedings.
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<PAGE> 18
(g) In the event Executive incurs legal fees and other
expenses in seeking to obtain or to enforce any rights or benefits provided by
this Agreement and is successful, in whole or in part, in obtaining or enforcing
any such rights or benefits through settlement, arbitration, or otherwise,
MedPartners shall promptly pay Executive's reasonable legal fees and expenses
incurred in enforcing this Agreement and the fees of the arbitrator or
arbitrators. Except to the extent provided in the preceding sentence, each party
shall pay its own legal fees and other expenses associated with any dispute.
SECTION 16. EMPLOYMENT TAXES.
All compensation paid pursuant to this Agreement, including
compensation paid pursuant to Section 5, Section 6, as applicable, and Section
10 of this Agreement, shall be subject to reduction by all applicable
withholding, social security and other federal, state and local taxes and
deductions.
SECTION 17. BINDING EFFECT.
The rights and obligations of MedPartners and its subsidiaries
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of MedPartners.
SECTION 18. WAIVER OF BREACH.
The waiver by either party to this Agreement of a breach of
any provision thereof by the other party shall not operate or be construed as a
waiver of any subsequent breach of such party.
SECTION 19. NOTICES.
Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by certified or
registered mail to Executive's residence (if such notice is addressed to
Executive), or to the principal executive offices of MedPartners in Birmingham,
Alabama (if such notice is addressed to MedPartners).
SECTION 20. ENTIRE AGREEMENT.
This instrument shall be governed by the laws of the State of
Alabama and contains the entire agreement of the parties with respect to the
subject matter hereof and supersedes any other agreements, whether written or
oral, between the parties.
This Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
18
<PAGE> 19
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall for all purposes be deemed to be an original, but each of
which, when so executed, shall constitute but one and the same instrument.
SECTION 22. REPRESENTATION.
(a) Executive hereby represents and warrants to MedPartners
that the Executive is not aware of any presently existing fact, circumstance or
event (including, without limitation, any contractual or other legal constraint)
which would preclude or restrict him from entering into this Agreement or
providing to MedPartners the services contemplated by this Agreement, or which
would give rise to any breach of any term or provision hereof, or which could
otherwise result in the termination of his employment hereunder for Cause. In
the event of any breach of this representation, this Agreement shall be null and
void.
(b) MedPartners hereby represents and warrants to the
Executive that (i) it has received all authorizations necessary for the
execution of this Agreement on the terms and conditions set forth herein and for
the grant of the Option as set forth in Section 5(d) hereof, and that it has
taken all actions necessary to make such grants, (ii) there are no regulatory
approvals that are necessary for the execution and performance of this Agreement
by MedPartners, and (iii) its entering this Agreement and the performance of its
obligations under this Agreement will not violate any agreement between
MedPartners and any other person, firm or organization or any law or
governmental regulation.
SECTION 23. RELOCATION.
(a) Sale of Old Residence. MedPartners shall provide the
Executive with reimbursement of: (i) all expenses connected with the sale of the
Atlanta, Georgia home, including, among other things, broker's fee, real estate
transfer taxes and stamps, recording fees and legal expenses; and (ii) duplicate
home ownership expenses in respect of the Atlanta, Georgia home, pending
relocation of the Executive's family by June 30, 1998, or if later, until sale
to the Relocation Firm (as defined below) is concluded. As soon as reasonably
practicable after the date hereof, the Executive and MedPartners shall each
obtain an independent appraisal of the fair market value of the Executive's
current residence in Atlanta, Georgia (an "Appraisal"), each from a residential
appraisal firm of national prominence. As soon as reasonably practicable after
delivery by MedPartners and the Executive to the other of the Appraisal,
MedPartners shall arrange to have a third party relocation firm (the "Relocation
Firm) offer to purchase the Executive's Atlanta, Georgia home from the Executive
for a purchase price equal to the average of the fair market value thereof
specified in each Appraisal (the "Appraisal Value").
(b) Finding of New Residence. MedPartners shall provide the
Executive with reimbursement of: (i) travel, meals, lodging and related expenses
incurred by the Executive and his spouse in connection with the relocation; (ii)
closing costs,
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<PAGE> 20
including, among other things, title insurance, legal fees, survey, inspections,
service charges, mortgage points, recording fees, transfer taxes and stamps; and
(iii) temporary living expenses, pending purchase and occupation of new
residence, for a period of up to six months following the Commencement Date.
(c) The Physical Move. MedPartners shall provide the Executive
with (i) payment for the cost of moving household effects from the Executive's
Atlanta, Georgia property, including, among other things, packing, unpacking,
transportation, appliance disconnect and re-connect, and (ii) reimbursement of
transportation, meals, etc, for the move to the Executive's new residence in
Birmingham, Alabama.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
MEDPARTNERS, INC. EXECUTIVE
By: /s/ E. M. Crawford
------------------------------- -----------------------------------
Name: Name: E. Mac Crawford
Title:
20
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