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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-27276
CAREMARK RX, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 63-1151076
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3000 GALLERIA TOWER, SUITE 1000 35244
BIRMINGHAM, ALABAMA (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's Telephone Number, Including Area Code: (205) 733-8996
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on which Registered
COMMON STOCK, PAR VALUE $.001 PER SHARE THE NEW YORK STOCK EXCHANGE
THRESHOLD APPRECIATION PRICE SECURITIES(TM) THE NEW YORK STOCK EXCHANGE
PREFERENCE SHARE PURCHASE RIGHTS THE NEW YORK STOCK EXCHANGE
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of February 18, 2000: Common Stock, par value $.001 per
share -- $849,060,516.
As of February 18, 2000, the Registrant had 199,778,945* shares of Common
Stock, par value $.001 per share, issued and outstanding.
* Includes 8,343,490 shares held in trust to be utilized in employee benefit
plans.
DOCUMENTS INCORPORATED BY REFERENCE
The information set forth under Items 10, 11, 12 and 13 of Part III of this
Annual Report on Form 10-K is incorporated by reference from the Registrant's
definitive proxy statement for its 2000 Annual Meeting of Stockholders that will
be filed no later than April 30, 2000.
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FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
In passing the Private Securities Litigation Reform Act of 1995 ("the
Reform Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. Caremark Rx, Inc. ("Caremark Rx" or the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Reform Act and any other similar safe harbor
provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events, and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of the Company. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements (the "Safe-Harbor Statement") to
reflect future developments. In addition, the Company undertakes no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
The "forward-looking statements" contained in this document are made under
the captions "Business -- Pharmaceutical Services Industry", "-- Information
Systems", "-- Competition", "-- Government Regulation", "-- Corporate Liability
and Insurance", "-- Discontinued Operations", "Legal Proceedings", "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General", "-- Impact of Year 2000", "-- Factors That May Affect
Future Results", and "-- Liquidity and Capital Resources". 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.
There are several factors which could adversely affect the Company's
operations and financial results including, but not limited to, the following:
Risks relating to the Company's divestiture of its discontinued operations;
risks relating to the proposed settlement and transition plan for the MPN
operations in the State of California; risks relating to the Company's
compliance with or changes in government regulations, including pharmacy
licensing requirements and healthcare reform legislation; risks relating to
adverse resolution of lawsuits pending against the Company and its
affiliates; risks relating to declining reimbursement levels of products
distributed; risks relating to identification of growth opportunities;
risks relating to implementation of the Company's strategic plan; risks
relating to liabilities in excess of the Company's insurance; and risks
relating to the Company's liquidity and capital requirements.
A more detailed discussion of certain of these risk factors can be found in
"Business -- Government Regulation", "Legal Proceedings", "Management's
Discussion of Analysis and Financial Condition and Results of
Operations -- General" and "-- Factors That May Affect Future Results".
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PART I
ITEM 1. BUSINESS.
GENERAL
Caremark Rx, Inc., a Delaware Corporation ("Caremark Rx" or the "Company"),
is one of the largest pharmaceutical services companies in the United States,
with net revenue of approximately $3.3 billion for 1999. The Company's
operations are conducted through Caremark Inc. ("Caremark"), which provides
pharmacy benefit management services and therapeutic pharmaceutical services.
These services are sold separately and together to assist corporations,
insurance companies, unions, government employee groups and managed care
organizations throughout the United States in delivering prescription drugs to
their members in a cost-effective manner.
The Company is one of the largest pharmacy benefit management ("PBM")
companies in the United States, with the leading mail service pharmacy business
among independent PBM companies in terms of prescriptions filled in 1999.
Pharmacy benefit management involves the design and administration of programs
aimed at reducing the costs and improving the safety, effectiveness and
convenience of prescription drug use. The Company dispenses prescription drugs
to patients through a network of more than 50,000 retail pharmacies
(approximately 96% of all retail pharmacies in the United States) and through
three wholly-owned and operated mail service pharmacies. During 1999, the
Company dispensed approximately 12.2 million prescriptions through its mail
service pharmacies and processed approximately 38.5 million retail
prescriptions.
The Company provides therapeutic pharmaceutical services for patients with
high cost chronic illnesses, genetic disorders and other conditions in an effort
to improve outcomes for patients and to reduce costs of care. The Company
designs, develops and manages comprehensive programs including drug therapy,
physician support and patient education. The Company provides drug therapies and
services to patients with such conditions as hemophilia, growth disorders,
immune deficiencies, cystic fibrosis, multiple sclerosis, and respiratory
difficulties. Treatments for these conditions generally involve high cost,
injectable biotechnology drugs. The Company believes it is the industry leader
in the distribution of these types of drugs and owns and operates a national
network of 23 specialty pharmacies, 22 of which are accredited by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO"). During 2000,
the Company plans to phase out five of the accredited pharmacies as part of its
continuing efficiency efforts. As of December 31, 1999, the Company provided
specialty therapies and services for approximately 32,300 patients, a 108%
increase over those served as of December 31, 1998.
The Company's predecessor entity, MedPartners, Inc., was organized in 1993
with the goal of improving the nation's healthcare system by building an
integrated delivery system. The Company grew quickly in pursuit of this goal,
primarily through acquisitions. The Company was incorporated under the laws of
Delaware in August 1995 as "MedPartners/Mullikin, Inc.," the surviving
corporation in the November 1995 combination of the businesses of the original
MedPartners, Inc. and Mullikin Medical Enterprises, L.P. ("MME"), a
privately-held physician management entity based in Long Beach, California.
Further acquisitions by the Company included that of Pacific Physician Services,
Inc. ("PPSI"), a publicly-traded physician practice management company based in
Redlands, California which had previously acquired Team Health, Inc. ("Team
Health"). In September 1996, the Company changed its name to "MedPartners, Inc."
and completed the acquisition of Caremark International Inc. ("CII"), a
publicly-traded physician practice management and pharmaceutical services
company based in Northbrook, Illinois. In June 1997, the Company acquired
InPhyNet Medical Management, Inc. ("InPhyNet"), which, when combined with Team
Health, created one of the largest providers of physician contract services to
hospitals and government institutions in the country.
On November 11, 1998, the Company announced that Caremark would become its
core operating unit and that it intended to dispose of its physician practice
management ("PPM") and contract services operations. As of December 31, 1999,
all of the contract services operations and all but four clinics in the PPM
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had been sold. The Company is treating these businesses as discontinued
operations, and accordingly, this Form 10-K has been prepared on that basis. See
"Discontinued Operations."
On September 13, 1999, the Company announced that it had changed its name
from MedPartners, Inc. to Caremark Rx, Inc. to reflect its focus on its
pharmaceutical services operations.
The executive offices of the Company are located at 3000 Galleria Tower,
Suite 1000, Birmingham, Alabama 35244, and its telephone number is (205)
733-8996.
PHARMACEUTICAL SERVICES INDUSTRY
PBM companies initially emerged in the early 1980s, primarily to provide
cost-effective drug distribution and claims processing for the healthcare
industry. In the mid-1980s they evolved to include pharmacy networks and drug
utilization review to address the need to manage the total cost of
pharmaceutical services. Through volume discounts, retail pharmacy networks,
mail pharmacy services, formulary administration, claims processing and drug
utilization review, PBM companies created an opportunity for health benefit plan
sponsors to deliver drugs to their members in a more cost-effective manner,
while improving physician and patient compliance with recommended guidelines for
safe and effective drug use.
PBM companies have focused on cost containment by: (i) negotiating
discounted prescription services through retail pharmacy networks; (ii)
purchasing discounted products from drug wholesalers and manufacturers and
dispensing maintenance prescriptions by mail; (iii) establishing drug
utilization review and clinical programs to encourage appropriate drug use and
reduce potential risk for complications; and (iv) encouraging the use of generic
rather than branded medications. Over the last several years, in response to
increasing payor demand, PBM companies have begun to develop sophisticated
formulary management capabilities and comprehensive, on-line customer decision
support tools in an attempt to better manage the delivery of healthcare and,
ultimately, costs. Simultaneously, to lower overall healthcare costs, health
benefit plan sponsors have begun to focus on the quality and efficiency of care,
emphasizing disease prevention, or wellness, and care management. This has
resulted in a rapidly growing demand among payors for comprehensive disease
management programs. By effectively managing appropriate prescription use, PBM
companies can reduce overall medical costs and improve clinical outcomes.
The Company believes that future growth in the PBM industry will be driven
by (i) the increased frequency of new drugs coming on the market; (ii) expansion
in new biotech and injectable therapies; (iii) the aging of the population, as
older population segments have higher drug utilization; (iv) a continuing trend
toward outsourcing of pharmacy management services by corporations, insurance
companies, unions, government employee groups, and managed care entities; (v)
increased penetration by managed care entities, which are large consumers of PBM
services, into the growing Medicare and Medicaid market; (vi) increased direct
to consumer advertising by pharmaceutical manufacturers; and (vii) increased
demand for comprehensive pharmacy benefit, medication management and disease
management services as healthcare service providers and physician practice
management entities assume pharmacy care risk from managed care entities.
The Company also provides therapeutic pharmaceutical services to patients
with certain long-term chronic diseases. This is another area where the
competitive forces in the healthcare environment are challenging providers. In
addition to the Company, home healthcare companies, hospitals and other
providers offer disease management services and programs to these patients.
Competitive pricing, customer service and patient education are factors
influencing the competition for these patients.
Strategy. The Company's strategy is to provide innovative pharmaceutical
solutions and quality customer service in order to enhance patient outcomes and
better manage overall healthcare costs. The Company intends to increase its
market share and extend its leadership in the pharmaceutical services industry.
The Company believes that its independence from ownership by a pharmaceutical
manufacturer, a retail chain or an insurance company distinguishes it from
certain competitors.
Operations. The Company manages outpatient prescription benefit management
programs throughout the United States for corporations, insurance companies,
unions, government employee groups and managed care entities. Prescription drug
benefit management involves the design and administration of programs aimed
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at reducing the costs and improving the safety, effectiveness and convenience of
prescription drug use. The Company dispenses prescription drugs to patients
through a network of more than 50,000 pharmacies (approximately 96% of all
retail pharmacies in the United States) and through three mail service
pharmacies. The Company negotiates arrangements with pharmaceutical
manufacturers and drug wholesalers for the cost effective purchase of
prescription drug products. Through clinical review, the Company compiles a
preferred product list, or formulary, which supports client goals of cost
management and quality of care for plan participants. The Company's Pharmacy and
Therapeutics Committee, which includes a number of physician specialists,
pharmacy representatives and a medical ethicist, participates in this clinical
review.
All prescriptions are analyzed, processed and documented by the Company's
proprietary prescription management information system and database. This system
assists staff and network pharmacists in processing prescription requests for
member eligibility, authorization, early refills, duplicate dispensing,
appropriateness of dosage, drug interactions or allergies, over-utilization or
potential fraud, and other information. The system, through secured systems and
confidential screenings, collects comprehensive prescription utilization
information which is valuable to pharmaceutical manufacturers, managed care
payors and customers. With this information, the Company offers a full range of
drug cost reporting services, including clinical case management, drug
utilization review, formulary management, therapeutic substitution and
customized prescription programs for senior citizens.
The retail pharmacy program allows members to obtain prescriptions at more
than 50,000 pharmacies nationwide. When a member submits a prescription request,
the network pharmacist sends prescription data electronically to the Company,
which verifies relevant patient data and co-payment information and confirms
that the pharmacy will receive payment for the prescription. In 1999, the
Company processed approximately 38.5 million retail prescriptions.
The Company operates three mail service pharmacies in San Antonio, Texas;
Lincolnshire, Illinois; and Westin, Florida. Patients send original
prescriptions via mail and order refills via mail, telephone, the internet and
fax to staff pharmacists who review them with the assistance of the prescription
management information system. This review may involve a call to the prescribing
physician and can result in generic substitution, therapeutic substitution or
other actions to affect cost or to improve quality of treatment. In 1999, the
Company filled approximately 12.2 million mail service prescriptions.
Under the Company's PBM quality assurance program, the Company maintains
rigorous quality assurance and regulatory policies and procedures. Each mail
service prescription undergoes a sequence of safety and accuracy checks and is
reviewed and verified by a registered pharmacist before shipment. The Pharmacy
and Therapeutics Committee assists in the selection of preferred products for
inclusion on the Company's formulary. The Company analyzes drug-related outcomes
to identify opportunities to improve patient quality of care.
The Company provides therapeutic pharmaceutical services including
comprehensive long-term support for high-cost, chronic illnesses in an effort to
improve outcomes for patients and to reduce costs. The Company provides
therapies and services to patients with such conditions as hemophilia, growth
disorders, immune deficiencies, cystic fibrosis, multiple sclerosis, and
respiratory difficulties. These services generally include the provision of
injectable bio-pharmaceutical drugs and supplies and associated patient support
services. These drugs are distributed from the Company's owned national network
of specialty pharmacies. These services utilize advanced protocols and offer the
patient and care providers greater convenience in working with insurers.
Extensive education is provided to patients through individual instruction and
monitoring, written materials, and around-the-clock availability of customer
assistance via toll-free telephone. Major initiatives such as CarePatterns(TM)
for disease state management and CaremarkConnect(TM) for quick and easy patient
enrollment strengthen the Company's leadership position in these markets.
INFORMATION SYSTEMS
The Company's PBM information system incorporates integrated architecture
which allows all requests for service (mail order prescription, retail pharmacy
claim or customer service contact) to be evaluated with access to a complete
history of the patient's prescription activity. Information from this system is
then
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integrated into a data repository, which is used for research and studies on an
anonymous basis. The Company has developed a tool, Rx Navigator(TM), that
enables its clients to conduct customized claims analysis.
COMPETITION
The Company competes with a number of large, national companies, including
Express Scripts, Inc. (an affiliate of New York Life Insurance Co.), Merck-Medco
Managed Care, LLC (a subsidiary of Merck & Co., Inc.), PCS Health Systems, Inc.
(a subsidiary of Rite Aid Corporation), and Advance Paradigm, Inc. These
competitors are large and may possess greater financial, marketing and other
resources than the Company. The Company also competes with several national and
regional companies that primarily provide therapeutic pharmaceutical services
such as Accredo Health, Inc., Priority Healthcare Corp. and Gentiva Health
Services Inc. To the extent that competitors are owned by pharmaceutical
manufacturers, retail pharmacies, or insurance companies they may have pricing
advantages that are unavailable to the Company and other independent PBM
companies. Additionally, the Company competes with certain hemophilia treatment
centers which have access to favorable pricing through government sponsored
programs.
The Company believes the primary competitive factors in the PBM industry
include: the degree of independence from drug manufacturers, retail pharmacies,
and payors; the quality, scope and costs of products and services offered to
insurance companies, HMOs, employers and other sponsors of health benefit plans
and plan participants; responsiveness to customers' demands; the ability to
negotiate favorable volume discounts from drug manufacturers; the ability to
identify and apply effective cost containment programs utilizing clinical
strategies; the ability to develop and utilize formularies; the ability to
market PBM products and services; and the commitment to provide flexible,
clinically oriented services to customers. The Company considers its principal
competitive advantages to be its independence from drug manufacturers, retail
pharmacies, and payors, strong customer retention rate, broad service offering
in specialty therapeutic services, high quality customer service, and commitment
to providing flexible, clinically-oriented services to its customers.
GOVERNMENT REGULATION
General. As a participant in the healthcare industry, the Company's
operations and relationships are subject to federal and state laws and
regulations and enforcement by federal and state governmental agencies. Various
federal and state laws and regulations govern the purchase, distribution and
management of prescription drugs and related services and affect or may affect
the Company. Sanctions may be imposed for violation of these laws or
regulations. The Company believes its operations are in substantial compliance
with existing laws and regulations which are material to its operations. Any
failure or alleged failure to comply with applicable laws and regulations could
have a material adverse effect on the Company's operating results and financial
condition.
In their corporate integrity agreement with the Office of Inspector General
(the "OIG") within the Department of Health and Human Services (the "HHS") and
in connection with the related plea agreement and settlement agreement to which
Caremark and CII are parties, (collectively, the "Settlement Agreement"),
Caremark and CII agreed to continue to maintain certain compliance-related
oversight procedures through June 2000. Should the oversight procedures reveal
credible evidence of any violation of federal law, CII and Caremark are required
to report such potential violations to the OIG and the Department of Justice
("DOJ"). CII and Caremark are therefore subject to increased regulatory scrutiny
and, if CII or Caremark commit legal or regulatory violations, they may be
subject to an increased risk of sanctions or penalties, including exclusion from
participation in the Medicare or Medicaid programs. The Company anticipates
maintaining certain compliance related oversight procedures after the expiration
of the corporate integrity agreement in June 2000.
Mail Service Pharmacy Regulation. The Company is licensed to do business
as a pharmacy in each state in which it operates a dispensing pharmacy. Many of
the states into which the Company delivers pharmaceuticals have laws and
regulations that require out-of-state mail service pharmacies to register with,
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or be licensed by, the board of pharmacy or similar regulatory body in the
state. These states generally permit the dispensing pharmacy to follow the laws
of the state within which the dispensing pharmacy is located.
However, various states have enacted laws and adopted regulations directed
at restricting or prohibiting the operation of out-of-state pharmacies by, among
other things, requiring compliance with all laws of the states into which the
out-of-state pharmacy dispenses medications, whether or not those laws conflict
with the laws of the state in which the pharmacy is located. To the extent that
such laws or regulations are found to be applicable to the Company's operations,
the Company would be required to comply with them. In addition, to the extent
that any of the foregoing laws or regulations prohibit or restrict the operation
of mail service pharmacies and are found to be applicable to the Company, they
could have an adverse effect on the Company's prescription mail service
operations.
Other statutes and regulations may affect the Company's mail service
operations. The Federal Trade Commission requires mail order sellers of goods
generally to engage in truthful advertising, to stock a reasonable supply of the
products to be sold, to fill mail orders within thirty days, and to provide
clients with refunds when appropriate. In addition, the United States Postal
Service has statutory authority to restrict the transmission of drugs and
medicines through the mail to a degree that could have an adverse effect on the
Company's mail service operations. However, at this time the Postal Service has
not exercised such statutory authority.
Licensure Laws. Many states have licensure or registration laws governing
certain types of ancillary healthcare organizations, including preferred
provider organizations, third party administrators, and companies that provide
utilization review services. The scope of these laws differs significantly from
state to state, and the application of such laws to the activities of pharmacy
benefit managers often is unclear. The Company has registered under such laws in
those states in which the Company has concluded that such registration is
required.
The Company dispenses prescription drugs pursuant to orders received
through its Rx Request internet web site. Accordingly, the Company may be
subject to laws affecting on-line pharmacies. Several states have proposed laws
to regulate on-line pharmacies and require on-line pharmacies to obtain state
pharmacy licenses. Additionally, federal regulation by the United States Food
and Drug Administration (the "FDA"), or another federal agency, of on-line
pharmacies which dispense prescription drugs has been proposed. To the extent
that such state or federal regulation could apply to the Company's operations,
certain of the Company's operations could be adversely affected by such
licensure legislation.
Other Laws Affecting Pharmacy Operations. The Company is subject to state
and federal statutes and regulations governing the operation of pharmacies,
repackaging of drug products, wholesale distribution, dispensing of controlled
substances, medical waste disposal, and clinical trials. Federal statutes and
regulations govern the labeling, packaging, advertising and adulteration of
prescription drugs and the dispensing of controlled substances. Federal
controlled substance laws require the Company to register its pharmacies and
repackaging facilities with the United States Drug Enforcement Administration
and to comply with security, recordkeeping, inventory control and labeling
standards in order to dispense controlled substances.
State controlled substance laws require registration and compliance with
state pharmacy licensure, registration or permit standards promulgated by the
state pharmacy licensing authority. Such standards often address the
qualifications of an applicant's personnel, the adequacy of its prescription
fulfillment and inventory control practices and the adequacy of its facilities.
In general, pharmacy licenses are renewed annually. Pharmacists and pharmacy
technicians employed by each branch must also satisfy applicable state licensing
requirements. In addition, substantially all of the therapeutic pharmaceutical
pharmacies of the Company are accredited by JCAHO, whose quality and other
standards apply to those accredited pharmacies.
FDA Regulation. The FDA generally has authority to regulate drug
promotional information and materials that are disseminated by a drug
manufacturer or by other persons on behalf of a drug manufacturer. In January
1998, the FDA issued a Draft Guidance regarding its intent to regulate certain
drug promotion and switching activities of PBM companies that are controlled,
directly or indirectly, by drug manufacturers. The FDA effectively withdrew the
Draft Guidance and has indicated that it would not issue a new draft guidance.
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However, there can be no assurance that the FDA will not assert jurisdiction
over certain aspects of the Company's PBM business, including the internet sale
of prescription drugs, which could materially adversely affect the Company's
operations.
Network Access Legislation. A majority of states now have some form of
legislation affecting the ability of the Company to limit access to a pharmacy
provider network or remove network providers. Such legislation may require the
Company or its client to admit any retail pharmacy willing to meet the plan's
price and other terms for network participation ("any willing provider"
legislation), or may prohibit the removal of a provider from a network except in
compliance with certain procedures ("due process" legislation) or may prohibit
days' supply limitations or co-payment differentials between mail and retail
pharmacy providers. To the extent that such legislation is applicable and is not
preempted by the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as to plans governed by ERISA, certain Company operations could be
adversely affected by network access legislation.
Legislation Imposing Plan Design Mandates. Some states have enacted
legislation that prohibits a health plan sponsor from implementing certain
restrictive design features, and many states have introduced legislation to
regulate various aspects of managed care plans, including provisions relating to
pharmacy benefits. For example, some states provide that members of the plan may
not be required to use network providers, but must instead be provided with
benefits even if they choose to use non-network providers ("freedom of choice"
legislation), or provide that a patient may sue his or her health plan if care
is denied. Some states have enacted and other states have introduced legislation
regarding plan design mandates, including legislation that prohibits or
restricts therapeutic substitution; requires coverage of all drugs approved by
the FDA; or prohibits denial of coverage for non-FDA approved uses. Some states
mandate coverage of certain benefits or conditions. Such legislation does not
generally apply to the Company, but it may apply to certain of the Company's
customers (generally, HMOs and health insurers). If such legislation were to
become widespread and broad in scope, it could have the effect of limiting the
economic benefits achievable through pharmacy benefit management. To the extent
that such legislation is applicable and is not preempted by ERISA (as to plans
governed by ERISA), certain operations of the Company could be adversely
affected by plan design mandate legislation.
Other states have enacted legislation purporting to prohibit health plans
from requiring or offering members financial incentives for use of mail order
pharmacies. To date, there have been no formal administrative or judicial
efforts to enforce any such laws against the Company; however, if commenced, any
such enforcement could have an adverse effect on the mail order pharmacy
business of the Company.
The Anti-Remuneration Laws. Federal law prohibits, among other things, an
entity from paying or receiving, subject to certain exceptions and "safe
harbors," any remuneration to induce the referral of patients or the purchase
(or the arranging for or recommending of the purchase) of items or services for
which payment may be made under Medicare, Medicaid, or certain other
federally-funded healthcare programs. Several states have similar laws that are
not limited to services for which government-funded payment may be made. State
laws and exceptions or safe harbors vary and have been infrequently interpreted
by courts or regulatory agencies. Sanctions for violating these federal and
state anti-remuneration laws may include imprisonment, criminal and civil fines,
and exclusion from participation in the Medicare and Medicaid programs or other
applicable programs.
The federal anti-remuneration law has been interpreted broadly by courts,
the OIG and administrative bodies. Because of the federal statute's broad scope,
federal regulations establish certain safe harbors from liability. Safe harbors
exist for certain properly reported discounts received from vendors, certain
investment interests, and certain properly disclosed payments made by vendors to
group purchasing organizations, as well as for other transactions or
relationships. In late 1999, the HHS adopted a final rule revising the discount
safe harbor to protect certain rebates. Because this revision is so recent,
there is no clear guidance on how the safe harbor revision will be interpreted.
Nonetheless, a practice that does not fall within a safe harbor is not
necessarily unlawful, but may be subject to scrutiny and challenge. In the
absence of an applicable exception or safe harbor, a violation of the statute
may occur even if only one purpose of a payment arrangement is to induce patient
referrals or purchases. Among the practices that have been identified by the OIG
as potentially
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improper under the statute are certain "product conversion programs" in which
benefits are given by drug manufacturers to pharmacists or physicians for
changing a prescription (or recommending or requesting such a change) from one
drug to another. Anti-remuneration laws have been cited as a partial basis,
along with state consumer protection laws discussed below, for investigations
and multi-state settlements relating to financial incentives provided by drug
manufacturers to retail pharmacies in connection with such programs.
Certain governmental entities have commenced investigations of PBM
companies and other companies having dealings with the PBM industry and have
identified issues concerning selection of drug formularies, therapeutic
substitution programs and discounts or rebates from prescription drug
manufacturers. Additionally, at least one state has filed a lawsuit concerning
similar issues against a health plan. To date, the Company has not been the
subject of any such investigation or suit and has not received subpoenas or been
requested to produce documents for any such investigation or suit. However,
there can be no assurance that the Company will not receive subpoenas or be
requested to produce documents in pending investigations or litigation in the
future.
The Company believes that it is in substantial compliance with the legal
requirements imposed by the anti-remuneration laws and regulations, and the
Company believes that there are material differences between drug switching
programs that have been challenged under these laws and the programs offered by
the Company to its customers. However, there can be no assurance that the
Company will not be subject to scrutiny or challenge under such laws or
regulations, or that any such challenge would not have a material adverse effect
upon the Company.
The Stark Laws. The federal law known as "Stark II" became effective in
1995, and was a significant expansion of an earlier federal physician
self-referral law commonly known as "Stark I". Stark II prohibits physicians
from referring Medicare or Medicaid patients for "designated health services" to
an entity with which the physician or an immediate family member of the
physician has a financial relationship. Possible penalties for violation of the
Stark laws include denial of payment, refund of amounts collected in violation
of the statute, civil monetary penalties and program exclusion. The Stark law
standards contain certain exceptions for physician financial arrangements, and
the Health Care Financing Administration ("HFCA") has published Stark II
proposed regulations which describe the parameters of these exceptions in more
detail. While Stark laws and regulations apply to certain contractual
arrangements between the Company and physicians who may refer patients to or
write prescriptions ultimately filled by the Company, the Company believes it is
in compliance with such laws and regulations.
State Self-Referral Laws. The Company is subject to state statutes and
regulations that prohibit payments for referral of patients and referrals by
physicians to healthcare providers with whom the physicians have a financial
relationship. Some state statutes and regulations apply to services reimbursed
by governmental as well as private payors. Violation of these laws may result in
prohibition of payment for services rendered, loss of pharmacy or health
provider licenses, fines, and criminal penalties. The laws and exceptions or
safe harbors may vary from the federal Stark laws and vary significantly from
state to state. The laws are often vague, and, in many cases, have not been
widely interpreted by courts or regulatory agencies; however, the Company
believes it is in compliance with such laws.
Statutes Prohibiting False Claims and Fraudulent Billing Activities. A
range of federal civil and criminal laws target false claims and fraudulent
billing activities. One of the most significant is the Federal False Claims Act,
which prohibits the submission of a false claim or the making of a false record
or statement in order to secure a reimbursement from a government-sponsored
program. In recent years, the federal government has launched several
initiatives aimed at uncovering practices which violate false claims or
fraudulent billing laws. Claims under these laws may be brought either by the
government or by private individuals on behalf of the government, through a
"whistleblower" or "qui tam" action. Because such actions are filed under seal
and may remain secret for years, there can be no assurance that the Company or
one of its affiliates is not named in a material qui tam action which is not
discussed in "Legal Proceedings."
Reimbursement. Approximately 5% of the Company's revenue, all of which
originates from the therapeutic pharmaceutical services business, is derived
directly from Medicare or Medicaid or other government-sponsored healthcare
programs subject to the federal anti-remuneration laws and/or the Stark
7
<PAGE> 10
laws. Also, the Company indirectly provides benefits to managed care entities
that provide services to beneficiaries of Medicare, Medicaid and other
government-sponsored healthcare programs. Should there be material changes to
federal or state reimbursement methodologies, regulations or policies, the
Company's reimbursements from government-sponsored healthcare programs could be
adversely affected. In addition, certain state Medicaid programs only allow for
reimbursement to pharmacies residing in the state or in a border state. While
the Company believes that it can service its current Medicaid patients through
existing pharmacies, there can be no assurance that additional states will not
enact in-state dispensing requirements for their Medicaid programs. To the
extent such requirements are enacted, certain therapeutic pharmaceutical
reimbursements could be adversely affected.
Legislation and Other Matters Affecting Drug Prices. Some states have
adopted legislation providing that a pharmacy participating in the state
Medicaid program must give the state the best price that the pharmacy makes
available to any third party plan ("most favored nation" legislation). Such
legislation may adversely affect the Company's ability to negotiate discounts in
the future from network pharmacies. At least one state has enacted "unitary
pricing" legislation, which mandates that all wholesale purchasers of drugs
within the state be given access to the same discounts and incentives. Such
legislation has not yet been enacted in the states where the Company's mail
service pharmacies are located. Such legislation, if enacted in other states,
could adversely affect the Company's ability to negotiate discounts on its
purchase of prescription drugs to be dispensed by its mail service pharmacies.
Further, the Company negotiates pricing discounts from drug manufacturers,
and in certain circumstances also sells services to drug manufacturers. State
Medicaid programs also negotiate pricing discounts with drug manufacturers, and
generally also require that such Medicaid programs receive the "best price" on
such pricing discounts. Investigations involving drug manufacturers have been
commenced by certain governmental entities which question whether best price
discounts were properly calculated, reported and paid to the Medicaid programs.
The Company is not responsible for any such calculations, reports or payments;
however there can be no assurance that the Company's ability to negotiate
discounts from and/or sell services to drug manufacturers will not be adversely
affected in the future. The Company has not been the subject of any
investigations into best price discounts to Medicaid programs and has not
received subpoenas or been requested to produce documents in any such
investigation; however, there can be no assurance that the Company will not
receive subpoenas or be requested to produce documents in pending or future
investigations. According to publicly available information, these government
entity investigations also include matters that are the subject of other
investigations discussed in "The Anti-Remuneration Laws", above.
Privacy and Confidentiality Legislation. Most of the Company's activities
involve the receipt or use by the Company of confidential medical information
concerning individual members, including the transfer of the confidential
information to the member's health benefit plan. In addition, the Company uses
aggregated and blinded (anonymous) data for research and analysis purposes.
Confidentiality provisions of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") required the Secretary of HHS to issue
standards concerning health information privacy if Congress did not enact health
information privacy legislation by August 1999. As Congress did not enact health
information privacy legislation, the Secretary issued a proposed rule in
November 1999 and the public comment period for this proposed rule expired on
February 17, 2000. The Secretary did not issue the final rule by February 21,
2000, the date originally specified in HIPAA, and has not indicated when the
rule will be finalized. The proposed rule would establish minimum standards and
would preempt state laws which are less restrictive than HIPAA regarding health
information privacy but would not preempt more restrictive state laws. The
proposed rule provides that the health information privacy standards would
become effective two years after final issuance. The final HHS rule is likely to
require substantial changes to the Company's systems, policies and procedures
which may have a material adverse impact on the Company.
In addition to the proposed federal health information privacy regulations
described above, most states have enacted patient confidentiality laws which
prohibit the disclosure of confidential medical information. It is unclear which
state laws may be preempted by the final HHS rule discussed above.
8
<PAGE> 11
Consumer Protection Laws. Most states have consumer protection laws that
have been the basis for investigations and multi-state settlements relating to
financial incentives provided by drug manufacturers to pharmacies in connection
with drug switching programs. No assurance can be given that the Company will
not be subject to scrutiny or challenge under one or more of these laws.
Disease Management Services Regulation. All states regulate the practice
of medicine. To the Company's knowledge, no PBM has been found to be engaging in
the practice of medicine by reason of its disease management services. However,
there can be no assurance that a federal or state regulatory authority will not
assert that such services constitute the practice of medicine, thereby
subjecting such services to federal and state laws and regulations applicable to
the practice of medicine.
Comprehensive PBM Regulation. Although no state has passed legislation
regulating PBM activities in a comprehensive manner, such legislation has been
introduced in the past in several states. Such legislation, if enacted in a
state in which the Company conducts a significant amount of business, could have
a material adverse impact on the Company's operations.
Antitrust. Numerous lawsuits have been filed throughout the United States
by retail pharmacies against drug manufacturers challenging certain brand drug
pricing practices under various state and federal antitrust laws. An adverse
outcome in any of these lawsuits could require defendant drug manufacturers to
provide the same types of discounts on pharmaceuticals to retail pharmacies and
buying groups as are provided to managed care entities to the extent that their
respective abilities to affect market share are comparable. This practice, if
generally followed in the industry, could increase competition from pharmacy
chains and buying groups and reduce or eliminate the availability to the Company
of certain discounts, rebates and fees currently received in connection with its
drug purchasing and formulary administration programs. The loss of such
discounts, rebates, and fees could have a material adverse impact on the
Company. In addition, to the extent that the Company appears to have actual or
potential market power in a relevant market, business arrangements and practices
may be subject to heightened scrutiny from an anti-competitive perspective and
possible challenge by state or federal regulators or private parties.
ERISA Regulation. ERISA provides for comprehensive federal regulation of
certain employee pension and health benefit plans, including self-funded
corporate health plans with which the Company has agreements to provide
pharmaceutical services. The Company believes that, in general, the conduct of
its business is not subject to the fiduciary obligations of ERISA, but there can
be no assurance that the Company will not be subject to assertions that the
fiduciary obligations imposed by the statute apply to certain aspects of the
Company's operations. State legislation discussed in this section may be
preempted in whole or in part by ERISA. However, the scope of ERISA preemption
is uncertain and is subject to conflicting court rulings. In addition, the
Company provides services to certain customers, such as governmental entities,
that are not subject to the preemption provisions of ERISA.
Regulation of Financial Risk Plans. Fee-for-service prescription drug
plans are generally not subject to financial regulation by the states. However,
if a PBM company plan offers to provide prescription drug coverage on a
capitated basis or otherwise accepts material financial risk in providing the
benefit, laws in various states may regulate the plan. Such laws may require
that the party at risk establish reserves or otherwise demonstrate financial
viability. Laws that may apply in such cases include insurance laws, HMO laws or
limited prepaid health service plan laws. In those cases in which the Company
has contracts in which it is materially at risk to provide the pharmacy benefit,
the Company believes that it has complied with all applicable laws.
Future Legislation, Regulation and Interpretation. As a result of the
continued escalation of healthcare costs and the inability of many individuals
to obtain health insurance, numerous proposals have been or may be introduced in
the United States Congress and state legislatures relating to healthcare reform.
A number of proposals have been suggested regarding the creation of an
outpatient prescription drug benefit for some or all of the Medicare-eligible
population. It is unknown at this time, if such legislation were enacted,
whether PBM companies would be utilized to administer such a benefit.
9
<PAGE> 12
There can be no assurance as to the ultimate content, timing or effect of
any healthcare reform legislation, nor is it possible at this time to estimate
the impact of potential legislation, which may be material, on the Company.
Further, although the Company exercises care in structuring its operations to
comply in all material respects with the laws and regulations summarized in this
Government Regulation section, there can be no assurance that (i) government
officials charged with responsibility for enforcing such laws will not assert
that the Company or certain transactions in which the Company is involved are in
violation thereof and (ii) such laws will ultimately be interpreted by the
courts in a manner consistent with the Company's interpretation. Therefore, it
is possible that future legislation, regulation and the interpretation thereof
could have a material adverse effect on the operating results and financial
condition of the Company.
CORPORATE LIABILITY AND INSURANCE
The Company maintains professional liability insurance, general liability
and other customary insurance on a claims-made and modified occurrence basis, in
amounts deemed appropriate by management based upon historical claims and the
nature and risks of the Company's businesses. The Company's business may subject
the Company to litigation and liability for damages. The Company believes that
its current insurance protection is adequate for its present business
operations, but there can be no assurance that the Company will be able to
maintain its professional and general liability insurance coverage in the future
or that such insurance coverage will be available on acceptable terms or
adequate to cover any or all potential product or professional liability claims.
A successful liability claim in excess of the Company's insurance coverage could
have a material adverse effect upon the Company.
EMPLOYEES
As of December 31, 1999, the Company employed a total of 4,373 persons.
Included in this total are approximately 1,200 employees in the Company's
discontinued operations. None of these employees are represented by a labor
union. The Company believes that its relations with its employees are good.
DISCONTINUED OPERATIONS
General. During 1998, the Company announced its intent to divest its PPM
and contract services businesses. As a result, the Company is reporting the
results of the operations of these businesses as discontinued operations. During
1999, the Company sold its contract services operations, all of its California
PPM operations and all but four of the clinics in its non-California PPM
operations. Divestiture of the four remaining clinics is expected to be
completed during the first half of 2000. There is no guarantee that these
divestitures will occur or that there will not be adverse developments in
relation to these remaining divestitures.
On March 5, 1999, MedPartners Provider Network ("MPN" or the "Plan")
received a cease and desist order (the "Order") from the California Department
of Corporations ("DOC"), along with a letter advising that the DOC would be
conducting a non-routine audit of the finances of MPN, commencing March 8, 1999.
On March 11, 1999, the DOC appointed a conservator and assumed control of the
business operations of MPN. On April 9, 1999, the Company and representatives of
the State of California (the "State") reached an agreement in principle to
settle the disputes relating to MPN. See Note 2. Discontinued Operations to the
Consolidated Financial Statements and Item 3. "Legal Proceedings."
Government Regulation. Federal and state laws addressing, among other
things, anti-remuneration, physician self-referrals (i.e., Stark and state
laws), reimbursement and false claims and fraudulent billing activities, apply
to the PPM operations of the Company. A portion of the net revenue of the
Company's managed physician practices is derived from payments made by Medicare
or Medicaid or other government-sponsored healthcare programs. As a result, the
Company is subject to laws and regulations under these programs. For a detailed
discussion of these laws, see "Government Regulation" above.
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<PAGE> 13
In April 1998, the OIG issued an Advisory Opinion, discussing the federal
anti-remuneration law and its safe harbors and advising against a certain
physician practice management arrangement which included payment by the
physician to the management company of a percentage of practice revenues. The
Company's PPM operations and transactions do not fit within any of the safe
harbors. While a practice that is not sheltered by a safe harbor is not
necessarily unlawful, it may be subject to increased scrutiny and challenge. The
Company believes that the monies retained by the Company under its management
agreements do not exceed the aggregate amount due the Company for the physician
practice management services provided by the Company to the managed physicians
or physician practices, and therefore that it is not in violation of the
anti-remuneration laws or Stark laws or regulations. However, there can be no
assurance that such practice if subject to scrutiny will not be deemed to be a
violation of such laws.
The laws of many states prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by courts and regulatory
agencies with varying and broad discretion. The Company believes that its
control over the assets and operations of its various managed professional
corporations has not violated such laws; however, there can be no assurance that
the Company's contractual arrangements with physician practices would not be
successfully challenged as constituting the unlicensed practice of medicine or
that the enforceability of the provisions of such arrangements, including
non-competition agreements, will not be limited. In the event of action by any
regulatory authority limiting or prohibiting the Company or any affiliate from
carrying on its business, organizational modification of the Company or
restructuring of its contractual arrangements may be required.
Liability and Insurance. The Company maintains professional liability
insurance, general liability, and other customary insurance on a claims-made and
modified occurrence basis, in amounts deemed appropriate by management based
upon historical claims and the nature and risks of the business. In some cases,
the Company has arranged professional liability and other insurance coverage for
its managed physician practices and, in connection with the PPM divestiture, has
accrued for or purchased "tail" coverage for claims arising from incidents which
were or are incurred but not reported during the policy periods. There can be no
assurance that claims will not exceed the limits of available insurance coverage
or related accrual or that such coverage will continue to be available.
Moreover, the Company generally requires its managed physician groups to
obtain and maintain professional liability insurance coverage that names the
Company and its applicable PPM management affiliate as an additional insured.
Such insurance provides coverage, subject to policy limits, in the event the
Company is held liable as a co-defendant in a lawsuit for professional
malpractice against a physician or a physician group. In addition, the Company
is typically indemnified under its management agreements by the managed
physician groups for liabilities resulting from the delivery of medical services
by physicians and physician practices. However, there can be no assurance that
any future claim or claims will not exceed the limits of these available
insurance coverages or that indemnification will be available for all such
claims.
ITEM 2. PROPERTIES
The Company currently occupies approximately 40,000 square feet of
administrative office space at its corporate headquarters located at 3000
Galleria Tower in Birmingham, Alabama; approximately 20,000 square feet of this
space is attributable to discontinued operations. Additionally, the Company has
corporate offices at 2211 Sanders Road in Northbrook, Illinois (approximately
195,000 square feet). The Company operates four leased distribution/service
centers across the United States, including a 107,000 square foot facility
located in San Antonio, Texas; a 60,000 square foot facility located in Westin,
Florida; a 47,000 square foot facility in Lincolnshire, Illinois; and a 18,000
square foot facility located in Vernon Hills, Illinois. The Company also leases
a 18,200 square foot support services center in San Antonio, Texas. The Company
occupies several small leased branch pharmacy offices across the United States,
ranging in size from 900 to 9,000 square feet. The main therapeutic
pharmaceutical services office (36,000 square feet) is located in Redlands,
California. The Redlands facility is also leased. The Company's information
technology support is provided from a leased 57,000 square foot facility located
at 100 Lakeside Drive in Bannockburn, Illinois.
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<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal actions arising in the ordinary
course of business. The Company is named as a defendant in various legal actions
arising primarily out of services rendered by physicians and others employed by
its managed physician practices, as well as personal injury, contract, and
employment disputes. In addition, certain of its managed medical groups are
named as defendants in numerous actions alleging medical negligence on the part
of their physicians. In certain of these actions, the Company and/or the medical
group's insurance carrier has either declined to provide coverage or has
provided a defense subject to a reservation of rights. Management does not view
any of these actions as likely to result in an uninsured award that would have a
material adverse effect on the operating results and financial condition of the
Company.
In connection with the matters described above in "Government Regulation"
relating to the Settlement Agreement, CII and Caremark are the subject of
various non-governmental claims and may in the future become subject to
additional OIG-related claims. CII and Caremark are the subject of, and may in
the future be subjected to, various private suits and claims being asserted in
connection with matters relating to the Settlement Agreement by former CII
stockholders, patients who received healthcare services from CII subsidiaries or
affiliates and such patients' insurers. The Company cannot determine at this
time what costs or liabilities may be incurred in connection with future
disposition of non-governmental claims or litigation. See Item 1. "Government
Regulation".
In 1993, independent and retail chain pharmacies filed a group of antitrust
lawsuits, and a class action lawsuit, against brand name pharmaceutical
manufacturers, wholesalers, and PBM companies. Caremark was named as a defendant
in these lawsuits in 1994, but was not named in the class action. 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 PBM companies, 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
attorney's fees and expenses.
All of these actions have been transferred by the Judicial Panel for
Multi-District Litigation to the United States District Court for the Northern
District of Illinois for coordinated pretrial procedures. 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 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
this settlement, although numerous additional settlements have been reached
between a number of the parties to the class and individual manufacturers. The
class action conspiracy claims against the remaining defendants were tried in
the fall of 1998, and resulted in a judgment by the court at the close of the
plaintiffs' case in favor of the remaining defendants. That judgment was
affirmed in part and reversed and remanded in part and is currently undergoing
further proceedings in the district court and the court of appeals, which may
result in a second trial of the class action or its dismissal on the merits. It
is expected that trials of the non-class action conspiracy claims brought by
opt-out individual plaintiffs under the Sherman Act, to the extent they have not
been settled or dismissed, will move forward in 2000 to a decision on summary
judgment or to trial and likely will also precede the trial of any Robinson-
Patman Act claims.
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<PAGE> 15
In March 1998, a consortium of insurance companies and third party private
payors sued Caremark and CII in the United States District Court for the
Northern District of Illinois. The complaint alleges that Caremark's home
infusion division, which was sold by Caremark in 1995 and is reported in the
Consolidated Financial Statements as discontinued operations, implemented a
scheme to submit fraudulent claims for payment to the payors which the payors
unwittingly paid, and seeks unspecified damages, treble damages and attorneys'
fees and expenses. A tentative settlement agreement has been reached in this
case.
The Company's California PPM operations included MPN, a wholly-owned
subsidiary of the Company and a healthcare service plan licensed under the
Knox-Keene Health Care Service Plan Act of 1975. In March 1999, the DOC
appointed a conservator and assumed control of the business operations of MPN.
The conservator, purportedly on behalf of MPN, filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code. The Company judicially
challenged the authority of both the DOC and the conservator to take these
actions in the California Superior Court (the "Superior Court") and in the
United States Bankruptcy Court for the Central District of California (the
"Bankruptcy Court").
On April 9, 1999, the Company, MPN, and representatives of the State
reached an agreement in principle to settle the disputes relating to MPN.
On May 10, 1999, pending execution of a definitive settlement agreement,
the Company, MPN, and the State reached an interim agreement (the "Interim
Agreement") to begin implementation of the principal terms of the proposed
settlement. As part of the Interim Agreement, the DOC stayed its prior orders
regarding appointment of a conservator and sought and received an order from the
Superior Court appointing a special monitor for MPN (the "Monitor Order"). The
Monitor Order provided that: possession and control of MPN's property, business,
and assets would be returned immediately to MPN; MPN would operate as a debtor
in possession under the Bankruptcy code; the special monitor would provide
oversight and supervision of MPN and maintain certain operational controls over
MPN pending approval by the Bankruptcy Court of the definitive settlement
agreement; and the Company would fund, as contemplated in its transition plan,
the working capital requirements of its subsidiaries to enable the normal
continuing operations of the managed physician practices.
On June 9, 1999, the Company, MPN, the State and the special monitor
executed a definitive settlement agreement. In addition to the matters set forth
above, the parties agreed to include in the settlement agreement certain
covenants establishing the foundation for a Chapter 11 plan of reorganization
for MPN. The Company and the State subsequently dismissed the Superior Court
litigation and the Bankruptcy Court presiding over MPN's Chapter 11 bankruptcy
case appointed the former special monitor as an examiner (the "Examiner"). On
June 16, 1999, the Company, MPN, the State and the Examiner executed an amended
and restated settlement agreement reflecting these developments (the "Settlement
Agreement").
At a hearing held on July 19, 1999, the Bankruptcy Court approved the
Settlement Agreement and authorized MPN to enter into and consummate the
transactions contemplated by the Settlement Agreement, with effectiveness and
implementation of the Settlement Agreement to occur according to its terms and
conditions. In addition, as contemplated by and provided for in the Settlement
Agreement, during the course of MPN's Chapter 11 case, the Bankruptcy Court
approved MPN's consent to and/or participation in a series of transactions
implementing the Company's disposition of its PPM assets as they related to
MPN's operations. The last such transaction involving MPN was approved by the
Bankruptcy Court at a hearing held on August 10, 1999.
Among other things, the Settlement Agreement provided for execution by the
Company and various of its subsidiaries, MPN, certain managed physician
practices and various health plans of a supplemental agreement (the
"Supplemental Plan Agreement") whereby (1) the parties to the Supplemental Plan
Agreement would agree to subordinate, waive and/or release various claims
against one another on the terms and conditions set forth therein, and (2) the
health plans would agree to support the Chapter 11 plan of reorganization (the
"Plan of Reorganization") to be filed by MPN consistent with both the Settlement
Agreement and the Supplemental Plan Agreement. The Supplemental Plan Agreement
was executed as of December 10, 1999 and approved by the Bankruptcy Court
following a hearing on February 7, 2000, subject to certain conditions being met
by March 31, 2000 unless extended by order of the court.
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<PAGE> 16
Both the Settlement Agreement and the Supplemental Plan Agreement
contemplate that MPN will pursue Bankruptcy Court approval of the Plan of
Reorganization. MPN filed an initial draft of the Plan of Reorganization on
November 5, 1999. Following execution of the Supplemental Plan Agreement and
further negotiations with parties in interest in MPN's bankruptcy case, an
amended Plan of Reorganization, accompanied by a revised disclosure statement to
accompany that plan, was filed with the Bankruptcy Court on February 3, 2000.
Pursuant to an amendment to the Settlement Agreement dated February 7, 2000, the
Company agreed to issue a $15 million letter of credit in connection with its
funding commitment, payable only upon the effectiveness of the Supplemental Plan
Agreement, the Settlement Agreement, and the Plan of Reorganization. The Plan of
Reorganization continues to be the subject of ongoing negotiations involving
MPN, the Company and parties in interest in MPN's bankruptcy case. Neither the
disclosure statement nor the Plan of Reorganization has yet been approved by the
Bankruptcy Court.
The Company is a defendant in two lawsuits filed in the Supreme Court of
the State of New York, County of New York, claiming that a "Termination Event"
has occurred with respect to the Threshold Appreciation Price Securities
("TAPS") issued by the Company in September 1997. One of those actions, filed
May 27, 1999, is brought by certain entities claiming to "own or control" 5
million TAPS and the other, filed July 14, 1999, purports to be brought by a
holder of an unknown number of TAPS as a class action on behalf of a purported
class of all holders of TAPS. The complaints allege that a "Termination Event"
has occurred because of, among other things, the actions taken by the DOC
described above. The complaints seek a declaratory judgment that a Termination
Event has occurred and an order compelling the Collateral Agent to release to
the TAPS holders approximately $480 million of United States Treasury Notes
currently held in escrow. The escrowed funds otherwise would be released to the
Company in exchange for common stock of the Company at the final settlement date
of the TAPS on August 31, 2000. In a hearing on March 6, 2000, the court denied
motions for summary judgment by both the Company and a plaintiff in one of the
lawsuits, and set a trial date of April 4, 2000 for both lawsuits.
Pursuant to the Provider Self-Disclosure Protocol of the OIG, the Company
has conducted a voluntary investigation of the practices of an affiliate known
as Home Health Agency of Greater Miami, doing business as AmCare ("AmCare"). The
investigation uncovered several potentially inappropriate practices by certain
managers at AmCare, some of which may have resulted in overpayments from federal
programs for AmCare's home health services. The Company has since terminated
these managers, ceased AmCare's operations, and reported the matter to the OIG.
While the OIG has not yet responded to the Company's internal investigation
report, and therefore the resolution of this matter is as yet unknown, it is
likely that the government will determine that overpayments were made which
require repayment by the Company. The Company's estimates of the repayments due
have been accrued in the financial statements.
Although the Company believes that it has a meritorious defense to the
claims of liability or for damages in the actions against it, there can be no
assurance that such defenses will be successful or that additional lawsuits will
not be filed against the Company or its subsidiaries. Further, there can be no
assurance that the lawsuits will not have a disruptive effect upon the
operations of the business, that the defense of the lawsuits will not consume
the time and attention of senior management of the Company and its subsidiaries,
or that the resolution of the lawsuits will not have a material adverse effect
on the operating results and financial condition of the Company. The Company
intends to vigorously pursue or defend each of these lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders of the Company
during the fourth quarter of 1999.
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<PAGE> 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "CMX" (formerly listed under the symbol "MDM"). The
following table sets forth, for the calendar periods indicated, the range of
high and low sales prices from January 1, 1998.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1999
First Quarter............................................... $ 6.625 $ 2.875
Second Quarter.............................................. 7.5625 4.00
Third Quarter............................................... 9.000 5.250
Fourth Quarter.............................................. 6.000 3.9375
1998
First Quarter............................................... $21.625 $ 8.00
Second Quarter.............................................. 11.50 7.00
Third Quarter............................................... 7.875 1.688
Fourth Quarter.............................................. 5.25 1.938
</TABLE>
On February 18, 2000, the closing sale price of the Company's common stock
on the NYSE was $4.25.
There were 27,299 holders of record of the Company's common stock as of
February 18, 2000.
The Company has never paid a cash dividend on its Common Stock. Future
dividends, if any, will be determined by the Company's Board of Directors in
light of circumstances existing from time to time, including the Company's
growth, profitability, financial condition, results of operations, continued
existence of the restrictions described below and other factors deemed relevant
by the Company's Board of Directors.
Restrictions contained in the Credit Facility (as defined in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") limit the payment of non-stock dividends on the Company's Common
Stock.
UNREGISTERED SALES OF SECURITIES
On May 7, 1999, the Company issued an aggregate of 2,979 shares of Caremark
Rx common stock to a shareholder of IMHC Management, Inc. for $6.125 per share
pursuant to the purchase of all of the outstanding common stock, $1.00 par value
per share, of IMHC Management, Inc. The issuance of the common stock was made in
reliance on the exemption from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") provided for in Section 4(2) of
the Securities Act.
The Company issued 18,047 shares of Caremark Rx common stock from October 1
to November 8, 1999, to various shareholders of Mid-America Medical Group, S.C.
for the acquisition of said group. The total market value of the shares issued
was $99,151. The issuance of the common stock was made in reliance on the
exemption from the registration requirements of the Securities Act provided for
in Section 4(2) of the Securities Act.
CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 29, 1999, (a) Caremark Rx Capital Trust I (the "Caremark
Trust") issued $200,000,000 of its 7% Shared Preference Redeemable Securities
("SPURS" or "Convertible Preferred Securities") to Warburg Dillon Read LLC, as
the initial purchaser (the "Initial Purchaser") and (b) the Company issued
$200,000,000 of its 7% Convertible Subordinated Debentures due 2029 (the
"Convertible Debentures") to the Caremark Trust. The issuance of the Convertible
Preferred Securities and the Convertible Debentures were made in reliance on the
exemption from the registration requirements of the Securities Act provided for
in Section 4(2) of the Securities Act. The Initial Purchaser offered the
Convertible Preferred Securities to qualified institutional buyers under Rule
144A of the Securities Act. The Company registered such securities effective
November 9, 1999. The Convertible Preferred Securities represent preferred
undivided beneficial
15
<PAGE> 18
interests in the asset of the Caremark Trust. The sole asset of the Caremark
Trust consists of the Convertible Debentures. The Convertible Debentures
underlying the Convertible Preferred Securities mature in the year 2029 but are
redeemable prior to maturity at the option of the Company beginning October 15,
2002. Each Convertible Preferred Security is convertible at the option of the
holder into shares of the Company's common stock, par value $.001 per share,
("Common Stock") at the conversion rate of 6.7125 shares of Common Stock for
each Convertible Preferred Security (equivalent to a conversion price of $7.4488
per share of Common Stock). Dividends on the Convertible Preferred Securities
will be payable at an annual rate of 7% of the liquidation amount of $50 per
Convertible Preferred Security, and will be payable quarterly in arrears on
January 1, April 1, July 1 and October 1 each year, beginning January 1, 2000.
Dividends on the Convertible Preferred Securities may be deferred by the Company
for up to 20 consecutive quarters. The Company has no intention at the present
time to defer the payment of the dividends.
16
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company
derived from the Company's Consolidated Financial Statements. The selected
financial data should be read in conjunction with the accompanying Consolidated
Financial Statements and the related notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue........................... $ 3,307,806 $ 2,634,017 $2,363,404 $2,159,480 $1,840,291
=========== =========== ========== ========== ==========
Income from continuing operations
before preferred security
dividends........................... $ 59,146 $ 30,760 $ 38,049 $ 32,329 $ 9,565
Preferred security dividends.......... (3,255) -- -- -- --
Loss from discontinued operations..... (199,310) (1,284,878) (832,775) (177,817) (113,904)
----------- ----------- ---------- ---------- ----------
Loss available to common stockholders
before cumulative effect of a change
in accounting principle............. (143,419) (1,254,118) (794,726) (145,488) (104,339)
Cumulative effect of a change in
accounting principle................ -- (6,348) (25,889) -- --
----------- ----------- ---------- ---------- ----------
Net loss available to common
stockholders........................ $ (143,419) $(1,260,466) $ (820,615) $ (145,488) $ (104,339)
=========== =========== ========== ========== ==========
Earnings (loss) per common share
outstanding(1):
Income available to common
stockholders from continuing
operations........................ $ 0.29 $ 0.16 $ 0.20 $ 0.19 $ 0.06
Loss from discontinued operations... (1.04) (6.79) (4.48) (1.05) (0.75)
Cumulative effect of a change in
accounting principle.............. -- (0.03) (0.14) -- --
----------- ----------- ---------- ---------- ----------
Net loss available to common
stockholders...................... $ (0.75) $ (6.66) $ (4.42) $ (0.86) $ (0.69)
=========== =========== ========== ========== ==========
Weighted average common shares
outstanding......................... 190,734 189,327 185,830 169,897 152,453
Diluted earnings (loss) per common
share outstanding:
Income available to common
stockholders from continuing
operations........................ $ 0.29 $ 0.16 $ 0.20 $ 0.19 $ 0.06
Loss from discontinued operations... (1.03) (6.77) (4.39) (1.02) (0.72)
Cumulative effect of a change in
accounting principle.............. -- (0.03) (0.14) -- --
----------- ----------- ---------- ---------- ----------
Net loss available to common
stockholders...................... $ (0.74) $ (6.64) $ (4.33) $ (0.83) $ (0.66)
=========== =========== ========== ========== ==========
Weighted average common and dilutive
shares outstanding.................. 194,950 189,927 189,573 174,028 158,109
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 6,797 $ 23,100 $ 109,098 $ 112,792 $ 56,295
Working capital....................... (28,750) 85,111 83,813 270,189 164,097
Total assets.......................... 770,846 1,862,106 2,891,896 1,807,366 1,431,563
Long-term debt, less current
portion............................. 1,230,025 1,735,096 1,395,079 663,979 392,552
Convertible preferred securities...... 200,000 -- -- -- --
Total stockholders' equity
(deficit)........................... (1,281,475) (1,144,173) 92,221 839,073 678,905
</TABLE>
- ---------------
(1) Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the periods
presented in accordance with the applicable rules of the Commission.
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of the Company. This discussion should be
read in conjunction with the audited Consolidated Financial Statements and the
Notes thereto. Unless the context otherwise requires, as used herein, the term
"Caremark Rx" or the "Company" refers collectively to Caremark Rx, Inc. and its
subsidiaries and affiliates.
GENERAL
The Company is one of the largest pharmaceutical services companies in the
United States, with net revenue of approximately $3.3 billion for the year ended
December 31, 1999. The Company's operations are comprised of pharmacy benefit
management services and therapeutic pharmaceutical services. These services are
sold both separately and together to assist corporations, insurance companies,
unions, government employee groups and managed care organizations throughout the
United States in delivering prescription drugs to their members in a
cost-effective manner.
The Company's net revenues generally include payments by its customers
based on the price of pharmaceuticals dispensed to their members and
administrative fees. Pharmaceuticals are dispensed from retail pharmacies
included in one of the Company's networks and from its wholly-owned and operated
mail service pharmacies. Costs of net revenues are comprised primarily of
pharmaceutical acquisition costs and the cost of services associated with
dispensing drugs and operating systems.
The Company has begun to expand its strategy of marketing to managed care
plans. While this strategy is expected to result in higher revenues and higher
average revenue per account, the Company anticipates that its gross
margins -- that is, gross profit as a percentage of net revenues -- will
decrease in the future as it implements this strategy. Managed care plans
typically involve a higher concentration of retail pharmacy services, which have
a lower margin than the Company's mail pharmacy and specialty therapeutic
services. The Company anticipates that overall margins will decrease in the
future as a result of the strategy of marketing to health plans and as its PBM
services continue to increase at a faster rate than its higher-margin specialty
therapeutic services.
On November 11, 1998, the Company announced that Caremark, which includes
its PBM, would become its core operating unit and announced its intention to
divest its other businesses. As a result, in 1998 the Company restated its prior
period financial statements to reflect the appropriate accounting for these
discontinued operations. Additionally, the Company recorded a charge related to
discontinued operations of $1.1 billion during the fourth quarter of 1998 and an
additional related charge of $199.3 million in the second quarter of 1999. On
January 26, 1999, the Company completed the sale of its government services
business for $67 million less certain working capital adjustments. On March 12,
1999, the Company completed the sale of its Team Health business for $318.9
million, less certain expenses, and retained approximately 7.3% of the equity of
the recapitalized company. The Team Health and government services businesses
were the two divisions that comprised the Company's contract services
operations, which have been reported as discontinued operations. Through
December 31, 1999, the Company has also divested all its California PPM
operations and 114 clinics in its non-California PPM operations, generating
approximately $454 million in gross proceeds, including the assumptions of
liabilities by purchasers. The Company expects to sell the remaining four PPM
clinics during the first half of 2000.
The Company has tax net operating loss ("NOL") carryforwards of
approximately $2.3 billion as of December 31, 1999. Because of the uncertainty
of the ultimate realization of the net deferred tax asset, the Company has
established a valuation allowance for the amount of the net deferred tax asset
that is not otherwise expected to be used to offset deferred tax liabilities. If
not utilized to offset future taxable income, the net operating loss carry
forwards will expire on various dates through 2019. The valuation allowance had
the effect of reducing the Company's effective tax rate for accounting purposes
for the year ended December 31, 1999 to approximately 8%, which results in a tax
expense recognized for continuing operations that is closer to its actual cash
taxes payable. The Company's taxes payable in 2000 and, until such time as its
NOLs are utilized, will consist of state taxes in those states where it does not
have state NOL carryforwards,
18
<PAGE> 21
and alternative minimum taxes for federal income tax purposes. The Company
expects its effective tax rate to be approximately 10% after 1999 until such
time as the NOLs are utilized.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Continuing Operations
For the years ended December 31, 1999, 1998 and 1997, net revenue was
$3,307.8 million, $2,634.0 million and $2,363.4 million, representing increases
of $673.8 million and $270.6 million during 1999 and 1998, respectively. Key
factors contributing to this growth include new customer contracts, high
customer retention, additional services provided to existing customers and drug
cost inflation. The preponderance of the Company's 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; however, these
revenues are not material to total revenues.
Operating income was $179.4 million, $143.7 million and $103.0 million in
1999, 1998 and 1997, respectively. Operating margins were 5.4%, 5.5% and 4.4%
for these same periods. (Operating income represents earnings before interest
and income taxes and excludes special charges.) The operating income and margins
were lower in 1997 due almost entirely to a $20 million loss recognized on a
risk-share contract. This particular contract was the only significant PBM
risk-share contract. During 1998, the Company renegotiated this risk-share
contract, changing it to a fee-for-service arrangement beginning in 1999.
Adjusting for the impact of the $20 million loss contract reserve, operating
margins for 1998 and 1997 were comparable. The slight decrease in operating
margin during 1999 resulted from an increase in the percentage of retail
pharmacy revenue to total pharmacy revenue and the launch of new lower margin
biotechnology drugs. The increase in lower margin revenue was offset by
aggressive cost reduction efforts.
Special charges totaled $9.5 million in 1998 and $10.6 million in 1997.
These charges primarily related to severance, occupancy costs for excess
facilities and certain litigation.
Net interest expense was $115.3 million, $84.6 million and $29.7 million
for the years ended December 31, 1999, 1998 and 1997, respectively. The increase
from 1998 to 1999 primarily relates to interest allocated to discontinued
operations. The net interest expense allocated to the discontinued operations
was limited by generally accepted accounting principles; accordingly, the
interest expense allocated to continuing operations is not necessarily
indicative of the net interest expense those operations would have incurred as
an independent entity on a stand alone basis. The increase in interest expense
from 1997 to 1998 primarily resulted from increased debt levels. Increases in
debt levels were a result of substantial uses of cash in the Company's
discontinued operations for acquisitions, capital expenditures and working
capital requirements in 1998 and prior years.
Under Statement of Financial Accounting Standards 109, "Accounting for
Income Taxes" (SFAS 109), the Company is required to record a net deferred tax
asset for the future tax benefits of tax loss and tax credit carryforwards, as
well as for other temporary differences, if realization of such benefits is more
likely than not. In assessing the realizability of deferred tax assets,
management has considered reversing deferred tax liabilities, projected future
taxable income and tax planning strategies. However, the ultimate realization of
the deferred tax assets is dependent upon the generation of future taxable
income during the periods in which temporary differences become deductible and
net operating losses can be carried forward.
Management believes, considering all available information, including the
Company's history of earnings (after adjustments for nonrecurring items, special
charges, permanent differences, and other appropriate items) and after
considering appropriate tax planning strategies, it is more likely than not that
the deferred tax assets will not be realized. Accordingly, the Company has
recorded a valuation allowance of $910.3 million, which is the amount of the
deferred tax assets in excess of the deferred tax liabilities. The valuation
allowance has been established due to the uncertainty of forecasting future
taxable income.
In November 1997, the Emerging Issues Task Force ("EITF") issued EITF 97-13
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project that Combines Business Process Reengineering and Information
Technology" ("EITF 97-13"). EITF 97-13 requires process reen-
19
<PAGE> 22
gineering costs, as defined, which had been previously capitalized as part of an
information technology project to be written off as a cumulative catch-up
adjustment in the fourth quarter of 1997. The Company recorded a charge of $25.9
million, net of tax of $15.8 million, as a result of EITF 97-13. The Company
incurred such costs primarily in connection with the process reengineering
associated with the new operating systems installed for its PBM operations.
In April 1998, the American Institute of Certified Public Accountants
issued a Statement of Position "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 requires that the costs of start-up activities be
expensed as incurred. The Company recorded a charge of $6.3 million, net of tax
of $3.9 million, as a cumulative effect adjustment retroactive to January 1,
1998.
Discontinued Operations
The loss from discontinued operations includes losses from the Company's
PPM business, contract services business, international business and CII's
previously reported discontinued operations. Discontinued operations for 1999
include a charge taken in the second quarter of $199.3 million. This charge is
an adjustment to the $1.1 billion charge taken during the fourth quarter of
1998. The charge taken in the fourth quarter of 1998 consists primarily of the
non-cash write off of intangibles, the Company's deferred tax assets and other
PPM assets. The remainder of the charge reflects the future cash costs of
exiting the PPM business. Also included in the discontinued operations loss for
1998 are losses of $0.2 billion for the operations of these discontinued
operations. Discontinued operations for 1997 includes a fourth quarter
restructuring and impairment charge of $636.0 million. This charge relates
primarily to the restructuring and impairment of selected assets of certain
clinic operations within the PPM business and includes goodwill impairment and
other asset write downs. Also included in the discontinued operations loss for
1997 are merger charges of $59.4 million for acquisitions in the PPM and
contract services businesses.
Impact of Year 2000
The Year 2000 issue concerns the ability of computer hardware and software
to distinguish between the year 1900 and the year 2000. An inability to make
this distinction could result in computer application failure.
During 1999, the Company completed a detailed assessment of all its
information technology and non-information technology hardware and software with
regard to the Year 2000 issue, with special emphasis on mission critical
systems. Information and non-information technology hardware and software were
inventoried and those not Year 2000 ready were identified, remediated (i.e.,
corrected or replaced) and tested to ensure that they would, in fact, operate as
desired according to Year 2000 requirements. The Company expensed approximately
$2.4 million during 1999 in connection with remediating its systems.
As a result of its Year 2000 readiness efforts, the Company's mission
critical information technology and non-information technology systems
successfully distinguished between the year 1900 and the year 2000 on January 1,
2000, without any mission critical application failure. However, the Company
will continue to monitor its mission critical computer applications throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
It is possible that the Company may experience Year 2000 related problems
in the future, particularly with its non-mission critical systems, which may
result in failures or miscalculations resulting in inaccuracies in computer
output or disruptions of operations. However, the Company believes that the Year
2000 issue will not pose significant operational problems for its mission
critical computer systems and equipment.
The financial impact of future remediation activities that may become
necessary, if any, cannot be known precisely at this time, but it is not
expected to be material.
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
20
<PAGE> 23
number of additional factors, including: the Company's divestiture of its
discontinued operations; the proposed settlement and transition plan for the MPN
operations in the State of California; the Company's compliance with or changes
in government regulations, including pharmacy licensing requirements and
healthcare reform legislation; potentially adverse resolution of lawsuits
pending against the Company and its affiliates; declining reimbursement levels
of products distributed; identification of growth opportunities; implementation
of the Company's strategic plan; liabilities potentially in excess of the
Company's insurance; and the Company's liquidity and capital requirements.
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. See Note 13, Contingencies, to the accompanying
Consolidated Financial Statements of the Company.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company broadly defines liquidity as its ability to generate
sufficient cash flow from operating activities to meet its obligations and
commitments. In addition, liquidity includes the ability to obtain appropriate
financing objectives. Therefore, liquidity cannot be considered separately from
capital resources that consist of current or potentially available funds for use
in achieving business objectives and meeting debt service commitments.
Currently, the Company's liquidity needs arise primarily from debt service
on its indebtedness and the funding of its discontinued operations (including
the funding of any retained liabilities), as well as its working capital
requirements and capital expenditures.
Cash Flows. The Company has experienced positive cash flow from continuing
operations for each of the last three fiscal years. This positive cash flow has
been offset by investing activities, primarily capital expenditures and cash
used in the discontinued operations for 1998 and 1997. The Company's cash flow
from continuing operations for the year ended December 31, 1999 was $86.2
million. The Company also received net proceeds of $192.1 million from the
issuance of convertible preferred securities. Cash provided by discontinued
operations for 1999 was $206.1 million. For the year ended December 31, 1999,
the primary source of funds provided by discontinued operations related to the
sale of the contract services division and various PPM asset sales. See Note 2,
Discontinued Operations, of the accompanying Consolidated Financial Statements.
Credit Facility. The Company has a credit facility with Bank of America,
N.A. (formerly NationsBank N.A.), as administrative agent. The Company has
pledged the capital stock of CII, which owns Caremark, as security for amounts
outstanding. The credit facility is guaranteed by the Company's material
subsidiaries and matures in June 2001. The credit facility consists of the
following:
- An amortizing tranche A term loan with $53.3 million outstanding at
December 31, 1999. Quarterly principal payments on this term loan began
in November 1999. Accordingly, the portion of this debt due within the
next twelve months has been classified as short-term.
- A non-amortizing tranche B term loan with $58.1 million outstanding at
December 31, 1999.
- A revolving credit facility in an aggregate principal amount of up to
$400 million. At December 31, 1999, the Company had $268.0 million in
borrowings and $21.0 million in letters of credit under the revolving
credit facility, and had $25.0 million reserved for a letter of credit
with regard to the funding obligations under its June 1999 settlement
with the State of California. Net of these amounts, the Company had $86.0
million available for borrowing under the credit facility as of December
31, 1999.
The credit facility indebtedness currently bears interest at variable rates
based on LIBOR, plus varying margins. At the Company's option, or upon certain
defaults or other events, credit facility indebtedness may instead bear interest
based on prime rate plus varying margins.
The credit facility provides for net cash proceeds received from asset
sales to be used to reduce the outstanding debt under the term loans, except
that the Company is permitted to retain up to $93 million of net
21
<PAGE> 24
cash proceeds from asset dispositions occurring on or after July 1, 1999 (in
addition to the $15 million in net cash proceeds previously designated for the
payment of certain promissory notes), for use in its business and operations in
the ordinary course, rather than applying those proceeds to the term loans. From
July 1, 1999, through December 31, 1999, the Company had received net proceeds
of approximately $64.7 million from asset dispositions.
The Company is also required to repay the term loans ratably under the
credit facility with 100% of the net cash proceeds received from certain
issuances of equity or debt or extraordinary receipts, and with 50% of the
excess cash flow for each fiscal year. On September 14, 1999, the Company
amended the credit facility to, among other things, permit the application of
only $80 million of the net proceeds from the Company's 7% Shared Preference
Redeemable Securities to the term loans. In November 1999, the Company entered
into an amendment to its credit facility which allowed for the modification of
certain financial covenants to reflect, among other things, the completion of
the Convertible Preferred Securities offering.
The credit facility contains covenants that, among other things, restrict
the Company's ability to incur additional indebtedness or guarantee obligations,
engage in mergers or consolidations, dispose of assets, make investments, loans
or advances, engage in certain transactions with affiliates, conduct certain
corporate activities, create liens, make capital expenditures, prepay or modify
the terms of other indebtedness, pay dividends and other distributions, and
change its business. In addition, the Company is required to comply with
specified financial covenants, including a maximum leverage ratio, a minimum
fixed charge coverage ratio and a minimum interest expense coverage ratio. The
credit facility includes various customary and other events of default,
including cross default provisions, defaults for any material judgment or change
in control, and defaults relating to liabilities arising from the Company making
additional investments in its California PPM business.
Other Indebtedness. The Senior Notes are in an aggregate principal amount
of $450 million and bear interest at 7 3/8% annually, with all principal amounts
due in October 2006. The indenture for the notes contains, among other things,
restrictions on subsidiary indebtedness, sale and leaseback transactions, and
consolidation, merger and sale of assets. These notes are not guaranteed by any
subsidiary.
The Senior Notes indenture also contain restrictions on indebtedness
secured by liens. To comply with this covenant, the Company has secured the
Senior Notes with an equal and ratable pledge of all the capital stock of CII,
which owns Caremark. These notes are otherwise unsecured.
The Company's long-term debt also includes $420 million for the Senior
Subordinated Notes, due September 1, 2000. The Senior Subordinated Notes are in
an aggregate principal amount of $420 million and bear interest at 6 7/8%
annually, with all principal amounts due in September 2000. The indenture for
the notes contains, among other things, restrictions on subsidiary indebtedness,
sale and leaseback transactions, and consolidation, merger and sale of assets.
These notes are not guaranteed by any subsidiary. The TAPS securities, which
mature August 31, 2000, will result in the Company issuing approximately 21.7
million shares of stock to the TAPS holders, in exchange for $481.4 million of
cash. The proceeds from the TAPS will be used to make the debt payments
discussed above. The remaining proceeds must be ratably applied against the term
loans under the terms of the credit facility.
The Company currently is party to litigation relating to its TAPS
securities, alleging that events have occurred that entitle the TAPS holders to
terminate their obligations to purchase the Company's common stock in August
2000 and that entitle the TAPS holders to receive the $481.4 million of U.S.
Treasury Notes held under the TAPS arrangements to secure those obligations. Any
adverse determination in this litigation would materially adversely affect the
Company's liquidity position, including its ability to repay the Senior
Subordinated Notes due in September 2000. See Item 3. "Legal Proceedings" for
further discussion.
TAPS. In September 1997, the Company issued 21.7 million 6.50% TAPS with a
stated amount of $22.1875 per security. Each TAPS consists of (i) a stock
purchase contract which obligates the holder to purchase Common Stock on the
final settlement date (August 31, 2000) and (ii) 6.25% U.S. Treasury Notes due
August 31, 2000. Under each stock purchase contract the Company is obligated to
sell, and the TAPS holder is obligated to purchase on August 31, 2000, between
0.8197 of a share and one share of the Company's
22
<PAGE> 25
Common Stock. The exact number of common shares to be sold is dependent on the
market value of the Company's Common Stock in August 2000. The number of shares
issued by the Company in conjunction with these securities will not be more than
approximately 21.7 million or less than approximately 17.8 million (subject to
certain anti-dilution adjustments). The Treasury Notes forming a part of the
TAPS have been pledged to secure the obligations of the TAPS holders under the
purchase contracts. Pursuant to the TAPS, TAPS holders receive payments equal to
6.50% of the stated amount per annum consisting of interest on the Treasury
Notes at the rate of 6.25% per annum and yield enhancement payments payable
semi-annually by the Company at the rate of 0.25% of the stated amount per
annum. Additional paid-in capital has been reduced by $20.4 million for issuance
costs and the present value of the annual 0.25% yield enhancement payments
payable to the holders of the TAPS. The securities are not included on the
balance sheet; an increase in stockholders' equity would be reflected upon
receipt by the Company of cash proceeds of $481.4 million on August 31, 2000
from the issuance of its common stock pursuant to the TAPS.
Convertible Preferred Securities. In September 1999, the Company privately
placed $200 million of Convertible Preferred Securities. The Convertible
Preferred Securities mature in the year 2029, but are redeemable prior to
maturity at the option of the Company beginning October 15, 2002, at prices
ranging from $52.00 to $50.00 plus accumulated and unpaid interest per
Convertible Preferred Security. Each Convertible Preferred Security is
convertible at the option of the holder into shares of Common Stock at a
conversion rate of 6.7125 shares of Common Stock for each Convertible Preferred
Security (equivalent to a conversion price of $7.4488 per share of Common
Stock.) Dividends on the Convertible Preferred Securities will be payable at an
annual rate of 7% of the liquidation amount of $50 per Convertible Preferred
Security, and will be payable quarterly in arrears on January 1, April 1, July 1
and October 1 each year, beginning January 1, 2000. Dividends on the Convertible
Preferred Securities may be deferred by the Company for up to 20 consecutive
quarters. The Company has no intention at the present time to defer the payment
of the dividends.
Receivables Securitization. The credit facility as amended permits up to
$125 million in accounts receivable securitization. The Company has securitized
certain of its accounts receivable pursuant to an accounts receivable
securitization facility with The Chase Manhattan Bank as funding agent. As of
December 31, 1999, the Company had securitized approximately $100 million in
accounts receivable.
Discontinued Operations. Cash used to fund exit costs, which are
classified in current liabilities as other accrued expenses and liabilities,
will be funded by the revolving credit facility, cash flows from continuing
operations and proceeds from the sales of the discontinued operations. The
Company believes that amounts available from the sales of discontinued
operations, amounts available under the revolving credit facility, and cash flow
from continuing operations will be sufficient to fund the cash requirements of
the discontinued operations. However, there can be no assurance that the cash
generated from such sources will be sufficient to meet these funding needs. If
it is not, the Company would seek to enhance its liquidity position through
further modifications to the credit facility, incurrence of additional
indebtedness, asset sales, restructuring of debt, and/or the sale of securities.
Although the Company currently believes that one or more of such alternatives
would be available to enhance liquidity, each such alternative is dependent upon
future events, conditions and other matters outside the Company's control.
23
<PAGE> 26
QUARTERLY RESULTS (UNAUDITED)
The following tables set forth certain unaudited quarterly financial data
for 1999 and 1998. In the opinion of the Company's management, this unaudited
information has been prepared on the same basis as the audited information and
includes all adjustments (consisting of normal recurring items) necessary to
present fairly the information set forth therein. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999 1998 1998 1998 1998
--------- --------- --------- -------- --------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue....................... $785,058 $ 796,207 $812,996 $913,545 $620,226 $639,457 $660,608 $ 713,726
Operating expenses(1)............. 746,197 753,070 768,555 860,594 590,577 606,917 621,211 671,626
Net interest expense.............. 27,058 30,502 29,335 28,397 19,317 21,723 19,525 24,009
Special charges................... -- -- -- -- -- 9,500 -- --
-------- --------- -------- -------- -------- -------- -------- -----------
Income from continuing operations
before income taxes............. 11,803 12,635 15,106 24,554 10,332 1,317 19,872 18,091
Income tax expense................ 968 940 1,179 1,865 3,926 500 7,551 6,875
-------- --------- -------- -------- -------- -------- -------- -----------
Income from continuing operations
before preferred security
dividends....................... 10,835 11,695 13,927 22,689 6,406 817 12,321 11,216
Preferred security dividends...... -- -- 35 3,220 -- -- -- --
-------- --------- -------- -------- -------- -------- -------- -----------
Income from continuing operations
available to common
stockholders.................... 10,835 11,695 13,892 19,469 6,406 817 12,321 11,216
Loss from discontinued operations,
net of taxes.................... -- (199,310) -- -- (31,486) (24,081) (3,709) (1,225,602)
Cumulative effects of a change in
accounting principle............ -- -- -- -- -- -- -- (6,348)
-------- --------- -------- -------- -------- -------- -------- -----------
Net income (loss) available to
common stockholders............. $ 10,835 $(187,615) $ 13,892 $ 19,469 $(25,080) $(23,264) $ 8,612 $(1,220,734)
======== ========= ======== ======== ======== ======== ======== ===========
Earnings (loss) per common share
outstanding(2):
Income from continuing
operations available to common
stockholders.................. $ 0.06 $ 0.06 $ 0.07 $ 0.10 $ 0.03 $ 0.01 $ 0.06 $ 0.06
Loss from discontinued
operations.................... -- (1.05) -- -- (0.17) (0.13) (0.02) (6.45)
Cumulative effect of change in
accounting principle.......... -- -- -- -- -- -- -- (0.03)
-------- --------- -------- -------- -------- -------- -------- -----------
Net income (loss) available to
common stockholders............. 0.06 (0.99) 0.07 0.10 (0.14) (0.12) 0.04 (6.42)
======== ========= ======== ======== ======== ======== ======== ===========
Weighted average common shares
outstanding..................... 190,195 190,650 190,780 190,913 188,610 189,245 189,585 190,078
Diluted earnings (loss) per common
share outstanding:
Income from continuing
operations available to
stockholders.................. $ 0.06 $ 0.06 $ 0.07 $ 0.10 $ 0.03 $ 0.01 $ 0.06 $ 0.06
Loss from discontinued
operations.................... -- (1.02) -- -- (0.17) (0.13) (0.02) (6.41)
Cumulative effect of change in
accounting principle.......... -- -- -- -- -- -- -- (0.03)
-------- --------- -------- -------- -------- -------- -------- -----------
Net income (loss) available to
common stockholders............. $ 0.06 $ (0.96) $ 0.07 $ 0.10 $ (0.14) $ (0.12) $ 0.04 $ (6.38)
======== ========= ======== ======== ======== ======== ======== ===========
Weighted average common and
dilutive shares outstanding..... 192,556 195,285 197,238 194,322 189,432 189,612 189,659 191,215
</TABLE>
- ---------------
(1) Operating expenses include cost of revenues; selling, general and
administrative; and depreciation and amortization expenses.
(2) Earnings (loss) per share is computed by dividing net income (loss) by the
number of common shares outstanding during the periods presented in
accordance with the applicable rules of the Commission.
24
<PAGE> 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
related to its long-term debt. The impact on earnings and value of its long-term
debt is subject to change as a result of movements in market rates and prices.
As of December 31, 1999 and 1998, the Company had $360.0 and $865.0 million,
respectively, in long-term debt subject to variable interest rates. The
remaining $870.0 million in long-term debt in each year is subject to fixed
rates of interest. The Company had $19.4 million in current debt subject to
variable interest rates at December 31, 1999. A hypothetical increase in
interest rates of 1% would result in potential losses in future pre-tax earnings
of approximately $3.8 and $8.7 million per year for the years ended December 31,
1999 and 1998, respectively. The impact of such a change on the carrying value
of long-term debt would not be significant. These amounts are determined based
on the impact of the hypothetical interest rates on the Company's long-term debt
balances and do not consider the effects, if any, of the potential changes in
the overall level of economic activity that could exist in such an environment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements of the Company meeting the requirements
of Regulation S-X are filed on the succeeding pages of this Item 8 of this
Annual Report on Form 10-K, as listed below:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 26
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 27
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.......................... 28
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1999, 1998 and 1997...... 29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... 30
Notes to Consolidated Financial Statements.................. 31
</TABLE>
Other financial statements and schedules required under regulation S-X are
listed in Item 14(a)(2) of this Annual Report on Form 10-K.
25
<PAGE> 28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Caremark Rx, Inc.
We have audited the accompanying consolidated balance sheets of Caremark
Rx, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Caremark Rx,
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 1 to the financial statements, in 1998 and 1997 the
Company changed its method of accounting for start-up costs and process
reengineering costs respectively.
Ernst & Young LLP
Birmingham, Alabama
February 10, 2000, except for Note 15
as to which the date is March 6, 2000
26
<PAGE> 29
CAREMARK RX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,797 $ 23,100
Accounts receivable, less allowances for bad debts of
$14,146 in 1999 and $11,136 in 1998.................... 229,332 185,719
Inventories............................................... 159,031 171,739
Prepaid expenses and other current assets................. 14,880 11,513
Current assets of discontinued operations................. 124,616 793,495
----------- -----------
Total current assets.............................. 534,656 1,185,566
Property and equipment, net................................. 108,168 115,835
Intangible assets, net...................................... 41,080 27,463
Other assets................................................ 54,089 51,272
Non current assets of discontinued operations............... 32,853 481,970
----------- -----------
Total assets...................................... $ 770,846 $ 1,862,106
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 275,119 $ 215,861
Other accrued expenses and liabilities.................... 162,768 297,265
Income tax payable........................................ 6,978 9,480
Current portion of long-term debt......................... 19,371 207
Current liabilities of discontinued operations............ 99,170 577,642
----------- -----------
Total current liabilities......................... 563,406 1,100,455
Long-term debt, net of current portion...................... 1,230,025 1,735,096
Other long-term liabilities................................. 46,453 61,954
Long-term liabilities of discontinued operations............ 12,437 108,774
----------- -----------
Total liabilities................................. 1,852,321 3,006,279
Contingencies (Note 13)
Convertible preferred securities............................ 200,000 --
Stockholders' deficit:
Common stock, $.001 par value; 400,000 shares authorized,
issued -- 199,523 in 1999 and 199,032 in 1998.......... 200 199
Additional paid-in capital................................ 952,432 954,420
Shares held in trust, 8,383 in 1999 and 8,838 in 1998..... (135,141) (142,477)
Accumulated deficit....................................... (2,098,966) (1,956,315)
----------- -----------
Total stockholders' deficit....................... (1,281,475) (1,144,173)
----------- -----------
Total liabilities and stockholders' deficit....... $ 770,846 $ 1,862,106
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE> 30
CAREMARK RX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue............................................... $3,307,806 $ 2,634,017 $2,363,404
Operating expenses:
Cost of revenues........................................ 3,005,918 2,383,666 2,153,005
Selling, general and administrative..................... 100,403 87,721 85,593
Depreciation and amortization........................... 22,095 18,944 21,771
Net interest expense.................................... 115,292 84,574 29,687
Special charges......................................... -- 9,500 10,610
---------- ----------- ----------
Income from continuing operations before income
taxes.............................................. 64,098 49,612 62,738
Income tax expense........................................ 4,952 18,852 24,689
---------- ----------- ----------
Income from continuing operations before preferred
security dividends...................................... 59,146 30,760 38,049
Preferred security dividends.............................. 3,255 -- --
---------- ----------- ----------
Income from continuing operations available to common
stockholders............................................ 55,891 30,760 38,049
Discontinued operations:
Loss from discontinued operations, net of tax expense
(benefit) of $243,977 and ($154,081) in 1998 and
1997, respectively (Note 2).......................... (199,310) (1,284,878) (832,775)
Cumulative effect of a change in accounting principle, net
of tax benefit of ($3,890) in 1998 and ($15,792) in
1997.................................................... -- (6,348) (25,889)
---------- ----------- ----------
Net loss available to common stockholders................. $ (143,419) $(1,260,466) $ (820,615)
========== =========== ==========
Earnings (loss) per common share outstanding:
Income from continuing operations available to common
stockholders......................................... $ 0.29 $ 0.16 $ 0.20
Loss from discontinued operations....................... (1.04) (6.79) (4.48)
Cumulative effect of a change in accounting principle... -- (0.03) (0.14)
---------- ----------- ----------
Net loss available to common stockholders................. $ (0.75) $ (6.66) $ (4.42)
========== =========== ==========
Weighted average common shares outstanding................ 190,734 189,327 185,830
Diluted earnings (loss) per common share outstanding:
Income from continuing operations available to common
stockholders......................................... $ 0.29 $ 0.16 $ 0.20
Loss from discontinued operations....................... (1.03) (6.77) (4.39)
Cumulative effect of a change in accounting principle... -- (0.03) (0.14)
---------- ----------- ----------
Net loss available to common stockholders................. $ (0.74) $ (6.64) $ (4.33)
========== =========== ==========
Weighted average common and dilutive shares outstanding... 194,950 189,927 189,573
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 31
CAREMARK RX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock:
Balance, beginning of year............................. $ 199 $ 198 $ 184
Common stock issued and capital contributions.......... -- -- 7
Exercise of stock options.............................. 1 -- --
Stock issued in connection with acquisitions........... -- 1 7
----------- ----------- ---------
Balance, end of year................................... 200 199 198
Additional Paid-In Capital:
Balance, beginning of year............................. 954,420 937,233 855,162
Beginning balance of immaterial poolings of interests
entities............................................ -- -- 2,396
Exercise of stock options.............................. 1,853 5,096 75,964
Stock issued from shares held in trust in connection
with the Employee Stock Purchase Plan............... (3,669) (4,177) --
Stock issued in connection with acquisitions........... -- 16,541 23,466
Issuance costs and present value of yield enhancement
payments payable to holders of Threshold
Appreciation Price Securities....................... -- -- (20,417)
Other.................................................. (172) (273) 662
----------- ----------- ---------
Balance, end of year................................... 952,432 954,420 937,233
Shares Held In Trust:
Balance, beginning of year............................. (142,477) (150,200) (150,200)
Shares issued for Employee Stock Purchase Plan......... 7,336 7,723 --
----------- ----------- ---------
Balance, end of year................................... (135,141) (142,477) (150,200)
Retained Earnings (Deficit):
Balance, beginning of year............................. (1,956,315) (695,010) 133,927
Beginning balance of immaterial poolings of interests
entities............................................ -- -- (3,287)
Preferred security dividend............................ (3,255) -- --
Comprehensive Income (Loss)
Net loss............................................ (140,164) (1,260,466) (820,615)
Other comprehensive income -- unrealized gain (loss)
on marketable equity securities, net of taxes 768 (839) (5,035)
----------- ----------- ---------
Total comprehensive loss............................ (139,396) (1,261,305) (825,650)
----------- ----------- ---------
Balance, end of year................................... (2,098,966) (1,956,315) (695,010)
----------- ----------- ---------
Total stockholders' equity (deficit)........... $(1,281,475) $(1,144,173) $ 92,221
=========== =========== =========
Accumulated Other Comprehensive Income:
Beginning balance...................................... $ (5,874) $ (5,035) $ --
Other comprehensive income (loss)
Unrealized gain (loss) on marketable equity securities... 768 (839) (5,035)
----------- ----------- ---------
Ending balance......................................... $ (5,106) $ (5,874) $ (5,035)
=========== =========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 32
CAREMARK RX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss available to common stockholders................. $(143,419) $(1,260,466) $(820,615)
Adjustments for non-cash items:
Net loss from discontinued operations................... 199,310 1,284,878 832,775
Preferred security dividends............................ 3,255 -- --
Cumulative effect of change in accounting principle, net
of taxes............................................. -- 6,348 25,889
Special charges......................................... -- 9,500 10,610
Depreciation and amortization........................... 22,095 18,944 21,771
Deferred tax expense (benefit).......................... -- 18,852 (219)
Non-cash interest expense............................... 6,108 5,778 2,518
Changes in operating assets and liabilities:
Accounts receivable..................................... (68,003) 23,897 (52,461)
Inventories............................................. 16,462 (33,504) (9,777)
Accounts payable........................................ 58,888 23,353 (7,580)
Other................................................... (8,469) (13,660) 89,682
--------- ----------- ---------
Net cash and cash equivalents provided by continuing
operations......................................... 86,227 83,920 92,593
Investing activities:
Cash paid for merger expense.............................. -- -- (34,158)
Additions to intangibles.................................. -- -- (205)
Cash used to fund acquisitions............................ (13,219) -- --
Purchase of property and equipment........................ (20,350) (28,661) (18,567)
Proceeds from sale of property and equipment.............. -- 8,523 --
--------- ----------- ---------
Net cash and cash equivalents used in investing
activities........................................... (33,569) (20,138) (52,930)
Financing activities:
Common stock issued and capital contributions............. 2,744 8,369 76,588
Issuance costs related to debt financing.................. (3,424) (6,100) (20,579)
Net borrowings (repayments) under Credit Facility......... (485,504) 340,399 311,500
Proceeds from issuance of senior subordinated notes....... -- -- 420,000
Net proceeds from issuance of convertible preferred
securities.............................................. 192,128 -- --
Accounts receivable securitization........................ 24,390 -- --
Net repayment of other debt............................... (403) (408) (3,717)
--------- ----------- ---------
Net cash and cash equivalents provided by (used in)
financing activities................................. (270,069) 342,260 783,792
Cash paid for special charges............................... (5,040) (5,670) --
Discontinued operations:
Operating activities...................................... (271,236) (246,437) (172,225)
Investing activities...................................... 497,170 (280,708) (606,974)
Financing activities...................................... (19,786) 40,775 (47,950)
--------- ----------- ---------
Cash provided by (used in) by discontinued operations... 206,148 (486,370) (827,149)
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents...... (16,303) (85,998) (3,694)
Cash and cash equivalents at beginning of year............ 23,100 109,098 112,792
--------- ----------- ---------
Cash and cash equivalents at end of year.................. $ 6,797 $ 23,100 $ 109,098
========= =========== =========
Supplemental disclosure of cash flow information
Cash paid (received) during the period, including amounts
related to discontinued operations, for:
Interest................................................ $ 112,127 $ 128,444 $ 62,175
========= =========== =========
Income taxes............................................ $ 8,441 (393) 4,513
========= =========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 33
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ACCOUNTING POLICIES
Caremark Rx, Inc., a Delaware Corporation ("Caremark Rx" or the "Company"),
is one of the largest pharmaceutical services companies in the United States,
with net revenue of approximately $3.3 billion for 1999. The Company's
operations are conducted through Caremark Inc. ("Caremark"), which provides
pharmacy benefit management services and therapeutic pharmaceutical services.
These services are sold separately and together to assist corporations,
insurance companies, unions, government employee groups and managed care
organizations throughout the United States in delivering prescription drugs to
their members in a cost-effective manner.
The Company is a pharmacy benefit management ("PBM") company. Pharmacy
benefit management involves the design and administration of programs aimed at
reducing the costs and improving the safety, effectiveness and convenience of
prescription drug use. The Company dispenses prescription drugs to patients
through a network of more than 50,000 retail pharmacies (substantially all
retail pharmacies in the United States) and through three wholly-owned and
operated mail service pharmacies. During 1999, the Company dispensed
approximately 12.2 million prescriptions through its mail service pharmacies and
processed approximately 38.5 million retail prescriptions.
The Company provides therapeutic pharmaceutical services for patients with
high cost chronic illnesses, genetic disorders, and other conditions in an
effort to improve outcomes for patients and to lower costs of care. The Company
designs, develops and manages comprehensive programs including drug therapy,
physician support and patient education. The Company provides drug therapies and
services to patients with such conditions as hemophilia, growth disorders,
immune deficiencies, cystic fibrosis, multiple sclerosis and respiratory
difficulties. Treatments for these conditions generally involve high cost,
injectable biotechnology drugs. The Company owns and operates a national network
of 23 specialty pharmacies, 22 of which are accredited by the Joint Commission
on Accreditation of Healthcare Organizations ("JCAHO"). During 2000, the Company
plans to phase out five of the accredited pharmacies as part of its continuing
efficiency efforts. As of December 31, 1999, the Company provided specialty
therapies and services for approximately 32,300 patients.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and all wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The preparation of
the consolidated financial statements conform to accounting principles generally
accepted in the United States, and require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from those
estimates and assumptions.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amounts
of all cash and cash equivalents approximate fair value. Certain cash balances
expected to be sold with the discontinued operations have been classified with
the net assets of discontinued operations, including approximately $28.1 million
related to MedPartners Provider Network, Inc. ("MPN").
MARKETABLE SECURITIES
The Company's investments have been classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as other comprehensive income
31
<PAGE> 34
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in stockholders' equity unless a decline in value is judged other than
temporary. When this is the case, unrealized losses are reflected in the results
of operations. The cost of securities sold is based on the specific
identification method.
TRADE RECEIVABLE SECURITIZATION
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125") requires the Company to allocate the carrying
amount of its trade receivables sold among the residual interest, servicing
rights retained and interest sold, based on their relative fair values. Gain or
loss on sale of receivables depends in part on the previous carrying amount of
retained interest, allocated in proportion to their fair value. Fair values were
estimated using the present value of future cash flows. Discount rates used are
commensurate with the risk associated with the retained interest.
INVENTORIES
Inventories, which are primarily finished goods, consist of pharmaceutical
drugs, medical equipment and supplies and are stated at the lower of cost
(first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the shorter of the
estimated useful lives of the assets or the term of the underlying leases.
Estimated useful lives range from 3 to 10 years for equipment and computer
software, 10 to 20 years for leasehold improvements and 10 to 40 years for
buildings and improvements based on type and condition of assets.
INTANGIBLE ASSETS
Intangible assets are primarily composed of costs associated with obtaining
long-term financing and amounts related to the September 1999 acquisition of
Direct Scripts, Inc., which are being amortized over a period of five years. The
costs associated with obtaining long-term financing are being amortized and
included in interest expense systematically over the terms of the related debt
agreements.
REVENUE RECOGNITION
Revenues from the dispensing of pharmaceuticals from the Company's mail
service pharmacies are recognized when each prescription is shipped. Revenues
from sales of prescription drugs by pharmacies in the Company's nationwide
network and administrative fees are recognized when the claims are adjudicated.
At the points-of-sale, the pharmacy claims are adjudicated using the Company's
on-line claims processing system. Net revenues from the dispensing of
pharmaceuticals generally include (i) payments to the Company from customers
based on the cost of the pharmaceuticals dispensed to their members and
administrative fees or (ii) agreed upon payments to the Company from customers
based upon the type of pharmaceutical dispensed to their members. Revenues from
certain disease management and health benefit management products are reimbursed
at predetermined contractual rates based on the achievement of certain
milestones.
RECLASSIFICATIONS
Certain prior-year balances have been reclassified to conform with the
current year's presentation. Such reclassifications had no material effect on
the previously reported consolidated financial position, results of operations
or cash flows of the Company.
32
<PAGE> 35
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock-based compensation plans. The
Company applies APB 25 and related interpretations in accounting for its plans
because the alternative fair value accounting provided for under FASB Statement
123, "Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
ADOPTION OF ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued a Statement of Position "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 requires that the costs of start-up activities be
expensed as incurred. The Company recorded a charge of $6.3 million, net of tax
of $3.9 million, as a cumulative effect adjustment retroactive to January 1,
1998.
In November 1997, the Emerging Issues Task Force ("EITF") issued EITF 97-13
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project that Combines Business Process Reengineering and Information
Technology" ("EITF 97-13"). EITF 97-13 requires process reengineering costs, as
defined, which had been previously capitalized as part of an information
technology project to be written off as a cumulative catch-up adjustment in the
fourth quarter of 1997. The Company recorded a charge of $25.9 million, net of
tax of $15.8 million, as a result of EITF 97-13. The Company incurred such costs
primarily in connection with the process reengineering associated with the new
operating systems installed for its PBM operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued, and was required to be adopted in years
beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
the effective date of SFAS No. 133 for one year. This statement requires all
derivatives to be recorded on the balance sheet at fair market value. This
results in the offsetting changes in fair values or cash flows of both the hedge
and the hedged item being recognized in earnings in the same period. Changes in
fair value of derivatives not meeting the Statement's hedge criteria are
included in income. The Company currently does not have any derivative
instruments and is not involved in hedging activities and therefore does not
expect the Statement to have an impact on its results of operations or financial
position.
2. DISCONTINUED OPERATIONS
On November 11, 1998, the Company announced that Caremark, which includes
the PBM business, would become its core operating unit. The Company also
announced its intent to divest its Physician Practice Management ("PPM") and
contract services businesses. As a result, in 1998 the Company restated its
prior period financial statements to reflect the appropriate accounting for
these businesses, as well as the international operations sold during 1998, as
discontinued operations.
33
<PAGE> 36
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The operating results of these discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
--------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue....................................... $ -- $ 4,369,536 $3,967,747
Operating expenses................................ -- 4,488,771 4,259,128
Merger expenses................................... -- -- 59,434
Restructuring charges............................. -- 65,675 636,041
--------- ----------- ----------
Loss from operations before income taxes........ -- (184,910) (986,856)
Income tax expense (benefit)...................... -- 34,453 (154,081)
--------- ----------- ----------
Loss from operations............................ -- (219,363) (832,775)
Estimated loss on disposal........................ (199,310) (855,991) --
Income tax expense................................ -- 209,524 --
--------- ----------- ----------
Net loss on disposal.............................. (199,310) (1,065,515) --
--------- ----------- ----------
Total loss on discontinued operations... $(199,310) $(1,284,878) $ (832,775)
========= =========== ==========
</TABLE>
YEAR ENDED DECEMBER 31, 1999
Discontinued operations loss for the year ended December 31, 1999 consists
of a charge of $199.3 million related to the net loss on the disposal of the PPM
operations. This charge is an adjustment to the $1.1 billion charge recorded in
the fourth quarter of 1998. The 1999 charge includes a $119.9 million adjustment
to the impairment and write-off of intangibles and other PPM assets, an
adjustment to the estimated costs to exit the PPM operations of approximately
$73.6 million, and an adjustment of approximately $5.8 million related to the
gain on the sale of the contract services business. These amounts are estimates.
The actual results could differ from those outlined above. For the year ended
December 31, 1999, the Company's discontinued operations had net revenue of
approximately $1.4 billion and an operating loss of approximately $165.0
million. The Company received net cash proceeds of $324.4 million and $316.8
million during 1999 from the sales of the PPM and contract services businesses,
respectively.
YEAR ENDED DECEMBER 31, 1998
Discontinued operations loss for the year ended December 31, 1998 includes
the losses of the PPM, contract services and international businesses and a $1.1
billion charge taken in the fourth quarter to exit these businesses. This charge
included approximately $815.4 million for the impairment and write-off of
intangibles and other PPM assets, estimated costs to exit the PPM operations of
approximately $340.9 million, (including $153.9 million to fully reserve the
Company's deferred tax assets) and approximately $90.8 million, net of taxes of
$55.6 million, for the estimated net gain for the sale of the contract services
business. These amounts are estimates. The actual results could differ from
those outlined above. Also included in discontinued operations loss for the year
ended December 31, 1998 are restructuring charges of $65.7 million that relate
primarily to severance costs, costs associated with the closing of certain
clinic operations and real estate obligations for space no longer in use or
scheduled to become vacant.
YEAR ENDED DECEMBER 31, 1997
The discontinued operations loss for the year ended December 31, 1997,
includes losses from the operation of the PPM, contract services and
international businesses. The most significant component of these losses is a
restructuring and impairment charge of $636.0 million that was taken in the
fourth quarter of 1997. This charge primarily relates to the restructuring and
impairment of selected assets of certain clinic operations within the PPM
business and includes goodwill impairment and other asset write downs. Of the
total charge,
34
<PAGE> 37
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $552.4 million relates to the impairment of goodwill. The
remaining $83.6 million relates to the severance of approximately 600 employees
and 114 physicians, leases, the write down of various assets and other exit
costs. Also included in the discontinued operations loss are merger charges of
$59.4 million which relate primarily to the acquisition of InPhyNet Medical
Management, Inc.
In July 1997, the parties to the litigation related to the April 1995 sale
of Caremark's home infusion therapy business to Coram Healthcare Corporation
announced that a settlement had been reached pursuant to which Caremark
International Inc. ("CII") returned for cancellation all of the securities
issued in connection with an acquisition and paid the party $45 million in cash.
The settlement agreement also provided for the termination and resolution of all
disputes and issues between the parties and for the exchange of mutual releases.
The settlement resulted in a 1997 after-tax charge from discontinued operations
of approximately $75.4 million.
STATUS AS OF DECEMBER 31, 1999
Through December 31, 1999, the Company has divested all its contract
services operations, all its California PPM operations (see discussion of MPN
below) and all but four of its PPM clinics. The Company expects to sell the four
remaining clinics in the first half of 2000, and to pay out substantially all
remaining exit costs by the end of 2000.
The Company's California PPM operations included MPN, a wholly-owned
subsidiary of the Company and a healthcare service plan licensed under the
Knox-Keene Health Care Service Plan Act of 1975. In March 1999, the California
Department of Corporations (the "DOC") appointed a conservator and assumed
control of the business operations of MPN. The conservator, purportedly on
behalf of MPN, filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code. The Company judicially challenged the authority of both the DOC
and the conservator to take these actions in both the California Superior Court
and in the United States Bankruptcy Court for the Central District of California
(the "Bankruptcy Court").
On April 9, 1999, the Company, MPN and representatives of the State of
California (the "State") reached an agreement in principle to settle the
disputes relating to MPN. At a hearing held on July 19, 1999, the Bankruptcy
Court approved the Settlement Agreement. In addition, as contemplated by and
provided for in the Settlement Agreement, during the course of MPN's Chapter 11
case, the Bankruptcy Court has approved MPN's consent to and/or participation in
a series of transactions implementing the Company's disposition of its PPM
assets as they related to MPN's operations. The last such transaction involving
MPN was approved by the Bankruptcy Court at a hearing held on August 10, 1999.
Among other things, the Settlement Agreement provided for execution by the
Company and various of its subsidiaries, MPN, certain managed physician
practices and various health plans of a supplemental agreement (the
"Supplemental Plan Agreement") whereby (1) the parties to the Supplemental Plan
Agreement would agree to subordinate, waive and/or release various claims
against one another on the terms and conditions set forth therein, and (2) the
health plans would agree to support the Chapter 11 plan of reorganization (the
"Plan of Reorganization") to be filed by MPN consistent with both the Settlement
Agreement and the Supplemental Plan Agreement. The Supplemental Plan Agreement
was executed as of December 10, 1999 and approved by the Bankruptcy Court
following a hearing on February 7, 2000, subject to certain conditions being met
by March 31, 2000 unless extended by order of the court.
Both the Settlement Agreement and the Supplemental Plan Agreement
contemplate that MPN will pursue Bankruptcy Court approval of the Plan of
Reorganization. MPN filed an initial draft of the Plan of Reorganization on
November 5, 1999. Following execution of the Supplemental Plan Agreement and
further negotiations with parties in interest in MPN's bankruptcy case, an
amended Plan of Reorganization, accompanied by a revised disclosure statement to
accompany that plan, was filed with the Bankruptcy Court on February 3, 2000.
The Plan of Reorganization continues to be the subject of ongoing negotiations
involving
35
<PAGE> 38
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MPN, the Company and parties in interest in MPN's bankruptcy case. Neither the
disclosure statement nor the Plan of Reorganization has yet been approved by the
Bankruptcy Court.
OTHER ITEMS
The net assets of discontinued operations as of December 31, 1999 primarily
relate to the liquidation of working capital items (i.e. accounts receivable,
claims liabilities, etc.), the Company's retained interest in the recapitalized
Team Health Company and estimated remaining sales proceeds.
The Company retained numerous operating leases, primarily for
administrative and office space, related to its discontinued operations. As of
December 31, 1999, the cumulative gross rents related to such leases were
approximately $224 million, with assignments or sublease arrangements of
approximately $133 million in place. The Company estimates, based upon market
conditions, that approximately $19 million in costs will be incurred to
terminate these leases or sublet these facilities, and has included this amount
in its charge for discontinued operations.
Included in the balance sheet line "Other accrued expenses and liabilities"
at December 31, 1999 are reserves related to discontinued operations of
approximately $50.4 million. These reserves relate primarily to the estimated
costs to exit the PPM business.
Non-cash financing activities for discontinued operations included the
issuance of $15.6 million and $23.5 million of stock for acquisitions in 1998
and 1997, respectively. Cash paid for acquisitions in these discontinued
operations was $146.4 million and $415.3 million for the years ended December
31, 1998 and 1997, respectively.
Net interest expense allocated to discontinued operations was $6.9, $32.3
and $28.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Interest was allocated to discontinued operations based on the
guidance in EITF 87-24-Allocation of Interest to Discontinued Operations ("EITF
87-24").
3. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
investments in marketable and non-marketable securities and debt obligations.
The carrying value of marketable and non-marketable securities, which
approximated fair value, are not material. The carrying value of debt
obligations was $870.0 million at December 31, 1999 and 1998. The fair value of
these obligations approximated $772.2 and $737.8 million at December 31, 1999
and 1998, respectively. The fair value of marketable securities is determined
using market quotes and rates. The fair value of non-marketable securities are
estimated based on information provided by these companies. The fair value of
long-term debt has been estimated using market quotes.
4. TRADE RECEIVABLE SECURITIZATION
In December 1998, the Company sold certain of its PBM trade accounts
receivable to a qualifying special purpose entity, ("QSPE") in a securitization
transaction. The initial transaction resulted in a loss of $6.1 million, of
which $3.3 million relates to transaction costs. Ongoing sales of receivables
during 1999 resulted in additional expenses being recognized of $6.2 million
which have been classified as interest expense in the Company's Consolidated
Financial Statements. The Company retained servicing responsibilities and
subordinated interest. For the servicing responsibilities, the Company is paid
1% based on the amount of receivables serviced. The contractual servicing fees
received by the Company are considered adequate compensation for services
rendered and accordingly, no asset or liability has been recorded. As additional
credit enhancement under the agreement, the Company is required to maintain a
$20 million net equity balance within the QSPE for the term of the structure
(approximately one year) for capital purposes.
36
<PAGE> 39
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999 and 1998, the Company had securitized approximately
$100 million and $75 million in trade accounts receivable, respectively.
Activity in retained interest in trade receivable securitizations was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Balance at the beginning of the year........................ $ 78,725 $ --
Additions................................................. 1,277,866 149,327
Accretion................................................. (1,420) (129)
Excess cash flow received on retained interest............ (1,272,323) (70,473)
----------- --------
Balance at end of the year.................................. $ 82,848 $ 78,725
=========== ========
</TABLE>
The components of retained interest in the trade receivable securitization
was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Subordinated interest....................................... $64,268 $60,274
Fair value of restricted capital............................ 20,000 18,580
------- -------
$84,268 $78,854
======= =======
</TABLE>
5. INTANGIBLE ASSETS
Net intangible assets totaled $41.1 million and $27.5 million at December
31, 1999 and 1998, respectively. As of December 31, 1999 and 1998, accumulated
amortization totaled $15.5 million and $11.8 million, respectively. Debt
issuance costs and amounts related to the September 1999 acquisition of Direct
Scripts, Inc. represent the primary components of intangible assets. The portion
of amortization expense related to debt issuance costs has been classified as
interest expense. The amount classified as interest expense was $6.1 million,
$5.8 million, and $2.5 million for the years ended December 31, 1999, 1998 and
1997, respectively. Amortization expense net of amounts classified as interest
expense for the years ended December 31, 1999, 1998 and 1997 was $0.9 million,
$0.5 million and $3.6 million, respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 78 $ 79
Buildings and leasehold improvements........................ 25,515 27,417
Equipment and computer software............................. 143,725 143,345
Construction in progress.................................... 19,308 19,284
-------- --------
188,626 190,125
Less accumulated depreciation and amortization.............. (80,458) (74,290)
-------- --------
$108,168 $115,835
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was $21.2 million, $18.4 million and $18.2 million, respectively.
37
<PAGE> 40
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT AND OPERATING LEASES
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Advances under Credit Facility, due 2001.................... $ 379,396 $ 864,900
Senior notes with interest at 7 3/8%, interest only paid
semi-annually, due in 2006................................ 450,000 450,000
Senior subordinated notes with interest at 6 7/8%, interest
only paid semi-annually, due in 2000...................... 420,000 420,000
Other long-term notes payable............................... -- 403
---------- ----------
1,249,396 1,735,303
Less current portion of long-term debt...................... (19,371) (207)
---------- ----------
$1,230,025 $1,735,096
========== ==========
</TABLE>
Credit Facility. The Company has a credit facility with Bank of America,
N.A. (formerly NationsBank N.A.), as administrative agent. The Company has
pledged the capital stock of CII, which owns Caremark, as security for amounts
outstanding. The credit facility is guaranteed by the Company's material
subsidiaries and matures in June 2001. The credit facility consists of the
following:
- An amortizing tranche A term loan with $53.3 million outstanding at
December 31, 1999. Quarterly principal payments on this term loan began
in November 1999. Accordingly, the portion of this debt due within the
next twelve months has been classified as short-term.
- A non-amortizing tranche B term loan with $58.1 million outstanding at
December 31, 1999.
- A revolving credit facility in an aggregate principal amount of up to
$400 million. At December 31, 1999, the Company had $268.0 million in
borrowings and $21.0 million in letters of credit under the revolving
credit facility, and had $25.0 million reserved for a letter of credit
with regard to the funding obligations under its June 1999 settlement
with the State of California discussed in Note 2 "Discontinued
Operations". Net of these amounts, the Company had $86.0 million
available for borrowing under the credit facility as of December 31,
1999.
The credit facility indebtedness currently bears interest at variable rates
based on LIBOR, plus varying margins. At the Company's option, or upon certain
defaults or other events, credit facility indebtedness may instead bear interest
based on the prime rate plus varying margins.
The credit facility provides for net cash proceeds received from asset
sales to be used to reduce the outstanding debt under the term loans, except
that the Company is permitted to retain up to $93 million of net cash proceeds
from asset dispositions occurring on or after July 1, 1999 (in addition to the
$15 million in net cash proceeds previously designated for the payment of
certain promissory notes), for use in its business and operations in the
ordinary course, rather than applying those proceeds to the term loans.
The Company is also required to repay the term loans ratably under the
credit facility with 100% of the net cash proceeds received from certain
issuances of equity or debt or extraordinary receipts, and with 50% of the
excess cash flow (as defined) for each fiscal year. On September 14, 1999, the
Company amended the credit facility to, among other things, permit the
application of only $80 million of the net proceeds from the Company's 7% Share
Preference Redeemable Securities ("SPURS" or "Convertible Preferred Securities")
to the term loans.
38
<PAGE> 41
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1999, the Company entered into an amendment to its credit
facility which allowed for the modification of certain financial covenants to
reflect, among other things, the completion of the Convertible Preferred
Securities offering.
The credit facility contains covenants that, among other things, restrict
the Company's ability to incur additional indebtedness or guarantee obligations,
engage in mergers or consolidation, dispose of assets, make investments, loans
or advances, engage in certain transactions with affiliates, conduct certain
corporate activities, create liens, make capital expenditures, prepay or modify
the terms of other indebtedness, pay dividends and other distributions, and
change its business. In addition, the Company is required to comply with
specified financial covenants, including a maximum leverage ratio, a minimum
fixed charge coverage ratio and a minimum interest expense coverage ratio. The
credit facility includes various customary and other events of default,
including cross default provisions, defaults for any material judgment or change
in control, and defaults relating to liabilities arising from the Company making
additional investments in its California PPM business.
Senior Notes. The Senior Notes have an outstanding principal balance of
$450 million, bear interest at 7 3/8% and mature October 8, 2006. Interest on
the notes is payable semi-annually on April 1 and October 1 of each year. The
notes are not redeemable by the Company prior to maturity and are not entitled
to the benefit of any mandatory sinking fund. The notes are general unsecured
obligations of the Company, ranking senior in right of payment to all existing
and future subordinated indebtedness of the Company and pari passu in right of
payment with all existing and future unsubordinated and unsecured obligations of
the Company. Net proceeds from the note offering were used to reduce amounts
under the credit facility.
Senior Subordinated Notes. The Company's long-term debt includes $420
million for the Senior Subordinated Notes, due September 1, 2000. These three
year notes carry a coupon rate of 6 7/8%. Interest on the notes is payable
semi-annually on March 1 and September 1 of each year. The notes are not
redeemable by the Company prior to maturity and are not entitled to the benefit
of any mandatory sinking fund. The notes are general unsecured obligations of
the Company ranking junior in right of payment to all existing and future senior
debt of the Company. Net proceeds from the offering were used to reduce
indebtedness then outstanding. The Threshold Appreciation Price Securities
("TAPS") securities, which mature August 31, 2000, will result in the Company
issuing approximately 21.7 million shares of stock to the TAPS holders, in
exchange for $481.4 million of cash. The proceeds from the TAPS will be used to
retire the Senior Subordinated Notes. The remaining proceeds must be ratably
applied against the term loans under the terms of the credit facility.
The Company currently is party to litigation relating to its TAPS
securities, alleging that events have occurred that entitle the TAPS holders to
terminate their obligations to purchase the Company's common stock in August
2000 and that entitle the TAPS holders to receive the $481.4 million of U.S.
Treasury Notes held under the TAPS arrangements to secure those obligations. Any
adverse determination in this litigation would materially adversely affect the
Company's liquidity position, including its ability to repay the Senior
Subordinated Notes due September 1, 2000. See Note 13 "Contingencies" for
further discussion of the TAPS litigation.
39
<PAGE> 42
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Debt Information. The following is a schedule of principal
maturities of long-term debt as of December 31, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Debt to be paid with proceeds from TAPS securities in
2000...................................................... $ 481,000
2000........................................................ 19,371
2001........................................................ 299,025
2002........................................................ --
2003........................................................ --
2004........................................................ --
Thereafter.................................................. 450,000
-----------
Total............................................. $ 1,249,396
===========
</TABLE>
Interest expense totaled $116.4, $90.8 and $32.3 million in 1999, 1998 and
1997, respectively. Interest income totaled $1.1, $6.2 and $2.6 million in 1999,
1998 and 1997, respectively. These amounts exclude net interest expense
allocated to discontinued operations of $6.9, $32.3 and $28.6 million for the
years ended December 31, 1999, 1998 and 1997 respectively. Cash paid for
interest expense relating to continuing operations was $112.1, $96.1 and $33.6
million in 1999, 1998 and 1997, respectively.
Operating Leases. Operating leases generally consist of short-term lease
agreements for professional and administrative office space. These leases
generally have five-year terms with renewal options. Lease expense from
continuing operations for the years ended December 31, 1999, 1998 and 1997 was
$16.9 million, $16.9 million, and $10.5 respectively. The following is a
schedule of future minimum lease payments under noncancelable operating leases,
excluding discontinued operations lease obligations, as of December 31, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000........................................................ $ 9,096
2001........................................................ 8,136
2002........................................................ 7,942
2003........................................................ 7,861
2004........................................................ 6,635
Thereafter.................................................. 20,756
--------
Total............................................. $ 60,426
========
</TABLE>
8. CAPITALIZATION
Convertible Preferred Securities. In September 1999, the Company privately
placed $200 million of Convertible Preferred Securities. The Convertible
Preferred Securities mature in the year 2029, but are redeemable prior to
maturity at the option of the Company beginning October 15, 2002, at prices
ranging from $50.00 to $52.00 plus accumulated and unpaid interest per
Convertible Preferred Security. Each Convertible Preferred Security is
convertible at the option of the holder into shares of Common Stock at a
conversion rate of 6.7125 shares of Common Stock for each Convertible Preferred
Security (equivalent to a conversion price of $7.4488 per share of Common
Stock.) Dividends on the Convertible Preferred Securities will be payable at an
annual rate of 7% of the liquidation amount of $50 per Convertible Preferred
Security, and will be payable quarterly in arrears on January 1, April 1, July 1
and October 1 each year, beginning January 1, 2000. Dividends on the Convertible
Preferred Securities may be deferred by the Company for up to 20 consecutive
quarters. The Company has no intention at the present time to defer the payment
of the dividends.
TAPS. In September 1997, the Company issued 21.7 million 6.50% TAPS with a
stated amount of $22.1875 per security. Each TAPS consists of (i) a stock
purchase contract which obligates the holder to
40
<PAGE> 43
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase common stock from the Company on the final settlement date (August 31,
2000) and (ii) 6.25% U.S. Treasury Notes due August 31, 2000. Under each stock
purchase contract the Company is obligated to sell, and the TAPS holder is
obligated to purchase, on August 31, 2000, between 0.8197 of a share and one
share of the Company's common stock. The exact number of common shares to be
sold is dependent on the market value of the Company's common shares in August
2000. The number of shares issued by the Company in conjunction with these
securities will not be more than approximately 21.7 million or less than
approximately 17.8 million (subject to certain anti-dilution adjustments). The
Treasury Notes forming a part of the TAPS have been pledged to secure the
obligations of the TAPS holders under the purchase contracts. Pursuant to the
TAPS, TAPS holders receive payments equal to 6.50% of the stated amount per
annum consisting of interest on the Treasury Notes at the rate of 6.25% per
annum and yield enhancement payments payable semi-annually by the Company at the
rate of 0.25% of the stated amount per annum. Additional paid-in capital has
been reduced by approximately $20.4 million for issuance costs and the present
value of the annual 0.25% yield enhancement payments payable to the holders of
the TAPS. These securities are not included on the Company's balance sheet; an
increase in stockholders' equity would be reflected upon receipt by the Company
of cash proceeds of $481.4 million on August 31, 2000 from the issuance of the
Company's common stock pursuant to the TAPS. See Note 13 "Contingencies" for
further discussion of the TAPS litigation.
Earnings (Loss) Per 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. The
weighted average common and dilutive shares outstanding for the years ended
December 31, 1999, 1998 and 1997 of 195.0 million, 189.9 million and 189.6
million, respectively, include 4.2 million, 0.6 million, and 3.7 million for
each respective year of common shares issuable on exercise of certain stock
options. The Convertible Preferred Securities issued in September 1999 are
anti-dilutive and are therefore not included in the dilutive shares outstanding
for the year ended December 31, 1999.
Preferred Stock. The Company's Third Restated Certificate of Incorporation
provides that the Company may issue 9.5 million shares of Preferred Stock, par
value $0.001 per share, 0.5 million shares of Series C Junior Participating
Preferred Stock, par value $0.001 per share, and 400 million shares of Common
Stock, par value $0.001 per share. As of December 31, 1999, no shares of the
preferred stock were outstanding.
Employee Stock Purchase Plan. The Company's employee stock purchase plan
permits all employees who have been employed for at least sixty consecutive days
to purchase common stock of the Company through a payroll deduction plan.
Employees may contribute between $5.00 and $800.00 per pay period to the plan.
The purchase price of the shares under the plan is the lesser of 85% of the fair
market value on the first or last business day of each quarter. The plan results
in no compensation expense to the Company.
9. INCOME TAX EXPENSE
At December 31, 1999, the Company had a cumulative net operating loss
("NOL") carry forward for federal income tax purposes of approximately $2.3
billion available to reduce future amounts of taxable income. If not utilized to
offset future taxable income, the net operating loss carry forwards will expire
on various dates through 2019. Approximately two-thirds of the net operating
loss carryforwards expire in 2018 and 2019.
41
<PAGE> 44
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
NOL carryforward.......................................... $ 914,390 $ 283,324
Alternative minimum tax credit carryforward............... 20,195 20,195
Discontinued operations write down........................ 16,741 344,008
Merger/acquisition costs.................................. -- 14,379
Bad debts................................................. 3,825 29,075
Restructuring............................................. 6,141 64,154
Malpractice............................................... 5,607 21,924
Goodwill amortization..................................... -- 104,151
Accrued vacation.......................................... 428 9,112
Other..................................................... 23,584 29,138
--------- ---------
Gross deferred tax assets................................... 990,911 919,460
Valuation allowance for deferred tax assets................. (910,311) (736,032)
--------- ---------
80,600 183,428
Deferred tax liabilities
Excess tax depreciation................................... 15,951 22,645
Other amortization........................................ 17,434 66,093
Other long term reserves.................................. 21,349 19,183
State taxes............................................... 12,855 27,036
Purchase reserves......................................... -- 18,084
Change in accounting method............................... -- 725
Prepaid expenses.......................................... -- 5,190
Shared risk receivable.................................... -- 3,952
Other..................................................... 13,011 20,520
--------- ---------
Gross deferred tax liabilities.............................. 80,600 183,428
--------- ---------
Net deferred tax asset...................................... $ -- $ --
========= =========
</TABLE>
Because of the uncertainty of the ultimate realization of the net deferred
tax asset, the Company has established a valuation allowance for the amount of
the asset that is not otherwise used to offset deferred tax liabilities.
42
<PAGE> 45
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) on continuing operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................. $ -- $ -- $24,179
State.................................................... 4,952 -- 729
------ ------- -------
4,952 -- 24,908
Deferred:
Federal.................................................. -- 16,562 (193)
State.................................................... -- 2,290 (26)
------ ------- -------
-- 18,852 (219)
------ ------- -------
$4,952 $18,852 $24,689
====== ======= =======
</TABLE>
The differences between the provision (benefit) for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal tax at statutory rate............................ $ 21,295 $17,364 $21,958
Add (deduct):
State income tax, net of federal tax benefit........... 4,952 1,488 457
Tax benefit of NOL carryforward........................ (21,295) -- --
Other.................................................. -- -- 2,274
-------- ------- -------
$ 4,952 $18,852 $24,689
======== ======= =======
</TABLE>
The Internal Revenue Service ("the Service") conducted an examination of
the consolidated federal income tax return filed for CII and its affiliated
subsidiaries for taxable years ended December 31, 1992 through 1995. On June 30,
1999, the Service issued a tax assessment (plus interest) for the taxable years
ended December 31, 1992 through 1995. On September 30, 1999, the Company filed
with the Appeals Office of the Service a protest to the assessment appealing the
findings of the Service. The Company does not believe that the assessment will
have a material adverse effect on the results of operations or financial
position of the Company.
10. STOCK BASED COMPENSATION PLANS
The Company offers participation in stock option plans to certain employees
and individuals. Awarded options typically vest and become exercisable in
incremental installments over a period of either two or four years and expire no
later than ten years and one day from the date of grant. The number of shares
authorized under the various plans was approximately 41.1 million as of December
31, 1999.
43
<PAGE> 46
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity for the indicated
years:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------------- --------- -------------- --------- -------------- ---------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding:
Beginning of year...... 30,387 $ 9.69 21,696 $17.50 19,294 $14.69
Granted................ 3,352 4.97 21,820 5.65 10,047 19.02
Exercised.............. (574) 3.00 (271) 1.81 (6,315) 10.26
Canceled/expired....... (16,762) 13.06 (12,858) 14.73 (1,330) 18.05
------- ------- ------
End of year............ 16,403 5.56 30,387 9.69 21,696 17.50
======= ======= ======
Exercisable at end of
year................. 12,685 5.60 10,108 8.99 11,755 15.66
Weighted-average fair
value of options
granted during the
year................... $ 4.89 $ 5.05 $ 5.23
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -------------------------------
OPTIONS AVERAGE WEIGHTED- OPTIONS WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE
-------------- ---------------- -------------- -------------- --------------
(IN THOUSANDS) (YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Under $3.00........... 3,931 8.65 $ 2.94 2,648 $ 2.95
$3.01-$3.49........... 6,802 8.49 3.25 6,702 3.25
$3.50 and above....... 5,670 8.08 10.16 3,335 12.41
</TABLE>
Pro forma information regarding net income and earnings per share is
required by FASB Statement 123 "Accounting for Stock-Based Compensation", and
has been determined as if the Company had accounted for its stock-based
compensation plans under the fair value method as described in Statement 123.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Risk-free interest rates.................................... 5.465% 5.095% 6.03%
Expected volatility......................................... 4.1393 2.2065 0.396
Expected option lives (years from vest date)................ 1.0 1.0 1.0
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with Statement 123, the Company's net income (loss) and income
(loss) per share available to common stockholders would have been reduced to pro
forma net income (loss) from continuing operations available to common
stockholders of $33.9, ($54.2) and ($2.1) million and pro forma net losses
available to common stockholders of ($165.4), ($1,345.4) and
44
<PAGE> 47
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
($860.7) million for the years ended December 31, 1999, 1998 and 1997,
respectively. Per share amounts would have been reduced to pro forma net income
(loss) from continuing operations available to common stockholders of $0.17,
($0.29) and ($0.01) and pro forma net losses per share of ($0.85), ($7.08) and
($4.54) for the years ended December 31, 1999, 1998 and 1997, respectively.
11. SPECIAL CHARGES
The Company recorded a pre-tax charge during the second quarter of 1998 and
fourth quarter of 1997 of $9.5 million and $10.6 million, respectively. These
charges related primarily to severance and occupancy costs for excess facilities
and certain litigation.
12. RETIREMENT SAVINGS PLAN
The Company and certain subsidiaries have employee benefit plans to provide
retirement, disability and death benefits to substantially all of their
employees and affiliates. The plans primarily are defined contribution plans.
Effective January 1, 1998, the Board of Directors approved a Retirement Savings
Plan for employees and affiliates. The plan is a defined contribution plan in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
Full-time employees and affiliates are eligible to enroll in the plan in the
first quarter following two months of service. Individuals on a part-time and
per diem basis are eligible to participate in the quarter following completion
of one year of service. For employees, the Company makes a matching contribution
of 50% of the employee's pre-tax contribution, up to 6% of the employee's
compensation, in each calendar year. The various entities that have been
acquired or merged into the Company have various retirement plans that will be
evaluated for possible termination or incorporation into the Company's plan.
13. CONTINGENCIES
The Company is party to certain legal actions arising in the ordinary
course of business. The Company is named as a defendant in various legal actions
arising primarily out of services rendered by physicians and others employed by
its managed medical practices, as well as personal injury, contract, and
employment disputes. In addition, certain of its managed medical groups are
named as defendants in numerous actions alleging medical negligence on the part
of their physicians. In certain of these actions, the Company and/or the medical
group's insurance carrier has either declined to provide coverage or has
provided a defense subject to a reservation of rights. Management does not view
any of these actions as likely to result in an uninsured award that would have a
material adverse effect on the operating results and financial condition of the
Company.
In June 1995, Caremark and CII agreed to settle an investigation by certain
agencies of the United States government (the "Settlement Agreement"). The
Settlement Agreement allows Caremark and CII to continue participating in
Medicare, Medicaid, and other government healthcare programs. In the Settlement
Agreement, Caremark and CII agreed to continue to maintain certain
compliance-related oversight procedures until June 15, 2000. Should these
oversight procedures reveal credible evidence of legal or regulatory violations,
Caremark and CII are required to report such violations to the OIG and DOJ.
Caremark and CII are therefore subject to increased regulatory scrutiny and, in
the event that either Caremark or CII commits legal or regulatory violations, it
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 the Company.
In connection with the matters described above relating to the Settlement
Agreement, Caremark and CII are the subject of various non-governmental claims
and may in the future become subject to additional OIG-related claims. Caremark
and CII are the subject of, and may in the future be subjected to, various
private suits and claims being asserted in connection with matters relating to
the Settlement Agreement by CII's
45
<PAGE> 48
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
former stockholders, patients who received healthcare services from CII
subsidiaries or affiliates and such patients' insurers. The Company cannot
determine at this time what costs or liabilities may be incurred in connection
with future disposition of non-governmental claims or litigation.
In 1993, independent and retail chain pharmacies filed a group of antitrust
lawsuits, and a class action lawsuit, against brand name pharmaceutical
manufacturers, wholesalers, and PBM companies. Caremark was named as a defendant
in these lawsuits in 1994, but was not named in the class action. 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 PBM companies, 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
attorney's fees and expenses.
All of these actions have been transferred by the Judicial Panel for
Multi-District Litigation to the United States District Court for the Northern
District of Illinois for coordinated pretrial procedures. 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 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
this settlement, although numerous additional settlements have been reached
between a number of the parties to the class and individual manufacturers. The
class action conspiracy claims against the remaining defendants were tried in
the fall of 1998, and resulted in a judgment by the court at the close of the
plaintiffs' case in favor of the remaining defendants. That judgment was
affirmed in part and reversed and remanded in part and is currently undergoing
further proceedings in the district court and the court of appeals, which may
result in a second trial of the class action or its dismissal on the merits. It
is expected that trials of the non-class action conspiracy claims brought by
opt-out individual plaintiffs under the Sherman Act, to the extent they have not
been settled or dismissed, will move forward in 2000 to a decision on summary
judgment or to trial and likely will also precede the trial of any Robinson-
Patman Act claims.
In March 1998, a consortium of insurance companies and third-party private
payors sued Caremark and CII in the United States District Court for the
Northern District of Illinois. The complaint alleges that Caremark's home
infusion division, which was sold by Caremark in 1995 and is reported in the
Consolidated Financial Statements as discontinued operations, implemented a
scheme to submit fraudulent claims for payment to the payors which the payors
unwittingly paid, and seeks unspecified damages, treble damages and attorney's
fees and expenses. A tentative settlement agreement has been reached in this
case.
The Company is a defendant in two lawsuits filed in the Supreme Court of
the State of New York, County of New York, claiming that a "Termination Event"
as defined in the Purchase Contract Agreement, dated September 15, 1997, between
MedPartners Inc. and The First National Bank of Chicago, has occurred with
respect to the TAPS issued by the Company in September 1997. One of those
actions, filed May 27, 1999 is brought by certain entities claiming to "own or
control" 5 million TAPS and the other, filed July 14, 1999 purports to be
brought by a holder of an unknown number of TAPS as a class action on behalf of
a purported class of all holders of TAPS. The complaints allege that a
"Termination Event" has occurred because of,
46
<PAGE> 49
CAREMARK RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
among other things, the actions taken by the DOC described in Note 2.
"Discontinued Operations". The complaints seek a declaratory judgment that a
Termination Event has occurred and an order compelling the Collateral Agent to
release to the TAPS holders approximately $480 million of United States Treasury
Notes currently held in escrow. The escrowed funds otherwise would be released
to the Company in exchange for common stock of the Company at the final
settlement date of the TAPS on August 31, 2000.
Pursuant to the Provider Self-Disclosure Protocol of the OIG, the Company
has conducted a voluntary investigation of the practices of an affiliate known
as Home Health Agency of Greater Miami, doing business as AmCare ("AmCare"). The
investigation uncovered several potentially inappropriate practices by certain
managers at AmCare, some of which may have resulted in overpayments from federal
programs for AmCare's home health services. The Company has since terminated
these managers, ceased AmCare's operations, and reported the matter to the OIG.
While the OIG has not yet responded to the Company's internal investigation
report, and therefore the resolution of this matter is as yet unknown, it is
likely that the government will determine that overpayments were made which
require repayment by the Company. The Company's estimates of the repayments due
have been accrued in the financial statements.
There can be no assurance that the lawsuits will not have a disruptive
effect upon the operations of the Company's business, that the defense of the
lawsuits will not consume the time and attention of senior management of the
Company and its subsidiaries, or that the resolution of the lawsuits will not
have a material adverse effect on the operating results and financial condition
of the Company. The Company intends to vigorously defend each of these lawsuits.
However, the Company does not believe that these lawsuits will have a material
adverse effect on the operating results and financial condition of the Company.
The Company has assigned lease obligations related to its discontinued
operations of approximately $157 million to various parties. The Company and/or
one or more of its subsidiaries remain as guarantor or obligor on these lease
obligations. The leases have been assigned to numerous unrelated entities and
the Company believes there is no significant concentration of credit risk
related to the assignment of these leases.
14. CORPORATE LIABILITY AND INSURANCE
The Company maintains professional liability insurance, general liability
and other customary insurance on a claims-made and modified occurrence basis, in
amounts deemed appropriate by management based upon historical claims and the
nature and risks of the business. The Company believes that its current
insurance protection is adequate for its present business operations, but there
can be no assurance that the Company will be able to maintain its current
insurance protection in the future or that such insurance coverage will be
available on acceptable terms or adequate to cover any or all potential claims.
15. SUBSEQUENT EVENT
A trial date of April 4, 2000 has been set for the two lawsuits which claim
that a "Termination Event" has occurred with respect to the TAPS issued by the
Company in September 1997. See Note 13 for further discussions of this
litigation.
47
<PAGE> 50
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE
<TABLE>
<CAPTION>
ADDITIONS CHARGED
TO
BALANCE AT ------------------ BALANCE AT
BEGINNING COSTS AND END OF
FISCAL YEAR END OF PERIOD EXPENSES OTHER DEDUCTIONS PERIOD
--------------- ---------- --------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1999.............................. $736.0 $174.3 $ -- $ -- $910.3
December 31, 1998.............................. $109.3 $629.7 $ -- $3.0 $736.0
December 31, 1997.............................. $ 2.4 $ 6.8 $100.1 $ -- $109.3
</TABLE>
48
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statements
The Consolidated Financial Statements of the Company and its subsidiaries
filed as a part of this Annual Report on Form 10-K are listed in Item 8 of the
Annual Report on Form 10-K, which listing is hereby incorporated herein by
reference.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Commission, except for Schedule II above, have been omitted
because they are not required under the related instructions, or are
inapplicable, or because the information has been provided in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits.
The Exhibits filed as a part of this Annual Report are listed in Item 14(c)
of this Annual Report on Form 10-K, which is hereby incorporated herein by
reference.
(B) REPORTS ON FORM 8-K.
The Company's Current Report on Form 8-K filed on October 1, 1999
(reporting under Item 5 the issuance of a Notice of Certain Proposed
Unregistered Offerings pursuant to Rule 135c promulgated under the Securities
Act of 1933, as amended).
49
<PAGE> 52
(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <C> <S>
2.1 -- Amended and Restated Operations and Settlement Agreement,
dated as of June 16, 1999, among the Commissioner of the
Department of Corporations of the State of California acting
for himself and for the Department of Corporations of the
State of California, J. Mark Abernathy as Special Monitor,
the Company and its successors and assigns, and MedPartners
Provider Network, Inc., a California corporation, filed as
Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1999, is hereby
incorporated herein by reference.
2.2 -- Amendment No. 1 to the Amended and Restated Operations and
Settlement Agreement, dated as of July 31, 1999, among the
Commissioner of the Department of Corporations of the State
of California acting for himself and for the Department of
Corporations of the State of California, J. Mark Abernathy
as Special Monitor, the Company and its successors and
assigns, and MedPartners Provider Network, Inc., a
California corporation, filed as Exhibit 2.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999, is hereby incorporated herein
by reference.
2.3 -- Amendment No. 2 to the Amended and Restated Operations and
Settlement Agreement, dated as of August 31, 1999, among the
Commissioner of the Department of Corporations of the State
of California acting for himself and for the Department of
Corporations of the State of California, J. Mark Abernathy
as Special Monitor-Examiner, the Company and its successors
and assigns, and MedPartners Provider Network, Inc., a
California corporation.
2.4 -- Amendment No. 3 to the Amended and Restated Operations and
Settlement Agreement, dated as of September 30, 1999, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor-Examiner, the Company and
its successors and assigns, and MedPartners Provider
Network, Inc., a California corporation.
2.5 -- Amendment No. 4 to the Amended and Restated Operations and
Settlement Agreement, dated as of October 31, 1999, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor-Examiner, the Company and
its successors and assigns, and MedPartners Provider
Network, Inc., a California corporation.
2.6 -- Amendment No. 5 to the Amended and Restated Operations and
Settlement Agreement, dated as of November 30, 1999, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor-Examiner, the Company and
its successors and assigns, and MedPartners Provider
Network, Inc., a California corporation.
2.7 -- Amendment No. 6 to the Amended and Restated Operations and
Settlement Agreement, dated as of December 10, 1999, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor-Examiner, the Company and
its successors and assigns, and MedPartners Provider
Network, Inc., a California corporation.
2.8 -- Amendment No. 7 to the Amended and Restated Operations and
Settlement Agreement, dated as of December 31, 1999, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor-Examiner, the Company and
its successors and assigns, and MedPartners Provider
Network, Inc., a California corporation.
2.9 -- Amendment No. 8 to the Amended and Restated Operations and
Settlement Agreement, dated as of January 31, 2000, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor, the Company and its
successors and assigns, and MedPartners Provider Network,
Inc., a California corporation.
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <C> <S>
2.10 -- Amendment No. 9 to the Amended and Restated Operations and
Settlement Agreement, dated as of February 7, 2000, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor, the Company and its
successors and assigns, and MedPartners Provider Network,
Inc., a California corporation.
2.11 -- Amendment No. 10 to the Amended and Restated Operations and
Settlement Agreement, dated as of February 15, 2000, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor, the Company and its
successors and assigns, and MedPartners Provider Network,
Inc., a California corporation.
2.12 -- Amendment No. 11 to the Amended and Restated Operations and
Settlement Agreement, dated as of February 25, 2000, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor, the Company and its
successors and assigns, and MedPartners Provider Network,
Inc., a California corporation.
2.13 -- Amendment No. 12 to the Amended and Restated Operations and
Settlement Agreement, dated as of February 28, 2000, among
the Commissioner of the Department of Corporations of the
State of California acting for himself and for the
Department of Corporations of the State of California, J.
Mark Abernathy as Special Monitor, the Company and its
successors and assigns, and MedPartners Provider Network,
Inc., a California corporation.
3.1 -- MedPartners, Inc. Third Restated Certificate of
Incorporation, filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, is hereby incorporated herein by reference.
3.2 -- Certificate of Ownership and Merger, merging Caremark Rx,
Inc. into MedPartners, Inc., filed as Exhibit 99.2 to the
Company's Current Report on Form 8-K filed on September 14,
1999, is hereby incorporated herein by reference.
3.3 -- MedPartners, Inc. Fourth Amended and Restated Bylaws, filed
as Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the Fiscal Year ended December 31, 1998, is hereby
incorporated herein by reference.
4.1 -- Amended and Restated Rights Agreement, dated as of February
1, 2000, between Caremark Rx, Inc. and First Chicago Trust
Company, filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on February 4, 2000, is hereby
incorporated herein by reference.
4.2 -- Purchase Contract Agreement, dated September 15, 1997,
between MedPartners, Inc. and The First National Bank of
Chicago, filed as Exhibit 4.4 to the Company's Registration
Statement of Form S-3 (Registration No. 333-35665), is
hereby incorporated herein by reference.
4.3 -- Pledge Agreement, dated September 15, 1997, by and between
MedPartners, Inc., PNC Bank, Kentucky, Inc. and The First
National Bank of Chicago, filed as Exhibit 4.5 to the
Company's Registration Statement of Form S-3 (Registration
No. 333-35665), and is hereby incorporated herein by
reference.
4.4 -- Form of Common Stock Certificate of Registrant filed as
Exhibit 4.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, is hereby
incorporated herein by reference.
4.5 -- Certificate of Trust of Caremark Rx Capital Trust I, filed
as Exhibit 4.1 to Amendment No. 1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
30, 1999, is hereby incorporated herein by reference.
4.6 -- Trust Agreement of Caremark Rx Capital Trust I dated as of
September 10, 1999, by and between the Company, the
Wilmington Trust Company, and the Administrative Trustees
named therein, filed as Exhibit 4.2 to Amendment No. 1 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999, is hereby incorporated
herein by reference.
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <C> <S>
4.7 -- Amended and Restated Trust Agreement dated as of September
29, 1999, by and between the Company, the Wilmington Trust
Company, and the Holders named therein, filed as Exhibit 4.3
to Amendment No. 1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999, is
hereby incorporated herein by reference.
4.8 -- Indenture for the Convertible Subordinated Debentures due
2029 dated as of September 29, 1999 between the Company, and
the Wilmington Trust Company, filed as Exhibit 4.4 to
Amendment No. 1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999, is
hereby incorporated herein by reference.
4.9 -- Form of Common Securities, filed as Exhibit 4.5 to Amendment
No. 1 of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999 is hereby
incorporated herein by reference.
4.10 -- Form of SPURS, filed as Exhibit 4.6 to Amendment No. 1 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999, is hereby incorporated
herein by reference.
4.11 -- Form of Convertible Subordinated Debentures due 2029, filed
as Exhibit 4.7 to Amendment No. 1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
30, 1999, is hereby incorporated herein by reference.
4.12 -- Guarantee Agreement dated as of September 29, 1999 by and
between the Company and the Wilmington Trust Company, filed
as Exhibit 4.8 to Amendment No. 1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
30, 1999, is hereby incorporated herein by reference.
10.1 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International, Inc., MedPartners, Inc. and
C.A. Lance Piccolo, filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
10.2 -- Termination Agreement, dated as of November 29, 1995, by and
between MedPartners/Mullikin, Inc. and John S. McDonald,
filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
10.3 -- Employment Agreement, dated March 15, 1998, by and between
the Company and Rosalio J. Lopez, filed as Exhibit 10.14 to
the Company's Annual report on Form 10-K for the fiscal year
ended December 31, 1998 is hereby incorporated herein by
reference.
10.4 -- Employment Agreement, dated September 20, 1997, by and
between the Company and John J. Arlotta, filed as Exhibit
10.9 to the Company's Annual report on Form 10-K for the
fiscal year ended December 31, 1998 is hereby incorporated
herein by reference.
10.5 -- Employment Agreement, dated March 18, 1998, by and between
the Company and E. Mac Crawford, filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter March 31, 1998, is hereby incorporated herein by
reference.
10.6 -- Amendment No. 1 to Employment Agreement, dated August 6,
1998, by and between the Company and E. Mac Crawford, filed
as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998, is
hereby incorporated herein by reference.
10.7 -- Nonqualified Stock Option Agreement, dated August 6, 1998,
by and between the Company and E. Mac Crawford, filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1998, is hereby
incorporated herein by reference.
10.8 -- Employment Agreement, dated May 7, 1998, by and between the
Company and James H. Dickerson, Jr., filed as Exhibit 10.15
to the Company's Annual report on Form 10-K for the fiscal
year ended December 31, 1998 is hereby incorporated herein
by reference.
10.9 -- Nonqualified Stock Option Agreement, dated August 6, 1998,
by and between the Company and James H. Dickerson, Jr.
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <C> <S>
10.10 -- Employment Agreement, dated July 1, 1998, by and between the
Company and Edward L. Hardin, Jr., filed as Exhibit 10.16 to
the Company's Annual report on Form 10-K for the fiscal year
ended December 31, 1998 is hereby incorporated herein by
reference.
10.11 -- Nonqualified Stock Option Agreement, dated August 6, 1998,
by and between the Company and Edward L. Hardin, Jr.
10.12 -- Amendment No. 1 to Employment Agreement, dated March 8,
2000, by and between the Company and Edward L. Hardin, Jr.
10.13 -- Employment Agreement, dated August 7, 1998, by and between
the Company and Bradley S. Karro.
10.14 -- Amended and Restated MedPartners, Inc. Incentive
Compensation Plan, filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 is hereby incorporated herein by
reference.
10.15 -- Non-Employee Director Stock Option Plan, filed as Exhibit
4.2 to the Company's Registration Statement on Form S-8
(Registration No. 333-14163), is hereby incorporated herein
by reference.
10.16 -- Amended and Restated 1993 Stock Option Plan, filed as
Exhibit 10.20 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 is hereby
incorporated herein by reference.
10.17 -- Amended and Restated 1994 Stock Incentive Plan, filed as
Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 is hereby
incorporated herein by reference.
10.18 -- 1994 Non-Employee Director Stock Option Plan, filed as
Exhibit 4.5 to the Company's Registration Statement on Form
S-8 (Registration No. 333-30145), is hereby incorporated
herein by reference.
10.19 -- Amended and Restated 1995 Stock Option Plan, filed as
Exhibit 10.23 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 is hereby
incorporated herein by reference.
10.20 -- Amended and Restated 1997 Long Term Incentive Compensation
Plan, filed as Exhibit 10.24 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 is
hereby incorporated herein by reference.
10.21 -- 1998 Employee Stock Option Plan, filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-8 (Registration
No. 333-64371), is hereby incorporated herein by reference.
10.22 -- 1998 New Employee Stock Option Plan, filed as Exhibit 99.1
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998, is hereby
incorporated herein by reference.
10.23 -- Receivables Transfer Agreement, dated December 4, 1998, by
and between Park Avenue Receivables Corporation, MP
Receivables Company, Caremark Inc., and The Chase Manhattan
Bank, filed as Exhibit 10.27 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998, is
hereby incorporated herein by reference.
10.24 -- Receivables Purchase Agreement, dated December 4, 1998, by
and between Caremark Inc. and MP Receivables Company, filed
as Exhibit 10.28 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, is hereby
incorporated herein by reference.
10.25 -- $1 Billion Third Amended and Restated Credit Agreement,
dated June 9, 1998, by and between MedPartners, Inc.,
NationsBank, National Association (successor by merger of
NationsBank, National Association (South)), as
Administrative Agent for Lenders, The First National Bank of
Chicago, as Documentation Agent for Lenders, and the Lenders
thereto, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30,
1998, is hereby incorporated herein by reference.
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <C> <S>
10.26 -- Amendment and Waiver No. 1 to the Third Amended and Restated
Credit Agreement, dated December 4, 1998, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on January 15, 1999, is
hereby incorporated herein by reference.
10.27 -- Amendment and Waiver No. 2 to the Third Amended and Restated
Credit Agreement, dated January 13, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K filed on January 15, 1999, is
hereby incorporated herein by reference.
10.28 -- Amendment and Waiver No. 3 to the Third Amended and Restated
Credit Agreement, dated February 9, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, is hereby incorporated herein by
reference.
10.29 -- Amendment and Waiver No. 4 to the Third Amended and Restated
Credit Agreement, dated March 18, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, is hereby incorporated herein by
reference.
10.30 -- Amendment and Waiver No. 5 to the Third Amended and Restated
Credit Agreement, dated April 1, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.33 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, is hereby incorporated herein by
reference.
10.31 -- Amendment and Waiver No. 6 to the Third Amended and Restated
Credit Agreement, dated April 14, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, is hereby incorporated herein by reference.
10.32 -- Amendment and Waiver No. 7 to the Third Amended and Restated
Credit Agreement, dated June 29, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1999, is hereby incorporated herein by reference.
10.33 -- Amendment and Waiver No. 8 to the Third Amended and Restated
Credit Agreement, dated August 2, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1999, is hereby incorporated herein by reference.
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <C> <S>
10.34 -- Amendment and Waiver No. 9 to the Third Amended and Restated
Credit Agreement, dated August 16, 1999, by and between the
Company, Bank of America, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, Bank of America Securities LLC,
and Bank of America, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999, is hereby incorporated herein by
reference.
10.35 -- Amendment and Waiver No. 10 to the Third Amended and
Restated Credit Agreement, dated August 23, 1999, by and
between the Company, Bank of America, N.A., Credit Lyonnais
New York Branch, The First National Bank of Chicago, Morgan
Guaranty Trust Company of New York, Bank of America
Securities LLC, and Bank of America, filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999, is hereby
incorporated herein by reference.
10.36 -- Amendment and Waiver No. 11 to the Third Amended and
Restated Credit Agreement, dated August 30, 1999, by and
between the Company, Bank of America, N.A., Credit Lyonnais
New York Branch, The First National Bank of Chicago, Morgan
Guaranty Trust Company of New York, Bank of America
Securities LLC, and Bank of America, filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999, is hereby
incorporated herein by reference.
10.37 -- Amendment and Waiver No. 12 to the Third Amended and
Restated Credit Agreement, dated September 14, 1999, by and
between the Company, Bank of America, N.A., Credit Lyonnais
New York Branch, The First National Bank of Chicago, Morgan
Guaranty Trust Company of New York, Bank of America
Securities LLC, and Bank of America, filed as Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999, is hereby
incorporated herein by reference.
10.38 -- Amendment and Waiver No. 13 to the Third Amended and
Restated Credit Agreement, dated November 5, 1999, by and
between the Company, Bank of America, N.A., Credit Lyonnais
New York Branch, The First National Bank of Chicago, Morgan
Guaranty Trust Company of New York, Bank of America
Securities LLC, and Bank of America, filed as Exhibit 10.5
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999, is hereby
incorporated herein by reference.
10.39 -- Amendment and Waiver No. 14 to the Third Amended and
Restated Credit Agreement, dated December 16, 1999, by and
between the Company, NationsBank, Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, NationsBanc Montgomery Securities
LLC, and NationsBank, N.A.
10.40 -- Amendment and Waiver No. 15 to the Third Amended and
Restated Credit Agreement, dated January 20, 2000 by and
between the Company, NationsBank, N.A., Credit Lyonnais New
York Branch, The First National Bank of Chicago, Morgan
Guaranty Trust Company of New York, and NationsBanc
Montgomery Securities LLC.
10.41 -- Amendment and Waiver No. 16 to the Third Amended and
Restated Credit Agreement dated February 3, 2000, by and
between the Company, NationsBank, N.A., Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, NationsBanc Montgomery Securities
LLC and NationsBank, N.A.
10.42 -- Pledge Agreement, dated November 4, 1999, from the Company
as Grantor to Lasalle Bank National Association as Trustee.
10.43 -- Trust Agreement, dated November 4, 1999, by and among the
Company and Lasalle Bank National Association as Trustee.
21 -- Subsidiaries of the Company
23 -- Consent of Ernst & Young LLP, Independent Auditors.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
55
<PAGE> 58
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Caremark Rx, Inc.
By: /s/ JAMES H. DICKERSON, JR.
------------------------------------
James H. Dickerson, Jr.
Executive Vice President,
Chief Financial Officer and Director
Date: March 9, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ EDWIN M. CRAWFORD President, Chief Executive March 9, 2000
- ----------------------------------------------------- Officer and Chairman of the
Edwin M. Crawford Board
/s/ RICHARD M. SCRUSHY Director March 9, 2000
- -----------------------------------------------------
Richard M. Scrushy
/s/ CHARLES W. NEWHALL, III Director March 9, 2000
- -----------------------------------------------------
Charles W. Newhall, III
/s/ TED H. MCCOURTNEY Director March 9, 2000
- -----------------------------------------------------
Ted H. McCourtney
/s/ JOHN S. MCDONALD, J.D. Director March 9, 2000
- -----------------------------------------------------
John S. McDonald, J.D.
/s/ MICHAEL D. MARTIN Director March 9, 2000
- -----------------------------------------------------
Michael D. Martin
/s/ C.A. LANCE PICCOLO Director March 9, 2000
- -----------------------------------------------------
C.A. Lance Piccolo
/s/ ROGER L. HEADRICK Director March 9, 2000
- -----------------------------------------------------
Roger L. Headrick
/s/ KRISTEN E. GIBNEY Director March 9, 2000
- -----------------------------------------------------
Kristen E. Gibney
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ JAMES H. DICKERSON, JR. Executive Vice President, Chief March 9, 2000
- ----------------------------------------------------- Financial Officer and Director
James H. Dickerson, Jr.
/s/ HOWARD McLURE Senior Vice President and Chief March 9, 2000
- ----------------------------------------------------- Accounting Officer
Howard McLure
</TABLE>
57
<PAGE> 1
EXHIBIT 2.3
AMENDMENT NO. 2 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 2 (this "Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
August 31, 1999, among the Commissioner of the Department of Corporations of the
State of California (the "Commissioner" acting for himself and the Department of
Corporations of the State of California (collectively, the "State")), J. Mark
Abernathy, as Special Monitor-Examiner, MedPartners, Inc., a Delaware
corporation, and its successors and assigns ("MedPartners") and MedPartners
Provider Network, Inc., a California corporation ("MPN"), as a debtor and
debtor in possession in the Bankruptcy Case. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
and
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999; and
WHEREAS, the parties desire to allow for additional time for
implementation of the Agreement to be effected.
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
Section 13.2 of the Agreement is amended by deleting "August 31, 1999"
and inserting in its place "September 30, 1999". The Agreement shall remain
unchanged in all other respects.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
MEDPARTNERS, INC.
a Delaware Corporation
By: /s/ E. Mac Crawford
------------------------------
Title: President & CEO
---------------------------
MEDPARTNERS PROVIDER NETWORK, INC.
a California Corporation
By: /s/ Don Garner
------------------------------
Title: Secretary
---------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
------------------------------
William Kenefick
Title: Acting Commissioner of the
Department of Corporations
J. MARK ABERNATHY,
as Special Monitor-Examiner and
not individually
By: /s/ J. Mark Abernathy
------------------------------
J. Mark Abernathy
Title: Special Monitor-Examiner
<PAGE> 1
EXHIBIT 2.4
AMENDMENT NO. 3 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 3 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
September 30, 1999, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc.,
f/k/a/ MedPartners, Inc., a Delaware corporation, and its successors and
assigns ("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999;
WHEREAS, the parties entered into Agreement No. 2 to the Agreement as
of August 31, 1999; and
WHEREAS, the parties desire to allow for additional time for
implementation of the Agreement to be effected.
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
Section 13.2 of the Agreement is amended by deleting "September 30,
1999" and inserting in its place "October 31, 1999". The Agreement shall remain
unchanged in all other respects.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
MEDPARTNERS, INC.
a Delaware corporation
By: /s/ E. Mac Crawford
---------------------------------------------
Title: President and CEO
------------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.
a California corporation
By: /s/ Don Garner
---------------------------------------------
Title: Secretary
------------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
---------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
------------------------------------------
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By: /s/ J. Mark Abernathy
---------------------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
------------------------------------------
-2-
<PAGE> 1
EXHIBIT 2.5
AMENDMENT NO. 4 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 4 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
October 31, 1999, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc.,
f/k/a MedPartners, Inc., a Delaware corporation, and its successors and assigns
("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the Agreement as
of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement as
of September 30, 1999; and
WHEREAS, the parties desire to allow for additional time for
implementation of the Agreement to be effected.
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Section 13.2 of the Agreement is amended by deleting "October 31,
1999" and inserting in its place "November 30, 1999".
2. The second sentence of Section 3.8(b) of the Agreement is
amended by deleting "October 31, 1999" and inserting in its place "November 30,
1999."
3. The Agreement shall remain unchanged in all other respects.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
CAREMARK Rx, INC.
a Delaware corporation
By: /s/ James H. Dickerson, Jr.
-------------------------------
Title: EVP and CFO
MEDPARTNERS PROVIDER NETWORK, INC.
a California corporation
By: /s/ Don Garner
-------------------------------
Title: Secretary
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
-------------------------------
William Kenefick
Title: Acting Commissioner of the
Department of Corporations
J. MARK ABERNATHY,
as Special Monitor-Examiner and not
individually
By: /s/ J. Mark Abernathy
-------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
<PAGE> 1
EXHIBIT 2.6
AMENDMENT NO. 5 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 5 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
November 30, 1999, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc.,
f/k/a/ MedPartners, Inc., a Delaware corporation, and its successors and
assigns ("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the Agreement as
of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement as
of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the Agreement as
of October 31, 1999; and
WHEREAS, the parties desire to allow for additional time for
implementation of the Agreement to be effected.
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Section 13.2 of the Agreement is amended by deleting "November
30, 1999" and inserting in its place "December 31, 1999".
2. The second sentence of Section 3.8(b) of the Agreement is
amended by deleting "November 30, 1999" and inserting in its place "December
15, 1999."
3. The Agreement shall remain unchanged in all other respects.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
CAREMARK RX, INC.
a Delaware corporation
By: /s/ Edward L. Hardin, Jr.
----------------------------------------------
Title: Executive Vice President
-----------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By /s/ Don Garner
-----------------------------------------------
Title: Secretary
------------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By /s/ William Kenefick
-----------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By /s/ J. Mark Abernathy
-----------------------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
-2-
<PAGE> 1
EXHIBIT 2.7
AMENDMENT NO. 6 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 6 ("Amendment") to the Amended and
Restated Operations and Settlement Agreement (the "Agreement") is entered into
as of December 10, 1999, among the Commissioner of the Department of
Corporations of the State of California (the "Commissioner" acting for himself
and the Department of Corporations of the State of California (collectively,
the "State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx,
Inc., f/k/a/ MedPartners, Inc., a Delaware corporation, and its successors and
assigns ("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June
16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the
Agreement as of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the
Agreement as of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the
Agreement as of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the
Agreement as of October 31, 1999;
WHEREAS, the parties entered into Amendment No. 5 to the
Agreement as of November 30, 1999; and
WHEREAS, the parties desire to clarify and amend certain
provisions of the Agreement as set forth herein.
NOW THEREFORE, in consideration of the mutual covenant and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
AGREEMENT
1. The preamble in Section 3.5(a) is hereby deleted and
is amended in its entirety to read as follows:
1
<PAGE> 2
(a) MedPartners Funding Commitment. Subject to the terms
and conditions of this Agreement, MedPartners shall be
responsible for the satisfaction of (e.g., by payment, offset,
or by causing to be paid) the following Provider Claims and
Plan Preserved Claims with respect to MPN and the Managed
Physician Practices, respectively:
2. The first sentence of subsection (xiii) of Section
3.5(a) is hereby deleted and is amended in its entirety to read as follows:
(xiii) Net Cash Proceeds received by MPN and the
Managed Physician Practices, respectively, following the
Agreement Date ((xi), (xii) and (xiii) collectively, the
"Funding Sources") less Permitted Expenses (as defined below)
are, in the aggregate, inadequate to satisfy such Provider
Claims and Plan Preserved Claims, assuming that the entire
amount of the Funding Sources for MPN and the Managed
Physician Practices, respectively, is applied to the
satisfaction of such Provider Claims and Plan Preserved
Claims.
3. The last two sentences of subsection (c) of Section
3.5 are hereby deleted and are amended in their entirety to read as follows:
The funds deposited into the California Account
pursuant to this Section shall be used to pay Provider Claims
and Plan Preserved Claims as they become payable. In the
event the actual amount of applicable Provider Claims and
Plan Preserved Claims payable under the MedPartners Funding
Commitment with respect to MPN and the Managed Physician
Practices, respectively, exceeds the amount deposited
hereunder, MedPartners shall fulfill the MedPartners Funding
Commitment with respect to such Provider Claims in accordance
with Section 3.5(b) above, and with respect to Plan Preserved
Claims as provided for in Section 3.5(f) below.
4. Subsection 3.5(d)(2) of the Agreement is amended and
restated in its entirety to read as follows:
(2) In the event the MedPartners Funding
Commitment has been satisfied with respect to Provider Claims
and Plan Preserved Claims, and there are excess funds in
either of the California Accounts, any such excess shall not
be subject to withdrawal as excess funds and shall be used to
satisfy Provider Claims and Plan Preserved Claims otherwise
payable from the other California Account.
5. Subsection 3.5(d)(3)(A) of the Agreement is amended
and restated in its entirety to read as follows:
(A) as to the MPN California Account, when the
MedPartners Funding Commitment with respect to MPN Provider
Claims and Plan Preserved Claims against MPN has been fully
satisfied and there are adequate funds in the MedPartners
California Account to fulfill the MedPartners Funding
Commitment; and
2
<PAGE> 3
6. Subsection 3.5(d)(3)(B) of the Agreement is amended
and restated in its entirety to read as follows:
(B) as to the MedPartners California Account, when
the MedPartners Funding Commitment with respect to the
Managed Physician Practice Provider Claims and Plan Preserved
Claims against the Managed Physician Practices has been fully
satisfied.
7. Subsection 3.5(d)(4)(A) of the Agreement is amended
and restated in its entirety to read as follows:
(A) The MedPartners Funding Commitment with
respect to MPN Provider Claims and Plan Preserved Claims
against MPN shall be deemed fully satisfied when an order of
the Bankruptcy Court has been entered making such finding,
following notice and hearing; and
8. Subsection 3.5(d)(4)(B) of the Agreement is amended
and restated in its entirety to read as follows:
(B) The MedPartners Funding Commitment with
respect to the Managed Physician Practice Provider Claims and
Plan Preserved Claims against Managed Physician Practices
shall be deemed satisfied upon the expiration of five
Business Days after the Special Monitor-Examiner gives the
Creditors Committee written notice thereof.
9. The Agreement is amended and restated to include a
new Section 3.5(f), which is as follows;
(f) Timing of Payment of Plan Preserved Claims.
With respect to each Consenting Plan and pursuant to the
MedPartners Funding Commitment, MedPartners shall cause Plan
Preserved Claims and Provider Claims held by Consenting Plans
to be paid in accordance with Section 20.18 of the
Supplemental Plan Agreement.
10. The second sentence of Subsection 3.8(b) of the
Agreement is amended by deleting "December 15, 1999" and replacing it with
"February 15, 2000".
11. Section 7.2(d) of the Agreement is amended and
restated in its entirety to read as follows:
Letter of Credit. The Special Monitor-Examiner shall
use any proceeds received pursuant to an irrevocable letter
of credit solely to fund payment of finally adjudicated and
valid Managed Physician Practice Provider Claims and Allowed
MPN Provider Claims of Consenting Providers and Consenting
Plans. In the event of a draw under the Letter of Credit, the
proceeds of such draw shall be made available to holders of
such Claims in accordance with this paragraph and
subparagraph (d) of the definitions of each of the MPN
Provider Release and the MPPP Release even if the draw was
triggered by nonpayment of an arbitration
3
<PAGE> 4
award. All proceeds of any draw shall be allocated between
holders of MPN Provider Claims and Managed Physician Practice
Provider Claims on the basis of the Special
Monitor-Examiner's determination of the respective estimated
amount remaining under the MedPartners Funding Commitment.
The portion of the draw allocated to MPN Provider Claims
shall be deposited into the MPN California Account. If all
finally adjudicated and valid Managed Physician Practice
Provider Claims of Consenting Providers and Consenting Plans
or Allowed MPN Provider Claims of Consenting Providers and
Consenting Plans are paid in full, any funds from such draw
for such Consenting Providers and Consenting Plans shall be
reallocated to be held for the other group of Consenting
Providers and Consenting Plans. Any amounts that are drawn
under the Letter of Credit by the Special Monitor-Examiner
that are not used to make payments on account of the
MedPartners Funding Commitment shall be returned to
MedPartners after the MedPartners Funding Commitment has been
finally satisfied in full. Any funds drawn under the Letter
of Credit allocated to the Claims shall be held by the
Special Monitor-Examiner in trust until used as provided
herein.
12. Subsection 10.1(a) of the Agreement is amended and
restated in its entirety to read as follows:
(a) Except as set forth in Section 10.1(b) or
(c) below, the failure of MedPartners to perform, in any
material respect, the obligations required to be performed by
it under this Agreement; provided, however, that a
determination by the Special Monitor-Examiner under Section
3.8(d), or the initiation of any arbitration by any
Representative under Section 12, shall not constitute the
failure by MedPartners to perform its obligations hereunder,
in any material respect, but (1) MedPartners failure to pay
the amount of any arbitration award under Section 12
(including an award obtained pursuant to the procedure set
forth in Section 15.14) by reason of such determination or
arbitration within five Business Days of such award, or (2)
the nonpayment of a Final Preserved Claim in favor of a
Consenting Plan in accordance with Section 20.18 of the
Supplemental Plan Agreement within five Business Days of the
determination of such Final Preserved Claim, shall constitute
a Default hereunder.
13. Subsection 10.1(d) of the Agreement is amended and
restated in its entirety to read as follows:
(d) For purposes of this Section 10,
MedPartners shall not be deemed to have failed to make a
payment or to have satisfied any obligations, where such
failure would constitute a Default, during the period that
MedPartners or MPN, as applicable, is adjudicating in good
faith the nature or amount of the payment or obligation,
provided that MedPartners shall fulfill the MedPartners
Funding Commitment in connection with any portion of any
Provider Claim or Plan Preserved Claim that is not contested
or subject to a setoff or recoupment asserted in good faith;
provided, however, to the extent any obligation of
MedPartners under this Agreement is contingent upon
performance by any third party, including satisfaction of any
condition precedent to the effectiveness of this
4
<PAGE> 5
Agreement, it shall not be a Default hereunder if MedPartners
fails to complete such obligation despite good faith efforts
to do so, by reason of such third party's non-performance.
14. The condition set forth in Section 13.1(b) of the
Agreement is hereby waived.
15. Subsection 15.14(a)(3) of the Agreement is amended
and restated in its entirety to read as follows:
(3) The Plans to seek an order requiring a
party to specifically perform its obligations under this
Agreement including without limitation the payment of Plan
Preserved Claims or Provider Claims held by a Consenting
Plan; and
16. Subsection 15.14(b) of the Agreement is amended and
restated in its entirety to read as follows:
(b) Jurisdiction and Representative. Any
action under this Section 15.14 against MedPartners for
breach of this Agreement may only be brought on behalf of one
or more Beneficiaries by a representative of such Beneficiary
or group of Beneficiaries in the Los Angeles Superior Court,
or, with respect to MPN, the Bankruptcy Court; provided,
however, that in the event any Beneficiary asserts that
MedPartners or MPN has violated Section 3.5(b), its sole
remedy shall be arbitration pursuant to Section 12. The
representative in any such action can be any of the
following: (i) the Special Monitor-Examiner, (ii) one or more
MPN Provider Claim Beneficiaries as designated by the group,
(iii) one or more Managed Physician Practice Provider Claim
Beneficiaries as designated by the group, (iv) with respect
to Beneficiaries holding Managed Physician Practice Provider
Claims, a subcommittee of the Creditors Committee
representing such Beneficiaries, (v) with respect to
Beneficiaries holding MPN Provider Claims, a subcommittee of
the Creditors Committee representing such Beneficiaries, (vi)
the Creditors Committee, or (vii) a Plan acting on its own
behalf or otherwise with respect to its rights under Section
15.14(a)(3) (each, a "Representative").
17. Subsection 15.14(c) of the Agreement is amended and
restated in its entirety to read as follows:
(c) Threshold for Enforcement. An action to
enforce any right granted to a Beneficiary pursuant to this
Section may be commenced only by a Representative in the
following circumstances: (i) physician claimants who are
eligible Beneficiaries holding in aggregate not less than
$600,000 of nonadjudicated Managed Physician Practice
Provider Claims; (ii) physician claimants who are eligible
Beneficiaries holding in aggregate not less than $300,000 of
finally adjudicated Managed Physician Practice Provider
Claims; (iii) non-physician claimants who are eligible
Beneficiaries holding in aggregate not less than $5 million
in non-adjudicated Provider Claims; (iv) non-physician
claimants who are eligible Beneficiaries holding an aggregate
not less than $5 million in, with respect to the Managed
Physician Practices, finally adjudicated and
5
<PAGE> 6
liquidated Managed Physician Practice Provider Claims and,
with respect to MPN, MPN Provider Claims that have become
Allowed MPN Claims; or (v) any Plan with respect to its
rights under Section 15.14(a)(3). Notwithstanding the
foregoing, with respect to eligible Beneficiaries who hold
pre-petition MPN Provider Claims, no such enforcement action
may be commenced or maintained until the earlier to occur of:
(i) the effective date of a confirmed plan of reorganization
for MPN in the Bankruptcy Case, or (ii) November 30, 1999.
18. Subsection 15.14(d) of the Agreement is amended and
restated in its entirety to read as follows:
(d) Notice. Prior to bringing an action, the
Representative shall give notice of intent to sue to
MedPartners, MPN, the Creditors Committee and the Special
Monitor-Examiner. Such notice shall provide the name of each
eligible Beneficiary within the group and the amount of each
such Beneficiary's Provider Claim or Plan Preserved Claim or
the provision of the Agreement that such Representative is
seeking to enforce. MedPartners and/or MPN, as the case may
be, shall have ten Business Days after receipt of such notice
to cause such Provider Claims or Plan Preserved Claim to be
paid or to comply with the Agreement. If payment or other cure
is not made during such cure period, the Representative may
proceed with filing the action or initiating the arbitration,
as the case may be.
19. Upon the occurrence of the SPA Effective Date (as
defined in the Supplemental Plan Agreement), the provisions of ss. 15.17 of the
Agreement shall be amended and superseded by the Supplemental Plan Agreement;
provided, however, that if the Supplemental Plan Agreement terminates pursuant
to either Section 12.4.1 or 12.6 of the Supplemental Plan Agreement, then
Section 15.17 shall be reinstated.
The Agreement remains unchanged in all other respects.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
CAREMARK RX, INC.
a Delaware corporation
By: /s/ Edward L. Hardin, Jr.
----------------------------------------------
Title: Executive Vice President
---------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By /s/ Don Garner
-----------------------------------------------
Title Secretary
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
-----------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By /s/ J. Mark Abernathy
-----------------------------------------------
Title J. Mark Abernathy,
as Special Monitor-Examiner
7
<PAGE> 1
EXHIBIT 2.8
AMENDMENT NO. 7 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 7 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
December 31, 1999, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc.,
f/k/a/ MedPartners, Inc., a Delaware corporation, and its successors and assigns
("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the Agreement as
of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement as
of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the Agreement as
of October 31, 1999;
WHEREAS, the parties entered into Amendment No. 5 to the Agreement as
of November 30, 1999;
WHEREAS, the parties entered into Amendment No. 6 to the Agreement as
of December 10, 1999; and
WHEREAS, the parties desire to allow for additional time for
implementation of the Agreement to be effected.
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
AGREEMENT
Section 13.2 of the Agreement is amended by deleting "December 31,
1999" and inserting in its place "January 31, 2000". The Agreement shall remain
unchanged in all other respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
CAREMARK RX, INC.
a Delaware corporation
By /s/ Edward L. Hardin, Jr.
----------------------------------------------
Title EVP
-------------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By /s/ Don Garner
----------------------------------------------
Title Secretary
-------------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By /s/ William Kenefick
----------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By /s/ J. Mark Abernathy
----------------------------------------------
Title J. Mark Abernathy,
as Special Monitor-Examiner
-2-
<PAGE> 1
EXHIBIT 2.9
AMENDMENT NO. 8 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 8 (the "Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
January 31, 2000, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc., a
Delaware corporation, f/k/a/ MedPartners, Inc., and its successors and assigns
("MedPartners") and MedPartners Provider Network, Inc., a California corporation
("MPN"), as a debtor and debtor in possession in the Bankruptcy Case.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999; and
WHEREAS, the parties entered into Amendment No. 2 to the Agreement as
of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement as
of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the Agreement as
of October 31, 1999;
WHEREAS, the parties entered into Amendment No. 5 to the Agreement as
of November 30, 1999;
WHEREAS, the parties entered into Amendment No. 6 to the Agreement as
of December 10, 1999;
WHEREAS, the parties entered into Amendment No. 7 to the Agreement as
of December 31, 1999;
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
AGREEMENT
1. Section 13.2 of the Agreement is hereby amended by deleting
"January 31, 2000" and inserting in its place "February 7, 2000."
2. The Agreement shall remain unchanged in all other respects.
3. This Amendment may be executed in one or more counterparts each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Amendment by facsimile
shall be equally effective as delivery of an original executed counterpart of
this Amendment.
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
CAREMARK Rx, INC.
a Delaware corporation
By: /s/ Edward L. Hardin, Jr.
--------------------------------------------
Title: EVP
-----------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By /s/ Don Garner
--------------------------------------------
Title Secretary
-----------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By /s/ William Kenefick
--------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
----------------------------------------
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By /s/ J. Mark Abernathy
--------------------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
----------------------------------------
-3-
<PAGE> 1
EXHIBIT 2.10
AMENDMENT NO. 9 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 9 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
February 7, 2000, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc., a
Delaware corporation, f/k/a MedPartners, Inc., and its successors and assigns
("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the Agreement as
of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement as
of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the Agreement as
of October 31, 1999;
WHEREAS, the parties entered into Amendment No. 5 to the Agreement as
of November 30, 1999;
WHEREAS, the parties entered into Amendment No. 6 to the Agreement as
of December 10, 1999;
WHEREAS, the parties entered into Amendment No. 7 to the Agreement as
of December 31, 1999; and
WHEREAS, the parties entered into Amendment No. 8 to the Agreement as
of January 31, 2000; and
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
AGREEMENT
1. Section 1.1 is hereby amended to add the following definitions:
"Lender" has the meaning set forth in Section 3.5(c) hereof.
"MPN Letter of Credit" has the meaning set forth in Section 3.5(c)
hereof.
2. Section 3.5(c) is hereby deleted in its entirety and is amended to read
as follows:
(c) Funding. As a part of the MedPartners Funding Commitment, as
soon as possible following the approval of the Supplemental Plan
Agreement by the Bankruptcy Court, MedPartners shall cause a lender
under the Credit Agreement (the "Lender") to issue an irrevocable
letter of credit in the amount of $15 million in favor of MPN, which
shall be in form and content acceptable to the parties to the Agreement
(the "MPN Letter of Credit"). If the Agreement terminates, MPN agrees
to provide notice of such termination to the Lender pursuant to the
terms of the MPN Letter of Credit within five (5) Business Days of such
termination. MPN also agrees to provide the Lender with any other
certification or documentation reasonably required pursuant to the
terms of the MPN Letter of Credit or any replacement or renewal letter
of credit. The funds made available to MPN under the MPN Letter of
Credit shall be used to pay MPN Provider Claims of Consenting Providers
and Consenting Plans and Plan Preserved Claims of Consenting Plans that
become Allowed MPN Claims as they become payable after giving effect to
all valid offsets and recoupments. To the extent MPN Provider Claims
held by Consenting Providers are not paid from the MPN Letter of
Credit, MedPartners shall fulfill the MedPartners Funding Commitment
with respect to such MPN Provider Claims in accordance with Section
3.5(b) above. To the extent MPN Provider Claims and MPN Plan Preserved
Claims held by Consenting Plans that are payable in accordance with
this Agreement and the SPA are not paid from the proceeds of the MPN
Letter of Credit, they shall be payable as provided in Section 3.5(f)
below. All Plan Preserved Claims and Provider Claims held by Consenting
Plans that are not paid from the proceeds of the MPN Letter of Credit
shall be subject to the MedPartners Funding Commitment and shall be
paid in accordance with Section 20.18 of the SPA.
3. Section 3.6 is hereby deleted in its entirety and is amended to read
as follows:
LETTER OF CREDIT. To support the MedPartners Funding Commitment
MedPartners shall cause a Lender satisfactory to the Creditors
Committee to issue an irrevocable letter of credit in the amount of $25
million in favor of the Special Monitor-Examiner, which shall be
substantially in the form attached as Schedule 3.6. The parties
acknowledge that the letter of credit will need to be amended in
connection with the Plan of Reorganization. If the Agreement
terminates, the Special Monitor-Examiner agrees to provide notice of
such termination to the
-2-
<PAGE> 3
Lender pursuant to the terms of the letter of credit within five
(5) Business Days of such termination. The Special Monitor-
Examiner also agrees to provide the Lender with any other
certification or documentation reasonably required pursuant to
the terms of the letter of credit issued pursuant to this Section
or the MPN Letter of Credit.
4. Schedule 3.6 to the Agreement is hereby amended by deleting the
form of the letter of credit in its entirety and replacing it with a form of the
letter of credit attached hereto as Exhibit "A."
5. Section 13.2 of the Agreement is hereby amended by deleting
"February 7, 2000" and inserting in its place "February 25, 2000."
6. The Agreement, as previously amended, shall remain unchanged in
all other respects.
7. This Amendment may be executed in one or more counterparts each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Amendment by facsimile
shall be equally effective as delivery of an original executed counterpart of
this Amendment.
[SIGNATURE PAGE FOLLOWS]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
CAREMARK RX, INC.
a Delaware corporation
By: /s/ James H. Dickerson, Jr.
---------------------------------------------
Title: EVP and CFO
------------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By: /s/ Don Garner
---------------------------------------------
Title: Secretary
------------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
---------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
----------------------------------------
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By: /s/ J. Mark Abernathy
---------------------------------------------
J. Mark Abernathy
Title: J. Mark Abernathy,
as Special Monitor-Examiner
-----------------------------------------
-4-
<PAGE> 5
EXHIBIT A
-5-
<PAGE> 1
EXHIBIT 2.11
AMENDMENT NO. 10 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 10 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement (the "Agreement") is entered into as of
February 15, 2000, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc., a
Delaware corporation, f/k/a MedPartners, Inc., and its successors and assigns
("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement
as of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the Agreement
as of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement
as of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the Agreement
as of October 31, 1999;
WHEREAS, the parties entered into Amendment No. 5 to the Agreement
as of November 30, 1999;
WHEREAS, the parties entered into Amendment No. 6 to the Agreement
as of December 10, 1999;
WHEREAS, the parties entered into Amendment No. 7 to the Agreement
as of December 31, 1999;
WHEREAS, the parties entered into Amendment No. 8 to the Agreement
as of January 31, 2000; and
WHEREAS, the parties entered into Amendment No. 9 to the Agreement
as of February 7, 2000.
<PAGE> 2
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. The second sentence of Subsection 3.8(b) of the Agreement is
hereby amended by deleting "February 15, 2000" and inserting in its place
"February 25, 2000."
2. The Agreement shall remain unchanged in all other respects.
3. This Amendment may be executed in one or more counterparts each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Amendment by facsimile
shall be equally effective as delivery of an original executed counterpart of
this Amendment.
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
CAREMARK Rx, INC.
a Delaware corporation
By: /s/ Edward L. Hardin, Jr.
---------------------------------------------
Title: EVP
------------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By: /s/ Don Garner
---------------------------------------------
Title: Secretary
------------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
---------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
----------------------------------------
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By: /s/ J. Mark Abernathy
---------------------------------------------
J. Mark Abernathy
Title: J. Mark Abernathy,
as Special Monitor-Examiner
-----------------------------------------
-3-
<PAGE> 1
EXHIBIT 2.12
AMENDMENT NO. 11 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 11 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement, as amended, (the "Agreement") is entered
into as of February 25, 2000, among the Commissioner of the Department of
Corporations of the State of California (the "Commissioner" acting for himself
and the Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc., a
Delaware corporation, f/k/a MedPartners, Inc., and its successors and assigns
("MedPartners") and MedPartners Provider Network, Inc., and its successors and
assigns ("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the Agreement as
of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement as
of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the Agreement as
of October 31, 1999;
WHEREAS, the parties entered into Amendment No. 5 to the Agreement as
of November 30, 1999;
WHEREAS, the parties entered into Amendment No. 6 to the Agreement as
of December 10, 1999;
WHEREAS, the parties entered into Amendment No. 7 to the Agreement as
of December 31, 1999;
WHEREAS, the parties entered into Amendment No. 8 to the Agreement as
of January 31, 2000;
WHEREAS, the parties entered into Amendment No. 9 to the Agreement as
of February 7, 2000; and
WHEREAS, the parties entered into Amendment No. 10 to the Agreement as
of February 15, 2000.
<PAGE> 2
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. The second sentence of Subsection 3.8(b) of the Agreement is
hereby amended by deleting "February 25, 2000" and inserting in its place
"March 15, 2000."
2. Section 13.2 of the Agreement is hereby amended by deleting
"February 25, 2000" and inserting in its place "February 28, 2000."
3. The Agreement shall remain unchanged in all other respects.
4. This Amendment may be executed in one or more counterparts each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Amendment by facsimile
shall be equally effective as delivery of an original executed counterpart of
this Amendment.
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
CAREMARK Rx, INC.
a Delaware corporation
By: /s/ Edward L. Hardin, Jr.
--------------------------------------------
Title: EVP
-----------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By: /s/ Don Garner
--------------------------------------------
Title: Secretary
-----------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
--------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
----------------------------------------
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By: /s/ J. Mark Abernathy
--------------------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
----------------------------------------
-3-
<PAGE> 1
EXHIBIT 2.13
AMENDMENT NO. 12 TO THE AMENDED AND
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
This Amendment No. 12 ("Amendment") to the Amended and Restated
Operations and Settlement Agreement, as amended, (the "Agreement") is entered
into as of February 28, 2000, among the Commissioner of the Department of
Corporations of the State of California (the "Commissioner" acting for himself
and the Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc., a
Delaware corporation, f/k/a MedPartners, Inc., and its successors and assigns
("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
RECITALS
WHEREAS, the parties entered into the Agreement as of June 16, 1999;
WHEREAS, the parties entered into Amendment No. 1 to the Agreement as
of July 31, 1999;
WHEREAS, the parties entered into Amendment No. 2 to the Agreement as
of August 31, 1999;
WHEREAS, the parties entered into Amendment No. 3 to the Agreement as
of September 30, 1999;
WHEREAS, the parties entered into Amendment No. 4 to the Agreement as
of October 31, 1999;
WHEREAS, the parties entered into Amendment No. 5 to the Agreement as
of November 30, 1999;
WHEREAS, the parties entered into Amendment No. 6 to the Agreement as
of December 10, 1999;
WHEREAS, the parties entered into Amendment No. 7 to the Agreement as
of December 31, 1999;
WHEREAS, the parties entered into Amendment No. 8 to the Agreement as
of January 31, 2000;
WHEREAS, the parties entered into Amendment No. 9 to the Agreement as
of February 7, 2000;
WHEREAS, the parties entered into Amendment No. 10 to the Agreement as
of February 15, 2000; and
<PAGE> 2
WHEREAS, the parties entered into Amendment No. 11 to the Agreement as
of February 25, 2000.
NOW THEREFORE, in consideration of the mutual covenant and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledge, the parties agree as follows:
AGREEMENT
1. Section 13.2 of the Agreement is hereby amended by deleting
"February 28, 2000" and inserting in its place "March 31, 2000."
2. The Agreement shall remain unchanged in all other respects.
3. This Agreement may be executed in one or more counterparts each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Amendment by facsimile
shall be equally effective as delivery of an original executed counterpart of
this Amendment.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
CAREMARK Rx, INC.
a Delaware corporation
By: /s/ Edward L. Hardin, Jr.
---------------------------------------------
Title: EVP
------------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By: /s/ Don Garner
---------------------------------------------
Title: Secretary
-----------------------------------------
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By: /s/ William Kenefick
---------------------------------------------
William Kenefick
Title: Acting Commissioner of the Department of
Corporations
----------------------------------------
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By: /s/ J. Mark Abernathy
---------------------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
----------------------------------------
-3-
<PAGE> 1
EXHIBIT 10.9
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), is effective as of
August 6, 1998 (the "Grant Date") and is by and between MedPartners, Inc., a
Delaware corporation (the "Company"), and James H. Dickerson, Jr. (the
"Optionee").
RECITALS
WHEREAS, on August 6, 1998, the Board of Directors (the "Board") of the
Company adopted a stock option plan known as the "MedPartners, Inc. 1998 New
Employee Stock Option Plan" (the "Plan") which authorizes the Compensation
Committee of the Board (the "Committee") to grant options to purchase shares of
the Company's common stock, $.001 par value (the "Common Stock") to persons who
were not previously employees of the Company as a material inducement to such
persons to enter into employment agreements with the Company;
WHEREAS, the Committee has granted the Optionee an Option (as described
below) to purchase the number of shares of Common Stock as set forth below;
WHEREAS, Optionee has indicated that the granting of an Option is a
material inducement to Optionee to enter into an employment agreement with the
Company
WHEREAS, the Optionee has agreed to exercise an employment agreement of
even date herewith with the Company (the "Employment Agreement"); and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to the Option in accordance with the Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows.
1. Incorporation of Plan. This Option is granted pursuant to the
provisions of the Plan and the terms and conditions of the Plan are incorporated
herein by reference and made a part hereof. A copy of the Plan has been
delivered to, and receipt is hereby acknowledged by, the Optionee. Except as
otherwise noted, capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Plan. Notwithstanding anything
in this Agreement to the contrary, to the extent the terms of this Agreement
conflict with or otherwise attempt to exceed the authority of the Committee set
forth under the Plan, the Plan shall govern and control in all respects.
<PAGE> 2
2. Grant of Option. Subject to the terms, restrictions, limitations,
and conditions stated herein and in the Plan, the Company hereby evidences its
grant to the Optionee of the right and option to purchase 400,000 shares of
Common Stock (the "Option") at a price of $3.25 per share (the "Exercise
Price").
3. Additional Changes in Control and Option Term.
3.1. Additional Change in Control. Without amending the provisions
of Article 9 of the Plan and without limiting the definition of "Change in
Control" contained in Section 2.7 of the Plan, pursuant to the authority granted
to the Committee in Section 2.7(e) of the Plan, the Committee does hereby
include in the definition of "Change in Control" contained in the Plan, the
sale, transfer or other disposition, in a transaction or series of related
transactions, of a majority of the assets of any one of the Company's three
major lines of business as of the Grant Date (consisting of its physician
practice management services business, pharmacy benefit management services
business and contracts management services business).
3.2. Option Term. Unless earlier terminated pursuant to the Plan,
this Option shall terminate on the day that is the tenth (10th) anniversary of
the Grant Date (the "Term"). In the event this Option is not exercised with
respect to all or any part of the shares of Common Stock subject to this Option
prior to the expiration of the Term or the cancellation of the Option as
provided in the Plan, the shares of Common Stock with respect to which this
Option was not exercised shall no longer be subject to this Option and Optionee
shall have no further right to purchase such shares.
4. Restrictions on Transferability.
4.1. Transfers to Immediate Family Members. This Option may not be
transferred to any person or entity except for (i) Immediate Family Members,
(ii) a trust or trusts for the exclusive benefit of such Immediate Family
Members, or (iii) a partnership in which such Immediate Family Members are the
only partners, provided that, Optionee may receive no form of consideration or
value whatsoever (whether tangible or intangible) for such transfer.
4.2. Application of the Plan. Following any transfer allowed
pursuant to Section 4.1 (such transfer a "Permitted Transfer"), (i) the Option
shall be subject to the terms and conditions of the Plan and this Agreement and
(ii) to the extent not inconsistent with the terms of this Agreement or the
Plan, such transferee shall be deemed the "Participant" pursuant to the Plan,
provided that, the events of termination of the Option as provided in the Plan
and this Agreement shall continue to be applied with respect to the Optionee
such that the Option shall be exercisable by transferee only to the extent and
for the periods specified in Section 6.9 of the Plan as such periods, terms and
events are applied to the Optionee.
4.3. No Obligation of Committee or Company. Neither the Company, its
Board of Directors, nor the Committee shall have any obligation to notify or
otherwise provide notice to a transferee of any early termination of the Option.
<PAGE> 3
4.4. Subsequent Transfers. Any transferee of Options hereunder shall
be prohibited from subsequently transferring such Options other than pursuant to
a will or by the laws of descent.
5. Notice of Exercise of Option.
5.1. Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors, personal
representatives, or permitted transferees (collectively and together with
Optionee, the "Exercising Parties" and each an "Exercising Party") by a written
notice (in substantially the form of the Notice of Exercise attached hereto as
Exhibit A) signed by the appropriate Exercising Party and delivered or mailed to
the Company as specified in Section 11.3 hereof to the attention of the
President and Chief Executive Officer or such other officer as the Company may
designate.
5.2. Content of Notice. Any such notice shall:
(1) specify the number of shares of Stock which the appropriate
Exercising Party then elects to purchase hereunder,
(2) contain such information as may be reasonably required
pursuant to Section 9 hereof, and
(3) be accompanied by (i) a certified or cashier's check
payable to the Company in an amount equal to the Exercise Price times
the number of shares of Common Stock to be purchased (such amount, the
"Aggregate Purchase Price"); or, (ii) if approved by the Committee, (A)
shares of Common Stock owned by the Optionee and duly endorsed or
accompanied by stock transfer powers and having an aggregate Fair
Market Value equal to the Aggregate Purchase Price; or (B) a certified
or cashier's check accompanied by the number of shares of Common Stock
whose aggregate Fair Market Value when added to the amount of the check
equals the Aggregate Purchase Price, subject to compliance with
applicable federal and state laws.
5.3. Issuance of Stock. Upon receipt of any such notice and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue to the appropriate Exercising Party stock certificates for the number of
shares specified in such notice registered in the name of the person exercising
this Option.
5.4. Fair Market Value. As used herein, the term "Fair Market Value"
shall be determined in accordance with Section 6.7 of the Plan on the date the
Exercising Party sends notice of its intent to exercise all or a portion of the
Option in accordance with Section 5.1 hereof.
6. Adjustment in Option. The number of shares of Stock subject to this
Option, the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with the Plan.
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<PAGE> 4
7. Death of Optionee. In the event of the Optionee's death, the
appropriate Exercising Party may exercise this Option at any time within a
period ending on the earlier of (a) the last day of the one (1) year period
following the Optionee's death or (b) the expiration date of this Option.
8. Date of Grant. This Option was granted by the Committee on the Grant
Date.
9. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Common Stock upon exercise of this
Option that would cause the Company to violate law or any rule, regulation,
order or consent decree of any regulatory authority (including without
limitation the Securities and Exchange Commission) having jurisdiction over the
affairs of the Company. The Optionee (or any appropriate Exercising Party)
agrees that he or she will provide the Company with such information as is
reasonably requested by the Company or its counsel to determine whether the
issuance of Common Stock complies with the provisions described by this Section.
10. Investment Representation of Optionee.
10.1. Representations. Optionee represents to the Company the
following:
(1) that Optionee has read and understands the terms and
provisions of the Plan, and hereby accepts this Agreement subject to
all the terms and provisions of the Plan;
(2) that optionee shall accept as binding and final all
decisions or interpretations of the Board or of the Committee upon any
questions arising under the Plan;
(3) that Optionee understands that, unless at the time of
exercise of the Option a registration statement under the Securities
Act of 1933 (the "Act"), as amended, is in effect covering shares of
Common Stock to be issued upon exercise of the Option, as a condition
to the exercise of the Option the Company may require Optionee to
represent that Optionee is acquiring the Common Stock for Optionee's
own account only and not with a view to, or for sale in connection
with, any distribution of the Stock.
10.2. Stock Legends. The Optionee understands and agrees that the
certificate or certificates representing any shares of Stock acquired hereunder
may bear an appropriate legend relating to registration and resale under federal
and state securities laws.
10.3. No Rights as Stockholder. The Optionee shall not have any
rights of a stockholder of the Company with respect to the shares of Common
Stock which may be purchased upon exercise of this Option, unless and until such
shares shall have been issued and
-4-
<PAGE> 5
delivered and his/her name has been entered as a stockholder on the stock
transfer records of the Company.
10.4. No Registration Right. Notwithstanding anything in this
Agreement or the Plan to the contrary, nothing herein shall obligate or require
the Company to file or keep effective a registration statement pursuant to the
Act or any state's securities law covering the shares of Common Stock to be
issued upon exercise of the Option.
11. Miscellaneous.
11.1. Successors and Assigns. This Agreement shall be binding upon
the parties hereto and their representatives, successors and assigns.
11.2. Choice of Law. This Agreement shall be governed by the laws of
the State of Delaware, without regard to conflicts of laws principles.
11.3. Notice. Any notice, request, document or other communication
given hereunder shall be deemed to be sufficiently given upon personal delivery
to the other party or upon the expiration of three (3) days after depositing
same in the United States mail, return receipt requested, properly addressed to
the respective parties' or such other address as they may give to the other
party in writing in the same manner as follows:
Company: MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attention: President and Chief Executive Officer
Optionee: James H. Dickerson, Jr.
5109 Club Ridge Drive West
Birmingham, Alabama 35242
11.4. Amendment. This Agreement may not be modified except in writing
executed by each of the parties hereto.
11.5. Entire Agreement. This Agreement, together with the Plan,
contains the entire understanding of the parties hereto and supersedes any prior
understanding and/or written or oral agreement between them respecting the
subject matter hereof.
11.6. Severability. The parties agree that the provisions of this
Agreement are severable and the invalidity or unenforceability of any provision
in whole or part shall not affect
-5-
<PAGE> 6
the validity or enforceability of any enforceable part of such provision or any
other provisions hereof.
11.7. Section Headings. The paragraph and section headings herein are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
11.8. Waiver. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
11.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Committee has caused this Stock Option
Agreement to be executed on behalf of the Company and the Optionee has executed
this Stock Option Agreement.
COMPANY:
MEDPARTNERS, INC.
/s/ E. Mac Crawford
E. Mac Crawford
President and Chief Executive Officer
OPTIONEE:
/s/ James H. Dickerson, Jr.
James H. Dickerson, Jr.
-6-
<PAGE> 7
Exhibit A
to
Stock Option Agreement
between
MedPartners, Inc.
and
James H. Dickerson, Jr.
NOTICE OF EXERCISE
Dated
----------------
The undersigned hereby notifies MedPartners, Inc. (the "Company") of
this election to exercise the undersigned's stock option to purchase
________________ shares of the Company's common stock, $.001 par value (the
"Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated ________________. Accompanying
this Notice is (1) a certified or a cashier's check in the amount of
$________________ payable to the Company, and/or (2) _______________ shares of
Common Stock presently owned by the undersigned and duly endorsed or accompanied
by stock transfer powers, having an aggregate Fair Market Value (as determined
by Section 5.4 of the Agreement) as of the date hereof of $__________________,
such amounts being equal, in the aggregate, to the Exercise Price per share set
forth in Section 2 of the Agreement multiplied by the number of shares being
purchased hereby (in each instance subject to appropriate adjustment pursuant to
Section 6 of the Agreement).
The undersigned is a resident of the State of .
IN WITNESS WHEREOF, the undersigned has set his/her hand and seal, this
________ day of____________________, ____________.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR, EXECUTOR
OR PERSONAL REPRESENTATIVE]
Name:
----------------------------------------
Position (if other than Optionee):
<PAGE> 1
EXHIBIT 10.11
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), is effective as of
August 6, 1998 (the "Grant Date") and is by and between MedPartners, Inc., a
Delaware corporation (the "Company"), and Edward L. Hardin, Jr. (the
"Optionee").
RECITALS
WHEREAS, on August 6, 1998, the Board of Directors (the "Board") of
the Company adopted a stock option plan known as the "MedPartners, Inc. 1998
New Employee Stock Option Plan" (the "Plan") which authorizes the Compensation
Committee of the Board (the "Committee") to grant options to purchase shares of
the Company's common stock, $.001 par value (the "Common Stock") to persons who
were not previously employees of the Company as a material inducement to such
persons to enter into employment agreements with the Company;
WHEREAS, the Committee has granted the Optionee an Option (as
described below) to purchase the number of shares of Common Stock as set forth
below;
WHEREAS, Optionee has indicated that the granting of an Option is a
material inducement to Optionee to enter into an employment agreement with the
Company
WHEREAS, the Optionee has agreed to exercise an employment agreement
of even date herewith with the Company (the "Employment Agreement"); and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to the Option in accordance with the Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows.
1. Incorporation of Plan. This Option is granted pursuant to the
provisions of the Plan and the terms and conditions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee. Except
as otherwise noted, capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Plan. Notwithstanding
anything in this Agreement to the contrary, to the extent the terms of this
Agreement conflict with or otherwise attempt to exceed the authority of the
Committee set forth under the Plan, the Plan shall govern and control in all
respects.
<PAGE> 2
2. Grant of Option. Subject to the terms, restrictions,
limitations, and conditions stated herein and in the Plan, the Company hereby
evidences its grant to the Optionee of the right and option to purchase 400,000
shares of Common Stock (the "Option") at a price of $3.25 per share (the
"Exercise Price").
3. Additional Changes in Control and Option Term.
3.1. Additional Change in Control. Without amending the
provisions of Article 9 of the Plan and without limiting the definition of
"Change in Control" contained in Section 2.7 of the Plan, pursuant to the
authority granted to the Committee in Section 2.7(e) of the Plan, the Committee
does hereby include in the definition of "Change in Control" contained in the
Plan, the sale, transfer or other disposition, in a transaction or series of
related transactions, of a majority of the assets of any one of the Company's
three major lines of business as of the Grant Date (consisting of its physician
practice management services business, pharmacy benefit management services
business and contracts management services business).
3.2. Option Term. Unless earlier terminated pursuant to
the Plan, this Option shall terminate on the day that is the tenth (10th)
anniversary of the Grant Date (the "Term"). In the event this Option is not
exercised with respect to all or any part of the shares of Common Stock subject
to this Option prior to the expiration of the Term or the cancellation of the
Option as provided in the Plan, the shares of Common Stock with respect to
which this Option was not exercised shall no longer be subject to this Option
and Optionee shall have no further right to purchase such shares.
4. Restrictions on Transferability.
4.1. Transfers to Immediate Family Members. This Option
may not be transferred to any person or entity except for (i) Immediate Family
Members, (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that, Optionee may receive no form of
consideration or value whatsoever (whether tangible or intangible) for such
transfer.
4.2. Application of the Plan. Following any transfer
allowed pursuant to Section 4.1 (such transfer a "Permitted Transfer"), (i) the
Option shall be subject to the terms and conditions of the Plan and this
Agreement and (ii) to the extent not inconsistent with the terms of this
Agreement or the Plan, such transferee shall be deemed the "Participant"
pursuant to the Plan, provided that, the events of termination of the Option as
provided in the Plan and this Agreement shall continue to be applied with
respect to the Optionee such that the Option shall be exercisable by transferee
only to the extent and for the periods specified in Section 6.9 of the Plan as
such periods, terms and events are applied to the Optionee.
4.3. No Obligation of Committee or Company. Neither the
Company, its Board of Directors, nor the Committee shall have any obligation to
notify or otherwise provide notice to a transferee of any early termination of
the Option.
-2-
<PAGE> 3
4.4. Subsequent Transfers. Any transferee of Options
hereunder shall be prohibited from subsequently transferring such Options other
than pursuant to a will or by the laws of descent.
5. Notice of Exercise of Option.
5.1. Exercise of Option. This Option may be exercised by
the Optionee, or by the Optionee's administrators, executors, personal
representatives, or permitted transferees (collectively and together with
Optionee, the "Exercising Parties" and each an "Exercising Party") by a written
notice (in substantially the form of the Notice of Exercise attached hereto as
Exhibit A) signed by the appropriate Exercising Party and delivered or mailed
to the Company as specified in Section 11.3 hereof to the attention of the
President and Chief Executive Officer or such other officer as the Company may
designate.
5.2. Content of Notice. Any such notice shall:
(1) specify the number of shares of Stock which
the appropriate Exercising Party then elects to purchase hereunder,
(2) contain such information as may be
reasonably required pursuant to Section 9 hereof, and
(3) be accompanied by (i) a certified or
cashier's check payable to the Company in an amount equal to the
Exercise Price times the number of shares of Common Stock to be
purchased (such amount, the "Aggregate Purchase Price"); or, (ii) if
approved by the Committee, (A) shares of Common Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer powers and
having an aggregate Fair Market Value equal to the Aggregate Purchase
Price; or (B) a certified or cashier's check accompanied by the number
of shares of Common Stock whose aggregate Fair Market Value when added
to the amount of the check equals the Aggregate Purchase Price,
subject to compliance with applicable federal and state laws.
5.3. Issuance of Stock. Upon receipt of any such notice
and accompanying payment, and subject to the terms hereof, the Company agrees
to issue to the appropriate Exercising Party stock certificates for the number
of shares specified in such notice registered in the name of the person
exercising this Option.
5.4. Fair Market Value. As used herein, the term "Fair
Market Value" shall be determined in accordance with Section 6.7 of the Plan on
the date the Exercising Party sends notice of its intent to exercise all or a
portion of the Option in accordance with Section 5.1 hereof.
6. Adjustment in Option. The number of shares of Stock subject
to this Option, the Exercise Price and other matters are subject to adjustment
during the term of this Option in accordance with the Plan.
-3-
<PAGE> 4
7. Death of Optionee. In the event of the Optionee's death, the
appropriate Exercising Party may exercise this Option at any time within a
period ending on the earlier of (a) the last day of the one (1) year period
following the Optionee's death or (b) the expiration date of this Option.
8. Date of Grant. This Option was granted by the Committee on
the Grant Date.
9. Compliance with Regulatory Matters. The Optionee acknowledges
that the issuance of capital stock of the Company is subject to limitations
imposed by federal and state law and the Optionee hereby agrees that the
Company shall not be obligated to issue any shares of Common Stock upon
exercise of this Option that would cause the Company to violate law or any
rule, regulation, order or consent decree of any regulatory authority
(including without limitation the Securities and Exchange Commission) having
jurisdiction over the affairs of the Company. The Optionee (or any appropriate
Exercising Party) agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Common Stock complies with the provisions
described by this Section.
10. Investment Representation of Optionee.
10.1. Representations. Optionee represents to the Company
the following:
(1) that Optionee has read and understands the
terms and provisions of the Plan, and hereby accepts this Agreement
subject to all the terms and provisions of the Plan;
(2) that optionee shall accept as binding and
final all decisions or interpretations of the Board or of the
Committee upon any questions arising under the Plan;
(3) that Optionee understands that, unless at
the time of exercise of the Option a registration statement under the
Securities Act of 1933 (the "Act"), as amended, is in effect covering
shares of Common Stock to be issued upon exercise of the Option, as a
condition to the exercise of the Option the Company may require
Optionee to represent that Optionee is acquiring the Common Stock for
Optionee's own account only and not with a view to, or for sale in
connection with, any distribution of the Stock.
10.2. Stock Legends. The Optionee understands and agrees
that the certificate or certificates representing any shares of Stock acquired
hereunder may bear an appropriate legend relating to registration and resale
under federal and state securities laws.
10.3. No Rights as Stockholder. The Optionee shall not
have any rights of a stockholder of the Company with respect to the shares of
Common Stock which may be purchased upon exercise of this Option, unless and
until such shares shall have been issued and
-4-
<PAGE> 5
delivered and his/her name has been entered as a stockholder on the stock
transfer records of the Company.
10.4. No Registration Right. Notwithstanding anything in
this Agreement or the Plan to the contrary, nothing herein shall obligate or
require the Company to file or keep effective a registration statement pursuant
to the Act or any state's securities law covering the shares of Common Stock to
be issued upon exercise of the Option.
11. Miscellaneous.
11.1. Successors and Assigns. This Agreement shall be
binding upon the parties hereto and their representatives, successors and
assigns.
11.2. Choice of Law. This Agreement shall be governed by
the laws of the State of Delaware, without regard to conflicts of laws
principles.
11.3. Notice. Any notice, request, document or other
communication given hereunder shall be deemed to be sufficiently given upon
personal delivery to the other party or upon the expiration of three (3) days
after depositing same in the United States mail, return receipt requested,
properly addressed to the respective parties' or such other address as they may
give to the other party in writing in the same manner as follows:
Company: MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attention: President and Chief Executive Officer
Optionee: Edward L. Hardin, Jr.
10 August Way
Birmingham, Alabama 35244
11.4. Amendment. This Agreement may not be modified except
in writing executed by each of the parties hereto.
11.5. Entire Agreement. This Agreement, together with the
Plan, contains the entire understanding of the parties hereto and supersedes
any prior understanding and/or written or oral agreement between them
respecting the subject matter hereof.
11.6. Severability. The parties agree that the provisions
of this Agreement are severable and the invalidity or unenforceability of any
provision in whole or part shall not affect
-5-
<PAGE> 6
the validity or enforceability of any enforceable part of such provision or any
other provisions hereof.
11.7. Section Headings. The paragraph and section headings
herein are included solely for convenience of reference and shall not control
the meaning or interpretation of any of the provisions of this Agreement.
11.8. Waiver. No waiver of any breach or default hereunder
shall be considered valid unless in writing, and no such waiver shall be deemed
a waiver of any subsequent breach or default of the same or similar nature.
11.9. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Committee has caused this Stock
Option Agreement to be executed on behalf of the Company and the Optionee has
executed this Stock Option Agreement.
COMPANY:
MEDPARTNERS, INC.
/s/ E. Mac Crawford
--------------------------------------
E. Mac Crawford
President and Chief Executive Officer
OPTIONEE:
/s/ Edward L. Hardin, Jr.
--------------------------------------
Edward L. Hardin, Jr.
-6-
<PAGE> 7
Exhibit A
to
Stock Option Agreement
between
MedPartners, Inc.
and
Edward L. Hardin, Jr.
NOTICE OF EXERCISE
Dated
----------------
The undersigned hereby notifies MedPartners, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________________ shares of the Company's common stock, $.001 par value
(the "Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated ________________. Accompanying
this Notice is (1) a certified or a cashier's check in the amount of
$________________ payable to the Company, and/or (2) _______________ shares of
Common Stock presently owned by the undersigned and duly endorsed or
accompanied by stock transfer powers, having an aggregate Fair Market Value (as
determined by Section 5.4 of the Agreement) as of the date hereof of
$__________________, such amounts being equal, in the aggregate, to the
Exercise Price per share set forth in Section 2 of the Agreement multiplied by
the number of shares being purchased hereby (in each instance subject to
appropriate adjustment pursuant to Section 6 of the Agreement).
The undersigned is a resident of the State of ______________.
IN WITNESS WHEREOF, the undersigned has set his/her hand and
seal, this ________ day of ________________, ______.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR, EXECUTOR OR
PERSONAL REPRESENTATIVE]
Name:
-------------------------------------
Position (if other than Optionee):
-7-
<PAGE> 1
EXHIBIT 10.12
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made
and entered into as of March 8, 2000 by and between Caremark Rx, Inc., a
Delaware corporation ("Caremark") and Edward L. Hardin, Jr. ("Officer").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in that certain Employment Agreement by and between
Caremark and Officer dated July 1, 1998 (the "Employment Agreement").
WHEREAS, Caremark and Officer entered into the Employment Agreement
whereby Officer agreed to serve as Executive Vice President and General Counsel
of Caremark; and
WHEREAS, Caremark and Officer desire to amend Section 6 of the
Employment Agreement so as to eliminate ambiguity and confirm the parties
original intent with respect to Officer's incentive compensation arrangements.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained in this Amendment, the parties agree
as follows:
1. Amendment to Section 6. Section 6 of the Employment Agreement
shall be deleted in its entirety and the following shall be inserted in lieu
thereof:
"Section 6. Incentive Compensation.
During the Term, Officer shall be eligible to receive from
Employer annual incentive compensation in amount up to one
hundred percent (100%) of Officer's base salary (pro-rated for
any particular calendar year during the term); provided,
however, that for services rendered during calendar year 1998,
Officer shall be eligible to receive from Employer incentive
compensation in an amount up to $400,000.00, less state and
federal tax and other legally required and Officer-authorized
withholdings. The incentive compensation contemplated by this
Section 6 shall be payable to Officer solely at the discretion
of the Chief Executive Officer of Employer based upon
Officer's performance. The incentive compensation which
Officer shall be eligible to earn under this Section 6 shall
be subject to review and adjustment by the Board (or a
Committee of the Board) from time-to-time consistent with past
practice."
2. No other Amendment. Except as otherwise modified by this
Amendment, all other terms and conditions of the Employment Agreement shall not
be modified or amended and shall remain in full force and effect.
<PAGE> 2
3. Miscellaneous.
(a) Entire Agreement. This Amendment, together with the
Employment Agreement, contains the entire agreement of the parties relating to
the subject matter hereof and thereof, and it replaces and supersedes any prior
agreements between the parties relating to said subject matter.
(b) Waiver and Amendment. No provision of this Amendment may
be waived except by a written agreement signed by the waiving party. The waiver
of any term or condition of this Amendment shall not be deemed to constitute the
waiver of any other term or condition. This Amendment may be amended only by a
written agreement signed by each of the parties hereto.
(c) Captions. Captions have been inserted solely for the
convenience of reference and in no way define, limit or describe the scope or
substance of any provisions of this Amendment.
(d) Governing Law. This Amendment shall be governed by the
laws of the State of Alabama.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
Attest: CAREMARK Rx, INC.
By: /s/ SARA J. FINLEY By: /s/ E. Mac Crawford
------------------------------
Name: SARA J. FINLEY E. Mac Crawford
----------------------------
Title: SENIOR VP Chairman of the Board
---------------------------
By: /s/ Edward L. Hardin, Jr.
Edward L. Hardin, Jr.
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of August 7, 1998 by and between MedPartners, Inc., a Delaware corporation
("Employer"), and Brad Karro ("Officer").
RECITALS
WHEREAS, Employer desires to retain the services of Officer and
Officer desires to serve Employer in the capacity of Senior Vice President, COO
Southern California; and
WHEREAS, Employer and Officer desire to set forth the terms and
conditions of Officer's employment with Employer under this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and agreements contained in this Agreement, the parties agree
as follows:
1. Term. Employer agrees to employ Officer, and Officer agrees
to serve Employer, on an "at will" basis for such period (such period being the
"Term") as Employer desires to employ Officer and Officer agrees to serve
Employer. Without limiting the generality of the foregoing sentence, Employer
shall have the right to terminate Officer at any time for any reason or no
reason without any obligation to Officer other than for Base Salary (as
hereinafter defined) earned but unpaid through the date of such termination.
2. Employment of Officer.
(1) Position; Duties. Employer and Officer agree that,
subject to the provisions of this Agreement Officer will serve as the Senior
Vice President, COO Southern California of Employer.
3. Compensation.
(1) Salary. Employer shall pay Officer a salary in the
amount of $275,000 per year (pro-rated for any partial year during the Term)
(the "Base Salary") payable in equal semimonthly installments, less state and
federal tax and other legally required withholdings. The Base Salary shall be
subject to review and adjustment by the Board (or a Committee of the Board)
from time-to-time consistent with past practice.
(2) Incentive Compensation. During the Term, Officer
shall be eligible to receive from Employer incentive compensation in an amount
equal to fifty (50%) percent of Base Salary (pro-rated for any partial calendar
year during the Term), less state and federal tax and other
<PAGE> 2
legally required and Officer-authorized withholdings. The incentive
compensation contemplated by this Section 3(b) shall be payable to Officer
solely at the discretion of the President and Chief Executive Officer of
Employer based upon Officer's performance hereunder. The incentive compensation
which Officer shall be eligible to earn under this Section 3(b) shall be
subject to review and adjustment by the Board (or a Committee of the Board)
from time-to-time consistent with past practice.
4. Benefits.
(1) Stock Options Plans. As a material inducement to
officer executing this Agreement, the Officer shall be granted options to
purchase 150,000 shares of MedPartners, Inc. common stock, $0.001 par value.
The terms of such options to be governed by the MedPartners, Inc. 1998 New
Employee Stock Option Plan and a stock option agreement substantially in the
form of Exhibit A attached hereto.
(2) Fringe Benefits. In addition to the compensation and
other remuneration provided for in this Agreement, Officer shall be entitled,
during the Term, to such other benefits of employment with Employer as are now
or may after the date of this Agreement be in effect for employees of Employer
at the same level as Officer.
(3) Relocation Package. Officer shall be entitled to
receive Employer's standard relocation package as set forth in the MedPartners,
Inc. Relocation Policy and Procedure Statement attached hereto as Exhibit B. In
addition, Officer shall be entitled to receive an amount equal to $91,666.67,
less state and federal tax and other legally required and Officer authorized
withholdings, for certain miscellaneous items associated with Officer's
relocation.
(4) Expenses. During the Term, Employer shall reimburse
Officer promptly for all reasonable travel, entertainment, parking, business
meeting and similar expenditures in pursuit and furtherance of Employer's
business upon receipt of reasonable supporting documentation as required by
Employer's policies applicable to its officers generally.
(5) Termination Benefits. Notwithstanding any provision
of this Agreement to the contrary, if Officer is terminated by Employer for any
reason other than for "cause" (as hereinafter defined), Officer shall be
entitled to receive and Employer shall be obligated to pay, as severance for
such termination, an amount equal to one year's Base Salary, less state and
federal tax and other legally required withholdings. As defined herein, the
term "Cause" shall mean Officer (i) materially breaches any material term of
this Agreement, (ii) is convicted by a court of competent jurisdiction of a
felony, (iii) refuses, fails or neglects to perform his duties under this
Agreement in a manner substantially detrimental to the business of Employer,
(iv) engages in illegal or other wrongful conduct substantially detrimental to
the business or reputation of Employer, or (v) develops or pursues interests
substantially adverse to Employer; provided, however, that in the case of
clauses (i), (iii), (iv), or (v), no such termination shall be effective unless
(1) Employer shall have given Officer 30 days' prior written notice of any
conduct or deficiency in performance by Officer that Employer believes could,
if not discontinued or corrected, lead to Officer's termination under this
-2-
<PAGE> 3
Section 4(5) in order that Officer shall have had an opportunity to cure such
noncomplying conduct or performance, and (2) Officer shall not have cured such
noncomplying conduct or performance during such notice period.
5. Trade Secrets and Confidentiality
(1) Trade Secrets. Officer agrees and covenants that,
both during the Term and after termination of his employment, Officer will hold
in a fiduciary capacity for the benefit of Employer, and shall not directly or
indirectly use or disclose, except as authorized by Employer in connection with
the performance of Officer's duties, any Trade Secret, as defined hereinafter,
that Officer may have or acquire during the Term for so long as the such
information remains a Trade Secret. The term "Trade Secret" as used in this
Agreement shall mean information including, but not limited to, technical or
non-technical data, a formula, a pattern, a compilation, a program, a device, a
method, a technique, a drawing, a process, financial data, financial plans,
product plans, or a list of actual or potential customers or suppliers,
including without limitation, information received by Employer or Officer from
any client or potential client of Employer, which:
1. derives economic value, actual or potential, from
not being generally known to, and not being readily
ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or
use; and
2. is the subject of reasonable efforts by Employer or
the client from which the information was received
to maintain its secrecy.
(2) Confidentiality. In addition to the covenants set
forth in Section 5(a) and not in limitation thereof, Officer agrees that,
during the Term and for a period of five (5) years after termination of his
employment, Officer will hold in a fiduciary capacity for the benefit of
Employer and shall not directly or indirectly use or disclose, except as
authorized by Employer in connection with the performance of Officer's duties,
any Confidential or Proprietary Information, as defined hereinafter, that
Officer may have or acquire (whether or not developed or compiled by Officer
and whether or not Officer has been authorized to have access to such
Confidential or Proprietary Information) during the Term. The term
"Confidential or Proprietary Information" as used in this Agreement means any
secret, confidential or proprietary information of Employer, including
information received by Employer or Officer from any client or potential client
of Employer, not otherwise included in the definition of "Trade Secret" in
Section 5(a) above. The term "Confidential or Proprietary Information" does not
include information that has become generally available to the public by the
act of one who has the right to disclose such information without violating any
right of the client to which such information pertains.
(3) Restrictions Supplemental to State Law. The
restrictions set forth in Sections 5(a) and (b) are in addition to and not in
lieu of protections afforded to trade secrets and confidential information
under applicable state law. Nothing in this Agreement is intended to or shall
be interpreted as diminishing or otherwise limiting Employer's right under
applicable state law to protect its trade secrets and confidential information.
-3-
<PAGE> 4
6. Miscellaneous.
(1) Succession. This Agreement shall inure to the
benefit of and shall be binding upon Employer, its successors and assigns, but
Employer shall not have the right to assign this Agreement without the prior
written consent of Officer. The obligations and duties of Officer under this
Agreement shall be personal and not assignable.
(2) Notices. Any notice, request, instruction or other
document to be given under this Agreement by any party to the others shall be
in writing and delivered in person or by courier, telegraphed, telexed or sent
by facsimile transmission or mailed by certified mail, postage prepaid, return
receipt requested (such mailed notice to be effective on the date of such
receipt is acknowledged), as follows:
If to Officer:
Brad Karro
--------------------------------
--------------------------------
If to Employer:
MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attn: President and Chief Executive Officer
or to such other place as either party may designate as to itself by written
notice to the other.
(3) Waiver; Amendment. No provision of this Agreement
may be waived except by a written agreement signed by the waiving party. The
waiver of any term or of any condition of this Agreement shall not be deemed to
constitute the waiver of any other term or condition. This Agreement may be
amended only by a written agreement signed by the parties.
(4) Governing Law. This Agreement shall be construed
under and governed by the internal laws of the State of Alabama, without regard
to Alabama's choice of law rules.
(5) Arbitration. Any disputes or controversies arising
under this Agreement shall be settled by arbitration in Birmingham, Alabama in
accordance with the rules of the American Arbitration Association relating to
the arbitration of commercial disputes. The determination and findings of such
arbitrators shall be final and binding on all parties and may be enforced, if
necessary, in the courts of the State of Alabama.
-4-
<PAGE> 5
(6) Captions. Captions have been inserted solely for the
convenience of reference and in no way define, limit or describe the scope or
substance of any provisions of this Agreement.
(7) Severability. If this Agreement shall for any reason
be or become unenforceable by any party, this Agreement shall thereupon
terminate and become unenforceable by the other party as well. In all other
respects, if any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect and, if any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MEDPARTNERS, INC.
/s/ E. Mac Crawford
-----------------------------
E. Mac Crawford
President and CEO
/s/ Brad Karro
-----------------------------
Brad Karro
<PAGE> 7
EXHIBIT A
Form of Stock Option Agreement
-6-
<PAGE> 8
EXHIBIT B
Relocation Policy and Procedure Statement
-7-
<PAGE> 1
EXHIBIT 10.39
AMENDMENT NO. 14 TO THE LOAN DOCUMENTS
AMENDMENT NO. 14 TO THE LOAN DOCUMENTS dated as of December
16, 1999, to the Amended and Restated Credit Agreement dated as of June 9, 1998
(as amended and otherwise modified by Amendment and Waiver No. 1 to the Loan
Documents dated as of December 4, 1998, Amendment No. 2 to the Loan Documents
dated as of January 13, 1999, Amendment No. 3 to the Loan Documents dated as of
February 9, 1999, Amendment and Waiver No. 4 to the Loan Documents dated as of
March 18, 1999, Amendment and Waiver No. 5 to the Loan Documents dated as of
April 1, 1999, Amendment No. 6 to the Loan Documents dated as of April 14, 1999,
Amendment No. 7 to the Loan Documents dated as of June 29, 1999, Amendment No. 8
to the Loan Documents dated as of August 2, 1999, Amendment No. 9 to the Loan
Documents dated as of August 16, 1999, Amendment No. 10 to the Loan Documents
dated as of August 23, 1999, Amendment No. 11 to the Loan Documents dated as of
August 30, 1999, Amendment No. 12 to the Loan Documents dated as of September
14, 1999, and Amendment No. 13 to the Loan Documents dated as of November 5,
1999 the "CREDIT AGREEMENT") among Caremark Rx, Inc. (formerly known as
MedPartners, Inc.), a Delaware corporation (the "BORROWER"), the Lenders party
thereto, Bank of America, N.A. (formerly NationsBank, N.A.; "BOFA"), as the
Initial Issuing Bank and the Swing Line Bank thereunder, Credit Lyonnais New
York Branch, The First National Bank of Chicago and Morgan Guaranty Trust
Company of New York, as the Syndication Agents therefor, Banc of America
Securities LLC (formerly NationsBanc Montgomery Securities LLC), as the Arranger
therefor, and BofA, as the Administrative Agent for the Lender Parties
thereunder. Capitalized terms not otherwise defined in this Amendment have the
same meanings as specified therefor in the Credit Agreement.
PRELIMINARY STATEMENTS
(1) The Borrower has requested that the Lender Parties agree
to amend the Credit Agreement as provided herein.
(2) The Lender Parties have indicated their willingness to
agree to amend the Credit Agreement on the terms and subject to the satisfaction
of the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein and in the Loan Documents, the
parties hereto hereby agree as follows:
SECTION 1. Amendments of Certain Provisions of the Credit
Agreement. The Credit Agreement is, upon the occurrence of the Amendment
Effective Date (as hereinafter defined), hereby amended to read as follows:
(a) Section 1.01 is hereby amended to amend the definition of
"California Transition Plan" to delete the date "December 31, 1999" in subclause
(D) thereof and to substitute therefor the new date "January 31, 2000, or such
later date as may be approved by the Administrative Agent in writing".
(b) Section 2.05(b) is hereby amended to delete the date
"December 31, 1999" in subclause (vii)(B) thereof and to substitute therefor the
new date " January 31, 2000, or such later date as may be approved by the
Administrative Agent in writing".
<PAGE> 2
(c) Sections 5.02(b)(viii) and 5.02(e)(iii)(D) are hereby
amended to delete the phrase ", as in effect on the Amendment No. 7 Effective
Date" therefrom.
(d) Section 5.02(e)(iii)(E) is hereby amended in its entirety
as follows:
"(E) the Borrower in MPN and the other California Subsidiaries (I) with
the proceeds of payments made by the Borrower under the MedPartners
Funding Commitment, or (II) comprised of the issuance of the Letter of
Credit in favor of the Special Monitor-Examiner (as defined in the
California Settlement Agreement), with such Letter of Credit to (w)
have a face amount not to exceed $25,000,000, (x) provide that no draws
can be made thereunder prior to the adoption of the California
Transition Plan other than draws in an aggregate amount of not more
than $12,500,000 made in respect of those Managed Physician Practice
Provider Claims (as defined in the California Settlement Agreement)
that are specified in such Letter of Credit and (y) be otherwise as
required under the California Settlement Agreement,".
SECTION 2. Conditions Precedent to the Effectiveness of this
Amendment. This Amendment shall become effective as of the first date (the
"AMENDMENT EFFECTIVE DATE") on which, and only if, each of the following
conditions precedent shall have been satisfied:
(a) The Administrative Agent shall have received on or before 5:00 p.m.
(Charlotte time) on December 29, 1999, (i) counterparts of this Amendment
executed by the Borrower and the Required Lenders or, as to any of the Lender
Parties, advice satisfactory to the Administrative Agent that such Lender Party
has executed this Amendment and (ii) counterparts of the Consent attached hereto
executed and delivered by each of the Loan Parties (other than the Borrower).
(b) The representations and warranties set forth in each of the Loan
Documents shall be correct in all material respects on and as of the Amendment
Effective Date, before and after giving effect to this Amendment, as though made
on and as of such date (except (i) for any such representation and warranty
that, by its terms, refers to a specific date other than the Amendment Effective
Date, in which case as of such specific date, (ii) that the Consolidated
financial statements of the Borrower and its Subsidiaries referred to in
Sections 4.01(f) and 4.01(g) of the Credit Agreement shall be deemed to refer to
the Consolidated financial statements of the Borrower and its Subsidiaries
comprising part of the Required Financial Information most recently delivered to
the Administrative Agent and the Lender Parties pursuant to Sections 5.03(b) and
5.03(c), respectively, on or prior to the Amendment Effective Date and (iii)
that the forecasted Consolidated financial statements of the Borrower and its
Subsidiaries referred to in Section 4.01(h) of the Credit Agreement shall be
deemed to refer to the forecasted Consolidated financial statements of the
Borrower and its Subsidiaries most recently delivered to the Administrative
Agent and the Lender Parties prior to the Amendment Effective Date).
(c) No event shall have occurred and be continuing, or shall result
from the effectiveness of this Amendment, that constitutes a Default.
(d) All of the reasonable fees and expenses of the Administrative Agent
and the Arranger (including the reasonable fees and expenses of counsel for the
Administrative Agent) due and payable on the Amendment Effective Date shall have
been paid in full.
The effectiveness of this Amendment is further conditioned
upon the accuracy of all of the factual matters described herein. This Amendment
is subject to the provisions of Section 8.01 of the Credit Agreement.
2
<PAGE> 3
SECTION 3. Reference to and Effect on the Loan Documents. (a)
On and after the Amendment Effective Date, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement," "thereunder," "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as amended by the amendments specifically provided above in Section
1, are and shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any of the Guaranteed Parties or the
Administrative Agent under any of the Loan Documents, or constitute a waiver of
any provision of any of the Loan Documents.
SECTION 4. Costs and Expenses. The Borrower hereby agrees to
pay, upon demand, all of the reasonable costs and expenses of the Administrative
Agent and the Arranger (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent and of Sugarman & Company LLP)
in connection with the preparation, execution, delivery, administration,
modification and amendment of this Amendment and all of the agreements,
instruments and other documents delivered or to be delivered in connection
herewith, all in accordance with the terms of Section 8.04 of the Credit
Agreement.
SECTION 5. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 6. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers, thereunto duly
authorized, as of the date first written above.
THE BORROWER
CAREMARK RX, INC.
(formerly known as MEDPARTNERS, INC.)
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: EVP and CFO
THE ADMINISTRATIVE AGENT
BANK OF AMERICA, N.A.
By /s/ Michael D. Monte
-------------------------------------
Name: Michael D. Monte
Title: Managing Director
4
<PAGE> 5
THE LENDER PARTIES
BANK OF AMERICA, N.A., as a Lender,
the Swing Line Bank and the Issuing Bank
By /s/ Michael D. Monte
-------------------------------------
Name: Michael D. Monte
Title: Managing Director
AMSOUTH BANK
By /s/ Allison J. Sanders
-------------------------------------
Name: Allison J. Sanders
Title: Vice President
THE CHASE MANHATTAN BANK
By /s/ Dawn Lee Lum
-------------------------------------
Name: Dawn Lee Lum
Title: Vice President
CITIBANK, N.A.
By
-------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Henry J. Reukauf
-------------------------------------
Name: Henry J. Reukauf
Title: Vice President
DEBT STRATEGIES FUND, INC.
By
-------------------------------------
Name:
Title:
5
<PAGE> 6
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ L. Richard Schiller
-------------------------------------
Name: L. Richard Schiller
Title: Vice President
FIRST UNION NATIONAL BANK
By /s/ Joyce L. Barry
-------------------------------------
Name: Joyce L. Barry
Title: SVP
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured Management, Inc., as
attorney in fact
By /s/ Gregory Stoeckle
-------------------------------------
Name: Gregory Stoeckle
Title: Authorized Signatory
KZH HIGHLAND-2 LLC
By
-------------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By
-------------------------------------
Name:
Title:
6
<PAGE> 7
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO, INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By
-------------------------------------
Name:
Title:
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
BY: MERRILL LYNCH ASSET MANAGEMENT,
L.P., as Investment Advisor
By
-------------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By
-------------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor
By
-------------------------------------
Name:
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT L.P.,
as Collateral Manager
By
-------------------------------------
Name:
Title:
7
<PAGE> 8
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By
-------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Anna Marie Fallon
-------------------------------------
Name: Anna Marie Fallon
Title: Vice President
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
-------------------------------------
Name:
Title:
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
-------------------------------------
Name:
Title:
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By
-------------------------------------
Name:
Title:
8
<PAGE> 9
SCOTIABANC INC.
By /s/ Dana Maloney
-------------------------------------
Name: Dana Maloney
Title: Relationship Manager
SRV-HIGHLAND, INC.
By
-------------------------------------
Name:
Title:
STEIN ROE & FARNHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By /s/ Brian W. Good
-------------------------------------
Name: Brian W. Good
Title: Vice President & Portfolio Manager
TORONTO DOMINION (TEXAS), INC.
By /s/ Sonja R. Jordan
-------------------------------------
Name: Sonja R. Jordan
Title: Vice President
TRANSAMERICA LIFE INSURANCE AND
ANNUITY CO.
By
-------------------------------------
Name:
Title:
TRANSAMERICA PREMIER HIGH YIELD FUND
By
-------------------------------------
Name:
Title:
9
<PAGE> 10
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Darvin D. Pierce
-------------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN SENIOR INCOME TRUST
By /s/ Darvin D. Pierce
-------------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By /s/ Darvin D. Pierce
-------------------------------------
Name: Darvin D. Pierce
Title: Vice President
WACHOVIA BANK, N.A.
By /s/ Bradley S. Marcus
-------------------------------------
Name: Bradley S. Marcus
Title: S.V.P.
10
<PAGE> 11
CONSENT TO AMENDMENT NO. 14
TO THE LOAN DOCUMENTS
As of December 16, 1999
Reference is made to Amendment No. 14 to the Loan Documents
dated as of December 16, 1999 (the "AMENDMENT") to the Amended and Restated
Credit Agreement dated as of June 9, 1998 (as amended and otherwise modified by
Amendment No. 1 to the Loan Documents dated as of December 4, 1998, Amendment
No. 2 to the Loan Documents dated as of January 13, 1999, Amendment No. 3 to the
Loan Documents dated as of February 9, 1999, Amendment and Waiver No. 4 to the
Loan Documents dated as of March 18, 1999, Amendment and Waiver No. 5 to the
Loan Documents dated as of April 1, 1999, Amendment No. 6 to the Loan Documents
dated as of April 14, 1999, Amendment No. 7 to the Loan Documents dated as of
June 29, 1999, Amendment No. 8 to the Loan Documents dated as of August 2, 1999,
Amendment No. 9 to the Loan Documents dated as of August 16, 1999, Amendment No.
10 to the Loan Documents dated as of August 23, 1999, Amendment No. 11 to the
Loan Documents dated as of August 30, 1999, Amendment No. 12 to the Loan
Documents dated as of September 14, 1999, and Amendment No. 13 to the Loan
Documents dated as of November 5, 1999, the "CREDIT AGREEMENT") among Caremark
Rx, Inc. (formerly known as MedPartners, Inc.), a Delaware corporation, the
Lenders party thereto, Bank of America, N.A. (formerly NationsBank, N.A.), as
the Initial Issuing Bank and Swing Line Bank thereunder, Credit Lyonnais New
York Branch, The First National Bank of Chicago and Morgan Guaranty Trust
Company of New York, as the Syndication Agents therefor, Banc of America
Securities LLC (formerly NationsBanc Montgomery Securities LLC), as Arranger
therefor, and Bank of America, N.A. (formerly NationsBank, N.A.), as the
Administrative Agent for the Lender Parties thereunder. Capitalized terms not
otherwise defined herein shall have the same meanings as specified therefor in
the Credit Agreement.
Each of the undersigned, as a guarantor under the Subsidiaries
Guarantee dated as of June 9, 1998 (as modified to the date hereof, the
"SUBSIDIARIES GUARANTEE") in favor of the Guaranteed Parties, hereby consents to
the execution and delivery of the Amendment and the performance of the Credit
Agreement, as amended thereby, and hereby confirms and agrees that,
notwithstanding the effectiveness of the Amendment, the Subsidiaries Guarantee
is, and shall continue to be, in full force and effect and is hereby in all
respects ratified and confirmed, except that each reference in the Subsidiaries
Guarantee to "the Credit Agreement," "thereunder," "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference to the
Credit Agreement, as amended by the Amendment.
This Consent may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Consent. Delivery of an executed counterpart of a
signature page to this Consent by telecopier shall be effective as delivery of a
manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in accordance
with, the laws of the State of New York.
<PAGE> 12
MEDGP, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
GEORGIA MEDPARTNERS MANAGEMENT,
INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS INTEGRATED NETWORK-
CHANDLER, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
2
<PAGE> 13
MEDPARTNERS PROFESSIONAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
ADS HEALTH MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
BAY AREA PRACTICE MANAGEMENT
GROUP, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
3
<PAGE> 14
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa S. Kizer
-------------------------------------
Name: Leisa S. Kizer
Title: Treasurer
CAREMARK PHYSICIAN SERVICES OF TEXAS
INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
4
<PAGE> 15
STRATEGIC HEALTHCARE MANAGEMENT,
INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PHYSICIAN SERVICES INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CAREMARK RESOURCES CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE
NETWORK INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
5
<PAGE> 16
MEDPARTNERS NSC LTD.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATIVE
SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS MANAGED CARE, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL MANAGEMENT, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HOME HEALTH AGENCY OF GREATER
MIAMI, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
6
<PAGE> 17
MEDPARTNERS MANAGED CARE OF SOUTH BROWARD, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS MEDICAL MANAGEMENT OF OHIO, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
LFMG, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
7
<PAGE> 18
PPS NORTH CAROLINA MEDICAL
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION
AND MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PPS INDEMNITY, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES
ARIZONA, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
8
<PAGE> 19
PACIFIC PHYSICIAN SERVICES
NEVADA, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS/TALBERT MEDICAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
9
<PAGE> 20
TALBERT HEALTH SERVICES
CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Treasurer
of Caremark Rx, Inc., the General
Partner
MEDPARTNERS PHYSICIAN
MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President of
Caremark Rx, Inc., the General
Partner
MEDOHIO, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of MedGP, Inc.,
the General Partner
MED TENNESSEE, INC.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
10
<PAGE> 21
MEDTEX, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of MedGP, Inc.,
the General Partner
MEDPARTNERS PHYSICIAN SERVICES OF
ILLINOIS L.L.C.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.,
a Member
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.,
a Partner
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., a Partner
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.,
a Partner
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., a Partner
11
<PAGE> 22
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.
the General Partner
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., the General Partner
KS-PSI OF TEXAS L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedPartners Physician Services, Inc.,
the General Partner
12
<PAGE> 1
EXHIBIT 10.40
AMENDMENT NO. 15 TO THE LOAN DOCUMENTS
AMENDMENT NO. 15 TO THE LOAN DOCUMENTS dated as of January
20, 2000 to the Amended and Restated Credit Agreement dated as of June 9, 1998
(as amended and otherwise modified by Amendment and Waiver No. 1 to the Loan
Documents dated as of December 4, 1998, Amendment No. 2 to the Loan Documents
dated as of January 13, 1999, Amendment No. 3 to the Loan Documents dated as of
February 9, 1999, Amendment and Waiver No. 4 to the Loan Documents dated as of
March 18, 1999, Amendment and Waiver No. 5 to the Loan Documents dated as of
April 1, 1999, Amendment No. 6 to the Loan Documents dated as of April 14,
1999, Amendment No. 7 to the Loan Documents dated as of June 29, 1999,
Amendment No. 8 to the Loan Documents dated as of August 2, 1999, Amendment No.
9 to the Loan Documents dated as of August 16, 1999, Amendment No. 10 to the
Loan Documents dated as of August 23, 1999, Amendment No. 11 to the Loan
Documents dated as of August 30, 1999, Amendment No. 12 to the Loan Documents
dated as of September 14, 1999, Amendment No. 13 to the Loan Documents dated as
of November 5, 1999, and Amendment No. 14 to the Loan Documents dated as of
December 16, 1999, the "CREDIT AGREEMENT") among Caremark Rx, Inc. (formerly
known as MedPartners, Inc.), a Delaware corporation (the "BORROWER"), the
Lenders party thereto, Bank of America, N.A. (formerly NationsBank, N.A.;
"BOFA"), as the Initial Issuing Bank and the Swing Line Bank thereunder, Credit
Lyonnais New York Branch, The First National Bank of Chicago and Morgan
Guaranty Trust Company of New York, as the Syndication Agents therefor, Banc of
America Securities LLC (formerly NationsBanc Montgomery Securities LLC), as the
Arranger therefor, and BofA, as the Administrative Agent for the Lender Parties
thereunder. Capitalized terms not otherwise defined in this Amendment have the
same meanings as specified therefor in the Credit Agreement.
PRELIMINARY STATEMENTS
(1) The Borrower has requested that the Lender Parties
agree to amend the Credit Agreement as provided herein.
(2) The Lender Parties have indicated their willingness to
agree to amend the Credit Agreement on the terms and subject to the
satisfaction of the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein and in the Loan Documents, the
parties hereto hereby agree as follows:
SECTION 1. Amendments of Certain Provisions of the Credit
Agreement. The Credit Agreement is, upon the occurrence of the Amendment
Effective Date (as hereinafter defined), hereby amended to read as follows:
(a) Section 5.03 is hereby amended to delete the number
"30" in subclause (e) thereof and to substitute therefor the new number "60".
(b) Section 5.03 is hereby further amended to delete the
phrase "month (commencing with respect to the month of August 1999)" in the
second line of subclause (v) thereof and to substitute therefor the new phrase
"of the first eleven months in each year and within 60 days after the end of
the twelfth month in each year".
SECTION 2. Conditions Precedent to the Effectiveness of this
Amendment. This Amendment shall become effective as of the first date (the
"AMENDMENT EFFECTIVE DATE") on which, and only if, each of the following
conditions precedent shall have been satisfied:
<PAGE> 2
(a) The Administrative Agent shall have received on or before 5:00
p.m. (Charlotte time) on January 25, 2000, (i) counterparts of this Amendment
executed by the Borrower and the Required Lenders or, as to any of the Lender
Parties, advice satisfactory to the Administrative Agent that such Lender Party
has executed this Amendment and (ii) counterparts of the Consent attached
hereto executed and delivered by each of the Loan Parties (other than the
Borrower).
(b) The representations and warranties set forth in each of the Loan
Documents shall be correct in all material respects on and as of the Amendment
Effective Date, before and after giving effect to this Amendment, as though
made on and as of such date (except (i) for any such representation and
warranty that, by its terms, refers to a specific date other than the Amendment
Effective Date, in which case as of such specific date, (ii) that the
Consolidated financial statements of the Borrower and its Subsidiaries referred
to in Sections 4.01(f) and 4.01(g) of the Credit Agreement shall be deemed to
refer to the Consolidated financial statements of the Borrower and its
Subsidiaries comprising part of the Required Financial Information most
recently delivered to the Administrative Agent and the Lender Parties pursuant
to Sections 5.03(b) and 5.03(c), respectively, on or prior to the Amendment
Effective Date and (iii) that the forecasted Consolidated financial statements
of the Borrower and its Subsidiaries referred to in Section 4.01(h) of the
Credit Agreement shall be deemed to refer to the forecasted Consolidated
financial statements of the Borrower and its Subsidiaries most recently
delivered to the Administrative Agent and the Lender Parties prior to the
Amendment Effective Date).
(c) No event shall have occurred and be continuing, or shall result
from the effectiveness of this Amendment, that constitutes a Default.
(d) All of the reasonable fees and expenses of the Administrative
Agent and the Arranger (including the reasonable fees and expenses of counsel
for the Administrative Agent) due and payable on the Amendment Effective Date
shall have been paid in full.
The effectiveness of this Amendment is further conditioned
upon the accuracy of all of the factual matters described herein. This
Amendment is subject to the provisions of Section 8.01 of the Credit Agreement.
SECTION 3. Reference to and Effect on the Loan Documents. (a)
On and after the Amendment Effective Date, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement," "thereunder," "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as amended by the amendments specifically provided above in Section
1, are and shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any of the Guaranteed Parties or the
Administrative Agent under any of the Loan Documents, or constitute a waiver of
any provision of any of the Loan Documents.
SECTION 4. Costs and Expenses. The Borrower hereby agrees to
pay, upon demand, all of the reasonable costs and expenses of the
Administrative Agent and the Arranger (including, without limitation, the
reasonable fees and expenses of counsel for the Administrative Agent and of
2
<PAGE> 3
Sugarman & Company LLP) in connection with the preparation, execution,
delivery, administration, modification and amendment of this Amendment and all
of the agreements, instruments and other documents delivered or to be delivered
in connection herewith, all in accordance with the terms of Section 8.04 of the
Credit Agreement.
SECTION 5. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 6. Governing Law. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of New York.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers, thereunto duly
authorized, as of the date first written above.
THE BORROWER
CAREMARK RX, INC.
(formerly known as MEDPARTNERS, INC.)
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: EVP and CFO
THE ADMINISTRATIVE AGENT
BANK OF AMERICA, N.A.
By /s/ Michael D. Monte
-----------------------------------------------
Name: Michael D. Monte
Title: Managing Director
4
<PAGE> 5
THE LENDER PARTIES
BANK OF AMERICA, N.A., as a Lender,
the Swing Line Bank and the Issuing Bank
By /s/ Michael D. Monte
-----------------------------------------------
Name: Michael D. Monte
Title: Managing Director
AMSOUTH BANK
By /s/ Allison J. Sanders
-----------------------------------------------
Name: Allison J. Sanders
Title: Vice President
THE CHASE MANHATTAN BANK
By /s/ Dawn Lee Lum
-----------------------------------------------
Name: Dawn Lee Lum
Title: Vice President
CITIBANK, N.A.
By
-----------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Henry J. Reukauf
-----------------------------------------------
Name: Henry J. Reukauf
Title: Vice President
DEBT STRATEGIES FUND, INC.
By
-----------------------------------------------
Name:
Title:
5
<PAGE> 6
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ L. Richard Schiller
-----------------------------------------------
Name: L. Richard Schiller
Title: Vice President
FIRST UNION NATIONAL BANK
By /s/ Joyce L. Barry
-----------------------------------------------
Name: Joyce L. Barry
Title: SVP
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured Management, Inc., as
attorney in fact
By /s/ Gregory Stoeckle
-----------------------------------------------
Name: Gregory Stoeckle
Title: Authorized Signatory
KZH HIGHLAND-2 LLC
By
-----------------------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By
-----------------------------------------------
Name:
Title:
6
<PAGE> 7
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO, INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By
-----------------------------------------------
Name:
Title:
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
BY: MERRILL LYNCH ASSET MANAGEMENT,
L.P., as Investment Advisor
By
-----------------------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By
-----------------------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor
By
-----------------------------------------------
Name:
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT L.P.,
as Collateral Manager
By
-----------------------------------------------
Name:
Title:
7
<PAGE> 8
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Charles E. LeMieux
-----------------------------------------------
Name: Charles E. LeMieux, CFA
Title: Assistant Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Anna Marie Fallon
-----------------------------------------------
Name: Anna Marie Fallon
Title: Vice President
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
-----------------------------------------------
Name:
Title:
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
-----------------------------------------------
Name:
Title:
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Charles E. LeMieux
-----------------------------------------------
Name: Charles E. LeMieux, CFA
Title: Assistant Vice President
8
<PAGE> 9
SCOTIABANC INC.
By /s/ Dana Maloney
-----------------------------------------------
Name: Dana Maloney
Title: Relationship Manager
SRV-HIGHLAND, INC.
By
-----------------------------------------------
Name:
Title:
STEIN ROE & FARNHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By /s/ Kathleen A. Zarn
-----------------------------------------------
Name: Kathleen A. Zarn
Title: Vice President
TORONTO DOMINION (TEXAS), INC.
By /s/ Anne Favoriti
-----------------------------------------------
Name: Anne Favoriti
Title: VP
TRANSAMERICA LIFE INSURANCE AND
ANNUITY CO.
By
-----------------------------------------------
Name:
Title:
TRANSAMERICA PREMIER HIGH YIELD FUND
By
-----------------------------------------------
Name:
Title:
9
<PAGE> 10
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Howard Tiffen
-----------------------------------------------
Name: Howard Tiffen
Title: Sr. Vice President
VAN KAMPEN SENIOR INCOME TRUST
By /s/ Howard Tiffen
-----------------------------------------------
Name: Howard Tiffen
Title: Sr. Vice President
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By /s/ Howard Tiffen
-----------------------------------------------
Name: Howard Tiffen
Title: Sr. Vice President
WACHOVIA BANK, N.A.
By
-----------------------------------------------
Name:
Title:
10
<PAGE> 11
CONSENT TO AMENDMENT NO. 15
TO THE LOAN DOCUMENTS
As of January 20, 2000
Reference is made to Amendment No. 15 to the Loan Documents
dated as of January 20, 2000 (the "AMENDMENT") to the Amended and Restated
Credit Agreement dated as of June 9, 1998 (as amended and otherwise modified by
Amendment No. 1 to the Loan Documents dated as of December 4, 1998, Amendment
No. 2 to the Loan Documents dated as of January 13, 1999, Amendment No. 3 to
the Loan Documents dated as of February 9, 1999, Amendment and Waiver No. 4 to
the Loan Documents dated as of March 18, 1999, Amendment and Waiver No. 5 to
the Loan Documents dated as of April 1, 1999, Amendment No. 6 to the Loan
Documents dated as of April 14, 1999, Amendment No. 7 to the Loan Documents
dated as of June 29, 1999, Amendment No. 8 to the Loan Documents dated as of
August 2, 1999, Amendment No. 9 to the Loan Documents dated as of August 16,
1999, Amendment No. 10 to the Loan Documents dated as of August 23, 1999,
Amendment No. 11 to the Loan Documents dated as of August 30, 1999, Amendment
No. 12 to the Loan Documents dated as of September 14, 1999, Amendment No. 13
to the Loan Documents dated as of November 5, 1999, and Amendment No. 14 to the
Loan Documents dated as of December 16, 1999, the "CREDIT AGREEMENT") among
Caremark Rx, Inc. (formerly known as MedPartners, Inc.), a Delaware
corporation, the Lenders party thereto, Bank of America, N.A. (formerly
NationsBank, N.A.), as the Initial Issuing Bank and Swing Line Bank thereunder,
Credit Lyonnais New York Branch, The First National Bank of Chicago and Morgan
Guaranty Trust Company of New York, as the Syndication Agents therefor, Banc of
America Securities LLC (formerly NationsBanc Montgomery Securities LLC), as
Arranger therefor, and Bank of America, N.A. (formerly NationsBank, N.A.), as
the Administrative Agent for the Lender Parties thereunder. Capitalized terms
not otherwise defined herein shall have the same meanings as specified therefor
in the Credit Agreement.
Each of the undersigned, as a guarantor under the
Subsidiaries Guarantee dated as of June 9, 1998 (as modified to the date
hereof, the "SUBSIDIARIES GUARANTEE") in favor of the Guaranteed Parties,
hereby consents to the execution and delivery of the Amendment and the
performance of the Credit Agreement, as amended thereby, and hereby confirms
and agrees that, notwithstanding the effectiveness of the Amendment, the
Subsidiaries Guarantee is, and shall continue to be, in full force and effect
and is hereby in all respects ratified and confirmed, except that each
reference in the Subsidiaries Guarantee to "the Credit Agreement,"
"thereunder," "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as amended by
the Amendment.
This Consent may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same Consent. Delivery of an executed counterpart
of a signature page to this Consent by telecopier shall be effective as
delivery of a manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in
accordance with, the laws of the State of New York.
<PAGE> 12
MEDGP, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
GEORGIA MEDPARTNERS MANAGEMENT,
INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS INTEGRATED NETWORK-
CHANDLER, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
2
<PAGE> 13
MEDPARTNERS PROFESSIONAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
ADS HEALTH MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
BAY AREA PRACTICE MANAGEMENT
GROUP, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
3
<PAGE> 14
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa S. Kizer
-----------------------------------------------
Name: Leisa S. Kizer
Title: Treasurer
CAREMARK PHYSICIAN SERVICES OF TEXAS INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
4
<PAGE> 15
STRATEGIC HEALTHCARE MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PHYSICIAN SERVICES INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CAREMARK RESOURCES CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE
NETWORK INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
5
<PAGE> 16
MEDPARTNERS NSC LTD.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATIVE
SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS MANAGED CARE, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL MANAGEMENT, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HOME HEALTH AGENCY OF GREATER
MIAMI, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
6
<PAGE> 17
MEDPARTNERS MANAGED CARE OF SOUTH
BROWARD, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS MEDICAL MANAGEMENT OF
OHIO, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
LFMG, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
7
<PAGE> 18
PPS NORTH CAROLINA MEDICAL
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION
AND MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PPS INDEMNITY, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES
ARIZONA, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
8
<PAGE> 19
PACIFIC PHYSICIAN SERVICES
NEVADA, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS/TALBERT MEDICAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
9
<PAGE> 20
TALBERT HEALTH SERVICES
CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Treasurer
of Caremark Rx, Inc., the General
Partner
MEDPARTNERS PHYSICIAN
MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President of
Caremark Rx, Inc., the General
Partner
MEDOHIO, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of MedGP, Inc.,
the General Partner
MED TENNESSEE, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
10
<PAGE> 21
MEDTEX, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of MedGP, Inc.,
the General Partner
MEDPARTNERS PHYSICIAN SERVICES OF ILLINOIS L.L.C.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.,
a Member
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.,
a Partner
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., a Partner
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.,
a Partner
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., a Partner
11
<PAGE> 22
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.
the General Partner
By /s/ Sara J. Finley
-----------------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., the General Partner
KS-PSI OF TEXAS L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedPartners Physician Services, Inc.,
the General Partner
12
<PAGE> 1
EXHIBIT 10.41
AMENDMENT NO. 16 TO THE LOAN DOCUMENTS
AMENDMENT NO. 16 TO THE LOAN DOCUMENTS dated as of February
3, 2000 to the Amended and Restated Credit Agreement dated as of June 9, 1998
(as amended and otherwise modified by Amendment and Waiver No. 1 to the Loan
Documents dated as of December 4, 1998, Amendment No. 2 to the Loan Documents
dated as of January 13, 1999, Amendment No. 3 to the Loan Documents dated as of
February 9, 1999, Amendment and Waiver No. 4 to the Loan Documents dated as of
March 18, 1999, Amendment and Waiver No. 5 to the Loan Documents dated as of
April 1, 1999, Amendment No. 6 to the Loan Documents dated as of April 14,
1999, Amendment No. 7 to the Loan Documents dated as of June 29, 1999,
Amendment No. 8 to the Loan Documents dated as of August 2, 1999, Amendment No.
9 to the Loan Documents dated as of August 16, 1999, Amendment No. 10 to the
Loan Documents dated as of August 23, 1999, Amendment No. 11 to the Loan
Documents dated as of August 30, 1999, Amendment No. 12 to the Loan Documents
dated as of September 14, 1999, Amendment No. 13 to the Loan Documents dated as
of November 5, 1999, Amendment No. 14 to the Loan Documents dated as of
December 16, 1999 and Amendment No. 15 to the Loan Documents dated as of
January 20, 2000, the "CREDIT AGREEMENT") among Caremark Rx, Inc. (formerly
known as MedPartners, Inc.), a Delaware corporation (the "BORROWER"), the
Lenders party thereto, Bank of America, N.A. (formerly NationsBank, N.A.;
"BOFA"), as the Initial Issuing Bank and the Swing Line Bank thereunder, Credit
Lyonnais New York Branch, The First National Bank of Chicago and Morgan
Guaranty Trust Company of New York, as the Syndication Agents therefor, Banc of
America Securities LLC (formerly NationsBanc Montgomery Securities LLC), as the
Arranger therefor, and BofA, as the Administrative Agent for the Lender Parties
thereunder. Capitalized terms not otherwise defined in this Amendment have the
same meanings as specified therefor in the Credit Agreement.
PRELIMINARY STATEMENTS
(1) The Borrower has requested that the Lender Parties
agree to amend the Credit Agreement as provided herein in order to provide for
the issuance of a Letter of Credit for the benefit of MedPartners Provider
Network, Inc. ("MPN") or its authorized representative in respect of certain
obligations under the California Settlement Agreement in the face amount of
$15,000,000 (the "ADDITIONAL LETTER OF CREDIT") and to waive any default under
Section 6.01 (q) in respect thereof.
(2) The Lender Parties have indicated their willingness
to agree to amend the Credit Agreement and to waive such default on the terms
and subject to the satisfaction of the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein and in the Loan Documents, the
parties hereto hereby agree as follows:
SECTION 1. Amendments and Waivers of Certain Provisions
of the Credit Agreement. (a) The Credit Agreement is, upon the occurrence of
the Amendment Effective Date (as hereinafter defined), hereby amended as
follows:
(i) Section 2.01(e) of the Credit Agreement is amended by
deleting the second parenthetical in the second sentence thereof and to
substitute therefor the following parenthetical: "(other than the Borrower or
any of its Subsidiaries, except for the Letter of Credit in favor of MPN or its
authorized representative as contemplated by Section 5.02(e)(iii)(D) hereof)"
and by deleting the third parenthetical in the second sentence thereof and to
substitute therefor the following parenthetical: "(or,
<PAGE> 2
solely to the extent permitted under Section 5.02(e)(iii)(C) or 5.02(e)(iii)(D)
hereof, or upon adoption of the California Transition Plan, as required under
Section 3.5(c) or 3.6 of the California Settlement Agreement any of the
Unrestricted Subsidiaries)."
(ii) Section 5.02(b)(iii) is amended in full to read as
follows:
"(iii) Indebtedness of the Borrower in respect of
interest rate Hedge Agreements (A) existing on the
date of this Agreement and described in item 1 on
Schedule 4.01(y) hereto or (B) entered into from
time to time after the date of this Agreement with
counterparties that are Lender Parties at the time
such interest rate Hedge Agreement is entered into;
provided that, in all cases under this clause (iii),
all such interest rate Hedge Agreements shall be
nonspeculative in nature (including, without
limitation, with respect to the term and purpose
thereof);"
(iii) Section 5.02(b)(viii) is amended by deleting the
parenthetical in clause (B)(2) thereof and to substitute for such parenthetical
the following parenthetical: "(other that the Letter of Credit issued in favor
of the Special Monitor-Examiner (as defined in the California Settlement
Agreement) in a face amount not to exceed $25,000,000 and the Letter of Credit
in favor of MPN or its authorized representative in a face amount not to exceed
$15,000,000 and, in each case, as otherwise required under the California
Settlement Agreement)".
(iv) Section 5.02(e) is hereby amended to delete the
parenthetical in subclause (iii)(D)(2)(y) thereof and to substitute therefor
the following parenthetical: "(other than the Letter of Credit issued in favor
of the Special Monitor-Examiner (as defined in the California Settlement
Agreement) in the face amount of $25,000,000 and the Letter of Credit in favor
of MPN or its authorized representative in the face amount of $15,000,000, and,
in each case, as otherwise required under the California Settlement
Agreement)".
(v) Section 5.02(e) is hereby further amended to delete
subclause (iii)(E) thereof and to substitute therefor the following: "(E) the
Borrower in MPN and the other California Subsidiaries from time to time after
the adoption of the California Transition Plan with the proceeds of payments
made by the Borrower under the MedPartners Funding Commitment or comprised of
the issuance of the Letter of Credit in favor of the Special Monitor-Examiner
(as defined in the California Settlement Agreement) in a face amount not to
exceed $25,000,000 and the Letter of Credit in favor of MPN or its authorized
representative in a face amount not to exceed $15,000,000 and, in each case, as
otherwise required under the California Settlement Agreement, or, in the case
of MPN, pursuant to the terms of the MPN Management Agreement,"
(b) Upon the occurrence of the Amendment Effective Date,
any Event of Default arising under Section 6.01(q) of the Credit Agreement as a
result of the issuance of the Additional Letter of Credit, or payments
thereunder, is hereby waived.
SECTION 2. Conditions Precedent to the Effectiveness of this
Amendment. This Amendment shall become effective as of the first date (the
"AMENDMENT EFFECTIVE DATE") on which, and only if, each of the following
conditions precedent shall have been satisfied:
(a) The Administrative Agent shall have received on or
before 5:00 p.m. (Charlotte time) on February 3, 2000, (i) counterparts of this
Amendment executed by the Borrower and the
2
<PAGE> 3
Required Lenders or, as to any of the Lender Parties, advice satisfactory to
the Administrative Agent that such Lender Party has executed this Amendment and
(ii) counterparts of the Consent attached hereto executed and delivered by each
of the Loan Parties (other than the Borrower).
(b) The representations and warranties set forth in each
of the Loan Documents shall be correct in all material respects on and as of
the Amendment Effective Date, before and after giving effect to this Amendment,
as though made on and as of such date (except (i) for any such representation
and warranty that, by its terms, refers to a specific date other than the
Amendment Effective Date, in which case as of such specific date, (ii) that the
Consolidated financial statements of the Borrower and its Subsidiaries referred
to in Sections 4.01(f) and 4.01(g) of the Credit Agreement shall be deemed to
refer to the Consolidated financial statements of the Borrower and its
Subsidiaries comprising part of the Required Financial Information most
recently delivered to the Administrative Agent and the Lender Parties pursuant
to Sections 5.03(b) and 5.03(c), respectively, on or prior to the Amendment
Effective Date and (iii) that the forecasted Consolidated financial statements
of the Borrower and its Subsidiaries referred to in Section 4.01(h) of the
Credit Agreement shall be deemed to refer to the forecasted Consolidated
financial statements of the Borrower and its Subsidiaries most recently
delivered to the Administrative Agent and the Lender Parties prior to the
Amendment Effective Date).
(c) No event shall have occurred and be continuing, or
shall result from the effectiveness of this Amendment, that constitutes a
Default.
(d) The Administrative Agent shall have received an
amendment, in form and substance satisfactory to it, to the California
Settlement Agreement to delete the requirement of the deposit provided in
Section 3.5(c) thereof and to substitute for such requirement in its entirety
the delivery to MPN or its authorized representative of the Additional Letter
of Credit, which amendment shall be approved by an order of the United States
Bankruptcy Court for the Central District of California having jurisdiction
over the bankruptcy case of MPN and which order shall have been entered and be
in full force and effect.
(e) All of the reasonable fees and expenses of the
Administrative Agent and the Arranger (including the reasonable fees and
expenses of counsel for the Administrative Agent) due and payable on the
Amendment Effective Date shall have been paid in full.
The effectiveness of this Amendment is further conditioned
upon the accuracy of all of the factual matters described herein. This
Amendment is subject to the provisions of Section 8.01 of the Credit Agreement.
SECTION 3. Reference to and Effect on the Loan Documents. (a)
On and after the Amendment Effective Date, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement," "thereunder," "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the
other Loan Documents, as amended by the amendments specifically provided above
in Section 1, are and shall continue to be in full force and effect and are
hereby in all respects ratified and confirmed. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of
3
<PAGE> 4
any right, power or remedy of any of the Guaranteed Parties or the
Administrative Agent under any of the Loan Documents, or constitute a waiver of
any provision of any of the Loan Documents.
(c) This Amendment will constitute any notice required
under Section 5.03(t) of the Credit Agreement in respect of the Additional
Letter of Credit
SECTION 4. Costs and Expenses. The Borrower hereby agrees to
pay, upon demand, all of the reasonable costs and expenses of the
Administrative Agent and the Arranger (including, without limitation, the
reasonable fees and expenses of counsel for the Administrative Agent and of
Sugarman & Company LLP) in connection with the preparation, execution,
delivery, administration, modification and amendment of this Amendment and all
of the agreements, instruments and other documents delivered or to be delivered
in connection herewith, all in accordance with the terms of Section 8.04 of the
Credit Agreement.
SECTION 5. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 6. Governing Law. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of New York.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers, thereunto duly
authorized, as of the date first written above.
THE BORROWER
CAREMARK RX, INC.
(formerly known as MEDPARTNERS, INC.)
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: EVP and CFO
THE ADMINISTRATIVE AGENT
BANK OF AMERICA, N.A.
By /s/ Michael D. Monte
---------------------------------
Name: Michael D. Monte
Title: Managing Director
5
<PAGE> 6
THE LENDER PARTIES
BANK OF AMERICA, N.A., as a Lender,
the Swing Line Bank and the Issuing Bank
By /s/ Michael D. Monte
---------------------------------
Name: Michael D. Monte
Title: Managing Director
AMSOUTH BANK
By /s/ Allison J. Sanders
---------------------------------
Name: Allison J. Sanders
Title: Vice President
THE CHASE MANHATTAN BANK
By /s/ Dawn Lee Lum
---------------------------------
Name: Dawn Lee Lum
Title: Vice President
CITIBANK, N.A.
By
---------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Henry J. Reukauf
---------------------------------
Name: Henry J. Reukauf
Title: Vice President
DEBT STRATEGIES FUND, INC.
By
---------------------------------
Name:
Title:
6
<PAGE> 7
BANK ONE, NA (f/k/a THE FIRST NATIONAL
BANK OF CHICAGO)
By /s/ L. Richard Schiller
---------------------------------
Name: L. Richard Schiller
Title: Vice President
FIRST UNION NATIONAL BANK
By /s/ Joyce L. Barry
---------------------------------
Name: Joyce L. Barry
Title: SVP
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured Management, Inc.,
as attorney in fact
By /s/ Gregory Stoeckle
---------------------------------
Name: Gregory Stoeckle
Title: Authorized Signator
KZH HIGHLAND-2 LLC
By
---------------------------------
Name:
Title:
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO, INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By
---------------------------------
Name:
Title:
7
<PAGE> 8
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
BY: MERRILL LYNCH ASSET MANAGEMENT,
L.P., as Investment Advisor
By
---------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By
---------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor
By
---------------------------------
Name:
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT L.P.,
as Collateral Manager
By
---------------------------------
Name:
Title:
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Charles E. LeMieux
---------------------------------
Name: Charles E. LeMieux, CFA
Title: Assistant Vice President
8
<PAGE> 9
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Anna Marie Fallon
---------------------------------
Name: Anna Marie Fallon
Title: Vice President
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
---------------------------------
Name:
Title:
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
---------------------------------
Name:
Title:
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Charles E. LeMieux
---------------------------------
Name: Charles E. LeMieux, CFA
Title: Assistant Vice President
SCOTIABANC INC.
By /s/ Dana Maloney
---------------------------------
Name: Dana Maloney
Title: Relationship Manager
9
<PAGE> 10
SRV-HIGHLAND, INC.
By
---------------------------------
Name:
Title:
STEIN ROE & FARNHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By /s/ Brian W. Good
---------------------------------
Name: Brian W. Good
Title: Vice President & Portfolio Manager
TORONTO DOMINION (TEXAS), INC.
By /s/ Anne C. Favoriti
---------------------------------
Name: Anne C. Favoriti
Title: Vice President
TRANSAMERICA LIFE INSURANCE AND
ANNUITY CO.
By
---------------------------------
Name:
Title:
TRANSAMERICA PREMIER HIGH YIELD FUND
By /s/ Matthew Kuhns
---------------------------------
Name: Matthew Kuhns
Title: Vice President
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Darvin D. Pierce
---------------------------------
Name: Darvin D. Pierce
Title: Vice President
1
10
<PAGE> 11
VAN KAMPEN SENIOR INCOME TRUST
By /s/ Darvin D. Pierce
---------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By /s/ Darvin D. Pierce
---------------------------------
Name: Darvin D. Pierce
Title: Vice President
WACHOVIA BANK, N.A.
By
---------------------------------
Name:
Title:
11
<PAGE> 12
CONSENT TO AMENDMENT NO. 16 TO THE LOAN DOCUMENTS
As of February 3, 2000
Reference is made to Amendment No. 16 to the Loan Documents
dated as of February 3, 2000 (the "AMENDMENT") to the Amended and Restated
Credit Agreement dated as of June 9, 1998 (as amended and otherwise modified by
Amendment No. 1 to the Loan Documents dated as of December 4, 1998, Amendment
No. 2 to the Loan Documents dated as of January 13, 1999, Amendment No. 3 to
the Loan Documents dated as of February 9, 1999, Amendment and Waiver No. 4 to
the Loan Documents dated as of March 18, 1999, Amendment and Waiver No. 5 to
the Loan Documents dated as of April 1, 1999, Amendment No. 6 to the Loan
Documents dated as of April 14, 1999, Amendment No. 7 to the Loan Documents
dated as of June 29, 1999, Amendment No. 8 to the Loan Documents dated as of
August 2, 1999, Amendment No. 9 to the Loan Documents dated as of August 16,
1999, Amendment No. 10 to the Loan Documents dated as of August 23, 1999,
Amendment No. 11 to the Loan Documents dated as of August 30, 1999, Amendment
No. 12 to the Loan Documents dated as of September 14, 1999, Amendment No. 13
to the Loan Documents dated as of November 5, 1999, Amendment No. 14 to the
Loan Documents dated as of December 16, 1999 and Amendment No. 15 to the Loan
Documents dated as of January 20, 2000, the "CREDIT AGREEMENT") among Caremark
Rx, Inc. (formerly known as MedPartners, Inc.), a Delaware corporation, the
Lenders party thereto, Bank of America, N.A. (formerly NationsBank, N.A.), as
the Initial Issuing Bank and Swing Line Bank thereunder, Credit Lyonnais New
York Branch, The First National Bank of Chicago and Morgan Guaranty Trust
Company of New York, as the Syndication Agents therefor, Banc of America
Securities LLC (formerly NationsBanc Montgomery Securities LLC), as Arranger
therefor, and Bank of America, N.A. (formerly NationsBank, N.A.), as the
Administrative Agent for the Lender Parties thereunder. Capitalized terms not
otherwise defined herein shall have the same meanings as specified therefor in
the Credit Agreement.
Each of the undersigned, as a guarantor under the
Subsidiaries Guarantee dated as of June 9, 1998 (as modified to the date
hereof, the "SUBSIDIARIES GUARANTEE") in favor of the Guaranteed Parties,
hereby consents to the execution and delivery of the Amendment and the
performance of the Credit Agreement, as amended thereby, and hereby confirms
and agrees that, notwithstanding the effectiveness of the Amendment, the
Subsidiaries Guarantee is, and shall continue to be, in full force and effect
and is hereby in all respects ratified and confirmed, except that each
reference in the Subsidiaries Guarantee to "the Credit Agreement,"
"thereunder," "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as amended by
the Amendment.
This Consent may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same Consent. Delivery of an executed counterpart
of a signature page to this Consent by telecopier shall be effective as
delivery of a manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in
accordance with, the laws of the State of New York.
<PAGE> 13
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS INTEGRATED NETWORK-
CHANDLER, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PROFESSIONAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
2
<PAGE> 14
BAY AREA PRACTICE MANAGEMENT
GROUP, INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa S. Kizer
----------------------------------------------
Name: Leisa S. Kizer
Title: Treasurer
3
<PAGE> 15
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PHYSICIAN SERVICES INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE
NETWORK INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS NSC LTD.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
4
<PAGE> 16
MEDPARTNERS ADMINISTRATIVE
SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS MANAGED CARE, INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL MANAGEMENT, INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HOME HEALTH AGENCY OF GREATER
MIAMI, INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
5
<PAGE> 17
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS NORTH CAROLINA MEDICAL
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION
AND MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
6
<PAGE> 18
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES
ARIZONA, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES
NEVADA, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
7
<PAGE> 19
MEDPARTNERS/TALBERT MEDICAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT HEALTH SERVICES
CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Treasurer
of Caremark Rx, Inc., the General
Partner
MEDPARTNERS PHYSICIAN
MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President of
Caremark Rx, Inc., the General
Partner
8
<PAGE> 20
MED TENNESSEE, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS PHYSICIAN SERVICES OF
ILLINOIS L.L.C.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.,
a Member
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.,
a Partner
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., a Partner
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.,
a Partner
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., a Partner
9
<PAGE> 21
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
----------------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of Caremark Rx, Inc.
the General Partner
By /s/ Sara J. Finley
----------------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
Caremark Rx, Inc., the General Partner
10
<PAGE> 1
EXHIBIT 10.42
PLEDGE AGREEMENT
DATED AS OF NOVEMBER 4, 1999
FROM
CAREMARK RX, INC.,
AS GRANTOR
TO
LASALLE BANK NATIONAL ASSOCIATION,
AS TRUSTEE
<PAGE> 2
TABLE OF CONTENTS
PAGE
Section 1. Grant of Security 2
Section 2. Security for Obligations 3
Section 3. Delivery and Control of Security Collateral
and Account Collateral 3
Section 4. Maintaining the Trust Account 4
Section 5. Investing of Amounts in the Trust Account 4
Section 6. Release of Amounts 4
Section 7. Representations and Warranties 4
Section 8. Further Assurances 5
Section 9. Place of Perfection; Records 6
Section 10. Voting Rights; Dividends; Etc 6
Section 11. Transfers and Other Liens; Additional Shares 7
Section 12. The Trustee's Duties 7
Section 13. Remedies 7
Section 14. Registration Rights 8
Section 15. Amendments; Waivers; Etc 9
Section 16. Addresses for Notices 9
Section 17. Continuing Security Interest; Release 9
Section 18. Governing Law 10
<PAGE> 3
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "AGREEMENT") dated as of November 4,
1999 made by CAREMARK RX, INC. (formerly MedPartners, Inc.), a Delaware
corporation, with an office at 3000 Galleria Tower, Birmingham, Alabama 35244
(the "GRANTOR"), to LASALLE BANK NATIONAL ASSOCIATION, a national banking
association, as trustee (the "TRUSTEE") for the holders of Secured Debt (as
defined below) under the Trust Agreement (as defined below).
PRELIMINARY STATEMENTS:
(1) The Grantor has issued $450,000,000.00 of its 7% Senior
Notes due 2006 (the "SENIOR PUBLIC NOTES") pursuant to an Indenture dated as of
October 8, 1996 (the "INDENTURE") among the Grantor, as issuer and U.S. Bank
National Association, as successor trustee for the holders of the Senior Public
Notes.
(2) The Grantor has entered into a $1,000,000,000.00 Amended
and Restated Credit Agreement dated as of June 9, 1998, as amended and
otherwise modified by Amendment and Waiver No. 1 to the Loan Documents dated as
of December 4, 1998, Amendment No. 2 to the Loan Documents dated as of January
13, 1999, Amendment No. 3 to the Loan Documents dated as of February 9, 1999,
Amendment and Waiver No. 4 to the Loan Documents dated as of March 18, 1999,
Amendment and Waiver No. 5 to the Loan Documents dated as of April 1, 1999,
Amendment No. 6 to the Loan Documents dated as of April 14, 1999, Amendment No.
7 to the Loan Documents dated as of June 29, 1999, Amendment No. 8 to the Loan
Documents dated as of July 9, 1999, Amendment No. 9 to the Loan Documents
("AMENDMENT NO. 9") dated as of August 16, 1999, Amendment No. 10 to the Loan
Documents dated as of August 23, 1999, Amendment No. 11 to the Loan Documents
dated as of August 30, 1999, and Amendment No. 12 to the Loan Documents dated
as of September 14, 1999, (as so amended and as hereafter amended, restated or
otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not
otherwise defined herein being used herein as therein defined; and, together
with the Indenture, the "DEBT INSTRUMENTS") with the financial institutions
party thereto from time to time as lenders, swing line banks and issuing banks
(such lenders, swing line banks and issuing banks, collectively, the "PRIVATE
LENDERS" or the "HOLDERS OF THE BANK DEBT"), Credit Lyonnais New York Branch,
The First National Bank of Chicago and Morgan Guaranty Trust Company of New
York, as syndication agents, Banc of America Securities LLC (formerly known as
NationsBanc Montgomery Securities LLC), as arranger and Bank of America, N.A.
(formerly known as NationsBank, N.A.), as administrative agent.
(3) Pursuant to Section 3 of Amendment No. 9, the Borrower
agreed that as promptly as practicable after it was permitted under the terms
of the Credit Agreement it would take all actions necessary to grant a
perfected security interest in all of the capital stock of Caremark, for the
equal and ratable benefit of the Private Lenders and the holders of the Senior
Public Notes (collectively, the "SECURED PARTIES"), to secure, subject to the
terms and conditions of this Agreement and the Trust Agreement (as defined
below), the payment of all of its obligations owing under the Credit Agreement
and the documents delivered in connection therewith (the "BANK DEBT") and the
payment of all of its obligations owning under the Senior Public Notes (the
Bank Debt and the Senior Public Notes being, collectively, the "SECURED DEBT").
<PAGE> 4
(4) The Grantor and the Trustee have entered into a Trust
Agreement dated as of the date hereof (said Agreement, as it may hereafter be
amended or otherwise modified from time to time, being the "TRUST AGREEMENT").
(5) The Grantor is the owner of 100% of the shares (the
"PLEDGED SHARES") of common stock, par value $1.00, issued by Caremark,
represented by stock certificate #3 for 1,000 shares.
(6) The Grantor has opened a trust account (the "TRUST
ACCOUNT") with the Trustee at its office at Chicago, Illinois, Account No.
60-8373-00-7, in the name of "Caremark Rx, Inc. Trust Account" but under the
sole control and dominion of the Trustee and subject to the terms of this
Agreement.
(7) Unless otherwise defined in this Agreement or in the
Trust Agreement, terms defined in Article 8 or 9 of the Uniform Commercial Code
in effect in the State of New York ("N.Y. UNIFORM COMMERCIAL CODE") are used in
this Agreement as such terms are defined in such Article 8 or 9.
NOW, THEREFORE, in consideration of the premises and in order
to fulfill its obligations under Amendment No. 9 and the Indenture, the Grantor
hereby agrees with the Trustee for its benefit and the equal and ratable
benefit of the Secured Parties as follows:
Section 1. Grant of Security. The Grantor hereby assigns and
pledges to the Trustee for its benefit and the equal and ratable benefit of the
Secured Parties, and hereby grants to the Trustee for its benefit and the equal
and ratable benefit of the Secured Parties a security interest in, the
following (collectively, the "COLLATERAL"):
(a) all of the following (the "SECURITY COLLATERAL"):
(i) the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares; and
(ii) all additional shares of stock of Caremark from
time to time acquired by the Grantor in any manner, and the
certificates representing such additional shares, and all
dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect
of or in exchange for any or all of such shares; and
(a) all of the following (collectively, the "ACCOUNT COLLATERAL"):
(i) the Trust Account, all funds held therein and all certificates
and instruments, if any, from time to time representing or evidencing the Trust
Account;
(i) all Collateral Investments (as hereinafter defined) from time
to time and all certificates and instruments, if any, from time to time
representing or evidencing the Collateral Investments;
<PAGE> 5
(ii) all notes, certificates of deposit, deposit accounts, checks
and other instruments from time to time hereafter delivered to or otherwise
possessed by the Trustee for or on behalf of the Grantor in substitution for or
in addition to any or all of the then existing Account Collateral; and
(i) all interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of
or in exchange for any or all of the then existing Account Collateral; and
(a) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the types
described in clauses (a) - (b) of this Section 1).
Section 2. Security for Obligations. This Agreement secures
the payment of all obligations of the Grantor now or hereafter existing under
the Debt Instruments, whether for principal, interest, fees, expenses or
otherwise (all such Obligations being the "SECURED OBLIGATIONS").
Section 3. Delivery and Control of Security Collateral and
Account Collateral. (a) All certificates or instruments representing or
evidencing Security Collateral or Account Collateral shall be delivered to and
held by or on behalf of the Trustee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Trustee. For the better perfection of the Trustee's rights
in and to the Security Collateral and the Account Collateral, the Grantor shall
forthwith, upon the pledge of any Security Collateral or Account Collateral
hereunder, cause such Security Collateral or Account Collateral to be
registered in the name of the Trustee or such of its nominees as the Trustee
shall direct, subject only to the revocable rights specified in Section 10(a).
In addition, the Trustee shall have the right at any time to exchange
certificates or instruments representing or evidencing Security Collateral or
Account Collateral for certificates or instruments of smaller or larger
denominations.
(b) With respect to any Security Collateral that
constitutes a security and is not represented or evidenced by a certificate or
an instrument, the Grantor shall cause the issuer thereof either (i) to
register the Trustee as the registered owner of such security or (ii) to agree
in writing with the Grantor and the Trustee that such issuer will comply with
instructions with respect to such security originated by the Trustee without
further consent of the Grantor, such agreement to be in form and substance
satisfactory to the Trustee.
(c) With respect to any Security Collateral that
constitutes a security entitlement, the Grantor shall cause the securities
intermediary with respect to such security entitlement either (i) to identify
in its records the Trustee as having such security entitlement against such
securities intermediary or (ii) to agree in writing with the Grantor and the
Trustee that such securities intermediary will comply with entitlement orders
(that is, notifications communicated to such securities intermediary directing
transfer or redemption of the financial asset to which the Grantor has a
security entitlement) originated by the Trustee without further consent of the
Grantor, such agreement to be in form and substance satisfactory to the
Trustee.
(a) With respect to any Security Collateral that constitutes a
securities account, the Grantor will, in the case of a securities account,
comply with subsection (c) of this Section 3 with respect to all security
entitlements carried in such securities account.
<PAGE> 6
Section 4. Maintaining the Trust Account. Until the
termination pursuant to Section 17 of the security interest granted herein:
(a) The Grantor will maintain the Trust Account with
the Trustee.
(b) It shall be a term and condition of the Trust Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Trust Account, and except as otherwise
provided by the provisions of Sections 6 and Section 13, that no
amount (including interest on Collateral Investments) shall be paid or
released to or for the account of, or withdrawn by or for the account
of, the Grantor or any other Person from the Trust Account.
The Trust Account shall be subject to such applicable laws, and such applicable
regulations of the Board of Governors of the Federal Reserve System and of any
other appropriate banking or governmental authority, as may now or hereafter be
in effect.
Section 1. Investing of Amounts in the Trust Account. If directed in
writing by the Grantor, the Trustee will, subject to the provisions of Sections
6 and 13 hereof, from time to time invest amounts on deposit in the Trust
Account as permitted by Section 3.3 of the Trust Agreement (such investments
being the "COLLATERAL INVESTMENTS"). Interest and proceeds that are not
invested or reinvested in Collateral Investments as provided above shall be
deposited and held in the Trust Account.
Section 1. Release of Amounts. If in its sole discretion it elects to do
so, the Trustee may pay and release to the Grantor or at its order and at the
request of the Grantor, the amount, if any, by which the credit balance of the
Trust Account exceeds all amounts then due and payable under the Debt
Instruments together with all accrued and unpaid fees under the Trust
Agreement.
Section 1. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) The principal place of business and chief executive office of
the Grantor is located at the address first specified above for the Grantor.
(a) The Grantor is the legal and beneficial owner of the
Collateral free and clear of any Lien, except for the security interest created
by this Agreement. No effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Trustee
relating to this Agreement. The Grantor has no trade names.
(a) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(a) The Pledged Shares constitute 100% of the issued and
outstanding shares of stock of Caremark.
(a) (1) The possession by the Trustee of the certificates
representing the Pledged Shares, together with undated stock power executed in
blank, creates a valid and perfected first priority security interest in such
Pledged Shares and (2) the pledge of the Security Collateral pursuant to this
Agreement, the pledge and assignment of the Account Collateral pursuant hereto,
and the filing of a
<PAGE> 7
financing statement in favor of the Trustee with the Secretary of State of the
State of Alabama, create a valid and perfected first priority security interest
in the Collateral, in each case securing the payment of the Secured
Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly taken.
(a) No consent of any other Person and no authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or other third party is required either (i) for the grant by
the Grantor of the assignment and security interest granted hereby, for the
pledge by the Grantor of the Security Collateral pursuant hereto or for the
execution, delivery or performance of this Agreement by the Grantor, (ii) for
the perfection or maintenance of the pledge, assignment and security interest
created hereby (including the first priority nature of such pledge, assignment
or security interest), except for the filing of financing and continuation
statements under the Uniform Commercial Code, which financing statements have
been or will be duly filed, or (iii) for the exercise by the Trustee of its
voting or other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement, except as may be required
in connection with the disposition of any portion of the Security Collateral by
laws affecting the offering and sale of securities generally.
(a) Further Assurances. The Grantor agrees that from time to time,
at the expense of the Grantor, the Grantor will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Trustee may request, in order to perfect
and protect any pledge, assignment or security interest granted or purported to
be granted hereby or to enable the Trustee to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor will: (i) if any Collateral shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Trustee hereunder such note or instrument duly indorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Trustee; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Trustee may request, in
order to perfect and preserve the pledge, assignment and security interest
granted or purported to be granted hereby.
(a) The Grantor hereby authorizes the Trustee to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of the Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(a) The Grantor will furnish to the Trustee from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Trustee may
reasonably request, all in reasonable detail.
Section 1. Place of Perfection; Records. The Grantor shall keep its
principal place of business and chief executive office and the office where it
keeps its records concerning the Collateral, at the location therefor specified
in Section 7(a) or, upon 30 days' prior written notice to the Trustee, at such
other locations in a jurisdiction where all actions required by Section 8 shall
have been taken with respect to the Collateral. The Grantor will hold and
preserve such records and will permit representatives of the Trustee upon
reasonable notice and during normal business hours to inspect and make
abstracts from such records.
<PAGE> 8
(a) Voting Rights; Dividends; Etc. So long as no Actionable
Default (as defined in the Trust Agreement) shall have occurred and be
continuing:
(i) The Grantor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Security Collateral or any part
thereof for any purpose not inconsistent with the terms of this Agreement or
the other Debt Instruments.
(i) The Grantor shall be entitled to receive and retain any and
all dividends, interest and other distributions paid in respect of the Security
Collateral; provided, however, that any and all
(A) dividends, interest and other distributions paid or payable
other than in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any
Security Collateral,
(A) dividends and other distributions paid or payable in cash
in respect of any Security Collateral in connection with a partial or total
liquidation or dissolution, and
(A) cash paid, payable or otherwise distributed in exchange for
any Security Collateral
shall be, and shall be forthwith delivered to the Trustee to hold as,
Security Collateral and shall, if received by the Grantor, be received
in trust for the benefit of the Trustee, be segregated from the other
property or funds of the Grantor and be forthwith delivered to the
Trustee as Security Collateral in the same form as so received (with
any necessary indorsement).
(i) The Trustee shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other instruments
as the Grantor may reasonably request for the purpose of enabling the Grantor
to exercise the voting and other rights that it is entitled to exercise
pursuant to paragraph (i) above and to receive the dividends or interest
payments that it is authorized to receive and retain pursuant to paragraph (ii)
above.
(a) Upon the occurrence and during the continuance of an
Actionable Default (as defined in the Trust Agreement):
(i) All rights of the Grantor (x) to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise be
entitled to exercise pursuant to Section 10(a)(i) shall, upon notice to the
Grantor by the Trustee, cease and (y) to receive the dividends and other
distributions that it would otherwise be authorized to receive and retain
pursuant to Section 10(a)(ii) shall automatically cease, and all such rights
shall thereupon become vested in the Trustee, which shall thereupon have the
sole right to exercise or refrain from exercising such voting and other
consensual rights and to receive and hold as Security Collateral such dividends
and other distributions.
(i) All dividends and other distributions that are received by
the Grantor contrary to the provisions of paragraph (i) of this Section 10(b)
shall be received in trust for the benefit of the Trustee, shall be segregated
from other funds of the Grantor and shall be forthwith paid over to the Trustee
as Security Collateral in the same form as so received (with any necessary
indorsement).
<PAGE> 9
(a) Transfers and Other Liens; Additional Shares. The Grantor
shall not (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral, or (ii)
create or suffer to exist any Lien upon or with respect to any of the
Collateral except for the pledge, assignment and security interest created by
this Agreement.
(a) The Grantor shall (i) cause Caremark not to issue any stock
or other securities in addition to or in substitution for the Pledged Shares,
except to the Grantor, and (ii) pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of Caremark.
Section 1. The Trustee's Duties. The powers conferred on the Trustee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Trustee shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Security Collateral, whether or not the Trustee or any Secured Party has or is
deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral. The Trustee shall be deemed to have exercised reasonable care
in the custody and preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which the Trustee
accords its own property.
Section 1. Remedies. If any Actionable Default (as defined in the
Trust Agreement) shall have occurred and be continuing:
(a) The Trustee may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party upon default
under the N.Y. Uniform Commercial Code (whether or not the N.Y. Uniform
Commercial Code applies to the affected Collateral) and also may (i) require
the Grantor to, and the Grantor hereby agrees that it will at its expense and
upon request of the Trustee forthwith, assemble all or part of the Collateral
as directed by the Trustee and make it available to the Trustee at a place to
be designated by the Trustee that is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the
Trustee's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Trustee may deem commercially reasonable. The
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Grantor of the time and place of any public sale
or of the time after which any private sale is to be made shall constitute
reasonable notification. The Trustee shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Trustee may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(a) All cash proceeds received by the Trustee in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral shall be deposited into the Trust Account and may, in the discretion
of the Trustee, be held by the Trustee as collateral for, and/or then or at any
time thereafter applied in whole or in part by the Trustee against the Secured
Obligations as provided in Section 3.4 of the Trust Agreement.
<PAGE> 10
(a) The Trustee may exercise any and all rights and remedies
of the Grantor in respect of the Collateral.
(a) All payments received by the Grantor in respect of the
Collateral shall be received in trust for the benefit of the Trustee, shall be
segregated from other funds of the Grantor and shall be forthwith paid over to
the Trustee in the same form as so received (with any necessary indorsement).
(a) The Trustee may, without notice to the Grantor except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Secured Obligations against the Trust
Account or any part thereof.
Section 1. Registration Rights. If the Trustee shall determine to
exercise its right to sell all or any of the Security Collateral pursuant to
Section 13, the Grantor agrees that, upon request of the Trustee, the Grantor
will, at its own expense:
(a) execute and deliver, and cause each issuer of the Security
Collateral contemplated to be sold, if such issuer is a subsidiary of the
Grantor, and the directors and officers of such issuer to execute and deliver,
all such instruments and documents, and do or cause to be done all such other
acts and things, as may be necessary or, in the opinion of the Trustee,
advisable to register such Security Collateral under the provisions of the
Securities Act of 1933, as from time to time amended (the "SECURITIES ACT"), to
cause the registration statement relating thereto to become effective and to
remain effective for such period as prospectuses are required by law to be
furnished and to make all amendments and supplements thereto and to the related
prospectus that, in the opinion of the Trustee, are necessary or advisable, all
in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(a) use its best efforts to qualify the Security Collateral
under the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as requested by
the Trustee;
(a) cause each such issuer that is a subsidiary of the Grantor to
make available to its security holders, as soon as practicable, an earnings
statement that will satisfy the provisions of Section 11(a) of the Securities
Act;
(a) provide the Trustee with such other information and
projections as may be necessary or, in the opinion of the Trustee, advisable to
enable the Trustee to effect the sale of such Security Collateral; and
(a) do or cause to be done all such other acts and things as may
be necessary to make such sale of the Security Collateral or any part thereof
valid and binding and in compliance with applicable law.
The Trustee is authorized, in connection with any sale of the Security
Collateral pursuant to Section 13, to deliver or otherwise disclose to any
prospective purchaser of the Security Collateral (i) any registration statement
or prospectus, and all supplements and amendments thereto, prepared pursuant to
clause (a) above, (ii) any information and projections provided to it pursuant
to clause (d) above and (iii) any other information in its possession relating
to the Security Collateral.
<PAGE> 11
Section 15. Amendments; Waivers; Etc. No amendment or waiver
of any provision of this Agreement, and no consent to any departure by the
Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of the Trustee to exercise, and no delay in
exercising any right hereunder, shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right.
Section 16. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier
communication) and, mailed, telecopied or delivered to the Grantor or to the
Trustee, as the case may be, in each case addressed to it at its address
specified in the Trust Agreement or, as to either party, at such other address
as shall be designated by such party in a written notice to each other party
complying as to delivery with the terms of this Section. All such notices and
other communications shall be deemed to have been duly given or made, when
delivered by hand or five Business Days after being deposited in the mail,
postage prepaid, or when telecopied, receipt acknowledged; provided, however,
that any notice, request, demand or other communication to the Trustee shall
not be effective until received.
Section 17. Continuing Security Interest; Release. This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the release of Collateral as
provided in Section 6.1 of the Trust Agreement, (b) be binding upon the
Grantor, its successors and assigns and (c) inure, together with the rights and
remedies of the Trustee hereunder, to the benefit of the Trustee, the Secured
Parties and their respective successors, transferees and assigns.
Section 18. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
[The remainder of this page intentionally left blank.]
<PAGE> 12
IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
CAREMARK RX, INC.
By /s/ Peter J. Clemens IV
Title: SVP Finance & Treasurer
LASALLE BANK NATIONAL ASSOCIATION,
AS TRUSTEE
By /s/ Russell C. Bergman
Title: Vice President
<PAGE> 1
EXHIBIT 10.43
CAREMARK RX, INC. TRUST AGREEMENT
DATED AS OF NOVEMBER 4, 1999
BY AND AMONG
CAREMARK RX, INC.
AND
LASALLE BANK NATIONAL ASSOCIATION,
AS TRUSTEE
<PAGE> 2
CAREMARK RX, INC. TRUST AGREEMENT
CAREMARK RX, INC. TRUST AGREEMENT (this "AGREEMENT") dated as
of November 4, 1999, by and among Caremark Rx, Inc. (formerly MedPartners,
Inc.), a Delaware corporation (the "COMPANY") and LaSalle Bank National
Association, a national banking association (the "TRUSTEE"), as Trustee
hereunder for the holders of the Secured Debt (as defined below).
PRELIMINARY STATEMENTS:
(1) The Company has issued $450,000,000.00 of its 7%
Senior Notes due 2006 (the "SENIOR PUBLIC NOTES") pursuant to an Indenture
dated as of October 8, 1996 (the "INDENTURE") among the Company and The First
National Bank of Chicago, as Trustee, as supplemented to the date hereof. U.S.
Bank Trust National Association, as Trustee (the "PUBLIC TRUSTEE"), has
succeeded The First National Bank of Chicago as Trustee under the Indenture.
(2) The Company has entered into a $1,000,000,000.00
Amended and Restated Credit Agreement dated as of June 9, 1998, as amended and
otherwise modified by Amendment and Waiver No. 1 to the Loan Documents dated as
of December 4, 1998, Amendment No. 2 to the Loan Documents dated as of January
13, 1999, Amendment No. 3 to the Loan Documents dated as of February 9, 1999,
Amendment and Waiver No. 4 to the Loan Documents dated as of March 18, 1999,
Amendment and Waiver No. 5 to the Loan Documents dated as of April 1, 1999,
Amendment No. 6 to the Loan Documents dated as of April 14, 1999, Amendment No.
7 to the Loan Documents dated as of June 29, 1999, Amendment No. 8 to the Loan
Documents dated as of July 9, 1999, Amendment No. 9 to the Loan Documents
("AMENDMENT NO. 9") dated as of August 16, 1999, Amendment No. 10 to the Loan
Documents dated as of August 30, 1999, Amendment No. 11 to the Loan Documents
dated as of August 30, 1999, and Amendment No. 12 to the Loan Documents dated
as of September 14, 1999, (as so amended and as hereafter amended, restated or
otherwise modified, the "CREDIT AGREEMENT"; and, together with the Indenture,
the "DEBT INSTRUMENTS"), with the financial institutions party thereto from
time to time as lenders, swing line banks and issuing banks (such lenders,
swing line banks and issuing banks, collectively, the "PRIVATE LENDERS"; or the
"HOLDERS OF THE BANK DEBT"), Credit Lyonnais New York Branch, The First
National Bank of Chicago and Morgan Guaranty Trust Company of New York, as
syndication agents, Banc of America Securities LLC (formerly known as
NationsBanc Montgomery Securities LLC), as arranger and Bank of America, N.A.
(formerly known as NationsBank, N.A.) as administrative agent (the
"ADMINISTRATIVE AGENT").
(3) In order to fulfill its obligations pursuant to
Section 3 of Amendment No. 9 and in order to comply with the provisions of
Section 1009 of the Indenture, the Company has agreed to secure, equally and
ratably subject to the terms and conditions of this Agreement and the Pledge
Agreement dated as of the date hereof, among the Company and the Trustee (the
"PLEDGE AGREEMENT"; and, together with all documents and filings related
thereto, the "SECURITY DOCUMENTS"), the payment of all of its obligations owing
under the Credit Agreement and the documents delivered in connection therewith
(the "BANK DEBT") and the payment of all of its obligations owing under the
Senior Public Notes (the Bank Debt and the Senior Public Notes being,
collectively, the "SECURED DEBT").
<PAGE> 3
DECLARATION OF TRUST:
NOW THEREFORE, in order to secure the Secured Debt and in
consideration of the premises and the mutual agreements set forth herein, the
Trustee hereby declares that it holds as trustee in trust under this Agreement
all of its right, title and interest in, to and under all the following (and
the Company does hereby consent thereto):
(A) the Security Documents and the collateral granted to
the Trustee thereunder (the "PLEDGED COLLATERAL"); and
(B) each agreement entered into and delivered pursuant
to Section 4.7 or Section 7.1(b) and the collateral granted to the
Trustee thereunder (the "SUPPLEMENTAL COLLATERAL"; and, together with
the Pledged Collateral, the "COLLATERAL").
TO HAVE AND TO HOLD, the foregoing Pledged Collateral and the
entire Collateral (the right, title and interest of the Trustee in the Security
Documents and the Collateral being hereinafter referred to as the "TRUST
ESTATE") unto the Trustee and its successors in trust under this Agreement and
its assigns and the assigns of its successors in trust forever;
IN TRUST NEVERTHELESS, under and subject to the terms and
conditions herein set forth and for the benefit of the holders of the Secured
Debt and for the enforcement of the payment of all of the Secured Debt, and for
the performance of and compliance with the covenants and conditions of this
Agreement, the Debt Instruments and the Security Documents.
PROVIDED, HOWEVER, that these presents are upon the condition
that if the Company, its successors or assigns, shall satisfy all of the
conditions set forth in Section 6, then this Agreement, and the estates and
rights assigned in the Security Documents, shall cease, terminate and be void;
otherwise they shall remain and be in full force and effect.
IT IS HEREBY FURTHER COVENANTED AND DECLARED, that the Trust
Estate is to be held and applied by the Trustee, subject to the further
covenants, conditions and trusts hereinafter set forth.
SECTION 1
DEFINITIONS AND OTHER MATTERS
(a) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement and
section references are to this Agreement unless otherwise specified.
(b) In each case herein where "Holders" are entitled to
vote on any matter or to instruct the Trustee, the Public Trustee shall so vote
or instruct the Trustee on behalf of the holders of the Senior Public Notes. In
each case herein where any payment or distribution is to be made or notice is
to be given to "Holders," such payments, distributions and notices in respect
of the Senior Public Notes shall be made to the Public Trustee for the benefit
of the holders thereof pursuant to the terms of the Indenture.
<PAGE> 4
(c) As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and the plural forms of the terms defined:
"ACTIONABLE DEFAULT" means (i) the acceleration pursuant to
Section 6.01 of the Credit Agreement of the maturity of the Bank Debt
or (ii) the non-payment at maturity of the Senior Public Notes or the
declaration prior to their stated maturity that all of the Senior
Public Notes are due and payable pursuant to Section 502 of the
Indenture; provided that an Actionable Default shall be deemed to be
continuing unless the Notice of Actionable Default delivered with
respect thereto shall have been withdrawn in a writing delivered to
the Trustee by or on behalf of the Holder or Holders from or on behalf
of which such Notice of Actionable Default was delivered, prior to the
first date on which the Trustee commences the exercise of any remedy
with respect to the Collateral following the receipt of such Notice of
Actionable Default.
"BANKRUPTCY PROCEEDING" means that the Company or any of its
subsidiaries shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the
Company or any of its subsidiaries seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or
its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for relief or the appointment of a receiver, trustee, administrator or
other similar official for it or for any substantial part of its
property and assets and, in the case of any such proceeding instituted
against it (but not instituted by it) that is being diligently
contested by it in good faith, either such proceeding shall remain
undismissed or unstayed for a period of at least 45 consecutive days
or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or any substantial part of its property and assets)
shall occur; or any event or action analogous to or having a
substantially similar effect to any of the events or actions set forth
above in this definition (other than a solvent reorganization) shall
occur under the law of any jurisdiction applicable to the Company or
any of its subsidiaries; or the Company or any of its Subsidiaries
shall take any corporate, partnership, limited liability company or
other similar action to authorize any of the actions set forth above
in this definition.
"DISTRIBUTION DATES" means the dates fixed by the Trustee
(the first of which shall occur within 90 days after receipt of a
Notice of Actionable Default that has not theretofore been withdrawn
and the balance of which shall be monthly thereafter) for the
distribution of all moneys held by the Trustee in the Trust Account.
"HOLDERS" means the holders of the Senior Public Notes and
the holders of the Bank Debt.
"MAJORITY HOLDERS" means, as of any date, Holders holding
more than 50% of (i) the aggregate unpaid principal amount of the
Senior Public Notes then outstanding under the Indenture plus (ii) the
aggregate unpaid principal amount of the Bank Debt under the Credit
Agreement plus the aggregate obligations available under outstanding
letters of credit thereunder.
"REQUIRED LENDERS" has the meaning set forth in Section 1.01
of the Credit Agreement.
<PAGE> 5
"RESPONSIBLE OFFICER" means the chief executive officer, the
president, the chief financial officer, the principal accounting
officer or the treasurer (or the equivalent of any of the foregoing)
of the Company or any of its subsidiaries or any other officer,
partner or member (or person performing similar functions) of the
Company or any of its subsidiaries responsible for overseeing the
administration of, or reviewing compliance with, all or any portion of
this Agreement or any of the Security Documents.
"TRUSTEE'S FEES" means all fees, costs and expenses of the
Trustee of the type described in (i) Sections 4.3, 4.4, 4.5 and 4.6 of
this Agreement or (ii) Section 15 of the Pledge Agreement.
SECTION 2
ACTIONABLE DEFAULT; REMEDIES
2.1 Notice of Default; Written Instructions. (a) Upon
receipt of a notice of Actionable Default (a "NOTICE OF ACTIONABLE DEFAULT"),
the Trustee shall, within five days thereafter, notify the Public Trustee and
the Administrative Agent that an Actionable Default exists.
(b) Upon receipt of any written directions pursuant to
Section 2.6(a), the Trustee shall, within five days thereafter, send a copy
thereof to the Administrative Agent and the Public Trustee.
2.2 Remedies. (a) If and only if the Trustee shall have
received a Notice of Actionable Default and such Notice of Actionable Default
shall not have been withdrawn in accordance with the provisions hereof, the
Trustee shall exercise the rights and remedies provided in this Agreement and
in the Security Documents.
SECTION 1 The Company hereby waives presentment, demand,
protest or any notice (to the extent permitted by applicable law) of any kind
in connection with this Agreement, any Collateral or any Security Document.
SECTION 2 The Company hereby irrevocably constitutes and
appoints the Trustee and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full power and
authority in the name of the Company or in its own name, from time to time in
the Trustee's discretion, upon the occurrence and during the continuance of an
Actionable Default, for the purpose of carrying out the terms of this Agreement
and the Security Documents, to take any and all appropriate action and to
execute any and all documents and instruments that may be necessary or
desirable to accomplish the purposes hereof and thereof and, without limiting
the generality of the foregoing, hereby gives the Trustee the power and right
on behalf of the Company, without notice to or assent by the Company, to do the
following:
(i) to ask for, demand, sue for, collect,
receive, recover, compromise and give acquittance and receipts for any
and all moneys due or to become due upon or by virtue hereof and
thereof,
(ii) to receive, take, endorse, assign and
deliver any and all checks, notes, drafts, acceptances, documents and
other negotiable and non-negotiable instruments and chattel paper
taken or received by the Trustee in connection herewith and therewith,
<PAGE> 6
(iii) to commence, file, institute, prosecute,
defend, settle, compromise or adjust any claim, suit, action or
proceeding with respect hereto and thereto or in connection herewith
and therewith,
(iv) to sell, transfer, assign or otherwise deal
in or with the Collateral or any part thereof as fully and effectually
as if the Trustee were the absolute owner thereof, and
(v) to do, at its option and at the expense and
for the account of the Company, at any time or from time to time, all
acts and things that the Trustee deems necessary to protect or
preserve the Collateral or the Trust Estate and to realize upon the
Collateral.
2.3 Right to Initiate Judicial Proceedings, etc. If and
only if the Trustee shall have received a Notice of Actionable Default and such
Notice of Actionable Default shall not have been withdrawn in accordance with
the provisions hereof, (i) the Trustee shall have the right and power to
institute and maintain such suits and proceedings as it may deem appropriate to
protect and enforce the rights vested in it by this Agreement and each Security
Document and (ii) the Trustee may, either after entry or without entry, proceed
by suit or suits at law or in equity to enforce such rights and to foreclose
upon the Collateral and to sell all or, from time to time, any of the Trust
Estate under the judgment or decree of a court of competent jurisdiction.
2.4 Appointment of a Receiver. If a receiver of the
Trust Estate shall be appointed in judicial proceedings, the Trustee may be
appointed as such receiver. Notwithstanding the appointment of a receiver, the
Trustee shall be entitled to retain possession and control of all cash held by
or deposited with it or its agents pursuant to any provision of this Agreement
or any Security Document.
2.5 Exercise of Powers. All of the powers, remedies and
rights of the Trustee as set forth in this Agreement may be exercised by the
Trustee in respect of any Security Document as though set forth at length
therein and all the powers, remedies and rights of the Trustee and the Holders
as set forth in any Security Document may be exercised from time to time as
herein and therein provided.
2.6 Control by Holders. (a) Subject to Section 2.6(b),
if an Actionable Default shall have occurred and be continuing and the Trustee
shall have received a Notice of Actionable Default with respect thereto, the
Majority Holders shall have the right, by an instrument in writing executed and
delivered to the Trustee, to direct the time, method and place of conducting
any proceeding for any right or remedy available to the Trustee, or of
exercising any trust or power conferred on the Trustee, or for the appointment
of a receiver, or for the taking of any action authorized by Section 2.
(b) The Trustee shall not follow any written directions
received pursuant to Section 2.6(a) to the extent such written directions are
known by the Trustee to be in conflict with any provisions of law or if the
Trustee shall have received from independent counsel an unqualified opinion to
the effect that following such written directions would result in a breach of a
provision or covenant contained in the Indenture providing for the securing of
the indebtedness outstanding thereunder equally and ratably with other
indebtedness or obligations of the Company or any of its subsidiaries.
(c) Nothing in this Section 2.6 shall impair the right
of the Trustee in its discretion to take or omit to take any action deemed
proper by the Trustee and which action or omission is not inconsistent with the
direction of the Holders entitled to direct the Trustee pursuant to this
Section 2.6; provided, however, that the Trustee shall not be under any
obligation to take any action that is discretionary with the Trustee under the
provisions hereof or under any Security Document.
<PAGE> 7
2.7 Remedies Not Exclusive. (a) No remedy conferred upon
or reserved to the Trustee herein or in any Security Document is intended to be
exclusive of any other remedy or remedies, but every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
in any Security Document or now or hereafter existing at law or in equity or by
statute.
(b) No delay or omission of the Trustee to exercise any
right, remedy or power accruing upon any Actionable Default shall impair any
such right, remedy or power or shall be construed to be a waiver of any such
Actionable Default or an acquiescence therein; and every right, power and
remedy given by this Agreement or any Security Document to the Trustee may be
exercised from time to time and as often as may be deemed expedient by the
Trustee.
(c) In case the Trustee shall have proceeded to enforce
any right, remedy or power under this Agreement or any Security Document and
the proceeding for the enforcement thereof shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the
Trustee, then and in every such case the Company, the Trustee and the Holders
shall, subject to any determination in such proceeding, severally and
respectively be restored to their former positions and rights hereunder and
under such Security Document with respect to the Trust Estate and in all other
respects, and thereafter all rights, remedies and powers of the Trustee shall
continue as though no such proceeding had been taken.
(d) All rights of action and rights to assert claims
upon or under this Agreement and the Security Documents may be enforced by the
Trustee without the possession of any Debt Instrument or the production thereof
in any trial or other proceeding relative thereto, and any such suit or
proceeding instituted by the Trustee shall be brought in its name as Trustee
and any recovery of judgment shall be held as part of the Trust Estate.
2.8 Waiver of Certain Rights. The Company, to the extent
it may lawfully do so, on behalf of itself and all who may claim through or
under it, including, without limitation, any and all subsequent creditors,
vendees, assignees and lienors, expressly waives and releases any, every and
all rights to demand or to have any marshaling of the Trust Estate upon any
sale, whether made under any power of sale herein granted or pursuant to
judicial proceedings or upon any foreclosure or any enforcement of this
Agreement and consents and agrees that all the Trust Estate may at any such
sale be offered and sold as an entirety.
2.9 Limitation on Trustee's Duties in Respect of
Collateral. Beyond its duties set forth in this Agreement as to the custody
thereof and the accounting to the Company and the Holders for moneys received
by it hereunder, the Trustee shall not have any duty to the Company and the
Holders as to any Collateral in its possession or control or in the possession
or control of any agent or nominee of it or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. To the extent, however, that the Trustee or any agent or nominee
thereof maintains possession or control of any of the Collateral, the Trustee
shall, and shall instruct such agent or nominee to, grant the Company access to
such Security that the Company requires for the normal conduct of its business,
consistent with its current practice so long as the Trustee shall not have
received a Notice of Actionable Default.
2.10 Limitation by Law. All rights, remedies and powers
provided by this Section 2 may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law in the
premises, and all the provisions of this Section 2 are intended to be subject
to all applicable
<PAGE> 8
mandatory provisions of law that may be controlling in the premises and to be
limited to the extent necessary so that they will not render this Agreement
invalid, unenforceable in whole or in part or not entitled to be recorded,
registered, or filed under the provisions of any applicable law.
2.11 Absolute Rights of Holders. Notwithstanding any
other provision of this Agreement or any provision of any Security Document,
the right of each Holder, which is absolute and unconditional, to receive
payments of the Secured Debt held by such Holder on or after the due date
thereof as therein expressed, to seek adequate protection in respect of its
interest in this Agreement and the Collateral, to institute suit for the
enforcement of such payment on or after such due date, or to assert its
position and views as a secured creditor in a Bankruptcy Proceeding, or the
obligation of the Company, which is also absolute and unconditional, to pay the
Secured Debt to the Holders at the time and place expressed therein shall not
be impaired or affected without the consent of such Holder.
2.12 Equal and Ratable Security. This Agreement and the
Security Documents are intended to secure the unpaid principal of and accrued
interest and premium, if any, on the Senior Public Notes equally and ratably
with all indebtedness and other obligations of the Company under the Credit
Agreement, this Agreement and the Security Documents to the extent required by
the Indenture, and shall be construed and enforced to give effect to such
intention.
SECTION 3
TRUST ACCOUNT, APPLICATION OF MONEYS.
3.1 The Trust Account. On the date hereof there shall be
established and, at all times thereafter until the trusts created by this
Agreement shall have terminated, there shall be maintained, with the Trustee an
account that shall be entitled the "Caremark Rx, Inc. Trust Account" (the
"TRUST ACCOUNT"). The Trust Account shall be established and maintained by the
Trustee at the office of its corporate trust services division. All moneys that
are received by the Trustee after the occurrence of an Actionable Default in
respect of the Collateral shall be deposited in the Trust Account and
thereafter shall be held and applied by the Trustee in accordance with the
terms of this Agreement.
3.2 Control of Trust Account. All right, title and
interest in and to the Trust Account shall vest in the Trustee, and funds on
deposit in the Trust Account shall constitute part of the Trust Estate. The
Trust Account shall be subject to the exclusive dominion and control of the
Trustee.
3.3 Investment of Funds Deposited in Trust Account. The
Trustee pursuant to written direction shall invest and reinvest moneys on
deposit in the Trust Account at any time in:
(i) marketable obligations of the United States
having a maturity of not more than one year from the date of
acquisition;
(ii) marketable obligations directly and fully
guaranteed by the United States having a maturity of not more than one
year from the date of acquisition;
(iii) bankers' acceptances and certificates of
deposit and other interest-bearing obligations issued by the Trustee
or any bank organized under the laws of the United States or any state
thereof with capital, surplus and undivided profits aggregating at
least
<PAGE> 9
$500,000,000 in each case having a maturity of not more than one year
from the date of acquisition;
(iv) repurchase obligations with a term of not
more than thirty days for underlying securities of the types described
in clauses (i), (ii) and (iii) entered into with either (A) the
Trustee or any bank of the type described in clause (iii) above or (B)
any nationally recognized investment banking firm;
(v) commercial paper (except for commercial
paper issued by the Company or its Affiliates) rated A-1 or the
equivalent thereof by Standard & Poor's Ratings Services, a division
of the McGraw-Hill Companies, Inc., or P-1 or the equivalent thereof
by Moody's Investors Service, Inc.; and
(vi) money market funds investing in obligations
described in clauses (i), (ii) and (iv);
provided, however, that the maximum amount of the funds held in the Trust
Account that may be invested in obligations of the types described in clauses
(iii), (iv) and (v) above of any one issuer shall not exceed the lesser of 5%
of such funds or $50,000,000. All such investments and the interest and income
received thereon and therefrom and the net proceeds realized on the sale
thereof shall be held in the Trust Account as part of the Trust Estate.
3.4 Application of Moneys. (a) Subject to Sections 1(b)
and 3.5, all moneys held by the Trustee in the Trust Account shall, to the
extent available for distribution, be distributed (or deposited in a separate
account for the benefit of the Public Trustee pursuant to Section 3.5) by the
Trustee as follows:
FIRST: To the Trustee in an amount equal to the
Trustee's Fees that are unpaid as of the relevant Distribution Date
and to any Holder that has theretofore advanced or paid any such
Trustee's Fees in an amount equal to the amount thereof so advanced or
paid by such Holder prior to such Distribution Date;
SECOND: To the Holders in an amount equal to the
unpaid principal of and unpaid interest on the Secured Debt whether or
not then due and payable, and, in case such moneys shall be
insufficient to pay in full such amount, then to the payment thereof
ratably (without priority of any one over any other) to each Holder in
the same proportion that the aggregate unpaid principal amount of and
unpaid interest on the Secured Debt held by such Holder bears to the
aggregate unpaid principal amount of and unpaid interest on the
Secured Debt held by all Holders on the relevant Distribution Date;
THIRD: To the Holders in an amount equal to all
other unpaid Secured Debt whether or not due and payable, and, in case
such moneys shall be insufficient to pay in full such amount, then to
the payment thereof ratably (without priority of any one over any
other) to each Holder in the same proportion that such other unpaid
Secured Debt of such Holder bears to all such other unpaid Secured
Debt of all Holders on the relevant Distribution Date; and
FOURTH: Any surplus then remaining shall be paid to
the Company, its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct.
<PAGE> 10
(b) The term "unpaid" as used in this Section 3.4 shall
mean all amounts of Trustee's Fees and the Secured Debt outstanding as of a
Distribution Date as to which prior distributions (whether actually distributed
or set aside pursuant to Section 3.5) have not been made, or if made, have
subsequently been recovered from the recipient thereof.
3.5 Application of Moneys Distributable to Holders of
Senior Public Notes. If at any time any moneys collected or received by the
Trustee pursuant to this Agreement or any Security Document are distributable
pursuant to Section 3.4(a) to the Public Trustee, and if the Public Trustee
shall notify the Trustee that no provision is made under the Indenture (i) for
the application by the Public Trustee of such amounts so distributable (whether
by virtue of the Secured Debt issued under the Indenture not having become due
and payable or otherwise) or (ii) for the receipt and the holding by the Public
Trustee of such amounts pending the application thereof, then the Trustee shall
invest such amounts in obligations of the kinds referred to in Section 3.3(i),
3.3(ii) or 3.3(vi) having maturities of 90 days or less, and shall hold all
such amounts so distributable, and all such investments and the proceeds
thereof, in trust solely for the Public Trustee and for no other purpose until
such time as the Public Trustee shall request the delivery thereof by the
Trustee to the Public Trustee for application by it pursuant to the Indenture.
SECTION 4
AGREEMENTS WITH THE TRUSTEE
4.1 Delivery of Debt Instruments. Within 10 days after
the date hereof, the Company will deliver to the Trustee a true and complete
copy of each of the Debt Instruments as in effect on the date hereof. The
Company agrees that, promptly upon the execution thereof, the Company will
deliver to the Trustee a true and complete copy of any and all amendments,
modifications or supplements to any Debt Instrument entered into subsequent to
the date hereof.
4.2 Information as to Holders. The Company agrees that
it shall deliver to the Trustee from time to time upon request of the Trustee,
a list setting forth, by each Debt Instrument, (i) the aggregate principal
amount outstanding thereunder, (ii) the interest rates then in effect
thereunder and (iii) to the extent known to the Company, the names of the
Holders of the Secured Debt outstanding thereunder and the unpaid principal
amount thereof owing to each Private Lender and the Public Trustee. The Company
will furnish to the Trustee within 30 days after the date hereof a list setting
forth the name and address of each party to whom notices must be sent under the
Debt Instruments.
4.3 Compensation and Expenses. The Company agrees to pay
to the Trustee, from time to time upon demand, (i) reasonable compensation
(which shall not be limited by any provision of law in regard to compensation
of a trustee of an express trust) for their services hereunder and under the
Security Documents and for administering the Trust Estate and (ii) all of the
fees, costs and expenses of the Trustee (including, without limitation, the
reasonable fees and disbursements of their counsel and such special counsel as
the Trustee elect to retain) (A) arising in connection with the preparation,
execution, delivery, modification and termination of this Agreement and each
Security Document or the enforcement of any of the provisions hereof or thereof
or (B) incurred or required to be advanced in connection with the
administration of the Trust Estate, the sale or other disposition of Collateral
pursuant to any Security Document and the preservation, protection or defense
of the Trustee's rights under this Agreement and in and to the Collateral and
the Trust Estate.
<PAGE> 11
4.4 Stamp and Other Similar Taxes. The Company agrees to
indemnify and hold harmless the Trustee and each Holder from any present or
future claim for liability for any stamp or other similar tax and any penalties
or interest with respect thereto that may be assessed, levied or collected by
any jurisdiction in connection with this Agreement, any Security Document, the
Trust Estate or any Collateral. The obligations of the Company under this
Section 4.4 shall survive the termination of the other provisions of this
Agreement.
4.5 Filing Fees, Excise Taxes, etc. The Company agrees
to pay or to reimburse the Trustee for any and all amounts in respect of all
search, filing, recording and registration fees, taxes, excise taxes and other
similar imposts that may be payable or determined to be payable in respect of
the execution, delivery, performance and enforcement of this Agreement and each
Security Document. The obligations of the Company under this Section 4.5 shall
survive the termination of the other provisions of this Agreement.
4.6 Indemnification. The Company agrees to pay,
indemnify, and hold the Trustee and each of its agents harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement and the Security Documents
(including, but not limited to, actions by the Trustee to enforce its rights
with respect to the Collateral), unless arising from the gross negligence or
willful misconduct (in either case, as determined by a final judgment of a
court of competent jurisdiction) of the Trustee or such of the agents as are
seeking indemnification. The foregoing indemnities in this Section 4.6 shall
survive the resignation or removal of the Trustee or the termination of this
Agreement.
4.7 Further Assurances; Notation on Financial
Statements. At any time and from time to time, upon the written request of the
Trustee, and, at the sole expense of the Company, the Company will promptly
execute and deliver any and all such further instruments and documents and take
such further action as the Trustee reasonably deems necessary or desirable in
obtaining the full benefits of this Agreement and the Security Documents and of
the rights and powers herein and therein granted. To the extent required by
law, the Company shall, in all of its financial statements, indicate by
footnote or otherwise that the Secured Debt is secured pursuant to this
Agreement and the Security Documents.
SECTION 5
THE TRUSTEE
5.1 Acceptance of Trust. The Trustee, for itself and its
successors, hereby accepts the trusts created by this Agreement upon the terms
and conditions hereof, including those contained in this Section 5.
5.2 Exculpatory Provisions. (a) The Trustee shall not be
responsible in any manner whatsoever for the correctness of any recitals,
statements, representations or warranties' contained herein or in any Security
Document, all of which are made solely by the Company. The Trustee makes no
representations as to the value or condition of the Trust Estate or any part
thereof, or as to the title of the Company thereto or as to the security
afforded by any Security Document or this Agreement, or as to the validity,
execution (except its own execution), enforceability, legality or sufficiency
of this Agreement, any Security Document or the Secured Debt secured hereby and
thereby, and the Trustee shall incur no liability or responsibility in respect
of any such matters. The Trustee shall not be responsible for
<PAGE> 12
insuring the Trust Estate or for the payment of taxes, charges, assessments or
liens upon the Trust Estate or otherwise as to the maintenance of the Trust
Estate, except that in the event the Trustee enters into possession of a part
or all of the Trust Estate, the Trustee shall preserve the part in its
possession.
(b) The Trustee shall not be required to ascertain or
inquire as to the performance by the Company of any of the covenants or
agreements contained herein, in any Security Document or in any Debt
Instrument. Whenever it is necessary, or in the opinion of the Trustee
advisable, for the Trustee to ascertain the amount of Secured Debt then held by
a Holder, the Trustee may rely on a certificate of such Holder or its
representative as to such amount, and if any such Holder or representative
shall not give such information to the Trustee, such Holder shall not be
entitled to receive distributions hereunder (in which case such distributions
shall be held in trust for such Holder) until it has given such information to
the Trustee.
(c) The Trustee shall not be personally liable for any
action taken or omitted to be taken by them in accordance with this Agreement
or any Security Document except for its own gross negligence or willful
misconduct.
5.3 Delegation of Duties. The Trustee may execute any of
the trusts or powers hereof and perform any duty hereunder either directly or
by or through agents or attorneys-in-fact, which may include officers and
employees of the Company. The Trustee shall be entitled to advice of counsel
concerning all matters pertaining to such trusts, powers and, duties. The
Trustee shall not be responsible for the negligence or misconduct of any agents
or attorneys-in-fact selected by it without gross negligence or willful
misconduct.
5.4 Reliance by Trustee. (a) Whenever in the
administration of the trusts of this Agreement the Trustee shall deem it
necessary or desirable that a matter be proved or established in connection
with the taking, suffering or omitting any action hereunder by the Trustee,
such matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively provided or established by a
certificate of a Responsible Officer of the Company delivered to the Trustee,
and such certificate shall be full warranty to the Trustee for any action
taken, suffered or omitted in reliance thereon, subject, however, to the
provisions of Section 5.5.
(b) The Trustee may consult with counsel, and any
opinion of such counsel who are not employees of the Trustee shall be full and
complete authorization and protection in respect of any action taken or
suffered by it hereunder in accordance therewith. The Trustee shall have the
right at any time to seek, instructions concerning the administration of the
Trust Estate from any court of competent jurisdiction.
(c) The Trustee may rely, and shall be fully protected
in acting, upon any resolution, statement, certificate, instrument, opinion,
report, notice, request, consent, order, bond or other paper or document that
it has no reason to believe to be other than genuine and to have been signed or
presented by the proper party or parties or, in the case of cables, telecopies
and telexes, to have been sent by the proper party or parties. In the absence
of its gross negligence or willful misconduct, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the Trustee
and conforming to the requirements of this Agreement or any Security Document.
(d) The Trustee shall not be under any obligation to
exercise any of the rights or powers vested in the Trustee by this Agreement at
the request or direction of the Majority Holders
<PAGE> 13
pursuant to this Agreement or any Security Document unless the Trustee shall
have been provided adequate security and indemnity against the costs, expenses
and liabilities that may be incurred by it in compliance with such request or
direction, including such reasonable advances as may be requested by the
Trustee.
5.5 Limitations on Duties of Trustee. (a) Prior to the
occurrence of an Actionable Default, the Trustee shall be obliged to perform
such duties and only such duties as are specifically set forth in this
Agreement or in any Security Document, and no implied covenants or obligations
shall be read into this Agreement or any Security Document against the Trustee.
The Trustee shall, during the existence of any Actionable Default, exercise the
rights and powers vested in it by this Agreement or by any Security Document,
and the Trustee shall not be liable with respect to any action taken or omitted
by it in accordance with the direction of the Holders pursuant to Section 2.6.
(b) Except as herein otherwise expressly provided, the
Trustee shall not be under any obligation to take any action that is
discretionary with the Trustee under the provisions hereof or under any
Security Document except upon the written request of the Holders pursuant to
Section 2.6. The Trustee shall make available for inspection and copying by the
Administrative Agent and the Public Trustee each certificate or other paper
furnished to the Trustee by the Company under or in respect of this Agreement,
any Security Document or any of the Trust Estate.
5.6 Moneys to be Held in Trust. All moneys received by
the Trustee under or pursuant to any provision of this Agreement or any
Security Document shall be held in trust for the purposes for which they were
paid or are held.
5.7 Resignation and Removal of the Trustee. (a) The
Trustee may at any time, by giving 30 days' prior written notice to the Company
and the Holders, resign and be discharged of the responsibilities hereby
created, such resignation to become effective upon the earlier of (i) 30 days
from the date of such notice and (ii) the appointment of a successor trustee or
trustees by the Company, the acceptance of such appointment by such successor
trustee or trustees, and the approval of such successor trustee or trustees by
the Majority Holders. The Trustee may be removed at any time and a successor
trustee or trustees appointed by the affirmative vote of the Majority Holders;
provided that the Trustee shall be entitled to its fees and expenses to the
date of removal. If no successor trustee or trustees shall be appointed and
approved within 30 days, from the date of the giving of the aforesaid notice of
resignation or within 30 days from the date of such removal, the Trustee
(notwithstanding the termination of all of its duties and obligations hereunder
by reason of such resignation) shall, or any Holder may, apply to any court of
competent jurisdiction to appoint a successor trustee or trustees (which may be
an individual or individuals) to act until such time, if any, as a successor
trustee or trustees shall have been appointed as above provided. Any successor
trustee or trustees so appointed by such court shall immediately and without
further act be superseded by any successor trustee or trustees approved by the
Majority Holders as above provided.
(b) If at any time the Trustee shall resign or be
removed or otherwise become incapable of acting, or if at any time, a vacancy
shall occur in the office of the Trustee for any other cause, a successor
trustee or trustees may be appointed by the Majority Holders, and the powers,
duties, authority and title of the predecessor trustee or trustees terminated
and canceled without procuring the resignation of such predecessor trustee or
trustees, and without any other formality (except as may be required by
applicable law) than appointment and designation of a successor trustee or
trustees in writing, duly acknowledged, delivered to the predecessor trustee or
trustees and the Company, and filed for record in each public office, if any,
in which this Agreement is required to be filed.
<PAGE> 14
(c) The appointment and designation referred to in
Section 5.7(b) shall, after any required filing, be full evidence of the right
and authority to make the same and of all the facts therein recited, and this
Agreement shall vest in such successor trustee or trustees, without any further
act, deed or conveyance, all of the estate and title of its predecessor, and
upon such filing, for record the successor trustee or trustees shall become
fully vested with all the estates, properties, rights, powers, trusts, duties,
authority and title of its predecessor; but such predecessor shall,
nevertheless, on the written request of the Majority Holders, the Company or
the successor trustee or trustees, execute and deliver an instrument
transferring to such successor or successors all the estates, properties,
rights, powers, trusts, duties, authority and title of such predecessor or
predecessors hereunder and shall deliver all securities and moneys held by it
to such successor trustee or trustees. Should any deed, conveyance or other
instrument in writing from the Company be required by any successor trustee or
trustees for more fully and certainly vesting in such successor trustee or
trustees the estates, properties, rights, powers, trusts, duties, authority and
title vested or intended to be vested in the predecessor trustee or trustees,
any and all such deeds, conveyances and other instruments in writing shall, on
request of such successor trustee or trustees, be executed, acknowledged and
delivered by the Company.
(d) Any required filing for record of the instrument
appointing a successor trustee or trustees as hereinabove provided shall be at
the expense of the Company. The resignation of any trustee or trustees and the
instrument or instruments removing any trustee or trustees, together with all
other instruments, deeds and conveyances provided for in this Section 5 shall,
if permitted by law, be forthwith recorded, registered and filed by and at the
expense of the Company, wherever this Agreement is recorded, registered and
filed.
5.8 Status of Successors to the Trustee. Except as
permitted by Section 5.7, every successor to the Trustee appointed pursuant to
Section 5.7 shall be a bank or trust company in good standing and having power
so to act, incorporated under the laws of the United States or any State
thereof or the District of Columbia, and having its principal corporate trust
office within the 48 contiguous States, and shall also have capital, surplus
and undivided profits of not less than $100,000,000, if there be such an
institution with such capital, surplus and undivided profits willing, qualified
and able to accept the trust upon reasonable or customary terms.
5.9 Merger of the Trustee. Any corporation into which
the Trustee may be merged, or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Trustee
shall be a party, shall be Trustee under this Agreement without the execution
or filing of any paper or any further act on the part of the parties hereto.
5.10 Co-Trustee, Separate Trustee. (a) If at any time or
times it shall be necessary or prudent in order to conform to any law of any
jurisdiction in which any of the Collateral shall be located, or the Trustee
shall be advised by counsel, satisfactory to it, that it is so necessary or
prudent in the interest of the Holders, or the Majority Holders shall in
writing so request the Trustee and the Company, or the Trustee shall deem it
desirable for its own protection in the performance of its duties hereunder,
the Trustee and the Company shall execute and deliver all instruments and
agreements necessary or proper to constitute another bank or trust company, or
one or more persons approved by the Trustee and the Company, either to act as
co-trustee or co-trustees of all or any of the Collateral, jointly with the
Trustee originally named herein or any successor or successors, or to act as
separate trustee or trustees of any such property. In the event the Company
shall not have joined in the execution of such instruments and agreements
within 30 days after the receipt of a written request from the Trustee so to
do, or in case an Actionable Default shall have occurred and be continuing, the
Trustee may act under the foregoing
<PAGE> 15
provisions of this Section 5.10 without the concurrence of the Company, and the
Company hereby appoints the Trustee as its agent and attorney to act for it
under the foregoing provisions of this Section 5.10 in either of such
contingencies.
(b) Every separate trustee and every co-trustee, other
than any trustee that may be appointed as successor to the Trustee, shall, to
the extent permitted by law, be appointed and act and be such, subject to the
following provisions and conditions, namely:
(i) all rights, powers, duties and obligations
conferred upon the Trustee in respect of the custody, control and
management of moneys, papers or securities shall be exercised solely
by the Trustee, or its successors as Trustee hereunder;
(ii) all rights, powers, duties and obligations
conferred or imposed upon the Trustee hereunder shall be conferred or
imposed and exercised or performed by the Trustee and such separate
trustee or separate trustees or co-trustee or co-trustees, jointly, as
shall be provided in the instrument appointing such separate trustee
or separate trustees or co-trustee or co-trustees, except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations shall be exercised and performed by
such separate trustee or separate trustees or co-trustee or
co-trustees;
(iii) no power given hereby to, or that it is
provided hereby may be exercised by, any such co-trustee or
co-trustees or separate trustee or separate trustees, shall be
exercised hereunder by such co-trustee or co-trustees or separate
trustee or separate trustees, except jointly with, or with the consent
in writing of, the Trustee, anything herein contained to the contrary
notwithstanding;
(iv) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee hereunder; and
(v) the Company and the Trustee, at any time by an
instrument in writing, executed by them, may accept the resignation of
or remove any such separate trustee or co-trustee, and in that case,
by an instrument in writing executed by the Company and the Trustee
jointly, may appoint a successor to such separate trustee or
co-trustee, as the case may be, anything herein contained to the
contrary notwithstanding. In the event that the Company shall not have
joined in the execution of any such instrument within ten days after
the receipt of a written request from the Trustee so to do, or in case
an Actionable Default shall have occurred and be continuing, the
Trustee shall have the power to accept the resignation of or remove
any such separate trustee or co-trustee and to appoint a successor
without the concurrence of the Company, the Company hereby appointing
the Trustee its agent and attorney to act for it in such connection in
either of such contingencies. In the event that the Trustee shall have
appointed a separate trustee or separate trustees or co-trustee or
co-trustees as above provided, it may at any time, by an instrument in
writing, accept the resignation of or remove any such separate trustee
or co-trustee, the successor to any such separate trustee or
co-trustee to be appointed by the Company and the Trustee, or by the
Trustee alone, as provided in this Section 5.10.
<PAGE> 16
SECTION 6
RELEASE OF COLLATERAL
6.1 Conditions to Release; Release Procedure. (a)
Subject to Section 6.1(b), the Collateral shall be released on the earliest of
the dates listed below:
(i) the date on which the Trustee and the
Public Trustee shall have received written notice from the
Administrative Agent that (A) no Advances (as defined in the Credit
Agreement) or any of the other Obligations (as defined in the Credit
Agreement) of a Loan Party (as defined in the Credit Agreement) under
or in respect of the Loan Documents (as defined in the Credit
Agreement) shall remain unpaid, (B) no Letter of Credit (as defined in
the Credit Agreement) shall remain outstanding and (C) no Lender Party
(as defined in the Credit Agreement) shall have any Commitment (as
defined in the Credit Agreement) under the Credit Agreement; or
(ii) the date on which the Trustee shall have
received written directions from the Administrative Agent directing
the Trustee to release the Collateral (with a copy of such directions
to be sent coincidentally to the Public Trustee).
(b) The Collateral shall not be released unless and
until all Trustee's Fees shall have been paid in full.
(c) Upon the release of the Collateral, all right, title
and interest of the Trustee in, to and under the Trust Estate, the Collateral
and the Security Documents shall terminate and shall revert to the Company, its
successors and assigns, and the estate, right, title and interest of the
Trustee therein shall thereupon cease, determine and become void; and in such
case, upon the written request of the Company, its successors or assigns, and
at the cost and expense of the Company, its successors or assigns, the Trustee
shall execute a satisfaction of the Security Documents and such instruments as
are necessary or desirable to terminate and remove of record any documents
constituting public notice of the Security Documents and the security interests
and assignments granted thereunder and shall assign and transfer, or cause to
be assigned and transferred, and shall deliver or cause to be delivered to the
Company, all property, including all moneys, instruments and securities, of the
Company then held by the Trustee. The cancellation and satisfaction of the
Security Documents shall be without prejudice to the rights of the Trustee or
any successor trustee to charge and be reimbursed for any expenditures that it
may thereafter incur in connection therewith.
SECTION 7
MISCELLANEOUS
7.1 Amendments, Supplements and Waivers. (a) With the
written consent of the Administrative Agent and the Public Trustee, the Trustee
and the Company may, from time to time, enter into written agreements
supplemental hereto for the purpose of adding to or waiving any provision of
this Agreement or any Security Document or changing in any manner the rights of
the Trustee, the Holders or the Company hereunder or thereunder; provided,
however, that no such supplemental agreement shall:
<PAGE> 17
(i) amend, modify or waive any provision of
this Section 7.1 without the written consent of each Holder,
(ii) reduce the percentage specified in the
definition of Majority Holders without the written consent of all the
Holders,
(iii) amend, modify or waive any provision of
Section 3.4, 3.5 or 6.1 or the definition of the term "Secured Debt"
without the written consent of any Holder whose rights would be
adversely affected thereby,
(iv) amend, modify or waive any provision of
Section 5 or alter the duties or obligations of the Trustee hereunder
without the written consent of the Trustee.
Any such supplemental agreement shall be binding upon the Company, the Holders
and the Trustee and their respective successors. The Trustee shall not enter
into any such supplemental agreement unless it shall have received a
certificate of a Responsible Officer of the Company to the effect that such
supplemental agreement will not result in a breach of any provision or covenant
contained in the Indenture.
(b) Without the consent of any Holders, the Trustee and
the Company, at any time and from time to time, may enter into additional
pledge or security agreements or one or more agreements supplemental hereto or
to any Security Document, in form satisfactory to the Trustee,
(i) to add to the covenants of the Company, for
the benefit of the Holders, or to surrender any right or power herein
conferred upon the Company;
(ii) to mortgage, pledge or grant a security
interest in any property or assets that are required to be mortgaged
or pledged, or in which a security interest is required to be granted,
to the Trustee pursuant to the Debt Instrument or any Security
Document;
(iii) to cure any ambiguity, to correct or
supplement any provision herein or in any Security Document that may
be defective or inconsistent with any other provision herein or
therein, or to make any other provisions with respect to matters or
questions arising hereunder or under any Security Document that shall
not be inconsistent with any provision hereof or of any Security
Document.
7.2 Notices. All notices, requests, demands and other
communications provided for or permitted hereunder shall be in writing
(including telecopy communications) and shall be sent by mail, telecopier or
hand delivery:
(a) If to the Company, to it at its address at:
3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244, Telecopier
No. (205) 733-9780 or at such other address as shall be designated by
it in a written notice to the Trustee.
(b) If to the Trustee, to it at its address at:
135 South LaSalle Street, Suite 1960, Chicago, Illinois 60603,
Attention: Corporate Trust Services Division, Telecopier No: (312)
904-2236 or at such other address as shall be designated by it in a
written notice to the Company.
<PAGE> 18
(c) If to the Public Trustee, to it at its
address at 180 East Fifth Street -- 2nd Floor, St. Paul, Minnesota
55101, Attention: Mr. Timothy J. Sandell, Telecopier No. (651)
244-5847, or at such other address as shall be designated by it in
writing to the Trustee.
(d) If to the Administrative Agent, to it at
its address at Independence Center, 101 North Tryon Street, 15th
Floor, Charlotte, North Carolina 28255, Attention: Corporate Credit
Services, Telecopier No. (704) 386-9923 or at such other address as
shall be designated by it in writing to the Trustee.
(e) Any notice given to any Holder shall also
be given to the Public Trustee and the Administrative Agent.
All such notices, requests, demands and communications shall be deemed to have
been duly given or made, when delivered by hand or five Business Days after
being deposited in the mail, postage prepaid, or when telecopied, receipt
acknowledged; provided, however, that any notice, request, demand or other
communication to the Trustee shall not be effective until received.
7.3 Headings. Section, subsection and other headings
used in this Agreement are for convenience only and shall not affect the
construction of this Agreement.
7.4 Severability. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
7.5 Treatment of Payee or Indorsee by Trustee. (a) The
Trustee may treat the registered holder of any registered note, and the payee
or indorsee of any note or debenture that is not registered, as the absolute
owner thereof for all purposes hereunder and shall not be affected by any
notice to the contrary, whether such promissory note or debenture shall be past
due or not.
(b) Any person, firm, corporation or other entity that
shall be designated as the duly authorized representative of one or more
Holders of Secured Debt to act as such in connection with any matters
pertaining to this Agreement or any Security Document or the Collateral shall
present to the Trustee such documents, including, without limitation, opinions
of counsel, as the Trustee may reasonably require, in order to demonstrate to
the Trustee the authority of such person, firm, corporation or other entity to
act as the representative of such Holders.
7.6 Dealings with the Company. (a) Upon any application
or demand by the Company to the Trustee to take or permit any action under any
of the provisions of this Agreement, the Company shall furnish to the Trustee a
certificate of a Responsible Officer stating that all conditions precedent, if
any, provided for in this Agreement relating to the proposed action have been
complied with, except that in the case of any such application or demand as to
which the furnishing of such documents is specifically required by any
provision of this Agreement relating to such particular application or demand,
no additional certificate or opinion need be furnished.
(b) Any opinion of counsel may be based, insofar as it
relates to factual matters, upon a certificate of a Responsible Officer filed
with the Trustee.
<PAGE> 19
7.7 Claims Against the Trustee. Any claims or causes of
action that the Administrative Agent, the Private Lenders, the Public Trustee
or the Company shall have against the Trustee shall survive the termination of
this Agreement and the release of the Collateral hereunder.
7.8 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of each of the parties hereto, the Holders, and their
respective successors and assigns, and nothing herein or in any Security
Document is intended or shall be construed to give any other person any right,
remedy or claim under, to or in respect of this Agreement, any Security
Document, the Collateral or the Trust Estate.
7.9 Governing Law. This Agreement shall be governed by,
and construed and interpreted in accordance with, the laws of the State of
Illinois and any action alleging any breach by the Trustee of its duties
hereunder, whether by act or omission or anticipatory, shall be prosecuted only
in the courts of the State of Illinois.
7.10 Counterparts. This Agreement may be executed in
separate counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same instrument.
[The remainder of this page intentionally left blank.]
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be duly executed by their respective
officers thereunto duly authorized as of the day and year first above written.
CAREMARK RX, INC.
/s/ Peter J. Clemens IV
-------------------------------------
By: Peter J. Clemens IV
Title: SVP Finance & Treasurer
LASALLE BANK NATIONAL ASSOCIATION,
AS TRUSTEE
/s/ Russell C. Bergman
-------------------------------------
By: Russell C. Bergman
Title: Vice President
<PAGE> 21
CAREMARK RX, INC. TRUST AGREEMENT Acknowledgment
STATE OF ALABAMA )
-------------
COUNTY OF JEFFERSON ) ss:
-------------
On the 5 day of November, 1999, before me personally came
Peter J. Clemens , to me personally known and known to me to be the person
described in and who executed the foregoing instrument as agent of CAREMARK RX,
INC., and who, being by me duty sworn, did depose and say that s/he resides at
2547 Willow Brook Cir.; that s/he is SVP Finance & Treasurer of Caremark Rx,
one of the corporations described in and that executed the foregoing
instrument; that said instrument was signed on behalf of said corporation by
order of its Board of Directors; that s/he signed his/her name thereto by like
order, and that s/he acknowledged said instrument to be the free act and deed
of said corporation.
/s/ Andrea Storch
-------------------------------
Notary Public
Exp: 4-2-02
[Seal]
<PAGE> 22
CAREMARK RX, INC. TRUST AGREEMENT Acknowledgment
STATE OF ILLINOIS )
-----------
COUNTY OF COOK ) ss:
---------
On the 4th day of November, 1999, before me personally came
Russell C. Bergman, to me personally known and known to me to be the person
described in and who executed the foregoing instrument as Vice President of
LASALLE BANK NATIONAL ASSOCIATION, and who, being by me duty sworn, did depose
and say that s/he resides at Frankfort, Illinois; that s/he is Vice
President of LaSalle Bank National Association, one of the corporations
described in and that executed the foregoing instrument; that said instrument
was signed on behalf of said corporation by order of its Board of Directors;
that s/he signed his/her name thereto by like order, and that s/he acknowledged
said instrument to be the free act and deed of said corporation.
/s/ Mary Ann Kicmal
-------------------------------
Notary Public
Exp: 12/01/2001
[Seal]
<PAGE> 1
EXHIBIT 21
LIST OF CAREMARK RX, INC. SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY INCORPORATION
NAME STATE/COUNTRY
<S> <C>
Acute Care Medical Management, Inc. Ohio
Bay Area Practice Management Group, Inc. California
BGS Healthcare, Inc. Florida
Caremark Holdings N.V The Netherlands
Caremark International Holdings Inc. Delaware
Caremark International Inc. Delaware
Caremark Inc. California
CHS Management, Inc. Delaware
Friendly Hills Healthcare Network Inc. Delaware
HealthWays, Inc. Illinois
Home Health Agency of Greater Miami, Inc. Florida
MedPartners Administrative Services, Inc. Florida
MedPartners Managed Care, Inc. Florida
MedPartners Acquisition Corporation Delaware
MedPartners Aviation, Inc. Delaware
MedPartners East, Inc. Delaware
MedPartners Integrated Network-Chandler, Inc. Arizona
MedPartners NSC Ltd. Illinois
MedPartners Physician Services Inc. Delaware
MedPartners Professional Management Corporation Connecticut
MedPartners Provider Network, Inc. California
MedPartners/Talbert Medical Management Corporation Delaware
MP Indemnity, Ltd. Bermuda
MP Receivables Company Delaware
Pacific Medical Group, Inc. Oregon
Pacific Physician Services Arizona, Inc. Delaware
Pacific Physician Services Nevada, Inc. Delaware
Pacific Physician Services, Inc. Delaware
Physicians' Hospital Management Corporation Delaware
PPS East, Inc. Delaware
PPS North Carolina Medical Management, Inc. North Carolina
PPS Riverside Division Acquisition and Management Corp. I Delaware
PPS Valley Management, Inc. California
Prescription Health Services Inc. California
Reliant Healthcare Systems, Inc. California
Talbert Health Services Corporation Delaware
Talbert Medical Management Corporation Delaware
</TABLE>
<PAGE> 2
LIST OF MEDPARTNERS NON-CORPORATE SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY INCORPORATION
NAME STATE/COUNTRY
<S> <C>
5000 Airport Plaza, L.P. California
Cerritos Investment Group California
Cerritos Investment Group II, A California Limited Partnership California
Family Medical Center Oregon
MedPartners Administration, L.P. Delaware
MedPartners Physician Management, L.P. Delaware
MedPartners Physicians Services of Illinois, L.L.C Illinois
Med Tennessee, Inc. Delaware
MPI/Memorial IPA, LLC California
PPS Medical Management and Consulting, L.L.C Delaware
Sierra Meadows Associates, Ltd. Nevada
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of Caremark Rx, Inc. (formerly MedPartners, Inc.) and in the related
Prospectuses of our report dated February 10, 2000, except for Note 15 as to
which the date is March 6, 2000, with respect to the consolidated financial
statements and schedule of Caremark Rx, Inc. included in this annual report
(Form 10-K) for the year ended December 31, 1999:
Form S-8 033-86806 pertaining to the 1993 Stock Option Plan;
Form S-8 333-11875 pertaining to MedPartners' Incentive Compensation
Plan;
Form S-8 333-11127 pertaining to the 1995 Stock Option Plan;
Form S-8 333-05703 pertaining to MedPartners' Employee Savings Plan;
Form S-8 333-14159 pertaining to Caremarks' Employee Savings Plan;
Form S-8 333-14163 pertaining to Caremarks' Non-Employee Director Stock
Option Plan and Caremarks' Stock Purchase Plan'
Form S-8 333-38835 pertaining to MedPartners' 1997 Long Term Incentive
Compensation Plan;
Form S-8 333-16863 pertaining to MedPartners' Employee Stock Purchase
Plan;
Form S-8 333-17339 pertaining to the resale of common stock by certain
selling shareholders;
Form S-8 333-30145 pertaining to the MedPartners' 1994 Non-Employee
Director Stock Option Plan and 1994 Incentive Plan;
Form S-8 333-42967 pertaining to the Amended and Restated 1995 Stock
Option Plan
Form S-8 333-50849 pertaining to MedPartners' 1997 Long Term Incentive
Compensation Plan;
Form S-3 333-53761 pertaining to the resale of common stock by certain
selling shareholders;
Form S-8 333-64371 pertaining to MedPartners' 1998 Employee Stock
Option Plan;
Form S-8 333-68709 pertaining to the Non-Qualified Stock Option
Agreement Dated August 6, 1998 between MedPartners and Edwin M.
Crawford;
Form S-8 333-68707 pertaining to MedPartners' 1998 New Employee Stock
Option Plan; and
Form S-3 333-90583 pertaining to the offering of Preferred Securities
by Caremark Rx Capital Trust I.
Ernst & Young LLP
Birmingham, Alabama
March 7, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 6,797
<SECURITIES> 0
<RECEIVABLES> 229,332
<ALLOWANCES> 14,146
<INVENTORY> 159,031
<CURRENT-ASSETS> 534,656
<PP&E> 108,168
<DEPRECIATION> 0
<TOTAL-ASSETS> 770,846
<CURRENT-LIABILITIES> 563,406
<BONDS> 1,230,025
0
200,000
<COMMON> 200
<OTHER-SE> (1,281,675)
<TOTAL-LIABILITY-AND-EQUITY> 770,846
<SALES> 0
<TOTAL-REVENUES> 3,307,806
<CGS> 3,005,918
<TOTAL-COSTS> 122,498
<OTHER-EXPENSES> 3,255
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,292
<INCOME-PRETAX> 60,843
<INCOME-TAX> 4,952
<INCOME-CONTINUING> 55,891
<DISCONTINUED> (199,310)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,419)
<EPS-BASIC> (0.75)
<EPS-DILUTED> (0.74)
</TABLE>
