<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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 0-22295
CHOICECARE CORPORATION
OHIO 31-1446609
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
655 EDEN PARK DRIVE, SUITE 400 45202
CINCINNATI, OHIO (Zip Code)
(Address of Principal Executive Offices)
(513) 784-5200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
As of May 1, 1997, 14,852,844 shares of ChoiceCare Corporation common shares
were outstanding.
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CHOICECARE CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the three
month periods ended March 31, 1997 and 1996 3
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 4
Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 13
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHOICECARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
REVENUES:
Premium revenue $ 68,779 $ 70,508
Management services revenue 3,832 3,419
Other operating revenue 210 123
-------- --------
Total Operating Revenues 72,821 74,050
-------- --------
EXPENSES:
Health care services
Physician services 27,969 30,144
Hospital services 20,815 24,517
Pharmacy services 9,306 8,270
-------- --------
Total Health Care Services 58,090 62,931
Selling, general and administrative expenses 16,687 14,663
-------- --------
Total Operating Expenses 74,777 77,594
OPERATING LOSS (1,956) (3,544)
OTHER INCOME (EXPENSE)
Investment income, net 1,372 1,150
-------- --------
LOSS BEFORE INCOME TAXES (584) (2,394)
INCOME TAX BENEFIT 222 --
-------- --------
NET LOSS $ (362) $ (2,394)
======== ========
LOSS PER SHARE $ (.02) $ (.18)
======== ========
AVERAGE NUMBER OF SHARES OUTSTANDING 14,853 13,500
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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CHOICECARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,833 $ 38,597
Securities available-for-sale 74,684 70,436
Premiums receivable 5,284 7,815
Health care receivables 7,875 5,636
Other current assets 12,622 12,489
-------- --------
Total Current Assets 135,298 134,973
PROPERTY AND EQUIPMENT, net 9,194 9,536
OTHER LONG-TERM ASSETS 5,380 5,279
-------- --------
Total Assets $149,872 $149,788
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Medical costs payable $ 47,378 $ 48,260
Accounts payable and accrued liabilities 13,578 15,043
Amounts due to vendor 5,450 6,200
Unearned premiums 5,797 5,133
Provider risk pool liability 15,962 12,304
-------- --------
Total Current Liabilities 88,165 86,940
LONG-TERM LIABILITIES 12,082 12,296
-------- --------
Total Liabilities 100,247 99,236
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, without par value,
4,000 shares authorized; none issued -- --
Common stock, without par or stated value,
45,000 shares authorized; 14,853
shares issued and outstanding at March 31, 1997 12,014 12,014
and December 31, 1996
Net unrealized losses on securities
available-for-sale, net of taxes (586) (21)
Retained earnings 38,197 38,559
-------- --------
Total Shareholders' Equity 49,625 50,552
-------- --------
Total Liabilities and Shareholders' Equity $149,872 $149,788
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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CHOICECARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 1,957 $ (363)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from sale of investments 308 8,929
Payments for purchase of investments (5,295) (8,002)
Other (734) (646)
-------- --------
Net cash (used in) provided by
investing activities (5,721) 281
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,764) (82)
CASH AND CASH EQUIVALENTS, beginning of period 38,597 12,622
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 34,833 $ 12,540
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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CHOICECARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
ChoiceCare Corporation (the "Company") is an Ohio for-profit
corporation, which is a majority-owned subsidiary of The ChoiceCare
Foundation (the "Foundation"), an Ohio not-for-profit
corporation (formerly named Tristate Foundation for Health and, prior
to that, Midwest Foundation Independent Physicians Association). The
Foundation was organized in 1978 as a not-for-profit health maintenance
organization.
The consolidated financial statements for the interim periods included
herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Although certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, management believes that the disclosures are
adequate to make the information presented not misleading. Operating
results for the interim periods are not necessarily indicative of
results for the full fiscal year. It is suggested that these
consolidated financial statements and notes be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1996.
Certain reclassifications have been made to the 1996 financial
statements to conform with the 1997 presentation.
NOTE 2. ACCOUNTING POLICIES
The consolidated financial statements presented in this report have
been prepared in accordance with the accounting policies described in
Note 2 to the consolidated financial statements included in the
aforementioned Annual Report on Form 10-K and reflect all adjustments
consisting solely of normal recurring adjustments which, in the opinion
of management, are necessary for a fair statement of the results of the
interim periods presented. While management believes that the
procedures followed in the preparation of the consolidated financial
statements for the interim periods are reasonable, certain estimated
amounts are dependent upon current facts and other information that may
change subsequently during the fiscal year.
NOTE 3. PER SHARE DATA
Loss per share are based on the weighted average number of shares of
common stock outstanding during the periods and the dilutive effect of
the assumed exercise of stock options, if any.
NOTE 4. LONG TERM STOCK INCENTIVE PLAN
On March 5, 1997, the Company's Board of Directors (the "Board")
committed to grant, subject to certain conditions, no more than
approximately 666,000 stock options during 1997 under the terms of the
1996 Long Term Stock Incentive Plan. Such options are anticipated to be
granted at fair market value, as determined by the Board, during the
second quarter.
6
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NOTE 5. COMMITMENTS AND CONTINGENCIES
EMPLOYEE AGREEMENTS - The Company currently has in effect employment
agreements with its executive officers and certain of its other
officers which provide for severance or other payments in the event
that employment is terminated for reasons other than for cause.
Payments to officers other than the Chief Executive Officer would
include base pay for a period of six months to one year, depending upon
the officer. The Chief Executive Officer's agreement provides that, in
the event that employment is terminated for reasons other than for
cause, he would generally be paid all amounts which would otherwise be
due him under the terms of his agreement. In addition, his agreement
provides that he will be granted no less than 142,697 stock options in
1998.
In addition, the agreements also contain provisions related to a change
in control (as defined in the employment agreements), including
lump-sum retention incentive payments and, in the agreements of
executive officers, lump-sum change in control severance payments. The
maximum contingent liabilities of the Company related to such retention
incentive payments and change in control severance payments, pursuant
to the employment agreements, are currently estimated at approximately
$5.0 million and $10.5 million, respectively.
LITIGATION - The Company is routinely involved in litigation matters
arising in the normal course of business. Management believes, based
upon the advice of counsel, that these actions and proceedings and
losses, if any, resulting from the final outcome thereof, will not be
material in the aggregate to the Company's consolidated financial
position.
NOTE 6. SUBSEQUENT EVENT
ADMINISTRATIVE SERVICES MANAGEMENT AGREEMENT - As announced in
September 1996, a customer accounting for approximately 36% of the
Company's total self-funded members did not renew the administrative
services management agreement between the Company and the customer,
which expired March 31, 1997. Management services revenue received from
the customer during the three months ended March 31, 1997 and 1996 were
approximately $937 and $994, respectively. Contributions to operating
income from the contract have historically not been material to the
Company's total results of operations due to the operating expense
associated with the administration of the contract and providing
services to the customer's members.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
An increase in member months for the Company's prepaid commercial products and
an increase in premium rates for such products, resulted in the Company
experiencing a 5.7% increase in premium revenue from prepaid commercial products
in the three month period ended March 31, 1997 (the "1997 period"), compared to
the three month period ended March 31, 1996 (the "1996 period"). Despite a
decrease in member months for the Company's self-funded products, management
services revenue increased 12.1% primarily due to rate increases which took
effect for the first quarter of 1997. In addition, the Company experienced an
improvement in overall health care services expense levels in the 1997 period.
These positive trends, as well as a net retention rate of approximately 95% for
groups renewing during the first three months of 1997, were achieved in a
continued increasingly competitive environment within the Company's service
area. Offsetting the effects of this growth and increase in premium rates for
renewing fully-insured groups were the following factors, which combined to
yield an operating loss of $1,956 and a net loss of $362 during the 1997 period,
an improvement compared to the 1996 period which reflected an operating loss of
$3,544 and a net loss of $2,394:
- loss of premium revenues recognized from the Company's Special
Health Medicaid product as a result of the June, 30, 1996
assignment of the Medicaid contract -- $5,410 during the 1996
period;
- decreased self-funded membership, as discussed below;
- continuation of industry-wide health care cost inflation
trends, particularly pharmacy benefits; and
- expenses of approximately $1,850 in the 1997 period related to
the start-up of the Company's new managed Medicare ("Senior
Health") and Workers' Compensation products, both of which
began covering their first member/covered life in March 1997,
and the continuing expansion efforts into the Dayton, Ohio
service area, in which product offerings commenced May 1,
1997.
As the new Medicare and Workers' Compensation products were
not offered until March 1997, revenues recognized in the 1997
period from such products were not significant. It is
anticipated that these new products, as well as the expansion
into the Dayton service area, will negatively impact operating
income for the year ending December 31, 1997, offsetting
otherwise anticipated profitable operations for the Cincinnati
Commercial Health Plan.
8
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RESULTS OF OPERATIONS
The following table sets forth selected operating data, expressed as a
percentage of total operating revenues and/or on a per member per month ("PMPM")
basis, selected member data and medical-expense ratios:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Premiums 94.4% 95.2%
Management services revenue 5.3 4.6
Other .3 .2
----------- -----------
Total 100.0 100.0
----------- -----------
OPERATING EXPENSES:
Health care services 79.8 85.0
Selling, general and administrative 22.9 19.8
----------- -----------
Total 102.7 104.8
----------- -----------
Operating loss (2.7) (4.8)
Investment income, net 1.9 1.6
----------- -----------
Loss before income taxes (.8) (3.2)
Income tax benefit .3 --
----------- -----------
Net loss (.5%) (3.2%)
=========== ===========
MEDICAL-EXPENSE RATIO* 84.5% 89.3%
MEMBER MONTHS FOR THE PERIOD:
Prepaid
Commercial 584,526 571,068
Medicaid -- 38,812
----------- -----------
584,526 609,880
Self-funded 232,421 261,605
----------- -----------
Total 816,947 871,485
=========== ===========
PMPM DATA:
Premium revenue - Commercial $ 117.67 $ 113.99
Premium revenue - Medicaid -- 139.39
Management services revenue 16.49 13.07
Health care services expense 99.38 103.19
Selling, general and administrative expense 20.43 16.83
</TABLE>
* Health care services expense as a percentage of premiums.
9
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PREMIUM REVENUE -
The 2.5% net decrease in premium revenue during the 1997 period results
primarily from the assignment of the Company's Special Health Medicaid product
on June 30, 1996. Excluding Special Health Medicaid premium revenues of $5,410
from the 1996 period, premium revenues for the first quarter of 1997 increased
5.7% over the same period last year. This increase is attributable to a 2.4%
increase in prepaid commercial member months and a 3.2% increase in the weighted
average PMPM premium for such products, reflecting a recently improved pricing
environment as compared to flat or decreasing pricing during 1996.
MANAGEMENT SERVICES REVENUE -
The 12.1% increase in management services revenue from self-funded employer
groups and the 26.2% increase in such revenue on a PMPM basis, result primarily
from increases in administration fee rates. The increase in rates is offset by
an 11.2% decrease in self-funded membership, due largely to the 22.1% decrease
in membership of a large self-funded employer group which, consistent with the
July 1996 announcement of its multi-year renewal commitment, opted to offer its
employees an additional competitor's managed care plan as of January 1, 1997.
Self-funded membership, excluding the effects of the customer discussed in Note
6 of Notes to Consolidated Financial Statements, totaled approximately 49,750 at
March 31, 1997.
HEALTH CARE SERVICES EXPENSE -
The 7.7% net decrease in total health care services expense during the 1997
period reflects 1) the assignment of the Medicaid contract, which had higher
PMPM medical expenses relative to commercial membership; 2) a 3.2% decrease in
physician expenses on a PMPM basis, due primarily to decreased average cost per
service resulting from changes in the mix of service provided; 3) an 11.4%
decrease in hospital expenses on a PMPM basis; and 4) a 17.4% increase in
pharmacy expenses on a PMPM basis, resulting primarily from continued
industry-wide drug cost inflation and slightly higher utilization levels.
The 11.4% decrease in hospital expenses on a PMPM basis reflects the net effects
of:
- increased utilization and decreased cost per service;
- decrease in hospital service reimbursement rates paid to
certain core hospitals;
- a decrease in amounts earned in connection with the Company's
hospital risk/reward sharing arrangements, due to the
hospitals' performance against established cost of hospital
services and quality targets; and
- a refinement downward in the 1997 period of the Company's
prior year's estimate of hospital claims expense.
As a result of the 3.7% decrease in health care services expense on a PMPM
basis, in conjunction with the 1.8% increase in the weighted average PMPM
premium, the Company's medical-expense ratio decreased to 84.5% in the 1997
period from 89.3% in the 1996 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -
The 13.8% increase in expenses for selling, general and administrative costs in
the 1997 period reflects the continued impact of expenses incurred for
investment in new products and geographic expansion, and to manage medical cost
inflation. Included are approximately $1,850 of expenses incurred in connection
with the Senior Health and Workers' Compensation products and expansion into the
Dayton service area, as previously discussed -- an approximate $1,330, or
greater than three-fold, increase in such expenses over the 1996 period.
Increased expenses are substantially comprised of 1) compensation, primarily due
to salary increases in the normal course
10
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of business and a shift in the relative mix of the Company's work force, largely
as a result of the aforementioned new initiatives; 2) advertising and printed
materials, primarily related to the new products and Dayton service area
expansion; and 3) higher depreciation and amortization expense, relating to
computer hardware and software and payments related to the Company's medical
group assistance program.
INVESTMENT INCOME -
During the 1997 period, the Company experienced a 19.3% increase in investment
income as compared to the 1996 period. This period-over-period increase can
primarily be attributed to an increase in the average outstanding cash, cash
equivalent and investment portfolio balance, due largely to the proceeds from
the May 1, 1996 stock offering and the June 30, 1996 assignment of the Special
Health Medicaid contract and, to a lesser extent, higher short-term interest
rates in 1997.
INCOME TAX BENEFIT -
The income tax benefit has been recorded at the rate applicable to the Company,
currently estimated at an effective tax rate of approximately 38%. This rate may
ultimately be adjusted based upon 1997 full year results.
FINANCIAL CONDITION
Net cash totaling $1,957 was provided by operations during the 1997 period,
resulting primarily from the net activity in certain of the Company's balance
sheet components since year end 1996. Most significant was a net increase in
provider risk pool liabilities, offset by net payments of accounts payable and
accruals. The cash provided by operations was more than offset by $5,721 of cash
used in investing activities, reflecting the net cash impact of investment
portfolio transactions and capital expenditures.
As of March 31, 1997, the Company's investment portfolio was comprised of debt
securities (73.9%), equity-based mutual funds (10.9%) and fixed income mutual
funds (15.2%), all of which are available to meet current obligations and
classified as securities available-for-sale in the accompanying Consolidated
Balance Sheets. Higher interest rates reducing the fair market value of
fixed-rate debt securities and mutual funds, and decreases in market values of
equity-based mutual funds, resulted in unrealized losses on the investment
portfolio totaling $586, net of tax, as of March 31, 1997 compared to unrealized
losses totaling $21 as of December 31, 1996. Such net unrealized losses are
reflected as a separate component of equity in the accompanying Consolidated
Balance Sheets. The Company believes that its cash and cash equivalents,
investment portfolio and the $15 million available under its debt facility will
be sufficient to fund its liquidity needs for at least the next 12 months.
CAUTIONARY STATEMENT
The information set forth above may include "forward-looking" information, as
defined in the Private Securities Litigation Reform Act of 1995. The Cautionary
Statement filed by the Company on November 12, 1996 as part of its Form 10-Q for
the period ended September 30, 1996 is incorporated herein by reference, and
investors are specifically referred to such Cautionary Statement for a
discussion of factors which could affect the Company's operations and
"forward-looking" statements contained herein.
11
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(ii)(A)(1) Amended and Restated Employment Agreement between the
Company and Daniel A. Gregorie, M.D., effective
January 1, 1997.
10(ii)(A)(2) Amended and Restated Employment Agreement between the
Company and Thomas D. Anthony, Esq., effective
January 1, 1997.
10(ii)(A)(3) Amended and Restated Employment Agreement between the
Company and Jane E. Rollinson, effective January 1,
1997.
10(ii)(A)(5) Amended and Restated Employment Agreement between the
Company and Michael J. Barber, M.D., effective
January 1, 1997.
10(ii)(A)(6) Amended and Restated Supplemental Executive
Retirement Agreement between the Company and Daniel
A. Gregorie, M.D., effective January 1, 1997.
10(iii)(A)(5) Supplemental Executive Retirement Plan for Executive
Officers, effective January 1, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1997.
12
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHOICECARE CORPORATION
Date: May 14, 1997 By: /s/ Juan M. Fraiz
-----------------------------------------
Juan M. Fraiz
Vice President and Chief Financial
Officer (Principal Financial Officer)
13
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Exhibit 10(ii)(A)(1)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
CHIEF EXECUTIVE OFFICER
-----------------------
CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH
PLANS, INC. (the "ChoiceCare Operating Company" and with the ChoiceCare Parent
and the ChoiceCare Operating Company being collectively referred to as the
"Employer"), and DANIEL A. GREGORIE, M.D. ("Employee"), hereby agree as
follows, effective as of the 1st day of January, 1997:
1. RECITALS. Employer and Employee are currently parties to an
employment agreement, the original form of which was adopted on December 23,
1994 and the form of which was amended and/or restated certain times since then.
This Agreement amends and restates any prior employment agreement between
Employer and Employee in its entirety, and supersedes any prior employment
agreement between Employer and Employee, effective as of January 1, 1997.
2. EMPLOYMENT. Employer agrees to employ Employee, and Employee
accepts such employment, upon the terms and conditions set forth herein.
3. EMPLOYEE'S RESPONSIBILITIES.
3.1 Employee shall serve as the President and Chief Executive
Officer of the ChoiceCare Parent and as the Chief Executive Officer of the
ChoiceCare Operating Company. In such positions, Employee shall be responsible
for the management and supervision of Employer's operations and perform such
other duties and responsibilities as shall be requested by the boards of
directors of Employer, including serving as an executive officer or a member
of the board of any affiliated company. For purposes of this Agreement, an
"affiliated company" means any corporation (other than the Employer) which,
now or at any later time, is part of an unbroken chain of corporations (i)
that includes the Employer and (ii) in which each corporation in such chain
either owns at least 50% of the total combined voting power of all classes of
stock in one of the other corporations in such chain or has at least 50% of
the total combined voting power of all classes of its stock owned by one of
the other corporations in such chain.
3.2 Employee shall devote his full time and best efforts to his
employment with Employer and perform diligently such duties as are required by
Employer from time to time, which duties shall be consistent with Employee's
position with Employer.
<PAGE> 2
3.3 Without the prior written consent of the ChoiceCare Parent,
which shall not be unreasonably withheld, during the term of this Agreement
Employee shall not, directly or indirectly, render services of a business,
professional or commercial nature to any other person or firm, for
compensation or otherwise, except in the ordinary course of the business of
Employer or any affiliated company. Notwithstanding the foregoing but subject
to the following provisions, Employee may serve as a director or trustee of
any company, on either a compensated or noncompensated basis, that is not a
competitor of Employer or any affiliated company. Employee may retain any
director fees, committee fees, stock options, restricted stock awards or other
remuneration paid or given to Employee by any such company for such services
as a director or trustee. Employee shall notify the ChoiceCare Parent of any
appointment to a board of directors or board of trustees, and, notwithstanding
the foregoing, Employee shall resign from any board upon the request of the
ChoiceCare Parent, provided that the request has a reasonable basis. Employee
may also retain any honoraria paid to him, provided that, if the honoraria to
be paid for any one appearance or presentation exceeds $2,000, the Chairman of
the Human Resources and Compensation Committee of the board of directors of
the ChoiceCare Parent shall determine, in his or her sole discretion, whether
Employee is entitled to retain the amount in excess of $2,000.
4. TERM.
4.1 The initial term of this Agreement shall begin January 1,
1997 and end December 31, 1999.
4.2 This Agreement shall automatically be renewed at the end of
its initial term (or at the end of any renewal term provided hereunder) for a
renewal term of one additional year, unless Employer gives Employee, or unless
Employee gives Employer, written notice by October 1 of the last contract year
of the initial term of this Agreement (or by October 1 of any contract year in
which a renewal term of this Agreement is in effect) that this Agreement shall
terminate at the end of the then-current term. If this Agreement terminates at
the end of a then-current term by reason of Employer giving a timely written
notice to Employee that this Agreement shall terminate at the end of the
then-current term, then Employer shall be deemed to have terminated Employee's
employment for purposes of the other provisions of this Agreement. On the
other hand, if this Agreement terminates at the end of a then-current term by
reason of Employee giving a timely written notice to Employer that this
Agreement shall terminate at the end of the then-current term, then, except as
may otherwise be provided under subsection 14.1 below or any other provision
of this Agreement, Employee shall be deemed to have voluntarily resigned his
employment with Employer for purposes of the other provisions of this
Agreement.
4.3 For all purposes of this Agreement, a "contract year" means
a calendar year, beginning January 1 and ending the following December 31,
which occurs during the term of this Agreement. Also, for all purposes of this
Agreement, a "contract term" means either the initial term of this Agreement
or any renewal term of this Agreement. In addition,
- 2 -
<PAGE> 3
also for all purposes of this Agreement, any reference to the "then-current
contract year" refers to the contract year which is then in effect and any
reference to the "then-current term" refers to the contract term which is then
in effect.
4.4 Notwithstanding anything to the contrary in the Employer's
Executive Long-Term Incentive Plan (the "Long-Term Plan"), if Employee ceases
to be an employee of Employer at the end of the initial term or any renewal
term of this Agreement, Employee shall be entitled to be paid, within ninety
days after the expiration of this Agreement, all incentives which have been
earned under the Long-Term Plan in prior contract years, if any, but have not
yet been paid (since an incentive earned for a contract year under such plan
is not normally payable until after a further period of continuous future
employment).
5. COMPENSATION AND BENEFITS: During the term of this Agreement:
5.1 Employee shall receive an initial base salary at the annual
rate of $395,000, payable in equal consecutive bi-weekly installments. Such
base salary shall be reviewed annually, effective as of the first pay period
beginning on or after January 1 of each contract year after the initial
contract year of this Agreement, and shall be adjusted on a basis consistent
with the executive compensation philosophy of Employer as evidenced by the
application of such philosophy to the compensation of Employer's other key
executives. In no event shall Employee's base salary be reduced for any
contract year (whether or not such contract year occurs in the initial term of
this Agreement or in a renewal term of this Agreement) below his base salary
for the immediately preceding contract year.
5.2 Employer may during the term of this Agreement, consistent
with its approach to the rest of its executive group:
(a) Award an annual incentive to Employee based on
Employer's overall success as a for-profit
community resource, Employer's accomplishment of
strategic imperatives, Employer's continuous
improvements of quality outcomes and Employee's
performance of his duties under this Agreement
during the previous contract year, in accordance
with Employer's Executive Annual Incentive Plan
(the "Annual Incentive Plan"), as amended from time
to time by the boards of directors of Employer. The
amount of any incentive under the Annual Incentive
Plan shall be determined by Employer's boards of
directors in a manner consistent with the terms and
practices of the Annual Incentive Plan. However, in
the event of a change in control, the overall value
of the annual incentive under the Annual Incentive
Plan, as may be reasonably determined by the
Employer's boards of directors (taking into account
the possibility of meeting the goals which are used
under such plan to determine if Employee is
entitled to the incentive as
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<PAGE> 4
well as the potential amount of the incentive),
shall not be reduced for the contract year in which
the change in control occurs or any subsequent
contract year below the overall value of the annual
incentive under such plan which has been
established by the Employer prior to the change in
control for the contract year in which the change
in control occurs (or, if no annual incentive has
been established for such contract year by the time
of the change in control, for the next preceding
contract year);
(b) Award an incentive to Employee pursuant to the
provisions of the Long-Term Plan, as amended from
time to time by the boards of directors of
Employer. The amount of any incentive under the
Long-Term Plan shall be determined by Employer's
boards of directors in a manner consistent with the
terms and practices of the Long-Term Plan. However,
in the event of a change in control, in no event
shall the overall value of the incentive under the
Long-Term Plan which has been established by the
Employer prior to the change in control with
respect to the contract year which begins January
1, 1997, as may be reasonably determined by the
Employer's boards of directors, be reduced; and
(c) Cause awards to be granted to Employee pursuant to
the provisions of Employer's 1996 Long Term Stock
Incentive Plan (the "Stock Incentive Plan"), as
amended from time to time by the boards of
directors of Employer. The awards granted under the
Stock Incentive Plan shall constitute or be
otherwise based on shares of common stock of the
ChoiceCare Parent ("Common Shares") in accordance
with the terms and practices of such plan.
Specifically, Employee shall, under the Stock
Incentive Plan and subject to its terms, be
granted: (i) in the contract year which begins on
January 1, 1997, stock options which are not
incentive stock options ("nonincentive stock
options") and which give Employee the ability to
purchase no less than 200,000 Common Shares; and
(ii) in the contract year which begins on January
1, 1998, nonincentive stock options which give
Employee the ability to purchase no less than a
number of Common Shares which is equal to the
difference between 342,697 Common Shares and the
number of Common Shares which are granted under the
Stock Incentive Plan to Employee during the
contract year which begins on January 1, 1997. Any
nonincentive stock option required to be granted
under the immediately preceding sentence shall
provide that all of the Common Shares which are
subject to such option shall be vested, and shall
be able to be purchased through the exercise of
such option, until the date which is ten years from
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<PAGE> 5
the date such option is granted, if and once either
(i) Employee's employment with Employer as an
employee does not end before the last day of the
initial term of this Agreement or (ii) Employee's
employment with Employer terminates prior to the
last day of the initial term of this Agreement for
any reason other than Cause or Employee's voluntary
resignation (other than a voluntary resignation
which still results in an amount being payable
under subsection 6.5(b) below or under subsection
8.5 below). Notwithstanding the foregoing, the
grant of any nonincentive stock option under this
paragraph (c) shall be conditioned on Employee
being an employee of Employer, and still performing
his duties under this Agreement in a satisfactory
manner, on the date such option is otherwise to be
granted. In addition, and also notwithstanding the
foregoing, the number and class of shares subject
to the nonincentive stock options required under
the preceding provisions of this paragraph (c)
shall be proportionately adjusted, and the terms of
such options as to option price and other material
provisions shall be appropriately adjusted, in the
event of changes in the Common Shares by reason of
stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges
of shares, split-ups, split-offs, spin-offs,
liquidations or other similar changes in
capitalization, or any distribution to common
shareholders other than cash dividends. Further,
Employer and Employee agree that no awards other
than those described in this paragraph (c) are
required to be made to Employee under the Stock
Incentive Plan during the term of this Agreement.
5.3 Employee shall be entitled during the term of this Agreement
to:
(a) Six weeks paid vacation per year. Vacation use and
carryover rules will be in accordance with the
rules established for other executives of Employer.
(b) Disability insurance as is afforded generally from
time to time to other members of the executive
management group of Employer. However, in the event
of a change in control, the value of the coverage
provided by such disability insurance, as may be
reasonably determined by the Employer's boards of
directors, shall not be less at any time on or
after the change in control and while this
Agreement is in effect than the value of the
disability insurance provided Employee under this
Agreement immediately prior to the change in
control.
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<PAGE> 6
(c) Medical benefits (not including dental or other
benefits to the extent they are provided under a
plan or arrangement which is not part of Employer's
comprehensive program of hospital, physician, and
similar types of medical benefits) for Employee and
his family as are afforded from time to time to the
rest of Employer's executive group. However, in the
event of a change in control, the value of the
coverage provided by such medical benefits, as may
be reasonably determined by the Employer's boards
of directors, shall not be less at any time on or
after the change in control and while this
Agreement is in effect (or thereafter to the extent
medical benefits must be provided under the
following provisions of this paragraph (c)) than
the value of the medical benefits provided Employee
under this Agreement immediately prior to the
change in control. Except as may otherwise be
specifically provided in the other provisions of
this Agreement, such medical benefits shall be
provided to Employee after the termination of his
employment with Employer for any reason except
Cause (as defined in subsection 6.1 below) or his
voluntary resignation from his employment with
Employer other than at the end of a contract term,
as if Employee had remained employed by Employer,
until such time as is indicated below. After his
termination of employment with Employer, such
benefits shall be comparable to those provided to
active executive employees and shall be provided
through insurance, health maintenance organization
products or other arrangements, at Employer's
discretion, so long as the result is to provide
such benefits in the immediate vicinity of
Employee's residence at any time following his
termination of employment. Such benefits shall
continue until either (i) Employee is eligible to
receive benefits under Medicare or a successor
government-sponsored program or (ii) Employee
obtains employment with another employer and is
eligible to receive comparable medical benefits
under any plan maintained by such other employer,
at which time Employee shall not be entitled under
this Agreement to any additional medical benefits
from Employer (unless Employee is actively employed
full-time or part-time by Employer). In the event
of the death of Employee while Employee and his
family are receiving the medical benefits provided
hereunder, Employee's family shall continue to
receive medical benefits hereunder, to the same
extent as if Employee had left the employ of
Employer and was entitled to medical benefits
hereunder, until such time as Employee's spouse
either (i) becomes eligible to receive benefits
under Medicare or a successor government-sponsored
program or (ii) obtains employment or
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<PAGE> 7
remarries when such spouse, as a result of her
employment or remarriage, is otherwise eligible to
receive comparable medical benefits under a plan
maintained by her employer or her spouse's
employer.
(d) Tax-qualified retirement plan benefits, dental
benefits and such other similar employment
privileges, perquisites and benefits (not including
the benefits described in paragraphs (b) and (c)
immediately above) as are afforded generally from
time to time to other members of the executive
management group of Employer. However, in the event
of a change in control, the overall value of such
benefits, considered in the aggregate and as may be
reasonably determined by the Employer's boards of
directors, shall not be less at any time on or
after the change in control and while this
Agreement is in effect than the value of the
tax-qualified retirement plan benefits, dental
benefits and such other similar employment
privileges, perquisites and benefits (not including
the benefits described in paragraphs (b) and (c)
immediately above) provided Employee under this
Agreement immediately prior to the change in
control.
(e) Life insurance in an amount during each contract
year equal to two times Employee's base salary for
such contract year. Employer may purchase, in its
sole discretion, either whole life or term
insurance to meet Employer's obligation hereunder.
Any group life insurance which is provided Employee
by Employer shall be counted towards the obligation
of Employer hereunder. If Employer is unable to
obtain insurance in the amount required on the life
of Employee, Employer shall pay to the estate of
Employee the difference between the amount of
insurance proceeds to be received by Employee's
estate under all life insurance policies paid for
by Employer and the amount of life insurance
Employer is required to provide hereunder.
(f) Business related transportation assistance,
including transportation between Employee's home
and office or other business location, a personal
executive assistant and audio/visual equipment as
may be required by Employee as certified by
Employee's treating physician.
(g) Participate in the Supplemental Executive
Retirement Plan ("SERP") attached hereto as Exhibit
A, in accordance with the terms of SERP. However,
in event of a change in control, the percent of
Employee's compensation allocated to the SERP shall
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<PAGE> 8
not be reduced for any contract year which ends
after the change in control below the percent of
his compensation which is allocated to the SERP for
the immediately preceding contract year.
Employee (or, if applicable, any other recipient of any benefits
provided under this subsection 5.3) shall be solely responsible and liable for
payment of any taxes imposed on Employee (or, if applicable, such recipient)
resulting from the provision of any benefits under this subsection 5.3,
including but not limited to any medical benefits provided on a self-insured
basis or any life insurance benefits.
5.4 Employer shall reimburse Employee (or provide an expense
allowance) for travel, entertainment, continuing education and other expenses
which are reasonably incurred by Employee in the promotion of Employer's
business, provided Employee provides a proper accounting for such expenses.
6. TERMINATION; SEVERANCE BENEFITS.
6.1 Employer may terminate this Agreement and Employee's
employment hereunder at any time for Cause. If Employee's employment hereunder
is terminated for Cause, Employee shall not be entitled to any payments or
benefits hereunder except for (i) unpaid salary already earned and (ii) unpaid
benefits which are provided under subsection 5.3 above, have already become
vested and are payable upon such termination of employment under the terms and
practices of the plans or arrangements under which such benefits are provided.
For all purposes of this Agreement, "Cause" means:
(a) Employee's fraud, dishonesty or willful
misconduct in the performance of his duties
to Employer; or
(b) Employee's material breach of any material
provision of this Agreement; provided that a
material breach shall not be deemed to have
occurred if Employee's breach relates to the
receipt of a payment of money and Employee
cures such breach within thirty (30) days of
receipt by Employee of a written notice of
such breach.
6.2 If Employee's employment hereunder terminates because of
his voluntary resignation as an employee of Employer, then, except as may
otherwise be provided under subsection 6.6 below, Section 8 below or any other
provision of this Agreement, Employee shall not be entitled to any payments or
benefits hereunder except for (i) salary already earned and (ii) unpaid
benefits which are provided under subsection 5.3 above, have already become
vested and are payable upon such termination of employment under the terms and
practices of the plans or arrangements under which such benefits are provided.
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<PAGE> 9
6.3 If Employee's employment hereunder terminates by reason of
his death, then, in addition to any other payment which may be provided under
subsection 8.2 below or any other provision of this Agreement, Employee's
estate (or, where applicable or the context requires, the surviving members of
his family or his beneficiaries) shall be entitled to (i) his unpaid salary
which has already been earned, (ii) an amount equal to the product obtained by
multiplying his targeted incentives with respect to the contract year in which
his termination occurs under the Annual Incentive Plan and the Long-Term Plan
(if any) by a fraction having a numerator equal to the number of days he was
an employee of Employer in such contract year and a denominator equal to the
number of days in such contract year, (iii) any incentives which have been
earned for prior contract years under the Long-Term Plan but have not yet been
paid (since an incentive earned for a contract year under such plan is not
normally payable until after a further period of continuous future
employment), (iv) the continuing medical benefits described in subsection
5.3(c) above, (v) any benefits due under any life insurance benefits in effect
for him at the time of his death under subsection 5.3(e) above and (vi) any
other unpaid benefits which are provided under subsection 5.3 above, have
already become vested (or vest by reason of his death) and are payable upon
such termination of employment under the terms and practices of the plans or
arrangements under which such benefits are provided.
6.4 If Employee's employment hereunder terminates by reason of
his permanent disability, then, in addition to any other payment which may be
provided under subsection 8.2 below or any other provision of this Agreement,
Employee shall be entitled to (i) his unpaid salary which has already been
earned, (ii) an amount equal to the product obtained by multiplying his
targeted incentives with respect to the contract year in which his termination
occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a
fraction having a numerator equal to the number of days he was an employee of
Employer in such contract year and a denominator equal to the number of days
in such contract year, (iii) any incentives which have been earned for prior
contract years under the Long-Term Plan but have not yet been paid (since an
incentive earned for a contract year under such plan is not normally payable
until after a further period of continuous future employment), (iv) the
continuing medical benefits described in subsection 5.3(c) above, (v) any
benefits due him under any disability insurance applicable to him and in
effect at the time he becomes permanently disabled under subsection 5.3(b)
above, (vi) any other unpaid benefits which are provided under subsection 5.3
above, have already become vested (or vest by reason of his permanent
disability) and are payable upon such termination of employment under the
terms and practices of the plans or arrangements under which such benefits are
provided and (vii) a lump sum payment which is made within 60 days after
Employer reasonably determines Employee is permanently disabled and which is
equal to two times Employee's annual base rate of salary in effect at the time
of his termination of employment. For all purposes of this Agreement, Employee
shall be deemed to be "permanently disabled" and to have incurred a "permanent
disability" if he, by reason of his physical or mental injury, illness or
condition, is determined to be disabled for a period which is expected will
exist until his death under the disability insurance which is then in effect
for him under subsection 5.3(b) above.
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<PAGE> 10
6.5 In the event that Employer notifies Employee that his
services as President and Chief Executive Officer of Employer are no longer
desired by Employer during a contract term for any reason other than Cause or
his permanent disability, then, except as may otherwise be provided under
Sections 7 and 8 below or any other provision of this Agreement, (i) upon
receipt of such notice Employee shall no longer serve in the offices of
President and Chief Executive Officer of Employer and shall give up all the
authority and accouterments of those offices (except as otherwise agreed by
Employer) and, except as may otherwise be provided in paragraph (b) of this
subsection 6.5 or in subsection 6.6 below, (ii) Employee's employment with
Employer shall terminate at the end of the then-current term (or, if such
notice is not given Employee by the latest October 1 which precedes the end of
the then-current term and no notice was previously given Employee by Employer
on or prior to the latest October 1 which precedes the end of the then-current
term that his employment with Employer would terminate at the end of the
then-current term, his employment with Employer shall terminate at the end of
the renewal term of this Agreement which immediately follows the then-current
term). In addition, in such situation, the following provisions of this
subsection 6.5 shall apply to Employee's employment with Employer until such
employment terminates:
(a) Except as is otherwise provided in paragraph
(b) immediately below, Employee shall during
the then remaining period of his employment
with Employer serve as a special project
advisor to Employer and have and perform only
such specific special project advisor duties
as shall be reasonably requested by Employer;
provided that any such duties shall be
limited to those normally performed by and
requiring the skills of a senior executive.
It is understood and agreed that, in
performing his duties as a special project
advisor, Employee shall be an employee of
Employer and shall be entitled to the
compensation and benefits, including but not
limited to SERP, perquisite allowance and
stock options, provided him under, and
subject to all provisions contained in, this
Agreement; except that in determining the
amount of any incentive payable under the
Annual Incentive Plan for any contract year
which ends after the date on which Employee
no longer serves in the offices of President
and Chief Executive Officer of Employer, the
final percentage which is applied to
Employee's base pay to calculate such
incentive shall be equal to the percentage
used to determine the targeted incentive
under the Annual Incentive Plan for or with
respect to the latest contract year which
begins prior to the date on which Employee no
longer serves in such offices and for which a
targeted incentive under the Annual Incentive
Plan had been set for Employee by Employer.
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<PAGE> 11
(b) Notwithstanding the foregoing or the
provisions of subsection 6.2 above or
subsection 6.6 below, Employee shall have the
right at any time during the then remaining
period of his employment with Employer, by a
written signed notice to Employer, to be
paid, in a lump sum payment which is made as
soon as is administratively practical after
such election, an amount equal to 90% of the
then value of the compensation and benefits
(other than disability, medical, life
insurance and other similar welfare insurance
benefits) which, if Employee were not
exercising his rights under this paragraph
(b), would otherwise be provided under
paragraph (a) immediately above after such
election and during the remaining period of
his employment with Employer and under
subsection 6.6 below after his employment
with Employer had terminated. In the event of
such election and upon such payment,
Employee's employment with Employer shall
terminate, Employee shall not serve as a
consultant under subsection 6.6 below and all
of Employee's further rights to compensation
or benefits under this Agreement shall end;
except that Employee shall continue to be
entitled to such medical benefits as are
described in paragraph (c) of subsection 5.3
above and shall continue to be entitled until
the end of the then-current term of this
Agreement to such life insurance benefits as
are described in paragraph (e) of subsection
5.3 above.
6.6 In the event that Employee's employment with Employer
terminates at the end of any then-current term for any reason other than Cause
or Employee's death or permanent disability, and Employee agrees not to file any
administrative charge or lawsuit relating to his prior employment with Employer
and agrees to release Employer and all of its then current and former directors,
trustees, officers, employees, agents, members and affiliated companies from any
and all claims, in such form as is determined by Employer and consistent with
Employer's normal practices concerning employee releases, then, except as may
otherwise be provided under subsection 6.5(b) above or any other provision of
this Agreement, Employer agrees to offer to hire Employee as a consultant to
Employer for two years beginning on the day immediately following the last day
of the then-current term. Such consulting services shall consist of such
services as are requested by Employer, which shall be those normally required of
consultants with Employee's level of skill and experience; but Employer shall
not in any event require Employee to perform consulting services in excess of
fifty hours per calendar quarter or direct the manner by which such services
must be accomplished. Further, Employer shall permit Employee to perform such
services at such times and at such locations as Employee reasonably determines
and to communicate the results of his services telephonically or by telecopy.
Employee shall receive, as compensation for his performing such consulting
services, payments at a rate equal to Employee's annual base salary for the last
contract year of this Agreement for each year, or fraction thereof, that
Employee performs such consulting services, with such payments being made on a
bi-weekly basis. At all times that Employee is
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<PAGE> 12
performing such consulting services for Employer, Employee shall be an
independent contractor and not an employee of Employer and shall be responsible
for the payment of all taxes with respect to all amounts paid to him as
compensation for performing such consulting services. In the event Employee's
employment ends for any reason other than Cause, Employee's death or permanent
disability or his voluntary resignation (not including a voluntary resignation
which occurs at the end of a contract term), Employer shall pay for executive
outplacement services for Employee, up to a maximum cost of $25,000 (adjusted
annually in accordance with the CPI), through a mutually agreeable outplacement
consulting firm.
6.7 At any time that Employee is receiving compensation
pursuant to subsection 6.5 or 6.6 above, Employee shall continue to participate
in the health, disability and life insurance plans of Employer applicable to
executive employees of Employer or be provided comparable benefits.
7. PAYMENT FOLLOWING A CHANGE IN CONTROL AND INVOLUNTARY
TERMINATION. Notwithstanding any other provision of this Agreement to the
contrary, the following provisions shall apply in the event of a change in
control (as is defined below):
7.1 Employer shall have the right to terminate Employee's
employment hereunder without Cause at any time on or after a change in control.
In addition, in the event of a change in control and upon the request of
Employer, Employee agrees (i) that he shall remain as an employee of Employer
for a period ending no earlier than the earliest of the last day of the period
requested by Employer that Employee remain an employee after the change in
control, the day which is twelve months after the change in control or the last
day of the then-current term and (ii) that, should Employee voluntarily resign
from his employment with Employer after the change in control but before the
earliest of such days, he shall not be entitled to any benefits under this
Section 7.
7.2 Subject to the foregoing, if a change in control occurs
and Employee's employment with Employer terminates for any reason, other than
for Cause, Employee's death or permanent disability or his voluntary
resignation, during the period which begins six months prior to the date of the
change in control and ends one year after the date of the change in control,
Employee shall be entitled to a lump sum payment, which is made within 60 days
after the later of Employee's termination of employment or the change in
control, in an amount equal to five times the sum of: (i) Employee's
then-current annual base rate of salary; (ii) the amount set forth by Employer
as the target for Employee's incentive for the then-current contract year under
the Annual Incentive Plan; and (iii) if the contract year in which the change in
control occurs is 1997, the amount set forth by Employer as the target for
Employee's incentive for the 1997 contract year under the Long-Term Plan.
Notwithstanding the foregoing, the amount of any payment otherwise required by
the immediately preceding sentence shall be reduced by the amount of any payment
that Employee has previously received (or is entitled to receive within 60 days
of his termination of employment) under
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<PAGE> 13
subsection 8.1, 8.2, 8.3 or 8.4 below. Further, Employee shall also, if he is
entitled to the payment described in the foregoing sentences of this subsection
7.2, be paid an amount equal to the product obtained by multiplying his targeted
incentives with respect to the contract year in which his termination occurs
under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction
having a numerator equal to the number of days he was an employee of Employer in
such contract year and a denominator equal to the number of days in such
contract year, plus any incentives which have been earned for prior contract
years under the Long-Term Plan but have not yet been paid (since an incentive
earned for a contract year under such plan is not normally payable until after a
further period of continuous future employment).
7.3 If a change in control payment described in subsection 7.2
above is made, then, notwithstanding any other provision of this Agreement to
the contrary, Employee shall not be entitled to any payments under Section 6
above that relate to any period which ends after his termination of employment
and that are based upon or calculated with respect to Employee's base salary,
then-current or otherwise, or the Annual Incentive Plan or Long-Term Plan.
7.4 For all purposes of this Agreement, a "change in control"
means and occurs on the date of: (i) the election of persons constituting more
than 33-1/3% of the whole number of directors of the ChoiceCare Parent, if
such persons were not nominated by the nominating committee of the ChoiceCare
Parent or, if so nominated, were not recommended by a majority of the
directors in office prior to being nominated by such nominating committee
unless the person nominated is nominated to take the place of an individual
previously so recommended by the directors who has died, become disabled or
chose not to serve, in which event that nominee shall be deemed to be
recommended by the majority of the directors in office if such majority
recommends that nominee at the meeting of directors next following the
nomination of such person; (ii) any consolidation or merger of the ChoiceCare
Parent if, within two years after such consolidation or merger, individuals
who were directors of the ChoiceCare Parent immediately prior to such
consolidation or merger cease to constitute at least 66-2/3% of the board of
directors of the ChoiceCare Parent or its successor by consolidation or
merger; (iii) any sale, lease, exchange or other transfer, in one transaction
or a series of related transactions (and other than to a directly or
indirectly majority-owned subsidiary of the ChoiceCare Parent) of all, or
substantially all, of the assets of the ChoiceCare Parent; (iv) the sale,
whether by outright purchase, merger, consolidation, reorganization or other
form of transaction (but not including a reorganization solely involving
affiliated companies), or the execution of a definitive agreement (subject
only to regulatory approvals or other similar conditions) for the sale, of at
least 33-1/3% of the ownership and/or voting interests in any direct or
indirect subsidiary or subsidiaries of the ChoiceCare Parent if such
subsidiary or subsidiaries before such sale held assets that constituted all
or substantially all of the assets of the ChoiceCare Parent and its direct and
indirect subsidiaries on a consolidated basis; (v) the sale, whether by
outright purchase, merger, consolidation, reorganization or other form of
transaction (but not including a reorganization solely involving affiliated
companies), or the execution of a definitive agreement (subject only to
regulatory approvals or other similar conditions) for the sale, of at least
33-1/3% of the ownership and/or voting interests in the
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<PAGE> 14
ChoiceCare Parent to one purchaser, related purchasers or several purchasers
acting directly or indirectly in concert; or (vi) the approval by the
shareholders of the ChoiceCare Parent of any plan or proposal for the
liquidation of dissolution of the ChoiceCare Parent.
8. RETENTION INCENTIVE. If a change in control (as defined in
subsection 7.4 above) or a strategic investor purchase (as is defined below)
occurs while this Agreement is in effect, then Employee will be eligible for a
retention incentive (in addition to any other payments or benefits provided
under the other provisions of this Agreement, including but not limited to the
provisions of Sections 5 and 6 above) in accordance with the following
provisions:
8.1 If Employee is continuously employed by Employer to the end
of the retention incentive period (as is defined below), then Employee shall
be entitled to a retention incentive under this Section 8 which is payable in
a lump sum within 60 days after the end of such retention incentive period and
which is equal to the lesser of (i) an amount equal to four times his annual
base rate of salary in effect on the date of the change in control or
strategic investor purchase, as applicable and whichever is earlier, or (ii)
$1,600,000.
8.2 If Employee's employment with Employer is terminated after
the earlier of a change in control or a strategic investor purchase but prior
to the end of the retention incentive period by reason of his death or his
permanent disability (as defined in subsection 6.4 above), then Employee shall
be entitled to a retention incentive under this Section 8 which is payable in
a lump sum within 60 days after Employee's death or the date Employer
reasonably determines Employee has incurred a permanent disability, as
appropriate, and which is equal to the product obtained by multiplying (i) the
retention incentive that would be paid Employee under subsection 8.1 above by
reason of the change in control or strategic investor purchase if Employee had
been continuously employed by Employer to the end of the retention incentive
period by (ii) a percentage which is determined in accordance with the
immediately following sentence. The percentage to be used in the immediately
preceding sentence shall be: (i) 20% if the duration of the period from the
earlier of the change in control or strategic investor purchase to the date of
Employee's termination of employment is less than one year; (ii) 50% if the
duration of the period from the earlier of the change in control or strategic
investor purchase to the date of Employee's termination of employment is at
least one year but less than two years; and (iii) 100% if the duration of the
period from the earlier of the change in control or strategic investor
purchase to the date of Employee's termination of employment is at least two
years.
8.3 If, after a strategic investor purchase but prior to both a
change in control and the end of the retention incentive period, Employee's
employment with Employer is terminated for any reason other than Cause,
Employee's death or permanent disability or his voluntary resignation, then
Employee shall be entitled to a retention incentive under this Section 8 which
is payable in a lump sum within 60 days after Employee's termination of
employment and which is equal to the product obtained by multiplying (i) the
retention incentive that would be paid Employee under subsection 8.1 above by
reason of the strategic
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<PAGE> 15
investor purchase if Employee had been continuously employed by Employer to the
end of the retention incentive period by (ii) a percentage which is determined
in accordance with the immediately following sentence. The percentage to be used
in the immediately preceding sentence shall be: (i) 20% if the duration of the
period from the strategic investor purchase to the date of Employee's
termination of employment is less than one year; (ii) 50% if the duration of the
period from the strategic investor purchase to the date of Employee's
termination of employment is at least one year but less than two years; and
(iii) 100% if the duration of the period from the strategic investor purchase to
the date of Employee's termination of employment is at least two years.
8.4 If, after one year has expired after a change in control
but prior to the end of the retention incentive period, Employee's employment
with Employer is terminated for any reason other than Cause, Employee's death
or permanent disability or his voluntary resignation, then Employee shall be
entitled to a retention incentive under this Section 8 which is payable in a
lump sum within 60 days after Employee's termination of employment and which
is equal to the retention incentive that would be paid Employee under
subsection 8.1 above by reason of the change in control or, if applicable, an
earlier strategic investor purchase if Employee had been continuously employed
by Employer to the end of the retention incentive period.
8.5 If, after one year has expired after a change in control
but prior to both the end of the retention incentive period and the end of the
then-current term, Employee's employment with Employer terminates other than
for Cause or Employee's death or permanent disability, then, provided that
Employee is not otherwise entitled to the benefits of subsections 6.5(b) and
6.6 above upon such termination of employment and also provided that Employee
agrees not to file any administrative charge or lawsuit relating to his prior
employment with Employer and agrees to release Employer and all of its then
current and former directors, trustees, officers, employees, agents, members
and affiliated companies from any and all claims, in such form as is
determined by Employer and consistent with Employer's normal practices
concerning employee releases, Employee shall be entitled to a retention
incentive under this Section 8 which is payable in a lump sum as soon as is
administratively practical after Employee's termination and which is equal to
90% of the then value of the compensation and benefits (other than disability,
medical, life insurance and other similar welfare insurance benefits) which
would otherwise be provided under or pursuant to the other provisions of this
Agreement (including but not limited to subsection 6.6 above) if this
Agreement had been terminated by the Employer (other than for Cause) at the
end of the then-current term; except that no payment shall be made hereunder
with respect to the retention incentive in subsection 8.1 above and also
except that, in determining the amount of any incentive payable under the
Annual Incentive Plan for any contract year which ends after the date of such
termination, the final percentage which is applied to Employee's base pay to
calculate such incentive shall be equal to the greater of the percentage used
to determine the targeted incentive under the Annual Incentive Plan for or
with respect to the latest contract year which begins prior to the date of
such termination or the percentage used to determine the targeted incentive
under the Annual Incentive Plan for or with respect to the latest contract
year which begins prior to the date of the change in control. In the event of
such termination and
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<PAGE> 16
upon payment of the retention incentive described in this subsection 8.5,
Employee's employment with Employer shall terminate and all of Employee's
further rights to compensation or benefits under this Agreement shall end;
except that Employee shall continue to be entitled to such medical benefits as
are described in paragraph (c) of subsection 5.3 above and shall continue to be
entitled until the end of the then-current term of this Agreement to such life
insurance benefits as are described in paragraph (e) of subsection 5.3 above.
8.6 Subject to the immediately following sentence but
notwithstanding any other provision of this Section 8 to the contrary, no more
than one retention incentive may be paid under this Section 8, and thus the
payment of any retention incentive under any subsection of this Section 8
shall terminate and nullify any right of Employee to any additional incentive
which may otherwise arise under another subsection of this Section 8. However,
if, after one year has expired after a change in control but prior to the end
of the retention incentive period, Employee's employment with Employer
terminates other than for Cause, Employee's death or permanent disability or
his voluntary resignation, then Employee shall be entitled to both the
retention incentive described in subsection 8.4 above and, if he meets all of
the conditions provided under subsection 8.5 above, the retention incentive
described in subsection 8.5 above.
8.7 For purposes of this Agreement, a "strategic investor
purchase" means, and occurs on the date of, the purchase or obtaining by any
person, corporation, partnership or other organization of stock possessing
less than 33-1/3% of the total combined voting power of all classes of stock
of the ChoiceCare Parent together with the option or right to purchase in the
future additional stock of the ChoiceCare Parent which would permit such
person, corporation, partnership or other organization to own stock possessing
33-1/3% or more of the total combined voting power of all classes of stock of
the ChoiceCare Parent. In addition, for purposes of this Agreement, the
"retention incentive period" means the period which begins on the date
immediately following the earlier of a change in control or a strategic
investor purchase (such date referred to herein as the "beginning date") and
which ends on the earlier of (i) the date which is three years after the
beginning date or (ii) the later of the date which is two years after the
beginning date or the end of the contract term which is in effect on the
beginning date.
9. NON-COMPETE COVENANTS AND CONFIDENTIAL INFORMATION.
9.1 Employee agrees that during the term of this Agreement and
for a period of one year after his termination of employment with Employer for
any reason whatsoever (or, if Employee either is entitled to a retention
incentive under Section 8 above after such termination of employment or has
been paid a retention incentive under Section 8 above prior to such
termination of employment, for a period of two years after such termination of
employment), Employee shall not, without the express written consent of
Employer, anywhere in the United States where the Employer was doing business
or actively planning to do business during Employee's term of employment: (i)
compete with Employer in the managed health care business; or (ii) interfere
with, disrupt or attempt to interfere with or disrupt the
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<PAGE> 17
relationship between Employer and any person or business that was a customer,
supplier, lessor, contractor or employee of Employer during Employee's term of
employment with Employer. Notwithstanding the above, Employee may, without
breaching the provisions of this subsection 9.1, work for an employer in the
managed health care business or an employer that interferes, disrupts or
attempts to interfere with or disrupt the relationship between Employer and any
person or business that was a customer, supplier, lessor, contractor or employee
of Employer during Employee's term of employment with Employer, provided that:
(i) no more than ten percent (10%) of such new employer's business is conducted
in areas where Employer is conducting business as of the date of termination of
the employment of Employee with Employer; (ii) such new employer does not
provide either health insurance or managed care services to ten percent (10%) or
more of the population in the areas where Employer is conducting business as of
the termination of employment of Employee with Employer; or (iii) the markets in
which Employer is conducting, or actively planning to conduct, business as of
the date of termination of Employee's termination with Employer and for which
Employee will have certain duties or responsibilities with the new employer, as
measured by revenues or enrollment within such areas, do not exceed ten percent
(10%) of all markets for which Employee will have certain duties or
responsibilities with the new employer, as measured by revenues or enrollment
within all such markets (provided that this clause (iii) shall not apply if
Employee has voluntarily resigned his employment with Employer other than by a
voluntary resignation which occurs at the end of a contract term or a voluntary
resignation which still results in an amount being payable under subsection
6.5(b) above or under subsection 8.5 above). For purposes of this subsection
9.1, if Employee, at the time of Employee's termination of employment with
Employer, only has duties and responsibilities with Employer as to certain
specified, and not all, areas or markets in which Employer then does business,
then any reference to "Employer" in this subsection 9.1 shall be deemed to refer
only to the part of the Employer which involves the areas and markets in which
Employee has duties and responsibilities at the time of his/her termination of
employment with Employer.
9.2 Employee agrees that, during the term of this Agreement or
at any time thereafter, Employee will not, directly or indirectly, disclose,
divulge, discuss, copy or otherwise use or suffer to be used in any manner, in
competition with or contrary to the interests of Employer or any affiliated
companies, the customer lists, proprietary organizational methods or other
trade secrets of Employer or any affiliated companies, it being acknowledged
by Employee that all such information regarding the business of Employer and
affiliated companies compiled or obtained by, or furnished to, Employee while
Employee shall have been employed by or associated with Employer is
confidential information and Employer's exclusive property.
9.3 Employee expressly agrees and understands that the remedy
at law for any breach by him of this Section 9 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that, upon adequate proof
of Employee's violation of any legally enforceable provision of this Section
9, Employer shall be entitled to immediate injunctive relief and may obtain a
temporary order and permanent injunction restraining any threatened or further
breach.
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<PAGE> 18
However, nothing in this Section 9 shall be deemed to limit Employer's remedies
at law or in equity for any breach by Employee of any of the provisions of this
Section 9 which may be pursued or availed of by Employer.
9.4 Employee has carefully considered the nature and extent of
the restrictions upon him and the rights and remedies conferred upon Employer
under the provisions of this Section 9, and hereby acknowledges and agrees
that the same are reasonable in time and territory, are designed to eliminate
competition which otherwise would be unfair to Employer, do not stifle the
inherent skill and experience of Employee, would not operate as a bar to
Employee's sole means of support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon Employer
disproportionate to the detriment to Employee which is caused by the
provisions of this Section 9.
10. SEVERABLE PROVISION. The provisions of this Agreement are
severable, and, if any one or more provisions are determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions of this
Agreement and any partially unenforceable provision of this Agreement, to the
extent enforceable in any jurisdiction, shall nevertheless be binding and
enforceable hereunder.
11. ASSIGNMENTS AND BINDING AGREEMENT. This Agreement may not be
assigned by one party hereto without the consent of the other, except that
this Agreement may be assigned by Employer to any affiliated company.
Notwithstanding the foregoing general restriction on voluntary assignments,
the rights and obligations of the parties under this Agreement shall inure to
the benefit of, and shall be binding upon, the parties hereto and their
respective successors, assigns, heirs, personal representatives and estates,
which successors and assigns in the case of Employer shall include (i) any
affiliated company to which this Agreement is assigned by Employer, (ii) any
successor of the ChoiceCare Parent or the ChoiceCare Operating Company by
merger, combination or reorganization in any manner, whether such successor is
a corporation, limited liability company, partnership (either general or
limited), business trust or other organization or person, and whether or not
such successor is a successor by operation of law, (iii) any recipient of
materially all the assets and/or business of Employer in liquidation or
distribution or by way of contribution of capital, (iv) any successor to
materially all the assets and/or business of Employer by purchase or exchange,
either singly or in combination or (v) any combination of the foregoing.
Employer covenants that it will make no distribution or contribution of assets
and/or business as described in clause (iii) of the immediately preceding
sentence nor enter into any agreement of sale or exchange of assets and/or
business as described in clause (iv) of the immediately preceding sentence
without requiring the recipient(s) of such assets or business to assume the
obligations of Employer in this Agreement as a co-obligor.
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<PAGE> 19
12. NOTICES. Any notice to be given under this Agreement to any
party hereto shall be deemed duly given if it is personally delivered in
writing or it is posted in the United States mails, postage prepaid,
registered or certified, return receipt requested. Further, if mailed to
Employer, such a notice shall be addressed to the ChoiceCare Parent at its
principal place of business. If mailed to Employee, such a notice shall be
addressed to him at his home address last shown on the records of Employer (or
at such other address or addresses as Employee may hereafter designate in
writing to Employer).
13. WAIVER. The failure of any party hereto to this Agreement to
enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of such provision or provisions as to any future
violations thereof nor prevent that party thereafter from enforcing each and
every other provision of this Agreement. The rights granted the parties herein
are cumulative and the waiver of any single remedy shall not constitute a
waiver of such party's right to assert all other legal remedies available to
him or it under the circumstances.
14. MISCELLANEOUS.
14.1 For all purposes of this Agreement, Employee's
resignation from his employment with Employer shall be deemed not to constitute
a voluntary resignation, and instead to be treated as a termination of his
employment by Employer, if: (i) such resignation occurs at least 120 days
after, and no more than 180 days after, Employer either (a) changes the
principal party to which Employee reports and which has the responsibility to
evaluate Employee's performance to a party which is not either the board of
directors of the ChoiceCare Parent or a board of directors of any corporation
which owns at least 80% of the ChoiceCare Parent or (b) reduces or changes
Employee's duties to those which are not consistent with the usual and
customary duties of a chief executive officer of a managed care company in the
U.S. which is comparable or larger, in terms of revenues, enrollments and
geographical area served, than the Company as in operation at the time
Employee's duties are reduced or changed or (ii) such resignation occurs after
Employer requires Employee to change his principal work location by at least
50 miles and Employee refuses to make such move. In the event Employee's
resignation from his employment with Employer is treated as a termination of
his employment by Employer by reason of the provisions of clause (i) of the
immediately preceding sentence, then, for purposes of determining Employee's
rights to any change in control payment described in subsection 7.2 above or
any retention incentive payment under Section 8 above, Employee shall be
deemed to have had his employment with Employer terminated by Employer on the
date that Employer took the action described in clause (i) of the immediately
preceding sentence which is applicable to Employee's resignation.
14.2 The captions set forth in this Agreement are for
convenience and reference only and shall not be deemed to construe or
interpret any term or provision set forth in this Agreement. This Agreement
supersedes all prior agreements and understandings
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<PAGE> 20
between the parties and may not be modified or terminated orally. No
modification, termination or attempted waiver of this Agreement shall be valid
unless in writing and signed by the party against whom the same is sought to be
enforced. This Agreement shall be governed by and construed according to the
laws of the State of Ohio.
14.3 If the firm of independent outside auditors then used by
Employer (the "Auditors") determine that any payment or distribution by
Employer to or for the benefit of Employee, whether paid or payable (or
distributed or distributable) pursuant to the terms of this Agreement or
otherwise, would be subject to tax as an excess parachute payment pursuant to
the provisions of Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code), then, notwithstanding any other provision of this
Agreement to the contrary, Employer shall "gross up" such payment or
distribution so that the net amount of such payment or distribution, after
taking into consideration the payment of the tax imposed on Employee under
Section 4999 of the Code, is the same as the amount that such payment or
distribution would be if no such tax applied.
15. ARBITRATION. Any dispute or disagreement among the parties
hereto shall be submitted to mandatory and binding arbitration at the election
of any party hereto. The arbitration shall be pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration
shall be held in Cincinnati, Ohio. The ChoiceCare Parent and the ChoiceCare
Operating Company shall together select one arbitrator, Employee shall select
one arbitrator and the two selected arbitrators shall select a third
arbitrator. The decision of the arbitrators, and any award rendered therein,
shall be final, conclusive and binding upon the parties hereto and any
judgment thereon may be entered and enforced in any court of competent
jurisdiction. Employer shall bear 50% of all fees, costs and expenses of the
arbitration, Employee shall bear 50% of all fees, costs and expenses of the
arbitration and each party will bear all the fees, costs and expenses of his
or its own attorneys, experts and witnesses.
Signed at Cincinnati, Ohio on the 25th day of April , 1997.
----- -------
EMPLOYER:
ChoiceCare Corporation
By: /s/ Donald E. Hoffman
----------------------------
ChoiceCare Health Plans, Inc.
By: /s/ Jane E. Rollinson
----------------------------
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<PAGE> 21
EMPLOYEE:
/s/ Daniel A. Gregorie
---------------------------------
Daniel A. Gregorie, M.D.
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<PAGE> 1
EMPLOYEE:
/s/ Thomas D. Anthony
----------------------------------
Thomas D. Anthony, Esq.
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<PAGE> 1
Exhibit 10(ii)(A)(3)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
CHIEF OPERATING OFFICER
-----------------------
CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH
PLANS, INC. (the "ChoiceCare Operating Company" and with the ChoiceCare Parent
and the ChoiceCare Operating Company being collectively referred to as the
"Employer"), and JANE E. ROLLINSON ("Employee"), hereby agree as follows,
effective as of the 1st day of January, 1997:
1. RECITALS. Employer and Employee are currently parties to an
employment agreement, the original form of which was adopted on June 27, 1995
and the form of which was amended and/or restated certain times since then. This
Agreement amends and restates any prior employment agreement between Employer
and Employee in its entirety, and supersedes any prior employment agreement
between Employer and Employee, effective as of January 1, 1997.
2. EMPLOYMENT. Employer agrees to employ Employee, and Employee accepts
such employment, upon the terms and conditions set forth herein.
3. EMPLOYEE'S RESPONSIBILITIES.
3.1 Employee shall serve as Chief Operating Officer of the
ChoiceCare Parent and as the President of the ChoiceCare Operating Company. In
such positions, Employee shall be responsible for the management and supervision
of Employer's operations within her area of responsibility and perform such
other duties and responsibilities as shall be requested by the Chief Executive
Officers or the boards of directors of Employer, including serving as a senior
executive and/or board member of any affiliated company. For purposes of this
Agreement, an "affiliated company" means any corporation (other than the
Employer) which, now or at any later time, is part of an unbroken chain of
corporations (i) that includes the Employer and (ii) in which each corporation
in such chain either owns at least 50% of the total combined voting power of all
classes of stock in one of the other corporations in such chain or has at least
50% of the total combined voting power of all classes of its stock owned by one
of the other corporations in such chain.
3.2 Employee shall devote her full time and best efforts to
her employment with Employer and perform diligently such duties as are required
by Employer from time to time, which duties shall be consistent with Employee's
position with Employer.
<PAGE> 2
3.3 Without the prior written consent of the ChoiceCare
Parent, which shall not be unreasonably withheld, during the term of this
Agreement Employee shall not, directly or indirectly, render services of a
business, professional or commercial nature to any other person or firm, for
compensation or otherwise, except in the ordinary course of the business of
Employer or any affiliated company. Notwithstanding the foregoing but subject to
the following provisions, Employee may serve as a director or trustee of any
company, on either a compensated or noncompensated basis, that is not a
competitor of Employer or any affiliated company. Employee may retain any
director fees, committee fees, stock options, restricted stock awards or other
remuneration paid or given to Employee by any such company for such services as
a director or trustee. Employee shall notify the ChoiceCare Parent of any
appointment to a board of directors or board of trustees, and, notwithstanding
the foregoing, Employee shall resign from any board upon the request of the
ChoiceCare Parent, provided that the request has a reasonable basis. Employee
may also retain any honoraria paid to her, provided that, if the honoraria to be
paid for any one appearance or presentation exceeds $2,000, the Chief Executive
Officer of the ChoiceCare Parent and the Chairman of the board of directors of
the ChoiceCare Parent shall determine, in their sole discretion, whether
Employee is entitled to retain the amount in excess of $2,000.
4. TERM.
4.1 The initial term of this Agreement shall begin January 1,
1997 and end December 31, 1999.
4.2 This Agreement shall automatically be renewed at the end
of its initial term (or at the end of any renewal term provided hereunder) for a
renewal term of three additional years, unless Employer gives Employee, or
unless Employee gives Employer, written notice by July 1 of the last contract
year of the initial term of this Agreement (or by July 1 of the last contract
year in which a renewal term of this Agreement is in effect) that this Agreement
shall terminate at the end of the then-current term. If this Agreement
terminates at the end of a then-current term by reason of Employer giving a
timely written notice to Employee that this Agreement shall terminate at the end
of the then-current term, then Employer shall be deemed to have terminated
Employee's employment for purposes of the other provisions of this Agreement. On
the other hand, if this Agreement terminates at the end of a then-current term
by reason of Employee giving a timely written notice to Employer that this
Agreement shall terminate at the end of the then-current term, then, except as
may otherwise be provided under subsection 14.1 below or any other provision of
this Agreement, Employee shall be deemed to have voluntarily resigned her
employment with Employer for purposes of the other provisions of this Agreement.
4.3 For all purposes of this Agreement, a "contract year"
means a calendar year, beginning January 1 and ending the following December 31,
which occurs during the term of this Agreement. Also, for all purposes of this
Agreement, a "contract term" means either the initial term of this Agreement or
any renewal term of this Agreement. In addition,
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<PAGE> 3
also for all purposes of this Agreement, any reference to the "then-current
contract year" refers to the contract year which is then in effect and any
reference to the "then-current term" refers to the contract term which is then
in effect.
5. COMPENSATION AND BENEFITS: During the term of this Agreement:
5.1 Employee shall receive an initial base salary at the
annual rate of $280,000, payable in equal consecutive bi-weekly installments.
Such base salary shall be reviewed annually effective as of the first pay period
beginning on or after January 1 of each contract year after the initial contract
year of this Agreement, and shall be reviewed at other times if Employer
substantially changes the responsibilities of Employee, and shall be adjusted on
a basis consistent with the executive compensation philosophy of Employer. In no
event shall Employee's base salary be reduced for any contract year (whether or
not such contract year occurs in the initial term of this Agreement or in a
renewal term of this Agreement) below her base salary for the immediately
preceding contract year.
5.2 Employer may during the term of this Agreement, consistent
with its approach to the rest of its executive group:
(a) Award an annual incentive to Employee based on
Employer's overall success as a for-profit community
resource, Employer's accomplishment of strategic
imperatives, Employer's continuous improvements of
quality outcomes and Employee's performance of her
duties under this Agreement during the previous
contract year, in accordance with Employer's
Executive Annual Incentive Plan (the "Annual
Incentive Plan"), as amended from time to time by
the boards of directors of Employer. The amount of
any incentive under the Annual Incentive Plan shall
be determined by Employer's boards of directors in a
manner consistent with the terms and practices of
the Annual Incentive Plan. However, in the event of
a change in control, the overall value of the annual
incentive under the Annual Incentive Plan, as may be
reasonably determined by the Employer's boards of
directors (taking into account the possibility of
meeting the goals which are used under such plan to
determine if Employee is entitled to the incentive
as well as the potential amount of the incentive),
shall not be reduced for the contract year in which
the change in control occurs or any subsequent
contract year below the overall value of the annual
incentive under such plan which has been established
by the Employer prior to the change in control for
the contract year in which the change in control
occurs (or, if no annual incentive has been
established for such contract year by the time of
the change in control, for the next preceding
contract year);
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<PAGE> 4
(b) Award an incentive to Employee pursuant to the
provisions of Employer's Executive Long-Term
Incentive Plan (the "Long-Term Plan"), as amended
from time to time by the boards of directors of
Employer. The amount of any incentive under the
Long-Term Plan shall be determined by Employer's
boards of directors in a manner consistent with the
terms and practices of the Long-Term Plan. However,
in the event of a change in control, in no event
shall the overall value of the incentive under the
Long-Term Plan which has been established by the
Employer prior to the change in control with respect
to the contract year which begins January 1, 1997,
as may be reasonably determined by the Employer's
boards of directors, be reduced; and
(c) Cause awards to be granted to Employee pursuant to
the provisions of Employer's 1996 Long Term Stock
Incentive Plan (the "Stock Incentive Plan"), as
amended from time to time by the boards of directors
of Employer. The amount of any award granted under
the Stock Incentive Plan shall be determined by
Employer's boards of directors in a manner
consistent with the terms and practices of the Stock
Incentive Plan.
5.3 Employee shall be entitled during the term of this Agreement to:
(a) Paid vacation as established under Employer's paid
time off policy. Vacation use and carryover rules
will be in accordance with the rules established for
other executives of Employer. However, in the event
of a change in control, the overall value of such
vacation benefits, as may reasonably be determined
by the Employer's boards of directors, shall not be
less at any time on or after the change in control
and while this Agreement is in effect than the value
of the vacation benefits provided Employee under
this Agreement immediately prior to the change in
control.
(b) Tax-qualified retirement plan benefits, disability
insurance benefits, group term life insurance
benefits, medical benefits, dental benefits and such
other similar employment privileges, perquisites and
benefits as are afforded generally from time to time
to other members of the executive management group
of Employer. However, in the event of a change in
control, the overall value of such benefits,
considered in the aggregate and as may be reasonably
determined by the Employer's boards of directors,
shall not be less at any time on or after the change
in control and while this Agreement is in effect
than the value of the tax-qualified retirement plan
benefits, disability insurance benefits,
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<PAGE> 5
group term life insurance benefits, medical
benefits, dental benefits and such other similar
employment privileges, perquisites and benefits
provided Employee under this Agreement immediately
prior to the change in control.
(c) Participate in the Supplemental Executive Retirement
Plan ("SERP") attached hereto as Exhibit A, in
accordance with the terms of SERP. However, in event
of a change in control, the percent of Employee's
compensation allocated to the SERP shall not be
reduced for any contract year which ends after the
change in control below the percent of her
compensation which is allocated to the SERP for the
immediately preceding contract year.
Employee (or, if applicable, any other recipient of any
benefits provided under this subsection 5.3) shall be solely responsible and
liable for payment of any taxes imposed on Employee (or, if applicable, such
recipient) resulting from the provision of any benefits under this subsection
5.3, including but not limited to any life insurance benefits.
5.4 Employer shall reimburse Employee (or provide an expense
allowance) for travel, entertainment, continuing education and other expenses
which are reasonably incurred by Employee in the promotion of Employer's
business, provided Employee provides a proper accounting for such expenses.
6. TERMINATION; SEVERANCE BENEFITS.
6.1 Employer may terminate this Agreement and Employee's
employment hereunder at any time for Cause. If Employee's employment hereunder
is terminated for Cause, Employee shall not be entitled to any payments or
benefits hereunder except for (i) unpaid salary already earned and (ii) unpaid
benefits which are provided under subsection 5.3 above, have already become
vested and are payable upon such termination of employment under the terms and
practices of the plans or arrangements under which such benefits are provided.
For all purposes of this Agreement, "Cause" means:
(a) Employee's fraud, dishonesty or willful misconduct
in the performance of her duties to Employer; or
(b) Employee's material breach of any material provision
of this Agreement; provided that a material breach
shall not be deemed to have occurred if Employee's
breach relates to the receipt of a payment of money
and Employee cures such breach within thirty (30)
days of receipt by Employee of a written notice of
such breach.
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<PAGE> 6
6.2 If Employee's employment hereunder terminates because of
her voluntary resignation as an employee of Employer, then, except as may
otherwise be provided under Section 8 below or any other provision of this
Agreement, Employee shall not be entitled to any payments or benefits hereunder
except for (i) salary already earned and (ii) unpaid benefits which are provided
under subsection 5.3 above, have already become vested and are payable upon such
termination of employment under the terms and practices of the plans or
arrangements under which such benefits are provided.
6.3 If Employee's employment hereunder terminates by reason of
her death, then, in addition to any other payment which may be provided under
subsection 8.2 below or any other provision of this Agreement, Employee's estate
(or, where applicable or the context requires, the surviving members of her
family or her beneficiaries) shall be entitled to (i) her unpaid salary which
has already been earned, (ii) an amount equal to the product obtained by
multiplying her targeted incentives with respect to the contract year in which
her termination occurs under the Annual Incentive Plan and the Long-Term Plan
(if any) by a fraction having a numerator equal to the number of days she was an
employee of Employer in such contract year and a denominator equal to the number
of days in such contract year, (iii) any incentives which have been earned for
prior contract years under the Long-Term Plan but have not yet been paid (since
an incentive earned for a contract year under such plan is not normally payable
until after a further period of continuous future employment), (iv) any benefits
due under any group term life insurance benefits in effect for her at the time
of her death under subsection 5.3(b) above and (v) any other unpaid benefits
which are provided under subsection 5.3 above, have already become vested (or
vest by reason of her death) and are payable upon such termination of employment
under the terms and practices of the plans or arrangements under which such
benefits are provided.
6.4 If Employee's employment hereunder terminates by reason of
her permanent disability, then, in addition to any other payment which may be
provided under subsection 8.2 below or any other provision of this Agreement,
Employee shall be entitled to (i) her unpaid salary which has already been
earned, (ii) an amount equal to the product obtained by multiplying her targeted
incentives with respect to the contract year in which her termination occurs
under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction
having a numerator equal to the number of days she was an employee of Employer
in such contract year and a denominator equal to the number of days in such
contract year, (iii) any incentives which have been earned for prior contract
years under the Long-Term Plan but have not yet been paid (since an incentive
earned for a contract year under such plan is not normally payable until after a
further period of continuous future employment), (iv) any benefits due her under
any disability insurance applicable to her and in effect at the time she becomes
permanently disabled under subsection 5.3(b) above and (v) any other unpaid
benefits which are provided under subsection 5.3 above, have already become
vested (or vest by reason of her permanent disability) and are payable upon such
termination of employment under the terms and practices of the plans or
arrangements under which such benefits are provided. For all purposes of this
Agreement, Employee shall be deemed to be "permanently disabled" and to have
incurred a "permanent disability" if she, by reason of her physical or mental
injury,
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<PAGE> 7
illness or condition, is determined to be disabled for a period which is
expected will exist until her death under the disability insurance which is then
in effect for her under subsection 5.3(b) above.
6.5 Employer shall have the right to terminate Employee's
employment hereunder without Cause at any time. In the event Employee's
employment with Employer terminates for any reason other than Cause, Employee's
death or permanent disability or her voluntary resignation, then, except as may
otherwise be provided under Sections 7 and 8 below or any other provision of
this Agreement, Employee shall be entitled to (i) her unpaid salary which has
already been earned, (ii) an amount equal to the product obtained by multiplying
her targeted incentives with respect to the contract year in which her
termination occurs under the Annual Incentive Plan and the Long-Term Plan (if
any) by a fraction having a numerator equal to the number of days she was an
employee of Employer in such contract year and a denominator equal to the number
of days in such contract year, (iii) any incentives which have been earned for
prior contract years under the Long-Term Plan but have not yet been paid (since
an incentive earned for a contract year under such plan is not normally payable
until after a further period of continuous future employment) and (iv) any other
unpaid benefits which are provided under subsection 5.3 above, have already
become vested and are payable upon such termination of employment under the
terms and practices of the plans or arrangements under which such benefits are
provided. In addition, subject to the immediately following sentence and
provided Employee agrees not to file any administrative charge or lawsuit
relating to her prior employment with Employer and agrees to release Employer
and all of its then current and former directors, trustees, officers, employees,
agents, members and affiliated companies from any and all claims, in such form
as is determined by Employer and consistent with Employer's normal practices
concerning employee releases, Employer: (i) shall pay for executive outplacement
services for Employee, up to a maximum cost of $25,000 (adjusted annually in
accordance with the CPI), through a mutually agreeable outplacement consulting
firm; and (ii) shall make in this situation severance payments to Employee,
payable on a bi-weekly basis, equal to Employee's base rate of salary in effect
at the time of her termination of employment. The severance payments provided
under the immediately preceding sentence shall be made with respect to the
period following Employee's termination of employment until the end of the
twelve month period beginning on the date of Employee's termination of
employment with Employer.
6.6 At any time that Employee is receiving compensation or
payments pursuant to subsection 6.5 above, Employee shall continue to
participate in the health, disability and life insurance plans of Employer
applicable to executive employees of Employer or be provided comparable
benefits.
7. PAYMENT FOLLOWING A CHANGE IN CONTROL AND INVOLUNTARY TERMINATION.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall apply in the event of a change in control (as is
defined below):
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<PAGE> 8
7.1 In the event of a change in control and upon the request
of Employer, Employee agrees (i) that she shall remain as an employee of
Employer for a period ending no earlier than the earliest of the last day of the
period requested by Employer that Employee remain an employee after the change
in control, the day which is twelve months after the change in control or the
last day of the then-current term and (ii) that, should Employee voluntarily
resign from her employment with Employer after the change in control but before
the earliest of such days, she shall not be entitled to any benefits under this
Section 7.
7.2 Subject to the foregoing, if a change in control occurs
and Employee's employment with Employer terminates for any reason, other than
for Cause, Employee's death or permanent disability or her voluntary
resignation, during the period which begins six months prior to the date of the
change in control and ends one year after the date of the change in control,
Employee shall be entitled to a lump sum payment, which is made within 60 days
after the later of Employee's termination of employment or the change in
control, in an amount equal to four times the sum of: (i) Employee's
then-current annual base rate of salary; (ii) the amount set forth by Employer
as the target for Employee's incentive for the then-current contract year under
the Annual Incentive Plan; and (iii) if the contract year in which the change in
control occurs is 1997, the amount set forth by Employer as the target for
Employee's incentive for the 1997 contract year under the Long-Term Plan.
Notwithstanding the foregoing, the amount of any payment otherwise required by
the immediately preceding sentence shall be reduced by the amount of any payment
that Employee has previously received (or is entitled to receive within 60 days
of her termination of employment) under subsection 8.1, 8.2, 8.3 or 8.4 below.
Further, Employee shall also, if she is entitled to the payment described in the
foregoing sentences of this subsection 7.2, be paid an amount equal to the
product obtained by multiplying her targeted incentives with respect to the
contract year in which her termination occurs under the Annual Incentive Plan
and the Long-Term Plan (if any) by a fraction having a numerator equal to the
number of days she was an employee of Employer in such contract year and a
denominator equal to the number of days in such contract year, plus any
incentives which have been earned for prior contract years under the Long-Term
Plan but have not yet been paid (since an incentive earned for a contract year
under such plan is not normally payable until after a further period of
continuous future employment).
7.3 If a change in control payment described in subsection 7.2
above is made, then, notwithstanding any other provision of this Agreement to
the contrary, Employee shall not be entitled to any payments under Section 6
above that relate to any period which ends after her termination of employment
and that are based upon or calculated with respect to Employee's base salary,
then-current or otherwise, or the Annual Incentive Plan or Long-Term Plan.
7.4 For all purposes of this Agreement, a "change in control"
means and occurs on the date of: (i) the election of persons constituting more
than 33-1/3% of the whole number of directors of the ChoiceCare Parent, if such
persons were not nominated by the nominating committee of the ChoiceCare Parent
or, if so nominated, were not recommended by a majority of the directors in
office prior to being nominated by such nominating committee
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<PAGE> 9
unless the person nominated is nominated to take the place of an individual
previously so recommended by the directors who has died, become disabled or
chose not to serve, in which event that nominee shall be deemed to be
recommended by the majority of the directors in office if such majority
recommends that nominee at the meeting of directors next following the
nomination of such person; (ii) any consolidation or merger of the ChoiceCare
Parent if, within two years after such consolidation or merger, individuals who
were directors of the ChoiceCare Parent immediately prior to such consolidation
or merger cease to constitute at least 66-2/3% of the board of directors of the
ChoiceCare Parent or its successor by consolidation or merger; (iii) any sale,
lease, exchange or other transfer, in one transaction or a series of related
transactions (and other than to a directly or indirectly majority-owned
subsidiary of the ChoiceCare Parent) of all, or substantially all, of the assets
of the ChoiceCare Parent; (iv) the sale, whether by outright purchase, merger,
consolidation, reorganization or other form of transaction (not including a
reorganization solely involving affiliated companies), or the execution of a
definitive agreement (subject only to regulatory approvals or other similar
conditions) for the sale, of at least 33-1/3% of the ownership and/or voting
interests in any direct or indirect subsidiary or subsidiaries of the ChoiceCare
Parent if such subsidiary or subsidiaries before such sale held assets that
constituted all or substantially all of the assets of the ChoiceCare Parent and
its direct and indirect subsidiaries on a consolidated basis; (v) the sale,
whether by outright purchase, merger, consolidation, reorganization or other
form of transaction (not including a reorganization solely involving affiliated
companies), or the execution of a definitive agreement (subject only to
regulatory approvals or other similar conditions) for the sale, of at least
33-1/3% of the ownership and/or voting interests in the ChoiceCare Parent to one
purchaser, related purchasers or several purchasers acting directly or
indirectly in concert; or (vi) the approval by the shareholders of the
ChoiceCare Parent of any plan or proposal for the liquidation of dissolution of
the ChoiceCare Parent.
8. RETENTION INCENTIVE. If a change in control (as defined in
subsection 7.4 above) or a strategic investor purchase (as is defined below)
occurs while this Agreement is in effect, then Employee will be eligible for a
retention incentive (in addition to any other payments or benefits provided
under the other provisions of this Agreement, including but not limited to the
provisions of Sections 5 and 6 above) in accordance with the following
provisions:
8.1 If Employee is continuously employed by Employer to the
end of the retention incentive period (as is defined below), then Employee shall
be entitled to a retention incentive under this Section 8 which is payable in a
lump sum within 60 days after the end of such retention incentive period and
which is equal to the lesser of (i) an amount equal to three and one-half (3.5)
times her annual base rate of salary in effect on the date of the change in
control or strategic investor purchase, as applicable and whichever is earlier,
or (ii) $1,000,000.
8.2 If Employee's employment with Employer is terminated after
the earlier of a change in control or a strategic investor purchase but prior to
the end of the retention incentive period by reason of her death or her
permanent disability (as defined in subsection 6.4 above), then Employee shall
be entitled to a retention incentive under this
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<PAGE> 10
Section 8 which is payable in a lump sum within 60 days after Employee's death
or the date Employer reasonably determines Employee has incurred a permanent
disability, as appropriate, and which is equal to the product obtained by
multiplying (i) the retention incentive that would be paid Employee under
subsection 8.1 above by reason of the change in control or strategic investor
purchase if Employee had been continuously employed by Employer to the end of
the retention incentive period by (ii) a percentage which is determined in
accordance with the immediately following sentence. The percentage to be used in
the immediately preceding sentence shall be: (i) 20% if the duration of the
period from the earlier of the change in control or strategic investor purchase
to the date of Employee's termination of employment is less than one year; (ii)
50% if the duration of the period from the earlier of the change in control or
strategic investor purchase to the date of Employee's termination of employment
is at least one year but less than two years; and (iii) 100% if the duration of
the period from the earlier of the change in control or strategic investor
purchase to the date of Employee's termination of employment is at least two
years.
8.3 If, after a strategic investor purchase but prior to both
a change in control and the end of the retention incentive period, Employee's
employment with Employer is terminated for any reason other than Cause,
Employee's death or permanent disability or her voluntary resignation, then
Employee shall be entitled to a retention incentive under this Section 8 which
is payable in a lump sum within 60 days after Employee's termination of
employment and which is equal to the product obtained by multiplying (i) the
incentive that would be paid Employee under subsection 8.1 above by reason of
the strategic investor purchase if Employee had been continuously employed by
Employer to the end of the retention incentive period by (ii) a percentage which
is determined in accordance with the immediately following sentence. The
percentage to be used in the immediately preceding sentence shall be: (i) 20% if
the duration of the period from the strategic investor purchase to the date of
Employee's termination of employment is less than one year; (ii) 50% if the
duration of the period from the strategic investor purchase to the date of
Employee's termination of employment is at least one year but less than two
years; and (iii) 100% if the duration of the period from the strategic investor
purchase to the date of Employee's termination of employment is at least two
years.
8.4 If, after one year has expired after a change in control
but prior to the end of the retention incentive period, Employee's employment
with Employer is terminated for any reason other than Cause, Employee's death or
permanent disability or her voluntary resignation, then Employee shall be
entitled to a retention incentive under this Section 8 which is payable in a
lump sum within 60 days after Employee's termination of employment and which is
equal to the retention incentive that would be paid Employee under subsection
8.1 above by reason of the change in control or, if applicable, an earlier
strategic investor purchase if Employee had been continuously employed by
Employer to the end of the retention incentive period.
8.5 If, after one year has expired after a change in control
but prior to the end of the retention incentive period, Employee's employment
with Employer terminates by reason of her voluntary resignation, then, provided
Employee agrees not to file any administrative
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<PAGE> 11
charge or lawsuit relating to her prior employment with Employer and agrees to
release Employer and all of its then current and former directors, trustees,
officers, employees, agents, members and affiliated companies from any and all
claims, in such form as is determined by Employer and consistent with Employer's
normal practices concerning employee releases, Employee shall be entitled to a
retention incentive under this Section 8 which is payable in installments, on a
bi-weekly basis, equal to Employee's base rate of salary in effect at the time
of her termination of employment. The payments provided under this subsection
8.5 shall be made with respect to the period following Employee's termination of
employment until the end of the one year period beginning on the date of
Employee's termination of employment with Employer.
8.6 Notwithstanding any other provision of this Section 8 to
the contrary, no more than one retention incentive may be paid under this
Section 8, and thus the payment of any retention incentive under any subsection
of this Section 8 shall terminate and nullify any right of Employee to any
additional incentive which may otherwise arise under another subsection of this
Section 8.
8.7 For purposes of this Agreement, a "strategic investor
purchase" means, and occurs on the date of, the purchase or obtaining by any
person, corporation, partnership or other organization of stock possessing less
than 33-1/3% of the total combined voting power of all classes of stock of the
ChoiceCare Parent together with the option or right to purchase in the future
additional stock of the ChoiceCare Parent which would permit such person,
corporation, partnership or other organization to own stock possessing 33-1/3%
or more of the total combined voting power of all classes of stock of the
ChoiceCare Parent. In addition, for purposes of this Agreement, the "retention
incentive period" means the period which begins on the date immediately
following the earlier of a change in control or a strategic investor purchase
(such date referred to herein as the "beginning date") and which ends on the
date which is three years after the beginning date.
9. NON-COMPETE COVENANTS AND CONFIDENTIAL INFORMATION.
9.1 Employee agrees that during the term of this Agreement and
for a period of one year after her termination of employment with Employer for
any reason whatsoever (or, if Employee either is entitled to a retention
incentive under Section 8 above after such termination of employment or has been
paid a retention incentive under Section 8 above prior to such termination of
employment, for a period of two years after such termination of employment),
Employee shall not, without the express written consent of Employer, anywhere in
the United States where the Employer was doing business or actively planning to
do business during Employee's term of employment: (i) compete with Employer in
the managed health care business; or (ii) interfere with, disrupt or attempt to
interfere with or disrupt the relationship between Employer and any person or
business that was a customer, supplier, lessor, contractor or employee of
Employer during Employee's term of employment with Employer. Notwithstanding the
above, Employee may, without breaching the provisions of this
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<PAGE> 12
subsection 9.1, work for an employer in the managed health care business or an
employer that interferes, disrupts or attempts to interfere with or disrupt the
relationship between Employer and any person or business that was a customer,
supplier, lessor, contractor or employee of Employer during Employee's term of
employment with Employer, provided that: (i) no more than ten percent (10%) of
such new employer's business is conducted in areas where Employer is conducting
business as of the date of termination of the employment of Employee with
Employer; (ii) such new employer does not provide either health insurance or
managed care services to ten percent (10%) or more of the population in the
areas where Employer is conducting business as of the termination of employment
of Employee with Employer; or (iii) the markets in which Employer is conducting,
or actively planning to conduct, business as of the date of termination of
Employee's termination with Employer and for which Employee will have certain
duties or responsibilities with the new employer, as measured by revenues or
enrollment within such areas, do not exceed ten percent (10%) of all markets for
which Employee will have certain duties or responsibilities with the new
employer, as measured by revenues or enrollment within all such markets
(provided that this clause (iii) shall not apply if Employee has voluntarily
resigned her employment with Employer other than by a voluntary resignation
which still results in an amount being payable under subsection 8.5 above). For
purposes of this subsection 9.1, if Employee, at the time of Employee's
termination of employment with Employer, only has duties and responsibilities
with Employer as to certain specified, and not all, areas or markets in which
Employer then does business, then any reference to "Employer" in this subsection
9.1 shall be deemed to refer only to the part of the Employer which involves the
areas and markets in which Employee has duties and responsibilities at the time
of her termination of employment with Employer.
9.2 Employee agrees that, during the term of this Agreement or
at any time thereafter, Employee will not, directly or indirectly, disclose,
divulge, discuss, copy or otherwise use or suffer to be used in any manner, in
competition with or contrary to the interests of Employer or any affiliated
companies, the customer lists, proprietary organizational methods or other trade
secrets of Employer or any affiliated companies, it being acknowledged by
Employee that all such information regarding the business of Employer and
affiliated companies compiled or obtained by, or furnished to, Employee while
Employee shall have been employed by or associated with Employer is confidential
information and Employer's exclusive property.
9.3 Employee expressly agrees and understands that the remedy
at law for any breach by him of this Section 9 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of
Employee's violation of any legally enforceable provision of this Section 9,
Employer shall be entitled to immediate injunctive relief and may obtain a
temporary order and permanent injunction restraining any threatened or further
breach. However, nothing in this Section 9 shall be deemed to limit Employer's
remedies at law or in equity for any breach by Employee of any of the provisions
of this Section 9 which may be pursued or availed of by Employer.
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<PAGE> 13
9.4 Employee has carefully considered the nature and extent of
the restrictions upon her and the rights and remedies conferred upon Employer
under the provisions of this Section 9, and hereby acknowledges and agrees that
the same are reasonable in time and territory, are designed to eliminate
competition which otherwise would be unfair to Employer, do not stifle the
inherent skill and experience of Employee, would not operate as a bar to
Employee's sole means of support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon Employer disproportionate
to the detriment to Employee which is caused by the provisions of this Section
9.
10. SEVERABLE PROVISION. The provisions of this Agreement are
severable, and, if any one or more provisions are determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions of this
Agreement and any partially unenforceable provision of this Agreement, to the
extent enforceable in any jurisdiction, shall nevertheless be binding and
enforceable hereunder.
11. ASSIGNMENTS AND BINDING AGREEMENT. This Agreement may not be
assigned by one party hereto without the consent of the other, except that this
Agreement may be assigned by Employer to any affiliated company. Notwithstanding
the foregoing general restriction on voluntary assignments, the rights and
obligations of the parties under this Agreement shall inure to the benefit of,
and shall be binding upon, the parties hereto and their respective successors,
assigns, heirs, personal representatives and estates, which successors and
assigns in the case of Employer shall include (i) any affiliated company to
which this Agreement is assigned by Employer, (ii) any successor of the
ChoiceCare Parent or the ChoiceCare Operating Company by merger, combination or
reorganization in any manner, whether such successor is a corporation, limited
liability company, partnership (either general or limited), business trust or
other organization or person, and whether or not such successor is a successor
by operation of law, (iii) any recipient of materially all the assets and/or
business of Employer in liquidation or distribution or by way of contribution of
capital, (iv) any successor to materially all the assets and/or business of
Employer by purchase or exchange, either singly or in combination, or (v) any
combination of the foregoing. Employer covenants that it will make no
distribution or contribution of assets and/or business as described in clause
(iii) of the immediately preceding sentence nor enter into any agreement of sale
or exchange of assets and/or business as described in clause (iv) of the
immediately preceding sentence without requiring the recipient(s) of such assets
or business to assume the obligations of Employer in this Agreement as a
co-obligor.
12. NOTICES. Any notice to be given under this Agreement to any party
hereto shall be deemed duly given if it is personally delivered in writing or it
is posted in the United States mails, postage prepaid, registered or certified,
return receipt requested. Further, if mailed to Employer, such a notice shall be
addressed to the ChoiceCare Parent at its principal place of business. If mailed
to Employee, such a notice shall be addressed to him at her home address
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<PAGE> 14
last shown on the records of Employer (or at such other address or addresses as
Employee may hereafter designate in writing to Employer).
13. WAIVER. The failure of any party hereto to this Agreement to
enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of such provision or provisions as to any future
violations thereof nor prevent that party thereafter from enforcing each and
every other provision of this Agreement. The rights granted the parties herein
are cumulative and the waiver of any single remedy shall not constitute a waiver
of such party's right to assert all other legal remedies available to her or it
under the circumstances.
14. MISCELLANEOUS.
14.1 For all purposes of this Agreement, Employee's
resignation from her employment with Employer shall be deemed not to constitute
a voluntary resignation, and instead to be treated as a termination of her
employment by Employer, if: (i) such resignation occurs at least 120 days after,
and no more than 180 days after, Employer either (a) changes the principal party
to which Employee reports and which has the responsibility to evaluate
Employee's performance to a party which is not either the Chief Executive
Officer of the ChoiceCare Operating Company, the Chief Executive Officer of the
ChoiceCare Parent or the Chief Executive Officer of any corporation which owns
at least 80% of the ChoiceCare Parent or (b) reduces or changes Employee's
duties to those which are not consistent with an employment status which, if
held in comparable health care organizations in the U.S., would provide a level
of salary and benefits which is at least 90% of the level of total compensation
and benefits provided Employee under this Agreement (as determined under
reasonable employment surveys typically used by Employer in determining salary
and benefit levels for its executive group); or (ii) such resignation occurs
after Employer requires Employee to change her principal work location by at
least 50 miles and Employee refuses to make such move. In the event Employee's
resignation from her employment with Employer is treated as a termination of her
employment by Employer by reason of the provisions of clause (i) of the
immediately preceding sentence, then, for purposes of determining Employee's
rights to any change in control payment described in subsection 7.2 above or any
retention incentive payment under Section 8 above, Employee shall be deemed to
have had her employment with Employer terminated by Employer on the date that
Employer took the action described in clause (i) of the immediately preceding
sentence which is applicable to Employee's resignation.
14.2 The captions set forth in this Agreement are for
convenience and reference only and shall not be deemed to construe or interpret
any term or provision set forth in this Agreement. This Agreement supersedes all
prior agreements and understandings between the parties and may not be modified
or terminated orally. No modification, termination or attempted waiver of this
Agreement shall be valid unless in writing and signed
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<PAGE> 15
by the party against whom the same is sought to be enforced. This Agreement
shall be governed by and construed according to the laws of the State of Ohio.
14.3 If the firm of independent outside auditors then used by
Employer (the "Auditors") determine that any payment or distribution by Employer
to or for the benefit of Employee, whether paid or payable (or distributed or
distributable) pursuant to the terms of this Agreement or otherwise, would be
subject to tax as an excess parachute payment pursuant to the provisions of
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code), then,
notwithstanding any other provision of this Agreement to the contrary, Employer
shall "gross up" such payment or distribution so that the net amount of such
payment or distribution, after taking into consideration the payment of the tax
imposed on Employee under Section 4999 of the Code, is the same as the amount
that such payment or distribution would be if no such tax applied.
15. ARBITRATION. Any dispute or disagreement among the parties hereto
shall be submitted to mandatory and binding arbitration at the election of any
party hereto. The arbitration shall be pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. The arbitration shall be held in
Cincinnati, Ohio. The ChoiceCare Parent and the ChoiceCare Operating Company
shall together select one arbitrator, Employee shall select one arbitrator and
the two selected arbitrators shall select a third arbitrator. The decision of
the arbitrators, and any award rendered therein, shall be final, conclusive and
binding upon the parties hereto and any judgment thereon may be entered and
enforced in any court of competent jurisdiction. Employer shall bear 50% of all
fees, costs and expenses of the arbitration, Employee shall bear 50% of all
fees, costs and expenses of the arbitration and each party will bear all the
fees, costs and expenses of his or its own attorneys, experts and witnesses.
Signed at Cincinnati, Ohio on the 25 day of April, 1997.
-- ------
EMPLOYER:
ChoiceCare Corporation
By: /s/ Daniel A. Gregorie
------------------------------------
ChoiceCare Health Plans, Inc.
By: /s/ Daniel A. Gregorie
------------------------------------
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EMPLOYEE:
/s/ Jane E. Rollinson
----------------------------------------
Jane E. Rollinson
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<PAGE> 1
Exhibit 10(ii)(A)(5)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
EXECUTIVE VICE PRESIDENT
------------------------
CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH
PLANS, INC. (the "ChoiceCare Operating Company" and with the ChoiceCare Parent
and the ChoiceCare Operating Company being collectively referred to as the
"Employer"), and MICHAEL J. BARBER, M.D. ("Employee"), hereby agree as follows,
effective as of the 1st day of January, 1997:
1. RECITALS. Employer and Employee are currently parties to an
employment agreement, the original form of which was adopted on September 22,
1995 and the form of which was amended and/or restated certain times since then.
This Agreement amends and restates any prior employment agreement between
Employer and Employee in its entirety, and supersedes any prior employment
agreement between Employer and Employee, effective as of January 1, 1997.
2. EMPLOYMENT. Employer agrees to employ Employee, and Employee accepts
such employment, upon the terms and conditions set forth herein.
3. EMPLOYEE'S RESPONSIBILITIES.
3.1 Employee shall serve as an executive vice president of
both the ChoiceCare Parent and the ChoiceCare Operating Company. In such
position, Employee shall be responsible for the management and supervision of
Employer's operations within his area of responsibility and perform such other
duties and responsibilities as shall be requested by the Chief Executive
Officers or the boards of directors of Employer, including serving as a senior
executive and/or board member of any affiliated company. For purposes of this
Agreement, an "affiliated company" means any corporation (other than the
Employer) which, now or at any later time, is part of an unbroken chain of
corporations (i) that includes the Employer and (ii) in which each corporation
in such chain either owns at least 50% of the total combined voting power of all
classes of stock in one of the other corporations in such chain or has at least
50% of the total combined voting power of all classes of its stock owned by one
of the other corporations in such chain.
3.2 Employee shall devote his full time and best efforts to
his employment with Employer and perform diligently such duties as are required
by Employer from time to time, which duties shall be consistent with Employee's
position with Employer.
<PAGE> 2
3.3 Without the prior written consent of the ChoiceCare
Parent, which shall not be unreasonably withheld, during the term of this
Agreement Employee shall not, directly or indirectly, render services of a
business, professional or commercial nature to any other person or firm, for
compensation or otherwise, except in the ordinary course of the business of
Employer or any affiliated company. Notwithstanding the foregoing but subject to
the following provisions, Employee may serve as a director or trustee of any
company, on either a compensated or noncompensated basis, that is not a
competitor of Employer or any affiliated company. Employee may retain any
director fees, committee fees, stock options, restricted stock awards or other
remuneration paid or given to Employee by any such company for such services as
a director or trustee. Employee shall notify the ChoiceCare Parent of any
appointment to a board of directors or board of trustees, and, notwithstanding
the foregoing, Employee shall resign from any board upon the request of the
ChoiceCare Parent, provided that the request has a reasonable basis. Employee
may also retain any honoraria paid to him, provided that, if the honoraria to be
paid for any one appearance or presentation exceeds $2,000, the Chief Executive
Officer of the ChoiceCare Parent and the Chairman of the board of directors of
the ChoiceCare Parent shall determine, in their sole discretion, whether
Employee is entitled to retain the amount in excess of $2,000.
4. TERM.
4.1 The initial term of this Agreement shall begin January 1,
1997 and end December 31, 1999.
4.2 This Agreement shall automatically be renewed at the end
of its initial term (or at the end of any renewal term provided hereunder) for a
renewal term of three additional years, unless Employer gives Employee, or
unless Employee gives Employer, written notice by July 1 of the last contract
year of the initial term of this Agreement (or by July 1 of the last contract
year in which a renewal term of this Agreement is in effect) that this Agreement
shall terminate at the end of the then-current term. If this Agreement
terminates at the end of a then-current term by reason of Employer giving a
timely written notice to Employee that this Agreement shall terminate at the end
of the then-current term, then Employer shall be deemed to have terminated
Employee's employment for purposes of the other provisions of this Agreement. On
the other hand, if this Agreement terminates at the end of a then-current term
by reason of Employee giving a timely written notice to Employer that this
Agreement shall terminate at the end of the then-current term, then, except as
may otherwise be provided under subsection 14.1 below or any other provision of
this Agreement, Employee shall be deemed to have voluntarily resigned his
employment with Employer for purposes of the other provisions of this Agreement.
4.3 For all purposes of this Agreement, a "contract year"
means a calendar year, beginning January 1 and ending the following December 31,
which occurs during the term of this Agreement. Also, for all purposes of this
Agreement, a "contract term" means either the initial term of this Agreement or
any renewal term of this Agreement. In addition,
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also for all purposes of this Agreement, any reference to the "then-current
contract year" refers to the contract year which is then in effect and any
reference to the "then-current term" refers to the contract term which is then
in effect.
5. COMPENSATION AND BENEFITS: During the term of this Agreement:
5.1 Employee shall receive an initial base salary at the
annual rate of $234,000, payable in equal consecutive bi-weekly installments.
Such base salary shall be reviewed annually effective as of the first pay period
beginning on or after January 1 of each contract year after the initial contract
year of this Agreement, and shall be reviewed at other times if Employer
substantially changes the responsibilities of Employee, and shall be adjusted on
a basis consistent with the executive compensation philosophy of Employer. In no
event shall Employee's base salary be reduced for any contract year (whether or
not such contract year occurs in the initial term of this Agreement or in a
renewal term of this Agreement) below his base salary for the immediately
preceding contract year.
5.2 Employer may during the term of this Agreement, consistent
with its approach to the rest of its executive group:
(a) Award an annual incentive to Employee based on
Employer's overall success as a for-profit community
resource, Employer's accomplishment of strategic
imperatives, Employer's continuous improvements of
quality outcomes and Employee's performance of his
duties under this Agreement during the previous
contract year, in accordance with Employer's
Executive Annual Incentive Plan (the "Annual
Incentive Plan"), as amended from time to time by
the boards of directors of Employer. The amount of
any incentive under the Annual Incentive Plan shall
be determined by Employer's boards of directors in a
manner consistent with the terms and practices of
the Annual Incentive Plan. However, in the event of
a change in control, the overall value of the annual
incentive under the Annual Incentive Plan, as may be
reasonably determined by the Employer's boards of
directors (taking into account the possibility of
meeting the goals which are used under such plan to
determine if Employee is entitled to the incentive
as well as the potential amount of the incentive),
shall not be reduced for the contract year in which
the change in control occurs or any subsequent
contract year below the overall value of the annual
incentive under such plan which has been established
by the Employer prior to the change in control for
the contract year in which the change in control
occurs (or, if no annual incentive has been
established for such contract year by the time of
the change in control, for the next preceding
contract year);
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(b) Award an incentive to Employee pursuant to the
provisions of Employer's Executive Long-Term
Incentive Plan (the "Long-Term Plan"), as amended
from time to time by the boards of directors of
Employer. The amount of any incentive under the
Long-Term Plan shall be determined by Employer's
boards of directors in a manner consistent with the
terms and practices of the Long-Term Plan. However,
in the event of a change in control, in no event
shall the overall value of the incentive under the
Long-Term Plan which has been established by the
Employer prior to the change in control with respect
to the contract year which begins January 1, 1997,
as may be reasonably determined by the Employer's
boards of directors, be reduced; and
(c) Cause awards to be granted to Employee pursuant to
the provisions of Employer's 1996 Long Term Stock
Incentive Plan (the "Stock Incentive Plan"), as
amended from time to time by the boards of directors
of Employer. The amount of any award granted under
the Stock Incentive Plan shall be determined by
Employer's boards of directors in a manner
consistent with the terms and practices of the Stock
Incentive Plan.
5.3 Employee shall be entitled during the term of this Agreement to:
(a) Paid vacation as established under Employer's paid
time off policy. Vacation use and carryover rules
will be in accordance with the rules established for
other executives of Employer. However, in the event
of a change in control, the overall value of such
vacation benefits, as may reasonably be determined
by the Employer's boards of directors, shall not be
less at any time on or after the change in control
and while this Agreement is in effect than the value
of the vacation benefits provided Employee under
this Agreement immediately prior to the change in
control.
(b) Tax-qualified retirement plan benefits, disability
insurance benefits, group term life insurance
benefits, medical benefits, dental benefits and such
other similar employment privileges, perquisites and
benefits as are afforded generally from time to time
to other members of the executive management group
of Employer. However, in the event of a change in
control, the overall value of such benefits,
considered in the aggregate and as may be reasonably
determined by the Employer's boards of directors,
shall not be less at any time on or after the change
in control and while this Agreement is in effect
than the value of the tax-qualified retirement plan
benefits, disability insurance benefits,
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<PAGE> 5
group term life insurance benefits, medical
benefits, dental benefits and such other similar
employment privileges, perquisites and benefits
provided Employee under this Agreement immediately
prior to the change in control.
(c) Participate in the Supplemental Executive Retirement
Plan ("SERP") attached hereto as Exhibit A, in
accordance with the terms of SERP. However, in event
of a change in control, the percent of Employee's
compensation allocated to the SERP shall not be
reduced for any contract year which ends after the
change in control below the percent of his
compensation which is allocated to the SERP for the
immediately preceding contract year.
Employee (or, if applicable, any other recipient of any
benefits provided under this subsection 5.3) shall be solely responsible and
liable for payment of any taxes imposed on Employee (or, if applicable, such
recipient) resulting from the provision of any benefits under this subsection
5.3, including but not limited to any life insurance benefits.
5.4 Employer shall reimburse Employee (or provide an expense
allowance) for travel, entertainment, continuing education and other expenses
which are reasonably incurred by Employee in the promotion of Employer's
business, provided Employee provides a proper accounting for such expenses.
6. TERMINATION; SEVERANCE BENEFITS.
6.1 Employer may terminate this Agreement and Employee's
employment hereunder at any time for Cause. If Employee's employment hereunder
is terminated for Cause, Employee shall not be entitled to any payments or
benefits hereunder except for (i) unpaid salary already earned and (ii) unpaid
benefits which are provided under subsection 5.3 above, have already become
vested and are payable upon such termination of employment under the terms and
practices of the plans or arrangements under which such benefits are provided.
For all purposes of this Agreement, "Cause" means:
(a) Employee's fraud, dishonesty or willful misconduct
in the performance of his duties to Employer; or
(b) Employee's material breach of any material provision
of this Agreement; provided that a material breach
shall not be deemed to have occurred if Employee's
breach relates to the receipt of a payment of money
and Employee cures such breach within thirty (30)
days of receipt by Employee of a written notice of
such breach.
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<PAGE> 6
6.2 If Employee's employment hereunder terminates because of
his voluntary resignation as an employee of Employer, then, except as may
otherwise be provided under Section 8 below or any other provision of this
Agreement, Employee shall not be entitled to any payments or benefits hereunder
except for (i) salary already earned and (ii) unpaid benefits which are provided
under subsection 5.3 above, have already become vested and are payable upon such
termination of employment under the terms and practices of the plans or
arrangements under which such benefits are provided.
6.3 If Employee's employment hereunder terminates by reason of
his death, then, in addition to any other payment which may be provided under
subsection 8.2 below or any other provision of this Agreement, Employee's estate
(or, where applicable or the context requires, the surviving members of his
family or his beneficiaries) shall be entitled to (i) his unpaid salary which
has already been earned, (ii) an amount equal to the product obtained by
multiplying his targeted incentives with respect to the contract year in which
his termination occurs under the Annual Incentive Plan and the Long-Term Plan
(if any) by a fraction having a numerator equal to the number of days he was an
employee of Employer in such contract year and a denominator equal to the number
of days in such contract year, (iii) any incentives which have been earned for
prior contract years under the Long-Term Plan but have not yet been paid (since
an incentive earned for a contract year under such plan is not normally payable
until after a further period of continuous future employment), (iv) any benefits
due under any group term life insurance benefits in effect for him at the time
of his death under subsection 5.3(b) above and (v) any other unpaid benefits
which are provided under subsection 5.3 above, have already become vested (or
vest by reason of his death) and are payable upon such termination of employment
under the terms and practices of the plans or arrangements under which such
benefits are provided.
6.4 If Employee's employment hereunder terminates by reason of
his permanent disability, then, in addition to any other payment which may be
provided under subsection 8.2 below or any other provision of this Agreement,
Employee shall be entitled to (i) his unpaid salary which has already been
earned, (ii) an amount equal to the product obtained by multiplying his targeted
incentives with respect to the contract year in which his termination occurs
under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction
having a numerator equal to the number of days he was an employee of Employer in
such contract year and a denominator equal to the number of days in such
contract year, (iii) any incentives which have been earned for prior contract
years under the Long-Term Plan but have not yet been paid (since an incentive
earned for a contract year under such plan is not normally payable until after a
further period of continuous future employment), (iv) any benefits due him under
any disability insurance applicable to him and in effect at the time he becomes
permanently disabled under subsection 5.3(b) above and (v) any other unpaid
benefits which are provided under subsection 5.3 above, have already become
vested (or vest by reason of his permanent disability) and are payable upon such
termination of employment under the terms and practices of the plans or
arrangements under which such benefits are provided. For all purposes of this
Agreement, Employee shall be deemed to be "permanently disabled" and to have
incurred a "permanent disability" if he, by reason of his physical or mental
injury,
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<PAGE> 7
illness or condition, is determined to be disabled for a period which is
expected will exist until his death under the disability insurance which is then
in effect for him under subsection 5.3(b) above.
6.5 Employer shall have the right to terminate Employee's
employment hereunder without Cause at any time. In the event Employee's
employment with Employer terminates for any reason other than Cause, Employee's
death or permanent disability or his voluntary resignation, then, except as may
otherwise be provided under Sections 7 and 8 below or any other provision of
this Agreement, Employee shall be entitled to (i) his unpaid salary which has
already been earned, (ii) an amount equal to the product obtained by multiplying
his targeted incentives with respect to the contract year in which his
termination occurs under the Annual Incentive Plan and the Long-Term Plan (if
any) by a fraction having a numerator equal to the number of days he was an
employee of Employer in such contract year and a denominator equal to the number
of days in such contract year, (iii) any incentives which have been earned for
prior contract years under the Long-Term Plan but have not yet been paid (since
an incentive earned for a contract year under such plan is not normally payable
until after a further period of continuous future employment) and (iv) any other
unpaid benefits which are provided under subsection 5.3 above, have already
become vested and are payable upon such termination of employment under the
terms and practices of the plans or arrangements under which such benefits are
provided. In addition, subject to the immediately following sentence and
provided Employee agrees not to file any administrative charge or lawsuit
relating to his prior employment with Employer and agrees to release Employer
and all of its then current and former directors, trustees, officers, employees,
agents, members and affiliated companies from any and all claims, in such form
as is determined by Employer and consistent with Employer's normal practices
concerning employee releases, Employer: (i) shall pay for executive outplacement
services for Employee, up to a maximum cost of $25,000 (adjusted annually in
accordance with the CPI), through a mutually agreeable outplacement consulting
firm; and (ii) shall make in this situation severance payments to Employee,
payable on a bi-weekly basis, equal to Employee's base rate of salary in effect
at the time of his termination of employment. The severance payments provided
under the immediately preceding sentence shall be made with respect to the
period following Employee's termination of employment until the end of the
twelve month period beginning on the date of Employee's termination of
employment with Employer.
6.6 At any time that Employee is receiving compensation or
payments pursuant to subsection 6.5 above, Employee shall continue to
participate in the health, disability and life insurance plans of Employer
applicable to executive employees of Employer or be provided comparable
benefits.
7. PAYMENT FOLLOWING A CHANGE IN CONTROL AND INVOLUNTARY TERMINATION.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall apply in the event of a change in control (as is
defined below):
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<PAGE> 8
7.1 In the event of a change in control and upon the request
of Employer, Employee agrees (i) that he shall remain as an employee of Employer
for a period ending no earlier than the earliest of the last day of the period
requested by Employer that Employee remain an employee after the change in
control, the day which is twelve months after the change in control or the last
day of the then-current term and (ii) that, should Employee voluntarily resign
from his employment with Employer after the change in control but before the
earliest of such days, he shall not be entitled to any benefits under this
Section 7.
7.2 Subject to the foregoing, if a change in control occurs
and Employee's employment with Employer terminates for any reason, other than
for Cause, Employee's death or permanent disability or his voluntary
resignation, during the period which begins six months prior to the date of the
change in control and ends one year after the date of the change in control,
Employee shall be entitled to a lump sum payment, which is made within 60 days
after the later of Employee's termination of employment or the change in
control, in an amount equal to three times the sum of: (i) Employee's
then-current annual base rate of salary; (ii) the amount set forth by Employer
as the target for Employee's incentive for the then-current contract year under
the Annual Incentive Plan; and (iii) if the contract year in which the change in
control occurs is 1997, the amount set forth by Employer as the target for
Employee's incentive for the 1997 contract year under the Long-Term Plan.
Notwithstanding the foregoing, the amount of any payment otherwise required by
the immediately preceding sentence shall be reduced by the amount of any payment
that Employee has previously received (or is entitled to receive within 60 days
of his termination of employment) under subsection 8.1, 8.2, 8.3 or 8.4 below.
Further, Employee shall also, if he is entitled to the payment described in the
foregoing sentences of this subsection 7.2, be paid an amount equal to the
product obtained by multiplying his targeted incentives with respect to the
contract year in which his termination occurs under the Annual Incentive Plan
and the Long-Term Plan (if any) by a fraction having a numerator equal to the
number of days he was an employee of Employer in such contract year and a
denominator equal to the number of days in such contract year, plus any
incentives which have been earned for prior contract years under the Long-Term
Plan but have not yet been paid (since an incentive earned for a contract year
under such plan is not normally payable until after a further period of
continuous future employment).
7.3 If a change in control payment described in subsection 7.2
above is made, then, notwithstanding any other provision of this Agreement to
the contrary, Employee shall not be entitled to any payments under Section 6
above that relate to any period which ends after his termination of employment
and that are based upon or calculated with respect to Employee's base salary,
then-current or otherwise, or the Annual Incentive Plan or Long-Term Plan.
7.4 For all purposes of this Agreement, a "change in control"
means and occurs on the date of: (i) the election of persons constituting more
than 33-1/3% of the whole number of directors of the ChoiceCare Parent, if such
persons were not nominated by the nominating committee of the ChoiceCare Parent
or, if so nominated, were not recommended by a majority of the directors in
office prior to being nominated by such nominating committee
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<PAGE> 9
unless the person nominated is nominated to take the place of an individual
previously so recommended by the directors who has died, become disabled or
chose not to serve, in which event that nominee shall be deemed to be
recommended by the majority of the directors in office if such majority
recommends that nominee at the meeting of directors next following the
nomination of such person; (ii) any consolidation or merger of the ChoiceCare
Parent if, within two years after such consolidation or merger, individuals who
were directors of the ChoiceCare Parent immediately prior to such consolidation
or merger cease to constitute at least 66-2/3% of the board of directors of the
ChoiceCare Parent or its successor by consolidation or merger; (iii) any sale,
lease, exchange or other transfer, in one transaction or a series of related
transactions (and other than to a directly or indirectly majority-owned
subsidiary of the ChoiceCare Parent) of all, or substantially all, of the assets
of the ChoiceCare Parent; (iv) the sale, whether by outright purchase, merger,
consolidation, reorganization or other form of transaction (not including a
reorganization solely involving affiliated companies), or the execution of a
definitive agreement (subject only to regulatory approvals or other similar
conditions) for the sale, of at least 33-1/3% of the ownership and/or voting
interests in any direct or indirect subsidiary or subsidiaries of the ChoiceCare
Parent if such subsidiary or subsidiaries before such sale held assets that
constituted all or substantially all of the assets of the ChoiceCare Parent and
its direct and indirect subsidiaries on a consolidated basis; (v) the sale,
whether by outright purchase, merger, consolidation, reorganization or other
form of transaction (not including a reorganization solely involving affiliated
companies), or the execution of a definitive agreement (subject only to
regulatory approvals or other similar conditions) for the sale, of at least
33-1/3% of the ownership and/or voting interests in the ChoiceCare Parent to one
purchaser, related purchasers or several purchasers acting directly or
indirectly in concert; or (vi) the approval by the shareholders of the
ChoiceCare Parent of any plan or proposal for the liquidation of dissolution of
the ChoiceCare Parent.
8. RETENTION INCENTIVE. If a change in control (as defined in
subsection 7.4 above) or a strategic investor purchase (as is defined below)
occurs while this Agreement is in effect, then Employee will be eligible for a
retention incentive (in addition to any other payments or benefits provided
under the other provisions of this Agreement, including but not limited to the
provisions of Sections 5 and 6 above) in accordance with the following
provisions:
8.1 If Employee is continuously employed by Employer to the
end of the retention incentive period (as is defined below), then Employee shall
be entitled to a retention incentive under this Section 8 which is payable in a
lump sum within 60 days after the end of such retention incentive period and
which is equal to the lesser of (i) an amount equal to two and one-half (2.5)
times his annual base rate of salary in effect on the date of the change in
control or strategic investor purchase, as applicable and whichever is earlier,
or (ii) $750,000.
8.2 If Employee's employment with Employer is terminated after
the earlier of a change in control or a strategic investor purchase but prior to
the end of the retention incentive period by reason of his death or his
permanent disability (as defined in subsection 6.4 above), then Employee shall
be entitled to a retention incentive under this Section 8 which is
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payable in a lump sum within 60 days after Employee's death or the date Employer
reasonably determines Employee has incurred a permanent disability, as
appropriate, and which is equal to the product obtained by multiplying (i) the
retention incentive that would be paid Employee under subsection 8.1 above by
reason of the change in control or strategic investor purchase if Employee had
been continuously employed by Employer to the end of the retention incentive
period by (ii) a percentage which is determined in accordance with the
immediately following sentence. The percentage to be used in the immediately
preceding sentence shall be: (i) 20% if the duration of the period from the
earlier of the change in control or strategic investor purchase to the date of
Employee's termination of employment is less than one year; (ii) 50% if the
duration of the period from the earlier of the change in control or strategic
investor purchase to the date of Employee's termination of employment is at
least one year but less than two years; and (iii) 100% if the duration of the
period from the earlier of the change in control or strategic investor purchase
to the date of Employee's termination of employment is at least two years.
8.3 If, after a strategic investor purchase but prior to both
a change in control and the end of the retention incentive period, Employee's
employment with Employer is terminated for any reason other than Cause,
Employee's death or permanent disability or his voluntary resignation, then
Employee shall be entitled to a retention incentive under this Section 8 which
is payable in a lump sum within 60 days after Employee's termination of
employment and which is equal to the product obtained by multiplying (i) the
incentive that would be paid Employee under subsection 8.1 above by reason of
the strategic investor purchase if Employee had been continuously employed by
Employer to the end of the retention incentive period by (ii) a percentage which
is determined in accordance with the immediately following sentence. The
percentage to be used in the immediately preceding sentence shall be: (i) 20% if
the duration of the period from the strategic investor purchase to the date of
Employee's termination of employment is less than one year; (ii) 50% if the
duration of the period from the strategic investor purchase to the date of
Employee's termination of employment is at least one year but less than two
years; and (iii) 100% if the duration of the period from the strategic investor
purchase to the date of Employee's termination of employment is at least two
years.
8.4 If, after one year has expired after a change in control
but prior to the end of the retention incentive period, Employee's employment
with Employer is terminated for any reason other than Cause, Employee's death or
permanent disability or his voluntary resignation, then Employee shall be
entitled to a retention incentive under this Section 8 which is payable in a
lump sum within 60 days after Employee's termination of employment and which is
equal to the retention incentive that would be paid Employee under subsection
8.1 above by reason of the change in control or, if applicable, an earlier
strategic investor purchase if Employee had been continuously employed by
Employer to the end of the retention incentive period.
8.5 If, after one year has expired after a change in control
but prior to the end of the retention incentive period, Employee's employment
with Employer terminates by reason of his voluntary resignation, then, provided
Employee agrees not to file any administrative
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charge or lawsuit relating to his prior employment with Employer and agrees to
release Employer and all of its then current and former directors, trustees,
officers, employees, agents, members and affiliated companies from any and all
claims, in such form as is determined by Employer and consistent with Employer's
normal practices concerning employee releases, Employee shall be entitled to a
retention incentive under this Section 8 which is payable in installments, on a
bi-weekly basis, equal to Employee's base rate of salary in effect at the time
of his termination of employment. The payments provided under this subsection
8.5 shall be made with respect to the period following Employee's termination of
employment until the end of the one year period beginning on the date of
Employee's termination of employment with Employer.
8.6 Notwithstanding any other provision of this Section 8 to
the contrary, no more than one retention incentive may be paid under this
Section 8, and thus the payment of any retention incentive under any subsection
of this Section 8 shall terminate and nullify any right of Employee to any
additional incentive which may otherwise arise under another subsection of this
Section 8.
8.7 For purposes of this Agreement, a "strategic investor
purchase" means, and occurs on the date of, the purchase or obtaining by any
person, corporation, partnership or other organization of stock possessing less
than 33-1/3% of the total combined voting power of all classes of stock of the
ChoiceCare Parent together with the option or right to purchase in the future
additional stock of the ChoiceCare Parent which would permit such person,
corporation, partnership or other organization to own stock possessing 33-1/3%
or more of the total combined voting power of all classes of stock of the
ChoiceCare Parent. In addition, for purposes of this Agreement, the "retention
incentive period" means the period which begins on the date immediately
following the earlier of a change in control or a strategic investor purchase
(such date referred to herein as the "beginning date") and which ends on the
date which is three years after the beginning date.
9. NON-COMPETE COVENANTS AND CONFIDENTIAL INFORMATION.
9.1 Employee agrees that during the term of this Agreement and
for a period of one year after his termination of employment with Employer for
any reason whatsoever (or, if Employee either is entitled to a retention
incentive under Section 8 above after such termination of employment or has been
paid a retention incentive under Section 8 above prior to such termination of
employment, for a period of two years after such termination of employment),
Employee shall not, without the express written consent of Employer, anywhere in
the United States where the Employer was doing business or actively planning to
do business during Employee's term of employment: (i) compete with Employer in
the managed health care business; or (ii) interfere with, disrupt or attempt to
interfere with or disrupt the relationship between Employer and any person or
business that was a customer, supplier, lessor, contractor or employee of
Employer during Employee's term of employment with Employer. Notwithstanding the
above, Employee may, without breaching the provisions of this
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subsection 9.1, work for an employer in the managed health care business or an
employer that interferes, disrupts or attempts to interfere with or disrupt the
relationship between Employer and any person or business that was a customer,
supplier, lessor, contractor or employee of Employer during Employee's term of
employment with Employer, provided that: (i) no more than ten percent (10%) of
such new employer's business is conducted in areas where Employer is conducting
business as of the date of termination of the employment of Employee with
Employer; (ii) such new employer does not provide either health insurance or
managed care services to ten percent (10%) or more of the population in the
areas where Employer is conducting business as of the termination of employment
of Employee with Employer; or (iii) the markets in which Employer is conducting,
or actively planning to conduct, business as of the date of termination of
Employee's termination with Employer and for which Employee will have certain
duties or responsibilities with the new employer, as measured by revenues or
enrollment within such areas, do not exceed ten percent (10%) of all markets for
which Employee will have certain duties or responsibilities with the new
employer, as measured by revenues or enrollment within all such markets
(provided that this clause (iii) shall not apply if Employee has voluntarily
resigned his employment with Employer other than by a voluntary resignation
which still results in an amount being payable under subsection 8.5 above). For
purposes of this subsection 9.1, if Employee, at the time of Employee's
termination of employment with Employer, only has duties and responsibilities
with Employer as to certain specified, and not all, areas or markets in which
Employer then does business, then any reference to "Employer" in this subsection
9.1 shall be deemed to refer only to the part of the Employer which involves the
areas and markets in which Employee has duties and responsibilities at the time
of his termination of employment with Employer.
9.2 Employee agrees that, during the term of this Agreement or
at any time thereafter, Employee will not, directly or indirectly, disclose,
divulge, discuss, copy or otherwise use or suffer to be used in any manner, in
competition with or contrary to the interests of Employer or any affiliated
companies, the customer lists, proprietary organizational methods or other trade
secrets of Employer or any affiliated companies, it being acknowledged by
Employee that all such information regarding the business of Employer and
affiliated companies compiled or obtained by, or furnished to, Employee while
Employee shall have been employed by or associated with Employer is confidential
information and Employer's exclusive property.
9.3 Employee expressly agrees and understands that the remedy
at law for any breach by him of this Section 9 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of
Employee's violation of any legally enforceable provision of this Section 9,
Employer shall be entitled to immediate injunctive relief and may obtain a
temporary order and permanent injunction restraining any threatened or further
breach. However, nothing in this Section 9 shall be deemed to limit Employer's
remedies at law or in equity for any breach by Employee of any of the provisions
of this Section 9 which may be pursued or availed of by Employer.
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9.4 Employee has carefully considered the nature and extent of
the restrictions upon him and the rights and remedies conferred upon Employer
under the provisions of this Section 9, and hereby acknowledges and agrees that
the same are reasonable in time and territory, are designed to eliminate
competition which otherwise would be unfair to Employer, do not stifle the
inherent skill and experience of Employee, would not operate as a bar to
Employee's sole means of support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon Employer disproportionate
to the detriment to Employee which is caused by the provisions of this Section
9.
10. SEVERABLE PROVISION. The provisions of this Agreement are
severable, and, if any one or more provisions are determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions of this
Agreement and any partially unenforceable provision of this Agreement, to the
extent enforceable in any jurisdiction, shall nevertheless be binding and
enforceable hereunder.
11. ASSIGNMENTS AND BINDING AGREEMENT. This Agreement may not be
assigned by one party hereto without the consent of the other, except that this
Agreement may be assigned by Employer to any affiliated company. Notwithstanding
the foregoing general restriction on voluntary assignments, the rights and
obligations of the parties under this Agreement shall inure to the benefit of,
and shall be binding upon, the parties hereto and their respective successors,
assigns, heirs, personal representatives and estates, which successors and
assigns in the case of Employer shall include (i) any affiliated company to
which this Agreement is assigned by Employer, (ii) any successor of the
ChoiceCare Parent or the ChoiceCare Operating Company by merger, combination or
reorganization in any manner, whether such successor is a corporation, limited
liability company, partnership (either general or limited), business trust or
other organization or person, and whether or not such successor is a successor
by operation of law, (iii) any recipient of materially all the assets and/or
business of Employer in liquidation or distribution or by way of contribution of
capital, (iv) any successor to materially all the assets and/or business of
Employer by purchase or exchange, either singly or in combination, or (v) any
combination of the foregoing. Employer covenants that it will make no
distribution or contribution of assets and/or business as described in clause
(iii) of the immediately preceding sentence nor enter into any agreement of sale
or exchange of assets and/or business as described in clause (iv) of the
immediately preceding sentence without requiring the recipient(s) of such assets
or business to assume the obligations of Employer in this Agreement as a
co-obligor.
12. NOTICES. Any notice to be given under this Agreement to any party
hereto shall be deemed duly given if it is personally delivered in writing or it
is posted in the United States mails, postage prepaid, registered or certified,
return receipt requested. Further, if mailed to Employer, such a notice shall be
addressed to the ChoiceCare Parent at its principal place of business. If mailed
to Employee, such a notice shall be addressed to him at his home address
- 13 -
<PAGE> 14
last shown on the records of Employer (or at such other address or addresses as
Employee may hereafter designate in writing to Employer).
13. WAIVER. The failure of any party hereto to this Agreement to
enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of such provision or provisions as to any future
violations thereof nor prevent that party thereafter from enforcing each and
every other provision of this Agreement. The rights granted the parties herein
are cumulative and the waiver of any single remedy shall not constitute a waiver
of such party's right to assert all other legal remedies available to him or it
under the circumstances.
14. MISCELLANEOUS.
14.1 For all purposes of this Agreement, Employee's
resignation from his employment with Employer shall be deemed not to constitute
a voluntary resignation, and instead to be treated as a termination of his
employment by Employer, if: (i) such resignation occurs at least 120 days after,
and no more than 180 days after, Employer either (a) changes the principal party
to which Employee reports and which has the responsibility to evaluate
Employee's performance to a party which is not either the Chief Executive
Officer of the ChoiceCare Operating Company, the Chief Executive Officer of the
ChoiceCare Parent or the Chief Executive Officer of any corporation which owns
at least 80% of the ChoiceCare Parent or (b) reduces or changes Employee's
duties to those which are not consistent with an employment status which, if
held in comparable health care organizations in the U.S., would provide a level
of salary and benefits which is at least 90% of the level of total compensation
and benefits provided Employee under this Agreement (as determined under
reasonable employment surveys typically used by Employer in determining salary
and benefit levels for its executive group); or (ii) such resignation occurs
after Employer requires Employee to change his principal work location by at
least 50 miles and Employee refuses to make such move. In the event Employee's
resignation from his employment with Employer is treated as a termination of his
employment by Employer by reason of the provisions of clause (i) of the
immediately preceding sentence, then, for purposes of determining Employee's
rights to any change in control payment described in subsection 7.2 above or any
retention incentive payment under Section 8 above, Employee shall be deemed to
have had his employment with Employer terminated by Employer on the date that
Employer took the action described in clause (i) of the immediately preceding
sentence which is applicable to Employee's resignation.
14.2 The captions set forth in this Agreement are for
convenience and reference only and shall not be deemed to construe or interpret
any term or provision set forth in this Agreement. This Agreement supersedes all
prior agreements and understandings between the parties and may not be modified
or terminated orally. No modification, termination or attempted waiver of this
Agreement shall be valid unless in writing and signed
- 14 -
<PAGE> 15
by the party against whom the same is sought to be enforced. This Agreement
shall be governed by and construed according to the laws of the State of Ohio.
14.3 If the firm of independent outside auditors then used by
Employer (the "Auditors") determine that any payment or distribution by Employer
to or for the benefit of Employee, whether paid or payable (or distributed or
distributable) pursuant to the terms of this Agreement or otherwise, would be
subject to tax as an excess parachute payment pursuant to the provisions of
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, notwithstanding any other provision of this Agreement to the contrary,
Employer shall "gross up" such payment or distribution so that the net amount of
such payment or distribution, after taking into consideration the payment of the
tax imposed on Employee under Section 4999 of the Code, is the same as the
amount that such payment or distribution would be if no such tax applied.
15. ARBITRATION. Any dispute or disagreement among the parties hereto
shall be submitted to mandatory and binding arbitration at the election of any
party hereto. The arbitration shall be pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. The arbitration shall be held in
Cincinnati, Ohio. The ChoiceCare Parent and the ChoiceCare Operating Company
shall together select one arbitrator, Employee shall select one arbitrator and
the two selected arbitrators shall select a third arbitrator. The decision of
the arbitrators, and any award rendered therein, shall be final, conclusive and
binding upon the parties hereto and any judgment thereon may be entered and
enforced in any court of competent jurisdiction. Employer shall bear 50% of all
fees, costs and expenses of the arbitration, Employee shall bear 50% of all
fees, costs and expenses of the arbitration and each party will bear all the
fees, costs and expenses of his or its own attorneys, experts and witnesses.
Signed at Cincinnati, Ohio on the 25 day of April, 1997.
-- -----
EMPLOYER:
ChoiceCare Corporation
By: /s/ Daniel A. Gregorie
------------------------------------
ChoiceCare Health Plans, Inc.
By: /s/ Daniel A. Gregorie
------------------------------------
- 15 -
<PAGE> 16
EMPLOYEE:
/s/ Michael J. Barber MD
---------------------------------------
Michael J. Barber, M.D.
- 16 -
<PAGE> 1
Exhibit 10(ii)(A)(6)
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
(As amended and restated effective January 1, 1997)
CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH
PLANS, INC. (the "ChoiceCare Operating Company," and with the ChoiceCare Parent
and the ChoiceCare Operating Company being collectively referred to as the
"Employer"), and DANIEL A. GREGORIE, M.D. (the "Employee") hereby agree as
follows, effective as of the 1st day of January, 1997
SECTION 1
---------
PURPOSE OF AGREEMENT
--------------------
1.1 The Midwest Foundation Independent Physicians Association and
Daniel A. Gregorie, M.D. entered into a Supplemental Executive Retirement
Agreement on the r day of December 1994. This agreement amends and restates that
prior agreement effective as of January 1, 1997.
1.2 The purpose of this Agreement is to provide deferred compensation
for Daniel A. Gregorie, M.D., the President and Chief Executive Officer of the
ChoiceCare Parent and the ChoiceCare Operating Company. The Agreement is
intended to be an unfunded deferred compensation plan within the meaning of
sections 201, 301, and 401 of the Employee Retirement Income Security Act of
1974, as amended, and shall be construed as such. This Agreement is also
intended to constitute the Supplemental Executive Retirement Plan described in
the Employment Agreement between Daniel A. Gregorie, M.D. and the ChoiceCare
Parent and the ChoiceCare Operating Company
SECTION 2
---------
GENERAL DEFINITIONS
-------------------
GENERAL DEFINITIONS. For purposes of the Agreement, the following terms
shall have the meanings hereinafter set forth unless the context otherwise
requires. Terms not defined herein but defined in the Employment Agreement shall
have the meanings given such terms in the Employment Agreement.
2.1 "Base Salary" means the Employee's base salary payable to him by
the Employer pursuant to Section 5.1 of the Employment Agreement, prior to any
reduction of such base salary pursuant to Sections 125, 402(a)(8), or 403(b) of
the Code, and excluding any additional amounts computed with reference to such
base salary and payable under Sections 7 or 8 of the
<PAGE> 2
Employment Agreement following a change in control or a strategic investor
purchase (as those terms are defined in the Employment Agreement).
2.2 "Beneficiary" means the person or entity last designated by the
Employee, on forms furnished and in the manner prescribed by the Committee and
delivered to the Committee before the Employee's death, to receive any benefit
payable under the Agreement after the Employee's death. If the Employee fails to
designate a beneficiary or if, for any reason, such designation is not
effective, his "Beneficiary" shall be his surviving spouse or, if none, his
estate.
2.3 "Code" means the Internal Revenue Code of 1986 as such Code now
exists or is hereafter amended.
2.4 "Committee" means the Human Resources and Compensation Committee of
the Board of Directors of the ChoiceCare Parent.
2.5 "Employee" means Daniel A. Gregorie, M.D.
2.6 "Employer" means, collectively, ChoiceCare Corporation (the
"ChoiceCare Parent") and ChoiceCare Health Plans, Inc. (the "ChoiceCare
Operating Company").
2.7 "Employment Agreement" means the employment agreement between
Daniel A. Gregorie, M.D. and the Employer, as amended and restated effective
January 1, 1997 and as subsequently amended from time to time.
2.8 "Qualified Plans" means all defined contribution retirement plans
maintained by the Employer that are intended to be qualified under Section
401(a) of the Code.
2.9 "Year" or "year" means the calendar year.
SECTION 3
---------
CREDITS
-------
3.1 CREDITS DURING EMPLOYMENT. For the year 1994, and for each
subsequent year through and including the year 1999 in which the Employee
remains an employee of the Employer, the Employer shall credit to the book
Account established under Section 4.1, as of the last day of such year, an
amount equal to 19% of the total of: (i) the Employee's actual Base Salary paid
to him by the Employer for such year, and (ii) the Employee's actual award for
such year under the Employer's Annual Executive Incentive Plan (as defined in
the Employment Agreement and excluding any additional amounts computed with
reference to such Annual Executive Incentive Plan and payable under Sections 7
or 8 of the Employment Agreement following a change in control or a strategic
investor purchase as those terms are
- 2 -
<PAGE> 3
defined in the Employment Agreement). For each year subsequent to the year 1999
in which the Employee remains an employee of the Employer, the Employer shall
credit to the book Account established under Section 4.1, as of the last day of
such year, an amount equal to 16% of the total of: (i) the Employee's actual
Base Salary paid to him by the Employer for such year, and (ii) the Employee's
actual award for such year under the Employer's Annual Executive Incentive Plan
(excluding any additional amounts computed with reference to such Annual
Executive Incentive Plan and payable under Sections 7 or 8 of the Employment
Agreement following a change in control or a strategic investor purchase as
those terms are defined in the Employment Agreement).
3.2 ADDITIONAL CREDIT. In addition to the amount determined under
Section 3.1, a credit shall be made to the Account established under Section ,
as of December 31, 1994, equal to $296,000. The Employee and the Employer agree
that such amount represents the additional balance in the Account that would
have resulted as of December 31, 1994 if this Agreement had been in effect
during the years 1989 through 1993.
3.3 CREDIT FOR YEAR OF TERMINATION. If the Employee's employment with
the Employer terminates for any reason except Cause, the credit for the year of
termination shall be made pursuant to Section , based solely upon the Employee's
actual Base Salary paid to him by the Employer for such year and the Employee's
actual award for such year under the Employer's Annual Executive Incentive Plan
(as defined in the Employment Agreement), but excluding any additional
compensation paid to the Employee for such year except to the extent that such
additional compensation must be included as required under Sections 6.5(b) and
8.5 of the Employment Agreement. Except as provided in such Sections 6.5(b) and
8.5, this exclusion shall apply to (but not be limited to) additional
compensation of any type paid to him pursuant to the Employment Agreement due to
his termination of employment and any additional amounts computed with reference
to the Employer's Annual Executive Incentive Plan and payable under Sections 7
or 8 of the Employment Agreement following a change in control or a strategic
investor purchase as those terms are defined in the Employment Agreement.
Notwithstanding Section , if the Employee's employment with the Employer is
terminated for Cause, no credit shall be made to the Employee's Account for the
year in which his employment ends.
3.4 MINIMUM CREDIT. If the total of all credits to be made pursuant to
Sections 3.1, 3.2, and 3.3 to the Account established under Section 4.1,
determined as of the date of the Employee's termination of employment with the
Employer for any reason other than Cause (the "Total Credits"), is less than the
Minimum Amount, an additional credit shall be made to such Account pursuant to
this Section 3.4. Such additional credit shall equal the Minimum Amount, less
the Total Credits, and shall be made as of the date of the termination of the
Employee's employment with the Employer.
(a) For purposes of this Agreement, the "Minimum Amount" shall
equal the total of: (i) the Cumulative Amount, determined from the following
schedule for the year immediately prior to the year in which the termination
occurs, plus (ii) the Annual Increment,
- 3 -
<PAGE> 4
determined from the following schedule for the year in which the termination
occurs, multiplied by a fraction, the numerator of which is the number of months
during such year in which the Employee was actively employed by the Employer,
and the denominator of which is twelve.
<TABLE>
<CAPTION>
=====================================================================================================
Year of Termination Annual Increment Cumulative Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
1994 not applicable 390,353
- -----------------------------------------------------------------------------------------------------
1995 87,780 478,133
- -----------------------------------------------------------------------------------------------------
1996 92,169 570,302
- -----------------------------------------------------------------------------------------------------
1997 96,777 667,079
- -----------------------------------------------------------------------------------------------------
1998 101,616 768,695
- -----------------------------------------------------------------------------------------------------
1999 or later 106,697 875,392
=====================================================================================================
</TABLE>
(b) Solely as an example to illustrate the intent of this
Section 3.4, if the date of the Employee's termination of employment with the
Employer is July 15, 1996, the Minimum Amount is $531,898, which is the total of
the Cumulative Amount for 1995 ($478,133) plus 7/12 of the Annual Increment for
1996 ($53,765). If the Total Credits as of July 15, 1996 are $500,000, the
additional credit made pursuant to this Section 3.4 is $31,898.
(c) Notwithstanding any other provision of this Agreement, if
his employment with the Employer terminates for Cause, no credit shall be made
to the Employee's Account under this Section 3.4 for the year in which his
employment ends.
3.5 NO CONTRIBUTIONS BY EMPLOYEE. The Employee shall not be required or
permitted to make contributions to his Account under this Agreement.
SECTION 4
---------
MAINTENANCE AND VALUATION OF ACCOUNT
------------------------------------
4.1 ESTABLISHMENT OF ACCOUNT. There shall be established for the
Employee a separate book account (the "Account"), which shall reflect the
amounts credited pursuant to Section 3 and the assumed investment thereof.
Subject to such rules as the Committee may prescribe, any amount credited under
Sections 3.1, 3.2, or 3.3 shall be credited to the Employee's Account as of the
last day of the year for which such credit is made, and shall be assumed to have
been invested as of that date pursuant to Section 4.2 of this Agreement.
4.2 ASSUMED INVESTMENTS. With respect to any period of time, the
credits to the Employee's Account made in accordance with Sections 3.1, 3.2, or
3.3 shall be assumed to have been invested in two or more investment funds
designated by the Committee among which the
- 4 -
<PAGE> 5
Employee may designate as the assumed investment of his Account. Such investment
funds may, but need not, be the same investment funds that are available under
the Employer's Qualified Plans. The assumed investment return or loss for each
year shall be credited to the Employee's Account as of the last day of such
year, provided, however, that the assumed investment return or loss for the year
in which the Account is distributed to the Employee or his Beneficiary shall be
deemed to be credited to the Account as of the date the distribution from the
Account is made.
4.3 VALUATION. As soon as practical following the end of each year, the
Employee, or, in the event of his death, his Beneficiary, shall be furnished a
statement as of December 31 showing the then balance of the Employee's Account,
the total credits to such Account during the preceding calendar year pursuant to
Sections 3.1, 3.2, or 3.3, and the investment return or loss credited to such
Account pursuant to Section 4.2.
4.4 LIMITATION. Notwithstanding any other provision of this Agreement,
all credits to the Employee's Account under any provision of this Agreement
shall be made on the express condition that such credits do not adversely affect
the tax-exempt status of Midwest Foundation Independent Physicians Association
dba ChoiceCare under section 501(c)(4) of the Code. If the Internal Revenue
Service determines that any credit to the Employee's Account made under this
Agreement (by itself or in combination with other compensation paid to the
Employee by the Employer) adversely affects such tax-exempt status, the Employer
may, after providing at least 20 days' written notice of the proposed action to
the Employee, reduce or cancel such credit to the extent necessary to preserve
or restore such tax-exempt status, and in the event of such a cancellation, the
Employee shall have no right or claim to the amount so cancelled or to any other
benefit or compensation in consequence of such cancellation.
SECTION 5
---------
VESTING
-------
5.1 VESTING. The vested percentage of the Employee's Account shall be
100% as of December 31, 1999. At any relevant time prior to December 31, 1999,
the vested percentage of the Employee's Account shall be 0%, except as otherwise
provided in Section 5.2.
5.2 EARLY VESTING. Notwithstanding Section 5.1, the vested percentage
of the Employee's Account shall be 100% as of the earliest of the following:
(a) Termination or nonrenewal of the Employment Agreement
prior to December 31, 1999 by the Employer without Cause, provided, however,
that termination of the Employment Agreement prior to such date by the Employee
shall not affect the vesting of the Employee's Account;
- 5 -
<PAGE> 6
(b) The Employee's death or permanent disability (as defined
in the Employment Agreement) while he remains employed by the Employer; or
(c) The occurrence of a change in control (as defined in the
Employment Agreement).
5.3 TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement, if the Employee is terminated for Cause (as defined in the Employment
Agreement), the vested percentage of his Account shall be 0% and he shall
forfeit all amounts in his Account.
SECTION 6
---------
DISTRIBUTIONS AND FORFEITURES
-----------------------------
6.1 GENERAL. Except as otherwise provided in this Section 6, no amount
shall be paid with respect to the Employee's Account while he remains employed
by the Employer.
6.2 TERMINATION OF EMPLOYMENT. The Employer will pay or begin to pay to
the Employee the vested percentage of the balance in his Account, determined as
of the date he terminates all employment with the Employer for any reason other
than his death, as soon as administratively practical after the first business
day of the first calendar quarter which begins after the date on which he ceases
to be an employee of the Employer, in the latest form of payment elected by the
Employee under this Agreement. The Employee may elect either a lump sum payment
or any number of annual installment payments, up to ten annual installment
payments.
(a) The Employee is deemed to have elected to receive a lump
sum payment unless he changes this election pursuant to Section 6.2(b).
(b) The Employee may change the election he is deemed to make
under Section 6.2(a) by completing an appropriate form and filing it with the
Committee; except that any change of the form of payment will not be given any
effect under this Agreement unless the date on which the Employee ceases to be
an employee of the Employer occurs one year or more after the date on which the
form changing the election is filed with the Committee.
(c) The amount of each annual installment payable under this
Section 6.2 (if the Employee elects to receive his Account in annual installment
payments) will be a fraction of the amount credited to the Employee's Account as
of the installment payment date, the numerator of which is one and the
denominator of which is equal to the total number of installments remaining to
be paid (including the installment to be paid on that installment payment date).
The first installment payment will be made at the time indicated in the first
sentence of this Section 6.2, and all remaining installment payments will be
made as soon as
- 6 -
<PAGE> 7
administratively practical after each annual anniversary of the initial
installment payment until all required installment payments have been made.
(d) If the Employee receives all amounts credited to his
Account because he has ceased to be an employee of the Employer, and an
additional amount is subsequently credited to his Account under the terms of the
Agreement, that additional amount will be paid to the Employee as soon as
administratively practical after it is credited to his Account.
(e) For purposes of this Section 6.2, if the Employee incurs a
"permanent disability" (as defined in the Employee's employment agreement with
the Employer) before ceasing his employment with the Employer, he will be deemed
to cease employment with the Employer on the date that the Committee determines
that he has incurred such permanent disability.
6.3 FORFEITURES. Any nonvested percentage of the balance in the
Employee's Account, determined as of the date on which he terminates employment
with the Employer for any reason other than his death or total disability (as
defined in the Employment Agreement), shall be forfeited as of such date.
6.4 DEATH. If the Employee ceases to be employed by the Employer by
reason of his death, or if he dies after ceasing to be an employee but before
the vested percentage of the amount credited to his Account has been paid or has
begun to be paid to him, the Employer shall pay to the Employee's Beneficiary
the vested percentage of the amounts credited to the Employee's Account in the
method elected by the Beneficiary under Section 6.2, applying such Section as if
the Beneficiary were the Employee and disregarding the requirement that the
election must be made at least one year before the Employee terminates
employment with the Employer. If the Employee dies after beginning to receive
the payment of the vested percentage of the amount credited to his Account in
installments under Section 6.2(c), the remaining installments shall be paid to
his Beneficiary under the payment schedule in effect before the Employee's
death.
6.5 DISTRIBUTIONS FOR PAYMENT OF TAXES. Notwithstanding Section 6.1, if
the Internal Revenue Service determines that the Employee is currently subject
to income or other tax on the balance in his Account, the Employer shall pay to
the Employee in one lump sum as of the date determined by the Employer that
portion of the balance then in his Account that is necessary for the payment of
federal, state, and local taxes, and interest and penalties thereon, that
results from such determination, and the balance in the Employee's Account shall
immediately be reduced by the amount of such distribution.
6.6 FORM OF PAYMENT. Payments with respect to the Account shall be made
in cash. As provided in Sections 6.2, 6.3, and 6.4, payments shall be made "as
of" a certain date, which means that payments will be made on or as soon as
practicable after such date, and will be equal to the balance in the Employee's
Account as of that certain date. All payments made to the Employee or his
Beneficiary shall be subject to applicable withholding and to such other
- 7 -
<PAGE> 8
deductions as shall at the time of such payment be required under any income tax
or other law, whether of the United States or any other applicable jurisdiction.
SECTION 7
---------
ADMINISTRATION OF THE AGREEMENT
-------------------------------
7.1 GENERAL. The general administration of the Agreement and the
responsibility for carrying out its provisions shall be placed in the Committee.
7.2 EXPENSES. Expenses of administering the Agreement shall be borne by
the Employer.
7.3 COMPENSATION OF COMMITTEE. The members of the Committee shall not
receive compensation for their services as such, and, except as required by law,
no bond or other security need be required of them in such capacity in any
jurisdiction.
7.4 RULES. Subject to the limitations of the Agreement, the Committee
may, from time to time, establish rules for the administration of the Agreement
and the transaction of its business. The Committee may correct errors, however
arising, and, as far as possible, adjust any benefit payments accordingly. The
Committee shall interpret the Agreement. The Committee's interpretation of the
Agreement shall be subject to de novo review in arbitration that occurs pursuant
to Section 11.2 hereof.
7.5 AGENTS AND EMPLOYEES. The Committee may authorize one or more
agents to execute or deliver any instrument. The Committee may appoint or employ
such agents, counsel, auditors, physicians, clerical help, and actuaries as in
the Committee's judgment may seem reasonable or necessary for the proper
administration of the Agreement.
7.6 INDEMNIFICATION. The Employer shall indemnify each member of the
Committee for all expenses and liabilities (including reasonable attorney's
fees) arising out of the administration of the Agreement, other than any
expenses or liabilities resulting from the Committee's own gross negligence or
willful misconduct. The foregoing right of indemnification shall be in addition
to any other rights to which the members of the Committee may be entitled as a
matter of law.
SECTION 8
---------
FUNDING OBLIGATION
------------------
The Employer shall have no obligation to fund, either by the investment
in any account or by any other means, its obligation to the Employee hereunder.
The Employer shall establish
- 8 -
<PAGE> 9
a rabbi trust, to which the Employer shall contribute assets to provide for its
obligations under this Agreement. All assets allocated for such purpose shall be
assets of the Employer subject to claims against the Employer, including claims
of the Employer's creditors, to the same extent as are other corporate assets,
and the Employee shall have no right or claim against the assets so allocated,
other than as a general creditor of the Employer.
SECTION 9
---------
AMENDMENT AND TERMINATION
-------------------------
The Committee or the Employer may, without the consent of the Employee
or his Beneficiary, amend or terminate the Agreement at any time; provided that,
except as provided in Section 4.4 hereof, no amendment shall be made or act of
termination taken which: (i) divests the Employee or his Beneficiary of the
right to receive payments under the Agreement with respect to amounts
theretofore credited to the Employee's Account, (ii) directly or indirectly
reduces the credits to be made under Section 3 with respect to periods ending on
and before December 31, 1999, or (iii) subsequent to the occurrence of a change
in control (as defined in the Employment Agreement), directly or indirectly
reduces the percentage credited under Section 3 of this Plan with respect to the
Employee's Base Salary and award under the Employer's Annual Executive Incentive
Plan for any year which ends after the change in control occurs below the
percentage allocated under Section 3 for the immediately preceding year, unless,
in each such case, the Employee, or, in the event of his death, his Beneficiary,
consents to such amendment in writing. Subject to the foregoing, the Employer
and the Employee may agree to amend this Agreement to adjust the future credits
provided for hereunder in the event that the Employee becomes eligible to
participate in another deferred compensation arrangement maintained by the
Employer or an affiliate of the Employer.
SECTION 10
----------
NON-ALIENATION OF BENEFITS
--------------------------
Neither the Employee nor his Beneficiary shall alienate, commute,
anticipate, assign, pledge, encumber, or dispose of the right to receive the
payments required to be made by the Employer hereunder, which payments and the
right to receive them are expressly declared to be nonassignable and
nontransferable. In the event of any attempt to assign or transfer any such
payments or the right to receive them, the Employer shall have no further
obligation to make any payments otherwise required of it hereunder.
SECTION 11
----------
MISCELLANEOUS
-------------
- 9 -
<PAGE> 10
11.1 DELEGATION. Any matter or thing to be done by the Employer shall
be done by its Board of Directors, except that, from time to time, the Board by
resolution may delegate to any person or committee certain of its rights and
duties hereunder. Any such delegation shall be valid and binding on all persons
and the person or committee to whom or which authority is delegated shall have
full power to act in all matters so delegated until the authority expires by its
terms or is revoked by the Board, as the case may be.
11.2 ARBITRATION. Any dispute or disagreement between the parties
hereto, including but not limited to a dispute concerning the necessity of a
reduction or cancellation under Section 4.4 hereof, shall be submitted to
mandatory and binding arbitration at the election of either party. The
arbitration shall be pursuant to the Commercial Arbitration Rules of the
American Arbitration Association. The arbitration shall be held in Cincinnati,
Ohio. Each party shall select an arbitrator and the two selected arbitrators
shall select a third arbitrator. The decision of the arbitrators, and any award
rendered therein, shall be final, conclusive, and binding upon the parties and
any judgment thereon may be entered and enforced in any court of competent
jurisdiction. Each party will bear 50% of all fees, costs, and expenses of the
arbitration, and each party will bear all the fees, costs, and expenses of his
or its own attorneys, experts, and witnesses.
11.3 BINDING AGREEMENT. This Agreement may not be assigned by one party
hereto without the consent of the other, except that this Agreement may be
assigned by Employer to any affiliated company. Notwithstanding the foregoing
general restriction on voluntary assignments, the rights and obligations of the
parties under this Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs,
personal representatives and estates, which successors and assigns in the case
of Employer shall include: (i) any affiliated company to which this Agreement is
assigned by Employer, (ii) any successor of the ChoiceCare Parent or the
ChoiceCare Operating Company by merger, combination or reorganization in any
manner, whether such successor is a corporation, limited liability company,
partnership (either general or limited), business trust, or other organization
or person, and whether or not such successor is a successor by operation of law,
(iii) any recipient of materially all the assets and/or business of Employer in
liquidation or distribution or by way of contribution of capital, (iv) any
successor to materially all the assets and/or business of Employer by purchase
or exchange, either singly or in combination, or (v) any combination of the
foregoing. Employer covenants that it will make no distribution or contribution
of assets and/or business as described in clause (iii) of the immediately
preceding sentence nor enter into any agreement of sale or exchange of assets
and/or business as described in clause (iv) of the immediately preceding
sentence without requiring the recipient(s) of such assets or business to assume
the obligations of Employer in this Agreement as a co-obligor.
11.4 WAIVER. The failure of either party to enforce any provision or
provisions of the Agreement shall not in any way be construed as a waiver of
such provision or provisions as to any future violations thereof, nor prevent
that party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the
- 10 -
<PAGE> 11
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
11.5 NO RIGHTS TO CONTINUED EMPLOYMENT. Nothing contained herein shall
be construed as conferring upon the Employee the right to continue in the
employment of the Employer in any capacity.
11.6 RELATION TO OTHER PLANS. No amounts credited or payable under this
Agreement shall be deemed salary or other compensation to the Employee for the
purpose of computing benefits to which he may be entitled under any retirement
plan or other arrangement of the Employer for the benefit of its employees.
11.7 APPLICABLE LAW. The Agreement shall be governed by applicable
federal law and, to the extent not preempted by applicable federal law, the laws
of the State of Ohio.
11.8 SEPARABILITY OF PROVISIONS. If any provision of the Agreement is
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, and the Agreement shall be construed and
enforced as if such provision had not been included.
11.9 HEADINGS. Headings used throughout the Agreement are for
convenience only and shall not be given legal significance.
11.10 COUNTERPARTS. The Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. All counterparts shall
constitute one and the same instrument, which shall be sufficiently evidenced by
any one thereof.
- 11 -
<PAGE> 12
Signed at Cincinnati, Ohio on the 2nd day of May, 1997.
CHOICECARE CORPORATION:
By: /s/ Donald E. Hoffman
-----------------------------
Title: Chair H R & C Committee
--------------------------
CHOICECARE HEALTH PLANS, INC.:
By: /s/ Jane E. Rollinson
-----------------------------
Title: President
--------------------------
EMPLOYEE:
/s/ Daniel A. Gregorie
--------------------------------
Daniel A. Gregorie, M.D.
- 12 -
<PAGE> 1
Exhibit 10(iii)(A)(5)
CHOICECARE CORPORATION
CHOICECARE HEALTH PLANS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR EXECUTIVE OFFICERS
(As adopted effective January 1, 1997)
SECTION 1
---------
PURPOSE OF PLAN
---------------
The purpose of this Plan is to provide deferred compensation for Key
Employees of the Employer. The Plan is intended to be an unfunded deferred
compensation plan within the meaning of sections 201, 301, and 401 of the
Employee Retirement Income Security Act of 1974, as amended and will be
construed as such.
SECTION 2
---------
GENERAL DEFINITIONS
-------------------
GENERAL DEFINITIONS. For purposes of the Plan, the following terms will
have the meanings hereinafter set forth unless the context otherwise requires.
2.1 "Base Salary" means an Employee's base salary payable to him or her
by the Employer pursuant to Section 5.1 of the Employment Agreement, prior to
any reduction of such base salary under Sections 125 and 402(e)(3) of the Code
or under the ChoiceCare Voluntary Deferred Compensation Plan, and excluding any
additional amounts computed with reference to such base salary and payable under
Sections 7 or 8 of the Employment Agreement following a change in control or a
strategic investor purchase (as those terms are defined in the Employment
Agreement).
2.2 "Beneficiary" means the person or entity last designated by a Key
Employee, on forms furnished and in the manner prescribed by the Committee and
delivered to the Committee before the Key Employee's death, to receive any
benefit payable under the Plan after the Key Employee's death. If a Key Employee
does not designate a beneficiary or if, for any reason, such designation is not
effective, the Key Employee's "Beneficiary" will be his or her surviving spouse
or, if none, his or her estate.
2.3 "Cause" will have the same meaning given such term in the Key
Employee's employment agreement with the Employer.
2.4 "Code" means the Internal Revenue Code of 1986 as it now exists or
is hereafter amended.
<PAGE> 2
2.5 "Committee" means the Human Resources and Compensation Committee of
the Board of Directors of ChoiceCare Health Plans, Inc. and any successor
thereof.
2.6 "Employer" means, collectively, ChoiceCare Health Plans, Inc. and
ChoiceCare Corporation.
2.7 "Employee" means a person who is an employee of the Employer or of
any other corporation which is a member of a controlled group of corporations
(within the meaning of section 1563 of the Code) that includes the Employer
under common law standards and who is classified on the payroll of the Employer
or such other corporation as an employee.
2.8 "Employment" means employment as an Employee.
2.9 "Employment Agreement" means the employment agreement between the
Key Employee and the Employer, as effective January 1, 1997 and as amended from
time to time.
2.10 "Key Employee" means Jane E. Rollinson, Michael J. Barber, M.D.,
and Thomas D. Anthony.
2.11 "Qualified Plans" means all defined contribution retirement plans
maintained by the Employer that are intended to be qualified under Section
401(a) of the Code.
2.12 "Year" or "year" means the calendar year.
SECTION 3
---------
CREDITS
-------
3.1 CREDITS DURING EMPLOYMENT. For the year 1997, and for each
subsequent year in which a Key Employee remains an Employee of the Employer, the
Employer will credit to the book Account established for the Key Employee under
Section 4.1, as of the last day of such year, an amount equal to 8% of the total
of: (i) the Key Employee's actual Base Salary paid to him or her by the Employer
for that year, and (ii) the Key Employee's actual award for that year under the
Employer's Annual Executive Incentive Plan (as defined in the Employment
Agreement and excluding any additional amounts computed with reference to such
Annual Executive Incentive Plan and payable under Sections 7 or 8 of the
Employment Agreement following a change in control or a strategic investor
purchase as those terms are defined in the Employment Agreement).
3.2 CREDIT FOR YEAR OF TERMINATION. If the Key Employee's ceases to be
an Employee of the Employer for any reason except Cause, the credit for the year
of termination will be made pursuant to Section 3.1, based solely upon the Key
Employee's actual Base Salary paid to him or her by the Employer for that year
and the Employee's actual award for that year under the
- 2 -
<PAGE> 3
Employer's Annual Executive Incentive Plan, but without regard to any additional
compensation paid to the Key Employee for that year, including but not limited
to additional compensation of any type paid due to his or her termination of
employment and any additional amounts computed with reference to such Annual
Executive Incentive Plan and payable under Sections 7 or 8 of the Employment
Agreement following a change in control or a strategic investor purchase as
those terms are defined in the Employment Agreement. Notwithstanding the prior
sentence or Section 3.1, if the Key Employee ceases to be an Employee because
his or her Employment is terminated for Cause, no credit will be made to the Key
Employee's Account for the year in which his or her Employment ends.
3.3 NO CONTRIBUTIONS BY KEY EMPLOYEES. Key Employees will not be
required or permitted to make contributions to their Accounts under this Plan.
SECTION 4
---------
MAINTENANCE AND VALUATION OF ACCOUNTS
-------------------------------------
4.1 ESTABLISHMENT OF ACCOUNTS. There will be established for each Key
Employee a separate book account (the "Account"), which will reflect the amounts
credited to him or her pursuant to Section 3, the assumed investment thereof and
distributions therefrom. Subject to such rules as the Committee may prescribe,
any amount credited under Sections 3.1 or 3.2 will be credited to the Key
Employee's Account as of the last day of the year for which that credit is made,
and will be assumed to have been invested within a reasonable period after that
date pursuant to Section 4.2 of this Plan.
4.2 ASSUMED INVESTMENTS. The Committee will designate, in its
discretion, two or more investment funds among which a Key Employee may
designate as the assumed investment of his or her Account. Such investment funds
may, but need not, be the same investment funds that are available under the
Employer's Qualified Plans. The assumed investment return or loss for each year
will be credited to the Key Employee's Account as of the last day of such year,
provided, however, that the assumed investment return or loss for the year or
years in which the Account is distributed to the Key Employee or his or her
Beneficiary will be deemed to be credited to the Account as of each date or
dates as of which the distribution from the Account is made.
4.3 VALUATION. As soon as practical following the end of each year, the
Key Employee, or, in the event of his or her death, his or her Beneficiary, will
be furnished a statement as of December 31 or the Key Employee's date of death,
whichever is earlier, showing the then balance of the Key Employee's Account,
the total credits to such Account during the preceding year pursuant to Sections
3.1 or 3.2, and the investment return or loss credited to that Account pursuant
to Section 4.2.
- 3 -
<PAGE> 4
SECTION 5
---------
VESTING
-------
5.1 VESTING. The vested percentage of each Key Employee's Account will
become 100% as of the date of that Key Employee's 60th birthday, provided he or
she remains an Employee on that date. At any relevant time prior to the Key
Employee's 60th birthday, the vested percentage of that Employee's Account will
be 0%, except as otherwise provided in Section 5.2.
5.2 EARLY VESTING. Notwithstanding Section 5.1 but subject to Section
5.3, a Key Employee's Account will become vested as follows upon the occurrence
of the following events:
(a) The vested percentage of the Key Employee's Account will
become 100% upon termination of the Key Employee's Employment by the Employer
without Cause;
(b) The vested percentage of the Key Employee's Account will
become 100% upon the Key Employee's death or "permanent disability" (as defined
in the Key Employee's Employment Agreement) while he or she remains an Employee
of the Employer; or
(c) The vested percentage of the Key Employee's Account will
become 100% upon the occurrence of a "change in control" (as defined in the Key
Employee's Employment Agreement).
5.3 TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Plan, if the Employment of a Key Employee is terminated for Cause, the vested
percentage of his or her Account will be 0% and he or she will forfeit all
amounts in his or her Account.
SECTION 6
---------
DISTRIBUTIONS AND FORFEITURES
-----------------------------
6.1 GENERAL. Except as otherwise provided in this Section 6, no amount
will be paid with respect to a Key Employee's Account while he or she remains an
Employee.
6.2 TERMINATION OF EMPLOYMENT. The Employer will pay or begin to pay to
the Key Employee the vested percentage of the balance in his or her Account,
determined as of the date he or she terminates all Employment for any reason
other than his or her death, as soon as administratively practical after the
first business day of the first calendar quarter which begins after the date on
which he or she ceases to be an Employee, in the latest form of payment elected
by the Key Employee under this Plan.
- 4 -
<PAGE> 5
6.2.1 The Key Employee may elect as the form of payment, by
completing an appropriate form and filing it with the Committee within 30 days
after this Plan is adopted by the Employer (such year being called in this
Section 6.2 the "initial year"), either a lump sum payment or any number of
annual installment payments, up to ten annual installment payments. If the Key
Employee does not timely make such an election, he or she will be deemed to have
elected prior to the start of the initial year to receive a lump sum payment.
6.2.2 A Key Employee may change the election he or she makes
(or is deemed to make) under Section 6.2.1 above at any later time by completing
an appropriate form and filing it with the Committee; except that any change of
the form of payment will not be given any effect under this Plan unless the date
on which the Key Employee ceases to be an Employee occurs one year or more after
the date on which the form changing the election is filed with the Committee.
6.2.3 The amount of each annual installment payable under this
Section 6.2 (if the Key Employee elects to receive his or her Account in annual
installment payments) will be a fraction of the amount credited to the Key
Employee's Account as of the installment payment date, the numerator of which is
one and the denominator of which is equal to the total number of installments
remaining to be paid (including the installment to be paid on that installment
payment date). The first installment payment will be made at the time indicated
in the first sentence of this Section 6.2, and all remaining installment
payments will be made as soon as administratively practical after each annual
anniversary of the initial installment payment until all required installment
payments have been made.
6.2.4 If a Key Employee receives all amounts credited to his
or her Account because he or she has ceased to be an Employee, and an additional
amount is subsequently credited to his or her Account under the terms of the
Plan, that additional amount will be paid to the Key Employee as soon as
administratively practical after it is credited to his or her Account.
6.2.5 For purposes of this Section 6.2, if a Key Employee
incurs a "permanent disability" (as defined in the Key Employee's Employment
Agreement.) before ceasing Employment, he or she will be deemed to cease
Employment on the date that the Committee determines that he or she has incurred
such permanent disability.
6.3 FORFEITURES. Any nonvested percentage of the balance in a Key
Employee's Account, determined as of the date on which he or she ceases
Employment for any reason other than his or her death or total disability, will
be forfeited as of that date.
6.3 DEATH. If a Key Employee ceases Employment by reason of his or her
death, or dies after ceasing Employment but before the vested percentage of the
amount credited to his or her Account has been paid or has begun to be paid to
him or her, the Employer will pay to the Key Employee's Beneficiary the vested
percentage of the amounts credited to the Key Employee's Account in the method
elected by the Beneficiary under Section 6.2, applying such
- 5 -
<PAGE> 6
Section as if the Beneficiary were the Key Employee and disregarding the
requirement that the election must be made at least one year before the Key
Employee terminates Employment. If the Key Employee dies after beginning to
receive the payment of the vested percentage of the amount credited to his or
Account in installments under Section 6.2.3, the remaining installments shall be
paid to his or her Beneficiary under the payment schedule in effect before the
Key Employee's death.
6.4 DISTRIBUTIONS FOR PAYMENT OF TAXES. Notwithstanding Section 6.1, if
the Internal Revenue Service determines that a Key Employee is currently subject
to income or other tax on the balance in his or her Account, the Employer will
pay to that Key Employee in one lump sum as of the date determined by the
Employer that portion of the vested balance then in that Account that is
necessary for the payment of federal, state, and local taxes, and interest and
penalties thereon, that results from such determination, and the balance in the
Key Employee's Account will immediately be reduced by the amount of that
distribution.
6.5 FORM OF PAYMENT. Payments with respect to a Key Employee's Account
will be made in cash. As provided in Sections 6.2, 6.3, and 6.4, payments will
be made "as of" a certain date, which means that payments will be made on or as
soon as practicable after such date, and will be equal to the balance in the Key
Employee's Account as of that certain date.
6.6 WITHHOLDING. The Employer will have, with respect to any Key
Employee, the right (without notice to the Key Employee) to withhold from any
amounts otherwise payable to the Key Employee by the Employer (including any
portion of the Key Employee's current compensation from the Employer and any
benefit payments which are made under this Plan to the Key Employee or his or
her Beneficiary) an amount which the Employer determines is sufficient to
satisfy all federal, state, and local withholding tax requirements that may
apply with respect to any amounts which are credited to the Key Employee's
Account under this Plan and/or to benefit amounts payable under this Plan to the
Key Employee or his or her Beneficiary.
SECTION 7
---------
ADMINISTRATION OF THE PLAN
--------------------------
7.1 GENERAL. The general administration of the Plan and the
responsibility for carrying out its provisions will be placed in the Committee.
7.2 EXPENSES. Expenses of administering the Plan will be borne by the
Employer.
7.3 COMPENSATION OF COMMITTEE. The members of the Committee will not
receive compensation for their services as such, and, except as required by law,
no bond or other security need be required of them in such capacity in any
jurisdiction.
- 6 -
<PAGE> 7
7.4 RULES. Subject to the limitations of the Plan, the Committee may,
from time to time, establish rules for the administration of the Plan and the
transaction of its business. The Committee may correct errors, however arising,
and, as far as possible, adjust any benefit payments accordingly. The Committee
will interpret the Plan. The Committee's interpretation of the Plan will be
subject to review in arbitration that occurs pursuant to Section 11.2 hereof.
7.5 AGENTS AND EMPLOYEES. The Committee may authorize one or more
agents to execute or deliver any instrument. The Committee may appoint or employ
such agents, counsel, auditors, physicians, clerical help, and actuaries as in
the Committee's judgment may seem reasonable or necessary for the proper
administration of the Plan.
7.6 INDEMNIFICATION. The Employer will indemnify each member of the
Committee for all expenses and liabilities (including reasonable attorney's
fees) arising out of the administration of the Plan, other than any expenses or
liabilities resulting from the member's gross negligence or willful misconduct.
The foregoing right of indemnification will be in addition to any other rights
to which the members of the Committee may be entitled as a matter of law.
SECTION 8
---------
FUNDING OBLIGATION
------------------
This Plan constitutes a promise by the Employer to make benefit
payments in the future according to the terms of the Plan. The Employer will
have no obligation to fund, either by the purchase or the investment in any
account or by any other means, its obligation to any Key Employee hereunder and
will have no obligation to actually purchase any investment to reflect the
assumed investment of any Key Employee's Account. If, however, the Employer
elects to allocate assets to provide for any such obligation, the assets
allocated for such purpose will be assets of the Employer subject to claims
against the Employer, including claims of the Employer's creditors, to the same
extent as are other corporate assets, and no Key Employee or Beneficiary will
have any right or claim against the assets so allocated, other than as a general
unsecured creditor of the Employer. In this regard, the Employer intends to
establish a trust in conjunction with this Plan that conforms to the terms of
the model trust described in Revenue Procedure 92-64, as amended, and to place
in such trust assets to satisfy the Employer's obligations under this Plan.
SECTION 9
---------
AMENDMENT AND TERMINATION
-------------------------
The Committee or the Employer may, without the consent of any Key
Employee or his or her Beneficiary, amend or terminate the Plan at any time;
provided that without the Key Employee's consent no amendment may be made or act
of termination taken which (i) divests
- 7 -
<PAGE> 8
a Key Employee or his or her Beneficiary of the right to receive payments under
the Plan with respect to amounts theretofore credited to the Key Employee's
Account, or (ii) subsequent to the occurrence of a "change in control" (as
defined in a Key Employee's Employment Agreement), directly or indirectly
reduces the percentage credited under Section 3 of this Plan with respect to a
Key Employee's Base Salary and award under the Employer's Annual Executive
Incentive Plan for any year which ends after the change in control occurs below
the percentage allocated under Section 3 for the immediately preceding year.
SECTION 10
----------
NONALIENATION OF BENEFITS
-------------------------
Neither a Key Employee nor his or her Beneficiary may alienate,
commute, anticipate, assign, pledge, encumber, or dispose of the right to
receive the payments required to be made by the Employer hereunder, which
payments and the right to receive them are expressly declared to be
nonassignable and nontransferable. In the event of any attempt to assign or
transfer any such payments or the right to receive them, the Employer will have
no further obligation to make any payments otherwise required of it hereunder.
SECTION 11
----------
MISCELLANEOUS
-------------
11.1 DELEGATION. Any matter or thing to be done by the Employer will be
done by its Board of Directors, except that, from time to time, the Board by
resolution may delegate to any person or committee certain of its rights and
duties hereunder. Any such delegation will be valid and binding on all persons
and the person or committee to whom or which authority is delegated will have
full power to act in all matters so delegated until the authority expires by its
terms or is revoked by the Board, as the case may be.
11.2 ARBITRATION. Any dispute or disagreement between the parties
hereto will be submitted to mandatory and binding arbitration at the election of
either party. The arbitration will be pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. The arbitration will be held in
Cincinnati, Ohio. Each party will select an arbitrator and the two selected
arbitrators will select a third arbitrator. The decision of the arbitrators, and
any award rendered therein, will be final, conclusive, and binding upon the
parties and any judgment thereon may be entered and enforced in any court of
competent jurisdiction. Each party will bear 50% of all fees, costs, and
expenses of the arbitration, and each party will bear all the fees, costs, and
expenses of his or its own attorneys, experts, and witnesses.
11.3 BINDING PLAN. The rights and obligations created under this Plan
may not be assigned by the Employer or a Key Employee without the consent of the
other, except that this
- 8 -
<PAGE> 9
Plan may be assigned by Employer to any affiliated company. Notwithstanding the
foregoing general restriction on voluntary assignments, the rights and
obligations of the Employer and the Key Employees under this Plan shall inure to
the benefit of, and shall be binding upon, the Employer and the Key Employees
and their respective successors, assigns, heirs, personal representatives and
estates, which successors and assigns in the case of Employer shall include: (i)
any affiliated company to which this Plan is assigned by Employer, (ii) any
successor of ChoiceCare Health Plans, Inc. or ChoiceCare Corporation by
combination or reorganization in any manner, whether such successor is a
corporation, limited liability company, partnership (either general or limited),
business trust, or other organization or person, and whether or not such
successor is a successor by operation of law, (iii) any recipient of materially
all the assets and/or business of Employer in liquidation or distribution or by
way of contribution of capital, (iv) any successor to materially all the assets
and/or business of Employer by purchase or exchange, either singly or in
combination, or (v) any combination of the foregoing. Employer covenants that it
will make no distribution or contribution of assets and/or business as described
in clause (iii) of the immediately preceding sentence nor enter into any
agreement of sale or exchange of assets and/or business as described in clause
(iv) of the immediately preceding sentence without requiring the recipient(s) of
such assets or business to assume the obligations of Employer in this Plan as a
co-obligor.
11.4 WAIVER. The failure of either party to enforce any provision or
provisions of the Plan will not in any way be construed as a waiver of such
provision or provisions as to any future violations thereof, nor prevent that
party thereafter from enforcing each and every other provision of this Plan. The
rights granted the parties herein are cumulative and the waiver of any single
remedy will not constitute a waiver of such party's right to assert all other
legal remedies available to it under the circumstances.
11.5 NO RIGHTS TO CONTINUED EMPLOYMENT. Nothing contained herein will
be construed as conferring upon any Key Employee the right to continue in the
employment of the Employer in any capacity.
11.6 RELATION TO OTHER PLANS. No amounts credited or payable under this
Plan will be deemed salary or other compensation to any Key Employee for the
purpose of computing benefits to which he or she may be entitled under any
retirement plan or other arrangement of the Employer for the benefit of its
employees.
11.7 APPLICABLE LAW. The Plan will be governed by applicable federal
law and, to the extent not preempted by applicable federal law, the laws of the
State of Ohio.
11.8 SEPARABILITY OF PROVISIONS. If any provision of the Plan is held
invalid or unenforceable, such invalidity or unenforceability will not affect
any other provision hereof, and the Plan will be construed and enforced as if
such provision had not been included.
11.9 HEADINGS. Headings used throughout the Plan are for convenience
only and will not be given legal significance.
- 9 -
<PAGE> 10
11.10 COUNTERPARTS. The Plan may be executed in any number of
counterparts, each of which will be deemed an original. All counterparts will
constitute one and the same instrument, which will be sufficiently evidenced by
any one thereof.
IN WITNESS WHEREOF, ChoiceCare Health Plans, Inc. and ChoiceCare
Corporation have caused their names to be subscribed as of April 25, 1997 but
effective for all purposes as of January 1, 1997.
CHOICECARE HEALTH PLANS, INC.
By: /s/ Daniel A. Gregorie
----------------------------------------
Title: CEO
-------------------------------------
CHOICECARE CORPORATION
By: /s/ Daniel A. Gregorie
----------------------------------------
Title: President and CEO
-------------------------------------
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 34,833
<SECURITIES> 74,684
<RECEIVABLES> 5,352
<ALLOWANCES> 68
<INVENTORY> 0
<CURRENT-ASSETS> 135,298
<PP&E> 18,591
<DEPRECIATION> 9,397
<TOTAL-ASSETS> 149,872
<CURRENT-LIABILITIES> 88,165
<BONDS> 0
0
0
<COMMON> 12,014
<OTHER-SE> 37,611
<TOTAL-LIABILITY-AND-EQUITY> 149,872
<SALES> 0
<TOTAL-REVENUES> 72,821
<CGS> 0
<TOTAL-COSTS> 58,090
<OTHER-EXPENSES> 16,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (584)
<INCOME-TAX> (222)
<INCOME-CONTINUING> (362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
