<PAGE>
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 SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE 000-22751
CONCENTRA MANAGED CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3363415
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
312 UNION WHARF, BOSTON MASSACHUSETTS 02109
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 367-2163
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 twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days.
Yes [X] No [ ]
At November 6, 1998, the registrant had outstanding an aggregate of
47,086,570 shares of its Common Stock, $.01 par value.
<PAGE>
CONCENTRA MANAGED CARE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets (Unaudited) at
December 31, 1997 (Restated) and September 30, 1998 3
Consolidated Statements of Operations (Unaudited) for
the Three and Nine Months Ended September 30, 1997 (Restated) and 1998 4
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1997 (Restated) and 1998 5
Notes to Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 17
Signature 18
EXHIBIT INDEX 19
</TABLE>
2
<PAGE>
CONCENTRA MANAGED CARE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
ASSETS 31, 1997 30, 1998
- ---------------------------------------------------------- ------------ ------------
RESTATED
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,576,000 $106,066,000
Marketable securities - 1,966,000
Accounts receivable, net 106,963,000 127,579,000
Prepaid expenses, tax assets and other current assets 26,212,000 31,128,000
------------ ------------
Total current assets 145,751,000 266,739,000
PROPERTY AND EQUIPMENT, AT COST 104,054,000 131,938,000
Less: Accumulated depreciation and amortization (38,351,000) (48,742,000)
------------ ------------
NET PROPERTY AND EQUIPMENT 65,703,000 83,196,000
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 262,592,000 279,944,000
MARKETABLE SECURITIES - 12,530,000
OTHER ASSETS 8,925,000 16,784,000
------------ ------------
$482,971,000 $659,193,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
CURRENT LIABILITIES:
Revolving credit facilities $ 49,000,000 $ -
Current portion of long-term debt 7,497,000 129,000
Accounts payable, accrued income tax and expenses 35,221,000 48,368,000
Accrued payroll and related expenses 16,915,000 23,677,000
------------ ------------
Total current liabilities 108,633,000 72,174,000
LONG-TERM DEBT, NET OF CURRENT PORTION 150,103,000 327,769,000
DEFERRED INCOME TAXES AND OTHER LIABILITIES 17,794,000 16,069,000
STOCKHOLDERS' EQUITY:
Common stock 436,000 471,000
Paid-in capital 257,022,000 269,058,000
Retained deficit (51,017,000) (26,348,000)
------------ ------------
Total stockholders' equity 206,441,000 243,181,000
------------ ------------
$482,971,000 $659,193,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
CONCENTRA MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
RESTATED RESTATED
<S> <C> <C> <C> <C>
REVENUES:
Field case management $ 35,150,000 $ 42,067,000 $102,171,000 $128,265,000
Specialized cost containment 40,094,000 45,687,000 101,895,000 137,190,000
------------ ------------ ------------ ------------
Managed care services 75,244,000 87,754,000 204,066,000 265,455,000
Health services 55,968,000 71,148,000 155,016,000 197,875,000
------------ ------------ ------------ ------------
Total revenues 131,212,000 158,902,000 359,082,000 463,330,000
COST OF SERVICES:
Managed care services 57,114,000 67,458,000 157,660,000 199,988,000
Health services 40,009,000 52,469,000 114,225,000 148,707,000
------------ ------------ ------------ ------------
Total cost of services 97,123,000 119,927,000 271,885,000 348,695,000
------------ ------------ ------------ ------------
Total gross profit 34,089,000 38,975,000 87,197,000 114,635,000
General and administrative expenses 10,311,000 11,883,000 29,324,000 33,876,000
Amortization of intangibles 1,576,000 2,063,000 3,976,000 6,138,000
Non-recurring charge 38,625,000 - 38,625,000 12,600,000
------------ ------------ ------------ ------------
Operating income (loss) (16,423,000) 25,029,000 15,272,000 62,021,000
Interest expense 3,702,000 4,653,000 8,894,000 13,123,000
Interest income (582,000) (1,277,000) (2,214,000) (2,939,000)
Other, net 226,000 208,000 1,035,000 581,000
------------ ------------ ------------ ------------
Income (loss) before income taxes (19,769,000) 21,445,000 7,557,000 51,256,000
Provision (benefit) for income taxes (3,342,000) 9,000,000 6,159,000 23,803,000
------------ ------------ ------------ ------------
Net income (loss) $(16,427,000) $ 12,445,000 $ 1,398,000 $ 27,453,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net loss (see Note 2) $(17,548,000) $ (1,028,000)
------------ ------------
------------ ------------
Basic earnings (loss) per share $ (0.38) $ 0.26 $ 0.03 $ 0.59
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic pro forma and actual earnings (loss) per share
(see Note 2) $ (0.41) $ 0.26 $ (0.02) $ 0.59
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares outstanding 42,876,000 47,027,000 42,584,000 46,237,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings (loss) per share $ (0.38) $ 0.26 $ 0.03 $ 0.58
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted pro forma and actual earnings (loss) per share
(see Note 2) $ (0.41) $ 0.26 $ (0.02) $ 0.58
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares and equivalents outstanding 42,876,000 47,896,000 42,584,000 47,828,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
CONCENTRA MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------------- ------------
RESTATED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,398,000 $ 27,453,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of property and equipment 7,797,000 10,609,000
Amortization of goodwill and other intangibles 3,976,000 6,138,000
Amortization and write-off of start-up costs 2,850,000 -
Amortization of deferred finance costs 576,000 1,200,000
Change in assets and liabilities:
Accounts receivable, net (46,240,000) (20,710,000)
Prepaid expenses, prepaid income taxes and other assets (5,777,000) (2,359,000)
Accounts payable, accrued expenses and income taxes 40,939,000 9,432,000
------------- ------------
Cash flows provided by operating activities 5,519,000 31,763,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in acquisitions, net of cash acquired (95,524,000) (16,740,000)
Purchase of property and equipment (17,227,000) (26,333,000)
Sale (purchase) of marketable securities, net 12,045,000 (14,496,000)
Proceeds from sale of property and equipment - 440,000
------------- ------------
Cash flows used in investing activities (100,706,000) (57,129,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under the credit facilities 33,300,000 (49,000,000)
Proceeds from the issuance of long-term debt 27,927,000 230,000,000
Payment of deferred financing costs (596,000) (6,411,000)
Payments to dissenting shareholders - (15,047,000)
Repayment of long-term debt and capital leases (2,288,000) (49,608,000)
Payment of dividends (3,399,000) (2,809,000)
Proceeds from the sale of common stock under employee
stock purchase plan and stock option plans 3,523,000 11,731,000
------------- ------------
Cash flows provided by financing activities 58,467,000 118,856,000
------------- ------------
NET INCREASE (DECREASE) IN CASH (36,720,000) 93,490,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 58,221,000 12,576,000
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,501,000 $106,066,000
------------- ------------
------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 7,321,000 $ 10,793,000
Income taxes paid $ 13,953,000 $ 8,767,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
CONCENTRA MANAGED CARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The accompanying unaudited financial statements have been prepared by
Concentra Managed Care, Inc. (the "Company" or "Concentra") pursuant to the
rules and regulations of the Securities and Exchange Commission, and reflect
all adjustments (all of which are of a normal recurring nature) which, in the
opinion of management, are necessary for a fair statement of the results of
the interim periods presented. These financial statements do not include all
disclosures associated with the annual financial statements and, accordingly,
should be read in conjunction with the attached Management's Discussion and
Analysis of Financial Condition and Results of Operations and the financial
statements and footnotes for the year ended December 31, 1997 included in the
Company's Form 10-K and August 31, 1998 Form 8-K, where certain terms have
been defined, Form 8-Ks and Form 8-K/A relating to the merger of Preferred
Payment Systems, Inc. ("PPS"), and Form S-3 relating to the issuance of 4.5%
Convertible Subordinated Notes.
(1) BASIS OF PRESENTATION AND RECENT ACQUISITIONS
On February 24, 1998, the Company acquired all of the outstanding common
stock of Preferred Payment Systems, Inc. ("PPS") of Naperville, Illinois, in
exchange for approximately 7,100,000 shares of Concentra common stock, the
assumption of PPS options totaling approximately 580,000 shares of Concentra
common stock, the payment of $15,047,000 in cash to dissenting PPS
shareholders, and the assumption of approximately $49,000,000 of debt which
was repaid at the time of the acquisition (see Note 3). This merger was
accounted for as a pooling of interests. PPS, founded in 1990, is a provider
of specialized cost containment and outsourcing services for healthcare
payors.
The financial statements as of December 31, 1997 and for the three and nine
months ended September 30, 1997 have been restated to reflect the merger
of PPS in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations" ("APB 16"). The Company also completed several
immaterial acquisitions during the first three quarters of 1998.
In the first quarter of 1998, the Company recorded a non-recurring charge of
$12,600,000 primarily associated with the merger of PPS. The utilization of
this charge through September 30, 1998 was approximately $5,005,000 for
professional fees and services, $2,198,000 in costs associated with personnel
reductions, $512,000 in facility consolidations and closings, $1,627,000
associated with the write-off of deferred financing fees on PPS indebtedness
retired and $900,000 of other non-recurring costs.
In the third quarter of 1997, the Company recorded a non-recurring charge of
$38,625,000 associated with the merger of CRA Managed Care, Inc. and
OccuSystems, Inc. The utilization of this charge through September 30, 1998
was approximately $10,518,000 for professional fees and services, $15,016,000
in costs associated with personnel reductions, $6,039,000 in facility
consolidations and closings, $2,525,000 for the write-off of start-up costs
and $2,767,000 of other merger and transitional expenses.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
effective in the first quarter of 1998. SFAS 130 establishes standards for
reporting comprehensive income and its components in the consolidated
financial statements. The Company's reported net income for the three and
nine months ended September 30, 1997 and 1998 does not differ from
comprehensive income as defined in SFAS 130.
(2) PRO FORMA NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE
Pro forma net loss and pro forma basic and pro forma diluted loss per share
for the three and nine months ended September 30, 1997 have been calculated
as if PPS had been subject to federal and state income taxes for the entire
period, based upon an effective tax rate indicative of the statutory rates in
effect. Prior to its merger with the Company during the first quarter of
1998, PPS elected to be taxed as an S corporation, and accordingly, was not
subject to federal and state income taxes in certain jurisdictions.
6
<PAGE>
CONCENTRA MANAGED CARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
supersedes Accounting Principles Board Opinion No. 15. SFAS 128, establishes
new accounting standards for the presentation of earnings per share whereby
primary earnings per share is replaced with "Basic Earnings Per Share" and
fully diluted earnings per share is now called "Diluted Earnings Per Share".
Under SFAS 128, Basic Earnings Per Share is computed by dividing reported
net income by weighted average common shares outstanding and Diluted Earnings
Per Share has been computed assuming the conversion, if dilutive, of the
Company's convertible notes and the elimination of the related interest
expense, and the exercise of stock options, net of their related income tax
effect.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------
1997 1998 1997 1998
------------ ----------- ----------- -----------
RESTATED RESTATED
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) available to shareholders $(16,427,000) $12,445,000 $ 1,398,000 $27,453,000
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Pro forma net loss available to shareholders (1) $(17,548,000) $(1,028,000)
------------ -----------
------------ -----------
Weighted average common shares outstanding 42,876,000 47,027,000 42,584,000 46,237,000
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Basic earnings (loss) per share $ (0.38) $ 0.26 $ 0.03 $ 0.59
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Basic pro forma earnings (loss) per share (1) $ (0.41) $ 0.26 $ (0.02) $ 0.59
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) available to shareholders $(16,427,000) $12,445,000 $ 1,398,000 $27,453,000
Interest on common stock equivalents, net of tax - - 6,000 52,000
------------ ----------- ----------- -----------
Diluted net income (loss) available to shareholders $(16,427,000) $12,445,000 $ 1,404,000 $27,505,000
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Pro forma net loss available to shareholders (1) $(17,548,000) $(1,028,000)
Interest on common stock equivalents, net of tax - -
------------ -----------
Diluted pro forma net loss available to shareholders (1) $(17,548,000) $(1,028,000)
------------ -----------
------------ -----------
Weighted average common shares outstanding 42,876,000 47,027,000 42,584,000 46,237,000
Dilutive options, warrants and notes payable (2) - 869,000 - 1,137,000
Dilutive convertible notes - - - 454,000
------------ ----------- ----------- -----------
Weighted average common shares and equivalents
outstanding (2) 42,876,000 47,896,000 42,584,000 47,828,000
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Diluted earnings (loss) per share $ (0.38) $ 0.26 $ 0.03 $ 0.58
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Diluted pro forma earnings (loss) per share (1) $ (0.41) $ 0.26 $ (0.02) $ 0.58
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
(1) Pro forma net loss and pro forma loss per share for the three and nine
months ended September 30, 1997 have been calculated as if Preferred Payment
Systems, Inc. ("PPS") had been subject to federal and state income taxes for
the entire period, based upon an effective tax rate indicative of the
statutory rates in effect. Prior to its merger with the Company during the
first quarter of 1998, PPS elected to be taxed as an S corporation, and
accordingly, was not subject to federal and state income taxes in certain
jurisdictions.
(2) For the three and nine month periods ended September 30, 1997, common
stock equivalents of 1,449,000 and 1,258,000 were antidilutive.
7
<PAGE>
CONCENTRA MANAGED CARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
The Company's debt as of December 31, 1997 and September 30, 1998 consists of
the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Senior Credit Facility $ 49,000,000 $ -
4.5% Convertible Subordinated Notes due March 2003 - 230,000,000
6% Convertible Subordinated Notes due December 2001 97,750,000 97,750,000
Other 850,000 148,000
PPS indebtedness:
5% Convertible Subordinated Notes due August 2006 10,000,000 -
10% Subordinated Notes due August 2003 7,000,000 -
PPS Credit Facility 42,000,000 -
------------ ------------
206,600,000 327,898,000
Less: Current maturities (56,497,000) (129,000)
------------ ------------
Long-term debt, net of current maturities $150,103,000 $327,769,000
------------ ------------
------------ ------------
</TABLE>
On September 17, 1997, the Company entered into a $100,000,000 Senior Credit
Facility with a syndicate of five banks. Interest on borrowings under the
Senior Credit Facility is payable, at the Company's option, at the bank's
prime rate or LIBOR plus an additional percentage of up to 1.25%, depending
on certain financial criteria. On February 23, 1998, the Company signed an
amendment to expand the Company's borrowing capacity under the Senior Credit
Facility to $200,000,000 under similar terms and conditions in order to
finance the repayment of debt associated with its acquisition of PPS. On
March 11, 1998, the Senior Credit Facility borrowing capacity was reduced to
the original $100,000,000 amount.
On March 11, 1998, the Company issued $200,000,000 4.5% Convertible
Subordinated Notes due March 15, 2003. On April 6, 1998, the underwriters
exercised the $30,000,000 overallotment provision. The 4.5% Convertible
Subordinated Notes are convertible into the Company's common stock, at the
option of the holder, at a conversion price of $41.25 per share, representing
a conversion premium of 25% over the March 10, 1998 closing price. The 4.5%
Convertible Subordinated Notes are general unsecured obligations of the
Company ranking equal in right of payment with the 6% Convertible
Subordinated Notes and all other unsecured indebtedness of the Company and
have similar terms and conditions as the 6% Convertible Subordinated Notes.
On August 31, 1996, PPS issued $10,000,000 of 5% Convertible Subordinated
Notes due August 2006 (the "5% Convertible Subordinated Notes") and
$7,000,000 of 10% Subordinated Notes due August 2003 (the "10% Subordinated
Notes"). In July 1997, PPS entered into an amended and restated credit
facility (the "PPS Credit Facility") which provided for $51,500,000 of senior
debt. On February 24, 1998, the Company acquired PPS and retired $49,000,000
of PPS' outstanding indebtedness (the PPS Credit Facility and 10%
Subordinated Notes). The 5% Convertible Subordinated Notes converted into
2,721,904 shares of Concentra common stock.
The Senior Credit Facility contains customary covenants, including certain
financial covenants, such as cash flow, capital expenditures, and other
financial ratio tests including interest expense coverage ratios. The
Company was in compliance with all such covenants as of September 30, 1998.
8
<PAGE>
CONCENTRA MANAGED CARE, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(4) SUBSEQUENT EVENTS
On October 29, 1998, the Company filed a Form 8-K to report the formation of
a special committee of the Board of Directors to evaluate strategic
alternatives in response to several unsolicited expressions of interest
regarding the possible acquisition of some or all of the Company's common
stock. The Company also announced that it has revised earnings projections
for the fourth quarter of 1998 and is in the process of evaluating
opportunities to reorganize the Managed Care Services division to improve
efficiency and, as a result, that the Company will record a non-recurring
charge of approximately $15,000,000 to $25,000,000 in the fourth quarter of
1998. Furthermore, the Company is currently performing a thorough analysis
of all its business lines, as part of its 1999 budget process, to reflect
current market conditions and opportunities and determine the most efficient
allocation of its resources that will maximize the long-term profitability of
its operations. As a result of the non-recurring charge the Company expects
it will not be in compliance with certain leverage ratio covenants of the
Senior Credit Facility in the fourth quarter of 1998 and the first quarter of
1999. The Company does not have any borrowings outstanding under the Senior
Credit Facility and does not anticipate the need to borrow under the Senior
Credit Facility for the next twelve months. The Company will work with the
banks to address, with a waiver or an amendment, such noncompliance.
Although no assurance can be given that a waiver or an amendment will be
executed, the Company is confident that it will be able to obtain such a
waiver or an amendment.
9
<PAGE>
CONCENTRA MANAGED CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS SECTION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT ARE BASED ON
MANAGEMENT'S CURRENT VIEWS AND ASSUMPTIONS REGARDING FUTURE EVENTS, FUTURE
BUSINESS CONDITIONS AND THE OUTLOOK FOR THE COMPANY BASED ON CURRENTLY AVAILABLE
INFORMATION. WHEREVER POSSIBLE, THE COMPANY HAS IDENTIFIED THESE
"FORWARD-LOOKING STATEMENTS" (AS DEFINED IN SECTION 27A OF THE SECURITIES ACT
AND SECTION 21E OF THE EXCHANGE ACT) BY WORDS AND PHRASES SUCH AS "ANTICIPATES",
"PLANS", "BELIEVES", "ESTIMATES", "EXPECTS", "WILL BE DEVELOPED AND
IMPLEMENTED", AND SIMILAR EXPRESSIONS. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO RISKS AND UNCERTAINTIES AND FUTURE EVENTS COULD CAUSE THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED IN, OR IMPLIED BY, THESE STATEMENTS. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
REFERENCE IS HEREBY MADE TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997, WHERE CERTAIN TERMS HAVE BEEN DEFINED, FORM
8-KS AND FORM 8-K/A RELATING TO THE MERGER OF PREFERRED PAYMENT SYSTEMS, INC.
("PPS"), AND FORM S-3 RELATING TO THE ISSUANCE OF 4.5% CONVERTIBLE
SUBORDINATED NOTES ALL FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, FOR
CERTAIN CONSIDERATIONS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTAINED IN THIS DOCUMENT.
OVERVIEW
Managed Care Services provides field case management and specialized cost
containment services designed to reduce costs associated with workers'
compensation, disability and automobile accident injury coverage. Field case
management services involve working on a one-on-one basis with injured
employees and their various health care professionals, employers and
insurance company adjusters to assist in maximizing medical improvement and,
where appropriate, to expedite the return to work. Managed Care Services'
field case management revenue growth has resulted from both local market
share gains and geographic office expansion. The Company is in the process
of evaluating opportunities to reorganize the Managed Care Services division
to improve efficiency and, as a result, the Company will record a
non-recurring charge of approximately $15,000,000 to $25,000,000 in the
fourth quarter of 1998 (see Note 4 - Notes to Consolidated Financial
Statements). The Company, however, will continue to examine the possibility
of acquiring additional field case management offices or businesses if an
appropriate strategic opportunity arose.
Since 1990, Managed Care Services has also offered specialized cost
containment services. Specialized cost containment services include
utilization management, specialized preferred provider organization ("PPO")
network management, telephonic case management, and retrospective medical
bill review services that are designed to reduce the cost of workers'
compensation claims, automobile accident injury claims and group health
claims. Managed Care Services currently derives most of its revenues on a
fee-for-service basis.
On February 24, 1998, the Company acquired Preferred Payment Systems, Inc. in
a pooling-of-interests transaction and significantly expanded its presence in
the out-of-network group health bill review market. The results of PPS are
included in the Managed Care Services results as part of its cost containment
services. The financial statements as of December 31, 1997 and for the three
and nine months ended September 30, 1997 have been restated for the PPS
merger.
Health Services manages occupational healthcare centers at which it provides
support personnel, marketing, information systems, and management services to
its affiliated physicians. Health Services owns all of the operating assets
of the occupational healthcare centers, including leasehold interests and
medical equipment. Health Services generates its net patient service
revenues primarily from the diagnosis, treatment and management of
work-related injuries and illnesses and from other occupational healthcare
services, such as employment-related physical examinations, drug and alcohol
testing, functional capacity testing and other related programs. For the nine
months ended September 30, 1998, Health Services derived 63.2% of its net
revenues from the treatment of work-related injuries and illnesses and 36.8%
of its net revenues from non-injury related medical services.
10
<PAGE>
CONCENTRA MANAGED CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table provides certain information concerning the Company's
service locations:
<TABLE>
<CAPTION>
Nine months
Years ended December 31, ended
-------------------- September 30,
1996 1997 1998
-------- --------- -------------
<S> <C> <C> <C>
Service locations at the end of the period:
Field case management 118 123 117
Cost containment services 70 83 86
Medical centers (1) 109 140 151
Physician practices acquired during the
period (2) 32 22 10
Physician practices developed during the
period 10 8 1
Number of affiliated physicians at the end
of the period 196 252 276
Medical centers - same market growth (3) 10.7% 11.0% 11.5%
</TABLE>
(1) Does not include the assets of practices which were acquired and
subsequently divested or consolidated into existing centers within a
market.
(2) Represents the assets of practices which were acquired during each period
presented and not subsequently divested.
(3) Same market revenue growth sets forth the aggregate net change from the
prior period for all markets in which Health Services has operated for
longer than one year (excluding revenue growth due to acquisitions of
additional centers).
REVENUES
Total revenues increased 21.1% in the third quarter of 1998 to $158,902,000
from $131,212,000 in the third quarter of 1997. Managed Care Services' revenues
increased 16.6% in the third quarter of 1998 to $87,754,000 as field case
management revenues increased 19.7% for the third quarter of 1998 to $42,067,000
from $35,150,000 in the third quarter of 1997 and specialized cost containment
revenues increased 13.9% in the third quarter of 1998 to $45,687,000 from
$40,094,000 in the third quarter of 1997. Health Services' revenues increased
27.1% in the third quarter of 1998 to $71,148,000 from $55,968,000 in the third
quarter of 1997.
Total revenues increased 29.0% for the nine months of 1998 to $463,330,000 from
$359,082,000 for the nine months of 1997. Managed Care Services' revenues
increased 30.1% for the nine months of 1998 to $265,455,000 as field case
management revenues increased 25.5% for the nine months of 1998 to $128,265,000
from $102,171,000 for the nine months of 1997 and specialized cost containment
revenues increased 34.6% for the nine months of 1998 to $137,190,000 from
$101,895,000 for the nine months of 1997. Health Services' revenues increased
27.6% for the nine months of 1998 to $197,875,000 from $155,016,000 for the nine
months of 1997.
The field case management revenue growth is primarily attributable to the
business generated from two field case management acquisitions, continued growth
in revenues from existing service locations and the expansion of offices in
selected areas. The specialized cost containment revenue growth is largely
attributable to the growth of PPS (including the impact of its purchase of About
Health, Inc. in August of 1997), the acquisition of FNS and other immaterial
acquisitions as well as continued growth in retrospective bill review,
telephonic case management and claims review services. The Health Services'
revenue growth resulted from the acquisition of practices, including the
acquisition of 16 occupational medical centers and the management of an
additional four medical centers from Vencor during the fourth quarter of 1997,
development of sites in new markets, an increase of business in existing
markets, as well as an increase in consulting and other ancillary services.
11
<PAGE>
CONCENTRA MANAGED CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COST OF SERVICES
Total cost of services increased 23.5% in the third quarter of 1998 to
$119,927,000 from $97,123,000 in the third quarter of 1997. Managed Care
Services' cost of services increased 18.1% in the third quarter of 1998 to
$67,458,000 from $57,114,000 in the third quarter of 1997 while Health Services'
cost of sales increased 31.1% in the third quarter of 1998 to $52,469,000 from
$40,009,000 in the third quarter of 1997.
Total cost of services increased 28.3% for the nine months of 1998 to
$348,695,000 from $271,885,000 for the nine months of 1997. Managed Care
Services' cost of services increased 26.8% for the nine months of 1998 to
$199,988,000 from $157,660,000 for the nine months of 1997 while Health
Services' cost of sales increased 30.2% for the nine months of 1998 to
$148,707,000 from $114,225,000 for the nine months of 1997.
Total cost of services as a percentage of revenue increased to 75.5% in the
third quarter of 1998 compared to 74.0% in the third quarter of 1997. Managed
Care Services' cost of services as a percentage of revenue increased to 76.9% in
the third quarter of 1998 compared to 75.9% in the third quarter of 1997, while
Health Services cost of services as a percentage of revenue increased to 73.7%
in the third quarter of 1998 compared to 71.5% in the third quarter of 1997.
Total cost of services as a percentage of revenue decreased to 75.3% for the
nine months of 1998 compared to 75.7% for the nine months of 1997. Managed
Care Services' cost of services as a percentage of revenue decreased to 75.3%
for the nine months of 1998 compared to 77.3% for the nine months of 1997,
while Health Services cost of services as a percentage of revenue increased
to 75.2% for the nine months of 1998 compared to 73.7% for the nine months of
1997.
Managed Care Services saw a deterioration in gross margins in the third quarter
of 1998 due primarily to a slow down in field case management revenue during the
quarter. Managed Care Services has seen improvement in gross margin for the
nine months of 1998 primarily resulting from a shift in its services revenue mix
towards specialized cost containment services, including the services provided
by FNS and PPS, which historically have had higher gross profit margins than
revenues derived from field case management. Although the gross margin improved
slightly for the nine months of 1998 it was negatively affected by a decrease in
provider bill review gross margins and a slow down in field case management
revenues and resulting gross margins. Provider bill review gross margins
decreased due primarily to start-up costs and pricing concessions on new
customers.
Health Services' gross profit margin decreased primarily as a result of an
acceleration in the roll-out of patient tracking and billing systems into the
medical centers, increased spending on marketing and facility improvements and
the impact of lower margins from practices recently acquired and developed.
Historically, as certain functions are consolidated and other staff-related
changes occur, coupled with increased patient volume, the margins of acquired or
developed practices have tended to improve.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 15.2% in the third quarter of 1998
to $11,883,000 from $10,311,000 in the third quarter of 1997, or 7.5% and 7.9%
as a percentage of revenue for the third quarter of 1998 and 1997, respectively.
General and administrative expenses increased 15.5% for the nine months of 1998
to $33,876,000 from $29,324,000 for the nine months of 1997, or 7.3% and 8.2% as
a percentage of revenue for the nine months of 1998 and 1997, respectively. The
increase in general and administrative expenses in 1998 was due primarily to
expenses associated with acquisitions and the continued investment in the
Information Services and Technology Group and in accounting and administrative
personnel.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles increased 30.9% in the third quarter of 1998 to
$2,063,000 from $1,576,000 in the third quarter of 1997, or 1.3% and 1.2% as a
percentage of revenue for the third quarter of 1998 and 1997, respectively.
Amortization of intangibles increased 54.4% for the nine months of 1998 to
$6,138,000 from $3,976,000 for the nine months of 1997, or 1.3% and 1.1% as a
percentage of revenue for the third quarter of 1998 and 1997, respectively. This
increase is the result of amortizing additional intangible assets such as
goodwill, customer lists and assembled workforces primarily associated with the
purchases of About Health, Inc. by PPS and FNS and various smaller acquisitions
by Health Services.
12
<PAGE>
CONCENTRA MANAGED CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NON-RECURRING CHARGES
In the third quarter of 1997, the Company recorded a non-recurring charge of
$38,625,000 associated with the merger of CRA Managed Care, Inc. and
OccuSystems, Inc. The utilization of this charge through September 30, 1998
was approximately $10,518,000 for professional fees and services, $15,016,000
in costs associated with personnel reductions, $6,039,000 in facility
consolidations and closings, $2,525,000 for the write-off of start-up costs
and $2,767,000 of other merger and transitional expenses.
In the first quarter of 1998, the Company recorded a non-recurring charge of
$12,600,000 primarily associated with the merger of PPS. The utilization of
this charge through September 30, 1998 was approximately $5,005,000 for
professional fees and services, $2,198,000 in costs associated with personnel
reductions, $512,000 in facility consolidations and closings, $1,627,000
associated with the write-off of deferred financing fees on PPS indebtedness
retired and $900,000 of other non-recurring costs.
On October 29, 1998, the Company filed a Form 8-K to report the formation of a
special committee of the Board of Directors to evaluate strategic alternatives
in response to several unsolicited expressions of interest regarding the
possible acquisition of some or all of the Company's common stock. The Company
also announced that it has revised earnings projections for the fourth quarter
of 1998 and is in the process of evaluating opportunities to reorganize the
Managed Care Services division to improve efficiency and, as a result, that the
Company will record a non-recurring charge of approximately $15,000,000 to
$25,000,000 in the fourth quarter of 1998. Furthermore, the Company is
currently performing a thorough analysis of all its business lines, as part of
its 1999 budget process, to reflect current market conditions and opportunities
and determine the most efficient allocation of its resources that will maximize
the long-term profitability of its operations.
INTEREST EXPENSE
Interest expense increased $951,000 in the third quarter of 1998 to $4,653,000
from $3,702,000 in the third quarter of 1997 while interest expense increased
$4,229,000 for the nine months of 1998 to $13,123,000 from $8,894,000 for the
nine months of 1997 due primarily to increased outstanding borrowings under the
credit facilities to finance acquisitions and the issuance of $230,000,000 in
4.5% Convertible Subordinated Notes in March and April 1998.
INTEREST INCOME
Interest income increased $695,000 in the third quarter of 1998 to $1,277,000
from $582,000 in the third quarter of 1997 while interest income increased
$725,000 for the nine months of 1998 to $2,939,000 from $2,214,000 for the nine
months of 1997 due primarily to an increase in investable cash balances as a
result of the issuance of $230,000,000 in 4.5% Convertible Subordinated Notes in
March and April 1998.
OTHER EXPENSE
Other expense decreased $18,000 in the third quarter of 1998 to $208,000 from
$226,000 in the third quarter of 1997 while other expense decreased $454,000 for
the nine months of 1998 to $581,000 from $1,035,000 for the nine months of 1997.
Other expenses are primarily related to minority interests.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes in the third quarter and nine months
of 1998 was $9,000,000 and $23,803,000, respectively. On a pro forma basis,
giving effect to the PPS transaction, the Company's (benefit) provision for
income taxes in the third quarter and nine months of 1997 was ($2,221,000)
and $8,585,000, respectively. The pro forma effective tax rate was 42.0% and
11.2% in the third quarters of 1998 and 1997, respectively and 46.4% and
113.6% for the nine months of 1998 and 1997, respectively. Excluding the tax
effects of the non-recurring charges in the third quarter of 1997 and in the
first quarter of 1998, the pro forma effective tax rate would have been 39.1%
for the third quarter of 1997 and 42.0% and 39.3% for the nine months of 1998
and 1997, respectively. The higher tax rates for the nine months of 1998 and
1997 results from the non-recurring charge and the impact of the
non-deductibility of certain fees and expenses associated with the mergers.
The Company expects to continue to provide for its taxes at an effective tax
rate of approximately 42% for the remainder of the year.
13
<PAGE>
CONCENTRA MANAGED CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INFORMATION SYSTEMS - YEAR 2000
The Year 2000 concern, which is common to most companies, concerns the inability
of information and non-information systems, primarily computer software
programs, to properly recognize and process date sensitive information as the
Year 2000 approaches. System database modifications and/or implementation
modifications will be required to enable such information and non-information
systems to distinguish between 21st and 20th century dates. The Company has
completed a number of acquisitions in recent years, and the information systems
of some of the acquired operations have not been fully integrated with the
Company's information systems.
The Company has formed a Year 2000 Program Office to provide a centralized
management function for the entire organization that will assist in identifying,
addressing and monitoring the Company's Year 2000 readiness and compliancy
programs. The Year 2000 Program Office has organized teams at each division to
research Year 2000 compliance status and implement the appropriate solutions.
The Company's Year 2000 Program includes five phases - awareness, assessment,
remediation, testing and implementation. The awareness phase is complete and
the assessment phase is anticipated to be substantially complete by the end of
the fourth quarter of 1998. The Company's Year 2000 Program Office engaged an
outside consultant to assist in an inventory and assessment of Year 2000
affected areas, with a primary focus on information technology systems, third
party software and key suppliers and selected customers. The Company expects to
engage additional outside consultants in the fourth quarter to expand the
assessment of the Company's desktop and infrastructure Year 2000 compliance.
The Company has also coordinated an internal inventory and assessment of
non-information technology systems (e.g. embedded systems contained in medical
equipment).
The Year 2000 Program Office is establishing a protocol for soliciting Year 2000
compliance information from third parties and expects to have sent requests for
compliance information from all key suppliers and selected customers by the end
of the fourth quarter of 1998. The Company has received some Year 2000
compliance information from third parties and anticipates receiving the
remaining responses by the end of the first quarter of 1999. These responses
should indicate the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 issues.
The Company's identified Year 2000 projects overlap with its ongoing investments
in information technology, as such, there are presently Year 2000 projects at
the assessment, remediation, testing and implementation phases. The Company
believes that it has identified most "mission critical" issues and has developed
or is in the process of developing appropriate action plans which may include
software upgrades, replacement of noncompliant components or referral of
problems related to third party-provided software to the original supplier. The
Company has prepared and is preparing its plans to have all "mission critical"
projects Year 2000 compliant by the fourth quarter of 1999. While some
non-critical systems may not be addressed until after December 1999, the Company
believes such systems will not disrupt the Company's operations in a material
manner. Any additional issues that may arise will be classified as either
"mission critical" or non-critical, and appropriate action plans will be
developed and implemented. The Company expects to have formulated any
contingency plans deemed necessary by the third quarter of 1999.
The Company currently estimates that the total cost of implementing its Year
2000 Program will cost between $5,000,000 and $10,000,000. However, until
the assessment phase is completed in the fourth quarter of 1998, the Company
is uncertain if its present plans and resources will be sufficient to ensure
Year 2000 compliance of all "mission critical" projects by January 1, 2000.
This preliminary estimate is based upon presently available information and
will be updated as the Company finalizes its assessment and continues through
implementation. In particular, the estimate may also need to be increased
once the Company has received feedback from key suppliers and selected
customers and has formulated any contingency plans
14
<PAGE>
CONCENTRA MANAGED CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
required. It is expected these costs will not be significantly different from
the Company's current planned investment for information technology, and
therefore, should not have a material adverse effect on the Company's long-term
results of operations, liquidity, or consolidated financial position.
Although the Company does not anticipate any disruption in its operations or
financial reporting as a result of system upgrades or system integrations,
there can be no assurance that such disruption will not occur or that the
desired benefits from the Year 2000 compliance of the Company's information
and non-information systems will be realized. If the Company does not
identify Year 2000 issues and implement modifications or new information and
non-information systems prior to January 1, 2000, its operations could be
disrupted which could have a material adverse effect on the Company's
business or operating results or financial condition. In addition, the
Company places a high degree of reliance on computer systems of third
parties, such as customers, trade suppliers and computer hardware and
commercial software suppliers. Although the Company is assessing the
readiness of these third parties, there can be no guarantee that the failure
of these third parties to modify their systems in advance of December 31,
1999 would not have a material adverse effect on the Company. In addition,
the Company's operations could be disrupted if the companies with which the
Company does business do not identify and correct any Year 2000 issues and
such failure adversely affects their ability to do business with the Company.
If all Year 2000 issues are not identified and all action plans are not
completed and contingency plans become necessary, the Company may not be Year
2000 compliant which could have a material adverse effect on the Company's
long-term results of operations, liquidity, or consolidated financial
position. The amount of potential liability and lost revenue has not been
estimated.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operations was $31,763,000 for the nine months of 1998
and $5,519,000 for the nine months of 1997. During the nine months of 1998,
working capital used $13,637,000 of cash due primarily to an increase in
accounts receivable and prepaid expenses partially offset by an increase in
accounts payable and accrued expenses.
Accounts payable and accrued expenses increased due primarily to the provision
for income taxes not yet paid and the $12,600,000 non-recurring charge in the
first quarter of 1998 partially offset by the payment of obligations related to
that non-recurring charge and year-end obligations, including certain
obligations associated with the non-recurring charge of $38,625,000 recorded in
the third quarter of 1997. As of September 30, 1998, the Company has a
remaining obligation of approximately $4,100,000 related to these non-recurring
charges.
The Company utilized net cash of $16,740,000 in connection with acquisitions,
$14,496,000 to purchase marketable securities and $26,333,000 to purchase
property and equipment during the nine months of 1998, the majority of which was
spent on new computer and software technology.
Cash flows provided by financing activities of $118,856,000 was due primarily to
the issuance of $230,000,000 in 4.5% Convertible Subordinated Notes,
$223,589,000 net of deferred finance fees. A portion of the proceeds from the
issuance of the 4.5% Convertible Subordinated Notes were used to repay
borrowings under the Senior Credit Facility, repay debt assumed in the merger
with PPS, and the payment of $15,047,000 to PPS dissenting shareholders.
The Company believes that its current cash balances, the cash flow generated
from operations and its borrowing capacity under the $100,000,000 Senior
Credit Facility, if needed, will be sufficient to fund the Company's working
capital, medical center acquisitions and capital expenditure requirements for
at least the next twelve months. On October 29, 1998, the Company filed a
Form 8-K to report, among other items (see Note 4 - Notes to Consolidated
Financial Statements), that it is in the process of evaluating opportunities
to reorganize the Managed Care Services division to improve efficiency and,
as a result, that the Company will record a non-recurring charge of
approximately $15,000,000 to $25,000,000 in the fourth quarter of 1998.
Furthermore, the Company is currently performing a thorough analysis of all
its business lines, as part of its 1999 budget process, to reflect current
market conditions and opportunities and determine the most efficient
allocation of its resources that will maximize the long-term profitability of
its operations. As a result of the non-recurring charge the Company expects
it will not be in compliance with certain leverage ratio covenants of the
Senior Credit Facility in the fourth quarter of
15
<PAGE>
CONCENTRA MANAGED CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1998 and the first quarter of 1999. The Company does not have any borrowings
outstanding under the Senior Credit Facility and does not anticipate the need to
borrow under the Senior Credit Facility for the next twelve months. The Company
will work with the banks to address, with a waiver or an amendment, such
noncompliance. Although no assurance can be given that a waiver or an amendment
will be executed, the Company is confident that it will be able to obtain such a
waiver or an amendment.
16
<PAGE>
CONCENTRA MANAGED CARE, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Forms 8-K
(a) Exhibits
Exhibit 10.1 Employment Agreement dated September 17, 1997, between
Concentra Managed Care, Inc. and Kenneth Loffredo
Exhibit 27 - Financial Data Schedule
(b) Reports on Forms 8-K
Form 8-K dated July 30, 1998 regarding the Company's press release
announcing the Company's earnings for the three and six months ended June 30,
1998.
Form 8-K dated August 31, 1998, regarding the Company's Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Consolidated Financial Statements for the three years ended December 31, 1997
restatement to reflect the acquisition of all of the outstanding shares of
Preferred Payment Systems, Inc. on February 24, 1998.
Form 8-K dated September 8, 1998, announcing comments on earnings
estimates.
Form 8-K dated September 18, 1998, announcing appointment of Daniel Thomas
as Interim Chief Executive Officer, John Carlyle as Chairman of the Board of
Directors and resignation of Donald J. Larson as Chief Executive Officer and
Chairman of the Board of Directors.
Form 8-K dated September 25, 1998, announcing the resignation of Donald J.
Larson from the Board of Directors.
Form 8-K dated October 29, 1998, regarding the Company's press release
announcing the Company's earnings for the three and nine months ended September
30, 1998 and the announcement of the formation of a special committee to
evaluate strategic alternatives in response to several unsolicited expressions
of interest regarding the possible acquisition of some or all of the Company's
common stock.
17
<PAGE>
CONCENTRA MANAGED CARE, INC.
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.
CONCENTRA MANAGED CARE, INC.
Date: November 13, 1998 By: /s/ Joseph F. Pesce
----------------- --------------------------------------
Joseph F. Pesce
Executive Vice President -
Finance and Administration,
Chief Financial Officer and Treasurer
18
<PAGE>
CONCENTRA MANAGED CARE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.1 Employment Agreement dated September 17, 1997, between Concentra
Managed Care, Inc. and Kenneth Loffredo 20
27 Financial Data Schedule 30
</TABLE>
19
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as of
the 17th day of September, 1997, between Concentra Managed Care, Inc., a
Delaware corporation (the "Company"), and Kenneth Loffredo ("Executive").
WITNESSETH:
WHEREAS, Executive desires to become the Senior Vice President - Marketing
and Sales of the Company and to become an integral part of its management who
participates in the decision-making process relative to short and long-term
planning and policy for the Company; and
WHEREAS, it is the desire of the Board of Directors of the Company (the
"Board of Directors") to assure itself of the management services of Executive
by directly engaging Executive as an officer of the Company and its subsidiaries
and affiliates; and
WHEREAS, Executive is desirous of committing himself to serve the Company
on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby agrees to employ Executive as
its Senior Vice President - Marketing and Sales, and Executive hereby agrees to
accept such employment, on the terms and conditions set forth herein, for the
period commencing on the date hereof (the "Effective Date") and expiring as of
11:59 p.m. on the second anniversary of the Effective Date (unless sooner
terminated as hereinafter set forth) (the "Term"); PROVIDED, HOWEVER, that
commencing on such second anniversary date, and each anniversary of the date
hereof thereafter, the Term of this Agreement shall automatically be extended
for one additional year unless at least thirty (30) days prior to each such
anniversary date, the Company or Executive shall have given notice that it or
he, as applicable, does not wish to extend this Agreement.
2. DUTIES AND RESTRICTIONS.
(a) DUTIES AS EMPLOYEE OF THE COMPANY. Executive shall, subject to
the supervision of the Company's Chief Executive Officer, serve as the Company's
Senior Vice President - Marketing and Sales with all such powers as may be set
forth in the Company's Bylaws with respect to, and/or are reasonably incident
to, such officerships.
(b) OTHER DUTIES. Executive agrees to serve as requested by the
Company as a director of the Company's subsidiaries and affiliates and in one or
more executive offices of any of the Company's subsidiaries and affiliates;
PROVIDED, that the Company indemnifies Executive for serving in any and all such
capacities in a manner acceptable to the Company and Executive. Executive
agrees that he shall not be entitled to receive any compensation for serving in
any capacities of the Company's subsidiaries and affiliates other than the
compensation to be paid to Executive by the Company pursuant to this Agreement.
1
<PAGE>
(c) NONCOMPETITION. Executive agrees that he will not, for a period
of one year following the termination of his employment with the Company, (1)
solicit the employment of, endeavor to entice away from the Company or its
subsidiaries or affiliates or otherwise interfere with any person who was an
employee of or consultant to the Company or any of its subsidiaries or
affiliates during the one year period preceding such termination, or (2) be
employed by, associated with, or have any interest in, directly or indirectly
(whether as principal, director, officer, employee, consultant, partner,
stockholder, trustee, manager, or otherwise), any occupational healthcare
company or managed care company which has a principal line of business that is
directly competitive with the Company or its subsidiaries or affiliates in any
geographical area in which the Company or its subsidiaries or affiliates engage
in business at the time of such termination or in which any of them, prior to
termination of Executive's employment, evidenced in writing its intention to
engage in business. Notwithstanding the foregoing, Executive shall not be
prohibited from owning five percent or less of the outstanding equity securities
of any entity whose equity securities are listed on a national securities
exchange or publicly traded in any over-the-counter market.
(d) CONFIDENTIALITY. Executive shall not, directly or indirectly, at
any time during or following the termination of his employment with the Company,
reveal, divulge, or make known to any person or entity, or use for Executive's
personal benefit (including, without limitation, for the purpose of soliciting
business, whether or not competitive with any business of the Company or any of
its subsidiaries or affiliates), any information acquired during the course of
employment hereunder with regard to the financial, business, or other affairs of
the Company or any of its subsidiaries or affiliates (including, without
limitation, any list or record of persons or entities with which the Company or
any of its subsidiaries or affiliates has any dealings), other than (1) material
already in the public domain, (2) information of a type not considered
confidential by persons engaged in the same business or a similar business to
that conducted by the Company, or (3) material that Executive is required to
disclose under the following circumstances: (A) in the performance by Executive
of his duties and responsibilities hereunder, reasonably necessary or
appropriate disclosure to another employee of the Company or to representatives
or agents of the Company (such as independent public accountants and legal
counsel); (B) at the express direction of any authorized governmental entity;
(C) pursuant to a subpoena or other court process; (D) as otherwise required by
law or the rules, regulations, or orders of any applicable regulatory body; or
(E) as otherwise necessary, in the opinion of counsel for Executive, to be
disclosed by Executive in connection with the prosecution of any legal action or
proceeding initiated by Executive against the Company or any subsidiary or
affiliate of the Company or the defense of any legal action or proceeding
initiated against Executive in his capacity as an employee or director of the
Company or any subsidiary or affiliate of the Company. Executive shall, at any
time requested by the Company (either during or after his employment with the
Company), promptly deliver to the Company all memoranda, notes, reports, lists,
and other documents (and all copies thereof) relating to the business of the
Company or any of its subsidiaries or affiliates which he may then possess or
have under his control.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. Executive shall receive a base salary paid by the
Company ("Base Salary") at the annual rate of Two Hundred Thousand Dollars
($200,000) during each calendar year of the Term, payable in substantially equal
monthly installments (or such other more frequent times as executives of the
Company normally are paid). In addition, the Company's Board of Directors or
Option and Compensation Committee of the Board of Directors shall, in good
faith, consider granting increases
2
<PAGE>
in the Base Salary based on such factors as Executive's performance and the
growth and/or profitability of the Company, but the Company shall have no
obligation to grant such increases in compensation.
(b) BONUS PAYMENTS. Executive shall be entitled to receive, in
addition to the Base Salary, such bonus payments, if any, as the Board of
Directors or the Option and Compensation Committee of the Board of Directors may
specify.
(c) EXPENSES. During the term of his employment hereunder, Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures established by
the Board of Directors for its senior executive officers) in performing services
hereunder, provided that Executive properly accounts therefor in accordance with
Company policy.
(d) OTHER BENEFITS. The Company shall not make any changes in any
employee benefit plans or other arrangements in effect on the date hereof or
subsequently in effect in which Executive currently or in the future
participates (including, without limitation, each pension and retirement plan,
supplemental pension and retirement plan, savings and profit sharing plan, stock
or unit ownership plan, stock or unit purchase plan, stock or unit option plan,
life insurance plan, medical insurance plan, disability plan, dental plan,
health-and-accident plan, or any other similar plan or arrangement) that would
adversely affect Executive's rights or benefits thereunder, unless such change
occurs pursuant to a program applicable to all executives of the Company and
does not result in a proportionately greater reduction in the rights of or
benefits to Executive as compared with any other executive of the Company.
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or other arrangement made available by the Company now or
in the future to its senior executive officers and key management employees,
subject to and on a basis consistent with the terms, conditions, and overall
administration of such plan or arrangement. Nothing paid to Executive under any
plan or arrangement presently in effect or made available in the future shall be
deemed to be in lieu of the Base Salary payable to Executive pursuant to
paragraph (a) of this Section 3.
(e) VACATIONS. Executive shall be entitled to twenty (20) paid
vacation days in each calendar year commencing on or after January 1, 1998, or
such additional number as may be determined by the Board of Directors from time
to time. For purposes of this Section 3(e), weekends shall not count as
vacation days and Executive shall also be entitled to all paid holidays given by
the Company to its senior executive officers.
(f) PERQUISITES. Executive shall be entitled to receive the
perquisites and fringe benefits appertaining to senior executive officers of the
Company in accordance with any practice established by the Board of Directors.
In the event Executive's employment hereunder is terminated (whether by
Executive or the Company) for any reason whatsoever (other than Executive's
death), then the Company shall, at Executive's written request and to the extent
permitted by the terms of such policies and applicable law, assign and convey to
Executive any life insurance policies maintained by the Company on the life of
Executive, who shall thereafter be solely responsible, at his election, to pay
all premiums payable after such assignment and conveyance to maintain the
coverage under such policies with respect to Executive. Executive shall not be
required to pay any money or other consideration to the Company upon such
assignment and conveyance, it being acknowledged and agreed by the parties
hereto that Executive's execution and delivery hereof constitute adequate and
satisfactory consideration for such assignment and conveyance.
3
<PAGE>
(g) PRORATION. Any payments or benefits payable to Executive
hereunder in respect of any calendar year during which Executive is employed by
the Company for less than the entire year, unless otherwise provided in the
applicable plan or arrangement, shall be prorated in accordance with the number
of days in such calendar year during which he is so employed.
4. EXECUTIVE'S OFFICE AND RELOCATION. Executive shall primarily perform
his duties and responsibilities hereunder at the Company's offices located at
312 Union Wharf, Boston, Massachusetts (or at such other location within the
Boston, Massachusetts, metropolitan area, to which the Company may in the future
relocate such principal executive offices), except for reasonable required
travel on the Company's business. If the Company requests Executive to report
for the performance of his services hereunder on a regular or permanent basis at
any location or office more than thirty-five (35) miles from 312 Union Wharf,
Boston, Massachusetts, and Executive agrees to such change, the Company shall
pay Executive's reasonable relocation and moving expenses, including, but not
limited to, the cost of moving his immediate family, expenses incurred while
seeking new housing (including travel by Executive's spouse) and temporary
living expenses incurred by Executive or his family for up to one hundred eighty
(180) days.
5. TERMINATION. Executive's employment hereunder may be terminated by
the Company or Executive, as applicable, without any breach of this Agreement,
only under the following circumstances.
(a) DEATH. Executive's employment hereunder shall terminate upon his
death.
(b) DISABILITY. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been unable, with reasonable
accommodation, to perform the essential functions of his duties and
responsibilities hereunder on a full time basis for one hundred eighty (180)
consecutive calendar days, and within thirty (30) days after written notice of
termination is given (which may occur before or after the end of such one
hundred eighty (180) day period) Executive shall not have returned to the
performance of his material managerial duties and responsibilities hereunder on
a full time basis, the Company may terminate Executive's employment hereunder.
(c) CAUSE. Subject to the provisions of Section 7(d), the Company
may terminate Executive's employment hereunder for Cause. For purposes of this
Agreement, the Company shall have "Cause" to terminate Executive's employment
hereunder upon:
(1) Executive's willful or intentional failure to perform
Executive's material duties and responsibilities hereunder
(other than any such failure resulting from Executive's
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason (as hereinafter defined) by
Executive);
(2) The commission by Executive of dishonesty or fraud of a
material nature in connection with the performance of his
duties hereunder, intentional violation of law or
governmental regulation of a material nature in connection
with the performance of his duties hereunder, or willful or
intentional misconduct of a material nature in connection
with the performance of his duties hereunder;
4
<PAGE>
(3) Unprofessional or unethical conduct of a material nature by
Executive in connection with the performance of his duties
hereunder as determined in a final adjudication of any
board, institution, organization or governmental agency
having any privilege or right to pass upon the conduct of
Executive;
(4) Intentional or willful conduct by Executive which is
materially detrimental to the reputation, character,
business, or standing of the Company; or
(5) The continued breach by Executive of any of Executive's
material obligations under this Agreement.
(d) TERMINATION BY EXECUTIVE. Subject to the provisions of Section
7(c), and at his option, Executive may terminate his employment hereunder (1)
for Good Reason, or (2) if his health should become impaired to an extent that
makes the continued performance of his duties hereunder hazardous to his
physical or mental health or his life.
For purposes of this Agreement, the termination of Executive's employment
hereunder by Executive because of the occurrence of any one or more of the
following events within six (6) months following a Change in Control (as
hereinafter defined) shall be deemed to have occurred for "Good Reason":
(A) a material change in the nature or scope of Executive's
authorities, status, powers, functions, duties,
responsibilities, or reporting relationships that is
determined by Executive in good faith to be adverse to those
existing before such change;
(B) any removal by the Company of Executive from, or any failure
to reelect Executive to, the positions indicated in Section
1 hereof except in connection with termination of
Executive's employment for Cause or disability;
(C) a reduction in Executive's Base Salary or any other failure
by the Company to comply with Section 3 hereof that is not
consented to or approved by Executive;
(D) the relocation of Executive's office at which he is to
perform his duties and responsibilities hereunder to a
location outside of the Boston, Massachusetts, metropolitan
area, or a materially adverse alteration in the office space
within which Executive is to perform his duties and
responsibilities hereunder or in the secretarial and
administrative support provided to Executive; or
(E) a failure by the Company or any subsidiary or affiliate of
the Company to comply with any other material term or
provision hereof or of any other written agreement between
Executive and the Company or any such subsidiary or
affiliate.
5
<PAGE>
As used herein, "Change in Control" shall have the meaning set forth
in the Concentra Managed Care, Inc. 1997 Long-Term Incentive Plan.
6. COMPENSATION UPON TERMINATION. Executive shall be entitled to the
following compensation from the Company upon the termination of his employment.
(a) DEATH. If Executive's employment shall be terminated by reason
of his death, the Company shall pay to such person as shall have been designated
in a notice filed with the Company prior to Executive's death, or, if no such
person shall be designated, to his estate as a death benefit, his Base Salary to
the date of his death in addition to any payments Executive's spouse,
beneficiaries, or estate may be entitled to receive pursuant to any pension or
employee benefit plan or other arrangement or life insurance policy maintained
by the Company. In addition, (x) the Company shall make payments of premiums to
continue the medical and dental insurance coverage of Executive's spouse and
children under age twenty-five (25) as in effect at and as of the date of
Executive's death (or to provide as similar coverage as possible for the same
premiums if the continuation of existing coverage is not permitted) for one (1)
year after the date of Executive's death, in each case to the extent such
coverage is available, and (y) the Company shall make a lump sum cash payment to
the appropriate insurance company(ies) in an amount sufficient to fully fund
future premium payments pursuant to Executive's then existing second-to-die,
split-dollar insurance policy(ies) obtained through the Company and/or
OccuSystems, Inc.
(b) DISABILITY. During any period that Executive fails to perform
his material managerial duties and responsibilities hereunder as a result of
incapacity due to physical or mental illness, Executive shall continue to
receive his Base Salary and any bonus payments until Executive's employment is
terminated pursuant to Section 5(b) hereof or until Executive terminates his
employment pursuant to Section 5(d)(2) hereof, whichever first occurs. After
such termination, the Company shall pay to Executive, on or before the fifth day
following the Date of Termination (as hereinafter defined) his Base Salary to
the Date of Termination. In addition, (x) the Company shall make payments of
premiums as necessary to cause Executive and Executive's spouse and children
under age twenty-five (25) to continue to be covered by the medical and dental
insurance as in effect at and as of the Date of Termination (or to provide as
similar coverage as possible for the same premiums if the continuation of
existing coverage is not permitted) for one (1) year after the Date of
Termination, in each case to the extent such coverage is available, and (y) the
Company shall make a lump sum cash payment to the appropriate insurance
company(ies) in an amount sufficient to fully fund future premium payments
pursuant to Executive's then existing second-to-die, split-dollar insurance
policy(ies) obtained through the Company and/or OccuSystems, Inc.
(c) CAUSE. If Executive's employment shall be terminated for Cause,
the Company shall pay Executive his Base Salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given. Such payments
shall fully discharge the Company's obligations hereunder.
(d) BREACH BY THE COMPANY, FOR GOOD REASON, OR UPON FAILURE TO RENEW
FOLLOWING A CHANGE IN CONTROL. If (1) in breach of this Agreement, the Company
shall terminate Executive's employment (it being understood that a purported
termination of Executive's employment by the Company pursuant to any provision
of this Agreement that is disputed and finally determined not to have been
proper shall be a termination by the Company in breach of this Agreement), or
(2) Executive shall terminate his employment for Good Reason, or (3) following a
Change in Control, the Company shall give Executive notice pursuant to Section 1
prior to any anniversary of the date hereof that the
6
<PAGE>
Term of this Agreement shall not be automatically extended for an additional
year on any such anniversary date, then the Company shall pay Executive:
(A) his Base Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given;
(B) in lieu of any further salary payments to Executive for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to Executive, commencing on or before the fifth day
following the Date of Termination and on the fifth day of each of
the eleven (11) months thereafter (amounting to a total of twelve
(12) months), an amount equal to one-twelfth (1/12) of
Executive's annual Base Salary at the rate in effect at the time
the Notice of Termination is given; and
(C) all benefits payable under the terms of any employee benefit plan
or other arrangement as of the Date of Termination.
In addition, (x) the Company shall make payments of premiums as necessary
to cause Executive and Executive's spouse and children under age twenty-five
(25) to continue to be covered by the medical and dental insurance as in effect
at and as of the Date of Termination (or to provide as similar coverage as
possible for the same premiums if the continuation of existing coverage is not
permitted) for one (1) year after the Date of Termination, in each case to the
extent such coverage is available, and (y) the Company shall make a lump sum
cash payment to the appropriate insurance company(ies) in an amount sufficient
to fully fund future premium payments pursuant to Executive's then existing
second-to-die, split-dollar insurance policy(ies) obtained through the Company
and/or OccuSystems, Inc.
(e) MITIGATION. Executive shall not be required to mitigate the amount of
any payment provided for in this Section 6 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Section 6 be
reduced by any compensation earned by Executive as the result of employment by
another employer after the Date of Termination, or otherwise.
7. OTHER PROVISIONS RELATING TO TERMINATION.
(a) NOTICE OF TERMINATION. Any termination of Executive's employment
by the Company or by Executive (other than termination because of the death of
Executive) shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(b) DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean: (1) if Executive's employment is terminated by his
death, the date of his death; (2) if Executive's employment is terminated
because of a disability pursuant to Section 5(b), then thirty (30) days after
Notice of Termination is given (provided that Executive shall not have returned
to the performance of his duties on a full-time basis during such thirty (30)
day period); (3) if Executive's employment is terminated by the Company for
Cause or by Executive for Good Reason, then, subject to Sections 7(c) and 7(d),
the date specified in the Notice of Termination; (4) if the Company gives
7
<PAGE>
Executive notice pursuant to Section 1 prior to any anniversary of the date
hereof that the Term of this Agreement shall not be automatically extended for
an additional year on any such anniversary date, the date upon which the Term
expires; and (5) if Executive's employment is terminated for any other reason,
the date on which a Notice of Termination is given.
(c) GOOD REASON. Upon the occurrence of an event described in
clauses (A) through (E) of Section 5(d), Executive may terminate his employment
hereunder for Good Reason within one hundred eighty (180) days thereafter by
giving a Notice of Termination to the Company to that effect. If the effect of
the occurrence of the event described in clauses (A) through (E) of Section 5(d)
may be cured, the Company shall have the opportunity to cure any such effect for
a period of thirty (30) days following receipt of Executive's Notice of
Termination. If the Company fails to cure any such effect, the termination for
Good Reason shall become effective on the date specified in Executive's Notice
of Termination. If Executive does not give such Notice of Termination to the
Company, then this Agreement will remain in effect; PROVIDED, HOWEVER, that the
failure of Executive to terminate this Agreement for Good Reason shall not be
deemed a waiver of Executive's right to terminate his employment for Good Reason
upon the occurrence of a subsequent event described in clauses (A) through (E)
of Section 5(d) in accordance with the terms of this Agreement.
(d) CAUSE. In the case of any termination of Executive for Cause,
the Company will give Executive a Notice of Termination describing in reasonable
detail, the facts or circumstances giving rise to Executive's termination (and,
if applicable, the action required to cure same) and will permit Executive
thirty (30) days to cure such failure to comply or perform. Cause for
Executive's termination will not be deemed to exist until the expiration of the
foregoing cure period, so long as Executive continues to use his best efforts
during the cure period to cure such failure. If within thirty (30) days
following Executive's receipt of a Notice of Termination for Cause (1) Executive
delivers written notice to the Company denying that Cause exists, the question
of the existence or nonexistence of Cause will be submitted for arbitration in
accordance with Section 10; or (2) if Executive has not cured the facts or
circumstances giving rise to Executive's termination for Cause and shall not
have delivered a notice pursuant to clause (1) of this Section 7(d), then
Executive's termination for Cause shall be effective as of the date specified in
the Notice of Termination.
(e) INTEREST. Until paid, all past due amounts required to be paid
by the Company under any provision of this Agreement shall bear interest at the
highest non-usurious rate permitted by applicable federal, state, or local law.
8. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS. This Agreement shall be binding upon, and inure to
the benefit of, the Company, Executive, and their respective successors,
assigns, personal and legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees, as applicable.
(b) ASSUMPTION. The Company will require any successor (whether
direct or indirect, by purchase of securities, merger, consolidation, sale of
assets, or otherwise) to all or substantially all of the business or assets of
the Company, by an agreement in form and substance reasonably satisfactory to
Executive, to expressly assume this Agreement and to agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Executive to
compensation from the
8
<PAGE>
Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(c) CERTAIN PAYMENTS. If Executive should die while any amounts
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Executive's devisee, legatee, or other designee or,
if there be no such designee, to Executive's estate.
9. NOTICE. For purposes of this Agreement, all notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when (a) delivered personally, (b) sent by
facsimile or similar electronic device and confirmed, (c) delivered by overnight
express, or (d) if sent by any other means, upon receipt. Notices and all other
communications provided for in this Agreement shall be addressed as follows:
If to Executive:
81 Immokolee Drive
Portsmouth, Rhode Island 03640
If to the Company:
Concentra Managed Care, Inc.
312 Union Wharf
Boston, Massachusetts 02109
Fax No.: (617) 367-8519
Attention: Chief Executive Officer
With a copy to:
Concentra Managed Care, Inc.
5080 Spectrum Drive, Suite 400 - West Tower
Dallas, Texas 75248
Fax No.: (972) 387-1938
Attention: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
10. DISPUTES. In the event any dispute or controversy arises under this
Agreement and is not resolved by mutual written agreement between Executive and
the Company within thirty (30) days after notice of the dispute is first given,
then, upon the written request of Executive or the Company, such dispute or
controversy shall be submitted to arbitration, which arbitration shall be
conducted in accordance with the rules of the American Arbitration Association.
Judgment may be entered thereon and the results of arbitration will be binding
and conclusive on the parties hereto. Any arbitrator's award or finding or any
judgment or verdict thereon will be final and unappealable. All parties agree
that venue for arbitration will be in the city specified in Section 4, and that
any arbitration commenced in any other venue will be transferred to such venue,
upon the written request of any party to this Agreement. The prevailing party
will be entitled to reimbursement for reasonable attorneys fees, costs, or other
expenses pertaining to the arbitration and the enforcement thereof and such
attorneys fees, costs, or other expenses shall become a part of any award,
judgment, or verdict. All arbitrations will have three
9
<PAGE>
individuals acting as arbitrators: one arbitrator will be selected by
Executive, one arbitrator will be selected by the Company, and the two
arbitrators so selected will select a third arbitrator. Any arbitrator
selected by a party will not be affiliated with, associated with, or related
to the party selecting that arbitrator in any matter whatsoever. The
decision of the majority of the arbitrators will be binding on all parties.
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in a written instrument signed by Executive and the Company. No waiver by
either party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Delaware, excluding any choice-of-law
provisions thereof.
12. ATTORNEY FEES. Except as otherwise provided in Section 10, all legal
fees and costs incurred by Executive in connection with the resolution of any
dispute or controversy under or in connection with this Agreement shall be
reimbursed by the Company to Executive as bills for such services are presented
by Executive to the Company, unless such dispute or controversy is found to have
been brought not in good faith or without merit by a court of competent
jurisdiction.
13. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same agreement.
15. ENTIRE AGREEMENT; EFFECTIVENESS. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes any and all prior employment agreements and/or severance
protection letters, agreements, or arrangements between Executive, on the one
hand, and the Company, CRA Managed Care, Inc., or any other predecessor in
interest thereto or any of their respective subsidiaries, on the other hand.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
COMPANY:
CONCENTRA MANAGED CARE, INC.
a Delaware corporation
By: /s/ Donald J. Larson
------------------------------------------
Donald J. Larson
President and Chief Executive Officer
EXECUTIVE:
/s/ Kenneth Loffredo
------------------------------------------
Kenneth Loffredo
10
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