SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported) September 16, 1996.
HEALTH MANAGEMENT, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-18472 75-2096632
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation or
organization)
1371-A Abbott Court, Buffalo Grove, Illinois 60089
(Address of principal executive offices) (Zip Code)
(800) 648-1975
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Item 5. Other Events.
On September 16, 1996, the Registrant entered into an Employment Agreement
dated as of September 9, 1996 (the "Employment Agreements") with each of James
R. Mieszala, the Chief Operating Officer of the Registrant, and Paul S.
Jurewicz, the Chief Financial Officer, an Executive Vice President, the
Treasurer and an Assistant Secretary of the Registrant (the "Executives"). The
Employment Agreements replaced the original employment agreements of the
Executives. A copy of the Employment Agreements are attached to this Form 8-K
as Exhibits 10.1 and 10.2, respectively, and are incorporated herein by
reference.
On September 17, 1996 the Registrant announced that it had signed a
Stipulation of Partial Settlement providing for the settlement of all the
pending shareholder class action lawsuits filed against the Registrant, and that
preliminary court approval had been obtained in the United States District Court
for the Eastern District of New York. The Stipulation of Partial Settlement
provides for, among other things, the payment of $2,000,000 in cash, the
issuance of 2,200,000 shares of Common Stock of the Registrant and warrants to
purchase 2,200,000 shares of Common Stock. A hearing for final approval is
currently scheduled for November 8, 1996. A copy of the Stipulation of Partial
Settlement is attached to this Form 8-K as Exhibit 10.3 and is incorporated
herein by reference.
On each of September 16, 1996 and September 17, 1996, the Registrant issued
a press release, a copy of each of which is attached as Exhibits 99.1 and 99.2,
respectively, to this Form 8-K and each is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit Number Description
10.1 Employment Agreement dated as of September 9, 1996 between
Health Management, Inc. and James R. Mieszala.
10.2 Employment Agreement dated as of September 9, 1996 between
Health Management, Inc. and Paul S. Jurewicz.
10.3 Stipulation of Partial Settlement dated September 16, 1996
between Health Management, Inc. and the Representative
Plaintiffs.
99.1 Press release dated September 16, 1996 issued by the
Registrant.
99.2 Press release dated September 17, 1996 issued by the
Registrant.
SIGNATURES
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.
HEALTH MANAGEMENT, INC.
(Registrant)
Date: September __, 1996
/s/ W. James Nicol
Name: W. James Nicol
Its: President
Index to Exhibits
Exhibit Sequential
Number Description Page No.
10.1 Employment Agreement dated as of
September 9, 1996 between Health
Management, Inc. and James R. Mieszala
10.2 Employment Agreement dated as of
September 9, 1996 between Health
Management, Inc. and Paul S. Jurewicz
10.3 Stipulation of Partial Settlement dated
September 16, 1996 between Health
Management, Inc. and the Representative
Plaintiffs.
99.1 Press release dated September 16, 1996
issued by the Registrant.
99.2 Press release dated September 17, 1996
issued by the Registrant.
Exhibit 10.1
HEALTH MANAGEMENT, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of September
9, 1996, by and between Health Management, Inc., a Delaware corporation (the
"Company"), and James R. Mieszala (the "Executive").
WHEREAS, Home Care Management, Inc., a New York corporation wholly-owned by
the Company entered into an employment agreement with the Executive, dated as of
January 8, 1996 (the "Original Agreement"); and
WHEREAS, the nature of the Executive's duties and responsibilities related
to the Company and its subsidiaries have expanded since the date of the Original
Agreement; and
WHEREAS, the Executive's compensation and stock options have been modified
by the Executive Committee of the Board of Directors of the Company since the
date of the Original Agreement; and
WHEREAS, the Company desires to memorialize the Executive's current
arrangement with the Company and to provide further incentives to the Executive
on the terms and conditions set forth below in place of the terms and conditions
set forth in the Original Agreement.
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. The Executive will serve as Chief Operating
Officer of the Company. The duties and responsibilities of the Executive shall
include the duties and responsibilities of the chief operating officer of a
company whose securities are publicly traded and as set forth in the Company's
Bylaws from time to time in effect and such other duties and responsibilities as
the board of directors of the Company (the "Board of Directors") may from time
to time reasonably assign the Executive, in all cases to be consistent with the
Executive's corporate offices and positions. The Executive shall also serve as
an officer and/or director of affiliates of the Company, without additional
compensation, if requested to do so by the Board of Directors. The Executive
shall perform faithfully the executive duties assigned to him to the best of his
ability.
2. Employment Period.
(a) Term. The term of this Agreement shall extend from the date
hereof until April 30, 1998.
(b) Evergreen Extension of Agreement. This Agreement shall continue
in full force and effect, following the end of the term hereof, for additional
periods of one year if notice is not given by the Company to the Executive at
least six months in advance of the termination date provided in this Agreement
that this Agreement will terminate on its termination date.
The term of this Agreement shall be the period of time provided in
paragraphs 2(a) and 2(b) hereof and herein shall be referred to as the "Term."
(c) Involuntary Termination. The Company may terminate the
Executive's employment at any time. If the Company terminates the Executive's
employment for any reason other than Cause or Disability, each as defined below,
the provisions of paragraphs 12(a)(i), 12(b) and 12(c) shall apply. Upon
termination of the Executive's employment with the Company, the Executive's
rights under any applicable benefit plans shall be determined under the
provisions of those plans.
(d) Death. The Executive's employment will terminate in the event of
his death. The Company shall have no obligation to pay or provide any
compensation or benefits under this Agreement on account of the Executive's
death, or for periods following the Executive's death, provided that the
Company's obligations applicable under such circumstance under paragraph
12(a)(iii) shall not be interrupted as a result of the Executive's death. The
Executive's rights under any applicable benefit plans of the Company in the
event of the Executive's death will be determined under the provisions of those
plans.
(e) Disability. The Company may terminate the Executive's employment
for Disability by giving the Executive thirty (30) days advance notice in
writing. For all purposes under this Agreement, "Disability" shall mean that
the Executive, at the time notice is given, has been unable to substantially
perform his duties under this Agreement for a period of not less than ninety
(90) days due to physical or mental illness. The determination of the
Executive's Disability hereunder shall be made by a two-thirds (2/3) majority of
the Company's Board of Directors (excluding the Executive) and shall be based
upon advice from such medical professionals and upon such medical and other
records as the Company's Board of Directors may deem appropriate. In the event
that the Executive resumes the performance of substantially all of his duties
hereunder before the termination of his employment under this subparagraph (e)
becomes effective, the notice of termination shall automatically be deemed to
have been revoked. No compensation or benefits will be paid or provided to the
Executive under this Agreement on account of termination for Disability, or for
periods following the date when such a termination of employment is effective.
The Executive's rights under any applicable benefit plans of the Company shall
be determined under the provisions of those plans.
(f) Cause. The Company may terminate the Executive's employment for
cause by giving the Executive notice in writing. For all purposes under this
Agreement, "Cause" shall mean (i) willful failure by the Executive to perform
his duties hereunder, other than a failure resulting from the Executive's
complete or partial incapacity due to physical or mental illness or impairment,
(ii) gross negligence by the Executive in performing his duties hereunder, other
than negligence resulting from the Executive's complete or partial incapacity
due to physical or mental illness or impairment, (iii) a willful act by the
Executive which constitutes gross misconduct and which is injurious to the
Company, (iv) a violation of a federal or state law or regulation applicable to
the business of the Company. No act, or failure to act, by the Executive shall
be considered "willful" unless committed without good faith without a reasonable
belief that the act or omission was in the Company's best interest. The
determination of Cause hereunder shall be made by a majority of the Company's
Board of Directors. No compensation or benefits will be paid or provided to the
Executive under this Agreement on account of a termination for Cause.
Executive's rights under any applicable benefit plans of the Company shall be
determined under the provisions of those plans.
(g) Resignation for Cause--Change in Control or Diminution in Duties.
In the event that there is a change in Control of the Company (as defined in
Section 6(b) hereof) or in the event that the Board of Directors materially
reduces the scope and/or authority of the Executive's duties as Chief Operating
Officer of the Company, then the Executive may terminate his employment by
giving the Company thirty (30) days advance written notice. In such event, the
provisions of paragraph 12(a)(ii) shall apply and the Executive's rights under
any applicable benefit plans of the Company shall be determined under the
provisions of those plans.
(h) Resignation without Cause. The Executive may terminate his
employment for reasons other than those referred to in paragraph 2(g) hereof by
giving the Company forty-five (45) days advance written notice; provided that in
such event, the Executive will cease his employment immediately or at any time
during such forty-five (45) day period, if so requested by the Board of
Directors. In such event, the provisions of paragraph 12(a)(iii) shall apply
and the Executive's rights under any applicable benefit plans of the Company
shall be determined under the provisions of those plans.
3. Place of Employment. The Executive's services shall be performed at
the Company's principal executive offices in the Chicago, Illinois area,
although the Executive understands that he is expected to travel extensively in
carrying out his duties as Chief Operating Officer of the Company.
4. Base Salary. For all services to be rendered by the Executive
pursuant to this Agreement, the Company agrees to pay the Executive an annual
base salary ("the "Base Salary") of $225,000. The Base Salary shall be paid in
periodic installments in accordance with the Company's regular payroll
practices. The Company agrees to review Executive's Base Salary at least
annually as of the anniversary of the date of this Agreement and to make such
increases therein as the Board of Directors, in its sole discretion, may
approve.
5. Bonus. Beginning with the Company's 1997 fiscal year, and for each
fiscal year thereafter during the term of this Agreement, the Executive will be
eligible to receive an annual bonus (the "Bonus") based upon an Executive
Incentive Compensation Plan to be approved and adopted by the Board of
Directors.
6. Stock Options.
(a) Initial Option. Pursuant to the Company's Shareholder Value
Incentive Compensation Plan, the Company has granted the Executive options (the
"Executive Options") to purchase 200,000 shares of the Company's Common Stock
(the "Executive Option Shares") at $4.975 per share and such options have been
repriced as of the date hereof. Such options shall be exercisable over a period
of seven (7) years from the date of grant. The Executive Options shall vest as
described in paragraph 6(b) below and shall be subject to such other terms and
conditions as are described in paragraph 6(c) below.
(b) Vesting. The Executive Option Shares shall vest and become
exercisable in three equal annual installments beginning on April 3, 1996. In
the event of a Change of Control (as defined below), the unvested portion of the
Executive Options shall automatically accelerate, and the Executive shall have
the right to exercise all or any portion of the Executive Options, in addition
to any portion of the Executive Option exercisable prior to such event. For
purposes of this Agreement, the term "Change of Control" shall mean the
occurrence of any of the following events subsequent to the Effective Date:
(i) Any "person" (such as term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the
Company's then outstanding voting securities; or
(ii) Any merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities (either by
remaining outstanding or by being converted into voting securities of the
Company or such other surviving entity outstanding immediately after such merger
or consolidation); or
(iii) A majority of the directors of the Company which were
not nominated by the Company's management (or were nominated by management
pursuant to an agreement with persons that acquired sufficient voting securities
of the Company to de facto control it) are elected to the Board of Directors by
the Company's shareholders; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(c) Registration of Common Stock underlying the Executive Options.
The Company agrees that the Common Stock underlying the Executive Options shall
be salable concurrent with the Executive's exercise, in whole or in part, of the
Executive Options under an applicable Registration Statement to be filed by the
Company with respect to the Company's Stock Plan, or other applicable
Registration Statement if issued outside of the Stock Plan and that it shall
cause such Registration Statements to be in effect at the time that the
Executive exercises his Executive Options.
7. Expenses. The Executive shall be entitled to reimbursement by the
Company for all reasonable, ordinary, and necessary travel, entertainment, and
other expenses incurred by the Executive during the term of this Agreement (in
accordance with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and responsibilities
under this Agreement; provided, however, that the Executive shall properly
account for such expense in accordance with the Company's policies and
procedures.
8. Benefits. The Executive shall be entitled to participate in employee
benefit plans or programs of the Company, if any, to the extent that his
position, tenure, salary, age, health, and other qualifications make him
eligible to participate, subject to the rules and regulations applicable
thereto. In addition, the Executive shall be entitled to receive an annual
physical examination at Company expense; or at the Company's request, will take
an a physical examination annually and provide the results to the Company.
9. Vacations and Holidays. The Executive shall be entitled to paid
vacation time and Company holidays in accordance with the Company's policies in
effect from time to time for its senior executive officers.
10. Indemnification. The Company shall indemnify the Executive if the
Executive is made a party, or threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that the Executive is or
was an officer or director of the Company or any of its affiliates, in which
capacity the Executive is or was serving at the Company's request, against
expenses (including reasonable attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by the general corporation law of the state of
incorporation of the Company, and any other applicable law, as from time to time
in effect. The provisions of this paragraph shall survive the Term.
11. Other Activities. The Executive shall devote substantially all of his
working time and efforts during the Company s normal business hours to the
business and affairs of the Company and to the diligent and faithful performance
of the duties and responsibilities duly assigned to him pursuant to this
Agreement, except for vacations, holidays and sickness. The Executive may,
however, devote a reasonable amount of his time, in general after the regular
business hours of the Company, to civic, community, or charitable activities.
12. Termination Benefits. In the event the Executive's employment
terminates, then the Executive shall be entitled to receive severance and other
benefits as follows:
(a) Severance.
(i) Involuntary Termination. If the Company terminates the
Executive's employment other than for Disability or Cause, then in lieu of any
severance benefits to which the Executive may otherwise be entitled under any
Company severance plan or program, the Executive shall be entitled to payment of
his entire unpaid Base Salary for the remaining term of this Agreement, which
Base Salary shall be paid to him in periodic installments in accordance with the
Company s regular payroll practices; provided, however, that the Company s
obligations hereunder shall cease upon a breach by the Executive of his
obligations under paragraphs 13, 14, 17 and 19 hereof.
(ii) Resignation; Change in Control; Diminution in Duties. If
the Executive terminates his employment by resignation pursuant to paragraph
2(g) hereof as a result of a Change in Control of the Company or as a result of
the Board of Directors materially reducing the scope and/or authority of the
Executive's duties as Chief Operating Officer of the Company, then in lieu of
any severance benefits to which the Executive may otherwise be entitled under
any Company severance plan or program, the Executive shall be entitled to
payment of his entire unpaid Base Salary for the remaining term of this
Agreement, which Base Salary shall be paid to him in periodic installments in
accordance with the Company s regular payroll practices; provided, however, that
the Company s obligations hereunder shall cease upon a breach by the Executive
of his obligations under paragraphs 13, 14, 17 and 19 hereof.
(iii) Other Termination. In the event the Executive's
employment terminates for any reason other than as described in
paragraph 12(a)(i) or 12(a)(ii) above, including by reason of the Executive's
death or disability or resignation pursuant to paragraph 2(h) hereof, then the
Executive shall be not be entitled to receive any severance payment or any other
benefits, except as are provided in the Company s severance and benefit plans
and policies at the time of such termination.
(b) Options. In the event the Executive's employment is terminated
by the Company as described in paragraph 12(a)(i) above or by the Executive as
described in paragraph 12(a)(ii) above, then the Executive shall be deemed
vested in the unvested portion of the Executive Options and the Executive
Options shall become immediately exercisable with respect to all shares subject
thereto. In the event the Executive's employment is terminated for reasons
other than as described in paragraphs 12(a)(i) and 12(a)(ii), then the unvested
portion of the Executive Options shall not vest and the Executive's interest
therein shall immediately cease.
(c) Bonuses. In the event the Executive's employment is terminated
by the Company as described in paragraph 12(a)(i) above, then the Executive
shall be entitled to receive a portion of the Bonus, computed under the
Company s Executive Incentive Compensation Plan referred to in paragraph 5,
which Bonus will be determined, after the end of the fiscal year, by multiplying
the amount of the Bonus which would have become payable to the Executive had he
remained employed until the end of the fiscal year, by a fraction, the numerator
of which will be the number of days in which the Executive was employed by the
Company in such fiscal year, and the denominator of which shall be the number of
days in such fiscal year. In the event the Executive's employment terminates for
any other reason, then the Executive shall not be entitled to any Bonus which
has not accrued as of such date.
13. Proprietary Information. The Executive shall not, without the prior
written consent of the Board of Directors, disclose or use for any purpose
(except in the course of his employment under this Agreement and in furtherance
of the business of the Company) any confidential information or proprietary data
of the Company. As an express condition of the Executive's employment with the
Company, the Executive agrees to execute confidentiality agreements as requested
by the Company, including but not limited to the Company s standard form of
employee proprietary information agreement.
14. Absence of Conflict. The Executive represents and warrants that his
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
15. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois, in accordance with the rules of the American Arbitration
Association then in effect by an arbitrator selected by both parties within ten
(10) days after either party has notified the other in writing that it desires a
dispute between then to be settled by arbitration. In the event the parties
cannot agree on such arbitrator within such ten (10) day period, each party
shall select an arbitrator and inform the other party in writing of such
arbitrator s name and address within five (5) days after the end of such ten
(10) day period and the two arbitrators so selected shall select a third
arbitrator within fifteen (15) days thereafter; provided, however, that in the
event of a failure by either party to select an arbitrator and notify the other
party of such selection within the time period provided above, the arbitrator
selected by the other party shall be the sole arbitrator of the dispute. Each
party shall pay his or its own expenses associated with such arbitration,
including the expense of any arbitrator selected by such party and the Company
will pay the expenses of the jointly selected arbitrator. The decision of the
arbitrator or a majority of the panel of arbitrators shall be binding upon the
parties and judgment in accordance with that decision may be entered in any
court having jurisdiction thereover. Punitive damages shall not be awarded.
16. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois as applied to agreements
between Illinois residents entered and to be performed entirely within Illinois.
17. Certain Covenants of the Executive.
(a) Covenants Against Competition. The Executive acknowledges that
(i) the principal business of the Company and its affiliates involves the
distribution of pharmaceuticals, the provision of drug therapies, reimbursement
services and other related businesses which the Company and its affiliates
currently operate and which the Company and its affiliates may become involved
with during the Term (collectively, the "Company Business"); (ii) the Company
Business is national in scope; (iii) the Executive's work for the Company will
bring him into close contact with many confidential affairs not readily
available to the public; and (iv) the Company would not enter into this
Agreement but for the agreements and covenants of the Executive contained
herein. In order to induce the Company to enter into this Employment Agreement,
the Executive covenants and agrees that:
(1) Non-Compete. During the Term and for a period of eighteen
(18) months following the termination (whether for cause or otherwise) of the
Executive's employment with the Company or any of its affiliates (the
"Restricted Period"), the Executive shall not, in the United States of America
or in any foreign country, directly or indirectly, (i) engage in the Company
Business for his own account; (ii) enter the employ of, or render any services
to, any person engaged in such activities; or (iii) become interested in any
person engaged in the Company Business, directly or indirectly, as an
individual, partner, shareholder, officer, director, principal, agent, employee,
trustee, consultant or in any other relationship or capacity; provided, however,
that the Executive may own, directly or indirectly, solely as an investment,
securities of any person which are traded on any national securities exchange or
NASDAQ if the Executive (a) is not a controlling person of, or a member of a
group which controls, such person or (b) does not, directly or indirectly, own
1% or more of any class of securities of such person.
(2) Confidential Information. During and after the Restricted
Period, the Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others except in connection with the
business and affairs of the Company, all confidential matters of the Company and
its affiliates. Such confidential matters include, without limitation, trade
secrets, customer lists, subscription lists, details of consultant contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of manufacture, technical processes, designs and
design projects, inventions and research projects of the Company and its
affiliates, learned by the Executive heretofore or hereafter that are
sufficiently secret to have the possibility, whether or not realized, of
deriving economic value from not being generally known to other persons who can
obtain economic value from their disclosure or use, and the Executive shall not
disclose them to anyone outside of the Company and its affiliates, either during
or after employment, by the Company or any of its affiliates, except as required
in the course of performing duties hereunder or with the Company s express
written consent. The Executive's obligations pursuant to this Employment
Agreement shall not extend to matters which are within the public domain or
hereafter enter the public domain through no fault or action or failure to act,
whether directly or indirectly, on the part of the Executive.
(3) Property of the Company. All memoranda, notes, lists,
records and other documents (and all copies thereof) made or compiled by the
Executive or made available to the Executive concerning the business of the
Company or any of its affiliates shall be the Company s property and shall be
delivered to the Company promptly upon the termination of the Executive's
employment with the Company or any of its affiliates or at any other time on
request.
(4) Employees of the Company. During the Restricted Period, the
Executive shall not, directly or indirectly, hire, solicit or encourage to leave
the employment of the Company or any of its affiliates, any employee of the
Company or its affiliates or hire any such employee who has left the employment
of the Company or any of its affiliates within one year of the termination of
such employee s employment with the Company or any of its affiliates.
(5) Consultants and Independent Contractors of the Company.
During the Restricted Period, the Executive shall not, directly or indirectly,
hire, solicit or encourage to cease to work with the Company or any of its
affiliates, any consultant, social worker, registered nurse, sales
representative or other person then under contract with the Company or any of
its affiliates.
(b) Rights and Remedies Upon Breach. If the Executive breaches, or
threatens to commit a breach of, any of the provisions of Section 17(a) (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
(1) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and its
affiliates and that money damages will not provide an adequate remedy to the
Company.
(2) Accounting. The right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by the Executive as the result of any transactions constituting a
breach of any of the Restrictive Covenants, and the Executive shall account for
and pay over such Benefits to the Company.
(c) Severability of Covenants. If any court determines that any of
the Restrictive Covenants, or any parts thereof, are invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
(d) "Blue-Penciling". If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration of
such provision or the area covered thereby, such court shall have the power to
reduce the duration or area of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
(e) Enforceability in Jurisdictions. The parties intend to and
hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts
of any jurisdiction within the geographical scope of such Restrictive Covenants.
If the courts of any one or more of such jurisdictions hold the Restrictive
Covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the Company s right to the relief provided above in the courts
of any other jurisdiction within the geographical scope of such Restrictive
Covenants, as to breaches of such Restrictive Covenants in such other respective
jurisdictions, such Restrictive Covenants as they relate to each jurisdiction
being, for this purpose, severable into diverse and independent covenants.
18. Successors. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and 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 assumption agreement
prior to the effectiveness of any such succession shall entitle the Executive to
the benefits described in paragraphs 12(a)(i), 12(b) and 12(c) of this
Agreement, subject to the terms and conditions therein.
19. Assignment. This Agreement and all rights under this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and assigns.
This Agreement is personal in nature, and, except as provided in paragraph 18
hereof, neither of the parties to this Agreement shall, without the written
consent of the other, assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. If the Executive
should die while any amounts are still payable to the Executive hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
20. Notices. For purposes of this Agreement, notices and other
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: James R. Mieszala
21335 Cliffside Drive
Kildeer, IL 60047
If to the Company: Health Management, Inc.
1371-A Abbott Court
Buffalo Grove, Illinois 60089
Attention: Chairman of the
Board of Directors
with a copy to:
McDermott, Will & Emery
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl V. Reicin, Esq.
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this paragraph. Such notices or other communications shall be effective upon
delivery or, if earlier, three (3) days after they have been mailed as provided
above.
21. Waiver. Failure or delay on the part of either party hereto to
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver hereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
22. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed, and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision had never been contained herein.
23. Right to Advice of Counsel. The Executive acknowledges that he has
consulted with counsel and is fully aware of his rights and obligations under
this Agreement.
24. Counterparts. This Agreement may be executed in one or more
counterparts, none of which need contain the signature of more than one party
hereto, and each of which shall be deemed to be an original, and all of such
together shall constitute a single agreement.
25. Integration. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter hereof and supersedes
all prior or contemporaneous agreements whether written or oral, including,
without limitation, the Original Agreement. No waiver, alteration, or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by duly authorized representatives of the parties hereto.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, on the day set opposite its
name below.
Date Agreement Executed "COMPANY"
Health Management, Inc.
September 16, 1996 By: /s/ Andre C. Dimitriadis
Andre C. Dimitriadis, Chairman of the Board
"EXECUTIVE"
September 16, 1996 /s/ James R. Mieszala
James R. Mieszala
Exhibit 10.2
HEALTH MANAGEMENT, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of September 9,
1996, by and between Health Management, Inc., a Delaware corporation (the
"Company"), and Paul S. Jurewicz (the "Executive").
WHEREAS, The Company entered into an employment agreement with the Executive,
dated as of December 18, 1995 (the "Original Agreement"); and
WHEREAS, the nature of the Executive's duties and responsibilities related to
the Company and its subsidiaries have expanded since the date of the Original
Agreement; and
WHEREAS, the Executive's compensation and stock options have been modified by
the Executive Committee of the Board of Directors of the Company since the date
of the Original Agreement; and
WHEREAS, the Company desires to memorialize the Executive's current
arrangement with the Company and to provide further incentives to the Executive
on the terms and conditions set forth below in place of the terms and conditions
set forth in the Original Agreement.
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. The Executive will serve as Chief Financial
Officer and Executive Vice President of the Company. The duties and
responsibilities of the Executive shall include the duties and responsibilities
of the chief financial officer and executive vice president of a company whose
securities are publicly traded and as set forth in the Company s Bylaws from
time to time in effect and such other duties and responsibilities as the board
of directors of the Company (the "Board of Directors") may from time to time
reasonably assign the Executive, in all cases to be consistent with the
Executive's corporate offices and positions. The Executive shall also serve as
an officer and/or director of affiliates of the Company, without additional
compensation, if requested to do so by the Board of Directors. The Executive
shall perform faithfully the executive duties assigned to him to the best of his
ability.
2. Employment Period.
(a) Term. The term of this Agreement shall extend from the date
hereof until April 30, 1998.
(b) Evergreen Extension of Agreement. This Agreement shall continue
in full force and effect, following the end of the term hereof, for additional
periods of one year if notice is not given by the Company to the Executive at
least six months in advance of the termination date provided in this Agreement
that this Agreement will terminate on its termination date.
The term of this Agreement shall be the period of time provided in
paragraphs 2(a) and 2(b) hereof and herein shall be referred to as the "Term."
(c) Involuntary Termination. The Company may terminate the
Executive's employment at any time. If the Company terminates the Executive's
employment for any reason other than Cause or Disability, each as defined below,
the provisions of paragraphs 12(a)(i), 12(b) and 12(c) shall apply. Upon
termination of the Executive's employment with the Company, the Executive's
rights under any applicable benefit plans shall be determined under the
provisions of those plans.
(d) Death. The Executive's employment will terminate in the event of
his death. The Company shall have no obligation to pay or provide any
compensation or benefits under this Agreement on account of the Executive's
death, or for periods following the Executive's death, provided that the
Company s obligations applicable under such circumstance under paragraph
12(a)(iii) shall not be interrupted as a result of the Executive's death. The
Executive's rights under any applicable benefit plans of the Company in the
event of the Executive's death will be determined under the provisions of those
plans.
(e) Disability. The Company may terminate the Executive's employment
for Disability by giving the Executive thirty (30) days advance notice in
writing. For all purposes under this Agreement, "Disability" shall mean that
the Executive, at the time notice is given, has been unable to substantially
perform his duties under this Agreement for a period of not less than ninety
(90) days due to physical or mental illness. The determination of the
Executive's Disability hereunder shall be made by a two-thirds (2/3) majority of
the Company s Board of Directors (excluding the Executive) and shall be based
upon advice from such medical professionals and upon such medical and other
records as the Company s Board of Directors may deem appropriate. In the event
that the Executive resumes the performance of substantially all of his duties
hereunder before the termination of his employment under this subparagraph (e)
becomes effective, the notice of termination shall automatically be deemed to
have been revoked. No compensation or benefits will be paid or provided to the
Executive under this Agreement on account of termination for Disability, or for
periods following the date when such a termination of employment is effective.
The Executive's rights under any applicable benefit plans of the Company shall
be determined under the provisions of those plans.
(f) Cause. The Company may terminate the Executive's employment for
cause by giving the Executive notice in writing. For all purposes under this
Agreement, "Cause" shall mean (i) willful failure by the Executive to perform
his duties hereunder, other than a failure resulting from the Executive's
complete or partial incapacity due to physical or mental illness or impairment,
(ii) gross negligence by the Executive in performing his duties hereunder, other
than negligence resulting from the Executive's complete or partial incapacity
due to physical or mental illness or impairment, (iii) a willful act by the
Executive which constitutes gross misconduct and which is injurious to the
Company, (iv) a violation of a federal or state law or regulation applicable to
the business of the Company. No act, or failure to act, by the Executive shall
be considered "willful" unless committed without good faith without a reasonable
belief that the act or omission was in the Company s best interest. The
determination of Cause hereunder shall be made by a majority of the Company s
Board of Directors. No compensation or benefits will be paid or provided to the
Executive under this Agreement on account of a termination for Cause.
Executive's rights under any applicable benefit plans of the Company shall be
determined under the provisions of those plans.
(g) Resignation for Cause--Change in Control or Diminution in Duties.
In the event that there is a change in Control of the Company (as defined in
Section 6(b) hereof) or in the event that the Board of Directors materially
reduces the scope and/or authority of the Executive's duties as Chief Financial
Officer and Executive Vice President of the Company, then the Executive may
terminate his employment by giving the Company thirty (30) days advance written
notice. In such event, the provisions of paragraph 12(a)(ii) shall apply and
the Executive's rights under any applicable benefit plans of the Company shall
be determined under the provisions of those plans.
(h) Resignation without Cause. The Executive may terminate his
employment for reasons other than those referred to in paragraph 2(g) hereof by
giving the Company forty-five (45) days advance written notice; provided that in
such event, the Executive will cease his employment immediately or at any time
during such forty-five (45) day period, if so requested by the Board of
Directors . In such event, the provisions of paragraph 12(a)(iii) shall apply
and the Executive's rights under any applicable benefit plans of the Company
shall be determined under the provisions of those plans.
3. Place of Employment. The Executive's services shall be performed at
the Company s principal executive offices in the Chicago, Illinois area,
although the Executive understands that he is expected to travel extensively in
carrying out his duties as Chief Financial Officer and Executive Vice President
of the Company.
4. Base Salary. For all services to be rendered by the Executive
pursuant to this Agreement, the Company agrees to pay the Executive an annual
base salary ("the "Base Salary") of $180,000. The Base Salary shall be paid in
periodic installments in accordance with the Company's regular payroll
practices. The Company agrees to review Executive's Base Salary at least
annually as of the anniversary of the date of this Agreement and to make such
increases therein as the Board of Directors, in its sole discretion, may
approve.
5. Bonus. Beginning with the Company s 1997 fiscal year, and for each
fiscal year thereafter during the term of this Agreement, the Executive will be
eligible to receive an annual bonus (the "Bonus") based upon an Executive
Incentive Compensation Plan to be approved and adopted by the Board of
Directors.
6. Stock Options.
(a) Initial Option. Pursuant to the Company's Shareholder Value
Incentive Compensation Plan, the Company has granted the Executive options (the
"Executive Options") to purchase 200,000 shares of the Company s Common Stock
(the "Executive Option Shares") at $4.975 per share and such options have been
repriced as of the date hereof. Such options shall be exercisable over a period
of seven (7) years from the date of grant. The Executive Options shall vest as
described in paragraph 6(b) below and shall be subject to such other terms and
conditions as are described in paragraph 6(c) below.
(b) Vesting. The Executive Option Shares shall vest and become
exercisable in three equal annual installments beginning on April 3, 1996. In
the event of a Change of Control (as defined below), the unvested portion of the
Executive Options shall automatically accelerate, and the Executive shall have
the right to exercise all or any portion of the Executive Options, in addition
to any portion of the Executive Option exercisable prior to such event. For
purposes of this Agreement, the term "Change of Control" shall mean the
occurrence of any of the following events subsequent to the Effective Date:
(i) Any "person" (such as term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the
Company s then outstanding voting securities; or
(ii) Any merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent fifty percent (50%) or more of the total voting power
represented by the Company s then outstanding voting securities (either by
remaining outstanding or by being converted into voting securities of the
Company or such other surviving entity outstanding immediately after such merger
or consolidation); or
(iii) A majority of the directors of the Company which were
not nominated by the Company s management (or were nominated by management
pursuant to an agreement with persons that acquired sufficient voting securities
of the Company to de facto
control it) are elected to the Board of Directors by the Company s shareholders;
or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company s assets.
(c) Registration of Common Stock underlying the Executive Options.
The Company agrees that the Common Stock underlying the Executive Options shall
be salable concurrent with the Executive's exercise, in whole or in part, of the
Executive Options under an applicable Registration Statement to be filed by the
Company with respect to the Company s Stock Plan, or other applicable
Registration Statement if issued outside of the Stock Plan and that it shall
cause such Registration Statements to be in effect at the time that the
Executive exercises his Executive Options.
7. Expenses. The Executive shall be entitled to reimbursement by the
Company for all reasonable, ordinary, and necessary travel, entertainment, and
other expenses incurred by the Executive during the term of this Agreement (in
accordance with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and responsibilities
under this Agreement; provided, however, that the Executive shall properly
account for such expense in accordance with the Company s policies and
procedures.
8. Benefits. The Executive shall be entitled to participate in employee
benefit plans or programs of the Company, if any, to the extent that his
position, tenure, salary, age, health, and other qualifications make him
eligible to participate, subject to the rules and regulations applicable
thereto. In addition, the Executive shall be entitled to receive an annual
physical examination at Company expense; or at the Company s request, will take
an a physical examination annually and provide the results to the Company.
9. Vacations and Holidays. The Executive shall be entitled to paid
vacation time and Company holidays in accordance with the Company s policies in
effect from time to time for its senior executive officers.
10. Indemnification. The Company shall indemnify the Executive if the
Executive is made a party, or threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that the Executive is or
was an officer or director of the Company or any of its affiliates, in which
capacity the Executive is or was serving at the Company's request, against
expenses (including reasonable attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by the general corporation law of the state of
incorporation of the Company, and any other applicable law, as from time to time
in effect. The provisions of this paragraph shall survive the Term.
11. Other Activities. The Executive shall devote substantially all of his
working time and efforts during the Company s normal business hours to the
business and affairs of the Company and to the diligent and faithful performance
of the duties and responsibilities duly assigned to him pursuant to this
Agreement, except for vacations, holidays and sickness. The Executive may,
however, devote a reasonable amount of his time, in general after the regular
business hours of the Company, to civic, community, or charitable activities.
12. Termination Benefits. In the event the Executive's employment
terminates, then the Executive shall be entitled to receive severance and other
benefits as follows:
(a) Severance.
(i) Involuntary Termination. If the Company terminates the
Executive's employment other than for Disability or Cause, then in lieu of any
severance benefits to which the Executive may otherwise be entitled under any
Company severance plan or program, the Executive shall be entitled to payment of
his entire unpaid Base Salary for the remaining term of this Agreement, which
Base Salary shall be paid to him in periodic installments in accordance with the
Company s regular payroll practices; provided, however, that the Company s
obligations hereunder shall cease upon a breach by the Executive of his
obligations under paragraphs 13, 14, 17 and 19 hereof.
(ii) Resignation; Change in Control; Diminution in Duties. If
the Executive terminates his employment by resignation pursuant to paragraph
2(g) hereof as a result of a Change in Control of the Company or as a result of
the Board of Directors materially reducing the scope and/or authority of the
Executive's duties as Chief Financial Officer and Executive Vice President of
the Company, then in lieu of any severance benefits to which the Executive may
otherwise be entitled under any Company severance plan or program, the Executive
shall be entitled to payment of his entire unpaid Base Salary for the remaining
term of this Agreement, which Base Salary shall be paid to him in periodic
installments in accordance with the Company s regular payroll practices;
provided, however, that the Company s obligations hereunder shall cease upon a
breach by the Executive of his obligations under paragraphs 13, 14, 17 and 19
hereof.
(iii) Other Termination. In the event the Executive's
employment terminates for any reason other than as described in
paragraph 12(a)(i) or 12(a)(ii) above, including by reason of the Executive's
death or disability or resignation pursuant to paragraph 2(h) hereof, then the
Executive shall be not be entitled to receive any severance payment or any other
benefits, except as are provided in the Company s severance and benefit plans
and policies at the time of such termination.
(b) Options. In the event the Executive's employment is terminated
by the Company as described in paragraph 12(a)(i) above or by the Executive as
described in paragraph 12(a)(ii) above, then the Executive shall be deemed
vested in the unvested portion of the Executive Options and the Executive
Options shall become immediately exercisable with respect to all shares subject
thereto. In the event the Executive's employment is terminated for reasons
other than as described in paragraphs 12(a)(i) and 12(a)(ii), then the unvested
portion of the Executive Options shall not vest and the Executive's interest
therein shall immediately cease.
(c) Bonuses. In the event the Executive's employment is terminated
by the Company as described in paragraph 12(a)(i) above, then the Executive
shall be entitled to receive a portion of the Bonus, computed under the
Company s Executive Incentive Compensation Plan referred to in paragraph 5,
which Bonus will be determined, after the end of the fiscal year, by multiplying
the amount of the Bonus which would have become payable to the Executive had he
remained employed until the end of the fiscal year, by a fraction, the numerator
of which will be the number of days in which the Executive was employed by the
Company in such fiscal year, and the denominator of which shall be the number of
days in such fiscal year. In the event the Executive's employment terminates for
any other reason, then the Executive shall not be entitled to any Bonus which
has not accrued as of such date.
13. Proprietary Information. The Executive shall not, without the prior
written consent of the Board of Directors, disclose or use for any purpose
(except in the course of his employment under this Agreement and in furtherance
of the business of the Company) any confidential information or proprietary data
of the Company. As an express condition of the Executive's employment with the
Company, the Executive agrees to execute confidentiality agreements as requested
by the Company, including but not limited to the Company s standard form of
employee proprietary information agreement.
14. Absence of Conflict. The Executive represents and warrants that his
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
15. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois, in accordance with the rules of the American Arbitration
Association then in effect by an arbitrator selected by both parties within ten
(10) days after either party has notified the other in writing that it desires a
dispute between then to be settled by arbitration. In the event the parties
cannot agree on such arbitrator within such ten (10) day period, each party
shall select an arbitrator and inform the other party in writing of such
arbitrator s name and address within five (5) days after the end of such ten
(10) day period and the two arbitrators so selected shall select a third
arbitrator within fifteen (15) days thereafter; provided, however, that in the
event of a failure by either party to select an arbitrator and notify the other
party of such selection within the time period provided above, the arbitrator
selected by the other party shall be the sole arbitrator of the dispute. Each
party shall pay his or its own expenses associated with such arbitration,
including the expense of any arbitrator selected by such party and the Company
will pay the expenses of the jointly selected arbitrator. The decision of the
arbitrator or a majority of the panel of arbitrators shall be binding upon the
parties and judgment in accordance with that decision may be entered in any
court having jurisdiction thereover. Punitive damages shall not be awarded.
16. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois as applied to agreements
between Illinois residents entered and to be performed entirely within Illinois.
17. Certain Covenants of the Executive.
(a) Covenants Against Competition. The Executive acknowledges that
(i) the principal business of the Company and its affiliates involves the
distribution of pharmaceuticals, the provision of drug therapies, reimbursement
services and other related businesses which the Company and its affiliates
currently operate and which the Company and its affiliates may become involved
with during the Term (collectively, the "Company Business"); (ii) the Company
Business is national in scope; (iii) the Executive's work for the Company will
bring him into close contact with many confidential affairs not readily
available to the public; and (iv) the Company would not enter into this
Agreement but for the agreements and covenants of the Executive contained
herein. In order to induce the Company to enter into this Employment Agreement,
the Executive covenants and agrees that:
(1) Non-Compete. During the Term and for a period of eighteen
(18) months following the termination (whether for cause or otherwise) of the
Executive's employment with the Company or any of its affiliates (the
"Restricted Period"), the Executive shall not, in the United States of America
or in any foreign country, directly or indirectly, (i) engage in the Company
Business for his own account; (ii) enter the employ of, or render any services
to, any person engaged in such activities; or (iii) become interested in any
person engaged in the Company Business, directly or indirectly, as an
individual, partner, shareholder, officer, director, principal, agent, employee,
trustee, consultant or in any other relationship or capacity; provided, however,
that the Executive may own, directly or indirectly, solely as an investment,
securities of any person which are traded on any national securities exchange or
NASDAQ if the Executive (a) is not a controlling person of, or a member of a
group which controls, such person or (b) does not, directly or indirectly, own
1% or more of any class of securities of such person.
(2) Confidential Information. During and after the Restricted
Period, the Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others except in connection with the
business and affairs of the Company, all confidential matters of the Company and
its affiliates. Such confidential matters include, without limitation, trade
secrets, customer lists, subscription lists, details of consultant contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of manufacture, technical processes, designs and
design projects, inventions and research projects of the Company and its
affiliates, learned by the Executive heretofore or hereafter that are
sufficiently secret to have the possibility, whether or not realized, of
deriving economic value from not being generally known to other persons who can
obtain economic value from their disclosure or use, and the Executive shall not
disclose them to anyone outside of the Company and its affiliates, either during
or after employment, by the Company or any of its affiliates, except as required
in the course of performing duties hereunder or with the Company's express
written consent. The Executive's obligations pursuant to this Employment
Agreement shall not extend to matters which are within the public domain or
hereafter enter the public domain through no fault or action or failure to act,
whether directly or indirectly, on the part of the Executive.
(3) Property of the Company. All memoranda, notes, lists,
records and other documents (and all copies thereof) made or compiled by the
Executive or made available to the Executive concerning the business of the
Company or any of its affiliates shall be the Company s property and shall be
delivered to the Company promptly upon the termination of the Executive's
employment with the Company or any of its affiliates or at any other time on
request.
(4) Employees of the Company. During the Restricted Period, the
Executive shall not, directly or indirectly, hire, solicit or encourage to leave
the employment of the Company or any of its affiliates, any employee of the
Company or its affiliates or hire any such employee who has left the employment
of the Company or any of its affiliates within one year of the termination of
such employee s employment with the Company or any of its affiliates.
(5) Consultants and Independent Contractors of the Company.
During the Restricted Period, the Executive shall not, directly or indirectly,
hire, solicit or encourage to cease to work with the Company or any of its
affiliates, any consultant, social worker, registered nurse, sales
representative or other person then under contract with the Company or any of
its affiliates.
(b) Rights and Remedies Upon Breach. If the Executive breaches, or
threatens to commit a breach of, any of the provisions of Section 17(a) (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
(1) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and its
affiliates and that money damages will not provide an adequate remedy to the
Company.
(2) Accounting. The right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by the Executive as the result of any transactions constituting a
breach of any of the Restrictive Covenants, and the Executive shall account for
and pay over such Benefits to the Company.
(c) Severability of Covenants. If any court determines that any of
the Restrictive Covenants, or any parts thereof, are invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
(d) "Blue-Penciling". If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration of
such provision or the area covered thereby, such court shall have the power to
reduce the duration or area of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
(e) Enforceability in Jurisdictions. The parties intend to and
hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts
of any jurisdiction within the geographical scope of such Restrictive Covenants.
If the courts of any one or more of such jurisdictions hold the Restrictive
Covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the Company s right to the relief provided above in the courts
of any other jurisdiction within the geographical scope of such Restrictive
Covenants, as to breaches of such Restrictive Covenants in such other respective
jurisdictions, such Restrictive Covenants as they relate to each jurisdiction
being, for this purpose, severable into diverse and independent covenants.
18. Successors. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and 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 assumption agreement
prior to the effectiveness of any such succession shall entitle the Executive to
the benefits described in paragraphs 12(a)(i), 12(b) and 12(c) of this
Agreement, subject to the terms and conditions therein.
19. Assignment. This Agreement and all rights under this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and assigns.
This Agreement is personal in nature, and, except as provided in paragraph 18
hereof, neither of the parties to this Agreement shall, without the written
consent of the other, assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. If the Executive
should die while any amounts are still payable to the Executive hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
20. Notices. For purposes of this Agreement, notices and other
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: Paul S. Jurewicz
2261 Churchill Lane
Libertyville, IL 60048
If to the Company: Health Management, Inc.
1371-A Abbott Court
Buffalo Grove, Illinois 60089
Attention: Chairman of the
Board of Directors
with a copy to:
McDermott, Will & Emery
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl V. Reicin, Esq.
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this paragraph. Such notices or other communications shall be effective upon
delivery or, if earlier, three (3) days after they have been mailed as provided
above.
21. Waiver. Failure or delay on the part of either party hereto to
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver hereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
22. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed, and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision had never been contained herein.
23. Right to Advice of Counsel. The Executive acknowledges that he has
consulted with counsel and is fully aware of his rights and obligations under
this Agreement.
24. Counterparts. This Agreement may be executed in one or more
counterparts, none of which need contain the signature of more than one party
hereto, and each of which shall be deemed to be an original, and all of such
together shall constitute a single agreement.
25. Integration. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter hereof and supersedes
all prior or contemporaneous agreements whether written or oral, including,
without limitation, the Original Agreement. No waiver, alteration, or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by duly authorized representatives of the parties hereto.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, on the day set opposite its
name below.
Date Agreement Executed "COMPANY"
Health Management, Inc.
September 16, 1996 By: /s/ Andre C. Dimitriadis
Andre C. Dimitriadis, Chairman of the Board
"EXECUTIVE"
September 16, 1996 /s/ Paul S. Jurewicz
Paul S. Jurewicz
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
IN RE HEALTH MANAGEMENT, INC. Master File No.
SECURITIES LITIGATION 96-CV-889 (ADS)
CLASS ACTION
STIPULATION OF PARTIAL SETTLEMENT
This Stipulation of Partial Settlement (the "Stipulation"), dated as of
September 16, 1996, is made and entered by and among the following parties
(as defined further in Section V herein) to the above-entitled Litigation:
(i) the Representative Plaintiffs (on behalf of themselves and each of the
Settlement Class Members), by and through their counsel of record in the
Litigation; and (ii) the Settling Defendant, by and through its counsel of
record in the Litigation. The Stipulation is intended by the Settling
Parties to fully, finally and forever resolve, discharge and settle the
Released Claims against the Settling Defendant only (as defined herein), upon
and subject to the terms and conditions hereof.
I. THE LITIGATION
On and after February 28, 1996, eleven putative class actions were
commenced in the United States District Court for the Eastern District of New
York on behalf all person, (other than defendants, members of the immediate
family of each of the individual defendants, parents, subsidiaries and
affiliates of the corporate defendant, and the legal representatives, heirs,
successors or assigns of any such excluded party), who purchased the common
stock of Health Management, Inc. ("Health Management"), during the period
from June 15, 1995, through February 26, 1996, inclusive. Plaintiffs allege
that defendants violated Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 (the "Exchange Act"), and Rule lOb-5 promulgated thereunder by
the Securities and Exchange Commission ("SEC"). Specifically, plaintiffs
allege that defendants caused Health Management to misstate its publicly
disseminated financial results for its fiscal year ended April 30, 1995
("Fiscal 1995"), and for the first two quarters of its fiscal year ended
April 30, 1996 ("Fiscal 1996"), and also issued or participated in the
issuance of other false and misleading statements, and omitted to state
material facts necessary to make the statements made, in light of the
circumstances under which they were made, not misleading. Plaintiffs further
allege that, as a result of the allegedly false and misleading statements
and/or omissions, the market price of Health Management common stock was
artificially inflated, and that the members of the putative class were
damaged as a result of the alleged misstatements and omissions.
<PAGE>
On August 7, 1996, United States District Court Judge Arthur D. Spatt
signed Pre-Trial Order No. 1 which, inter alia, (1) consolidated-under the
present caption the above class actions, (the "Class Action" or the
"Litigation") (2) appointed certain Representative Plaintiffs as Lead
Plaintiffs and (3) appointed the law firms of Kaplan, Kilsheimer & Fox LLP
and Zwerling, Schachter, Zwerling & Koppell, LLP as co-lead counsel. This
action is referred to herein as the "Class Action" or the "Litigation."
II. PRETRIAL PROCEEDINGS AND DISCOVERY IN THE LITIGATION
Counsel for the Representative Plaintiffs have conducted formal and
informal discovery and investigation during the prosecution of the
Litigation. This discovery and investigation has included, inter alia, (i)
inspection of documents produced to plaintiffs by Health Management,
including a report prepared for the Special Committee of the Health
Management Board of Directors in connection with its investigation of
possible accounting irregularities at Health Management; (ii) numerous
memoranda summarizing interviews with various officers, directors and
employees of Health Management in connection with the Special Committee's
investigation of possible accounting irregularities at the Company; (iii)
consultation with experts in damages and accounting, (iv) review of Health
Management's public filings, annual reports and other public statements, and
(v) research of the applicable law with respect to the claims asserted and
the potential defenses thereto. Additionally, pursuant to the provisions of
paragraphs 4.1 - 4.4 below, plaintiffs will conduct additional discovery of
defendant Health Management.
III. SETTLING DEFENDANT'S STATEMENT AND
DENIALS OF WRONGDOING AND LIABILITY
The Settling Defendant has denied and continues to deny each and all of the
claims and contentions as to itself alleged by the Representative Plaintiffs
on behalf of the Settlement Class. The Settling Defendant also has denied
and continues to deny, inter alia, the allegations that the Representative
Plaintiffs or the Settlement Class have suffered damage as a result of its
actions. The Settling Defendant expresses no opinion, however, as to the
validity of the claims asserted against either of the Individual Defendants,
nor does it express an opinion as to the liability of any other person or
entity in connection with plaintiff's claims. Further, the Settling
Defendant expresses no opinion in this settlement as to whether the actions
of any such person or entity have caused the Representative Plaintiffs or the
members of the Settlement Class to suffer the damages alleged in the Action.
Nonetheless, the Settling Defendant has concluded that further conduct of
the Litigation would be protracted and expensive, and that it is desirable
that the Litigation be fully and finally settled in the manner and upon the
terms and conditions set forth in this Stipulation. The Settling Defendant
also has taken into account the uncertainty and risks inherent in any
litigation, especially in complex cases like the Litigation, as well as the
likely expense to be incurred in connection with the Action and whether
incurring such expense is in the best interests of the shareholders of Health
Management. The Settling Defendant has, therefore, determined that it is
desirable and beneficial to it that the Litigation be settled in the manner
and upon the terms and conditions set forth in this Stipulation.
IV. CLAIMS OF THE REPRESENTATIVE PLAINTIFFS
AND BENEFITS OF SETTLEMENT
The Representative Plaintiffs believe that the claims asserted in the
Litigation have merit and that the evidence developed to date in the
Litigation supports the claims asserted. However, counsel for the
Representative Plaintiffs recognize and acknowledge the expense and length of
continued proceedings necessary to prosecute the Litigation against the
<PAGE>
Settling Defendant through trial and through appeals, and further recognize
that the Settling Defendant possesses limited resources to defend this
Litigation and satisfy any judgment obtained by plaintiffs. Counsel for the
Representative Plaintiffs believe that the settlement set forth in the
Stipulation confers substantial benefits upon the Settlement Class and each
of the Settlement Class Members not only in the form of a significant
monetary recovery, but also from the continuing cooperation that Health
Management has agreed to provide to plaintiffs in connection with the
continuing prosection of the Litigation. Based on their evaluation, counsel
for the Representative Plaintiffs have determined that the settlement set
forth in the Stipulation is in the best interests of the Representative
Plaintiffs and the Settlement Class and each of the Settlement Class Members.
V. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Representative Plaintiffs (for themselves and the Settlement Class Members),
and the Settling Defendant, by and through their respective counsel or
attorneys of record, that, subject to the approval of the Court, the Released
Claims shall be finally and fully compromised, settled and released, and the
Released Claims shall be dismissed on the merits and with prejudice, as to
the Settling Defendant only, upon and subject to the terms and conditions of
the Stipulation, as follows:
1. Definitions
As used in the Stipulation the following terms have the meanings specified
below:
1.1 "Authorized Claimant" means any Settlement Class Member
(or duly authorized representative) who files a Proof of Claim and Release in
such form and manner, and within such time, as the Court prescribes.
1.2 "Authorized Stock and Warrant Recipient" means any Authorized
Claimant entitled to receive a distribution of stock and warrants from the
Settlement Fund.
1.3 "Claims Administrator" means the Garden City Group.
1.4 "Effective Date" means the first date by which all of the events
and conditions specified in Section 9.1 of the Stipulation have been met and
have occurred.
1.5 "Escrow Agent" means Kaplan, Kilsheimer & Fox LLP.
1.6 "Final" means: (i) The date of final affirmance on an appeal from
the Judgment, the expiration of the time for a petition for a writ of
certiorari to review the Judgment and, if certiorari be granted, the date of
final affirmance of the Judgment following review pursuant to that grant; or
(ii) the date of final dismissal of any appeal from the Judgment or the final
dismissal of any proceeding on certiorari to review the Judgment; or (iii) if
no appeal is filed, the expiration date of the time for the filing or
noticing of any appeal from the Court's Judgment approving the Stipulation
substantially in the form of Exhibit "B" hereto, i.e., thirty (30) days after
entry of the Judgment or such longer time as may be allowed by Court order
extending the time for appeal. Any proceeding or order, or any appeal or
petition for a writ of certiorari pertaining solely to any plan of allocation
and/or application for attorneys, fees, costs or expenses, shall not in any
way delay or preclude the Judgment from becoming Final.
1.7 "Health Management" or the "Company" means Health Management,
Inc.
<PAGE>
1.8 "Judgment" means the judgment to be rendered by the Court,
substantially in the form attached hereto as Exhibit "B."
1.9 "Non-Settling Defendants" means Clifford E. Hotte and Drew W.
Bergman.
1.10 "Note" shall mean the security described in Section 3.2 which
shall have the following characteristics: (i) 8-year term; (ii) Senior
debenture of Health Management, Inc.; and (iii) Interest rate that in the
opinion of an investment banker acceptable to Settling Defendant and
Plaintiffs would be sold at par on date of issue.
1.11 "Notification Date" means the date on which the Claims
Administrator shall in good faith inform Settling Defendant's Counsel that
claims processing has been completed and that all or a portion of the
Settlement Stock and Warrants shall be distributed to all or some of the
Authorized Claimants.
1.12 "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated association, government or any political subdivision or
agency thereof, and any business or legal entity and their spouses, heirs,
predecessors, successors, representatives, or assignees.
1.13 "Plaintiffs' Settlement Counsel" means the following counsel for
Representative Plaintiffs in the Litigation:
Kaplan, Kilsheimer & Fox LLP, Robert N. Kaplan, Frederic S. Fox, and Joel
B. Strauss, 685 Third Avenue, New York, New York, 10017, Telephone:
212/687-1980; Zwerling, Schachter, Zwerling & Koppell, LLP, Jeffrey C.
Zwerling, 767 Third Avenue, New York, New York, 10017, Telephone: 212/223-
3900.
1.14 "Plan of Allocation" means a plan or formula of allocation of the
Settlement Fund which shall be described in the "Notice of Pendency and
Partial Settlement of Class Action" to be sent to Settlement Class Members in
connection with the settlement whereby the Settlement Fund shall be
distributed to Authorized Claimants after payment of expenses of notice and
administration of the settlement, any taxes, penalties or interest or tax
preparation fees owed by the Settlement Fund, and such attorneys' fees,
costs, expenses and interest as may be awarded by the Court. Any Plan of
Allocation is not part of the Stipulation.
1.15 "Released Claims" means and includes any and all claims or causes
of action, demands, rights, liabilities, and causes of action of every nature
and description whatsoever, asserted by the Representative Plaintiffs or the
Settlement Class Members, or any of them, against the Released Person based
upon or related to both the purchase of Health Management common stock by the
Representative Plaintiffs or the Settlement Class Members during the
Settlement Class Period and the facts, transactions, events, occurrences,
disclosures, statements, acts or omissions or failures to act which were
alleged in the Litigation.
1.16 "Released Person" means the Settling Defendant.
1.17 "Representative Plaintiffs" means the lead plaintiffs as
designated by the Court in Pre-trial Order No. 1: Charles T. Labozzetta,
Albert Buthman, Michael Zurkan, Lillian Pfaender, Lewis Steven Cohen, Bharat
Dave, Kurt W. Grimm, Kenneth Holmes, Charles DiLustrc, John Cappazzi and
Thomas Druetzler.
1.18 "Settlement Class" means all persons (except the Settling
Defendant or the Non-Settling Defendants, members of their immediate
<PAGE>
families, any entity in which any such defendant has a controlling interest,
and their legal representatives, heirs, successors or assigns) who purchased
Health Management common stock during the Settlement Class Period (the
"Class"), excluding those persons who timely and validly request exclusion
from the Settlement Class pursuant to the Notice of Pendency and Partial
Settlement of Class Action to be sent to the Class.
1.19 "Settlement Class Member" or "Member of the Settlement Class"
means a Person who falls within the definition of the Settlement Class as set
forth in this Stipulation.
1.20 "Settlement Class Period" means the period from August 25, 1994
through February 26, 1996, inclusive.
1.21 "Settlement Fund" means:
(a) The principal amount of Two Million Dollars ($2,000,000) in
cash, which sum shall be paid by wire transfer or other form of
immediately available funds to the Escrow Agent as follows: (i) any
portion of the principal amount of $2,000,000 paid on behalf of the
Settling Defendant from any insurance policy shall be immediately
transferred to the Escrow Agent. Any interest accrued thereon shall
be for the benefit of the Plaintiffs and the Class; and (ii) the
balance of the principal amount due shall be paid to the Escrow Agent
within ten (10) business days of the Notification Date.
(b) Two Million Two-Hundred Thousand (2,200,000) shares of
Health Management common stock with a guaranteed value of $4.50 per
share as described and to be distributed as set forth in paragraph 3.1
below.
(c) Two million two-hundred thousand (2,200,000) warrants (the
"Warrants" or "Warrant"), with each Warrant exercisable for the
purchase of one share of Health Management common stock, and which
shall have the characteristics described in Section 3.3.
1.22 "Settlement Stock" means shares of Health Management common stock
to be issued by Health Management which shall comprise a part of the
Settlement Fund.
1.23 "Settlement Warrants" means warrants to be issued by Health
Management which shall comprise a part of the Settlement Fund.
1.24 "Settling Defendant" means Health Management, but specifically
excludes any and all of the Non-Settling Defendants (and any members of any
of the Non-Settling Defendants' families and any Person or entity owned or
controlled by any of the Non-Settling Defendants).
1.25 "Settling Defendant's Counsel" means McDermott, Will & Emery,
John D. Lovi, 50 Rockefeller Plaza, New York, New York 10020, (212) 768-5400.
1.26 "Settling Parties" means, collectively, the Settling Defendant
and the Representative Plaintiffs on behalf of themselves and the members of
the Settlement Class.
2. Administration of The Settlement Fund
A. The Escrow Agent
2.1 The Escrow Agent shall invest the cash portion of the Settlement
Fund in instruments backed by the full faith and credit of the United States
Government or fully insured by the United States Government or an agency
<PAGE>
thereof and shall reinvest the proceeds of these instruments as they mature
in similar instruments at the current market rates.
2.2 The Escrow Agent shall not disburse the Settlement Fund except as
provided in the Stipulation, or by an Order of the Court.
2.3 Subject to such further order and direction by the Court as may
be necessary, the Escrow Agent is authorized to execute such transactions on
behalf of the Settlement Class Members as are consistent with the terms of
the Stipulation.
2.4 All funds held by the Escrow Agent shall be deemed and considered
to be in custodia leqis of the Court, and shall remain subject to the
jurisdiction of the Court, until such time as such funds shall be distributed
pursuant to the Stipulation and/or further order(s) of the Court.
2.5 Upon payment of the Settlement Fund or any portion thereof to the
Escrow Agent, the Escrow Agent may transfer from the cash portion of the
Settlement Fund money sufficient to pay costs and expenses reasonably and
actually incurred in connection with providing notice to the Settlement
Class, locating Settlement Class members, soliciting Settlement Class claims,
assisting with the filing of claims, administering and distributing the
Settlement Fund to the Members of the Settlement Class, processing Proofs of
Claim and Release and paying escrow fees and costs, if any.
2.6 On the Effective Date, any balance (including interest) then
remaining in the Notice and Administration Fund, less expenses incurred but
not yet paid, shall be transferred by the Escrow Agent to, and deposited and
credited as part of, the Settlement Fund to be applied as set forth in Section
7.2 below. Thereafter, Plaintiffs' Settlement Counsel shall have the right
to use such portions of the Settlement Fund as are, in their exercise of
reasonable judgment, necessary to carry out the purposes set forth in Section
2.5.
B. Taxes
2.7 (a) The Settling Parties and the Escrow Agent agree to treat the
Settlement Fund as being at all times a "qualified settlement fund" within
the meaning of Treas. Reg. Section 1.4682-1. In addition, the Escrow Agent
and, as required, the Settling Defendant shall jointly and timely make the
"relationback election" (as defined in Treas. Reg. Section 1.468B-1) back
to the earliest permitted date. Such election shall be made in compliance
with the procedures and requirements contained in such regulations. It shall
be the responsibility of the Escrow Agent to timely and properly prepare, and
deliver the necessary documentation for signature by all necessary parties,
and thereafter to cause the appropriate filing to occur.
(b) For the purposes of Section 468B of the Internal Revenue
Code of 1986, and Treas. Reg. Section 1.468B-2(k)(3), the "administrator"
shall be the Escrow Agent. The Escrow Agent shall timely and properly file
all informational and other tax returns necessary or advisable with respect
to the Settlement Fund (including without limitation the returns described in
Treas. Reg. Section 1.468B-2(l)). Such returns (as well as the election
described in Section 2.7(a)) shall be consistent with this Section 2.7 and
in all events shall reflect that all taxes (including any estimated taxes,
interest or penalties) on the income earned by the Settlement Fund shall be
paid out of the Settlement Fund as provided in Section 2.7(c) hereof.
(c) All (i) taxes (including any estimated taxes, interest or
penalties) arising with respect to the income earned by the Settlement Fund,
("Taxes") and (ii) expenses and costs incurred in connection with the
operation and implementation of this Section 2.7 (including, without
limitation, expenses of tax attorneys and/or accountants and mailing and
distribution costs and expenses relating to filing (or failing to file) the
returns described in this Section 2.7) ("Tax Expenses"), shall be paid out
of the Settlement Fund; in all events the Settling Defendant shall not have
any liability or responsibility for the Taxes, the Tax Expenses, or the
filing of any tax returns or other documents with the Internal Revenue
Service or any other state or local taxing authority. The Escrow Agent shall
indemnify and hold the Settling Defendant harmless for Taxes and Tax
Expenses (including, without limitation, Taxes payable by reason of any
such indemnification).
Further, Taxes and the Tax Expenses shall be treated as, and considered to
be, a cost of administration of the settlement and shall be timely paid by
the Escrow Agent out of the Settlement Fund without prior order from the
Court, and the Escrow Agent shall be obligated (notwithstanding anything
herein to the contrary) to withhold from distribution to Authorized Claimants
any funds necessary to pay such amounts (as well as any amounts that may be
required to be withheld under Treas. Reg. Section 1.46BB-2(l)(2)); the
Settling Defendant is not responsible and shall have no liability therefor,
or for any reporting requirements that may relate thereto. The Settling
Parties hereto agree to cooperate with the Escrow Agent, each other, and
their tax attorneys and accountants to the extent reasonably necessary to
carry out the provisions of this Section 12.7.
C. Termination
2.8 In the event that the Stipulation is not approved, or
is terminated, cancelled, or fails to become effective for any reason, the
Settlement Fund (including accrued interest), less expenses actually incurred
or due and owing in connection with the settlement provided for herein, shall
be returned to the Settling Defendant within five (5) business days.
3. Rights With Respect To The
Settlement Stock and Warrants
3.1 In conjunction with the distribution of fully and freely traded
Settlement Stock and Warrants to the Authorized Stock and Warrant Recipients
without any restrictions, Health Management shall have provided Plaintiffs'
Settlement Counsel with the written opinion of outside counsel substantially
to the effect: (a) that the Settlement Stock and Warrants will be issued in
compliance with the registration requirements of Section 5 of the Securities
Act of 1933 or will be issued in reliance upon an exemption therefrom; (b)
that the Settlement Stock and Warrants are fully tradeable without any
restriction after distribution; and (c) that such Settlement Stock and
Warrants are otherwise fully paid, non-assessable and free from all liens and
encumbrances.
3.2 (a) The Settlement Stock shall be distributed as follows. The
price-per-share of the shares of the Settlement Stock (the "Average Price
Per Share") shall be determined by calculating the average closing price of
Health Management common stock, (as reflected on the NASDAQ National Market
or, if Health Management common stock ceases to be traded on the NASDAQ, on
such other market as Health Management common stock is traded at that time)
for the twenty (20) trading days prior to the Notification Date (the
"Valuation Period"). If the Average Price Per Share is less than $4.50 per
share, but greater than or equal to $4.00 per share, then in addition to
the distribution of the 2,200,000 shares to the Settlement Fund, the
Settling Defendant shall pay cash to the Settlement Fund in the amount of
the number of shares (2,200,000) multiplied by the amount per share by
which $4.50 exceeds the Average Price Per Share. If the Average Price Per
Share is less than $4.00 per share, but greater than or equal to $3.00 per
share, then in addition to the distribution of the 2,200,000 shares to the
Settlement Fund, the Settling Defendant shall have the option of either (a)
paying cash to the Settlement Fund in the amount of the number of shares
(2,200,000) multiplied by the amount per share by which $4.50 exceeds the
Average Price Per Share, or (b) (i) paying cash to the Settlement Fund in
<PAGE>
the amount of the number of shares (2,200,000) multiplied by $.50 per share
(for the shortfall between $4.50 and $4.00), and (ii) issuing a Note in the
principal amount of one hundred and ten percent (110%) of the shortfall
amount between $4.00 and the Average Price Per Share multiplied by
2,200,000. If the Average Price Per Share is less than $3.00 per share,
then the Settling Defendant shall have the option of either (a) paying
$4.50 per share in cash multiplied by the number of shares (2,200,000) to
the Settlement Fund in lieu of the Settlement Stock; or (b) in addition to
distributing the Settlement Stock to the Settlement Fund (i) paying cash to
the Settlement Fund in the amount of the number of shares (2,200,000)
multiplied by $.50 per share (for the shortfall between $4.50 and $4.00)
and (ii) issuing a Note in the principal amount of one hundred and ten
percent (110%) of the difference between $4.00 and the Average Price Per
Share multiplied by 2,200,000.
(b) In each of the foregoing cases, the share price and the total
number of shares and total cash to be contributed to the Settlement Fund
will be adjusted to reflect any changes due to stock splits, stock
dividends, reverse stock splits and like transactions that occur from the
date of this Stipulation until the date of the distribution.
(c) All costs, including those of Health Management's transfer agent,
incurred in issuing and distributing any Settlement Stock to Authorized
Stock Recipients shall be borne by Health Management.
3.3 (a) Each Warrant shall be exercisable for one share of Health
Management common stock at a price equal to $.50 more than the Average
Price Per Share (the "Exercise Price").
(b) The Warrants shall be valid for a period of eight (8) years from
the date of their issuance.
(c) The Exercise Price and the total number of Warrants to be
contributed to the Settlement Fund will be adjusted to reflect any
changes due to stock splits, stock dividends, reverse stock splits and
like transactions that occur from the date of this Stipulation until
the date of the distribution.
(d) All costs, including those of Health Management's
transfer agent, incurred in issuing and distributing any
Warrants to Authorized Warrant Recipients shall be borne by
Health Management.
3.4 Within three (3) business days of the Notification
Date, the Claims Administrator shall provide Health Management's transfer
agent with a list (in the form required by the transfer agent) identifying
each Settlement Class Member who is entitled to receive Settlement Stock and
Warrants and the number of shares of Settlement Stock and number of
Settlement Warrants to be issued to each such person. Health Management
shall direct its stock transfer agent to issue and distribute the Settlement
Stock and Warrants within five (5) business days of receipt of the list of
the persons and in the amounts shown on said list, provided however, that
such distribution shall have been approved by the Court.
4. Additional Settlement Consideration
4.1 The Settling Defendant agrees to (i) maintain in the normal
course of business all relevant documents during the pendency of this
litigation and to produce same to Plaintiffs' Settlement Counsel upon request
and (ii) to be otherwise subject to discovery by plaintiffs under the Federal
Rules of Civil Procedure as if it were still a party to the litigation;
<PAGE>
4.2 The Settling Defendant shall voluntarily make its employees,
directors (other than Clifford Hotte and Virginia Hotte) and others subject
to its control available at reasonable times and places for interviews with
Plaintiffs' Settlement Counsel and will continue to be reasonably available
to Plaintiffs' Settlement Counsel on an ongoing basis throughout the pendency
of this Litigation.
4.3 The Settling Defendant agrees to have its employees, directors
(other than Clifford Hotte and Virginia Hotte) and others under its control
voluntarily appear at the trial of this action if requested by Plaintiffs'
Settlement Counsel at the sole cost and expense of the Settling Defendant;
4.4 The Settling Defendant agrees to undertake its best efforts to
make its directors, employees and others under its control voluntarily
available for depositions at the request of Plaintiffs' Settlement Counsel
who shall bear the costs and expenses of the same exclusive of any legal fees
and expenses;
4.5 The Settling Defendant agrees to pay within five (5) business
days of the date of this agreement to the Escrow Agent the sum of $50,000 to
be used for the costs of giving notice to the Class or like expenses, prior
to any expenses being paid from the Settlement Fund provided, however that
any portion of this sum not so used shall be returned to the Settling
Defendant; and
4.6 The Settling Defendants, failure to (1) deliver any portion of
the Settlement Fund when required due or (2) provide the Additional
Settlement Consideration as set forth in paragraph 4 above shall be deemed a
material breach of this agreement and grounds for its termination by
plaintiffs. In the event of any such material breach any judgment entered in
favor of the Settling Defendant shall, at the option of Plaintiffs Settlement
Counsel, be vacated, and at the option of Plaintiffs Settlement Counsel, this
agreement shall be terminated.
5. Notice Order and Settlement Hearing
5.1 Promptly after execution of the Stipulation, but in no event
later than five (5) days after the Stipulation is signed (unless such time is
extended by the written agreement of Plaintiffs' Settlement Counsel and
counsel for the Settling Defendant), the Settling Parties shall submit the
Stipulation together with its Exhibits to the Court and shall jointly apply
for entry of an order (the "Notice Order"), substantially in the form of
Exhibit "A" hereto, requesting the preliminary approval of the settlement set
forth in the Stipulation, and approval for the mailing and publication of a
Notice of Pendency and Partial Settlement of Class Action which shall include
the general terms of the settlement set forth in the Stipulation, the
proposed Plan of Allocation, the general terms of the Fee and Expense
Application (as defined in Section 8.1) and the date of the Settlement
Hearing (as defined below in Section 5.2).
5.2 The Settling Parties shall request that, after notice is given,
the Court hold a Hearing (the "Settlement Hearing") on or before November 8,
1996 and finally approve this settlement as set forth herein on or before
November 15, 1996. At or after the Settlement Hearing, Representative
Plaintiffs' counsel also will request that the Court approve the proposed
Plan of Allocation and the Fee and Expense Application.
5.3 The Notice Order shall specifically include provisions that,
among other things, will:
(a) Certify the Settlement Class solely for purposes of this
settlement;
<PAGE>
(b) Preliminarily approve the Stipulation and the settlement set
forth herein as being fair, just, reasonable and adequate;
(c) Approve the form of Notice of Pendency and Partial
Settlement of Class Action (the "Notice") (substantially in the form of
Exhibit "A-1" hereto) for mailing to members of the Class and the form of
summary notice ("Summary Notice") (substantially in the form of Exhibit "A-2"
hereto) for publication;
(d) Approve the form of Proof of Claim and Release ("Proof of
Claim and Release") (substantially in the form of Exhibit "A-3" hereto) for
mailing to members of the Class;
(e) Direct Plaintiffs' Settlement Counsel to mail or cause to be
mailed by first class mail the Notice and the Proof of Claim and Release to
those Persons in the Class who can be identified through reasonable effort,
on or before the date to be specified in the Notice Order;
(f) Direct Plaintiffs' Settlement Counsel to cause the Summary
Notice to be published once in the national edition of The New York Times;
(g) Request that nominees who purchased Health Management common
stock during the Settlement Class Period either (i) send the Notice and Proof
of Claim and Release form to all beneficial owners of such Stock within ten
(10) days after receipt of the Notice or (ii) send a list of the names and
addresses of such beneficial owners to Plaintiffs' Settlement Counsel within
ten (10) days of receipt of the Notice and, in the event of the latter,
direct Plaintiffs' Settlement Counsel to send the Notice and the Proof of
Claim and Release form to all beneficial owners identified by the nominee
within ten (10) days after receipt of the list from the nominee;
(h) Provide that any Class Member who wishes to be excluded from
the Settlement Class must provide written notice of such request to the
Claims Administrator, referring to the Litigation and setting forth his or
her name, address, and transactions in Health Management common stock during
the Settlement Class Period (including each date of purchase and sale and
each price and amount paid and received), within thirty (30) days of mailing
of the Notice. All Class Members not exercising the option to be excluded
from the Settlement Class within the specified time period shall be bound by
this Stipulation, the settlement and releases contained herein, and the Final
Judgment entered hereon and shall not have any further opportunity to opt out
of the Settlement Class. Any Class Member who shall timely and properly
elect to be excluded from the Settlement Class shall be permitted to revoke
such election by mailing a request for revocation to the Claims
Administrator, and in such event shall once again become a Settlement Class
Member for all purposes. Any Person who, pursuant to the provisions of this
Paragraph and the Notice Order, elects to be excluded from the Settlement
Class and does not revoke such election as provided above, shall have no
right to any portion of the Settlement Fund, and shall be left, as to the
Released Persons, only to his or her individual remedies;
(i) Provide that Class Members who wish to participate in the
settlement provided for in this Stipulation shall complete and file a Proof
of Claim and Release form pursuant to the instructions contained therein if
they have not already done so;
(j) Find that the notice given pursuant to subparagraphs (d)
through (i), above, constitutes the best notice practicable under the
circumstances, including individual notice to all Persons in the Class who
can be identified upon reasonable effort, and constitutes valid, due and
sufficient notice to all Persons in the Class, complying fully with the
requirements of Rule 23 of the Federal Rules of Civil Procedure, the
Constitution of the United States, and any other applicable law;
<PAGE>
(k) Schedule and hold the Settlement Hearing to consider and
determine whether (i) the proposed settlement of the Litigation against the
Settling Defendant as contained in the Stipulation should be approved as
fair, reasonable and adequate; and (ii) the Judgment approving the settlement
should be entered;
(l) Provide that at or after the Settlement Hearing, the Court
shall determine whether the proposed Plan of Allocation should be approved;
(m) Provide that at or after the Settlement Hearing, the Court
shall determine and enter an order regarding whether and in what amount
attorneys' fees and reimbursement of expenses should be awarded to the
Representative Plaintiffs' counsel;
(n) Provide that pending final determination of whether the
settlement contained in the Stipulation should be approved, neither the
Representative Plaintiffs, nor any Settlement Class Member, either directly,
representatively, or in any other capacity shall commence or prosecute any
action or proceeding in any court or tribunal asserting any of the Released
Claims against any of the Released Persons;
(o) Provide that any objections to (i) the proposed settlement
contained in the Stipulation; (ii) entry of the Judgment approving the
settlement; (iii) the proposed Plan of Allocation; and (iv) the
Representative Plaintiffs' Counsel's Fee and Expense Application, shall be
heard and any papers submitted in support of said objections shall be
received and considered by the Court at the Settlement Hearing only if, on or
before a date to be specified in the Notice Order, Persons making objections
shall file and serve on all parties notice of their intention to appear
(which shall set forth each objection and the basis therefor) and copies of
any papers in support of their position as set forth in the Notice Order;
(p) Provide that, unless the Court otherwise orders, upon the
occurrence of the Effective Date, all Class Members who did not timely and
validly request exclusion from the Settlement Class or who timely and validly
revoked any such request, whether or not they file a Proof of Claim and
Release within the time provided for, shall be enjoined and barred from
asserting any Released Claims against any of the Released Persons and any
such Class Member shall conclusively be deemed to have released any and all
such Released Claims as against all of the Released Persons; and
(q) Provide that the Settlement Hearing may, from time to time
and without further notice to the Class, be continued or adjourned by Order
of the Court.
6. Releases
6.1 Upon the Effective Date, the Representative Plaintiffs shall and
each of the Settlement Class Members shall be deemed to have, and by
operation of the Judgment shall have, fully, finally, and forever released,
relinquished and discharged all Released Claims against the Released Person,
whether or not such Settlement Class Member executes and delivers the Proof
of Claim and Release.
6.2 Upon the Effective Date, the Released Persons shall be deemed to
have, and by operation of the Judgment shall have, fully, finally, and
forever released, relinquished and discharged each and all of the
Representative Plaintiffs, the Settlement Class Members, and counsel to the
Representative Plaintiffs from all claims, arising out of, relating to, or in
connection with the institution, prosecution, assertion or resolution of the
Litigation or the Released Claims.
<PAGE>
6.3 Only those Settlement Class Members filing valid and timely
Proofs of Claim and Release shall be entitled to participate in the
settlement and receive any distributions from the Settlement Fund. The
Proofs of Claim and Release to be executed by the Settlement Class Members
shall release all Released Claims against the Released Persons, and shall be
substantially in the form contained in Exhibit "A-3" hereto. All members of
the Settlement Class shall be bound by the releases set forth therein whether
or not they submit a valid and timely Proof of Claim and Release.
7. Administration And Calculation Of Claims, Final Awards And Supervision
And Distribution Of Settlement Fund
7.1 Plaintiffs' Settlement Counsel, or their authorized agents,
acting on behalf of the Settlement Class, and subject to the supervision,
direction and approval of the Court, shall administer and calculate the
claims submitted by Settlement Class Members and shall oversee distribution
of that portion of the Settlement Fund that is finally awarded by the Court
to the Settlement Class Members.
7.2 The Settlement Fund shall be applied as follows:
(i) To pay all unpaid costs and expenses reasonably and actually
incurred in connection with providing notice to the Settlement Class
including: locating Settlement Class members, soliciting Settlement Class
claims, assisting with the filing of claims, administering and distributing
the Settlement Fund to the Settlement Class, processing Proofs of Claim and
Release, and paying escrow fees and costs, if any;
(ii) To pay Taxes and Tax Expenses;
(iii) To pay counsel to Representative Plaintiffs, attorneys'
fees, expenses and costs, with interest thereon, if and to the extent allowed
by the Court; and
(iv) To distribute the balance of the Settlement Fund (the "Net
Settlement Fund") to Authorized Claimants as allowed by the Stipulation, the
Plan of Allocation or the Court.
7.3 After the Effective Date and subject to such further approval and
further order(s) of the Court as may be required, the Net Settlement Fund
shall be distributed to Authorized Claimants, subject to and in accordance
with the following:
(a) Within ninety (90) days after the mailing of the Notice or
such other time as may be set by the Court, each Person claiming to be an
Authorized Claimant shall be required to submit to the Claims Administrator a
separate completed Proof of Claim and Release as attached to the Notice and
substantially in the form of Exhibit "A-3" hereto, signed under penalty of
perjury and supported by such documents as specified in the Proof of Claim
and Release and as are reasonably available to the Authorized Claimant.
(b) Except as otherwise ordered by the Court, all Settlement
Class Members who fail to timely submit a valid Proof of Claim and Release
within such period, or such other period as may be ordered by the Court, or
who have not already done so, shall be forever barred from receiving any
payments of money, stock or warrants pursuant to the Stipulation and the
settlement set forth herein, but will in all other respects be subject to and
bound by the provisions of the Stipulation, the settlement and releases
contained herein, and the Judgment.
(c) The Net Settlement Fund shall be distributed to the
Authorized Claimants in accordance with and subject to the Plan of Allocation
<PAGE>
to be described in the Notice mailed to Settlement Class Members. The
proposed Plan of Allocation shall not be a part of the Stipulation.
7.4 The Settling Defendant shall not have any responsibility for,
interest in, or liability whatsoever with respect to the investment or
distribution of the Settlement Fund, the Plan of Allocation, the
determination, administration of taxes, or any losses incurred in connection
therewith. No Person shall have any claim of any kind against the Settling
Defendant or its counsel with respect to the matters set forth in this
paragraph; and the Settlement Class Members and Plaintiffs' Settlement
Counsel release the Settling Defendant from any and all liability and claims
arising from or with respect to the investment or distribution of the
Settlement Fund.
7.5 No Person shall have any claim against Plaintiffs' Settlement
Counsel, the Claims Administrator, or any other agent designated by
Plaintiffs' Settlement Counsel or the Settling Defendant or its counsel,
based on the distributions made substantially in accordance with the
Stipulation and the settlement contained herein, the Plan of Allocation or
further orders of the Court.
7.6 It is understood and agreed by the Settling Parties that any
proposed Plan of Allocation of the Net Settlement Fund, including, without
limitation, any adjustments to an Authorized Claimant's claim set forth
therein is not a part of the Stipulation and is to be considered by the Court
separately from the Court's consideration of the fairness, reasonableness and
adequacy of the settlement set forth in the Stipulation, and any order or
proceedings relating to the Plan of Allocation shall not operate to terminate
or cancel the Stipulation or affect the finality of the Court's Judgment
approving the Stipulation and the settlement set forth herein, or any other
orders entered pursuant to the Stipulation.
8. Representative Plaintiffs' Counsel's
Attorneys' Fees And Reimbursement of Expenses
8.1 The Representative Plaintiffs or their counsel may
submit an application or applications (the "Fee and Expense Application") for
distributions to them from the Settlement Fund for: (i) an award of
attorneys' fees in an amount up to 33-1/3 percent of the Settlement Fund;
plus (ii) reimbursement of all expenses and costs, including the fees of any
experts or consultants incurred in connection with prosecuting the
Litigation, plus interest on such attorneys' fees, costs and expenses at the
same rate and for the same periods as earned by the Settlement Fund (until
paid), as may be awarded by the Court.
8.2 The attorneys' fees, expenses and costs, including the fees of
experts and consultants, as awarded by the Court (the "Fee and Expense
Award"), shall be transferred to Plaintiffs' Settlement Counsel from the
Settlement Fund, within fifteen (15) business days after the Notification
Date. Plaintiffs' Settlement Counsel shall thereafter allocate the Fee and
Expense Award amongst Representative Plaintiffs' Counsel in a manner in which
Plaintiffs, Settlement Counsel in good faith believe reflects the
contributions of such counsel to the prosecution and settlement of the
Litigation.
8.3 The Settling Defendant and its Related Parties shall have no
responsibility for, and no liability whatsoever with respect to, the
allocation among Plaintiffs' Settlement Counsel, and any other Person who may
assert some claim thereto, or any Fee and Expense Awards that the Court may
make in this Litigation.
8.4 The procedure for and the allowance or disallowance by the Court
of any applications by any of the counsel to the Representative Plaintiffs
<PAGE>
for attorneys' fees, costs and expenses, including the fees of experts and
consultants, to be paid out of the Settlement Fund, are not part of the
settlement set forth in the Stipulation, and are to be considered by the
Court separately from the Court's consideration of the fairness,
reasonableness and adequacy of the settlement set forth in the Stipulation,
and any order or proceedings relating to the Fee and Expense Application, or
any appeal from any order relating thereto, shall not operate to terminate or
cancel the Stipulation, or affect or delay the finality of the Judgment
approving the Stipulation and the settlement of the Litigation set forth
herein.
9. Conditions Of Settlement, Effect Of
Disapproval, Cancellation Or Termination
9.1 The Effective Date of the Stipulation shall be conditioned on the
occurrence of all of the following events:
(i) The Settling Defendant shall have timely transferred or
caused to be timely transferred all of the Settlement Fund to the Escrow
Agent;
(ii) The Settling Defendant shall have delivered the opinion of
outside counsel set forth in paragraph 3.1, above, and shall not have
withdrawn such opinion as of the date of distribution of the proceeds of the
Settlement Fund to the members of the Settlement Class;
(iii) The Settling Defendant shall not be in breach of any of
its obligations set forth in Section V, Subsection 4 of this Agreement;
(iv) The Court has entered the Notice Order, as required by
Section 5, subsection 5 of this Agreement;
(v) The Court has entered the Judgment, or a judgment
substantially in the form of Exhibit "B";
(vi) The Judgment has become Final; and
(vii) There shall not have been more than an aggregate of
500,000 shares represented by those Settlement Class Members who have
requested exclusion from the Class; provided, however, that such aggregate
number shall be determined by including only the shares represented by such
Settlement Class Members requesting exclusion who are the holders or
beneficial owners of 1,000 shares or more of Health Management stock.
9.2 Upon the occurrence of all of the events referenced in Section
9.1 above, any and all remaining interest or right of the Settling Defendant
to the Settlement Fund shall be absolutely and forever extinguished.
9.3 Neither a modification nor reversal on appeal of any Plan of
Allocation or of any amount of attorneys' fees, costs, expenses and interest
awarded by the Court to any of the Representative Plaintiffs, counsel shall
constitute grounds for cancellation and termination of the Stipulation.
9.4 If all of the conditions specified in Section 9.1 are not met,
then the Stipulation may be terminated by Plaintiffs unless Plaintiffs,
Settlement Counsel and Settling Defendant's Counsel mutually agree in
writing to proceed with the Stipulation.
9.5 Unless otherwise ordered by the Court, in the event the
Stipulation shall terminate, or be canceled, or shall not become effective
for any reason, within five (5) business days after written notification of
such event is sent by Settling Defendant's Counsel or Plaintiffs' Settlement
Counsel to the Escrow Agent, the Settlement Fund, less expenses and any costs
which have either been disbursed pursuant to Sections 2.5 or 2.6 hereto, shall
be refunded by the Escrow Agent pursuant to written instructions from the
Settling Defendant or its counsel. In such event the Settling Defendant
shall be entitled to any tax refund owing to the Settlement Fund. At the
request of the Settling Defendant or Settling Defendant's Counsel, the Escrow
Agent or its designee shall apply for any such refund and pay the proceeds to
the Settling Defendant, less the cost of obtaining the tax refund.
9.6 In the event that the Stipulation is not approved by the Court or
the settlement set forth in the Stipulation is terminated or fails to become
effective in accordance with its terms, the Settling Parties shall be
restored to their respective positions in the Litigation as of the date of
this Agreement. In such event, the terms and provisions of the Stipulation,
shall have no further force and effect with respect to the Settling Parties
and shall not be used in this Litigation or in any other proceeding for any
purpose, and any Judgment or Order entered by the Court in accordance with
the terms of the Stipulation shall be treated as vacated, nunc pro tunc. No
order of the Court or modification or reversal on appeal of any order of the
Court concerning the Plan of Allocation or the amount of any attorneys' fees,
costs, expenses and interest awarded by the Court to the Representative
Plaintiffs or any of their counsel shall constitute grounds for cancellation
or termination of the Stipulation.
9.7 If the Effective Date does not occur, or if the Stipulation is
terminated pursuant to its terms, neither the Representative Plaintiffs nor
any of their counsel shall have any obligation to repay any amounts actually
and properly disbursed. In addition, any expenses already incurred and
properly chargeable pursuant to Section 2.5 hereof at the time of such
termination or cancellation but which have not been paid, shall be paid by
the Escrow Agent in accordance with the terms of the Stipulation prior to
the balance being refunded in accordance with Section 9.5 above.
9.8 If a case is commenced in respect to the Settling or any Non-
Settling Defendant under Title 11 of the United States Code (Bankruptcy), or
a trustee, receiver or conservator is appointed under any similar law, and in
the event of the entry of a final order of a court of competent jurisdiction
determining the transfer of the Settlement Fund, or any portion thereof, by
or on behalf of the Settling Defendant to be a preference, voidable transfer,
fraudulent conveyance or similar transaction, then the releases given and
Judgment entered in favor of the Settling Defendant pursuant to this
Stipulation shall be null and void.
10. Miscellaneous Provisions
10.1 The Settling Parties (a) acknowledge that it is their intent to
consummate this agreement; and (b) agree to cooperate to the extent necessary
to effectuate and implement all terms and conditions of the Stipulation and
to exercise their best efforts to accomplish the foregoing terms and
conditions of the Stipulation.
10.2 The Settling Defendant will warrant that, at the time any of the
payments of cash or securities provided for herein are made, the Settling
Defendant is not insolvent and that the payment will not render it insolvent.
10.3 The Settling Defendant agrees that the amount of the Settlement
Fund, as well as the other terms of the settlement provided for herein
reflect a good faith settlement of Representative Plaintiffs, and the
Settlement Class' claims, reached voluntarily after consultation with
experienced legal counsel. Neither the Stipulation nor the settlement
contained therein, nor any act performed or document executed pursuant to or
in furtherance of the Stipulation or the settlement: (i) is or may be deemed
to be or may be used as an admission of, or evidence of, the validity of any
Released Claim, or of any wrongdoing or liability of the Released Persons, or
<PAGE>
(ii) is or may be deemed to be or may be used as an admission of, or evidence
of, any fault or omission of any of the Released Persons in any civil,
criminal or administrative proceeding in any court, administrative agency or
other tribunal. Released Persons may file the Stipulation and/or the
Judgment from this action in any other action that may be brought against
them in order to support a defense or counterclaim based on principles of res
judicata, collateral estoppel, release, good faith settlement, judgment bar
or reduction or any theory of claim preclusion or issue preclusion or similar
defense or counterclaim.
10.4 All of the Exhibits to the Stipulation are material and integral
parts hereof and are fully incorporated herein by this reference.
10.5 The Stipulation may be amended or modified only by a written
instrument signed by or on behalf of all Settling Parties or their
successors-in-interest.
10.6 The Stipulation and the Exhibits attached hereto constitute the
entire agreement among the Settling Parties hereto and no representations,
warranties or inducements have been made to any party concerning the
Stipulation or its Exhibits other than the representations, warranties and
covenants contained and memorialized in such documents. Except as otherwise
provided herein, each party shall bear its own costs.
10.7 Plaintiffs' Settlement Counsel, on behalf of the Settlement
Class, are expressly authorized by the Representative Plaintiffs to take all
appropriate action required or permitted to be taken by the Settlement Class
pursuant to the Stipulation to effectuate its terms and also are expressly
authorized to enter into any modifications or amendments to the Stipulation
on behalf of the Settlement Class which they deem appropriate.
10.8 Each counsel or other Person executing the Stipulation or any of
its Exhibits on behalf of any party hereto hereby warrants that such person
has the full authority to do so.
10.9 The Stipulation may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same
instrument. Counsel for the parties to the Stipulation shall exchange among
themselves original signed counterparts and a complete set of original
executed counterparts shall be filed with the Court.
10.10 The Stipulation shall be binding upon, and inure to the
benefit of, the successors and assigns of the Settling Parties hereto.
10.11 The Court shall retain jurisdiction with respect to
implementation and enforcement of the terms of the Stipulation, and the
Settling Parties submit to the jurisdiction of the Court for purposes of
implementing and enforcing the settlement embodied in the Stipulation.
10.12 The Stipulation and the Exhibits hereto shall be considered
to have been negotiated, executed and delivered, and to be wholly performed,
in the State of New York, and the rights and obligations of the parties to
the Stipulation shall be construed and enforced in accordance with the laws
of the State of New York without giving effect to that State's choice of law
principles.
IN WITNESS WHEREOF, the Settling Parties hereto have caused the Stipulation
to be executed, by their duly authorized attorneys, as of the date first
written above.
McDERMOTT, WILL & EMERY
<PAGE>
BY: /s/ John D. Lovi
John D. Lovi (JL-5928)
1211 Avenue of the Americas
New York, NY 10036
(212) 768-5400
Attorneys for Defendant
Health Management, Inc.
KAPLAN, KILSHEIMER & FOX LLP
By: /s/ Frederic S. Fox
Frederic S. Fox (FF-9102)
685 Third Avenue
New York, NY 10017
(212) 687-1980
ZWERLING, SCHACHTER, ZWERLING
KOPPELL, LLP
BY: /s/ Jeffrey C. Zwerling (by FSF)
Jeffrey C. Zwerling (JZ-7924)
767 Third Avenue
New York, NY 10017
(212) 223-3900
Plaintiffs' Settlement Counsel
EXHIBIT A
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-----------------------------------------------------x
:
IN RE HEALTH MANAGEMENT, INC. :
SECURITIES LITIGATION : Civil Action No.
: 96-CV-889 (ADS)
-----------------------------------------------------x
:
THIS DOCUMENT RELATES TO :
ALL ACTIONS :
:
-----------------------------------------------------x
<PAGE>
NOTICE ORDER
WHEREAS:
A. Plaintiffs and defendant Health Management, Inc. ("Health
Management"), have entered into a partial settlement of the claims against
Defendants in the class actions consolidated in the above-captioned actions
(the "Action"), the terms of which (the "Settlement") are set forth in a
Stipulation of Settlement, dated as of September 16, 1996 (the "Settlement
Stipulation"). The Settlement Stipulation has been filed with the Clerk of
the Court;
B. The Court having read and considered the Settlement Stipulation, the
proposed notice to the Class and the proposed form of the Proof of Claim and
Release, the proposed form of Order and Final Judgment and other exhibits
annexed thereto and finding that there exist substantial and sufficient
grounds for entering this Order;
IT IS HEREBY ORDERED:
1. A hearing (the "Settlement Hearing") shall be held before this Court
on _________, _____, at ______ A.m. in Court Room _____ of the United States
Courthouse, 2 Uniondale Avenue, Uniondale, New York: (a) to determine
whether, for purposes of this Settlement only, the Court should certify the
Action as a Class Action pursuant to Fed. R. Civ. P. 23, and approve the
Lead Plaintiffs as representatives of a class (the "Class") of all persons
that purchased Health Management common stock between August 25, 1994, and
February 26, 1996, inclusive (the "Class Period"); (b) to determine whether
the proposed Settlement is fair, reasonable and adequate and should be
approved, and whether final judgment pursuant to Fed. R. Civ. P. 54(b)
should be entered dismissing the Action as to, and claims asserted therein
against Health Management on the merits, with prejudice, and without costs;
(c) to determine whether the proposed Plan of Distribution of the Settlement
Fund is fair, reasonable and adequate; (d) to consider the application of
plaintiffs' counsel for an award of attorneys' fees, reimbursement of costs
and disbursements; and (e) to reserve jurisdiction to effect and enforce the
Settlement.
2. Plaintiffs shall cause notice of the proposed Settlement, the
Settlement Hearing, and the application by counsel for an award of attorneys'
fees, costs and disbursements to be provided to members of the Class as
follows:
a. Within 2 days of the date of this Order, Health Management shall
provide Lead Plaintiffs' Counsel, as defined herein, with a list containing
the names and addresses of all record owners of Health Management common
stock during the Class Period.
b. Within 7 days of the date of this Order, a copy of the Notice of
Pendency of Class Action, Partial Settlement of Class Action, and Settlement
Hearing (the "Notice"), together with a copy of the Proof of Claim and
Release and Substitute Form W-9 (the "Proof of Claim"), substantially in the
form annexed hereto as Exhibits 1 and 2, respectively, shall be mailed by
first class mail, postage prepaid, to all Class members at the address of
each such person as set forth in the records of Health Management or its
transfer agent, or who otherwise may be identified through reasonable effort;
and
c. A Summary Notice of Pendency of Class Action, Partial Settlement
of Class Action, and Settlement Hearing (the "Summary Notice"), substantially
in the form annexed hereto as Exhibit 3, shall be published once in the
national edition of The New York Times within two weeks after the mailing of
the Notice.
<PAGE>
3. The Court approves the form of Notice, Proof of Claim and Summary
Notice, and finds that the procedures established for publication, mailing
and distribution of such notices substantially in the manner and form set
forth in paragraph 2 of this Order meet the requirements of Rule 23 of the
Federal Rules of Civil Procedure, Section 21D(a)(7) of the Securities
Exchange Act of 1934 (the "Exchange Act"), and due process, and constitute
the best notice practicable under the circumstances.
4. To effectuate the provision of notice provided for in paragraph 2
hereof, Plaintiffs' Lead Counsel or their agents shall lease and maintain a
post office box of adequate size for the return of Proofs of Claim. All
Notices to the Class shall designate said post office box as the return
address for the purposes designated in the Notice. Plaintiffs' Lead Counsel
or their agents shall be responsible for the receipt of all responses from
the Class and, until further order of the Court, shall preserve all entries
of appearance, Proofs of Claim, requests for exclusion, and any and all other
written communications from members of the Class, nominees, or any other
person in response to the Notice. The reasonable costs of notification of
the Class of this Settlement, including printing, mailing and publication of
all required notices, shall be paid out of the cash portion of the Settlement
Fund and Plaintiffs' Lead Counsel may draw from the Settlement Fund without
further order of the Court to pay such costs.
5. Fifteen days before the date fixed by this Court for the Settlement
Hearing, Plaintiffs' Lead Counsel shall cause to be filed with the Clerk of
this Court affidavits or declarations of the person or persons under whose
general direction the mailing of the Notice and the publication of the
Summary Notice shall have been made, showing that such mailing and
publication have been made in accordance with this Order.
6. All nominees who hold or held Health Management common stock for
beneficial owners who are members of the Class are requested to forward the
Notice of Proposed Partial Settlement and Proof of Claim to such beneficial
owners or, in the alternative, to supply the names and addresses of their
beneficial owners to the claims administrator as set forth in the Notice of
Proposed Partial Settlement. Upon full compliance with this Order, such
nominees may seek reimbursement of their reasonable expenses in complying
with this Order, to be paid from the Settlement Fund.
7. Plaintiffs' Lead Counsel may retain a Settlement Administrator and may
pay the reasonable and customary fees and costs associated with review of
claims and administration of the Settlement out of the Settlement Fund
without further Order of the Court.
8. Plaintiffs' Lead Counsel are authorized and directed to prepare any
tax returns required to be filed on behalf of the Settlement Fund and cause
any taxes due and owing to be paid from the Settlement Fund.
9. A member of the Class will be bound by the proposed Settlement
provided for in the Settlement Stipulation, and by any judgment or
determination of the Court affecting the Class, unless such member shall
mail, by first-class mail, a written request for exclusion from the Class,
post-marked no later than October 29, 1996, addressed to: Health Management,
Inc. Securities Litigation, at a post office box maintained by Plaintiffs'
Lead Counsel. Such request for exclusion must state the name and address of
the person seeking exclusion, and identify by date, quantity, and purchase or
sales price, all transactions in Health Management common stock during the
Class Period. A request for exclusion shall not be effective unless it is
made in the manner and within the time set forth in this paragraph. If a
member of the Class requests to be excluded, that Class member will not
receive any benefit provided for in the Settlement Stipulation, in the event
it is approved by the Court, or participate further in the Action. Any
member of the Class who does not request exclusion in the manner provided for
herein may, but need not, enter an appearance in this Action at his own cost
<PAGE>
through counsel of his own choice. If the Class member does not enter an
appearance, the Class member will be represented by the attorneys for the
Plaintiffs in the Action as set forth in the Settlement Stipulation.
10. Any member of the Class who has not requested exclusion from the Class
may appear at the Settlement Hearing to show cause why the proposed
Settlement should or should not be approved as fair, reasonable and adequate;
why a judgment should or should not be entered thereon; why the Plan of
Distribution should or should not be approved; or why Class Counsel should or
should not be awarded attorneys, fees, costs and disbursements, provided,
however, that no member of the Class shall be heard or entitled to contest
the approval of terms and conditions of the proposed Partial Settlement, the
order and Final Judgment to be entered approving the same, or the fees, costs
and disbursements requested, unless on or before October 25, 1996, that Class
member has served by hand or by first-class mail written objections and
copies of any supporting papers and briefs (which must contain proof of all
purchases and sales of shares of Health Management common stock during the
Class Period) upon Plaintiffs' Lead Counsel:
Frederic S. Fox, Esq.
KAPLAN KILSHEIMER & FOX LLP
685 Third Avenue
New York, New York 10017
-and-
Jeffrey Zwerling, Esq.
ZWERLING, SCHACHTER, ZWERLING &
KOPPELL, LLP
615 Merrick Avenue
Westbury, New York 11590
and upon counsel for Health Management:
John D. Lovi, Esq.
McDERMOTT, WILL & EMERY
50 Rockefeller Plaza
New York, New York 10020
and has filed said objections, papers and briefs, showing due proof of
service upon Plaintiffs' Lead Counsel and counsel for Defendants with the
Clerk of the United States District Court for the Eastern District of New
York, United States Courthouse, 2 Uniondale Avenue, Uniondale, New York
11553.
11. Any member of the Class who does not object in the manner provided
shall be deemed to have waived such objection, and shall forever be
foreclosed from making any objection to the fairness, adequacy or
reasonableness of the proposed Settlement, the order and Final Judgment to be
entered approving the Settlement, or the fees, costs and disbursement
requests.
12. In order to be entitled to participate in the Settlement, a member of
the Class who has not requested exclusion therefrom must submit a proof of
claim, substantially in the form annexed as Exhibit 2 hereto, to Health
Management, Inc. Securities Litigation, in care of the post office box
leased pursuant to paragraph 4 above. A proof of claim must be postmarked on
or before December 31, 1996. Any member of the Class who does not submit a
Proof of Claim shall not be entitled to share in the Settlement Fund, but
nonetheless shall be barred and enjoined from asserting any of the claims
which have been or might have been asserted against Health Management in this
Action.
<PAGE>
13. The Court expressly retains the power to adjourn the Settlement
Hearing, or any adjournment thereof, without any further notice other than an
announcement at the Settlement Hearing, or any adjournment thereof, and to
approve the Settlement Stipulation with modification and without further
notice to members of the Class. The Court retains jurisdiction over this
Action to consider all further applications arising out of, or connected
with, the proposed Settlement herein.
14. The administration of the proposed Settlement, and the decision of all
disputed questions of law and fact with respect to the validity of any claim
or right of any person to participate in the distribution of the Settlement
Fund, shall be under the authority of the Court. The parties to this
Settlement, counsel herein in any capacity in which they may act hereunder,
and any employees or agents of such law firms or the parties to the
Settlement (including, without limitation those employees who may furnish
services in connection with the proposed Settlement), shall not be liable for
anything done or omitted to be done in connection with the proposed
Settlement and the administration thereof except for their own willful
misconduct.
15. The parties to the Settlement Stipulation are directed to carry out
their obligations under the Settlement Stipulation.
16. In the event that the Settlement, on the terms provided by the
Settlement Stipulation, is terminated, cancelled, rejected or is not approved
by the Court, or in the event that the Court enters the Order and Final
Judgment and it is vacated or modified on appeal, or otherwise in a material
way, or if the Effective Date for any other reason does not occur, the
proposed Settlement and any actions to be taken in connection therewith shall
be vacated and terminated and shall become null and void for all purposes,
and all negotiations, transactions and proceedings connected with it (a)
shall be without prejudice to the rights of any party hereto; (b) shall not
be deemed or construed as evidence or an admission by any party of any fact,
matter or thing; and (c) shall not be admissible in evidence or used for any
purpose in any subsequent proceeding in the Action or any other action or
proceeding in this or any other forum. In the event that the events
contemplated by the Settlement Stipulation/* shall occur, the Settlement and
any actions to be taken in connection therewith shall not be deemed or
construed as evidence or an admission by any party of any fact, matter or
thing and shall not be admissible as evidence or used for any purpose in any
proceedings in this or any other forum, except proceedings to enforce the
Settlement.
Dated: Uniondale, New York
_____________, 1996
___________________________________________
Arthur D. Spatt
United States District Judge
EXHIBIT A-1
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
<PAGE>
-----------------------------------------------------x
:
IN RE HEALTH MANAGEMENT, INC. :
SECURITIES LITIGATION : Civil Action No.
: 96-CV-889 (ADS)
-----------------------------------------------------x
:
THIS DOCUMENT RELATES TO :
ALL ACTIONS :
:
-----------------------------------------------------x
NOTICE OF PENDENCY OF CLASS
ACTION, PROPOSED PARTIAL SETTLEMENT
OF CLASS ACTION, AND SETTLEMENT HEARING
TO: ALL PERSONS AND ENTITIES THAT PURCHASED SHARES OF HEALTH MANAGEMENT,
INC. ("HEALTH MANAGEMENT") COMMON STOCK DURING THE PERIOD FROM AND
INCLUDING AUGUST 25, 1994 THROUGH AND INCLUDING FEBRUARY 26, 1996,
EXCLUDING DEFENDANTS, THE MEMBERS OF THE IMMEDIATE FAMILIES OF EACH OF
THE INDIVIDUAL DEFENDANTS AND THE DIRECTORS, OFFICERS, SUBSIDIARIES
AND SUCCESSORS OF HEALTH MANAGEMENT:
The purpose of this Notice is to inform you of the proposed partial
settlement of this class action and the hearing to be held by the United
States District Court for the Eastern District of New York (the "Court") to
consider the fairness, reasonableness and adequacy of the proposed partial
settlement (the "Partial Settlement") with defendant Health Management set
forth in the Stipulation of Partial Settlement dated as of September 16, 1996
(the "Settlement Stipulation").
A. Statement of Plaintiff Recovery: The Partial Settlement will result
in the creation of a settlement fund consisting of a combination of cash,
common stock, warrants, and other consideration with an estimated aggregate
value of Sixteen Million Six Hundred Nineteen Thousand Dollars ($16,619,000),
or $2.34 per share, which, subject to deduction for attorneys' fees and out-
of-pocket expenses, as approved by the Court, will be available for
distribution to the members of the Class. See Section III.
B. Statement of Potential Outcome: An expert retained by plaintiffs,
counsel has opined that, if plaintiffs prevailed on all of their claims
against Health Management and the nonsettling defendants, the maximum amount
of damages recoverable by each member of the Class would be approximately $7
per share, without regard to actual liability or other discounts. While
Health Management denies all liability as to itself, it has concluded that,
even if plaintiffs prevailed on each of their claims, the maximum amount of
damages recoverable by each member of the Class would be $7 per share. See
Section III.
C. Statement of Attorneys' Fees and Costs Sought: Plaintiffs, counsel
intends to apply for an award of attorneys' fees in an amount not to exceed
one-third of the Settlement Fund, or $0.78 per share, as well as
reimbursement of its out-of-pocket expenses incurred in the prosecution of
this litigation to date in an amount not to exceed $250,000, or $ ___ per
share. See Section VIII.
D. Reasons for Settlement: The parties to this Partial Settlement
believe that it is fair, reasonable, and adequate to the members of the
Class. The parties have reached this conclusion after investigating and
considering, among other things, the strengths and weaknesses of plaintiffs'
<PAGE>
claims against Health Management, the present financial condition of Health
Management, the uncertainties inherent in this complex litigation, and the
substantial benefit provided by the Partial Settlement to the members of the
Class. See Section II.
E. Identification of Attorneys' Representatives: Any questions regarding
the Partial Settlement should be directed to the following plaintiffs,
counsel ("Lead Plaintiffs, Counsel"): Frederic Fox, Esq., Kaplan Kilsheimer &
Fox LLP, 685 Third Avenue, New York, New York 10017, Tel. (212) 687-1980;
Jeffrey Zwerling, Esq., Zwerling, Schachter, Zwerling & Koppell, LLP, 615
Merrick Avenue, Westbury, New York 11590, Tel. (516) 832-9600.
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL BE
AFFECTED BY PROCEEDINGS IN THIS LITIGATION. PLEASE NOTE THAT, IF YOU ARE A
CLASS MEMBER, YOU MAY BE ENTITLED TO SHARE IN THE PROCEEDS OF THE PARTIAL
SETTLEMENT DESCRIBED IN THIS NOTICE. TO CLAIM YOUR SHARE OF THIS FUND, YOU
MUST SUBMIT A VALID PROOF OF CLAIM ON OR BEFORE December 31, 1996, IN THE
MANNER SET FORTH BELOW IN SECTION IV.
[END OF COVER PAGE]
I. BACKGROUND OF THE ACTION
This litigation (hereafter referred to as the "Action") consists of 11
putative class actions that were commenced on or after February 28, 1996,
against defendants Health Management, Clifford Hotte ("Hotte"), and Drew
Bergman ("Bergman"). (Defendants Hotte and Bergman are referred to herein
collectively as the "Individual Defendants"). By Order dated August 7, 1996,
the Court consolidated these actions before the Honorable Arthur D. Spatt for
all purposes, and, pursuant to Section 21D of the Securities Exchange Act of
1934 (the "Exchange Act"), appointed plaintiffs Albert Butham, John Cappazzi,
Lewis Steven Cohen, Bharat Dave, Charles DiLustro, Thomas Druetzler, Kurt W.
Grimm, Kenneth Holmes, Charles T. Labozzetta, Lillian Pfaender, and Michael
Zurkan to serve as lead plaintiffs (the "Lead Plaintiffs") in the Action.
The Court also approved the Lead Plaintiffs' choice of the following law
firms as Plaintiffs' Lead Counsel: Zwerling, Schachter, Zwerling & Koppell,
LLP, 615 Merrick Avenue, Westbury, New York 11590, and Kaplan Kilsheimer &
Fox, LLP, 685 Third Avenue, New York, New York 10017. ONLY THOSE CLAIMS
ASSERTED AGAINST HEALTH MANAGEMENT ARE BEING SETTLED AT THIS TIME.
The Lead Plaintiffs seek to recover damages purportedly sustained by
members of the Class as a result of alleged violations of Sections 10(b) and
20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder by the
Securities and Exchange Commission ("SEC"). Specifically, the complaints
filed in the Action allege that defendants caused Health Management to
misstate its publicly disseminated financial results for its fiscal Year
ended April 30, 1995 ("Fiscal 1995"), and for the first two quarters of its
fiscal year ended April 30, 1996 ("Fiscal 1996"). The complaints further
allege that defendants issued or participated in the issuance of other false
and misleading statements pertaining to Fiscal 1995 and Fiscal 1996, and
omitted to state material facts necessary to make the statements made, in
light of the circumstances under which they were made, not misleading.
Plaintiffs further allege that, as a result of these allegedly false and
misleading statements and/or omissions, the market price of Health Management
common stock was artificially inflated, and that the members of the Class
were damaged as a result of the alleged misstatements and omissions.
Although the complaints filed in the Action allege that defendants engaged
in this wrongful conduct during the period from June 16, 1995, through
February 26, 1996, inclusive, Lead Plaintiffs' Counsel now believes that,
based upon information obtained in discovery to date, defendants, either
disseminated or participated in the dissemination of false information to the
public as early as August 25, 1994 -- the date on which Health Management
announced its financial results for the first quarter of Fiscal 1995.
<PAGE>
Therefore, pursuant to the terms of the Settlement Stipulation, plaintiffs
will move the Court to certify a class of all persons or entities (the
"Class"), who purchased Health Management common stock between August 25,
1994, and February 26, 1996, inclusive (the "Class Period"). This Partial
Settlement, if approved, will bind all persons that purchased Health
Management common stock during the Class Period.
II. REASONS FOR PARTIAL SETTLEMENT
Lead Plaintiffs, through their counsel, have made and are continuing to
make a thorough investigation into the facts and circumstances relevant to
the allegations set forth in the complaints filed in the Action. In
connection with that investigation, they are conducting substantial
discovery, including (1) inspecting thousands of pages of documents produced
to plaintiffs by Health Management, including various confidential materials
prepared for the Special Committee of the Health Management Board of
Directors in connection with its investigation of possible accounting
irregularities at Health Management during the Class Period; (2) interviewing
and conducting depositions of various officers, directors, and employees of
Health Management; (3) reviewing documents produced to plaintiffs by various
non-parties with potential knowledge of the facts surrounding this Action;
and (4) conducting interviews and consultations with accounting, valuation,
and damage experts.
Lead Plaintiffs' Counsel also has considered the substantial benefit
provided by the proposed Partial Settlement to the Class, which not only
includes a substantial monetary recovery, but also ensures that Health
Management will continue to respond to discovery requests as if it remained a
party to the Action. Lead Plaintiffs also have considered various actions
taken by Health Management subsequent to the Class Period, including the
termination of the former chief executive officer and chief financial officer
-- defendants Hotte and Bergman, respectively. Finally, Lead Plaintiffs have
considered the limited resources that Health Management possesses to defend
this Action and to satisfy any judgment ultimately obtained by Lead
Plaintiffs on behalf of the Class, as well as the fact that, even if
Plaintiffs were awarded a verdict or judgment against Health Management on
their claims, such verdict or judgment, to the extent collectible, would be
subject to appeals, which could take years to resolve. Based upon these
considerations, Lead Plaintiffs and their counsel have concluded that it is
in the best interests of the Class to conclude the Partial Settlement of the
Action on the terms set forth in the Settlement Stipulation and as discussed
herein.
Health Management expresses no opinion as to the validity of the claims
asserted against either of the Individual Defendants in the Action, nor does
it express an opinion as to the liability of any other person or entity
arising from any of the claims asserted by plaintiffs in the Action. As to
itself, however, Health Management denies all wrongdoing as alleged by Lead
Plaintiffs or any wrongdoing whatsoever. Nevertheless, relying on the
provisions of the Settlement Stipulation that the proposed Partial Settlement
shall in no event be construed or deemed to be evidence, an admission, or a
concession on the part of Health Management of any fault or liability
whatsoever, and without conceding any infirmity in the defenses it has
asserted or intended to assert in the Action, Health Management considers it
desirable and in the best interests of its shareholders that this Action be
dismissed on the terms set forth in the Settlement Stipulation and as
discussed herein in order to avoid further expense, inconvenience,
distraction, and to avoid protracted litigation.
This Notice does not indicate any expression of opinion by the Court
concerning the merits of the respective claims or defenses asserted in the
Action. This Notice is sent merely to advise you of the proposed Partial
Settlement and of your rights in connection therewith.
<PAGE>
III. TERMS OF THE PROPOSED PARTIAL SETTLEMENT
A. Statement of Plaintiff Recovery
In full settlement of any and all direct claims, individual and
representative, that are, could have been or might in the future be asserted
against Health Management by the Lead Plaintiffs or any member of the Class
in the Action, Health Management has agreed to pay into an escrow fund (the
"Settlement Fund"), pursuant to the terms of the Settlement Stipulation, a
combination of cash, stock, warrants, and other consideration with an
estimated aggregate value of Sixteen Million Six Hundred Nineteen Thousand
Dollars, ($16,619,000), or an average of approximately $2.34 per share traded
during the Class Period, as set forth below:
(i) the sum of Two Million Dollars ($2,000,000) in cash;
(ii) Two Million Two Hundred Thousand (2,200,000) shares
of Health Management common stock, with a guaranteed minimum aggregate value
of Nine Million Nine Hundred Thousand Dollars ($9,900,000); and
(iii) warrants to purchase Two Million Two Hundred Thousand (2,200,000)
shares of Health Management common stock, with an estimated aggregate value
of Four Million Seven Hundred Nineteen Thousand Dollars ($4,719,000).
The specific terms and characteristics of the non-cash portion of the
Settlement Fund are set forth in detail below:
1. Health Management Common Stock: Health Management has agreed to
contribute Two Million Two Hundred Thousand (2,200,000) shares of Health
Management common stock to the Settlement Fund, and will further guarantee
that the value of this stock will be no less than Nine Million Nine Hundred
Thousand Dollars ($9,900,000), or $4.50 per share. For purposes of this
Partial Settlement, the value of Health Management common stock (the "Stock
Value") shall be equal to the average closing price of said stock on the
NASDAQ National Market System for a specified twenty (20) day period (the
"Valuation Period"), following the Settlement Hearing and preceding
distribution of the proceeds of the Settlement Fund to members of the class.
In the event that the Stock Value is less than $4.50 per share, then Health
Management shall contribute additional consideration to the Settlement Fund
in the form of cash, Health Management common stock, and/or interest bearing
notes, in such quantities and amounts necessary, as set forth in detail in
the Settlement Stipulation, to bring the aggregate value of the stock portion
of the Settlement Fund to $9.9 million. Any Class Member seeking more
information concerning this additional consideration should consult the
Settlement Stipulation.
2. Warrants To Purchase Health Management Stock: Health Management
also has agreed to contribute to the Settlement Fund warrants to purchase Two
Million Two Hundred Thousand (2,200,000) shares of Health Management common
stock (the "Warrants"). Each Warrant will be valid for eight (8) years from
the date of issuance, and will entitle the holder thereof to purchase one
share of Health Management common stock at a price of $0.50 above the Stock
Value.
Lead Plaintiffs, Counsel has retained an expert in the valuation of
corporate securities for the purposes of valuing the Warrants. This expert
has concluded that, while the actual value of the Warrants depends upon the
outcome of numerous factors, including the future price and performance of
Health Management common stock, the Warrants possess an estimated present
value of approximately Four Million Seven Hundred Nineteen Thousand Dollars
($4,719,000), or $2.145 per warrant.
<PAGE>
Although plaintiffs' expert has valued the proceeds of the Settlement Fund
at approximately Sixteen Million Six Hundred Nineteen Thousand Dollars
($16,619,000), or approximately $2.34 per share of Health Management Common
Stock that traded during the Class Period, the actual recovery obtained by
any particular member of the Class could be substantially higher to the
extent that the value of Health Management common stock rises above $4.50 per
share, or above the exercise price of the Warrants. The actual recovery
obtained by any member of the Class also will vary from the average recovery
per share depending upon numerous other factors, including (i) the actual
number and amount of claims submitted by members of the Class; (ii) the
timing of the Class member's transactions in Health Management common stock
during the Class Period; (iii) the future performance of Health Management
common stock; (iv) the future financial performance of Health Management; or
(v) possible dilution of the value of Health Management common stock or
Warrants based upon subsequent public offerings or private placements. In
addition, as detailed below, the portion of the Settlement Fund available for
distribution to the Class Members may be reduced for payment of various costs
and expenses, including attorneys' and experts' fees, costs associated with
the prosecution of the Action, and payment of taxes.
B. Statement of Potential Outcome of the Action: Lead Plaintiffs,
Counsel has retained a highly qualified expert to analyze the damages
suffered by the members of the Class during the Class Period, both in the
aggregate and on a per share basis. By using widely recognized
methodologies, and by analyzing the trading prices and volume of Health
Management common stock prior to, during, and subsequent to the Class Period,
this expert has concluded that the price of said stock was inflated by an
average of approximately $7 per share throughout the Class Period, and that
the members of the Class incurred aggregate damages of approximately $43.8
million.
Health Management disagrees as to the aggregate and per share damage
estimates set forth above. Specifically, counsel for Health Management also
has retained an expert to analyze the damages suffered by members of the
Class, on an aggregate and per share basis, assuming that Lead Plaintiffs'
allegations in the Action were proven at trial. Based upon this assumption,
and after analyzing the trading prices and volume of Health Management common
stock prior to, during, and subsequent to the Class Period, this expert has
concluded that the members of the Settlement Class incurred aggregate damages
of approximately $43.8 million, or $7 per share.
IV. PARTICIPATION IN THE SETTLEMENT; PROOFS OF CLAIM
TO CLAIM ANY PAYMENTS FROM THE SETTLEMENT FUND, YOU MUST COMPLETE, SIGN AND
SUBMIT THE ACCOMPANYING PROOF OF CLAIM AND RELEASE AND SUBSTITUTE FORM W-9
("PROOF OF CLAIM") AND SEND IT, TOGETHER WITH APPROPRIATE DOCUMENTARY
EVIDENCE OF EACH OF YOUR TRANSACTIONS IN SHARES OF HEALTH MANAGEMENT COMMON
STOCK DURING THE CLASS PERIOD, TO:
HEALTH MANAGEMENT, INC. SECURITIES LITIGATION
P.O. BOX ____
________________, ____________
TO BE CONSIDERED, YOUR PROOF OF CLAIM FORM MUST BE MAILED BY FIRST-CLASS MAIL
AND POSTMARKED ON OR BEFORE December 31, 1996.
Failure to properly complete and mail the Proof of Claim by that date in
accordance with instructions given on it may preclude you from sharing in the
Settlement Fund. In the event that you change your address after submitting
your Proof of Claim, you should promptly send notice in writing to the
Settlement Administrator at the address provided above to avoid delay in
receiving your share of any distribution.
<PAGE>
Each Proof of Claim shall be submitted to and reviewed by the Settlement
Administrator, under the supervision of Plaintiffs, Lead Counsel, who shall
determine the extent, if any, to which each claim shall be allowed, subject
to ultimate approval by the Court.
The Settlement Administrator will notify, in writing, all persons whose
Proofs of Claim have been rejected in whole or in part, and will set forth
the reasons for any such rejections. A reasonable time will be allowed to
remedy deficiencies which are curable.
Any member of the Class who has not received a Proof of Claim form or
desires additional copies thereof may obtain copies by writing to Health
Management, Inc. Securities Litigation at the address provided above. Any
member of the Class who has not filed a Proof of Claim or has not opted-out
of the Partial Settlement, in the manner provided for herein, will be bound
by the Order and Final Judgment irrespective of whether that member has filed
a Proof of Claim.
V. PLAN OF ALLOCATION
Class members who file acceptable Proof of Claim forms in accordance with
the instructions contained therein shall be deemed "Authorized Claimants".
The cash, stock, Warrants, and any other consideration included in the Net
Settlement Fund (the Settlement Fund after deduction of fees and expenses
awarded by the Court and after the deduction of any taxes imposed on the
income, if any, earned on the Settlement Fund proceeds during the
administration of the Partial Settlement) shall be distributed to Authorized
Claimants who have a "Recognized Loss", based on the "Plan of Allocation" set
forth below.
(A) The date of purchase or sale is the "contract" or "trade" date as
distinguished from the "settlement" date.
(B) Recognized Loss will be calculated as the lesser of
the following: (a) the amount paid for shares of Health Management common
stock (excluding commissions), less the amount realized (including
commissions) from the sale of any such shares, if any; or (b) $7.047 per
share. For all Authorized Claimants who purchased and/or sold shares of
Health Management common stock in multiple transactions, Recognized Loss will
be calculated on a "first in/first out" basis, and any profits earned on such
shares purchased and sold during the Class Period will be used to offset any
losses.
(C) In the event that the sum total of Recognized Losses of all Authorized
Claimants is greater than or equal to the Net Settlement Fund, each
Authorized Claimant shall receive his pro rata share of the Net Settlement
Fund, which shall be that portion of his Recognized Loss that is equal to the
ratio of the Net Settlement Fund divided by the total of all Recognized
Losses. If the Net Settlement Fund exceeds the sum total amount of
Recognized Losses of all Authorized Claimants, the excess amount in the Net
Settlement Fund after such distribution shall be refunded to Defendants.
(E) Each Authorized Claimant shall receive his share of the Net Settlement
Fund, pursuant to the terms set forth above, in cash, Health Management
common stock, Warrants, and other consideration, in the same proportion that
such consideration comprises the Net Settlement Fund prior to distribution.
(F) For purposes of determining the extent, if any, to which a member of
the Class shall be entitled to be treated as an Authorized Claimant, the
following conditions shall apply:
<PAGE>
(1) Each member of the Class shall be required to submit a Proof of
Claim supported by such documents as are designated therein or such
additional documents or proof as Lead Plaintiffs' Counsel or their agents, in
their discretion, may deem acceptable.
(2) All Proofs of Claim must be submitted by December 31, 1996, in
the manner provided in Section IV above, unless such period is extended by
order of the Court. Any Class member who fails to submit a Proof of Claim by
such date shall be forever barred from receiving any payment pursuant to the
Settlement Stipulation, but shall in all other respects be bound by the terms
of the Settlement Stipulation and by the Order and Final Judgment entered in
the Action.
Upon the approval by the Court of the proposed Partial Settlement as
provided for in the Settlement Stipulation (including any modification or
amendment thereto approved by counsel for all parties), a judgment will be
entered dismissing the Action against Health Management and forever barring
and enjoining Lead Plaintiffs and each Class member from commencing,
instituting or prosecuting any action or other adversary proceeding in any
court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against Health Management with respect to the
Released Claims as defined in the Settlement Stipulation.
All proceedings with respect to the Partial Settlement described by this
Notice and the determination of all controversies relating thereto, including
disputed questions of law and fact with respect to the validity of claims,
shall be subject to the jurisdiction of the Court.
VI. REQUEST FOR EXCLUSION
A member of the Class will be bound by the proposed Partial Settlement
provided for in the Settlement Stipulation, in the event it is approved by
the Court, and by any judgment or determination of the Court affecting the
Class, unless such member shall mail by first-class mail a written request
for exclusion from the Class, post-marked no later than October 29, 1996,
addressed to: Health Management, Inc. Securities Litigation, P.O. Box
______, ______________. Such request for exclusion must state the name and
address of the person seeking exclusion and identify by date, quantity, and
purchase or sales price, all transactions in shares of Health Management
common stock during the Class Period. A request for exclusion shall not be
effective unless it is made in the manner and within the time set forth in
this paragraph. If a member of the Class requests to be excluded, that Class
member will not receive any benefit provided for in the Settlement
Stipulation, in the event that the Partial Settlement is approved by the
Court. Any member of the Class who does not request exclusion in the manner
provided for herein may, but need not, enter an appearance in this Action, at
his own cost, through counsel of his own choice. If he does not enter an
appearance, he will be represented by the attorneys for the Plaintiffs in the
Action as set forth in the Settlement Stipulation. Plaintiffs' Lead Counsel
are Zwerling, Schachter, Zwerling & Koppell, LLP, 615 Merrick Avenue,
Westbury, New York 11590, and Kaplan Kilsheimer & Fox, LLP, 685 Third
Avenue, New York, New York 10017. If the proposed Partial Settlement is
finally approved by the Court, it will be binding on all Class members who
have not heretofore timely elected to be excluded from the Class.
VII. THE SETTLEMENT HEARING
A hearing (the "Hearing") shall be held before the Honorable Arthur D.
Spatt, at _____ _.m. on _______________ __, 1996 (or at such adjourned time
or times as the Court may without further notice direct) at the United States
District Court, Eastern District of New York, Courtroom __, 2 Uniondale
Avenue, Uniondale, New York:
<PAGE>
(a) to determine whether the proposed Partial Settlement of the Action is
fair, reasonable, and adequate to the Class members, and should be approved
by the Court, and whether an order and Final Judgment should be entered
dismissing the Action against Health Management with prejudice and without
costs;
(b) to determine whether the proposed Plan of Distribution is fair,
reasonable and adequate;
(c) to consider the application of the attorneys for the Class for an
award of fees not to exceed one-third of the Settlement Fund, plus expenses,
as detailed in Section VIII below; and
(d) to reserve jurisdiction to effect and enforce the Partial Settlement.
Any member of the Class who has not requested exclusion from the Class, as
set forth above, may appear at the Hearing in person or through counsel and
be heard as to: (1) why the proposed Partial Settlement of the Action should
or should not be approved as fair, reasonable and adequate; (2) why a
judgment should or should not be entered thereon; or (3) why Class Counsel
should or should not be awarded attorneys' fees, costs, and disbursements, as
requested; provided, however, that no member of the Class shall be heard or
entitled to contest the approval of the terms and conditions of the proposed
Partial Settlement, the Order and Final Judgment to be entered approving the
same, or the fees, costs and disbursements requested, unless on or before
October 25, 1996, that person has served, by hand or first-class mail,
written objections and copies of any supporting papers and briefs (which must
contain proof of all purchases and sales of shares of Health Management
common stock during the Class Period) upon Plaintiffs' Lead Counsel:
Frederic Fox, Esq.
KAPLAN KILSHEIMER & FOX, LLP
685 Third Avenue
New York, New York 10017
(212) 687-1980
-and-
Jeffrey Zwerling, Esq.
ZWERLING, SCHACHTER, ZWERLING & KOPPELL, LLP
615 Merrick Avenue
Westbury, New York 11590
(516) 832-9600
and upon counsel for Health Management:
John D. Lovi, Esq.
McDERMOTT, WILL & EMERY
50 Rockefeller Plaza
New York, New York 10020
and has filed said objections, papers, and briefs, showing due proof of
service upon said Plaintiffs' Lead Counsel and counsel for Health Management
with the Clerk of the United States District Court for the Eastern District
of New York, United States Courthouse, 2 Uniondale Avenue, Uniondale, New
York 11553.
Any member of the Class who does not object in the manner provided shall be
deemed to have waived such objection and shall forever be foreclosed from
making any objection to the fairness, adequacy or reasonableness of the
proposed Partial Settlement.
The Court has expressly retained its power to adjourn the Hearing or any
adjournment thereof without any further notice other than an announcement at
<PAGE>
the Hearing or any adjournment thereof and to approve the Settlement
Stipulation with modification and without further notice to members of the
Class.
VIII. APPLICATION FOR ATTORNEYS' FEES, COSTS AND DISBURSEMENTS
If the Settlement is approved by the Court, counsel for Plaintiffs and the
Class shall apply to the Court for awards of attorneys' fees in an amount not
to exceed one-third of the Settlement Fund, plus accrued interest, to be paid
in a combination of cash, Health Management common stock, Warrants, and other
consideration, in the same proportion as paid to Authorized Claimants. In
addition, counsel for plaintiffs will request an award from the cash portion
of the Settlement Fund for reimbursement of their costs and disbursements
incurred in this Action, including expert fees incurred, which counsel
presently estimates will not exceed $250,000. The attorneys' fees, costs and
disbursements awarded will be paid entirely from the Settlement Fund, and
will reduce that portion of the Settlement Fund available for distribution to
members of the Settlement average of approximately $.78 per share.
The fees sought by counsel for Plaintiffs are customary in actions brought
on a contingency fee basis, and are justified by the substantial time and
effort already invested in the prosecution of this Action, as well as the
time and effort that will be required of counsel for Plaintiffs prior to
final approval of this Partial Settlement. The expense reimbursement sought
by counsel for Plaintiffs consists of those out-of-pocket expenses actually
incurred in the prosecution of the Action to date, including fees payable to
consulting experts.
IX. SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEES
If you acted as a nominee for any purchaser of shares of Health Management
common stock from August 25, 1994 through February 26, 1996, inclusive, for
the beneficial interest of a person or entity other than yourself, you are
hereby requested to provide the name and last known address of each person or
organization for whom or which you effected such purchases or sales. The
information should be sent in writing to:
HEALTH MANAGEMENT, INC. SECURITIES LITIGATION
P.O. BOX ________
________________, ____________
Upon receipt of such information, copies of this Notice will be sent to each
beneficial owner so designated. Alternatively, you may request, in writing,
additional copies of this Notice and the Proof of Claim and you may mail the
Notice and Proof of Claim directly to the beneficial owners of the securities
referred to herein. Brokers and other nominees may request reimbursement of
their reasonable costs in complying with this request.
X. EXAMINATION OF PAPERS AND INQUIRIES
The foregoing is only a summary of the Action and the proposed Partial
Settlement, and does not purport to be comprehensive. For a more detailed
statement of the matters involved in the Action and the proposed Partial
Settlement, you may refer to the pleadings, the Settlement Stipulation and
the other papers filed in the above Action, which may be inspected at the
Office of the Clerk of the United States District Court, United States
Courthouse, 2 Uniondale Avenue, Uniondale, New York 11553, during regular
business hours of each business day.
Members of the Class are currently represented by Plaintiffs' Class
Counsel. If you have any questions with respect to the Notice, or with
respect to the accompanying Proof of Claim, you may consult an attorney of
<PAGE>
your own choosing or write to Health Management, Inc. Securities Litigation,
[ ].
Dated: _______________, 1996
Clerk of the Court
United States District Court
Eastern District of New York
REMINDER: THE DEADLINE FOR FILING PROOF OF CLAIM FORMS IS ___________,
1996. ANY QUESTIONS RELATING TO THE CLAIM FORMS SHOULD BE
DIRECTED TO THE CLAIMS ADMINISTRATOR AT 1-800-________.
EXHIBIT A-2
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
x
IN RE HEALTH MANAGEMENT, INC. :
SECURITIES LITIGATION : Civil Action No.
: 96-CV-889 (ADS)
x
:
THIS DOCUMENT RELATES TO: :
ALL ACTIONS :
:
x
INSTRUCTIONS FOR PROOF OF CLAIM AND RELEASE
In order for you to qualify to participate in the distributions
described in the Notice of Pendency of Class Action, Proposed Partial
Settlement of Class Action, and Settlement Hearing (the "Class Notice") , you
must file a Proof of Claim and Release in the form attached hereto and you
must provide the required documentation to substantiate your claim.
REQUIREMENTS FOR FILING
Your claim will be considered only upon compliance with all of the
following conditions:
1. You must accurately complete all portions of the attached Proof of
Claim and Release form.
NOTE: The Proof of Claim and Release contains purchase and sales schedules.
You must carefully complete these schedules. Do not omit to state any
potentially relevant information regarding your purchases or sales of Health
Management common stock. This information is necessary to determine your
share of any distributions. If you cannot list all transactions in the
spaces provided in the Proof of Claim and Release form, or if you believe
that you must or should supply additional information with respect to any
transaction, attach additional sheets to the Proof of Claim and Release
supplying the required information. You must be properly identified on each
additional sheet of paper.
2. You must sign the Proof of Claim and Release form.
<PAGE>
NOTE: If the securities were or are owned jointly, all joint owners must
sign the Proof of Claim and Release. Executors, administrators, guardians,
conservators and trustees may complete and sign the Proof of Claim on behalf
of persons or entities represented by them, but they must identify such
persons or entities and provide proof of their authority (for example,
currently effective letters testamentary or letters of administration) to
complete and execute the Proof of Claim on their behalf and to bind them in
accordance with the terms thereof. A Proof of Claim submitted by legal
representatives of a claimant must be executed by all such representatives.
3. You must attach to the Proof of Claim and Release form the
original, or legible copies, of broker confirmation slips, monthly brokerage
statements or other satisfactory proof confirming the
particulars of each purchase or sale you have made of Health Management
common stock from and including August 25, 1994 through and including
February 26, 1996.
4. You must mail the completed and signed Proof of Claim and Release
and supporting documents by first-class mail, postage prepaid, postmarked no
later than , 1996 to:
HEALTH MANAGEMENT, INC. SECURITIES LITIGATION
Your failure to complete and mail the Proof of Claim and Release by that
date may preclude you from receiving any share of the available
distributions. So that you will have a record of the date of your mailing
and its receipt by the Settlement Administrator, you are advised to use
certified mail, return receipt requested.
5. You must also complete and mail with your completed Proof of Claim
the Substitute Form W-9, which is attached to the Proof of Claim form.
ANY PERSON WHO KNOWINGLY SUBMITS A FALSE PROOF OF
CLAIM IS SUBJECT TO PENALTIES FOR PERJURY AND OTHER
VIOLATIONS OF FEDERAL LAW.
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
x
IN RE HEALTH MANAGEMENT, INC. :
SECURITIES LITIGATION : Civil Action No.
: 96-CV-889 (ADS)
x
:
THIS DOCUMENT RELATES TO: :
ALL ACTIONS :
:
x
PROOF OF CLAIM AND RELEASE
(Please Print or Type)
I, (and)
(if applicable)
state as follows:
<PAGE>
IDENTITY OF CLAIMANT
(Complete only the applicable portions)
Individual or Joint Owners: My (Our) name(s) is (are)
and my (our) mailing address is:
.
CORPORATION: I am the of
, whose address is
, and I am duly authorized to make this claim on behalf of the
Corporation.
PARTNERSHIP: I am a member of the partnership of
, whose business address is
,
and I am authorized to make this claim on behalf of the partnership.
EXECUTOR OR ADMINISTRATOR: I (We) am (are) the executor(s), or
administrator(s) of the Estate of ,
and my (our) mailing address is
. I (We) have attached hereto copies of my (our) Letters
Testamentary or Letters of Administration.
CUSTODIAN OR GUARDIAN: I am custodian or guardian for
, and my mailing address is
.
I became guardian (custodian) under the following circumstances:
.
TRUSTEE: I (We) am (are) trustee(s) of a trust created by
,
and my (our) mailing address is
.
I (We) became trustee under the following circumstances:
.
AGENT OR ATTORNEY: I am agent (attorney-in-fact) for
,
and my mailing address is
. I have attached hereto my Power of Attorney or the
instrument showing my authority to act as agent.
IRA, KEOGH OR OTHER TYPE OF INDIVIDUAL RETIREMENT PLAN:
.
(Please indicate type of plan, mailing address, and name of current
custodian).
OTHER (Give particulars as to identity, status as claimant or
representative of claimant, and mailing address if your situation does not
fit any of the above categories):
.
PURCHASE AND SALE SCHEDULES
Separately list each of your purchases and sales of Health Management
common stock below. Attach a separate schedule if more space is needed. (Be
sure to include your name on any separate sheets.)
<PAGE>
The date of purchase or sale is the "trade" or "contract" date, and not
the "settlement" or "payment" date. The sale price or purchase price is the
price paid without regard to commissions or other expenses.
PURCHASES OF COMMON STOCK
A. List the number of shares of Health Management common stock owned
as of August 24, 1994:
If none were owned as of that date, state "none".
B. List by date, number of shares purchased, price paid per share
and total price paid for each purchase you made of Health Management common
stock between August 25, 1994 and February 26, 1996, inclusive:
Date(s) of
Purchase Aggregate Cost (net of
(List Chrono- Number of Purchase commissions,
logically) Shares Price Per taxes and
Month/Day/Year Purchased Share fees)
$ $
$ $
$ $
$ $
$ $
$ $
SALES OF COMMON STOCK
A. List by date, the number of shares sold, sales price per share, and
total sales price received for each sale you made of Health Management common
stock between August 25, 1994 and February 26, 1996 inclusive:
Amount
Date(s) of realized
Purchase (including
(List Chrono- Number of Selling commissions,
logically) Shares Price Per taxes and
Month/Day/Year Sold Share fees)
$ $
$ $
$ $
$ $
$ $
B. List the number of shares of Health Management common stock you
held as of the close of business on February 26, 1996:
If none were owned as of that date, state "none".
VERIFICATION AND RELEASE
<PAGE>
I (We), and the person I (we) represent(s), if any, submit(s) to the
jurisdiction of the United States District Court for the Eastern District of
New York, for purposes of further inquiry with respect to this Proof of Claim
and Release under the Federal Rules of Civil Procedure, and agree(s) to be
bound by and subject to the terms of the judgments and orders of that Court
in connection with the settlement in the above-captioned Class Action, and to
furnish such additional proof or information with respect to this Proof of
Claim and Release as the Court shall require.
I (We) have read and am (are) familiar with the contents of the
Instructions accompanying this Proof of Claim and I (we) verify that the
information I (We) have set forth in the foregoing Proof of Claim and Release
and in documents attached hereto is true and correct and complete to the best
of my (our) knowledge. I (We) am (are) not either a Settling Defendant(s)
nor an "Excluded Person" as defined in the Class Notice. I (We) am (are)
enclosing a completed and signed Substitute Form W-9 and have attached hereto
the original or legible copies of broker confirmation slips or statements or,
if not available, other proof of the dates and amounts of my (our) purchases
and sales of Health Management common stock. I further certify that I have
read and am familiar with the accompanying Notice of Pendency of Class
Action, Proposed Partial Settlement of Class Action, and Settlement Hearing
(the "Notice") to which this Proof of Claim and Release relates. I
understand and agree that this Proof of Claim and Release will be processed
and will be allowed, if at all, in accordance with the procedures set forth
in the Notice.
I further agree and understand that if the proposed Partial Settlement
is approved by the Court and becomes effective, all direct claims against
Health Management, Inc., arising out of, relating to, or in connection with
the institution, prosecution, assertion or resolution of this action (the
"Action") will be satisfied, discharged and extinguished forever.
My signature hereto constitutes a full and complete release, remise and
discharge by me or, if I am submitting this Proof of Claim on behalf of a
corporation, a partnership, estate or one or more other persons, by it, him,
her or them, and by my, its, his, her or their heirs, executors,
administrators, predecessors, successors, affiliates, assigns (whether
express or by implication or operation of law), any entity now or in the
past, or hereafter controlled by or controlling me, it, him, her or them, and
my, its, his, her or their past and present partners, officers, directors,
employees, agents and attorneys, and any person(s) I, it, he, she or they
represents), for good and sufficient consideration, the receipt and adequacy
of which is hereby acknowledged, of Health Management, Inc. only, from any
and all claims or causes of action, demands, rights, liabilities, and causes
of action of every nature and description whatsoever, asserted by the
Representative Plaintiffs or the Settlement Class Members, or any of them,
against Health Management, Inc. based upon or related to both the purchase of
Health Management common stock by the Representative Plaintiffs or the
Settlement Class Members during the Settlement Class Period and the facts,
transactions, events, occurrences, disclosures, statements, acts or omissions
or failures to act which were alleged in the Litigation. This Release is not
intended to and shall not release Health Management, Inc., from its
obligations under the Settlement Stipulation.
Dated: , 1996
(Signature)
(Signature)
Social Security Number(s)
or
<PAGE>
Taxpayer I.D. Number(s)
Telephone Number(s)
EXHIBIT A-3
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------------------------------x
IN RE HEALTH MANAGEMENT, INC. :
SECURITIES LITIGATION : Civil Action No.
: 96-CV-889 (ADS)
------------------------------------------------------x
: CLASS ACTION
THIS DOCUMENT RELATES TO :
ALL ACTIONS :
------------------------------------------------------x
SUMMARY NOTICE OF PENDENCY OF CLASS ACTION,
PROPOSED PARTIAL SETTLEMENT, AND SETTLEMENT HEARING
TO: ALL PERSONS OR ENTITIES THAT PURCHASED SHARES OF THE COMMON STOCK OF
HEALTH MANAGEMENT, INC. DURING THE PERIOD FROM AUGUST 25, 1994 THROUGH
FEBRUARY 26, 1996.
This Summary Notice is given pursuant to Rule 23 of the Federal Rules of
Civil Procedure and an Order by the United States District Court for the
Eastern District of New York (the "Court"), dated ____________________, 1996.
The purpose of this Notice is to inform you of the pendency of a consolidated
class action against defendants Health Management, Inc. ("Health
Management"), Clifford Hotte ("Hotte") and Drew Bergman ("Bergman"),
(collectively, "Defendants") and the proposed partial settlement of
$16,619,000 of only those claims asserted against Health Management in the
class action. A hearing will be held by the Court on ____________________,
1996, at ____ __.m. in the United States District Court, United States
Courthouse, Courtroom _____, 2 Uniondale Avenue, Uniondale, New York 11553.
The purpose of the hearing will be, among other things: (1) to determine
whether the proposed settlement should be approved by the Court as fair,
reasonable, and adequate and, therefore, whether the class action should be
dismissed as to Health Management on the merits and with prejudice and
without costs; and (2) to consider the reasonableness of an application of
Class Counsel for the payment of attorneys' fees and expenses incurred in
prosecuting the class action.
If you bought Health Management common stock between August 25, 1994 and
February 26, 1996, inclusive, you may be a Class member. Your rights against
Defendants will be affected by this Partial Settlement. In particular, if
you wish to share in the partial settlement, you must file a claim, on a
Proof of Claim and Release form, no later than December 31, 1996,
establishing that you are entitled to recovery. The Court will exclude you
from the class if you request exclusion by October 29, 1996. IF YOU DO NOT
FILE A PROPER PROOF OF CLAIM FORM AND HAVE NOT EXCLUDED YOURSELF FROM THE
<PAGE>
PARTIAL SETTLEMENT, YOU WILL NOT SHARE IN THE SETTLEMENT BUT YOU WILL BE
BOUND BY THE FINAL JUDGMENT OF THE COURT.
Pursuant to Section 21D(a)(7) of the Securities Exchange Act of 1934, a
detailed description of the terms of the proposed partial settlement,
including the reasons for entering into the proposed partial settlement, and
the amount and form of consideration to be distributed to the Class, is
included in the printed Notice of Pendency of Class Action, Proposed Partial
Settlement of Class Action, and Settlement Hearing. If you have not already
received a copy of this detailed printed notice, or a copy of the Proof of
Claim and Release, you may obtain such information by contacting:
Health Management, Inc. Securities Litigation
P.O. Box _____
- or -
Frederic Fox, Esq.
KAPLAN KILSHEIMER & FOX, LLP
685 Third Avenue
New York, New York 10017
- or -
Jeffrey Zwerling, Esq.
ZWERLING, SCHACHTER, ZWERLING & KOPPELL, LLP
615 Merrick Avenue
Westbury, New York 11590
Plaintiffs' Lead Counsel
DO NOT CONTACT THE COURT OR THE CLERK'S OFFICE FOR INFORMATION.
Dated: ____________________, 1996
BY ORDER OF THE COURT
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT
OF NEW YORK
EXHIBIT B
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------------------x
IN RE HEALTH MANAGEMENT, INC. Master File No.
SECURITIES LITIGATION 96-CV-889 (ADS)
CLASS ACTION
---------------------------------------------------x
[PROPOSED] FINAL JUDGMENT AND
ORDER OF PARTIAL DISMISSAL OF ACTION
<PAGE>
KAPLAN, KILSHEIMER & FOX LLP
Robert N. Kaplan (RK-3100)
Frederic Fox (FF-9102)
Joel B. Strauss (JS-6585)
685 Third Avenue
New York, NY 10017
(212) 687-1980
ZWERLING, SCHACHTER, ZWERLING
& KOPPELL, LLP
Jeffrey Zwerling (JZ-7924)
Joseph Lipofsky (JL-0971)
767 Third Avenue
New York, NY 10017
(212) 223-3900
Plaintiffs' Settlement Counsel
EXHIBIT B
This matter came on for hearing on __________, 1996, upon
the application of the parties for approval of the partial settlement set
forth in the Stipulation of Partial Settlement (the "Stipulation") dated as
of September __, 1996. Due and adequate notice having been given to the
Settlement Class defined below, and the Court having considered the
Stipulation, all papers filed and proceedings had herein and all oral and
written objections and comments received regarding the proposed settlement,
and having reviewed the entire record in the Litigation, and good cause
appearing,
IT IS HEREBY ORDERED, ADJUDGED AND DECREED AS FOLLOWS:
1. The Court, for purposes of the Final Judgment and order of Partial
Dismissal of Action (the "Final Judgment"), adopts all defined terms as set
forth in the Stipulation.
2. The Court has jurisdiction over the subject matter of the Class
Action, the Representative Plaintiffs, the Settlement Class, and the Settling
Defendant.
3. The Court finds that the distribution of the Notice of Pendency and
Proposed Partial Settlement of Class Action and Settlement Hearing, Proof of
Claim and Release, and publication of the Summary Notice as provided for in
the Order Preliminarily Approving Partial Settlement, Approving Notice of
Proposed Settlement, and Setting Settlement Hearing constituted the best
notice practicable under the circumstances to all persons within the
definition of the Settlement Class, and fully met the requirements of Rule 23
of the Federal Rules of Civil Procedure, due process, the United States
Constitution, and any other applicable law.
4. Pursuant to and in accordance with the requirements of Rule 23 of
the Federal Rules of Civil Procedure, the Court approves the partial
settlement of the Class Action set forth in the Stipulation, each of the
releases and other terms, as fair, reasonable, and adequate to the Settlement
Class. The parties to the Stipulation shall complete and finalize the
settlement in accordance with the terms set forth in the Stipulation.
<PAGE>
5. Except as to any individual claim of those Class Members
(identified in Exhibit 1 hereto) who have validly and timely requested
exclusion from the Settlement Class, the Released Claims are dismissed on the
merits and with prejudice, as to the Settling Defendant only, and the parties
are to bear their own costs.
6. All Settlement Class Members whether or not such Settlement Class
Member has filed a Proof of Claim, shall, as of the Effective Date,
conclusively be deemed to have released and forever discharged the Settling
Defendant from all Released Claims.
7. The Settling Defendant shall, as of the Effective Date, conclusively
be deemed to have released and forever discharged each of the Representative
Plaintiffs, the Settlement Class Members, and counsel to the Representative
Plaintiffs, as set forth in paragraph 6.2 of the Stipulation.
8. All Settlement Class Members are permanently barred and enjoined
from instituting or prosecuting, in any capacity, any action or proceeding
that involves or asserts any of the Released Claims against the Settling
Defendant.
9. The Settling Defendant is permanently barred and enjoined from
instituting or prosecuting, in any capacity, any action or proceeding that
invokes or asserts any of the claims released in paragraph 6.2 of the
Stipulation.
10. All Persons who have filed valid and timely requests for exclusion
from the Settlement Class shall not be bound by this Final Judgment. A list
of the names of those persons who are not bound by this Final Judgment is
attached hereto.
11. The Court reserves exclusive and continuing jurisdiction over the
Class Action, the Representative Plaintiffs, the Settlement Class and the
Settling Defendant for the purposes of: (i) supervising the implementation,
enforcement, construction, and interpretation of the Stipulation, the
Preliminary order, the proposed Plan of Allocation, and the Final Judgment;
(2) hearing and determining any application by Plaintiffs' Settlement Counsel
for an award of attorney's fees, costs, and expenses; and (3) supervising the
distribution of the Settlement Fund.
12. Any Plan of Allocation to be submitted by Plaintiffs' Settlement
Counsel or any order to be entered regarding the attorneys' fees application
shall in no way disturb or affect this Final Judgment and shall be considered
separate from this Final Judgment.
13. Neither the Stipulation nor the settlement contained therein, nor
any act performed or document executed pursuant to or in furtherance of the
Stipulation or the settlement: (i) is or may be deemed to be or may be used
as an admission of, or evidence of, the. validity of any Released Claim, or
of any wrongdoing or liability of the Settling Defendant, or (ii) is or may
be deemed to be or may be used as an admission of, or evidence of, any fault
or omission of the Settling Defendant in any civil, criminal or
administrative proceeding in any court, administrative agency or other
tribunal. The Settling Defendant may file the Stipulation and/or the
judgment from this action in any other action that may be brought against
them in order to support a defense or counterclaim based on principles of res
judicata, collateral estoppel, release, good faith settlement, judgment bar
or reduction or any theory of claim preclusion or issue preclusion or similar
defense or counterclaim.
DATED: __________________________ ________________________________
THE HONORABLE ARTHUR D. SPATT
UNITED STATES DISTRICT JUDGE
<PAGE>
Submitted by:
McDERMOTT WILL & EMERY
By:______________________________
John D. Lovi
50 Rockefeller Plaza
New York, NY 10020
(212) 768-5400
Attorneys for Defendant
Health Management, Inc.
KAPLAN, KILSHEIMER & FOX LLP
By:______________________________
Frederic S. Fox
685 Third Avenue
New York, NY 10017
(212) 687-1980
ZWERLING, SCHACHTER, ZWERLING
& KOPPELL, LLP
By:______________________________
Jeffrey Zwerling
767 Third Avenue
New York, NY 10017
(212) 223-3900
Plaintiffs' Settlement Counsel
<PAGE>
Exhibit 99.1
Health Management, Inc.
1371-A Abbott Court
Buffalo Grove, Illinois 60089
Tel: 847-913-2700
Fax: 847-913-2715
FOR IMMEDIATE RELEASE
HEALTH MANAGEMENT, INC. REPORTS
FIRST QUARTER 1997 FINANCIAL RESULTS
Buffalo Grove, IL -- September 16, 1996 ... Health Management, Inc. ("HMI")
(NNM:HMIS) filed its Form 10-Q with the Securities and Exchange Commission and
today reported financial results for its 1997 fiscal first quarter, ended July
31, 1996.
For the first quarter, the Company reported revenues of $40,522,910 and net
income of $431,888 or $0.05 per share, compared to revenues of $38,294,030 and
net income of $1,588,738 or $0.17 per share in the comparable quarter last year.
Wm. James Nicol, President and Chief Executive Officer of HMI, said, "The
Company's revenues reflect the strength of its customer base and referral
levels. Our gross profits, as a percentage of net sales, were 25.9% for the
first quarter, in line with the fourth quarter margins of 25.7%.
"Our pre-tax profits of $684,999 represent a continuing trend of profit
improvement, despite increased legal expenses associated with the Company's
litigation. Specifically, our pre-tax profits of approximately $685,000
represent a $170,000 improvement over the fourth quarter of last year, even
after the Company absorbed approximately $500,000 in incremental legal expenses.
This improvement is attributable to HMI's continuing focus on reducing expenses
Company-wide."
"There were other positive events in the first quarter. Our working capital
increased to over $3 million at the end of the quarter, an increase of
approximately $600,000 from the end of the fourth quarter. As part of our on-
going commitment to enhance our internal financial controls, we put into place a
perpetual inventory system, which provides better management over on-hand
inventory and automatically records cost of sales when products are shipped.
The Company has also finalized the closure of its former Long Island corporate
offices and has executed a lease termination agreement which will save over
$500,000 over the remaining life of the lease," Nicol added.
The Company also noted it is in the process of negotiating the final terms of a
Stipulation of Settlement with plaintiffs' counsel which would resolve the
litigation as regards the Company. Such Stipulation of Settlement will be
subject to court approval.
Health Management, Inc. is a national provider of integrated pharmacy management
services to patients with chronic medical conditions and to health care
professionals, drug manufacturers and third-party payers involved in their care.
Except for historical information contained herein, the statements made in this
release constitute forward looking statements that involve certain risks and
uncertainties. Certain factors may cause actual results to differ materially
from those contained in the forward looking statements, including those risks
detailed from time to time in the Company's reports on file at the Securities
and Exchange Commission, including the Company's Form 10-Q for the fiscal first
quarter ended July 31, 1996.
# # #
For additional information:
At Edelman Financial:
Diane Perry or Joseph Kist (Investors) Mark Danes (Media)
212-704-8293 or 212-704-8239 212-704-4464
At HMI:
Jim Nicol, President and CEO
847-913-2404
Paul Jurewicz, CFO
847-913-2407
FINANCIAL TABLES FOLLOW
HEALTH MANAGEMENT, INC.
and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
July 31, July 31, April 30,
1996 1995 1996
<S> <C> <C> <C>
Revenue $40,522,910 $38,294,030 $40,489,416
Cost of Sales 30,010,893 26,533,234 30,100,571
Gross Profit 10,512,017 11,760,796 10,388,845
Operating Expenses:
Selling 1,233,317 1,085,202 1,022,666
General & Administrative 7,854,664 7,364,414 8,110,980
9,087,981 9,449,616 9,133,646
Income from Operations 1,424,036 3,311,180 1,255,199
Interest Expense (Income) 739,537 610,936 741,048
Income Before Taxes on Income 684,499 2,700,244 514,151
Taxes on Income 252,611 1,111,506 3,266,108(1)
Net Income $ 431,888 $1,588,738 $(2,751,957)
Earnings Per Common Share:
Primary $0.05 $0.17 $(0.29)
Fully Diluted $0.05 $0.17 $(0.29)
Weighted Average Shares Outstanding:
Primary 9,328,240 9,444,919 9,414,500
Fully Diluted 9,328,240 9,444,919 9,414,500
(1) Fourth quarter and Fiscal Year 1996 include a revaluation of and a $2.5
million valuation allowance for deferred tax assets.
</TABLE>
HEALTH MANAGEMENT, INC.
and Subsidiaries
Condensed Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
July 31, 1996 April 30, 1996
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,585,702 $ 3,280,195
Accounts Receivable, Less
Allowance for Doubtful Accounts 36,959,345 36,457,199
Inventories 7,212,031 6,800,820
Tax Refund Receivable 6,301,500 8,037,030
Deferred Taxes 1,807,000 1,807,000
Prepaid expenses and other 403,853 655,358
Total Current Assets 54,269,431 57,037,602
IMPROVEMENTS and EQUIPMENT, Less
Accumulated Depreciation
and Amortization 3,680,009 3,825,974
EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 33,711,294 34,008,496
OTHER 1,167,110 1,043,607
$92,827,844 $95,915,679
</TABLE>
HEALTH MANAGEMENT, INC.
and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
July 31, 1996 April 30, 1996
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $18,448,135 $20,714,836
Accrued Unusual Charges 2,150,696 3,559,000
Accrued Expenses 1,778,096 1,526,119
Current Maturities of Long Term Debt 28,749,935 28,746,028
TOTAL CURRENT LIABILITIES 51,126,862 $ 4,545,983
Long Term Debt,
Less Current Maturities 3,905,474 4,006,077
TOTAL LIABILITIES 55,032,336 58,552,060
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock - $.01 Par Value:
Shares Authorized - 1,000,000
Issued and Outstanding, none
Common Stock - $.03 Par Value:
Shares Authorized - 20,000,000
Issued and Outstanding - 9,328,240 279,847 279,847
Additional Paid-In Capital 38,138,772 38,138,772
Retained Earnings (623,111) (1,055,000)
TOTAL STOCKHOLDERS' EQUITY 37,795,508 37,363,619
$92,827,844 $95,915,679
</TABLE>
Exhibit 99.2
Health Management, Inc.
1371-A Abbott Court
Buffalo Grove, Illinois 60089
Tel: 708-913-2700
Fax: 708-913-2715
FOR IMMEDIATE RELEASE
HEALTH MANAGEMENT, INC. REACHES AGREEMENT TO SETTLE
SHAREHOLDER LITIGATION
Buffalo Grove, IL -- September 17, 1996 ... Health Management, Inc. ("HMI")
(NNM:HMIS) today announced that it has signed a Stipulation of Settlement
providing for the settlement of all the pending shareholder class action
lawsuits filed against the Company.
The litigation settlement, which will be subject to final approval by the U.S.
District Court for the Eastern District of New York, provides for the payment of
$2,000,000 in cash, the issuance of 2,200,000 shares of HMI common stock and
2,200,000 warrants to purchase common stock. A portion of the cash payment to
be made is anticipated to be covered by the Company's Director's and Officer's
Liability Insurance carrier. The warrants will have a term of eight (8) years
from the date of issuance and will have an exercise price which is $.50 higher
than the average closing price of HMI stock for a period specified in the
Stipulation of Settlement. "The Company received preliminary approval from the
Court this morning and a hearing for final approval was set for November 8. If
the Court's subsequent final approval is granted at that hearing, which we are
requesting, a distribution date next summer would be likely," said Andre
Dimitriadis, Chairman of HMI.
"Resolution of the shareholder litigation has been a top priority. With the
Stipulation of Settlement behind us, we all look forward to devoting our time
and resources to managing our core LifeCare business and to continue our
expansion into new markets," said James Nicol, President and CEO. "We are now
finally positioned to aggressively pursue the full course of financial
alternatives open to us in accordance with our agreement with NatWest
Securities."
The Company also reported that it expects, pursuant to the Settlement, to record
a charge of approximately $14 to $18 million, depending upon the valuation for
accounting purposes ultimately assigned to the warrants, and that such charge
will be taken in the second quarter of fiscal year 1997.
Commenting further on the terms of the settlement, Dimitriadis stated that it
did provide "certain guarantees relating to a target market value of the common
stock of $4.50 which must be met during a period specified in the Stipulation of
Settlement and would result in the distribution of additional cash or the
issuance of debentures to make up any short-fall to such target market price but
would not result in the issuance of any additional shares or warrants."
Health Management, Inc. is a national provider of integrated pharmacy management
services to patients with chronic medical conditions and to health care
professionals, drug manufacturers and third-party payers involved in their care.
Except for historical information contained herein, the statements made in this
release constitute forward looking statements that involve certain risks and
uncertainties. Certain factors may cause actual results to differ materially
from those contained in the forward looking statements, including those risks
detailed from time to time in the Company's reports on file at the Securities
and Exchange Commission, including the Company's Form 10-Q for the fiscal year
ended April 30, 1996.
# # #
For additional information:
At Edelman Financial:
Diane Perry or Joseph Kist (Investors) Mark Danes (Media)
212-704-8293 or 212-704-8239 212-704-4464
At HMI:
Jim Nicol, President and CEO
847-913-2404
Paul Jurewicz, CFO
847-913-2407
