<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 30, 1998, OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number : 0-16235
PHP HEALTHCARE CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 54-1023168
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11440 COMMERCE PARK DRIVE
RESTON, VIRGINIA 20191
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(Address of principal office) (zip code)
Registrant's Telephone Number, Including Area Code: (703) 758-3600
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
- ---------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value New York Stock Exchange
with associated Preferred Stock
Purchase Rights
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant (based on the closing price of such stock as reported on August 14,
1998 through the New York Stock Exchange) was approximately $23 million. There
were 11,547,343 shares of common stock, $0.01 par value per share, outstanding
as of August 14, 1998.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its annual report on Form 10-K by
restating such portions in their entirety as set forth in the pages attached
hereto:
Part III, Items 10 through 13 and Part IV, Item 14.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item for executive officers is set forth
in Part I of this report under the heading "Executive Officers" of the Company.
The following sets forth certain information as of the date hereof with
respect to the Company's directors. The Board of Directors is classified into
three classes whose terms are staggered to expire in different years. The term
of office of one class of directors expires each year in rotation so that one
class is elected at each annual meeting of shareholders for a full three-year
term. The terms of three of the present directors expire at the 1998 annual
meeting. The other seven directors will continue in office for the remainder of
their terms as indicated below.
<TABLE>
<CAPTION>
SERVED AS TERM AS DIRECTOR
POSITIONS OR OFFICES DIRECTOR EXPIRES AT THE
NAME WITH THE COMPANY CONTINUOUSLY SINCE ANNUAL MEETING IN AGE
----------------------- ------------------------------------- ------------------ ----------------- -------
<S> <C> <C> <C> <C>
Charles P. Reilly None 1991 2000 55
Jack M. Mazur President and Chief Executive Officer 1976 1998 56
Michael D. Starr Senior Executive Vice President, 1985 1998 54
Treasurer
Robert L. Bowles, Jr. President, D.C. Chartered Health 1996 1999 58
Plan, Inc.
William J. Lubin Executive Vice President 1997 2000 46
Frank L. Provato, M.D. Executive Vice President and 1997 1998 50
Corporate Medical Director
Donald J. Ruffing None 1991 1999 77
Joseph G. Mathews None 1993 1999 64
Jerry W. Carlton None 1997 2000 56
John J. McDonnell None 1997 2000 51
</TABLE>
The following are brief summaries of the business experience during at
least the past five years of each of the directors of the Company.
Charles P. Reilly joined the Company as a Director in 1991 and became
Chairman of the Board in February 1997. Mr. Reilly is the managing general
partner of Shamrock Investments, a financial advisory and investment firm that
specializes in the health care industry. Mr. Reilly serves as Chairman of the
Board of Directors of Dynamic Health, Inc., an acute care hospital company, and
as a director of G & L Realty Corporation, a NYSE health care real estate
investment trust (REIT). Mr. Reilly has served as a director, trustee and
governing council member of the Federation of American Healthcare Systems and
The National Committee for Quality Health Care and the American Hospital
Association. From August 1994 to August 1995, Mr. Reilly was an officer and
employee of the Company, serving as a member of the Executive Council.
Jack M. Mazur has been a Director of the Company since 1976 and has served
as President since October 1995. Prior to his election as President, Mr. Mazur
was Chief Executive Officer of the Company's Commercial Managed Care Division.
From August 1989 to October 1995, he served as Senior Executive Vice President
of the Company, from June 1986 to October 1993 as Secretary of the Company.
Michael D. Starr has been a Director since 1985. Mr. Starr was Executive
Vice President from 1986 to September 1995 and has served as Senior Executive
Vice President since October 1995.
Robert L. Bowles, Jr. was elected by the Board as a Director in September
1996. Mr. Bowles joined the Company in connection with the Company's acquisition
of D.C. Chartered Health Plan, Inc. Mr. Bowles is the founder of D.C. Chartered
and has more than 30 years of experience in administration and management of
health care services and operations for corporations and the military.
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<PAGE>
William J. Lubin was elected by the Board as a Director in June 1997. Mr.
Lubin joined the Company in August 1994 as Senior Vice President for Managed
Care. In late 1994 he assumed the position of Chief Operating Officer for
Commercial Managed Care. In October 1995, he became Chief Executive Officer for
Commercial Managed Care. In April 1996, he became Executive Vice President.
Prior to joining the Company, Mr. Lubin held management positions with Aetna
Health Plans, Travelers Insurance Companies, Lincoln National, and BlueCross and
BlueShield of Connecticut.
Frank L. Provato, M.D. was elected by the Board as a Director in June 1997.
Dr. Provato joined the Company in 1993 and currently serves as Executive Vice
President and Corporate Medical Director. Prior to joining the Company, he
served as Vice President and Corporate Medical Director for GTE Corporation,
where he was responsible for the development of health care cost management
strategies and the implementation of a GTE-sponsored primary care health center
in Tampa, Florida. Dr. Provato has 23 years of diverse background in clinical
medicine, health care administration, occupational health, and employee benefits
administration.
Donald J. Ruffing joined the Company as a Director in 1991. Colonel Ruffing
retired as the Chief of the Air Force Medical Service Corps, Office of the
Surgeon General, where he was responsible for developing plans, policies and
procedures for the management of the Air Force Medical Service Corps. In 1990,
Colonel Ruffing served as a team member of the Peer and Application Reviews,
Refugee Mental Health Programs for the National Institute of Mental Health.
Joseph G. Mathews joined the Company as a Director in July 1993. Mr.
Mathews owns and operates Joseph G. Mathews & Associates, an insurance brokerage
firm. Mr. Mathews' professional designations include Chartered Financial
Consultant and Master of Science Financial Services. In addition to serving on
the Company's board, Mr. Mathews is a member of the boards of directors of SSM
HealthCare-Central Region, Mercantile Bank, Sanford Brown College, Lindenwood
College and Learfield Communications.
Jerry W. Carlton was elected by the Board as a Director in June 1997. Mr.
Carlton is the Managing Partner of the Newport Beach, California office of the
law firm of O'Melveny & Myers L.L.P. and his specialties are taxation and
general business law. He has furnished legal representation and advice to
clients regarding hospital acquisitions and divestitures and has provided
counsel for the legal aspects of provider relations for a large managed care
entity. In addition to serving on the Company's board, Mr. Carlton is a member
of the boards of directors of Phoenix House, Prentice Day School, Willametta K.
Kay Foundation, Arlington Investment Company, Vicente Management Company, and
the Foley Timber Company.
John J. McDonnell was elected by the Board as a Director in June 1997. Mr.
McDonnell is the co-founder, Chairman and CEO of Coagulation Diagnostics, Inc.
of Bethesda, Maryland. He also served as the Secretary to the Board of
Directors of Yurie Systems, Inc., a telecommunications firm, and has served as
its General Counsel since 1996. From 1990 to 1995, Mr. McDonnell was Counsel
with the law firm of Reed Smith Shaw & McClay. He has also held executive and
legal positions with Fairchild Space and Defense Corporation and Fairchild
Industries, as well as with the Department of the Navy. He is on the boards of
directors of Sequoia National Bank, Arcadis Geraghty & Miller, an environmental
engineering firm and a regional charitable institution.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information for each of the last
three fiscal years with respect to the compensation awarded to, earned by, or
paid to the Chief Executive Officer of the Company and the next four most highly
compensated executive officers for the fiscal year ended April 30, 1998.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------- -------------------
NAME AND OTHER ANNUAL OPTIONS/SARS ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS COMPENSATION
POSITION YEAR ($) ($) ($) (#) ($)
--------- ---- ------ ----- ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack M. Mazur, 1998 675,000 -0- (1) -0- 10,968(2)
President and Chief 1997 583,000 -0- -0- 10,285
Executive Officer 1996 550,000 -0- -0- 17,636
Michael D. Starr, 1998 350,000 -0- (1) -0- 2,080(3)
Senior Executive Vice 1997 350,000 -0- -0- 2,286
President 1996 330,000 -0- -0- 9,362
Robert L. Bowles, Jr., 1998 318,000 -0- (1) -0- 107,082(4)
President, D.C. 1997 317,000 -0- 10,000 88,948
Chartered Health Plan, 1996 284,000 -0- -0- 82,473
Inc.
Frank L. Provato, 1998 300,000 -0- (1) -0- 957(5)
Executive Vice 1997 281,000 -0- 10,000 1,079
President 1996 250,000 -0- 27,500 581
William J. Lubin, 1998 300,000 -0- (1) -0- 920(6)
Executive Vice 1997 274,000 -0- 10,000 632
President 1996 207,692 -0- 15,000 706
</TABLE>
(1) Each of the named executive officers receives certain perquisites,
including the use of Company automobiles; such perquisites, however, do not
exceed the lesser of $50,000 or 10% of such officer's salary and bonus.
(2) Includes $2,468 term life insurance premiums, $500 in 401(k) Plan matching
fees and $8,000 director's fees from D.C. Chartered Health Plan, Inc.
(3) Includes $1,580 term life insurance premiums and $500 in 401(k) Plan
matching fees.
(4) Includes $2,965 term life insurance premiums and $500 in 401(k) Plan
matching fees, $8,000 director's fees from D.C. Chartered Health Plan, Inc.
and $95,617 forgiveness of debt related to the acquisition of D.C.
Chartered Health Plan, Inc.
-4-
<PAGE>
(5) Includes $957 term life insurance premiums.
(6) Includes $920 term life insurance premiums.
-5-
<PAGE>
OPTION GRANTS
There were no options granted during fiscal 1998 by the Company to the
individuals named in the Summary Compensation Table.
OPTION EXERCISES
The following table sets forth certain information relating to stock
options exercised by, and the number and value of unexercised options previously
granted to, the individuals named in the Summary Compensation Table during
fiscal 1998.
AGGREGATED OPTIONS/SAR EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT 04/30/98 AT 04/30/98
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Jack M. Mazur -0- -0- 720,000/0 $ 9,820,000/$0
Michael D. Starr -0- -0- 290,000/0 $ 3,893,250/$0
Robert L. Bowles, Jr. -0- -0- 53,333/6,667 $ 606,250/$0
Frank L. Provato -0- -0- 98,333/19,167 $1,112,914/$47,086
William J. Lubin -0- -0- 113,333/11,667 $ 1,254,938/$0
</TABLE>
401(k) PLAN
The Company established the PHP Healthcare Corporation 401(k) Plan
(the "401(k) Plan") effective January 1, 1991, pursuant to which employees may
defer compensation for income tax purposes under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). Participant contributions will
be invested at all times in any or all of six funds at the direction of the
participant. Participant contributions will be matched up to $500 annually by
the Company. The Company contributed $500 to the 401(k) Plan during fiscal year
1998 on behalf of each of the participating named executive officers.
DIRECTOR COMPENSATION
Employee directors do not receive additional compensation for serving
on the Board. The non-employee Chairman of the Board is paid $62,500 per
quarter for his service as Chairman. Other non-employee directors are paid
$4,500 per quarter for their services as directors, plus $650 for each special
meeting of the Board. In addition, each outside director serving on a
particular committee is paid $1,200 for attending up to three committee meetings
annually and $500 for each additional committee meeting. Each director is
reimbursed for travel expenses relating to attending meetings of the Board of
Directors and its committees.
The Company has adopted a Directors' Retainer Plan. For any fiscal
quarter, each director of the Company may elect to have the full amount of his
retainer paid in the form of Common Stock. The number of shares issued is
calculated based on the then current market value of the stock.
Under the 1996 Incentive Plan, on an annual basis each non-employee
director is granted 5,000 stock options at a purchase price equal to the fair
market value of a share of Common Stock on the grant date. Each such option
vests after three years if the optionee remains a Director on the third
anniversary of the grant.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has Employment Agreements with Jack M. Mazur and Michael
D. Starr. Under Mr. Mazur's amended agreement, he is employed as the Chief
Executive Officer of the Company. The amended agreement has an initial term of
three years and will be automatically extended for one-year periods unless
either party terminates the amended agreement on fifteen months advance notice.
In the event of termination of Mr. Mazur's employment due to his disability (as
defined in the amended agreement) or death, the Company will pay Mr. Mazur or
his estate a lump sum severance payment equal to one year's salary and a pro
rata bonus for the year in which the termination occurs. In the event the
Company terminates Mr. Mazur's employment other than for cause (as defined in
the amended agreement), death or disability or Mr. Mazur terminates his
employment for good reason (as defined in the amended agreement) or under
certain circumstances following a change in control (as defined in the amended
agreement), then (a) the Company must pay Mr. Mazur a lump sum amount equal to
three times the sum of his base salary and bonus; (b) Mr. Mazur is entitled, for
a period of three years, to continuation of (i) coverage at the Company's
expense of his life insurance, disability, medical and dental benefits and (ii)
fringe benefits and perquisites under the amended agreement; (c) restrictions on
outstanding awards granted to Mr. Mazur will lapse and be immediately vested,
all stock options will become fully exercisable and Mr. Mazur will have the
right to require the Company to purchase for cash any shares of restricted stock
and stock purchased upon the exercise of any options; and (d) Mr. Mazur will
receive certain retirement benefits.
Under his amended agreement, Mr. Starr is employed as Senior Executive
Vice President. Mr. Starr's agreement renews automatically on May 1 of each
year unless terminated by either the executive or the Company on ninety (90)
days advance notice or otherwise in accordance with the agreement, except that
no notice may be given by the Company sooner than three years after a change in
control (as defined in the amended agreement). In the event of termination
because of Mr. Starr's death or disability, the Company will pay Mr. Starr or
his estate a lump sum severance payment equal to one year's salary and a pro
rata bonus for the year in which the termination occurs. In the event the
Company terminates the agreement other than for cause, death or disability or
Mr. Starr terminates the agreement because of certain adverse changes following
a change in control of the Company, then (a) the Company must pay Mr. Starr a
lump sum amount equal to three times the sum of Mr. Starr's base salary and
bonus; (b) Mr. Starr is entitled, for a period of three years, to continuation
of coverage at the Company's expense of his disability, medical and dental
benefits; and (c) all restrictions on any outstanding awards granted to Mr.
Starr will lapse and be immediately vested, all stock options will become fully
exercisable and Mr. Starr will have the right to require the Company to purchase
for cash any shares of unrestricted stock and stock purchased upon the exercise
of any options.
The Company has an agreement with William J. Lubin under which, if Mr.
Lubin's employment is involuntarily terminated, he will be entitled to receive
continued compensation as a consultant for the earlier of 18 months or until he
secures full time employment. Mr. Lubin serves as Executive Vice President.
Under the agreement, if the Company is sold or acquired by way of merger, stock
swap or cash transaction whereby there is a change in control of at least 20% of
the voting power of the Company's outstanding shares, and if Mr. Lubin's
responsibilities and compensation are reduced, then Mr. Lubin's employment will
be deemed to have been involuntarily terminated.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of August 14,
1998, with respect to the beneficial ownership of Common Stock by (i) each
person known to the Company to be the beneficial owner of more than 5% of its
outstanding shares of Common Stock (see footnote 1 below), (ii) each director of
the Company, (iii) each executive officer named in the Summary Compensation
Table, and (iv) all directors and executive officers in the Company as a group.
<TABLE>
<CAPTION>
Percent of
Name and Address No. of Shares Outstanding(1)
--------------------------------------------------------------- ---------------------------- -------------------------
<S> <C> <C>
Kenneth J. Abdalla and Waterton Management LLC........................ 10,666,666(2)(3) 48.0%
10000 Santa Monica Boulevard, 5th Floor
Los Angeles, California 90067
Drakefield Corporation................................................ 6,400,000(2)(3) 35.7%
c/o Waterton Management
10000 Santa Monica Boulevard, 5th Floor
Los Angeles, California 90067
Southbrook International Investments, Ltd............................. 5,333,333(2) 31.6%
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, New York 10111-0100
Oz Asset Management, L.L.C. and Ziff Asset Management, L.P............ 4,912,000(2)(4) 29.8%
c/o PBK Holdings, Inc.
156 Greenwich Avenue, Suite 2A
Greenwich, Connecticut 06830
Baldwin Enterprises, Inc., Ramius Fund Ltd, Leonardo, L.P.
Raphael, L.P.......................................................... 4,906,665(2)(5) 29.8%
c/o Michael L. Gordon
529 East South Temple
Salt Lake City, UT 84102
Stockwell Corporation S.A............................................. 4,266,666(2)(3) 27.0%
c/o Waterton Management
10000 Santa Monica Boulevard, 5th Floor
Los Angeles, California 90067
Ramius Capital Group, LLC/AGR Halifax Fund, Ltd....................... 2,697,600(2)(6) 18.9%
757 Third Avenue, 27th Floor
New York, New York 10017
Scepter Holdings, Inc................................................. 2,029,866(2)(7) 15.0%
301 Commerce Street, Suite 2975
Fort Worth, Texas 76102
Saybrook Fund, L.P.................................................... 1,925,333(2) 14.3%
401 Wilshire Boulevard, Suite 850
Santa Monica, California 90401
The Tail Wind Fund, Ltd............................................... 1,920,000(2) 14.3%
c/o EASI
No. 1 Regent Street, 4th Floor
London, United Kingdom SW1Y 4NS
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C>
John W. Kluge......................................................... 1,625,000(8) 14.1%
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Jack M. Mazur......................................................... 1,269,356(9) 10.4%
11440 Commerce Park Drive
Reston, Virginia 20191
Shamrock Investments(10).............................................. 1,101,465(11) 9.1%
Charles P. Reilly
Michael E. Gallagher
2049 Century Park East, Suite 3330
Los Angeles, California 90067
Lawrence K. Fleischman................................................ 1,144,530(2)(12) 9.0%
150 Vanderbilt Motor Parkway, Suite 311
Hauppage, New York 11788
Triton Capital Investment/JMG Capital Partners, L.P................... 648,532(2)(13) 5.3%
1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Michael D. Starr...................................................... 425,852(14) 3.6%
11440 Commerce Park Drive
Reston, Virginia 20191
Robert L. Bowles, Jr.................................................. 160,345(15) 1.4%
820 First Street, Northeast, Suite LL100
Washington, D.C. 20002-4205
Frank L. Provato, M.D................................................. 132,917(16) 1.1%
11440 Commerce Park Drive
Reston, Virginia 20191
William J. Lubin...................................................... 116,667(17) 1.0%
11440 Commerce Park Drive
Reston, Virginia 20191
Joseph G. Mathews..................................................... 19,354 *
3510 Highway 0
Wright City, Missouri 63390
Donald J. Ruffing..................................................... 8,503 *
11104 Woodlawn Boulevard
Upper Marlboro, Maryland 20772
Jerry W. Carlton...................................................... 7,140 *
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
John J. McDonnell..................................................... 0 *
11440 Commerce Park Drive
Reston, Virginia 20191
All directors and executive officers as a group (12 persons).......... 3,381,169 25.1%
</TABLE>
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<PAGE>
* Represents less than 1% of the shares of the Company's outstanding stock.
(1) Based upon 11,547,373 shares of Common Stock outstanding as of August 14,
1998. For purposes of computing the percentage of shares of Common Stock
beneficially held by each person or group of persons named in the table,
any shares as to which such person or group has the right to acquire within
60 days of such date are deemed to be outstanding, but such shares are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. The Company has prepared this table based on
contents of statements filed by certain stockholders with the Commission
pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of 1934,
as amended, and other limited information available to the Company. Where
no reports pursuant to Section 13(d) or 13(g) were filed by persons holding
Series B Convertible Preferred Stock, the information set forth in the
table is based solely on record ownership of the Series B Convertible
Preferred Stock and Common Stock. Accordingly, the Company makes no
representation regarding the accuracy of the information contained in the
table since complete information as to beneficial ownership rests within
the knowledge of the stockholders.
(2) Represents the number of shares of Common Stock issuable upon conversion of
remaining shares of Series B Convertible Preferred Stock at the conversion
price of $0.9375 per share as of August 14, 1998. The actual number of
shares of Common Stock issuable upon conversion of the Series B Preferred
Stock depends upon the Conversion Price, which is not fixed and, which
cannot be predicted by the Company at this time. The number of shares that
any holder of Series B Preferred Stock may convert in any calendar month is
limited according to a sliding scale percentage of such holder's shares of
Series B Preferred Stock determined by reference to the highest of the
daily trading prices during such month. Excludes shares of Common Stock
issued upon conversion of shares of Series B Preferred Stock at various
times and conversion prices between June 1, 1998 and July 27, 1998 as
follows: 67,930 shares of Common Stock issued to Baldwin Enterprises, Inc.,
96,956 shares of Common Stock issued to Ramius Fund, Ltd., 58,420 shares of
Common Stock issued to Leonardo, L.P., 29,651 shares of Common Stock issued
to Raphael, L.P., 45,967 shares of Common Stock issued to Ramius Capital
Group, 22,981 shares of Common Stock issued to AGR Halifax Fund, Ltd.,
348,228 shares of Common Stock issued to Q Funding, L.P., 235,075 shares of
Common Stock issued to R2 Investments, LDC, 25,617 shares of Common Stock
issued to Triton Capital Investment Group and 25,617 shares of Common Stock
issued to JMG Capital Partners, L.P., and 104,774 shares of Common Stock
issued to Ziff Asset Management, L.P. The foregoing shares of Common Stock
have been excluded from the table based on the assumption that such shares
have been sold in the market and are no longer beneficially owned by the
shareholders identified. As discussed in Part I of this Form 10-K, the
Company temporarily suspended conversion of the Series B Convertible
Preferred Stock on July 29, 1998.
(3) According to Schedule 13G filed on June 10, 1998, Kenneth J. Abdalla is the
sole managing member of Waterton Management LLC ("Waterton"), the
investment manager for Drakefield Corporation ("Drakefield") and Stockwell
Corporation, S.A. ("Stockwell"). According to a separate Schedule 13G filed
by Drakefield on June 10, 1998, Drakefield, as of that date, beneficially
owned 789,473 shares of Common Stock; according to a separate Schedule 13G
filed by Stockwell on June 10, 1998, as of that date, Stockwell
beneficially owned 526,315 shares of Common Stock. Drakefield may be deemed
to own 6,400,000 shares of Common Stock and Stockwell may be deemed to own
4,266,666 shares of Common Stock based on the conversion price described
above in footnote 2. According to Schedule 13G filed on June 10, 1998, as
investment manager of Drakefield and Stockwell, Waterton may be deemed to
be the beneficial owner of the shares of Common Stock owned by Drakefield
and Stockwell; Waterton disclaims beneficial ownership of such securities.
As the sole managing member of Waterton, Mr. Abdalla may be deemed to be
the beneficial owner of the shares of Common Stock beneficially owned by
Waterton; Mr. Abdalla disclaims beneficial ownership of such securities.
(4) According to Schedule 13G filed by Ziff Asset Management, L.P. ("Ziff") and
Oz Management, L.L.C. ("Oz") on June 10, 1998, as of that date, Oz
exercises shared voting and investment authority over 657,894 shares of
Common Stock in an investment account of Ziff. Oz and Ziff may be deemed to
own 4,912,000 shares of Common Stock based on the current conversion price
described above in footnote 2.
(5) Includes (i) 2,026,666 shares of Common Stock (14.9%) beneficially owned by
Baldwin Enterprises, Inc., (ii) 1,386,666 shares of Common Stock (10.7%)
beneficially owned by Ramius Fund, Ltd., (iii) 853,333 shares of Common
Stock (6.9%) beneficially owned by Leonardo, L.P., and (iv) 640,000 shares
of Common Stock (5.3%) beneficially owned by Raphael, L.P. based on the
conversion price described above in footnote 2.
(6) Includes 1,798,400 shares of Common Stock (13.5%) beneficially owned by
Ramius Capital Group, L.L.C. and 899,200 shares of Common Stock (7.2%)
beneficially owned by AGR Halifax Fund, Ltd. based on the conversion price
described above in footnote 2.
(7) Includes 1,510,400 shares of Common Stock (11.6%) beneficially owned by Q
Funding, L.P. and 519,466 shares of Common Stock (4.3%) beneficially owned
by R2 Investments, LDC. based on the conversion price described above in
footnote 2. Scepter Holdings, Inc. is the general partner of the investment
manager for each of Q Funding, L.P. and R2 Investments, LDC.
(8) According to Amendment No. 4 to Schedule 13D filed by John W. Kluge on
August 7, 1998, as beneficial owner of the Common Stock of the Company
held by Chase Manhattan Bank and John W. Kluge, Trustees U/A DTD 5/30/84
As Amended made by and for John W. Kluge (the "Trust"), a grantor trust of
which Mr. Kluge is
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<PAGE>
Following the approval by the Company's Board of Directors of the
acquisition by John W. Kluge and Chase Manhattan Bank and John W. Kluge,
Trustees V/A dated May 30, 1984 as amended by and for John W. Kluge (the
"Trust") of an additional 575,000 shares of Common Stock, Mr. Kluge and the
Trust entered into a Stockholder Voting Agreement dated as of July 31, 1998
with the Company (the "Voting Agreement"). Pursuant to the Stockholder
Voting Agreement, Mr. Kluge has agreed that all shares of Common Stock
acquired by him, or his affiliates or associates, after the date of the
Voting Agreement, would be voted, at Mr. Kluge's or such holders' option,
either in accordance with the recommendation of the Company's Board of
Directors or pro rata in the same manner and proportion as the votes cast
by the other stockholders. Mr. Kluge and the Trust also agreed not to,
directly or indirectly, sell, lend, transfer or otherwise dispose of any of
their shares of Common Stock (or agree to do so) to any person which, to
their knowledge and after taking into account such sale, would result in
the transferee beneficially owning more than five percent (5%) of the
outstanding Common Stock of the Company; provided, however, that Mr. Kluge
and the Trust may sell, lend, transfer or otherwise dispose of shares of
Common Stock in any brokerage transaction in which the identity of the
buyer is unknown or to any permitted transferee (as defined in the Voting
Agreement) that agrees to be bound by the terms of the Voting Agreement.
(9) According to Amendment No. 2 to the Schedule 13D filed by Jack M. Mazur,
Lynn Mazur and VACHR, Inc. on June 5, 1998. Includes 720,000 shares which
Mr. Mazur could acquire upon the exercise of options granted by the
Company. Also includes 512,014 shares owned by VACHR, Inc., a corporation
owned by Mr. Mazur's spouse, Lynn Mazur, and other family members, and
30,000 shares owned by the J&J Investment Partnership, a partnership wholly
owned by members of Mr. Mazur's family. Mr. Mazur disclaims beneficial
ownership of the shares owned by Lynn Mazur (through VACHR, Inc.) and J&J
Investment Partnership.
(10) According to the Schedule 13D filed on October 11, 1994, and amended on
October 10, 1996, the persons listed constitute a group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
(11) Includes 200,000 shares owned by Shamrock Investments, 187,730 shares owned
by Mr. Reilly, 172,220 shares owned by Mr. Gallagher, 22,500 shares which
Shamrock Investments could acquire upon the exercise of options granted by
the Company, 231,596 shares which Mr. Reilly could acquire upon the
exercise of options granted by the Company, 121,262 shares which Mr.
Gallagher could acquire upon the exercise of options granted by the
Company, 59,963 shares which Mr. Reilly could acquire upon conversion of a
promissory note of the Company, 6,173 shares which Mr. Reilly could acquire
upon conversion of a promissory note of the Company issued to Shamrock
Investments, 44,975 shares which Mr. Gallagher could acquire upon
conversion of a promissory note of the Company, and 55,046 shares which Mr.
Reilly could acquire upon conversion of convertible subordinated
debentures.
(12) Includes (i) 426,666 shares of Common Stock (3.6%) beneficially owned by
Licap Partners, a partnership of which Mr. Fleischman is a general partner,
(ii) 237,866 shares of Common Stock (2.0%) beneficially owned by Lawrence
K. Fleischman, individually, (iii) 213,333 shares of Common Stock (1.8%)
beneficially owned by Laredo Capital Partners, a partnership of which Mr.
Fleischman is a general partner, (iv) 106,666 shares of Common Stock (0.9%)
beneficially owned by Capital Vision Group, Inc. Profit Sharing Plan, of
which Mr. Fleischman is the sole beneficiary, (v) 106,666 shares of Common
Stock (0.9%) beneficially owned by Pelain Partners, a partnership of which
Mr. Fleischman is a general partner, and (vi) 53,333 shares of Common Stock
(0.5%) beneficially owned by NY DBL Diamond Group, a partnership of which
Mr. Fleischman is a general partner, based on the conversion price
described above in footnote 2.
(13) Includes 324,266 shares of Common Stock (2.7%) beneficially owned by Triton
Capital Investment Group and 324,266 shares of Common Stock (2.7%)
beneficially owned by JMG Capital Partners, L.P. based on the conversion
price described above in footnote 2.
(14) Includes 290,000 shares of Common Stock which Mr. Starr presently could
acquire upon the exercise of options granted by the Company.
(15) Includes 56,667 shares of Common Stock which Mr. Bowles presently could
acquire upon the exercise of options granted by the Company.
-11-
<PAGE>
(16) Includes 111,667 shares of Common Stock which Dr. Provato presently could
acquire upon the exercise of options granted by the Company.
(17) Represents 116,667 shares of Common Stock which Mr. Lubin presently could
acquire upon exercise of options granted by the Company.
-12-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a Senior Executive Loan Program (the "Program"), pursuant
to which loans to senior executive officers may be made up to three and one-half
times the officer's annual salary. Each loan must be repaid within one year and
bears interest at two percent above the Company's short-term borrowing rate.
All loans are collateralized by the shares of the Company's Common Stock owned
by the senior executive officer. The due dates on amounts outstanding were
extended in 1998 for twelve months to March, 1999. During fiscal year 1998,
loans were outstanding under the Program to Jack M. Mazur, Michael D. Starr,
William J. Lubin and Anthony M. Picini. The largest amount outstanding during
fiscal 1998 to Mr. Mazur was $2,352,000, to Mr. Starr was $731,000, to Mr. Lubin
was $53,000 and to Mr. Picini was $54,000. These loans bear interest at 2% above
the Company's short term borrowing rate.
The Company advanced amounts to Robert L. Bowles, Jr. in the form of
promissory notes bearing interest at 8.5% collateralized by Mr. Bowles' stock in
the Company. The largest amount outstanding during fiscal 1998 was $644,000.
In accordance with the Board of Directors' approval, the Company makes
premium payments relating to certain insurance policies on behalf of certain
officers of the Company. These advances are owed to the Company and are
collateralized by assignment of the underlying cash surrender value and related
death benefit. During 1997, the officers signed promissory notes bearing
interest at 7% and due in April 2002 for the amounts advanced. The amount
outstanding as of April 30, 1998, to Mr. Mazur was $250,000, to Mr. Starr was
$236,000 and to Mr. Lubin was $31,000.
Joseph G. Mathews is the owner of an insurance brokerage firm through which
the Company purchased keyman life insurance policies covering certain executive
officers from various insurance companies. During fiscal 1998, premiums paid to
those insurance companies for keyman life insurance approximated $283,000, of
which Mr. Mathews receives a portion as commissions.
Paul Cuzmanes, a former director of the Company whose term expired in
November 1997, is a partner with the law firm of Wilson, Elser, Moskowitz,
Edelman & Dicker. Such firm provided legal services to the Company during
fiscal 1998. During the year ended April 30, 1998, total billings approximated
$263,000.
In May 1998, the Company repurchased 1,000,000 shares of Common Stock from
Charles H. Robbins, the Company's former chairman, at a cost of $16.8 million.
Following the approval by the Company's Board of Directors of the
acquisition by John W. Kluge and Chase Manhattan Bank and John W. Kluge,
Trustees U/A dated May 30, 1984 as amended by and for John W. Kluge (the
"Trust") of an additional 575,000 shares of Common Stock, Mr. Kluge and the
Trust entered into a Stockholder Voting Agreement dated as of July 31, 1998 with
the Company (the "Voting Agreement"). Pursuant to the Stockholder Voting
Agreement, Mr. Kluge has agreed that all shares of Common Stock acquired by him,
or his affiliates or associates, after the date of the Voting Agreement, would
be voted, at Mr. Kluge's or such holders' option, either in accordance with the
recommendation of the Company's Board of Directors or pro rata in the same
manner and proportion as the votes cast by the other stockholders. Mr. Kluge and
the Trust also agreed not to, directly or indirectly, sell, lend, transfer or
otherwise dispose of any of their shares of Common Stock (or agree to do so) to
any person which, to their knowledge and after taking into account such sale,
would result in the transferee beneficially owning more than five percent (5%)
of the outstanding Common Stock of the Company; provided, however, that Mr.
Kluge and the Trust may sell, lend, transfer or otherwise dispose of shares of
Common Stock in any brokerage transaction in which the identity of the buyer is
unknown or to any permitted transferee (as defined in the Voting Agreement) that
agrees to be bound by the terms of the Voting Agreement.
For further information with respect to related party transactions, see Note
14 of Notes to Consolidated Financial Statements.
-13-
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's executive officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
("SEC") and the New York Stock Exchange. Executive officers, directors and
greater than ten percent shareholders are required by the SEC regulation to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based on the Company's review of the copies of such forms it has received
and based on written representations from certain reporting persons that they
were not required to file Forms 5 for the fiscal year, the Company believes that
all its executive officers, directors and greater than ten percent shareholders
complied with all filing requirements applicable to them with respect to
transactions during fiscal 1998.
PART IV
Item 14. EXHIBITS
EXHIBITS
The documents required to be filed as exhibits to this report under Item 601 of
Regulation S-K are listed in the Exhibit Index included elsewhere in this
report, which list is incorporated herein by reference.
-14-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHP HEALTHCARE CORPORATION
Date: August 28, 1998 By: /s/ Anthony M. Picini
-----------------------------------
Anthony M. Picini
Executive Vice President and
Chief Financial Officer
-15-
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
<S> <C> <C>
3.1 Amended and Restated Certificate of Filed as Exhibit 3.1 to the Company's
Incorporation of PHP Healthcare Form 10-Q for the quarter ended
Corporation October 31, 1997, and incorporated
herein by reference.
3.2 Amended and Restated Bylaws of PHP Filed as Exhibit 3.2 to the Company's
Healthcare Corporation Form 10-K for the year ended April 30,
1997, and incorporated herein by
reference.
3.3 Certificate of Designations of Series Filed as Exhibit 3.1 to the Company's
B Convertible Preferred Stock Form 8-K filed January 6, 1998, and
incorporated herein by reference.
4.1 Indenture dated as of December 15, Filed as Exhibit 4.1 to Amendment No.
1995 for 6 1/2% Convertible 1 to the Company's Form 8-K filed
Subordinated Debentures due 2002 January 11, 1996, and incorporated
herein by reference.
4.2 Warrant Certificate of David Berman Filed as Exhibit 4.3 to the Company's
to purchase Common Stock of PHP Form S-3 (File No. 333-26207) filed on
Healthcare Corporation, dated as of April 30, 1997, and incorporated
November 1, 1992 herein by reference.
4.3 Warrant Certificate of NationsBank, Filed as Exhibit 4.3 to the Company's
N.A. to purchase Common Stock of PHP Form 10-K for the year ended April
Healthcare Corporation, dated as of 30, 1998, and incorporated herein by
October 31, 1997 reference.
4.4 Warrant Agreement dated as of October Filed as Exhibit 4.1 to the Company's
31, 1997 between PHP Healthcare Form 8-K filed November 17, 1997, and
Corporation and First Trust of New incorporated herein by reference.
York, N.A.
4.5 Rights Agreement between the Company Filed as Exhibit 4.1 to the Company's
and Riggs National Bank, N.A., as Form 8-K filed April 10, 1992 and
Rights Agent, dated as of April 10, incorporated herein by reference.
1992
4.6 Form of Preferred Stock Investment Filed as Exhibit 4.1 to the Company's
Agreement, dated as of December 23, Form 8-K filed January 6, 1998, and
1997 between PHP Healthcare incorporated herein by reference.
Corporation and certain accredited
investors
4.7 Form of Series B Preferred Stock Filed as Exhibit 4.8 to Amendment No.
Purchase Warrant 2 to the Company's Form S-3 (File No.
333-26207) on June 5, 1998, and
incorporated herein by reference.
4.8 Specimen form of certificate Filed as Exhibit 4.8 to Amendment No.
representing shares of the Company's 2 to the Company's Form S-3 (File No.
Series B Convertible Preferred Stock 333-26207) on June 5, 1998, and
incorporated herein by reference.
4.9 Specimen form of certificate Filed as Exhibit 7.1 to Amendment No.
representing shares of the Company's 1 to the Company's Form 8-A filed on
Common Stock August 11, 1992, and incorporated
herein by reference.
10.1 Amended and Restated Credit Agreement, Filed as Exhibit 10.1 to Amendment No.
dated May 26, 1998, among PHP 2 to the Company's Registration
Healthcare Corporation as Borrower and Statement on Form S-3 (File No. 333-
the Initial Lenders and Initial 26207) filed on June 5, 1998, and
Issuing Bank named herein as Initial incorporated herein by reference.
Lenders and Initial Issuing Bank and
NationsBank, N.A. as Administrative
Agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
<S> <C> <C>
10.2 Amended and Restated Security Filed as Exhibit 10.2 to Amendment No.
Agreement, dated as of May 26, 1998, 2 to the Company's Registration
from PHP Healthcare Corporation, the Statement on Form S-3 (File No. 333-
Other Grantors referred to herein and 26207) filed on June 5, 1998, and
the Additional Grantors referred to incorporated herein by reference.
herein as grantors to NationsBank,
N.A. as Administrative Agent
10.3 Amended and Restated Subsidiary Filed as Exhibit 10.3 to Amendment No.
Guaranty, dated as of May 26, 1998, 2 to the Company's Registration
from each of the Subsidiaries of PHP Statement on Form S-3 (File No. 333-
Healthcare Corporation listed on the 26207) filed on June 5, 1998, and
signature pages hereof and the incorporated herein by reference.
Additional Subsidiary Guarantors
referred to herein as Guarantors in
favor of the Secured Parties referred
to in the Amended and Restated Credit
Agreement referred to herein
10.4 Form of Indemnification Agreements Filed as Exhibit 10.3 to the Company's
between PHP Healthcare Corporation and Form 10-K for the year ended April 30,
each of Charles H. Robbins, Michael D. 1989, and incorporated herein by
Starr, George E. Schafer, M.D., Jack reference.
M. Mazur, Stephen I. Frates, Ronald J.
Raben, David M. Thomas, Julien J.
Lavoie, Paul T. Cuzmanes, George B.
Randolph, Charles P. Reilly and Donald
J. Ruffing
*10.5 Form of "Split Dollar Agreement" Filed as Exhibit 10.4 to the Company's
entered into between PHP Healthcare Form 10-K for the year ended April 30,
Corporation and each of Charles H. 1993, and incorporated herein by
Robbins, Jack M. Mazur and Michael D. reference.
Starr
*10.6 Terms of Senior Executive Loan Program Filed as Exhibit 10.5 to the Company's
adopted by the Board of Directors Form 10-K for the year ended April 30,
November 5, 1992 1993, and incorporated herein by
reference.
10.7 Articles of Merger of PHP Healthcare Filed as Exhibit 10.8 to the Company's
Corporation and PHP Corporation Registration Statement on Form S-18
(Registration No. 33-9372, effective
November 20, 1986), and incorporated
herein by reference.
10.8 Lease Agreement between PHP Healthcare Filed as Exhibit 10.10.1 to the
Corporation and Commerce Park Company's Form 10-K for the year ended
Development Corporation dated May 5, April 30, 1994, and incorporated
1993 (relating to current executive herein by reference.
offices of the Company at 11440
Commerce Park Drive, Reston, Virginia)
10.9 Amendment No. 1 to Lease Agreement Filed as Exhibit 10.10.1A to the
dated July 14, 1994 Company's Form 10-K for the year ended
April 30, 1994, and incorporated
herein by reference.
*10.10 Employment Agreements dated May 1, Filed as Exhibit 10.11 to the
1992 by and between the Company and Company's Form 10-K for the year ended
each of Charles H. Robbins, Jack M. April 30, 1994, and incorporated
Mazur and Michael D. Starr herein by reference.
*10.11 Amended and Restated PHP Healthcare Filed as Exhibit 10.12 to the
Corporation 1986 Stock Option Plan, as Company's Form 10-K for the year ended
amended April 30, 1994, and incorporated
herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
<S> <C> <C>
*10.12 PHP Healthcare Corporation Amended and Filed as Annex B to the Company's 1997
Restated 1996 Incentive Plan Definitive Proxy Statement and
incorporated herein by reference.
*10.13 Stock Option Agreement by and between Filed as Exhibit 10.21 to the
the Company and Julien J. Lavoie, Company's Form 10-K for the year ended
dated as of November 26, 1990 April 30, 1991, and incorporated
herein by reference.
*10.14 Stock Option Agreement by and between Filed as Exhibit 10.22 to the
the Company and Anthony M. Picini, Company's Form 10-K for the year ended
dated as of December 4, 1990 April 30, 1991, and incorporated
herein by reference.
10.15 Provider Agreement between the Filed as Exhibit 10.15 to the
District of Columbia Department of Company's Form 10-K for the year ended
Human Services and D.C. Chartered April 30, 1994, and incorporated
Health Plan, Inc. dated September 24, herein by reference.
1991
10.16 District of Columbia Medicaid Managed Filed as Exhibit 10.26 to the
Care Program, Provider Agreement dated Company's Form 10-K for the year ended
September 15, 1994 by and between the April 30, 1995, and incorporated
Department of Human Services and D.C. herein by reference.
Chartered Health Plan, Inc.
*10.17 Employment Agreement dated September Filed as Exhibit 8 to the Company's 8-
29, 1994 by and between the Company K filed October 20, 1994 and
and John P. Cole incorporated herein by reference.
10.18 Health Services Agreement between Filed as Exhibit 10.2 to the Company's
Pinnacle Health Enterprises, L.L.C. Form 10-Q for the quarter ended
and HIP of New Jersey, Inc., dated as October 31, 1997, and incorporated
of July 24, 1997 herein by reference.
10.19 Amendment No. 1 to Health Services Filed as Exhibit 10.3 to the Company's
Agreement between Pinnacle Health Form 10-Q for the quarter ended
Enterprises, L.L.C. and HIP of New October 31, 1997, and incorporated
Jersey, Inc., dated October 31, 1997 herein by reference.
*10.20 Employment Agreement dated August 1, Filed as Exhibit 6 to the Company's
1994 by and between the Company and Form 8-K filed October 20, 1994 and
Charles P. Reilly incorporated herein by reference.
*10.21 Employment Agreement between PHP Filed as Exhibit 10.21 to the Company's
Healthcare Corporation and Jack M. Form 10-K for the year ended April 30,
Mazur, dated July 24, 1998 1998, and incorporated herein by reference.
*10.22 Amendment No. 1 to Employment Filed herewith.
Agreement between PHP Healthcare
Corporation and Michael D. Starr,
dated July 30, 1998
10.23 Stockholder Voting Agreement dated as Filed as Exhibit 10.22 to the Company's Form
of July 31, 1998 by and among the 10-K for the year ended April 30, 1998,
Company, John W. Kluge and Chase and incorporated herein by reference.
Manhattan Bank and John W. Kluge
Trustees U/A dated May 30, 1984 As
Amended by and for John W. Kluge
21 List of Subsidiaries Filed as Exhibit 21 to the Company's Form
10-K for the year ended April 30, 1998, and
incorporated herein by reference.
23 Consent of Independent Accountants Filed as Exhibit 23 to the Company's Form
10-K for the year ended April 30, 1998, and
incorporated herein by reference.
27 Financial Data Schedule Filed as Exhibit 27 to the Company's Form
10-K for the year ended April 30, 1998, and
incorporated herein by reference.
* Management contract or compensatory plan or arrangement.
</TABLE>
<PAGE>
Exhibit 10.22
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") is made and entered into this 30th
of July, 1998, by and between Michael D. Starr an individual (the "Executive")
and PHP Healthcare Corporation, a Delaware corporation (the "Company").
WHEREAS, the Executive and the Company entered into an employment agreement
dated as of May 1, 1992 (the "Employment Agreement");
WHEREAS, the Company and the Executive desire to amend Section 8(e) of the
Employment Agreement as set forth herein in accordance with the definition of a
"Change in Control" in the amended employment agreement between Jack Mazur and
the Company dated as of July 24, 1998:
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties, intending to be
legally bound, agree as follows:
1. Section 8(e) of the Employment Agreement is hereby amended by deleting
it in its entirety and inserting the following new Section 8(e) in lieu thereof:
"For purposes of this Amended and Restated Agreement, a "Change in Control"
shall mean any of the following events:
(1) An acquisition (other than directly from the Company or pursuant
to options granted under this Plan or otherwise by the Company) of any voting
securities of the Company ("Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the combined voting
power of the Company's then outstanding Voting Securities; provided, however,
-------- -------
that Beneficial Ownership of not more than thirty-five percent (35%) of the
combined voting power of the Company's outstanding Voting Securities by Jack M.
Mazur shall not constitute a Change in Control; provided, further, however, in
-------- ------- -------
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as defined below) shall not
constitute an acquisition which would cause a Change in Control. (A "Non-
Control Acquisition" shall mean an acquisition by (A) an employee benefit plan
(or a trust forming a part thereof) maintained by (i) the Company or (ii) any
corporation or other Person of which a majority of its voting power or its
equity securities of equity interest is owned directly or indirectly by the
Company (a "Company Subsidiary"), (B) the Company or any Company Subsidiary, or
(C) any Person in connection with a "Non-Control Transaction" (as defined
below);
(2) The individuals who, as of October 1, 1996, are members of the
Board of Directors (the "Incumbent Board"), cease for any reason to constitute
<PAGE>
at least two-thirds of the Board of Directors; provided, however, that if the
-------- -------
election, or nomination for election by the Company's stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of the Plan, be considered as a member of
the Incumbent Board; provided, further, however, that no individual shall be
-------- -------
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest; or
(3) the consummation of:
(A) A merger, consolidation or reorganization involving the Company,
unless
(i) the stockholders of the Company immediately before
such merger, consolidation or reorganization own, directly or
indirectly, immediately following such merger, consolidation or
reorganization, at least a majority of the combined voting power
of the outstanding voting securities of the corporation resulting
from merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a majority of the
Voting Securities of the Surviving Corporation,
(iii) no Person (other than the Company or any Company
Subsidiary, any employee benefit plan (or any trust apart
thereof) maintained by the Company, the Surviving Corporation or
any Company's Subsidiary, or any Person who, immediately prior to
such merger, consolidation or reorganization had Beneficial
Ownership of twenty percent (20%) or more of the then outstanding
Voting Securities) has Beneficial Ownership of twenty percent
(20%) or more of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities, and
(iv) a transaction described in clauses (i) through
(iii) shall herein be referred to as a "Non-Control Transaction";
(B) A complete liquidation or dissolution of the Company; or
2
<PAGE>
(C) An agreement for the sale or other disposition of all or substantially
all of the assets of the Company to any Person (other than a transfer
to a Company Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares beneficially owned by the Subject Person;
provided, however, that if a Change in Control would occur (but for the
- -------- -------
operation of this sentence) as a result of the acquisition of Voting Securities
by the Company, and after such share acquisition by the Company, the Subject
Person becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities beneficially
owned by the Subject Person, then a Change in Control shall occur."
2. The Executive agrees that any acquisition prior to the date hereof by
John W. Kluge of "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of fifteen
percent (15%) or more of any voting securities of the Company shall not
constitute a "Change in Control" for purposes of the Employment Agreement.
3. This Agreement may be executed in multiple counterparts with the same
effect as if each of the signing parties had signed the same document. All
counterparts shall be construed together and constitute the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by
its duly authorized officer and the Executive has executed this Amendment as of
the day and year first above written.
PHP HEALTHCARE CORPORATION
By: /s/ Jack M. Mazur
-----------------------------------------------
Name: Jack M. Mazur
Title: President and Chief Executive Officer
/s/ Michael D. Starr
--------------------------------------------------
MICHAEL D. STARR
4
