SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-15846
First Health Group Corp.
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(Formerly HealthCare COMPARE Corp.)
(Exact name of registrant as specified in its charter)
Delaware 36-3307583
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3200 Highland Avenue
Downers Grove, Illinois 60515
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 737-7900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant on March 13, 2000, was approximately $802,479,496. For
the purposes of the foregoing calculation only, all directors,
executive officers and five percent stockholders of the registrant have
been deemed to be affiliates. On that date, there were 47,348,374
shares of Common Stock issued and outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1999 Annual Report to Stockholders..................Parts I, II and IV
Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on
May 16, 2000...........................................Parts I and III
PART I
Item 1. Business
General
First Health Group Corp., together with its subsidiaries hereinafter
collectively referred to as the "Company" or "First Health", is a full-
service national health benefits company. The Company specializes in
serving large, national employers and payers with a single source for
their group health programs -- providing comprehensive, cost-effective
and innovative solutions for all the health benefits needs of their
employees nationwide. Through its workers' compensation service line,
the Company provides a full range of auto managed care and workers'
compensation services for insurance carriers, state insurance funds,
third party administrators and large, self-insured national employers.
Through its First Health Services service line, the Company provides
services to various state Medicaid and entitlement programs for claims
administration, pharmacy benefit management programs and medical
management and quality review services.
The Company, which is a Delaware corporation, was organized in 1982.
The Company's principal executive offices are located at 3200 Highland
Avenue, Downers Grove, Illinois 60515, and its telephone number is
(630) 737-7900.
Recent Developments
On July 20, 1999, the Company announced that it had entered into a
contract with CNA to provide PPO services to the Mail Handlers Benefit
Plan (Mail Handlers), one of the largest federal employee health
benefit plans with over 400,000 members and 1 million participants.
When fully implemented, the contract will represent one of the
Company's largest. The implementation of the contract took place over
the latter half of 1999 and was fully implemented effective January 1,
2000.
<PAGE>
Strategy
First Health assists its group clients through an integrated health
plan offering that promotes the well-being and satisfaction of
participants while positively impacting an organization's medical cost
trends through:
* Single source accountability and availability;0
* 24-hours-a-day, 7 days-a-week availability to help participants
with all benefits-related issues;
* A broad national network of quality, cost-effective health care
providers--wherever care is needed;
* Non-network negotiations;
* Clinical and case support programs and medical claims
administration;
* Pharmacy Benefit Management (PBM).
Its various medical review programs help First Health's clients
manage the number of units of medical services (volume) while its PPO
products help First Health's clients manage the cost of those units of
service (price). Through its Bill Review capabilities, the Company
provides workers' compensation bill review services nationally. These
services are coupled with the Company's medical review programs and PPO
networks in order to provide a comprehensive product offering in the
workers' compensation arena where, in recent years, medical costs have
been rising faster than in the group health arena. Through First
Health Services, the Company provides claims administration, pharmacy
benefits management and medical management and quality review services
to public sector payors such as state Medicaid and state entitlement
programs.
First Health seeks to develop clinical and care support programs
designed to control the number of health care units, manage costly
diseases and increase compliance with prescribed treatment. These
programs include a full range of medical and mental health care and
integrate PBM to manage the full range of benefits. First Health's
management believes that the continuous offering of new and improved
programs is important to the expansion of its business.
Through The First Health Network, First Health also offers its
clients services designed to control the price of a health care unit of
service. First Health specializes in the development of PPOs and the
collection and analysis of health care cost data. First Health's
capability to analyze health care cost data allows it to use a client's
actual history of health care usage to structure networks of providers
tailored to client needs.
The Company's acquisition of small indemnity insurance companies in
1996 and 1997 has enabled the Company to expand its product offering to
leverage its managed care assets of The First Health Network and its
clinical management services. The introduction of new products has
allowed the Company to provide a national HMO-like product for self-
insured ERISA plans and stop-loss insurance products.
Through the acquisition of First Health in July 1997, the Company
believes it has rounded out the range of services necessary to offer a
full spectrum of integrated health benefits products to clients and
prospective clients such as PPO, risk and medical management services.
<PAGE>
Health Care Reform, Expenditures and Managed Care
In recent years, political, economic and regulatory influences have
subjected the health care industry to fundamental change and
consolidation. Since 1993, the Clinton Administration has proposed
various programs to reform the health care system and expressed its
commitment to (I) increasing health care coverage for the uninsured,
(II) controlling the continued escalation of health care expenditures,
and (III) using health care reimbursement policy to help control the
federal deficit and (IV) allowing insureds to sue their ERISA or
HMO health plan. Even though Congress rejected the Clinton
Administration's proposals, several potential approaches remain under
consideration, including broad insurance reform proposals, tax
incentives for individuals and the self-employed to purchase insurance,
controls on the growth of Medicare and Medicaid spending, the creation
of insurance purchasing groups for small businesses and individuals,
and market-based changes to the health care delivery system. Proposals
under consideration at the federal level also would provide incentives
for the provision of cost-effective, quality health care through
encouraging managed care systems. In addition, many states are
considering various health care reform proposals. At both the federal
and state level, there is growing interest in legislation to regulate
how managed care companies interact with providers and health plan
members. The Company anticipates that Congress and state legislatures
will continue to review and assess alternative health care delivery
systems and payment methodologies, and that the public debate of these
issues will likely continue in the future. Although the Company
believes it is well-positioned to respond to the stated concerns, the
Company cannot predict what impact the proposed measures may have on
its business. Concern about the proposed reform measures and their
potential effect has been reflected in the volatility of the stock
prices of companies in health care and related industries, including
the Company.
The Company is monitoring developments concerning health care reform
and preparing strategic responses to the different reform scenarios.
In response to pending legislation and market pressures and in
anticipation of future health care reform, the Company is broadening
and diversifying its services so it will be less affected if health
care reform proposals are enacted.
First Health offers numerous programs designed to help payers of
health care control their medical costs. Unlike HMOs, PPO companies
typically do not underwrite health insurance or assume related risks.
Clinical management and PPO services have been offered on a
commercially significant scale for the last ten years by firms which
are engaged in providing these types of services. The industry is
currently highly fragmented with numerous independent firms providing
medical utilization review and PPO services, primarily on a regional or
local level but the rate of consolidation is accelerating. In
addition, a growing number of health insurance carriers, HMOs and third
party administrators have established internal clinical management and
PPO departments.
<PAGE>
In workers' compensation, medical costs are rising at almost twice
the rate of general medical inflation. Though such medical costs
represent only about 5% of total health care expenditures, the increase
in costs is significant for employers and insurance carriers and have
risen more than 1000% since 1970. First Health and certain other cost
management firms offer programs designed to control escalating medical
expenses and indemnity payments for lost time, reduce litigation and
allow injured employees to return to work as soon as possible. Many of
the services used in group health are also applied to the workers'
compensation market. PPOs are utilized to manage price. Clinical
management services are targeted toward managing the number of units of
service and the quality of that service, and helping the employee
return to productive employment. In addition, bill review services are
applied on a national basis in the nearly 40 states that have a medical
fee schedule and in the remaining states which allow a usual and
customary review. Additionally, at least 30 states have adopted
legislation that enables workers' compensation managed care services,
and legislation has been proposed in other states. The combination of
these services offers workers' compensation insurance carriers and
employers significant cost savings.
PPO Services - The First Health Network
Established in 1983, The First Health Network, previously known as
The AFFORDABLE Medical Network, develops and manages payer-based PPO
networks throughout the country that incorporate both group health and
workers' compensation medical providers. This is the largest area of
the Company's business. The networks consist of hospitals, physicians
and other health care providers who offer their services to clients at
negotiated rates in order to gain access to a growing national client
base.
The Company's hospital network, as of March 2000, includes
approximately 3,600 hospitals in 49 states, the District of Columbia
and Puerto Rico. In each case, rates are individually negotiated for
the full range of hospital services, including hospital inpatient
and outpatient services. In addition, the Company has established
an outpatient care network (OCN) comprising approximately 330,000
physicians, clinical laboratories, surgery centers, radiology
facilities and other providers in 49 states, the District of Columbia
and Puerto Rico.
During the last 10 years, the Company incurred substantial expense
in expanding its PPO networks. The expansion has occurred in the number
of health care providers within existing areas and in the number of
networks throughout the country. The Company has expanded the number
of hospital networks not only in major metropolitan markets, but also
in targeted secondary and tertiary markets; many of the hospital and
OCN providers that have been added during the past few years have been
in these areas. Management expects to continue to incur significant
expenses to further expand its hospital and outpatient care networks,
particularly in secondary and tertiary markets and believes that its
investment in developing these markets significantly differentiates it
from competitors.
<PAGE>
The following table sets forth information with respect to the
approximate number of participating providers in The First Health
Network at the end of each of the past five years:
<TABLE>
December 31,
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1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Hospitals in Network 2,100 2,320 2,650 3,220 3,510
Outpatient Care Network Providers 181,000 207,000 231,000 288,000 321,000
</TABLE>
The First Health Network was developed in response to the needs of
the Company's national client base. These clients provide the leverage
necessary to enable First Health to negotiate favorable rates with
providers throughout the country. The First Health client base
includes a diverse group of health care payers, such as group
health and workers' compensation insurance carriers, third party
administrators, HMOs, self-insured employers, union trusts and
government employee plans. The Company believes the amalgamated buying
leverage of these clients provides it with strength in negotiating PPO
contracts with current and prospective health care providers.
Compensation. As a fee for developing and managing its expansive
PPO network, the Company generally charges a percentage of savings
realized by its clients. The amount of this fee varies depending on a
number of factors including number of enrollees, networks selected,
length of contract and out-of-pocket benefit copayments and amount of
savings realized by its clients.
The Company competes with national and local firms which develop
PPOs and with major insurance carriers, third party administrators and
utilization review firms which have implemented their own preferred
provider network as well as with firms which specialize in the
collection and analysis of health care cost data.
Approach to Network Development
The strategy of The First Health Network is to create a selective
network of individual providers which will meet the medical, financial,
geographic and quality needs of its clients and their beneficiaries.
First Health contracts directly with each hospital and generally does
not contract with groups of hospitals or provider networks established
by other organizations. Management believes this provides the maximum
control over the composition and rates in the network and ensures
provider stability in The First Health Network. To further promote
stability and savings in the network, when possible, First Health
enters into multi-year agreements with its providers with nominal
annual rate increases.
The selected providers benefit from their participation in The First
Health Network through increased patient volume as patients are
directed to them through health benefit plans maintained by First
Health's clients and other channeling mechanisms, such as the Company's
clinical and care services and electronic and internet provider
directory applications.
<PAGE>
The network consists of a full array of providers, including
hospitals and outpatient providers (physicians, laboratories,
radiological facilities, outpatient surgical centers, mental health
providers, physical therapists, chiropractors, and other ancillary
providers). By establishing contractual relationships with the
complete range of providers, First Health is able to impact the vast
majority of the client's health costs and to facilitate referrals
within the network for all needed care.
The rate structure negotiated by First Health maximizes the savings
for the client and gives incentives to providers to deliver cost
effective care. Unlike many other PPOs which negotiate price discounts
or separate rates for intensive care and other specialty units, First
Health strives to negotiate a single all inclusive per diem for
medical/surgical and intensive care unit days in hospitals. The
majority of the Company's hospital PPO contracts are negotiated with an
all-inclusive rate structure. The charges for hospital outpatient care
are controlled as well through reimbursement caps. Fees for physicians
and other outpatient providers are set by fee schedules established by
First Health. The negotiated rates have resulted in typical savings of
more than 40% on inpatient hospital costs and 20-30% for physician and
outpatient costs.
After a network has been established, First Health provides ongoing
consulting services to clients, re-negotiates contracts with providers
and prepares annual evaluations which profile for its clients the
effectiveness of the network. The networks are continuously undergoing
refinements with active redevelopment activity to expand geographic
coverage and to improve rate structure as care continues to shift to
outpatient settings.
In order to promote an ongoing and long term positive business
relationship with network providers, First Health has established an
extensive provider relations program. Dedicated staff perform a
variety of activities including responding to hospital claims
inquiries, conducting site visits, preparing provider newsletters and
participating in joint hospital/First Health functions which are
intended to promote goodwill and increased utilization of network
providers. The Company's retention rate for hospitals has been more
than 99% and more than 97% for physicians and other outpatient
providers.
PPO Quality Assessment
Quality assessment of network providers is a critical component in
the selection and retention process. The Company has established an
intensive program which evaluates each individual provider against
standards set for various quality indicators. Provider evaluation
occurs prior to the selection of the provider and continues while they
are in the network.
Information Systems
Management of First Health believes its interactive, on-line
computer-based information systems have been a major factor in its
ability to provide clients with comprehensive cost effective healthcare
information.
<PAGE>
First Health utilizes a broad range of proprietary information
systems applications to support its PPO business. Present information
systems support management of all aspects of provider recruitment,
including maintenance of a comprehensive data base of information about
members utilization of PPO providers. Additional information systems
are utilized to develop rate and fee objectives and strategies prior to
initiating contract negotiations with providers. The Company has
generally invested 10% to 12% of revenue in its information systems and
anticipates continuing these investments in the future. Currently the
Company has major upgrades underway in several areas with particular
emphasis within its claims processing system. First Health also
maintains a proprietary system to re-price health care claims to the
contracted rate for its clients.
In addition, health care cost data analysis services are available
to the Company's clients. These services provide clients with in-depth
customized information concerning their health care cost and
utilization experience. Using its internally developed proprietary
software, the Company analyzes its clients' health care claims
information and benefit plans in order to provide each client's
specific health care cost profile and evaluate appropriate cost
management programs. This software also allows the Company to simulate
how changes in a benefit plan's structure will change the overall cost
of a benefit program.
Internet Application
Internally developed Internet channeling tools are available for
both group health and workers' compensation clients. Currently there
are three channeling tools available: electronic directory, directory
maker and worksite poster. Each tool contains the same information
that is made available through First Health's toll-free telephonic
provider directory -- data for hospital and outpatient care providers
in The First HealthO Network. Provider information is updated on a
weekly basis. First Health's Internet channeling tools are currently
for business-to-business use and are password-protected.
Electronic Directory
Electronic directory is easy to use and allows clients, their
employer groups or participants to search for a hospital, physician or
clinic in The First HealthO Network. Electronic directory can search
for a provider by zip code within a 5-mile default radius, county, city
or provider name. It also provides a map with directions to the
provider. Electronic directory requires only basic Internet access.
Directory Maker
Directory maker is designed to allow clients to create and print
custom directories of The First HealthO Network providers at the client
site. Directories can be created on an as-needed basis and will
contain the most up-to-date information. By creating a directory
profile, clients can pick specific cities, counties or even zip codes
that will be included in a directory, as well as determine the way the
data will be sorted. Directories are typically created in 24 hours or
less. To use directory maker, clients need only Internet access, a
JavaScripta and an enabled browser.
<PAGE>
Worksite Poster Application (for workers' compensation use only)
The worksite poster application is designed to assist clients by
producing posters that list hospitals, clinics/facilities and
physicians closest to their site(s). Clients can search by zip code
within a 5-mile radius default to find providers in The First HealthO
Network. In addition, clients can specify physicians, clinics and
hospitals or any combination of the three to print on a poster. This
application requires basic Internet access.
Additional Internet Services
Client and Member Site
In addition, First Health intends to offer a member services
Internet application to assist participants in utilizing our services.
Currently in a pilot phase, the application will allow members to:
* Access general information about First Health;
* Print commonly used health benefits forms, including
claims forms;
* Locate a provider in The First HealthO Network;
* Obtain answers to frequently asked questions about The
First HealthO Network;
* Send First Health an e-mail with health plan questions.
We are evaluating additional services for this site, with the intent
of having them available in the year 2000, including:
* Electronic EOBs;
* Claims status (i.e. status of a particular claim, claims
history of an individual, date of service, benefit
category, etc.);
* Language choice;
* Enrollment/eligibility;
* ID cards;
* Client Reports; and
* Survey tool for customer satisfaction.
Provider Site
We currently offer providers in The First HealthO Network access to
a provider Internet site. This site allows providers access to a
complete client listing along with a payor list. This site is being
further developed in 2000. At that time, we plan to expand the
provider Internet site to include the following:
* Payer information (eligibility);
* Claims status;
* Referral directory;
* Precertification;
* Provider demographics;
* Clients' Summary Plan Documents;
* Electronic payment/EOBs;
* Information about First Health; and
* Survey tool for provider satisfaction.
<PAGE>
Claims Administration Capabilities
The Company provides "one-stop shopping" for employers offering
indemnity, PPO and point of service plans through its core competency
of claims administration and customer service. The Company provides
clients with an integrated package of health care benefits
administration including:
* availability 24 hours, seven days a week
* medical, disability, dental and vision claims processing
* prescription drug plan administration and network
management
* managed care administration
Additionally, they can utilize, if they so desire:
* COBRA administration
* Flexible Spending Account administration
* stop-loss brokerage
* data analysis
The Company's claims administration product is a sophisticated,
technologically advanced claims processing, tracking and reporting
system. A majority of this processing is performed by the Company's
fully integrated and proprietary system ("First Claim"). The system
was developed completely in-house by First Health through its
acquisition in July, 1997 and is owned entirely by the Company. The
system supports a broad range of benefit programs, including medical
care, prescription drugs, FLEX accounts, vision care and dental care.
Additionally, in order to further enhance the Company's claims
processing capabilities, the Company is in the process of expanding its
offering by adding new and advanced features including imaging and
artificial intelligence. The Company currently estimates that these
development efforts will significantly enhance and improve upon the
capabilities of First Claim. Such modifications are expected to be
ongoing over the next two years or so.
The system helps clients increase the cost effectiveness of their
benefit plans by offering such features as on-line reporting
capability, Electronic Data Interchange ("EDI"), rapid and responsive
customer service, automatic tracking of annual, lifetime, per-case, and
floating maximums, and full integration with all other First Health
departments and services. This integration benefits clients since the
Company can analyze claims data as well as clinical management,
pharmacy and network usage data. This analysis enables the Company to
provide comprehensive management reports that can impact medical costs.
In addition, because First Health's claims system is an on-line, "real
time," interactive system, clients can expect member issues to be
minimized because claims can be paid promptly and accurately.
<PAGE>
This single-vendor environment is a benefit for participants as
well. They have just one number to call for all health care benefit
information. The round-the-clock, toll-free number they call to locate
a network provider or to obtain general health information is the same
number they call with claims and eligibility inquiries. Additionally,
First Health's claims process can be virtually paperless for the
participant, especially when a network provider is used - which is a
critical step to enhancing participant satisfaction. This system
automatically calculates benefits and issues checks, letters, and
explanation of benefits (EOBs) to plan participants and providers.
The system incorporates advanced technologies available, including:
* Online reporting and data retrieval capabilities
After a claim is entered into the system, it verifies
eligibility, applies appropriate deductibles, adjudicates the
claims against predetermined negotiated or usual and customer
guidelines, matches precertification, searches for previous
history of coordination of benefits, and presents final
adjudication information to the benefit examiner for his or her
approval. Once the benefit examiner has reviewed and approved
the information on the screen, the system generates a check and
explanation of benefits that evening, which are mailed the next
day.
* Electronic Data Interchange (EDI)
First Health contracts with several commercial claims
clearinghouses to gather EDI claims from providers. Providers
transmit claims to one of these clearinghouses. The
clearinghouses then batch claims destined for First Health and
forwards them to the Company each day. Performing these
functions electronically enhances efficiency and accuracy.
* Tracking of annual, lifetime and floating maximums
When a new client is loaded onto the system, the Company will
transfer claims history from the previous administrator. The
system tracks benefit maximums on-line for every participant.
When an individual has reached a specified maximum, the system
will automatically reduce the benefit payment as specified in
each client's plan document.
* Responsive and comprehensive customer service capabilities
Integration of First Health's managed care and claims systems
enable the participant to access all health benefits
information including claims history, eligibility, deductibles
and maximum accumulations, as well as Explanation of Benefit
(EOB) information through a single, round-the-clock, toll-free
number.
These advanced technologies enable First Health's system to support
a broad range of benefit programs, including medical, dental and vision
care, Medicare, prescription drugs, Consolidated Omnibus Budget
Reconciliation Act (COBRA), Health Insurance Portability and
Accountability Act (HIPAA), long- and short-term disability, and
flexible spending accounts.
<PAGE>
Clinical Management Services
First Health provides centralized clinical and care programs
(utilization review, medical case management and disease management
services) from its headquarters in Downers Grove, Illinois, and
Scottsdale, Arizona, through an internal staff consisting primarily of
allied health professionals, licensed practical and registered nurses
and physicians. First Health also has a nationwide network of
consulting physicians in various specialties. The Company's clinical
and care services are coupled with the Company's PPO and claims
processing services to provide an integrated service offering.
First Health's clinical and care programs advise their participants
and dependents of review requirements. A participant, or his or her
attending physician, utilizes the program by calling one of First
Health's toll-free numbers prior to the proposed hospitalization or
outpatient service or within two business days of an emergency
admission or outpatient service. From these calls, First Health's
clinical management staff gathers the demographic and medical
information necessary to enable it to perform a review and enters this
information into First Health's proprietary review system. Based on
this information, and using First Health's clinically valid and
proprietary review criteria, First Health determines whether it can
recommend certification for the proposed hospitalization or outpatient
service as medically necessary under the participant's health care
plan.
Upon completion of the review, First Health notifies the
participant, the attending physician and other affected providers of
the outcome of the review. First Health also notifies its client as to
whether the proposed hospitalization and length of stay or outpatient
service can be certified as medically necessary and appropriate under
the terms of the client's benefit plan. It also uses the review
outcome to pay claims in accordance with the client's benefit plan.
First Health does not practice medicine and its services are advisory
in nature. All decisions regarding the patient's medical treatment are
made by the patient and the patient's attending physician, not by First
Health. Participants can call First Health on a toll-free line if
they have questions regarding its services. Clients and their claim
administrators also can obtain additional information from the Client
Services staff.
The following is a summary of the Company's current principal
programs.
Case Management. First Health reduces a client's hospitalization
costs by identifying (for the purposes of benefit plan coverage only)
hospital admissions and lengths of stay which are medically unnecessary
or excessive compared to established national criteria. Additionally,
First Health remains actively involved during the hospitalization in
reviewing and monitoring the patient's length of stay. This same
process is applied to workers' compensation admissions.
<PAGE>
The program is also designed to provide clients with a careful
review of all cases which involve complex high cost or chronic
diseases, conditions or catastrophic illnesses. Through periodic
reviews, First Health's nurse case managers and physicians identify
potentially large claim cases. These services consist primarily of
conferring with the attending physician and other providers to identify
cost-effective treatment alternatives. Such alternatives may include
moving a patient from an acute care hospital to less expensive settings
-- often the home -- as soon as the patient's physician determines that
it is safe and medically feasible. If such a move requires a home
nursing service or medical equipment, First Health serves as a referral
for alternative available services, provides recommendations regarding
continued usage of these services and negotiates discounts with the
providers where network providers are not appropriate or not available.
In all cases, the decision to proceed with the course of treatment
initially prescribed by the attending physician or a more cost-
efficient alternative identified by First Health is made by the patient
and his physician. Clients which select stand-alone case management
independently identify those cases which involve potentially high cost
diseases, conditions or procedures and refer such cases to First Health
to identify cost-effective treatment alternatives.
The Care Support Program is a patient-focused program that enables
us to identify high-risk members who account for the majority of health
care dollar expenditures. The Care Support Program is a comprehensive
approach which starts with predictive modeling of a client's specific
population. The program is centered around the member to include
highly-personalized patient education and support initiatives, network
channeling, medication support and other activities aimed at increasing
patient compliance, as well as inpatient monitoring, discharge
planning, and intensive case management. This approach allows for
coordination of information for members with a series of needs which
may overlap among many diseases.
The medical management process for Workers' Compensation monitors an
injured worker's care and identifies opportunities for cost-effective
alternative care and treatment with the goal of returning the worker to
the client's work force or to reach Maximum Medical Improvement (MMI),
as soon as medically feasible. The case manager is responsible for the
overall coordination of the many comprehensive services that may be
needed, such as review of rehabilitation and chiropractic care, home
health services and others, with a constant focus on the injured
worker's ability to return to productivity.
PPO Redirection and Telephonic Provider Directory. The Company will
attempt to redirect the patient to a PPO hospital or outpatient
provider located near the patient. Additionally, the clients'
participants can access the website or call the Company's telephonic
provider directory line to determine whether a network provider of
their choosing within a reasonable proximity to their residence or
place of work. By utilizing a PPO network hospital or outpatient
provider, the payer and the patient will achieve savings from what the
billed charges would otherwise be.
<PAGE>
24/7 Health Information Line. This is a 24-hour-a-day, 7-day-a-week
service that ties together the full range of First Health's programs by
providing participants with a single source for guidance through the
health care delivery system. The services of this program include:
* Helping members obtain answers to general medical questions;
* Assisting members to make informed health care decisions;
* Locating appropriate network providers;
* Facilitating communication between providers and members;
* Identifying patient situations that may be appropriate for
referral to clinical management services;
* Initiating pre-certification for medical and mental health care;
* Answering claims questions and inquiries; and
* Answering pharmacy program questions or referrals.
This service is offered to clients who participate in the full range
of network and clinical management programs.
Physician Resources
First Health believes that its in-house physician staff is an
invaluable resource in its clinical and care programs and in developing
clinical policy and guidelines. The staff includes approximately 25
experienced board certified physicians in such specialties as family
practice, internal medicine, cardiology, gynecology, urology,
orthopedics, psychiatry, pediatrics, and surgery as well as other
doctoral level practitioners such as clinical psychology and
chiropractic medicine. In addition, First Health has a nationwide
network of consulting physicians in the significant specialties. This
physician staff is crucial to the development and maintenance of up-to-
date clinically valid review criteria and protocols and the network
quality assessment efforts.
Benefit Plan Recommendations
Clients can take various steps in benefit plan design that will
help accomplish the goal of managing long-term health care costs.
The client's ability to accomplish this goal through First Health is
contingent on:
* Reasonable incentives or disincentives for plan participants to
comply with the notification procedures and clinical management
recommendations of First Health. Because early notification is
essential to effective case management, these incentives help
ensure not only cost effectiveness but quality outcomes.
* An effective benefit differential between in-network and out-of-
network services of at least 10% for inpatient and outpatient
services, to include annual stop-loss provisions sufficiently
large so as to reinforce copayment/coinsurance differentials.
* Coverage for travel and organ-donor costs for services at network
transplant providers, and coverage of well-baby care for
participation in the maternity screening services.
<PAGE>
* Distribution to all plan participants of a First Health
identification card, including the toll-free health information
line, prior to the implementation date. Because the toll-free
number is such an integral part of the program, the more familiar
the participant is with the number, the more likely he or she is
to use it -- and the sooner the client will begin realizing cost
savings.
* A program of effective communication to plan participants about
First Health programs at least semi-annually. Well-planned,
timely communication increases participant satisfaction and
compliance significantly.
Workers' Compensation Services
Bill Review System. The Company provides comprehensive workers'
compensation medical bill review services through a sophisticated
computer system that enforces administration policies, applies state-
specific workers' compensation fee schedules, checks for billing
infractions and applies provider contract rates. Since all of these
functions are consolidated and automated, they reduce paperwork and
costs associated with claims processing and are highly cost effective
for larger workers' compensation entities who generally process in
excess of 500,000 bills annually. The Company currently is in the
process of developing a system for organizations that process less than
500,000 bills annually. It is estimated that it will be implemented in
mid to late 2000. Since these system capabilities are integrated with
its medical management and PPO services, the Company believes it offers
one of the most comprehensive workers' compensation medical cost
management programs in the industry. This workers' compensation
program was introduced in California in 1986.
Marketing. First Health markets the workers' compensation programs
to insurance carriers, third party administrators, state workers'
compensation funds, and self-insured, self-administered companies. The
Company's payer clients include at least some offices of six of the ten
largest workers' compensation insurers and the largest industrial
company in the world. Worksite posters, provider directories (either
paper or electronic) and other materials provided by its payer clients
encourage injured employees to utilize First Health's provider network.
Bill Review. Services offered by the Company include a computer
assisted review of medical provider billings to ensure accuracy and
adherence to established rates and billing rules. In 40 states,
including California, Texas, Arizona, Michigan, Ohio and Florida, a
schedule of presumed maximum fees has been established for workers'
compensation medical claims. The review process identifies and
corrects inappropriate bill practices and applies state fee schedules.
Provider network discounts are applied as well during the review.
Additionally, through the system, the Company is able to go beyond
"traditional" bill review services to provide enhanced systems savings
by reorganizing non-related services, upcoding and unbundling of
charges and other features. Finally, bill review data is integrated
with medical management and quality assessment activities.
<PAGE>
The Company has an agreement with Electronic Data Systems
Corporation ("EDS") which enables it to utilize EDS' extensive data
processing and communications networks. EDS modified its comprehensive
bill review and audit processing system to handle workers' compensation
claims and integrated the system with First Health's medical management
programs.
Bill review decreases workers' compensation payers' administrative
costs because First Health maintains virtually all aspects of the
program.
First Health offers two variations of the bill review program:
* Systems Lease: The systems technology is brought to the client's
office where their staff performs bill review.
* Service Bureau: Bills are sent to First Health's processing
centers and First Health keys the bills and performs bill review.
Compensation. The Company generally receives an agreed upon
percentage of total savings generated for clients through bill review
plus a per-bill fee, including provider network discounts, adjustments
to applicable billing rules and regulations and utilization reviews.
Savings are generally calculated as the difference between the amount
medical providers bill the payer clients and the amount First Health
recommends for payment.
Customers and Marketing
First Health primarily markets its services to national multi-sited
direct accounts, including self-insured employers, government employee
groups and multi-employer trusts. In addition, First Health markets
its services to and through group health and workers' compensation
insurance carriers. The following are representative customers of
First Health:
Agilent Technology, Inc. Liberty Mutual Insurance Company
American International Group McDonald's Corporation
Boilermakers National Health and NALCO Chemical Company
Welfare Fund National Association of Letter
CNA Carriers
ConAgra, Inc. The Pillsbury Company
Crawford and Company State Farm Mutual Automobile
Delphi Automotive Systems Insurance Company
Eaton Corporation Tandy Corporation
General Motors Corporation Texas Instruments Employees'
Hartford Financial Services, Inc. Health Benefits Trust
Hewlett-Packard Company The RETA Trust
Kemper National Services The Sherwin-Williams Company
Travelers Property Casualty
<PAGE>
The Company presently has approximately 50 group health and workers'
compensation insurance carrier clients. Typically, First Health enters
into a master service agreement with an insurance carrier under which
First Health agrees to provide its cost management services to health
care plans maintained by the carrier's policyholders. First Health's
services are offered not only to new policyholders, but also to
existing policyholders at the time their policies are renewed. The
insurance carrier's sales and marketing staff ordinarily has the
responsibility for offering First Health's services to its
policyholders, thus relieving the Company of a significant marketing
expense.
First Health typically enters into standardized service contracts
with its direct accounts and master service agreements with its
insurance carrier and third party administrator clients. These
contracts and agreements have automatically renewable successive terms
of between one and three years, and are generally terminable upon one
to six months' notice prior to their expiration. These contracts are
generally non-exclusive and permit the client to provide medical review
services on an in-house basis; however, these contracts are generally
exclusive as to the client's ability to use other PPO firms during
their term.
Risk Products and Insurance Company Acquisitions
The Company's experience with its HMO-like health plans for self-
funded ERISA did not prove to be as commercially accepted in 1998 and
1999 as the Company anticipated; thus, it was significantly scaled back
for 2000. As an extension of the Company's cost management services,
in February 1996 the Company acquired American Life and Health
Insurance Company and a subsidiary insurance company (collectively
"American"). American is a small medical indemnity insurer with
licenses in 26 states and approximately $8 million in annual premiums.
In September 1997, the Company acquired Loyalty Life Insurance Company
("Loyalty"), a 49-state insurance shell.
The Company acquired American and Loyalty in order to obtain the
infrastructure and licenses to enable the Company to leverage its
managed care assets into various products for multi-sited employers.
The Company's product promotes the continuity of care through a
single point of entry into the health care delivery system. By
calling, employees can obtain information on all aspects of their
health benefit program. This includes information ranging from
preventive care and claims status, to inquiries regarding network
providers and benefit plan coverage.
The program integrates the Company's PPO network of providers, The
First Health Network, with clinical management programs and claims
administration. Access to First Health's national network of providers,
including specialty and sub-specialty care such as transplant, gives
unparalleled provider coverage not only locally but throughout the
country.
Claims administration is provided through the Company's internal
capabilities, which have been developed since the time of the American
acquisition, and is integrated throughout the entire process so as to
take advantage of the potential synergies and competencies.
<PAGE>
For a single guaranteed cost, the Company's clients can be assured
of a comprehensive health care benefit plan that ensures the earliest
possible impact on patient care which provides a higher quality of
employee healthcare at a lesser cost.
Stop-Loss Insurance
The Company's stop-loss insurance capabilities through its wholly-
owned insurance companies allow another dimension to First Health's
ability to serve as an integrated single source for managed care needs.
Because First Health's stop-loss rates are based on the savings and
value generated through the Company's various services, First Health is
able to offer competitive rates and policies. The Company can offer
multiple-year rate guarantees that include fixed-percent increases and
that are based upon loss results. Stop-loss policies are written
through the Company's wholly-owned insurance subsidiaries. Policies
can be written for either specific or aggregate stop-loss insurance.
This is the primary insurance product the Company is emphasizing in its
sales efforts currently.
First Health Services Overview
First Health Services ("Services") provides value-added automation,
administration, payment, and health care management services for public
sector clients. Services provides: 1) Pharmacy Benefit Management,
which manages pharmacy benefit plans for managed care organizations,
HMOs, Insurers, Specialty & Elderly Rx programs, Medicaid programs,
state-funded specialty programs, and self-funded employers; 2) First
Mental Health, which provides psychiatric utilization review, long-term
care review and quality of care evaluation services for state
government clients; and 3) Fiscal Agent, which administers state
Medicaid health plans and other state funded health care programs.
First Health has been able to leverage its Medicaid fiscal agent
expertise, its base of experience in the public sector and its client
relationships with over 20 state governments, to provide new products
and services as the public sector health programs (including Medicare
and Medicaid) move toward managed care.
Pharmacy Benefit Management (PBM)
Services' PBM service line is one of the largest PBMs in the
country. Services' PBM business provides a full range of services,
including: pharmacy point-of-sale ("POS") eligibility verification and
claims processing; provider network development and management; disease
state management programs; prospective and retrospective drug
utilization reviews ("DUR"); provider profiling; formulary development;
manufacturers' rebate administration; and RxPert, a proprietary
database and decision support system for pharmacy utilization
monitoring and plan management.
<PAGE>
PBM services are increasingly required by both public and private
third-party payers as prescription drug expenses grow. Services' PBM
program is one of the few large-scale participants in the market not
aligned with or controlled by a drug manufacturer. Management believes
that Services' role as an objective provider is a distinct competitive
advantage in the growing sectors of managed care organizations and
state government plans, where clinical autonomy is often a requirement.
Furthermore, Services is the national leader with substantial
experience managing pharmacy plans for Medicaid and elderly
populations. This clinical and management expertise gives Services a
competitive advantage in the rapidly growing market of managed care
organizations serving capitated public sector lives (Medicare and
Medicaid).
Services also offers Disease Management Programs ("DMP") to assist
physicians and network pharmacies in the treatment of prevalent, high-
cost disease states. This program provides physicians with diagnosis,
treatment, and formulary guidelines which have been developed by
nationally recognized clinicians and medical academicians. Services'
DMP focuses on that percentage of patients who experience preventable
therapeutic problems (i.e., non-compliance, inappropriate therapy,
adverse drug reactions, etc.). The program includes prior
authorization initiatives, prospective DUR, retrospective DUR, and
educational intervention initiatives (concurrent DUR).
First Mental Health
First Mental Health provides an array of quality evaluation and
utilization review services to Medicaid programs, state mental health
agencies, HMOs, managed care organizations, and other health care
programs desiring to improve quality of care, contain costs, ensure
appropriate care, and measure outcomes. Products include: 1) External
Quality Reviews; 2) Utilization Review; and 3) Long Term Care
Reviews.
The External Quality Review encompasses the entire medical delivery
mechanism, not just the mental health portion. There is a new market
rapidly developing as various states implement this type of program to
move Medicaid recipients into Managed Care Organizations.
First Mental Health provides Utilization Review Services for a
variety of behavioral health programs, including Medicaid Under 21
acute psychiatric treatment, adult and geriatric acute psychiatric
treatment, residential services, and other alternative services. First
Mental Health also provides on-site quality reviews and inspection of
care for community mental health centers, residential treatment centers
and inpatient psychiatric programs. As state Medicaid programs and
state departments of mental health spend increasing proportions of
public funds on the treatment of mental and substance abuse illnesses,
the need for utilization review services is increasing. Some states
are moving toward capitated contracts with private sector firms to help
manage this problem; however, many states are opting to contract for
utilization review services to ensure appropriate mental health care
while containing costs.
<PAGE>
Under the Long Term Care Review program, First Mental Health
provides level-of-care determinations as well as preadmission
screenings and annual resident reviews ("PASARRs") to determine the
need for specialized services for mental illness, mental retardation or
related conditions.
Fiscal Agent
Services' Fiscal Agent service line provides customers with full
fiscal agent operations and systems maintenance and enhancement. Under
this product line, Services provides eligibility verification and ID
card issuance, health care claims receipt, resolution, processing and
payment, provider relations, third party liability processing,
financial reconciliation functions and client reporting. Customers of
Services include state Medicaid agencies, state departments of human
services, departments of health and managed care organizations serving
Medicaid populations. Fiscal Agent administrative services may also be
procured to support other government programs, such as state employee
benefit plans, early intervention programs, or other health care
initiatives. Typically, Fiscal Agent systems are modified to meet
specific states' program policy and administration requirements, and
services are offered for all claim types.
Services is one of four major competitors in the Medicaid fiscal
agent field. Services has developed and operates a HCFA-approved
information system for each of these contracts. These systems are
utilized to process and adjudicate eligibility, health care claims and
encounters, pay providers under a full range of reimbursement methods
and to generate reports for use in managing the program.
Services management believes there are significant future
opportunities in this market and has been recently awarded significant
additional business from the Commonwealth of Virginia. In addition,
there are several benefits that Services receives from operating the
Fiscal Agent business: 1) the contracts are profitable, with very
little new capital investment in the business required; 2) the
expertise, capabilities and systems developed from these contracts have
provided a platform for expansion into other products, services and
customer segments; and 3) customer relationships with the states have
proven valuable to First Health Services in developing other business
in PBM and First Mental Health.
Other Services
First Health National Transplant Program. As medical technology
advances, new and more complicated procedures, such as transplants,
have evolved. In an attempt to assist the Company's clients in meeting
these technological advances and their related costs, First Health has
developed The National Transplant Program.
This program has been designed to facilitate the cost-effective use
of high quality transplant services through an integrated system
whereby case management staff assists in the coordination of the
process from the determination of the need for a transplant through
follow up care for one year after the transplant is performed.
<PAGE>
The goals of The National Transplant Program include:
* Enhancing quality of care and favorable outcomes through case
management and direction of patients to a selected number of
transplant programs that meet stringent quality and performance
standards;
* Reducing health care costs by contracting a cost-effective
package rate with high quality transplant centers that have a
proven performance record of desirable outcomes;
* Improving predictability of transplant costs by establishing
fixed fees that share risk with the providers and spread
payment out over a one-year period.
Transplants included in the program include: heart, lung,
heart/lung, liver, kidney, kidney/pancreas and bone marrow (both
allogenic and autologous).
Year 2000 Matters
See Management's Discussion and Analysis of Financial Condition
and Results of Operations in the Company's 1999 Annual Report to
Stockholders. Such information is incorporated herein by reference.
Competition
First Health competes in a highly fragmented market with national
and local firms specializing in utilization review and PPO cost
management services and with major insurance carriers and third party
administrators which have implemented their own internal cost
management services. In addition, other health care programs, such as
HMOs, compete for the enrollment of benefit plan participants. First
Health is subject to intense competition in each market segment in
which it competes. Many of First Health's competitors are
significantly larger and have greater financial and marketing resources
than First Health.
First Health competes on the basis of the quality and cost-
effectiveness of its programs, its proprietary computer-based
integrated information system and its emphasis on commitment to service
and high degree of physician involvement. Due to the quality of the
services offered, First Health tends to charge more for its services
than many of its competitors.
The insurer market for workers' compensation programs is somewhat
concentrated with the top ten insurers controlling over 50% of the
insured market. The loss or addition of any one of these insurers
could have a material impact on revenues. First Health currently has
as clients at least some offices of six of the top ten insurers. While
experience differs with various clients, obtaining a new client
requires extended discussions and significant time.
<PAGE>
Over the last few years, the Company believes a major competitive
threat has arisen as a result of the so-called "Silent" Preferred
Provider Organizations (PPO) or non-directed networks. In this
situation, medical reimbursement payers lay claim to PPO discounts
without providing any patient channeling mechanisms. These "networks"
use the camouflage of directed networks to secure rewards of managed
care discounts from medical providers without the responsibilities.
These organizations betray the trust of providers who offer preferred
rates to networks anticipating active patient directing programs, thus
undercutting the integrity of managed care business relationships,
threatening the viability of legitimate networks, such as the
Company's, and jeopardizing provider finances.
Since managed care is fundamentally a bargain between a managed care
organization and a medical provider in which the managed care
organization channels patients to the provider in exchange for
favorable price consideration and the adherence to managed care
guidelines, the "silent" PPO networks can and do undermine that
bargain. To the extent that providers are defrauded in that price for
volume trade-off, the ability of legitimate managed care companies to
obtain appropriate priced considerations will be diminished.
Employees
As of December 31, 1999, First Health had approximately 3,600
employees, including approximately 1,450 employees involved in claims
processing and related activities; 630 employees in information
systems; 500 employees in various clinical management and quality
assessment activities; 350 employees in PPO development and operations,
220 employees in sales and marketing; 200 involved in member and client
service activities and the remainder involved with accounting, legal,
human resources, facilities, and other administrative, support and
executive functions. First Health also has a nationwide network of
conferring physicians in various specialties, most of whom are
compensated on an hourly or per visit basis when requested by First
Health to render consulting services. None of the Company's employees
are presently covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.
Government Regulations and Risk Management
The Company believes that its methods of operation are in material
compliance with all applicable laws, including statutes and regulations
relating to PPO and clinical management operations.
Item 2. Properties
First Health owns four office buildings consisting of an aggregate
of approximately 465,000 square feet of space. The Company's
headquarters are located in Downers Grove, Illinois and the other three
are located in West Sacramento, California; Houston, Texas and
Scottsdale, Arizona. Additionally, the Company leases significant
office space in the Salt Lake City, Utah; Milwaukee, Wisconsin;
Richmond, Virginia; Pittsburgh, Pennsylvania; Boise, Idaho; and the Los
Angeles, California area. The Company also has numerous smaller leased
facilities throughout the nation.
<PAGE>
All of the Company's buildings and equipment are being utilized,
have been maintained adequately and are in good operating condition.
These assets, together with planned capital expenditures, are expected
to meet the Company's operating needs in the foreseeable future.
Item 3. Legal Proceedings
First Health is subject to various legal proceedings arising in the
ordinary course of business. In the opinion of management, the
ultimate resolution of these pending suits will not have a material
adverse effect on the business or financial condition of First Health.
See Notes to Consolidated Financial Statements in the Company's 1999
Annual Reports to Stockholders, incorporated herein by reference, for
further information.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the year ended December 31, 1999.
<TABLE>
Executive Officers of the Company
Name Age Position
------------------- --- -------------------------------------
<S> <C> <C>
James C. Smith 59 President and Chief Executive Officer
Daniel Brunner 56 Executive Vice President,
Government Affairs
Mary Anne Carpenter 54 Executive Vice President, Service
Products
A. Lee Dickerson 50 Executive Vice President, Provider
Networks
Patrick G. Dills 46 Executive Vice President, Sales
Ronald H. Galowich 64 Secretary
Lottie A. Kurcz 45 Senior Vice President, Strategic
Business Development
Jerry L. Seiler 59 Controller
Susan T. Smith 49 General Counsel, Assistant Secretary
Joseph E. Whitters 41 Vice President, Finance and
Chief Financial Officer
Edward L. Wristen 48 Executive Vice President, Chief
Operating Officer
</TABLE>
<PAGE>
James C. Smith has served as President and Chief Executive Officer
and director of First Health since January, 1984.
Daniel Brunner, a director of the Company, has been Executive Vice
President, Government Affairs since January 1994. Prior to that, he
was Corporate Operating Officer in charge of government affairs since
February 1992. Mr. Brunner has served as President of AFFORDABLE since
April 1983.
Mary Anne Carpenter has held various senior management positions in
the Company since joining the Company in 1983. In June 1997, Ms.
Carpenter was promoted to Executive Vice President, Service Products.
Prior to that, from March 1994 to May 1997, she was Executive Vice
President, Clinical Operations and Claims Repricing. Prior to joining
the Company, Ms. Carpenter held various positions in the health care
industry.
A. Lee Dickerson joined First Health in 1988 as Regional Director,
Hospital Contracting. Mr. Dickerson was promoted into his current
position in November 1995. Previously he held various senior level
positions in the Company's Provider Networks area. Mr. Dickerson has
over 20 years experience in the health care industry.
Patrick G. Dills joined First Health in 1988 as Senior National
Director, Sales and Marketing. Mr. Dills was promoted to Executive
Vice President, Managed Care Sales in January 1994 and to Executive
Vice President, Sales in 1998. Prior to joining First Health, Mr.
Dills held various senior sales positions at M&M/Mars, and various
divisions of Mars, Inc. for the prior six years.
Ronald H. Galowich has served as Secretary of the Company since
1983, General Counsel from 1983 to March 1997, Executive Vice President
of the Company from 1983 to May 1994 and Chairman of the Board of
Madison Group Holdings, Inc., a multi-purpose business and investment
company, since 1990.
Lottie A. Kurcz joined First Health in 1986 as Manager of National
Accounts. Since joining First Health, Ms. Kurcz has held various
senior sales and marketing positions. Ms. Kurcz was promoted in 1998
to Senior Vice President, Strategic Business Development. Prior to her
promotion, Ms. Kurcz was Senior Vice President, Risk Products. Prior
to joining First Health, Ms. Kurcz held various senior positions in
private industry.
Jerry L. Seiler joined the Company in May 1989 as Accounting Manager
and was promoted to Corporate Controller in 1990 and has served in that
capacity since.
Susan T. Smith has served as General Counsel of the Company since
March 1997. She was Associate General Counsel from September 1994 and
joined the Company in July 1992. Prior to joining First Health, Ms.
Smith was a partner at Pryor, Carney and Johnson, a large Denver law
firm where she headed the firm's healthcare law practice.
Joseph E. Whitters joined the Company as Controller in October 1986
and has served as its Vice President, Finance since August 1987 and its
Chief Financial Officer since March 1988.
<PAGE>
Edward L. Wristen joined First Health in November 1990 as Director
of Strategic Planning and was promoted to Vice President, Managed
Outpatient Care Programs, in April 1991. In February 1992, he became
Executive Vice President and Corporate Operating Officer in charge of
Provider Networks. In January 1995, Mr. Wristen became Executive Vice
President, Risk Products. In September 1998, Mr. Wristen became Chief
Operating Officer. Prior to joining First Health, Mr. Wristen was
President of Parkside Data Services, a subsidiary of Parkside Health
Management Corporation, a firm engaged in data and analytic services,
from March 1989 to November 1990. From February 1987 to February 1989
Mr. Wristen was Chief Operating Officer and Executive Vice President of
Addiction Recovery Corporation, a regional chain of chemical dependency
hospitals. Mr. Wristen has over 18 years experience in the health care
industry.
The Company's officers serve at the discretion of the Board of
Directors.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock has been quoted on the Nasdaq National
Market under the symbol "FHCC" since the Company's corporate name
change on January 1, 1998 and prior to that was quoted under the symbol
"HCCC". Information concerning the range of high and low sales prices
of the Company's Common Stock on the Nasdaq National Market and the
approximate number of holders of record of the Common Stock is set
forth under "Common Stock" in the Company's 1999 Annual Report to
Stockholders. Information concerning the Company's dividend policy is
set forth under "Dividend Policy" in the Company's 1999 Annual Report
to Stockholders. All such information is incorporated herein by
reference.
Item 6. Selected Financial Data.
Selected financial data of the Company for each of its last five
fiscal years is set forth under "Selected Financial Data" in the
Company's 1999 Annual Report to Stockholders. Such information is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
The information required by this item is set forth under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1999 Annual Report to
Stockholders and is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
The disclosures about Market Risk required by this item are
contained in the Company's 1999 Annual Report on page 29 and are
incorporated herein by reference.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this item are contained in the
Company's 1999 Annual Report to Stockholders on the pages indicated
below and are incorporated herein by reference.
Financial Statements: Page No.
--------------------- --------
Report of Independent Auditors 31
Consolidated Balance Sheets as of
December 31, 1998 and 1999 32
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 33
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 1997, 1998 and 1999 33
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1998 and 1999 34-35
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999 36-37
Notes to Consolidated Financial Statements 38-45
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Certain information regarding the Company's executive officers is
set forth under the caption "Executive Officers of the Company" in Part
I. Other information regarding the Company's executive officers, as
well as certain information regarding First Health's directors, will be
included in the Proxy Statement for the Company's Annual meeting of
Stockholders to be held on May 16, 2000 (the "Proxy Statement"), and
such information is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference. However, neither
the Report of the Compensation Committee of the Board of Directors on
Executive Compensation nor the Performance Graph contained in the Proxy
Statement is incorporated by reference herein, in any of the Company's
previous filings under either the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, or in any of the
Company's future filings.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form
8-K.
(a) The following documents are filed as part of this report:
(1) The Index to Financial Statements is set forth on pages
25 and 26 of this report.
(2) Financial Statements Schedules:
Schedule II - Valuation and Qualifying Accounts and
Reserves.
Schedule IV - Reinsurance
(3) Exhibits
(b) Report on Form 8-K:
The Company did not file a current report on Form 8-K during the
fourth quarter of fiscal 1999.
<PAGE>
<TABLE>
First Health Group Corp.
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1999, 1998, and 1997
Balance at Additions Charged Adjustments Balance at
Beginning of to Costs and End of
Description Period and Expenses Charges-offs Period
------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for Doubtful Accounts $11,151,000 $ -- $ (307,000) $10,844,000
========== ========== =========== ==========
Accrued Restructuring Expenses $15,303,000 $ -- $(10,154,000) $ 5,149,000
========== ========== =========== ==========
Year Ended December 31, 1998
Allowance for Doubtful Accounts $10,064,000 $ 897,000 $ 190,000 $11,151,000
========== ========== =========== ==========
Accrued Restructuring Expenses $28,166,000 $ -- $(12,863,000) $15,303,000
========== ========== =========== ==========
Year Ended December 31, 1997
Allowance for Doubtful Accounts $ 2,573,000 $ 9,799,000(1) $ (2,308,000) $10,064,000
========== ========== =========== ==========
Accrued Restructuring Expenses $ 1,141,000 $26,036,000(2) $ 989,000 $28,166,000
========== ========== =========== ==========
(1) Additions include $5,453,000 of allowance for doubtful
accounts which were included in the purchase accounting
adjustments related to the acquisition of FHC, not charged to
expenses.
(2) Additions include $26,036,000 of accrued restructuring
expenses which were included in the purchase accounting
adjustments related to the acquisition of FHC, not charged to
expenses.
</TABLE>
<PAGE>
<TABLE>
First Health Group Corp.
Schedule IV - Reinsurance
Years Ended December 31, 1999, 1998 and 1997
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
----------- -------------- --------- ---------- ---
<S> <C> <C> <C> <C> <C>
Year ended 12/31/99:
Life insurance in force: $448,134,000 $ (437,183,000) $ -- $10,951,000 --%
=========== ============== ========= ========== ===
Premiums:
Life insurance 6,086,000 (5,901,000) 41,000 226,000 18%
Accident and health
insurance 9,502,000 (3,497,000) 1,442,000 7,447,000 19%
----------- -------------- --------- ---------- ---
Total premiums $ 15,588,000 $ (9,398,000) $1,483,000 $ 7,673,000 19%
=========== ============== ========= ========== ===
Year ended 12/31/98:
Life insurance in force: $585,037,000 $ (545,305,000) $ -- $39,732,000 --%
=========== ============== ========= ========== ===
Premiums:
Life insurance 8,845,000 (8,442,000) 54,000 457,000 12%
Accident and health
insurance 19,539,000 (3,044,000) 2,039,000 18,534,000 11%
----------- -------------- --------- ---------- ---
Total premiums $ 28,384,000 $ (11,486,000) $2,093,000 $18,991,000 11%
=========== ============== ========= ========== ===
Year ended 12/31/97:
Life insurance in force: $1,507,194,000 $(1,470,903,000) $ 1,151,000 $37,442,000 3%
============= ============== ========= ========== ===
Premiums:
Life insurance 7,424,000 (7,104,000) 94,000 414,000 23%
Accident and health
insurance 11,046,000 (2,859,000) 2,147,000 10,334,000 21%
----------- -------------- --------- ---------- ---
Total premiums $ 18,470,000 $ (9,963,000) $2,241,000 $10,748,000 21%
=========== ============== ========= ========== ===
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST HEALTH GROUP CORP.
By: /s/ James C. Smith
-------------------------
James C. Smith, President
and Chief Executive Officer
Date: March 23, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on March 27,
2000:
Signature Title
--------------------- ----------------------------
/s/Thomas J. Pritzker * Chairman of the Board
Thomas J. Pritzker
/s/James C. Smith * President, Chief Executive
James C. Smith Officer, Director
(Principal Executive)
/s/Joseph E. Whitters Chief Financial Officer
Joseph E. Whitters (Principal Financial Officer)
/s/Jerry L. Seiler Controller
Jerry L. Seiler (Principal Accounting Officer)
/s/Ronald H. Galowich * Secretary
Ronald H. Galowich Director
/s/Michael J. Boskin * Director
Michael J. Boskin
/s/Burton W. Kanter * Director
Burton W. Kanter
/s/David Simon * Director
David Simon
/s/Daniel Brunner * Executive Vice President,
Daniel Brunner Government Affairs,
Director
/s/Robert S. Colman * Director
Robert S. Colman
/s/Harold S. Handelsman * Director
Harold S. Handelsman
/s/Don Logan * Director
Don Logan
* By: /s/ Joseph E. Whitters
Joseph E. Whitters, Attorney in Fact
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First Health Group Corp.
Downers Grove, IL 60515
We have audited the consolidated financial statements of First Health
Group Corp as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999 and have issued our report
thereon, dated February 18, 2000; such consolidated financial
statements and report are included in your 1999 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedules of First Health
Group Corp. listed in Item 14. These consolidated financial statement
schedules are the responsibility of the Corporation's management. Our
responsibility is to express an opinion based upon our audits. In our
opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 18, 2000
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
------------------------------------------------------------------------
2.1. Omitted
3.1. Restated Certificate of Incorporation of the Company.
{3.1} (1)
3.2. Amendment to Restated Certificate of Incorporation of
the Company. {3.2} (9)
3.3. Restated Certificate of Designation of Preferences,
Rights and Limitations. {3.2} (1)
3.4. Amended and Restated By-Laws of the Company. {3.3}
(1)
3.5. Amendment, dated as of May 20, 1987, to Amended and
Restated By-Laws of the Company {3.4} (2)
3.6. Amendment to Amended and Restated By-Laws of the
Company.{3.5} (6)
3.7. Amendment to Amended and Restated By-Laws of the
Company.{3.6} (6)
4. Specimen of Stock Certificate for Common Stock. {4}
(2)
9. Omitted
9.1. Omitted
9.2. Omitted
10.1 - 10.24. Omitted
10.25. Form of Consulting Physician Agreement, {10.20} (2)
10.26. Form of Consulting Specialist Agreement. {10.21} (2)
10.27-10.53. Omitted
10.54. Form of Indemnification Agreement entered dated June
19, 1989 between OUCH and executive officers and
directors of OUCH (Incorporated by reference to
Exhibit B of definitive proxy materials filed by OUCH
with the SEC on April 7, 1989) {10.54} (11)
<PAGE>
Exhibit No. Description
------------------------------------------------------------------------
10.55-10.68. Omitted
10.69. Second Restatement of the HealthCare COMPARE Corp.
Retirement Savings Plan. {10.69} (14)
10.70. HealthCare COMPARE Corp. Director's Option Plan dated
May 23, 1991. {10.70} (14)
10.71. HealthCare COMPARE Corp. Stock Option Plan (for
employees of OUCH). {10.71} (14)
10.72. - 10.75. Omitted
10.76. Employment Agreement dated as of July 1, 1993 by and
between COMPARE and Daniel S. Brunner. {10.76} (15)
10.77.- 10.89. Omitted
10.90. Retainer Agreement dated January 1, 1994 between
HealthCare COMPARE Corp. and Ronald H. Galowich.
{10.90}
10.91-10.93. Omitted.
10.94. HealthCare COMPARE Corp. 1995 Employee Stock Option
Plan. (4.1) {18}
10.95. Omitted
10.96. Option Agreement dated as of January 1, 1997 by and
between The Company and James C. Smith. {10.96} (20)
10.97. Option Agreement dated as of January 1, 1997 by and
between The Company and James C. Smith. {10.97} (20)
10.98. Option Agreement dated as of January 1, 1997 by and
between The Company and James C. Smith. {10.98} (20)
10.99. Agreement dated as of September 1, 1995 between
HealthCare COMPARE Corp. and Electronic Data Systems.
{10.99} (20)
10.100. - 10.105 Omitted.
<PAGE>
Exhibit No. Description
------------------------------------------------------------------------
10.106. Employment Agreement dated April 29, 1997 between
HealthCare COMPARE Corp. and Patrick G. Dills.
{10.106} (22)
10.107. Omitted.
10.108. Stock Purchase Agreement among HealthCare COMPARE
Corp., First Financial Management Corporation and
First Data Corporation dated as of May 22, 1997,
incorporated by reference from the Company's Second
Quarter 1997 Form 10-Q dated August 13, 1997.
{10.108} (22)
10.109. Amended and Restated Credit Agreement dated as of
October 22, 1997 by and among HealthCare COMPARE
Corp. as borrowers; LaSalle National Bank as
administrative agent, issuing bank and lender; First
Chicago Capital Markets, Inc., as syndication agent;
and the other financial institutions party hereto as
lenders. {10.109} (22)
10.110. First Amendment to Amended and Restated Credit
Agreement dated as of October 22, 1997, by and among
First Health Group Corp. (f/k/a HealthCare COMPARE
Corp.), as Borrower, LaSalle National Bank, as
Administrative Agent, and the other parties thereto
(the "Amendment") . {10.110} (25)
10.111. 1998 Stock Option Plan {4} (23)
10.112. 1998 Directors Stock Option Plan {4} (24)
10.113. Employment Agreement dated May 18, 1999 between First
Health Group Corp. and James C. Smith.
10.114. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Ed Wristen.
10.115. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Mary Anne Carpenter.
10.116. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Lottie Kurcz.
10.117. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Susan T. Smith.
10.118. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and A. Lee Dickerson.
10.119. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Jerry L. Seiler.
<PAGE>
Exhibit No. Description
------------------------------------------------------------------------
10.120. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Joseph E. Whitters.
10.121. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Patrick G. Dills.
11. Computation of Basic and Diluted Earnings Per Share.
13. 1999 Annual Report to Stockholders.
21. Subsidiaries of the Company.
23. Consent of Deloitte & Touche LLP
24. Powers of Attorney
<PAGE>
Exhibit No. Description
------------------------------------------------------------------------
27. Financial data schedules of the Company.
{ } Exhibits so marked have been previously filed with
the Securities and Exchange Commission as exhibits to
the filings shown below under the exhibit number
indicated following the respective document
description and are incorporated herein by reference.
(1) Registration Statement on Form S-1 ("Registration
Statement"), as filed with the Securities and
Exchange Commission on April 17, 1987.
(2) Amendment No. 2 to Registration Statement, as filed
with the Securities and Exchange Commission on May
22, 1987.
(3) Amendment No. 3 to Registration Statement, as filed
with the Securities and Exchange Commission on May
29, 1987.
(4) Annual Report on Form 10-K for the fiscal year ended
August 31, 1987, as filed with the Securities and
Exchange Commission on November 27, 1987.
(5) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on January 12,
1988.
(6) Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on July 12, 1988.
(7) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on January 18,
1989.
(8) Annual Report on Form 10-K for the year ended August
31, 1989, as filed with the Securities and Exchange
Commission on November 28, 1989.
(9) Annual Report on Form 10-K for the year ended
December 31, 1990, as filed with the Securities and
Exchange Commission on March 30, 1991.
(10) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on November 1,
1991.
(11) Registration Statement of Form S-4, as filed with the
Securities and Exchange Commission on January 27,
1992.
(12) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on March 4, 1992.
(13) Annual Report on Form 10-K for the year ended
December 31, 1991 as filed with the Securities and
Exchange Commission on March 27, 1992.
<PAGE>
Exhibit No. Description
------------------------------------------------------------------------
(14) Annual Report on Form 10-K for the year ended
December 31, 1992 as filed with the Securities and
Exchange Commission on March 26, 1993.
(15) Annual Report on Form 10-K for the year ended
December 31, 1993 as filed with the Securities and
Exchange Commission on March 25, 1994.
(16) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 27,
1994.
(17) Annual Report on Form 10-K for the year ended
December 31, 1994 as filed with the Securities and
Exchange Commission on March 24, 1995.
(18) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on September 20,
1995.
(19) Annual Report on Form 10-K for the year ended
December 31, 1995 as filed with the Securities and
Exchange Commission on March 27, 1996.
(20) Annual Report on Form 10-K for the year ended
December 31, 1996 as filed with the Securities and
Exchange Commission on March 27, 1997.
(21) Registration Statement on Form S-8 as filed with the
Securities Exchange Commission on July 23, 1997.
(22) Annual Report on Form 10K for the year ended December
31, 1997 and filed with the Securities and Exchange
Commission on March 25, 1998.
(23) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on December 15,
1998.
(24) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on December 15,
1998.
(25) Annual Report on Form 10K for the year ended December
31, 1998 and filed with the Securities and Exchange
Commission on March 29, 1999.
Exhibit 10.113
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 18th
day of May, 1999, by and between James C. Smith (the "Employee") and
First Health Group Corp., a Delaware corporation (the "Company").
IN CONSIDERATION of the mutual promises set forth below, and other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment with the Company, upon the terms and
subject to the conditions hereinafter set forth.
2. Duties.
a. Employment. The Employee is employed as the President
and Chief Executive Officer of the Company and shall render his
services at the principal business offices of the Company in Downers
Grove, Illinois, unless otherwise agreed by him and the Board of
Directors of the Company. The Employee shall have such authority and
shall perform such duties as are customary for the office to which he
has been appointed, including, without limitation, the full authority
to conduct and direct the day-to-day operations of the Company, subject
to such limitations, instructions, directions and control as the Board
of Directors of the Company or the Chairman of the Board of the Company
(acting at the direction or with the authority of the Board of
Directors) may specify from time to time. He shall not otherwise
devote time to the active pursuit of any other business enterprise, nor
shall he have any interest in any business enterprise which is
competitive with or adverse to the Company, whether as an employee,
officer, director, consultant, creditor, security holder or otherwise
(except to the extent permitted in Paragraph 8 hereof). The foregoing
notwithstanding, the Employee shall be entitled to belong to and
participate in professional organizations and to engage in professional
activities in furtherance of the Company's business.
b. Stock Retention. Employee will own not less than
164,000 shares of the Company's common stock until June 30, 2003.
3. Term. The term of Employee's employment under this Agreement
shall commence on May 18, 1999 and shall terminate on December 31, 2001
unless otherwise terminated in accordance with the terms hereof.
4. Compensation. As compensation for the services rendered
hereunder, the Employee shall be entitled to receive the following:
a. Base Salary. Effective the date of this Agreement,
Employee shall receive an annual salary of $920,700 ("Base Salary").
Effective January 1, 2000 Base Salary will be $950,000, and effective
January 1, 2001 Base Salary will be $975,000. Base Salary will be
payable in installments at such times and in such manner as may from
time to time be in effect for executives of the Company, but not less
often than monthly.
<PAGE>
b. Additional Compensation. As soon as practicable after
the end of each fiscal year of the Company during the term of this
Agreement and commencing with the year ending December 31, 2000, the
Company's Pretax Income for such fiscal year (as determined in
accordance with generally accepted accounting principles) will be
compared to the Company's Pretax Income for the immediately preceding
fiscal year (Threshold Year). If Pretax Income has increased by 5% or
more for the year, the resulting percentage increase (rounded to the
nearest whole number) will be used to determine any Additional
Compensation payable to Employee in accordance with the following
table:
Additional
Compensation Factor
Pretax Income (as % of Threshold
Increase Year Base Salary)
-------- ----------------
5% 25%
10% 50%
20% 75%
30% 100%
40% 125%
50%* 150%
*For each additional 10% Pretax Income Increase above 50%, the
Additional Compensation Factor will increase by 25%.
Additional Compensation will be earned pro rata to the Pretax Income
Increase. In example, if the Pretax Income increases 15%, Employee
will receive 62.5% (50% plus 12.5% (the pro rata increase)) of
Threshold Year Base Salary in Additional Compensation.
If a merger, acquisition, accounting pronouncement or other unusual
financial event of the Company causes a material change to the Pretax
Income for any year, Employee and Company agree that for the purpose of
this Agreement only, Pretax Income will not include the unusual event
and/or will be modified to neutralize the financial effect of the
event.
5. Stock Options. Subject to receipt of any required
stockholder approval and effective upon the execution and delivery of
this Agreement, the Company shall grant to the Employee options to
purchase shares of Common Stock of the Company, each such option to be
on the terms and subject to the conditions of the respective stock
option agreements (the "Option Agreements") to be entered into between
the Company and the Employee, the forms of which are attached hereto as
Exhibits 1, 2 and 3.
<PAGE>
6. Benefits.
a. Benefits During the Term of this Agreement. In addition
to the compensation to be paid to the Employee pursuant to Paragraph 4
hereof, the Employee shall be entitled to participate in all employee
benefit programs currently maintained by the Company as such programs
may be modified from time to time and each such other program or policy
established by the Company from time to time during the term of this
Agreement for its employees and executives generally (to the extent
that it is more favorable to the Employee than an existing program
covering the same benefit). Employee shall be entitled to an annual
paid vacation of four weeks during each year of employment hereunder.
Unused vacation time shall accumulate from year to year, but in no
event shall the Employee be entitled to accumulate more than eight
weeks of vacation time.
b. Benefits After the Term of this Agreement. The Company
hereby confirms the existence of the grant of health benefits to
Employee after the term of this Agreement as first set forth in that
certain Employment Agreement, dated as of July 1, 1993 between Employee
and the Company (the "1993 Employment Agreement").
7. Reimbursement of Expenses. The Company, promptly upon
receipt from the Employee of appropriate documentation, shall reimburse
the Employee for all of his reasonable business expenses, including,
without limitation, travel expenses, necessarily and appropriately
incurred in the performance of his duties hereunder.
8. Confidentiality and Competition.
a. In consideration of the substantial benefits to be
provided hereunder to the Employee by the Company, and in recognition
of the fact that the Employee occupies a position of trust and
confidence with the Company, the Employee acknowledges that he has
provided, created and acquired and hereafter will provide, create and
acquire valuable and confidential information of a special and unique
nature relating to such matters as the Company's trade secrets,
systems, procedures, manuals, confidential reports, employee rosters,
client lists, software systems, products, business and financial
methods and practices, plans, pricing, selling techniques, special
methods and processes involved in designing, assembling and operating
computer programs previously and currently used by the Company and the
application thereof to managed care programs and other related
electronic data processing information respecting the Company's
existing businesses and services and those developed during the term of
this Agreement, as well as credit and financial data relative to the
Company and its clients, and the particular business requirements of
the Company's clients, including the methods used and preferred by the
Company's clients and fees paid by such clients. In addition, the
Employee has developed and may further develop on behalf of the Company
a personal acquaintance with the Company's clients, which acquaintances
may constitute the Company's only contact with such clients. For
purposes of this Paragraph 8, the term "Company" shall mean First
Health Group Corp. and each company which is a subsidiary thereof and
any partnership or joint venture in which the Company or any such
subsidiary owns an equity interest at any time during the term of this
<PAGE>
Agreement. In view of the foregoing and in consideration of the
remuneration to be paid to the Employee hereunder, the Employee
acknowledges and agrees that it is reasonable and necessary for the
protection of the goodwill and business of the Company that he make the
covenants contained herein regarding his conduct during and subsequent
to his employment by the Company and that the Company will suffer
irreparable injury if the Employee were to engage in any conduct
prohibited hereby. The Employee represents that his experience and/or
abilities are such that the observance of the aforementioned covenants
will not cause the Employee any undue hardship, nor will it
unreasonably interfere with the Employee's ability to earn a
livelihood. The Employee and the Company further agree that the
covenants contained in this Paragraph 8 shall each be construed as a
separate agreement independent of any other provisions of this
Agreement, and that the existence of any claim or cause of action by
the Employee against the Company, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by the
Company of any of these covenants; provided, however, that the
covenants contained in this Paragraph 8 shall not be enforceable by the
Company during any period in which the Company has wrongfully failed to
make a required payment under Paragraph 4a hereof. In the event a
court of competent jurisdiction determines that any provision of this
Paragraph 8 is unreasonable as to duration, substantive extent or
geographic scope, the provision will nonetheless be enforced to the
fullest extent reasonable.
b. The Employee, while in the employ of the Company or at
any time thereafter, will not directly or indirectly communicate or
divulge, or use for the benefit of himself or of any other person,
firm, association or corporation, any of the Company's trade secrets or
other confidential information, including, without limitation, the
information described in Paragraph 8a, which trade secrets and
confidential information were or will be communicated to or otherwise
learned or acquired by the Employee in the course of his employment
with the Company, except that the Employee may disclose such matters to
the extent that the disclosure thereof is required: (i) in the course
of his employment with the Company, provided such disclosure is made
exclusively for the benefit of the Company, or (ii) by a court,
governmental agency of competent jurisdiction or grand jury.
c. During the term of his employment with the Company and
for a period of three years thereafter, the Employee will not contact,
directly or indirectly, with a view towards selling any product or
service competitive with any product or service sold (or proposed to be
sold) by the Company during the Employee's employment, any person, firm
association or corporation (i) to which the Company has provided its
services, or (ii) which the Employee or, to his knowledge, any other
employee or representative of the Company has solicited, contacted or
otherwise dealt with on behalf of the Company, nor will he directly or
indirectly make any such contact, for the benefit or on behalf of any
other person, firm, association or corporation or in any manner assist
any person, firm, association or corporation to make any such contact.
<PAGE>
d. During the term of his employment by the Company and for
a period of three years thereafter, the Employee will not directly or
indirectly acquire any interest in any corporation, firm or business
(other than the Company) which is engaged in any business in the United
States the same as, similar to or competitive with the business of the
Company as conducted at any time during the Employee's employment,
whether as an employee, sole proprietor, director, officer, consultant,
equity security holder or otherwise (except that he may own up to 2% of
the outstanding shares of capital stock of any corporation whose stock
is listed on a national securities exchange or is traded in the over-
the-counter market), nor will the Employee directly or indirectly have
any interest in any corporation, firm or business which is engaged in a
business adverse to the Company's business (except that he may own up
to 2% of the outstanding shares of capital stock of any corporation
whose stock is listed on a national securities exchange or is traded in
the over-the-counter market).
e. During the term of his employment by the Company and for
a period of three years thereafter, neither the Employee nor any entity
by which the Employee is employed or otherwise associated with will
directly or indirectly employ, retain the services of or induce or
attempt to induce, in any manner whatsoever, any present or future
employee of the Company to leave the employ of the Company and/or to
seek or accept employment with the Employee or any other person, firm,
association or corporation.
f. In the event of a breach or threatened or intended
breach of this Agreement and the foregoing covenants by the Employee,
the Employee acknowledges that the Company will suffer irreparable
injury and that determination of the exact amount of the Company's
damages will be difficult, if not impossible, and agrees that the
Company shall be entitled, in addition to remedies otherwise available
to it at law or in equity, to injunctions, both preliminary and
permanent and without bond therefor, enjoining or restraining such
breach or threatened or intended breach, and the Employee hereby
consents to the issuance thereof forthwith by any court of competent
jurisdiction.
9. Termination of Employment.
a. Incapacity. If, during the term of this Agreement, the
Employee should be prevented from performing his duties by reason of
illness or physical or mental disability (hereinafter referred to
collectively as "Incapacity") for a continuous period of between 90 and
180 days, the Employee shall receive one-half his per diem Base Salary
for each day during such time period that he fails, due to his
Incapacity, to render the services contemplated hereunder. If during
the term of this Agreement, the Employee should be prevented from
performing his duties by reason of Incapacity for a continuous period
greater than 180 days, the Company may terminate the Employee's
employment hereunder by giving written notice thereof to the Employee,
effective on the date set forth in the notice (which date shall be not
less than 15 business days after the notice is given).
For purposes hereof, a continuous period of Incapacity shall
not be deemed interrupted until the Employee returns to substantially
full time work for a period of at least 30 days.
<PAGE>
b. Death. In the event of the Employee's death during the
term of this Agreement, the Employee's employment hereunder shall be
deemed terminated as of the date of the Employee's death.
c. Cause. This Agreement and the Employee's employment
hereunder may be terminated at any time by the Company for cause. As
used herein "cause" shall mean (i) theft, embezzlement or fraud by the
Employee or the Employee's involvement in any other scheme or
conspiracy pursuant to which the Company has lost or could reasonably
be expected to lose assets to the Employee or to others calculated by
the Employee to receive such assets, (ii) incapacity on the job by
reason of the use or abuse of alcohol or drugs, (iii) commission
of a felony or a crime involving moral turpitude, (iv) gross
insubordination, (v) unexplained and continuous absences from work,
(vi) material breach of the Employee of any of the provisions of this
Agreement which is not cured within 30 business days after the Company
gives written notice thereof to the Employee specifying the nature of
such breach, (vii) refusal to act in accordance with a lawful and duly
adopted resolution of the Board of Directors.
d. Termination of Employment by the Employee. If, at any
time during the term of this Agreement, the Employee shall not be
reappointed as President and Chief Executive Officer of the Company but
his services under this Agreement are not terminated by the Company,
the Employee shall have the right, by written notice to the Chairman of
the Board of the Company, to terminate his services hereunder,
effective as of the thirtieth day after receipt of said notice, and the
Employee shall have no further obligations under this Agreement, except
as provided in Paragraph 8 hereof. Termination of the Employee's
services pursuant to this Paragraph shall be treated as a termination
of employment by the Company other than for cause and shall be governed
by the provisions of Paragraph 10e hereof.
e. Termination of Employment by the Company. The Company
may terminate the Employee's employment for any reason deemed
sufficient by the Company.
As used in this Paragraph 9, unless otherwise specified, the
term "days" refers to calendar days.
10. Effect of Termination of Employment.
a. Incapacity. If termination of employment results or
occurs due to Incapacity under Paragraph 9a, the Company shall pay or
cause to be paid in a lump sum (i) such amounts, if any, as the
Employee shall be entitled to under the Company's disability policy and
program applicable to the Employee, (ii) subject to the limitations set
forth in the last sentence of Paragraph 6a hereof, payment in respect
of all unused paid vacation time, to the extent the Employee has not
prior thereto received compensation in lieu thereof, (iii) the
Employee's interest in all Company retirement and investment plans, to
the extent such plans permit such interest to be distributed and (iv)
payment in respect of all compensation earned to date but not
theretofore paid.
<PAGE>
b. Death. If termination of employment occurs as a result
of the Employee's death, the Company shall pay to the Employee's estate
a lump sum payment equal to (i) such amounts as the Employee's estate
shall be entitled to receive under the terms of retirement and
investment plans of the Company, to the extent such plans permit such
amounts to be paid, (ii) subject to the limitation set forth in the
last sentence of Paragraph 6a hereof, payment in respect of all unused
paid vacation time, to the extent the Employee has not prior thereto
received compensation in lieu thereof, and (iii) payment in respect of
all compensation earned to date but not theretofore paid. In addition,
the Company will pay to his spouse for a period of 60 days an amount
equal to the Employee's per diem Base Salary.
c. Cause. If the Employee's employment is terminated by
the Company for cause, Employee shall be entitled to all earned but
unpaid compensation, provided, however, the Company shall be entitled
to offset therefrom any amounts lost by the Company as a result of
Employee's action giving rise to such cause.
d. Voluntary Termination. If the Employee shall
voluntarily terminate his employment hereunder, the Company shall be
obligated to pay or cause to be paid in a lump sum (i) payment in
respect of the Employee's interest in all Company retirement and
investment plans, to the extent such plans permit such payment to be
made, (ii) subject to the limitations set forth in the last sentence of
Paragraph 6a hereof, payment in respect of all unused paid vacation
time, to the extent the Employee has not prior thereto received
compensation in lieu thereof.
e. Termination of Employment Pursuant to Paragraphs 9d or
9e. In the event that this Agreement is terminated by the Employee
pursuant to Paragraph 9d hereof or by the Company pursuant to Paragraph
9e hereof, the Company shall be obligated to pay or cause to be paid to
the Employee (i) the balance of the Base Salary payments required to be
paid during the remaining term of this Agreement, which payments shall
be made at regular intervals in accordance with the Company's regular
pay periods, (ii) payment in respect of the Employee's interest in all
Company retirement and investment plans, to the extent that such plans
permit such payment to be made, and (iii) subject to the limitations
set forth in the last sentence of Paragraph 6a hereof, payment in
respect of all unused paid vacation times, to the extent Employee has
not prior thereto received compensation in lieu thereof. Payments
pursuant to subsections (ii) and (iii) shall be paid in a lump sum.
f. Effect of Termination of Employment: Survival. In the
event that the Employee's employment with the Company terminates, this
Agreement shall be deemed terminated, provided, however, that the terms
and conditions of Paragraphs 2b, 6b (to the extent provided therein),
8, 9 and 10 shall survive such termination and be fully binding and
enforceable.
<PAGE>
11. Return of Documents. Upon termination of this Agreement for
any reason, the Employee shall deliver to the Company any property then
in his possession belonging to the Company. For purposes of this
Agreement, the parties hereto do hereby agree that any original or
copies of any books, papers, customer lists, files, books of accounts,
summaries, notes and other documents and data or other writings, tapes
or records, relating to the company or prepared in connection with the
Employee's performance of his duties hereunder, are owned by and are
the property of the Company.
12. Best Efforts. The Company and the Employee each agree to use
its or his best efforts to operate the business of the Company in a
manner designed to maximize the revenues and net income of the Company
and to preserve and enhance its goodwill and other assets.
13. Termination of Prior Employment Agreement. All prior
employment agreements between Company and Employee are hereby
terminated.
14. Notices. Any notices to be given hereunder by either party
to the other may be effected either by personal delivery in writing or
by mail, registered or certified, postage prepaid, with return receipt
requested. Mailed notices shall be addressed to the respective
addresses shown below. Either party may change its address for notice
by giving written notice in accordance with the terms of this Paragraph
14.
a. If to the Employee:
James C. Smith
First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
b. If to the Company:
Susan T. Smith
General Counsel
First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
with a copy to:
Chairman of the Compensation Committee
of the First Health Group Corp. Board of Directors
15. Acknowledgment of Reading. The Employee acknowledges,
represents and warrants to the Company that he has received a copy of
this Agreement, that he has read and understands this Agreement, that
he has had the opportunity to seek the advice of legal counsel before
signing this Agreement and that he has either sought such counsel or
has voluntarily decided not to do so.
<PAGE>
16. General Provisions.
a. Governing Law. This Agreement shall be governed and
construed in accordance with the law of the State of Illinois.
b. Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term hereof, such provisions shall be
fully severable and this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provisions had never
comprised a part hereof; and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provisions or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision as similar in terms to the illegal, invalid or
unenforceable provision as may be possible and still be legal, valid or
enforceable.
c. Entire Agreement. This Agreement and the Option
Agreements set forth the entire understanding of the parties with
respect to the matters specified herein. No other terms, conditions or
warranties, and no amendments or modifications hereto, shall be binding
unless made in writing and signed by the parties hereto.
d. Binding Effect: Assignment and Assumption of Agreement.
This Agreement shall be binding upon the parties hereto and inure to
the benefit of such parties, their respective heirs, representatives,
successors and permitted assigns. This Agreement may not be assigned
by the Employee nor may it be assigned by the Company without the
Employee's consent.
e. Waiver. The waiver by either party hereto of any breach
of any term or condition of this Agreement shall not be deemed to
constitute the waiver of any other breach of the same or any other term
or condition hereof.
f. Titles. Title of the paragraphs herein are used for
convenience only and shall not be used for interpretation or
construction of any word, clause, paragraph, or provision of this
Agreement.
g. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have executed
this Agreement as of the date and year first written above.
COMPANY:
FIRST HEALTH GROUP CORP.
By:
------------------
Thomas J. Pritzker
Chairman of the Board
EMPLOYEE:
--------------
JAMES C. SMITH
Exhibit 10.114
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Edward L. Wristen
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for three
years beginning on the Effective Date and will automatically renew,
unless earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as Executive Vice President & Chief
Operating Officer, or such other position as otherwise agreed from time
to time by the parties, and perform all responsibilities and duties as
are assigned, or delegated to Employee. Performance by Employee in any
other position will be conclusive evidence of Employee's acceptance of
the position. Employee represents that Employee's employment by
Company and performance of the position will not violate or interfere
with any employment-related agreement Employee may have entered into
with any previous employer (a "Prior Employment Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then-current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$325,000.00. This salary is payable in accordance with Company's then
- current payroll policies and procedures. The annual salary may be
subject to periodic increases as may be approved by Company.
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then-current expense reimbursement policy.
<PAGE>
(c) Stock Options. Employee will be awarded the option to
purchase 200,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be
entitled to participate in such group life insurance, major medical,
and other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be
eligible to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
<PAGE>
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
<PAGE>
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
<PAGE>
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
<PAGE>
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
<PAGE>
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Edward L. Wristen
7 Turning Shore
South Barrington, IL 60010
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
-----------------------
Its: President and
Chief Executive Officer
Employee:
_______________________
Exhibit 10.115
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Mary Anne Carpenter
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for three
years beginning on the Effective Date and will automatically renew,
unless earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as Executive Vice President,
Service Products, or such other position as otherwise agreed from time
to time by the parties, and perform all responsibilities and duties as
are assigned, or delegated to Employee. Performance by Employee in any
other position will be conclusive evidence of Employee's acceptance of
the position. Employee represents that Employee's employment by
Company and performance of the position will not violate or interfere
with any employment-related agreement Employee may have entered into
with any previous employer (a "Prior Employment Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then-current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$325,000.00. This salary is payable in accordance with Company's then
- current payroll policies and procedures. The annual salary may be
subject to periodic increases as may be approved by Company.
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then-current expense reimbursement policy.
<PAGE>
(c) Stock Options. Employee will be awarded the option to
purchase 200,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be
entitled to participate in such group life insurance, major medical,
and other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be
eligible to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
<PAGE>
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
<PAGE>
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
<PAGE>
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
<PAGE>
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
<PAGE>
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Mary Anne Carpenter
134 Briarwood Avenue
Oak Brook, IL 60521
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
_______________________
Its: President and
Chief Executive Officer
Employee:
_______________________
Exhibit 10.116
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Lottie A. Kurcz
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for three
years beginning on the Effective Date and will automatically renew,
unless earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as Senior Vice President, Strategic
Business Development, or such other position as otherwise agreed from
time to time by the parties, and perform all responsibilities and
duties as are assigned, or delegated to Employee. Performance by
Employee in any other position will be conclusive evidence of
Employee's acceptance of the position. Employee represents that
Employee's employment by Company and performance of the position will
not violate or interfere with any employment-related agreement Employee
may have entered into with any previous employer (a "Prior Employment
Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then-current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$250,000.00. This salary is payable in accordance with Company's then
- current payroll policies and procedures. The annual salary may be
subject to periodic increases as may be approved by Company.
<PAGE>
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then-current expense reimbursement policy.
(c) Stock Options. Employee will be awarded the option to
purchase 75,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be
entitled to participate in such group life insurance, major medical,
and other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be
eligible to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
<PAGE>
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
<PAGE>
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
<PAGE>
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
<PAGE>
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
<PAGE>
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
<PAGE>
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Lottie A. Kurcz
77 W. Huron Street
Chicago, IL 60610
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
-----------------------
Its: President and
Chief Executive Officer
Employee:
----------------------------
Exhibit10.117
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Susan T. Smith
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for two years
beginning on the Effective Date and will automatically renew, unless
earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as General Counsel & Corporate
Secretary, or such other position as otherwise agreed from time to time
by the parties, and perform all responsibilities and duties as are
assigned, or delegated to Employee. Performance by Employee in any
other position will be conclusive evidence of Employee's acceptance of
the position. Employee represents that Employee's employment by
Company and performance of the position will not violate or interfere
with any employment-related agreement Employee may have entered into
with any previous employer (a "Prior Employment Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then-current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$155,000.00. This salary is payable in accordance with Company's then
- current payroll policies and procedures. The annual salary may be
subject to periodic increases as may be approved by Company.
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then-current expense reimbursement policy.
<PAGE>
(c) Stock Options. Employee will be awarded the option to
purchase 50,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be
entitled to participate in such group life insurance, major medical,
and other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be
eligible to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
<PAGE>
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
<PAGE>
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
<PAGE>
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
<PAGE>
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
<PAGE>
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Susan T. Smith
205 E. 14th Avenue
Naperville, IL 60563
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
-----------------------
Its: President and
Chief Executive Officer
Employee:
----------------------------
Exhibit 10.118
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Alton L. Dickerson
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for three
years years beginning on the Effective Date and will automatically
renew, unless earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as Executive Vice President,
Provider Networks, or such other position as otherwise agreed from time
to time by the parties, and perform all responsibilities and duties as
are assigned, or delegated to Employee. Performance by Employee in any
other position will be conclusive evidence of Employee's acceptance of
the position. Employee represents that Employee's employment by
Company and performance of the position will not violate or interfere
with any employment-related agreement Employee may have entered into
with any previous employer (a "Prior Employment Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then-current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$255,000.00. This salary is payable in accordance with Company's then
- current payroll policies and procedures. The annual salary may be
subject to periodic increases as may be approved by Company.
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then-current expense reimbursement policy.
<PAGE>
(c) Stock Options. Employee will be awarded the option to
purchase 200,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be
entitled to participate in such group life insurance, major medical,
and other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be
eligible to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
<PAGE>
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
<PAGE>
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
<PAGE>
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
<PAGE>
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
<PAGE>
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Alton L. Dickerson
4414 Glencannon Drive
Suisun City, CA 94585
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
----------------------
Its: President and
Chief Executive Officer
Employee:
---------------------------
Exhibit 10.119
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Jerry L. Seiler
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for two years
beginning on the Effective Date and will automatically renew, unless
earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as Controller, or such other
position as otherwise agreed from time to time by the parties, and
perform all responsibilities and duties as are assigned, or delegated
to Employee. Performance by Employee in any other position will be
conclusive evidence of Employee's acceptance of the position. Employee
represents that Employee's employment by Company and performance of the
position will not violate or interfere with any employment-related
agreement Employee may have entered into with any previous employer (a
"Prior Employment Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then - current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$150,000.00. This salary is payable in accordance with Company's
then - current payroll policies and procedures. The annual salary may
be subject to periodic increases as may be approved by Company.
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then - current expense reimbursement policy.
<PAGE>
(c) Stock Options. Employee will be awarded the option to
purchase 75,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be
entitled to participate in such group life insurance, major medical,
and other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be eligible
to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
<PAGE>
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
<PAGE>
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
<PAGE>
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
<PAGE>
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
<PAGE>
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Jerry L. Seiler
315 Minear
Libertyville, IL 60048
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
-----------------------
Its: President and
Chief Executive Officer
Employee:
----------------------------
Exhibit 10.120
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Joseph E. Whitters
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for three
years beginning on the Effective Date and will automatically renew,
unless earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as Chief Financial Officer, or such
other position as otherwise agreed from time to time by the parties,
and perform all responsibilities and duties as are assigned, or
delegated to Employee. Performance by Employee in any other position
will be conclusive evidence of Employee's acceptance of the position.
Employee represents that Employee's employment by Company and
performance of the position will not violate or interfere with any
employment-related agreement Employee may have entered into with any
previous employer (a "Prior Employment Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then - current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$285,000.00. This salary is payable in accordance with Company's
then - current payroll policies and procedures. The annual salary may
be subject to periodic increases as may be approved by Company.
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then-current expense reimbursement policy.
<PAGE>
(c) Stock Options. Employee will be awarded the option to
purchase 200,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be
entitled to participate in such group life insurance, major medical,
and other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be eligible
to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
<PAGE>
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
<PAGE>
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
<PAGE>
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
<PAGE>
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
<PAGE>
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Joseph E. Whitters
460 Hill Avenue
Glen Ellyn, IL 60137
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
------------------------
Its: President and
Chief Executive Officer
Employee:
----------------------------
Exhibit 10.121
EMPLOYMENT AGREEMENT
This AGREEMENT is made this 1st day of May, 1999 ("Effective Date") by
and between First Health Group Corp., a Delaware corporation
headquartered in Illinois ("Company"), and Patrick G. Dills
("Employee").
BACKGROUND
A. Company desires to employ Employee, and Employee desires to be
employed by Company.
B. For and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the
parties as follows:
AGREEMENT
1. Employment. Company hereby agrees to employ Employee to perform
the duties set forth in Section 3 hereof ("Employee Services").
Employee hereby accepts employment to perform Employee Services for
Employer under the terms and conditions of this Agreement.
2. Term. The Initial Term of this Agreement will be for three
years beginning on the Effective Date and will automatically renew,
unless earlier terminated pursuant to Section 6 hereof.
3. Duties. Employee will serve as Executive Vice President, Sales,
or such other position as otherwise agreed from time to time by the
parties, and perform all responsibilities and duties as are assigned,
or delegated to Employee. Performance by Employee in any other
position will be conclusive evidence of Employee's acceptance of the
position. Employee represents that Employee's employment by Company
and performance of the position will not violate or interfere with any
employment-related agreement Employee may have entered into with any
previous employer (a "Prior Employment Agreement").
4. Time Commitment. Employee will devote Employee's time,
attention and energies to the performance of Employee Services.
Employee may not be associated with, consult, advise, work for, be
employed by, contract with, or otherwise devote any of the Employee's
time to the pursuit of any other work or business activities which may
interfere with the performance of services hereunder.
5. Compensation and Benefits. Company will pay the following
compensation to Employee in full consideration for performance of
Employee Services hereunder in accordance with Company's then-current
payroll policies and procedures.
(a) Salary. Employee will receive an annual salary of
$265,000.00. This salary is payable in accordance with Company's
then-current payroll policies and procedures. The annual salary may
be subject to periodic increases as may be approved by Company.
(b) Expenses. Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the
performance of Employee Services upon submission by Employee of expense
reports with substantiating vouchers, in accordance with the Company's
then-current expense reimbursement policy.
<PAGE>
(c) Stock Options. Employee will be awarded the option to
purchase 200,000 shares of Company common stock, adjusted for any stock
splits, set by the Board of Directors of Company in accordance with the
Company Stock Option Plan (the "Stock Options"). The award of the
Stock Options is subject to (i) approval of the Board of Directors; and
(ii) execution by Employee of the then-current Stock Option Agreement.
(d) Benefits and Flexible Time Off. Employee shall be entitled
to participate in such group life insurance, major medical, and
other employee benefit plans (collectively "Benefit Plans") as
established by Company in accordance with the applicable terms and
conditions of such Benefit Plans, which Benefit Plans may be modified
or discontinued by Company at any time; provided, however that Employee
shall meet the requirements of the Benefit Plans for participation and
in no event, including breach or wrongful termination of this
Agreement, shall Employee be entitled to any amount of compensation in
lieu of participation, unless otherwise provided by the terms of the
Benefit Plan.
Employee shall also be entitled to paid time off in
accordance with Company's then-current Flexible Time Off (FTO) program.
Employee shall accrue such FTO at the rate specified in the FTO
program. Flexible Time Off shall be taken with due consideration for
the services required of Employee and to the requirements of Company.
(e) Incentive or Bonus Compensation. Employee may be eligible
to receive incentive or bonus compensation based on factors
established by Company in its sole discretion. Incentive or bonus
payments, if any, shall be made in accordance with the then-effective
applicable Company incentive or bonus plan as hereafter established in
Company's sole discretion (the "Incentive Plan"). Unless otherwise
specifically provided in the Incentive Plan, earned incentive
compensation will be paid only while Employee is actively employed by
Company; accordingly, if Employee ceases to be actively employed by
Company, Employee will only receive a prorated portion of the earned
incentive compensation for the period Employee was actively employed by
Company. In the event the incentive or bonus compensation is
calculated on an annual basis subsequent to Employee's termination,
Employee will not be eligible to receive payment.
(f) Commissions. All insurance sales commissions, if any,
earned or received by Employee in connection with the employment of
Employee pursuant to this Agreement shall be the sole and exclusive
property of Company or its subsidiary companies, even if such
commissions are earned or received by Employee after termination of
this agreement.
6. Termination.
(a) Either party may terminate this Agreement at any time
following the Initial Term, without cause and without any liability to
Company, upon no less than one hundred and twenty (120) day's prior
written notice. In such event, Employee, if requested by Company, will
continue to render Employee Services and be paid Employee's regular
compensation up to the date of termination in accordance with Company's
then-current payroll policies and procedures.
<PAGE>
(b) Either party may terminate this Agreement at anytime for
cause upon 14 days written notice. "Cause" includes, without
limitation, breach of any provision of this Agreement or Employee's
failure to adhere to the Company's policies and procedures, which
failure is subject to cure, e.g. dress or behavior requirements. If
the cause is not cured within the 14 day period, the Agreement may then
be terminated by written notice. An opportunity to cure is not
required if the party receiving notice of termination has previously
been given notice of termination and the opportunity to cure the same
or similar cause.
(c) Company may terminate this Agreement by written notice at
anytime (including during the Initial Term) immediately for the
following reasons: (i) Death or legal incapacity of Employee; (ii)
Employee's conviction of a felony; (iii) violation of the Company's
policies not subject to cure; (iv) willful violation of the Company's
policies or standards including without limitation, Corporate
Compliance standards, confidentiality and nondisclosure; (iv) theft or
dishonesty; or (v) the occurrence of any claim or threatened claim
against Employee and/or Company relating to any Prior Employment
Agreement.
(d) Company may terminate at any time (including during the
Initial Term) by written notice upon Employee's other incapacity or
inability to perform Employee Services for a period of at least 90
consecutive days because of impairment of Employee's physical, or
mental health making it impossible or impractical for Employee to
perform Employee Services.
(e) Notwithstanding any other provisions of this Employment
Agreement, employee may terminate employment from the Company at any
time, including during the Initial Term, with 30 days notice due solely
to a change in control of the Company and (i) his refusal to accept a
reduction in base salary compensation; (ii) a material dimunition in
job responsibilities; or (iii) a required relocation of the employee's
residence. Employee's right to terminate under this provision will
expire 60 days after it arises.
"change in control" for the purposes of this provision means
either
(1) the ownership (whether direct or indirect) of shares in
excess of 20 percent of the outstanding shares of common
stock of the Company by a person or group of persons, or
(2) the occurrence of any transaction relating to the
Company required to be described pursuant to the
requirements of item 14 of Schedule 14A of Regulation
14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or
(3) any change in the composition of the Board of Directors
of the Company resulting in a majority of the present
directors of the Company not constituting a majority two
years hence provided, that in making such determination
directors who were elected by, or on the recommendation
of, such present majority, shall be excluded.
<PAGE>
If Employee exercises his right to terminate under this
provision, Employee will receive as severence a cash payment equal to
two years of salary at the rate in effect on the date of termination.
Such payment will include all severance due to Employee under any
Company severance plan but is not inclusive of any other benefit or
right due or available to Employee under any other Company plan.
7. Confidentiality. Employee agrees not to directly or indirectly
use or disclose, for the benefit of any person, firm or entity other
than Company and its subsidiary companies, the Confidential Business
Information of Company. Confidential Business Information means
information or material which is not generally available to or used by
others or the utility or value of which is not generally known or
recognized as a standard practice, whether or not the underlying
details are in the public domain, including but not limited to its
computerized and manual systems, procedures, reports, client lists,
review criteria and methods, financial methods and practices, plans,
pricing and marketing techniques as well as information regarding
Company's past, present and prospective clients and their particular
needs and requirements, and their own confidential information.
Upon termination of employment under this Agreement, with or
without cause, Employee agrees to return to Company all policy and
procedure manuals, records, notes, data, memoranda, and reports of any
nature (including computerized and electronically stored information)
which are in Employee's possession and/or control which relate to (i)
the Confidential Business Information of Company, (ii) Employee's
employment with Company, or (iii) the business activities or facilities
of Company or its past, present, or prospective clients.
8. Restrictive Covenant. During the period of employment and for a
period of one year from the date of termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, within the United States or in any foreign market in which
Employee was engaged in activities on behalf of Company, own, engage in
or participate in, in any way, any business which is similar to or
competitive with any actual or planned business activity engaged in or
planned by Company at the time the employment under this Agreement was
terminated, if in the course of such ownership or employment, it could
reasonably be anticipated that Employee would be required to use or
disclose the Confidential Business Information of Company. However,
this Agreement shall not prohibit ownership of up to 2% of the shares
of stock of any such corporation whose stock is listed on a national
securities exchange or is traded in the over-the-counter market.
Employee further agrees that, for a period of one year after
termination of employment under this Agreement, with or without cause,
Employee will promptly notify Company of any business with whom
Employee is associated or in which has an ownership interest and
provide Company with a description of Employee's duties or interests.
<PAGE>
For a period of one year after termination of employment under
this Agreement, with or without cause, Employee will not directly or
indirectly, for the purpose of selling services and/or products
provided or planned by Company at the time the employment under this
Agreement was terminated, call upon, solicit or divert any actual
customer or prospective customer of Company, unless employed by Company
to do so. An actual customer, for purposes of this Section, is any
customer to whom Company has provided services and/or products within
one year prior to Employee's termination of employment under this
Agreement. A prospective customer, for purposes of this Section, is
any prospective customer to whom Company sought to provide services
and/or products within one year prior to the date of Employee's
termination of employment under this Agreement and Employee has
knowledge of or was involved in such solicitation.
9. Non-Solicitation of Employees. Employee further agrees that for
a period of one year from the date of Employee's termination of
employment under this Agreement, with or without cause, Employee shall
not directly or indirectly solicit or hire any person who is currently
or was an employee of Company at any time during the twelve months
prior to Employee's termination of employment under this Agreement.
10. Remedies. In the event Employee breaches or threatens to breach
Sections 7, 8 or 9 of this Agreement, Company shall be entitled to
injunctive relief, enjoining or restraining such breach or threatened
breach. Employee acknowledges that Company's remedy at law is
inadequate and that Company will suffer irreparable injury if such
conduct is not prohibited.
Employee and Company agree that, because of the difficulty of
ascertaining the amount of damages in the event that Employee breaches
Section 9 of this Agreement, Company shall be entitled to recover, at
its option, as liquidated damages and not as a penalty, a sum equal to
one year's annual salary of the employee(s) solicited to leave
Company's employ. The parties further agree that the existence of this
remedy will not preclude employer from seeking or receiving injunctive
relief.
Employee further agrees that the covenants contained in Sections
7, 8 or 9 shall be construed as separate and independent of other
provisions of this Agreement and the existence of any claim by Employee
against Company shall not constitute a defense to the enforcement by
Company of either of these paragraphs.
11. Property Rights. All discoveries, designs, improvements, ideas,
inventions, creations, and works of art, whether or not patentable or
subject to copyright, relating to the business of Company or its
clients, conceived, developed or made by Employee during employment
under this Agreement, either solely or jointly with others (hereafter
"Developments") shall automatically become the sole property of
Company. Employee shall immediately disclose to Company all such
Developments and shall, without additional compensation, execute all
assignments, application or any other documents deemed necessary by
Company to perfect Company's rights therein. These obligations shall
continue for a period of one year beyond the termination of employment
under this Agreement with respect to Developments conceived, developed
or made by Employee during the period of employment under this
Agreement.
<PAGE>
Company acknowledges and agrees that the provisions of this
section shall not apply to inventions for which no equipment, supplies,
facility or trade secret information of Company or its clients were
used by Employee and which were developed entirely on Employee's own
time unless (a) such inventions relate (i) to the business of Company
or (ii) to Company's actual or demonstrably anticipated research or
development or (b) such inventions result from any work performed by
Employee for Company.
12. Assignments. Neither party shall have the right or power to
assign any rights or duties under this Agreement without the written
consent of the other party, provided, however, that Company shall have
the right to assign this Agreement without consent pursuant to any
corporate reorganization, merger, or other transaction involving a
change of control of Company or any of its subsidiary companies. Any
attempted assignment in breach of this Section 12 shall be void.
If Employee performs services and duties for any subsidiary or
other affiliated entity of Company, then the provisions of Sections 7,
8, 9 and 11 shall apply to the confidential information and business
activities, property rights, clients, and employees of that subsidiary
or other entity.
13. Severability. Each section, paragraph, clause, sub-clause and
provision (collectively "Provisions") of this Agreement shall be
severable from each other, and if for any reason the paragraph, clause,
sub-clause or provision is invalid or unenforceable, such invalidity or
unenforceability shall not prejudice or in any way affect the validity
or enforceability of any other Provision hereof.
14. Miscellaneous.
(a) This Agreement, the schedules and any amendments hereto
contain the entire agreement of the parties with respect to the
employment of the Employee and supersedes all other understandings,
whether written or oral; provided, however, that Employee shall comply
with all policies, procedures and other requirements of Company as
established in the Colleague Handbook and Corporate Policy Manuals, not
inconsistent with this Agreement.
(b) Failure on the part of either party to insist upon strict
compliance by the other with respect to any of the terms, covenants and
conditions hereof, shall not be deemed a subsequent waiver of such
term, covenant or condition.
(c) The provisions of any paragraph containing a continuing
obligation after termination shall survive such termination whether
with or without cause and even if occasioned by Company's breach or
wrongful termination.
(d) This Agreement may not be modified except in writing as
signed by the parties; provided, however, that Company may amend or
terminate its Benefit Plans, Incentive Plan, Corporate Policies and/or
employees' rules and regulations in its sole discretion.
(e) In the event of litigation under this Agreement, the court
shall have discretion to award the prevailing party reasonable
attorney's fees.
<PAGE>
15. Governing Law. It is the intention of the parties hereto
that all questions with respect to the construction, formation, and
performance of this Agreement and the rights and liabilities of the
parties hereto shall be determined in accordance with the laws of the
State of Illinois. The parties hereto submit to the jurisdiction and
venue of the courts of DuPage County Illinois in respect to any matter
or thing arising out of this agreement pursuant hereto.
16. Notices. Any notice required pursuant to this Agreement will
be in writing and will be deemed given upon the earlier of (i) delivery
thereof, if by hand, (ii) five business days after mailing if sent by
mail (registered or certified mail, postage prepaid, return receipt
requested), (iii) the next business day after deposit if sent by a
recognized overnight delivery service, or (iv) transmission if sent by
facsimile transmission or by electronic mail, with return notification
(provided that any notice sent by facsimile or electronic mail shall
also promptly be sent by one of the means described in clauses (i)
through (iii) of this Section 16. All notices will be addressed as
follows or to such other address as a party may identify in a notice to
the other party:
to Company: First Health Group Corp.
3200 Highland Avenue
Downers Grove, Illinois 60515
Attn: President and Chief Executive Officer
cc: General Counsel
to Employee: Patrick G. Dills
114 E. 6th Street
Hinsdale, IL 60521
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement in the State of Illinois as of the day and year
first above written.
The Company:
First Health Group Corp.
By:
-----------------------
Its: President and
Chief Executive Officer
Employee:
----------------------------
Exhibit 11
First Health Group Corp.
Computation of Diluted Earnings Per Common Share
<TABLE>
Year Ended December 31,
-----------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net Income $ 7,075,000 $88,003,000 $69,297,000
========== ========== ==========
Weighted average number of common
shares outstanding:
Shares outstanding from
beginning of period 67,394,000 63,890,000 53,463,000
Purchase of treasury stock (2,692,000) (3,208,000) (3,419,000)
Other issuances of common stock 346,000 988,000 226,000
Common share equivalents:
Assumed exercise of common stock
Options 1,784,000 988,000 733,000
---------- ---------- ----------
Weighted average common and
common share equivalents 66,832,000 62,658,000 51,003,000
========== ========== ==========
Net income per share $ .11 $ 1.40 $ 1.36
========== ========== ==========
</TABLE>
<PAGE>
Exhibit 11
<TABLE>
First Health Group Corp.
Computation of Basic Earnings Per Common Share
Year Ended December 31,
-----------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net Income .................. $ 7,075,000 $88,003,000 $69,297,000
========== ========== ==========
Weighted average number of common
shares outstanding:
Shares outstanding from beginning
of period .................. 67,394,000 63,890,000 $53,463,000
Purchase of treasury stock .... (2,692,000) (3,208,000) (3,419,000)
Other issuances of common stock 346,000 988,000 226,000
---------- ---------- ----------
Weighted average common and common
share equivalents .......... 65,048,000 61,670,000 50,270,000
========== ========== ==========
Net income per share ........ $ .11 $ 1.43 $ 1.38
========== ========== ==========
</TABLE>
Exhibit 13
<TABLE>
Selected Financial Data
Years Ended December 31
(in thousands except per share data) 1995 1996 1997 1998 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues $214,338 $247,804 $388,975 $503,077 $458,493
-------------------------------------------------------------------------------------
Operating expenses:
Cost of services 63,963 72,284 154,513 228,108 215,480
Selling and marketing 26,000 29,148 42,376 49,574 45,588
General and administrative 10,723 13,745 29,204 42,724 36,549
Health care benefits - 5,479 8,870 18,542 6,192
In-process research and
development - - 80,000 - -
Depreciation and amortization 10,542 12,334 17,185 25,235 29,445
Interest income (7,984) (13,581) (15,013) (20,470) (6,293)
Interest expense - - 6,273 12,642 15,017
-------------------------------------------------------------------------------------
Total operating expenses 103,244 119,409 323,408 356,355 341,978
-------------------------------------------------------------------------------------
Income before income taxes 111,094 128,395 65,567 146,722 116,515
Income taxes (44,557) (49,400) (58,492) (58,719) (47,218)
-------------------------------------------------------------------------------------
Net income $ 66,537 $ 78,995 $ 7,075 $ 88,003 $ 69,297
-------------------------------------------------------------------------------------
Weighted average shares
outstanding-basic(3) 68,630 68,886 65,048 61,670 50,270
Net income per common
share - basic(3) $ .97 $ 1.15 $ .11 $ 1.43 $ 1.38
-------------------------------------------------------------------------------------
Weighted average shares
outstanding - diluted(3) 70,246 70,488 66,832 62,658 51,003
Net income per common
share - diluted(3) $ .95 $ 1.12 $ .11 $ 1.40 $ 1.36
-------------------------------------------------------------------------------------
Balance sheet data:
-------------------------------------------------------------------------------------
Cash and investments $221,370 $265,897 $286,167 $199,776 $128,596
Working capital 157,124 167,544 80,524 15,409 31,425
Total assets 297,194 360,546 707,878 557,879 488,734
Total liabilities
(excluding debt) 16,924 37,340 248,271 194,752 162,002
Long-term debt - - 200,000 225,000 240,000
Stockholders' equity $280,270 $323,206 $259,607 $138,127 $ 86,732
-------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) On February 1, 1996, the Company completed the acquisition of
American Life and Health Insurance Company and its subsidiary insurance
company. Under the terms of the acquisition, which was accounted for as
a purchase, the Company paid a purchase price of approximately $12
million.
(2) On July 1, 1997, the Company completed the acquisition of FIRST
HEALTH Strategies, Inc. ("Strategies") and FIRST HEALTH Services
Corporation ("Services"), excluding the stock of Viable Information
Processing Systems, Inc., a wholly-owned subsidiary of Services, from
First Financial Management Corporation and First Data Corporation for a
net purchase price of approximately $196 million. In connection with
this acquisition, the Company recorded a one-time non-cash charge of
$80 million for in-process research and development costs which had no
alternative future use for the Company. The acquisition was financed
with a $200 million credit agreement underwritten by the Company's bank
group. On August 30, 1997, the Company completed the acquisition of
Loyalty Life Insurance Company for a purchase price of approximately
$12 million in cash. Both acquisitions in 1997 were accounted for under
the purchase method of accounting. Consequently, prior period results
were not restated.
(3) All historical common share data have been adjusted for a 2-for-1
stock split in the form of a 100% stock distribution paid on June 23,
1998 to stockholders of record on June 2, 1998.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations may include certain forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including (without limitation) statements with respect to
anticipated future operating and financial performance, growth and
acquisition opportunities and other similar forecasts and statements of
expectation. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," "should" and variations of
these words and similar expressions, are intended to identify these
forward-looking statements. Forward-looking statements made by the
Company and its management are based on estimates, projections, beliefs
and assumptions of management at the time of such statements and are
not guarantees of future performance. The Company disclaims any
obligations to update or revise any forward-looking statement based on
the occurrence of future events, the receipt of new information or
otherwise.
Actual future performance, outcomes and results may differ materially
from those expressed in forward-looking statements made by the Company
and its management as a result of a number of risks, uncertainties and
assumptions. Representative examples of these factors include (without
limitation) general industry and economic conditions; interest rate
trends; cost of capital and capital requirements; competition from
other managed care companies; the ability to expand certain areas of
the Company's business; shifts in customer demands; changes in
operating expenses including employee wages, benefits and medical
inflation; governmental and public policy changes and the continued
availability of financing in the amounts and on the terms necessary to
support the Company's future business. In addition, if the Company does
not continue to achieve the improved operating results that are
anticipated with the recent completion of the consolidation and
rationalization of the Company's commercial claims processing business,
successfully implement new contracts and programs and control
healthcare benefit expenses, the Company may not achieve its projected
2000 financial results (discussed below).
Recent Developments. On July 20, 1999, the Company announced it had
entered into a contract with CNA to provide PPO services to the Mail
Handlers Benefit Plan, one of the largest federal employee health
benefit plans with over 400,000 members and one million participants.
When fully implemented, this contract is expected to be one of the
Company's largest in terms of revenue generated.
<PAGE>
On July 1, 1997, the Company acquired all of the outstanding shares of
capital stock of FIRST HEALTH Strategies, Inc. and FIRST HEALTH
Services Corporation (collectively "FHC"), excluding the stock of
Viable Information Processing Systems, Inc., a wholly-owned subsidiary
of FIRST HEALTH Services Corporation, from First Financial Management
Corporation and First Data Corporation for a purchase price of
approximately $196 million. In connection with the acquisition, which
was accounted for as a purchase, the Company recorded a charge to
earnings of $80 million for purchased in-process research and
development which was not deductible for income tax purposes. In-
process research and development relates to the next generation of
FHC's claims processing system software which had not yet reached the
stage of technological feasibility and had no alternative future use;
therefore, the ultimate revenue generating capability of these projects
was uncertain. The research and development acquired will require
additional development efforts, estimated to cost $15 million, to
become commercially viable. Such modifications include the enhancement
of various modules to perform claims adjudication, reporting, imaging,
and correspondence, and are expected to be substantially completed
within the next 18 to 24 months. Management believes the technology
will be commercially viable subsequent to these modifications, and such
technology will be fully implemented into operations on or about June
2002. Use of this technology is expected to ultimately decrease claims
processing costs by up to 20% per claim.
At the date of acquisition, management estimated the Company would
spend approximately $10 million in additional development expenditures
over a 2 to 3 year period to make the purchased research and
development commercially viable. Total development costs are now
expected to approximate $15 million of which approximately $4 million
has been expended as of December 31, 1999. The increase in estimated
total costs is due to enhancements beyond those originally planned by
the Company.
On August 30, 1997, the Company acquired Loyalty Life Insurance Company
("Loyalty"), which is licensed to conduct health insurance business in
49 states, for a purchase price of approximately $12 million. The
acquisition was accounted for as a purchase. On October 1, 1996, in
anticipation of the acquisition, Loyalty entered into a reinsurance
agreement with a former affiliate, National Farmers Union Life
Insurance Company ("National Farmers"). Under the terms of the
reinsurance agreement, all premiums and deposits received by Loyalty,
which relate to reinsured policies, were transferred to National
Farmers. In 1998, Loyalty changed its name to First Health Life and
Health Insurance Company. This name change is pending approval from two
state insurance regulators.
<PAGE>
Results of Operations. The following table presents the Company's
sources of revenues and percentages of those revenues represented by
certain statement of operations items.
<TABLE>
SOURCES OF REVENUE: Years Ended December 31,
---------------------------------------------------
($ in thousands) 1997 % 1998 % 1999 %
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PPO services $220,120 57% $223,328 44% $223,143 49%
Claims administration 94,135 24% 182,537 36% 158,388 35%
Clinical management
services 35,375 9% 44,094 9% 33,768 7%
Fee schedule services 27,625 7% 30,981 6% 33,062 7%
Premiums, net 10,748 3% 18,991 4% 7,673 2%
Service 972 - % 3,146 1% 2,459 - %
---------------------------------------------------------------------------
Total $388,975 100% $503,077 100% $458,493 100%
---------------------------------------------------------------------------
</TABLE>
<TABLE>
PERCENT OF REVENUE: Years Ended December 31,
-----------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expenses:
Cost of services 40 % 45 % 47 %
Selling and marketing 11 % 10 % 10 %
General and administrative 7 % 8 % 8 %
Health care benefits 2 % 4 % 1 %
In-process research &
development 21 % - % - %
Depreciation and
amortization 4 % 5 % 6 %
Interest income (4)% (4)% (1)%
Interest expense 2 % 3 % 3 %
---- ---- ----
Subtotal 83 % 71 % 74 %
---- ---- ----
Income before income taxes 17 % 29 % 26 %
---- ---- ----
Net income 2 % 17 % 15 %
---- ---- ----
</TABLE>
<PAGE>
Revenues. The Company's revenues consist primarily of fees for cost
management services provided under contracts on a percentage of savings
basis (PPO) or on a predetermined contractual basis. As a result of the
Company's insurance company acquisitions, revenues also include premium
revenue.
Total revenues decreased $44,584,000 (9%) from 1998 to 1999
and increased $114,102,000 (29%) from 1997 to 1998. The decrease in
revenues from 1998 to 1999 is due primarily to the Company's focus on
larger multi-sited national employers in the group health area
(discussed later in "FHC Integration Status"). The growth from 1997 to
1998 was primarily attributable to:
1) The inclusion of six months of FHC revenues in 1997 and twelve
months of FHC revenues in 1998;
2) Increased utilization of the Company's PPO services by existing
clients;
3) Expansion and development of the Company's PPO networks,
especially in secondary and tertiary markets;
4) New clients; and
5) Increased revenue earned by the Company's insurance subsidiaries.
Revenue from PPO services increased slightly from 1997 to 1999 as a
result of increased utilization of the PPO network by existing clients,
expansion of the PPO network and new client additions. The increase
from 1997 to 1998 was lower than expected due to the loss of a number
of traditional FIRST HEALTH Strategies clients (see "FHC Integration
Status" below) and, to a lesser extent, some of the Company's
traditional clients. Claims administration primarily represents FHC
revenue earned from processing claims in client-sponsored health care
plans. The decrease from 1998 to 1999 reflects the loss of business as
discussed under "FHC Integration Status". The increase from 1997 to
1998 is due primarily to the inclusion of twelve months of FHC
operations included in the 1998 results compared with only six months
in 1997. Revenue from clinical management services decreased from 1998
to 1999 and increased from 1997 to 1998. The decrease in 1999 is due to
the loss of business discussed above. The increase in clinical
management services in 1998 was also lower than expected due to the
loss of business discussed above. Fee schedule services revenue
increased from 1997 to 1999 due to new and expanded contract activity
with several existing clients. Premium revenue decreased from 1998 to
1999 and increased from 1997 to 1998. The decrease from 1998 to 1999
was due primarily to the planned loss of several clients as a result of
price increases implemented by the Company. The increase from 1997 to
1998 was due primarily to new clients. The majority of risk-related
service revenue represents the Company's national HMO-like product for
self-funded ERISA plans. The decrease in this revenue during 1999
reflects the planned termination of unprofitable business. Management
estimates that the majority of risk-based revenue will be attributable
to stop loss insurance for the foreseeable future. As with any future
event, future revenue growth may differ substantially from historical
levels.
<PAGE>
Cost of Services. Cost of services consists primarily of salaries
and related costs for personnel involved in claims administration,
PPO administration, development and expansion, clinical management
programs, fee schedule, information technology and other cost
management and administrative services offered by the Company. To a
lesser extent, it includes telephone expenses, facility expenses and
information processing costs. Cost of services as a percent of revenue
increased from 40% in 1997 to 45% in 1998 to 47% in 1999. The dramatic
increase in these expenses from 1997 to 1999 was related to the nature
of FHC's business. Claims administration is a labor-intensive, high-
volume, low-margin business. The Company has initiated cost cutting
measures during the integration of FHC which are intended to make the
operations more efficient. These cost cutting measures began to show
positive earnings effects particularly in the second half of 1999.
Selling and Marketing. Selling and marketing expenses decreased
$3,986,000 (8%) from 1998 to 1999 due primarily to the consolidation of
FHC sales activities into the traditional Company sales activities.
Selling and marketing expenses increased from 1997 to 1998 as a result
of the addition of sales and marketing colleagues primarily associated
with the FHC acquisition. To a lesser extent, the increase relates to
commissions paid to agents and third-party administrators by the
Company's insurance entities. As a percentage of revenues, selling and
marketing expenses have decreased from 11% in 1997 to 10% in 1998 and
1999.
General and Administrative. General and administrative costs
increased from 7% of revenues in 1997 to 8% of revenues in 1998
and 1999 primarily due to the acquisition of FHC as well as growth in
the Company's insurance subsidiaries.
Health Care Benefits. These expenses represent medical losses
incurred by insureds of the Company's insurance entities. The medical
loss ratio (health care benefits as a percent of premiums) was 83% for
1997, 98% for 1998 and 81% for 1999. The improvement in the loss ratio
during 1999 is due to termination of unprofitable business, improved
experience in the remaining book of business and the addition of
clients in the more profitable employer stop loss insurance business.
Depreciation and Amortization. These expenses increased from 1997
to 1999 principally as a result of the purchase of additional computer
hardware and software as well as the purchase of the Company's Phoenix
facility and amortization of goodwill associated with the FHC and
Loyalty acquisitions. As a percentage of revenues, these costs
increased from 4% in 1997 to 5% in 1998 to 6% in 1999. Depreciation
expense will continue to grow primarily as a result of continuing
investments the Company is making in its information technology
infrastructure.
Interest Income. The Company invests a significant portion of
its available cash in various interest-bearing instruments. The
net interest income realized from such investments represented 4%
of revenues in 1997, 4% of revenues in 1998 and 1% of revenues in 1999.
Interest income substantially decreased in 1999 due to the repurchase
of approximately $229 million of the Company's common stock during 1998
and approximately $123 million of Company common stock in 1999. These
common stock repurchases resulted in a decrease in the balance of cash
equivalents and investments in 1999 compared with 1998.
<PAGE>
Interest Expense. Interest expense represents interest incurred on
the revolving credit agreement entered into on July 1, 1997 to finance
the FHC acquisition. The floating interest rate incurred was between 6%
and 7% from 1997 to 1999.
Income Taxes. Income taxes were provided at an effective rate of
89% in 1997 compared to 40% in 1998 and 41% in 1999. The higher than
statutory rate for 1998 and 1999 includes provisions for state income
taxes. The tax rate in 1997 reflects the inclusion in income of
$80,000,000 of non-deductible in-process research and development
expenses. If these expenses were excluded, the effective tax rate
would have been 40%, which is consistent with 1998.
Seasonality. The Company has historically experienced increases
in salaries and related costs during its first and fourth calendar
quarters in anticipation of an increase in the number of new
participants in client-sponsored health care plans. Since group health
care plans typically offer an open enrollment period for new
participants during January of each year, the Company anticipates that
its future first and fourth quarters will continue to reflect similar
cost increases. The Company's future earnings could be adversely
affected if the Company were to incur costs in excess of those
necessary to service the actual number of new participants resulting
from the open enrollment.
Inflation. Although inflation has not had a significant effect on
the Company's operations to date, management believes that the rate
at which health care costs have increased has contributed to the demand
for PPO, clinical cost management and other cost management services,
including the services provided by the Company.
Other Information. Since 1993, there has been considerable
discussion of health care reform. Although specific features of any
legislation that ultimately may be enacted into law cannot be predicted
at this time, based on the Company's review of legislation previously
considered by Congress and various state legislatures, management
believes that the Company's existing programs and those under
development provide a foundation that will prevent any material
adverseaffect on the operations of the Company.
Liquidity and Capital Resources. The Company had $31,425,000
of working capital at December 31, 1999 compared to $15,409,000 at
December 31, 1998 and $80,524,000 at December 31, 1997. The decrease
from 1997 to 1999 is primarily attributable to the repurchase of
11,283,000 shares of Company common stock during 1998 for a total cost
of $215,594,000 and the repurchase of 6,301,000 shares of Company
common stock during 1999 for a total cost of $123,077,000. Total cash
and investments of the Company amounted to $128,596,000 at December 31,
1999, $199,776,000 at December 31, 1998 and $286,167,000 at December
31, 1997.
<PAGE>
During the three-year period ended December 31, 1999, the Company
generated $342,955,000 of cash from operating activities. Investment
activities provided $3,765,000 in cash during 1999 representing net
sales of investments of $53,436,000 partially offset by capital
expenditures of $49,671,000. Investment activities generated $353,000
in cash during 1998 representing net sales of investments of
$52,954,000 partially offset by capital expenditures of $52,428,000.
Investment activities used $222,740,000 in cash during 1997
representing net cash paid for acquisitions of $202,423,000
($191,512,000 for FHC and $10,911,000 for Loyalty) and capital
expenditures of $31,372,000 partially offset by net sales of
investments of $11,055,000. Financing activities used $130,477,000 in
cash during 1999 representing $148,077,000 in purchases of treasury
stock (of which $125,185,000 was purchased on the open market including
$25,000,000 payable at December 31, 1998 with the balance being
purchased through the exercise of put options for common stock),
$15,000,000 in reductions to long-term debt, $4,429,000 in exercises of
put options for cash and $2,859,000 in loans to employees to finance
the exercise of stock options partially offset by $30,000,000 in
proceeds from the issuance of long-term debt, $6,632,000 in proceeds
from issuance of common stock and $3,256,000 in sales of put options.
Financing activities used $158,948,000 in cash during 1998 representing
$204,219,000 in purchases of treasury stock (of which $159,919,000 was
purchased on the open market with the balance being purchased through
the exercise of put options for common stock and the funding of stock
option exercises) partially offset by $25,000,000 in proceeds from the
issuance of long-term debt and $20,894,000 in proceeds from the
issuance of common stock. Financing activities provided $123,292,000 in
cash during 1997 representing $200,000,000 in proceeds from the
issuance of long-term debt, $14,163,000 in proceeds from sale of put
options and $9,931,000 in proceeds from the issuance of common stock
partially offset by $100,802,000 in purchases of treasury stock. On
July 1, 1997, the Company entered into a $200 million revolving credit
agreement (the "Agreement") to facilitate the acquisition of FHC. In
August 1997, the Agreement was amended to increase available borrowings
to $350 million. As of December 31, 1999, $240 million was outstanding
under the Agreement.
The Company believes that its working capital, long-term
investments, amounts available under the credit agreement and cash
generated from future operations will be sufficient to fund the
Company's operations and anticipated expansion plans.
Market Risk. Market risk is the risk that the Company will incur
losses due to adverse changes in interest rates and prices. The
Company's market risk exposure is limited to the $61,115,000 and
$126,081,000 of marketable securities owned by the Company at
December 31, 1999 and 1998 respectively, and the $240,000,000 and
$225,000,000 of variable rate debt held by the Company at December
31, 1999 and 1998 respectively. The Company does not hold any market
risk sensitive instruments for trading purposes. The Company has
established policies and procedures to manage sensitivity to interest
rate and market risk. These procedures include the monitoring of the
<PAGE>
Company's level of exposure to each market risk and the use of
derivative financial instruments to reduce risk. The Company's
marketable equity and debt securities are classified as available for
sale and are recorded in the consolidated balance sheets at fair value
with unrealized gains or losses reported as a separate component of
other comprehensive income and stockholders' equity, net of applicable
deferred taxes. As of December 31, 1999, the fair value of the
Company's marketable securities was $61,115,000, consisting of
$53,163,000 invested in debt securities and $7,952,000 invested
in equity securities. As of December 31, 1998, the fair value of
the Company's marketable securities was $126,081,000, consisting of
$83,719,000 invested in debt securities and $42,362,000 invested in
equity securities. The Company measures its interest rate risk by
estimating the net amount by which potential future net earnings would
be impacted by hypothetical changes in market interest rates related to
all interest rate sensitive assets and liabilities, including
derivative financial instruments. Assuming a hypothetical 20% increase
in interest rates as of December 31, 1999,the estimated reduction in
future earnings, net of tax, would be less than $1.0 million. Assuming
the same 20% increase in interest rates as of December 31, 1998,the
estimated reduction in future earnings, net of tax would have been
approximately $1.6 million. Equity price risk arises when the Company
could incur economic losses due to adverse changes in a particular
stock index or price. The Company's investments in equity securities
are exposed to equity price risk and the fair value of the portfolio is
correlated to the S&P 500. At December 31, 1999, management estimates
that an immediate 10% change in the S&P 500 would result in a decrease
in the fair value of its equity securities of less than $1.0 million.
Management estimated that a 10% change in the S&P 500 at December 31,
1998 would have affected the fair value of its equity securities by
approximately $4.2 million.
Derivative Financial Instruments. As discussed in Note 12 to the
financial statements, the Company uses derivative financial instruments
to reduce interest rate risk and potentially increase the return on
invested funds and to manage the cost of its common stock repurchase
programs. In addition, collateralized mortgage securities have been
purchased that have relatively stable cash flow patterns in relation to
interest rate changes. Investments in derivative financial instruments
are approved by the Audit Committee or Board of Directors of the
Company.
FHC Integration Status. The integration of the acquisition of FHC
was completed in 1999. The Company focused First Health Strategies on
the niche of serving multi-sited employers of 1,000 or more employees.
As a result of this focus, the Company has sold several hundred client
contracts that do not fit into this niche which represented
approximately $20 million in annual revenue. The Company did not
receive material consideration for this sale. The Company instituted
significant price increases particularly for clients that have been
paying fees at unreasonably low margins. These actions have resulted in
the loss of a significant number of clients. Management expects these
actions will result in increased efficiency of its operations.
Traditional Business. In 1998, the Company lost some group health
business particularly in the Federal Employee Health Benefit area.
However, the Company did not encounter the loss of any meaningful
business from its traditional client base in 1999.
<PAGE>
2000 Outlook. Currently, the Company anticipates that its earnings per
share ("EPS") in 2000 will grow in the 20% area with revenue growth of
approximately 10%. Revenue growth will be lead by the addition of the
Mail Handlers Benefit Plan to our PPO business. Additionally, the
Company has announced numerous new client contracts which should
provide additional revenue growth. Expenses are forecasted to grow at
a lower rate than revenue so EPS growth is targeted in the high teen
area.
Potential Managed Care Litigation. Much has been recently written
about the plaintiff's bar attacking managed care organizations. We
believe First Health is very well positioned to avoid litigation for
the following reasons:
Counsel for class action plaintiffs is sophisticated and understands
the differences between HMOs, which offer little or no choice to
their subscribers regarding provider selection, and the PPO services
the Company provides.
The Company does not incent or penalize its network physicians
through capitation, risk sharing, cash incentive bonuses or other
methods for denying or limiting care. Its "control" over physicians
is limited to qualifying them for participation in the network based
on objective criteria related only to their credentials, licensure,
malpractice history, insurance, etc. Network physicians are truly
independent contractors, solely responsible for the health care of
their patients.
Consistent with many state law requirements and national
accreditation standards, there is no direct or indirect financial
bonus or remuneration paid to individuals involved in the
recommendation of medical care based on medical necessity.
Most importantly, participants in our customers' plans have
choice. Commonly, our customers offer 2 or more plan options, the PPO
option alone inherently provides choice with a meaningful (but compared
to an HMO, modest) benefit differential. The choice of medical
specialists is solely within the control of the treating physician and
the patient.
As a result of all these factors, the Company believes it is in
an advantageous position concerning potential managed care litigation.
Year 2000 Matters. General overview. The Company has completed its
Year 2000 ("Y2K") readiness project The Company has not experienced
any material adverse impact on its operations or in its relationships
customers, vendors or others as a result of Y2K issues. The Company
used internal and external resources to accomplish its objectives. As
part of its Y2K project, the Company developed contingency plans to
address the most reasonably likely worst case scenarios which could
have resulted from the failure of a significant or a material third
party system to be Y2K ready (with none being experienced).
<PAGE>
Costs. The Company estimates the total cost of its Y2K readiness
project was approximately $16,000,000 which was funded through
operating cash flows. Of the total project cost, approximately
$6,000,000 was attributable to the purchase of new hardware and
software which was capitalized. The remaining $10,000,000, which was
expensed as incurred, did not have a material effect on the results of
operations. As of December 31, 1999, the Company had incurred all of
its total estimated Y2K costs. The Company received reimbursement of at
least 40% of the costs directly from a number of its clients due to the
nature of the contractualarrangements with these entities.
Y2K remediation costs represented approximately 15% of the
Company's total IT budget for 1999 and no material projects were
deferred due to the Company's Y2K efforts.
Contingency plans. The Company's IT systems interface with numerous
clients, medical service providers and regulatory agencies, and failure
to correct a material Y2K problem could interrupt business activities
and operations and materially adversely affect the Company's results of
operations, revenues, regulatory compliance or relationships with
customers, vendors or others. Not only must the Company ensure that its
own IT and non-IT systems are Y2K ready, but it also must ascertain
that the systems of third parties with whom the Company interfaces are
both Y2K ready and that their solutions to the Y2K problem are
compatible with those of the Company. As the Company assessed the Y2K
readiness of its IT and non-IT systems, contingency plans were
developed to address the most reasonably likely worst case scenarios
which could have resulted from the failure of a significant Company or
material third party system to be Y2K ready. Contingency plans will
continue to be modified and developed as situations arise in the normal
course of business. No material adverse effects have occurred as of
March 10, 2000.
New Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 requires that all derivative
instruments be recognized as either assets or liabilities in the
balance sheet and that derivative instruments be measured at fair
value. This statement also requires changes in the fair value of
derivatives to be recorded each period in current earnings or
comprehensive income depending on the intended use of the derivatives.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company is currently assessing the
impact of SFAS No. 133, but does not expect this statement to have a
material effect on its results of operations and financial position.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders,
First Health Group Corp.
Downers Grove, Illinois
We have audited the consolidated balance sheets of First Health Group
Corp. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, of comprehensive income,
of cash flows and of stockholders' equity for each of the three years
in the period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of First Health Group
Corp. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche
Deloitte & Touche LLP
Chicago, Illinois
February 18, 2000
<PAGE>
REPORT BY MANAGEMENT
Management is responsible for the preparation and integrity of the
consolidated financial statements and financial comments appearing in
this annual report. The financial statements were prepared in
accordance with generally accepted accounting principles and include
certain amounts based on management's best estimates and judgments.
Other financial information presented in the annual report is
consistent with the financial statements.
The Company maintains a system of internal accounting controls designed
to provide reasonable assurance that assets are safeguarded, and that
transactions are executed as authorized and are recorded and reported
properly. This system of controls is based upon written policies and
procedures, appropriate divisions of responsibility and authority, and
careful selection and training of personnel. Policies and procedures
prescribe that the Company and all employees are to maintain the
highest ethical standards and that business practices are to be
conducted in a manner which is above reproach.
Deloitte & Touche LLP, independent auditors, has audited the Company's
consolidated financial statements and its report is presented herein.
Management has made available to Deloitte & Touche LLP all the
Company's financial records and related data, as well as the minutes of
the Board of Directors' meetings. Management believes that all
representations made to Deloitte & Touche LLP during its audit
were valid and appropriate. The Board of Directors has an Audit
Committee composed solely of outside Directors. The independent
auditors have direct access to the Audit Committee and periodically
meet with the Audit Committee to discuss accounting, auditing and
financial reporting matters.
First Health Group Corp.
Downers Grove, Illinois
February 18, 2000
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
ASSETS 1998 1999
-------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 50,264,000 $ 35,639,000
Short-term investments 961,000 78,000
Accounts receivable, less allowance
for doubtful accounts of $11,151,000
and $10,844,000, respectively 63,582,000 59,482,000
Deferred taxes 18,415,000 14,925,000
Other current assets 12,361,000 10,609,000
-------------------------------------------------------------------
Total current assets 145,583,000 120,733,000
-------------------------------------------------------------------
Long-term investments:
Marketable securities 125,120,000 61,037,000
Other 23,431,000 31,842,000
-------------------------------------------------------------------
Total long-term investments 148,551,000 92,879,000
-------------------------------------------------------------------
Property and equipment:
Land, building and improvements 59,228,000 64,765,000
Computer equipment and software 80,944,000 124,614,000
Office furniture and equipment 13,617,000 14,235,000
-------------------------------------------------------------------
153,789,000 203,614,000
Less accumulated depreciation
and amortization (49,805,000) (75,602,000)
-------------------------------------------------------------------
Total property and equipment, net 103,984,000 128,012,000
-------------------------------------------------------------------
Goodwill, less accumulated
amortization of $5,513,000
and $8,701,000, respectively 100,151,000 93,629,000
Reinsurance recoverable - non-current 55,979,000 50,810,000
Other assets 3,631,000 2,671,000
-------------------------------------------------------------------
$557,879,000 $488,734,000
-------------------------------------------------------------------
<PAGE>
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999
-------------------------------------------------------------------
Current liabilities:
Accounts payable $ 52,408,000 $ 49,507,000
Treasury stock purchase payable 25,000,000 --
Accrued expenses 33,545,000 27,680,000
Claims reserves 16,610,000 10,628,000
Income taxes payable 2,611,000 1,493,000
-------------------------------------------------------------------
Total current liabilities 130,174,000 89,308,000
-------------------------------------------------------------------
Long-term debt 225,000,000 240,000,000
Claims reserves - non-current 55,979,000 50,810,000
Deferred taxes 7,052,000 20,306,000
Other non-current liabilities 1,547,000 1,578,000
-------------------------------------------------------------------
Total liabilities 419,752,000 402,002,000
-------------------------------------------------------------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, par value $1.00;
authorized1,000,000 shares;
none issued -- --
Common stock, par value $.01;
authorized 155,000,000 shares;
issued 76,482,000 and
76,976,000 shares, respectively 765,000 770,000
Additional paid-in capital 182,842,000 189,383,000
Retained earnings 384,143,000 450,581,000
Accumulated other comprehensive
income (3,099,000) (4,401,000)
Treasury stock, at cost; 23,019,000
and 29,320,000 shares, respectively (426,524,000) (549,601,000)
-------------------------------------------------------------------
Total stockholders' equity 138,127,000 86,732,000
-------------------------------------------------------------------
$557,879,000 $488,734,000
-------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1997 1998 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $388,975,000 $503,077,000 $458,493,000
Operating expenses:
Cost of services 154,513,000 228,108,000 215,480,000
Selling and marketing 42,376,000 49,574,000 45,588,000
General and administrative 29,204,000 42,724,000 36,549,000
Health care benefits 8,870,000 18,542,000 6,192,000
In-process research and
development 80,000,000 -- --
Depreciation and amortization 17,185,000 25,235,000 29,445,000
Interest income (15,013,000) (20,470,000) (6,293,000)
Interest expense 6,273,000 12,642,000 15,017,000
-----------------------------------------------------------------------------
323,408,000 356,355,000 341,978,000
-----------------------------------------------------------------------------
Income before income taxes 65,567,000 146,722,000 116,515,000
Income taxes (58,492,000) (58,719,000) (47,218,000)
-----------------------------------------------------------------------------
Net income $ 7,075,000 $ 88,003,000 $ 69,297,000
-----------------------------------------------------------------------------
Weighted average shares
outstanding - basic 65,048,000 61,670,000 50,270,000
-----------------------------------------------------------------------------
Net income per common
share - basic $ .11 $ 1.43 $ 1.38
-----------------------------------------------------------------------------
Weighted average shares
outstanding - diluted 66,832,000 62,658,000 51,003,000
-----------------------------------------------------------------------------
Net income per common
share - diluted $ .11 $ 1.40 $ 1.36
-----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
1997 1998 1999
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 7,075,000 $ 88,003,000 $ 69,297,000
Other comprehensive income,
before tax:
Unrealized gains (losses) on
securities:
Unrealized holding gains (losses)
arising during period 3,331,000 (7,640,000) (356,000)
Less: reclassification adjustment
for gains (losses)included
in net income 41,000 (2,759,000) (1,833,000)
- -----------------------------------------------------------------------------
Other comprehensive income
(loss), before tax 3,372,000 (10,399,000) (2,189,000)
Income tax benefit (expense)
related to items of other
comprehensive income (loss) (1,274,000) 4,077,000 887,000
- -----------------------------------------------------------------------------
Other comprehensive income (loss) 2,098,000 (6,322,000) (1,302,000)
- -----------------------------------------------------------------------------
Comprehensive income $ 9,173,000 $ 81,681,000 $ 67,995,000
- -----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
1997 1998 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $390,755,000 $508,355,000 $466,325,000
Cash paid to suppliers and
employees (238,773,000) (335,923,000) (303,559,000)
Health care benefits paid (7,146,000) (10,230,000) (10,423,000)
Interest paid (5,738,000) (12,639,000) (14,697,000)
Interest income received 16,570,000 17,010,000 7,126,000
Income taxes paid, net (55,823,000) (35,550,000) (32,685,000)
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 99,845,000 131,023,000 112,087,000
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investments (231,334,000) (284,961,000) (62,290,000)
Sales or maturities of
investments 242,389,000 337,915,000 115,726,000
Acquisition of businesses, net
of cash acquired (202,423,000) (173,000) --
Purchases of property and
equipment (31,372,000) (52,428,000) (49,671,000)
- ------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (222,740,000) 353,000 3,765,000
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 200,000,000 25,000,000 30,000,000
Principle payments of
long-term debt -- -- (15,000,000)
Purchase of treasury stock (100,802,000) (204,219,000) (148,077,000)
Stock option loans to employees,
net of payments -- -- (2,859,000)
Proceeds from issuance
of common stock 9,931,000 20,894,000 6,632,000
Exercises of put options
on common stock -- (1,763,000) (4,429,000)
Proceeds from sales of put
options on common stock 14,163,000 1,140,000 3,256,000
- ------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 123,292,000 (158,948,000) (130,477,000)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 397,000 (27,572,000) (14,625,000)
Cash and cash equivalents,
beginning of period 77,439,000 77,836,000 50,264,000
- ------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 77,836,000 $ 50,264,000 $ 35,639,000
- ------------------------------------------------------------------------------
<PAGE>
Supplemental cash flow data:
- ------------------------------------------------------------------------------
Acquisitions of businesses:
Fair value of assets acquired $361,850,000 $ -- $ --
Cost in excess of net assets
acquired 103,206,000 173,000 --
Fair value of liabilities assumed (342,633,000) -- --
In-process research and
development 80,000,000 -- --
- ------------------------------------------------------------------------------
Net cash paid $202,423,000 $ 173,000 $ --
- ------------------------------------------------------------------------------
Non-cash financing activity:
Treasury stock purchase payable $ -- $ 25,000,000 $ --
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Years Ended December 31,
1997 1998 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of net income
to net cash provided by
operating activities:
Net income $ 7,075,000 $ 88,003,000 $ 69,297,000
- ------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by
operating activities:
In-process research and development 80,000,000 -- --
Change in provision for
uncollectible accounts receivable 519,000 1,087,000 (307,000)
Depreciation and amortization 17,185,000 25,235,000 29,445,000
Amortization of bond premiums 945,000 302,000 568,000
Provision for deferred income taxes 4,035,000 14,937,000 14,202,000
Tax benefits from stock
options exercised 3,936,000 5,787,000 1,087,000
(Gains) losses on sales
of investments (423,000) (3,857,000) 2,195,000
Other, net (1,347,000) (1,383,000) (1,240,000)
Changes in assets and liabilities
(net of effects from
acquired businesses):
Accounts receivable (3,257,000) 1,310,000 4,407,000
Other current assets 8,111,000 916,000 1,752,000
Reinsurance recoverable 105,610,000 85,087,000 5,169,000
Accounts payable and
accrued expenses (17,672,000) (8,863,000) (8,766,000)
Claims reserves (106,396,000) (77,928,000) (11,151,000)
Income taxes payable -- 2,611,000 (1,118,000)
Non-current assets and
liabilities 1,524,000 (2,221,000) 6,547,000
- ------------------------------------------------------------------------------
Total adjustments 92,770,000 43,020,000 42,790,000
- ------------------------------------------------------------------------------
Net cash provided by
operating activities $ 99,845,000 $131,023,000 $112,087,000
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Other
Common Stock Additional Retained Comprehensive Treasury Stock
Shares Amount Paid-In Capital Earnings Income Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 37,182,000 $ 372,000 $129,147,000 $289,065,000 $ 1,125,000 3,485,000 $ (96,503,000)
Issuance of common stock through
stock option and purchase plans 385,000 4,000 9,927,000 - - - -
Purchase of treasury stock - - - - - 2,137,000 (100,802,000)
Tax benefit related to stock
options exercised - - 3,936,000 - - - -
Change in unrealized holding gain
on marketable securities - - - - 2,098,000 - -
Sale of put options on common stock - - 14,163,000 - - - -
Net income - - - 7,075,000 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 37,567,000 376,000 157,173,000 296,140,000 3,223,000 5,622,000 (197,305,000)
2-for-1 stock split effective
June 23, 1998 37,567,000 376,000 (376,000) - - 5,622,000 -
Issuance of common stock through
stock option and purchase plans 1,348,000 13,000 20,881,000 - - - -
Purchase of treasury stock - - - - - 11,775,000 (229,219,000)
Tax benefit related to stock
options exercised - - 5,787,000 - - - -
Change in unrealized holding loss
on marketable securities - - - - (6,322,000) - -
Sale of put options on common stock - - 1,140,000 - - - -
Exercise of put options on common
stock - - (1,763,000) - - - -
Net income - - - 88,003,000 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 76,482,000 765,000 182,842,000 384,143,000 (3,099,000) 23,019,000 (426,524,000)
Issuance of common stock through
stock option and purchase plans 494,000 5,000 6,627,000 - - - -
Purchase of treasury stock - - - - - 6,301,000 (123,077,000)
Tax benefit related to stock
options exercised - - 1,087,000 - - - -
Change in unrealized holding loss
on marketable securities - - - - (1,302,000) - -
Sale of put options on common stock - - 3,256,000 - - - -
Exercise of put options on common
stock - - (4,429,000) - - - -
Loans granted to employees to
exercise stock options - - - (2,859,000) - - -
Net income - - - 69,297,000 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 76,976,000 $ 770,000 $189,383,000 $450,581,000 $(4,401,000) 29,320,000 $(549,601,000)
- -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
The Company: First Health Group Corp. (the "Company") is a full-service
integrated national health benefits company. The Company specializes in
serving large, national employers with a single source for their group
health programs - providing integrated comprehensive, cost-effective
and innovative solutions for all the health benefits needs of their
employees nationwide. Through its workers' compensation service line,
the Company provides a full range of auto managed care and workers'
compensation services for insurance carriers, state insurance funds,
third-party administrators and large, self-insured national employers.
Through its First Health Services service line, the Company provides
services to various state Medicaid and entitlement programs for claims
administration, pharmacy benefit management programs and medical
management and quality review services.
Principles of consolidation: The financial statements include the
accounts of the Company and its wholly-owned subsidiaries. Material
intercompany balances and transactions have been eliminated.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities
and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents and investments: Cash and cash equivalents
are defined as all highly liquid investments with original maturities
of three months or less at date of purchase.
Investments with maturities between three months and twelve months and
other investments needed for current cash requirements are classified
as short-term investments. All remaining investments are classified as
long-term. Investments, which are classified as available-for-sale
securities, are reported at fair value. The fair value of marketable
securities is estimated based on quoted market prices, when available.
If a quoted price is not available, fair value is estimated using
quoted market prices for similar financial instruments. The difference
between amortized cost and fair value is recorded as an adjustment to
stockholders' equity and other comprehensive income, net of applicable
deferred taxes. Realized gains and losses from sales of investments are
based upon the specific identification method.
<PAGE>
Property and equipment: Property and equipment are stated at cost.
Expenditures for the maintenance and repair of property and equipment
are charged to expense as incurred. Expenditures for major replacement
or betterment are capitalized. Computer software includes approximately
$22.0 million of work-in-progress as of December 31, 1999 related to
internally developed software programs. There were approximately $3.9
million of such work-in-progress amounts as of December 31, 1998.
Depreciation is provided over the estimated useful lives of the related
assets using the straight-line method. These lives range from 5 years
to 31.5 years for buildings and improvements, 1.5 years to 5 years for
computer equipment and software and 3 years to 5 years for office
furniture and equipment. Leasehold improvements are amortized over the
shorter of the estimated useful life of the asset or the term of the
lease.
Long-lived assets: The carrying amount of all long-lived assets is
evaluated periodically to determine if adjustment to the depreciation
and amortization period or to the unamortized balance is warranted.
Such evaluation is based principally on the expected utilization of the
long-lived assets and the projected, undiscounted cash flows of the
operations in which the long-lived assets are deployed.
Fair value of financial instruments: The carrying amounts for cash and
cash equivalents, accounts receivable and accounts payable are
reasonable estimates of their fair value. The fair value of marketable
securities and investments is discussed in Note 3 to the consolidated
financial statements. The carrying value of long-term debt is a
reasonable estimate of its fair value as amounts are borrowed at
current market rates.
Revenue recognition: The Company receives revenues for PPO services,
claims administration services, fee schedule services, clinical cost
management and other services on a predetermined contractual basis
(such as a percentage of the derived savings). Revenues on a percentage
of savings basis for PPO services are recognized based upon client
claims processed. Additionally, the Company records revenues based upon
a fixed fee per covered participant, and the fee varies depending upon
the programs selected or on a per-transaction basis.
Insurance operations: Insurance premiums are earned on a pro rata basis
over the terms of the policies.
Claims Reserves - Claims reserves include traditional life insurance,
such as whole life insurance, term life insurance and accident and
health insurance, as well as universal life insurance policies and
annuity contracts which do not have significant mortality or morbidity
risk. Reserves for future policy benefits on traditional life insurance
policies are computed using a net level premium method based upon
historical experience of investment yields, mortality and withdrawals,
including provisions for possible adverse deviation. Reserves for
universal life-type and annuity contracts are equal to the accumulated
policyholder account values, determined in accordance with the terms of
the underlying policies.
Reinsurance Recoverable - Reinsurance recoverable represents the amount
due from other insurance companies as a result of the cession of a
portion of the Company's insurance risk to such companies. All of this
balance is due from National Farmers Union Life Insurance Company
("National Farmers").
<PAGE>
Reinsurance recoverable and the related claim reserves are reported
separately in the consolidated balance sheets.
Net income per common share: Net income per common share-basic is based
on the weighted average number of common shares outstanding during the
period. Net income per common share-diluted is based on the weighted
average number of common shares and common share equivalents
outstanding during the period. In calculating earnings per share,
earnings are the same for the basic and diluted calculations. Weighted
average shares outstanding increased for diluted earnings per share by
1,784,000, 988,000 and 733,000 for 1997, 1998 and 1999, respectively,
due to the effect of stock options. Diluted net income per share did
not change in 1997, decreased by $0.03 for 1998 and decreased by $0.02
for 1999.
All historical common share data have been adjusted for a 2-for-1 stock
split in the form of a 100% stock distribution paid on June 23, 1998 to
stockholders of record on June 2, 1998.
Segment information: The Company has determined it currently operates
in one reportable segment. Each of the Company's products and services
have similar long-term financial performance and have similar economic
characteristics. All of the Company's products and services relate to
programs that provide the Company's customers with a single source for
all of their group health programs, providing comprehensive, cost-
effective and innovative solutions for all the health benefits needs of
their employees.
New accounting pronouncements: In 1999, the Company adopted Statement
of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the costs of computer software developed or
obtained for internal use. Specifically, certain internal payroll and
payroll related costs should be capitalized during the application
development stage of a project and depreciated over the computer
software's useful life. The Company capitalized approximately $5.4
million of such internal costs during 1999 that would have previously
been expensed.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
requires that all derivative instruments be recognized as either assets
or liabilities in the balance sheet and that derivative instruments be
measured at fair value. This statement also requires changes in the
fair value of derivatives to be recorded each period in current
earnings or comprehensive income depending on the intended use of the
derivatives. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is currently
assessing the impact of SFAS No. 133, but does not expect this
statement to have a material effect on its results of operations and
financial position.
Reclassifications: Certain reclassifications have been made to 1998
information to conform to the classifications used in the current year.
<PAGE>
2. Acquisitions:
On July 1, 1997, the Company acquired all the outstanding shares of
capital stock of FIRST HEALTH Strategies, Inc. ("Strategies") and FIRST
HEALTH Services Corporation ("Services") (collectively, "FHC"),
excluding the stock of Viable Information Processing Systems, Inc., a
wholly-owned subsidiary of Services, from First Financial Management
Corporation and First Data Corporation for a purchase price of
approximately $196 million. Strategies, based in Salt Lake City, Utah,
and Services, based in Richmond, Virginia, provide independent health
care administration services such as claims administration and
associated health care management services to the self-insured
corporate and government markets. The acquisition was financed with a
$200 million credit agreement underwritten by the Company's bank group.
The allocation of the purchase price was as follows:
----------------------------------------------------
Purchase price $196,430,000
Transaction costs 3,000,000
-------------------------------------------
Total purchase price $199,430,000
-------------------------------------------
Purchase price has been allocated as follows:
--------------------------------------------
Fair value of assets acquired $ 87,214,000
Goodwill 93,405,000
In-process research and
development 80,000,000
Liabilities assumed (38,127,000)
Liability for restructuring and
integration costs (23,062,000)
-------------------------------------------
$199,430,000
-------------------------------------------
<PAGE>
In-process research and development represents projects related to the
next generation of FHC's claims processing system. These projects
represent FHC's research and development efforts prior to the
acquisition, which had not yet reached the stage of technological
feasibility and had no alternative future use; therefore, the ultimate
revenue generating capability of these projects was uncertain. The 1997
consolidated statement of operations included an $80 million charge for
the purchased research and development which was not deductible for
income tax purposes. The research and development acquired needed
additional development efforts, estimated to cost $15 million, to
become commercially viable. Such modifications include the enhancement
of various modules to perform claims adjudication, reporting, imaging,
and correspondence, and are expected to be substantially completed
within the next 18 to 24 months. Management believes the technology
will be commercially viable subsequent to these notifications and such
technology will be fully implemented into operations on or about June
2002. At the date of acquisition, management estimated the Company
would spend approximately $10 million in additional development
expenditures. The increase in development costs to $15 million is due
to enhancements beyond those originally planned by the Company. As of
December 31, 1999, the Company has expended approximately $4 million of
the expected total.
On August 30, 1997 the Company acquired Loyalty Life Insurance Company
("Loyalty"), which is licensed to conduct health insurance business in
49 states for a purchase price of approximately $12 million in cash.
Based upon the terms of the acquisition, the transaction was accounted
for as a purchase of Loyalty by the Company for financial reporting and
accounting purposes. In 1998, Loyalty changed its name to First Health
Life and Health Insurance Company. This name change is pending approval
from two state insurance regulators.
3. Marketable Securities and Investments:
<TABLE>
Information related to the Company's marketable securities and
investments at December 31 is as follows:
1998 1999
Amortized Cost Fair Value Amortized Cost Fair Value
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government securities $ 16,768,000 $ 17,324,000 $ 18,399,000 $ 18,101,000
State and municipal securities 6,925,000 7,065,000 4,956,000 4,561,000
Foreign government securities 1,709,000 1,732,000 455,000 431,000
Corporate securities 47,669,000 48,524,000 30,878,000 30,070,000
Mortgage and asset-backed securities 9,074,000 9,074,000 - -
----------------------------------------------------------------------------------------------
Total debt securities 82,145,000 83,719,000 54,688,000 53,163,000
Equity securities 48,381,000 42,362,000 12,818,000 7,952,000
----------------------------------------------------------------------------------------------
Total $ 130,526,000 $ 126,081,000 $ 67,506,000 $ 61,115,000
Less-classified as current 961,000 78,000
----------------------------------------------------------------------------------------------
Classified as long-term $ 125,120,000 $ 61,037,000
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Gross unrealized gains and (losses) were $3,231,000 and $(7,676,000),
respectively, at December 31, 1998 and $289,000 and $(6,680,000),
respectively, at December 31, 1999.
<TABLE>
Contractual maturities of marketable debt securities at December 31 are
as follows:
1998 1999
Amortized Cost Fair Value Amortized Cost Fair Value
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 879,000 $ 961,000 $ 90,000 $ 78,000
Due after one year through five years 37,517,000 38,362,000 34,144,000 33,694,000
Due after five years through ten years 22,223,000 22,415,000 11,653,000 11,200,000
Due after ten years 21,526,000 21,981,000 8,801,000 8,191,000
----------------------------------------------------------------------------------------------
Total debt securities $ 82,145,000 $ 83,719,000 $ 54,688,000 $ 53,163,000
----------------------------------------------------------------------------------------------
</TABLE>
Gross realized gains and (losses) on sales or maturities of marketable
securities were $1,857,000 and $(1,186,000), respectively, for the year
ended December 31, 1997, $5,717,000 and $(2,289,000), respectively, for
the year ended December 31, 1998 and $1,564,000 and $(5,510,000)
respectively, for the year ended December 31, 1999.
Included in other long-term investments on the consolidated balance
sheet at December 31, 1997 was a $12,561,000 investment in a limited
partnership which, in turn, invests in a variety of marketable
securities. The investment was accounted for on the cost basis because
the Company owned less than 5% of the limited partnership's assets and
had no influence on the general partner's investment decisions. The
general partner reported to the Company that its cumulative share of
the unrealized gain in the investment assets, before any applicable
income taxes, was $3,083,000 at December 31, 1997. This investment was
liquidated in 1998. The Company received $14,797,000 in proceeds from
the sale of which $1,666,000 was received in 1999 and included in
interest income.
Included in other long-term investments at December 31, 1997, 1998 and
1999 is an investment in a limited partnership which invests in
equipment which is leased to third parties. The investment is accounted
for on the equity method since the Company owns between 20% and 25% of
each particular tranche of the limited partnership. The total
investment in this limited partnership was $21,015,000 at December 31,
1998 and $28,218,000 at December 31, 1999 including $6,667,000 invested
during 1999. The Company's proportionate share of the partnership's
income was $733,000 in 1997, $1,222,000 in 1998 and $1,605,000 in 1999,
and is included in interest income.
<PAGE>
4. Reinsurance:
On October 1, 1996, in anticipation of the Company's acquisition,
Loyalty entered into a reinsurance agreement whereby it ceded 100
percent of its life insurance and annuity contracts in force ("pre-
acquisition business") to a former affiliate, National Farmers. Under
the terms of the reinsurance agreement, all premiums and deposits
received by Loyalty which relate to pre-acquisition business are
transferred to National Farmers. Additionally, the cash and investments
transferred by Loyalty to National Farmers which support ceded
insurance liabilities are held in escrow for the benefit of Loyalty's
policy holders. Premiums and policy benefits, which are not material in
amount, are ceded to National Farmers and shown net of such cessions in
the consolidated statements of operations. Loyalty is currently seeking
approvals from the insurance regulators and policy holders of each
state, as necessary, which would result in the legal replacement of
Loyalty by National Farmers. Such approvals would release Loyalty from
future liability for its pre-acquisition business and result in the
removal of such policy liabilities from the Company's consolidated
balance sheets. The Company anticipates that it will take several years
to receive the remainder of these approvals.
The Company also assumes and cedes reinsurance with other insurance
companies in the normal course of business. Reinsurance is ceded
primarily to limit losses from large exposures and to permit recovery
of a portion of direct losses. The Company continues to have primary
liability as the direct insurer for all ceded risks. Reinsurance is
assumed to increase the Company's revenues and to provide additional
diversification of its insured risks. The effects of reinsurance on
premiums and contract charges earned are as follows:
Years Ended December 31,
1997 1998 1999
---------------------------------------------------------------------
Life and health premiums and contract charges:
Direct $18,470,000 $28,384,000 $15,588,000
Assumed 2,241,000 2,093,000 1,483,000
Ceded (9,963,000) (11,486,000) (9,398,000)
---------------------------------------------------------------------
Net $10,748,000 $18,991,000 $ 7,673,000
---------------------------------------------------------------------
The recoverable amounts at December 31, 1999 include $50,810,000
estimated by the Company with respect to ceded unpaid losses (including
claims incurred but not reported) which are not billable until the
losses are paid. Estimating amounts of reinsurance recoverable is
impacted by the uncertainties involved in the establishment of loss
reserves. Management believes the recoverables are appropriately
established; however, the amount ultimately recoverable may vary from
amounts currently recorded.
<PAGE>
5. Accrued Expenses:
Accrued expenses at December 31, 1998 include approximately $15,303,000
for merger-related restructuring expenses; $5,728,000 for accrued
salaries, wages and benefits; and $1,961,000 for insurance accruals.
Accrued expenses at December 31, 1999 include approximately $5,149,000
for merger-related restructuring expenses; $10,355,000 for accrued
salaries, wages and benefits; and $3,703,000 for insurance accruals.
6. Long-Term Obligations:
On July 1, 1997, the Company entered into a $200 million revolving
credit agreement (the "Agreement") to facilitate the acquisition of
FHC. In August 1997, the Agreement was amended to increase available
borrowings to $350 million. As of December 31, 1999, $240 million was
outstanding under the Agreement. The revolving credit facility is due
on June 30, 2002. The Agreement provides for interest at the LIBOR rate
adjusted for the ratio of outstanding debt to earnings before interest,
taxes, depreciation and amortization. As of December 31, 1999, the
interest rate was approximately 6.5% per annum. The credit facility
also has a compensating fee arrangement calculated at approximately .2%
per annum of the unused balance.
The Agreement contains provisions which require the Company to maintain
a specified level of net worth and comply with various financial ratios
and includes, among other provisions, restrictions on investments,
dividend payments and incurrence of additional indebtedness. At
December 31, 1999, $350,000,000 was available for dividend
distributions under these provisions.
7. Income Taxes:
<TABLE>
Components of the provision for income taxes are as follows:
Years Ended December 31,
1997 1998 1999
-------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $ 44,582,000 $ 36,717,000 $ 27,667,000
State 9,875,000 7,065,000 5,349,000
-------------------------------------------------------------------------
54,457,000 43,782,000 33,016,000
-------------------------------------------------------------------------
Deferred provision:
Federal 2,901,000 12,135,000 11,515,000
State 1,134,000 2,802,000 2,687,000
-------------------------------------------------------------------------
4,035,000 14,937,000 14,202,000
-------------------------------------------------------------------------
Provision for income taxes $ 58,492,000 $ 58,719,000 $ 47,218,000
-------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Deferred tax assets and (liabilities) comprise the following, as of
December 31, 1998 and 1999:
1998 1999
-------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Purchase accounting reserves $ 6,100,000 $ 2,061,000
Revenue adjustments 3,681,000 2,853,000
Allowance for doubtful accounts 4,460,000 4,340,000
Vacation accrual 2,414,000 2,752,000
Other, net 1,760,000 2,919,000
-------------------------------------------------------------------------
Total current assets 18,415,000 14,925,000
-------------------------------------------------------------------------
Non-current assets (liabilities):
Depreciation 8,584,000 3,200,000
Intangible assets 1,998,000 1,668,000
Tax benefit of limited
partnership investment (19,623,000) (29,426,000)
Market value adjustment 1,974,000 2,538,000
Other, net 15,000 1,714,000
-------------------------------------------------------------------------
Total non-current liabilities (7,052,000) (20,306,000)
-------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 11,363,000 $ (5,381,000)
-------------------------------------------------------------------------
</TABLE>
Income tax benefits associated with the exercise of stock options were
$3,936,000 in 1997, $5,787,000 in 1998 and $1,087,000 in 1999. Such
amounts are credited to additional paid-in-capital.
<TABLE>
Years Ended December 31,
1997 1998 1999
-------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes at
federal statutory rate $ 22,948,000 $ 51,353,000 $ 40,780,000
State taxes, net of federal
benefit 3,410,000 7,336,000 5,584,000
Expenses not deductible for
income tax purposes 33,796,000 1,109,000 1,269,000
Non-taxable interest income
and dividends (1,662,000) (1,079,000) (415,000)
-------------------------------------------------------------------------
Provision for income taxes $ 58,492,000 $ 58,719,000 $ 47,218,000
-------------------------------------------------------------------------
</TABLE>
<PAGE>
8. Employment Agreements:
The Company has employment agreements which expire between 2001 and
2002 with certain officers and key employees. The agreements provide
for, among other things, annual base salaries aggregating $3,393,000
plus additional incentive compensation. The incentive compensation is
partially at the discretion of the Board of Directors. The Company
recorded incentive compensation to certain key officers and employees
in the aggregate amount $1,050,000 in 1997 and $471,000 in 1998. No
incentive compensation was recorded in 1999.
9. Stockholders' Equity:
Employee stock purchase plan: The Company maintains an Employee Stock
Purchase Plan which allows employees of the Company and its
subsidiaries to purchase shares of common stock on the last day of two
six-month purchase periods (i.e., February 28 and August 31 of each
year) at a purchase price which is 85% of the closing sale price of the
shares as quoted on Nasdaq on the first or last day of such purchase
period, whichever is lower. A maximum of 2,000,000 shares has been
authorized for issuance under the plan. As of December 31, 1999,
1,382,000 shares had been issued pursuant to the plan.
Stock options: The Company maintains an Employee Stock Option Plan
which provides for the granting of options to employees and consultants
of the Company and its subsidiaries to purchase up to 4,000,000 shares
of common stock at a price not less than 85% of fair market value at
date of grant. In 1998, the Company adopted a new Employee Stock Option
Plan which provides for the granting of additional options to employees
and consultants of the Company and its subsidiaries to purchase up to
2,800,000 shares of common stock at a price not less than 85% of fair
market value at date of grant. Outstanding options expire between 2000
and 2009 under these option plans. The Company also maintains a Stock
Option Plan which provides for the granting of options to purchase
660,000 shares of common stock at fair market value at date of grant,
which expire between 2001 and 2009, to non-employee members of its
Board of Directors. In 1998, the Company adopted a new Stock Option
Plan which provides for the granting of additional options to purchase
200,000 shares of common stock at fair market value at date of grant to
non-employee members of its Board of Directors. Options granted under
this new plan expire between 2000 and 2009. The Company has also
granted options to certain of its employees and members of its Board of
Directors under individual option agreements, which expire between 2000
and 2007.
<PAGE>
<TABLE>
The following table summarizes changes in common stock under option
plans.
Years Ended December 31,
1997 1998 1999
- --------------------------------------------------------------------------------
Wtd.Avg. Wtd.Avg. Wtd.Avg.
# of Exercise # of Exercise # of Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of Shares:
Outstanding at beginning
of the year 3,788,000 $14.01 6,682,000 $18.95 6,049,000 $20.11
Granted 3,756,000 22.79 845,000 23.26 3,533,000 17.95
Exercised (706,000 12.42 (1,243,000) 15.14 (352,000) 13.33
Canceled/expired (156,000) 20.97 (235,000) 24.60 (700,000) 22.66
- --------------------------------------------------------------------------------
Outstanding at end
of the year 6,682,000 18.95 6,049,000 20.11 8,530,000 19.27
- --------------------------------------------------------------------------------
Exercisable at
December 31 2,816,000 $15.86 3,118,000 $18.73 3,859,000 $ 19.60
Available for grant 732,000 3,111,000 268,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Wtd. Avg.
Remaining Wtd. Avg.
Range of Contractual Wtd. Avg. Exercise
Exercise Price Shares Life In Years Exercise Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.00 to $ 10.00 219,000 3.05 $ 7.88 219,000 $ 7.88
$ 10.01 to $ 20.00 3,406,000 5.74 15.56 1,153,000 $ 14.46
$ 20.01 to $ 30.00 4,905,000 5.58 $ 22.36 2,487,000 $ 23.02
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"). The following
table presents pro forma financial results if compensation cost had
been recorded consistent with the provisions of SFAS No. 123:
<PAGE>
<TABLE>
Years ended December 31,
1997 1998 1999
---------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation cost - pretax $ 5,813,000 $11,923,000 $12,687,000
Net income 3,599,000 80,849,000 61,751,000
Net income per common share - basic .06 1.31 1.23
Net income per common share - diluted $ .05 $ 1.29 $ 1.21
</TABLE>
The weighted average fair values at date of grant for options granted
during 1997, 1998 and 1999 were $8.21, $9.11 and $7.51, respectively,
and were estimated using the Black-Scholes option pricing model with
the following assumptions:
Years ended December 31,
1997 1998 1999
-----------------------------------------------------------------------
Risk-free interest rate 6.27% 4.85% 5.08%
Dividend yield - - -
Expected volatility 29.57% 34.03% 47.21%
Expected life in years 1 to 9 1 to 8 1 to 5
Treasury stock: The Company's Board of Directors has approved the
repurchase of up to 30 million shares of the Company's outstanding
common stock. Purchases may be made from time to time depending on
market conditions and other relevant factors. The Company had
approximately 7.0 million shares available for repurchase under its
repurchase authorizations as of December 31, 1999. During 1997, the
Company purchased 4,273,000 shares of its outstanding common stock in
the open market for a total cost of $100,802,000. During 1998, the
Company purchased 9,983,000 shares of its outstanding common stock on
the open market for a total cost of approximately $184,919,000 or an
average price of $18.52 (of which $25,000,000 was payable on December
31, 1998). During 1999, the Company purchased 5,324,000 shares of its
outstanding common stock in the open market for a total cost of
$100,185,000. The stock purchased was recorded as treasury stock, at
cost, and is available for general corporate purposes. In connection
with the exercise of options to purchase 850,000 shares of common stock
during 1998, a certain employee paid the exercise price by delivering
to the Company approximately 492,000 shares of previously owned stock.
These shares were also recorded as treasury stock, at cost, and are
available for general corporate purposes.
In connection with its stock repurchase program, at December 31, 1999,
the Company had outstanding put options which obligate the Company, at
the election of the option holders, to repurchase up to 1,500,000
shares of common stock at prices ranging from $20.50 to $21.00 per
share. The outstanding options expire at various dates from March 15,
2000 to May 17, 2000. During 1998, 1,300,000 shares were put to the
Company at a total cost of $30,675,000. During 1999, 977,000 shares
were put to the Company at a total cost of $22,892,000. These shares
were recorded as treasury stock, at cost, and are available for general
corporate purposes. In addition, during 1998, the Company settled
200,000 puts by delivering $1,763,000 in cash to the option holders. In
1999, the Company settled 573,000 puts by delivering $4,429,000 in cash
to the option holders.
<PAGE>
Employee benefit plan: The Company maintains a Savings and Investment
Plan which allows eligible employees to allocate up to 15% of their
salary, through payroll deductions, among various mutual funds. The
Company matches 75% of the employee's contribution, up to 6% of his or
her salary. The cost of this plan (net of forfeitures) was $2,874,000
in 1997, $3,970,000 in 1998 and $3,708,000 in 1999.
10. Commitments and Contingencies:
Litigation: The Company and its subsidiaries are subject to various
claims arising in the ordinary course of business and are parties to
various legal proceedings which constitute litigation incidental to the
business of the Company and its subsidiaries. In the opinion of the
Company's management, only one matter is potentially material to the
business or the financial condition of the Company. On August 6, 1998,
amended counterclaims were asserted against the Company in a lawsuit
pending in the United States District Court for the Northern District
of Illinois. The Company had initiated a lawsuit against United Payors
and United Providers ("UP & UP"), a network of hospital and other
medical providers, on April 26, 1996 asserting claims for trademark
infringement, false advertising and state law claims for deceptive
trade practices, fraud and deceptive business practices and for
intentional interference with contracts. At this time, the Company
alleges that UP & UP has employed and continues to employ false and
misleading statements and practices concerning the nature of its own
services and relationships with payor clients, as well as the nature of
the Company's services and relationships with its payor clients, among
other related subjects. Specifically, the Company alleges that UP & UP
misled hospitals to believe that the benefits of joining UP & UP's
network would principally include the likelihood of an increased market
share of patient visits by mandatory commitments from UP & UP's payor
clients to implement financial incentives and to otherwise influence
its clients' covered beneficiaries to select a provider in UP & UP's
network. The Company further alleges that UP & UP representatives made
false representations claiming an affiliation or association with the
Company's own proprietary network, The AFFORDABLE[R] Medical Networks.
The Company seeks injunctive and other relief based on this conduct,
including damages for interference with a client relationship.
In answering the Company's lawsuit, UP & UP denied the allegations and
asserted defenses. UP & UP has amended its counterclaims and remedies
including damages for alleged "false advertising" by the Company,
unfair competition and deceptive trade practices and commercial
disparagement.
The Company replied to UP & UP's counterclaims denying the allegations,
and asserting defenses. The discovery phase of the litigation is over
and the parties have filed various motions for full and partial relief
on many of the claims and counterclaims. The Company is prosecuting and
defending its interests vigorously. At this time, the Company does not
believe that the counterclaims will have a material adverse effect on
the Company's financial position or future operating results.
<PAGE>
Leases: The Company leases office facilities under leases through 2009.
At December 31, 1999, future minimum annual rental commitments under
these leases were as follows:
Years Ending December 31,Amount
-------------------------------------
2000 $ 8,499,000
2001 6,001,000
2002 4,429,000
2003 3,391,000
2004 3,307,000
Thereafter 14,595,000
-------------------------------------
Total $ 40,222,000
-------------------------------------
Total rent expense, recognized under the straight-line method, was
$5,264,000 in 1997, $7,908,000 in 1998 and $7,336,000 in 1999.
Agreement with EDS: The Company has an agreement (the "EDS Agreement")
with Electronic Data Systems Corporation ("EDS"), primarily for the
purpose of developing and jointly marketing medical and administrative
cost management services to workers' compensation payers. The initial
term of the EDS Agreement was to January 1, 2005, and has been extended
to at least 2010. EDS provides data processing, electronic claims
transmission and marketing support services to the Company. Fees paid
by the Company to EDS for its medical cost management services is based
upon the greater of a specified minimum annual payment ($1,875,000
subject to adjustments computed from changes in the Consumer Price
Index), or a percentage of savings method. EDS processes all of the
workers' compensation fee schedule claims for the Company. Although
there are other data processing service organizations available, a loss
of EDS's services would adversely affect the operating results of the
Company's fee schedule service business.
11. Major Customers:
During 1997, 1998 and 1999, the Company had no customers which
individually accounted for 10% or more of revenues.
12. Derivative Financial Instruments:
The use of derivatives by the Company has not been material although
they have been used to reduce interest rate risks, potentially increase
the return on invested funds and manage the cost of common stock
repurchase programs. During 1997 through 1998, the Company had
invested $12,561,000 in a limited partnership fund which used long and
short positions, leverage, and certain derivative securities to manage
portfolio and interest rate risk. The investment was accounted for on
the cost basis as the Company owned less than 5% of the assets of the
limited partnership. The investment was liquidated in 1998 for
$14,797,000 of which $1,666,000 was received in 1999. Investments in
derivative financial instruments are approved by either the Audit
Committee or the Board of Directors of the Company.
<PAGE>
13. Quarterly Financial Data (Unaudited):
The following is a summary of unaudited results of operations (amounts
in thousands except per share data) for the years ended December 31,
1998 and 1999.
<TABLE>
Year Ended December 31, 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 127,758 $ 126,742 $ 125,962 $ 122,615
Net income $ 23,103 $ 23,322 $ 22,250 $ 19,328
Net income per common
share - basic $ .36 $ .37 $ .36 $ .33
Weighted average shares
outstanding - basic 63,710 63,095 62,468 58,075
Net income per common
share- diluted $ .36 $ .36 $ .35 $ .33
Weighted average shares
outstanding - diluted 64,884 64,195 63,573 58,552
--------------------------------------------------------------------------
Year Ended December 31, 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 117,361 $ 115,430 $ 113,421 $ 112,281
Net income $ 17,580 $ 16,950 $ 17,149 $ 17,618
Net income per common
share - basic $ .33 $ .34 $ .35 $ .37
Weighted average shares
outstanding - basic 52,752 50,426 49,599 48,042
Net income per common
share - diluted $ .33 $ .33 $ .34 $ .36
Weighted average shares
outstanding - diluted 53,108 50,787 50,388 49,321
--------------------------------------------------------------------------
</TABLE>
<TABLE>
A Representative Listing of Our Distinguished Clients
<S> <C>
Academy of General Dentistry Borma - City of Willard
Advanced Drainage Systems Inc. Brunswick Hospital
Adventist Health Systems West Burger King Corporation
Agilent Technologies, Inc. Butler International
AIG Claim Services, Inc.
Alabama Department of Mental Health C.P. Distribution, Inc.
and Mental Retardation Cablevision
Alameda County Schools Insurance Group Care Cab
Alaska Division of Medical Assistance Carlson Restaurants Worldwide
Albertson's, Inc. Caterpillar Inc.
Alliance Health Benefit Plan CCC Information Services, Inc.
Amalgamated Life Insurance Co. CDK Contracting
American Association of Christian Celotex Corporation
Schools Central Parking System, Inc.
American Association of Orthodontists Central States Insurance Company
American Banknote Centris Risk Management
American Bar Insurance Cerner Corporation
American Cellular Corp. Chyron Corporation
American Chiropractic Association Citizens Insurance Company of America
American Compensation Clare Rose
Insurance Company Clear Channel Communications, Inc.
American Contractors Insurance Group CMC Steel Group
American Freightways CNA Insurance Company/Claims
American Institute of Architects Administration Corporation
American Postal Workers Union Coastline Distribution, Inc.
Health Plan College of American Pathologists
American Psychological Association Colonial Group International, LTD
American Society of Civil Engineers Colorado Department of
American Society of Petroleum Geologists Health Care Policy and Financing
American Technical Ceramics Corp. Command Security
American Veterinary Medical Commercial Envelope
Association, GHLIT ConAgra, Inc.
Amoco Fabrics and Fibers Company, Consolidated Stores Inc.
A Business Unit of BP Amoco Continental Material
ARAMARK Uniform Crawford & Company
and Career Apparel, Inc.
Arbitrade Holdings Dairy Farmers of America
Archdiocese of Chicago Dakotas and Western Minnesota Electrical
Arkansas Department of Human Services Industry Health and Welfare Fund
Arthur J. Gallagher & Co. Danisco US, Inc.
Associated Food Stores, Inc. Dayton Area Health Plan
Association Group Insurance Trust Delphi Automotive Systems
Aurora East School District #131 Desco Corporation
Aurora Health Care Deseret Mutual Benefit Administrators
Automotive Investment Group Designtex Fabrics, Inc.
DHL Airways, Inc.
Bay Area Schools Diamond Auto Glass Works
Insurance Cooperative Trust Discovery Health
Benchmark Management Company District of Columbia
Benefit Administrative Systems Medical Assistance Administration
Berkley Risk Administrators Co., Inc. Dow Corning Corporation
BEST Life Assurance Company Dynatech
Bethpage Federal Credit Union
Eagle Insurance Group
Blue Cross and Blue Shield Eastern Alloy's, Inc.
of North Carolina Eaton Corporation
Blue Cross and Blue Shield of Tennessee EBC-Edmond Lindop School District #92
Blue Cross of Northeastern Pennsylvania EBC-Lisle School Dist. #202
Boilermakers National EBC-Marquardt School Dist. #15
Health & Welfare Fund EBC-River Forest School District #90
Borma - City of Harrison Educators Mutual Life
Borma - City of Sandusky
<PAGE>
Electronic Data Systems Interstate Hotels Corp.
Engineering & Scientific Association IPRO
Accident and Health Insurance Trust Isle of Capri Casinos, Inc.
Entergy Services Inc.
J.D. Edwards & Company
FCCI Insurance Group Jenkins & Gilchrist
Festo Corporation Jockey International, Inc.
Fidelity National Title Insurance
Company Kathpal Technologies
Fine Host Kemper National Services
Fireman's Fund Insurance Company Kentucky Department of Medical Services
First Health Keystone Foods
Florida Office of Koch Industries, Inc.
Medicaid Program Development Krispy Kreme Doughnut Corporation
Friends Academy
Labor Ready, Inc.
Gallagher Bassett Services, Inc. Laborers Health and Welfare Trust Fund
Gallagher Benefit Administrators, Inc. for Southern California
Gemaire Distributing Inc. Laborers International Union of
Gencor Industries, Inc. North America Local 231 Welfare Fund
General Motors Corporation Land O Frost
General Scientific Corporation Les Schwab Independent Member Dealers
Genex Services, Inc. Les Schwab Tire Centers
Georgia Department of Medical Assistance Levitz Furniture Corporation
Georgia Department of Mental Health Liberty Mutual Group
and Mental Retardation Liberty Northwest Companies
Georgia Department of Mental Health, Life University (formerly Life College)
Mental Retardation, & Substance Abuse Lincoln Automotive
Geraghty & Miller, Inc. Lincoln Industrial
Getz Brothers and Company Incorporated Lincolnway Area Affiliation of
GFT (USA) Corp. Participating School Districts
Global Line Construction Benefit Fund
Gold Coast Joint Benefits Trust Litton/Ingalls Shipbuilding, Inc.
Grand Court Lifestyles, Inc. Local 25, S.E.I.U. Welfare Fund
Great Lakes Dredge & Dock Company Los Angeles County
Greenway Electric, Inc. Community Health Plan
Grimes Aerospace Company Lumbermen's Underwriting Alliance
Grinnell Mutual Reinsurance Company Lynch Management Forum
H. Stern Jewelers Majestic Insurance Company
Hardee's Food System, Inc. Marchon
Harrington Benefit Services Maryland Department of
Harrington Services Corporation Health and Mental Hygiene
Health Management Associates, Inc. Massachusetts Bar Association
Health Midwest Masters, Mates and Pilots
Health Plan of San Joaquin Health and Benefit Plan
Helmsman Management Services, Inc. McDermott, Will & Emery
Hewitt, Coleman and Associates, Inc. McDonald's Corporation
Hewlett-Packard Company McGean-Rohco, Inc.
Homestead House Inc. Medical Mutual of Ohio
Hotel/Motel Associates, Inc. Mendocino Coast District Hospital
Hyatt Hotels Corporation Metromedia Restaurant Group
Milwaukee Painters Local 781 Health Fund
Illinois County Risk Management Trust Mission Plus
Indiana Conference of Teamsters Missouri Consolidated Health Care Plan
Health & Welfare Fund Missouri Division of Medical Services
Indy Plus Missouri State Colleges and Universities
Ingram Industries Group Insurance Consortium, Inc.
Inland Empire Health Plan Missouri State Medical Association
Inland Truck Parts Company Modern Italian Bakery
International Medical Group Morton College
International Mission Board Mueller Industries
Interra Reinsurance
<PAGE>
Musicland Group, Inc. RIMS
Rival Company
N.Y. Annual Conference of the Rockline Industries, Inc.
United Methodist Church Rosenbluth International, Inc.
Nalco Chemical Company Roundy's, Inc.
National Association of RxCare of Tennessee
Letter Carriers Health Benefit Plan Ryan International Airlines
National Casualty Company
National League of Postmasters Safeco Insurance Company
of the United States Samuel Bingham Company
National Telephone Cooperative Santa Clara Family Health Plan
Association SCI Management Corporation
National Travelers Life Seasonal Concepts
National-Standard Company SEIU Local #25 Welfare Fund
Nebraska Department of Public Select Providers, Inc.
Institutions Sentry Insurance
Nebraska Department of Social Services Service Management Corp.
NECA-IBEW Florida Benefit Fund Services Group of America
Network Multi-Family Security Shell Oil
New Jersey Division of Medical Shippers Transport
Assistance and Health Services Sound Enhancements
New York Early Intervention Program South Carolina Health and
New York Life Insurance Company Human Services Finance Commission
New York State EPIC Program Southern California Dairy Industry
NMU Pension and Welfare Plan Security Trust Fund
North American Health Plans, Inc. Southern Container
North Carolina Division Special Agents Mutual Benefit
of Medical Assistance Association
North Dakota Medical Services Division Spectrum Managed Care
St. Francis Preparatory School
Ohio Department of Human Services, State Farm Insurance Companies
Bureau of Medicaid Policy Sun Healthcare Group, Inc.
Ohio Medicaid Behavioral Health Swift Newspapers
Oregon Office of Swifty Serve Corporation
Medical Assistance Programs
Outside Electrical Welfare Fund T C Industries
Owen Industries, Inc. Tandy Corporation
Oxford Health Plans, Inc. Teamsters Joint Council No. 83 of
Virginia Health and Welfare Fund
PACE Industry Health and Welfare Fund Teamsters Miscellaneous
Pacific Atlantic Administrators Security Trust Fund
PacifiCare Life & Health Insurance Co. Telex Communications, Inc.
PacificSource Health Plans Tennessee Division of
Pall Corporation Mental Health Services
Pennsylvania PACE Program Tennessee TennCare Bureau
PEP of Matagorda Texas Instruments Employees
Performance Bankers Health Benefit Trust
Pictorial Offset Corporation Texwipe
Pinnacle Broadcasting Company The American College of Surgeons
Placer County Insurance Trust
PRC, Inc. The American Jewish Committee
Progressive Casualty Insurance Company The Cretex Companies, Inc.
The Episcopal Church Medical Trust
Quoizel The Hanover Insurance Company
The Hartford
RaceTrac Petroleum, Inc. The Marmon Group, Inc.
Rallye Motors, Inc. The NPD GROUP
Raychem Corporation The Pillsbury Company
Real Estate Appraisers The PMA Insurance Group
Rexel, Inc. The Quaker Oats Company
Rhanda Corporation The RETA Trust
Richland Memorial Hospital The Salvation Army
Richmond Bakery Workers The Sherwin-Williams Company
Health and Welfare Fund The Stony Brook School
<PAGE>
The Stroh Brewery Company
The Texas Society of
Certified Public Accountants
The TPA, Inc.
The Wilderness Society
Tishman Realty & Construction Co., Inc.
TJ International, Inc.
Tokio Marine Management, Inc.
Trans Union
Travelers Property Casualty
Troy Community Consolidated
School District 30-C
TTX Company
Tyson Foods, Inc.
U.S. Cable Television Group
U.S. Home Corporation
Underwriters Safety & Claims, Inc.
Union Tank Car Company
United States Banknote Co.
Universal Underwriters Group
USF Dugan, Inc.
USF Reddaway, Inc.
Vahl, Inc.
Viajero International
Village of Elk Grove Village
Virginia Department of
Medical Assistance Services
Ward North America, Inc.
Wausau Insurance Companies
Wecmo Inc.
Wells Fargo & Company
Wesleyan Church
Westbury Transport, Inc.
White Way Signs
Willis Administrative Services
Corporation
Wilsey Bennett Company
Wisconsin Health Fund
Wisconsin UFCW Unions and
Employers Health Plan
World Insurance Company
World Travel Protection Canada Inc.
Xerxes Corporation
</TABLE>
<PAGE>
Board of Directors Corporate Officers
<TABLE>
<S> <C>
Thomas J. Pritzker James C. Smith
Chairman of the Board, President and CEO President and Chief Executive Officer
Hyatt Corporation
(Diversified real estate and hotel Daniel S. Brunner
management company) Executive Vice President, Government
Affairs
Michael J. Boskin, Ph.D.
Tully M. Friedman Professor of Economics Mary Anne Carpenter
and Senior Fellow, Hoover Institution, Executive Vice President, Service
Stanford University, Adjunct Scholar, Products
American Enterprise Institute and
Research Associate, National Bureau of A. Lee Dickerson
Economic Research Executive Vice President, Provider
Networks
Daniel S. Brunner
Executive Vice President, Government Patrick G. Dills
Affairs Executive Vice President, Sales
First Health
Susan M. Fleming
Robert S. Colman Vice President, Product Mangement
Principal
Colman Partners, llc Ronald H. Galowich
(Merchant banking firm) Secretary
Ronald H. Galowich Lottie A. Kurcz
Chairman Senior Vice President, Strategic
Madison Group Holdings, Inc. Business Development
(Business and real estate development)
Jerry L. Seiler
Harold S. Handelsman Controller
Senior Vice President, General Counsel,
Secretary Susan T. Smith, Esq.
Hyatt Corporation Assistant Secretary and General Counsel
(Diversified real estate and hotel
management company) David R. Studenmund
Vice President, Strategic Planning
Burton W. Kanter
Chairman Joseph E. Whitters
Walnut Capital Corp. Vice President, Finance and Chief
(Private venture capital firm) Financial Officer
Don Logan Edward L. Wristen
Chairman and CEO Executive Vice President and Chief
Time, Inc. Operating Officer
(Diversified publishing and marketing
company)
Corporate Information
David E. Simon
CEO The annual meeting is scheduled
Simon Property Group for May 16, 2000 at the
(Shopping center development) Company's corporate headquarters.
Corporate Headquarters
James C. Smith First Health
President and Chief Executive Officer 3200 Highland Avenue
First Health Downers Grove, Illinois 60515
(630) 737-7900
www.firsthealth.com
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Corporate and Investor Information
Form 10-K. The Company has filed an
Annual Report on Form 10-K for the year Independent Auditors
ended December 31, 1999 with the Deloitte & Touche LLP
Securities and Exchange Commission. Chicago, Illinois
Stockholders may obtain a copy of this
report, without charge, by writing: Corporate Counsel
Joseph E. Whitters, Chief Financial Neal, Gerber & Eisenberg
Officer, First Health Group Corp., 3200 Chicago, Illinois
Highland Avenue, Downers Grove, IL
60515. Transfer Agent & Registrar
Common Stock. First Health Group Corp. The LaSalle National Bank of Chicago
common stock is quoted on the Nasdaq Chicago, Illinois
National Market under the symbol FHCC.
The following tables show the quarterly
range of high and low sales prices of
the common stock during the calendar
periods indicated:
High Low
1998
First Quarter $ 28.00 $ 22.625
Second Quarter 30.875 27.00
Third Quarter 30.125 19.125
Fourth Quarter 24.5625 13.625
1999
First Quarter $ 17.1875 $ 13.625
Second Quarter 21.75 14.5625
Third Quarter 23.875 19.625
Fourth Quarter 27.6875 20.75
2000
Through March 9 $ 30.875 $ 21.50
As of March 9, 2000, the Company had
850 stockholders of record.
[C] 2000 First Health Group Corp. All
Dividend Policy. The Company has not rights reserved. Reproduction without
paid any dividends on its common stock permission is prohibited. First
and expects that its earnings will Health[R] and AFFORDABLE[R] are
continue to be retained for use in the registered service marks of First Health
operation and expansion of its business. Group Corp.
</TABLE>
Exhibit 21
SUBSIDIARIES OF FIRST HEALTH GROUP CORP.
First Health Strategies, Inc. First Health Insurance Services, Inc.
Incorporated in Delaware Incorporated in Illinois
First Health Services Corporation First Health Benefits Administrators
Incorporated in Virginia Corp.
Incorporated in Illinois
First Health Life & Health American Life and Health
Insurance Company Insurance Company
Incorporated in Texas Incorporated in Missouri
First Health Realty, Inc. First Health Review, Inc.
Incorporated in Utah Incorporated in Utah
PRIMExtra, Inc. Cambridge Life Insurance Company
Incorporated in Delaware Incorporated in Missouri
U.S. Administrators, Inc. CHP Administration, Inc.
Incorporated in California Incorporated in California
First Health of Canada, Inc. First Health Strategies of Utah, Inc.
Incorporated in Ontario Incorporated in Utah
First Health Strategies of Texas, Inc. First Health Insurance Agency, Inc.
Incorporated in Texas Incorporated in Ohio
First Health Strategies of First Health Services of Tennessee, Inc.
New Mexico, Inc. Incorporated in Tennessee
Incorporated in New Mexico
First Health Strategies of First Peer Review of Florida, Inc.
Pennsylvania Inc. Incorporated in Delaware
Incorporated in Pennsylvania
Midwest Benefits Corporation First Peer Review of Hawaii
Incorporated in Michigan Incorporated in Delaware
First Health Strategies of First Peer Review of Oregon
Tennessee, Inc. Incorporated in Delaware
Incorporated in Delaware
First Peer Review of Illinois First Peer Review of Michigan, Inc.
Incorporated in Delaware Incorporated in Delaware
First Peer Review of Wisconsin, Inc. First Peer Review of Ohio, Inc.
Incorporated in Delaware Incorporated in Delaware
First Peer Review of Colorado First Peer Review of Arizona, Inc.
Incorporated in Delaware Incorporated in Delaware
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
First Health Group Corp.:
We consent to the incorporation by reference in the Registration
Statements of First Health Group Corp. on Form S-8 (file numbers 333-
68941, 333-68943, 33-26639, 33-26640, 33-42902, 33-43806, 33-43807,
33-87986 and 33-62747) of our reports dated February 18, 2000,
appearing in and incorporated by reference in the Annual Report on
Form 10-K of First Health Group Corp. for the year ended December 31,
1999.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 20, 2000
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Don Logan
________________________________________
Don Logan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/David Simon
________________________________________
David E. Simon
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Ronald H. Galowich
________________________________________
Ronald H. Galowich
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Daniel Brunner
________________________________________
Daniel S. Brunner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Robert S. Colman
________________________________________
Robert S. Colman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Burton W. Kanter
________________________________________
Burton W. Kanter
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Thomas J. Pritzker
________________________________________
Thomas J. Pritzker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Michael J. Boskin
________________________________________
Michael J. Boskin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/Harold S. Handelsman
________________________________________
Hank S. Handelsman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director
and/or Officer of First Health Group Corp., a corporation organized
under the laws of the State of Delaware (the "Company"), hereby
constitutes and appoints James C. Smith and Joseph E. Whitters, (with
full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 to be filed by
the Company with the Securities and Exchange Commission and any and all
amendments thereto, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents
and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000
/s/James C. Smith
________________________________________
James C. Smith
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,639
<SECURITIES> 61,115
<RECEIVABLES> 70,326
<ALLOWANCES> 10,844
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0
0
<COMMON> 770
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<TOTAL-LIABILITY-AND-EQUITY> 488,734
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