<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
June 2, 1997
PHYSICIAN CORPORATION OF AMERICA
(Exact Name of Registrant as
Specified in its Charter)
0-21440
(Commission File Number)
Delaware 48-1006287
(State of Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
6101 Blue Lagoon Drive
Miami, Florida 33126
(Address of Principal Executive Offices)
(305) 267-6633
(Registrant's Telephone Number
Including Area Code)
<PAGE>
Item 5. OTHER EVENTS
A) PENDING MERGER
On June 2, 1997, Physician Corporation of America
(the "Company") entered into an Agreement and Plan
of Merger among Humana Inc., HUMNOV, Inc., a wholly owned
subsidiary of Humana, and the Company (the "Merger
Agreement"). The Merger Agreement provides for the merger
of HUMNOV, Inc. with and into the Company, pursuant to
which each outstanding share of the common stock of the
Company will be converted into the right to receive $7.00
per share in cash (subject to dissenter's rights of
appraisal). The proposed transaction will require
the filing of a premerger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, approvals from the Company's shareholders
and various state and federal regulatory agencies
including, but not limited to, the Florida, Texas and
Puerto Rico Departments of Insurance and State Medicaid
Agencies in those jurisdictions. The transaction
is currently expected to close in the third quarter of
1997.
B) REINSURANCE CONTRACT
Additionally, on June 2, 1997, the Company and PCA
Property and Casualty Insurance Company ("PCA/P&C"),
a wholly owned subsidiary of the Company, executed
an Aggregate Excess of Loss Reinsurance Agreement
(the "Reinsurance Agreement") with Centre Reinsurance
Company of New York ("Centre"). Under the terms of
the Reinsurance Agreement, Centre has agreed to
provide excess reinsurance of up to $230 million
to cover claims incurred or reinsured by PCA/P&C which
will become effective when either (i) the $80 million
premium is paid, or (ii) upon the consummation of the
merger unless either Humana or Centre terminates the
reinsurance.
Accordingly, upon execution of the Reinsurance Agreement,
the Company paid and expensed a $4 million premium deposit
to be forfeited in the event the Company
does not close the reinsurance transaction and pay
the additional $80 million premium required to
obtain the reinsurance coverage.
In the event the Company consummates the
Reinsurance Agreement and pays the additional $80
million premium, the Company expects to receive an
experience refund of $42 million under the
reinsurance policy. Accordingly, the Company
would record an additional expense of
approximately $38 million if it closes the
Reinsurance Agreement.
In conjunction with entering into the Reinsurance
Agreement, PCA/P&C and certain affiliates also
entered into three other agreements with Centre or
its affiliates, including a Claims Run Off
Administrative Services Agreement. This claims
agreement provides the management services
necessary to run off the claims through the direct
management of PCA's workers' compensation third party
administration business ("PCA Solutions, Inc."). In
addition, the Company and its subsidiaries agree to pledge
collateral including all assets of PCA Solutions, Inc. and
PCA/P&C and $45 million of liquid investments to secure
various obligations.
2
<PAGE>
C) FLORIDA DEPARTMENT OF INSURANCE
The Circuit Court for Leon County, Florida, issued
a consent order dated June 3, 1997 in the pending
receivership proceedings respecting PCA/P&C, the
Company, and PCA Solutions, Inc. which provides
that the Florida Department of Insurance will not
request the appointment of a receiver for PCA/P&C
until October 31, 1997 or earlier, if certain
conditions are not met.
Item 7. EXHIBITS
2.1 Agreement and Plan of Merger dated as of June 2, 1997
among Humana Inc., HUMNOV, Inc. and Physician Corporation
of America (filed herewith).
2.2 Aggregate Excess of Loss Reinsurance Agreement
between PCA Property & Casualty Insurance Company
and Centre Reinsurance Company of New York, dated
June 2, 1997 (filed herewith).
2.3 Claims Run Off Administration Services Agreement
dated June 2, 1997, by and amongst PCA Solutions,
Inc., PCA Property & Casualty Insurance Company,
Physician Corporation of America and Centre
Reinsurance Company of New York (filed herewith).
2.4 Consent Order dated June 3, 1997 by and between
PCA Property & Casualty Insurance Company and the
Florida Department of Insurance, including Joint
Report to the Court and Supplemental Agreement
(filed herewith).
10.1 Salary Continuation Agreements dated May 19, 1997
between the Company and E. Stanlley Kardatzke, M.D.,
Peter E. Kilissanly and Clifford W. Donnelly (filed
herewith).
10.2 Consulting Agreements dated June 2, 1997 between the
Company and E. Stanley Kardatzke, M.D., Peter E. Kilissanly
and Clifford W. Donnelly (filed herewith).
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHYSICIAN CORPORATION OF AMERICA
(Registrant)
By: /s/ Clifford W. Donnelly
------------------------
Clifford W. Donnelly
Senior Vice President of Finance and Chief Financial
Officer
By: /s/ Jay M. Grobowsky
--------------------
Jay M. Grobowsky
Date: June 16, 1997 Vice President of Finance
------------
4
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
June 2, 1997
AMONG
HUMANA INC.
HUMNOV, INC.
AND
PHYSICIAN CORPORATION OF AMERICA
<PAGE>
TABLE OF CONTENTS
Pages
-----
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.2. EFFECTIVE DATE OF THE MERGER . . . . . . . . . . . . . . . . . .1
ARTICLE II THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . . .2
SECTION 2.1. CERTIFICATE OF INCORPORATION . . . . . . . . . . . . . . . . . .2
SECTION 2.2. BY-LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.3. BOARD OF DIRECTORS; OFFICERS . . . . . . . . . . . . . . . . . .2
SECTION 2.4. EFFECTS OF MERGER. . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 3.1. MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . . .2
SECTION 3.2. PAYMENT PROCEDURES.. . . . . . . . . . . . . . . . . . . . . . .3
SECTION 3.3. DISSENTING SHARES. . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.4. STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.5. STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . .7
SECTION 3.6. CLOSING OF THE COMPANY'S TRANSFER BOOKS. . . . . . . . . . . . .8
SECTION 3.7. ASSISTANCE IN CONSUMMATION OF THE MERGER . . . . . . . . . . . .8
SECTION 3.8. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 3.9. TRANSFER TAXES . . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE IV REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . .9
SECTION 4.1. ORGANIZATION, STANDING AND POWER . . . . . . . . . . . . . . . .9
SECTION 4.2. CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . .9
SECTION 4.2A. SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.3. AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.4. SEC DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.5. INFORMATION SUPPLIED . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.6. COMPLIANCE WITH APPLICABLE LAWS. . . . . . . . . . . . . . . . 14
SECTION 4.7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.8. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.9. LABOR AND EMPLOYMENT MATTERS . . . . . . . . . . . . . . . . . 17
SECTION 4.10. ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . . . 18
SECTION 4.11. MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.12. OFFICERS AND DIRECTORS AND EMPLOYEES. . . . . . . . . . . . . 23
SECTION 4.13. TITLE TO AND CONDITION OF PROPERTIES AND ASSETS . . . . . . . 23
SECTION 4.14. PATENTS, COPYRIGHTS, SERVICE MARKS AND TRADEMARKS . . . . . . 24
SECTION 4.15. EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . 25
SECTION 4.16. TRANSACTIONS WITH OFFICERS, DIRECTORS AND OTHERS. . . . . . . 28
SECTION 4.17. INSURANCE MATTERS-REINSURANCE AND COINSURANCE . . . . . . . . 29
SECTION 4.18. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.19. OPINION OF FINANCIAL ADVISOR. . . . . . . . . . . . . . . . . 32
SECTION 4.20. INVESTMENT COMPANY ACT. . . . . . . . . . . . . . . . . . . . 32
SECTION 4.21. VOTE REQUIRED . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.22. APPLICABILITY OF DGCL 203 . . . . . . . . . . . . . . . . . . 32
i
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SECTION 4.23. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.25. CHANGE OF CONTROL PAYMENTS. . . . . . . . . . . . . . . . . . 33
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB . . . . . . . . 34
SECTION 5.1 ORGANIZATION; STANDING AND POWER. . . . . . . . . . . . . . . . 34
SECTION 5.2 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.3 INFORMATION SUPPLIED. . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.4 INTERIM OPERATIONS OF SUB . . . . . . . . . . . . . . . . . . . 35
SECTION 5.5 FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.6 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.7 OWNERSHIP OF COMPANY STOCK. . . . . . . . . . . . . . . . . . . 35
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER. . . . . . . . . . . . . 36
SECTION 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. . . . . 36
SECTION 6.2. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER . . . . . . . 37
SECTION 6.3. CONDUCT OF BUSINESS OF SUB . . . . . . . . . . . . . . . . . . 38
ARTICLE VII ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.1. ACCESS AND INFORMATION . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.2. PROXY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.3. COMPANY STOCKHOLDER APPROVAL . . . . . . . . . . . . . . . . . 39
SECTION 7.4. EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.5. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.6. BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.7. PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.8. ALTERNATIVE PROPOSALS. . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.9. ADVICE OF CHANGES; SEC FILINGS . . . . . . . . . . . . . . . . 45
SECTION 7.10. FEE AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.11. AMENDMENT TO THE COMPANY RIGHTS AGREEMENT . . . . . . . . . . 45
SECTION 7.12. P&C COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.13. ASSUMPTION OF DEBT OBLIGATIONS. . . . . . . . . . . . . . . . 46
SECTION 7.14. ESCROW DEPOSIT.. . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . 47
SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER . . 47
SECTION 8.2. CONDITION TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. . 48
SECTION 8.3. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . 49
SECTION 9.1. TERMINATION BY MUTUAL CONSENT. . . . . . . . . . . . . . . . . 49
SECTION 9.2. TERMINATION BY EITHER PARENT OR THE COMPANY. . . . . . . . . . 49
SECTION 9.3. TERMINATION BY THE COMPANY . . . . . . . . . . . . . . . . . . 50
SECTION 9.4. TERMINATION BY PARENT. . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.5. EFFECT OF TERMINATION AND ABANDONMENT. . . . . . . . . . . . . 51
SECTION 9.6. EXTENSION; WAIVER. . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. . 53
SECTION 10.2. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.3. SPECIAL PERFORMANCE . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.4. ASSIGNMENT; BINDING EFFECT. . . . . . . . . . . . . . . . . . 54
SECTION 10.5. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.6. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.7. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.8. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 55
ii
<PAGE>
SECTION 10.9. HEADINGS AND TABLE OF CONTENTS. . . . . . . . . . . . . . . . 56
SECTION 10.10. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.11. WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.12. INCORPORATION OF EXHIBITS. . . . . . . . . . . . . . . . . . 56
SECTION 10.13. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 56
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 2,
1997, by and among Humana Inc., a Delaware corporation ("Parent"), HUMNOV, Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and
Physician Corporation of America, a Delaware corporation (the "Company"):
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent and the Company each have
determined that it is in the best interests of their respective companies and
stockholders for Parent to acquire the Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection herewith.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1. THE MERGER
. Upon the terms and subject to the conditions hereof, on the Effective
Date (as defined in Section 1.2), Sub shall be merged into the Company (the
"Merger") and the separate existence of Sub shall thereupon cease, and the
Company, as the corporation surviving the Merger (the "Surviving Corporation"),
shall by virtue of the Merger continue
<PAGE>
its corporate existence under the laws of the State of Delaware.
Section 1.2. EFFECTIVE DATE OF THE MERGER
. The Merger shall become effective at the date and time (the "Effective
Date") when a properly executed Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware (the "Merger Filing"), which filing
shall be made as soon as practicable following fulfillment of the conditions set
forth in Article VIII hereof, or at such time thereafter as is provided in such
Certificate of Merger.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. CERTIFICATE OF INCORPORATION
. Subject to Section 7.5, the Certificate of Incorporation of Sub shall be
the Certificate of Incorporation of the Surviving Corporation after the
Effective Date, and thereafter may be amended in accordance with its terms and
as provided by law and this Agreement.
Section 2.2. BY-LAWS
. The By-laws of Sub as in effect on the Effective Date shall be the
By-laws of the Surviving Corporation, and thereafter may be amended in
accordance with its terms and as provided by law and this Agreement.
Section 2.3. BOARD OF DIRECTORS; OFFICERS
. The directors of Sub immediately prior to the Effective Date shall be
the directors of the Surviving Corporation, and the officers of Sub immediately
prior to the Effective Date shall be the officers of the Surviving Corporation,
in each case until their respective successors are duly elected and qualified.
SECTION 2.4. EFFECTS OF MERGER
The Merger shall have the effects set forth in Section 259 of the Delaware
<PAGE>
General CorporatioN Law (The "DGCL").
ARTICLE III
CONVERSION OF SHARES
Section 3.1. MERGER CONSIDERATION
. On the Effective Date, by virtue of the Merger and without any action on
the part of any holder of any Common Stock, par value $.01 per share, of the
Company ("Company Common Stock"):
(a) All shares of Company Common Stock which are held by the Company or
any Subsidiary of the Company, and any shares of Company Common Stock owned by
Parent, Sub or any other subsidiary of Parent, shall be canceled. As used in
this Agreement, "Subsidiary" means any significant corporation, partnership,
joint venture or other legal entity of which Parent or the Company, as the case
may be (either alone or through or together with any other Subsidiary), owns
directly or indirectly, 50% or more of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
(b) Subject to Section 3.3, each remaining outstanding share of Company
Common Stock shall be converted into and represent the right to receive $7.00
(the "Merger Consideration") in accordance with Section 3.2.
(c) In the event of any stock dividend, stock split, reclassification,
recapitalization, combination or exchange of shares with respect to, or rights
issued in respect of, Company Common Stock after the date hereof, the Merger
Consideration shall be adjusted accordingly.
(d) Each issued and outstanding share of capital stock of Sub shall be
converted into and become one fully paid and nonassessable share of common stock
of the Surviving Corporation.
<PAGE>
Section 3.2. PAYMENT PROCEDURES.
(a) Prior to the Effective Date, Parent shall select a Payment Agent,
which shall be Parent's Transfer Agent or such other person or persons
reasonably satisfactory to the Company, to act as Payment Agent for the Merger
(the "Payment Agent").
(b) As soon as practicable after the Effective Date (but in no event more
than five days thereafter), Parent shall instruct the Payment Agent to mail to
each holder of a certificate or certificates evidencing shares of Company Common
Stock (other than Dissenting Shares, as defined in Section 3.3) ("Certificates")
(i) a letter of transmittal (which shall include a Substitute Form W-9 and shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of such Certificates to the
Payment Agent) and (ii) instructions to effect the surrender of the Certificates
in exchange for the Merger Consideration. Each holder of Company Common Stock,
upon surrender to the Payment Agent of such holder's Certificates with the
letter of transmittal, duly executed, and such other customary documents as may
be required pursuant to such instructions, shall be paid the amount to which
such holder is entitled, pursuant to this Agreement, of cash as payment of the
Merger Consideration (without any interest accrued thereon). Until so
surrendered, each Certificate shall after the Effective Date represent for all
purposes only the right to receive the Merger Consideration. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the posting
by such person of a bond in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Paying Agent will deliver in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
(c) At the closing of the transactions contemplated by this Agreement (the
<PAGE>
"Closing"), Parent shall deposit in trust with the Payment Agent, for the
ratable benefit of the holders of Company Common Stock, the appropriate amount
of cash to which such holders are entitled pursuant to this Agreement for
payment of the Merger Consideration (the "Payment Fund"). The Payment Agent
shall, pursuant to irrevocable instructions, make the payments to the holders of
Company Common Stock as set forth in this Agreement.
(d) If any delivery of the Merger Consideration is to be made to a person
other than the registered holder of the Certificates surrendered in exchange
therefor, it shall be a condition to such delivery that the Certificate so
surrendered shall be properly endorsed or be otherwise in proper form for
transfer and that the person requesting such delivery shall (i) pay to the
Payment Agent any transfer or other taxes required as a result of delivery to a
person other than the registered holder or (ii) establish to the satisfaction of
the Payment Agent that such tax has been paid or is not payable.
(e) Any portion of the Payment Fund that remains undistributed to the
holders of Company Common Stock as of the first anniversary of the Effective
Date shall be delivered to Parent upon demand, and any holder of Company Common
Stock who has not theretofore complied with the exchange requirements of this
Section shall have no further claim upon the Payment Agent and shall thereafter
look only to Parent for payment of the Merger Consideration.
(f) If a Certificate has not been surrendered prior to the date on which
any receipt of Merger Consideration would otherwise escheat to or become the
property of any governmental agency, such Certificate shall, to the extent
permitted by applicable law, be deemed to be canceled and no money or other
property will be due to the holder thereof.
(g) The Payment Agent may invest cash in the Payment Fund, as directed by
Parent, on a daily basis, provided that all such investments shall be in
obligations of or guaranteed by the United States of America with remaining
maturities not exceeding
<PAGE>
180 days, in commercial paper obligations receiving the highest rating from
either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or in
certificates of deposit or banker's acceptances of commercial banks with capital
exceeding $100 million (collectively, "Permitted Investments"). The maturities
of Permitted Investments shall be such as to permit the Payment Agent to make
prompt payment to former stockholders of the Company entitled thereto as
contemplated by this Section. Parent shall promptly replenish the Payment Fund
to the extent of any losses incurred as a result of Permitted Investments. Any
interest and other income resulting from such investments shall be paid to
Parent. If for any reason (including losses) the Payment Fund is inadequate to
pay the amounts to which holders of Company Common Stock shall be entitled under
this Agreement, Parent shall in any event be liable for payment thereof. The
Payment Fund shall not be used for any purpose not specifically provided for in
this Agreement.
Section 3.3. DISSENTING SHARES
. (a) Notwithstanding any other provision of this Agreement to the
contrary, shares of Company Common Stock that are outstanding immediately prior
to the Effective Date and which are held by holders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such shares in accordance with Section 262 of
the DGCL and who shall not have withdrawn such demand or otherwise have
forfeited appraisal rights (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration. Such
holders shall be entitled to receive payment of the appraised value of such
shares, except that all Dissenting Shares held by holders who shall have failed
to perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such shares under such Section 262 shall thereupon be deemed to
have been converted into and to have become exchangeable, as of the Effective
Date, for the right to receive, without any interest thereon, the Merger
Consideration, upon
<PAGE>
surrender of the Certificates evidencing such shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and (ii) the
opportunity to participate and direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company shall not, except
with the prior written consent of Parent, make any payment with respect to any
demands for appraisal, or offer to settle, or settle, any such demands.
Section 3.4. STOCK OPTIONS
. (a) All options (the "Options") to acquire shares of Company Common
Stock (whether vested or unvested), other than those set forth in paragraph (d)
below, shall be canceled as of the Effective Date. In consideration of such
cancellation, each holder of Options shall have only the right to receive from
the Company the payments (if any) as specified below:
(i) Each employee of the Company or any of its Subsidiaries employed
as of the Effective Date shall be entitled to receive the Cash Value (as such
term is defined in the form of Salary Continuation Agreement attached to
SCHEDULE 3.4 (the "Salary Continuation Agreement")) of each such canceled Option
under either of the following circumstances: (x) the employee is employed by
Parent or any of its Subsidiaries (including the Company) at the end of the
Initial Benefit Period specified in the Salary Continuation Agreement to which
the employee is a party or, if such employee is not a party to a Salary
Continuation Agreement, six months from the Effective Date (such employee's
Initial Benefit Period being deemed to be six months for purposes of computing
the Cash Value) or (y) the employee's employment is terminated under
circumstances resulting in a Termination Date (as such term is defined in the
Salary Continuation Agreement). The payment shall be made upon the earlier to
occur of clauses (x) and (y).
<PAGE>
(ii) Each holder of an Option who was not an employee of the Company
or any of its Subsidiaries as of the Effective Date or was a non-employee
director of the Company shall have the right to receive a cash payment in the
amount (if any) equal to the number of shares of Company Common Stock subject to
each canceled Option multiplied by the difference (if positive) between the
exercise price per share of Company Common Stock covered by the canceled Option
and the Merger Consideration.
(b) As a condition to making any payment specified in clause (a) above,
each Option holder shall acknowledge in writing that all Options held by such
person have been canceled in consideration of the right to receive such payment
and, in the case of employees who are parties to the Salary Continuation
Agreement, in full satisfaction of all rights under paragraph 2(b)(iv) of such
employee's Salary Continuation Agreement.
(c) Prior to the Effective Date, the Company shall take such additional
actions as are necessary under applicable law and the applicable agreement and
the Company's option plans to ensure that each Option shall, from and after the
Effective Date, represent only the right to receive the payments specified in
clause (a) above.
(d) The Company shall take all actions necessary to vest all options held
by the University of Miami and The Jackson Memorial Foundation as contemplated
by Section 12.B(i) of the applicable Stock Option Agreement so that from and
after the Effective Date each such option represents the right to receive the
Merger Consideration.
Section 3.5. STOCKHOLDERS' MEETINGS
. The Company shall take all action necessary, in accordance with applicable
law and its Certificate of Incorporation and By-laws, to convene a special
meeting of the holders of Company Common Stock (the "Company Meeting") as
promptly as practicable for the purpose of considering and taking action upon
this Agreement. Subject to the exercise of its good faith judgment as to its
fiduciary duties to its
<PAGE>
stockholders imposed by law, as advised by outside counsel, the Board of
Directors of the Company will recommend that holders of Company Common Stock
vote in favor of and approve the Merger and the adoption of the Agreement at the
Company Meeting. At the Company Meeting, all of the shares of Company Common
Stock then owned by Parent, Sub, or any other subsidiary of Parent, or with
respect to which Parent, Sub, or any other subsidiary of Parent holds the power
to direct the voting, will be voted in favor of approval of the Merger and
adoption of this Agreement.
Section 3.6. CLOSING OF THE COMPANY'S TRANSFER BOOKS
. At the Effective Date, the stock transfer books of the Company shall be
closed and no transfer of shares of Company Common Stock shall be made
thereafter. In the event that, after the Effective Date, Certificates are
presented to the Surviving Corporation, they shall be canceled and exchanged for
the Merger Consideration as provided in Sections 3.1(b) and 3.2.
Section 3.7. ASSISTANCE IN CONSUMMATION OF THE MERGER
. Each of Parent, Sub and the Company shall provide all reasonable
assistance to, and shall cooperate with, each other to bring about the
consummation of the Merger as soon as possible in accordance with the terms and
conditions of this Agreement. Parent shall cause Sub to perform all of its
obligations in connection with this Agreement.
Section 3.8. CLOSING
. The Closing shall take place (i) at the offices of Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York 10004, at 9:00 A.M.
local time on the day which is at least one business day after the day on which
the last of the conditions set forth in Article VIII (other than those that can
only be fulfilled on the Effective Date) is fulfilled or waived or (ii) at such
other time and place as Parent and the Company shall agree in writing.
Section 3.9. TRANSFER TAXES
<PAGE>
. Parent and Company shall cooperate in the preparation, execution and
filing of all returns, applications or other documents regarding any real
property transfer, stamp, recording, documentary or other taxes and any other
fees and similar taxes which become payable in connection with the Merger other
than transfer or stamp taxes payable in respect of transfers pursuant to Section
3.2(d)(i) (collectively, "Transfer Taxes"). From and after the Effective Date,
Parent shall pay or cause to be paid, without deduction or withholding from any
amounts payable to the holders of Company Common Stock, all Transfer Taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Parent and Sub as follows:
Section 4.1. ORGANIZATION, STANDING AND POWER
. Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business, including
those subsidiaries engaged in the insurance business (the "Insurance
Subsidiaries"), as now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification necessary
except when the failure to be so qualified would not have a Material Adverse
Effect on the Company. As used in this Agreement, "Material Adverse Effect"
means, when used with respect to Parent, Sub or the Company, as the case may be,
any change or effect, either individually or in the aggregate, that is or may be
materially adverse to the business, assets, liabilities, properties, condition
(financial or otherwise) or results of operations of all or any part of Parent
and its Subsidiaries taken as a whole,
<PAGE>
Sub, or the Company and its Subsidiaries taken as a whole, as the case may be
(PROVIDED, HOWEVER, that in respect of the Company any such change or effect
relating to (i) PCA Property and Casualty Insurance Company, a Florida
corporation and a wholly-owned subsidiary of the Company ("P&C"), (ii) PCA
Solutions, Inc., a Florida corporation and a wholly-owned subsidiary of the
Company, or (iii) risk contracts between P&C or any of its Subsidiaries and the
Company's Florida HMOs regarding provision of health care services with respect
to worker's compensation as set forth on SCHEDULE 4.1, shall in each case be
excluded from such determination).
Section 4.2. CAPITAL STRUCTURE
. As of the date hereof, the authorized capital stock of the Company
consists of 200,000,000 shares of the Company Common Stock and 10,000,000 shares
of preferred stock, $1.00 par value ("Company Preferred Stock"). At the close
of business on May 30, 1997: (i) 38,837,657 shares of Company Common Stock
were outstanding, 5,314,108 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding stock options (3,119,950 shares of
which are subject to outstanding stock options) or pursuant to the Company's
option plans, (ii) no shares of Company Common Stock were reserved for issuance
upon exercise of the Company's rights (the "Company Rights") granted under the
Rights Agreement, dated January 13, 1995 (the "Company Rights Agreement"),
between the Company and the Rights Agent (as defined therein); (iii) no shares
of Company Common Stock were held by its wholly-owned Subsidiaries; (iv) no
shares of the Company Preferred Stock were outstanding; and (v) except as set
forth on SCHEDULE 4.2, no warrants, bonds, debentures, notes or other
indebtedness or other security having the right to vote (or convertible into or
exercisable for securities having the right to vote) on any matters on which
stockholders may vote ("Voting Debt") were issued or outstanding; since May 30,
1997 there has been no change in such share information except by reason of the
exercise of Options. All outstanding shares of the Company capital stock are
validly
<PAGE>
issued, fully paid and nonassessable and not subject to preemptive rights. As
of the date of this Agreement, except for this Agreement, the Options and the
Company Rights, there are no options, warrants, calls, rights, or agreements to
which the Company or any Subsidiary of the Company is a party or by which it or
any such Subsidiary is bound obligating the Company or any Subsidiary of the
Company to issue, deliver or sell, or cause to be issued, delivered or sold, any
shares of capital stock or any Voting Debt of the Company or of any Subsidiary
of the Company or obligating the Company or any Subsidiary of the Company to
grant, extend or enter into any such option, warrant, call, right or agreement.
Assuming compliance by Parent with Section 3.4 after the Effective Date, there
will be no option, warrant, call, right or agreement obligating the Company or
any Subsidiary of the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock or any Voting Debt of the Company
or any Subsidiary of the Company, or obligating the Company or any Subsidiary of
the Company to grant, extend or enter into any such option, warrant, call, right
or agreement.
Section 4.2A. SUBSIDIARIES
. The only Subsidiaries of the Company are disclosed in SCHEDULE 4.2A. Each
Significant Subsidiary (as such term is defined in Rule 1-02 of Regulation S-X
under the Securities Act of 1933, as amended (the "Securities Act") of the
Company has been named in the Company SEC Documents (as hereinafter defined).
SCHEDULE 4.2A contains, with respect to each Subsidiary of the Company, its name
and jurisdiction of incorporation and, with respect to each Subsidiary that is
not wholly owned, the number of issued and outstanding shares of capital stock
and the number of shares of capital stock owned by the Company or a Subsidiary.
All the outstanding shares of capital stock of each Subsidiary of the Company
are validly issued, fully paid and nonassessable, and those owned by the Company
or by a Subsidiary of the Company are owned free and clear of any security
interests, pledges, options, rights of first
<PAGE>
refusal, liens, claims, encumbrances or any other limitation or restriction
(including a restriction on the right to vote or sell the same except as may be
provided as a matter of law). Except as set forth in SCHEDULE 4.2A, there are no
existing options, warrants, calls or other rights, agreements or commitments of
any character relating to the issued or unissued capital stock or other
securities of any of the Subsidiaries of the Company. Except as set forth in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "1996 Form 10K") and as disclosed in SCHEDULE 4.2A, the Company does
not directly or indirectly own any interest in any other corporation,
partnership, joint venture or other business association or entity.
Section 4.3. AUTHORITY
. The Company has all requisite corporate power and authority to enter
into this Agreement and subject to approval of this Agreement and the Merger by
the stockholders of the Company, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to such approval of this
Agreement by the stockholders of the Company. This Agreement has been duly
executed and delivered by the Company and, subject to such approval of this
Agreement by the stockholders of the Company, constitutes a valid and binding
obligation of the Company enforceable against it in accordance with its terms.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation"), pursuant to any provision of the
Certificate of Incorporation or By-laws of the Company or any
<PAGE>
Subsidiary of the Company or ,except as set forth on SCHEDULE 4.3 hereto,
result in any Violation of any loan or credit agreement, note, mortgage,
indenture, lease, Designated Plan (as hereinafter defined) or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any Subsidiary of the Company or their
respective properties or assets which Violation would have a Material Adverse
Effect on the Company. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign (a "Governmental Entity"), is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company, or the consummation by the Company
of the transactions contemplated hereby, the failure to obtain which would
have a Material Adverse Effect on the Company, except for (i) the filing of a
premerger notification report by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the
filing with the Securities and Exchange Commission (the "SEC") of (x) a proxy
statement (the "Proxy Statement") in definitive form relating to the Company
Meeting and (y) such reports under Sections 13(a), 13(d) and 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions contemplated
hereby, (iii) the filing of the Merger Filing and appropriate documents with
the relevant authorities of other states in which the Company is qualified to
do business, (iv) such filings, authorizations, riders and approvals (the
"State Approvals") as may be required by foreign, state or local governmental
authorities including those in connection with the Company's insurance
business and those required by the federal Health Maintenance Organization
Act of 1973 and the rules and regulations thereunder (the "Federal HMO Act"),
the applicable provisions of the Florida, Texas and Puerto Rico laws
regulating health maintenanc
<PAGE>
e organizations and prepaid health clinics, and the rules and regulations
thereunder (the "HMO Act"), the applicable provisions of the Florida, Texas
and Puerto Rico Insurance Code and the rules and regulations thereunder
relating to the regulation of domestic insurers, third-party benefits
administrators and to Insurance Holding Company Systems in the State of
Florida (collectively the "Insurance Laws"), the applicable provisions of
Title XVIII of the Social Security Act and the regulations promulgated
thereunder (the "Medicare Laws"), the applicable provisions of Title XIX of
the Social Security Act and the regulations promulgated thereunder and the
Florida and Texas laws and regulations implementing the Medicaid Program (the
"Medicaid Laws"), the Puerto Rico Healthcare Reform Act and the regulations
promulgated thereunder, the applicable provisions of Florida, Texas and
Puerto Rico laws regulating home health agencies and pharmacies and the
regulations promulgated thereunder and the applicable provisions of the Drug
Enforcement Administration laws and regulations regulating controlled
substances (the "Facility Licensing Laws"), and the applicable provisions of
Florida, Texas and Puerto Rico laws respecting certificates of need and the
regulations promulgated thereunder (the "CON Laws") and (v) such filings,
authorizations, orders and approvals (the "State Takeover Approvals") as may
be required by state takeover laws.
Section 4.4. SEC DOCUMENTS
. The Company has delivered or made available to Parent a true and
complete copy of each material report, schedule, registration statement and
definitive proxy statement filed by the Company with the SEC since January 1,
1992 (as such documents have since the time of their filing been amended, the
"Company SEC Documents") which are all the documents (other than preliminary
material) that the Company has been required to file with the SEC since such
date. As of their respective dates, the Company SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Company SEC Documents and at the time of its filing none of
the Company SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of the Company
included in the Company SEC Documents comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case
<PAGE>
of the unaudited statements, as permitted by Form 10-Q) and fairly present in
all material respects (subject, in the case of the unaudited statements, to
normal, recurring audit adjustments) the consolidated financial position of
the Company and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
Section 4.5. INFORMATION SUPPLIED
. None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the Proxy Statement will, at the date
mailed to stockholders of the Company and at the time of the Company Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
Section 4.6. COMPLIANCE WITH APPLICABLE LAWS
. Except as set forth on SCHEDULE 4.6, the businesses of the Company and
each of its Subsidiaries have been and are being conducted in compliance in all
material respects with all applicable laws, rules, ordinances, regulations,
licenses, judgments, orders or decrees of federal, state, local and foreign
governmental authorities, except for possible violations which individually or
in the aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a Material Adverse Effect on the Company. The Company and
each of its Subsidiaries hold all certificates of authority, franchises, grants,
permits, licenses, easements, consents, certificates, variances, exemptions,
orders and approvals from all Governmental Entities (collectively, "Company
Permits") which are necessary to own, lease and operate the assets and
properties they currently own, lease and operate and to conduct their respective
businesses and operations in the manner heretofore conducted and as proposed to
be
<PAGE>
conducted, except for those Company Permits the absence of which would not have
a Material Adverse Effect on the Company. SCHEDULE 4.6 contains a list of all
Company Permits the violation of which would have a Material Adverse Effect on
the Company, including the jurisdictions in which the Company or one or more of
its Subsidiaries holds a license or are otherwise authorized to conduct
insurance business and the types or lines of insurance which the Company or one
or more of its Subsidiaries is permitted to write in such jurisdictions. Except
as set forth on SCHEDULE 4.6, no notice has been received and, after due inquiry
of management, no investigation or review is pending or, to the Company's
knowledge, threatened by any Governmental Entity with regard to (i) any alleged
violation by the Company or any of its Subsidiaries of any law, rule,
regulation, ordinance, Company Permit, judgment, order or decree or (ii) any
alleged failure to have or any violation of any Company Permit, which violation
or failure would have a Material Adverse Effect on the Company. Neither the
Company nor any of its Subsidiaries nor to the Company's knowledge any of its or
their respective executive officers, directors or employees (in their capacities
as such) has engaged in any activity constituting fraud or abuse under the laws
relating to health care, insurance or the regulation of professional
corporations.
Section 4.7. FINANCIAL STATEMENTS
. (i) The Company has delivered to Parent complete and correct
copies of (i) the consolidated balance sheets of the Company and each of its
then-existing Subsidiaries as at December 31, 1996, 1995, 1994, 1993, 1992,
and the related audited consolidated statements of operations,
stockholders' equity/(deficit) and cash flows, for the fiscal years ended on
dates, together with all footnotes and (ii) the unaudited consolidated
interim financial statements for the Company and each of its Subsidiaries as
at, and for the fiscal periods ended on March 31, 1997 and each subsequent
quarterly reporting date. All of such financial statements fairly present or
<PAGE>
when delivered will fairly present (subject, in the case of unaudited interim
financial statements, to normal, recurring adjustments which are not expected to
be, individually or in the aggregate, materially adverse to the Company and its
Subsidiaries taken as a whole), in all material respects, the financial
position, results of operations and cash flows of the Company and each of its
Subsidiaries as at the respective dates of such balance sheets and for each of
the respective periods then ended, in conformity with (A) GAAP and (B) in the
case of each of the Insurance Subsidiaries, statutory or other accounting
practices prescribed or permitted by the insurance regulatory authorities in the
States of Florida and Texas or in Puerto Rico, as appropriate, in each case
applied on a basis consistent throughout the reported periods.
(ii) Except as set forth on SCHEDULE 4.7, neither such financial
statements nor the financial statements of the Company included in the
Company SEC Documents (A) contain or when delivered will contain, as the case
may be, any item of extraordinary or non-recurring income or expense (except
as specified therein), (B) reflect or when delivered will reflect, as the
case may be, uncollectible accounts receivable without a reserve fairly
stated for uncollectible amounts, and (C) reflect or when delivered will
reflect, as the case may be, any write-off or revaluation of assets (except
as specified therein). As at the respective dates of the balance sheets
included in all such financial statements, there was no liability,
indebtedness or obligation of any nature or in any amount that should
properly be reflected or provided for in financial statements prepared in
conformity with GAAP or statutory accounting practices prescribed or
permitted by the applicable insurance regulatory authorities, whichever is
appropriate, applied on a basis consistent with that for prior periods, which
was not fully reflected in such financial statements.
(iii) Except as set forth on SCHEDULE 4.7, the reserves recorded in
the accounting records of each of the Insurance Subsidiaries other than P&C
for insurance policy benefits, losses, claims and expenses and any other
reserves are reasonable and
<PAGE>
adequate and were prepared in accordance with the statutory or other accounting
practices prescribed or permitted by the applicable insurance regulatory
authorities and of all the jurisdictions in which the Insurance Subsidiaries are
licensed to transact an insurance business and make good and sufficient
provisions for all insurance obligations of the Company and its Subsidiaries.
Such reserves have been opined upon as reasonable and adequate as of December
31, 1996, by Towers Perrin Integrated Health Systems Consulting, a duly
qualified actuarial firm that, as of the date of its report, was a member in
good standing in the American Academy of Actuaries. The unpaid loss and loss
adjustment expense liabilities of P&C as of December 31, 1996, has been opined
upon as reasonable by William M. Mercer, Incorporated ("Mercer"), a duly
qualified actuarial firm, the opining actuary of which is a member in good
standing in the American Academy of Actuaries.
Section 4.8. LITIGATION
. Except (x) as set forth on SCHEDULE 4.8, (y) as disclosed in the Company
SEC Documents and (z) for actions and suits arising in the ordinary course of
the business, none of which is reasonably expected to have a Material Adverse
Effect on the Company, there is no action, suit, proceeding or investigation,
either at law or in equity, at or before any commission or other administrative
authority in any domestic or foreign jurisdiction, of any kind now pending or,
to the Company's knowledge, threatened, involving the Company, any of its
Subsidiaries or any of the respective properties or assets of the Company or any
Subsidiary of the Company that (A) if asserted is reasonably expected to have a
Material Adverse Effect on the Company, (B) questions the validity of this
Agreement or (C) seeks to delay, prohibit or restrict in any manner the Merger
or any action taken or to be taken by the Company or any of its Subsidiaries
under this Agreement. Except as set forth on SCHEDULE 4.8, none of the Company
nor any of its Subsidiaries, nor any of their respective properties or assets,
is subject to any continuing order of, consent decree, settlement agreement or
other similar written
<PAGE>
agreement (other than agreements related to the settlement of insurance claims
in the ordinary course of business), continuing investigation (other than
regularly scheduled audits) by any court, Governmental Entity, or any judicial,
administrative or arbitral judgment, order, writ, decree, injunction, restraint,
or award of any court, Governmental Entity or arbitrator, including without
limitation cease-and-desist or other orders. Neither the Company nor any of its
Subsidiaries has agreed to, or is bound by, any extension or waiver of the
statute of limitations relating to any pending or potential action, suit, claim,
proceeding or investigation involving the Company or any of its Subsidiaries
(other than extensions or waivers in connection with the settlement of
insurance claims in the ordinary course of business).
Section 4.9. LABOR AND EMPLOYMENT MATTERS
. Neither the Company nor any of its Subsidiaries has employees who are
represented by a labor union or organization, no labor union or organization has
been certified or recognized as a representative of any such employees, and
neither the Company nor any of its Subsidiaries is a party to or has any
obligation under any collective bargaining agreement or other contract or
agreement with any labor union or organization. There are no pending or, to the
Company's knowledge, threatened, representation campaigns, elections or
proceedings or questions concerning union representation involving any employees
of either the Company or any of its Subsidiaries. Neither the Company nor any
of its Subsidiaries has any knowledge of any activities or efforts of any labor
union or organization (or representatives thereof) to organize any of its
employees, any demands for recognition or collective bargaining, any strikes,
slowdowns, work stoppages or lock-outs of any kind, or threats thereof, by or
with respect to any employees of the Company or any of its Subsidiaries, and no
such activities, efforts, demands, strikes, slowdowns, work stoppages or
lock-outs occurred during a three-year period preceding the date hereof.
Neither the Company nor any of its Subsidiaries has engaged in, admitted
committing, or been held in any administrative
<PAGE>
or judicial proceeding to have committed any unfair labor practice under the
National Labor Relations Act, as amended. Except as set forth on SCHEDULE 4.09,
neither the Company nor any of its Subsidiaries is involved in any industrial or
trade dispute or any dispute or negotiation regarding a claim of material
importance with any labor union or organization concerning its employees, and
there are no controversies, claims, demands or grievances of material importance
pending or, so far as the Company is aware, threatened, between the Company or
any of its Subsidiaries and any of their respective employees.
Section 4.10. ABSENCE OF CERTAIN CHANGES
. Since December 31, 1996 and except (A) as set forth on SCHEDULE 4.10,
(B) for the execution and delivery of this Agreement and changes in its
properties or business attributable to the transactions contemplated by this
Agreement, (C) as disclosed in the Company's financial statements or in the
Company SEC Reports previously delivered or made available to Parent and (D)
sales and purchases of investment securities in the ordinary course, neither the
Company nor any of its Subsidiaries:
(i) had any change in its financial condition or businesses,
assets or liabilities, other than changes which have not had, individually or
in the aggregate, a Material Adverse Effect on the Company;
(ii) suffered any damage, destruction or loss of physical property
(not adequately covered by insurance) that, individually or in the aggregate,
has had a Material Adverse Effect on the Company;
(iii) issued, sold or otherwise disposed of, or, redeemed, purchased
or otherwise acquired, or agreed to issue, sell or otherwise dispose of,
redeem, purchase or otherwise acquire, any capital stock or any other
security of the Company or any of its Subsidiaries or granted or agreed to
grant any option warrant or other right to subscribe for or to purchase any
capital stock or any other security of the Company or any of its Subsidiaries;
<PAGE>
(iv) incurred or agreed to incur any material indebtedness for
borrowed money;
(v) paid or obligated itself to pay in excess of $500,000 in the
aggregate for any fixed assets;
(vi) intentionally omitted;
(vii) sold, transferred, leased or otherwise disposed of, or agreed
to sell, transfer, lease or otherwise dispose of, (A) any properties or
assets to any director or officer of the Company or of any Subsidiary of the
Company or any member of the family or any other affiliate of any of the
foregoing or (B) any properties or assets having a fair market value of
$250,000 or agreed to sell, transfer, lease or otherwise dispose of, any
assets (other than securities) having a fair market value at the time of
sale, transfer or disposition of $250,000;
(viii) mortgaged, pledged or subjected to any material charge,
lien, claim or encumbrance, or agreed to mortgage, pledge or subject to any
material charge, lien, claim or encumbrance any of its material properties or
assets;
(ix) declared, set aside or paid any dividend or made any distribution
(whether in cash, property or stock) with respect to any of its capital stock;
(x) (A) increased, or agreed to increase, the compensation or bonuses
or special compensation of any kind of any of its directors, officers or
employees (other than insurance agents or independent contractors) over the rate
being paid to them on December 31, 1996, as set forth in Schedule 4.10, other
than normal merit and cost-of-living increases pursuant to customary
arrangements consistently followed, or (B) paid any bonus or similar
compensation to any director, officer or employee of the Company or any
Subsidiary of the Company in excess of $100,000, or (C) entered into any
employment, consulting or severance agreement or arrangement with any director,
officer or employee (other than any agent or independent contractor) or adopted
or increased any benefit under any insurance, pension or other employee benefit
plan,
<PAGE>
payment or arrangement made to, for or with any director, officer or employee
(other than any agent or independent contractor);
(xi) has terminated, or been notified in writing of the likely
termination of, a material contract with a hospital or other provider, a
self-insured employer, a union or other association, a government agency or a
national insurance carrier or any other material contract regarding managed care
services or insurance services;
(xii) neither the Company nor any of its Subsidiaries has entered
into a contract or arrangement with an individual or entity (including a network
of health care providers) providing for the rendering of professional health
care services by such person as an employee of or contractor to the Company
(other than a provider of in-patient care) under which, during the last 12
months, the Company was obligated or became committed to pay in excess of
$500,000 or under which, during the next 12 months, the Company is reasonably
expected to pay or to become obligated to pay in excess of $500,000, except for
such contracts that are terminable by the Company upon 90 days (or less) advance
notice without penalty;
(xiii) except as otherwise required or provided for in this
Agreement and except in the ordinary course of business, made or permitted
any material amendment or termination of any material contract, lease,
concession, franchise, license, indenture, instrument, mortgage, note, loan
or credit agreement or other obligation to which it is a party;
(xiv) had any resignation or termination of employment of any of
its key officers or employees, or become aware of any impending or threatened
termination of employment, that would, individually or in the aggregate, have
a Material Adverse Effect on the Company;
(xv) had any labor trouble or concerted work stoppage or knows of any
impending or threatened labor trouble or concerted work stoppage;
(xvi) canceled, or agreed to cancel, any debts or claims over
$500,000 in
<PAGE>
the aggregate or $250,000 individually other than in the ordinary course of
business;
(xvii) made any material change in its accounting methods or
practices with respect to its condition, operations, business, properties,
assets or liabilities;
(xviii) entered into any material transaction not in the ordinary
course of its business;
(xix) made any charitable or political contribution or pledge in
excess of $100,000 in the aggregate;
(xx) agreed or committed to do, or authorized or approved any
action looking to, any of the foregoing;
(xxi) paid aggregate commissions to insurance agents and
independent contractors for policies issued in 1996 and with normal anniversary
dates of January 1, 1997 or subsequent thereto in excess of 15% of direct
premiums written or;
(xxii) made any material cash payments to insurance agents,
independent contractors or brokers marketing the Company's products other than
pursuant to a producer profit share agreement.
Section 4.11. MATERIAL CONTRACTS
. Except as set forth in SCHEDULE 4.11, neither the Company nor any of its
Subsidiaries is a party to any written or oral:
(i) employment or consulting contract or other contract for
services involving a payment of more than $250,000 annually and that is not
terminable without cost upon thirty (30) days' prior written notice;
(ii) material lease, franchise or concession providing for a
payment by any person of more than $500,000 annually and that is not
terminable without cost upon thirty (30) days' prior written notice;
(iii) loan agreement, mortgage, indenture, promissory note,
financing lease or other instrument relating to any debt (in excess of
$250,000 and which, in the aggregate, do not amount to more than $1,000,000);
<PAGE>
(iv) contract of purchase or sale involving more than $500,000
and that is not in the ordinary course of business;
(v) partnership, joint venture, material license or similar
agreement;
(vi) stand-by letter of credit, guarantee or performance bond;
(vii) contract restricting the ability of any person from freely
engaging in any business or competing anywhere in the world;
(viii) contract with an employer, a union or other association, a
governmental agency or any other party regarding the provision of insurance or
managed care services that has a term greater than one year and has an annual
premium in any one year exceeding $1,000,000;
(ix) contract or arrangement with an institution for the provision of
in-patient or out-patient hospital or surgical services under which, during
1996, the Company was required to pay or, during 1997, the Company anticipates
that it will be required to pay, in excess of $1,000,000, except for such
contracts that are terminable by the Company upon 90 days (or less) advance
notice without penalty;
(x) contract or arrangement with a physician or group of physicians
under which, during 1996, the Company was required to pay or, during 1997, the
Company anticipates that it will be required to pay, in excess of $1,000,000,
except for such contracts that are terminable by the Company upon 90 days (or
less) advance notice without penalty;
(xi) contract or any arrangement pursuant to which the Company and
the Subsidiaries are provided medical malpractice insurance; or
(xii) medical services agreement which provides for the
contracting party to receive a percentage of premium revenues from the Company
or a Subsidiary in exchange for the provider providing for all medical services
to any group of insureds of the Company or any of its Subsidiaries; or
(xiii) other material contract or commitment not made in the
ordinary
<PAGE>
course of business.
Each contract or other agreement listed on SCHEDULE 4.11 is in full
force and effect and is valid and enforceable by the Company or a Subsidiary of
the Company, as the case may be, in accordance with its terms. Except as set
forth on SCHEDULE 4.11, neither the Company nor any of its Subsidiaries is in
default in the observance or the performance of any term or obligation to be
performed by it under any contract listed on SCHEDULE 4.11 except for such
defaults the effect of which singly or in the aggregate would not have a
Material Adverse Effect on the Company. To the knowledge of the Company without
investigation, no other person is in default in the observance or the
performance of any term or obligation to be performed by it under any material
contract listed on SCHEDULE 4.11. There is currently no outstanding bid or
contract proposal by the Company or any of its Subsidiaries which, if accepted
or entered into, might reasonably be expected to result in a material loss to
either the Company or any of its Subsidiaries. The Company has delivered or
made available to Parent copies of all contracts listed in SCHEDULE 4.11.
Section 4.12. OFFICERS AND DIRECTORS AND EMPLOYEES
. The Company's 1996 Form 10-K, as modified by SCHEDULE 4.12, sets forth a
list of:
(i) The names of all directors and officers of the Company and each
of its Subsidiaries;
(ii) The name and current annual rate of compensation (including
bonuses and other forms of compensation) paid by the Company and its
Subsidiaries to each of its respective officers, directors and employees whose
annual rate of base compensation exceeded $100,000 for the year ended December
31, 1996; and
(iii) The names of all persons who have written employment,
consulting or severance agreements or arrangements with the Company or any of
its Subsidiaries if such agreement or arrangement provides for payment to such
persons resulting from
<PAGE>
such person's resignation, from a change-in-control of the Company or any of its
Subsidiaries or from a change in such person's responsibilities following a
change-in-control; complete and correct copies of such agreements have been
provided to Parent.
Section 4.13. TITLE TO AND CONDITION OF PROPERTIES AND ASSETS
. (i) The Company and its Subsidiaries have good and defensible
title to, or valid leasehold interests in, their respective properties and
assets, whether owned or leased, including, without limitation, (i) those used
in their respective businesses, and (ii) those reflected in the consolidated
balance sheet of the Company as of December 31, 1996 most recently delivered to
Parent (except as since sold or otherwise disposed of in the ordinary course of
business and except for minor defects in title, easements, restrictive covenants
and similar encumbrances or impediments that, individually or in the aggregate,
do not and will not materially interfere with the ability of the Company and its
Subsidiaries to use their properties or to conduct their businesses as currently
conducted), in each case subject to no mortgage, pledge, conditional sales
contract, lien, security interest, right of possession in favor of any third
party, claim or other encumbrance (collectively "Liens"), except for (w) the
lien of current Taxes (as hereinafter defined) not yet due and payable, (x) with
respect to leased property, the provisions of such leases, (y) Liens granted to
the Company's lenders under that certain Revolving Credit Agreement (the "Credit
Facility") between the Company and Citibank, N.A. dated October 27, 1994, as
amended and (z) liens, that, individually or in the aggregate, do not and will
not materially interfere with the ability of the Company or any of its
Subsidiaries to conduct business as currently conducted. Except as described on
SCHEDULE 4.13, subsequent to December 31, 1996, neither the Company nor any of
its Subsidiaries has sold or disposed of any of their respective properties or
assets or obligated themselves to do so except in the ordinary course of
business. The facilities,
<PAGE>
machinery, furniture, office and other equipment of the Company and each of its
Subsidiaries that are used in their respective businesses are in good operating
condition and repair, subject to the ordinary wear and tear of those businesses.
(ii) All of the real property owned or leased by the Company or any of
its Subsidiaries has been maintained by the Company in compliance with all
federal, state and local environmental protection, occupational, health and
safety or similar laws, ordinances, restrictions, licenses and regulations,
except where the failure to so maintain the property would not have a Material
Adverse Effect on the Company.
Section 4.14. PATENTS, COPYRIGHTS, SERVICE MARKS AND TRADEMARKS
. Neither the Company nor any of its Subsidiaries own or licenses any
patent, copyright, service mark, trademark or other intellectual property right,
other than such patents, copyrights, service marks, trademarks and other
intellectual property rights as are described in SCHEDULE 4.14, except for such
intellectual property rights the loss of which singly or in the aggregate would
not have a Material Adverse Effect on the Company. Except as set forth on
SCHEDULE 4.14 and other than such as would have a Material Adverse Effect on the
Company: (i) the Company and its Subsidiaries own or license all patents,
copyrights, service marks, trademarks and other intellectual property rights
that are necessary to the conduct of their respective businesses, (ii) all names
under which the Company or any of its Subsidiaries currently conducts business
are set forth in SCHEDULE 4.14, (iii) no claim has been made, and to the
Company's knowledge no basis for any such claim exists, that the Company or any
of its Subsidiaries has infringed any patent, copyright, service mark, trademark
or other intellectual property right of any other person and (iv) no claim has
been made, and to the Company's knowledge no basis for any such claim exists,
that any person has infringed on any patent, copyright, service mark, trademark
or other intellectual property right of the Company or any of its Subsidiaries.
Section 4.15. EMPLOYEE BENEFIT PLANS
<PAGE>
(a) LIST OF PLANS. SCHEDULE 4.15 includes a complete and accurate
list of all employee benefit plans ("Plans"), as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
material benefit arrangements that are not Plans ("Benefit Arrangements"),
including, but not limited to any (A) employment or consulting agreements, (B)
incentive bonus or deferred bonus arrangements, (C) arrangements providing
termination allowance, severance or similar benefits, (D) equity compensation
plan, (E) deferred compensation plans, (F) cafeteria plans, (G) employee
assistance programs, (H) bonus programs, (I) scholarship programs, (J) vacation
policies, and (K) stock option plans that are currently in effect or were
maintained within three years of the Effective Date, or have been approved
before the Effective Date but are not yet effective, for the benefit of
directors, officers, employers or former employees (or their beneficiaries) of
the Company or a Controlled Company ("Designated Plans"). For purposes of this
Section 4.15, "Controlled Company" shall mean any entity that, together with the
Company as of the relevant determination date under ERISA, is or was required to
be treated as a single employer under Section 414 of the Internal Revenue Code
of 1986, as amended (the "Code") and any reference to the Company in this
Section 4.15 shall also include a reference to a Controlled Company.
(b) NO TITLE IV PLANS OR VEBAS. Neither the Company nor any entity
(whether or not incorporated) that was at any time during the six years before
the Effective Date treated as a single employer together with the Company under
Section 414 of the Code has ever maintained, had any obligation to contribute to
or incurred any liability with respect to a pension plan that is or was subject
to the provisions of Title IV of ERISA or Section 412 of the Code. Neither the
Company nor any entity (whether or not incorporated) that was at any time during
the six years before the Effective Date treated as a single employer together
with the Company under Section 414 of the Code
<PAGE>
has ever maintained, had an obligation to contribute to, or incurred any
liability with respect to a multiemployer pension plan as defined in Section
3(37) of ERISA. During six years before the Effective Date, the Company has not
maintained, had an obligation to contribute to or incurred any liability with
respect to a voluntary employees beneficiary association that is or was intended
to satisfy the requirements of Section 501(c)(9) of the Code.
(c) DISCLOSED PLANS. With respect to each Designated Plan, the
Company has delivered to Parent, as applicable, true and complete copies of (A)
all written documents comprising such Plan or each Benefit Arrangement
(including amendments and individual agreements relating thereto), (B) the
trust, group annuity contract or other document that provides for the funding of
the Designated Plan or the payment of Designated Plan benefits, (C) the three
most recent annual Form 5500, 990 and 1041 reports (including all schedules
thereto) filed with respect to the Designated Plan, (D) the most recent
actuarial report, valuation statement or other financial statement, (E) the most
recent Internal Revenue Service ("IRS") determination letter and all rulings or
determinations requested from the IRS after the date of that determination
letter, (F) the summary plan description currently in effect and all material
modifications thereto, and (G) all other correspondence from the IRS or
Department of Labor received that relate to one or more of the Designated Plans
with respect to any matter, audit or inquiry that is still pending. All
information provided by the Company and its Subsidiaries to the individuals who
prepared any such financial statements was true, correct and complete in all
material respects. Each financial or other report delivered to Parent pursuant
hereto is accurate in all material respects, and there has been no material
adverse change in the financial status of any Designated Plan since the date of
the most recent report provided with respect thereto.
(d) COMPLIANCE WITH LAW. Except as set forth in SCHEDULE 4.15, the
Company has operated, and has caused its appointees and nominees to operate,
each
<PAGE>
Designated Plan in a manner which is in compliance with the terms thereof and
with all applicable law, regulations and administrative agency rulings and
requirements applicable thereto, except the violation of which would not have a
Material Adverse Effect on the Company. Except as otherwise disclosed in
SCHEDULE 4.15, with respect to each Designated Plan that is a Plan (A) the Plan
is in compliance with ERISA in all material respects, including but not limited
to all reporting and disclosure requirements of Part 1 of Subtitle B of Title I
of ERISA, (B) the appropriate Form 5500 has been timely filed, for each year of
its existence, (C) there has been no transaction described in sections 406 or
407 of ERISA or section 4975 of the Code relating to the Plan unless exempt
under section 408 of ERISA or section 4975 of the Code, as applicable, and (D)
the bonding requirements of section 412 of ERISA have been satisfied.
(e) CONTRIBUTIONS. Full payment has been made of all amounts which
the Company or a Controlled Company is required, under applicable law or under
any Designated Plan or any agreement related to any Designated Plan to which the
Company or a Controlled Company is a party, to have paid as contributions
thereto as of the last day of the most recent fiscal year of each Designated
Plan ended prior to the date hereof. Benefits under all Designated Plans are as
represented in the governing instruments provided pursuant to (i) above, and
have not been increased subsequent to the date as of which documents have been
provided.
(f) TAX QUALIFICATION. Each Designated Plan, as amended to date,
that is intended to be qualified under Section 401(a) and 501(a) of the Code has
been determined to be so qualified by the IRS, has been submitted to the IRS for
a determination with respect to such qualified status or the remedial amendment
period established under Section 402(b) of the Code with respect to the
Designated Plan will not have expired prior to the Effective Date. Except as
disclosed on SCHEDULE 4.15, no facts have occurred which if known by the IRS
could cause disqualification of any such Plan.
<PAGE>
(g) TAX OR CIVIL LIABILITY. Neither the Company nor a Controlled
Company has participated in, or is aware of, any conduct that could result in
the imposition upon the Company of any excise tax under Sections 4971 through
4980B of the Code or civil liability under Section 502(i) of ERISA with respect
to any Designated Plan.
(h) CLAIMS LIABILITY. There is no action, claim or demand of any
kind (other than routine claims for benefits) that has been brought or, to the
Company's knowledge, threatened against, or relating to, any Designated Plan,
and the Company has no knowledge of any pending investigation or administrative
review by any Governmental Entity relating to any Designated Plan.
(i) RETIREE WELFARE COVERAGE. Except as set forth in SCHEDULE 4.15,
no Designated Plan provides any health, life or other welfare coverage to
employees of the Company or a Controlled Company beyond termination of their
employment with the Company or a Controlled Company by reason of retirement or
otherwise, other than coverage as may be required under Section 4980B of the
Code or Part 6 of ERISA, or under the continuation of coverage provisions of the
laws of any state or locality.
(j) NO EXCESS PARACHUTE PAYMENTS. No amount that could be received
(whether in cash or property or the vesting of property) as a result of any of
transactions contemplated by this Agreement by any employee, officer or director
of the Company or a Controlled Company who is a "disqualified individual" (as
such term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Designated Plan currently in effect would be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
Section 4.16. TRANSACTIONS WITH OFFICERS, DIRECTORS AND OTHERS
. Except as set forth on SCHEDULE 4.16, no director, officer or
affiliate of the Company, or any member of the immediate family or any other
affiliate of any of the
<PAGE>
foregoing, is a party to business arrangements or relationships of any kind with
the Company or its Subsidiaries in which the amount involved exceeds $60,000,
or, to the knowledge of the Company, owns or has an ownership interest in any
corporation (in excess of 5% of any publicly traded corporation) or other entity
that is a party to, or in any property which is the subject of any such business
arrangements.
Section 4.17. INSURANCE MATTERS-REINSURANCE AND COINSURANCE
. SCHEDULE 4.17 contains a list of all reinsurance or coinsurance treaties
or agreements to which the Company or any of its Subsidiaries is a party. All
such treaties or agreements as set forth in such Schedule are valid, binding and
in full force and effect in accordance with their terms (except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by the principles governing the availability of equitable
remedies); and neither the Company nor its Insurance Subsidiaries nor, to the
Company's knowledge, any other party thereto is in default as to any provision
thereof, except for such defaults the effect of which singly or in the aggregate
would not have a Material Adverse Effect on the Company, and none of such
agreements contains any provision (A) providing that any other party thereto may
terminate such agreement or declare a default or seek damages thereunder by
reason of the transactions contemplated by this Agreement or (B) which would be
altered or otherwise become applicable by reason of such transactions. The
Company does not know of any facts or events that could cause the financial
condition of any party to any such agreement to be impaired to such an extent
that a default thereunder may be reasonably anticipated.
Section 4.18. TAXES
(a) DEFINITIONS. For purposes of this Agreement:
(i) "Returns" means any returns, reports or statements
(including any information returns) required to be filed for purposes of a
particular Tax.
<PAGE>
(ii) "Tax" or "Taxes" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, premium, capital, sales, use,
ad valorem, value added, franchise, withholding, payroll, employment,
disability, workers' compensation, excise, property, alternative or add-on
minimum, environmental or other taxes, assessments, duties, fees, levies or
other governmental charges of any nature whatever, whether disputed or not,
together with any interest, penalties, additions to tax or additional amounts
with respect thereto.
(iii) "Taxing Authority" means any governmental agency,
board, bureau, body, department or authority of any United States federal, state
or local jurisdiction, or any foreign jurisdiction, having or purported to
exercise jurisdiction with respect to any Tax.
(b) TAX REPRESENTATIONS. Except as set forth in SCHEDULE 4.18:
(i) All Returns required to have been filed on or before the
date hereof by or with respect to the Company or any of its Subsidiaries or any
affiliated, combined, consolidated, unitary or similar group of which the
Company or its Subsidiaries is or was a member (a "Relevant Group") with any
Taxing Authority have been duly and timely filed, and each such Return correctly
and completely reports all material information required to be reported thereon.
All Taxes of the Company or its Subsidiaries or any member of a Relevant Group
(whether or not shown on any Return) with respect to any period ending on or
before the date hereof have been paid or are duly reserved for in the financial
statements of the Company and its Subsidiaries for such period.
(ii) Neither the Company nor any of its Subsidiaries has waived
any statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(iii) the Company is not currently under audit by any Taxing
<PAGE>
Authority with respect to any material Return. The Company's consolidated
federal income tax returns have been audited through December 31, 1992. No
claim is pending by any Taxing Authority in a jurisdiction in which the Company
or any of its Subsidiaries does not file Returns, that it is subject to Taxation
in that jurisdiction.
(iv) Other than agreements among the Company and its
Subsidiaries, neither the Company nor any of its Subsidiaries is a party to any
tax allocation or tax sharing agreement.
(v) Neither the Company nor any of its Subsidiaries is a
"consenting corporation" within the meaning of Section 341(f)(1) of the Code or
comparable provisions of any state statute, and none of the assets of the
Company or its Subsidiaries is subject to any election under Section 341(f) of
the Code or comparable provisions of any state statutes.
(vi) Neither the Company nor any of its Subsidiaries has received
or requested any ruling of a Taxing Authority relating to Taxes or entered into
any material written or legally binding agreement with a Taxing Authority
relating to Taxes.
(vii) Neither the Company nor any of its Subsidiaries (1) has
or is projected to have a material amount includable in its income for the
current taxable year under Section 951 of the Code, (2) has been a passive
foreign investment company within the meaning of Section 1296 of the Code, and
neither the Company nor any of its Subsidiaries is a shareholder, directly or
indirectly in any passive foreign investment company, or (3) has a material
unrecaptured overall foreign loss within the meaning of Section 940(f) of the
Code.
(viii) Neither the Company nor any of its Subsidiaries is, or
at any time has been, subject to (1) the dual consolidated loss provisions of
Section 1503(d) of the Code, (2) the overall foreign loss provisions of
Section 904(f) of the Code, or (3) the recharacterization provisions of
Section 952(c)(2) of the Code.
<PAGE>
(ix) None of the assets of the Company or any of its
Subsidiaries constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. Neither the Company
nor any of its Subsidiaries is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(3) of the Internal Revenue Code
as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(x) Neither the Company nor any of its Subsidiaries has any
material (1) deferred gain or loss arising out of any deferred intercompany
transaction or (2) income which will be reportable in a period ending after
the Closing which is attributable to a transaction occurring in, or a change
in accounting method made for, a period ending on or prior to the Closing.
(xi) Neither the Company nor any of its Subsidiaries is a
party to any written, oral or implied agreement or obligation to provide any
"covered employee," as defined in Section 162(m)(3) of the Code, with
remuneration in excess of $1 million, that would be disallowed as a deduction
for Federal income tax purposes pursuant to Section 162(m) of the Code.
Section 4.19. OPINION OF FINANCIAL ADVISOR
. The Company has received the opinion of Bear, Stearns & Co. dated the
date hereof, to the effect that the Merger Consideration is fair, from a
financial point of view, to the stockholders of the Company. The Company has
delivered a true and complete copy of this opinion to Parent.
Section 4.20. INVESTMENT COMPANY ACT
. Neither the Company nor any of its Subsidiaries is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
Section 4.21. VOTE REQUIRED
. The affirmative vote of a majority of the votes that holders of the
outstanding
<PAGE>
shares of the Company Common Stock are entitled to cast is the only vote of the
holders of any class or series of the Company capital stock or Voting Debt
necessary to approve this Agreement and the transactions contemplated hereby.
Section 4.22. APPLICABILITY OF DGCL 203
. Assuming the accuracy of the representations contained in Section 5.7,
the provisions of Section 203 of the DGCL will not apply to this Agreement or
any of the transactions contemplated hereby.
Section 4.23. ENVIRONMENTAL MATTERS
(a) No notice, notification, demand, request for information,
citation, summons, complaint or order has been received, no complaint has been
filed, no penalty has been assessed and no investigation is pending or has been
threatened (each, an "Action") by any Governmental Entity or other party with
respect to any (i) alleged violation by the Company or any of its Subsidiaries
of any Environmental Law, (ii) alleged failure by the Company or any such
Subsidiary to have any environmental permit, certificate, license, approval,
registration or authorization required in connection with the conduct of its
business or (iii) Regulated Activity, in each case where such Action has had, or
would have, a Material Adverse Effect on the Company.
(b) Neither the Company nor any of its Subsidiaries has any material
Environmental Liabilities and there has been no release of Hazardous Substances
into the environment or violation of any Environmental Law by the Company or any
such Subsidiary or with respect to any of their respective properties which has
had, or would reasonably be expected to have a Material Adverse Effect on the
Company.
(c) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all Federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees,
<PAGE>
codes, injunctions and governmental restrictions relating to human health, the
environment or to emissions, discharges or releases of Hazardous Substances into
the environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances or the clean-up or other remediation thereof.
"Environmental Liabilities" shall mean all liabilities which
(i) arise under or relate to Environmental Laws and (ii) relate to Regulated
Activities occurring or conditions existing on or prior to the Effective Date.
"Hazardous Substances" shall mean any pollutants, contaminants,
toxic, radioactive, caustic or otherwise hazardous substance or waste, including
petroleum, its derivatives, by-products and other hydrocarbons, or any substance
having any constituent elements displaying any of the foregoing characteristics
that is regulated under or by any applicable Environmental Law.
"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Substances.
Section 4.24. ACCREDITATION'S. Except as set forth in SCHEDULE 4.24, none
of the Company or its Subsidiaries has been denied or failed to obtain any
accreditation by any health maintenance organization or insurance accreditation
agency from who the Company sought accreditation.
Section 4.25. CHANGE OF CONTROL PAYMENTS
. Except as set forth on Schedule 4.25, no broker, investment banker,
officer, employee or other person will be entitled to any payment upon the
consummation of the Merger (including payments which are not required to be made
unless an event subsequent to the consummation of the Merger occurs) based upon
arrangements made by or on behalf of the Company or any of its Subsidiaries.
This provision is intended to include, without limitation, broker fees,
investment banker fees, consultant fees, severance payments and fees payable
under non-competition and other
<PAGE>
contractual provisions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 5.1 ORGANIZATION; STANDING AND POWER
. Each of Parent and Sub is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation or
organization and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership of leasing of its
properties makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect on Parent.
Section 5.2 AUTHORITY
. Parent and Sub have all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement has been duly
executed and delivered by Parent and Sub and constitutes a valid and binding
obligation of Parent and Sub enforceable against each in accordance with its
terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any Violation pursuant to any provision of the Articles of
Incorporation or Bylaws of Parent and Sub, except (i) as set forth on SCHEDULE
5.2 or (ii) result in any Violation of any loan or credit agreement, note,
mortgage, indenture, lease, Designated Plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance,
<PAGE>
rule or regulation applicable to Parent or any Subsidiary of Parent or their
respective properties or assets, which Violation would have a Material Adverse
Effect on Parent. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Parent or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Parent and Sub or the consummation
by Parent and Sub of the transactions contemplated hereby, the failure to obtain
which would have a Material Adverse Effect on Parent, except for (i) the filing
of a premerger notification report by Parent under the HSR Act, (ii) the filing
with the SEC as may be required by the Securities Act or Exchange Act in
connection with this Agreement and the transactions contemplated hereby, (iii)
the filing of the Merger Filing with the Secretary of State of the State of
Delaware and (iv) the State Approvals and State Takeover Approvals.
Section 5.3 INFORMATION SUPPLIED
. None of the information supplied or to be supplied by Parent or Sub for
inclusion or incorporation by reference in the Proxy Statement will, at the date
mailed to stockholders of the Company and at the time of the Company Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
Section 5.4 INTERIM OPERATIONS OF SUB
. Sub was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
Section 5.5 FINANCING
. Parent has on hand or available through committed bank facilities all of
the funds necessary to consummate the Merger and the transactions contemplated
hereby on a timely basis and to pay any and all related fees and expenses.
<PAGE>
Section 5.6 BROKERS
. No broker, investment banker or other person, other than Morgan
Stanley & Co., the fees and expenses of which will be paid by Parent, is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
Section 5.7 OWNERSHIP OF COMPANY STOCK
. As of the date hereof, Parent beneficially owns approximately 1,050,000
shares of Company Common Stock.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER
. Prior to the Effective Date, unless Parent shall otherwise agree in
writing:
(a) Except as set forth in SCHEDULE 6.1(a), the Company shall, and shall
cause its Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, and shall, and shall cause its Subsidiaries to, use their best
efforts to preserve intact their present business organizations and preserve
their relationships with customers, suppliers and others having business
dealings with them. The Company shall, and shall cause its Subsidiaries to, (a)
maintain insurance coverages and its books, accounts and records in the usual
manner consistent with prior practices, (b) comply in all material respects with
all laws, ordinances and regulations of Governmental Entities applicable to the
Company and its subsidiaries, (c) maintain and keep its properties and equipment
in good repair, working order and condition, ordinary wear and tear excepted,
and (d) perform in all material respects its obligations under all material
contracts and commitments to which it is a party or by which it is bound;
<PAGE>
(b) Except as set forth in SCHEDULE 6.1(b) and except as required by this
Agreement, the Company shall not and shall not propose to (i) sell or pledge or
agree to sell or pledge any capital stock owned by it in any of its
subsidiaries, (ii) amend its Certificate of Incorporation or By-laws, (iii)
split, combine or reclassify its outstanding capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of the Company, or declare, set aside
or pay any dividend or other distribution payable in cash, stock or property, or
(iv) directly or indirectly redeem, purchase or otherwise acquire or agree to
redeem, purchase or otherwise acquire any shares of Company capital stock;
(c) The Company shall not, nor shall it permit any of its Subsidiaries to,
(i) issue, deliver or sell or agree to issue, deliver or sell any additional
shares of, or rights of any kind to acquire any shares of, its capital stock of
any class, any indebtedness having the right to vote on which the Company's
stockholders may vote or any option, rights or warrants to acquire, or
securities convertible into, shares of capital stock other than issuances of
Company Common Stock pursuant to employment agreements as in effect on the date
hereof, the exercise of stock options outstanding on the date hereof or granted
prior to the Effective Date, (ii) acquire, lease or dispose or agree to acquire,
lease or dispose of any capital assets or any other assets other than in the
ordinary course of business, (iii) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, or encumber or grant a security
interest in any asset or make any loans, advances or capital contribution to, or
investments in, any other person, other than to the Company in any wholly owned
Subsidiaries of the Company or enter into any other transaction other than in
each case in the ordinary course of business consistent with past practice, (iv)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof,
<PAGE>
or (v) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
(d) Except as disclosed in SCHEDULE 6.1(d), the Company shall not, nor
shall it permit any of its Subsidiaries to, except as required to comply with
applicable law and except as provided in Section 3.4 hereof, (i) enter into any
new (or amend any existing) Company Benefit Plan or any new (or amend any
existing) employment, severance or consulting agreement, (ii) grant any general
increase in the compensation of directors, officers or employees (including any
such increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment) or (iii) grant any increase in the compensation payable or to become
payable to any director, officer or employee, except in any of the foregoing
cases in accordance with pre-existing contractual provisions or, in the case of
clause (iii), increases for employees in the ordinary course of business
consistent with past practice.
(e) The Company shall not, nor shall it permit any of its Subsidiaries to,
make any investments in non-investment grade securities exceeding $100,000 in
the aggregate;
Section 6.2. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER
. Prior to the Effective Date, unless the Company shall otherwise agree in
writing or except as otherwise required by this Agreement, Parent shall, and
shall cause its Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted except where the failure to so act would not adversely
affect Parent's ability to pay the aggregate Merger Consideration payable to the
Company's stockholders.
Section 6.3. CONDUCT OF BUSINESS OF SUB
. During the period from the date of this Agreement to the Effective Date,
Sub shall not engage in any activities of any nature except as provided in or
contemplated by this Agreement.
<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. ACCESS AND INFORMATION
. The Company and its Subsidiaries shall afford to Parent and to Parent's
accountants, counsel, financial advisers and other representatives reasonable
access during normal business hours (and at such other times as the parties may
mutually agree) throughout the period prior to the Effective Date to all of its
properties, books, contracts, commitments, records and personnel and, during
such period, the Company shall furnish promptly to Parent (i) a copy of each
report, schedule and other document filed or received by it pursuant to the
requirements of federal or state securities laws, and (ii) all other information
concerning its business, properties and personnel as Parent may reasonably
request. Each of the Company and Parent shall hold, and shall cause their
respective employees and agents to hold, in confidence all such information in
accordance with the terms of the Confidentiality Agreement dated May 1, 1996
between Parent and the Company, as amended on April 15, 1997 (the
"Confidentiality Agreement").
Section 7.2. PROXY STATEMENT
. Parent and the Company shall cooperate and promptly prepare, and the
Company shall file with the SEC as soon as practicable, the Proxy Statement,
which shall comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder. The
Company shall use all reasonable efforts, and Parent will cooperate with the
Company, to have the Proxy Statement cleared by the SEC as promptly as
practicable. The Company shall, as promptly as practicable, provide copies of
any written comments received from the SEC with respect to the Proxy Statement
to Parent and advise Parent of any oral comments with respect to the Proxy
Statement received from the SEC. Parent agrees that none of
<PAGE>
the information supplied or to be supplied by Parent for inclusion or
incorporation by reference in the Proxy Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
Company Meeting, will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees that none of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Proxy Statement and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the Company Meeting, will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. For purposes of the
foregoing, it is understood and agreed that information concerning or related to
Parent will be deemed to have been supplied by Parent and information concerning
or related to the Company and the Company Meeting shall be deemed to have been
supplied by the Company. The Company will provide Parent with a reasonable
opportunity to review and comment on any amendment or supplement to the Proxy
Statement prior to filing such with the SEC, and will provide Parent with a copy
of all such filings made with the SEC. No amendment or supplement to the
information supplied by Parent for inclusion in the Proxy Statement shall be
made without the approval of Parent, which approval shall not be unreasonably
withheld or delayed.
Section 7.3. COMPANY STOCKHOLDER APPROVAL
. The Company will use its best efforts to obtain the necessary approvals by
its stockholders of the Merger, this Agreement and the transactions contemplated
hereby.
Section 7.4. EMPLOYEE MATTERS
. (a) The employees of the Company and each Subsidiary as of the Effective
Date shall continue employment with the Surviving Corporation and the
Subsidiaries,
<PAGE>
respectively, in the same positions and at the same level of wages and/or salary
and without having incurred a termination of employment or separation from
service; PROVIDED, HOWEVER, that the foregoing shall not constitute any
commitment, contract, understanding or guarantee (express or implied) on the
part of the Surviving Corporation of a post-Effective Date employment
relationship of any term or duration or on any terms other than those the
Surviving Corporation may establish. Employment of any of the employees by the
Surviving Corporation shall be "at will" and may be terminated by the Surviving
Corporation at any time for any reason (subject to any legally binding
agreement, or any applicable laws or any arrangement or commitment); PROVIDED,
FURTHER, that no provision of this Agreement shall create any third-party
beneficiary with respect to any employee (or dependent thereof) of the Company
or any of its Subsidiaries in respect of continued employment or resumed
employment. As of the Effective Date, the Surviving Corporation shall be the
sponsor of the Company's option plans immediately prior to the Effective Date,
and Parent shall cause the Surviving Corporation and the Subsidiaries to satisfy
all obligations and liabilities under such option plans. Until at least
December 31, 1997, Parent shall maintain employee benefits and programs for
officers and employees of the Company and its Subsidiaries that are no less
favorable in the aggregate than those being provided to such officers and
employees on the date hereof (it being understood that Parent will not be
obligated to continue any one or more employee benefits or programs). To the
extent any employee benefit plan, program or policy of the Parent or its
affiliates is made available to the employees of the Surviving Corporation or
its Subsidiaries, (i) service with the Company and its Subsidiaries by any
employee prior to the Effective Date shall be credited for eligibility and
vesting purposes under such plan, program or policy, but not for benefit accrual
purposes, and (ii) with respect to any welfare benefit plans to which such
employees may become eligible, Parent shall cause such plans to provide credit
for any co-payments or deductibles by such employees and waive all pre-existing
<PAGE>
condition exclusions and waiting periods, other than limitations or waiting
periods that have not been satisfied under any welfare plans maintained by the
Company and the Subsidiaries for their employees prior to the Effective Date.
Parent shall honor or cause to be honored all severance and employment
agreements with the Company's officers and employees to the extent disclosed in
the Schedules to this Agreement.
Section 7.5. INDEMNIFICATION
. (a) From and after the Effective Date, Parent shall indemnify, defend
and hold harmless the officers, directors and employees of the Company and its
subsidiaries who were such at any time prior to the Effective Date (the
"Indemnified Parties") from and against all losses, expenses, claims, damages or
liabilities arising out of the transactions contemplated by this Agreement to
the fullest extent permitted or required under applicable law, including without
limitation the advancement of expenses. Parent agrees that all rights to
indemnification existing in favor of those persons provided for in the
Company's Certificate of Incorporation or By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Date, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Date. Parent agrees to cause the
Surviving Corporation to maintain in effect for not less than six years after
the Effective Date the current policies of directors' and officers' liability
insurance maintained by the Company with respect to matters occurring on or
prior to the Effective Date; PROVIDED, HOWEVER, that the Surviving Corporation
may substitute therefor policies of at least the same coverage (with carriers
comparable to the Company's existing carriers) containing terms and conditions
which are no less advantageous to the Indemnified Parties; PROVIDED, FURTHER,
that Parent shall not be required in order to maintain or procure such coverage
to pay an annual premium in excess of 150% of the current annual premium paid by
the Company for its existing coverage (the "Cap"); and PROVIDED, FURTHER, that
if equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap,
<PAGE>
Parent shall only be required to obtain as much coverage as can be obtained by
paying an annual premium equal to the Cap.
(b) Any Indemnified Party will promptly notify the Parent and the
Surviving Corporation of any claim, action, suit, proceeding or investigation
for which such party may seek indemnification under this Section; PROVIDED,
HOWEVER, that the failure to furnish any such notice shall not relieve Parent or
the Surviving Corporation from any indemnification obligation under this Section
except to the extent Parent or the Surviving Corporation is materially
prejudiced thereby. In the event of any such claim, action, suit, proceeding,
or investigation, (x) Parent or the Parent and Surviving Corporation will have
the right to assume the defense thereof, and Parent and the Surviving
Corporation will not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred thereafter
by such Indemnified Parties in connection with the defense thereof, except that
all Indemnified Parties (as a group) will have the right to retain one separate
counsel, reasonably acceptable to such Indemnified Party and Parent, at the
expense of the indemnifying party if the named parties to any such proceeding
include both the Indemnified Party and the Surviving Corporation and the
representation of such parties by the same counsel would be inappropriate due to
a conflict of interest between them, (y) the Indemnified Parties will cooperate
in the defense of any such matter, and (z) the Surviving Corporation will not be
liable for any settlement effected without its prior written consent.
Section 7.6. BEST EFFORTS
. Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger, and the other transactions contemplated by this
Agreement, including (a) promptly making their respective filings
<PAGE>
and thereafter making any other required submission under the HSR Act, (b)
diligently opposing any objections to, appeals from or petitions to reconsider
or reopen any such approval by persons not a party to this Agreement, (c) the
obtaining of all necessary actions or non-actions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities) and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by any Governmental Entity, (d)
the obtaining of all necessary consents, approvals or waivers from third
parties, (e) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (f) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that the Company and Parent shall not be under any
obligation to take any action to the extent that their respective Board of
Directors shall conclude in good faith, after consultation with their respective
outside counsel, that such action could be inconsistent with such Board of
Director's fiduciary obligations under applicable law and, PROVIDED FURTHER,
that in satisfying their obligations set forth above neither Parent nor Sub
shall be obligated to dispose or to agree to dispose any assets of either Parent
or the Company or their respective Subsidiaries, nor shall Parent or Sub be
required to agree to any conditions as a prerequisite to obtaining any such
approvals (other than any conditions that are ministerial in nature or are
customary for transactions of a similar nature).
Section 7.7. PUBLIC ANNOUNCEMENTS
. Parent and Sub, on the one hand, and the Company, on the other hand,
will consult with each other before issuing any press release or otherwise
making any public statements with respect to the transactions contemplated by
this Agreement, and shall
<PAGE>
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange.
Section 7.8. ALTERNATIVE PROPOSALS
. Prior to the Effective Date, the Company agrees: (a) that neither it
nor any of its Subsidiaries shall, and it shall direct and use its best efforts
to cause its officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of all or any significant portion
of the assets or any equity securities of, the Company or any of its
Subsidiaries (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Alternative Proposal, or release any third party from any
obligations under any existing standstill agreement or arrangement relating to
any Alternative Proposal, or otherwise facilitate any effort or attempt to make
or implement an Alternative Proposal; (b) that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing, and it
will take the necessary steps to inform the individuals or entities referred to
above of the obligations undertaken in this Section 7.8; and (c) that it will
notify Parent immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, it; PROVIDED, HOWEVER, that
nothing contained in this Section 7.8 shall prohibit the Board of Directors of
the Company from furnishing information to any person or entity that makes an
<PAGE>
Alternative Proposal, if, and only to the extent that, (A) the Board of
Directors of the Company determines in good faith after consultation with
outside counsel that such action is required for the Board of Directors to
comply with its fiduciary duties to stockholders imposed by law, (B) the
Alternative Proposal is a Superior Proposal, (C) the Company provides Parent
with a true and complete copy of such proposal as soon as practicable after the
receipt thereof, and (D) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Alternative Proposal.
Nothing in this Section 7.8 shall (x) permit the Company to terminate this
Agreement (except as specifically provided in Article IX hereof), (y) permit the
Company to have discussions, negotiations or to enter into any agreement with
respect to an Alternative Proposal during the term of this Agreement (it being
agreed that during the term of this Agreement, the Company shall not enter into
any discussion, negotiation or agreement with any person that provides for, or
in any way facilitates, an Alternative Proposal (other than a confidentiality
agreement in customary form)), or (z) affect any other obligation of the Company
under this Agreement. As used in this Agreement, a "Superior Proposal" means a
bona fide written offer to acquire the Company pursuant to a merger,
consolidation, share exchange, purchase of a substantial portion of assets,
business combinations or other similar transaction (which offer shall not be
subject to any conditions that are more onerous to the Company than the
conditions to Parent and Sub's obligations to consummate the Merger; provided,
however, that such offer may be subject to confirmatory due diligence to be
effected within a five (5) business day period): (i) that the Board of Directors
of the Company determines, in good faith after consultation with a nationally
recognized investment banking firm which provided a written opinion to such
effect, provides a higher value per share to the stockholders of the Company
than the Merger Consideration after taking into account, among other things, the
reasonable likelihood the Effective Date will occur as compared to when the
closing of such Alternative Proposal will occur; (ii) that is not subject to any
financing condition (and the offeror has on hand funds available or committed
financing to consummate the offer and the transactions contemplated; thereby);
(iii) does not have any condition to closing or rights to terminate more onerous
to the Company than the provisions set forth in Articles VIII or IX hereof; and
(iv) does not involve any substantive legal impediments that are reasonably
likely to prevent such Alternative Proposal from closing.
Section 7.9. ADVICE OF CHANGES; SEC FILINGS
<PAGE>
. The Company shall confer on a regular basis with Parent on operational
matters. Parent and the Company shall promptly advise each other orally and in
writing of (i) any change or event that has had, or could reasonably be expected
to have, a Material Adverse Effect on Parent or the Company, as the case may
be, (ii) any litigation or governmental complaints, investigation or hearings
(or communication indicating that the same may be contemplated), or (iii) the
breach in any material respect of any representation or warranty contained
herein. The Company and Parent shall promptly provide each other (or their
respective counsel) copies of all filings made by such party with the Commission
or any other Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
Section 7.10. FEE AND EXPENSES
. Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, except as
provided in Section 9.5.
Section 7.11. AMENDMENT TO THE COMPANY RIGHTS AGREEMENT
. The Company, in accordance with the terms and provisions of the Company
Rights Agreement and as promptly as practicable on or after the date hereof,
shall amend the Company Rights Agreement so as to exclude the Merger and the
transaction contemplated by this Agreement from the Company Rights Agreement.
Section 7.12. P&C COMMITMENTS
. (a) Parent and Sub shall (i) on and following the Effective Date,
perform or discharge all obligations of the Company not previously performed and
discharged pursuant to those certain agreements by and between the Company and
Center Reinsurance Company of New York set forth on SCHEDULE 7.12 hereto (the
"Centre Re Agreements") or (ii) in lieu of such performance or discharge, shall
enter into an alternative arrangement satisfactory to the State of Florida, ex
rel, The Department of Insurance (the "Department").
<PAGE>
(b) At the Closing, Parent agrees to perform one of the following actions: (x)
to make (i) a capital contribution to P&C of an amount equal to the statutory
deficit of P&C as of the Closing and (ii) to commit to make additional
contributions, from time to time, in order to remove any statutory deficits
thereafter incurred by P&C; (y) to pay the closing premium required, and cause
PCA and it's subsidiaries to perform all of their obligations, under the terms
of the Centre Re Agreements; or (z) to enter into such other arrangements as the
Department, in its sole discretion, determines is acceptable.
Section 7.13. ASSUMPTION OF DEBT OBLIGATIONS
. Sub shall assume or repay all debt obligations of the Company on the
Effective Date.
Section 7.14. ESCROW DEPOSIT.
(a) Simultaneously with the execution of this Agreement, Parent made a $15
million payment (the "Escrow Deposit") into an escrow account established by the
Department for the benefit of P&C, the terms of which account are set forth in
Schedule 7.14. In consideration of making such payment, the Company hereby
grants Parent the right (the "Option") to purchase for $0.01 per share a number
of shares of Company Common Stock equal to $15 million divided by 70% of the
average closing prices of the Company Common Stock for the five trading days
immediately prior to the exercise of the Option (as such prices are reported by
the NASD National Market System or such other principal trading market on which
the Company Common Stock then trades). Parent's right to exercise the Option is
subject to (a) the termination of this Agreement (the "Termination"), (b) the
Escrow Deposit not having been returned to Parent and (c) the obtaining by
Parent of all required governmental and regulatory approvals for such purchase
of Company Common Stock. The Option is exercisable in whole upon 90 days prior
written notice to the Company, provided that the Option may be exercised from
time to time in part to the extent Parent is unable to acquire all of the
remaining shares of Company Common Stock subject to the Option by reason of
governmental or
<PAGE>
regulatory approvals. Parent's right to give notice of exercise of the Option
shall expire upon the later of (i) six months following the Termination or (ii)
30 days after receipt of all required governmental or regulatory approvals.
(b) The Company represents and warrants to Parent that the shares of
Common Stock issuable upon exercise of the Option shall be validly issued, fully
paid and non-assessable.
(c) In lieu of issuing any shares of Company Common Stock subject to the
Option, the Company may, prior to the exercise of any part of the Option,
cancel the Option by paying to the Company the sum of $15 million plus interest
from the date of execution of this Agreement to the date of payment at a rate
per annum of 10%.
(d) Upon the issuance of any shares of Company Common Stock, the Company
shall file a registration statement with the Securities and Exchange Commission
(the "Commission") covering such shares of Company Common Stock and any other
shares of Company Common Stock to be issued thereafter pursuant to the Option.
The Company shall use its best efforts to cause the Commission to declare the
registration statement effective and cause the registration statement to remain
effective for two years thereafter. The Company will assist Parent in effecting
an underwritten offering, upon customary terms and conditions, with respect to
such shares of Company Common Stock with an underwriter of national standing
selected by Parent.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the holders of the Company
<PAGE>
Common Stock.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) No preliminary or permanent injunction or other order by any federal
or state court in the United States of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect (each
party agreeing to use its best efforts to have any such injunction lifted).
(d) All consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory body
required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made, except for filings in connection
with the Merger and any other documents required to be filed after the Effective
Date and except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a Material
Adverse Effect on the business of Parent and the Company (and their respective
Subsidiaries) following the Effective Date.
(e) All consents, authorizations, orders and approvals required under
federal or state statutes regulating managed care, health maintenance
organizations or insurance organizations required in connection with the
execution, delivery and performance of this Agreement shall have been obtained,
except where the failure to have obtained any such consent, authorization, order
or approval, would not have a material affect on the ability of the Company and
its Subsidiaries to continue to conduct their respective businesses.
Section 8.2. CONDITION TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Date of the condition, unless waived by
the Company, that Parent and Sub shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the
<PAGE>
Effective Date, and the representations and warranties of Parent and Sub
contained in this Agreement shall be true and correct when made and on and as of
the Effective Date as if made on and as of such date (except to the extent they
relate to a particular date), except where the failure of such representations
and warranties to be true and accurate when considered in the aggregate (without
giving effect to any limitation as to "materiality" or material adverse effect
set forth therein) would not have a Material Adverse Effect on Parent.
Section 8.3. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER.
The obligations of Parent and Sub to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the condition, unless
waived by Parent, that (i) the Company shall have performed in all material
respects its agreements contained in this Agreement required to be performed on
or prior to the Effective Date, (ii) the representations and warranties of the
Company contained in this Agreement shall be true and correct when made and on
and as of the Effective Date as if made on and as of such date (except to the
extent they relate to a particular date), except where the failure of such
representation and warranties to be true and accurate when considered in the
aggregate (without giving effect to any limitation as to "materiality" or
material adverse effect set forth therein) would not have a Material Adverse
Effect on the Company and (iii) the Department shall have entered into the
Consent Order included in SCHEDULE 8.3 and such Consent Order shall remain in
full force and effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. TERMINATION BY MUTUAL CONSENT
. This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Date, before or after the approval of this Agreement
by the stockholders of the Company, by the mutual consent of Parent and the
Company.
<PAGE>
Section 9.2. TERMINATION BY EITHER PARENT OR THE COMPANY
. This Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either Parent or the Company if (a) the
Merger shall not have been consummated by October 31, 1997, or (b) the approval
of the Company's stockholders required by Section 3.5 shall not have been
obtained at the Company Meeting or at any adjournment or postponement thereof,
or (c) a United States federal or state court of competent jurisdiction or
United States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause (c) shall have
used best efforts to remove such injunction, order or decree; and provided, in
the case of a termination pursuant to clause (a) above, that the terminating
party shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the Merger.
Section 9.3. TERMINATION BY THE COMPANY
. This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Date, before or after the adoption and approval by
the stockholders of the Company referred to in Section 3.5, by action of the
Board of Directors of the Company, if:
(a) There is a Superior Proposal and: (i) the Board of Directors of the
Company determines in good faith after consultation with the Company's outside
counsel that the failure to approve such offer would not be consistent with the
fiduciary duties to stockholders of the Board of Directors of the Company; (ii)
five business days shall have elapsed after delivery to Parent of a written
notice by the Company informing Parent that the Board of Directors of the
Company has determined that a Superior
<PAGE>
Proposal has been made and during such five business-day period the Company
shall have fully cooperated with Parent in good faith with the intent of
enabling Parent to agree to a modification of the terms and conditions of this
Agreement (including the Merger Consideration) so that the Alternative Proposal
would not constitute a Superior Proposal as compared to the terms and conditions
of this Agreement as proposed to be modified by Parent (the "Modified
Agreement"); and (iii) at the end of such five business-day period, the Board of
Directors of the Company shall continue to determine in good faith (after
consultation with a nationally recognized investment banking firm which provided
a written opinion to such effect) that such Alternative Proposal continues to
constitute a Superior Proposal as compared to the Modified Agreement; PROVIDED,
HOWEVER, that the right to terminate this Agreement pursuant to this clause
shall not be available (A) if the Company has breached in any material respect
its obligations under Section 7.8, or (B) if, prior to or concurrently with any
purported termination pursuant to this clause, the Company shall not have paid
the fee contemplated by Section 9.5;
(b) There has been a breach by Parent or Sub of any representation or
warranty contained herein that would have a material adverse effect on Parent's
or Sub's ability to perform its obligations under this Agreement and which
breach has not been cured within five (5) business days following receipt by
Parent or Sub of notice of the breach;
(c) There has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of Parent, which breach is not curable
or, if curable, is not cured within 30 days after written notice of such breach
is given by the Company to Parent.
Section 9.4. TERMINATION BY PARENT
. This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Date, by action of the Board of Directors of Parent,
if:
(a) The Board of Directors of the Company shall have withdrawn or modified
<PAGE>
in a manner adverse to Parent its approval or recommendation of this Agreement
or the Merger or shall have recommended an Alternative Proposal to the Company
stockholders;
(b) There has been a breach by the Company of any representation or
warranty contained herein which has had, or would be reasonably expected to
have, a Material Adverse Effect on the Company and which breach has not been
cured within five (5) business days following receipt by the Company of notice
of such breach; or
(c) There has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of the Company, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by Parent to the Company.
Section 9.5. EFFECT OF TERMINATION AND ABANDONMENT
. (a) In the event that (i) (x) any person shall have made an Alternative
Proposal and thereafter this Agreement is terminated either by the Company
pursuant to Section 9.3(a) or by either party pursuant to Section 9.2(b) or (y)
the Board of Directors of the Company shall have withdrawn or modified in a
manner adverse to Parent its approval or recommendation of this Agreement or the
Merger or shall have recommended an Alternative Proposal to the Company
stockholders and Parent shall have terminated this Agreement pursuant to Section
9.4(a), then the Company shall promptly, but in no event later than two days
after such termination, pay Parent a fee of $17 million, plus documented
out-of-pocket expenses incurred by Parent in connection with the transactions
completed hereby not to exceed $ 1.5 million (collectively, the "Payment") or
(z) this Agreement is terminated for any reason other than those set forth in
clauses (x) or (y) above (other than pursuant to Section 9.3(b) or (c)), and if
within 12 months thereafter any Alternative Proposal shall have been
consummated, then the Company shall promptly, but in no event later than two
days after consummation of any such transaction, pay Parent the lessor of (i)
the Payment and (ii)(a) 3.5% of the sum of the
<PAGE>
following: (A) the consideration paid to the Company stockholders pursuant to
such Alternative Proposal, (B) the principal amount of any debt outstanding on
the date such Alternative Proposal is consummated, and (C) the amount paid or
agreed to be paid to the Department in connection with the matters contemplated
by the Forebearance Agreement or any amendments or supplements thereto plus (b)
documented out-of-pocket expenses incurred by Parent in connection with the
transactions contemplated hereby not to exceed $1.5 million; PROVIDED, HOWEVER,
that no payment shall be made to Parent under clause (z) above if the Agreement
is terminated pursuant to Section 9.2(a) and, at the time of the termination,
the only condition to closing not satisfied was the condition set forth in
Section 8.1(b), 8.1(c), 8.1(d) or 8.1(e)(or any combination thereof). Any
amount payable hereunder shall be payable by wire transfer of same day funds.
The Company acknowledges that the agreements contained in this Section 9.5(a)
are an integral part of the transactions contemplated in this Agreement, and
that, without these agreements, Parent and Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 9.5(a), and, in order to obtain such payment, Parent or
Sub commences a suit which results in a judgment against the Company for the fee
set forth in this Section 9.5(a), the Company shall pay to Parent its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on the amount of the fee at the rate of 12% per annum.
(b) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article IX, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
9.5 and Sections 7.10 and 7.14 and except for the provisions of Sections 10.3,
10.4, 10.5, 10.7, 10.9, 10.10 and 10.13. Moreover, in the event of termination
of this Agreement pursuant to Sections 9.2, 9.3 and 9.4, nothing herein shall
prejudice the ability of the non-breaching party from seeking damages from any
other party for any breach of this Agreement, including
<PAGE>
without limitation, attorneys' fees and the right to pursue any remedy at law or
in equity.
Section 9.6. EXTENSION; WAIVER
. At any time prior to the Effective Date, any party hereto, by action
taken by its Board of Directors, may, to the extent legally allowed, (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
. All representations and warranties set forth in this Agreement shall
terminate at the Effective Date. All covenants and agreements set forth in this
Agreement shall survive in accordance with their terms.
Section 10.2. NOTICES
. This All notices or other communications under this Agreement shall be
in writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex or other standard form
of telecommunications, or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If to the Company:
5835 Blue Lagoon Drive
<PAGE>
Miami, FL 33126
(305) 265-2840
Telecopy No.: (305) 264-2771
Attention: Chief Financial Officer
With a copy to:
Fulbright & Jaworski, L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
(713) 651-5151
Telecopy No.: (713) 651-5246
Attention: Robert F. Gray, Jr.
If to Parent or Sub:
500 West Main Street
Louisville, KY 40202
(502) 580-3711
Telecopy No.: (502) 580-3615
Attention: Senior Vice President and General Counsel
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
(212) 859-8000
Telecopy No.: (212) 859-4000
Attention: Jeffrey Bagner
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
Section 10.3. SPECIAL PERFORMANCE
. The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or
<PAGE>
any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
Section 10.4. ASSIGNMENT; BINDING EFFECT
. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement; provided that the Indemnified Parties shall be third-party
beneficiaries of Parent's agreement contained in Section 7.5 hereof.
Section 10.5. ENTIRE AGREEMENT
. This Agreement, the Exhibits, the Schedules, the Confidentiality
Agreement and any documents delivered by the parties in connection herewith and
therewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto; PROVIDED, HOWEVER, that the provisions
of paragraph 8 of the Confidentiality Agreement shall have no further force or
effect. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
Section 10.6. AMENDMENT
. This Agreement may be amended by the parties hereto, by action taken by
their respective Boards of Directors, at any time before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company, but after any such stockholder approval, no amendment shall be made
which by law requires the
<PAGE>
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto and the Departments shall be a third party
beneficiary of Parent and Sub's obligations under Sections 7.12 and 7.13 hereto.
Section 10.7. GOVERNING LAW
. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to its rules of conflict of laws.
Section 10.8. COUNTERPARTS
. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
Section 10.9. HEADINGS AND TABLE OF CONTENTS
. Headings of the Articles and Sections of this Agreement and the Table of
Contents are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 10.10. INTERPRETATION
. In this Agreement, unless the context otherwise requires, words
describing the singular number shall include the plural and vice versa, and
words denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa.
Section 10.11. WAIVERS
. At any time prior to the Effective Date, the parties hereto, by or
pursuant to action taken by their respective Boards of Directors, may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any
<PAGE>
documents delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party. Except as provided in
this Agreement, no action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision
hereunder shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder.
Section 10.12. INCORPORATION OF EXHIBITS
. The SCHEDULE and all Exhibits attached hereto and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
Section 10.13. SEVERABILITY
. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Amended
and Restated Agreement to be signed by their respective officers thereunder
duly authorized all as of the date first written above.
HUMANA INC.
By:
Title:
HUMNOV, INC.
____________________________
By:
Title:
PHYSICIAN CORPORATION OF AMERICA
____________________________
By:
Title:
<PAGE>
Ex.2.2
AGGREGATE
EXCESS OF LOSS
REINSURANCE AGREEMENT
as of June 2, 1997 (the "Execution Date")
(hereinafter referred to as the "AGREEMENT")
In consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinafter set forth
CENTRE REINSURANCE COMPANY OF NEW YORK
New York, New York
(hereinafter referred to as the "REINSURER")
does hereby indemnify, as herein provided and specified,
PCA PROPERTY & CASUALTY INSURANCE COMPANY
Longwood, Florida
(hereinafter referred to as the "COMPANY")
<PAGE>
ARTICLE 1
DEFINITIONS
"AGREEMENTS" shall mean, taken together, this Agreement, the New Claims
Servicing Agreement, the Investment Management Agreement, the New Tax Sharing
Agreement and the Collateral Agreements. With respect to the parties identified
in the Agreements, should any conflict arise as concerns the duties, obligations
and rights of any of the parties thereto relative to the respective duties,
obligations and rights of the parties as delineated in the Agreements, the terms
of the Reinsurance Agreement shall prevail.
"ALLOCATED LOSS ADJUSTMENT EXPENSES" or "ALAE" shall mean legal expenses and
other expenses (including interest accruing before and/or after entry of
judgment) incurred by the Company in connection with the investigation,
adjustment, settlement, litigation, mediation or arbitration of claims or
losses. ALAE shall not include costs of "in-house counsel," claims staff or
other overhead or general expenses of the Company or its agents, including the
claims services provided by PCA Solutions, Inc. ("Solutions") (or any third
party replacing Solutions).
"ASSETS" shall mean, at any point in time (1) all of the tangible and intangible
assets of the Company and the proceeds thereof, including, but not limited to,
non-admitted assets, all ceded reinsurance recoverables, agents balances,
receivables, uncollected or retrospective premiums, interest due and accrued,
federal and state income taxes or other taxes refunded or recoverable,
dividends, proceeds from commutations of the Prior Agreements (as hereinafter
defined) and other agreements, recoveries under the Special Disability Trust
Fund (or any successor fund), salvage and subrogation, amounts recovered under
managed care agreements, recoveries from annuity contracts, all intangible
assets, properties, rights, choses in action, and all other assets, proceeds
thereof, and amounts due and payable to the Company, whether owned by the
Company on the Effective Date or acquired, received or realized by the Company
thereafter; less (2) Restricted Assets. Schedule 1 hereto summarizes Assets of
the Company as of March 31, 1997 for purposes of statutory and generally
accepted accounting principles ("GAAP").
"BUYER NOTICE" shall mean a written notice delivered by Humana within ten
business days of the Notice Date to each of the Reinsurer, the Company and the
Florida Department of Insurance requesting that this Agreement and each of the
other Agreements be terminated pursuant to the provision of Article 2 effective
as of the effective date of the Financing Transaction which notice shall contain
and undertaking consistent with Section 7.12(b) of the Merger Agreement.
"CASH AVAILABLE" shall mean, as of any date, all cash or Cash Equivalents owned
or held by or on behalf of the Company or any successor thereto as of such date,
including, without limitation, any duly appointed administrator, liquidator,
conservator, rehabilitator, receiver, trustee, supervisor or other person or
entity of like capacity, in excess of the sum of the Restricted Assets.
"CASH EQUIVALENTS" shall mean (i) readily marketable direct obligations of the
United States of America, provided that such obligations mature no later than
one year from the date of acceptance thereof and (ii) certificates of deposit
denominated in dollars or bankers' acceptances issued by any United States
commercial banks maturing not later than one year from the date of acquisition
thereof.
"CLOSING CONDITIONS" shall mean, taken as a whole, the conditions precedent to
the performance of Reinsurer's obligations hereunder as set forth in Article
2(b) hereof.
<PAGE>
"CLOSING DATE" shall mean the date following the Execution Date upon which (i)
each of the Closing Conditions have been fully satisfied or waived as the case
may be and (ii) the Reinsurance Premium shall have been paid to the Reinsurer in
accordance with the terms of Article 8 hereof.
"CLOSING NOTICE" shall have the meaning ascribed thereto in Article 2(a) hereof.
"COLLATERAL" shall mean, taken together and subject only to the liens described
in Schedule 3 hereto, (i) a fully perfected, first priority security interest in
each of all of the assets of Solutions, including but not limited to, any and
all real property held thereby, (ii) a fully perfected security interest in all
of the issued and outstanding capital stock of Solutions, and (iii) a trust fund
arrangement in the amount of $45.0 million securing the performance of
Solutions' and PCA's obligations under and pursuant to the terms of the New
Claims Servicing Agreement, each of which interests and guarantees shall be
reasonably satisfactory in form and substance to the Reinsurer, (iv) including
the proceeds of any of the foregoing.
"COLLATERAL AGREEMENTS" shall mean the agreements, dated as of the Closing Date,
establishing or governing the interests of the Reinsurer with respect to the
Collateral which agreements shall be substantially in the form attached hereto
as Appendix A, including, without limitation, (i) a Security Trust Agreement
concerning interests in a pool of certain investable assets established by PCA
(the "Security Trust Fund"), (ii) a mortgage with respect to the real property
held by Solutions (the "Mortgage"), (iii) a security agreement with respect to
the personal property held by Solutions (the "Security Agreement") and (iv) a
stock pledge (the "Stock Pledge") with respect to all of Solutions' issued and
outstanding shares of capital stock.
"COMMUTATION AGREEMENTS" shall mean the agreements, dated as of the Closing
Date, providing for the commutation of the Prior Agreements other than the 1996
Agreement, which shall be substantially in the form attached hereto as Appendix
B.
"DEPOSIT PREMIUM" shall mean $4.0 million.
"EFFECTIVE DATE" shall have the meaning ascribed thereto in Article 3 hereof.
"EXCESS OF ORIGINAL POLICY LIMITS LOSS" shall mean any loss of the Company in
excess of the limit of the Original Policy, but otherwise within the terms of
such Policy, such loss in excess of the limit having been incurred because of
improper failure by it to settle within the policy limit or by reason of alleged
or actual negligence, fraud or bad faith in rejecting an offer of settlement or
in the preparation of the defense or in the trial of any action against its
insured or in the preparation or prosecution of an appeal consequent upon such
action.
"FINANCING TRANSACTION" means the merger contemplated by that certain Agreement
and Plan for Merger by and among Humana, PCA Acquisition Corp. and PCA, dated as
of June 2, 1997 (the "Merger Agreement").
"HUMANA" shall mean Humana Inc., a Delaware corporation, as party to the
Financing Transaction.
"EXTRA CONTRACTUAL OBLIGATIONS" shall mean those liabilities for monetary
damages not covered under any other provision of this Agreement and which arise
from the handling of any claim on the Subject
<PAGE>
Obligations, such liabilities arising because of, but not limited to, the
following: improper failure by the Company to settle within the policy limit,
or by reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of any
action against its insured or in the preparation or prosecution of an appeal
consequent upon such action.
"FUNDING CONDITIONS" shall mean, taken together, (i) the conversion of all
equity securities held by the Company into an amount of cash not less than the
GAAP carrying therefor such that, on and as of the Closing Date, the Company
shall hold no equity securities, (ii) funding in cash of all net intercompany
and affiliate balances then due to or from the Company as set forth in Schedule
2 hereof, and (iii) the conversion of the following Assets into cash or Cash
Equivalents equal to GAAP carrying values therefor as set forth on Schedule 2
hereof: (x) the escrow receivable from Health Partners South East, (y) the
covenant not to compete as part of the sale of the Georgia and Alabama HMO
operations and (z) the collateral loan with Hallmark Re Ltd.
"INVESTED ASSETS" shall mean, at any point in time, each and every Asset which
may then be converted into cash or Cash Equivalents in a reasonable period of
time to pay Subject Obligations.
"INVESTMENT MANAGEMENT AGREEMENT" shall mean the agreement concerning
management of the Company's investment portfolios, of even date herewith, which
shall be substantially in the form attached hereto as Appendix C.
"LOSS DIVISOR ARRANGEMENTS" shall mean those certain arrangements with respect
to the payment of certain additional ceded reinsurance premiums by and between
the Company and Solutions referenced in Article 8 hereof as were implemented by
and between the Company and Solutions.
"NEW CLAIMS SERVICING AGREEMENT" shall mean the agreement, of even date
herewith, as referenced in Articles 2C and 16 hereof and pertaining to the
run-off administration of the Company following the date hereof, which agreement
shall be substantially in the form attached hereto as Appendix D.
"NEW TAX SHARING AGREEMENT" shall mean the agreement, of even date herewith,
pertaining to tax sharing arrangements between the Company and other PCA Members
following the Closing Date, which shall be substantially in the form attached
hereto as Appendix E.
"NOTICE DATE" shall mean the date which is 45 days prior to the date upon which
the consummation of the Financing Transaction is expected to occur as the same
is set forth in the Closing Notice. .
"ORIGINAL POLICY" shall mean any policies, certificates, binders, slips and
other contracts of insurance or reinsurance or other evidences of insurance
liability, whether oral or written, contracted for or issued or renewed by the
Company or an SIF.
"PAYMENT CONDITIONS" shall be as defined in Article 7 hereof.
"PCA" shall mean the Company's parent company, Physician Corporation of America.
"PCA MEMBER" shall mean any and all entities affiliated, owned or controlled by
PCA or any successor to PCA, but not to include individuals.
"PRIOR AGREEMENTS" shall mean, taken together and to the extent that any such
agreements have become effective, (i) the Aggregate Excess of Loss on Portfolio
Agreement, considered effective by the Company
<PAGE>
and dated as of December 20, 1996 (placement slip dated November 1, 1996),
between the Company and the Reinsurer (the "1996 Agreement"), (ii) the Aggregate
Excess Reinsurance Contract, effective as of January 15, 1995, between, on the
one hand, the Reinsurer and, on the other hand, Florida United Businesses Self
Insurers Fund and Florida Agri-Business & Industries Self Insurers Fund and
(iii) the Aggregate Excess Reinsurance Contract, effective as of January 15,
1995, between the Reinsurer and Florida Builders & Employers Mutual Insurance
Company.
"REINSURER NOTICE" shall mean a written notice delivered by the Reinsurer within
ten business days of the Notice Date to each of the Company, Humana and the
Florida Department of Insurance requesting that this Agreement and each of the
other Agreements be terminated pursuant to the provision of Article 2 effective
as of the effective date of the Financing Transaction.
"REINSURANCE PREMIUM" shall mean the sum of (i) the difference between $84.0
million and the Deposit Premium and (ii) an additional amount as simple interest
on thereon determined at a rate of 10% per annum in respect of the period
commencing on the Execution Date and ending on the Closing Date.
"RESTRICTED ASSETS" shall mean (i) an amount not to ultimately exceed $1.5
million in cash or Cash Equivalents (which amount is available to the Company
for any purpose, including, without limitation, to reserve amounts necessary
through the estimated closing date of the estate of the Company, if such an
estate is created, for the payment of reasonable expenses of administration),
(ii) all assets of the Company in government or governmental agency mandated
security deposit accounts, (iii) intellectual property and intellectual property
rights of the Company, including, without limitation, trade and service marks,
patents, licenses etc., (iv) fixed assets of the Company (including certain
furniture and fixtures, computer hardware etc.) which is both (y) essential to
the administration of the Company's business and (z) specifically identified on
an inventory of such Assets to be jointly developed by the Reinsurer and the
Company within 45 days of the Closing Date, and (iv) all assets of the Company
that otherwise cannot be used by the Company to pay Subject Obligations by
reason of being subject to a lien, mortgage, pledge, security interest, lease,
easement, servitude or similar encumbrance; provided, however, that Restricted
Assets shall not include any such amount or such assets included in clauses (i),
(ii) and (iii) above on the date when all Subject Obligations have been paid,
settled, commuted or released.
"SIF" shall mean a workers compensation self insurance fund, assessable mutual
insurer or other like entity, substantially all the assets and liabilities of
which the Company assumed, reinsured or indemnified, including Florida United
Businesses Self Insurers Fund, Florida Agri-Business & Industries Self Insurers
Fund, Florida Builders & Employers Mutual Insurance Company, Florida Business
Mutual Insurance Company, Florida Auto Dealers Self Insurers Fund and Florida
Home Builders Self Insurers Fund, or any predecessor entity of the foregoing.
"SOLUTIONS" shall mean PCA Solutions, Inc., a Florida corporation.
"SUBJECT OBLIGATIONS" shall mean the ultimate developed amount of any and all of
the obligations of the Company arising under its insurance, excess insurance, or
reinsurance agreements, policies, certificates, binders, slips and other
contracts of insurance, excess insurance, or reinsurance or under other
evidences of insurance liability, whether oral or written, issued or renewed by
or contracted for by the Company or by an SIF on or prior to November 15, 1996,
that is paid or payable by the Company on or after the Effective Date, including
ALAE, provided however that Subject Obligations shall specifically exclude:
(i) distributions or dividends payable or declared by the Board of
Directors of the Company or the
<PAGE>
corollary governing board of any SIF (whether policyholder dividends
or shareholder dividends or otherwise);
(ii) obligations of the Company or any SIF to make payments to state
guaranty or insolvency funds, organizations or associations or similar
entities;
(iii) Extra Contractual Obligations;
(iv) Excess of Original Policy Limits Loss;
(v) Participation in involuntary pools, associations or other residual
market mechanisms whether classified as insurance or reinsurance,
whether with respect to the Company or any SIF; and
(vi) any Unallocated Loss Adjustment Expenses.
"TERM" shall be as defined in Article 3 hereof.
"TERMINATION EVENT" shall mean any of the following events: (i) the Closing
shall not have occurred on or before October 31, 1997; (ii) following any
receipt by the Reinsurer of a Buyer Notice, the Financing Transaction shall have
become effective; or (iii) following any delivery by the Reinsurer of a
Reinsurer Notice to the Company, PCA, Humana and the Florida Department of
Insurance, the Financing Transaction shall have become effective.
"TERMINATION DATE" shall mean the effective date of any termination of this
Agreement pursuant to Article 2(a) hereof.
"UNALLOCATED LOSS ADJUSTMENT EXPENSES" or "ULAE" shall mean the costs of
"in-house counsel," claims staff or other overhead or general expenses of the
Company or its agents, including the claims services provided by Solutions (or
any third party replacing Solutions ) and any other costs incurred by the
Company in connection with the investigation, adjustment, settlement, litigation
or arbitration of claims or losses but not included in ALAE.
ARTICLE 2
CLOSING AND CLOSING CONDITIONS
(a) STAGED CLOSING. The final closing with respect to the transactions
contemplated hereby shall occur in two stages. On the Execution Date, each of
the parties' rights and obligations hereunder shall become and be in full force
and effect and the Reinsurer shall receive the Deposit Premium in accordance
with the provisions of Article 8 hereof. On the Closing Date, the Reinsurer
shall receive the Reinsurance Premium in accordance with the provisions of
Article 8 hereof. Humana and PCA will jointly provide each of the Reinsurer and
the Florida Department of Insurance with a written notice (the "Closing Notice")
of the reasonably expected date for closing of Financing Transaction, which
notice shall be delivered at least 45 days prior to such expected date. Upon
the occurrence of a Termination Event, this Agreement and each of the other
agreements shall, without the further action of consent of any person be
rescinded, canceled and terminated ab initio and the Reinsurer shall have no
further liability or obligation hereunder or thereunder, except in respect of
its willful misconduct or prior breach of the terms of such agreement, provided,
however, that (i) the terms of Article 28 "Indemnification" hereof shall
continue in full force and effect and shall expressly survive any such
rescission, cancellation and termination and (ii) the Reinsurer shall be
entitled to retain the full amount of the Deposit Premium.
(b) CLOSING CONDITIONS. Each and every of the obligation of the Reinsurer
hereunder to provide any reinsurance coverage or make any payments hereunder
shall in all respects be conditioned upon the satisfaction or waiver, as the
case may be, of the following conditions precedent
<PAGE>
(the "Closing Conditions"), evidence of the satisfaction of each of such
conditions shall be provided to the Reinsurer on or before the Closing Date and
each of which conditions may be waived in writing, in whole or in part, in the
sole discretion of the Reinsurer (due execution and delivery of each of the
Agreements by each party thereto, together with receipt by the Reinsurer of the
full amount of the Reinsurance Premium, shall constitute conclusive evidence
that each of the Closing Conditions have been satisfied or waived):
(A) Each of the Agreements shall have been duly executed and be in full
force and effect on the Closing Date.
(B) PCA shall have contributed an amount of cash equal to $20.9 million to
the Company in satisfaction of the remaining federal and state income tax
recoverable attributable to the Company.
(C) Pursuant to Article 14 hereof (with respect to the assumption by PCA
of certain obligations of the Company), Article 15(A) hereof (with respect to
the obligation of PCA relative to any shortfall upon the liquidation of any
annuities), Article 16 hereof (with respect to the performance of Solutions
under the New Claims Servicing Agreement), and Article 8 hereof (with respect to
the obligations of Solutions as concerns the Loss Divisor Arrangements), PCA and
Solutions shall have taken such actions and conveyed, transferred and
collateralized assets such that enforceable and perfected interests of the
Reinsurer in the Collateral shall have been established pursuant to the
Collateral Agreements.
(D ) The Reinsurer shall have received an opinion of counsel to the Company
and PCA reasonably acceptable to the Reinsurer, which opinion shall be in form
and substance reasonably acceptable to the Reinsurer, to the effect that (i) all
necessary consents, approvals, authorizations, licenses, orders of any
applicable federal, state or local regulatory authority, including the Florida
Department of Insurance, in connection with the execution and delivery of the
Agreements and the transactions contemplated hereby shall have been obtained and
be in full force and effect, except as respects any such consents, approvals,
authorizations, authorizations, licenses or orders the failure of which to
obtain shall not have a material adverse effect on either the Company or the
Reinsurer or the ability of the Company or the Reinsurer to consummate the
transactions contemplated hereby, (ii) the due execution and delivery of each of
the Agreements, including, without limitation, that each of the respective
Boards of Directors of PCA, Solutions and the Company shall have approved the
execution and delivery of the Agreements and the performance of each of their
respective obligations hereunder and thereunder and such approvals shall be in
full force and effect, and (iii) all consents, approvals, authorizations and
waivers as may be required under (y) any material contract to which PCA, the
Company, Solutions or any of their respective subsidiaries is a party or (z) the
charter and by-laws of PCA, the Company, Solutions or any of
their respective subsidiaries, each as may be required in connection with the
execution and delivery of this Agreement or any of the other Agreements and the
consummation of the transactions contemplated hereby and thereby shall have been
obtained and be in full force and effect except as respects any such consents,
approvals, authorizations, licenses or waivers the failure of which to obtain
shall not have a material adverse effect of either the Company or the Reinsurer
or the ability of the Company or the Reinsurer to consummate the transactions
contemplated hereby.
(E) The Company and the Reinsurer shall have entered into the Commutation
Agreements.
<PAGE>
(F) The Reinsurer shall have received a certificate executed by the Chief
Executive Officer and Chief Financial Officer of PCA, dated as of the Execution
Date, to the effect that each of the Funding Conditions has been satisfied or
waived.
(G) As of the Closing Date, the Reinsurer shall have received the
Reinsurance Premium in accordance with the terms of Article 8 hereof.
ARTICLE 3
TERM
Subject to the terms and provisions of Article 2 hereof, coverage hereunder
shall become effective as of 11:59 p.m., Eastern Standard Time, March 31, 1997
(the "Effective Date") and, except as provided in Article 11 hereof, shall
remain in full force and effect until the Reinsurer has paid under this
Agreement an amount equal to the Limit and the Reinsurer has notified the
Company in writing that its obligations under this Agreement have been satisfied
in accordance therewith.
ARTICLE 4
COVERAGE
Subject to the terms, conditions and limitations set forth in this Agreement,
including, without limitation, the Limit, the Payment Conditions and the payment
of the Reinsurance Premium to the Reinsurer, the Reinsurer agrees to pay on
behalf of the Company the Subject Obligations that remain outstanding by the
Company following satisfaction of the Payment Conditions, subject always to the
Limit.
ARTICLE 5
TERRITORY
The Reinsurer's liability under this Agreement shall follow the territorial
limits of the Subject Obligations.
ARTICLE 6
LIMIT
(A) The Reinsurer's maximum liability for any and all loss recoverable under
this Agreement for the Subject Obligations shall not exceed $230 million (the
"Limit").
(B) In the event and to the extent the Reinsurer makes any payment under this
Agreement and the Reinsurer subsequently recovers any amounts of cash or Cash
Equivalents (a "Recovery") pursuant to the terms of Article 13, Assignment of
Assets, the amount of any such Recovery shall be available for the payment of
additional Subject Obligations.
(C) Under no circumstances shall the total liability of the Reinsurer under or
related to this Agreement exceed the amount of the Limit.
<PAGE>
ARTICLE 7
PAYMENT CONDITIONS
The Reinsurer's obligation to make any payment under this Agreement in respect
of the Subject Obligations shall be subject to the satisfaction of the
conditions (the "Payment Conditions") prior to each payment that the Company:
(1) shall have converted to cash or Cash Equivalents all of its
Invested Assets, other than the Restricted Assets,
(2) after having converted all such Invested Assets to cash or Cash
Equivalents, shall not have any Cash Available; and
(3) shall have so notified the Reinsurer in writing.
Upon any payment by the Reinsurer hereunder, the Company shall assign to the
Reinsurer an interest in the Assets and Restricted Assets in accordance with the
terms of Article 13 hereof.
ARTICLE 8
REINSURANCE PREMIUM; OTHER ACTIONS
(A) PCA shall pay or cause to be paid in cash by wire transfer of immediately
available funds to an account designated by the Reinsurer in writing: (i) on the
Execution Date, the Deposit Premium and (ii) on the Closing Date, the
Reinsurance Premium.
(B) Effective on the Closing Date without any action or consent of any person,
the 1996 Agreement shall be, and shall have been deemed to have been,
terminated, canceled and rescinded ab initio and the Reinsurer shall have no
further liability or obligation thereunder, provided, however, that in
connection with such termination, cancellation and rescission, Reinsurer shall
pay to the Company an amount in cash by wire transfer of immediately available
funds equal to the sum of (y) $15 million plus (z) simple interest thereon at a
rate of interest of 5.5% per annum for the period during which the 1996
Agreement may have been outstanding.
(C) Effective on the Closing Date, PCA hereby guarantees the full and timely
performance by Solutions of the obligations under and in respect of the Loss
Divisor Arrangement, which guarantee shall be secured by a pledge of the
Collateral pursuant to the Collateral Agreements.
ARTICLE 9
EXPERIENCE ACCOUNT
A notional experience account (the "Experience Account") shall be calculated by
the Reinsurer from the Effective Date and maintained until all obligations of
the Reinsurer under this Agreement have been satisfied or discharged in full.
The balance of the Experience Account (the "Experience Account Balance") as of
any date shall be determined as (i) the sum of the amounts of the Deposit
Premium and the Reinsurance Premium less (ii) the Reinsurer's Margin less (iii)
the Subject Obligations paid by the Reinsurer plus (iv) the amount of the
Interest Credit, each determined as of such date.
The "Interest Credit" shall be determined based on the average daily balance in
the Experience Account,
<PAGE>
as calculated pursuant to the preceding paragraph, times the Credit Index,
credited annually in arrears. The "Credit Index" shall be equal to the average
effective yield to maturity of U.S. Treasury obligations having a remaining term
to maturity of one year as determined annually in advance and as published by
the Wall Street Journal on the first business day each year in respect of which
this Agreement remains in effect.
ARTICLE 10
REINSURER'S MARGIN
The Reinsurer's Margin shall be equal to $42.0 million.
ARTICLE 11
COMMUTATION
Subject to prior consent of the Florida Department of Insurance and compliance
with the provisions of this Agreement, including, without limitation, Articles
13 and 15(C) hereof each of which provisions shall survive any such commutation,
the Company or its successor may, at its sole option commute this Agreement
provided the Experience Account is positive. If the Experience Account is
positive on such date, the Reinsurer shall pay such positive amount to the
Company within 90 days of request for same. If the Experience Account is not
positive, any commutation must be agreed to by the Reinsurer in its sole
discretion. In the event of a commutation, the Reinsurer's sole liability shall
be to so pay the positive balance, if any, in the Experience Account to the
Company or its designee and such payment shall constitute a full and final
release of the Reinsurer of any and all liability and obligation under or in
respect of this Agreement. In the event that no commutation is elected prior to
December 31, 2007, the balance of the Experience Account shall thereafter be
deemed to be zero.
ARTICLE 12
REPORTS AND REMITTANCES
(A) The Company shall furnish to the Reinsurer and to representatives of the
Florida Department of Insurance as shall have been identified thereby from time
to time, within forty-five (45) days after the close of each calendar quarter
hereof following the Execution Date:
(1) quarterly accounts of gross net earned premium income
segregated by line of business and for the total of all lines
covered under this Agreement;
(2) quarterly accounts of paid and unpaid loss in respect of
Subject Obligations, segregated by line of business, including
the total for all lines of business;
(3) quarterly accounts showing assets, liabilities and cash flow
of the Company, including, without limitation, specifications of
the amounts of any transfers, distributions, dividends or any
other payments, made to or on behalf of any PCA Member, and
explanations of the reasons for such transfers;
(4) the continued receipt on a quarterly basis of the Company's
and associated funds workers' compensation data base files on an
inception-to-date basis in an electronically readable format;
(5) quarterly updates on Restricted Assets, including a
description of payments made therefrom, ,
<PAGE>
(6) on a semi-annual basis, certifications by the respective
chief executive officers and chief financial officers of PCA, the
Company and Solutions, or successors thereto, to the best of
their knowledge, following their due review and inquiry, to the
effect that the Company and PCA have complied in all material
respects, with each of the material provisions of each of the
Agreements,
(7) promptly following the occurrence of any facts or
circumstances constituting a breach of any material provisions of
any of the Agreements, a notice of such facts or circumstances
which notice shall set forth with specificity the facts
underlying such possible breach and the intentions of the PCA or
the Company as the case may be with respect to the cure of any
resulting breach,
(8) promptly following the receipt thereof, any notice of any
default received by the Company under any of the Agreements, and
on a quarterly basis, copies of all other notices or reports
received by the Company under any of the Agreements, provided
however, that ordinary and recurring reports provided under the
New Claims Services Agreement need not be provided to the Florida
Department of Insurance if made readily available thereto by the
Company or the Reinsurer, and
(9) any other reports reasonably requested by the Reinsurer from
time to time.
(B) The Company shall furnish to the Reinsurer and the Florida Department of
Insurance within ninety (90) days after the close of each calendar quarter, an
analysis showing the Company's best estimate of projected cash flows over the
next 120 months.
(C) Unless otherwise stated in this Agreement, all amounts due under this
coverage shall be remitted by wire transfer of immediately available funds
within thirty (30) days after receipt of an appropriate statement of account.
At such time as the Reinsurer shall have an obligation to make a payment for the
Subject Obligations, the Reinsurer and the Company will implement a liquidity
facility (such as a zero balance bank account) pursuant to which the Reinsurer
will make deposits into a bank account in the name of the Reinsurer which funds
may then be drawn on by the Company for payment of Subject Obligations then due
and payable by the Reinsurer to or on behalf of the Company hereunder.
(D) Any late payments by either party shall accrue interest per annum at a rate
equal to the effective yield on U.S. Treasury Securities having a remaining term
to maturity of five years plus 150 basis points (determined quarterly in
arrears) as published by the Wall Street Journal on the first business day each
such quarter.
<PAGE>
ARTICLE 13
ASSIGNMENT OF ASSETS
In the event the Reinsurer makes any payment under this Agreement, the Company
shall thereupon transfer, convey and assign to the Reinsurer all right, title
and interest in an equivalent amount of Assets or Restricted Assets (if there
are no more Assets) and the proceeds thereof, and execute such instruments as
the Reinsurer reasonably requires to effect such assignment in order to
reimburse the Reinsurer for any such payments made. In the event and at such
time as the Reinsurer has recovered a sufficient amount of cash or Cash
Equivalents pursuant to this Article to reimburse it for any all payments made
under this Agreement, the Reinsurer shall convey and return any such assigned
Assets or Restricted Assets to the Company.
ARTICLE 14
PCA OBLIGATIONS
PCA hereby agrees to pay or arrange for payment, as and when due, any and all
legally binding liabilities and obligations of the Company which have not been
paid by the Company prior to the Effective Date, as are both (i) specifically
excluded from the definition of the Subject Obligations in clauses (i) through
(iv) of such definition and (ii) not reflected on the Company's statutory
quarterly financial statements for the quarter ended March 31, 1997, provided,
however, that obligations of the Company in respect of Extra Contractual
Obligations and Excess of Policy Limits Loss shall not be so undertaken and
assumed. PCA's payment obligations pursuant to this Article shall be
collateralized on a non-recourse basis by a pledge of the Collateral in form and
substance acceptance to the Reinsurer.
ARTICLE 15
COVENANTS AND WARRANTIES
(A) Each of the Company and PCA hereby irrevocably and unconditionally grant
the Reinsurer the right and authority to negotiate, commute or sell on the
behalf of the Company, while this Agreement remains in effect, all or certain of
the annuities that were contracted for by the Company, at commercially
reasonable terms agreed to by the Reinsurer. PCA hereby covenants and agrees
with the Reinsurer to pay the Reinsurer any shortfall between the book value of
such annuities contracted by the Company and the cash value therefor realized by
the Company upon the subsequent liquidation of such annuities. PCA's
obligations to pay any shortfall shall be fully collateralized by pledge of the
Collateral.
(B) Each of the Company and PCA covenant and agree with the Reinsurer that the
Company will not make any payments, distributions, dividends, transfers or the
like, to any PCA Member or any other affiliate without the prior written consent
of the Reinsurer in its sole discretion, other than (i) pursuant to the
contracts and arrangements shown on Schedule 2 hereto on the Execution Date and
otherwise in conjunction with the continuing contractual arrangements thereon,
and (ii) otherwise, amounts paid or transferred in the ordinary course of
business and in accordance with applicable law.
(C) Each of the Company and PCA covenant and agree with the Reinsurer to use
their best reasonable efforts to pursue and collect all assets and third party
recoveries that comprise or would comprise the Assets (admitted or non-admitted)
under this Agreement, including but not limited to, causes of actions whether or
not related to the Subject Obligations, choses in action, reinsurance
recoverables, Special Disability Trust Fund recoveries, premium receivables and
all other recoveries or receivables. Notwithstanding the foregoing, subject to
the provisions of Article 17 hereof, the Company may limit or end such efforts
as to respects any specified Asset based on reasonable and prudent consideration
of the
<PAGE>
business and legal costs and expenses of continuing such efforts relative to the
likelihood of success of such efforts. The Company shall implement controls and
procedures to preserve recoveries from the Special Disability Trust Fund (or any
successor fund), which controls and procedures shall be approved by the
Reinsurer, and the Company shall provide periodic reports to the Reinsurer
concerning such procedures and any recoveries received from such Fund. These
obligations shall continue for as long as the Reinsurer shall have any liability
under this Agreement.
(D) The Company and PCA covenant and agree with the Reinsurer that from the
Execution Date until all the Reinsurer's obligations hereunder are extinguished,
the Company shall not sell, dispose, attach a lien, pledge, mortgage, grant a
security interest in, or otherwise encumber any of the assets that comprise
Assets or may in the future comprise Assets under this Agreement, without the
prior written consent of the Reinsurer in its sole discretion (except for tax
liens incurred in the ordinary course of business). Notwithstanding the
foregoing, the Company shall not be prohibited from investing, reinvesting and
dealing in its Invested Assets or otherwise liquidating Assets to pay claims
that are the subject of this of Agreement, provided such actions conform with
the terms and provisions of the Investment Management Agreement.
(E) The Company hereby covenants and agrees with the Reinsurer to use its best
reasonable efforts (i) to cause to be released any lien, mortgage, pledge,
security interest, lease easement, servitude or encumbrance on any Assets of the
Company and (ii) to the extent permitted by law, to cause to be released all
Assets of the Company in government or governmental agency mandated security
deposit accounts.
(F) The parties hereto acknowledge that it is contemplated that the Reinsurer
will merge into one of its affiliated companies, Zurich Reinsurance Centre,
Inc., and the parties agree that such merger shall not be deemed a change in
control since the ultimate parent company of both the Reinsurer and Zurich
Reinsurance Centre, Inc. shall continue to be Zurich Insurance Company. The
parties hereto agree that any such merger shall not affect or terminate this
Agreement, the parties' rights or obligations hereunder or the transactions
contemplated hereby and that the entity surviving such merger shall be bound by
the terms of this Agreement and shall fully perform this Agreement as the
Reinsurer hereunder.
(G) Subject to clause (C) of this Article 15, the Company covenants and agrees
with the Reinsurer to use its best reasonable efforts to liquidate all Assets
into cash or Cash Equivalents, at such time as it no longer has cash or Cash
Equivalents to make payments under this Agreement in respect of the Subject
Obligations.
(H) The Company and Solutions covenant and agree with the Reinsurer that
without the prior written consent of the Reinsurer in its sole discretion it
will not agree to any amendment, modification, waiver, revision, termination or
other compromise to the terms of the Investment Management Agreement, the New
Claims Servicing Agreement, the New Tax Sharing Agreement or any of the security
agreements establishing and governing the Collateral. Any written amendment,
modification, waiver, revision, termination or other compromise entered into by
any affiliate of the Reinsurer shall be deemed to have been approved by the
Reinsurer.
(I) PCA hereby warrants to the Reinsurer (i) that the Company is not a party to
the escrow agreement between Health Partners South East and PCA and (ii) to the
best knowledge and belief of PCA after due investigation, the Company has no
liability and no claims have been or are reasonably likely to be made against
the Company arising out of or relating to such escrow agreement.
(J) PCA and Solutions represent and warrant that the listing of assets attached
hereto, with respect to
<PAGE>
each such party's assets, (i) indicates all liens, security interests and any
other encumbrances thereon, and (ii) such listing is true, complete and accurate
in every respect in accordance with GAAP.
The foregoing representations and warranties set forth in clauses (I) and (J)
above shall survive for a period of three (3) years following the Closing Date.
Reinsurer's recourse with respect to any breach of the provisions of clauses
(A), (B), (D), (F), (I) and (J) shall be limited to a cause of action for money
damages as against PCA. As a condition precedent to the assertion of any breach
of any provision of this Article 15, the Reinsurer shall provide to each of the
Company, PCA and the Florida Department of Insurance a written notice specifying
the facts underlying any such asserted breach and suggesting, to the extent
practicable, a proposed plan for curing such asserted breach to the satisfaction
of the Reinsurer. To the extent that such asserted breach is reasonably
susceptible to cure, such notice shall specifically provide for a reasonable
period during which such cure may be commenced and completed. Reinsurer
covenants that it shall provide to each of the Company, PCA and the Florida
Department of Insurance a written notification of any matter, fact or
circumstance of which it is aware, which in its best reasonable judgment, could
reasonably give rise to a material breach of any of the provisions of this
Article 15. Reinsurer covenants to cooperate with representatives of PCA, the
Company and the Florida Department of Insurance to ensure that any matter, fact
or circumstance which reasonably could constitute a material breach of the
provisions of this Article 15 is identified to each of the foregoing as early as
practicable such that a corrective course of action can be developed and
implemented as soon as practicable.
ARTICLE 16
CLAIMS MANAGEMENT
Pursuant to the terms of the New Claims Servicing Agreement, Solutions shall
provide claims management and certain other services with respect to the Subject
Obligations and the administration of the Company. Except as respect to
Allocated Loss Adjustment Expenses, Solutions' expenses incurred in connection
with the services required under the terms of the New Claims Servicing Agreement
shall not be paid to Solutions, but shall be further subordinated to the full
and prior performance or accommodation of all of the Company's other liabilities
and obligations, until such time as this Agreement shall have been terminated in
accordance with the provisions of Article 2(b) or Article 11 hereof. As
provided for under the New Claims Servicing Agreement, the performance of
Solutions' obligations pursuant to such Agreement shall be secured by a pledge
of the Collateral, and Reinsurer shall have the right to draw down against the
Collateral as provided for therein. In the event that (i) the Payment
Conditions have been satisfied, (ii) the Collateral shall have been exhausted
and (iii) Solutions shall for any reason no longer continue to be performing the
claims management and other administrative services with respect to the Company
contemplated under the New Claims Servicing Agreement, then during such time as
the Limit shall not have been exhausted, the Reinsurer shall provide for, or
cause to be provided, such services as have been contemplated by the New Claims
Services Agreement.
<PAGE>
ARTICLE 17
CONSENT RIGHTS OF THE REINSURER
With effect from the Execution Date, the Reinsurer will be afforded consent
rights as respects the administration of the Company's runoff, including,
without limitation, with respect to (i) settlement of litigation issues, claims
or groups of claims involving amounts incurred at an amount greater than
$250,000 gross of ceded reinsurance, (ii) reinsurance commutations (ceded or
assumed) and other compromises of contractual obligations, including any waiver
of rights, stipulations that amount to terminations, material modifications
involving the Company or the SIFs, (iii) material changes to the Company's ceded
reinsurance program, including, without limitation, managed care arrangements,
(iv) asset dispositions not in the ordinary course of business involving a book
value amount in respect of any single asset in excess of $250,000, (v) the
implementation of investment management guidelines pursuant to the Investment
Management Agreement, (vi) staffing, operating expense, outsourcing decisions
and all material capital expenditures, (vii) any modification, change, amendment
or alteration of, or waiver of rights or obligations under any of the Agreements
or any successor agreements, (viii) the execution and delivery of any successor
or replacement agreement as respects any of the Agreements, and (ix) any
modification, change, amendment or alteration, or waiver of any material rights
or obligations under, any of the affiliated agreements or arrangements set forth
on Schedule 2 hereof or any successor. In each such case, the Reinsurer's
prior written consent shall not be unreasonably withheld, conditioned or
delayed.
ARTICLE 18
PLEDGE BY THE COMPANY; COLLATERAL AGREEMENTS
(A) Effective on the Closing Date, the Company hereby specifically grants to
the Reinsurer a continuing security interest in all of the assets of the Company
now or hereafter held (in the event of the appointment of a statutory receiver
with respect to the Company pursuant to Chapter 631, Florida Statutes, or any
successor statute, such priority security interest shall, at the election of the
Florida Department of Insurance, be conveyed, assigned to, or subordinated to
the interests of such receiver or otherwise terminated in favor of such
statutory receiver), including without limitation, all tangible property,
intangible property, real property or personal property, rights, causes of
action, and other interests, and the proceeds thereof (the "Company
Collateral"), to secure the performance of its obligations hereunder, including
all renewals and extensions hereof, and any and all obligations of every kind
whatsoever, whether heretofore, now or hereafter existing or arising between the
Company and the Reinsurer and howsoever incurred or evidenced, whether primary,
secondary, contingent or otherwise. Reinsurer shall have all rights of a
secured party under Chapter 679, Florida Statutes. In satisfaction of such
pledge, the Company Collateral may be sold either at public or private sale and
the parties agree that three (3) business days prior notice of such sale shall
be commercially reasonable. Each party hereto agrees, at the Company's expense,
to execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Reinsurer may from
time to time reasonably request in connection with the administration and
enforcement of this Article 18 or with respect to any of the Company Collateral
or to better assure and preserve the security interests and the rights and
remedies created hereby, including the payment of any fees and other charge
required in connection with the execution and delivery of this pledge, the
granting or perfection of the security interests created hereby and the filing
of any financing statements or other documents in connection herewith.
(B) Notwithstanding anything in this Agreement or the Collateral Agreements to
the contrary, Reinsurer agrees that in the event of the appointment of a
statutory receiver with respect to the Company pursuant to
<PAGE>
Chapter 631, Florida Statutes, or any successor statute, each of the security
interests established under and pursuant to the Collateral Agreements, shall at
the election of the Florida Department of Insurance, be conveyed to, assigned
to, or subordinated to the interests of such statutory receiver, or otherwise
terminated in favor of such statutory receiver, provided however, that the
Collateral shall be used to perform the obligations secured thereby.
ARTICLE 19
ACCESS TO RECORDS
With effect from the Execution Date, the Reinsurer or its duly appointed
representatives shall have free access to the books, records, electronic files,
software and papers of the Company or its agents at all reasonable times during
the continuance of this Agreement or any liability hereunder, for the purpose of
obtaining information concerning this Agreement or the subject matter thereof.
The Reinsurer or its designated representatives, without restrictions or
limitations, shall have broad authority to inspect, copy and audit all books and
records of the Company or Solutions pertaining to this Agreement or the subject
matter at any time during regular business hours, and may make copies or
extracts of any books and records pertaining thereto as it may deem necessary or
appropriate without disrupting or unduly burdening the operations of the Company
or Solutions. The Reinsurer and the Company agree to use their best reasonable
efforts to implement the terms of this Agreement, including, without limitation,
the provisions of this Article 19, in a manner which preserves to the greatest
extent practicable any claim or right of privilege or other immunity from
production applicable as any of the books, records, files and papers of the
Company or Solutions.
ARTICLE 20
SALVAGE AND SUBROGATION
With effect from the Execution Date, the Reinsurer shall be subrogated, as
respects any loss for which the Reinsurer shall actually pay or become liable to
pay, but only to the extent of the amount of payment by or the amount of
liability of the Reinsurer, to all the rights of the Company against any person
or other entity who may be legally responsible in damages for said loss. The
Company hereby agrees to enforce such rights, but in case the Company shall
refuse or neglect to do so, the Reinsurer is hereby authorized and empowered to
bring any appropriate action in the name of the Company or its policyholders, or
otherwise to enforce such rights. The costs of any such action of the Reinsurer
shall be treated as the payment of Allocated Loss Adjustment Expense thereby.
All salvages, recoveries or reimbursements, after deduction of loss adjustment
expense applicable thereto, recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement, and all necessary adjustments shall be made
by the parties hereto, provided always, that nothing in this Article shall be
construed to mean that losses under this Agreement are not recoverable until the
Company's ultimate net loss has been ascertained.
ARTICLE 21
OFFSET
The Company and the Reinsurer may offset any balance or amount due either such
party to the other under this Agreement or any other contract heretofore or
hereafter entered into between the Company and the Reinsurer or any insurance or
reinsurance agreement with any affiliate of either party, whether acting as
assuming reinsurer or ceding company or in any other capacity. Notwithstanding,
Reinsurer shall have no right of offset as against the Company for any
obligations of PCA or Solutions.
<PAGE>
ARTICLE 22
NO THIRD PARTY RIGHTS
This Agreement is solely between the named parties , and in no instance shall
any other person have any rights under this Agreement except as expressly
provided otherwise in the Insolvency Article.
ARTICLE 23
NO ASSIGNMENT
Except as otherwise specifically provided hereunder, neither this Agreement, nor
any right hereunder, may be assigned by any party without the written consent of
the other party hereto, provided however that the Reinsurer may assign this
Agreement to an affiliated company with the prior consent of PCA and the Florida
Department of Insurance. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, assigns and legal
representatives.
ARTICLE 24
LOSS SETTLEMENTS
(A) All loss settlements made by the Company or Solutions (or any third party
replacing Solutions) shall be binding upon the Reinsurer, provided, however,
that such claims or losses are within the terms, conditions and limitations of
the Company's policies and within the terms, conditions and limitations of this
Agreement and the Claims Servicing Agreement or are otherwise ordered or awarded
by a court or other tribunal of appropriate jurisdiction over the Company and
such claim or loss.
(B) The Reinsurer shall have no liability to pay Subject Obligations unless and
until the Company has such liability and such amounts have become actually due
and payable by the Company, including, without limitation, by virtue of a valid
and binding agreement of settlement, compromise, or arbitral or judicial award.
ARTICLE 25
ERRORS AND OMISSIONS
Any omission or error by either party to this Agreement will not relieve either
party of liability hereunder, provided such act, omission or error is not
prejudicial to the other party and is rectified promptly upon discovery by the
responsible party.
ARTICLE 26
CURRENCY
Whenever the word "Dollars" or the "$" sign appear in this Agreement, they shall
be construed to mean United States Dollars, and all transactions under this
Agreement shall be in United States Dollars.
<PAGE>
ARTICLE 27
GOVERNING LAW
This Agreement shall be interpreted and governed by and enforced in accordance
with the laws of the State of Florida without regard to its rules with respect
to conflicts of law. In the event of any litigation arising from or relating to
this Agreement or the enforcement of any of its terms and conditions, the
parties stipulate and agree that venue for such litigation shall be situated in
the Second Judicial Circuit in and for Leon County, Florida. The parties
further stipulate and agree that this shall be the exclusive forum for any
litigation arising from or relating to this Agreement or the enforcement of any
of its terms and conditions.
ARTICLE 28
INDEMNIFICATION
Upon any rightful termination, cancellation or commutation of this Agreement in
compliance with Article 2(a) or Article 11 hereof, the Reinsurer shall have no
obligation hereunder nor shall the Reinsurer have any liability or obligation to
PCA, the Company and Solutions nor to any other person as a result of such
termination, cancellation or commutation. In this event, PCA hereby expressly
agree to indemnify and hold harmless the Reinsurer, its affiliates and
subsidiaries, and their officers, directors, employees, stockholders and
authorized representatives (each, an "Indemnitee") from any damage and against
any liability to any third party other than PCA, any PCA Member and any
affiliate of such Indemnitee (a "Covered Third Party"), for any and all loss,
cost, damage, expenses, suit, claims, fines, penalties, including punitive or
exemplary damages and all cost of defense incurred by or on behalf of any
Indemnitee:
(a) resulting from, arising out of, or based upon the execution of
this Agreement or the performance of any duties, obligations, or any other
actions taken by the Indemnitee under this Agreement or in connection with
this Agreement, or related to or which arise out of the transactions
contemplated hereunder; or
(b) asserted or proved in any suit, proceeding or legal action
commenced by a Covered Third Party against such Indemnitee resulting from,
arising out of, or based upon the execution of this Agreement or the
performance of any duties, obligations, or any other actions taken by the
Reinsurer under this Agreement or in connection with this Agreement, or
related to or which arise out of the transactions contemplated hereunder.
Notwithstanding the foregoing, PCA shall not be obligated to indemnify any
Indemnitee for Losses arising from or related to any such person's willful
misconduct or breach of the terms of this Agreement or any agreement
contemplated hereby. Each Indemnitee shall be entitled to select counsel as
respects any judicial, administrative, arbitrable, or other proceeding covered
hereby in its sole discretion and to defend itself and PCA and/or a PCA Member
other than the Company will pay or cause to be paid all reasonable losses,
liabilities, expenses and costs, including reasonable attorneys' fees, incurred
by or on behalf of such Indemnitee in connection with such action. In its
reasonable discretion, the Reinsurer shall retain the right to settle or
comprise all actions, claims, litigation or proceedings giving rise to rights
under this Article 28, provided, however, that prior to any such settlement or
compromise, the Reinsurer shall consult with PCA and shall use its best
reasonable efforts to reflect their views thereon. The Reinsurer shall
determine in its sole discretion whether claims or suits may be settled. The
duties, obligations and liabilities of PCA pursuant to this Article 28 shall
survive any termination or cancellation
<PAGE>
of this Agreement.
ARTICLE 29
INSOLVENCY
The obligations of the Reinsurer under this Agreement shall continue without
diminution and shall not be changed as a result of the insolvency of the
Company, provided that the Reinsurer shall, in accordance with the terms of this
Agreement, make payments of the Subject Obligations to the rehabilitator,
liquidator, receiver, conservator or statutory successor of the Company.
Reinsurance under this Agreement shall be payable by the Reinsurer on the basis
of the liability of the Company under policy or policies reinsured without
diminution because of the insolvency of the Company, directly to the Company or
to its liquidator, receiver, or statutory successor except as provided by
Section 631.205 of the Florida Statutes or except when the Agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company and when the Reinsurer with the consent of the direct
insured or insureds has assumed such Policy obligations of the Company as direct
obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Company shall give written notice to the Reinsurer of the pendency
of a claim against the insolvent Company on the policy or policies reinsured
within a reasonable time after such claim is filed in the insolvency proceeding
and that during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding when such claim is to
be adjudicated, any defense or defenses which it may deem available to the
Company or its liquidator or receiver or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
Should any party hereto be placed in rehabilitation or liquidation or should a
rehabilitator, liquidator, receiver, conservator or other person or entity of
similar capacity be appointed as respects such party, all amounts due any of the
parties hereto whether by reason of premiums, losses or otherwise under this
Agreement or any other contract(s) of reinsurance heretofore or hereafter
entered into between the parties (whether or not any such contract(s) be assumed
or ceded) shall at all times be subject to the right of offset at any time and
from time to time, and upon the exercise of same, only the net balance shall be
due and payable in accordance with Section 631.281 of the Florida Statutes to
the extent such statute or any other applicable law, statute or regulation
governing such offset shall apply.
ARTICLE 30
MISCELLANEOUS
No oral explanation or oral information by either of the parties hereto shall
alter the meaning or interpretation of this Agreement. No amendment, change or
addition hereto shall be effective or binding on any party hereto unless reduced
to writing and executed by the respective duly authorized officer of each of the
parties hereto. The failure of either party to enforce any provision of this
Agreement shall not constitute a waiver by either party of any such provision.
The past waiver of a provision by either party shall not constitute a course of
conduct or a waiver in the future to the same provision. This Agreement may be
executed in any number of counterparts, all of which when taken together shall
constitute a single agreement. All headings in this Agreement are for the
purpose of information and identification only and shall not be construed as
forming part of this Agreement.
<PAGE>
The parties agree to negotiate in good faith to amend any terms and conditions
of this Agreement which violate or are in conflict with such laws, Insurance
Department regulations, or any other applicable regulations or rulings, with the
aims of eliminating such violation or conflict while preserving the initial
allocation of risks, benefits, rights and duties under this Agreement.
All notices, demands, consents, requests, waivers, elections or other
communications (collectively "Notices") authorized, required or permitted to be
given under this Agreement shall be addressed as follows:
to PCA: Physician Corporation of America
6101 Blue Lagoon Drive
Miami, Florida 33126
Attention: Chief Executive Officer
to Company: PCA Property & Casualty Insurance Company
c/o PCA Solutions, Inc.
P.O. Box 166007
Altamonte Springs, Florida 32716
Attention: Chief Executive Officer
to Solutions: PCA Solutions, Inc.
P.O. Box 166007
Altamonte Springs, Florida 32716
Attention: Chief Executive Officer
to Reinsurer: Centre Reinsurance Company of New York
One Chase Manhattan Plaza
Thirty-fifth Floor
New York, New York 10005
Attention: President and Chief Executive Officer
to Florida Department
of Insurance: Florida Department of Insurance
Larson Building
200 East Gaines Street
Tallahassee, Florida
Attention: Director of Insurer Services
(b) All Notices shall be given in writing, mailed by first class registered or
certified mail, and via facsimile, and shall be deemed to be received two (2)
business days after the day of mailing. Any party may change its address for
the receipt of Notices or the party to whose attention Notices are sent at any
time by giving notice thereof to the other parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of this 2nd day of June 1997.
PCA PROPERTY & CASUALTY INSURANCE COMPANY
BY: ____________________________________
NAME
TITLE
CENTRE REINSURANCE COMPANY OF NEW YORK
BY: _______________________________________
NAME
TITLE
PHYSICIAN CORPORATION OF AMERICA
BY: ____________________________________
NAME
TITLE
PCA SOLUTIONS, INC.
BY: ____________________________________
NAME
TITLE
<PAGE>
SCHEDULE 1
SCHEDULE OF ASSETS OF COMPANY AND SOLUTIONS
<PAGE>
SCHEDULE 2
INTERCOMPANY PAYMENTS
& ARRANGEMENTS
PART A
1. Payments pursuant to the certain Managed Care Agreement by and between the
Company, PCA, Solutions and PCA Members, referred to in the Old Management
Agreement, as that term is defined in the New Claims Agreement.
2. Fee payments pursuant to the Old Management Agreement, as that term is
defined in the New Claims Agreement.
Notwithstanding, PCA to retain obligation to effect pro rata refunds in respect
of policy terminations, etc.
PART B
See the attached Schedule of Payments to be made on the Execution and Closing
Dates.
<PAGE>
SCHEDULE 3
LIENS & ENCUMBRANCES
1. Sierra Note re: Solutions stock.
2. Bank liens to be discharged/released prior to Closing Date.
3. Mortgages on real property.
4. PMSI re: Equipment.
5. Tax Liens
Representation and Warranty to be provided by PCA and Company within by June 15,
1997.
<PAGE>
APPENDIX A
COLLATERAL AGREEMENTS
<PAGE>
APPENDIX B
COMMUTATION AGREEMENTS
<PAGE>
APPENDIX C
INVESTMENT MANAGEMENT AGREEMENT
<PAGE>
APPENDIX D
NEW CLAIMS SERVICING AGREEMENT
<PAGE>
APPENDIX E
NEW TAX SHARING AGREEMENT
<PAGE>
Ex. 2.3
CLAIMS RUN-OFF ADMINISTRATION
SERVICES AGREEMENT
This Agreement is made and shall be effective this 2nd day of June 1997 (the
"Effective Date"), by and amongst PCA Solutions, Inc. a Florida corporation
("TPA"), PCA Property & Casualty Insurance Company, a Florida insurance company
("PCA P&C" or the "Company"), Physician Corporation of America, a Delaware
corporation ("Physician Corp.") and Centre Reinsurance Company of New York a New
York reinsurance company ("Centre Re").
W I T N E S S E T H:
WHEREAS, PCA P&C is a Florida domiciled property and casualty insurance company;
and
WHEREAS, TPA is a licensed managing general agent and insurance administrator
and has the systems, expertise and personnel to serve as administrator of PCA
P&C's insurance business; and
WHEREAS, Centre Re and PCA P&C have entered into an Aggregate Excess of Loss
Reinsurance Agreement dated June 2nd, 1997 (the "Reinsurance Agreement") the
intent of which is to provide aggregate excess of loss payment protection to PCA
P&C; and
WHEREAS, the Reinsurance Agreement provides that in connection with the
aggregate excess of loss payment protection afforded to PCA P&C by Centre Re,
TPA will administer the handling of claims in run-off arising out of Policies
issued or assumed by PCA P&C, subject to the supervision of Centre Re or its
designee, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, TPA, PCA P&C, Physician Corp. and Centre Re in consideration of
the mutual premises herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
agree as follows:
SECTION 1. APPOINTMENT.
(a) Centre Re hereby appoints TPA as its third party claims service
administrator for the comprehensive processing, handling, adjusting, settling
and administration of insurance claims arising out of the Policies, with such
power and authority as is set forth more fully in this Agreement, limited
however, to such jurisdictions where TPA is duly licensed or authorized to
handle the administration of insurance claims. The term "Policies" shall
include any policies, certificates, binders, slips and other contracts of
insurance or reinsurance or other evidences of insurance liability, whether oral
or written, contracted for or issued by PCA P&C or of any self insurance fund,
assessable mutual or other like entity, the assets and liabilities of which the
Company assumed, reinsured or indemnified (including but not limited to Florida
United Businesses Self Insurers Fund, Florida Agri-Business & Industries Self
Insurers Fund, Florida Builders & Employers Mutual Insurance Company, Florida
Business Mutual Insurance Company, Florida Auto Dealers Self Insurers Fund and
Florida Home Builders Self Insurers Fund, or any predecessor entity of the
foregoing) or any other predecessor entity to the Company.
(b) TPA hereby accepts such appointment and agrees to comply strictly with all
written claims
<PAGE>
handling guidelines and such other directives as are from time to time
established by Centre Re and furnished to TPA.
SECTION 2. DUTIES OF TPA.
TPA shall have no power or authority other than as specifically granted and set
forth herein, and no other or greater power shall be implied from the grant or
denial of powers specifically mentioned herein.
(a) CLAIMS PROCESSING AND RESERVE ESTABLISHMENT.
Subject to the terms and conditions of this Agreement, and subject to all
applicable laws and regulations, TPA shall provide the following claims
administration services in accordance with the policies and procedures and
specific written claims handling guidelines of the Company set forth in Exhibit
A attached hereto, as may from time to time be modified by Centre Re ("Claims
Handling Guidelines"), and subject to periodic review or audit thereof by Centre
Re or its designee, throughout the Term of this Agreement, as follows:
1. Adjust, investigate, examine, settle, compromise or pay from the
Run-off Fiduciary Claims Account (hereinafter defined) all claims and
losses on all Policies where the combined indemnity and expense reserves
and/or payments are less than or equal to $250,000 total exposure, without
prior notice to Centre Re.
2. Consistent with the above levels of authority, defend, litigate,
compromise, settle, withdraw from actions or submit to arbitration, all
actions, suits, proceedings, accounts, involving claims, demands or losses
on Policies, in which the Company may become a party, and in connection
therewith, to make and execute general and specific releases, covenants not
to sue, and any and all documents necessary or proper, and to make or to
accept and receive payment or other consideration in satisfaction of any
disputes in the name of and on behalf of the Company, and as appropriate
retain counsel for the purposes specified herein. Notwithstanding, to the
extent practicable, TPA shall use its best efforts to ensure that no
activity shall be performed by defense counsel that may otherwise be
lawfully performed by TPA, without the consent of Centre Re or its
designee.
3. In performing the foregoing activities, TPA shall, at all times,
acknowledge and act reasonably promptly upon all communications with
respect to all claims arising under any Policy; affirm or deny coverage of
claims within a reasonable time after proof of loss statements have been
completed; attempt in good faith to effectuate prompt, fair and equitable
settlements of all claims in which liability has become reasonably clear;
make timely payment of claims in accordance with payment procedures
established by Centre Re; and otherwise adhere in full to all of the
precepts of the Unfair Claim Settlement Practices law as set forth more
fully in section 626.9541(1)(i) of the Florida Insurance Code relative to
the handling of claims, treatment of claimants and insureds. Failure to
act in accordance with the foregoing shall constitute a material breach of
this Agreement.
4. All such adjustments, settlements or payments of claims shall be
effected in the manner prescribed hereinafter in Section 2(b).
5. Retain experts, as may be required to support TPA or counsel in the
investigation, examination, settlement, defense or compromising of any
claim or loss on Policies.
<PAGE>
6. TPA shall establish and maintain a claims file for each claim reported
in the manner prescribed in Exhibit B hereto. All claims files are the
joint property of Centre Re and PCA P&C. However, upon the filing of a
petition seeking the appointment a receiver pursuant to Chapter 631,
Florida Statutes with respect to PCA P&C, or in the event that a dispute
arises between the parties under this Agreement, Centre Re shall have broad
authority at its own expense to inspect, copy and audit all Books and
Records maintained by TPA and/or returned to PCA P&C and may at its own
expense make copies or extracts of any Books and Records pertaining thereto
as it may deem necessary.
7. Report to Centre Re or its designee in a timely manner, all claims in
excess of TPA's authority, or that meet the criteria outlined in
subsections 8 or 9 hereinbelow, in the format agreed to by PCA P&C, TPA and
Centre Re, including at a minimum a clear synopsis of the fact patterns of
any claim, and such additional detail as set forth in Exhibit C.
8. Notice shall be provided to Centre Re or its designee as soon as it
becomes known that a claim:
(i) has the potential to exceed TPA's settlement authority;
(ii) involves a coverage dispute;
(iii) has the potential to exceed, or exceeds the policy limits;
(iv) is open for more than six (6) months; or
(v) is closed by payment of an amount, if any, established by a State
insurance department having jurisdiction over the substance of this
Agreement, or exceeds the policy limits, whichever is less.
In any of the foregoing cases, a copy of the corresponding claims file
shall be sent at the request of Centre Re or its designee.
9. Irrespective of the TPA's reserve or liability evaluation, the
following claims shall be immediately reported to Centre Re:
(i) any claim involving any of the following injuries:
1. brain damage or alleged brain damage or injury to the central
nervous system;
2. spinal cord damage and/or paraplegia/quadriplegia;
3. amputations of one or more limbs or loss of use of one or more
limbs;
4. serious burns involving 10% of body with third degree or burns
involving 20% of body with second degree;
5. fatalities;
6. severe lacerations or disfigurement involving serious cosmetic
disformity;
7. impairment of any of the senses - sight, hearing, taste, smell or
touch;
8. injury to the reproductive organs;
9. massive internal injuries;
10. back injury involving multiple surgeries or disability of more
than one year;
11. any injury resulting in extended hospital, wheelchair or walker
confinement;
12. any injury resulting in high wage loss or total loss of economic
livelihood;
13. any loss where it appears that temporary total disability may
extend beyond twelve months and/or where it appears that it may become
a permanent disability;
14. single accidents involving multiple claims;
15. occupational disease; or
<PAGE>
16. multiple fractures.
(ii) any claim involving punitive or exemplary damages and/or bad
faith against the insured, TPA or PCA P&C.
In any of the foregoing cases, a copy of the corresponding claims file
shall be sent at the request of Centre Re or its designee.
10. Subsequent to the initial reporting of a claim required to be reported
under subsections 7, 8 or 9 hereinabove, TPA shall provide to Centre Re or
its designee the first investigative report on such claim within forty-five
(45) days thereafter. Interim reports shall be provided each one hundred
twenty (120) days subsequent thereto, or upon any significant development.
"Significant development" shall mean any material reserve
increase/decrease, settlements, or materially new information that changes
the liability evaluation and/or ultimate projected exposure.
11. Notify Centre Re or its designee immediately of any and all claims
that may or become scheduled to go to trial, whether or not such claim is
below TPA's authority level. No verdict may be taken in any suit,
regardless of offers or demands, without the express prior approval of
Centre Re.
12. Establish all loss reserves for claims under Policies, including
outstanding claims reserves, allocated loss adjustment expense reserves,
and shall report these reserve amounts to Centre Re in the manner set forth
in Section 2(d) hereinbelow. Such reserve evaluation shall reflect the
ultimate exposure considering coverage, allocated loss adjustment expenses,
liability and damages.
13. Report suspected fraud as required by any applicable code, statute,
law or regulation set forth in the Territory, and in accordance with PCA
P&C's SIU Plan.
Notwithstanding the foregoing, Centre Re reserves the right to assume the
control and handling of any claim at any time, and TPA agrees to promptly
deliver any claim file to Centre Re or its designee which it may request.
(b) PAYMENT OF CLAIMS.
1. All funds received by TPA for the payment of claims, losses, allocated
loss adjustment expenses for claims, settlements, judgments, salvage and
subrogation expenses payable by TPA on behalf of PCA P&C shall be deposited
by TPA directly to the Run-off Fiduciary Claims Account established by
Centre Re and PCA P&C at the SunTrust Bank in the State of Florida, or such
other bank approved from time to time by Centre Re, the deposits of which
are insured by the Bank Insurance Fund or the Savings Associations
Insurance Fund of the Federal Deposit Insurance Corporation, and shall be
maintained by TPA in a fiduciary capacity separate and apart from any
operating or other funds of TPA, and furthermore, shall be separate and
apart from any other funds maintained by TPA on behalf of any other entity
or person ("Run-off Fiduciary Claims Account.") All funds so deposited
shall be invested in the following types of accounts and/or instruments and
no other: demand accounts, time accounts and certificates of deposit.
This account shall be used for all payments on behalf of PCA P&C, and any
interest earned thereon shall be used to reduce funding requests by TPA.
2. PCA P&C, under the supervision of Centre Re, shall transfer sufficient
funds to the Run-off
<PAGE>
Fiduciary Claims Account in order to pay claims, losses and allocated loss
adjustment expenses upon the compromise, settlement or adjustment of a
claim or loss. All such funds received by TPA from PCA P&C, shall be
deposited into the Run-off Fiduciary Claims Account. Funds held in the
Run-off Fiduciary Claims Account shall not exceed three (3) months'
estimated claims payments and allocated loss adjustment expenses.
3. TPA is authorized to disburse funds from the Run-off Fiduciary Claims
Account for the following: payment of allocated loss adjustment expenses,
including but not limited to expert fees, adjusters fees and legal fees and
payment of claims and losses.
(c) SALVAGE AND SUBROGATION.
1. TPA shall take appropriate steps to pursue salvage and subrogation
rights inuring to PCA P&C in accordance with the terms of the Policies,
including but not limited to, retaining counsel and seeking recovery from
the special disability fund, and the like, and shall advise Centre Re when
in TPA's opinion the pursuit of salvage or subrogation is appropriate. The
cost of such salvage and subrogation shall be borne by PCA P&C as an
allocated loss adjustment expense.
2. Notwithstanding any determination made by TPA, Centre Re may determine
that it is in its interest to pursue such salvage or subrogation and shall
be free to direct TPA to pursue this remedy or may elect to do so on its
own. Centre Re reserves the right to associate and participate with TPA in
the handling of any salvage or subrogation, or to assume the control and
handling of such subrogation at any time.
3. Any salvage and subrogation funds collected by TPA shall be deposited
into the Run-off Fiduciary Claims Account, and shall be used to reduce the
next request to transfer funds from PCA P&C.
(d) REPORTING REQUIREMENTS. TPA shall provide all accounting and reporting
services with respect to this Agreement to satisfy the reasonable requirements
of Centre Re or its designee, including but not necessarily limited to the
following:
1. Immediately record all claims transactions and data into TPA's
database, including all such information as respects each claim, as
specified in Exhibits A and B.
2. Report to Centre Re or its designee a detailed and itemized monthly
account ("Monthly Activity Report") on all claims transactions in that
month not later than the fifteenth (15th) day of the subsequent month. The
Monthly Activity Report shall be in such form and shall contain such
information which Centre Re shall require or consider reasonably necessary,
in the format outlined in Exhibit D.
3. From time to time, upon the request of Centre Re, TPA shall prepare an
ad hoc management report, in such form and prescribed format as may be
reasonably requested by Centre Re.
(e) REGULATORY COMPLIANCE.
1. TPA shall provide, at its own expense, and within a reasonable time, as
necessary, such information to satisfy reporting requirements imposed upon
PCA P&C and Centre Re by any boards, bureaus and associations to enable PCA
P&C and Centre Re to file required financial statements and reports with
State insurance departments, reinsurers, and regulatory bodies of
<PAGE>
competent jurisdiction with regard to the claims administered under this
Agreement.
2. TPA shall promptly forward to Centre Re or its designee, in no event
later than the first business day after receipt thereof, any and all
notices, complaints, inquiries and the like received by any insurance
department or any other regulatory authority, or any other action or
sanction charged against PCA P&C or Centre Re, and in addition, shall
provide to Centre Re all information from its records and the records of
PCA P&C which will assist Centre Re and/or PCA P&C in its response to such
insurance department or other regulatory authority, and otherwise cooperate
fully with Centre Re in connection with any such notice, complaint or
inquiry, and if requested by Centre Re and/or PCA P&C, TPA shall take
and/or assist in any response as is reasonable and necessary in defense of
Centre Re and/or PCA P&C. Any fines or penalties levied against Centre Re
and/or PCA P&C arising out of the administration of claims under this
Agreement shall be paid by TPA.
(f) APPOINTMENT OF SUB-AGENTS - TPA shall not be authorized to delegate any of
its authority hereunder, but may, from time to time, with due care, appoint a
sub-agent or sub-delegee third party claims administrator. In no event, and
under no circumstance, shall this provision be construed to establish any
relationship between Centre Re and any party so appointed by TPA. TPA
represents and warrants that any party so appointed shall be lawfully licensed
or authorized to transact the business for which he, she or it is appointed, and
that during the tenure of said appointment, such authority shall be maintained
continuously and in full force and effect, and shall promptly inform Centre Re
in writing of any and all changes in any of such licenses or authorizations in
all jurisdictions relating to the business conducted under this Agreement.
(g) AUTHORIZATIONS - TPA represents and warrants that it possesses licenses or
authorizations to perform the functions and duties set forth in this Agreement
in the Territory, as may be required by law. TPA shall not commence any
activity hereunder, for which such licenses or authorizations may be required by
law, unless and until such license or authorization has been obtained, and shall
promptly inform Centre Re in writing of any and all changes in any of such
licenses or authorizations in all jurisdictions relating to the authority of TPA
to the business conducted under this Agreement.
(h) ACTS OR OMISSIONS - TPA shall not do, or omit to do, nor permit any delegee
to do or omit to do, any act which might jeopardize the rights of Centre Re or
PCA P&C to transact its business under the laws of the jurisdictions in which it
now transacts business under this Agreement, (or in which it may in the future
transact business) or cause Centre Re or PCA P&C to be subject to any
disciplinary action, cease and desist proceeding, receivership, or any other
similar action by any federal, state or local agency, commission, or regulatory
authority.
(i) LIMITATIONS OF AUTHORITY - In addition to any other limitations expressly
or implicitly contained in this Agreement, any exhibits or addenda thereto, or
any Claims Handling Guideline, bulletin or instruction which may be issued from
time to time by Centre Re or its designee to TPA, TPA shall have no authority to
do any of the following acts:
1. appoint a sub-third party claims administrator or delegate any
authority whatsoever granted to TPA under this Agreement, without prior
written approval of Centre Re, and without ascertaining that the sub-third
party claims administrator is lawfully licensed to transact the business
for which it is appointed;
2. assign or delegate its rights and/or duties hereunder without prior
written approval of Centre Re;
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3. make, accept or endorse notes or otherwise incur any liability which is
not incurred in the ordinary course of business of the TPA, pursuant to the
terms and conditions of this Agreement;
4. waive a forfeiture or issue a guaranty, other than as permitted
expressly in writing by Centre Re;
5. withhold any monies or property of Centre Re or PCA P&C;
6. institute, prosecute, defend or maintain any legal proceedings in the
name of or on behalf of Centre Re;
7. deviate in any manner from the Claims Handling Guidelines;
8. transact business in contravention of the rules and regulations of any
Insurance Department, (including but not limited to the Florida Unfair
Claim Settlement Practices law, or such other states' insurance laws
relative to the handling of claims, treatment of Claimants and insureds)
and/or other governmental authorities having jurisdiction of the subject
matters embraced within this Agreement, all instructions issued by Centre
Re or its designee, and the applicable laws of any jurisdiction concerned;
9. hold itself out as a representative of Centre Re or any of its
affiliates in any other manner, or for any other purpose than is
specifically prescribed in this Agreement; or
10. endorse checks payable to PCA P&C or Centre Re, other than to deposit
such funds into the Run-off Fiduciary Claims Account as may be required
under Section 2(b) hereinabove.
(j) MANAGED CARE SERVICES. The parties acknowledge and agree that certain
managed care provider agreements are in force between and amongst PCA P&C,
Physician Corp. and various affiliated companies for the provision of such
managed care services through the Network of Physician Corp. and its affiliated
companies. "Network(s)" shall mean a preferred health care provider program or
health care delivery system duly certified and/or approved by AHCA pursuant to
Section 440.134 (1994), Florida Statutes.
As delineated more fully in this provision, TPA shall continue to provide and
maintain such workers' compensation managed care services through the Network as
offered by PCA P&C under the Policies, for the benefit of the insured employees,
in accordance with applicable state law.
The managed care services provided under the managed care arrangement shall
include, but not be limited to, the following:
1. NOTICE OF INJURY CENTER SERVICES. TPA shall maintain Notice of Injury
Center Services. Notice of Injury Center Services shall be defined as the
electronic intake registration of employee file information and
documentation of all reported injuries. The process shall include
maintenance of a toll free phone line for employee intake, mailing the
notice of injury in accordance with state regulations and triage of the
injured employee's care.
2. NETWORK PROVIDER ACCESS. TPA shall coordinate PCA P&C's access to the
Physician Corp. medical care Network and Network Providers for the
provision of covered health care services. "Network Providers" shall mean
health care professionals, including but not limited to, primary
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care physicians, specialists, ancillary providers, hospitals, clinics,
pharmacies, rehabilitation facilities and other inpatient and outpatient
health care facilities that have directly or indirectly contracted to
participate in a Network, and which are duly licensed and/or certified as
required by applicable law.
3. NURSE CASE MANAGEMENT SERVICES. TPA, through its medical personnel
when and where appropriate, shall provide nurse case management services
which shall consist of the following: (a) precertification for inpatient
admission (including, review of all medical, surgical, psychiatric and
rehabilitation admissions for medical necessity and appropriateness); (b)
continued stay/concurrent review, the purpose of which is to indicate a
patient's need to remain in a particular facility or treatment giving
consideration to medical necessity and appropriateness; (c) discharge
planning; (d) outpatient surgery review; (e) referral to outside specialist
for field case management, and (f) telephonic case management, providing
oversight of required medical services.
4. TRIAGE SERVICES. TPA, through its medical personnel when and where
appropriate, shall provide triage services to insured employees who have a
work related injury or illness, giving consideration to medical necessity,
severity and appropriateness of treatment. These services shall include
directing the insured employee to the appropriate health care and case
management services as needed, scheduling the appointment with the network
provider, as well as coordination with claims adjusters to return the
insured employee to work at minimal cost.
5. BILL REVIEW AND BILL AUDIT SERVICES. TPA will provide bill review and
bill audit services the purpose of which is to review and evaluate network
provider bills. Bill review and bill audit services shall be performed by
TPA's bill audit nurses both electronically for routine matters and
manually where appropriate. Such review and audit services shall consist
of the review and evaluation of network provider bills to identify whether:
(a) the services are medically necessary and appropriate; (b) the
diagnostic, medical and surgical procedures are appropriate; (c) the
network provider has properly billed for services; (d) proper utilization
is occurring; (e) unbundling is not occurring; and (f) fee schedules and
discounts are followed.
6. QUALITY ASSURANCE SERVICES. TPA shall provide quality assurance
services in support of the managed care arrangement to systematically
monitor and evaluate the quality and appropriateness of patient care, and
to identify and resolve problems using prevailing standards of care. These
services shall include quality and utilization studies, employee
satisfaction surveys, and utilization management reviews. TPA shall design
and undertake remedial action when quality assurance activities identify
inappropriate or substandard services in connection with the managed care
arrangement.
7. NETWORK PROVIDER, EMPLOYER AND EMPLOYEE EDUCATION. TPA shall inform
network providers, insured employers and employees regarding their rights
and obligations under the policies and procedures outlined in the workers'
compensation managed care arrangement. Employers shall be provided
instructional material concerning the managed care arrangement which shall
include information concerning the rights and responsibilities of insured
employers and employees, methods of claims reporting, and a directory of
participating network providers. At the time of injury, insured employees
shall be provided information advising how to access services and their
rights and responsibilities under the workers' compensation managed care
arrangement. TPA shall maintain, at its expense, a toll-free telephone
number for network providers, insured employers and employees to obtain
additional information concerning the workers' compensation managed care
arrangement.
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8. MEDICAL RECORDS. TPA shall coordinate and maintain all necessary and
appropriate books, records and files ("Medical Records") with respect to
the managed care arrangement, as may be required of TPA or PCA P&C by
applicable law.
9. GRIEVANCE AND APPEAL PROCEDURES. TPA shall coordinate and maintain
appropriate grievance and appeal procedures in accordance with its managed
care arrangement filing effected with the Florida Agency for Health Care
Administration.
10. TPA shall provide, on a monthly basis or more frequently as reasonably
required by Centre Re or its designee, updated information in a mutually
acceptable format regarding Network Provider effective dates and
termination dates, certification by the Division of Workers' Compensation,
current listings of Network Providers, including names, billing addresses,
facility office addresses, telephone numbers, tax identification numbers,
Network Provider contract rate information, and in the case of physicians,
their specialties, and any other relevant information known to TPA about
the Network Providers in the Network.
(k) On behalf of PCA P&C, and consistent with the Reinsurance Agreement, TPA
shall use its best efforts to pursue and collect all reinsurance recoverables,
Special Disability Trust Fund recoveries, premium receivables and all other
recoveries or receivables due and owing to PCA P&C. Furthermore, TPA in the
name of and on behalf of PCA P&C shall implement controls and procedures to
preserve recoveries from the Special Disability Trust Fund (or any successor
fund), which controls and procedures shall be approved by Centre Re, and shall
assist PCA P&C in providing periodic reports to Centre Re concerning such
procedures and any recoveries received from such fund.
(l) OTHER ADMINISTRATIVE DUTIES - TPA and PCA P&C have heretofore entered into
a Management Contract dated January 1, 1996 (the "Old Management Agreement") a
copy of which is attached hereto as Appendix A, pursuant to which PCA P&C
engaged TPA to manage its insurance operations, including but not limited to,
the provision of the following services: underwriting management, reinsurance
coverage, claims processing, loss prevention and analysis, premium collection
regulatory liaison, policy advisor, accounting functions, marketing and agent
relations, case management and other ministerial functions as delineated more
fully in Sections 1 (a), (b), (d), (e), (f), (g), (h), (j), (k), (l) and (m),
therein. It is the intention of the parties hereto that the basic management
services provided under the Old Management Agreement shall continue to be
performed by TPA as directed therein, subject however, to TPA's obligations to
perform all of the duties outlined in this Section 2 (subsections (a) through
(k)) and elsewhere as delineated in this Claims Run-off Administration Services
Agreement. In the performance of its obligations pursuant to the Old Management
Agreement and this Agreement, TPA will endeavour to pay, or cause the timely
payment of, all of PCA P&C's legally binding obligations without distinction as
between obligations relating to insurance Policies underwritten by PCA P&C and
the other obligations thereof. In the case of any conflict as respects the
duties and obligations of TPA between this Claims Run-off Administration
Services Agreement and the Old Management Agreement, the duties and obligations
of TPA delineated in this Claims Run-off Administration Services Agreement shall
prevail. TPA, PCA P&C and Physician Corp. each hereby covenant and agree, that
no modification, amendment nor change shall be effected to the Old Management
Agreement, without the prior written consent of Centre Re.
SECTION 3. DUTIES AND RIGHTS OF CENTRE RE.
(a) WARRANTY OF CENTRE RE. Centre Re hereby represents and warrants that
during the term of this Agreement, Centre Re or its designee shall comply in a
timely manner with any reasonable request for
<PAGE>
instructions or approvals which TPA may make from time to time in order to
perform its duties under this Agreement.
(b) RIGHTS OF CENTRE RE. During the term of this Agreement, TPA and Physician
Corp. hereby acknowledge and agree that Centre Re shall have the following
rights and management prerogatives with respect to TPA:
1. PERSONNEL, STAFF AND EQUIPMENT - Pursuant to Section 12 of this
Agreement, TPA is required to maintain a sufficient staff of competent and
trained personnel and adequate supplies and equipment to perform its duties
under this Agreement. In furtherance of TPA's responsibility to faithfully
perform its obligations hereunder and to promote and safeguard the best
interest of PCA P&C and Centre Re, TPA and Physician Corp. hereby
acknowledge, agree and consent that, as a material condition of this
Agreement, Centre Re shall have the right, in its sole discretion, to:
(i) participate in, direct, review and approve of all staffing
requirements and the hiring and termination of any and all personnel
employed by TPA, including but not limited to the compensation and
benefits associated therewith, irrespective of any such existing or
prospective employee's purpose of engagement or level of employment.
In this respect, TPA shall take no action, nor shall Physician Corp.
permit such action to be taken, whatsoever directly or indirectly
affecting or impacting the relative levels of staffing, or any
specific hiring or termination of any employee, without first
consulting with and receiving the specific written authorization and
approval of Centre Re or its designee;
(ii) participate in, direct, review and approve any and all planning,
procurement, expenditure, disbursement or other acquisition of a
material nature for business equipment, computer and software systems,
fixtures, office supplies, office space, real and personal property,
mortgages or leases intended for use in connection with or relating to
the undertaking of TPA's duties under the Agreement. In this respect,
TPA shall take no action, nor shall Physician Corp. permit such action
to be taken, whatsoever directly or indirectly affecting or impacting
the foregoing, without first consulting with and receiving the
specific written authorization and approval of Centre Re.
(2) BOARD RIGHTS - Physician Corp. and TPA acknowledge that the effective
and successful management of TPA's operations by its senior management is
crucial to the ongoing conduct of PCA P&C's business hereunder and the
future success of this Agreement. Accordingly, TPA and Physician Corp.
hereby acknowledge, agree and consent that, as a material condition of this
Agreement, Centre Re shall have the right, in its sole discretion,
designate one or more representatives to attend meetings of the board of
directors of TPA and all committees thereof and to receive copies of all
materials and information distributed in connection with such meetings.
(c) Notwithstanding anything to the contrary in this Agreement, Centre Re's
consent or approval relative to any action as required or permitted in any of
the foregoing, shall not in any event be construed as charging or binding Centre
Re to bear any part of the cost or expenses thereof.
(d) As concerns TPA, Physician Corp. hereby represents and warrants that it
shall bear ultimate responsibility to direct the management of TPA, its wholly
owned subsidiary, to comply with the provisions contained in this Section 3(b).
In addition, Physician Corp. hereby further represents and warrants that it
shall not interfere in any manner with TPA's efforts to comply with the
requirements of this provision, through any act of commission or omission. In
furtherance of the foregoing, Physician
<PAGE>
Corp. and TPA hereby acknowledge, agree and consent that any officer, manager,
attorney, employee or any person who possesses executive authority over TPA's
affairs, shall cooperate with Centre Re and its designee in all respects to
carry out the intent of this Section 3(b). The failure on the part of TPA or on
the part of Physician Corp., or any officer, manager, attorney, employee or any
person who possesses executive authority over TPA's affairs, to comply with the
foregoing provision, shall constitute a material breach of this Agreement.
SECTION 4. BOOKS AND RECORDS.
(a) TPA shall maintain complete, accurate and up-to-date separately
identifiable books and records and electronic files with respect to the
insurance claims covered hereunder, including but not limited to, all accounting
records, underwriting files, Policy and premium records, insurance certificates,
bank records, records relating to the Run-off Fiduciary Claims Account, tax
returns, licensing files, records of notices, complaints, inquiries, actions and
suits served against TPA, PCA P&C or Centre Re, copies of all binders, policies
or certificates of insurance (both issued and canceled) as may have been
provided to it by PCA P&C, and all reports and records required to be retained
in connection with this Agreement or required of either party under applicable
law during the term of this Agreement, or as may be necessary to identify the
claims administration business conducted by TPA hereunder (hereinafter
collectively referred to as "Books and Records"), for a period of ten (10) years
after termination of this Agreement, or for a period of five (5) years after the
applicable statute of limitations has expired, whichever is longer. The TPA
shall be responsible for retaining all Books and Records required to be
maintained by TPA under this Agreement, in hard copy form, microfilm, computer
software systems and/or other generally accepted information storage medium, as
well as, in any reasonable back-up form directed by Centre Re for the period
described above. At its own expense, utilizing its best efforts, TPA must
establish and shall have in place prior to the commencement of any activity
under this Agreement, one or more computer link(s) with Centre Re, and/or its
designated representatives, to facilitate the automatic and timely electronic
transfer of data regarding claims administered under this Agreement, including
but not limited to all information which TPA is obligated to provide Centre Re
under Section 2 hereinabove. Furthermore, TPA hereby represents and warrants
that it has in place and shall maintain at its own expense utilizing its best
efforts throughout the Term of this Agreement and for a period of ten (10) years
after termination of this Agreement, or for a period of five (5) years after the
applicable statute of limitations has expired, whichever is longer, a disaster
recovery plan, the purpose of which is to protect all Books and Records required
to be maintained by TPA under this Agreement, from any catastrophe, disaster,
calamity, unforeseen occurrence, Act of God, or the like.
(b) Centre Re or its designated representatives, without restrictions or
limitations, shall have broad authority to inspect, copy and audit all Books and
Records of the TPA pertaining to the claims administered under this Agreement at
any time during reasonable business hours, and may make copies or extracts of
any Books and Records pertaining thereto as it may deem necessary, without
disrupting or unduly burdening normal TPA operations. All Books and Records
relating to the claims administered under this Agreement, in whatsoever
information storage medium they are maintained, including computer software
systems, are the property of PCA P&C. In the event termination of this
Agreement, or in the event that a dispute arises between the parties under this
Agreement, Centre Re or its designee shall have broad authority to inspect, copy
and audit all Books and Records returned to PCA P&C and may make copies or
extracts of any Books and Records pertaining thereto as it may deem necessary.
TPA shall at all times make available and permit access to the commissioner of
insurance, or his or her duly designated authorized representative, all books
and Records of TPA in a form usable to the commissioner.
(c) TPA acknowledges and agrees, that upon reasonable notice, Centre Re or its
designee may conduct an on-site review of TPA's claims administration operations
and the TPA will cooperate in all
<PAGE>
respects with such a review. TPA will also cooperate with Centre Re and its
designated actuary(ies) with respect to the preparation of an annual actuarial
statement attesting to the adequacy of loss reserves.
SECTION 5. CONFIDENTIAL INFORMATION.
(a) The parties hereby agree to treat as confidential any and all reports,
information, and data relating to, obtained by, prepared or assembled by, or
given to the other or developed as a result of information supplied by or on
behalf of either party, under this Agreement, or by reason of, or relating to,
the transactions contemplated by this Agreement, including but not limited to
any materials, presentations, records, and all matters affecting or relating to
the proposed business and operations under this Agreement (such information
being collectively referred to herein as "Confidential Information").
(b) The parties shall each take appropriate steps to ensure that all
Confidential Information is kept confidential by the respective parties and each
of their directors, officers, principals, shareholders, employees, agents and
advisors, and that such Confidential Information will not be divulged, disclosed
or communicated to any person, firm, association, corporation or other entity,
during or subsequent to the term of this Agreement, PROVIDED, HOWEVER, that (i)
disclosure of any Confidential Information to which the other party has
consented in writing may be made; and (ii) any Confidential Information may be
disclosed pursuant to applicable law, regulation or legal process; and (iii)
Confidential Information may be also be disclosed to auditors of either party
and regulatory authorities, to the extent that they are required to do so.
(c) In the event of a breach of this Section 5 relating to Confidential
Information, the affected party shall be entitled to seek specific performance
and injunctive or other equitable relief as a remedy for any such breach, which
shall not be deemed to be the exclusive remedy for such breach, but shall be in
addition to all the remedies available at law or equity.
(d) The term "Confidential Information" as used in this Agreement does not
include information which (i) was or becomes generally available to the public
other than as a result of the disclosure by or on behalf of a party; (ii) was or
becomes available on a non-confidential basis from a source other than a party
or its representatives, provided that such source is not bound by a
confidentiality agreement with, or similar obligation to another party.
<PAGE>
SECTION 6. LICENSING.
(a) TPA represents and warrants that it understands the requirements of the
insurance laws or regulations of the states in which it will operate under this
Agreement and that it shall be responsible for compliance with all such laws and
regulations.
(b) Furthermore, TPA represents and warrants that it shall be responsible for
its compliance with all applicable insurance laws, including but not limited to
the relevant Unfair Claims Handling Practices Acts; and further, that it now has
and shall maintain during the term of this Agreement the licenses, permits and
authorizations necessary or appropriate to conduct the claims handling and
administration which is the subject of this Agreement.
(c) TPA shall be responsible for all damages, penalties, fines and liabilities
incurred by it, or by Centre Re or PCA P&C, for which Centre Re or PCA P&C may
be responsible, as a proximate result of TPA's failure to comply with any
applicable insurance law or regulation or failure to properly maintain the
required licensure. In the event that any license utilized by the TPA expires,
terminates or is suspended for any reason, TPA's authority under this Agreement
shall be suspended immediately, and Centre Re may avail itself of its rights
provided under Section 8 hereunder.
(d) FINANCIAL EXAMINATION OF TPA - Annually, within one hundred twenty (120)
days of the close of the fiscal year of TPA, TPA shall provide Centre Re with a
report of an independent financial examination including a balance sheet and
profit and loss statement, in a form acceptable to the insurance department of
such jurisdictions in which TPA transacts business under this Agreement.
SECTION 7. COMPENSATION AND EXPENSES.
(a) TPA's sole remuneration for all services that the TPA may perform under
this Agreement and under the Old Management Agreement are, as contemplated under
the Reinsurance Agreement, to be equal to the amount of unearned unallocated
loss adjustment expense recorded on PCA P&C's financial statement for the period
ended March 31, 1997, and shall be considered and accounted for as unallocated
loss adjustment expenses. TPA shall receive no further compensation nor
remuneration hereunder. Notwithstanding anything to the contrary, such
remuneration to TPA shall not be paid, and shall not serve as the basis for any
other rights (such as set-off, recoupment, counterclaim, etc.,) and shall be
further subordinated to the full and prior performance or accommodation of all
of PCA P&C's other liabilities and obligations, until such time as this
Agreement and the Reinsurance Agreement shall have been terminated in accordance
with their respective terms and conditions.
(b) EXPENSES.
1. TPA shall be responsible for all expenses incurred by the TPA in the
performance of its obligations under this Agreement, including but not
limited to rentals, transportation facilities, office upkeep, remuneration
of officers, clerks, employees, or other representatives, postage,
promotional and advertising expenses, stationery, printing, and license
expenses, fees for any legal services performed by attorneys engaged to
represent TPA, fees for any certified public accountant which TPA has
engaged, cost of examination of TPA or PCA P&C by any regulatory authority
limited to the business governed by this Agreement, and all overhead and
other expenses of TPA of whatever nature. In addition, TPA shall be
responsible for all benefits, labor, social security obligations, and
immigration reporting requirements, of its personnel, whether or not
related to the business governed by this Agreement. The conduct by the TPA
of its business
<PAGE>
shall be at its own and sole cost, credit, risk and expense.
2. Notwithstanding, as respect to the services and other administrative
duties to be performed by TPA under Section 2(l) of this Agreement, TPA
shall not be responsible for the following expenses: third party actuarial,
corporate legal, and independent accounting expenses borne by PCA P&C.
However, with respect to expenses associated with the services and other
administrative duties to be performed by TPA under Section 2(l), TPA
covenants and agrees that it shall continue to provide all such services in
substantially the same manner as provided for under the Old Management
Agreement.
3. Furthermore, TPA shall not be responsible for the following expenses:
loss and allocated loss adjustment expenses, fees for any legal services
performed by attorneys engaged by Centre Re or PCA P&C, fees for any
certified public accountant or actuary which Centre Re or PCA P&C has
engaged, cost of examination of Centre Re by any regulatory authority not
limited to the business governed by this Agreement, and cost of investing
Centre Re's monies.
SECTION 8. COMMENCEMENT AND TERMINATION.
(a) TERM. This Agreement shall remain in full force and effect until all
claims administered hereunder shall have been fully and finally settled,
compromised, paid or otherwise adjudicated, or the Reinsurance Agreement
commuted in accordance with its terms, unless otherwise terminated in accordance
with subsection (b) below ("Term").
(b) TERMINATION. Notwithstanding the foregoing, Centre Re may terminate this
Agreement for Cause by providing specific written notice to TPA and thirty (30)
business days to cure, upon occurrence of any of the following:
1. if TPA, Physician Corp., or any licensed or regulated affiliated
company or subsidiary, other than PCA P&C is or becomes insolvent, or is
the subject of any proceedings for conservation, dissolution, liquidation,
receivership, rehabilitation or bankruptcy, other than that certain
rehabilitation proceeding brought by the Florida Department of Insurance
petitioning for its appointment as receiver of PCA P&C, brought in the
Circuit Court of the Second Judicial Circuit in and for Leon County,
Florida, under Case No. 97-997;
2. if TPA, its parent company, any licensed or regulated affiliated
company or subsidiary with which Centre Re or any affiliate has a contract,
experiences a materially adverse change in its financial condition, other
than as previously disclosed by TPA to Centre Re, the effect of which has,
or could have a materially adverse impact on TPA's administration of its
duties and operations under this Agreement or Centre Re's interest therein;
3. if, for whatever reason, the TPA or Physician Corp. does not commence
fulfillment of duties provided in this Agreement, or once having commenced
its duties, engages in material neglect of its duties and obligations
hereunder, fails or refuses to act to carry out its duties and obligations
hereunder, which neglect, failure or refusal adversely affects the business
and operations under this Agreement;
4. in the event of a material and deliberate misapplication, misdirection
or misappropriation by TPA of funds or other property received by TPA from
Centre Re or PCA P&C or otherwise for the run-off of Policies pursuant to
this Agreement;
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5. if TPA experiences a material change, directly or indirectly, in its
capital stock participation or control, or if any material part of its
business is sold, transferred or merged, that Centre Re believes in its
reasonable discretion, the effect of which has, or could have a materially
adverse impact on the business contemplated hereunder;
6. if TPA or Physician Corp., any officer, director, or sublicensee, or
any entity affiliated with TPA, fails to take prompt action to remedy any
material breach of this Agreement, or the Reinsurance Agreement, upon
receipt of notice from Centre Re;
7. if TPA, Physician Corp., or any affiliated company or subsidiary, has
taken any action or failed to comply with any law or regulation, the
ultimate result of which TPA or Physician Corp. should have known would
cause any governmental or regulatory agency or authority to revoke or
suspend the authority of, or place under any cease and desist order TPA,
Physician Corp., any affiliated company or subsidiary, or Centre Re, or any
its affiliates, that Centre Re believes in its reasonable discretion, the
effect of which has, or would likely have a material adverse impact of the
business contemplated hereunder or Centre Re's interest therein;
8. if the license or authority of the TPA, Physician Corp., any affiliated
company or subsidiary with which PCA P&C holds a contract, or of any
sublicensee expires and is not renewed without any lapse, becomes invalid
or is revoked or suspended by governmental or regulatory agency or
authority that Centre Re believes in its reasonable discretion, the effect
of which has, or would likely have a material adverse impact of the
business contemplated hereunder or Centre Re's interest therein;
9. if the TPA or any delegee thereof has not acted in material compliance
with the Claims Handling Guidelines, that Centre Re believes in its
reasonable discretion, the effect of which has, or could have a materially
adverse impact on the business contemplated under this Agreement or Centre
Re's interest therein;
10. if the TPA or any delegee has exceeded the maximum claims handling
authority established in this Agreement; or
11. if the TPA or Physician Corp., or any of their directors or officers,
are the subject of an indictment, or criminal investigation, shall have
committed any fraudulent act or criminal conduct, has had a conviction
brought against him or it, which Centre Re in its reasonable discretion
determines adversely reflects on the integrity or trustworthiness of such
entity or person, and the effect of which has, or could have a materially
adverse impact on TPA's administration of its duties and operations under
this Agreement or Centre Re's interest therein.
Centre Re may suspend the claims settlement authority of TPA during the pendency
of any dispute regarding the cause for termination. However, such suspension of
authority is not intended to relieve TPA of any other contractual obligation
under this Agreement. Cause shall mean one or more of the reasons for
termination enumerated above.
(c) Upon termination for any reason, the rights and/or powers granted to TPA
hereunder shall be revoked, and TPA shall have no further authority to
administer claims hereunder. Except as provided herein, TPA shall immediately
cease exercising such rights and/or shall execute any and all documents
necessary or requested by Centre Re to effect or confirm such revocation.
(d) Notwithstanding, at its option, Centre Re may direct that all of TPA's
power and authority as
<PAGE>
respects to such policy years designated by Centre Re, and all of the rights and
obligations of the parties hereto, shall remain in full force and effect until
all claims, losses, and expenses for the Policies have been settled or
compromised. TPA shall be obligated at its own expense to continue to perform,
diligently and professionally, the duties required by Centre Re for the proper
handling of all claims, until all claims, losses, and expenses for Policies have
been settled or compromised. It is understood and agreed, that if at Centre
Re's option TPA shall continue to conduct the aforesaid servicing of Policies
and/or the administration of claims subsequent to the termination of this
Agreement, TPA's sole remuneration for such services that it may perform have
already been contemplated in Section 7, and no further compensation shall be due
to TPA.
(e) Termination of this Agreement for any reason shall not release either party
hereto from any liability which at said time has already accrued to the other
party, nor affect in any way the survival of any other right, duty or obligation
of either party. No provision of this Agreement shall effect, be construed or
operate as a waiver of the right of the party aggrieved by any breach of this
Agreement to be compensated for any injury or damage resulting therefrom which
is incurred either before or after such termination.
(f) In the event of termination pursuant to this Section 8, Centre Re shall
incur no liability to TPA for damages arising solely from the proper exercise of
the right to terminate this Agreement herein and in the event of any such
termination, Centre Re shall be entitled to exercise any and all of its rights
with respect to any guaranty of the TPA's performance of its obligations
hereunder and any collateral interests with respect thereto. Centre Re's rights
and remedies with respect to any such termination shall be cumulative and
non-exclusive.
(g) Notwithstanding anything to the contrary stated herein, in the event that
the Closing Date of the Reinsurance Agreement (as that term is defined
thereunder) shall not have occurred on or before the Termination Date as defined
under the Reinsurance Agreement, then at the option of Centre Re or the Company
at any time thereafter, this Agreement may be terminated and canceled ab initio,
and no party hereto shall have any further liability or obligation thereunder
provided, however, that the provisions of Section 10 - Indemnification hereof
shall continue in full force and shall expressly survive any such termination or
cancellation.
SECTION 9. INDEPENDENT CONTRACTOR.
Nothing herein contained shall be construed to create a relationship of
employer and employee between Centre Re and TPA, or between Centre Re and any of
TPA's employees, officers, representatives, agents, sub-agents, sub-TPAs or the
like. It is the express intent of the parties hereto that TPA is NOT an
employee of Centre Re for any purpose, but rather TPA is an independent
contractor. Furthermore, it is expressly understood and agreed by the parties
hereto that the relationship existing between Centre Re and TPA under this
Agreement constitutes TPA as Centre Re's proxy or representative only in
connection with the services or transactions set forth in this Agreement and
directly related to TPA's functions under this Agreement.
SECTION 10. INDEMNIFICATION.
Upon any termination, cancellation or commutation of this Agreement, Centre Re
shall have no obligation hereunder nor shall Centre Re have any liability or
obligation to TPA, PCA P&C, nor Physician Corp., nor to any other person as a
result of such termination, cancellation or commutation. TPA, and Physician
Corp. hereby expressly agree to indemnify and hold harmless Centre Re, its
affiliates and subsidiaries,
<PAGE>
and their officers, directors, employees, stockholders and authorized
representatives (each, an "Indemnitee") from any damage and against any
liability to any third party for any and all loss, cost, damage, expenses, suit,
claims, fines, penalties, including punitive or exemplary damages and all cost
of defense incurred by or on behalf of any Indemnitee:
(a) resulting from, arising out of, or based upon the execution of this
Agreement or the performance of any duties, obligations, or any other
actions taken by the Indemnitee under this Agreement or in connection with
this Agreement, or related to or which arise out of the transactions
contemplated hereunder; or
(b) asserted or proved in any suit, proceeding or legal action commenced by
a Covered Third Party against such Indemnitee resulting from, arising out
of, or based upon the execution of this Agreement or the performance of any
duties, obligations, or any other actions taken by the Reinsurer under this
Agreement or in connection with this Agreement, or related to or which
arise out of the transactions contemplated hereunder.
Notwithstanding the foregoing, neither TPA nor Physician Corp. shall be
obligated to indemnify any Indemnitee for Losses arising from or related to any
such person's willful misconduct or breach of the terms of this Agreement or any
agreement contemplated hereby. Each Indemnitee shall be entitled to select
counsel as respects any judicial, administrative, arbitrable, or other
proceeding covered hereby in its sole discretion and to defend itself, and TPA
or Physician Corp. will pay or cause to be paid all reasonable losses,
liabilities, expenses and costs, including reasonable attorneys' fees, incurred
by or on behalf of such Indemnitee in connection with such action. In its
reasonable discretion, Centre Re shall retain the right to settle or comprise
all actions, claims, litigation or proceedings giving rise to rights under this
Section 10, provided, however, that prior to any such settlement or compromise,
Centre Re shall consult with TPA Physician Corp. and shall use its best
reasonable efforts to reflect their views thereon. Centre Re shall determine in
its sole discretion whether claims or suits may be settled. The duties,
obligations and liabilities of TPA Physician Corp. pursuant to this Section 10
shall survive any termination or cancellation of this Agreement.
B. ERRORS AND OMISSIONS - TPA represents and warrants that it now has, and
shall maintain during the term of this Agreement, insurance coverage for Errors
and Omissions Liability in an amount as specified in Exhibit E hereto, and on a
form and with a deductible reasonably satisfactory to Centre Re. TPA shall
provide Centre Re with a Certificate of Insurance in its name evidencing the
existence of such coverage and identifying Centre Re as an additional insured.
Such Certificate of Insurance shall contain the following provision: "Centre Re
shall receive thirty (30) days written notice of any change, cancellation or
other termination of this Errors and Omissions Liability Policy."
C. FIDELITY BOND - TPA represents and warrants that it now has, and shall
maintain during the term of this Agreement, a Fidelity Bond covering all
operations, employees and subcontractors servicing the business of this
Agreement, in an amount as specified in Exhibit E hereto, and on a form and with
a deductible reasonably satisfactory to Centre Re. TPA shall provide Centre Re
with a Certificate of Insurance for such coverage with the same provisions as
provided for in the Errors and Omissions coverage, evidencing the existence of
such coverage and identifying Centre Re as an additional insured.
SECTION 11. ADVERTISEMENT, BULLETINS, NOTICES OR COMMUNICATION.
Neither TPA, Physician Corp. nor PCA P&C shall issue any advertising material,
bulletin, "agent mass facsimile", notice, communication, prospectus, proposal,
or representation, either in general or in relation to:
<PAGE>
1. any matter handled by or on behalf of PCA P&C or Centre Re, a
particular policy of PCA P&C or of Centre Re, or use the name of Centre Re
or of any of its affiliates or associated companies in any such
communication;
2. any business or activity undertaken or proposed to be undertaken by
TPA, whether or not directly or indirectly relating to Centre Re or PCA
P&C, which TPA knew or should have known would affect the business governed
by this Agreement;
unless furnished by Centre Re or until the consent of Centre Re thereto in
writing shall have first been secured for each and any such usage. Such
approval shall not in any event be construed as charging or binding Centre Re to
bear any part of the cost or expenses thereof.
SECTION 12. FIDUCIARY RESPONSIBILITIES.
TPA shall maintain a sufficient staff of competent and trained personnel and
adequate supplies and equipment to perform its duties under this Agreement. TPA
shall undertake to perform its obligations faithfully as a fiduciary and shall
use its best efforts to serve Centre Re and PCA P&C faithfully at all times and
to promote and safeguard the best interests of Centre Re and PCA P&C and to
perform all acts necessary for the proper conduct of the business on behalf of
Centre Re and PCA P&C in support of the run-off contemplated by this Agreement
and in full compliance with the applicable laws and regulations.
In furtherance of TPA's responsibility to faithfully perform its obligations
hereunder and to promote and safeguard the best interests of Centre Re and PCA
P&C, TPA hereby acknowledges and agrees that Centre Re shall be entitled to
place at its office, Centre Re personnel or its designee whose function it shall
be to act and interact with the TPA's senior managers to administer this
Agreement in an effort to achieve the optimal administration of the arrangement
and to promote and safeguard the best interest of Centre Re and PCA P&C with
respect to the business conducted hereunder. All expenses in relation thereto,
including but not limited provision of office space, office upkeep, postage,
promotional and advertising expenses, stationery, printing, countersignatures,
license expenses, and all overhead and other expenses of whatever nature, shall
be borne by TPA.
SECTION 13. NOTICES.
(a) All notices, consents, requests, waivers, elections and other
communications (collectively "Notices") authorized, required or permitted to be
given under this Agreement shall be addressed as follows:
To Centre Re: Centre Reinsurance Company of New York
One Chase Manhattan Plaza
Thirty-fifth Floor
New York, New York 10005
Attention: President and Chief Executive Officer
To TPA: PCA Solutions, Inc.
P.O. Box 166007
Altamonte Springs, Florida 32716
Attention: Chief Executive Officer
To Physician Corp.: Physician Corporation of America
<PAGE>
6101 Blue Lagoon Drive
Miami, Florida 33126
Attention: Chief Executive Officer
(b) All Notices shall be given in writing, mailed by first class registered or
certified mail, and via facsimile, and shall be deemed to be received five (5)
days after the day of mailing. Either party may change its address for the
receipt of Notices or the party to whose attention Notices are sent at any time
by giving notice thereof to the other party hereto.
(c) In the event that any legal process, notice, regulatory bulletin, or the
like, is served on TPA, in a suit or proceeding against PCA P&C or Centre Re, or
for any other reason whatsoever, TPA shall promptly and forthwith forward such
process, notice or bulletin to Centre Re as directed above, via Registered or
Certified mail, and with an additional copy sent via telefax, in no event later
than the next business day following TPA's receipt thereof.
SECTION 14. CHOICE OF LAW, VENUE, JURISDICTION.
(a) THIS Agreement SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE of Florida WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATION. The parties
stipulate and agree that any JUDICIAL PROCEEDING BROUGHT AGAINST any OF THE
PARTIES TO THIS AGREEMENT OR ANY DISPUTE ARISING IN CONNECTION WITH OR RELATED
TO THIS AGREEMENT shall BE BROUGHT ONLY IN THE Second Judicial Circuit in and
for Leon County, Florida. The parties further stipulate and agree that this
shall be the exclusive forum for any litigation arising from or relating to this
Agreement or the enforcement of any of its terms and conditions, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES TO THIS Agreement
accepts THE JURISDICTION OF EACH SUCH COURT AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT (AS FINALLY ADJUDICATED) RENDERED THEREBY IN CONNECTION WITH
THIS AGREEMENT. To THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO HEREBY (I) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUTSIDE THE
TERRITORIAL JURISDICTION OF SAID COURTS IN ANY SUCH PROCEEDING, (II) AGREES THAT
ANY TRIAL IN CONNECTION WITH ANY SUCH PROCEEDING SHALL BE BEFORE THE COURT IN
SAID VENUE AND (III) WAIVES ANY RIGHT IT MAY OTHERWISE HAVE TO A TRIAL BY JURY
IN CONNECTION WITH ANY SUCH PROCEEDING.
(b) Each party acknowledges and agrees that in the event of any threatened or
actual breach of this Agreement or any related agreement by the other party, the
former will suffer immediate and irreparable injury not compensable by money
damages and for which it will not have an adequate remedy available at law.
Accordingly, if either party institutes an action or proceeding to enforce the
provisions of this Agreement, it shall be entitled to obtain, from a court of
competent jurisdiction, without the posting of any bond or security, such
injunctive relief, restraining orders, specific performance or other equitable
relief as may be necessary or appropriate to prevent or curtail any such breach,
threatened or actual. The foregoing shall be in addition to and without
prejudice to such other rights or remedies as they may have at law or in equity.
SECTION 15. AMENDMENT.
No oral explanation or oral information by any of the parties hereto shall alter
the meaning or interpretation of this Agreement. No amendment, change or
addition hereto shall be effective or binding
<PAGE>
on any of the parties hereto unless reduced to writing and executed by the
respective duly authorized officer of each of the parties hereto.
SECTION 16. WAIVER.
The failure of either party to enforce any provision of this Agreement shall not
constitute a waiver by either party of any such provision. The past waiver of a
provision by either party shall not constitute a course of conduct or a waiver
in the future to the same provision.
SECTION 17. SEVERABILITY.
If any term or provision of this Agreement or the application thereof to any
party or circumstances shall, to any extent, be or become invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provisions to parties or circumstances other than those as to which it is
held invalid or unenforceable under the laws or insurance department regulations
now or hereafter in effect in the jurisdictions governing this Agreement, shall
not be affected thereby, and each term and provision shall be valid and
enforceable. To the extent that any term or provision of this Agreement or the
application thereof to any party or circumstances shall be or become invalid or
unenforceable under the laws or insurance department regulations now or
hereafter in effect in the jurisdictions governing this Agreement, then such
term or provision shall be deemed to conform with such applicable insurance law
or regulation, and this Agreement shall not be affected thereby, and each term
and provision shall be valid and enforceable.
SECTION 18. ASSIGNMENT.
The authorization herein granted to TPA cannot be assigned or transferred in
whole or in part.
SECTION 19. GUARANTY.
(a) Physician Corp. as Guarantor ("Guarantor"), shall guaranty the performance
of all obligations of the TPA under this Agreement, (collectively, "TPA
Obligations"). This guaranty, and Guarantor's liability for the performance of
same, shall survive the termination of this Agreement, and shall remain in full
force and effect, until all of the TPA Obligations for which this guaranty has
been provided, are satisfied in full.
(b) GUARANTY FUNDING - If the TPA fails to perform on a due and punctual basis
any of the TPA Obligations, the Guarantor will itself perform or cause TPA to
perform, or from time to time at the request and direction of Centre Re, provide
such funds as are necessary to ensure full compliance therewith, including any
compensation due to Centre Re under the Agreements for damages resulting from
non-compliance. In addition, in the event that Centre Re terminates either this
Agreement pursuant to the provisions of Article 8 hereof, the Guarantor agrees:
(i) to bear all reasonable costs associated with transferring the TPA
Obligations to any such substitute entities; and (ii) to bear all reasonable
ongoing costs associated with the performance of the TPA Obligations and to pay
any and all fees incurred by Centre Re or by any substitute TPA in relation to
the performance of the TPA Obligations.
(c) GUARANTY OF PAYMENT - The guaranty made herein is of payment and not of
collection, and the Guarantor waives any right to require that any action be
brought against TPA or any other person liable for performance or payment of any
of the TPA Obligations or that resort first be had to any other security
therefor. The Guarantor hereby absolutely and unconditionally guarantees the
prompt and full payment and performance by the TPA of the TPA Obligations,
whether now existing or hereafter arising, and all
<PAGE>
renewals, modifications and extensions thereof, as and when the same become due
and payable under the terms and provisions of the Agreements. If the TPA shall
at any time fail to make any payment required to be made under the Agreements as
and when the same shall become due and payable, the Guarantor will make such
payment or cause such payment to be made prior to the time the failure or delay
in making such payment becomes an event of default.
(d) ENFORCEMENT AND GUARANTY - The Guarantor shall pay on demand by Centre Re
any and all reasonable out of pocket expenses (including, without limitation,
attorneys' fees) incurred by Centre Re in the enforcement of this Guaranty and
the preparation therefor, whether or not an action or proceeding to enforce the
same shall have been instituted. In any right of action that may accrue to
Centre Re by reason of any obligations guaranteed hereunder, Centre Re may, at
its option, proceed against (a) the Guarantor together with the TPA, (b) the
Guarantor or the TPA individually or (c) the Guarantor only, without having
first proceeded against the TPA. Prior to filing any action against the
Guarantor to enforce the guaranty made hereunder, Centre Re shall first give TPA
and the Guarantor written notice and an opportunity to cure any failure to
perform as required hereunder within 10 days. The Guarantor represents,
warrants and acknowledges that the Guarantor has received good, valuable and
sufficient consideration for the making of this Guaranty and expressly agrees
that recourse may be had against the property and assets of Guarantor for all
obligations hereunder, and further agrees that the property and assets of
Guarantor shall be subject to execution for any judgment rendered against the
Guarantor on this Guaranty by a court of competent jurisdiction.
(e) WAIVER BY GUARANTOR - The Guarantor hereby waives (a) notice of acceptance
of this Guaranty; (b) any and all other notices to which the Guarantor might
otherwise be entitled except as required herein; (c) any and all defenses
arising by reason of any disability of the TPA or any defense of any other
person; (d) any and all rights to extension, composition, election with respect
to any collateral under any provision of the Federal Bankruptcy Code, as now
existing or hereafter amended from time to time, or any other debtor's or
guarantor's remedy thereunder or under any other federal or state law affecting
creditors' rights; (e) diligence in any attempt to enforce the obligations
guaranteed hereby, to realize upon any other security therefor or to collect
from whomsoever any amount, the payment of which is guaranteed hereby, and any
right to require that any action be brought against the TPA or any other person
or to require that resort first be had to any such security; (f) protection of
any such security for the payment of the obligations guaranteed hereby; and (g)
the observance of any and all formalities that might otherwise be required to
charge the Guarantor with liability hereunder.
(f) SUBROGATION - Until any uncured or defaulted TPA Obligation that Guarantor
is or becomes obligated to perform has been performed and discharged in full,
the Guarantor shall have no right of subrogation against TPA in connection with
this Guaranty nor any right to participate in realization upon any security for
any of the TPA Obligations.
(g) SUBORDINATION - So long as no material default (after expiration of any
applicable notice and cure periods) exists in the payment of the TPA
Obligations, the Guarantor may apply to its own account any payments received on
account of any indebtedness of the TPA to the Guarantor free of any restrictions
herein. If however, in the event of a material default (after expiration of any
applicable notice and cure periods), Guarantor shall collect, hold and apply any
such any such indebtedness due from TPA for performance of its guaranty
obligations hereunder.
(h) COLLATERALIZATION. Pursuant to the terms of the Reinsurance Agreement, as
more fully delineated therein, the Guarantor has agreed to pledge interests in
certain assets specifically identified in the Reinsurance Agreement and defined
therein as "Collateral" to secure, among other things, the performance of the
TPA Obligations and the run-off administration of the Policies. Upon any
termination
<PAGE>
of this Agreement pursuant to the terms of Section 8(b) hereof, Centre Re shall
have the right without the action or consent of any person to seize and obtain
possession of the Collateral, which Collateral shall thereafter be liquidated
and the proceeds thereof held in trust and used thereby solely to fund the costs
of administering the runoff of the Policies. Following termination of this
Agreement pursuant to the terms of Section 8(a) hereof, or termination of the
Reinsurance Agreement pursuant to the terms thereof, any balance of such
Collateral not so used shall be refunded to PCA P&C or applied to PCA P&C's
other obligations under the Reinsurance Agreement.
(i) ABSOLUTE GUARANTY - This Guaranty is an absolute, irrevocable, present and
continuing one, and the TPA Obligations shall be conclusively presumed to have
been created in reliance hereon. Notwithstanding, Guarantor's obligation
hereunder shall be strictly limited to recourse against the Collateral.
(j) PRIMARY OBLIGATION - No irregularity, unenforceability or invalidity of
any of the documents creating the TPA Obligations or of any other document,
item, matter, action or circumstance shall impair, release or be a defense to
this Guaranty.
(k) SUCCESSORS AND ASSIGNS - This Section, and the Guaranty provided herein,
shall be binding on, and the term "Guarantor", as used herein, shall include the
successors, assigns, legal representatives and other transferees of the
Guarantor, including successors by consolidation, merger or other
reorganization. This Guaranty shall inure to the benefit of Centre Re's
successors, assigns and legal representatives.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of which when
taken together shall constitute a single agreement.
SECTION 21. OFFSET.
Any payment that Centre Re may be contractually obligated to pay to Physician
Corp. or to TPA under this Agreement shall be paid after deducting any amount
which is then due and unpaid under this Agreement or any other agreement between
Centre Re and TPA, Physician Corp., any affiliated company or subsidiary,
including but not limited to the Reinsurance Agreement or any other agreement
heretofore or hereinafter entered into between Centre Re and TPA, Physician
Corp., any affiliated company or subsidiary.
<PAGE>
SECTION 22. OTHER AGREEMENTS.
This Agreement and the Old Management Agreement set forth the entire
understanding of the parties hereto with respect to the duties and obligations
of TPA to administer the insurance and claims operations of PCA P&C. It is the
intention of the parties hereto that the basic management services provided
under the Old Management Agreement and the claims administration services
delineated under this Agreement shall continue to be performed by TPA subject
however, to TPA's obligations to perform all of the duties outlined in this
Agreement. In the case of any conflict as respects the duties and obligations
of TPA between this Agreement and the Old Management Agreement, the respective
duties, obligations and rights of the parties hereunder as delineated in this
Agreement shall prevail.
With respect to the parties identified in this Agreement and the Reinsurance
Agreement, should any conflict arise as concerns the duties, obligations and
rights of any of the parties hereto relative to the respective duties,
obligations and rights of the parties as delineated in the Reinsurance
Agreement, the terms of the Reinsurance Agreement shall prevail.
TPA, PCA P&C and Physician Corp. each hereby covenant and agree, that no
modification, amendment or change shall be effected to the Old Management
Agreement, without the prior written consent of Centre Re.
<PAGE>
SECTION 23. HEADINGS.
All headings in this Agreement are for the purpose of information and
identification only and shall not be construed as forming part of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
first above written.
CENTRE REINSURANCE COMPANY OF
NEW YORK
Witness:
By: ___________________________________
___________________________ Title:
PCA SOLUTIONS, INC.
Witness:
By: ___________________________________
___________________________ Title:
PCA PROPERTY & CASUALTY
INSURANCE COMPANY
Witness:
By: ___________________________________
___________________________ Title:
PHYSICIAN CORPORATION OF
AMERICA
Witness:
By: ___________________________________
____________________________ Title:
<PAGE>
EXHIBIT A. CLAIMS HANDLING GUIDELINES
TPA's authority under the Agreement to act as third party claims administrator,
shall be conducted strictly within the following written claims handling
guidelines. While these guidelines are designed to be as comprehensive as
possible, it is expected that the TPA will exercise the utmost of good judgment,
as no document can adequately address the subtleties of claims administration.
CLAIMS PHILOSOPHY
THE COMPANY SHALL SUBSCRIBE TO AND ADOPT THE NAIC MODEL FAIR CLAIMS PRACTICES
ACT ("FAIR CLAIMS ACT"), INSOFAR AS IS DOES NOT CONFLICT WITH FLORIDA INSURANCE
LAW.
THE CLAIMS PROCEDURE MANUAL IS INTENDED TO SERVE AS A WRITTEN GUIDELINE, THE
PURPOSE OF WHICH IS TO ESTABLISH SPECIFIC STANDARDS THAT THE COMPANY EXPECTS TO
BE OBSERVED BY ALL CLAIMS PROFESSIONALS ACTING ON ITS BEHALF. THIS
RESPONSIBILITY EXTENDS TO ALL CLAIMS PROFESSIONALS WHETHER THEY BE EMPLOYEES OF
TPA, AFFILIATED ENTITIES OR AN OUTSOURCED THIRD PARTY ADMINISTRATOR ENGAGED BY
TPA TO ACT IN THIS CAPACITY (HEREINAFTER "CLAIMS PROFESSIONALS").
ALL CLAIMS PROFESSIONALS THUS ENGAGED ARE EXPECTED TO BE KNOWLEDGEABLE OF THE
PROVISIONS OF THE FAIR CLAIMS ACT AND ITS REQUIREMENTS. STRICT ADHERENCE TO THE
PRECEPTS OF THE FAIR CLAIMS ACT IS THE OBJECTIVE.
IN STATES WHERE THE LAW VARIES FROM FLORIDA LAW OR FROM THE NAIC MODEL ACT,
CLAIMS PROFESSIONALS ARE EXPECTED TO ADHERE TO THE RESPECTIVE STATE'S STATUTORY
REQUIREMENTS.
1.1 CODE OF CONDUCT
The following general standards shall govern the conduct of all claims
professionals:
A) All Claims Professionals are required to conduct themselves in a
professional manner and to represent the Company in a mature and businesslike
manner.
This conduct includes the following:
1. No person may make any promise, statement that is untrue or cannot be
fulfilled, nor any misrepresentation of pertinent fact or policy
information.
2. All Claims Professionals shall dress in appropriate business attire.
3. Claims Professionals shall at all times control their demeanor and
choice of words when facing any hostile insured, claimant, insured's or
claimant's attorney, repair shop, or the like.
B) The relationship with the insured and the public at large is most critical.
As can be expected, sometimes the earliest contact that an insured or claimant
might have with the Company could likely occur following an occasion which is
quite trying to that individual. The duties required of a Claims Professional
in performing his or her job, such as inquiring regarding a person's loss, or
challenging the validity of their claim, can bring out the worst in people.
Such responses are possible, particularly if the claimant perceives that the
Company has not settled the claim as generously as expected.
<PAGE>
Therefore, the utmost in tact and interpersonal communication is expected of all
Claims Professionals representing the Company in order to place the best image
of the Company in the public view. At all times, Claims Professionals must
treat the insureds, claimants, or others with whom they may come in contact with
the greatest degree of respect.
C) Claims Professionals must conduct themselves at all times in accordance with
the highest standards of personal integrity.
If any of the following activity is conducted by any Claims Professional, it
will be subject to significant disciplinary action:
1. Purchasing and/or disposing of insurance salvage outside of the Company
guidelines.
2. Taking any action that would financially benefit another company in
which the Claim Professional or any member of his family own stock or have
a financial interest, to the detriment of the Company.
D) Public Statements by Claims Professionals.
No Claims Professional may give information to the news media or submit articles
for publication concerning the claims operations of the Company, its personnel,
and/or any aspects of any matter, whether it is in dispute, pending or settled.
<PAGE>
1.2 MODEL UNFAIR CLAIM SETTLEMENT PRACTICES LAW
It is expected that all Claims Professionals be knowledgeable of and well versed
in the provisions of the Florida Unfair Claims Settlement Practices law and the
NAIC Model Act- Unfair Claim Settlement Practices, and shall at all times adhere
to the precepts thereof.
The Florida Unfair Claims Settlement Practices law has established the following
principles relative to unfair claim practices and defines the following activity
as an unfair claim practice:
(i) Unfair claim settlement practices. --
1. Attempting to settle claims on the basis of an application, when serving
as a binder or intended to become a part of the policy, or any other
material document which was altered without notice to, or knowledge or
consent of, the insured;
2. A material misrepresentation made to an insured or any other person
having an interest in the proceeds payable under such contract or policy,
for the purpose and with the intent of effecting settlement of such claims,
loss, or damage under such contract or policy on less favorable terms than
those provided in, and contemplated by, such contract or policy; or
3. Committing or performing with such frequency as to indicate a general
business practice any of the following:
a. Failing to adopt and implement standards for the proper
investigation of claims;
b. Misrepresenting pertinent facts or insurance policy
provisions relating to coverages at issue;
c. Failing to acknowledge and act promptly upon communications
with respect to claims;
d. Denying claims without conducting reasonable investigations
based upon available information;
e. Failing to affirm or deny full or partial coverage of claims,
and, as to partial coverage, the dollar amount or extent of coverage,
or failing to provide a written statement that the claim is being
investigated, upon the written request of the insured within 30 days
after proof-of-loss statements have been completed;
f. Failing to promptly provide a reasonable explanation in
writing to the insured of the basis in the insurance policy, in
relation to the facts or applicable law, for denial of a claim or for
the offer of a compromise settlement;
g. Failing to promptly notify the insured of any additional
information necessary for the processing of a claim; or
h. Failing to clearly explain the nature of the requested
information and the reasons why such information is necessary.
<PAGE>
The NAIC Model Act- Unfair Claim Settlement Practices - has established the
following principles relative to unfair claim practices. The Act defines the
following activity as an unfair claim practice:
. . . (9) Unfair Claim Settlement Practices. Committing or performing with
such frequency as to indicate a general business practice any of the following:
(a) misrepresenting pertinent facts or insurance policy provisions
relating to coverages at issue;
(b) failing to acknowledge and act reasonably promptly upon communications
with respect to claims arising under insurance policies;
(c) failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under insurance policies;
(d) refusing to pay claims without conducting a reasonable investigation
based upon all available information;
(e) failing to affirm or deny coverage of claims within a reasonable time
after proof of loss statements have been completed;
(f) not attempting in good faith to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably clear;
(g) compelling insureds to institute litigation to recover amounts due
under an insurance policy by offering substantially less than the amounts
ultimately recovered in actions brought by such insureds;
(h) attempting to settle a claim for less than the amount to which a
reasonable man would have believed he was entitled by reference to written
or printed advertising material accompanying or made part of an
application;
(i) attempting to settle claims on the basis of an application which was
altered without notice to, or knowledge or consent of the insured;
(j) making claims payments to insureds or beneficiaries not accompanied by
statement setting forth the coverage under which the payments are being
made;
(k) making known to insureds or claimants a policy of appealing from
arbitration awards in favor of insureds or claimants for the purpose of
compelling them to accept settlements or compromises less than the amount
awarded in arbitration;
(l) delaying the investigation or payment of claims by requiring an
insured, claimant, or the physicians of either to submit a preliminary
claim report and then requiring the subsequent submission of formal proof
of loss forms, both of which submissions contain substantially the same
information;
(m) failing to promptly settle claims, where liability has become
reasonably clear, under one portion of the insurance policy coverage in
order to influence settlements under other portions of the insurance policy
coverage; or
<PAGE>
(n) failing to promptly provide a reasonable explanation of the basis in
the insurance policy in relation to the facts or applicable law for denial
of a claim or for the offer of a compromise settlement.
<PAGE>
EXHIBIT B. FORMAT OF CLAIMS FILE
In accordance with the terms of the Agreement, the TPA must maintain a separate
claims file on each claim submitted. A typical claims file shall include, at a
minimum, the following sections and information:
Coverage documents:
Policy
Endorsements
Renewals
Non Renewals notices
Cancellations notices
Correspondence: (maintained in proper chronological order):
Notice of Claim / Loss Notice
TPA Notice to Centre Re of Claim (for Claims in excess of TPA's
authority, or for those that which requires notice under Section 2(a)(7, 8
or 9), or otherwise under this Agreement)
Coverage confirmation / verification / or Declination of coverage
Reservation of rights
Correspondence / Memoranda with adjuster
Correspondence / Memoranda with counsel, if any
Report to Centre Re
Claim payment, if applicable
Final disposition, if applicable
Any other general correspondence
It is understood that all or part of this information may be maintained in
computer files.
<PAGE>
EXHIBIT C. REPORTING OF CLAIMS IN EXCESS OF TPA'S AUTHORITY OR THAT MEET
CRITERIA SET FORTH IN SECTION 2(A)(8,9).
All claims in excess of TPA's authority or that meet the criteria outlined in
Section(a)(8,9), requiring reporting to Centre Re, shall include the following
information, at a minimum:
- report number (i.e. first, second, final, etc)
- policy information including, but not limited to: policy number;
policy period; limits; applicable endorsements / exclusions
- TPA claim number
- accident description
- Claimant identity, including but not limited to: age, occupation,
annual income and lost wages, marital status and number of dependents
- description of Claimant's injuries, including but not limited to:
medical diagnosis, treatment program, residuals and medical expenses
- liability evaluation
- reserve analysis
- offers / demands / contributions
- description of outstanding issues and recommendations for future
handling
- estimated time frame for resolution
- reserve calculation including loss and expense paid to date
- copies of all paid drafts
- cases in litigation must include copies of the following additional
information:
-- Summons and Complaint
-- Bill of Particulars
-- Deposition Summaries
-- Hearings and Conference Summaries
-- Jury Verdict research, if conducted
<PAGE>
EXHIBIT D. MONTHLY ACTIVITY REPORT
The information set forth below shall be contained in the Monthly Activity
Report prepared by the TPA, in a spreadsheet format:
State
Policy Number
Policy Limit
Claim Number
Line of Business
Insured
Claimant(s)
Date of Loss
Nature of Claim
Injury Damages
Reserves (loss and expenses)
Payments (loss and expenses)
Subrogation
Salvage
Total incurred
<PAGE>
EXHIBIT E. ERRORS AND OMISSIONS; FIDELITY BOND.
TPA shall maintain Errors and Omissions liability insurance coverage in the
following amounts:
at least $5,000,000 each occurrence and at least $5,000,000 in the
aggregate, with an insurer that is acceptable to Centre Re
TPA shall maintain Fidelity Bond insurance coverage in the following amounts:
at least $5,000,000 with an insurer that is acceptable to Centre Re
<PAGE>
EXHIBIT 2.4
IN THE CIRCUIT COURT OF THE
SECOND JUDICIAL CIRCUIT IN AND
FOR LEON COUNTY, FLORIDA
CASE NO.: 97-997
THE STATE OF FLORIDA, ex Rel.
The Department of Insurance,
Relator,
vs.
PCA PROPERTY & CASUALTY
INSURANCE COMPANY,
Respondent.
/
CONSENT ORDER
THIS CAUSE came on for consideration of the Joint Report to the Court and
Supplemental Agreement, filed on June 3, 1997 by and between PCA PROPERTY &
CASUALTY INSURANCE COMPANY ("PCA P&C") and the FLORIDA DEPARTMENT OF INSURANCE
("The Department"). After a complete review of the record, the Court finds
that, in the best interests of the policyholders of PCA P&C, this Consent Order
should be approved and adopted by this Court, and further finds as follows:
1. The Joint Report to the Court and Supplemental Agreement, attached
hereto as Exhibit "A", is hereby approved, incorporated herein by reference and
made a part of this Consent Order.
2. All previous orders, including all injunctions provided for in the
Order to Show Cause entered on February 25, 1997, shall remain in full force and
effect until further order of the Court. The Court expressly retains
jurisdiction to enforce the Supplemental Agreement and this Consent Order by
appropriate motion.
DONE AND ORDERED in Chambers at the Leon County Courthouse, Tallahassee,
Leon County, Florida this 3rd day of June, 1997.
CIRCUIT COURT JUDGE
<PAGE>
ACCEPTED AND AGREED
DeZayas, O'Naughten, Diaz & De Cordoba
Attorneys for the Department
Suite 1100 Gray Bay Plaza
2665 South Bayshore Drive
Coconut Grove, Florida 33133
Telephone: (305) 285-0800
By:
Manual A. Diaz (Fla Bar 310514)
Katz, Kutter, Haigler, Alderman
Marks, Bryant & Yon, P.A.
Attorneys for PCA P&C
106 East College Avenue
Tallahassee, FL 32301
Telephone: (904) 224-9634
By:
Gary P. Timin (Fla Bar 439071)
<PAGE>
IN THE CIRCUIT COURT OF THE
SECOND JUDICIAL CIRCUIT IN AND
FOR LEON COUNTY, FLORIDA
CASE NO.: 97-997
THE STATE OF FLORIDA, ex Rel.
The Department of Insurance,
Relator,
vs.
PCA PROPERTY & CASUALTY
INSURANCE COMPANY,
Respondent.
/
JOINT REPORT TO THE COURT AND SUPPLEMENTAL AGREEMENT
COME NOW the FLORIDA DEPARTMENT OF INSURANCE ("the Department"), and PCA
PROPERTY & CASUALTY INSURANCE COMPANY ("PCA P&C"), to report to the Court on
their progress since the Forbearance Agreement dated May 2, 1997 (the
"Forbearance Agreement") and Consent Order of even date therewith approving same
(the "Consent Order"), in which PCA P&C consented to the appointment of the
Department as receiver upon request of the Department at any time after June 2,
1997, unless certain conditions were met. PCA P&C and the Department now report
the following, and jointly petition the Court for approval of the supplemental
agreement set forth herein (capitalized terms not otherwise defined herein shall
have the same meaning as is ascribed to them in the Forbearance Agreement):
RECITALS
A. The Consent Order provided in paragraph 4, "In THE EVENT THAT, ON OR
BEFORE JUNE 2, 1997, PCA [P&C] SUBMITS TO THE DEPARTMENT AN AGREEMENT,
RECAPITALIZATION, OR OTHER TRANSACTION PROVIDING FOR THE FULL GUARANTEE OF
TIMELY PAYMENT OF ALL KNOWN OR POTENTIAL CLAIMS OF PCA[P&C], AND WHICH
AGREEMENT...IS ACCEPTABLE TO THE DEPARTMENT, IN ITS SOLE AND ABSOLUTE DISCRETION
(PROVIDED, HOWEVER, THAT THE DEPARTMENT SHALL ACT IN GOOD FAITH AND NOT
ARBITRARILY), THE DEPARTMENT SHALL NOT PROCEED WITH REHABILITATION, LIQUIDATION,
OR ANY OTHER FORM OF RECEIVERSHIP AT THAT TIME."
B. On or before June 2, 1997, PCA P&C submitted to the Department the
duly executed AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT (the "Centre Re
Treaty") between the Centre Reinsurance Company of New York ("Centre Re") and
PCA P&C, agreed to by PCA Solutions, Inc. ("Solutions") and Physician
Corporation of America ("PCOA", the parent corporation of PCA P&C) attached
hereto as Exhibit A together with the other agreements referred to therein.
<PAGE>
C. On or before June 2, 1997, PCOA also submitted to the Department the
duly executed AGREEMENT AND PLAN OF MERGER between PCOA and Humana, Inc. and
Humnov, Inc., its wholly owned subsidiary (together "Humana") a copy of which is
attached hereto as Exhibit B (the "Merger Agreement").
D. Although the transactions contemplated by the Centre Re Treaty and the
Merger Agreement have not yet been consummated, and the funding is not yet
available for the Centre Re Treaty, the Department has determined that PCOA's
progress toward fulfillment of the conditions in the Forbearance Agreement and
the Consent Order is sufficient to justify extending the period of forbearance
from enforcement of the Consent Order, and that it is in the best interest of
the PCA P&C policyholders and insureds and in the public interest to provide for
a reasonable period to allow the transactions provided for by the Merger
Agreement and the Centre Re Treaty to close.
E. The Department, PCA P&C and PCOA have agreed that, subject to the
continued effectiveness of the Forbearance Agreement and the non-enforcement of
the Consent Order such that the Department has not been appointed receiver of
PCA P&C, upon the consummation of the transactions contemplated by the Merger
Agreement and the Centre Re Treaty, the Department, Humana, PCA P&C, PCOA, and
Solutions, and Centre Re will execute an Administrative Consent Order
substantially in the form attached hereto as Exhibit C.
AGREEMENT
Therefore, the Department, PCOA, PCA Solutions and PCA P&C agree that:
1. Subject to the terms of this Joint Report to the Court and
Supplemental Agreement, the Department will not seek enforcement of the Consent
Order or appointment as receiver so long as:
(a) PCA P&C and Centre Re are meeting their financial obligations to
claimants and creditors of PCA P&C;
(b) The Center Re Treaty, the Merger Agreement and all other agreements
provided for therein to be executed on or before the date hereof (collectively,
the "Transaction Agreements") are duly executed and delivered by the parties
thereto and continue to remain in full force and effect as executed and
delivered to the Department as of the date hereof (except to the extent
otherwise consented to in writing by the Department prior to such modification
or termination);
(c) There does not occur any event which would constitute an Event of
Default under any of the Transaction Agreements or which, with the passage of
time or giving of notice or both, would constitute an Event of Default
thereunder,
(d) There does not occur a material, adverse change in the financial or
business condition of PCA P&C, Solutions or Centre Re; and
(e) The parties to the Merger Agreement and the Centre Re Treaty continue
to pursue diligently the actions required to obtain necessary approvals and
consents for the
<PAGE>
consummation of the transactions contemplated thereby and the Department
determines in its sole and absolute discretion that such approvals are
reasonably expected to be obtained on or before October 31, 1997.
2. The Department shall be entitled, at its option, to enforce the
Consent Order and cause the appointment of a receiver for PCA P&C in accordance
with the terms of the Consent Order and the Forbearance Agreement if the
Department in its sole and absolute discretion determines that any of the
following events shall have occurred (and in all events, within five business
days after notice):
(a) Any of the provisions of paragraph 1 above shall not be complied with;
(b) The transactions contemplated by the Centre Re Treaty or the Merger
Agreement shall not have been consummated on or before October 31, 1997;
(c) Any application, request or petition for any consent or approval
necessary for the consummation of the transactions contemplated by the
Transaction Agreements is denied by final agency action; or
(d) Any representation or warranty made in this Joint Report to the Court
and Supplemental Agreement shall prove to be materially inaccurate.
3. Until the final closing, the Department will continue to monitor the
operations of PCA P&C, although it will adjust its oversight of the investments
and claims approval process otherwise required under the Forbearance Agreement
to the extent such adjustment is appropriate in order to permit PCA P&C to
comply with the terms of the Centre Re Treaty and any agreements referred to
therein, and that the provisions of the Centre Re Treaty with respect to
investment management and claim payments shall control unless the Department
determines either that the terms of the Centre Re Treaty are not being
effectuated or that the management practices with respect to the assets or
claims of PCA P&C are hazardous to the policyholders or the public. If such
determination is made by the Department, the Department shall give notice to
Humana, Centre Re, PCOA and PCA P&C, and give Centre Re and/or PCOA and/or PCA
P&C five business days in which to cure any such practice before taking further
action. In addition, any announcements or press releases relating to the Centre
Re Treaty, the Merger Agreement or the transactions contemplated thereby shall
be subject to the prior written consent of the Department.
4. Provided that the Department has not requested the appointment of a
receiver for PCA P&C or otherwise sought enforcement of the Consent Order, upon
the consummation of the transactions contemplated by the Centre Re Treaty and
the Merger Agreement, the Department shall enter into the administrative consent
order substantially in the form attached hereto as Exhibit C (the
"Administrative Consent Order"), and this proceeding shall be dismissed or
abated. In the event that PCA P&C, PCOA, or Humana shall be entitled, without
notice or hearing, to the appointment of a receiver for PCA P&C and enforcement
of the Consent Order in accordance with the terms of such Consent Order and the
Forbearance Agreement.
5. PCOA and PCA P&C represent and warrant to the Department that:
(a) Provided that the transactions contemplated by the Centre Re Treaty
are consummated, the Centre Re Treaty constitutes the full guarantee of timely
payment of all known or potential claims of PCA P&C within the meaning of the
Consent Order.
<PAGE>
(b) The Transaction Agreements have been duly executed and delivered by
the parties thereto, and subject to the conditions thereof, constitute the legal
and binding obligations of the parties thereto.
6. PCOA, all of its related companies, and their respective officers, and
directors will cooperate in the Department's investigation of the assessable
workers' compensation business in Florida by furnishing such information in
their possession as the Department requests, including, but not limited to,
copies of pleadings filed in litigation with third parties. Such information
will be held in confidence if permitted by law.
7. PCA P&C agrees to pay on demand statements presented by the Department
relating to its expenses incurred pursuant to the Forbearance Agreement.
8. PCOA agrees to continue to keep the Department informed of its
progress toward closing both the Merger Agreement and the Centre Re Treaty, and
to notify the Department immediately in the case of any material complication in
meeting conditions required by these agreements. Without limiting the
generality of the foregoing, PCOA shall provide the Department with a
comprehensive schedule and proposed timeline of all consents necessary to
consummate the transactions contemplated by the Merger Agreement on or before
June 6, 1997, and shall report thereafter the progress being made in respect of
obtaining such consents and approvals as follows:
(a) weekly reports regarding SEC and state regulatory approvals; and
(b) monthly meetings (on the 15th day of each month following the date of
this Joint Report to the Court and Supplemental Agreement) regarding compliance
with the requirements of paragraph 1 above.
9. The Department authorizes the actions required to be taken pursuant to
the Center Re Treaty and the agreements incorporated therein to be done by PCA
P&C, PCOA, PCA Solutions and Center Re upon the Execution Date as defined by the
Center Re Treaty. Notwithstanding anything to the contrary provided in any of
the Subject Transactions, the parties to the Merger Agreement shall be required
to comply with all regulatory provisions for the filing and approval process
normally required for a change in control under the Florida Insurance Code, and
nothing herein shall be deemed to constitute a waiver or any such requirement or
the approval of any transaction contemplated by the Merger Agreement. Further,
nothing herein shall be construed as a waiver of any claim the Department may
have in respect of PCA P&C or any other person.
10. The Forbearance Agreement is hereby ratified and affirmed to the
extent not specifically modified hereby. without limiting the generality of the
foregoing, the parties acknowledge that the Department, in addition to its
statutory immunity, shall have no liability of any kind with respect to the
subject matter of the Forbearance Agreement, as amended hereby. Other than
extending the period of forbearance as set forth herein, the Department is under
no obligation or duty to take any action whatsoever with respect to the
Forbearance Agreement, as amended, and no implied duties or obligations shall be
imposed upon the Department hereunder. For purposes of this provision, the
Department shall mean and include its employees and agents.
<PAGE>
ACCEPTED AND AGREED
DeZayas, O'Naughten, Diaz & De Cordoba
Attorneys for the Department
Suite 1100 Gray Bay Plaza
2665 South Bayshore Drive
Coconut Grove, Florida 33133
Telephone: (305) 285-0800
By:
Manual A. Diaz (Fla Bar 310514)
Katz, Kutter, Haigler, Alderman
Marks, Bryant & Yon, P.A.
Attorneys for PCA P&C
106 East College Avenue
Tallahassee, FL 32301
Telephone: (904) 224-9634
By:
Gary P. Timin (Fla Bar 439071)
<PAGE>
SALARY CONTINUATION AGREEMENT
Parties to this Agreement: PHYSICIAN CORPORATION OF AMERICA, A DELAWARE
CORPORATION ("PCA")
E. STANLEY KARDATZKE, M.D. ("Employee")
Initial Benefit Period: 18 MONTHS
Effective Date: MAY 19, 1997
P R E L I M I N A R Y S T A T E M E N T
This Salary Continuation Agreement (the "Agreement") describes the basis on
which PCA will compensate the Employee if, after a change in control of PCA, the
Employee's employment is terminated without cause or the Employee is demoted
without cause. The purpose of this Agreement is to encourage the continued
beneficial employment relationship between PCA and the Employee. However, this
Agreement is not an employment agreement.
A G R E E M E N T
In consideration of the premises and mutual covenants set forth herein, PCA
and the Employee agree as follows:
1. CONTINUATION BENEFIT UPON A CHANGE IN CONTROL. If on or after a Change
in Control of PCA, the Employee's employment by PCA is terminated without Good
Cause, or if the Employee resigns from employment by PCA due to his or her
Demotion without Good Cause, then the Employee shall be entitled to the
Continuation Benefit described in Section 2 of this Agreement.
(a) DEFINITION OF CHANGE IN CONTROL. A "Change in Control of PCA"
means any of the following occurring on or after the Effective Date of this
Agreement:
(i) the acquisition by a person or an entity or a group of
persons and/or entities, directly or indirectly, of more than 50% of PCA's
outstanding common stock in a single transaction or a series of related
transactions;
(ii) a merger, consolidation or other form of corporate
reorganization that results in the acquisition by a person or an entity or a
group of persons and/or entities, directly or indirectly, of more than 50%
percent of PCA's outstanding common stock in a single transaction or a series of
related transactions;
(iii) the sale of all or substantially all of the assets of PCA;
or
(iv) the failure of Applicable Directors to constitute a
majority of the Board of Directors of PCA. "Applicable Directors" means (A)
those individuals who are members of the Board of Directors of PCA on the
Effective Date of this Agreement; and (B) any new director whose election to the
Board or nomination for election to the Board was approved (prior to any vote
thereon by the shareholders) by a vote of at least two-thirds of the directors
then still in office who either (1) were directors on the
<PAGE>
Effective Date of this Agreement, or (2) whose election or nomination for
election during was previously approved by a vote of at least two-thirds of the
directors described in clause (A) or B(1) of this Section 1(a)(iv).
(b) DEFINITION OF "EMPLOYMENT BY PCA." For the purposes of this
Agreement, "employment by PCA" means employment by PCA or a majority-owned
(direct or indirect) subsidiary of PCA ("Subsidiary").
(c) DEFINITION OF "DEMOTION." For the purposes of this Agreement, a
Demotion of the Employee means (i) the reassignment of the Employee to any
position, duties or responsibilities that are materially diminished when
compared with the position, duties or responsibilities of the Employee
immediately prior to the announcement of a Change in Control of PCA; (ii) any
10% or greater reduction in the Employee's aggregate salary and other cash
compensation (not including performance bonuses) from his or her aggregate
salary and other cash compensation in effect immediately prior to the
announcement of a Change in Control of PCA (whether in one reduction or a series
of cumulative reductions); (iii) any material reduction or diminution of the
fringe benefits of the Employee in effect immediately prior to the announcement
of a Change in Control of PCA; or (iv) a requirement that the Employee transfer
his or her principal workplace to a location more than 25 miles from his or her
principal workplace in effect immediately prior to the announcement of a Change
in Control of PCA. A transfer of the employment of the Employee from PCA to a
Subsidiary, or from a Subsidiary to PCA, or from one Subsidiary to another
Subsidiary, shall not, in and of itself, constitute a Demotion, provided none of
the other events described in this Section 1(c) occur in connection with such
transfer.
(d) DEFINITION OF "GOOD CAUSE." For the purposes of this Agreement,
Good Cause means an act of the Employee or any failure to act on the part of the
Employee that constitutes: (i) the wilful and knowing failure or refusal of the
Employee to perform his normal and customary employment duties; (ii) a breach by
the Employee of any material fiduciary duty to PCA or a Subsidiary; (iii) a
material malfeasance by the Employee in connection with the performance of his
duties as an employee of PCA or a Subsidiary; (iv) the commission by the
Employee of material fraud or embezzlement in connection with PCA or a
Subsidiary; or (v) the conviction of the Employee in connection with a felony or
his or her submission to a consent decree for a violation of the securities laws
of any jurisdiction, which conviction or submission has had or, in the
reasonable opinion of the Board of Directors of PCA may have, a material adverse
effect upon the business or operations of PCA.
(e) DEFINITION OF TERMINATION DATE. For the purposes of this
Agreement, the Employee's Termination Date means the effective date of the
Employee's termination of employment by PCA without Good Cause, or the
Employee's resignation due to a Demotion without Good Cause.
(f) DEFINITION OF MONTHLY GROSS SALARY. For the purposes of this
Agreement, the Employee's "Monthly Gross Salary" shall mean the average of the
monthly gross salary and other cash compensation of the Employee (including
performance bonuses) during the two-year period preceding the Termination Date
(but in no event less than the Employee's monthly gross salary in effect
immediately prior to the announcement of the Change in Control).
2
<PAGE>
2. DESCRIPTION OF CONTINUATION BENEFIT.
(a) DEFINITION OF BENEFIT PERIOD. The Employee's Benefit Period shall
be calculated as of the Employee's Termination Date. The Benefit Period shall
equal the number of months in the Initial Benefit Period set forth on the first
page of this Agreement, less the number of complete months which have elapsed
subsequent to the second anniversary of the Change in Control of PCA.
(b) CONTINUATION BENEFIT. The Employee's Continuation Benefit shall
consist of all of the following:
(i) Within 5 days of the Termination Date, PCA or the
Subsidiary formerly employing the Employee shall pay the Employee a lump sum
cash payment equal to (A) the Employee's Monthly Gross Salary in effect
MULTIPLIED BY (B) the number of months in the Benefit Period.
(ii) During the Benefit Period, the Employee and his or her
dependents shall be eligible for participation in and shall receive all benefits
under all welfare benefit plans, practices, policies and programs provided by
PCA to its employees (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs), to the extent applicable generally to
the employees and officers of PCA similarly situated with the Employee.
(iii) In addition to the foregoing, and in the event that the
entity succeeding to all or substantially all of the business and/or assets of
PCA (the "Successor Entity") effects the Change-in-Control as a pooling of
interests, the Successor Entity shall: (a) assume the Employee's vested stock
options under a plan containing substantially similar terms and conditions as
PCA's employee stock option plan; and (b) issue to the Employee certain
shares (which have a current registration on file with the Securities and
Exchange Commission and are listed with a national securities exchange or
NASDAQ) (the "Bonus Shares") in exchange for its unvested stock options. The
number of Bonus Shares to be issued to the Employee will be determined as
follows:
(A) The value of the Employee's unvested options (the
"Option Value") will be established as of the
effective date of the Change-in-Control of PCA (the
"Change-in-Control Date") using the Black-Scholes
Option Pricing Model (with the assumptions listed on
Exhibit A hereto).
(B) The Option Value will be divided by the closing price
of PCA's Common Stock on the last trading date before
the Change-in-Control Date and the resulting number is
the number of Bonus Shares that will be issued to the
Employee. Notwithstanding the above, if the resulting
number of Bonus Shares includes fractional shares, the
value of such fractional shares will be paid in cash
to the Employee.
(C) Within 30 days of the Termination Date, PCA shall
deliver the Bonus Shares to the Employee in shares of
the common stock of the Successor Entity using the
exchange ratios applicable to the merger.
3
<PAGE>
(iv) In all cases of a Change-in-Control where the Change-in-
Control transaction is NOT effected as a pooling of interests, the Employee
shall be entitled to receive the cash value of his or her stock options (whether
vested or unvested) (the "Cash Value"), as follows:
(A) The Cash Value will be established as of the Change-
in-Control Date using the Black-Scholes Option Pricing
Model (with the assumptions listed on Exhibit A
hereto).
(B) Within 30 days of the Termination Date, PCA shall pay
the Cash Value in a lump sum to the Employee.
(c) NO REQUIREMENT OF MITIGATION. The Employee shall not be required
to mitigate the Continuation Benefit by seeking other employment, nor shall the
Continuation Benefit be reduced by any compensation earned by the Employee as
the result of employment by another employer after the Termination Date.
3. TERM AND TERMINATION. The initial term of this Agreement shall
commence on the later of January 1, 1996 or the hiring date of the Employee and
shall expire on December 31, 1997 (the "Initial Term"); PROVIDED, HOWEVER, that
commencing on December 31, 1997 and each December 31 thereafter, the Initial
Term of this Agreement shall automatically be extended for additional,
successive two-year terms (each a "Renewal Term") unless at least 90 days prior
to such December 31 date, the Applicable Directors shall have affirmatively
voted to terminate this Agreement and PCA shall have delivered to the Employee
written notice that the term of this Agreement will not be extended as of such
December 31 date. Notwithstanding the foregoing, the termination or expiration
of this Agreement shall in no way terminate or affect the Employee's entitlement
to the Continuation Benefit otherwise due the Employee hereunder if a Change in
Control of PCA has occurred prior to the termination or expiration of this
Agreement.
4. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS. PCA shall require any Successor Entity to expressly
assume and agree in writing to perform this Agreement in the same manner and to
the same extent that PCA would be required to perform it if no such succession
had taken place. PCA shall deliver a copy of such writing to the Employee.
(b) BENEFIT. This Agreement and all rights of the Employee under this
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to him under this Agreement if he had continued
to live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee, or other designee or, if there is
no such designee, the Employee's estate.
5. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect (except to
the extent that the procedures outlined below differ from such rules). Within 7
days after receipt of written notice from either party that a dispute exists and
that arbitration is required, both parties must within 7 business days agree on
an acceptable arbitrator. If the
4
<PAGE>
parties cannot agree on an arbitrator, then the parties shall list the "Big Six"
accounting firms (other than PCA's auditors) in alphabetical order and the first
firm that does not have a conflict of interest and is willing to serve will be
selected as the arbitrator. The parties agree to act as expeditiously as
possible to select an arbitrator and conclude the dispute. The arbitrator must
render his decision in writing within 30 days of his or its appointment. The
cost and expenses of the arbitration and of legal counsel to the prevailing
party shall be borne by the non-prevailing party. PCA shall advance the
estimated fees and expenses of the arbitrator. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its conflict
of laws principles to the extent that such principles would require the
application of laws other than the laws of the State of Florida.
7. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail by registered or
certified mail, return receipt requested, postage prepaid, addressed, if to PCA,
to Physician Corporation of America, 6101 Blue Lagoon Drive, Miami, Florida
33126, attention: President; and if to the Employee, to the most current address
of the Employee in the records of PCA, or to such other addresses as either
party hereto may from time to time give notice of to the other in the aforesaid
manner.
8. WAIVERS. The waiver by either party hereto of a breach or violation of
any term or provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.
9. BOARD APPROVAL; AGREEMENT. PCA warrants and represents to the Employee
that this Agreement has been approved and authorized by the Board of Directors
of PCA. No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in a writing signed
by the Employee and the officer of PCA which is specifically designated by the
Board.
10. NO EMPLOYMENT AGREEMENT CREATED. Nothing herein shall be deemed to
constitute an employment agreement between the Employee and PCA or any
Subsidiary. The Employee acknowledges and agrees that the sole purpose of this
document is to confirm the Continuation Benefit that PCA will pay to the
Employee if on or after a Change in Control of PCA, the Employee's employment by
PCA is terminated without Good Cause, or if the Employee resigns from employment
by PCA due to his or her Demotion without Good Cause. The Employee further
acknowledges and agrees that his or her employment by PCA is employment at will,
and that PCA may terminate such employment at any time without the payment of
any severance compensation or other benefit to the Employee, other than that
required by law or as specifically provided in this Agreement.
11. ENTIRE AGREEMENT. This Agreement and all attachments, riders and
addenda hereto together constitute the entire agreement between the parties with
respect to the subject matter hereof and supersedes and replaces in its entirety
any salary continuation agreement, severance agreement, change-in-control
agreement or other similar agreement executed between the Employee and PCA
executed prior to the effective date hereof.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
PCA:
PHYSICIAN CORPORATION OF AMERICA
By:
---------------------------------
EMPLOYEE:
--------------------------------------
E. Stanley Kardatzke, M.D.
EXHIBIT A
Black-Scholes Option Pricing Model assumptions:
1. The Pricing Model will use the volatility of PCAM stock during
the trading days occurring within the 90 day period immediately
prior to the date of announcement of the Change-in-Control.
2. The expiration length used in the Pricing Model will equal the
Initial Benefit Period (as such term is defined in this
Agreement).
3. The strike price will be the existing option exercise price.
4. The risk free rate will be the one (1) year T-Bill yield on the
Change-in-Control Date.
5. PCAM stock will be valued at its last trade price prior to the
Change-in-Control Date.
<PAGE>
SALARY CONTINUATION AGREEMENT
Parties to this Agreement: PHYSICIAN CORPORATION OF AMERICA, A
DELAWARE CORPORATION ("PCA")
PETER E. KILISSANLY ("Employee")
Initial Benefit Period: 18 MONTHS
Effective Date: MAY 19, 1997
P R E L I M I N A R Y S T A T E M E N T
This Salary Continuation Agreement (the "Agreement") describes the basis on
which PCA will compensate the Employee if, after a change in control of PCA, the
Employee's employment is terminated without cause or the Employee is demoted
without cause. The purpose of this Agreement is to encourage the continued
beneficial employment relationship between PCA and the Employee. However, this
Agreement is not an employment agreement.
A G R E E M E N T
In consideration of the premises and mutual covenants set forth herein, PCA
and the Employee agree as follows:
1. CONTINUATION BENEFIT UPON A CHANGE IN CONTROL. If on or after a Change
in Control of PCA, the Employee's employment by PCA is terminated without Good
Cause, or if the Employee resigns from employment by PCA due to his or her
Demotion without Good Cause, then the Employee shall be entitled to the
Continuation Benefit described in Section 2 of this Agreement.
(a) DEFINITION OF CHANGE IN CONTROL. A "Change in Control of PCA"
means any of the following occurring on or after the Effective Date of this
Agreement:
(i) the acquisition by a person or an entity or a group of
persons and/or entities, directly or indirectly, of more than 50% of PCA's
outstanding common stock in a single transaction or a series of related
transactions;
(ii) a merger, consolidation or other form of corporate
reorganization that results in the acquisition by a person or an entity or a
group of persons and/or entities, directly or indirectly, of more than 50%
percent of PCA's outstanding common stock in a single transaction or a series of
related transactions;
(iii) the sale of all or substantially all of the assets of PCA;
or
(iv) the failure of Applicable Directors to constitute a
majority of the Board of Directors of PCA. "Applicable Directors" means (A)
those individuals who are members of the Board of Directors of PCA on the
Effective Date of this Agreement; and (B) any new director whose election to the
Board or nomination for election to the Board was approved (prior to any vote
thereon by the shareholders) by a vote of at least two-thirds of the directors
then still in office who either (1) were directors on the Effective Date of this
Agreement, or (2) whose election or nomination for election during was
previously approved by a vote of at least two-thirds of the directors described
in clause (A) or B(1) of this Section
<PAGE>
1(a)(iv).
(b) DEFINITION OF "EMPLOYMENT BY PCA." For the purposes of this
Agreement, "employment by PCA" means employment by PCA or a majority-owned
(direct or indirect) subsidiary of PCA ("Subsidiary").
(c) DEFINITION OF "DEMOTION." For the purposes of this Agreement, a
Demotion of the Employee means (i) the reassignment of the Employee to any
position, duties or responsibilities that are materially diminished when
compared with the position, duties or responsibilities of the Employee
immediately prior to the announcement of a Change in Control of PCA; (ii) any
10% or greater reduction in the Employee's aggregate salary and other cash
compensation (not including performance bonuses) from his or her aggregate
salary and other cash compensation in effect immediately prior to the
announcement of a Change in Control of PCA (whether in one reduction or a series
of cumulative reductions); (iii) any material reduction or diminution of the
fringe benefits of the Employee in effect immediately prior to the announcement
of a Change in Control of PCA; or (iv) a requirement that the Employee transfer
his or her principal workplace to a location more than 25 miles from his or her
principal workplace in effect immediately prior to the announcement of a Change
in Control of PCA. A transfer of the employment of the Employee from PCA to a
Subsidiary, or from a Subsidiary to PCA, or from one Subsidiary to another
Subsidiary, shall not, in and of itself, constitute a Demotion, provided none of
the other events described in this Section 1(c) occur in connection with such
transfer.
(d) DEFINITION OF "GOOD CAUSE." For the purposes of this Agreement,
Good Cause means an act of the Employee or any failure to act on the part of the
Employee that constitutes: (i) the wilful and knowing failure or refusal of the
Employee to perform his normal and customary employment duties; (ii) a breach by
the Employee of any material fiduciary duty to PCA or a Subsidiary; (iii) a
material malfeasance by the Employee in connection with the performance of his
duties as an employee of PCA or a Subsidiary; (iv) the commission by the
Employee of material fraud or embezzlement in connection with PCA or a
Subsidiary; or (v) the conviction of the Employee in connection with a felony or
his or her submission to a consent decree for a violation of the securities laws
of any jurisdiction, which conviction or submission has had or, in the
reasonable opinion of the Board of Directors of PCA may have, a material adverse
effect upon the business or operations of PCA.
(e) DEFINITION OF TERMINATION DATE. For the purposes of this
Agreement, the Employee's Termination Date means the effective date of the
Employee's termination of employment by PCA without Good Cause, or the
Employee's resignation due to a Demotion without Good Cause.
(f) DEFINITION OF MONTHLY GROSS SALARY. For the purposes of this
Agreement, the Employee's "Monthly Gross Salary" shall mean the average of the
monthly gross salary and other cash compensation of the Employee (including
performance bonuses) during the two-year period preceding the Termination Date
(but in no event less than the Employee's monthly gross salary in effect
immediately prior to the announcement of the Change in Control).
2. DESCRIPTION OF CONTINUATION BENEFIT.
(a) DEFINITION OF BENEFIT PERIOD. The Employee's Benefit Period shall
be calculated as of the Employee's Termination Date. The Benefit Period shall
equal the number of months in the Initial Benefit Period set forth on the first
page of this Agreement, less the number of complete months which have
2
<PAGE>
elapsed subsequent to the second anniversary of the Change in Control of PCA.
(b) CONTINUATION BENEFIT. The Employee's Continuation Benefit shall
consist of all of the following:
(i) Within 5 days of the Termination Date, PCA or the
Subsidiary formerly employing the Employee shall pay the Employee a lump sum
cash payment equal to (A) the Employee's Monthly Gross Salary in effect
MULTIPLIED BY (B) the number of months in the Benefit Period.
(ii) During the Benefit Period, the Employee and his or her
dependents shall be eligible for participation in and shall receive all benefits
under all welfare benefit plans, practices, policies and programs provided by
PCA to its employees (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs), to the extent applicable generally to
the employees and officers of PCA similarly situated with the Employee.
(iii) In addition to the foregoing, and in the event that the
entity succeeding to all or substantially all of the business and/or assets of
PCA (the "Successor Entity") effects the Change-in-Control as a pooling of
interests, the Successor Entity shall: (a) assume the Employee's vested stock
options under a plan containing substantially similar terms and conditions as
PCA's employee stock option plan; and (b) issue to the Employee certain
shares (which have a current registration on file with the Securities and
Exchange Commission and are listed with a national securities exchange or
NASDAQ) (the "Bonus Shares") in exchange for its unvested stock options. The
number of Bonus Shares to be issued to the Employee will be determined as
follows:
(A) The value of the Employee's unvested options (the
"Option Value") will be established as of the
effective date of the Change-in-Control of PCA (the
"Change-in-Control Date") using the Black-Scholes
Option Pricing Model (with the assumptions listed on
Exhibit A hereto).
(B) The Option Value will be divided by the closing price
of PCA's Common Stock on the last trading date before
the Change-in-Control Date and the resulting number is
the number of Bonus Shares that will be issued to the
Employee. Notwithstanding the above, if the resulting
number of Bonus Shares includes fractional shares, the
value of such fractional shares will be paid in cash
to the Employee.
(C) Within 30 days of the Termination Date, PCA shall
deliver the Bonus Shares to the Employee in shares of
the common stock of the Successor Entity using the
exchange ratios applicable to the merger.
(iv) In all cases of a Change-in-Control where the Change-in-
Control transaction is NOT effected as a pooling of interests, the Employee
shall be entitled to receive the cash value of his or her stock options (whether
vested or unvested) (the "Cash Value"), as follows:
(A) The Cash Value will be established as of the Change-
in-Control Date using
3
<PAGE>
the Black-Scholes Option Pricing Model (with the
assumptions listed on Exhibit A hereto).
(B) Within 30 days of the Termination Date, PCA shall pay
the Cash Value in a lump sum to the Employee.
(c) NO REQUIREMENT OF MITIGATION. The Employee shall not be required
to mitigate the Continuation Benefit by seeking other employment, nor shall the
Continuation Benefit be reduced by any compensation earned by the Employee as
the result of employment by another employer after the Termination Date.
3. TERM AND TERMINATION. The initial term of this Agreement shall
commence on the later of January 1, 1996 or the hiring date of the Employee and
shall expire on December 31, 1997 (the "Initial Term"); PROVIDED, HOWEVER, that
commencing on December 31, 1997 and each December 31 thereafter, the Initial
Term of this Agreement shall automatically be extended for additional,
successive two-year terms (each a "Renewal Term") unless at least 90 days prior
to such December 31 date, the Applicable Directors shall have affirmatively
voted to terminate this Agreement and PCA shall have delivered to the Employee
written notice that the term of this Agreement will not be extended as of such
December 31 date. Notwithstanding the foregoing, the termination or expiration
of this Agreement shall in no way terminate or affect the Employee's entitlement
to the Continuation Benefit otherwise due the Employee hereunder if a Change in
Control of PCA has occurred prior to the termination or expiration of this
Agreement.
4. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS. PCA shall require any Successor Entity to expressly
assume and agree in writing to perform this Agreement in the same manner and to
the same extent that PCA would be required to perform it if no such succession
had taken place. PCA shall deliver a copy of such writing to the Employee.
(b) BENEFIT. This Agreement and all rights of the Employee under this
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to him under this Agreement if he had continued
to live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee, or other designee or, if there is
no such designee, the Employee's estate.
5. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect (except to
the extent that the procedures outlined below differ from such rules). Within 7
days after receipt of written notice from either party that a dispute exists and
that arbitration is required, both parties must within 7 business days agree on
an acceptable arbitrator. If the parties cannot agree on an arbitrator, then the
parties shall list the "Big Six" accounting firms (other than PCA's auditors) in
alphabetical order and the first firm that does not have a conflict of interest
and is willing to serve will be selected as the arbitrator. The parties agree to
act as expeditiously as possible to select an arbitrator and conclude the
dispute. The arbitrator must render his decision in writing within 30 days of
his or its appointment. The cost and expenses of the arbitration and of legal
counsel to the
4
<PAGE>
prevailing party shall be borne by the non-prevailing party. PCA shall advance
the estimated fees and expenses of the arbitrator. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its conflict
of laws principles to the extent that such principles would require the
application of laws other than the laws of the State of Florida.
7. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail by registered or
certified mail, return receipt requested, postage prepaid, addressed, if to PCA,
to Physician Corporation of America, 6101 Blue Lagoon Drive, Miami, Florida
33126, attention: President; and if to the Employee, to the most current address
of the Employee in the records of PCA, or to such other addresses as either
party hereto may from time to time give notice of to the other in the aforesaid
manner.
8. WAIVERS. The waiver by either party hereto of a breach or violation of
any term or provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.
9. BOARD APPROVAL; AGREEMENT. PCA warrants and represents to the Employee
that this Agreement has been approved and authorized by the Board of Directors
of PCA. No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in a writing signed
by the Employee and the officer of PCA which is specifically designated by the
Board.
10. NO EMPLOYMENT AGREEMENT CREATED. Nothing herein shall be deemed to
constitute an employment agreement between the Employee and PCA or any
Subsidiary. The Employee acknowledges and agrees that the sole purpose of this
document is to confirm the Continuation Benefit that PCA will pay to the
Employee if on or after a Change in Control of PCA, the Employee's employment by
PCA is terminated without Good Cause, or if the Employee resigns from employment
by PCA due to his or her Demotion without Good Cause. The Employee further
acknowledges and agrees that his or her employment by PCA is employment at will,
and that PCA may terminate such employment at any time without the payment of
any severance compensation or other benefit to the Employee, other than that
required by law or as specifically provided in this Agreement.
11. ENTIRE AGREEMENT. This Agreement and all attachments, riders and
addenda hereto together constitute the entire agreement between the parties with
respect to the subject matter hereof and supersedes and replaces in its entirety
any salary continuation agreement, severance agreement, change-in-control
agreement or other similar agreement executed between the Employee and PCA
executed prior to the effective date hereof.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
PCA:
PHYSICIAN CORPORATION OF AMERICA
By:
---------------------------------
EMPLOYEE:
--------------------------------------
Peter E. Kilissanly
EXHIBIT A
Black-Scholes Option Pricing Model assumptions:
1. The Pricing Model will use the volatility of PCAM stock during
the trading days occurring within the 90 day period immediately
prior to the date of announcement of the Change-in-Control.
2. The expiration length used in the Pricing Model will equal the
Initial Benefit Period (as such term is defined in this
Agreement).
3. The strike price will be the existing option exercise price.
4. The risk free rate will be the one (1) year T-Bill yield on the
Change-in-Control Date.
5. PCAM stock will be valued at its last trade price prior to the
Change-in-Control Date.
<PAGE>
SALARY CONTINUATION AGREEMENT
Parties to this Agreement: PHYSICIAN CORPORATION OF AMERICA, A DELAWARE
CORPORATION ("PCA")
CLIFFORD W. DONNELLY ("Employee")
Initial Benefit Period: 18 MONTHS
Effective Date: MAY 19, 1997
P R E L I M I N A R Y S T A T E M E N T
This Salary Continuation Agreement (the "Agreement") describes the basis on
which PCA will compensate the Employee if, after a change in control of PCA, the
Employee's employment is terminated without cause or the Employee is demoted
without cause. The purpose of this Agreement is to encourage the continued
beneficial employment relationship between PCA and the Employee. However, this
Agreement is not an employment agreement.
A G R E E M E N T
In consideration of the premises and mutual covenants set forth herein, PCA
and the Employee agree as follows:
1. CONTINUATION BENEFIT UPON A CHANGE IN CONTROL. If on or after a Change
in Control of PCA, the Employee's employment by PCA is terminated without Good
Cause, or if the Employee resigns from employment by PCA due to his or her
Demotion without Good Cause, then the Employee shall be entitled to the
Continuation Benefit described in Section 2 of this Agreement.
(a) DEFINITION OF CHANGE IN CONTROL. A "Change in Control of PCA"
means any of the following occurring on or after the Effective Date of this
Agreement:
(i) the acquisition by a person or an entity or a group of
persons and/or entities, directly or indirectly, of more than 50% of PCA's
outstanding common stock in a single transaction or a series of related
transactions;
(ii) a merger, consolidation or other form of corporate
reorganization that results in the acquisition by a person or an entity or a
group of persons and/or entities, directly or indirectly, of more than 50%
percent of PCA's outstanding common stock in a single transaction or a series of
related transactions;
(iii) the sale of all or substantially all of the assets of PCA;
or
(iv) the failure of Applicable Directors to constitute a
majority of the Board of Directors of PCA. "Applicable Directors" means (A)
those individuals who are members of the Board of Directors of PCA on the
Effective Date of this Agreement; and (B) any new director whose election to the
Board or nomination for election to the Board was approved (prior to any vote
thereon by the shareholders) by a vote of at least two-thirds of the directors
then still in office who either (1) were directors on the Effective Date of this
Agreement, or (2) whose election or nomination for election during was
previously approved by a vote of at least two-thirds of the directors described
in clause (A) or B(1) of this Section
<PAGE>
1(a)(iv).
(b) DEFINITION OF "EMPLOYMENT BY PCA." For the purposes of this
Agreement, "employment by PCA" means employment by PCA or a majority-owned
(direct or indirect) subsidiary of PCA ("Subsidiary").
(c) DEFINITION OF "DEMOTION." For the purposes of this Agreement, a
Demotion of the Employee means (i) the reassignment of the Employee to any
position, duties or responsibilities that are materially diminished when
compared with the position, duties or responsibilities of the Employee
immediately prior to the announcement of a Change in Control of PCA; (ii) any
10% or greater reduction in the Employee's aggregate salary and other cash
compensation (not including performance bonuses) from his or her aggregate
salary and other cash compensation in effect immediately prior to the
announcement of a Change in Control of PCA (whether in one reduction or a series
of cumulative reductions); (iii) any material reduction or diminution of the
fringe benefits of the Employee in effect immediately prior to the announcement
of a Change in Control of PCA; or (iv) a requirement that the Employee transfer
his or her principal workplace to a location more than 25 miles from his or her
principal workplace in effect immediately prior to the announcement of a Change
in Control of PCA. A transfer of the employment of the Employee from PCA to a
Subsidiary, or from a Subsidiary to PCA, or from one Subsidiary to another
Subsidiary, shall not, in and of itself, constitute a Demotion, provided none of
the other events described in this Section 1(c) occur in connection with such
transfer.
(d) DEFINITION OF "GOOD CAUSE." For the purposes of this Agreement,
Good Cause means an act of the Employee or any failure to act on the part of the
Employee that constitutes: (i) the wilful and knowing failure or refusal of the
Employee to perform his normal and customary employment duties; (ii) a breach by
the Employee of any material fiduciary duty to PCA or a Subsidiary; (iii) a
material malfeasance by the Employee in connection with the performance of his
duties as an employee of PCA or a Subsidiary; (iv) the commission by the
Employee of material fraud or embezzlement in connection with PCA or a
Subsidiary; or (v) the conviction of the Employee in connection with a felony or
his or her submission to a consent decree for a violation of the securities laws
of any jurisdiction, which conviction or submission has had or, in the
reasonable opinion of the Board of Directors of PCA may have, a material adverse
effect upon the business or operations of PCA.
(e) DEFINITION OF TERMINATION DATE. For the purposes of this
Agreement, the Employee's Termination Date means the effective date of the
Employee's termination of employment by PCA without Good Cause, or the
Employee's resignation due to a Demotion without Good Cause.
(f) DEFINITION OF MONTHLY GROSS SALARY. For the purposes of this
Agreement, the Employee's "Monthly Gross Salary" shall mean the average of the
monthly gross salary and other cash compensation of the Employee (including
performance bonuses) during the two-year period preceding the Termination Date
(but in no event less than the Employee's monthly gross salary in effect
immediately prior to the announcement of the Change in Control).
2. DESCRIPTION OF CONTINUATION BENEFIT.
(a) DEFINITION OF BENEFIT PERIOD. The Employee's Benefit Period shall
be calculated as of the Employee's Termination Date. The Benefit Period shall
equal the number of months in the Initial Benefit Period set forth on the first
page of this Agreement, less the number of complete months which have
2
<PAGE>
elapsed subsequent to the second anniversary of the Change in Control of PCA.
(b) CONTINUATION BENEFIT. The Employee's Continuation Benefit shall
consist of all of the following:
(i) Within 5 days of the Termination Date, PCA or the
Subsidiary formerly employing the Employee shall pay the Employee a lump sum
cash payment equal to (A) the Employee's Monthly Gross Salary in effect
MULTIPLIED BY (B) the number of months in the Benefit Period.
(ii) During the Benefit Period, the Employee and his or her
dependents shall be eligible for participation in and shall receive all benefits
under all welfare benefit plans, practices, policies and programs provided by
PCA to its employees (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs), to the extent applicable generally to
the employees and officers of PCA similarly situated with the Employee.
(iii) In addition to the foregoing, and in the event that the
entity succeeding to all or substantially all of the business and/or assets of
PCA (the "Successor Entity") effects the Change-in-Control as a pooling of
interests, the Successor Entity shall: (a) assume the Employee's vested stock
options under a plan containing substantially similar terms and conditions as
PCA's employee stock option plan; and (b) issue to the Employee certain
shares (which have a current registration on file with the Securities and
Exchange Commission and are listed with a national securities exchange or
NASDAQ) (the "Bonus Shares") in exchange for its unvested stock options. The
number of Bonus Shares to be issued to the Employee will be determined as
follows:
(A) The value of the Employee's unvested options (the
"Option Value") will be established as of the
effective date of the Change-in-Control of PCA (the
"Change-in-Control Date") using the Black-Scholes
Option Pricing Model (with the assumptions listed on
Exhibit A hereto).
(B) The Option Value will be divided by the closing price
of PCA's Common Stock on the last trading date before
the Change-in-Control Date and the resulting number is
the number of Bonus Shares that will be issued to the
Employee. Notwithstanding the above, if the resulting
number of Bonus Shares includes fractional shares, the
value of such fractional shares will be paid in cash
to the Employee.
(C) Within 30 days of the Termination Date, PCA shall
deliver the Bonus Shares to the Employee in shares of
the common stock of the Successor Entity using the
exchange ratios applicable to the merger.
(iv) In all cases of a Change-in-Control where the Change-in-
Control transaction is NOT effected as a pooling of interests, the Employee
shall be entitled to receive the cash value of his or her stock options (whether
vested or unvested) (the "Cash Value"), as follows:
(A) The Cash Value will be established as of the Change-
in-Control Date using
3
<PAGE>
the Black-Scholes Option Pricing Model (with the
assumptions listed on Exhibit A hereto).
(B) Within 30 days of the Termination Date, PCA shall pay
the Cash Value in a lump sum to the Employee.
(c) NO REQUIREMENT OF MITIGATION. The Employee shall not be required
to mitigate the Continuation Benefit by seeking other employment, nor shall the
Continuation Benefit be reduced by any compensation earned by the Employee as
the result of employment by another employer after the Termination Date.
3. DESCRIPTION OF BONUS BENEFIT.
(a) In the event that either (i) the Employee resigns from his
employment with PCA effective at any time after August 31, 1997; or (ii) the
Employee is terminated by PCA at any time without Good Cause (in either case,
the Employee's last date of employment being referred to in this Section 3 as
the "Resignation Date"); and (iii) a Change-in-Control has not occurred on or
before the Resignation Date; the Employee shall receive all of the following:
(A) the cash value of any vacation time which the
Employee has accrued as of the Resignation Date, payable on the Resignation
Date;
(B) a cash payment equal to two-thirds (2/3) of the
Employee's cuurent (i.e., 1997 salary, plus an additinal one-twelfth (1/12)
of such salary for every complete month subsequent to August 31, 1997 that
the Employee is employed by PCA; provided, however, that this benefit shall
not extend beyond December 31, 1997 (i.e., up to a maximum of twelve (12)
months of additional salary). Such payment shall be paid in equal monthly
installments commencing one (1) month after the Resignation Date;
(C) a cash payment equal to the INCREASE in PCA's
Common Stock from (i) Three Dollars and Seventy-Five Cents ($3.75) to (ii)
the last trading price of PCA's Common Stock prior to the Resignation Date;
MULTIPLIED BY (iii) Forty Thousand (40,000). Such amount sahll be paid to
the Employee within five (5) business days after the Resignation Date.
(b) In the event that a Change-in-Control occurs during the term
of the Employee's employment, the Emplyee shall be entitled to receive, in
addition to any other benefit described in this Agreement (other than the
benefits described in Section 3(a) above), a cash payment equal to the
INCREASE in PCA's Common Stock from (i) Three Dollars and Seventy-Five Cents
($3.75) to (ii) the last trading price of PCA's Common Stock prior to the
Change-in-Control Date; MULTIPLIED BY (iii) Forty Thousand (40,000). Such
amount shall be paid to the Employee within five (5) days after the
Change-in-Control Date.
(c) Employee agrees that during the period following his
Resignation Date and ending on March 31, 1998, the Employee shall be
available, upon request, to provide consulting services to PCA at a rate of
$1,500 per day plus expenses. Such consulting services shall include, but
not be limited to, traveling to PCA's office locations on mutually agrred
upon days.
4. TERM AND TERMINATION. The initial term of this Agreement shall
commence on the later of January 1, 1996 or the hiring date of the Employee and
shall expire on December 31, 1997 (the "Initial Term"); PROVIDED, HOWEVER, that
commencing on December 31, 1997 and each December 31 thereafter, the Initial
Term of this Agreement shall automatically be extended for additional,
successive two-year terms (each a "Renewal Term") unless at least 90 days prior
to such December 31 date, the Applicable Directors shall have affirmatively
voted to terminate this Agreement and PCA shall have delivered to the Employee
written notice that the term of this Agreement will not be extended as of such
December 31 date. Notwithstanding the foregoing, the termination or expiration
of this Agreement shall in no way terminate or affect the Employee's entitlement
to the Continuation Benefit otherwise due the Employee hereunder if a Change in
Control of PCA has occurred prior to the termination or expiration of this
Agreement.
5. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS. PCA shall require any Successor Entity to expressly
assume and agree in writing to perform this Agreement in the same manner and to
the same extent that PCA would be required to perform it if no such succession
had taken place. PCA shall deliver a copy of such writing to the Employee.
(b) BENEFIT. This Agreement and all rights of the Employee under this
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to him under this Agreement if he had continued
to live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee, or other designee or, if there is
no such designee, the Employee's estate.
6. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect (except to
the extent that the procedures outlined below differ from such rules). Within 7
days after receipt of written notice from either party that a dispute exists and
that arbitration is required, both parties must within 7 business days agree on
an acceptable arbitrator. If the parties cannot agree on an arbitrator, then the
parties shall list the "Big Six" accounting firms (other than PCA's auditors) in
alphabetical order and the first firm that does not have a conflict of interest
and is willing to serve will be selected as the arbitrator. The parties agree to
act as expeditiously as possible to select an arbitrator and conclude the
dispute. The arbitrator must render his decision in writing within 30 days of
his or its appointment. The cost and expenses of the arbitration and of legal
counsel to the
4
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prevailing party shall be borne by the non-prevailing party. PCA shall advance
the estimated fees and expenses of the arbitrator. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its conflict
of laws principles to the extent that such principles would require the
application of laws other than the laws of the State of Florida.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail by registered or
certified mail, return receipt requested, postage prepaid, addressed, if to PCA,
to Physician Corporation of America, 6101 Blue Lagoon Drive, Miami, Florida
33126, attention: President; and if to the Employee, to the most current address
of the Employee in the records of PCA, or to such other addresses as either
party hereto may from time to time give notice of to the other in the aforesaid
manner.
9. WAIVERS. The waiver by either party hereto of a breach or violation of
any term or provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.
10. BOARD APPROVAL; AGREEMENT. PCA warrants and represents to the Employee
that this Agreement has been approved and authorized by the Board of Directors
of PCA. No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in a writing signed
by the Employee and the officer of PCA which is specifically designated by the
Board.
11. NO EMPLOYMENT AGREEMENT CREATED. Nothing herein shall be deemed to
constitute an employment agreement between the Employee and PCA or any
Subsidiary. The Employee acknowledges and agrees that the sole purpose of this
document is to confirm the Continuation Benefit that PCA will pay to the
Employee if on or after a Change in Control of PCA, the Employee's employment by
PCA is terminated without Good Cause, or if the Employee resigns from employment
by PCA due to his or her Demotion without Good Cause. The Employee further
acknowledges and agrees that his or her employment by PCA is employment at will,
and that PCA may terminate such employment at any time without the payment of
any severance compensation or other benefit to the Employee, other than that
required by law or as specifically provided in this Agreement.
12. ENTIRE AGREEMENT. This Agreement and all attachments, riders and
addenda hereto together constitute the entire agreement between the parties with
respect to the subject matter hereof and supersedes and replaces in its entirety
any salary continuation agreement, severance agreement, change-in-control
agreement or other similar agreement executed between the Employee and PCA
executed prior to the effective date hereof.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
PCA:
PHYSICIAN CORPORATION OF AMERICA
By:
---------------------------------
EMPLOYEE:
--------------------------------------
Clifford W. Donnelly
EXHIBIT A
Black-Scholes Option Pricing Model assumptions:
1. The Pricing Model will use the volatility of PCAM stock during
the trading days occurring within the 90 day period immediately
prior to the date of announcement of the Change-in-Control.
2. The expiration length used in the Pricing Model will equal the
Initial Benefit Period (as such term is defined in this
Agreement).
3. The strike price will be the existing option exercise price.
4. The risk free rate will be the one (1) year T-Bill yield on the
Change-in-Control Date.
5. PCAM stock will be valued at its last trade price prior to the
Change-in-Control Date.
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Consulting Agreement"), is made and
entered into this 2 day of June, 1997, by and between PHYSICIAN CORPORATION OF
AMERICA, a Delaware corporation (the "Company") and Peter Kilissanly (the
"Consultant" or the "Employee").
WHEREAS, the Consultant currently serves as President and Chief Operating
Officer of the Company;
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the "Merger
Agreement") of even date herewith, among Humana Inc. (the "Purchaser"), HUMNOV,
Inc. ("Sub") and the Company, Sub will merge with and into the Company and the
Company will become a subsidiary of Purchaser (the "Merger");
WHEREAS, the Company seeks to engage the services of the Consultant
following the Merger; and
WHEREAS, the Consultant and the Company wish to establish their respective
rights and duties and the terms and conditions of this Consulting Agreement, as
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
IT IS AGREED AS FOLLOWS:
1. CONTINGENT NATURE OF AGREEMENT: TERM OF AGREEMENT. This Consulting
Agreement is contingent upon, and shall only become effective upon, (i) the
occurrence of the Merger and (ii) the Consultant remaining a full-time employee
of the Company until the occurrence of the Merger. If these contingencies shall
not occur, this Agreement shall be void and of no effect. The term of this
Consulting Agreement shall commence on the Effective Date (as defined in the
Merger Agreement) and shall end on the first anniversary of such date. The term
of this Consulting Agreement shall cease in the event of a Performance Breach
(as defined in Section 3) or non-compliance by the Consultant with Sections 4 or
5 hereof or in the event that the Consultant shall terminate this Consulting
Agreement by giving written notice of such termination pursuant to Section 11 at
least 30 days before the effective date of such termination. In the event of
such cessation of the term of this Consulting Agreement, the Company and the
Consultant shall have no further obligation hereunder, except as provided in
Sections 2, 4 and 5.
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2. COMPENSATION. In consideration of the services to be performed by the
Consultant pursuant to the terms of Section 3 of this Consulting Agreement, the
Consultant shall be paid a total of $652,117, payable in equal monthly
installments on the Effective Date and the same day on each of the eleven months
thereafter (or if there is no corresponding day in any such month, on the last
day of such month) (collectively, the "Additional Payments"). In the event of
early expiration of the term of this Consulting Agreement due to the death or
disability of the Consultant, and absent a Performance Breach or non-compliance
with Section 4 or 5 hereof, the Company shall remain obligated to pay the
Additional Payments. For purposes of this Consulting Agreement, "disability"
shall mean mental or physical impairment by a physician mutually acceptable to
the Company and the Consultant. In the event of early expiration of this
Consulting Agreement due to a Performance Breach or in the case of
non-compliance with Section 4 or 5 hereof, the Company shall not be obligated to
pay any of the remaining Additional Payments.
3. PERFORMANCE OF SERVICES OF THE CONSULTANT. The Consultant is retained
and shall consult with the Company on an as needed basis relating to the
transition resulting from the Merger and to the degree reasonably deemed
appropriate by the Company with respect to its business matters, concerns and
affairs.
The Consultant hereby agrees to perform his services in accordance with
applicable law, and to use reasonable efforts in the performance of services
hereunder. The Consultant shall have reasonable discretion to choose when such
services will be rendered.
The Company acknowledges that the requirement of the Consultant to perform
services under this Agreement will not prevent the Consultant from performing
full time services to a third party, subject to Section 5 of this Agreement. In
requesting services hereunder, the Company shall take into account the immediate
preceding sentence. To the extent reasonably practicable, the Consultant shall
be entitled to provide services hereunder by telephone or fax. Services to be
performed hereunder shall be rendered in the Miami, Florida area, to the extent
reasonably practicable. The Company shall reimburse the Consultant for
pre-approved out-of-pocket expenses incurred in connection with the rendering of
services hereunder.
In the event that the Consultant shall fail, in any material respect, to
perform his services hereunder in accordance with this Section 3, and the
Company shall have given at least 30 days' written notice of such nonperformance
and the Consultant shall have remained in breach of this Consulting Agreement at
the end of such 30 day period (a "Performance Breach"), then the Company may
terminate this Consulting Agreement without further notice.
4. CONFIDENTIAL SERVICES. The Consultant acknowledges that he will have
access to confidential information about the Company and that he will have
access
2
<PAGE>
to trade secrets and information acquired by the Company at the expense of the
Company for use in its business. The Consultant has substantial experience in
and possesses special, unique and extraordinary skills and knowledge in the
field of business of Company. The Consultant's services to the Company are
special, unique and extraordinary. The Consultant hereby agrees that, except in
the performance of services hereunder, he will not utilize any trade secrets or
any other information of a confidential or proprietary nature, attained in
conjunction with his past employment with the Company or through the services
contemplated under this Consulting Agreement, without the prior written consent
of the Chief Executive Officer of the Company, unless such knowledge or specific
information is clearly in the public domain or has been disclosed to the public
by the Company.
5. COVENANT NOT TO COMPETE. The Consultant has substantial experience in
the Company's industry, and possesses special, unique and extraordinary skills
and knowledge. The Consultant's advisory and operational services to the
Company are special, unique and extraordinary. Accordingly, by execution of
this Consulting Agreement:
a) DURATION OF COVENANT. The Consultant agrees that during the one
year term of this Consulting Agreement (without reference to any possible
earlier termination of this Consulting Agreement and without regard to actual
earlier termination of this Consulting Agreement), the Consultant shall not
violate the provisions of subparagraph (b) below.
b) PROHIBITED COMPETITIVE ACTIVITIES. During the time period
specified in subparagraph (a), the Consultant shall not:
(i) Directly or indirectly own, operate, manage, consult
with in a manner facilitating competition, control, participate in the
management or control of, be employed by, maintain or continue any interest
whatsoever in any HMO or similar managed care business in the Commonwealth of
Puerto Rico (other than an interest not exceeding 5% of the outstanding common
stock of any entity whose common stock is listed under Sections 12(b) or 12(g)
of the Securities Exchange Act of 1934, as amended);
(ii) Directly or indirectly induce or attempt to influence
any employee of the Company to terminate his employment with the Company or
accept employment by another person or entity; or
(iii) Directly or indirectly induce or attempt to influence
any customer or prospective customer of the Company to discontinue doing
business with the Company.
(c) NEED FOR LEGAL REMEDIES. The Consultant expresses, agrees and
acknowledges that this Covenant Not to Compete (herein so called) is necessary
for the Company's business and the Consultant's position with, and services for,
the Company. Further, the Consultant acknowledges that, in the event of his
breach of Covenant Not to
3
<PAGE>
Compete, money damages will not sufficiently compensate the Company for its
injury caused thereby, and the Consultant accordingly agrees that in addition to
such money damages the Consultant may be restrained and enjoined from any
continuing breach of this Covenant Not to Compete. The Consultant acknowledges
that any breach of this Covenant Not to Compete would result in irreparable
damage to the Company.
(d) ACKNOWLEDGMENTS BY CONSULTANT. The Consultant expressly agrees
and acknowledges as follows:
(i) This Covenant Not to Compete is reasonable as to time
and geographical area and does not place any unreasonable burden upon him;
(ii) The general public will not be harmed as a result of
enforcement of this Covenant Not to Compete;
(iii) The Consultant has requested or has had the opportunity
to request that his personal legal counsel review this Covenant Not to Compete;
and
(iv) The Consultant understands and hereby agrees to each
and every term and condition of this Covenant Not to Compete.
6. ASSIGNMENT. The Company may assign (including by merger) this
Consulting Agreement and any rights and obligations hereunder to any affiliate
of Purchaser that is involved in the operation of the Company's business;
PROVIDED, HOWEVER, that such assignment shall not relieve the Company of its
obligations hereunder. The Consultant may not assign this Consulting Agreement
or any rights hereunder.
7. INDEPENDENT CONTRACTOR. In rendering his services, the Consultant
shall be acting as a private contractor and not as an employee of the Company.
The Company does not retain control of the manner in which the Consultant
performs his services under this Consulting Agreement. The Consultant shall not
be eligible to participate in any benefit plans, programs and compensation
practices of the Company and its affiliates by reason of this Consulting
Agreement or performance of the services contemplated hereunder, but nothing in
this Consulting Agreement shall be deemed to affect any entitlement to benefits
and compensation payable by reason of the Consultant's prior capacities as an
employee of the Company. The Consultant shall be responsible for all income and
other taxes on any compensation payable pursuant to this Consulting Agreement
and agrees to indemnify the Company and its affiliates on account of any claims
for any such taxes asserted against the Company or any of its affiliates.
8. SURVIVAL OF RIGHTS OR OBLIGATIONS. The expiration of this Consulting
Agreement shall not waive or release any rights or obligations of either party
that have accrued hereunder prior to such expiration.
4
<PAGE>
9. AMENDMENT AND GOVERNING LAW. This Consulting Agreement contains the
entire agreement of the parties hereto, and it may only be amended by a writing
signed by the parties hereto and supersedes any agreement between the Company
and the Consultant relating to the rendering of consulting services (it being
understood that, to the extent that the Consultant is a party to any such
agreement with the Company that includes matters other than consulting
services, only the portions of such agreement relating to the rendering of
consulting services shall be superseded). This Consulting Agreement shall be
governed in all respects, whether as to validity, construction, capacity,
performance or otherwise, by the laws of the State of Delaware. Headings in
this Consulting Agreement are included solely for convenience and shall not
effect the interpretation of this Consulting Agreement.
10. GENERAL. This Consulting Agreement shall inure to the benefit of and
be binding upon the parties hereto, their executors, administrators, personal
representatives, heirs, successors and permitted assigns.
In the event that a court of competent jurisdiction determines any part of
this Consulting Agreement is in violation of any statute or public policy, then
only the portions of this Consulting Agreement which violate such statute or
public policy shall be stricken. All portions of this Consulting Agreement
which do not violate any statute or public policy shall continue in full force
and effect. Further, any court order striking any portion of this Consulting
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Consulting
Agreement.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such terms, covenant or
conditions, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
11. NOTICE. Any notice or other communication required or permitted
pursuant to the terms of this Consulting Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
mail, first class, postage prepaid and registered with return receipt requested,
addressed to the intended recipient at his or its address set forth below and,
in the case of a notice or other communication to the Company, directed to the
attention of Arthur P. Hipwell, or to such other address as the intended
recipient may have theretofore furnished to the sender in writing in accordance
herewith, except that any notice of change of address is received, notices shall
be sent to the following addresses:
If to the Consultant:
6101 Blue Lagoon Drive
Miami, FL 33126
5
<PAGE>
If to the Company:
Physicians Corporation of America
c/o Humana Inc.
500 West Main Street
Louisville, KY 40202
Attention: Arthur P. Hipwell
Senior Vice President and General Counsel
6
<PAGE>
IN WITNESS WHEREFORE, the parties have executed this Consulting Agreement
on the day and year first written above.
PHYSICIAN CORPORATION OF AMERICA
By:
------------------------------------
---------------------------------------
Peter Kilissanly
7
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Consulting Agreement"), is made and
entered into this 2 day of June, 1997, by and between PHYSICIAN CORPORATION OF
AMERICA, a Delaware corporation (the "Company") and Clifford W. Donnelly (the
"Consultant" or the "Employee").
WHEREAS, the Consultant currently serves as Senior Vice President and Chief
Financial Officer of the Company;
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the "Merger
Agreement") of even date herewith, among Humana Inc. (the "Purchaser"), HUMNOV,
Inc. ("Sub") and the Company, Sub will merge with and into the Company and the
Company will become a subsidiary of Purchaser (the "Merger");
WHEREAS, the Company seeks to engage the services of the Consultant
following the Merger; and
WHEREAS, the Consultant and the Company wish to establish their respective
rights and duties and the terms and conditions of this Consulting Agreement, as
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
IT IS AGREED AS FOLLOWS:
1. CONTINGENT NATURE OF AGREEMENT: TERM OF AGREEMENT. This Consulting
Agreement is contingent upon, and shall only become effective upon, (i) the
occurrence of the Merger and (ii) the Consultant remaining a full-time employee
of the Company until the occurrence of the Merger. If these contingencies shall
not occur, this Agreement shall be void and of no effect. The term of this
Consulting Agreement shall commence on the Effective Date (as defined in the
Merger Agreement) and shall end on the first anniversary of such date. The term
of this Consulting Agreement shall cease in the event of a Performance Breach
(as defined in Section 3) or non-compliance by the Consultant with Sections 4 or
5 hereof or in the event that the Consultant shall terminate this Consulting
Agreement by giving written notice of such termination pursuant to Section 11 at
least 30 days before the effective date of such termination. In the event of
such cessation of the term of this Consulting Agreement, the Company and the
Consultant shall have no further obligation hereunder, except as provided in
Sections 2, 4 and 5.
2. COMPENSATION. In consideration of the services to be performed by the
Consultant pursuant to the terms of Section 3 of this Consulting Agreement, the
1
<PAGE>
Consultant shall be paid a total of $415,655, payable in equal monthly
installments on the Effective Date and the same day on each of the eleven months
thereafter (or if there is no corresponding day in any such month, on the last
day of such month) (collectively, the "Additional Payments"). In the event of
early expiration of the term of this Consulting Agreement due to the death or
disability of the Consultant, and absent a Performance Breach or non-compliance
with Section 4 or 5 hereof, the Company shall remain obligated to pay the
Additional Payments. For purposes of this Consulting Agreement, "disability"
shall mean mental or physical impairment by a physician mutually acceptable to
the Company and the Consultant. In the event of early expiration of this
Consulting Agreement due to a Performance Breach or in the case of non-
compliance with Section 4 or 5 hereof, the Company shall not be obligated to pay
any of the remaining Additional Payments.
3. PERFORMANCE OF SERVICES OF THE CONSULTANT. The Consultant is retained
and shall consult with the Company on an as needed basis relating to the
transition resulting from the Merger and to the degree reasonably deemed
appropriate by the Company with respect to its business matters, concerns and
affairs.
The Consultant hereby agrees to perform his services in accordance with
applicable law, and to use reasonable efforts in the performance of services
hereunder. The Consultant shall have reasonable discretion to choose when such
services will be rendered.
The Company acknowledges that the requirement of the Consultant to perform
services under this Agreement will not prevent the Consultant from performing
full time services to a third party, subject to Section 5 of this Agreement. In
requesting services hereunder, the Company shall take into account the immediate
preceding sentence. To the extent reasonably practicable, the Consultant shall
be entitled to provide services hereunder by telephone or fax. Services to be
performed hereunder shall be rendered in the Miami, Florida area, to the extent
reasonably practicable. The Company shall reimburse the Consultant for
pre-approved out-of-pocket expenses incurred in connection with the rendering of
services hereunder.
In the event that the Consultant shall fail, in any material respect, to
perform his services hereunder in accordance with this Section 3, and the
Company shall have given at least 30 days' written notice of such nonperformance
and the Consultant shall have remained in breach of this Consulting Agreement at
the end of such 30 day period (a "Performance Breach"), then the Company may
terminate this Consulting Agreement without further notice.
4. CONFIDENTIAL SERVICES. The Consultant acknowledges that he will have
access to confidential information about the Company and that he will have
access to trade secrets and information acquired by the Company at the expense
of the Company for use in its business. The Consultant has substantial
experience in and possesses
2
<PAGE>
special, unique and extraordinary skills and knowledge in the field of business
of Company. The Consultant's services to the Company are special, unique and
extraordinary. The Consultant hereby agrees that, except in the performance of
services hereunder, he will not utilize any trade secrets or any other
information of a confidential or proprietary nature, attained in conjunction
with his past employment with the Company or through the services contemplated
under this Consulting Agreement, without the prior written consent of the Chief
Executive Officer of the Company, unless such knowledge or specific information
is clearly in the public domain or has been disclosed to the public by the
Company.
5. COVENANT NOT TO COMPETE. The Consultant has substantial experience in
the Company's industry, and possesses special, unique and extraordinary skills
and knowledge. The Consultant's advisory and operational services to the
Company are special, unique and extraordinary. Accordingly, by execution of
this Consulting Agreement:
A. DURATION OF COVENANT. The Consultant agrees that during the one
year term of this Consulting Agreement (without reference to any possible
earlier termination of this Consulting Agreement and without regard to actual
earlier termination of this Consulting Agreement), the Consultant shall not
violate the provisions of subparagraph (b) below.
B. PROHIBITED COMPETITIVE ACTIVITIES. During the time period
specified in subparagraph (a), the Consultant shall not:
(i) Directly or indirectly own, operate, manage, consult
with in a manner facilitating competition, control, participate in the
management or control of, be employed by, maintain or continue any interest
whatsoever in any HMO or similar managed care business in the Commonwealth of
Puerto Rico (other than an interest not exceeding 5% of the outstanding common
stock of any entity whose common stock is listed under Sections 12(b) or 12(g)
of the Securities Exchange Act of 1934, as amended);
(ii) Directly or indirectly induce or attempt to influence
any employee of the Company to terminate his employment with the Company or
accept employment by another person or entity; or
(iii) Directly or indirectly induce or attempt to influence
any customer or prospective customer of the Company to discontinue doing
business with the Company.
(c) NEED FOR LEGAL REMEDIES. The Consultant expresses, agrees and
acknowledges that this Covenant Not to Compete (herein so called) is necessary
for the Company's business and the Consultant's position with, and services for,
the Company. Further, the Consultant acknowledges that, in the event of his
breach of Covenant Not to Compete, money damages will not sufficiently
compensate the Company for its injury caused thereby, and the Consultant
accordingly agrees that in addition to such money
3
<PAGE>
damages the Consultant may be restrained and enjoined from any continuing breach
of this Covenant Not to Compete. The Consultant acknowledges that any breach of
this Covenant Not to Compete would result in irreparable damage to the Company.
(d) ACKNOWLEDGMENTS BY CONSULTANT. The Consultant expressly agrees
and acknowledges as follows:
(i) This Covenant Not to Compete is reasonable as to time
and geographical area and does not place any unreasonable burden upon him;
(ii) The general public will not be harmed as a result of
enforcement of this Covenant Not to Compete;
(iii) The Consultant has requested or has had the opportunity
to request that his personal legal counsel review this Covenant Not to Compete;
and
(iv) The Consultant understands and hereby agrees to each
and every term and condition of this Covenant Not to Compete.
6. ASSIGNMENT. The Company may assign (including by merger) this
Consulting Agreement and any rights and obligations hereunder to any affiliate
of Purchaser that is involved in the operation of the Company's business;
PROVIDED, HOWEVER, that such assignment shall not relieve the Company of its
obligations hereunder. The Consultant may not assign this Consulting Agreement
or any rights hereunder.
7. INDEPENDENT CONTRACTOR. In rendering his services, the Consultant
shall be acting as a private contractor and not as an employee of the Company.
The Company does not retain control of the manner in which the Consultant
performs his services under this Consulting Agreement. The Consultant shall not
be eligible to participate in any benefit plans, programs and compensation
practices of the Company and its affiliates by reason of this Consulting
Agreement or performance of the services contemplated hereunder, but nothing in
this Consulting Agreement shall be deemed to affect any entitlement to benefits
and compensation payable by reason of the Consultant's prior capacities as an
employee of the Company. The Consultant shall be responsible for all income and
other taxes on any compensation payable pursuant to this Consulting Agreement
and agrees to indemnify the Company and its affiliates on account of any claims
for any such taxes asserted against the Company or any of its affiliates.
8. SURVIVAL OF RIGHTS OR OBLIGATIONS. The expiration of this Consulting
Agreement shall not waive or release any rights or obligations of either party
that have accrued hereunder prior to such expiration.
9. AMENDMENT AND GOVERNING LAW. This Consulting Agreement contains the
entire agreement of the parties hereto, and it may only be amended by a writing
signed by the parties hereto and supersedes any agreement between the Company
4
<PAGE>
and the Consultant relating to the rendering of consulting services (it being
understood that, to the extent that the Consultant is a party to any such
agreement with the Company that includes matters other than consulting
services, only the portions of such agreement relating to the rendering of
consulting services shall be superseded). This Consulting Agreement shall be
governed in all respects, whether as to validity, construction, capacity,
performance or otherwise, by the laws of the State of Delaware. Headings in
this Consulting Agreement are included solely for convenience and shall not
effect the interpretation of this Consulting Agreement.
10. GENERAL. This Consulting Agreement shall inure to the benefit of and
be binding upon the parties hereto, their executors, administrators, personal
representatives, heirs, successors and permitted assigns.
In the event that a court of competent jurisdiction determines any part of
this Consulting Agreement is in violation of any statute or public policy, then
only the portions of this Consulting Agreement which violate such statute or
public policy shall be stricken. All portions of this Consulting Agreement
which do not violate any statute or public policy shall continue in full force
and effect. Further, any court order striking any portion of this Consulting
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Consulting
Agreement.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such terms, covenant or
conditions, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
11. NOTICE. Any notice or other communication required or permitted
pursuant to the terms of this Consulting Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
mail, first class, postage prepaid and registered with return receipt requested,
addressed to the intended recipient at his or its address set forth below and,
in the case of a notice or other communication to the Company, directed to the
attention of Arthur P. Hipwell, or to such other address as the intended
recipient may have theretofore furnished to the sender in writing in accordance
herewith, except that any notice of change of address is received, notices shall
be sent to the following addresses:
If to the Consultant:
6101 Blue Lagoon Drive
Miami, FL 33126
If to the Company:
Physicians Corporation of America
5
<PAGE>
c/o Humana Inc.
500 West Main Street
Louisville, KY 40202
Attention: Arthur P. Hipwell
Senior Vice President and General Counsel
6
<PAGE>
IN WITNESS WHEREFORE, the parties have executed this Consulting Agreement
on the day and year first written above.
PHYSICIAN CORPORATION OF AMERICA
By:
------------------------------------
---------------------------------------
Clifford D. Donnelly
7
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Consulting Agreement"), is made and
entered into this 2 day of June, 1997, by and between PHYSICIAN CORPORATION OF
AMERICA, a Delaware corporation (the "Company") and E. Stanley Kardatzke, M.D.
(the "Consultant" or the "Employee").
WHEREAS, the Consultant currently serves as Chairman of the Board and Chief
Executive Officer of the Company;
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the "Merger
Agreement") of even date herewith, among Humana Inc. (the "Purchaser"), HUMNOV,
Inc. ("Sub") and the Company, Sub will merge with and into the Company and the
Company will become a subsidiary of Purchaser (the "Merger");
WHEREAS, the Company seeks to engage the services of the Consultant
following the Merger; and
WHEREAS, the Consultant and the Company wish to establish their respective
rights and duties and the terms and conditions of this Consulting Agreement, as
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
IT IS AGREED AS FOLLOWS:
1. CONTINGENT NATURE OF AGREEMENT: TERM OF AGREEMENT. This Consulting
Agreement is contingent upon, and shall only become effective upon, (i) the
occurrence of the Merger and (ii) the Consultant remaining a full-time employee
of the Company until the occurrence of the Merger. If these contingencies shall
not occur, this Agreement shall be void and of no effect. The term of this
Consulting Agreement shall commence on the Effective Date (as defined in the
Merger Agreement) and shall end on the first anniversary of such date. The term
of this Consulting Agreement shall cease in the event of a Performance Breach
(as defined in Section 3) or non-compliance by the Consultant with Sections 4 or
5 hereof or in the event that the Consultant shall terminate this Consulting
Agreement by giving written notice of such termination pursuant to Section 11 at
least 30 days before the effective date of such termination. In the event of
such cessation of the term of this Consulting Agreement, the Company and the
Consultant shall have no further obligation hereunder, except as provided in
Sections 2, 4 and 5.
2. COMPENSATION. In consideration of the services to be performed by the
Consultant pursuant to the terms of Section 3 of this Consulting Agreement, the
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Consultant shall be paid a total of $682,228, payable in equal monthly
installments on the Effective Date and the same day on each of the eleven months
thereafter (or if there is no corresponding day in any such month, on the last
day of such month) (collectively, the "Additional Payments"). In the event of
early expiration of the term of this Consulting Agreement due to the death or
disability of the Consultant, and absent a Performance Breach or non-compliance
with Section 4 or 5 hereof, the Company shall remain obligated to pay the
Additional Payments. For purposes of this Consulting Agreement, "disability"
shall mean mental or physical impairment by a physician mutually acceptable to
the Company and the Consultant. In the event of early expiration of this
Consulting Agreement due to a Performance Breach or in the case of
non-compliance with Section 4 or 5 hereof, the Company shall not be obligated to
pay any of the remaining Additional Payments.
3. PERFORMANCE OF SERVICES OF THE CONSULTANT. The Consultant is retained
and shall consult with the Company on an as needed basis relating to the
transition resulting from the Merger and to the degree reasonably deemed
appropriate by the Company with respect to its business matters, concerns and
affairs.
The Consultant hereby agrees to perform his services in accordance with
applicable law, and to use reasonable efforts in the performance of services
hereunder. The Consultant shall have reasonable discretion to choose when such
services will be rendered.
The Company acknowledges that the requirement of the Consultant to perform
services under this Agreement will not prevent the Consultant from performing
full time services to a third party, subject to Section 5 of this Agreement. In
requesting services hereunder, the Company shall take into account the immediate
preceding sentence. To the extent reasonably practicable, the Consultant shall
be entitled to provide services hereunder by telephone or fax. Services to be
performed hereunder shall be rendered in the Miami, Florida area, to the extent
reasonably practicable. The Company shall reimburse the Consultant for
pre-approved out-of-pocket expenses incurred in connection with the rendering of
services hereunder.
In the event that the Consultant shall fail, in any material respect, to
perform his services hereunder in accordance with this Section 3, and the
Company shall have given at least 30 days' written notice of such nonperformance
and the Consultant shall have remained in breach of this Consulting Agreement at
the end of such 30 day period (a "Performance Breach"), then the Company may
terminate this Consulting Agreement without further notice.
4. CONFIDENTIAL SERVICES. The Consultant acknowledges that he will have
access to confidential information about the Company and that he will have
access to trade secrets and information acquired by the Company at the expense
of the Company for use in its business. The Consultant has substantial
experience in and possesses
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special, unique and extraordinary skills and knowledge in the field of business
of Company. The Consultant's services to the Company are special, unique and
extraordinary. The Consultant hereby agrees that, except in the performance of
services hereunder, he will not utilize any trade secrets or any other
information of a confidential or proprietary nature, attained in conjunction
with his past employment with the Company or through the services contemplated
under this Consulting Agreement, without the prior written consent of the Chief
Executive Officer of the Company, unless such knowledge or specific information
is clearly in the public domain or has been disclosed to the public by the
Company.
5. COVENANT NOT TO COMPETE. The Consultant has substantial experience in
the Company's industry, and possesses special, unique and extraordinary skills
and knowledge. The Consultant's advisory and operational services to the
Company are special, unique and extraordinary. Accordingly, by execution of
this Consulting Agreement:
A. DURATION OF COVENANT. The Consultant agrees that during the one
year term of this Consulting Agreement (without reference to any possible
earlier termination of this Consulting Agreement and without regard to actual
earlier termination of this Consulting Agreement), the Consultant shall not
violate the provisions of subparagraph (b) below.
B. PROHIBITED COMPETITIVE ACTIVITIES. During the time period
specified in subparagraph (a), the Consultant shall not:
(i) Directly or indirectly own, operate, manage, consult
with in a manner facilitating competition, control, participate in the
management or control of, be employed by, maintain or continue any interest
whatsoever in any HMO or similar managed care business in the Commonwealth of
Puerto Rico (other than an interest not exceeding 5% of the outstanding common
stock of any entity whose common stock is listed under Sections 12(b) or 12(g)
of the Securities Exchange Act of 1934, as amended);
(ii) Directly or indirectly induce or attempt to influence
any employee of the Company to terminate his employment with the Company or
accept employment by another person or entity; or
(iii) Directly or indirectly induce or attempt to influence
any customer or prospective customer of the Company to discontinue doing
business with the Company.
(c) NEED FOR LEGAL REMEDIES. The Consultant expresses, agrees and
acknowledges that this Covenant Not to Compete (herein so called) is necessary
for the Company's business and the Consultant's position with, and services for,
the Company. Further, the Consultant acknowledges that, in the event of his
breach of Covenant Not to Compete, money damages will not sufficiently
compensate the Company for its injury caused thereby, and the Consultant
accordingly agrees that in addition to such money
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damages the Consultant may be restrained and enjoined from any continuing breach
of this Covenant Not to Compete. The Consultant acknowledges that any breach of
this Covenant Not to Compete would result in irreparable damage to the Company.
(d) ACKNOWLEDGMENTS BY CONSULTANT. The Consultant expressly agrees
and acknowledges as follows:
(i) This Covenant Not to Compete is reasonable as to time
and geographical area and does not place any unreasonable burden upon him;
(ii) The general public will not be harmed as a result of
enforcement of this Covenant Not to Compete;
(iii) The Consultant has requested or has had the opportunity
to request that his personal legal counsel review this Covenant Not to Compete;
and
(iv) The Consultant understands and hereby agrees to each
and every term and condition of this Covenant Not to Compete.
6. ASSIGNMENT. The Company may assign (including by merger) this
Consulting Agreement and any rights and obligations hereunder to any affiliate
of Purchaser that is involved in the operation of the Company's business;
PROVIDED, HOWEVER, that such assignment shall not relieve the Company of its
obligations hereunder. The Consultant may not assign this Consulting Agreement
or any rights hereunder.
7. INDEPENDENT CONTRACTOR. In rendering his services, the Consultant
shall be acting as a private contractor and not as an employee of the Company.
The Company does not retain control of the manner in which the Consultant
performs his services under this Consulting Agreement. The Consultant shall not
be eligible to participate in any benefit plans, programs and compensation
practices of the Company and its affiliates by reason of this Consulting
Agreement or performance of the services contemplated hereunder, but nothing in
this Consulting Agreement shall be deemed to affect any entitlement to benefits
and compensation payable by reason of the Consultant's prior capacities as an
employee of the Company. The Consultant shall be responsible for all income and
other taxes on any compensation payable pursuant to this Consulting Agreement
and agrees to indemnify the Company and its affiliates on account of any claims
for any such taxes asserted against the Company or any of its affiliates.
8. SURVIVAL OF RIGHTS OR OBLIGATIONS. The expiration of this Consulting
Agreement shall not waive or release any rights or obligations of either party
that have accrued hereunder prior to such expiration.
9. AMENDMENT AND GOVERNING LAW. This Consulting Agreement contains the
entire agreement of the parties hereto, and it may only be amended by a writing
signed by the parties hereto and supersedes any agreement between the Company
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and the Consultant relating to the rendering of consulting services (it being
understood that, to the extent that the Consultant is a party to any such
agreement with the Company that includes matters other than consulting
services, only the portions of such agreement relating to the rendering of
consulting services shall be superseded). This Consulting Agreement shall be
governed in all respects, whether as to validity, construction, capacity,
performance or otherwise, by the laws of the State of Delaware. Headings in
this Consulting Agreement are included solely for convenience and shall not
effect the interpretation of this Consulting Agreement.
10. GENERAL. This Consulting Agreement shall inure to the benefit of and
be binding upon the parties hereto, their executors, administrators, personal
representatives, heirs, successors and permitted assigns.
In the event that a court of competent jurisdiction determines any part of
this Consulting Agreement is in violation of any statute or public policy, then
only the portions of this Consulting Agreement which violate such statute or
public policy shall be stricken. All portions of this Consulting Agreement
which do not violate any statute or public policy shall continue in full force
and effect. Further, any court order striking any portion of this Consulting
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Consulting
Agreement.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such terms, covenant or
conditions, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
11. NOTICE. Any notice or other communication required or permitted
pursuant to the terms of this Consulting Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
mail, first class, postage prepaid and registered with return receipt requested,
addressed to the intended recipient at his or its address set forth below and,
in the case of a notice or other communication to the Company, directed to the
attention of Arthur P. Hipwell, or to such other address as the intended
recipient may have theretofore furnished to the sender in writing in accordance
herewith, except that any notice of change of address is received, notices shall
be sent to the following addresses:
If to the Consultant:
6101 Blue Lagoon Drive
Miami, FL 33126
If to the Company:
Physicians Corporation of America
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c/o Humana Inc.
500 West Main Street
Louisville, KY 40202
Attention: Arthur P. Hipwell
Senior Vice President and General Counsel
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IN WITNESS WHEREFORE, the parties have executed this Consulting Agreement
on the day and year first written above.
PHYSICIAN CORPORATION OF AMERICA
By:
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E. Stanley Kardatzke, M.D.
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