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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996]
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19147
Coventry Corporation
(Exact name of registrant as specified in its charter)
Delaware 62-1297579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
53 Century Boulevard, Suite 250
Nashville, Tennessee 37214
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 391-2440
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting Common Stock
held by non-affiliates of the registrant as of March 14, 1997 (computed by
reference to the closing price of such stock on The Nasdaq Stock Market) was
$375,543,737.
As of March 14, 1997, there were 33,014,834 shares of the registrant's
voting Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 29, 1997 are incorporated by
reference into Part III.
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COVENTRY CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PART I Page
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<S> <C> <C>
Item 1: Business 1
Item 2: Description of Property 9
Item 3: Legal Proceedings 10
Item 4: Submission of Matters to a Vote of Security Holders 10
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 11
Item 6: Selected Consolidated Financial Data 12
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Item 8: Financial Statements and Supplementary Data 24
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45
PART III
Item 10: Directors and Executive Officers of the Registrant 46
Item 11: Executive Compensation 46
Item 12: Security Ownership of Certain Beneficial Owners and Management 46
Item 13: Certain Relationships and Related Transactions 46
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 47
</TABLE>
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PART I
ITEM 1: Business
(a) General Development of the Business
Coventry Corporation ("the Company") is a managed health care company
that provides comprehensive health benefits and services to 894,076 members in
Pennsylvania, Ohio, West Virginia, Missouri, Illinois, Virginia and Florida at
December 31, 1996. Health care services are provided to employer groups and
government funded groups through a variety of full-risk health care plans,
including health maintenance organization and preferred provider organization
products. Additionally, the Company administers self-insured health plans of
certain large employers. The Company's enrollment increased to 901,891 in
January 1997.
The Company's regional operations are based in Pittsburgh (western
Pennsylvania, eastern Ohio and West Virginia), and Harrisburg (central
Pennsylvania), (collectively, the "Pennsylvania Health Plans"), St. Louis,
Missouri ("the St. Louis Health Plan"), Richmond, Virginia (the "Richmond
Health Plan") and Jacksonville, Florida.
The Company was incorporated in 1986 in Delaware. Its principal
executive offices are located at 53 Century Boulevard, Suite 250, Nashville,
Tennessee 37214, and its telephone number is (615) 391-2440. Unless the
context indicates otherwise, references herein to "Coventry" and "the Company"
include Coventry Corporation and its subsidiaries.
(b) Financial Information about Industry Segments
The Company operates only in the managed care industry, and
accordingly, industry segment data is not applicable.
(c) Narrative Description of Business
Products
Commercial Health Maintenance Organizations
The Company's health maintenance organization ("HMO") products provide
comprehensive health care benefits to enrollees, including ambulatory and
inpatient physician services, hospitalization, pharmacy, dental, optical,
mental health, ancillary diagnostic and therapeutic services. In general, a
fixed monthly enrollment fee covers all HMO services, although some benefit
plans require co-payments or deductibles in addition to the basic enrollee
premium. A primary care physician assumes overall responsibility for the care
of an enrollee, including preventive and routine medical care and referrals to
specialists and consulting physicians. While an HMO enrollee's choice of
providers is limited to those within the health plan's HMO network, the HMO
enrollee is typically entitled to coverage of a broader range of healthcare
services than are covered by typical reimbursement or indemnity policies. At
December 31, 1996, the Company had approximately 416,000 commercial HMO
members.
The Pennsylvania Health Plans have licensed HMO service areas in
Pittsburgh and eight surrounding counties in western Pennsylvania, 21 counties
in central Pennsylvania, including the cities of Harrisburg, York, Lancaster,
State College, Lebanon and Scranton and five counties in eastern Ohio. Through
Coventry Health Plan of West Virginia, the Company serves Wheeling and 14
counties in West Virginia. The St. Louis Health Plan's service area includes
St. Louis and 23 adjacent counties in Missouri and 23 counties in central and
southern Illinois. The Richmond Health Plan services Richmond, Roanoke and 38
counties in central and southwestern Virginia. All of the commercial HMOs are
federally qualified.
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Preferred Provider Organizations and Point of Service
The Company, through its regional health plans, also offers
fully-insured flexible provider products, including preferred provider
organization ("PPO") and point of service ("POS") products, which permit
enrollees to participate in managed care but allow them to choose, at the time
services are required, to use providers not participating in the managed care
network. Deductibles and co-payments generally increase the out-of-pocket
costs to the enrollee if a non-participating provider is utilized. Fully
insured PPO/POS premiums are typically lower than HMO premiums due to these
increased out-of-pocket costs borne by enrollees. The Company's PPO and POS
products are underwritten by Coventry Health and Life Insurance Company
("CHLIC") a Texas insurance company. PPO/POS products are currently offered by
the western Pennsylvania, central Pennsylvania, St. Louis, and Richmond health
plans. At December 31, 1996, approximately 176,000 Coventry members were
enrolled in a flexible provider product.
Medicare
In late 1995, the Company introduced a Medicare risk product under the
name "Advantra" (R) in the St. Louis market. In 1996 the Company began
marketing this product in its western Pennsylvania and central Pennsylvania
markets.
Under a Medicare risk contract, the Company receives a fixed premium
per member, which reflects certain demographics of the Medicare population of
each region. At December 31, 1996, there were approximately 1.3 million
Medicare eligibles in the Company's current service areas. The Company
believes that the Medicare risk product represents substantial opportunity for
enrollment growth. However, the product also carries the risk of higher
utilization and related medical costs than commercial products, and the
possibility of regulatory or legislative changes which may reduce premiums or
increase mandated benefits in the future. The Company is also subject to
increased government regulation and reporting requirements related to the
product.
The Company also offers Medicare cost and supplement products. Under
a Medicare cost contract, the Company is reimbursed by the U.S. Health Care
Finance Administration ("HCFA") only for the cost of services rendered to
the plan members, including services provided at the health plan's medical
offices and a portion of administrative expenses. HCFA periodically audits the
cost of services and as a result the Company is at risk for less than full
reimbursement. Medicare supplement members enroll individually and pay a
monthly premium for comprehensive health services not covered under Medicare.
A majority of the Company's former Medicare cost and supplement members
converted to the Company's Advantra product during 1996. At December 31, 1996
the Company had approximately 28,000 Medicare members, including both risk and
cost based members.
Medicaid
The Company offers health care coverage to Medicaid recipients in the
north Florida, St. Louis and central Missouri, Richmond, Virginia,
Pittsburgh and central Pennsylvania markets. The Company's Medicaid products in
each region are generally similar to, and based upon, the products offered by
its HealthCare USA, Inc. ("HCUSA") subsidiary in Jacksonville, Florida, and
HCUSA generally administers the Company's Medicaid products in each of the
other regions. Medicaid recipients in north Florida, St. Louis and central
Missouri markets are generally required to choose a managed care provider. In
Pittsburgh, central Pennsylvania and Richmond, Virginia, enrollment in a
Medicaid HMO is voluntary. Under a Medicaid risk contract, the participating
state pays a monthly premium based on the age and sex of the recipients
enrolled in the Company's plans.
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Like the Medicare risk product, the Medicaid product makes the
Company's financial results more susceptible to government regulation and
legislative changes in premium levels and benefit structure. Under current
regulations, HMOs offering Medicaid products on a mandatory enrollment basis
must within certain time frames broaden their membership to include at least
25% commercial HMO members. The Company's Florida HMO has not achieved this
required percentage of commercial membership in Florida, but has received a
waiver of this requirement through June, 1998. Premium rates paid to the
Company's Medicaid operations in Florida were significantly reduced in 1995,
and future funding levels cannot be predicted with certainty. As a result of
premium rate reductions and the commercial membership requirements, the Company
has determined that its Florida Medicaid operations are unlikely to be
sufficiently profitable on a long-term basis to justify a continued presence in
the Florida market and, as a result, the Company is considering various options
concerning this business, with the long-term goal of exiting the Florida
Medicaid market. Accordingly, the Company has established a reserve of $1.2
million at December 31, 1996 to reflect the anticipated costs of exiting this
market. The Company believes that its existing commercial membership in its St.
Louis Health Plan will satisfy the regulatory commercial membership
requirements in Missouri. At December 31, 1996, approximately 122,000 Coventry
members were enrolled in a Medicaid risk product, including approximately
28,000 in Florida, 77,000 in Missouri and 17,000 in other regions. See
"Government Regulations."
Administrative Services Only
The Company's health plans offer an administrative services only
("ASO") product to large employers who self-insure their employee health
benefits. Under the ASO contracts, employers who fund their own health plans
receive the benefit of provider pricing arrangements from the health plan and
the health plan also provides a variety of administrative services such as
claims processing, utilization review and quality assurance for the employers.
The health plan receives an administrative fee for these services but does not
assume the health care cost underwriting risk. Certain of the Company's ASO
contracts include performance and utilization management standards which affect
the fees received for these services. Approximately 153,000 of the Company's
members were ASO members at December 31, 1996.
Delivery Systems
The health plans maintain provider networks which furnish health care
services through direct employment of or contractual arrangements with
physicians, hospitals and other health care providers, rather than providing
reimbursement to the enrollee for the charges of such providers. Because the
health plans receive the same amount of revenue from their enrollees
irrespective of the cost of health care services provided, they must manage
both the utilization of services and the unit cost of the services.
The Company's health plans' networks utilize a variety of physician
care delivery systems which differ primarily in the characterization of the
relationship between the Company and the participating physicians. The Company
utilizes staff models in western and central Pennsylvania and St. Louis,
Missouri to deliver primary care and certain specialist services through
physicians who are employed exclusively by the health plan. The exclusive
full-time employment of physicians in a staff model generally enables the
health plan to predict costs more effectively, maintain quality and respond
quickly to consumer issues. However, staff model operations also involves
substantial investment in certain costs, such as facilities and personnel, that
cannot be immediately adjusted to take into account changes in the membership
or third party provider pricing trends. During 1996, the Company initiated
efforts to reduce overhead in its staff models by reducing staff employment and
capitating certain specialist and ancillary functions. In addition to providing
health care to plan members, these staff models also accept non-member patients
on a fee-for-service basis, in an effort to help cover the costs associated
with the medical offices. The Company employed approximately 200 physicians at
December 31, 1996 in its staff model operations.
The Company's staff model operations, in recent years, have suffered
from over-capacity, and the Company has not been able to increase the number of
members or other patients utilizing such operations sufficiently to make such
operations profitable. As a result, the Company determined in late 1996 to
seek to dispose of the staff model operations in Pittsburgh, Pennsylvania and
St. Louis, Missouri. In March 1997, the Company entered into agreements to sell
its medical offices associated with its health plan in St. Louis, Missouri to
BJC Health Systems ("BJC"), a major provider organization in the St. Louis
market, and to sell its medical offices associated with its health plan in
Pittsburgh, Pennsylvania to Allegheny Health, Education and Research Foundation
("AHERF"), a major provider organization in the Pittsburgh market. The
agreements are subject to the satisfaction of various conditions, including
regulatory approval. After these sales, the Company's medical operations will
be limited to employing 22 physicians in eight offices in the central
Pennsylvania area.
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Coincident with the sale of the St. Louis and Pittsburgh medical
offices, the Company will enter into long-term global capitation arrangements
with BJC and AHERF, pursuant to which these provider organizations will receive
a fixed percentage of premiums to cover all the medical treatment the Company's
globally capitated members receive from the health care systems. These
arrangements are a continuation of the Company's efforts to enter into
capitation agreements with major providers whereby the providers will provide
all medical treatment for the Company's members in return for a fixed
percentage of premium. While these agreements limit the Company's exposure to
the risk of increasing medical costs, they expose the Company to risk as to the
adequacy of the financial and medical care resources of the provider
organization.
All of the Company's health plans also offer an open panel delivery
system. In an open panel structure, individual physicians or physician groups
contract with the health plans to provide services to enrollees but also
maintain independent practices in which they provide services to individuals
who are not Coventry health plan enrollees. The Company contracts with
approximately 18,000 physicians through the open panel model. Additionally,
the Company is aware that entering into global capitation contracts with
certain providers may cause disruption in its existing provider network.
Health Care Provider Compensation
The primary care physicians employed within the staff model
operations are compensated under salary and bonus arrangements. Under
most open panel contracts, each primary care physician is paid a monthly fixed
capitation fee for each enrollee selecting the physician and may receive
additional compensation from risk-sharing arrangements with the health plan to
the extent that pre-established utilization and quality goals are achieved.
Contracting specialist physicians are compensated under both discounted
fee-for-service arrangements and capitation arrangements. The majority of the
Company's contracts with hospitals provide for inpatient per diem or per case
hospital rates, while outpatient services are typically contracted on a
discounted fee-for-service basis. During 1996, the Company converted many of
its hospital and ancillary contracts from discounted fee-for-service to fixed
fee schedules or capitation arrangements.
Quality Assurance
The Company has established systems to monitor the availability,
appropriateness and effectiveness of the patient care it provides. Monitoring
the number of physicians and support personnel needed for the number of
enrollees served assists in maintaining the availability of care at appropriate
levels. Utilization data collected and disseminated in the context of
controlling costs are also a valuable indicator of over or under utilization of
necessary services and helps the Company's health plans provide optimal care to
their enrollees.
The Company's health plans also have internal quality assurance review
committees made up of physicians and other staff members whose responsibilities
include periodic review of medical records, development and implementation of
standards of care based on current medical literature and the collection of
data relating to results of treatment. Studies are regularly conducted to
discover possible adverse medical outcomes for both quality and risk management
purposes.
Appointment availability, member waiting times and environments are
monitored. A membership services department is responsible for ensuring
enrollee satisfaction, and the Company's health plans periodically conduct
membership surveys of both existing and former enrollees concerning services
furnished and suggestions for improvement.
The National Committee for Quality Assurance ("NCQA") is an
independent, nonprofit institution that evaluates and accredits the quality
assurance programs of managed care organizations and is recognized as the
national authority on quality. Both the Pennsylvania plans have earned full
accreditation. The Richmond and St. Louis plans received provisional
accreditation in 1995 and 1996, respectively.
In 1996, HCUSA met or exceeded all state standards in a Florida
Medicaid Contract compliance review conducted by the Florida Agency for
Healthcare Administration of 21 Medicaid HMOs. The Plan scored 100%, the
highest rating received, on the quality of care standards specified in its 1996
Medicaid contract and a 98% overall rating. See "Medicaid" and "Government
Regulation."
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Utilization Management and Review
A managed care company's profitability is dependent on maintaining
effective controls over utilization of health care services consistent with the
provision of high quality care. Each of the Company's health plans employs
physicians as Medical Directors who oversee the delivery of medical services
with respect to staff model and open panel operations. The Medical Director
supervises medical managers (physicians and nurses) who review and approve the
primary care physicians' referrals to specialists and hospitals. Medical
managers also continually review the status of hospitalized patients and
compare their medical progress with established clinical criteria. In
addition, nurses make hospital rounds to review patients' medical progress and
perform quality assurance and utilization functions.
Medical managers also monitor the utilization of diagnostic services
and encourage use of outpatient surgery and testing where appropriate. Data
showing each physician's utilization profile for diagnostic tests, specialty
referrals and hospitalization are collected by each health plan and provided to
the health plan's physicians. These results are monitored by medical managers
in an attempt to ensure the use of cost-effective, medically appropriate
services.
Marketing
The Company's commercial health plans are marketed primarily to
employer groups as alternatives to conventional fee-for-service health care and
indemnity health insurance programs. Employers generally pay all or part of
their employees' health care premiums, and many continue to offer their
employees a conventional insurance plan even if one or more of the Company's
products are offered.
Commercial marketing is generally a two-step process in which
presentations are made first to employers and then directly to employees. Once
selected by an employer, the Company solicits enrollees from the employee base
directly. During periodic "open enrollments", in which employees are permitted
to change health care programs, the Company uses direct mail, worksite
presentations, and radio and television advertisements to contact new
enrollees. The Company also markets through independent insurance brokers and
agents. Virtually all of the Company's employer group contracts are renewable
annually, and enrollment is continuously affected by employee turnover within
employer groups.
The Company's Medicaid products are marketed directly to individuals
while its Medicare products are marketed to both individuals, and, primarily in
the Pittsburgh market, employer group retirees. Individual marketing to
Medicare beneficiaries is conducted through use of a direct sales force and
advertising efforts that include television, radio, newspaper, billboards, and
direct mail. The Company also markets through independent insurance brokers and
agents. The Company's Medicaid and Medicare contracts are renewable annually,
and Medicare and Medicaid enrollees may disenroll monthly.
Each of the Company's health plans employs a full-time marketing
staff, totaling approximately 200 for the entire company. Each marketing
staff uses advertising and promotional material prepared by advertising firms
as well as market research programs.
No single employer group accounted for 10% or more of the Company's
consolidated revenues in 1996. As of December 31, 1996, the employer groups
which accounted for the ten highest amounts of managed care premiums for the
western and central Pennsylvania, St. Louis and Richmond health plans
represented approximately 26%, 28%, 28% and 62%, respectively, of each health
plan's premiums. HCUSA received approximately $32.0 million or 27% of its
revenue from the State of Florida and approximately $85.7 million or 73% from
the State of Missouri.
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Competition
As of December 31, 1996, the Company estimates that its share of the
commercial HMO market was approximately 50% in western Pennsylvania, 30% in
central Pennsylvania, 26% in St. Louis, and 24% in Richmond.
The Company's health plans operate in highly competitive environments
and compete with other HMOs, PPOs, indemnity insurance carriers and, most
recently, physician-hospital organizations. During 1996 the Company continued
to experience competitive pressures in its commercial products, most notably in
the Pennsylvania and Missouri markets, which adversely affected the premiums
that the Company has historically received from new and existing members, the
membership growth opportunities, and the mix of products sold. In some cases,
employer groups have moved from the traditional commercial HMO plans toward the
lower premium flexible provider products.
The Company believes that the principal factors influencing an
employer group's decision to choose among health care options are the price of
the benefit plans offered, locations of the health care providers, their
reputation for quality care, financial stability, comprehensiveness of
coverage, and diversity of product offerings.
The Company also competes with other managed care organizations and
indemnity insurance carriers in seeking to obtain and retain favorable
contracts with hospitals and other providers of services to the Company's
health plans. While the Company believes that the relatively large membership
in its health plans places them in a favorable position in negotiating
contracts, some of its competitors represent an equal or greater number of
potential patients for such contracting providers and therefore may be in an
equal or more favorable position to negotiate provider contracts.
Government Regulation
The Company's commercial HMOs are qualified under the federal Health
Maintenance Organization Act of 1973, which was enacted to promote the
development of HMOs. Only HMOs that continue to meet federal criteria for
sound fiscal operation may retain their qualified status. In order to maintain
such qualification, HMOs are required to set enrollment fees, or premiums,
pursuant to a "community rating system", which permits rating by class and
group specific rating on a prospective basis. The system can place an HMO at a
disadvantage when competing with conventional insurers for the business of
large employers; at the same time, it does not permit an established customer
to demand rate reductions based upon its group's favorable medical experience.
The Company's HMOs are required to file periodic reports with, and are
subject to periodic review by state and federal licensing authorities that
regulate them. The HMOs are required by state law to meet certain minimum
capital and deposit and/or reserve requirements and may be restricted from
paying dividends under certain circumstances. They are also required to
provide their enrollees with certain basic services based substantially on a
fixed, prepaid fee basis. Even under community rating, however, an HMO may
vary the type of non-fixed benefits offered. The HMOs are required to have
quality assurance and education programs for their professionals and enrollees.
State laws further require that representatives of the HMOs' enrollees have a
voice in policy making.
In 1996, HCFA promulgated regulations ("physician incentive
regulations") enforcing Sections 4204(a) and 4731 of the Omnibus Budget
Reconciliation Act of 1990 ("OBRA 90"). OBRA 90 and the physician incentive
regulations prohibit HMOs with Medicare risk contracts from knowingly making
incentive payments to physicians as an inducement to reduce or limit medically
necessary services to Medicare beneficiaries. Under the physician incentive
regulations, HMOs must, among other things, disclose to HCFA their physician
compensation plan in such detail as to allow HCFA to determine compliance with
the regulations, and provide assurance that stop-loss insurance is in place, if
the HMO places a physician or physician group at "substantial financial risk"
for services provided to Medicare beneficiaries. These regulations took effect
beginning January 1997.
On August 20, 1996, President Clinton signed into law the "Health
Insurance Portability and Accountability Act of 1996," which took effect
beginning January 1997. This legislation requires guaranteed issuance and
renewability of certain health coverage for individuals and small groups,
limits preexisting condition exclusions and provides for a demonstration
project for medical savings accounts. In addition, more recent federal
legislation, which will become effective beginning January 1998, requires
health plans to provide parity for mental health benefits and at least 48 hours
inpatient coverage for mothers and their newborns.
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All of the Company's Medicare and Medicaid plans are subject to HCFA
and state regulations. HCFA and the appropriate state agencies have the right
to audit any health plan operating under a Medicare or Medicaid contract to
determine the plan's compliance with HCFA and state regulations and quality of
care being rendered to the plan's members. Because the Company has Medicare
and Medicaid products, it also must comply with requirements established by
peer review organizations ("PRO"s), which are organizations under contract with
HCFA to monitor the quality of health care received by Medicare and Medicaid
beneficiaries. PRO requirements relate to quality assurance and utilization
review procedures. In addition, cost reimbursement reports are required with
respect to Medicare cost contracts and are subject to audit and revision.
The anti-kickback provisions of the Medicare and Medicaid laws
prohibit the payment or receipt of any remuneration in return for the referral
of a patient, the charges for which are subject to reimbursement by Medicare or
Medicaid. The Department of Health and Human Services has adopted safe harbor
regulations whereby, (i) HMOs' waivers of Medicare and Medicaid beneficiaries'
obligation to pay cost-sharing amounts or to provide other incentives in order
to attract Medicare and Medicaid enrollees and (ii) discounts offered to
prepaid health plans by contracting providers are not deemed to be violations
of the anti-kickback provisions. The Company believes that the incentives
offered by its HMOs to Medicare and Medicaid beneficiaries and the discounts
its plans receive from contracting health care providers satisfy the
requirements of the safe harbor regulations and do not in any event violate the
anti-kickback provisions.
The Company is subject to both federal and state regulations regarding
services to be provided to Medicaid enrollees, payment for those services and
other aspects of the Medicaid program.
The Company contracts with the United States Office of Personnel
Management ("OPM") to provide managed health care services under the Federal
Employees Health Benefits Program ("FEHBP"). These contracts with OPM and
applicable government regulations establish premium rating requirements for the
FEHBP. OPM conducts periodic audits of its contractors to, among other things,
verify that the premiums established under the OPM contracts are established in
compliance with the community rating and other requirements under FEHBP.
During 1996, managed care premiums were reduced by $1.7 million for the
settlement of OPM claims for 1995 and reserves for 1996 were established.
Numerous health care proposals have been introduced in the U.S.
Congress and in state legislatures. These include provisions which place
limitations on premium levels, increase minimum capital and reserves and other
financial viability requirements, prohibit or limit capitated arrangements or
provider financial incentives, mandate benefits (including mandatory length of
stay with surgery or emergency room coverage), limit the ability to manage care
and require contracting with all willing providers. If enacted, certain of
these proposals could have an adverse effect on the Company. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Health Care Reform" in Part II of this Report.
Risk Management
The HMOs maintain general liability and professional liability
(medical malpractice and managed care liability) insurance coverage in amounts
the Company believes to be adequate. Contracting physicians are also required
to maintain professional liability coverage. In addition to liability
coverage, the Company carries "stop-loss" insurance to reimburse its HMOs for
costs resulting from catastrophic illnesses. This insurance generally covers
costs in excess of $500,000 up to $1 million for any enrollee in any one year
for the St. Louis, Pennsylvania and Richmond Health Plans for commercial HMO
members, costs in excess of $150,000 up to $1 million for any Medicare enrollee
in any one year and costs in excess of $50,000 up to $1 million for any
Medicaid enrollee in any year. Some coinsurance contributions by the Company
are required. CHLIC maintains stop-loss insurance for the flexible provider
products that generally covers costs in excess of $150,000 for any enrollee in
any one year up to $1 million per enrollee per year. No assurance can be given
as to the future availability or costs of such insurance or that risks will not
exceed the limit of the insurance coverage.
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Employees
At December 31, 1996, the Company employed approximately 3,200
persons. None of the employees are covered by a collective bargaining
agreement.
Trademarks
The Company has the right to use the name "HealthAmerica" in Illinois,
Missouri, Pennsylvania and West Virginia. The Company has federal and/or state
registered service marks for "HealthAssurance," "GHP Access," "HealthCare USA,"
"Doc Bear," "CarePlus," "Coventry" and "Advantra."
Risk Factors
The Company's business is subject to numerous risks and uncertainties
which may affect the Company's results of operations in the future and may
cause such future results of operations to differ materially and adversely from
projections included in or underlying any forward-looking statements made by or
on behalf of the Company. Among the factors that may adversely affect the
Company's business are difficulties in increasing premiums to cover increasing
health care costs because of competitive pressures, regulatory restrictions and
consumer preference for lower-priced health care options. The Company may also
experience difficulties in obtaining and maintaining favorable contracts with
health care providers and in predicting and controlling future health care
costs. Accordingly, there may be potential discrepancies between reserves for
incurred but not reported liabilities and the actual amount of such
liabilities. To the extent that the Company becomes a party to global
capitation agreements with a single provider organization, the Company becomes
exposed to credit risk with respect to such organization.
The nature of acquisitions gives rise to the possibility of incurred
but not reported medical costs and contingent liabilities that may be
undervalued at the time of acquisition. The Company may be required to write
off the cost of certain assets if the expected results of an acquisition are
not achieved. In selling assets, expected values may not be realized.
The Company's recent financial losses may make it more difficult to
obtain financing on as favorable terms in the future. In addition, operating
losses at a subsidiary may require the Company to make investments in, or to
refinance Company obligations to, such subsidiary in order to maintain required
capital levels.
The Company is also subject to risks associated with offering Medicaid
and Medicare risk products, including pricing and other regulatory
restrictions, potentially higher medical loss ratios and risks associated with
entering new markets. As discussed in "Government Regulation", the Company's
financial results are also susceptible to future state and federal regulatory
measures, including health care reform.
In addition, the health care industry in general is susceptible to
litigation and insurance risks, including medical malpractice liability,
disputes relating to the denial of coverage and the adequacy of "stop-loss"
reinsurance for costs resulting from catastrophic injuries or illnesses to the
Company's members. The Company has contingent litigation risk with certain
discontinued operations. Such litigation may result in losses to the Company.
This Annual Report on Form 10-K and other filings and statements made
on behalf of the Company include forward-looking information which is based on
current expectations at the time the filing or statement is made and is subject
to a number of risks and uncertainties. Forward-looking statements, which are
made in reliance on the safe harbor provided by the Private Securities
Litigation Reform Act of 1995, may be affected by a number of factors,
including the risk factors identified herein.
8
<PAGE> 11
Item 2: Description of Property
The Company leases in aggregate approximately 350,310 square feet of
office space primarily for administrative offices in western Pennsylvania,
central Pennsylvania, St. Louis, Missouri, Jacksonville, Florida and its
corporate office in Nashville, Tennessee. In addition, the Company has 33
medical centers, of which 28 are leased for terms of one to fifteen years and
summarized as follows:
<TABLE>
<CAPTION>
Number of Leased Medical Approximate Leased Square
Location Center Sites Footage
- --------------------------- ------------------------ -------------------------
<S> <C> <C>
Western Pennsylvania 11 179,181
Central Pennsylvania 8 43,230
St. Louis 9 108,884
Richmond - -
Jacksonville - -
------------------------ -------------------------
Total 28 331,295
======================== =========================
</TABLE>
The Company owns three medical centers in western Pennsylvania, two in
St. Louis and an administrative building in Richmond. Combined, these
properties have approximately 175,454 square feet.
The medical office sites in western Pennsylvania and St. Louis,
Missouri are included in the agreements to sell certain medical offices. See
"Delivery Systems."
In 1997, the Company plans to enter into a new lease agreement for the
administrative offices located in Harrisburg, Pennsylvania. Renovations of
other administrative offices will be completed as necessary.
9
<PAGE> 12
Item 3: Legal Proceedings
In the normal course of business, the Company has been named as
defendant in various other legal actions seeking payments for claims denied by
the Company, medical malpractice, and other monetary damages. The claims are
in various stages of proceedings and some may ultimately be brought to trial.
Incidents occurring through December 31, 1996 may result in the assertion of
additional claims. With respect to medical malpractice, the Company carries
professional malpractice and general liability insurance for each of its
operations on a claims made basis with varying deductibles for which the
Company maintains reserves. In the opinion of management, the outcome of any
of these actions will not have a material adverse effect on the financial
position or results of operations of the Company.
Item 4: Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year 1996.
10
<PAGE> 13
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder
Matters
Price Range of Common Stock
Coventry Corporation common stock is traded in the Nasdaq Stock
Market's National Market under the symbol "CVTY." The following tables show
the quarterly range of high and low closing sales prices of the common stock on
Nasdaq during the calendar period indicated:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $20 7/8 $15 11/16 $30 $23 3/4
Second Quarter $20 15/16 $15 1/4 $29 1/2 $13 1/2
Third Quarter $15 5/8 $11 15/16 $21 1/4 $14 1/4
Fourth Quarter $11 1/2 $9 $22 1/8 $17 5/8
</TABLE>
<TABLE>
<CAPTION>
1997
- -------------------------------------------------------------
High Low
- -------------------------------------------------------------
<S> <C> <C>
Through March 14, 1997 $11 3/8 $6 7/8
</TABLE>
As of March 24, 1997, the Company had approximately 12,000
shareholders, including persons or entities holding common stock in nominee
name, and 583 shareholders of record.
Dividends
The Company has not paid any cash dividends on its common stock and
expects for the foreseeable future to retain all of its earnings to finance the
development of its business. The Company's ability to pay dividends is also
restricted by insurance regulations applicable to its subsidiaries and by the
terms of its credit facility. Subject to the terms of such insurance
regulations and the Company's credit facility, any future decision as to the
payment of dividends will be at the discretion of the Company's Board of
Directors and will depend on the Company's earnings, financial position,
capital requirements and other relevant factors. See Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note G of the Notes to
Consolidated Financial Statements.
11
<PAGE> 14
Item 6: Selected Consolidated Financial Data
(in thousands, except per share data)
Operations Statement Data (1)
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $1,057,129 $ 852,390 $ 776,643 $ 641,573 $ 475,454
- ---------------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) $ (91,346) $ (1,275) $ 55,023 $ 43,177 $ 27,913
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing
operations (2) $ (61,287) $ 18 $ 29,288 $ 22,005 $ 14,171
Loss on disposal of discontinued operations - - - - (3,846)
Extraordinary items - - - - 4,005
- ---------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (61,287) $ 18 $ 29,288 $ 22,005 $ 14,330
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share (3):
Continuing operations $ (1.86) $ 0.00 $ 0.93 $ 0.74 $ 0.51
Discontinued operations - - - - (0.14)
Extraordinary items - - - - 0.15
- ---------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ (1.86) $ 0.00 $ 0.93 $ 0.74 $ 0.52
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average common and common equivalent
shares outstanding (3) 33,011 32,164 31,425 29,585 27,547
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data (1)
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and investments (4) $ 173,396 $ 147,777 $ 133,975 $ 116,014 $ 65,488
Total assets $ 448,945 $ 385,675 $ 343,771 $ 266,971 $ 207,836
Notes payable and long-term debt (including
current maturities) $ 93,759 $ 67,907 $ 69,531 $ 44,185 $ 52,541
Stockholders' equity and partners' capital (5) $ 100,427 $ 153,851 $ 134,124 $ 96,906 $ 69,679
</TABLE>
(1) All periods presented have been restated for the merger with HCUSA in
1995, Southern Health Management Corporation ("SHMC") in 1994 and for
discontinued operations.
(2) Interest expense on all outstanding debt for all periods has been
attributed to continuing operations.
(3) Reflects the two-for-one split of the Company's common stock which
occurred in August, 1994.
(4) Certain reclassifications have been made to the 1994 and 1995
financial statements to conform to the 1996 presentation.
(5) Predecessor company of SHMC was an S Corporation.
12
<PAGE> 15
Supplementary Financial Information
The following is a summary of unaudited quarterly results of
operations (in thousands, except per share data) for the years ended December
31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
1996(1) 1996(2) 1996 1996(3)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 236,937 $ 257,737 $ 272,903 $ 289,552
Operating earnings (loss) $ (2,772) $ (14,346) $ 143 $ (74,371)
Net earnings (loss) $ (968) $ (8,528) $ 348 $ (52,139)
Net earnings (loss) per common and
common equivalent share $ (0.03) $ (0.26) $ 0.01 $ (1.58)
---------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 32,854 33,041 33,021 33,024
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
1995 1995(4) 1995(5) 1995(6)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 209,652 $ 208,868 $ 211,137 $ 222,733
Operating earnings (loss) $ 16,253 $ 4,764 $ 1,118 $ (23,410)
Net earnings (loss) $ 9,870 $ 2,177 $ 1,494 $ (13,523)
Net earnings (loss) per common and
common equivalent share $ 0.30 $ 0.07 $ 0.05 $ (0.42)
--------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 32,402 32,157 31,952 32,416
--------------------------------------------------------------
</TABLE>
(1) The first quarter operating results were affected by termination and
related costs to streamline the Company's administrative process and
reduce staffing in health centers, primarily in the Pennsylvania and St.
Louis plans for total adjustments of $5.2 million.
(2) The second quarter operating results were affected by the establishment of
reserves relating to multi-year contracts with certain employer groups,
primarily in the St. Louis market. The Company expects to utilize these
reserves over the remaining lives of the contracts and then either
discontinue the contracts or significantly change the terms and conditions
of the contracts with these parties. The establishment of these reserves
resulted in total adjustments of $8.2 million.
(3) The fourth quarter operating results were affected by the increase of
reserves related to accounts receivable ($3.6 million), long-term
contracts ($1.6 million), medical claims ($25.6 million), termination costs
($2.1 million), other reserves ($6.0 million), write-offs of goodwill ($21.0
million) and certain capitalized expenses ($6.7 million).
(4) The second quarter operating results of 1995 were affected by merger costs
for the purchase of HCUSA, severance and related costs associated with
staff restructuring in Pittsburgh and St. Louis, additions to accruals for
professional liability litigation and the settlement of certain Office of
Personnel Management negotiations for total adjustments of approximately
$7.0 million.
(5) The third quarter operating results of 1995 were affected by an increase in
medical claims liabilities for the western Pennsylvania market and
start up expenses associated with Medicaid and Medicare product development
and geographic expansion initiatives for total adjustments of approximately
$6.5 million.
(6) The fourth quarter operating results of 1995 were affected by the
elimination of several of its new market development areas, personnel
reductions in its operations and increases in legal, medical and
contingency reserves for total adjustments of $21.8 million.
13
<PAGE> 16
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Coventry Corporation, headquartered in Nashville, Tennessee, is a managed
health care company that provides comprehensive health benefits and services to
a broad cross section of employer and government-funded groups in Pennsylvania,
Ohio, West Virginia, Missouri, Illinois, Virginia and Florida.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking information which is based upon current
expectations and involves a number of risks and uncertainties. The forward-
looking statements, which are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, may be affected by a
number of factors, including the risk factors set forth in the Company's Annual
Report on Form 10-K, and consequently, actual operations and results may differ
materially from those expressed in these forward-looking statements. Among the
factors that may materially affect the Company's business are potential
increases in medical costs, difficulties in increasing premiums due to
competitive pressures, imposition of regulatory restrictions, difficulties in
obtaining or maintaining favorable contracts with healthcare providers,
financing costs and contingencies and litigation risk.
During the three year period ended December 31, 1996, the Company
experienced substantial growth in operating revenues due primarily to
membership growth. The Company achieved this membership growth through
marketing efforts, acquisitions, geographic expansion and increased product
offerings, including the introduction of Medicare and Medicaid risk products in
1995.
The acquisition of HealthCare USA in 1995 allowed the Company to enter the
Medicaid product market. Through HealthCare USA, the Company obtained a
presence in the Florida Medicaid market and entered the St. Louis and central
Missouri Medicaid markets during 1995, and continued to grow enrollment
throughout 1996. At December 31, 1996, approximately 120,000 Coventry members
were enrolled in a Medicaid risk product.
The Company began marketing its Medicare risk product in the St. Louis,
Missouri market in late 1995, and began marketing that product in the western
and central Pennsylvania markets in 1996. At December 31, 1996, the Company
had approximately 27,000 Medicare members, including both risk and cost based
members.
The Company's managed care premium revenues during the three year period
ended December 31, 1996 were comprised primarily of commercial premiums from
its HMO products and flexible provider products, including PPO and POS products
for which the Company assumes full underwriting risk. Fully insured PPO/POS
premiums are typically lower than HMO premiums due to the medical underwriting
and the deductibles and copayments required from the PPO/POS members.
Additional revenue is earned for other medical services provided on a
fee-for-service basis in Company-operated medical offices.
Premium rates for commercial HMO products are reviewed by various state
agencies based on rate filings. While the Company has not had such filings
modified, no assurance can be given that approvals for rate submissions will
continue. Premium rates for the Medicaid and Medicare risk products are
established by governmental regulatory agencies and may be reduced by
regulatory action. No assurance can be given that premium rates will not
decrease in the future.
The Company's management services revenues result from operations in which
the Company's health plans provide administrative and other services to
self-insured employers. The Company receives an administrative fee for these
services, but does not assume underwriting risk. A portion of these revenues,
however, are dependent upon the Company meeting specific performance criteria.
14
<PAGE> 17
The Company's operating expenses are primarily medical costs including
medical claims under contracted relationships with a wide variety of providers,
capitation payments and expenses relating to the operation of the Company's
health centers. Medical claims expense also includes an estimate of claims
incurred but not reported ("IBNR"). The Company believes that the estimates for
IBNR liabilities relating to its businesses are adequate in order to satisfy
its ultimate claims liability with respect thereto. The estimated IBNR is
based on historical data, current enrollment, health service utilization
statistics and other related information, determined on an actuarial basis.
Changes in assumptions for medical costs caused by changes in actual experience
could cause these estimates to change in the near term. The Company
periodically monitors and reviews IBNR, and as settlements are made or accruals
adjusted, differences are reflected in current operations.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards Number 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" and Statement of
Financial Accounting Standards Number 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." The adoption of provisions of SFAS 121 and SFAS 123
had no material effect on the financial position or results of operations of
the Company.
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and notes.
Results of Operations
The following table (in thousands, except percentages and membership data)
is provided to facilitate a more meaningful discussion regarding the results of
the Company's operations for the three years ended December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- -------------------------------- -------------------
Percent Percent Percent
of Percent of Percent of
Operating Increase Operating Increase Operating
Amount Revenues (Decrease) Amount Revenues (Decrease) Amount Revenues
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues:
Managed care premiums $1,035,778 98.00 % 22.7% $844,032 99.0 % 9.6 % $769,935 99.1 %
Management services 21,351 2.00 % 155.5% 8,358 1.0 % 24.6 % 6,708 0.9 %
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating revenues 1,057,129 100.00 % 24.0% 852,390 100.0 % 9.8 % 776,643 100.0 %
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Health benefits (1) 930,739 88.00 % 30.5% 713,226 83.6 % 16.1 % 614,144 79.1 %
Selling, general and administrative 165,081 15.60 % 33.6% 123,523 14.5 % 30.5 % 94,684 12.2 %
Depreciation and amortization 42,862 4.10 % 192.3% 14,666 1.7 % 55.4 % 9,437 1.2 %
Other charges 9,793 0.90 % --
Merger costs 2,250 0.3 % (32.9)% 3,355 0.4 %
- ----------------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) (91,346) (8.60)% NM (1,275) (0.1)% (102.3)% 55,023 7.1 %
Other income, net 13,379 1.20 % 73.6% 7,705 0.9 % 54.0 % 5,003 0.6 %
Interest expense (6,257) (0.60)% 28.2% (4,881) (0.6)% 78.7 % (2,731) (0.4)%
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes and
minority interest (84,224) (8.00)% NM 1,549 0.2 % (97.3)% 57,295 7.4 %
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (61,287) $ 18 $ 29,288
==================================================================================================================================
Membership at December 31:
Commercial 592,001 510,815 468,743
Medicare (2) 27,507 18,890 19,068
Medicaid 121,599 73,550 26,143
Management services 152,969 92,232 67,003
- ----------------------------------------------------------------------------------------------------------------------------------
894,076 695,487 580,957
==================================================================================================================================
</TABLE>
(1) The medical loss ratio (health benefits as a percentage of managed care
premiums) was 89.9%, 84.5% and 79.8% in 1996, 1995 and 1994, respectively.
(2) Includes both full risk and cost-based members.
15
<PAGE> 18
Comparison of 1996 to 1995
Managed care premiums increased $191.7 million, or 22.7%, to $1,036 million
for the year ended 1996 compared to 1995. The increase was primarily
attributable to the 137,852 member, or 22.9%, increase in risk membership from
the prior year. Of this enrollment growth, 48,049 members, or 35%, were
related to the Medicaid product and 81,186 members or 59%, were commercial
members. The effect on revenues of the increased membership was partially
offset by changes in commercial membership mix, with an increased percentage of
that membership composed of the lower premium PPO and POS products compared to
the HMO products, and a 4.3% decline in average HMO premium yield. Membership
as of December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Commercial Medicare
HMO PPO/POS Cost Risk Medicaid Non-Risk Total
1996 -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Western PA 149,530 92,052 1,957 4,994 2,298 45,565 296,396
Central PA 115,780 44,704 466 365 11,836 71,900 245,051
St. Louis 92,895 39,579 4,794 14,931 76,829 24,574 253,602
Richmond 57,047 104 2,904 10,930 70,985
Jacksonville 310 27,732 28,042
-------------------------------------------------------------------------------------
Total 415,562 176,439 7,217 20,290 121,599 152,969 894,076
=====================================================================================
1995
Western PA 144,498 71,896 4,782 30,977 252,153
Central PA 102,772 17,154 443 38,391 158,760
St. Louis 87,973 28,726 13,234 431 47,388 11,895 189,647
Richmond 55,267 2,529 10,969 68,765
Jacksonville 26,162 26,162
-------------------------------------------------------------------------------------
Total 390,510 120,305 18,459 431 73,550 92,232 695,487
=====================================================================================
</TABLE>
The Company experienced competitive pressures in its commercial products,
which negatively affected the average premium the Company received and the mix
of commercial products sold during 1996. The Company anticipates continued
enrollment gains in 1997, although at a slower rate than seen in 1996.
Enrollment gains are expected to be lower than gains realized in prior years as
the Company focuses on profitability of current products and lines of business,
including efforts to increase the average premium yield. No assurances can be
given that increased yields are attainable. The Company anticipates losing
certain customers due to more stringent underwriting practices.
Gains in Medicaid and Medicare enrollments increased the Company's exposure
to government regulation of premium levels and other requirements. The impact
of legislative or regulatory changes in the Medicaid and Medicare programs
could adversely affect enrollment, premiums and profitability of these
products.
Management services revenues increased approximately $13.0 million, or
155.5% from the prior year. The increase is attributable to the approximately
60,737 member increase in this product.
Health benefits expense increased $217.5 million, or 30.5%, in 1996
compared to 1995 as a result of the increase in full-risk enrollment and
increases in medical costs. As a result of the declining premium yields
discussed above and increases in medical costs, including the effects of a
decline in the proportion of risk membership utilizing staff medical facilities
in Pittsburgh, Pennsylvania and St. Louis, Missouri, the medical loss ratios
increased in all of the Company's markets as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Western Pennsylvania 88.9% 87.3%
Central Pennsylvania 89.2% 80.0%
St. Louis 89.7% 86.2%
Richmond 87.6% 82.5%
Jacksonville 86.7% 80.0%
Total 89.9% 84.5%
</TABLE>
16
<PAGE> 19
Health benefits expense increased on a per member per month basis from 1995
in all markets. The increases in medical costs are attributable to increases
in the costs of inpatient services related to its Medicaid operations,
inpatient alternatives (such as outpatient surgery) and pharmacy.
Additionally, membership in the Company's western Pennsylvania medical office
operations, which declined during 1995 primarily as a result of the loss of two
significant accounts did not recover in 1996, continuing the excess capacity
problem for the medical office operations.
In March 1997, the Company entered into agreements to sell the Company's
medical offices in western Pennsylvania and St. Louis, Missouri to major
provider organizations in these markets. The agreements are subject to the
satisfaction of various conditions, including regulatory approval. Coincident
with the sale of the medical offices, the Company will enter into long-term
global capitation arrangements with the purchasers of the medical offices,
pursuant to which the provider organizations will receive a fixed percentage of
premium to cover all of the costs of medical treatment the Company's globally
capitated members receive from the health care systems. The Company
anticipates these arrangements will reduce its medical costs as a percentage of
premiums in western Pennsylvania and St. Louis, Missouri.
The Company has determined that its Florida Medicaid operations are
unlikely to be sufficiently profitable on a long-term basis to justify a
continued presence in the Florida market and, as a result, the Company is
considering exiting the Florida Medicaid market. Accordingly, the Company has
established a reserve of $1.2 million at December 31, 1996 to reflect the
anticipated costs of exiting this market.
In the fourth quarter of 1996, the Company increased medical reserves by
$25.6 million, attributable to the Company's quarterly process for adjusting
for settlements of prior quarters. Medical claim liability accruals are
periodically monitored and reviewed with differences reflected in current
operations. Medical costs are affected by a variety of factors, including the
severity and frequency of claims, that are difficult to predict and may not be
entirely within the Company's control.
Selling, general, and administrative expense ("SGA") increased $41.6
million, or 33.6%, from 1995. As a percentage of total operating revenues, SGA
increased from 14.5% in 1995 to 15.6% in 1996 due to increases in costs,
declines in commercial premiums and the items discussed below. The Company
decided to cease start-up development activities in certain markets in 1996.
As a result of narrowing the focus of new market development, certain
capitalized costs totaling $4.3 million were charged to SGA in 1996. During
1996, the Company also recorded approximately $8.1 million of charges related
to personnel terminations and related severance. These charges resulted from
administrative and medical office staff reductions due to excess capacity and
the outsourcing of certain ancillary services capabilities. Additionally,
provisions for uncollectible accounts and other charges related to SGA of
approximately $9.0 million were recorded in 1996.
Depreciation and amortization increased $28.2 million, or 192.3%, from
1995. This increase was due primarily to the write-off of goodwill related to
the recently acquired PARTNERS Health Plan of Pennsylvania, Inc. of $20.1
million, write-downs of fixed assets of approximately $4.3 million and
incremental depreciation expense recognized on additions to property and
equipment.
Other charges consisting of provisions for multi-year contracts of $9.8
million were recorded in 1996 to recognize anticipated losses on certain
multi-employer group contracts, primarily in the St. Louis market. The Company
expects to utilize these reserves over the remaining lives of the contracts and
then either discontinue these contracts or significantly change the terms and
conditions of the contracts with these parties. The contracts expire at
varying dates through 1999 and cover approximately 30,000 members.
Operating earnings for the year 1996 decreased $90.1 million from 1995
operating earnings. The decrease is primarily attributable to the decline in
commercial yield, the increases in medical claims expense, the increase in
IBNR reserves, the asset write-downs and other charges noted above.
Other income, net increased $5.7 million, or 73.6%, from 1995. This
increase was primarily due to a $4.9 million gain on the sale of Champion
Dental Services, Inc. recorded in the fourth quarter of 1996.
17
<PAGE> 20
Interest expense increased $1.4 million in 1996 over the prior year
primarily due to a higher average outstanding debt balance for the year and an
increased interest rate on long-term debt. The majority of the approximately
$35 million purchase price of PARTNERS Health Plan of Pennsylvania, Inc. was
funded through borrowings on the Company's long-term credit agreement.
Provision for income taxes reflects a consolidated effective income tax
benefit rate of 27.1% for 1996 compared to a provision of 98.7% for 1995. The
increase in nondeductible goodwill amortization is the primary cause of the low
effective income tax benefit rate in 1996.
Loss for the year 1996 was $61.3 million. Loss per common and common
equivalent share was $1.86 in 1996 compared to $0.00 in the prior year. The
weighted average common and common equivalent shares outstanding increased to
33.0 million in 1996 compared to 32.2 million in 1995.
Comparison of 1995 to 1994
Managed care premiums increased $74.1 million, or 9.6%, to $844.0 million
for the year ended 1995 compared to 1994. The increase was primarily
attributable to the 89,301 members, or 17.4%, increase in risk membership from
the prior year. Of this enrollment growth, 47,047 members, or 53%, related to
the Medicaid product. The effect of the increased membership on revenues was
partially offset by changes in membership mix, with membership shifting from
HMO products to the PPO and POS products which have lower per member premiums.
During 1995, the Company introduced its Medicare risk product and expanded
the Medicaid product. The Company had limited experience with the Medicaid and
Medicare products, and as a result, with their underwriting, pricing, and
utilization patterns. Gains in Medicaid and Medicare enrollments increased the
Company's exposure to government regulation of premium levels and other
requirements. Premium rates paid to the Company's Medicaid operations in
Florida declined in the third quarter of 1995.
Furthermore, in 1995 the Company experienced competitive pressures in its
commercial products, which negatively affected the average premium that the
Company has historically received from new and existing members, the membership
growth opportunities and the mix of products sold. The average commercial
premium received by the Company declined in 1995 by 1.6%.
Management services revenues increased $1.7 million, or 24.6% from the
prior year. The increase is attributable to the approximately 25,200 members,
or 37.7%, increase in this product line. Approximately 10,600 of these new
non-risk members resulted from the acquisition of a Virginia third party
administrator in May 1995.
Health benefits expense increased $99.1 million, or 16.1%, in 1995 compared
to 1994 as a result of the increase in full-risk enrollment and increases in
medical costs. The medical loss ratios increased in all of the Company's
markets as follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Western Pennsylvania 87.3% 77.7%
Central Pennsylvania 80.0% 78.4%
St. Louis 86.2% 85.3%
Richmond 82.5% 80.6%
Jacksonville 80.0% 70.1%
Total 84.5% 79.8%
</TABLE>
18
<PAGE> 21
In the western Pennsylvania market, health benefits expense increased 15.5%
on a per member per month basis from 1994. The increase in medical costs in
the western Pennsylvania market was attributable to higher utilization of
inpatient alternatives and consultant services, and in general, each of the
markets experienced increases in the costs of inpatient services, inpatient
alternatives and consultant services relative to premium increases.
Additionally, membership in the western Pennsylvania's medical office
operations declined during 1995 primarily as a result of the loss of two
significant accounts. Because the operating costs of the medical offices were
not reduced, the loss of membership created excess capacity. The premium rate
reduction in the third quarter of 1995 in HealthCare USA's Jacksonville
Medicaid operations also contributed to the increase in the medical loss ratio.
In the fourth quarter, the Company increased medical reserves,
primarily for the western Pennsylvania market, in the course of the Company's
quarterly process for adjusting for settlements of prior quarters. The total
increase to medical reserves was approximately $13 million.
Selling, general, and administrative expense increased $28.8 million, or
30.5%, from 1994. As a percentage of total operating revenues, SGA increased
from 12.2% in 1994 to 14.5% in 1995. During 1995, the Company recorded
approximately $3.0 million of charges related to personnel terminations and
related severance. In the fourth quarter of 1995, the Company decided to
narrow the focus of start-up development activities in 1996, while
concentrating development and growth efforts in existing and contiguous markets
and, as a result, certain capitalized costs were written off at year-end.
Additionally, reserves for litigation and other contingencies were established.
These year-end charges, totaling $7.3 million, were charged to SGA in 1995.
The increase in SGA represents primarily product introduction costs,
including additional personnel and systems support for government products
introduced in 1995. These costs also include other selling, general and
administrative costs associated with the geographic expansion of the western
Pennsylvania market to West Virginia and eastern Ohio and additional
administrative services capabilities.
Depreciation and amortization increased $5.2 million, or 55.4%, from 1994.
This increase was due primarily to the amortization of the goodwill resulting
from the purchase of the remaining 20% Penn Group Corporation minority interest
and increased depreciation expense corresponding to additions in net property
and equipment from 1994.
Merger costs of $2.3 million include all costs associated with the
HealthCare USA merger which was accounted for as a pooling of interests. The
1994 costs were associated with the acquisition of Southern Health Management
Corporation in Richmond, Virginia.
Operating earnings for the year 1995 decreased $56.3 million from 1994
operating earnings. The decrease is primarily attributable to the increase in
medical claims expense, SGA, and depreciation and amortization described above.
Other income, net, consists primarily of investment income and increased
$2.7 million, or 54%, from 1994. This increase was primarily due to the
increase in cash and investments during the year.
Interest expense increased $2.2 million in 1995 over the prior year due to
a higher average outstanding debt balance for the year. Effective October 31,
1994, the Company purchased the remaining 20% minority interest in Penn Group
Corporation for $50 million. The majority of the purchase price was funded
through borrowings on the credit facility.
19
<PAGE> 22
Provision for income taxes reflects a consolidated effective income tax
rate of 98.7% for 1995 compared to 42.6% for 1994. The increase was primarily
due to merger costs of $2.3 million, which are not deductible for tax purposes.
The ratio of these costs to pretax earnings was significantly higher in 1995
than in 1994.
Minority interest in earnings of consolidated subsidiary, net of income
taxes decreased $3.6 million in 1995 compared to 1994. The 1994 income
reflects ten months of the 20% minority interest in the Company's Pennsylvania
HMO which was held by a third party until its purchase in the fourth quarter of
1994. The 1995 minority interest amount reflects a minority shareholder's 30%
interest in Healthcare USA, LLC, the St. Louis-based Medicaid HMO.
Net earnings decreased $29.3 million, or 99.9%, for the year 1995 compared
to 1994. Earnings per common and common equivalent share was $0.00 compared to
$0.93 in the prior year. The weighted average common and common equivalent
shares outstanding increased to 32.2 million in 1995 compared to 31.4 million
in 1994.
Discontinued Operations
Effective January 1, 1995, the Company entered into an agreement with
United Insurance Companies, Inc. ("United"), whereby United assumption
reinsured a closed book of business comprised of traditional indemnity
insurance policies that were offered by the Company's insurance subsidiary
prior to 1993. United has managed these discontinued operations since December
1992. Under the terms of the agreement, United assumed substantially all of the
closed book of business claims, unearned premium reserves, and all other
statutory liabilities, except for certain litigation reserves that are retained
by the Company.
Litigation and Insurance
The Company may be subject to certain types of litigation, including
medical malpractice claims; claim disputes pertaining to contracts and other
arrangements with providers, employer groups and their employees and individual
members; and disputes relating to HMO denials of coverage for certain types of
medical procedures or treatments. In addition, the Company has contingent
litigation risk in connection with certain discontinued operations. Such
litigation may result in losses to the Company. The Company maintains
insurance coverage in amounts the Company believes to be adequate including
professional liability (medical malpractice) and general liability insurance.
Contracting physicians are required to maintain professional liability
insurance. In addition, the Company carries "stop-loss" reinsurance to
reimburse it for costs resulting from catastrophic injuries or illnesses to its
members. Nonetheless, no assurance can be given as to the future availability
or cost of such insurance and reinsurance or that litigation losses will not
exceed the limits of the insurance coverage and reserve. In the opinion of
management and based on the facts currently known, the outcome of these actions
will not have a material adverse effect on the financial position or results of
the operations of the Company.
New Accounting Standards
The Financial Accounting Standards Board has approved statements of
financial accounting standards effective for fiscal period ending after December
15, 1997, which establishes standards for computing and presenting earnings per
share and also establishes standards with respect to disclosure of information
about an entity's capital structure. The Company is required to adopt the
provisions in the fourth quarter of 1997 and does not expect the adoption
thereof to have a material effect on the Company's financial position or
results of operations.
20
<PAGE> 23
Inflation
Health care cost inflation has exceeded the general inflation rate and the
Company has implemented cost control measures and risk sharing arrangements
which seek to reduce the effect of health care cost inflation. During 1995 and
1996, the Company experienced downward pressure in premium rates, and as a
result has implemented further cost control measures to reduce both medical and
administrative expenses. An inability to successfully reduce expenses as a
percentage of premium adversely impacted the Company's results of operations in
1996.
Income Taxes
In its income tax returns, the Company is amortizing approximately $21
million of its intangible assets over periods ranging from three to eight
years. In the consolidated financial statements in the caption "Goodwill and
Intangible Assets" is an aggregate of $116.4 million of goodwill at December
31, 1996 which, for financial reporting purposes, is being amortized over
periods not exceeding 40 years. The different book and tax treatment arises
because the Company believes the methodologies and assumptions utilized in the
tax basis appraisal of these amounts are not appropriate for financial
reporting purposes. The Omnibus Reconciliation Act of 1993 ("OBRA") enacted
legislation, effective January 1, 1993, whereby all intangibles, including
goodwill, acquired in certain transactions can be amortized for income tax
purposes over 15 years. Although the provisions of the OBRA cannot be applied
to the $21 million of tax intangibles, the Company believes that the
legislation is indicative of the government's desire to minimize the costs of
intangibles controversies. The Company believes it will eventually sustain a
tax deduction for a substantial portion of the $21 million, but such a
deduction is likely to be determined on the basis of a compromise with the
government.
Pending a final determination of its tax position, the Company's income tax
provision has been adjusted to reflect no tax benefit in its financial
statements for the deduction of these amounts.
Quarterly Results of Operations
The quarterly consolidated results of operations of the Company are
summarized in Note T to Consolidated Financial Statements.
Liquidity and Capital Resources
The Company's total cash and investments, excluding restricted investments,
increased $25.6 million to $173.4 million as of December 31, 1996 compared to
$147.8 million at December 31, 1995. This increase is primarily attributable
to $37.3 million of cash provided by operating activities and $42.7 million of
cash from other activities including bank borrowings and net proceeds from the
issuance of common stock. The cash provided was offset by $54.4 million used
for capital expenditures, debt repayment and acquisitions. The Company invests
cash not needed to fund current liabilities primarily in liquid portfolios of
fixed income securities issued by the federal government and various states and
municipalities. Current assets plus these investments exceeded current
liabilities in 1996 by $19.7 million, compared to $49.1 million in 1995.
The Company's HMOs and insurance subsidiaries are required by state
regulatory agencies to maintain minimum surplus balances, thereby limiting the
dividends the Company may receive from its HMOs and insurance subsidiaries.
After giving effect to these statutory reserve requirements, the Company's
regulated subsidiaries had funds in excess of statutory requirements of
approximately $41.6 million and $43.0 million at December 31, 1996 and 1995,
respectively. Excluding funds subject to regulation, the Company had cash and
investments of approximately $16.5 million and $40.0 million in 1996 and 1995,
respectively, which are available to pay intercompany balances to regulated
companies and for general corporate purposes.
21
<PAGE> 24
In March 1997, the Company entered into a letter of intent to sell $40
million of Convertible Exchangeable Subordinated Notes (the "Convertible
Notes"), together with warrants to purchase 2.35 million shares of its common
stock to Warburg, Pincus Ventures, L.P. ("Warburg") for $42.35 million subject
to the negotiation of definitive documentation, the approval of state insurance
regulators in certain states and the approval of the lending banks under the
Company's credit facility. Proceeds from the sale are expected to be used to
repay outstanding indebtedness and provide working capital. The Convertible
Notes are expected to be convertible into 4 million shares of the Company's
common stock and will be exchangeable at the Company's option for shares of
convertible preferred stock, the authorization of which will require the
approval of the Company's shareholders at the 1997 shareholders' meeting.
Prior to June 30, 1996, the Company's long-term credit agreement (the
"Credit Facility") with a group of banks provided for borrowings up to $125
million. The Credit Facility called for scheduled semi-annual commitment
reductions of $20.83 million beginning February 18, 1997 with final reduction
of $20.85 million on August 18, 1999. As a result of losses in the second
quarter of 1996, the Company was not in compliance with certain financial
covenants in the Credit Facility as of June 30, 1996. Effective September 30,
1996 the Company reached an agreement ("Amended Credit Facility") with the bank
group amending the Credit Facility. Prior to the amendment, the Company
voluntarily reduced the availability under the Credit Facility to $100 million,
of which $90 million was outstanding at December 31, 1996. The Amended Credit
Facility, which revised certain financial ratios the Company was required to
maintain, increased the interest rate on the indebtedness by 0.8% and revised
the required reductions in availability. At December 31, 1996, the effective
interest rate on the indebtedness under the Amended Credit Facility was 7.56%.
As a result of continuing losses in the fourth quarter of 1996, the
Company was not in compliance with certain revised financial covenants in the
Amended Credit Facility and therefore was in default under the terms of the
Amended Credit Facility as of December 31, 1996. As a result, no further
borrowings under the Amended Credit Facility were available. Subsequent to
December 31, 1996, the Company entered into an amended and restated agreement
("Restated Credit Facility") with the bank group effective March 28, 1997 that,
along with other changes, converts the amount outstanding under the Restated
Credit Facility to a term loan, revises certain financial ratios the Company is
required to maintain, effectively increases the interest rate of the
indebtedness by 2.7% (to the greater of prime plus 2% or the federal funds rate
plus 2.5%) and revises the amortization period of the loan. The Restated Credit
Facility requires payments of $10 million on June 30, 1997, $7 million on
September 30, 1997, $18 million on December 31, 1997 and $55 million on April
1, 1998. The Restated Credit Facility eliminated the defaults that existed
under the Amended Credit Facility at December 31, 1996.
The amendment also requires the Company to apply 50% of the net cash
proceeds from the proposed Warburg, Pincus Ventures, L.P. transaction to the
loan balance, with the payment being applied to reduce 1997 and 1998
amortization payments. The Restated Credit Facility also requires the Company
to prepay loans upon receipt of an anticipated $9.5 million tax refund
resulting from the carryback of operating losses to prior years, with the
prepayment being applied to reduce the December 1997 amortization payment.
The Restated Credit Facility requires the Company to apply 50% of the net
cash proceeds of sales of the Company's capital stock to reduce the
scheduled amortization in the inverse order of maturity, prohibits the sale of
any substantial subsidiary and restricts the Company's ability to declare and
pay cash dividends on its common stock. Prior to the closing of the proposed
Warburg transaction, a material adverse change in the Company's financial
condition or results of operations will constitute an event of default under
the Restated Credit Facility.
The Restated Credit Facility contains covenants relating to investments in
non-admitted assets, operating margin, net worth levels and the creation or
assumption of debt or liens on the assets of the Company. The Restated Credit
Facility is collateralized by substantially all of the assets of the Company.
On March 31, 1997, the effective interest rate on the indebtedness under
the Restated Credit Facility was 10.5%.
22
<PAGE> 25
As of December 31, 1996, approximately 96% of the Company's long-term debt
was subject to fluctuations in interest rates.
During 1996, the Company's capital expenditures were $12.7 million and
included the costs of constructing a new health center in St. Louis, Missouri
and expanding and renovating other medical centers and administrative offices.
Other capital expenditures included the cost of acquiring and implementing new
operational software systems designed to enhance the Company's medical
management and information reporting capabilities.
Projected capital investments in 1997 of approximately $13 million consist
primarily of computer hardware, software and related equipment costs associated
with the development and implementation of improved operational and
communications systems and office equipment.
The Company believes that cash flows generated from operations, cash on
hand and investments, excess funds in certain of its regulated subsidiaries,
cash flows from the sale of certain medical offices and financing alternatives
will be sufficient to fund continuing operations and debt service obligations.
If the proposed Convertible Notes transaction is not consummated, the Company
will be required to seek alternate financings in order to meet scheduled debt
service obligations. The Company's investment guidelines emphasize investment
grade fixed income instruments in order to provide short-term liquidity and
minimize the risk to principal.
Health Care Reform
Numerous proposals have been introduced in the United States Congress and
various state legislatures relating to health care reform. Some proposals, if
enacted, could among other things, restrict the Company's ability to raise
prices and to contract independently with employers and providers. Certain
reform proposals favor the growth of managed health care, while others would
adversely affect managed care. Although the provisions of any legislation
adopted at the state or federal level cannot be accurately predicted at this
time, management of the Company believes that the ultimate outcome of currently
proposed legislation would not have a material adverse effect on the Company
and its results of operations in the short run.
As a result of the introduction of Medicare and Medicaid risk products in
1995, the Company is subject to regulatory and legislative changes in those two
government programs.
1997 Outlook
The Company's enrollment in January 1997 increased to approximately 902,000
members, an increase of 15.5% over January 1996. Of the January 1997
enrollment, approximately 763,000 are members under the full-risk products and
approximately 139,000 members represent lives under management services plans.
The Company operates in highly competitive markets, but believes that the
pricing environment is improving in its existing markets, thus creating the
opportunity for reasonable price increases in the Company's market areas.
However, there is no assurance that the Company will be able to increase
premiums at rates equal to or in excess of increases in its health care costs.
For 1997, the Company has strengthened its underwriting processes and
oversight in both risk and non-risk products with the objective of increasing
premium yields and profitable growth. The Company will continue to pursue
global capitation arrangements as part of its delivery system with the
objectives of involving providers in medical cost management and stabilizing
operating margins. The completion of the medical office sales in St. Louis,
Missouri and Pittsburgh, Pennsylvania will improve liquidity and eliminate the
financial losses associated with excess capacity in the Company's delivery
system. Administrative processes in claims, information systems and customer
services are being re-engineered with emphasis on low costs and high quality.
The Company will focus on its existing markets for growth in commercial,
Medicare risk and Medicaid membership by leveraging the value of its franchises
and the volume of its membership base. The Company believes that these
objectives should result in progressive improvements in operations during 1997,
although realization of the benefit of these strategies is dependent upon a
variety of factors, some of which may be outside the control of the Company.
23
<PAGE> 26
Item 8: Financial Statements and Supplementary Data
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Coventry Corporation:
We have audited the accompanying consolidated balance sheets of
Coventry Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Coventry Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Nashville, Tennessee
February 21, 1997 (except for
Notes G and S, as to which
the date is March 31, 1997)
24
<PAGE> 27
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 90,619 $ 67,435
Short-term investments 7,388 18,408
Accounts receivable, net of allowance for doubtful 37,921 32,118
accounts of $8,000 and $2,700, respectively
Other receivables 22,661 10,909
Assets held for sale 23,856 -
Deferred income taxes 20,449 8,415
Prepaid expenses and other current assets 5,397 6,151
- -----------------------------------------------------------------------------------------------------------
Total current assets 208,291 143,436
Long-term investments 75,389 61,934
Property and equipment, net 24,979 51,253
Goodwill and intangible assets, net 118,346 111,879
Other assets 21,940 17,173
- -----------------------------------------------------------------------------------------------------------
Total assets $ 448,945 $ 385,675
===========================================================================================================
Liabilities and Stockholders' Equity
Medical claims liabilities $ 146,082 $ 92,160
Accounts payable 11,919 9,164
Accrued payroll and benefits 13,008 11,066
Other accrued liabilities 59,636 27,686
Deferred revenue 14,888 13,880
Current portion of long-term debt 36,468 2,307
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 282,001 156,263
Long-term debt 57,291 65,600
Other long-term liabilities 9,226 7,994
Minority interest - 1,967
Stockholders' equity:
Common Stock, $.01 par value; 50,000,000 shares
authorized; issued and outstanding, 33,001,296
and 32,276,575 shares, respectively 330 323
Additional paid-in capital 136,142 128,119
Net unrealized investment gain 395 562
Retained earnings (accumulated deficit) (36,440) 24,847
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 100,427 153,851
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 448,945 $ 385,675
===========================================================================================================
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 28
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Managed care premiums $ 1,035,778 $ 844,032 $ 769,935
Management services 21,351 8,358 6,708
- -----------------------------------------------------------------------------------------------------------------------------
Total operating revenues 1,057,129 852,390 776,643
- -----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Health benefits 930,739 713,226 614,144
Selling, general and administrative 165,081 123,523 94,684
Depreciation and amortization 42,862 14,666 9,437
Other charges 9,793 - -
Merger costs - 2,250 3,355
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,148,475 853,665 721,620
- -----------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) (91,346) (1,275) 55,023
Other income, net 13,379 7,705 5,003
Interest expense (6,257) (4,881) (2,731)
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and minority interest (84,224) 1,549 57,295
Provision for (benefit from) income taxes (22,860) 1,530 24,426
Minority interest in earnings (loss) of
consolidated subsidiary, net of income tax (77) 1 3,581
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (61,287) $ 18 $ 29,288
=============================================================================================================================
Net earnings (loss) per common and common equivalent share $ (1.86) $ 0.00 $ 0.93
=============================================================================================================================
Weighted average common and common equivalent
shares outstanding 33,011 32,164 31,425
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
Retained
Additional Net Unrealized Earnings Total
Common Paid-In Investment (Accumulated Stockholders'
Stock Capital Gain (Loss) Deficit) Equity
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 293 $101,072 $ - $ (4,459) $ 96,906
Issuance of common stock,
including exercise of options 19 7,062 7,081
Tax benefit of stock options
exercised 1,653 1,653
Unrealized investment loss,
net of income tax (804) (804)
Net earnings 29,288 29,288
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 312 109,787 (804) 24,829 134,124
Issuance of common stock,
including exercise of options
and warrants 11 16,906 16,917
Tax benefit of stock options
exercised 1,426 1,426
Unrealized investment gain,
net of income tax 1,366 1,366
Net earnings 18 18
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 323 128,119 562 24,847 153,851
Issuance of common stock,
including exercise of options
and warrants 7 5,739 5,746
Tax benefit of stock options
exercised 2,284 2,284
Unrealized investment loss,
net of income tax (167) (167)
Net loss (61,287) (61,287)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 330 $136,142 $ 395 $(36,440) $ 100,427
==========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities of continuing operations:
Net earnings (loss) $ (61,287) $ 18 $ 29,288
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 42,862 14,666 9,437
Benefit from deferred income taxes (15,989) (2,029) (657)
Increase in receivable due to sale of subsidiary (5,500) - -
Minority interest (19) 1 3,581
Other 103 (26) 386
Changes in assets and liabilities of continuing
operations, net of effects of the purchase of
subsidiaries:
Accounts receivable (5,285) (7,099) (2,091)
Other receivables (6,749) (4,913) (1,969)
Prepaid expenses and other current assets 758 (582) 2,959
Other assets (5,652) (6,458) (1,563)
Medical claims liabilities 49,350 21,736 4,849
Accounts payable 2,742 4,374 1,331
Other accrued liabilities 32,781 9,205 9,112
Income taxes payable 6,315 (15,173) 686
Deferred revenue 549 (3,756) (36)
Other long-term liabilities 1,251 3,882 1,084
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of continuing operations 36,230 13,846 56,397
Net cash used in operating activities of discontinued operations - - (542)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 36,230 13,846 55,855
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities of continuing operations:
Capital expenditures, net (12,688) (16,319) (22,466)
Sales of investments 75,511 53,224 41,109
Purchases of investments & other (80,049) (64,193) (55,841)
Payments for purchases of subsidiaries, net of cash acquired (27,256) (2,524) (54,279)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities of continuing operations (44,482) (29,812) (91,477)
Net cash provided by investing activities of discontinued operations - - 8,809
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (44,482) (29,812) (82,668)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings of long-term debt 40,164 13,116 50,731
Payments on long-term debt (14,474) (14,740) (24,266)
Net proceeds from issuance of stock 5,746 16,917 5,831
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 31,436 15,293 32,296
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 23,184 (673) 5,483
Cash and cash equivalents at beginning of period 67,435 68,108 62,625
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 90,619 $ 67,435 $ 68,108
====================================================================================================================
====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
Notes to Consolidated Financial Statements
Years Ended December 31, 1996, 1995 and 1994
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Coventry Corporation ("the Company") is a managed health care company
that provides comprehensive health benefits and services to employer groups and
government-funded groups in Pennsylvania, Ohio, West Virginia, Missouri,
Illinois, Virginia and Florida.
The Company began operations in 1987 with the acquisition of the
American Service Companies ("ASC") entities. In 1988, the Company acquired
HealthAmerica Pennsylvania, Inc. ("HAPA"), a Pennsylvania HMO. In 1990, the
Company acquired Group Health Plan, Inc. ("GHP"), a St. Louis, Missouri HMO.
Southern Health Services, Inc. ("SHS"), a Richmond, Virginia, HMO was
acquired by the Company in 1994. In 1995, the Company acquired HealthCare USA
("HCUSA"), a Jacksonville, Florida-based Medicaid managed care company.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions have been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash Equivalents - Cash equivalents consist principally of overnight
repurchase agreements, money market funds and certificates of deposit. The
Company considers all highly liquid securities purchased with an original
maturity of three months or less to be cash equivalents. The carrying amounts
of cash and cash equivalents reported in the accompanying consolidated balance
sheets approximate fair value.
Investments - Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). The Company considers
all of its investments as available for sale, and accordingly, records
unrealized gains and losses, net of deferred income taxes, as a separate
component of stockholders' equity. Realized gains and losses on the sale of
these investments are determined on the basis of specific cost. The adoption
of SFAS 115 did not have a material effect on the consolidated financial
statements.
Investments with original maturities in excess of three months and
less than one year are classified as short-term investments and generally
consist of time deposits, U.S. Treasury Notes, and obligations of various
states and municipalities. Long term investments have original maturities in
excess of one year and consist primarily of state and municipal debt securities
and obligations of the federal government and its agencies.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
lives of the related assets or, if shorter, over the terms of the respective
leases.
Long-Lived Assets - Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards Number 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." Following the criteria set forth in SFAS 121, long-lived
assets to be held are reviewed by the Company for events or changes in
circumstances which would indicate that the carrying value may not be
29
<PAGE> 32
recoverable. In making this determination, the Company considers a number of
factors, including estimated future cash flows prior to interest and non-cash
expenses associated with the long-lived asset. Assets held for sale are
recorded at the lower of the carrying amount or fair value, less any costs
associated with disposition.
Goodwill and Intangible Assets - Goodwill and intangible assets
consist primarily of costs in excess of the fair value of the net assets of
subsidiaries or operations acquired which are amortized on a straight-line
basis over periods not exceeding 40 years. Accumulated amortization of goodwill
and intangible assets was approximately $40.3 million and $9.4 million at
December 31, 1996 and 1995, respectively. In accordance with SFAS 121, the
Company periodically evaluates the realizability of goodwill and intangible
assets and the reasonableness of the related lives in light of factors such as
industry changes, individual market competitive conditions, and operating
income trends (see Note B to Consolidated Financial Statements).
Other Assets - Other assets consist of loan acquisition costs, assets
related to the supplemental executive retirement plan (Note M of the Notes to
Consolidated Financial Statements), investment in a limited partnership,
deferred charges and certain costs incurred to develop new service areas and
new products prior to the initiation of revenues. Loan acquisition costs are
amortized over the term of the related debt while the other assets are
amortized over their expected periods of benefit, where applicable. The
preoperational new service area and new product costs are amortized over the
expected benefit periods. Accumulated amortization of other assets was
approximately $3.6 million and $4.6 million at December 31, 1996 and 1995,
respectively.
Medical Claims Liabilities - Medical claims liabilities consist of
actual claims reported but not paid and estimates of health care services
incurred but not reported. The estimated claims incurred but not reported are
based on historical data, current enrollment, health service utilization
statistics, and other related information. These accruals are continually
monitored and reviewed, and as settlements are made or accruals adjusted,
differences are reflected in current operations. Changes in assumptions for
medical costs caused by changes in actual experience could cause these
estimates to change in the near term.
Revenue Recognition - Managed care premiums are recorded as revenue in
the month in which members are entitled to service. Premiums collected in
advance are recorded as deferred revenue. Employer contracts are typically on
an annual basis, subject to cancellation by the employer group or the Company
upon thirty days written notice. Management services revenues are recognized
in the period in which the related services are performed.
Reinsurance - Premiums paid to reinsurers are reported as health
benefits expense and the related reinsurance recoveries are reported as
deductions from health benefits expense.
Income Taxes - The Company files a consolidated tax return for
Coventry and its wholly owned consolidated subsidiaries. The Company accounts
for income taxes in accordance with Statement of Financial Accounting Standards
No. 109 ("SFAS 109"). The deferred tax assets and/or liabilities are determined
by multiplying the differences between the financial reporting and tax
reporting bases for assets and liabilities by the enacted tax rates expected to
be in effect when such differences are recovered or settled. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
Minority Interest - For 1996, the minority interest represents a joint
venture interest of 51% in Pennsylvania HealthMate, Inc. ("HealthMate"). In
1995, the minority interest represents a minority shareholder's 30% interest in
HealthCare USA, Missouri LLC, a St. Louis-based Medicaid HMO. The Company
purchased the remaining 30% effective January 1, 1996. In 1994, the minority
interest represents a minority shareholder's 20% interest
30
<PAGE> 33
in Penn Group Corporation (Penn Group), which owns 100% of HAPA. On October
31, 1994, the Company purchased the Penn Group minority interest.
Earnings Per Share - Earnings per share is computed based on the
weighted average shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents arising from dilutive
stock options and warrants are computed using the treasury stock method. Fully
diluted earnings per share are not presented as the calculation is either
antidilutive or does not materially affect earnings per share.
SFAS no. 128, "Earnings per Share" has been issued effective for
fiscal years ending after December 15, 1997. SFAS no. 128 establishes a new
standard for computing and presenting earnings per share. The Company is
required to adopt the provisions of SFAS No. 128 in the fourth quarter of 1997
and does not expect adoption thereof to have a material effect on the Company's
financial position or results of operations.
Reclassifications - Certain 1994 and 1995 amounts have been
reclassified to conform to the 1996 presentation.
B. MERGERS AND ACQUISITIONS
Effective July 28, 1995, the Company acquired HCUSA, a Jacksonville,
Florida-based managed care company. Under the terms of the agreement,
2,849,691 shares of the Company's common stock, valued at approximately $45
million, were exchanged for all of HCUSA's capital stock in a nontaxable
transaction accounted for as a pooling of interests. HCUSA operates a 26,000
member HMO in Jacksonville and northeastern Florida, and through a subsidiary
provides managed care services to Missouri Medicaid recipients. At December
31, 1996, HCUSA's Missouri subsidiary had approximately 77,000 enrollees. The
Company's financial statements have been restated to include the results of
HCUSA for all periods presented.
Effective December 1, 1994, the Company acquired Southern Health
Management Corporation ("SHMC"), the parent company of SHS, a physician owned
HMO with approximately 45,000 members located in Richmond and central Virginia.
Under the terms of the agreement, common stock of the Company valued at
approximately $75 million was given as consideration in a nontaxable
transaction accounted for as a pooling of interests. Each of SHMC's 833,757
outstanding shares of common stock was converted into 3.436 shares of the
Company's common stock resulting in 2,864,789 shares being issued.
Additionally, 42,500 outstanding options to acquire SHMC's common stock were
converted to options to acquire 146,030 shares of the Company's common stock.
Accounting policies of the two companies were the same; therefore, no
conforming adjustments were needed. No intercompany transactions existed
between the companies for the periods presented, and certain reclassifications
were made to SHMC's and HCUSA's financial statements to agree with Coventry's
presentation.
In connection with the merger of SHMC, the Company recorded $3.4
million in the third and fourth quarters of 1994 for transaction costs. In
connection with the merger of HCUSA, the Company recorded $2.3 million of
merger costs in the second quarter of 1995. These costs include expenses for
investments bankers, SEC filing and shareholder reporting fees and professional
fees.
Effective March 22, 1996, the Company purchased 81% of the common
stock of PARTNERS Health Plan of Pennsylvania, Inc. ("PARTNERS") from a
subsidiary of Aetna Life & Casualty Company, now known as Aetna Services, Inc.
("Aetna") and acquired the remaining 19% of the common stock of PARTNERS
through the merger of a subsidiary of the Company with and into PARTNERS.
PARTNERS is the holding company for Coventry Health Plans of Western
Pennsylvania, Inc. ("CHP"), which at the time of acquisition served
approximately 16,000 HMO members in the Pittsburgh area. Consideration for the
transaction was approximately $35 million in cash, of which approximately $32.1
million was recorded as goodwill. The acquisition has been accounted for under
the purchase method of accounting and,
31
<PAGE> 34
accordingly, the net assets have been included in the consolidated financial
statements from the effective date of acquisition. In conjunction with the
acquisition, the Company received a non-compete agreement from Aetna and
expected to enter into a favorable joint marketing agreement with Aetna and to
have the opportunity to acquire other Aetna membership at a favorable price.
These opportunities have not come to fruition and are not expected to, given
Aetna's acquisition of another competitor in the western Pennsylvania market.
As a result of these events, the Company filed suit against Aetna and the
competitor alleging breach of the acquisition agreement, seeking enforcement of
the non- compete agreement and requesting other forms of relief. Based on the
current and future expected operating results, the Company has reduced the
carrying value of the goodwill to $10.0 million at December 31, 1996.
Effective April 1, 1996 the Company entered into a Joint Venture
Agreement with Hamilton Health Center, Inc. to create HealthMate, Inc.,
a company providing health care services to Medicaid recipients in central
Pennsylvania. As part of the agreement the Company made an initial investment
of $300,000 for ownership of 49% of HealthMate's common stock and is obligated
under certain circumstances to make additional contributions totaling $550,000
over the next two and a half years. As of April 1, 1996 HealthMate had
approximately 6,500 members. The Company has accounted for this transaction
under the purchase method of accounting and, accordingly, the net assets have
been included in the consolidated financial statements from the effective date
of acquisition.
Because the purchase price and the operations of the PARTNERS and
HealthMate acquisitions for the periods presented are not material to the
consolidated financial statements of the Company, pro forma financial
information has not been included herein.
Effective January 1, 1996, the Company purchased the 30% minority
interest in HealthCare USA, Missouri LLC, a St. Louis-based Medicaid HMO. The
purchase price was equal to the carrying value of the 30% ownership and as a
result, no goodwill was recorded.
The Company purchased two physician group practices in Pennsylvania in
January 1995, and a third party administrator in Richmond, Virginia in May
1995. The combined adjusted purchase price for these three acquisitions was
approximately $2.5 million, of which approximately $1.2 million was recorded as
goodwill. The purchase price included approximately $600,000 related to
noncompete agreements which have been recorded as intangible assets in the
consolidated balance sheet and which will be amortized between four and ten
years. In 1994, the Company purchased four physician group practices for which
the combined adjusted purchase price was $3.7 million. Approximately $2.0
million of the combined purchase price related to noncompete agreements which
have been recorded as intangible assets and which will be amortized over
five to ten years. Approximately $1.2 million of the combined purchase price
related to goodwill which will amortize over 25 years. These acquisitions have
been accounted for under the purchase method of accounting and, accordingly,
the net assets have been included in the consolidated financial statements from
the effective dates of acquisition. The transactions and operations of the
acquired entities are not significant in the consolidated financial statements
of the Company.
Effective October 31, 1994, the Company purchased the then remaining
20% minority interest in Penn Group Corporation, the parent company of
HealthAmerica Pennsylvania, Inc., the Company's Pennsylvania HMO operations.
The purchase price was approximately $50 million in cash, of which
approximately $38.6 million was recorded as goodwill.
32
<PAGE> 35
C. OTHER CHARGES
At the end of the second quarter of 1996, the Company established
reserves totaling $8.2 million for anticipated losses on multi-year contracts
with certain employer groups, primarily in the St. Louis market. The Company
expects to utilize these reserves over the remaining lives of the contracts and
then either discontinue these products or significantly change the terms and
conditions of the contracts with these parties. The contracts expire at
varying dates through 1999 and cover approximately 30,000 members. In the
fourth quarter of 1996, the Company re-evaluated its position in relation to
the contracts and recorded additional reserves of $1.6 million.
D. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Land $ 481 $ 3,116
Buildings and leasehold improvements 8,427 25,507
Equipment 39,162 49,016
- --------------------------------------------------------------------------
48,070 77,639
Less accumulated depreciation (23,091) (26,386)
- --------------------------------------------------------------------------
$ 24,979 $ 51,253
==========================================================================
</TABLE>
In February 1997, the Company announced the signing of agreements in
principle for the sale of its medical offices in St. Louis, Missouri and
Pittsburgh, Pennsylvania and definitive agreements for the sales of such
offices were signed in March 1997, subject to the satisfaction of various
conditions, including regulatory approval. Accordingly, property and equipment
with a carrying value of approximately $23.9 million has been classified as a
current asset on the 1996 balance sheet. The Company expects the net proceeds
from the sale will exceed the carrying value.
In accordance with SFAS 121 (Note A of the Notes to Consolidated
Financial Statements), the Company determined that the carrying amounts of
certain of its property and equipment may not be recoverable as of December 31,
1996. As a result, approximately $4.3 million of property and equipment
charge-offs were recorded in the fourth quarter of 1996.
33
<PAGE> 36
E. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company considers all of its investments as available for sale
securities, as defined within the Statement, and accordingly, records
unrealized gains and losses in the stockholders' equity section of its balance
sheet. As of December 31, 1996 and 1995, stockholders' equity was increased by
approximately $0.4 million and $0.6 million, respectively, net of a deferred
tax cost of $0.1 million and $0.3 million, respectively, to reflect the net
unrealized investment gain on securities. The amortized cost, gross unrealized
gain or loss and estimated fair value of short-term and long-term investments
by security type were as follows at December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
1996 Cost Gain Loss Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal bonds $50,926 $492 $ - $51,418
Asset-backed securities 9,407 - (31) 9,376
Mortgage-backed securities 13,740 - (85) 13,655
US Treasury securities 7,897 31 - 7,928
Other debt securities 329 - - 329
Equity securities 25 46 - 71
----------------------------------------------------------
$82,324 $569 $ (116) $82,777
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
1995 Cost Gain Loss Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal bonds $59,892 $788 $- $60,680
Asset-backed securities 7,654 - - 7,654
Mortgage-backed securities 526 - - 526
US Treasury securities 9,517 74 - 9,591
Other debt securities 1,815 - - 1,815
Equity securities 12 64 - 76
----------------------------------------------------------
$79,416 $926 $- $80,342
==========================================================
</TABLE>
34
<PAGE> 37
The amortized cost and estimated fair value of short-term and
long-term investments by contractual maturity were as follows at December 31,
1996 and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
1996 ----------------------
<S> <C> <C>
Maturities:
Within 1 year $ 7,366 $ 7,388
1 to 5 years 26,140 26,229
6 to 10 years 7,383 7,494
Over 10 years 41,410 41,595
Other securities without stated maturity 25 71
----------------------
Total short-term and long-term securities $82,324 $82,777
======================
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
1995 --------------------
<S> <C> <C>
Maturities:
Within 1 year $18,406 $18,408
1 to 5 years 24,477 24,762
6 to 10 years 6,344 6,424
Over 10 years 30,177 30,672
Other securities without stated maturity 12 76
---------------------
Total short-term and long-term securities $79,416 $80,342
=====================
</TABLE>
Proceeds from the sale of investments were approximately $76 million
and $53 million for the twelve months ending December 31, 1996 and 1995,
respectively. Gross investments gains of approximately $45,000 and gross
investments losses of $14,000 were realized on these sales for the twelve
months ended December 31, 1996 compared to $26,000 of gross investments gains
for the year ended December 31, 1995. Realized gains and losses from securities
sales are determined on the specific identification of the securities.
F. INCOME TAXES
The provision (benefit) for income taxes attributable to earnings
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision (benefit):
Federal $ (6,181) $ 3,125 $ 21,285
State (690) 434 3,798
Deferred provision (benefit):
Federal (15,565) (1,819) (558)
State (424) (210) (99)
- ---------------------------------------------------------------------------------------------------------------
$ (22,860) $ 1,530 $ 24,426
===============================================================================================================
</TABLE>
35
<PAGE> 38
The expected tax provision (benefit) based on the statutory rate of
35% differs from the Company's effective tax rate as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate (35.00)% 35.00 % 35.00 %
Effect of:
State income taxes, net of federal benefit (1.40)% 9.40 % 5.71 %
Amortization of goodwill 10.26 % 69.07 % 1.40 %
Tax exempt interest income (1.25)% (75.37)% (1.10)%
Change in valuation reserve - - (1.42)%
Merger costs - 49.71 % 2.02 %
Other 0.25 % 10.92 % 1.02 %
- -----------------------------------------------------------------------------------------------------------
Income tax provision (benefit) (27.14)% 98.73 % 42.63 %
===========================================================================================================
</TABLE>
The effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Medical liabilities $ 7,816 $ 984
Accounts receivable 2,897 904
Provision for long-term contracts 3,183 -
Other accruals and deferred revenue 10,943 6,234
Net operating loss carryforward 2,534 640
- ---------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 27,373 8,762
Less valuation allowance (911) (640)
- ---------------------------------------------------------------------------------------------------------------
Deferred tax asset 26,462 8,122
- ---------------------------------------------------------------------------------------------------------------
Deferred tax liability:
Property and equipment (609) (1,031)
Capitalized development costs (1,806) -
Unrealized gain on securities available for sale (128) (363)
Other (332) (1,063)
- ---------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities (2,875) (2,457)
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 23,587 $ 5,665
===============================================================================================================
</TABLE>
The valuation allowance for deferred tax assets as of December 31,
1996 was $0.9 million due to the Company's belief that the realization of the
deferred tax asset resulting from federal and state net operating loss
carryforwards associated with certain acquisitions is doubtful. The valuation
allowance provided at December 31, 1996 will be allocated to reduce goodwill and
other intangible assets if the realization of the acquired net operating loss
carryforwards becomes more likely than not.
36
<PAGE> 39
G. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Borrowings under the Credit Facility $90,000 $62,000
Note payable to U.S. DHHS 1,762 2,303
Other notes payable 1,997 3,604
----------------------
93,759 67,907
Less current portion of long-term debt (36,468) (2,307)
----------------------
Total long-term debt $57,291 $65,600
======================
</TABLE>
Prior to June 30, 1996, the Company's long-term credit agreement (the
"Credit Facility") with a group of banks provided a reducing revolving line of
credit of $125 million, collateralized by substantially all of the Company's
assets. The Credit Facility originally called for scheduled semi-annual
commitment reductions totaling $20.8 million beginning February 18, 1997 and
terminating availability on August 18, 1999. As of June 30, 1996, the Company
was not in compliance with certain financial covenants in the Credit Facility.
Effective September 30, 1996, the Company reached an agreement ("Amended Credit
Facility") with the bank group amending the Credit Facility. Prior to the
amendment, the Company voluntarily reduced the availability under the Credit
Facility to $100 million. The Amended Credit Facility, along with other
changes, revised certain financial ratios that the Company was required to
maintain, increased the interest rate on the indebtedness by 0.8% and revised
the required reductions in availability. At December 31, 1996, the effective
interest rate on indebtedness under the Amended Credit Facility was 7.56%.
As of December 31, 1996, the Company was not in compliance with
certain revised financial covenants in the Amended Credit Facility.
Subsequent to December 31, 1996, the Company entered into an amended and
restated agreement ("Restated Credit Facility") with the bank group effective
March 28, 1997, that along with other changes, converts the amount outstanding
under the Restated Credit Facility to a term loan, revises certain financial
ratios the Company is required to maintain, effectively increases the interest
rate on the indebtedness by 2.7% and revises the amortization period of the
loan. The Restated Credit Facility requires payments of $10 million on June
30, 1997, $7 million on September 30, 1997, $18 million on December 31, 1997
and $55 million on April 1, 1998. The Restated Credit Facility eliminated the
defaults that existed under the Amended Credit Facility at December 31, 1996.
Obligations under the Restated Credit Facility will bear interest at a rate
equal to the higher of the prime rate plus 2.0% or the federal funds rate plus
2.5%.
The Restated Credit Facility requires the Company to apply 50% of the
net cash proceeds of sales of the Company's equity securities to reduce the
scheduled amortizations, prohibits the sale of any substantial subsidiary and
restricts the Company's ability to declare and pay cash dividends on its
common stock.
The Restated Credit Facility contains covenants relating to net worth,
investments in non-admitted assets, operating margins and the creation or
assumption of debt or liens on the assets of the Company. Prior to the closing
of the proposed Warburg transactions described in Note S, a material adverse
change in the Company's financial condition or results of operations will
constitute an event of default under the Restated Credit Facility. The Restated
Credit Facility is collaterlized by substantially all of the assets of the
Company.
On March 31, 1997 the effective interest rate on the indebtedness
under the Restated Credit Facility was 10.5%.
Notes payable to the U. S. Department of Health and Human Services
("U.S. DHHS") represents obligations which were assumed in the acquisition of
HAPA. Under the terms of the notes, principal is payable in various annual
installments through June 30, 2000 with interest payable semi-annually at rates
ranging from 7.75% to 9.125%. The notes are secured by certain assets of the
Company.
Other notes payable relate primarily to the acquisition of two
physician group practices in 1995 and four in 1994 (see Note D of the Notes to
Consolidated Financial Statements). Under the terms of these acquisitions, a
portion of the total purchase price is deferred for terms ranging between two
and four years. These deferred payments do not accrue interest.
37
<PAGE> 40
Maturities of long-term debt during each of the ensuing five years
ending December 31 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 36,468
1998 56,210
1999 687
2000 376
2001 18
Thereafter -
--------
$ 93,759
========
</TABLE>
H. STOCK DIVIDEND
On August 3, 1994, the Company's Board of Directors approved a
two-for-one stock split in the form of a stock dividend with one additional
share of common stock issued for every share held by shareholders of record as
of July 20, 1994. All share and per share amounts for 1994 have been adjusted
to reflect the stock split.
I. STOCK OPTIONS, WARRANTS AND EMPLOYEE STOCK PURCHASE PLAN
As of December 31, 1996, the Company had five stock option plans for
issuance of common stock to key employees, including physicians and directors.
Under these plans, the exercise provisions and prices of the options are
established on an individual basis with the exercise price of the options
generally being equal to 100% of the market value of the underlying stock at
the date of grant. Options generally become exercisable after one year in
20-25% increments per year and expire ten years from the date of grant. The
plans provide for incentive or nonqualified stock options to be issued at the
discretion of the Board of Directors.
With the merger of SHMC in December 1994, the Company assumed SHMC's
incentive stock option plan. The Company issued options for 146,030 shares of
common stock in exchange for 42,500 options to acquire shares of SHMC common
stock granted under SHMC's incentive stock option plan. These options were
exercisable upon the completion of the merger with SHMC and expire in 2003.
With the merger of HCUSA in July 1995, the Company exchanged 2,849,691
shares of the Company's common stock for all of HCUSA's common stock, preferred
stock and stock options.
Transactions with respect to the plans for the three years ended
December 31, 1996 were as follows and have been restated to reflect the
two-for-one stock split in the form of a stock dividend in August 1994:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1994 1,732,430 $ 1.275 - $21.250
Granted 588,850 $16.875 - $25.000
Exercised (284,820) $ 1.275 - $13.563
Canceled (93,000) $ 4.750 - $21.250
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 1,943,460 $ 3.780 - $25.000
Granted 716,750 $15.875 - $24.500
Exercised (246,668) $ 3.780 - $21.250
Canceled (169,000) $ 5.000 - $24.250
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 2,244,542 $ 3.780 - $25.000
Granted 2,891,589 $ 9.625 - $20.625
Exercised (450,224) $ 3.780 - $18.125
Canceled (1,823,489) $ 5.000 - $25.000
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 2,862,418 $ 3.780 - $25.000
=================================================================================================================
</TABLE>
38
<PAGE> 41
Options vested and exercisable at December 31, 1996, 1995 and 1994
were 740,017, 888,573 and 664,266, respectively.
At December 31, 1996, the Company had outstanding warrants granting
holders the right to purchase 100,000 shares of common stock. The 100,000
warrants were issued in July 1995 at a price of $14.125 and expire July 2000.
Warrants were issued in December 1993 granting holders the right to purchase
800,000 shares at an exercise price of $21.00. Of the 800,000 shares, 550,300
were exercised before the expiration in December 1995. The remaining 249,700
warrants expired in December 1995. During the first half of 1996, 170,000
warrants were exercised at a price of $6.75.
At various dates in 1996, the Company repriced, canceled and reissued
approximately 1.3 million shares under option. The options canceled were at
prices ranging from a high of $25.00 to a low of $15.63. The shares were
reissued at market on the date of reissue and the prices ranged from a high of
$18.13 to a low of $12.75.
As of December 31, 1996, the Company had reserved an aggregate of
approximately 3.3 million common shares for options and warrants, approximately
0.4 million of which are available for future grants.
The Company implemented an Employee Stock Purchase Plan in 1994 which
allows substantially all employees who meet length of service requirements to
set aside a portion of their salary for the purchase of Company stock. At the
end of each plan year, the Company will issue the stock to participating
employees at an issue price equal to 85% of the lower of the stock price at the
end of the plan year or the average stock price, as defined. The Company has
reserved 1.0 million shares of stock for this plan and has issued 13,267 and
19,465 shares in 1995 and 1996, respectively, under this plan.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." SFAS 123 establishes new financial accounting and
reporting standards for stock-based compensation plans. The Company has
adopted only the disclosure requirements of SFAS 123. As a result, no
compensation cost has been recorded for the Company's stock option plans. In
addition, based on the number of options outstanding and the historical and
extrapolated future trends of factors affecting valuation of those options,
management has determined that any compensation cost attributable to options
granted is immaterial.
J. REINSURANCE
The Company has reinsurance agreements, through its subsidiary CHLIC,
with a major insurance company for portions of the risk it has underwritten
through its products. In 1996, commercial HMO risk was reinsured to $500,000
per member per year in excess of a maximum loss retention of $500,000 per
member per year and 20% coinsurance, subject to certain limits on hospital
costs per patient-day. PPO risk was reinsured to $850,000 per member per year
in excess of maximum loss retention of $150,000 per member per year and 20%
coinsurance. Medicaid in Florida and Pennsylvania was reinsured to $950,000
per member per year in excess of a maximum loss retention of $50,000 per member
per year and 20% coinsurance.
Medicaid risk in Missouri was reinsured through the state of Missouri
mandated program with retention of $50,000 per member per year and 20%
coinsurance. Medicare risk was reinsured $850,000 per member per year in
excess of a maximum loss retention of $150,000 per member per year and 20%
coinsurance.
39
<PAGE> 42
Reinsurance premiums for the years ended December 31, 1996, 1995 and
1994, were approximately $1.8 million, $2.8 million and $3.3 million,
respectively. Reinsurance recoveries for the same periods were approximately
$1.5 million, $0.9 million and $1.3 million.
K. COMMITMENTS
The Company operates primarily in leased facilities with original lease
terms ranging from two to fifteen years. The Company also leases computer
equipment with lease terms of approximately three years. Leases that expire
generally are expected to be renewed or replaced by other leases.
The minimum rental commitments payable by the Company during each of the
next five years ended December 31 and thereafter for noncancellable operating
leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
----- ------
<S> <C>
1997 $ 9,690
1998 7,859
1999 5,841
2000 4,368
2001 3,484
--------
Thereafter 12,750
--------
$ 43,992
========
</TABLE>
Total rent expense was approximately $11.7 million, $10.5 million and
$10.6 million for the years ended December 31, 1996, 1995, and 1994,
respectively.
As a result of premium rate reductions in Florida in 1995 and the
commercial membership requirements, the Company has determined that its Florida
Medicaid operations are unlikely to be sufficiently profitable on a long-term
basis to justify a continued presence in the Florida market and, as a result,
the Company is considering various options concerning this business, with the
long-term goal of exiting the Florida Medicaid market if premium rates are not
increased. Accordingly, the Company has established a reserve of $1.2 million
at December 31, 1996 to reflect the anticipated costs of exiting this market.
L. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
investments in marketable securities and premiums receivable. The Company
invests its excess cash in interest bearing deposits with major banks,
commercial paper and money market funds. Investments in marketable securities
are managed within guidelines established by the Board of Directors which
emphasize investment-grade fixed income securities and limit the amount that
may be invested in any one issuer. The fair value of the Company's financial
instruments is substantially equivalent to their carrying value and, although
there is some credit risk associated with these instruments, the Company
believes this risk to be minimal.
As discussed in Note S to Consolidated Financial Statements, the
Company will enter into long-term global capitation arrangements with two
integrated provider organizations. To the extent that the Company becomes a
party to global capitation agreements with a single provider organization
serving substantial membership, the Company becomes exposed to credit risk with
respect to such organizations.
As of December 31, 1996, the western Pennsylvania, central
Pennsylvania, St. Louis, Richmond and HCUSA subsidiaries comprised 37%, 16%,
17%, 2% and 28% of accounts receivable, respectively. The Company's largest
employer group, the U.S. Office of Personnel Management, accounted for
approximately 5% of the Company's managed care
40
<PAGE> 43
premiums in 1996 and approximately 14% of the accounts receivable at December
31, 1996. The Company believes the allowance for doubtful collections
adequately provides for estimated losses as of December 31, 1996. The Company
has a risk of incurring loss if such allowances are not adequate.
M. BENEFIT PLANS
On July 1, 1994, the Company adopted an employee retirement plan
qualifying under IRC Section 401(k), the Coventry Corporation Retirement
Savings Plan (the "Plan"), which covers substantially all employees of the
Company and its subsidiaries who meet certain requirements as to age and length
of service and who elect to participate in the Plan. Similar retirements
savings plans offered by (1) both HAPA and GHP and (2) both CHMC and HCUSA
were merged into the Plan effective July 1, 1994 and January 1, 1996,
respectively. Under the Plan, employees may defer up to 15% of their
compensation, limited by the maximum compensation deferral amount permitted by
applicable law. The Company makes matching contributions equal to 100% of the
employee's contribution on the first 3% of the employee's compensation deferral
and equal to 50% of the employee's contribution on the second 3% of the
employee's compensation deferred. Employees vest in the Company's matching
contributions in 20% increments annually over a period of 5 years, based on
length of service with the Company and/or its subsidiaries. All costs of the
Plan are funded by the Company as they are incurred.
On July 1, 1994, the Company adopted a supplemental executive
retirement plan (the "SERP"), which covers employees of the Company and its
subsidiaries who (1) meet certain requirements as to age and management
responsibilities and/or salary, (2) are designated as being eligible to
participate in the SERP by the Compensation and Benefits Committee of the Board
of Directors of the Company, and (3) elect to participate in the SERP and the
Plan. A similar supplemental executive retirements plan offered by HAPA was
merged into the SERP effective July 1, 1994. Under the SERP, employees may
defer up to 15% of their base salary, and up to 100% of any bonus awarded, over
and beyond the compensation deferral limits of the Plan. The Company makes
matching contributions equal to 100% of the employee's contribution on the
first 3% of the employee's compensation deferred and 50% of the employee's
contribution on the second 3% of the employee's compensation deferred.
Employees vest in the Company's matching contributions in 20% increments
annually over a period of 5 years, based on length of service with the Company
and/or its subsidiaries. All costs of the SERP are funded by the Company as
they are incurred.
The cost, principally employer matching contributions, of the benefit
plans charged to operations for the years 1996, 1995 and 1994 was approximately
$2.4 million, $3.1 million and $3.5 million, respectively.
41
<PAGE> 44
N. STATUTORY INFORMATION
The Company's HMO subsidiaries are required by the respective domicile
states to maintain minimum statutory capital and surplus in the aggregate of
approximately $14.0 million at December 31, 1996. Combined statutory capital
and surplus of the Company's HMO was approximately $27.9 million. The states
in which the Company's HMOs operate require the HMOs to maintain deposits with
the Department of Insurance. At December 31, 1996, these deposits totaled $2.8
million and are included as other long-term assets in the financial statements.
CHLIC is required to maintain minimum statutory capital and surplus of
approximately $3.0 million. Statutory capital and surplus of CHLIC as of
December 31, 1996 was approximately $30.7 million. Statutory deposits for
CHLIC as of December 31, 1996 totaled approximately $3.7 million.
O. OTHER INCOME
Other income for the years ended December 31, 1996, 1995, and 1994
includes investment income of approximately $8.4 million, $7.4 million, and
$5.0 million, respectively. Additionally, in the fourth quarter of 1996, other
income includes a non-recurring gain of approximately $4.9 million as a result
of the sale of Champion Dental Service, Inc.
P. SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Cash paid during the periods for interest and income taxes is as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
- ---------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $ 5,862 $ 4,517 $ 2,491
Income taxes $ 1,309 $16,410 $19,240
</TABLE>
Q. DISCONTINUED OPERATIONS
On March 30, 1992, the Company's Board of Directors approved a plan
pursuant to which the Company discontinued certain operations of ASC. ASC
provided individually underwritten health care benefits coverage to
self-employed individuals or small employers through CHLIC. The Company
retains CHLIC insurance licenses in 43 states and CHLIC continues to underwrite
the indemnity portion of certain flexible provider products offered by the
Company's HMOs.
Effective December 1, 1992, the Company entered into an agreement with
United Insurance Companies, Inc. ("United"), whereby United assumed management
responsibility for the discontinued operations; accordingly, the small-group
policies remaining in force comprised a closed book of business. Effective
January 1, 1995, United assumption reinsured the ASC closed book of business.
Under the terms of the agreement, United assumed substantially all of the
closed book of business claims, unearned premium reserves, and all other
statutory liabilities, except for certain litigation reserves that are retained
by the Company.
42
<PAGE> 45
R. LEGAL PROCEEDINGS
In the normal course of business, the Company has been named as
defendant in various legal actions seeking payments for claims denied by the
Company, medical malpractice, and other monetary damages. The claims are in
various stages of proceedings and some may ultimately be brought to trial.
Incidents occurring through December 31, 1996 may result in the assertion of
additional claims. With respect to medical malpractice, the Company carries
professional malpractice and general liability insurance for each of its
operations on a claims made basis with varying deductibles for which the
Company maintains reserves. In the opinion of management, the outcome of these
actions will not have a material adverse effect on the financial position or
results of operations of the Company.
S. SUBSEQUENT EVENTS
In March 1997, the Company entered into agreements to sell the medical
offices associated with Group Health Plan, its health plan in St. Louis,
Missouri and HealthAmerica, its health plan in Pittsburgh, Pennsylvania, to
major healthcare provider organizations in these markets. The purchase price
is $27 million in cash for the St. Louis medical offices and $20 million in
cash for the Pittsburgh offices. The initial agreements cover medical offices
serving 92,000 members at Group Health Plan and 80,000 members at
HealthAmerica. The agreements are subject to the satisfaction of various
conditions, including regulatory approval. Coincident with the sale of the
medical offices, the Company will enter into long-term global capitation
arrangements with the purchasers of the medical offices, pursuant to which the
provider organizations will receive a fixed percentage of premiums to cover all
the medical treatment the Company's globally capitated members receive from
the health care systems. The transactions are expected to occur in the first
half of 1997 and therefore, the assets of the respective medical offices have
been classified as current assets as of December 31, 1996. The anticipated
proceeds from the transactions are expected to exceed the current carrying
value of the medical offices.
On March 17, 1997, the Company announced that it entered into a
letter of intent with Warburg, Pincus Ventures, L.P. ("Warburg") for Warburg's
purchase of $40 million of Convertible Exchangeable Subordinated Notes of the
Company, together with warrants to purchase 2.35 million shares of the
Company's common stock. The notes are expected to be convertible into 4
million shares of the Company's common stock. The investment by Warburg is
subject to the negotiation of definitive terms, the approval of state
insurance regulators in certain states, and the approval of the lending banks
under the Credit Facility. The notes will be exchangeable at the Company's
option for shares of convertible preferred stock, the authorization of which
will require the approval of the Company's shareholders at the 1997
shareholders' meeting. If the proposed Convertible Notes transaction is not
consummated, the Company will be required to seek alternative financings in
order to meet scheduled debt service obligations.
43
<PAGE> 46
T. QUARTERLY FINANCIAL DATA (unaudited)
The following is a summary of unaudited quarterly results of
operations (in thousands, except per share data) for the years ended December
31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
1996(1) 1996(2) 1996 1996(3)
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 236,937 $ 257,737 $ 272,903 $ 289,552
Operating earnings (loss) $ (2,772) $ (14,346) $ 143 $ (74,371)
Net earnings (loss) $ (968) $ (8,528) $ 348 $ (52,139)
Net earnings (loss) per common
and common equivalent share $ (0.03) $ (0.26) $ 0.01 $ (1.58)
------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 32,854 33,041 33,021 33,024
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
1995 1995(4) 1995(5) 1995(6)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 209,652 $ 208,868 $ 211,137 $ 222,733
Operating earnings (loss) $ 16,253 $ 4,764 $ 1,118 $ (23,410)
Net earnings (loss) $ 9,870 $ 2,177 $ 1,494 $ (13,523)
Net earnings (loss) per common and common
equivalent share $ 0.30 $ 0.07 $ 0.05 $ (0.42)
-----------------------------------------------------------------
Weighted average common and common equivalent
shares outstanding 32,402 32,157 31,952 32,416
=================================================================
</TABLE>
(1) The first quarter operating results were affected by termination and
related costs to streamline the Company's administrative process and reduce
staffing in health centers, primarily in the Pennsylvania and St. Louis
plans for total adjustments of $5.2 million.
(2) The second quarter operating results were affected by the establishment
of reserves relating to multi-year contracts with certain employer groups,
primarily in the St. Louis market. The Company expects to utilize these
reserves over the remaining lives of the contracts and then either
discontinue the contracts or significantly change the terms and conditions
of the contracts with these parties. The establishment of these reserves
resulted in total adjustments of $8.2 million.
(3) The fourth quarter operating results were affected by the increase of
reserves related to accounts receivable ($3.6 million), long-term contracts
($1.6 million), medical claims ($25.6 million), termination costs
($2.1 million), other reserves ($6.0 million), write-offs of goodwill
($21.0 million) and certain capitalized expenses ($6.7 million).
(4) The second quarter operating results of 1995 were affected by merger
costs for the purchase of HCUSA, severance and related costs associated
with staff restructuring in Pittsburgh and St. Louis, additions to
accruals for professional liability litigation and the settlement of
certain Office of Personnel Management negotiations for total adjustments
of approximately $7.0 million.
(5) The third quarter operating results of 1995 were affected by an increase
in medical claims liabilities for the western Pennsylvania market and
start up expenses associated with Medicaid and Medicare product
development and geographic expansion initiatives for total adjustments of
approximately $6.5 million.
(6) The fourth quarter operating results of 1995 were affected by the
elimination of several of its new market development areas, personnel
reductions in the operations and increases in legal, medical and
contingency reserves for total adjustments of $21.8 million.
44
<PAGE> 47
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
45
<PAGE> 48
PART III
Item 10: Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement relating to the Company's 1997 Annual
Meeting of Shareholders to be filed within 120 days after December 31, 1996.
Item 11: Executive Compensation
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement relating to the Company's 1997 Annual
Meeting of Shareholders to be filed within 120 days after December 31, 1996.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement relating to the Company's 1997 Annual
Meeting of Shareholders to be filed within 120 days after December 31, 1996.
Item 13: Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement relating to the Company's 1997 Annual
Meeting of Shareholders to be filed within 120 days after December 31, 1996.
46
<PAGE> 49
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K
<TABLE>
<S> <C> <C>
(a) 1. Financial statement schedules
Form 10-K
Pages
----------
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . S-2
2. Exhibits required to be filed by Item 601 of Regulation S-K.
Exhibits required to be filed by Item 601 of Regulation S-K, whether filed herewith or incorporated
herein by reference, are listed on the Index to Exhibits of this filing.
(b) 1. Reports on Form 8-K
Form 8-K relating to February 24, 1997 press release was
filed on February 26, 1997.
</TABLE>
47
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COVENTRY CORPORATION
By: /s/ Allen F. Wise President, Chief Executive Officer and
------------------------- Director
Allen F. Wise
By: /s/ Dale B. Wolf Senior Vice President, Chief Financial
------------------------- Officer and Treasurer
Dale B. Wolf
Dated: March 31, 1997
Pursuant to the requirements of the Securities and Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title (Principal Function) Date
<S> <C> <C>
/s/ John H. Austin, M.D., M.P.H. Chairman of the Board and Director March 31, 1997
- -----------------------------------------
John H. Austin, M.D., M.P.H.
/s/ Allen F. Wise President, Chief Executive Officer March 31, 1997
- ----------------------------------------- and Director
Allen F. Wise
/s/ Dale B. Wolf Senior Vice President, Chief March 31, 1997
- ----------------------------------------- Financial Officer and Treasurer
Dale B. Wolf
/s/ Shirley R. Smith Vice President and Corporate General March 31, 1997
- ----------------------------------------- Counsel and Secretary
Shirley R. Smith
/s/ Jan H. Hodges Vice President, Finance March 31, 1997
- -----------------------------------------
Jan H. Hodges
/s/ Lawrence N. Kugelman Director March 31, 1997
- -----------------------------------------
Lawrence N. Kugelman
/s/ Laurence DeFrance Director March 31, 1997
- -----------------------------------------
Laurence DeFrance
/s/ Emerson D. Farley, Jr., M.D. Director March 31, 1997
- -----------------------------------------
Emerson D. Farley, Jr., M.D.
/s/ Richard H. Jones Director March 31, 1997
- -----------------------------------------
Richard H. Jones
</TABLE>
48
<PAGE> 51
ARTHUR ANDERSEN LLP
Nashville, Tennessee
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Coventry Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Coventry Corporation and subsidiaries for
the three years ended December 31, 1996 included in the Form 10-K and have
issued our report thereon dated February 21, 1997 (except for Notes G and S, as
to which the date is March 31, 1997). Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The schedule listed under Item 14(a)(ii) is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth herein in relation to the basic
consolidated financial statements taken as a whole.
Nashville, Tennessee
February 21, 1997
S-1
<PAGE> 52
SCHEDULE II
COVENTRY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions
Beginning of Charged to Costs Deductions Balance at
Period and Expenses (1) (Charge Offs) (1) End of Period
------------ ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $ 2,700 $ 8,000 $(2,700) $ 8,000
======= ======= ======= =======
Year ended December 31, 1995:
Allowance for doubtful accounts $ 2,200 $ 3,100 $(2,600) $ 2,700
======= ======= ======= =======
Year ended December 31, 1994:
Allowance for doubtful accounts $ 1,240 $ 4,100 $(3,140) $ 2,200
======= ======= ======= =======
</TABLE>
(1) Additions to the allowance for doubtful accounts are included in selling,
general and administrative expense. All deductions or charge offs are
charged against the allowance for doubtful accounts.
S-2
<PAGE> 53
INDEX TO EXHIBITS
Reg. S-K
Item 601
Exhibit
No. Description of Exhibit
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession:
(i)
Agreement and Plan of Merger dated February 3, 1995 among the Company,
Coventry Acquisition Corporation and HealthCare USA, Inc.
(Incorporated by reference to Exhibit 2.1 to Form S-4 on Form S-3,
Registration Statement Nos. 33-90268 and 33-95084)
(ii)
Stock Purchase and Sale Agreement dated as of October 31, 1994 between
the Company and Presbyterian University Hospital. (Incorporated by
reference to Exhibit 2.1 to Form 8-K dated October 31, 1994 and filed
with the SEC on November 2, 1994)
(iii)
Stock Purchase and Merger Agreement by and among AHP Holdings, Inc.,
PARTNERS Health Plan of Pennsylvania, Inc., the Company and Coventry
Acquisition Corporation dated as of December 18, 1995 (Incorporated by
reference to Exhibit 2.2 to Annual Report on Form 10-K for the year
ended December 31, 1995) and Amendment No. 1 thereto dated March 20,
1996 (Incorporated by reference to Exhibit 2(ii) to the PARTNERS
Health Plan of Pennsylvania, Inc. Current Report on Form 8-K dated
March 20, 1996).
(3) Articles of Incorporation and Bylaws:
(i)
Fifth Restated Certificate of Incorporation of Coventry Corporation
(Incorporated by reference to Exhibit 3.1 attached to Annual Report on
Form 10-K for fiscal year ended December 31, 1994)
(ii)
Bylaws of Coventry Corporation (Incorporated by reference to Exhibit
3.2 to Form S-1, Registration Statement No. 33-36616), Amendment No. 1
(Incorporated by reference to Exhibit 3.2.1 attached to Annual Report
on Form 10-K for fiscal year ended December 31, 1994), and Amendment
No. 2 (See Exhibit 3.2.2 attached to the Annual Report on Form 10-K
for the year ended December 31, 1995).
(4) Instruments Defining the Rights of Security Holders, Including
Indentures:
(i)
Specimen Common Stock Certificate (See Exhibit 4.1 attached to the
Annual Report on Form 10-K for the year ended December 31, 1995 and
the Company's Certificate of Incorporation referenced at (3)(i) above)
(ii)
See Second Amended and Restated Credit Agreement referenced at 10(i)
below and the amendments thereto referenced at 10(i), 10(xx) and
10(xxi) below.
(iii)
Shareholder Rights Agreement dated February 7, 1996 between the
Company and Chemical Mellon Shareholder Services, L.L.C. (Incorporated
by reference to Exhibit 4 to Form 8-K, Current Report, dated February
7, 1996)
<PAGE> 54
(10) Material Contracts
(i)
Second Amended and Restated Credit Agreement dated as of November 20,
1992 among the Company, Morgan Guaranty Trust Company of New York,
Fleet National Bank, Third National Bank in Nashville, NationsBank of
Tennessee, N.A., Citicorp USA, Inc., Mellon Bank, N.A., First American
National Bank, and Morgan Guaranty Trust Company of New York as Agent
($125,000,000 Credit Facility) (See Exhibit 10.6 attached to the
Annual Report on Form 10-K for the year ended December 31, 1995) and
related documents (Incorporated by reference to Exhibit 10.6 attached
to Annual Report on Form 10-K for fiscal year ended December 31,
1994), Amendment No. 1 (See Exhibit 10.6.1 attached to the Annual
Report on Form 10-K for the year ended December 31, 1995) and
Amendment No. 2 (See Exhibit 10.6.2 attached to the Annual Report on
Form 10-K for the year ended December 31, 1995)
(ii)
Amended and Restated Employment Agreement dated December 1, 1994,
between Southern Health Management Corporation, the Company and James
L. Gore (Incorporated by reference to Exhibit 10.7.7 attached to
Annual Report on Form 10-K for fiscal year ended December 31, 1994)*
(iii)
Employment Agreement dated February 17, 1994 between HealthCare USA,
Inc. and Christopher T. Fey, as amended by Amendment to Employment
Agreement dated February 3, 1995 between HealthCare USA, Inc., the
Company and Mr. Fey (effective as to the Company on July 28, 1995)
(Incorporated by reference to Exhibit (xxv) to Form 10-Q, Quarterly
Report, for the quarter ended September 30, 1995)*
(iv)
Employment Agreement dated September 16, 1996 executed by
Allen F. Wise
(v)
Employment Agreement dated December 30, 1996 executed by Dale B. Wolf
(vi)
Form of Company's Agreement (for Key Senior Executives) dated
September 12, 1995 (executed by Richard H. Jones and Frederick G.
Merkel) (Incorporated by reference to Exhibit (xxviii) to Form 10-Q,
Quarterly Report, for the quarter ended September 30, 1995)*
(vii)
Form of Company's Agreement (for Key Executives) dated September 12,
1995 (executed by James R. Hailey, Jan H. Hodges, Nancy I. Lorenz and
Shirley R. Smith) (Incorporated by reference to Exhibit (xxix) to Form
10-Q, Quarterly Report, for the quarter ended September 30, 1995)*
(viii)
Employment Agreement dated as of July 28, 1995, between Thomas Murray,
HealthAmerica Pennsylvania, Inc. and the Company (See Exhibit 10.7.1
attached to the Annual Report on Form 10-K for the year ended December
31, 1995)*
(ix)
Second Amended and Restated 1987 Statutory-Nonstatutory Stock Option
Plan (Incorporated by reference to Exhibit 10.8.1 attached to Annual
Report on Form 10-K for fiscal year ended December 31, 1993)*
<PAGE> 55
(x)
Third Amended and Restated 1989 Stock Option Plan (Incorporated by
reference to Exhibit 10.8.2 attached to Annual Report on Form 10-K for
fiscal year ended December 31, 1993)*
(xi)
1993 Outside Directors Stock Option Plan (as amended)(See Exhibit
10.8.3 attached to the Annual Report on Form 10-K for the year ended
December 31, 1995)*
(xii)
1993 Stock Option Plan (as amended)(See Exhibit 10.8.4 attached to the
Annual Report on Form 10-K for the year ended December 31, 1995)*
(xiii)
Coventry Corporation Supplemental Executive Retirement Plan effective
July 1, 1994 (Incorporated by reference to Exhibit 4.2 to Form S-8,
Registration Statement No. 33-81358)*
(xiv)
Coventry Share Plan (stock purchase plan) effective September 1, 1994
(Incorporated by reference to Exhibit 4.1 to Form S-8, Registration
Statement No. 33-82562)*
(xv)
Southern Health Management Corporation 1993 Stock Option Plan (See
Exhibit 10.8.5 attached to the Annual Report on Form 10-K for the year
ended December 31, 1995)*
(xvi)
Coinsurance Agreement effective January 1, 1995, between American
Service Life Insurance Company (now known as Coventry Health and Life
Insurance Company) and Mid-West National Life Insurance Company of
Tennessee (See Exhibit 10.9.1 attached to the Annual Report on Form
10-K for the year ended December 31, 1995)
(xvii)
Assumption Reinsurance Agreement between American Service Life
Insurance Company (now known as Coventry Health and Life Insurance
Company) and Mid-West National Life Insurance Company of Tennessee
(See Exhibit 10.9.2 attached to the Annual Report on Form 10-K for the
year ended December 31, 1995)
(xviii)
Subordinated Promissory Surplus Note dated May 12, 1995 in the amount
of $2,797,445 from HealthCare USA of Missouri, L.L.C. to the Company
(See Exhibit 10.9.3 attached to the Annual Report on Form 10-K for the
year ended December 31, 1995)
(xix)
License Agreement dated as of December 31, 1992 between Maxicare
Health Plans, Inc. and the Company (Incorporated by reference to
Exhibit 10.18.1 attached to Annual Report in Form 10-K for fiscal year
ended December 31, 1993) and Amendment No. 1 to License Agreement
between Maxicare Health Plans, Inc. and the Company (Incorporated by
reference to Exhibit 10.18.2 attached to Annual Report on Form 10-K
for fiscal year ended December 31, 1993)
(xx)
Amendment No. 3 to the Second Amended and Restated Credit
Agreement, dated as of September 30, 1996, among the Company, the Banks
listed on the signature pages thereof and Morgan Guaranty Trust Company
of New York as Agent (See Exhibit 10.6.3 attached to the Annual Report
on Form 10-K for the year ended December 31, 1996).
(xxi)
Amendment No. 4 to the Second Amended and Restated Credit
Agreement, dated as of January 10, 1997, among the Company, the Banks
listed on the signature pages thereof and Morgan Guaranty Trust
Company of New York as Agent (See Exhibit 10.6.4) attached to the
Annual Report on Form 10-K for the year ended December 31, 1996.
(xxii)
Employment Agreement dated October 14, 1996 executed by Joe Carroll
(xxiii)
Employment Agreement dated January 1, 1997 executed by Jan H. Hodges
(xxiv)
Employment Agreement dated November 11, 1996 executed by Richard H.
Jones
(xxv)
Employment Agreement dated January 15, 1997 executed by Nancy I.
Lorenz
(xxvi)
Employment Agreement dated January 27, 1997 executed by George R. Mark
(xxvii)
Employment Agreement dated January 24, 1997 executed by Robert A.
Mayer
(xxviii)
Employment Agreement dated February 10, 1996 executed by Frederick G.
Merkel
(xxix)
Employment Agreement dated January 15, 1997 executed by Shirley R.
Smith
(xxx)
Retention Bonus Agreement dated December 31, 1996, executed by James
L. Gore
(11) Statement re Computation of Per Share Earnings
(i)
Computation of Net Earnings Per Common and Common Equivalent Share
(See Exhibit 11 attached to this Report).
(21) Subsidiaries of the Registrant
(i)
Subsidiaries of the Registrant (See Exhibit 21 attached to this Report)
(23) Consents of Experts and Counsel
(i)
Consent of Arthur Andersen LLP (See Exhibit 23 attached to this Report)
All other exhibits for which provision is made in Item 601 of
Regulation S-K promulgated by the Securities and Exchange Commission are either
not required by the instructions to Item 601 or are inapplicable and,
therefore, have been omitted.
* Management contract or compensatory plan.
(27) Financial Data Schedule
<PAGE> 1
Exhibit 10(iv)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the 16th day of
September, 1996, by and between Allen F. Wise ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive desires to enter into an employment relationship
with Employer and Employer desires to employ Executive; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. On the Date of Employment (as defined in Section 3
below), Executive shall be engaged by Employer as its President and Chief
Executive Officer. Executive hereby agrees to such employment on and after the
Date of Employment under the terms and conditions hereinafter set forth. At
Employer's next scheduled Board of Directors meeting, the Board of Directors
shall increase the size of the Board to six persons and shall elect Executive as
a Class I Director for a term expiring at the 1998 Annual Meeting of
Shareholders.
2. DUTIES. As President and Chief Executive Officer, Executive shall
report to the Board of Directors and shall be responsible for the overall
direction, administration and leadership of Employer, including, but not limited
to, the establishment and implementation of policies and directives, formulation
of long range plans, goals and objectives, effective management of employees,
and such other powers and duties normally associated with such position or as
may be delegated or assigned to Executive by Employer's Board of Directors.
During the term of this Agreement, Executive shall also serve without additional
compensation in such other offices of the Employer or its subsidiaries or
affiliates to which he may be elected or appointed by the Board of Directors of
Employer or its subsidiaries or affiliates, respectively.
3. DATE OF EMPLOYMENT. Executive's employment shall commence on October
7, 1996 (the "Date of Employment").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Date of Employment. If
1
<PAGE> 2
at the end of the initial term a new employment contract is not executed, the
term of this Agreement shall continue on a year-to-year basis in the absence of
notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of Four Hundred Fifty Thousand
Dollars ($450,000), annually, to be reviewed on an annual basis based upon the
performance of Executive. The Base Salary shall be paid to Executive in equal
semi-monthly payments in accordance with Employer's normal payroll policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
EMPLOYER STOCK OPTIONS: Executive will be granted a nonqualified stock
option to purchase 400,000 shares of Common Stock of Employer at an exercise
price per share equal to the closing price per share of the Common Stock of
Employer as reported on the Nasdaq National Market on either the date of this
Agreement or the Date of Employment, whichever date has the lower closing price.
The option will vest at a rate of one-third of the shares per year over a
three-year vesting period beginning on the date of grant, or in the event
substantially all of the capital stock or assets of Employer are sold or
transferred or Employer is merged into or consolidated with another unaffiliated
entity, then the option will become fully vested on the date of closing. The
option will expire on the tenth anniversary of the Date of Employment unless
sooner terminated by Executive terminating his employment hereunder. The option
shall be granted under and in accordance with the terms and conditions of
Employer's Second Amended and Restated 1993 Stock Option Plan and a letter
agreement between Executive and Employer dated the Date of Employment.
BONUS COMPENSATION: Executive shall be eligible for an annual bonus
("Bonus") potential of 100% of Base Compensation, which shall be determined as
follows: (i) up to 50% shall be based upon achievement of budget and other
operational performance factors, and (ii) all or any part of the remaining 50%
shall be granted in the sole discretion of the Compensation and Benefits
Committee (the "Committee") of the Board of Directors of Employer. Executive's
bonus and performance factors shall be determined on an annual basis by the
Committee, with Executive's initial Bonus amount and terms to be determined
within the first 60 days of employment based upon mutually agreeable criteria.
DISCRETIONARY EXPENSE ALLOWANCE: Executive shall be entitled to a
discretionary expense allowance of $1,200.00 per month.
OTHER BENEFITS: Executive will be eligible for participation in any
employee benefit programs available to officers of Employer from time to time as
provided in Section 15 below.
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7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.
Executive shall also be reimbursed for expenses associated with the
relocation of Executive to Employer's designated location, including any
difference between a fair market value appraisal of Executive's existing home in
Falls Church, Virginia and a lower price necessitated by Executive's relocation.
The extent and amount of such expense shall be consistent with the Executive
Relocation Policy attached as Exhibit "A".
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 13(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated (i) by Employer for any
reason other than Good Cause (as defined in Section 24 below) or (ii) by
Executive for Good Reason (as defined in Section 24 below), the following
provisions will apply:
(a) Employer shall during the Severance Period (as defined in
Section 24 below), continue to pay Executive an amount equal
to:
(i) Executive's Base Salary at the time of termination of
employment; and
(ii) That portion of Executive's Bonus based on
achievement of budget and other operational
performance factors, if the criteria is met.
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) During the Severance Period Executive and his spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 24 below), maintained by
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Employer in which he or his spouse or family were
participating immediately prior to the date of his termination
as if he continued to be an employee of Employer; provided
that, if participation in any one or more of such Welfare
Plans is not possible under the terms thereof, Employer will
provide substantially identical benefits to the extent
possible. If, however, Executive obtains employment with
another employer during the Severance Period, such coverage
shall be provided until the earlier of: (i) the end of the
Severance Period or (ii) the date on which the Executive and
his spouse and family can be covered under the plans of a new
employer without being excluded from full coverage because of
any actual pre-existing condition.
(c) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods he would have earned had his employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(d) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Section 9(a), (b), (c) and (d) hereof is contingent
upon Executive's compliance with Section 13 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive for other than Good Reason, the Employer shall pay the
Executive only his Base Salary due through the date on which his employment is
terminated at the rate in effect at the time of notice of termination. The
Employer shall then have no further obligation to Executive under this
Agreement; provided, however, Employer shall have the option of paying Executive
in accordance with the provisions of Section 9, above, if Employer desires to
continue to enforce Executive's continuing obligations under Sections 13(b), (c)
and (d) below.
11. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or his spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or his spouse or any debt or
obligation of Executive or his spouse owing to Employer.
(b) With respect to Section 9, payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be
reduced by any amount Executive or his spouse may earn or
receive from employment with another employer or from any
other source, except as expressly provided in Section 9(d).
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12. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving
spouse. On the death of the survivor of Executive and his
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or his spouse
immediately prior to the date of his death to the extent
possible.
Any benefits payable under this Section 12 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
13. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time he is employed by the Employer or
following termination of his employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of his duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. During the term of employment provided
hereunder and for a period of one year after termination of
employment or during the Severance Period, if longer,
Executive will not directly or indirectly own, manage,
operate, control or participate in the ownership, management,
operation or control of, or be connected as an officer,
employee, partner, director or otherwise with, or any have
financial interest in, or aid or assist anyone else in the
conduct of, any business which is in competition with any
business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of one year after termination of
employment or during the Severance
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Period, if longer, Executive will not (i) directly or
indirectly solicit business which could reasonably be expected
to conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment or during the Severance Period, if longer,
cooperate with the Employer in concluding any matters in which
Executive was involved during the term of his employment and
will make himself available for consultation with the Employer
on other matters otherwise of interest to the Employer. The
Employer agrees that such requests shall be reasonable in
number and will consider Executive's time required for other
employment and/or employment search.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 13 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 13 shall not
terminate upon Executive's termination of his employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement; provided, however, in
the event of Executive's voluntary termination for other than
Good Reason, the obligations under Sections 13(b), (c) and (d)
shall terminate upon Executive's termination of employment
unless Employer elects to pay Executive the termination
benefits set forth in Section 9, above.
14. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
15. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term
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Disability coverage (which is an individual medically underwritten policy and
subject to a physical examination for eligibility). Executive shall be entitled
to participate in any profit-sharing, retirement or similar plans established by
Employer in which executive or managerial employees of Employer participate,
including any such plan intended to comply with Section 401(k) of the Internal
Revenue Code of 1986, as amended, and any such plan providing supplemental
executive retirement benefits.
16. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
17. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
18. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
19. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
20. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
21. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
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22. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
23. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
24. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Board of Directors which are demonstrably
injurious to Employer;
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i) and (ii) above), or materially fails
to satisfy the conditions and requirements of his
employment with Employer, and such breach or failure
by its nature is incapable of being cured, or such
breach or failure remains uncured for more than 30
days following receipt by Executive of written notice
from Employer specifying the nature of the breach or
failure and demanding the cure thereof. For purposes
of this paragraph (iii), inattention by Executive to
his duties shall be deemed a breach or failure of
cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
Notwithstanding anything herein to the contrary, in the event
Employer shall terminate the employment of Executive for Good
Cause hereunder, Employer shall give at least 30 days prior
written notice to Executive specifying in detail the reason or
reasons for Executive's termination.
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(c) "Good Reason" shall exist if there is a significant change in
the nature or the scope of Executive's position and authority
as a result of a change in control of Employer, which shall
include the following occurrences:
(i) the acquisition of at least a majority of the
outstanding shares of Common Stock (or securities
convertible into Common Stock) of Employer by any
person, entity or group (as used in Section 13(d)(3)
and Rule 13d-5(b)(1) under the Exchange Act);
(ii) the merger or consolidation of Employer with or into
another corporation or other entity, or any share
exchange or similar transaction involving Employer
and another corporation or other entity, if as a
result of such merger, consolidation, share exchange
or other transaction, the persons who owned at least
a majority of the Common Stock of Employer prior to
the consummation of such transaction do not own at
least a majority of the Common Stock of the surviving
entity after the consummation of such transaction;
(iii) the sale of all, or substantially all, of the assets
of Employer; or
(iv) any change in the composition of the Board of
Directors of Employer, such that persons who at the
beginning of any period of up to two years
constituted at least a majority of the Board of
Directors of Employer, or persons whose nomination
was approved by such majority, cease to constitute at
least a majority of the Board of Directors of
Employer at the end of such period.
(d) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that follows the number of months remaining
in the initial term of this Agreement, if any, plus 12 months
thereafter.
(e) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
25. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
26. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 13(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 13(b)
shall be constructed as narrowly as necessary to be enforceable.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------
Allen F. Wise
COVENTRY CORPORATION
By:
----------------------------------
John H. Austin, M.D.
Chairman of the Board of Directors
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EXHIBIT "A"
COVENTRY CORPORATION EXECUTIVE RELOCATION POLICY
PURPOSE:
This policy outlines the nature of financial assistance provided to executive
executives who are relocating at the request and for the benefit of the Company.
ADMINISTRATION:
Relocation under this policy will be coordinated through Human Resources. Any
exceptions to this policy must receive prior approval by the Chairman of the
Board of Directors.
GENERAL PROVISIONS:
1) Eligibility - Subject to the limitations and exclusions set out herein, all
executives who relocate their residence at the request of the Company are
eligible for the benefits described in this policy. The new assignment must
result in at least a fifty (50) mile increase in the distance from the
executive's former residence to his/her business location for moving
expenses to be paid.
2) Benefit Period - Eligible executives will be allowed six (6) months from
the effective date of their transfer to complete and apply for relocation
reimbursement.
3) Eligible Expenses - Only the necessary and reasonable expenses incurred as
a direct result of the move which are covered by this policy are eligible
for payment or reimbursement. These expenses typically relate to:
- House Hunting
- Temporary Living
- Travel to New Location
- Movement of Household Goods
- Miscellaneous Moving Allowance
- Sale of Former Residence
- Purchase of a New Residence
- Equity Advance
- Mortgage Supplement
- Taxes
HOUSE HUNTING TRIP:
One house hunting trip of two to three days for executive and spouse is
provided. A second and third trip may be allowed with the approval of the
Chairman of the Board of Directors. Covered expenses include:
- Transportation (by air, coach rate & car rental; by car, prevailing
mileage reimbursement rate)
- Meals
- Lodging
- Reasonable incidental expenses, such as child care
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TEMPORARY LIVING FOR EXECUTIVE PRIOR TO MOVE:
If temporary living expenses are needed by the executive prior to the move of
family and/or household goods to the new work location, Coventry will provide
the following for a period not to exceed sixty (60) days:
- Temporary living accommodations
- Transportation home every other weekend
- $50 per week for incidental expenses
TRAVEL TO NEW WORK LOCATION:
Coventry will reimburse the cost of transportation by automobile (at the
prevailing mileage reimbursement rate) or air (at coach rates) for the executive
and family, including lodging, meals, and tolls while in transit between old and
new locations via the most direct route with no extra stop oversee.
TEMPORARY LIVING FOR FAMILY AT TIME OF MOVE:
If it is necessary for the family to set up temporary living quarters in the new
work location until the household goods arrive, the policy provides for the
reimbursement of meals and lodging for up to 30 days. This allowance is intended
to cover situations resulting from a delay in delivery of the moving company or
from a delay in the completion or availability of quarters at the new location.
MOVEMENT OF HOUSEHOLD GOODS:
The following items/services will be directly paid by Coventry for the movement
of household goods:
- Packing, crating, shipping, unpacking, insurance, storage and removal of
household goods and belongings.
- Cost of disconnecting and reconnecting washer, dryer, refrigerator,
freezer and stove.
- Transportation of two (2) automobiles:
- If distance from former location to new location is less than 500
miles, reimbursement will be made for the driving of one vehicle at
current prevailing reimbursement rate, and the shipping of the other
vehicle on a common carrier.
- If distance is greater than 500 miles, both vehicles may be
transported via common carrier.
- Expenses associated with the rental of a trailer hitch and any extra tolls
associated with towing a boat, camper or trailer.
- Storage of household goods at the carrier's warehouse for a period of 30
days in those cases where occupancy of the new residence has been delayed.
NOTE: Recreational vehicles such as snowmobiles, motorcycles and trail bikes,
and motorized equipment such as lawn mowers, snowblowers or lawn equipment are
authorized for transport in the van as long as the fuel and oil have been
drained.
The following items/services are not covered:
- Household cleaning services.
- Removal or installation of drapes, wall-to-wall carpeting, or related
items.
- Pick-up and delivery charges at locations other than the primary
residence.
- The disassembly and assembly of fixtures and utilities such as wood
stoves, water softeners, swing sets, utility sheds, above ground pool,
spas, etc.
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- Transporting high weight low value items such as firewood, coal, building
material, etc.
- Transporting perishable foods liquor or plants.
- Boarding or transporting household pets.
- Transporting combustible items such as ammunition, oil-based paints,
kerosene and other flammable liquids and fuel.
- Transporting boats, farm animals, spas and other unusual items.
- Transporting non-operable automobiles.
- Transporting articles of great monetary or sentimental value such as
jewelry, furs, stamp and coin collections, stocks/bonds, wills, photos or
other important documents.
MISCELLANEOUS MOVING ALLOWANCE:
Coventry will provide an additional one month's salary to executives who are
homeowners to assist with incidental expenses associated with moving. Such
expenses might include:
- Increased homeowner's insurance premiums (when house is vacated and
unsold)
- On-going utility bills
- Lawn maintenance
- Transporting and/or kenneling of household pets
- New driver's license
- Automobile registration
- Telephone installation charges
- Special home wiring and utility hook-ups
- Installation of drapes
- Carpet clearing
- Cable and antennae hook-ups
- Any other relocation expenses not cover under Coventry's Relocation
Policy
Executives who are renting and do not own homes, the payment shall be $500.
Any unused portion of this benefit is yours to keep, it does not need to be
repaid to Coventry.
SALE OF FORMER RESIDENCE:
In order to assist an executive in the sale of his/her home when transferring at
the company's request, Coventry has retained a relocation management company to
provide the relocating executive an opportunity to dispose of their primary
residence at a realistic and competitive price. The executive may elect to enter
a home marketing assistance program or may, through his own efforts, put his
current home on the market for 60 days. At the end of the 60-day period or at
any time during the 60-day period, Coventry may take over all responsibility for
the costs, marketing and sale of the home (at the appraised fair market value)
through a relocation management company.
Self-Sale Program
Under this program, for 60 days, the executive will be selling his/her
home independently or through his/her selected real estate agent and closing the
home on his/her own. The executive will still be eligible for the 2% incentive
sales bonus and reimbursement of normal and customary home selling and closing
costs. Closing costs will be entirely non-deductible for federal tax purposes
and are considered taxable income to the executive; however, tax gross-ups will
not be provided by Coventry.
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Home Marketing Assistance Program
This program has been designed to maximize the possibility of finding a
buyer for the executive's home and offers the executive incentives to find a
buyer. All reimbursable expenses associated with the sale of the executive's
home are directly billed to Coventry by the third party homesale company.
The executive should not list their home for sale on their own or with
a real estate agent. To assist the executive in getting the maximum sales price
for their home, a home marketing assistance firm, paid for by Coventry, will
provide the executive marketing advice and assistance. The executive must accept
this assistance in order to be eligible for the third party buy-out option. The
marketing assistance firm will provide the executive the choice of two local,
reputable real estate companies. An agent from each of these companies will
contact the executive and create a specific marketing strategy. In order to be
eligible for the third party buy-out option, the executive must select one of
the two designated real estate agents to list his/her property. The selected
agent will assist the executive in setting a competitive price based on their
market analysis.
The executive should list their home within approximately five to seven
days after having been initiated into the home marketing process after
establishing the list price, the executive is to sign a listing agreement with a
real estate agency to place their home an the market. It is recommended that the
initial listing agreement be in effect for 90 days with a 30-day extension
option. The listing agreement must include an exclusion clause as follows:
This listing Agreement is subject to the following provisions:
It is understood and agreed that regardless of whether or not an offer is
presented by a ready, willing and able buyer;
1. No commission or compensation shall be earned by, or be due
and payable to, broker until sale of the property has been
consummated between seller and buyer, and deed delivered to
the buyer and the purchase price delivered to the seller;
2. The sellers reserve the right to sell the property at any time
to Coventry or its agent. Upon the execution by Coventry or
its agent and me (us) of an agreement of sale with respect to
the property, this Listing Agreement shall immediately
terminate without obligation on my (our) part or on the part
of any named prospective purchaser to either pay the
commission or to continue this listing."
This clause simply protects Coventry from paying a double commission on the same
property.
Fifteen days after the executive lists his/her home for sale in the home
marketing assistance program, the third party buy-out offer program is
initiated. The third party buy-out offer is based on the average of two
appraisals, if the difference between the two is five percent or less. If the
difference is more than five percent, a third appraisal will be ordered and the
average of the three appraisals will determine the third party offer price. The
executive will have sixty (60) days from the date the third party company makes
an offer to accept the third party buy-out offer.
During the sixty-day offer period, the executive may:
- Accept the third party buy-out offer any time after the thirtieth day of
the sixty-day offer period.
- Find a potential buyer who submits an acceptable offer resulting in an
amended value transaction and
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turn it over to the third part company for closing. The executive is to
contact his/her home marketing and third party coordinators immediately
and is not to accept the offer, a deposit or down payment or sign any
agreement. If the offer proves to be a bona fide offer, only contingent
upon financing, the executive's contract will be amended to the buyer's
sales price by the third party company. If this offer is ratified by the
third party-company, Coventry will pay the executive a 2% sales
incentive bonus based on the net sales price of the executive's home. As
an added incentive, Coventry will honor the executive's third party
offer if the executive finds a buyer willing to pay 97% of the appraised
value (based on the net sales price). The incentive bonuses are paid
through payroll and is taxable income to the executive with appropriate
taxes being withheld.
- Reject the third party buy-out offer at the end of the sixty-day offer
period and continue to market on his/her own. Coventry will reimburse
direct home selling costs, provided the closing occurs within 12 months
of the executive's transfer date. If the executive's home is not sold
within the 12 month period, no closing costs will be paid by Coventry on
behalf of the executive. All expenses through the final close date,
including carrying costs, upkeep and marketing costs are the executive's
responsibility. Closing cost reimbursements are considered as income and
will not be tax deductible on the executive's federal return or
GROSSED-UP BY COVENTRY FOR TAX PURPOSES. By rejecting the third party
buy-out offer, the executive waives all rights to a guaranteed selling
price from Coventry or its agent and is not eligible for reinstatement
in the program.
Covered/Reimbursable Homesale Expenses
The following expenses will be billed directly to Coventry for executives in the
Home Marketing Assistance Program and reimbursed to executives who choose the
Self-Sale Program:
- real estate brokerage commission not to exceed 6%, without prior
Coventry approval
- attorney's fees and title fees
- transfer and/or documentary taxes the seller is required to pay
- homeowner's warranty paid for by seller, up to $350
- inspection and recording fees normally charged to the seller
- other customary fees directly related to the sale but which have not
been incurred by choice by the seller, such as escrow fees and tax
service fees.
Non-Covered/Non-Reimbursable Expenses
The following expenses are not covered for executives in either program:
- discount points paid by the seller to assist the buyer in getting a
mortgage
- real estate and personal property taxes prepaid items such as interest,
insurance and annual assessment
- incentives such as points and selling agent bonuses
- all other expenses which are normally paid by the buyer in that area
- any and all expenses related to post-closing obligations, problems or
disputes raised by a subsequent purchaser or representative of a
purchaser including, but not limited to, matters relating to fraud,
liens, disclosure or title
15
<PAGE> 16
PURCHASE OF A NEW RESIDENCE:
Coventry will reimburse the executive for closing costs involved with the
purchase of a new residence if they own a home which is used as their primary
residence. The following are typical closing expenses:
- Attorney fees
- Title search/insurance
- Appraisal (if required)
- Survey (if required)
- Document preparation fees
- Recording fees - Credit report
- Loan origination and/or mortgage discount fees up to four (4) total
points
- Cost of other required services
EQUITY ADVANCE:
If the executive cannot sell his/her former residence before buying a new home,
the executive may receive an equity advance of up to 95% of the equity in their
home. This advance may only be initiated after the third party company receives
and ratifies the executive's executed Contract of Sale; documented proof of
need, a purchase contract and approval by Coventry are also required. If the
executive is not in need of an equity advance, the equity will be paid when the
executive vacates his/her home or signs the third party Contract of Sale,
whichever is later.
MORTGAGE SUPPLEMENTS:
After the executive purchases his/her new home, and if the executive's old home
has not been sold, Coventry will reimburse utilities, mortgage interest (not
principal), real estate taxes, dwelling insurance, Homeowner Association Fees
and condominium fees on a prorated basis for up to 30 days. Up to an additional
three (3) months of duplicate house payments may be allowed with the approval of
the Chairman of the Board. Appropriate documentation is required.
COST OF LEASE TERMINATION FOR RENTERS:
Renters who are unsuccessful in severing a lease without penalty will be
reimbursed up to four (4) months' rent for which the executive may be held
liable, including any prepayment penalty or deposit.
TAXES:
Most of the payments or reimbursements made to or on behalf of the executive
under this policy are considered "income" for federal and state income tax
purposes, and will be reported on the executive's W-2. Some of the payments may
be deducted by the executive and some may not. Coventry will provide detailed
information as to which items are deductible at the time that it provides the
W-2 form. For those items which are non-deductible, Coventry will provide
additional compensation in the executive's tax withholding account to cover any
added taxes incurred; except for the closing costs incurred as a result of the
executive electing the Self-Sale Program. This is called "grossing up" the
benefit, and means that the executive will be compensated for the additional
income taxes caused by the relocation benefits provided by Coventry.
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<PAGE> 17
Moving expenses reimbursed by Coventry which would have been deductible had the
executive directly paid for them, will be excluded from federal taxation and
will not be reported as taxable federal wages on the executive's W-2. Coventry
will prepare an executive moving expense form, IRS Form 47827 at the end of each
year in which an executive receives taxable reimbursements related to
relocation. This form provides a detailed breakdown of reimbursements or payment
for moving expenses to assist the executive in completing their tax returns.
VOLUNTARY TERMINATION BY EXECUTIVE:
In the event an executive receiving benefits under this policy voluntarily
terminates his/her employment within one year of the report date at his/her new
assignment, those fees, expenses and other monetary benefits the executive has
received under the policy must be reimbursed to Coventry in accordance with the
schedule provided below. The executive will be required to sign a reimbursement
agreement, evidencing such obligation.
<TABLE>
<CAPTION>
Length of Service from Report Amount
----------------------------- ------
Date
----
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
17
<PAGE> 18
EXECUTIVE REIMBURSEMENT AGREEMENT
In order to receive relocation benefits, the Executive Reimbursement Agreement
must be signed and returned to Human Resources prior to commencement of benefits
application.
Executive Name: Allen F. Wise
Social Security Number:
------------------------------------
Effective Date of Job Assignment: October 7, 1996
Department: President's Department
This Agreement is effective as of date signed. It is between the Company
("Employer") and you,
Allen F. Wise. ("EXECUTIVE")
1. As of the effective date of this Agreement, Employer has or will spend a
sum of money for the purpose of reassigning Executive and Executive's
eligible household members to Employer's new work location.
2. Prior to the effective date of this Agreement, Executive was given a
Relocation Guide, which is incorporated herein by reference. This Guide
sets forth those items which Employer will either pay on behalf of
Executive or reimbursement to Executive, including, but not limited to,
those expenses associated with the sale and purchase of primary residence,
househunting trips, mortgage subsidy assistance, renter's expenses, final
move travel expenses, movement of household goods, temporary living
expenses, automobile expenses, miscellaneous moving allowance and tax
treatment.
3. In consideration of employer spending this money on the above items,
Executive agrees to remain employed with Employer for at least one (1) year
from the date the Executive is assigned to commence working in the new work
location.
4. Since both parties agree that Executive's employment with Employer is one
of at will and is not bound by any written or formal agreement, it is
agreed that should the Executive voluntarily terminate employment with
Employer after receiving relocation benefits, as outlined in this
relocation guide, the executive agrees to repay reimbursements in
accordance with the schedule as indicated in this Agreement.
Should the executive voluntarily resign (or involuntarily be terminated due to
gross misconduct) prior to twelve (12) months form the date executive is
assigned to commence working in the new location, Executive will reimburse
Employer for those expenses incurred by Employer as set forth in the Company
Relocation Guide according to the following schedule:
18
<PAGE> 19
<TABLE>
<CAPTION>
Length of Service from Report Amount
----------------------------- ------
Date
----
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
Further, I confirm that neither I nor any other household member is receiving
relocation benefits benefits any other company or source. I acknowledge that
relocation benefits paid by the Company would be subject to reduction, if
benefits were also paid by another source.
/s/ Allen F. Wise September 18, 1996
- ---------------------------------------------- ------------------
/s/ John H. Austin, M.D. September 23, 1996
- ---------------------------------------------- ------------------
19
<PAGE> 1
Exhibit 10(v)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the _____day of
___________, 1996, by and between Dale B. Wolf ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive desires to enter into an employment relationship
with Employer and Employer desires to employ Executive; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. On the Date of Employment (as defined in Section 3
below), Executive shall be engaged by Employer as its Senior Vice President and
Chief Financial Officer. Executive hereby agrees to such employment on and after
the Date of Employment under the terms and conditions hereinafter set forth.
2. DUTIES. As Senior Vice President and Chief Financial Officer,
Executive shall report to the President and Chief Executive Officer of Employer
and shall be responsible for broad executive responsibilities in both the
financial and senior general management areas, including, but not limited to,
the establishment and implementation of policies and directives, formulation of
long range plans, goals and objectives, effective management of employees, and
such other powers and duties normally associated with such position or as may be
delegated or assigned to Executive by Employer's President and Chief Executive
Officer. During the term of this Agreement, Executive shall also serve without
additional compensation in such other offices of the Employer or its
subsidiaries or affiliates to which he may be elected or appointed by the Board
of Directors of Employer or its subsidiaries or affiliates, respectively.
3. DATE OF EMPLOYMENT. Executive's employment shall commence on
December 9, 1996 (the "Date of Employment").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Date of Employment. If
1
<PAGE> 2
at the end of the initial term a new employment contract is not executed, the
term of this Agreement shall continue on a year-to-year basis in the absence of
notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of Two Hundred Twenty-five
Thousand Dollars ($225,000), annually, to be reviewed on an annual basis based
upon the performance of Executive. The Base Salary shall be paid to Executive in
equal semi-monthly payments in accordance with Employer's normal payroll
policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
EMPLOYER STOCK OPTIONS: Executive will be granted a nonqualified stock
option to purchase 100,000 shares of Common Stock of Employer at an exercise
price per share equal to the closing price per share of the Common Stock of
Employer as reported on the Nasdaq National Market on either the date Executive
accepts employment or the Date of Employment, whichever date has the lower
closing price. The option will vest at a rate of one-fourth of the shares per
year over a four-year vesting period beginning on the date of grant, or in the
event substantially all of the capital stock or assets of Employer are sold or
transferred or Employer is merged into or consolidated with another unaffiliated
entity, then the option will become fully vested on the date of closing. The
option will expire on the tenth anniversary of the Date of Employment unless
sooner terminated by Executive terminating his employment hereunder. The option
shall be granted under and in accordance with the terms and conditions of 1993
Stock Option Plan, as amended, and a letter agreement between Executive and
Employer dated the Date of Employment or Executive's acceptance date, as the
case may be.
SIGNING BONUS: Executive shall receive a signing bonus of Twenty-five
Thousand Dollars ($25,000), to be payable on January 15, 1997.
OTHER BONUS COMPENSATION: Executive shall be eligible for an annual
bonus ("Bonus") potential of 50% of Base Compensation, which shall be determined
as follows: (i) up to 50% shall be based upon achievement of budget and other
operational performance factors, and (ii) all or any part of the remaining 50%
shall be granted in the sole discretion of the Compensation and Benefits
Committee (the "Committee") of the Board of Directors of Employer. Executive's
bonus and performance factors shall be determined on an annual basis by the
Committee.
DISCRETIONARY EXPENSE ALLOWANCE: Executive shall be entitled to a
discretionary car or other expense allowance of $600.00 per month.
OTHER BENEFITS: Executive will be eligible for participation in any
employee benefit programs available to officers of Employer from time to time as
provided in Section 15 below.
2
<PAGE> 3
7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.
Executive shall also be reimbursed for expenses associated with the
relocation of Executive to Employer's designated location. The extent and amount
of such expense shall be consistent with the Executive Relocation Policy
attached as Exhibit "A". In addition, Employer will be flexible in allowing for
duplicate living expenses for a period not to exceed six months from Date of
Employment to allow sufficient time for Executive to relocate his family while
he reports to Employer's headquarters in Nashville, Tennessee.
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 13(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated (i) by Employer for any
reason other than Good Cause (as defined in Section 24 below), or (ii) by
Executive for Good Reason (as defined in Section 24 below), the following
provisions will apply:
(a) Employer shall during the Severance Period (as defined in
Section 24 below), continue to pay Executive an amount equal
to:
(i) Executive's Base Salary at the time of termination of
employment; and
(ii) That portion of Executive's Bonus based on achievement
of budget and other operational performance
factors, if the criteria is met.
Such amount will be paid during the Severance Period
in monthly or other installments, similar to those
being received by Executive at the date of
termination of employment, and will commence as soon
as practicable following the date of termination of
employment.
3
<PAGE> 4
(b) During the Severance Period Executive and his spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 24 below), maintained by Employer in which
he or his spouse or family were participating immediately
prior to the date of his termination as if he continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide substantially
identical benefits to the extent possible. If, however,
Executive obtains employment with another employer during the
Severance Period, such coverage shall be provided until the
earlier of: (i) the end of the Severance Period or (ii) the
date on which the Executive and his spouse and family can be
covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(c) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods he would have earned had his employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(d) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Section 9(a) and (b) hereof is contingent upon
Executive's compliance with Section 13 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive for other than Good Reason, the Employer shall pay the
Executive only his Base Salary due through the date on which his employment is
terminated at the rate in effect at the time of notice of termination. The
Employer shall then have no further obligation to Executive under this
Agreement, except for the payout of benefits accrued under any Employee Benefit
Plans or other employee benefits.
11. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or his spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or his spouse or any debt or
obligation of Executive or his spouse owing to Employer.
(b) With respect to Section 9, payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be
reduced by any amount Executive
4
<PAGE> 5
may earn or receive from employment with another employer,
except as expressly provided in Section 9(b).
12. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving
spouse. On the death of the survivor of Executive and his
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or his spouse
immediately prior to the date of his death to the extent
possible.
Any benefits payable under this Section 12 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
13. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time he is employed by the Employer or
following termination of his employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of his duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. During the term of employment provided
hereunder and for a period of one year after termination of
employment or during the Severance Period, if longer,
Executive will not directly or indirectly own, manage,
operate, control or participate in the ownership, management,
operation or control of, or be connected as an officer,
employee, partner, director or otherwise with, or any have
financial interest in, or aid or assist anyone else in the
conduct of, any business which is in competition with any
business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof. In the event Executive
enters into any of the foregoing arrangements in competition
5
<PAGE> 6
with Employer or any Affiliate of Employer, Executive shall
forfeit all rights to payments and other benefits under
Section 9, above. Such forfeiture shall be Employer's sole
remedy against Executive for violation of this Section 13(b).
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of one year after termination of
employment or during the Severance Period, if longer,
Executive will not (i) directly or indirectly solicit business
which could reasonably be expected to conflict with the
interest of Employer or any Affiliate of Employer from any
entity, organization or person which has contracted with the
Employer or any Affiliate of Employer, which has been doing
business with the Employer or any Affiliate of Employer, from
which the Employer or any Affiliate of Employer was soliciting
business at the time of the termination of employment or from
which Executive knew or had reason to know that Employer or
any Affiliate of Employer was going to solicit business at the
time of termination of employment, or (ii) employ, solicit for
employment, or advise or recommend to any other persons that
they employ or solicit for employment, any employee of the
Employer or any Affiliate of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment or during the Severance Period, if longer,
cooperate with the Employer in concluding any matters in which
Executive was involved during the term of his employment and
will make himself available for consultation with the Employer
on other matters otherwise of interest to the Employer. The
Employer agrees that such requests shall be reasonable in
number and will consider Executive's time required for other
employment and/or employment search. In the event of voluntary
termination by Executive other than for Good Reason, Employer
agrees to pay Executive a reasonable fee for any such
consultation services requested by Employer; provided,
however, Executive agrees to cooperate with Employer, at no
cost to Employer, in concluding any matters in which Executive
was involved during the term of his employment.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 13 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 13 shall not
terminate upon Executive's termination of his employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
6
<PAGE> 7
14. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
15. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
16. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
17. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
18. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
19. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
20. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
7
<PAGE> 8
21. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
22. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
23. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
24. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Board of Directors which are demonstrably
injurious to Employer;
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i) and (ii) above), or materially fails
to satisfy the conditions and requirements of his
employment with Employer, and such breach or failure
by its nature is incapable of being cured, or such
breach or failure remains uncured for more than 30
days following receipt by Executive of written notice
from Employer specifying the nature of the breach or
failure and demanding the cure thereof. For purposes
of this paragraph (iii), inattention by Executive to
his duties shall be deemed a breach or failure of
cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
8
<PAGE> 9
(c) "Good Reason" shall exist if there is a significant change in
the nature or the scope of Executive's position and authority
as a result of a change in control of Employer, which shall
include the following occurrences:
(i) the acquisition of at least a majority of the
outstanding shares of Common Stock (or securities
convertible into Common Stock) of Employer by any
person, entity or group (as used in Section 13(d)(3)
and Rule 13d-5(b)(1) under the Securities Exchange
Act of 1934, as amended);
(ii) the merger or consolidation of Employer with or into
another corporation or other entity, or any share
exchange or similar transaction involving Employer
and another corporation or other entity, if as a
result of such merger, consolidation, share exchange
or other transaction, the persons who owned at least
a majority of the Common Stock of Employer prior to
the consummation of such transaction do not own at
least a majority of the Common Stock of the surviving
entity after the consummation of such transaction;
(iii) the sale of all, or substantially all, of the assets
of Employer; or
(iv) any change in the composition of the Board of
Directors of Employer, as a result of a contested
election such that persons who at the beginning of
any period of up to two years constituted at least a
majority of the Board of Directors of Employer, or
persons whose nomination was approved by such
majority, cease to constitute at least a majority of
the Board of Directors of Employer at the end of such
period.
(d) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that follows the number of months remaining
in the initial term of this Agreement, if any, plus 12 months
thereafter.
(e) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
25. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
26. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event
9
<PAGE> 10
that Section 13(b) is determined by a court of competent jurisdiction to be
invalid due to overbreadth, such Section 13(b) shall be constructed as narrowly
as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
--------------------------------------
Dale B. Wolf
COVENTRY CORPORATION
By:
--------------------------------------
Allen F. Wise
President and Chief Executive Officer
10
<PAGE> 11
EXHIBIT "A"
COVENTRY CORPORATION
EXECUTIVE RELOCATION POLICY
PURPOSE:
This policy outlines the nature of financial assistance provided to executives
who are relocating at the request and for the benefit of the Company.
ADMINISTRATION:
Relocation under this policy will be coordinated through Human Resources. Any
exceptions to this policy must receive prior approval by the President of the
Company.
GENERAL PROVISIONS:
1) Eligibility - Subject to the limitations and exclusions set out herein,
all executives who relocate their residence at the request of the
Company are eligible for the benefits described in this policy. The new
assignment must result in at least a fifty (50) mile increase in the
distance from the executive's former residence to his/her business
location for moving expenses to be paid.
2) Benefit Period - Eligible executives will be allowed six (6) months
from the effective date of their transfer to complete and apply for
relocation reimbursement.
3) Eligible Expenses - Only the necessary and reasonable expenses incurred
as a direct result of the move which are covered by this policy are
eligible for payment or reimbursement. 'These expenses typically relate
to:
- House Hunting
- Temporary Living
- Travel to New Location
- Movement of Household Goods
- Miscellaneous Moving Allowance
- Sale of Former Residence
- Purchase of a New Residence
- Equity Advance
- Mortgage Supplement
- Taxes
HOUSE HUNTING TRIP:
One house hunting trip of two to three days for executive and spouse is
provided. A second and third trip may be allowed with the approval of the
President of the Company. Covered expenses include:
- Transportation (by air, coach rate & car rental; by car, prevailing
mileage reimbursement rate)
- Meals
- Lodging
- Reasonable incidental expenses, such as child care
11
<PAGE> 12
TEMPORARY LIVING FOR EXECUTIVE PRIOR TO MOVE:
If temporary living expenses are needed by the executive prior to the move of
family and/or household goods to the new work location, Coventry will provide
the following for a period not to exceed sixty (60) days:
- Temporary living accommodations
- Transportation home every other weekend
- $50 per week for incidental expenses
TRAVEL TO NEW WORK LOCATION:
Coventry will reimburse the cost of transportation by automobile (at the
prevailing mileage reimbursement rate) or air (at coach rates) for the executive
and family, including lodging, meals, and tolls while in transit between old and
new locations via the most direct route with no extra stop oversee.
TEMPORARY LIVING FOR FAMILY AT TIME OF MOVE:
If it is necessary for the family to set up temporary living quarters in the new
work location until the household goods arrive, the policy provides for the
reimbursement of meals and lodging for up to 30 days. This allowance is intended
to cover situations resulting from a delay in delivery of the moving company or
from a delay in the completion or availability of quarters at the new location.
MOVEMENT OF HOUSEHOLD GOODS:
The following items/services will be directly paid by Coventry for the movement
of household goods:
- Packing, crating, shipping, unpacking, insurance, storage and
removal of household goods and belongings.
- Cost of disconnecting and reconnecting washer, dryer, refrigerator,
freezer and stove.
- Transportation of two (2) automobiles:
- If distance from former location to new location is less than
500 miles, reimbursement will be made for the driving
of one vehicle at current prevailing reimbursement rate,
and the shipping of the other vehicle on a common carrier.
- If distance is greater than 500 miles, both vehicles may be
transported via common carrier.
- Expenses associated with the rental of a trailer hitch and any extra
tolls associated with towing a boat, camper or trailer.
- Storage of household goods at the carrier's warehouse for a period
of 30 days in those cases where occupancy of the new residence has
been delayed.
NOTE: Recreational vehicles such as snowmobiles, motorcycles and trail bikes,
and motorized equipment such as lawn mowers, snowblowers or lawn equipment are
authorized for transport in the van as long as the fuel and oil have been
drained.
The following items/services are not covered:
- Household cleaning services.
- Removal or installation of drapes, wall-to-wall carpeting, or
related items.
- Pick-up and delivery charges at locations other than the primary
residence.
- The disassembly and assembly of fixtures and utilities such as wood
stoves, water softeners, swing sets, utility sheds, above ground
pool, spas, etc.
- Transporting high weight low value items such as firewood, coal,
building material, etc.
- Transporting perishable foods, liquor or plants.
- Boarding or transporting household pets.
- Transporting combustible items such as ammunition, oil-based paints,
kerosene and other flammable
12
<PAGE> 13
liquids and fuel.
- Transporting boats, farm animals, spas and other unusual items.
- Transporting non-operable automobiles.
- Transporting articles of great monetary or sentimental value such as
jewelry, furs, stamp and coin collections, stocks/bonds, wills,
photos or other important documents.
MISCELLANEOUS MOVING ALLOWANCE:
Coventry will provide an additional one month's salary to executives who are
homeowners to assist with incidental expenses associated with moving. Such
expenses might include:
- Increased homeowner's insurance premiums (when house is vacated and
unsold)
- On-going utility bills
- Lawn maintenance
- Transporting and/or kenneling of household pets
- New driver's license
- Automobile registration
- Telephone installation charges
- Special home wiring and utility hook-ups
- Installation of drapes
- Carpet clearing
- Cable and antennae hook-ups
- Any other relocation expenses not covered under Coventry's
Relocation Policy
For executives who are renting and do not own homes, the payment will be $500.
Any unused portion of this benefit is yours to keep, it does not need to be
repaid to Coventry.
SALE OF FORMER RESIDENCE:
In order to assist an executive in the sale of his/her home when transferring at
the company's request, Coventry has retained a relocation management company to
provide the relocating executive an opportunity to dispose of their primary
residence at a realistic and competitive price. The executive may elect to enter
a home marketing assistance program or may, through his own efforts, put his
current home on the market for 60 days. At the end of the 60-day period Coventry
will, or at any time during the 60-day period Coventry may take over all
responsibility for the costs, marketing and sale of the home (at the appraised
fair market value) through a relocation management company.
Self-Sale Program
Under this program, for 60 days, the executive will be selling his/her
home independently or through his/her selected real estate agent and closing the
home on his/her own. The executive will still be eligible for the 2% incentive
sales bonus and reimbursement of normal and customary home selling and closing
costs. Closing costs will be entirely non-deductible for federal tax purposes
and are considered taxable income to the executive. Tax gross-ups will not be
provided by Coventry.
Home Marketing Assistance Program
This program has been designed to maximize the possibility of finding a
buyer for the executive's home and offers the executive incentives to find a
buyer. All reimbursable expenses associated with the sale of the executive's
home are directly billed to Coventry by the third party homesale company.
13
<PAGE> 14
The executive should not list their home for sale on their own or with
a real estate agent. To assist the executive in getting the maximum sales price
for their home, a home marketing assistance firm, paid for by Coventry, will
provide the executive marketing advice and assistance. The executive must accept
this assistance in order to be eligible for the third party buy-out option. The
marketing assistance firm will provide the executive the choice of two local,
reputable real estate companies. An agent from each of these companies will
contact the executive and create a specific marketing strategy. In order to be
eligible for the third party buy-out option, the executive must select one of
the two designated real estate agents to list his/her property. The selected
agent will assist the executive in setting a competitive price based on their
market analysis.
The executive should list their home within approximately five to seven
days after having been initiated into the home marketing process after
establishing the list price, the executive is to sign a listing agreement with a
real estate agency to place their home on the market. It is recommended that the
initial listing agreement be in effect for 90 days with a 30-day extension
option. The listing agreement must include an exclusion clause as follows:
"This listing Agreement is subject to the following provisions:
It is understood and agreed that regardless of whether or not an offer is
presented by a ready, willing and able buyer:
1. No commission or compensation shall be earned by, or be due and
payable to, broker until sale of the property has been consummated
between seller and buyer, and deed delivered to the buyer and the
purchase price delivered to the seller;
2. The sellers reserve the right to sell the property at any time to
Coventry or its agent. Upon the execution by Coventry or its agent
and me (us) of an agreement of sale with respect to the property,
this Listing Agreement shall immediately terminate without
obligation on my (our) part or on the part of any named prospective
purchaser to either pay the commission or to continue this listing."
This clause simply protects Coventry from paying a double commission on the same
property.
Fifteen days after the executive lists his/her home for sale in the home
marketing assistance program, the third party buy-out offer program is
initiated. The third party buy-out offer is based on the average of two
appraisals, if the difference between the two is five percent or less. If the
difference is more than five percent, a third appraisal will be ordered and the
average of the three appraisals will determine the third party offer price. The
executive will have sixty (60) days from the date the third party company makes
an offer to accept the third party buy-out offer.
During the sixty-day offer period, the executive may:
- Accept the third party buy-out offer at any time after the thirtieth
day of the sixty-day offer period.
- Find a potential buyer who submits an acceptable offer resulting in
an amended value transaction and turn it over to the third party
company for closing. The executive is to contact his/her home
marketing and third party coordinators immediately and is not to
accept the offer, a deposit or down payment or sign any agreement.
If the offer proves to be a bona fide offer, only contingent upon
financing, the executive's contract will be amended to the buyer's
sales price by the third party company. If this offer is ratified by
the third party company, Coventry will pay the executive a 2% sales
incentive bonus based on the net sales price of the executive's
home. As an added incentive, Coventry will honor the executive's
third party offer if the executive finds a buyer willing to pay 97%
of the appraised value (based on the net sales price). The incentive
bonuses are paid through payroll and is taxable income to the
executive with appropriate taxes being withheld.
- Reject the third party buy-out offer at the end of the sixty-day
offer period and continue to market on his/her own. Coventry will
reimburse direct home selling costs, provided the closing occurs
within 12 months of the executive's transfer date. If the
executive's home is not sold within the 12 month period,
14
<PAGE> 15
no closing costs will be paid by Coventry on behalf of the
executive. All expenses through the final close date, including
carrying costs, upkeep and marketing costs are the executive's
responsibility. Closing cost reimbursements are considered as income
and will not be tax deductible on the executive's federal return or
GROSSED-UP BY COVENTRY FOR TAX PURPOSES. By rejecting the third
party buy-out offer, the executive waives all rights to a guaranteed
selling price from Coventry or its agent and is not eligible for
reinstatement in the program.
Covered/Reimbursable Homesale Expenses
The following expenses will be billed directly to Coventry for executives in the
Home Marketing Assistance Program and reimbursed to executives who choose the
Self-Sale Program:
- Real estate brokerage commission not to exceed 6%, without prior
Coventry approval
- Attorney's fees and title fees
- Transfer and/or documentary taxes the seller is required to pay
- Homeowner's warranty paid for by seller, up to $350
- Inspection and recording fees normally charged to the seller
- Other customary fees directly related to the sale but which have not
been incurred by choice by the seller, such as escrow fees and tax
service fees.
Non-Covered/Non-Reimbursable Expenses
The following expenses are not covered for executives in either program:
- Discount points paid by the seller to assist the buyer in getting a
mortgage
- Real estate and personal property taxes prepaid items such as
interest, insurance and annual assessment
- Incentives such as points and selling agent bonuses
- All other expenses which are normally paid by the buyer in that area
- Any and all expenses related to post-closing obligations, problems
or disputes raised by a subsequent purchaser or representative of a
purchaser including, but not limited to, matters relating to fraud,
liens, disclosure or title
15
<PAGE> 16
PURCHASE OF A NEW RESIDENCE
Coventry will reimburse the executive for closing costs involved with the
purchase of a new residence if they own a home which is used as their primary
residence. The following are typical closing expenses:
- Attorney fees
- Title search/insurance
- Appraisal (if required)
- Survey (if required)
- Document preparation fees
- Recording fees
- Credit report
- Loan origination and/or mortgage discount fees up to four (4) total
points
- Cost of other required services
EQUITY ADVANCE
If the executive cannot sell his/her former residence before buying a new home,
the executive may receive an equity advance of up to 95% of the equity in their
home. This advance may only be initiated after the third party company receives
and ratifies the executive's executed Contract of Sale; documented proof of
need, a purchase contract and approval by Coventry are also required. If the
executive is not in need of an equity advance, the equity will be paid when the
executive vacates his/her home or signs the third party Contract of Sale,
whichever is later.
MORTGAGE SUPPLEMENTS
After the executive purchases his/her new home, and if the executive's old home
has not been sold, Coventry will reimburse utilities, mortgage interest (not
principal), real estate taxes, dwelling insurance, Homeowner Association Fees
and condominium fees on a prorated basis for up to 30 days. Up to an additional
three (3) months of duplicate house payments may be allowed with the approval of
the President of the Company. Appropriate documentation is required.
COST OF LEASE TERMINATION FOR RENTERS
Renters who are unsuccessful in severing a lease without penalty will be
reimbursed up to four (4) months' rent for which the executive may be held
liable, including any prepayment penalty or deposit.
TAXES
Most of the payments or reimbursements made to or on behalf of the executive
under this policy are considered "income" for federal and state income tax
purposes, and will be reported on the executive's W-2. Some of the payments may
be deducted by the executive and some may not. Coventry will provide detailed
information as to which items are deductible at the time that it provides the
W-2 form. For those items which are non-deductible, Coventry will provide
additional compensation in the executive's tax withholding account to cover any
added taxes incurred, except for the closing costs incurred as a result of the
executive electing the Self-Sale Program and miscellaneous expenses. This is
called "grossing up" the benefit, and means that the executive will be
compensated for the additional income taxes caused by the relocation benefits
provided by Coventry.
Moving expenses reimbursed by Coventry which would have been deductible had the
executive directly paid for them, will be excluded from federal taxation and
will not be reported as taxable federal wages on the executive's W-2.
16
<PAGE> 17
Coventry will prepare an executive moving expense form, IRS Form 47827 at the
end of each year in which an executive receives taxable reimbursements related
to relocation. This form provides a detailed breakdown of reimbursements or
payment for moving expenses to assist the executive in completing his/her tax
return.
VOLUNTARY TERMINATION BY EXECUTIVE
In the event an executive receiving benefits under this policy voluntarily
terminates his/her employment within one year of the report date at his/her new
assignment, those fees, expenses and other monetary benefits the executive has
received under the policy must be reimbursed to Coventry in accordance with the
schedule provided below. The executive will be required to sign a reimbursement
agreement, evidencing such obligation.
<TABLE>
<CAPTION>
Length of Service from Report Date Amount
- ---------------------------------- ------
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
17
<PAGE> 18
EXECUTIVE REIMBURSEMENT AGREEMENT
In order to receive relocation benefits, the Executive Reimbursement Agreement
must be signed and returned to Human Resources prior to commencement of benefits
application.
Executive Name: Dale B. Wolf
Social Security Number:
-------------------------------
Effective Date of Job Assignment:
-------------------------------
Department: Finance Department
This Agreement is effective as of date signed. It is between the Company
("Employer") and
Dale B. Wolf
1. As of the effective date of this Agreement, Employer has or will spend
a sum of money for the purpose of reassigning Executive and Executive's
eligible household members to Employer's new work location.
2. Prior to the effective date of this Agreement, Executive was given a
Relocation Guide, which is incorporated herein by reference. This Guide
sets forth those items which Employer will either pay on behalf of
Executive or reimbursement to Executive, including, but not limited to,
those expenses associated with the sale and purchase of a primary
residence, househunting trips, mortgage subsidy assistance, renter's
expenses, final move travel expenses, movement of household goods,
temporary living expenses, automobile expenses, miscellaneous moving
allowance and tax treatment.
3. In consideration of Employer spending this money on the above items,
Executive agrees to remain employed with Employer for at least one (1)
year from the date the Executive is assigned to commence working in the
new work location.
Should the Executive voluntarily resign (or involuntarily be terminated due to
gross misconduct) prior to twelve (12) months from the date executive is
assigned to commence working in the new location, Executive will reimburse
Employer for those expenses incurred by Employer as set forth in the Company's
Executive Relocation Policy according to the schedule, set forth below:
<TABLE>
<CAPTION>
Length of Service from Report Date Amount
- ---------------------------------- ------
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
18
<PAGE> 19
Further, I confirm that neither I nor any other household member is receiving
relocation benefits from any other company or source. I acknowledge that
relocation benefits paid by the Company would be subject to reduction, if
benefits were also paid by another source.
- ----------------------------------------------- --------------------
Dale B. Wolf Date
- ----------------------------------------------- --------------------
Allen F. Wise, Date
President and Chief Executive Officer
Coventry Corporation
19
<PAGE> 1
Exhibit 10(xx)
AMENDMENT NUMBER 3 TO THE SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
Amendment Number 3 dated as of September 30, 1996 among COVENTRY
CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof
(the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the
"Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Agent entered into a
Second Amended and Restated Credit Agreement dated as of November 20, 1992, and
amended by Amendment Number 1, dated as of June 30, 1995, and Amendment Number
2, dated as of March 14, 1996 (as so amended, the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement
as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
shall have the meaning assigned to such term in the Credit Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof refer
to the Credit Agreement as amended hereby.
SECTION 2. Amendment of Section 1.01 of the Credit Agreement. (a)
Section 1.01 of the Credit Agreement is amended by adding, in appropriate
alphabetical order, the following new definitions:
"Champion Dental Sale" means the sale of Champion Dental Services
Inc., a Subsidiary of GHP.
"Purchase Adjustment" means a downward adjustment in the purchase
price of an Acquisition made during fiscal year 1996 pursuant to the
indemnification or
<PAGE> 2
other provisions of the purchase agreement for, or any other transaction
pursuant to which a member of the Coventry Group receives a payment in cash
in respect of, such an Acquisition from or for the account of the party
from which such Acquisition was made.
(b) The following definitions in Section 1.01 of the Credit
Agreement are amended in full to read as follows:
"Commitment Reduction Date" means February 18, 1997 and each
three-month anniversary of such date to and including August 18, 1999 or,
if any such date is not a Euro-Dollar Business Day, the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which such Commitment Reduction Date shall be
the next preceding Euro-Dollar Business Day.
"Reduction Percentage" means, for purposes of determining the
amount of any mandatory reduction of the Commitments pursuant to Section
2.07(c), (i) in the case of any such reduction in respect of an Asset Sale
(other than the Champion Dental Sale or a Purchase Adjustment) or the
issuance of any Subject Debt, 100% and (ii) in the case of any such
reduction in respect of the issuance of Equity Securities or in respect of
a Purchase Adjustment, 50%.
"Reduction Transaction" means (i) any Asset Sale consummated after
the Effective Date, (ii) the incurrence after the Effective Date of any
Subject Debt by the Borrower, (iii) the issuance after the Effective Date
of any Equity Securities by the Borrower or any of its Subsidiaries (other
than (A) Equity Securities which constitute Debt of the Borrower or any of
its Subsidiaries, (B) Equity Securities issued to the Borrower or any of
its Subsidiaries, (C) Equity Securities issued pursuant to employee stock
option plans, employee stock ownership plans or other employee benefit
arrangements in the ordinary course of business and (D) Equity Securities
issued upon exercise of common stock warrants outstanding on the Effective
Date) or (iv) any Purchase Adjustment; provided that the Champion Dental
Sale shall not be a Reduction Transaction. The description of any
transaction as falling within the above definition does not affect any
limitation on such transaction imposed by Article V of this Agreement.
SECTION 3. Amendment of Section 2.05(b) of the Credit Agreement.
Section 2.05(b) of the Credit Agreement
2
<PAGE> 3
is amended by deleting the definition of "Euro-Dollar Margin" and inserting, in
lieu thereof, the following:
"Euro-Dollar Margin" means (x) on and after September 30, 1996 to
and including the Reset Date, 2.00% and (y) after the Reset Date, 1.50%.
"Reset Date" means the first date, if any, subsequent to September
30, 1996 on which the Borrower delivers a certificate pursuant to Section
5.01(c) setting forth a ratio of Adjusted Cash Flow to Fixed Charges for
the fiscal quarter ended at the date of the accompanying financial
statements of 2.00 to 1.00 or greater.
SECTION 4. Amendment of Section 2.08 of the Credit Agreement. (a)
Section 2.08(b) of the Credit Agreement is amended in full to read as follows:
(b) The aggregate Commitments shall be reduced (and the Commitment
of each Bank shall be correspondingly reduced on a pro rata basis) on each
Commitment Reduction Date by the amount set forth below for such Commitment
Reduction Date:
<TABLE>
<CAPTION>
Commitment Reduction Date Amount
------------------------- ------
<S> <C>
February 18, 1997 $ 2,000,000
May 18, 1997 $ 3,000,000
August 18, 1997 $12,000,000
November 18, 1997 $10,000,000
February 18, 1998 $10,500,000
May 18, 1998 $10,500,000
August 18, 1998 $10,500,000
November 18, 1998 $10,500,000
February 18, 1999 $10,500,000
May 18, 1999 $10,500,000
August 18, 1999 $10,000,000
</TABLE>
Each reduction of the Commitments pursuant to Section 2.07 or subsection
(c) below shall be applied to ratably reduce the required reductions of
Commitments under this subsection for each subsequent Commitment Reduction
Date.
(b) The following sentence is added to Section
2.08(d) as the second sentence thereof:
In addition, (i) on the date of any reduction of the Commitments pursuant
to subsection (c) of this Section 2.08 on account of a Purchase Adjustment,
the Borrower
3
<PAGE> 4
shall repay an aggregate principal amount of the Loans equal to the excess
of the Net Cash Proceeds of such Purchase Adjustment over the amount of any
repayment required in connection therewith pursuant to the preceding
sentence and (ii) on the date the Commitments would have been so reduced on
account of the Champion Dental Sale but for the proviso to the definition
of Reduction Transaction (or as soon thereafter as the regulatory approval
described below shall be obtained), the Borrower shall repay an aggregate
principal amount of the Loans equal to the Net Cash Proceeds of the
Champion Dental Sale, if and to the extent that any necessary approval of
the Missouri Department of Insurance for the remission of such Net Cash
Proceeds to the Borrower shall have been obtained (the Borrower hereby
agreeing to use its best efforts to obtain any such necessary approval).
SECTION 5. Amendment of Section 4.04(d) of the Credit Agreement.
Section 4.04(d) of the Credit Agreement is amended in full to read as follows:
(d) Except as disclosed in writing to the Banks prior to September
30, 1996, since March 31, 1994 there has been no material adverse change in
the business, financial position, results of operation or prospects of the
Coventry Group, considered as a whole.
SECTION 6. Amendment of Section 5.17 of the Credit Agreement.
Section 5.17 of the Credit Agreement is amended in full to read as follows:
The ratio of Adjusted Cash Flow to Fixed Charges will not, for any
period of four consecutive fiscal quarters ended on or after June 30, 1996
(or, in the case of any fiscal quarter ended prior to June 30, 1997, for
such fiscal quarter), be less than the ratio set forth below opposite such
period in which such four-quarter period (or such quarter) ends:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
On June 30, 1996 Waived
On September 30, 1996 0.80 to 1.00
From and including
December 31, 1996
to and including
March 31, 1997 1.35 to 1.00
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
On June 30, 1997 1.50 to 1.00
On September 30, 1997 1.75 to 1.00
On December 31, 1997 2.00 to 1.00
On or after March 31, 1998 2.50 to 1.00
</TABLE>
SECTION 7. Application of Reduction of Commitments. The parties
hereby agree that (i) the notice of reduction of the Commitments contemplated by
clause (iv) of Section 11 shall be effective immediately upon receipt by the
Agent, the requirement of three Domestic Business Days' prior notice being
hereby waived solely on this occasion, and (ii) notwithstanding the second
sentence of Section 2.08(b), the amount of such reduction shall be applied to
scheduled reductions of the Commitments so as to result in the revised reduction
schedule contemplated by Section 4(b) of this Amendment.
SECTION 8. Waiver for Champion Dental Sale. The Banks hereby
waive any noncompliance with Section 5.04(d) or 5.12 of the Credit
Agreement arising solely by reason of the Champion Dental Sale. Upon
consummation of the Champion Dental Sale, the second sentence of Section
5.04(d) of the agreement shall be deleted.
SECTION 9. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not constitute an amendment of the surviving terms
and conditions of the Credit Agreement and all such terms and conditions shall
remain in full force and effect and are hereby ratified and confirmed in all
respects.
SECTION 10. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 11. Counterparts; Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of the date hereof upon (i)
receipt by the Agent of duly executed counterparts hereof signed by the Borrower
and the Required Banks (or, in the case of any party as to which an executed
counterpart shall not have been received, the Agent shall have received
telegraphic, telex or other written confirmation from such party of execution of
a counterpart hereof by such party), (ii) receipt by the Agent, for the
5
<PAGE> 6
account of each Bank, of a fee in an amount equal to 0.25% of such Bank's
Commitment as in effect upon the effectiveness hereof, (iii) receipt by the
Agent of payment of all accrued expenses payable by the Borrower pursuant to
Section 9.03 of the Credit Agreement, and (iv) receipt by the Agent of notice
from the Borrower of reduction of the Commitments pursuant to Section 2.07 of
the Agreement to the aggregate amount of $100,000,000; provided that Section 6
shall be effective as of June 30, 1996.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.
COVENTRY CORPORATION
By/s/ Jan H. Hodges
---------------------------------
Title: Vice President, Finance
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By/s/ Penelope J.B. Cox
---------------------------------
Title: Vice President
NATIONSBANK OF TENNESSEE, N.A.
By/s/ Walker Choppin
---------------------------------
Title: Senior Vice President
SUNTRUST BANK, NASHVILLE, N.A.
(FORMERLY THIRD NATIONAL
BANK IN NASHVILLE)
By/s/ Christopher T. Hannon
---------------------------------
Title: Vice President
7
<PAGE> 8
FLEET NATIONAL BANK
By/s/ Virginia C. Roberts
---------------------------------
Title: Senior Vice President
CITICORP USA, INC.
By/s/ Ruth E. Ford
---------------------------------
Title: Vice President
MELLON BANK, N.A.
By/s/ Kurt L. Hewett
---------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By/s/ Sandra Hamrick
---------------------------------
Title: Vice President
8
<PAGE> 1
Exhibit 10(xxi)
AMENDMENT NUMBER 4
TO THE SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
Amendment dated as of January 10, 1997 among COVENTRY CORPORATION
(the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks"),
and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Agent entered into a
Second Amended and Restated Credit Agreement dated as of November 20, 1992, and
amended by Amendment Number 1, dated as of June 30, 1995, Amendment Number 2,
dated as of March 14, 1996 and Amendment Number 3, dated as of September 30,
1996 (as so amended, the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement
as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
shall have the meaning assigned to such term in the Credit Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and "the Credit Agreement" and
each other similar reference contained in any Financing Document shall from and
after the date hereof refer to the Credit Agreement as amended hereby.
SECTION 2. Amendment of Section 1.01 of the Credit Agreement. (a)
Section 1.01 of the Credit Agreement is amended by deleting from the definition
of "Reduction Transaction" the words: "provided that the Champion Dental Sale
shall not be a Reduction Transaction."
<PAGE> 2
(b) Section 1.01 of the Credit Agreement is amended by deleting from
the definition of "Reduction Percentage" clause (ii) and inserting, in lieu
thereof, the following:
"(ii) in the case of any such reduction in respect of the issuance of
Equity Securities, 50%, and (iii) in the case of any such reduction in
respect of a Purchase Adjustment, 100% of the amount of all Net Cash
Proceeds received on account of such Purchase Adjustment until such
time as the amount of Net Cash Proceeds so received equals $20,000,000
and 50% of the amount of all such Net Cash Proceeds so received in
excess thereof."
(c) Section 1.01 of the Credit Agreement is amended by adding at the
end of the definition of "Net Cash Proceeds" the following clause:
(zz) in the case of the Champion Dental Sale, if the approval of the
Missouri Department of Insurance is necessary for the remission of
proceeds of sale to the Borrower, any such proceeds for which such
approval shall not have been obtained (the Borrower hereby agreeing to
use its best efforts to obtain any such necessary approval).
SECTION 3. Amendment of Section 2.08 of the Credit Agreement. (a) The
second sentence of Section 2.08(b) of the Credit Agreement is amended to read as
follows:
"Each reduction of the Commitments pursuant to Section 2.07 or
subsection (c) below, other than reductions occurring because of
Reduction Transactions arising from the Champion Dental Sale or a
Purchase Adjustment, shall ratably reduce the required reductions of
Commitments under this subsection for each subsequent Commitment
Reduction Date. Fifty percent (50%) of the amount of each reduction of
the Commitments occurring by reason of each Reduction Transaction
arising from the Champion Dental Sale shall reduce the required
reductions of Commitments under this subsection in chronological order
and the remaining fifty percent (50%) of the amount of each such
reduction shall reduce the required reductions of Commitments under
this subsection in the inverse chronological order. Fifty percent (50%)
of the amount of each reduction of the Commitments occurring by reason
of each Reduction Transaction arising from a Purchase Adjustment shall
ratably reduce the required reductions of Commitments under this
subsection for each subsequent Commitment Reduction Date and, after
giving effect to the foregoing reductions, twenty-five percent (25%) of
the amount of each reduction of the Commitments occurring by reason of
each Reduction Transaction arising from a Purchase Adjustment shall
reduce the required reductions of Commitments under this subsection in
chronological
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<PAGE> 3
order and twenty-five percent (25%) of the amount of each
reduction of the Commitments occurring by reason of each Reduction
Transaction arising from a Purchase Adjustment shall reduce the
required reductions of Commitments under this subsection in inverse
chronological order."
(b) The second sentence of Section 2.08(d) is amended to read
as follows:
"In addition, on the date of any reduction of the Commitments pursuant
to subsection (c) of this Section 2.08 on account of a Purchase
Adjustment or the Champion Dental Sale, the Borrower shall repay an
aggregate principal amount of Loans equal to the excess of the Net Cash
Proceeds of such Purchase Adjustment or of the Champion Dental Sale, as
the case may be, over the amount of any repayment required in
connection therewith pursuant to the preceding sentence."
SECTION 4. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not constitute an amendment of the surviving terms
and conditions of the Credit Agreement and all such terms and conditions shall
remain in full force and effect and are hereby ratified and confirmed in all
respects.
SECTION 5. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 6. Counterparts; Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of the date hereof upon
(i) receipt by the Agent of duly executed counterparts hereof
signed by the Borrower and the Required Banks (or, in the case of any
party as to which an executed counterpart shall not have been received,
the Agent shall have received telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by
such party); and
(ii) receipt by the Agent of payment of all expenses payable
by the Borrower pursuant to Section 9.03 of the Credit Agreement in
connection with this Amendment.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first above written.
COVENTRY CORPORATION
By /s/ Jan H. Hodges
----------------------------------
Title: Vice President, Finance
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Sandra J.S. Kurek
----------------------------------
Title: Associate
NATIONSBANK OF TENNESSEE, N.A.
By /s/ Kevin Wagley
----------------------------------
Title: Vice President
SUNTRUST BANK, NASHVILLE, N.A.
(FORMERLY THIRD NATIONAL
BANK IN NASHVILLE)
By /s/ Christopher T. Hannon
----------------------------------
Title: Vice President
<PAGE> 5
FLEET NATIONAL BANK
By /s/ Virginia C. Roberts
------------------------------
Title: Senior Vice President
CITICORP USA, INC.
By /s/ Ruth E. Ford
------------------------------
Title: Vice President
MELLON BANK, N.A.
By /s/ Kurt L. Hewett
------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL
BANK
By /s/ Sandra Hamrick
------------------------------
Title: Vice President
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Agent
By /s/ Sandra J.S. Kurek
------------------------------
Title: Associate
<PAGE> 1
Exhibit 10(xxii)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the 14th day of
October, 1996, by and between Joe Carroll ("Executive") and Coventry Corporation
("Employer"), a Delaware corporation with its principal place of business at 53
Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive desires to enter into an employment relationship
with Employer and Employer desires to employ Executive; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. On the Effective Date (as defined in Section 3 below),
Executive shall be engaged by Employer as its Vice President of Operations.
Executive hereby agrees to such employment on and after the Effective Date under
the terms and conditions hereinafter set forth.
2. DUTIES. As Vice President of Operations, Executive shall report to
the President and Chief Executive Officer of Employer and shall be responsible
for the establishment implementation, and administration of information systems
for Employer and its subsidiaries and affiliates, including the formulation of
long range plans, goals and objectives for information systems, and such other
powers and duties normally associated with such position or as may be delegated
or assigned to Executive by Employer's President and Chief Executive Officer.
During the term of this Agreement, Executive shall also serve without additional
compensation in such other offices of the Employer or its subsidiaries or
affiliates to which he may be elected or appointed by the Board of Directors of
Employer or its subsidiaries or affiliates, respectively.
3. EFFECTIVE DATE. Executive's employment shall commence on October 14,
1996 (the "Effective Date").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Effective Date. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
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<PAGE> 2
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of One Hundred Ninety Thousand
Dollars ($190,000), annually, to be reviewed on an annual basis based upon the
performance of Executive. The Base Salary shall be paid to Executive in equal
semi-monthly payments in accordance with Employer's normal payroll policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
(a) EMPLOYER STOCK OPTIONS: Executive will be granted a
nonqualified stock option to purchase 100,000 shares of Common
Stock of Employer at an exercise price per share equal to the
closing price per share of the Common Stock of Employer as
reported on the Nasdaq National Market on the Effective Date.
The option will vest at a rate of one-fourth of the shares per
year over a four-year vesting period beginning on the
Effective Date, or in the event substantially all of the
capital stock or assets of Employer are sold or transferred or
Employer is merged into or consolidated with another
unaffiliated entity, then the option will become fully vested
on the date of closing. The option will expire on the tenth
anniversary of the Effective Date unless sooner terminated by
Executive terminating his employment hereunder. The option
shall be granted under and in accordance with the terms and
conditions of Employer's Second Amended and Restated 1993
Stock Option Plan and a letter agreement between Executive and
Employer dated the Effective Date.
(b) BONUS COMPENSATION: Executive shall be eligible for an annual
bonus ("Bonus") potential of 40% of Base Compensation, which
shall be based upon achievement of budget and other
operational performance factors. Executive's bonus and
performance factors shall be determined on an annual basis by
the Compensation and Benefits Committee.
(c) CAR ALLOWANCE: Executive shall be entitled to a car allowance
of $550.00 per month.
(e) OTHER BENEFITS: Executive will be eligible for participation
in any employee benefit programs available to officers of
Employer from time to time as provided in Section 15 below.
7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.
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<PAGE> 3
Executive shall also be reimbursed for expenses associated with the
relocation of Executive to Employer's designated location, including the payment
of realtor's fees, closing costs, moving expenses and reasonable pre-move travel
expenses (meals, lodging and car rental expense) to search for a new residence.
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 13(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 24 below), the following provisions
will apply:
(a) Employer shall during the Severance Period (as defined in
Section 24 below), continue to pay Executive an amount equal
to Executive's Base Salary at the time of termination of
employment.
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) During the Severance Period Executive and his spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 24 below), maintained by Employer in which
he or his spouse or family were participating immediately
prior to the date of his termination as if he continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide substantially
identical benefits to the extent possible. If, however,
Executive obtains employment with another employer during the
Severance Period, such coverage shall be provided until the
earlier of: (i) the end of the Severance Period or (ii) the
date on which the Executive and his spouse and family can be
covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
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<PAGE> 4
(c) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods he would have earned had his employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(d) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Section 9(a), (b), (c) and (d) hereof is contingent
upon Executive's compliance with Section 13 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only his Base
Salary due through the date on which his employment is terminated at the rate in
effect at the time of notice of termination. The Employer shall then have no
further obligation to Executive under this Agreement.
11. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or his spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or his spouse or any debt or
obligation of Executive or his spouse owing to Employer.
(b) With respect to Section 9, no payments or benefits payable to
or with respect to Executive pursuant to this Agreement shall
be reduced by any amount Executive or his spouse may earn or
receive from employment with another employer or from any
other source.
12. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving
spouse. On the death of the survivor of Executive and his
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or his spouse
immediately prior to the date of his death to the extent
possible.
Any benefits payable under this Section 12 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer.
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<PAGE> 5
13. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time he is employed by the Employer or
following termination of his employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of his duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. During the term of employment provided
hereunder and during the Severance Period or for a period of
one year, if longer, Executive will not directly or indirectly
own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or any
have financial interest in, or aid or assist anyone else in
the conduct of, any business which is in competition with any
business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof.
(c) Non-Solicitation. During the term of employment provided for
hereunder and during the Severance Period or for a period of
one year after termination of employment, if longer, Executive
will not (i) directly or indirectly solicit business which
could reasonably be expected to conflict with the interest of
Employer or any Affiliate of Employer from any entity,
organization or person which has contracted with the Employer
or any Affiliate of Employer, which has been doing business
with the Employer or any Affiliate of Employer, from which the
Employer or any Affiliate of Employer was soliciting business
at the time of the termination of employment or from which
Executive knew or had reason to know that Employer or any
Affiliate of Employer was going to solicit business at the
time of termination of employment, or (ii) employ, solicit for
employment, or advise or recommend to any other persons that
they employ or solicit for employment, any employee of the
Employer or any Affiliate of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, during the Severance Period or for a period of one
year after termination of employment, if longer, cooperate
with the Employer in concluding any matters in which Executive
was involved during the term of his employment and will make
himself
5
<PAGE> 6
available for consultation with the Employer on other matters
otherwise of interest to the Employer. The Employer agrees
that such requests shall be reasonable in number and will
consider Executive's time required for other employment and/or
employment search.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 13 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 13 shall not
terminate upon Executive's termination of his employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
14. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
15. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
16. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
17. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or
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<PAGE> 7
rights against any specific assets of Employer, and Executive and his spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
18. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
19. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
20. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
21. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
22. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
23. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
24. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Board of Directors which are demonstrably
injurious to Employer;
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<PAGE> 8
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days, except in the event of
time taken for vacation, disability, sickness or
business travel; or
(iv) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i) and (ii) above), or materially fails
to satisfy the conditions and requirements of his
employment with Employer, and such breach or failure
by its nature is incapable of being cured, or such
breach or failure remains uncured for more than 30
days following receipt by Executive of written notice
from Employer specifying the nature of the breach or
failure and demanding the cure thereof. For purposes
of this paragraph (iv), inattention by Executive to
his duties shall be deemed a breach or failure of
cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
(c) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that follows the number of months remaining
in the initial term of this Agreement, if any, plus 6 months
thereafter.
(d) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
25. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
26. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 13(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 13(b)
shall be constructed as narrowly as necessary to be enforceable.
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------
Joe Carroll
COVENTRY CORPORATION
By:
----------------------------------------
Allen F. Wise
President and Chief Executive Officer
9
<PAGE> 1
Exhibit 10(xxiii)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the _____ day of
__________, 1997, by and between Jan H. Hodges ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive is currently employed by Employer as the Vice
President of Finance, and Employer and Executive desire to enter into an
employment relationship; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. Employer currently employs Executive, and Executive
hereby agrees to continue her employment as Vice President of Finance of
Employer on and after the Effective Date (as defined in Section 3 below) under
the terms and conditions hereinafter set forth.
2. DUTIES. As Vice President, Finance, of Employer, Executive shall
report to the Chief Financial Officer of Employer. Her powers and duties shall
continue to be those normally associated with such position or as may be
delegated or assigned to Executive by Employer's Chief Financial Officer, or by
the President and Chief Executive Officer or by the Board of Directors of
Employer. During the term of this Agreement, Executive shall also serve without
additional compensation in such other offices of the Employer or its
subsidiaries or affiliates to which she may be elected or appointed by the Chief
Executive Officer of Employer or by the Board of Directors of Employer or its
subsidiaries or affiliates, respectively.
3. EFFECTIVE DATE. This Agreement shall be effective as of the date set
forth above (the "Effective Date").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Effective Date. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
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<PAGE> 2
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall continue to pay Executive a base salary ("Base Salary") of One Hundred
Twenty Thousand Dollars ($120,000), annually, to be reviewed on an annual basis
based upon the performance of Executive. The Base Salary shall be paid to
Executive in equal bi-weekly or semi-monthly payments in accordance with
Employer's normal payroll policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
(a) RETENTION BONUS: Executive shall be eligible to receive a
retention bonus ("Retention Bonus") in the amount of One
Hundred Fifty Thousand Dollars ($150,000) to be paid in full
on January 31, 1999 ("Payment Date"), if Executive is and has
been continuously employed with Employer or a subsidiary of
Employer from the Effective Date to the Payment Date.
(b) ADDITIONAL BONUS COMPENSATION: Executive shall be eligible to
participate in the annual incentive bonus programs available
to officers of Employer and will be eligible to receive other
incentive compensation in accordance therewith as determined
on an annual basis by the Compensation and Benefits Committee
of the Board of Directors of Employer.
(c) CAR ALLOWANCE: At the end of the lease term of Executive's
current vehicle leased by Employer for Executive's use,
Executive shall be entitled to a car allowance of $600.00 per
month.
(d) OTHER BENEFITS: Executive will be eligible for participation
in any employee benefit programs available to officers of
Employer from time to time as provided in Section 16 below.
7. EXPENSES. Executive shall be reimbursed for ordinary and necessary
business expenses incurred by Executive on behalf of Employer and its
subsidiaries or affiliates upon presentation of vouchers in accordance with the
usual and customary procedure of Employer in relation to such expense items,
except that Employer may elect, at its option, to pay such expense items
directly rather than reimburse Executive therefor.
8. EXTENT OF SERVICE. Executive shall devote substantially all of her
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 14(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a
2
<PAGE> 3
substantial amount of time and does not adversely affect Executive's ability to
perform her duties under this Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 25 below), the following provisions
will apply:
(a) Employer shall during the Severance Period (as defined in
Section 25 below), continue to pay Executive an amount equal
to Executive's Base Salary at the time of termination of
employment.
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) Executive shall be allowed to exercise options granted to her
and vested at the date of termination for a period of one year
from the date of termination, all in accordance with the
remaining terms and conditions set forth in Employer's stock
option plans and the respective stock option letters issued to
Executive.
(c) During the Severance Period Executive and her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 25 below), maintained by Employer in which
she or her spouse or family were participating immediately
prior to the date of her termination as if she continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide substantially
identical benefits to the extent possible. If, however,
Executive obtains employment with another employer during the
Severance Period, such coverage shall be provided until the
earlier of: (i) the end of the Severance Period or (ii) the
date on which the Executive and her spouse and family can be
covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(d) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods she would have earned had her employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(e) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
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Compensation under Sections 9(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 14 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate her employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only her Base
Salary due through the date on which her employment is terminated at the rate in
effect at the time of notice of termination. The Employer shall then have no
further obligation to Executive under this Agreement, except for the payout of
benefits accrued under any Employee Benefit Plans or other employee benefits.
11. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the
event Executive's employment is terminated at any time within two years
following the occurrence of a Change in Control as set forth in that certain
Change in Control Agreement (as defined in Section 25 below), then this
Agreement shall become null and void and the terms and conditions of the Change
in Control Agreement shall control.
12. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or her spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or her spouse or any debt or
obligation of Executive or her spouse owing to Employer.
(b) With respect to Section 9, payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be
reduced by any amount Executive may earn or receive from
employment with another employer, except as expressly provided
in Section 9(c).
13. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to her surviving
spouse. On the death of the survivor of Executive and her
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or her spouse
immediately prior to the date of her death to the extent
possible.
Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
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14. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time she is employed by the Employer or
following termination of her employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of her duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. During the term of employment provided
hereunder and for a period of one year after termination of
employment, Executive will not directly or indirectly own,
manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or
have any financial interest in, or aid or assist anyone else
in the conduct of, any business which is in competition with
any business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof. Notwithstanding the
foregoing, Executive may enter into competition with Employer
or any Affiliate of Employer without being in violation of
this Agreement; provided, however, in any such event,
Executive shall forfeit all rights to payments and other
benefits under Section 9, above.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of one year after termination of
employment, Executive will not (i) directly or indirectly
solicit business which could reasonably be expected to
conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
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(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment, cooperate with the Employer in concluding any
matters in which Executive was involved during the term of her
employment and will make herself available for consultation
with the Employer on other matters otherwise of interest to
the Employer. The Employer agrees that such requests shall be
reasonable in number and will consider Executive's time
required for other employment and/or employment search.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 14 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 14 shall not
terminate upon Executive's termination of her employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and her family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
17. EXECUTIVE ASSIGNMENT. No interest of Executive or her spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or her spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
18. BENEFITS UNFUNDED. All rights of Executive and her spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be
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made with respect to segregating any assets of Employer for payment of any
amounts due hereunder. Neither Executive nor her spouse or other beneficiary
shall have any interest in or rights against any specific assets of Employer,
and Executive and her spouse or other beneficiary shall have only the rights of
a general unsecured creditor of Employer.
19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to her residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by her are unique and personal, and Executive may not assign any of her
rights or delegate any of her duties or obligations under this Agreement.
22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
24. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Change in Control Agreement" shall mean that certain
Agreement (for Key Executives) dated September 12, 1995,
between Employer and Executive, a copy of which is attached
hereto as Exhibit "A".
(c) "Good Cause" shall be deemed to exist if, and only if:
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(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Chief Executive Officer of Employer or the Board
of Directors of Employer, which are demonstrably
injurious to Employer; or
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days; or
(iv) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i), (ii) and (iii) above), or materially
fails to satisfy the conditions and requirements of
her employment with Employer, and such breach or
failure by its nature is incapable of being cured, or
such breach or failure remains uncured for more than
30 days following receipt by Executive of written
notice from Employer specifying the nature of the
breach or failure and demanding the cure thereof. For
purposes of this paragraph (iv), inattention by
Executive to her duties shall be deemed a breach or
failure of cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner she reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe her conduct was unlawful in
connection with any action taken by Executive in connection
with her duties, it shall not constitute Good Cause.
(d) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that is 12 months thereafter.
(e) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 14(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 14(b)
shall be constructed as narrowly as necessary to be enforceable.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------
Jan H. Hodges
COVENTRY CORPORATION
By:
----------------------------------------
Allen F. Wise
President and Chief Executive Officer
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Exhibit 10(xxiv)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the _____ day of
__________, 1996, by and between Richard H. Jones ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive is currently employed by Employer as the Senior Vice
President of Finance and Development, and the President and Chief Executive
Officer of Group Health Plan, Inc. ("GHP"), Employer's wholly owned subsidiary,
and Employer and Executive desire to enter into an employment relationship; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. Employer currently employs Executive, and Executive
hereby agrees to continue his employment as Senior Vice President of Employer
and President and Chief Executive Officer of GHP on and after the Effective Date
(as defined in Section 3 below) under the terms and conditions hereinafter set
forth.
2. DUTIES. As Senior Vice President of Employer and President and Chief
Executive Officer of GHP, Executive shall report to the President and Chief
Executive Officer of Employer, and the Boards of Directors of Employer and GHP,
and shall be responsible for the establishment and implementation of Employer's
policies and directives to the extent allowed, and the overall direction,
administration and leadership of GHP, including, but not limited to, the
establishment and implementation of GHP's policies and directives, formulation
of long range plans, goals and objectives, effective management of employees,
and such other powers and duties normally associated with such position or as
may be delegated or assigned to Executive by Employer's President and Chief
Executive Officer or by Employer's or GHP's Board of Directors. During the term
of this Agreement, Executive shall also serve without additional compensation in
such other offices of the Employer or its subsidiaries or affiliates to which he
may be elected or appointed by the Chief Executive Officer of Employer or by the
Board of Directors of Employer or its subsidiaries or affiliates, respectively.
It is understood that Executive will remain on the Board of Directors of
Employer and GHP if so nominated by the Board of Directors and/or elected by the
respective shareholders of each organization.
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3. EFFECTIVE DATE. This Agreement shall be effective as of the date
set forth above (the "Effective Date").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of two years beginning
on the Effective Date. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of Two Hundred Sixty-five
Thousand Dollars ($265,000), annually, effective as of September 1, 1996, to be
reviewed on an annual basis for possible increases based upon the performance of
Executive. The Base Salary shall be paid to Executive in equal bi-weekly or
semi-monthly payments in accordance with Employer's normal payroll policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
(a) EMPLOYER STOCK OPTIONS: Executive will be granted a
nonqualified stock option to purchase 100,000 shares of Common
Stock of Employer at an exercise price per share equal to
$12.75, which is the closing price per share of the Common
Stock of Employer as reported on the Nasdaq National Market on
September 6, 1996; provided, however, receipt of 25,000 of the
100,000 options is contingent upon Employer's receipt of a
Certificate of Cancellation executed by Executive agreeing to
the cancellation of the 25,000 performance based stock options
granted on March 1, 1996. The option will vest at a rate of
one-fourth of the shares per year over a four-year vesting
period beginning on the date of grant, or in the event
substantially all of the capital stock or assets of Employer
are sold or transferred or Employer is merged into or
consolidated with another unaffiliated entity, then the option
will become fully vested on the date of closing. The option
will expire on the tenth anniversary of the date of grant
unless sooner terminated by termination of employment
hereunder. The option shall be granted under and in accordance
with the terms and conditions of Employer's Second Amended and
Restated 1993 Stock Option Plan and a letter agreement between
Executive and Employer dated the Effective Date.
(b) RETENTION BONUS: Executive shall be eligible to receive a
retention bonus ("Retention Bonus") in the amount of Four
Hundred Thousand Dollars ($400,000) to be paid in full on
January 31, 1999 ("Payment Date"), if Executive is and has
been continuously employed with Employer or a subsidiary of
Employer from the Effective Date to the Payment Date.
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(c) ADDITIONAL BONUS COMPENSATION: Executive shall be eligible to
participate in the annual incentive bonus programs available
to officers of Employer and will be eligible to receive other
incentive compensation in accordance therewith as determined
on an annual basis by the Compensation and Benefits Committee
of the Board of Directors of Employer.
(d) CAR ALLOWANCE: At the end of the lease term of Executive's
current vehicle leased by Employer for Executive's use,
Executive shall be entitled to a car allowance of $550.00 per
month.
(e) OTHER BENEFITS: Executive will be eligible for participation
in any employee benefit programs available to officers of
Employer from time to time as provided in Section 16 below.
7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.
Executive shall also be reimbursed for expenses associated with the
relocation of Executive to St. Louis, Missouri, consistent with the Executive
Relocation Policy attached as Exhibit "A".
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 14(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated (i) by Employer for any
reason other than Good Cause (as defined in Section 25 below), or (ii) by
Executive for Good Reason (as defined in Section 25 below), the following
provisions will apply:
(a) Employer shall during the Severance Period (as defined in
Section 25 below), continue to pay Executive an amount equal
to Executive's Base Salary at the time of termination of
employment.
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Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) Executive shall be allowed to exercise options granted to him
and vested at the date of termination for a period of two
years from the date of termination, all in accordance with the
remaining terms and conditions set forth in Employer's stock
option plans and the respective stock option letters issued to
Executive.
(c) Executive shall receive any and all benefits accrued under any
Employee Benefit Plans (as defined in Section 25 below) to the
date of termination of employment, the amount, form and time
of payment of such accrued benefits to be determined by the
terms of such Employee Benefit Plans.
(d) During the Severance Period Executive and his spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 25 below), maintained by Employer in which
he or his spouse or family were participating immediately
prior to the date of his termination as if he continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide substantially
identical benefits to the extent possible. If, however,
Executive obtains employment with another employer during the
Severance Period, such coverage shall be provided until the
earlier of: (i) the end of the Severance Period or (ii) the
date on which the Executive and his spouse and family can be
covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(e) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods he would have earned had his employment continued
during the Severance Period.
(f) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Section 9(a), (b), (c), (d), (e) and (f) hereof is
contingent upon Executive's compliance with Section 14 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only his Base
Salary due through the date on which his
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employment is terminated at the rate in effect at the time of notice of
termination. The Employer shall then have no further obligation to Executive
under this Agreement, except for the payout of benefits accrued under any
Employee Benefit Plans or other employee benefits.
11. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the
event Executive's employment is terminated at any time within three years
following the occurrence of a Change in Control as set forth in that certain
Change in Control Agreement (as defined in Section 25 below), then this
Agreement shall become null and void, except with respect to Section 6(a), which
shall remain in full force and effect, and the terms and conditions of the
Change in Control Agreement shall control.
12. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or his spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or his spouse or any debt or
obligation of Executive or his spouse owing to Employer,
except as provided for in the Employer's Executive
Reimbursement Agreement executed of even date herewith in
connection with Employer's Executive Relocation Policy.
(b) With respect to Section 9, no payments or benefits payable to
or with respect to Executive pursuant to this Agreement shall
be reduced by any amount Executive or his spouse may earn or
receive from employment with another employer or from any
other source, except as expressly provided in Section 9(d).
13. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving
spouse, or if his spouse shall not then be living, then all
such amounts shall be paid to his estate.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or his spouse
immediately prior to the date of his death to the extent
possible.
Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Employee Benefit Plans or
other employee benefits.
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14. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time he is employed by the Employer or
following termination of his employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of his duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. During the term of employment provided
hereunder and for a period of two years after termination of
employment, Executive will not directly or indirectly own,
manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or
have any financial interest in, or aid or assist anyone else
in the conduct of, any business which is in competition with
any business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of two years after termination of
employment, Executive will not (i) directly or indirectly
solicit business which could reasonably be expected to
conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment, cooperate with the Employer in concluding any
matters in which Executive was involved during the term of his
employment and will make himself available for consultation
with the Employer on other matters otherwise of interest to
the Employer. The Employer agrees that
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such requests shall be reasonable in number and will consider
Executive's time required for other employment and/or
employment search. Executive shall be reimbursed for ordinary
and necessary expenses incurred by Executive on beh
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 14 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 14 shall not
terminate upon Executive's termination of his employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
17. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
18. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
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19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
24. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Change in Control Agreement" shall mean that certain
Agreement (for Key Senior Executives) dated September 12,
1995, between Employer and Executive, a copy of which is
attached hereto as Exhibit "B".
(c) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Chief Executive
8
<PAGE> 9
Officer or Board of Directors of Employer or GHP,
which are demonstrably injurious to Employer or GHP;
or
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days, except in the event of
time taken for vacation, disability, sickness or
business travel; or
(iv) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i) and (ii) above), or materially fails
to satisfy the conditions and requirements of his
employment with Employer, and such breach or failure
by its nature is incapable of being cured, or such
breach or failure remains uncured for more than 30
days following receipt by Executive of written notice
from Employer specifying the nature of the breach or
failure and demanding the cure thereof. For purposes
of this paragraph (iv), inattention by Executive to
his duties shall be deemed a breach or failure of
cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
Notwithstanding anything herein to the contrary, in the event
Employer shall terminate the employment of Executive for Good
Cause hereunder, Employer shall give at least 30 days prior
written notice to Executive specifying in detail the reason or
reasons for Executive's termination.
(d) "Good Reason" shall exist if there is a significant change in
the nature or the scope of Executive's position and authority
or a reduction of his Base Salary; provided, however, any
change in Executive's position as a Director of Employer or
GHP or as an officer or director of a subsidiary or affiliate
of Employer other than GHP, shall not be deemed to be a
significant change.
(e) "Employee Benefit Plans" shall mean any profit-sharing,
retirement, deferred compensation or similar plan or
arrangement currently or hereafter made available by Employer
in which Executive is eligible to participate.
(f) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that is 24 months thereafter.
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<PAGE> 10
(g) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 14(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 14(b)
shall be constructed as narrowly as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
--------------------------------------------
Richard H. Jones
COVENTRY CORPORATION
By:
-----------------------------------------
Allen F. Wise
President and Chief Executive Officer
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<PAGE> 11
EXHIBIT "A"
COVENTRY CORPORATION
EXECUTIVE RELOCATION POLICY
PURPOSE:
This policy outlines the nature of financial assistance provided to executive
executives who are relocating at the request and for the benefit of the Company.
ADMINISTRATION:
Relocation under this policy will be coordinated through Human Resources. Any
exceptions to this policy must receive prior approval by the Chairman of the
Board of Directors.
GENERAL PROVISIONS:
1) Eligibility - Subject to the limitations and exclusions set out herein,
all executives who relocate their residence at the request of the
Company are eligible for the benefits described in this policy. The new
assignment must result in at least a fifty (50) mile increase in the
distance from the executive's former residence to his/her business
location for moving expenses to be paid.
2) Benefit Period - Eligible executives will be allowed six (6) months
from the effective date of their transfer to complete and apply for
relocation reimbursement.
3) Eligible Expenses - Only the necessary and reasonable expenses incurred
as a direct result of the move which are covered by this policy are
eligible for payment or reimbursement. 'These expenses typically relate
to:
- House Hunting
- Temporary Living
- Travel to New Location
- Movement of Household Goods
- Miscellaneous Moving Allowance
- Sale of Former Residence
- Purchase of a New Residence
- Equity Advance
- Mortgage Supplement
- Taxes
HOUSE HUNTING TRIP:
One house hunting trip of two to three days for executive and spouse is
provided. A second and third trip may be allowed with the approval of the
Chairman of the Board of Directors. Covered expenses include:
- Transportation (by air, coach rate & car rental; by car, prevailing
mileage reimbursement rate)
- Meals
- Lodging
- Reasonable incidental expenses, such as child care
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<PAGE> 12
TEMPORARY LIVING FOR EXECUTIVE PRIOR TO MOVE:
If temporary living expenses are needed by the executive prior to the move of
family and/or household goods to the new work location, Coventry will provide
the following for a period not to exceed sixty (60) days:
- Temporary living accommodations
- Transportation home every other weekend
- $50 per week for incidental expenses
TRAVEL TO NEW WORK LOCATION:
Coventry will reimburse the cost of transportation by automobile (at the
prevailing mileage reimbursement rate) or air (at coach rates) for the executive
and family, including lodging, meals, and tolls while in transit between old and
new locations via the most direct route with no extra stop oversee.
TEMPORARY LIVING FOR FAMILY AT TIME OF MOVE:
If it is necessary for the family to set up temporary living quarters in the new
work location until the household goods arrive, the policy provides for the
reimbursement of meals and lodging for up to 30 days. This allowance is intended
to cover situations resulting from a delay in delivery of the moving company or
from a delay in the completion or availability of quarters at the new location.
MOVEMENT OF HOUSEHOLD GOODS:
The following items/services will be directly paid by Coventry for the movement
of household goods:
- Packing, crating, shipping, unpacking, insurance, storage and removal of
household goods and belongings.
- Cost of disconnecting and reconnecting washer, dryer, refrigerator,
freezer and stove.
- Transportation of two (2) automobiles:
- If distance from former location to new location is less than 500
miles, reimbursement will be made for the driving of one vehicle
at current prevailing reimbursement rate, and the shipping of the
other vehicle on a common carrier.
- If distance is greater than 500 miles, both vehicles may be
transported via common carrier.
- Expenses associated with the rental of a trailer hitch and any extra
tolls associated with towing a boat, camper or trailer.
- Storage of household goods at the carrier's warehouse for a period of 30
days in those cases where occupancy of the new residence has been
delayed.
NOTE: Recreational vehicles such as snowmobiles, motorcycles and trail bikes,
and motorized equipment such as lawn mowers, snowblowers or lawn equipment are
authorized for transport in the van as long as the fuel and oil have been
drained.
The following items/services are not covered:
- Household cleaning services.
- Removal or installation of drapes, wall-to-wall carpeting, or related
items.
- Pick-up and delivery charges at locations other than the primary
residence.
- The disassembly and assembly of fixtures and utilities such as wood
stoves, water softeners, swing sets, utility sheds, above ground pool,
spas, etc.
- Transporting high weight low value items such as firewood, coal,
building material, etc.
- Transporting perishable foods, liquor or plants.
- Boarding or transporting household pets.
- Transporting combustible items such as ammunition, oil-based paints,
kerosene and other flammable
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<PAGE> 13
liquids and fuel.
- Transporting boats, farm animals, spas and other unusual items.
- Transporting non-operable automobiles.
- Transporting articles of great monetary or sentimental value such as
jewelry, furs, stamp and coin collections, stocks/bonds, wills, photos
or other important documents.
MISCELLANEOUS MOVING ALLOWANCE:
Coventry will provide an additional one month's salary to executives who are
homeowners to assist with incidental expenses associated with moving. Such
expenses might include:
- Increased homeowner's insurance premiums (when house is vacated and
unsold)
- On-going utility bills
- Lawn maintenance
- Transporting and/or kenneling of household pets
- New driver's license
- Automobile registration
- Telephone installation charges
- Special home wiring and utility hook-ups
- Installation of drapes
- Carpet clearing
- Cable and antennae hook-ups
- Any other relocation expenses not covered under Coventry's
Relocation Policy
For executives who are renting and do not own homes, the payment will be $500.
Any unused portion of this benefit is yours to keep, it does not need to be
repaid to Coventry.
SALE OF FORMER RESIDENCE:
In order to assist an executive in the sale of his/her home when transferring at
the company's request, Coventry has retained a relocation management company to
provide the relocating executive an opportunity to dispose of their primary
residence at a realistic and competitive price. The executive may elect to enter
a home marketing assistance program or may, through his own efforts, put his
current home on the market for 60 days. At the end of the 60-day period Coventry
will, or at any time during the 60-day period Coventry may take over all
responsibility for the costs, marketing and sale of the home (at the appraised
fair market value) through a relocation management company.
Self-Sale Program
Under this program, for 60 days, the executive will be selling his/her
home independently or through his/her selected real estate agent and closing the
home on his/her own. The executive will still be eligible for the 2% incentive
sales bonus and reimbursement of normal and customary home selling and closing
costs. Closing costs will be entirely non-deductible for federal tax purposes
and are considered taxable income to the executive. Tax gross-ups will not be
provided by Coventry.
Home Marketing Assistance Program
This program has been designed to maximize the possibility of finding a
buyer for the executive's home and offers the executive incentives to find a
buyer. All reimbursable expenses associated with the sale of the executive's
home are directly billed to Coventry by the third party homesale company.
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<PAGE> 14
The executive should not list their home for sale on their own or with
a real estate agent. To assist the executive in getting the maximum sales price
for their home, a home marketing assistance firm, paid for by Coventry, will
provide the executive marketing advice and assistance. The executive must accept
this assistance in order to be eligible for the third party buy-out option. The
marketing assistance firm will provide the executive the choice of two local,
reputable real estate companies. An agent from each of these companies will
contact the executive and create a specific marketing strategy. In order to be
eligible for the third party buy-out option, the executive must select one of
the two designated real estate agents to list his/her property. The selected
agent will assist the executive in setting a competitive price based on their
market analysis.
The executive should list their home within approximately five to seven
days after having been initiated into the home marketing process after
establishing the list price, the executive is to sign a listing agreement with a
real estate agency to place their home on the market. It is recommended that the
initial listing agreement be in effect for 90 days with a 30-day extension
option. The listing agreement must include an exclusion clause as follows:
"This listing Agreement is subject to the following provisions:
It is understood and agreed that regardless of whether or not an offer is
presented by a ready, willing and able buyer:
1. No commission or compensation shall be earned by, or be due
and payable to, broker until sale of the property has been
consummated between seller and buyer, and deed delivered to
the buyer and the purchase price delivered to the seller;
2. The sellers reserve the right to sell the property at any time
to Coventry or its agent. Upon the execution by Coventry or
its agent and me (us) of an agreement of sale with respect to
the property, this Listing Agreement shall immediately
terminate without obligation on my (our) part or on the part
of any named prospective purchaser to either pay the
commission or to continue this listing."
This clause simply protects Coventry from paying a double commission on the same
property.
Fifteen days after the executive lists his/her home for sale in the home
marketing assistance program, the third party buy-out offer program is
initiated. The third party buy-out offer is based on the average of two
appraisals, if the difference between the two is five percent or less. If the
difference is more than five percent, a third appraisal will be ordered and the
average of the three appraisals will determine the third party offer price. The
executive will have sixty (60) days from the date the third party company makes
an offer to accept the third party buy-out offer.
During the sixty-day offer period, the executive may:
- Accept the third party buy-out offer at any time after the thirtieth
day of the sixty-day offer period.
- Find a potential buyer who submits an acceptable offer resulting in an
amended value transaction and turn it over to the third party company
for closing. The executive is to contact his/her home marketing and
third party coordinators immediately and is not to accept the offer, a
deposit or down payment or sign any agreement. If the offer proves to
be a bona fide offer, only contingent upon financing, the executive's
contract will be amended to the buyer's sales price by the third party
company. If this offer is ratified by the third party company, Coventry
will pay the executive a 2% sales incentive bonus based on the net
sales price of the executive's home. As an added incentive, Coventry
will honor the executive's third party offer if the executive finds a
buyer willing to pay 97% of the appraised value (based on the net sales
price). The incentive bonuses are paid through payroll and is taxable
income to the executive with appropriate taxes being withheld.
- Reject the third party buy-out offer at the end of the sixty-day offer
period and continue to market on his/her own. Coventry will reimburse
direct home selling costs, provided the closing occurs within 12 months
of the executive's transfer date. If the executive's home is not sold
within the 12 month period,
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<PAGE> 15
no closing costs will be paid by Coventry on behalf of the executive.
All expenses through the final close date, including carrying costs,
upkeep and marketing costs are the executive's responsibility. Closing
cost reimbursements are considered as income and will not be tax
deductible on the executive's federal return or GROSSED-UP BY COVENTRY
FOR TAX PURPOSES. By rejecting the third party buy-out offer, the
executive waives all rights to a guaranteed selling price from Coventry
or its agent and is not eligible for reinstatement in the program.
Covered/Reimbursable Homesale Expenses
The following expenses will be billed directly to Coventry for executives in the
Home Marketing Assistance Program and reimbursed to executives who choose the
Self-Sale Program:
- Real estate brokerage commission not to exceed 6%, without prior
Coventry approval - Attorney's fees and title fees
- Transfer and/or documentary taxes the seller is required to pay
- Homeowner's warranty paid for by seller, up to $350
- Inspection and recording fees normally charged to the seller
- Other customary fees directly related to the sale but which have not
been incurred by choice by the seller, such as escrow fees and tax
service fees.
Non-Covered/Non-Reimbursable Expenses
- The following expenses are not covered for executives in either
program:
- Discount points paid by the seller to assist the buyer in getting a
mortgage
- Real estate and personal property taxes prepaid items such as interest,
insurance and annual assessment Incentives such as points and selling
agent bonuses
- All other expenses which are normally paid by the buyer in that area
- Any and all expenses related to post-closing obligations, problems or
disputes raised by a subsequent purchaser or representative of a
purchaser including, but not limited to, matters relating to fraud,
liens, disclosure or title
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<PAGE> 16
PURCHASE OF A NEW RESIDENCE
Coventry will reimburse the executive for closing costs involved with the
purchase of a new residence if they own a home which is used as their primary
residence. The following are typical closing expenses:
- Attorney fees
- Title search/insurance
- Appraisal (if required) - Survey (if required)
- Document preparation fees
- Recording fees
- Credit report
- Loan origination and/or mortgage discount fees up to four (4) total
points
- Cost of other required services
EQUITY ADVANCE
If the executive cannot sell his/her former residence before buying a new home,
the executive may receive an equity advance of up to 95% of the equity in their
home. This advance may only be initiated after the third party company receives
and ratifies the executive's executed Contract of Sale; documented proof of
need, a purchase contract and approval by Coventry are also required. If the
executive is not in need of an equity advance, the equity will be paid when the
executive vacates his/her home or signs the third party Contract of Sale,
whichever is later.
MORTGAGE SUPPLEMENTS
After the executive purchases his/her new home, and if the executive's old home
has not been sold, Coventry will reimburse utilities, mortgage interest (not
principal), real estate taxes, dwelling insurance, Homeowner Association Fees
and condominium fees on a prorated basis for up to 30 days. Up to an additional
three (3) months of duplicate house payments may be allowed with the approval of
the Chairman of the Board. Appropriate documentation is required.
COST OF LEASE TERMINATION FOR RENTERS
Renters who are unsuccessful in severing a lease without penalty will be
reimbursed up to four (4) months' rent for which the executive may be held
liable, including any prepayment penalty or deposit.
TAXES
Most of the payments or reimbursements made to or on behalf of the executive
under this policy are considered "income" for federal and state income tax
purposes, and will be reported on the executive's W-2. Some of the payments may
be deducted by the executive and some may not. Coventry will provide detailed
information as to which items are deductible at the time that it provides the
W-2 form. For those items which are non-deductible, Coventry will provide
additional compensation in the executive's tax withholding account to cover any
added taxes incurred; except for the closing costs incurred as a result of the
executive electing the Self-Sale Program. This is called "grossing up" the
benefit, and means that the executive will be compensated for the additional
income taxes caused by the relocation benefits provided by Coventry.
Moving expenses reimbursed by Coventry which would have been deductible had the
executive directly paid for them, will be excluded from federal taxation and
will not be reported as taxable federal wages on the executive's W-2.
Coventry will prepare an executive moving expense form, IRS Form 47827 at the
end of each year in which an executive receives taxable reimbursements related
to relocation. This form provides a detailed breakdown of reimbursements or
payment for moving expenses to assist the executive in completing his/her tax
return.
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VOLUNTARY TERMINATION BY EXECUTIVE
In the event an executive receiving benefits under this policy voluntarily
terminates his/her employment within one year of the report date at his/her new
assignment, those fees, expenses and other monetary benefits the executive has
received under the policy must be reimbursed to Coventry in accordance with the
schedule provided below. The executive will be required to sign a reimbursement
agreement, evidencing such obligation.
<TABLE>
<CAPTION>
Length of Service from Report Date Amount
- ---------------------------------- ------
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
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EXECUTIVE REIMBURSEMENT AGREEMENT
In order to receive relocation benefits, the Executive Reimbursement Agreement
must be signed and returned to Human Resources prior to commencement of benefits
application.
Executive Name: Richard H. Jones
Social Security Number:
---------------------------------------
Effective Date of Job Assignment:
---------------------------------------
Department:
---------------------------------------
This Agreement is effective as of date signed. It is between the Company
("Employer") and
Richard H. Jones
1. As of the effective date of this Agreement, Employer has or will spend
a sum of money for the purpose of reassigning Executive and Executive's
eligible household members to Employer's new work location.
2. Prior to the effective date of this Agreement, Executive was given a
Relocation Guide, which is incorporated herein by reference. This Guide
sets forth those items which Employer will either pay on behalf of
Executive or reimbursement to Executive, including, but not limited to,
those expenses associated with the sale and purchase of a primary
residence, house hunting trips, mortgage subsidy assistance, renter's
expenses, final move travel expenses, movement of household goods,
temporary living expenses, automobile expenses, miscellaneous moving
allowance and tax treatment.
3. In consideration of Employer spending this money on the above items,
Executive agrees to remain employed with Employer for at least one (1)
year from the date the Executive is assigned to commence working in the
new work location.
Should the Executive voluntarily resign (or involuntarily be terminated due to
gross misconduct) prior to twelve (12) months from the date executive is
assigned to commence working in the new location, Executive will reimburse
Employer for those expenses incurred by Employer as set forth in the Company's
Executive Relocation Policy according to the schedule, set forth below; and
<TABLE>
<CAPTION>
Length of Service from Report Date Amount
- ---------------------------------- ------
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
Notwithstanding the foregoing, in the event Executive is terminated for any
reason other than Good Cause or Executive terminates for Good Reason following a
Change in Control, all as set forth in that certain Agreement (For Key Senior
Executives) dated September 12, 1995, between Employer and Executive (the
"Change in Control Agreement"), then
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<PAGE> 19
Executive shall not be liable for the reimbursement of all or any part of the
expenses incurred by Employer pursuant to the Employer's Executive Relocation
Policy. Defined terms used herein and not defined shall have the meanings
ascribed to them in the Change of Control Agreement.
Further, I confirm that neither I nor any other household member is receiving
relocation benefits from any other company or source. I acknowledge that
relocation benefits paid by the Company would be subject to reduction, if
benefits were also paid by another source.
- ----------------------------------------------- --------------------
Date
- ----------------------------------------------- --------------------
Allen F. Wise, Date
President and Chief Executive Officer
Coventry Corporation
19
<PAGE> 1
Exhibit 10(xxv)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the ___ day of
_________, 1997, by and between Nancy I. Lorenz ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Ste 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive is currently employed by Employer as the Vice
President, Government Programs, and Employer and Executive desire to enter into
an employment relationship; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. Employer currently employs Executive, and Executive
hereby agrees to continue her employment as Vice President, Government Programs,
of Employer on and after the Effective Date (as defined in Section 3 below)
under the terms and conditions hereinafter set forth.
2. DUTIES. As Vice President, Government Programs, of Employer,
Executive shall report to the President and Chief Executive Officer of Employer.
Her powers and duties shall continue to be those normally associated with such
position or as may be delegated or assigned to Executive by Employer's President
and Chief Executive Officer or by the Board of Directors of Employer. During the
term of this Agreement, Executive shall also serve without additional
compensation in such other offices of the Employer or its subsidiaries or
affiliates to which she may be elected or appointed by the Chief Executive
Officer of Employer or by the Board of Directors of Employer or its subsidiaries
or affiliates, respectively.
3. EFFECTIVE DATE. This Agreement shall be effective as of the date set
forth above (the "Effective Date").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Effective Date. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall continue to pay Executive a base salary ("Base Salary") of One Hundred
Twenty-one Thousand
1
<PAGE> 2
Dollars ($121,000), annually, to be reviewed on an annual basis based upon the
performance of Executive. The Base Salary shall be paid to Executive in equal
bi-weekly or semi-monthly payments in accordance with Employer's normal payroll
policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
(a) BONUS COMPENSATION: Executive shall be eligible to participate
in the annual incentive bonus programs available to officers
of Employer and will be eligible to receive other incentive
compensation in accordance therewith as determined on an
annual basis by the Compensation and Benefits Committee of the
Board of Directors of Employer.
(b) CAR ALLOWANCE: At the end of the lease term of Executive's
current vehicle leased by Employer for Executive's use,
Executive shall be entitled to a car allowance of $600.00 per
month.
(c) OTHER BENEFITS: Executive will be eligible for participation
in any employee benefit programs available to officers of
Employer from time to time as provided in Section 16 below.
7. EXPENSES. Executive shall be reimbursed for ordinary and necessary
business expenses incurred by Executive on behalf of Employer and its
subsidiaries or affiliates upon presentation of vouchers in accordance with the
usual and customary procedure of Employer in relation to such expense items,
except that Employer may elect, at its option, to pay such expense items
directly rather than reimburse Executive therefor.
8. EXTENT OF SERVICE. Executive shall devote substantially all of her
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 14(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform her duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 25 below), the following provisions
will apply:
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<PAGE> 3
(a) Employer shall during the Severance Period (as defined in
Section 25 below), continue to pay Executive an amount equal
to Executive's Base Salary at the time of termination of
employment.
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) During the Severance Period Executive and her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 25 below), maintained by Employer in which
she or her spouse or family were participating immediately
prior to the date of her termination as if she continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide substantially
identical benefits to the extent possible. If, however,
Executive obtains employment with another employer during the
Severance Period, such coverage shall be provided until the
earlier of: (i) the end of the Severance Period or (ii) the
date on which the Executive and her spouse and family can be
covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(c) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods she would have earned had her employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(d) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Sections 9(a) and (b) hereof is contingent upon
Executive's compliance with Section 14 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate her employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only her Base
Salary due through the date on which her employment is terminated at the rate in
effect at the time of notice of termination. The Employer shall then have no
further obligation to Executive under this Agreement, except for the payout of
benefits accrued under any Employee Benefit Plans or other employee benefits.
11. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the
event Executive's employment is terminated at any time within two years
following the occurrence of a
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Change in Control as set forth in that certain Change in Control Agreement (as
defined in Section 25 below), then this Agreement shall become null and void and
the terms and conditions of the Change in Control Agreement shall control.
12. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or her spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or her spouse or any debt or
obligation of Executive or her spouse owing to Employer.
(b) With respect to Section 9, payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be
reduced by any amount Executive may earn or receive from
employment with another employer, except as expressly provided
in Section 9(b).
13. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to her surviving
spouse. On the death of the survivor of Executive and her
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or her spouse
immediately prior to the date of her death to the extent
possible.
Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
14. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time she is employed by the Employer or
following termination of her employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of her duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
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(b) Non-Competition. During the term of employment provided
hereunder and for a period of one year after termination of
employment, Executive will not directly or indirectly own,
manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or
have any financial interest in, or aid or assist anyone else
in the conduct of, any business which is in competition with
any business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof. Notwithstanding the
foregoing, Executive may enter into competition with Employer
or any Affiliate of Employer without being in violation of
this Agreement; provided, however, in any such event,
Executive shall forfeit all rights to payments and other
benefits under Section 9, above.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of one year after termination of
employment, Executive will not (i) directly or indirectly
solicit business which could reasonably be expected to
conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment, cooperate with the Employer in concluding any
matters in which Executive was involved during the term of her
employment and will make herself available for consultation
with the Employer on other matters otherwise of interest to
the Employer. The Employer agrees that such requests shall be
reasonable in number and will consider Executive's time
required for other employment and/or employment search.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 14 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
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(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 14 shall not
terminate upon Executive's termination of her employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and her family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
17. EXECUTIVE ASSIGNMENT. No interest of Executive or her spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or her spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
18. BENEFITS UNFUNDED. All rights of Executive and her spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor her
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and her spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to her residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
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21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by her are unique and personal, and Executive may not assign any of her
rights or delegate any of her duties or obligations under this Agreement.
22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
24. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Change in Control Agreement" shall mean that certain
Agreement (for Key Executives) dated September 12, 1995,
between Employer and Executive, a copy of which is attached
hereto as Exhibit "A".
(c) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Chief Executive Officer of Employer or the Board
of Directors of Employer, which are demonstrably
injurious to Employer; or
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days; or
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(iv) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i), (ii) and (iii) above), or materially
fails to satisfy the conditions and requirements of
her employment with Employer, and such breach or
failure by its nature is incapable of being cured, or
such breach or failure remains uncured for more than
30 days following receipt by Executive of written
notice from Employer specifying the nature of the
breach or failure and demanding the cure thereof. For
purposes of this paragraph (iv), inattention by
Executive to her duties shall be deemed a breach or
failure of cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner she reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe her conduct was unlawful in
connection with any action taken by Executive in connection
with her duties, it shall not constitute Good Cause.
(d) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that is 12 months thereafter.
(e) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 14(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 14(b)
shall be constructed as narrowly as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
-------------------------------------
Nancy I. Lorenz
COVENTRY CORPORATION
By:
-------------------------------------
Allen F. Wise
President and Chief Executive Officer
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Exhibit 10(xxvi)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the _____day of
___________, 1997, by and between George R. Mark ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive desires to enter into an employment relationship
with Employer, and Employer desires to employ Executive; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. On the Date of Employment (as defined in Section 3
below), Executive shall be engaged by Employer as its Vice President and by
Employer's subsidiary, HealthAmerica Pennsylvania, Inc. ("HAPA") as its Chief
Financial Officer. Executive hereby agrees to such employment on and after the
Date of Employment under the terms and conditions hereinafter set forth.
2. DUTIES. As Vice President of Employer and Chief Financial Officer of
HAPA, Executive shall report to the President and Chief Executive Officer of
Employer and the President and Chief Executive Officer of HAPA, shall be
responsible for such powers and duties normally associated with such position or
as may be delegated or assigned to Executive by Employer's or HAPA's President
and Chief Executive Officer. During the term of this Agreement, Executive shall
also serve without additional compensation in such other offices of the Employer
or its subsidiaries or affiliates to which he may be elected or appointed by the
Board of Directors of Employer or its subsidiaries or affiliates, respectively.
3. DATE OF EMPLOYMENT. Executive's employment shall commence on
December 16, 1996 (the "Date of Employment").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Date of Employment. If
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at the end of the initial term a new employment contract is not executed, the
term of this Agreement shall continue on a year-to-year basis in the absence of
notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of One Hundred Sixty-five
Thousand Dollars ($165,000), annually, to be reviewed on an annual basis based
upon the performance of Executive. The Base Salary shall be paid to Executive in
equal semi-monthly payments in accordance with Employer's normal payroll
policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
EMPLOYER STOCK OPTIONS: Executive will be granted a nonqualified stock
option to purchase 50,000 shares of Common Stock of Employer at an exercise
price per share equal to the closing price per share of the Common Stock of
Employer as reported on the Nasdaq National Market on the Date of Employment.
The option will vest at a rate of one-fourth of the shares per year over a
four-year vesting period beginning on the date of grant, or in the event
substantially all of the capital stock or assets of Employer are sold or
transferred or Employer is merged into or consolidated with another unaffiliated
entity, then the option will become fully vested on the date of closing. The
option will expire on the tenth anniversary of the Date of Employment unless
sooner terminated by termination of Executive's employment hereunder. The option
shall be granted under and in accordance with the terms and conditions of the
1989 Stock Option Plan, as amended, and a letter agreement between Executive and
Employer dated the Date of Employment.
BONUS COMPENSATION: Executive shall be eligible for an annual bonus
("Bonus") potential of 50% of Base Compensation, which shall be determined as
follows: (i) up to 50% shall be based upon achievement of budget and other
operational performance factors, and (ii) all or any part of the remaining 50%
shall be granted in the sole discretion of the Compensation and Benefits
Committee (the "Committee") of the Board of Directors of Employer. Executive's
bonus and performance factors shall be determined on an annual basis by the
Committee.
DISCRETIONARY EXPENSE ALLOWANCE: Executive shall be entitled to a
discretionary car or other expense allowance of $600.00 per month.
OTHER BENEFITS: Employer shall pay for Executive's professional
membership dues (AICPA, PICPA, FEI) and such continuing professional education
as may be necessary to maintain Executive's professional licenses. Executive
will be eligible for participation in any employee benefit programs available to
officers of Employer from time to time as provided in Section 16 below.
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7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.
Executive shall also be reimbursed for expenses associated with the
relocation of Executive to Employer's designated location. The extent and amount
of such expense shall be consistent with the Relocation Policy attached as
Exhibit "A".
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and HAPA
and shall not, during the term of this Agreement, take, directly or indirectly,
an active role in any other business activity without the prior written consent
of the Employer; but except as provided in Section 13(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 25 below), the following provisions
will apply:
(a) Employer shall during the Severance Period (as defined in
Section 25 below), continue to pay Executive an amount equal
to:
(i) Executive's Base Salary at the time of termination of
employment; and
(ii) That portion of Executive's Bonus based on
achievement of budget and other operational
performance factors, if the criteria is met.
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) During the Severance Period Executive and his spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 25 below), maintained by Employer in which
he or his spouse or family were participating immediately
prior to the date of his termination as if he continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans
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is not possible under the terms thereof, Employer will provide
substantially identical benefits to the extent possible. If,
however, Executive obtains employment with another employer
during the Severance Period, such coverage shall be provided
until the earlier of: (i) the end of the Severance Period or
(ii) the date on which the Executive and his spouse and family
can be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(c) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods he would have earned had his employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(d) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Section 9(a) and (b) hereof is contingent upon
Executive's compliance with Section 14 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive for other than Good Reason, the Employer shall pay the
Executive only his Base Salary due through the date on which his employment is
terminated at the rate in effect at the time of notice of termination. The
Employer shall then have no further obligation to Executive under this
Agreement, except for the payout of benefits accrued under any Employee Benefit
Plans or other employee benefits.
11. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the
event Executive's employment is terminated for Good Reason (as defined in
Section 25 below), then Executive shall be entitled to payment of 150% of
Executive's Base Salary during the Severance Period. Such amount will be paid
during the Severance Period in monthly or other installments, similar to those
being received by Executive at the date of termination of employment, and will
commence as soon as practicable following the date of termination of employment.
In addition, the provisions of Section 9(b), (c) and (d), above, shall apply in
the event of termination of Executive's employment for Good Reason. Compensation
under this Section 11 is contingent upon Executive's compliance with Section 14
hereof.
12. SETOFF.
(a) With respect to Sections 9, 10 and 11 hereof, payments or
benefits payable to or with respect to Executive or his spouse
pursuant to this Agreement shall be
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reduced by the amount of any claim of Employer against
Executive or his spouse or any debt or obligation of Executive
or his spouse owing to Employer.
(b) With respect to Sections 9, 10 and 11 hereof, payments or
benefits payable to or with respect to Executive pursuant to
this Agreement shall be reduced by any amount Executive may
earn or receive from employment with another employer or from
any other source, except as expressly provided in Section
9(b).
13. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving
spouse. On the death of the survivor of Executive and his
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or his spouse
immediately prior to the date of his death to the extent
possible.
Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
14. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time he is employed by the Employer or
following termination of his employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of his duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses; provided, however, the foregoing shall
not apply to information which is generally known to the
public or appears as a matter of public record or matters as
to which disclosure is required by law or appropriate judicial
or investigative proceeding.
(b) Non-Competition. During the term of employment provided
hereunder and for a period of nine months after termination of
employment, Executive will not directly or indirectly own,
manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or any
have financial interest in, or
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aid or assist anyone else in the conduct of, any business
which is in competition with any business conducted by the
Employer or any Affiliate of Employer in any state in which
the Employer or any Affiliate of Employer is conducting
business on the date of termination or expiration of this
Agreement, provided that ownership of 5% or less of the voting
stock of any public corporation shall not constitute a
violation hereof. Notwithstanding the foregoing, if Good
Reason (as defined in Section 25(c) (iii)-(vi) below) exists,
Executive may enter into competition with Employer or any
Affiliate of Employer without being in violation of this
Agreement; provided, however, in any such event, Executive
shall forfeit all rights to payments and other benefits under
Section 9, above.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of nine months after termination of
employment Executive will not (i) directly or indirectly
solicit business which could reasonably be expected to
conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, for a period of nine months after termination of
employment cooperate with the Employer in concluding any
matters in which Executive was involved during the term of his
employment and will make himself available for consultation
with the Employer on other matters otherwise of interest to
the Employer. The Employer agrees that such requests shall be
reasonable in number and will consider Executive's time
required for other employment and/or employment search.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 14 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 14 shall not
terminate upon Executive's termination of his employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
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15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
17. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
18. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and
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personal, and Executive may not assign any of his rights or delegate any of his
duties or obligations under this Agreement.
22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
24. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Board of Directors which are demonstrably
injurious to Employer;
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days, except in the event of
time taken for vacation, disability, sickness or
business travel; or
(iv) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i), (ii) and (iii) above), or materially
fails to satisfy the conditions and requirements of
his employment with Employer, and such breach or
failure by its nature is incapable of being cured, or
such breach or failure remains uncured for more than
30 days following receipt by Executive of written
notice from Employer specifying the nature of the
breach or failure and demanding the cure thereof. For
purposes of this paragraph (iv), inattention by
Executive to his duties shall be deemed a breach or
failure of cure.
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Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
(c) "Good Reason" shall exist if there is a significant change in
the nature or the scope of Executive's position and authority
as a result of a change in control of Employer, which shall
include the following occurrences:
(i) there is a reduction in Executive's rate of base
salary;
(ii) relocation to another city required without mutual
consent of Executive and Employer;
(iii) the acquisition of at least a majority of the
outstanding shares of Common Stock (or securities
convertible into Common Stock) of Employer by any
person, entity or group (as used in Section 13(d)(3)
and Rule 13d-5(b)(1) under the Securities Exchange
Act of 1934, as amended);
(iv) the merger or consolidation of Employer with or into
another corporation or other entity, or any share
exchange or similar transaction involving Employer
and another corporation or other entity, if as a
result of such merger, consolidation, share exchange
or other transaction, the persons who owned at least
a majority of the Common Stock of Employer prior to
the consummation of such transaction do not own at
least a majority of the Common Stock of the surviving
entity after the consummation of such transaction;
(v) the sale of all, or substantially all, of the assets
of Employer; or
(vi) any change in the composition of the Board of
Directors of Employer, as a result of a contested
election such that persons who at the beginning of
any period of up to two years constituted at least a
majority of the Board of Directors of Employer, or
persons whose nomination was approved by such
majority, cease to constitute at least a majority of
the Board of Directors of Employer at the end of such
period.
(d) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending 9 months thereafter.
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(e) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 14(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 14(b)
shall be constructed as narrowly as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
-------------------------------------
George R. Mark
COVENTRY CORPORATION
By:
-------------------------------------
Allen F. Wise
President and Chief Executive Officer
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EXHIBIT "A"
COVENTRY CORPORATION
RELOCATION POLICY
NEW EMPLOYEES
I. Purpose
This policy outlines the nature of financial assistance provided to
exempt salaried employees who are relocating at the request and for the
benefit of the Company.
II Administration
Relocation under this policy will be coordinated through Human
Resources. Any exceptions to this policy must receive prior approval by
Human Resources.
III. General Provisions
- Eligibility - Subject to the limitations and exclusions set
out herein, all exempt salaried employees who relocate
their residence at the request of the Company are eligible
for the benefits described in this policy. The new assignment
must result in at least a thirty-five (35) mile increase in
the distance from the employee's former residence to his new
business location for moving expenses to be paid.
- Benefit Period - Eligible employees will be allowed six months
from the effective date of their transfer to complete and
apply for relocation reimbursements.
- Eligible Expenses - Only the necessary and reasonable expenses
incurred as a direct result of the move which are covered by
this policy are eligible for payment or reimbursement. These
expenses typically relate to:
- Househunting
- Sale of former residence
- Purchase of new residence
- Temporary living
- Transportation of household goods
- Move expenses
- Miscellaneous expenses
- Taxes
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IV Househunting
Reasonable pre-move travel, meals, lodging, and car rental expenses to
search for a new residence will be reimbursed as follows:
- One trip for the employee and spouse to locate
housing
- Trip may not exceed seven (7) days
- Coach air fair
- Meals
- Seven (7) nights lodging
- Car rental
- Parking and tolls
- Reasonable child care expenses
V. Purchase of New Residence
If the employee was a home owner in the previous location the Company
will pay the reasonable expenses involved in the purchase of a home at
the employee's new location according to local law or custom up to the
following limits:
- Loan origination fees where required to obtain a mortgage up
to maximum of 1% of the mortgage.
- Other buying expenses such as appraisal, credit report, and
survey when required by law, custom, or mortgagee; escrow fee
excluding insurance and tax deposit; mortgagee's title policy;
abstract or title guarantee; recording of mortgage and deed;
state mortgage tax; and attorney's fee consistent with local
requirements.
- Full or prorated hazard insurance, private mortgage insurance,
property taxes, or interest charges are not reimbursable.
The Company expects that home purchase at the new location will
coincide with the commencement of the new assignment. If circumstances
require that the new home purchase be delayed, approval must be
obtained from the Human Resources for reimbursement of eligible
expenses to be made.
Real Estate conditions, practices and terms vary with geographic area.
It is the employee's responsibility to "shop around" and negotiate for
the best terms available concerning mortgage conditions, attorney's
fees and closing costs. Mortgage fees and closing costs, for example,
that are out of line with current terms in that community will not be
reimbursed.
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VI. Temporary Living
The Company will reimburse the employee for expenses incurred for
temporary living while on assignment at the new location prior to
moving into permanent quarters. If hotel arrangements must be made, a
reasonable weekly rate should be obtained. The employee will be
reimbursed for the following reasonable expenses:
- Lodging
- Car Rental
- Meals or groceries
Temporary living expenses will be covered for a period not exceed four
(4) months. Travel time away from the new work location during this
period does not alter the four (4) month limitation. The employee who
has started to wok at the new location and has not completed relocation
to the new area may be reimbursed for one trip every other week to his
former location.
VVI. Transportation of Household Goods
Human Resources will arrange for an approved carrier to contact the
employee. The moving company will arrange for packing and shipping of
the employee's normal household goods.
The Company will reimburse for:
- Insurance (at replacement value)
- Storage of furniture (with prior approval)
- Disconnecting & connecting of washers, dryers, stoves,
freezers, refrigerators.
- Reimbursement is not made of wiring or plumbing of these
appliances.
- Shipping outdoor swing sets (dismantle and reassemble not
included)
The following items will not be moved or insured at the Company's
expense:
- Recreational motor vehicles or airplanes (that can be driven
to towed, motorcycles excluded)
- Boats (too big for regular shipment long with household goods)
- Patio slate
- Fertilizer
- Cement
- Frozen foods
- Shrubbery
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- Firewood
- Lumber or other building material
- Sand
- Horses
- Portable swimming pools
- Love plants
- Jewelry, Precious stones, valuable collections, legal
documents, money in any cash form (cash, securities, bonds,
notes)
- Inoperative automobiles
VIII Move Expenses
The Company reimburses an employee for transportation cost to the new
location and expenses until the family is settled in permanent
quarters. The following items are reimbursable:
- Travel by employee's car (prevailing mileage rates)
- Lodging (up to five nights)
- Meals (up to five days)
Normally, extra charges for weekend pick-up or delivery of household
goods are not authorized.
IX Tax Treatment
Reimbursed relocation expenses are considered to be income by the
Internal Revenue Service. The IRS requires the Company to report all
reimbursed relocation expenses and withhold income tax from
reimbursements estimated to be over the amount tax deductible by the
employee.
The Company attempts to limit the employee's tax liability caused by
the reimbursement of relocation expenses. A "gross up" of money will be
paid to the employee to cover the estimated tax resulting from
non-deductible reimbursed expenses. Miscellaneous expense allowance
will be excluded from this gross-up.
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Exhibit 10(xxvii)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the _____day of
___________, 1997, by and between Robert A. Mayer ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214, and
HealthAmerica Pennsylvania, Inc. ("HAPA"), a Pennsylvania corporation with its
principal place of business at Five Gateway Center, Pittsburgh, Pennsylvania
15222.
W I T N E S S E T H:
WHEREAS, Executive desires to enter into an employment relationship
with Employer and HAPA, and Employer and HAPA desire to employ Executive; and
WHEREAS, Executive, Employer and HAPA desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. On the Date of Employment (as defined in Section 3
below), Executive shall be engaged by Employer as its Senior Vice President and
by Employer's subsidiary, HealthAmerica Pennsylvania, Inc. ("HAPA") as its Chief
Operations Officer. Executive hereby agrees to such employment on and after the
Date of Employment under the terms and conditions hereinafter set forth.
2. DUTIES. As Senior Vice President of Employer and Chief Operations
Officer of HAPA, Executive shall report to the President and Chief Executive
Officer of Employer and the President and Chief Executive Officer of HAPA, shall
be responsible for broad executive responsibilities in both the operations and
senior general management areas, including, but not limited to, the
establishment and implementation of policies and directives, formulation of long
range plans, goals and objectives, effective management of employees, and such
other powers and duties normally associated with such position or as may be
delegated or assigned to Executive by Employer's or HAPA's President and Chief
Executive Officer. During the term of this Agreement, Executive shall also serve
without additional compensation in such other offices of the Employer or its
subsidiaries or affiliates to which he may be elected or appointed by the Board
of Directors of Employer or its subsidiaries or affiliates, respectively.
3. DATE OF EMPLOYMENT. Executive's employment shall commence on
February 10, 1996 (the "Date of Employment").
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4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of two years beginning
on the Date of Employment. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of Two Hundred Twenty-five
Thousand Dollars ($225,000), annually, to be reviewed on an annual basis based
upon the performance of Executive. The Base Salary shall be paid to Executive in
equal semi-monthly payments in accordance with Employer's normal payroll
policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
EMPLOYER STOCK OPTIONS: Executive will be granted a nonqualified stock
option to purchase 100,000 shares of Common Stock of Employer at an exercise
price per share equal to the closing price per share of the Common Stock of
Employer as reported on the Nasdaq National Market on either the date Executive
accepts employment or the Date of Employment, whichever date has the lower
closing price. The option will vest at a rate of one-third of the shares per
year over a three-year vesting period beginning on the date of grant, or in the
event substantially all of the capital stock or assets of Employer are sold or
transferred or Employer is merged into or consolidated with another unaffiliated
entity, then the option will become fully vested on the date of closing. The
option will expire on the tenth anniversary of the Date of Employment unless
sooner terminated by Executive terminating his employment hereunder. The option
shall be granted under and in accordance with the terms and conditions of the
1989 Stock Option Plan, as amended, and a letter agreement between Executive and
Employer dated either the Date of Employment or Executive's acceptance date, as
the case may be.
BONUS COMPENSATION: Executive shall be eligible for an annual bonus
("Bonus") potential of 50% of Base Compensation, which shall be determined as
follows: (i) up to 50% shall be based upon achievement of budget and other
operational performance factors, and (ii) all or any part of the remaining 50%
shall be granted in the sole discretion of the Compensation and Benefits
Committee (the "Committee") of the Board of Directors of Employer. Executive's
bonus and performance factors shall be determined on an annual basis by the
Committee.
DISCRETIONARY EXPENSE ALLOWANCE: Executive shall be entitled to a
discretionary car or other expense allowance of $600.00 per month.
OTHER BENEFITS: Executive will be eligible for participation in any
employee benefit programs available to officers of Employer from time to time as
provided in Section 15 below.
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<PAGE> 3
7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.
Executive shall also be reimbursed for expenses associated with the
relocation of Executive to Employer's designated location. The extent and amount
of such expense shall be consistent with the Relocation Policy attached as
Exhibit "A".
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and HAPA
and shall not, during the term of this Agreement, take, directly or indirectly,
an active role in any other business activity without the prior written consent
of the Employer; but except as provided in Section 13(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 24 below), the following provisions
will apply:
(a) Employer shall during the Severance Period (as defined in
Section 24 below), continue to pay Executive an amount equal
to:
(i) Executive's Base Salary at the time of termination of
employment; and
(ii) That portion of Executive's Bonus based on achievement of
budget and other operational performance factors, if the
criteria is met.
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) During the Severance Period Executive and his spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 24 below), maintained by Employer in which
he or his spouse or family were participating immediately
prior to the date of his termination as if he continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans
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<PAGE> 4
is not possible under the terms thereof, Employer will provide
substantially identical benefits to the extent possible. If,
however, Executive obtains employment with another employer
during the Severance Period, such coverage shall be provided
until the earlier of: (i) the end of the Severance Period or
(ii) the date on which the Executive and his spouse and family
can be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(c) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods he would have earned had his employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(d) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Section 9(a) and (b) hereof is contingent upon
Executive's compliance with Section 13 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only his Base
Salary due through the date on which his employment is terminated at the rate in
effect at the time of notice of termination. The Employer shall then have no
further obligation to Executive under this Agreement, except for the payout of
benefits accrued under any Employee Benefit Plans or other employee benefits.
11. SETOFF. With respect to Section 9, payments or benefits payable to
or with respect to Executive or his spouse pursuant to this Agreement shall be
reduced by the amount of any claim of Employer against Executive or his spouse
or any debt or obligation of Executive or his spouse owing to Employer.
12. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving
spouse. On the death of the survivor of Executive and his
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or his spouse
immediately prior to the date of his death to the extent
possible.
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<PAGE> 5
Any benefits payable under this Section 12 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
13. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time he is employed by the Employer or
following termination of his employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of his duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. During the term of employment provided
hereunder and for a period of one year after termination of
employment, Executive will not directly or indirectly own,
manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or any
have financial interest in, or aid or assist anyone else in
the conduct of, any business which is in competition with any
business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of one year after termination of
employment Executive will not (i) directly or indirectly
solicit business which could reasonably be expected to
conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
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(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment cooperate with the Employer in concluding any
matters in which Executive was involved during the term of his
employment and will make himself available for consultation
with the Employer on other matters otherwise of interest to
the Employer. The Employer agrees that such requests shall be
reasonable in number and will consider Executive's time
required for other employment and/or employment search.
Executive shall be reimbursed for ordinary and necessary
expenses incurred by Executive on behalf of Employer and its
Affiliates, in providing consultation, upon presentation of
vouchers in accordance with the usual and customary procedures
of Employer in relation to such expense items, except that
Employer may elect, at its option, to pay such expense items
directly rather than reimburse Executive therefore.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 13 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 13 shall not
terminate upon Executive's termination of his employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
14. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
15. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
16. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or
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debts of, or other claims against, Executive or his spouse or other beneficiary,
including claims for alimony, support, separate maintenance, and claims in
bankruptcy proceedings.
17. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
18. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
19. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
20. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
21. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
22. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
23. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
24. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
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(b) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, or material
non-compliance with written directives approved by
the Board of Directors which are materially injurious
to Employer;
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days, except in the event of
time taken for vacation, disability, sickness or
business travel.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
(c) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending 15 months thereafter.
(d) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
25. ARBITRATION. If any dispute, controversy, or claim arises out of,
or is related to, this Agreement, or the breach thereof, the parties hereto
shall first make their best efforts to resolve such dispute, controversy, or
claim informally. If it cannot be resolved informally, the dispute, controversy,
or claim shall be settled by arbitration before a single (1) arbitrator in
accordance with the rules of the American Arbitration Association. The
arbitration shall proceed under rules mutually agreed upon by the parties hereto
or, if the parties are unable to agree on rules for the arbitration, shall
follow the rules of the American Arbitration Association. Arbitration costs
shall be borne equally by the parties; each party shall bear the costs of its
own counsel and technical or consulting support in connection with the
arbitration.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event
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that Section 13(b) is determined by a court of competent jurisdiction to be
invalid due to overbreadth, such Section 13(b) shall be constructed as narrowly
as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------
Robert A. Mayer
COVENTRY CORPORATION
By:
----------------------------------------
Allen F. Wise
President and Chief Executive Officer
HEALTHAMERICA PENNSYLVANIA, INC.
By:
----------------------------------------
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EXHIBIT "A"
COVENTRY CORPORATION
EXECUTIVE RELOCATION POLICY
PURPOSE:
This policy outlines the nature of financial assistance provided to executives
who are relocating at the request and for the benefit of the Company.
ADMINISTRATION:
Relocation under this policy will be coordinated through Human Resources. Any
exceptions to this policy must receive prior approval by the President of the
Company.
GENERAL PROVISIONS:
1) Eligibility - Subject to the limitations and exclusions set out herein,
all executives who relocate their residence at the request of the
Company are eligible for the benefits described in this policy. The new
assignment must result in at least a fifty (50) mile increase in the
distance from the executive's former residence to his/her business
location for moving expenses to be paid.
2) Benefit Period - Eligible executives will be allowed six (6) months
from the effective date of their transfer to complete and apply for
relocation reimbursement.
3) Eligible Expenses - Only the necessary and reasonable expenses incurred
as a direct result of the move which are covered by this policy are
eligible for payment or reimbursement. These expenses typically relate
to:
- House Hunting
- Temporary Living
- Travel to New Location
- Movement of Household Goods
- Miscellaneous Moving Allowance
- Sale of Former Residence
- Purchase of a New Residence
- Equity Advance
- Mortgage Supplement
- Taxes
HOUSE HUNTING TRIP:
One house hunting trip of two to three days for executive and spouse is
provided. A second and third trip may be allowed with the approval of the
President of the Company. Covered expenses include:
- Transportation (by air, coach rate & car rental; by car, prevailing
mileage reimbursement rate)
- Meals
- Lodging
- Reasonable incidental expenses, such as child care
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<PAGE> 11
TEMPORARY LIVING FOR EXECUTIVE PRIOR TO MOVE:
If temporary living expenses are needed by the executive prior to the move of
family and/or household goods to the new work location, Coventry will provide
the following for a period not to exceed sixty (60) days:
- Temporary living accommodations
- Transportation home every other weekend
- $50 per week for incidental expenses
TRAVEL TO NEW WORK LOCATION:
Coventry will reimburse the cost of transportation by automobile (at the
prevailing mileage reimbursement rate) or air (at coach rates) for the executive
and family, including lodging, meals, and tolls while in transit between old and
new locations via the most direct route with no extra stop oversee.
TEMPORARY LIVING FOR FAMILY AT TIME OF MOVE:
If it is necessary for the family to set up temporary living quarters in the new
work location until the household goods arrive, the policy provides for the
reimbursement of meals and lodging for up to 30 days. This allowance is intended
to cover situations resulting from a delay in delivery of the moving company or
from a delay in the completion or availability of quarters at the new location.
MOVEMENT OF HOUSEHOLD GOODS:
The following items/services will be directly paid by Coventry for the movement
of household goods:
- Packing, crating, shipping, unpacking, insurance, storage and removal of
household goods and belongings.
- Cost of disconnecting and reconnecting washer, dryer, refrigerator,
freezer and stove.
- Transportation of two (2) automobiles:
- If distance from former location to new location is less than 500
miles, reimbursement will be made for the driving of one vehicle
at current prevailing reimbursement rate, and the shipping of the
other vehicle on a common carrier.
- If distance is greater than 500 miles, both vehicles may be
transported via common carrier.
- Expenses associated with the rental of a trailer hitch and any extra
tolls associated with towing a boat, camper or trailer.
- Storage of household goods at the carrier's warehouse for a period of 30
days in those cases where occupancy of the new residence has been
delayed.
NOTE: Recreational vehicles such as snowmobiles, motorcycles and trail bikes,
and motorized equipment such as lawn mowers, snowblowers or lawn equipment are
authorized for transport in the van as long as the fuel and oil have been
drained.
The following items/services are not covered:
- Household cleaning services.
- Removal or installation of drapes, wall-to-wall carpeting, or related
items.
- Pick-up and delivery charges at locations other than the primary
residence.
- The disassembly and assembly of fixtures and utilities such as wood
stoves, water softeners, swing sets, utility sheds, above ground pool,
spas, etc.
- Transporting high weight low value items such as firewood, coal, building
material, etc.
- Transporting perishable foods, liquor or plants.
- Boarding or transporting household pets.
- Transporting combustible items such as ammunition, oil-based paints,
kerosene and other flammable
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<PAGE> 12
liquids and fuel.
- Transporting boats, farm animals, spas and other unusual items.
- Transporting non-operable automobiles.
- Transporting articles of great monetary or sentimental value such as
jewelry, furs, stamp and coin collections, stocks/bonds, wills, photos or
other important documents.
MISCELLANEOUS MOVING ALLOWANCE:
Coventry will provide an additional one month's salary to executives who are
homeowners to assist with incidental expenses associated with moving. Such
expenses might include:
- Increased homeowner's insurance premiums (when house is vacated and
unsold)
- On-going utility bills
- Lawn maintenance
- Transporting and/or kenneling of household pets
- New driver's license
- Automobile registration
- Telephone installation charges
- Special home wiring and utility hook-ups
- Installation of drapes
- Carpet clearing
- Cable and antennae hook-ups
- Any other relocation expenses not covered under Coventry's
Relocation Policy
For executives who are renting and do not own homes, the payment will be $500.
Any unused portion of this benefit is yours to keep, it does not need to be
repaid to Coventry.
SALE OF FORMER RESIDENCE:
In order to assist an executive in the sale of his/her home when transferring at
the company's request, Coventry has retained a relocation management company to
provide the relocating executive an opportunity to dispose of their primary
residence at a realistic and competitive price. The executive may elect to enter
a home marketing assistance program or may, through his own efforts, put his
current home on the market for 60 days. At the end of the 60-day period Coventry
will, or at any time during the 60-day period Coventry may take over all
responsibility for the costs, marketing and sale of the home (at the appraised
fair market value) through a relocation management company.
Self-Sale Program
Under this program, for 60 days, the executive will be selling his/her
home independently or through his/her selected real estate agent and closing the
home on his/her own. The executive will still be eligible for the 2% incentive
sales bonus and reimbursement of normal and customary home selling and closing
costs. Closing costs will be entirely non-deductible for federal tax purposes
and are considered taxable income to the executive. Tax gross-ups will not be
provided by Coventry.
Home Marketing Assistance Program
This program has been designed to maximize the possibility of finding a
buyer for the executive's home and offers the executive incentives to find a
buyer. All reimbursable expenses associated with the sale of the executive's
home are directly billed to Coventry by the third party homesale company.
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<PAGE> 13
The executive should not list their home for sale on their own or with
a real estate agent. To assist the executive in getting the maximum sales price
for their home, a home marketing assistance firm, paid for by Coventry, will
provide the executive marketing advice and assistance. The executive must accept
this assistance in order to be eligible for the third party buy-out option. The
marketing assistance firm will provide the executive the choice of two local,
reputable real estate companies. An agent from each of these companies will
contact the executive and create a specific marketing strategy. In order to be
eligible for the third party buy-out option, the executive must select one of
the two designated real estate agents to list his/her property. The selected
agent will assist the executive in setting a competitive price based on their
market analysis.
The executive should list their home within approximately five to seven
days after having been initiated into the home marketing process after
establishing the list price, the executive is to sign a listing agreement with a
real estate agency to place their home on the market. It is recommended that the
initial listing agreement be in effect for 90 days with a 30-day extension
option. The listing agreement must include an exclusion clause as follows:
"This listing Agreement is subject to the following provisions:
It is understood and agreed that regardless of whether or not an offer is
presented by a ready, willing and able buyer:
1. No commission or compensation shall be earned by, or be due
and payable to, broker until sale of the property has been
consummated between seller and buyer, and deed delivered to
the buyer and the purchase price delivered to the seller;
2. The sellers reserve the right to sell the property at any time
to Coventry or its agent. Upon the execution by Coventry or
its agent and me (us) of an agreement of sale with respect to
the property, this Listing Agreement shall immediately
terminate without obligation on my (our) part or on the part
of any named prospective purchaser to either pay the
commission or to continue this listing."
This clause simply protects Coventry from paying a double commission on the same
property.
Fifteen days after the executive lists his/her home for sale in the home
marketing assistance program, the third party buy-out offer program is
initiated. The third party buy-out offer is based on the average of two
appraisals, if the difference between the two is five percent or less. If the
difference is more than five percent, a third appraisal will be ordered and the
average of the three appraisals will determine the third party offer price. The
executive will have sixty (60) days from the date the third party company makes
an offer to accept the third party buy-out offer.
During the sixty-day offer period, the executive may:
- Accept the third party buy-out offer at any time after the thirtieth
day of the sixty-day offer period.
- Find a potential buyer who submits an acceptable offer resulting in an
amended value transaction and turn it over to the third party company
for closing. The executive is to contact his/her home marketing and
third party coordinators immediately and is not to accept the offer, a
deposit or down payment or sign any agreement. If the offer proves to
be a bona fide offer, only contingent upon financing, the executive's
contract will be amended to the buyer's sales price by the third party
company. If this offer is ratified by the third party company, Coventry
will pay the executive a 2% sales incentive bonus based on the net
sales price of the executive's home. As an added incentive, Coventry
will honor the executive's third party offer if the executive finds a
buyer willing to pay 97% of the appraised value (based on the net sales
price). The incentive bonuses are paid through payroll and is taxable
income to the executive with appropriate taxes being withheld.
- Reject the third party buy-out offer at the end of the sixty-day offer
period and continue to market on his/her own. Coventry will reimburse
direct home selling costs, provided the closing occurs within 12 months
of the executive's transfer date. If the executive's home is not sold
within the 12 month period,
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<PAGE> 14
no closing costs will be paid by Coventry on behalf of the executive.
All expenses through the final close date, including carrying costs,
upkeep and marketing costs are the executive's responsibility. Closing
cost reimbursements are considered as income and will not be tax
deductible on the executive's federal return or GROSSED-UP BY COVENTRY
FOR TAX PURPOSES. By rejecting the third party buy-out offer, the
executive waives all rights to a guaranteed selling price from Coventry
or its agent and is not eligible for reinstatement in the program.
Covered/Reimbursable Homesale Expenses
The following expenses will be billed directly to Coventry for executives in the
Home Marketing Assistance Program and reimbursed to executives who choose the
Self-Sale Program:
- Real estate brokerage commission not to exceed 6%, without prior
Coventry approval
- Attorney's fees and title fees
- Transfer and/or documentary taxes the seller is required to pay
- Homeowner's warranty paid for by seller, up to $350
- Inspection and recording fees normally charged to the seller
- Other customary fees directly related to the sale but which have not
been incurred by choice by the seller, such as escrow fees and tax
service fees.
Non-Covered/Non-Reimbursable Expenses
The following expenses are not covered for executives in either program:
- Discount points paid by the seller to assist the buyer in getting a
mortgage
- Real estate and personal property taxes prepaid items such as interest,
insurance and annual assessment
- Incentives such as points and selling agent bonuses
- All other expenses which are normally paid by the buyer in that area
- Any and all expenses related to post-closing obligations, problems or
disputes raised by a subsequent purchaser or representative of a
purchaser including, but not limited to, matters relating to fraud,
liens, disclosure or title
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<PAGE> 15
PURCHASE OF A NEW RESIDENCE
Coventry will reimburse the executive for closing costs involved with the
purchase of a new residence if they own a home which is used as their primary
residence. The following are typical closing expenses:
- Attorney fees
- Title search/insurance
- Appraisal (if required)
- Survey (if required)
- Document preparation fees
- Recording fees
- Credit report
- Loan origination and/or mortgage discount fees up to two (2) total
points
- Cost of other required services
EQUITY ADVANCE
If the executive cannot sell his/her former residence before buying a new home,
the executive may receive an equity advance of up to 95% of the equity in their
home. This advance may only be initiated after the third party company receives
and ratifies the executive's executed Contract of Sale; documented proof of
need, a purchase contract and approval by Coventry are also required. If the
executive is not in need of an equity advance, the equity will be paid when the
executive vacates his/her home or signs the third party Contract of Sale,
whichever is later.
MORTGAGE SUPPLEMENTS
After the executive purchases his/her new home, and if the executive's old home
has not been sold, Coventry will reimburse utilities, mortgage interest (not
principal), real estate taxes, dwelling insurance, Homeowner Association Fees
and condominium fees on a prorated basis for up to 30 days. Up to an additional
three (3) months of duplicate house payments may be allowed with the approval of
the President of the Company. Appropriate documentation is required.
COST OF LEASE TERMINATION FOR RENTERS
Renters who are unsuccessful in severing a lease without penalty will be
reimbursed up to four (4) months' rent for which the executive may be held
liable, including any prepayment penalty or deposit.
TAXES
Most of the payments or reimbursements made to or on behalf of the executive
under this policy are considered "income" for federal and state income tax
purposes, and will be reported on the executive's W-2. Some of the payments may
be deducted by the executive and some may not. Coventry will provide detailed
information as to which items are deductible at the time that it provides the
W-2 form. For those items which are non-deductible, Coventry will provide
additional compensation in the executive's tax withholding account to cover any
added taxes incurred, except for the closing costs incurred as a result of the
executive electing the Self-Sale Program and miscellaneous expenses. This is
called "grossing up" the benefit, and means that the executive will be
compensated for the additional income taxes caused by the relocation benefits
provided by Coventry.
Moving expenses reimbursed by Coventry which would have been deductible had the
executive directly paid for them, will be excluded from federal taxation and
will not be reported as taxable federal wages on the executive's W-2.
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<PAGE> 16
Coventry will prepare an executive moving expense form, IRS Form 47827 at the
end of each year in which an executive receives taxable reimbursements related
to relocation. This form provides a detailed breakdown of reimbursements or
payment for moving expenses to assist the executive in completing his/her tax
return.
VOLUNTARY TERMINATION BY EXECUTIVE
In the event an executive receiving benefits under this policy voluntarily
terminates his/her employment within one year of the report date at his/her new
assignment, those fees, expenses and other monetary benefits the executive has
received under the policy must be reimbursed to Coventry in accordance with the
schedule provided below. The executive will be required to sign a reimbursement
agreement, evidencing such obligation.
<TABLE>
<CAPTION>
Length of Service from Report Date Amount
- ---------------------------------- ------
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
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<PAGE> 17
EXECUTIVE REIMBURSEMENT AGREEMENT
In order to receive relocation benefits, the Executive Reimbursement Agreement
must be signed and returned to Human Resources prior to commencement of benefits
application.
Executive Name: Robert A. Mayer
Social Security Number:
---------------------------------------
Effective Date of Job Assignment:
---------------------------------------
Department:
---------------------------------------
This Agreement is effective as of date signed. It is between the Company
("Employer") and
Robert A. Mayer
1. As of the effective date of this Agreement, Employer has or will spend
a sum of money for the purpose of reassigning Executive and Executive's
eligible household members to Employer's new work location.
2. Prior to the effective date of this Agreement, Executive was given a
Relocation Guide, which is incorporated herein by reference. This Guide
sets forth those items which Employer will either pay on behalf of
Executive or reimbursement to Executive, including, but not limited to,
those expenses associated with the sale and purchase of a primary
residence, househunting trips, mortgage subsidy assistance, renter's
expenses, final move travel expenses, movement of household goods,
temporary living expenses, automobile expenses, miscellaneous moving
allowance and tax treatment.
3. In consideration of Employer spending this money on the above items,
Executive agrees to remain employed with Employer for at least one (1)
year from the date the Executive is assigned to commence working in the
new work location.
Should the Executive voluntarily resign (or involuntarily be terminated due to
gross misconduct) prior to twelve (12) months from the date executive is
assigned to commence working in the new location, Executive will reimburse
Employer for those expenses incurred by Employer as set forth in the Company's
Executive Relocation Policy according to the schedule, set forth below:
<TABLE>
<CAPTION>
Length of Service from Report Date Amount
- ---------------------------------- ------
<S> <C>
1st month 100%
2nd month 95%
3rd month 90%
4th month 85%
5th month 80%
6th month 75%
7th month 65%
8th month 55%
9th month 45%
10th month 35%
11th month 25%
12th month 0%
</TABLE>
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<PAGE> 18
Further, I confirm that neither I nor any other household member is receiving
relocation benefits from any other company or source. I acknowledge that
relocation benefits paid by the Company would be subject to reduction, if
benefits were also paid by another source.
- ----------------------------------------------- --------------------
Robert A. Mayer Date
- ----------------------------------------------- --------------------
Allen F. Wise, Date
President and Chief Executive Officer
Coventry Corporation
18
<PAGE> 1
Exhibit 10(xxviii)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the _____ day of
__________, 1996, by and between Frederick G. Merkel ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive is currently employed by Employer as a Regional Vice
President, and the President and Chief Executive Officer of HealthAmerica
Pennsylvania, Inc. ("HAPA"), Employer's wholly owned subsidiary, and Employer
and Executive desire to enter into an employment relationship; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. Employer currently employs Executive, and Executive
hereby agrees to continue his employment as Regional Vice President of Employer
in charge of the Eastern Region, and as President and Chief Executive Officer of
HAPA on and after the Effective Date (as defined in Section 3 below) under the
terms and conditions hereinafter set forth.
2. DUTIES. As Regional Vice President of Employer and President and
Chief Executive Officer of HAPA, Executive shall report to the President and
Chief Executive Officer of Employer, and the Boards of Directors of Employer and
HAPA, and shall be responsible for the establishment and implementation of
Employer's policies and directives, the overall direction, administration and
leadership of HAPA and the Eastern Region, including, but not limited to, the
establishment and implementation of policies and directives, formulation of long
range plans, goals and objectives, effective management of employees, and such
other powers and duties normally associated with such position or as may be
delegated or assigned to Executive by Employer's President and Chief Executive
Officer or by the Boards of Directors of Employer or HAPA. During the term of
this Agreement, Executive shall also serve without additional compensation in
such other offices of the Employer or its subsidiaries or affiliates to which he
may be elected or appointed by the Chief Executive Officer of Employer or by the
Board of Directors of Employer or its subsidiaries or affiliates, respectively.
3. EFFECTIVE DATE. This Agreement shall be effective as of the date set
forth above (the "Effective Date").
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<PAGE> 2
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of two years beginning
on the Effective Date. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall pay Executive a base salary ("Base Salary") of no less than Two Hundred
Sixty-five Thousand Dollars ($265,000), annually, effective as of September 1,
1996, to be reviewed on an annual basis based upon the performance of Executive.
The Base Salary shall be paid to Executive in equal bi-weekly or semi-monthly
payments in accordance with Employer's normal payroll policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
(a) EMPLOYER STOCK OPTIONS: Executive will be granted a
nonqualified stock option to purchase 100,000 shares of Common
Stock of Employer at an exercise price per share equal to
$12.75, which is the closing price per share of the Common
Stock of Employer as reported on the Nasdaq National Market on
September 6, 1996; provided, however, receipt of 25,000 of the
100,000 options is contingent upon receipt of a Certificate of
Cancellation executed by Executive agreeing to the
cancellation of the 25,000 performance based stock options
granted on March 1, 1996. The option will vest at a rate of
one-fourth of the shares per year over a four-year vesting
period beginning on the date of grant, or in the event
substantially all of the capital stock or assets of Employer
are sold or transferred or Employer is merged into or
consolidated with another unaffiliated entity, then the option
will become fully vested on the date of closing. The option
will expire on the tenth anniversary of the date of grant
unless sooner terminated by termination of employment
hereunder. The option shall be granted under and in accordance
with the terms and conditions of Employer's Second Amended and
Restated 1993 Stock Option Plan and a letter agreement between
Executive and Employer dated the Effective Date.
(b) RETENTION BONUS: Executive shall be eligible to receive a
retention bonus ("Retention Bonus") in the amount of Four
Hundred Thousand Dollars ($400,000) to be paid in full on
January 31, 1999 ("Payment Date"), if Executive is and has
been continuously employed with Employer or a subsidiary of
Employer from the Effective Date to the Payment Date.
(c) ADDITIONAL BONUS COMPENSATION: Executive shall be eligible to
participate in the annual incentive bonus programs available
to officers of Employer and will be
2
<PAGE> 3
eligible to receive other incentive compensation in accordance
therewith as determined on an annual basis by the Compensation
and Benefits Committee of the Board of Directors of Employer.
(d) CAR ALLOWANCE: At the end of the lease term of Executive's
current vehicle leased by Employer for Executive's use,
Executive shall be entitled to a car allowance of $550.00 per
month.
(e) OTHER BENEFITS: Executive will be eligible for participation
in any employee benefit programs available to officers of
Employer from time to time as provided in Section 16 below.
7. EXPENSES AND COSTS OF RELOCATION. Executive shall be reimbursed for
ordinary and necessary business expenses incurred by Executive on behalf of
Employer and its subsidiaries or affiliates upon presentation of vouchers in
accordance with the usual and customary procedure of Employer in relation to
such expense items, except that Employer may elect, at its option, to pay such
expense items directly rather than reimburse Executive therefor.
Executive shall also be reimbursed for expenses associated with the
relocation of Executive to another location of the Employer or its subsidiaries
or affiliates. The extent and amount of such expense shall be consistent with
the normal policy of the Employer.
8. EXTENT OF SERVICE. Executive shall devote substantially all of his
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 14(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform his duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 25 below) or (ii) Executive
terminates his employment with Employer for Good Reason (as defined in Section
25 below) within 90 days following the first existence of Good Reason, the
following provisions will apply:
(a) Employer shall during the Severance Period (as defined in
Section 25 below), continue to pay Executive an amount equal
to Executive's Base Salary at the time of termination of
employment.
3
<PAGE> 4
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) Executive shall be allowed to exercise options granted to him
and vested at the date of termination for a period of two
years from the date of termination, all in accordance with the
remaining terms and conditions set forth in Employer's stock
option plans and the respective stock option letters issued to
Executive.
(c) During the Severance Period Executive and his spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 25 below), maintained by Employer in which
he or his spouse or family were participating immediately
prior to the date of his termination as if he continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide substantially
identical benefits to the extent possible. If, however,
Executive obtains employment with another employer during the
Severance Period, such coverage shall be provided until the
earlier of: (i) the end of the Severance Period or (ii) the
date on which the Executive and his spouse and family can be
covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(d) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods he would have earned had his employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(e) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Section 9(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 14 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only his Base
Salary due through the date on which his employment is terminated at the rate in
effect at the time of notice of termination. The Employer shall then have no
further obligation to Executive under this Agreement.
11. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the
event Executive's employment is terminated at any time within three years
following the occurrence of
4
<PAGE> 5
a Change in Control as set forth in that certain Change in Control Agreement (as
defined in Section 25 below), then this Agreement shall become null and void,
except with respect to Sections 6 (a) and 6 (b), which shall remain in full
force and effect, and the terms and conditions of the Change in Control
Agreement shall control.
12. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or his spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or his spouse or any debt or
obligation of Executive or his spouse owing to Employer.
(b) With respect to Section 9, payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be
reduced by any amount Executive may earn or receive from
employment with another employer or from any other source,
except as expressly provided in Section 9(c).
13. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to his surviving
spouse. On the death of the survivor of Executive and his
spouse, any remaining benefits under this Agreement shall be
paid to the estate of survivor.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or his spouse
immediately prior to the date of his death to the extent
possible.
Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or his spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
14. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time he is employed by the Employer or
following termination of his employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of his duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms,
5
<PAGE> 6
financial costs, pricing terms, sales data or business
opportunities whether for existing, new or developing
businesses.
(b) Non-Competition. During the term of employment provided
hereunder and for a period of two years after termination of
employment, Executive will not directly or indirectly own,
manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or
have any financial interest in, or aid or assist anyone else
in the conduct of, any business which is in competition with
any business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of two years after termination of
employment, Executive will not (i) directly or indirectly
solicit business which could reasonably be expected to
conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment, cooperate with the Employer in concluding any
matters in which Executive was involved during the term of his
employment and will make himself available for consultation
with the Employer on other matters otherwise of interest to
the Employer. The Employer agrees that such requests shall be
reasonable in number and will consider Executive's time
required for other employment and/or employment search.
Executive shall be reimbursed for ordinary and necessary
expenses incurred by Executive on behalf of Employer and its
Affiliates, in providing consultation, upon presentation of
vouchers in accordance with the usual and customary procedures
of Employer in relation to such expense items, except that
Employer may elect, at its option, to pay such expense items
directly rather than reimburse Executive therefore.
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(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 14 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 14 shall not
terminate upon Executive's termination of his employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and his family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
17. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
18. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of
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Executive, or to its principal office in the case of the Employer and the date
of receipt shall be deemed the date which such notice has been provided.
20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement, except as expressly referenced herein, and may
not be changed orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
24. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Change in Control Agreement" shall mean that certain
Agreement (for Key Senior Executives) dated September 12,
1995, between Employer and Executive, a copy of which is
attached hereto as Exhibit "A".
(c) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Chief Executive Officer of Employer or the Board
of Directors of Employer or HAPA, which are
demonstrably injurious to Employer or HAPA; or
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(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days; or
(iii) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i) and (ii) above), or materially fails
to satisfy the conditions and requirements of his
employment with Employer, and such breach or failure
by its nature is incapable of being cured, or such
breach or failure remains uncured for more than 30
days following receipt by Executive of written notice
from Employer specifying the nature of the breach or
failure and demanding the cure thereof. For purposes
of this paragraph (iii), inattention by Executive to
his duties shall be deemed a breach or failure of
cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner he reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe his conduct was unlawful in
connection with any action taken by Executive in connection
with his duties, it shall not constitute Good Cause.
(d) "Good Reason" shall exist if:
(i) there is a significant change in the nature or the
scope of Executive's authority; or
(ii) there is a reduction in Executive's rate of base
salary.
(e) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that is 24 months thereafter.
(f) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event
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that Section 14(b) is determined by a court of competent jurisdiction to be
invalid due to overbreadth, such Section 14(b) shall be constructed as narrowly
as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
-------------------------------------
Frederick G. Merkel
COVENTRY CORPORATION
By:
-------------------------------------
Allen F. Wise
President and Chief Executive Officer
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Exhibit 10(xxix)
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the ____ day of
________, 1997, by and between Shirley R. Smith ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Ste 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Executive is currently employed by Employer as Vice President
and Corporate General Counsel, and Employer and Executive desire to enter into
an employment relationship; and
WHEREAS, Executive and Employer desire to set forth in a written
agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. Employer currently employs Executive, and Executive
hereby agrees to continue her employment as Vice President and Corporate General
Counsel of Employer on and after the Effective Date (as defined in Section 3
below) under the terms and conditions hereinafter set forth.
2. DUTIES. As Vice President and Corporate General Counsel of Employer,
Executive shall report to the President and Chief Executive Officer of Employer.
Her powers and duties shall continue to be those normally associated with such
position or as may be delegated or assigned to Executive by Employer's President
and Chief Executive Officer or by the Board of Directors of Employer. During the
term of this Agreement, Executive shall also serve without additional
compensation in such other offices of the Employer or its subsidiaries or
affiliates to which she may be elected or appointed by the Chief Executive
Officer of Employer or by the Board of Directors of Employer or its subsidiaries
or affiliates, respectively.
3. EFFECTIVE DATE. This Agreement shall be effective as of the date set
forth above (the "Effective Date").
4. INITIAL TERM. Subject to the terms and conditions set forth herein,
Executive shall be employed hereunder for an initial term of one year beginning
on the Effective Date. If at the end of the initial term a new employment
contract is not executed, the term of this Agreement shall continue on a
year-to-year basis in the absence of notice of either party.
5. BASE COMPENSATION. For all duties rendered by Executive, Employer
shall continue to pay Executive a base salary ("Base Salary") of One Hundred
Thirty-one Thousand Two Hundred Fifty Dollars ($131,250), annually, to be
reviewed on an annual basis based upon
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the performance of Executive. The Base Salary shall be paid to Executive in
equal bi-weekly or semi-monthly payments in accordance with Employer's normal
payroll policies.
6. ADDITIONAL COMPENSATION. During the period of this Agreement and as
a result of employment under this Agreement, Executive shall receive or be
eligible for the following additional compensation:
(a) BONUS COMPENSATION: Executive shall be eligible to participate
in the annual incentive bonus programs available to officers
of Employer and will be eligible to receive other incentive
compensation in accordance therewith as determined on an
annual basis by the Compensation and Benefits Committee of the
Board of Directors of Employer.
(b) CAR ALLOWANCE: At the end of the lease term of Executive's
current vehicle leased by Employer for Executive's use,
Executive shall be entitled to a car allowance of $600.00 per
month.
(c) OTHER BENEFITS: Executive will be eligible for participation
in any employee benefit programs available to officers of
Employer from time to time as provided in Section 16 below.
7. EXPENSES. Executive shall be reimbursed for ordinary and necessary
business expenses incurred by Executive on behalf of Employer and its
subsidiaries or affiliates upon presentation of vouchers in accordance with the
usual and customary procedure of Employer in relation to such expense items,
except that Employer may elect, at its option, to pay such expense items
directly rather than reimburse Executive therefor.
8. EXTENT OF SERVICE. Executive shall devote substantially all of her
working time, attention and energies to the business of the Employer and shall
not, during the term of this Agreement, take, directly or indirectly, an active
role in any other business activity without the prior written consent of the
Employer; but except as provided in Section 14(b), this Section shall not
prevent Executive from serving as a director of other entities not affiliated
with Employer, from making real estate or other investments of a passive nature
or from participating in the activities of a nonprofit charitable organization
where such participation does not require a substantial amount of time and does
not adversely affect Executive's ability to perform her duties under this
Agreement.
9. TERMINATION OF EMPLOYMENT. Employer may terminate this Agreement
with or without cause at any time during the term of this Agreement. If the
employment of Executive with Employer is terminated by Employer for any reason
other than Good Cause (as defined in Section 25 below), the following provisions
will apply:
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(a) Employer shall during the Severance Period (as defined in
Section 25 below), continue to pay Executive an amount equal
to Executive's Base Salary at the time of termination of
employment.
Such amount will be paid during the Severance Period in
monthly or other installments, similar to those being received
by Executive at the date of termination of employment, and
will commence as soon as practicable following the date of
termination of employment.
(b) During the Severance Period Executive and her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 25 below), maintained by Employer in which
she or her spouse or family were participating immediately
prior to the date of her termination as if she continued to be
an employee of Employer; provided that, if participation in
any one or more of such Welfare Plans is not possible under
the terms thereof, Employer will provide substantially
identical benefits to the extent possible. If, however,
Executive obtains employment with another employer during the
Severance Period, such coverage shall be provided until the
earlier of: (i) the end of the Severance Period or (ii) the
date on which the Executive and her spouse and family can be
covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition.
(c) Executive shall not be entitled to payments during the
Severance Period attributable to compensation for vacation
periods she would have earned had her employment continued
during the Severance Period or to unused vacation periods
accrued as of the date of termination of employment.
(d) During the Severance Period Executive shall not be entitled to
reimbursement for fringe benefits such as car allowance, dues
and expenses related to club memberships, and expenses for
professional services.
Compensation under Sections 9(a) and (b) hereof is contingent upon
Executive's compliance with Section 14 hereof.
10. TERMINATION BY EXECUTIVE. Executive may terminate her employment
hereunder at any time upon sixty (60) days prior written notice. Upon such
termination by Executive, the Employer shall pay the Executive only her Base
Salary due through the date on which her employment is terminated at the rate in
effect at the time of notice of termination. The Employer shall then have no
further obligation to Executive under this Agreement, except for the payout of
benefits accrued under any Employee Benefit Plans or other employee benefits.
11. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. In the
event Executive's employment is terminated at any time within two years
following the occurrence of a
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Change in Control as set forth in that certain Change in Control Agreement (as
defined in Section 25 below), then this Agreement shall become null and void and
the terms and conditions of the Change in Control Agreement shall control.
12. SETOFF.
(a) With respect to Section 9, payments or benefits payable to or
with respect to Executive or her spouse pursuant to this
Agreement shall be reduced by the amount of any claim of
Employer against Executive or her spouse or any debt or
obligation of Executive or her spouse owing to Employer.
(b) With respect to Section 9, payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be
reduced by any amount Executive may earn or receive from
employment with another employer, except as expressly provided
in Section 9(b).
13. DEATH. If Executive dies during the Severance Period:
(a) All amounts payable hereunder to Executive shall, during the
remainder of the Severance Period, be paid to her surviving
spouse. On the death of the survivor of Executive and her
spouse, no further benefits will be paid under the Agreement.
(b) The spouse and family of Executive shall, during the remainder
of the Severance Period, be covered under all Welfare Plans
made available by Employer to Executive or her spouse
immediately prior to the date of her death to the extent
possible.
Any benefits payable under this Section 13 are in addition to any other
benefit due to Executive or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
14. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
either during the time she is employed by the Employer or
following termination of her employment hereunder, to any
person (other than a person to whom disclosure is necessary in
connection with the performance of her duties as an employee
of Employer or to any person specifically authorized by the
Board of Directors of Employer) any material confidential
information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, customer
lists, contract terms, financial costs, pricing terms, sales
data or business opportunities whether for existing, new or
developing businesses.
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(b) Non-Competition. During the term of employment provided
hereunder and for a period of one year after termination of
employment, Executive will not directly or indirectly own,
manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or
have any financial interest in, or aid or assist anyone else
in the conduct of, any business which is in competition with
any business conducted by the Employer or any Affiliate of
Employer in any state in which the Employer or any Affiliate
of Employer is conducting business on the date of termination
or expiration of this Agreement, provided that ownership of 5%
or less of the voting stock of any public corporation shall
not constitute a violation hereof. Notwithstanding the
foregoing, Executive may enter into competition with Employer
or any Affiliate of Employer without being in violation of
this Agreement; provided, however, in any such event,
Executive shall forfeit all rights to payments and other
benefits under Section 9, above.
(c) Non-Solicitation. During the term of employment provided for
hereunder and for a period of one year after termination of
employment, Executive will not (i) directly or indirectly
solicit business which could reasonably be expected to
conflict with the interest of Employer or any Affiliate of
Employer from any entity, organization or person which has
contracted with the Employer or any Affiliate of Employer,
which has been doing business with the Employer or any
Affiliate of Employer, from which the Employer or any
Affiliate of Employer was soliciting business at the time of
the termination of employment or from which Executive knew or
had reason to know that Employer or any Affiliate of Employer
was going to solicit business at the time of termination of
employment, or (ii) employ, solicit for employment, or advise
or recommend to any other persons that they employ or solicit
for employment, any employee of the Employer or any Affiliate
of Employer.
(d) Consultation. Executive shall, at the Employer's written
request, for a period of one year after termination of
employment, cooperate with the Employer in concluding any
matters in which Executive was involved during the term of her
employment and will make herself available for consultation
with the Employer on other matters otherwise of interest to
the Employer. The Employer agrees that such requests shall be
reasonable in number and will consider Executive's time
required for other employment and/or employment search.
(e) Enforcement. Executive and the Employer acknowledge and agree
that any of the covenants contained in this Section 14 may be
specifically enforced through injunctive relief but such right
to injunctive relief shall not preclude the Employer from
other remedies which may be available to it.
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(f) Continuing Obligation. Notwithstanding any provision to the
contrary or otherwise contained in this Agreement, the
agreement and covenants contained in this Section 14 shall not
terminate upon Executive's termination of her employment with
the Employer or upon the termination of this Agreement under
any other provision of this Agreement.
15. VACATION. During each year of this Agreement, Executive shall be
entitled to four (4) weeks paid vacation.
16. HEALTH AND WELFARE BENEFITS; PROFIT-SHARING PLANS. In addition to
the benefits specifically provided for herein, Executive and her family shall be
entitled to participate in all health and welfare benefit plans maintained by
the Employer for executive or managerial employees generally according to the
terms of such plans, including Executive Long Term Disability coverage (which is
an individual medically underwritten policy and subject to a physical
examination for eligibility). Executive shall be entitled to participate in any
profit-sharing, retirement or similar plans established by Employer in which
executive or managerial employees of Employer participate, including any such
plan intended to comply with Section 401(k) of the Internal Revenue Code of
1986, as amended, and any such plan providing supplemental executive retirement
benefits.
17. EXECUTIVE ASSIGNMENT. No interest of Executive or her spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or her spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
18. BENEFITS UNFUNDED. All rights of Executive and her spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor her
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and her spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
19. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to her residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
20. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
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21. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by her are unique and personal, and Executive may not assign any of her
rights or delegate any of her duties or obligations under this Agreement.
22. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
24. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Change in Control Agreement" shall mean that certain
Agreement (for Key Executives) dated September 12, 1995,
between Employer and Executive, a copy of which is attached
hereto as Exhibit "A".
(c) "Good Cause" shall be deemed to exist if, and only if:
(i) Executive engages in material acts or omissions
constituting dishonesty, breach of fiduciary
obligation or intentional wrongdoing, malfeasance or
non-compliance with written directives approved by
the Chief Executive Officer of Employer or the Board
of Directors of Employer, which are demonstrably
injurious to Employer; or
(ii) Executive is convicted of a violation involving fraud
or dishonesty; or
(iii) Executive's unexcused failure to report to work for
twenty (20) consecutive days; or
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(iv) Executive materially breaches this Agreement (other
than by engaging in acts or omissions enumerated in
paragraphs (i), (ii) and (iii) above), or materially
fails to satisfy the conditions and requirements of
her employment with Employer, and such breach or
failure by its nature is incapable of being cured, or
such breach or failure remains uncured for more than
30 days following receipt by Executive of written
notice from Employer specifying the nature of the
breach or failure and demanding the cure thereof. For
purposes of this paragraph (iv), inattention by
Executive to her duties shall be deemed a breach or
failure of cure.
Without limiting the generality of the foregoing, if Executive
acted in good faith and in a manner she reasonably believed to
be in, and not opposed to, the best interest of Employer and
had no reasonable cause to believe her conduct was unlawful in
connection with any action taken by Executive in connection
with her duties, it shall not constitute Good Cause.
(d) "Severance Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates without
Good Cause under circumstances described in Section 9 and
ending on the date that is 12 months thereafter.
(e) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan
or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
27. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby. In the event that Section 14(b) is determined by a court of
competent jurisdiction to be invalid due to overbreadth, such Section 14(b)
shall be constructed as narrowly as necessary to be enforceable.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------
Shirley R. Smith
COVENTRY CORPORATION
By:
----------------------------------------
Allen F. Wise
President and Chief Executive Officer
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Exhibit 10(xxx)
RETENTION BONUS AGREEMENT
This Retention Bonus Agreement is entered into as of the 31st day of
December, 1996, by and between James L. Gore ("Executive") and Coventry
Corporation ("Employer"), a Delaware corporation with its principal place of
business at 53 Century Boulevard, Suite 250, Nashville, TN 37214.
W I T N E S S E T H:
WHEREAS, Employer has established a retention bonus program to provide
additional incentives to certain key executive officers of Employer or its
subsidiaries.
WHEREAS, Employer has offered a retention bonus ("Retention Bonus") to
Executive and Executive desires to participate in the program.
WHEREAS, Employer and Executive desire to set forth in a written agreement
the terms and conditions of payment of the Retention Bonus.
NOW, THEREFORE, in consideration of the premises hereof and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. EMPLOYMENT. Executive is engaged by Employer's subsidiary, Coventry
HealthCare Management Corporation ("CHMC"), as its President and Chief Executive
Officer. Executive hereby agrees to continue his employment, acting in good
faith and to the best of his ability in the best interests of the Employer, CHMC
and their subsidiaries, in accordance with the terms and conditions set forth in
Executive's Employment Agreement between Executive and Southern Health
Management Corporation (now known as Coventry HealthCare Management Corporation)
dated as of December 1, 1994, and the terms and conditions set forth herein.
2. EFFECTIVE DATE. This Agreement shall be effective on the date set forth
above (the "Effective Date").
3. TERM. Subject to the terms and conditions set forth herein, this
Agreement shall terminate on January 31, 1999.
4. RETENTION BONUS. Executive shall be entitled to receive a Retention
Bonus in the amount of One Hundred Fifty Thousand Dollars ($150,000) to be paid
in full on January 31, 1999 ("Payment Date") if Executive is and has been
continuously employed with Employer or a subsidiary of Employer from the
Effective Date to the Payment Date.
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5. TERMINATION OF EMPLOYMENT. If the employment of Executive with Employer
is terminated by Employer or by Executive for any reason prior to the Payment
Date, this Agreement shall be and become null and void and Executive shall not
be entitled to all or any portion of the Retention Bonus.
6. EXECUTIVE ASSIGNMENT. No interest of Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payment or
distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
7. BENEFITS UNFUNDED. All rights of Executive and his spouse or other
beneficiary under this Agreement shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
Employer for payment of any amounts due hereunder. Neither Executive nor his
spouse or other beneficiary shall have any interest in or rights against any
specific assets of Employer, and Executive and his spouse or other beneficiary
shall have only the rights of a general unsecured creditor of Employer.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Executive, or to its principal office in
the case of the Employer and the date of receipt shall be deemed the date which
such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by the other party.
10. ASSIGNMENT. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The Executive acknowledges that the services to be
rendered by him are unique and personal, and Executive may not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and supersedes all other prior agreements and understandings, both
written and oral, express or implied with respect to the subject matter of this
Agreement and may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
2
<PAGE> 3
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
15. SEVERABILITY. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first written above.
------------------------------
James L. Gore
COVENTRY CORPORATION
By: _______________________________
Allen F. Wise
President and Chief Executive Officer
3
<PAGE> 1
Exhibit 11
Coventry Corporation
Computation of Net Earnings Per Common
and Common Equivalent Share (1)
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------------
(amounts in thousands except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------- ------------- -------------- -------------
<S> <C> <C> <C>
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(61,287) $ 18 $29,288
============= ============== =============
Weighted average number of common shares:
Shares outstanding at beginning of period (2) . . . . . . . . . . . . . . 32,277 31,194 30,306
Effect of exercise of stock options, warrants and employee plans . . . . 538 332 205
Weighted average number of common and common equivalent shares:
Additional equivalent shares issuable from assumed exercise of stock options 196 638 914
------------- -------------- ------------
Weighted average number of common and common equivalent shares outstanding -
primary basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,011 32,164 31,425
Incremental (decremental) equivalent shares from application of the fully
diluted computation . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (14) 125
------------- -------------- -------------
Weighted average number of common and common equivalent shares outstanding -
fully diluted basis . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,019 32,150 31,550
============= ============== =============
Net earnings per common and common equivalent share:
Primary and fully diluted . . . . . . . . . . . . . . . . . . . . . . . . $ (1.86) $ 0.00 $ 0.93
============= ============== =============
</TABLE>
(1) After giving effect to 2 for 1 stock split in the form of a stock
dividend on August 3, 1994.
(2) Restated for the purchases of HealthCare USA in 1995 and Southern
Health Management Corporation in 1994 accounted for as poolings of
interests.
<PAGE> 1
Exhibit 21
COVENTRY CORPORATION SUBSIDIARIES
A. Coventry Health and Life Insurance Company - Texas insurance corporation
B. CHC Financial, Inc. - Tennessee
B.1. Coventry Health Plan of Pennsylvania, Inc. - Pennsylvania
B.1.a. Coventry Health Plans of Western Pennsylvania - Pennsylvania
B.2. Coventry HealthCare Physician Management, Inc. - Delaware
B.3. Coventry HealthCare Properties, Inc. - Delaware
C. Coventry HealthCare Development Corporation - Delaware
C.1. Coventry Health Plan of Tennessee, Inc. - Tennessee
C.2. Coventry Health Plan of Texas, Inc. - Texas
C.3. Coventry Health Plan of West Virginia, Inc. - West Virginia
C.4. Coventry Health Plan of Mississippi, Inc. - Mississippi
D. Penn Group Corporation - Delaware
D.1. Healthpass, Inc. - Pennsylvania
D.2. HealthAmerica Pennsylvania, Inc. - Pennsylvania
D.2.a. Penn Group Medical Associates, Inc. (NOTE: to be sold) -
Pennsylvania
D.2.b. The Medical Center HPJV, Inc. - Pennsylvania
D.2.b.i. Riverside Health Plan, Inc. - Pennsylvania
E. Group Health Plan, Inc. - Missouri
F. Coventry HealthCare Management Corporation - Virginia
F.1. Southern Health Services, Inc. - Virginia
F.2. Southern Health Benefit Services, Inc. - Virginia
G. HealthCare USA, Inc. - Florida
G.1. Pennsylvania HealthCare USA, Inc. - Pennsylvania
G.2. HealthCare USA - Alabama, Inc. - Alabama
G.3. HealthCare USA Midwest, Inc. - Delaware
G.3.a. HealthCare USA of Missouri, LLC - Missouri LLC
G.4. HealthCare USA - Ohio, Inc. - Ohio
H. Coventry Healthcare Management Corporation - Delaware
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
reports dated February 21, 1997, included in the Annual Report on Form 10-K for
the year ended December 31, 1996 and, in the Company's previous filings as
listed:
Form S-1 Registration Statement No. 33-56642
Form S-3 Registration Statement No. 33-72348
Form S-8 Registration Statement No. 33-71806
Form S-8 Registration Statement No. 33-57014
Form S-8 Registration Statement No. 33-81356
Form S-8 Registration Statement No. 33-81358
Form S-8 Registration Statement No. 33-82562
Form S-8 Registration Statement No. 33-87114
Form S-4 Registration Statement No. 33-90268
Form S-3 Registration Statement No. 33-95084
Form S-8 Registration Statement No. 33-97246
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 90,619
<SECURITIES> 82,777
<RECEIVABLES> 45,921
<ALLOWANCES> 8,000
<INVENTORY> 2,091
<CURRENT-ASSETS> 208,291
<PP&E> 48,070
<DEPRECIATION> 23,091
<TOTAL-ASSETS> 448,945
<CURRENT-LIABILITIES> 282,001
<BONDS> 50,926
0
0
<COMMON> 330
<OTHER-SE> 100,427
<TOTAL-LIABILITY-AND-EQUITY> 448,945
<SALES> 0
<TOTAL-REVENUES> 1,070,508<F1>
<CGS> 0
<TOTAL-COSTS> 1,148,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,000
<INTEREST-EXPENSE> 6,257
<INCOME-PRETAX> (84,224)
<INCOME-TAX> (22,860)
<INCOME-CONTINUING> (61,287)<F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,287)<F2>
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> (1.86)
<FN>
<F1>OPERATING REVENUE AND OTHER INCOME
<F2>INCLUDES LOSS OF CONSOLIDATED SUBSIDIARY (MINORITY INTEREST)
</FN>
</TABLE>
