<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-23220
HEALTH POWER, INC.
--------- ----------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 31-1145640
----------------------- ----------------------------
(State of Incorporation) I.R.S. Employer Identification No.)
1209 Orange Street
Wilmington, Delaware 19801
- -------------------------------------------- ------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (302) 636-7593
Securities registered pursuant to Section 12(b) of the Act:
None
----------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
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. [ ]
On March 3, 2000, the aggregate market value (based on the closing sale
price on that date) of the Common Stock held by nonaffiliates of the Registrant
was $3,972,655. On March 3, 2000, the Registrant had 3,853,719 shares of Common
Stock outstanding.
<PAGE> 2
HEALTH POWER, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Health Power, Inc., through its subsidiaries, CompManagement, Inc.
("CompManagement"), CompManagement Health Systems, Inc. ("CompManagement Health
Systems"), and M&N Risk Management, Inc. ("M&N Risk Management"), is an
independent provider of comprehensive cost containment and medical management
services designed to minimize the costs of workers' and unemployment
compensation benefits for employers. Health Power, Inc. and such subsidiaries
are hereinafter collectively referred to as the "Company."
Through CompManagement and M&N Risk Management, the Company serves as a
third party administrator ("TPA") for workers' and unemployment compensation
claims. The Company offers claims management, risk management, and medical cost
containment services primarily to Ohio employers, as well as to a small number
of employers located in Washington and West Virginia. The Company is one of the
largest workers' compensation TPAs in Ohio, currently serving approximately
19,000 employers located throughout Ohio. M&N Risk Management was acquired by
Health Power, Inc. in December 1998.
Through CompManagement Health Systems and its division, Integrated
Comp, the Company provides medical management services for workers' compensation
claims primarily to Ohio employers, as well as to a small number of employers
located in Kentucky and Indiana. The Company owns and operates two state-wide
certified managed care organizations ("MCOs") under Ohio's Health Partnership
Program, a managed care workers' compensation program. Together, CompManagement
Health Systems and Integrated Comp currently serve approximately 47,700
employers located throughout Ohio. As a state-wide certified MCO, the Company's
medical management services, include, among other things, a state-wide health
care provider network; treatment guidelines and utilization review procedures;
peer review and quality assurance programs; provider sanction and termination
procedures; medical and vocational case management programs; utilization
management programs; medical bill adjudication and payment procedures; dispute
resolution procedures; provider, employer, and employee relations and education
programs; and health care fraud detection and reporting programs. Because all
workers' compensation claims are reimbursed by the Ohio Bureau of Workers'
Compensation, the Company does not assume any risk for the payment of medical or
disability benefits to employees with respect to their workers' compensation
claims.
CompManagement Health Systems has offered its MCO services since the
implementation of the Health Partnership Program in March 1997. The business of
Integrated Comp represents the MCO assets acquired on July 16, 1999, from Anthem
Managed Comp, an MCO division of a wholly owned subsidiary of Anthem Insurance
Companies, Inc.
Health Power HMO, Inc. ("Health Power HMO"), a subsidiary of Health
Power, Inc., operated a health maintenance organization (an "HMO") in Ohio. In
December 1998, the Board of Directors of Health Power, Inc. formally approved a
plan to discontinue the operations of Health Power HMO. On May 1, 1999, the
certificate of authority of Health Power HMO was revoked by the Ohio Department
of Insurance ("ODI") for failure to meet statutory financial requirements. Since
that time, and in accordance with the ODI revocation order, Health Power HMO has
been winding-up its business under the
1
<PAGE> 3
supervision of ODI, but without judicial involvement. This windup is
substantially complete, and Health Power HMO is in the process of distributing
all of its assets in payment of the claims of its creditors. Health Power HMO
anticipates that the distribution process will be completed by the end of April
2000. Health Power HMO will not have sufficient assets to pay the claims of all
of its creditors. Health Power, Inc.'s consolidated financial statements reflect
Health Power HMO's operations as discontinued operations.
Health Power, Inc. was incorporated under Delaware law on March 6,
1985.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
Financial information on industry segments as required by Item 101(b)
of Regulation S-K is set forth in Note 12 of the Notes to the Consolidated
Financial Statements, which Note is part of the financial statements contained
in Item 8 of this Form 10-K, which Note is incorporated herein by reference.
INDUSTRY OVERVIEW
General
Workers' compensation is a state-mandated, comprehensive insurance
program that requires employers to fund medical expenses, lost wages and other
costs resulting from work-related injuries and illnesses. Since their
introduction in the early 1900s, these programs have been expanded to all fifty
states and the District of Columbia. In addition, federal statutes provide
workers' compensation benefits for federal employees. Each state is responsible
for implementing and regulating its own program. Consequently, workers'
compensation benefits and arrangements vary on a state-by-state basis and are
often highly complex.
Workers' compensation legislation generally requires employers,
directly or indirectly through an insurance vehicle, to fund all of an
employee's costs of medical treatment and a significant portion of lost wages,
legal fees and other associated costs, with no co-payment or deductible due from
the injured worker. Typically, work-related injuries are broadly defined, and
injured or ill employees are entitled to extensive benefits. Employers are
required directly or indirectly to provide first-dollar coverage with no
co-payment or deductible due from the injured or ill employee for medical
treatment and, in many states, there is no lifetime limit on expenses. However,
in exchange for providing this coverage for employees, employers are not subject
to litigation by employees for benefits in excess of those provided pursuant to
the relevant state statute. In most states, the extensive benefits coverage (for
both medical costs and lost wages) is provided through the purchase of
commercial insurance from private insurance companies, participation in
state-run insurance funds, or employer self-insurance.
Provider reimbursement methods vary on a state-by-state basis. A
majority of states have adopted fee schedules pursuant to which all health care
providers are uniformly reimbursed. The fee schedules are set by each state and
generally prescribe the maximum amounts that may be reimbursed for a designated
procedure. In states without fee schedules, health care providers are reimbursed
based on usual, customary and reasonable fees charged in the particular state in
which the services are provided.
Ohio's Workers' Compensation System
Ohio's workers' compensation system is a no-fault state insurance
program whereby injured workers are provided with medical and disability
benefits. Ohio law requires all employers, with certain exceptions, to provide
their employees with workers' compensation coverage. Ohio's system is
administered by the Ohio Bureau of Workers' Compensation ("OBWC"), which is
responsible for
2
<PAGE> 4
managing the state insurance fund, determining premium rates and manual
classifications, collecting premiums from employers, and paying benefits to or
on behalf of injured workers. In determining the premium rates, OBWC first
classifies occupations or industries with respect to their degree of hazard and
then determines the risk of the different classes. The workers' compensation
program is funded by premiums paid by employers into the state insurance fund,
which premiums are based upon the classification of an employer's employees and
such employer's specific risk experience. If certain conditions are satisfied,
similar types of employers may participate in plans that group, for rating
purposes, such employers in pools that spread each employer's risk among all of
the employers participating in that group. Under these "group rating plans," the
premium rates are based upon the risk experience of the group and not the
individual employer participating in that group. Employers which generally have
500 or more employees in Ohio and have sufficient financial capabilities may be
granted status by OBWC as a self-insuring employer, which means that such
employers are not required to pay premiums into the state insurance fund, but
instead pay the same compensation, medical, and disability benefits as required
by the Ohio workers' compensation program directly to or for the benefit of
their injured workers.
In March 1997, OBWC implemented a managed care system for workers'
compensation claims known as the Health Partnership Program (the "HPP"). This
program applies to all Ohio employers other than self-insured employers. OBWC
has also implemented a similar program for self-insured employers known as the
Qualified Health Plan.
Under the HPP, participating employers are required to select an
OBWC-certified MCO, or have such an MCO assigned to them by OBWC, to medically
manage their workers' compensation claims. The MCO is primarily responsible to
provide medical management and cost containment services for employers with
respect to their workers' compensation claims. In order to receive OBWC
certification, an MCO is required to have, among other things, a network of
healthcare providers, a quality assurance program, and certain information
system capabilities. The MCO provides, among other things, utilization review
services, medical case management services, dispute resolution, rehabilitation,
peer review, and quality assurance programs with respect to workers'
compensation claims.
Ohio's Unemployment Compensation System
Ohio's unemployment compensation system provides compensation benefits
to workers who are laid off or involuntarily separated from employment without
just cause. This system is administered by the Ohio Bureau of Employment
Services ("OBES"), which is responsible for managing the unemployment
compensation fund, determining contribution rates, collecting contributions from
employers, maintaining each employer's account, determining eligibility for
benefits, and paying benefits to eligible unemployed workers. Contribution rates
are determined each year by the OBES and then assigned to the individual
employers. Employers are assigned the standard contribution rate (an amount
equal to a specified percentage of wages as determined by the OBES) or the
average contribution rate for its industry, whichever is greater, until they
become eligible for an experience rate. Thereafter, the annual contribution rate
is based upon the specific experience of each employer. The unemployment
compensation program is funded by contributions paid by employers into the
unemployment compensation fund.
BUSINESS
The Company offers services in two general categories, third party
administration of workers' and unemployment compensation claims, or TPA
services, and medical management of workers' compensation claims, or MCO
services.
3
<PAGE> 5
TPA Services
The Company provides claims management, risk management, and medical
cost containment services to employers with respect to workers' compensation
claims and, to a lesser extent, unemployment compensation claims. The Company's
TPA services for workers' compensation claims include the review and processing
of an employer's workers' compensation claims, the design of individual programs
to improve an employer's experience ratings, representation of employers before
the Ohio Industrial Commission and OBWC, the performance of risk analysis for an
employer's experience rating, the review of premium audits on behalf of
employers, and analysis of employers for inclusion in group rating plans. The
Company also acts as a TPA of workers' compensation claims for self-insured
employers. Each employer selects the types of services it desires and then
enters into a contract with the Company to provide such services. These
contracts are generally for a one-year period.
In the area of unemployment compensation, the Company's TPA services
are similar to its services in the area of workers' compensation. Such services
include the review and processing of an employer's unemployment compensation
claims and representation of employers before the OBES. Each employer selects
the types of services it desires and then enters into a contract with the
Company to provide such services. These contracts are generally for a one-year
period.
The Company currently provides its TPA services to approximately 19,000
employers located throughout Ohio, as well as to a small number of employers
located in Washington and West Virginia. A substantial number of the Ohio
employers have entered into contracts with the Company because of their
participation in group rating plans, discussed above, sponsored by trade
associations of which such employers are members.
MCO Services
The Company provides medical management services for workers'
compensation claims primarily to Ohio employers, as well as to a small number of
employers located in Kentucky and Indiana. The Company owns and operates two
state-wide certified MCOs under Ohio's Health Partnership Program. Together,
CompManagement Health Systems and Integrated Comp currently serve approximately
47,700 employers located throughout Ohio. As a state-wide certified MCO, the
Company provides medical management services for workers' compensation cases
resulting from injuries suffered by employees arising out of the course and
scope of their employment, as required by law. Because all workers' compensation
claims are reimbursed by OBWC, the Company does not assume any risk for the
payment of medical or disability benefits to employees with respect to their
claims.
The services provided by the Company are offered pursuant to a contract
with OBWC. Under this contract, the Company is responsible to provide, among
other things, a state-wide health care provider network; treatment guidelines
and utilization review procedures; peer review and quality assurance programs;
provider sanction and termination procedures; medical and vocational case
management programs; utilization management programs; medical bill adjudication
and payment procedures; dispute resolution procedures; provider, employer, and
employee relations and education programs; and health care fraud detection and
reporting programs.
Under its OBWC contract, the Company receives an administrative fee
equal to 4% of the annual workers' compensation premiums for employers assigned
to the Company's MCO. The administrative fee is paid monthly and is subject to
setoffs if the Company does not meet certain criteria with respect to first
report of injuries, bill submissions, or data accuracy or the Company makes a
misfiling of death claims. The Company is also eligible to earn an additional
quarterly incentive fee of up to 3% of the annual
4
<PAGE> 6
workers' compensation premiums for employers assigned to the Company's MCO based
upon its attainment of certain return to work measurements established in the
contract.
The Company has a state-wide health care provider network consisting of
approximately 13,500 physicians, hospitals, and ancillary providers. This
network includes certain occupational health-based physician groups which serve
as its "anchor medical groups." The provider panel is credentialed using a
multi-faceted peer review committee. The Company has a provider services
department which recruits new providers for its state-wide network and offers
educational materials and training seminars.
Customers and Marketing
The Company's customers principally consist of employers required to
participate in Ohio's insurance fund for workers' compensation claims and, to a
lesser extent, self-insured employers. The Company markets its TPA and MCO
services jointly through both its own sales force of three persons who directly
contact prospective and existing employer groups and its relationships with over
500 insurance agents and brokers. The Company maintains service center locations
in Akron, Cincinnati, Cleveland, and Toledo, Ohio, Seattle, Washington,
Charleston, West Virginia, Lexington, Kentucky, and Indianapolis, Indiana, in
addition to its Dublin, Ohio offices.
Competition
The workers' compensation cost containment and medical management
industry is highly fragmented and competitive, and the intensity of competition
can be expected to increase. In Ohio, the market share in this industry is
concentrated among a few companies, including the Company. The Company's primary
competitors in Ohio are several TPAs and/or MCOs which offer one or more
services similar to those offered by the Company and numerous independent
companies, typically operated on a regional basis. Some of the Company's
competitors are significantly larger and have greater financial and marketing
resources than the Company. The principal competitive factors are the range of
services offered and responsiveness to customer needs. The Company competes on
the basis of its specialization in the workers' compensation area, breadth of
services, attention to customer service, and independence from insurance
carriers.
Government Regulation
The Company's TPA business is generally not subject to specific
government regulation or oversight. However, its business is substantially
dependent on the operation of workers' and unemployment compensation systems in
Ohio and the other states in which it operates. The Company believes that its
TPA business is presently in compliance in all material respects with all laws,
regulations, and certification requirements applicable to it.
The Company's MCOs are certified and regulated by OBWC under Ohio's
Health Partnership Program. The Company's MCOs are not, however, subject to
Ohio's laws governing health insuring corporations, since its MCOs are not
responsible for payment of health care claims or benefits, nor are they
otherwise responsible for risk-bearing activities commonly associated with
organizations licensed under Ohio's insurance laws.
As participants in the HPP, the Company's MCOs are required to provide
medical management and cost containment services that promote the rendering of
high-quality, cost-effective medical care that focuses on minimizing the
physical, emotional, and financial impact of a work-related injury or illness
and promotes a safe return to work.
5
<PAGE> 7
In order to participate in the HPP, the Company's MCOs must each be
credentialed and certified by OBWC every two years. The certification standards
for an MCO desiring to contract with OBWC include, among other things,
disclosure of the MCO's organizational structure, management and employees,
historical operations, provider network, payment processes, geographic coverage
and provider directories. OBWC also requires an MCO to furnish information
regarding the MCO's satisfaction of OBWC's requirements for MCO policies and
procedures, treatment guidelines, utilization review and quality assurance,
provider profiling, grievance and dispute resolution, information systems, case
management records confidentiality/retention, provider relations, educational
activities, performance data, marketing and liability insurance. All of the
preceding activities of an MCO participating in the HPP are governed or impacted
by the regulations promulgated under the HPP enabling statute, found in Ohio's
Administrative Code. Upon satisfying the preceding certification criteria and
entering into a contract with OBWC, an MCO is certified to provide medical
management and cost containment services under the HPP.
The Company is required to credential its HPP provider network based on
its geographic service area, using objective, non-discriminatory professional
criteria that ensures that the Company is able to provide medical services and
supplies for injured workers in its service area, as well as demonstrate that
the Company provides such persons access to specialized care. At a minimum, a
network provider must be duly licensed or qualified to render in Ohio the types
of services for which the provider is engaged by the Company.
Upon the filing of a worker injury claim, the Company, in conjunction
with its participating providers and the employer, is required to manage the
medical or rehabilitative care for the injured employee to ensure a safe return
to work. Additionally, the Company is required to review all bills submitted by
its providers to determine that the bills are consistent with the Company's
utilization standards and certification requirements. The Company is required to
maintain a grievance hearing procedure allowing a provider, the employer or the
injured employee to dispute bill payment. The Company is required to pay its
providers the amount paid by OBWC to the Company for provider services submitted
in connection with the injured employee's claim.
The Company is required to submit electronically to OBWC, on a timely
basis, all bills for payment. The Company is subject to OBWC's electronic
billing policies, formats and systems. Further, the Company must comply with
OBWC requirements for electronic data interchange ("EDI"). The Company is
responsible for submitting bills of its panel providers, as well as those of
OBWC-certified providers in its service area who are not panel members but for
which the Company has medical management responsibility, and bills for initial
or emergency treatment by a non-OBWC-certified provider of an injured employee
in its service area.
OBWC is required to pay to the Company an administrative fee for its
medical management and administrative services, as well as an incentive payment,
provided that the Company meets the performance criteria required by OBWC. These
performance criteria are established in the MCO contract and primarily relate to
the attainment of certain claim management and return to work measurements. The
administrative and incentive payments to the Company are based on a percentage
of the total premium payments of employers managed by the MCO.
The compensability and payment of claims submitted to OBWC in
connection with services provided by the Company's panel of providers is
determined solely by OBWC. OBWC claims management and dispute procedures are
governed by regulations promulgated under the HPP enabling statute. The Company
may continue management of a medical claim during adjudication of a disputed
claim. However, the Company will not receive payment from OBWC until the
disputed claim is
6
<PAGE> 8
adjudicated; and the Company must inform the injured employee that the claim is
disputed and continued treatment may be at the employee's expense.
The Company is required to maintain records supporting claims submitted
to OBWC, its electronic billing, as well as any records necessary to perform its
medical management functions or to substantiate the delivery, value, necessity,
and appropriateness of goods and services provided to injured employees.
Additionally, the Company is required to comply with Ohio laws governing
confidentiality of patient/employee records and information, subject to the
exceptions contained in such laws. Failure to create, maintain and retain
adequate records constitutes cause for denial of payment of administrative and
incentive fees from OBWC and/or de-certification by OBWC.
The Company believes that its MCOs are presently in compliance in all
material respects with all laws, regulations, and certification requirements
applicable to them.
EMPLOYEES
As of March 1, 2000, the Company had approximately 611 employees, of
which 215 were employed in connection with its TPA operations and 396 were
employed in connection with its MCO operations. The Company's employees are not
represented by a union. The Company believes that its relationship with its
employees is good.
ITEM 2. PROPERTIES
The Company leases a 70,000 square foot office building in Dublin,
Ohio, which is used as its principal office facilities. The lease for the
building is for a term of 15 years which began in 1997, provides for annual rent
payments, and requires the Company to pay all operating expenses for the
building. The lease also provides for, among other things, three renewal options
of five years each, an option to purchase the building, and a right of first
offer with respect to the sale of such building. The lease restricts
CompManagement's ability to distribute funds and/or assets to Health Power, Inc.
or another affiliate unless CompManagement meets certain tangible net worth
requirements. The Company also leases office space in Akron, Cincinnati,
Cleveland, and Toledo, Ohio; Seattle, Washington; Charleston, West Virginia;
Lexington, Kentucky; and Indianapolis, Indiana. These spaces are used as
regional offices and service centers for its operations.
ITEM 3. LEGAL PROCEEDINGS
On May 1, 1999, the certificate of authority of Health Power HMO was
revoked by ODI for failure to meet statutory financial requirements. Since that
time, and in accordance with the ODI revocation order, Health Power HMO has been
winding-up its business under the supervision of ODI, but without judicial
involvement. This windup is substantially complete, and Health Power HMO is in
the process of distributing all of its assets in payment of the claims of its
creditors. Health Power HMO anticipates that the distribution process will be
completed by the end of April 2000. Health Power HMO will not have sufficient
assets to pay the claims of all of its creditors.
On July 7, 1998, Health Power HMO initiated a lawsuit against Central
Benefits Administrators, Inc. relating to a claims processing administrative
agreement between the parties. In February 2000, this lawsuit was settled by the
parties, and Health Power HMO received a payment of an immaterial amount in
settlement of the lawsuit.
7
<PAGE> 9
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 Health Power, Inc.'s fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Health Power, Inc.'s Common Stock is traded under the symbol HPWR. The
Common Stock was traded on the Nasdaq National Market system until June 25,
1999. On that date, the Common Stock was delisted from the Nasdaq National
Market system and began trading on the OTC Bulletin Board. The following table
sets forth the range of the reported high and low sales prices of the Common
Stock by calendar quarter for 1998 and 1999:
<TABLE>
<CAPTION>
High Low
---- ---
For the quarter ended 1998:
<S> <C> <C>
March 31 $ 7.13 $ 4.00
June 30 $ 6.75 $ 4.13
September 30 $ 6.00 $ 2.50
December 31 $ 3.75 $ 2.06
For the quarter ended 1999:
March 31 $3.75 $1.50
June 30 $3.13 $1.75
September 30 $2.75 $1.63
December 31 $2.50 $0.56
</TABLE>
Health Power, Inc. has not paid any dividends on its Common Stock to
date, and it intends to retain its earnings to finance the development and
expansion of its business for the foreseeable future. CompManagement's lease for
its principal offices restricts it from distributing funds and/or assets to
Health Power, Inc. or another affiliate unless CompManagement meets certain
tangible net worth requirements. The Company's bank debt does not include
provisions restricting its ability to pay cash dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
As of March 17, 2000, there were 70 stockholders of record and
approximately 1,000 beneficial owners of Health Power, Inc.'s Common Stock.
8
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
Health Power, Inc. and its subsidiaries as of and for each of the years in the
five-year period ended December 31, 1999. This selected consolidated financial
data should be read in conjunction with the consolidated financial statements
and related notes of Health Power, Inc. and subsidiaries and Management's
Discussion and Analysis of Financial Condition and Results of Operation
appearing under Items 8 and 7, respectively, of this Form 10-K. All periods in
this table reflect the operations of Health Power HMO reclassified as
discontinued operations. See Note 14 of the Notes to Consolidated Financial
Statements appearing in Item 8 of this Form 10-K. In addition, all periods in
this table have been restated to reflect the acquisition of CompManagement in
July 1995. This acquisition was accounted for as a pooling of interests.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract $ 38,262 $ 24,861 $ 22,183 $ 6,672 $ 5,571
Expenses:
General and administrative 35,042 21,271 16,559 6,339 5,072
-------- -------- -------- -------- --------
Income from operations 3,220 3,590 5,624 333 499
Interest (expense) income and other, net (224) 444 532 247 450
-------- -------- -------- -------- --------
Income from continuing operations before income
tax expense 2,996 4,034 6,156 580 949
Income tax expense (benefit) (1,539) 1,570 2,324 185 (75)
-------- -------- -------- -------- --------
Income from continuing operations 4,535 2,464 3,832 395 1,024
Discontinued operations
Loss from discontinued operations ---- (4,902) (818) (9,878) (928)
(net of tax benefits of $-0-,
$1,030, $3,965, $1,958, and $61,
respectively)
Loss on disposal of discontinued operations;
including $114 and $607 for operating
losses during phase-out period in 1999
and 1998 (net of tax (expense) of
($535) and $0, respectively) (650) (1,614) ---- ---- ----
-------- -------- -------- -------- --------
Net (loss) income $ 3,885 $ (4,052) $ 3,014 $ (9,483) $ 96
======== ======== ======== ======== ========
EARNINGS PER SHARE (Basic and Diluted):
Income from continuing operations $ 1.18 $ .64 $ 1.00 $ .10 $ .27
Loss from discontinued operations (0.17) (1.70) (.21) (2.59) (.24)
-------- -------- -------- -------- --------
Net income (loss) $ 1.01 $ (1.06) $ .79 $ (2.49) $ .03
======== ======== ======== ======== ========
COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Weighted average shares outstanding (basic) 3,846 3,829 3,818 3,810 3,810
Weighted average shares outstanding (diluted) 3,846 3,834 3,833 3,810 3,819
BALANCE SHEET DATA:
Total assets $ 31,578 $ 30,669 $ 22,349 $ 21,069 $ 25,723
Long-term obligations $ 1,586 $ 2,000 $ ---- $ ---- $ ----
Stockholders' equity $ 7,036 $ 3,106 $ 7,565 $ 4,519 $ 14,002
</TABLE>
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is an independent provider of comprehensive cost
containment and medical management services designed to minimize the costs of
workers' and unemployment compensation benefits for employers.
Through CompManagement and M&N Risk Management, the Company serves as a
TPA for workers' and unemployment compensation claims and provides claims
management, risk management, and medical cost containment services primarily to
Ohio employers, as well as to a small number of employers located in the states
of Washington and West Virginia. The Company is one of the largest workers'
compensation TPAs in Ohio, currently serving approximately 19,000 employers
located throughout Ohio. M&N Risk Management was acquired by Health Power, Inc.
in December 1998. This acquisition was accounted for under the purchase method
of accounting for business combinations.
Through CompManagement Health Systems and its division, Integrated
Comp, the Company owns and operates two state-wide certified MCO under Ohio's
Health Partnership Program and provides medical management services for workers'
compensation claims. Together, CompManagement Health Systems and Integrated Comp
currently serve approximately 47,700 employers located in Ohio and a small
number of employers located in Kentucky and Indiana. Because all workers'
compensation claims are reimbursed by OBWC, the Company does not assume any risk
for the payment of medical or disability benefits to employees with respect to
workers' compensation claims. The Company has offered its MCO services since the
implementation of the Health Partnership Program in March 1997. The business of
Integrated Comp represents the MCO assets acquired on July 16, 1999, from Anthem
Managed Comp, an MCO division of a wholly owned subsidiary of Anthem Insurance
Companies, Inc. This acquisition was accounted for under the purchase method of
accounting for business combinations. As required by the purchase method of
accounting, the results of operations of Integrated Comp are not included in the
Company's results of operations prior to July 16, 1999.
On December 29, 1998, the Board of Directors of Health Power, Inc.
formally approved a plan to discontinue the operations of Health Power HMO.
Accordingly, the operating results of Health Power HMO have been segregated from
continuing operations and are reported separately as discontinued operations.
The Company has two reportable segments for its continuing operations,
TPA services and MCO services, which were determined based upon its method of
internal reporting. Each of these segments is managed separately. The Company
also has an other segment that derives its revenues from management fees and
interest income. See Note 12 of the Notes to Consolidated Financial Statements
appearing in Item 8 of this Form 10-K.
The following discussion should be read in conjunction with the
consolidated financial statements, notes, and tables included in Item 8 of this
Form 10-K. Readers are cautioned that any forward-looking statements contained
in this Form 10-K or any other reports or documents prepared by Health Power,
Inc. involve risks and uncertainties and are subject to change based on various
factors. Certain of these factors are discussed in greater detail in various
parts of this Item 7.
10
<PAGE> 12
RESULTS OF OPERATIONS
1999 Compared to 1998
Revenues from continuing operations increased $13.4 million, or 54%, to
$38.3 million during 1999, from $24.9 million for 1998. Revenues from TPA
services increased by 65.8% from the prior year primarily as a result of the
acquisition of M&N Risk Management in December 1998. The acquisition increased
revenues by approximately $6.0 million. Revenues from MCO services increased by
42.8% from the prior year primarily as a result of the acquisition of the MCO
assets of Anthem Managed Comp in July 1999. The acquisition increased revenues
by approximately $5.7 million. In addition, revenues for 1998 were favorably
impacted by the inclusion of a one-time incentive payment of approximately $1.5
million from the Ohio Bureau of Workers' Compensation related to the acceptance
of workers' compensation claims with dates of injury that preceded the
commencement date of the Health Partnership Program.
General and administrative ("G&A") expenses increased to $35.0 million,
or 91.6% of revenues, for 1999, as compared to $21.3 million, or 85.6% of
revenues, for 1998. G&A expenses increased in 1999 as a percentage of revenue
primarily as a result of one-time expenses relating to the acquisitions of M&N
Risk Management and Anthem Managed Comp. In addition, expenses as a percentage
of revenues increased in 1999 due to 1998 revenues including a one-time
incentive payment received for the acceptance of claims incurred prior to the
commencement date of the Health Partnership Program.
Interest (expense) income and other decreased $668,000 to a net
interest expense of $224,000 in 1999 from a net interest income of $444,000 in
1998. The decrease was primarily due to investable cash being used to acquire
M&N Risk Management and Anthem Managed Comp. In addition, the Company incurred
interest expense due to borrowings associated with these acquisitions.
The Company recognized an income tax benefit of $1.5 million in 1999
compared to an income tax expense of $1.6 million in 1998. The tax benefit was
related to the recognition of certain tax assets which were not recognizable in
prior years, but, due to the Company's profitability, became recognizable in
1999. Without recognition of the tax benefit, the Company would have incurred a
tax expense in 1999 of $1.2 million for an effective tax rate of 42.5%.
As a result of the foregoing, income from continuing operations was
$4.5 million, or basic and diluted earnings per share of $1.18, for 1999, as
compared to income from continuing operations of $2.5 million, or basic and
diluted earnings per share of $0.64, for 1998.
The net loss from discontinued operations was $650,000, or basic and
diluted earnings per share of $(0.17), for 1999, as compared to a net loss from
discontinued operations of $6.5 million, or basic and diluted earnings per share
of $(1.70), for 1998. The loss was related primarily to an increase in the
reserve for anticipated costs in completing the liquidation of the discontinued
operations.
The Company earned net income of $3.9 million, or basic and diluted
earnings per share of $1.01, for 1999, as compared to a net loss of $4.1
million, or basic and diluted earnings per share of $(1.06), for 1998.
1998 Compared to 1997
Revenues from continuing operations increased $2.7 million, or 12.1%,
to $24.9 million during 1998, from $22.2 million for 1997, primarily as a result
of a 15% increase in revenues from MCO services. This increase was primarily the
result of the Company's MCO subsidiary being operational for
11
<PAGE> 13
all of 1998 as compared to ten months in 1997. Revenues from TPA services
increased by 9% from the prior year primarily as a result of an increase in the
number of employers participating in the Company's group rating plans. Revenues
from MCO services included one-time incentive payments of approximately $4.0
million related to the acceptance of workers' compensation claims with dates of
injury which preceded the commencement date of the Health Partnership Program.
The acceptance of these claims, known as beta and gamma claims, occurred during
the fourth quarter of 1997. The Company recognized approximately $2.5 million of
these one-time incentive payments in 1997 and $1.5 million in 1998.
G&A expenses increased to $21.3 million, or 85.6% of revenues, for
1998, as compared to $16.6, or 74.6% of revenues, for 1997. G&A expenses
increased in 1998 as a percentage of revenues primarily due to 1997 revenues
including significant one-time incentive payments related to the acceptance of
beta and gamma claims in 1998 and the decrease in the amount of the 1998
incentive fees.
Interest income and other decreased $88,000 to $444,000 for 1998, from
$532,000 for 1997. This decrease resulted primarily from a decrease in other
income related to the discontinuance of a private label managed care product
managed by Health Power Management Corporation.
Income tax expense was $1.6 million in 1998, or an effective tax rate
of 39%, as compared to $2.3 million in 1997, or an effective tax rate of 38%.
As a result of the foregoing, income from continuing operations was
$2.5 million, or basic and diluted earnings per share of $0.64, for 1998, as
compared to income from continuing operations of $3.8 million, or basic and
diluted earnings per share of $1.00, for 1997.
The net loss from discontinued operations was $6.5 million, or basic
and diluted earnings per share of $(1.70), for 1998, as compared to a net loss
from discontinued operations of $0.8 million, or basic and diluted earnings per
share of $(0.21), for 1997. The 1998 results included a $4.9 million loss from
discontinued operations, net of taxes, which included a charge for a valuation
allowance on deferred federal income tax assets of $2.8 million, along with a
$1.6 million loss on disposal of discontinued operations, net of taxes.
The Company incurred a net loss of $4.1 million, or basic and diluted
earnings per share of $(1.06), for 1998, as compared to net income of $3.0
million, or basic and diluted earnings per share of $0.79, for 1997.
LIQUIDITY AND CAPITAL RESOURCES
CONTINUING OPERATIONS
The Company finances its continuing operations through internally
generated funds, and its principal sources of cash for continuing operations are
revenues from TPA and MCO services. The Company's principal capital needs for
continuing operation are to fund expenditures for continued growth and for
possible acquisitions.
A working capital deficit of $2.1 million from continuing operations
existed at December 31, 1999, as compared to a working capital deficit of $1.0
million from continuing operations at December 31, 1998. The Company originally
incurred a $3.0 million demand loan from its bank and a $2.5 million promissory
payable to the seller for the acquisition of M&N Risk Management in December
1998. As of December 31, 1999, the Company had used cash generated from
continuing operations to pay down $1.5 million of the bank debt plus all of the
seller's promissory note (after adjustments for amounts guaranteed
12
<PAGE> 14
by the seller). The Company also has short term debt of $1.2 million payable to
the seller for acquisition of Anthem Managed Comp. The foregoing events were the
primary cause of the working capital deficit. The Company believes that the cash
generated by continuing operations will be sufficient to cure the working
capital deficit during 2000. However, there can be no assurance that cash
generated from continuing operations will be sufficient to cure the working
capital deficit. The Company intends to payoff the remaining balance of the bank
demand note by the end of the third quarter 2000. The Company believes that cash
generated from operations will be sufficient to pay this entire amount, but
there can be no assurance that it will or that the bank will not make a demand
for payment prior to the end of the third quarter. While the Company believes
the bank will not make such a demand, if it does, such a demand could have an
adverse effect on the Company's financial condition.
At December 31, 1999, cash and cash equivalents from continuing
operations were $6.8 million, a decrease of $2.4 million from $9.2 million at
December 31, 1998. The decrease in cash and cash equivalents was primarily
related to the retirement of the debt associated with the M&N Risk Management
acquisition and the initial payment made for the acquisition of Anthem Managed
Comp.
As previously described, CompManagement Health Systems acquired all of
the MCO assets of Anthem Managed Comp in July 1999. The purchase price for this
acquisition, after an adjustment based on the results of the open enrollment
caused by the transaction, was $4.6 million. The Company paid $1.6 million of
the purchase price at the closing, and the balance of the purchase price was
financed by the seller and payable, including principal and interest, as
follows: $249,000 on February 1, 2000; $1.0 million on July 16, 2000; $561,000
due on February 1, 2001, 2002, 2003 and 2004; and $124,000 on July 1, 2004.
These amounts due are offset by amounts paid to the seller under a network
access fee agreement. The amounts due the seller are not secured by any assets
of the Company.
CompManagement leases a 70,000 square foot building in Dublin, Ohio.
The lease restricts CompManagement's ability to distribute funds and/or assets
to Health Power, Inc. or another affiliate unless CompManagement meets certain
tangible net worth requirements.
The Company believes that cash generated from continuing operations
will be sufficient to fund its anticipated cash needs for working capital and
expenditures for continuing operations for the next 12 months, including working
capital requirements caused by the bank making demand for payment of the $1.5
million balance on the demand loan. As discussed above, the Company had a
working capital deficit from continuing operations of $2.1 million as of
December 31, 1999.
DISCONTINUED OPERATIONS
As previously described, on May 1, 1999, the certificate of authority
of Health Power HMO was revoked by ODI for failure to meet statutory financial
requirements. Since that time, and in accordance with the ODI revocation order,
Health Power HMO has been winding-up its business under the supervision of ODI,
but without judicial involvement. This windup is substantially complete, and
Health Power HMO is in the process of distributing all of its assets in payment
of the claims of its creditors. Health Power HMO anticipates that this
distribution process will be completed by the end of April 2000. Health Power
HMO will not have sufficient assets to pay the claims of all of its creditors.
Health Power, Inc. believes that neither it nor any of its other subsidiaries
are liable for any claims against Health Power HMO. Furthermore, Health Power,
Inc. does not intend to fund, or cause any other subsidiary to fund, any
deficits of Health Power HMO.
13
<PAGE> 15
YEAR 2000 MATTERS
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 compliant. In the latter part of 1999, the Company
completed its remediation and testing of systems. As a result of those planning
and implementation efforts, the Company experienced no significant disruptions
in its information and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
internal systems or those of its third party vendors. The Company will continue
to monitor its computer applications throughout the current year to ensure that
any latent Year 2000 matters that may arise are addressed promptly. The Company
expensed less than $100,000 during 1999 in connection with its Year 2000
compliance efforts.
INFLATION
The Company's operations are not significantly affected by inflationary
pressures. Although inflation does affect salaries, employee benefits, and other
operating expenses, after considering general inflationary trends, total
revenues of the Company produced growth in real terms in 1999 and 1998. Revenues
increased largely due to increased TPA and MCO services rather than increases in
inflation.
FORWARD LOOKING STATEMENTS; CERTAIN FACTORS AFFECTING FUTURE RESULTS
Statements contained in this Form 10-K or any other reports or
documents prepared by Health Power, Inc. or made by management of Health Power,
Inc. may be "forward-looking" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
certain risks and uncertainties that could cause Health Power, Inc.'s operating
results to differ materially from those projected. The following factors, among
others, in some cases have affected and in the future could affect Health Power,
Inc.'s actual financial performance.
POTENTIAL LEGAL ACTIONS RELATED TO HEALTH POWER HMO AND ITS DISCONTINUED
OPERATIONS
On May 1, 1999, the certificate of authority of Health Power HMO was
revoked by ODI for failure to meet statutory financial requirements. Since that
time, and in accordance with the ODI revocation order, Health Power HMO has been
winding-up its business under the supervision of ODI, but without judicial
involvement. This windup is substantially complete, and Health Power HMO is in
the process of distributing all of its assets in payment of the claims of its
creditors. However, Health Power HMO will not have sufficient assets to pay the
claims of all of its creditors. Health Power, Inc. believes that neither it nor
any of its other subsidiaries are liable for any claims against Health Power
HMO. Furthermore, Health Power, Inc. does not intend to fund, or cause any other
subsidiary to fund, any deficits of Health Power HMO. However, there can be no
assurance that creditors of Health Power HMO will not initiate legal actions
against Health Power, Inc. or any of its other subsidiaries seeking satisfaction
of their unpaid claims against Health Power HMO. The legal fees and other costs
of defending such legal actions could be significant. Furthermore, due to the
fact-intensive nature of these actions and the unpredictability of courts in
this area of the law, there can be no assurance that Health Power, Inc. or its
other subsidiaries will be successful in defending any such legal actions. Any
such legal actions having an unfavorable outcome to Health Power, Inc. or any of
its other subsidiaries could have a material adverse affect on their financial
condition and results of operations.
14
<PAGE> 16
DEPENDENCE UPON HEALTH PARTNERSHIP PROGRAM
Each of the Company's MCOs has a contract with OBWC enabling that MCO
to participate in Ohio's Health Partnership Program. These contracts are each
for a two-year term expiring on December 31, 2000. There can be no assurance
that OBWC will renew either or both of these contracts when they expire. In
addition, there can be no assurance that OBWC will not modify these contracts in
the future in a manner unfavorable to the Company. Furthermore, OBWC may at any
time initiate proceedings to decertify one of the Company's MCOs if that MCO
fails to substantially perform its duties under its respective contract, and if
such decertification occurs, the effected contract will automatically terminate.
Finally, approximately 43% of the fees payable under these contracts are subject
to the attainment of certain return to work measurements established in the
contracts. There can be no assurance that the Company will be able to meet any
or a significant portion of these performance measurements. These contracts
account for all of the revenues associated with MCO services, which revenues
were $18.5 million and $13.0 million in 1999 and 1998, respectively. For 1999
and 1998, the Company's MCO revenues represented approximately 48% and 52%,
respectively, of the Company's consolidated revenues. The loss or unfavorable
modification of these contracts or the failure to significantly satisfy the
performance measurements under these contracts would have a material adverse
effect on the Company's business, financial condition, and results of
operations.
DEPENDENCE UPON GROUP RATING PROGRAM; GOVERNMENT REGULATION
The Company is significantly dependent upon plans or programs
administered by governmental agencies pursuant to state statutes and
regulations. In particular, the Company is significantly dependent on Ohio's
group rating program and, as described above, Ohio's Health Partnership Program.
The Company provides TPA services for group rating plans for approximately 100
trade associations, which include approximately 17,920 employers. Each
association and employer administrative agreement is typically for a one-year
service period. The Company's MCOs are subject to extensive regulation by OBWC
relating to their operations. Any changes to Ohio's statutes or regulations
applicable to group rating plans or the Health Partnership Program, or
interpretations of these statutes and regulations by OBWC, could have a material
adverse effect upon the revenues and operations of the Company. The Company
believes that its continuing operations are presently in compliance, in all
material respects, with all laws, regulations and certification requirements
applicable to such operations. However, there can be no assurance that the
Company will be able to continue to maintain required regulatory authority or
that regulatory changes will not have an adverse impact on the Company in the
future.
RISKS ASSOCIATED WITH ACQUISITIONS
During the past year the Company has invested, and may continue to
invest, a substantial amount of capital for acquisitions. Acquisitions involve
numerous risks, including the failure to retain key employees and contracts and
the inability to integrate businesses without material disruption. In addition,
some competitors of the Company have similar acquisition strategies. There can
be no assurance that any future acquisitions will be successfully integrated
into the Company's operations, that competition for acquisitions will not
intensify, or that the Company will be able to complete such acquisitions on
acceptable terms and conditions. In addition, the costs of unsuccessful
acquisition efforts may adversely affect the Company's results of operations.
COMPETITION
The workers' compensation cost containment and medical management
industry is highly fragmented and competitive, and the intensity of competition
can be expected to increase. In Ohio, the market share in this industry is
concentrated among a few companies, including the Company. The
15
<PAGE> 17
Company's primary competitors in Ohio are several TPAs and/or MCOs which offer
one or more services similar to those offered by the Company and numerous
independent companies, typically operated on a regional basis. Some of the
Company's competitors are significantly larger and have greater financial and
marketing resources than the Company. Although the Company believes its
specialization in the workers' compensation area, breadth of services, attention
to customer service, and independence from insurance carriers will enable it to
compete successfully, there can be no assurance that the Company will be able to
compete effectively against existing competitors or that additional competitors
will not enter the Company's areas of operations in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk-management activities
includes "forward-looking statements" that involve risk and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements.
The Company's primary market risk exposure is to changes in the level
or volatility of interest rates primarily due to its borrowing activities. The
Company's interest rate risk arises primarily due to a variable rate demand note
owed to a bank. The Company currently has fixed rate financial instruments
entered into in connection with certain acquisitions. The Company does not
expect changes in interest rates to have a material impact on projected cash
flows of the Company.
The Company does not enter into financial instruments for trading or
speculative purposes, nor does it own any derivative financial instruments. The
Company has no exposure to foreign currency exchange rate risk. The Company does
not maintain a trading portfolio.
The Company does not anticipate significant changes in the Company's
primary market risk exposures or in how these exposures are managed in future
reporting periods based upon what is known or expected to be in effect in future
reporting periods.
Interest Rate Risk Management
This table presents descriptions of the financial instruments that are held by
the Company at December 31, 1999, and which are sensitive to changes in interest
rates. The Company does not use derivative financial instruments to manage
interest rate risk and does not enter into derivative financial instrument
transactions for speculative purposes.
The table presents principal calendar year cash flows that exist by maturity
date and the related average interest rate. The variable rates are estimated
based on the prime rate.
All amounts are reflected in U.S. Dollars (thousands).
<TABLE>
<CAPTION>
FAIR
2000 2001 2002 2003 2004 2005 TOTAL VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Debt
Variable rate $1,500,000 $1,500,000 $1,500,000
Average interest rate 8.75% 8.75%
Fixed rate $1,165,000 $500,000 $463,000 $429,000 $397,000 $84,000 $3,038,000 3,002,000
Average interest rate 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
</TABLE>
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEALTH POWER, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
AND SUPPLEMENTAL FINANCIAL
INFORMATION FOR THE YEAR ENDED
DECEMBER 31, 1999
17
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Health Power, Inc.
Columbus, Ohio
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Health
Power, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
March 8, 2000
/s/ PricewaterhouseCoopers LLP
------------------------------
<PAGE> 20
HEALTH POWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,815,578 $ 9,202,654
Accounts receivable, net 4,094,365 5,671,074
Prepaid expenses and other 332,988 239,900
Current assets of discontinued operations 4,273,765 5,566,639
Deferred income taxes 2,107,984 80,669
----------- -----------
Total current assets 17,624,680 20,760,936
----------- -----------
Property and equipment:
Leasehold improvements 198,810 188,068
Furniture, equipment and software 5,886,343 3,974,319
----------- -----------
6,085,153 4,162,387
Less accumulated depreciation 2,195,916 1,230,973
----------- -----------
3,889,237 2,931,414
----------- -----------
Goodwill (net of accumulated amortization of $392,560
and $0 for 1999 and 1998, respectively) 9,510,984 5,526,736
Noncurrent assets of discontinued operations - 1,403,344
Deposits and other assets 553,371 46,905
----------- -----------
Total assets $31,578,272 $30,669,335
=========== ===========
</TABLE>
CONTINUED
- 2 -
<PAGE> 21
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenues $10,527,550 $ 8,378,113
Accounts payable 1,023,945 1,323,684
Taxes payable 215,215 2,788,701
Current liabilities of discontinued operations 6,734,980 9,163,635
Accrued expenses and other current liabilities 965,476 160,442
Current portion of capital lease obligations 99,133 --
Current portion of notes payable 2,665,403 3,526,736
----------- -----------
Total current liabilities 22,231,702 25,341,311
----------- -----------
Notes payable 1,873,443 2,000,000
Capital lease obligations 213,017 --
Deferred income taxes 224,131 222,481
----------- -----------
Total liabilities 24,542,293 27,563,792
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value of $.01 per share, 5,000,000
shares authorized; none issued -- --
Common stock, par value of $.01 per share, 10,000,000
shares authorized; 3,853,719 and 3,834,829 shares
issued and outstanding, respectively 38,537 38,348
Additional paid-in capital 10,854,153 10,809,475
Accumulated deficit (3,856,711) (7,742,280)
----------- -----------
Total stockholders' equity 7,035,979 3,105,543
----------- -----------
Total liabilities and stockholders' equity $31,578,272 $30,669,335
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 3 -
<PAGE> 22
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Contract revenues $38,262,363 $24,861,454 $22,182,644
----------- ----------- -----------
General and administrative expenses 35,042,691 21,271,804 16,558,530
----------- ----------- -----------
Income from operations 3,219,672 3,589,650 5,624,114
Interest (expense) income and other, net (223,527) 444,290 531,919
----------- ----------- -----------
Income from continuing operations
before income taxes 2,996,145 4,033,940 6,156,033
Federal, state and local income tax benefit (expense) 1,539,329 (1,570,204) (2,324,163)
----------- ----------- -----------
Income from continuing operations 4,535,474 2,463,736 3,831,870
Discontinued operations
Loss from discontinued operations (net of
tax (expense) benefits of $0, $(1,030,443), and
$3,965,073, respectively) -- (4,902,232) (818,082)
Loss on disposal of discontinued operations;
including $114,591 and $607,000 for operating losses
during phase-out period in 1999 and 1998 (net of tax
(expense) of ($535,314) and $0, respectively) (649,905) (1,613,493) --
----------- ----------- -----------
Net income (loss) $ 3,885,569 $(4,051,989) $ 3,013,788
=========== =========== ===========
Earnings per share (basic and diluted):
Income from continuing operations, per share $ 1.18 $ .64 $ 1.00
Loss from discontinued operations, per share (.17) (1.70) (.21)
----------- ----------- -----------
Net income (loss) per share $ 1.01 $ (1.06) $ .79
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 4 -
<PAGE> 23
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,810,331 $38,104 $10,711,292 $(6,230,815) $ 4,518,581
Issuance of common stock--
director stock award plan 10,167 101 32,351 -- 32,452
Net income -- -- -- 3,013,788 3,013,788
--------- ------- ----------- ----------- -----------
Balance at December 31, 1997 3,820,498 38,205 10,743,643 (3,217,027) 7,564,821
Issuance of common stock--
director stock award plan
and exercise of stock options 14,331 143 65,832 -- 65,975
Excess of liabilities assumed in
acquisition -- -- -- (473,264) (473,264)
Net loss -- -- -- (4,051,989) (4,051,989)
--------- ------- ----------- ----------- -----------
Balance at December 31, 1998 3,834,829 38,348 10,809,475 (7,742,280) 3,105,543
Issuance of common stock--
director stock award plan 18,890 189 44,678 -- 44,867
Net income -- -- -- 3,885,569 3,885,569
--------- ------- ----------- ----------- -----------
Balance at December 31, 1999 3,853,719 $38,537 $10,854,153 $(3,856,711) $ 7,035,979
========= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 5 -
<PAGE> 24
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income from continuing operations $ 4,535,474 $ 2,463,736 $ 3,831,870
Adjustments to reconcile net income to net cash
provided by operating activities of
continuing operations:
Depreciation and amortization 1,357,504 431,031 228,952
(Increase) decrease in deferred income taxes (2,025,665) 49,479 45,400
Issuance of common stock for director stock award plan 44,867 65,975 32,452
Changes in current assets and current liabilities
of continuing operations:
Accounts receivable 558,326 1,580,777 (3,152,377)
Prepaid expenses and other (99,554) 181,143 (193,611)
Deferred revenues 2,149,437 4,715,345 (530,138)
Accounts payable (527,701) (481,731) 435,315
Taxes payable (2,573,486) (648,983) 2,009,209
Accrued expenses and other liabilities 805,034 (99,683) 95,578
------------ ------------ ------------
Cash provided by continuing operating activities 4,224,236 8,257,089 2,802,650
Cash provided by (used in) discontinued operations 62,530 (4,954,610) (6,515,633)
------------ ------------ ------------
Net cash provided by (used in) operating activities 4,286,786 3,302,479 (3,712,983)
------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment, net (1,061,704) (869,173) (1,230,105)
Acquisition of businesses, net of cash acquired (1,610,576) (2,647,087) --
Deposits and other assets (500,000) 495,379 (497,658)
------------ ------------ ------------
Cash used in continuing operations (3,172,280) (3,020,881) (1,727,763)
Cash provided by (used in) discontinued operations 1,102,591 5,088 (60,411)
------------ ------------ ------------
Net cash used in investing activities (2,069,689) (3,015,793) (1,788,174)
------------ ------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Payment of notes payable (3,008,353) -- --
Payment of capital lease obligations (48,335) -- --
Proceeds from note payable -- 3,000,000 --
Restricted cash (4,058,980) -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities (7,115,668) 3,000,000 --
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (4,898,591) 3,286,686 (5,501,157)
Cash and cash equivalents, beginning of year 11,714,169 8,427,483 13,928,640
------------ ------------ ------------
Cash and cash equivalents, end of year $ 6,815,578 $ 11,714,169 $ 8,427,483
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ -- $ -- $ 309,838
============ ============ ============
Issuance of promissory notes for acquisitions $ 3,038,846 $ 2,526,736 $ --
============ ============ ============
Interest paid $ 375,085 $ -- $ --
============ ============ ============
Capital lease obligations $ 360,485 $ -- $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 6 -
<PAGE> 25
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. DESCRIPTION OF OPERATIONS
Health Power, Inc. (the Company) is a Delaware holding company that
provides full-service workers' and unemployment compensation consulting
services through its CompManagement, Inc. (CompManagement) subsidiary
to employers primarily located in the State of Ohio. Effective March 1,
1997, CompManagement Health Systems, Inc., a subsidiary of
CompManagement, began operations as a managed care organization (MCO)
for the Ohio Bureau of Workers' Compensation (OBWC). Effective December
31, 1998, CompManagement purchased M&N Risk Management, Inc. and M&N
Enterprise, Inc., companies providing compensation consulting services.
Effective July 16, 1999, CompManagement Health Systems, Inc. purchased
the MCO assets of Anthem Managed Comp, a division of Anthem Insurance
Company.
The Company also operated Health Power HMO, Inc. (HPHMO), a health
maintenance organization (HMO), in and around the Columbus, Cincinnati
and Dayton, Ohio areas for Medicaid recipients primarily enrolled in
the Ohio Works First/Healthy Start (OWF) programs, as well as for
commercial members. HPHMO ceased business operations effective April
30, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
in preparation of these consolidated financial statements:
Basis of presentation. The accompanying consolidated financial
statements are presented in accordance with generally accepted
accounting principles (GAAP) and reflect the reclassification of the
HMO segment as discontinued operations for all periods presented.
Assets and liabilities of the discontinued operations are shown
separate from the continuing operations in the consolidated balance
sheet. The results of discontinued operations have been adjusted for
the effect of the allocation of certain general corporate overhead
costs associated with continuing operations. All intercompany balances
and transactions have been eliminated in consolidation.
Unless otherwise stated, the notes to the financial statements disclose
information related to continuing operations. See note 14 for
disclosure of discontinued operations and related notes.
Cash and cash equivalents. For purposes of the consolidated statements
of cash flows, the Company classifies investments with original
maturities of three months or less as cash equivalents. Restricted cash
balances of HPHMO of $4,058,980 at December 31, 1999 have been included
in current assets of discontinued operation.
Property and equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows:
Computer equipment 3-5 years
Furniture and fixtures 5-10 years
Office equipment 5-7 years
Leasehold improvements 10-20 years
- 7 -
<PAGE> 26
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
Expenditures for major betterments are capitalized, and expenditures
for repairs and maintenance are charged to operations, as incurred.
When property and equipment are retired or sold, the cost and related
accumulated depreciation and amortization are removed from the
accounts, with any gain or loss reflected in operations. Depreciation
expense was $964,943, $431,031 and $228,952 for 1999, 1998 and 1997,
respectively.
Goodwill. The Company records goodwill for the excess of cost over fair
value of net assets acquired. Goodwill is amortized on a straight-line
basis over a twenty year period. Goodwill is evaluated periodically as
events or circumstances indicate a possible inability to recover their
carrying amount.
Revenues. Contract revenues are derived from claims management,
administrative, consulting services and managed care administration
services which are recorded as earned based on the requirements and
duration of the related contract. Revenue from the managed care
administration services are recognized on a monthly basis based on the
contracted administrative fee with the OBWC. In addition, contract
revenue is recorded for certain incentive awards when the claims are
processed to which the incentive is related and a bonus award is
recorded in the year earned. Revenue on certain contracts has been
deferred and is recognized in income on a pro rata basis over the
related contract periods, which typically range between 3 and 12
months. Commission expense associated with these contracts is also
deferred and recognized as an expense on a pro rata basis over the
related contract periods. For services related to group rating
contracts, fees are paid to the group's sponsor and netted against
contract revenues. Contract revenues received in advance are included
in deferred revenues.
Income taxes. Income taxes are accounted for on the liability method.
Under this method, deferred income tax assets and liabilities are
recognized for the tax consequences of differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities by applying enacted statutory tax rates
applicable to future years. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as income or expense
in the period that includes the enactment date.
Stock-based compensation. The Company applies APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations in accounting for its stock-based compensation plans in
the accompanying financial statements. The Company applies the
disclosure requirements of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation (see Note 10).
The Company provides a director stock award plan to non-employee
directors of Health Power, Inc., Health Power HMO, Inc. and
CompManagement, Inc. Under this plan, the directors elect percentages
of their directors' fees to be paid in cash or in stock of Health
Power, Inc. Payment of the directors' fees is made subsequent to
attendance of the respective meetings. Under this plan, the Company
issued 18,890, 13,831, and 10,167 shares of common stock with a market
value of $44,867, $65,975 and $32,452 for the years ended December 31,
1999, 1998 and 1997, respectively. The Company records the expense in
the year the stock is earned.
Use of estimates. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
- 8 -
<PAGE> 27
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
Earnings per share. Basic earnings per share is computed based on the
weighted average number of shares of common stock outstanding during
the reporting period. Diluted earnings per share is computed based on
the weighted average number of shares outstanding during the period
adjusted for common stock equivalents that are dilutive during the
period.
Reclassifications. Certain 1998 and 1997 amounts have been reclassified
to conform with the 1999 presentation.
3. ACQUISITIONS
On December 31, 1998, the Company's subsidiary CompManagement acquired
M&N Risk Management, Inc. and M&N Enterprise, Inc. (collectively "M&N")
in a transaction accounted for under the purchase method of accounting.
CompManagement purchased 100% of the issued and outstanding shares of
capital stock of M&N for a purchase price of $6,000,000 with the
provision for adjustment based on the closing net equity of M&N.
Funding for the acquisition was provided by a $3,000,000 demand note
with a financial institution and $2,526,736 in a promissory note
payable to the seller of M&N. At the time of acquisition, M&N had
$5,451,165 in total assets and $5,924,429 in total liabilities, which
have been included in the accompanying consolidated financial
statements. At December 31, 1998, the Company recognized a reduction in
the promissory note due the seller of M&N of $473,264 and a reduction
in shareholder's equity for the net liabilities of M&N. The Company
also recorded goodwill of $5,526,736 as a result of the application of
purchase accounting.
The purchase price of M&N was allocated as follows:
Accounts receivable $ 3,635,212
Deferred tax and other assets 2,031,375
Goodwill 5,624,392
Accounts payable and accrued liabilties (2,600,281)
Deferred revenue (3,163,962)
-----------
Total purchase price $ 5,526,736
===========
The agreement to acquire M&N included a guarantee of the
collectablility of certain accounts receivable. During 1999,
approximately $1,018,383 of accounts receivable were deemed
uncollectible by the Company. Accordingly, the Company has recognized a
reduction in accounts receivable purchased and a corresponding
reduction in the note due to the seller.
On July 16, 1999, CompManagement Health Systems completed the
acquisition of the MCO assets of Anthem Managed Comp (AMC), a workers'
compensation managed care organization operating as a division of a
wholly-owned subsidiary of Anthem Insurance Companies, Inc. The
acquired assets are operated as a division of CompManagement Health
Systems under the name "Integrated Comp." The aggregate purchase price
for the asset acquisition was $4,649,423. The Company paid
approximately $1,610,000 of cash at closing and the remaining balance
of $3,038,846 will be paid over a five-year period.
- 9 -
<PAGE> 28
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The acquisition has been accounted for under the purchase method. The
purchase price has been allocated as follows:
Property and equipment $ 500,576
Goodwill 4,279,152
Accounts payable (130,305)
----------
$4,649,423
==========
The following summarizes the pro forma results of continuing operations
for the years ended December 31, 1999 and 1998 as if M&N and AMC had
been acquired at the beginning of each period presented (unaudited):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Contract revenue $46,530,280 $46,912,254
Income from continuing operations $ 2,990,001 $ 305,393
Income from continuing operations,
per share (basic and diluted) $ .78 $ .08
</TABLE>
The pro forma information, as presented above, is not necessarily
indicative of the results which would have been obtained had the
transactions occurred at January 1, 1998, nor is it indicative of
future results.
- 10 -
<PAGE> 29
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Contract receivables $4,352,273 $5,603,036
Other 315,756 429,995
---------- ----------
4,668,029 6,033,031
Less allowance for doubtful accounts (573,664) (361,957)
---------- ----------
$4,094,365 $5,671,074
========== ==========
</TABLE>
The Company maintains an allowance for doubtful accounts when the
receivable is estimated to be uncollectible.
5. NOTES PAYABLE
Notes payable at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable to a bank, with interest payable monthly
at the prime rate (8.75% and 7.75% at
December 31, 1999 and 1998, respectively), due
on demand $ 1,500,000 $ 3,000,000
Note payable to the parent company of M&N with
interest at 7% due in annual installments
through December 31, 2001 -- 2,526,736
Note payable to AMC with interest imputed at 8%,
due in annual installments of principle and interest
through May 31, 2004 3,038,846 --
----------- -----------
4,538,846 5,526,736
Less current portion (2,665,403) (3,526,736)
----------- -----------
Notes payable--noncurrent $ 1,873,443 $ 2,000,000
=========== ===========
</TABLE>
The fair value of the note payable to a bank approximates the carrying
amount at December 31, 1999 and 1998 since its interest rate is based
on recent market rates. At December 31, 1998, the fair value
approximated the carrying amount of the note payable to the parent
Company of M&N as the note originated on that date. The fair value of
the note payable to AMC at December 31, 1999, based on the present
value of future cash flows discounted at estimated borrowing rates for
similar debt instruments, was $3,002,000.
- 11 -
<PAGE> 30
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
Maturities of notes payable at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $2,665,403
2001 500,165
2002 463,116
2003 428,811
2004 397,047
Thereafter 84,304
----------
$4,538,846
==========
</TABLE>
6. COMMITMENTS
CompManagement is party to employment agreements with certain
employees. The agreements call for certain levels of commission expense
to be paid by CompManagement to these individuals for selected contract
revenue earned over the terms of their agreements. In 1997,
CompManagement and CompManagement Health Systems amended the above
employment agreements to include certain commissions to be paid to
these employees. These agreements expired on December 31, 1999. In
March, 2000 new employment agreements with certain employees were
approved by the Board of Directors. These agreements extend the
commission arrangements through December 31, 2002. Total commission
expense paid in 1999, 1998 and 1997 in connection with these agreements
was approximately $497,000, $668,000 and $2,050,000, respectively.
7. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return.
Income tax benefit (expense) for the years ended December 31, 1999,
1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current $ (773,954) $ (317,695) $ (549,692)
Deferred 1,777,969 (2,282,952) 2,190,602
---------- ----------- -----------
$1,004,015 $(2,600,647) $ 1,640,910
========== =========== ===========
</TABLE>
Income tax benefit (expense) is included in the financial statements as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Continuing operations $1,539,329 $(1,570,204) $(2,324,163)
Discontinued operations (535,314) (1,030,443) 3,965,073
---------- ----------- -----------
$1,004,015 $(2,600,647) $ 1,640,910
========== =========== ===========
</TABLE>
- 12 -
<PAGE> 31
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The significant components of the deferred tax benefit (expense) for
the years ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax expense from
change in temporary differences $(1,034,973) $ 529,990 $ (266,447)
Reversal (establishment) of
valuation allowance 2,812,942 (2,812,942) 2,457,049
----------- ----------- ----------
$ 1,777,969 $(2,282,952) $2,190,602
=========== =========== ==========
</TABLE>
A reconciliation of the Company's income tax benefit (expense) for
continuing operations from the statutory tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax expense
at the statutory rate $(1,030,298) $(1,295,258) $(1,979,787)
State and local income taxes, net
of federal tax expense (215,028) (234,482) (359,040)
Business meals and other temporary differences (28,287) (40,464) (45,673)
Reversal of valuation allowance 2,812,942 -- 61,337
----------- ----------- -----------
Effective tax expense $ 1,539,329 $(1,570,204) $(2,323,163)
=========== =========== ===========
</TABLE>
- 13 -
<PAGE> 32
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The components of the net deferred tax asset (liability) as of
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Bad debt expense $ 231,181 $ 83,802
Deferred contract revenue 12,331 24,660
Goodwill 15,275 --
Health care costs payable 142,060 326,128
Membership acquisition -- 1,471,667
Tax Credit carryforward 239,857 239,857
Net operating loss carryforward 1,601,090 247,808
Provision for discontinued operations 64,438 548,588
Prepaid expenses 643 --
Other 11,824 22,484
---------- -----------
2,318,699 2,964,994
---------- -----------
Deferred tax liabilities:
Property and equipment 300,144 252,942
Prepaid expenses 133,639 38,796
Other 1,063 2,126
---------- -----------
434,846 293,864
---------- -----------
Net deferred tax asset before valuation
allowance 1,883,853 2,671,130
Valuation allowance -- (2,812,942)
---------- -----------
Net deferred tax asset (liability) $1,883,853 $ (141,812)
========== ===========
Current deferred tax asset $2,107,984 $ 80,669
Noncurrent deferred tax liability (224,131) (222,481)
---------- -----------
$1,883,853 $ (141,812)
========== ===========
</TABLE>
At December 31, 1999, the Company had the following tax credit and net
operating loss carryforwards available:
EXPIRATION TAX
DATES CREDITS
------------- --------
No expiration $ 239,857
NET
OPERATING
LOSSES
----------
2008 $ 561,000
2009 $4,532,000
- 14 -
<PAGE> 33
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
8. CAPITAL LEASE OBLIGATIONS
The Company leases computer equipment under an agreement which is
classified as a capital lease. Equipment subject to capital leases with
a cost of $360,485 and accumulated depreciation of $48,335 at December
31, 1999 is included in property and equipment. At December 31, 1999,
future minimum lease payments under the capital lease obligations for
the periods ending December 31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $108,146
2001 108,146
2002 108,146
2003 58,578
--------
Total minimum lease payments 383,016
Amounts representing interest (70,866)
--------
Present value of minimum lease payments $312,150
========
</TABLE>
9. OPERATING LEASES
The Company leases a 70,000 square foot office building in Dublin, Ohio
that is used as its principal office facilities. The lease for the
building is for a term of 15 years, which began in 1997, provides for
annual rent payments and requires the Company to pay all operating
expenses for the building. The lease also provides for three renewal
options of five years each, an option to purchase the building between
the fourth and fifth years of the lease term at a price determined
under a formula based on the rentable and unimproved square footage of
the building, and a right of first offer to purchase the building
before the Landlord enters into a contract to sell the building to a
third-party. The lease restricts CompManagement, Inc. from paying a
dividend, or otherwise distributing funds or assets outside the
ordinary course of business to Health Power, Inc. or another affiliate
unless CompManagement, Inc. meets certain tangible net worth
requirements. The Company also leases office space in Akron,
Cincinnati, Cleveland, and Toledo, Ohio; Seattle, Washington;
Charleston, West Virginia; Lexington, Kentucky; and Indianapolis,
Indiana. These spaces are used as regional offices and service centers
for its operations.
At December 31, 1999, future minimum rental payments under the
operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 2,854,182
2001 2,389,525
2002 2,234,045
2003 1,845,798
2004 1,649,097
Thereafter 10,063,546
------------
$21,036,193
===========
</TABLE>
Rental expense was approximately $2,564,137, $1,579,786 and $876,813,
for 1999, 1998 and 1997, respectively.
- 15 -
<PAGE> 34
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
10. STOCK OPTIONS AND AWARDS
Stock-based compensation plans. The Company sponsors various
stock-based incentive compensation plans (the Plans) for directors and
eligible employees.
Under the Plans, the Company is authorized to issue shares of common
stock pursuant to "awards" granted in various forms, including
incentive stock options (intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended), nonqualified stock options,
and other similar stock-based awards for up to 400,000 common shares of
the Company. The Company granted stock options in 1999, 1998 and 1997
under the Plans in the form of incentive stock options and nonqualified
stock options. The Company is authorized to issue 55,000 shares of
common stock under the 1996 directors' stock award plan. In February
1998, the Company registered 180,000 shares of common stock under an
executive stock option plan.
Employee and director stock options. The Company granted market price
stock options in 1999, 1998 and 1997 to employees and directors. The
stock options granted in 1999, 1998 and 1997 have terms of 10 years.
The options granted to directors were vested immediately on the grant
date. The options granted to employees vest at the rate of 25% per year
on each of the first four anniversaries of the date of grant. Options
granted to various executives vest 100% at the end of six years
(subject to acceleration to a two-year period depending on the
performance of the Company or at the discretion of the Compensation
Committee). Options are granted at the fair market value of common
stock at the date of grant. Accordingly, the Company has not recognized
any compensation cost for these stock options granted in 1999, 1998 and
1997.
A summary of the status of the Company's director and employee stock
options, and the changes during the years is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- ------------------------ -------------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
------- ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 249,789 $8.16 244,781 $ 9.36 204,615 $11.49
Granted 29,182 2.84 59,078 4.42 78,788 3.92
Exercised -- -- -- -- -- --
Forfeited 10,951 6.95 53,070 11.41 26,077 9.02
Expired 5,034 4.72 1,000 10.57 12,545 11.89
Outstanding at the end of year 262,986 7.69 249,789 8.16 244,781 9.36
Exercisable at end of year 133,797 9.94 122,092 10.77 95,124 11.52
Weighted-average fair value of
options granted during year $1.65 $ 2.33 $ 1.83
</TABLE>
- 16 -
<PAGE> 35
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1999, 1998 and 1997,
respectively: no dividend yield for all years; risk-free interest rates
are different for each grant and range from 5.06% to 6.73%; the
expected lives of options are estimated to be five years; and a
volatility of 59.81% for 1999 grants, 50.20% for 1998 grants, and
41.97% for 1997 grants.
The following table summarizes information about director and employee
stock options outstanding at December 31, 1999
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/99 LIFE PRICE AT 12/31/99 PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.44 to 4.00 126,583 7.67 $ 3.65 32,202 $ 3.74
$7.00 to 9.00 63,668 7.37 5.92 28,860 7.91
$11.00 to 15.31 72,735 4.88 13.49 72,735 13.49
------- ---- ------ ------- ------
$2.44 to $15.31 262,986 6.82 $ 7.69 133,797 $ 9.94
======= ==== ====== ======= ======
</TABLE>
ProForma net income and net income per common share. Had the
compensation cost for the Company's stock-based compensation plans been
determined in accordance with SFAS No. 123, the Company's net income
and net income per common share for 1999, 1998 and 1997 would
approximate the pro forma amounts below:
<TABLE>
<CAPTION>
AS AS AS
REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA
12/31/99 12/31/99 12/31/98 12/31/98 12/31/97 12/31/97
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $3,885,569 $3,816,592 $(4,051,989) $(4,084,216) $3,013,788 $2,904,414
Net income (loss) per
common share, diluted 1.01 0.99 (1.06) (1.07) 0.79 0.76
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts. SFAS No. 123 does not apply to awards
prior to 1995.
- 17 -
<PAGE> 36
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFITS PLANS
The Company maintains 401(k) plans for its employees meeting certain
age requirements and completing six months to one year of employment.
Qualifying employees may contribute a percentage of their compensation
to the plans. The Company matches a portion of the employee
contributions based on the terms of the plan agreement. The Company's
matching contributions to the 401(k) plans were approximately $237,854,
$79,803 and $50,332 for 1999, 1998 and 1997, respectively, for
employees of the continuing operations and approximately $6,793, $3,438
and $5,976 for 1999, 1998 and 1997, respectively for employees of the
discontinued operations.
12. SEGMENT REPORTING
The Company has two reportable segments for its continuing operations:
consulting services and managed care services, which were determined
based upon its method of internal reporting. Each segment of the
Company is managed separately. The consulting services segment offers
workers' and unemployment compensation consulting services. The managed
care services segment administers workers' compensation claims for the
OBWC and began operations March 1, 1997. The Company also has an other
segment which derives its revenues from management fees and interest
income. Segment assets of the other segment includes assets of the
discontinued operations of HPHMO.
The accounting policies of the segments are the same as those described
in Note 2 " Summary of Significant Accounting Policies". Segment data
includes intercompany revenues, as well as a charge for allocating
corporate expenses to each of its segments. Such amounts have been
included in the elimination column to reconcile to consolidated totals.
- 18 -
<PAGE> 37
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------------------
MANAGED CARE CONSULTING
SERVICES SERVICES OTHER ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues to unaffiliated customers $ 18,516,431 $ 19,745,932 $ -- $ -- $ 38,262,363
Intercompany revenues -- -- 1,332,013 (1,332,013) --
Salaries and benefits 11,070,947 10,583,518 907,535 (807,535) 21,754,465
Depreciation and amortization expense 453,009 878,205 26,289 -- 1,357,507
Interest (expense) income and other, net (97,720) (128,965) 123,755 (120,597) (223,523)
Income before taxes 362,201 2,900,320 (266,376) -- 2,996,145
Income tax benefit (expense) (155,309) 1,696,467 (1,829) -- 1,539,329
Net income (loss) 206,892 4,596,787 (382,796) -- 4,535,474
Identifiable assets 14,330,904 25,028,891 15,931,233 (23,712,756) 31,578,272
------------------------------------------------------------------------------------
1998
------------------------------------------------------------------------------------
Revenues to unaffiliated customers $ 12,962,611 $ 11,898,843 $ -- $ -- $ 24,861,454
Intercompany revenues -- -- 2,425,500 (2,425,500) --
Salaries and benefits 7,437,574 6,057,233 1,385,806 (1,235,806) 13,644,807
Depreciation expense 185,249 220,475 25,307 -- 431,031
Interest income and other, net 123,837 298,237 8,488,344 (8,466,128) 444,290
Income before taxes 1,458,103 2,590,998 8,451,271 (8,466,432) 4,033,940
Income tax (expense) benefit (626,308) (1,031,431) 87,535 -- (1,570,204)
Net income 831,795 1,599,566 8,498,807 (8,466,432) 2,463,736
Identifiable assets 3,682,746 21,708,398 13,020,667 (7,742,476) 30,669,335
------------------------------------------------------------------------------------
1997
------------------------------------------------------------------------------------
Revenues to unaffiliated customers $ 11,269,270 $ 10,913,374 $ -- $ -- $ 22,182,644
Intercompany revenues -- -- 2,970,070 (2,979,070) --
Salaries and benefits 5,495,032 5,411,519 1,516,192 (1,600,192) 10,852,551
Depreciation expense 74,176 139,552 15,224 -- 228,952
Interest income and other, net -- 216,609 2,975,993 (2,660,683) 531,919
Income before taxes 3,077,625 3,051,410 2,687,681 (2,660,683) 6,156,033
Income tax (expense) benefit (1,197,864) (1,208,225) 81,926 -- (2,324,163)
Net income 1,879,761 1,843,185 2,769,607 (2,660,683) 3,831,870
Identifiable assets 4,615,448 5,406,046 27,073,702 (14,746,388) 22,348,808
</TABLE>
- 19 -
<PAGE> 38
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
13. SUPPLEMENTAL DISCLOSURES FOR EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic:
Earnings:
Income from continuing operations $4,535,474 $ 2,463,736 $3,831,870
Less: Loss from discontinued operations (649,905) (6,515,725) (818,082)
---------- ----------- ----------
Net income (loss) $3,885,569 $(4,051,989) $3,013,788
---------- ----------- ----------
Shares:
Weighted average common shares outstanding 3,845,666 3,828,564 3,818,465
---------- ----------- ----------
Income from continuing operations per common
share, basic $ 1.18 $ .64 $ 1.00
Loss from discontinued operations, per common
share, basic (.17) (1.70) (.21)
---------- ----------- ----------
Net income (loss) per common share, basic $ 1.01 $ (1.06) $ .79
---------- ----------- ----------
Diluted:
Earnings:
Income from continuing operations $4,535,474 $ 2,463,736 $3,831,870
Less: Loss from discontinued operations (649,905) (6,515,725) (818,082)
---------- ----------- ----------
Net income (loss) $3,885,569 $(4,051,989) $3,013,788
---------- ----------- ----------
Shares:
Weighted average common shares outstanding 3,845,666 3,828,564 3,818,465
Add: dilutive effect of outstanding options -- 6,294 14,185
---------- ----------- ----------
Weighted average common shares outstanding,
diluted 3,845,666 3,834,858 3,832,650
---------- ----------- ----------
Income from continuing operations per common
share, diluted $ 1.18 $ .64 $ 1.00
Loss from discontinued operations, per common
share, diluted (.17) (1.70) (.21)
---------- ----------- ----------
Net income (loss) per common share, diluted $ 1.01 $ (1.06) $ .79
========== =========== ==========
</TABLE>
- 20 -
<PAGE> 39
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
14. DISCONTINUED OPERATIONS
On December 29, 1998, the Company's Board of Directors formally
approved a plan to discontinue operations of HPHMO. Accordingly, the
operating results of the HMO operations, including provisions for
estimated lease costs, employee severance and benefits, write-downs of
property, plant and equipment during the phase-out period and a loss on
disposal have been segregated from continuing operations and reported
as a separate line item on the statement of operations. Income from
operations of the discontinued HMO operations for the year 1998
included results through December 31, 1998.
On May 1, 1999, the certificate of authority of HPHMO was revoked by
the Ohio Department of Insurance ("ODI") for failure to meet statutory
financial requirements. Since that time, and in accordance with the ODI
revocation order, HPHMO has been winding-up its business under the
supervision of ODI, but without judicial involvement.
The HMO accepted all valid claims related to provider services rendered
prior to April 30, 1999. In addition, the HMO has disposed of
substantially all tangible assets related to its operations and,
pursuant to the wind-down plan, the proceeds from these sales have been
segregated to be used in satisfaction of all claims filed through
October 31, 1999. The HMO will not have sufficient assets to pay the
claims of all of its creditors.
The Company provided a reserve for loss on disposal of the HMO of
$1,613,000 at December 31, 1998. The settlement of claims and approval
of providers of the final payout of claims has extended over a period
of time longer than originally estimated when establishing the reserve.
Accordingly, the Company has provided an additional $115,000 to the
reserve to cover estimated disposal costs through April 30, 2000, the
expected date of final execution of the wind-down plan.
The Company has reclassified its prior financial statements to present
the operating results of HPHMO as discontinued operations. The assets
and liabilities of such operations at December 31, 1999 and 1998,
respectively, have been reflected as separate line items on the balance
sheet based substantially on the original classification of such assets
and liabilities.
Management services. The Company has a management service agreement
between Health Power Management Company (HPMC), a subsidiary of the
Company, and its affiliate HPHMO, to provide administrative services.
Services provided include finance and accounting functions, data
processing, office of the president, marketing and membership services,
corporate planning, and legal and regulatory services. The affiliates
of HPMC pay a management fee on a monthly basis. Beginning in 1997,
HPHMO was reimbursed approximately $14,000 per month through April 1999
and $14,000 and $7,000 per month in 1998 and 1997, respectively, by its
affiliates CompManagement, Inc. and CompManagement Health Systems, for
the portion of management services that related to their organization's
activities.
- 21 -
<PAGE> 40
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
Operating results from discontinued operations for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------------ ------------
<S> <C> <C> <C>
Medicaid revenues $ -- $ 36,731,250 $ 42,819,206
Commercial revenues -- 2,648,965 10,811,320
Healthcare costs and expenses -- (44,248,972) (59,102,511)
Interest income and other, net -- 996,968 688,830
Loss on disposal of discontinued operations (114,591) (1,613,493) --
--------- ------------ ------------
Net loss before taxes (114,591) (5,485,282) (4,783,155)
Federal, state and local income tax (expense)
benefit (535,314) (1,030,445) 3,965,073
--------- ------------ ------------
Net loss $(649,905) $ (6,515,727) $ (818,082)
========= ============ ============
</TABLE>
- 22 -
<PAGE> 41
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The assets and liabilities of the discontinued HMO operations as of
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Current assets of discontinued operations:
Cash and cash equivalents $4,058,980 $ 2,511,515
Accounts receivable 212,785 1,909,928
Prepaid expenses and other 2,000 5,155
Income taxes refundable -- 1,140,041
---------- -----------
Total current assets of discontinued operations $4,273,765 $ 5,566,639
========== ===========
Noncurrent assets of discontinued operations:
Land -- 152,640
Buildings and leasehold improvements -- 1,252,652
Furniture, equipment and software 1,910,308
Less accumulated depreciation -- (2,407,874)
Deposits and other assets -- 495,618
---------- -----------
Total noncurrent assets of discontinued
operations $ $ 1,403,344
---------- -----------
Current liabilities:
Health care costs payable $6,258,194 $ 4,679,105
Deferred revenues -- 2,683,638
Accounts payable 287,263 693,619
Accrued expenses and other current liabilities -- 47,122
Accrued expenses for disposal 189,523 1,060,151
---------- -----------
Total current liabilities of discontinued operations $6,734,980 $ 9,163,635
========== ===========
</TABLE>
- 23 -
<PAGE> 42
HEALTH POWER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
15. RELATED PARTIES OF DISCONTINUED OPERATIONS
HPHMO engaged in transactions with medical centers and companies
controlled by certain shareholders and directors of the Company and its
subsidiaries, which are herein, referred to as affiliates or affiliated
providers as follows:
Health care providers. During 1999, 1998 and 1997, primary care and
physician-related costs of $58,346, $564,123 and $1,485,107,
respectively, resulted from transactions between HPHMO and affiliated
providers. Such transactions resulted in receivables from related
primary care providers of $39,076 and $12,830 as of December 31, 1999
and 1998, respectively.
Commercial revenue. Certain affiliated providers had contracted with
HPHMO to provide health care services to their employees and
dependents. HPHMO recognized commercial premiums from these affiliated
providers in the amounts of $20,582, $53,674, and $65,793 in 1999, 1998
and 1997, respectively.
16. COMMITMENTS OF DISCONTINUED OPERATIONS
HPHMO maintains stop-loss insurance coverage for 85% of inpatient
hospital costs in excess of $50,000 per Medicaid member, per contract
year and varying percentages (generally 80%) of inpatient hospital
costs in excess of $81,000 per commercial member, per contract year.
These stop-loss insurance contracts do not relieve HPHMO of its
obligations to members, and failure of reinsurers to honor their
obligations could result in losses to HPHMO.
During 1998, the Company's HMO subsidiary commenced a legal action
seeking compensation for damages alleged under a prior administrative
agreement with a claims processing organization. A counterclaim was
filed against HPHMO sought compensatory and punitive damages alleged
under this same agreement. HPHMO and the claims processing
organization signed a settlement agreement effective February 25, 2000
which provided for the dismissal of all claims in litigation.
-24-
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding the directors
and executive officers of Health Power, Inc.:
<TABLE>
<CAPTION>
Name Age Positions with Health Power, Inc. or Its Subsidiaries
- ---- --- -----------------------------------------------------
<S> <C> <C>
Dr. Bernard F. Master 58 Chairman of the Board, Chief Executive Officer, and
President of Health Power, Inc.; director of Health
Power, Inc.
Robert J. Bossart 48 Chief Executive Officer of CompManagement and
CompManagement Health Systems;
director of Health Power, Inc.
Jonathan R. Wagner 42 President of CompManagement; director of Health
Power, Inc.
Dr. Elliott P. Feldman 61 Secretary of Health Power, Inc.; director of Health
Power, Inc.
Robert S. Garek 61 Director of Health Power, Inc.
Dr. Crystal A. Kuykendall 50 Director of Health Power, Inc.
Frank R. Nutis 78 Director of Health Power, Inc.
Dr. Burt E. Schear 77 Director of Health Power, Inc.
Richard T. Kurth 41 Executive Vice President of CompManagement
Randy E. Jones 40 President of CompManagement Health Systems
Paul A. Miller 43 Vice President, General Counsel, Chief Financial Officer
and Treasurer of CompManagement
Daniel R. Sullivan 41 Senior Vice President of CompManagement
</TABLE>
Dr. Master has been the Chairman of the Board, a director, and the
Chief Executive Officer of Health Power, Inc. since its formation in March 1985,
and the President of Health Power, Inc. since January 1998.
25
<PAGE> 44
Mr. Bossart has been the Chief Executive Officer of CompManagement
since September 1996, and an executive officer of CompManagement since its
formation in 1984. He has also been the Chief Executive Officer of
CompManagement Health Systems since it commenced operations in September 1996.
Mr. Bossart has been a director of Health Power, Inc. since 1995.
Mr. Wagner has been the President of CompManagement since September
1996, and an executive officer of CompManagement since its formation in 1984.
Mr. Wagner has been a director of Health Power, Inc. since June 1999.
Dr. Feldman has been the Secretary and a director of Health Power, Inc.
since its formation in March 1985. Dr. Feldman has been a practicing physician
in Columbus, Ohio, since 1965.
Mr. Garek has been a director of Health Power, Inc. since 1986. Mr.
Garek has been a principal in R.S. Garek & Associates, a Columbus, Ohio real
estate development firm, since its formation in 1997. From 1965 to 1997, he was
a partner in Feibel-Garek Realtors, a Columbus, Ohio real estate development
firm.
Dr. Kuykendall has been a director of Health Power, Inc. since 1995.
Dr. Kuykendall has been the president of Kreative & Innovative Resources for
Kids, Inc., a company that provides products and serves to advance the technical
development of youths, since 1990.
Mr. Nutis has been a director of Health Power, Inc. since 1986. Mr.
Nutis has been the president of Nutis Press, Inc., a printing and lithograph
company, since 1949.
Dr. Schear has been a director of Health Power, Inc. since 1991. Dr.
Schear is a retired physician.
Mr. Kurth has been the Executive Vice President of CompManagement since
September 1996, and a Vice President of CompManagement since 1988. Mr. Kurth
joined CompManagement in 1984.
Mr. Jones has been the President of CompManagement Health Systems since
August 1999, and prior to that a Vice President since he joined the company in
July 1996. Prior to that time, Mr. Jones was employed by R.E. Harrington, an
Ohio-based third party administrator of workers' compensation claims, for more
than five years, last serving as a regional vice president.
Mr. Miller has been the General Counsel, Chief Financial Officer, and
Treasurer of CompManagement since August 1999, and a Vice President since
joining the company in June 1998. Prior to that time, Mr. Miller was chief
financial officer and general counsel for Cross Medical Products (formerly
Danninger Medical Technology) from 1994 to 1998 and chief financial officer and
general counsel for Litter Industries, Inc. from 1991 to 1994.
Mr. Sullivan has been the Senior Vice President of CompManagement since
August 1997, and a Vice President of CompManagement since July 1994. Mr.
Sullivan joined CompManagement in February 1992.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and beneficial owners of more than 10% of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Officers,
directors, and beneficial owners of more than 10% of such equity securities are
required by the Securities
26
<PAGE> 45
and Exchange Commission's regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
forms furnished to the Company, the Company believes that during 1999 all
Section 16(a) filing requirements applicable to its officers, directors, and
more than 10% beneficial owners were complied with by such persons, except as
follows: Dr. Bernard F. Master filed a Form 4 one day late to report the
purchase of 1,000 shares of Common Stock; and Richard T. Kurth filed a Form 4
one day late to report the purchase of 1,000 shares of Common Stock.
27
<PAGE> 46
w
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Set forth below is summary information regarding the annual and
long-term compensation of the Company's chief executive officer and its four
most highly compensated executive officers, other the chief executive officer,
at the end of 1999:
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------- ------
Shares All
Other Underlying Other
Name and Annual Compen- Options Compen-
Principal Position Year Salary(1) Bonus sation(2) Granted(2) sation(3)
- ------------------ ---- --------- ----- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dr. Bernard F. Master, 1999 $386,378 $103,250 -0- 13,531 $1,450
Chairman, President and Chief 1998 $303,692 $50,000 -0- 20,000 $2,137
Executive Officer of the 1997 $192,000 -0- -0- 3,472 $ 638
Company
Robert J. Bossart, Chief 1999 $178,030 $150,000 $96,904 3,531 $2,500
Executive Officer of 1998 $178,030 -0- $379,381 3,506 $2,500
CompManagement and 1997 $178,031 -0- $815,968 2,031 $2,250
CompManagement Health Systems
Jonathan R. Wagner, President 1999 $165,309 $150,000 $122,665 3,219 $2,500
of CompManagement 1998 $165,309 -0- $464,012 3,367 $2,500
1997 $165,309 -0- $828,688 1,875 $2,589
Richard T. Kurth, Executive 1999 $133,380 $150,000 $186,962 2,401 $2,500
Vice President of 1998 $133,380 -0- $447,468 2,455 $2,500
CompManagement 1997 $133,380 -0- $860,620 1,406 $2,688
Daniel R. Sullivan, 1999 $101,201 $50,000 $90,475 -0- $2,500
Senior Vice President of 1998 $ 77,500 -0- $54,226 1,000 $2,500
CompManagement 1997 $ 58,166 -0- $93,829 1,000 $2,500
</TABLE>
- -----------------------------------
(1) Includes amounts contributed by the named executive officer to 401(k)
retirement plans.
(2) Other annual compensation represents sales commissions paid to Messrs.
Bossart, Wagner, and Kurth under their respective employment agreements
and to Mr. Sullivan under his employment arrangements. Sales
commissions paid are based upon a percentage of revenues of
CompManagement and CompManagement Health Systems which are attributable
to new business generated by such person.
(3) Represents matching contributions to 401(k) retirement plans.
28
<PAGE> 47
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all grants of stock options during 1999
to the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Individual Grant
-------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
% of Total Stock Appreciation
Number of Options for Option Term(2)
Shares Granted to Exercise -------------------------
Underlying Employees in Price Per Expiration
Name Options Granted Fiscal Year Share(1) Date 5% 10%
- ---- --------------- ----------- -------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Dr. Bernard F. Master 10,000 44.1% $3.00 03/17/09 $18,867 $47,812
Dr. Bernard F. Master 3,531 15.6% $2.75 05/01/09 $ 6,161 $15,476
Robert J. Bossart 3,531 15.6% $3.00 03/17/09 $ 6,662 $16,883
Jonathan R. Wagner 3,219 14.2% $3.00 03/17/09 $ 6,073 $15,391
Richard T. Kurth 2,401 10.6% $3.00 03/17/09 $ 4,530 $11,480
Daniel R. Sullivan -0- 0.0% N/A N/A N/A N/A
</TABLE>
- -----------------------------
(1) The exercise price per share is equal to the fair market value of the
Shares on the date of grant.
(2) The dollar amounts under the 5% and 10% columns are the result of
calculations required by the rules of the Securities and Exchange
Commission. Although permitted by these rules, the Company did not use
an alternate formula for a grant date valuation because the Company is
not aware of a formula that would determine with reasonable accuracy a
present value based on future unknown factors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE TABLE
The following tables sets forth stock option exercises during 1999 by
the executive officers named in the Summary Compensation Table and the value of
in-the-money stock options held by those individuals as of December 31, 1999:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Shares In-The-Money Options at
Shares Acquired Underlying Unexercised 12/31/99
on Options at 12/31/99 Exercisable /
Name Exercise Value Realized(1) Exercisable/ Unexercisable Unexercisable(2)
- ---- -------- ----------------- -------------------------- ----------------
<S> <C> <C> <C> <C>
Dr. Bernard F. Master -0- -0- 74,806/3,531 $-0-/$-0-
Robert J. Bossart -0- -0- 14,673/7,037 $-0-/$-0-
Jonathan R. Wagner -0- -0- 14,161/6,584 $-0-/$-0-
Richard T. Kurth -0- -0- 8,620/4,856 $-0-/$-0-
Daniel R. Sullivan -0- -0- 1,550/1,250 $-0-/$-0-
</TABLE>
- ------------------------------
(1) Aggregate market value of shares of Common Stock covered by the option
less the aggregate price paid by the executive officer.
29
<PAGE> 48
(2) The value of in-the-money options was determined by subtracting the
exercise price from the closing price of the Common Stock of Health
Power, Inc. as of December 31, 1999.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Dr. Bernard F. Master, the Company's Chairman, President, and Chief
Executive Officer, has an employment agreement with the Company that expires on
December 31, 2002. Dr. Master's employment agreement provides for an annual base
salary of $295,000 and an annual performance-based cash incentive bonus up to
35% of his base salary. If Dr. Master's employment is terminated by the Company,
terminated by Dr. Master after a change-in-control, or terminated at the end of
its term, then he will receive severance payments in an amount equal to the sum
of (a) two times his base salary plus (b) an amount equal to his last annual
cash bonus. Severance payments are payable over a two-year period after
termination. Severance benefits also include the continuation of fringe benefits
until the earlier of two years after the date of termination or the date any
such benefit is provided by another employer. Under his employment agreement,
Dr. Master also receives formula vesting options under the Health Power, Inc.
1994 Executive Performance Stock Option Plan.
Robert J. Bossart, the Chief Executive Officer of CompManagement and
CompManagement Health Systems, has an employment agreement with the Company that
expires on December 31, 2002. Mr. Bossart's employment agreement provides for an
annual base salary of $280,000, sales commissions based upon new business
generated by him, and an annual performance-based cash incentive bonus up to 35%
of his base salary. The bonus is earned and paid in accordance with the Health
Power, Inc. Performance-Based Incentive Compensation Plan. Mr. Bossart has also
agreed to abide by certain noncompetition and confidentiality provisions. If Mr.
Bossart's employment is terminated for any reason other than just cause, or is
terminated at the end of its term, then he will receive severance payments in an
amount equal to the sum of (a) two times his base salary plus (b) an amount
equal to the commissions earned by him during the one-year period immediately
prior to such termination. Severance payments are payable over a two-year period
after termination. Severance benefits also include the continuation of fringe
benefits until the earlier of two years after the date of termination or the
date any such benefit is provided by another employer. However, the foregoing
severance benefits are superceded and replaced by any severance benefits payable
under his change-in-control severance agreement, discussed below. The employment
agreement also provides for Mr. Bossart to receive a grant of stock options to
purchase up to 70,000 shares of Common Stock under a new Health Power, Inc.
management stock option plan. However, this grant is subject to the conditions
that the new management stock option plan be approved by the directors and
stockholders of Health Power, Inc., neither of which has occurred as of the date
of this filing. If approval of the new management stock option plan is received,
then the stock options will be at an exercise price equal to the closing market
price of the Common Stock on the last business day immediately preceding the
date of the 2000 annual meeting of stockholders of Health Power, Inc. These
options will vest annually in increments of 14,000 shares.
Jonathan R. Wagner, the President of CompManagement, has an employment
agreement with the Company that expires on December 31, 2002. Mr. Wagner's
employment agreement provides for an annual base salary of $260,000, sales
commissions based upon new business generated by him, and an annual
performance-based cash incentive bonus up to 35% of his base salary. The bonus
is earned and paid in accordance with the Health Power, Inc. Performance-Based
Incentive Compensation Plan. Mr. Wagner has also agreed to abide by certain
noncompetition and confidentiality provisions. If Mr. Wagner's employment is
terminated for any reason other than just cause, or is terminated at the end of
its term, then he will receive severance payments in an amount equal to the sum
of (a) two times his base salary plus (b) an amount equal to the commissions
earned by him during the one-year period immediately prior to such termination.
Severance payments are payable over a two-year period after
30
<PAGE> 49
termination. Severance benefits also include the continuation of fringe benefits
until the earlier of two years after the date of termination or the date any
such benefit is provided by another employer. However, the foregoing severance
benefits are superceded and replaced by any severance benefits payable under his
change-in-control severance agreement, discussed below. The employment agreement
also provides for Mr. Wagner to receive a grant of stock options to purchase up
to 70,000 shares of Common Stock under a new Health Power, Inc. management stock
option plan. However, this grant is subject to the conditions that the new
management stock option plan be approved by the directors and stockholders of
Health Power, Inc., neither of which has occurred as of the date of this filing.
If approval of the new management stock option plan is received, then the stock
options will be at an exercise price equal to the closing market price of the
Common Stock on the last business day immediately preceding the date of the 2000
annual meeting of stockholders of Health Power, Inc. These options will vest
annually in increments of 14,000 shares.
Richard T. Kurth, the Executive Vice President of CompManagement, has
an employment agreement with the Company that expires on December 31, 2002. Mr.
Kurth's employment agreement provides for an annual base salary of $225,000,
sales commissions based upon new business generated by him, and an annual
performance-based cash incentive bonus up to 35% of his base salary. The bonus
is earned and paid in accordance with the Health Power, Inc. Performance-Based
Incentive Compensation Plan. Mr. Kurth has also agreed to abide by certain
noncompetition and confidentiality provisions. If Mr. Kurth's employment is
terminated for any reason other than just cause, or is terminated at the end of
its term, then he will receive severance payments in an amount equal to the sum
of (a) two times his base salary plus (b) an amount equal to the commissions
earned by him during the one-year period immediately prior to such termination.
Severance payments are payable over a two-year period after termination.
Severance benefits also include the continuation of fringe benefits until the
earlier of two years after the date of termination or the date any such benefit
is provided by another employer. However, the foregoing severance benefits are
superceded and replaced by any severance benefits payable under his
change-in-control severance agreement, discussed below. The employment agreement
also provides for Mr. Kurth to receive a grant of stock options to purchase up
to 70,000 shares of Common Stock under a new Health Power, Inc. management stock
option plan. However, this grant is subject to the conditions that the new
management stock option plan be approved by the directors and stockholders of
Health Power, Inc., neither of which has occurred as of the date of this filing.
If approval of the new management stock option plan is received, then the stock
options will be at an exercise price equal to the closing market price of the
Common Stock on the last business day immediately preceding the date of the 2000
annual meeting of stockholders of Health Power, Inc. These options will vest
annually in increments of 14,000 shares.
Robert J. Bossart, Jonathan R. Wagner, Richard T. Kurth, Daniel R.
Sullivan, and certain other executive officers of the Company have each entered
into a "change-in-control" severance agreement with the Company. Each of these
severance agreements is identical. These severance agreements provide each of
them with certain severance benefits if their employment is terminated within a
six-month period prior to, or a two-year period following, a change-in-control
of the Company. Under these severance agreements, the executive officer is
entitled to the continuation of his monthly "compensation" and fringe benefits
for 24 months following the date of his termination of employment. Compensation
is equal to the monthly average of such executive officer's base salary, cash
bonus and commissions received during the 36-month period prior to his
termination of employment. Termination events that will trigger the severance
benefits are (a) termination by the Company or its successor other than for
cause, (b) the executive officer's voluntary termination of employment within
six months after a change-in-control, or (c) the executive officer's voluntary
termination of employment for "good reason" during the two-year period following
the change-in-control. Good reason includes a material change or diminution in
the executive officer's position, authority, duties or responsibilities; a
reduction in salary; a material reduction in fringe benefits; an involuntary
relocation; or a material change in the kind of business engaged in by
31
<PAGE> 50
CompManagement. The executive officer is prohibited from competing with the
Company during the period the severance benefits are provided to such officer.
The failure to abide by this noncompetition agreement will cause a forfeiture of
all severance benefits. For Messrs. Bossart, Wagner, and Kurth, any severance
benefits received under these severance agreements supercede and replace any
severance benefits otherwise payable under their respective employment
agreements.
COMPENSATION OF DIRECTORS
Directors who are employees receive no separate compensation for their
services as a director. Outside directors of the Company (persons who are not
employees of the Company or any of its subsidiaries) receive an annual cash
retainer fee of $3,000, $500 for each Board or committee meeting attended, and
the reimbursement of travel expenses. In accordance with the Company's 1996
Directors Stock Award and Purchase Plan, outside directors also receive an
annual award of a number of Shares equal in value to $3,000 (determined as of
the end of the year for which the award is to be made). In addition, under this
plan, outside directors receive 50% of their cash annual retainer fee and 50% of
their quarterly meeting fees in the form of shares of Common Stock of Health
Power, Inc., and they have the option to receive all or a greater percentage of
such fees in the form of such shares. Outside directors can also elect to
receive all or a specified percentage of their other fees (such as fees for
attending special Board meetings or committee meetings) in the form of shares of
Common Stock of Health Power, Inc. The number of shares awarded is determined by
dividing the dollar amount of the fees to be received in the form Shares by the
last reported sale price of shares of Common Stock of Health Power, Inc. in the
over-the-counter market as of the last trading day prior to the date on which
the applicable Board meeting is held. In addition, outside directors receive
stock options under the Company's 1993 Directors' Stock Option Plan. Under this
plan, promptly following each annual meeting of stockholders of the Company,
each eligible director is granted an option to purchase 1,000 shares of Common
Stock at the fair market value of such shares on the last trading day prior to
the annual meeting preceding the date of grant. Options are immediately
exercisable in whole or in part and must be exercised within ten years of the
grant date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert S. Garek, Crystal A. Kuykendall, Ph.D., J.D., and Frank R. Nutis
serve as members of the Compensation Committee. No executive officer of the
Company served during 1999 as a member of a compensation committee or as a
director of any entity of which any of the Company's directors served as an
executive officer.
32
<PAGE> 51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock of Health Power, Inc. by: (a)
each person known to Health Power, Inc. to be the beneficial owner of more than
5% of the outstanding Common Stock; (b) each director and each executive officer
named in the Summary Compensation Table (see Item 11); and (c) all directors and
executive officers as a group. Except as otherwise indicated in the notes to
this table, beneficial ownership was determined as of March 3, 2000. On that
date, there were 3,853,719 shares of Common Stock outstanding. Except as
otherwise indicated in the notes to this table, the persons named in this table
and their spouses have sole voting and investment power with respect to all
shares of Common Stock of Health Power, Inc. owned by them.
<TABLE>
<CAPTION>
NAME AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP (1) PERCENT OF OWNERSHIP
--------------------------- --------------------
<S> <C> <C>
Dr. Bernard F. Master 1,277,142(2) 32.5%
340 Tucker Drive
Worthington, Ohio 43085
Heartland Advisors, Inc. 776,300(3) 19.9%
789 North Market Street
Milwaukee, Wisconsin 53202
Robert J. Bossart 310,422 8.0%
6377 Emerald Parkway
Dublin, Ohio 43016
Jonathan R. Wagner 309,865 8.0%
6377 Emerald Parkway
Dublin, Ohio 43016
Dr. Elliott P. Feldman 97,891 2.5%
Robert S. Garek 17,580(4) *
Dr. Crystal A. Kuykendall 9,544 *
Frank R. Nutis 35,719(5) *
Dr. Burt E. Schear 81,015 2.1%
Richard T. Kurth 73,517 1.9%
Daniel R. Sullivan 4,934 *
All directors and executive officers 2,222,013 55.0%
as a group (12 persons)
- ----------------------------
</TABLE>
* Less than 1%.
(1) For each of the persons named above, this table includes the following
number of shares of Common Stock of Health Power, Inc. which may be
acquired upon the exercise of options that
33
<PAGE> 52
are currently exercisable or exercisable within 60 days of March 3,
2000: Dr. Master--74,806 shares; Mr. Bossart--16,304 shares; Mr.
Wagner--15,747 shares; Dr. Feldman--18,614 shares; Mr. Garek--14,880
shares; Dr. Kuykendall--4,000 shares; Mr. Nutis--16,325 shares; Dr.
Shear--10,663 shares; and Mr. Sullivan--2,050. The number of shares of
Common Stock of Health Power, Inc. which may be acquired by all
directors and executive officers as a group includes options for
184,365 shares which are currently exercisable or exercisable within 60
days of March 3, 2000.
(2) Includes 2,400 Shares owned by trusts of which Dr. Master or his spouse
are trustees.
(3) Beneficial ownership was determined as of December 31, 1999, and is
based upon a Schedule 13G/A filed by Heartland Advisors, Inc. with the
Securities and Exchange Commission. Heartland Advisors, Inc. is an
investment adviser registered under Section 203 of the Investment
Advisors Act of 1940.
(4) Does not include any shares owned by Mr. Garek's spouse. Mr. Garek
specifically disclaims any beneficial ownership of such shares.
(5) Includes 5,000 Shares owned by a trust of which Mr. Nutis is the
trustee.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements of Health Power, Inc. are
included in Item 8:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
34
<PAGE> 53
(a)(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because
they are not applicable or the required information is
included in Health Power, Inc.'s consolidated financial
statements or notes thereto.
(a)(3) LISTING OF EXHIBITS
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
2(a) Stock Purchase Agreement dated December 31, 1998, Current Report on Form 8-K dated January 15,
among CompManagement, Inc., Century Business 1999 (see Exhibit 2 therein).
Services, Inc., CBSI Management Co., M&N Risk
Management, Inc. and M&N Enterprises, Inc.
2(b) Asset Purchase Agreement dated May 12, 1999, Current Report on Form 8-K dated July 30, 1999
between CompManagement Health Systems, Inc. and (see Exhibit 2 therein).
Community Insurance Company, as amended by the
First Amendment to Asset Purchase Agreement dated
June 30, 1999, as further amended by the Second
Amendment to Asset Purchase Agreement dated July
16, 1999.
3(a) Amended and Restated Certificate of Incorporation Registration Statement on Form S-1, File No.
of Health Power, Inc. 33-74124 (see Exhibit 3(a) therein).
3(b) Amended and Restated By-Laws of Health Power, Inc. Registration Statement on Form S-1, File No.
33-74124 (see Exhibit 3(b) therein).
4 Form of stock certificate. Amendment No. 2 to Registration Statement on
Form S-1, File No. 33-74124 (see Exhibit 4(b)
therein).
10(a) Agreement between Ohio Bureau of Workers' Annual Report on Form 10-K for the fiscal year
Compensation and CompManagement Health Systems, ended December 31, 1998, File No. 0-23220 (see
Inc., dated November 10, 1998. Exhibit 10(a) therein).
10(b) Form of Indemnification Agreement between Health Registration Statement on Form S-1, File No.
Power, Inc. and each of its officers and 33-74124 (see Exhibit 10(i) therein).
directors.
</TABLE>
35
<PAGE> 54
<TABLE>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
10(c)* Employment Agreement between CompManagement, Inc. Contained herein.
and Dr. Bernard Master, dated as of May 1, 1999,
as amended by First Amendment to Employment
Agreement, dated as of January 1, 2000.
10(d)* Employment Agreement among CompManagement, Inc., Contained herein.
CompManagement Health Systems, Inc., and Robert
J. Bossart, dated as of January 1, 2000.
10(e)* Employment Agreement among CompManagement, Inc., Contained herein.
CompManagement Health Systems, Inc., and Jonathan
R. Wagner, dated as of January 1, 2000.
10(f)* Employment Agreement between CompManagement, Contained herein.
Inc., CompManagement Health Systems, Inc., and
Richard T. Kurth, dated as of January 1, 2000.
10(g)* Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Robert J.
Bossart, dated as of August 26, 1999.
10(h)* Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Jonathan
R. Wagner, dated as of August 26, 1999.
10(i)* Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Richard
T. Kurth, dated as of August 26, 1999.
10(j)* Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Daniel R.
Sullivan, dated as of August 26, 1999.
</TABLE>
36
<PAGE> 55
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
10(k)* Health Power, Inc. 1996 Directors Stock Award and Registration Statement on Form S-8, File No.
Purchase Plan. 333-20535 (see Exhibit 4(d) therein).
10(l)* Amendment No. 1 to Health Power, Inc. 1996 Annual Report on Form 10-K for the fiscal year
Directors Stock Award and Purchase Plan. ended December 31, 1997, File No. 0-23220 (see
Exhibit 10(x) therein).
10(m)* Amendment No. 2 to Health Power, Inc. 1996 Contained herein.
Directors Stock Award and Purchase Plan.
10(n)* Health Power, Inc. 1985 Nonqualified Directors' Registration Statement on Form S-1, File No.
Stock Option Plan, as amended. 33-74124 (see Exhibit 10(w) therein).
10(o)* Health Power, Inc. 1993 Directors Stock Option Registration Statement on Form S-1, File No.
Plan. 33-74124 (see Exhibit 10(x) therein).
10(p)* Amendment No. 1 to Health Power, Inc. 1993 Annual Report on Form 10-K for the fiscal year
Directors Stock Option Plan. ended December 31, 1994, File No. 0-23220 (see
Exhibit 10(t) therein).
10(q)* Health Power, Inc. 1994 Stock Option Plan. Registration Statement on Form S-1, File No.
33-74124 (see Exhibit 10(y) therein).
10(r)* Amendment No. 1 to Health Power, Inc. 1994 Stock Annual Report on Form 10-K for the fiscal year
Option Plan. ended December 31, 1994, File No. 0-23220 (see
Exhibit 10(v) therein).
10(s)* Health Power, Inc. 1994 Executive Performance Quarterly Report on Form 10-Q for the
Stock Option Plan. quarterly period ended June 30, 1994, File No.
0-23220 (see Exhibit (a)(1) therein).
10(t)* Amendment No. 1 to Health Power, Inc. 1994 Annual Report on Form 10-K for the fiscal year
Executive Performance Stock Option Plan. ended December 31, 1994, File No. 0-23220 (see
Exhibit 10(x) therein).
10(u)* Amendment No. 2 to Health Power, Inc. 1994 Annual Report on Form 10-K for the fiscal year
Executive Performance Stock Option Plan. ended December 31, 1995, File No. 0-23220 (see
Exhibit 10(dd) therein).
10(v) Commercial Note dated December 31, 1998, from Current Report on Form 8-K dated January 15,
CompManagement, Inc. and CompManagement Health 1999 (see Exhibit 99(a) therein).
Systems, Inc. to National City Bank
</TABLE>
37
<PAGE> 56
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
10(w)* Health Power, Inc. Performance-Based Incentive Contained herein.
Compensation Plan.
10(x) Agreement between Ohio Bureau of Workers' Contained herein.
Compensation and Community Insurance Company
d/b/a Anthem Blue Cross and Blue Shield, dated
November 10, 1998, as assigned to CompManagement
Health Systems, Inc. on July 16, 1999.
21 Subsidiaries of Health Power, Inc. Contained herein.
23 Consent of PricewaterhouseCoopers LLP Contained herein.
24(a) Powers of Attorney for Dr. Bernard F. Master, Dr. Annual Report on Form 10-K for the fiscal year
Elliott P. Feldman, Robert S. Garek, Frank R. ended December 31, 1997, File No. 0-23220 (see
Nutis, Dr. Burt E. Schear, Robert J. Bossart and Exhibit 24 therein).
Crystal A. Kuykendall
24(b) Power of Attorney for Jonathan R. Wagner Contained herein.
27 Financial Data Schedule Contained herein.
* Executive compensation plans and arrangements required to be filed
pursuant to Item 601(b)(10) of Regulation S-K.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
The exhibits in response to this portion of Item 14 are
submitted following the signatures.
(d) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because
they are not applicable or the required information is
included in Health Power, Inc.'s consolidated financial
statements or notes thereto.
</TABLE>
38
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Sections 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.
HEALTH POWER, INC.
Date: March 30, 2000 By /s/Dr. Bernard F. Master
------------------------
Dr. Bernard F. Master, Chairman of the
Board, Chief Executive Officer, and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Dr. Bernard F. Master Chairman of the Board, March 30, 2000
- --------------------------- Chief Executive Officer,
Dr. Bernard F. Master President, and Director
(principal executive officer)
/s/Paul A. Miller Chief Financial Officer of March 30, 2000
- --------------------------- CompManagement, Inc. (principal
Paul A. Miller financial and accounting officer)
Dr. Elliott P. Feldman* Director March 30, 2000
- ---------------------------
Dr. Elliott P. Feldman
Robert J. Bossart* Director March 30, 2000
- ---------------------------
Robert J. Bossart
Robert S. Garek* Director March 30, 2000
- ---------------------------
Robert S. Garek
Crystal A. Kuykendall* Director March 30, 2000
- ---------------------------
Crystal A. Kuykendall
Frank R. Nutis* Director March 30, 2000
- ---------------------------
Frank R. Nutis
Dr. Burt E. Schear* Director March 30, 2000
- ---------------------------
Dr. Burt E. Schear
Jonathan R. Wagner* Director March 30, 2000
- ---------------------------
Jonathan R. Wagner
</TABLE>
* The undersigned, Dr. Bernard F. Master, by signing his name hereto, does
hereby execute this Annual Report on Form 10-K for the Registrant's fiscal
year ended December 31, 1999, on behalf of each of the other above-named
directors of the Registrant pursuant to Powers of Attorney executed by such
directors and filed with the Securities and Exchange Commission as an
exhibit to this report.
<TABLE>
<S> <C>
/s/ Dr. Bernard F. Master March 30, 2000
- -----------------------------------------------
Dr. Bernard F. Master, Attorney in Fact
</TABLE>
39
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
2(a) Stock Purchase Agreement dated December 31, 1998, Current Report on Form 8-K dated January 15,
among CompManagement, Inc., Century Business 1999 (see Exhibit 2 therein).
Services, Inc., CBSI Management Co., M&N Risk
Management, Inc. and M&N Enterprises, Inc.
2(b) Asset Purchase Agreement dated May 12, 1999, Current Report on Form 8-K dated July 30, 1999
between CompManagement Health Systems, Inc. and (see Exhibit 2 therein).
Community Insurance Company, as amended by the
First Amendment to Asset Purchase Agreement dated
June 30, 1999, as further amended by the Second
Amendment to Asset Purchase Agreement dated July
16, 1999.
3(a) Amended and Restated Certificate of Incorporation Registration Statement on Form S-1, File No.
of Health Power, Inc. 33-74124 (see Exhibit 3(a) therein).
3(b) Amended and Restated By-Laws of Health Power, Inc. Registration Statement on Form S-1, File No.
33-74124 (see Exhibit 3(b) therein).
4 Form of stock certificate. Amendment No. 2 to Registration Statement on
Form S-1, File No. 33-74124 (see Exhibit 4(b)
therein).
10(a) Agreement between Ohio Bureau of Workers' Annual Report on Form 10-K for the fiscal year
Compensation and CompManagement Health Systems, ended December 31, 1998, File No. 0-23220 (see
Inc., dated November 10, 1998. Exhibit 10(a) therein).
10(b) Form of Indemnification Agreement between Health Registration Statement on Form S-1, File No.
Power, Inc. and each of its officers and 33-74124 (see Exhibit 10(i) therein).
directors.
10(c) Employment Agreement between CompManagement, Inc. Contained herein.
and Dr. Bernard Master, dated as of May 1, 1999,
as amended by First Amendment to Employment
Agreement, dated as of January 1, 2000.
</TABLE>
40
<PAGE> 59
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
10(d) Employment Agreement among CompManagement, Inc., Contained herein.
CompManagement Health Systems, Inc., and Robert
J. Bossart, dated as of January 1, 2000.
10(e) Employment Agreement among CompManagement, Inc., Contained herein.
CompManagement Health Systems, Inc., and Jonathan
R. Wagner, dated as of January 1, 2000.
10(f) Employment Agreement between CompManagement, Contained herein.
Inc., CompManagement Health Systems, Inc., and
Richard T. Kurth, dated as of January 1, 2000.
10(g) Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Robert J.
Bossart, dated as of August 26, 1999.
10(h) Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Jonathan
R. Wagner, dated as of August 26, 1999.
10(i) Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Richard
T. Kurth, dated as of August 26, 1999.
10(j) Executive Severance Benefits Agreement, among Contained herein.
Health Power, Inc., CompManagement, Inc.,
CompManagement Health Systems, Inc. and Daniel R.
Sullivan, dated as of August 26, 1999.
10(k) Health Power, Inc. 1996 Directors Stock Award and Registration Statement on Form S-8, File No.
Purchase Plan. 333-20535 (see Exhibit 4(d) therein).
10(l) Amendment No. 1 to Health Power, Inc. 1996 Annual Report on Form 10-K for the fiscal year
Directors Stock Award and Purchase Plan. ended December 31, 1997, File No. 0-23220 (see
Exhibit 10(x) therein).
</TABLE>
41
<PAGE> 60
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
10(m) Amendment No. 2 to Health Power, Inc. 1996 Contained herein.
Directors Stock Award and Purchase Plan.
10(n) Health Power, Inc. 1985 Nonqualified Directors' Registration Statement on Form S-1, File No.
Stock Option Plan, as amended. 33-74124 (see Exhibit 10(w) therein).
10(o) Health Power, Inc. 1993 Directors Stock Option Registration Statement on Form S-1, File No.
Plan. 33-74124 (see Exhibit 10(x) therein).
10(p) Amendment No. 1 to Health Power, Inc. 1993 Annual Report on Form 10-K for the fiscal year
Directors Stock Option Plan. ended December 31, 1994, File No. 0-23220 (see
Exhibit 10(t) therein).
10(q) Health Power, Inc. 1994 Stock Option Plan. Registration Statement on Form S-1, File No.
33-74124 (see Exhibit 10(y) therein).
10(r) Amendment No. 1 to Health Power, Inc. 1994 Stock Annual Report on Form 10-K for the fiscal year
Option Plan. ended December 31, 1994, File No. 0-23220 (see
Exhibit 10(v) therein).
10(s) Health Power, Inc. 1994 Executive Performance Quarterly Report on Form 10-Q for the
Stock Option Plan. quarterly period ended June 30, 1994, File No.
0-23220 (see Exhibit (a)(1) therein).
10(t) Amendment No. 1 to Health Power, Inc. 1994 Annual Report on Form 10-K for the fiscal year
Executive Performance Stock Option Plan. ended December 31, 1994, File No. 0-23220 (see
Exhibit 10(x) therein).
10(u) Amendment No. 2 to Health Power, Inc. 1994 Annual Report on Form 10-K for the fiscal year
Executive Performance Stock Option Plan. ended December 31, 1995, File No. 0-23220 (see
Exhibit 10(dd) therein).
10(v) Commercial Note dated December 31, 1998, from Current Report on Form 8-K dated January 15,
CompManagement, Inc. and CompManagement Health 1999 (see Exhibit 99(a) therein).
Systems, Inc. to National City Bank
10(w) Health Power, Inc. Performance-Based Incentive Contained herein.
Compensation Plan.
</TABLE>
42
<PAGE> 61
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was Previously
No. Description of Exhibit Filed with SEC
- --- ---------------------- ------------------------------------------
<S> <C> <C>
10(x) Agreement between Ohio Bureau of Workers' Contained herein.
Compensation and Community Insurance Company
d/b/a Anthem Blue Cross and Blue Shield, dated
November 10, 1998, as assigned to CompManagement
Health Systems, Inc. on July 16, 1999.
21 Subsidiaries of Health Power, Inc. Contained herein.
23 Consent of PricewaterhouseCoopers LLP Contained herein.
24(a) Powers of Attorney for Dr. Bernard F. Master, Dr. Annual Report on Form 10-K for the fiscal year
Elliott P. Feldman, Robert S. Garek, Frank R. ended December 31, 1997, File No. 0-23220 (see
Nutis, Dr. Burt E. Schear, Robert J. Bossart and Exhibit 24 therein).
Crystal A. Kuykendall
24(b) Power of Attorney for Jonathan R. Wagner Contained herein.
27 Financial Data Schedule Contained herein.
</TABLE>
43
<PAGE> 1
Exhibit 10(c)
EMPLOYMENT AGREEMENT BETWEEN COMPMANAGEMENT, INC.
AND DR. BERNARD MASTER, DATED AS OF MAY 1, 1999,
AS AMENDED BY FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 1, 2000
<PAGE> 2
EMPLOYMENT AGREEMENT
--------------------
This agreement is made effective as of May 1, 1999, at Columbus, Ohio,
between CompManagement, Inc., an Ohio corporation (the "Company"), and Bernard
F. Master, D.O. (the "Employee"), who hereby agrees as follows:
ss.1. Employment as Chairman. The Company hereby employs the Employee
as Chairman of the Company, and the Employee hereby accepts such employment,
upon the terms and subject to the conditions set forth in this agreement.
ss.2. Term of Employment. The term of the Employee's employment by the
Company pursuant to this agreement shall begin on the date of this agreement and
shall end, unless sooner terminated in accordance with the provisions of ss.8,
below, on April 30, 2000 (the "Initial Term"). Upon agreement of the Company and
the Employee, the term of the Employee's employment under this agreement may be
renewed for successive one-year periods (each a "Renewal Term"), commencing on
the day following the termination date of the Initial Term or the preceding
Renewal Term, as the case may be, and ending, unless sooner terminated in
accordance with the provisions of ss.8, below, on the first anniversary of the
applicable termination date.
ss.3. Services. The Employee shall serve as the Chairman of the Board
of the Company and its subsidiaries and as Chairman of the Board and Chief
Executive Officer of Health Power, Inc., a Delaware corporation and the parent
of the Company ("Health Power"). As such, the Employee shall perform such
services as may be reasonably assigned to him from time to time by the Boards of
Directors of the Company and Health Power. The Employee shall devote his best
efforts to the performance of his duties hereunder.
ss.4. Responsibilities. The Employee shall be responsible for
establishing and supervising the implementation of the business policies and
operating programs, budgets, procedures, and directions of the Company, its
subsidiaries, and Health Power (reporting only to the Boards of Directors of the
Company and Health Power); monitoring and evaluating the effectiveness of the
management of the Company, including without limitation reviewing and evaluating
the performance of all executive officers of the Company; establishing and
implementing a strategic plan for the Company and its subsidiaries; determining
the necessity of and, if necessary and possible, supervising the raising of
additional capital for the Company, its subsidiaries, and/or Health Power;
presiding at all meetings of the shareholders and the Boards of Directors of the
Company, its subsidiaries, and Health Power; and such other activities as are
incident to his office or as may be prescribed or delegated by the Boards of
Directors of the Company and Health Power.
ss.5. Compensation. The Employee shall receive the following
compensation:
(a) A base salary of $295,000 per annum or, if the term of the
Employee's employment is renewed, such other base salary (the "Base
Salary") as may be approved
<PAGE> 3
by the Company's or Health Power's Compensation Committee (the
"Committee") from time to time, payable in accordance with the
Company's general policies for payment of compensation to its salaried
personnel; provided if the Employee's employment is terminated pursuant
to the provisions of ss.8, below, the base salary shall cease as of the
day of termination;
(b) $3,500 per month, payable in arrears, as an expense
allowance for expenditures advanced by the Employee on behalf of the
Company;
(c) $500 per month payable in arrears as an automobile
allowance plus mileage reimbursement for business travel (at the rate
established by the Internal Revenue Service for mileage deductibility),
subject to the maintenance of appropriate records and the submission of
appropriate reports to the Company;
(d) An annual cash bonus in an amount up to 35% of the Base
Salary (the "Bonus"). Beginning with the 1999 fiscal year of the
Company, and continuing for each fiscal year thereafter during which
the Bonus may be earned (each a "Performance Year"), the Committee
shall establish performance criteria or goals to be achieved by the
Employee for that Performance Year. The performance criteria or goals
shall be approved by the Committee and set forth in the minutes of the
Committee's meetings or in a written agreement between the Company and
the Employee. After the completion of each Performance Year, and after
the completion of the audit by the Company's independent auditors of
the consolidated financial statements for Health Power and its
subsidiaries for such Performance Year, the Committee shall review the
performance criteria and goals of the Employee established by the
Committee for that Performance Year and make a determination as to the
amount of the Bonus earned by the Employee based upon the Employee's
achievement of such performance criteria and goals. The Bonus shall be
payable within 10 days after the Committee's determination as to the
amount of the Bonus earned by the Employee. The performance criteria
and goals established for the Employee shall be based upon such
criteria and goals as may be selected by the Committee, including
without limitation the Employee's performance with respect to providing
leadership to the Company's personnel, implementing strategic plans and
objectives for Health Power and its subsidiaries, meeting financial
budgets and objectives of Health Power and its subsidiaries,
supervising the Company's operations, and enhancing value for the
Company's stockholders; and
(e) Formula Vesting Stock Options pursuant to the 1994
Executive Performance Stock Option Plan, as amended (the "Plan"), for
1999 and, if the term of the Employee's employment is renewed, for each
subsequent Performance Year ending during each renewal term of the
Employee's employment under this agreement. The number of shares of
common stock subject to the Formula Vesting Stock Options shall be an
amount equal to the aggregate number of Formula Vesting Stock Options
and Discretionary Vesting Stock Options received by the chief executive
officer of the Company during each Performance Year.
2
<PAGE> 4
ss.6. Fringe Benefits. The Company shall provide disability insurance
for the benefit of the Employee and pay all premiums with respect thereto, which
insurance shall supplement the Company's current disability insurance benefits
to the Employee. The policy or policies for such disability insurance shall
provide for benefits in the amount of $6,000 per month for a maximum of five
years, which benefits shall commence 90 days after the date of the Employee's
disability (as determined under the terms of such policy).
The Employee shall also be entitled to such other fringe benefits and
perquisites as may be generally provided by the Company to its salaried
personnel pursuant to the Company's established policies.
ss.7. Severance Pay. If the Employee's employment is (a) terminated by
the Company as a result of a Change in Control of Health Power (as defined
below), or (b) not renewed at the end of any employment or renewal term after a
Change in Control of Health Power for any reason, then the Employee shall
receive the following:
(i) Severance pay in the amount equal to his then current
annual base salary, payable over a one-year period in the same manner
as such annual base salary is paid; and
(ii) Fringe benefits as set forth inss.6, above, for one year
from the date of termination of employment.
In addition, if the Employee's employment is terminated by the Company
as a result of or after a Change in Control of Health Power for any reason, then
the Employee shall receive additional severance pay in an amount equal to the
base salary the Employee would have received from the date of termination
through the end of the Initial Term or Renewal Term then in effect, as the case
may be, payable during such period in the same manner as the Employee's base
salary is paid. The severance pay described in this paragraph shall be in lieu
of the payment of the Employee's base salary.
For purposes of this section, a "Change in Control of Health Power"
shall be deemed to occur:
(A) When, after the date of this agreement, any "person" as
defined in ss.3(a)(9) of the Securities Exchange Act of 1934 (the
"Exchange Act") and as used in ss.ss.13(d) and 14(d) thereof, including
a "group" as defined in ss.13(d) of the Exchange Act, but excluding
Health Power and any subsidiary and any employee benefit plan sponsored
or maintained by Health Power or any subsidiary (including any trustee
of such plan acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as
amended from time to time), of securities of Health Power representing
20% or more of the combined voting power of Health Power's then
outstanding securities;
(B) When, during any period of 24 consecutive months after the
date of this agreement, the individuals who, at the beginning of such
period, constitute the Board of
3
<PAGE> 5
Directors of Health Power (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority thereof;
provided, however, that a director who was not a director at the
beginning of such 24-month period shall be deemed to have satisfied
such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this
ss.__(ii); or
(C) Upon the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company and/or its subsidiaries by
an entity other than Health Power or one or more of its subsidiaries
through purchase of assets, by merger or otherwise.
ss.8. Termination of Employment. The Employee's employment under this
agreement may be terminated:
(a) By the Employee with or without cause upon giving 90 days
advance written notice to the Company, provided that the Employee shall
continue to perform all duties under this agreement until the earlier
of: (i) the expiration date of such 90-day period; or (ii) any earlier
date which may be specified by the Company.
(b) By the Company upon the occurrence of any one of the
following events or any time thereafter:
(i) The Employee fails to fully perform and observe
all obligations and conditions to be performed and observed by
the Employee under this agreement, or under any other
agreement between the Employee and the Company, and fails to
correct such problem within 10 days after notice by the Board
of Directors to do so or, if it is impossible to correct such
problem within such 10 days, fails to commence the action
necessary to correct such problem and continues diligently to
pursue such action until the correction is complete; or
(ii) The Employee's death or long-term disability.
For purposes of this agreement, the term "long-term
disability" shall have the same meaning as long-term
disability or other similar term used in any long-term or
permanent disability policy provided by the Company and
covering the Employee. In the event there is no long-term or
permanent disability policy in effect covering the Employee,
the term "long-term disability" shall mean that because of
physical or mental incapacity, the Employee has not performed
his duties under this agreement for 60 days or longer and it
is probable, in the opinion of a licensed physician selected
by the Company, that the Employee will not be able to engage
actively in his employment by the Company for an additional
period of 90 days or longer.
4
<PAGE> 6
ss.9. Employee's Capacity. The Employee represents and warrants to the
Company that he has the capacity and right to enter into this agreement and
perform all his duties under this agreement without any restriction whatsoever
by any other agreement, document, or otherwise.
ss.10. Complete Agreement. This document contains the entire agreement
between the parties with respect to the Employee's employment by the Company and
supersedes any prior discussions, negotiations, representations, or agreements
between them relating to the Company's employment of the Employee. No additions
or other changes to this agreement shall be made or be binding on either party
unless made in writing and signed by each party to this agreement.
ss.11. Notices. Any notice or other communication required or desired
to be given to any party under this agreement shall be in writing and shall be
deemed given:
(a) In the case of the Employee, when delivered personally to
the Employee or when deposited in the United States mail, first-class
postage prepaid, addressed to the Employee at 340 Tucker Drive,
Worthington, Ohio 43085, or at any other address thereafter designated
by the Employee in notice theretofore given to the Company; and
(b) In the case of the Company, when deposited in the United
States mail, first-class postage prepaid, addressed to the Company at
6377 Emerald Parkway, Dublin, Ohio 43016, or at any other address
thereafter designated by the Company in notice theretofore given to the
Employee.
ss.12. Governing Law. All questions concerning the validity, intention,
or meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance hereunder shall be construed and resolved
under the laws of Ohio.
ss.13. Severability. The intention of the parties to this agreement is
to comply fully with all laws and public policies, and this agreement shall be
construed consistently with all laws and public policies to the extent possible.
If and to the extent that any court of competent jurisdiction is unable to so
construe part or all of any provision of this agreement, and holds part or all
of that provision to be invalid, such invalidity shall not affect the validity
of the balance of that provision or the remaining provisions of this agreement,
which shall remain in full force and effect.
ss.14. Nonwaiver. No failure by any party to insist upon strict
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other party shall affect, or
constitute a waiver of, the first party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the parties at variance with any provision
of this agreement affect, or constitute a waiver of, any party's right to demand
strict compliance with all provisions of this agreement.
5
<PAGE> 7
ss.15. Captions. The captions of the various sections of this agreement
are not part of the context of this agreement, but are only labels to assist in
locating those sections, and shall be ignored in construing this agreement.
ss.16. Successors. This agreement shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective heirs, legal
representatives, successors, and assigns of each party to this agreement,
provided that neither party may assign any of its rights or obligations under
this agreement without the prior written consent of the other party.
COMPMANAGEMENT, INC.
/s/ Bernard F. Master, D.O. By /s/ Robert J. Bossart
- ------------------------------- -----------------------------------
BERNARD F. MASTER, D.O. Robert J. Bossart, Chief Executive
Officer
6
<PAGE> 8
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
This amendment is made effective as of January 1, 2000, between
CompManagement, Inc., an Ohio corporation (the "Company"), and Bernard F.
Master, D.O. (the "Employee").
Background Information
----------------------
The Employee and the Company are parties to an Employment Agreement
dated as of May 1, 1999 (the "Employment Agreement"). The parties desire to
amend the Employment Agreement as provided in this amendment. The Employment
Agreement, as amended by this amendment, is hereinafter collectively referred to
as the "Agreement."
Statement of Agreement
----------------------
The parties hereby acknowledge the accuracy of the foregoing Background
Information and hereby agree as follows:
ss.1. Term of Employment. Section 2 of the Employment Agreement is
hereby amended in its entirety to read as follows:
ss.2. Term of Employment. The term of the Employee's
employment by the Company pursuant to the Agreement shall begin on May
1, 1999, and shall end, unless sooner terminated in accordance with the
provisions of ss.8 of the Agreement, on December 31, 2002 (the "Initial
Term"). Unless terminated in accordance with the provisions of ss.8 of
the Agreement, the Employee's employment under the Agreement shall
automatically continue after the expiration of the Initial Term upon
the same terms and conditions contained in the Agreement, or upon such
other terms and conditions to which the parties may mutually agree in
writing, for successive two-year periods (each a "Renewal Term"),
commencing on the day following the termination date of the Initial
Term or the preceding Renewal Term, as the case may be, and ending,
unless sooner terminated in accordance with the provisions of ss.8 of
the Agreement, on the second anniversary of the applicable termination
date.
ss.2. Severance Pay. Section 7 of the Employment Agreement is hereby
amended in its entirety to read as follows:
ss.7. Severance Pay. If the Employee's employment is
terminated by either the Company or the Employee pursuant to ss.8(a) of
the Agreement, by the Company pursuant to ss.8(b) of the Agreement, or
by the Employee pursuant to ss.8(c) of the Agreement after a Change in
Control of Health Power (as defined in ss.8 of the Agreement), then the
Employee shall receive the following:
<PAGE> 9
(a) Payment of any Base Salary accrued through the
date of termination of employment.
(b) Severance pay in an amount equal to (i) an amount
equal to two times the Base Salary in effect at the time of
termination of employment, plus (ii) an amount equal to the
Bonus most-recently paid to the Employee pursuant to ss.5(d)
of the Agreement.
(c) Benefits comparable to the fringe benefits
described in ss.6 of the Employment Agreement until the
earlier of two years from the date of termination or the date
any such benefit is provided to the Employee by another
employer.
If the severance compensation under this section would
constitute a "parachute payment," as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), such severance
compensation shall be reduced to the largest amount as will result in
no portion of the severance compensation payments under this section
being subject to the excise tax imposed by Section 4999 of the Code or
being disallowed as deductions to the Company under Section 280G of the
Code.
Payment of the amounts described in subsection (a), above,
shall be made within 30 days after the termination of employment and
payment of the amounts described in subsection (b), above, shall be
made over a two-year period commencing with the termination of
employment, in the same manner as the Base Salary is paid during
employment.
ss.3. Termination of Employment. Section 8 of the Employment Agreement
is hereby amended in its entirety to read as follows:
ss.8. Termination of Employment. The Employee's employment
under the Agreement may be terminated:
(a) By the Employee or the Company, with or without
cause, at the end of the Initial Term or any Renewal Term upon
giving not less than 45 days advance written notice prior to
the end of the Initial Term or the Renewal Term then in
effect, as the case may be, provided that the Employee shall
continue to perform all services under the Agreement until the
earlier of: (i) the expiration date of such 45 day period; or
(ii) any earlier date which may be specified by the Company.
If the Employee's employment is terminated pursuant to this
subsection (a), then the Employee shall be entitled to receive
the severance pay and benefits described in ss.7(b) and (c) of
the Agreement.
(b) By the Company, with or without cause, upon the
giving of written notice to the Employee. If the Employee's
employment is
2
<PAGE> 10
terminated pursuant to this subsection (b), then Employee
shall be entitled to receive the severance pay and benefits
described in ss.7(b) and (c) of the Agreement.
(c) By the Employee, with or without cause, upon
giving 45 days advance written notice to the Company, provided
that the Employee shall continue to perform all duties under
this agreement until the earlier of: (i) the expiration date
of such 45-day period; or (ii) any earlier date which may be
specified by the Company. If the Employee's employment is
terminated pursuant to this subsection (c) after a Change in
Control of Health Power (as defined below), then Employee
shall be entitled to receive the severance pay and benefits
described in ss.7(b) and (c) of the Agreement.
(d) By the Company upon the occurrence of any one of
the following events or any time thereafter:
(i) The Employee fails to fully perform and
observe all obligations and conditions to be
performed and observed by the Employee under the
Agreement, or under any other agreement between the
Employee and the Company, and fails to correct such
problem within 10 days after notice by the Board of
Directors to do so or, if it is impossible to correct
such problem within such 10 days, fails to commence
the action necessary to correct such problem and
continues diligently to pursue such action until the
correction is complete; or
(ii) The Employee's death or long-term
disability. For purposes of this agreement, the term
"long-term disability" shall have the same meaning as
long-term disability or other similar term used in
any long-term or permanent disability policy provided
by the Company and covering the Employee. In the
event there is no long-term or permanent disability
policy in effect covering the Employee, the term
"long-term disability" shall mean that because of
physical or mental incapacity, the Employee has not
performed his duties under this agreement for 60 days
or longer and it is probable, in the opinion of a
licensed physician selected by the Company, that the
Employee will not be able to engage actively in his
employment by the Company for an additional period of
90 days or longer.
For purposes of the Agreement, a "Change in Control
of Health Power" shall be deemed to occur:
3
<PAGE> 11
(A) When, after January 1, 2000, any "person" as
defined in ss.3(a)(9) of the Securities Exchange Act of 1934
(the "Exchange Act") and as used in ss.ss.13(d) and 14(d)
thereof, including a "group" as defined in ss.13(d) of the
Exchange Act, but excluding Health Power and any subsidiary
and any employee benefit plan sponsored or maintained by
Health Power or any subsidiary (including any trustee of such
plan acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time), of securities of
Health Power representing 20% or more of the combined voting
power of Health Power's then outstanding securities;
(B) When, during any period of 24 consecutive months
after January 1, 2000, the individuals who, at the beginning
of such period, constitute the Board of Directors of Health
Power (the "Incumbent Directors") cease for any reason other
than death to constitute at least a majority thereof;
provided, however, that a director who was not a director at
the beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the
recommendation of or with the approval of, at least two-thirds
of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning
of such 24-month period) or by prior operation of this
subsection (B); or
(C) Upon the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company and/or
its subsidiaries by an entity other than Health Power or one
or more of its subsidiaries through purchase of assets, by
merger or otherwise.
ss.4. Definitions. All capitalized terms used in this amendment which
are not otherwise defined herein shall have the respective meanings given those
terms in the Employment Agreement.
ss.5. Captions. The captions of the various sections of this amendment
are not part of the context of this amendment, but are only labels to assist in
locating those sections, and shall be ignored in construing this amendment.
ss.6. Construction. This document is an amendment to the Employment
Agreement. In the event of any inconsistencies between the provisions of the
Employment Agreement and this amendment, the provisions of this amendment shall
control. Except as modified by this amendment, the Employment Agreement shall
continue in full force and effect without change.
COMPMANAGEMENT, INC.
/s/ Bernard F. Master, D.O. By /s/ Robert J. Bossart
- ------------------------------- -----------------------------------
BERNARD F. MASTER, D.O. Robert J. Bossart, Chief Executive
Officer
4
<PAGE> 1
Exhibit 10(d)
EMPLOYMENT AGREEMENT AMONG COMPMANAGEMENT, INC.,
COMPMANAGEMENT HEALTH SYSTEMS, INC., AND
ROBERT J. BOSSART, DATED AS OF JANUARY 1, 2000
<PAGE> 2
EMPLOYMENT AGREEMENT
--------------------
This agreement is made effective as of January 1, 2000, among
CompManagement, Inc., an Ohio corporation ("CMI"), CompManagement Health
Systems, Inc., an Ohio corporation ("CHS") (CMI and CHS are hereinafter referred
to collectively or individually, as the context may require, as the "Company"),
and Robert J. Bossart (the "Employee"), who hereby agree as follows:
ss.1. Employment. The terms and conditions of this agreement shall
supersede and replace in their entirety the terms and conditions of the
Employment Agreement between CMI and the Employee dated as of July 21, 1995, as
amended (the "Prior Employment Agreement"); provided, however, that no
provisions of this agreement shall supersede or replace any noncompetition
and/or confidentiality provisions contained in the Prior Employment Agreement,
which noncompetition and confidentiality provisions are restated in, and
continued pursuant to, this agreement. The Company hereby renews and continues
the Employee's employment, and the Employee hereby accepts such employment
renewal and continuation by the Company, on the terms and subject to the
conditions set forth in this agreement.
ss.2. Term of Employment. The term of the Employee's employment by the
Company as renewed pursuant to this agreement shall begin on the effective date
of this agreement and shall end, unless sooner terminated in accordance with the
provisions of ss.9, below, on December 31, 2002 (the "First Term"). Unless
terminated in accordance with the provisions of ss.9, below, the Employee's
employment under this agreement shall automatically continue after the
expiration of the First Term upon the same terms and conditions contained in
this agreement, or upon such other terms and conditions to which the parties may
mutually agree in writing, for successive two-year periods (each a "Renewal
Term"), commencing on the day following the termination date of the First Term
or the preceding Renewal Term, as the case may be, and ending, unless sooner
terminated in accordance with the provisions of ss.9, below, on the second
anniversary of the applicable termination date.
ss.3. Services. The Employee shall continue to serve as the Chief
Executive Officer of the Company. As such, the Employee shall perform such
services as may be reasonably assigned to him in order to enable him to carry
out the responsibilities and authority granted to him under this agreement. The
Employee shall devote his full business time, attention, energy, and skill to
the Company's business, provided that he shall be entitled to take vacations and
sick leaves as may be provided pursuant to this agreement or the Company's
established policies. The Employee shall not engage in any business or
investment activity (whether or not competitive with the Company) which requires
any substantial time on his part.
ss.4. Responsibilities; Authority. As the Chief Executive Officer of
the Company, the Employee shall be responsible for supervising and implementing
the Company's policies and operating programs, budgets, procedures, and
directions established or changed from time to time (collectively, the "Policies
and Programs") by the Chairman of the Board or the Board of Directors of the
Company or the Chairman of the Board or the Board of Directors of Health
<PAGE> 3
Power, Inc., a Delaware corporation ("Health Power"). Such responsibilities
shall include, without limitation, the following: supervising the development of
the Company's financial and operational goals and objectives and implementing
strategies to achieve such goals and objectives within budgeted amounts;
planning and developing the Company's financial and operational budgets and
projections; supervising the development of financial and operational goals and
objectives for each business segment of the Company and implementing strategies
to achieve such goals and objectives within each business segment's budgeted
amounts; providing guidance in employment and personnel matters; and performing
all other activities related to the business policies and financial planning of
and for the Company. The Employee shall report to the Chairman of the Company
and shall consult with the Chairman of the Company, from time to time, on all
matters relating to the business policies and financial planning of and for the
Company.
The Employee shall have the authority on behalf of the Company to
manage and conduct the operations of the Company in the ordinary course of its
business pursuant to the Policies and Programs of the Company and the Policies
and Programs of Health Power which are applicable to the Company, provided that
the Employee shall not take any of the following actions without the prior
approval of the Chairman of the Company:
(a) Incur capital expenditures or acquire assets having a
price in excess of $50,000 or incur expenditures, debts, liabilities,
or other financial commitments in excess of $50,000, unless the
incurrance of such expenditures, debts, liabilities, or other financial
commitments or the acquisition of such assets are in accordance with
budgets previously approved by the Board of Directors of the Company or
Health Power;
(b) Grant any mortgage, security interest, or other
encumbrance on any assets of the Company;
(c) Employ, change the compensation, or terminate the
employment of the President or any Executive Vice President of the
Company; or enter into any employment agreement not terminable at the
will of the Company; or
(d) Enter into any transaction, agreement, or take any other
action that is outside the ordinary course of the Company's business or
contrary to the Policies and Programs of the Company or the Policies
and Programs of Health Power applicable to the Company.
ss.5. Compensation. The Employee shall receive the following
compensation:
(a) Base Salary. A base salary of $280,000 per annum, or, if
the term of the Employee's employment is renewed, such greater base
salary (the "Base Salary") as may be approved by Health Power's
Compensation Committee (the "Committee") from time to time, payable in
accordance with the Company's general policies for payment of
compensation to its salaried personnel.
(b) Sales Commissions. Sales commissions as provided inss.6,
below.
2
<PAGE> 4
(c) Performance-Based Incentive Bonus. An annual
performance-based cash incentive bonus in an amount up to 35% of the
Base Salary (the "Bonus"). The Bonus shall be earned and paid in
accordance with the Health Power, Inc. Performance-Based Incentive
Compensation Plan (the "Incentive Plan"). Under the Incentive Plan,
beginning with the 2000 Calendar Year (as defined in ss.6(d), below),
and continuing for each Calendar Year thereafter during the First Term
or any Renewal Term, as the case may be (each a "Performance Year"),
the Committee shall establish in writing objective performance criteria
or goals to be achieved by the Employee for that Performance Year (the
"Performance Goals"). The Performance Goals shall be based upon the
performance measures set forth in the Incentive Plan. A copy of the
Performance Goals as established by the Committee shall be provided to
the Employee. After the completion of each Performance Year, the
Committee shall review the achievement of the Performance Goals by the
Employee and make a determination as to the amount of the Bonus earned
by the Employee based upon the Employee's achievement of such
Performance Goals. The Bonus shall be payable as provided in the
Incentive Plan.
(d) Stock Options. Incentive stock options (the "Options") to
purchase up to 70,000 shares of common stock, $0.01 par value (the
"Shares"), of Health Power under the proposed Health Power, Inc. 2000
Management Stock Option Plan (the "Management Plan"). The Company
covenants to the Employee as follows: (i) the Company will take all
actions necessary to present the Management Plan to the directors of
Health Power for their approval at their March 2000 quarterly Board of
Directors meeting; (ii) if the Management Plan is approved of by the
directors, the Company will take all actions necessary to reserve a
sufficient number of Shares for issuance upon the exercise of the
Options; and (iii) if the Management Plan is approved of by the
directors, the Company will thereafter take all actions necessary to
present the Management Plan to the stockholders of Health Power for
their approval at Health Power's 2000 annual meeting of stockholders.
The Employee acknowledges and understands that (A) the grant of the
Options to the Employee is subject to the condition that the Management
Plan be approved by the directors of Health Power, and (B) the grant of
the Options to the Employee is further subject to the condition that
the Management Plan be approved by the stockholders of Health Power at
such annual meeting, and that if such approval is not received from
stockholders, the grant of the Options shall be automatically null and
void and without further force or effect
If the Management Plan is approved by Health Power's directors
and stockholders, then the Options shall be at an exercise price equal
to the closing market price of the Shares on the last business day
immediately preceding the date of the 2000 annual meeting. No Options
shall vest until December 31, 2000. On December 31, 2000, and on each
December 31 thereafter until December 31, 2004, 14,000 Options shall
become fully vested in the name of the Employee. Upon receipt of
stockholder approval of the Management Plan, the Employee and Health
Power shall enter into a stock option agreement (the "Stock Option
Agreement") reflecting the grant of the Options on the foregoing terms.
The grant of the Options and the exercise thereof shall be subject to
all of the terms and conditions of the Management Plan and the Stock
Option Agreement.
3
<PAGE> 5
(e) Automobile Allowance. $600 per month as an automobile
allowance plus reimbursement of automobile expenses in accordance with
the Company's policies, subject to the submission of appropriate
reports to the Company.
(f) Corporate Golf Membership. Participation in a corporate
membership at the Heritage Golf Club.
ss.6. Sales Commissions. The Employee shall receive the following sales
commissions:
(a) CMI Sales Commissions. The Company shall pay to the
Employee sales commissions on the CMI Fees (as defined below) generated
by the sales efforts of the Employee (the "CMI Sales Commissions"). The
CMI Sales Commissions shall be in an amount up to (i) 25% of the amount
(subject to allocation as described in subsection (d), below) of the
CMI Fees for the first year of business from a CMI Employer (as defined
below), which CMI Fees were generated by the sales efforts of the
Employee, plus (ii) 25% of the amount (subject to allocation as
described in subsection (d), below) of the increase in CMI Fees from
one Calendar Year to the next Calendar Year from CMI Employers who are
part of group rating plans of CMI, which CMI Fees were generated by the
sales efforts of the Employee.
CMI Sales Commissions shall be payable on CMI Fees applicable
to CMI Employers located in any state or jurisdiction in which CMI is
authorized and approved to conduct business. With respect to a business
acquisition by CMI (whether such acquisition is structured as an asset,
stock, merger, or other similar type of transaction), no CMI Sales
Commissions shall be payable with respect to any fees received by CMI
from any employer who, at the time of such acquisition, was a client or
customer of the business acquired by CMI, except to the extent payable
pursuant to (ii) of this subsection (a).
For purposes of this agreement: (A) "CMI Fees" shall mean fees
payable to CMI for its performance of third party administrative
services for workers' compensation and unemployment compensation claims
on behalf of CMI Employers; and (B) a "CMI Employer" shall mean any
employer which receives third party administrative services for
workers' compensation or unemployment compensation claims from CMI.
(b) CHS Sales Commissions. The Company shall pay to the
Employee sales commissions on the CHS Fees (as defined below) generated
by the sales efforts of the Employee (the "CHS Sales Commissions") in
an amount up to 25% of the amount (subject to allocation as described
in subsection (d), below) of the CHS Fees for the first year of
business from a CHS Employer, which CHS Fees were generated by the
sales efforts of the Employee.
CHS Sales Commissions shall be payable on CHS Fees applicable
to CHS Employers located in any state or jurisdiction in which CHS is
authorized and approved
4
<PAGE> 6
to conduct business. With respect to a business acquisition by CHS
(whether such acquisition is structured as an asset, stock, merger, or
other similar type of transaction), no CHS Sales Commissions shall be
payable with respect to any fees received by CHS from any employer who,
at the time of such acquisition, was a client or customer of the
business acquired by CHS.
For purposes of this agreement: (A) "CHS Fees" shall mean the
fees payable to CHS for its performance of managed care organization
("MCO") services on behalf of CHS Employers; and (B) a "CHS Employer"
is any employer which receives MCO services from CHS.
(c) Sales Commissions on Other Services and Products. In
addition to the payment of sales commissions relating to third party
administrative services for workers' compensation and unemployment
compensation claims and MCO services, as described above, the Company
shall pay to the Employee sales commissions on fees payable to the
Company with respect to the Company's other services and/or products
(collectively, the "Other Services"), which fees were generated by the
sales efforts of the Employee. Such sales commissions shall be payable
only on the first year of fees payable by a customer of the Company for
one or more of the Other Services. The amount of sales commissions for
Other Services shall vary with respect to each service or product
offered by the Company, with the amount of sales commissions ranging
from 10% to up to 25% of the fees for each Other Service. The amount of
sales commissions for each Other Service shall be determined by the
Chief Executive Officer of the Company and shall be subject to
allocation as described in subsection (d), below.
With respect to a business acquisition by the Company (whether
such acquisition is structured as an asset, stock, merger, or other
similar type of transaction), no sales commissions on Other Services
shall be payable with respect to any fees received by the Company from
any customer who, at the time of such acquisition, was receiving such
service or product from the business acquired by the Company.
(d) Allocation of Commissions. The Employee acknowledges and
agrees that the sales commission amount described in subsections (a),
(b), and (c), above, represents the total amount of sales commissions
which are payable with respect to the service or product described in
that subsection, and that the sales commission amount may be allocated
by the Company among all of the salespersons participating in the sales
effort to that employer or customer. The Chief Executive Officer of the
Company shall have the authority to allocate the sales commission
amount in any manner such officer deems appropriate, in his reasonable
discretion. In the event of any dispute regarding the allocation by the
Chief Executive Officer of the sales commission amount, such dispute
shall be referred to, and resolved by, the Committee, whose
determination shall be binding and conclusive on all parties.
(e) Miscellaneous. All sales commissions described in this
ss.6 shall be determined on a Calendar Year basis. The payment of the
CMI Sales Commissions shall accrue upon the execution of a contract
with the CMI Employer. The payment of the
5
<PAGE> 7
CHS Sales Commissions shall accrue upon (i) CHS receiving notification
from the appropriate state agency that the CHS Employer has selected
CHS as its MCO, or (ii) the execution of a contract with the CHS
Employer. The payment of the sales commissions on Other Services shall
accrue upon the execution of a contract with the party receiving the
Other Services. In no event shall there exist any obligation to pay any
sales commissions under this ss.6 unless and until the corresponding
fees has been received from the employer or customer. For purposes of
this ss.6 only, the term "CMI" shall include any Health Power Company
(as defined in ss.10(g), below) that performs third party
administrative services for workers' compensation and unemployment
compensation claims, the term "CHS" shall include any Health Power
Company that performs MCO services, and the term "Company shall mean
the Health Power Company the performs the Other Services. For purposes
of this agreement, a "Calendar Year" shall mean the period from January
1 through December 31 of the same year.
ss.7. Fringe Benefits. The Employee shall be entitled to the following
fringe benefits:
(a) Such fringe benefits and perquisites as may be generally
provided by the Company to its salaried personnel pursuant to the
Company's established policies.
(b) Payment of the premiums with respect to the Employee's
existing death and disability insurance policies.
ss.8. Severance Pay. If the Employee's employment is terminated by the
Company for any reason other than "just cause" (as defined inss.9, below), or is
terminated by either the Company or the Employee at the expiration of the First
Term or any Renewal Term, then the Employee shall receive the following:
(a) Payment of any Base Salary, CMI Sales Commissions, CHS
Sales Commissions, and vacation pay accrued through the date of
termination of employment.
(b) Severance pay in an amount equal to (i) an amount equal to
two times the Base Salary in effect at the time of termination of
employment, plus (ii) an amount equal to the aggregate amount of CMI
Sales Commissions and CHS Sales Commissions earned by the Employee
pursuant to ss.6, above, for the Calendar Year of termination (if such
termination is at the expiration of the First Term or a Renewal Term)
or the Calendar Year immediately prior to termination (in any other
case), but only with respect to those CMI Employers and CHS Employers
who renew or maintain their business with the Company during the
one-year period immediately after such termination.
(c) Benefits comparable to the fringe benefits described in
ss.7, above, until the earlier of two years from the date of
termination or the date any such benefit is provided to the Employee by
another employer.
If the severance compensation under this section would constitute a
"parachute payment," as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), such severance compensation shall be reduced to
the largest amount as will result in no portion
6
<PAGE> 8
of the severance compensation payments under this section being subject to the
excise tax imposed by Section 4999 of the Code or being disallowed as deductions
to the Company under Section 280G of the Code.
Payment of the amounts described in subsection (a), above, shall be
made within 30 days after the termination of employment and payment of the
amounts described in subsection (b), above, shall be made over a two-year period
commencing with the termination of employment, in the same manner as the Base
Salary is paid during employment.
In the event of termination of the Employee's employment by the Company
for just cause, the Employee shall be entitled to accrued compensation as
provided in subsection (a), above, and to no further compensation.
If the Employee receives severance pay in accordance with subsection
(b), above, due to a termination of employment by the Employee at the expiration
of the First Term or any Renewal Term, and if during the two-year payment period
the Employee is compensated for services rendered either for an employer or as
an independent consultant, the amount of such compensation shall be used to
offset the Company's obligations to make the severance payments under subsection
(b), above; provided, however, that the Employee shall not be obligated to seek
other employment during such two-year period. If the Employee receives severance
pay in accordance with subsection (b), above, due to any other event, the
Employee shall not be obligated to seek other employment by way of mitigation of
the amounts payable to the Employee under such subsection, nor shall the
Employee's acceptance of other employment affect the Company's obligation to
make the severance payments required under subsection (b), above.
The Employee, the Company, and Health Power are parties to an Executive
Severance Benefits Agreement dated as of August 26, 1999, as such agreement may
be hereafter amended (the "Executive Severance Benefits Agreement"). No breach
of this agreement shall occur if the Employee's employment is terminated in such
a manner that entitles him to receive benefits under the Executive Severance
Benefits Agreement. Furthermore, if the Employee receives benefits under the
Executive Severance Benefits Agreement, then such benefits shall be the
exclusive severance benefits receivable by the Employee from the Company, and
the benefits received under the Executive Severance Benefits Agreement shall
supersede and replace any and all severance benefits that the Employee may be
entitled to receive from the Company under this ss.8. The Executive Severance
Benefits Agreement shall not supersede or replace the Employee's severance
benefits that the Employee may be entitled to receive from the Company under
this ss.8 if the Employee is not entitled to receive the severance benefits
accorded to the Employee under the Executive Severance Benefits Agreement.
ss.9. Termination of Employment. The Employee's employment under this
agreement may be terminated:
(a) By the Company upon the occurrence of any event which
constitutes just cause, as defined below, or at any time thereafter.
7
<PAGE> 9
(b) By the Employee or the Company, with or without cause, at
the end of the First Term or any Renewal Term upon giving not less than
45 days advance written notice prior to the end of the First Term or
the Renewal Term then in effect, as the case may be, provided that the
Employee shall continue to perform all services under this agreement
until the earlier of: (i) the expiration date of such 45 day period; or
(ii) any earlier date which may be specified by the Company. If the
Employee's employment is terminated pursuant to this subsection (b),
then the Employee shall be entitled to receive the severance pay and
benefits described in ss.8(b) and (c), above.
(c) By the Company for any reason other than just cause upon
the giving of written notice to the Employee. If the Employee's
employment is terminated pursuant to this subsection (c), then Employee
shall be entitled to receive the severance pay and benefits described
in ss.8(b) and (c), above.
For purposes of this agreement, "just cause" shall mean the termination
of the Employee for: (i) any act of habitual drunkenness; (ii) controlled
substance abuse; (iii) dishonesty; (iv) criminal conduct (excluding minor
traffic offenses); (v) acts of violence or willful destruction of Company
property; (vi) falsification of any Company records or withholding of any
relevant information; (vii) unethical or immoral behavior; (viii) being
intoxicated or using intoxicants (drugs) not prescribed by a physician during
working hours; (ix) theft, including unauthorized possession of Company
property; (x) failure to perform the Employee's responsibilities and duties in
accordance with the Policies and Programs of the Company or the Policies and
Programs of Health Power applicable to the Company, other than any such Policies
or Programs that would require the Employee to engage in any unethical, immoral,
or criminal behavior, and failure to correct such failure within ten days after
notice from the Company (specifying the corrective actions required) to do so
or, if it is impossible to correct such failure within such ten days, failure to
commence all possible actions to correct such failure within such ten days and
thereafter to continue to pursue such actions until correction of such failure,
or having corrected any such failure, fails to so perform appropriately at any
time in the future (without the requirement of any additional notice from the
Company); (xi) failure to fully perform and observe all obligations and
conditions to be performed and observed by the Employee under this agreement, or
under any other agreement between the Employee and the Company, and failure by
the Employee to correct such failure within ten days after notice from the
Company (specifying the corrective actions required) to do so or, if it is
impossible to correct such failure within such ten days, failure to commence all
possible actions to correct such failure within such ten days and thereafter to
continue to pursue such actions until correction of such failure, or having
corrected any such failure, fails to perform and observe all such obligations
and conditions at any time in the future (without the requirement of any
additional notice from the Company); (xii) failure to fully perform and observe
all obligations and conditions to be performed and observed by the Employee
which relate to obligations and conditions to be performed and observed by the
Company under any material lease, agreement, note, or other document to which
the Company is a party, and failure of the Employee to correct such failure
within ten days after notice from the Company (specifying the corrective actions
required) to do so or, if it is impossible to correct such failure within such
ten days, failure to commence all possible actions to correct such failure
within such ten days and thereafter to continue to pursue such actions until
correction of such failure, or having so corrected any such failure, fails to
8
<PAGE> 10
perform and observe all such obligations and conditions at any time in the
future (without the requirement of any additional notice from the Company); or
(xiii) death or long-term disability.
For purposes of this agreement, a long-term disability shall mean that:
(A)(1) because of physical or mental incapacity, it is probable, in the opinion
of a licensed physician selected by the Company and acceptable to the Employee
(or his personal representative or guardian if the Employee is incapacitated),
that the Employee will not be able to engage actively in full-time employment by
the Company for a period of 120 days or longer, or (2) the Employee is disabled
under the definition of the disability policy or policies maintained by the
Company for the benefit of the Employee; or (B) the Company selects such a
licensed physician and the Employee fails within a reasonable time to submit to
any examinations reasonably requested by that licensed physician.
ss.10. Noncompetition and Confidentiality. As part of a transaction in
which Health Power acquired all of the outstanding capital stock of CMI, the
Employee and CMI agreed to substantially the following provisions in the Prior
Employment Agreement. The Company the Employee hereby reaffirm the
noncompetition and confidentiality provisions of the Prior Employment Agreement
and, in consideration of the increase in base salary, the cash incentive bonus,
and the stock options being granted pursuant to the Management Plan, the
Employee agrees as follows:
(a) The Employee shall not at any time, either during the term
of his employment with the Company or any of the other Health Power
Companies (as defined below), or after the termination of such
employment for whatever reason,
(i) Disclose to anyone (except to the extent
necessary as a benefit to the Company in the performance of
his duties and with prior written authorization by the
Company) any trade secrets or confidential information, or
(ii) Solicit or seek to employ any employee of any
Health Power Company to leave the employ of such Company, or
(iii) Solicit, recruit, or otherwise attempt to
persuade the members or providers of any Health Power Company
to leave such Company and do business with competing
organizations.
For purposes of (ii) and (iii) of this subsection, publication
of an advertisement or notice in a publication of general solicitation
shall not constitute solicitation or recruitment.
(b) During the term of such employment, whatever it may be,
and within two years following the termination of such employment for
whatever reason (the "Non-Competition Period"), the Employee agrees
that he shall not, directly or indirectly, on his own behalf, or as a
member of any partnership, or as an officer, director, shareholder,
agent, consultant, or employee of any other corporation or entity,
compete with the Company or any of the other Health Power Companies or
be engaged in, loan money or
9
<PAGE> 11
credit to, own any interest in, be employed by or otherwise participate
in any other business which competes with the Company or any of the
other Health Power Companies in (i) Ohio or (ii) any other geographic
location (A) where the Company or any of the other Health Power
Companies conducted business during the term of the Employee's
employment by the Company or (B) where the Company or any of the other
Health Power Companies, with the Employee's knowledge, had taken
documented steps toward expanding into during the term of the
Employee's employment by the Company. The foregoing shall not be
construed to prohibit the Employee from owning, directly or indirectly,
less than 5% of the securities of any class of any company listed on a
national securities exchange or traded in the over-the-counter
securities market.
(c) The Employee understands that this section is an essential
element of this agreement and that the Company would not have entered
into this agreement without this section being included in it. The
Employee has consulted with his legal counsel and has been fully
advised concerning the reasonableness and propriety of this section in
the specific context of the operations and business of the Company, and
the Employee acknowledges that this section is reasonable and
appropriate in all respects. In the event of any violation or attempted
violation of this section, the Employee specifically acknowledges and
agrees that the Company's remedy at law will be inadequate, that the
Company, its business and business relationships will suffer
irreparable injury and, therefore, the Company shall be entitled to
injunctive relief upon such breach in addition to any other remedy to
which it may be entitled, either in law or in equity, without the
necessity of proof of actual damage.
(d) As used in this agreement, the terms "trade secrets" and
"confidential information" shall mean any information acquired by the
Employee in the course of his employment which is not generally known
to the public and which, if revealed to unauthorized persons, would be
detrimental to the reputation or business interests of the Company and
the other Health Power Companies and includes, but is not limited to,
any information relating to the Company's and its affiliates and
subsidiaries' business operations and structure, sales methods,
practices and techniques, technical know-how, advertising, or marketing
methods and practices, its provider relationship and membership lists
(including customer names and addresses), and the Company's and its
affiliates or subsidiaries' relationships with suppliers, providers,
and potential providers, employees, members and potential members or
other persons or entities doing business with the Company.
(e) The Non-Competition Period shall be tolled during the
period of any violation or attempted violation of this section by the
Employee, and during such period the Company shall have no obligation
to make any severance payment or provide any benefits to the Employee
pursuant to ss.8(b) and (c), above. The Company shall provide notice to
the Employee of any tolling of the Non-Competition Period.
(f) If any payment under ss.8(a) or (b), above, is not paid
when due and remains unpaid ten days after notice is given to the
Company by the Employee, a payment default shall exist. In the event of
a payment default by the Company, the
10
<PAGE> 12
Employee shall have the option to either (i) give notice to the Company
that the Employee elects not to abide by the noncompetition provisions
described in subsection (b), above, in which case the Employee shall be
automatically released from all further obligations under subsection
(b), above, and the Company shall be automatically released from all
further obligations under ss.8(b) and (c), above, other than the
Company's obligation to pay the Employee all accrued but unpaid
severance payments to the date that such notice of election was
received by the Company, or (ii) remain obligated under the
noncompetition provisions described in subsection (b) and enforce the
Company's obligations under ss.8(b) and (c), above. Notwithstanding the
foregoing, a default shall not exist under this section if the
non-payment is due to the Company exercising its rights under
subsection (e) during the period of any violation or attempted
violation of subsection (b) by the Employee.
(g) For the purposes of this agreement, the term "Health Power
Companies" shall mean Health Power and all direct and indirect
subsidiaries of Health Power, and the term "Health Power Company" shall
mean Health Power or any direct or indirect subsidiary of Health Power.
ss.11. Return of Records. Upon termination of employment, the Employee
will deliver to the Company all records, reports, data, memoranda, notes,
models, and equipment of any nature that are in the Employee's possession or
under the Employee's control prepared or acquired in the course of the
Employee's employment relationship with the Company. The Employee further agrees
not to take any such information or data, or reproductions of such information
or data, that relate to the business activities of the Company or to parties in
a contract relationship with the Company.
ss.12. Employee's Capacity. The Employee represents and warrants to the
Company that he has the capacity and right to enter into this agreement and
perform all his services under this agreement without any restriction whatsoever
by any other agreement, other document, or otherwise.
ss.13. Complete Agreement. This document and the Stock Option Agreement
contains the entire agreement between the parties concerning the subject matter
hereof and supersedes any prior discussions, negotiations, representations, or
agreements between them relating to the employment of the Employee; provided,
however, that no provisions of this agreement shall supersede or replace any
noncompetition and/or confidentiality provisions contained in the Prior
Employment Agreement, which noncompetition and confidentiality provisions are
restated in, and continued pursuant to, this agreement. No additions or other
changes to this agreement shall be made or be binding on either party unless
made in writing and signed by each party to this agreement.
ss.14. Notices. All notices and other communications required or
permitted to be given under this agreement to any party shall be in writing and
shall be deemed given when delivered personally, telecopied (which is confirmed)
to that party at the telecopy number for that party set forth below, mailed by
certified mail (return receipt requested) to the address for that party set
forth below, or delivered to Federal Express, UPS, or any similar express
delivery service for
11
<PAGE> 13
delivery to that party at the address set forth below (or to such other address
or telecopy number as any party may have furnished in writing to the other party
in the manner provided above):
(a) If to the Company:
CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attention: Chairman
Telecopy No.: (614) 790-8208
with a copy to:
Baker & Hostetler LLP
Capitol Square, Suite 2100
65 East State Street
Columbus, Ohio 43215-4260
Attention: Joseph P. Boeckman, Esq.
Facsimile No.: (614) 462-2616
(b) If to the Employee
Robert J. Bossart
2603 Chartwell Road
Columbus, Ohio 43220
Telecopy No.: _____________________
ss.15. Governing Law. All questions concerning the validity, intention,
or meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance hereunder shall be construed and resolved
under the laws of Ohio.
ss.16. Severability. The intention of the parties to this agreement is
to comply fully with all laws and public policies, and this agreement shall be
construed consistently with all laws and public policies to the extent possible.
If and to the extent that any court of competent jurisdictions determines that
it is impossible or violative of any legal prohibition to construe any provision
of this agreement consistently with any law, legal prohibition, or public policy
and consequently holds that provision to be invalid or prohibited, that shall in
no way affect the validity of the other provisions of this agreement which shall
remain in full force and effect.
ss.17. Nonwaiver. No failure by any party to insist upon strict
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other party shall affect, or
constitute a waiver of, the first party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the parties at variance with any provision
of this agreement affect or
12
<PAGE> 14
constitute a waiver of, any party's right to demand strict compliance with all
provisions of this agreement.
ss.18. Captions. The captions of the various sections of this agreement
are not part of the context of this agreement, but are only labels to assist in
locating those sections, and shall be ignored in construing this agreement.
ss.19. Successors. This agreement shall be personal to the Employee and
no rights or obligations of the Employee under this agreement may be assigned by
him. Except as described in the preceding sentence, this agreement shall be
binding upon, inure to the benefit of, and be enforceable by and against the
respective heirs, legal representatives, successors, and assigns of each party
to this agreement. The Company and Health Power shall require any successor to
all or substantially all of the business and/or assets of the Company, whether
direct or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Employee,
expressly to assume and agree to perform this agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place. Health Power, as the sole shareholder of the
Company, has executed this agreement to evidence its agreement to be bound by
the provisions of this ss.19 and to be subject to the obligations under ss.8 of
this agreement resulting from a breach of this ss.19.
COMPMANAGEMENT, INC.
By /s/ Bernard F. Master, D.O. /s/ Robert J. Bossart
----------------------------------- ------------------------------------
Bernard F. Master, D.O., Chairman ROBERT J. BOSSART
COMPMANAGEMENT HEALTH HEALTH POWER, INC.
SYSTEMS, INC.
By /s/ Bernard F. Master, D.O. By /s/ Bernard F. Master, D.O.
----------------------------------- ----------------------------------
Bernard F. Master, D.O., Chairman Bernard F. Master, D.O., Chairman
13
<PAGE> 1
Exhibit 10(e)
EMPLOYMENT AGREEMENT AMONG
COMPMANAGEMENT, INC., COMPMANAGEMENT HEALTH SYSTEMS, INC.,
AND JONATHAN R. WAGNER, DATED AS OF JANUARY 1, 2000
<PAGE> 2
EMPLOYMENT AGREEMENT
--------------------
This agreement is made effective as of January 1, 2000, among
CompManagement, Inc., an Ohio corporation ("CMI"), CompManagement Health
Systems, Inc., an Ohio corporation ("CHS") (CMI and CHS are hereinafter referred
to collectively or individually, as the context may require, as the "Company"),
and Jonathan R. Wagner (the "Employee"), who hereby agree as follows:
ss.1. Employment. The terms and conditions of this agreement shall
supersede and replace in their entirety the terms and conditions of the
Employment Agreement between CMI and the Employee dated as of July 21, 1995, as
amended (the "Prior Employment Agreement"); provided, however, that no
provisions of this agreement shall supersede or replace any noncompetition
and/or confidentiality provisions contained in the Prior Employment Agreement,
which noncompetition and confidentiality provisions are restated in, and
continued pursuant to, this agreement. The Company hereby renews and continues
the Employee's employment, and the Employee hereby accepts such employment
renewal and continuation by the Company, on the terms and subject to the
conditions set forth in this agreement.
ss.2. Term of Employment. The term of the Employee's employment by the
Company as renewed pursuant to this agreement shall begin on the effective date
of this agreement and shall end, unless sooner terminated in accordance with the
provisions of ss.9, below, on December 31, 2002 (the "First Term"). Unless
terminated in accordance with the provisions of ss.9, below, the Employee's
employment under this agreement shall automatically continue after the
expiration of the First Term upon the same terms and conditions contained in
this agreement, or upon such other terms and conditions to which the parties may
mutually agree in writing, for successive two-year periods (each a "Renewal
Term"), commencing on the day following the termination date of the First Term
or the preceding Renewal Term, as the case may be, and ending, unless sooner
terminated in accordance with the provisions of ss.9, below, on the second
anniversary of the applicable termination date.
ss.3. Services. The Employee shall continue to serve as the President
of CMI. As such, the Employee shall perform such services as may be reasonably
assigned to him in order to enable him to carry out the responsibilities and
authority granted to him under this agreement. The Employee shall devote his
full business time, attention, energy, and skill to the Company's business,
provided that he shall be entitled to take vacations and sick leaves as may be
provided pursuant to this agreement or the Company's established policies. The
Employee shall not engage in any business or investment activity (whether or not
competitive with the Company) which requires any substantial time on his part.
ss.4. Responsibilities; Authority. As the President of CMI, the
Employee shall be responsible for supervising and managing the day-to-day
business operations of CMI and for supervising and implementing the policies and
operating programs, budgets, procedures, and directions established or changed
from time to time (collectively, the "Policies and Programs") by (i) the
Chairman of the Board, the Chief Executive Officer, or the Board of Directors of
CMI,
<PAGE> 3
or (ii) the Chairman of the Board or the Board of Directors of Health Power,
Inc., a Delaware corporation ("Health Power"), which is the parent of CMI. Such
responsibilities shall include, without limitation, the following: developing
CMI's financial and operational goals and objectives and implementing strategies
to achieve such goals and objectives within budgeted amounts; planning and
developing CMI's financial and operational budgets and projections; assisting
department managers with developing financial and operational goals and
objectives for each department of CMI and implementing strategies to achieve
such goals and objectives within such department's budgeted amounts;
coordinating and supervising the accounting and financial operations of CMI;
hiring, training, supervising, and discharging employees; and performing all
other activities relating to the management and day-to-day operations of CMI's
business. The Employee shall report to the Chief Executive Officer of CMI and
shall consult with the Chief Executive Officer of CMI, from time to time, on all
matters relating to the business policies and financial planning of and for CMI.
The Employee shall have the authority on behalf of CMI to manage and
conduct the day-to-day operations of CMI in the ordinary course of its business
pursuant to the Policies and Programs of CMI and the Policies and Programs of
Health Power which are applicable to CMI, provided that the Employee shall not
take any of the following actions without the prior approval of the Chief
Executive Officer or of the Board of CMI:
(a) Incur capital expenditures or acquire assets having a
price in excess of $50,000 or incur expenditures, debts, liabilities,
or other financial commitments in excess of $50,000, unless the
incurrance of such expenditures, debts, liabilities, or other financial
commitments or the acquisition of such assets are in accordance with
budgets previously approved by the Board of Directors of CMI;
(b) Grant any mortgage, security interest, or other
encumbrance on any assets of CMI;
(c) Employ, change the compensation, or terminate the
employment of any management employees of CMI; or enter into any
employment agreement not terminable at the will of CMI; or
(d) Enter into any transaction, agreement, or take any other
action that is outside the ordinary course of CMI's business or
contrary to the Policies and Programs of CMI or the Policies and
Programs of Health Power applicable to CMI.
ss.5. Compensation. The Employee shall receive the following
compensation:
(a) Base Salary. A base salary of $260,000 per annum, or, if
the term of the Employee's employment is renewed, such greater base
salary (the "Base Salary") as may be approved by Health Power's
Compensation Committee (the "Committee") from time to time, payable in
accordance with the Company's general policies for payment of
compensation to its salaried personnel.
(b) Sales Commissions. Sales commissions as provided inss.6,
below.
2
<PAGE> 4
(c) Performance-Based Incentive Bonus. An annual
performance-based cash incentive bonus in an amount up to 35% of the
Base Salary (the "Bonus"). The Bonus shall be earned and paid in
accordance with the Health Power, Inc. Performance-Based Incentive
Compensation Plan (the "Incentive Plan"). Under the Incentive Plan,
beginning with the 2000 Calendar Year (as defined in ss.6(d), below),
and continuing for each Calendar Year thereafter during the First Term
or any Renewal Term, as the case may be (each a "Performance Year"),
the Committee shall establish in writing objective performance criteria
or goals to be achieved by the Employee for that Performance Year (the
"Performance Goals"). The Performance Goals shall be based upon the
performance measures set forth in the Incentive Plan. A copy of the
Performance Goals as established by the Committee shall be provided to
the Employee. After the completion of each Performance Year, the
Committee shall review the achievement of the Performance Goals by the
Employee and make a determination as to the amount of the Bonus earned
by the Employee based upon the Employee's achievement of such
Performance Goals. The Bonus shall be payable as provided in the
Incentive Plan.
(d) Stock Options. Incentive stock options (the "Options") to
purchase up to 70,000 shares of common stock, $0.01 par value (the
"Shares"), of Health Power under the proposed Health Power, Inc. 2000
Management Stock Option Plan (the "Management Plan"). The Company
covenants to the Employee as follows: (i) the Company will take all
actions necessary to present the Management Plan to the directors of
Health Power for their approval at their March 2000 quarterly Board of
Directors meeting; (ii) if the Management Plan is approved of by the
directors, the Company will take all actions necessary to reserve a
sufficient number of Shares for issuance upon the exercise of the
Options; and (iii) if the Management Plan is approved of by the
directors, the Company will thereafter take all actions necessary to
present the Management Plan to the stockholders of Health Power for
their approval at Health Power's 2000 annual meeting of stockholders.
The Employee acknowledges and understands that (A) the grant of the
Options to the Employee is subject to the condition that the Management
Plan be approved by the directors of Health Power, and (B) the grant of
the Options to the Employee is further subject to the condition that
the Management Plan be approved by the stockholders of Health Power at
such annual meeting, and that if such approval is not received from
stockholders, the grant of the Options shall be automatically null and
void and without further force or effect
If the Management Plan is approved by Health Power's directors
and stockholders, then the Options shall be at an exercise price equal
to the closing market price of the Shares on the last business day
immediately preceding the date of the 2000 annual meeting. No Options
shall vest until December 31, 2000. On December 31, 2000, and on each
December 31 thereafter until December 31, 2004, 14,000 Options shall
become fully vested in the name of the Employee. Upon receipt of
stockholder approval of the Management Plan, the Employee and Health
Power shall enter into a stock option agreement (the "Stock Option
Agreement") reflecting the grant of the Options on the foregoing terms.
The grant of the Options and the exercise thereof shall be subject to
all of the terms and conditions of the Management Plan and the Stock
Option Agreement.
3
<PAGE> 5
(e) Automobile Allowance. $600 per month as an automobile
allowance plus reimbursement of automobile expenses in accordance with
the Company's policies, subject to the submission of appropriate
reports to the Company.
(f) Corporate Golf Membership. Participation in a corporate
membership at the Heritage Golf Club.
ss.6. Sales Commissions. The Employee shall receive the following sales
commissions:
(a) CMI Sales Commissions. The Company shall pay to the
Employee sales commissions on the CMI Fees (as defined below) generated
by the sales efforts of the Employee (the "CMI Sales Commissions"). The
CMI Sales Commissions shall be in an amount up to (i) 25% of the amount
(subject to allocation as described in subsection (d), below) of the
CMI Fees for the first year of business from a CMI Employer (as defined
below), which CMI Fees were generated by the sales efforts of the
Employee, plus (ii) 25% of the amount (subject to allocation as
described in subsection (d), below) of the increase in CMI Fees from
one Calendar Year to the next Calendar Year from CMI Employers who are
part of group rating plans of CMI, which CMI Fees were generated by the
sales efforts of the Employee.
CMI Sales Commissions shall be payable on CMI Fees applicable
to CMI Employers located in any state or jurisdiction in which CMI is
authorized and approved to conduct business. With respect to a business
acquisition by CMI (whether such acquisition is structured as an asset,
stock, merger, or other similar type of transaction), no CMI Sales
Commissions shall be payable with respect to any fees received by CMI
from any employer who, at the time of such acquisition, was a client or
customer of the business acquired by CMI, except to the extent payable
pursuant to (ii) of this subsection (a).
For purposes of this agreement: (A) "CMI Fees" shall mean fees
payable to CMI for its performance of third party administrative
services for workers' compensation and unemployment compensation claims
on behalf of CMI Employers; and (B) a "CMI Employer" shall mean any
employer which receives third party administrative services for
workers' compensation or unemployment compensation claims from CMI.
(b) CHS Sales Commissions. The Company shall pay to the
Employee sales commissions on the CHS Fees (as defined below) generated
by the sales efforts of the Employee (the "CHS Sales Commissions") in
an amount up to 25% of the amount (subject to allocation as described
in subsection (d), below) of the CHS Fees for the first year of
business from a CHS Employer, which CHS Fees were generated by the
sales efforts of the Employee.
CHS Sales Commissions shall be payable on CHS Fees applicable
to CHS Employers located in any state or jurisdiction in which CHS is
authorized and approved
4
<PAGE> 6
to conduct business. With respect to a business acquisition by CHS
(whether such acquisition is structured as an asset, stock, merger, or
other similar type of transaction), no CHS Sales Commissions shall be
payable with respect to any fees received by CHS from any employer who,
at the time of such acquisition, was a client or customer of the
business acquired by CHS.
For purposes of this agreement: (A) "CHS Fees" shall mean the
fees payable to CHS for its performance of managed care organization
("MCO") services on behalf of CHS Employers; and (B) a "CHS Employer"
is any employer which receives MCO services from CHS.
(c) Sales Commissions on Other Services and Products. In
addition to the payment of sales commissions relating to third party
administrative services for workers' compensation and unemployment
compensation claims and MCO services, as described above, the Company
shall pay to the Employee sales commissions on fees payable to the
Company with respect to the Company's other services and/or products
(collectively, the "Other Services"), which fees were generated by the
sales efforts of the Employee. Such sales commissions shall be payable
only on the first year of fees payable by a customer of the Company for
one or more of the Other Services. The amount of sales commissions for
Other Services shall vary with respect to each service or product
offered by the Company, with the amount of sales commissions ranging
from 10% to up to 25% of the fees for each Other Service. The amount of
sales commissions for each Other Service shall be determined by the
Chief Executive Officer of the Company and shall be subject to
allocation as described in subsection (d), below.
With respect to a business acquisition by the Company (whether
such acquisition is structured as an asset, stock, merger, or other
similar type of transaction), no sales commissions on Other Services
shall be payable with respect to any fees received by the Company from
any customer who, at the time of such acquisition, was receiving such
service or product from the business acquired by the Company.
(d) Allocation of Commissions. The Employee acknowledges and
agrees that the sales commission amount described in subsections (a),
(b), and (c), above, represents the total amount of sales commissions
which are payable with respect to the service or product described in
that subsection, and that the sales commission amount may be allocated
by the Company among all of the salespersons participating in the sales
effort to that employer or customer. The Chief Executive Officer of the
Company shall have the authority to allocate the sales commission
amount in any manner such officer deems appropriate, in his reasonable
discretion. In the event of any dispute regarding the allocation by the
Chief Executive Officer of the sales commission amount, such dispute
shall be referred to, and resolved by, the Committee, whose
determination shall be binding and conclusive on all parties.
(e) Miscellaneous. All sales commissions described in this
ss.6 shall be determined on a Calendar Year basis. The payment of the
CMI Sales Commissions shall accrue upon the execution of a contract
with the CMI Employer. The payment of the
5
<PAGE> 7
CHS Sales Commissions shall accrue upon (i) CHS receiving notification
from the appropriate state agency that the CHS Employer has selected
CHS as its MCO, or (ii) the execution of a contract with the CHS
Employer. The payment of the sales commissions on Other Services shall
accrue upon the execution of a contract with the party receiving the
Other Services. In no event shall there exist any obligation to pay any
sales commissions under this ss.6 unless and until the corresponding
fees has been received from the employer or customer. For purposes of
this ss.6 only, the term "CMI" shall include any Health Power Company
(as defined in ss.10(g), below) that performs third party
administrative services for workers' compensation and unemployment
compensation claims, the term "CHS" shall include any Health Power
Company that performs MCO services, and the term "Company shall mean
the Health Power Company the performs the Other Services. For purposes
of this agreement, a "Calendar Year" shall mean the period from January
1 through December 31 of the same year.
ss.7. Fringe Benefits. The Employee shall be entitled to the following
fringe benefits:
(a) Such fringe benefits and perquisites as may be generally
provided by the Company to its salaried personnel pursuant to the
Company's established policies.
(b) Payment of the premiums with respect to the Employee's
existing death and disability insurance policies.
ss.8. Severance Pay. If the Employee's employment is terminated by the
Company for any reason other than "just cause" (as defined inss.9, below), or is
terminated by either the Company or the Employee at the expiration of the First
Term or any Renewal Term, then the Employee shall receive the following:
(a) Payment of any Base Salary, CMI Sales Commissions, CHS
Sales Commissions, and vacation pay accrued through the date of
termination of employment.
(b) Severance pay in an amount equal to (i) an amount equal to
two times the Base Salary in effect at the time of termination of
employment, plus (ii) an amount equal to the aggregate amount of CMI
Sales Commissions and CHS Sales Commissions earned by the Employee
pursuant to ss.6, above, for the Calendar Year of termination (if such
termination is at the expiration of the First Term or a Renewal Term)
or the Calendar Year immediately prior to termination (in any other
case), but only with respect to those CMI Employers and CHS Employers
who renew or maintain their business with the Company during the
one-year period immediately after such termination.
(c) Benefits comparable to the fringe benefits described in
ss.7, above, until the earlier of two years from the date of
termination or the date any such benefit is provided to the Employee by
another employer.
If the severance compensation under this section would constitute a
"parachute payment," as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), such severance compensation shall be reduced to
the largest amount as will result in no portion
6
<PAGE> 8
of the severance compensation payments under this section being subject to the
excise tax imposed by Section 4999 of the Code or being disallowed as deductions
to the Company under Section 280G of the Code.
Payment of the amounts described in subsection (a), above, shall be
made within 30 days after the termination of employment and payment of the
amounts described in subsection (b), above, shall be made over a two-year period
commencing with the termination of employment, in the same manner as the Base
Salary is paid during employment.
In the event of termination of the Employee's employment by the Company
for just cause, the Employee shall be entitled to accrued compensation as
provided in subsection (a), above, and to no further compensation.
If the Employee receives severance pay in accordance with subsection
(b), above, due to a termination of employment by the Employee at the expiration
of the First Term or any Renewal Term, and if during the two-year payment period
the Employee is compensated for services rendered either for an employer or as
an independent consultant, the amount of such compensation shall be used to
offset the Company's obligations to make the severance payments under subsection
(b), above; provided, however, that the Employee shall not be obligated to seek
other employment during such two-year period. If the Employee receives severance
pay in accordance with subsection (b), above, due to any other event, the
Employee shall not be obligated to seek other employment by way of mitigation of
the amounts payable to the Employee under such subsection, nor shall the
Employee's acceptance of other employment affect the Company's obligation to
make the severance payments required under subsection (b), above.
The Employee, the Company, and Health Power are parties to an Executive
Severance Benefits Agreement dated as of August 26, 1999, as such agreement may
be hereafter amended (the "Executive Severance Benefits Agreement"). No breach
of this agreement shall occur if the Employee's employment is terminated in such
a manner that entitles him to receive benefits under the Executive Severance
Benefits Agreement. Furthermore, if the Employee receives benefits under the
Executive Severance Benefits Agreement, then such benefits shall be the
exclusive severance benefits receivable by the Employee from the Company, and
the benefits received under the Executive Severance Benefits Agreement shall
supersede and replace any and all severance benefits that the Employee may be
entitled to receive from the Company under this ss.8. The Executive Severance
Benefits Agreement shall not supersede or replace the Employee's severance
benefits that the Employee may be entitled to receive from the Company under
this ss.8 if the Employee is not entitled to receive the severance benefits
accorded to the Employee under the Executive Severance Benefits Agreement.
ss.9. Termination of Employment. The Employee's employment under this
agreement may be terminated:
(a) By the Company upon the occurrence of any event which
constitutes just cause, as defined below, or at any time thereafter.
7
<PAGE> 9
(b) By the Employee or the Company, with or without cause, at
the end of the First Term or any Renewal Term upon giving not less than
45 days advance written notice prior to the end of the First Term or
the Renewal Term then in effect, as the case may be, provided that the
Employee shall continue to perform all services under this agreement
until the earlier of: (i) the expiration date of such 45 day period; or
(ii) any earlier date which may be specified by the Company. If the
Employee's employment is terminated pursuant to this subsection (b),
then the Employee shall be entitled to receive the severance pay and
benefits described in ss.8(b) and (c), above.
(c) By the Company for any reason other than just cause upon
the giving of written notice to the Employee. If the Employee's
employment is terminated pursuant to this subsection (c), then Employee
shall be entitled to receive the severance pay and benefits described
in ss.8(b) and (c), above.
For purposes of this agreement, "just cause" shall mean the termination
of the Employee for: (i) any act of habitual drunkenness; (ii) controlled
substance abuse; (iii) dishonesty; (iv) criminal conduct (excluding minor
traffic offenses); (v) acts of violence or willful destruction of Company
property; (vi) falsification of any Company records or withholding of any
relevant information; (vii) unethical or immoral behavior; (viii) being
intoxicated or using intoxicants (drugs) not prescribed by a physician during
working hours; (ix) theft, including unauthorized possession of Company
property; (x) failure to perform the Employee's responsibilities and duties in
accordance with the Policies and Programs of the Company or the Policies and
Programs of Health Power applicable to the Company, other than any such Policies
or Programs that would require the Employee to engage in any unethical, immoral,
or criminal behavior, and failure to correct such failure within ten days after
notice from the Company (specifying the corrective actions required) to do so
or, if it is impossible to correct such failure within such ten days, failure to
commence all possible actions to correct such failure within such ten days and
thereafter to continue to pursue such actions until correction of such failure,
or having corrected any such failure, fails to so perform appropriately at any
time in the future (without the requirement of any additional notice from the
Company); (xi) failure to fully perform and observe all obligations and
conditions to be performed and observed by the Employee under this agreement, or
under any other agreement between the Employee and the Company, and failure by
the Employee to correct such failure within ten days after notice from the
Company (specifying the corrective actions required) to do so or, if it is
impossible to correct such failure within such ten days, failure to commence all
possible actions to correct such failure within such ten days and thereafter to
continue to pursue such actions until correction of such failure, or having
corrected any such failure, fails to perform and observe all such obligations
and conditions at any time in the future (without the requirement of any
additional notice from the Company); (xii) failure to fully perform and observe
all obligations and conditions to be performed and observed by the Employee
which relate to obligations and conditions to be performed and observed by the
Company under any material lease, agreement, note, or other document to which
the Company is a party, and failure of the Employee to correct such failure
within ten days after notice from the Company (specifying the corrective actions
required) to do so or, if it is impossible to correct such failure within such
ten days, failure to commence all possible actions to correct such failure
within such ten days and thereafter to continue to pursue such actions until
correction of such failure, or having so corrected any such failure, fails to
8
<PAGE> 10
perform and observe all such obligations and conditions at any time in the
future (without the requirement of any additional notice from the Company); or
(xiii) death or long-term disability.
For purposes of this agreement, a long-term disability shall mean that:
(A)(1) because of physical or mental incapacity, it is probable, in the opinion
of a licensed physician selected by the Company and acceptable to the Employee
(or his personal representative or guardian if the Employee is incapacitated),
that the Employee will not be able to engage actively in full-time employment by
the Company for a period of 120 days or longer, or (2) the Employee is disabled
under the definition of the disability policy or policies maintained by the
Company for the benefit of the Employee; or (B) the Company selects such a
licensed physician and the Employee fails within a reasonable time to submit to
any examinations reasonably requested by that licensed physician.
ss.10. Noncompetition and Confidentiality. As part of a transaction in
which Health Power acquired all of the outstanding capital stock of CMI, the
Employee and CMI agreed to substantially the following provisions in the Prior
Employment Agreement. The Company the Employee hereby reaffirm the
noncompetition and confidentiality provisions of the Prior Employment Agreement
and, in consideration of the increase in base salary, the cash incentive bonus,
and the stock options being granted pursuant to the Management Plan, the
Employee agrees as follows:
(a) The Employee shall not at any time, either during the term
of his employment with the Company or any of the other Health Power
Companies (as defined below), or after the termination of such
employment for whatever reason,
(i) Disclose to anyone (except to the extent
necessary as a benefit to the Company in the performance of
his duties and with prior written authorization by the
Company) any trade secrets or confidential information, or
(ii) Solicit or seek to employ any employee of any
Health Power Company to leave the employ of such Company, or
(iii) Solicit, recruit, or otherwise attempt to
persuade the members or providers of any Health Power Company
to leave such Company and do business with competing
organizations.
For purposes of (ii) and (iii) of this subsection, publication
of an advertisement or notice in a publication of general solicitation
shall not constitute solicitation or recruitment.
(b) During the term of such employment, whatever it may be,
and within two years following the termination of such employment for
whatever reason (the "Non-Competition Period"), the Employee agrees
that he shall not, directly or indirectly, on his own behalf, or as a
member of any partnership, or as an officer, director, shareholder,
agent, consultant, or employee of any other corporation or entity,
compete with the Company or any of the other Health Power Companies or
be engaged in, loan money or
9
<PAGE> 11
credit to, own any interest in, be employed by or otherwise participate
in any other business which competes with the Company or any of the
other Health Power Companies in (i) Ohio or (ii) any other geographic
location (A) where the Company or any of the other Health Power
Companies conducted business during the term of the Employee's
employment by the Company or (B) where the Company or any of the other
Health Power Companies, with the Employee's knowledge, had taken
documented steps toward expanding into during the term of the
Employee's employment by the Company. The foregoing shall not be
construed to prohibit the Employee from owning, directly or indirectly,
less than 5% of the securities of any class of any company listed on a
national securities exchange or traded in the over-the-counter
securities market.
(c) The Employee understands that this section is an essential
element of this agreement and that the Company would not have entered
into this agreement without this section being included in it. The
Employee has consulted with his legal counsel and has been fully
advised concerning the reasonableness and propriety of this section in
the specific context of the operations and business of the Company, and
the Employee acknowledges that this section is reasonable and
appropriate in all respects. In the event of any violation or attempted
violation of this section, the Employee specifically acknowledges and
agrees that the Company's remedy at law will be inadequate, that the
Company, its business and business relationships will suffer
irreparable injury and, therefore, the Company shall be entitled to
injunctive relief upon such breach in addition to any other remedy to
which it may be entitled, either in law or in equity, without the
necessity of proof of actual damage.
(d) As used in this agreement, the terms "trade secrets" and
"confidential information" shall mean any information acquired by the
Employee in the course of his employment which is not generally known
to the public and which, if revealed to unauthorized persons, would be
detrimental to the reputation or business interests of the Company and
the other Health Power Companies and includes, but is not limited to,
any information relating to the Company's and its affiliates and
subsidiaries' business operations and structure, sales methods,
practices and techniques, technical know-how, advertising, or marketing
methods and practices, its provider relationship and membership lists
(including customer names and addresses), and the Company's and its
affiliates or subsidiaries' relationships with suppliers, providers,
and potential providers, employees, members and potential members or
other persons or entities doing business with the Company.
(e) The Non-Competition Period shall be tolled during the
period of any violation or attempted violation of this section by the
Employee, and during such period the Company shall have no obligation
to make any severance payment or provide any benefits to the Employee
pursuant to ss.8(b) and (c), above. The Company shall provide notice to
the Employee of any tolling of the Non-Competition Period.
(f) If any payment under ss.8(a) or (b), above, is not paid
when due and remains unpaid ten days after notice is given to the
Company by the Employee, a payment default shall exist. In the event of
a payment default by the Company, the
10
<PAGE> 12
Employee shall have the option to either (i) give notice to the Company
that the Employee elects not to abide by the noncompetition provisions
described in subsection (b), above, in which case the Employee shall be
automatically released from all further obligations under subsection
(b), above, and the Company shall be automatically released from all
further obligations under ss.8(b) and (c), above, other than the
Company's obligation to pay the Employee all accrued but unpaid
severance payments to the date that such notice of election was
received by the Company, or (ii) remain obligated under the
noncompetition provisions described in subsection (b) and enforce the
Company's obligations under ss.8(b) and (c), above. Notwithstanding the
foregoing, a default shall not exist under this section if the
non-payment is due to the Company exercising its rights under
subsection (e) during the period of any violation or attempted
violation of subsection (b) by the Employee.
(g) For the purposes of this agreement, the term "Health Power
Companies" shall mean Health Power and all direct and indirect
subsidiaries of Health Power, and the term "Health Power Company" shall
mean Health Power or any direct or indirect subsidiary of Health Power.
ss.11. Return of Records. Upon termination of employment, the Employee
will deliver to the Company all records, reports, data, memoranda, notes,
models, and equipment of any nature that are in the Employee's possession or
under the Employee's control prepared or acquired in the course of the
Employee's employment relationship with the Company. The Employee further agrees
not to take any such information or data, or reproductions of such information
or data, that relate to the business activities of the Company or to parties in
a contract relationship with the Company.
ss.12. Employee's Capacity. The Employee represents and warrants to the
Company that he has the capacity and right to enter into this agreement and
perform all his services under this agreement without any restriction whatsoever
by any other agreement, other document, or otherwise.
ss.13. Complete Agreement. This document and the Stock Option Agreement
contains the entire agreement between the parties concerning the subject matter
hereof and supersedes any prior discussions, negotiations, representations, or
agreements between them relating to the employment of the Employee; provided,
however, that no provisions of this agreement shall supersede or replace any
noncompetition and/or confidentiality provisions contained in the Prior
Employment Agreement, which noncompetition and confidentiality provisions are
restated in, and continued pursuant to, this agreement. No additions or other
changes to this agreement shall be made or be binding on either party unless
made in writing and signed by each party to this agreement.
ss.14. Notices. All notices and other communications required or
permitted to be given under this agreement to any party shall be in writing and
shall be deemed given when delivered personally, telecopied (which is confirmed)
to that party at the telecopy number for that party set forth below, mailed by
certified mail (return receipt requested) to the address for that party set
forth below, or delivered to Federal Express, UPS, or any similar express
delivery service for
11
<PAGE> 13
delivery to that party at the address set forth below (or to such other address
or telecopy number as any party may have furnished in writing to the other party
in the manner provided above):
(a) If to the Company:
CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attention: Chairman
Telecopy No.: (614) 790-8208
with a copy to:
Baker & Hostetler LLP
Capitol Square, Suite 2100
65 East State Street
Columbus, Ohio 43215-4260
Attention: Joseph P. Boeckman, Esq.
Facsimile No.: (614) 462-2616
(b) If to the Employee
Jonathan R. Wagner
--------------------
--------------------
Dublin, Ohio 43017
Telecopy No.: _____________________
ss.15. Governing Law. All questions concerning the validity, intention,
or meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance hereunder shall be construed and resolved
under the laws of Ohio.
ss.16. Severability. The intention of the parties to this agreement is
to comply fully with all laws and public policies, and this agreement shall be
construed consistently with all laws and public policies to the extent possible.
If and to the extent that any court of competent jurisdictions determines that
it is impossible or violative of any legal prohibition to construe any provision
of this agreement consistently with any law, legal prohibition, or public policy
and consequently holds that provision to be invalid or prohibited, that shall in
no way affect the validity of the other provisions of this agreement which shall
remain in full force and effect.
ss.17. Nonwaiver. No failure by any party to insist upon strict
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other party shall affect, or
constitute a waiver of, the first party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the parties at variance with any provision
of this agreement affect or
12
<PAGE> 14
constitute a waiver of, any party's right to demand strict compliance with all
provisions of this agreement.
ss.18. Captions. The captions of the various sections of this agreement
are not part of the context of this agreement, but are only labels to assist in
locating those sections, and shall be ignored in construing this agreement.
ss.19. Successors. This agreement shall be personal to the Employee and
no rights or obligations of the Employee under this agreement may be assigned by
him. Except as described in the preceding sentence, this agreement shall be
binding upon, inure to the benefit of, and be enforceable by and against the
respective heirs, legal representatives, successors, and assigns of each party
to this agreement. The Company and Health Power shall require any successor to
all or substantially all of the business and/or assets of the Company, whether
direct or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Employee,
expressly to assume and agree to perform this agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place. Health Power, as the sole shareholder of the
Company, has executed this agreement to evidence its agreement to be bound by
the provisions of this ss.19 and to be subject to the obligations under ss.8 of
this agreement resulting from a breach of this ss.19.
COMPMANAGEMENT, INC.
By /s/ Bernard F. Master, D.O. /s/ Jonathan R. Wagner
-------------------------------------- ------------------------------
Bernard F. Master, D.O., Chairman JONATHAN R. WAGNER
COMPMANAGEMENT HEALTH HEALTH POWER, INC.
SYSTEMS, INC.
By /s/ Bernard F. Master, D.O. By /s/ Bernard F. Master, D.O.
-------------------------------------- ----------------------------
Bernard F. Master, D.O., Chairman Bernard F. Master, D.O., Chairman
13
<PAGE> 1
Exhibit 10(f)
EMPLOYMENT AGREEMENT BETWEEN COMPMANAGEMENT, INC.,
COMPMANAGEMENT HEALTH SYSTEMS, INC., AND
RICHARD T. KURTH, DATED AS OF JANUARY 1, 2000
<PAGE> 2
EMPLOYMENT AGREEMENT
--------------------
This agreement is made effective as of January 1, 2000, among
CompManagement, Inc., an Ohio corporation ("CMI"), CompManagement Health
Systems, Inc., an Ohio corporation ("CHS") (CMI and CHS are hereinafter referred
to collectively or individually, as the context may require, as the "Company"),
and Richard T. Kurth (the "Employee"), who hereby agree as follows:
ss.1. Employment. The terms and conditions of this agreement shall
supersede and replace in their entirety the terms and conditions of the
Employment Agreement between CMI and the Employee dated as of July 21, 1995, as
amended (the "Prior Employment Agreement"); provided, however, that no
provisions of this agreement shall supersede or replace any noncompetition
and/or confidentiality provisions contained in the Prior Employment Agreement,
which noncompetition and confidentiality provisions are restated in, and
continued pursuant to, this agreement. The Company hereby renews and continues
the Employee's employment, and the Employee hereby accepts such employment
renewal and continuation by the Company, on the terms and subject to the
conditions set forth in this agreement.
ss.2. Term of Employment. The term of the Employee's employment by the
Company as renewed pursuant to this agreement shall begin on the effective date
of this agreement and shall end, unless sooner terminated in accordance with the
provisions of ss.9, below, on December 31, 2002 (the "First Term"). Unless
terminated in accordance with the provisions of ss.9, below, the Employee's
employment under this agreement shall automatically continue after the
expiration of the First Term upon the same terms and conditions contained in
this agreement, or upon such other terms and conditions to which the parties may
mutually agree in writing, for successive two-year periods (each a "Renewal
Term"), commencing on the day following the termination date of the First Term
or the preceding Renewal Term, as the case may be, and ending, unless sooner
terminated in accordance with the provisions of ss.9, below, on the second
anniversary of the applicable termination date.
ss.3. Services. The Employee shall continue to serve as the Executive
Vice President of CMI. As such, the Employee shall perform such services as may
be reasonably assigned to him from time to time by the President of CMI. The
Employee shall devote his full business time, attention, energy, and skill to
the Company's business, provided that he shall be entitled to take vacations and
sick leaves as may be provided pursuant to this agreement or the Company's
established policies. The Employee shall not engage in any business or
investment activity (whether or not competitive with the Company) which requires
any substantial time on his part.
ss.4. Responsibilities; Authority. As the Executive Vice President of
CMI, the Employee shall be responsible for assisting the President in
supervising and managing the day-to-day business operations of CMI and for
assisting the President in supervising and implementing the policies and
operating programs, budgets, procedures, and directions established or changed
from time to time (collectively, the "Policies and Programs") by (i) the
Chairman of the Board, the Chief Executive Officer, or the Board of Directors of
CMI, or (ii) the
<PAGE> 3
Chairman of the Board or the Board of Directors of Health Power, Inc., a
Delaware corporation ("Health Power"), which is the parent of CMI. Such
responsibilities shall include, without limitation, the following: developing
CMI's financial and operational goals and objectives and implementing strategies
to achieve such goals and objectives within budgeted amounts; planning and
developing CMI's financial and operational budgets and projections; assisting
department managers with developing financial and operational goals and
objectives for each department of CMI and implementing strategies to achieve
such goals and objectives within such department's budgeted amounts;
coordinating and supervising the accounting and financial operations of CMI;
hiring, training, supervising, and discharging employees; and performing all
other activities relating to the management and operations of CMI's business as
may be reasonably assigned to him from time to time by the President of CMI. The
Employee shall report to the President of CMI.
The Employee shall have such authority to act on behalf of CMI as may
be delegated to him from time to time by the President of the Company.
ss.5. Compensation. The Employee shall receive the following
compensation:
(a) Base Salary. A base salary of $225,000 per annum, or, if
the term of the Employee's employment is renewed, such greater base
salary (the "Base Salary") as may be approved by Health Power's
Compensation Committee (the "Committee") from time to time, payable in
accordance with the Company's general policies for payment of
compensation to its salaried personnel.
(b) Sales Commissions. Sales commissions as provided inss.6,
below.
(c) Performance-Based Incentive Bonus. An annual
performance-based cash incentive bonus in an amount up to 35% of the
Base Salary (the "Bonus"). The Bonus shall be earned and paid in
accordance with the Health Power, Inc. Performance-Based Incentive
Compensation Plan (the "Incentive Plan"). Under the Incentive Plan,
beginning with the 2000 Calendar Year (as defined in ss.6(d), below),
and continuing for each Calendar Year thereafter during the First Term
or any Renewal Term, as the case may be (each a "Performance Year"),
the Committee shall establish in writing objective performance criteria
or goals to be achieved by the Employee for that Performance Year (the
"Performance Goals"). The Performance Goals shall be based upon the
performance measures set forth in the Incentive Plan. A copy of the
Performance Goals as established by the Committee shall be provided to
the Employee. After the completion of each Performance Year, the
Committee shall review the achievement of the Performance Goals by the
Employee and make a determination as to the amount of the Bonus earned
by the Employee based upon the Employee's achievement of such
Performance Goals. The Bonus shall be payable as provided in the
Incentive Plan.
(d) Stock Options. Incentive stock options (the "Options") to
purchase up to 70,000 shares of common stock, $0.01 par value (the
"Shares"), of Health Power under the proposed Health Power, Inc. 2000
Management Stock Option Plan (the "Management Plan"). The Company
covenants to the Employee as follows: (i) the Company will take
2
<PAGE> 4
all actions necessary to present the Management Plan to the directors
of Health Power for their approval at their March 2000 quarterly Board
of Directors meeting; (ii) if the Management Plan is approved of by the
directors, the Company will take all actions necessary to reserve a
sufficient number of Shares for issuance upon the exercise of the
Options; and (iii) if the Management Plan is approved of by the
directors, the Company will thereafter take all actions necessary to
present the Management Plan to the stockholders of Health Power for
their approval at Health Power's 2000 annual meeting of stockholders.
The Employee acknowledges and understands that (A) the grant of the
Options to the Employee is subject to the condition that the Management
Plan be approved by the directors of Health Power, and (B) the grant of
the Options to the Employee is further subject to the condition that
the Management Plan be approved by the stockholders of Health Power at
such annual meeting, and that if such approval is not received from
stockholders, the grant of the Options shall be automatically null and
void and without further force or effect
If the Management Plan is approved by Health Power's directors
and stockholders, then the Options shall be at an exercise price equal
to the closing market price of the Shares on the last business day
immediately preceding the date of the 2000 annual meeting. No Options
shall vest until December 31, 2000. On December 31, 2000, and on each
December 31 thereafter until December 31, 2004, 14,000 Options shall
become fully vested in the name of the Employee. Upon receipt of
stockholder approval of the Management Plan, the Employee and Health
Power shall enter into a stock option agreement (the "Stock Option
Agreement") reflecting the grant of the Options on the foregoing terms.
The grant of the Options and the exercise thereof shall be subject to
all of the terms and conditions of the Management Plan and the Stock
Option Agreement.
(e) Automobile Allowance. $600 per month as an automobile
allowance plus reimbursement of automobile expenses in accordance with
the Company's policies, subject to the submission of appropriate
reports to the Company.
(f) Corporate Golf Membership. Participation in a corporate
membership at the Heritage Golf Club.
ss.6. Sales Commissions. The Employee shall receive the following sales
commissions:
(a) CMI Sales Commissions. The Company shall pay to the
Employee sales commissions on the CMI Fees (as defined below) generated
by the sales efforts of the Employee (the "CMI Sales Commissions"). The
CMI Sales Commissions shall be in an amount up to (i) 25% of the amount
(subject to allocation as described in subsection (d), below) of the
CMI Fees for the first year of business from a CMI Employer (as defined
below), which CMI Fees were generated by the sales efforts of the
Employee, plus (ii) 25% of the amount (subject to allocation as
described in subsection (d), below) of the increase in CMI Fees from
one Calendar Year to the next Calendar Year from CMI Employers who are
part of group rating plans of CMI, which CMI Fees were generated by the
sales efforts of the Employee.
3
<PAGE> 5
CMI Sales Commissions shall be payable on CMI Fees applicable
to CMI Employers located in any state or jurisdiction in which CMI is
authorized and approved to conduct business. With respect to a business
acquisition by CMI (whether such acquisition is structured as an asset,
stock, merger, or other similar type of transaction), no CMI Sales
Commissions shall be payable with respect to any fees received by CMI
from any employer who, at the time of such acquisition, was a client or
customer of the business acquired by CMI, except to the extent payable
pursuant to (ii) of this subsection (a).
For purposes of this agreement: (A) "CMI Fees" shall mean fees
payable to CMI for its performance of third party administrative
services for workers' compensation and unemployment compensation claims
on behalf of CMI Employers; and (B) a "CMI Employer" shall mean any
employer which receives third party administrative services for
workers' compensation or unemployment compensation claims from CMI.
(b) CHS Sales Commissions. The Company shall pay to the
Employee sales commissions on the CHS Fees (as defined below) generated
by the sales efforts of the Employee (the "CHS Sales Commissions") in
an amount up to 25% of the amount (subject to allocation as described
in subsection (d), below) of the CHS Fees for the first year of
business from a CHS Employer, which CHS Fees were generated by the
sales efforts of the Employee.
CHS Sales Commissions shall be payable on CHS Fees applicable
to CHS Employers located in any state or jurisdiction in which CHS is
authorized and approved to conduct business. With respect to a business
acquisition by CHS (whether such acquisition is structured as an asset,
stock, merger, or other similar type of transaction), no CHS Sales
Commissions shall be payable with respect to any fees received by CHS
from any employer who, at the time of such acquisition, was a client or
customer of the business acquired by CHS.
For purposes of this agreement: (A) "CHS Fees" shall mean the
fees payable to CHS for its performance of managed care organization
("MCO") services on behalf of CHS Employers; and (B) a "CHS Employer"
is any employer which receives MCO services from CHS.
(c) Sales Commissions on Other Services and Products. In
addition to the payment of sales commissions relating to third party
administrative services for workers' compensation and unemployment
compensation claims and MCO services, as described above, the Company
shall pay to the Employee sales commissions on fees payable to the
Company with respect to the Company's other services and/or products
(collectively, the "Other Services"), which fees were generated by the
sales efforts of the Employee. Such sales commissions shall be payable
only on the first year of fees payable by a customer of the Company for
one or more of the Other Services. The amount of sales commissions for
Other Services shall vary with respect to each service or product
offered by the Company, with the amount of sales commissions ranging
from 10% to up to 25% of the
4
<PAGE> 6
fees for each Other Service. The amount of sales commissions for each
Other Service shall be determined by the Chief Executive Officer of the
Company and shall be subject to allocation as described in subsection
(d), below.
With respect to a business acquisition by the Company (whether
such acquisition is structured as an asset, stock, merger, or other
similar type of transaction), no sales commissions on Other Services
shall be payable with respect to any fees received by the Company from
any customer who, at the time of such acquisition, was receiving such
service or product from the business acquired by the Company.
(d) Allocation of Commissions. The Employee acknowledges and
agrees that the sales commission amount described in subsections (a),
(b), and (c), above, represents the total amount of sales commissions
which are payable with respect to the service or product described in
that subsection, and that the sales commission amount may be allocated
by the Company among all of the salespersons participating in the sales
effort to that employer or customer. The Chief Executive Officer of the
Company shall have the authority to allocate the sales commission
amount in any manner such officer deems appropriate, in his reasonable
discretion. In the event of any dispute regarding the allocation by the
Chief Executive Officer of the sales commission amount, such dispute
shall be referred to, and resolved by, the Committee, whose
determination shall be binding and conclusive on all parties.
(e) Miscellaneous. All sales commissions described in this
ss.6 shall be determined on a Calendar Year basis. The payment of the
CMI Sales Commissions shall accrue upon the execution of a contract
with the CMI Employer. The payment of the CHS Sales Commissions shall
accrue upon (i) CHS receiving notification from the appropriate state
agency that the CHS Employer has selected CHS as its MCO, or (ii) the
execution of a contract with the CHS Employer. The payment of the sales
commissions on Other Services shall accrue upon the execution of a
contract with the party receiving the Other Services. In no event shall
there exist any obligation to pay any sales commissions under this ss.6
unless and until the corresponding fees has been received from the
employer or customer. For purposes of this ss.6 only, the term "CMI"
shall include any Health Power Company (as defined in ss.10(g), below)
that performs third party administrative services for workers'
compensation and unemployment compensation claims, the term "CHS" shall
include any Health Power Company that performs MCO services, and the
term "Company shall mean the Health Power Company the performs the
Other Services. For purposes of this agreement, a "Calendar Year" shall
mean the period from January 1 through December 31 of the same year.
ss.7. Fringe Benefits. The Employee shall be entitled to the following
fringe benefits:
(a) Such fringe benefits and perquisites as may be generally
provided by the Company to its salaried personnel pursuant to the
Company's established policies.
(b) Payment of the premiums with respect to the Employee's
existing death and disability insurance policies.
5
<PAGE> 7
ss.8. Severance Pay. If the Employee's employment is terminated by the
Company for any reason other than "just cause" (as defined inss.9, below), or is
terminated by either the Company or the Employee at the expiration of the First
Term or any Renewal Term, then the Employee shall receive the following:
(a) Payment of any Base Salary, CMI Sales Commissions, CHS
Sales Commissions, and vacation pay accrued through the date of
termination of employment.
(b) Severance pay in an amount equal to (i) an amount equal to
two times the Base Salary in effect at the time of termination of
employment, plus (ii) an amount equal to the aggregate amount of CMI
Sales Commissions and CHS Sales Commissions earned by the Employee
pursuant to ss.6, above, for the Calendar Year of termination (if such
termination is at the expiration of the First Term or a Renewal Term)
or the Calendar Year immediately prior to termination (in any other
case), but only with respect to those CMI Employers and CHS Employers
who renew or maintain their business with the Company during the
one-year period immediately after such termination.
(c) Benefits comparable to the fringe benefits described in
ss.7, above, until the earlier of two years from the date of
termination or the date any such benefit is provided to the Employee by
another employer.
If the severance compensation under this section would constitute a
"parachute payment," as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), such severance compensation shall be reduced to
the largest amount as will result in no portion of the severance compensation
payments under this section being subject to the excise tax imposed by Section
4999 of the Code or being disallowed as deductions to the Company under Section
280G of the Code.
Payment of the amounts described in subsection (a), above, shall be
made within 30 days after the termination of employment and payment of the
amounts described in subsection (b), above, shall be made over a two-year period
commencing with the termination of employment, in the same manner as the Base
Salary is paid during employment.
In the event of termination of the Employee's employment by the Company
for just cause, the Employee shall be entitled to accrued compensation as
provided in subsection (a), above, and to no further compensation.
If the Employee receives severance pay in accordance with subsection
(b), above, due to a termination of employment by the Employee at the expiration
of the First Term or any Renewal Term, and if during the two-year payment period
the Employee is compensated for services rendered either for an employer or as
an independent consultant, the amount of such compensation shall be used to
offset the Company's obligations to make the severance payments under subsection
(b), above; provided, however, that the Employee shall not be obligated to seek
other employment during such two-year period. If the Employee receives severance
pay in accordance with subsection (b), above, due to any other event, the
Employee shall not be obligated to seek other employment by way of mitigation of
the amounts payable to the
6
<PAGE> 8
Employee under such subsection, nor shall the Employee's acceptance of other
employment affect the Company's obligation to make the severance payments
required under subsection (b), above.
The Employee, the Company, and Health Power are parties to an Executive
Severance Benefits Agreement dated as of August 26, 1999, as such agreement may
be hereafter amended (the "Executive Severance Benefits Agreement"). No breach
of this agreement shall occur if the Employee's employment is terminated in such
a manner that entitles him to receive benefits under the Executive Severance
Benefits Agreement. Furthermore, if the Employee receives benefits under the
Executive Severance Benefits Agreement, then such benefits shall be the
exclusive severance benefits receivable by the Employee from the Company, and
the benefits received under the Executive Severance Benefits Agreement shall
supersede and replace any and all severance benefits that the Employee may be
entitled to receive from the Company under this ss.8. The Executive Severance
Benefits Agreement shall not supersede or replace the Employee's severance
benefits that the Employee may be entitled to receive from the Company under
this ss.8 if the Employee is not entitled to receive the severance benefits
accorded to the Employee under the Executive Severance Benefits Agreement.
ss.9. Termination of Employment. The Employee's employment under this
agreement may be terminated:
(a) By the Company upon the occurrence of any event which
constitutes just cause, as defined below, or at any time thereafter.
(b) By the Employee or the Company, with or without cause, at
the end of the First Term or any Renewal Term upon giving not less than
45 days advance written notice prior to the end of the First Term or
the Renewal Term then in effect, as the case may be, provided that the
Employee shall continue to perform all services under this agreement
until the earlier of: (i) the expiration date of such 45 day period; or
(ii) any earlier date which may be specified by the Company. If the
Employee's employment is terminated pursuant to this subsection (b),
then the Employee shall be entitled to receive the severance pay and
benefits described in ss.8(b) and (c), above.
(c) By the Company for any reason other than just cause upon
the giving of written notice to the Employee. If the Employee's
employment is terminated pursuant to this subsection (c), then Employee
shall be entitled to receive the severance pay and benefits described
in ss.8(b) and (c), above.
For purposes of this agreement, "just cause" shall mean the termination
of the Employee for: (i) any act of habitual drunkenness; (ii) controlled
substance abuse; (iii) dishonesty; (iv) criminal conduct (excluding minor
traffic offenses); (v) acts of violence or willful destruction of Company
property; (vi) falsification of any Company records or withholding of any
relevant information; (vii) unethical or immoral behavior; (viii) being
intoxicated or using intoxicants (drugs) not prescribed by a physician during
working hours; (ix) theft, including unauthorized possession of Company
property; (x) failure to perform the Employee's responsibilities and duties in
accordance with the Policies and Programs of the Company or the Policies and
7
<PAGE> 9
Programs of Health Power applicable to the Company, other than any such Policies
or Programs that would require the Employee to engage in any unethical, immoral,
or criminal behavior, and failure to correct such failure within ten days after
notice from the Company (specifying the corrective actions required) to do so
or, if it is impossible to correct such failure within such ten days, failure to
commence all possible actions to correct such failure within such ten days and
thereafter to continue to pursue such actions until correction of such failure,
or having corrected any such failure, fails to so perform appropriately at any
time in the future (without the requirement of any additional notice from the
Company); (xi) failure to fully perform and observe all obligations and
conditions to be performed and observed by the Employee under this agreement, or
under any other agreement between the Employee and the Company, and failure by
the Employee to correct such failure within ten days after notice from the
Company (specifying the corrective actions required) to do so or, if it is
impossible to correct such failure within such ten days, failure to commence all
possible actions to correct such failure within such ten days and thereafter to
continue to pursue such actions until correction of such failure, or having
corrected any such failure, fails to perform and observe all such obligations
and conditions at any time in the future (without the requirement of any
additional notice from the Company); (xii) failure to fully perform and observe
all obligations and conditions to be performed and observed by the Employee
which relate to obligations and conditions to be performed and observed by the
Company under any material lease, agreement, note, or other document to which
the Company is a party, and failure of the Employee to correct such failure
within ten days after notice from the Company (specifying the corrective actions
required) to do so or, if it is impossible to correct such failure within such
ten days, failure to commence all possible actions to correct such failure
within such ten days and thereafter to continue to pursue such actions until
correction of such failure, or having so corrected any such failure, fails to
perform and observe all such obligations and conditions at any time in the
future (without the requirement of any additional notice from the Company); or
(xiii) death or long-term disability.
For purposes of this agreement, a long-term disability shall mean that:
(A)(1) because of physical or mental incapacity, it is probable, in the opinion
of a licensed physician selected by the Company and acceptable to the Employee
(or his personal representative or guardian if the Employee is incapacitated),
that the Employee will not be able to engage actively in full-time employment by
the Company for a period of 120 days or longer, or (2) the Employee is disabled
under the definition of the disability policy or policies maintained by the
Company for the benefit of the Employee; or (B) the Company selects such a
licensed physician and the Employee fails within a reasonable time to submit to
any examinations reasonably requested by that licensed physician.
ss.10. Noncompetition and Confidentiality. As part of a transaction in
which Health Power acquired all of the outstanding capital stock of CMI, the
Employee and CMI agreed to substantially the following provisions in the Prior
Employment Agreement. The Company the Employee hereby reaffirm the
noncompetition and confidentiality provisions of the Prior Employment Agreement
and, in consideration of the increase in base salary, the cash incentive bonus,
and the stock options being granted pursuant to the Management Plan, the
Employee agrees as follows:
8
<PAGE> 10
(a) The Employee shall not at any time, either during the term
of his employment with the Company or any of the other Health Power
Companies (as defined below), or after the termination of such
employment for whatever reason,
(i) Disclose to anyone (except to the extent
necessary as a benefit to the Company in the performance of
his duties and with prior written authorization by the
Company) any trade secrets or confidential information, or
(ii) Solicit or seek to employ any employee of any
Health Power Company to leave the employ of such Company, or
(iii) Solicit, recruit, or otherwise attempt to
persuade the members or providers of any Health Power Company
to leave such Company and do business with competing
organizations.
For purposes of (ii) and (iii) of this subsection, publication
of an advertisement or notice in a publication of general solicitation
shall not constitute solicitation or recruitment.
(b) During the term of such employment, whatever it may be,
and within two years following the termination of such employment for
whatever reason (the "Non-Competition Period"), the Employee agrees
that he shall not, directly or indirectly, on his own behalf, or as a
member of any partnership, or as an officer, director, shareholder,
agent, consultant, or employee of any other corporation or entity,
compete with the Company or any of the other Health Power Companies or
be engaged in, loan money or credit to, own any interest in, be
employed by or otherwise participate in any other business which
competes with the Company or any of the other Health Power Companies in
(i) Ohio or (ii) any other geographic location (A) where the Company or
any of the other Health Power Companies conducted business during the
term of the Employee's employment by the Company or (B) where the
Company or any of the other Health Power Companies, with the Employee's
knowledge, had taken documented steps toward expanding into during the
term of the Employee's employment by the Company. The foregoing shall
not be construed to prohibit the Employee from owning, directly or
indirectly, less than 5% of the securities of any class of any company
listed on a national securities exchange or traded in the
over-the-counter securities market.
(c) The Employee understands that this section is an essential
element of this agreement and that the Company would not have entered
into this agreement without this section being included in it. The
Employee has consulted with his legal counsel and has been fully
advised concerning the reasonableness and propriety of this section in
the specific context of the operations and business of the Company, and
the Employee acknowledges that this section is reasonable and
appropriate in all respects. In the event of any violation or attempted
violation of this section, the Employee specifically acknowledges and
agrees that the Company's remedy at law will be inadequate, that the
Company, its business and business relationships will suffer
irreparable injury and, therefore, the Company shall be entitled to
injunctive relief upon such breach in addition
9
<PAGE> 11
to any other remedy to which it may be entitled, either in law or in
equity, without the necessity of proof of actual damage.
(d) As used in this agreement, the terms "trade secrets" and
"confidential information" shall mean any information acquired by the
Employee in the course of his employment which is not generally known
to the public and which, if revealed to unauthorized persons, would be
detrimental to the reputation or business interests of the Company and
the other Health Power Companies and includes, but is not limited to,
any information relating to the Company's and its affiliates and
subsidiaries' business operations and structure, sales methods,
practices and techniques, technical know-how, advertising, or marketing
methods and practices, its provider relationship and membership lists
(including customer names and addresses), and the Company's and its
affiliates or subsidiaries' relationships with suppliers, providers,
and potential providers, employees, members and potential members or
other persons or entities doing business with the Company.
(e) The Non-Competition Period shall be tolled during the
period of any violation or attempted violation of this section by the
Employee, and during such period the Company shall have no obligation
to make any severance payment or provide any benefits to the Employee
pursuant to ss.8(b) and (c), above. The Company shall provide notice to
the Employee of any tolling of the Non-Competition Period.
(f) If any payment under ss.8(a) or (b), above, is not paid
when due and remains unpaid ten days after notice is given to the
Company by the Employee, a payment default shall exist. In the event of
a payment default by the Company, the Employee shall have the option to
either (i) give notice to the Company that the Employee elects not to
abide by the noncompetition provisions described in subsection (b),
above, in which case the Employee shall be automatically released from
all further obligations under subsection (b), above, and the Company
shall be automatically released from all further obligations under
ss.8(b) and (c), above, other than the Company's obligation to pay the
Employee all accrued but unpaid severance payments to the date that
such notice of election was received by the Company, or (ii) remain
obligated under the noncompetition provisions described in subsection
(b) and enforce the Company's obligations under ss.8(b) and (c), above.
Notwithstanding the foregoing, a default shall not exist under this
section if the non-payment is due to the Company exercising its rights
under subsection (e) during the period of any violation or attempted
violation of subsection (b) by the Employee.
(g) For the purposes of this agreement, the term "Health Power
Companies" shall mean Health Power and all direct and indirect
subsidiaries of Health Power, and the term "Health Power Company" shall
mean Health Power or any direct or indirect subsidiary of Health Power.
ss.11. Return of Records. Upon termination of employment, the Employee
will deliver to the Company all records, reports, data, memoranda, notes,
models, and equipment of any nature that are in the Employee's possession or
under the Employee's control prepared or
10
<PAGE> 12
acquired in the course of the Employee's employment relationship with the
Company. The Employee further agrees not to take any such information or data,
or reproductions of such information or data, that relate to the business
activities of the Company or to parties in a contract relationship with the
Company.
ss.12. Employee's Capacity. The Employee represents and warrants to the
Company that he has the capacity and right to enter into this agreement and
perform all his services under this agreement without any restriction whatsoever
by any other agreement, other document, or otherwise.
ss.13. Complete Agreement. This document and the Stock Option Agreement
contains the entire agreement between the parties concerning the subject matter
hereof and supersedes any prior discussions, negotiations, representations, or
agreements between them relating to the employment of the Employee; provided,
however, that no provisions of this agreement shall supersede or replace any
noncompetition and/or confidentiality provisions contained in the Prior
Employment Agreement, which noncompetition and confidentiality provisions are
restated in, and continued pursuant to, this agreement. No additions or other
changes to this agreement shall be made or be binding on either party unless
made in writing and signed by each party to this agreement.
ss.14. Notices. All notices and other communications required or
permitted to be given under this agreement to any party shall be in writing and
shall be deemed given when delivered personally, telecopied (which is confirmed)
to that party at the telecopy number for that party set forth below, mailed by
certified mail (return receipt requested) to the address for that party set
forth below, or delivered to Federal Express, UPS, or any similar express
delivery service for delivery to that party at the address set forth below (or
to such other address or telecopy number as any party may have furnished in
writing to the other party in the manner provided above):
(a) If to the Company:
CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attention: Chairman
Telecopy No.: (614) 790-8208
with a copy to:
Baker & Hostetler LLP
Capitol Square, Suite 2100
65 East State Street
Columbus, Ohio 43215-4260
Attention: Joseph P. Boeckman, Esq.
Facsimile No.: (614) 462-2616
11
<PAGE> 13
(b) If to the Employee
Richard T. Kurth
1956 McCoy Road
Columbus, Ohio 43220
Telecopy No.: _____________________
ss.15. Governing Law. All questions concerning the validity, intention,
or meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance hereunder shall be construed and resolved
under the laws of Ohio.
ss.16. Severability. The intention of the parties to this agreement is
to comply fully with all laws and public policies, and this agreement shall be
construed consistently with all laws and public policies to the extent possible.
If and to the extent that any court of competent jurisdictions determines that
it is impossible or violative of any legal prohibition to construe any provision
of this agreement consistently with any law, legal prohibition, or public policy
and consequently holds that provision to be invalid or prohibited, that shall in
no way affect the validity of the other provisions of this agreement which shall
remain in full force and effect.
ss.17. Nonwaiver. No failure by any party to insist upon strict
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other party shall affect, or
constitute a waiver of, the first party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the parties at variance with any provision
of this agreement affect or constitute a waiver of, any party's right to demand
strict compliance with all provisions of this agreement.
ss.18. Captions. The captions of the various sections of this agreement
are not part of the context of this agreement, but are only labels to assist in
locating those sections, and shall be ignored in construing this agreement.
12
<PAGE> 14
ss.19. Successors. This agreement shall be personal to the Employee and
no rights or obligations of the Employee under this agreement may be assigned by
him. Except as described in the preceding sentence, this agreement shall be
binding upon, inure to the benefit of, and be enforceable by and against the
respective heirs, legal representatives, successors, and assigns of each party
to this agreement. The Company and Health Power shall require any successor to
all or substantially all of the business and/or assets of the Company, whether
direct or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Employee,
expressly to assume and agree to perform this agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place. Health Power, as the sole shareholder of the
Company, has executed this agreement to evidence its agreement to be bound by
the provisions of this ss.19 and to be subject to the obligations under ss.8 of
this agreement resulting from a breach of this ss.19.
COMPMANAGEMENT, INC.
By /s/ Bernard F. Master, D.O. /s/ Richard T. Kurth
-------------------------------------- -----------------------------------
Bernard F. Master, D.O., Chairman RICHARD T. KURTH
COMPMANAGEMENT HEALTH HEALTH POWER, INC.
SYSTEMS, INC.
By /s/ Bernard F. Master, D.O. By /s/ Bernard F. Master, D.O.
-------------------------------------- ---------------------------------
Bernard F. Master, D.O., Chairman Bernard F. Master, D.O., Chairman
13
<PAGE> 1
Exhibit 10(g)
EXECUTIVE SEVERANCE BENEFITS AGREEMENT,
AMONG HEALTH POWER, INC., COMPMANAGEMENT, INC.,
COMPMANAGEMENT HEALTH SYSTEMS, INC.
AND ROBERT J. BOSSART,
DATED AS OF AUGUST 26, 1999.
<PAGE> 2
EXECUTIVE SEVERANCE BENEFITS AGREEMENT
--------------------------------------
This Executive Severance Benefits Agreement (the "Agreement") is made
as of August 26, 1999, by and among Health Power, Inc., a Delaware corporation
("Health Power"), CompManagement, Inc., an Ohio corporation ("CMI"),
CompManagement Health Systems, Inc., an Ohio Corporation ("CHS") (CMI and CHS
are collectively referred to as "CompManagement") (Health Power, CMI and CHS are
collectively referred to as the "Company"), and Robert J. Bossart (the
"Executive").
BACKGROUND INFORMATION
----------------------
A. The Executive has served the Company in the past and is expected to
continue to serve the Company as a key executive officer of CompManagement, and
to make a significant contribution to the profitability, growth and financial
strength of the Company.
B. The Company desires to provide income security to the Executive upon
the terms and subject to the conditions set forth in this Agreement, in the
event the Executive's employment with the Company is terminated prior to or
following a Change in Control, either voluntarily by the Executive for Good
Reason or involuntarily by the Company without Cause.
AGREEMENT
---------
The parties acknowledge the accuracy of the foregoing Background
Information and in consideration of the mutual promises and convenants contained
herein, hereby agree as follows:
Section 1. Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) Benefit Period - a period of twenty-four (24) months from the
Executive's Date of Termination.
(b) Cause - means (i) gross and willful misconduct by, or gross
dishonesty of, the Executive which is found to be injurious to any Company; (ii)
other willful malfeasance, gross negligence or failure to act that has or will
have a material adverse effect on the Company; (iii) a material breach by the
Executive of his noncompetition and confidentiality obligations set forth in
Section 10 of the Employment Agreement between the Executive and CMI dated as of
July 21, 1995 (the "Noncompete Agreement"), as such Noncompete Agreement may be
hereafter modified, amended, or replaced; or (iv) the conviction of the
Executive of a felony involving moral turpitude, provided that such conviction
would at the time have a material adverse effect on either Company.
(c) Change in Control - means the occurrence of any of the following
events after the date of this agreement: (i) the purchase or other acquisition
by any person, entity or group of
<PAGE> 3
persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended ("the Exchange Act") or any comparable successor
provisions), directly or indirectly, which results in the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of such
person, entity or group of persons equaling twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting securities of either
Health Power or CMI entitled to vote generally in the election of directors
("Voting Securities"), but excluding an acquisition (A) by the Company, (B) by
any employee benefit plan or related trust sponsored or maintained by the
Company, (C) by the Executive or (D) by a group including the Executive, but
only if the Executive and other executives of the Company who have entered into
similar Executive Severance Benefits Agreements control such group; or (ii) the
approval by the shareholders of Health Power of a reorganization, merger or
consolidation, with respect to which, in each case, persons who were
shareholders of Health Power immediately prior to such reorganization, merger or
consolidation do not (solely because of their Voting Securities owned
immediately prior to such reorganization, merger or consolidation) own
immediately thereafter more than 50% of the combined voting power entitled to
vote in the election of directors of the then outstanding securities or the
reorganized, merged or consolidated company; or (iii) a change in the
composition of the majority of the board of directors of Health Power within a
two-year period, which change shall not have been approved by a majority of the
persons then serving as directors immediately prior to such two-year period; or
(iv) a liquidation or dissolution of CompManagement; or (v) the sale of all or
substantially all of the assets of CompManagement.
(d) Compensation - means the monthly average of the base salary and any
cash bonus or commissions received by the Executive during the 36-month period
prior to the Executive's Date of Termination or such shorter period if the
Executive was not employed for at least 36 months.
(e) Date of Termination - means the date which is 30 days following
notice of (i) the Executive's Termination of employment for Good Reason or (ii)
Termination of the Executive's employment by the Company other than for Cause,
death or disability.
(f) Disability - means that, because of physical or mental illness,
injury or accident, it is probable, in the opinion of an independent physician
selected by the Company and reasonably acceptable to the Executive or his legal
representative, the Executive will not be able to perform his usual duties for a
period of 180 days or longer.
(g) Good Reason - means that, without the Executive's written consent,
(i) the Executive is assigned to duties materially inconsistent in any respect
with his position, authority, duties or responsibilities, or the Company takes
any other action that results in a material diminution in such position,
authority, duties or responsibilities; (ii) the Executive's base salary is
reduced for any reason other than in connection with the Termination of his
employment; (iii) the formula or other method of determining bonuses or
commissions payable to the Executive is materially changed in a manner which
causes a material reduction in the overall bonuses and commissions payable to
the Executive; (iv) the fringe benefits provided to the Executive are materially
reduced from what was provided prior to the Change in Control, unless the
Company and the Executive agree to separate compensation for any such material
reduction; (v) the relocation of the Company's principal executive offices to a
location outside the Columbus metropolitan area or the relocation of the
Executive by the Company, without his prior written
2
<PAGE> 4
consent, to any location other than the location at which the Executive
performed his duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control; (vi) there is a material
change in the kind of business engaged in by CompManagement; (vii) there is a
breach of this Agreement; or (viii) the Company fails to obtain an agreement
from any successor or assign of the Company to assume and agree to perform the
obligations of the Company under this Agreement.
(h) Termination - means the Company, or any successor or assign of the
Company, terminates the employment of the Executive for any reason other than
Cause, death or disability, or the Executive voluntarily terminates employment
with the Company or any successor or assign of the Company for Good Reason,
provided the Executive shall have no more than 90 days following the occurrence
of the event or events constituting Good Reason (as defined in subsection (g)
above) to elect to treat such event as a Termination of employment (the "Good
Reason Election"). Upon giving notice of the Good Reason Election in accordance
with Section 10 of this Agreement, the Executive shall have 30 days to actually
terminate Executive's employment with the Company. Notwithstanding the
foregoing, the Executive may voluntarily terminate employment with the Company
for any reason during the first six months following a Change in Control.
Section 2. Eligibility for Benefits
The Company agrees to pay to the Executive the benefits specified in
Section 3 if a Termination of the Executive's employment occurs within two years
after the occurrence of a Change in Control. In addition, the Company agrees to
pay to the Executive the benefits specified in Section 3 if a Termination of the
Executive's employment occurs within six months prior to the occurrence of a
Change in Control. In such case, the 90-day Good Reason Election must be made no
more than 90 days following the Change in Control.
Section 3. Benefits Upon Termination of Employment
If the Executive is entitled to benefits under Section 2 of this
Agreement, the Company shall provide the Executive with the following severance
and other benefits:
(a) Severance Benefit - The Company shall pay Executive a severance
benefit equal to continuation of the Executive's Compensation for the Benefit
Period, commencing on the Date of Termination. This severance benefit shall be
paid to Executive in accordance with the Company's standard payroll practices
for active employees beginning on the first pay date on or after the Date of
Termination and continuing to the end of the Benefit Period. During any period
of time in which Executive is receiving the severance benefit payment, Executive
shall not be required to perform any services or be physically present at any
facility of the Company or its affiliates.
(b) Other Benefits - During the Benefit Period, the Company will
continue to provide Executive with, and Executive shall continue to be entitled
to, all fringe benefits (other than continued accrual of retirement benefits),
including but not limited to group health, disability, life and other insurance
plans made available to employees of the Company, which were
3
<PAGE> 5
provided to Executive as of the Date of Termination; provided, however, that the
Company's obligation to provide any specific fringe benefit, other than life
insurance, to the Executive shall terminate as of the date such benefit is
provided to the Executive by another employer. If the Company changes the terms
of or providers for any such fringe benefits during the Benefit Period, the
benefits provided to the Executive will likewise be changed to those provided to
other employees and executives of the Company. The treatment of the severance
benefit payments to the Executive under any tax-qualified retirement plans of
the Company shall be strictly in accordance with the terms of such plans.
Notwithstanding the foregoing, should the Termination of the Executive's
employment result in a forfeiture of any nonvested interest under such
tax-qualified retirement plan maintained by the Company, the Executive shall be
entitled to an additional single lump sum severance payment, payable within 30
days of the Date of Termination, equal to the present value of the nonvested
interest forfeited under such plan.
The Company shall pay the Executive all base salary and vacation time
accruing through the Date of Termination, which amounts shall be payable within
the time periods specified by the Company's policies and procedures or as
required by law. The Company shall also pay the Executive any bonus (or a pro
rata share of any bonus dependent on annual performance criteria) which is
earned but unpaid as of the Date of Termination, which amount shall be payable
within 30 days of such date of Termination.
All outstanding stock options issued to the Executive shall become
fully vested upon a Change in Control and thereafter exercisable in accordance
with the stock option plans and agreements governing such options.
(c) Outplacement - The Company shall reimburse expenses incurred by the
Executive during the Benefit Period for outplacement services or job search
expenses, up to a maximum amount of $5,000. Reimbursable expenses under this
provision shall include the use of an executive outplacement service, including
but not limited to secretarial service and use of an office, phone, office
supplies and office services comparable to the level of such services available
to the Executive prior to the Date of Termination, and documented job search
expenses such as travel and relocation expenses, which are not reimbursed from
any other source.
(d) General Requirements and Limitations - The severance benefits under
this Agreement shall be in lieu of any other payment due to Executive under any
other contractual rights between Executive and the Company arising from or
incident to any employment agreement or other severance benefit programs of the
Company. Notwithstanding anything to the contrary, no severance benefit shall be
payable to Executive from and after the date of the Executive's material breach
of his obligations contained in the Noncompete Agreement, any such material
breach resulting in an immediate forfeiture of all future benefits otherwise
payable hereunder. Furthermore, notwithstanding any other provision hereunder,
if the Executive will incur any excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), due to any payment under this or
other agreements with the Company, then the amount payable as severance benefits
hereunder shall be reduced to equal one dollar less than three times the
Executive's "base amount" under Section 280G of the Code, reduced by the present
value of any other payments that constitute "payments" thereunder.
4
<PAGE> 6
Section 4. Term
This Agreement shall continue for a period of 24 months from the
effective date of a Change in Control of the Company. Executive shall have no
vested rights in the severance benefits provide under this Agreement until the
Company enters into a definitive agreement, binding on the respective parties,
intended to effect a Change in Control.
Section 5. No Guarantee of Employment
Nothing contained in this Agreement shall be construed as a contract of
employment or be deemed to give Executive the right to be retained in the employ
of the Company or any equity or other interest in the assets, business or
affairs of the Company. Executive shall have no security interest in assets of
the Company used to pay benefits hereunder.
Section 6. No Duty to Mitigate
The amounts payable to the Executive under this Agreement shall not be
treated as damages but as severance compensation to which the executive is
entitled by reason of Termination of employment in the circumstances
contemplated by this Agreement. The Company shall not be entitled to set off
against the amounts payable to the Executive any amounts earned by the Executive
from other employment after Termination of employment with the Company or any
amounts which might have been earned by the Executive from other employment had
such other employment been sought or accepted.
Section 7. Arbitration
Any controversy or claim relating to benefits under this Agreement or
the breach thereof shall be settled by arbitration in Columbus, Ohio, or such
other mutually agreed upon site, in accordance with the commercial rules of the
American Arbitration Association. The judgment upon the award rendered by the
board of arbitrators may be entered in any court having jurisdiction thereof and
the parties hereby consent to the jurisdiction of the Court of Common Pleas of
Franklin County, Ohio. Except as set forth in Section 8 of this Agreement, the
fees and expenses of the arbitrators incurred in connection with any arbitration
shall be paid by the Company.
A party seeking arbitration of a controversy or claim shall provide
notice of such event to all other parties (the "Arbitration Notice"). No later
than 15 days after the Arbitration Notice is given, the Company and the
Executive shall each select one person from an approved-panel of arbitrators to
serve as their designee on a three-member board of arbitrators. Such designees
shall have substantial experience in business matters. No later than 15 days
after their designation, the two members shall mutually select a third member
from the same panel of arbitrators, which person shall also have substantial
experience in business matters, and such person shall act as the chairperson of
the board of arbitrators. The board of arbitrators shall act by majority rule in
accordance with the rules and procedures set forth in Ohio Revised Code Chapter
2711, and to the extent not inconsistent with such chapter the rules and
procedures of the American Arbitration Association then in effect. The
arbitration hearing shall be commenced no later 15 days after the selection of
the third member of the board of arbitrators. To the extent
5
<PAGE> 7
possible, the arbitration hearing shall be completed within 30 days after its
commencement. Within 30 days after the completion of the arbitration hearing,
the board of arbitrators shall render a ruling on all matters submitted before
them.
Section 8. Enforcement of Agreement
The Company is aware that upon the occurrence of a Change in Control,
the Board of Directors or a shareholder of the Company may then cause or attempt
to cause the Company to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Company to institute, or may
institute litigation seeking to have this Agreement declared unenforceable, or
may take or attempt to take other action to deny the Executive the benefits
intended under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that the
Executive not be required to incur the expenses associated with the enforcement
of any rights under this Agreement by litigation or other legal action, nor be
bound to negotiate any settlement of any rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract from the
benefits intended to be extended to the Executive hereunder. Accordingly, if
following a Change in Control it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes any action to declare this
Agreement void or enforceable, or institutes any litigation or other legal
action designed to deny, diminish or to recover from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the Executive's
choice, at the expense of the Company as provided in this Section, to represent
the Executive in connection with the initiation or defense of any litigation or
other legal action, whether such action is by or against the Company or any
Director, officer, shareholder, or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by the
Executive as hereinabove provided shall be paid or reimbursed to the Executive
by the Company on a regular, periodic basis upon presentation by the Executive
of a statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount equal to 25% of the total
severance benefits payable to the Executive under Section 3(a) of this
Agreement. Any legal expenses incurred by the Company by reason of any dispute
between the parties as to enforceability of or the terms contained in this
Agreement, notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to seek
reimbursement from the Executive for such expenses.
Notwithstanding the foregoing, if upon submission of a dispute to
arbitration in accordance with Section 7 of this Agreement, the board of
arbitrators finds that the Executive was terminated for Cause, as defined in
Section 1(b), or if the board of arbitrators find that the Executive did not
have Good Reason, as defined in Section 1(g), then (a) the Company shall have no
obligation to pay or reimburse the fees and expenses of the Executive's legal
counsel,
6
<PAGE> 8
and (b) the Executive shall be responsible to pay one-half of the fees and
expenses of the arbitrators incurred in connection with such arbitration.
Section 9. Non-secured Promise
The rights of the Executive under this Agreement will be solely those
of an unsecured creditor of the Company. The benefits under this Agreement will
be paid by the Company from its general assets. Any insurance policy or any
other asset acquired or held by the Company in connection with the liabilities
assumed by it hereunder will not be deemed to be held under any trust for the
benefit of the Executive, or to be security for the performance of the
obligations of the Company, but will be, and remain, a general, unpledged,
unrestricted asset of the Company.
This Agreement is intended to constitute an unfunded or insured welfare
plan for a select group of management or highly compensated employees, within
the meaning of Department of Labor Reg. ss.2520.104-24, exempting such plans and
arrangement from the reporting and disclosure provisions of Part 1 of Title 1 of
the Employee Retirement Income Security Act of 1974, as amended.
Section 10. Notice of Termination
Any purported Termination of employment by the Company or by the
Executive shall be communicated by written notice of Termination to the other
party in accordance with the notice provisions set forth in Section 10 below.
For purposes of this Agreement, a notice of Termination shall be a notice which
indicates the specific Termination provision in this Agreement relied upon and
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for Termination of employment under the provisions so indicated.
7
<PAGE> 9
Section 11. Notices
Any notices to be given pursuant to this Agreement shall be in writing
and shall be deemed duly given three days after deposit in the mail, certified
mail, return receipt requested, to the party to receive such notice at the
address set forth below.
If to the Company:
CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attn: Chief Executive Officer
If to the Executive:
Robert J. Bossart
------------------------------
------------------------------
Either party may change its name or address for purposes of this section by
providing the other party written notice of the new name or address in the
manner set forth above.
Section 12. Other Severance Benefit Arrangements
If the Executive receives benefits under Section 3 of this Agreement,
then such benefits shall be the exclusive severance benefits receivable by the
Executive from the Company, and the benefits received under Section 3 of this
Agreement shall supersede and replace any and all other severance benefits of
any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreement.
This Agreement shall not supersede or replace the Executive's severance benefits
of any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreements now
in existence or subsequently entered into, if the Executive is not entitled to
receive the severance benefits accorded to the Executive in Sections 2 and 3 set
forth herein.
Section 13. Miscellaneous
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter of this Agreement. This Agreement supersedes
all other prior and contemporaneous understandings or agreements between the
parties with respect to the subject matter of this Agreement. This Agreement may
be amended only by a written instrument executed by each party. This Agreement
shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns, but the Executive may not assign or transfer
any right hereunder. The Company shall assign this Agreement to any corporation
or other business entity succeeding to substantially all of the business and
assets of either Health Power or CompManagement by merger, consolidation, sale
of assets, or otherwise, and shall obtain the assumption of this Agreement by
such successor. Should any provision of this Agreement be
8
<PAGE> 10
held unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall continue in full force and effect. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Ohio.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but together shall constitute one in the same document.
ROBERT J. BOSSART HEALTH POWER, INC.
/s/ Robert J. Bossart By: /s/ Bernard F. Master, D.O.
- ----------------------------- ----------------------------------
Date: 9/29/99 Its: Chairman
------------------------ ---------------------------------
Date: 10/5/99
--------------------------------
COMPMANAGEMENT HEALTH COMPMANAGEMENT, INC.
SYSTEMS, INC.
By: /s/ Randy E. Jones By: /s/ Jonathan R. Wagner
-------------------------- ----------------------------------
Its: President Its: President
------------------------ ---------------------------------
Date: 9/29/99 Date: 9/29/99
------------------------ --------------------------------
9
<PAGE> 1
Exhibit 10(h)
EXECUTIVE SEVERANCE BENEFITS AGREEMENT,
AMONG HEALTH POWER, INC., COMPMANAGEMENT, INC.,
COMPMANAGEMENT HEALTH SYSTEMS, INC. AND
JONATHAN R. WAGNER, DATED AS OF AUGUST 26, 1999
<PAGE> 2
EXECUTIVE SEVERANCE BENEFITS AGREEMENT
--------------------------------------
This Executive Severance Benefits Agreement (the "Agreement") is made
as of August 26, 1999, by and among Health Power, Inc., a Delaware corporation
("Health Power"), CompManagement, Inc., an Ohio corporation ("CMI"),
CompManagement Health Systems, Inc., an Ohio Corporation ("CHS") (CMI and CHS
are collectively referred to as "CompManagement") (Health Power, CMI and CHS are
collectively referred to as the "Company"), and Jonathan R. Wagner (the
"Executive").
BACKGROUND INFORMATION
----------------------
A. The Executive has served the Company in the past and is expected to
continue to serve the Company as a key executive officer of CompManagement, and
to make a significant contribution to the profitability, growth and financial
strength of the Company.
B. The Company desires to provide income security to the Executive upon
the terms and subject to the conditions set forth in this Agreement, in the
event the Executive's employment with the Company is terminated prior to or
following a Change in Control, either voluntarily by the Executive for Good
Reason or involuntarily by the Company without Cause.
AGREEMENT
---------
The parties acknowledge the accuracy of the foregoing Background
Information and in consideration of the mutual promises and convenants contained
herein, hereby agree as follows:
Section 1. Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) Benefit Period - a period of twenty-four (24) months from the
Executive's Date of Termination.
(b) Cause - means (i) gross and willful misconduct by, or gross
dishonesty of, the Executive which is found to be injurious to any Company; (ii)
other willful malfeasance, gross negligence or failure to act that has or will
have a material adverse effect on the Company; (iii) a material breach by the
Executive of his noncompetition and confidentiality obligations set forth in
Section 10 of the Employment Agreement between the Executive and CMI dated as of
July 21, 1995 (the "Noncompete Agreement"), as such Noncompete Agreement may be
hereafter modified, amended, or replaced; or (iv) the conviction of the
Executive of a felony involving moral turpitude, provided that such conviction
would at the time have a material adverse effect on either Company.
(c) Change in Control - means the occurrence of any of the following
events after the date of this agreement: (i) the purchase or other acquisition
by any person, entity or group of
<PAGE> 3
persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended ("the Exchange Act") or any comparable successor
provisions), directly or indirectly, which results in the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of such
person, entity or group of persons equaling twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting securities of either
Health Power or CMI entitled to vote generally in the election of directors
("Voting Securities"), but excluding an acquisition (A) by the Company, (B) by
any employee benefit plan or related trust sponsored or maintained by the
Company, (C) by the Executive or (D) by a group including the Executive, but
only if the Executive and other executives of the Company who have entered into
similar Executive Severance Benefits Agreements control such group; or (ii) the
approval by the shareholders of Health Power of a reorganization, merger or
consolidation, with respect to which, in each case, persons who were
shareholders of Health Power immediately prior to such reorganization, merger or
consolidation do not (solely because of their Voting Securities owned
immediately prior to such reorganization, merger or consolidation) own
immediately thereafter more than 50% of the combined voting power entitled to
vote in the election of directors of the then outstanding securities or the
reorganized, merged or consolidated company; or (iii) a change in the
composition of the majority of the board of directors of Health Power within a
two-year period, which change shall not have been approved by a majority of the
persons then serving as directors immediately prior to such two-year period; or
(iv) a liquidation or dissolution of CompManagement; or (v) the sale of all or
substantially all of the assets of CompManagement.
(d) Compensation - means the monthly average of the base salary and any
cash bonus or commissions received by the Executive during the 36-month period
prior to the Executive's Date of Termination or such shorter period if the
Executive was not employed for at least 36 months.
(e) Date of Termination - means the date which is 30 days following
notice of (i) the Executive's Termination of employment for Good Reason or (ii)
Termination of the Executive's employment by the Company other than for Cause,
death or disability.
(f) Disability - means that, because of physical or mental illness,
injury or accident, it is probable, in the opinion of an independent physician
selected by the Company and reasonably acceptable to the Executive or his legal
representative, the Executive will not be able to perform his usual duties for a
period of 180 days or longer.
(g) Good Reason - means that, without the Executive's written consent,
(i) the Executive is assigned to duties materially inconsistent in any respect
with his position, authority, duties or responsibilities, or the Company takes
any other action that results in a material diminution in such position,
authority, duties or responsibilities; (ii) the Executive's base salary is
reduced for any reason other than in connection with the Termination of his
employment; (iii) the formula or other method of determining bonuses or
commissions payable to the Executive is materially changed in a manner which
causes a material reduction in the overall bonuses and commissions payable to
the Executive; (iv) the fringe benefits provided to the Executive are materially
reduced from what was provided prior to the Change in Control, unless the
Company and the Executive agree to separate compensation for any such material
reduction; (v) the relocation of the Company's principal executive offices to a
location outside the Columbus metropolitan area or the relocation of the
Executive by the Company, without his prior written
2
<PAGE> 4
consent, to any location other than the location at which the Executive
performed his duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control; (vi) there is a material
change in the kind of business engaged in by CompManagement; (vii) there is a
breach of this Agreement; or (viii) the Company fails to obtain an agreement
from any successor or assign of the Company to assume and agree to perform the
obligations of the Company under this Agreement.
(h) Termination - means the Company, or any successor or assign of the
Company, terminates the employment of the Executive for any reason other than
Cause, death or disability, or the Executive voluntarily terminates employment
with the Company or any successor or assign of the Company for Good Reason,
provided the Executive shall have no more than 90 days following the occurrence
of the event or events constituting Good Reason (as defined in subsection (g)
above) to elect to treat such event as a Termination of employment (the "Good
Reason Election"). Upon giving notice of the Good Reason Election in accordance
with Section 10 of this Agreement, the Executive shall have 30 days to actually
terminate Executive's employment with the Company. Notwithstanding the
foregoing, the Executive may voluntarily terminate employment with the Company
for any reason during the first six months following a Change in Control.
Section 2. Eligibility for Benefits
The Company agrees to pay to the Executive the benefits specified in
Section 3 if a Termination of the Executive's employment occurs within two years
after the occurrence of a Change in Control. In addition, the Company agrees to
pay to the Executive the benefits specified in Section 3 if a Termination of the
Executive's employment occurs within six months prior to the occurrence of a
Change in Control. In such case, the 90-day Good Reason Election must be made no
more than 90 days following the Change in Control.
Section 3. Benefits Upon Termination of Employment
If the Executive is entitled to benefits under Section 2 of this
Agreement, the Company shall provide the Executive with the following severance
and other benefits:
(a) Severance Benefit - The Company shall pay Executive a severance
benefit equal to continuation of the Executive's Compensation for the Benefit
Period, commencing on the Date of Termination. This severance benefit shall be
paid to Executive in accordance with the Company's standard payroll practices
for active employees beginning on the first pay date on or after the Date of
Termination and continuing to the end of the Benefit Period. During any period
of time in which Executive is receiving the severance benefit payment, Executive
shall not be required to perform any services or be physically present at any
facility of the Company or its affiliates.
(b) Other Benefits - During the Benefit Period, the Company will
continue to provide Executive with, and Executive shall continue to be entitled
to, all fringe benefits (other than continued accrual of retirement benefits),
including but not limited to group health, disability, life and other insurance
plans made available to employees of the Company, which were
3
<PAGE> 5
provided to Executive as of the Date of Termination; provided, however, that the
Company's obligation to provide any specific fringe benefit, other than life
insurance, to the Executive shall terminate as of the date such benefit is
provided to the Executive by another employer. If the Company changes the terms
of or providers for any such fringe benefits during the Benefit Period, the
benefits provided to the Executive will likewise be changed to those provided to
other employees and executives of the Company. The treatment of the severance
benefit payments to the Executive under any tax-qualified retirement plans of
the Company shall be strictly in accordance with the terms of such plans.
Notwithstanding the foregoing, should the Termination of the Executive's
employment result in a forfeiture of any nonvested interest under such
tax-qualified retirement plan maintained by the Company, the Executive shall be
entitled to an additional single lump sum severance payment, payable within 30
days of the Date of Termination, equal to the present value of the nonvested
interest forfeited under such plan.
The Company shall pay the Executive all base salary and vacation time
accruing through the Date of Termination, which amounts shall be payable within
the time periods specified by the Company's policies and procedures or as
required by law. The Company shall also pay the Executive any bonus (or a pro
rata share of any bonus dependent on annual performance criteria) which is
earned but unpaid as of the Date of Termination, which amount shall be payable
within 30 days of such date of Termination.
All outstanding stock options issued to the Executive shall become
fully vested upon a Change in Control and thereafter exercisable in accordance
with the stock option plans and agreements governing such options.
(c) Outplacement - The Company shall reimburse expenses incurred by the
Executive during the Benefit Period for outplacement services or job search
expenses, up to a maximum amount of $5,000. Reimbursable expenses under this
provision shall include the use of an executive outplacement service, including
but not limited to secretarial service and use of an office, phone, office
supplies and office services comparable to the level of such services available
to the Executive prior to the Date of Termination, and documented job search
expenses such as travel and relocation expenses, which are not reimbursed from
any other source.
(d) General Requirements and Limitations - The severance benefits under
this Agreement shall be in lieu of any other payment due to Executive under any
other contractual rights between Executive and the Company arising from or
incident to any employment agreement or other severance benefit programs of the
Company. Notwithstanding anything to the contrary, no severance benefit shall be
payable to Executive from and after the date of the Executive's material breach
of his obligations contained in the Noncompete Agreement, any such material
breach resulting in an immediate forfeiture of all future benefits otherwise
payable hereunder. Furthermore, notwithstanding any other provision hereunder,
if the Executive will incur any excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), due to any payment under this or
other agreements with the Company, then the amount payable as severance benefits
hereunder shall be reduced to equal one dollar less than three times the
Executive's "base amount" under Section 280G of the Code, reduced by the present
value of any other payments that constitute "payments" thereunder.
4
<PAGE> 6
Section 4. Term
This Agreement shall continue for a period of 24 months from the
effective date of a Change in Control of the Company. Executive shall have no
vested rights in the severance benefits provide under this Agreement until the
Company enters into a definitive agreement, binding on the respective parties,
intended to effect a Change in Control.
Section 5. No Guarantee of Employment
Nothing contained in this Agreement shall be construed as a contract of
employment or be deemed to give Executive the right to be retained in the employ
of the Company or any equity or other interest in the assets, business or
affairs of the Company. Executive shall have no security interest in assets of
the Company used to pay benefits hereunder.
Section 6. No Duty to Mitigate
The amounts payable to the Executive under this Agreement shall not be
treated as damages but as severance compensation to which the executive is
entitled by reason of Termination of employment in the circumstances
contemplated by this Agreement. The Company shall not be entitled to set off
against the amounts payable to the Executive any amounts earned by the Executive
from other employment after Termination of employment with the Company or any
amounts which might have been earned by the Executive from other employment had
such other employment been sought or accepted.
Section 7. Arbitration
Any controversy or claim relating to benefits under this Agreement or
the breach thereof shall be settled by arbitration in Columbus, Ohio, or such
other mutually agreed upon site, in accordance with the commercial rules of the
American Arbitration Association. The judgment upon the award rendered by the
board of arbitrators may be entered in any court having jurisdiction thereof and
the parties hereby consent to the jurisdiction of the Court of Common Pleas of
Franklin County, Ohio. Except as set forth in Section 8 of this Agreement, the
fees and expenses of the arbitrators incurred in connection with any arbitration
shall be paid by the Company.
A party seeking arbitration of a controversy or claim shall provide
notice of such event to all other parties (the "Arbitration Notice"). No later
than 15 days after the Arbitration Notice is given, the Company and the
Executive shall each select one person from an approved-panel of arbitrators to
serve as their designee on a three-member board of arbitrators. Such designees
shall have substantial experience in business matters. No later than 15 days
after their designation, the two members shall mutually select a third member
from the same panel of arbitrators, which person shall also have substantial
experience in business matters, and such person shall act as the chairperson of
the board of arbitrators. The board of arbitrators shall act by majority rule in
accordance with the rules and procedures set forth in Ohio Revised Code Chapter
2711, and to the extent not inconsistent with such chapter the rules and
procedures of the American Arbitration Association then in effect. The
arbitration hearing shall be commenced no later 15 days after the selection of
the third member of the board of arbitrators. To the extent
5
<PAGE> 7
possible, the arbitration hearing shall be completed within 30 days after its
commencement. Within 30 days after the completion of the arbitration hearing,
the board of arbitrators shall render a ruling on all matters submitted before
them.
Section 8. Enforcement of Agreement
The Company is aware that upon the occurrence of a Change in Control,
the Board of Directors or a shareholder of the Company may then cause or attempt
to cause the Company to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Company to institute, or may
institute litigation seeking to have this Agreement declared unenforceable, or
may take or attempt to take other action to deny the Executive the benefits
intended under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that the
Executive not be required to incur the expenses associated with the enforcement
of any rights under this Agreement by litigation or other legal action, nor be
bound to negotiate any settlement of any rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract from the
benefits intended to be extended to the Executive hereunder. Accordingly, if
following a Change in Control it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes any action to declare this
Agreement void or enforceable, or institutes any litigation or other legal
action designed to deny, diminish or to recover from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the Executive's
choice, at the expense of the Company as provided in this Section, to represent
the Executive in connection with the initiation or defense of any litigation or
other legal action, whether such action is by or against the Company or any
Director, officer, shareholder, or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by the
Executive as hereinabove provided shall be paid or reimbursed to the Executive
by the Company on a regular, periodic basis upon presentation by the Executive
of a statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount equal to 25% of the total
severance benefits payable to the Executive under Section 3(a) of this
Agreement. Any legal expenses incurred by the Company by reason of any dispute
between the parties as to enforceability of or the terms contained in this
Agreement, notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to seek
reimbursement from the Executive for such expenses.
Notwithstanding the foregoing, if upon submission of a dispute to
arbitration in accordance with Section 7 of this Agreement, the board of
arbitrators finds that the Executive was terminated for Cause, as defined in
Section 1(b), or if the board of arbitrators find that the Executive did not
have Good Reason, as defined in Section 1(g), then (a) the Company shall have no
obligation to pay or reimburse the fees and expenses of the Executive's legal
counsel,
6
<PAGE> 8
and (b) the Executive shall be responsible to pay one-half of the fees and
expenses of the arbitrators incurred in connection with such arbitration.
Section 9. Non-secured Promise
The rights of the Executive under this Agreement will be solely those
of an unsecured creditor of the Company. The benefits under this Agreement will
be paid by the Company from its general assets. Any insurance policy or any
other asset acquired or held by the Company in connection with the liabilities
assumed by it hereunder will not be deemed to be held under any trust for the
benefit of the Executive, or to be security for the performance of the
obligations of the Company, but will be, and remain, a general, unpledged,
unrestricted asset of the Company.
This Agreement is intended to constitute an unfunded or insured welfare
plan for a select group of management or highly compensated employees, within
the meaning of Department of Labor Reg. ss.2520.104-24, exempting such plans and
arrangement from the reporting and disclosure provisions of Part 1 of Title 1 of
the Employee Retirement Income Security Act of 1974, as amended.
Section 10. Notice of Termination
Any purported Termination of employment by the Company or by the
Executive shall be communicated by written notice of Termination to the other
party in accordance with the notice provisions set forth in Section 10 below.
For purposes of this Agreement, a notice of Termination shall be a notice which
indicates the specific Termination provision in this Agreement relied upon and
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for Termination of employment under the provisions so indicated.
7
<PAGE> 9
Section 11. Notices
Any notices to be given pursuant to this Agreement shall be in writing
and shall be deemed duly given three days after deposit in the mail, certified
mail, return receipt requested, to the party to receive such notice at the
address set forth below.
If to the Company:
CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attn: Chief Executive Officer
If to the Executive:
Jonathan R. Wagner
--------------------------------
--------------------------------
Either party may change its name or address for purposes of this section by
providing the other party written notice of the new name or address in the
manner set forth above.
Section 12. Other Severance Benefit Arrangements
If the Executive receives benefits under Section 3 of this Agreement,
then such benefits shall be the exclusive severance benefits receivable by the
Executive from the Company, and the benefits received under Section 3 of this
Agreement shall supersede and replace any and all other severance benefits of
any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreement.
This Agreement shall not supersede or replace the Executive's severance benefits
of any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreements now
in existence or subsequently entered into, if the Executive is not entitled to
receive the severance benefits accorded to the Executive in Sections 2 and 3 set
forth herein.
Section 13. Miscellaneous
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter of this Agreement. This Agreement supersedes
all other prior and contemporaneous understandings or agreements between the
parties with respect to the subject matter of this Agreement. This Agreement may
be amended only by a written instrument executed by each party. This Agreement
shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns, but the Executive may not assign or transfer
any right hereunder. The Company shall assign this Agreement to any corporation
or other business entity succeeding to substantially all of the business and
assets of either Health Power or CompManagement by merger, consolidation, sale
of assets, or otherwise, and shall obtain the assumption of this Agreement by
such successor. Should any provision of this Agreement be
8
<PAGE> 10
held unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall continue in full force and effect. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Ohio.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but together shall constitute one in the same document.
JONATHAN R. WAGNER HEALTH POWER, INC.
/s/ Jonathan R. Wagner By: /s/ Bernard F. Master, D.O.
- ------------------------------------ ---------------------------------
Date: 10/11/99 Its: Chairman
------------------------------- --------------------------------
Date: 10/15/99
-------------------------------
COMPMANAGEMENT HEALTH COMPMANAGEMENT, INC.
SYSTEMS, INC.
By: /s/ Robert J. Bossart By: /s/ Robert J. Bossart
--------------------------------- ---------------------------------
Its: CEO Its: CEO
-------------------------------- --------------------------------
Date: 10/13/99 Date: 10/13/99
------------------------------- -------------------------------
9
<PAGE> 1
Exhibit 10(i)
EXECUTIVE SEVERANCE BENEFITS AGREEMENT,
AMONG HEALTH POWER, INC., COMPMANAGEMENT, INC.,
COMPMANAGEMENT HEALTH SYSTEMS, INC. AND
RICHARD T. KURTH, DATED AS OF AUGUST 26, 1999
<PAGE> 2
EXECUTIVE SEVERANCE BENEFITS AGREEMENT
--------------------------------------
This Executive Severance Benefits Agreement (the "Agreement") is made
as of August 26, 1999, by and among Health Power, Inc., a Delaware corporation
("Health Power"), CompManagement, Inc., an Ohio corporation ("CMI"),
CompManagement Health Systems, Inc., an Ohio Corporation ("CHS") (CMI and CHS
are collectively referred to as "CompManagement") (Health Power, CMI and CHS are
collectively referred to as the "Company"), and Richard T. Kurth (the
"Executive").
BACKGROUND INFORMATION
----------------------
A. The Executive has served the Company in the past and is expected to
continue to serve the Company as a key executive officer of CompManagement, and
to make a significant contribution to the profitability, growth and financial
strength of the Company.
B. The Company desires to provide income security to the Executive upon
the terms and subject to the conditions set forth in this Agreement, in the
event the Executive's employment with the Company is terminated prior to or
following a Change in Control, either voluntarily by the Executive for Good
Reason or involuntarily by the Company without Cause.
AGREEMENT
---------
The parties acknowledge the accuracy of the foregoing Background
Information and in consideration of the mutual promises and convenants contained
herein, hereby agree as follows:
Section 1. Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) Benefit Period - a period of twenty-four (24) months from the
Executive's Date of Termination.
(b) Cause - means (i) gross and willful misconduct by, or gross
dishonesty of, the Executive which is found to be injurious to any Company; (ii)
other willful malfeasance, gross negligence or failure to act that has or will
have a material adverse effect on the Company; (iii) a material breach by the
Executive of his noncompetition and confidentiality obligations set forth in
Section 10 of the Employment Agreement between the Executive and CMI dated as of
July 21, 1995 (the "Noncompete Agreement"), as such Noncompete Agreement may be
hereafter modified, amended, or replaced; or (iv) the conviction of the
Executive of a felony involving moral turpitude, provided that such conviction
would at the time have a material adverse effect on either Company.
(c) Change in Control - means the occurrence of any of the following
events after the date of this agreement: (i) the purchase or other acquisition
by any person, entity or group of
<PAGE> 3
persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended ("the Exchange Act") or any comparable successor
provisions), directly or indirectly, which results in the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of such
person, entity or group of persons equaling twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting securities of either
Health Power or CMI entitled to vote generally in the election of directors
("Voting Securities"), but excluding an acquisition (A) by the Company, (B) by
any employee benefit plan or related trust sponsored or maintained by the
Company, (C) by the Executive or (D) by a group including the Executive, but
only if the Executive and other executives of the Company who have entered into
similar Executive Severance Benefits Agreements control such group; or (ii) the
approval by the shareholders of Health Power of a reorganization, merger or
consolidation, with respect to which, in each case, persons who were
shareholders of Health Power immediately prior to such reorganization, merger or
consolidation do not (solely because of their Voting Securities owned
immediately prior to such reorganization, merger or consolidation) own
immediately thereafter more than 50% of the combined voting power entitled to
vote in the election of directors of the then outstanding securities or the
reorganized, merged or consolidated company; or (iii) a change in the
composition of the majority of the board of directors of Health Power within a
two-year period, which change shall not have been approved by a majority of the
persons then serving as directors immediately prior to such two-year period; or
(iv) a liquidation or dissolution of CompManagement; or (v) the sale of all or
substantially all of the assets of CompManagement.
(d) Compensation - means the monthly average of the base salary and any
cash bonus or commissions received by the Executive during the 36-month period
prior to the Executive's Date of Termination or such shorter period if the
Executive was not employed for at least 36 months.
(e) Date of Termination - means the date which is 30 days following
notice of (i) the Executive's Termination of employment for Good Reason or (ii)
Termination of the Executive's employment by the Company other than for Cause,
death or disability.
(f) Disability - means that, because of physical or mental illness,
injury or accident, it is probable, in the opinion of an independent physician
selected by the Company and reasonably acceptable to the Executive or his legal
representative, the Executive will not be able to perform his usual duties for a
period of 180 days or longer.
(g) Good Reason - means that, without the Executive's written consent,
(i) the Executive is assigned to duties materially inconsistent in any respect
with his position, authority, duties or responsibilities, or the Company takes
any other action that results in a material diminution in such position,
authority, duties or responsibilities; (ii) the Executive's base salary is
reduced for any reason other than in connection with the Termination of his
employment; (iii) the formula or other method of determining bonuses or
commissions payable to the Executive is materially changed in a manner which
causes a material reduction in the overall bonuses and commissions payable to
the Executive; (iv) the fringe benefits provided to the Executive are materially
reduced from what was provided prior to the Change in Control, unless the
Company and the Executive agree to separate compensation for any such material
reduction; (v) the relocation of the Company's principal executive offices to a
location outside the Columbus metropolitan area or the relocation of the
Executive by the Company, without his prior written
2
<PAGE> 4
consent, to any location other than the location at which the Executive
performed his duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control; (vi) there is a material
change in the kind of business engaged in by CompManagement; (vii) there is a
breach of this Agreement; or (viii) the Company fails to obtain an agreement
from any successor or assign of the Company to assume and agree to perform the
obligations of the Company under this Agreement.
(h) Termination - means the Company, or any successor or assign of the
Company, terminates the employment of the Executive for any reason other than
Cause, death or disability, or the Executive voluntarily terminates employment
with the Company or any successor or assign of the Company for Good Reason,
provided the Executive shall have no more than 90 days following the occurrence
of the event or events constituting Good Reason (as defined in subsection (g)
above) to elect to treat such event as a Termination of employment (the "Good
Reason Election"). Upon giving notice of the Good Reason Election in accordance
with Section 10 of this Agreement, the Executive shall have 30 days to actually
terminate Executive's employment with the Company. Notwithstanding the
foregoing, the Executive may voluntarily terminate employment with the Company
for any reason during the first six months following a Change in Control.
Section 2. Eligibility for Benefits
The Company agrees to pay to the Executive the benefits specified in
Section 3 if a Termination of the Executive's employment occurs within two years
after the occurrence of a Change in Control. In addition, the Company agrees to
pay to the Executive the benefits specified in Section 3 if a Termination of the
Executive's employment occurs within six months prior to the occurrence of a
Change in Control. In such case, the 90-day Good Reason Election must be made no
more than 90 days following the Change in Control.
Section 3. Benefits Upon Termination of Employment
If the Executive is entitled to benefits under Section 2 of this
Agreement, the Company shall provide the Executive with the following severance
and other benefits:
(a) Severance Benefit - The Company shall pay Executive a severance
benefit equal to continuation of the Executive's Compensation for the Benefit
Period, commencing on the Date of Termination. This severance benefit shall be
paid to Executive in accordance with the Company's standard payroll practices
for active employees beginning on the first pay date on or after the Date of
Termination and continuing to the end of the Benefit Period. During any period
of time in which Executive is receiving the severance benefit payment, Executive
shall not be required to perform any services or be physically present at any
facility of the Company or its affiliates.
(b) Other Benefits - During the Benefit Period, the Company will
continue to provide Executive with, and Executive shall continue to be entitled
to, all fringe benefits (other than continued accrual of retirement benefits),
including but not limited to group health, disability, life and other insurance
plans made available to employees of the Company, which were
3
<PAGE> 5
provided to Executive as of the Date of Termination; provided, however, that the
Company's obligation to provide any specific fringe benefit, other than life
insurance, to the Executive shall terminate as of the date such benefit is
provided to the Executive by another employer. If the Company changes the terms
of or providers for any such fringe benefits during the Benefit Period, the
benefits provided to the Executive will likewise be changed to those provided to
other employees and executives of the Company. The treatment of the severance
benefit payments to the Executive under any tax-qualified retirement plans of
the Company shall be strictly in accordance with the terms of such plans.
Notwithstanding the foregoing, should the Termination of the Executive's
employment result in a forfeiture of any nonvested interest under such
tax-qualified retirement plan maintained by the Company, the Executive shall be
entitled to an additional single lump sum severance payment, payable within 30
days of the Date of Termination, equal to the present value of the nonvested
interest forfeited under such plan.
The Company shall pay the Executive all base salary and vacation time
accruing through the Date of Termination, which amounts shall be payable within
the time periods specified by the Company's policies and procedures or as
required by law. The Company shall also pay the Executive any bonus (or a pro
rata share of any bonus dependent on annual performance criteria) which is
earned but unpaid as of the Date of Termination, which amount shall be payable
within 30 days of such date of Termination.
All outstanding stock options issued to the Executive shall become
fully vested upon a Change in Control and thereafter exercisable in accordance
with the stock option plans and agreements governing such options.
(c) Outplacement - The Company shall reimburse expenses incurred by the
Executive during the Benefit Period for outplacement services or job search
expenses, up to a maximum amount of $5,000. Reimbursable expenses under this
provision shall include the use of an executive outplacement service, including
but not limited to secretarial service and use of an office, phone, office
supplies and office services comparable to the level of such services available
to the Executive prior to the Date of Termination, and documented job search
expenses such as travel and relocation expenses, which are not reimbursed from
any other source.
(d) General Requirements and Limitations - The severance benefits under
this Agreement shall be in lieu of any other payment due to Executive under any
other contractual rights between Executive and the Company arising from or
incident to any employment agreement or other severance benefit programs of the
Company. Notwithstanding anything to the contrary, no severance benefit shall be
payable to Executive from and after the date of the Executive's material breach
of his obligations contained in the Noncompete Agreement, any such material
breach resulting in an immediate forfeiture of all future benefits otherwise
payable hereunder. Furthermore, notwithstanding any other provision hereunder,
if the Executive will incur any excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), due to any payment under this or
other agreements with the Company, then the amount payable as severance benefits
hereunder shall be reduced to equal one dollar less than three times the
Executive's "base amount" under Section 280G of the Code, reduced by the present
value of any other payments that constitute "payments" thereunder.
4
<PAGE> 6
Section 4. Term
This Agreement shall continue for a period of 24 months from the
effective date of a Change in Control of the Company. Executive shall have no
vested rights in the severance benefits provide under this Agreement until the
Company enters into a definitive agreement, binding on the respective parties,
intended to effect a Change in Control.
Section 5. No Guarantee of Employment
Nothing contained in this Agreement shall be construed as a contract of
employment or be deemed to give Executive the right to be retained in the employ
of the Company or any equity or other interest in the assets, business or
affairs of the Company. Executive shall have no security interest in assets of
the Company used to pay benefits hereunder.
Section 6. No Duty to Mitigate
The amounts payable to the Executive under this Agreement shall not be
treated as damages but as severance compensation to which the executive is
entitled by reason of Termination of employment in the circumstances
contemplated by this Agreement. The Company shall not be entitled to set off
against the amounts payable to the Executive any amounts earned by the Executive
from other employment after Termination of employment with the Company or any
amounts which might have been earned by the Executive from other employment had
such other employment been sought or accepted.
Section 7. Arbitration
Any controversy or claim relating to benefits under this Agreement or
the breach thereof shall be settled by arbitration in Columbus, Ohio, or such
other mutually agreed upon site, in accordance with the commercial rules of the
American Arbitration Association. The judgment upon the award rendered by the
board of arbitrators may be entered in any court having jurisdiction thereof and
the parties hereby consent to the jurisdiction of the Court of Common Pleas of
Franklin County, Ohio. Except as set forth in Section 8 of this Agreement, the
fees and expenses of the arbitrators incurred in connection with any arbitration
shall be paid by the Company.
A party seeking arbitration of a controversy or claim shall provide
notice of such event to all other parties (the "Arbitration Notice"). No later
than 15 days after the Arbitration Notice is given, the Company and the
Executive shall each select one person from an approved-panel of arbitrators to
serve as their designee on a three-member board of arbitrators. Such designees
shall have substantial experience in business matters. No later than 15 days
after their designation, the two members shall mutually select a third member
from the same panel of arbitrators, which person shall also have substantial
experience in business matters, and such person shall act as the chairperson of
the board of arbitrators. The board of arbitrators shall act by majority rule in
accordance with the rules and procedures set forth in Ohio Revised Code Chapter
2711, and to the extent not inconsistent with such chapter the rules and
procedures of the American Arbitration Association then in effect. The
arbitration hearing shall be commenced no later 15 days after the selection of
the third member of the board of arbitrators. To the extent
5
<PAGE> 7
possible, the arbitration hearing shall be completed within 30 days after its
commencement. Within 30 days after the completion of the arbitration hearing,
the board of arbitrators shall render a ruling on all matters submitted before
them.
Section 8. Enforcement of Agreement
The Company is aware that upon the occurrence of a Change in Control,
the Board of Directors or a shareholder of the Company may then cause or attempt
to cause the Company to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Company to institute, or may
institute litigation seeking to have this Agreement declared unenforceable, or
may take or attempt to take other action to deny the Executive the benefits
intended under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that the
Executive not be required to incur the expenses associated with the enforcement
of any rights under this Agreement by litigation or other legal action, nor be
bound to negotiate any settlement of any rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract from the
benefits intended to be extended to the Executive hereunder. Accordingly, if
following a Change in Control it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes any action to declare this
Agreement void or enforceable, or institutes any litigation or other legal
action designed to deny, diminish or to recover from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the Executive's
choice, at the expense of the Company as provided in this Section, to represent
the Executive in connection with the initiation or defense of any litigation or
other legal action, whether such action is by or against the Company or any
Director, officer, shareholder, or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by the
Executive as hereinabove provided shall be paid or reimbursed to the Executive
by the Company on a regular, periodic basis upon presentation by the Executive
of a statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount equal to 25% of the total
severance benefits payable to the Executive under Section 3(a) of this
Agreement. Any legal expenses incurred by the Company by reason of any dispute
between the parties as to enforceability of or the terms contained in this
Agreement, notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to seek
reimbursement from the Executive for such expenses.
Notwithstanding the foregoing, if upon submission of a dispute to
arbitration in accordance with Section 7 of this Agreement, the board of
arbitrators finds that the Executive was terminated for Cause, as defined in
Section 1(b), or if the board of arbitrators find that the Executive did not
have Good Reason, as defined in Section 1(g), then (a) the Company shall have no
obligation to pay or reimburse the fees and expenses of the Executive's legal
counsel,
6
<PAGE> 8
and (b) the Executive shall be responsible to pay one-half of the fees and
expenses of the arbitrators incurred in connection with such arbitration.
Section 9. Non-secured Promise
The rights of the Executive under this Agreement will be solely those
of an unsecured creditor of the Company. The benefits under this Agreement will
be paid by the Company from its general assets. Any insurance policy or any
other asset acquired or held by the Company in connection with the liabilities
assumed by it hereunder will not be deemed to be held under any trust for the
benefit of the Executive, or to be security for the performance of the
obligations of the Company, but will be, and remain, a general, unpledged,
unrestricted asset of the Company.
This Agreement is intended to constitute an unfunded or insured welfare
plan for a select group of management or highly compensated employees, within
the meaning of Department of Labor Reg. ss.2520.104-24, exempting such plans and
arrangement from the reporting and disclosure provisions of Part 1 of Title 1 of
the Employee Retirement Income Security Act of 1974, as amended.
Section 10. Notice of Termination
Any purported Termination of employment by the Company or by the
Executive shall be communicated by written notice of Termination to the other
party in accordance with the notice provisions set forth in Section 10 below.
For purposes of this Agreement, a notice of Termination shall be a notice which
indicates the specific Termination provision in this Agreement relied upon and
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for Termination of employment under the provisions so indicated.
7
<PAGE> 9
Section 11. Notices
Any notices to be given pursuant to this Agreement shall be in writing
and shall be deemed duly given three days after deposit in the mail, certified
mail, return receipt requested, to the party to receive such notice at the
address set forth below.
If to the Company:
CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attn: Chief Executive Officer
If to the Executive:
Richard T. Kurth
---------------------------------
---------------------------------
Either party may change its name or address for purposes of this section by
providing the other party written notice of the new name or address in the
manner set forth above.
Section 12. Other Severance Benefit Arrangements
If the Executive receives benefits under Section 3 of this Agreement,
then such benefits shall be the exclusive severance benefits receivable by the
Executive from the Company, and the benefits received under Section 3 of this
Agreement shall supersede and replace any and all other severance benefits of
any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreement.
This Agreement shall not supersede or replace the Executive's severance benefits
of any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreements now
in existence or subsequently entered into, if the Executive is not entitled to
receive the severance benefits accorded to the Executive in Sections 2 and 3 set
forth herein.
Section 13. Miscellaneous
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter of this Agreement. This Agreement supersedes
all other prior and contemporaneous understandings or agreements between the
parties with respect to the subject matter of this Agreement. This Agreement may
be amended only by a written instrument executed by each party. This Agreement
shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns, but the Executive may not assign or transfer
any right hereunder. The Company shall assign this Agreement to any corporation
or other business entity succeeding to substantially all of the business and
assets of either Health Power or CompManagement by merger, consolidation, sale
of assets, or otherwise, and shall obtain the assumption of this Agreement by
such successor. Should any provision of this Agreement be
8
<PAGE> 10
held unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall continue in full force and effect. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Ohio.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but together shall constitute one in the same document.
RICHARD T. KURTH HEALTH POWER, INC.
/s/ Richard T. Kurth By: /s/ Bernard F. Master, D.O.
- ------------------------------------ --------------------------------
Date: 10/1/99 Its: Chairman
------------------------------- -------------------------------
Date: 11/5/99
-------------------------------
COMPMANAGEMENT HEALTH COMPMANAGEMENT, INC.
SYSTEMS, INC.
By: /s/ Robert J. Bossart By: /s/ Robert J. Bossart
--------------------------------- --------------------------------
Its: CEO Its: CEO
------------------------------- -------------------------------
Date: 9/29/99 Date: 9/29/99
------------------------------- -------------------------------
9
<PAGE> 1
Exhibit 10(j)
EXECUTIVE SEVERANCE BENEFITS AGREEMENT,
AMONG HEALTH POWER, INC., COMPMANAGEMENT, INC.,
COMPMANAGEMENT HEALTH SYSTEMS, INC. AND
DANIEL R. SULLIVAN, DATED AS OF AUGUST 26, 1999
<PAGE> 2
EXECUTIVE SEVERANCE BENEFITS AGREEMENT
--------------------------------------
This Executive Severance Benefits Agreement (the "Agreement") is made
as of August 26, 1999, by and among Health Power, Inc., a Delaware corporation
("Health Power"), CompManagement, Inc., an Ohio corporation ("CMI"),
CompManagement Health Systems, Inc., an Ohio Corporation ("CHS") (CMI and CHS
are collectively referred to as "CompManagement") (Health Power, CMI and CHS are
collectively referred to as the "Company"), and Daniel R. Sullivan (the
"Executive").
BACKGROUND INFORMATION
----------------------
A. The Executive has served the Company in the past and is expected to
continue to serve the Company as a key executive officer of CompManagement, and
to make a significant contribution to the profitability, growth and financial
strength of the Company.
B. The Company desires to provide income security to the Executive upon
the terms and subject to the conditions set forth in this Agreement, in the
event the Executive's employment with the Company is terminated prior to or
following a Change in Control, either voluntarily by the Executive for Good
Reason or involuntarily by the Company without Cause.
AGREEMENT
---------
The parties acknowledge the accuracy of the foregoing Background
Information and in consideration of the mutual promises and convenants contained
herein, hereby agree as follows:
Section 1. Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) Benefit Period - a period of twenty-four (24) months from the
Executive's Date of Termination.
(b) Cause - means (i) gross and willful misconduct by, or gross
dishonesty of, the Executive which is found to be injurious to any Company; (ii)
other willful malfeasance, gross negligence or failure to act that has or will
have a material adverse effect on the Company; (iii) a material breach by the
Executive of his obligations under the Confidentiality and Noncompetition
Agreement between the Executive and CMI dated as of August 26, 1999 (the
"Noncompete Agreement"), as such Noncompete Agreement may be hereafter modified,
amended, or replaced; or (iv) the conviction of the Executive of a felony
involving moral turpitude, provided that such conviction would at the time have
a material adverse effect on either Company.
(c) Change in Control - means the occurrence of any of the following
events after the date of this agreement: (i) the purchase or other acquisition
by any person, entity or group of
<PAGE> 3
persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended ("the Exchange Act") or any comparable successor
provisions), directly or indirectly, which results in the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of such
person, entity or group of persons equaling twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting securities of either
Health Power or CMI entitled to vote generally in the election of directors
("Voting Securities"), but excluding an acquisition (A) by the Company, (B) by
any employee benefit plan or related trust sponsored or maintained by the
Company, (C) by the Executive or (D) by a group including the Executive, but
only if the Executive and other executives of the Company who have entered into
similar Executive Severance Benefits Agreements control such group; or (ii) the
approval by the shareholders of Health Power of a reorganization, merger or
consolidation, with respect to which, in each case, persons who were
shareholders of Health Power immediately prior to such reorganization, merger or
consolidation do not (solely because of their Voting Securities owned
immediately prior to such reorganization, merger or consolidation) own
immediately thereafter more than 50% of the combined voting power entitled to
vote in the election of directors of the then outstanding securities or the
reorganized, merged or consolidated company; or (iii) a change in the
composition of the majority of the board of directors of Health Power within a
two-year period, which change shall not have been approved by a majority of the
persons then serving as directors immediately prior to such two-year period; or
(iv) a liquidation or dissolution of CompManagement; or (v) the sale of all or
substantially all of the assets of CompManagement.
(d) Compensation - means the monthly average of the base salary and any
cash bonus or commissions received by the Executive during the 36-month period
prior to the Executive's Date of Termination or such shorter period if the
Executive was not employed for at least 36 months.
(e) Date of Termination - means the date which is 30 days following
notice of (i) the Executive's Termination of employment for Good Reason or (ii)
Termination of the Executive's employment by the Company other than for Cause,
death or disability.
(f) Disability - means that, because of physical or mental illness,
injury or accident, it is probable, in the opinion of an independent physician
selected by the Company and reasonably acceptable to the Executive or his legal
representative, the Executive will not be able to perform his usual duties for a
period of 180 days or longer.
(g) Good Reason - means that, without the Executive's written consent,
(i) the Executive is assigned to duties materially inconsistent in any respect
with his position, authority, duties or responsibilities, or the Company takes
any other action that results in a material diminution in such position,
authority, duties or responsibilities; (ii) the Executive's base salary is
reduced for any reason other than in connection with the Termination of his
employment; (iii) the formula or other method of determining bonuses or
commissions payable to the Executive is materially changed in a manner which
causes a material reduction in the overall bonuses and commissions payable to
the Executive; (iv) the fringe benefits provided to the Executive are materially
reduced from what was provided prior to the Change in Control, unless the
Company and the Executive agree to separate compensation for any such material
reduction; (v) the relocation of the Company's principal executive offices to a
location outside the Columbus metropolitan area or the relocation of the
Executive by the Company, without his prior written
2
<PAGE> 4
consent, to any location other than the location at which the Executive
performed his duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control; (vi) there is a material
change in the kind of business engaged in by CompManagement; (vii) there is a
breach of this Agreement; or (viii) the Company fails to obtain an agreement
from any successor or assign of the Company to assume and agree to perform the
obligations of the Company under this Agreement.
(h) Termination - means the Company, or any successor or assign of the
Company, terminates the employment of the Executive for any reason other than
Cause, death or disability, or the Executive voluntarily terminates employment
with the Company or any successor or assign of the Company for Good Reason,
provided the Executive shall have no more than 90 days following the occurrence
of the event or events constituting Good Reason (as defined in subsection (g)
above) to elect to treat such event as a Termination of employment (the "Good
Reason Election"). Upon giving notice of the Good Reason Election in accordance
with Section 10 of this Agreement, the Executive shall have 30 days to actually
terminate Executive's employment with the Company. Notwithstanding the
foregoing, the Executive may voluntarily terminate employment with the Company
for any reason during the first six months following a Change in Control.
Section 2. Eligibility for Benefits
The Company agrees to pay to the Executive the benefits specified in
Section 3 if a Termination of the Executive's employment occurs within two years
after the occurrence of a Change in Control. In addition, the Company agrees to
pay to the Executive the benefits specified in Section 3 if a Termination of the
Executive's employment occurs within six months prior to the occurrence of a
Change in Control. In such case, the 90-day Good Reason Election must be made no
more than 90 days following the Change in Control.
Section 3. Benefits Upon Termination of Employment
If the Executive is entitled to benefits under Section 2 of this
Agreement, the Company shall provide the Executive with the following severance
and other benefits:
(a) Severance Benefit - The Company shall pay Executive a severance
benefit equal to continuation of the Executive's Compensation for the Benefit
Period, commencing on the Date of Termination. This severance benefit shall be
paid to Executive in accordance with the Company's standard payroll practices
for active employees beginning on the first pay date on or after the Date of
Termination and continuing to the end of the Benefit Period. During any period
of time in which Executive is receiving the severance benefit payment, Executive
shall not be required to perform any services or be physically present at any
facility of the Company or its affiliates.
(b) Other Benefits - During the Benefit Period, the Company will
continue to provide Executive with, and Executive shall continue to be entitled
to, all fringe benefits (other than continued accrual of retirement benefits),
including but not limited to group health, disability, life and other insurance
plans made available to employees of the Company, which were
3
<PAGE> 5
provided to Executive as of the Date of Termination; provided, however, that the
Company's obligation to provide any specific fringe benefit, other than life
insurance, to the Executive shall terminate as of the date such benefit is
provided to the Executive by another employer. If the Company changes the terms
of or providers for any such fringe benefits during the Benefit Period, the
benefits provided to the Executive will likewise be changed to those provided to
other employees and executives of the Company. The treatment of the severance
benefit payments to the Executive under any tax-qualified retirement plans of
the Company shall be strictly in accordance with the terms of such plans.
Notwithstanding the foregoing, should the Termination of the Executive's
employment result in a forfeiture of any nonvested interest under such
tax-qualified retirement plan maintained by the Company, the Executive shall be
entitled to an additional single lump sum severance payment, payable within 30
days of the Date of Termination, equal to the present value of the nonvested
interest forfeited under such plan.
The Company shall pay the Executive all base salary and vacation time
accruing through the Date of Termination, which amounts shall be payable within
the time periods specified by the Company's policies and procedures or as
required by law. The Company shall also pay the Executive any bonus (or a pro
rata share of any bonus dependent on annual performance criteria) which is
earned but unpaid as of the Date of Termination, which amount shall be payable
within 30 days of such date of Termination.
All outstanding stock options issued to the Executive shall become
fully vested upon a Change in Control and thereafter exercisable in accordance
with the stock option plans and agreements governing such options.
(c) Outplacement - The Company shall reimburse expenses incurred by the
Executive during the Benefit Period for outplacement services or job search
expenses, up to a maximum amount of $5,000. Reimbursable expenses under this
provision shall include the use of an executive outplacement service, including
but not limited to secretarial service and use of an office, phone, office
supplies and office services comparable to the level of such services available
to the Executive prior to the Date of Termination, and documented job search
expenses such as travel and relocation expenses, which are not reimbursed from
any other source.
(d) General Requirements and Limitations - The severance benefits under
this Agreement shall be in lieu of any other payment due to Executive under any
other contractual rights between Executive and the Company arising from or
incident to any employment agreement or other severance benefit programs of the
Company. Notwithstanding anything to the contrary, no severance benefit shall be
payable to Executive from and after the date of the Executive's material breach
of his obligations contained in the Noncompete Agreement, any such material
breach resulting in an immediate forfeiture of all future benefits otherwise
payable hereunder. Furthermore, notwithstanding any other provision hereunder,
if the Executive will incur any excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), due to any payment under this or
other agreements with the Company, then the amount payable as severance benefits
hereunder shall be reduced to equal one dollar less than three times the
Executive's "base amount" under Section 280G of the Code, reduced by the present
value of any other payments that constitute "payments" thereunder.
4
<PAGE> 6
Section 4. Term
This Agreement shall continue for a period of 24 months from the
effective date of a Change in Control of the Company. Executive shall have no
vested rights in the severance benefits provide under this Agreement until the
Company enters into a definitive agreement, binding on the respective parties,
intended to effect a Change in Control.
Section 5. No Guarantee of Employment
Nothing contained in this Agreement shall be construed as a contract of
employment or be deemed to give Executive the right to be retained in the employ
of the Company or any equity or other interest in the assets, business or
affairs of the Company. Executive shall have no security interest in assets of
the Company used to pay benefits hereunder.
Section 6. No Duty to Mitigate
The amounts payable to the Executive under this Agreement shall not be
treated as damages but as severance compensation to which the executive is
entitled by reason of Termination of employment in the circumstances
contemplated by this Agreement. The Company shall not be entitled to set off
against the amounts payable to the Executive any amounts earned by the Executive
from other employment after Termination of employment with the Company or any
amounts which might have been earned by the Executive from other employment had
such other employment been sought or accepted.
Section 7. Arbitration
Any controversy or claim relating to benefits under this Agreement or
the breach thereof shall be settled by arbitration in Columbus, Ohio, or such
other mutually agreed upon site, in accordance with the commercial rules of the
American Arbitration Association. The judgment upon the award rendered by the
board of arbitrators may be entered in any court having jurisdiction thereof and
the parties hereby consent to the jurisdiction of the Court of Common Pleas of
Franklin County, Ohio. Except as set forth in Section 8 of this Agreement, the
fees and expenses of the arbitrators incurred in connection with any arbitration
shall be paid by the Company.
A party seeking arbitration of a controversy or claim shall provide
notice of such event to all other parties (the "Arbitration Notice"). No later
than 15 days after the Arbitration Notice is given, the Company and the
Executive shall each select one person from an approved-panel of arbitrators to
serve as their designee on a three-member board of arbitrators. Such designees
shall have substantial experience in business matters. No later than 15 days
after their designation, the two members shall mutually select a third member
from the same panel of arbitrators, which person shall also have substantial
experience in business matters, and such person shall act as the chairperson of
the board of arbitrators. The board of arbitrators shall act by majority rule in
accordance with the rules and procedures set forth in Ohio Revised Code Chapter
2711, and to the extent not inconsistent with such chapter the rules and
procedures of the American Arbitration Association then in effect. The
arbitration hearing shall be commenced no later 15 days after the selection of
the third member of the board of arbitrators. To the extent
5
<PAGE> 7
possible, the arbitration hearing shall be completed within 30 days after its
commencement. Within 30 days after the completion of the arbitration hearing,
the board of arbitrators shall render a ruling on all matters submitted before
them.
Section 8. Enforcement of Agreement
The Company is aware that upon the occurrence of a Change in Control,
the Board of Directors or a shareholder of the Company may then cause or attempt
to cause the Company to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Company to institute, or may
institute litigation seeking to have this Agreement declared unenforceable, or
may take or attempt to take other action to deny the Executive the benefits
intended under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that the
Executive not be required to incur the expenses associated with the enforcement
of any rights under this Agreement by litigation or other legal action, nor be
bound to negotiate any settlement of any rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract from the
benefits intended to be extended to the Executive hereunder. Accordingly, if
following a Change in Control it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes any action to declare this
Agreement void or enforceable, or institutes any litigation or other legal
action designed to deny, diminish or to recover from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the Executive's
choice, at the expense of the Company as provided in this Section, to represent
the Executive in connection with the initiation or defense of any litigation or
other legal action, whether such action is by or against the Company or any
Director, officer, shareholder, or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by the
Executive as hereinabove provided shall be paid or reimbursed to the Executive
by the Company on a regular, periodic basis upon presentation by the Executive
of a statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount equal to 25% of the total
severance benefits payable to the Executive under Section 3(a) of this
Agreement. Any legal expenses incurred by the Company by reason of any dispute
between the parties as to enforceability of or the terms contained in this
Agreement, notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to seek
reimbursement from the Executive for such expenses.
Notwithstanding the foregoing, if upon submission of a dispute to
arbitration in accordance with Section 7 of this Agreement, the board of
arbitrators finds that the Executive was terminated for Cause, as defined in
Section 1(b), or if the board of arbitrators find that the Executive did not
have Good Reason, as defined in Section 1(g), then (a) the Company shall have no
obligation to pay or reimburse the fees and expenses of the Executive's legal
counsel,
6
<PAGE> 8
and (b) the Executive shall be responsible to pay one-half of the fees and
expenses of the arbitrators incurred in connection with such arbitration.
Section 9. Non-secured Promise
The rights of the Executive under this Agreement will be solely those
of an unsecured creditor of the Company. The benefits under this Agreement will
be paid by the Company from its general assets. Any insurance policy or any
other asset acquired or held by the Company in connection with the liabilities
assumed by it hereunder will not be deemed to be held under any trust for the
benefit of the Executive, or to be security for the performance of the
obligations of the Company, but will be, and remain, a general, unpledged,
unrestricted asset of the Company.
This Agreement is intended to constitute an unfunded or insured welfare
plan for a select group of management or highly compensated employees, within
the meaning of Department of Labor Reg. ss.2520.104-24, exempting such plans and
arrangement from the reporting and disclosure provisions of Part 1 of Title 1 of
the Employee Retirement Income Security Act of 1974, as amended.
Section 10. Notice of Termination
Any purported Termination of employment by the Company or by the
Executive shall be communicated by written notice of Termination to the other
party in accordance with the notice provisions set forth in Section 10 below.
For purposes of this Agreement, a notice of Termination shall be a notice which
indicates the specific Termination provision in this Agreement relied upon and
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for Termination of employment under the provisions so indicated.
7
<PAGE> 9
Section 11. Notices
Any notices to be given pursuant to this Agreement shall be in writing
and shall be deemed duly given three days after deposit in the mail, certified
mail, return receipt requested, to the party to receive such notice at the
address set forth below.
If to the Company:
CompManagement, Inc.
6377 Emerald Parkway
Dublin, Ohio 43016
Attn: Chief Executive Officer
If to the Executive:
Daniel R. Sullivan
-------------------------------
-------------------------------
Either party may change its name or address for purposes of this section by
providing the other party written notice of the new name or address in the
manner set forth above.
Section 12. Other Severance Benefit Arrangements
If the Executive receives benefits under Section 3 of this Agreement,
then such benefits shall be the exclusive severance benefits receivable by the
Executive from the Company, and the benefits received under Section 3 of this
Agreement shall supersede and replace any and all other severance benefits of
any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreement.
This Agreement shall not supersede or replace the Executive's severance benefits
of any kind that the Executive may be entitled to receive from the Company under
any other severance benefit arrangement, including any employment agreements now
in existence or subsequently entered into, if the Executive is not entitled to
receive the severance benefits accorded to the Executive in Sections 2 and 3 set
forth herein.
Section 13. Miscellaneous
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter of this Agreement. This Agreement supersedes
all other prior and contemporaneous understandings or agreements between the
parties with respect to the subject matter of this Agreement. This Agreement may
be amended only by a written instrument executed by each party. This Agreement
shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns, but the Executive may not assign or transfer
any right hereunder. The Company shall assign this Agreement to any corporation
or other business entity succeeding to substantially all of the business and
assets of either Health Power or CompManagement by merger, consolidation, sale
of assets, or otherwise, and shall obtain the assumption of this Agreement by
such successor. Should any provision of this Agreement be
8
<PAGE> 10
held unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall continue in full force and effect. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Ohio.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but together shall constitute one in the same document.
DANIEL R. SULLIVAN HEALTH POWER, INC.
/s/ Daniel R. Sullivan By: /s/ Bernard F. Master, D.O.
- ------------------------------ ---------------------------------
Date: 10/1/99 Its: Chairman
------------------------- --------------------------------
Date: 10/5/99
-------------------------------
COMPMANAGEMENT HEALTH COMPMANAGEMENT, INC.
SYSTEMS, INC.
By: /s/ Robert J. Bossart By: /s/ Robert J. Bossart
--------------------------- ---------------------------------
Its: CEO Its: CEO
-------------------------- --------------------------------
Date: 9/28/99 Date: 9/29/99
------------------------- -------------------------------
9
<PAGE> 1
Exhibit 10(m)
AMENDMENT NO. 2
TO
HEALTH POWER, INC.
1996 DIRECTORS STOCK AWARD AND PURCHASE PLAN
--------------------------------------------
The Health Power, Inc. 1996 Directors Stock Award and Purchase Plan, as
amended (the "Plan"), is hereby amended pursuant to the following provisions:
ss.1. Definitions.
All capitalized terms used in this amendment which are not otherwise
defined herein shall have the respective meanings given such terms in the Plan.
ss.2. Shares Subject to the Plan.
The maximum aggregate number of Shares reserved and available for
issuance under the Plan, as set forth in ss.2 of the Plan, is increased by
20,000 Shares to a total of 55,000 Shares. Such Shares may be authorized but
unissued Shares or issued Shares reacquired by the Company and held as treasury
Shares. The aggregate number of Shares allocated to the Plan shall be subject to
adjustment pursuant to ss.9 of the Plan.
ss.3. Effective Date; Construction.
The effective date of this amendment is November 1, 1999, and this
amendment shall be deemed to be a part of the Plan as of such date. In the event
of any inconsistencies between the provisions of the Plan and this amendment,
the provisions of this amendment shall control. Except as modified by this
amendment, the Plan shall continue in full force and effective without change.
<PAGE> 1
Exhibit 10(w)
HEALTH POWER, INC.
PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
ss.1. Purpose.
The purpose of the Health Power, Inc. Performance-Based Incentive
Compensation Plan (the "Plan") is to advance the interests of Health Power, Inc.
and its stockholders by providing certain of its key executives with incentive
compensation which is tied to the achievement of pre-established and objective
performance goals. The Plan is intended to provide participants with
remuneration which is performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended from time to
time (the "Code"), and the regulations promulgated thereunder.
ss.2. Definitions.
As used in the Plan, the following terms shall have the respective
meanings set forth below:
(a) "Award" means the amount payable to a Participant in
accordance withss.6 of the Plan.
(b) "Committee" means the Compensation Committee of the Board
of Directors of Health Power, Inc. The Committee shall be comprised of
two or more "outside directors" as that term is defined in Section
162(m) of the Code and the regulations promulgated thereunder.
(c) "Company" means Health Power, Inc. and its subsidiaries.
(d) "Effective Date" means the date set forth inss.9(a) of the
Plan.
(e) "Participant" means an individual eligible to participate
under the Plan, as determined by the Committee, each of whom shall be
an executive officer of the Company.
(f) "Performance Period" means any time period established by
the Committee for which the attainment of Performance Goal(s) relating
to an Award will be determined.
(g) "Performance Goal" means any performance goal determined
by the Committee in accordance with ss.5 of the Plan.
(h) "Target Award" means the amount of any Award as
established by the Committee that would be payable to a Participant for
any Performance Period if the
<PAGE> 2
Performance Goals for the Performance Period were fully (100%) achieved
and no negative discretion was exercised by the Committee in regard to
that Award pursuant to the last sentence of ss.6.
ss.3. Administration.
The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee will have full authority to interpret the
Plan, to establish and amend rules and regulations relating to it, to determine
the terms and provisions for making Awards and to make all other determinations
necessary or advisable for the administration of the Plan. All decisions made by
the Committee pursuant to the provisions hereof shall be made in the Committee's
sole discretion and shall be final and binding on all persons.
ss.4. Eligibility.
The Committee shall designate the Participants eligible to receive
Awards for each Performance Period and establish the Performance Goals
applicable to each Participant for each Performance Period. An individual who
becomes eligible to participate in the Plan during the Performance Period may be
approved by the Committee for a partial period of participation. In such case,
the Participant's Target Award and Award will be based upon performance during
the portion of the Performance Period during which the Participant participates
in the Plan, and the amount of the Target Award will be prorated based on the
percentage of time the Participant participates in the Plan during the
Performance Period.
ss.5. Establishment of Awards and Goals.
For each Performance Period established by the Committee, the Committee
shall establish a Target Award for each Participant. Awards shall be earned
based upon the financial performance of the Company, one or more of the
Company's subsidiaries, or one or more of the Company's operating groups (as
determined by the Committee) during a Performance Period. As to each Performance
Period, within such time as established by Section 162(m) of the Code, the
Committee will establish in writing Performance Goals based on one or more of
the following performance measures of the Company (and/or one or more of the
Company's subsidiaries and/or operating groups, if applicable) over the
Performance Period: (i) revenues; (ii) operating income; (iii) pre-tax income;
(iv) net income; (v) earnings per share; (vi) return on equity; and/or (vii) any
other objective business criteria approved by the Committee in accordance with
the requirements for "qualified performance-based compensation" within the
meaning of the regulations under Section 162(m) of the Code. Except as otherwise
provided in the Plan, the extent to which the Performance Goals are satisfied
will determine the amount of the Award, if any, that will be earned by each
Participant. The Performance Goals may vary for different Performance Periods
and need not be the same for each Participant eligible for an Award for a
Performance Period.
2
<PAGE> 3
ss.6. Earning of Awards.
At the end of each Performance Period, the Award will be computed for
each Participant. Payment of Awards, if any, will be made in cash, subject to
applicable tax withholding. Prior to payment of any Award, the Committee shall
certify in writing the extent to which the established Performance Goals have
been achieved. If one or more of the Performance Goals are not satisfied to the
fullest extent, a recipient may earn less than the full Target Award or no Award
at all. In addition, the Committee may in its sole discretion reduce individual
Awards otherwise payable pursuant to the Performance Goals.
ss.7. Termination of Employment.
In the event the employment of a Participant is terminated by reason of
death or disability during a Performance Period, unless determined otherwise by
the Committee, the Participant or his legal representative, as applicable, shall
receive a prorated payout with respect to the Award relating to such Performance
Period. The prorated payout shall be based upon the length of time that the
Participant was employed by the Company during the Performance Period and the
progress toward achievement of the established Performance Goal(s) during the
portion of the Performance Period during which the Participant was employed by
the Company. Payment of the Award, if any, shall be made at the same time
payments are made to Participants who did not terminate employment during the
applicable Performance Period. In the event of a Participant's termination of
employment by the Company for any other reason prior to the end of the
Performance Period with respect to an Award, the Participant shall not be
entitled to any payment with respect to such Award.
ss.8. Amendment and Termination.
The Committee may amend, modify or terminate the Plan at any time and
from time to time. Stockholder approval of such actions will be required only as
required by applicable law. Notwithstanding the foregoing, no amendment,
modification or termination shall affect the payment of an Award for a
Performance Period that has already ended or increase the amount of any Award.
ss.9. General Provisions.
(a) Effective Date. The Plan shall become effective as of
January 1, 2000.
(b) Non-Transferability. Any interest of any Participant under
the Plan may not be sold, transferred, alienated, assigned or
encumbered, other than by will or pursuant to the laws of descent and
distribution, and any attempt to take any such action shall be null and
void.
(c) Severability. In the event any provision of the Plan is
held to be illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan, and
the Plan shall be construed and enforced as if such illegal or invalid
provisions had never been contained in the Plan.
3
<PAGE> 4
(d) Additional Arrangements. Nothing contained in this Plan
shall prevent the Company from adopting other or additional
compensation arrangements for any Participant.
(e) No Right to Award or Employment; Uniformity. No person
shall have any claim or right to be granted an Award under this Plan
and the grant of an Award shall not confer upon any Participant any
right to be retained as an employee of the Company, nor shall it
interfere in any way with the right of the Company to terminate the
employment of any Participant at any time or to increase or decrease
the compensation of any Participant. There is no obligation for
uniformity of treatment of Participants.
(f) Tax Withholding. The Company shall have the right to
withhold or require Participants to pay the Company the amount of any
taxes which the Company is required to withhold with respect to such
Award.
(g) Beneficiaries. The Committee may establish such procedures
as it deems appropriate for a participant to designate a beneficiary to
whom any amounts payable in the event of the Participant's death are to
be paid. If no beneficiary is designated, the right of the Participant
to receive any payment under this Plan will pass to the Participant's
estate.
(h) Governing Law. The Plan and all Awards made and action
taken hereunder shall be governed by and construed in accordance with
the laws of the State of Ohio, except to the extent superseded by
federal law.
(i) Government Regulation. Notwithstanding any provisions of
the Plan or any agreement made pursuant to the Plan, the Company's
obligations under the Plan and such agreement shall be subject to all
applicable laws, rules and regulations and to such approvals as may be
required by any governmental or regulatory agencies.
(j) Unfunded Status of Plan. The Plan is intended to
constitute an unfunded plan for incentive compensation. The Plan is
intended to constitute a "payroll practice" under D.O.L. Regulation
Section 2510.3-1(b)(1) and, as such, be excluded from the definition of
an "employee benefit plan" under the Employee Retirement Income
Security Act of 1974, as amended. With respect to any payments not yet
made by the Company to a Participant or beneficiary, nothing contained
herein shall give any such Participant or beneficiary any rights that
are greater than those of a general creditor of the Company.
4
<PAGE> 1
Exhibit 10(x)
AGREEMENT BETWEEN OHIO BUREAU OF WORKERS' COMPENSATION
AND COMMUNITY INSURANCE COMPANY
D/B/A ANTHEM BLUE CROSS AND BLUE SHIELD,
DATED NOVEMBER 10, 1998, AS ASSIGNED TO
COMPMANAGEMENT HEALTH SYSTEMS, INC. ON JULY 16, 1999
<PAGE> 2
AGREEMENT BETWEEN
OHIO BUREAU OF WORKERS' COMPENSATION AND
COMMUNITY INSURANCE COMPANY D/B/A ANTHEM BLUE CROSS AND BLUE SHIELD
This is an Agreement by and between Community Insurance Company d/b/a
Anthem Blue Cross and Blue Shield (the "MCO"), having offices at 8845 Governor's
Hill Drive, Cincinnati, Ohio 45249, and the State of Ohio, Bureau of Workers'
Compensation (the "Bureau" or "BWC"), having offices at 30 W. Spring Street,
Columbus, Ohio 43215-2256, entered into the day, month and year set out below.
Whereas, the Bureau is required to administer the Health Partnership
Program ("HPP") under the provisions of Revised Code Section 4121.44 and the
Rules promulgated under the authority of Revised Code Section 4121.441; and,
Whereas, the Bureau desires to obtain the services of one or more
managed care organizations to provide medical management and cost containment
services to Ohio employers and injured workers in accordance with the HPP; and,
Whereas, the MCO desires to provide medical management and cost
containment services in support of the Bureau's administration of the HPP:
Now, therefore, the parties hereto in consideration of the services to
be performed and the compensation to be paid mutually agree to the following:
1. SCOPE OF SERVICES. The MCO shall provide for and perform the following
services and activities:
A. MEDICAL MANAGEMENT.
The MCO shall provide medical management services for all workers'
compensation cases that result from injuries and occupational diseases
to employees arising out of the course and scope of employment as
provided by law, including Medical Case Management services as defined
under Appendix G of this Agreement). The MCO recognizes that (1) all
services provided are linked to the successful return to work or
resolution for injured workers, (2) close interaction between the MCO
and the employer is critical to the program's success, (3) close
attention to treatment protocols and Treatment Plans is required, (4)
provider networks must emphasize the appropriate provider composition
to treat occupational injuries and illness, and (5) continually meeting
data requirements is essential for effecting and measuring return to
work.
B. HEALTH CARE PROVIDER NETWORK.
(1) The MCO shall provide for and maintain a health care provider
network (the "Network"). The MCO shall not discriminate against any
category of health care provider when establishing categories of
providers for participation in its Network. However, the MCO is not
required to accept or retain any individual provider in its Network.
The MCO shall submit to the Bureau for prior approval any changes in
the Network that would materially change Network provider composition.
<PAGE> 3
(2) In addition to primary care physicians specifically selected and
recruited to treat workers' compensation patients under the HPP, the
Network shall continually provide access to specialty providers
recruited to treat workers' compensation patients under the HPP,
including but not limited to:
<TABLE>
<S> <C>
Orthopedic Surgeons Psychologists
Physical Therapists Plastic Surgeons
Occupational Therapists Neurosurgeons
Chiropractors Podiatrists
Occupational Medicine Physicians Dentists
General Surgeons Ophthalmologists
Radiologists Prosthetists and Orthotists
Anesthesiologists Pulmonary Disease Specialists
Neurologists Infectious Disease Specialists
Physiatrists (Physical Medicine Physicians) Dermatologists
Hand Surgeons
Psychiatrists
</TABLE>
(3) Maintaining appropriate Network provider composition is the sole
responsibility of the MCO and not the responsibility of any leased
provider network.
(4) The MCO's Network shall consist of providers sufficient in number
and type to meet the needs of employers and employees in each county in
which the MCO is certified. All Network providers shall be Bureau
certified. The MCO shall credential all Network providers in terms of
qualifications to provide treatment for workers' compensation patients
and to meet HPP return to work objectives. All Network providers shall
be credentialed by the MCO as of the Effective Date of this Agreement.
The Bureau retains the discretion to require that Network providers be
re-credentialed by the MCO during the term of this Agreement.
(5) The MCO shall provide access to the following health care
facilities, supplies and services as part of its Network:
Acute Care Hospitals
Urgent Care Centers
Laboratories
Diagnostic Radiology Centers
Medical Equipment Suppliers
Home Health Agencies
Acute Rehabilitation Centers
Sub-Acute Facilities (including Sub-Acute Rehabilitation and
Skilled Medical Facilities)
Rehabilitation Hospitals
Long Term Care Facilities
Traumatic Brain Injury Facilities
C. ADHERENCE TO PRESCRIBED TREATMENT GUIDELINES.
(1) The MCO services shall include implementation of treatment
guidelines, return to work guidelines and utilization review to
evaluate the necessity and/or effectiveness of medical care. The
treatment and return to work guidelines utilized by the MCO shall be
nationally recognized guidelines and shall include one or more of the
guidelines specified in Sections 1C(1)(a), (b), or (c) of this
Agreement.
2
<PAGE> 4
(a) The Bureau shall distribute the following treatment
guidelines, as applicable, to Bureau certified providers
designated by the Bureau. The MCO may use any of these
guidelines to comply with Section 1C(1) of this Agreement:
Milliman and Robertson, Healthcare Management
Guidelines, Volume 7.
InterQual Clinical Decision Support Criteria:
Indications for Workers' Compensation Clinical
Management.
Scott Haldeman, D.C., M.D., Ph.D., David
Chapman-Smith, LLB, Donald M. Petersen, Jr., B.S.,
eds., Guidelines for Chiropractic Quality Assurance
and Practice Parameters, Proceedings of the Mercy
Center Consensus Conference, 1993.
(b) If the MCO does not wish to use the guidelines listed in
Section 1C(1)(a) of this Agreement, the MCO may use any of the
following treatment guidelines to comply with Section 1C(1) of
this Agreement. The MCO shall distribute any treatment
guidelines it opts to use under this Section to all Bureau
certified Network providers designated by the Bureau to
receive treatment guidelines under Section 1C(1)(a) of this
Agreement:
The American Accreditation Healthcare Commission,
URAC National Workers' Compensation Utilization
Management Standards.
Jeffrey S. Harris, M.D., M.P.H., M.B.A., Chair,
American College of Occupational and Environmental
Medicine, ed., Occupational Medicine Practice
Guidelines.
Institute for Health Care Quality, Quality First Risk
Management System Practice Guidelines.
Presley Reed, M.D., The Medical Disability Advisor -
Workplace Guidelines for Disability Duration, Second
Edition.
U.S. Department of Health and Human Services, Public
Health Service, Agency for Health Care Policy and
Research, Acute Low Back Problems in Adults -
Assessment and Treatment.
(c) If the MCO does not wish to use the guidelines listed in
Section 1C(1)(a) or (b) of this Agreement, the MCO may use any
alternative guidelines that are approved in advance by the
Bureau as being at least equal in effectiveness to the
guidelines listed in Section 1C(1)(a) or (b) of this Agreement
to comply with Section 1C(1) of this Agreement. The MCO shall
distribute any treatment guidelines it opts to use under this
Section to all of its Bureau certified Network providers
designated by the Bureau to receive treatment guidelines under
Section 1C(1)(a) of this Agreement:
(3) All MCO Medical Case Management staff members shall complete annual
training on the MCO's treatment guidelines, return to work guidelines,
utilization review and protocols.
D. SUBMISSION OF PLANS OF CARE.
(1) The MCO shall submit coordinated Plans of Care on all lost-time
injured workers and injured workers with designated medical-only
diagnosis codes as designated in the MCO Policy Reference Guide
(Appendix A) to the Bureau as follows: (a) if hard copy, must be
submitted
3
<PAGE> 5
within five (5) Business Days of the Bureau's allowance decision; (b) if
electronic 278 Plan of Care or equivalent (when reinstated by the Bureau
pursuant to Section 1J(3) of this Agreement), must be available for
pickup by the EDI system provider designated by the Bureau no later than
2:00 P.M. Eastern Time the fifth Business Day after the Bureau's
allowance decision; and (c) in all cases, must be re-submitted or updated
when significant changes in the Treatment Plan occur as defined in the
MCO Policy Reference Guide, but no less often than every sixty (60) days
for so long as treatment is ongoing unless otherwise specified in writing
by an appropriate Bureau representative.
(2) A submitted Plan of Care shall include the diagnosis (including
designation of the primary diagnosis), prognosis, expected outcomes
(including anticipated return to work date) and provider Treatment Plan
(including prescribed medications, duration and frequency of treatment).
(3) Not later than March 1, 1999, the MCO's process of reviewing medical
bills shall be integrated with the associated Plan of Care. Plan of Care
compliance by the MCO and integration with bill review are subject to
periodic audit by the Bureau.
E. TREATMENT REIMBURSEMENT AUTHORIZATIONS/DENIALS.
(1) Treatment reimbursement authorizations and denials by the MCO shall
be evaluated using the following three-part test (all parts must be met
to authorize treatment reimbursement):
- The requested services are reasonably related to the
injury;
- The requested services are reasonably necessary for
treatment of the injury;
- The costs of the services are medically reasonable.
(2) Treatment reimbursement decisions shall be communicated in writing,
with an appropriate explanation, within three (3) Business Days from the
MCO's treatment reimbursement request Receipt Date as follows: all
treatment reimbursement decisions shall be sent to the Bureau and the
provider; treatment reimbursement denials shall also be provided to the
injured worker and his or her representative, if any; treatment
reimbursement approvals shall also be provided to the employer and its
representative, if any, upon request and as set forth in the MCO Policy
Reference Guide (Appendix A).
(3) The MCO shall respond to a provider's proposed Treatment Plan
(submitted on a C-9 or other appropriate form) within three (3) Business
Days from the MCO's Treatment Plan Receipt Date, either authorizing,
denying, or pending reimbursement approval for the proposed Treatment
Plan due to insufficient information, in accordance with the provisions
of the MCO Policy Reference Guide (Appendix A). A Clinician (as defined
in Appendix G of this Agreement) shall make all treatment reimbursement
denials on behalf of the MCO.
(4) The MCO shall phase in the appropriate certification requirements for
its Medical Case Management staff (including vendors and subcontractors)
as follows: twenty-five percent (25%) of all MCO staff performing Medical
Case Management (as defined in Appendix G of this Agreement) shall be
certified as medical case managers as defined in Rule 4123-6-022(C)(32)
of the Ohio Administrative Code by December 31, 1999; fifty percent (50%)
of all MCO staff performing Medical Case Management (as defined in
Appendix G of this Agreement) shall be certified as medical case managers
as defined in Rule 4123-6-022(C)(32) of the Ohio Administrative Code by
September 15, 2000.
F. ALTERNATIVE DISPUTE RESOLUTION.
The MCO shall have an alternative dispute resolution ("ADR") process for
the resolution of medical disputes that includes one independent level of
review. If an individual health care
4
<PAGE> 6
provider is involved in the dispute, the independent level of review
shall consist of a peer review conducted by an individual or individuals
licensed pursuant to the same section of the Ohio Revised Code as the
health care provider. The MCO shall conduct its ADR process in accordance
with the provisions of Rule 4123-6-16 of the Ohio Administrative Code and
the MCO Policy Reference Guide.
G. HEALTH CARE QUALITY ASSURANCE/PROVIDER QUALITY IMPROVEMENT.
The MCO shall have a medical management quality assurance program that
includes the use of an updated quality assurance policies and procedures
manual that is in compliance with American Accreditation Health Care
Commission/URAC standards. The MCO shall continually assess the quality
of treatment reimbursement decisions and billing procedures in connection
with approved treatment reimbursement.
H. PROVIDER PAYMENTS.
(1) The MCO shall submit medical provider bills electronically to the
Bureau within seven (7) Business Days from the MCO's provider bill
Receipt Date. The Bureau shall review all bills for allowed conditions
and allowed claims and shall pay the MCO for allowed payments after
receipt of a proper invoice and after a final adjudication permitting
payment for the claim. The Bureau shall make Electronic Fund Transfer
("EFT") to the MCO within seven (7) Business Days after receipt of a
proper invoice and after a final adjudication permitting payment for the
claim. The MCO shall pay the provider within seven (7) Business Days from
receipt of the EFT. The MCO shall pay interest to the Bureau at the rate
established by the Office of Budget and Management, if the provider is
not paid within thirty (30) days of receipt of the EFT from the Bureau.
(2) The MCO shall retrieve electronic bills from the Bureau's World Wide
Web site (www.ohiobwc.com) no later than 5:00 P.M. the next Business Day
after the bills are placed in the MCO's directory by the Bureau.
(3) The MCO shall pay provider bills in accordance with Rules 4123-6-10,
4123-6-11, and 4123-6-12 of the Ohio Administrative Code. However, if the
MCO utilizes a leased provider network to fulfill the requirements of
Section 1B. of this Agreement, the MCO shall not apply the discounted
payment rates of the leased network to its payments to any provider
within that network without first obtaining the signed written consent of
the provider.
(4) Not later than March 1, 1999, the MCO shall have and use a system
that tracks the status of provider bills at any stage of the bill
adjudication process. Such a system must allow the MCO to respond to
inquiries by authorized parties and to the Bureau as to the disposition
of a bill and the expected payment date of a bill. The Bureau may require
the MCO to issue reports to the Bureau and/or medical providers on the
status of payments to providers.
(5) The MCO shall educate providers, both in-state and out-of-state, on
correct billing procedures and the MCO's prior authorization methods.
(6) Following termination of this Agreement the Bureau shall reimburse
the MCO for providers' services only if invoices are submitted within
sixty (60) days of the termination date and only if such payment is not
subject to deduction.
I. EMPLOYER EDUCATION/INJURED WORKER ASSISTANCE.
(1) The MCO shall have an employer education program where the MCO (or
its vendor or subcontractor) shall visit each employer with an experience
modification of one hundred twenty-five percent (125%) or greater that is
serviced by the MCO for the purposes of educating the
5
<PAGE> 7
employer on effective return to work programs and learning more about the
employer's work site and operations. Such visits are subject to audit by
the Bureau and Bureau staff may accompany the MCO representatives to
on-site visits at the Bureau's discretion.
(2) The MCO shall provide MCO identification ("I.D.") cards to all
employers within thirty (30) days of employer assignment to the MCO. The
Bureau may reassign an employer from the MCO if the Bureau determines
that the reassignment is in the best interest of both the employer and
the MCO.
(3) The MCO shall provide Network provider directories to employers upon
request. The MCO shall assist the injured worker in locating a Bureau
certified provider, whether in-state or out-of-state, if the injured
worker or employer requests assistance.
J. ELECTRONIC DATA INTERCHANGE ("EDI") REQUIREMENTS.
(1) The MCO shall comply with all requirements for submission and receipt
of EDI transactions as set forth in the EDI Implementation Documentation
(Appendix B) and within this Agreement. The EDI Implementation
Documentation may be modified by the Bureau from time to time to comply
with Bureau policies, the Health Insurance Portability & Accountability
Act of 1996 ("HIPAA") and the Accredited Standards Committee ("ASC") X12
versions. The MCO shall have in force a contract with an EDI system
provider designated by the Bureau. The MCO will be given a minimum of six
(6) weeks for implementation of any EDI modification unless both parties
mutually agree to a shorter time frame.
(2) EDI pick-up and delivery is the responsibility of the MCO. The MCO
shall pick-up EDI transactions according to its EDI system provider
contract and the EDI Implementation Documentation from a location
determined by the Bureau. The MCO will deliver all EDI transactions
according to its EDI system provider contract and the EDI Implementation
Documentation to a location approved by the Bureau.
(3) The MCO shall meet and implement whenever applicable all requirements
for submission to the Bureau of the following EDI transaction types as
defined by the EDI Implementation Documentation:
- 148 Report of Injury, Illness or Accident (including all planned
changes as defined in the 148 Summary of Planned Changes for 1999
section of the EDI Implementation Documentation)
- First Report Of Injury ("FROI") -- must be available for
pickup by the EDI system provider designated by the Bureau
no later than 2:00 P.M. Eastern Time the second FROI
Business Day after the MCO's FROI Receipt Date
- Subsequent Claim Information
- 837 Health Care Claim
- Medical Bill for an allowed claim -- within seven (7)
Business Days of the MCO's Receipt Date for the bill
- 278 Health Care Services Review Information
- Plan of Care or equivalent (when reinstated)
- 997 Functional Acknowledgment
- Within twenty-four (24) hours of transactions received from
the Bureau.
(4) The MCO shall meet and implement whenever applicable all requirements
for receipt from the Bureau of the following EDI transaction types as
defined by the EDI Implementation Documentation:
6
<PAGE> 8
- 835 Health Care Claim Payment/Advice
- 824 Application Advice
- Initial Claim Acknowledgment or Denial, Subsequent Claim
Denial, Plan of Care or Equivalent Denial, Medical Bill
Denial, and Positive Bill Receipt Acknowledgment if and when
implemented.
- 997 Functional Acknowledgment
- 816 Organizational Relationships
- Employer Information
- Employer & Injured Worker Representative(s) Demographic Data
once implemented
- 148 Report of Injury, Illness or Accident (including all planned
changes as defined in the 148 Summary of Planned Changes for 1999
section of the EDI Implementation Documentation)
- Subsequent Claim Information
- Electronic provider information or equivalent once implemented
(5) The MCO shall meet and implement whenever applicable all requirements
for receipt of the following EDI transaction types from medical providers
as defined by the EDI Implementation Documentation:
- 837 Health Care Claim by February 1,1999.
- 148 Report of Injury, Illness or Accident (Inbound FROI) once
implemented
- Electronic Treatment Plan or equivalent once implemented
(6) The MCO shall meet and implement whenever applicable all requirements
for submission of the following EDI transaction types to medical
providers as defined by the EDI Implementation Documentation:
- Advice and Response to the Provider 837 by February 1, 1999
- 835 Health Care Claim Payment/Advice once implemented
- Electronic fund transfers once implemented
(7) The Bureau's required data element criteria is defined for each
transaction set, where applicable, in the transaction set overview in the
EDI Implementation Documentation. The required data element criteria is
listed alphabetically for each data element for each transaction set,
where applicable, in the Business Rules Matrix in the EDI Implementation
Documentation.
K. INFORMATION SYSTEMS CAPABILITY.
(1) The MCO shall have a Year 2000 Compliant integrated information
system that supports each business function throughout the lifecycle of a
claim. The MCO warrants that all products or services provided under this
Agreement shall be Year 2000 Compliant, as defined in Appendix G of this
Agreement. The provisions of this paragraph shall survive any termination
or expiration of this Agreement.
(2) The MCO shall periodically demonstrate to the satisfaction of the
Bureau that its information system is capable of supporting its managed
care process through the effective integration of its technical
information processing components.
(3) The MCO shall have the capacity to access claim information via the
Bureau's External Data Access (EDA) program and to bear its own equipment
and Network Service Provider (NSP) costs where applicable.
7
<PAGE> 9
(4) The MCO shall demonstrate its ability to capture data required for
the Return to Work Degree of Disability Management (DoDM) measurement set
forth in Appendix E of this Agreement.
(5) In addition to electronic bills, the MCO shall have Internet access
and shall retrieve files available for download from the Bureau World
Wide Web site (www.ohiobwc.com) no later than 5:00 P.M. the next Business
Day after the files are placed in the MCO's directory by the Bureau.
These files include but are not limited to Provider List Update, Customer
Service Team (CST) update, Open Enrollment Claim Update File, the
Foresight Corporation's EDISIM product along with the Ambassador Kit and,
when available, the Employer and Injured Worker Representative(s)
demographic data.
(6) The MCO shall have the capability to communicate with the Bureau via
Internet e-mail, including the capability to access e-mail attachments.
The MCO shall also have the capability to create and interpret text-based
documents.
(7) The MCO shall have at least one personal computer that is capable of
executing downloaded computer programs, including but not limited to,
Foresight EDISIM and Ambassador Kit products from the Bureau World Wide
Web site (www.ohiobwc.com).
L. MCO REVIEWS AND AUDITS.
(1) The Bureau may conduct random, unannounced reviews or audits of the
MCO. The scope of such reviews or audits shall include, but is not
limited to, substantial performance with the terms and conditions of this
Agreement, consistent and appropriate use of treatment guidelines and
return to work guidelines, compliance with any and all technical
requirements and time deadlines, financial and accounting information and
return to work results.
(2) On or before June 30, 1999, the Bureau shall require an independent
auditor's report on the policies and procedures placed in operation at
the MCO and tests of operating effectiveness, specifically the Statement
on Auditing Standards No. 70, Level 2 Report ("SAS 70"). This report
shall cover at a minimum a ten (10) month period occurring between July
1, 1998 and June 30, 1999. The SAS 70 report shall be prepared using the
control objectives provided by the Bureau and in the format specified by
the Bureau. During the term of this Agreement the MCO shall submit such
reports on or before June 30 of each year covering at a minimum a ten
(10) month period occurring between July 1 of the preceding year and the
filing deadline. The MCO shall implement all SAS 70 audit recommendations
resulting from deficiencies identified in the report.
(3) On or before June 30, 1999, the Bureau shall require independently
audited financial statements from the MCO. The audit report shall be
prepared using Generally Accepted Accounting Principles ("GAAP"), and
shall cover a twelve (12) month period ending between July 1, 1998 and
June 30, 1999. During the term of this Agreement, the MCO shall submit
such reports on or before June 30 of each year covering the MCO's most
recent fiscal year.
(4) The MCO shall retain copies of canceled checks, original provider
bills and other documentation for provider payments as provided in the
MCO Policy Reference Guide (Appendix A) and shall make copies available
to the Bureau upon request for audit. If supporting documentation is not
received, administrative payment to the MCO will be withheld until the
requested information is provided. Each review or audit will be based on
the information received as of the due date. Documentation not received
by due date will not be included.
8
<PAGE> 10
(5) The MCO shall permit any authorized representative of the Bureau to
inspect, copy and audit such records, books, vouchers, invoices, and
medical bill payment information as is reasonably required to
substantiate the fees billed to or paid by the Bureau, upon prior written
notice, during Normal Business Hours, Monday through Friday 9:00 A.M
through 5:00 P.M. Eastern Time.
M. MCO CUSTOMER SERVICE COMMUNICATIONS.
(1) The MCO shall assign cases to appropriate staff no later than 5:00
P.M. Eastern Time the next Business Day after the MCO's FROI Receipt
Date. The MCO shall respond to all communications (e-mail, fax, phone,
mail) within a reasonable period of time.
(2) The MCO shall have one toll-free telephone number through which all
types of issues can be addressed as well as a toll-free fax telephone
number. Customer service telephone lines shall be staffed during Normal
Business Hours, Monday through Friday 9:00 A.M through 5:00 P.M. Eastern
Time.
(3) The MCO (or any vendor or subcontractor) shall use only fax machines
with date/time indicators (showing either A.M./P.M. or military time),
and shall leave the date/time indicators on at all times.
2. OBLIGATIONS OF MCO
A. GENERAL.
The MCO agrees to perform the services required by this Agreement in
accordance with all rules, regulations, guidelines, standards and
procedures of the Bureau and according to commercially reasonable
business practices. The MCO's Application to be certified for the HPP is
hereby incorporated into this Agreement by reference. The MCO hereby
acknowledges that it has provided the Bureau with a list of Bureau
certified providers who are enrolled in its provider Network. The MCO
agrees to review the treatment rendered by all providers and assist its
providers in any manner or means necessary to return the injured worker
to work.
B. RULES.
The MCO agrees to abide by all rules established for the HPP as set forth
in Rule 4123-6-01, et seq. of the Ohio Administrative Code (the "HPP
Rules"). The MCO hereby acknowledges that as part of the application
process to become certified as a Bureau managed care organization under
the HPP, it has provided the Bureau with the internal guidelines,
standards and procedures established for the medical management of
workers' compensation cases and that such procedures are in accordance
with all applicable Federal and Ohio laws.
C. CURRENT POLICIES.
The MCO agrees to abide by all Bureau policies and MCO reporting
requirements that are set forth in the MCO Policy Reference Guide
(Appendix A). The MCO is responsible for communication with the Bureau
Customer Service Teams and for the medical management of employers' cases
for employers who have selected them and for employers who have been
assigned to them.
9
<PAGE> 11
D. FRAUD.
(1) The MCO agrees to identify and report any suspected fraudulent or
deceptive behavior committed by injured workers, employers, providers or
any other person or entity (as defined in Ohio Revised Code Sections
2913.01(A) and (B), Ohio Revised Code Section 2913.48 and the criteria
and requirements that are hereby incorporated by reference and attached
hereto as "Appendix C: Fraud/Special Investigations-MCO Fraud Reporting
and Referral Requirements," as may be modified during the term of this
Agreement) to the Bureau's Fraud/Special Investigations Department. The
MCO agrees to report these incidents and shall supply supporting
preliminary documentation to the Bureau's Fraud/Special Investigations
Department within ten (10) Business Days of discovery. The MCO and it
agents, subcontractors and assignees agree to provide the Bureau's
Fraud/Special Investigations Department with immediate and reasonable
investigative access to any and all records, data, electronic storage
media, personnel, and information relating to any subjects of an
investigation.
(2) The Bureau agrees to provide the MCO with fraud reporting criteria,
requirements and processes as defined in Appendix C. The Bureau and MCO
agree to jointly develop and provide supportive training to the MCO and
to the Bureau's Fraud/Special Investigations Department personnel in the
identification and detection of fraud or deceptive behavior or patterns.
The Bureau and the MCO agree to jointly develop and refine detection,
reporting and recovery processes as needed.
E. EMPLOYER AND CASE ASSIGNMENT.
The parties agree that the cases subject to this Agreement shall be all
cases of employers who select the MCO and all cases of employers assigned
to the MCO by the Bureau. In addition to managing the cases of employers
who select the MCO, the MCO agrees that the Bureau may assign other
employers to the MCO and the MCO shall service those employers in
accordance with the provisions of this Agreement. The MCO agrees that the
Bureau may revoke any assignment made in error.
F. CAPACITY.
(1) The MCO may limit assignment and employer selection by providing the
Bureau with written notice that it is at capacity and that it will accept
no further employer selections or assignments as of the date identified
in the notice. The request should fully disclose and detail any and all
reasons for the capacity limitation request and it should identify the
counties where capacity will be limited.
(2) In addition, the Bureau may declare the MCO ineligible to solicit or
accept selection of the MCO by an employer or assignment of an employer
to the MCO by the Bureau by placing the MCO at capacity. The Bureau may
place the MCO at capacity for the following reasons: (a) The MCO is
undergoing the decertification process pursuant to Rule 4123-6-17 of the
Ohio Revised Code; (b) The MCO has notified the Bureau, pursuant to
Section 3(C) of this Agreement, that it proposes to merge into or be
acquired by another MCO; (c) the MCO has notified the Bureau, pursuant to
Section 5(B) of this Agreement, that it intends to terminate this
Agreement without cause; (d) the MCO's Capacity Bill Timing (as defined
in Appendix G of this Agreement) is greater than fourteen (14.00)
calendar days.
10
<PAGE> 12
3. ADMINISTRATIVE REQUIREMENTS
A. MCO BANK ACCOUNTS.
The MCO's check stock shall bear the name, address, and telephone
number of the MCO for identification purposes. The MCO provider account
and the MCO administrative account shall be separate accounts with
account numbers provided to and kept current with the Bureau. The MCO
provider account shall be a dedicated account for the funds provided to
the MCO by the Bureau to pay providers and shall only be used to pay
providers. The MCO provider account shall not be an interest-bearing
account and shall not be a "sweep account" (an account where funds over
a certain amount are temporarily placed in an interest-bearing account
until called on for payment).
B. MCO ORGANIZATIONAL STRUCTURE.
The MCO shall provide to the Bureau a detailed description of the MCO's
current organizational structure, including all subsidiary, parent and
affiliate relationships. The MCO shall identify its principals, provide
the date of incorporation or formation of partnership or limited
liability company, and provide any fictitious names the managed care
organization is, or has been, doing business under. The MCO shall
provide the Bureau with the number of years it has operated as a
managed care organization in the State of Ohio and the number of
employees in each job description, identify other states in which the
MCO has or is currently conducting business in the last five (5) years,
and identify any banking relationships including all account
information with any financial institutions doing business in Ohio.
Information relating to the immediately preceding five years and
current data shall be provided to the Bureau as of the effective date
of this Agreement.
C. CHANGE IN MCO ORGANIZATION OR OPERATION.
Any Changes to the MCO organizational structure or business operations
must be approved in advance by the Bureau in writing. The MCO shall
submit any proposed Change to the Bureau at least ninety (90) days in
advance of the proposed effective date of the Change, unless the Bureau
approves in advance a shorter period. The MCO shall comply with the
Bureau's Merger and Acquisition Policy, which is attached hereto as
Appendix D. For purposes of this Agreement "Change" means a
reorganization, consolidation, merger or other combination with an
unaffiliated party, the acquisition of substantially all the assets of
the MCO by an unaffiliated party, any action causing the dissolution,
insolvency or voluntary bankruptcy of the MCO, a change in the right to
appoint, reelect or approve more than fifty percent (50%) of the
directors or members of the controlling body of the MCO, or the MCO's
becoming subject to a management agreement that covers all or
substantially all the business operations of the MCO or any
subcontractor or change in subcontractors, or any material change in
the business operations of the MCO, including but not limited to
changes in information technology or systems. Any unapproved Change to
the MCO organizational structure or business operations shall permit
the Bureau at its discretion to terminate this Agreement in accordance
with the provisions of Section 5B of this Agreement.
D. MCO RECORD KEEPING AND DOCUMENTATION REQUIREMENTS.
(1) The MCO shall ensure confidentiality of hard copy and electronic
files. MCOs shall retain records received from providers and
subcontractors that are utilized by the MCO to develop electronic
billings to the Bureau. The MCO shall retain any records obtained from
the providers and subcontractors that are utilized by the MCO to
perform its medical management functions or to substantiate the
delivery, value, necessity and appropriateness of goods and services to
injured workers. MCOs shall retain records for the period of time and
in the format provided in the MCO Policy Reference Guide (Appendix A).
The MCO, upon request of the Bureau, shall
11
<PAGE> 13
provide all requested records to another MCO in conjunction with the
reassignment of any employer.
(2) Any medical and claim information that is part of the Bureau's
claim file, including hard copies and electronic copies gathered by the
MCO in the course of providing services under the HPP, is the property
of the Bureau and such files shall be returned to the Bureau
immediately upon termination of this Agreement. All documents received
by the MCO shall be date stamped by the MCO on the document's Receipt
Date as defined in Appendix G of this Agreement. Any equipment
materials or supplies provided to the MCO by the Bureau shall be
returned to the Bureau upon request.
4. AMOUNT AND METHOD OF PAYMENT.
A. MCO PAYMENT METHODOLOGY.
(1) The parties agree to the payment calculations and the payment
schedules described in Appendix E of this Agreement. Reimbursement to
the MCO for the period from January 1, 1999 to March 31, 1999 shall be
as set forth in Appendix E of this Agreement.
(2) Starting April 1, 1999, reimbursement to the MCO shall be based on
a flat monthly administrative fee payment of one-twelfth (1/12) of four
percent (4%) of annual workers' compensation premium for employers
assigned to the MCO, to be paid in monthly installments as set forth in
Appendix E of this Agreement. The administrative fee shall be
calculated using the premium base set forth in Section 4B below and
shall be subject to the setoffs set forth in Section 4C below.
(3) Starting April 1, 1999, the MCO shall be eligible to earn an
additional quarterly incentive fee payment of up to one-fourth (1/4) of
three percent (3%) of annual workers' compensation premium for
employers assigned to the MCO, based on its performance on the Return
to Work Degree of Disability Management ("DoDM") measurement used under
this Agreement, to be paid in quarterly installments as set forth in
Appendix E of this Agreement. The incentive fee shall be calculated
using the premium base set forth in Section 4B below. A description of
the DoDM measurement approach is contained in Appendix E: MCO Payment
Methodology.
(4) In addition to the administrative and incentive fee payments set
forth above, the MCO shall have the opportunity to recoup expenditures
associated with upgrading its systems capabilities and transmission of
data to the Bureau as required under this Agreement. Reimbursement to
the MCO for these transmission and developmental acquisition costs
shall be calculated as set forth in Appendix E of this Agreement.
B. MCO PAYMENT PREMIUM BASE.
(1) From April 1, 1999 to December 31, 1999, the premium base used to
calculate the administrative and incentive fees due to the MCO under
this Agreement shall consist of (1) for private employers assigned to
the MCO, the premium associated with the employers' July 1, 1997 - June
30, 1998 rating year (as of December 31, 1998) and (2) for public
employers assigned to the MCO, the premium associated with the
employers' January 1, 1997 - December 31, 1997 rating year (as of
December 31, 1998).
(2) The premium base used to calculate the administrative and incentive
fees due to the MCO under this Agreement from April 1, 1999 to December
31, 1999 shall be adjusted monthly (starting January 1999) to reflect
changes in the employer assignment to the MCO, including the addition
of employers through auto-assignment and the loss of employers who are
granted self-insured status, as set forth in Appendix E of this
Agreement.
12
<PAGE> 14
(3) The premium base used to calculate the administrative and incentive
fees due to the MCO under this Agreement during calendar year 2000
shall consist of the premium base used for calendar year 1999 (as
adjusted through December 31, 1999, in accordance with Sections 4B(1)
and 4B(2) of this Agreement) with the following additional adjustments:
(1) the MCO's December 31, 1999 premium base shall be increased by the
percentage difference in the Consumer Price Index - Urban (CPIU), All
Urban, Base Years 82-84, from July 1998 to July 1999; and (2) the
appropriate premium for those employers who were zero premium employers
during the 1999 premium year shall be added to the MCO's December 31,
1999 premium base.
(4) The premium base used to calculate the administrative and incentive
fees due to the MCO under this Agreement during calendar year 2000
shall be adjusted monthly to reflect changes in the employer assignment
to the MCO, including the addition of employers through auto-assignment
and the loss of employers who are granted self-insured status, as set
forth in Appendix E of this Agreement.
(5) The premium base used to calculate the administrative, performance
and incentive fees due to the MCO under this Agreement for the period
from January 1, 1999 to March 31, 1999 shall be as set forth in
Appendix E of this Agreement.
C. SETOFFS.
(1) The monthly administrative fee payment to the MCO shall be subject
to the following setoffs or deductions:
(a) FROI Timing - Defined as the average number of calendar
days between Date of Injury (DOI) and Bureau Filing Date for
all claims (with a DOI of March 1, 1997 or later) filed during
each reporting period (set forth in Appendix E of this
Agreement), excluding the five percent (5%) of claims with the
longest lag time between DOI and Bureau Filing Date. Starting
April 1, 1999, the Bureau shall deduct a percentage of the
MCO's monthly administrative fee payment as set forth in
Section 4C(2) of this Agreement if the MCO's FROI Timing for
the applicable reporting period (set forth in Appendix E of
this Agreement) was greater than twenty-one (21.00) calendar
days.
(b) Bill Timing: MCO Receipt - Bureau Receipt - Defined as the
average lag time in calendar days from the MCO's Receipt Date
for a provider medical bill or the most recent date the claim
in which the bill was incurred was placed in an Allowed
status, whichever is later ("MCO Receipt") to the date the
MCO's outgoing provider bill 837 transmission is accepted by
the EDI system provider designated by the Bureau ("Bureau
Receipt"), calculated on the basis of all bills with a paid
amount greater than $0.00 received by the Bureau from the MCO
during each reporting period (set forth in Appendix E of this
Agreement). Starting April 1, 1999, the Bureau shall deduct a
percentage of the MCO's monthly administrative fee payment as
set forth in Section 4C(2) of this Agreement if the MCO's Bill
Timing: MCO Receipt - Bureau Receipt for the applicable
reporting period (set forth in Appendix E of this Agreement)
was greater than twenty-one (21.00) calendar days.
(c) Data Accuracy -- Starting January 1, 2000, the Bureau
shall deduct twelve and one-half percent (12.5%) of the MCO's
monthly administrative fee payment if the MCO's MCO-to-Bureau
148 and 837 EDI transaction data accuracy percentages for the
period being measured (as further set forth in Appendix E of
this Agreement) fall below the criteria set forth in Appendix
E of this Agreement.
13
<PAGE> 15
(d) Misfiling of Death Claims - Starting January 1, 1999, if
the MCO submits a claim as a medical-only or lost-time claim
where the claim should have been submitted as a death claim
because the injured worker is deceased, the Bureau shall
deduct the lesser of two thousand dollars ($2,000.00) or one
percent (1%) of the MCO's monthly administrative fee payment
per instance.
(2) For the period from April 1, 1999 to December 31, 1999, the FROI
TIMING and BILL TIMING: MCO RECEIPT - BUREAU RECEIPT setoffs shall each
be equal to twelve and one-half percent (12.5%) of the MCO's monthly
administrative fee payment in any given month. For the period from
January 1, 2000 to December 31, 2000, the FROI TIMING and BILL TIMING:
MCO RECEIPT - BUREAU RECEIPT setoffs shall each be equal to six and
one-quarter percent (6.25%) of the MCO's monthly administrative fee
payment in any given month.
B. EXPENSES.
Except as otherwise provided in Section 4A(4) and Appendix E of this
Agreement, the payment of expenses associated with this Agreement is
the sole responsibility of the MCO. The Bureau shall not be required to
pay for or reimburse the MCO for any expenses incurred or paid by the
MCO in connection with the performance of services, including
publication, travel and staffing requirements, pursuant to this
Agreement.
5. TERM AND TERMINATION.
A. TERM.
This Agreement shall become effective January 1, 1999 (the "Effective
Date") and shall continue in force for a period of two years unless
earlier terminated in accordance with this Agreement. All terms and
conditions set forth in this Agreement shall go into effect on the
Effective Date unless otherwise stated.
B. TERMINATION.
(1) The MCO may terminate this Agreement without cause upon sixty (60)
days written notice to the Bureau. The Bureau may terminate this
Agreement for cause at any time upon (a) the insolvency of the MCO, (b)
any act of fraud or misrepresentation by the MCO of the amount or cost
of services or supplies rendered or provided to an injured worker, (c)
any act of fraud or misrepresentation by an MCO in reporting or
submitting data to the Bureau, including but not limited to data used
by the Bureau to calculate or determine the MCO's administrative,
performance, or incentive payments, (d) an unapproved Change in the
organizational structure of the MCO or a material Change in its
business operations, (e) decertification of the MCO or (f) substantial
failure to perform on the part of the MCO.
(2) Prior to terminating this contract for 5B(1)(f) substantial failure
to perform, the Bureau shall send written notice to the MCO containing
a statement of the reasons for the proposed termination of the
contract; a citation to the statutes, rules, or contract provisions
forming the basis for the termination of the contract; a statement
indicating that the MCO shall be provided a hearing, if requested
within thirty (30) days of the time of the mailing of the notice; and a
statement informing the MCO that if a hearing is not requested within
thirty (30) days, the Bureau shall terminate the MCO contract.
(3) If the MCO does not timely request a hearing, the Bureau may
terminate this contract for substantial failure to perform. If the MCO
timely requests a hearing, the Bureau shall
14
<PAGE> 16
immediately set the date, time, and place for such hearing, and shall
notify the MCO of the hearing. The hearing shall be held at the Bureau
central office in Columbus.
(4) The Administrator may conduct the hearing personally or may
delegate the hearing to a designee, who shall be an attorney at law.
The designee may be from the Bureau law section or an attorney employed
by the Administrator especially for such purpose. Should the hearing be
conducted by a designee, the designee shall issue a report and
recommendation, a copy of which shall be mailed to all parties and
representatives, and which may be objected to in writing within ten
(10) days. The Administrator may approve, disapprove, or modify the
report and recommendation of the designee, but shall not take such
action until after the expiration of the period for objection to the
designee's report. The Administrator shall issue a decision in writing
to the MCO and any representative informing them of the Administrator's
decision as to the proposed termination. The Administrator's final
decision as to termination of this Agreement, whether a hearing was
conducted or not, shall not be appealable.
(5) In the event of termination for any reason, the Bureau shall
determine a transition plan for the transfer of services to another
managed care organization selected by employers or assigned by the
Bureau. In the event of termination for any reason the Bureau may
withhold further payment due to the MCO pursuant to this Agreement, or
otherwise, for the purpose of set-off until such time as any damages
due to the Bureau are determined.
C. DAMAGES.
The MCO acknowledges that the Bureau may suffer damages due to the
failure of the MCO to act in accordance with the terms and conditions
of this Agreement. The MCO agrees that if the Bureau does not give
prompt notice of such failure the Bureau has NOT WAIVED any of its
rights or remedies concerning the failure of performance by the MCO. In
the event that this Agreement is terminated for any reason the MCO
shall be liable for any damages and additional costs the Bureau incurs
in seeking replacement services.
D. FORCE MAJEURE
Neither the MCO nor the Bureau shall be liable to the other for any
delay or failure of performance of any provisions contained herein, to
the extent that such delay or failure is caused by any act of God, such
as earthquake; fire; storms; tornadoes; floods, or other severe weather
disturbances; explosions; civil disturbances; war; and other such
events or any other cause that could not be reasonably foreseen in the
exercise of ordinary care, and that is beyond the reasonable control of
the party affected, and that the party is unable to prevent.
E. DECERTIFICATION.
The Bureau retains the discretion to initiate decertification
proceedings against the MCO upon termination of this Agreement.
6. GENERAL AND PROFESSIONAL LIABILITY INSURANCE.
The MCO shall maintain general and professional liability insurance against
claims for bodily injury, personal injury, death or property damage arising from
the services performed by the MCO, its employees, agents, representatives, or
subcontractors, under this Agreement for the duration of this Agreement,
together with any renewals. Such insurance shall afford initial protection of
not less than three million dollars ($3,000,000.00) for each occurrence with
respect to bodily injury, personal injury or death and not less than three
million dollars ($3,000,000.00) for each occurrence with respect to property
damage.
15
<PAGE> 17
7. AMENDMENT.
The parties may, by mutual agreement, amend, modify, supplement or rescind the
terms of this Agreement. The term "this Agreement" shall be deemed to include
any such future amendments, modifications, renewals, extensions, and
supplements. Any such amendment, modification, renewal, extension, supplement or
rescission shall not be effective unless expressed in writing and signed by the
parties hereto; provided, however, the MCO agrees to permit the Bureau to update
and substitute, from time to time, its policies, procedures and guidelines that
are referred to in this Agreement.
8. ENTIRE AGREEMENT.
It is mutually understood and agreed that this Agreement, with its Appendices,
and the MCO's Application, with any amendments, and the "MCO Application &
Requirements Training Manual" are incorporated by reference into this Agreement,
and together, represent the entire Agreement between the MCO and the Bureau. The
parties have entered into no agreements, express or implied, other than the
Agreement set forth in this writing. It is further agreed that no parole
representation of any amendment, modification, supplement or rescission of the
terms set forth herein shall be given any force or effect unless such amendment,
modification, supplement or rescission has been expressed in writing and signed
by the parties and meets any and all conditions precedent deemed applicable by
the Bureau.
9. ORDER OF PRIORITIES.
To the extent that the terms and provisions of the MCO's Application, with any
amendments, may be inconsistent with this writing, and cannot be harmonized
herewith, the terms and provisions of this Agreement shall control followed in
order of priority by the Application, with any amendments, then the "MCO
Application & Requirements Training Manual."
10. SEVERABILITY.
If for any reason any provision or part of this Agreement is declared void,
invalid, or unenforceable, the validity of the rest of this Agreement shall not
be affected and the Agreement shall remain in full force and effect with the
void, invalid, or unenforceable provision(s) eliminated.
11. WAIVER.
No waiver of any provision of this Agreement shall be valid unless it is in
writing and signed by the party against whom the waiver is sought to be
enforced. Failure of a party to insist upon strict performance of any provision
of this Agreement in any one or more instances shall not be construed as a
waiver or relinquishment of the right to insist upon strict compliance with such
provision in the future.
12. ASSIGNABILITY AND SUBCONTRACTING.
(A) MCOs are permitted to subcontract services and the MCO is accountable for
the actions and performance of any subcontractors engaged by the MCO. The MCO
shall not assign, sell, or subcontract any rights, duties or obligations
acquired pursuant to this Agreement without prior written approval by the Bureau
as provided under Section 3C and/or Appendix D of this Agreement. Such prior
written approval by the Bureau shall not be construed to modify or abrogate the
MCO's responsibility and liability pursuant to this Agreement.
(B) In the event the MCO assigns or subcontracts its duties or obligations under
this Agreement, the MCO shall develop with the Bureau a transition plan for the
transfer of services to a new MCO selected
16
<PAGE> 18
by employers or assigned by the Bureau as provided under Appendix D of this
Agreement. The MCO shall bear any expenses related to any transitioning or
transfer of services by assignment or otherwise.
13. NON-DISCRIMINATION.
The hiring of employees for the performance of work under this Agreement shall
be done in accordance with Ohio Revised Code Section 125.111 and the Governor's
amended Executive Order 84-9 of November 30, 1984. The contract shall not
discriminate against or intimidate any person hired for the performance of the
work by reason of race, color, religion, national origin, ancestry, sex,
handicap, or disability as that term is defined by the Americans with
Disabilities Act (ADA).
14. INDEPENDENT MCO RELATIONSHIP.
It is mutually understood and agreed that the MCO is at all times acting as an
independent MCO in performing services under this Agreement and shall be
responsible for compliance with all laws, rules, and regulations involving, but
not limited to, employment of labor, hours of labor, health and safety, working
conditions and payment of wages. The persons provided by the MCO shall be solely
the MCO's employees and subcontractors of the MCO and shall not be considered
employees of the Bureau. The MCO shall be responsible for payment of federal,
state, and municipal taxes and costs such as Social Security, unemployment,
workers' compensation, disability insurance, and federal and state withholding
with respect to its employees.
15. CONFIDENTIALITY.
The MCO, its officers, agents, employees, representatives, subcontractors and
assigns shall keep confidential all information, in whatever form obtained, in
the performance of this Agreement, including but not limited to knowledge of the
contents of confidential records of the Bureau. Any information subject to the
confidentiality laws of this state shall not be released to any person other
than authorized representatives of the Bureau, unless the Bureau directs its
release.
16. HOLD HARMLESS AND INDEMNIFICATION.
The MCO shall hold the Bureau harmless and indemnify the Bureau from and against
any and all claims, demands, losses, and causes of action asserted against or
incurred by the Bureau that result from or arise out of the work performed by
the MCO, its agents, employees, representatives, and subcontractors, under this
Agreement, or any errors, omissions, negligent conduct or intentional acts of
the MCO, its agents, employees, representatives, and subcontractors.
17. LIMITATION OF LIABILITY.
The Bureau's liability for damages for services rendered pursuant to this
Agreement, whether in contract or in tort, shall not exceed the total amount of
compensation payable to the MCO pursuant to this Agreement, or the amount of
direct damages incurred by the MCO, whichever is less. The MCO's sole and
exclusive remedies for the Bureau's failure to perform shall be subject to the
jurisdiction of the Ohio Court of Claims. In no event shall the Bureau be liable
for any consequential, incidental, or punitive losses, damages, expenses,
including the loss of profits, even if the Bureau knew or should have known of
the possibility of such damages.
18. APPLICABLE STATE LAW.
The terms and conditions contained herein shall be construed and interpreted in
accordance with the laws of the State of Ohio. Any and all disputes arising from
this Agreement shall be governed by the laws of
17
<PAGE> 19
the State of Ohio, and the MCO agrees to submit exclusively to the jurisdiction
of the Ohio Court of Claims in any and all disputes arising from this Agreement.
19. COMPLIANCE WITH THE LAWS OF OHIO.
The MCO agrees and covenants that it at this time is not and for the duration of
this Agreement will not knowingly violate the laws of Ohio specifically
including, but not limited to, the workers' compensation laws of Ohio, the
corporate laws of Ohio, and all rules and regulations promulgated under those
laws.
20. CONFLICTS OF INTEREST.
(A) The MCO affirms that it presently has no interest and shall not acquire any
interest, direct or indirect, which would conflict, in any manner or degree,
with the performance of services which are required to be performed under any
resulting Agreement. In addition, the MCO affirms that a person who is or may
become an agent of MCO not having such interest upon the execution of this
Agreement shall likewise advise the Bureau in the event it acquires such
interest during the term of this Agreement.
(B) Furthermore, any such person who is or may become an agent of the MCO who
acquires an incompatible or conflicting personal interest, prior to, on or after
the effective date of this Agreement, or who involuntarily acquires any such
incompatible or conflicting personal interest, shall immediately disclose his or
her interest to the Bureau in writing. Thereafter, such person shall not
participate in any action affecting the work under this Agreement, unless the
Bureau determines that, in light of the personal interest disclosed, such
person's participation in any such action would not be contrary to the public
interest.
(C) The MCO and any affiliated Third Party Administrators ("TPAs"), if
applicable, shall have complete separation of functions, offices, systems, and
staff. The MCO shall not use or contract with any provider who has an ownership
interest in, or who is the medical director for, the MCO to provide Independent
Medical Examination ("IME") services for injured workers assigned to the MCO.
The MCO and any subcontractor(s) must be separate legal entities and may not
have the same Bureau provider number or tax identification number. The MCO shall
not be a Bureau certified health care provider.
21. HEADINGS.
The headings in this Agreement and its appendices are for convenience only and
are not intended to be part of, or to affect the interpretation of, the terms of
this Agreement.
22. CERTIFICATION.
The MCO is certified to provide services under this Agreement only in the
counties listed in Appendix F of this Agreement, as may be modified during the
term of this Agreement.
23. OHIO ELECTIONS LAW.
The MCO affirms that, as applicable to the MCO, no party listed in Division (I)
or (J) of Section 3517.13 of the Revised Code, or spouse of such party, has
made, as an individual, within the two previous calendar years, one or more
political contributions totaling in excess of $1,000.00 to the Governor of Ohio
or to his campaign committees.
24. DEFINITIONS.
Unless otherwise defined in the text of this Agreement, the capitalized terms
and capitalized abbreviations as used in this Agreement shall have the same
meaning as defined in Rule 4123-6-01 of the Ohio Administrative Code. A Glossary
of the defined terms used in this Agreement is attached as Appendix G.
18
<PAGE> 20
IN WITNESS WHEREOF, the parties hereunto affix their signatures this 10th day of
November, 1999.
COMMUNITY INSURANCE COMPANY STATE OF OHIO
d/b/a Anthem Blue Cross And Blue Shield BUREAU OF WORKERS' COMPENSATION
TAX ID #____________________________
- ------------------------------------ --------------------------------
Name: Name: James Conrad
------------------------------- ------------
Title: Title: Administrator
------------------------------- -------------
19
<PAGE> 21
IN WITNESS WHEREOF, the parties hereunto affix their signatures this 10th day of
November, 1999.
COMMUNITY INSURANCE COMPANY STATE OF OHIO
d/b/a Anthem Blue Cross And Blue Shield BUREAU OF WORKERS' COMPENSATION
TAX ID #____________________________
- ------------------------------------ --------------------------------
Name: Name: James Conrad
------------------------------- ------------
Title: Title: Administrator
------------------------------- -------------
19
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF HEALTH POWER, INC.
1. Health Power HMO, Inc., an Ohio corporation
2. CompManagement, Inc., an Ohio corporation
3. CompManagement Health Systems, Inc., an Ohio corporation
4. M&N Risk Management, Inc., an Ohio corporation
5. Health Power Management Corporation, an Ohio corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF PRICEWATERHOUSECOOPERS LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Health Power, Inc. on Form S-8 (File No. 33-91956), Form S-8 (File
No. 33-91958), Form S-8 (33-91852), Form S-8 (File No. 333-20535), and Form S-8
(File No. 333-45857) of our report dated March 8, 2000, on our audits of the
consolidated financial statements of Health Power, Inc. and Subsidiaries as of
December 31, 1999 and 1998, and for the years ended December 31, 1999, 1998, and
1997 which report is included in this Annual Report on Form 10-K.
Columbus, Ohio /s/ PricewaterhouseCoopers LLP
------------------------------
March 30, 2000 PricewaterhouseCoopers LLP
<PAGE> 1
Exhibit 24(b)
POWER OF ATTORNEY
FOR
ANNUAL REPORTS ON FORM 10-K
The undersigned, a director of Health Power, Inc., a Delaware
corporation (the "Company"), hereby constitutes and appoints Dr. Bernard F.
Master and Alec Wightman, and each of them, my true and lawful attorneys-in-fact
and agents, with full power to act without the other, with full power of
substitution and resubstitution, for me and in my name, place, and stead, in my
capacity as director of the Company, to execute the Company's Form 10-K Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Company's fiscal year ended December 31, 1999, and for each fiscal year
thereafter, and any amendments thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Jonathan R. Wagner March 22, 2000
- --------------------------------------- --------------
Jonathan R. Wagner Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,816
<SECURITIES> 0
<RECEIVABLES> 4,613
<ALLOWANCES> (519)
<INVENTORY> 0
<CURRENT-ASSETS> 17,625
<PP&E> 6,085
<DEPRECIATION> (2,196)
<TOTAL-ASSETS> 31,578
<CURRENT-LIABILITIES> 22,231
<BONDS> 0
39
0
<COMMON> 0
<OTHER-SE> 6,997
<TOTAL-LIABILITY-AND-EQUITY> 31,578
<SALES> 0
<TOTAL-REVENUES> 38,262
<CGS> 0
<TOTAL-COSTS> 35,043
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224
<INCOME-PRETAX> 2,996
<INCOME-TAX> 1,539
<INCOME-CONTINUING> 4,535
<DISCONTINUED> (650)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,886
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.01
</TABLE>
