-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4g5vaL1r1GeLQh7LmzpYVketw7n80ETEzL5RXjfB6mGlE7TZNtAIy9+JhWNnqLD KRRqrKdLynNBf04SnwyAtA== 0000950152-97-003867.txt : 19970515 0000950152-97-003867.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950152-97-003867 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOICECARE CORP \OH\ CENTRAL INDEX KEY: 0001003931 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 311446609 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22295 FILM NUMBER: 97603900 BUSINESS ADDRESS: STREET 1: 655 EDEN PARK DR CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137845200 MAIL ADDRESS: STREET 1: 655 EDEN PARK DRIVE CITY: CINCINNATI STATE: OH ZIP: 45202-6056 10-Q 1 CHOICECARE CORPORATION 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 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 0-22295 CHOICECARE CORPORATION OHIO 31-1446609 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 655 EDEN PARK DRIVE, SUITE 400 45202 CINCINNATI, OHIO (Zip Code) (Address of Principal Executive Offices) (513) 784-5200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ As of May 1, 1997, 14,852,844 shares of ChoiceCare Corporation common shares were outstanding. 2 CHOICECARE CORPORATION INDEX Page ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Statements of Operations for the three month periods ended March 31, 1997 and 1996 3 Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 4 Consolidated Statements of Cash Flows for the three month periods ended March 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12 SIGNATURE 13 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHOICECARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996 -------- -------- REVENUES: Premium revenue $ 68,779 $ 70,508 Management services revenue 3,832 3,419 Other operating revenue 210 123 -------- -------- Total Operating Revenues 72,821 74,050 -------- -------- EXPENSES: Health care services Physician services 27,969 30,144 Hospital services 20,815 24,517 Pharmacy services 9,306 8,270 -------- -------- Total Health Care Services 58,090 62,931 Selling, general and administrative expenses 16,687 14,663 -------- -------- Total Operating Expenses 74,777 77,594 OPERATING LOSS (1,956) (3,544) OTHER INCOME (EXPENSE) Investment income, net 1,372 1,150 -------- -------- LOSS BEFORE INCOME TAXES (584) (2,394) INCOME TAX BENEFIT 222 -- -------- -------- NET LOSS $ (362) $ (2,394) ======== ======== LOSS PER SHARE $ (.02) $ (.18) ======== ======== AVERAGE NUMBER OF SHARES OUTSTANDING 14,853 13,500 ======== ========
The accompanying notes are an integral part of these statements. 3 4 CHOICECARE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
MARCH 31, DECEMBER 31, 1997 1996 ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 34,833 $ 38,597 Securities available-for-sale 74,684 70,436 Premiums receivable 5,284 7,815 Health care receivables 7,875 5,636 Other current assets 12,622 12,489 -------- -------- Total Current Assets 135,298 134,973 PROPERTY AND EQUIPMENT, net 9,194 9,536 OTHER LONG-TERM ASSETS 5,380 5,279 -------- -------- Total Assets $149,872 $149,788 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Medical costs payable $ 47,378 $ 48,260 Accounts payable and accrued liabilities 13,578 15,043 Amounts due to vendor 5,450 6,200 Unearned premiums 5,797 5,133 Provider risk pool liability 15,962 12,304 -------- -------- Total Current Liabilities 88,165 86,940 LONG-TERM LIABILITIES 12,082 12,296 -------- -------- Total Liabilities 100,247 99,236 -------- -------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, without par value, 4,000 shares authorized; none issued -- -- Common stock, without par or stated value, 45,000 shares authorized; 14,853 shares issued and outstanding at March 31, 1997 12,014 12,014 and December 31, 1996 Net unrealized losses on securities available-for-sale, net of taxes (586) (21) Retained earnings 38,197 38,559 -------- -------- Total Shareholders' Equity 49,625 50,552 -------- -------- Total Liabilities and Shareholders' Equity $149,872 $149,788 ======== ========
The accompanying notes are an integral part of these statements. 4 5 CHOICECARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996 -------- -------- NET CASH FLOWS FROM OPERATING ACTIVITIES $ 1,957 $ (363) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Receipts from sale of investments 308 8,929 Payments for purchase of investments (5,295) (8,002) Other (734) (646) -------- -------- Net cash (used in) provided by investing activities (5,721) 281 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (3,764) (82) CASH AND CASH EQUIVALENTS, beginning of period 38,597 12,622 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 34,833 $ 12,540 ======== ========
The accompanying notes are an integral part of these statements. 5 6 CHOICECARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) NOTE 1. BASIS OF PRESENTATION ChoiceCare Corporation (the "Company") is an Ohio for-profit corporation, which is a majority-owned subsidiary of The ChoiceCare Foundation (the "Foundation"), an Ohio not-for-profit corporation (formerly named Tristate Foundation for Health and, prior to that, Midwest Foundation Independent Physicians Association). The Foundation was organized in 1978 as a not-for-profit health maintenance organization. The consolidated financial statements for the interim periods included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, management believes that the disclosures are adequate to make the information presented not misleading. Operating results for the interim periods are not necessarily indicative of results for the full fiscal year. It is suggested that these consolidated financial statements and notes be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Certain reclassifications have been made to the 1996 financial statements to conform with the 1997 presentation. NOTE 2. ACCOUNTING POLICIES The consolidated financial statements presented in this report have been prepared in accordance with the accounting policies described in Note 2 to the consolidated financial statements included in the aforementioned Annual Report on Form 10-K and reflect all adjustments consisting solely of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. While management believes that the procedures followed in the preparation of the consolidated financial statements for the interim periods are reasonable, certain estimated amounts are dependent upon current facts and other information that may change subsequently during the fiscal year. NOTE 3. PER SHARE DATA Loss per share are based on the weighted average number of shares of common stock outstanding during the periods and the dilutive effect of the assumed exercise of stock options, if any. NOTE 4. LONG TERM STOCK INCENTIVE PLAN On March 5, 1997, the Company's Board of Directors (the "Board") committed to grant, subject to certain conditions, no more than approximately 666,000 stock options during 1997 under the terms of the 1996 Long Term Stock Incentive Plan. Such options are anticipated to be granted at fair market value, as determined by the Board, during the second quarter. 6 7 NOTE 5. COMMITMENTS AND CONTINGENCIES EMPLOYEE AGREEMENTS - The Company currently has in effect employment agreements with its executive officers and certain of its other officers which provide for severance or other payments in the event that employment is terminated for reasons other than for cause. Payments to officers other than the Chief Executive Officer would include base pay for a period of six months to one year, depending upon the officer. The Chief Executive Officer's agreement provides that, in the event that employment is terminated for reasons other than for cause, he would generally be paid all amounts which would otherwise be due him under the terms of his agreement. In addition, his agreement provides that he will be granted no less than 142,697 stock options in 1998. In addition, the agreements also contain provisions related to a change in control (as defined in the employment agreements), including lump-sum retention incentive payments and, in the agreements of executive officers, lump-sum change in control severance payments. The maximum contingent liabilities of the Company related to such retention incentive payments and change in control severance payments, pursuant to the employment agreements, are currently estimated at approximately $5.0 million and $10.5 million, respectively. LITIGATION - The Company is routinely involved in litigation matters arising in the normal course of business. Management believes, based upon the advice of counsel, that these actions and proceedings and losses, if any, resulting from the final outcome thereof, will not be material in the aggregate to the Company's consolidated financial position. NOTE 6. SUBSEQUENT EVENT ADMINISTRATIVE SERVICES MANAGEMENT AGREEMENT - As announced in September 1996, a customer accounting for approximately 36% of the Company's total self-funded members did not renew the administrative services management agreement between the Company and the customer, which expired March 31, 1997. Management services revenue received from the customer during the three months ended March 31, 1997 and 1996 were approximately $937 and $994, respectively. Contributions to operating income from the contract have historically not been material to the Company's total results of operations due to the operating expense associated with the administration of the contract and providing services to the customer's members. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW An increase in member months for the Company's prepaid commercial products and an increase in premium rates for such products, resulted in the Company experiencing a 5.7% increase in premium revenue from prepaid commercial products in the three month period ended March 31, 1997 (the "1997 period"), compared to the three month period ended March 31, 1996 (the "1996 period"). Despite a decrease in member months for the Company's self-funded products, management services revenue increased 12.1% primarily due to rate increases which took effect for the first quarter of 1997. In addition, the Company experienced an improvement in overall health care services expense levels in the 1997 period. These positive trends, as well as a net retention rate of approximately 95% for groups renewing during the first three months of 1997, were achieved in a continued increasingly competitive environment within the Company's service area. Offsetting the effects of this growth and increase in premium rates for renewing fully-insured groups were the following factors, which combined to yield an operating loss of $1,956 and a net loss of $362 during the 1997 period, an improvement compared to the 1996 period which reflected an operating loss of $3,544 and a net loss of $2,394: - loss of premium revenues recognized from the Company's Special Health Medicaid product as a result of the June, 30, 1996 assignment of the Medicaid contract -- $5,410 during the 1996 period; - decreased self-funded membership, as discussed below; - continuation of industry-wide health care cost inflation trends, particularly pharmacy benefits; and - expenses of approximately $1,850 in the 1997 period related to the start-up of the Company's new managed Medicare ("Senior Health") and Workers' Compensation products, both of which began covering their first member/covered life in March 1997, and the continuing expansion efforts into the Dayton, Ohio service area, in which product offerings commenced May 1, 1997. As the new Medicare and Workers' Compensation products were not offered until March 1997, revenues recognized in the 1997 period from such products were not significant. It is anticipated that these new products, as well as the expansion into the Dayton service area, will negatively impact operating income for the year ending December 31, 1997, offsetting otherwise anticipated profitable operations for the Cincinnati Commercial Health Plan. 8 9 RESULTS OF OPERATIONS The following table sets forth selected operating data, expressed as a percentage of total operating revenues and/or on a per member per month ("PMPM") basis, selected member data and medical-expense ratios:
THREE MONTHS ENDED MARCH 31, 1997 1996 ----------- ----------- OPERATING REVENUES: Premiums 94.4% 95.2% Management services revenue 5.3 4.6 Other .3 .2 ----------- ----------- Total 100.0 100.0 ----------- ----------- OPERATING EXPENSES: Health care services 79.8 85.0 Selling, general and administrative 22.9 19.8 ----------- ----------- Total 102.7 104.8 ----------- ----------- Operating loss (2.7) (4.8) Investment income, net 1.9 1.6 ----------- ----------- Loss before income taxes (.8) (3.2) Income tax benefit .3 -- ----------- ----------- Net loss (.5%) (3.2%) =========== =========== MEDICAL-EXPENSE RATIO* 84.5% 89.3% MEMBER MONTHS FOR THE PERIOD: Prepaid Commercial 584,526 571,068 Medicaid -- 38,812 ----------- ----------- 584,526 609,880 Self-funded 232,421 261,605 ----------- ----------- Total 816,947 871,485 =========== =========== PMPM DATA: Premium revenue - Commercial $ 117.67 $ 113.99 Premium revenue - Medicaid -- 139.39 Management services revenue 16.49 13.07 Health care services expense 99.38 103.19 Selling, general and administrative expense 20.43 16.83
* Health care services expense as a percentage of premiums. 9 10 PREMIUM REVENUE - The 2.5% net decrease in premium revenue during the 1997 period results primarily from the assignment of the Company's Special Health Medicaid product on June 30, 1996. Excluding Special Health Medicaid premium revenues of $5,410 from the 1996 period, premium revenues for the first quarter of 1997 increased 5.7% over the same period last year. This increase is attributable to a 2.4% increase in prepaid commercial member months and a 3.2% increase in the weighted average PMPM premium for such products, reflecting a recently improved pricing environment as compared to flat or decreasing pricing during 1996. MANAGEMENT SERVICES REVENUE - The 12.1% increase in management services revenue from self-funded employer groups and the 26.2% increase in such revenue on a PMPM basis, result primarily from increases in administration fee rates. The increase in rates is offset by an 11.2% decrease in self-funded membership, due largely to the 22.1% decrease in membership of a large self-funded employer group which, consistent with the July 1996 announcement of its multi-year renewal commitment, opted to offer its employees an additional competitor's managed care plan as of January 1, 1997. Self-funded membership, excluding the effects of the customer discussed in Note 6 of Notes to Consolidated Financial Statements, totaled approximately 49,750 at March 31, 1997. HEALTH CARE SERVICES EXPENSE - The 7.7% net decrease in total health care services expense during the 1997 period reflects 1) the assignment of the Medicaid contract, which had higher PMPM medical expenses relative to commercial membership; 2) a 3.2% decrease in physician expenses on a PMPM basis, due primarily to decreased average cost per service resulting from changes in the mix of service provided; 3) an 11.4% decrease in hospital expenses on a PMPM basis; and 4) a 17.4% increase in pharmacy expenses on a PMPM basis, resulting primarily from continued industry-wide drug cost inflation and slightly higher utilization levels. The 11.4% decrease in hospital expenses on a PMPM basis reflects the net effects of: - increased utilization and decreased cost per service; - decrease in hospital service reimbursement rates paid to certain core hospitals; - a decrease in amounts earned in connection with the Company's hospital risk/reward sharing arrangements, due to the hospitals' performance against established cost of hospital services and quality targets; and - a refinement downward in the 1997 period of the Company's prior year's estimate of hospital claims expense. As a result of the 3.7% decrease in health care services expense on a PMPM basis, in conjunction with the 1.8% increase in the weighted average PMPM premium, the Company's medical-expense ratio decreased to 84.5% in the 1997 period from 89.3% in the 1996 period. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - The 13.8% increase in expenses for selling, general and administrative costs in the 1997 period reflects the continued impact of expenses incurred for investment in new products and geographic expansion, and to manage medical cost inflation. Included are approximately $1,850 of expenses incurred in connection with the Senior Health and Workers' Compensation products and expansion into the Dayton service area, as previously discussed -- an approximate $1,330, or greater than three-fold, increase in such expenses over the 1996 period. Increased expenses are substantially comprised of 1) compensation, primarily due to salary increases in the normal course 10 11 of business and a shift in the relative mix of the Company's work force, largely as a result of the aforementioned new initiatives; 2) advertising and printed materials, primarily related to the new products and Dayton service area expansion; and 3) higher depreciation and amortization expense, relating to computer hardware and software and payments related to the Company's medical group assistance program. INVESTMENT INCOME - During the 1997 period, the Company experienced a 19.3% increase in investment income as compared to the 1996 period. This period-over-period increase can primarily be attributed to an increase in the average outstanding cash, cash equivalent and investment portfolio balance, due largely to the proceeds from the May 1, 1996 stock offering and the June 30, 1996 assignment of the Special Health Medicaid contract and, to a lesser extent, higher short-term interest rates in 1997. INCOME TAX BENEFIT - The income tax benefit has been recorded at the rate applicable to the Company, currently estimated at an effective tax rate of approximately 38%. This rate may ultimately be adjusted based upon 1997 full year results. FINANCIAL CONDITION Net cash totaling $1,957 was provided by operations during the 1997 period, resulting primarily from the net activity in certain of the Company's balance sheet components since year end 1996. Most significant was a net increase in provider risk pool liabilities, offset by net payments of accounts payable and accruals. The cash provided by operations was more than offset by $5,721 of cash used in investing activities, reflecting the net cash impact of investment portfolio transactions and capital expenditures. As of March 31, 1997, the Company's investment portfolio was comprised of debt securities (73.9%), equity-based mutual funds (10.9%) and fixed income mutual funds (15.2%), all of which are available to meet current obligations and classified as securities available-for-sale in the accompanying Consolidated Balance Sheets. Higher interest rates reducing the fair market value of fixed-rate debt securities and mutual funds, and decreases in market values of equity-based mutual funds, resulted in unrealized losses on the investment portfolio totaling $586, net of tax, as of March 31, 1997 compared to unrealized losses totaling $21 as of December 31, 1996. Such net unrealized losses are reflected as a separate component of equity in the accompanying Consolidated Balance Sheets. The Company believes that its cash and cash equivalents, investment portfolio and the $15 million available under its debt facility will be sufficient to fund its liquidity needs for at least the next 12 months. CAUTIONARY STATEMENT The information set forth above may include "forward-looking" information, as defined in the Private Securities Litigation Reform Act of 1995. The Cautionary Statement filed by the Company on November 12, 1996 as part of its Form 10-Q for the period ended September 30, 1996 is incorporated herein by reference, and investors are specifically referred to such Cautionary Statement for a discussion of factors which could affect the Company's operations and "forward-looking" statements contained herein. 11 12 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10(ii)(A)(1) Amended and Restated Employment Agreement between the Company and Daniel A. Gregorie, M.D., effective January 1, 1997. 10(ii)(A)(2) Amended and Restated Employment Agreement between the Company and Thomas D. Anthony, Esq., effective January 1, 1997. 10(ii)(A)(3) Amended and Restated Employment Agreement between the Company and Jane E. Rollinson, effective January 1, 1997. 10(ii)(A)(5) Amended and Restated Employment Agreement between the Company and Michael J. Barber, M.D., effective January 1, 1997. 10(ii)(A)(6) Amended and Restated Supplemental Executive Retirement Agreement between the Company and Daniel A. Gregorie, M.D., effective January 1, 1997. 10(iii)(A)(5) Supplemental Executive Retirement Plan for Executive Officers, effective January 1, 1997. 27 Financial Data Schedule. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended March 31, 1997. 12 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHOICECARE CORPORATION Date: May 14, 1997 By: /s/ Juan M. Fraiz ----------------------------------------- Juan M. Fraiz Vice President and Chief Financial Officer (Principal Financial Officer) 13 EX-10.II.A.1 2 EXHIBIT 10(II)(A)(1) 1 Exhibit 10(ii)(A)(1) AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- CHIEF EXECUTIVE OFFICER ----------------------- CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH PLANS, INC. (the "ChoiceCare Operating Company" and with the ChoiceCare Parent and the ChoiceCare Operating Company being collectively referred to as the "Employer"), and DANIEL A. GREGORIE, M.D. ("Employee"), hereby agree as follows, effective as of the 1st day of January, 1997: 1. RECITALS. Employer and Employee are currently parties to an employment agreement, the original form of which was adopted on December 23, 1994 and the form of which was amended and/or restated certain times since then. This Agreement amends and restates any prior employment agreement between Employer and Employee in its entirety, and supersedes any prior employment agreement between Employer and Employee, effective as of January 1, 1997. 2. EMPLOYMENT. Employer agrees to employ Employee, and Employee accepts such employment, upon the terms and conditions set forth herein. 3. EMPLOYEE'S RESPONSIBILITIES. 3.1 Employee shall serve as the President and Chief Executive Officer of the ChoiceCare Parent and as the Chief Executive Officer of the ChoiceCare Operating Company. In such positions, Employee shall be responsible for the management and supervision of Employer's operations and perform such other duties and responsibilities as shall be requested by the boards of directors of Employer, including serving as an executive officer or a member of the board of any affiliated company. For purposes of this Agreement, an "affiliated company" means any corporation (other than the Employer) which, now or at any later time, is part of an unbroken chain of corporations (i) that includes the Employer and (ii) in which each corporation in such chain either owns at least 50% of the total combined voting power of all classes of stock in one of the other corporations in such chain or has at least 50% of the total combined voting power of all classes of its stock owned by one of the other corporations in such chain. 3.2 Employee shall devote his full time and best efforts to his employment with Employer and perform diligently such duties as are required by Employer from time to time, which duties shall be consistent with Employee's position with Employer. 2 3.3 Without the prior written consent of the ChoiceCare Parent, which shall not be unreasonably withheld, during the term of this Agreement Employee shall not, directly or indirectly, render services of a business, professional or commercial nature to any other person or firm, for compensation or otherwise, except in the ordinary course of the business of Employer or any affiliated company. Notwithstanding the foregoing but subject to the following provisions, Employee may serve as a director or trustee of any company, on either a compensated or noncompensated basis, that is not a competitor of Employer or any affiliated company. Employee may retain any director fees, committee fees, stock options, restricted stock awards or other remuneration paid or given to Employee by any such company for such services as a director or trustee. Employee shall notify the ChoiceCare Parent of any appointment to a board of directors or board of trustees, and, notwithstanding the foregoing, Employee shall resign from any board upon the request of the ChoiceCare Parent, provided that the request has a reasonable basis. Employee may also retain any honoraria paid to him, provided that, if the honoraria to be paid for any one appearance or presentation exceeds $2,000, the Chairman of the Human Resources and Compensation Committee of the board of directors of the ChoiceCare Parent shall determine, in his or her sole discretion, whether Employee is entitled to retain the amount in excess of $2,000. 4. TERM. 4.1 The initial term of this Agreement shall begin January 1, 1997 and end December 31, 1999. 4.2 This Agreement shall automatically be renewed at the end of its initial term (or at the end of any renewal term provided hereunder) for a renewal term of one additional year, unless Employer gives Employee, or unless Employee gives Employer, written notice by October 1 of the last contract year of the initial term of this Agreement (or by October 1 of any contract year in which a renewal term of this Agreement is in effect) that this Agreement shall terminate at the end of the then-current term. If this Agreement terminates at the end of a then-current term by reason of Employer giving a timely written notice to Employee that this Agreement shall terminate at the end of the then-current term, then Employer shall be deemed to have terminated Employee's employment for purposes of the other provisions of this Agreement. On the other hand, if this Agreement terminates at the end of a then-current term by reason of Employee giving a timely written notice to Employer that this Agreement shall terminate at the end of the then-current term, then, except as may otherwise be provided under subsection 14.1 below or any other provision of this Agreement, Employee shall be deemed to have voluntarily resigned his employment with Employer for purposes of the other provisions of this Agreement. 4.3 For all purposes of this Agreement, a "contract year" means a calendar year, beginning January 1 and ending the following December 31, which occurs during the term of this Agreement. Also, for all purposes of this Agreement, a "contract term" means either the initial term of this Agreement or any renewal term of this Agreement. In addition, - 2 - 3 also for all purposes of this Agreement, any reference to the "then-current contract year" refers to the contract year which is then in effect and any reference to the "then-current term" refers to the contract term which is then in effect. 4.4 Notwithstanding anything to the contrary in the Employer's Executive Long-Term Incentive Plan (the "Long-Term Plan"), if Employee ceases to be an employee of Employer at the end of the initial term or any renewal term of this Agreement, Employee shall be entitled to be paid, within ninety days after the expiration of this Agreement, all incentives which have been earned under the Long-Term Plan in prior contract years, if any, but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment). 5. COMPENSATION AND BENEFITS: During the term of this Agreement: 5.1 Employee shall receive an initial base salary at the annual rate of $395,000, payable in equal consecutive bi-weekly installments. Such base salary shall be reviewed annually, effective as of the first pay period beginning on or after January 1 of each contract year after the initial contract year of this Agreement, and shall be adjusted on a basis consistent with the executive compensation philosophy of Employer as evidenced by the application of such philosophy to the compensation of Employer's other key executives. In no event shall Employee's base salary be reduced for any contract year (whether or not such contract year occurs in the initial term of this Agreement or in a renewal term of this Agreement) below his base salary for the immediately preceding contract year. 5.2 Employer may during the term of this Agreement, consistent with its approach to the rest of its executive group: (a) Award an annual incentive to Employee based on Employer's overall success as a for-profit community resource, Employer's accomplishment of strategic imperatives, Employer's continuous improvements of quality outcomes and Employee's performance of his duties under this Agreement during the previous contract year, in accordance with Employer's Executive Annual Incentive Plan (the "Annual Incentive Plan"), as amended from time to time by the boards of directors of Employer. The amount of any incentive under the Annual Incentive Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Annual Incentive Plan. However, in the event of a change in control, the overall value of the annual incentive under the Annual Incentive Plan, as may be reasonably determined by the Employer's boards of directors (taking into account the possibility of meeting the goals which are used under such plan to determine if Employee is entitled to the incentive as - 3 - 4 well as the potential amount of the incentive), shall not be reduced for the contract year in which the change in control occurs or any subsequent contract year below the overall value of the annual incentive under such plan which has been established by the Employer prior to the change in control for the contract year in which the change in control occurs (or, if no annual incentive has been established for such contract year by the time of the change in control, for the next preceding contract year); (b) Award an incentive to Employee pursuant to the provisions of the Long-Term Plan, as amended from time to time by the boards of directors of Employer. The amount of any incentive under the Long-Term Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Long-Term Plan. However, in the event of a change in control, in no event shall the overall value of the incentive under the Long-Term Plan which has been established by the Employer prior to the change in control with respect to the contract year which begins January 1, 1997, as may be reasonably determined by the Employer's boards of directors, be reduced; and (c) Cause awards to be granted to Employee pursuant to the provisions of Employer's 1996 Long Term Stock Incentive Plan (the "Stock Incentive Plan"), as amended from time to time by the boards of directors of Employer. The awards granted under the Stock Incentive Plan shall constitute or be otherwise based on shares of common stock of the ChoiceCare Parent ("Common Shares") in accordance with the terms and practices of such plan. Specifically, Employee shall, under the Stock Incentive Plan and subject to its terms, be granted: (i) in the contract year which begins on January 1, 1997, stock options which are not incentive stock options ("nonincentive stock options") and which give Employee the ability to purchase no less than 200,000 Common Shares; and (ii) in the contract year which begins on January 1, 1998, nonincentive stock options which give Employee the ability to purchase no less than a number of Common Shares which is equal to the difference between 342,697 Common Shares and the number of Common Shares which are granted under the Stock Incentive Plan to Employee during the contract year which begins on January 1, 1997. Any nonincentive stock option required to be granted under the immediately preceding sentence shall provide that all of the Common Shares which are subject to such option shall be vested, and shall be able to be purchased through the exercise of such option, until the date which is ten years from - 4 - 5 the date such option is granted, if and once either (i) Employee's employment with Employer as an employee does not end before the last day of the initial term of this Agreement or (ii) Employee's employment with Employer terminates prior to the last day of the initial term of this Agreement for any reason other than Cause or Employee's voluntary resignation (other than a voluntary resignation which still results in an amount being payable under subsection 6.5(b) below or under subsection 8.5 below). Notwithstanding the foregoing, the grant of any nonincentive stock option under this paragraph (c) shall be conditioned on Employee being an employee of Employer, and still performing his duties under this Agreement in a satisfactory manner, on the date such option is otherwise to be granted. In addition, and also notwithstanding the foregoing, the number and class of shares subject to the nonincentive stock options required under the preceding provisions of this paragraph (c) shall be proportionately adjusted, and the terms of such options as to option price and other material provisions shall be appropriately adjusted, in the event of changes in the Common Shares by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other similar changes in capitalization, or any distribution to common shareholders other than cash dividends. Further, Employer and Employee agree that no awards other than those described in this paragraph (c) are required to be made to Employee under the Stock Incentive Plan during the term of this Agreement. 5.3 Employee shall be entitled during the term of this Agreement to: (a) Six weeks paid vacation per year. Vacation use and carryover rules will be in accordance with the rules established for other executives of Employer. (b) Disability insurance as is afforded generally from time to time to other members of the executive management group of Employer. However, in the event of a change in control, the value of the coverage provided by such disability insurance, as may be reasonably determined by the Employer's boards of directors, shall not be less at any time on or after the change in control and while this Agreement is in effect than the value of the disability insurance provided Employee under this Agreement immediately prior to the change in control. - 5 - 6 (c) Medical benefits (not including dental or other benefits to the extent they are provided under a plan or arrangement which is not part of Employer's comprehensive program of hospital, physician, and similar types of medical benefits) for Employee and his family as are afforded from time to time to the rest of Employer's executive group. However, in the event of a change in control, the value of the coverage provided by such medical benefits, as may be reasonably determined by the Employer's boards of directors, shall not be less at any time on or after the change in control and while this Agreement is in effect (or thereafter to the extent medical benefits must be provided under the following provisions of this paragraph (c)) than the value of the medical benefits provided Employee under this Agreement immediately prior to the change in control. Except as may otherwise be specifically provided in the other provisions of this Agreement, such medical benefits shall be provided to Employee after the termination of his employment with Employer for any reason except Cause (as defined in subsection 6.1 below) or his voluntary resignation from his employment with Employer other than at the end of a contract term, as if Employee had remained employed by Employer, until such time as is indicated below. After his termination of employment with Employer, such benefits shall be comparable to those provided to active executive employees and shall be provided through insurance, health maintenance organization products or other arrangements, at Employer's discretion, so long as the result is to provide such benefits in the immediate vicinity of Employee's residence at any time following his termination of employment. Such benefits shall continue until either (i) Employee is eligible to receive benefits under Medicare or a successor government-sponsored program or (ii) Employee obtains employment with another employer and is eligible to receive comparable medical benefits under any plan maintained by such other employer, at which time Employee shall not be entitled under this Agreement to any additional medical benefits from Employer (unless Employee is actively employed full-time or part-time by Employer). In the event of the death of Employee while Employee and his family are receiving the medical benefits provided hereunder, Employee's family shall continue to receive medical benefits hereunder, to the same extent as if Employee had left the employ of Employer and was entitled to medical benefits hereunder, until such time as Employee's spouse either (i) becomes eligible to receive benefits under Medicare or a successor government-sponsored program or (ii) obtains employment or - 6 - 7 remarries when such spouse, as a result of her employment or remarriage, is otherwise eligible to receive comparable medical benefits under a plan maintained by her employer or her spouse's employer. (d) Tax-qualified retirement plan benefits, dental benefits and such other similar employment privileges, perquisites and benefits (not including the benefits described in paragraphs (b) and (c) immediately above) as are afforded generally from time to time to other members of the executive management group of Employer. However, in the event of a change in control, the overall value of such benefits, considered in the aggregate and as may be reasonably determined by the Employer's boards of directors, shall not be less at any time on or after the change in control and while this Agreement is in effect than the value of the tax-qualified retirement plan benefits, dental benefits and such other similar employment privileges, perquisites and benefits (not including the benefits described in paragraphs (b) and (c) immediately above) provided Employee under this Agreement immediately prior to the change in control. (e) Life insurance in an amount during each contract year equal to two times Employee's base salary for such contract year. Employer may purchase, in its sole discretion, either whole life or term insurance to meet Employer's obligation hereunder. Any group life insurance which is provided Employee by Employer shall be counted towards the obligation of Employer hereunder. If Employer is unable to obtain insurance in the amount required on the life of Employee, Employer shall pay to the estate of Employee the difference between the amount of insurance proceeds to be received by Employee's estate under all life insurance policies paid for by Employer and the amount of life insurance Employer is required to provide hereunder. (f) Business related transportation assistance, including transportation between Employee's home and office or other business location, a personal executive assistant and audio/visual equipment as may be required by Employee as certified by Employee's treating physician. (g) Participate in the Supplemental Executive Retirement Plan ("SERP") attached hereto as Exhibit A, in accordance with the terms of SERP. However, in event of a change in control, the percent of Employee's compensation allocated to the SERP shall - 7 - 8 not be reduced for any contract year which ends after the change in control below the percent of his compensation which is allocated to the SERP for the immediately preceding contract year. Employee (or, if applicable, any other recipient of any benefits provided under this subsection 5.3) shall be solely responsible and liable for payment of any taxes imposed on Employee (or, if applicable, such recipient) resulting from the provision of any benefits under this subsection 5.3, including but not limited to any medical benefits provided on a self-insured basis or any life insurance benefits. 5.4 Employer shall reimburse Employee (or provide an expense allowance) for travel, entertainment, continuing education and other expenses which are reasonably incurred by Employee in the promotion of Employer's business, provided Employee provides a proper accounting for such expenses. 6. TERMINATION; SEVERANCE BENEFITS. 6.1 Employer may terminate this Agreement and Employee's employment hereunder at any time for Cause. If Employee's employment hereunder is terminated for Cause, Employee shall not be entitled to any payments or benefits hereunder except for (i) unpaid salary already earned and (ii) unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. For all purposes of this Agreement, "Cause" means: (a) Employee's fraud, dishonesty or willful misconduct in the performance of his duties to Employer; or (b) Employee's material breach of any material provision of this Agreement; provided that a material breach shall not be deemed to have occurred if Employee's breach relates to the receipt of a payment of money and Employee cures such breach within thirty (30) days of receipt by Employee of a written notice of such breach. 6.2 If Employee's employment hereunder terminates because of his voluntary resignation as an employee of Employer, then, except as may otherwise be provided under subsection 6.6 below, Section 8 below or any other provision of this Agreement, Employee shall not be entitled to any payments or benefits hereunder except for (i) salary already earned and (ii) unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. - 8 - 9 6.3 If Employee's employment hereunder terminates by reason of his death, then, in addition to any other payment which may be provided under subsection 8.2 below or any other provision of this Agreement, Employee's estate (or, where applicable or the context requires, the surviving members of his family or his beneficiaries) shall be entitled to (i) his unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying his targeted incentives with respect to the contract year in which his termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days he was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment), (iv) the continuing medical benefits described in subsection 5.3(c) above, (v) any benefits due under any life insurance benefits in effect for him at the time of his death under subsection 5.3(e) above and (vi) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested (or vest by reason of his death) and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. 6.4 If Employee's employment hereunder terminates by reason of his permanent disability, then, in addition to any other payment which may be provided under subsection 8.2 below or any other provision of this Agreement, Employee shall be entitled to (i) his unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying his targeted incentives with respect to the contract year in which his termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days he was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment), (iv) the continuing medical benefits described in subsection 5.3(c) above, (v) any benefits due him under any disability insurance applicable to him and in effect at the time he becomes permanently disabled under subsection 5.3(b) above, (vi) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested (or vest by reason of his permanent disability) and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided and (vii) a lump sum payment which is made within 60 days after Employer reasonably determines Employee is permanently disabled and which is equal to two times Employee's annual base rate of salary in effect at the time of his termination of employment. For all purposes of this Agreement, Employee shall be deemed to be "permanently disabled" and to have incurred a "permanent disability" if he, by reason of his physical or mental injury, illness or condition, is determined to be disabled for a period which is expected will exist until his death under the disability insurance which is then in effect for him under subsection 5.3(b) above. - 9 - 10 6.5 In the event that Employer notifies Employee that his services as President and Chief Executive Officer of Employer are no longer desired by Employer during a contract term for any reason other than Cause or his permanent disability, then, except as may otherwise be provided under Sections 7 and 8 below or any other provision of this Agreement, (i) upon receipt of such notice Employee shall no longer serve in the offices of President and Chief Executive Officer of Employer and shall give up all the authority and accouterments of those offices (except as otherwise agreed by Employer) and, except as may otherwise be provided in paragraph (b) of this subsection 6.5 or in subsection 6.6 below, (ii) Employee's employment with Employer shall terminate at the end of the then-current term (or, if such notice is not given Employee by the latest October 1 which precedes the end of the then-current term and no notice was previously given Employee by Employer on or prior to the latest October 1 which precedes the end of the then-current term that his employment with Employer would terminate at the end of the then-current term, his employment with Employer shall terminate at the end of the renewal term of this Agreement which immediately follows the then-current term). In addition, in such situation, the following provisions of this subsection 6.5 shall apply to Employee's employment with Employer until such employment terminates: (a) Except as is otherwise provided in paragraph (b) immediately below, Employee shall during the then remaining period of his employment with Employer serve as a special project advisor to Employer and have and perform only such specific special project advisor duties as shall be reasonably requested by Employer; provided that any such duties shall be limited to those normally performed by and requiring the skills of a senior executive. It is understood and agreed that, in performing his duties as a special project advisor, Employee shall be an employee of Employer and shall be entitled to the compensation and benefits, including but not limited to SERP, perquisite allowance and stock options, provided him under, and subject to all provisions contained in, this Agreement; except that in determining the amount of any incentive payable under the Annual Incentive Plan for any contract year which ends after the date on which Employee no longer serves in the offices of President and Chief Executive Officer of Employer, the final percentage which is applied to Employee's base pay to calculate such incentive shall be equal to the percentage used to determine the targeted incentive under the Annual Incentive Plan for or with respect to the latest contract year which begins prior to the date on which Employee no longer serves in such offices and for which a targeted incentive under the Annual Incentive Plan had been set for Employee by Employer. - 10 - 11 (b) Notwithstanding the foregoing or the provisions of subsection 6.2 above or subsection 6.6 below, Employee shall have the right at any time during the then remaining period of his employment with Employer, by a written signed notice to Employer, to be paid, in a lump sum payment which is made as soon as is administratively practical after such election, an amount equal to 90% of the then value of the compensation and benefits (other than disability, medical, life insurance and other similar welfare insurance benefits) which, if Employee were not exercising his rights under this paragraph (b), would otherwise be provided under paragraph (a) immediately above after such election and during the remaining period of his employment with Employer and under subsection 6.6 below after his employment with Employer had terminated. In the event of such election and upon such payment, Employee's employment with Employer shall terminate, Employee shall not serve as a consultant under subsection 6.6 below and all of Employee's further rights to compensation or benefits under this Agreement shall end; except that Employee shall continue to be entitled to such medical benefits as are described in paragraph (c) of subsection 5.3 above and shall continue to be entitled until the end of the then-current term of this Agreement to such life insurance benefits as are described in paragraph (e) of subsection 5.3 above. 6.6 In the event that Employee's employment with Employer terminates at the end of any then-current term for any reason other than Cause or Employee's death or permanent disability, and Employee agrees not to file any administrative charge or lawsuit relating to his prior employment with Employer and agrees to release Employer and all of its then current and former directors, trustees, officers, employees, agents, members and affiliated companies from any and all claims, in such form as is determined by Employer and consistent with Employer's normal practices concerning employee releases, then, except as may otherwise be provided under subsection 6.5(b) above or any other provision of this Agreement, Employer agrees to offer to hire Employee as a consultant to Employer for two years beginning on the day immediately following the last day of the then-current term. Such consulting services shall consist of such services as are requested by Employer, which shall be those normally required of consultants with Employee's level of skill and experience; but Employer shall not in any event require Employee to perform consulting services in excess of fifty hours per calendar quarter or direct the manner by which such services must be accomplished. Further, Employer shall permit Employee to perform such services at such times and at such locations as Employee reasonably determines and to communicate the results of his services telephonically or by telecopy. Employee shall receive, as compensation for his performing such consulting services, payments at a rate equal to Employee's annual base salary for the last contract year of this Agreement for each year, or fraction thereof, that Employee performs such consulting services, with such payments being made on a bi-weekly basis. At all times that Employee is - 11 - 12 performing such consulting services for Employer, Employee shall be an independent contractor and not an employee of Employer and shall be responsible for the payment of all taxes with respect to all amounts paid to him as compensation for performing such consulting services. In the event Employee's employment ends for any reason other than Cause, Employee's death or permanent disability or his voluntary resignation (not including a voluntary resignation which occurs at the end of a contract term), Employer shall pay for executive outplacement services for Employee, up to a maximum cost of $25,000 (adjusted annually in accordance with the CPI), through a mutually agreeable outplacement consulting firm. 6.7 At any time that Employee is receiving compensation pursuant to subsection 6.5 or 6.6 above, Employee shall continue to participate in the health, disability and life insurance plans of Employer applicable to executive employees of Employer or be provided comparable benefits. 7. PAYMENT FOLLOWING A CHANGE IN CONTROL AND INVOLUNTARY TERMINATION. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall apply in the event of a change in control (as is defined below): 7.1 Employer shall have the right to terminate Employee's employment hereunder without Cause at any time on or after a change in control. In addition, in the event of a change in control and upon the request of Employer, Employee agrees (i) that he shall remain as an employee of Employer for a period ending no earlier than the earliest of the last day of the period requested by Employer that Employee remain an employee after the change in control, the day which is twelve months after the change in control or the last day of the then-current term and (ii) that, should Employee voluntarily resign from his employment with Employer after the change in control but before the earliest of such days, he shall not be entitled to any benefits under this Section 7. 7.2 Subject to the foregoing, if a change in control occurs and Employee's employment with Employer terminates for any reason, other than for Cause, Employee's death or permanent disability or his voluntary resignation, during the period which begins six months prior to the date of the change in control and ends one year after the date of the change in control, Employee shall be entitled to a lump sum payment, which is made within 60 days after the later of Employee's termination of employment or the change in control, in an amount equal to five times the sum of: (i) Employee's then-current annual base rate of salary; (ii) the amount set forth by Employer as the target for Employee's incentive for the then-current contract year under the Annual Incentive Plan; and (iii) if the contract year in which the change in control occurs is 1997, the amount set forth by Employer as the target for Employee's incentive for the 1997 contract year under the Long-Term Plan. Notwithstanding the foregoing, the amount of any payment otherwise required by the immediately preceding sentence shall be reduced by the amount of any payment that Employee has previously received (or is entitled to receive within 60 days of his termination of employment) under - 12 - 13 subsection 8.1, 8.2, 8.3 or 8.4 below. Further, Employee shall also, if he is entitled to the payment described in the foregoing sentences of this subsection 7.2, be paid an amount equal to the product obtained by multiplying his targeted incentives with respect to the contract year in which his termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days he was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, plus any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment). 7.3 If a change in control payment described in subsection 7.2 above is made, then, notwithstanding any other provision of this Agreement to the contrary, Employee shall not be entitled to any payments under Section 6 above that relate to any period which ends after his termination of employment and that are based upon or calculated with respect to Employee's base salary, then-current or otherwise, or the Annual Incentive Plan or Long-Term Plan. 7.4 For all purposes of this Agreement, a "change in control" means and occurs on the date of: (i) the election of persons constituting more than 33-1/3% of the whole number of directors of the ChoiceCare Parent, if such persons were not nominated by the nominating committee of the ChoiceCare Parent or, if so nominated, were not recommended by a majority of the directors in office prior to being nominated by such nominating committee unless the person nominated is nominated to take the place of an individual previously so recommended by the directors who has died, become disabled or chose not to serve, in which event that nominee shall be deemed to be recommended by the majority of the directors in office if such majority recommends that nominee at the meeting of directors next following the nomination of such person; (ii) any consolidation or merger of the ChoiceCare Parent if, within two years after such consolidation or merger, individuals who were directors of the ChoiceCare Parent immediately prior to such consolidation or merger cease to constitute at least 66-2/3% of the board of directors of the ChoiceCare Parent or its successor by consolidation or merger; (iii) any sale, lease, exchange or other transfer, in one transaction or a series of related transactions (and other than to a directly or indirectly majority-owned subsidiary of the ChoiceCare Parent) of all, or substantially all, of the assets of the ChoiceCare Parent; (iv) the sale, whether by outright purchase, merger, consolidation, reorganization or other form of transaction (but not including a reorganization solely involving affiliated companies), or the execution of a definitive agreement (subject only to regulatory approvals or other similar conditions) for the sale, of at least 33-1/3% of the ownership and/or voting interests in any direct or indirect subsidiary or subsidiaries of the ChoiceCare Parent if such subsidiary or subsidiaries before such sale held assets that constituted all or substantially all of the assets of the ChoiceCare Parent and its direct and indirect subsidiaries on a consolidated basis; (v) the sale, whether by outright purchase, merger, consolidation, reorganization or other form of transaction (but not including a reorganization solely involving affiliated companies), or the execution of a definitive agreement (subject only to regulatory approvals or other similar conditions) for the sale, of at least 33-1/3% of the ownership and/or voting interests in the - 13 - 14 ChoiceCare Parent to one purchaser, related purchasers or several purchasers acting directly or indirectly in concert; or (vi) the approval by the shareholders of the ChoiceCare Parent of any plan or proposal for the liquidation of dissolution of the ChoiceCare Parent. 8. RETENTION INCENTIVE. If a change in control (as defined in subsection 7.4 above) or a strategic investor purchase (as is defined below) occurs while this Agreement is in effect, then Employee will be eligible for a retention incentive (in addition to any other payments or benefits provided under the other provisions of this Agreement, including but not limited to the provisions of Sections 5 and 6 above) in accordance with the following provisions: 8.1 If Employee is continuously employed by Employer to the end of the retention incentive period (as is defined below), then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after the end of such retention incentive period and which is equal to the lesser of (i) an amount equal to four times his annual base rate of salary in effect on the date of the change in control or strategic investor purchase, as applicable and whichever is earlier, or (ii) $1,600,000. 8.2 If Employee's employment with Employer is terminated after the earlier of a change in control or a strategic investor purchase but prior to the end of the retention incentive period by reason of his death or his permanent disability (as defined in subsection 6.4 above), then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after Employee's death or the date Employer reasonably determines Employee has incurred a permanent disability, as appropriate, and which is equal to the product obtained by multiplying (i) the retention incentive that would be paid Employee under subsection 8.1 above by reason of the change in control or strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period by (ii) a percentage which is determined in accordance with the immediately following sentence. The percentage to be used in the immediately preceding sentence shall be: (i) 20% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is less than one year; (ii) 50% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is at least one year but less than two years; and (iii) 100% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is at least two years. 8.3 If, after a strategic investor purchase but prior to both a change in control and the end of the retention incentive period, Employee's employment with Employer is terminated for any reason other than Cause, Employee's death or permanent disability or his voluntary resignation, then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after Employee's termination of employment and which is equal to the product obtained by multiplying (i) the retention incentive that would be paid Employee under subsection 8.1 above by reason of the strategic - 14 - 15 investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period by (ii) a percentage which is determined in accordance with the immediately following sentence. The percentage to be used in the immediately preceding sentence shall be: (i) 20% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is less than one year; (ii) 50% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is at least one year but less than two years; and (iii) 100% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is at least two years. 8.4 If, after one year has expired after a change in control but prior to the end of the retention incentive period, Employee's employment with Employer is terminated for any reason other than Cause, Employee's death or permanent disability or his voluntary resignation, then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after Employee's termination of employment and which is equal to the retention incentive that would be paid Employee under subsection 8.1 above by reason of the change in control or, if applicable, an earlier strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period. 8.5 If, after one year has expired after a change in control but prior to both the end of the retention incentive period and the end of the then-current term, Employee's employment with Employer terminates other than for Cause or Employee's death or permanent disability, then, provided that Employee is not otherwise entitled to the benefits of subsections 6.5(b) and 6.6 above upon such termination of employment and also provided that Employee agrees not to file any administrative charge or lawsuit relating to his prior employment with Employer and agrees to release Employer and all of its then current and former directors, trustees, officers, employees, agents, members and affiliated companies from any and all claims, in such form as is determined by Employer and consistent with Employer's normal practices concerning employee releases, Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum as soon as is administratively practical after Employee's termination and which is equal to 90% of the then value of the compensation and benefits (other than disability, medical, life insurance and other similar welfare insurance benefits) which would otherwise be provided under or pursuant to the other provisions of this Agreement (including but not limited to subsection 6.6 above) if this Agreement had been terminated by the Employer (other than for Cause) at the end of the then-current term; except that no payment shall be made hereunder with respect to the retention incentive in subsection 8.1 above and also except that, in determining the amount of any incentive payable under the Annual Incentive Plan for any contract year which ends after the date of such termination, the final percentage which is applied to Employee's base pay to calculate such incentive shall be equal to the greater of the percentage used to determine the targeted incentive under the Annual Incentive Plan for or with respect to the latest contract year which begins prior to the date of such termination or the percentage used to determine the targeted incentive under the Annual Incentive Plan for or with respect to the latest contract year which begins prior to the date of the change in control. In the event of such termination and - 15 - 16 upon payment of the retention incentive described in this subsection 8.5, Employee's employment with Employer shall terminate and all of Employee's further rights to compensation or benefits under this Agreement shall end; except that Employee shall continue to be entitled to such medical benefits as are described in paragraph (c) of subsection 5.3 above and shall continue to be entitled until the end of the then-current term of this Agreement to such life insurance benefits as are described in paragraph (e) of subsection 5.3 above. 8.6 Subject to the immediately following sentence but notwithstanding any other provision of this Section 8 to the contrary, no more than one retention incentive may be paid under this Section 8, and thus the payment of any retention incentive under any subsection of this Section 8 shall terminate and nullify any right of Employee to any additional incentive which may otherwise arise under another subsection of this Section 8. However, if, after one year has expired after a change in control but prior to the end of the retention incentive period, Employee's employment with Employer terminates other than for Cause, Employee's death or permanent disability or his voluntary resignation, then Employee shall be entitled to both the retention incentive described in subsection 8.4 above and, if he meets all of the conditions provided under subsection 8.5 above, the retention incentive described in subsection 8.5 above. 8.7 For purposes of this Agreement, a "strategic investor purchase" means, and occurs on the date of, the purchase or obtaining by any person, corporation, partnership or other organization of stock possessing less than 33-1/3% of the total combined voting power of all classes of stock of the ChoiceCare Parent together with the option or right to purchase in the future additional stock of the ChoiceCare Parent which would permit such person, corporation, partnership or other organization to own stock possessing 33-1/3% or more of the total combined voting power of all classes of stock of the ChoiceCare Parent. In addition, for purposes of this Agreement, the "retention incentive period" means the period which begins on the date immediately following the earlier of a change in control or a strategic investor purchase (such date referred to herein as the "beginning date") and which ends on the earlier of (i) the date which is three years after the beginning date or (ii) the later of the date which is two years after the beginning date or the end of the contract term which is in effect on the beginning date. 9. NON-COMPETE COVENANTS AND CONFIDENTIAL INFORMATION. 9.1 Employee agrees that during the term of this Agreement and for a period of one year after his termination of employment with Employer for any reason whatsoever (or, if Employee either is entitled to a retention incentive under Section 8 above after such termination of employment or has been paid a retention incentive under Section 8 above prior to such termination of employment, for a period of two years after such termination of employment), Employee shall not, without the express written consent of Employer, anywhere in the United States where the Employer was doing business or actively planning to do business during Employee's term of employment: (i) compete with Employer in the managed health care business; or (ii) interfere with, disrupt or attempt to interfere with or disrupt the - 16 - 17 relationship between Employer and any person or business that was a customer, supplier, lessor, contractor or employee of Employer during Employee's term of employment with Employer. Notwithstanding the above, Employee may, without breaching the provisions of this subsection 9.1, work for an employer in the managed health care business or an employer that interferes, disrupts or attempts to interfere with or disrupt the relationship between Employer and any person or business that was a customer, supplier, lessor, contractor or employee of Employer during Employee's term of employment with Employer, provided that: (i) no more than ten percent (10%) of such new employer's business is conducted in areas where Employer is conducting business as of the date of termination of the employment of Employee with Employer; (ii) such new employer does not provide either health insurance or managed care services to ten percent (10%) or more of the population in the areas where Employer is conducting business as of the termination of employment of Employee with Employer; or (iii) the markets in which Employer is conducting, or actively planning to conduct, business as of the date of termination of Employee's termination with Employer and for which Employee will have certain duties or responsibilities with the new employer, as measured by revenues or enrollment within such areas, do not exceed ten percent (10%) of all markets for which Employee will have certain duties or responsibilities with the new employer, as measured by revenues or enrollment within all such markets (provided that this clause (iii) shall not apply if Employee has voluntarily resigned his employment with Employer other than by a voluntary resignation which occurs at the end of a contract term or a voluntary resignation which still results in an amount being payable under subsection 6.5(b) above or under subsection 8.5 above). For purposes of this subsection 9.1, if Employee, at the time of Employee's termination of employment with Employer, only has duties and responsibilities with Employer as to certain specified, and not all, areas or markets in which Employer then does business, then any reference to "Employer" in this subsection 9.1 shall be deemed to refer only to the part of the Employer which involves the areas and markets in which Employee has duties and responsibilities at the time of his/her termination of employment with Employer. 9.2 Employee agrees that, during the term of this Agreement or at any time thereafter, Employee will not, directly or indirectly, disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with or contrary to the interests of Employer or any affiliated companies, the customer lists, proprietary organizational methods or other trade secrets of Employer or any affiliated companies, it being acknowledged by Employee that all such information regarding the business of Employer and affiliated companies compiled or obtained by, or furnished to, Employee while Employee shall have been employed by or associated with Employer is confidential information and Employer's exclusive property. 9.3 Employee expressly agrees and understands that the remedy at law for any breach by him of this Section 9 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of Employee's violation of any legally enforceable provision of this Section 9, Employer shall be entitled to immediate injunctive relief and may obtain a temporary order and permanent injunction restraining any threatened or further breach. - 17 - 18 However, nothing in this Section 9 shall be deemed to limit Employer's remedies at law or in equity for any breach by Employee of any of the provisions of this Section 9 which may be pursued or availed of by Employer. 9.4 Employee has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon Employer under the provisions of this Section 9, and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition which otherwise would be unfair to Employer, do not stifle the inherent skill and experience of Employee, would not operate as a bar to Employee's sole means of support, are fully required to protect the legitimate interests of Employer and do not confer a benefit upon Employer disproportionate to the detriment to Employee which is caused by the provisions of this Section 9. 10. SEVERABLE PROVISION. The provisions of this Agreement are severable, and, if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions of this Agreement and any partially unenforceable provision of this Agreement, to the extent enforceable in any jurisdiction, shall nevertheless be binding and enforceable hereunder. 11. ASSIGNMENTS AND BINDING AGREEMENT. This Agreement may not be assigned by one party hereto without the consent of the other, except that this Agreement may be assigned by Employer to any affiliated company. Notwithstanding the foregoing general restriction on voluntary assignments, the rights and obligations of the parties under this Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, personal representatives and estates, which successors and assigns in the case of Employer shall include (i) any affiliated company to which this Agreement is assigned by Employer, (ii) any successor of the ChoiceCare Parent or the ChoiceCare Operating Company by merger, combination or reorganization in any manner, whether such successor is a corporation, limited liability company, partnership (either general or limited), business trust or other organization or person, and whether or not such successor is a successor by operation of law, (iii) any recipient of materially all the assets and/or business of Employer in liquidation or distribution or by way of contribution of capital, (iv) any successor to materially all the assets and/or business of Employer by purchase or exchange, either singly or in combination or (v) any combination of the foregoing. Employer covenants that it will make no distribution or contribution of assets and/or business as described in clause (iii) of the immediately preceding sentence nor enter into any agreement of sale or exchange of assets and/or business as described in clause (iv) of the immediately preceding sentence without requiring the recipient(s) of such assets or business to assume the obligations of Employer in this Agreement as a co-obligor. - 18 - 19 12. NOTICES. Any notice to be given under this Agreement to any party hereto shall be deemed duly given if it is personally delivered in writing or it is posted in the United States mails, postage prepaid, registered or certified, return receipt requested. Further, if mailed to Employer, such a notice shall be addressed to the ChoiceCare Parent at its principal place of business. If mailed to Employee, such a notice shall be addressed to him at his home address last shown on the records of Employer (or at such other address or addresses as Employee may hereafter designate in writing to Employer). 13. WAIVER. The failure of any party hereto to this Agreement to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of such provision or provisions as to any future violations thereof nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties herein are cumulative and the waiver of any single remedy shall not constitute a waiver of such party's right to assert all other legal remedies available to him or it under the circumstances. 14. MISCELLANEOUS. 14.1 For all purposes of this Agreement, Employee's resignation from his employment with Employer shall be deemed not to constitute a voluntary resignation, and instead to be treated as a termination of his employment by Employer, if: (i) such resignation occurs at least 120 days after, and no more than 180 days after, Employer either (a) changes the principal party to which Employee reports and which has the responsibility to evaluate Employee's performance to a party which is not either the board of directors of the ChoiceCare Parent or a board of directors of any corporation which owns at least 80% of the ChoiceCare Parent or (b) reduces or changes Employee's duties to those which are not consistent with the usual and customary duties of a chief executive officer of a managed care company in the U.S. which is comparable or larger, in terms of revenues, enrollments and geographical area served, than the Company as in operation at the time Employee's duties are reduced or changed or (ii) such resignation occurs after Employer requires Employee to change his principal work location by at least 50 miles and Employee refuses to make such move. In the event Employee's resignation from his employment with Employer is treated as a termination of his employment by Employer by reason of the provisions of clause (i) of the immediately preceding sentence, then, for purposes of determining Employee's rights to any change in control payment described in subsection 7.2 above or any retention incentive payment under Section 8 above, Employee shall be deemed to have had his employment with Employer terminated by Employer on the date that Employer took the action described in clause (i) of the immediately preceding sentence which is applicable to Employee's resignation. 14.2 The captions set forth in this Agreement are for convenience and reference only and shall not be deemed to construe or interpret any term or provision set forth in this Agreement. This Agreement supersedes all prior agreements and understandings - 19 - 20 between the parties and may not be modified or terminated orally. No modification, termination or attempted waiver of this Agreement shall be valid unless in writing and signed by the party against whom the same is sought to be enforced. This Agreement shall be governed by and construed according to the laws of the State of Ohio. 14.3 If the firm of independent outside auditors then used by Employer (the "Auditors") determine that any payment or distribution by Employer to or for the benefit of Employee, whether paid or payable (or distributed or distributable) pursuant to the terms of this Agreement or otherwise, would be subject to tax as an excess parachute payment pursuant to the provisions of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code), then, notwithstanding any other provision of this Agreement to the contrary, Employer shall "gross up" such payment or distribution so that the net amount of such payment or distribution, after taking into consideration the payment of the tax imposed on Employee under Section 4999 of the Code, is the same as the amount that such payment or distribution would be if no such tax applied. 15. ARBITRATION. Any dispute or disagreement among the parties hereto shall be submitted to mandatory and binding arbitration at the election of any party hereto. The arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be held in Cincinnati, Ohio. The ChoiceCare Parent and the ChoiceCare Operating Company shall together select one arbitrator, Employee shall select one arbitrator and the two selected arbitrators shall select a third arbitrator. The decision of the arbitrators, and any award rendered therein, shall be final, conclusive and binding upon the parties hereto and any judgment thereon may be entered and enforced in any court of competent jurisdiction. Employer shall bear 50% of all fees, costs and expenses of the arbitration, Employee shall bear 50% of all fees, costs and expenses of the arbitration and each party will bear all the fees, costs and expenses of his or its own attorneys, experts and witnesses. Signed at Cincinnati, Ohio on the 25th day of April , 1997. ----- ------- EMPLOYER: ChoiceCare Corporation By: /s/ Donald E. Hoffman ---------------------------- ChoiceCare Health Plans, Inc. By: /s/ Jane E. Rollinson ---------------------------- - 20 - 21 EMPLOYEE: /s/ Daniel A. Gregorie --------------------------------- Daniel A. Gregorie, M.D. - 21 - EX-10.II.A.2 3 EXHIBIT 10(II)(A)(2) 1 EMPLOYEE: /s/ Thomas D. Anthony ---------------------------------- Thomas D. Anthony, Esq. - 16 - EX-10.II.A.3 4 EXHIBIT 10(II)(A)(3) 1 Exhibit 10(ii)(A)(3) AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- CHIEF OPERATING OFFICER ----------------------- CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH PLANS, INC. (the "ChoiceCare Operating Company" and with the ChoiceCare Parent and the ChoiceCare Operating Company being collectively referred to as the "Employer"), and JANE E. ROLLINSON ("Employee"), hereby agree as follows, effective as of the 1st day of January, 1997: 1. RECITALS. Employer and Employee are currently parties to an employment agreement, the original form of which was adopted on June 27, 1995 and the form of which was amended and/or restated certain times since then. This Agreement amends and restates any prior employment agreement between Employer and Employee in its entirety, and supersedes any prior employment agreement between Employer and Employee, effective as of January 1, 1997. 2. EMPLOYMENT. Employer agrees to employ Employee, and Employee accepts such employment, upon the terms and conditions set forth herein. 3. EMPLOYEE'S RESPONSIBILITIES. 3.1 Employee shall serve as Chief Operating Officer of the ChoiceCare Parent and as the President of the ChoiceCare Operating Company. In such positions, Employee shall be responsible for the management and supervision of Employer's operations within her area of responsibility and perform such other duties and responsibilities as shall be requested by the Chief Executive Officers or the boards of directors of Employer, including serving as a senior executive and/or board member of any affiliated company. For purposes of this Agreement, an "affiliated company" means any corporation (other than the Employer) which, now or at any later time, is part of an unbroken chain of corporations (i) that includes the Employer and (ii) in which each corporation in such chain either owns at least 50% of the total combined voting power of all classes of stock in one of the other corporations in such chain or has at least 50% of the total combined voting power of all classes of its stock owned by one of the other corporations in such chain. 3.2 Employee shall devote her full time and best efforts to her employment with Employer and perform diligently such duties as are required by Employer from time to time, which duties shall be consistent with Employee's position with Employer. 2 3.3 Without the prior written consent of the ChoiceCare Parent, which shall not be unreasonably withheld, during the term of this Agreement Employee shall not, directly or indirectly, render services of a business, professional or commercial nature to any other person or firm, for compensation or otherwise, except in the ordinary course of the business of Employer or any affiliated company. Notwithstanding the foregoing but subject to the following provisions, Employee may serve as a director or trustee of any company, on either a compensated or noncompensated basis, that is not a competitor of Employer or any affiliated company. Employee may retain any director fees, committee fees, stock options, restricted stock awards or other remuneration paid or given to Employee by any such company for such services as a director or trustee. Employee shall notify the ChoiceCare Parent of any appointment to a board of directors or board of trustees, and, notwithstanding the foregoing, Employee shall resign from any board upon the request of the ChoiceCare Parent, provided that the request has a reasonable basis. Employee may also retain any honoraria paid to her, provided that, if the honoraria to be paid for any one appearance or presentation exceeds $2,000, the Chief Executive Officer of the ChoiceCare Parent and the Chairman of the board of directors of the ChoiceCare Parent shall determine, in their sole discretion, whether Employee is entitled to retain the amount in excess of $2,000. 4. TERM. 4.1 The initial term of this Agreement shall begin January 1, 1997 and end December 31, 1999. 4.2 This Agreement shall automatically be renewed at the end of its initial term (or at the end of any renewal term provided hereunder) for a renewal term of three additional years, unless Employer gives Employee, or unless Employee gives Employer, written notice by July 1 of the last contract year of the initial term of this Agreement (or by July 1 of the last contract year in which a renewal term of this Agreement is in effect) that this Agreement shall terminate at the end of the then-current term. If this Agreement terminates at the end of a then-current term by reason of Employer giving a timely written notice to Employee that this Agreement shall terminate at the end of the then-current term, then Employer shall be deemed to have terminated Employee's employment for purposes of the other provisions of this Agreement. On the other hand, if this Agreement terminates at the end of a then-current term by reason of Employee giving a timely written notice to Employer that this Agreement shall terminate at the end of the then-current term, then, except as may otherwise be provided under subsection 14.1 below or any other provision of this Agreement, Employee shall be deemed to have voluntarily resigned her employment with Employer for purposes of the other provisions of this Agreement. 4.3 For all purposes of this Agreement, a "contract year" means a calendar year, beginning January 1 and ending the following December 31, which occurs during the term of this Agreement. Also, for all purposes of this Agreement, a "contract term" means either the initial term of this Agreement or any renewal term of this Agreement. In addition, - 2 - 3 also for all purposes of this Agreement, any reference to the "then-current contract year" refers to the contract year which is then in effect and any reference to the "then-current term" refers to the contract term which is then in effect. 5. COMPENSATION AND BENEFITS: During the term of this Agreement: 5.1 Employee shall receive an initial base salary at the annual rate of $280,000, payable in equal consecutive bi-weekly installments. Such base salary shall be reviewed annually effective as of the first pay period beginning on or after January 1 of each contract year after the initial contract year of this Agreement, and shall be reviewed at other times if Employer substantially changes the responsibilities of Employee, and shall be adjusted on a basis consistent with the executive compensation philosophy of Employer. In no event shall Employee's base salary be reduced for any contract year (whether or not such contract year occurs in the initial term of this Agreement or in a renewal term of this Agreement) below her base salary for the immediately preceding contract year. 5.2 Employer may during the term of this Agreement, consistent with its approach to the rest of its executive group: (a) Award an annual incentive to Employee based on Employer's overall success as a for-profit community resource, Employer's accomplishment of strategic imperatives, Employer's continuous improvements of quality outcomes and Employee's performance of her duties under this Agreement during the previous contract year, in accordance with Employer's Executive Annual Incentive Plan (the "Annual Incentive Plan"), as amended from time to time by the boards of directors of Employer. The amount of any incentive under the Annual Incentive Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Annual Incentive Plan. However, in the event of a change in control, the overall value of the annual incentive under the Annual Incentive Plan, as may be reasonably determined by the Employer's boards of directors (taking into account the possibility of meeting the goals which are used under such plan to determine if Employee is entitled to the incentive as well as the potential amount of the incentive), shall not be reduced for the contract year in which the change in control occurs or any subsequent contract year below the overall value of the annual incentive under such plan which has been established by the Employer prior to the change in control for the contract year in which the change in control occurs (or, if no annual incentive has been established for such contract year by the time of the change in control, for the next preceding contract year); - 3 - 4 (b) Award an incentive to Employee pursuant to the provisions of Employer's Executive Long-Term Incentive Plan (the "Long-Term Plan"), as amended from time to time by the boards of directors of Employer. The amount of any incentive under the Long-Term Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Long-Term Plan. However, in the event of a change in control, in no event shall the overall value of the incentive under the Long-Term Plan which has been established by the Employer prior to the change in control with respect to the contract year which begins January 1, 1997, as may be reasonably determined by the Employer's boards of directors, be reduced; and (c) Cause awards to be granted to Employee pursuant to the provisions of Employer's 1996 Long Term Stock Incentive Plan (the "Stock Incentive Plan"), as amended from time to time by the boards of directors of Employer. The amount of any award granted under the Stock Incentive Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Stock Incentive Plan. 5.3 Employee shall be entitled during the term of this Agreement to: (a) Paid vacation as established under Employer's paid time off policy. Vacation use and carryover rules will be in accordance with the rules established for other executives of Employer. However, in the event of a change in control, the overall value of such vacation benefits, as may reasonably be determined by the Employer's boards of directors, shall not be less at any time on or after the change in control and while this Agreement is in effect than the value of the vacation benefits provided Employee under this Agreement immediately prior to the change in control. (b) Tax-qualified retirement plan benefits, disability insurance benefits, group term life insurance benefits, medical benefits, dental benefits and such other similar employment privileges, perquisites and benefits as are afforded generally from time to time to other members of the executive management group of Employer. However, in the event of a change in control, the overall value of such benefits, considered in the aggregate and as may be reasonably determined by the Employer's boards of directors, shall not be less at any time on or after the change in control and while this Agreement is in effect than the value of the tax-qualified retirement plan benefits, disability insurance benefits, - 4 - 5 group term life insurance benefits, medical benefits, dental benefits and such other similar employment privileges, perquisites and benefits provided Employee under this Agreement immediately prior to the change in control. (c) Participate in the Supplemental Executive Retirement Plan ("SERP") attached hereto as Exhibit A, in accordance with the terms of SERP. However, in event of a change in control, the percent of Employee's compensation allocated to the SERP shall not be reduced for any contract year which ends after the change in control below the percent of her compensation which is allocated to the SERP for the immediately preceding contract year. Employee (or, if applicable, any other recipient of any benefits provided under this subsection 5.3) shall be solely responsible and liable for payment of any taxes imposed on Employee (or, if applicable, such recipient) resulting from the provision of any benefits under this subsection 5.3, including but not limited to any life insurance benefits. 5.4 Employer shall reimburse Employee (or provide an expense allowance) for travel, entertainment, continuing education and other expenses which are reasonably incurred by Employee in the promotion of Employer's business, provided Employee provides a proper accounting for such expenses. 6. TERMINATION; SEVERANCE BENEFITS. 6.1 Employer may terminate this Agreement and Employee's employment hereunder at any time for Cause. If Employee's employment hereunder is terminated for Cause, Employee shall not be entitled to any payments or benefits hereunder except for (i) unpaid salary already earned and (ii) unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. For all purposes of this Agreement, "Cause" means: (a) Employee's fraud, dishonesty or willful misconduct in the performance of her duties to Employer; or (b) Employee's material breach of any material provision of this Agreement; provided that a material breach shall not be deemed to have occurred if Employee's breach relates to the receipt of a payment of money and Employee cures such breach within thirty (30) days of receipt by Employee of a written notice of such breach. - 5 - 6 6.2 If Employee's employment hereunder terminates because of her voluntary resignation as an employee of Employer, then, except as may otherwise be provided under Section 8 below or any other provision of this Agreement, Employee shall not be entitled to any payments or benefits hereunder except for (i) salary already earned and (ii) unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. 6.3 If Employee's employment hereunder terminates by reason of her death, then, in addition to any other payment which may be provided under subsection 8.2 below or any other provision of this Agreement, Employee's estate (or, where applicable or the context requires, the surviving members of her family or her beneficiaries) shall be entitled to (i) her unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying her targeted incentives with respect to the contract year in which her termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days she was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment), (iv) any benefits due under any group term life insurance benefits in effect for her at the time of her death under subsection 5.3(b) above and (v) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested (or vest by reason of her death) and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. 6.4 If Employee's employment hereunder terminates by reason of her permanent disability, then, in addition to any other payment which may be provided under subsection 8.2 below or any other provision of this Agreement, Employee shall be entitled to (i) her unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying her targeted incentives with respect to the contract year in which her termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days she was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment), (iv) any benefits due her under any disability insurance applicable to her and in effect at the time she becomes permanently disabled under subsection 5.3(b) above and (v) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested (or vest by reason of her permanent disability) and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. For all purposes of this Agreement, Employee shall be deemed to be "permanently disabled" and to have incurred a "permanent disability" if she, by reason of her physical or mental injury, - 6 - 7 illness or condition, is determined to be disabled for a period which is expected will exist until her death under the disability insurance which is then in effect for her under subsection 5.3(b) above. 6.5 Employer shall have the right to terminate Employee's employment hereunder without Cause at any time. In the event Employee's employment with Employer terminates for any reason other than Cause, Employee's death or permanent disability or her voluntary resignation, then, except as may otherwise be provided under Sections 7 and 8 below or any other provision of this Agreement, Employee shall be entitled to (i) her unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying her targeted incentives with respect to the contract year in which her termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days she was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment) and (iv) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. In addition, subject to the immediately following sentence and provided Employee agrees not to file any administrative charge or lawsuit relating to her prior employment with Employer and agrees to release Employer and all of its then current and former directors, trustees, officers, employees, agents, members and affiliated companies from any and all claims, in such form as is determined by Employer and consistent with Employer's normal practices concerning employee releases, Employer: (i) shall pay for executive outplacement services for Employee, up to a maximum cost of $25,000 (adjusted annually in accordance with the CPI), through a mutually agreeable outplacement consulting firm; and (ii) shall make in this situation severance payments to Employee, payable on a bi-weekly basis, equal to Employee's base rate of salary in effect at the time of her termination of employment. The severance payments provided under the immediately preceding sentence shall be made with respect to the period following Employee's termination of employment until the end of the twelve month period beginning on the date of Employee's termination of employment with Employer. 6.6 At any time that Employee is receiving compensation or payments pursuant to subsection 6.5 above, Employee shall continue to participate in the health, disability and life insurance plans of Employer applicable to executive employees of Employer or be provided comparable benefits. 7. PAYMENT FOLLOWING A CHANGE IN CONTROL AND INVOLUNTARY TERMINATION. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall apply in the event of a change in control (as is defined below): - 7 - 8 7.1 In the event of a change in control and upon the request of Employer, Employee agrees (i) that she shall remain as an employee of Employer for a period ending no earlier than the earliest of the last day of the period requested by Employer that Employee remain an employee after the change in control, the day which is twelve months after the change in control or the last day of the then-current term and (ii) that, should Employee voluntarily resign from her employment with Employer after the change in control but before the earliest of such days, she shall not be entitled to any benefits under this Section 7. 7.2 Subject to the foregoing, if a change in control occurs and Employee's employment with Employer terminates for any reason, other than for Cause, Employee's death or permanent disability or her voluntary resignation, during the period which begins six months prior to the date of the change in control and ends one year after the date of the change in control, Employee shall be entitled to a lump sum payment, which is made within 60 days after the later of Employee's termination of employment or the change in control, in an amount equal to four times the sum of: (i) Employee's then-current annual base rate of salary; (ii) the amount set forth by Employer as the target for Employee's incentive for the then-current contract year under the Annual Incentive Plan; and (iii) if the contract year in which the change in control occurs is 1997, the amount set forth by Employer as the target for Employee's incentive for the 1997 contract year under the Long-Term Plan. Notwithstanding the foregoing, the amount of any payment otherwise required by the immediately preceding sentence shall be reduced by the amount of any payment that Employee has previously received (or is entitled to receive within 60 days of her termination of employment) under subsection 8.1, 8.2, 8.3 or 8.4 below. Further, Employee shall also, if she is entitled to the payment described in the foregoing sentences of this subsection 7.2, be paid an amount equal to the product obtained by multiplying her targeted incentives with respect to the contract year in which her termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days she was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, plus any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment). 7.3 If a change in control payment described in subsection 7.2 above is made, then, notwithstanding any other provision of this Agreement to the contrary, Employee shall not be entitled to any payments under Section 6 above that relate to any period which ends after her termination of employment and that are based upon or calculated with respect to Employee's base salary, then-current or otherwise, or the Annual Incentive Plan or Long-Term Plan. 7.4 For all purposes of this Agreement, a "change in control" means and occurs on the date of: (i) the election of persons constituting more than 33-1/3% of the whole number of directors of the ChoiceCare Parent, if such persons were not nominated by the nominating committee of the ChoiceCare Parent or, if so nominated, were not recommended by a majority of the directors in office prior to being nominated by such nominating committee - 8 - 9 unless the person nominated is nominated to take the place of an individual previously so recommended by the directors who has died, become disabled or chose not to serve, in which event that nominee shall be deemed to be recommended by the majority of the directors in office if such majority recommends that nominee at the meeting of directors next following the nomination of such person; (ii) any consolidation or merger of the ChoiceCare Parent if, within two years after such consolidation or merger, individuals who were directors of the ChoiceCare Parent immediately prior to such consolidation or merger cease to constitute at least 66-2/3% of the board of directors of the ChoiceCare Parent or its successor by consolidation or merger; (iii) any sale, lease, exchange or other transfer, in one transaction or a series of related transactions (and other than to a directly or indirectly majority-owned subsidiary of the ChoiceCare Parent) of all, or substantially all, of the assets of the ChoiceCare Parent; (iv) the sale, whether by outright purchase, merger, consolidation, reorganization or other form of transaction (not including a reorganization solely involving affiliated companies), or the execution of a definitive agreement (subject only to regulatory approvals or other similar conditions) for the sale, of at least 33-1/3% of the ownership and/or voting interests in any direct or indirect subsidiary or subsidiaries of the ChoiceCare Parent if such subsidiary or subsidiaries before such sale held assets that constituted all or substantially all of the assets of the ChoiceCare Parent and its direct and indirect subsidiaries on a consolidated basis; (v) the sale, whether by outright purchase, merger, consolidation, reorganization or other form of transaction (not including a reorganization solely involving affiliated companies), or the execution of a definitive agreement (subject only to regulatory approvals or other similar conditions) for the sale, of at least 33-1/3% of the ownership and/or voting interests in the ChoiceCare Parent to one purchaser, related purchasers or several purchasers acting directly or indirectly in concert; or (vi) the approval by the shareholders of the ChoiceCare Parent of any plan or proposal for the liquidation of dissolution of the ChoiceCare Parent. 8. RETENTION INCENTIVE. If a change in control (as defined in subsection 7.4 above) or a strategic investor purchase (as is defined below) occurs while this Agreement is in effect, then Employee will be eligible for a retention incentive (in addition to any other payments or benefits provided under the other provisions of this Agreement, including but not limited to the provisions of Sections 5 and 6 above) in accordance with the following provisions: 8.1 If Employee is continuously employed by Employer to the end of the retention incentive period (as is defined below), then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after the end of such retention incentive period and which is equal to the lesser of (i) an amount equal to three and one-half (3.5) times her annual base rate of salary in effect on the date of the change in control or strategic investor purchase, as applicable and whichever is earlier, or (ii) $1,000,000. 8.2 If Employee's employment with Employer is terminated after the earlier of a change in control or a strategic investor purchase but prior to the end of the retention incentive period by reason of her death or her permanent disability (as defined in subsection 6.4 above), then Employee shall be entitled to a retention incentive under this - 9 - 10 Section 8 which is payable in a lump sum within 60 days after Employee's death or the date Employer reasonably determines Employee has incurred a permanent disability, as appropriate, and which is equal to the product obtained by multiplying (i) the retention incentive that would be paid Employee under subsection 8.1 above by reason of the change in control or strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period by (ii) a percentage which is determined in accordance with the immediately following sentence. The percentage to be used in the immediately preceding sentence shall be: (i) 20% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is less than one year; (ii) 50% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is at least one year but less than two years; and (iii) 100% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is at least two years. 8.3 If, after a strategic investor purchase but prior to both a change in control and the end of the retention incentive period, Employee's employment with Employer is terminated for any reason other than Cause, Employee's death or permanent disability or her voluntary resignation, then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after Employee's termination of employment and which is equal to the product obtained by multiplying (i) the incentive that would be paid Employee under subsection 8.1 above by reason of the strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period by (ii) a percentage which is determined in accordance with the immediately following sentence. The percentage to be used in the immediately preceding sentence shall be: (i) 20% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is less than one year; (ii) 50% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is at least one year but less than two years; and (iii) 100% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is at least two years. 8.4 If, after one year has expired after a change in control but prior to the end of the retention incentive period, Employee's employment with Employer is terminated for any reason other than Cause, Employee's death or permanent disability or her voluntary resignation, then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after Employee's termination of employment and which is equal to the retention incentive that would be paid Employee under subsection 8.1 above by reason of the change in control or, if applicable, an earlier strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period. 8.5 If, after one year has expired after a change in control but prior to the end of the retention incentive period, Employee's employment with Employer terminates by reason of her voluntary resignation, then, provided Employee agrees not to file any administrative - 10 - 11 charge or lawsuit relating to her prior employment with Employer and agrees to release Employer and all of its then current and former directors, trustees, officers, employees, agents, members and affiliated companies from any and all claims, in such form as is determined by Employer and consistent with Employer's normal practices concerning employee releases, Employee shall be entitled to a retention incentive under this Section 8 which is payable in installments, on a bi-weekly basis, equal to Employee's base rate of salary in effect at the time of her termination of employment. The payments provided under this subsection 8.5 shall be made with respect to the period following Employee's termination of employment until the end of the one year period beginning on the date of Employee's termination of employment with Employer. 8.6 Notwithstanding any other provision of this Section 8 to the contrary, no more than one retention incentive may be paid under this Section 8, and thus the payment of any retention incentive under any subsection of this Section 8 shall terminate and nullify any right of Employee to any additional incentive which may otherwise arise under another subsection of this Section 8. 8.7 For purposes of this Agreement, a "strategic investor purchase" means, and occurs on the date of, the purchase or obtaining by any person, corporation, partnership or other organization of stock possessing less than 33-1/3% of the total combined voting power of all classes of stock of the ChoiceCare Parent together with the option or right to purchase in the future additional stock of the ChoiceCare Parent which would permit such person, corporation, partnership or other organization to own stock possessing 33-1/3% or more of the total combined voting power of all classes of stock of the ChoiceCare Parent. In addition, for purposes of this Agreement, the "retention incentive period" means the period which begins on the date immediately following the earlier of a change in control or a strategic investor purchase (such date referred to herein as the "beginning date") and which ends on the date which is three years after the beginning date. 9. NON-COMPETE COVENANTS AND CONFIDENTIAL INFORMATION. 9.1 Employee agrees that during the term of this Agreement and for a period of one year after her termination of employment with Employer for any reason whatsoever (or, if Employee either is entitled to a retention incentive under Section 8 above after such termination of employment or has been paid a retention incentive under Section 8 above prior to such termination of employment, for a period of two years after such termination of employment), Employee shall not, without the express written consent of Employer, anywhere in the United States where the Employer was doing business or actively planning to do business during Employee's term of employment: (i) compete with Employer in the managed health care business; or (ii) interfere with, disrupt or attempt to interfere with or disrupt the relationship between Employer and any person or business that was a customer, supplier, lessor, contractor or employee of Employer during Employee's term of employment with Employer. Notwithstanding the above, Employee may, without breaching the provisions of this - 11 - 12 subsection 9.1, work for an employer in the managed health care business or an employer that interferes, disrupts or attempts to interfere with or disrupt the relationship between Employer and any person or business that was a customer, supplier, lessor, contractor or employee of Employer during Employee's term of employment with Employer, provided that: (i) no more than ten percent (10%) of such new employer's business is conducted in areas where Employer is conducting business as of the date of termination of the employment of Employee with Employer; (ii) such new employer does not provide either health insurance or managed care services to ten percent (10%) or more of the population in the areas where Employer is conducting business as of the termination of employment of Employee with Employer; or (iii) the markets in which Employer is conducting, or actively planning to conduct, business as of the date of termination of Employee's termination with Employer and for which Employee will have certain duties or responsibilities with the new employer, as measured by revenues or enrollment within such areas, do not exceed ten percent (10%) of all markets for which Employee will have certain duties or responsibilities with the new employer, as measured by revenues or enrollment within all such markets (provided that this clause (iii) shall not apply if Employee has voluntarily resigned her employment with Employer other than by a voluntary resignation which still results in an amount being payable under subsection 8.5 above). For purposes of this subsection 9.1, if Employee, at the time of Employee's termination of employment with Employer, only has duties and responsibilities with Employer as to certain specified, and not all, areas or markets in which Employer then does business, then any reference to "Employer" in this subsection 9.1 shall be deemed to refer only to the part of the Employer which involves the areas and markets in which Employee has duties and responsibilities at the time of her termination of employment with Employer. 9.2 Employee agrees that, during the term of this Agreement or at any time thereafter, Employee will not, directly or indirectly, disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with or contrary to the interests of Employer or any affiliated companies, the customer lists, proprietary organizational methods or other trade secrets of Employer or any affiliated companies, it being acknowledged by Employee that all such information regarding the business of Employer and affiliated companies compiled or obtained by, or furnished to, Employee while Employee shall have been employed by or associated with Employer is confidential information and Employer's exclusive property. 9.3 Employee expressly agrees and understands that the remedy at law for any breach by him of this Section 9 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of Employee's violation of any legally enforceable provision of this Section 9, Employer shall be entitled to immediate injunctive relief and may obtain a temporary order and permanent injunction restraining any threatened or further breach. However, nothing in this Section 9 shall be deemed to limit Employer's remedies at law or in equity for any breach by Employee of any of the provisions of this Section 9 which may be pursued or availed of by Employer. - 12 - 13 9.4 Employee has carefully considered the nature and extent of the restrictions upon her and the rights and remedies conferred upon Employer under the provisions of this Section 9, and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition which otherwise would be unfair to Employer, do not stifle the inherent skill and experience of Employee, would not operate as a bar to Employee's sole means of support, are fully required to protect the legitimate interests of Employer and do not confer a benefit upon Employer disproportionate to the detriment to Employee which is caused by the provisions of this Section 9. 10. SEVERABLE PROVISION. The provisions of this Agreement are severable, and, if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions of this Agreement and any partially unenforceable provision of this Agreement, to the extent enforceable in any jurisdiction, shall nevertheless be binding and enforceable hereunder. 11. ASSIGNMENTS AND BINDING AGREEMENT. This Agreement may not be assigned by one party hereto without the consent of the other, except that this Agreement may be assigned by Employer to any affiliated company. Notwithstanding the foregoing general restriction on voluntary assignments, the rights and obligations of the parties under this Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, personal representatives and estates, which successors and assigns in the case of Employer shall include (i) any affiliated company to which this Agreement is assigned by Employer, (ii) any successor of the ChoiceCare Parent or the ChoiceCare Operating Company by merger, combination or reorganization in any manner, whether such successor is a corporation, limited liability company, partnership (either general or limited), business trust or other organization or person, and whether or not such successor is a successor by operation of law, (iii) any recipient of materially all the assets and/or business of Employer in liquidation or distribution or by way of contribution of capital, (iv) any successor to materially all the assets and/or business of Employer by purchase or exchange, either singly or in combination, or (v) any combination of the foregoing. Employer covenants that it will make no distribution or contribution of assets and/or business as described in clause (iii) of the immediately preceding sentence nor enter into any agreement of sale or exchange of assets and/or business as described in clause (iv) of the immediately preceding sentence without requiring the recipient(s) of such assets or business to assume the obligations of Employer in this Agreement as a co-obligor. 12. NOTICES. Any notice to be given under this Agreement to any party hereto shall be deemed duly given if it is personally delivered in writing or it is posted in the United States mails, postage prepaid, registered or certified, return receipt requested. Further, if mailed to Employer, such a notice shall be addressed to the ChoiceCare Parent at its principal place of business. If mailed to Employee, such a notice shall be addressed to him at her home address - 13 - 14 last shown on the records of Employer (or at such other address or addresses as Employee may hereafter designate in writing to Employer). 13. WAIVER. The failure of any party hereto to this Agreement to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of such provision or provisions as to any future violations thereof nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties herein are cumulative and the waiver of any single remedy shall not constitute a waiver of such party's right to assert all other legal remedies available to her or it under the circumstances. 14. MISCELLANEOUS. 14.1 For all purposes of this Agreement, Employee's resignation from her employment with Employer shall be deemed not to constitute a voluntary resignation, and instead to be treated as a termination of her employment by Employer, if: (i) such resignation occurs at least 120 days after, and no more than 180 days after, Employer either (a) changes the principal party to which Employee reports and which has the responsibility to evaluate Employee's performance to a party which is not either the Chief Executive Officer of the ChoiceCare Operating Company, the Chief Executive Officer of the ChoiceCare Parent or the Chief Executive Officer of any corporation which owns at least 80% of the ChoiceCare Parent or (b) reduces or changes Employee's duties to those which are not consistent with an employment status which, if held in comparable health care organizations in the U.S., would provide a level of salary and benefits which is at least 90% of the level of total compensation and benefits provided Employee under this Agreement (as determined under reasonable employment surveys typically used by Employer in determining salary and benefit levels for its executive group); or (ii) such resignation occurs after Employer requires Employee to change her principal work location by at least 50 miles and Employee refuses to make such move. In the event Employee's resignation from her employment with Employer is treated as a termination of her employment by Employer by reason of the provisions of clause (i) of the immediately preceding sentence, then, for purposes of determining Employee's rights to any change in control payment described in subsection 7.2 above or any retention incentive payment under Section 8 above, Employee shall be deemed to have had her employment with Employer terminated by Employer on the date that Employer took the action described in clause (i) of the immediately preceding sentence which is applicable to Employee's resignation. 14.2 The captions set forth in this Agreement are for convenience and reference only and shall not be deemed to construe or interpret any term or provision set forth in this Agreement. This Agreement supersedes all prior agreements and understandings between the parties and may not be modified or terminated orally. No modification, termination or attempted waiver of this Agreement shall be valid unless in writing and signed - 14 - 15 by the party against whom the same is sought to be enforced. This Agreement shall be governed by and construed according to the laws of the State of Ohio. 14.3 If the firm of independent outside auditors then used by Employer (the "Auditors") determine that any payment or distribution by Employer to or for the benefit of Employee, whether paid or payable (or distributed or distributable) pursuant to the terms of this Agreement or otherwise, would be subject to tax as an excess parachute payment pursuant to the provisions of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code), then, notwithstanding any other provision of this Agreement to the contrary, Employer shall "gross up" such payment or distribution so that the net amount of such payment or distribution, after taking into consideration the payment of the tax imposed on Employee under Section 4999 of the Code, is the same as the amount that such payment or distribution would be if no such tax applied. 15. ARBITRATION. Any dispute or disagreement among the parties hereto shall be submitted to mandatory and binding arbitration at the election of any party hereto. The arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be held in Cincinnati, Ohio. The ChoiceCare Parent and the ChoiceCare Operating Company shall together select one arbitrator, Employee shall select one arbitrator and the two selected arbitrators shall select a third arbitrator. The decision of the arbitrators, and any award rendered therein, shall be final, conclusive and binding upon the parties hereto and any judgment thereon may be entered and enforced in any court of competent jurisdiction. Employer shall bear 50% of all fees, costs and expenses of the arbitration, Employee shall bear 50% of all fees, costs and expenses of the arbitration and each party will bear all the fees, costs and expenses of his or its own attorneys, experts and witnesses. Signed at Cincinnati, Ohio on the 25 day of April, 1997. -- ------ EMPLOYER: ChoiceCare Corporation By: /s/ Daniel A. Gregorie ------------------------------------ ChoiceCare Health Plans, Inc. By: /s/ Daniel A. Gregorie ------------------------------------ - 15 - 16 EMPLOYEE: /s/ Jane E. Rollinson ---------------------------------------- Jane E. Rollinson - 16 - EX-10.II.A.5 5 EXHIBIT 10(II)(A)(5) 1 Exhibit 10(ii)(A)(5) AMENDED AND RESTATED EMPLOYMENT AGREEMENT -------------------- EXECUTIVE VICE PRESIDENT ------------------------ CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH PLANS, INC. (the "ChoiceCare Operating Company" and with the ChoiceCare Parent and the ChoiceCare Operating Company being collectively referred to as the "Employer"), and MICHAEL J. BARBER, M.D. ("Employee"), hereby agree as follows, effective as of the 1st day of January, 1997: 1. RECITALS. Employer and Employee are currently parties to an employment agreement, the original form of which was adopted on September 22, 1995 and the form of which was amended and/or restated certain times since then. This Agreement amends and restates any prior employment agreement between Employer and Employee in its entirety, and supersedes any prior employment agreement between Employer and Employee, effective as of January 1, 1997. 2. EMPLOYMENT. Employer agrees to employ Employee, and Employee accepts such employment, upon the terms and conditions set forth herein. 3. EMPLOYEE'S RESPONSIBILITIES. 3.1 Employee shall serve as an executive vice president of both the ChoiceCare Parent and the ChoiceCare Operating Company. In such position, Employee shall be responsible for the management and supervision of Employer's operations within his area of responsibility and perform such other duties and responsibilities as shall be requested by the Chief Executive Officers or the boards of directors of Employer, including serving as a senior executive and/or board member of any affiliated company. For purposes of this Agreement, an "affiliated company" means any corporation (other than the Employer) which, now or at any later time, is part of an unbroken chain of corporations (i) that includes the Employer and (ii) in which each corporation in such chain either owns at least 50% of the total combined voting power of all classes of stock in one of the other corporations in such chain or has at least 50% of the total combined voting power of all classes of its stock owned by one of the other corporations in such chain. 3.2 Employee shall devote his full time and best efforts to his employment with Employer and perform diligently such duties as are required by Employer from time to time, which duties shall be consistent with Employee's position with Employer. 2 3.3 Without the prior written consent of the ChoiceCare Parent, which shall not be unreasonably withheld, during the term of this Agreement Employee shall not, directly or indirectly, render services of a business, professional or commercial nature to any other person or firm, for compensation or otherwise, except in the ordinary course of the business of Employer or any affiliated company. Notwithstanding the foregoing but subject to the following provisions, Employee may serve as a director or trustee of any company, on either a compensated or noncompensated basis, that is not a competitor of Employer or any affiliated company. Employee may retain any director fees, committee fees, stock options, restricted stock awards or other remuneration paid or given to Employee by any such company for such services as a director or trustee. Employee shall notify the ChoiceCare Parent of any appointment to a board of directors or board of trustees, and, notwithstanding the foregoing, Employee shall resign from any board upon the request of the ChoiceCare Parent, provided that the request has a reasonable basis. Employee may also retain any honoraria paid to him, provided that, if the honoraria to be paid for any one appearance or presentation exceeds $2,000, the Chief Executive Officer of the ChoiceCare Parent and the Chairman of the board of directors of the ChoiceCare Parent shall determine, in their sole discretion, whether Employee is entitled to retain the amount in excess of $2,000. 4. TERM. 4.1 The initial term of this Agreement shall begin January 1, 1997 and end December 31, 1999. 4.2 This Agreement shall automatically be renewed at the end of its initial term (or at the end of any renewal term provided hereunder) for a renewal term of three additional years, unless Employer gives Employee, or unless Employee gives Employer, written notice by July 1 of the last contract year of the initial term of this Agreement (or by July 1 of the last contract year in which a renewal term of this Agreement is in effect) that this Agreement shall terminate at the end of the then-current term. If this Agreement terminates at the end of a then-current term by reason of Employer giving a timely written notice to Employee that this Agreement shall terminate at the end of the then-current term, then Employer shall be deemed to have terminated Employee's employment for purposes of the other provisions of this Agreement. On the other hand, if this Agreement terminates at the end of a then-current term by reason of Employee giving a timely written notice to Employer that this Agreement shall terminate at the end of the then-current term, then, except as may otherwise be provided under subsection 14.1 below or any other provision of this Agreement, Employee shall be deemed to have voluntarily resigned his employment with Employer for purposes of the other provisions of this Agreement. 4.3 For all purposes of this Agreement, a "contract year" means a calendar year, beginning January 1 and ending the following December 31, which occurs during the term of this Agreement. Also, for all purposes of this Agreement, a "contract term" means either the initial term of this Agreement or any renewal term of this Agreement. In addition, - 2 - 3 also for all purposes of this Agreement, any reference to the "then-current contract year" refers to the contract year which is then in effect and any reference to the "then-current term" refers to the contract term which is then in effect. 5. COMPENSATION AND BENEFITS: During the term of this Agreement: 5.1 Employee shall receive an initial base salary at the annual rate of $234,000, payable in equal consecutive bi-weekly installments. Such base salary shall be reviewed annually effective as of the first pay period beginning on or after January 1 of each contract year after the initial contract year of this Agreement, and shall be reviewed at other times if Employer substantially changes the responsibilities of Employee, and shall be adjusted on a basis consistent with the executive compensation philosophy of Employer. In no event shall Employee's base salary be reduced for any contract year (whether or not such contract year occurs in the initial term of this Agreement or in a renewal term of this Agreement) below his base salary for the immediately preceding contract year. 5.2 Employer may during the term of this Agreement, consistent with its approach to the rest of its executive group: (a) Award an annual incentive to Employee based on Employer's overall success as a for-profit community resource, Employer's accomplishment of strategic imperatives, Employer's continuous improvements of quality outcomes and Employee's performance of his duties under this Agreement during the previous contract year, in accordance with Employer's Executive Annual Incentive Plan (the "Annual Incentive Plan"), as amended from time to time by the boards of directors of Employer. The amount of any incentive under the Annual Incentive Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Annual Incentive Plan. However, in the event of a change in control, the overall value of the annual incentive under the Annual Incentive Plan, as may be reasonably determined by the Employer's boards of directors (taking into account the possibility of meeting the goals which are used under such plan to determine if Employee is entitled to the incentive as well as the potential amount of the incentive), shall not be reduced for the contract year in which the change in control occurs or any subsequent contract year below the overall value of the annual incentive under such plan which has been established by the Employer prior to the change in control for the contract year in which the change in control occurs (or, if no annual incentive has been established for such contract year by the time of the change in control, for the next preceding contract year); - 3 - 4 (b) Award an incentive to Employee pursuant to the provisions of Employer's Executive Long-Term Incentive Plan (the "Long-Term Plan"), as amended from time to time by the boards of directors of Employer. The amount of any incentive under the Long-Term Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Long-Term Plan. However, in the event of a change in control, in no event shall the overall value of the incentive under the Long-Term Plan which has been established by the Employer prior to the change in control with respect to the contract year which begins January 1, 1997, as may be reasonably determined by the Employer's boards of directors, be reduced; and (c) Cause awards to be granted to Employee pursuant to the provisions of Employer's 1996 Long Term Stock Incentive Plan (the "Stock Incentive Plan"), as amended from time to time by the boards of directors of Employer. The amount of any award granted under the Stock Incentive Plan shall be determined by Employer's boards of directors in a manner consistent with the terms and practices of the Stock Incentive Plan. 5.3 Employee shall be entitled during the term of this Agreement to: (a) Paid vacation as established under Employer's paid time off policy. Vacation use and carryover rules will be in accordance with the rules established for other executives of Employer. However, in the event of a change in control, the overall value of such vacation benefits, as may reasonably be determined by the Employer's boards of directors, shall not be less at any time on or after the change in control and while this Agreement is in effect than the value of the vacation benefits provided Employee under this Agreement immediately prior to the change in control. (b) Tax-qualified retirement plan benefits, disability insurance benefits, group term life insurance benefits, medical benefits, dental benefits and such other similar employment privileges, perquisites and benefits as are afforded generally from time to time to other members of the executive management group of Employer. However, in the event of a change in control, the overall value of such benefits, considered in the aggregate and as may be reasonably determined by the Employer's boards of directors, shall not be less at any time on or after the change in control and while this Agreement is in effect than the value of the tax-qualified retirement plan benefits, disability insurance benefits, - 4 - 5 group term life insurance benefits, medical benefits, dental benefits and such other similar employment privileges, perquisites and benefits provided Employee under this Agreement immediately prior to the change in control. (c) Participate in the Supplemental Executive Retirement Plan ("SERP") attached hereto as Exhibit A, in accordance with the terms of SERP. However, in event of a change in control, the percent of Employee's compensation allocated to the SERP shall not be reduced for any contract year which ends after the change in control below the percent of his compensation which is allocated to the SERP for the immediately preceding contract year. Employee (or, if applicable, any other recipient of any benefits provided under this subsection 5.3) shall be solely responsible and liable for payment of any taxes imposed on Employee (or, if applicable, such recipient) resulting from the provision of any benefits under this subsection 5.3, including but not limited to any life insurance benefits. 5.4 Employer shall reimburse Employee (or provide an expense allowance) for travel, entertainment, continuing education and other expenses which are reasonably incurred by Employee in the promotion of Employer's business, provided Employee provides a proper accounting for such expenses. 6. TERMINATION; SEVERANCE BENEFITS. 6.1 Employer may terminate this Agreement and Employee's employment hereunder at any time for Cause. If Employee's employment hereunder is terminated for Cause, Employee shall not be entitled to any payments or benefits hereunder except for (i) unpaid salary already earned and (ii) unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. For all purposes of this Agreement, "Cause" means: (a) Employee's fraud, dishonesty or willful misconduct in the performance of his duties to Employer; or (b) Employee's material breach of any material provision of this Agreement; provided that a material breach shall not be deemed to have occurred if Employee's breach relates to the receipt of a payment of money and Employee cures such breach within thirty (30) days of receipt by Employee of a written notice of such breach. - 5 - 6 6.2 If Employee's employment hereunder terminates because of his voluntary resignation as an employee of Employer, then, except as may otherwise be provided under Section 8 below or any other provision of this Agreement, Employee shall not be entitled to any payments or benefits hereunder except for (i) salary already earned and (ii) unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. 6.3 If Employee's employment hereunder terminates by reason of his death, then, in addition to any other payment which may be provided under subsection 8.2 below or any other provision of this Agreement, Employee's estate (or, where applicable or the context requires, the surviving members of his family or his beneficiaries) shall be entitled to (i) his unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying his targeted incentives with respect to the contract year in which his termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days he was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment), (iv) any benefits due under any group term life insurance benefits in effect for him at the time of his death under subsection 5.3(b) above and (v) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested (or vest by reason of his death) and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. 6.4 If Employee's employment hereunder terminates by reason of his permanent disability, then, in addition to any other payment which may be provided under subsection 8.2 below or any other provision of this Agreement, Employee shall be entitled to (i) his unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying his targeted incentives with respect to the contract year in which his termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days he was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment), (iv) any benefits due him under any disability insurance applicable to him and in effect at the time he becomes permanently disabled under subsection 5.3(b) above and (v) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested (or vest by reason of his permanent disability) and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. For all purposes of this Agreement, Employee shall be deemed to be "permanently disabled" and to have incurred a "permanent disability" if he, by reason of his physical or mental injury, - 6 - 7 illness or condition, is determined to be disabled for a period which is expected will exist until his death under the disability insurance which is then in effect for him under subsection 5.3(b) above. 6.5 Employer shall have the right to terminate Employee's employment hereunder without Cause at any time. In the event Employee's employment with Employer terminates for any reason other than Cause, Employee's death or permanent disability or his voluntary resignation, then, except as may otherwise be provided under Sections 7 and 8 below or any other provision of this Agreement, Employee shall be entitled to (i) his unpaid salary which has already been earned, (ii) an amount equal to the product obtained by multiplying his targeted incentives with respect to the contract year in which his termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days he was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, (iii) any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment) and (iv) any other unpaid benefits which are provided under subsection 5.3 above, have already become vested and are payable upon such termination of employment under the terms and practices of the plans or arrangements under which such benefits are provided. In addition, subject to the immediately following sentence and provided Employee agrees not to file any administrative charge or lawsuit relating to his prior employment with Employer and agrees to release Employer and all of its then current and former directors, trustees, officers, employees, agents, members and affiliated companies from any and all claims, in such form as is determined by Employer and consistent with Employer's normal practices concerning employee releases, Employer: (i) shall pay for executive outplacement services for Employee, up to a maximum cost of $25,000 (adjusted annually in accordance with the CPI), through a mutually agreeable outplacement consulting firm; and (ii) shall make in this situation severance payments to Employee, payable on a bi-weekly basis, equal to Employee's base rate of salary in effect at the time of his termination of employment. The severance payments provided under the immediately preceding sentence shall be made with respect to the period following Employee's termination of employment until the end of the twelve month period beginning on the date of Employee's termination of employment with Employer. 6.6 At any time that Employee is receiving compensation or payments pursuant to subsection 6.5 above, Employee shall continue to participate in the health, disability and life insurance plans of Employer applicable to executive employees of Employer or be provided comparable benefits. 7. PAYMENT FOLLOWING A CHANGE IN CONTROL AND INVOLUNTARY TERMINATION. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall apply in the event of a change in control (as is defined below): - 7 - 8 7.1 In the event of a change in control and upon the request of Employer, Employee agrees (i) that he shall remain as an employee of Employer for a period ending no earlier than the earliest of the last day of the period requested by Employer that Employee remain an employee after the change in control, the day which is twelve months after the change in control or the last day of the then-current term and (ii) that, should Employee voluntarily resign from his employment with Employer after the change in control but before the earliest of such days, he shall not be entitled to any benefits under this Section 7. 7.2 Subject to the foregoing, if a change in control occurs and Employee's employment with Employer terminates for any reason, other than for Cause, Employee's death or permanent disability or his voluntary resignation, during the period which begins six months prior to the date of the change in control and ends one year after the date of the change in control, Employee shall be entitled to a lump sum payment, which is made within 60 days after the later of Employee's termination of employment or the change in control, in an amount equal to three times the sum of: (i) Employee's then-current annual base rate of salary; (ii) the amount set forth by Employer as the target for Employee's incentive for the then-current contract year under the Annual Incentive Plan; and (iii) if the contract year in which the change in control occurs is 1997, the amount set forth by Employer as the target for Employee's incentive for the 1997 contract year under the Long-Term Plan. Notwithstanding the foregoing, the amount of any payment otherwise required by the immediately preceding sentence shall be reduced by the amount of any payment that Employee has previously received (or is entitled to receive within 60 days of his termination of employment) under subsection 8.1, 8.2, 8.3 or 8.4 below. Further, Employee shall also, if he is entitled to the payment described in the foregoing sentences of this subsection 7.2, be paid an amount equal to the product obtained by multiplying his targeted incentives with respect to the contract year in which his termination occurs under the Annual Incentive Plan and the Long-Term Plan (if any) by a fraction having a numerator equal to the number of days he was an employee of Employer in such contract year and a denominator equal to the number of days in such contract year, plus any incentives which have been earned for prior contract years under the Long-Term Plan but have not yet been paid (since an incentive earned for a contract year under such plan is not normally payable until after a further period of continuous future employment). 7.3 If a change in control payment described in subsection 7.2 above is made, then, notwithstanding any other provision of this Agreement to the contrary, Employee shall not be entitled to any payments under Section 6 above that relate to any period which ends after his termination of employment and that are based upon or calculated with respect to Employee's base salary, then-current or otherwise, or the Annual Incentive Plan or Long-Term Plan. 7.4 For all purposes of this Agreement, a "change in control" means and occurs on the date of: (i) the election of persons constituting more than 33-1/3% of the whole number of directors of the ChoiceCare Parent, if such persons were not nominated by the nominating committee of the ChoiceCare Parent or, if so nominated, were not recommended by a majority of the directors in office prior to being nominated by such nominating committee - 8 - 9 unless the person nominated is nominated to take the place of an individual previously so recommended by the directors who has died, become disabled or chose not to serve, in which event that nominee shall be deemed to be recommended by the majority of the directors in office if such majority recommends that nominee at the meeting of directors next following the nomination of such person; (ii) any consolidation or merger of the ChoiceCare Parent if, within two years after such consolidation or merger, individuals who were directors of the ChoiceCare Parent immediately prior to such consolidation or merger cease to constitute at least 66-2/3% of the board of directors of the ChoiceCare Parent or its successor by consolidation or merger; (iii) any sale, lease, exchange or other transfer, in one transaction or a series of related transactions (and other than to a directly or indirectly majority-owned subsidiary of the ChoiceCare Parent) of all, or substantially all, of the assets of the ChoiceCare Parent; (iv) the sale, whether by outright purchase, merger, consolidation, reorganization or other form of transaction (not including a reorganization solely involving affiliated companies), or the execution of a definitive agreement (subject only to regulatory approvals or other similar conditions) for the sale, of at least 33-1/3% of the ownership and/or voting interests in any direct or indirect subsidiary or subsidiaries of the ChoiceCare Parent if such subsidiary or subsidiaries before such sale held assets that constituted all or substantially all of the assets of the ChoiceCare Parent and its direct and indirect subsidiaries on a consolidated basis; (v) the sale, whether by outright purchase, merger, consolidation, reorganization or other form of transaction (not including a reorganization solely involving affiliated companies), or the execution of a definitive agreement (subject only to regulatory approvals or other similar conditions) for the sale, of at least 33-1/3% of the ownership and/or voting interests in the ChoiceCare Parent to one purchaser, related purchasers or several purchasers acting directly or indirectly in concert; or (vi) the approval by the shareholders of the ChoiceCare Parent of any plan or proposal for the liquidation of dissolution of the ChoiceCare Parent. 8. RETENTION INCENTIVE. If a change in control (as defined in subsection 7.4 above) or a strategic investor purchase (as is defined below) occurs while this Agreement is in effect, then Employee will be eligible for a retention incentive (in addition to any other payments or benefits provided under the other provisions of this Agreement, including but not limited to the provisions of Sections 5 and 6 above) in accordance with the following provisions: 8.1 If Employee is continuously employed by Employer to the end of the retention incentive period (as is defined below), then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after the end of such retention incentive period and which is equal to the lesser of (i) an amount equal to two and one-half (2.5) times his annual base rate of salary in effect on the date of the change in control or strategic investor purchase, as applicable and whichever is earlier, or (ii) $750,000. 8.2 If Employee's employment with Employer is terminated after the earlier of a change in control or a strategic investor purchase but prior to the end of the retention incentive period by reason of his death or his permanent disability (as defined in subsection 6.4 above), then Employee shall be entitled to a retention incentive under this Section 8 which is - 9 - 10 payable in a lump sum within 60 days after Employee's death or the date Employer reasonably determines Employee has incurred a permanent disability, as appropriate, and which is equal to the product obtained by multiplying (i) the retention incentive that would be paid Employee under subsection 8.1 above by reason of the change in control or strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period by (ii) a percentage which is determined in accordance with the immediately following sentence. The percentage to be used in the immediately preceding sentence shall be: (i) 20% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is less than one year; (ii) 50% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is at least one year but less than two years; and (iii) 100% if the duration of the period from the earlier of the change in control or strategic investor purchase to the date of Employee's termination of employment is at least two years. 8.3 If, after a strategic investor purchase but prior to both a change in control and the end of the retention incentive period, Employee's employment with Employer is terminated for any reason other than Cause, Employee's death or permanent disability or his voluntary resignation, then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after Employee's termination of employment and which is equal to the product obtained by multiplying (i) the incentive that would be paid Employee under subsection 8.1 above by reason of the strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period by (ii) a percentage which is determined in accordance with the immediately following sentence. The percentage to be used in the immediately preceding sentence shall be: (i) 20% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is less than one year; (ii) 50% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is at least one year but less than two years; and (iii) 100% if the duration of the period from the strategic investor purchase to the date of Employee's termination of employment is at least two years. 8.4 If, after one year has expired after a change in control but prior to the end of the retention incentive period, Employee's employment with Employer is terminated for any reason other than Cause, Employee's death or permanent disability or his voluntary resignation, then Employee shall be entitled to a retention incentive under this Section 8 which is payable in a lump sum within 60 days after Employee's termination of employment and which is equal to the retention incentive that would be paid Employee under subsection 8.1 above by reason of the change in control or, if applicable, an earlier strategic investor purchase if Employee had been continuously employed by Employer to the end of the retention incentive period. 8.5 If, after one year has expired after a change in control but prior to the end of the retention incentive period, Employee's employment with Employer terminates by reason of his voluntary resignation, then, provided Employee agrees not to file any administrative - 10 - 11 charge or lawsuit relating to his prior employment with Employer and agrees to release Employer and all of its then current and former directors, trustees, officers, employees, agents, members and affiliated companies from any and all claims, in such form as is determined by Employer and consistent with Employer's normal practices concerning employee releases, Employee shall be entitled to a retention incentive under this Section 8 which is payable in installments, on a bi-weekly basis, equal to Employee's base rate of salary in effect at the time of his termination of employment. The payments provided under this subsection 8.5 shall be made with respect to the period following Employee's termination of employment until the end of the one year period beginning on the date of Employee's termination of employment with Employer. 8.6 Notwithstanding any other provision of this Section 8 to the contrary, no more than one retention incentive may be paid under this Section 8, and thus the payment of any retention incentive under any subsection of this Section 8 shall terminate and nullify any right of Employee to any additional incentive which may otherwise arise under another subsection of this Section 8. 8.7 For purposes of this Agreement, a "strategic investor purchase" means, and occurs on the date of, the purchase or obtaining by any person, corporation, partnership or other organization of stock possessing less than 33-1/3% of the total combined voting power of all classes of stock of the ChoiceCare Parent together with the option or right to purchase in the future additional stock of the ChoiceCare Parent which would permit such person, corporation, partnership or other organization to own stock possessing 33-1/3% or more of the total combined voting power of all classes of stock of the ChoiceCare Parent. In addition, for purposes of this Agreement, the "retention incentive period" means the period which begins on the date immediately following the earlier of a change in control or a strategic investor purchase (such date referred to herein as the "beginning date") and which ends on the date which is three years after the beginning date. 9. NON-COMPETE COVENANTS AND CONFIDENTIAL INFORMATION. 9.1 Employee agrees that during the term of this Agreement and for a period of one year after his termination of employment with Employer for any reason whatsoever (or, if Employee either is entitled to a retention incentive under Section 8 above after such termination of employment or has been paid a retention incentive under Section 8 above prior to such termination of employment, for a period of two years after such termination of employment), Employee shall not, without the express written consent of Employer, anywhere in the United States where the Employer was doing business or actively planning to do business during Employee's term of employment: (i) compete with Employer in the managed health care business; or (ii) interfere with, disrupt or attempt to interfere with or disrupt the relationship between Employer and any person or business that was a customer, supplier, lessor, contractor or employee of Employer during Employee's term of employment with Employer. Notwithstanding the above, Employee may, without breaching the provisions of this - 11 - 12 subsection 9.1, work for an employer in the managed health care business or an employer that interferes, disrupts or attempts to interfere with or disrupt the relationship between Employer and any person or business that was a customer, supplier, lessor, contractor or employee of Employer during Employee's term of employment with Employer, provided that: (i) no more than ten percent (10%) of such new employer's business is conducted in areas where Employer is conducting business as of the date of termination of the employment of Employee with Employer; (ii) such new employer does not provide either health insurance or managed care services to ten percent (10%) or more of the population in the areas where Employer is conducting business as of the termination of employment of Employee with Employer; or (iii) the markets in which Employer is conducting, or actively planning to conduct, business as of the date of termination of Employee's termination with Employer and for which Employee will have certain duties or responsibilities with the new employer, as measured by revenues or enrollment within such areas, do not exceed ten percent (10%) of all markets for which Employee will have certain duties or responsibilities with the new employer, as measured by revenues or enrollment within all such markets (provided that this clause (iii) shall not apply if Employee has voluntarily resigned his employment with Employer other than by a voluntary resignation which still results in an amount being payable under subsection 8.5 above). For purposes of this subsection 9.1, if Employee, at the time of Employee's termination of employment with Employer, only has duties and responsibilities with Employer as to certain specified, and not all, areas or markets in which Employer then does business, then any reference to "Employer" in this subsection 9.1 shall be deemed to refer only to the part of the Employer which involves the areas and markets in which Employee has duties and responsibilities at the time of his termination of employment with Employer. 9.2 Employee agrees that, during the term of this Agreement or at any time thereafter, Employee will not, directly or indirectly, disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with or contrary to the interests of Employer or any affiliated companies, the customer lists, proprietary organizational methods or other trade secrets of Employer or any affiliated companies, it being acknowledged by Employee that all such information regarding the business of Employer and affiliated companies compiled or obtained by, or furnished to, Employee while Employee shall have been employed by or associated with Employer is confidential information and Employer's exclusive property. 9.3 Employee expressly agrees and understands that the remedy at law for any breach by him of this Section 9 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of Employee's violation of any legally enforceable provision of this Section 9, Employer shall be entitled to immediate injunctive relief and may obtain a temporary order and permanent injunction restraining any threatened or further breach. However, nothing in this Section 9 shall be deemed to limit Employer's remedies at law or in equity for any breach by Employee of any of the provisions of this Section 9 which may be pursued or availed of by Employer. - 12 - 13 9.4 Employee has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon Employer under the provisions of this Section 9, and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition which otherwise would be unfair to Employer, do not stifle the inherent skill and experience of Employee, would not operate as a bar to Employee's sole means of support, are fully required to protect the legitimate interests of Employer and do not confer a benefit upon Employer disproportionate to the detriment to Employee which is caused by the provisions of this Section 9. 10. SEVERABLE PROVISION. The provisions of this Agreement are severable, and, if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions of this Agreement and any partially unenforceable provision of this Agreement, to the extent enforceable in any jurisdiction, shall nevertheless be binding and enforceable hereunder. 11. ASSIGNMENTS AND BINDING AGREEMENT. This Agreement may not be assigned by one party hereto without the consent of the other, except that this Agreement may be assigned by Employer to any affiliated company. Notwithstanding the foregoing general restriction on voluntary assignments, the rights and obligations of the parties under this Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, personal representatives and estates, which successors and assigns in the case of Employer shall include (i) any affiliated company to which this Agreement is assigned by Employer, (ii) any successor of the ChoiceCare Parent or the ChoiceCare Operating Company by merger, combination or reorganization in any manner, whether such successor is a corporation, limited liability company, partnership (either general or limited), business trust or other organization or person, and whether or not such successor is a successor by operation of law, (iii) any recipient of materially all the assets and/or business of Employer in liquidation or distribution or by way of contribution of capital, (iv) any successor to materially all the assets and/or business of Employer by purchase or exchange, either singly or in combination, or (v) any combination of the foregoing. Employer covenants that it will make no distribution or contribution of assets and/or business as described in clause (iii) of the immediately preceding sentence nor enter into any agreement of sale or exchange of assets and/or business as described in clause (iv) of the immediately preceding sentence without requiring the recipient(s) of such assets or business to assume the obligations of Employer in this Agreement as a co-obligor. 12. NOTICES. Any notice to be given under this Agreement to any party hereto shall be deemed duly given if it is personally delivered in writing or it is posted in the United States mails, postage prepaid, registered or certified, return receipt requested. Further, if mailed to Employer, such a notice shall be addressed to the ChoiceCare Parent at its principal place of business. If mailed to Employee, such a notice shall be addressed to him at his home address - 13 - 14 last shown on the records of Employer (or at such other address or addresses as Employee may hereafter designate in writing to Employer). 13. WAIVER. The failure of any party hereto to this Agreement to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of such provision or provisions as to any future violations thereof nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties herein are cumulative and the waiver of any single remedy shall not constitute a waiver of such party's right to assert all other legal remedies available to him or it under the circumstances. 14. MISCELLANEOUS. 14.1 For all purposes of this Agreement, Employee's resignation from his employment with Employer shall be deemed not to constitute a voluntary resignation, and instead to be treated as a termination of his employment by Employer, if: (i) such resignation occurs at least 120 days after, and no more than 180 days after, Employer either (a) changes the principal party to which Employee reports and which has the responsibility to evaluate Employee's performance to a party which is not either the Chief Executive Officer of the ChoiceCare Operating Company, the Chief Executive Officer of the ChoiceCare Parent or the Chief Executive Officer of any corporation which owns at least 80% of the ChoiceCare Parent or (b) reduces or changes Employee's duties to those which are not consistent with an employment status which, if held in comparable health care organizations in the U.S., would provide a level of salary and benefits which is at least 90% of the level of total compensation and benefits provided Employee under this Agreement (as determined under reasonable employment surveys typically used by Employer in determining salary and benefit levels for its executive group); or (ii) such resignation occurs after Employer requires Employee to change his principal work location by at least 50 miles and Employee refuses to make such move. In the event Employee's resignation from his employment with Employer is treated as a termination of his employment by Employer by reason of the provisions of clause (i) of the immediately preceding sentence, then, for purposes of determining Employee's rights to any change in control payment described in subsection 7.2 above or any retention incentive payment under Section 8 above, Employee shall be deemed to have had his employment with Employer terminated by Employer on the date that Employer took the action described in clause (i) of the immediately preceding sentence which is applicable to Employee's resignation. 14.2 The captions set forth in this Agreement are for convenience and reference only and shall not be deemed to construe or interpret any term or provision set forth in this Agreement. This Agreement supersedes all prior agreements and understandings between the parties and may not be modified or terminated orally. No modification, termination or attempted waiver of this Agreement shall be valid unless in writing and signed - 14 - 15 by the party against whom the same is sought to be enforced. This Agreement shall be governed by and construed according to the laws of the State of Ohio. 14.3 If the firm of independent outside auditors then used by Employer (the "Auditors") determine that any payment or distribution by Employer to or for the benefit of Employee, whether paid or payable (or distributed or distributable) pursuant to the terms of this Agreement or otherwise, would be subject to tax as an excess parachute payment pursuant to the provisions of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then, notwithstanding any other provision of this Agreement to the contrary, Employer shall "gross up" such payment or distribution so that the net amount of such payment or distribution, after taking into consideration the payment of the tax imposed on Employee under Section 4999 of the Code, is the same as the amount that such payment or distribution would be if no such tax applied. 15. ARBITRATION. Any dispute or disagreement among the parties hereto shall be submitted to mandatory and binding arbitration at the election of any party hereto. The arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be held in Cincinnati, Ohio. The ChoiceCare Parent and the ChoiceCare Operating Company shall together select one arbitrator, Employee shall select one arbitrator and the two selected arbitrators shall select a third arbitrator. The decision of the arbitrators, and any award rendered therein, shall be final, conclusive and binding upon the parties hereto and any judgment thereon may be entered and enforced in any court of competent jurisdiction. Employer shall bear 50% of all fees, costs and expenses of the arbitration, Employee shall bear 50% of all fees, costs and expenses of the arbitration and each party will bear all the fees, costs and expenses of his or its own attorneys, experts and witnesses. Signed at Cincinnati, Ohio on the 25 day of April, 1997. -- ----- EMPLOYER: ChoiceCare Corporation By: /s/ Daniel A. Gregorie ------------------------------------ ChoiceCare Health Plans, Inc. By: /s/ Daniel A. Gregorie ------------------------------------ - 15 - 16 EMPLOYEE: /s/ Michael J. Barber MD --------------------------------------- Michael J. Barber, M.D. - 16 - EX-10.II.A.6 6 EXHIBIT 10(II)(A)(6) 1 Exhibit 10(ii)(A)(6) AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT (As amended and restated effective January 1, 1997) CHOICECARE CORPORATION (the "ChoiceCare Parent") and CHOICECARE HEALTH PLANS, INC. (the "ChoiceCare Operating Company," and with the ChoiceCare Parent and the ChoiceCare Operating Company being collectively referred to as the "Employer"), and DANIEL A. GREGORIE, M.D. (the "Employee") hereby agree as follows, effective as of the 1st day of January, 1997 SECTION 1 --------- PURPOSE OF AGREEMENT -------------------- 1.1 The Midwest Foundation Independent Physicians Association and Daniel A. Gregorie, M.D. entered into a Supplemental Executive Retirement Agreement on the r day of December 1994. This agreement amends and restates that prior agreement effective as of January 1, 1997. 1.2 The purpose of this Agreement is to provide deferred compensation for Daniel A. Gregorie, M.D., the President and Chief Executive Officer of the ChoiceCare Parent and the ChoiceCare Operating Company. The Agreement is intended to be an unfunded deferred compensation plan within the meaning of sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended, and shall be construed as such. This Agreement is also intended to constitute the Supplemental Executive Retirement Plan described in the Employment Agreement between Daniel A. Gregorie, M.D. and the ChoiceCare Parent and the ChoiceCare Operating Company SECTION 2 --------- GENERAL DEFINITIONS ------------------- GENERAL DEFINITIONS. For purposes of the Agreement, the following terms shall have the meanings hereinafter set forth unless the context otherwise requires. Terms not defined herein but defined in the Employment Agreement shall have the meanings given such terms in the Employment Agreement. 2.1 "Base Salary" means the Employee's base salary payable to him by the Employer pursuant to Section 5.1 of the Employment Agreement, prior to any reduction of such base salary pursuant to Sections 125, 402(a)(8), or 403(b) of the Code, and excluding any additional amounts computed with reference to such base salary and payable under Sections 7 or 8 of the 2 Employment Agreement following a change in control or a strategic investor purchase (as those terms are defined in the Employment Agreement). 2.2 "Beneficiary" means the person or entity last designated by the Employee, on forms furnished and in the manner prescribed by the Committee and delivered to the Committee before the Employee's death, to receive any benefit payable under the Agreement after the Employee's death. If the Employee fails to designate a beneficiary or if, for any reason, such designation is not effective, his "Beneficiary" shall be his surviving spouse or, if none, his estate. 2.3 "Code" means the Internal Revenue Code of 1986 as such Code now exists or is hereafter amended. 2.4 "Committee" means the Human Resources and Compensation Committee of the Board of Directors of the ChoiceCare Parent. 2.5 "Employee" means Daniel A. Gregorie, M.D. 2.6 "Employer" means, collectively, ChoiceCare Corporation (the "ChoiceCare Parent") and ChoiceCare Health Plans, Inc. (the "ChoiceCare Operating Company"). 2.7 "Employment Agreement" means the employment agreement between Daniel A. Gregorie, M.D. and the Employer, as amended and restated effective January 1, 1997 and as subsequently amended from time to time. 2.8 "Qualified Plans" means all defined contribution retirement plans maintained by the Employer that are intended to be qualified under Section 401(a) of the Code. 2.9 "Year" or "year" means the calendar year. SECTION 3 --------- CREDITS ------- 3.1 CREDITS DURING EMPLOYMENT. For the year 1994, and for each subsequent year through and including the year 1999 in which the Employee remains an employee of the Employer, the Employer shall credit to the book Account established under Section 4.1, as of the last day of such year, an amount equal to 19% of the total of: (i) the Employee's actual Base Salary paid to him by the Employer for such year, and (ii) the Employee's actual award for such year under the Employer's Annual Executive Incentive Plan (as defined in the Employment Agreement and excluding any additional amounts computed with reference to such Annual Executive Incentive Plan and payable under Sections 7 or 8 of the Employment Agreement following a change in control or a strategic investor purchase as those terms are - 2 - 3 defined in the Employment Agreement). For each year subsequent to the year 1999 in which the Employee remains an employee of the Employer, the Employer shall credit to the book Account established under Section 4.1, as of the last day of such year, an amount equal to 16% of the total of: (i) the Employee's actual Base Salary paid to him by the Employer for such year, and (ii) the Employee's actual award for such year under the Employer's Annual Executive Incentive Plan (excluding any additional amounts computed with reference to such Annual Executive Incentive Plan and payable under Sections 7 or 8 of the Employment Agreement following a change in control or a strategic investor purchase as those terms are defined in the Employment Agreement). 3.2 ADDITIONAL CREDIT. In addition to the amount determined under Section 3.1, a credit shall be made to the Account established under Section , as of December 31, 1994, equal to $296,000. The Employee and the Employer agree that such amount represents the additional balance in the Account that would have resulted as of December 31, 1994 if this Agreement had been in effect during the years 1989 through 1993. 3.3 CREDIT FOR YEAR OF TERMINATION. If the Employee's employment with the Employer terminates for any reason except Cause, the credit for the year of termination shall be made pursuant to Section , based solely upon the Employee's actual Base Salary paid to him by the Employer for such year and the Employee's actual award for such year under the Employer's Annual Executive Incentive Plan (as defined in the Employment Agreement), but excluding any additional compensation paid to the Employee for such year except to the extent that such additional compensation must be included as required under Sections 6.5(b) and 8.5 of the Employment Agreement. Except as provided in such Sections 6.5(b) and 8.5, this exclusion shall apply to (but not be limited to) additional compensation of any type paid to him pursuant to the Employment Agreement due to his termination of employment and any additional amounts computed with reference to the Employer's Annual Executive Incentive Plan and payable under Sections 7 or 8 of the Employment Agreement following a change in control or a strategic investor purchase as those terms are defined in the Employment Agreement. Notwithstanding Section , if the Employee's employment with the Employer is terminated for Cause, no credit shall be made to the Employee's Account for the year in which his employment ends. 3.4 MINIMUM CREDIT. If the total of all credits to be made pursuant to Sections 3.1, 3.2, and 3.3 to the Account established under Section 4.1, determined as of the date of the Employee's termination of employment with the Employer for any reason other than Cause (the "Total Credits"), is less than the Minimum Amount, an additional credit shall be made to such Account pursuant to this Section 3.4. Such additional credit shall equal the Minimum Amount, less the Total Credits, and shall be made as of the date of the termination of the Employee's employment with the Employer. (a) For purposes of this Agreement, the "Minimum Amount" shall equal the total of: (i) the Cumulative Amount, determined from the following schedule for the year immediately prior to the year in which the termination occurs, plus (ii) the Annual Increment, - 3 - 4 determined from the following schedule for the year in which the termination occurs, multiplied by a fraction, the numerator of which is the number of months during such year in which the Employee was actively employed by the Employer, and the denominator of which is twelve.
===================================================================================================== Year of Termination Annual Increment Cumulative Amount - ----------------------------------------------------------------------------------------------------- 1994 not applicable 390,353 - ----------------------------------------------------------------------------------------------------- 1995 87,780 478,133 - ----------------------------------------------------------------------------------------------------- 1996 92,169 570,302 - ----------------------------------------------------------------------------------------------------- 1997 96,777 667,079 - ----------------------------------------------------------------------------------------------------- 1998 101,616 768,695 - ----------------------------------------------------------------------------------------------------- 1999 or later 106,697 875,392 =====================================================================================================
(b) Solely as an example to illustrate the intent of this Section 3.4, if the date of the Employee's termination of employment with the Employer is July 15, 1996, the Minimum Amount is $531,898, which is the total of the Cumulative Amount for 1995 ($478,133) plus 7/12 of the Annual Increment for 1996 ($53,765). If the Total Credits as of July 15, 1996 are $500,000, the additional credit made pursuant to this Section 3.4 is $31,898. (c) Notwithstanding any other provision of this Agreement, if his employment with the Employer terminates for Cause, no credit shall be made to the Employee's Account under this Section 3.4 for the year in which his employment ends. 3.5 NO CONTRIBUTIONS BY EMPLOYEE. The Employee shall not be required or permitted to make contributions to his Account under this Agreement. SECTION 4 --------- MAINTENANCE AND VALUATION OF ACCOUNT ------------------------------------ 4.1 ESTABLISHMENT OF ACCOUNT. There shall be established for the Employee a separate book account (the "Account"), which shall reflect the amounts credited pursuant to Section 3 and the assumed investment thereof. Subject to such rules as the Committee may prescribe, any amount credited under Sections 3.1, 3.2, or 3.3 shall be credited to the Employee's Account as of the last day of the year for which such credit is made, and shall be assumed to have been invested as of that date pursuant to Section 4.2 of this Agreement. 4.2 ASSUMED INVESTMENTS. With respect to any period of time, the credits to the Employee's Account made in accordance with Sections 3.1, 3.2, or 3.3 shall be assumed to have been invested in two or more investment funds designated by the Committee among which the - 4 - 5 Employee may designate as the assumed investment of his Account. Such investment funds may, but need not, be the same investment funds that are available under the Employer's Qualified Plans. The assumed investment return or loss for each year shall be credited to the Employee's Account as of the last day of such year, provided, however, that the assumed investment return or loss for the year in which the Account is distributed to the Employee or his Beneficiary shall be deemed to be credited to the Account as of the date the distribution from the Account is made. 4.3 VALUATION. As soon as practical following the end of each year, the Employee, or, in the event of his death, his Beneficiary, shall be furnished a statement as of December 31 showing the then balance of the Employee's Account, the total credits to such Account during the preceding calendar year pursuant to Sections 3.1, 3.2, or 3.3, and the investment return or loss credited to such Account pursuant to Section 4.2. 4.4 LIMITATION. Notwithstanding any other provision of this Agreement, all credits to the Employee's Account under any provision of this Agreement shall be made on the express condition that such credits do not adversely affect the tax-exempt status of Midwest Foundation Independent Physicians Association dba ChoiceCare under section 501(c)(4) of the Code. If the Internal Revenue Service determines that any credit to the Employee's Account made under this Agreement (by itself or in combination with other compensation paid to the Employee by the Employer) adversely affects such tax-exempt status, the Employer may, after providing at least 20 days' written notice of the proposed action to the Employee, reduce or cancel such credit to the extent necessary to preserve or restore such tax-exempt status, and in the event of such a cancellation, the Employee shall have no right or claim to the amount so cancelled or to any other benefit or compensation in consequence of such cancellation. SECTION 5 --------- VESTING ------- 5.1 VESTING. The vested percentage of the Employee's Account shall be 100% as of December 31, 1999. At any relevant time prior to December 31, 1999, the vested percentage of the Employee's Account shall be 0%, except as otherwise provided in Section 5.2. 5.2 EARLY VESTING. Notwithstanding Section 5.1, the vested percentage of the Employee's Account shall be 100% as of the earliest of the following: (a) Termination or nonrenewal of the Employment Agreement prior to December 31, 1999 by the Employer without Cause, provided, however, that termination of the Employment Agreement prior to such date by the Employee shall not affect the vesting of the Employee's Account; - 5 - 6 (b) The Employee's death or permanent disability (as defined in the Employment Agreement) while he remains employed by the Employer; or (c) The occurrence of a change in control (as defined in the Employment Agreement). 5.3 TERMINATION FOR CAUSE. Notwithstanding any other provision of this Agreement, if the Employee is terminated for Cause (as defined in the Employment Agreement), the vested percentage of his Account shall be 0% and he shall forfeit all amounts in his Account. SECTION 6 --------- DISTRIBUTIONS AND FORFEITURES ----------------------------- 6.1 GENERAL. Except as otherwise provided in this Section 6, no amount shall be paid with respect to the Employee's Account while he remains employed by the Employer. 6.2 TERMINATION OF EMPLOYMENT. The Employer will pay or begin to pay to the Employee the vested percentage of the balance in his Account, determined as of the date he terminates all employment with the Employer for any reason other than his death, as soon as administratively practical after the first business day of the first calendar quarter which begins after the date on which he ceases to be an employee of the Employer, in the latest form of payment elected by the Employee under this Agreement. The Employee may elect either a lump sum payment or any number of annual installment payments, up to ten annual installment payments. (a) The Employee is deemed to have elected to receive a lump sum payment unless he changes this election pursuant to Section 6.2(b). (b) The Employee may change the election he is deemed to make under Section 6.2(a) by completing an appropriate form and filing it with the Committee; except that any change of the form of payment will not be given any effect under this Agreement unless the date on which the Employee ceases to be an employee of the Employer occurs one year or more after the date on which the form changing the election is filed with the Committee. (c) The amount of each annual installment payable under this Section 6.2 (if the Employee elects to receive his Account in annual installment payments) will be a fraction of the amount credited to the Employee's Account as of the installment payment date, the numerator of which is one and the denominator of which is equal to the total number of installments remaining to be paid (including the installment to be paid on that installment payment date). The first installment payment will be made at the time indicated in the first sentence of this Section 6.2, and all remaining installment payments will be made as soon as - 6 - 7 administratively practical after each annual anniversary of the initial installment payment until all required installment payments have been made. (d) If the Employee receives all amounts credited to his Account because he has ceased to be an employee of the Employer, and an additional amount is subsequently credited to his Account under the terms of the Agreement, that additional amount will be paid to the Employee as soon as administratively practical after it is credited to his Account. (e) For purposes of this Section 6.2, if the Employee incurs a "permanent disability" (as defined in the Employee's employment agreement with the Employer) before ceasing his employment with the Employer, he will be deemed to cease employment with the Employer on the date that the Committee determines that he has incurred such permanent disability. 6.3 FORFEITURES. Any nonvested percentage of the balance in the Employee's Account, determined as of the date on which he terminates employment with the Employer for any reason other than his death or total disability (as defined in the Employment Agreement), shall be forfeited as of such date. 6.4 DEATH. If the Employee ceases to be employed by the Employer by reason of his death, or if he dies after ceasing to be an employee but before the vested percentage of the amount credited to his Account has been paid or has begun to be paid to him, the Employer shall pay to the Employee's Beneficiary the vested percentage of the amounts credited to the Employee's Account in the method elected by the Beneficiary under Section 6.2, applying such Section as if the Beneficiary were the Employee and disregarding the requirement that the election must be made at least one year before the Employee terminates employment with the Employer. If the Employee dies after beginning to receive the payment of the vested percentage of the amount credited to his Account in installments under Section 6.2(c), the remaining installments shall be paid to his Beneficiary under the payment schedule in effect before the Employee's death. 6.5 DISTRIBUTIONS FOR PAYMENT OF TAXES. Notwithstanding Section 6.1, if the Internal Revenue Service determines that the Employee is currently subject to income or other tax on the balance in his Account, the Employer shall pay to the Employee in one lump sum as of the date determined by the Employer that portion of the balance then in his Account that is necessary for the payment of federal, state, and local taxes, and interest and penalties thereon, that results from such determination, and the balance in the Employee's Account shall immediately be reduced by the amount of such distribution. 6.6 FORM OF PAYMENT. Payments with respect to the Account shall be made in cash. As provided in Sections 6.2, 6.3, and 6.4, payments shall be made "as of" a certain date, which means that payments will be made on or as soon as practicable after such date, and will be equal to the balance in the Employee's Account as of that certain date. All payments made to the Employee or his Beneficiary shall be subject to applicable withholding and to such other - 7 - 8 deductions as shall at the time of such payment be required under any income tax or other law, whether of the United States or any other applicable jurisdiction. SECTION 7 --------- ADMINISTRATION OF THE AGREEMENT ------------------------------- 7.1 GENERAL. The general administration of the Agreement and the responsibility for carrying out its provisions shall be placed in the Committee. 7.2 EXPENSES. Expenses of administering the Agreement shall be borne by the Employer. 7.3 COMPENSATION OF COMMITTEE. The members of the Committee shall not receive compensation for their services as such, and, except as required by law, no bond or other security need be required of them in such capacity in any jurisdiction. 7.4 RULES. Subject to the limitations of the Agreement, the Committee may, from time to time, establish rules for the administration of the Agreement and the transaction of its business. The Committee may correct errors, however arising, and, as far as possible, adjust any benefit payments accordingly. The Committee shall interpret the Agreement. The Committee's interpretation of the Agreement shall be subject to de novo review in arbitration that occurs pursuant to Section 11.2 hereof. 7.5 AGENTS AND EMPLOYEES. The Committee may authorize one or more agents to execute or deliver any instrument. The Committee may appoint or employ such agents, counsel, auditors, physicians, clerical help, and actuaries as in the Committee's judgment may seem reasonable or necessary for the proper administration of the Agreement. 7.6 INDEMNIFICATION. The Employer shall indemnify each member of the Committee for all expenses and liabilities (including reasonable attorney's fees) arising out of the administration of the Agreement, other than any expenses or liabilities resulting from the Committee's own gross negligence or willful misconduct. The foregoing right of indemnification shall be in addition to any other rights to which the members of the Committee may be entitled as a matter of law. SECTION 8 --------- FUNDING OBLIGATION ------------------ The Employer shall have no obligation to fund, either by the investment in any account or by any other means, its obligation to the Employee hereunder. The Employer shall establish - 8 - 9 a rabbi trust, to which the Employer shall contribute assets to provide for its obligations under this Agreement. All assets allocated for such purpose shall be assets of the Employer subject to claims against the Employer, including claims of the Employer's creditors, to the same extent as are other corporate assets, and the Employee shall have no right or claim against the assets so allocated, other than as a general creditor of the Employer. SECTION 9 --------- AMENDMENT AND TERMINATION ------------------------- The Committee or the Employer may, without the consent of the Employee or his Beneficiary, amend or terminate the Agreement at any time; provided that, except as provided in Section 4.4 hereof, no amendment shall be made or act of termination taken which: (i) divests the Employee or his Beneficiary of the right to receive payments under the Agreement with respect to amounts theretofore credited to the Employee's Account, (ii) directly or indirectly reduces the credits to be made under Section 3 with respect to periods ending on and before December 31, 1999, or (iii) subsequent to the occurrence of a change in control (as defined in the Employment Agreement), directly or indirectly reduces the percentage credited under Section 3 of this Plan with respect to the Employee's Base Salary and award under the Employer's Annual Executive Incentive Plan for any year which ends after the change in control occurs below the percentage allocated under Section 3 for the immediately preceding year, unless, in each such case, the Employee, or, in the event of his death, his Beneficiary, consents to such amendment in writing. Subject to the foregoing, the Employer and the Employee may agree to amend this Agreement to adjust the future credits provided for hereunder in the event that the Employee becomes eligible to participate in another deferred compensation arrangement maintained by the Employer or an affiliate of the Employer. SECTION 10 ---------- NON-ALIENATION OF BENEFITS -------------------------- Neither the Employee nor his Beneficiary shall alienate, commute, anticipate, assign, pledge, encumber, or dispose of the right to receive the payments required to be made by the Employer hereunder, which payments and the right to receive them are expressly declared to be nonassignable and nontransferable. In the event of any attempt to assign or transfer any such payments or the right to receive them, the Employer shall have no further obligation to make any payments otherwise required of it hereunder. SECTION 11 ---------- MISCELLANEOUS ------------- - 9 - 10 11.1 DELEGATION. Any matter or thing to be done by the Employer shall be done by its Board of Directors, except that, from time to time, the Board by resolution may delegate to any person or committee certain of its rights and duties hereunder. Any such delegation shall be valid and binding on all persons and the person or committee to whom or which authority is delegated shall have full power to act in all matters so delegated until the authority expires by its terms or is revoked by the Board, as the case may be. 11.2 ARBITRATION. Any dispute or disagreement between the parties hereto, including but not limited to a dispute concerning the necessity of a reduction or cancellation under Section 4.4 hereof, shall be submitted to mandatory and binding arbitration at the election of either party. The arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be held in Cincinnati, Ohio. Each party shall select an arbitrator and the two selected arbitrators shall select a third arbitrator. The decision of the arbitrators, and any award rendered therein, shall be final, conclusive, and binding upon the parties and any judgment thereon may be entered and enforced in any court of competent jurisdiction. Each party will bear 50% of all fees, costs, and expenses of the arbitration, and each party will bear all the fees, costs, and expenses of his or its own attorneys, experts, and witnesses. 11.3 BINDING AGREEMENT. This Agreement may not be assigned by one party hereto without the consent of the other, except that this Agreement may be assigned by Employer to any affiliated company. Notwithstanding the foregoing general restriction on voluntary assignments, the rights and obligations of the parties under this Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, personal representatives and estates, which successors and assigns in the case of Employer shall include: (i) any affiliated company to which this Agreement is assigned by Employer, (ii) any successor of the ChoiceCare Parent or the ChoiceCare Operating Company by merger, combination or reorganization in any manner, whether such successor is a corporation, limited liability company, partnership (either general or limited), business trust, or other organization or person, and whether or not such successor is a successor by operation of law, (iii) any recipient of materially all the assets and/or business of Employer in liquidation or distribution or by way of contribution of capital, (iv) any successor to materially all the assets and/or business of Employer by purchase or exchange, either singly or in combination, or (v) any combination of the foregoing. Employer covenants that it will make no distribution or contribution of assets and/or business as described in clause (iii) of the immediately preceding sentence nor enter into any agreement of sale or exchange of assets and/or business as described in clause (iv) of the immediately preceding sentence without requiring the recipient(s) of such assets or business to assume the obligations of Employer in this Agreement as a co-obligor. 11.4 WAIVER. The failure of either party to enforce any provision or provisions of the Agreement shall not in any way be construed as a waiver of such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties herein are cumulative and the - 10 - 11 waiver of any single remedy shall not constitute a waiver of such party's right to assert all other legal remedies available to it under the circumstances. 11.5 NO RIGHTS TO CONTINUED EMPLOYMENT. Nothing contained herein shall be construed as conferring upon the Employee the right to continue in the employment of the Employer in any capacity. 11.6 RELATION TO OTHER PLANS. No amounts credited or payable under this Agreement shall be deemed salary or other compensation to the Employee for the purpose of computing benefits to which he may be entitled under any retirement plan or other arrangement of the Employer for the benefit of its employees. 11.7 APPLICABLE LAW. The Agreement shall be governed by applicable federal law and, to the extent not preempted by applicable federal law, the laws of the State of Ohio. 11.8 SEPARABILITY OF PROVISIONS. If any provision of the Agreement is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, and the Agreement shall be construed and enforced as if such provision had not been included. 11.9 HEADINGS. Headings used throughout the Agreement are for convenience only and shall not be given legal significance. 11.10 COUNTERPARTS. The Agreement may be executed in any number of counterparts, each of which shall be deemed an original. All counterparts shall constitute one and the same instrument, which shall be sufficiently evidenced by any one thereof. - 11 - 12 Signed at Cincinnati, Ohio on the 2nd day of May, 1997. CHOICECARE CORPORATION: By: /s/ Donald E. Hoffman ----------------------------- Title: Chair H R & C Committee -------------------------- CHOICECARE HEALTH PLANS, INC.: By: /s/ Jane E. Rollinson ----------------------------- Title: President -------------------------- EMPLOYEE: /s/ Daniel A. Gregorie -------------------------------- Daniel A. Gregorie, M.D. - 12 - EX-10.III.A.5 7 EXHIBIT 10(III)(A)(5) 1 Exhibit 10(iii)(A)(5) CHOICECARE CORPORATION CHOICECARE HEALTH PLANS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR EXECUTIVE OFFICERS (As adopted effective January 1, 1997) SECTION 1 --------- PURPOSE OF PLAN --------------- The purpose of this Plan is to provide deferred compensation for Key Employees of the Employer. The Plan is intended to be an unfunded deferred compensation plan within the meaning of sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended and will be construed as such. SECTION 2 --------- GENERAL DEFINITIONS ------------------- GENERAL DEFINITIONS. For purposes of the Plan, the following terms will have the meanings hereinafter set forth unless the context otherwise requires. 2.1 "Base Salary" means an Employee's base salary payable to him or her by the Employer pursuant to Section 5.1 of the Employment Agreement, prior to any reduction of such base salary under Sections 125 and 402(e)(3) of the Code or under the ChoiceCare Voluntary Deferred Compensation Plan, and excluding any additional amounts computed with reference to such base salary and payable under Sections 7 or 8 of the Employment Agreement following a change in control or a strategic investor purchase (as those terms are defined in the Employment Agreement). 2.2 "Beneficiary" means the person or entity last designated by a Key Employee, on forms furnished and in the manner prescribed by the Committee and delivered to the Committee before the Key Employee's death, to receive any benefit payable under the Plan after the Key Employee's death. If a Key Employee does not designate a beneficiary or if, for any reason, such designation is not effective, the Key Employee's "Beneficiary" will be his or her surviving spouse or, if none, his or her estate. 2.3 "Cause" will have the same meaning given such term in the Key Employee's employment agreement with the Employer. 2.4 "Code" means the Internal Revenue Code of 1986 as it now exists or is hereafter amended. 2 2.5 "Committee" means the Human Resources and Compensation Committee of the Board of Directors of ChoiceCare Health Plans, Inc. and any successor thereof. 2.6 "Employer" means, collectively, ChoiceCare Health Plans, Inc. and ChoiceCare Corporation. 2.7 "Employee" means a person who is an employee of the Employer or of any other corporation which is a member of a controlled group of corporations (within the meaning of section 1563 of the Code) that includes the Employer under common law standards and who is classified on the payroll of the Employer or such other corporation as an employee. 2.8 "Employment" means employment as an Employee. 2.9 "Employment Agreement" means the employment agreement between the Key Employee and the Employer, as effective January 1, 1997 and as amended from time to time. 2.10 "Key Employee" means Jane E. Rollinson, Michael J. Barber, M.D., and Thomas D. Anthony. 2.11 "Qualified Plans" means all defined contribution retirement plans maintained by the Employer that are intended to be qualified under Section 401(a) of the Code. 2.12 "Year" or "year" means the calendar year. SECTION 3 --------- CREDITS ------- 3.1 CREDITS DURING EMPLOYMENT. For the year 1997, and for each subsequent year in which a Key Employee remains an Employee of the Employer, the Employer will credit to the book Account established for the Key Employee under Section 4.1, as of the last day of such year, an amount equal to 8% of the total of: (i) the Key Employee's actual Base Salary paid to him or her by the Employer for that year, and (ii) the Key Employee's actual award for that year under the Employer's Annual Executive Incentive Plan (as defined in the Employment Agreement and excluding any additional amounts computed with reference to such Annual Executive Incentive Plan and payable under Sections 7 or 8 of the Employment Agreement following a change in control or a strategic investor purchase as those terms are defined in the Employment Agreement). 3.2 CREDIT FOR YEAR OF TERMINATION. If the Key Employee's ceases to be an Employee of the Employer for any reason except Cause, the credit for the year of termination will be made pursuant to Section 3.1, based solely upon the Key Employee's actual Base Salary paid to him or her by the Employer for that year and the Employee's actual award for that year under the - 2 - 3 Employer's Annual Executive Incentive Plan, but without regard to any additional compensation paid to the Key Employee for that year, including but not limited to additional compensation of any type paid due to his or her termination of employment and any additional amounts computed with reference to such Annual Executive Incentive Plan and payable under Sections 7 or 8 of the Employment Agreement following a change in control or a strategic investor purchase as those terms are defined in the Employment Agreement. Notwithstanding the prior sentence or Section 3.1, if the Key Employee ceases to be an Employee because his or her Employment is terminated for Cause, no credit will be made to the Key Employee's Account for the year in which his or her Employment ends. 3.3 NO CONTRIBUTIONS BY KEY EMPLOYEES. Key Employees will not be required or permitted to make contributions to their Accounts under this Plan. SECTION 4 --------- MAINTENANCE AND VALUATION OF ACCOUNTS ------------------------------------- 4.1 ESTABLISHMENT OF ACCOUNTS. There will be established for each Key Employee a separate book account (the "Account"), which will reflect the amounts credited to him or her pursuant to Section 3, the assumed investment thereof and distributions therefrom. Subject to such rules as the Committee may prescribe, any amount credited under Sections 3.1 or 3.2 will be credited to the Key Employee's Account as of the last day of the year for which that credit is made, and will be assumed to have been invested within a reasonable period after that date pursuant to Section 4.2 of this Plan. 4.2 ASSUMED INVESTMENTS. The Committee will designate, in its discretion, two or more investment funds among which a Key Employee may designate as the assumed investment of his or her Account. Such investment funds may, but need not, be the same investment funds that are available under the Employer's Qualified Plans. The assumed investment return or loss for each year will be credited to the Key Employee's Account as of the last day of such year, provided, however, that the assumed investment return or loss for the year or years in which the Account is distributed to the Key Employee or his or her Beneficiary will be deemed to be credited to the Account as of each date or dates as of which the distribution from the Account is made. 4.3 VALUATION. As soon as practical following the end of each year, the Key Employee, or, in the event of his or her death, his or her Beneficiary, will be furnished a statement as of December 31 or the Key Employee's date of death, whichever is earlier, showing the then balance of the Key Employee's Account, the total credits to such Account during the preceding year pursuant to Sections 3.1 or 3.2, and the investment return or loss credited to that Account pursuant to Section 4.2. - 3 - 4 SECTION 5 --------- VESTING ------- 5.1 VESTING. The vested percentage of each Key Employee's Account will become 100% as of the date of that Key Employee's 60th birthday, provided he or she remains an Employee on that date. At any relevant time prior to the Key Employee's 60th birthday, the vested percentage of that Employee's Account will be 0%, except as otherwise provided in Section 5.2. 5.2 EARLY VESTING. Notwithstanding Section 5.1 but subject to Section 5.3, a Key Employee's Account will become vested as follows upon the occurrence of the following events: (a) The vested percentage of the Key Employee's Account will become 100% upon termination of the Key Employee's Employment by the Employer without Cause; (b) The vested percentage of the Key Employee's Account will become 100% upon the Key Employee's death or "permanent disability" (as defined in the Key Employee's Employment Agreement) while he or she remains an Employee of the Employer; or (c) The vested percentage of the Key Employee's Account will become 100% upon the occurrence of a "change in control" (as defined in the Key Employee's Employment Agreement). 5.3 TERMINATION FOR CAUSE. Notwithstanding any other provision of this Plan, if the Employment of a Key Employee is terminated for Cause, the vested percentage of his or her Account will be 0% and he or she will forfeit all amounts in his or her Account. SECTION 6 --------- DISTRIBUTIONS AND FORFEITURES ----------------------------- 6.1 GENERAL. Except as otherwise provided in this Section 6, no amount will be paid with respect to a Key Employee's Account while he or she remains an Employee. 6.2 TERMINATION OF EMPLOYMENT. The Employer will pay or begin to pay to the Key Employee the vested percentage of the balance in his or her Account, determined as of the date he or she terminates all Employment for any reason other than his or her death, as soon as administratively practical after the first business day of the first calendar quarter which begins after the date on which he or she ceases to be an Employee, in the latest form of payment elected by the Key Employee under this Plan. - 4 - 5 6.2.1 The Key Employee may elect as the form of payment, by completing an appropriate form and filing it with the Committee within 30 days after this Plan is adopted by the Employer (such year being called in this Section 6.2 the "initial year"), either a lump sum payment or any number of annual installment payments, up to ten annual installment payments. If the Key Employee does not timely make such an election, he or she will be deemed to have elected prior to the start of the initial year to receive a lump sum payment. 6.2.2 A Key Employee may change the election he or she makes (or is deemed to make) under Section 6.2.1 above at any later time by completing an appropriate form and filing it with the Committee; except that any change of the form of payment will not be given any effect under this Plan unless the date on which the Key Employee ceases to be an Employee occurs one year or more after the date on which the form changing the election is filed with the Committee. 6.2.3 The amount of each annual installment payable under this Section 6.2 (if the Key Employee elects to receive his or her Account in annual installment payments) will be a fraction of the amount credited to the Key Employee's Account as of the installment payment date, the numerator of which is one and the denominator of which is equal to the total number of installments remaining to be paid (including the installment to be paid on that installment payment date). The first installment payment will be made at the time indicated in the first sentence of this Section 6.2, and all remaining installment payments will be made as soon as administratively practical after each annual anniversary of the initial installment payment until all required installment payments have been made. 6.2.4 If a Key Employee receives all amounts credited to his or her Account because he or she has ceased to be an Employee, and an additional amount is subsequently credited to his or her Account under the terms of the Plan, that additional amount will be paid to the Key Employee as soon as administratively practical after it is credited to his or her Account. 6.2.5 For purposes of this Section 6.2, if a Key Employee incurs a "permanent disability" (as defined in the Key Employee's Employment Agreement.) before ceasing Employment, he or she will be deemed to cease Employment on the date that the Committee determines that he or she has incurred such permanent disability. 6.3 FORFEITURES. Any nonvested percentage of the balance in a Key Employee's Account, determined as of the date on which he or she ceases Employment for any reason other than his or her death or total disability, will be forfeited as of that date. 6.3 DEATH. If a Key Employee ceases Employment by reason of his or her death, or dies after ceasing Employment but before the vested percentage of the amount credited to his or her Account has been paid or has begun to be paid to him or her, the Employer will pay to the Key Employee's Beneficiary the vested percentage of the amounts credited to the Key Employee's Account in the method elected by the Beneficiary under Section 6.2, applying such - 5 - 6 Section as if the Beneficiary were the Key Employee and disregarding the requirement that the election must be made at least one year before the Key Employee terminates Employment. If the Key Employee dies after beginning to receive the payment of the vested percentage of the amount credited to his or Account in installments under Section 6.2.3, the remaining installments shall be paid to his or her Beneficiary under the payment schedule in effect before the Key Employee's death. 6.4 DISTRIBUTIONS FOR PAYMENT OF TAXES. Notwithstanding Section 6.1, if the Internal Revenue Service determines that a Key Employee is currently subject to income or other tax on the balance in his or her Account, the Employer will pay to that Key Employee in one lump sum as of the date determined by the Employer that portion of the vested balance then in that Account that is necessary for the payment of federal, state, and local taxes, and interest and penalties thereon, that results from such determination, and the balance in the Key Employee's Account will immediately be reduced by the amount of that distribution. 6.5 FORM OF PAYMENT. Payments with respect to a Key Employee's Account will be made in cash. As provided in Sections 6.2, 6.3, and 6.4, payments will be made "as of" a certain date, which means that payments will be made on or as soon as practicable after such date, and will be equal to the balance in the Key Employee's Account as of that certain date. 6.6 WITHHOLDING. The Employer will have, with respect to any Key Employee, the right (without notice to the Key Employee) to withhold from any amounts otherwise payable to the Key Employee by the Employer (including any portion of the Key Employee's current compensation from the Employer and any benefit payments which are made under this Plan to the Key Employee or his or her Beneficiary) an amount which the Employer determines is sufficient to satisfy all federal, state, and local withholding tax requirements that may apply with respect to any amounts which are credited to the Key Employee's Account under this Plan and/or to benefit amounts payable under this Plan to the Key Employee or his or her Beneficiary. SECTION 7 --------- ADMINISTRATION OF THE PLAN -------------------------- 7.1 GENERAL. The general administration of the Plan and the responsibility for carrying out its provisions will be placed in the Committee. 7.2 EXPENSES. Expenses of administering the Plan will be borne by the Employer. 7.3 COMPENSATION OF COMMITTEE. The members of the Committee will not receive compensation for their services as such, and, except as required by law, no bond or other security need be required of them in such capacity in any jurisdiction. - 6 - 7 7.4 RULES. Subject to the limitations of the Plan, the Committee may, from time to time, establish rules for the administration of the Plan and the transaction of its business. The Committee may correct errors, however arising, and, as far as possible, adjust any benefit payments accordingly. The Committee will interpret the Plan. The Committee's interpretation of the Plan will be subject to review in arbitration that occurs pursuant to Section 11.2 hereof. 7.5 AGENTS AND EMPLOYEES. The Committee may authorize one or more agents to execute or deliver any instrument. The Committee may appoint or employ such agents, counsel, auditors, physicians, clerical help, and actuaries as in the Committee's judgment may seem reasonable or necessary for the proper administration of the Plan. 7.6 INDEMNIFICATION. The Employer will indemnify each member of the Committee for all expenses and liabilities (including reasonable attorney's fees) arising out of the administration of the Plan, other than any expenses or liabilities resulting from the member's gross negligence or willful misconduct. The foregoing right of indemnification will be in addition to any other rights to which the members of the Committee may be entitled as a matter of law. SECTION 8 --------- FUNDING OBLIGATION ------------------ This Plan constitutes a promise by the Employer to make benefit payments in the future according to the terms of the Plan. The Employer will have no obligation to fund, either by the purchase or the investment in any account or by any other means, its obligation to any Key Employee hereunder and will have no obligation to actually purchase any investment to reflect the assumed investment of any Key Employee's Account. If, however, the Employer elects to allocate assets to provide for any such obligation, the assets allocated for such purpose will be assets of the Employer subject to claims against the Employer, including claims of the Employer's creditors, to the same extent as are other corporate assets, and no Key Employee or Beneficiary will have any right or claim against the assets so allocated, other than as a general unsecured creditor of the Employer. In this regard, the Employer intends to establish a trust in conjunction with this Plan that conforms to the terms of the model trust described in Revenue Procedure 92-64, as amended, and to place in such trust assets to satisfy the Employer's obligations under this Plan. SECTION 9 --------- AMENDMENT AND TERMINATION ------------------------- The Committee or the Employer may, without the consent of any Key Employee or his or her Beneficiary, amend or terminate the Plan at any time; provided that without the Key Employee's consent no amendment may be made or act of termination taken which (i) divests - 7 - 8 a Key Employee or his or her Beneficiary of the right to receive payments under the Plan with respect to amounts theretofore credited to the Key Employee's Account, or (ii) subsequent to the occurrence of a "change in control" (as defined in a Key Employee's Employment Agreement), directly or indirectly reduces the percentage credited under Section 3 of this Plan with respect to a Key Employee's Base Salary and award under the Employer's Annual Executive Incentive Plan for any year which ends after the change in control occurs below the percentage allocated under Section 3 for the immediately preceding year. SECTION 10 ---------- NONALIENATION OF BENEFITS ------------------------- Neither a Key Employee nor his or her Beneficiary may alienate, commute, anticipate, assign, pledge, encumber, or dispose of the right to receive the payments required to be made by the Employer hereunder, which payments and the right to receive them are expressly declared to be nonassignable and nontransferable. In the event of any attempt to assign or transfer any such payments or the right to receive them, the Employer will have no further obligation to make any payments otherwise required of it hereunder. SECTION 11 ---------- MISCELLANEOUS ------------- 11.1 DELEGATION. Any matter or thing to be done by the Employer will be done by its Board of Directors, except that, from time to time, the Board by resolution may delegate to any person or committee certain of its rights and duties hereunder. Any such delegation will be valid and binding on all persons and the person or committee to whom or which authority is delegated will have full power to act in all matters so delegated until the authority expires by its terms or is revoked by the Board, as the case may be. 11.2 ARBITRATION. Any dispute or disagreement between the parties hereto will be submitted to mandatory and binding arbitration at the election of either party. The arbitration will be pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The arbitration will be held in Cincinnati, Ohio. Each party will select an arbitrator and the two selected arbitrators will select a third arbitrator. The decision of the arbitrators, and any award rendered therein, will be final, conclusive, and binding upon the parties and any judgment thereon may be entered and enforced in any court of competent jurisdiction. Each party will bear 50% of all fees, costs, and expenses of the arbitration, and each party will bear all the fees, costs, and expenses of his or its own attorneys, experts, and witnesses. 11.3 BINDING PLAN. The rights and obligations created under this Plan may not be assigned by the Employer or a Key Employee without the consent of the other, except that this - 8 - 9 Plan may be assigned by Employer to any affiliated company. Notwithstanding the foregoing general restriction on voluntary assignments, the rights and obligations of the Employer and the Key Employees under this Plan shall inure to the benefit of, and shall be binding upon, the Employer and the Key Employees and their respective successors, assigns, heirs, personal representatives and estates, which successors and assigns in the case of Employer shall include: (i) any affiliated company to which this Plan is assigned by Employer, (ii) any successor of ChoiceCare Health Plans, Inc. or ChoiceCare Corporation by combination or reorganization in any manner, whether such successor is a corporation, limited liability company, partnership (either general or limited), business trust, or other organization or person, and whether or not such successor is a successor by operation of law, (iii) any recipient of materially all the assets and/or business of Employer in liquidation or distribution or by way of contribution of capital, (iv) any successor to materially all the assets and/or business of Employer by purchase or exchange, either singly or in combination, or (v) any combination of the foregoing. Employer covenants that it will make no distribution or contribution of assets and/or business as described in clause (iii) of the immediately preceding sentence nor enter into any agreement of sale or exchange of assets and/or business as described in clause (iv) of the immediately preceding sentence without requiring the recipient(s) of such assets or business to assume the obligations of Employer in this Plan as a co-obligor. 11.4 WAIVER. The failure of either party to enforce any provision or provisions of the Plan will not in any way be construed as a waiver of such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Plan. The rights granted the parties herein are cumulative and the waiver of any single remedy will not constitute a waiver of such party's right to assert all other legal remedies available to it under the circumstances. 11.5 NO RIGHTS TO CONTINUED EMPLOYMENT. Nothing contained herein will be construed as conferring upon any Key Employee the right to continue in the employment of the Employer in any capacity. 11.6 RELATION TO OTHER PLANS. No amounts credited or payable under this Plan will be deemed salary or other compensation to any Key Employee for the purpose of computing benefits to which he or she may be entitled under any retirement plan or other arrangement of the Employer for the benefit of its employees. 11.7 APPLICABLE LAW. The Plan will be governed by applicable federal law and, to the extent not preempted by applicable federal law, the laws of the State of Ohio. 11.8 SEPARABILITY OF PROVISIONS. If any provision of the Plan is held invalid or unenforceable, such invalidity or unenforceability will not affect any other provision hereof, and the Plan will be construed and enforced as if such provision had not been included. 11.9 HEADINGS. Headings used throughout the Plan are for convenience only and will not be given legal significance. - 9 - 10 11.10 COUNTERPARTS. The Plan may be executed in any number of counterparts, each of which will be deemed an original. All counterparts will constitute one and the same instrument, which will be sufficiently evidenced by any one thereof. IN WITNESS WHEREOF, ChoiceCare Health Plans, Inc. and ChoiceCare Corporation have caused their names to be subscribed as of April 25, 1997 but effective for all purposes as of January 1, 1997. CHOICECARE HEALTH PLANS, INC. By: /s/ Daniel A. Gregorie ---------------------------------------- Title: CEO ------------------------------------- CHOICECARE CORPORATION By: /s/ Daniel A. Gregorie ---------------------------------------- Title: President and CEO ------------------------------------- - 10 - EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 34,833 74,684 5,352 68 0 135,298 18,591 9,397 149,872 88,165 0 0 0 12,014 37,611 149,872 0 72,821 0 58,090 16,687 0 0 (584) (222) (362) 0 0 0 (362) (0.02) (0.02)
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