|
For the Fiscal Year Ended December 31, 2010
|
Delaware
|
62-1117144
|
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
|
incorporation or organization)
|
Identification No.)
|
701 Cool Springs Boulevard, Franklin, TN 37067
|
(Address of principal executive offices) (Zip code)
|
(615) 614-4929
|
(Registrant’s telephone number, including area code)
|
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Name of each exchange on which registered
|
|
Common Stock - $.001 par value, and
|
The NASDAQ Stock Market LLC
|
|
related Preferred Stock Purchase Rights
|
||
|
Page
|
|||
Part I
|
|||
Item 1.
|
Business
|
4
|
|
Item 1A.
|
Risk Factors
|
12
|
|
Item 1B.
|
Unresolved Staff Comments
|
19
|
|
Item 2.
|
Properties
|
19
|
|
Item 3.
|
Legal Proceedings
|
19
|
|
Item 4.
|
Removed and Reserved
|
21
|
|
Part II
|
|||
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder
|
||
Matters and Issuer Purchases of Equity Securities
|
22
|
||
Item 6.
|
Selected Financial Data
|
24
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and
|
||
Results of Operations
|
25
|
||
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
41
|
|
Item 8.
|
Financial Statements and Supplementary Data
|
43
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and
|
||
Financial Disclosure
|
75
|
||
Item 9A.
|
Controls and Procedures
|
75
|
|
Item 9B.
|
Other Information
|
76
|
|
Part III
|
|||
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
76
|
|
Item 11.
|
Executive Compensation
|
76
|
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
76
|
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
76
|
|
Item 14.
|
Principal Accounting Fees and Services
|
76
|
|
Part IV
|
|||
Item 15.
|
Exhibits, Financial Statement Schedules
|
76
|
|
·
|
fostering wellness and disease prevention through total population screening, well-being assessments and supportive interventions; and
|
|
·
|
providing access to health improvement programs, such as fitness, weight management, and complementary and alternative medicine.
|
|
·
|
promoting the change and improvement of the lifestyle behaviors that lead to poor health or chronic conditions; and
|
|
·
|
providing educational materials and personal interactions with highly trained nurses and other healthcare professionals to create and sustain healthier behaviors for those individuals at-risk or in the early stages of chronic conditions.
|
|
·
|
incorporating the latest, evidence-based clinical guidelines into interventions to optimize patient health outcomes;
|
|
·
|
developing care support plans and motivating members to set attainable goals for themselves;
|
|
·
|
providing local market resources to address acute episodic interventions;
|
|
·
|
coordinating members’ care with their healthcare providers;
|
|
·
|
providing software licensing and management consulting in support of well-being improvement services; and
|
December 31,
|
December 31,
|
||||||||
(In 000s)
|
2010
|
2009
|
|||||||
Annualized revenue in backlog
|
$
|
37,100
|
$
|
32,400
|
|
·
|
adopt or maintain healthy behaviors;
|
|
·
|
reduce health-related risk factors; and
|
|
·
|
optimize care for identified health conditions.
|
·
|
increasing our vulnerability to a downturn in general economic conditions or to increases in interest rates, particularly with respect to the portion of our outstanding debt that is subject to variable interest rates;
|
·
|
potentially limiting our ability to obtain additional financing or to obtain such financing on favorable terms;
|
·
|
causing us to dedicate a portion of future cash flow from operations to service or pay down our debt, which reduces the cash available for other purposes, such as operations, capital expenditures, and future business opportunities; and
|
·
|
possibly limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may be less leveraged.
|
Officer
|
Age
|
Position
|
Ben R. Leedle, Jr.
|
49
|
Chief Executive Officer and director of the Company since September 2003, President from May 2002 through October 2008, Executive Vice President and Chief Operating Officer of the Health Plan Group from 2000 until May 2002. Senior Vice President from 1996 until 2000.
|
Stefen F. Brueckner
|
61
|
President and Chief Operating Officer of the Company since October 2008. Vice President, Senior Products, for Humana Inc., from 2005 to 2008 and Vice President, Market Operations and Large Group Underwriting, from 2001 to 2005.
|
Mary A. Chaput
|
60
|
Chief Financial Officer and Secretary of the Company since October 2001.
|
Matthew E. Kelliher
|
55
|
President, International Business, of the Company since September 2004.
|
Alfred Lumsdaine
|
45
|
Chief Accounting Officer since February 2002.
|
Anne M. Wilkins
|
44
|
Vice President, Marketing and Strategy, of the Company since May 2008. Partner and Managing Director and lead of the North America Payer practice of the Boston Consulting Group from 2003 to 2008.
|
High
|
Low
|
||||||||||
Year ended December 31, 2010
|
|||||||||||
First quarter
|
$
|
19.50
|
$
|
14.76
|
|||||||
Second quarter
|
17.64
|
11.78
|
|||||||||
Third quarter
|
15.18
|
11.44
|
|||||||||
Fourth quarter
|
12.49
|
9.50
|
|||||||||
Year ended December 31, 2009
|
|||||||||||
First quarter
|
$
|
15.52
|
$
|
7.01
|
|||||||
Second quarter
|
14.78
|
8.27
|
|||||||||
Third quarter
|
16.86
|
12.03
|
|||||||||
Fourth quarter
|
19.44
|
13.31
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
|
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
|
||||||||||||||
October 1 through 31
|
10,000
|
$10.34
|
10,000
|
$59,896,600
|
||||||||||||||
November 1 through 30
|
182,200
|
$10.64
|
192,200
|
$57,957,992
|
||||||||||||||
December 1 through 31
|
237,454
|
$10.33
|
429,654
|
$55,505,092
|
||||||||||||||
Total
|
429,654
|
(In thousands, except per share data)
|
Year Ended December 31,
|
Year Ended December 31,
|
Four Months Ended December 31,
|
Year Ended August 31,
|
||||||||||||||||||||||
2010
|
2009
|
|
2008
|
|
2008
|
|
2007
|
|
2006
|
|
||||||||||||||||
(1)
|
(1)
|
(1)
|
(1)
|
(1)
|
||||||||||||||||||||||
Operating Results:
|
||||||||||||||||||||||||||
Revenues
|
$
|
720,333
|
$
|
717,426
|
$
|
244,737
|
$
|
736,243
|
$
|
615,586
|
$
|
412,308
|
||||||||||||||
Cost of services (exclusive of depreciation and amortization included below)
|
493,713
|
522,999
|
177,651
|
503,940
|
417,721
|
281,161
|
||||||||||||||||||||
Selling, general and administrative expenses
|
72,830
|
71,535
|
27,790
|
71,342
|
67,352
|
44,417
|
||||||||||||||||||||
Depreciation and amortization
|
52,756
|
49,289
|
16,188
|
47,479
|
37,044
|
24,517
|
||||||||||||||||||||
Impairment loss
|
—
|
—
|
4,344
|
—
|
—
|
—
|
||||||||||||||||||||
Restructuring and related charges
|
10,258
|
—
|
10,264
|
—
|
—
|
—
|
||||||||||||||||||||
Operating income
|
$
|
90,776
|
$
|
73,603
|
$
|
8,500
|
$
|
113,482
|
$
|
93,469
|
$
|
62,213
|
||||||||||||||
Gain on sale of investment
|
(1,163
|
)
|
(2,581
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Interest expense
|
14,164
|
15,717
|
6,757
|
20,927
|
18,185
|
1,053
|
||||||||||||||||||||
Legal settlement and related costs
|
—
|
39,956
|
—
|
—
|
—
|
—
|
||||||||||||||||||||
Income before income taxes
|
$
|
77,775
|
$
|
20,511
|
$
|
1,743
|
$
|
92,555
|
$
|
75,284
|
$
|
61,160
|
||||||||||||||
Income tax expense
|
30,445
|
10,137
|
1,009
|
37,740
|
30,163
|
24,009
|
||||||||||||||||||||
Net income
|
$
|
47,330
|
$
|
10,374
|
$
|
734
|
$
|
54,815
|
$
|
45,121
|
$
|
37,151
|
||||||||||||||
Basic income per share: (1)
|
$
|
1.39
|
$
|
0.31
|
$
|
0.02
|
$
|
1.57
|
$
|
1.29
|
$
|
1.08
|
||||||||||||||
Diluted income per share: (1)
|
$
|
1.36
|
$
|
0.30
|
$
|
0.02
|
$
|
1.50
|
$
|
1.22
|
$
|
1.02
|
||||||||||||||
Weighted average common shares and
|
||||||||||||||||||||||||||
equivalents:
|
||||||||||||||||||||||||||
Basic
|
34,129
|
33,730
|
33,616
|
34,977
|
35,049
|
34,348
|
||||||||||||||||||||
Diluted
|
34,902
|
34,359
|
34,038
|
36,597
|
37,002
|
36,379
|
||||||||||||||||||||
Balance Sheet Data:
|
||||||||||||||||||||||||||
Cash and cash equivalents
|
$
|
1,064
|
$
|
2,356
|
$
|
5,157
|
$
|
35,242
|
$
|
47,655
|
$
|
154,792
|
||||||||||||||
Working capital (deficit)
|
547
|
(44,296
|
)
|
(6,034
|
)
|
21,276
|
10,792
|
124,469
|
||||||||||||||||||
Total assets
|
861,689
|
882,366
|
883,090
|
906,813
|
828,845
|
382,386
|
||||||||||||||||||||
Long-term debt
|
243,425
|
254,345
|
304,372
|
345,395
|
297,059
|
236
|
||||||||||||||||||||
Other long-term liabilities
|
39,140
|
42,615
|
39,533
|
31,227
|
14,388
|
10,853
|
||||||||||||||||||||
Stockholders’ equity
|
430,841
|
377,277
|
357,036
|
354,334
|
362,750
|
274,873
|
||||||||||||||||||||
Other Operating Data:
|
||||||||||||||||||||||||||
Annualized revenue in backlog
|
$
|
37,100
|
$
|
32,400
|
$
|
35,900
|
$
|
13,600
|
$
|
39,900
|
$
|
6,625
|
(1)
|
Includes operating results, balance sheet data, and other operating data of Axia Health Management, Inc. since the date of the acquisition, which was December 1, 2006.
|
|
·
|
fostering wellness and disease prevention through total population screening, well-being assessments and supportive interventions; and
|
|
·
|
providing access to health improvement programs, such as fitness, weight management, and complementary and alternative medicine.
|
|
·
|
promoting the change and improvement of the lifestyle behaviors that lead to poor health or chronic conditions; and
|
|
·
|
providing educational materials and personal interactions with highly trained nurses and other healthcare professionals to create and sustain healthier behaviors for those individuals at-risk or in the early stages of chronic conditions.
|
|
·
|
incorporating the latest, evidence-based clinical guidelines into interventions to optimize patient health outcomes;
|
|
·
|
developing care support plans and motivating members to set attainable goals for themselves;
|
|
·
|
providing local market resources to address acute episodic interventions;
|
|
·
|
coordinating members’ care with their healthcare providers;
|
|
·
|
providing software licensing and management consulting in support of well-being improvement services; and
|
|
·
|
providing high-risk care management for members at risk for hospitalization due to complex conditions.
|
|
·
·
|
our ability to sign and implement new contracts for our solutions;
our ability to accurately forecast the costs required to fully implement new contracts;
|
|
·
|
our ability to retain existing customers and to renew or maintain contracts with our customers under existing terms or restructure these contracts on terms that would not have a material negative impact on our results of operations;
|
|
·
|
our ability to accurately forecast performance and the timing of revenue recognition under the terms of our customer contracts ahead of data collection and reconciliation in order to provide forward-looking guidance;
|
|
·
|
the impact of PPACA on our operations and/or the demand for our services;
|
|
·
|
the impact of any new or proposed legislation, regulations and interpretations relating to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, including the potential expansion to Phase II for Medicare Health Support programs and any legislative or regulatory changes with respect to Medicare Advantage;
|
|
·
|
our ability to anticipate the rate of market acceptance of our solutions in potential international markets;
|
|
·
|
our ability to accurately forecast the costs necessary to implement our strategy of establishing a presence in international markets;
|
|
·
|
the risks associated with foreign currency exchange rate fluctuations and our ability to hedge against such fluctuations;
|
|
·
|
the risks associated with deriving a significant concentration of our revenues from a limited number of customers;
|
|
·
|
our ability to achieve the contractually required cost savings and clinical outcomes improvements and reach mutual agreement with customers with respect to cost savings, or to achieve such savings and improvements within the time frames contemplated by us;
|
|
·
|
our ability to achieve estimated annualized revenue in backlog in the manner and within the timeframe we expect, which is based on certain estimates regarding the implementation of our services;
|
|
·
|
our ability and/or the ability of our customers to enroll participants and to estimate their level of enrollment and participation in our programs in a manner and within the timeframe anticipated by us;
|
|
·
|
the ability of our customers to provide timely and accurate data that is essential to the operation and measurement of our performance under the terms of our contracts;
|
|
·
|
our ability to favorably resolve contract billing and interpretation issues with our customers;
|
|
·
|
our ability to service our debt and make principal and interest payments as those payments become due;
|
|
·
|
the risks associated with changes in macroeconomic conditions, which may reduce the demand and/or the timing of purchases for our services from customers or potential customers, reduce the number of covered lives of our existing customers, or restrict our ability to obtain additional financing;
|
|
·
|
counterparty risk associated with our interest rate swap agreements and foreign currency exchange contracts;
|
|
·
|
our ability to integrate acquired businesses or technologies into our business and to accurately forecast the related costs;
|
|
·
|
the impact of any impairment of our goodwill or other intangible assets;
|
|
·
|
our ability to develop new products and deliver outcomes on those products;
|
|
·
|
our ability to implement our new integrated data and technology solutions platform within the required timeframe and expected cost estimates;
|
|
·
|
our ability to obtain adequate financing to provide the capital that may be necessary to support our operations and to support or guarantee our performance under new contracts;
|
|
·
|
unusual and unforeseen patterns of healthcare utilization by individuals with diseases or conditions for which we provide services;
|
|
·
|
the ability of our customers to maintain the number of covered lives enrolled in the plans during the terms of our agreements;
|
|
·
|
the impact of legal proceedings involving us and/or our subsidiaries;
|
|
·
|
the impact of future state, federal, and international legislation and regulations applicable to our business, including PPACA, on our ability to deliver our services and on the financial health of our customers and their willingness to purchase our services;
|
|
·
·
|
current geopolitical turmoil, the continuing threat of domestic or international terrorism, and the potential emergence of a health pandemic; and
other risks detailed in this Annual Report on Form 10-K, including those set forth in Item 1A.
|
·
|
adopt or maintain healthy behaviors;
|
·
|
reduce health-related risk factors; and
|
·
|
optimize care for identified health conditions.
|
Year Ended
December 31,
|
Four Months Ended December 31,
|
Year Ended
|
|||||||||||
August 31,
|
|||||||||||||
2010
|
2009
|
2008
|
2007
|
2008
|
|||||||||
Revenues
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||
Cost of services (exclusive of depreciation and amortization included below)
|
68.5
|
%
|
72.9
|
%
|
72.6
|
%
|
69.9
|
%
|
68.4
|
%
|
|||
Selling, general and administrative expenses
|
10.1
|
%
|
10.0
|
%
|
11.4
|
%
|
9.3
|
%
|
9.7
|
%
|
|||
Depreciation and amortization
|
7.3
|
%
|
6.9
|
%
|
6.6
|
%
|
5.8
|
%
|
6.4
|
%
|
|||
Impairment loss
|
—
|
—
|
1.8
|
%
|
—
|
—
|
|||||||
Restructuring and related charges
|
1.4
|
%
|
—
|
4.2
|
%
|
—
|
—
|
||||||
Operating income (1)
|
12.6
|
%
|
10.3
|
%
|
3.5
|
%
|
15.0
|
%
|
15.4
|
%
|
|||
Gain on sale of investment
|
(0.2
|
)%
|
(0.4
|
)%
|
—
|
—
|
—
|
||||||
Interest expense
|
2.0
|
%
|
2.2
|
%
|
2.8
|
%
|
3.0
|
%
|
2.8
|
%
|
|||
Legal settlement
|
—
|
5.6
|
%
|
—
|
—
|
—
|
|||||||
Income before income taxes
|
10.8
|
%
|
2.9
|
%
|
0.7
|
%
|
11.9
|
%
|
12.6
|
%
|
|||
Income tax expense
|
4.2
|
%
|
1.4
|
%
|
0.4
|
%
|
4.9
|
%
|
5.1
|
%
|
|||
Net income (1)
|
6.6
|
%
|
1.4
|
%
|
0.3
|
%
|
7.0
|
%
|
7.4
|
%
|
|
·
|
the commencement of contracts with new customers;
|
|
·
|
the recognition of revenues in connection with a final settlement with CMS associated with our participation in two Medicare Health Support programs; and
|
|
·
|
an increase in participation in our fitness center programs as well as in the number of members eligible to participate in such programs.
|
|
·
|
contract restructurings and terminations with certain customers; and
|
|
·
|
a decrease in performance-based revenues due to our inability to measure and achieve performance targets on certain contracts during fiscal 2010.
|
|
·
|
contract restructurings and terminations with certain customers; and
|
|
·
|
decreased revenues related to our Medicare Health Support programs, which ended in January and July 2008, respectively.
|
|
·
|
the commencement of contracts with new customers;
|
|
·
|
an increase in participation in our fitness center programs as well as in the number of members eligible to participate in such programs;
|
|
·
|
growth in the number of self-insured employer lives under existing customer contracts;
|
|
·
|
increased performance-based revenues due to our ability to measure and achieve performance targets on certain contracts during fiscal 2009; and
|
|
·
|
increased membership in customers’ existing programs.
|
|
·
|
the commencement of new contracts;
|
|
·
|
growth in the number of self-insured employers on behalf of our health plan customers; and
|
|
·
|
the addition of new programs or the expansion of existing programs into additional populations with existing customers.
|
|
·
|
a decrease in the level of short-term incentive compensation based on the Company’s year-to-date financial performance against established internal targets for these periods;
|
|
·
|
a decrease in salaries and benefits expense, primarily due to 1) a restructuring of the Company, which was largely completed during the fourth quarter of calendar 2008 but for which some employee terminations continued into early 2009; 2) certain employee reductions in 2010; and 3) a net decrease in health insurance costs related to changes in employee medical plan design, which included a number of wellness initiatives aimed at improving employee health, in 2010; and
|
|
· |
cost savings related to certain operational efficiencies.
|
|
·
|
an increase in consulting expenses primarily related to implementation of our new Embrace platform and the implementation of our first total population health contract; and
|
|
·
|
a higher portion of our revenue being generated by fitness center and certain health improvement programs, which typically have a higher cost of services as a percentage of revenue than our other programs.
|
|
·
|
an increased portion of our revenue generated by fitness center and certain health improvement programs, which typically have a higher cost of services as a percentage of revenue than our other programs;
|
|
·
|
the addition of certain participating locations to our fitness center network that have a higher cost of services as a percentage of revenue;
|
|
·
|
contract restructurings with certain customers that resulted in either decreased revenues or lower per member fees without a proportional corresponding decrease in costs; and
|
|
·
|
an increase in the level of short-term incentive compensation based on the Company’s financial performance against established internal targets during these periods.
|
|
·
|
a decrease in salaries and benefits expense, primarily due to a restructuring of the Company that was largely completed during the fourth calendar quarter of 2008 and a decrease in health insurance costs related to changes in employee medical plan design in fiscal 2009, which included a number of wellness initiatives aimed at improving employee health; and
|
|
·
|
cost savings related to certain cost management initiatives.
|
|
·
|
the completion of an offer to purchase from our employees, excluding the chief executive officer and Board of Directors, outstanding options to acquire shares of common stock of the Company that were granted between September 1, 2004 and August 15, 2008 under our shareholder-approved stock option plans (the “Tender Offer”) on December 30, 2008. The Tender Offer resulted in additional stock-based compensation expense within cost of services of $7.4 million, representing the remaining compensation cost for these options as measured at the grant date but not yet recognized prior to the completion of the Tender Offer;
|
|
·
|
increased member utilization of fitness centers for contracts for which we receive a fixed fee per member;
|
|
·
|
contract restructurings with certain customers, as noted above, that resulted in decreased revenues without a proportional corresponding decrease in costs; and
|
|
·
|
increased costs related to information technology hosting security and storage for the four months ended December 31, 2008.
|
|
·
|
decreased costs related to the two Medicare Health Support programs in which we participated, which ended in January 2008 and July 2008, respectively; and
|
|
·
|
cost savings related to certain cost management initiatives.
|
|
·
|
a net increase in salaries and benefits expense, primarily due to the Company restructuring in the fourth calendar quarter of 2008, which included an increased focus on research and development activities, resulting in an increase in personnel dedicated to these activities that more than offset the reduction in headcount resulting from this restructuring and other workforce reductions; and
|
|
·
|
an increase in the level of short-term incentive compensation based on the Company’s financial performance against established internal targets during these periods.
|
|
·
|
payments during fiscal 2010 related to short-term incentive compensation earned and accrued over the sixteen months ended December 31, 2009;
|
|
·
|
payments during fiscal 2010 related to a final settlement with CMS; and
|
|
·
|
payments during 2010 related to several significant vendor invoices accrued at December 31, 2009.
|
|
·
|
payments during fiscal 2009 related to the aforementioned legal settlement and related costs and fees;
|
|
·
|
payments during fiscal 2009 related to a restructuring of the Company that was largely completed during the fourth quarter of calendar 2008, which primarily consisted of severance costs and costs associated with capacity consolidation; and
|
|
·
|
income tax payments, which were higher during fiscal 2009 primarily due to a change in the timing of estimated tax payments resulting from the change in our fiscal year.
|
Payments Due By Year Ended December 31,
|
||||||||||||||||||
(In $000s)
|
2012 -
|
2014 -
|
2016 and
|
|||||||||||||||
|
2011
|
2013
|
2015
|
After
|
Total
|
|||||||||||||
Deferred compensation plan payments (1)
|
$
|
3,675
|
$
|
10,455
|
$
|
993
|
$
|
5,516
|
$
|
20,639
|
||||||||
Long-term debt (2)
|
15,167
|
260,332
|
—
|
—
|
275,499
|
|||||||||||||
Operating lease obligations (3)
|
15,043
|
25,900
|
19,769
|
48,289
|
109,001
|
|||||||||||||
Capital lease obligations (4)
|
1,580
|
3,160
|
1,185
|
—
|
5,925
|
|||||||||||||
Purchase obligations
|
9,432
|
—
|
—
|
—
|
9,432
|
|||||||||||||
Other contractual cash obligations (5)
|
15,952
|
13,921
|
2,000
|
17,000
|
48,873
|
|||||||||||||
Total contractual cash obligations (6)
|
$
|
60,849
|
$
|
313,768
|
$
|
23,947
|
$
|
70,805
|
$
|
469,369
|
December 31,
|
December 31,
|
||||||||
2010
|
2009
|
||||||||
Current assets:
|
|||||||||
Cash and cash equivalents
|
$
|
1,064
|
$
|
2,356
|
|||||
Accounts receivable, net
|
89,108
|
100,833
|
|||||||
Prepaid expenses
|
12,577
|
10,433
|
|||||||
Other current assets
|
3,064
|
4,945
|
|||||||
Income taxes receivable
|
8,695
|
6,452
|
|||||||
Deferred tax asset
|
11,272
|
24,197
|
|||||||
Total current assets
|
125,780
|
149,216
|
|||||||
Property and equipment:
|
|||||||||
Leasehold improvements
|
40,662
|
40,609
|
|||||||
Computer equipment and related software
|
207,077
|
166,448
|
|||||||
Furniture and office equipment
|
27,328
|
28,096
|
|||||||
Capital projects in process
|
10,117
|
23,052
|
|||||||
285,184
|
258,205
|
||||||||
Less accumulated depreciation
|
(154,528
|
)
|
(134,046
|
)
|
|||||
130,656
|
124,159
|
||||||||
Other assets
|
14,733
|
11,498
|
|||||||
Customer contracts, net
|
23,654
|
29,343
|
|||||||
Other intangible assets, net
|
70,601
|
71,704
|
|||||||
Goodwill, net
|
496,265
|
496,446
|
|||||||
Total assets
|
$
|
861,689
|
$
|
882,366
|
|||||
See accompanying notes to the consolidated financial statements.
|
December 31,
|
December 31,
|
||||||
2010
|
2009
|
||||||
Current liabilities:
|
|||||||
Accounts payable
|
$
|
22,555
|
$
|
29,171
|
|||
Accrued salaries and benefits
|
39,157
|
58,212
|
|||||
Accrued liabilities
|
31,532
|
25,004
|
|||||
Deferred revenue
|
5,931
|
4,639
|
|||||
Contract billings in excess of earned revenue
|
18,814
|
70,440
|
|||||
Current portion of long-term debt
|
3,935
|
2,192
|
|||||
Current portion of long-term liabilities
|
3,309
|
3,854
|
|||||
Total current liabilities
|
125,233
|
193,512
|
|||||
Long-term debt
|
243,425
|
254,345
|
|||||
Long-term deferred tax liability
|
23,050
|
14,617
|
|||||
Other long-term liabilities
|
39,140
|
42,615
|
|||||
Stockholders’ equity:
|
|||||||
Preferred stock
|
|||||||
$.001 par value, 5,000,000 shares
|
|||||||
authorized, none outstanding
|
—
|
—
|
|||||
Common stock
|
|||||||
$.001 par value, 120,000,000 and 75,000,000 shares authorized,
|
|||||||
34,018,706 and 33,858,917 shares outstanding
|
34
|
34
|
|||||
Additional paid-in capital
|
232,524
|
222,472
|
|||||
Retained earnings
|
206,210
|
158,880
|
|||||
Treasury stock, at cost, 429,654 and 0 shares in treasury
|
(4,494
|
)
|
—
|
||||
Accumulated other comprehensive loss
|
(3,433
|
)
|
(4,109
|
)
|
|||
Total stockholders’ equity
|
430,841
|
377,277
|
|||||
Total liabilities and stockholders’ equity
|
$
|
861,689
|
$
|
882,366
|
|||
See accompanying notes to the consolidated financial statements.
|
Year Ended December 31,
|
Four Months Ended December 31,
|
Year Ended August 31,
|
||||||||||||||||||
2010
|
2009
|
2008
|
2008
|
|||||||||||||||||
Revenues
|
$
|
720,333
|
$
|
717,426
|
$
|
244,737
|
$
|
736,243
|
||||||||||||
Cost of services (exclusive of depreciation and amortization of $39,203, $35,433, $11,805, and $34,105, respectively, included below)
|
493,713
|
522,999
|
177,651
|
503,940
|
||||||||||||||||
Selling, general and administrative expenses
|
72,830
|
71,535
|
27,790
|
71,342
|
||||||||||||||||
Depreciation and amortization
|
52,756
|
49,289
|
16,188
|
47,479
|
||||||||||||||||
Impairment loss
|
—
|
—
|
4,344
|
—
|
||||||||||||||||
Restructuring and related charges
|
10,258
|
—
|
10,264
|
—
|
||||||||||||||||
Operating income
|
90,776
|
73,603
|
8,500
|
113,482
|
||||||||||||||||
Gain on sale of investment
|
(1,163
|
)
|
(2,581
|
)
|
|
—
|
—
|
|||||||||||||
Interest expense
|
14,164
|
15,717
|
6,757
|
20,927
|
||||||||||||||||
Legal settlement and related costs
|
—
|
39,956
|
—
|
—
|
||||||||||||||||
Income before income taxes
|
77,775
|
20,511
|
1,743
|
92,555
|
||||||||||||||||
Income tax expense
|
30,445
|
10,137
|
1,009
|
37,740
|
||||||||||||||||
Net income
|
$
|
47,330
|
$
|
10,374
|
$
|
734
|
$
|
54,815
|
||||||||||||
Earnings per share:
|
||||||||||||||||||||
Basic
|
$
|
1.39
|
$
|
0.31
|
$
|
0.02
|
$
|
1.57
|
||||||||||||
Diluted
|
$
|
1.36
|
$
|
0.30
|
$
|
0.02
|
$
|
1.50
|
||||||||||||
Weighted average common shares and equivalents
|
||||||||||||||||||||
Basic
|
34,129
|
33,730
|
33,616
|
34,977
|
||||||||||||||||
Diluted
|
34,902
|
34,359
|
34,038
|
36,597
|
||||||||||||||||
See accompanying notes to the consolidated financial statements.
|
Accumulated
|
||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||
Preferred
|
Common
|
Paid-in
|
Retained
|
Treasury
|
Comprehensive
|
|||||||||||||||
Stock
|
Stock
|
Capital
|
Earnings
|
Stock
|
Income (Loss)
|
Total
|
||||||||||||||
Balance, August 31, 2007
|
$—
|
$35
|
$188,126
|
$174,641
|
—
|
$(52
|
)
|
$362,750
|
||||||||||||
Cumulative effect of a change in accounting
|
||||||||||||||||||||
principle – adoption of FIN 48
|
—
|
—
|
(687
|
)
|
—
|
—
|
(687
|
)
|
||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
—
|
—
|
—
|
54,815
|
—
|
—
|
54,815
|
|||||||||||||
Net change in fair value of interest rate
|
||||||||||||||||||||
swap, net of income tax benefit of $1,064
|
—
|
—
|
—
|
—
|
—
|
(1,510
|
)
|
(1,510
|
)
|
|||||||||||
Foreign currency translation adjustment
|
—
|
—
|
—
|
—
|
—
|
172
|
172
|
|||||||||||||
Total comprehensive income
|
53,477
|
|||||||||||||||||||
Repurchases of common stock
|
—
|
(2
|
)
|
(13,341
|
)
|
(80,997
|
)
|
—
|
—
|
(94,340
|
)
|
|||||||||
Exercise of stock options and other
|
—
|
1
|
6,710
|
—
|
—
|
—
|
6,711
|
|||||||||||||
Tax benefit of option exercises
|
—
|
—
|
9,893
|
—
|
—
|
—
|
9,893
|
|||||||||||||
Share-based employee compensation expense
|
—
|
—
|
16,530
|
—
|
—
|
—
|
16,530
|
|||||||||||||
Balance, August 31, 2008
|
$—
|
$34
|
$207,918
|
$147,772
|
—
|
$(1,390
|
)
|
$354,334
|
||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
—
|
—
|
—
|
734
|
—
|
—
|
734
|
|||||||||||||
Net change in fair value of interest rate
|
||||||||||||||||||||
swaps, net of income tax benefit of $3,371
|
—
|
—
|
—
|
—
|
—
|
(5,007
|
)
|
(5,007
|
)
|
|||||||||||
Change in fair value of investment, net of
|
||||||||||||||||||||
income taxes of $1,094
|
—
|
—
|
—
|
—
|
—
|
1,607
|
1,607
|
|||||||||||||
Foreign currency translation adjustment
|
—
|
—
|
—
|
—
|
—
|
(175
|
)
|
(175
|
)
|
|||||||||||
Total comprehensive loss
|
(2,841
|
)
|
||||||||||||||||||
Write-off of deferred tax assets related to the
|
||||||||||||||||||||
repurchase of stock options
|
—
|
—
|
(9,088
|
)
|
—
|
—
|
—
|
(9,088
|
)
|
|||||||||||
Exercise of stock options
|
—
|
—
|
56
|
—
|
—
|
—
|
56
|
|||||||||||||
Tax effect of option exercises
|
—
|
—
|
(340
|
)
|
—
|
—
|
—
|
(340
|
)
|
|||||||||||
Share-based employee compensation expense
|
—
|
—
|
14,915
|
—
|
—
|
—
|
14,915
|
|||||||||||||
Balance, December 31, 2008
|
$—
|
$34
|
$213,461
|
$148,506
|
—
|
$(4,965
|
)
|
$357,036
|
||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
—
|
—
|
—
|
10,374
|
—
|
—
|
10,374
|
|||||||||||||
Net change in fair value of interest rate
|
||||||||||||||||||||
swaps, net of income taxes of $1,783
|
—
|
—
|
—
|
—
|
—
|
2,418
|
2,418
|
|||||||||||||
Change in fair value of investment, net of
|
||||||||||||||||||||
income tax benefit of $49
|
—
|
—
|
—
|
—
|
—
|
(71
|
)
|
(71
|
)
|
|||||||||||
Sale of investment, net of income taxes of
|
||||||||||||||||||||
$1,045
|
—
|
—
|
—
|
—
|
—
|
(1,536
|
)
|
(1,536
|
)
|
|||||||||||
Foreign currency translation adjustment
|
—
|
—
|
—
|
—
|
—
|
45
|
45
|
|||||||||||||
Total comprehensive income
|
11,230
|
|||||||||||||||||||
Repurchase of stock options
|
—
|
—
|
(736
|
)
|
—
|
—
|
—
|
(736
|
)
|
|||||||||||
Exercise of stock options
|
—
|
—
|
727
|
—
|
—
|
—
|
727
|
|||||||||||||
Tax effect of option exercises
|
—
|
—
|
(1,193
|
)
|
—
|
—
|
—
|
(1,193
|
)
|
|||||||||||
Share-based employee compensation expense
|
—
|
—
|
10,213
|
—
|
—
|
—
|
10,213
|
|||||||||||||
Balance, December 31, 2009
|
$—
|
$34
|
$222,472
|
$158,880
|
—
|
$(4,109
|
)
|
$377,277
|
||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
—
|
—
|
—
|
47,330
|
—
|
—
|
47,330
|
|||||||||||||
Net change in fair value of interest rate
|
||||||||||||||||||||
swap, net of income taxes of $12
|
—
|
—
|
—
|
—
|
—
|
20
|
20
|
|||||||||||||
Foreign currency translation adjustment
|
—
|
—
|
—
|
—
|
—
|
656
|
656
|
|||||||||||||
Total comprehensive income
|
48,006
|
|||||||||||||||||||
Repurchases of common stock
|
—
|
—
|
—
|
—
|
(4,494
|
)
|
—
|
(4,494
|
)
|
|||||||||||
Exercise of stock options
|
—
|
—
|
1,133
|
—
|
—
|
—
|
1,133
|
|||||||||||||
Tax effect of stock options and restricted
stock units
|
—
|
—
|
(2,531
|
)
|
—
|
—
|
—
|
(2,531
|
)
|
|||||||||||
Share-based employee compensation expense
|
—
|
—
|
11,450
|
—
|
—
|
—
|
11,450
|
|||||||||||||
Balance, December 31, 2010
|
$—
|
$34
|
$232,524
|
$206,210
|
$(4,494
|
)
|
$(3,433
|
)
|
$430,841
|
Year Ended December 31,
|
Four Months Ended December 31,
|
Year Ended August 31,
|
|||||||||||
2010
|
2009
|
2008
|
2008
|
||||||||||
Cash flows from operating activities:
|
|||||||||||||
Net income
|
$
|
47,330
|
$
|
10,374
|
$
|
734
|
$
|
54,815
|
|||||
Adjustments to reconcile net income to net cash provided by
|
|||||||||||||
operating activities, net of business acquisitions:
|
|||||||||||||
Depreciation and amortization
|
52,756
|
49,289
|
16,188
|
47,479
|
|||||||||
Gain on sale of investment
|
(1,163
|
) |
(2,581
|
) |
-
|
-
|
|||||||
Loss on disposal of property and equipment
|
160
|
1,584
|
1,568
|
-
|
|||||||||
Impairment loss
|
-
|
-
|
4,344
|
-
|
|||||||||
Amortization of deferred loan costs
|
1,827
|
1,518
|
415
|
1,168
|
|||||||||
Share-based employee compensation expense
|
11,450
|
10,213
|
14,915
|
16,530
|
|||||||||
Excess tax benefits from share-based payment arrangements
|
(1,067
|
) |
(381
|
) |
(68
|
) |
(9,480
|
) | |||||
Decrease (increase) in accounts receivable, net
|
12,207
|
14,352
|
(1,796
|
) |
(33,131
|
) | |||||||
(Increase) decrease in other current assets
|
(159
|
) |
(1,972
|
) |
(3,011
|
) |
3,927
|
||||||
(Decrease) increase in accounts payable
|
(2,256
|
) |
6,565
|
(3,620
|
) |
2,516
|
|||||||
(Decrease) increase in accrued salaries and benefits
|
(19,715
|
) |
24,991
|
1,549
|
12,652
|
||||||||
(Decrease) increase in other current liabilities
|
(45,206
|
) |
(11,067
|
) |
3,374
|
11,491
|
|||||||
Deferred income taxes
|
16,682
|
8,076
|
(14,133
|
) |
(10,835
|
) | |||||||
Other
|
4,424
|
6,049
|
1,672
|
11,761
|
|||||||||
(Increase) decrease in other assets
|
(1,121
|
) |
(172
|
) |
540
|
(1,367
|
) | ||||||
Payments on other long-term liabilities
|
(3,262
|
) |
(3,970
|
) |
(504
|
) |
(2,220
|
) | |||||
Net cash flows provided by operating activities
|
72,887
|
112,868
|
22,167
|
105,306
|
|||||||||
Cash flows from investing activities:
|
|||||||||||||
Acquisition of property and equipment
|
(44,431
|
) |
(49,110
|
) |
(13,753
|
) |
(82,521
|
) | |||||
Sale of investment
|
1,163
|
11,626
|
-
|
-
|
|||||||||
Business acquisitions, net of cash acquired, and equity investments
|
-
|
(19,486
|
) |
(449
|
) |
-
|
|||||||
Change in restricted cash
|
-
|
(538
|
) |
-
|
(452
|
) | |||||||
Other
|
(5,581
|
) |
(4,918
|
) |
(2,208
|
) |
(3,690
|
) | |||||
Net cash flows used in investing activities
|
(48,849
|
) |
(62,426
|
) |
(16,410
|
) |
(86,663
|
) | |||||
Cash flows from financing activities:
|
|||||||||||||
Proceeds from issuance of long-term debt
|
656,997
|
405,400
|
55,000
|
85,420
|
|||||||||
Deferred loan costs
|
(3,219
|
) |
(784
|
) |
(290
|
) |
-
|
||||||
Repurchases of common stock
|
(4,494
|
) |
-
|
|
-
|
-
|
(94,340
|
) | |||||
Repurchase of stock options
|
-
|
(736
|
) |
-
|
-
|
||||||||
Excess tax benefits from share-based payment arrangements
|
1,067
|
381
|
68
|
9,480
|
|||||||||
Exercise of stock options
|
1,133
|
727
|
56
|
6,711
|
|||||||||
Payments of long-term debt
|
(673,188
|
) |
(457,303
|
) |
(96,825
|
) |
(38,327
|
) | |||||
Change in outstanding checks and other
|
(3,717
|
) |
(1,113
|
) |
6,149
|
-
|
|||||||
Net cash flows used in financing activities
|
(25,421
|
) |
(53,428
|
) |
(35,842
|
) |
(31,056
|
) | |||||
Effect of exchange rate changes on cash
|
91
|
185
|
-
|
-
|
|||||||||
Net decrease in cash and cash equivalents
|
(1,292
|
) |
(2,801
|
) |
(30,085
|
) |
(12,413
|
) | |||||
Cash and cash equivalents, beginning of period
|
2,356
|
5,157
|
35,242
|
47,655
|
|||||||||
Cash and cash equivalents, end of period
|
1,064
|
2,356
|
5,157
|
35,242
|
|||||||||
Supplemental disclosure of cash flow information:
|
|||||||||||||
Cash paid during the period for interest
|
$
|
12,137
|
$
|
12,717
|
$
|
8,297
|
$
|
19,117
|
|||||
Cash paid during the period for income taxes
|
$
|
13,231
|
$
|
$
|
10,914
|
$
|
41,249
|
||||||
Noncash Activities:
|
|||||||||||||
Assets acquired through capital lease obligation and exchange of noncash assets
|
$
|
8,435
|
-
|
-
|
-
|
||||||||
See accompanying notes to the consolidated financial statements.
|
(In $000s)
|
||||||
Balance, August 31, 2008
|
$
|
484,305
|
||||
Earn-out payments
|
291
|
|||||
Balance, December 31, 2008
|
|
484,596
|
||||
HealthHonors purchase
|
11,850
|
|||||
Balance, December 31, 2009
|
|
496,446
|
||||
HealthHonors purchase price adjustment
|
(181
|
)
|
||||
Balance, December 31, 2010
|
$
|
496,265
|
Gross Carrying
|
Accumulated
|
||||||||||||
(In $000s)
|
Amount
|
Amortization
|
Net
|
||||||||||
Customer contracts
|
$
|
55,240
|
$
|
31,586
|
$
|
23,654
|
|||||||
Acquired technology
|
26,757
|
21,090
|
5,667
|
||||||||||
Patents
|
23,987
|
7,771
|
16,216
|
||||||||||
Distributor and provider networks
|
8,709
|
4,986
|
3,723
|
||||||||||
Other
|
17,487
|
2,442
|
15,045
|
||||||||||
Total
|
$
|
132,180
|
$
|
67,875
|
$
|
64,305
|
Gross Carrying
|
Accumulated
|
||||||||||||
(In $000s)
|
Amount
|
Amortization
|
Net
|
||||||||||
Customer contracts
|
$
|
55,240
|
$
|
25,897
|
$
|
29,343
|
|||||||
Acquired technology
|
26,757
|
19,009
|
7,748
|
||||||||||
Patents
|
23,405
|
5,419
|
17,986
|
||||||||||
Distributor and provider networks
|
8,709
|
3,765
|
4,944
|
||||||||||
Other
|
12,486
|
1,410
|
11,076
|
||||||||||
Total
|
$
|
126,597
|
$
|
55,500
|
$
|
71,097
|
(In $000s)
|
||||
Year ending December 31,
|
||||
2011
|
$
|
12,416
|
||
2012
|
10,511
|
|||
2013
|
10,389
|
|||
2014
|
9,410
|
|||
2015
|
6,150
|
|||
2016 and thereafter
|
15,429
|
|||
Total
|
$
|
64,305
|
(In $000s)
|
Year Ended December 31,
|
Four Months Ended December 31,
|
Year Ended August 31,
|
|||||||||||
2010
|
2009
|
2008
|
2008
|
|||||||||||
Current taxes
|
||||||||||||||
Federal
|
$
|
8,810
|
$
|
835
|
$
|
11,946
|
$
|
47,147
|
||||||
State
|
2,719
|
754
|
2,827
|
9,569
|
||||||||||
Deferred taxes
|
||||||||||||||
Federal
|
16,952
|
7,638
|
(11,308
|
)
|
(15,500
|
)
|
||||||||
State
|
1,964
|
910
|
(2,456
|
)
|
(3,476
|
)
|
||||||||
Total
|
30,445
|
$
|
10,137
|
$
|
1,009
|
$
|
37,740
|
(In $000s)
|
December 31,
|
December 31,
|
||||||||
2010
|
2009
|
|||||||||
Deferred tax asset:
|
||||||||||
Accruals and reserves
|
$
|
12,174
|
$
|
10,710
|
||||||
Deferred compensation
|
12,129
|
9,253
|
||||||||
Share-based payments
|
15,594
|
15,877
|
||||||||
Net operating loss carryforwards
|
7,142
|
8,344
|
||||||||
Other assets and liabilities
|
2,780
|
3,381
|
||||||||
Advance receipts
|
—
|
14,220
|
||||||||
49,819
|
61,785
|
|||||||||
Valuation allowance
|
(1,985
|
)
|
(1,648
|
)
|
||||||
$ |
47,834
|
$ |
60,137
|
|||||||
Deferred tax liability:
|
||||||||||
Property and equipment
|
$ |
(34,976
|
)
|
$ |
(22,668
|
)
|
||||
Intangible assets
|
(24,115
|
)
|
(27,805
|
)
|
||||||
Other assets and liabilities
|
(521
|
)
|
(84
|
)
|
||||||
(59,612
|
)
|
(50,557
|
)
|
|||||||
Net deferred tax asset (liability)
|
$
|
(11,778
|
)
|
$
|
9,580
|
|||||
Net current deferred tax asset
|
$
|
11,272
|
$
|
24,197
|
||||||
Net long-term deferred tax liability
|
(23,050
|
)
|
(14,617
|
)
|
||||||
$
|
(11,778
|
)
|
$
|
9,580
|
(In $000s)
|
Year Ended December 31,
|
Four Months Ended December 31,
|
Year Ended August 31,
|
|||||||||||||
2010
|
2009
|
2008
|
2008
|
|||||||||||||
Statutory federal income tax
|
$
|
27,221
|
$
|
7,179
|
$
|
610
|
$
|
32,394
|
||||||||
State income taxes, less federal income tax benefit
|
3,318
|
970
|
62
|
3,910
|
||||||||||||
Other
|
(94
|
)
|
1,988
|
337
|
1,436
|
|||||||||||
Income tax expense
|
$
|
30,445
|
$
|
10,137
|
$
|
1,009
|
$
|
37,740
|
(In $000s)
|
|||||
Unrecognized tax benefits at September 1, 2007
|
$
|
11,050
|
|||
Decreases based on tax positions related to fiscal 2008
|
(8,534
|
)
|
|||
Lapse of statutes of limitation
|
(140
|
)
|
|||
Unrecognized tax benefits at August 31, 2008 and December 31, 2008
|
2,376
|
||||
Change based upon settlements with taxing authorities
|
(2,376
|
)
|
|||
Increases based upon tax positions related to fiscal 2009
|
1,072
|
||||
Unrecognized tax benefits at December 31, 2009 and December 31, 2010
|
$
|
1,072
|
December 31, 2010
|
December 31, 2009
|
|||||||||
(In $000s)
|
Foreign currency exchange contracts
|
Interest rate swap agreements
|
Foreign currency exchange contracts
|
Interest rate swap agreements
|
||||||
Assets:
|
||||||||||
Derivatives not designated as hedging instruments:
|
||||||||||
Other current assets
|
$136
|
$—
|
$—
|
$—
|
||||||
Derivatives designated as hedging instruments:
|
||||||||||
Other assets
|
—
|
—
|
—
|
88
|
||||||
Total assets
|
$136
|
$—
|
$—
|
$88
|
||||||
Liabilities:
|
||||||||||
Derivatives not designated as hedging instruments:
|
||||||||||
Accrued liabilities
|
$245
|
$—
|
$12
|
$—
|
||||||
|
||||||||||
Derivatives designated as hedging instruments:
|
||||||||||
Accrued liabilities
|
—
|
4,465
|
—
|
236
|
||||||
Other long-term liabilities
|
—
|
2,593
|
—
|
6,942
|
||||||
Total liabilities
|
$245
|
$7,058
|
$12
|
$7,178
|
||||||
Year Ended December 31, 2010
|
Year Ended December 31, 2009
|
||||||||||
Derivatives in
Cash Flow Hedging Relationships
|
Amount of Gain (Loss) Recognized in Accumulated OCI on Derivatives (Effective Portion)
|
Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
Amount of Gain (Loss) Recognized in Accumulated OCI on Derivatives (Effective Portion)
|
Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|||||
Interest rate swap agreements, gross of tax effect
|
$(5,614)
|
Interest expense
|
$(5,646)
|
$(2,541)
|
Interest expense
|
$(6,742)
|
Level 1: Quoted prices in active markets for identical assets or liabilities;
|
||
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuation techniques in which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
||
Level 3: Unobservable inputs that are supported by little or no market activity and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
|
(In 000s)
December 31, 2010
|
Level 2
|
Level 3
|
Gross Fair Value
|
Netting (1)
|
Net Fair Value
|
||||||||||||||
Assets:
|
|||||||||||||||||||
Foreign currency exchange contracts
|
$
|
136
|
$
|
—
|
$
|
136
|
$
|
(116
|
)
|
$
|
20
|
||||||||
Liabilities:
|
|||||||||||||||||||
Foreign currency exchange contracts
|
$
|
245
|
$
|
—
|
$
|
245
|
$
|
(116
|
)
|
$
|
129
|
||||||||
Interest rate swap agreements
|
7,058
|
—
|
7,058
|
—
|
7,058
|
||||||||||||||
Contingent consideration liability
|
—
|
—
|
—
|
—
|
—
|
(In 000s)
December 31, 2009
|
Level 2
|
Level 3
|
Gross Fair Value
|
Netting (1)
|
Net Fair Value
|
||||||||||||||
Assets:
|
|||||||||||||||||||
Interest rate swap agreements
|
$
|
88
|
$
|
—
|
$
|
88
|
$
|
—
|
$
|
88
|
|||||||||
Liabilities:
|
|||||||||||||||||||
Foreign currency exchange contracts
|
$
|
12
|
$
|
—
|
$
|
12
|
$
|
—
|
$
|
12
|
|||||||||
Interest rate swap agreements
|
7,178
|
—
|
7,178
|
—
|
7,178
|
||||||||||||||
Contingent consideration liability
|
—
|
3,043
|
3,043
|
—
|
3,043
|
(In $000s)
|
Contingent
Consideration Liability
|
||||||
Balance, January 1, 2010
|
$
|
3,043
|
|||||
Adjustment to liability
|
3,043
|
||||||
Balance, December 31, 2010
|
$
|
—
|
·
|
reporting units measured at fair value in the first step of a goodwill impairment test; and
|
·
|
indefinite-lived intangible assets measured at fair value for impairment assessment.
|
|
·
|
Cash and cash equivalents – The carrying amount of $1.1 million approximates fair value because of the short maturity of those instruments (less than three months).
|
|
·
|
Long-term debt –The estimated fair value of outstanding borrowings under our credit agreement is based on the average of the prices set by the issuing bank given current market conditions and is not necessarily indicative of the amount we could realize in a current market exchange. The estimated fair value and carrying amount of outstanding borrowings under the Fourth Amended Credit Agreement at December 31, 2010 are $223.4 million and $241.3 million, respectively.
|
(In $000s)
|
|||||
Year ending December 31,
|
|||||
2011
|
$
|
2,000
|
|||
2012
|
2,000
|
||||
2013
|
237,300
|
||||
2014
|
—
|
||||
2015
|
—
|
||||
2016 and thereafter
|
—
|
||||
Total
|
$
|
241,300
|
(In 000s)
|
|||||||||
Accrued restructuring and related charges at January 1, 2010
|
$
|
—
|
|||||||
Additions
|
8,507
|
||||||||
Payments
|
(900
|
)
|
|||||||
Accrued restructuring and related charges at December 31, 2010
|
$
|
7,607
|
|||||||
(In $000s)
|
Capital
|
Operating
|
|||||
Year ending December 31,
|
Leases
|
Leases
|
|||||
2011
|
$
|
1,580
|
$
|
14,435
|
|||
2012
|
1,580
|
13,049
|
|||||
2013
|
1,580
|
11,578
|
|||||
2014
|
1,185
|
10,339
|
|||||
2015
|
—
|
9,429
|
|||||
2016 and thereafter
|
—
|
48,289
|
|||||
Total minimum lease payments
|
5,925
|
$
|
107,119
|
||||
Less amount representing interest
|
(631
|
)
|
|||||
Present value of minimum lease payments
|
5,294
|
||||||
Less current portion
|
(1,290
|
)
|
|||||
$
|
4,004
|
Year Ended
|
Four Months Ended
|
Year Ended
|
|||||||||||
December 31,
|
December 31,
|
December 31,
|
August 31,
|
||||||||||
(In millions)
|
2010
|
2009
|
2008
|
2008
|
|||||||||
Total share-based compensation
|
$
|
11.5
|
$
|
10.2
|
$
|
14.9
|
(1)
|
$
|
16.5
|
||||
Share-based compensation included in cost of services
|
5.0
|
4.4
|
10.0
|
8.0
|
|||||||||
Share-based compensation included in selling, general and administrative expenses
|
5.0
|
5.8
|
6.5
|
8.5
|
|||||||||
Share-based compensation included in restructuring and related charges
|
1.5
|
—
|
(1.6
|
)
|
—
|
||||||||
Total income tax benefit recognized
|
4.5
|
4.0
|
5.9
|
6.5
|
Year Ended
December 31,
|
Four Months Ended December 31,
|
Year Ended August 31,
|
|||||||||||||||
2010
|
2009
|
2008
|
2008
|
||||||||||||||
Weighted average grant-date fair value of options
|
$
|
7.22
|
$
|
6.72
|
$
|
4.97
|
$
|
22.16
|
|||||||||
Assumptions:
|
|||||||||||||||||
Expected volatility
|
51.9
|
%
|
51.6
|
%
|
46.5
|
%
|
37.8
|
%
|
|||||||||
Expected dividends
|
—
|
—
|
—
|
—
|
|||||||||||||
Expected term (in years)
|
5.5
|
6.1
|
5.1
|
6.6
|
|||||||||||||
Risk-free rate
|
3.2
|
%
|
2.5
|
%
|
3.6
|
%
|
4.2
|
%
|
Options
|
Shares (000s)
|
|
Weighted
Average Exercise
Price
|
|
Weighted Average
Remaining
Contractual
Term
|
|
Aggregate Intrinsic Value ($000s)
|
|||||||||||
Outstanding at January 1, 2010
|
4,936
|
$
|
18.46
|
|||||||||||||||
Granted
|
1,848
|
12.53
|
||||||||||||||||
Exercised
|
(223
|
)
|
4.96
|
|||||||||||||||
Forfeited or expired
|
(353
|
)
|
19.46
|
|||||||||||||||
Outstanding at December 31, 2010
|
6,208
|
17.12
|
5.5
|
$
|
3,619
|
|||||||||||||
Exercisable at December 31, 2010
|
3,569
|
19.45
|
3.2
|
$
|
2,281
|
Nonvested Shares
|
Shares (000s)
|
Weighted Average Grant Date Fair Value
|
|||||
Nonvested at January 1, 2010
|
1,015
|
$
|
22.21
|
||||
Granted
|
629
|
11.32
|
|||||
Vested
|
(414
|
)
|
24.18
|
||||
Forfeited
|
(77
|
)
|
25.86
|
||||
Nonvested at December 31, 2010
|
1,153
|
$
|
15.29
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
|
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
|
||||||||||||||
October 1 through 31
|
10,000
|
$10.34
|
10,000
|
$59,896,600
|
||||||||||||||
November 1 through 30
|
182,200
|
$10.64
|
192,200
|
$57,957,992
|
||||||||||||||
December 1 through 31
|
237,454
|
$10.33
|
429,654
|
$55,505,092
|
||||||||||||||
Total
|
429,654
|
(In 000s except per share data)
|
Year Ended December 31,
|
Four Months Ended December 31,
|
Year Ended August 31,
|
||||||||||||||
Numerator:
|
2010
|
2009
|
2008
|
2008
|
|||||||||||||
Net income - numerator for basic earnings per share
|
$
|
47,330
|
$
|
10,374
|
$
|
734
|
$
|
54,815
|
|||||||||
Denominator:
|
|||||||||||||||||
Shares used for basic earnings per share
|
34,129
|
33,730
|
33,616
|
34,977
|
|||||||||||||
Effect of dilutive stock options and restricted stock units outstanding:
|
|||||||||||||||||
Non-qualified stock options
|
384
|
336
|
270
|
1,477
|
|||||||||||||
Restricted stock units
|
389
|
293
|
152
|
143
|
|||||||||||||
Shares used for diluted earnings per share
|
34,902
|
34,359
|
34,038
|
36,597
|
|||||||||||||
Earnings per share:
|
|||||||||||||||||
Basic
|
$
|
1.39
|
$
|
0.31
|
$
|
0.02
|
$
|
1.57
|
|||||||||
Diluted
|
$
|
1.36
|
$
|
0.30
|
$
|
0.02
|
$
|
1.50
|
|||||||||
Dilutive securities outstanding not included in the computation of earnings per share because their effect is antidilutive:
|
|||||||||||||||||
Non-qualified stock options
|
3,863
|
3,521
|
2,820
|
1,547
|
|||||||||||||
Restricted stock units
|
81
|
186
|
268
|
111
|
(In 000s except per share data)
|
Four Months Ended December 31, 2007
|
|||||
Revenues
|
$
|
234,277
|
||||
Cost of services (exclusive of depreciation and amortization)
|
163,750
|
|||||
Selling, general and administrative expenses
|
21,741
|
|||||
Depreciation and amortization
|
13,682
|
|||||
Operating income
|
35,104
|
|||||
Interest expense
|
7,118
|
|||||
Income before income taxes
|
27,986
|
|||||
Income tax expense
|
11,506
|
|||||
Net income
|
$
|
16,480
|
||||
Earnings per share:
|
||||||
Basic
|
$
|
0.46
|
||||
Diluted
|
$
|
0.44
|
||||
Weighted average common shares and equivalents
|
||||||
Basic
|
35,770
|
|||||
Diluted
|
37,739
|
|
(In 000s)
|
Four Months Ended
December 31, 2007
|
||
Cash flows from operating activities:
|
||||
Net income
|
$
|
16,480
|
||
Adjustments to reconcile net income to net cash provided by operating activities, net of
|
||||
business acquisitions:
|
||||
Depreciation and amortization
|
13,682
|
|||
Loss on disposal of property and equipment
|
221
|
|||
Amortization of deferred loan costs
|
389
|
|||
Share-based employee compensation expense
|
5,057
|
|||
Excess tax benefits from share-based payment arrangements
|
(6,072
|
)
|
||
Increase in accounts receivable, net
|
(12,084
|
)
|
||
Decrease in other current assets
|
1,513
|
|||
Decrease in accounts payable
|
(2,429
|
)
|
||
Increase in accrued salaries and benefits
|
1,848
|
|||
Increase in other current liabilities
|
10,257
|
|||
Deferred income taxes
|
(3,025
|
)
|
||
Other
|
3,951
|
|||
Decrease in other assets
|
303
|
|||
Payments on other long-term liabilities
|
(111
|
)
|
||
Net cash flows provided by operating activities
|
29,980
|
|||
Cash flows from investing activities:
|
||||
Acquisition of property and equipment
|
(25,045
|
)
|
||
Acquisitions, net of cash acquired
|
(15
|
)
|
||
Net cash flows used in investing activities
|
(25,060
|
)
|
||
Cash flows from financing activities:
|
||||
Repurchases of common stock
|
(132
|
)
|
||
Excess tax benefits from share-based payment arrangements
|
6,072
|
|||
Exercise of stock options
|
3,070
|
|||
Payments of long-term debt
|
(21,070
|
)
|
||
Net cash flows used in financing activities
|
(12,060
|
)
|
||
Net decrease in cash and cash equivalents
|
(7,140
|
)
|
||
Cash and cash equivalents, beginning of period
|
47,655
|
|||
Cash and cash equivalents, end of period
|
$
|
40,515
|
(In thousands, except per share data)
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Twelve Months Ended
December 31, 2010
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|||||||||||||
(1)
|
(2)
|
||||||||||||||||||||
Revenues
|
$
|
178,999
|
$
|
175,523
|
$
|
170,487
|
$
|
195,324
|
|||||||||||||
Gross margin
|
$
|
39,898
|
$
|
43,610
|
$
|
41,492
|
$
|
62,417
|
|||||||||||||
Income before income taxes
|
$
|
15,920
|
$
|
19,045
|
$
|
17,122
|
$
|
25,687
|
|||||||||||||
Net income
|
$
|
9,414
|
$
|
11,838
|
$
|
10,524
|
$
|
15,554
|
|||||||||||||
Basic earnings per share (3)
|
$
|
0.28
|
$
|
0.35
|
$
|
0.31
|
$
|
0.45
|
|||||||||||||
Diluted earnings per share (3)
|
$
|
0.27
|
$
|
0.34
|
$
|
0.30
|
$
|
0.45
|
|||||||||||||
Twelve Months Ended
December 31, 2009
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|||||||||||||
(4)
|
|||||||||||||||||||||
Revenues
|
$
|
182,736
|
$
|
177,836
|
$
|
181,642
|
$
|
175,212
|
|||||||||||||
Gross margin
|
$
|
41,112
|
$
|
41,534
|
$
|
40,627
|
$
|
35,720
|
|||||||||||||
Income (loss) before income taxes
|
$
|
(22,572
|
)
|
$
|
15,534
|
$
|
15,484
|
$
|
12,065
|
||||||||||||
Net income (loss)
|
$
|
(14,813
|
)
|
$
|
8,876
|
$
|
8,802
|
$
|
7,509
|
||||||||||||
Basic earnings (loss) per share (3)
|
$
|
(0.44
|
)
|
$
|
0.26
|
$
|
0.26
|
$
|
0.22
|
||||||||||||
Diluted earnings (loss) per share (3)
|
$
|
(0.44
|
)(5)
|
$
|
0.26
|
$
|
0.26
|
$
|
0.22
|
||||||||||||
(1)
|
Includes revenues related to an adjustment to a multi-year earn-out arrangement in connection with a business combination entered into during the fourth quarter of 2009 of $1.5 million and an investment gain of $1.2 million.
|
(2)
|
Includes revenues related to an adjustment to a multi-year earn-out arrangement in connection with a business combination entered into during the fourth quarter of 2009 of $1.5 million, restructuring charges of $10.3 million (which were presented as a separate line item in the consolidated statement of operations), and revenues of $22.3 million and expenses of $1.0 million attributable to a settlement with CMS.
|
(3)
|
We calculated earnings per share for each of the quarters based on the weighted average number of shares and dilutive options outstanding for each period. Accordingly, the sum of the quarters may not necessarily be equal to the full year income per share.
|
(4)
|
Includes a legal settlement of approximately $40.0 million (which was presented as a separate line item in the consolidated statement of operations).
|
(5)
|
The assumed exercise of stock-based compensation awards for this period was not considered because the impact would have been anti-dilutive.
|
(a)
|
The following documents are filed as part of this Annual Report on Form 10-K:
|
2.1
|
Stock Purchase Agreement dated October 11, 2006 among Healthways, Inc., Axia Health Management, Inc., and Axia Health Management LLC [incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated December 1, 2006]
|
|
3.1
|
Restated Certificate of Incorporation for Healthways, Inc., as amended [incorporated by reference to Exhibit 3.1 to Form 10-Q of the Company’s fiscal quarter ended February 29, 2008]
|
|
3.2
|
Bylaws, as amended [incorporated by reference to Exhibit 3.1 to Form 10-Q of the Company’s fiscal quarter ended February 29, 2004]
|
|
3.3
|
Amendment to bylaws, as amended [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 15, 2007]
|
|
3.4
|
Amendment No. 2 to bylaws, as amended [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 3, 2008]
|
|
4.1
|
Article IV of the Company's Restated Certificate of Incorporation (included in Exhibit 3.1)
|
|
4.2
|
Rights Agreement, dated June 19, 2000, between American Healthways, Inc. and SunTrust Bank, including the Form of Rights Certificate (Exhibit A), the Form of Summary of Rights (Exhibit B) and the Form of Certificate of Amendment to the Restated Certificate of Incorporation of American Healthways, Inc. (Exhibit C) [incorporated herein by reference to Exhibit 4 to the Company’s Current Report on Form 8-K dated June 21, 2000]
|
|
4.3
|
Amendment No. 1 to Rights Agreement, dated June 15, 2004, between American Healthways, Inc. and SunTrust Bank [incorporated herein by reference to Exhibit 4 to the Company’s Current Report on Form 8-K dated June 17, 2004]
|
|
4.4
|
Amendment No. 2 to Rights Agreement, dated July 19, 2006, between Healthways, Inc. and SunTrust Bank [incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 19, 2006]
|
|
10.1
|
Fourth Amended and Restated Revolving Credit and Term Loan Agreement (“Fourth Amended Credit Agreement”) between the Company and SunTrust Bank as Administrative Agent, U.S. Bank National Association and Regions Bank as Co-Documentation Agents, and JPMorgan Chase Bank, N.A., and Fifth Third Bank, N.A. as Co-Syndication Agents dated March 30, 2010 [incorporated by reference to Exhibit 10.1 to Company’s Current Report on Form 8-K dated April 5, 2010]
|
10.2
|
Office Lease by and between Healthways, Inc. and Highwoods/Tennessee Holdings, L.P., dated as of May 4, 2006 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 5, 2006]
|
|
Management Contracts and Compensatory Plans
|
||
10.3
|
Employment Agreement dated December 19, 2008 between the Company and Ben R. Leedle, Jr. [incorporated by reference to Exhibit 10.1 to the Company’s Form 10-QT of the Company’s transition period ended December 31, 2008]
|
|
10.4
|
Employment Agreement dated December 19, 2008 between the Company and Mary A. Chaput [incorporated by reference to Exhibit 10.2 to the Company’s Form 10-QT of the Company’s transition period ended December 31, 2008]
|
|
10.5
|
Transition Employment Agreement dated December 31, 2010 between the Company and Mary A. Chaput [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 6, 2011]
|
|
10.6
|
Employment Agreement dated December 19, 2008 between the Company and Anne Wilkins [incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company’s fiscal quarter ended March 31, 2010]
|
|
10.7
|
Employment Agreement dated December 10, 2008 between the Company and Matthew Kelliher [incorporated by reference to Exhibit 10.4 to Form 10-QT of the Company’s transition period ended December 31, 2008]
|
|
10.8
|
Employment Agreement dated October 11, 2008 between the Company and Stefen F. Brueckner [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 16, 2008]
|
|
10.9
|
Employment Agreement dated December 31, 2010 between the Company and Alfred Lumsdaine [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 6, 2011]
|
|
10.10
|
Employment Agreement dated December 31, 2010 between the Company and Thomas Cox
|
|
10.11
|
Employment Agreement dated March 8, 2011 between the Company and James W. Elrod
|
|
10.12
|
Long-term performance award agreement dated September 28, 2006 between the Company and Matthew E. Kelliher [incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company’s fiscal quarter ended February 28, 2007]
|
|
10.13
|
Long-term performance award agreement dated October 26, 2010 between the Company and Matthew E. Kelliher [incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company’s fiscal quarter ended September 30, 2010]
|
|
10.14
|
Capital Accumulation Plan, as amended and restated [incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company’s fiscal quarter ended June 30, 2010]
|
|
10.15
|
Form of Indemnification Agreement by and among the Company and the Company's directors [incorporated by reference to Exhibit 10.15 to Registration Statement on Form S-1 (Registration No. 33-41119)]
|
|
10.16
|
2007 Stock Incentive Plan, as amended [incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company’s fiscal quarter ended June 30, 2010]
|
|
10.17
|
1996 Stock Incentive Plan, as amended [incorporated by reference to Exhibit 10.20 to Form 10-K of the Company’s fiscal year ended August 31, 2006]
|
|
10.18
|
2001 Amended and Restated Stock Option Plan, as amended [incorporated by reference to Exhibit 10.21 to Form 10-K of the Company’s fiscal year ended August 31, 2006]
|
|
10.19
|
Form of Non-Qualified Stock Option Agreement under the Company’s 2007 Stock Incentive Plan [incorporated by reference to Exhibit 10.24 to Form 10-K of the Company’s fiscal year ended August 31, 2007]
|
|
10.20
|
Form of Restricted Stock Unit Award Agreement under the Company’s 2007 Stock Incentive Plan [incorporated by reference to Exhibit 10.25 to Form 10-K of the Company’s fiscal year ended August 31, 2007]
|
|
10.21
|
Form of Non-Qualified Stock Option Agreement (for Directors) under the Company’s 2007 Stock Incentive Plan [incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company’s fiscal quarter ended June 30, 2010]
|
|
10.22
|
Form of Restricted Stock Unit Award Agreement (for Directors) under the Company’s 2007 Stock Incentive Plan [incorporated by reference to Exhibit 10.3 to Form 10-Q of the Company’s fiscal quarter ended June 30, 2010]
|
|
10.23
|
2007 Stock Incentive Plan Performance Cash Award Agreement [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 4, 2009]
|
|
21
|
Subsidiary List
|
|
23
|
Consent of Ernst & Young LLP
|
|
31.1
|
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Ben R. Leedle, Jr., Chief Executive Officer
|
|
31.2
|
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Alfred Lumsdaine, Chief Financial Officer
|
|
32
|
Certification Pursuant to 18 U.S.C section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by Ben R. Leedle, Jr., Chief Executive Officer and Alfred Lumsdaine, Chief Financial Officer
|
(b)
|
Exhibits
|
|
Refer to Item 15(a)(3) above.
|
(c)
|
Not applicable
|
HEALTHWAYS, INC
|
||
March 15, 2011
|
By: /s/ Ben R. Leedle, Jr.
Ben R. Leedle, Jr.
Chief Executive Officer
|
Signature
|
Title
|
Date
|
||
/s/ Ben R. Leedle, Jr.
|
Chief Executive Officer and Director (Principal
|
March 15, 2011
|
||
Ben R. Leedle, Jr.
|
Executive Officer)
|
|||
/s/ Alfred Lumsdaine
|
Chief Financial Officer (Principal Financial Officer)
|
March 15, 2011
|
||
Alfred Lumsdaine
/s/ Thomas G. Cigarran
|
Chairman of the Board and Director
|
March 15, 2011
|
||
Thomas G. Cigarran
|
||||
/s/ John A. Wickens
|
Director
|
March 15, 2011
|
||
John A. Wickens
|
||||
/s/ William D. Novelli
|
Director
|
March 15, 2011
|
||
William D. Novelli
|
||||
/s/ William C. O’Neil, Jr.
|
Director
|
March 15, 2011
|
||
William C. O'Neil, Jr.
|
||||
/s/ John W. Ballantine
|
Director
|
March 15, 2011
|
||
John W. Ballantine
|
||||
/s/ Mary Jane England, M.D.
|
Director
|
March 15, 2011
|
||
Mary Jane England, M.D.
|
||||
/s/ Alison Taunton-Rigby
|
Director
|
March 15, 2011
|
||
Alison Taunton-Rigby
|
||||
/s/ Jay C. Bisgard, M.D.
|
Director
|
March 15, 2011
|
||
Jay C. Bisgard, M.D.
|
||||
/s/ C. Warren Neel
|
Director
|
March 15, 2011
|
||
C. Warren Neel
|
||||
I.
|
EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein.
|
II.
|
TERM. Subject to termination as stated in Section VI, the term of employment of the Executive pursuant to this Agreement (as the same may be extended, the “Term”) shall commence on January 1, 2011 (the “Effective Date”), and shall have a continuous term of two (2) years thereafter.
|
III.
|
POSITION. During the Term, the Executive shall serve as COO of the Company performing duties commensurate with the position and such additional duties as the Company shall determine. If asked, the Executive agrees to serve, without any additional compensation, as a director on the Board of Directors of the Company (the “Board”) and/or the board of directors of any subsidiary of the Company, and/or in one or more officer positions with the Company and/or any subsidiary of the Company. If the Executive’s employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive shall resign as a director and officer of the Company (and any of its subsidiaries), such resignation to be effective no later than the date of termination of the Executive’s employment with the Company.
|
IV.
|
DUTIES. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company; provided, however, that it shall not be a violation of this Agreement for the Executive with the approval of the Company to devote reasonable periods of time to charitable and community activities and industry or professional activities, and/or to manage personal investments, so long as such activities do not interfere with the performance of the Executive’s responsibilities under this Agreement.
|
|
A.
|
Base Salary. The Executive’s initial base salary as of the Effective Date is $425,000. Effective January 1 of each calendar year after the Effective Date during the Term of this Agreement, upon the recommendation of the Chief Executive Officer (“CEO”), the Board (or a committee of the Board) shall review the Executive’s base salary and may increase such amount if and as it may deem advisable. Such initial base salary, as it may be increased during the Term, is defined as the “Base Salary.” The Base Salary shall be payable in substantially equal installments in accordance with the Company’s normal payroll practices, and is subject to all proper taxes and withholding. The Base Salary rate at which the Executive is being compensated on the Date of Termination (as defined below) shall be the Base Salary rate used in determining all severance amounts payable to the Executive hereunder.
|
|
B.
|
Bonus Plan. Such bonus, if any, as shall be determined upon the recommendation of the CEO by the Board (or any designated Committee of the Board comprised solely of independent directors), shall be paid in accordance with the terms and conditions of the bonus plan established for the Company (“Bonus Plan”).
|
|
C.
|
Long Term Incentive Awards. During the Term, upon the recommendation of the CEO, the Board (or any designated committee of the Board comprised solely of independent directors) will consider, in its sole discretion, long term incentive awards to the Executive pursuant to the Company’s equity incentive plans.
|
|
D.
|
Other Benefits. In addition to the benefits specifically provided for herein, during the Term the Executive shall be entitled to participate in all benefit plans maintained by the Company for officers generally according to the terms of such plans.
|
VI.
|
TERMINATION OF AGREEMENT. The Executive’s employment under this Agreement shall not be terminated except as set forth in this Section. Any reference to the date of delivery of a notice of termination or resignation by either the Company or the Executive in this Section VI shall constitute the “Date of Termination,” unless otherwise set forth herein. For purposes of this Agreement, the Executive will be deemed to have terminated employment when the Executive has a “separation from service” from the Company as determined in accordance with Treasury Regulation 1.409A-1(h).
|
|
A.
|
By Mutual Consent. The Executive’s employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive upon such terms as are agreed upon between the parties.
|
|
B.
|
Death. If Executive dies during the Term of this Agreement, the Company shall pay his Base Salary due through the date of his death to the Executive’s designated beneficiary plus a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the time of his death, which Bonus Plan amount will be determined and paid after the end of the fiscal year for which the Bonus Plan was in place. The amount of Base Salary due through the date of the Executive’s death shall be paid to his designated beneficiary within thirty (30) days of the Executive’s death, with the date of such payment chosen by the Company in its sole discretion. Any bonus shall be paid at such time designated in the Bonus Plan. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties at the time of his death. In addition, all amounts contributed by the Company to the Capital Accumulation Plan (“CAP”) for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect at the time of the Executive’s death. The Company shall then have no further obligations to the Executive or any representative of his estate or his heirs except that Executive’s estate or beneficiaries, as the case may be, shall be paid such amounts as may be payable under the Company’s life insurance policies and other plans as they relate to benefits following death then in effect.
|
|
C.
|
Disability
|
|
1.
|
The Executive’s employment may be terminated by written notice by either party to the other party, when:
|
|
a.
|
the Executive suffers a physical or mental disability entitling the Executive to long-term disability benefits under the Company’s long-term disability plan, if any, or
|
|
b.
|
in the absence of a Company long-term disability plan, the Executive is unable, as determined by the Board (or any designated Committee of the Board), to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months.
|
|
2.
|
If the Executive’s employment is terminated under this Section (C), the Executive shall be entitled to receive:
|
|
a.
|
all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;
|
|
b.
|
an amount equal to the Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and
|
|
c.
|
if permitted under the Company’s group medical insurance, group medical benefits at the same rate as then in effect for the Company’s employees for two (2) years after the Date of Termination; provided, that if the Executive instead elects continuation of group benefits under COBRA, the Company shall pay the full cost of the premiums for two (2) years following the Date of Termination. The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).
|
|
3.
|
The amounts in clause 2(b) above shall be reduced by any disability insurance payments the Executive receives as a result of his disability, and shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
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|
D.
|
By the Company for Cause
|
|
1.
|
The Executive’s employment may be terminated by the Board upon recommendation of the CEO, both acting in good faith, by written notice to the Executive specifying the event(s) relied upon for such termination upon the occurrence of any of the following events (each of which shall constitute “Cause” for termination):
|
|
a.
|
the continued failure by the Executive to substantially perform his duties after written notice and failure to cure within sixty (60) days;
|
|
b.
|
conviction of a felony or engaging in misconduct which is materially injurious to the Company, monetarily or to its reputation or otherwise, or which would damage Executive’s ability to effectively perform his duties;
|
|
c.
|
theft or dishonesty by the Executive;
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|
d.
|
intoxication while on duty; or
|
|
e.
|
willful violation of Company policies or procedures after written notice and failure to cure within thirty (30) days.
|
|
2.
|
If the Executive’s employment is terminated under this Section (D), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, and no more.
|
|
3.
|
In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. All unvested equity incentives shall terminate on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance with the terms of the CAP as in effect on the Date of Termination. The Executive shall not be entitled to receive any unvested Company contributions to the CAP.
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|
E.
|
By the Company Without Cause
|
|
1.
|
The Executive’s employment may be terminated by the Board upon recommendation of the CEO at any time without Cause by delivery of a written notice of termination to the Executive. If the Executive’s employment is terminated under this Section (E), the Executive shall be entitled to receive:
|
|
a.
|
all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;
|
|
b.
|
an amount equal to the Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and
|
|
c.
|
group medical benefits for eighteen (18) months after the Date of Termination. The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).
|
|
2.
|
The amount in clause 1(b) above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
|
|
F.
|
By the Executive for Good Reason
|
|
1.
|
The Executive’s employment may be terminated by the Executive by written notice of his resignation delivered within sixty (60) days after the occurrence of any of the following events, each of which shall constitute “Good Reason” for resignation:
|
|
a.
|
a material reduction in the Executive’s Base Salary (unless such reduction is part of an across the board reduction affecting all Company executives with a comparable title);
|
|
b.
|
a requirement by the Company to relocate the Executive to a location that is greater than twenty-five (25) miles from the location of the office in which the Executive performs his duties hereunder at the time of such relocation;
|
|
c.
|
in connection with a Change in Control, a failure by the successor person or entity, or the Board, either to honor this Agreement or to present the Executive with an employment agreement containing provisions substantially similar to this Agreement or otherwise satisfactory to the Executive and which is executed by the Executive; or
|
|
d.
|
a material reduction in the Executive’s title, or a material and adverse change in Executive’s status and responsibilities, or the assignment to Executive of duties or responsibilities which are materially inconsistent with Executive’s status and responsibilities.
|
|
2.
|
The Executive shall give the Company written notice of his intention to resign for Good Reason (stating the reason therefor) within sixty (60) days after the occurrence of one of the events stated in subparagraphs (a), (b), (c) or (d) above (the “Good Reason Events”) and the Company shall have sixty (60) days (the “Cure Period”) thereafter to rescind the Good Reason Event(s), in which event the Executive no longer shall have the right to resign for Good Reason. If the Company fails to rescind the Good Reason Event(s) before the expiration of the Cure Period, then the Executive may resign for Good Reason and receive the benefits described below so long as the resignation for Good Reason occurs within thirty (30) days following the expiration of the Cure Period, otherwise the right to resign on the basis of that Good Reason Event(s) shall be deemed to have been waived. If the Executive resigns for Good Reason as defined in this Section (F), the Executive shall be entitled to receive:
|
|
a.
|
all Base Salary and benefits due to the Executive under this Agreement through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;
|
|
b.
|
an amount equal to Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and
|
|
c.
|
group medical benefits for eighteen (18) months after the Date of Termination. The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).
|
|
3.
|
The amount in clause 2(b) above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
|
|
G.
|
By the Executive Without Good Reason
|
|
1.
|
The Executive may terminate his employment at any time by delivery of a written notice of resignation to the Company no less than sixty (60) days and no more than ninety (90) days prior to the effective date of the Executive’s resignation. The Executive shall receive all Base Salary and benefits due under this Agreement through the next payroll date following the Date of Termination, and no more.
|
|
2.
|
Although the Executive is not entitled to any severance amount in the event of termination pursuant to this Section (G), the Executive may reduce the term of the non-compete and non-solicitation covenants in Section IX hereof, from twenty-four (24) months to eighteen (18) months, upon execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. All unvested equity incentives shall terminate on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance with the terms of the CAP as in effect on the Date of Termination. The Executive shall not be entitled to receive any unvested Company contributions to the CAP.
|
|
H.
|
Following a Change in Control
|
|
1.
|
If the Executive’s termination of employment without Cause (pursuant to Section VI(E)) or for Good Reason (pursuant to Section VI(F)) occurs within twelve (12) months following a Change in Control, then the amounts payable pursuant to Section VI(E) or Section VI(F) above, as the case may be, shall be referred to as the “Change in Control Severance Amount,” and shall be paid to Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll dates) upon his or her execution of a full release of claims in favor of the Company. Payments pursuant to this Section VI(H) shall be made in lieu of, but not in addition to, any payment under any other paragraph of this Section VI. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
|
|
2.
|
For the purposes of this Agreement, a “Change in Control” shall mean any of the following events:
|
|
a.
|
any person or entity, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of the Company’s securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business);
|
|
b.
|
as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction are held in the aggregate by the holders of the Company’s securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or
|
|
c.
|
during any period of two (2) consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s stockholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.
|
|
3.
|
Excise Tax Payment. If, in connection with a Change in Control, the Internal Revenue Service asserts, or if the Executive or the Company is advised in writing by an established accounting firm, that any payment in the nature of compensation to, or for the benefit of, the Executive from the Company (or any successor in interest) constitutes an “excess parachute payment” under Section 280G of the Code, whether paid pursuant to this Agreement or any other agreement, and including property transfers pursuant to securities and other employee benefits that vest upon a Change in Control (collectively, the “Excess Parachute Payments”) the Company shall pay to the Executive, on demand, a cash sum equal to the amount of excise tax due under Section 4999 of the Code on the entire amount of the Excess Parachute Payments (excluding any payment pursuant to this Section VI(H)(3)) (the “Gross-up Amount”). The payment of the ”Gross-up Amount“ due to the Executive under this Section VI(H)(3) shall be paid as soon as reasonably possible following demand of payment by the Executive, but in no event later than December 31 of the year following the year (A) any tax is paid to the Internal Revenue Service regarding this Section VI(H)(3) or (B) any tax audit or litigation brought by the Internal Revenue Service or other relevant taxing authority related to this Section VI(H)(3) is completed or resolved.
|
|
I.
|
Delay of Payments Pursuant to Section 409A. It is intended that (1) each installment of the payments provided under this Agreement is a separate “payment” for purposes of Section 409A of the Code and (2) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(9)(iii), and 1.409A-1(b)(9)(v). Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executive’s employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a “specified employee” (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement then such payments shall be delayed until the date that is six months after the date of the Executive’s “separation from service” (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company, or, if earlier, the date of the Executive’s death. Any payments delayed pursuant to this Section VI(I) shall be made in a lump sum on the first day of the seventh month following the Executive’s “separation from service” (as such term is defined under Treasury Regulation 1.409A-1(h)), or, if earlier, the date of the Executive’s death. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executive’s employment under this Agreement or thereafter provides for a "deferral of compensation" within the meaning of Section 409A of the Code, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), and (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.
|
VII.
|
REPRESENTATIONS. The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.
|
VIII.
|
ASSIGNMENT, BINDING AGREEMENT. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate.
|
|
A.
|
The Executive acknowledges that:
|
|
1.
|
the business of providing care support services and health support services in which the Company is engaged (the “Business”) is intensely competitive and that the Executive’s employment by the Company will require that the Executive have access to and knowledge of confidential information of the Company relating to its business plans, financial data, marketing programs, client information, contracts and other trade secrets, in each case other than as and to the extent such information is generally known or publicly available through no violation of this Agreement by the Executive;
|
|
2.
|
the use or disclosure of such information other than in furtherance of the Business may place the Company at a competitive disadvantage and may do damage, monetary or otherwise, to the Business; and
|
|
3.
|
the engaging by the Executive in any of the activities prohibited by this Section shall constitute improper appropriation and/or use of such information. The Executive expressly acknowledges the trade secret status of the Company’s confidential information and that the confidential information constitutes a protectable business interest of the Company. Other than as may be required in the performance of his duties, Executive expressly agrees not to divulge such confidential information to anyone outside the Company without prior permission.
|
|
B.
|
The “Company” (which shall be construed to include the Company, its subsidiaries and their respective affiliates) and the Executive agree that for a period of eighteen (18) months after the Date of Termination if the Executive’s employment is terminated under Sections VI(C), (D), (E), (F) or (H), and for a period of twenty-four (24) months after the Date of Termination if the Executive’s employment is terminated under Section VI(G), the Executive shall not:
|
|
1.
|
engage in Competition, as defined below, with the Company or its subsidiaries within any market where the Company is conducting the Business at the time of termination of the Executive’s employment hereunder. For purposes of this Agreement, “Competition” by the Executive shall mean the Executive’s being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of any entity engaged in the Business, provided that, it shall not be a violation of this sub-paragraph for the Executive to become the registered or beneficial owner of less than five percent (5%) of any class of the capital stock of any one or more competing corporations registered under the 1934 Act, provided that, the Executive does not participate in the business of such corporation until such time as this covenant expires; and
|
|
2.
|
The Executive further agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person or entity, do any of the following:
|
|
a.
|
solicit from any customer, doing business with the Company as of the Executive’s termination, business of the same or of a similar nature to the Business of the Company with such customer;
|
|
b.
|
solicit from any known potential customer of the Company business of the same or of a similar nature to that which, to the knowledge of the Executive, has been the subject of a written or oral bid, offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within eighteen (18) months prior to the Executive’s termination; or
|
|
c.
|
recruit or solicit the employment or services of any person who was employed by the Company upon termination of the Executive’s employment and is employed by the Company at the time of such recruitment or solicitation.
|
|
3.
|
The Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which causes this Agreement to be of significant value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section will cause the Company irreparable injury. The Executive therefore agrees that the Company will be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining the Executive from any such violation or threatened violations. The Executive acknowledges that the terms of this Section IX and its obligations are reasonable and will not prohibit him from being employed or employable in the health care industry.
|
|
C.
|
If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law.
|
X.
|
ENTIRE AGREEMENT. This Agreement, together with Exhibit A attached hereto, contains all the understandings between the parties pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or written, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise and that Executive has had the opportunity to be represented by counsel of his choosing.
|
XI.
|
AMENDMENT OR MODIFICATION; WAIVER. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
|
XII.
|
NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier, facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice in writing:
|
Any notice delivered personally or by courier shall be deemed given on the date delivered. Any notice sent by facsimile, registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed.
|
XIII.
|
SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law.
|
XIV.
|
SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.
|
XV.
|
GOVERNING LAW; VENUE. This Agreement will be governed by and construed in accordance with the laws of the State of Tennessee, without regard to the principles of conflicts of law thereof, and venue shall be the United States District Court for the Middle District of Tennessee.
|
XVI.
|
HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
|
XVII.
|
COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
|
I.
|
EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein.
|
II.
|
TERM. Subject to termination as stated in Section VI, the term of employment of the Executive pursuant to this Agreement (as the same may be extended, the “Term”) shall commence on February 21, 2011 (the “Effective Date”), and shall have a continuous term of two (2) years thereafter.
|
III.
|
POSITION. During the Term, the Executive shall serve as VP and General Counsel of the Company performing duties commensurate with the position and such additional duties as the Company shall determine. If asked, the Executive agrees to serve, without any additional compensation, as a director on the Board of Directors of the Company (the “Board”) and/or the board of directors of any subsidiary of the Company, and/or in one or more officer positions with the Company and/or any subsidiary of the Company. If the Executive’s employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive shall resign as a director and officer of the Company (and any of its subsidiaries), such resignation to be effective no later than the date of termination of the Executive’s employment with the Company.
|
IV.
|
DUTIES. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company; provided, however, that it shall not be a violation of this Agreement for the Executive with the approval of the Company to devote reasonable periods of time to charitable and community activities and industry or professional activities, and/or to manage personal investments, so long as such activities do not interfere with the performance of the Executive’s responsibilities under this Agreement.
|
|
A.
|
Base Salary. The Executive’s initial base salary as of the Effective Date is $375,000.08. Effective January 1 of each calendar year after the Effective Date during the Term of this Agreement, upon the recommendation of the Chief Executive Officer (“CEO”), the Board (or a committee of the Board) shall review the Executive’s base salary and may increase such amount if and as it may deem advisable. Such initial base salary, as it may be increased during the Term, is defined as the “Base Salary.” The Base Salary shall be payable in substantially equal installments in accordance with the Company’s normal payroll practices, and is subject to all proper taxes and withholding. The Base Salary rate at which the Executive is being compensated on the Date of Termination (as defined below) shall be the Base Salary rate used in determining all severance amounts payable to the Executive hereunder.
|
|
B.
|
Bonus Plan. Such bonus, if any, as shall be determined upon the recommendation of the CEO by the Board (or any designated Committee of the Board comprised solely of independent directors), shall be paid in accordance with the terms and conditions of the bonus plan established for the Company (“Bonus Plan”).
|
|
C.
|
Long Term Incentive Awards. During the Term, upon the recommendation of the CEO, the Board (or any designated committee of the Board comprised solely of independent directors) will consider, in its sole discretion, long term incentive awards to the Executive pursuant to the Company’s equity incentive plans.
|
|
D.
|
Other Benefits. In addition to the benefits specifically provided for herein, during the Term the Executive shall be entitled to participate in all benefit plans maintained by the Company for officers generally according to the terms of such plans.
|
VI.
|
TERMINATION OF AGREEMENT. The Executive’s employment under this Agreement shall not be terminated except as set forth in this Section. Any reference to the date of delivery of a notice of termination or resignation by either the Company or the Executive in this Section VI shall constitute the “Date of Termination,” unless otherwise set forth herein. For purposes of this Agreement, the Executive will be deemed to have terminated employment when the Executive has a “separation from service” from the Company as determined in accordance with Treasury Regulation 1.409A-1(h).
|
|
A.
|
By Mutual Consent. The Executive’s employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive upon such terms as are agreed upon between the parties.
|
|
B.
|
Death. If Executive dies during the Term of this Agreement, the Company shall pay his Base Salary due through the date of his death to the Executive’s designated beneficiary plus a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the time of his death, which Bonus Plan amount will be determined and paid after the end of the fiscal year for which the Bonus Plan was in place. The amount of Base Salary due through the date of the Executive’s death shall be paid to his designated beneficiary within thirty (30) days of the Executive’s death, with the date of such payment chosen by the Company in its sole discretion. Any bonus shall be paid at such time as is designated in the Bonus Plan. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties at the time of his death. In addition, all amounts contributed by the Company to the Capital Accumulation Plan (“CAP”) for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect at the time of the Executive’s death. The Company shall then have no further obligations to the Executive or any representative of his estate or his heirs except that Executive’s estate or beneficiaries, as the case may be, shall be paid such amounts as may be payable under the Company’s life insurance policies and other plans as they relate to benefits following death then in effect.
|
|
C.
|
Disability
|
|
1.
|
The Executive’s employment may be terminated by written notice by either party to the other party, when:
|
|
a.
|
the Executive suffers a physical or mental disability entitling the Executive to long-term disability benefits under the Company’s long-term disability plan, if any, or
|
|
b.
|
in the absence of a Company long-term disability plan, the Executive is unable, as determined by the Board (or any designated Committee of the Board), to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months.
|
|
2.
|
If the Executive’s employment is terminated under this Section (C), the Executive shall be entitled to receive:
|
|
a.
|
all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;
|
|
b.
|
an amount equal to the Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and
|
|
c.
|
if permitted under the Company’s group medical insurance, group medical benefits at the same rate as then in effect for the Company’s employees for two (2) years after the Date of Termination; provided, that if the Executive instead elects continuation of group benefits under COBRA, the Company shall pay the full cost of the premiums for two (2) years following the Date of Termination. The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).
|
|
3.
|
The amounts in clause 2(b) above shall be reduced by any disability insurance payments the Executive receives as a result of his disability, and shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
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|
D.
|
By the Company for Cause
|
|
1.
|
The Executive’s employment may be terminated by the Board upon recommendation of the CEO, both acting in good faith, by written notice to the Executive specifying the event(s) relied upon for such termination upon the occurrence of any of the following events (each of which shall constitute “Cause” for termination):
|
|
a.
|
the continued failure by the Executive to substantially perform his duties after written notice and failure to cure within sixty (60) days;
|
|
b.
|
conviction of a felony or engaging in misconduct which is materially injurious to the Company, monetarily or to its reputation or otherwise, or which would damage Executive’s ability to effectively perform his duties;
|
|
c.
|
theft or dishonesty by the Executive;
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|
d.
|
intoxication while on duty; or
|
|
e.
|
willful violation of Company policies or procedures after written notice and failure to cure within thirty (30) days.
|
|
2.
|
If the Executive’s employment is terminated under this Section (D), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, and no more.
|
|
3.
|
In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. All unvested equity incentives shall terminate on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance with the terms of the CAP as in effect on the Date of Termination. The Executive shall not be entitled to receive any unvested Company contributions to the CAP.
|
|
E.
|
By the Company Without Cause
|
|
1.
|
The Executive’s employment may be terminated by the Board upon recommendation of the CEO at any time without Cause by delivery of a written notice of termination to the Executive. If the Executive’s employment is terminated under this Section (E), the Executive shall be entitled to receive:
|
|
a.
|
all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;
|
|
b.
|
an amount equal to the Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and
|
|
c.
|
group medical benefits for eighteen (18) months after the Date of Termination. The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).
|
|
2.
|
The amount in clause 1(b) above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
|
|
F.
|
By the Executive for Good Reason
|
|
1.
|
The Executive’s employment may be terminated by the Executive by written notice of his resignation delivered within sixty (60) days after the occurrence of any of the following events, each of which shall constitute “Good Reason” for resignation:
|
|
a.
|
a material reduction in the Executive’s Base Salary (unless such reduction is part of an across the board reduction affecting all Company executives with a comparable title);
|
|
b.
|
a requirement by the Company to relocate the Executive to a location that is greater than twenty-five (25) miles from the location of the office in which the Executive performs his duties hereunder at the time of such relocation;
|
|
c.
|
in connection with a Change in Control, a failure by the successor person or entity, or the Board, either to honor this Agreement or to present the Executive with an employment agreement containing provisions substantially similar to this Agreement or otherwise satisfactory to the Executive and which is executed by the Executive; or
|
|
d.
|
a material reduction in the Executive’s title, or a material and adverse change in Executive’s status and responsibilities, or the assignment to Executive of duties or responsibilities which are materially inconsistent with Executive’s status and responsibilities.
|
|
2.
|
The Executive shall give the Company written notice of his intention to resign for Good Reason (stating the reason therefor) within sixty (60) days after the occurrence of one of the events stated in subparagraphs (a), (b), (c) or (d) above (the “Good Reason Events”) and the Company shall have sixty (60) days (the “Cure Period”) thereafter to rescind the Good Reason Event(s), in which event the Executive no longer shall have the right to resign for Good Reason. If the Company fails to rescind the Good Reason Event(s) before the expiration of the Cure Period, then the Executive may resign for Good Reason and receive the benefits described below so long as the resignation for Good Reason occurs within thirty (30) days following the expiration of the Cure Period, otherwise the right to resign on the basis of that Good Reason Event(s) shall be deemed to have been waived. If the Executive resigns for Good Reason as defined in this Section (F), the Executive shall be entitled to receive:
|
|
a.
|
all Base Salary and benefits due to the Executive under this Agreement through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which he is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;
|
|
b.
|
an amount equal to Executive’s Base Salary for a total of eighteen (18) months following the Date of Termination; and
|
|
c.
|
group medical benefits for eighteen (18) months after the Date of Termination. The costs of the Company’s portion of any premiums due under this clause (c) shall be included in the Executive’s gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”).
|
|
3.
|
The amount in clause 2(b) above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll intervals) upon his or her execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
|
|
G.
|
By the Executive Without Good Reason
|
|
1.
|
The Executive may terminate his employment at any time by delivery of a written notice of resignation to the Company no less than sixty (60) days and no more than ninety (90) days prior to the effective date of the Executive’s resignation. The Executive shall receive all Base Salary and benefits due under this Agreement through the next payroll date following the Date of Termination, and no more.
|
|
2.
|
Although the Executive is not entitled to any severance amount in the event of termination pursuant to this Section (G), the Executive may reduce the term of the non-compete and non-solicitation covenants in Section IX hereof, from twenty-four (24) months to eighteen (18) months, upon execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. All unvested equity incentives shall terminate on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance with the terms of the CAP as in effect on the Date of Termination. The Executive shall not be entitled to receive any unvested Company contributions to the CAP.
|
|
H.
|
Following a Change in Control
|
|
1.
|
If the Executive’s termination of employment without Cause (pursuant to Section VI(E)) or for Good Reason (pursuant to Section VI(F)) occurs within twelve (12) months following a Change in Control, then the amounts payable pursuant to Section VI(E) or Section VI(F) above, as the case may be, shall be referred to as the “Change in Control Severance Amount,” and shall be paid to Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive’s Base Salary (payable periodically at regular payroll dates) upon his or her execution of a full release of claims in favor of the Company. Payments pursuant to this Section VI(H) shall be made in lieu of, but not in addition to, any payment under any other paragraph of this Section VI. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.
|
|
2.
|
For the purposes of this Agreement, a “Change in Control” shall mean any of the following events:
|
|
a.
|
any person or entity, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of the Company’s securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business);
|
|
b.
|
as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction are held in the aggregate by the holders of the Company’s securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or
|
|
c.
|
during any period of two (2) consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s stockholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.
|
|
3.
|
Excise Tax Payment. If, in connection with a Change in Control, the Internal Revenue Service asserts, or if the Executive or the Company is advised in writing by an established accounting firm, that any payment in the nature of compensation to, or for the benefit of, the Executive from the Company (or any successor in interest) constitutes an “excess parachute payment” under Section 280G of the Code, whether paid pursuant to this Agreement or any other agreement, and including property transfers pursuant to securities and other employee benefits that vest upon a Change in Control (collectively, the “Excess Parachute Payments”) the Company shall pay to the Executive, on demand, a cash sum equal to the amount of excise tax due under Section 4999 of the Code on the entire amount of the Excess Parachute Payments (excluding any payment pursuant to this Section VI(H)(3)) (the “Gross-up Amount”). The payment of the ”Gross-up Amount“ due to the Executive under this Section VI(H)(3) shall be paid as soon as reasonably possible following demand of payment by the Executive, but in no event later than December 31 of the year following the year (A) any tax is paid to the Internal Revenue Service regarding this Section VI(H)(3) or (B) any tax audit or litigation brought by the Internal Revenue Service or other relevant taxing authority related to this Section VI(H)(3) is completed or resolved.
|
|
I.
|
Delay of Payments Pursuant to Section 409A. It is intended that (1) each installment of the payments provided under this Agreement is a separate “payment” for purposes of Section 409A of the Code and (2) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(9)(iii), and 1.409A-1(b)(9)(v). Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executive’s employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a “specified employee” (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement then such payments shall be delayed until the date that is six months after the date of the Executive’s “separation from service” (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company, or, if earlier, the date of the Executive’s death. Any payments delayed pursuant to this Section VI(I) shall be made in a lump sum on the first day of the seventh month following the Executive’s “separation from service” (as such term is defined under Treasury Regulation 1.409A-1(h)), or, if earlier, the date of the Executive’s death. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executive’s employment under this Agreement or thereafter provides for a "deferral of compensation" within the meaning of Section 409A of the Code, (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), and (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.
|
VII.
|
REPRESENTATIONS. The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.
|
VIII.
|
ASSIGNMENT, BINDING AGREEMENT. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate.
|
|
A.
|
The Executive acknowledges that:
|
|
1.
|
the business of providing care support services and health support services in which the Company is engaged (the “Business”) is intensely competitive and that the Executive’s employment by the Company will require that the Executive have access to and knowledge of confidential information of the Company relating to its business plans, financial data, marketing programs, client information, contracts and other trade secrets, in each case other than as and to the extent such information is generally known or publicly available through no violation of this Agreement by the Executive;
|
|
2.
|
the use or disclosure of such information other than in furtherance of the Business may place the Company at a competitive disadvantage and may do damage, monetary or otherwise, to the Business; and
|
|
3.
|
the engaging by the Executive in any of the activities prohibited by this Section shall constitute improper appropriation and/or use of such information. The Executive expressly acknowledges the trade secret status of the Company’s confidential information and that the confidential information constitutes a protectable business interest of the Company. Other than as may be required in the performance of his duties, Executive expressly agrees not to divulge such confidential information to anyone outside the Company without prior permission.
|
|
B.
|
The “Company” (which shall be construed to include the Company, its subsidiaries and their respective affiliates) and the Executive agree that for a period of eighteen (18) months after the Date of Termination if the Executive’s employment is terminated under Sections VI(C), (D), (E), (F) or (H), and for a period of twenty-four (24) months after the Date of Termination if the Executive’s employment is terminated under Section VI(G), the Executive shall not:
|
|
1.
|
engage in Competition, as defined below, with the Company or its subsidiaries within any market where the Company is conducting the Business at the time of termination of the Executive’s employment hereunder. For purposes of this Agreement, “Competition” by the Executive shall mean the Executive’s being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of any entity engaged in the Business, provided that, it shall not be a violation of this sub-paragraph for the Executive to become the registered or beneficial owner of less than five percent (5%) of any class of the capital stock of any one or more competing corporations registered under the 1934 Act, provided that, the Executive does not participate in the business of such corporation until such time as this covenant expires; and
|
|
2.
|
The Executive further agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person or entity, do any of the following:
|
|
a.
|
solicit from any customer, doing business with the Company as of the Executive’s termination, business of the same or of a similar nature to the Business of the Company with such customer;
|
|
b.
|
solicit from any known potential customer of the Company business of the same or of a similar nature to that which, to the knowledge of the Executive, has been the subject of a written or oral bid, offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within eighteen (18) months prior to the Executive’s termination; or
|
|
c.
|
recruit or solicit the employment or services of any person who was employed by the Company upon termination of the Executive’s employment and is employed by the Company at the time of such recruitment or solicitation.
|
|
3.
|
The Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which causes this Agreement to be of significant value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section will cause the Company irreparable injury. The Executive therefore agrees that the Company will be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining the Executive from any such violation or threatened violations. The Executive acknowledges that the terms of this Section IX and its obligations are reasonable and will not prohibit him from being employed or employable in the health care industry.
|
|
C.
|
If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law.
|
X.
|
ENTIRE AGREEMENT. This Agreement, together with Exhibit A attached hereto, contains all the understandings between the parties pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or written, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise and that Executive has had the opportunity to be represented by counsel of his choosing.
|
XI.
|
AMENDMENT OR MODIFICATION; WAIVER. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.
|
XII.
|
NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier, facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice in writing:
|
Any notice delivered personally or by courier shall be deemed given on the date delivered. Any notice sent by facsimile, registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed.
|
XIII.
|
SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law.
|
XIV.
|
SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.
|
XV.
|
GOVERNING LAW; VENUE. This Agreement will be governed by and construed in accordance with the laws of the State of Tennessee, without regard to the principles of conflicts of law thereof, and venue shall be the United States District Court for the Middle District of Tennessee.
|
XVI.
|
HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
|
XVII.
|
COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
|
NAME OF SUBSIDIARY
|
STATE OR
JURISDICTION OF ORGANIZATION
|
OWNED BY
|
OWNERSHIP PERCENTAGE
|
|
American Healthways Services, LLC
|
DE
|
Healthways, Inc.
|
100%
|
|
American Healthways Government Services, Inc.
|
DE
|
Healthways, Inc.
|
100%
|
|
Healthways International, Inc.
|
DE
|
Healthways, Inc.
|
100%
|
|
CareSteps.com, Inc.
|
DE
|
Healthways, Inc.
|
100%
|
|
Axonal Information Solutions, Inc
|
DE
|
CareSteps.com, Inc.
|
100%
|
|
Clinical Decision Support, LLC
|
DE
|
American Healthways Services, LLC
|
100%
|
|
DIGOP, LLC
|
DE
|
American Healthways Services, LLC
|
100%
|
|
StatusOne Health Systems, LLC
|
DE
|
American Healthways Services, LLC
|
100%
|
|
Population Health Support, LLC
|
DE
|
American Healthways Services, LLC
|
100%
|
|
Healthways Health Support, LLC
|
DE
|
American Healthways Services, LLC
|
100%
|
|
MeYou Health, LLC
|
DE
|
American Healthways Services, LLC
|
100%
|
|
HealthHonors, LLC
|
DE
|
American Healthways Services, LLC
|
100%
|
|
Healthways Wholehealth Networks, Inc.
|
DE
|
Healthways Health Support, LLC
|
100%
|
|
Healthways HealthTrends, LLC
|
DE
|
Healthways Health Support, LLC
|
100%
|
|
Healthways QuitNet, LLC
|
DE
|
Healthways Health Support, LLC
|
100%
|
|
Healthcare Dimensions PR, Inc.
|
Puerto Rico
|
Healthways Health Support, LLC
|
100%
|
|
WholeHealthMD.com, LLC
|
DE
|
Healthways Health Support, LLC
|
100%
|
|
American WholeHealth Networks IPA of New York, Inc.
|
DE
|
Healthways WholeHealth Networks, Inc.
|
100%
|
|
Healthways WholeHealth Networks - Northeast, Inc.
|
DE
|
Healthways WholeHealth Networks, Inc.
|
100%
|
|
Alignis of New York, Inc.
|
NY
|
Healthways WholeHealth Networks - Northeast, Inc.
|
100%
|
|
AlignisOne of New York IPA, Inc.
|
NY
|
Healthways WholeHealth Networks - Northeast, Inc.
|
100%
|
|
AlignisOne of New Jersey, Inc.
|
NJ
|
Healthways WholeHealth Networks - Northeast, Inc.
|
100%
|
|
Healthways International, S.a.ŕ.l.
|
Luxembourg
|
Healthways International, Inc.
|
100%
|
|
Healthways International, LTD
|
England and Wales
|
Healthways International, S.a.ŕ.l
|
100%
|
|
Healthways International, GmbH
|
Germany
|
Healthways International, S.a.ŕ.l.
|
100%
|
|
Healthways Australia PTY LTD
|
Australia
|
Healthways International, S.a.ŕ.l.
|
100%
|
|
Healthways SAS
|
France
|
Healthways International, S.a.ŕ.l.
|
100%
|
|
Healthways Brasil Ltda.
|
Brazil
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Healthways International, S.a.ŕ.l.
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100%
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Healthways Wellness Services Private Limited
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India
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Healthways International, S.a.ŕ.l.
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100%
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/s/ Ben R. Leedle, Jr.
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Ben R. Leedle, Jr.
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Chief Executive Officer
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/s/ Alfred Lumsdaine
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Alfred Lumsdaine
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Chief Financial Officer
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