-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EJJnCbuJYgZ3qHIWhIkFly+EdHhcSdAXIj7crL/KQ6QK1zv0XkWl409ZTb+cjWLR g+WTJytIQZCUSbkZOUycww== 0000950137-97-001347.txt : 19970401 0000950137-97-001347.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950137-97-001347 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHCARE COMPARE CORP/DE/ CENTRAL INDEX KEY: 0000812910 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 363307583 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15846 FILM NUMBER: 97570368 BUSINESS ADDRESS: STREET 1: 3200 HIGHLAND AVE CITY: DOWNERS GROVE STATE: IL ZIP: 60515 BUSINESS PHONE: 7082417900 MAIL ADDRESS: STREET 2: 3200 HIGHLAND AVENUE CITY: DOWNERS GROVE STATE: IL ZIP: 60515 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K {X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-15846 HealthCare COMPARE Corp. (Exact name of registrant as specified in its charter) Delaware 36-3307583 ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 3200 Highland Avenue Downers Grove, Illinois 60515 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (630) 241-7900 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.01 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant on March 21, 1997, was approximately $1,076,565,000. On that date, there were 26,257,687 shares of Common Stock issued and outstanding. For the purposes of the foregoing calculation only, all directors, executive officers and five percent stockholders of the registrant have been deemed to be affiliates. 2 DOCUMENTS INCORPORATED BY REFERENCE 1996 Annual Report to Stockholders Parts I, II and IV Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 20, 1997 Parts I and III 2 3 PART I ITEM 1. BUSINESS GENERAL HealthCare COMPARE Corp. (together with its subsidiaries hereinafter collectively referred to as the "Company" or "COMPARE") is one of the nation's leading independent providers of medical cost management services. The Company believes it offers the broadest selection of group health and workers' compensation medical cost management services in the marketplace. The Company's strategy in helping clients manage medical costs is to target the segments of opportunity in the medical care marketplace which management believes offer the greatest opportunities for savings. The target market for the Company's services are multi-sited, widely dispersed payors for health care services. By identifying medical costs that provide savings opportunities for group health clients, COMPARE provides cost-effective programs that facilitate the delivery of quality medical care, coupled with convenience and freedom of choice for benefit plan participants. By also identifying comparable opportunities for workers' compensation clients, COMPARE provides cost management services that focus on early return to work, while helping to control the medical, indemnity and administrative expenses associated with work-related injuries and illnesses. The Company's three lines of managed care programs are: ConfidentCare(SM) - a national HMO-type offering for self-funded plans AFFORDABLE Care Program(R) - a nationwide group health offering Occupational Care System(SM) - a nationwide workers' compensation offering These managed care programs all build upon: THE AFFORDABLE(R) MEDICAL NETWORKS--The Company's national network of hospitals, physicians and outpatient care providers that facilitate the delivery of quality care at fixed, negotiated rates. COMPARE(R) MEDICAL REVIEW PROGRAMS--Clinical management programs that facilitate the delivery of medically necessary care and identify cost-effective treatment alternatives. OUCH(R) SYSTEMS--Provides computer-assisted bill review and audit, fee schedule review, and claims pricing services to maximize savings on workers' compensation claims and integrates both the AFFORDABLE Medical Networks and the COMPARE Medical Review Programs for workers' compensation payors. The Company, which is a Delaware corporation, was organized in 1982. The Company's principal executive offices are located at 3200 Highland Avenue, Downers Grove, Illinois 60515 and its telephone number is (630) 241-7900. 3 4 RECENT DEVELOPMENTS In August 1996, the Board of Directors approved the repurchase by the Company of up to 5,000,000 shares or approximately 15% of its outstanding common stock. The Company has previously repurchased a total of 2,500,000 shares. The Company will utilize working capital to purchase shares. The Company repurchased approximately 640,000 shares under this authorization through March 17, 1997. STRATEGY COMPARE assists its clients with medical cost management through an array of programs designed to manage specific cost elements. Its various medical review programs help COMPARE's clients manage the number of units of medical services (volume) while its PPO products help COMPARE's clients manage the cost of those units of service (price). Through its OUCH Systems capabilities, the Company provides workers' compensation bill review services nationally. These services are coupled with the Company's review programs and PPO networks in order to provide a comprehensive product offering in the workers' compensation arenas where, in recent years, medical costs have been rising faster than in the group health arenas. COMPARE seeks to develop medical management programs designed to control the number of health care units, such as its hospital review program. COMPARE offers additional cost management programs which are also intended to control the number of health care units provided, including programs concentrating on mental health services, physical therapy and chiropractic services. COMPARE's management believes that the continuous offering of new and improved programs is important to the expansion of its business. Through the AFFORDABLE Medical Network ("AFFORDABLE"), COMPARE also offers its clients services designed to control the price of a health care unit of service. AFFORDABLE specializes in the development of PPOs and the collection and analysis of health care cost data. AFFORDABLE's capability to analyze health care cost data allows it to use a client's actual history of health care usage to structure networks of providers tailored to client needs. With the Company's acquisition of a small indemnity insurance company in early 1996, the Company will expand its product offering to leverage its managed care assets of The AFFORDABLE Medical Network and its clinical management services. In addition, the Company anticipates acquiring a 49-state insurance shell (with no ongoing business) in 1997. This expansion of product offering will allow the Company to provide a national HMO-like service to self-insured, multi-sited employers. The Company is rolling out these services and expects to see substantial growth in 1997 and beyond from these efforts. HEALTH CARE REFORM, EXPENDITURES AND MANAGED CARE In recent years, political, economic and regulatory influences have subjected the health care industry to fundamental change and consolidation. Since 1993, the Clinton Administration has proposed various programs to reform the health care system and expressed its commitment to (i) increasing health care coverage for the uninsured, (ii) controlling the continued escalation of health care expenditures, and (iii) using health care reimbursement policy to help control the federal deficit. Even though Congress 4 5 rejected the Clinton Administration's proposals, several potential approaches remain under consideration, including broad insurance reform proposals, tax incentives for individuals and the self-employed to purchase insurance, controls on the growth of Medicare and Medicaid spending, the creation of insurance purchasing groups for small businesses and individuals, and market-based changes to the health care delivery system. Proposals under consideration on the federal level would also provide incentives for the provision of cost-effective, quality health care through encouraging managed care systems. In addition, many states are considering various health care reform proposals. At both the federal and state level, there is growing interest in legislation to regulate how managed care companies interact with providers and health plan members. The Company anticipates that Congress and state legislatures will continue to review and assess alternative health care delivery systems and payment methodologies, and that the public debate of these issues will likely continue in the future. Although the Company believes it is well-positioned to respond to the stated concerns, the Company cannot predict what impact the proposed measures may have on its business. Concern about the proposed reform measures and their potential effect has been reflected in the volatility of the stock prices of companies in health care and related industries, including the Company. The Company is monitoring developments concerning health care reform and preparing strategic responses to the different reform scenarios. In response to pending legislation and market pressures and in anticipation of future health care reform, the Company is in the process of broadening and diversifying its services so it will be less affected if health care reform proposals are enacted. Independent managed care firms, such as COMPARE, offer numerous programs designed to help payors for health care control their medical costs. Unlike HMOs, clinical management and PPO companies typically do not underwrite health insurance or assume related risks. Clinical management and PPO services have been offered on a commercially significant scale during approximately the last ten years by independent firms which are engaged primarily in providing these types of services. The industry is currently highly fragmented with numerous independent firms providing medical utilization review and PPO services, primarily on a regional or local level. In addition, a growing number of health insurance carriers, HMOs and third party administrators have established internal clinical management and PPO departments. However, due to the tremendous resources required to develop a PPO network, these organizations have not had nearly the same success in establishing a national PPO network as the Company. In workers' compensation, medical costs are rising at almost twice the rate of general medical inflation. While medical costs are significantly less in size, representing only about 4% of total health care expenditures, the increase in costs are significant for employers and insurance carriers and have risen more than 1000% since 1970. COMPARE and certain other cost management firms offer numerous programs designed to control escalating medical expenses, indemnity payments for lost time, reduce litigation and allow injured employees to return to work as soon as possible. Many of the services used in group health are also applied to the workers' compensation market. PPOs are utilized to manage price. Clinical management services are targeted toward managing the number of units of service, the quality of that service, and helping the injured employee in returning to productive employment. In addition, bill review services are applied on a national basis in the 40 states that have a medical fee schedule and in the remaining states which allow a usual and customary review. Additionally, at least 29 states have adopted legislation that allows for workers' compensation managed care services, and legislation has been proposed in other states. The combination of these services offers workers' compensation insurance carriers and employers significant cost savings. 5 6 PPO SERVICES - THE AFFORDABLE MEDICAL NETWORKS Established in 1983, AFFORDABLE develops and manages payor-based PPO networks throughout the country that incorporate both group health and workers' compensation medical providers. This is the largest area of the Company's business and is principally responsible for the significant growth in revenue and earnings since 1989. The AFFORDABLE networks consist of hospitals, physicians and other health care providers who offer their services to AFFORDABLE clients at negotiated rates in order to gain access to AFFORDABLE's growing national client base. AFFORDABLE's hospital network currently includes approximately 2,320 hospitals in 49 states. In each case, rates are individually negotiated for the full range of hospital services, including hospital inpatient and outpatient services. In addition, AFFORDABLE has established outpatient care networks (OCN) comprising approximately 207,000 physicians, clinical laboratories, surgery centers, radiology facilities and other providers in 49 states, the District of Columbia and Puerto Rico. Since COMPARE's acquisition of AFFORDABLE in June 1988, AFFORDABLE has incurred substantial expense in expanding its PPO networks. The expansion has occurred in the number of health care providers within existing areas and in the number of networks throughout the country. AFFORDABLE has expanded the number of hospital networks not only in major metropolitan markets, but also has targeted secondary and tertiary markets; many of the hospitals and OCN providers that have been added during the past few years have been in these areas. Management expects to continue to incur significant expenses to further expand its hospital and outpatient care networks, particularly in secondary and tertiary markets and believes that its investment in developing these markets has significantly differentiated it from competitors. The following table sets forth information with respect to the approximate number of participating providers at the end of the following years in The AFFORDABLE Medical Network:
December 31, ------------------------------------------ 1992 1993 1994 1995 1996 ------ ------- ------- ------- ------- Number of Hospitals in Network 1,250 1,550 1,900 2,100 2,320 Outpatient Care Network Providers 85,000 107,000 150,000 181,000 207,000
The AFFORDABLE networks have been developed in response to the needs of COMPARE's national client base. These clients provide the leverage necessary to enable AFFORDABLE to negotiate favorable rates with providers throughout the country. The AFFORDABLE client base includes a diverse group of health care payors, such as group health and workers' compensation insurance carriers, third party administrators, HMOs, self-insured employers, union trusts and government employee plans. The amalgamated buying leverage of these clients, the Company believes, provides it with unique strength in negotiating PPO contracts with current and prospective health care providers. 6 7 COMPENSATION. As a fee for developing and managing PPO networks, in virtually all cases, AFFORDABLE charges a percentage of savings realized by its clients. The amount of this fee varies depending on a number of factors including number of enrollees, networks selected, length of contract, and out-of-pocket benefit co-payments. AFFORDABLE competes with national and local firms which develop PPOs and with major insurance carriers, third party administrators and utilization review firms which have implemented their own preferred provider networks as well as with firms which specialize in the collection and analysis of health care cost data. APPROACH TO NETWORK DEVELOPMENT The strategy of The AFFORDABLE Medical Networks is to create a selective network of individual providers which will meet the medical, financial, geographic and quality needs of its clients and their beneficiaries. AFFORDABLE contracts directly with each individual hospital and does not contract with groups of hospitals or provider networks established by other organizations. Management believes this provides the maximum control over the composition and rates in the network and ensures provider stability in the AFFORDABLE network. To further promote stability and savings in the network, when possible, AFFORDABLE enters into multi-year agreements with its providers with nominal annual rate increases. The selected providers benefit from their participation in the AFFORDABLE network through increased patient volume as patients are directed to them through health benefit plans maintained by AFFORDABLE's clients and other channeling mechanisms, such as COMPARE's clinical management services and PPO InfoLine. The network development process begins with an in-depth analysis of the provider supply and demand in a targeted geographic area. Extensive data analysis is performed with proprietary software on public and client data bases to identify the utilization and cost experience of payors by hospital and service area; to develop profiles of average lengths of stay and costs per day and per discharge by type of service and to measure the providers performance against established quality standards. This assessment allows AFFORDABLE to determine and negotiate favorable rates which will result in effective savings to clients. It also establishes the service and geographic needs of clients which direct the selection of network providers. Other demographic and environmental information gathered in the assessment process such as the economic condition of the area, major businesses in the community and applicable legal and regulatory requirements, assists in identifying key factors which can impact the network negotiating process. Site visits to all key hospitals are also conducted by negotiators to gain a greater understanding of the geography of the area, the hospital physical plant and the competitive environment. The network consists of a full array of providers including hospitals and outpatient providers (physicians, laboratories, radiological facilities, outpatient surgical centers, mental health providers, physical therapists, chiropractors, and other ancillary providers). By establishing contractual relationships with the complete range of providers, AFFORDABLE is able to impact the vast majority of the client's health costs and to facilitate referrals within the network for all needed care. 7 8 The general criteria for hospital contracting is as follows: - - ACCESSIBILITY -- each hospital is evaluated as to whether it is geographically accessible to current clients' employees. - - AVAILABILITY -- each hospital's utilization and service patterns are evaluated as to occupancy and scope of services. - - ACCEPTABILITY -- each hospital is evaluated as to whether it falls within current client member utilization patterns. - - QUALITY -- each hospital is evaluated as to quality of care on a wide range of criteria. - - COST -- each hospital's charges are evaluated using both public data and client data. The general criteria for physician contracting includes: - - Valid state licensure - - Active DEA registration, if applicable - - Specialty board certification, if applicable - - Staff privileges at one or more network hospitals, where applicable - - Professional malpractice liability coverage - - A history of a low number of malpractice claims - - No suspensions, limitations or revocations of hospital practice privileges - - No sanctions or disciplinary actions as a Medicare, Medicaid or other government provider - - No state license investigation, restriction, suspension or revocation - - No DEA license investigation, restriction, suspension or revocation - - No liability insurance cancellation - - No chronic illness or physical defect that impairs practice - - No mental illness or chemical dependency (substance abuse) The rate structure negotiated by AFFORDABLE maximizes the savings for the client and gives incentives to providers to deliver cost effective care. Unlike many other PPOs which negotiate price discounts or separate rates for intensive care and other specialty units, AFFORDABLE strives to negotiate a single all inclusive per diem for medical/surgical and intensive care unit days in hospitals. The majority of the Company's hospital PPO contracts are negotiated with an all-inclusive rate structure. The charges for hospital outpatient care are controlled as well through reimbursement caps. Fees for physicians and other outpatient providers are set by fee schedules established by AFFORDABLE. The negotiated rates have resulted in typical savings of over 40% on inpatient hospital costs and 20-30% for physician and outpatient costs. Potential providers are invited to become preferred providers by submitting proposed rates for services in a competitive bidding process. AFFORDABLE evaluates these proposals based on price, range of services, geographic location, community reputation, historical utilization patterns and indications of provider quality. AFFORDABLE negotiates with the providers and selects those which meet the clients' objectives. After a network has been established, AFFORDABLE provides ongoing consulting services to clients, renegotiates contracts with providers and prepares annual evaluations which profile for its clients the effectiveness of the network. The networks are continuously undergoing refinements with active redevelopment activity to expand geographic coverage and to improve rate structure as care continues to shift to outpatient settings. 8 9 In order to promote an ongoing and long term positive business relationship with network providers, AFFORDABLE has established an extensive provider relations program. Dedicated staff perform a variety of activities including responding to hospital claims inquiries, conducting site visits, preparing provider newsletters and participating in joint hospital/AFFORDABLE functions which are intended to promote goodwill and increased utilization of network providers. The Company's retention rate for hospitals has been more than 99% and over 97% for physicians and other outpatient providers. PPO QUALITY ASSESSMENT Quality assessment of network providers is a critical component in the selection and retention process. The Company has established an intensive program which evaluates each individual provider against standards set for various quality indicators. Provider evaluation occurs prior to the selection of the provider and continues while they are in the network. Providers who do not meet standards will not be selected or invited to remain in the network. COMPARE has made significant investment in the development of data bases to maintain and improve the quality of the AFFORDABLE Medical Network. Physicians employed by COMPARE are active participants in the quality assessment process. There is an established committee of physicians which meet regularly to act on provider selection and retention decisions based on quality issues. The clinical expertise available through the COMPARE medical staff is a key ingredient to the effectiveness of the quality assessment activities. The key elements of our PPO Quality Assessment program include: - - Networks that offer necessary and effective health care services which are provided within an appropriate setting, in a timely fashion and in a manner that maintains satisfaction and confidence. - - Networks that consist of a stable base of member providers that provide a comprehensive range of cost-effective health care services which are within reasonable access to network members. - - Network providers shall meet clinical and operational standards established by the federal and state licensing bodies and other recognized professional organizations. - - Network providers shall meet clinical and operational standards. - - Network providers shall monitor the quality of patient care provided in their facilities and provide documentation upon request. INFORMATION SYSTEMS AFFORDABLE utilizes a broad range of proprietary information systems applications to support its PPO business. Present information systems support management of all aspects of provider recruitment, including maintenance of a comprehensive data base of information about members of each PPO network. Additional information systems are utilized to develop rate and fee objectives and strategies prior to initiating contract negotiations with providers. The Company has invested substantially in its information systems and anticipates continuing these investments in the future. Currently the Company has major upgrades underway within the Company's medical provider and claims pricing systems for its PPO business. AFFORDABLE also maintains an array of information systems to re-price health care claims to the contracted rate for its clients. Clients rely on AFFORDABLE to determine PPO contractual payments for claims submitted from hospital PPO providers. Hospital claims are sent from the client's claims administrator or directly from the PPO provider to AFFORDABLE for pricing at the negotiated rates. 9 10 In most cases, Outpatient Care Network claims are sent directly to the claims administrator and are priced using AFFORDABLE's fee schedules. These schedules are provided to the claims administrator on tape and are updated on a regular basis. Health care cost data analysis services are available to the Company's clients for a fee on a stand-alone basis. These services provide clients with in-depth customized information concerning their health care cost and utilization experience. Using its internally developed proprietary software, the Company analyzes its clients' health care claims information and benefit plans in order to profile each client's specific health care cost problems and evaluate appropriate cost management programs. This software also allows the Company to simulate how changes in a benefit plan's structure will change the overall cost of a benefit program. The Company also provides clients with customized software products to allow further analysis of health care cost issues. CLINICAL MANAGEMENT SERVICES - COMPARE MEDICAL REVIEW PROGRAMS COMPARE provides centralized clinical management programs (utilization review and medical case management services) from its headquarters in Downers Grove, Illinois, through an internal staff consisting primarily of allied health professionals, licensed practical and registered nurses and physicians. COMPARE also has a nationwide network of consulting physicians in various specialties. Historically, COMPARE charged its clients a "capitated fee," i.e., a fixed monthly fee for each participant (excluding covered dependents) in a client-sponsored health care plan. The amount of this fee varied depending on the size of the client and the number and type of review programs selected by the client. During the last two years or so, the Company has concentrated on selling its clinical management services coupled with its PPO services. As a result, the fee is an "add-on" to the PPO fee. For other services, including case management, COMPARE charges fees on an hourly basis rather than a capitated basis. COMPARE's approach to medical management is based on the development of clinically valid review criteria and procedures using the resources of its professional staff as well as resources external to COMPARE. Review criteria are structured so that a review coordinator or case manager can review the majority of cases presented. If a proposed hospital admission or outpatient service fails to meet established criteria, a COMPARE-employed or retained physician (or other doctoral level practitioner such as a Doctor of Chiropractic or Doctor of Psychology) reviews the case and may contact the patient's provider to obtain additional information. Clients who purchase COMPARE's clinical management programs advise their participants and dependents of review requirements. A participant or his or her attending physician utilizes a clinical management program by calling one of COMPARE's toll-free numbers prior to the proposed hospitalization or outpatient service or within two business days of an emergency admission or outpatient service. The telephone lines at COMPARE's headquarters are currently staffed five days a week, eleven and one-half hours a day (calls placed at other hours are answered by a recorded message with the opportunity, in some circumstances, for the caller to leave recorded information.) From these calls, COMPARE's clinical management staff gathers the demographic and medical information necessary to enable it to perform a review and enters this information into COMPARE's proprietary review system. Based on this information and using COMPARE's clinically valid and proprietary review criteria, COMPARE determines whether it can recommend certification for the proposed hospitalization or outpatient service as medically necessary under the participant's health care plan. 10 11 Upon completion of the review, COMPARE notifies the participant, the attending physician and other affected providers of the outcome of the review. It also notifies its client as to whether the proposed hospitalization and length of stay or outpatient service can be certified as medically necessary and appropriate under the terms of the benefit plan. COMPARE does not practice medicine and its services are advisory in nature. All decisions as to the payment or denial of benefits and about eligibility or coverage under the benefit plan are made only by the claims administrator. All decisions as to the patient's medical treatment are made by the patient and the attending physician, not by COMPARE. COMPARE provides standard educational materials which can be used by its clients for advising participants of the utilization management services. COMPARE also works with clients in developing customized materials for this purpose. Participants can call COMPARE on a toll-free line if they have questions regarding its services. Clients and their claim administrators can also obtain additional information from the Client Services staff. COMPARE provides its clients with standardized reports, on a regular basis, which contain information that enables them to analyze the effectiveness of COMPARE's services. CLINICAL MANAGEMENT PROGRAMS COMPARE offers several clinical management programs from which its clients may select. Most of COMPARE's clients subscribe to its Hospital Review Program, which serves as the base to which COMPARE's other programs may be added. Over 90% of COMPARE's clients subscribe to at least one additional COMPARE program. COMPARE also offers its programs on a stand-alone basis, without requiring participation in its Hospital Review Program. The following is a summary of the Company's principal programs currently being offered. HOSPITAL REVIEW. COMPARE's Hospital Review Program is designed to reduce a client's hospitalization costs by identifying (for the purposes of benefit plan coverage only) hospital admissions and lengths of stay which can be considered medically unnecessary or excessive compared to established national criteria. COMPARE's Hospital Review Program involves a review by COMPARE personnel of the medical necessity of proposed hospital admissions under the participant's benefit plan, as well as the proposed length of a patient's stay. Additionally, COMPARE remains actively involved during the hospitalization in reviewing and monitoring the patient's length of stay. This same process is applied to workers' compensation admissions. CASE MANAGEMENT. The medical Case Management Program is designed to provide clients with a careful review of all cases which involve complex high cost or chronic diseases, conditions or catastrophic illnesses. Through periodic reviews, COMPARE's nurse case managers and physicians identify and inform benefit plan administrators of potentially large claim cases. If requested to do so by the plan administrator, COMPARE renders ongoing case management services for an hourly fee. These services consist primarily of conferring with the attending physician and other providers to identify cost-effective treatment alternatives. Such alternatives may include moving a patient from an acute care hospital to less expensive settings -- often the home -- as soon as the patient's physician determines that it is safe and medically feasible. If such a move requires a home nursing service or medical equipment, COMPARE serves as a referral for alternative available services, provides recommendations regarding continued usage of these services and negotiates discounts with the providers 11 12 where network providers are not appropriate or not available. In all cases, the decision as to whether to proceed with the course of treatment initially prescribed by the attending physician or the more cost-efficient alternative identified by COMPARE is made by the patient and his physician. Clients which select stand-alone case management independently identify those cases which involve potentially high cost diseases, conditions or procedures and refer such cases to COMPARE to identify cost-effective treatment alternatives. The factors considered in determining the appropriate level of clinical management include: - - The anticipated degree of case complexity. - - The intensity of resources needed to manage the case. - - The potential variability in cost, quality and/or clinical outcomes. COMPARE has defined three broad levels of case management intensity: - - TERTIARY CASE MANAGEMENT focuses on long-term or complex clinical scenarios for which there are significant quality, cost and clinical outcome risks. Cases that benefit from tertiary case management include those which involve multiple providers, complex or long-term treatment plans, multiple levels or sites of care, and an extended period of lost time. Tertiary case management requires the expertise of our most experienced registered nurses and frequently includes input from a COMPARE Medical Director. - - In comparison to tertiary case management, SECONDARY CASE MANAGEMENT focuses on less complex medical situations in which there are moderate cost, quality and clinical outcome risks. Cases which benefit from secondary case management include those with a need for coordination and management of medical services on an ongoing basis. - - PRIMARY CASE MANAGEMENT is the least complex level of intervention and focuses on short-term or episodic health care services. This level of case management intensity is appropriate for situations in which focused and limited involvement by COMPARE will achieve the optimal cost, quality and clinical outcome. The Medical Management process for Workers' Compensation keeps track of an injured worker's care and identifies opportunities for cost-effective alternative care and treatment with the goal of returning the worker to the client's work force or to reach Maximum Medical Improvement (MMI) as soon as medically feasible. The Medical Manager is responsible for the overall coordination of the many comprehensive services that may be needed, such as review of rehabilitation and chiropractic care, home health services and others, with a constant focus on the injured worker's ability to return to productivity. REFERRAL MANAGEMENT. For clients who prescribe to COMPARE's point-of-service program, referral to specialists is managed through the Clinical Management area. When a referral from a primary care physician to a specialist is required, a patient calls the toll-free telephone number. These referrals are reviewed and authorized for a specified period of time. 12 13 PPO REDIRECTION AND INFOLINE. For clients who prescribe to COMPARE's clinical management program and the AFFORDABLE Medical Network, COMPARE will attempt to redirect the patient to a PPO hospital or outpatient provider located near the patient. Additionally, the clients' participants can call PPO InfoLine to ascertain a network provider of their choosing who is within a reasonable proximity to their place of residence or work. By utilizing a PPO network hospital or outpatient provider, the payor and the patient will achieve savings from what the billed charges would otherwise be. ONCALL BY AFFORDABLE. This is a 24-hours-a-day, 7-days-a-week service that ties together the full range of COMPARE'S managed programs by providing participants with a single source for guidance through the health care delivery system. The services of this program include: - - Help members obtain answers to general medical questions; - - Assist members to make informed health care decision; - - Provide educational materials to increase member comprehension of diseases and treatments; - - Locate appropriate network providers; - - Facilitate communication between providers and members; - - Identify patient situations that may be appropriate for referral to Clinical Management Services; - - Initiate pre-certification for medical and mental health care; - - Answer claims questions and inquiries; and - - Answer pharmacy program questions or referrals. This service is offered to clients who participate in the full range of network and clinical management programs. OTHER CLINICAL MANAGEMENT PROGRAMS: - Managed Surgical Opinion - Prospective Chiropractic Review - Mental Health Review Services - Maternity Line - Disability Management - CHAMPUS Select PHYSICIAN RESOURCES COMPARE believes that its full-time in-house physician staff is an invaluable resource in its clinical management programs. The staff now includes experienced board certified physicians in such specialties as family practice, internal medicine, cardiology, gynecology, urology, orthopedics, psychiatry, pediatrics, and surgery as well as other doctoral level practitioners such as clinical psychology and chiropractic medicine. In addition, COMPARE has a nationwide network of consulting physicians in the significant specialties. This physician staff is crucial to the development and maintenance of up-to-date clinically valid review criteria and protocols and the network quality assessment efforts. This staff consults with first level reviewers, reviews cases which fail to meet criteria and discusses those and other complex cases with participants' attending physicians. INFORMATION SYSTEM Management of COMPARE believes that COMPARE's interactive, on-line computer-based information system has been a major factor in its ability to provide clients with healthcare cost management services. This information system is comprised of four parts: proprietary software, a 13 14 database of hospital utilization norms, a database of patient-specific information and an automated data reporting and transmission capability. COMPARE's proprietary software programs record and access patient and provider information. This allows COMPARE personnel to access utilization norms and standards as part of the review process or to analyze cost data in negotiating reimbursement rates with health care providers. COMPARE's proprietary software generates extensive internal reports to supplement the review process by informing reviewers when specific follow-up activities, such as case management screening, are required to be performed by COMPARE personnel. In addition, COMPARE's proprietary software also generates extensive reports for its clients. These reports typically itemize all cases reviewed or cases involving PPO services and detail the effectiveness of the services provided. If so requested, COMPARE will customize these reports to fit the needs of a particular client. The hospital utilization norms database consists of information against which COMPARE analyzes a participant's proposed treatment plan in order to determine whether the proposed length can be certified as medically necessary. This data base has been compiled from commercially available information. COMPARE has enhanced this database to include proprietary information derived from its experience in performing utilization management services. The patient-specific database consists of data that has been collected concerning each proposed hospital admission, including patient demographics, medical history and diagnostic and procedural information. COMPARE's review personnel can access the current status of the patient's case to identify more cost-effective treatment alternatives. Currently the Company is in the midst of a major system rewrite and enhancement to its utilization management information systems. COMPARE's information system also has the capability of sending machine-readable computer tapes or information by electronic transfer directly to the computers of third party payors and/or clients in order to expedite claims administration. All correspondence confirming COMPARE's recommendations with respect to a prescribed treatment plan is automatically generated and sent to the attending physician, participant and plan administrator by the system. OUCH SYSTEMS The Company provides comprehensive workers' compensation medical bill review services through a sophisticated computer system that enforces administration policies, applies state specific workers' compensation fee schedules, checks for billing infractions and applies provider contract discounts. Since all of these functions are consolidated and automated, the Company believes it reduces paperwork and costs associated with claims processing and is highly cost effective for larger workers' compensation entities who generally process in excess of 100,000 bills annually. Since these system capabilities are integrated with its utilization management and PPO services, the Company believes it offers one of the most comprehensive workers' compensation medical cost management programs in the industry. OUCH's workers' compensation program was introduced in California in 1986. MARKETING. COMPARE markets the workers' compensation programs to insurance carriers, third party administrators, state workers' compensation funds, and self-insured, self-administered companies. The Company's payor clients include at least some offices of six of the ten largest workers' compensation insurers and the largest industrial company in the world. Worksite posters, provider 14 15 directories (either paper or electronic) and other materials provided by its payor clients encourage injured employees to utilize The AFFORDABLE provider network. BILL REVIEW. Services offered by the Company include a computer assisted review of medical provider billings to ensure accuracy and adherence to established rates and billing rules. In 40 states, including California, Texas, Arizona, Michigan, Ohio and Florida, a schedule of presumed maximum fees (fee schedule) has been established for workers' compensation medical claims. The review process corrects errors a provider makes in applying these fee schedules. OUCH Systems also reviews whether the appropriate level of service was billed. Provider network discounts are applied as well during the review. Additionally, through the system, we are able to go beyond "traditional" bill review services to provide enhanced systems savings by reorganizing non-related services, upcoding and unbundling of charges and other features. Finally, bill review data is integrated with medical management and quality assessment activities. An agreement was entered into with Electronic Data Systems Corporation ("EDS") primarily to utilize its extensive data processing and communications networks. EDS modified its comprehensive bill review and audit processing system to handle workers' compensation claims and integrated the system with COMPARE'S clinical management programs. Systems development occurred throughout the latter half of 1989, with operations beginning in the first quarter of 1990. Bill Review decreases workers' compensation payors' administrative costs because HealthCare COMPARE Corp. maintains virtually all aspects of the program, including: - - Technical support through a technical response help desk - - User training and documentation - - Database management - - The ability to process from single or multiple sites. HealthCare COMPARE Corp. offers three variations of the Bill Review program: - - Systems Lease: The systems technology is brought to the client's office where their staff performs bill review. - - Service Bureau: Bills are sent to COMPARE'S processing centers and COMPARE keys the bills and performs bill review. - - EDI Service Bureau: Clients electronically transmit key data elements to COMPARE and COMPARE performs bill review. COMPENSATION. The Company generally receives an agreed upon percentage of total savings generated for clients through bill reviews plus a per-bill fee, including provider network discounts, adjustments to applicable billing rules and regulations and utilization reviews. Savings are generally calculated as the difference between the amount medical providers bill OUCH Systems' payor clients and the amount COMPARE recommends for payment. CUSTOMERS AND MARKETING COMPARE primarily markets its services to national multi-sited direct accounts, including self-insured employers, government employee groups and multi-employer trusts. In addition, COMPARE 15 16 markets its services to and through group health and workers' compensation insurance carriers and third party administrators. The following are representative customers of COMPARE: Arthur J. Gallagher & Co. American Postal Workers Union Health Plan American Chambers Insurance Company Boilermakers National Trust and Welfare Fund Celtic Life Insurance Company ConAgra, Inc. First Health Strategies, Inc. (ALTA) General Motors Corporation Government Employees Hospital Association Kemper National Insurance Company Liberty Mutual Insurance Company McDonald's Corporation NALCO Chemical Company National Association of Letter Carriers National Health Laboratories, Inc. Norwest Corporation Pacific Telesis Group R. E. Harrington, Inc. RETA Trust Sedgwick James State Farm Mutual Automobile Insurance Company Texas Instruments The Sherwin-Williams Company Travelers/AETNA United Airlines, Inc. Walgreen Company Wausau Insurance Companies COMPARE presently has 50 group health and workers' compensation insurance carrier clients. Typically, COMPARE enters into a master service agreement with an insurance carrier under which COMPARE agrees to provide its cost management services to health care plans maintained by the carrier's policyholders. COMPARE's services are offered not only to new policyholders, but also to existing policyholders at the time their policies are renewed. The insurance carrier's sales and marketing staff ordinarily has the responsibility for offering COMPARE's services to its policyholders, thus relieving COMPARE of a significant marketing expense. COMPARE typically enters into standardized service contracts with its direct accounts and master service agreements with its insurance carrier and third party administrator clients. These contracts and agreements have automatically renewable successive terms of between one and three years, and are generally terminable upon one to six months' notice prior to their expiration. These contracts are generally non-exclusive and permit the client to provide medical review services on an in-house basis; however, these contracts are generally exclusive as to the client's ability to use other PPO firms during their term. During 1994 and 1995, the Company's contract with Government Employees Hospital Association (a plan covering certain government employees) accounted for 14% and 13%of revenues, respectively. Additionally, during 1995 the Company had a contract with the National Association of Letter Carriers (a plan covering certain federal government employees) which accounted for 10% of revenue in 1995. No customer accounted for 10% of the Company's revenues, individually, during 1996. 16 17 INTEGRATED PRODUCTS The Company has introduced a number of new services during the last few years that incorporate various features of COMPARE's clinical management and PPO services in order to provide clients increased opportunities for medical cost savings. Common characteristics of these new services include: - More aggressively managed and more selective provider networks. - More aggressive risk sharing financial arrangements with providers. - Improved communication and linkage with members and participants. - Longer term contracts with providers. - Intensive medical case management intervention. These programs constitute important elements of the Company's risk products and programs it is in the process of introducing. MANAGED TRANSPLANT SYSTEM. As medical technology advances, new and more complicated procedures, such as transplants, have been developed. In an attempt to assist the Company's clients in meeting these technological advances and their related costs, COMPARE has developed The Managed Transplant System. This program has been designed to facilitate the cost-effective use of high quality transplant services through an integrated system whereby case management staff assists in the coordination of the process from the determination of the need for a transplant through follow up care for one year after the transplant is performed. The goals of The Managed Transplant System include: - - Enhancing quality of care and favorable outcomes through case management and direction of patients to a selected number of transplant programs that meet stringent quality and performance standards; - - Reducing health care costs by contracting a cost-effective package rate with high quality transplant centers that have a proven performance record of desirable outcomes; - - Improving predictability of transplant costs by establishing fixed fees that share risk with the providers and spread payment out over a one-year period. This program requires clients to implement special benefit plan provisions designed to enhance participation in the system. The Managed Transplant System enables clients to consider covering their insureds for transplant procedures of proven medical value. The program includes a coordination by case managers to assist patients, their families and our clients throughout the process. Furthermore, by using network facilities and providers, the patient is treated by providers with a proven track record for quality care. A case manager is involved in the case from the time the need for a transplant has been identified through one year following the surgery. The intensity of case management involvement varies, depending on the complexity of the case. 17 18 Transplants included in the program include: heart, lung, heart/lung, liver, kidney, kidney/pancreas and bone marrow (both allogenic and autologous). MANAGED PHARMACY PROGRAM. COMPARE has developed a Managed Pharmacy Program designed to assist clients in reducing health care costs through negotiated pricing for pharmaceutical products, a drug formulary, and case management services. Pharmacy related costs are one of the fastest growing components of medical care. As part of developing this program, the Company has integrated the Managed Pharmacy Program with its Hospital Networks and Outpatient Care Networks. This blending of networks provides additional benefits by increasing the cost effectiveness of physician prescribing habits and encouraging patients to purchase medications from network providers. To provide a more complete and effective medical cost management system, the Company has linked the Managed Pharmacy Program with COMPARE's case management services to identify high utilizers of prescription drugs, to intervene where appropriate for case management services and to encourage the adoption of cost effective treatment plans. This approach identifies alternatives which enable our clients and their members to control potentially unnecessary medical costs not only for pharmacy expenses, but also for other medical and behavioral health treatment services. COMPARE POINT OF SERVICE PROGRAM. The Point of Service Program is comparable to a "gatekeeper" approach whereby primary care physician (PCP) coordinates his/her patients' use of the health care system. The traditional gatekeeper approach has been set up to attain two major objectives: (1) to coordinate and manage a patient's course of treatment and (2) to control costs and utilization. The Company has developed a program to more effectively address both client objectives for, and drawbacks to, current approaches. In addition to coordinating the course of treatment and controlling costs and utilization, the objectives of the Company's Point of Service Program are to: - - Support primary care physicians in their role as patient advocate while enhancing their expertise through COMPARE's extensive clinical resources. - - Reward primary care physicians with a reimbursement program that fairly compensates them for the time which they invest in managing cost-effective patient treatment; - - Encourage the use of primary care network providers as the first course of treatment and network providers, in general, as required; - - Provide early case identification of complex or chronic patients who could benefit from case management intervention; and, - - Maintain the element of choice for the patient's selection of their physician. MANAGED MATERNITY SYSTEM. The Managed Maternity System is designed to reduce the high incidence of premature labor and to achieve high quality, cost-effective prenatal care through the integration of maternity case management with a special network of providers. The program 18 19 encompasses all expectant mothers--patients expected to have a normal delivery as well as mothers at high risk for maternal and/or fetal complications (premature birth). The goals of the program are to: - - Encourage patients' use of cost effective, high quality network providers; - - Work cooperatively with network physicians so that quality care is provided in the most appropriate and least costly manner; - - Monitor maternity care provided from the first trimester through delivery and continuing with identified infant services through the first year of life; - - Identify mothers who may be at high risk for pregnancy complications and/or pre-term birth for early maternity management services; - - Promote positive outcomes for mothers and infants through patient and physician education and reimbursement incentives. The maternity case management component of the program includes: initial and follow-up risk assessments; ongoing patient and physician education; case management coordination of services for mothers with pregnancy complications; provision of ongoing support to high risk patients and for infants with serious medical complications and/or conditions during the first year of life. The network is composed of: obstetricians who have agreed to accept packaged rates and have met special credentialing criteria, including adherence to the American College of Obstetrics and Gynecology (ACOG) guidelines; neonatologists; perinatologists; home health agencies which can provide high tech home care; and hospitals with obstetrical services and level 2 and 3 nurseries. The package rates include two types of payment: one is a blend of C-section/normal delivery rate, and the other is a high risk rate for cases that demand intensive oversight by the patient's obstetrician. The obstetricians contract for these set rates, and COMPARE determines on a case-by-case basis which rate is appropriate. RISK PRODUCTS AND INSURANCE COMPANY ACQUISITION As an extension of the Company's cost management services, in February 1996 the Company acquired American Life and Health Insurance Company and a subsidiary insurance company (collectively, "American"). American is a small medical indemnity insurer with licenses in 26 states and approximately $8 million in annual premiums. The maximum purchase price will be approximately $11.5 million, subject to the satisfaction of certain contingencies. The acquisition was accounted for as a purchase. The Company acquired American in order to obtain the infrastructure and licenses to enable the Company to leverage its managed care assets into various medical plans for multi-sited employers. The medical plans will provide employers HMO-like performance due to the effect of COMPARE'S provider networks and medical management expertise which have been developed over the last decade. 19 20 In 1996, American's A. M. Best rating was upgraded to A- from B+. The Company also is seeking to acquire a 49-state licensed insurance company (which has ceased writing new business and whose existing policies will be fully reinsured) in order to expand the states in which the Company can do business. COMPARE has developed, in conjunction with its risk products users, a single source of accountability for all elements of their health plan, and all at a guaranteed cost. The Company calls this product "The Total Cost Guarantee". The Company's product promotes the continuity of care through a single point of entry into the health care delivery system. By calling OnCall by AFFORDABLE, the 24-hour, seven days a week toll-free number, employees can obtain information on all aspects of their health benefit program. This includes information ranging from preventative care and claims status, to inquiries regarding network providers and benefit plan coverage. The program integrates the Company's PPO network of providers, the AFFORDABLE Medical Networks, with Clinical Management Programs. Access to our national network of providers, including specialty and sub-specialty care such as Maternity and Transplant, gives unparalleled provider coverage not only locally but throughout the country. Claims administration is provided through the Company's internal capabilities, which have been developed since the time of the American acquisition, and is integrated throughout the entire process so as to take advantage of the potential synergies and competencies. For a single guaranteed cost, the Company's clients can be assured of a comprehensive health care benefit plan that ensures the earliest possible impact on patient care which provides a higher quality of employee healthcare at a lesser cost. Plan Design In each employer's case, the Company will require adoption of a benefit plan with significant out-of-pocket costs be assumed by the employee if they access a non-contracted PPO provider (generally a 30% differential). Program Features The Company's risk products generally include the following: - - All medical claims incurred during the effective plan year. - - All managed care fees, including complete Clinical Management Programs and 24-hour, 7-day OnCall by AFFORDABLE program. - - Employee communications. - - Access to The AFFORDABLE Medical Networks. - - Claims administration services. - - Premium for aggregate stop loss policy. - - All implementation fees. 20 21 - - The Company's Managed Pharmacy Program. - - The Company's Managed Transplant Program. - - The Company's Managed Maternity Program. COMPETITION COMPARE competes in a highly fragmented market with national and local firms specializing in utilization review and PPO cost management services and with major insurance carriers and third party administrators which have implemented their own internal cost management services. In addition, other health care programs, such as HMOs, compete for the enrollment of benefit plan participants. COMPARE is subject to intense competition in each market segment in which it competes. Many of COMPARE's competitors are significantly larger and have greater financial and marketing resources than COMPARE. COMPARE competes on the basis of the quality and cost-effectiveness of its programs, its proprietary computer-based information system and its emphasis on commitment to service and high degree of physician involvement. Due to the quality of the services offered, COMPARE tends to charge more for its services than many of its competitors. The insurer market for workers' compensation programs is somewhat concentrated with the top ten insurers controlling over 50% of the insured market. The loss or addition of any one of these insurers could have a material impact on revenues. OUCH currently has as clients at least some offices of six of the top ten insurers. While experience differs with various clients, obtaining a new client requires extended discussions and significant time. EMPLOYEES As of December 31, 1996, COMPARE had approximately 1,500 employees, including approximately 290 employees involved in PPO negotiations and development; 290 involved with bill review and claims pricing activities; 260 employees in various review and quality assessment activities; 200 in information systems, 180 in sales and marketing and the remainder involved with accounting, human resources, client services, and other administrative, support and executive functions. COMPARE also has a nationwide network of conferring physicians in various specialties, most of whom are compensated on an hourly or per visit basis when requested by COMPARE to render consulting services. None of the Company's employees are presently covered by a collective bargaining agreement. The Company considers its relations with its employees to be good. GOVERNMENT REGULATIONS AND RISK MANAGEMENT The Company believes that its methods of operation are in compliance with applicable laws, including statutes and regulations relating to PPO and clinical management operations. Although COMPARE believes that its level of Directors' and Officers' and Errors and Omissions insurance coverage is appropriate, no assurance can be given that insurance coverage would protect it from loss in the event of any litigation or adverse interpretation of statutes and regulations by governmental or other bodies. Further, there is no assurance that such insurance will be available at all times in the future. 21 22 ITEM 2. PROPERTIES COMPARE owns three office buildings consisting of approximately 385,000 square feet of space. One is in Downers Grove, Illinois where the Company is headquartered, and the other two are in West Sacramento, California and Scottsdale, Arizona (purchased in January, 1997). These locations house the majority of the Company's colleagues. Additionally, the Company leases facilities in the Detroit, Dallas, Atlanta, Boston and New York City areas. The remaining locations' leases represent less than 50,000 square feet. All of the Company's buildings and equipment are being utilized, have been maintained adequately and are in good operating condition. These assets, together with planned capital expenditures, are expected to meet the Company's operating needs in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS COMPARE is subject to various legal proceedings arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these pending suits will not have a material adverse effect on the business or financial condition of COMPARE. In January 1996, the Seventh Circuit Court of Appeals reversed the United States District Court and dismissed all counts of a consolidated class action complaint filed against the Company and two of its executive officers. The dismissed complaint, which alleged violations of the federal securities laws, was filed in April 1993, purportedly on behalf of all persons who purchased the Company's common stock between December 28, 1992 and March 30, 1993. The plaintiffs declined to appeal this decision. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the year ended December 31, 1996. 22 23 EXECUTIVE OFFICERS OF THE COMPANY NAME AGE POSITION ------------------- --- -------------------------------------------- James C. Smith 56 President and Chief Executive Officer Daniel Brunner 53 Executive Vice President, Government Affairs Mary Anne Carpenter 51 Executive Vice President, Service Products A. Lee Dickerson 47 Senior Vice President, Provider Networks and OUCH Systems Administration Patrick G. Dills 43 Executive Vice President, Managed Care Sales Ronald H. Galowich 61 Secretary Lottie A. Kurcz 42 Senior Vice President, Risk Products Susan T. Smith 46 General Counsel Joseph E. Whitters 38 Vice President, Finance and Chief Financial Officer Edward L. Wristen 45 Executive Vice President, Risk Products James C. Smith has served as President and Chief Executive Officer and director of COMPARE since January, 1984. Daniel Brunner, a director of the Company, has been Executive Vice President, Government Affairs since January, 1994. Prior to that, he was Corporate Operating Officer in charge of government affairs since February, 1992. Mr. Brunner has served as President of AFFORDABLE since April, 1983. Mary Anne Carpenter has held various senior management positions in the Company. In March, 1994, she became Executive Vice President, Clinical Operations and Claims Repricing. Prior to joining the Company, Ms. Carpenter held various positions in the health care industry. A. Lee Dickerson joined HealthCare COMPARE Corp. in 1988 as Regional Director, Hospital Contracting. Mr. Dickerson was promoted into his current position in November 1995. Previously he held various senior level positions in the Company's Provider Networks area. Mr. Dickerson has over 20 years experience in the health care industry. Patrick G. Dills joined HealthCare COMPARE Corp. in 1988 as Senior National Director, Sales and Marketing. Mr. Dills was promoted to Executive Vice President, Managed Care Sales in January, 1994. Prior to joining COMPARE, Mr. Dills held various senior sales positions at M&M/Mars, and various divisions of Mars, Inc. for the prior six years. 23 24 Ronald H. Galowich has served as Secretary of the Company since 1983, General Counsel from 1983 to March, 1997, Executive Vice President of the Company from 1983 to May, 1994 and Chairman of the Board of Madison Group Holdings, Inc., a multipurpose business and investment company, since 1990. Lottie A. Kurcz joined HealthCare COMPARE Corp. in 1986 as Manager of National Accounts. Since joining COMPARE, Ms. Kurcz has held various senior sales and marketing positions; and prior to her promotion in January, 1994 to Senior Vice President, Risk Products and Product Management, she was Vice President, Marketing. Prior to joining COMPARE, Ms. Kurcz held various senior positions in private industry. Susan T. Smith has served as and General Counsel of the Company since February, 1997. She was Associate General Counsel from September 1994 and joined the Company in July 1992. Prior to joining COMPARE, Ms. Smith was a partner in a large Denver law firm where she headed the firm's healthcare law practice. Joseph E. Whitters joined the Company as Controller in October, 1986 and has served as its Vice President, Finance since August, 1987 and its Chief Financial Officer since March, 1988. Edward L. Wristen joined COMPARE in November, 1990 as Director of Strategic Planning and was promoted to Vice President, Managed Outpatient Care Programs, in April, 1991. In February, 1992, he became Executive Vice President and Corporate Operating Officer in charge of Provider Networks. In January, 1994, Mr. Wristen became Executive Vice President, Risk Products. Prior to joining COMPARE, Mr. Wristen was President of Parkside Data Services, a subsidiary of Parkside Health Management Corporation, a firm engaged in data and analytic services, from March, 1989 to November, 1990. From February, 1987 to February, 1989 Mr. Wristen was Chief Operating Officer and Executive Vice President of Addiction Recovery Corporation, a regional chain of chemical dependency hospitals. Mr. Wristen has over 18 years experience in the health care industry. The Company's officers serve at the discretion of the Board of Directors. 24 25 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock has been on the Nasdaq National Market under the symbol "HCCC" since the Company's initial public offering on May 29, 1987. Information concerning the range of high and low sales prices of the Company's Common Stock on the Nasdaq National Market and the approximate number of stockholders of record of the Common Stock is set forth under "Common Stock" in the Company's 1996 Annual Report to Stockholders. Information concerning the Company's dividend policy is set forth under "Dividend Policy" in the Company's 1996 Annual Report to Stockholders. All of such information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data of the Company for each of its last five fiscal years is set forth under "Selected Financial Data" in the Company's 1996 Annual Report to Stockholders. Such information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information required by this item is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements required by this item are contained in the Company's 1996 Annual Report to Stockholders on the pages indicated below and are incorporated herein by reference. FINANCIAL STATEMENTS: PAGE NO. -------- Report of Independent Auditors 23 Consolidated Balance Sheets as of December 31, 1995 and 1996 24 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 25 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 26-27 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 28-29 Notes to Consolidated Financial Statements 30-36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 25 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain of the information respecting executive officers required by this Item is set forth under the caption "Executive Officers of the Company" in Part I. Other information respecting executive officers, as well as the required information regarding directors, will be included in the Proxy Statement for the Company's Annual meeting of Stockholders to be held on May 20, 1997 (the "Proxy Statement"), and such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference provided, however, that neither the Report of the Compensation Committee of the Board of Directors on Executive Compensation nor the Performance Graph set forth therein shall be incorporated by reference herein, in any of the Company's previous filings under either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or in any of the Company's future filings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. 26 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. a) The following documents are filed as part of this report: (1) The Index to Financial Statements is set forth on page 25 of this report. (2) Financial Statements Schedule: Schedule II - Valuation and Qualifying Accounts and Reserves. (3) Exhibits (b) Report on Form 8-K: The Company did not file a current report on Form 8-K during the last quarter of fiscal 1996. 27 28 HEALTHCARE COMPARE CORP. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additions Balance at Charged to Adjustments Balance at Beginning Costs and and End of Description of Period Expenses Charge-offs Period - --------------------------------- ---------- ---------- ------------ ---------- Year Ended December 31, 1996: - --------------------------------- Allowance for Doubtful Accounts $2,807,000 $(200,000) $( 34,000) $2,573,000 ========== ========== ============ ========== Accrued Restructuring Expenses $1,436,000 $69,000 $(364,000) $1,141,000 ========== ========== ============ ========== Year Ended December 31, 1995: - --------------------------------- Allowance for Doubtful Accounts $3,874,000 $(620,000) $(447,000) $2,807,000 ========== ========== ============ ========== Accrued Restructuring Expenses $2,570,000 $(100,000) $(1,034,000) $1,436,000 ========== ========== ============ ========== Year Ended December 31, 1994: - --------------------------------- Allowance for Doubtful Accounts $4,106,000 $505,000 $(737,000) $3,874,000 ========== ========== ============ ========== Accrued Restructuring Expenses $2,906,000 $700,000 $(1,036,000) $2,570,000 ========== ========== ============ ==========
28 29 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders HealthCare COMPARE Corp. Downers Grove, IL 60515 We have audited the consolidated financial statements of HealthCare COMPARE Corp. as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996 and have issued our report thereon, dated February 17, 1997; such consolidated financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of HealthCare COMPARE Corp. listed in Item 14. This consolidated financial statement schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion based upon our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Chicago, IL February 17, 1997 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HEALTHCARE COMPARE CORP. By: /s/James C. Smith James C. Smith, President and Chief Executive Officer Date: March 25, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 25, 1997: SIGNATURE TITLE ------------------------- --------------------------------------------- /s/Thomas J. Pritzker * Chairman of the Board ------------------------- Thomas J. Pritzker /s/James C. Smith President, Chief Executive Officer, ------------------------- Director (Principal Executive Officer) James C. Smith /s/Robert J. Becker, M.D. * Chairman Emeritus ------------------------- Robert J. Becker, M.D. /s/Joseph E. Whitters * Chief Financial Officer ------------------------- (Principal Financial and Accounting Officer) Joseph E. Whitters /s/Ronald H. Galowich * Secretary ------------------------- Director Ronald H. Galowich /s/Michael J. Boskin * Director ------------------------- Michael J. Boskin /s/Burton W. Kanter * Director ------------------------- Burton W. Kanter /s/David Simon * Director ------------------------- David Simon /s/Daniel Brunner * Executive Vice President, Government Affairs, ------------------------- Director Daniel Brunner /s/Robert S. Colman * Director ------------------------- Robert S. Colman /s/Harold S. Handelsman * Director ------------------------- Harold S. Handelsman /s/Don Logan * Director ------------------------- Don Logan * By: /s/ Joseph E. Whitters Joseph E. Whitters, Attorney in Fact 29 31 INDEX TO EXHIBITS
Exhibit No. Description ----------- ----------- 2.1. Omitted 3.1. Restated Certificate of Incorporation of the Company. {3.1} (1) 3.2. Amendment to Restated Certificate of Incorporation of the Company. {3.2} (9) 3.3. Restated Certificate of Designation of Preferences, Rights and Limitations. {3.2} (1) 3.4. Amended and Restated By-Laws of the Company. {3.3} (1) 3.5. Amendment, dated as of May 20, 1987, to Amended and Restated By-Laws of the Company {3.4} (2) 3.6. Amendment to Amended and Restated By-Laws of the Company.{3.5} (6) 3.7. Amendment to Amended and Restated By-Laws of the Company.{3.6} (6) 4. Specimen of Stock Certificate for Common Stock. {4} (2) 9. Omitted 9.1. Omitted 9.2. Omitted 10.1 to 10.10. Omitted 10.11. HealthCare COMPARE Corp. 1987 Stock Option Plan, as amended and restated. {4} (5) 10.12. Amendment No. 1 to HealthCare COMPARE Corp. Stock Option Plan, as amended and restated {10.12} (6) 10.13.-10.24 Omitted 10.25. Form of Consulting Physician Agreement, {10.20} (2) 10.26. Form of Consulting Specialist Agreement. {10.21} (2) 10.27-10.35. Omitted
30 32
Exhibit No. Description ----------- ----------- 10.36. HealthCare COMPARE Corp. 1989 Employee Stock Purchase Plan. {10.36} (7) 10.37-10.45. Omitted 10.46. Employment Agreement dated as of May 23, 1991 by and between COMPARE and Joseph E. Whitters {10.46} (10) 10.47.-10.53 Omitted 10.54. Form of Indemnification Agreement entered dated June 19, 1989 between OUCH and executive officers and directors of OUCH (Incorporated by reference to Exhibit B of definitive proxy materials filed by OUCH with the SEC on April 7, 1989) {10.54} (11) 10.55-10.62. Omitted 10.63. Agreement dated as of May 26, 1989 between OUCH and Electronic Data Systems Corporation (Incorporated by reference of Exhibit 10.17 of Annual Report on Form 10-K for the fiscal year ended December 31, 1989 filed by OUCH with the SEC on March 16, 1990) {10.63} (11) 10.64.-10.66 Omitted 10.67. Employment Agreement dated as of April 3, 1991 by and between COMPARE and Edward L. Wristen. {10.67} (13) 10.68. Omitted 10.69. Second Restatement of the HealthCare COMPARE Corp. Retirement Savings Plan. {10.69} (14) 10.70. HealthCare COMPARE Corp. Director's Option Plan dated May 23, 1991. {10.70} (14) 10.71. HealthCare COMPARE Corp. Stock Option Plan (for employees of OUCH). {10.71} (14) 10.72. Employment Agreement dated as of July 1, 1993 by and between COMPARE and James C. Smith. {10.72} (15) 10.73. Option Agreement dated as of July 1, 1993 by and between the Company and James C. Smith. {10.73} (15)
31 33
Exhibit No. Description ----------- ----------- 10.74. Option Agreement dated as of July 1, 1993 by and between the Company and James C. Smith. {10.74} (15) 10.75. Option Agreement dated as of July 1, 1993 by and between the Company and James C. Smith. {10.75} (15) 10.76. Employment Agreement dated as of July 1, 1993 by and between COMPARE and Daniel S. Brunner. {10.76} (15) 10.77.-10.79 Omitted 10.80. PPO Agreement dated January 1, 1996 between the Company and Government Employees Hospital Associations, Inc. {10.80} 10.81. PPO Agreement dated October 1, 1990 between the Company and National Association of Letter Carriers. {10.81} 10.82 First Combined Amendment to the PPO Agreement, each dated October 1, 1990, between AFFORDABLE HealthCare Concept and National Association of Letter Carriers Health Benefit Plan. 10.83 Second Amendment to the PPO Agreement, each dated October 1, 1990, as amended between AFFORDABLE HealthCare Concept and National Association of Letter Carriers Health Benefit Plan. 10.84 Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp. and National Association of Letter Carriers. 10.85 First Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp. and National Association of Letter Carriers. 10.86 Second Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp. and National Association of Letter Carriers. 10.87 Third Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp. and National Association of Letter Carriers. 10.88 Fourth Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp. and National Association of Letter Carriers.
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Exhibit No. Description ----------- ----------- 10.89 Fifth Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp. and National Association of Letter Carriers. 10.90 Retainer Agreement dated January 1, 1994 between HealthCare COMPARE Corp. and Ronald H. Galowich. 10.91 Employment Agreement dated July 1, 1992 between HealthCare COMPARE Corp. and Lottie A. Kurcz. 10.92 Employment Agreement dated May 23, 1991 between HealthCare COMPARE Corp. and Mary Anne Carpenter. 10.93 Employment Agreement dated August 21, 1990 between HealthCare COMPARE Corp. and Patrick G. Dills. 10.94 HealthCare COMPARE Corp. 1995 Employee Stock Option Plan. (4.1) {18} 10.95 Employment Agreement dated January 1, 1997 between HealthCare COMPARE Corp. and James C. Smith. 10.96 Option Agreement dated as of January 1, 1997 by and between The Company and James C. Smith. 10.97 Option Agreement dated as of January 1, 1997 by and between The Company and James C. Smith. 10.98 Option Agreement dated as of January 1, 1997 by and between The Company and James C. Smith. 10.99 Agreement dated as of September 1, 1995 between HealthCare COMPARE Corp. and Electronic Data Systems. 11. Statement of computation of earnings per share. 13. 1996 Annual Report to Stockholders. 22. Subsidiaries of the Company. 23. Consent of Deloitte & Touche LLP 24. Powers of Attorney of certain officers and directors of the Company. 27. Financial data schedules of the Company.
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Exhibit No. Description ----------- ----------- { } Exhibits so marked have been previously filed with the Securities and Exchange Commission as exhibits to the filings shown below under the exhibit number indicated following the respective document description and are incorporated herein by reference. (1) Registration Statement on Form S-1 ("Registration Statement"), as filed with the Securities and Exchange Commission on April 17, 1987. (2) Amendment No. 2 to Registration Statement, as filed with the Securities and Exchange Commission on May 22, 1987. (3) Amendment No. 3 to Registration Statement, as filed with the Securities and Exchange Commission on May 29, 1987. (4) Annual Report on Form 10-K for the fiscal year ended August 31, 1987, as filed with the Securities and Exchange Commission on November 27, 1987. (5) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on January 12, 1988. (6) Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on July 12, 1988. (7) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on January 18, 1989. (8) Annual Report on Form 10-K for the year ended August 31, 1989, as filed with the Securities and Exchange Commission on November 28, 1989. (9) Annual Report on Form 10-K for the year ended December 31, 1990, as filed with the Securities and Exchange Commission on March 30, 1991. (10) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on November 1, 1991. (11) Registration Statement of Form S-4, as filed with the Securities and Exchange Commission on January 27, 1992. (12) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on March 4, 1992. (13) Annual Report on Form 10-K for the year ended December 31, 1991 as filed with the Securities and Exchange Commission on March 27, 1992. (14) Annual Report on Form 10-K for the year ended December 31, 1992 as filed with the Securities and Exchange Commission on March 26, 1993.
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Exhibit No. Description ----------- ----------- (15) Annual Report on Form 10-K for the year ended December 31, 1993 as filed with the Securities and Exchange Commission on March 25, 1994. (16) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on December 27, 1994. (17) Annual Report on Form 10-K for the year ended December 31, 1994 as filed with the Securities and Exchange Commission on March 24, 1995. (18) Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1995. (19) Annual Report on Form 10-K for the year ended December 31, 1995 as filed with the Securities and Exchange Commission on March 27, 1996.
35 EX-10.95 2 EMPLOYMENT AGREEMENT, 1/1/97 1 Exhibit 10.95 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of January, 1997, by and between James C. Smith (the "Employee") and HealthCare COMPARE Corp., a Delaware corporation (the "Company"). IN CONSIDERATION of the mutual promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Employment. The Company hereby employs the Employee, and the Employee hereby accepts employment with the Company, upon the terms and subject to the conditions hereinafter set forth. 2. Duties. The Employee is employed as the President and Chief Executive Officer of the Company and shall render his services at the principal business offices of the Company in Downers Grove, Illinois, unless otherwise agreed by him and the Board of Directors of the Company. The Employee shall have such authority and shall perform such duties as are customary for the office to which he has been appointed, including, without limitation, the full authority to conduct and direct the day-to-day operations of the Company, subject to such limitations, instructions, directions and control as the Board of Directors of the Company or the Chairman of the Board of the Company (acting at the direction or with the authority of the Board of directors) may specify from time to time. He shall not otherwise devote time to the active pursuit of any other business enterprise, nor shall he have any interest in any business enterprise which is competitive with or adverse to the Company, whether as an employee, officer, director, consultant, creditor, security holder or otherwise (except to the extent permitted in Paragraph 8 hereof). The foregoing notwithstanding, the Employee shall be entitled to belong to and participate in professional organizations and to engage in professional activities in furtherance of the Company's business. 3. Term. The term of Employee's employment under this Agreement shall commence on January 1, 1997 and shall terminate on December 31, 1999 unless otherwise terminated in accordance with the terms hereof. 4. Compensation. As compensation for the services rendered hereunder, the Employee shall be entitled to receive the following: a. Base Salary. Commencing as of the date of this Agreement, Employee shall receive an annual salary of $900,000 ("Base Salary") payable in installments at such times and in such manner as may from time to time be in effect for executives of the Company, but not less often than monthly. The Base Salary payable to Employee in 1998 and 1999 shall be increased in each such year by an amount equal to the amount of the percentage increase, if any, in the Consumer Price Index (as defined herein) during the previous calendar year. Consumer Price Index ("CPI") means the U.S. City Averages for all Urban Consumers, All Items, (1982-1984 = 100) of the United States Bureau of Labor Statistics. The CPI for any calendar year shall be determined by averaging the monthly indices for that year. If the Bureau of Labor Statistics substantially revises the manner in which the CPI is determined, an adjustment shall 2 2 be made in the revised index which would produce results equivalent, as nearly as possible, to those which would be obtained if the CPI had not been so revised. If the 1982-1984 average shall no longer be used as an index of 100, such change shall constitute a substantial revision. If the CPI becomes unavailable to the public because publication is discontinued or otherwise, the Company and the Employee shall substitute therefor a comparable index based upon changes in the cost of living or purchasing power of the consumer dollar published by any other governmental agency or, if no such index is available, then a comparable index published by a major bank, other financial institution, university or recognized financial publication. b. Additional Compensation. As soon as practicable after the end of each fiscal year of the Company during the term of this Agreement commencing with the year ending December 31, 1997 in which the earnings per share of Common Stock of the Company for such fiscal year (determined in accordance with generally accepted accounting principles) ("EPS") increases by at least 10% from the EPS for the immediately preceding fiscal year (the "Threshold Increase"), the Employee shall receive additional compensation in an amount equal to the product obtained by multiplying $36,000 by each percentage point (or fraction thereof) by which EPS for such year exceeds the Threshold Increase. By way of example, if EPS for 1997 increases by 8% from EPS for 1996, no additional compensation will be payable to the Employee; if EPS for 1997 increases by 21.5% from EPS for 1996, additional compensation in the amount of $414,000 i.e., ($36,000 x 21.5% - 10%) will be payable to the Employee. For purposes of this Agreement, EPS shall be adjusted in an appropriate manner in the event of any stock split, stock dividend or similar change in the Common Stock during the term of this Agreement. 5. Stock Options. Effective upon the execution and delivery of this Agreement the Company shall grant to the Employee options to purchase shares of Common Stock of the Company, each such option to be on the terms and subject to the conditions of the respective stock option agreements (the "Option Agreements") to be entered into between the Company and the Employee, the forms of which are attached hereto as Exhibits 1, 2 and 3. 6. Benefits. a. Benefits During the Term of this Agreement. In addition to the compensation to be paid to the Employee pursuant to Paragraph 4 hereof, the Employee shall be entitled to participate in all employee benefit programs currently maintained by the Company as such programs may be modified from time to time and each such other program or policy established by the Company from time to time during the term of this Agreement for its employees and executives generally (to the extent that it is more favorable to the Employee than an existing program covering the same benefit). Employee shall be entitled to an annual paid vacation of four weeks during each year of employment hereunder. Unused vacation time shall accumulate from year to year, but in no event shall the Employee be entitled to accumulate more than eight week of vacation time. b. Benefits After the Term of this Agreement. The Company hereby confirms the agreement contained in that certain Employment Agreement, dated as of July 1, 1993 between Employee and the Company (the "Prior Employment Agreement"), as modified herein, to make available to the fullest extent permitted under law to Employee and Norma Smith, his wife, for 2 3 the life of each of them, at the Company's expense (subject to the limitations set forth below with respect to Norma), all employee health benefits (including, without limitation, medical, dental, life, disability and other similar plans) which are currently or hereafter established or maintained by the Company from time to time for employees of the Company generally, and all other health plans and policies established by the Company after the date of this Agreement; provided, however, that (i) the Company's obligations hereunder shall be suspended in whole or in part during all periods in which health benefits at least as favorable as those to be made available hereunder are provided at no cost to Employee or Normal Smith as a result of the employment of Employee by another employer subsequent to the termination of his employment by the Company, and (ii) if health benefits at least as favorable as those to be made available hereunder are provided to Employee or Normal Smith as a result of the employment of Employee by another employer subsequent to the termination of his employment by the Company but Employee is required to pay for such benefits, the Company, at its election, shall provide health benefits to Employee hereunder or reimburse Employee for amounts actually paid to his employer. The Company's obligations under this Paragraph 6b shall terminate in the event the Employee's employment is terminated pursuant to paragraph 9c hereof. 7. Reimbursement of Expenses. The Company, promptly upon receipt from the Employee of appropriate documentation, shall reimburse the Employee for all of his reasonable business expenses, including, without limitation, travel expenses, necessarily and appropriately incurred in the performance of his duties hereunder. 8. Confidentiality and Competition. a. In consideration of the substantial benefits to be provided hereunder to the Employee by the Company, and in recognition of the fact that the Employee occupies a position of trust and confidence with the Company, the Employee acknowledges that he has provided, created and acquired and hereafter will provide, create and acquire valuable and confidential information of a special and unique nature relating to such matters as the Company's trade secrets, systems, procedures, manuals, confidential reports, employee rosters, client lists, software systems, products, business and financial methods and practices, plans, pricing, selling techniques, special methods and processes involved in designing, assembling and operating computer programs previously and currently used by the Company and the application thereof to managed care programs and other related electronic data processing information respecting the Company's existing businesses and services and those developed during the term of this Agreement, as well as credit and financial data relative to the Company and its clients, and the particular business requirements of the Company's clients, including the methods used and preferred by the Company's clients and fees paid by such clients. In addition, the Employee has developed and may further develop on behalf of the Company a personal acquaintance with the Company's clients, which acquaintances may constitute the Company's only contact with such clients. For purposes of this Paragraph 8, the term "Company" shall mean HealthCare COMPARE Corp. and each company which is a subsidiary thereof and any partnership or joint venture in which the Company or any such subsidiary owns an equity interest at any time during the term of this Agreement. In view of the foregoing and in consideration of the remuneration to be paid to the Employee hereunder, the Employee acknowledges and agrees that it is reasonable and necessary for the protection of the goodwill and business of the Company that he make the covenants contained herein regarding his conduct during and subsequent to his employment by the company 3 4 and that the Company will suffer irreparable injury if the Employee were to engage in any conduct prohibited hereby. The Employee represents that his experience and/or abilities are such that the observance of the aforementioned covenants will not cause the Employee any undue hardship, nor will it unreasonably interfere with the Employee's ability to earn a livelihood. The Employee and the Company further agree that the covenants contained in this Paragraph 8 shall each be construed as a separate agreement independent of any other provisions of this Agreement, and that the existence of any claim or cause of action by the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of these covenants; provided, however, that the covenants contained in this Paragraph 8 shall not be enforceable by the Company during any period in which the Company has wrongfully failed to make a required payment under Paragraph 4a hereof. In the event a court of competent jurisdiction determines that ny provision of this Paragraph 8 is unreasonable as to duration, substantive extent or geographic scope, the provision will nonetheless be enforced to the fullest extent reasonable. b. The Employee, while in the employ of the Company or at any time thereafter, will not directly or indirectly communicate or divulge, or use for the benefit of himself or of any other person, firm, association or corporation, any of the Company's trade secrets or other confidential information, including, without limitation, the information described in Paragraph 8a, which trade secrets and confidential information were or will be communicated to or otherwise learned or acquired by the Employee in the course of his employment with the Company, except that the Employee may disclose such matters to the extent that the disclosure thereof is required: (i) in the course of his employment with the Company, provided such disclosure is made exclusively for the benefit of the Company, or (ii) by a court, governmental agency of competent jurisdiction or grand jury. c. During the term of his employment with the Company and for a period of three years thereafter, the Employee will not contact, directly or indirectly, with a view towards selling any product or service competitive with any product or service sold (or proposed to be sold) by the Company during the Employee's employment, any person, firm association or corporation (aa) to which the Company has provided its services, or (bb) which the Employee or, to his knowledge, any other employee or representative of the Company has solicited, contacted or otherwise dealt with on behalf of the Company, nor will he directly or indirectly make any such contact, for the benefit or on behalf of any other person, firm, association or corporation or in any manner assist any person, firm, association or corporation to make any such contact. d. During the term of his employment by the Company and for a period of three years thereafter, the Employee will not directly or indirectly acquire any interest in any corporation, firm or business (other than the Company) which is engaged in any business in the United States the same as, similar to or competitive with the business of the Company as conducted at any time during the Employee's employment, whether as an employee, sole proprietor, director, officer, consultant, equity security holder or otherwise (except that he may own up to 2% of the outstanding shares of capital stock of any corporation whose stock is listed on a national securities exchange or is traded in the over-the-counter market), nor will be Employee directly or indirectly have any interest in any corporation, firm or business which is engaged in a business adverse to the Company's business (except that he may own up to 2% of the 4 5 outstanding shares of capital stock of any corporation whose stock is listed on a national securities exchange or is traded in the over-the-counter market). e. During the term of his employment by the Company and for a period of three years thereafter, neither the Employee nor any entity by which the Employee is employed or otherwise associated with will directly or indirectly employ, retain the services of or induce or attempt to induce, an any manner whatsoever, any present or future employee of the Company to leave the employ of the Company and/or to seek or accept employment with the Employee or any other person, firm, association or corporation. f. In the event of a breach or threatened or intended breach of this Agreement and the foregoing covenants by the Employee, the Employee acknowledges that the Company will suffer irreparable injury and that ascertainment of the exact amount of the Company's damages will be difficult, if not impossible, and agrees that the Company shall entitled, in addition to remedies otherwise available to it at law or in equity, to injunctions, both preliminary and permanent and without bond therefor, enjoining or restraining such breach or threatened or intended breach, and the Employee hereby consents to the issuance thereof forthwith by any court of competent jurisdiction. 9. Termination of Employment. a. Incapacity. If, during the term of this Agreement, the Employee should be prevented from performing his duties by reason of illness or physical or mental disability (hereinafter referred to collectively as "Incapacity") for a continuous period of between 90 and 180 days, the Employee shall receive one-half his perdiem Base Salary for each day during such time period that he fails, due to his Incapacity, to render the services contemplated hereunder. If during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Incapacity for a continuous period greater than 180 days, the Company may terminate the Employee's employment hereunder by giving written notice thereof to the Employee, effective on the date set forth in the notice (which date shall be not less than 15 business days after the notice is given). For purposes hereof, a continuous period of incapacity shall not be deemed interrupted until the Employee returns to substantially full time work for a period of at least 30 days. b. Death. In the event of the Employee's death during the term of this Agreement, the Employee's employment hereunder shall be deemed terminated as of the date of the Employee's death. c. Cause. This Agreement and the Employee's employment hereunder may be terminated at any time by the Company for cause. As used herein "cause" shall mean (i) theft, embezzlement or fraud by the Employee or the Employee's involvement in any other scheme or conspiracy pursuant to which the Company has lost or could reasonably be expected to lose assets to the Employee or to others calculated by the Employee to receive such assets, (ii) incapacity on the job by reason of the use or abuse of alcohol or drugs, (iii) commission of a felony or a crime involving moral turpitude, (iv) gross insubordination, (v) unexplained and continuous absences from work, (vi) material breach by the Employee of any of the provisions 5 6 of this Agreement which is not cured within 30 business days after the Company gives written notice thereof to the Employee specifying the nature of such breach, (vii) refusal to act in accordance with a lawful and duly adopted resolution of the Board of Directors. d. Termination of Employment by the Employee. If, at any time during the term of this Agreement, the Employee shall not be reappointed as President and Chief Executive Officer of the Company but his services under this Agreement are not terminated by the Company, the Employee shall have the right, by written notice to the Chairman of the Board of the Company, to terminate his services hereunder, effective as of the thirtieth day after receipt of said notice, and the Employee shall have no further obligations under this Agreement, except as provided in Paragraph 8 hereof. Termination of the Employee's services pursuant to this Paragraph shall be treated as a termination of employment by the Company other than for cause and shall be governed by the provisions of Paragraph 10e hereof. e. Termination of Employment by the Company. The Company may terminate the Employee's employment for any reason deemed sufficient by the Company. As used in this Paragraph 9, unless otherwise specified, the term "days" refers to calendar days. 10. Effect of Termination of Employment. a. Incapacity. If termination of employment results or occurs due to Incapacity under Paragraph 9a, the Company shall pay or cause to be paid in a lump sum (i) such amounts, if any, as the Employee shall be entitled to under the Company's disability policy and program applicable to the Employee, (ii) subject to the limitations set forth in the last sentence of Paragraph 6a hereof, payment in respect of all unused paid vacation time, to the extent the Employee has not prior thereto received compensation in lieu thereof, (iii) the Employee's interest in all Company retirement and investment plans, to the extent such plans permit such interest to be distributed and (iv) payment in respect of all compensation earned to date but not theretofore paid. b. Death. If termination of employment occurs as a result of the Employee's death, the Company shall pay to the Employee's estate a lump sum payment equal to (i) such amounts as the Employee's estate shall be entitled to receive under the terms of retirement and investment plans of the Company, to the extent such plans permit such amounts to be paid, (ii) subject to the limitation set forth in the last sentence of Paragraph 6a hereof, payment in respect of all unused paid vacation time, to the extent the Employee has not prior thereto received compensation in lieu thereof, and (iii) payment in respect of all compensation earned to date but not theretofore paid. In addition, the Company will pay to his spouse for a period of 60 days an amount equal to the Employee's per diem Base Salary. c. Cause. If the Employee's employment is terminated by the Company for cause, Employee shall be entitled to all earned but unpaid compensation, provided, however, the Company shall be entitled to offset therefrom any amounts lost by the Company as a result of Employee's action giving rise to such cause. 6 7 d. Voluntary Termination. If the Employee shall voluntarily terminate his employment hereunder, the Company shall be obligated to pay or cause to be paid in a lump sum (i) payment in respect of the Employee's interest in all Company retirement and investment plans, to the extent such plans permit such payment to be made, (ii) subject to the limitations set forth in the last sentence of Paragraph 6a hereof, payment in respect of all unused paid vacation time, to the extent the Employee has not prior thereto received compensation in lieu thereof. e. Termination of Employment Pursuant to Paragraphs 9d or 9e. In the event that this Agreement is terminated by the Employee pursuant to Paragraph 9d hereof or by the Company pursuant to Paragraph 9e hereof, the Company shall be obligated to pay or cause to be paid to the Employee (i) the balance of the Base Salary payments required to be paid during the remaining term of this Agreement, which payments shall be made at regular intervals in accordance with the Company's regular pay periods, (ii) payment in respect of the Employee's interest in all Company retirement and investment plans, to the extent that such plans permit such payment to be made, and (iii) subject to the limitations set forth in the last sentence of Paragraph 6a hereof, payment in respect of all unused paid vacation times, to the extent Employee has not prior thereto received compensation in lieu thereof. Payments pursuant to subsections (ii) and (iii) shall be paid in a lump sum. f. Effect of Termination of Employment; Survival. In the event that the Employee's employment with the Company terminates, this Agreement shall be deemed terminated, provided, however, that the terms and conditions of Paragraphs 6b (to the extent provided therein), 8, 9 and 10 shall survive such termination and be fully binding and enforceable. 11. Return of Documents. Upon termination of this Agreement for any reason, the Employee shall deliver to the Company any property then in his possession belonging to the Company. For purposes of this Agreement, the parties hereto do hereby agree that any original or copies of any books, papers, customer lists, files, books of accounts, summaries, notes and other documents and data or other writings, tapes or records, relating to the Company or prepared in connection with the Employee's performance of his duties hereunder, are owned by and are the property of the Company. 12. Best Efforts. The Company and the Employee each agree to use its or his best efforts to operate the business of the Company in a manner designed to maximize the revenues and net income of the Company and to preserve and enhance its goodwill and other assets. 13. Termination of Prior Employment Agreement. The Prior Employment Agreement is hereby terminated. 14. Notices. Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid, with return receipt requested. Mailed notices shall be addressed to the respective addresses shown below. Either party may change its address for notice by giving written notice in accordance with the terms of this Paragraph 14. 7 8 (a) If to the Employee; James C. Smith HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 (b) If to the Company: HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 with a copy to: Ronald H. Galowich, Esq. Madison Group Holdings, Inc. 200 West Madison Street, Suite 2800 Chicago, Illinois 60606 15. Acknowledgment of Reading. The Employee acknowledges, represents and warrants to the Company that he has received a copy of this Agreement, that he has read and understands this Agreement, that he has had the opportunity to seek the advice of legal counsel before signing this Agreement and that he has either sought such counsel or has voluntarily decided not to do so. 16. General Provisions. a. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois. b. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provisions shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provisions had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provisions or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to the illegal, invalid or unenforceable provision as may be possible and still be legal, valid or enforceable. c. Entire Agreement. This Agreement and the Option Agreements set forth the entire understanding of the parties with respect to the matters specified herein. No other terms, conditions or warranties, and no amendments or modifications hereto, shall be binding unless made in writing and signed by the parties hereto. d. Binding Effect; Assignment and Assumption of Agreement. This Agreement shall be binding upon the parties hereto and inure to the benefit of such parties, their respective heirs, 8 9 representatives, successors and permitted assigns. This Agreement may not be assigned by the Employee nor may it be assigned by the Company without the Employee's consent. e. Waiver. The waiver by either party hereto of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition hereof. f. Titles. Title of the paragraphs herein are used for convenience only and shall not be used for interpretation or construction of any word, clause, paragraph, or provision of this Agreement. g. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the date and year first written above. COMPANY: HEALTHCARE COMPARE CORP. By: ______________________________________ Chairman of the Board EMPLOYEE: __________________________________________ JAMES C. SMITH 9 EX-10.96 3 STOCK OPTION AGREEMENT, 1/1/97 1 Exhibit 10.96 HEALTHCARE COMPARE CORP. STOCK OPTION AGREEMENT THIS AGREEMENT is made and entered into as of the 1st day of January, 1997, by and between HEALTHCARE COMPARE CORP., a Delaware corporation (the "Company"), and JAMES C. SMITH (the "Employee"). WHEREAS, the Employee is a valued employee of the Company and the Company wishes to induce him to enter into an employment agreement dated as of January 1, 1997 (the "Employment Agreement") and to encourage him in the performance of his duties thereunder by granting him an option to purchase shares of common stock, $.01 par value, of the Company (the "Common Stock") pursuant to the HealthCare COMPARE Corp. 1995 Stock Option Plan (the "Plan"), which Plan is incorporated herein by this reference; and WHEREAS, the Employee wishes to acquire the right to purchase shares of Common Stock. NOW, THEREFORE, for good and valuable consideration, the parties hereto, intending to be legally bound, hereby agrees as follows: 1. Grant of Option: Exercise Price. Subject to the provision of Section 2 hereof, the Company hereby grants to the Employee effective as of the date hereof the right, privilege and option to purchase on the terms and conditions hereinafter set forth up to 200,000 shares of common Stock at an exercise price of $42.375 per share (the "Option"). The Option is intended to be an "Incentive Stock Option" as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), subject to the provisions of Section 6(a) of the Plan and Section 422 of the Code, to the extent permitted by the Code, and a nonstatutory option with respect to the balance. 2. Time for Exercise of Option. Subject to the provisions of paragraphs 3 and 7 hereof, the Option may be exercised by the Employee from time to time, in whole or in part, beginning on December 31, 1997 and ending on March 31, 1998 or within such shorter period as is provided in paragraph 3 hereof. 3. Termination of Employment (a) If the Employee's employment by the Company is terminated by the Company without cause, then, notwithstanding the provisions of paragraph 2 of this Agreement, upon such termination of employment, the Option shall become exercisable in full and the Employee may, for a period of 90 days following such termination (but before expiration of the original exercise period), exercise the Option in whole or in part. (b) If (i) the Employee's employment by the Company is terminated due to the death or Incapacity (as defined in the Employment Agreement) of the Employee and (ii) pursuant to paragraph 2 hereof the Option has theretofore vested or is scheduled to vest within 90 days following the date of such termination of employment, the Employee or his legal representative may, for a period of 90 days following such termination (but before expiration or the original exercise period), exercise the Option, in whole or in part. (c) If (i) the Employee's employment by the Company is terminated voluntarily by the Employee and (ii) pursuant to paragraph 2 hereof the Option has theretofore vested, the Employee may, 2 for a period of 30 days after the date of termination (but before expiration of the original exercise period), exercise the Option, in whole or in part. (d) If the Employee's employment by the Company is terminated by the Company for cause (as such term is defined in the Employment Agreement), the Option shall terminate on the date on which the Employee's employment is terminated, and the Employee shall have no further rights hereunder. (e) The Employee acknowledges and understands that certain exercises of the Option pursuant to this paragraph 3 may cause disqualification of the Option as an Incentive Stock Option. 4. Method of Exercise. The Option may be exercised by written notice (the "Notice"), addressed and delivered to the Company (Attention: Chief Financial Officer), specifying the number of shares of Common Stock to be purchased and accompanied by (i) a check, or (ii) that number of shares of Common Stock which have an aggregate fair market value as of the date of exercise equal to the exercise price, or (iii) any combination thereof. For purposes of this Agreement, "fair market value" of a share of Common Stock shall mean: (i) if the Common Stock is traded on a national stock exchange on the date of exercise of the Option, fair market value shall be the closing price reported by the applicable composite transactions report on such day, or if the Common Stock is not traded on such date, the mean between the closing bid-and-asked prices thereof on that date on such exchange; (ii) if the Common Stock is traded over-the-counter and is classified as a national market issue on the date of exercise of the Option, fair market value shall be the last reported transaction price quoted by the NASDAQ on that day; (iii) if the Common Stock is traded over-the-counter and is not classified as a national market issue on the date of exercise of the Option, fair market value shall be the mean between the last representative bid-and-asked prices quoted by the NASDAQ on that day; or (iv) if none of the foregoing provisions is applicable, fair market value as of the date of exercise of the Option shall be determined by the Board of Directors in good faith on such basis as it deems appropriate. In all cases, the determination of fair market value shall be binding and conclusive on all persons. 5. Delivery of Stock Certificates. The Option shall be deemed to have been exercised upon receipt by the Company of the Notice accompanied by the exercise price (the "Exercise Date"). The certificate representing the share of Common Stock purchased upon exercise of the Option shall be issued as of the Exercise Date and delivered by the Company to the Employee free and clear of all claims, liens and encumbrances, within five days following the Exercise Date or as soon thereafter as practicable. As a condition to the exercise of the Option, the Company may require the Employee to represent and warrant at the time of any such exercise that the shares of Common Stock are being purchased for investment purposes only, for the account of the Employee and without any intention to distribute such shares. If the share of Common Stock issuable upon exercise of the Option have not previously been registered under the Securities Act of 1933, as amended, each certificate evidencing shares of Common Stock acquired upon exercise of the Option shall contain on its face, or on the reverse side thereof, the following legend: "These share have not been registered under the Securities Act of 1933 or under any applicable state law. They may not be offered for sale, sold, transferred, or pledged without (1) registration under the Securities Act of 1933 and any applicable state law, or (2) an opinion (satisfactory to the corporation) that registration is not required." 2 3 6. Adjustment Provisions. If, during the term of this Agreement, there shall be any stock dividend, stock rights distribution, stock split, recapitalization, merger, consolidation, sale of assets, reorganization or other similar change or transaction of or by the Company, an appropriate adjustment shall be made to the number and kind of shares remaining to be acquired upon exercise of the Option and to the exercise price of the Option so that the value to be received by the Employe upon exercise of the Option shall, in the aggregate, be the same as if none of the foregoing transactions had occurred. 7. Merger, Consolidation or Sale of Assets. In the event the Company enters into an agreement providing for (i) the sale of all or substantially all of the assets of the Company or (ii) a merger, consolidations or reorganization which would result in the stockholders of the Company immediately prior tro such transaction owning less than 50% of the surviving corporation, the Option shall become exercisable in full without regard to any vesting limitations, and the Employee shall be entitled, commencing at least ten days prior to the effective date of such transaction, to exercise the Option in whole or in part, tot he extent ot previously exercised. 8. Withholding Obligations. In the event that the Company is required to satisfy withholding obligations under the Code as a result of the exercise of the Option, the Employee may request that, in lieu of withholding amounts from the Employee's paycheck or requiring that the Employee deliver a check in the amount of the withholding obligation, the Company withhold that number of shares of Common Stock which have a fair market value (determined in accordance with the provisions of paragraph 5 hereof) on the Exercise Date equal to the amount required to be withheld. 9. Non-Transferability. The Option is not transferable or assignable by the Employee other than by will or by the laws of descent and distribution and are exercisable during the lifetime of the Employee only by the Employee. 10. Compliance with Law. By accepting the Option, the Employee agrees for himself and his legal representative that the Company shall not be required to deliver any shares of Common Stock upon the exercise of the Option until such shares have been qualified for delivery under applicable securities laws and regulations as determined by the Company or its legal counsel. 11. Rights as a Stockholder; Not an Employment Agreement. The Employee shall have no rights as a stockholder of the Company with respect to shares of Common Stock subject to the Option until the Option has been exercised and payment made as herein provided and certificates representing the shares as to which the Option has been exercised have been delivered to the Employee. Nothing contained in this Agreement shall be construed to be a contract of employment between the Company and the Employee. 12. Construction. (a) Successors. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs and successors, except as expressly herein otherwise provided. (b) Entire Agreement; Modification. This Agreement contains the entire understanding between the parties with respect to the matters referred to herein and such agreement shall not be modified, except by written instrument signed by the parties hereto. 3 4 (c) Headings; Pronouns; Governing Law. The descriptive headings of the respective sections and subsections of this Agreement are inserted for convenience of reference only and shall not be deemed to modify or construe the provisions which follow them. Any use of any masculine pronoun shall include the feminine and vice-versa and any use of a singular, the plural and vice-versa, as the context and facts may require. The construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of Delaware. (d) Notices. All communications between the parties shall be in writing and shall be deemed to have been duly given as of the date and time of hand delivery or three days after mailing via certified or registered mail, return receipt requested, proper postage prepaid to the following or such other addresses of which the parties shall from time to time notify one another: If to the Company: HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 If to the Employee: James C. Smith HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 (e) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or the application thereof to any party of circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the minimal extent of such provision or the remaining provisions of this Agreement or the application of such provision to other parties or circumstances. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. HEALTHCARE COMPARE CORP. By: ______________________________________ Chairman of the Board EMPLOYEE: By: ______________________________________ JAMES C. SMITH 4 EX-10.97 4 STOCK OPTION AGREEMENT, 1/1/97 1 Exhibit 10.97 HEALTHCARE COMPARE CORP. STOCK OPTION AGREEMENT THIS AGREEMENT is made and entered into as of the 1st day of January, 1997, by and between HEALTHCARE COMPARE CORP., a Delaware corporation (the "Company"), and JAMES C. SMITH (the "Employee"). WHEREAS, the Employee is a valued employee of the Company and the Company wishes to induce him to enter into an employment agreement dated as of January 1, 1997 (the "Employment Agreement") and to encourage him in the performance of his duties thereunder by granting him an option to purchase shares of common stock, $.01 par value, of the Company (the "Common Stock") pursuant to the HealthCare COMPARE Corp. 1995 Stock Option Plan (the "Plan"), which Plan is incorporated herein by this reference; and WHEREAS, the Employee wishes to acquire the right to purchase shares of Common Stock. NOW, THEREFORE, for good and valuable consideration, the parties hereto, intending to be legally bound, hereby agrees as follows: 1. Grant of Option: Exercise Price. Subject to the provision of Section 2 hereof, the Company hereby grants to the Employee effective as of the date hereof the right, privilege and option to purchase on the terms and conditions hereinafter set forth up to 200,000 shares of common Stock at an purchase price of $44.49 per share (the "Option"). The Option is intended to be an "Incentive Stock Option" as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), subject to the provisions of Section 6(a) of the Plan and Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), to the extent permitted by the Code, and a nonstatutory option with respect to the balance. 2. Time for Exercise of Option. Subject to the provisions of paragraphs 3 and 8 hereof, the Option may be exercised by the Employee from time to time, in whole or in part, beginning on December 31, 1998 and ending on March 31, 1999 or within such shorter period as is provided in paragraph 3 hereof. 3. Termination of Employment (a) If the Employee's employment by the Company is terminated by the Company without cause, then, notwithstanding the provisions of paragraph 2 of this Agreement, upon such termination of employment, the Option shall become exercisable in full and the Employee may, for a period of 90 days following such termination (but before expiration of the original exercise period), exercise the Option in whole or in part. (b) If (i) the Employee's employment by the Company is terminated due to the death or Incapacity (as defined in the Employment Agreement) of the Employee and (ii) pursuant to paragraph 2 hereof the Option has theretofore vested or is scheduled to vest within 90 days following the date of such termination of employment, the Employee or his legal representative may, for a period of 90 days following such termination (but before expiration or the original exercise period), exercise the Option, in whole or in part. (c) If (i) the Employee's employment by the Company is terminated voluntarily by the Employee and (ii) pursuant to paragraph 2 hereof the Option has theretofore vested, the Employee may, 2 for a period of 30 days after the date of termination (but before expiration of the original exercise period), exercise the Option, in whole or in part. (d) If the Employee's employment by the Company is terminated by the Company for cause (as such term is defined in the Employment Agreement), the Option shall terminate on the date on which the Employee's employment is terminated, and the Employee shall have no further rights hereunder. (e) The Employee acknowledges and understands that certain exercises of the Option pursuant to this paragraph 3 may cause disqualification of the Option as an Incentive Stock Option. 4. Method of Exercise. The Option may be exercised by written notice (the "Notice"), addressed and delivered to the Company (Attention: Chief Financial Officer), specifying the number of shares of Common Stock to be purchased and accompanied by (i) a check, or (ii) that number of shares of Common Stock which have an aggregate fair market value as of the date of exercise equal to the exercise price, or (iii) any combination thereof. For purposes of this Agreement, "fair market value" of a share of Common Stock shall mean: (i) if the Common Stock is traded on a national stock exchange on the date of exercise of the Option, fair market value shall be the closing price reported by the applicable composite transactions report on such day, or if the Common Stock is not traded on such date, the mean between the closing bid-and-asked prices thereof on that date on such exchange; (ii) if the Common Stock is traded over-the-counter and is classified as a national market issue on the date of exercise of the Option, fair market value shall be the last reported transaction price quoted by the NASDAQ on that day; (iii) if the Common Stock is traded over-the-counter and is not classified as a national market issue on the date of exercise of the Option, fair market value shall be the mean between the last representative bid-and-asked prices quoted by the NASDAQ on that day; or (iv) if none of the foregoing provisions is applicable, fair market value as of the date of exercise of the Option shall be determined by the Board of Directors in good faith on such basis as it deems appropriate. In all cases, the determination of fair market value shall be binding and conclusive on all persons. 5. Delivery of Stock Certificates. The Option shall be deemed to have been exercised upon receipt by the Company of the Notice accompanied by the exercise price (the "Exercise Date"). The certificate representing the share of Common Stock purchased upon exercise of the Option shall be issued as of the Exercise Date and delivered by the Company to the Employee free and clear of all claims, liens and encumbrances, within five days following the Exercise Date or as soon thereafter as practicable. As a condition to the exercise of the Option, the Company may require the Employee to represent and warrant at the time of any such exercise that the shares of Common Stock are being purchased for investment purposes only, for the account of the Employee and without any intention to distribute such shares. If the share of Common Stock issuable upon exercise of the Option have not previously been registered under the Securities Act of 1933, as amended, each certificate evidencing shares of Common Stock acquired upon exercise of the Option shall contain on its face, or on the reverse side thereof, the following legend: "These share have not been registered under the Securities Act of 1933 or under any applicable state law. They may not be offered for sale, sold, transferred, or pledged without (1) registration under the Securities Act of 1933 and any applicable state law, or (2) an opinion (satisfactory to the corporation) that registration is not required." 6. Registration of Shares Subject to the Option. On or before December 31, 1998, the Company will use its best efforts to: 2 3 (i) prepare and file with the Securities and Exchange Commission("SEC") a registration statement with respect to the shares of Common Stock issuable upon exercise of the Option and use its best efforts to cause such registration statement to become effective under the Securities Act; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the earlier to occur of (A) the expiration of the Option or (B) the exercise of the Option in whole. 7. Adjustment Provisions. If, during the term of this Agreement, there shall be any stock dividend, stock rights distribution, stock split, recapitalization, merger, consolidation, sale of assets, reorganization or other similar change or transaction of or by the Company, an appropriate adjustment shall be made to the number and kind of shares remaining to be acquired upon exercise of the Option and to the exercise price of the Option so that the value to be received by the Employe upon exercise of the Option shall, in the aggregate, be the same as if none of the foregoing transactions had occurred. 8. Merger, Consolidation or Sale of Assets. In the event the Company enters into an agreement providing for (i) the sale of all or substantially all of the assets of the Company or (ii) a merger, consolidations or reorganization which would result in the stockholders of the Company immediately prior tro such transaction owning less than 50% of the surviving corporation, the Option shall become exercisable in full without regard to any vesting limitations, and the Employee shall be entitled, commencing at least ten days prior to the effective date of such transaction, to exercise the Option in whole or in part, tot he extent ot previously exercised. 9. Withholding Obligations. In the event that the Company is required to satisfy withholding obligations under the Code as a result of the exercise of the Option, the Employee may request that, in lieu of withholding amounts from the Employee's paycheck or requiring that the Employee deliver a check in the amount of the withholding obligation, the Company withhold that number of shares of Common Stock which have a fair market value (determined in accordance with the provisions of paragraph 5 hereof) on the Exercise Date equal to the amount required to be withheld. 10. Non-Transferability. The Option is not transferable or assignable by the Employee other than by will or by the laws of descent and distribution and are exercisable during the lifetime of the Employee only by the Employee. 11. Compliance with Law. By accepting the Option, the Employee agrees for himself and his legal representative that the Company shall not be required to deliver any shares of Common Stock upon the exercise of the Option until such shares have been qualified for delivery under applicable securities laws and regulations as determined by the Company or its legal counsel. 12. Rights as a Stockholder; Not an Employment Agreement. The Employee shall have no rights as a stockholder of the Company with respect to shares of Common Stock subject to the Option until the Option has been exercised and payment made as herein provided and certificates representing the shares as to which the Option has been exercised have been delivered to the Employee. Nothing contained in this Agreement shall be construed to be a contract of employment between the Company and the Employee. 13. Construction. 3 4 (a) Successors. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs and successors, except as expressly herein otherwise provided. (b) Entire Agreement; Modification. This Agreement contains the entire understanding between the parties with respect to the matters referred to herein and such agreement shall not be modified, except by written instrument signed by the parties hereto. (c) Headings; Pronouns; Governing Law. The descriptive headings of the respective sections and subsections of this Agreement are inserted for convenience of reference only and shall not be deemed to modify or construe the provisions which follow them. Any use of any masculine pronoun shall include the feminine and vice-versa and any use of a singular, the plural and vice-versa, as the context and facts may require. The construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of Delaware. (d) Notices. All communications between the parties shall be in writing and shall be deemed to have been duly given as of the date and time of hand delivery or three days after mailing via certified or registered mail, return receipt requested, proper postage prepaid to the following or such other addresses of which the parties shall from time to time notify one another: If to the Company: HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 If to the Employee: James C. Smith HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 (e) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or the application thereof to any party of circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the minimal extent of such provision or the remaining provisions of this Agreement or the application of such provision to other parties or circumstances. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. HEALTHCARE COMPARE CORP. By: ______________________________________ Chairman of the Board EMPLOYEE: By: ______________________________________ JAMES C. SMITH 4 EX-10.98 5 STOCK OPTION AGREEMENT, 1/1/97 1 Exhibit 10.98 HEALTHCARE COMPARE CORP. STOCK OPTION AGREEMENT THIS AGREEMENT is made and entered into as of the 1st day of January, 1997, by and between HEALTHCARE COMPARE CORP., a Delaware corporation (the "Company"), and JAMES C. SMITH (the "Employee"). WHEREAS, the Employee is a valued employee of the Company and the Company wishes to induce him to enter into an employment agreement dated as of January 1, 1997 (the "Employment Agreement") and to encourage him in the performance of his duties thereunder by granting him an option to purchase shares of common stock, $.01 par value, of the Company (the "Common Stock") pursuant to the HealthCare COMPARE Corp. 1995 Stock Option Plan (the "Plan"), which Plan is incorporated herein by this reference; and WHEREAS, the Employee wishes to acquire the right to purchase shares of Common Stock. NOW, THEREFORE, for good and valuable consideration, the parties hereto, intending to be legally bound, hereby agrees as follows: 1. Grant of Option. Subject to the provision of Section 2 hereof, the Company hereby grants to the Employee effective as of the date hereof the right, privilege and option to purchase on the terms and conditions hereinafter set forth up to 200,000 shares of common Stock at an exercise price of $46.61 per share (the "Option"). The Option is intended to be an "Incentive Stock Option" as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), subject to the provisions of Section 6(a) of the Plan and Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), to the extent permitted by the Code, and a nonstatutory option with respect to the balance. 2. Time for Exercise of Option. Subject to the provisions of paragraphs 3 and 8 hereof, the Option may be exercised by the Employee from time to time, in whole or in part, beginning on December 31, 1999 and ending on March 31, 2000 or within such shorter period as is provided in paragraph 3 hereof. 3. Termination of Employment (a) If the Employee's employment by the Company is terminated by the Company without cause, then, notwithstanding the provisions of paragraph 2 of this Agreement, upon such termination of employment, the Option shall become exercisable in full and the Employee may, for a period of 90 days following such termination (but before expiration of the original exercise period), exercise the Option in whole or in part. (b) If (i) the Employee's employment by the Company is terminated due to the death or Incapacity (as defined in the Employment Agreement) of the Employee and (ii) pursuant to paragraph 2 hereof the Option has theretofore vested or is scheduled to vest within 90 days following the date of such termination of employment, the Employee or his legal representative may, for a period of 90 days following such termination (but before expiration or the original exercise period), exercise the Option, in whole or in part. (c) If (i) the Employee's employment by the Company is terminated voluntarily by the Employee and (ii) pursuant to paragraph 2 hereof the Option has theretofore vested, the Employee may, 2 for a period of 30 days after the date of termination (but before expiration of the original exercise period), exercise the Option, in whole or in part. (d) If the Employee's employment by the Company is terminated by the Company for cause (as such term is defined in the Employment Agreement), the Option shall terminate on the date on which the Employee's employment is terminated, and the Employee shall have no further rights hereunder. (e) The Employee acknowledges and understands that certain exercises of the Option pursuant to this paragraph 3 may cause disqualification of the Option as an Incentive Stock Option. 4. Method of Exercise. The Option may be exercised by written notice (the "Notice"), addressed and delivered to the Company (Attention: Chief Financial Officer), specifying the number of shares of Common Stock to be purchased and accompanied by (i) a check, or (ii) that number of shares of Common Stock which have an aggregate fair market value as of the date of exercise equal to the exercise price, or (iii) any combination thereof. For purposes of this Agreement, "fair market value" of a share of Common Stock shall mean: (i) if the Common Stock is traded on a national stock exchange on the date of exercise of the Option, fair market value shall be the closing price reported by the applicable composite transactions report on such day, or if the Common Stock is not traded on such date, the mean between the closing bid-and-asked prices thereof on that date on such exchange; (ii) if the Common Stock is traded over-the-counter and is classified as a national market issue on the date of exercise of the Option, fair market value shall be the last reported transaction price quoted by the NASDAQ on that day; (iii) if the Common Stock is traded over-the-counter and is not classified as a national market issue on the date of exercise of the Option, fair market value shall be the mean between the last representative bid-and-asked prices quoted by the NASDAQ on that day; or (iv) if none of the foregoing provisions is applicable, fair market value as of the date of exercise of the Option shall be determined by the Board of Directors in good faith on such basis as it deems appropriate. In all cases, the determination of fair market value shall be binding and conclusive on all persons. 5. Delivery of Stock Certificates. The Option shall be deemed to have been exercised upon receipt by the Company of the Notice accompanied by the exercise price (the "Exercise Date"). The certificate representing the share of Common Stock purchased upon exercise of the Option shall be issued as of the Exercise Date and delivered by the Company to the Employee free and clear of all claims, liens and encumbrances, within five days following the Exercise Date or as soon thereafter as practicable. As a condition to the exercise of the Option, the Company may require the Employee to represent and warrant at the time of any such exercise that the shares of Common Stock are being purchased for investment purposes only, for the account of the Employee and without any intention to distribute such shares. If the share of Common Stock issuable upon exercise of the Option have not previously been registered under the Securities Act of 1933, as amended, each certificate evidencing shares of Common Stock acquired upon exercise of the Option shall contain on its face, or on the reverse side thereof, the following legend: "These share have not been registered under the Securities Act of 1933 or under any applicable state law. They may not be offered for sale, sold, transferred, or pledged without (1) registration under the Securities Act of 1933 and any applicable state law, or (2) an opinion (satisfactory to the corporation) that registration is not required." 6. Registration of Shares Subject to the Option. On or before December 31, 1999, the Company will use its best efforts to: 2 3 (i) prepare and file with the Securities and Exchange Commission("SEC") a registration statement with respect to the shares of Common Stock issuable upon exercise of the Option and use its best efforts to cause such registration statement to become effective under the Securities Act; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the earlier to occur of (A) the expiration of the Option or (B) the exercise of the Option in whole. 7. Adjustment Provisions. If, during the term of this Agreement, there shall be any stock dividend, stock rights distribution, stock split, recapitalization, merger, consolidation, sale of assets, reorganization or other similar change or transaction of or by the Company, an appropriate adjustment shall be made to the number and kind of shares remaining to be acquired upon exercise of the Option and to the exercise price of the Option so that the value to be received by the Employe upon exercise of the Option shall, in the aggregate, be the same as if none of the foregoing transactions had occurred. 8. Merger, Consolidation or Sale of Assets. In the event the Company enters into an agreement providing for (i) the sale of all or substantially all of the assets of the Company or (ii) a merger, consolidations or reorganization which would result in the stockholders of the Company immediately prior tro such transaction owning less than 50% of the surviving corporation, the Option shall become exercisable in full without regard to any vesting limitations, and the Employee shall be entitled, commencing at least ten days prior to the effective date of such transaction, to exercise the Option in whole or in part, tot he extent ot previously exercised. 9. Withholding Obligations. In the event that the Company is required to satisfy withholding obligations under the Code as a result of the exercise of the Option, the Employee may request that, in lieu of withholding amounts from the Employee's paycheck or requiring that the Employee deliver a check in the amount of the withholding obligation, the Company withhold that number of shares of Common Stock which have a fair market value (determined in accordance with the provisions of paragraph 5 hereof) on the Exercise Date equal to the amount required to be withheld. 10. Non-Transferability. The Option is not transferable or assignable by the Employee other than by will or by the laws of descent and distribution and are exercisable during the lifetime of the Employee only by the Employee. 11. Compliance with Law. By accepting the Option, the Employee agrees for himself and his legal representative that the Company shall not be required to deliver any shares of Common Stock upon the exercise of the Option until such shares have been qualified for delivery under applicable securities laws and regulations as determined by the Company or its legal counsel. 12. Rights as a Stockholder; Not an Employment Agreement. The Employee shall have no rights as a stockholder of the Company with respect to shares of Common Stock subject to the Option until the Option has been exercised and payment made as herein provided and certificates representing the shares as to which the Option has been exercised have been delivered to the Employee. Nothing contained in this Agreement shall be construed to be a contract of employment between the Company and the Employee. 13. Construction. 3 4 (a) Successors. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs and successors, except as expressly herein otherwise provided. (b) Entire Agreement; Modification. This Agreement contains the entire understanding between the parties with respect to the matters referred to herein and such agreement shall not be modified, except by written instrument signed by the parties hereto. (c) Headings; Pronouns; Governing Law. The descriptive headings of the respective sections and subsections of this Agreement are inserted for convenience of reference only and shall not be deemed to modify or construe the provisions which follow them. Any use of any masculine pronoun shall include the feminine and vice-versa and any use of a singular, the plural and vice-versa, as the context and facts may require. The construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of Delaware. (d) Notices. All communications between the parties shall be in writing and shall be deemed to have been duly given as of the date and time of hand delivery or three days after mailing via certified or registered mail, return receipt requested, proper postage prepaid to the following or such other addresses of which the parties shall from time to time notify one another: If to the Company: HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 If to the Employee: James C. Smith HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 (e) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or the application thereof to any party of circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the minimal extent of such provision or the remaining provisions of this Agreement or the application of such provision to other parties or circumstances. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. HEALTHCARE COMPARE CORP. By: ______________________________________ Chairman of the Board EMPLOYEE: By: ______________________________________ JAMES C. SMITH 4 EX-10.99 6 AMENDED & RESTATED SYSTEM AGREEMENT 1 Exhibit 10.99 AMENDED AND RESTATED SYSTEM AGREEMENT THIS AGREEMENT is made and entered into this 1st day of September, 1995 ("Effective Date") by and between ELECTRONIC DATA SYSTEMS CORPORATION, a Texas corporation, having a place of business at 5400 Legacy Drive, Plano, Texas 75024 ("EDS") and HealthCare COMPARE Corp., a Delaware corporation, having a place of business at 3200 Highland Avenue, Downers Grove, Illinois 60515. WHEREAS, under that certain agreement effective May 26, 1989 (the "1989 Agreement"), EDS and OCCUPATIONAL-URGENT CARE HEALTH SYSTEMS, INC. ("OUCH"), a wholly owned subsidiary of HealthCare COMPARE Corp., formed a strategic alliance with a common goal to provide health care cost containment and administrative cost containment services to the workers' compensation marketplace and to other markets and customers; WHEREAS, in furtherance of such goal, OUCH and EDS have developed and jointly marketed certain automated workers' compensation bill review and repricing system services operated on the TPS (as defined in Section 2.14) in an EDS information processing center; WHEREAS, under that certain agreement dated as of November 15, 1992 (the "TSO Agreement"), EDS provides certain TSO services to HealthCare COMPARE Corp. and AFFORDABLE Health Care Concepts, Inc. ("AFFORDABLE"), a wholly owned subsidiary of HealthCare COMPARE Corp.; and WHEREAS, HealthCare COMPARE Corp. (acting on behalf of itself, OUCH and AFFORDABLE) and EDS desire to continue the strategic alliance developed under the 1989 Agreement, continue the TSO services provided under the TSO Agreement and restate their agreements regarding such alliance, services and respective obligations in this Agreement which shall supersede and replace the 1989 Agreement and the TSO Agreement in their entirety. NOW, THEREFORE, in consideration of the mutual covenants of the parties herein contained, the parties agree as follows: ARTICLE I. AGREEMENT AND TERM 1.1 AGREEMENT. This Agreement establishes the terms and conditions under which EDS shall provide to HCCC and HCCC shall acquire from EDS access to the EDS Systems and the data processing, systems modifications, enhancements and maintenance, marketing support services and other related services described in this Agreement. The specific services EDS shall provide to HCCC and HCCC's obligations to EDS in connection with EDS' supply of those services are described in this Agreement. This Agreement also establishes the terms and conditions under which HCCC and EDS shall jointly and cooperatively market products and services of HCCC and EDS to existing and potential clients of HCCC and EDS. Pursuant to this Agreement, the EDS Systems and services shall be marketed as the OUCH Systems (or under such other name as the parties mutually agree) and HCCC shall enter into agreements with HCCC clients for the provision of such services. 1 2 1.2 TERM. This Agreement shall commence on the Effective Date and shall expire on January 1, 2005 (the "Expiration Date") unless terminated earlier in accordance with the provisions of this Agreement. The Expiration Date may be extended to January 1, 2010 and, if so extended, it may be further extended to January 1, 2015, in each case upon mutual agreement of the parties. During the last twelve (12) months of the initial term or any renewal term of this Agreement, representatives of HCCC and EDS shall meet to discuss and negotiate any extensions of this Agreement. Nothing contained in this Agreement, however, shall obligate either party to extend this Agreement. ARTICLE II. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: 2.1 ACCOUNT MANAGER means an EDS employee with overall responsibility for the management, coordination and delivery of all services and operations being performed by EDS for HCCC under this Agreement. 2.2 BILL means a single billing for medical services including, without limitation, hospital inpatient and outpatient, professional, pharmacy, administrative and other billings for workers' compensation, group health, automobile and other insurance programs, for which HCCC or the System Lease Client has completed review, audit, and any and all adjustments made to that single medical billing and for which a recommendation for payment, denial or other response has been made. 2.3 CPI means the Consumer Price Index for All Urban Consumers, U.S. City Average, for All Items (1982-84=100), as published by the Bureau of Labor Statistics of the Department of Labor. 2.4 EDS SYSTEMS means TPS and any other computer programs or systems owned or licensed by EDS or designed, developed or provided by EDS for use under this Agreement, including all enhancements, additions and modifications thereto. Unless specified otherwise, references to EDS Systems include the associated System Documentation. EDS Systems shall not include HCCC Owned Data. 2.5 EDS OWNED DATA FILES/DATA means all data file formats in the EDS Systems and all data contained therein which is not HCCC Owned Data, except that the messages contained in the EDS Systems message file which were entered into the message file by EDS are owned by both EDS and HCCC. 2.6 ESCROW ACCOUNT means an interest-bearing escrow account established by EDS in accordance with Section 6.5 and maintained as a separate account for use only in accordance with the applicable provisions of this Agreement. 2.7 HCCC means HealthCare COMPARE Corp. together with OUCH and, where appropriate, AFFORDABLE. 2 3 2.8 HCCC OWNED DATA means all data contained in the EDS Systems data files set forth in items "a" through "q" in Section 11 of Schedule C, except that the data contained in item "m", Geno Tables, is owned by HCCC only if HCCC is responsible for maintaining and updating the Geno Table. 2.9 IPC means an information processing center or data center operated by EDS. 2.10 PROCEEDING means any litigation, claim, action or suit or any proceeding for equitable relief. 2.11 SERVICE BUREAU CLIENT means a client of HCCC which accesses the EDS Systems indirectly through HCCC as described in Schedule B, Section I. 2.12 SYSTEM DOCUMENTATION means all supporting documentation, specifications, input and output formats, program listings, narrative descriptions, operating instructions, any applicable manuals and reference materials related to the EDS Systems, including the associated user procedure manuals developed and maintained by HCCC pursuant to Schedule C. 2.13 SYSTEM LEASE CLIENT means a client of HCCC which accesses an EDS System directly as described in Schedule B, Section I. 2.14 TOTAL PLAN SYSTEM ("TPS") means the computer programs comprising the EDS bill review and repricing system (as modified under the 1989 Agreement) known as the EDS Total Plan System (OUCH Version) which is further described in Schedule B, Section II, including all enhancements, additions and modifications thereto. Unless specified otherwise, references to TPS include the associated System Documentation developed by EDS hereunder pursuant to Section 12 of Schedule D. ARTICLE III. EDS ACCOUNT MANAGEMENT AND STAFFING 3.1 EDS ACCOUNT MANAGEMENT. During the term of this Agreement, EDS will provide the Account Manager at HCCC's facility located in Sacramento, California or any successor facility. Upon the request of HCCC, the Account Manager will prepare written reports summarizing EDS' performance under this Agreement in a format and on a schedule to be mutually agreed upon by HCCC and EDS. 3.2 MANAGEMENT MEETINGS. The Account Manager shall coordinate with a senior officer of HCCC or such officer's duly authorized designee ("HCCC Manager"). HCCC will advise EDS in writing of the name of the HCCC Manager and each replacement during the term of this Agreement. The Account Manager will meet at least quarterly with the HCCC Manager to review the data processing priorities established by HCCC and the status of EDS' performance under this Agreement in light of HCCC's business objectives, strategies and tactics. The Account Manager and HCCC Manager will work together to resolve any identified performance issues prior to the next quarterly meeting. 3 4 3.3 SUPPORT STAFF. HCCC and EDS will each allocate sufficient management, operations and other personnel ("Support Staff") to meet their respective obligations under this Agreement and will cross-train such Support Staff to the extent necessary to make knowledgeable Support Staff generally available on a consistent basis. 3.4 ENHANCED ACCESS/SERVICES. HCCC will notify EDS of each client request for new EDS Systems access, enhanced EDS Systems capabilities, and/or new or enhanced EDS Systems services ("Client Request"). Such notice will include all requested implementation deadlines. Within seven (7) business days of EDS' receipt of the HCCC notice and the associated written business requirements related thereto, EDS will either advise HCCC of its response to the Client Request or inform HCCC of a reasonable date by which it will respond. If EDS reasonably cannot meet the Client Request, the parties will work together in good faith to agree upon the terms of an alternate proposal in response to the Client Request. ARTICLE IV. OBLIGATIONS OF THE PARTIES 4.1 OBLIGATIONS OF THE PARTIES. During the term of this Agreement, HCCC will comply with the obligations described in Schedule C and EDS will provide the EDS Systems services described in Schedule D for Service Bureau Clients, System Lease Clients and those additional clients to which the parties mutually agree. EDS shall operate and maintain the EDS Systems on computer hardware located at such IPCs as EDS deems appropriate and shall permit remote access by HCCC and System Lease Clients. 4.2 OTHER SERVICES. The parties may agree to jointly market and provide to clients other products and services including but not limited to data base services and membership, billing and actuarial services ("Other Services"). The provision of Other Services to clients shall be upon such terms and conditions as are agreed to by the parties. 4.3 MARKETING. During the term of this Agreement, the parties will perform those marketing activities described in Schedule A. 4.4 ADDITIONAL SUPPORT BY EDS. In addition to the support services referred to above, EDS shall provide HCCC such additional support as HCCC may reasonably request in writing from time to time during the term of this Agreement upon mutually acceptable terms and conditions. ARTICLE V. DATA AND CONFIDENTIALITY 5.1 SAFEGUARDING HCCC DATA. EDS will establish and maintain safeguards to protect HCCC's data and data files in the possession of EDS. The safeguards, when taken as a whole, shall be no less rigorous than those that EDS uses to safeguard its own data. HCCC shall have the right to establish additional security for the data and data files and keep back-up data and data files on HCCC's premises; however, EDS shall have access to such back-up data and data files as reasonably required by EDS. 5.2 CONFIDENTIALITY DEFINITIONS. For purposes of Sections 5.3 and 5.4, the following terms 4 5 shall have the following meanings: 5.2.1 "Representatives" means the representatives of a party, including without limitation its attorneys, accountants and financial advisors. 5.2.2 "Agents" means the agents of a party, including without limitation its officers, directors and employees. 5.2.3 "Disclosing Party" means a party, its Agent or Representative, disclosing Confidential Information. 5.2.4 "Recipient Party" means a party, its Agent or Representative, receiving Confidential Information. 5.2.5 "Confidential Information" means all information furnished by one party, its Agents or its Representatives, whether furnished prior to or subsequent to the Effective Date, including without limitation information regarding fees; computer software; business procedures; contract rates; the EDS Systems; data files including without limitation the data contained therein, edits and audits, medical bill history and categorical relationships; the terms of this Agreement; and any information identified by a party as confidential or proprietary together with all analyses, compilations, forecasts, studies or other documents prepared by either party, its Agents or its Representatives, which contain or are based in whole or in part on any such information. Confidential Information shall not include information which (i) was or becomes generally available to the public other than as a result of disclosure by the Recipient Party; (ii) becomes available to the Recipient Party on a nonconfidential basis from a source (other than the Disclosing Party) which the Recipient Party has no reason to believe, after due inquiry, is prohibited from disclosing such information to the Recipient Party by a legal, contractual or fiduciary obligation; (iii) is independently developed by the Recipient Party without the use of the Disclosing Party's Confidential Information; or (iv) was rightfully in the Recipient Party's possession prior to receipt from the Disclosing Party. 5.2.6 "Persons" shall be broadly interpreted to include, without limitation, any corporation, company, group, partnership, entity or individual. 5.3 CONFIDENTIALITY. The Confidential Information shall be kept confidential and shall not, without the prior written consent of the Disclosing Party, be disclosed to any Person or used by the Recipient Party, in any manner whatsoever, other than pursuant to and in accordance with this Agreement. Moreover, the Recipient Party shall disclose the Confidential Information only to those Agents and Representatives who (i) need to know the Confidential Information for the purposes of this Agreement; and (ii) are informed by the Recipient Party of the confidential nature of the Confidential Information. The Recipient Party shall be responsible for any breach of this Agreement caused by its Agents or Representatives. If the Recipient Party or any Person to whom the Recipient Party furnished any Confidential Information pursuant to this Agreement 5 6 becomes legally compelled to disclose any of the Confidential Information, the Recipient Party shall provide the Disclosing Party with prompt notice thereof so that the Disclosing Party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement with respect to such Confidential Information. Upon any actual or threatened violation of this Section by either party, the other party shall be entitled to preliminary injunctive relief and other injunctive relief against any such violation. Such injunctive relief shall be in addition to, and in no way in limitation of, any and all remedies or rights to recover damages which such party shall have at law or in equity for enforcement of this Section. Nothing herein shall prohibit EDS from using, licensing, selling, modifying or otherwise commercially exploiting the EDS Systems. 5.4 RETURN OF CONFIDENTIAL INFORMATION. Upon termination or expiration of this Agreement for any reason, each party shall promptly return or, upon direction from the other party, destroy all Confidential Information of the other party in such party's possession, including without limitation Confidential Information which may be contained in any user or procedure manuals and certify to the other party in writing that same has been returned or destroyed. 5.5 AUDIT RIGHTS. Subject to Section 5.3 and upon at least thirty (30) days' prior written notice from HCCC, EDS shall provide to HCCC and its auditors and regulators access during regular business hours to any EDS facility that is used to provide services hereunder and data and records which directly relate thereto or support such services. None of such audits shall extend longer than ten (10) consecutive business days. Such access shall be limited to performing an audit of data related to HCCC and its business, to verify the integrity of such data and to examine the systems that support such data, including to the extent directly applicable to EDS' provision of such services, audits of (i) systems, (ii) general controls and security procedures, and (iii) disaster recovery procedures. HCCC shall not be entitled to audit (i) EDS financial information (other than the accuracy of EDS invoices to HCCC and HCCC clients which relate to the EDS Systems or services provided under this Agreement), (ii) services, facilities or functions that do not directly relate to or support services provided to HCCC, or (iii) information regarding other EDS customers. HCCC and its auditors and regulators must comply with all reasonable security and confidentiality procedures established by EDS at any facility to which access is granted. Audits shall not unreasonably interfere with EDS' normal business operations. EDS shall provide to HCCC and its auditors and regulators any assistance of a routine nature that they reasonably require in connection with any such audit. For other assistance, HCCC shall pay EDS at its then current commercial billing rates for similar services. ARTICLE VI. PAYMENTS TO EDS 6.1 CHARGES FOR EDS SYSTEMS AND SERVICES. HCCC shall pay to EDS the fees specified in Schedule E. 6.2 OTHER CHARGES. Fees for Other Services which may be provided under Section 4.2 and additional support which may be provided by EDS under Section 4.4 shall be paid as agreed upon by the parties. 6 7 6.3 OUT-OF-POCKET EXPENSES. Prior to incurring out-of-pocket expenses for which payment or reimbursement will be requested from HCCC, EDS will obtain written approval from the HCCC Manager. For approved expenses, HCCC shall pay, or reimburse EDS, for all reasonable and actual out-of-pocket expenses, such as travel and travel-related expenses in connection with the performance of this Agreement with the following exceptions: such expenses incurred by (1) the EDS system liaisons visits to System Lease Clients and (2) the EDS marketing coordinator or other designee in support of HCCC sales and client management activities related to the EDS Systems. 6.4 RERUNS. HCCC shall reimburse EDS for reruns necessitated by incorrect or incomplete data or erroneous instructions supplied by HCCC or its clients and for correction of programming, operator and other processing errors caused by HCCC or its clients. 6.5 TIME OF PAYMENT. Unless otherwise specified herein, any sum or charge due under this Agreement shall be due and payable within thirty (30) calendar days after receipt by either party of an invoice from the other. Any sum not paid when due shall bear interest until paid at a rate of two percent (2%) per annum more than the prime rate as published in the Wall Street Journal but in no event shall the interest exceed the maximum allowed by applicable law. HCCC shall be permitted to withhold payment of any amounts invoiced by EDS that HCCC reasonably and in good faith disputes if (i) HCCC promptly (but in any event within thirty (30) calendar days after receipt of the invoice) notifies EDS in writing of any disputed amount being withheld and specifies, in reasonable detail, the reasons why the amount is disputed and (ii) all such amounts that are individually or in the aggregate equal to or greater than $25,000 so withheld are, within thirty (30) calendar days after receipt of invoice, deposited into the Escrow Account. The Escrow Account shall be established as follows: (i) EDS shall open the Escrow Account in the name of EDS at a major national bank selected by EDS. The Escrow Account shall be and shall remain the property of EDS subject to the provisions below regarding disbursement of funds. (ii) The Escrow Account shall be established pursuant to an escrow agreement that provides that the funds therein, including accrued interest, shall be disbursed to HCCC and/or EDS, as applicable, in accordance with Article X or a mutual agreement of the parties. (iii) After resolution of any dispute with respect to which funds were placed in the Escrow Account, and after payment from the Escrow Account of all amounts due to EDS, including accrued interest thereon, with respect to such dispute, any remaining portion of the funds therein relating to such dispute including undisbursed accrued interest thereon, shall be promptly paid to HCCC. (iv) If the funds in the Escrow Account relating to any dispute are insufficient to satisfy any award or mutually agreed upon amount due to EDS with respect to such dispute, HCCC shall promptly pay to EDS the balance due, including any interest thereon computed in accordance with this Section. 7 8 6.6 TAXES. There shall be added to any charges under this Agreement, or separately billed, and HCCC shall pay to EDS, or reimburse EDS for the payment of, amounts equal to any taxes, however designated or levied, based upon such charges, or upon this Agreement, or upon the services (including, without limitation, telecommunication services), or software, equipment, materials, or other property (tangible or intangible), or the use thereof, provided under this Agreement, including, without limitation, state and local sales taxes, use taxes, property taxes, telecommunications taxes, privilege taxes, excise taxes (including, without limitation, federal excise taxes), and any taxes or amounts in lieu thereof paid or payable by EDS in respect of the foregoing, exclusive, however, of franchise taxes, taxes based on the net income of EDS and any tax levied on EDS generally for the provision of EDS' telecommunications network. 6.7 COST OF LIVING ADJUSTMENT. Except as otherwise specified in Schedule E, Section X, effective August 1, 1996 and each August 1st thereafter during the term of this Agreement, the fees and charges then payable under this Agreement and identified in Schedule E, Section X as subject to CPI increases, as previously adjusted in accordance with this Section, shall be increased by the lesser of (i) seventy percent (70%) of the percentage the CPI for June 1st of that year (the "Current Index") increased from the CPI one year prior thereto (the "Base Index") or (ii) eight percent (8%). EDS shall calculate such adjusted rates and provide HCCC notice thereof in the form of a revised Schedule E on or before July 1st of each year. If for any reason the CPI for June 1st is not published by July 1st of that same year, the fee adjustment shall be made as soon as possible after the publication of the CPI and shall be effective as of August 1st of that same year. Any fees paid prior to the CPI calculation which are subject to the CPI increase shall be adjusted promptly. In the event the Bureau of Labor Statistics stops publishing the CPI or substantially changes the content or format, the parties shall substitute another comparable measure published by a mutually acceptable source. In the event the change is merely to redefine the base year for the CPI from 1982-84 to some other year, the parties shall continue to use the CPI but shall, if necessary, convert either the Base Index or the Current Index to the same basis as the other by multiplying the Index by the appropriate conversion factor. ARTICLE VII. TERMINATION 7.1 TERMINATION FOR CAUSE. In the event either party defaults in the performance of any of that party's material duties or obligations under this Agreement (except for a default in payments, which shall be governed by Section 7.2) which default shall not be substantially cured within sixty (60) days after written notice is given to the defaulting party specifying the default or, with respect to those defaults which cannot reasonably be cured within sixty (60) days, should the defaulting party fail to proceed within sixty (60) days to commence curing the default and thereafter to proceed with all due diligence to substantially cure the default, the party not in default may terminate this Agreement by giving written notice to the defaulting party. 7.2 TERMINATION FOR NONPAYMENT. In the event either party defaults in the payment of any undisputed amount due to the other party under this Agreement and does not cure the default within ten (10) days after receipt by the defaulting party of written notice of the default, the 8 9 other party may terminate this Agreement by giving written notice to the defaulting party. In addition, EDS may terminate this Agreement if HCCC withholds payment of any amounts invoiced by EDS and (i) HCCC fails to notify EDS of such disputed amount in accordance with Section 6.5; (ii) HCCC fails, by the end of the thirty (30) day period specified in Section 6.5, to deposit any such disputed amount into the Escrow Account if so required by Section 6.5; or (iii) the aggregate amount withheld by HCCC at any one time exceeds one million dollars ($1,000,000) or, with respect to amounts due to EDS for any particular month, the aggregate amount so withheld exceeds fifty percent (50%) of the invoiced amounts for such month. 7.3 TERMINATION FOR INSOLVENCY. In the event either party becomes or is declared insolvent or bankrupt, is the subject of any proceeding relating to its liquidation, insolvency or the appointment of a receiver or similar officer, makes an assignment for the benefit of all or substantially all of its creditors or enters into an agreement for the composition, extension or readjustment of all or substantially all of its obligations, the other party may immediately terminate this Agreement. 7.4 SERVICES UPON EXPIRATION OR TERMINATION. Upon any expiration or termination of this Agreement, HCCC shall promptly pay to EDS all amounts due under this Agreement. Upon expiration of this Agreement or termination by HCCC pursuant to Section 7.1 or 7.3 hereof, EDS will, if requested by HCCC, provide reasonable training for HCCC personnel to permit continuity in the performance of data processing services for HCCC, said training to be provided during any notice period hereinabove specified and for up to six (6) additional monthly increments commencing with the date of such expiration or termination, and HCCC shall pay EDS for such training at EDS' then prevailing commercial rates for the personnel and other resources used in providing such training. 7.5 LICENSE RIGHTS UPON EXPIRATION OR TERMINATION. EDS Systems will be and remain EDS' property, and HCCC shall have no rights or interests therein except as described herein. Subject to the payment by HCCC of all amounts due to EDS under this Agreement, EDS shall grant HCCC, upon the Expiration Date or termination of this Agreement by HCCC pursuant to Section 7.1 or 7.3, a nonexclusive, nontransferable license to use any of the EDS Systems then owned by EDS and being used by EDS in rendering services to HCCC; provided, that HCCC shall give EDS not less than twelve (12) months' prior written notice of its intention to use such EDS Systems following expiration of this Agreement and agrees to pay a reasonable royalty for such use; provided further, however, in order to preserve and protect the confidentiality of the EDS Systems, if HCCC shall elect to operate such EDS Systems after the Expiration Date or termination of this Agreement by HCCC pursuant to Sections 7.1 or 7.3, HCCC and EDS shall enter into an agreement, in form and substance reasonably satisfactory to EDS and HCCC, containing such covenants and conditions as are necessary or reasonably required to protect EDS' proprietary rights to the EDS Systems, including but not limited to: (a) Except as provided in Paragraph (c) of this Section 7.5, the EDS Systems shall not be operated directly or indirectly by persons other than HCCC's full-time employees and shall only be operated on equipment owned or leased by HCCC; provided, 9 10 however, upon the mutual agreement of the parties, the EDS Systems may be operated by EDS at its then prevailing commercial rates for personnel and machine time. (b) Only HCCC work, including work HCCC performs for its clients, shall be processed utilizing the EDS Systems. (c) At no time may the EDS Systems or any of the various components thereof or any modifications thereto, be disclosed to third parties, sold, assigned, leased or otherwise disposed of, or commercially exploited or marketed in any way, with or without charge; except that HCCC may permit access to the EDS Systems by System Lease Clients which have executed agreements containing terms and conditions regarding confidentiality of the EDS Systems which have been approved by EDS. EDS shall not unreasonably withhold its approval of such terms and conditions. Further, HCCC shall keep confidential the EDS Systems and will not permit the EDS Systems to be copied or reproduced, in whole or in part, by any person, firm or corporation, at any time. (d) Violation in any material respect of any provision of the agreement referred to in this Section 7.5 may cause irreparable injuries to EDS and EDS shall be entitled to preliminary injunctive relief and other injunctive relief against any such violation. Such injunctive relief shall be in addition to, and in no way in limitation of, any and all remedies or rights to recover damages EDS shall have at law or in equity for the enforcement of the above agreements. 7.6 RIGHTS IN DATA UPON EXPIRATION OR TERMINATION. Upon expiration or termination of this Agreement, HCCC shall have the right without cost or accounting to EDS to use, disclose, sell or otherwise dispose of or commercially exploit HCCC Owned Data and EDS shall have the right without cost or accounting to HCCC to use, disclose, sell or otherwise dispose of or commercially exploit the EDS Owned Data Files/Data. ARTICLE VIII. INDEMNITIES 8.1 PERSONAL INJURY AND PROPERTY INDEMNITY. 8.1.1 EDS shall indemnify, defend and hold harmless HCCC from any and all Proceedings, damages, liabilities, costs and expenses, including without limitation, reasonable attorneys' fees and expenses, arising out of (i) the death or bodily injury of any agent, employee, customer or business invitee of EDS (other than HCCC or its employees), or (ii) damages to any of EDS' tangible personal or real property (whether owned or leased). 10 11 8.1.2 HCCC shall indemnify, defend and hold harmless EDS from any and all Proceedings, damages, liabilities, costs and expenses, including without limitation, reasonable attorneys' fees and expenses, arising out of (i) death or bodily injury of any agent, employee, customer or business invitee of HCCC (other than EDS or its employees), or (ii) damages to any of HCCC's tangible personal or real property (whether owned or leased). 8.2 INFRINGEMENT INDEMNITY. 8.2.1 By EDS. EDS shall defend any Proceeding brought or threatened against HCCC to the extent that such Proceeding is based on a claim that any EDS System owned by EDS and used to provide services to HCCC under this Agreement (i) infringes a copyright enforceable in the United States, (ii) infringes a United States patent, (iii) constitutes misappropriation or unlawful disclosure or use of any trade secret under United States or state law, or (iv) infringes any similar proprietary rights under United States or state law. EDS shall bear the expense of such defense and pay any damages and attorneys' fees finally awarded by a court of competent jurisdiction which are attributable to such claim, provided that HCCC has complied with Section 8.4. Should such EDS Systems become, or in EDS' opinion be likely to become, the subject of a claim of infringement of a copyright or patent or misappropriation or unlawful disclosure or use of a trade secret, or infringement of a similar proprietary right, EDS shall, at its option, attempt to procure the right to continue using such EDS Systems, or replace or modify such EDS Systems to make their use under this Agreement noninfringing. If neither option is reasonably available in EDS' judgment, then the Account Manager and the HCCC Manager shall meet to review the impact, if any, on the completion of the services to be performed by EDS under this Agreement and negotiate in good faith any appropriate adjustments to such services. 8.2.2 By HCCC. HCCC shall defend any Proceeding brought or threatened against EDS to the extent that such Proceeding is based on a claim that any data, data files, edits, audits or other items provided to EDS by HCCC under this Agreement, (i) infringes a copyright enforceable in the United States, (ii) infringes a United States patent, or (iii) constitutes misappropriation or unlawful disclosure or use of any trade secret under United States or state law, or (iv) infringes any similar proprietary right under United States or state law. HCCC shall bear the expense of such defense and pay any damages and attorneys' fees finally awarded by a court of competent jurisdiction which are attributable to such claim, provided that EDS has complied with Section 8.4. Should such items become, or in HCCC's opinion be likely to become, the subject of a claim of infringement of a copyright or patent or misappropriation or unlawful disclosure or use of a trade secret, or infringement of a similar proprietary right, HCCC shall, at its option, attempt to procure for 11 12 EDS the right to continue using such items, or replace or modify such items to make their use under this Agreement noninfringing. If neither option is reasonably available in HCCC's judgment, then (i) at HCCC's request, EDS shall destroy the original and all partial and complete copies of such items and (ii) the Account Manager and HCCC Manager shall meet to review the impact, if any, on the completion of the services to be performed by EDS under this Agreement and negotiate in good faith any appropriate adjustments to such services. 8.3 RENT AND UTILITY INDEMNITY. Each party shall indemnify, defend and hold harmless the other party from any and all Proceedings, damages, liabilities, costs and expenses, including without limitation, reasonable attorneys' fees and expenses, arising out of any claims for rent or utilities at any location where the indemnitor is required to furnish space or utilities to the other party pursuant to this Agreement. 8.4 INDEMNITY PROCEDURES. Any party entitled to indemnification under this Article VIII shall give the party from which it is seeking indemnification prompt written notice of any matters in respect of which the indemnity may apply and of which the party claiming indemnification has knowledge; provided, however, that if a party claiming indemnification fails to give the other prompt written notice, such other party shall only be relieved of its obligations under such provision if and to the extent that such party is materially prejudiced thereby. In addition, the party claiming indemnification shall give the other party full opportunity to control the response thereto and the defense thereof. The party claiming indemnification shall have the right to participate in any legal Proceedings to contest and defend a claim for indemnification involving a third party and to be represented by its own attorneys, all at such party's cost and expense. No settlement or compromise of any asserted third-party claim may be made without the prior written consent of the party claiming indemnification. ARTICLE IX. WARRANTY AND LIABILITY 9.1 WARRANTY. EDS warrants that (i) the TPS initially made available to HCCC and System Lease Clients by EDS under this Agreement shall be the same TPS last used by HCCC and EDS under the 1989 Agreement; (ii) the documented portions of the TPS shall substantially conform to the applicable TPS Documentation (as defined in Schedule D, Section 12) developed pursuant to Schedule D, Section 12; and (iii) unless otherwise agreed to by the parties, all EDS Systems other than the TPS which may be provided under this Agreement shall substantially conform to the associated System Documentation. EDS' entire liability and HCCC's exclusive remedy for a breach of this warranty is as specified in Schedule D, Section 20. EDS is primarily providing services and access to the EDS Systems to HCCC under this Agreement. However, EDS may from time to time provide certain equipment, additional systems and other items as an incidental part of such services. With the exception of manufacturer's or licensor's warranties which EDS is able to pass through for HCCC's benefit, such equipment, systems and items are provided by EDS on an "AS-IS" basis without warranty. EDS MAKES NO OTHER WARRANTIES OF 12 13 ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO ANY EQUIPMENT, SYSTEMS, SERVICES, TECHNICAL INFORMATION, TECHNICAL ASSISTANCE OR OTHER ITEMS PROVIDED BY EDS PURSUANT TO THIS AGREEMENT. EDS EXPRESSLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 9.2 LIMITATION OF LIABILITY. If EDS is liable to HCCC for any matter arising out of or relating to this Agreement, whether based on an action or claim in contract, equity, negligence or otherwise, the aggregate amount of damages recoverable against EDS for all events, acts or omissions shall not exceed the amount paid to EDS under this Agreement (exclusive of amounts paid in reimbursement or payment of expenses or taxes) during the three-month period preceding the most recent event, act or omission for which damages are recoverable against EDS; provided, however, that the foregoing limitation shall not apply to (i) EDS' willful misconduct intended to cause harm to HCCC or (ii) the indemnities set forth in Sections 8.1.1 and 8.2.1. In addition, EDS shall not be liable for, and the measure of damages shall not include, any amounts for (i) punitive, indirect or consequential damages or lost profits of any party, including without limitation, third parties or (ii) damages that could have been avoided had HCCC exercised reasonable diligence. 9.3 LIMITATION OF ACTIONS. No cause of action may be asserted against either party under this Agreement later than two (2) years following the date on which the cause of action accrued. 9.4 ACKNOWLEDGEMENT. HCCC and EDS expressly acknowledge that the limitations contained in this Article IX represent the express agreement of the parties with respect to the allocation of risks between the parties, including the level of risk to be associated with the performance of services hereunder as related to the amount of the payments to be made to EDS for such services, and each party fully understands and irrevocably accepts such limitations. ARTICLE X. DISPUTE RESOLUTION 10.1 INTERNAL RESOLUTION. If representatives of the parties are unable to resolve promptly a dispute between the parties with respect to the interpretation of any provision in this Agreement or the performance by either party of its respective obligations under this Agreement, then such dispute will be escalated within each party's organization to a senior executive for resolution. If such senior executives are unable to resolve promptly such dispute, then each of the parties will appoint another senior executive who does not devote substantially all of his or her time to performance of this Agreement, whose task it will be to meet for the purpose of endeavoring to resolve promptly the dispute or to negotiate promptly an adjustment to the disputed provision of this Agreement. In each case, the parties responsible for resolving a dispute will discuss the problem and negotiate in good faith in an effort to resolve such dispute or renegotiate the applicable provision without the necessity of any formal proceeding. The specific format for the discussions shall be left to the discretion of the parties responsible for resolving the dispute. Both parties will continue performing their respective obligations under this Agreement while the dispute is being resolved unless and until this Agreement expires or is terminated in accordance with the provisions of this 13 14 Agreement. This Section 10.1 shall not prevent the parties from exercising the termination rights set forth in this Agreement. 10.2 ARBITRATION. Any dispute, controversy, or claim arising out of or relating to this Agreement, or the creation, validity, interpretation, breach, or termination of this Agreement, that the parties are unable to resolve in accordance with Section 10.1, will be settled by binding arbitration in accordance with the Commercial Arbitration Rules (hereinafter referred to as the "Rules") of the American Arbitration Association (hereinafter referred to as "AAA") as modified and supplemented by the procedures set forth in Subsections 10.2.1 through 10.2.10 as follows. Judgement upon the award rendered by the arbitrator may be entered in, and enforced by, any court having jurisdiction thereof. 10.2.1 SPECIFIC DEMAND AND COUNTERCLAIM. The demand for arbitration and any counterclaim will specify in reasonable detail the facts and legal grounds forming the basis for the filing party's request for relief, and will include a statement of the total amount of damages claimed, if any, and any other remedy sought by that party. 10.2.2 APPOINTMENT OF ARBITRATOR. The parties will attempt to select by agreement a single neutral arbitrator to hear the dispute, controversy, or claim, which arbitrator need not be affiliated with the AAA. If the parties fail to agree on a single neutral arbitrator within ten (10) days after the filing of the demand for arbitration, a single neutral arbitrator will be appointed in accordance with the Rules of the AAA. 10.2.3 PROVISIONAL REMEDIES AVAILABLE FROM COURT. Pending the arbitral tribunal's determination of the merits of a dispute, claim, or controversy, either party may apply to any court having jurisdiction to seek injunctive or other extraordinary relief. 10.2.4 LOCATION OF ARBITRATION. The arbitration proceeding will take place in Dallas, Texas. 10.2.5 LIMITATION ON AUTHORITY OF ARBITRATOR. The arbitrator will not have authority to award damages in excess of the amount or other than the types allowed by Section 9.2 and may not, in any event make any ruling, finding or award that does not conform to the terms and conditions of this Agreement. 10.2.6 LIMITED DISCOVERY. Discovery will be limited to the request for and production of documents, depositions, and interrogatories. Interrogatories will be allowed only as follows: a party may request the other party to identify by name, last known address, and telephone number: (i) all persons having knowledge of facts relevant to the dispute, controversy, or claim, and a brief description of that person's knowledge; (ii) any expert(s) who may be called as an expert witness, the subject matter about which the expert is expected to testify, the mental impressions and opinions held by the expert, and the facts known by the expert (regardless of when the factual information was acquired) which relate to or form the basis for the mental 14 15 impressions and opinions held by the expert; and (iii) any expert(s) used for consultation, who is not expected to be called as an expert witness, if the consulting expert's opinions or impressions have been reviewed by an expert witness. All discovery will be guided by the Federal Rules of Civil Procedure. All issues concerning discovery upon which the parties cannot agree will be submitted to the arbitrator for determination. 10.2.7 PARTY MAY REQUEST WRITTEN FINDINGS AND CONCLUSIONS. Upon the request of a party, the arbitrator's award will include written findings of fact and conclusions of law. 10.2.8 FEES AND EXPENSES SHARED. Each party will bear its own attorneys' fees and its own costs and expenses (including filing fees), and will also bear one-half of the total arbitrator's and other administrative fees of arbitration. 10.2.9 ENFORCEMENT. Other than those matters involving injunctive or extraordinary relief as a remedy, or any action necessary to enforce the award of the arbitrator, the provisions of this Section 10.2 are a complete defense to any Proceeding instituted by, or on behalf of, either party against the other party in any court or before any administrative or arbitral tribunal with respect to any dispute, controversy, or claim arising out of or related to this Agreement or the creation, validity, interpretation, breach, or termination of this Agreement. 10.2.10 TERMINATION RIGHTS NOT AFFECTED BY ARBITRATION. Nothing in this Section 10.2 prevents the parties from exercising the termination rights set forth in this Agreement. ARTICLE XI. MISCELLANEOUS 11.1 BINDING NATURE AND ASSIGNMENT. This Agreement shall be binding on the parties and their respective successors and permitted assigns. Neither party may assign this Agreement without the prior written consent of the other party. 11.2 NOTICES. Whenever under this Agreement one party is required or permitted to give notice to any other party, the notice shall be deemed given when delivered in hand or when mailed by United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed as follows: In the case of EDS: Electronic Data Systems Corporation 5400 Legacy Drive Plano, Texas 75024 15 16 Attn: President, Commercial Insurance SBU Facsimile Number (214) 604-8763 With a copy (which shall not constitute effective notice) to: Electronic Data Systems Corporation 13736 Riverport Drive Maryland Heights, Missouri 63043 Attention: Contracts (Distribution Code: 1163) Facsimile Number: (314) 344-5138 In the case of HCCC: HealthCare COMPARE Corp. 3200 Highland Avenue Downers Grove, Illinois 60515 Attn: President With a copy sent to the attention of the Legal Department at the same address. 11.3 COUNTERPARTS. This Agreement may be executed in several counterparts all of which taken together shall constitute one single agreement between the parties. 11.4 HEADINGS. The article, section and paragraph headings are for reference and convenience only and shall not enter into the interpretation of this Agreement. 11.5 RELATIONSHIP OF PARTIES. The parties in furnishing services to each other under this Agreement are acting only as independent contractors. Notwithstanding any other provision in this Agreement to the contrary, nothing herein is intended or will be construed to establish any agency, employment, partnership or joint venture relationship between the parties. Neither party undertakes by this Agreement or otherwise to perform any obligation of the other whether regulatory or contractual or to assume any responsibility for the other party's business or operations. Unless otherwise provided in this Agreement, each party has the sole right and obligation to supervise, manage, contract, direct, procure, perform or cause to be performed all work to be performed by that party pursuant to this Agreement. 11.6 NO THIRD PARTY BENEFICIARIES. Except as provided in Section 19.3 of Schedule D, this Agreement is entered into by and between the parties hereto solely for their benefit. Except as provided in Section 19.3 of Schedule D, the parties have not created or established any third-party beneficiary status or rights in any person or entity not a party hereto including, without limitation, any Service Bureau Client, any System Lease Client or any other client or customer of HCCC, and no such third party shall have any right to enforce any right or enjoy any benefit created or established under this Agreement. 16 17 11.7 HIRING OF EMPLOYEES. Except as otherwise agreed in writing, during the period this Agreement is in effect and for a period of three (3) years thereafter, HCCC and EDS agree to refrain from hiring any officer or employee employed then or within the preceding twelve (12) months by the other party or a subsidiary of the party. However, this Section 11.7 shall not apply in the event an employee responds to a public advertisement or other widely disseminated employment notice and such employee is hired as a result of such response. 11.8 APPROVALS AND SIMILAR ACTIONS. Where agreement, approval, acceptance, consent or similar action is required by any provision of this Agreement, such action shall not be unreasonably delayed or withheld. 11.9 FORCE MAJEURE. Each party shall be excused from performance for any period and to the extent that the party is prevented from performing any services, in whole or in part, as a result of delays caused by the other party, an act of God, war, civil disturbance, court order, labor dispute, third party nonperformance or other cause beyond that party's reasonable control, including failures or fluctuations in electrical power, heat, light, air conditioning or telecommunications equipment and such nonperformance shall not be a default or a ground for termination. 11.10 SEVERABILITY. Should any provision of this Agreement be declared or found to be illegal, unenforceable or void, both parties shall be relieved of all obligations arising under that provision. Should the provision not relate to the payments to be made to EDS and should the remainder of this Agreement not be affected by the declaration or finding and capable of substantial performance, each provision not so affected shall be enforced to the extent permitted by law. 11.11 AMENDMENT; WAIVER. This Agreement may be amended only by mutual written agreement of the parties. No delay or omission by either party to exercise any right or power shall impair such right or power or be construed as a waiver. A waiver by any of the parties of any of the covenants to be performed by the other or any breach shall not be construed to be a waiver of any succeeding breach or of any other covenant. 11.12 MEDIA RELEASES. All media releases, public announcements and public disclosures by either party relating to this Agreement or the subject matter of this Agreement including, without limitation, promotional or marketing material but not including any announcement intended solely for internal distribution or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of the party shall be coordinated with and approved by the parties prior to the release. 11.13 ENTIRE AGREEMENT. This Agreement, including Schedules A, B, C, D and E, each of which is incorporated herein, and any amendments hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes the 1989 17 18 Agreement, the TSO Agreement and any other prior or contemporaneous understandings, whether oral or written, regarding the subject matter hereof. 11.14 SURVIVAL. The provisions of Articles V, VIII, X and XI and Sections 7.4, 7.5, 7.6, 9.2, 9.3 and 9.4 of this Agreement and Section 19 of Schedule D shall survive termination or expiration of this Agreement. 11.15 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws, other than choice of law rules, of the State of Texas. IN WITNESS WHEREOF, EDS and HCCC have each caused this Agreement to be signed and delivered by its duly authorized representative. ELECTRONIC DATA SYSTEMS HealthCare COMPARE Corp., on behalf of itself, CORPORATION OUCH and AFFORDABLE By: By: -------------------------- ----------------------------------------- John Crysler, President Patrick G. Dills, Executive Vice President Date: Date: ----------------------- ---------------------------------------- 18 19 SCHEDULE A MARKETING I. MARKETING. During the term of this Agreement, each party shall: (a) Promote and market the products and services offered by the parties for the benefit of HCCC and EDS to clients of HCCC and EDS. (b) Assist the other party in promoting and marketing the products and services offered by the parties for the benefit of HCCC and EDS to potential new clients of HCCC and EDS. (c) Advise the other party of prospective clients and their interests in the benefits of the products and services offered by such other party. (d) Perform mutually agreed upon joint market research to develop facts and information regarding prospective clients. (e) Develop mutually agreed upon promotional materials. (f) Host visits to existing HCCC, EDS and/or client sites by prospective clients for the purpose of describing the EDS Systems and the services provided by HCCC and EDS. (g) Perform other mutually agreed upon marketing activities. II. COORDINATION. Each party shall designate one (1) of its employees to be a marketing coordinator who shall be responsible for the coordination of marketing activities under this Agreement. The Account Manager may be designated as EDS' marketing coordinator. The HCCC Manager may be designated as HCCC's marketing coordinator. The marketing coordinators will meet as agreed upon to develop marketing plans and strategies and to better coordinate the joint marketing opportunities and activities of HCCC and EDS. III. MARKETING EXPENSES. Each party shall bear its own respective costs and expenses arising out of any marketing activities under this Agreement. However, with the prior written agreement of both parties, specific expenses incurred by a party may be shared in an agreed upon proportion by the other party. A-1 20 SCHEDULE B HCCC BUSINESS ENVIRONMENT I. CLIENT SERVICE OPTIONS HCCC clients may select either of the following two system access options: A. SERVICE BUREAU CLIENTS. Service Bureau Clients will submit to HCCC medical bills which will be entered into the EDS Systems by HCCC staff, reviewed by HCCC staff and/or the EDS Systems, and repriced by the EDS Systems. HCCC staff will notify Service Bureau Clients of the results of the review and repricing process. B. SYSTEM LEASE CLIENTS. System Lease Clients will utilize the EDS Systems directly and employ their own staff to enter medical bills and review certain medical bills. EDS will operate the EDS Systems and HCCC will administer the EDS Systems and provide training in EDS Systems use for staff of System Lease Clients. II. SYSTEM FEATURES The TPS reviews and reprices medical bills including hospital inpatient and outpatient, professional, pharmacy, administrative, and other billings for workers' compensation, group health, automobile, and may include other insurance programs. Bills are compared with state fee schedules, state rules and regulations, Preferred Provider Organization ("PPO") contract pricing or usual and customary pricing, as appropriate, and repriced in accordance with the lowest applicable pricing. The TPS detects both duplicate bills and individual services billed, as well as certain billing infractions (e.g., unbundling, mutually exclusive procedures). The TPS also applies utilization management pre-certification recommendations. III. REQUIRED SYSTEM INTERFACES The following interfaces are required between the TPS and various HCCC systems to provide services to HCCC and HCCC's clients: B-1 21 A. HCCC CORPORATE PROVIDER DATABASE. For the AFFORDABLE Medical Networks, HCCC's corporate provider database contains the information necessary to populate the TPS' provider file which receives demographic information, network affiliation(s) and associated contract rates. Alternatively, and until implementation of the provider database/TPS interface, provider information is entered directly into the TPS' provider file. B. HCCC'S CORPORATE CLIENT DATABASE. HCCC's corporate client database contains the information for Service Bureau Clients necessary to populate the TPS' client file which receives information pertaining to HCCC's fee structure, key contact personnel, rules by which to review medical bills, and employer identification (if applicable). Alternatively, and until implementation of the client database/TPS interface, client information is entered directly into the TPS' client file. C. HCCC UTILIZATION/MEDICAL MANAGEMENT SYSTEM. HCCC's utilization/medical management system contains pre-certification recommendations for select services. This information is transmitted to the TPS which reviews bills for consistency with pre-certification recommendations. D. HCCC ACCOUNTING SYSTEM. HCCC's accounting system receives the results of each medical bill review performed by the TPS for Service Bureau Clients. The accounting system records the amount to be invoiced to HCCC's Service Bureau Clients and applies cash received from such clients. E. CLIENT CLAIM AND FINANCIAL SYSTEMS. Clients' claim and financial systems receive the results of each medical bill review from the TPS. This information allows clients to update their claim files and generate payments to providers. Clients' claim systems also furnish the TPS with claim information used to validate medical bill information during bill review. B-2 22 F. OTHER SYSTEMS. Other EDS Systems interfaces or modifications to existing interfaces may be developed from time to time under the terms of Schedule D to support the business requirements of HCCC and HCCC's clients. B-3 23 SCHEDULE C HCCC SYSTEM OBLIGATIONS During the term of this Agreement, HCCC shall perform the following: 1. Provide EDS staff who are required to perform services at HCCC's offices with office space, office furnishings, office equipment (excluding personal computers), and office related services including janitorial service, telephone service and utilities and any other services which HCCC determines are reasonably necessary to perform the services required under this Agreement. All office space, furnishings, equipment and services to be provided under this paragraph will be comparable to that which HCCC provides HCCC colleagues in equivalent positions. As required to perform services under this Agreement, authorized EDS staff shall have necessary access to the work area and equipment assigned to such EDS staff in HCCC's offices seven (7) days a week, twenty-four (24) hours a day; provided, however, that such EDS staff shall comply with all relevant HCCC policies and procedures. 2. Store all back-up data files maintained by HCCC pursuant to Section 5.1 of this Agreement or reasonably required by EDS to be maintained on HCCC's premises for effective EDS Systems performance. 3. Pay all taxes, leases, insurance, maintenance, depreciation and other associated costs for HCCC owned hardware and pay the costs associated with HCCC-leased hardware as provided in the applicable equipment lease. For Service Bureau Clients only, HCCC shall retain all responsibility for current and future end-user hardware including, but not limited to, terminals, printers, controllers, and personal computers. 4. Continue to provide all communications lines, modems, interface equipment, terminals, and other equipment and services provided under the 1989 Agreement for access to and utilization of the EDS telecommunications network and EDS Systems. HCCC also shall provide, or cause to be provided, all modems, interface equipment, terminals, and other equipment at the offices of HCCC and the System Lease Clients necessary to access and utilize the EDS telecommunications network and the EDS Systems. EDS and HCCC shall confer and mutually agree upon the selection of such equipment. Upon request by HCCC, EDS will provide such equipment upon mutually agreeable terms and at EDS' usual and customary fees. 5. Provide to EDS, upon EDS' reasonable request data processing related forms and supplies required for EDS to perform its services under this Agreement. 6. Provide for or pay for costs associated with the delivery of data and other input and for distribution of reports and other output between EDS print facilities and HCCC locations. C-1 24 7. Provide EDS with written business requirements for EDS Systems modifications in a format which is agreed to by the parties. HCCC will involve EDS in the development of a project schedule, including implementation dates, for all EDS Systems modifications required by HCCC. 8. HCCC will provide EDS with timely management decisions, information, approvals, and acceptances as reasonably required for EDS to perform its services under this Agreement. 9. Provide EDS with information regarding the priority levels of requested EDS Systems modifications and involve EDS in the establishment of such priority levels. 10. Perform timely acceptance testing for EDS Systems modifications completed by EDS and, upon acceptance of such modifications, authorize EDS to load the accepted EDS Systems modifications into the production environment. 11. Maintain, update and assume responsibility for the accuracy of, the following EDS Systems files and other EDS Systems reference sources, including any updates thereto required to be compatible with the GMIS licensed software: a) Provider file*+ b) Client file* c) Examiner file* d) Procedure file e) Diagnosis file f) Severity file g) Medium file h) Pricing file - Fee Schedule pricing - PPO pricing*+ i) Message file j) Authorization file k) U/R String file l) Stop table m) Geno tables n) Condition Code Narrative file o) Work Scheduler file* p) Duplicate Code Grid q) Reporting Matrix file * File also maintained by HCCC System Lease Clients. *+ File also maintained by HCCC System Lease Clients for non-PPO providers and/or external PPO networks. 12. Perform all HCCC functions required to implement fee schedule pricing values within thirty (30) days of fee schedule receipt by HCCC, automate fee schedule rules and regulations within sixty (60) days of fee schedule receipt by HCCC, and implement C-2 25 billing infraction software revisions within ninety (90) days of fee schedule receipt by HCCC. HCCC will provide notice to EDS of any new or revised fee schedules received by HCCC within five (5) days of receipt, and delivery of written business requirements within a reasonable time; provided, however, that if HCCC's delivery of written business requirements to EDS occurs more than ten (10) days after HCCC's receipt of the fee schedules, the applicable fee schedule implementation deadline set forth in this Section 12 and in Schedule D, Section 7 shall be extended by a number of days equal to the number of days by which HCCC's delivery of written business requirements to EDS exceeds the ten (10) day time period. HCCC will develop and maintain in a mutually agreed upon format a delivery tracking report for all pricing obligations pursuant to this Section 12 and provide a copy to the Account Manager on a weekly basis. 13. Develop and maintain user procedure manuals for use by HCCC and System Lease Clients. 14. Acquire data from expert system vendors to maintain and update the EDS Systems files referred to in Section 11 above. 15. Inspect and review all reports produced by EDS and provide EDS with prompt documentation of all discrepancies. 16. Provide input data to be processed by the EDS Systems in a mutually acceptable format and media and cause the System Lease Clients to do likewise. 17. Enter into separate written agreements with Service Bureau Clients and System Lease Clients, such agreements to include obligations of confidence and nondisclosure no less stringent than those included in this Agreement and otherwise be consistent with the terms and conditions of this Agreement. C-3 26 SCHEDULE D EDS SYSTEM SERVICES During the term of this Agreement, EDS shall perform the following services. Unless otherwise specified, fees for such EDS services are included in the fees set forth in Schedule E hereof. 1. Provide output from (i) the TPS consistent with past practice under the 1989 Agreement or other mutually agreed upon format which is consistent with supporting HCCC's business environment described in Schedule B and in accordance with the associated System Documentation developed by EDS hereunder pursuant to Section 12 of Schedule D and (ii) other EDS Systems in accordance with the associated System Documentation or other mutually acceptable format which is consistent with supporting HCCC's business environment described in Schedule B. Prior to providing any new output, EDS will provide HCCC with an opportunity to review and comment on EDS' proposed format and media for such output. Any new requirements for interfacing the EDS Systems to various HCCC or HCCC client systems will be mutually agreed to by the parties. 2. Accept input from HCCC and HCCC clients into the EDS Systems in a mutually acceptable format and media. 3. Provide HCCC with a weekly status report for modifications to the EDS Systems designed and developed during the term of this Agreement. The status report will include a current development and implementation schedule and any other information which HCCC may reasonably request. 4. Prior to incurring any costs related to modifications of the EDS Systems for which EDS will request payment from HCCC, EDS will submit a written estimate to the HCCC Manager for approval. 5 Provide routine EDS Systems maintenance and modifications to maintain and update the EDS Systems in support of HCCC's "core" Bill Review product(s). Routine EDS Systems maintenance includes: a) Usual and Customary pricing data tape loads; b) Fee Schedule pricing data tape loads; c) PPO pricing data tape loads; d) PPO provider data tape loads; e) GMIS licensed software database loads; D-1 27 f) Benefit file loads (unless otherwise agreed by the parties); g) System file loads (procedure, pricing, message, diagnosis, etc.); h) Modification of severity edits; and i) Other similar maintenance to existing EDS Systems functionality. Modifications to maintain and update the EDS Systems in support of HCCC's "core" Bill Review product(s) will be performed in accordance with a standard methodology which is mutually agreed upon by the parties and includes: a) Automation of fee schedule pricing routines; b) Automation of PPO pricing routines; c) Automation of fee schedule rules and regulations; d) Automation of other state regulated requirements, including reporting; e) Change of sorting sequences in any exception or control report; f) Correction of malfunctioning system logic; g) Addition of information available in the database on a report currently being produced; h) Development and implementation of EDS Systems modifications that increase revenue for both EDS and HCCC; i) Development and implementation of EDS Systems modifications requested by HCCC or HCCC's clients that are required to retain existing business or are considered value added services to attract prospective clients and are mutually agreed upon by HCCC and EDS; j) Development of new interfaces between the EDS Systems and various HCCC and HCCC client systems which require only minor changes to existing formats; and k) Other mutually agreed upon EDS Systems modifications. 6. Provide major EDS Systems modifications requested by HCCC. EDS may request payment for such services from HCCC at EDS' usual and customary fees or such other fees as the parties may agree upon. Major EDS Systems modifications are modifications which are not included in Section 5 above and which are substantial changes affecting the fundamental structure or design of the EDS Systems. Major EDS Systems modifications will be performed in accordance with a standard methodology which is mutually agreed upon by the parties. 7. Subject to Section 12 of Schedule C, perform all EDS functions required to implement fee schedule pricing values within thirty (30) days of fee schedule receipt by HCCC, automate fee schedule rules and regulations within sixty (60) days of fee schedule receipt by HCCC, and implement billing infraction software revisions within ninety (90) days of fee schedule receipt by HCCC, unless an alternate implementation schedule is agreed upon by the parties. D-2 28 8. Provide technical customer service support for System Lease Clients and support to HCCC's training staff for training of System Lease Clients' staff. 9. Conduct unit testing and integrated EDS Systems testing on all EDS Systems modifications and load the EDS Systems modifications into the model office environment upon successful completion of the unit testing. 10. Provide model office implementation dates for all EDS Systems modifications within seven (7) business days after business requirements have been completed and signed off by HCCC and EDS, unless an extended time frame is mutually agreed upon; provided, however that the implementation date provided by EDS may be revised if there is a subsequent change in the business requirements. 11. Upon request by HCCC, prepare written material related to the EDS Systems and the EDS Systems' functionality to be included in HCCC's responses to Requests for Proposals (RFPs) in order to promote and market the EDS Systems and services provided under this Agreement. EDS shall submit such written material on or before the deadline included in HCCC's request. 12. HCCC and EDS acknowledge that TPS (as previously modified under the 1989 Agreement) has not been documented by HCCC and EDS. It is HCCC and EDS' desire that both a Reports Manual and a System Design Definition Document (collectively, the "TPS Documentation") which accurately reflect the correct performance of the then-current version of TPS used by HCCC and EDS under this Agreement be developed over time. To this end, EDS has identified certain documentation for another version of TPS (the "Existing TPS Documentation") that may be used, in part, by EDS to create the TPS Documentation. Recognizing the substantial resources required to document the version of TPS used by HCCC and EDS under this Agreement and HCCC and EDS' limited resources available for such an effort, HCCC and EDS agree to develop the TPS Documentation as system modifications and major system modifications are developed under this Agreement. Under this approach, HCCC and EDS will develop new or revised TPS Documentation for each such modification and the affected base TPS program modules as such modifications are being developed while extracting and using, to the extent reasonably feasible, portions of the Existing TPS Documentation applicable to the affected base TPS program modules. Such new or revised TPS Documentation will include the associated business and technical designs developed by HCCC and EDS and approved by the HCCC Manager through the change system request ("CSR") process used by HCCC and EDS to develop such modifications. Notwithstanding the foregoing, HCCC and EDS agree that TPS Documentation for the following portions of the TPS will be developed on or before March 1, 1997: the Injury Record Process, PPO Pricing, Electronic Data Interchange Output Records, D-3 29 HCCC Pre-Certification Recommendations/TPS Interface, the Huron Application, the Fee Schedule and Pricing Subsystem, the Provider File Application and the Client File Application (collectively "Applications"). On or before March 1, 1996, EDS will prepare and deliver to the HCCC Manager a comprehensive summary level project work plan for the development of TPS Documentation for the Applications. Furthermore, the HCCC Manager and the Account Manager shall meet at a mutually agreed upon time no later than September 1, 1998 to: (i) review what portions of the TPS have not yet been documented and (ii) negotiate a schedule for completing TPS Documentation for such portions of the TPS, it being acknowledged, however, that HCCC and EDS shall not document any portions of the then-current version of TPS not being used by HCCC and EDS under this Agreement. EDS will provide HCCC one copy of the initial TPS Documentation (but not the Existing TPS Documentation) in human-readable form. HCCC may copy the TPS Documentation, in whole or in part, solely for HCCC's internal business purposes. HCCC will retain and reproduce any copyright or proprietary notices in their original form on all copies (including partial copies) made by HCCC. The original and all complete and partial copies of the TPS Documentation will be the sole property of EDS and will be subject to the terms and conditions of this Agreement. On a scheduled basis every third month after HCCC's receipt of the initial TPS Documentation and on a non-scheduled basis at HCCC's reasonable request, EDS will provide HCCC one copy of the then-current TPS Documentation in human-readable form. Promptly following receipt of the then-current TPS Documentation, HCCC will either return to EDS or destroy the prior version of the TPS Documentation, including all complete and partial copies thereof. Upon termination or expiration of this Agreement, HCCC will return all TPS Documentation in its possession to EDS and certify to EDS in writing the same has been returned, unless such documentation has been licensed thereafter by HCCC pursuant to Section 7.5. 13. Store HCCC's medical bill history data on-line for a period of thirty-six (36) months. Medical bill history data beyond thirty-six (36) months shall be retained by EDS indefinitely in a storage medium determined by EDS that permits timely access and retrieval of the data. 14. Store any magnetic tapes, disc packs, or other electronic media containing HCCC data which may be in the possession or custody of EDS in compliance with a retention schedule to be developed by the parties prior to the Effective Date of this Agreement. The retention schedule may be revised from time to time upon agreement of the parties. If any applicable law or regulation requires retention of HCCC data beyond the time specified in the retention schedule, EDS will comply with such requirements upon mutually acceptable terms and conditions. D-4 30 15. Provide HCCC with timely management decisions, information, and approvals as reasonably required under this Agreement. 16. Comply with the service level guidelines set forth in Attachment 1 to this Schedule D in performing services for all HCCC clients, except that EDS will comply with the service level guidelines set forth in Attachment 2 to this Schedule D in performing services for Liberty Mutual Managed Care, Inc. 17. Produce periodic reports of the services provided under this Agreement to include, at a minimum, all reports listed on Attachment 3 to this Schedule D or the functional equivalents of such report(s). 18. Provide the following services and capabilities in support of HCCC's analytical needs through November 14, 1995. Thereafter, such services and capabilities will be provided automatically on a year-to-year basis until terminated by either party with at least ninety (90) calendar days written notice prior to expiration of the then current period. a) Initial training for HCCC's users identified to EDS from time to time on the following: (i) Time-sharing Option ("TSO") usage (ii) Job Control Language ("JCL") (iii) IPC Processing Standards b) Assigning the users identified to EDS from time to time EDS*NET and other applicable log-on identification numbers with appropriate access codes. c) Access to the IPC via EDS*NET at a minimum during the On-Line Scheduled Hours of Availability set forth in Attachment I to this Schedule D. d) Access to applications resident in the IPC which EDS is not restricted from providing HCCC access. e) Access to applications resident in the IPC which EDS is restricted from providing HCCC access after obtaining rights to permit HCCC access or to applications not resident in the IPC after EDS obtains such applications. However, EDS will make such "restricted" applications available at a charge agreed upon by HCCC and EDS. f) Transferring files between the mainframe and HCCC's personal computers. D-5 31 g) Data storage using Direct Access Storage Devices ("DASD") and cartridge storage management through the use of EDS' tape management system and DASD backup/storage functions. h) Providing HCCC space resource management. i) Technical support for job submissions and execution as reasonably required including use of EDS' job scheduling system, support from the EDS HCCC on-site account personnel for guidance and problem resolution, mainframe SAS, JCL, and EDS utilities assistance, and access to the IPC Help Desk twenty-four (24) hours a day. j) Project assistance including project access code assignments, tracking, and reporting, project account codes available as required, TSO log-on identification numbers within twenty-four (24) hours upon EDS receiving an authorized request, and monthly project accounting reports by project detailing resource usage and charges. k) Access to a configuration manager to assist in the control of source programs and JCL. 19. Obtain the right under the master software license agreement between EDS and GMIS, Inc. ("GMIS") to install GMIS' ClaimCheck P&C(R) claims auditing system ("ClaimCheck P&C") for use by HCCC and System Lease Clients. A description of ClaimCheck P&C, provided to EDS by GMIS, is set forth in Attachment IV to this Schedule D. In conjunction with such use, EDS will also: a) Provide to HCCC reasonable notice in advance of any maintenance releases to ClaimCheck P&C and install such releases as they are made available to EDS by GMIS. b) Provide to HCCC reasonable notice in advance of any new ClaimCheck P&C products, modules, enhancements, or features that may be provided by EDS and the terms, including price, upon which EDS will provide services utilizing such new products, modules, enhancements, or features. c) Provide to HCCC one (1) copy of current versions of user documentation for ClaimCheck P&C as such documentation is made available to EDS by GMIS. d) Maintain ClaimCheck P&C so that it operates in accordance with the then-current user documentation for ClaimCheck P&C. D-6 32 19.1 Special Terms and Conditions. EDS will include the following provisions as obligations of GMIS under the master software license agreement between EDS and GMIS: a) GMIS will provide implementation and on-going support to EDS/HCCC throughout the duration of HCCC's use of ClaimCheck P&C, including updates required to reflect changes in applicable state laws and regulations. GMIS will use its best efforts to provide such updates to EDS within sixty (60) days after GMIS receives such changes, and in any case, GMIS will provide such updates to EDS within ninety (90) days after GMIS receives such changes. GMIS will diligently monitor such changes, and will continue to subscribe to appropriate publications, services, and mailings which provide notice of such changes to GMIS and other interested parties. EDS or HCCC also may, but are not required to, provide notice of such changes to GMIS. GMIS will modify ClaimCheck P&C for HCCC as reasonably requested by HCCC from time to time to customize such data base edits as cannot be customized on-site by EDS or HCCC and occurring no more than once per database release. HCCC will pay GMIS for such modifications at GMIS' then-standard time and material rates, or as otherwise agreed in writing by GMIS and HCCC. GMIS will complete, and deliver to EDS, each such modification within one hundred twenty (120) days after GMIS and HCCC agree on the specifications and charges for such modification. b) GMIS will, at no additional charge, provide standard documents and information in connection with any pending or threatening litigation involving claims for which HCCC used ClaimCheck P&C non-customized logic. GMIS will respond to such requests for documents and information within ten (10) business days after receipt thereof unless physician review is required. If physician review is required, GMIS will facilitate a timely review and keep EDS and HCCC updated on the progress of the review. If HCCC requires GMIS to review case-specific records, or to create case-specific documentation, or to appear in connection with any pending or threatened litigation involving claims for which HCCC used ClaimCheck P&C, GMIS will be reimbursed by HCCC for reasonable cost of time, travel, and travel-related expenses incurred by GMIS staff or one of its consultants. 19.2 Term of Use. Except as otherwise provided herein, HCCC will use ClaimCheck P&C through June 30, 2000. HCCC and EDS may extend use of ClaimCheck P&C thereafter by mutual agreement in writing. HCCC and EDS may terminate use of ClaimCheck P&C at any time by mutual agreement in writing. Notwithstanding the foregoing, EDS will provide HCCC with at least sixty (60) days prior written notice that GMIS will discontinue ClaimCheck P&C. In such D-7 33 event, HCCC's use of ClaimCheck P&C hereunder also will terminate, unless otherwise agreed by the parties. 19.3 Proprietary Rights and Confidentiality. a) HCCC acknowledges that ClaimCheck P&C is the proprietary and confidential property of GMIS, is not, nor will be, part of the EDS Systems, and that HCCC will have no rights or interests therein except as described in this Section 19. Violation in any material respect of any provision of this Section 19.3 may cause irreparable injuries to EDS, GMIS, or both, and EDS, GMIS, or both, will be entitled to preliminary injunctive relief and other injunctive relief against any such violation. Such injunctive relief will be in addition to, and in no way in limitation of, any and all other remedies or rights to recover damages EDS, GMIS, or both, will have at law or in equity for the enforcement of this Section 19.3. Section 5.3 of this Agreement applies with respect to ClaimCheck P&C. b) EDS may provide to GMIS, and GMIS may retain, certain log file and usage information concerning claims processed using ClaimCheck P&C, subject to GMIS' obligation to maintain such information in confidence and not to disclose such information without HCCC's prior written consent. c) The provisions of this Section 19.3 will survive termination or expiration of this Agreement. 20. Investigate and correct System Errors according to the process set forth in Sections 20.1 through 20.3 below. "System Errors" means deficiencies or errors in a computer program within the EDS Systems that cause it not to perform substantially in accordance with the then-current associated System Documentation. 20.1 Notification to EDS by HCCC. The HCCC Manager will deliver to the Account Manager a written statement and supporting documentation describing in reasonable detail any suspected System Error. Critical System Errors may initially be reported by the HCCC Manager via telephone or in person. 20.2 Investigation and Correction. EDS will use reasonable efforts to investigate the facts and circumstances related to the suspected System Error. HCCC will cooperate fully with EDS' investigation. If this investigation reveals the existence of a System Error, EDS will correct the System Error or provide a workaround or alternative solution acceptable to HCCC. A schedule for correcting each System Error and its priority in relation to the completion of any other reported error will be D-8 34 mutually agreed upon by the HCCC Manager and the Account Manager. 20.3 Billable Investigations. If, on a frequent basis, EDS' investigation reveals that no System Error exists, HCCC and EDS will negotiate a reimbursement amount to be paid by HCCC for EDS' investigation. 21. Except as provided in Section 4 of Schedule C, EDS shall provide and manage the telecommunications network connections which provide access to the IPC(s) from the offices of HCCC and System Lease Clients, including the necessary communications lines and modems, interface equipment, terminals and other equipment at the IPC(s) necessary to access and utilize the EDS telecommunications network and EDS Systems. EDS reserves the right, but is not obligated, to change or upgrade such connections during the term of this Agreement. Changes or upgrades requested by HCCC may be provided by EDS upon mutually agreeable terms and at EDS' usual and customary fees. D-9 35 SCHEDULE D ATTACHMENT IV CLAIMCHECK P&C(R) DESCRIPTION ClaimCheck P&C, GMIS' clinically oriented claims auditing product, is a fully automated cost containment program designed to analyze provider bills to ensure that the correct state fee schedule or CPT-4 codes are used for reimbursement. The system analyzes relationships between procedure codes and diagnoses, based on state fee schedule, to determine whether or not the provider has billed within state fee schedule (and/or CPT-4) guidelines. ClaimCheck P&C's on-line editing capabilities are designed to detect many different types of code manipulation practices. ClaimCheck P&C audits all surgical, medical, radiology, pathology, and laboratory services using a database that includes over five million auditing rules. ClaimReview, a claims based utilization review module of ClaimCheck P&C, evaluates procedures billed for relatedness, medical necessity, and appropriateness and warns the claim's processor when special actions such as pre-authorization are required. ClaimCheck P&C also has a comprehensive reporting module which monitors cost savings and offers a profiling of provider billing behavior as it relates to code gaming errors and/or billing inaccuracies. SOFTWARE FEATURES AND FUNCTIONS The following is a descriptive summary of major auditing categories and unique software features available in ClaimCheck P&C: - - Code Gaming Edits +Mutually Exclusive Procedures ClaimCheck P&C identifies those procedures which clinically should not be done on the same patient during the same treatment session. +Incidental Procedures ClaimCheck P&C notifies the user when a minor procedure has been billed as a separate procedure when it is clinically part of a major procedure that has also been billed. +Unbundled Procedures ClaimCheck P&C evaluates the relationships between procedure codes and determines which comprehensive procedure code most accurately represents all of the procedure codes billed. DIV-1 36 +Multi-Channel Laboratory If the provider has billed for two or more components Tests of multi-channel tests, ClaimCheck P&C will either rebundle the codes into the most appropriate one or add the most appropriate code. - - Single Code Edits +Assistant Surgeon Based on the clinical intensity of the procedure ClaimCheck P&C determines if an assistant surgeon should or should not be reimbursed or if further information is needed to evaluate the need for an assistant surgeon. +Age & Sex Based on the claimants' age and gender, ClaimCheck P&C determines if the appropriate code has been used. If there is a more accurate code, ClaimCheck P&C adds the appropriate code. +Cosmetic, Experimental and Claim Check P&C notifies the user of unusual codes Obsolete Proceduresthat have been submitted for payment. This allows the user to implement additional claims review procedures to assure payment is accurate. - - Pre-and Post-Operative Editing ClaimCheck P&C will identify procedures that have been billed as separate procedures but should be included in the global fee of the surgical service which includes both the pre-operative and post-operative visits. - - Bilateral Procedures ClaimCheck P&C identifies whether or not the use of the bilateral procedure modifier is appropriate. Procedures which cannot be done bilaterally are identified. - - Clinical Duplicate Procedures ClaimCheck P&C identifies those procedures which may appropriately be performed multiple times in one treatment session. Those procedures which cannot be done multiple times in one session are identified as duplicates. DIV-2 37 - - State Modifiers Unique state modifiers will be recognized and used for the financial editing functions currently available (assistant surgeon modifiers 80, 81, 82 and multiple procedures modifier 51). In addition, ClaimCheck P&C allows users to determine if additional payment is warranted for modifiers 24, 25, and 79 which report unrelated services. - - History Based Editing ClaimCheck P&C edits history passed to ClaimCheck P&C for the following edit types: pre- and post-op care, duplicates and utilization review guidelines. - - ClaimReview ClaimReview will apply state utilization review rules. Claims (bills) will be flagged or denied when treatment exceeds state fee schedule guidelines. Rules can be edited based on a variety of data elements including provider specialty, frequency of procedures, diagnosis, length of treatment, etc. - - Smart Suspense This tool allows the user to create relationships between different types of claims/bill data. This capability facilitates the implementation of claims management policies and procedures. Relationships can be established between any of the following GMIS defined data fields: diagnosis, procedures, modifiers, provider specialty plus two additional fields which can be defined by the user. Smart Suspense can suspend, monitor or flag bills which contain these relationships. - - Customization ClaimCheck P&C's technological strength is in its customization capabilities. Individual edits can be adjusted by state and/or customer to meet specific needs of the state or claims environment. The majority of ClaimCheck P&C edits can be changed, deleted, or new edits added on-site by the user. The edits that cannot be customized on-site can be customized by GMIS. DIV-3 38 - - Financial Edits + Multiple Procedure Rules Relative value weights will be used by ClaimCheck P&C to determine the primary, secondary, and tertiary procedures. The user will be warned to adjust payment accordingly. + Assistant Surgeon ClaimCheck P&C notifies the user if payment should be adjusted to reflect the appropriate reimbursement for an assistant surgeon. DIV-4 39 SCHEDULE D ATTACHMENT I SERVICE LEVEL GUIDELINES FOR HCCC CLIENTS 1. EDS shall operate and maintain the TPS with the following service levels. Performance statistics shall be captured by EDS and reported to HCCC by the 15th day of the month following the measurement month or the next business day should the 15th fall on a weekend or holiday. A) PRODUCTION TPS AVAILABILITY. With respect to the production version of the TPS, EDS shall maintain Availability (as defined below) for each of the On-Line component and the Real Time Processor ("RTP") component of the TPS at a level such that the aggregate number of hours of Availability of such components during each calendar month are equal to at least 97% of the total of the On-Line Scheduled Hours of Availability (as defined below) and the RTP Scheduled Hours of Availability (as defined below) for such month. EDS shall document such Availability (calculated to the nearest one-tenth hour) and report it to HCCC on a monthly basis. HCCC may request, on an exception basis, that EDS operate the On-Line and RTP components of the production version of TPS at times outside the scheduled hours. Such requests shall: (i) be made in writing at least 24 hours in advance; (ii) be complied with by EDS to the extent that they do not interfere with EDS' other commitments pursuant to this Agreement or any other of EDS' data center or customer operations; and (iii) not be included in the determination of Availability. B) PRODUCTION TPS AVERAGE ON-LINE RESPONSE TIME. With respect to the production version of the TPS, EDS shall provide Average On-Line Response Time (as defined below) during On-Line Scheduled Hours of Availability equal to or less than three seconds. EDS shall document and report to HCCC in summary format Average On-Line Response Time for each calendar month. C) PRODUCTION TPS AVERAGE RTP RESPONSE TIME. With respect to the production version of the TPS, EDS shall provide Average RTP Response Time (as defined below) during RTP Scheduled Hours of Availability equal to or less than 10 seconds. EDS shall document and report to HCCC in summary format Average RTP Response Time for each calendar month. D) NON-PRODUCTION TPS AVAILABILITY AND RESPONSE TIME. With respect to the non-production version of the TPS (the "TPS Model Office"), EDS shall use commercially reasonable efforts to (i) maintain Availability for each of the On-Line component and the RTP component of the TPS at a level such that the aggregate number of hours of Availability for such components during each calendar month are equal to at least 97% of the total Model Office Scheduled Hours of Availability (as defined below) for such month, (ii) provide an Average On-Line Response Time during the Model Office Scheduled Hours of Availability equal to or less than three seconds and (iii) provide an Average RTP Response DI-1 40 Time during the Model Office Scheduled Hours of Availability equal to or less than 10 seconds. Since the TPS Model Office is a non-production environment, (i) EDS will not be required to document and report associated Availability nor Response Time and (ii) EDS' failure to actually achieve such Availability and Response Time goals in any calendar month will not constitute a breach or default by EDS. If EDS is not in compliance with the monthly service levels set forth in subsections a) through c) above during any 2 consecutive calendar months, EDS will investigate and correct any deficiencies in EDS' service causing such noncompliance as promptly as reasonably possible. When such deficiencies have been corrected, EDS will so notify HCCC and demonstrate compliance with such service levels over the next full calendar month. 2. DATA RECOVERY. EDS shall maintain data recovery procedures, capabilities and processes which a reasonably prudent operator of a high volume, computer based services organization would have in order to restore operations within a reasonable time in the event of a disablement or disaster occurring to its data processing facilities. HCCC client data files will be recovered from the most recent set of backup files and databases. 3. DATA SECURITY. HCCC client data and information shall be secure and the TPS configured to restrict access by any third party including other HCCC clients or users of the TPS. Access to HCCC client information shall be within the direct control of the HCCC client to grant to a third party or other HCCC clients or users of the TPS. Such access shall be granted directly by the HCCC client through the use of TPS applications such as but not limited to the Examiner File or if the HCCC client has provided written permission for such access or use to EDS. 4. FOREIGN DATA. EDS understands that HCCC clients from time to time shall provide data and information obtained from a third party ("Foreign Data") for inclusion in the TPS and that this data and information are proprietary to the third party. EDS shall take such steps as are necessary to preserve Foreign Data under its control as it would any data obtained from HCCC clients. EDS shall maintain the confidentiality of Foreign Data including without limitation denying access to or use of such files by HCCC or any other third party in any form or format unless the HCCC client has itself granted access through TPS applications such as but not limited to the Examiner File or the HCCC client has provided written permission for such access or use to EDS. 5. DEFINITIONS. As used in this Attachment I to Schedule D: a) "Availability" means the availability, from the EDS host computer (including EDS' telecommunication network, but not including HCCC's or the sender's telecommunications network or equipment) of the On-Line component of the TPS or the RTP component of the TPS, as the case may be, supported by EDS pursuant to this Agreement. DI-2 41 b) "Average On-Line Response Time" means, with respect to each transaction submitted to EDS over the On-Line component of the TPS, the average length of time (calculated over a calendar month period) elapsed between the receipt by EDS at EDS' telecommunications network boundary node of the last character of input from the sender and the transmission by EDS from EDS' telecommunications network boundary node of the first character of output to such sender. Average On-Line Response Time does not include any response time over the RTP component of the TPS. c) "Average RTP Response Time" means, with respect to each transaction submitted to EDS over the RTP component of the TPS, the average length of time (calculated over a calendar month period) elapsed between the receipt by EDS at EDS' telecommunications network boundary node of the last character of input from the sender and the transmission by EDS from EDS' telecommunications network boundary node of the first character of output to such sender. Average RTP Response Time does not include any response time over the On-Line component of the TPS. d) "Model Office Scheduled Hours of Availability" means 7:00 a.m. until 6:00 p.m. (Camp Hill, Pa. time), Monday through Friday, and 7:00 a.m. until 4:00 p.m. (Camp Hill, Pa. time) Saturday. e) "On-Line Scheduled Hours of Availability" means 6:00 a.m. until 9:00 p.m. (Camp Hill, Pa. time), Monday through Friday, and 7:00 a.m. until 4:00 p.m. (Camp Hill, Pa. time), Saturday. f) "RTP Scheduled Hours of Availability" means 6:00 a.m. until 8:30 p.m. (Camp Hill, Pa. time), Monday through Friday, and 7:00 a.m. until 4:00 p.m. (Camp Hill, Pa. time), Saturday. Notwithstanding the foregoing, all above scheduled hours of availability definitions shall exclude (i) periods of time during planned TPS downtime, as mutually agreed upon by EDS and HCCC, (ii) periods of time for planned major TPS equipment or software configurations and enhancements, as EDS may notify HCCC, (iii) scheduled EDS Information Processing Center maintenance, as EDS may notify HCCC, (iv) periods of time during which EDS is performing TPS batch processing or other special production jobs at HCCC's request, (v) the following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and (vi) other holidays mutually agreed upon by EDS and HCCC. In addition, EDS may exclude from the calculation of any Availability any failure to meet any applicable performance standard if, during, and to the extent that such failure is related to (i) any matter constituting force majeure (as contemplated by Section 11.9 of this Agreement), (ii) HCCC's failure to perform its obligations under this Agreement, or (iii) any significant increases in processing volumes or business statistics or any significant change in the nature or scope of services provided under this Agreement (in each case during a reasonable transition period to be agreed upon by EDS and HCCC.) DI-3 42 SCHEDULE D ATTACHMENT II SERVICE LEVEL GUIDELINES FOR LIBERTY MUTUAL MANAGED CARE, INC. 1. EDS shall operate and maintain the TPS with the following additional service levels applicable to Liberty Mutual business as set forth in that certain agreement between HCCC and Liberty Mutual Managed Care, Inc. dated January 1, 1995 (hereinafter "Liberty/HCCC Agreement"). Performance statistics shall be captured by EDS and reported to HCCC by the fifteenth day of the month following the measurement month or the next business day should the fifteenth fall on a weekend or holiday. a) PRODUCTION TPS AVAILABILITY. With respect to the production version of the TPS, EDS shall maintain Availability (as defined below) for each of the On-Line component and the Real Time Processor ("RTP") components of the TPS at a level such that (i) the aggregate number of hours of Availability of such components during each calendar month are equal to at least ninety-seven percent (97%) of the total of the On-Line Scheduled Hours of Availability (as defined below) and the RTP Scheduled Hours of Availability (as defined below) for such month and (ii) the aggregate number of hours of Availability of such components during the six (6) calendar month period beginning on the first day of the calendar month immediately following the calendar month in which the final Liberty central billing unit has been implemented under the Liberty/HCCC Agreement and each successive six (6) calendar month period are equal to at least ninety-eight percent (98%) of the total of the On-Line scheduled Hours of Availability and the RTP Scheduled Hours of Availability for such time period. EDS shall document such Availability (calculated to the nearest one-tenth hour) and report it to HCCC on a monthly basis. HCCC may request, on an exception basis, that EDS operate the On-Line and RTP components of the production version of TPS at times outside the scheduled hours. Such requests shall: (i) be made in writing at least twenty-four (24) hours in advance; (ii) be complied with by EDS to the extent that they do not interfere with EDS' other commitments pursuant to this Agreement or any other of EDS' data center or customer operations; and (iii) not be included in the determination of Availability. b) PRODUCTION TPS AVERAGE ON-LINE RESPONSE TIME. With respect to the production version of the TPS, EDS shall provide Average On-Line Response Time (as defined below) during On-Line Scheduled Hours of Availability equal to or less than three (3) seconds. EDS shall document and report to HCCC in summary format Average On-Line Response Time for each calendar month. c) PRODUCTION TPS AVERAGE RTP RESPONSE TIME. With respect to the production versions of the TPS, EDS shall provide Average RTP Response Time (as defined below) during RTP Scheduled Hours of Availability equal to or less than ten (10) seconds. EDS shall document and report to HCCC in summary format Average RTP Response Time for each calendar month. DII-1 43 d) NON-PRODUCTION TPS AVAILABILITY AND RESPONSE TIME. With respect to the non-production version of the TPS (the "TPS Model Office"), EDS shall use commercially reasonable efforts to (i) maintain Availability for each of the On-Line component and the RTP component of the TPS at a level such that the aggregate number of hours of Availability for such components during each calendar month are equal to at least ninety-seven percent (97%) of the total Model Office Scheduled Hours of Availability (as defined below) for such month, (ii) maintain Availability for each of the On-Line component and the RTP component of the TPS at a level such that the aggregate number of hours of Availability of such components during the six (6) calendar month period beginning on the first day of the calendar month immediately following the calendar month in which the final Liberty central billing unit has been implemented under the Liberty/HCCC Agreement and each successive six (6) calendar month period are equal to at least ninety-eight percent (98%) of the total of the On-Line Scheduled Hours of Availability and the RTP Scheduled Hours of Availability for such time period, (iii) provide an Average On-Line Response Time during the Model Office Scheduled Hours of Availability equal to or less than three seconds and (iv) provide an Average RTP Response Time during the Model Office Scheduled Hours of Availability equal to or less than ten (10) seconds. Since the TPS Model Office is a non-production environment, (i) EDS will not be required to document and report associated Availability nor Response Time and (ii) EDS' failure to actually achieve such Availability and Response Time goals in any calendar month will not constitute a breach or default by EDS. If EDS is not in compliance with the monthly service levels set forth in subsections a) through c) above during any two (2) consecutive calendar months or the semi-annual service level set forth in subsection a) above, EDS will investigate and correct any deficiencies in EDS' service causing such noncompliance as promptly as reasonably possible. When such deficiencies have been corrected, EDS will so notify HCCC and demonstrate compliance with such service levels over the next full calendar month or semi-annual period, as the case may be. 2. DATA RECOVERY. EDS shall maintain data recovery procedures, capabilities and processes which a reasonably prudent operator of a high volume, computer based services organization would have in order to restore operations within a reasonable time in the event of a disablement or disaster occurring to its data processing facilities. Liberty data files will be recovered from the most recent set of backup files and databases. EDS shall maintain procedures to separate and restore individual customer data and files where data from multiple customers are stored within common databases. 3. DATA SECURITY. Liberty data and information shall be secure and the TPS configured to restrict access by any third party including other customers or users of the TPS. Access to Liberty information shall be within the direct control of Liberty to grant to a third party or other customers or users of the TPS. Such access shall be granted directly by Liberty through the use of TPS applications such as but not limited to the Examiner File or if Liberty has provided written permission for such access or use to EDS. DII-2 44 4. FOREIGN DATA. EDS understands that Liberty from time to time shall provide data and information obtained from a third party ("Foreign Data") for inclusion in the TPS and that this data and information are proprietary to the third pary. Such third parties shall include but not be limited to Foreign Networks as that term is used in the Liberty/HCCC Agreement. EDS shall take such steps as are necessary to preserve foreign data under its control as it would any data obtained from Liberty. EDS shall maintain the confidentiality of foreign data including without limitation denying access to or use of such files by HCCC or any other third party in any form or format unless Liberty has itself granted access through TPS application such as but not limited to the Examiner File or Liberty has provided written permission for such access or use to EDS. 5. AUDIT. Upon at least thirty (30) days' prior written notice from HCCC, EDS will provide to Liberty and its auditors and regulators access during regular business hours to any EDS facility that is used to provide service to Liberty under these Service Level Guidelines and data and records which directly relate thereto our support such service. None of such audits shall extend longer than five (5) consecutive business days. Such access shall be limited to performing an audit of data related to Liberty and its business, to verify the integrity of data owned by Liberty and to examine the systems that support such data, including to the extent directly applicable to EDS' provision of such services, audits of (i) systems, (ii) general controls and security procedures, and (iii) disaster recovery procedures. Liberty will not be entitled to audit (i) EDS financial information, (ii) services, facilities or functions that do not directly relate to or support services provided to Liberty, or (iii) information regarding other EDS customers. Liberty must comply with all reasonable security and confidentiality procedures established by EDS at any facility to which access is granted. Audits will not unreasonably interfere with EDS' normal business operations. HCCC shall pay EDS at its then current commercial billing rates for any EDS assistance reasonably required by Liberty and its auditors and regulators in connection with any such audit. 6. DEFINITIONS. As used in this Attachment II to Schedule D: a) "Availability" means the availability, from the EDS host computer (including EDS' telecommunication network, but not including HCCC's or the sender's telecommunications network equipment) of the On-Line component of the TPS or the RTP component of the TPS, as the case may be, supported by EDS pursuant to this Agreement. b) "Average On-Line Response Time" means, with respect to each transaction submitted to EDS over the On-Line component of the TPS, the average length of time (calculated over a calendar month period) elapsed between the receipt by EDS at EDS' telecommunications network boundary node of the last character of input from the sender and the transmission by EDS from EDS' telecommunications network boundary node of the first character of output to such sender. Average On-Line Response Time does not include any response time over the RTP component of the TPS. DII-3 45 c) "Average RTP Response Time" means, with respect to each transaction submitted to EDS over the RTP component of the TPS, the average length of time (calculated over a calendar month period) elapsed between the receipt by EDS at EDS' telecommunications network boundary node of the last character of input from the sender and the transmission by EDS from EDS' telecommunications network boundary node of the first character of output to such sender. Average RTP Response Time does not include any response time over the On-Line component of the TPS. d) "Model Office Scheduled Hours of Availability" means 7:00 a.m. until 6:00 p.m. (Camp Hill, PA time), Monday through Friday, and 7:00 a.m. until 4:00 p.m. (Camp Hill, PA time) Saturday. e) "On-Line Scheduled Hours of Availability" means 6:00 a.m. until 9:00 p.m. (Camp Hill, PA time), Monday through Friday, and 7:00 a.m. until 4:00 p.m. (Camp Hill, PA time), Saturday. f) "RTP Scheduled Hours of Availability" means 6:00 a.m. until 8:30 p.m.(Camp Hill, PA time), Monday through Friday, and 7:00 a.m. until 4:00 p.m. (Camp Hill, PA time), Saturday. Notwithstanding the foregoing, all above scheduled hours of availability definitions shall exclude (i) periods of time during planned TPS downtime, as mutually agreed upon by EDS and HCCC, (ii) periods of time for planned major TPS equipment or software configurations and enhancements, as EDS may notify HCCC, (iii) scheduled EDS Information Process Center maintenance, as EDS may notify HCCC, (iv) periods of time during which EDS is performing TPS batch processing or other special production jobs at HCCC's request, (v) the following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and (vi) other holidays mutually agreed upon by EDS and HCCC. In addition, EDS may exclude from the calculation of any Availability any failure to meet any applicable performance standard if, during, and to the extent that such failure is related to (i) any matter constituting force majeure (as contemplated by Section 11.9 of this Agreement), (ii) HCCC's failure to perform its obligations under this Agreement, or (iii) any significant increases in processing volumes or business statistics or any significant change in the nature or scope of services provided under this Agreement (in each case during a reasonable transition period to be agreed upon by EDS and HCCC). DII-4 46 SCHEDULE D ATTACHMENT III REPORTS I. SYSTEM CONTROL REPORTS 317 DAILY CLAIMS FLOW REPORT This report contains three sections: 1) daily claims flow; 2) daily claims input analysis; and 3) inventory by line of business. 318 DAILY MANAGEMENT SUMMARY REPORT This report gives a trend in the magnitude of the bill inventory, current activity, and claim cycle. 319 BATCH ACCEPTANCE REPORT This report lists all activated batches which were received as initial input during the current cycle day. 328 DAILY CONDITION CODE ANALYSIS REPORT This report gives the number of times a given condition (example: edit/audit) was set for the cycle. 331 DAILY RTP UTILIZATION SUMMARY REPORT Shows bills processed by real-time processing (RTP). 350 AGE OF CLAIMS IN SYSTEM REPORT This report is formatted by processing location and the inventory in these locations divided by user defined system age categories. 351 AGE OF CLAIMS IN LOCATION REPORT This report is formatted by processing location and the inventory in these locations is divided by location age categories. 352 CLAIMS AGED ITEM REPORT This report lists bill information for every claim which has reached the System or location overage parameters and is dependent on the 350 and 351 reports. 356 GROUP PENDING CLAIMS REPORT This report identifies all suspended bills for select clients as designated by CLIENT. 359 DAILY CLAIMS RESUSPENSION REPORT This report lists all bills that suspended after initial corrections were applied DIII-1 47 to the suspense error set in a previous cycle. 372 DAILY BATCH CONTROL REPORT This report identifies batches activated in each of the initial entry locations during the current cycle for which the entering of bills has not been completed, started or placed on hold. MCBSR460 RTCP ACCEPTED DATA CORRECTION REPORT This report shows all of the real time data corrections which were accepted during the nightly cycle. MCBSA810 WEEKLY TURNAROUND REPORT This report includes all finalized bills and the time frame within which they were processed. II. PRODUCTIVITY REPORTS Two reports are generated which reflect examiner productivity: MCBSA960 WEEKLY EXAMINER PRODUCTIVITY REPORT This report shows productivity statistics for the EBA and FDE applications. MCBSA970 MONTHLY EXAMINER PRODUCTIVITY REPORT This report shows the same statistics as above on a monthly basis. III. MAINTENANCE REPORTS MCBSNPRZ WEEKLY PROVIDER MAINTENANCE REPORT This report identifies productivity statistics for Provider File maintenance activities performed by predetermined examiners. OUCHPROV PROVIDER ERROR REPORT This report lists errors identified in Provider File maintenance activities by provider number and error message. MCBSPZ95 PRICING FILE MAINTENANCE REPORT This report lists pricing file maintenance transactions input and the disposition of these transactions. DIII-2 48 IV. FINANCIAL REPORTS EOR Documents Explanation of Review documents are produced for each finalized bill. V. REVENUE CALCULATIONS REPORT SAVINGS REPORT Identifies HCCC revenue based on CLIENT use of the system. DIII-3 49 SCHEDULE E PRICING FOR EDS SERVICES I. CALCULATION OF BILL VOLUME For fees based on Bill Volume, "Bill Volume" means the total number of Bills finalized by the EDS Systems monthly for all clients of HCCC including both Service Bureau Clients and System Lease Clients. Bill Volume shall also include, without limitation, all Liberty Mutual Managed Care, Inc. ("Liberty") Bills and American International Group ("AIG") pre-cycle and cycle Bills and shall exclude adjustments. Also, if that certain Workers' Compensation Client Contract between HCCC and Liberty, effective January 1, 1995 ("Liberty/HCCC Agreement"), is terminated and either (i) EDS commences providing services to Liberty pursuant to that certain Workers' Compensation Client Contract, dated as of June 21, 1995, between EDS and Liberty or (ii) EDS enters into another direct contract with Liberty, all Bills processed for Liberty by the EDS Systems or by a separate autonomous system developed for and dedicated to Liberty will continue to be included in the calculation of Bill Volume during the remaining term and any renewal terms(s) of this Agreement. II. FEES On a monthly basis, HCCC will pay EDS a per Bill fee based on Bill Volume for such month plus a percentage of AFFORDABLE PPO Savings. The fee schedule for all HCCC clients, except Liberty, is as follows: A. BILL VOLUMES BELOW 400,000/MONTH For any month in which the total Bill Volume is below 400,000, HCCC will pay EDS monthly fees according to the following schedule:
PERCENTAGE OF VOLUME PER BILL PRICE(1) AFFORDABLE PPO SAVINGS ------ --------------- ---------------------- First 149,999 $2.580 1.5% Each Bill over 149,999 $1.372 1.5%
B. BILL VOLUMES OF 400,000 OR MORE/MONTH For any month in which the total Bill Volume is 400,000 or more, HCCC will pay - ------------ (1) CPI adjustments for the per bill prices are subject to the provisions of Section X of this Schedule E. E-1 50 EDS monthly fees according to the following schedule:
PERCENTAGE OF VOLUME PER BILL PRICE(1) AFFORDABLE PPO SAVINGS - ------ --------------- ---------------------- First 149,999 $2.580 1.5% Each Bill over 149,999 $1.250 1.5%
III. LIBERTY SYSTEM FEES HCCC will pay EDS a fee of $1.225(1) per bill plus one percent (1%) of AFFORDABLE PPO Savings for Liberty Bills finalized by the EDS Systems while the Liberty/HCCC Agreement is in effect. IV. FOREIGN NETWORK FEES HCCC will pay EDS forty percent (40%) of any percentage of Foreign PPO Savings fees received by HCCC. For purposes of this Schedule E, Foreign PPO shall mean any network other than an AFFORDABLE Medical Network, for which the EDS Systems is utilized by an HCCC client. V. PERCENTAGE OF PPO SAVINGS CALCULATION For the purpose of this Schedule E, the percentage of PPO savings for the AFFORDABLE PPO under Sections II and III and Foreign PPOs under Section IV shall be calculated as the difference between the recommended provider payment amount before the application of network contract pricing and the final recommended payment amount following application of network contract pricing. The application of network contract pricing sequentially follows the recommended provider payment amount determined by duplicate detection, state fee schedules or usual and customary rates, and enhanced edits/audits. VI. REALTIME CHARGES HCCC will pay EDS the following charges for all data submissions unless otherwise agreed by EDS: SUBMISSION TYPE PRICE PER SUBMISSION ---------------- -------------------- FDE Submission (Bill Entry) $0.36 Adjs/EBA (Bill Adjudication)/Initial Submission $0.29 Adjs/EBA (Bill Adjudication)/Second and Subsequent Pass(es) $0.15 E-2 51 VII. QUARTERLY MINIMUM PAYMENT For each quarter, HCCC shall pay to EDS, pursuant to Sections II, III and IV of this Schedule, at least the sum of Five Hundred and Twenty-six Thousand and Seventeen Dollars ($526,017.00) (as adjusted by Section 6.7 of this Agreement) (the "Quarterly Minimum Payment"). The parties acknowledge their intent that the quarterly periods to be calculated under this Section carry-over from the 1989 Agreement, i.e. the first quarterly period under this Agreement shall be deemed to be the period commencing July 1, 1995 and ending September 30, 1995. Furthermore, the charges paid by HCCC under the 1989 Agreement applicable to the quarterly minimum payment for such period shall be added to the charges paid by HCCC pursuant to Sections II, III and IV of this Schedule to determine whether or not HCCC has met the quarterly minimum payment for such period. If, at the end of any quarter, HCCC has paid less than the Quarterly Minimum Payment (as adjusted), EDS shall invoice and HCCC shall pay the difference between the Quarterly Minimum Payment (as adjusted) and the actual amounts paid pursuant to Sections II, III, and IV of this Schedule E. EDS shall invoice and HCCC shall pay on the first day of each month for services to be provided that month 16.6% of the Quarterly Minimum Payment (as adjusted). In the event that, during any twelve (12) successive quarters, EDS receives no more than the Minimum Quarterly Payment (as adjusted) during nine (9) or more quarters, either party may initiate good faith negotiations for a modification to this Agreement. The party desiring to initiate such negotiation shall notify the other party in writing no later than fifteen (15) days after the receipt by EDS of payment for such ninth month. Both parties then shall enter into good faith negotiations for possible modification of this Agreement. However, in the case that the parties are unable to reach agreement on appropriate modifications, this Agreement shall continue in effect as is. VIII. INFORM FEES A. PAYMENT Each month HCCC will pay EDS for data storage and space resource management utilization for the preceding month based on the Storage Rates set forth below. At the beginning of each calendar quarter EDS will determine a Monthly Allowance that will be in effect for such quarter. Each month HCCC will pay EDS the amount by which the Machine Usage Amount (as defined below) for the preceding month exceeds the Total Allowance Available (as defined below) for such preceding month. E-3 52 B. MACHINE TIME RATES Each month, HCCC will pay EDS the following fees for machine time: CPU Minute (Prime Time) $11.264 CPU Minute (Off Shift) $6.984 Tape Mount (per mount) $0.701 Prime Time is defined as 3:00:00 a.m. to 2:59:59 p.m. Pacific Standard Time (PST). Off Shift is defined as 3:00:00 p.m. to 2:59:59 a.m. PST. Jobs that span Prime Time and Off Shift time periods will be prorated to then applicable rates. CPU time covers both multiple virtual storage (MVS) / enterprise system architecture (ESA) and TSO time usage. C. STORAGE RATES Each month, HCCC will pay EDS the following fees for storage: Cartridge (On site per day) $0.070 Cartridge (Off site per day - DRA) $0.042 Reel Storage (On site per day) $0.131 DASD (per megabyte per day) $0.041 Permanent DASD Pack - 1.6GB $1,617.752 (3090 Mod 2 Pack per month) Permanent DASD is billed at the above rate times the fix storage requirements whether it is used or not. All billings occur based on actual usage. Therefore, a 1 MB file retained for 1 day would bill $0.041 at month end. D. DEFINITIONS For purposes of this Section VIII of Schedule E, the following definitions shall apply: "Average EDS Monthly Claim Processing Revenue" shall mean the amount equal to amount billed for standard claim processing plus the amount billed for use of the Real Time Processor for three calendar months divided by three. E-4 53 "Carry Over Credit" shall mean, for any month, the unused Monthly allowance for such month. However, for any month, the Carry Over Credit shall not exceed an amount equal to the average of the Monthly Allowances from the beginning of the Reporting Period through and including the month in question. Furthermore, the Carry Over Credit shall not roll from one Reporting Period to the next. Therefore the Carry Over Credit will be set to zero (0) for the first month of each Reporting Period. " Machine Usage Amount" shall mean the cost of machine usage based on applicable EDS*INFORM and other AD HOC requests applied at the Machine Time Rates set forth above. Applicable jobs will include defined standard reports, ad hoc report requests, requests for data extractions and other jobs necessary to produce the required results. Machine Usage Amount shall include machine usage time for jobs created or executed by EDS personnel and agreed to by HCCC. "Monthly Allowance" shall mean the amount equal to one and one half percent (.015) times the Average Monthly Claim Processing Revenue during the calendar quarter preceding the time period for which such allowance will be in effect, as verified and accepted by HCCC. "Reporting Period" shall mean the twelve (12) month period from March 1st through the last day of February of the succeeding calendar year. "Total Allowance Available" shall mean the sum of the Monthly Allowance for such month and the Carry Over Credit, if any, from the preceding month. E. EXAMPLE Below is an example, for illustration purposes only, of calculating monthly inform fees.
CLAIM CARRY TOTAL MACHINE PAYMENT CARRY CALENDAR PROC. MONTHLY OVER ALLOWANCE USAGE DUE OVER MONTH REVENUE ALLOW. CREDIT AVAILABLE AMOUNT EDS CAP OCT-95 $137,000 N/A N/A N/A N/A N/A N/A NOV-95 145,000 N/A N/A N/A N/A N/A N/A DEC-95 140,000 N/A N/A N/A N/A N/A N/A JAN-96 150,000 $2,110 $0 $2,110 $2,100 N/A $2,110 FEB-96 180,000 2,110 10 2,120 1,000 $0 2,110 REPORTING TOTALS PERIOD 3,100 0 ======= =======
E-5 54
CLAIM CARRY TOTAL MACHINE PAYMENT CARRY CALENDAR PROC. MONTHLY OVER ALLOWANCE USAGE DUE OVER MONTH REVENUE ALLOW. CREDIT AVAILABLE AMOUNT EDS CAP MAR-96 210,000 2,110 0 2,110 4,784 2,674 2,110 APR-96 245,000 2,700 0 2,700 3,496 796 2,405 MAY-96 260,000 2,700 0 2,700 2,200 0 2,503 JUN-96 268,000 2,700 500 3,200 5,034 1,834 2,553 JUL-96 310,000 3,865 0 3,865 500 0 2,815 AUG-96 340,000 3,865 2,990 6,855 6,920 65 2,990* SEP-96 350,000 3,865 0 3,865 4,975 1,110 3,115 OCT-96 380,000 5,000 0 5,000 1,000 0 3,351 NOV-96 400,000 5,000 3,534 8,534 9,367 833 3,534* DEC-96 420,000 5,000 0 5,000 5,907 907 3,681 JAN-97 450,000 6,000 0 6,000 4,581 0 3,891 FEB-97 480,000 6,000 1,419 7,419 4,795 0 4,067 REPORTING TOTALS PERIOD 56,659 8,218 ======= ======= MAR-97 450,000 6,000 0 6,000 6,490 490 6,000 APR-97 460,000 6,900 0 6,900 4,291 0 6,450 MAY-97 470,000 6,900 2,609 9,509 5,014 0 6,600 JUN-97 485,000 6,900 4,495 11,395 9,752 0 6,675 JUL-97 510,000 7,075 1,643 8,718 5,399 0 6,755 AUG-97 495,000 7,075 3,319 10,394 12,338 1,984 6,808
* CAPPED IX. OTHER FEES A. CONNECTION FEES. Each month, HCCC shall pay EDS fees for terminal connections as follows: SERVICE FEE --------------------------------- --------- Remote Site Connectivity (Terminal Only) 9.6 Line $596.26 19.2 Line $743.13 E-6 55 Custom Network Integration (CPU to CPU Communications) AIG - 56kb (Special Decrementing) $3,009.79 MedTrac - 19.2 (Decrementing) $1,022.00 The above fees are subject to discounts for terminal connection sites that process Bills through the node based on the Bill Volume processed through the node. The following discounts apply: AVERAGE BILL VOLUME/DAY DISCOUNT APPLIED --------------------------------- ---------------- 0 - 500 0% 501 - 800 25% 801 - 1,000 50% 1,001 - + 100% The following discounts apply to the AIG 56kb connection: AVERAGE BILL VOLUME/DAY DISCOUNT APPLIED ----------------------- ---------------- 0 - 1,500 0% 1,501 - 2,400 25% 2,401 - 3,000 50% 3,001 - + 100%
Unless otherwise specified, custom network integrations are not subject to discount unless Bill input volume processes through the node. B. MISCELLANEOUS Each month, HCCC shall pay EDS fees for miscellaneous services as follows: Print Charges (per Page) $0.0389 Mantime Rates per hour $82.39 Connectivity Public Circuits Competitive Price Equipment Competitive Price Print Delivery Competitive Price Dial Up Competitive Price E-7 56 C. GMIS LICENSE The license which permits use of the GMIS software by HCCC set forth in Section 19 of Schedule D is subject to the following pricing and payment terms: a) HCCC shall pay eighty percent (80%) and EDS shall pay twenty percent (20%) of the annual GMIS license fee, which is fixed at $125,000 for the term of the GMIS License Agreement. In addition to this annual GMIS license fee, there will be an annual incentive license payment if demonstrated savings generated by the ClaimCheck P&C exceed 5.0%. The incentive license payment will be based on demonstrated savings generated by the ClaimCheck P&C as measured over the four month period of March through June of each calendar year and will be determined annually following such measurement period by identifying the total incentive payment amount associated with the actual demonstrated percentage of savings as set forth below: DEMONSTRATED SAVINGS TOTAL INCENTIVE PAYMENT AMOUNT Less than or equal to 5.0% $0 5.1% through 7.5% $40,000 7.6% through 10.0% $50,000 10.1% + $60,000 HCCC shall pay eighty percent (80%) and EDS shall pay twenty percent (20%) of any incentive license payment due GMIS. EDS will pay GMIS in full upon receipt of an invoice and will rebill HCCC for the eighty percent (80%) amount. b) EDS will not charge for the time and materials needed to install or update the standard GMIS product. Special customization requests may be subject to charges under this Agreement depending upon the nature of the request. X. CPI ADJUSTMENT The fees set forth in this Schedule E (including the quarterly minimum payment, but excluding the percentage of PPO savings and the license fees for the GMIS software) shall be subject to CPI adjustments as set forth in Section 6.7 of this Agreement, except that the $2.580 per Bill price set forth in Subsections A and B of Section II will not be adjusted for CPI until January 2001 and the $1.372, $1.250 and $1.225 per Bill prices set forth in Subsections A and B of Section II and in Section III will not be adjusted for CPI until January 1997. The per Bill prices subject to CPI increases in January will not be subject to the August 1 adjustments set forth in Section 6.7 and will be adjusted annually on each January 1 following the first year in which such prices are subject to CPI adjustments. For such deferred adjustments, the Base Index to be used shall be June 1, 1995. E-8 EX-11 7 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 HEALTHCARE COMPARE CORP. COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
Year Ended Year Ended Year Ended December 31, 1994 December 31, 1995 December 31, 1996 ----------------- ----------------- ----------------- Net Income $ 50,669,000 $ 66,537,000 $ 78,995,000 ============== ============= ============= Weighted average number of common shares outstanding: Shares outstanding from beginning of period ............................ 35,033,000 34,034,000 34,635,000 Purchase of treasury stock ......... (867,000) (59,000) (610,000) Other issuances of common stock .... 255,000 340,000 419,000 Common share equivalents: Assumed exercise of common stock options ........................... 581,000 808,000 800,000 -------------- ------------- ------------- Weighted average common and common share equivalents ................. 35,002,000 35,123,000 35,244,000 ============== ============= ============= Net income per share ............... $ 1.45 $ 1.89 $ 2.24 ============== ============= =============
2 HEALTHCARE COMPARE CORP. COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
Year Ended Year Ended Year Ended December 31, 1994 December 31, 1995 December 31, 1996 ----------------- ----------------- ----------------- Net Income $ 50,669,000 $ 66,537,000 $ 78,995,000 ============ ============= ============ Weighted average number of common shares outstanding: Shares outstanding from beginning of period ............................ 35,033,000 34,034,000 34,635,000 Purchase of treasury stock ......... (867,000) (59,000) (610,000) Other issuances of common stock .... 255,000 340,000 419,000 Common share equivalents: Assumed exercise of common stock options ........................... 702,000 874,000 819,000 ------------ ------------- ----------------- Weighted average common and common share equivalents ................. 35,123,000 $ 35,189,000 35,263,000 ============ ============= ================= Net income per share ............... $ 1.44 $ 1.89 $ $2 .24 ============ ============= ============
EX-13 8 1996 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements under this caption constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Seasonality" and "Other Information". The Company acquired American Life and Health Insurance Company ("American") and its subsidiary insurance company on February 1, 1996. American is a small health and life insurer with licenses in 26 states. Under the terms of the acquisition, which was accounted for as a purchase, the Company will pay a maximum purchase price of approximately $11.5 million subject to the satisfaction of certain contingencies. RESULTS OF OPERATIONS. The following table presents the Company's sources of revenues and percentages of those revenues represented by certain statement of operations items.
SOURCES OF REVENUE Years Ended December 31, 1994 % 1995 % 1996 % ($ In Thousands) ---------------------------------------------- PPO Services $140,201 75% $165,577 77% $191,008 77% Fee Schedule Services 14,760 8 17,764 8 26,669 11 Clinical Cost Mgmt. Services 25,425 14 25,909 12 20,861 8 Premiums, Net -- -- -- -- 7,906 3 Government Contract Services 6,220 3 5,088 3 1,360 1 -------- ---- -------- ---- -------- ---- TOTAL $186,606 100% $214,338 100% $247,804 100% ======== ==== ======== ==== ======== ==== PERCENT OF REVENUES Years Ended December 31, 1994 1995 1996 -------- -------- -------- Expenses: Cost of Services 34% 30% 29% Selling and Marketing 12 12 12 General and Administrative 5 5 5 Healthcare Benefits -- -- 2 Depreciation and Amortization 6 5 5 Interest Income, Net (3) (4) (5) -------- -------- -------- Subtotal 54 48 48 -------- -------- -------- Income Before Income Taxes 46 52 52 -------- -------- -------- Net Income 27% 31% 32% -------- -------- --------
REVENUES. The Company's revenues consist primarily of fees for cost management services provided under contracts on a percentage of savings basis (PPO and fee schedule services) or on a predetermined contractual basis. The Company also derives revenue based upon a fixed monthly charge for each participant excluding covered dependents in a client-sponsored health care plan or on a per transaction basis. 2 Total revenues increased $33,466,000 (16%) from 1995 to 1996 and $27,732,000 (15%) from 1994 to 1995. This growth is primarily attributable to: 1) Increased utilization of the Company's PPO services by existing clients; 2) Expansion and development of the Company's PPO networks, especially in secondary and tertiary markets; 3) New clients; and 4) Premium revenue earned in 1996 by American. Revenue from PPO services increased significantly from 1994 to 1996 as a result of increased utilization of the PPO network by existing clients, expansion of the PPO network and new client additions. Fee schedule services revenue increased from 1994 to 1996 due to new and expanded contract activity, particularly with General Motors Corporation and Liberty Mutual Insurance Company. Revenue from clinical cost management services decreased from 1995 to 1996 and increased slightly from 1994 to 1995 as the mix of clients who utilize these services has changed. Premium revenue was generated by the insurance company acquired in 1996. Government contract services revenue decreased from 1994 to 1996 due to the completion of the Company's CHAMPUS contract with the Department of Defense. Price increases have not been an important factor in the Company's revenue growth. As with any future event, future revenue growth may differ substantially from historical levels. COST OF SERVICES. Cost of services consists primarily of salaries and related costs for personnel involved in PPO administration, development and expansion, clinical management programs, and other cost management services offered by the Company. To a lesser extent, it includes telephone expenses, facility expenses and information processing costs. The largest increases in these expenses during 1994 to 1996 relate to costs associated with the growth of the Company's fee schedule business and, to a lesser extent, expenses incurred in the development of the Company's risk-based products. As a percentage of revenues, however, these costs have decreased from 34% in 1994 to 30% in 1995 and to 29% in 1996 due to substantial revenue growth and efficient management of various operating expenses. SELLING AND MARKETING. Selling and marketing expenses have increased primarily as a result of the hiring and training of new sales and marketing members. To a lesser extent, the increase relates to commissions paid to agents and third party administrators by the Company's insurance entity. As a percentage of revenues, selling and marketing expenses have remained 12% from 1994 to 1996. GENERAL AND ADMINISTRATIVE. General and administrative costs increased from 1994 to 1996 primarily due to the addition of staff in the executive and administrative areas as well as increased utilization of outside professional services in connection with the Company's efforts to create, develop and administrate insurance products. As a percentage of revenues, however, these costs remained 5% from 1994 to 1996. HEALTHCARE BENEFITS. These expenses relate to medical losses incurred by insureds of the Company's insurance entity. The medical loss ratio (losses as a percent of premiums) was 69% for the year ended December 31, 1996. Due to the small size of the insurance business, this expense is expected to be volatile until the Company is able to institute all of its managed care services and cost controls and increase the size of its insurance business. DEPRECIATION AND AMORTIZATION. These expenses increased significantly from 1994 to 1996 principally as a result of the purchase of additional computer hardware and software, office equipment and leasehold improvements. As a percentage of revenues, these costs remained in the 5% to 6% range from 1994 to 1996. INTEREST INCOME, NET. The Company invests a significant portion of its available cash in various interest -bearing instruments. The net interest income realized from such investments 3 represented 3% of revenues in 1994, 4% of revenues in 1995 and 5% of revenues in 1996 as a result of the increased positive cash flow from operations which provided additional investable funds. INCOME TAXES. Income taxes were provided at an effective rate of 38% in 1996 compared to 40% in 1994 and 1995. The higher than statutory rate for 1994 to 1996 includes provisions for state income taxes. The effective tax rate declined from 1995 to 1996 since the majority of the Company's investable funds were invested in tax-exempt and tax-advantaged securities. SEASONALITY. The Company has historically experienced increases in salaries and related costs during its first and fourth calendar quarters in anticipation of an increase in the number of new participants in client-sponsored health care plans. Since health care plans typically have an open enrollment period for new participants during January of each year, the Company anticipates that its future first and fourth quarters will continue to reflect similar cost increases. The Company's future earnings could be adversely affected if the Company were to incur costs in excess of those necessary to service the actual number of new participants resulting from the open enrollment. INFLATION. Although inflation has not had a significant effect on the Company's operations to date, management believes that the rate at which health care costs have increased has contributed significantly to the demand for PPO, clinical cost management and other cost management services, including the services provided by the Company. OTHER INFORMATION. Since 1993, there has been considerable discussion of health care reform. Although specific features of any legislation that ultimately may be enacted into law cannot be predicted at this time, based on the Company's review of legislation previously considered by Congress and various state legislatures, management believes that the Company's existing programs and those under development provide a foundation that will enable the Company to continue to grow. LIQUIDITY AND CAPITAL RESOURCES. The Company had $160,336,000 of working capital at December 31, 1996, compared to $157,124,000 at December 31, 1995 and $78,444,000 at December 31, 1994. Total cash and investments of the Company amounted to $265,897,000 at December 31, 1996, $221,370,000 at December 31, 1995 and $138,684,000 at December 31, 1994. During the three year period ended December 31, 1996, the Company generated $238,763,000 of cash from operating activities. Investment activities used $52,926,000, $45,489,000 and $30,785,000 in cash during 1996, 1995 and 1994, respectively; reflecting net purchases of investments of $28,201,000 in 1996, $36,812,000 in 1995 and $22,389,000 in 1994, and capital expenditures of $14,635,000, $8,677,000 and $8,396,000 in 1996, 1995 and 1994, respectively. The insurance company acquisition used $10,090,000 of cash in 1996. Financing activities used $41,668,000 of cash in 1996 representing $61,134,000 in purchases of treasury stock partially offset by $12,738,000 in proceeds from insuances of common stock and $6,728,000 in proceeds from the sale of put options. Financing activities generated $9,077,000 in cash during 1995 representing $11,247,000 in proceeds from issuances of common stock partially offset by $2,170,000 in purchases of treasury stock. Financing activities used $22,958,000 in cash during 1994 representing $28,222,000 in purchases of treasury stock partially offset by $4,486,000 in proceeds from insuances of common stock and $778,000 in proceeds from the sale of put options. The Company believes that its working capital, long-term investments and cash generated from future operations will be sufficient to fund the Company's anticipated operations and expansion plans. 4 DERIVATIVE FINANCIAL INSTRUMENTS. As discussed in Note 11 to the financial statements, the Company uses derivative financial instruments to reduce interest rate risk and potentially increase the return on invested funds and to manage the cost of common stock repurchase programs. In addition, collaterized mortgage securities have been purchased that have relatively stable cash flow patterns in relation to interest rate changes. Investments in derivative financial instruments are approved by the Audit Committee or Board of Directors of the Company. EX-22 9 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 22 SUBSIDIARIES OF HEALTHCARE COMPARE CORP. AFFORDABLE HealthCare Concepts Incorporated in California Occupational-Urgent Care Health Systems, Inc. Incorporated in California Office Realty Investors, Inc. Incorporated in Illinois COMPARE Leasing Corp. Incorporated in Delaware HCC Insurance Services Corp. Incorporated in Illinois HealthCare COMPARE Administrative Services, Inc. Incorporated in Illinois American Life and Health Insurance Company Incorporated in Missouri Cambridge Life Insurance Company Incorporated in Missouri CHP Administration, Inc. Incorporated in California EX-23 10 CONSENT OF DELOITTE & TOUCHE, LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT HealthCare COMPARE Corp.: We consent to the incorporation by reference in the Registration Statements of HealthCare COMPARE Corp. on Form S-8 (file numbers - 33-26639, 33-26640, 33-43806, 33-43807, 33-87986 and 33-62747) of our reports dated February 17, 1997 appearing in and incorporated by reference in the Annual Report on From 10-K of HealthCare COMPARE Corp. for the year ended December 31, 1996. Deloitte & Touche LLP Chicago, Illinois March 27, 1997 EX-24 11 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/Thomas J. Pritzker --------------------------------- Thomas J. Pritzker 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Robert J. Becker, M.D. --------------------------------- Robert J. Becker, M.D. 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Ronald H. Galowich ------------------------------- Ronald H. Galowich 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Michael J. Boskin --------------------------- Michael J. Boskin 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Burton W. Kanter ------------------------------ Burton W. Kanter 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ David Simon ------------------------------- David Simon 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Daniel Brunner -------------------------- Daniel Brunner 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Robert S. Coleman -------------------------- Robert S. Coleman 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Harold S. Handelsman ---------------------------- Harold S. Handelsman 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or Officer of HealthCare COMPARE Corp., a corporation organized under the laws of the State of Delaware (the "Company"), hereby constitutes and appoints James C. Smith and Joseph E. Whitters, (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents for him and on his behalf and in his name, place and stead, in any and all capacities, to sign the Annual Report on From 10-K for the fiscal year ended December 31, 1996 to be filed by the Company with the Securities and Exchange Commission and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 1997 /s/ Don Logan ------------------------- Don Logan EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 77,439 180,150 27,088 (2,573) 0 188,471 95,128 (48,472) 353,338 28,135 0 0 0 372 322,834 353,338 0 247,804 0 120,656 12,334 (200) 0 128,395 49,400 78,995 0 0 0 78,995 2.24 2.24
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