Agreement - COVENTRY HEALTH CARE INC - 8-16-1999

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Agreement - COVENTRY HEALTH CARE INC - 8-16-1999 Powered By Docstoc
					AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of the 19th day of May, 1999, by and between Principal Life Insurance Company, f/k/a Principal Mutual Life Insurance Company ("Principal"), an Iowa corporation, and Coventry Health Care, Inc. ("Coventry"), a Delaware corporation. WHEREAS, Principal and Coventry are parties to certain agreements as identified herein; and WHEREAS, Principal and Coventry hereby desire, among other things, to terminate certain agreements, provide for the purchase by Principal of a certain preferred provider organization network from Coventry and provide for payment by Principal to Coventry of certain monies in consideration for the termination of the agreements, the purchase of the network and other matters as herein addressed. NOW, THEREFORE, for just and adequate consideration, the receipt and sufficiency of which is hereby acknowledged, Principal and Coventry hereby agree as follows: 1. On the Closing Date, Principal shall pay to Coventry Twenty Million Dollars ($20,000,000.00). 2. Effective as of the Closing Date, that certain Renewal Rights Agreement by and between Principal and Coventry's subsidiary Coventry Health and Life Insurance Company dated as of April 1, 1998 (the "Renewal Rights Agreement"), is terminated and shall be of no further force and effect and Coventry shall not retain any liabilities or obligations of any kind whatsoever relating to the business covered by the Renewal Rights Agreement.

2 3. Effective as of the Closing Date, that certain Co-Insurance Agreement between Principal and Coventry Health and Life Insurance Company dated as of April 1, 1998 (the "Co-Insurance Agreement), is terminated and shall be of no further force and effect and Coventry shall not retain any liabilities or obligations of any kind whatsoever relating to the business covered by the Co-Insurance Agreement. 4. Effective December 31, 1999, that certain License Agreement by and between Principal and Coventry dated as of April 1, 1998, is terminated. Effective June 30, 1999, Coventry will cease all references to it or its affiliates being "A Principal Financial Group Partner in Health Care" or any other similar reference. 5. Pursuant to that certain Asset Purchase Agreement (the "Purchase Agreement") dated the date hereof by and between Principal's indirectly owned subsidiary, Admar Corporation ("Admar"), and Coventry, Coventry hereby agrees to sell, and Admar hereby agrees to buy, that certain preferred provider organization ("PPO") network known as the "Chicago PPO Network." A copy of the Purchase Agreement is attached hereto as Exhibit A. 6. The twenty million dollar ($20,000,000) payment referenced in paragraph 1 shall be allocated for GAAP purposes as follows:
Renewal Rights Agreement and Co-Insurance Agreement Chicago PPO Network $19,750,000 250,000 ----------$20,000,000

7. Effective on the Closing Date, those two certain Administrative Agreements between Principal and Principal Health Care, Inc. (a predecessor of Coventry) dated February 1, 1996 regarding access to Coventry PPO networks ("the Administrative Agreements") shall each be deemed amended to provide the following:

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2 3. Effective as of the Closing Date, that certain Co-Insurance Agreement between Principal and Coventry Health and Life Insurance Company dated as of April 1, 1998 (the "Co-Insurance Agreement), is terminated and shall be of no further force and effect and Coventry shall not retain any liabilities or obligations of any kind whatsoever relating to the business covered by the Co-Insurance Agreement. 4. Effective December 31, 1999, that certain License Agreement by and between Principal and Coventry dated as of April 1, 1998, is terminated. Effective June 30, 1999, Coventry will cease all references to it or its affiliates being "A Principal Financial Group Partner in Health Care" or any other similar reference. 5. Pursuant to that certain Asset Purchase Agreement (the "Purchase Agreement") dated the date hereof by and between Principal's indirectly owned subsidiary, Admar Corporation ("Admar"), and Coventry, Coventry hereby agrees to sell, and Admar hereby agrees to buy, that certain preferred provider organization ("PPO") network known as the "Chicago PPO Network." A copy of the Purchase Agreement is attached hereto as Exhibit A. 6. The twenty million dollar ($20,000,000) payment referenced in paragraph 1 shall be allocated for GAAP purposes as follows:
Renewal Rights Agreement and Co-Insurance Agreement Chicago PPO Network $19,750,000 250,000 ----------$20,000,000

7. Effective on the Closing Date, those two certain Administrative Agreements between Principal and Principal Health Care, Inc. (a predecessor of Coventry) dated February 1, 1996 regarding access to Coventry PPO networks ("the Administrative Agreements") shall each be deemed amended to provide the following:

3 - Principal shall receive most favored nation pricing on a market-by-market basis as compared to Coventry's new business written after the Closing Date. - There shall be an annual review period during which the parties will negotiate rate increases, if any, in good faith on a market-by-market basis, provided no increase shall be greater than an amount equal to 106% of the fee then in effect for said market pursuant to such agreement. 8. Principal and Coventry shall on or before the date hereof have executed those certain Principal Life Insurance Company Administrative Service Agreements with Principal Health Care of Kansas City, Inc. and Principal Health Care of St. Louis, Inc. for Point-of-Service Product (the "POS Agreements") for certain areas of Illinois and Kansas. Copies of the POS Agreements are attached hereto as Exhibits B-1 and B-2. 9. Nothing in this Agreement shall affect Principal's obligations under the Management Services or Marketing Services Agreements dated as of April 1, 1998, by and between Principal and Coventry, or the Administrative Agreements. 10. Coventry and its affiliates will cease marketing any Principal indemnity products on or before May 1, 1999. Principal and its affiliates will cease marketing any Coventry products on or before May 1, 1999. 11. Any defined terms not defined in this Agreement shall be defined as provided in the Purchase Agreement. 12. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

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3 - Principal shall receive most favored nation pricing on a market-by-market basis as compared to Coventry's new business written after the Closing Date. - There shall be an annual review period during which the parties will negotiate rate increases, if any, in good faith on a market-by-market basis, provided no increase shall be greater than an amount equal to 106% of the fee then in effect for said market pursuant to such agreement. 8. Principal and Coventry shall on or before the date hereof have executed those certain Principal Life Insurance Company Administrative Service Agreements with Principal Health Care of Kansas City, Inc. and Principal Health Care of St. Louis, Inc. for Point-of-Service Product (the "POS Agreements") for certain areas of Illinois and Kansas. Copies of the POS Agreements are attached hereto as Exhibits B-1 and B-2. 9. Nothing in this Agreement shall affect Principal's obligations under the Management Services or Marketing Services Agreements dated as of April 1, 1998, by and between Principal and Coventry, or the Administrative Agreements. 10. Coventry and its affiliates will cease marketing any Principal indemnity products on or before May 1, 1999. Principal and its affiliates will cease marketing any Coventry products on or before May 1, 1999. 11. Any defined terms not defined in this Agreement shall be defined as provided in the Purchase Agreement. 12. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

4 IN WITNESS WHEREOF, the parties hereby agree as set forth above as of the date first set forth above. PRINCIPAL LIFE INSURANCE COMPANY By Its: COVENTRY HEALTH CARE, INC. By Its:

AGREEMENT This Agreement is entered into as of the 17th day of June, 1999, by and between James E. McGarry ("Executive") and Coventry Health Care, Inc., a Delaware corporation with its principal place of business at 6705 Rockledge Drive, Suite 900, Bethesda, MD 20817 ("Employer"). WHEREAS, Executive and Employer have entered into an employment relationship and desire to enter into a written agreement in which Executive agrees to confidentiality, non-competition, non-solicitation and other provisions during the term of his employment and during a severance period thereafter in exchange for severance compensation in the event Executive is terminated without cause by Employer. NOW, THEREFORE, in consideration of the premises hereof and of the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:

4 IN WITNESS WHEREOF, the parties hereby agree as set forth above as of the date first set forth above. PRINCIPAL LIFE INSURANCE COMPANY By Its: COVENTRY HEALTH CARE, INC. By Its:

AGREEMENT This Agreement is entered into as of the 17th day of June, 1999, by and between James E. McGarry ("Executive") and Coventry Health Care, Inc., a Delaware corporation with its principal place of business at 6705 Rockledge Drive, Suite 900, Bethesda, MD 20817 ("Employer"). WHEREAS, Executive and Employer have entered into an employment relationship and desire to enter into a written agreement in which Executive agrees to confidentiality, non-competition, non-solicitation and other provisions during the term of his employment and during a severance period thereafter in exchange for severance compensation in the event Executive is terminated without cause by Employer. NOW, THEREFORE, in consideration of the premises hereof and of the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. RESTRICTIVE COVENANTS. (a) Confidential Information. Executive agrees not to disclose, either during the time he is employed by the Employer or following termination of his employment hereunder for any reason, to any person (other than a person to whom disclosure is necessary in connection with the performance of his duties as an employee of Employer) any material confidential information concerning the Employer or any of its affiliates, including, but not limited to, strategic plans, customer lists, contract terms, financial costs, pricing terms, sales data or business opportunities whether for existing, new or developing businesses. (b) Non-Competition. During the term of employment and for a period of twelve months following termination of employment for any reason (the "Severance Period"), Executive will not directly or indirectly own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business which is in competition with any business conducted by Employer or any of its affiliates in any state in which Employer or any of its affiliates is conducting business on the date of Executive's termination of employment, provided that ownership of 5% or less of the voting stock of any public corporation shall not constitute a violation hereof. (c) Non-Solicitation. During the term of Executive's employment and during the Severance Period, Executive will not (i) directly or indirectly solicit from any entity, organization or person that is doing business with Employer or any of its affiliates, or from which the Employer or any of its affiliates was soliciting business at the time of the termination of employment or of which Executive knew or had reason to know that Employer or any of its affiliates was going to solicit business at the time of Executive's termination, or (ii) employ, solicit for employment, or advise or recommend to any other persons that they employ or solicit for employment, any employee of Employer or any of its affiliates. (d) Consultation. Executive shall, at Employer's written request during the Severance Period, cooperate with

AGREEMENT This Agreement is entered into as of the 17th day of June, 1999, by and between James E. McGarry ("Executive") and Coventry Health Care, Inc., a Delaware corporation with its principal place of business at 6705 Rockledge Drive, Suite 900, Bethesda, MD 20817 ("Employer"). WHEREAS, Executive and Employer have entered into an employment relationship and desire to enter into a written agreement in which Executive agrees to confidentiality, non-competition, non-solicitation and other provisions during the term of his employment and during a severance period thereafter in exchange for severance compensation in the event Executive is terminated without cause by Employer. NOW, THEREFORE, in consideration of the premises hereof and of the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. RESTRICTIVE COVENANTS. (a) Confidential Information. Executive agrees not to disclose, either during the time he is employed by the Employer or following termination of his employment hereunder for any reason, to any person (other than a person to whom disclosure is necessary in connection with the performance of his duties as an employee of Employer) any material confidential information concerning the Employer or any of its affiliates, including, but not limited to, strategic plans, customer lists, contract terms, financial costs, pricing terms, sales data or business opportunities whether for existing, new or developing businesses. (b) Non-Competition. During the term of employment and for a period of twelve months following termination of employment for any reason (the "Severance Period"), Executive will not directly or indirectly own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business which is in competition with any business conducted by Employer or any of its affiliates in any state in which Employer or any of its affiliates is conducting business on the date of Executive's termination of employment, provided that ownership of 5% or less of the voting stock of any public corporation shall not constitute a violation hereof. (c) Non-Solicitation. During the term of Executive's employment and during the Severance Period, Executive will not (i) directly or indirectly solicit from any entity, organization or person that is doing business with Employer or any of its affiliates, or from which the Employer or any of its affiliates was soliciting business at the time of the termination of employment or of which Executive knew or had reason to know that Employer or any of its affiliates was going to solicit business at the time of Executive's termination, or (ii) employ, solicit for employment, or advise or recommend to any other persons that they employ or solicit for employment, any employee of Employer or any of its affiliates. (d) Consultation. Executive shall, at Employer's written request during the Severance Period, cooperate with Employer in concluding any matters in which Executive was involved during the term of his employment and will make himself available for consultation with Employer at reasonable times on matters of importance to Employer. 2. TERMINATION OF EMPLOYMENT. Employer may terminate Executive, with or without cause, at any time during the term of his employment. If Executive's employment is terminated by Employer for any reason other than Good Cause (as defined in Section 8 below):

(a) Employer shall during the Severance Period, continue to pay Executive an amount equal to (i) Executive's base salary at the time of termination of employment; and (ii) that portion of Executive's Bonus based on achievement of budget and other operational performance factors, if the criteria is met. Such amount will be paid during the Severance Period in monthly or other installments, similar to those being received by Executive at the date of termination of employment, and will commence as soon as practicable following the date of termination. (b) During the Severance Period Executive and his spouse and family will continue to be covered by all Welfare Plans (as defined in Section 8 below), maintained by Employer in which he or his spouse or family were

(a) Employer shall during the Severance Period, continue to pay Executive an amount equal to (i) Executive's base salary at the time of termination of employment; and (ii) that portion of Executive's Bonus based on achievement of budget and other operational performance factors, if the criteria is met. Such amount will be paid during the Severance Period in monthly or other installments, similar to those being received by Executive at the date of termination of employment, and will commence as soon as practicable following the date of termination. (b) During the Severance Period Executive and his spouse and family will continue to be covered by all Welfare Plans (as defined in Section 8 below), maintained by Employer in which he or his spouse or family were participating immediately prior to the date of his termination as if he continued to be an employee of Employer; provided that, if participation in any one or more of such Welfare Plans is not possible under the terms thereof, Employer will provide substantially identical benefits to the extent possible. If, however, Executive obtains employment with another employer during the Severance Period, such coverage shall be provided until the earlier of: (i) the end of the Severance Period or (ii) the date on which the Executive and his spouse and family can be covered under the plans of a new employer without being excluded from full coverage because of any actual preexisting condition. Executive's eligibility for, and the Employer match to, the 401(k) Plan (the "401(k) Plan"), the Supplemental Executive Retirement Plan (the "SERP") and/or any other retirement savings program in which the Employee participates shall end at the date of termination of employment. Employee's balances in the SERP shall be distributed to him as soon as practicable, less tax withholdings, according to the terms of the SERP. (c) Executive shall not be entitled to payments during the Severance Period attributable to compensation for vacation periods he would have earned had his employment continued during the Severance Period or to unused vacation periods accrued as of the date of termination of employment. (d) During the Severance Period Executive shall not be entitled to reimbursement for fringe benefits such as car allowance, dues and expenses related to any club memberships, and expenses for professional services. Compensation under Section 2(a) and (b) is contingent upon Executive's compliance with Section 1. 3. TERMINATION BY EXECUTIVE. Executive may terminate his employment with Employer at any time upon sixty (60) days prior written notice. Upon such termination by Executive, the Employer shall pay the Executive only his base salary due through the date on which his employment is terminated at the rate in effect at the time of notice of termination. The Employer shall then have no further obligation to Executive under this Agreement, except for the payout of benefits already accrued under any Employee benefit plans or other employee benefits. 4. SETOFF. (a) With respect to Section 2, payments or benefits payable to or with respect to Executive or his spouse pursuant to this Agreement shall be reduced by the amount of any claim of Employer against Executive or his spouse or any debt or obligation of Executive or his spouse owing to Employer. (b) With respect to Section 2, payments or benefits payable to or with respect to Executive pursuant to this Agreement shall be reduced by any amount Executive may earn or receive from employment with another employer or other professional services rendered. Employee shall notify 2

Employer immediately in writing of the date upon which such services or other work commenced and shall provide Employer with such documentation as Employer shall require to determine the amount of any such setoff. Employee's failure to provide such written notice and documentation as required herein shall immediately release Employer from its obligations under this Agreement and Employer shall have the right to recover all amounts payable hereunder. 5. DEATH. If Executive dies during the Severance Period: (a) All amounts payable hereunder to Executive shall, during the remainder of the Severance Period, be paid to his surviving spouse. On the death of the survivor of Executive and his spouse, no further benefits will be paid

Employer immediately in writing of the date upon which such services or other work commenced and shall provide Employer with such documentation as Employer shall require to determine the amount of any such setoff. Employee's failure to provide such written notice and documentation as required herein shall immediately release Employer from its obligations under this Agreement and Employer shall have the right to recover all amounts payable hereunder. 5. DEATH. If Executive dies during the Severance Period: (a) All amounts payable hereunder to Executive shall, during the remainder of the Severance Period, be paid to his surviving spouse. On the death of the survivor of Executive and his spouse, no further benefits will be paid under the Agreement. (b) The spouse and family of Executive shall, during the remainder of the Severance Period, be covered under all Welfare Plans made available by Employer to Executive or his spouse immediately prior to the date of his death to the extent possible. Any benefits payable under this Section 5 are in addition to any other benefit due to Executive or his spouse or beneficiaries from Employer. 6. ENTIRE AGREEMENT. This instrument contains the entire agreement of the parties and supersedes all other prior agreements, employment contracts and understandings, both written and oral, express or implied, with respect to the subject matter of this Agreement and may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 7. APPLICABLE LAW. This Agreement shall be governed by the laws of the State of Maryland, without giving effect to the principles of conflicts of law thereof. 8. DEFINITIONS. For purposes of this Agreement: (a) "Good Cause" shall be deemed to exist if, and only if: (i) Executive engages in material acts or omissions constituting dishonesty, breach of fiduciary obligation or intentional wrongdoing, malfeasance or non-compliance with written directives approved by the Board of Directors which are demonstrably injurious to Employer; (ii) Executive is convicted of a violation involving fraud or dishonesty; or (iii) Executive fails to satisfy the conditions and requirements of his employment with Employer, and such failure by its nature is incapable of being cured, or such failure remains uncured for more than 30 days following receipt by Executive of written notice from Employer specifying the nature of the failure and demanding the cure thereof. For purposes of this paragraph (iii), inattention by Executive to his duties shall be deemed a failure of cure. Without limiting the generality of the foregoing, if Executive acted in good faith and in a manner he reasonably believed to be in, and not opposed to, the best interest of Employer and had no reasonable 3

cause to believe his conduct was unlawful in connection with any action taken by Executive in connection with his duties, it shall not constitute Good Cause. (b) "Welfare Plans" shall mean any health and dental plan, disability plan, survivor income plan and life insurance plan or arrangement currently or hereafter made available by Employer in which Executive is eligible to participate. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first written above.

cause to believe his conduct was unlawful in connection with any action taken by Executive in connection with his duties, it shall not constitute Good Cause. (b) "Welfare Plans" shall mean any health and dental plan, disability plan, survivor income plan and life insurance plan or arrangement currently or hereafter made available by Employer in which Executive is eligible to participate. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first written above.
/s/ JAMES E. MCGARRY ---------------------------------------James E. McGarry

COVENTRY HEALTH CARE, INC.
By:/s/ THOMAS P. MCDONOUGH ---------------------------------------Thomas P. McDonough Executive Vice President and Chief Operating Officer

McGarry 4

Exhibit 11.1
Coventry Health Care, Inc. Computation of Net Earnings Per Share Quarter ended June 30, 1999 ------------------------------------------------Income Shares P (Numerator) (Denominator) ------------------------------------------------$9,157 ------------------$9,157 58,952 762 78 4,510 332 ------------------------------------------------$9,489 64,302

Net Income Basic EPS Effect of Dilutive Securities Options and warrants Convertible preferred stocks Convertible notes Interest on convertible notes

Diluted EPS

Net loss Basic EPS

Quarter ended June 30, 1998 ------------------------------------------------Loss Shares Pe (Numerator) (Denominator) A ------------------------------------------------($27,756) ------------------($27,756) 58,592

Six months ended June 30, 1999 ------------------------------------------------Income Shares Pe (Numerator) (Denominator) A -------------------------------------------------

Exhibit 11.1
Coventry Health Care, Inc. Computation of Net Earnings Per Share Quarter ended June 30, 1999 ------------------------------------------------Income Shares P (Numerator) (Denominator) ------------------------------------------------$9,157 ------------------$9,157 58,952 762 78 4,510 332 ------------------------------------------------$9,489 64,302

Net Income Basic EPS Effect of Dilutive Securities Options and warrants Convertible preferred stocks Convertible notes Interest on convertible notes

Diluted EPS

Net loss Basic EPS

Quarter ended June 30, 1998 ------------------------------------------------Loss Shares Pe (Numerator) (Denominator) A ------------------------------------------------($27,756) ------------------($27,756) 58,592

Net Income Basic EPS Effect of Dilutive Securities Options and warrants Convertible preferred stocks Convertible notes Interest on convertible notes

Six months ended June 30, 1999 ------------------------------------------------Income Shares Pe (Numerator) (Denominator) A ------------------------------------------------$17,450 ------------------$17,450 58,902 737 39 4,515 848 ------------------------------------------------$18,298 64,193 -------------------------------------------------

Diluted EPS

Net loss Basic EPS

Six months ended June 30, 1998 ------------------------------------------------Loss Shares Pe (Numerator) (Denominator) A ------------------------------------------------($23,049) ------------------($23,049) 45,970

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ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF COVENTRY HEALTH CARE, INC. FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000

ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF COVENTRY HEALTH CARE, INC. FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS BASIC EPS DILUTED

3 MOS DEC 31 1999 APR 01 1999 JUN 30 1999 243,613 283,697 66,835 (17,129) 0 458,494 90,843 (52,734) 997,728 456,867 42,358 0 5 594 455,935 997,728 0 531,831 0 522,205 (7,480) 782 692 16,414 7,257 9,157 0 0 0 9,157 0.16 0.15


				
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