UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
) Master File No.
IN RE PARACELSUS CORP. )
SECURITIES LITIGATION )
) H-96-3464 (EW)
)
JAMES G. CAVEN, derivatively on behalf of )
Champion Healthcare Corporation, a Delaware )
Corporation, and alternatively on behalf of )
himself and all others similarly situated, )
)
Plaintiff, )
)
vs. )
)
CHARLES R. MILLER, JAMES G. )
VANDEVENDER, RONALD R. )
PATTERSON, MANFRED GEORGE )
KRUKEMEYER, R.J. MESSENGER, )
JAMES T. RUSH, PARACELSUS )
HEALTHCARE CORPORATION, )
a California corporation, PARK-HOSPITAL )
GmbH, a German corporation, )
)
Defendants. )
)
)
And )
)
PARACELSUS HEALTHCARE )
CORPORATION, a California corporation, )
CHAMPION HEALTHCARE )
CORPORATION, a Delaware corporation, )
)
Nominal Defendants. )
)
SETTLEMENT AGREEMENT
This Settlement Agreement is made and entered into this 17th day of March
1999, by and between James G. Caven and Robert Orovitz, derivatively on
behalf of Champion Healthcare Corporation and double derivatively on behalf
of Paracelsus Healthcare Corporation; Paracelsus Healthcare Corporation;
the former shareholders of Champion Healthcare Corporation identified in
the list attached as Exhibit A (the "Champion Shareholders"); Park-Hospital
GmbH, a German corporation; Donaldson Lufkin and Jenrette Securities
Corporation; Bears Stearns & Co.; Smith Barney, Inc.; and ABN AMRO Chicago
Corporation; Manfred George Krukemeyer; Charles R. Miller; James G.
VanDevender; Ronald R. Patterson; R.J. Messenger; James T. Rush; Robert C.
Joyner; Michael D. Hofmann; Christian A. Lange; and Scott K. Barton, acting
by and through their respective undersigned counsel.
IN CONSIDERATION OF THE PREMISES AND MUTUAL COVENANTS HEREIN
CONTAINED, the parties agree as follows:
1. DEFINITIONS
1.1 "Champion" means Champion Healthcare Corporation, a Delaware
corporation.
1.2 "Paracelsus" means Paracelsus Healthcare Corporation, a California
corporation.
1.3 "Plaintiffs" means James G. Caven and Robert Orovitz, in their
derivative capacity on behalf of Champion.
1.4 "Released Individual" means Manfred George Krukemeyer, Charles R.
Miller, James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T.
Rush, Robert C. Joyner, Michael D. Hofmann, Christian A. Lange, or Scott K.
Barton.
1.5 "Released Individuals" means Manfred George Krukemeyer, Charles R.
Miller, James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T.
Rush, Robert C. Joyner, Michael D. Hofmann, Christian A. Lange, and Scott
K. Barton.
1.6 "Former Champion Management Member" means Charles R. Miller, James G.
VanDevender, or Ronald R. Patterson. "Former Champion Management Member"
shall have the same meaning as the term "Executive" defined in the Senior
Executive MoU.
1.7 "Former Champion Management Members" means Charles R. Miller, James G.
VanDevender, and Ronald R. Patterson. "Former Champion Management Members"
shall have the same meaning as the term "Executives" defined in the Senior
Executive MoU.
1.8 "Former Paracelsus Management Member" means R.J. Messenger, James T.
Rush, or Robert C. Joyner.
1.9 "Former Paracelsus Management Members" means R.J. Messenger, James T.
Rush, and Robert C. Joyner.
1.10 "Park" means Park-Hospital GmbH.
1.11 "DLJ" means Donaldson, Lufkin and Jenrette Securities Corporation;
Bear, Stearns & Co., Inc.; Smith Barney, Inc.; and ABN AMRO Chicago
Corporation, on their own behalf and on behalf of the other members of the
underwriting syndicate for the public offering of Paracelsus stock in
conjunction with the Champion/Paracelsus merger.
1.12 "Settling Party" means Plaintiffs, Champion, Paracelsus, Park, the
Champion Shareholders, DLJ, Manfred George Krukemeyer, Charles R. Miller,
James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T. Rush,
Michael D. Hofmann, Christian A. Lange, Robert C. Joyner, or Scott K.
Barton.
1.13 "Settling Parties" means Plaintiffs, Champion, Paracelsus, Park, the
Champion Shareholders, DLJ, Manfred George Krukemeyer, Charles R. Miller,
James G. VanDevender, Ronald R. Patterson, R.J. Messenger, James T. Rush,
Michael D. Hofmann, Christian A. Lange, Robert C. Joyner, and Scott K.
Barton.
1.14 "Related Parties" means a person's or entity's present, former, or
future employees, officers, directors, partners, principals, parents,
subsidiaries, affiliates, agents, attorneys, heirs, personal or legal
representatives, predecessors, successors, or assigns.
1.15 "Litigation" means collectively (i) the shareholder actions filed in
California state court under the captions GAONKAR V. PARACELSUS, ET AL.,
No. BC 158899 (Cal. Super. Ct., Los Angeles Cty.), and PRESCOTT V.
PARACELSUS, ET AL., No. BC 158979 (Cal. Super. Ct., Los Angeles Cty.); (ii)
the shareholder small claims suit filed in South Orange County Municipal
Court in California under the caption HUTCHENS V. PARACELSUS, ET AL., No.
SC38166; (iii) the shareholder action filed in Texas state court under the
caption ESSEX IMPORTS V. PARACELSUS, ET AL., No 96-51864 (Harris Cty. Dist.
Ct.); (iv) the shareholder actions that are pending in the United States
District Court for the Southern District of Texas consolidated under the
caption IN RE PARACELSUS CORP. SEC. LITIG., Master File No. H-96-3464 (EW)
(S.D. Tex.) (the "Consolidated Class Action"); (v) the shareholder
derivative actions that are pending in the United States District Court for
the Southern District of Texas under the captions CAVEN V. MILLER, No. H-
96-CV-4291 (EW) (S.D. Tex.), and OROVITZ V. MILLER, No. H-97-2752 (EW)
(S.D. Tex.) (the "Derivative Actions"); (vi) the shareholder action pending
in the Delaware Chancery Court under the caption MOLINARI V. MILLER, ET
AL., C.A. No. 14945 (Del. Ch. Ct., New Castle Cty.); and (vii) any other
litigation or investigatory proceedings arising from the merger of
Paracelsus and Champion and the related public offerings.
1.16 "Released Claims" shall mean and include any and all claims, causes of
action, suits, demands, rights, liabilities, damages, losses, fees, costs,
or expenses, including, however described or nominated, but not limited to,
claims for negligence, gross negligence, professional negligence, breach of
duty of care, breach of duty of candor, and/or breach of duty of loyalty,
fraud, breach of fiduciary duty, malpractice, breach of contract, negligent
misrepresentation, corporate waste, mismanagement, unjust enrichment,
violations of any state or federal statutes, rules or regulations and any
Unknown Claims as defined below, that have been or could have been asserted
by any Settling Party, directly, derivatively or otherwise, against any
other Settling Party arising out of, relating to, or in connection with any
of the facts, circumstances, allegations, claims, causes of action,
representations, statements, reports, disclosures, transactions, events,
occurrences, acts, omissions, or failures to act, of whatever kind or
character whatsoever, irrespective of the state of mind of the actor
performing or omitting to perform the same, alleged in any pleading,
amended pleading, argument, complaint, amended complaint, brief, motion,
report, or filing in the Litigation except for the Excluded Claims as
defined below. Released Claims also include any and all rights of
Paracelsus to seek repayment of the amounts paid for the benefit of the
Released Individuals for liability, reasonable costs and expenses,
including reasonable attorneys' fees, costs, and expenses incurred through
the Effective Date in connection with the Litigation and related matters.
1.17 "Unknown Claims" means any claim that any Settling Party did not
suspect to exist in his, her, or its favor on the Effective Date that, if
known to him, her, or it, might have affected his, her, or its settlement
with and release of some or all of the Settling Parties, or might have
affected his, her, or its decision not to object to this Settlement
Agreement.
1.18 "Excluded Claims" means (i) any and all claims arising out of breaches
of this Settlement Agreement, including but not limited to those matters
referenced in paragraph 7.1, and the Park/Champion Settlement; (ii) any and
all claims arising after the Effective Date for indemnification or
advancement of costs for any claim brought by Paracelsus against any
Released Individual for which such Released Individual would have been
entitled to indemnification under the insurance policies released in paragraph
7.2 hereof; (iii) any and all claims arising after the Effective Date for
breaches of any joint defense agreement in connection with the Litigation
and related matters; (iv) any and all claims arising from the Senior
Executive MoU, as amended by this Settlement Agreement; and (v) any and all
claims for indemnification of reasonable costs and expenses, including
reasonable attorneys' fees incurred before the Effective Date in connection
with the Litigation and related matters, except for any such claims by or
against DLJ.
1.19 "Effective Date" means the first business day ten (10) days after all
the conditions set forth in paragraph 7.11 of this Settlement Agreement have
been fully satisfied.
1.20 "Class MoU" means the Memorandum of Understanding, dated March __,
1999, setting forth the terms of settlement in the Consolidated Class
Action.
1.21 "Park/Champion Settlement" means that certain settlement agreement
between the Champion Shareholders, Park, Dr. Manfred G. Krukemeyer, and
Paracelsus, dated March __, 1999, a copy of which is attached as Exhibit B.
1.22 "Senior Executive MoU" means the Memorandum of Understanding, dated
November 25, 1998, between Paracelsus Healthcare Corporation and Charles R.
Miller, James G. VanDevender, and Ronald R. Patterson, a copy of which is
attached as Exhibit C.
1.23 "Notice" means the Notice of Pendency of Class and Derivative Actions,
Proposed Settlement of Class and Derivative Actions, Settlement Hearings,
and Right to Appear, in a form to be mutually agreed on by all parties.
1.24 "Record Date" means the date on which the Court enters an order
preliminarily approving the settlement set forth in this Settlement
Agreement.
1.25 "Settlement Hearing" means the hearing to be held by the Court to
consider final approval of the settlement pursuant to Rule 23.1 of the
Federal Rules of Civil Procedure.
1.26 The terms "Additional Payment," "Additional Payment Contribution,"
"Sale of the Company," and "Bonus Payment Date" shall be defined as
provided in the Senior Executive MoU.
2. SETTLEMENT PURPOSES ONLY
This Settlement Agreement is for settlement purposes only, and
notwithstanding anything else in this Agreement, each of the Released
Individuals, Park, Paracelsus, and DLJ denies any wrongdoing, fault,
violation of law, or liability of any kind whatsoever. Neither the fact
of, nor any provision contained in, this Agreement, nor any action taken
hereunder, shall constitute, be construed as, or be admissible in evidence
as an admission in any proceeding (judicial, administrative, or otherwise)
of any claim or any fact of any wrongdoing, fault, violation of law, or
liability of any kind on the part of any Released Individual, Park,
Paracelsus, or DLJ.
3. SETTLEMENT PROVISIONS SPECIFIC TO PARK
AND MANFRED GEORGE KRUKEMEYER
3.1 The Park/Champion Settlement is hereby incorporated by reference. The
Released Individuals who are not parties to the Park/Champion Settlement do
not, by virtue of their agreement hereto, agree to the terms of the
Park/Champion Settlement, even though it is incorporated by reference into
this Settlement Agreement.
3.2 Park's transfer of 9.865 million shares of Paracelsus common stock as
provided in the Park/Champion Settlement is made on behalf and for the
benefit of Park and Dr. Manfred G. Krukemeyer.
3.3 As provided in paragraph VIII.B. of the Park/Champion Settlement,
effective upon the transfer of shares from Park to the Champion
Shareholders pursuant to paragraph I.A. of the Park/Champion Settlement,
Paracelsus and the Champion Shareholders hereby assign to Park any and all
claims or causes of action that Paracelsus and the Champion Shareholders
may have against its independent accountants arising from the work that the
independent accountants performed in connection with the merger of Champion
and pre-merger Paracelsus and in connection with any and all services that
the independent accountants provided to Paracelsus before the merger. In
connection with such assignment, Park shall hold Paracelsus and all other
parties receiving releases in this Agreement (including all Released
Individuals), the Park/Champion Settlement, and the settlement of the
Consolidated Class Action harmless from any liability, costs, and expenses,
including reasonable legal fees, they may incur as a result of Park's
pursuit of such assigned claims and causes of action. In addition, to the
extent Paracelsus or any of the other parties held harmless by Park are
required to pay amounts to the independent accountants in connection with
such assigned claims and causes of action, Paracelsus and such other
parties may at their option require that any recovery due Park from the
independent accountants be reduced by such amounts.
3.4 As of the Effective Date, Paracelsus releases Dr. Manfred G.
Krukemeyer from any and all obligations, contractual or otherwise, arising
out of or in any way related to any undertaking to repay reasonable costs
advanced or to be advanced by or on behalf of Paracelsus in connection with
the Litigation and related matters, and Paracelsus agrees that all
reasonable costs and expenses, including reasonable attorneys' fees, costs
and expenses incurred by Dr. Krukemeyer before the Effective Date (and paid
or to be paid by Paracelsus) in connection with the Litigation and related
matters shall not be subject to a claim for repayment. Such undertakings
specifically include, but are not limited to, any express or implied
undertaking that may be included in: (i) the November 18, 1996 Letter of
Undertaking executed on behalf of Dr. Manfred G. Krukemeyer; (ii) the
Indemnity and Insurance Coverage Agreement, dated August 16, 1996, between
Dr. Manfred G. Krukemeyer and Paracelsus; (iii) Paracelsus's articles of
incorporation or bylaws; (iv) California law; or (v) Texas law.
3.5 Park and Dr. Manfred G. Krukemeyer agree to take no position with
respect to an application by Plaintiffs' counsel for an award of attorneys'
fees not in excess of two million dollars ($2,000,000.00) plus
reimbursement of reasonable and necessary expenses.
4. SETTLEMENT PROVISIONS SPECIFIC TO THE FORMER
PARACELSUS MANAGEMENT MEMBERS, CHRISTIAN A. LANGE,
MICHAEL D. HOFMANN, AND SCOTT K. BARTON
4.1 As of the Effective Date, each Former Paracelsus Management Member and
Paracelsus mutually release each other from any and all obligations,
contractual or otherwise, either party may have now or in the future
arising out of or in any way related to Paracelsus's Supplemental Executive
Retirement Plan, effective January 1, 1996, as amended (the "SERP"), or any
other retirement plan, except that Paracelsus shall make payments to Joyner
of $59,780.84 due April 1, 1999; $58,907.62 due July 1, 1999; and $42,323.
91 due October 1, 1999, arising under paragraph 3 of the Agreement, dated June
12, 1997, between Paracelsus and Robert C. Joyner (the "Joyner Agreement"),
as modified herein.
4.2 As of the Effective Date, R.J. Messenger and Paracelsus mutually
release each other from any and all obligations, contractual or otherwise,
arising out of or in any way related to the Employment Agreement, dated
July 17, 1996, between R.J. Messenger and Paracelsus, including, but not
limited to, Paracelsus's obligation to pay R.J. Messenger a base salary and
annual performance bonuses and to provide him with any long-term incentive
or other benefits and any obligations arising out of the Management Rights
Agreement, and such Employment Agreement shall terminate. R.J. Messenger
shall not exercise, pledge, hypothecate, or otherwise use as security, or
transfer, convey, sell, trade, assign, or otherwise dispose of the Value
Options and Market Options described in paragraph 3(c) of the Employment
Agreement, dated July 17, 1996, between R.J. Messenger and Paracelsus. As
of the Effective Date, the Value Options and Market Options described in
paragraph 3(c) of the Employment Agreement, dated July 17, 1996, between R.J.
Messenger and Paracelsus without further action shall be released and
canceled and such options shall terminate.
4.3 R.J. Messenger and Paracelsus shall not terminate the Letter
Agreement, dated April 11, 1997, between R.J. Messenger and Paracelsus
before the Effective Date. As of the Effective Date, R.J. Messenger and
Paracelsus mutually release each other from any and all obligations,
contractual or otherwise, arising out of or in any way related to such
Letter Agreement and such Letter Agreement shall terminate.
4.4 As of the Effective Date, the Former Paracelsus Management Members,
Christian A. Lange, and Michael D. Hofmann release any and all rights each
of them has or may have arising out of or in any way related to the
Indemnity and Insurance Coverage Agreements, dated August 16, 1996, between
him and Paracelsus and such agreements shall terminate and their provisions
shall be null and void.
4.5 As of the Effective Date, James T. Rush and Paracelsus mutually
release each other from any and all obligations, contractual or otherwise,
arising out of or in any way related to the Consulting Agreement, dated
August 16, 1996, between Paracelsus and James T. Rush, including, but not
limited to, Paracelsus's obligation to pay James T. Rush monthly
compensation pursuant to paragraph 4 of that Consulting Agreement.
4.6 James T. Rush and Paracelsus shall not terminate the Letter Agreement,
dated April 14, 1997, between James T. Rush and Paracelsus before the
Effective Date. As of the Effective Date, James T. Rush and Paracelsus
mutually release each other from any and all obligations, contractual or
otherwise, arising out of or in any way related to such Letter Agreement
and such Letter Agreement shall terminate.
4.7 James T. Rush shall not execute, pledge, hypothecate, or otherwise use
as security, or transfer, convey, sell, trade, assign or otherwise dispose
of the 107,000 options exercisable at a price of $.01 per share he received
pursuant to the Non-Qualified Stock Option Agreement between Rush and
Paracelsus, dated August 9, 1996. As of the Effective Date, such 107,000
options without further action shall be released and canceled and such
options shall terminate.
4.8 As of the Effective Date, Paracelsus releases each Former Paracelsus
Management Member, Christian A. Lange, Michael D. Hofmann, and Scott K.
Barton from any and all obligations, contractual or otherwise, arising out
of or in any way related to any undertaking to repay reasonable costs
advanced or to be advanced by or on behalf of Paracelsus in connection with
the Litigation and related matters, and Paracelsus agrees that all
reasonable costs and expenses, including reasonable attorneys' fees, costs
and expenses incurred by these individuals before the Effective Date (and
paid or to be paid by Paracelsus) in connection with the Litigation and
related matters shall not be subject to a claim for repayment. Such
undertakings specifically include, but are not limited to, any express or
implied undertaking that may be included in: (i) the November 18, 1996
Letter of Undertaking executed on behalf of James T. Rush and Scott K.
Barton; (ii) the Settlement Agreement and Release between Paracelsus and
Scott K. Barton, dated April 14, 1997; (iii) the November 18, 1996 Letter
of Undertaking executed on behalf of R.J. Messenger; (iv) the November 18,
1996 Letter of Undertaking executed on behalf of Michael D. Hofmann; (v)
the November 18, 1996 Letter of Undertaking executed on behalf of Christian
A. Lange; (vi) the April 11, 1997 Letter Agreement between Paracelsus and
R.J. Messenger; (vii) the February 4, 1997 Letter of Undertaking executed
by Robert C. Joyner; (viii) the Indemnity and Insurance Coverage
Agreements, dated August 16, 1996, between Paracelsus and each Former
Paracelsus Management Member, Christian A. Lange, and Michael D. Hofmann;
(ix) Paracelsus's articles of incorporation or bylaws; (x) California law;
or (xi) Texas law.
4.9 Neither any Former Paracelsus Management Member nor Christian A.
Lange, or Michael D. Hofmann shall disclose to any person or entity other
than counsel or an authorized director, officer, employee, or agent of
Paracelsus any confidential business or financial information about
Paracelsus or any of its affiliates unless required by law. Neither any
Former Paracelsus Management Member nor Christian A. Lange or Michael D.
Hofmann shall waive any privilege, immunity, or right of non-disclosure,
including attorney-client privilege, belonging to Paracelsus or its
affiliates or is authorized to do so.
4.10 Except as otherwise expressly provided, this Settlement Agreement
(including any release provided hereunder) does not affect or limit any
rights under the Settlement Agreement and Release between Paracelsus and
Scott K. Barton, dated April 14, 1997.
4.11 As of the Effective Date, Robert C. Joyner and Paracelsus shall
mutually release each other from any and all obligations, contractual or
otherwise, arising out of or in any way related to the Joyner Agreement and
such agreement shall terminate, except that (a) Paracelsus shall make such
payments arising under the Joyner Agreement as provided in paragraph 4.1
hereof and (b) the releases provided in paragraphs 5 and 6 (but not the
provisions of subparagraph 6(a)) of the Joyner Agreement shall remain valid
and enforceable.
4.12 Robert C. Joyner shall not execute, pledge, hypothecate, or otherwise
use as security, or transfer, convey, sell, trade, assign or otherwise
dispose of the remaining 80,933 options exercisable at a price of $.01 per
share described in paragraph3 of the Employment Agreement, dated July 17,
1996, between with Paracelsus and Robert C. Joyner. As of the Effective
Date, such 80,933 options without further action shall be released and
canceled and such options shall terminate.
4.13 Michael D. Hofmann shall not execute, pledge, hypothecate, or
otherwise use as security, or transfer, convey, sell, trade, assign or
otherwise dispose of the 56,000 options exercisable at a price of $.01 per
share he received pursuant to the Non-Qualified Stock Option Agreement
between Hofmann and Paracelsus, dated August 9, 1996. As of the Effective
Date, such 56,000 options without further action shall be released and
canceled and such options shall terminate.
4.14 Christian A. Lange shall not execute, pledge, hypothecate, or
otherwise use as security, or transfer, convey, sell, trade, assign or
otherwise dispose of the 56,000 options exercisable at a price of $.01 per
share he received pursuant to the Non-Qualified Stock Option Agreement
between Lange and Paracelsus, dated August 9, 1996. As of the Effective
Date, such 56,000 options without further action shall be released and
canceled and such options shall terminate.
5. SETTLEMENT PROVISIONS SPECIFIC TO THE FORMER
CHAMPION MANAGEMENT MEMBERS
5.1 The Former Champion Management Members (or Executives) shall abide by
the Senior Executive MoU, which is hereby incorporated by reference, as
amended by the express provisions of this Settlement Agreement. To the
extent that any provisions or terms of the Senior Executive MoU are
inconsistent or conflict with any provisions or terms of this Settlement
Agreement, the terms and provisions of this Settlement Agreement shall
prevail; provided however, nothing in this Agreement shall be construed to
limit the scope of the form of release provided in paragraph 14 of the Senior
Executive MoU. The Released Individuals who are not parties to the Senior
Executive MoU do not, by virtue of their signatures hereto, agree to the
terms of the Senior Executive MoU, even though it is incorporated by
reference into this Settlement Agreement.
5.2 Paragraph 7 of the Senior Executive MoU is deleted. At the same time
each Former Champion Management Member relinquishes and terminates his
Value Options as provided in paragraph 6 of the Senior Executive MoU, such
Former Champion Management Member shall relinquish and terminate any rights
he may have to the Market Options described in paragraph 3(c)(ii) of his
Employment Agreement. Until such time, each Former Champion Management
Member shall not exercise, pledge, hypothecate, or otherwise use as
security or transfer, convey, sell, trade, assign, or otherwise dispose of
any rights he has to such Market Options.
5.3 Paragraph 4 of the Senior Executive MoU is deleted and all references
in the Senior Executive MoU to such paragraph 4, the Additional Payment, or
the Additional Payment Contribution are null and void. In addition, the
first sentence of paragraph 19 of the Senior Executive MoU is deleted.
Paracelsus and the Former Champion Management Members agree to modify the
Escrow Agreement, dated December 29, 1998, ("Escrow Agreement") between
them and Bank One, N.A., ("Escrow Agent"), to provide that the escrow shall
terminate on disbursement to the Former Champion Management Members of the
Salary & Bonus portions of the Deposit (as such terms are defined in Escrow
Agreement) and the delivery of the releases as provided in the Escrow
Agreement, and on such termination all remaining funds in the escrow,
including the Additional Payment Contribution and all interest accrued with
respect to any funds, shall be paid to Paracelsus.
5.4 Paragraph 16 of the Senior Executive MoU is deleted. Each Former
Champion Management Member waives any right or claim he may have to receive
any proceeds (including the distribution of moneys and redistribution of
common stock) arising from or related to settlement of the Litigation or a
settlement between Park and the Champion Shareholders; provided that, each
Former Champion Management Member does not waive any claim for indemnity or
right to be held harmless expressly arising from or not released in such
settlements. Nothing in this paragraph shall affect or limit in any way
the assignment of insurance rights provided in paragraph 7.2 hereof.
5.5 Each Former Champion Management Member waives any right or claim he
may have to receive employment benefits under paragraph 3(b) of his Employment
Agreement. Any references in the Senior Executive MoU to such paragraph 3(b)
are null and void. Nothing in this paragraph shall affect, reduce, or
diminish the amounts contributed to the Escrow Account on behalf of each
Former Champion Management Member referred to in paragraph 3 of the Senior
Executive MoU.
5.6 The first sentence of paragraph 23 of the Senior Executive MoU is
deleted. Each Former Champion Management Member agrees not to terminate
his employment with Paracelsus before the earlier of a Sale of the Company
or June 30, 1999, and, until such time, each Former Champion Management
Member shall perform his duties at the same scope and level of
responsibility as provided in his Employment Agreement, including those
duties, as applicable, described in the Management Rights Agreement.
Notwithstanding the foregoing, each Former Champion Management Member shall
be paid the funds contributed to the Escrow Account allocable to him
referred to in paragraph 3 of the Senior Executive MoU on the earlier of (i)
the Bonus Payment Date as provided in paragraph 18 of the Senior Executive MoU
or (ii) the effective date of a Sale of the Company as provided in paragraph
20 of the Senior Executive MoU. Without waiver of any rights that the
Former Champion Management Members may have under the Senior Executive MoU,
Paracelsus may terminate each Executive's employment for any reason with
effect after the Bonus Payment Date on giving 30 days' advance written
notice to such Executive. Each Executive may terminate his employment for
any reason with effect after June 30, 1999, on giving 30 days' advance
written notice to Paracelsus.
5.7 As of the Effective Date, Paracelsus releases each Former Champion
Management Member from any and all obligations, contractual or otherwise,
arising out of or in any way related to any undertaking to repay reasonable
costs advanced or to be advanced by or on behalf of Paracelsus in
connection with the Litigation and related matters, and Paracelsus agrees
that all reasonable costs and expenses, including reasonable attorneys'
fees, costs and expenses incurred by these individuals before the Effective
Date (and paid or to be paid by Paracelsus) in connection with the
Litigation and related matters shall not be subject to a claim for
repayment. Such undertakings specifically include, but are not limited to,
any express or implied undertaking that may be included in: (i) the
November 18, 1996 Letter of Undertaking executed on behalf of Charles R.
Miller, James G. VanDevender, and Ronald R. Patterson; (ii) the Indemnity
and Insurance Coverage Agreement, dated August 16, 1996, between each
Former Champion Management Member and Paracelsus; (iii) Paracelsus's
articles of incorporation or bylaws; (iv) California law; or (v) Texas law.
6. SETTLEMENT HEARING AND NOTICE
6.1 As soon as practical after the execution of this Settlement Agreement,
Plaintiffs and defendants Paracelsus, R.J. Messenger, James T. Rush,
Charles R. Miller, James G. VanDevender, Ronald R. Patterson, Manfred G.
Krukemeyer, and Park shall jointly submit the Settlement Agreement to the
Court and request the entry of a Hearing Order in a form to be mutually
agreed on by all parties, which shall:
(i) Preliminarily approve the proposed settlement set forth in this
Settlement Agreement and direct that a Settlement Hearing shall be
held to determine finally (a) whether the proposed settlement should
be approved as fair, adequate, and reasonable pursuant to Rule 23.1 of
the Federal Rules of Civil Procedure, (b) whether the terms and
conditions of the transfer of shares from Park to the Champion
Shareholders and from Paracelsus to Dr. Manfred G. Krukemeyer as
provided in the Park/Champion Settlement incorporated by reference
herein are fair as required for the exemption from registration under
Section 3(a)(10) of the Securities Act of 1933 to apply, (c) whether
judgment should be entered dismissing the Derivative Actions with
prejudice in accordance with this Settlement Agreement, (d) whether
the application for attorneys' fees and expenses by Plaintiffs'
counsel should be approved, and (e) whether a Final Order in a form to
be mutually agreed on by all parties should be entered;
(ii) Provide that Plaintiffs shall give notice of this settlement and
the Settlement Hearing (a) to all shareholders of Paracelsus as of the
Record Date by mailing a copy of the Notice by first class United
States mail to the addresses appearing on the records maintained by
Paracelsus's transfer agent for those entitled to receive notice of
this settlement and (b) to all Champion Shareholders to the extent
they are not current shareholders of Paracelsus by mailing a copy of
the Notice to their counsel, Brian S. Rosen of Weil, Gotshal & Manges,
LLP;
(iii) Direct that Plaintiffs shall consolidate mailing of the Notice
to the extent practicable with the provision of notice of the proposed
settlement of the Consolidated Class Action;
(iv) Direct Plaintiffs to cause a Summary Notice in a form to be
mutually agreed on by all parties to be published in the national
edition of THE WALL STREET JOURNAL approximately one week following
the mailing of the Notice; and
(v) Determine that the provision of notice described herein, including
the form of the Notice and the coordination or consolidation with the
provision of notice in the Consolidated Class Action satisfies the
requirements of Rule 23.1 of the Federal Rules of Civil Procedure and
Section 3(a)(10) of the Securities Act of 1933 and constitutes due and
sufficient notice of the Settlement Hearing and proposed settlement to
all persons affected by the settlement.
6.2 Paracelsus shall advance sufficient funds reasonably necessary to
provide for the administration of the preparation, printing, mailing, and
publication required in paragraph 6.1 of this Settlement Agreement; provided
however, that Plaintiffs and Plaintiffs' Counsel shall reimburse such funds
to Paracelsus in the event the conditions of paragraph 7.11 are not satisfied.
7. GENERAL SETTLEMENT PROVISIONS
7.1 Except as otherwise expressly provided, this Settlement Agreement, the
Class MoU, and any bar order entered pursuant to the terms of this
Settlement Agreement or the Class MoU are not intended to and do not create
any obligation on any Settling Party to indemnify Park or any Released
Individual nor do such agreements and orders, except as otherwise expressly
provided, in any way expand, affect, or abrogate any obligation or right
of indemnification or advancement of costs and expenses that may be owed to
Park or any Released Individual under any contract, Paracelsus's articles
of incorporation or bylaws, California law, or Texas law. Paracelsus shall
not indemnify Park, DLJ, or any Released Individual for any consideration
given in connection with this Settlement Agreement. Paracelsus shall
indemnify and hold harmless each Released Individual from and against all
liability, costs and expenses, including claims for contribution and
reasonable attorneys' fees and expenses, incurred in connection with any
claim brought by a current or former Paracelsus securities holder who (i)
either opted out or is not a member of the class in the Consolidated Class
Action and (ii) is not a party to this Settlement Agreement, arising out of
the subject matter of the Litigation or otherwise arising from the merger
of Paracelsus and Champion and the related public offerings. Paracelsus
shall also indemnify and hold harmless all Released Individuals from and
against all reasonable costs and expenses, including reasonable attorneys'
fees and expenses, (which does not include any fines, penalties,
disgorgements, or other monetary sanctions that may be imposed) in
connection with the currently pending and any other investigation or
enforcement actions by the Securities and Exchange Commission ("SEC") or
any other federal or state agency based on the subject matter of the
Litigation or otherwise arising from the merger of Paracelsus and Champion
and the related public offerings. The costs and expenses Paracelsus hereby
agrees to pay in connection with (i) SEC or other investigatory matters and
(ii) any claim brought by a current or former Paracelsus security holder
who is not a party to this Settlement Agreement and either opted out or is
not a member of the class in the Consolidated Class Action shall not be
subject to any undertaking to repay nor shall Paracelsus make any claim for
repayment thereof.
7.2 As of the Effective Date, each Released Individual assigns to
Paracelsus any rights he has arising out of or related to the National
Union Directors, Officers, and Corporate Liability Insurance Policy No.
483-79-23 and the Great American Insurance Policy No. DFX0009397, and each
Former Champion Management Member assigns to Paracelsus any rights he has
under National Union Directors, Officers, and Corporate Liability Insurance
Policy No. 482-23-95 arising out of or related to the Litigation or
otherwise arising from the merger of Paracelsus and Champion and the
related public offerings. Such assignments shall include any rights each
Released Individual may have under such insurance policies -- including any
rights under any settlement, escrow, or other agreement related to such
policies -- for costs of defense and losses incurred in connection with the
Litigation and related matters, including the value of all contract and
option rights released or canceled pursuant to this Settlement Agreement.
Each Released Individual agrees to take all reasonable steps (at
Paracelsus's reasonable request) necessary to permit Paracelsus to collect
amounts due under these polices based upon costs of settlement or losses
suffered by him. Paracelsus shall reimburse each Released Individual for
all costs and expenses, including actual lost wages and reasonable
attorneys' fees, costs and expenses, incurred pursuant to this provision.
Because the costs of settlement or losses suffered by the Released
Individuals and Paracelsus in connection with the defense and settlement of
the Litigation, including all defense costs, all cash settlement payments
in the Consolidated Class Action and the Derivative Actions, the value of
contract and option rights released and canceled, and the value of all
stock transferred, substantially exceeds the coverage amounts available
under National Union Directors, Officers, and Corporate Liability Insurance
Policy No. 483-79-23, National Union Directors, Officers, and Corporate
Liability Insurance Policy No. 482-23-95, and the Great American Insurance
Policy No. DFX0009397, the Released Individuals and Paracelsus intend that
pursuant to this assignment Paracelsus will have the right to obtain from
the insurers amounts equal to the full limits of these policies or such
other amounts as Paracelsus and the insurers may agree. In addition, each
Released Individual represents that, except as specified in this paragraph,
he has not and shall not assign any rights he may have arising out of or
relating to any of the insurance policies referred to in this paragraph.
7.3 Each Released Individual acknowledges that Paracelsus shall use
amounts received pursuant to the insurance rights assigned in paragraph 7.2
in part to fund its cash contribution to the settlement of the Consolidated
Class Action.
7.4 All of the Settling Parties agree that Plaintiffs' counsel is entitled
to, and will be awarded, their reasonable attorneys' fees and expenses in
connection with the litigation. Plaintiffs' counsel will make an
application to the Court for an award of attorneys' fees and expenses and
to establish the time, manner, and form of any such award. Paracelsus and
any party who has standing may oppose such application subject to the
limitation in paragraph 3.5 hereof. Paracelsus shall make payment of the full
amount of the award of attorneys' fees and expenses to Plaintiffs' counsel
awarded by the Court at such time and in the form and manner ordered by the
Court.
7.5 In consideration of the mutual covenants made in this Agreement and in
consideration of the contribution by DLJ of one million dollars
($1,000,000) to the settlement of the Consolidated Class Action, as of the
Effective Date, each Settling Party, as to every other Settling Party and
his, her, or its Related Parties, fully, finally, and forever settles and
releases any and all Released Claims, known or unknown, suspected or
unsuspected, contingent or non-contingent, whether or not concealed or
hidden, that now exist or heretofore have existed upon any theory of law or
equity now existing or coming into existence in the future, including, but
not limited to, conduct that is negligent, intentional, with or without
malice, or a breach of any duty, law, or rule, without regard to the
subsequent discovery or existence of such different or additional facts.
In addition, as of the Effective Date, Plaintiffs in their derivative
capacity on behalf of all Paracelsus shareholders release any and all
Released Claims, as described herein, as to each other Settling Party and
his, her, or its Related Parties. Plaintiffs shall not serve Robert C.
Joyner as a defendant in CAVEN V. ERNST & YOUNG, LLP, ET AL., No. 98-38338
(Harris Cty.) and shall dismiss all claims asserted against Joyner in such
action. In addition, all Settling Parties who are parties to the
Derivative Actions shall jointly seek the entry of a bar order in a form to
be mutually agreed on by the parties prohibiting the assertion of any
Released Claim (including claims for contribution) by any Settling Party,
any other party in the Litigation, or any shareholder in a derivative
capacity, against any other Settling Party and his, her, or its Related
Parties except as expressly provided in this Agreement, the Park/Champion
Settlement, or the Class MoU.
7.6 As of the Effective Date, each Settling Party, with respect to all
Released Claims potentially assertable against any other Settling Party and
his, her, or its Related Parties, expressly waives and relinquishes, to the
fullest extent permitted by law, the provisions, rights, and benefits of
Section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
As of the Effective Date, each Settling Party, with respect to all Released
Claims potentially assertable at any time, past or future, against any
other Settling Party and his, her, or its Related Parties, waives any and
all provisions, rights, and benefits conferred by any law of any state or
territory of the United States, or principle of common law that is similar,
comparable, or equivalent to Section 1542 of the California Civil Code.
7.7 Each Released Individual agrees that he will reasonably cooperate with
Paracelsus in connection with any formal or informal, ongoing, or future
investigation, litigation, or proceeding arising out of the subject matter
of the Litigation or otherwise arising from the merger of Paracelsus and
Champion and the related public offerings. Paracelsus shall reimburse each
Released Individual for all reasonable costs and expenses, including actual
lost wages and reasonable attorneys' fees and expenses, incurred in
connection with such cooperation. This agreement reasonably to cooperate
shall not constitute an agreement to waive any privilege or immunity.
Nothing in this Settlement Agreement shall prevent a Released Individual
from asserting any privilege or immunity. Nothing in this paragraph
prevents any Released Individual from cooperating with others in connection
with any civil, government, or other investigation, proceeding, or
litigation.
7.8 As a material inducement for each Settling Party to enter into this
Settlement Agreement, each Settling Party warrants and represents that, as
of the Effective Date, such Settling Party is not aware of any claims
against any other Settling Party that are not covered by the foregoing
releases. Such warranties and representations shall be enforceable after
the Effective Date. This paragraph shall not be construed to limit any
right of indemnity that may be held by any of the Released Individuals.
7.9 Each Settling Party warrants and represents that he, she, or it has
full authority to enter into this Settlement Agreement, to make the
releases set forth in this Settlement Agreement, and to enter into the
undertakings and obligations set forth in this Settlement Agreement. Each
Settling Party warrants and represents that he, she, or it has not assigned
his, her, or its respective claims to any other person or party. Such
warranties and representations shall be enforceable after the Effective
Date.
7.10 Each Settling Party warrants and represents that the person executing
this Settlement Agreement on his, her, or its behalf is fully authorized to
do so and that the authorized agents of each Settling Party have taken all
steps required by law or the Settling Party's bylaws to grant the signatory
said authority. In addition, each person executing this Settlement
Agreement warrants and represents that he or she is authorized to do so.
Such warranties and representations shall be enforceable after the
Effective Date.
7.11 The following constitute conditions to all obligations and releases
created and/or effected by this Settlement Agreement: (i) entry of a Final
Order in a form to be mutually agreed on by all parties dismissing with
prejudice all claims against the Settling Parties in the Derivative
Actions; (ii) entry of final orders dismissing all claims against the
Settling Parties in all other private civil actions comprising the
Litigation; (iii) receipt of any required court approval of the Settlement
Agreement, including all releases herein; (iv) receipt of any required
court approval of the proposed settlement agreement in the Consolidated
Class Action; (v) entry of final orders dismissing with prejudice all
claims in the Consolidated Class Action; and (vi) expiration of time for
appeal, or affirmance on appeal, of any order or other court action
contemplated by this paragraph 7.11.
7.12 Except as otherwise required under the Senior Executive MoU, all
disputes hereunder shall be subject to the continuing jurisdiction of the
United States District Court in which this matter is pending and which
approves of this Settlement Agreement.
7.13 Except as otherwise required under the Senior Executive MoU, if any
suit or proceeding shall be brought to enforce or interpret any provision
of this Settlement Agreement, any party hereto who prevails as to material
issues in such suit or proceeding shall be awarded that party's reasonable
attorney's fees, costs and expenses incurred in such suit or proceeding to
be paid by any party hereto against whom such prevailing party has
prevailed as to material issues therein.
7.14 Upon consummation of the transactions contemplated by this Settlement
Agreement, the August 1997 Tolling Agreement between Paracelsus, Park,
certain of the Champion Shareholders, the Released Individuals, and others
shall terminate as to Paracelsus, Park, and all Released Individuals.
7.15 All Settling Parties and their respective counsel agree to cooperate
fully and in good faith with one another (a) to complete expeditiously the
notices, forms of order, and all other documents contemplated by this
Agreement in forms mutually acceptable to all parties and (b) to seek Court
approval of this Settlement Agreement and to use their best efforts to
effect consummation of this Settlement Agreement and the settlement
provided for herein.
7.16 This Settlement Agreement shall be binding on and inure to the benefit
of all Settling Parties and their respective agents, executors,
representatives, heirs, successors, and assigns.
7.17 This Settlement Agreement may be executed in one or more counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same agreement.
7.18 This Settlement Agreement shall be construed in accordance with and
governed by the laws of the State of Texas without giving effect to any
conflict of laws provisions.
7.19 The section headings contained in this Settlement Agreement constitute
no substantive part thereof and in no way modify or affect the provisions
of this Settlement Agreement.
Dated: March __, 1999 JAMES G. CAVEN AND ROBERT OROVITZ
By: ___________________________
Larry R. Veselka
SMYSER KAPLAN & VESELKA, LLP
By: ___________________________
Daniel C. Girard
GIRARD AND GREEN, LLP
By: ____________________________
David Pastor
Peter A. Lagorio
GILMAN & PASTOR
By: ____________________________
Arthur N. Abbey
ABBEY, GARDY & SQUITIERI, LLP
Counsel for Plaintiffs James G. Caven
and Robert Orovitz
Dated: March __, 1999 PARACELSUS HEALTHCARE CORPORATION
By: __________________________
Title: __________________________
Dated: March __, 1999
DR. MANFRED G. KRUKEMEYER
Dated: March __, 1999
R.J. MESSENGER
Dated: March __, 1999
JAMES T. RUSH
Dated: March __, 1999
SCOTT K. BARTON
Dated: March __, 1999
CHRISTIAN A. LANGE
Dated: March __, 1999
MICHAEL D. HOFMANN
Dated: March __, 1999
ROBERT C. JOYNER
Dated: March __, 1999
CHARLES R. MILLER
Dated: March __, 1999
JAMES G. VANDEVENDER
Dated: March __, 1999
RONALD R. PATTERSON
Dated: March __, 1999 PARK-HOSPITAL GmbH
By: _______________________________
Dr. Heiner Meyer zu Losebeck
Managing Director
Dated: March __, 1999 DONALDSON, LUFKIN AND JENRETTE
SECURITIES CORPORATION,
BEAR STEARNS & CO., INC., SMITH BARNEY, INC., and ABN AMRO
CHICAGO CORPORATION
on their own behalf and on behalf of the other members of
the underwriting syndicate for the public offering of
Paracelsus Healthcare Corporation stock issued in
connection with the August 1996 merger
By: _________________________________
Gerard G. Pecht
FULBRIGHT & JAWORSKI, LLP
nsel for DLJ (as defined in the Agreement)
Dated: March __, 1999 THE CHAMPION SHAREHOLDERS
By: __________________________________
Brian S. Rosen
Weil, Gotshal & Manges LLP
Counsel for and on behalf of each of the Champion
Shareholders